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HomeMy WebLinkAbout937133 UCC FINANCING STATEMENT FOLLOW INSTRUCTIONS (front and back) CAREFULLY A. NAME & PHONE OF CONTACT AT FILER [optional] Cynthia Hastv 713.221.1552 B. SEND ACKNOWLEDGMENT TO: (Name and Address) Çynthia Hasty Bracewell & Giuliani LLP 711 Louisiana, Suite 2300 Houston, TX 77002 I RECEIVED 2/25/2008 at 9:46 AM RECEIVING # 937133 BOOK: 687 PAGE: 627 JEANNE WAGNER LINCOLN COUNTY CLERK, KEMMERER, WY 000627 L -1 THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 1. DEBTOR'S EXACT FULL LEGAL NAME-lnsertonlYQMdebtorname (1aor1 b) ·donotabbrevialeorcombine names 1a. ORGANIZATION'S NAME LLC 500 N. Loo FIRST NAME MIDDLE NAME SUFFIX CiTY STATE POSTAL CODE COUNTRY San Antonio TX 78232 USA 11. JURISDICTION OF ORGANIZATION 19. ORGANIZATIONAL ID #, If any Texas TX 0800818925 NONE 1c. MAILING ADDRESS 2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert onlY!1!l!! debtor name (2a or 2b). do not abbreviate or combine names 2a. ORGANIZATION'S NAME OR 2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 2c. MAILING ADDRESS CITY STATE POSTALCODE COUNTRY 2d. SEE INSTRUCTIONS I ;DD'L INFO RE 12e. TYPE OF ORGANIZATION 2f. JURISDICTION OF ORGANIZATION 2g. ORGANIZATIONAL ID #, if any ORGANIZATION n NONE DEBTOR I I I 3. S EC U R ED PARTY'S NAME (or NAME ofTOTAL ASSIGNEE of ASSIGNOR SIP) -Insert only !1!l!! secured party name (3a or3b) 3a. ORGANIZATION'S NAME OR Societe Generale, as Administrative A !ent under the Subordinated Credit Agreement dated January 31,2008 3b. INDIVIDUAL'S LAST NAME FIRST NAME MiDDLE NAME SUFFIX 3c. MAILING ADDRESS CITY STATE IPOSTAL CODE COUNTRY 1111 Baebv Street. Suite 2020 Houston TX 77002 USA 4. This FINANCING STATEMENT covers the following collateral: This Financing Statement is being filed to cover all of Debtor's interest now owned and hereafter acquired in and to the Collateral, as defined and described in the Mortgage attached hereto and incorporated herein for all purposes. Debtor 2 Lincoln County, WY International Association of Commercial Administrators (IAeA) FILING OFFICE COPY - UCC FINANCING STATEMENT (FORM UCC1) (REV. OS/22/02) / UCC FINANCING STATEMENT ADDENDUM FOLLOW INSTRUCTIONS (front and back) CAREFULLY 9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT Sa. ORGANIZATlON'S NAME OR Abraxas Operatine. LLC Sb. INDIVIDUAL'S LAST NAME ¡FIRST NAME MIDDLE NAME,SUFFIX 10.MISCELLANEOUS: 000628 THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 11. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME .In..rtonly MI name (11a or 11b). do not abbr.vlale or combine names 110. ORGANIZATION'S NAME OR 11 b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 11 c. MAILING ADDRESS CITY . STATE rOSTALCODE COUNTRY 11d. SEE INSTRUCTIONS I.ADD'L INFO RE 111e. iYPE OF ORGANIZATlON 11,. JURISDICTlON OF ORGANIZATION 11 g. ORGANIZATIONAL 10 #, If ony ORGANIZATiON I I I nNONE DeBTOR 12. I ADDITIONAL SECURED PARTY'S m r 1 ASSIGNOR SIP'S NAME. Insert only .RM namo (12a or 12b) 12a. ORGANIZATiON'S NAME OR 12b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 12c, MAILING ADDRESS CliY STATE POSTALCODE COUNTRY 13. This FINANCING STATEMENT covo"..D timber 10 be cut or l!? as-oxtraoled 16, Addltlono' collaleral d..crlpllon: collatorol, or Is flied e. .ø fixture flllns. 14. Description of roal estale: See the Mortgage attached hereto and incorporated herein for all purposes. 15, Namo and .ddre.. of a RECORD OWNER of abovo.described real estate Qf Doblar do.. nol hove e rocord Inlorool): 17. Check QDb/ II appUcablo and chock QDb/ ono box. Dobto, Is a n Trust or n Trusteo actlns with rospoct to property hold In ttu.t or n Decodenrs Eslo'o 18. Check QDb/ II oppllcable ond chock QDb/ ono box. = Debter Is 0 TRANSMmlNG UTILITY = Filod In connection with e Menufoctured-Home Tranooctlon - effocllve 30 yoars Filed In connection with a Publlc·Flnenco Tranoaction - effectlvo 30 year. FILING OFFICE COpy - UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV, 05/22/02) SUBORDINATED MORTGAGE. SECURITY AGREEMENT. FINANCING STATEMENT. FIXTURE FILING 000629 AND ASSIGNMENT OF PRODUCTION THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY AND FUTURE ADVANCE PROVISIONS. THIS INSTRUMENT COVERS THE INTEREST OF MORTGAGoR IN MINERALS OR THE LIKE (INCLUDING OIL AND GAS) BEFORE EXTRACTION AND THE SECURITY INTEREST CREATED BY THIS INSTRUMENT ATTACHES TO SUCH MINERALS AS EXTRACTED AND TO THE ACCOUNTS RESULTING FROM THE SALE THEREOF AT THE WELLHEAD OR WELLHEADS OF THE WELL OR WELLS LOCATED ON THE REAL PROPERTY HEREIN DESCRIBED. THIS INSTRUMENT COVERS THE INTEREST OF MORTGAGOR IN FIXTURES. THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS. PRODUCTS OF THE COLLATERAL ARE ALSO COVERED. ALL LIENS GRANTED BY, AND INDEBTEDNESS SECURED BY, THIS INSTRUMENT SHALL, TO THE EXTENT SET FORTH IN THE INTERCREDITOR AND SUBORDINATION AGREEMENT JANUARY 31, 2008 BY AND AMONG SOCIÉTÉ GÉNÉRALE, AS SENIOR ADMINISTRATIVE AGENT, SOCIÉTÉ GÉNÉRALE, AS SUBORDINATED ADMINISTRATIVE AGENT AND ABRAXAS ENERGY PARTNERS, L.P., BE SUBORDINATE AND JUNIOR TO ALL LIENS GRANTED BY GRANTOR TO SECURE THE SENIOR INDEBTEDNESS REGARDLESS OF THE RELATIVE PRIORITY OF SUCH LIENS, SUCH INTERCREDITOR AGREEMENT BEING INCORPORATED HEREIN AND BY THIS REFERENCE BEING MADE A PART HEREOF. A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE COLLATERAL AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS INSTRUMENT. ABRAXAS OPERATING, LLC (the Mortgagor, Debtor and Grantor) (Organizational LD. No. 0800818925) TO AND FOR THE BENEFIT OF SOCIÉTÉ GÉNÉRALE, as Administrative Agent (the Mortgagee, Secured Party and Grantee) January 31,2008 HOUST0N\2152927 1 000630 For purposes of filing this Subordinated Mortgage as a financing statement, Abraxas Operating, LLC is a limited liability company organized under the laws of the State of Texas, its organizational number is 0800818925, and its mailing address is 500 N. Loop 1604 East, Suite 100, San Antonio, Texas 78232, Attention: Chris E. Williford / Barbara M. Stuckey; Facsimile: 210-490-8816. The mailing address of the Mortgagee is 1111 Bagby Street, Suite 2020, Houston, Texas 77002, Attention: Cameron Null, Facsimile: 713-650-0824. *********************************** This instrument, prepared by Danielle Kruger, Bracewell & Giuliani LLP, 711 Louisiana, South Tower Pennzoil Place, Suite 2300, Houston, Texas 77002, (713) 221-1413, contains after- acquired property provisions and covers future advances and proceeds to the fullest extent allowed by applicable law. ATTENTION RECORDING OFFICER: This instrument is a mortgage of both real and personal property and is, among other things, a Security Agreement and Financing Statement under the Uniform Commercial Code in effect in the State of Wyoming. This instrument creates a lien on rights in or relating to lands of the Mortgagor which are described in Exhibit A hereto or in documents described in such Exhibit A. RECORDED DOCUMENT SHOULD BE RETURNED TO: Bracewell & Giuliani LLP 711 Louisiana, South Tower Pennzoil Place, Suite 2300 Houston, Texas 77002 A1tn: Cynthia Hasty HOUST0N\2152927 2 SUBORDINATED MORTGAGE. SECURITY AGREEMENT. FINANCING STATEMENT. FIXTURE FILING AND ASSIGNMENT OF PRODUCTION 000631. THIS SUBORDINATED MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT, FIXTURE FILING AND ASSIGNMENT OF PRODUCTION (this "Mortga~e") dated effective as of the 31st day of January 2008 (the "Effective Date"), is executed and delivered by ABRAXAS OPERATING, LLC, a Texas limited liability company (the "Mort~agor"), to and in favor of SOCIÉTÉ GÉNÉRALE (the "Mortgagee"), in its capacity as the administrative agent under the Credit Agreement (as hereinafter defined) and on behalf of the Credit Parties (as hereinafter defined). The addresses of the Mortgagor and the Mortgagee appear in Section 7.12 of this Mortgage. RECITALS A. This Mortgage is executed in connection with, and pursuant to the tenns of, that certain Subordinated Credit Agreement dated as of January 31, 2008 among Abraxas Energy Partners, L.P., a Texas limited partnership (the "Borrower"), the lenders party thereto from time to time (the "Lenders"), and the Mortgagee as administrative agent for the Lenders (the "Administrative Agent") (as amended, modified, restated or supplemented from time to time, the "Credit Agreement"). B. In connection with the Credit Agreement, the Borrower or any of its Subsidiaries (including the Mortgagor) may from time to time enter into one or more Hedge Contracts (as defined in the Credit Agreement) with a Lender or any of its Mfiliates (such counterparty being referred to herein as "Swap Counterparty", and together with the Mortgagee, the Lenders and the Administrative Agent collectiveiy referred to herein as the "Credit Parties"). C. It is a requirement under the Credit Agreement that the Mortgagor execute and deliver this Mortgage. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Mortgagor (a) makes this Mortgage in favor of the Mortgagee to secure the Obligations (as defined herein), including the obligations arising under Hedge Contracts with a Swap Counterparty, and (b) hereby agrees as follows: ARTICLE I Definitions 1.1 Collateral. "Collateral" means the Realty Collateral, Personalty Collateral and Fixture 1.2 "Contracts" means all contracts, agreements, operating agreements, fann-out or fann-in agreements, sharing agreements, mineral purchase agreements, contracts for the HOUSTON\2152927 3 000632 purchase, exchange, transportation, processing or sale of Hydrocarbons, rights-of-way, easements, surface leases, equipment leases, permits, franchises, licenses, pooling or unitization agreements, and unit or pooling designations and orders now or hereafter affecting any of the Oil and Gas Properties, Operating Equipment, Fixture Operating 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 of the Oil and Gas Properties, and all such contracts and agreements as they may be amended, restated, modified, substituted or supplemented from time-to-time. 1.3 "Event of Default" shall have the meaning set forth in Article V hereof 1.4 "Fixture Collateral" means all of the Mortgagor's interest now owned or hereafter acquired, in and to all Fixture Operating Equipment and all proceeds, products, renewals, increases, profits, substitutions, replacements, additions, amendments and accessions thereof, thereto or therefor. 1.5 "Fixture Operating Equipment" means any of the items described in the first sentence of the definition of "Operating Equipment" set forth below and which as a result of being incorporated into realty or structures or improvements located therein or thereon in such a manner that they no longer remain personalty but constitute fixtures under the laws of the state in which they are located. 1.6 "Hvdrocarbons" means oil, gas, coal seam gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, and all other liquid and gaseous hydrocarbons produced or to be produced in conjunction therewith from a well bore and all products, by-products, and other substances derived therefrom or the processing thereof, and all other minerals and substances produced in conjunction with such substances, including sulfur, geothermal steam, water, carbon dioxide, helium, and any and all minerals, ores, or substances of value and the products and proceeds therefrom. 1.7 "Maturitv Date" means January 31,2013. 1,8 "Note" means the "Note" as that term is defined in the Credit Agreement. 1.9 "Obligations" means (a) The "Obligations", as that term is defined in the Credit Agreement, including all indebtedness evidenced by the Notes, whether fixed or contingent, joint or several, direct or indirect, primary or secondary, and regardless of how created or evidenced; (b) All other indebtedness, obligations, and liabilities of the Mortgagor, the Borrower or any of its Subsidiaries arising under the Credit Agreement, this Mortgage, any Guaranty, any Hedge Contract with a Swap Counterparty, or any of the other Loan Documents; (c) All sums advanced or costs or expenses incurred by the Mortgagee or any of the other Credit Parties, which are made or incurred pursuant to, or allowed by, the terms of this Mortgage plus interest thereon from the date of the advance or incurrence until reimbursement of the Mortgagee or such Credit Party charged at the Reimbursement Rate; HOUST0N\2152927 4 000633 (d) All future advances or other value, of whatever class or for whatever purpose, at any time hereafter made or given by the Mortgagee or any of the other Credit Parties to the Mortgagor, the Borrower or any of its Subsidiaries under or pursuant to any Loan Document, whether or not the advances or value are given pursuant to a commitment, whether or not the advances or value are presently contemplated by the parties hereto, and whether or not the Mortgagor is indebted to any Credit Party at the time of such events; and (e) All renewals, extensions, modifications, amendments, rearrangements and substitutions of all or any part of the above whether or not the Mortgagor executes any agreement or instrument. 