Deed of Trust, Assignment of Proceeds of Production, Security Agreement and Financing Statement

From

________________, Grantor

(Organizational No. __________)

___________, Trustee

For the Benefit of and to

[Bank Name], Lender

Dated as of ________ ___, 20___

Filed in _______ County, Texas

GRANTOR IS A __________ ORGANIZED UNDER THE LAWS OF THE STATE OF _______.

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING:

OWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S LICENSE NUMBER.

A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT.

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

THIS INSTRUMENT COVERS MINERALS UPON THEIR EXTRACTION FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND GAS), AND THE ACCOUNTS RELATED THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS OR MINEHEADS OF THE WELLS OR MINES LOCATED ON THE PROPERTIES DESCRIBED IN THE GRANTING CLAUSE AND EXHIBIT A. THIS INSTRUMENT COVERS GOODS WHICH ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN, AND IS TO BE FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE COUNTIES REFERENCED IN EXHIBIT A HERETO AS A FIXTURE FILING. THE GRANTOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE AND IMMOVABLE PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN THE GRANTING CLAUSE AND EXHIBIT A.

THIS INSTRUMENT CONTAINS PROVISIONS INDEMNIFYING CERTAIN PERSONS AND ENTITIES FROM THE CONSEQUENCES OF THEIR OWN NEGLIGENCE.

A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. A POWER OF SALE MAY ALLOW THE TRUSTEE OR THE HOLDER, AS HEREINAFTER DEFINED, TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE GRANTOR UNDER THIS INSTRUMENT.

Prepared by and when recorded

or filed returned to:

STATE OF TEXAS §

COUNTY OF _________ §

DEED OF TRUST, ASSIGNMENT OF PROCEEDS OF PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT dated as of ________ ___, 2004, from _______________________, a _______________ having its principal place of business at ___________________________________________, referred to herein as the “Grantor,” to ______________, as Trustee referred to herein as the “Trustee,” for the use and benefit of and to secure the payment of all indebtedness and the performance of all obligations as hereinafter described of Grantor owing to ______________, a [national/state] banking association having its principal place of business at ____________________, referred to herein as the “Lender.”

R E C I T A L S

A. The Lender has agreed to extend the Grantor a credit facility of up to $_______________. The indebtedness of the Grantor to the Lender is evidenced by a promissory note in the original principal sum of $___________ made by the Grantor payable to the order of the Lender dated as of ___________ ___, 200__, and being finally due and payable on November ___, 2007.

B. In order to secure, among other things, the indebtedness of the Grantor evidenced by the promissory note and the payment and performance of all other obligations of the Grantor to the Lender, the Grantor has agreed to enter into this deed of trust.

C. The Grantor is the owner of all of the properties described on Exhibit A to this deed of trust.

G R A N T I N G C L A U S E

NOW THEREFORE, the Grantor, in order to secure the indebtedness and obligations hereinafter described, does hereby GRANT, BARGAIN, SELL, TRANSFER, ASSIGN and CONVEY unto the Trustee, in trust, for the use and benefit of the holder of the secured indebtedness (as hereinafter defined), and grant unto Trustee a POWER OF SALE over the following described rights, interests and estates (sometimes collectively referred to herein as the “mortgaged property” and as the “mortgaged properties”):

1. Oil and Gas Producing Properties. All of Grantor’s right, title and interest, now owned or hereafter acquired, in and to (i) the oil, gas and mineral leases described on Exhibit A attached hereto and made a part hereof for all purposes, and any instrument executed in amendment, correction, modification, confirmation, renewal or extension of any such leases; (ii) the oil, gas and other minerals in and under the lands covered by the leases described on Exhibit A and/or the lands spaced, pooled or unitized therewith; (iii) the oil, gas and other mineral interests and estates in and under the lands covered by the leases described on Exhibit A including, but not limited to, working interests, royalties, overriding royalties, net profits interests and production payments; (iv) any and all oil and gas units covering, in whole or in part, the lands covered by, or derived or carved from, the leases described on Exhibit A and/or the lands spaced, pooled or unitized therewith; (v) all pooling, communitization, unitization and similar orders of governmental authorities, bodies and commissions that cover all or any portion of the land described on Exhibit A, including without limitation, the orders of the Texas Railroad Commission described on Exhibit A; and (vi) the lands described on Exhibit A and all lands, pooled, unitized or communitized therewith. It is expressly understood and agreed that (1) the holder shall not be liable in respect of the performance of any covenant or obligation of the Grantor concerning such leases, and (2) any decimal fractional interests set out on Exhibit A pertaining to such oil and gas leases have been appended for informational purposes only, and shall not limit in any way whatsoever the interest of the Grantor in the leases which are subject to this deed of trust).

2. Wells. All of the Grantor’s right, title and interest, now owned or hereafter acquired, in and to all oil wells, gas wells and other wells now or hereafter located on any of the lands described or referred to on Exhibit A, whether or not such wells are specifically described or referred to on Exhibit A.

3. Equipment. All of Grantor’s right, title and interest, now owned or hereafter acquired, in and to all equipment, tanks, derricks, fixtures, houses, pumps, jacks, casings, tubing, rods, cable lines, pipe lines, flow lines, separators, buildings, machinery, tools, pipe and all other equipment, appurtenances, apparatus, appliances and property of every kind and character, movable or immovable, now or at any time hereafter located on any of the lands described or referred to on Exhibit A or which may now or hereafter be used or obtained in connection therewith.

4. Contract Rights. All of Grantor’s right, title and interest, now owned or hereafter acquired, in and to all presently existing and hereafter created contracts, operating agreements, mineral purchase agreements, rights-of-way, easements, surface leases, permits, licenses, pooling or unitization agreements, pooling orders, equipment leases, production sales agreements, purchase agreements, exchange and/or processing agreements, transportation agreements, farmout and/or farm-in agreements, salt water disposal agreements, and all other contracts or agreements pertaining to or affecting the lands, leases or wells described or referred to on Exhibit A or now or hereafter affecting any of the rights now or hereafter covered hereby which are useful or appropriate in drilling for, producing, treating, handling, storing, transporting or marketing of oil, gas or other minerals from any of the lands, leases or wells described or referred to on Exhibit A or from any properties unitized or pooled therewith.

5. Hydrocarbons. All of Grantor’s right, title and interest, now owned or hereafter acquired, in and to all oil, gas, casinghead gas, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and other “as extracted collateral” as that term is defined in Section 9.102(a)(6) of the Texas Business and Commerce Code, as hereafter amended and revised (hereafter referred to as “UCC”), produced from or attributable to the lands described or referred to in paragraph 1 above, and other minerals, and all products refined therefrom, and all other minerals in and under, and that may be produced and saved from, the lands described or referred to on Exhibit A.

6. Accounts and General Intangibles. All rights now owned or hereafter acquired by the Grantor in all (i) “accounts,” “as extracted collateral,” and “general intangibles” and “proceeds” as those terms are defined in the UCC arising in connection with the sale or other disposition of the property described in paragraphs 1 through 5 above, and (ii) any and all contract rights and general intangibles arising from or in connection with the property described in paragraphs 1 through 5 above, including without limitation all geological, geophysical, engineering, accounting, title, legal, and other technical or business data concerning such leases and/or such lands and the production therefrom which are in the possession of Grantor or in which Grantor can otherwise grant a lien, and all books, files, records, magnetic media, computer records and other forms of recording or obtaining access to such data.

