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HomeMy WebLinkAbout964896RECEIVED 6/4/2012 at 11:15 AM RECEIVING 964896 BOOK: 787 PAGE: 191 JEANNE WAGNER LINCOLN COUNTY CLERK, KEMMERER, WY PARK CITIES BANK Article One Definitions 00191 SECURITY AGREEMENT THIS SECURITY AGREEMENT is entered into effective as of May 18, 2012, by and between David M. Reavis, a Texas resident; Lodestone Operating Inc., a Delaware corporation; and Lodestone Operating, LLC, a Texas limited liability company, (collectively the "Borrower and Park Cities Bank, "Bank Borrower and Bank agree as follows: 1.1 Terms Defined in Code. Terms (whether or not capitalized) defined in the Code which are not otherwise defined in this Security Agreement are used herein as defined in the Code as in effect on the date hereof. 1.2 Definitions of Certain Terms Used Herein. As used in this Security Agreement, the following terms shall have the following meanings: "Account Debtor" means any Person who is or who may become obligated to Borrower under, with respect to, or on account of an Account. "Accounts" mean any "account," as such term is defined in Chapter 9 of the Code, now owned or hereafter acquired by Borrower, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Borrower: (a) all rights of Borrower to payment for goods sold or leased or services rendered or the license of Intellectual Property, whether or not earned by performance, (b) all accounts receivable of Borrower, (c) all rights of Borrower to receive any payment of money or other form of consideration, (d) all security pledged, assigned, or granted to or held by Borrower to secure any of the foregoing, and (e) all guaranties of, or indemnifications with respect to, any of the foregoing. "Article" means a numbered article of this Security Agreement, unless another document is specifically referenced. "As- Extracted Collateral" means all of the Debtor's oil, gas, or other minerals that are subject to a security interest that is created by a Debtor having an interest in the minerals before extraction; and attaches to the minerals as extracted; or accounts arising out of the sale at the wellhead or minehead of oil, gas, or other minerals in which the Debtor had an interest before extraction. "Bank" includes Bank's successors and assigns. "Code" means the Uniform Commercial Code as in effect in the State of Texas, as the same has been or may be amended or revised from time to time, or, if so required with respect to any particular Collateral by mandatory provisions of applicable law, as in effect in the jurisdiction in which such Collateral is located. "Collateral" means all Accounts, Equipment, Inventory, As- Extracted Collateral and the Other Collateral wherever located, in which Borrower now has or hereafter acquires any right or interest, and the Proceeds and products thereof, together with all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related thereto. "Control" shall have the meaning set forth in Chapter 8 and Chapter 9 of the Code. "Effective Date" means the date of this Security Agreement. "Equipment" means any "equipment," as such term is defined in Chapter 9 of the Code, now owned or hereafter acquired by Borrower and, in any event, shall include, without limitation, all machinery, equipment, furnishings, fixtures and vehicles now owned or hereafter acquired by Borrower and any and all additions, substitutions, and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment, and accessories installed thereon or affixed thereto. "Inventory" means any "inventory," as such term is defined in Chapter 9 of the Code, now owned or hereafter acquired by Borrower, and, in any event, shall include, without limitation, each of the following, whether now owned or hereafter acquired by Borrower: (a) all goods and other personal property of Borrower that are held for sale or lease or to be furnished under any contract of service, (b) all raw materials, work -in- process, finished goods, inventory, supplies, and materials of Borrower,(c) all As- Extracted Collateral, and (d) all goods that have been returned to, repossessed by, or stopped in transit by Borrower. "Indebtedness" means (a) all indebtedness, obligations and liabilities of Borrower to Bank of any kind or character, now existing or hereafter arising, including but not limited to the Note, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, and regardless of whether such indebtedness, obligations and liabilities may, prior to their acquisition by Bank be or have been payable to or in favor of a third party and subsequently acquired by Bank (it being contemplated that Bank may make such acquisitions from third parties), including without limitation all indebtedness, obligations and liabilities of Borrower to Bank now existing or hereafter arising by note, draft, acceptance, guaranty, endorsement, letter of credit, assignment, purchase, overdraft, discount, indemnity agreement or otherwise, (b) all accrued but unpaid interest on any of the indebtedness described in (a) above, (c) all obligations of Borrower to Bank (both including monetary and non monetary) under any documents evidencing, security, governing and /or pertaining to all or any part of the indebtedness described in (a) and (b) above, (d) all costs and expenses incurred by Bank in connection with the collection and administration of all or any part of the indebtedness and oblations described in (a), (b) and (c) above or the protection or preservation of, or realization upon, the collateral security all or any part of such indebtedness and obligations, including without limitation all reasonable attorneys' fees, and (e) all renewals, extensions, modifications, increases, and rearrangements of the indebtedness and obligations described in (a), (b), (c) and (d) above. "Lien" means any lien, security interest, Tax lien, mechanic's lien, materialman's lien, or other encumbrance, whether arising by contract or under Law. "Loan Agreement" means the Credit Agreement dated effective May 18, 2012, between Bank and Borrower, as such may be amended, replaced, renewed and extended from time to time. Security Agreement Page 2 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC J0192 00193 "Loan Documents" means the Loan Agreement, this Security Agreement, the Note (including any renewals, extensions and refinancings thereof) and all other documents which secure, guarantee, or otherwise relate to the Note, as such may be amended or replaced from time to time. "Note" means collectively the Promissory Note dated May 18, 2012, in the original principal amount of $5,000,000.00 executed by Borrower and payable to the order of Bank as such may be amended, increased, restated, renewed and extended from time to time. "Obligated Party" means any party other than Borrower who secures, guarantees and /or is otherwise obligated to pay all or any portion