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HomeMy WebLinkAbout948881UCC FINANCING STATEMENT FOLLOW INSTRUCTIONS front and back CAREFULLY A. NAME & PHONE OF CONTACT AT FILER [optional] Mel Glina 713-221-1103 B. SEND ACKNOWLEDGMENT TO: (Name and Address) F Bracewell & Giuliani LLP 711 Louisiana, Suite 2300 Houston, Texas 77002 RECEIVED 8/11/2009 at 214o PM RECEIVING # 948884 BOOK: 729 PAGE: 636 JEANNE WAGNER LINCOLN COUNTY CLERK, KEMMERER, WY CUWGalf JI TH 1. D E BTO R'S EXACT FULL LEGAL NAME -insert onlygn& debtor name (1 a or 1 b) -do not abbreviate orcombine names 1 a. ORGANIZATION'S NAME Matrix Production Company 1c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 5725 Commonwealth Boulevard Houston TX 77479 USA 1d. SEEINSTRUCTIONS ADD'L INFO RE 1e. TYPE OF ORGANIZATION 1f. JURISDICTION OF ORGANIZATION 1g. ORGANIZATIONAL ID If any ORGANIZATION IDEBTOR Corporation Texas TX0140134300 NONE 2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME -insert only= debtor name (2a or 2b) -do not abbreviate or combine names 2a. ORGANIZATION'S NAME OR 2b. INDIVIDUAL'S LAST NAME 2c. 2d. SEE INSTRUCTIONS ADD'L INFO RE I le. TYPE OF ORGANI; ORGANIZATION DEBTOR 3. S EC U R ED PARTY'S NAME (or NAM E ofTOTAL ASSIGNEE of AS; 3a. ORGANIZATION'S NAME T)ninn Rank- N_A__ ac Administrative A4ent 2f. ABOVE SPACE IS FOR FILING OFFICE USE ONLY if any NONE " 3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 3c. MAILING ADDRESS 1331 Lamar, Suite 1360, 4 Houston Center CITY Houston STATE TX 1 POSTAL CODE 77010 COUNTRY USA 4. This FINANCING STATEMENT covers the following collateral: This Financing Statement is being filed to cover all of Debtor's interest now owned or hereafter acquired in and to the Collateral, as defined and described in the instrument attached hereto and incorporated herein for all purposes. THIS FINANCING STATEMENT IS A FIXTURE FILING AND AN AS-EXTRACTED COLLATERAL FILING. 5. ALTERNATIVE DESIGNATION [if a plicabie]: LESSEElLESSOR CONSIGNEE/CONSIGNOR BAILEE/BAILOR SELLER/BUYER AG. LIEN NON-UCCFILING 8, is A CI G STATM s to e I ed or record] (or recorded In the REAL Check to R O ES S A PO S) on Debtor(s) ocTere oernone a«.,..~, ewde.,e.., of s,., ji_klet 17. re nmm~niei con r„ -11 All Debtors Debtor 1 Debtor 2 8. OPTIONAL FILER REFERENCE DATA Lincoln County, WY B&G Doc. #2309524 FILING OFFICE COPY- UCC FINANCING STATEMENT (FORM UCC1) (REV. 05/22102) DEUCCIPNAT - 12/17/2002 C T System Online UCC FINANCING STATEMENT ADDENDUM FOLLOW INSTRUCTIONS (front and back) CAREFULLY 9. NAME OF FIRST DEBTOR (1a or 1b) ON RELATED FINANCING STATEMENT 9a. ORGANIZATION'S NAME OR Matrix Production 9b. INDIVIDUAL'S LAST NAME 10. MISCELLANEOUS: THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY 11. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME 11 is. ORGANIZATION'S NAME 2aa name (11 a or 11 b) -do not abbreviate or combine names OR 1lb. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 11c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 11 d. SEE INSTRUCTIONS ADDT INFO RE Ile. TYPE OF ORGANIZATION 11f. JURISDICTION OF ORGANIZATION 11 g. ORGANIZATIONAL ID if any ORGANIZATION DEBTOR NONE 12. ADDITIONAL SECURED PARTY'S ASSIGNOR S/P'S NAME-insert only 4R9 name (12a or 12b) 12a. ORGANIZATION'S NAME OR 12b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX 12c. MAILING ADDRESS CITY STATE POSTAL CODE COUNTRY 13. This FINANCING STATEMENT covers 11 timber to be cut or as-extracted 16. Additional collateral description: collateral, or is filed as a fixture filing. 14. Description of real estate: See the instrument attached hereto and incorporated herein for all purposes. 15. Name and address of a RECORD OWNER of above-described real estate (if Debtor does not have a record interest): 17. Check gfh if applicable and check yply one box. Debtor is a Trust or Trustee acting with respect to property held In trust or Decedent's Estate 18. Check 2nly if applicable and check g illy one box. F Debtor is a TRANSMITTING UTILITY Filed in connection with a Manufactured-Home Transaction - effective 30 years Filed in connection with a Public-Finance Transaction - effective 30 years FILING OFFICE COPY - UCC FINANCING STATEMENT ADDENDUM (FORM UCC1Ad) (REV. 05/22102) DEUCCIAD - 10/07/02 C T System Online X063 MORTGAGE, DEED OF TRUST, LINE OF CREDIT MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING, ASSIGNMENT OF PRODUCTION AND . FINANCING STATEMENT 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. 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. A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW THE TRUSTEE OR MORTGAGEE TO TAKE THE COLLATERAL AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS MORTGAGE. FROM MATRIX PRODUCTION COMPANY (Mortgagor, Debtor and Grantor) TO Paul Cornell, Trustee for the benefit of UNION BANK, N.A., Mda Union Bank of California, N.A., as Administrative Agent (Mortgagee, Secured Party and Grantee) July 31, 2009 For purposes of filing this Mortgage as a financing statement, the mailing address of Mortgagor is 5725 Commonwealth Boulevard, Sugar Land, Texas 77479; Mortgagor is a corporation organized under the laws of the State of Texas and the Mortgagor's organizational number is TX0140134300, the mailing address of Mortgagee is 1331 Lamar, Suite 1360, 4 Houston Center, Houston, Texas 77010. This instrument, prepared by Sommer N. Louie, Bracewell & Giuliani, L.L.P., 711 Louisiana, South Tower Pennzoil Place, Suite 2300, Houston, Texas 77002, (713) 221-1363, contains after- HOUSTON\2308870 00639 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. This instrument creates a lien on rights in or relating to lands of Mortgagor which are described in Exhibit B hereto or in documents described in such Exhibit B. RECORDED DOCUMENT SHOULD BE RETURNED TO: BRACEWELL & GIULIANI, L.L.P. 711 Louisiana, South Tower Pennzoil Place, Suite 2900 Houston, Texas 77002 Attn: Mel Glina HOUSTON\2308870 C'Oi~64 MORTGAGE, DEED OF TRUST, LINE OF CREDIT MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT THE STATE OF WYOMING § COUNTY OF LINCOLN § WHEREAS, this instrument (the "Mortgage") dated effective as of the 31st day of July 2009, is executed and delivered by Matrix Production Company, a Texas corporation ("Mortgagor"), to Paul Cornell, as Trustee, for the benefit of Union Bank, N.A., (f/k/a Union Bank of California, N.A.) (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 Mortgagor, Mortgagee and the Trustee appear in Section 7.14 of this Mortgage. WHEREAS, this Mortgage is executed in connection with, and pursuant to the terms of, the Amended and Restated Credit Agreement dated as of July 31, 2009 (as hereafter renewed, extended, amended, supplemented and/or restated from time-to-time, the "Credit Agreement") among the Mortgagor, the lenders party ` thereto from time to time (the "Lenders"), and Mortgagee as administrative agent for the Lenders (the "Administrative Agent") and as issuing lender (the "Issuing Lender"). WHEREAS, Mortgagor or any of the other Obligors (as defined in the Credit Agreement) may from time-to-time enter into one or more Hedge Contracts (as defined in the Credit Agreement) with a Swap Counterparty (as defined in the Credit Agreement, and together with the Mortgagee, the Lenders, the Issuing Lender and the Administrative Agent being collectively referred to herein as the "Credit Parties"). NOW, THEREFORE, Mortgagor (a) wishes to make this Mortgage in favor of the Trustee for the benefit of Mortgagee to secure its obligations under the Credit Agreement, the other Loan Documents, and any Hedge Contract with a Swap Counterparty, and (b) hereby agrees as follows: ARTICLE I Definitions 1.1 "Collateral" means the Realty Collateral, Personalty Collateral and Fixture Collateral. 