7. Proceeds and Products. All of the proceeds and products of the property described in paragraphs 1 through 6 above whether presently existing or hereafter created or arising.

TO HAVE AND TO HOLD unto the Trustee the mortgaged property, together with all rights, hereditaments and appurtenances in any way pertaining or belonging thereto unto said Trustee and his successors or substitutes in this trust, and his and their assigns, in trust and for the uses and purposes hereinafter set forth forever.

The expression “Grantor’s successors” as used herein shall mean each and all of the Grantor’s successors and assigns. Grantor hereby binds Grantor and Grantor’s successors to warrant and forever defend, all and singular, the mortgaged property unto the Trustee and his successors or substitutes in this trust, and to his and their assigns, forever, against every person whomsoever lawfully claiming or to claim the same or any part thereof, subject to Permitted Encumbrances as herein defined.

ARTICLE 1 -- SECURED INDEBTEDNESS

1.1. Secured Indebtedness. This deed of trust is given to secure the following indebtedness, obligations and liabilities: (a) all of the loans, principal, interest, fees, expenses, obligations and liabilities of Grantor arising pursuant to or represented by that certain promissory note dated as of __________ __, 200___, payable to the order of the Lender in the principal amount of $__________ bearing interest as in said note specified, containing an attorney’s fee clause, interest payable as in said note specified, and having a final maturity date of ___________ __, 20___, and any and all renewals, extensions or modifications of said note or notes, or substitutions therefor, or any part thereof, (b) all indebtedness arising pursuant to the provisions of this deed of trust and any and all renewals, extensions or modifications of any such item of indebtedness, or substitutions therefor, or any part thereof, (c) all loans and advances which Lender may hereafter make to Grantor and any and all renewals, extensions or modifications of the same, or any part thereof, (d) all Obligations as that term is defined in that certain Loan Agreement between the Grantor and the Lender dated as of __________ __, 20___ (such agreement, as the same may hereafter be amended and modified from time to time being referred to herein as the “Loan Agreement”), and (e) all other and additional debts, obligations and liabilities of every kind and character of Grantor, now or hereafter existing in favor of Lender, regardless of whether such debts, obligations and liabilities be direct or indirect, primary or secondary, joint, several or joint and several, fixed or contingent, and regardless of whether such present or future debt, obligations and liabilities may, prior to their acquisition by Lender, be or have been payable to, or be or have been in favor of some other person or have been acquired by Lender in a transaction with one other than Grantor, together with any and all renewals, extensions and modifications of such debts, obligations and liabilities or any part thereof. The words “secured indebtedness” as used herein, shall mean all of the indebtedness, obligations and liabilities described or referred to above in clauses (a) through (e), inclusive, of this Section 1.1. The word “holder” as used herein shall mean the holder of the secured indebtedness.

1.2. Increases in Secured Indebtedness. It is presently contemplated by the Grantor and the Lender that the indebtedness of Grantor represented by the note or notes described in Section 1.1 hereof may be increased, modified, renewed and/or extended. In the event of such increase, renewal, modification and/or extension, such indebtedness shall be deemed to be secured by this deed of trust and to be part of the secured indebtedness.

ARTICLE 2 -- REPRESENTATIONS AND COVENANTS OF GRANTOR

2.1. Title and Permitted Encumbrances. Grantor has, and Grantor covenants to maintain, good and defensible title to the mortgaged property, free and clear of all liens, security interests and encumbrances, other than the following (collectively, the “Permitted Encumbrances”): (1) the contracts, agreements, burdens, encumbrances and other matters set forth in the descriptions of certain of the mortgaged properties on Exhibit A hereto, (2) the liens and security interests evidenced by this deed of trust, (3) statutory liens for taxes which are not yet delinquent, or which are being Contested in Good Faith, as defined in the Loan Agreement, (4) liens under operating agreements, pooling orders and unitization agreements, and mechanics’ and materialmen’s liens, with respect to obligations which are not yet due, or which are being Contested in Good Faith, (5) Permitted Liens, as defined in the Loan Agreement, and (6) minor defects and irregularities applicable to any oil and gas property generally, so long as such defects and irregularities neither (A) are liens which secure other indebtedness or obligations, nor (B) materially impair the value of such property or the use thereof for the purposes for which such property is held and are not such as to affect materially title thereto. The Grantor will warrant and defend title to the mortgaged properties, subject to Permitted Encumbrances, against the claims and demands of all persons claiming or to claim the same or any part thereof.

2.2. Net Revenue and Working Interest. With respect to each mortgaged property, the ownership of the Grantor in such mortgaged property does and will, (a) with respect to each such tract of land described in Exhibit A hereto (whether described directly in such Exhibit A or described by reference to another instrument) in connection with such mortgaged property, (1) entitle the Grantor to receive (subject to the terms and provisions of this deed of trust) a decimal share of the oil, gas and other hydrocarbons produced from, or allocated to, such tract equal to not less than the decimal share set forth on Exhibit A in connection with such tract opposite the words “Net Revenue Interest” (or words of similar import), (2) cause the Grantor to be obligated to bear a decimal share of the cost of exploration, development and operation of such tract of land not greater than the decimal share set forth in Exhibit A in connection with such tract opposite the words “Working Interest” (or words of similar import), unless there is a corresponding increase in Net Revenue Interest, and (b) if such mortgaged property is subject to a unit or units, with respect to each such unit, (1) entitle the Grantor to receive (subject to the terms and provisions of this deed of trust) a decimal share of all substances covered by such unit which are produced from, or allocated to, such unit equal to not less than the decimal share set forth on Exhibit A in connection with such mortgaged property opposite the words “Unit Net Revenue Interest” or words of similar import (and if such mortgaged property is subject to more than one unit, words identifying such interest with such unit), and (2) obligate the Grantor to bear a decimal share of the cost of exploration, development and operation of such unit not greater than the decimal share set forth in Exhibit A in connection with such mortgaged property opposite the words “Unit Working Interest” or words of similar import (and if such mortgaged property is subject to more than one unit, words identifying such interest with such unit), unless there is a corresponding increase in Net Revenue Interest. With respect to each mortgaged property described in Exhibit A hereto which is subject to a voluntary or involuntary pooling, unitization or communitization agreement and/or order, the term “tract of land” as used in the preceding sentence shall mean the pooled, unitized or communitized area as an entirety and shall not be deemed to refer to any individual tract committed to said pooled, unitized or communitized area. Without limitation of the foregoing, the ownership of the Grantor of the mortgaged properties does and will, with respect to each well or unit identified on Exhibit A attached hereto and made a part hereof, entitle the Grantor to receive (subject to the terms and provisions of this deed of trust) a decimal share of the oil, gas and other hydrocarbons produced from, or allocated to, such well or unit equal to not less than the decimal share set forth, for such well or unit, in the column headed “Net Revenue Interest” on Exhibit A, and cause the Grantor to be obligated to bear a decimal share of the cost of operation of such well or unit equal to not more than the decimal share set forth, for such well or unit, in the column headed “Working Interest” on Exhibit A, unless there is a corresponding increase in Net Revenue Interest. The above-described shares of production which the Grantor is entitled to receive and shares of expenses which the Grantor is obligated to bear are not and will not be subject to change (other than changes which arise pursuant to nonconsent provisions of operating agreements described in Exhibit A) except, and only to the extent that, such changes are reflected in Exhibit A and/or any attached schedules or other exhibits to this deed of trust, as the case may be. Upon request by the Lender, the Grantor will deliver to the Lender schedules of all internal and third party information identifying the mortgaged property (such as, for example, lease names and numbers assigned by the Grantor or the operator of any mortgaged property, well and/or unit and/or property names and numbers assigned by purchasers of production, and internal identification names and the numbers used by Grantor or the operator in accounting for revenues, costs and joint interest transactions attributable to the mortgaged property).