1.10 "Oil and Gas Property" or "Oil and Gas Properties" means (a) the oil and gas and/or oil, gas and mineral leases and leasehold interests, fee mineral interests, term mineral interests, participation interests, back-in or carried working interests, rights of first refusal, options, subleases, fannouts, royalties, overriding royalties, net profits interests, production payments and similar .interests or estates described in Exhibit A attached hereto and made a part hereof for all purposes, including the net revenue interests warranted in Exhibit A and any reversionary or carried interests relating to any of the foregoing, (b) all production units, and drilling and spacing units (and the Properties covered thereby) which may affect all or any portion of such interests including those units which may be described or referred to on Exhibit A and any units created by agreement or designation or under orders, regulations, rules or other official acts of any Federal, state or other governmental body or agency having jurisdiction, (c) the surface leases described in Exhibit A, (d) any and all non-consent interests owned or held by, or otherwise benefiting, the Mortgagor and arising out of, or pursuant to, any of the Contracts, (e) any other interest in, to or relating to (i) all or any part of the land described in Exhibit A, the land relating to, or described in, the leases set forth in Exhibit A or in the documents described in Exhibit A, or (ii) any of the estates, property rights or other interests referred to above, (f) any instrument executed in amendment, correction, modification, confirmation, renewal or extension of any of the estates, property rights, or other interests referred to above, (g) any and all rights, titles and interests of the Mortgagor (which are similar in nature to any of the rights, titles and interests described in (a) through (f) above) which are located on or under or which concern any Property or Properties located in counties referenced in Exhibit A hereto or counties in which a counterpart of this Mortgage is filed of record in the real property records of such county, and (h) all tenements, hereditaments and appurtenances now existing or hereafter obtained in connection with any of the aforesaid, including any rights arising under unitization agreements, orders or other arrangements, communitization agreements, orders or other arrangements or pooling orders, agreements or other arrangements. 1.11 "Operating Equipment" means all surface or subsurface machinery, equipment, facilities, supplies or other Property of whatsoever kind or nature now or hereafter located on any of the Property affected by the Oil and Gas Properties which are useful for the production, treatment, storage or transportation of Hydrocarbons, including all oil wells, gas wells, water wells, injection wells, casing, tubing, rods, pumping units and engines, christmas trees, derricks, separators, gun barrels, flow lines, pipelines, tanks, gas systems (for gathering, treating and compression), water systems (for treating, disposal and injection), supplies, derricks, wells, power plants, poles, cables, wires, meters, processing plants, compressors, dehydration units, HOUST0N\2152927 5 (:0063'4 lines, transformers, starters and controllers, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading racks, shipping facilities and all additions, substitutes and replacements for, and accessories and attachments to, any of the foregoing. Operating Equipment shall not include any items incorporated into realty or structures or improvements located therein or thereon in such a manner that they no longer remain personalty under the laws of the state in which they are located. 1.12 "Personaltv Collateral" means all of the Mortgagor's interest now owned or hereafter acquired in and to (a) all Operating Equipment, (b) all Hydrocarbons severed and extracted from or attributable to the Oil and Gas Properties, including oil in tanks and all other "as-extracted" collateral from or attributable to the Oil and Gas Properties, (c) all accounts (including accounts resulting from the sale of Hydrocarbons at the wellhead), contract rights and general intangibles, including all accounts, contract rights and general intangibles now or hereafter arising regardless of whether any of the foregoing is in connection with the sale or other disposition of any Hydrocarbons or otherwise, including all Liens securing the same, (d) all accounts, contract rights and general intangibles now or hereafter arising regardless of whether any of the foregoing is in connection with or resulting from any of the Contracts, including all Liens securing the same, (e) all proceeds and products of the Realty Collateral and any other contracts or agreements, (f) all information concerning the Oil and Gas Properties and all wells located thereon, including abstracts of title, title opinions, geological and geophysical information and logs, lease files, well files, and other books and records (including computerized records and data), (g) any deposit or time accounts with any Credit Party, including the Mortgagor's operating bank account and all funds and investments therein, (h) any options or rights of first refusal to acquire any Realty Collateral, and (i) all proceeds, products, renewals, increases, profits, substitutions, replacements, additions, amendments and accessions of, to or for any ofthe foregoing. 1.13 "Property" means any property of any kind, whether real, personal, or mixed and whether tangible or intangible. 1.14 "Realty Collateral" means all of the Mortgagor's interest now owned or hereafter acquired in and to the Oil and Gas Properties, including any access rights, water and water rights, and all unsevered and unextracted Hydrocarbons (even though the Mortgagor's interest therein may be incolTectly described in, or a description of a part or all of such interest may be omitted from, Exhibit A). 1.15 "Reimbursement Rate" means a per annum rate equal to the lesser of (a) the Maximum Rate and (b) the Adjusted Reference Rate in effect from time to time plus the Applicable Margin'for Reference Rate Advances in effect during an Event of Default. 1.16 "Securitv Termination" means such time at which each of the following events shall have occulTed on or prior to such time: (a) the indefeasible payment in full of all Obligations in cash and all other amounts payable under the Loan Documents, (b) the termination of all Hedge Contracts with the Credit Parties, and (c) the termination of all the Commitments. HOUST0N\2152927 6 000635 1.17 All other capitalized tenns defined in the Credit Agreement which are used in this Mortgage and which are not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. All meanings to defined terms, unless otherwise indicated, are to be equally applicable to both the singular and plural forms of the tenns defined. Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Mortgage, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise modified from time to time, unless otherwise specified. The words "hereof', "herein" and "hereunder" and words of similar import when used in this Mortgage shall refer to this Mortgage as a whole and not to any particular provision of this Mortgage. As used herein, the tenn "including" means "including, without limitation" . ARTICLE n Creation of Securitv 2.1 Conveyance and Grant of Lien. In consideration of the advances or extensions by the Credit Parties to Borrower of the funds or credit constituting the Obligations (including the making of the Advances), and in further consideration of the mutual covenants contained herein, the Mortgagor, by this Mortgage hereby GRANTS AND MORTGAGES to the Mortgagee, and its successors and assigns, with a general warranty oftitle, for the uses, purposes and conditions hereinafter set forth, all of its right, title and interest in and to the Realty Collateral, the Personalty Collateral, and the Fixture Collateral, WITH POWER OF SALE, unto the Mortgagee, its successors and assigns, to secure the payment and perfonnance of the Obligations on or prior to the Maturity Date for the benefit of the Mortgagee and the ratable benefit of the Credit Parties. TO HAVE AND TO HOLD the Realty Collateral, the Personalty Collateral and the Fixture Collateral unto the Mortgagee and its successors and assigns forever for the benefit of the Credit Parties, together with all and singular the rights, hereditaments and appurtenances thereto in anywise appertaining or belonging, to secure payment of the Obligations and the perfonnance of the covenants of the Mortgagor contained in this Mortgage, The Mortgagor does hereby bind itself, its successors and pennitted assigns, to warrant and forever defend all and singular the Realty Collateral, the Personalty Collateral and the Fixture Collateral unto the Mortgagee and its successors and assigns, against every Person whomsoever lawfully claiming or to claim the same, or any part thereof. Subject, however, to the condition that none of the Mortgagee or the Credit Parties shall be liable in any respect for the perfonnance of any covenant or obligation of the Mortgagor in respect of the Collateral. Any reference in Exhibit A to the name of a well shall not be construed to limit the Collateral to the well bore of such well or in the pro rata units. It is the Mortgagor's intention that this Mortgage cover the Mortgagor's entire interest in the lands, leases, units and other interests set forth in Exhibit A. HOUST0N\2152927 7 000636 2.2 Security Interest. For the same consideration and to further secure the Obligations, the Mortgagor hereby grants to the Mortgagee for its benefit and the ratable benefit of the other Credit Parties a security interest in and to the Collateral. 2.3 Assienment of Liens and Security Interests, For the same consideration and to further secure the Obligations, the Mortgagor hereby assigns and conveys to the Mortgagee for its benefit and the benefit of the other Credit Parties any security interests held by the Mortgagor arising under the Wyoming Unifonn Commercial Code-Secured Transactions (Wyo. Stat. 34.1- 9-101 et seq., as amended from time to time) and the liens granted to the Mortgagor. 2.4 AGGREGATE UNPAID PRINCIPAL AMOUNT. THE AGGREGATE UNPAID PRINCIPAL AMOUNT OF OBLIGATIONS AND ADVANCES SECURED HEREBY OUTSTANDING AT ANY PARTICULAR TIME (AFTER HAVING GIVEN EFFECT TO ALL ADVANCED AND ALL REPAYMENTS MADE PRIOR TO SUCH TIME) SHALL NOT AGGREGATE AN UNPAID PRINCIPAL AMOUNT IN EXCESS OF FIVE HUNDRED MILLION AND NO/tOO DOLLARS ($500,000,000.00). 2.5 Mineral Leasine Act. It is the specific intent of the parties hereto to fully comply with applicable law concerning Federal oil and gas leases. The parties hereto in good faith believe that a grant of a mortgage as security for the repayment of the Obligations is not the grant of an "interest" (as such tenn is defined and used in 43 C.P.R. § 3000.0-5(1) in Federal oil and gas leases to the Mortgagee or any Credit Party. In the event that the grant of this Mortgage as security for the repayment of the Obligations is detennined to grant such an "interest" in Federal oil and gas leases, then such grant shall be deemed to be made to, and shall inure to the benefit of, only those parties that may lawfully hold an interest in Federal oil and gas leases pursuant to the Mineral Leasing Act of 1920, 30 V.S.C. §§ 181 et seq. and the regulations promulgated thereunder, including 43 C.P.R. § 3102 and Subpart 3106, ARTICLE III Proceeds from Production 3.1 Assienment of Production. (a) In order to further secure the Obligations, the Mortgagor has assigned, transferred, conveyed and delivered and does hereby assign, transfer, convey and deliver unto the Mortgagee, effective as of the Effective Date, at 7:00 a,m. Houston, Texas time, all Hydrocarbons produced from, and which are attributable to, the Mortgagor's interest, now owned or hereafter acquired, in and to the Oil and Gas Properties, or are allocated thereto pursuant to pooling, communitization or unitization orders, agreements or designations, and all proceeds therefrom. (b) Subject to the provisions of subsection (f) below, all parties producing, purchasing, taking, possessing, processing or receiving any production from the Oil and Gas Properties, or having in their possession any such production, or the proceeds therefrom, for which they or others are accountable to the Mortgagee by virtue of the provisions of this Section 3.1, are authorized and directed by the Mortgagor to treat and HOUST0N\2152927 8 000637 regard the Mortgagee as the assignee and transferee of the Mortgagor and entitled in its place and stead to receive such Hydrocarbons and the proceeds therefrom. (c) The Mortgagor directs and instructs each of such parties to pay to the Mortgagee, for its benefit