of the Indebtedness. "Other Collateral" means all other property of Borrower now owned or hereafter acquired, other than real estate, not included within the specifically defined terms of Accounts, Equipment, and Inventory including Chattel Paper, Instruments, Commercial Tort Claims, Deposit Accounts, Documents, Fixtures, General Intangibles, Health Care Insurance Receivables, Intellectual Property, Instruments, Financial Assets, Investment Property and Letter of Credit Rights. Certain items of the Other Collateral are more fully described in Schedule One attached. "Proceeds" means any "proceeds," as such term is defined in Chapter 9 of the Code and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty, or guaranty payable to Borrower from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure, or forfeiture of all or any part of the Collateral by any Tribunal (or any person acting under color of Tribunal), and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Section" means a numbered Section of this Security Agreement, unless another document is specifically referenced. "Security Agreement" means this Security Agreement and all amendments, replacements, renewals, and extensions to this Security Agreement. "Tribunal" means any state, commonwealth, federal, foreign, territorial, or other court or governmental department, commission, board, bureau, agency, or instrumentality. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Article Two Grant of Security Interest 2.1 Security Interest. Borrower hereby pledges, assigns and grants to Bank a continuing security interest in all of Borrower's right, title and interest in and to the Collateral to secure the prompt and complete payment and performance of the Indebtedness and the performance of Borrower's obligations under the Loan Documents. Security Agreement Page 3 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 2.2 Borrower Remains Liable. Notwithstanding anything to the contrary contained herein, (a) Borrower shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its respective duties and obligations thereunder to the same extent as if this Security Agreement had not been executed, and (b) Bank shall not have any obligation or liability under any of the contracts and agreements included in the Collateral by reason of this Security Agreement, nor shall Bank be obligated to perform any of the obligations or duties of Borrower thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 2.3 Authorization to File Financing Statements. Borrower hereby irrevocably authorizes Bank at any time and from time to time to prepare and file one or more financing statements describing the Collateral as the Collateral exists on the effective date of this Security Agreement and, also, as the description and type of the Collateral may change in the future. Article Three Representations and Warranties Borrower represents and warrants to Bank that: 3.1 Title, Authorization, Validity and Enforceability. Borrower has good and valid rights in and title to the Collateral, free and clear of all Liens except for Liens described in Schedule One, and has full power and authority to grant to Bank the security interest in such Collateral pursuant hereto. The execution and delivery by Borrower of this Security Agreement has been duly authorized by proper entity proceedings, and this Security Agreement constitutes a legal, valid and binding obligation of Borrower and creates a security interest which is enforceable against Borrower in all now owned and hereafter acquired Collateral. When financing statements have been filed in the appropriate offices against Borrower, Bank will have a fully perfected first priority security interest in that Collateral in which a security interest may be perfected by filing, subject only to Liens described in Schedule One. 3.2 Conflicting Laws and Contracts. Neither the execution and delivery by Borrower of this Security Agreement, the creation and perfection of the security interest in the Collateral granted hereunder, nor compliance with the terms and provisions hereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Borrower or Borrower's articles or certificate of incorporation, bylaws, articles of organization or operating agreement or other charter documents, as the case may be, the provisions of any indenture, instrument or agreement to which Borrower is a party or is subject, or by which it, or its property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien pursuant to the terms of any such indenture, instrument or agreement (other than any Lien of Bank). 3.3 Principal Location. Borrower's mailing address and the location of its chief executive office are disclosed in Schedule Two. 3.4 Property Locations. The Inventory and Equipment are located at the locations described in Schedule Two. All of said locations are owned, in whole or in part, by Borrower unless otherwise noted in Schedule Two. Security Agreement Page 4 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00194 3.5 Litigation. There is no litigation investigation or governmental proceeding threatened against Borrower or any of its properties which if adversely determined would have a material adverse effect on the Collateral or the financial condition, operations, or business of Borrower. 3.6 No Other Names. Borrower has not conducted business under any name except the name in which it has executed this Security Agreement. 3.7 No Event of Default. No Event of Default exists. Article Four Affirmative and Negative Covenants From the Effective Date and thereafter until this Security Agreement is terminated: 4.1 General. (a) Records and Reports; Notification of Event of Default. Borrower will maintain complete and accurate books and records with respect to the Collateral, and furnish to Bank such reports relating to the Collateral as Bank shall from time to time reasonably request. Borrower will give prompt notice in writing to Bank of the occurrence of any Event of Default and of any other development, financial or otherwise, which might materially and adversely affect the Collateral. (b) Inspection. Borrower will permit Bank, by its representative sand agent and during normal business hours with reasonable advance notice to Borrower (i) to inspect the Collateral, (ii) to examine and make copies of the records of Borrower relating to the Collateral, and (iii) to discuss the Collateral and the related records of Borrower with, and to be advised as to the same by, Borrower's officers and employees. (c) Taxes. Borrower will pay when due all taxes, assessments and governmental charges and levies upon the Collateral, except those which are being contested in good faith by appropriate proceedings and with respect to which no Lien exists. (d) Defense of Title. Borrower will take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of Bank in the Collateral