AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION AND REVENUES

FROM

ENERJEX KANSAS, INC. AND DD ENERGY, INC.

(individually and collectively, Mortgagor and Debtor)

TO

TEXAS CAPITAL BANK, N.A.

(Mortgagee and Secured Party)

FOR PURPOSES OF FILING THIS INSTRUMENT AS A FINANCING STATEMENT, THE MAILING
ADDRESS OF EACH MORTGAGOR/DEBTOR IS 7300 W. 110TH STREET, 7TH FLOOR, OVERLAND
PARK, KANSAS 66210; THE MAILING ADDRESS OF MORTGAGEE/SECURED PARTY IS ONE
RIVERWAY, SUITE 2450, HOUSTON, TEXAS 77056.

THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, AND COVERS FUTURE
ADVANCES AND PROCEEDS. INTERESTS IN OIL, GAS, MINERALS AND OTHER AS-EXTRACTED
COLLATERAL OR IN ACCOUNTS RESULTING FROM THE SALE THEREOF, WHICH ARE INCLUDED IN
THE MORTGAGED PROPERTY, WILL BE FINANCED AT WELLHEADS LOCATED ON THE LANDS OR
LANDS ASSOCIATED WITH PIPELINE DESCRIBED IN EXHIBIT A-1 AND EXHIBIT A-2 HERETO.

PERSONAL PROPERTY CONSTITUTING A PORTION OF THE MORTGAGED PROPERTY MAY BE OR MAY
IN THE FUTURE BE AFFIXED TO THE LANDS OR LANDS ASSOCIATED WITH PIPELINE
DESCRIBED IN EXHIBIT A-1 AND EXHIBIT A-2 HERETO.

A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT TO THE EXTENT PERMITTED
UNDER KANSAS LAW. A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED
PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT
BY THE MORTGAGOR UNDER THIS INSTRUMENT.

THIS FINANCING STATEMENT IS TO BE FILED, AMONG OTHER PLACES, IN THE REAL ESTATE
RECORDS AND INDEXED AS BOTH A MORTGAGE AND A FINANCING STATEMENT.

*********************************

This instrument was prepared by Ephraim del Pozo, PORTER & HEDGES, L.L.P., 1000
Main Street, 36th Floor, Houston, Texas 77002.

ATTENTION OF RECORDING OFFICER: This instrument is a mortgage of both real and
personal property and is, among other things, a Security Agreement and Financing
Statement under the Uniform Commercial Code. This instrument creates a lien on
rights in or relating to lands of each Mortgagor which are described in Exhibit
A-1 and Exhibit A-2 hereto.

RECORDED DOCUMENT SHOULD BE RETURNED TO:

PORTER & HEDGES, L.L.P.

1000 Main Street, 36th Floor

Houston, Texas 77002

Attn: Ephraim del Pozo

 

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AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)

ARTICLE I

GRANT OF LIENS AND SECURITY INTERESTS

 

KNOW ALL MEN BY THESE PRESENTS: That the undersigned ENERJEX KANSAS, INC. (f/k/a
Midwest Energy, Inc.), a Nevada corporation, whose mailing address is 7300 W.
110th St., 7th Floor, Overland Park, Kansas 66210, and DD ENERGY, INC., a Nevada
corporation (individually, “Mortgagor” and collectively, “Mortgagors”), whose
mailing address is 7300 W. 110th St., 7th Floor, Overland Park, Kansas 66210,
for valuable consideration, the receipt of which is hereby acknowledged, and in
consideration of the debt, effective as of July ___, 2008, have granted,
bargained, sold, conveyed, transferred and assigned, and by these presents do
GRANT, BARGAIN, WARRANT, SELL, CONVEY, MORTGAGE, PLEDGE, TRANSFER, ASSIGN AND
SET OVER to TEXAS CAPITAL BANK, N.A., a national banking association, whose
address is One Riverway, Suite 2450, Houston, Texas 77056, (“Mortgagee”), for
itself, the Banks (as defined in the Credit Agreement), and for any Approved
Counterparty (as defined in the Credit Agreement) under an Intercreditor
Agreement (as defined in the Credit Agreement), all of Mortgagors’ rights,
titles, interests and estates in and to the following property, whether real,
personal or mixed, whether now owned or hereafter acquired under law or in
equity (collectively, the “Mortgaged Property”); the inclusion of certain
specific types and items of property and interests in one or more of the
following Paragraphs are not intended in any way to limit the effect of the more
general descriptions:

OIL AND GAS PROPERTIES

 

A.        All of Mortgagors’ respective present and future rights, titles,
interests and estates, now owned or hereafter acquired by Mortgagors, in and to
those certain oil, gas and mineral leases, mineral interests, mineral
servitudes, royalty interests, overriding royalty interests, production
payments, net profits interests, fee interests, carried interests, reversionary
interests and all other rights, titles, interests or estates described on
Exhibit A-1 attached hereto and made a part hereof or in, on or under any lands
described or referred to on Exhibit A-1 (the “Lands”), whether such rights,
titles, interests or estates or such Lands are correctly described therein or
not (all of which rights, titles, interests and estates described in this
Paragraph A are hereinafter included within the term “Subject Interests”). The
term “oil, gas and mineral leases,” as used in this instrument and in Exhibit
A-1 includes, in addition to oil, gas and mineral leases, oil and gas leases,
oil, gas and sulphur leases, other mineral leases, co-lessor’s agreements and
extensions, amendments, ratifications and subleases of all or any of the
foregoing, all as may be appropriate.

B.        All of Mortgagors’ respective present and future rights, titles,
interests and estates, now owned or hereafter acquired by Mortgagors, in and to
present and future drilling, spacing, proration or production units, as created
by the terms of any unitization, communitization and pooling agreements and
orders, and all properties, property rights and

 

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estates created thereby which include, belong or appertain to the Subject
Interests, including, without limitation, all such units formed voluntarily or
under or pursuant to any Law relating to any of the Subject Interests. As used
herein, the term “Law” means all applicable statutes, laws, ordinances,
regulations, orders, writs, injunctions, or decrees of any state, commonwealth,
nation, territory, possession, county, township, parish, municipality, or
Tribunal, and the term “Tribunal” means any court or governmental department,
commission, board, bureau, agency, or instrumentality of the United States or of
any state, commonwealth, nation, territory, possession, county, parish, or
municipality, whether now or hereafter constituted or existing.

C.        All present and future oil, gas, casinghead gas, drip gasoline,
natural gasoline, distillate, all other liquid or gaseous hydrocarbons produced
or to be produced in conjunction therewith, all products, by-products and all
other substances derived therefrom or the processing thereof, and all other
similar minerals, now owned or hereafter acquired by Mortgagors, now or
hereafter accruing to, attributable to or produced from the Subject Interests or
to which Mortgagors now or hereafter may be entitled as a result or by virtue of
Mortgagors’ ownership of the Subject Interests (collectively, “Hydrocarbons”).

D.        All present and future sulphur, lignite, coal, uranium, thorium, iron,
geothermal steam, water, carbon dioxide, helium and all other minerals, ores or
substances of value (whether similar to the foregoing or not), and the products
and proceeds therefrom now owned or hereafter acquired by Mortgagors, including,
without limitation, all gas resulting from the in-situ combustion of coal or
lignite now or hereafter accruing to, attributable to or produced from the
Subject Interests or to which Mortgagors now or hereafter may be entitled as a
result of or by virtue of Mortgagors’ ownership of the Subject Interests
(collectively, “Other Minerals”).

E.        All present and future oil and gas wells, disposal and injection
wells, rigs, improvements, fixtures, machinery and other equipment, inventory
and articles of personal property or movables, wherever located, now owned or
hereafter acquired by Mortgagors, including, without limitation, connection
apparatus and flow lines from wells to tanks, wells, pipelines, gathering lines,
trunk lines, lateral lines, flow lines, compressor, dehydration and pumping
equipment, pumping plants, gas plants, processing plants, pumps, dehydration
units, separators, heater treaters, valves, gauges, meters, derricks, rig
substructures, buildings, tanks, reservoirs, tubing, rods, liquid extractors,
engines, boilers, tools, appliances, cables, wires, tubular goods, machinery,
supplies and any and all other equipment, inventory and articles of personal
property of any kind or character whatsoever appurtenant to, or used or held for
use in connection with the production of Hydrocarbons or Other Minerals from the
Subject Interests, or now or hereafter located on any of the Lands encumbered by
or pooled with any of the Subject Interests, or used on or about the Lands in
connection with the operations thereon, together with all present and future
improvements or products of, accessions, attachments and other additions to,
tools, parts and equipment used in connection with, and substitutes and
replacements for, all or any part of the foregoing (all of the types or items of
property and interests described in this Paragraph E are hereinafter
collectively referred to as the “Personal Property”).