1.2 "Contracts" means all contracts, agreements, operating agreements, farm-out or farm-in agreements, sharing agreements, mineral purchase agreements, contracts for the purchase, exchange, transportation, processing or sale of Hydrocarbons, rights-of-way, HOUSTON12308870 1 000641 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 as 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 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 Section 1.10 which as a result of being incorporated into realty or structures or improvements located therein or thereon, with the intent that they remain there permanently, constitute fixtures under the laws of the state in which such equipment is located. 1.6 "Hydrocarbons" 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 "Notes" means the "Notes" as that term is defined in the Credit Agreement. 1.8 "Obligations" means.. (a) The "Obligations", as that term is defined in the Credit Agreement, including all indebtedness evidenced by the Notes; (b) All other indebtedness, obligations, and liabilities of Mortgagor or any of its Subsidiaries arising under the Credit Agreement, this Mortgage, or any of the other Loan Documents; (c) All other indebtedness, obligations and liabilities of any kind of Mortgagor owing to any of the Credit Parties now existing or hereafter arising under or pursuant to any Loan Document, whether fixed or contingent, joint or several, direct or indirect, primary or secondary, and regardless of how created or evidenced; (d) All sums advanced or costs or expenses incurred by Mortgagee or any of the other Credit Parties (whether by it directly or on its behalf by the Trustee), which are made or incurred pursuant to, or allowed by, the terms of this Mortgage plus interest thereon from the HOUSTON\2308870 2 t~ 3GI-7 date of the advance or incurrence until reimbursement of Mortgagee or such Lender charged at the maximum non-usurious rate permitted by applicable law; (e) All future advances or other value, of whatever class or for whatever purpose, at any time hereafter made or given by Mortgagee or any of the other Credit Parties to Mortgagor 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 Mortgagor is indebted to Mortgagee or any Lender at the time of such events; and (f) All renewals, extensions, modifications, amendments, rearrangements and substitutions of all or any part of the above whether or not Mortgagor executes any agreement or instrument. 1.9 "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, subleases, farmouts, royalties, overriding royalties, net profits interests, production payments and similar interests or estates described in Exhibit A and/or Exhibit B 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 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/or Exhibit B 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 and/or Exhibit B, (d) any and all non-consent interests owned or held by, or otherwise benefiting, 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 B, the land relating to the leases set forth in Exhibit B or in the documents described in Exhibit B, 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 the same, (g) any and all rights, titles and interests of 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 B 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. 1.10 "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, HOUSTON\2308870 3 ¢64_ 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 such equipment is located. 1.11 "Personalty Collateral" means all of 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 Mortgagee, the Administrative Agent, the Issuing Lender, or any Lender, including 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 of the foregoing. 1.12 "Property" means any property of any kind, whether real, personal, or mixed and whether tangible or intangible. 1.13 "Realty Collateral" means all of Mortgagor's interest now owned or hereafter acquired in and to the Oil and Gas Properties and all unsevered and unextracted Hydrocarbons (even though Mortgagor's interest therein may be incorrectly described in, or a description of a part or all of such interest may be omitted from, Exhibit A and/or Exhibit B). 1.14 "Security Termination" means such time at which each of the following events shall have occurred 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 or unwinding of all Hedge Contracts with Swap Counterparties or substitution of reasonably equivalent collateral acceptable to the applicable Swap Counterparty, (c) the termination or expiration of all Letters of Credit, (d) the termination of the obligations of the Issuing Lender and the Lenders in respect of Letters of Credit, and (e) the termination of all the Commitments. 1.15 All other capitalized terms 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 HOUSTON12308870 4 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 terms 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 term "including" means "including , without limitation,". ARTICLE II Creation of Security 2.1 Conveyance and Grant of Lien. In consideration of the advance or extension by the Credit Parties to Mortgagor of the funds or credit constituting the Obligations (including the making of the Advances and the issuing of the Letters of Credit), and in further consideration of the mutual covenants contained herein, Mortgagor, by this Mortgage does hereby GRANT, MORTGAGE, WARRANT, CONVEY, SELL, TRANSFER, ASSIGN AND CONVEY with a general warranty of title, 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 unto Trustee, and to his successor or successors or substitutes in trust, with power of sale, in trust to secure the payment and performance of the Obligations for the benefit of Mortgagee and the ratable benefit of the Credit Parties. TO HAVE AND TO HOLD the Realty Collateral, the Personalty Collateral and Fixture Collateral unto the Trustee and his successors or substitutes in trust and to his and their 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 performance of the covenants of Mortgagor contained in this Mortgage. Mortgagor does hereby bind itself, its successors and permitted assigns, to warrant and forever defend all and singular the Realty Collateral, the Personalty Collateral and the Fixture Collateral unto the Trustee and his successors or substitutes in trust, and their 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 Trustee, the Mortgagee, the Lenders, or the Credit Parties shall be liable in any respect for the performance of any covenant or obligation of the Mortgagor in respect of the Collateral. Any reference in Exhibit A and/or Exhibit B 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 unless expressly provided to the contrary in Exhibit A and/or Exhibit B. It is Mortgagor's intention that this instrument cover Mortgagor's entire interest in the lands, leases, units and other interests set forth in Exhibit A and/or Exhibit B. HOUSTON\2308870 5 00' 06 ~ 2.2 Security Interest. For the same consideration and to further secure the Obligations, Mortgagor hereby grants to Mortgagee for its benefit and the ratable benefit of the other Credit Parties a security interest in and to the Collateral. 2.3 Assignment of Liens and Security Interests. For the same consideration and to further secure the Obligations, Mortgagor hereby assigns and conveys to Mortgagee for its benefit and the benefit of the other Credit Parties the security interests held by Mortgagor arising under, and the liens granted to the Mortgagor pursuant to, Section 9.343 of the Texas Business and Commerce Code (as amended from time to time) and the Oil and Gas Products Lien Act, Section 48-9-1, et. Seq., New Mexico Statutes, 1978 Annotated, as amended from time to time. 2.4 New Mexico Aggregate Unpaid Principal Amount. AS TO ONLY THE COLLATERAL SITUATED IN THE STATE OF NEW MEXICO, THE AGGREGATE UNPAID PRINCIPAL AMOUNT OF THE SECURED OBLIGATIONS OUTSTANDING AT ANY PARTICULAR TIME (AFTER HAVING GIVEN EFFECT TO ALL ADVANCES AND ALL PREPAYMENTS MADE PRIOR TO SUCH TIME) WHICH IS SECURED BY PROPERTY LOCATED IN THE STATE OF NEW MEXICO SHALL NOT AGGREGATE AN UNPAID PRINCIPAL AMOUNT IN EXCESS OF FIFTY MILLION DOLLARS ($50,000,000). ARTICLE III Proceeds from Production 3.1 Assignment of Production. (a) In order to further secure the Obligations, Mortgagor has assigned, transferred, conveyed and delivered and does hereby assign, transfer, convey and deliver unto Mortgagee, effective as of the date hereof at 7:00 a.m. Houston, Texas time, all Hydrocarbons produced from, and which are attributable to, Mortgagor's interest, now owned or hereafter acquired, in and to the Oil and Gas Properties, or are allocated thereto pursuant to pooling 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 Mortgagee by virtue of the provisions of this Section 3. 