and the priority thereof against any Lien not expressly permitted hereunder. (e) Disposition of Collateral. Borrower will not sell, lease or otherwise dispose of the Collateral except (i) prior to the occurrence of an Event of Default, dispositions expressly permitted by the Loan Documents or otherwise by Bank, (ii) until such time following the occurrence of an Event of Default, as Borrower receives a notice from Bank instructing Borrower to cease such transactions, sales or leases of Inventory in the ordinary course of business, and (iii) until such time as Borrower receives a contrary notice from Bank, proceeds of Inventory and Accounts collected in the ordinary course of business. (f) Liens. Borrower will not create, incur, or suffer to exist any Lien on the Collateral except (i) the security interest created by this Security Agreement, and (ii) other Liens permitted pursuant to the Loan Documents and /or listed on Schedule One. Security Agreement Page 5 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00195 4.2 Accounts. 00196 (g) Change in Location, Jurisdiction of Organization or Name. Borrower will not (i) maintain its principal place of business at a location other than a location specified on Schedule Two, (ii) change its name or taxpayer identification number, (iii) change its mailing address, or (iv) change its jurisdiction of organization, unless Borrower shall have given Bank not less than 30 days' prior written notice thereof, and Bank shall have determined that such change will not adversely affect the validity, perfection or priority of Bank's security interest in the Collateral. (h) Other Financing Statements. Borrower will not sign or authorize the preparation and filing of any financing statement naming it as debtor covering all or any portion of the Collateral, except as permitted by the Loan Documents. (a) Collection of Accounts. Except as otherwise provided in this Security Agreement, Borrower will collect and enforce, at Borrower's sole expense, all amounts due or hereafter due to Borrower under the Accounts. (b) Verification of Accounts. Bank shall have the right, at any time or times hereafter, in its name or in the name of a nominee of Bank, to verify the validity, amount or any other matter relating to any Accounts, by mail, telephone, telegraph or otherwise. (c) Appointment of Bank as Attorney -in -Fact. Borrower hereby irrevocably designates, makes, constitutes and appoints Bank (and all persons designated by Bank), exercisable after the occurrence of an Event of Default, as its true and lawful attorney -in -fact, and authorizes Bank, in Borrower's or Bank's name, to: (i) demand payment of Accounts; (ii) enforce payment of Accounts by legal proceedings or otherwise; (iii) exercise all of Borrower's rights and remedies with respect to proceedings brought to collect an Account; (iv) sell or assign any Account upon such terms, for such amount and at such time or times as Bank deems advisable; (v) settle, adjust, compromise, extend or renew an Account; (vi) discharge and release any Account; (vii) take control in any manner of any item of payment or proceeds thereof; (viii) prepare, file and sign Borrower's name on any proof of claim in bankruptcy or other similar document against an Account Debtor; (ix) endorse Borrower's name upon any items of payment or proceeds thereof and deposit the same in Bank's account on account of the Indebtedness; (x) notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Bank, have access to any lock box or postal box into which any of Borrower's mail is deposited, and open and dispose of all mail addressed to Borrower, and (xi) do all acts and things which are necessary in Bank's sole discretion, to fulfill Borrower's obligations under this Security Agreement. The preceding establishes a power of attorney coupled with an interest. (d) Notice to Account Debtor. Bank may, in its sole discretion, at any time or times after an Event of Default has occurred and is continuing, and without prior notice to Borrower, notify any or all Account Debtors that the Accounts have been assigned to Bank and that Bank has a security interest therein. After an Event of Default has occurred and is continuing, Bank may direct any or all Account Debtors to make all payments upon the Accounts directly to Bank. Bank will use its best efforts to furnish Borrower with a copy of such notice, but failure to do so will not have an adverse effect on Bank's rights under this Security Agreement. Security Agreement Page 6 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 4.3 Inventory and Equipment. 00197 (a) Maintenance of Goods. Borrower will do all things necessary to maintain, preserve, protect and keep the Inventory and the Equipment in good repair and working and saleable condition. Borrower has the risk of loss with regard to the Inventory and Equipment. (b) Insurance. Borrower will (i) maintain reasonable insurance on the Inventory and Equipment containing a lender's loss payable clause in favor of Bank, and providing that said insurance will not be terminated except after at least 30 days' written notice from the insurance company to Bank, (ii) maintain such other insurance on the Collateral for the benefit of Bank as Bank shall from time to time request, and (iii) furnish to Bank upon the request of Bank from time to time the originals of all policies of insurance on the Collateral and certificates with respect to such insurance. (c) Safekeeping of Inventory; Inventory Covenants. Bank shall not be responsible for: (i) the safekeeping of the Inventory; (ii) any loss or damage thereto or destruction thereof occurring or arising in any manner or fashion from any cause; (iii) any diminution in the value of Inventory; or (iv) any act or default of any carrier, bailee or forwarding agent or any other Person in any way dealing with or handling the Inventory, except to the extent that Borrower incurs any loss, cost, claim or damage from any of the foregoing as a result of the gross negligence or willful misconduct of Bank. All risk of loss, damage, distribution or diminution in value of the Inventory shall, except as noted in the previous sentence, be borne by Borrower. (d) Records and Schedules of Inventory. Borrower shall keep correct and accurate records on a basis reasonably acceptable to Bank, itemizing and describing the kind, type, quality and quantity of Inventory and other information reasonably requested by Bank. 4.4 Instruments and Securities. (a) Possession. Borrower will deliver to Bank, upon request, the originals (now and hereafter received by Borrower) of all certificated Securities and Instruments which constitute Collateral. (b) Control. If the Collateral is held by a third party, Borrower will, upon request of Bank, take any actions necessary to cause the holder of any pledged Collateral to cause Bank to have Control over such Collateral through a control agreement or similar arrangement which is satisfactory to Bank. Borrower will permit any Collateral which is registerable, to be registered in Bank's, or its nominee's, name. (d) Securities. The issuer of privately held Securities which serve as Collateral shall not dilute Borrower's ownership interest. After an Event of Default occurs and is continuing, with regard to Securities which constitute Collateral, (i) Borrower shall permit Bank to exercise all voting rights, and (ii) Borrower shall provide to Bank all cash and stock dividends which are distributed by the issuer. 