F.        All present and future rights, titles, interests and estates now owned
or hereafter acquired by Mortgagors (including, without limitation, all rights
to receive payments) under or by virtue of all easements, permits, licenses,
rights-of-way, surface leases, franchises, servitudes, division orders, transfer
orders and other agreements relating or pertaining to purchasing,

 

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exchanging, exploring for, developing, operating, treating, processing, storing,
marketing or transporting Hydrocarbons now or hereafter found in, on or under,
or produced from, any of the Subject Interests, or under or by virtue of any
contract relating in any way to all or any part of the Mortgaged Property
otherwise described herein, including, without limitation, farmout contracts,
farmin contracts, operating or joint operating agreements, trade letter
agreements and all agreements creating rights-of-way for ingress and egress to
and from the Subject Interests (all of such rights, titles, interests and
estates referred to or described in this Paragraph F are hereinafter
collectively referred to as the “Subject Contracts”).

G.        All present and future accounts (including, but not limited to, all
open accounts receivable and accounts receivable arising under or pursuant to
any joint operating agreements, division orders or other agreements, documents
or instruments relating to any of the Subject Interests), general intangibles
(including right to proceeds under Swap Agreements, as defined in the Credit
Agreement), chattel paper, documents, instruments, cash and noncash proceeds and
other rights, now owned or hereafter acquired by Mortgagors, arising from or by
virtue of, or from the voluntary or involuntary sale or other disposition of, or
collections with respect to, or insurance proceeds payable with respect to, or
proceeds payable by virtue of warranty or other claims against manufacturers of,
or claims against any other person or entity with respect to, all or any part of
the Mortgaged Property described in this Paragraph G or otherwise (all of which
types and items of property and interests described in this Paragraph G are
hereinafter collectively referred to as the “Accounts”).

H.        All present and future tenements, hereditaments, appurtenances,
profits and properties in anyway appertaining, belonging, affixed or incidental
to, or used or useful in connection with, all or any part of the properties and
assets described herein, now owned or hereafter acquired by Mortgagors,
including, without limitation, all reversions, remainders, carried interests,
tolls, rents, revenues, issues, proceeds, earnings, income, products, profits,
deposits, easements, permits, licenses, servitudes, surface leases,
rights-of-way and franchises relating to all or any part of the properties and
assets described herein.

PIPELINE

 

I.         All pipelines now owned or hereafter acquired and/or operated by
Mortgagors for the gathering, transmission, or distribution of Hydrocarbons from
the Subject Interests including, without limitation, those pipelines described
on Exhibit A-2 which is attached hereto, and any and all interests in real
property relating thereto (collectively called the “Pipelines”).

J.         All of Mortgagors’ respective right, title, interest and estates now
owned or hereafter acquired in and to the tracts and parcels of real property
described or referred to in Exhibit A-2 attached hereto, or the description of
which is incorporated in Exhibit A-2 by reference to any other instrument or
document associated with the Pipelines (collectively, the “Lands Associated with
Pipelines”).

K.        All leases, leaseholds, easements, rights-of-way, licenses,
franchises, privileges, permits, ordinances, grants, rights, consents,
servitudes, surface leases or rights, amendatory grants and interests in land
for the installation, maintenance and operation of the Pipelines or the assets
associated with the Pipelines or any portion thereof, now owned or held by
Mortgagors

 

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including, without limitation, those leases, leaseholds, easements,
rights-of-way, licenses, franchises, privileges, permits, ordinances, grants,
rights, consents, servitudes, surface leases or rights, amendatory grants and
interests in land applicable to the Pipelines or the Pipeline Assets owned or
held by Mortgagors and those leases, leaseholds, easements, rights-of-way,
licenses, franchises, privileges, permits, ordinances, grants, rights, consents,
servitudes, surface leases or rights, amendatory grants and interests in land
owned or held by Mortgagors and described on Exhibit A-2 attached hereto or
arising by virtue of the documents described in Exhibit A-2 (collectively, the
“Rights-of-Way and Franchises”).

L.        All of Mortgagors’ respective right, title and interest now owned or
hereafter acquired in and to other assets of Mortgagors now or hereafter
situated on any of the Lands Associated with Pipelines or the Rights-of-Way and
all Franchises, fixtures, improvements, equipment, surface or subsurface
machinery, facilities, supplies, replacement parts, vehicles of every
description, all process control computer systems and equipment or other
property of whatsoever kind or nature, including, without limitation, all
buildings, structures, machinery, gas processing plants, stations, substations,
pumps, pumping stations, meter houses, metering stations, regulator houses,
ponds, tanks, scrapers and scraper traps, fittings, valves, connections,
cathodic or electrical protection by-passes, regulators, drips, meters, pumps,
pumping units, pumping stations, storage or tankage facilities, engines, pipes,
gates, telephone and telegraph lines, electric power lines, poles, wires,
casings, radio towers, fixtures, mechanical equipment, electrical equipment,
machine shops and other equipment, used or useful in connection therewith;
together with all of Mortgagors’ liquid hydrocarbons, carbon dioxide, natural
gas liquids, refined petroleum products and other inventory fuels, carbon,
chemicals, electric energy, and other consumable materials or products
manufactured, processed, generated, produced, transmitted, stored (whether above
or below ground) or purchased by Mortgagors for sale, exchange, distribution,
consumption or transmission by Mortgagors, including, without limitation, off
system gas, drip gas and line fill (collectively, the “Pipeline Assets”).

GENERAL

 

M.       All other interests of every kind and character which Mortgagors now
have or at any time hereafter acquires in and to the types and items of property
and interests described in Paragraphs A, B, C, D, E, F, G, H, I, J, K and L
preceding and all property which is used or useful in connection with the
Mortgaged Property and the proceeds and products of all of the foregoing,
whether now owned or hereafter acquired.

N.        To further secure the full and complete payment and performance of the
Secured Indebtedness (defined below), Mortgagors, as debtors, hereby grant to
Mortgagee and Mortgagee’s successors in title and assigns, as secured party, a
first and prior security interest in and to all of Mortgagors’ right, title and
interest now owned or hereafter acquired in and to the following types and items
of property and interests now owned or hereafter acquired by Mortgagors (all of
which are included within the term “Mortgaged Property”): (a) all present and
future Personal Property, Subject Contracts and Accounts; (b) all present and
future Subject Interests, Hydrocarbons and Other Minerals insofar as the same
consist of as-extracted collateral (including Accounts), as defined in and
subject to the Uniform Commercial Code as enacted, amended and in effect in each
jurisdiction in which any of the Mortgaged Property is situated (the “UCC”), and
for which the creation and perfection of a security interest or lien therein is

 

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governed by the provisions of the UCC; (c) all present and future other
Mortgaged Property described in “A” through “L” above consisting of Accounts,
contract rights, general intangibles, chattel paper, documents, instruments,
inventory, equipment, fixtures and other goods and articles of personal property
of any kind or character defined in and subject to the UCC; (d) all present and
future increases, profits, combinations, reclassifications, improvements and
products of, accessions, attachments and other additions to, tools, parts and
equipment used in connection with, and substitutes and replacements for, all or
any part of the Mortgaged Property described in this or any other clause of this
paragraph; (e) all present and future Accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash proceeds
and other rights arising from or by virtue of, or from the voluntary or
involuntary sale or other disposition of, or collections with respect to, or
insurance proceeds payable with respect to, or proceeds payable by virtue of
warranty or other claims against manufacturers of, or claims against any other
person or entity with respect to, all or any part of the Hydrocarbons, the Other
Minerals or the Mortgaged Property described in this or any other clause of this
paragraph; and (f) all present and future security for the payment to Mortgagors
of any of the Mortgaged Property described in this or any other clause of this
paragraph and goods which gave or will give rise to any of such Mortgaged
Property or are evidenced, identified, or represented therein or thereby;
provided that nothing in this paragraph shall be deemed to permit any action
prohibited by this instrument or by terms incorporated in this instrument.

In the event that the Mortgagors acquire additional interests in some or all of
the Mortgaged Property, this Mortgage shall automatically encumber such
additions or increases to the Mortgagors’ interest in the Mortgaged Property
without need of further act or document. Further, in the event the Mortgagors
becomes the owners of an interest in any part of the lands described either on
Exhibit A-1 or Exhibit A-2 or the documents described on Exhibit A-1 or Exhibit
A-2 or otherwise subject to or covered by the Mortgaged Properties, this
Mortgage shall automatically encumber such ownership interests of the Mortgagors
without need of further act or document.

 

For the same consideration, Mortgagors hereby grant to Mortgagee any and all
rights of Mortgagors to liens and security interests in the Mortgaged Property
securing payment of proceeds from the sale of production from the Mortgaged
Property, including, but not limited to, those liens and security interests
provided for under applicable Law, including but not limited to the UCC.