2.3. No Defaults Under Leases. The oil, gas and/or mineral leases described on Exhibit A are in full force and effect. The Grantor is not in default with respect to the obligations of the Grantor under any of the oil and gas leases or otherwise attendant to the ownership or operation of any part of the mortgaged properties, where such default could materially adversely affect the ownership or operation of such mortgaged property.

2.4. Sale of Production.

(a) No mortgaged property is or will become subject to any contractual or other arrangement whereby payments for production are to be made to Grantor other than by checks, drafts, wire transfer advises or other similar writings, instruments or communications for the immediate payment of money.

(b) Except for production sales contracts, processing agreements or transportation agreements (or other agreements relating to the marketing of production) listed on Exhibit A (in connection with the mortgaged properties to which they relate), no mortgaged property is or will become subject to any contractual arrangement for the sale of production which cannot be canceled on 120 days (or less) notice.

(c) No mortgaged property is or will become subject to any “take or pay” or other similar arrangement as a result of which production from the mortgaged properties may be required to be delivered to one or more third parties without payment (or without full payment) therefor as a result of payments made, or other actions taken, with respect to other properties.

(d) To the extent the representations in this section are made with respect to a mortgaged property which is operated by a party other than Grantor, and the matters covered by such representations are the responsibility of such party under applicable agreements, such representations are made to the knowledge of Grantor.

2.5. Operation of Mortgaged Properties.

(a) Except as would not have a material adverse effect, the mortgaged properties (and properties unitized therewith) are being, and hereafter will be, maintained, operated and developed in a good and workmanlike manner, in accordance with existing joint operating agreements and in conformity with all applicable laws and all rules, regulations and orders of all duly constituted authorities having jurisdiction and in conformity with all oil, gas and/or other mineral leases and other contracts and agreements forming a part of the mortgaged property and in conformity with Permitted Encumbrances.

(b) All of the wells forming a part of the mortgaged property are, and will remain, bottomed under and producing from, the mortgaged property (or, in the case of wells located on properties unitized therewith, such unitized properties).

(c) Except as would not have a material adverse effect, (i) Grantor has, and will have in the future, all governmental licenses and permits necessary or appropriate to own and operate the mortgaged property, and (ii) Grantor has not received notice of any violations in respect of any such licenses or permits.

2.6. General Covenants.

(a) Subject to the provisions of the Loan Agreement, Grantor will permit Lender and its agents upon reasonable notice to go upon, examine, inspect and remain on the mortgaged property.

(b) Grantor will operate properly, or cause to be operated properly, the mortgaged properties, and Grantor will keep or cause to be kept in full force and effect on the oil and gas leases described on Exhibit A, except in those circumstances where a reasonably prudent operator under similar circumstances and in accordance with customary industry practice would deem it prudent not to do so and such actions or inactions individually or in the aggregate are not such as materially interfere with the development, operation or value of the mortgaged property.

2.7. Sale or Disposal. Grantor will not, without the prior written consent of Lender, sell, exchange, lease, transfer, or otherwise dispose of any part of or interest in, the mortgaged property other than:

(a) sales, transfers and other dispositions of machinery, equipment and other personal movable property and fixtures made in connection with the release, surrender or abandonment (to which Lender has given its prior written consent) of a lease,

(b) sales, transfers and other dispositions of machinery, equipment or other personal movable property and fixtures in connection with the abandonment (to which Lender has given its prior written consent) of a well,

(c) sales, transfers and other dispositions of machinery, equipment and other personal movable property and fixtures which are (1) obsolete for their intended purpose and disposed of in the ordinary course of business, or (2) replaced by articles of at least equal suitability and value owned by Grantor free and clear of all liens except this deed of trust and the Permitted Encumbrances,

(d) farmouts of undeveloped acreage and assignments in connection with such farmouts, and

(e) sales of production which are made in the ordinary course of business and in compliance with the provisions of this deed of trust (provided that nothing in clause (e) immediately preceding shall be construed as limiting Lender’s rights under Article 5 of this deed of trust).

Grantor shall account fully and faithfully for, and if Lender so elects, shall promptly pay or turn over to Lender the proceeds in whatever form received from disposition in any manner of the mortgaged property; provided, however, that Grantor shall have no obligation to turn over to Lender such proceeds unless a default, as defined herein, has occurred and is continuing. Grantor shall keep accurate and complete records of the mortgaged property and its proceeds.

2.8. Not Abandon Wells. Except in those circumstances where a reasonably prudent operator under similar circumstances and in accordance with customary industry practice would deem it prudent to do so, Grantor will not, abandon, or consent to the abandonment of, any well producing from the mortgaged property (or properties unitized therewith) so long as such well is capable (or is subject to being capable through drilling, reworking or other operations which it would be commercially feasible to conduct) of producing oil, gas or other hydrocarbons or other minerals in commercial quantities (as determined without considering the effect of this deed of trust).

2.9. Compliance by Operator. With respect to any part of the mortgaged property which is not a working interest, Grantor agrees to exercise all rights and remedies as are available to Grantor to cause the owner or owners of the working interest in such properties to comply with the covenants and agreements contained herein. With respect to any part of the mortgaged property which is a working interest but which is operated by a party other than Grantor, Grantor agrees to exercise all rights and remedies as are available to Grantor (including, but not limited to, all rights under any operating agreements) to cause the party who is the operator of such property to comply with the covenants and agreements contained herein. Grantor will immediately notify the holder in the event Grantor becomes aware of any failure of the operator of any of the mortgaged property to perform any such obligation.

2.10. No Impairment of Rights. Any and all covenants in this deed of trust may from time to time, by instrument in writing signed by holder and delivered to Grantor, be waived to such extent and in such manner as the holder may desire, but no such waiver shall ever affect or impair the holder’s rights or liens hereunder, except to the extent so specifically stated in such written instrument.

ARTICLE 3 -- hazardous materials

3.1. Definitions. When used herein, the following terms shall have the respective meanings specified below (such meanings to be equally applicable to both the singular and the plural of the terms defined):

“Environmental Law” means any federal, state, local or municipal law, judgment, rule, order, regulation, statute, ordinance, decree or requirement of any Governmental Authority regulating, relating to or imposing liability or standards of conduct or remedial obligations concerning environmental protection matters, including without limitation, Hazardous Materials, as now or may at any time hereafter be in effect.

“Governmental Authority” has the meaning provided in the Loan Agreement.

“Hazardous Materials” has the meaning provided in the Loan Agreement.

3.2. Grantor’s Environmental Warranties. Grantor hereby represents and warrants that:

(a) No Hazardous Materials are now located on the mortgaged property in violation of any Environmental Law.

(b) To Grantor’s knowledge and, except as would not have a material adverse effect, no part of the mortgaged property is being used, or has ever been used at any previous time for the disposal, storage, treatment, processing or other handling of Hazardous Materials in violation of, or subject to any remedial obligation under, any Environmental Law nor is any of the mortgaged property affected by Hazardous Materials contamination.

(c) To Grantor’s knowledge, no investigation, administrative order, consent and agreement, notice of violation or noncompliance, litigation or settlement with respect to Hazardous Materials or Hazardous Materials contamination is proposed, threatened, anticipated or in existence with respect to the mortgaged property. The mortgaged property is not currently on, and to Grantor’s knowledge have never been on, any federal or state “Superfund” or “Superfund” list.