4.5 Deposit Accounts. Debtor will notify each financial institution (other than Bank) in which it maintains a Deposit Account that constitutes Collateral of Bank's Lien, and cause each such financial institution to acknowledge such Lien in a form reasonably acceptable to Bank. Security Agreement Page 7 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00198 4.6 Compliance with Agreements. Borrower shall comply in all material respects with all mortgages, deeds of trust, instruments, and other agreements binding on it or affecting its properties or business. 4.7 Compliance with Laws. Borrower shall comply with all applicable laws, rules, regulations, and orders of any court or governmental authority. 4.8 Performance by Bank. If Borrower fails to perform any agreement or obligation provided herein, Bank may itself perform, or cause performance of, such agreement or obligation, and the expenses of Bank incurred in connection therewith shall be a part of the Indebtedness, secured by the Collateral and payable by Borrower on demand. 4.9 Further Assurances. At any time and from time to time, upon the request of Bank, and at the sole expense of Borrower, Borrower shall promptly execute and deliver all such further instruments and documents and take such further action as Bank may deem necessary or desirable to preserve and perfect its security interest in the Collateral and carry out the provisions and purposes of this Security Agreement, including, without limitation, (a) the preparation (and execution, if necessary) and filing of such financing statements as Bank may require and (b) the deposit of all certificates of title issuable with respect to any of the Collateral and noting thereon the security interest hereunder. Article Five Default 5.1 Events of Default. Each of the following constitutes an "Event of Default" under this Security Agreement (subject to all applicable grace and /or notice and cure provisions): (a) Failure to Pay Indebtedness. The failure, refusal or neglect of Borrower or any Obligated Party to make any payment of principal or interest on the Indebtedness, or any portion thereof, as the same shall become due and payable; or (b) Non Performance of Covenants. The failure of Borrower or any Obligated Party to timely and properly observe, keep or perform any covenant, agreement, warranty or condition required herein (except Borrower's failure to timely pay the Indebtedness), and such failure continues for a period of ten (10) days after Bank has given Borrower written notice thereof; or (c) Default Under Other Loan Documents. The occurrence of an Event of Default or Default under any of the other Loan Documents; or (d) False Representation. Any representation contained herein is false or misleading in any material respect when made; or (e) Action by Other Lienholder. The holder of any lien or security interest on any of the assets of Borrower, including without limitation, the Collateral (without hereby implying the consent of Bank to the existence or creation of any such lien or security interest on the Collateral), declares a default thereunder or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder; or Security Agreement Page 8 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00199 (f) Liquidation and Related Events. If Borrower or any Obligated Party is an entity, the voluntary or involuntary liquidation, dissolution, merger or consolidation of any such entity; or (g) Voluntary Debtor Relief. Borrower or any Obligated Party shall commence a voluntary proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official of it or a substantial part of its property or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors or shall generally fail to pay its debts as they become due or shall take any corporate action to authorize any of the foregoing; or (h) Involuntary Debtor Relief. An involuntary proceeding shall be commenced against Borrower or any Obligated Party seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official for it or a substantial part of its property, and such involuntary proceeding shall remain undismissed and unstayed for a period of sixty (60) days. Article Six Remedies 6.1 Remedies Upon Default. If any Event of Default shall occur and be continuing, Bank may without notice declare the Indebtedness or any part thereof to be immediately due and payable, and the same shall thereupon become immediately due and payable, without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by the Borrower. If any Event of Default shall occur and be continuing, Bank may exercise all rights and remedies available to it in law or in equity, under the Loan Documents, or otherwise. 6.2 Application of Proceeds. If any Event of Default shall have occurred and be continuing, Bank may at its discretion apply or use any cash held by Bank as Collateral, and any cash proceeds received by Bank in respect of any sale or other disposition of, collection from, or other realization upon, all or any part of the Collateral as follows in such order and manner as Bank may elect: (a) to the repayment or reimbursement of the reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by Bank in connection with (i) the administration of the Loan Documents, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, the Collateral, and (iii) the exercise or enforcement of any of the rights and remedies of Bank hereunder; (b) To the payment or other satisfaction of any Liens upon the Collateral; (c) To the satisfaction of the Indebtedness; (d) To the payment of any other amounts required by applicable law; and Security Agreement Page 9 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC U U4JO (e) By delivery to Borrower or any other party lawfully entitled to receive such cash or proceeds whether by direction of a court of competent jurisdiction or otherwise. 6.3 Deficiency. In the event that the proceeds of any sale of, collection from, or other realization upon, all or any part of the Collateral by Bank are insufficient to pay all amounts to which Bank is legally entitled, Borrower and any Obligated Party shall be liable for the deficiency, together with interest thereon as provided in the Loan Documents. 