TO HAVE AND TO HOLD all and singular the Mortgaged Property and all other
property which, by the terms hereof, has or may hereafter become subject to the
lien and/or security interest of this Amended and Restated Mortgage, Security
Agreement, Financing Statement and Assignment of Production (the “Mortgage”),
together with all rights, hereditaments and appurtenances in anywise belonging
to the Mortgagee or assigns forever. Any additional right, title or interest
which Mortgagors may hereafter acquire or become entitled to in the interests,
properties, lands, and premises aforesaid, or in the oil, gas or other minerals
in and under or produced from the land and leases shall inure to the benefit of
and be covered by this Mortgage and constitute “Mortgaged Property,” the same as
if expressly described and conveyed herein. Mortgagors hereby bind themself,
their successors and assigns, to warrant and forever defend all and singular the
above described property, rights, and interests constituting the

 

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Mortgaged Property to Mortgagee and to its assigns forever, against every person
whomsoever lawfully claiming or to claim the same or any part thereof.

ARTICLE II

SECURED INDEBTEDNESS

This conveyance is made, to secure and enforce the payment of the following
indebtedness, obligations and liabilities:

 

(a)

That certain promissory note dated as of even date herewith, in the face amount
of $50,000,000 executed by Mortgagors and EnerJex Resources, Inc. and made
payable to Mortgagee bearing interest and payable as therein provided, with the
final payment thereof due on or before the Maturity Date (as defined in the
Credit Agreement hereinafter described), and containing the usual provisions in
notes of this character, and all renewals, rearrangements, amendments,
modifications and extensions thereof (whether one or more, the “Note” which
amends and restates the Existing Notes, as defined in the Credit Agreement);

 

(b)

All Obligations of Mortgagors owed Mortgagee and the Banks (as defined in the
Credit Agreement) defined in or arising pursuant to the terms of that certain
Credit Agreement dated as of even date herewith, and all modifications,
amendments, and restatements thereto (the “Credit Agreement”; all capitalized
terms used but not defined within Mortgage bear the meanings set forth in the
Credit Agreement);

 

(c)

Payment of any sums which may be advanced or paid by Mortgagee under the terms
hereof on account of the failure of Mortgagors to comply with the covenants of
Mortgagors contained herein; and all other indebtedness of Mortgagors arising
pursuant to the provisions of this Mortgage;

 

(d)

All obligations of each Guarantor under its Guaranty (as such terms are defined
in the Credit Agreement) owed to Mortgagee;

 

(e)

All obligations of Mortgagors owed to Approved Counterparty, as counterparty
under those certain Permitted Swap Agreements defined in or arising pursuant to
the terms of the Credit Agreement and referenced as “Swap Documents” in the
Intercreditor Agreement, including without limitation, that certain Master Swap
Agreement dated as of July ___, 2008 between Mortgagors and Approved
Counterparty (together will all schedules and confirmations in respect thereof,
as amended, supplemented, restated, extended or replaced from time to time);

 

(f)

All renewals, extensions, replacements and modifications of indebtedness
described, referred to or mentioned in paragraphs (a) through (e) above, and all
substitutions therefor, in whole or in part;

 

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(g)

The term “Secured Indebtedness” wherever used in this Mortgage shall refer to
all present and future debts, obligations and liabilities described or referred
to in this ARTICLE II or otherwise in this Mortgage; and

 

(h)

NOTWITHSTANDING ANYTHING TO THE CONTRARY IN ARTICLE II HEREOF OR ANY OTHER
PROVISION HEREOF, THE MAXIMUM AMOUNT OF SECURED INDEBTEDNESS SHALL NOT EXCEED AT
ANY ONE TIME OUTSTANDING TWENTY MILLION DOLLARS ($20,000,000).

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

By execution of this Mortgage, Mortgagors do hereby adopt and ratify all of
Mortgagors’ warranties and representations set forth in the Credit Agreement;
and all the warranties and representations set forth in the Credit Agreement as
they relate to the properties described on Exhibit A-1 and Exhibit A-2 attached
thereto are hereby made and adopted with respect to the properties listed on
Exhibit A-1 and Exhibit A-2 attached hereto. In addition, Mortgagors hereby
represent and warrant as follows:

 

(a)

Revenue and Cost Bearing Interest. That Mortgagors’ ownership of the Subject
Interest and the undivided interests therein as specified on attached Exhibit
A-1 will, after giving full effect to all Permitted Encumbrances, afford
Mortgagors not less than those net interests in the production from or allocated
to such Subject Interest as is specified on attached Exhibit A-1 and will cause
Mortgagors to bear not more than that portion of the costs of drilling,
developing and operating the wells or units identified on Exhibit A-1, unless
there is a proportionate increase in Mortgagors’ net revenue interest in such
property.

 

(b)

Power to Create Lien. Mortgagors have full power and lawful authority to
bargain, grant, sell, mortgage, assign, transfer, convey, pledge and hypothecate
and grant a security interest in all of their respective Mortgaged Property all
in the manner and form herein provided and without obtaining the waiver, consent
or approval of any lessor, sublessor, governmental agency or entity or other
party whomsoever or whatsoever, except to the extent the approval or consent of
the State of Kansas or the Department of the Interior, United States of America,
as the case may be, is required by applicable law or regulation to the transfer,
deed or assignment of an interest in any of the Mortgaged Property.

 

(c)

Taxes. All (a) Property Taxes, (b) Severance Taxes, (c) ad valorem taxes, (d)
conservation taxes, and (e) any other taxes of any kind, excluding only income
taxes and franchise taxes, imposed on Mortgagors or any producer in connection
with or as a result of their ownership of interests in the Mortgaged Properties
have been paid except to the extent failure to pay such taxes could not be
reasonably expected to result in a Material Adverse Effect. For purposes of this
Paragraph, “Property Taxes” means taxes imposed annually on Mortgagors which are
based on or measured by the estimated value (at the time such taxes are
assessed) of any

 

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Hydrocarbons situated within the Mortgaged Property as calculated by the
governing authority where located and “Severance Taxes” means taxes imposed at
the time Hydrocarbons are produced from a well which are based on or measured by
the amount or value of such production.

 

(d)

Rentals Paid; Leases in Effect. All rentals and royalties due and payable in
accordance with the terms of the leases comprising a part of the Subject
Interest have been duly paid or provided for except to the extent failure to pay
such rentals and royalties could not reasonably be expected to result in a
Material Adverse Effect.

 

(e)

Operation of Mortgaged Property. The Mortgaged Property (and properties unitized
therewith) has been maintained, operated and developed in a good and workmanlike
manner according to practices and procedures that are standard in the petroleum
industry in the area where the Mortgaged Property is located and in conformity
with all applicable laws and all rules, regulations and orders of all duly
constituted authorities having jurisdiction and in material conformity with the
provisions of all leases, subleases or other material contracts comprising a
part of the Subject Interests and other contracts and agreements forming a part
of the Mortgaged Property; specifically in this connection, (i) no Mortgaged
Property is subject to having allowable production reduced below the full and
regular allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) and (ii)
none of the wells comprising a part of the Mortgaged Property (or properties
unitized therewith) are, to the knowledge of Mortgagors, deviated from the
vertical more than the maximum permitted by applicable laws, regulations, rules
and orders, and such wells are, in fact, bottomed under and are producing from,
and the well bores are wholly within, the Mortgaged Property (or, in the case of
wells located on properties unitized therewith, such unitized properties).

 

(f)

Pipelines and Pipeline Assets. All Pipelines and Pipeline Assets have been
constructed and operated in conformity in all material respects with all
applicable laws, rules, regulations and orders of all regulatory authorities
having jurisdiction.

Any fractions or percentages specified on attached Exhibit A-1 in referring to
Mortgagors’ interests are solely for the purposes of the warranties made by
Mortgagors above and shall in no manner limit the quantum of interest with
respect to any Subject Interests or with respect to any Unit or Well identified
on Exhibit A-1. If any of the Lands covered by the Subject Interests or Lands
Associated with Pipeline or other instrument mentioned on Exhibit A-1 and
Exhibit A-2 are incorrectly described, then nevertheless this Mortgage shall
cover all Mortgagors’ interest in such Subject Interests, the Lands Associated
with Pipeline and other instrument as to all of the lands covered thereby,
unless limited by express words to the contrary on Exhibit A-1 and Exhibit A-2.