(d) Grantor has not installed storage tanks on, under or at the mortgaged property in violation of any Environmental Law.

(e) Grantor has undertaken appropriate inquiry, consistent with good commercial or customary practice in the oil and gas industry, into the previous ownership and uses of the mortgaged property in an effort to minimize liability associated with Hazardous Materials or Hazardous Materials contamination.

(f) The mortgaged property is in compliance with all Environmental Laws and permits, licenses and registrations required under applicable Environmental Laws, except for noncompliance which would not have a material adverse effect. All permits required to be issued to Grantor or for any activity of Grantor under any Environmental Law have been issued and are in full force and effect except for the failure to have any such permit which would not have a material adverse effect.

(g) To the extent representations in this section are made with respect to a mortgaged property which is operated by a party other than Grantor, such representations are made to the knowledge of Grantor.

3.3. Grantor’s Covenants. Grantor agrees to:

(a) Give notice to the Lender immediately upon Grantor’s acquiring knowledge that any fact or circumstance represented or warranted in Section 3.2 hereof is not true and correct (without regard to any qualification of such representations or warranties to Grantor’s knowledge);

(b) Except for such noncompliance as would not have a material adverse effect, promptly comply (and, for those mortgaged properties for which the Grantor is not the operator, the Grantor will use its best efforts to cause the party who is the operator of such mortgaged properties promptly to comply) with all Environmental Laws affecting the mortgaged property and comply with and keep in effect all permits, licenses and registrations required by Environmental Laws with respect to the mortgaged property;

(c) Grantor will permit the Lender (by its employees, agents and contractors) to enter upon and conduct (and Grantor will cooperate in the conduct of) environmental investigations of the mortgaged property, using such consultants, methods and procedures, having such scope, following such schedule, and producing such reports as the Lender may reasonably request. In addition, if Grantor fails or refuses to do so in accordance herewith, subject to Grantor’s rights under applicable operating agreements, Grantor will permit the Lender (by its employees, agents or contractors) to enter upon any of Grantor’s properties or to take such other actions as it deems necessary or advisable to perform the obligations of Grantor hereunder which Grantor has failed or refused to perform. The Lender shall have no obligation to conduct any environmental investigation of the mortgaged property or perform any of Grantor’s obligations hereunder or under any of the other Loan Documents (as defined in the Loan Agreement), and any such action by the Lender shall be for the sole purpose of protecting the Lender’s security for the repayment of the secured indebtedness arising hereunder and shall not under any circumstances be construed to give the Lender the right to participate or constitute participation in the management of Grantor or the mortgaged property.

3.4. Indemnification. Grantor shall defend, indemnify and hold harmless the Lender and its employees and agents from any and all liabilities (including strict liability), actions, demands, penalties, losses, out-of-pocket costs or expenses (including, without limitation, reasonable consultant’s fees, investigation and laboratory fees, attorneys’ fees and expenses, and response or remedial costs), suits, the future (whether before or after the release of any liens against the mortgaged property) be paid, incurred or suffered by or asserted against any indemnified party by any person or entity or Governmental Authority for, with respect to, or as a direct or indirect result of, or arising out of (i) any violation of or remedial obligation under any Environmental Law existing or occurring on or before the date the Lender becomes the owner of the mortgaged property (the “Release Date”) on or in respect of which such violation occurs, or (ii) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission or release from the mortgaged property of any Hazardous Materials resulting from any act, omission or condition occurring or existing on or before the Release Date. WITHOUT LIMITATION, IT IS THE INTENTION OF GRANTOR AND GRANTOR AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS’ FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. No such indemnified party shall be entitled to be indemnified for its or his own gross negligence or willful misconduct.

3.5. Survival. The representations, covenants, warranties and indemnifications contained in Sections 3.1 through 3.4 hereof shall survive the release of this deed of trust and all liens which the Lender may have against the mortgaged property in question.

ARTICLE 4 -- RESPECTING DEFAULTS AND CERTAIN
REMEDIES OF THE HOLDER

4.1. Default. The term “default”, as used herein, shall mean the occurrence of any of the following events: (a) the occurrence of an Event of Default as defined in the Loan Agreement; or (b) Grantor shall default in the due performance or observance by it of any term, covenant or agreement contained in this deed of trust, and such failure shall continue for thirty (30) days after the earlier of: (1) notice of such default from the Lender; or (2) the Lender is notified of such default or should have been so notified [pursuant to the provisions of Section of the Loan Agreement]. Upon the occurrence of a default [described in Section of the Loan Agreement,] the entire principal of and accrued interest on the Note shall forthwith be due and payable without demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices and further actions of any kind, all of which are hereby expressly waived by Grantor. In the event that any other default shall occur and be continuing, Lender may, without demand or notice of its election declare the entire unpaid balance of the Note and all other secured indebtedness of Grantor to Lender, or any part thereof, immediately due and payable, whereupon the principal of and accrued interest on such Note and other secured indebtedness shall be forthwith due and payable without demand, presentment for payment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices and further actions of any kind, all of which are hereby expressly waived by Grantor.

4.2. Performance on Grantor’s Behalf. If Grantor should fail to keep or perform any covenant whatsoever contained in this deed of trust, the holder may, but shall not be obligated to any person to do so, perform or attempt to perform said covenant, and any such payment so made or expense reasonably incurred in the performance or attempted performance of any such covenant shall be a part of the indebtedness hereby secured, and Grantor promises, upon demand, to pay to the holder at the office of Lender at the address of the Lender stated above, all such sums so advanced or paid by it with interest at the lesser of the Default Rate, as defined in the Loan Agreement, or the highest permitted lawful rate per annum, from date when paid or incurred by the holder. No such payment by the holder shall constitute a waiver of any such default. In addition to the lien hereof, the holder shall be subrogated to all rights and liens securing the payment of any debt, claim, tax or assessment for the payment of which the holder may make an advance.