6.4 Non Judicial Remedies. In granting to Bank the power to enforce its rights hereunder without prior judicial process or judicial hearing, Borrower expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Bank to enforce its rights by judicial process. Borrower recognizes and concedes that non judicial remedies are consistent with the usage of trade, are responsive to commercial necessity and are the result of a bargain at arm's length. Nothing herein is intended to prevent Bank or Borrower from resorting to judicial process at either party's option. 6.5 Other Recourse. Borrower waives any right to require Bank to proceed against any third party, exhaust any Collateral or other security for the Indebtedness, or to have any third party joined with Borrower in any suit arising out of the Indebtedness or any of the Loan Documents, or pursue any other remedy available to Bank. Borrower further waives any and all notice of acceptance of this Security Agreement. Borrower further waives any defense arising by reason of any disability or other defense of any third party or by reason of the cessation from any cause whatsoever of the liability of any third party. Until all of the Indebtedness shall have been paid in full, Borrower shall have no right of subrogation and Borrower waives the right to enforce any remedy which Bank has or may hereafter have against any third party, and waives any benefit of and any right to participate in any other security whatsoever now or hereafter held by Bank. Borrower authorizes Bank, and without notice or demand and without any reservation of rights against Borrower and without affecting Borrower's liability hereunder or on the Indebtedness to (a) take or hold any other property of any type from any third party as security for the Indebtedness, and exchange, enforce, waive and release any or all of such other property, (b) apply such other property and direct the order or manner of sale thereof as Bank may in its discretion determine, (c) renew, extend, accelerate, modify, compromise, settle or release any of the Indebtedness or other security for the Indebtedness, (d) waive, enforce or modify any of the provisions of any of the Loan Documents executed by any third party, and (e) release or substitute any third party. 6.6 Disclaimer of Warranties and Sales on Credit. In connection with any foreclosure sale of the Collateral, Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank and applied to the indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale. 6.7 License. Bank is hereby granted a license or other right to use, following the occurrence and during the continuance of an Event of Default, without charge, Borrower's labels, rights of use of any name, trade secrets, trade names, trademarks, service marks, customer lists and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral, and, following the occurrence and during the continuance of any Event of Default, Borrower's rights under all licenses and all franchise agreement shall inure to Bank's benefit. Security Agreement Page 10 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC Article Seven General Provisions 00201 7.1 Entire Agreement. This Security Agreement contains the entire agreement of Bank and Borrower with respect to the Collateral. If the parties hereto are parties to any prior agreement, either written or oral, relating to the Collateral, the terms of this Security Agreement shall amend and supersede the terms of such prior agreements as to transactions on or after the effective date of this Security Agreement, but all security agreements, financing statements, guaranties, other contracts and notices for the benefit of Bank shall continue in full force and effect to secure the Indebtedness unless Bank specifically releases its rights thereunder by separate release. 7.2 Amendment. No modification, consent or amendment of any provision of this Security Agreement shall be valid or effective unless the same is in writing and signed by the party against whom it is sought to be enforced. 7.3 Actions by Bank. The Lien and other rights of Bank hereunder shall not be impaired by (a) any renewal, extension, increase or modification with respect to the Indebtedness, (b) any surrender, compromise, release, renewal, extension, exchange or substitution which Bank may grant with respect to the Collateral, or (c) any release or indulgence granted to any endorser, guarantor or surety of the Indebtedness. The taking of additional security by Bank shall not release or impair the Lien or other rights of Bank hereunder or affect the obligations of Borrower hereunder. 7.4 Waiver by Bank. Bank may waive any Event of Default without waiving any other prior or subsequent Event of Default. Bank may remedy any default without waiving the Event of Default remedied. Neither the failure by Bank to exercise, nor the delay by Bank in exercising, any right or remedy upon any Event of Default shall be construed as a waiver of such Event of Default or as a waiver of the right to exercise any such right or remedy at a later date. No single or partial exercise by Bank of any right or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right or remedy hereunder may be exercised at any time. No waiver of any provision hereof or consent to any departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by Bank and then such waiver or consent shall be effective only in the specific instances, for the purpose for which given and to the extent therein specified. No notice to or demand on Borrower in any case shall of itself entitle Borrower to any other or further notice or demand in similar or other circumstances. 7.5 Costs and Expenses. Borrower will upon demand pay to Bank the amount of any and all costs and expenses (including without limitation, reasonable attorneys' fees and expenses), which Bank may incur in connection with (a) the transactions which give rise to the Loan Documents, (b) the preparation of this Security Agreement and the perfection and preservation of the security interests granted under the Loan Documents, (c) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, the Collateral, (d) the exercise or enforcement of any of the rights of Bank under the Loan Documents, or (e) the failure by Borrower to perform or observe any of the provisions hereof. 7.6 Severability. If any provision of this Security Agreement is held by a court of competent jurisdiction to be illegal, invalid or unenforceable under present or future laws, such provision shall be fully severable, shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be illegal, invalid or unenforceable. Security Agreement Page 11 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 7.7 Notices. Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission) and mailed, faxed, or delivered to the address, facsimile number to the address specified for notices on the signature page below or to such other address as shall be designated by such party in a notice to the other parties. All such other notices and other communications shall be deemed to have been given or made upon the earliest to occur of: (a) actual receipt by the intended recipient; or (b) (i) if delivered by hand or courier, (ii) if delivered by mail, four business days after deposit in the mail, postage prepaid; and (iii) if delivered by facsimile when sent and receipt has been confirmed by telephone. Electronic mail and internet websites may be used only to distribute only routine communications, such as financial statements and other information, and to distribute Loan Documents for execution by the parties thereto, and may not be used for any other purpose. 7.8 Binding Effect and Assignment. This Security Agreement (a) creates a continuing security interest in the Collateral, (b) shall be binding on Borrower and the heirs, executors, administrators, personal representatives, successors and assigns of Borrower, (c) shall be binding on all parties who /which become bound as Borrower under this Agreement, and (d) shall inure to the benefit of Bank and its successors and assigns. Without limiting the generality of the foregoing, Bank may pledge, assign or otherwise transfer the Indebtedness and its rights under this Security Agreement and any of the other Loan Documents to any other party. Borrower's rights and obligations hereunder may not be assigned or otherwise transferred without the prior written consent of Bank. 7.9 Termination. It is contemplated by the parties hereto that from time to time there may be no outstanding Indebtedness, but notwithstanding such occurrences, this Security Agreement shall remain valid and shall be in full force and effect as to subsequent outstanding Indebtedness. Upon (a) the satisfaction in full of the Indebtedness, (b) the termination or expiration of any commitment of Bank to extend credit to Borrower, (c) written request for the termination hereof delivered by Borrower to Bank, and (d) written release or termination delivered by Bank to Borrower, this Security Agreement and the security interests created hereby shall terminate. Upon termination of this Security Agreement and Borrower's written request, Bank will, at Borrower's sole cost and expense, return and /or release to Borrower such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof and execute and deliver to Borrower such documents as Borrower shall reasonably request to evidence such termination. 7.10 Cumulative Rights. All rights and remedies of Bank hereunder are cumulative of each other and of every other right or remedy which Bank may otherwise have at law or in equity or under any of the other Loan Documents, and the exercise of one or more of such rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of any other rights or remedies. 7.11 Gender and Number. Within this Security Agreement, words of any gender shall be held and construed to include the other gender, and words in the singular number shall be held and construed to include the plural and words in the plural number shall be held and construed to include the singular, unless in each instance the context requires otherwise. 7.12 Descriptive Headings. The headings in this Security Agreement are for convenience only and shall in no way enlarge, limit or define the scope or meaning of the various and several provisions hereof. 7.13 GOVERNING LAW AND VENUE. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS COUNTY, TEXAS AND THE LAWS (EXCLUDING CHOICE OF LAW PROVISIONS) OF SUCH STATE SHALL Security Agreement Page 12 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC GOVERN THE VALIDITY, CONSTRUCTION ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT, EXCEPT TO THE EXTENT FEDERAL LAWS OTHERWISE GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF ALL OR ANY PART OF THIS AGREEMENT. ALL LEGAL ACTIONS RELATED TO THIS AGREEMENT SHALL BE BROUGHT IN THE APPROPRIATE COURT OF LAW LOCATED IN DALLAS COUNTY, TEXAS, TO THE EXCLUSION OF ALL OTHER VENUES. 7.14 INDEMNITY. BORROWER HEREBY AGREES TO INDEMNIFY BANK AND ITS RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS, ATTORNEYS, AND EMPLOYEES, FROM AND AGAINST ANY AND ALL LIABILITIES, DAMAGES, PENALTIES, SUITS, COSTS, AND EXPENSES OF ANY KIND AND NATURE (INCLUDING, WITHOUT LIMITATION, ALL EXPENSES OF LITIGATION OR PREPARATION THEREFOR WHETHER OR NOT BANK IS A PARTY THERETO) IMPOSED ON, INCURRED BY OR ASSERTED AGAINST BANK OR THEIR RESPECTIVE SUCCESSORS, ASSIGNS, AGENTS, ATTORNEYS, AND EMPLOYEES, IN ANY WAY RELATING TO OR ARISING OUT OF THIS SECURITY AGREEMENT, OR THE OWNERSHIP, LEASE, POSSESSION, USE, OPERATION, CONDITION, OR DISPOSITION OF ANY COLLATERAL. Effective May 18, 2012. Address for Notices to Borrower: 1605 Hwy 181, #169 Portland, Texas 78374 Fax: 480 287 -9401 BORROWER: David M. Reavis Lodestone Operating, LLC A Texa limited liability company vid M. eavis anaging Member Lodestone Operating Inc. A Delaware corporation 00203 d Reav' 'resident Security Agreement Page 13 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC Addresses for Notice to Bank: PARK CITIES BANK ATTN: Energy Lending Group 5307 E. Mockingbird Suite 350 Dallas, TX 75206 Fax: 214 -584 -2518 STATE OF TEXAS COUNTY OF DALLAS Before me, a Notary Public in and for the State of Texas on this the 6 day of May, 2012, personally appeared David M. Reavis, individually and in his capacity as Managing Member of Lodestone Operating, LLC, and President of Lodestone Operating, Inc., and he acknowledged to me that he executed the foregoing instrument on behalf of himself and the ent'ties named herein, for the purposes set forth herein. MARY KATE WILDER My Commission Expires September 23, 2014 SCHEDULE ONE None. Non Oil and Gas Collateral: Acknowledgment Permitted Liens Notary Publ c My commission be j 37?CI Life Insurance Proceeds on the life of David M. Reavis with Insurance Company, Policy No. All of the Membership Interests in Lodestone Operating, LLC, a Texas limited liability company. All of the shares of Lodestone Operating, Inc., a Delaware corporation. Deposit Accounts, If Any, Not Maintained With Bank: (TO BE PROVIDED UPON REQUEST BY BANK) Security Agreement Page 14 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00204 Principal Place of Business and Mailing Address: Table 11 1605 Hwy 181, #169 Portland, Texas 78374 Attention: David M. Reavis Locations of Inventory and Equipment: Security Agreement SCHEDULE TWO Locations Effective: May 18, 2012 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC Page 15 of 24 00205 Properties Owned by Borrower: All working interest, royalty interest and mineral interest owned by David M. Reavis; Lodestone Operating, LLC; or Lodestone Operating Inc. Lodestone Operating, Inc. Federal 10-27 Sweetwater WY S 27 T 26N R 111W NE NW 1.00000 0.78688 Lodestone Operating, Inc. Raptor 40 Lincoln