 

 

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ARTICLE IV

COVENANTS OF MORTGAGORS

In consideration of the Secured Indebtedness, Mortgagors, for themselves and
their successors and assigns, hereby ratify, covenant and agree that Mortgagors
shall comply with all Affirmative Covenants described in Article VI of the
Credit Agreement, and Mortgagors shall not violate any of the Negative Covenants
described in Article VII of the Credit Agreement. In addition, Mortgagors hereby
covenant and agree as follows:

A.        Defend Title. Mortgagors will not create or suffer to be created or
permit to exist any lien, or security interest senior to, junior to, or on a
parity with, the lien and security interest of this Mortgage upon the Mortgaged
Property or any part thereof or upon the rents, issues, revenues, profits and
other income therefrom, except Permitted Encumbrances. Except for the Permitted
Encumbrances, Mortgagors will warrant and defend the title to the Mortgaged
Property against the claims and demands of all other persons whomsoever and will
maintain and preserve the lien and security interests created hereby so long as
any of the Secured Indebtedness remains unpaid. Except for the Permitted
Encumbrances, should an adverse claim be made against or a cloud develop upon
the title to any part of the Mortgaged Property, Mortgagors agree they will
immediately defend against such adverse claim or take appropriate action to
remove such cloud at Mortgagors’ cost and expense, and Mortgagors further agree
that Mortgagee may take such other action as Mortgagee reasonably deems
advisable to protect and preserve its interests in the Mortgaged Property, and
in such event Mortgagors will indemnify Mortgagee against any and all costs,
attorneys’ fees and other expenses which it may reasonably incur in defending
against any such adverse claim or taking action to remove any such cloud.

B.        Correct Defects. Upon request of Mortgagee, Mortgagors will promptly
correct any defect which may be discovered after the execution and delivery of
this Mortgage, in the note or notes above described or other documents executed
in connection herewith, in the execution or acknowledgment hereof or thereof or
in the description of the Mortgaged Property, and will execute, acknowledge, and
deliver such division orders, transfer orders and other assurances and
instruments as shall, in the opinion of Mortgagee, be necessary or proper to
convey and assign to Mortgagee all of the Mortgaged Property herein conveyed or
assigned, or intended to be so.

C.        Notifications. Mortgagors will notify Mortgagee of the destruction,
loss, termination or acquisition of any Mortgaged Property within two (2)
Business Days (as defined in the Credit Agreement) of Mortgagors’ receipt of
notice thereof.

D.        Pooling. Except as required by law, rule or regulation, Mortgagors
will not, without the prior written consent of Mortgagee, which consent shall
not be unreasonably withheld, voluntarily pool or unitize all or any part of the
Mortgaged Property where the pooling or unitization would result in the
diminution of Mortgagors’ net revenue interest in production from the pooled or
unitized lands. Immediately after the formation of any pool or unit in
accordance herewith, Mortgagors will furnish to Mortgagee a conformed copy of
the pooling agreement, declaration of pooling, or other instrument creating the
pool or unit. The interest of Mortgagors included in any pool or unit
attributable to the Mortgaged Property or any part

 

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thereof shall become a part of the Mortgaged Property and shall be subject to
liens and security interests hereof in the same manner and with the same effect
as though the pool or unit and the interest of Mortgagors therein were
specifically described in Exhibit A-1 hereto. In the event any proceedings of
any governmental body which could result in pooling or unitizing all or any part
of the Mortgaged Property are commenced, Mortgagors shall give immediate written
notice thereof to Mortgagee.

 

 

E.

Maintenance and Operation of Mortgaged Property.

 

(a)

Mortgagors will, from time to time, pay or cause to be paid before they become
delinquent and payable all taxes, assessments and governmental charges lawfully
levied or assessed upon the Mortgaged Property or any part thereof, or upon or
arising from any of the rents, issues, revenues, profits and other income from
the Mortgaged Property, or incident to or in connection with the production of
Hydrocarbons or other minerals therefrom, or the operation and development
thereof; provided, that the foregoing covenant shall be suspended so long as the
amount, applicability or validity of any such charges is being diligently
contested in good faith by appropriate proceedings and if Mortgagors shall have
set up reserves therefor which are adequate under generally accepted accounting
principles.

 

(b)

Mortgagors will at their own expense do or cause to be done all things
reasonably necessary to preserve and keep in full repair, working order and
efficiency (subject to reasonable wear and tear) all of the Mortgaged Property,
including, without limitation, all equipment, machinery and other tangible or
movable personal property, and from time to time will make or cause to be made
all the needful and proper repairs, renewals and replacements so that at all
times the state and condition of the Mortgaged Property will be fully preserved
and maintained in accordance with the standards of a prudent operator.

 

(c)

Mortgagors will promptly pay and discharge before delinquent, or cause to be
promptly paid or discharged before delinquent, all rentals, delay rentals,
royalties and indebtedness accruing under, and in all material respects perform
or cause to be performed each and every act, matter or thing required by, each
and all of the assignments, deeds, leases, sub-leases, contracts and agreements
described or referred to herein or affecting Mortgagors’ interests in the
Mortgaged Property, and will do or cause to be done all other things necessary
to keep unimpaired Mortgagors’ rights with respect thereto and prevent any
forfeiture thereof or default thereunder. Mortgagors will operate or cause to be
operated the Mortgaged Property in a careful and efficient manner in accordance
with the practices of the industry and in compliance in all material respects
with all applicable contracts and agreements and in compliance with all
applicable proration and conservation laws of the jurisdiction in which the
Mortgaged Property is situated, and, in all material respects, all applicable
laws, rules and regulations of every other agency and authority from time to
time constituted to regulate the development and operation of the Mortgaged
Property and the production and sale of Hydrocarbons and Other Minerals
therefrom. Mortgagors

 

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will do or cause to be done such development work as may be reasonably necessary
to the prudent and economical operation of the Mortgaged Property in accordance
with the most approved practices of operators in the industry.

 

(d)

If any tax is levied or assessed against the Secured Indebtedness or any part
thereof, or against this Mortgage, or against the Mortgagee with respect to said
Secured Indebtedness or any part thereof or this Mortgage (excluding, however,
any income tax payable by Mortgagee), Mortgagors shall promptly pay the same.

 

(e)

Do all things necessary to keep unimpaired Mortgagors’ rights and remedies in or
under the Mortgaged Property and shall not abandon, shall, convey, assign, lease
or otherwise transfer any right, title or interest of Mortgagors in, to, or
under the Pipelines or the Pipeline Assets, or consent to any of the foregoing,
directly or indirectly, without the express prior written consent of Mortgagee.

 

(f)

Perform or cause to be performed, each and all covenants, agreements, terms,
conditions and limitations imposed upon Mortgagors or their predecessors in
interest and expressly contained in any assignment or other form of conveyance,
under or through which the Pipelines, Pipeline Assets, Lands Associated with
Pipeline, or Rights-of-Way and Franchises, or an undivided interest therein are
now held, and perform or cause to be performed all material (expressed or
implied) covenants and obligations imposed upon Mortgagors in connection with
any document or instrument relating thereto.

 

(g)

Cause, or in the event Mortgagors are not the operators of the Pipeline Assets,
use its best efforts to cause, the Pipeline Assets to be maintained, developed,
and continuously operated for the gathering, storing, transmission and
distribution of Hydrocarbons in a good and workmanlike manner as would be
operated by a prudent operator and in compliance with all applicable operating
agreements and contracts, and all applicable federal, state, and local laws,
rules and regulations, excepting those being diligently contested in good faith.

 

(h)

Cause the Pipelines to be kept in good and effective operating condition
(reasonable wear and tear excepted), and all repairs, renewals, replacements,
additions and improvements thereof or thereto, needful to the gathering,
storing, transmission and distribution of Hydrocarbons through the Pipelines, to
be promptly made.

F.        Taxes/Insurance. Mortgagors will carry with standard insurance
companies satisfactory to the Mortgagee, insurance with respect to the Mortgaged
Property against such liabilities, casualties, risks and contingencies and in
amounts as is customary in the industry; and acceptable certificates evidencing
the same thereof shall be delivered to Mortgagee annually after the execution of
this Mortgage. Mortgagors will at all times maintain workers’ compensation
insurance with a responsible insurance company where required by, and in
accordance with, the laws of the state (i) in which the Mortgaged Property is
located or (ii) which requires workers’ compensation to be maintained on such
employees. In the event Mortgagors shall fail or neglect to pay any taxes,
general or special, or shall fail or neglect to relieve the

 

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Mortgaged Property from any lien which might become superior or equal to the
lien of this Mortgage, or fail to carry such workers’ compensation or other
insurance, Mortgagee, at its option, may pay such taxes, liens, charges or
encumbrances, or any part thereof, or effect such workmen’s compensation
insurance, and Mortgagors will promptly reimburse Mortgagee, as the case may be,
therefor; and any and all such sums so paid hereunder shall be paid by
Mortgagors upon demand at Mortgagee’s principal offices, and shall constitute a
part of the Secured Indebtedness.

G.        Operation by Third Parties. All or portions of the Mortgaged Property
may be comprised of interests in the Subject Interest which are other than
working interests or which may be operated by a party or parties other than
Mortgagor and with respect to all or any such Subject Interests and properties
as may be comprised of interests other than working interests or which may be
operated by parties other than Mortgagors, Mortgagors’ covenants set forth in as
expressed in Paragraph F are modified to require that Mortgagors use
commercially reasonable efforts to obtain compliance with such covenants by the
working interest owners or the operator or operators of such Subject Interest.