and the ratable benefit of the other Credit Parties, all of the proceeds of such Hydrocarbons until such time as such party has been furnished evidence that all of the Obligations have been paid and that the Lien evidenced hereby has been released; provided, however, that until the Mortgagee sh~ll have exercised the rights as herein to instruct such parties to deliver such Hydrocarbons and all' proceeds therefÌ'om directly to the Mortgagee, such parties shall be entitled to deliver such Hydrocarbons and all proceeds therefÌ'om to the Mortgagor for the Mortgagor's use and enjoyment, and the Mortgagor shall be entitled to execute division orders, transfer orders and other instruments as may be required to direct all proceeds to the Mortgagor without the necessity of joinder by the Mortgagee in such division orders, transfer orders or other instruments. the Mortgagor agrees to perfonn all such acts, and to execute all such further assignments, transfers and division orders, and other instruments as may be reasonably required or desired by the Mortgagee or any party in order to have said revenues and proceeds so paid to the Mortgagee. None of such parties shall have any responsibility for the application of any such proceeds received by the Mortgagee. Subject to the provisions of subsection (f) below, the Mortgagor authorizes the Mortgagee to receive and collect all proceeds of such Hydrocarbons. (d) Subject to the provisions of subsection (f) below, the Mortgagor will execute and deliver to the Mortgagee any instruments the Mortgagee may from time to time reasonably request for the purpose of effectuating this assignment and the payment to the Mortgagee of the proceeds assigned. (e) Neither the foregoing assignment nor the exercise by the Mortgagee of any of its rights herein shall be deemed to make the Mortgagee a "mortgagee-in- possession" or otherwise responsible or liable in any manner with respect to the Oil and Gas Properties or the use, occupancy, enjoyment or operation of all or any portion thereof, unless and until the Mortgagee, in person or by agent, assumes actual possession thereof, nor shall appointment of a receiver for the Oil and Gas Properties by any court at the request of the Mortgagee or by agreement with the Mortgagor or the entering into possession of the Oil and Gas Properties or any part thereof by such receiver be deemed to make the Mortgagee a "mortgagee-in-possession" or otherwise responsible or liable in any manner with respect to the Oil and Gas Properties or the use, occupancy, enjoyment or operation of all or any portion thereof. (f) Notwithstanding anything to the contrary contained herein, so long as no Default or an Event of Default shall have occurred and is continuing, the Mortgagor shall have the right to collect all revenues and proceeds attributable to the Hydrocarbons that accrue to the Oil and Gas Properties or the products obtained or processed therefrom, as well as any Liens and security interests securing any sales of said Hydrocarbons and to retain, use and enjoy same. HOUST0N\2152927 9 000638 (g) Subject to the provisions of Subsection 3.1(f) above, the Mortgagee may endorse and cash any and all checks and drafts payable to the order of the Mortgagor or the Mortgagee for the account of the Mortgagor, received from or in connection with the proceeds of the Hydrocarbons affected hereby, and the same may be applied as provided herein, The Mortgagee may execute any transfer or division orders in the name of the Mortgagor or otherwise, with warranties and indemnities binding on the Mortgagor; provided that the Mortgagee shall not be held liable to the Mortgagor for, nor be required to verify the accuracy of, the Mortgagor's intere_sts as represented therein, (h) Subject to the provisions of Subsection 3.1(f) above, the Mortgagee shall have the right at the Mortgagee's election and in the name of the Mortgagor, or otherwise, to prosecute and defend any and all actions or legal proceedings deemed advisable by the Mortgagee in order to collect such proceeds and to protect the interests of the Mortgagee or the Mortgagor, with all costs, expenses and attorneys fees incurred in connection therewith being paid by the Mortgagor, In addition, should any purchaser taking production from the Oil and Gas Properties fail to pay promptly to the Mortgagee amounts due from it to the Mortgagor following the occurrence of an Event of Default and such purchaser's receipt of notice from the Mortgagee directing such payment to be made to the Mortgagee in accordance with this Article, the Mortgagee shall have the right to demand a change of connection and to designate another purchaser with whom a new connection may be made without any liability on the part of the Mortgagee in making such election, so long as ordinary care is used in the making thereof, and upon failure of the Mortgagor to consent to such change of connection, the entire amount of all the Obligations may, at the option of the Mortgagee, be immediately declared to be due and payable and subject to foreclosure hereunder. (i) Without in any way limiting the effectiveness of the foregoing provisions, if the Mortgagor receives any proceeds which under this Section 3.1 are payable to the Mortgagee, the Mortgagor shall hold the same in trust and remit such proceeds, or cause them to be remitted, immediately, to the Mortgagee. 3,2 Application of Proceeds, All payments received by the Mortgagee pursuant to this Article III attributable to the interest of the Mortgagor in and to the Hydrocarbons shall be applied in the order set forth in Section 7.06 of the Credit Agreement. 3,3 the Morte:ae:or's Payment Duties. Except as provided in Section 7. I 6 hereof, nothing contained herein will limit the Mortgagor's absolute duty to make payment of the Obligations regardless of whether the proceeds assigned by this Article III are sufficient to pay the same, and the receipt by the Mortgagee of proceeds from Hydrocarbons under this Mortgage will be in addition to all other security now or hereafter existing to secure payment of the Obligations, 3.4 Liability of the Morte:ae:ee, The Mortgagee is hereby absolved from all liability for failure to enforce collection of any of such proceeds, and from all other responsibility in connection therewith except the responsibility to account to the Mortgagor for proceeds actually received by the Mortgagee. HOUST0N\2152927 10 000639 3.5 Actions to Effect Assi2nment. Subject to the provisions of Section 3.l(f), the Mortgagor covenants to cause all operators, pipeline companies, production purchasers and other remitters of said proceeds to pay promptly to the Mortgagee the proceeds from such Hydrocarbons in accordance with the terms of this Mortgage, and to execute, acknowledge and deliver to said remitters such division orders, transfer orders, certificates and other documents as may be necessary, requested or proper to effect the intent of the assignment contained in this Article ill; and the Mortgagee shall not be required at any time, as a condition to its right to obtain the proceeds of such Hydrocarbons, to warrant its title thereto or to make any guaranty whatsoever. In addition, the Mortgagor covenants to provide to the Mortgagee, the name and address of every such remitter of proceeds from such Hydrocarbons, together with a copy of the applicable division orders, transfer orders, sales contracts and governing instruments. All expenses incurred by the Mortgagee in the collection of said proceeds shall be repaid promptly by the Mortgagor; and prior to such repayment, such expenses shall be a part of the Obligations secured hereby. Ifunder any existing Contracts for the sale of Hydrocarbons, other than division orders or transfer orders, any proceeds of Hydrocarbons are required to be paid by the remitter direct to the Mortgagor so that under such existing Contracts payment cannot be made of such proceeds to the Mortgagee in the absence of foreclosure, the Mortgagor's interest in all proceeds of Hydrocarbons under such existing Contracts shall, when received by the Mortgagor, constitute trust funds in the Mortgagor's hands for the benefit of the Mortgagee and shall be immediately paid over to the Mortgagee. 3.6 Power of Attornev. Without limitation upon any of the foregoing, the Mortgagor hereby designates and appoints the Mortgagee as true and lawful agent and attorney-in-fact (with full power of substitution, either generally or for such periods or purposes as the Mortgagee may from time to time prescribe), with full power and authority, for and on behalf of and in the name of the Mortgagor, to execute, acknowledge and deliver all such division orders, transfer orders, certificates and other documents of every nature, with such provisions as may from time to time, in the opinion of the Mortgagee, be necessary or proper to effect the intent and purpose of the assignment contained in this Article 1lI; and the Mortgagor shall be bound thereby as fully and effectively as if the Mortgagor had personally executed, acknowledged and delivered any of the foregoing orders, certificates or documents. The powers and authorities herein conferred on the Mortgagee may be exercised by the Mortgagee through any Person who, at the time of exercise, is the president, a senior vice president or a vice president of the Mortgagee. The power of attorney conferred by this Section 3.6 is granted for valuable consideration and coupled with an interest and is irrevocable so long as Security Termination has not occurred. Any Person dealing with the Mortgagee, or any substitute, shall be fully protected in treating the powers and authorities conferred by this Section 3.6 as continuing in full force and effect until advised by the Mortgagee that Security Termination has occurred, 3.7 Indemnification. THE MORTGAGOR AGREES TO INDEMNIFY THE MORTGAGEE, AND THE OTHER CREDIT PARTIES, AND EACH OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS (COLLECTIVELY, THE "INDEMNIFIED PARTIES") FROM, AND DISCHARGE, RELEASE AND HOLD EACH OF THEM HARMLESS AGAINST ALL LOSSES, DAMAGES, CLAIMS, ACTIONS, LIABILITIES, JUDGMENTS, COSTS, ATTORNEYS FEES OR OTHER CHARGES OF WHATSOEVER KIND OR NATURE (HEREAFTER REFERRED TO AS "CLAIMS") MADE AGAINST, IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY OF THEM IN ANY WAY RELATING TO OR ARISING OUT OF AN ASSERTION EITHER BEFORE OR AFTER THE PAYMENT IN FULL OF THE HOUST0N\2152927 11 000640 OBLIGATIONS THAT ANY OF THE INDEMNIFIED PARTIES RECEIVED HYDROCARBONS OR PROCEEDS PURSUANT TO THIS MORTGAGE OR PURSUANT TO ANY RIGHT TO COLLECT PROCEEDS DIRECTLY FROM ACCOUNT DEBTORS WHICH ARE CLAIMED BY THIRD PERSONS. THE INDEMNIFIED PARTIES WILL HAVE THE RIGHT TO EMPLOY ATTORNEYS AND TO DEFEND AGAINST ANY SUCH CLAIMS AND UNLESS FURNISHED WITH REASONABLE INDEMNITY, THE INDEMNIFIED PARTIES WILL HAVE THE RIGHT TO PAY OR COMPROMISE AND ADJUST ALL SUCH CLAIMS. THE MORTGAGOR WILL INDEMNIFY AND PAY TO THE INDEMNIFIED PARTIES ALL SUCH AMOUNTS AS MAY B_E PAID IN RESPECT THEREOF, OR AS MAY BE SUCCESSFULLY ADJUDICATED AGAINST ANY OF THE INDEMNIFIED PARTIES. THE INDEMNITY UNDER THIS SECTION BY MORTGAGOR SHALL APPLY TO CLAIMS ARISING OR INCURRED BY REASON OF ANY INDEMNIFIED PARTY'S OWN NEGLIGENCE, BUT SHALL NOT APPLY TO CLAIMS DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY OR INDEMNIFIED PARTIES BEING INDEMNIFIED. THE LIABILITIES OF THE MORTGAGOR AS SET FORTH IN THIS SECTION 3.7 SHALL SURVIVE THE TERMINATION OF THIS MORTGAGE. 3.8 Ri2hts Granted in this Article III. It is the specific intent of the parties hereto to fully comply with applicable law concerning Federal oil and gas leases. The parties hereto in good faith believe that a grant of an assignment of production in this Mortgage as security for the repayment of the Obligations is not a transfer of a payment out of production or similar interest (as used in 43 C.F.R. Subpart 3106) or the grant of an "interest" (as such term is defined and used in 43 C.F.R § 3000.0-5(1)) in Federal oil and gas leases to the Mortgagee or any Credit Party. In the event that the assignment of production or the exercise of the rights provided by this Article III is determined to grant such an "interest" in Federal oil and gas leases, then such grant shall be deemed to be made to, and shall inure to the benefit of, only those parties that may lawfully hold an interest in Federal oil and gas leases pursuant to the Mineral Leasing Act of 1920,30 D.S.C. §§ 181 et seq. and the regulations promulgated thereunder, including 43 C.F.R. § 3102 and Subpart 3106. ARTICLE IV The Mort2a2or's Warranties and Covenants 4.1 Payment of Obli2ations. The Mortgagor covenants that the Mortgagor shall timely pay and perform the Obligations secured by this Mortgage. 