1, are authorized and directed by Mortgagor to treat and regard Mortgagee as the assignee and transferee of Mortgagor and entitled in its place and stead to receive such Hydrocarbons and the proceeds therefrom. (c) Mortgagor directs and instructs each of such parties to pay to 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 Mortgagee shall have exercised the rights as herein to instruct such parties to deliver such Hydrocarbons and all proceeds therefrom directly to Mortgagee, such parties shall HOUSTON\2308870 6 '00 064f. be entitled to deliver such Hydrocarbons and all proceeds therefrom to Mortgagor for Mortgagor's use and enjoyment, and Mortgagor shall be entitled to execute division orders, transfer orders and other instruments as may be required to direct all proceeds to Mortgagor without the necessity of joinder by Mortgagee in such division orders, transfer orders or other instruments. Mortgagor agrees to perform 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 Mortgagee or any party in order to have said revenues and proceeds so paid to Mortgagee. None of such parties shall have any responsibility for the application of any such proceeds received by Mortgagee. Subject to the provisions of subsection (f) below, Mortgagor authorizes Mortgagee to receive and. collect all proceeds of such Hydrocarbons. (d) Subject to the provisions of subsection (f) below, Mortgagor will execute and deliver to Mortgagee any instruments Mortgagee may from time to time reasonably request for the purpose of effectuating this assignment and the payment to Mortgagee of the proceeds assigned. (e) Neither the foregoing assignment nor the exercise by Mortgagee of any of its rights herein shall be deemed to make 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 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 Mortgagee or by agreement with Mortgagor or the entering into possession of the Oil and Gas Properties or any part thereof by such receiver be deemed to make 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, 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. (g) Mortgagee may endorse and cash any and all checks and drafts payable to the order of Mortgagor or Mortgagee for the account of Mortgagor, received from or in connection with the proceeds of the Hydrocarbons affected hereby, and the same may be applied as provided herein. Mortgagee may execute any transfer or division orders in the name of Mortgagor or otherwise, with warranties and indemnities binding on Mortgagor; provided that Mortgagee shall not be held liable to Mortgagor for, nor be required to verify the accuracy of, Mortgagor's interests as represented therein. (h) Mortgagee shall have the right at Mortgagee's election and in the name of Mortgagor, or otherwise, to prosecute and defend any and all actions or legal proceedings deemed advisable by Mortgagee in order to collect such proceeds and to protect the interests of Mortgagee or Mortgagor, with all costs, expenses and attorneys fees incurred in connection therewith being paid by Mortgagor. In addition, should any purchaser taking production from the Oil and Gas Properties fail to pay promptly to Mortgagee in accordance with this Article, HOUSTON\2308870 7 47, 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 Mortgagee in making such election, so long as ordinary care is used in the making thereof, and upon failure of Mortgagor to consent to such change of connection, the entire amount of all the Obligations may, at the option of 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 Mortgagor receives any proceeds which under this Section 3.1 are payable to Mortgagee, Mortgagor shall hold the same in trust and, remit such proceeds, or cause them to be remitted, immediately, to Mortgagee. 3.2 Application of Proceeds. All payments received by Mortgagee pursuant to this Article III attributable to the interest of Mortgagor in and to the Hydrocarbons shall be applied in the order set forth in Section 7.06 of the Credit Agreement. 3.3 Mortgagor's Payment Duties. Except as provided in Section 7.19 hereof, nothing contained herein will limit 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 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 Mortgagee. 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 Mortgagor for proceeds actually received by Mortgagee. 3.5 Actions to Effect Assignment. Subject to the provisions of Section 3.1(f), Mortgagor covenants to cause all operators, pipeline companies, production purchasers and other remitters of said proceeds to pay promptly to 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 this assignment; and 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, Mortgagor covenants to provide to 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 Trustee or Mortgagee in the collection of said proceeds shall be repaid promptly by Mortgagor; and prior to such repayment, such expenses shall be a part of the Obligations secured hereby. If under 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 Mortgagor so that under such existing agreements payment cannot be made of such proceeds to Mortgagee in the absence of foreclosure, Mortgagor's interest in all proceeds of Hydrocarbons under such existing Contracts shall, when received by Mortgagor, constitute trust funds in Mortgagor's hands and shall be immediately paid over to Mortgagee. HOUSTON12308870 8 u`j0,64< 3.6 Power of Attorney. Without limitation upon any of the foregoing, Mortgagor hereby designates and appoints Mortgagee as true and lawful agent and attomey-in-fact (with full power of substitution, either generally or for such periods or purposes as Mortgagee may from time to time prescribe), with full power and authority, for and on behalf of and in the name of 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 Mortgagee, be necessary or proper to effect the intent and purpose of the assignment contained in this Article III; and Mortgagor shall be bound thereby as fully and effectively as if Mortgagor had personally executed, acknowledged and delivered any of the foregoing orders, certificates or documents. The powers and authorities herein conferred on Mortgagee may be exercised by Mortgagee through any person who, at the time of exercise, is the president, a senior vice president or a vice president of 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. All persons dealing with 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 Mortgagee that the Obligations are fully and finally paid. 3.7 INDEMNIFICATION. MORTGAGOR AGREES TO INDEMNIFY MORTGAGEE, THE TRUSTEE 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 AS A CONSEQUENCE OF THE ASSERTION EITHER BEFORE OR AFTER THE PAYMENT IN FULL OF THE 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. MORTGAGOR WILL INDEMNIFY AND PAY TO THE INDEMNIFIED PARTIES ALL SUCH AMOUNTS AS MAY BE PAID IN RESPECT THEREOF, OR AS MAY BE SUCCESSFULLY ADJUDICATED AGAINST ANY OF THE INDEMNIFIED PARTIES. THE INDEMNITY UNDER THIS SECTION SHALL APPLY TO CLAIMS ARISING OR INCURRED BY REASON OF THE PERSON BEING INDEMNIFIED'S OWN NEGLIGENCE BUT SHALL NOT APPLY TO CLAIMS ARISING OR INCURRED BY REASON OF THE PERSON BEING INDEMNIFIED'S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE LIABILITIES OF MORTGAGOR AS SET FORTH IN THIS SECTION 3.7 SHALL SURVIVE THE TERMINATION OF THIS MORTGAGE. ARTICLE IV Mortgagor's Warranties and Covenants 4.1 Payment of Obligations. Mortgagor covenants that Mortgagor shall timely pay and perform the Obligations secured by this Mortgage. HOUSTON12308870 9 4.2 Representations and