H.        Labor/Materials. Mortgagors agree to promptly pay before delinquent,
or cause to be paid before delinquent, all bills for labor and materials
incurred in the operation of the Mortgaged Property, except any that is being
contested in good faith and as to which satisfactory accruals have been
provided; will promptly pay its share of all costs and expenses incurred under
any joint operating agreement affecting the Mortgaged Property or any portion
thereof; will furnish Mortgagee, as and when requested, full information as to
the status of any joint account maintained with others under any such operating
agreement; will not take any action to incur any liability or lien thereunder;
and will not enter into any new operating agreement or amendment of existing
operating agreement affecting the Mortgaged Property that in Mortgagors’
commercially reasonable opinion would diminish or alter Mortgagors’ net revenue
interest therein, all without prior written consent of the Mortgagee.

I.         Legal Proceedings. Mortgagors will promptly notify Mortgagee or other
holder or holders of the Secured Indebtedness, in writing, of the commencement
of any legal proceedings affecting the Mortgaged Property or any part thereof,
and will take such action as may be necessary to preserve their and Mortgagee’s
rights affected thereby; and should Mortgagors fail or refuse to take any such
action, Mortgagee may at its election take such action on behalf and in the name
of Mortgagors and at Mortgagors’ cost and expense.

J.         Waivers. Mortgagors hereby expressly waive any and all rights or
privileges of marshalling of assets, sale in inverse order of alienation,
notices, appraisements, redemption and any prerequisite to the full extent
permitted by applicable law, in the event of foreclosure of the lien or liens
and/or security interests created herein. Mortgagee at all times shall have the
right to release any part of the Mortgaged Property now or hereafter subject to
the lien or security interest of this Mortgage, any part of the proceeds of
production or other income herein or hereafter assigned or pledged, or any other
security it now has or may hereafter have securing the Secured Indebtedness,
without releasing any other part of the Mortgaged Property, proceeds or income,
and without affecting the liens or security interests hereof as to the part or
parts thereof not so released, or the right to receive future proceeds and
income.

 

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K.        Disposition. Without prior approval and written consent of Mortgagee,
Mortgagors will not sell, assign, lease, transfer or otherwise dispose of all or
any portion of the Mortgaged Property except as provided in the Credit
Agreement, nor shall Mortgagors mortgage, pledge or otherwise encumber the
Mortgaged Property or any part thereof, regardless of whether the lien or
encumbrance is senior, coordinate, junior, inferior or subordinate to the lien
and security interest created hereby, except for Permitted Encumbrances or
except for as provided in the Credit Agreement.

L.        Notice of Assignments. Upon request of Mortgagee, Mortgagors will
execute and deliver written notices of assignments to any persons, corporations
or other entities owing or which may in the future owe to Mortgagors monies or
accounts arising in connection with any of the following matters: (a) any oil,
gas or mineral production from the Mortgaged Property; (b) any gas contracts,
processing contracts or other contracts relating to the Mortgaged Property; or
(c) the operation of or production from any part of the Mortgaged Property. The
notices of assignments shall advise the third parties that all of the monies or
accounts described above have been assigned to Mortgagee, and if required by
Mortgagee, shall also require and direct that future payments thereof, including
amounts then owing and unpaid, be paid directly to the Lockbox or directly to
the Lender Account, as such terms are defined in the Credit Agreement.

M.       Prohibitions Ineffective. Any mortgage, pledge,
encumbrance, unitization, pooling, or communitization (except as required by
Law, rule or regulation) or other action or instrument in violation of the
prohibitions contained in this Article IV shall be of no force or effect against
Mortgagee.

ARTICLE V

RIGHTS AFTER EVENT OF DEFAULT

A.        If an Event of Default shall occur and be continuing, the Mortgagee
shall have the right and option to proceed with foreclosure and to sell, to the
extent permitted by law, all or any portion of the Mortgaged Property at one or
more sales, as an entirety or in parcels, at such place or places and otherwise
in such manner and upon such notice as may be required by applicable law or, in
the absence of any such requirements, as the Mortgagee may deem appropriate, and
to make conveyance to the purchaser or purchasers.

B.        Notwithstanding any other provision of this Article V, if any of the
Secured Indebtedness shall become due and payable and shall not be promptly
paid, Mortgagee shall have the right and power to proceed by a suit or suits in
equity or at law, whether for the specific performance of any covenant or
agreement herein contained or in aid of the execution of any power herein
granted, or for any foreclosure hereunder or for the sale of the Mortgaged
Property under the judgment or decree of any court or courts of competent
jurisdiction, or for the appointment of a receiver pending any foreclosure
hereunder or the sale of the Mortgaged Property under the order of a court or
courts of competent jurisdiction or under executory or other legal process, or
for the enforcement of any other appropriate legal or equitable remedy. Any
money advanced by Mortgagee in connection with any such receivership shall be a
demand obligation (which obligation Mortgagor hereby expressly promises to pay)
owing by Mortgagors

 

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to Mortgagee and shall bear interest from the date of making such advance by
Mortgagee until paid at the Default Rate.

C.        Notwithstanding any other provision, Mortgagee shall also have the
option to proceed with foreclosure in satisfaction of any installments of the
Secured Indebtedness which have not been paid when due either through the courts
or by proceeding with foreclosure in satisfaction of the matured but unpaid
portion of the Secured Indebtedness as if under a full foreclosure, conducting
the sale as herein provided and without declaring the entire principal balance
and accrued interest due; such sale may be made subject to the unmatured portion
of the Secured Indebtedness, and any such sale shall not in any manner affect
the unmatured portion of the Secured Indebtedness, but, as to such unmatured
portion of the Secured Indebtedness, this Mortgage shall remain in full force
and effect just as though no sale had been made hereunder. It is further agreed
that several sales may be made hereunder without exhausting the right of sale
for any unmatured part of the Secured Indebtedness, it being the purpose hereof
to provide for a foreclosure and sale of the security for any matured portion of
the Secured Indebtedness without exhausting the power to foreclose and sell the
Mortgaged Property for any subsequently maturing portion of the Secured
Indebtedness.

D.        The Mortgaged Property may be sold in one or more parcels and in such
manner and order as Mortgagee, in his sole discretion, may elect, it being
expressly understood and agreed that the right of sale arising out of any Event
of Default shall not be exhausted by any one or more sales.

E.        Upon the happening of any of the Events of Default, Mortgagee shall be
entitled to all of the rights, powers and remedies afforded a secured party by
the UCC with reference to the personal property, as-extracted collateral and
fixtures in which Mortgagee has been granted a security interest hereby, or
Mortgagee may proceed as to both the real and personal property covered hereby.

F.        Mortgagors agree to the full extent they lawfully may, that, in case
one or more of the Events of Default shall have occurred and shall not have been
remedied, then, and in every such case, Mortgagee shall have the right and power
to enter into and upon and take possession of all or any part of the Mortgaged
Property in the possession of Mortgagors, their successors or assigns, or their
agents or servants, and may exclude Mortgagors, their successors or assigns, and
all persons claiming under Mortgagors, and their agents or servants wholly or
partly therefrom. All costs, expenses and liabilities of every character
incurred by Mortgagee in administering, managing, operating, and controlling the
Mortgaged Property shall constitute a demand obligation (which obligation
Mortgagors hereby expressly promise to pay) owing by Mortgagors to Mortgagee and
shall bear interest from date of expenditure until paid at the Interest Rate,
all of which shall constitute a portion of the Secured Indebtedness and shall be
secured by this Mortgage and all other Security Instruments.

G.        Every right, power and remedy herein given to Mortgagee shall be
cumulative and in addition to every other right, power and remedy herein
specifically given or now or hereafter existing in equity, at law or by statute
(including specifically those granted by the UCC in effect and applicable to the
Mortgaged Property or any portion thereof) each and every right, power and
remedy whether specifically herein given or otherwise existing may be exercised

 

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from time to time and so often and in such order as may be deemed expedient by
Mortgagee, and the exercise, or the beginning of the exercise, of any such
right, power or remedy shall not be deemed a waiver of the right to exercise, at
the same time or thereafter any other right, power or remedy. No delay or
omission by Mortgagee in the exercise of any right, power or remedy shall impair
any such right, power or remedy or operate as a waiver thereof or of any other
right, power or remedy then or thereafter existing.