4.3. Nonjudicial Foreclosure. Upon the occurrence of a default, the holder may, at its option do any one or more of the following: (a) without demand or presentment, notice of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notices, all of which the Grantor hereby expressly waives to the full extent permitted by applicable law, declare the entire unpaid balance of principal of the secured indebtedness, and all accrued interest thereon, immediately due and payable; (b) in addition to any and every other remedy, request the Trustee to proceed with foreclosure, and in such event Trustee is hereby authorized and empowered, and it shall be his special duty, upon such request of the holder, to sell the mortgaged property, as a whole or in lots or parcels as Trustee may deem proper, to the highest bidder or bidders for cash, at the courthouse door of the county wherein that portion of the mortgaged property that is realty (“Mortgaged Realty”) then subject to the lien hereof is situated, provided, that if the Mortgaged Realty be situated in more than one county such sale may be made in any county in the State of Texas wherein any part of the Mortgaged Realty then subject to the lien is situated. Any such sale shall be a public sale at auction held between the hours of ten o’clock A.M. and four o’clock P.M. on the first Tuesday of a month, after having given notice of such sale at least 21 days before the date of the sale: (i) by posting, or causing to be posted, at the courthouse door of the county, or if the Mortgaged Realty is located in more than one county, then at the courthouse door in each of the counties, wherein the Mortgaged Realty, or any part thereof, then subject to the lien hereof is situated a written notice designating the county where said property will be sold; and (ii) by filing in the office of the county clerk of each county in which such Mortgaged Realty is located a copy of the notice posted under the immediately preceding subdivision hereof; and (iii) by the holder of the secured indebtedness serving written notice of the sale by certified mail on each debtor who, according to the records of the holder of such secured indebtedness, is obligated to pay such secured indebtedness, service of such notice by certified mail being completed when the notice is deposited in the United States mail, postage prepaid and addressed to such debtor at such debtor’s last known address as shown on the records of the holder of the secured indebtedness; and (iv) by observing and performing such additional or different procedures as may be required, as of the time of such sale, by applicable law then governing private foreclosure sales, and after such sale to make to the purchaser or purchasers thereunder good and sufficient deeds and assignments, in the name of Grantor, conveying said property so sold to the purchaser or purchasers with general warranty of title by Grantor. An affidavit of any person having knowledge of the fact that service of a notice required hereby was completed shall be prima facie evidence of the fact of service. A sale of a part of the mortgaged property shall not exhaust the power of sale, but sales may be made from time to time until all of the mortgaged property be sold or the secured indebtedness be paid in full; (c) in addition to the rights and powers of sale granted under the preceding provisions of Subsection 4.3(b), if default is made in the payment of any installment of the secured indebtedness, the holder at its option, at once or at any time thereafter while any matured installment remains unpaid, without declaring the entire secured indebtedness to be due and payable, may orally or in writing direct Trustee to enforce this trust and to sell the mortgaged property subject to such unmatured indebtedness and the liens and security interests securing its payment, in the same manner, on the same terms, at the same place and time and after having given notice in the same manner, all as provided in the preceding provisions of Subsection 4.3(b). After such sale, Trustee shall make due conveyance to the purchaser or purchasers. Sale made without maturing the secured indebtedness may be made hereunder whenever there is a default in the payment of any installment of the secured indebtedness without exhausting the power of sale granted hereby, and without affecting in any way the power of sale granted under Subsection 4.3(b) or this Subsection 4.3(c), the unmatured balance of the secured indebtedness (except as to any proceeds of any sale which the holder may apply as prepayment of the secured indebtedness) or the liens and security interests securing payment of the secured indebtedness; (d) it is intended by each of the foregoing provisions of Subsection 4.3(b) and Subsection 4.3(c) that Trustee may, after any request or direction by holder, sell, not only the Mortgaged Realty but also, the personal property and other interests constituting a part of the mortgaged property, or any part thereof, along with the Mortgaged Realty, or any part thereof, all as a unit and as a part of a single sale, or may sell any part of the mortgaged property separately from the remainder of the mortgaged property. It shall not be necessary to have present or to exhibit at any such sale any of the personal property subject to the lien hereof; (e) enter upon and take possession of the mortgaged property and remove the fixtures or personal property or any part hereof, with or without judicial process, and, in connection therewith, without any responsibility or liability on the part of holder, take possession of any property located on or in the mortgaged property which is not a part of the mortgaged property and hold or store such property at Grantor’s expense; (f) require Grantor to assemble that portion of the mortgaged property that is fixtures or personal property or any part thereof, and make it available to the holder at a place to be designated by the holder which is reasonably convenient to Grantor and the holder; (g) after notification, if any, hereafter provided in this Subsection 4.3(g), sell, lease or otherwise dispose of, at the office of the holder, or on the Mortgaged Realty, or elsewhere, as chosen by the holder, all or any part of the mortgaged property constituting fixtures or personal property in its then condition, or following any commercially reasonable preparation or processing, and each Sale (as used herein the term “Sale” means any such sale, lease or other disposition made pursuant to this Subsection 4.3 (g)) may be as a unit or in parcels, by public or private proceedings, and by way of one or more contracts, and, at any Sale, it shall not be necessary to exhibit such fixtures or personal property, or part thereof, being sold. The Sale of any part of such fixtures or personal property shall not exhaust the holder’s power of Sale, but Sales may be made from time to time until the secured indebtedness is paid and performed in full. Reasonable notification of the time and place of any public Sale pursuant to this Subsection 4.3(g), or reasonable notification of the time after which any private sale is to be made pursuant to this Subsection 4.3(g), shall be sent to Grantor and to any other person entitled under the UCC to notice; provided, that if the fixtures or personal property, or part thereof, being sold is perishable, or threatens to decline speedily in value, or is of a type customarily sold on a recognized market, holder may sell, lease or otherwise dispose of such fixtures or personal property, or part thereof, being sold, leased or otherwise dispose of such fixtures or personal property, or part thereof, being sold, leased or otherwise disposed of without notification, advertisement or other notice of any kind. It is agreed that notice sent or given not less than five (5) calendar days prior to the taking of the action to which the notice relates, is reasonable notification and notice for the purposes of this Subsection 4.3(g); (h) surrender the insurance policies maintained pursuant to Section 2.6(c) or any part thereof and receive and apply the unearned premiums as a credit on the secured indebtedness, and, in connection therewith, Grantor hereby appoints the holder as the agent and attorney-in-fact for Grantor to collect such premiums. The holder shall have no obligations to keep any insurance in force with respect to the mortgaged property or any part thereof; (i) retain any or all of the mortgaged property which is fixtures or personality in satisfaction of the secured indebtedness whenever the circumstances are such that the holder is entitled to do so under the UCC; and (j) in lieu of or in addition to exercising the power of sale hereinabove given, proceed or direct the Trustee to proceed by suit or suits, at law or in equity, to enforce the payment of the secured indebtedness in accordance with the terms hereof and of the notes evidencing it, to enforce the specific performance of any covenant or agreement contained herein or in the aid of the execution of any power herein granted, to appoint a receiver pending any foreclosure hereunder or the sale of the mortgaged property, to foreclose the lien and this deed of trust and security agreement as against all or any portion of the mortgaged property and to have said property sold under the judgment or decrees of a court of competent jurisdiction. On or at any time after the filing of judicial proceedings to protect or enforce the rights of the holder, the holder, as a matter of right and without regard to the sufficiency of the security and without any showing of insolvency, fraud or mismanagement on the part of Grantor, shall be entitled to the appointment of a receiver of the mortgaged property, and of the income, rents, issues and profits thereof. To the extent that the mortgaged property is within a state that provides for a mortgagee to be empowered with the power of sale upon the occurrence of a default, rather than the trustee, then any reference in this Section 4.3 to the trustee shall be deemed to constitute a reference to the holder.

4.4. Application of Proceeds. The Trustee is authorized to receive the proceeds of said sale or sales made pursuant to Section 4.3 and apply the same as follows: First, to the payment of all necessary costs and expenses incident to the execution of said trust, including, but not limited to a reasonable fee to the Trustee, not to exceed five per cent (5%) to be estimated upon the amount realized at said sale. Second, to the payment of the secured indebtedness in such order as the holder shall elect. Third: the balance, if any, remaining after the full and final payment of the secured indebtedness, to Grantor or Grantor’s assigns.

4.5. Recitals Constitute Prima Facie Evidence. It is agreed that in any deed or deeds given by the Trustee or any substitute Trustee duly appointed hereunder, any and all statements of fact or other recitals therein made as to the identity of the holder or holders of the secured indebtedness or as to the occurrence or existence of any default, or as to the acceleration of the maturity of the secured indebtedness, or as to the request to sell, notice of sale, time, place, terms and manner of sale and receipt, distribution and application of the money realized therefrom, or as to the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, as to any other act or thing having been duly done by the holder, or any of them if there be more than one, or by the Trustee or any substitute Trustee, shall be taken by all courts of law and equity as prima facie evidence that the said statements or recitals state facts and are true and correct without further question to be so accepted, and Grantor does hereby ratify and confirm any and all acts that the Trustee, or any substitute Trustee, may lawfully do in the premises by virtue hereof.