WY S 18T 24N 111W Lots 5 &6 E /2NWl4 and Lots 7 8 E2 SW4 1.00000 0.79523 Lodestone Operating, Inc. Buckhom Canyon 10-3 Sweetwater WY S 3 T 25N R 111W SW NW 1.00000 0.87500 Lodestone Operating, Inc. Buckhom Canyon 30 Sweetwater WY S 3 T 25N R 111W NW SW 1.00000 0.87500 Lodestone Operating, Inc. Buckhom Canyon 40 3 Sweetwater WY S 3 T 25N R 111W SE SE 1.00000 0.87500 Lodestone Operating, Inc. Chapel Canyon 30 Sublette WY S 1 8 T 28N R 111 W NE SW 1.00000 0.83333 Lodestone Operating, Inc. Lone Tree 12 -30 Uintah WY S 30 T 13N R 113W SW NW 1.00000 0.81250 Lodestone Operating, Inc. Cabello San Juan Utah S15 T 36S R 23E NVVNW 1.00000 0.87500 Lodestone Operating, Inc. Cave Canyon 2 33 San Juan Utah S 33 T37S R24E SESW 1.00000 0.80000 Elm Ridge Exploration Cae Canyon Unit San Juan Utah S 33 T37S R24E SUM SESW S2SE 53 Lots 3 4 S2NW, SW, W2SE S4 Lots 1,2,3 32NE NESE 0.28763 0.23727 Lodestone Operating, Inc. Muni State 1 San Juan Utah S 2 T35 R 23E SWNE 1.00000 0.80000 Lodestone Operating, Inc. Cave Canyon 1-33 San Juan Utah S 33 T37S R24E SWSE 0.8807 0.7046 Lodestone Operating, Inc Shipp 1 Lea NM S 10 T17S R 37E SESE 1.00000 0.81250 Omega Energy Corp. Charles Jacobs Wharton TX I.R.R. Co. Survey No. 37, A-232, Victoria County, Tx 1.00000 0.72500 Omega Energy Corp. Stiebeck Live Oak TX NE/2 Farm Tract #4909, Block #105 of the Dr. Charles F. Simmons Nueces Farm Subdivision 1.00000 0.81250 Principal Place of Business and Mailing Address: Table 11 1605 Hwy 181, #169 Portland, Texas 78374 Attention: David M. Reavis Locations of Inventory and Equipment: Security Agreement SCHEDULE TWO Locations Effective: May 18, 2012 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC Page 15 of 24 00205 Properties Owned by Borrower: All working interest, royalty interest and mineral interest owned by David M. Reavis; Lodestone Operating, LLC; or Lodestone Operating Inc. Sweetwater Co., Wy. Leases Legal Descriptions WELL NAME AND LOCATION: Bird Canyon Federal #10 -27 Township 26 North, Range 111 West, 6th P.M. Section 27: NE /4 Sweetwater County, Wyoming ASSOCIATED LEASES AND LANDS Lessor: United States Lease WYW -37670 Lease Date: January 1, 1973 Description: Township 27 North, Range 111 West, 6 P.M. Section 27: N/2 Sweetwater County, Wyoming RELATED CONTRACTS: Contract: Farmout Agreement Date: December 20, 1982 Parties: Energetics, Inc. and Southland Royalty Company Lands Covered: Township 27 North, Range 111 West, 6 P.M. Section 27: W /2NE /4, NW /4 And other lands not included in this assignment Contract: Farmout Agreement Date: November 18, 1982 Parties: Energetics, Inc. and Natural Gas Corporation of California, et al. Lands Covered: Township 27 North, Range 111 West, 6 P.M. Section 27: N/2 and other lands not included in this assignment Contract: Farmout Agreement Date: November 15, 1982 Parties: Energetics, Inc. and Marvin Wolf Lands Covered: Township 27 North, Range 111 West, 6 P.M. Section 27: N/2 and other lands not included in this assignment WELL NAME AND LOCATION: Buckhorn Canyon 10 -3 Township 25 North, Range 111 West, 6 P.M. Section 3: SW /4 NW /4 Sweetwater County, Wyoming Security Agreement Page 16 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00206 WELL NAME AND LOCATION: Buckhorn Canyon 30 -3 Township 25 North, Range 111 West, 6th P.M. Section 3: NW /4 SW /4 Sweetwater County, Wyoming WELL NAME AND LOCATION: Buckhorn Canyon 40 -3 Township 25 North, Range 111 West, 6 P.M. Section 3: SE /4 SE /4 Sweetwater County, Wyoming ASSOCIATED LEASES AND LANDS Lessor: USA WYW- 112550 Original Lessee: Terra Resources, Inc. Date: August 1, 1988 Description: Township 25 North, Range 111 West, 6 P.M. Section 3: Lots 8 and 9 (Dependent Resurvey) (formerly described as Lot 4, SW /4NW /4) Sweetwater County, Wyoming Lessor: USA WYW- 104980 Original Lessee: Terra Resources, Inc. Date: August 1, 1987 Description: Township 25 North, Range 111 West, 6 P.M. Section 3: Lots 13, 14, 19, 20 (Dependent Resurvey)(formerly described as SE /4) Sweetwater County, Wyoming Security Agreement Page 17 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00207 Lessor: USA WYW- 111297 Original Lessee: Terra Resources, Inc. Date: June 1, 1988 Description: Township 25 North, Range 111 West, 6 P.M. Section 3: Lots 7,10 and 15 -18, inclusive (Dependent Resurvey)(formerly described as Lot 3, SE /4NW /4, SW /4) Sweetwater County, Wyoming Caballo 1 -15 Cave Canyon 1 -33 EXHIBIT Caballo 1 -15 Legal Description WELL API No: 43- 037 -31403 Location: NW /4 NW /4 Sec. 15, T36S -R23E, SLM San Juan County, Utah LEASES Lessor: USA UTU -62953 Lease Date 8/1/73 Legal Description: Township 36 South, Range 23 East, SLM Section 15: NW /4 Limited from the surface to approx. 6869' Containing 160.00 acres, more or less EXHIBIT Cave Canyon 1 -33 Legal Description WELL API No: 43- 037 -31276 Location: SW /4 SE /4 Sec. 33, T37S -R24E, SLM San Juan County, Utah LEASES Lessor: USA UTU -40751 Lease Date 9/1/1978 Legal Description: Township 37 South, Range 24 East, SLM Section 33: S2 Limited from the surface to 6,085' Security Agreement Page 18 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC Cave Canyon 2 -33 Containing 320.00 acres, more or less EXHIBIT Cave Canyon 2 -33 Legal Description WELL API No: 43- 037 -31286 Location: SE /4 SW /4 Sec. 33, T37S -R24E, SLM San Juan County, Utah LEASES Lessor: USA UTU -40751 Lease Date 9/1/1978 Legal Description: Township 37 South, Range 24 East, SLM Section 33: S2 Limited from the surface to 6,085' Containing 320.00 acres, more or less EXHIBIT Cave Canyon (Ismay) Unit Legal Description WELLS Cave Canyon (Ismay) Unit API No: Various Area Wells, operated by Location: Sec. 3, Sec. 4, T38S -R24E SLM Elm Ridge Exploration Sec. 33, T37S -R24E SLM Co., LLC LEASES Lessor: USA UTU -47876 Lease Date: 10/1/1981 Legal Description: Township 38 South, Range 24 East, SLM Section 3: Lots 3, 4, S2NW, SW, W2SE Section 4: Lots 1, 2, 3, S2NE, NESE Township 37 South, Range 24 East, SLM Security Agreement Page 19 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00209 Section 33: SESW, S2SE From surface down to the base of the Ismay zone of the Paradox formation in the Cave Canyon (Ismay) Unit Area, operated by Elm Ridge Exploration Co., LLC, covering: Lincoln Co., Wy Leases Legal Descriptions WELL NAME AND LOCATION: Raptor 40 -18 Township 24 North, Range 111 West, 6 P.M. Section 18: C SW /4 Lincoln County, Wyoming ASSOCIATED LEASES AND LANDS Lessor: United States Lease WYW -61042 Lease Date: February 1, 1978 Lessee: Clair L. Johnson Description: Township 24 North, Range 111 West, 6 P.M. Section 18: Lot 7 (19.26), 8 (19.16), E /2SW /4 Lincoln County, Wyoming Sublette Co., Wy Leases Legal Descriptions WELL NAME AND LOCATION: Chapel Canyon 30 -18 Township 28 North, Range 111 West, 6 P.M. Section 18: NE /4 SW /4 Sublette County, Wyoming Security Agreement Page 20 of 24 ASSOCIATED LEASES AND LANDS: Lessor: Rock Springs