H.        Neither Mortgagors, nor any guarantor or any other person hereafter
obligated for payment of all or any part of the Secured Indebtedness shall be
relieved of such obligation by reason of (a) the failure of Mortgagee to comply
with any request of Mortgagors, or any guarantor or any other person so
obligated, to foreclose the lien of this Mortgage or to enforce any provision
hereunder or under the Credit Agreement; (b) the release, regardless of
consideration, of the Mortgaged Property or any portion thereof or interest
therein or the addition of any other property to the Mortgaged Property; (c) any
agreement or stipulation between any subsequent owner of the Mortgaged Property
and Mortgagee extending, renewing, rearranging or in any other way modifying the
terms of this Mortgage without first having obtained the consent of, given
notice to or paid any consideration to Mortgagors, any guarantor or such other
person, and in such event Mortgagors, guarantor and all such other persons shall
continue to be liable to make payment according to the terms of any such
extension or modification agreement unless expressly released and discharged in
writing by Mortgagee; or (d) by any other act or occurrence save and except the
complete payment of the Secured Indebtedness and the complete fulfillment of all
obligations hereunder or under the Credit Agreement.

I.         Mortgagee may release, regardless of consideration, any part of the
Mortgaged Property without, as to the remainder, in any way impairing,
affecting, subordinating or releasing the lien or security interest created in
or evidenced by this Mortgage or its stature as a first and prior lien and
security interest in and to the Mortgaged Property, and without in any way
releasing or diminishing the liability of any person or entity liable for the
repayment of the Secured Indebtedness. For payment of the Secured Indebtedness,
Mortgagee may resort to any other security therefor held by Mortgagee in such
order and manner as Mortgagee may elect.

J.         To the fullest extent permitted by law, Mortgagors hereby irrevocably
and unconditionally waive and release (a) all benefits that might accrue to
Mortgagors by virtue of any present or future moratorium law or other law
exempting the Mortgaged Property from attachment, levy or sale on execution or
providing for any appraisement, valuation, stay of execution, exemption from
civil process, redemption or extension of time for payment; (b) all notices of
any Event of Default or of Mortgagee’s intention to accelerate maturity of the
Secured Indebtedness or of his election to exercise (or his actual exercise of)
any right, remedy or recourse provided for hereunder or under the Credit
Agreement; and (c) any right to a marshaling of assets or a sale in inverse
order of alienation. If any law referred to in this Mortgage and now in force,
(of which Mortgagors or their successor or successors might take advantage
despite the provisions hereof), shall hereafter be repealed or cease to be in
force, such law shall thereafter be deemed not to constitute any part of the
contract herein contained or to preclude the operation or application of the
provisions hereof.

K.        In case Mortgagee shall have proceeded to invoke any right, remedy or
recourse permitted hereunder or under the Credit Agreement and shall thereafter
elect to discontinue or

 

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abandon same for any reason, Mortgagee shall have the unqualified right so to do
and, in such an event, Mortgagors and Mortgagee shall be restored to their
former positions with respect to the Secured Indebtedness, this Mortgage, the
Credit Agreement, the Mortgaged Property and otherwise, and the rights,
remedies, recourses and powers of Mortgagee shall continue as if same had never
been invoked.

L.        The proceeds of any sale of the Mortgaged Property or any part thereof
and all other monies received by Mortgagee through any proceedings for the
enforcement hereof or otherwise, whose application has not elsewhere herein been
specifically provided for, shall be applied:

FIRST, to the payment of all expenses incurred by Mortgagee incident to the
enforcement of this Mortgage, the Credit Agreement or any of the Secured
Indebtedness (including, without limiting the generality of the foregoing,
expenses of any entry or taking of possession, of any sale, of advertisement
thereof and of conveyances, and court costs, compensation of agents and
employees, and reasonable legal fees, and to the payment of all other charges,
expenses, liabilities and advances incurred or made by Mortgagee under this
Mortgage or in executing any power hereunder;

SECOND, to payment of the Secured Indebtedness in such order and manner as
Mortgagee may elect; and

THIRD, to Mortgagors or as otherwise required by any applicable law.

In connection with any action taken by Mortgagee pursuant to this mortgage,
Mortgagee and employees, representatives, agents, attorneys, accountants and
experts (“Indemnified Parties”) shall not be liable for any loss sustained by
Mortgagors resulting from an assertion that Mortgagee has received funds from
the production of Hydrocarbons claimed by third persons or any act or omission
of any Indemnified Party in administering, managing, operating or controlling
the Mortgaged Property unless such loss is caused by the gross negligence or
willful misconduct and bad faith of an Indemnified Party, nor shall Mortgagee be
obligated to perform or discharge any obligation, duty or liability of
Mortgagors. Unless such liability, loss, or damage is caused by the gross
negligence or willful misconduct or bad faith of an Indemnified Party,
Mortgagors shall and do hereby agree to indemnify each Indemnified Party for,
and to hold each Indemnified Party harmless from, any and all liability, loss or
damage which may or might be incurred by any Indemnified Party by reason of this
Mortgage or the exercise of rights or remedies hereunder; should Mortgagee make
any expenditure on account of any such liability, loss or damage, the amount
thereof, including costs, expenses and reasonable attorneys’ fees, shall be a
demand obligation (which obligation Mortgagors hereby expressly promise to pay)
owing by Mortgagors to Mortgagee and shall bear interest from the date expended
until paid at the Interest Rate, shall be a part of the Secured Indebtedness and
shall be secured by this Mortgage and any other security instrument. Mortgagors
hereby assent to, ratify and confirm any and all actions of Mortgagee with
respect to the Mortgaged Property taken under this Mortgage. The liabilities of
the Mortgagors as set forth in this Article V shall survive the termination of
this Mortgage

 

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ARTICLE VI

ASSIGNMENT OF PRODUCTION AND REVENUES

(this “Assignment”)

 

Production

 

A.        In addition to the conveyance to Mortgagee herein made, Mortgagors do
hereby transfer, assign, deliver and convey unto Mortgagee, its successors and
assigns, all of the oil, gas and other minerals produced, saved or sold from the
Mortgaged Property and attributable to the interest of Mortgagors therein
subsequent to 7:00 A.M. on the 1st day of the month in which this Mortgage is
executed, together with the proceeds of any sale thereof (“Hydrocarbon
Proceeds”); Mortgagors hereby direct any purchaser now or hereafter taking any
production from the Mortgaged Property to pay to Mortgagee such Hydrocarbon
Proceeds derived from the sale thereof, and to continue to make payments
directly to Mortgagee until notified in writing by Mortgagee to discontinue the
same; and the purchaser of any such production shall have no duty or obligation
to inquire into the right of Mortgagee to receive the same, what application is
made thereof, or as to any other matter; and the payment made to Mortgagee shall
be binding and conclusive as between such purchaser and Mortgagors. Mortgagors
further agree to perform all such acts, and to execute all such further
assignments, transfer and division orders, and other instruments as may be
required or desired by Mortgagee or any other party to have such Hydrocarbon
Proceeds so paid to Mortgagee.

Revenues

 

B.        In addition to the conveyance to Mortgagee herein made, Mortgagors do
hereby transfer, assign, deliver and convey unto Mortgagee, its successors and
assigns, all the income, revenues, rents, issues, profits and proceeds arising
from the Pipelines relating to the Mortgaged Property and attributed to the
interest of Mortgagors therein whether due, payable or accruing (collectively,
the “Revenues”) under any and all present and future contracts or other
agreements relating to the transmission of the Hydrocarbons or the ownership of
all or any portion of the Mortgaged Property. Mortgagors hereby direct any payor
to pay to Mortgagee such Revenues derived from such contracts and agreements,
and to continue to make payments directly to Mortgagee until notified in writing
by Mortgagee to discontinue the same; and the payor shall have no duty or
obligation to inquire into the right of Mortgagee to receive the same, what
application is made thereof, or as to any other matter; and the payment made to
Mortgagee shall be binding and conclusive as between such payor and Mortgagors.
Mortgagors agree to perform all such acts, and to execute all such further
assignments, transfers and other instruments as may be required or desired by
the Mortgagee or any party in order to have said Revenues so paid to the
Mortgagee.