4.6. Right to Immediate Possession Upon Foreclosure. In case the lien hereof shall be foreclosed by Trustee’s sale, or by judicial action, the purchaser at any such sale shall receive, as an incident to his ownership, immediate possession of the property purchased, and Grantor agrees for Grantor and for all persons claiming under Grantor, that if Grantor or any such person shall hold possession of said property, or any part thereof, subsequent to foreclosure, Grantor or the parties so holding possession shall be considered as tenants at sufferance of the purchaser at foreclosure sale, and anyone occupying the property after demand made for possession thereof shall be guilty of forcible detainer and shall be subject to eviction and removal, forcible or otherwise, with or without process of law, and all damages by reason thereof are hereby expressly waived.

4.7. Lender as Purchaser. It is agreed that Lender or any other holder may be the purchaser of the mortgaged property, or of any part thereof, at any sale thereof, whether such sale be under the power of sale hereinabove vested in the Trustee, or upon any other foreclosure of the lien hereof or otherwise, and Lender or other holder so purchasing shall, upon any such purchase, acquire good title to the mortgaged property so purchased, free of the lien of these presents.

4.8. Remedies Cumulative. The rights and remedies hereinabove expressly conferred are cumulative of all other rights and remedies herein, or by law or in equity provided, and shall not be deemed to deprive the holder or the Trustee of any such other legal or equitable rights or remedies, by judicial proceedings or otherwise, appropriate to enforce the conditions, covenants and terms of this deed of trust and of said notes, and the employment of any remedy hereunder, or otherwise, shall not prevent the concurrent or subsequent employment of any other appropriate remedy or remedies.

4.9. Substitute Trustee. In the event of the death of said Trustee, or his removal from the county of his residence named above, or his failure, refusal or inability, for any reason, to make any such sale or to perform any of the trusts herein declared, then the holder may appoint, in writing, a substitute Trustee, who shall thereupon succeed to all the estate, rights, powers and trusts herein granted to and vested in said Trustee. If the holder be Lender or a corporation, such appointment may be made on behalf of such holder by any person who is then the president, or an executive vice-president, or a senior vice-president, or a vice-president, or an assistant vice-president or a Banking officer, or the cashier or secretary, of the holder. In the event of the death of any such substitute Trustee, or his failure, refusal or inability to make any such sale or perform such trusts, successive substitute Trustees may thereafter, from time to time, be appointed in the same manner.

4.10. No Implied Waiver. No failure of the holder to declare any default or to exercise any right or remedy herein provided in any one or more instances or for any period of time, and no acquiescence in or acceptance by the holder of any later defective notice or performance hereunder, shall be deemed a waiver or agreement to modify any provision hereof. The holder shall at all times have the right, notwithstanding any such prior acquiescence or forbearance, without any prior notice or demand, to require strict performance of each and every term and provision hereof. At any time when any default is continuing hereunder, the holder may, without any prior notice to the Grantor except such notice as may be herein otherwise required, exercise any right or remedy of the holder arising by reason of such default, notwithstanding the length of time such default has been continuing or the occurrence in the past of similar events or other defaults for which no remedy has been invoked.

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

ARTICLE 5 -- ASSIGNMENT OF PROCEEDS OF SALE OF PRODUCTION

5.1. Assignment. For a valuable consideration to Grantor paid by Lender, receipt of which is hereby acknowledged, and for the purpose of further securing the secured indebtedness and the performance of Grantor’s covenants hereunder, Grantor does hereby TRANSFER, ASSIGN, AND CONVEY unto Lender all of the interest of Grantor in the oil, gas, casinghead gas, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons, and other minerals in and under, and that may be produced from, the mortgaged property together with the proceeds of the sale thereof and all accounts, contract rights, and other general intangibles under which such proceeds may arise. This assignment is upon the following terms and conditions: (a) pipe line companies and others purchasing the oil, gas and other minerals produced and to be produced from said property are hereby authorized and directed to pay directly to Lender the interest of Grantor in the proceeds of the sale of the oil, gas and other minerals produced and to be produced from said property, and to continue such payments until they have been furnished with a release hereof executed in writing by Lender, and the receipt of Lender for moneys so paid to it shall be a full and complete release, discharge and acquittance to any such pipe line company or other purchaser, to the extent of all amounts so paid, (b) Lender is authorized to receive, collect and receipt for the proceeds of the sale of the oil, gas and other minerals assigned to it hereunder, and to apply the funds so received first toward the payment of the expenses, if any, incurred in the collection thereof, including operating expenses to the extent Lender deems the same necessary or appropriate, then in such order as Lender shall elect toward the payment of the secured indebtedness, any balance remaining after the full and final payment of the secured indebtedness, to be held subject to the order of Grantor, (c) Lender shall have the right, at its sole option, at any time, and from time to time, to release to, or on the order of, Grantor all or any portion of the funds assigned to Lender hereunder, and no such release shall affect or impair the lien of this deed of trust or the validity and affect of the assignment contained in this Article 5, (d) Lender shall never be under any obligation to enforce the collection of the funds assigned to it hereunder, nor shall it ever be liable for failure to exercise diligence in the collection of such funds, but it shall only be accountable for the sums that it shall actually receive, (e) Grantor directs and instructs all pipe line companies, or other purchasers of the oil, gas and other minerals produced from said property, to pay promptly to Lender, at the office of Lender at the address of Lender stated above, the interest of Grantor in the proceeds of the sale thereof, and (f) upon the full and final payment of the secured indebtedness, Lender, at the request of Grantor, and at Grantor’s expense, shall execute and deliver to Grantor a reassignment hereof, without recourse, representations, or warranties. Independent of the foregoing provisions, Grantor agrees to execute and deliver any and all transfer orders, division orders and other instruments that may be requested by Lender or that may be required by any purchaser of any production for the purpose of effectuating payment of the proceeds of production to Lender. If under any existing sales agreements, other than division orders or transfer orders, payments of proceeds of production are required to be paid by the purchaser to Grantor so that under such existing agreements payment cannot be made directly to Lender, Grantor’s interest in all such proceeds of production under such sales agreements and in all other proceeds of production which may for any reason be paid to Grantor shall, when received by Grantor, constitute trust funds in Grantor’s hands and shall be immediately paid over to Lender.

5.2. Power of Attorney. In consideration of the loan evidenced by the note or notes described in Section 1.1, Grantor hereby designates and appoints Lender as Grantor’s true and lawful agent and attorney-in-fact (with full power of substitution, either generally or for such limited periods or purposes as Lender may from time to time prescribe), with full power and authority, for and on behalf and in the name of Grantor, to execute, acknowledge and deliver all such division orders, transfer orders, certificates and other documents of every nature, with such covenants, warranties, indemnities and other provisions as may from time to time, in the opinion of Lender, be necessary or proper to effectuate the intent and purpose of the assignment contained in Section 5.1 hereof. Grantor shall be bound thereby as fully and effectively as if Grantor had personally executed, acknowledged and delivered any such division order, transfer order, certificate and other document. The powers and authorities herein conferred on Lender may be exercised by Lender through any person who, at the time of the execution of a particular instrument, is the president, an executive vice-president, a senior vice president, a vice-president, an assistant vice-president or a Banking officer of Lender. The power of attorney conferred by this Section 5.2 is granted for a valuable consideration and hence is coupled with an interest and is irrevocable so long as the secured indebtedness, or any part thereof, shall remain unpaid. All persons dealing with Lender, or any officer thereof above designated, or any substitute, shall be fully protected in treating the powers and authorities conferred by this paragraph as continuing in full force and effect until advised by Lender that all the secured indebtedness is fully and finally paid.