Warranties. Mortgagor represents and warrants as follows: (a) Incorporation of Representations and Warranties from Credit Agreement. The representations and warranties contained in Article N 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. (b) Title to Collateral. Mortgagor has good and marketable title to the Collateral free from all Liens (as defined in the Credit Agreement), security interests or other encumbrances except as permitted 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 Mortgagor in and to the Oil and Gas Properties include the entire interests of 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 Mortgagor in the Oil and Gas Properties except as set forth on Exhibit A. No operating or other agreement to which Mortgagor is a party or by which Mortgagor is bound affecting any part of the Collateral requires Mortgagor to bear any of the costs relating to the Collateral greater than the leasehold interest of Mortgagor in such portion of the Collateral, except in the event 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 term mineral interests in the Oil and Gas Properties are valid, subsisting and in full force and effect, and Mortgagor has no knowledge that a default exists under any of the terms or provisions, express or implied, of any of such leases or interests or under any agreement to which the same are subject. All of the Contracts and obligations of Mortgagor that relate to the Oil and Gas Properties are in full force and effect and constitute legal, valid and binding obligations of Mortgagor. Neither Mortgagor nor, to the knowledge of Mortgagor, any other party to any leases or term mineral interests in the Oil and Gas Properties or any Contract (A) is in breach of or default, or with the lapse of time or the giving of notice, or both, would be in breach or default, with respect to any obligations thereunder, whether express or implied, or (B) has given or threatened to give notice of any default under or inquiry into any possible default under, or action to alter, terminate, rescind or procure a judicial reformation of, any lease in the Oil and Gas Properties or any Contract. (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. All taxes have been properly and timely paid. All expenses payable under the terms 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 Mortgagor's interests in certain Oil and Gas Properties, which 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 Mortgagor securing the Obligations, all of the proceeds from the sale of HOUSTON\2308870 10 U ky Hydrocarbons produced from the Realty Collateral are being properly and timely paid to Mortgagor by the purchasers or other remitters of production proceeds without suspense. 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 Exhibit A and/or Exhibit B and any other instruments or agreements affecting Mortgagor's ownership of the Hydrocarbons, afford Mortgagor not less than those net interests (expressed as a fraction, percentage or decimal) in the production from or which is allocated to such Hydrocarbons specified as net revenue interest on attached Exhibit A and will cause 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 therefrom have been properly classified under appropriate governmental regulations. (f) Gas Regulatory Matters. Mortgagor has filed with the appropriate state and federal agencies all necessary rate and collection filings and all necessary applications for well determinations 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 permitted 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 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. 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 from certain Oil and Gas Properties; provided, however, 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 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. (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 with all applicable federal, state and local laws and applicable rules and regulations of the federal, state and local regulatory authorities having jurisdiction thereof. HOUSTON\2308870 11 0) Regulatory Filings and Compliance. All necessary regulatory filings have been properly made in connection with the drilling, completion and operation of the wells on or attributable to the Oil and Gas Properties 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 permitted tolerances) imposed by any Governmental Authorities (as defined in the Credit Agreement). (1) Refund Obligations. 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) Proceeds Suspense. All proceeds from the sale of Mortgagor's interest in the Hydrocarbons from the Oil and Gas Properties are being received by Mortgagor in a timely manner and are not held in suspense for any reason. (n) Mortgagor's Address. The address of Mortgagor's place of business, residence, chief executive office and office where Mortgagor keeps its records concerning accounts, contract rights and general intangibles is as set forth in Section 7.14, and there has been no change in the location of Mortgagor's place of business, residence, chief executive office and office where it keeps such records and no change of Mortgagor's name during the four months immediately preceding the date of this Mortgage. Mortgagor hereby represents and warrants that its organizational number is TX0140134300, the state of its formation is Texas and the correct spelling of Mortgagor is as set forth in its signature block below. 4.3 Further Assurances. (a) Mortgagor covenants that Mortgagor shall execute and deliver such other and further instruments, and shall do such other and further acts as in the opinion of 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 Mortgagee's opinion are required to transfer to Mortgagee, for its benefit and the ratable benefit of the other Credit Parties, the assigned proceeds from the sale of Hydrocarbons from the Oil and Gas Properties; and (iv) prompt payment when due and owing of all taxes, assessments and governmental charges imposed on this Mortgage, upon the interest of Mortgagee or the Trustee or upon the income and profits from any of the above. (b) Mortgagor covenants that 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. HOUSTON\2308870 12 0 1 V165 (c) Mortgagor shall immediately notify Mortgagee of any discontinuance of or change in the address of Mortgagor's place of business, residence, chief executive office or office where it keeps records concerning accounts, contract rights and general intangibles. (d) Mortgagor shall not amend, supplement, modify or restate their articles or certificate of incorporation, bylaws, limited liability company agreements, or other equivalent organizational documents, or amend its name or change its jurisdiction of incorporation, organization or formation without prior written notice to, and prior consent of, the Mortgagee. 