4,2 follows: Representations and Warranties. The Mortgagor represents and warrants as (a) Incorporation of Representations and Warrantiesfrom Credit Agreement. The representations and warranties applicable to the Mortgagor and to its Properties contained in Article IV of the Credit Agreement are hereby confirmed and restated, each such representation and warranty, together with all related definitions and ancillary provisions, being hereby incorporated into this Mortgage by reference as though specifically set forth in this Section. HOUST0N\2152927 12 000641. (b) Title to Collateral. The Mortgagor has good and defensible title to the Collateral free from all Liens, claims, security interests or other encumbrances except as pennitted by the provisions of Section 4.4(i) below. The descriptions set forth in Exhibit A of the quantum and nature of the interests of the Mortgagor in and to the Oil and Gas Properties include the entire interests of the Mortgagor in the Oil and Gas Properties and are complete and accurate in all respects. There are no "back-in" or "reversionary" interests held by third parties which could reduce the interests of the Mortgagor in the Oil and Gas Properties except as set forth on Exhibit A. No operating or other agreement to which the Mortgagor is a party or by which the Mortgagor is bound affecting any part of the Collateral requires the Mortgagor to bear any of the costs relating to the Collateral greater than the leasehold interest of the Mortgagor in such portion of the Collateral, except in the event the Mortgagor is obligated under an operating agreement to assume a portion of a defaulting party's share of costs. (c) Status of Leases, Term Mineral Interests and Contracts. All of the leases and tenn mineral interests in the Oil and Gas Properties are valid, subsisting and in full force and effect, and the Mortgagor has no knowledge that any default exists under any of the tenns or provisions, express or implied, of any of such leases or interests or under any agreement to which the same are subject which could reasonably be expected to cause a Material Adverse Change. All of the Contracts and obligations of the Mortgagor that relate to the Oil and Gas Properties are in full force and effect and constitute legal, valid and binding obligations of the Mortgagor other than to the extent the voidance of such Contract or obligation could not reasonably be expected to cause a Material Adverse Change. Neither the Mortgagor nor, to the knowledge of the Mortgagor, any other party to any Contract (i) 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 obligations thereunder, whether express or implied, or (ii) has given or threatened to give notice of any default under or inquiry into any possible default under, or action to alter, tenninate, rescind or procure a judicial refonnation of, any lease in the Oil and Gas Properties or any Contract, in any event, other than for such breaches or defaults which could not reasonably be expected to cause a Material Adverse Change. (d) Production Burdens, Taxes, Expenses and Revenues. All rentals, royalties, overriding royalties, shut-in royalties and other payments due under or with respect to the Oil and Gas Properties have been properly and timely paid, except for payments held in suspense in the ordinary course of business or remitted to state agencies responsible for handling unclaimed property. All taxes have been properly and timely paid except to the extent such taxes are being contested in good faith and for which reserves in accordance with GAAP have been made as reflected in the Financial Statements. All expenses payable under the tenns of the Contracts have been properly and timely paid except for such expenses being contested in good faith by appropriate proceedings, and for which reserves shall have been made therefore and except for such expenses as are being currently paid prior to delinquency in the ordinary course of business. Except for the Mortgagor's interests in certain Oil and Gas Properties, which the Mortgagor represents do not constitute a material portion (with 2% or more being deemed material) of the value of the Collateral and all other Properties of the Mortgagor securing the Obligations, all of the proceeds from the sale of Hydrocarbons produced HOUST0N\2152927 13 000642 ITom the Realty Collateral are being properly and timely paid to the Mortgagor by the purchasers or other remitters of production proceeds without suspense. The Mortgagor's ownership of the Hydrocarbons and the undivided interests therein as specified on attached Exhibit A will, after giving full effect to all Liens permitted hereby and after giving full effect to the agreements or instruments set forth on attached Exhibit A and any other instruments or agreements affecting the Mortgagor's ownership of such Hydrocarbons, afford the Mortgagor not less than those net interests (expressed as a ITaction, percentage or decimal) in the production ITom or which is allocated to such Hydrocarbons specified as net revenue interest on attached Exhibit A and will cause the Mortgagor to bear not more than that portion (expressed as a fraction, percentage or decimal), specified as working interest on attached Exhibit A. of the costs of drilling, developing and operating the wells identified on Exhibit A. (e) Pricing. The prices being received for the production of Hydrocarbons do not violate any Contract or any law or regulation. Where applicable, all of the wells located on the Oil and Gas Properties and production of Hydrocarbons thereITom have been properly classified under appropriate governmental regulations. (f) Gas Regulatory Matters. The Mortgagor has filed with the appropriate state and federal agencies all necessary rate and collection filings and all necessary applications for well detenninations under the Natural Gas Act of 1938, as amended, the Natural Gas Policy Act of 1978, as amended, and the rules and regulations of the Federal Energy Regulatory Commission (the "FERC") thereunder, and each such application has been approved by or is pending before the appropriate state or federal agency. (g) Production Balances. Except as set forth below or pennitted by the Credit Agreement, none of the purchasers under any production sales contracts are 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, Except as set forth below, no Person is entitled to receive any portion of the interest of the Mortgagor in any Hydrocarbons or to receive cash or other payments 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. The Mortgagor believes that certain third parties may be entitled to receive "make-up" deliveries of Hydrocarbons or cash or other payments to "balance" a disproportionate allocation of Hydrocarbons produced ITom certain Oil and Gas Properties; provided, however, the Mortgagor represents and warrants that such deliveries or payments are not material (with 2% or more being deemed material) in aggregate amount when compared to the value of the Collateral and all other Properties of the Mortgagor securing the Obligations, (h) Drilling Obligations. There are no obligations under any Oil and Gas Property or Contract which require the drilling of additional wells or operations to earn or to continue to hold any of the Oil and Gas Properties in force and effect, except for oil and gas leases that are still within their primary term (each of which will require drilling operations to perpetuate it beyond its primary tenn) and the standard provision in certain HOUST0N\2152927 14 000643 oil and gas leases that requires either production or operations to perpetuate each respective lease after the expiration of its primary tenn. (i) Compliance With Laws. All wells on or attributable to the Oil and Gas Properties have been drilled, completed and operated, and all production therefrom has been accounted for and paid to the Persons entitled thereto, in compliance, in all material respects, with all applicable federal, state and local laws and applicable rules and regulations of the federal, state and local regulatory authorities having jurisdiction thereof G) Regulatory . Filings and Compliance. All necessary and material regulatory filings have been properly made, and all regulatory (including Environmental) processes have been complied with in all material respects, in connection with the drilling, completion and operation of the wells on or attributable to the Oil and Gas Properties, and the issuance of all rights of way and other surface uses necessary for the exploration, development and transportation to and from such wells, and all other operations related thereto. (k) Allowables. All production and sales of Hydrocarbons produced or sold from the Oil and Gas Properties have been made in accordance with any applicable allowables (plus pennitted tolerances) imposed by any Governmental Authorities. (1) Refund Obligations. The Mortgagor has not collected any proceeds from the sale of Hydrocarbons produced from the Oil and Gas Properties which are subject to any refund obligation. (m) The Mortgagor's Address. The address of the Mortgagor's place of business, residence, chief executive office and office where the Mortgagor keeps its records concerning accounts, contract rights and general intangibles is as set forth in Section 7.12, The Mortgagor hereby represents and warrants that its organizational number is 0800818925, the state of its formation is Texas and the correct spelling of its name is as set forth in its signature block below, 4.3 Further Assurances. (a) The Mortgagor covenants that the Mortgagor shall execute and deliver such other and further instruments, and shall do such other and further acts as in the opinion of the Mortgagee may be necessary or desirable to carry out more effectively the purposes of this Mortgage, including without limiting the generality of the foregoing, (i) prompt correction of any defect in the execution or acknowledgment of this Mortgage, any written instrument comprising part or all of the Obligations, or any other document used in connection herewith; (ii) prompt correction of any defect which may hereafter be discovered in the title to the Collateral; (iii) prompt execution and delivery of all division or transfer orders or other instruments which in the Mortgagee's opinion are required to transfer to the Mortgagee, for its benefit and the ratable benefit of the other Credit Parties, the assigned proceeds ftom the sale of Hydrocarbons from the Oil and Gas Properties; and (iv) prompt payment when due and owing of all taxes, assessments and HOUST0N\2152927 15 000644 governmental charges imposed on this Mortgage, upon the interest of the Mortgagee, or upon the income and profits from any of the above. (b) The Mortgagor covenants that the Mortgagor shall maintain and preserve the Lien and security interest herein created as an Acceptable Security Interest so long as Security Termination has not occurred. 4.4 Operation of Oil and Gas Properties. As long as Security Termination has not occurred, and whether or not the Mortgagor is the operator of the Oil and Gas Properties, the Mortgagor shall (at the Mortgagor's own expense): (a) not enter into any operating agreement, contract or agreement which materially adversely affects the Collateral; (b) do all things necessary and within the reasonable control of the Mortgagor to keep, or cause to be kept, in full force and effect the Oil and Gas Properties and the Mortgagor's interests therein, except as permitted by the Credit Agreement; (c) neither abandon, forfeit, surrender, release, sell, assign, sublease, fannout or convey, nor agree to sell, assign, sublease, fannout or convey, nor mortgage or grant security interests in, nor otherwise dispose of or encumber any of the Collateral or any interest therein, except as permitted by the Credit Agreement; (d) operate the Oil and Gas Properties or, to the extent that the right of operation is vested in others, will exercise its best efforts to cause the operator to operate the Oil and Gas Properties, in each case in such a manner as to cause the Collateral to be maintained, developed and protected against drainage and continuously operated for the production and marketing of Hydrocarbons in a good and workmanlike manner as a prudent operator would in accordance with (i) generally accepted practices, (ii) applicable oil and gas leases and Contracts, and (iii) all applicable Federal, state and local laws, rules and regulations; (e) promptly payor, to the extent that the right of operation is vested in others, exercise its best efforts to cause to be paid, when due and owing (i) all rentals and royalties payable in respect of the Collateral, except for payments held in suspense in the ordinary course of business or remitted to state agencies responsible for handling unclaimed property; (ii) all expenses incurred in or arising from the operation or development of the Collateral, except for such expenses being contested in good faith by appropriate proceedings, and for which reserves shall have been made therefore and except for such expenses as are being currently