5.3. Release and Indemnity. Lender and its successors and assigns are hereby absolved from all liability for failure to enforce collection of the proceeds of production and from all other responsibility in connection therewith, except the responsibility to account to Grantor for funds actually received and for the consequences of the Lender’s own willful misconduct. Grantor agrees to indemnify and hold harmless Lender, Trustee and their directors, officers, partners, employees and agents, from any and all claims, demands, liabilities, losses, damages (including without limitation consequential damages), causes of action, judgments, penalties, costs and expenses (including without limitation reasonable attorneys’ fees and expenses) imposed upon, asserted against or incurred or paid by Lender by reason of the assertion that Lender received, either before or after payment in full of the secured indebtedness, funds from the production of oil, gas or other hydrocarbons or other minerals claimed by third persons (and/or funds attributable to sales of production which (i) were made at prices in excess of the maximum price permitted by applicable law, or (ii) were otherwise made in violation of laws, rules, regulations and/or orders governing such sales), and Lender shall have the right to defend against any such claims or actions, employing attorneys of its own selection, and if not furnished with indemnity satisfactory to it, Lender shall have the right to compromise and adjust such claims, actions and judgments. In addition to the rights to indemnify it as herein provided, all amounts paid by Lender in compromise, satisfaction or discharge of any such claim, action or judgment, and all court costs, attorneys’ fees and other expenses of every character expended by Lender pursuant to the provisions of this Section shall be deemed an obligation (which obligation Grantor hereby expressly promises to pay) owing by Grantor to Lender and shall bear interest, from the date expended until paid, at the highest interest rate provided for in the note or notes described in Section 1.1 hereof. The obligations of Grantor as set forth herein shall survive the release of this deed of trust. WITHOUT LIMITATION, IT IS THE INTENTION OF GRANTOR AND GRANTOR AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING WITHOUT LIMITATION CONSEQUENTIAL DAMAGES), CAUSES OF ACTION, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS’ FEES AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such indemnities shall not apply to any particular indemnified party (but shall apply to the other indemnified parties) to the extent the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of such particular indemnified party.

5.4. Obligation to Pay Secured Indebtedness Absolute. Nothing herein contained shall detract from or limit the obligation to make prompt payment of the note or notes described in Section 1.1 hereof, and any other secured indebtedness, at the time and in the manner provided therein and herein, regardless of whether the production and proceeds of production herein assigned are sufficient to pay the same. The rights of Lender under this Article 5 shall be cumulative of all other rights of Lender.

5.5. Limitation on Exercise of Assignment. Lender agrees that it will not exercise any of its rights under this Article 5 until after the occurrence of a default hereunder. Notwithstanding any other provision hereof, Lender authorizes and directs all pipe line companies and others purchasing the oil, gas and other minerals produced and to be produced from the mortgaged property to pay directly to Grantor the proceeds of the sale of the oil, gas and other minerals produced and to be produced from said property, and to continue such payments to Grantor until they have been furnished with a notice, executed by Lender, that a default has occurred and are directed to pay such proceeds to Lender.

ARTICLE 6 -- MISCELLANEOUS

6.1. Defeasance. If the secured indebtedness be paid and discharged in accordance with the terms of this instrument and the other instruments evidencing it, and if Grantor shall well and truly perform all of Grantor’s covenants contained herein, then this conveyance shall become null and void and be released at Grantor’s request and expense; otherwise, it shall remain in full force and effect, provided that no release hereof shall impair Grantor’s warranties and indemnities contained herein.

6.2. Cumulative Rights. The rights, titles, interests, liens and powers hereunder are cumulative of each other and of all other rights, titles, interests, liens and powers which may now or hereafter exist to secure the payment of the secured indebtedness or any part thereof.

6.3. Limitation on Agreements. No provision herein or in any promissory note, instrument, or any other loan document executed by Grantor evidencing the secured indebtedness shall require the payment or permit the collection of interest in excess of the maximum permitted by applicable law. If any excess of interest in such respect is provided for herein or in any such promissory note, instrument, or any other loan document, the provisions of this paragraph shall govern, and Grantor shall not be obligated to pay the amount of such interest to the extent that it is in excess of the amount permitted by applicable law. The intention of the parties being to conform strictly to the applicable usury laws now in force, all sums payable under promissory notes, instruments and other loan documents executed by Grantor evidencing the secured indebtedness are hereby reduced and shall be held subject to reduction to the highest allowed under said usury laws as now or hereafter construed by the courts having jurisdiction.

6.4. No Liability for Trustee. TRUSTEE SHALL NOT BE LIABLE FOR ANY ERROR OF JUDGMENT OR ACT DONE BY TRUSTEE IN GOOD FAITH, OR OTHERWISE BE RESPONSIBLE OR ACCOUNTABLE UNDER ANY CIRCUMSTANCES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, TRUSTEE’S NEGLIGENCE), EXCEPT FOR TRUSTEE’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Grantor hereby ratifies and confirms any and all facts which Trustee or Trustee’s successor or successors, or substitute or substitutes, shall do lawfully by virtue hereof. Grantor shall reimburse Trustee for, and indemnify and save Trustee harmless against, any and all liability and expenses (including attorneys’ fees) which may be incurred by Trustee in the performance of its duties. The foregoing indemnity shall survive the termination of this deed of trust and the repayment of the secured indebtedness. Any amounts to be paid hereunder by Grantor to Trustee shall be a demand obligation owing by Grantor to Trustee and shall bear interest at the Default Rate as defined in the Loan Agreement.

6.5. Security Agreement and Grant of Security Interest. With respect to all personal property and fixtures constituting a part of the mortgaged property, this deed of trust shall likewise be a security agreement, and for a valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the purpose of further securing payment and performance of the secured indebtedness, Grantor hereby grants to Lender a security interest in all rights now owned and at any time hereafter acquired by the Grantor in all of the following (the “Collateral”): (i) proceeds of the mortgaged property, (ii) ”as extracted collateral,” as that term is defined in the UCC, including without limitation, all oil, gas and other minerals produced from the mortgaged property, (iii) accounts and general intangibles arising in connection with the sale or other disposition of such production, or arising otherwise out of or in connection with the mortgaged property, or any part thereof, and (iv) equipment, other personal property, and fixtures at any time used on the mortgaged property or in connection with such production. Grantor represents and warrants that, except for financing statements with respect to Permitted Encumbrances and any financing statement filed by the Lender, no financing statement covering the said collateral, or any part thereof, has been filed with any filing officer, and no other security interest has attached or been perfected in the said collateral, or in any part thereof. The above goods which are to become fixtures will be on the real estate hereinabove described or referred to. The above minerals or the like (including oil and gas) or accounts will be financed at the well head(s) or mine head(s) of the well(s) or mine(s) located on the real estate hereinabove described or referred to. This instrument may be filed for record as a financing statement in the real estate records. A carbon, photographic or other reproduction of this deed of trust shall be sufficient as a financing statement. Grantor hereby represents and warrants to Lender that Grantor does have an interest of record in and to the real estate hereinabove described or referred to. Proceeds and products of all collateral described in this Section 6.5 are also covered.