General

 

C.        The Mortgagee is fully authorized to (i) receive and receipt for said
Revenues and Hydrocarbon Proceeds; (ii) to endorse and cash any and all checks
and drafts payable to the order of Mortgagors or the Mortgagee for the account
of Mortgagors received from or in connection with said Revenues and Hydrocarbon
Proceeds and apply the proceeds thereof to the

 

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payment of the Secured Indebtedness, when received, regardless of the maturity
of any of the Secured Indebtedness, or any installment thereof, and (iii)
execute any instrument in the name of Mortgagors to facilitate any of the
foregoing. Upon receipt of written instructions from Mortgagors, Mortgagee
agrees to release to Mortgagors any Revenues and Hydrocarbon Proceeds belonging
to third parties; provided that the Mortgagee shall not be liable for any delay,
neglect, or failure to effect collection of any Revenues and Hydrocarbon
Proceeds or to take any other action in connection therewith or hereunder; but
shall have the right, at its election, in the name of Mortgagors or otherwise,
to prosecute and defend any and all actions or legal proceedings deemed
advisable by the Mortgagee in order to collect such funds and to protect the
interests of the Mortgagee and/or Mortgagors, with all costs, expenses and
attorney’s fees incurred in connection therewith being paid by Mortgagors.
Unless Mortgagee has claimed or is claiming, for its benefit Revenues and
Hydrocarbon Proceeds belonging to third parties and not attributable to the
Mortgaged Property, Mortgagors hereby agree to indemnify the Mortgagee against
all claims, actions, liabilities, judgments, costs, charges and attorneys’ fees
made against or incurred by it, based on the assertion that it received Revenues
claimed by third persons either before or after the payment in full of the
Secured Indebtedness. Mortgagee shall have the right to defend against any such
claims, actions and judgments, employing its attorneys therefor, and if it is
not furnished with reasonable indemnity, it shall have the right to compromise
and adjust any such claims, actions and judgments. Mortgagors agree to indemnify
and pay to the Mortgagee any and all such claims, judgments, costs, charges and
attorney’s fees as may be paid in any judgment, release or discharge thereof or
as may be adjudged against the Mortgagee. Mortgagors hereby appoint Mortgagee as
its attorney-in-fact to pursue any and all rights of Mortgagors to liens on and
security interests in the Mortgaged Property. Mortgagors hereby further transfer
and assign to Mortgagee any and all such liens, security interests, financing
statements or similar interests of Mortgagors attributable to its interest in
the Mortgaged Property and Revenues and Hydrocarbon Proceeds arising under or
created by any statutory provision, judicial decision or otherwise. The power of
attorney granted to Mortgagee in this paragraph, being coupled with an interest,
shall be irrevocable so long as the Secured Indebtedness or any part thereof
remains unpaid.

D.        Should any purchaser or other party taking the production from the
Mortgaged Property or owing payment to Mortgagors fail to make prompt payment to
Mortgagee in accordance with this Assignment, Mortgagee shall, if permitted by
Law, have the right at Mortgagors’ expense to demand a change of connection and
to designate another purchaser or other party with whom a new connection may be
made, without any liability on the part of Mortgagee in making such selection,
so long as ordinary care is used in the making thereof; and failure of
Mortgagors to consent to and promptly effect such change of connection shall
constitute an event of default hereunder, and the whole Secured Indebtedness may
be immediately declared due and payable, at the option of Mortgagee, and the
Mortgaged Property shall become subject to the foreclosure proceedings
hereunder.

E.        Mortgagors authorize and empower Mortgagee to receive, hold and
collect all sums of money paid to Mortgagee in accordance with this Assignment,
and to apply the same as hereinafter provided, all without any liability or
responsibility on the part of Mortgagee, save and except as to good faith in so
receiving and applying such sums. All payments provided for in this Assignment
shall be paid promptly to Mortgagee, and any provisions contained in the Note

 

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or any part thereof to the contrary notwithstanding, Mortgagee may apply the
same or so much thereof as it elects to the payment of the Secured Indebtedness,
application to be made in such manner as it may elect, regardless of whether the
application so made shall exceed the payments of principal and interest then due
as provided in the Note. After such application has been so made by Mortgagee,
the balance of any such payment or payments remaining shall be paid to
Mortgagors. Mortgagee agrees to give Mortgagors written notice simultaneously
with its notice to the purchaser that such payments are to be paid to Mortgagee
in accordance with the terms of this Article.

F.        It is understood and agreed that should such payments provided for by
this Assignment be less than the sum or sums then due on the Secured
Indebtedness, such sum or sums then due shall nevertheless be paid by Mortgagors
in accordance with the provisions of the Loan Documents evidencing the Secured
Indebtedness, and neither this Assignment nor any provisions hereof shall in any
manner be construed to affect the terms and provisions of such Loan Documents.
Likewise, neither this Assignment nor any provisions hereof shall in any manner
be construed to affect the liens, rights, title and remedies herein granted
securing the Secured Indebtedness or Mortgagors’ liability therefor. The rights
under this Assignment are cumulative of all other rights, remedies, and powers
granted under this Mortgage, and are cumulative of any other security which
Mortgagee now holds or may hereafter hold to secure the payment of the Secured
Indebtedness.

G.        Should Mortgagors receive any of the proceeds which under the terms
hereof should have been remitted to Mortgagee, Mortgagors will immediately remit
same in full to Mortgagee.

H.        Upon payment in full of all Secured Indebtedness, the remainder of
such proceeds held by Mortgagee, if any, shall be paid over to Mortgagors upon
demand, and a release of the interest hereby assigned will be made by Mortgagee
to Mortgagors at their request and their expense.

I.         Mortgagee shall not be liable for any failure to collect, or for any
failure to exercise diligence in collecting, any funds assigned hereunder.
Mortgagee shall be accountable only for funds actually received.

J.         To the extent permissible under Applicable Law, Mortgagors hereby
acknowledge that this Assignment is intended to be presently, unconditionally
and immediately effective. Furthermore and to the extent permitted by Applicable
Law, Mortgagors agree that Mortgagee is not required to assert any affirmative
act, including the institution of any legal proceedings, to enforce this
Assignment.

ARTICLE VII

ADDITIONAL REMEDIES

A.        If Mortgagors should fail to comply with any of the covenants or
obligations of Mortgagors hereunder, then Mortgagee or its attorney in fact or
agent may perform the same for the account and at the expense of Mortgagors but
shall not be obligated so to do, and any and all

 

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expenses incurred or paid in so doing shall be payable by Mortgagors to
Mortgagee, with interest at the rate agreed upon in the Credit Agreement, from
the date when same was so incurred or paid, and the amount thereof shall be
payable on demand and shall be secured by and under this Mortgage, and the
amount and nature of such expense and the time when paid shall be presumptively
established by the affidavit of Mortgagee or any officer or agent thereof, or by
the affidavit of any attorney in fact or agent acting hereunder; provided,
however, that the exercise of the privileges granted in this paragraph shall not
be considered or constitute a waiver of the right of Mortgagee upon the
happening of an Event of Default hereunder to declare the Secured Indebtedness
at once due and payable but shall be cumulative of such right and all other
rights herein given.

B.        To the extent permitted by Applicable Law, in case any one or more of
the Events of Default shall occur, then in each and every such case Mortgagee,
whether or not the Secured Indebtedness shall have been declared due and
payable, in addition to the other rights and remedies hereunder, may exercise
the following additional remedy, but shall not be obligated so to do: Mortgagee
or its attorney in fact or agent may enter into and upon and take possession of
all or any part of the Mortgaged Property and each and every part thereof and
may exclude Mortgagors, their agents and servants wholly therefrom and have,
hold, use, operate, manage and control the Mortgaged Property and each and every
part thereof and produce the oil, gas and other minerals therefrom and market
the same, all at the sole risk and expense of Mortgagors and at the expense of
the Mortgaged Property, applying the net proceeds so derived, first, to the cost
of maintenance and operation of such Mortgaged Property; second, to the payment
of all Secured Indebtedness secured hereby, principal and interest, application
to be made first to interest and then to principal; and the balance thereof, if
any, shall be paid to Mortgagor. Upon such payment of all such costs and Secured
Indebtedness, the Mortgaged Property shall be returned to Mortgagors in its then
condition and Mortgagee shall not be liable to Mortgagors for any damage or
injury to the Mortgaged Property except such as may be caused through his, its
or their fraud or willful misconduct.

C.        To the extent permitted by Applicable Law, Mortgagors do hereby
designate Mortgagee as Mortgagors’ agent to exercise each and every remedy set
forth herein and to conduct any and all operations and take any and all action
reasonably necessary to do so.

 

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ARTICLE VIII

MISCELLANEOUS

A.        Any provision in any document that may be executed in connection
herewith to the contrary notwithstanding, the Mortgagee shall in no event be
entitled to receive or collect, nor shall any amounts received hereunder be
credited so that the Mortgagee shall be paid as interest, a sum greater than
that authorized by Law. If any possible construction of this Mortgage or any
instrument evidencing the Secured Indebtedness, or any or all other notes,
guaranties or papers relating to the Secured Indebtedness, seems to indicate any
possibility of a different power given to the Mortgagee, or any authority to ask
for, demand, or receive any larger rate of interest, such as a mistake in
calculation or wording, this clause shall override and control, and proper
adjustments shall be made accordingly.

B.        This Mortgage, for convenience only, has been divided into Articles
and paragraphs, and it is understood that the rights, powers, privileges, duties
and other legal relations of the Mortgagors and the Mortgagee, shall be
determined from this Mortgage as an entirety and without regard to the aforesaid
division into Articles and paragraphs and without regard to headings prefixed to
such Articles.