paid prior to delinquency in the ordinary course of business; and (iii) all taxes, assessments and governmental charges imposed upon the Collateral, upon the income and profits from any of the Collateral, upon the Mortgagee because of its interest therein or for which the Mortgagor may be liable, except to the extent such taxes are being contested in good faith and for which reserves in accordance with GAAP have been made as reflected in the Financial Statements; and indemnify the Mortgagee from all liability in connection with any of the foregoing (except to the extent of any liability determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willfullmisconduct of the Mortgagee); HOUST0N\2152927 16 000645 (f) promptly take all action necessary to enforce or secure the observance or performance of any material 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 material rights, remedies, powers and privileges under any Contract, all in accordance with the respective terms thereof, except to the extent otherwise permitted under the Credit Agreement; (g) other than as otherwise permitted under the terms of the Credit Agreement, cause the Operating Equipment and the Fixture Operating Equipment to be kept in good and effective operating condition, ordinary wear and tear excepted, and cause to be made all repairs, renewals, replacements, additions and improvements thereof or thereto, necessary or appropriate in connection with the production of Hydrocarbons from the Oil and Gas Properties; (h) permit and do all things necessary or proper to enable the Mortgagee (through any of its agents and employees) to enter upon the Oil and Gas Properties during business hours and with reasonable prior notice for the pmpose of investigating and inspecting the condition and operations of the Collateral in accordance with the terms of the Credit Agreement; (i) cause the Collateral to be kept free and clear of Liens of every character other than the Permitted Liens; G) carry and maintain the insurance required by the Credit Agreement; (k) furnish to the Mortgagee, upon request, copies of any Contracts; and (I) timely and adequately perform all covenants express or implied in any Contract necessary to keep in full force and effect the Oil and Gas Properties and to maintain the Mortgagor's interest therein other than to the extent permitted under the Credit Agreement. 4.5 Recordine:. The Mortgagor hereby authorizes the Mortgagee to, at the Mortgagor's own expense, record, register, deposit and file this Mortgage and every other instrument in addition or supplement hereto, including applicable financing statements, in such offices and places within the state where the Collateral is located and in the state where the Mortgagor is registered as a limited liability company and at such times and as often as may be necessary to preserve, protect and renew the Lien and security interest herein created as an Acceptable Security Interest on real or personal property as the case may be, and otherwise shall do and perform all matters or things necessary or expedient to be done or observed by reason of any Legal Requirement for the purpose of effectively creating, perfecting, maintaining and preserving the Lien and security interest created hereby in and on the Collateral. 4,6 Records. Statements and Reports. The Mortgagor shall keep proper books of record and account in which complete and correct entries shall be made of the Mortgagor's transactions in accordance with the method of accounting required in the Credit Agreement and shall furnish or cause to be furnished to the Mortgagee the reports required to be delivered pursuant to the terms of the Credit Agreement. HOUST0N\2152927 17 000646 4.7 Insurance. To the extent that insurance is carried by a third-party operator on behalf of the Mortgagor, upon request by the Mortgagee, the Mortgagor shall obtain and provide the Mortgagee with copies of certificates of insurance showing the Mortgagor as a named insured. The Mortgagor hereby assigns to the Mortgagee for its benefit and the benefit of the other Credit Parties any and all monies that may become payable under any such policies of insurance by reason of damage, loss or destruction of any of the Collateral and the Mortgagee may receive such monies and apply all or any part of the sums so collected, at its election, toward payment of the Obligations, whether or not such Obligations are then due and payable, in such manner as the Mortgagee may elect. Any insurance proceeds received by the Mortgagor shall be, unless otherwise notified by the Mortgagee, held in trust for the benefit of the Mortgagee, shall be segregated from other funds of the Mortgagor and shall be forthwith paid over to the Mortgagee. ARTICLE V Default 5.1 Events of Default. An Event of Default under the tenus of the Credit Agreement shall constitute an "Event of Default" under this Mortgage. 5.2 Acceleration Upon Default. If an Event of Default (other than pursuant to paragraph (e) of Section 7.01 of the Credit Agreement) shall have occurred and be continuing, the Mortgagee may, or shall at the request of the Required Lenders, declare the entire unpaid principal of, and the interest accrued on, and all other amounts owed in connection with, the Obligations to be forthwith due and payable, whereupon the same shall become immediately due and payable without any protest, presentment, demand, notice of intent to accelerate, notice of acceleration or further notice of any kind, all of which are hereby expressly waived by the Mortgagor. If an Event of Default pursuant to Section 7.01(e) of the Credit Agreement shall have occurred and be continuing, the entire unpaid principal of and interest accrued on, and all other amounts owed in connection with, the Obligations, shall immediately and automatically become and be due and payable in full, without presentment, demand, protest or any notice of any kind (including, without limitation, any notice of intent to accelerate or notice of acceleration) all of which are hereby expressly waived by the Mortgagor, If an Event of Default shall have occurred and be continuing, whether or not the Mortgagee or the Required Lenders elect to accelerate as herein provided, the Mortgagee may simultaneously, or thereafter, without any further notice to the Mortgagor, exercise any other right or remedy provided in this Mortgage or otherwise existing under the Credit Agreement or any other Loan Document or any other agreement, document, or instrument evidencing obligations owing from the Mortgagor to any of the Credit Parties. HOUSTON\2 1 52927 18 ARTICLE VI The Morteaeee's Riehts 000647 6.1 Riehts to Realty Collateral Upon Default. (a) Operation of Property by the Mortgagee. If an Event of Default shall have occurred and be continuing, and in addition to all other rights of the Mortgagee, the Mortgagee shall have the following rights and powers (but no obligation): (i) To enter upon and take possession of any of the Realty Collateral and exclude the Mortgagor therefrom; (ii) To hold, use, administer, manage and operate the Realty Collateral to the extent that the Mortgagor could do so, and without any liability to the Mortgagor in connection with such operations; and (iii) To the extent that the Mortgagor could do so, to collect, receive and receipt for all Hydrocarbons produced and sold from the Realty Collateral, to make repairs, to purchase machinery and equipment, to conduct workover operations, to drill additional wells, and to exercise every power, right and privilege of the Mortgagor with respect to the Realty Collateral. The Mortgagee may designate any Person to act on its behalf in exercising the foregoing rights and powers. When and if the expenses of such operation and development (including costs of unsuccessful workover operations or additional wells) have been paid and Security Termination has occurred, the Realty Collateral shall be returned to the Mortgagor (providing there has been no foreclosure sale). (b) Judicial Proceedings. If an Event of Default shall have occurred and be continuing, the Mortgagee, in lieu of or in addition to exercising the power of sale provided herein, may proceed by a suit or suits, in equity or at law (i) for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, (ii) for the appointment of a receiver whether there is then pending any foreclosure hereunder or the sale of the Realty Collateral, or (iii) for the enforcement of any other appropriate legal or equitable remedy; and further, in lieu of the non-judicial power of sale hereafter given for Collateral located in the State of Wyoming, the Mortgagee may proceed for foreclosure or sale of the Collateral by judicial action. (c) Foreclosure by Private Power of Sale of Collateral. If an Event of Default shall have occurred and be continuing, the Mortgagee shall have the right and power to sell, as the Mortgagee may elect, all or a portion of the Collateral at one or more sales as an entirety or in parcels, in accordance with the applicable laws of the State of Wyoming, as amended from time to time (or any successor provisions of Wyoming governing real property foreclosure sales) or with any applicable state law of the state where any of the Collateral is located. The Mortgagor hereby designates as the Mortgagor's address for the purpose of notice the address set out in Section 7.12; provided that the Mortgagor may by written notice to the Mortgagee designate a HOUSTON\2152927 19 " 000648 different address for notice purposes. Any purchaser or purchasers may be provided with a special warranty, subject to Pennitted Liens, which conveyance shall be binding on the Mortgagor and the Mortgagor's successors and assigns. The Mortgagor hereby consents and agrees that, at the election of the Mortgagee, any disposition of all or part of the Realty Collateral may be made without warranty of any kind whether expressed or implied. Sale of a part of the Realty Collateral will not exhaust the power of sale, and sales may be made from time to time until all of the Realty Collateral is sold or all of the Obligations are paid in full. The Mortgagee may elect to foreclose this Mortgage by advertisement and sale, this grant being a power of sale, as provided by Wyoming Statutes, including, Wyo. Stat. Ann., § § 34-4-101 et seq., as amended from time to time. Any sale of Collateral conducted pursuant to this Mortgage shall take place at such place or places and otherwise in such manner and upon such notices as may be required by law; or, in the absence of such requirement, as the Mortgagee may deem appropriate. (d) Certain Aspects of Sale. The Mortgagee will have the right to become the purchaser at any fòrec10sure sale and to credit the then outstanding balance of the Obligations against the amount payable by the Mortgagee as purchaser at such sale. Statements of fact or other recitals contained in any conveyance to any purchaser or purchasers at any sale made hereunder will conclusively establish the occurrence of an Event of Default, any acceleration of the maturity of the Obligations, the advertisement and conduct of such sale in the manner provided herein, and the truth and accuracy of all other matters stated therein. The Mortgagor does hereby ratify and confinn all legal acts that the Mortgagee may do in carrying out the Mortgagee's duties and obligations under this Mortgage, and the Mortgagor hereby irrevocably appoints the Mortgagee to be the attorney-in-fact ofthe Mortgagor and in the name and on behalf of the Mortgagor to execute and deliver any deeds, transfers, conveyances, assignments, assurances and notices which the Mortgagor ought to execute and deliver and do and perfonn any and all such acts and things which the Mortgagor ought to do and perfonn under the covenants herein contained and generally to use the name of the Mortgagor in the exercise of all or any of the powers hereby conferred on the Mortgagee. Upon any sale, whether under the power of sale hereby given or by virtue of judicial proceedings, it shall not be necessary for the Mortgagee or any public officer acting under execution or by order of court, to have physically present or constructively in his possession any of the Collateral, and the Mortgagor hereby agrees to deliver to the purchaser or purchasers at such sale on the date of sale the Collateral purchased by such purchasers at such sale and if it should be impossible or impracticable to make actual delivery of such Collateral, then the title and right of possession to such Collateral shall pass to the purchaser or purchasers at such sale as completely as if the same had been actually present and delivered. (e) Receipt to Purchaser, Upon any sale made under the power of sale herein granted, the receipt of the Mortgagee will be sufficient discharge to the purchaser or purchasers at any sale for its purchase money, and such purchaser or purchasers, will not, after paying such purchase