6.6. Effectiveness as Financing Statement. This deed of trust shall constitute a financing statement and the holder shall have the right at any time to file this deed of trust as a financing statement, but the failure of the holder to do so shall not impair the validity and enforceability of this deed of trust in any respect whatsoever. Grantor also authorizes the holder to file financing statements describing the Collateral. Unless otherwise stated herein or in an instrument filed or recorded subsequent to the filing of this deed of trust, the address of the holder from which information may be obtained concerning the liens and security interests herein granted is the address set forth above for Lender. This financing statement covers all rights, titles and interests now or at any time hereafter required by the Grantor in all of the Collateral. The Collateral includes (a) goods which are or are to become fixtures on the lands described or referred to on Exhibit A (or the oil and gas leases described on Exhibit A and/or the lands spaced, pooled or unitized therewith), and (b) “as extracted collateral” (as defined in the UCC), and minerals or the like (including oil and gas) or the accounts which are to be financed at the wellhead or minehead of the wells or mines located on the land described or referred to in Exhibit A and/or the lands spaced, pooled or unitized therewith (or the oil and gas leases described on Exhibit A and/or the lands spaced, pooled or unitized therewith). Grantor is a limited liability company organized under the laws of the state of Texas. Grantor’s organizational number is _______. The addresses of Grantor as “debtor” and Lender as “secured party” are as follows:

Debtor

Secured Party

6.7. Successors and Assigns. This deed of trust is binding upon Grantor, Grantor’s successors, and shall inure to the benefit of the holder, and its successors and assigns, and the provisions hereof shall likewise be covenants running with the land.

6.8. Counterparts. This deed of trust may be simultaneously executed in a number of identical counterparts, each of which, for all purposes, shall be deemed an original.

6.9. Invalidity of Certain Provisions. If any provision of this deed of trust is held to be illegal, invalid or unenforceable under present or future laws effective during the term of this deed of trust, the legality, validity and enforceability of the remaining provisions shall not be affected thereby; and in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this deed of trust, a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable.

6.10. Other Collateral Has No Effect, Etc. The liens provided for herein shall not affect or be affected by any other security or guaranty now or hereafter existing with respect to the secured indebtedness, nor shall they be affected by the release of any such other security or guaranty.

6.11. Enforcement. This instrument shall be deemed to be and may be enforced from time to time as an assignment of proceeds of production, real estate mortgage, security agreement or financing statement, and from time to time as any one or more thereof.

6.12. Captions. The captions, headings and arrangements used in this deed of trust are for convenience only and do not in any way affect, limit, amplify or modify the terms hereof.

6.13. Lender’s Consent. Except where otherwise expressly provided herein, in any instance hereunder where the approval, consent or the exercise of judgment by Lender is required, the granting or denial of such approval or consent in the exercise of such judgment shall be within the sole discretion of Lender, and Lender shall not, for any reason or to any extent, be required to grant such approval or consent or exercise such judgment in any particular manner, regardless of the reasonableness of either the request or Lender’s judgment.

6.14. Certain Matters Affecting Exhibit A. (a) Exhibit A contains specific descriptions of the properties which are subject to the liens created by this deed of trust. Regardless of the particular tabulations of interest and other limiting descriptive matters set forth on Exhibit A, each property includes, and the lien created by this deed of trust extends to, all of Grantor’s interests in the lands described, and the leases covering same whether now owned or hereafter acquired, including any special interest derived under leases or other instruments not specifically referred to. Each reference to a lease on Exhibit A shall be deemed a reference to said lease as said lease may have been amended and/or ratified by all amendments and/or ratifications heretofore executed, whether or not referred to herein. Reference is also made to each such lease and the record thereof for a description of the lands covered thereby, and such description is incorporated herein by reference.

(b) It is Grantor’s intention to include herein and to mortgage, assign, grant a security interest in, and Grantor does hereby mortgage, assign and grant a security interest in and lien upon, all rights, titles and interests of Grantor now owned or hereafter acquired (i) in the oil, gas and mineral leases described on Exhibit A; (ii) in the oil, gas and other minerals in and under the lands covered by the leases described on Exhibit A and/or the lands spaced, pooled or unitized therewith; (iii) in the oil, gas and other mineral interests and estates in and under the lands covered by the leases described on Exhibit A, including, but not limited to, working interests, royalty interests, overriding royalty interests, net profits interests and production payments, and all other interests therein; and (iv) in all other interests in oil, gas and other minerals covering any and all personal property and fixtures derived from, used in connection with, or pertinent to, those properties described on Exhibit A, together with the production therefrom and the proceeds attributable thereto (collectively, the “Subject Interests”). Grantor agrees to take all additional actions and execute, acknowledge and deliver all additional documents which may be necessary or appropriate to complete and confirm the mortgage, assignment and grant of security interest in Grantor’s rights, titles and interests in the Subject Interest under the terms of this instrument.

6.15. Choice of Law. WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, THIS DEED OF TRUST SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA EXCEPT THAT TO THE EXTENT THAT THE LAW OF THE STATE IN WHICH A PORTION OF THE MORTGAGED PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE MORTGAGED PROPERTY) NECESSARILY OR, IN THE SOLE DISCRETION OF LENDER, APPROPRIATELY GOVERNS WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE TRUSTEE OR LENDER GRANTED HEREIN, THE LAWS OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE MORTGAGED PROPERTY LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE].

6.16. Rule Against Perpetuities Savings Provision. This deed of trust creates a lien against, among other things, certain real property interests which vest in Grantor in the future. For purposes of compliance with the rule against perpetuities, it is agreed that the lien created by this deed of trust shall not attach to real property interests which vest in Grantor after the date which is one day less than 21 years from the date hereof.

6.17. Effective as Mortgage. This instrument shall be effective as a mortgage as well as a deed of trust. If any of the mortgaged properties are located in a jurisdiction where real property interests are secured by a mortgage instead of a deed of trust, then, to the extent permitted by the laws of such state, references herein to the Trustee shall be deemed to constitute a reference to the holder, and the holder shall be a mortgagee for all purposes. Any foreclosure suit may be brought by either the Trustee or the holder. To the extent, if any, required to cause this instrument to be effective as a mortgage as well as a deed of trust, the Grantor hereby mortgages the mortgaged properties to the Lender. In the event a foreclosure hereunder shall be commenced by the Trustee, or his substitute or successor, the holder may at any time before the sale of such properties direct the Trustee to abandon the sale, and may then institute suit for the foreclosure of this deed of trust as to such properties. If the holder should institute a suit for foreclosure of this deed of trust, the holder may at any time before the entry of a final judgment in said suit dismiss the same and require the Trustee, or its substitute or successor, to sell the mortgaged properties, or any part thereof, in accordance with the nonjudicial foreclosure sale provisions of this deed of trust.

6.18. [Loan Agreement Controls. In the event of a conflict between the terms and provisions of this deed of trust and the terms and provisions of the Loan Agreement, the terms of the Loan Agreement shall control.]

The effective date of the assignment contained in Article 5 is the ___ day of ______ 2004 at _____ P.M.

EXECUTED on the date of the notary certification below to be effective as of the date first above written.

GRANTOR:

_______________________

Printed Name:

Title:

STATE OF TEXAS §

COUNTY OF _____ §

This instrument was acknowledged before me on the ______ day of _______, 20__ by ______________ the ___________ _______________________, a ____________, on behalf of said ______________.

Notary Public, State of Texas