4.4 Operation of Oil and Gas Properties. As long as Security Termination has not occurred, and whether or not Mortgagor is the operator of the Oil and Gas Properties, Mortgagor shall (at 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 Mortgagor to keep, or cause to be kept, in full force and effect the Oil and Gas Properties and Mortgagor's interests therein; (c) neither abandon, forfeit, surrender, release, sell, assign, sublease, farmout or convey, nor agree to sell, assign, sublease, farmout 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) 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 pay or cause to be paid when due and owing (i) all rentals and royalties payable in respect of the Collateral; (ii) all expenses incurred in or arising from the operation or development of the Collateral; (iii) all taxes, assessments and governmental charges imposed upon the Collateral, upon the income and profits from any of the Collateral, or upon Mortgagee because of its interest therein; and (iv) all local, state and federal taxes, payments and contributions for which Mortgagor may be liable; and indemnify Mortgagee and Trustee from all liability in connection with any of the foregoing; (f) promptly take all action necessary to enforce or secure the observance or performance of any term, covenant, agreement or condition to be observed or performed by third parties under any Contract, or any part thereof, or to exercise any of its rights, remedies, powers and privileges under any Contract, all in accordance with the respective terms thereof, (g) cause the Operating Equipment and the Fixture Operating Equipment to be kept in good and effective operating condition, and cause to be made all repairs, renewals, HOUSTON\2308870 13 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 Trustee and Mortgagee (through any of their respective agents and employees) to enter upon the Oil and Gas Properties for the purpose 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, charges, security interests and encumbrances of every character other than (i) the Liens and security interests created and assigned by this Mortgage and (ii) the Permitted Liens (as defined in the Credit Agreement); 0) carry and maintain the insurance required by the Credit Agreement; (k) furnish to Mortgagee, upon request, copies of any Contracts; and (1) promptly perform all covenants express or implied in any Contract. 4.5 Recording. Mortgagor shall promptly (at 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 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 Inttrest 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 (as defined in the Credit Agreement) 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. Mortgagor shall keep proper books of record and account in which complete and correct entries shall be made of Mortgagor's transactions in accordance with the method of accounting required in the Credit Agreement and shall furnish or cause to be furnished to Mortgagee the reports required to be delivered pursuant to the terms of the Credit Agreement. 4.7 Insurance. To the extent that insurance is carried by a third-party operator on behalf of Mortgagor, upon request by Mortgagee, Mortgagor shall obtain and provide Mortgagee with copies of certificates of insurance showing Mortgagor as a named insured. Mortgagor hereby assigns to 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 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 Mortgagee may elect. Any insurance proceeds received by Mortgagor and due to Mortgagee shall be held in trust for the benefit of Mortgagee, shall be segregated from other funds of Mortgagor and shall be forthwith paid over to Mortgagee. HOUSTON12308870 14 ARTICLE V Default 5.1 Events of Default. An Event of Default under the terms of the Credit Agreement shall constitute an "Event of Default" under this Mortgage. 5.2 Acceleration Upon Default. Upon the occurrence of any Event of Default, or at any time thereafter, Mortgagee may, or shall at the request of the Majority Lenders, declare the entire unpaid principal of, and the interest accrued on, and all other amounts owed in connection with, 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 expreusly waived by Mortgagor. Whether or not Mortgagee or the Majority Lenders elect to accelerate as herein provided, Mortgagee may simultaneously, or thereafter, without any further notice to Mortgagor, exercise any other right or remedy provided in this Mortgage or otherwise existing under the Credit Agreement or any other Loan Documents. ARTICLE VI Mortgagee's Rights 6.1 Rights to Realty Collateral Upon Default. (a) Operation of Property by Mortgagee. Upon the occurrence of any Event of Default, or at any time thereafter, and in addition to all other rights of Mortgagee, 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 Mortgagor therefrom; (ii) To hold, use, administer, manage and operate the Realty Collateral to the extent that Mortgagor could do so, and without any liability to Mortgagor in connection with such operations; and (iii) To the extent that 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 Mortgagor with respect to the Realty Collateral. Mortgagee may designate any person, firm, corporation or other entity 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 Mortgagor (providing there has been no foreclosure sale). (b) Judicial Proceedings. Upon the occurrence of any Event of Default, or at any time thereafter, the Trustee and/or Mortgagee, in lieu of or in addition to exercising the HOUSTON\2308870 15 0011 00G5 power of sale hereafter given, 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 Texas, in the State of New Mexico, and in the State of Wyoming, the Trustee may proceed by suit for a sale of the Realty Collateral. (c) Foreclosure by Private Power of Sale of Collateral. Upon the occurrence of an Event of Default, or at any time thereafter, the Trustee shall have the right and power to sell, as the Trustee may elect, all or a portion of the Collateral at one or more sales as an entirety or in parcels, in accordance with Section 51.002 of the Texas Property Code, as amended from time to time (or any successor provisions of Texas governing real property foreclosure sales) or with any applicable state law of where any of the Collateral is located. Mortgagor hereby designates as Mortgagor's address for the purpose of notice the address set out in Section 7.14; provided that Mortgagor may by written notice to Mortgagee designate a different address for notice purposes. Any purchaser or purchasers will be provided with a special warranty conveyance binding Mortgagor and Mortgagor's successors and assigns. 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. In Wyoming 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., 2001, § § 34-4-102 et seq. , as amended from time to time. (d) Certain Aspects of Sale. Mortgagee will have the right to become the purchaser at any foreclosure sale and to credit the then outstanding balance of the Obligations against the amount payable by 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, the appointment of any successor-Trustee hereunder and the truth and accuracy of all other matters stated therein. Mortgagor does hereby ratify and confirm all legal acts that the Trustee may do in carrying out the Trustee's duties and obligations under this Mortgage, and Mortgagor hereby irrevocably appoints Mortgagee to be the attorney-in-fact of Mortgagor and in the name and on behalf of Mortgagor to execute and deliver any deeds, transfers, conveyances, assignments, assurances and notices which Mortgagor ought to execute and deliver and do and perform any and all such acts and things which Mortgagor ought to do and perform under the covenants herein contained and generally to use the name of Mortgagor in the exercise of all or any of the powers hereby conferred on Trustee. Upon any sale, whether under the power of sale hereby given or by virtue of judicial proceedings, it shall not be necessary for Trustee 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 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. HOUSTON\2308870 16 ,1~65 (e) Receipt to Purchaser. Upon any sale made under the power of sale herein granted, the receipt of the Trustee will be sufficient discharge to the purchaser of 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 Trustee, 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 Mortgagor in and to the premises and the Realty Collateral sold, and will be a perpetual bar, both at law and in equity, against Mortgagor, 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 Mortgagor, or Mortgagor's successors or assigns. Nevertheless, if requested by the Trustee so to do, 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 Mortgagor agrees that if Mortgagor retains possession of the Realty Collateral or any part thereof subsequent to such sale, 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 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 either be, at the option of Mortgagee, applied at the time of receipt, or held by Mortgagee in the Cash Collateral Account as additional Collateral, and in either case, applied in the order set forth in Section 7.06 of the Credit Agreement. (h) Mortgagor's Waiver ofAppraisement and Marshalling. Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that 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 Mortgagor, for Mortgagor and all who may claim through or under Mortgagor, hereby waives the benefit of all such laws and, to the extent that 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. Mortgagor agrees that the Trustee may sell the Collateral, including the Realty Collateral, in part, in parcels or as an entirety as directed by Mortgagee. 6.2 Rights to Personalty Collateral Upon Default. Upon the occurrence of an Event of Default, or at any time thereafter, Mortgagee or the Trustee may proceed against the Personalty Collateral in accordance with the rights and remedies granted herein with respect to the Realty Collateral, or will have all rights and remedies granted by the Uniform Commercial HOUSTON\2308870 17 Code as in effect in Texas and this Mortgage. Mortgagee shall have the right to take possession of the Personalty Collateral, and for this purpose Mortgagee may enter upon any premises on which any or all of the Personalty Collateral is situated and, to the extent that Mortgagor could do so, take possession of and operate the Personalty Collateral or remove it therefrom. Mortgagee may require Mortgagor to assemble the Personalty Collateral and make it available to Mortgagee at a place to be designated by Mortgagee which is reasonably convenient to both parties. Unless the Personalty Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Mortgagee will send 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 Mortgagor at the address designated in Section 7.14 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, 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 from the sale or other disposition toward satisfaction of the Obligations. Mortgagor will remain liable for any deficiency remaining after the sale or other disposition. 6.3 Riuhts to Fixture Collateral Upon Default. Upon the occurrence of an Event of Default, or at any time thereafter, 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. Mortgagee may, in its discretion, after the occurrence and during the continuance of an Event of Default, notify any account debtor to make payments directly to Mortgagee and contact account debtors directly to verify information furnished by Mortgagor. 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 Mortgagee (either by it directly or on its behalf by the Trustee or any receiver appointed hereunder) in protecting and enforcing its rights hereunder shall constitute a demand obligation owing by Mortgagor to Mortgagee as part of the Obligations. Mortgagor hereby agrees to repay such sums on demand plus interest thereon from the date of the advance or incurrence until reimbursement of Mortgagee at the maximum non-usurious rate permitted by applicable law. 6.6 Set-Off. Upon the occurrence of any Event of Default, Mortgagee shall have the right to set-off any funds of Mortgagor in the possession of Mortgagee against any amounts then due by Mortgagor to Mortgagee pursuant to this Mortgage. 6.7 SALE OF MORTGAGED PROPERTY LOCATED IN NEW MEXICO. PURSUANT TO SECTION 39-5-19 OF THE NEW MEXICO STATUTES, 1978 ANNOTATED, THE PARTIES HERETO AGREE THAT THE REDEMPTION PERIOD FOLLOWING ANY SALE OR ANY PART OF THE COLLATERAL LOCATED IN NEW MEXICO SHALL BE ONE MONTH INSTEAD OF NINE MONTHS. NOTWITHSTANDING THE PROVISIONS HEREOF RELATING TO THE NON-JUDICIAL POWER OF SALE, THIS INSTRUMENT, INSOFAR AS IT COVERS PROPERTY HOUSTON\2308870 18 LOCATED IN THE STATE OF NEW MEXICO, SHALL BE DEEMED A MORTGAGE UNDER THE LAWS OF THE STATE OF NEW MEXICO WITH JUDICIAL FORECLOSURE AS PROVIDED BY THE LAWS OF THE STATE OF NEW MEXICO. TO THE EXTENT, IF ANY, REQUIRED TO CAUSE THIS INSTRUMENT TO BE SO EFFECTIVE AS A MORTGAGE WITH RESPECT TO THAT PORTION OF THE COLLATERAL LOCATED IN THE STATE OF NEW MEXICO, MORTGAGOR DOES HEREBY GRANT AND MORTGAGE SUCH COLLATERAL TO THE MORTGAGEE AND ITS SUCCESSORS AND ASSIGNS FOR THE BENEFIT OF THE CREDIT PARTIES, IN ACCORDANCE WITH THE TERMS HEREOF. ARTICLE VII Miscellaneous 7.11 Successor Trustees. The Trustee may resign in writing addressed to Mortgagee or be removed at any time with or without cause by an instrument in writing duly executed by Mortgagee. In case of the death, resignation or removal of the Trustee, a successor Trustee may be appointed by Mortgagee by instrument of substitution complying with any applicable requirements of law, and in the absence of any requirement, without other formality other than an appointment and designation in writing. The appointment and designation will vest in the named successor Trustee all the estate and title of the Trustee in all of the Collateral and all of the rights, powers, privileges, immunities and duties hereby conferred upon the Trustee. All references herein to the Trustee will be deemed to refer to any successor Trustee from time to time acting hereunder. 7.2 Advances by Mortgagee or The Trustee. Each and every covenant of Mortgagor herein contained shall be performed and kept by Mortgagor solely at Mortgagor's expense. If Mortgagor fails to perform or keep any of the covenants of whatsoever kind or nature contained in this Mortgage, Mortgagee (either by it directly or on its behalf by the Trustee or any receiver appointed hereunder) may, but will not be obligated to, make advances to perform the same on Mortgagor's behalf, and 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 Mortgagee at the maximum non-usurious rate permitted by applicable law. In addition, Mortgagor hereby agrees to repay on demand any costs, expenses and attorney's fees incurred by Mortgagee or the Trustee which are to be obligations of Mortgagor pursuant to, or allowed by, the terms of this Mortgage, including such costs, expenses and attorney's fees incurred pursuant to Section 3.1(h), Section 6.5 or Section 7.3 hereof, plus interest thereon from the date of the advance by Mortgagee or the Trustee until reimbursement of Mortgagee or the Trustee, respectively, at the lesser of (a) maximum non- usurious rate permitted by applicable law and (b) the Adjusted Reference Rate in effect from time to time plus the Applicable Margin plus 3.00% per annum. Such amounts will be in addition to any sum of money which may, pursuant to the terms and conditions of the written instruments comprising part of the Obligations, be due and owing. No such advance will be deemed to relieve Mortgagor from any default hereunder. 7.3 Defense of Claims. Mortgagor shall promptly notify Mortgagee in writing of the commencement of any legal proceedings affecting Mortgagor's title to the Collateral or HOUSTON\2308870 19 0 ICY65 Mortgagee's Lien or security interest in the Collateral, or any part thereof, and shall take such action, employing attorneys agreeable to Mortgagee, as may be necessary to preserve Mortgagor's, the Trustee's and Mortgagee's rights affected thereby. If Mortgagor fails or refuses to adequately or vigorously, in the sole judgment of Mortgagee, defend Mortgagor's, the Trustee's or Mortgagee's rights to the Collateral, the Trustee or Mortgagee may take such action on behalf of and in the name of Mortgagor and at Mortgagor's expense. Moreover, Mortgagee or the Trustee on behalf of Mortgagee, may take such independent action in connection therewith as they may in their 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 Mortgagee or the Trustee pursuant to this Section 7.3 or in connection with the defense by Mortgagee of any claims, demands or litigation relating to Mortgagor, the Collateral or the transactions contemplated in this Mortgage shall be paid by Mortgagor on demand plus interest thereon from the date of the advance by Mortgagee or the Trustee until reimbursement of Mortgagee or the Trustee, respectively, at the maximum non-usurious rate permitted by applicable law. 7.4 Termination. If Security Termination has occurred and the covenants herein contained are well and fully performed then all of the Collateral (to the extent not sold, assigned or otherwise transferred as permitted herein or under applicable law) will revert to Mortgagor and the entire estate, right, title and interest of the Trustee and Mortgagee will thereupon cease; and Mortgagee in such case shall, upon the request of Mortgagor and the payment by Mortgagor of all attorneys' fees and other expenses, deliver to Mortgagor proper instruments acknowledging satisfaction of this Mortgage. 