money and receiving such receipt of the Mortgagee, be obligated to see to the application of such purchase money or be responsible for any loss, misapplication or non- application thereof (f) Effect of Sale. Any sale or sales of the Realty Collateral will operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of the Mortgagor in HOUSTON\2152927 20 000649 and to the Realty Collateral sold, and will be a perpetual bar, both at law and in equity, against the Mortgagor, the Mortgagor's successors or assigns, and against any and all Persons claiming or who shall thereafter claim all or any of the Realty Collateral sold by, through or under the Mortgagor, or the Mortgagor's successors or assigns. Nevertheless, if requested by the Mortgagee so to do, the Mortgagor shall join in the execution and delivery of all proper conveyances, assignments and transfers of the Property so sold. The purchaser or purchasers at the foreclosure sale will receive as incident to his, her, its or their own ownership, immediate possession of the Realty Collateral purchased and the Mortgagor agrees that if the Mortgagor retains possession of the Realty Collateral or any part thereof subsequent to such sale, the . Mortgagor will be considered a tenant at sufferance of the purchaser or purchasers and will be subject to eviction and removal by any lawful means, with or without judicial intervention, and all damages by reason thereof are hereby expressly waived by the Mortgagor. (g) Application of Proceeds. The proceeds of any sale of the Realty Collateral or any part thereof, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall be applied as required by applicable law, or in the absence of such requirement, at the option of the Mortgagee, either applied at the time of receipt or held by the Mortgagee in the Cash Collateral Account as additional Collateral, but in either case, applied as required by applicable law, or in the absence of such requirement, applied in the order set forth in Section 7.06 of the Credit Agreement. (h) The Mortgagor's Waiver of Appraisement and Marshalling. The Mortgagor agrees, to the full extent that the Mortgagor may lawfully so agree, that the Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption law, now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage, the absolute sale of the Collateral, including the Realty Collateral, or the possession thereof by any purchaser at any sale made pursuant to this Mortgage or pursuant to the decree of any court of competent jurisdiction; and the Mortgagor, for the Mortgagor and all who may claim through or under the Mortgagor, hereby waives the benefit of all such laws and, to the extent that the Mortgagor may lawfully do so under any applicable law, any and all rights to have the Collateral, including the Realty Collateral, marshaled upon any foreclosure of the Lien hereof or sold in inverse order of alienation. To the extent permitted under applicable law, the Mortgagor agrees that the Collateral, including the Realty Collateral, may be sold in part, in parcels or as an entirety as directed by the Mortgagee. 6.2 Riehts to Personalty Collateral Upon Default. If an Event of Default shall have occurred and be continuing, the Mortgagee may proceed against the Personalty Collateral in accordance with the rights and remedies granted herein with respect to the Realty Collateral, and in addition, will have all rights and remedies granted by the Uniform Commercial Code as in effect in Wyoming and this Mortgage. The Mortgagee shall have the right to take possession of the Personalty Collateral, and for this purpose the Mortgagee may enter upon any premises on which any or all of the Personalty Collateral is situated and, to the extent that the Mortgagor could do so, take possession of and operate the Personalty Collateral or remove it therefrom, The Mortgagee may require the Mortgagor to assemble the Personalty Collateral and make it available to the Mortgagee at a place to be designated by the Mortgagee which is reasonably convenient to both parties. Unless the Personalty Collateral is perishable or threatens to decline HOUST0N\2152927 21 000650 speedily in value or is of a type customarily sold on a recognized market, the Mortgagee will send the Mortgagor reasonable notice of the time and place of any public sale or of the time after which any private sale or other disposition of the Personalty Collateral is to be made. This requirement of sending reasonable notice will be met if such notice is mailed, postage prepaid, to the Mortgagor at the address designated in Section 7.12 hereof (or such other address as has been designated as provided herein) at least ten days before the time of the sale or disposition. In addition to the expenses of retaking, holding, preparing for sale, selling and the like, the Mortgagee will be entitled to recover attorney's fees and legal expenses as provided for in this _ Mortgage and in the writings evidencing the Obligations before applying the balance of the proceeds :fÌ'om the sale or other disposition toward satisfaction of the Obligations. The Mortgagor will remain liable for any deficiency remaining after the sale or other disposition. The Mortgagor hereby consents and agrees that any disposition of all or a part of the Collateral may be made without warranty of any kind whether expressed or implied. 6.3 Rif!hts to Fixture Collateral Upon Default. If an Event of Default shall have occurred and be continuing, the Mortgagee may elect to treat the Fixture Collateral as either Realty Collateral or as Personalty Collateral (but not both) and proceed to exercise such rights as apply to the type of Collateral selected. 6.4 Account Debtors. The Mortgagee may, in its discretion, if an Event of Default shall have occurred and be continuing, (a) notify any account debtor on any accounts constituting Collateral to make payments directly to the Mortgagee, (b) instruct any party described in Section 3.1(b) to deliver all Hydrocarbons assigned to the Mortgagee as described in Section 3.1(a) and all proceeds there:fÌ'om directly to the Mortgagee, and (c) contact such account debtors and other parties directly to verify infonnation furnished by the Mortgagor with respect to such account debtors and such accounts. The Mortgagee shall not have any obligation to preserve any rights against prior parties, 6.5 Costs and Expenses. All sums advanced or costs or expenses incurred by the Mortgagee (either by it directly or on its behalf by any receiver appointed hereunder) in protecting and enforcing its rights hereunder shall constitute a demand obligation owing by the Mortgagor to the Mortgagee as part of the Obligations. The Mortgagor hereby agrees to repay such sums on demand plus interest thereon :fÌ'om the date of the advance or incurrence until reimbursement ofthe Mortgagee at the Reimbursement Rate. 6,6 Set-Off. If an Event of Default shall have occurred and be continuing, any Credit Party shall have the right to set-off any funds of the Mortgagor in the possession of such Credit Party against any amounts then due by the Mortgagor pursuant to this Mortgage, 6.7 Federal and Tribal Transfers. Upon a sale conducted pùrsuant to this Article VI of all or any portion of the Realty Collateral consisting of interests (the "Federal and Tribal Interests") in leases; easements, rights-of-way, agreements or other documents and instruments covering, affecting or otherwise relating to federal or tribal lands (including, without limitation, leases, easements and rights-of-way issued by the Bureau of Land Management; leases, easements and rights-of-way issued by the Bureau of Indian Affairs; and leases, easements, rights-of-way and minerals agreements with tribal governments or agencies or allottees), the Mortgagor agrees to take all action and execute all instruments necessary or advisable to transfer HOUST0N\2152927 22 000651 the Federal and Tribal Interests to the purchaser at such sale, in uding without limitation, to execute, acknowledge and deliver assignments of the Federal and Tribal Interests on officially approved fonns in sufficient counterparts to satisfy applicab e statutory and regulatory requirements, to seek and request approval thereof and to take all other action necessary or advisable in connection therewith. The Mortgagor hereby irrevocably appoints the Mortgagee as the Mortgagor's attorney-in-fact and proxy, with full power and authority in the place and steed of the Mortgagor, in the name of the Mortgagor or otherwise, to take any such action and to execute any such instruments on behalf of the Mortgagor that the Mortgagee may deem necessary or advisable to so transfer the Federal and Tribal Interests, including without limitation, the power and authority to execute, acknowledge and deliver such assignments, to seek and request approval thereof and to take all other action deemed necessary or advisable by Morgagee in connection therewith; and the Mortgagor hereby adopts, ratifies and confinns all such actions and instruments. Such power of attorney and proxy is coupled with an interest, shall survive the dissolution, termination, reorganization or other incapacity of the Mortgagor and shall be irrevocable. No such action by the Mortgagee shall constitute acknowledgment of, or assumption of liabilities relating to, the Federal and Tribal Interests, and neither the Mortgagor nor any other party may claim that the Mortgagee is bound, directly or indirectly, by any such action. 6.8 Limitations on Riehts and Waivers. All rights, powers and remedies herein conferred shall be exercisable by the Mortgagee only to the extent not prohibited by applicable law; and all waivers and relinquishments of rights and similar matters shall be effective only to the extent such waivers or relinquishments are not prohibited by applicable law. ARTICLE VII Miscellaneous 7.1 Advances bv the Morteaeee. Each and every covenant of the Mortgagor herein contained shall be perfonned and kept by the Mortgagor solely at the Mortgagor's expense. If the Mortgagor fails to perfonn or keep any of the covenants of whatsoever kind or nature contained in this Mortgage, the Mortgagee (either by it directly or on its behalf by any receiver appointed hereunder) may, but will not be obligated to, make advances to perfonn the same on the Mortgagor's behalf, and the Mortgagor hereby agrees to repay such sums and any attorneys' fees incurred in connection therewith on demand plus interest thereon from the date of the advance until reimbursement of the Mortgagee at the Reimbursement Rate. In addition, the Mortgagor hereby agrees to repay on demand any costs, expenses and attorney's fees incurred by the Mortgagee which are to be obligations of the Mortgagor pursuant to, or allowed by, the tenns of this Mortgage, including such costs, expenses and attorney's fees incurred pursuant to Section 3.I(h), Section 6.5 or Section 7.2 hereof, plus interest thereon from the date of such demand by the Mortgagee until reimbursement of the Mortgagee at the Reimbursement Rate. Such amounts will be in addition to any sum of money which may, pursuant to the tenns and conditions of the written instruments comprising part of the Obligations, be due and owing, No such advance will be deemed to relieve the Mortgagor from any default hereunder. 7,2 Defense of Claims. The Mortgagor shall promptly notify the Mortgagee in writing of the commencement of any legal proceedings affecting the Mortgagor's title to the HOUST0N\2152927 23 000652 Collateral or the Mortgagee's Lien or security interest in the Collateral, or any part thereof, and shall take such action, employing attorneys agreeable to the Mortgagee, as may be necessary to preserve the Mortgagor's and the Mortgagee's rights affected thereby. If the Mortgagor fails or refuses to adequately or vigorously, in the sole judgment of the Mortgagee, defend the Mortgagor's or the Mortgagee's rights to the Collateral, the Mortgagee may take such action on behalf of and in the name of the Mortgagor and at the Mortgagor's expense. Moreover, the Mortgagee may take such independent action in connection therewith as it may in its discretion deem proper, including the right to employ independent counsel and to intervene in any suit affecting the Collateral. All costs, expenses and attorneys' fees incurred by the Mortgagee pursuant to this Section 7.2 or in connection with the defense by the Mortgagee of any claims, demands or litigation relating to the Mortgagor, the Collateral or the transactions contemplated in this Mortgage shall be paid by the Mortgagor on demand plus interest thereon uom the date of the advance by the Mortgagee until reimbursement of the Mortgagee at the. Reimbursement Rate. 7.3 Termination. If Security Tennination has occurred and the covenants herein contained are well and fully perfonned, then all of the Collateral will revert to the Mortgagor to the extent not otherwise transferred or sold as pennitted under Legal Requirements or under this Mortgage and the entire estate, right, title and interest of the Mortgagee will thereupon cease; and the Mortgagee in such case shall, upon the request of the Mortgagor and the payment by the Mortgagor of all attorneys' fees and other expenses, deliver to the Mortgagor proper instruments acknowledging satisfaction of this Mortgage and the tennination of the liens and security interests created hereby. 