National Bank, Successor Trustee for the Fear Family Trust Lessee: Crown Lease Date: February 12, 1999 Recorded: Book 110 O &G, at Page 563, as Reception No. 272292 Description: Township 28 North, Range 111 West, 6 P.M. Section 18: Lot 3 (19.62), 4 (20.28), NE /4SW /4 (33.00), SE /4SW /4 (26.00) (Land in the E /2SW /4 is the acreage reserved by the Fear family below the High Line Canal as it was in 1931.) Containing 98.90 acres. Sublette County, Wyoming David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00210 Lessor: Lillian Steadman Gilbert, Jennifer Rose Gilbert and Alicia Ann Gilbert Lessee: Crown Lease Date: August 19, 1999 Recorded: Book 112 O &G, at Page 219, as Reception No. 275027 Description: Township 28 North, Range 111 West, 6 P.M. Section 18: NE /4 SW /4 (7.00), SE /4SW /4 (14.00). Land in the E /2SW /4 reserved by the Gilbert (Reardon) family above the line of the High Line Canal as it was in 1931. Sublette County, Wyoming Lessor: 1 National Bank of Kemmerer, Trustee for the Fear Family Trust Lessee: Thomas F. Stroock Lease Date: Not known Recorded: Book 48, at Page 632 Description: Township 28 North, Range 111 West, 6 P.M. Section 18: E /2SW /4 LESS those lands lying east or above the line of survey of the High Line Canal Sublette County, Wyoming WELL NAME AND LOCATION: Charles Jacobs #1 Victoria County, Texas Wellbore and Limited Depths Conveyed: WELLBORE ONLY OF THE CHARLES JACOBS NO. 1 WELL, API NUMBER 42- 469 30282, LOCATED IN THE I.R.R. CO. SURVEY NO. 37, A -232, VICTORIA COUNTY, TEXAS AND FURTHER LIMITED ONLY TO THE DEPTHS BETWEEN 8,775' AND 8,822' LEASES SUBJECT TO LIMITED DEPTH WELLBORE -ONLY CONVEYANCE All recording references are to the Deed, Oil and Gas, or Official Records of Victoria County, Texas Date 01.25.73 Lessor James Levert Brady, et al Lessee W.S. Gordon, Jr. Recording Data 822/568 00211 Date 01.25.73 (amended 7.12.74, recorded 852/279 Lessor Edith I. Stovall, Individually and as Co- Independent Executrix and Co- Trustee: Guy F. Stovall, Jr. as Co- Independent Executor and Co- Trustee, And Geraldine Stovall Garrett, Co- Trustee of the Estate and under the Testamentary Trust of Guy F. Stovall, Deceased Lessee W.S. Gordon, Jr. Recording Data 820/204 Security Agreement Page 21 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC Date 01.25.73 (ratified on 5/8/73, recorded 830/424) Lessor G.H. Harfst, Jr. and Catherine H. Couey Lessee W.S. Gordon, Jr. Recording Data 827/201 Date 01 07.20.73 Lessor Hugh R. Goodrich, Thomas E. Berry, Trustee and Priscilla Goodrich Rea, acting herein by and through her agent and attorney -in -fact, Hugh R. Goodrich (Special Power of Attorney effective 7.01.73, recorded 830/426) Lessee Florida Gas Exploration Company Recording Data 831/734 (Memorandum) Date 03.09.73 (corrected on 9.9.73, recorded 853/791) Lessor Floy Barnhardt Saville, Individually and as Independent Co- Executrix and Co- Trustee under Will of Wilson Gordon Saville, Deceased; and Bank of the Southwest National Association, Houston, Independent Co- Executor and Co- Trustee under Will of Wilson Gordon Saville, Deceased Lessee W.S. Gordon Recording Data 822/578 Date 04.05.72 (as amended 7.10.74, recorded 850/394) Lessor Charley Y. Jacobs and wife, Esther Lessee Robert N. Millard Recording Data 813/506 Date 01.25.73 Lessor Elvira Vogel Adams Lessee W.S. Gordon, Jr. Recording Data 820/198 Lodestone Hunt State 1 -2 Legal Description Security Agreement Page 22 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00212 Shipp 10 -1 WELL NAME: FIELD: COUNTY, STATE: LEASE DESCRIPTION Lease Date: 08/27/1969 Lease Name: Lessee: Description: Recordation: Lessor: Lessee: Lease Date: Description: Lessor: Lessee: Lease Date: Description: Lessor: Lessee: Lease Date: Description: Recordation: Lessor: Lessee: Lease Date: Description: Recordation: State of Utah #ML 48563, Dated 7/1/2000 containing 638.76 acres, being Sec. 2, All, in T35S -R23E, SLM, San Juan County, Utah; And including, to the extent owned by Assignor, all rights in and to the existing wellbore, being the D. J. Simmons State #1 -2, located in the SW /4 NE /4 of the above Section. Security Agreement SHIPP 10 HUMBLE LEA COUNTY, NEW MEXICO Elbert D. Shipp et al Pubco Petroleum Corporation Township 17 South, Range 37 East Section 10: E/2 E/2 SE /4 and E/2 W/2 E/2 SE /4 Book 266, Page 772 King Properties, Inc., by Donald W. Stephens, President Lodestone Operating, Inc. 07/01 /2008 Township 17 South, Range 37 East, N.M. P.M. Section 10: W /2W/2 E /2SE /4 Orion Properties., by Donald W. Stephens, President Lodestone Operating, Inc. 07/01/2008 Township 17 South, Range 37 East, N.M. P.M. Section 10: W /2W/2 E /2SE /4 Suzanne Ship Cunningham, Trustee of the Suzanne Ship Cunningham Revocable Trust Dated 7/13/2001 Lodestone Operating, Inc. 05/02/2008 Township 17 South, Range 37 East, N.M. P.M. Section 10: East 60 acres of SE /4 Book 1585, Page 368 Western Commerce Bank, Trustee of the Francis J. Freeman Revocable Trust, dated 2/08/1983, by Rita R. Neal, Senior Vice President Trust Officer Lodestone Operating, Inc. 05/14/2008 Township 17 South, Range 37 East, N.M. P.M. Section 10: East 60 acres of SE /4 Book 1585, Page 936 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC Page 23 of 24 00213 Lessor: William Marshall Shipp Pamela Ann Dixon Shipp, Trustees of the William Marshall Shipp Pamela Ann Dixon Shipp Rev. Trust Dated 6 -29 -2001 Lessee: Lodestone Operating, Inc. Lease Date: 05/02/2008 Description: Township 17 South, Range 37 East, N.M. P.M. Section 10: East 60 acres of SE /4 Recordation: Book 1585, Page 366 WELL NAME AND LOCATION: W.H. Striebeck #1 Live Oak County, Texas Lease Description: 80 acres, more or less, being the NE /2 of Farm Tract #4049 in Block #105 of the Dr. Charles F. Simmons Nueces River Farm Subdivision as per map or plat recorded In Volume 1, Page 234 et seq, of the Plat Records of Live Oak County, Texas, to which Plat and recordation thereof reference is hereby made for all pertinent purposes. Only the rights and interests in and to the oil, gas and other minerals located between the depths of 4,000 feet subsurface and 7,100 feet subsurface; and all rights and interests, including the oil, gas other minerals, above and below such depth interval are excepted and excluded from this lease, together with all rights and privileges applicable thereto, including those necessary to develop the oil, gas and other minerals excepted from the Lease. O &G Lease Description: Oil and Gas Lease by and between Loyce L. Striebeck, Individually and as Independent Executrix of the Estate of William H. Striebeck, III, Deceased, as Lessor, and Lodestone Operating, Inc., as Lessee, date July 29 2005, recorded in Volume 39, Page 716 of the Oil and Gas Lease Records of Live Oak County, Texas Security Agreement Page 24 of 24 David M. Reavis; Lodestone Operating Inc.; and Lodestone Operating, LLC 00214