7.5 Renewals, Amendments and Other Security. Without notice or consent of 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. Mortgagee may take or hold other security for the Obligations without notice to or consent of Mortgagor. The acceptance of this Mortgage by Mortgagee shall not waive or impair any other security 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 Trustee or Mortgagee may resort first to such other security or any part thereof, or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action 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 Mortgagor and Mortgagee. 7.6 Security Agreement, Financing Statement and Fixture Filing. 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 any one 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 after 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 COLLATERAL. This Mortgage shall be filed HOUSTON\2308870 20 0/ 0 0 6 6 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 any Collateral or Mortgagor is located. At Mortgagee's request 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 of the Secretary of State or other appropriate office of the state in which any of the Collateral or Mortgagor is located or where Mortgagor has its principal place of business or in the county where Mortgagor has its principal place of business. Furthermore, Mortgagor hereby irrevocably authorizes Mortgagee and any affiliate, employee or agent thereof, at any time and from time to time, to file in any Uniform Commercial Code jurisdiction any financing statement or document and amendments thereto, without the signature of 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. 7.7 Line of Credit. THIS INSTRUMENT CONSTITUTES A LINE OF CREDIT MORTGAGE PURSUANT TO SECTION 48-7-4 OF THE NEW MEXICO STATUTES, 1978 ANNOTATED, AS AMENDED FROM TIME TO TIME. 7.8 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 Trustee and Mortgagee in order to carry out the provisions hereof. 7.9 Rights Cumulative. Each and every right, power and remedy herein given to the Trustee or 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 from time to time and as often and in such order as may be deemed expedient by the Trustee, or 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 Trustee or by 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. 7.10 Waiver by Mortgagee. Any and all covenants in this Mortgage may from time to time by instrument in writing by Mortgagee and the Majority Lenders, be waived to such extent and in such manner as the Trustee or Mortgagee may desire, but no such waiver will ever affect or impair either the Trustee's or Mortgagee's rights hereunder, except to the extent specifically stated in such written instrument. 7.11 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 Mortgagor. If more than one person executes this Mortgage as Mortgagor, his, her, its, or their duties and liabilities under this Mortgage will be joint and several. The terms "Mortgagee", "Mortgagor", and "Trustee" as used in this Mortgage include the heirs, executors or administrators, successors, representatives, receiver, trustees and assigns of those parties. Unless HOUSTON\2308870 21 X13 0660!., the context otherwise requires, terms used in this Mortgage which are defined in the Uniform Commercial Code of Texas are used with the meanings therein defined. 7.12 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 and/or Exhibit B hereto which describe Properties situated in counties other than the counties in which such counterpart is to be recorded may have been omitted. 7.13 Governing Law. This Mortgage shall be governed by and construed in accordance with the laws of the State of Texas, except the creation, recording, enforcement, and foreclosure of the lien and security interest on a Collateral created by this Mortgage shall be governed by the laws of state in which such Collateral is located. 7.14 Notice. All notices required or permitted to be given by Mortgagor, Mortgagee or the Trustee shall be made in the manner set forth in the Credit Agreement and shall be addressed as follows: Mortgagor: Matrix Production Company 5725 Commonwealth Boulevard Sugar Land, Texas 77479 Attention: Victor T. Linck Facsimile: 281-265-1778 Mortgagee: Union Bank, N.A. 1331 Lamar, Suite 1360 4 Houston Center Houston, Texas 77010 Attention: Mr. Paul Cornell Facsimile: 713-286-3051 Trustee: Any notices to be given to the Trustee shall be delivered to Mortgagee. 7.15 Duties of Trustee. It shall be no part of the duty of the Trustee to see to any recording, filing or registration of this Mortgage or any other instrument in addition or supplemental hereto, or to see to the payment of or be under any duty with respect to any tax or assessment or other governmental charge which may be levied or assessed on the Collateral, any part thereof, or against Mortgagor, or to see to the performance or observance by Mortgagor of any of the covenants and agreements contained herein. Trustee shall not be responsible for the execution, acknowledgment or validity of this Mortgage or of any instrument in addition or supplemental hereto or for the sufficiency of the security purported to be created hereby, and makes no representation in respect thereof or in respect of the rights of Mortgagee. Trustee shall have the right to seek the advice of counsel upon any matters arising hereunder and shall be fully protected in relying as to legal matters on the advice of counsel. Trustee shall not incur any personal liability hereunder except for his own willful misconduct; and the Trustee shall have the HOUSTON\2308870 22 right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by him hereunder, believed by him in good faith to be genuine. 7.16 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 Mortgagee. Mortgagee is hereby authorized to collect and receive the proceeds of such awards and payments and to give proper receipts and acquittances therefor. 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 Mortgagee free and clear of any encumbrances of any kind or nature whatsoever. Any such award or payment may, at the option of Mortgagee, be retained and applied by 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 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. 7.17 Successors and Assigns. (a) This Mortgage is binding upon Mortgagor, Mortgagor's successors and assigns, and shall inure to the benefit of the Trustee, the Mortgagee, the Issuing Lender, and each of the Lenders, and each of their respective 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 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 transfer or assignment by the Credit Patties (or any of them) of any of the Obligations, the legal transfer or assignment by the Credit Parties (or any of them) of any of the Obligations, the legal holder of such Obligations shall have all of the rights granted to the Mortgagee for the benefit of the Credit Parties under this Mortgage. The Mortgagor specifically agrees that 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) The Mortgagor 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 HOUSTON\2308870 23 'C 0, uG G respect to such Collateral, and transferee thereafter shall be vested with all the powers, rights and duties with respect 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 terms of such agreement, that other Person shall thereupon become vested with all the benefits held by such Secured Party under this Mortgage only if such Person is also then a Lender or an Affiliate of a Lender. 7.18 Article and Section Headinp-s. 