7.4 Renewals. Amendments and Other Security. Without notice or consent of the Mortgagor, renewals and extensions of the written instruments constituting part or all of the Obligations may be given at any time and amendments may be made to agreements relating to any part of such written instruments or the Collateral. The Mortgagee may take or hold other security for the Obligations without notice to or consent of the Mortgagor. The acceptance of this Mortgage by the Mortgagee shall not waive or impair any other security the Mortgagee may have or hereafter acquire to secure the payment of the Obligations nor shall the taking of any such additional security waive or impair the Lien and security interests herein granted. The Mortgagee may resort first to such other security or any part thereof, or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandorunent of either security, and such action will not be a waiver of any rights conferred by this Mortgage, This Mortgage may not be amended, waived or modified except in a written instrument executed by both the Mortgagor and the Mortgagee. 7.5 Security A2reement. Financin2 Statement and Fixture Filin2. This Mortgage will be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, or security agreement, and from time to time as anyone or more thereof if appropriate under applicable state law. AS A FINANCING STATEMENT, THIS MORTGAGE IS INTENDED TO COVER ALL PERSONALTY COLLATERAL INCLUDING MORTGAGOR'S INTEREST IN ALL HYDROCARBONS AS AND AFfER THEY ARE EXTRACTED AND ALL ACCOUNTS ARISING FROM THE SALE THEREOF AT THE WELLHEAD. THIS MORTGAGE SHALL BE EFFECTIVE AS A FINANCING STATEMENT FILED AS A FIXTURE FILING WITH RESPECT TO FIXTURE COLLATERAL INCLUDED WITHIN THE HOUSTON\2152927 24 000653 COLLATERAL. This Mortgage shall be filed in the real estate records or other appropriate records of the county or counties in the state in which any part of the Realty Collateral and . Fixture Collateral is located as well as the Uniform Commercial Code records of the Secretary of State or other appropriate office of the state in which the Mortgagor is located. At the Mortgagee's request, the Mortgagor shall deliver financing statements covering the Personalty Collateral, including all Hydrocarbons sold at the wellhead, and Fixture Collateral, which financing statements may be filed in the Uniform Commercial Code records or other appropriate office of the county or state in which any of the Collateral is located or in any other location permitted or required to perfect the Mortgagee's security interest under the Uniform Commercial Code. In addition, the Mortgagor hereby irrevocably authorizes the Mortgagee and any affiliate, employee or agent thereof, at any time and ITom time to time, to file in any Uniform Commercial Code jurisdiction any financing statement or document and amendments thereto, without the signature of the Mortgagor where permitted by law, in order to perfect or maintain the perfection of any security interest granted under this Mortgage. A photographic or other reproduction of this Mortgage shall be sufficient as a financing statement. 7.6 Unenforceable or Inapplicable Provisions. If any term, covenant, condition or provision hereof is invalid, illegal or unenforceable in any respect, the other provisions hereof will remain in full force and effect and will be liberally construed in favor of the Mortgagee in order to carry out the provisions hereof. 7.7 Ri2hts Cumulative. Each and every right, power and remedy herein given to the Mortgagee will be cumulative and not exclusive, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised ITom time to time and as often and in such order as may be deemed expedient by the Mortgagee, as the case may be, and the exercise, or the beginning of the exercise, of any such right, power or remedy will not be deemed a waiver of the right to exercise, at the same time or thereafter, any other right, power or remedy. No delay or omission by the Mortgagee in the exercise of any right, power or remedy will impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing, 7.8 Waiver bv the Mort2a2ee. Any and all covenants in this Mortgage may from time to time by instrument in writing by the Mortgagee (acting upon the direction of the Required Lenders) be waived to such extent and in such manner as the Mortgagee may desire, but no such waiver will ever affect or impair the Mortgagee's rights hereunder, except to the extent specifically stated in such written instrument. 7.9 Terms. The term "Mortgagor" as used in this Mortgage will be construed as singular or plural to correspond with the number of Persons executing this Mortgage as the Mortgagor. If more than one Person executes this Mortgage as the Mortgagor, his, her, its, or their duties and liabilities under this Mortgage will be joint and several. The terms "the Mortgagee" and "Mortgagor" as used in this Mortgage include the heirs, executors or administrators, successors, representatives, receiver, trustees and assigns of those parties. Unless the context otherwise requires, terms used in this Mortgage that are defined in the Uniform Commercial Code of Wyoming are used with the meanings therein defined. HOUSTON\2152927 25 000654 7.10 Counterparts. This Mortgage may be executed in any number of counterparts, each of which will for all purposes be deemed to be an original, and all of which are identical except that, to facilitate recordation, in any particular counties counterpart portions of Exhibit A hereto which describe Properties situated in counties other than the counties in which such counterpart is to be recorded may have been omitted. 7.11 Governine: Law. This Mortgage shall be governed by and construed III accordance with the laws of the State of Wyoming. 7.12 Notice. All notices required or pennitted to be given by the Mortgagor or the Mortgagee shall be made in the manner set forth in the Credit Agreement and shall be addressed as follows: the Mortgagor: Abraxas Operating, LLC 500 N. Loop 1604 East, Suite 100 San Antonio, Texas 78232 Attention: Chris E. Williford! Barbara M. Stuckey Facsimile: 210-490-8816 the Mortgagee: Société Générale 1111 Bagby Street, Suite 2020 Houston, Texas 77002 Attention: Cameron Null Facsimile: 713-650-0824 7.13 Condemnation. All awards and payments heretofore and hereafter made for the taking of or injury to the Collateral or any portion thereof whether such taking or injury be done under the power of eminent domain or otherwise, are hereby assigned, and shall be paid to the Mortgagee. The Mortgagee is hereby authorized to collect and receive the proceeds of such awards and payments and to give proper receipts and acquittances therefor. The Mortgagor hereby agrees to make, execute and deliver, upon request, any and all assignments and other instruments sufficient for the purpose of confirming this assignment of the awards and payments to the Mortgagee free and clear of any encumbrances of any kind or nature whatsoever. Any such award or payment may, at the option of the Mortgagee, be retained and applied by the Mortgagee after payment of attorneys' fees, costs and expenses incurred in connection with the collection of such award or payment toward payment of all or a portion of the Obligations, whether or not the Obligations are then due and payable, or be paid over wholly or in part to the Mortgagor for the purpose of altering, restoring or rebuilding any part of the Collateral which may have been altered, damaged or destroyed as a result of any such taking, or other injury to the Collateral. 7.14 Successors and Assie:ns, (a) This Mortgage is binding upon the Mortgagor, the Mortgagor's successors and assigns, and shall inure to the benefit of each Credit Party (other than Swap Counterparties) and each of its successors and assigns, and to the benefit of the Swap Counterparties, and each of their respective successors and assigns if such Swap Counterparty or an Affiliate of such Swap HOUST0N\2152927 26 000655 Counterparty is a Lender, and the provisions hereof shall likewise be covenants running with the land. (b) Subject to clause (d) below, this Mortgage shall be transferable and negotiable, with the same force and effect and to the same extent as the Obligations may be transferable, it being understood that, upon the legal transfer or assignment by the Credit Parties (or any of them) of any of the Obligations, the legal holder df such Obligations shall have all of the rights granted to the Mortgagee for the benefit of the Credit Parties under this Mortgage. TheMortgagor specifically agrees that, to the extent pennitted by applicable law, upon any transfer of all or any portion of the Obligations, this Mortgage shall secure with retroactive rank the existing Obligations of the Mortgagor to the transferee and any and all Obligations to such transferee thereafter arising. (c) TheMortgagor hereby recognizes and agrees that the Credit Parties (or any of them) may, from time to time, one or more times, transfer all or any portion of the Obligations to one or more third parties. Such transfers may include, but are not limited to, sales of participation interests in such Obligations in favor of one or more third parties. Upon any transfer of all or any portion of the Obligations and subject to clause (d) below, the Mortgagee may transfer and deliver any and/or all of the Collateral to the transferee of such Obligations and such Collateral shall secure any and all of the Obligations in favor of such a transferee then existing and thereafter arising, and after any such transfer has taken place, the Mortgagee shall be fully discharged from any and all future liability and responsibility to the Mortgagor with respect to such Collateral, and transferee thereafter shall be vested with all the powers, rights and duties with respect to such Collateral. (d) Notwithstanding anything to the contrary contained herein, including the provisions of clauses (b) and (c) above, when any Swap Counterparty assigns or otherwise transfers any interest held by it under any Hedge Contract to any other Person pursuant to the tenns of such agreement, that other Person shall thereupon become vested with all the benefits held by such Credit Party under this Mortgage only if such Person is also then a Lender or an Affiliate of a Lender. 7,15 Article and Section Headin2s. The article and section headings in this Mortgage are inserted for convenience of reference and shall not be considered a part of this Mortgage or used in its interpretation. 7.16 USUry Not Intended. It is the intent of the Mortgagor and the Mortgagee in the execution and perfonnance of this Mortgage, the Credit Agreement and the other Loan Documents to contract in strict compliance with applicable usury laws governing the Obligations including such applicable usury laws of the State of New York, the State of Wyoming, if any, and the United States of America as are from time-to-time in effect. In furtherance thereof, the Mortgagee and the Mortgagor stipulate and agree that none of the tenns and provisions contained in this Mortgage, the Credit Agreement or the other Loan Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the maximum non-usurious rate pennitted by applicable law and that for purposes hereof "interest" shall include the aggregate of all charges which constitute interest under such laws that are contracted for, charged or received under this Mortgage, the Credit HOUSTON\2152927 27 000656 Agreement and the other Loan Documents; and in the event that, notwithstanding the foregoing, under any circumstances the aggregate amounts taken, reserved, charged, received or paid on the Obligations, include amounts which by applicable law are deemed interest which would exceed the maximum non-usurious rate permitted by applicable law, then such excess shall be deemed to be a mistake and the Mortgagee shall credit the same on the principal of the Obligations (or if the Obligations shall have been paid in full, refund said excess to the Mortgagor). In the event that the maturity of the Obligations is accelerated by reason of any election of the Mortgagee resulting from an Event of Default, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the maximum non- usurious rate permitted by applicable law and excess interest, if any, provided for in this Mortgage, the Credit Agreement or other Loan Documents shall be canceled automatically as of the date of such acceleration and prepayment and, if theretofore paid, shall be credited on the Obligations or, if the Obligations shall have been paid in full, refunded to the Mortgagor. In determining whether or not the interest paid or payable under any specific contingencies exceeds the maximum non-usurious rate permitted by applicable law, the Mortgagor and the Mortgagee shall to the maximum extent permitted under applicable law amortize, prorate, allocate and spread in equal part during the period of the full stated term of the Obligations, all amounts considered to be interest under applicable law of any kind contracted for, charged, received or reserved in connection with the Obligation. 7.17 Credit A2reement. To the fullest extent possible, the terms and provisions of the Credit Agreement shall be read together with the terms and provisions of this Mortgage so that the terms and provisions of this Mortgage do not conflict with the terms and provisions of the Credit Agreement; provided, however, notwithstanding the foregoing, in the event that any of the terms or provisions of this Mortgage conflict with any terms or provisions of the Credit Agreement, the terms or provisions of the Credit Agreement shall govem and control for all purposes; provided that the inclusion in this Mortgage of terms and provisions, supplemental rights or remedies in favor of the Mortgagee not addressed in the Credit Agreement shall not be deemed to be a conflict with the Credit Agreement and all such additional terms, provisions, supplemental rights or remedies contained herein shall be given full force and effect. 7,18 Due Authorization. The Mortgagor hereby represents, warrants and covenants to the Mortgagee that the obligations of the Mortgagor under this Mortgage are the valid, binding and legally enforceable obligations of the Mortgagor, that the execution, ensealing and delivery of this Mortgage by the Mortgagor has been duly and validly authorized in all respects by the Mortgagor, and that the persons who are executing and delivering this Mortgage on behalf of the Mortgagor have full power, authority and legal right to so do, and to observe and perform all of the terms and conditions of this Mortgage on the Mortgagor's part to be observed or performed. 7.19 No Offsets. Etc. The Mortgagor hereby represents, warrants and covenants to the Mortgagee that there are no offsets, counterclaims or defenses at law or in equity against this Mortgage or the indebtedness secured hereby. 7,20 Bankruptcv Limitation. Notwithstanding anything contained herein to the contrary, it is the intention of the Mortgagor, the Mortgagee and the other Credit Parties that the amount of the Obligations secured by the Mortgagor's interests in any of its Property shall be in, but not in excess of, the maximum amount permitted by fraudulent conveyance, fraudulent HOUST0N\2152927 28 00065'i' transfer and other similar law, rule or regulation of any Governmental Authority applicable to the Mortgagor. Accordingly, notwithstanding anything to the contrary contained in this Mortgage in any other agreement or instrument executed in connection with the payment of any of the Obligations, the amount of the Obligations secured by the Mortgagor's interests in any of its Property pursuant to this Mortgage shall be limited to an aggregate amount equal to the largest amount that would not render the Mortgagor's obligations hereunder or the Liens and security interest granted to the Mortgagee hereunder subject to avoidance under Section 548 of the ~nited States Bankruptcy Code or any comparable provision of any other applicable law. 7.21 Deficiencv Judement. THE MORTGAGEE HAS THE RIGHT TO PROCEED TO OBTAIN AND COLLECT DEFICIENCY JUDGMENT, TOGETHER WITH FORECLOSURE OF THE COLLATERAL TO THE EXTENT AVAILABLE UNDER APPLICABLE WYOMING LAW. 7.22 Intercreditor and Subordination Aereement. Reference is made to the Intercreditor and Subordination Agreement dated as of January 31, 2008 (as amended, restated, supplemented or otherwise modified from time to time, the "Intercreditor Agreement"), among the Administrative Agent, Société Générale, as administrative agent for the Senior Lenders, the Borrower, and certain other persons, party or that may become party thereto from time to time. Notwithstanding anything herein to the contrary, the lien and security interest granted to the Mortgagee pursuant to this Mortgage and the exercise of any right or remedy by the Mortgagee or any other Credit Party hereunder are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the tenns of the Intercreditor Agreement and this Mortgage, the tenns of the Intercreditor Agreement shall govern and control. 7.23 Effectiveness, This Mortgage shall become effective upon its execution and delivery by the Mortgagor. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. [Remainder of this page intentionally left blank.] HOUST0N\2152927 29 EXECUTED AND DELIVERED effective as of the date first written above. 000C58 MORTGAGOR: ABRJù{ASOPERAT~G,LLC By: atúViÜ(L7}{. ~-luvtuf- Barbara M. Stuckey President and Chief Operating Officer MORTGAGEE: SOCIÉTÉ GÉNÉRALE, as Administrative Agent for the ratable benefit of the Credit Parties By: Elena Robciuc Director HOUST0N\2152927 30 EXECUTED AND DELIVERED effective as of the date first written above. MORTGAGOR: 000659 ABRAXAS OPERATING, LLC .. By: Barbara M. Stuckey President and Chief Operating Officer MORTGAGEE: SOCIÉTÉ GÉNÉRALE, as Administrative Agent for the ratable benefit of the Credit Parties BY.r:?/Z Elena Robciuc Director HOUST0N\2152927 30 STATE OF COLORADO § § § 000660 COUNTY OF DENVER This instrument was acknowledged before me by Barbara M. Stuckey, as President and Chief Operating Officer of Abraxas Operating, LLC, a Texas limited liability company, on behalf of said limited liability company, on this 31st-day ofJanuary, 2008. /cJ -/- c2¿)/ð STATE OF TEXAS § § § COUNTY OF HARRIS This instrument was acknowledged before me by Elena Robciuc, as Director of Société Générale, a French bank, on behalf of said bank on this _ day of January, 2008. WITNESS MY HAND AND OFFICIAL SEAL [SEAL] Notary Public in and for the State of Texas Commission Expires: HOUST0N\2152927 31 STATE OF COLORADO § § § 000661. COUNTY OF DENVER This instrument was acknowledged before me by Barbara M. Stuckey, as President and Chief Operating Officer of Abraxas Operating, LLC, a Texas limited liability company, on behalf of said limited liability company, on this _ day of lJ anuary, 2008. WITNESS MY HAND AND OFFICIAL SEAL [SEAL] Notary Public in and for the State of Colorado Commission Expires: STATE OF TEXAS § § § COUNTY OF HARRIS This instrument was acknowled~ed before m~ ~..Y E)ena Robciuc, as Director of Société Générale, a French bank, on behalf of saId bank on this ~y of January, 2008. WITNESS MY HAND AND OFFICIAL SEAL [SEAL] ~L Commission Expires: JACKI ROØK Natíif',' ~ubllo, State of Texas My eomrnlsslon Expires Januarv 13, 2012 HOUST0N\2152927 31 Exhibit" A" 000662 The designation "Working Interest" or "Gross Working Interest" or "Gross WI" or "WI" or "GWI" when used in this Exhibit means an interest owned in an oil, gas, and mineral lease that determines the cost-bearing percentage of the owner of such interest. The designation "Net Revenq:e Interest" or "NRI" or "NRIO" or "NRIG" means that portion of the production attributable to the owner of a working interest after deduction for all royalty burdens, overriding royalty burdens or other burdens on production, except severance, production, and other similar taxes, and other costs and expenses not customarily paid out of a share of production from a well or unit. The designation "Overriding Royalty Interest" or "ORRI" means an interest in production which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the overriding royalty interest or applicable law so provides, costs associated with compression, dehydration, other treating or processing, or transportation of production of oil, gas, or other minerals relating to the marketing of such production. The designation "Royalty Interest" or "Rl" means an interest in production which results from an ownership in the mineral fee estate or royalty estate in the relevant land and which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the royalty interest or applicable law so provides, costs associated with compression, dehydration, other treating or processing or transportation of production of oil, gas, or other minerals relating to the marketing of such production. Each amount set forth as "Working Interest" or "Gross Working Interest" or "Gross WI" or "WI" or "GWI" or "Net Revenue Interest" or "NRl" or "NRIO" or "NRlG" is the Mortgagor's interest after giving full effect to, among other things, all Liens permitted by the Credit Agreement and after giving full effect to the agreements or instruments set forth in this Exhibit A and any other instruments or agreements affecting Mortgagor's ownership of the Hydrocarbons. The term "APO," "APOI," "AP02," "AP03," "After Payout," or "ACP" specifies the Working Interest or Net Revenue Interest, as applicable, after the occurrence of a particular event, such as (i) the payout of costs with respect to a well, unit or prospect or (ii) the casing-point election to complete a well has been made during the drilling and completion of a well (a "Payout Event"). The term "BPO," "BPOI," "BP02," "BP03" or "Before Payout" specifies the current Working Interest or Net Revenue Interest, as applicable with respect to a well or unit before a Payout Event. "BPONC" and "APONC" specifies the interest of Mortgagor after giving effect to a non- consent penalty in the governing documents for a well or unit. "NPO" or "NPOGAS" specifies that there is no Payout Event for the applicable well or unit (or with respect to gas produced from a well or unit, as applicable), or, if there is a Payout Event, it has been determined that it will not occur. "BPOPRD" specifies the Working Interest or Net Revenue Interest, as applicable, with respect to a well or unit giving effect to a production payment burden on Mortgagor's interest. "APOPRD" specifies the Working Interest or Net Revenue Interest, as applicable, of Mortgagor after the production payment burden has been satisfied. "PHI~" "PH2~" "Phase I," or "Phase 2" specifies the Working Interest or Net Revenue Interest of Mortgagor, as applicable, during a exploration or development phase of a unit or well, as defined in the governing documents for such unit or well. 000663 Any reference in this Exhibit A to wells or units is for warranty of interest, administrative convenience, and identification and shall not limit or restrict the right, title, interest, or Properties covered by this Deed of Trust/Mortgage, All right, title, and interest of Mortgagor in the Properties described herein and in Exhibit A are and shall be subject to this instrument, regardless of the presence of any units or wells not described herein, Any reference in this Exhibit A under the heading or column titled "LAND DESCRIPTION" to: (i) "See" means "Section", (ii) "T" means "Township", (iii) "R" means "Range", (iv) "N" means "North", (v) "S" means "South", (vi) "E" means "East", and (vii) "W" means "West". For example "T27N RI8W" means "Township 27 North, Range 18 West", and "See 17" means "Section 17". Each reference to a Section immediately below the description of a Township and Range under the heading or column titled "LAND DESCRIPTION" in this Exhibit A means that the Section is included in that Township and Range. For example, the following referenèe means Section 17, Township 27 North, Range 18 West: T27N R18W Sec 17 Any reference at the bottom of any page of this Exhibit to a county means that all lands described under the heading or column titled "LAND DESCRIPTION" on that page are located in that county. The reference to book or volume and page herein and in Exhibit A refer to the recording location of each respective Realty Collateral described herein and in Exhibit A in the county where the land covered by the Realty Collateral is located. The references in this Deed of Trust/Mortgage to liens, encumbrances, burdens, defects, and other matters are for the purpose of defining the nature and extent of Mortgagor's warranty and shall not be deemed to ratify or create any rights in third parties. HOUST0N\2152963.2 -2- z e ¡::: ftU I-:J ze We ~o:: we.. Wu. f50 «I- >z I-w -:E O::z :Jo u- wen en en ft« we o ««~ I- 0 In -I-..., mo::z :ëo::¡ ><:::E- W u. !::w eo:: w:J 0::1- u>< u.Ü: o I-ft wz zw ::¡:E ftW WI- o~ ~en 1-0 O::z 0- ~~ « z ü: ~W>- o cd~ o cCZ ma..w W (J)W e(1- We( .JC 2: o ¡:: a.. õ2 (.,) (J) w c c z :5 LL o ;::: ::::> o w ~ :2~ I- Il..en en v'v W ~~WI (0 en en I- 'v v 0 SWWI- ~z(/).w .......vo o::;:w~ Zo(/)o:: ~w~;:) I-(/):>(/) v ~ en LO (D en ..... -.. ..... -.. CIO w· w (/) (J) W ...J ~ o (J) (J) W .J LO en 01- v 0:: Vw ~g êJjw ;:):2 I- o ~ :¡j (J) e( W ...J ..... " N N o (D b LO en ..... ..... 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