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. 7.19 Usury Not Intended. It is the intent of Mortgagor and Mortgagee in the execution and performance 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 Texas and the United States of America as are from time-to-time in effect. In furtherance thereof, Mortgagee and Mortgagor stipulate and agree that none of the terms 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 permitted 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 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 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 Mortgagor). In the event that the maturity of the Obligations is accelerated by reason of any election of Mortgagee resulting from any 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 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, Mortgagor and 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. 7.20 Credit Agreement. 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 HOUSTON\2308870 24 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 govern and control for all purposes; provided that the inclusion in this Mortgage of terms and provisions, supplemental rights or remedies in favor of the Secured Party 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. 7.21 Due Authorization. Mortgagor hereby represents, warrants and covenants to Mortgagee and the Trustee that the obligations of Mortgagor under this Mortgage are the valid, binding and legally enforceable obligations of Mortgagor, that the execution, ensealing and delivery of this Mortgage by Mortgagor has been duly and validly authorized in all respects by Mortgagor, and that the persons who are executing and delivering this Mortgage on behalf of 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 Mortgagor's part to be observed or performed. 7.22 No Offsets, Etc. Mortgagor hereby represents, warrants and covenants to Mortgagee and the Trustee that there are no offsets, counterclaims or defenses at law or in equity against this Mortgage, the Existing Mortgage, or the indebtedness secured thereby. 7.23 Bankruptcy 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 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 United States Bankruptcy Code or any comparable provision of any other applicable law. THIS WRITTEN AGREEMENT AND THE OTHER 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.] HOUSTON\2308870 25 UIViy66F, NOTICE TO MORTGAGOR: A POWER OF SALE HAS BEEN GRANTED IN THE MORTGAGE AND IN THIS AMENDMENT. 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 THE MORTGAGOR UNDER. THE MORTGAGE AND UNDER THIS AMENDMENT. EXECUTED AND DELIVERED on the date of the acknowledgments set forth below, but EFFECTIVE for all purposes as of the date first above written. . MORTGAGOR: MATRIX PRODUCTION COMPANY, a Texas corporation By: i . L' ck President STATE OF CALIFORNIA COUNTY OF SONOMA On July 31 , 2009, before me, E A Fbuj tau y P , t Personally appeared Victor T. Linck, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to the within instrument and.acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature f- a • jtq~- (Seal) nunnm ~mnnunxmm~unnE nA ~FOUSTummmiaun= COMM. #1734418 z Notary Public - California g Sonoma County a M Comm. Excires Mar. 26, 20111 ~nxnn nmiu~ mnnnmm~a~am nnammnnnnnmmmnnun~ HOUSTON\2308870 Signature Page to Mortgage (Wyoming) STATE OF TEXAS § COUNTY OF HARRIS § MORTGAGEE: UNION BANK, N.A. (f/k/a Union Bank of California, N.A.), as Mortgagee for the ratable benefit of the Credit Parties By: -pz? Q ~ t:<-::: z -2~ ~ Paul Cornell Senior Vice President This instrument was acknowledged before me on thii~day of July, 2009, by Paul Cornell, as Senior Vice President of Union Bank, N.A. (f/k/a Union Bank of California, N.A.), a national banking association, on behalf of said banking association. ~\~FT~bja JACKI ROOK Notary Public, State of Texas My Commission Expires January 13, 2012 otary Public ' and for t as Printed Name: y"~-~1-' My commission expires: a 1 . % 3 .:101-]._. HOUSTON\2308870 Signature Page to Mortgage (Wyoming) EXHIBIT A TO MORTGAGE, DEED OF TRUST, LINE OF CREDIT MORTGAGE, SECURITY AGREEMENT, FIXTURE FILING, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT HOUSTON\2308870 O O O O M N N N N N N O O N O O O O O O O O O O f~ S O O O O O O v O YI ONpmmm m m r n C7 P7 O O O O N O M O O O O m n O N p r M ~7 t7 N O O O n o7 n pp O W N O O u] n$ g u7 (7 C) C7 co 0 m o o C1 O p W 7 m.' S S 0,30 w r 0 0 C) C) C1 N O N W W N O O N N O 4 N N N N C) t2 t7 mmm F! 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S 8 N N m O 0 t0 pp O O O C1 N U) $ O t~1 f0 n m 4'! m m U1 LO Lp r O O N LV N N O O O O N O O pp 0 0 0 !7 O O N p pp O pp m m m 0 0 0 O pp 000 O O m O O m O O O mN W O~ W LD IAm Ol OLm W 01 OL U)U) 0000 W T W 01m W 0(7NN01a W W m W W tDm~aa (A 10 L0m tD W N LocoW ..O) O0O0O0 0O 0 0 0 0 0 0 0 0 00 0 9 0 0 0 0 00 O O O 0 0 O D 0 0 O O O O 0 N U) U) N U7 N N U) U) U) h U/ h U) N U) N N Ln N m U) Lf1 N N N N Z N m U1 O O LO N U) U) N N LO U1 U) U7 N U) 1f1 LO N U) N U) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 C O 0 O GO 0 0 0 0 0 0 0 0 0 0 'U 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 G0 O u uu 0 uu uT3u't3'tiu 0 uut3u uu$-t'i$uu u ufuu'ti u'u:iu'ut3'tiuu uuuuu sBtt'ti u•tiu'B uu uut' 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7. 7 7 7 7 J 7 M. M 7 J 7 7 7 7 Z Z J 7 7 J J 7 7 7 J 7 7 J 7 7 7 7 J 7 7 7 7 7 7 e e~~ ~88~g8~8o ooo$ e~ ~~~ee$2 22Ee$2 222 E E 2 U.aaaaaa0.aaa.aaMallo.aaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaaa ~0R.9 Imo 0 0 0 0 0 tttppp N N O W r N W W W O O o o o o S 8 o $ Ir c7 1r a0 O~ 1~ N N O N O O O N N N N N 01 T O) O m -j V- F- to CO OD tO CO W tO lO tO W AAAAM N m NW~i m N > > > T > 0 0 0 U U N N YN oS €€o 0 0 a aE ~ ~FF m N W 3 LL . v m v m c x x x, m m c r oo++nn X00 x8~~e maaCL CL v Z 0 J V Z O WQ a W IL O z O Z O W F W a R z 0 z v N a_ X 2 W Z O J J W x a J. Fa- O °vvgva !'Jqv o ► EXHIBIT B TO MORTGAGE, DEED OF TRUST, LINE OF CREDIT MORTGAGE, SECURITY AGREEMENT FIXTURE FILING ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT The designation "Working Interest" or "WI" when used in this Exhibit means an interest owned in an oil, gas, and mineral lease that determines the cost-bearing percentage of the owner of such interest. The designation "Net Revenue Interest" or "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. The designation "Overriding Royalty Interest" "ORRI" means an interest in production which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the overriding royalty interest so provides, costs associated with compression, dehydration, other treating or processing, or transportation of production of oil, gas, or other minerals relating to the marketing of such production. The designation "Royalty Interest" or "RI" means an interest in production which results from an ownership in the mineral fee estate or royalty estate in the relevant land and which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the royalty interest so provides, costs associated with compression, dehydration, other treating or processing or transportation of production of oil, gas, or other minerals relating to the marketing of such production. Each amount set forth as "Working Interest" or "WI" or "Net Revenue Interest" or "NRI" or "NRIO" or "NRIG" 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 B or in Exhibit A and any other instruments or agreements affecting Mortgagor's ownership of the Hydrocarbons. Any reference in this Exhibit B 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 Mortgage. All right, title, and interest of Mortgagor in the. Properties described herein and in Exhibit A are and shall be subject to this Mortgage, regardless of the presence of any units or wells not described herein. 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. HOUSTON12308870 W _ N C W J z U~0 o N Y 1 OO N 01 m n w rn W!W N,N µI > z 00 0 o N N N 0! 0 r r r n w m rn m WI N 0 I I n lm m rn W N W > Z 0 I . m W N W ' > Z 0 I . n W N W + . 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