C.        The terms used to designate any of the parties herein shall be deemed
to include the heirs, successors and assigns of such parties; the term
“successors” shall include the heirs, trustees and legal representatives; and
the term “Mortgagee” shall also include any lawful owner, holder or pledgee of
any Secured Indebtedness. Whenever the context requires, reference herein made
to the single number shall be understood to include the plural and the plural
shall likewise be understood to include the singular. Words denoting sex shall
be construed to include the masculine, feminine, and neuter when such
construction is appropriate, and specific enumeration shall not exclude the
general, but shall be construed as cumulative.

D.        Every right and remedy provided for herein shall be cumulative of each
and every other right or remedy of Mortgagee, whether herein or otherwise
conferred, and may be enforced concurrently therewith, and the unenforceability
or invalidity of any one or more provisions, clauses, sentences or paragraphs of
this Mortgage shall not render any other provision, clause, sentence or
paragraph unenforceable or invalid. No security theretofore, herewith or
subsequently taken by Mortgagee shall in any manner impair or affect the
security given by this Mortgage or any security by endorsement or otherwise
presently or previously given, and all security shall be taken, considered and
held as cumulative. In addition to the rights and remedies expressly set forth
herein, Mortgagee shall be entitled to all other rights and remedies at law and
in equity, which rights and remedies, together with rights and remedies
described above are cumulative.

E.        This Mortgage shall be binding upon the parties, their respective
successors and assigns, and shall inure to the benefit of the Mortgagee, and the
covenants and agreements herein contained shall constitute covenants running
with the land.

F.        It is contemplated by the parties hereto that from time to time
additional interests and properties may or will be added to the interests and
properties on Exhibit A-1 and Exhibit A-

 

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2 attached hereto by means of supplements or amendments identifying this
Mortgage and describing such interests and properties to be so added and
included, and upon the execution of any such supplements or amendments, the
lien, rights, titles and interests created herein shall immediately attach to
and be effective as of the date of such supplemental indenture in respect to any
such interests and properties so described, and the same being included in the
term “Mortgaged Property,” as used herein.

G.        This Mortgage shall be deemed, and may be enforced from time to time,
as a chattel mortgage, real estate mortgage, deed of trust, security agreement,
assignment or contract, or as one or more thereof.

H.        Without in any manner limiting the generality of any of the foregoing
hereof, some portions of the personal property described hereinabove are or are
to become fixtures on the Lands or Lands Associated with Pipeline described
herein or to which reference is made herein. In addition, the security interest
created hereby under applicable provisions of the UCC attaches to minerals,
including oil, gas and other as-extracted collateral, or accounts resulting from
the sale thereof, at the wellhead or minehead located on the Lands or Lands
Associated with Pipeline described or to which reference is made herein.

I.         This Mortgage may be filed as provided in Article 9 of the Texas
Business and Commerce Code and Article 9 of the Kansas Uniform Commercial Code
relating to the granting of security interests. In this connection, this
instrument will be presented to a filing officer under the Uniform Commercial
Code to be filed in the real estate records as a Financing Statement covering
minerals and fixtures, pursuant to Section 9.502(c) of the Texas Business and
Commerce Code and K.S.A. 84-9-501.

J.         For purposes of filing this Mortgage as a financing statement, the
addresses for Mortgagors, as the debtors, and Mortgagee, as the secured party,
are as set forth hereinabove.

K.        For the convenience of the parties, this Mortgage may be executed in
multiple counterparts. For recording purposes, various counterparts have been
executed and there may be attached to each such counterpart an Exhibit A-1 and
Exhibit A-2 containing only the description of the Mortgaged Property, or
portions thereof, which relates to the county or state in which the particular
counterpart is to be recorded. A complete, original counterpart of this Mortgage
with a complete Exhibit A-1 and Exhibit A-2 may be obtained from the Mortgagee.
Each of the counterparts hereof so executed shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same Mortgage.

L.        The failure or delay of Mortgagee to file or give any notice as to
this Mortgage, or to exercise any right, remedy or option to declare the
maturity of the principal debt, or any other sums hereby secured, or the payment
by Mortgagee of any taxes, liens, charges or assessments, shall not be taken or
deemed a waiver of any rights to exercise such right or option or to declare any
such maturity as to any past or subsequent violations of any of such covenants
or stipulations, and shall not waive or prejudice any right or lien hereunder.
Any election or failure by Mortgagee to exercise any rights, remedies or options
hereunder shall not constitute a waiver or prejudice the exercise of other
rights or remedies existing hereunder. All rights, powers, immunities, remedies
and liens of Mortgagee existing and to exist hereunder or under any other

 

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instruments, and all other or additional security, and Mortgagee’s rights at law
and in equity, shall be cumulative and not exclusive, each of the other; and
Mortgagee shall, in addition to the remedies herein expressly provided, be
entitled to such other remedies as may now or hereafter exist at law or in
equity for securing and collecting the Secured Indebtedness, for enforcing the
covenants herein, and for foreclosing the liens hereof. Resort by Mortgagee to
any remedy provided for hereunder or at law or in equity shall not prevent
concurrent or subsequent resort to the same or any other remedy or remedies.

M.       In the event of a conflict between the terms and provisions of this
Mortgage and those of the Credit Agreement, or in the event that obligations
imposed upon the Mortgagors in the Mortgage and the Credit Agreement in relation
to non-monetary matters are inconsistent and require differing levels of
performance, the terms and provisions of the Credit Agreement shall govern and
control.

N.        This Mortgage is executed by Mortgagee solely for the purpose of
acknowledging and accepting the benefits conferred on the Mortgagee and to
evidence the agreements of Mortgagee set forth herein.

O.        Mortgagors and Mortgagee intend to contract in strict compliance with
applicable usury law from time to time in effect. In furtherance thereof, the
parties stipulate and agree that none of the terms and provisions contained in
this Mortgage shall ever be construed to create a contract to pay, for the use,
forbearance or detention of money, interest in excess of the maximum amount of
interest permitted to be charged by applicable Law from time to time in effect.
No Borrower nor any present or future guarantors, endorsers or other Persons
hereafter becoming liable for payment of the Secured Indebtedness shall ever be
liable for unearned interest thereon or shall ever be required to pay interest
thereon in excess of the maximum amount that may be lawfully charged under
applicable Law from time to time in effect. Mortgagee expressly disavows any
intention to charge or collect excessive unearned interest or finance charges in
the event the maturity of any Secured Indebtedness is accelerated. If (a) the
maturity of any Secured Indebtedness is accelerated for any reason, (b) any
Secured Indebtedness is prepaid and as a result any amounts held to constitute
interest are determined to be in excess of the legal maximum, or (c) Mortgagee
or any other holder of any or all of the Secured Indebtedness shall otherwise
collect moneys which are determined to constitute interest which would otherwise
increase the interest on any or all of the Secured Indebtedness to an amount in
excess of that permitted to be charged by applicable Law then in effect, then
all such sums determined to constitute interest in excess of such legal limit
shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Secured Indebtedness or, at Mortgagors’ or such
holder’s option, promptly returned to Mortgagors or the other payor thereof upon
such determination. In determining whether or not the interest paid or payable
under any specific circumstance exceeds the maximum amount permitted under
applicable Law, Mortgagors or Mortgagee (and any other payors thereof) shall to
the greatest extent permitted under applicable Law, (x) characterize any non
principal payment as an expense, fee or premium rather than as interest, (y)
exclude voluntary prepayments and the effects thereof, and (z) amortize,
prorate, allocate and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Secured Indebtedness in
accordance with the amounts outstanding from time to time thereunder and the
maximum legal rate of interest

 

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from time to time in effect under applicable Law in order to lawfully charge the
maximum amount of interest permitted under applicable Law.

P.        THIS MORTGAGE SUPERSEDES ALL PRIOR AGREEMENTS BETWEEN THE PARTIES WITH
RESPECT TO ITS SUBJECT MATTER AND CONSTITUTES (ALONG WITH THE DOCUMENTS REFERRED
TO IN THIS MORTGAGE) A COMPLETE AND EXCLUSIVE STATEMENT OF THE TERMS OF THE
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER. THIS AGREEMENT
MAY NOT BE AMENDED EXCEPT BY A WRITTEN AGREEMENT EXECUTED BY THE PARTY TO BE
CHARGED WITH THE AMENDMENT. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE STATE OF
KANSAS THAT APPLY MANDATORILY, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE
GOVERN UNDER PRINCIPLES OF CONFLICT OF LAWS THEREOF.

[Signatures on following page.]

 

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EXECUTED as of the date set forth in the notary below, but effective for all
purposes as of the date first written above.

 

MORTGAGORS/DEBTORS:

 

ENERJEX KANSAS, INC.,

 

a Nevada corporation

 

 

 

By: /s/ Steve Cochennet

 

Steve Cochennet

 

Chief Executive Officer

 

 

                

 

THE STATE OF TEXAS

§

§

COUNTY OF HARRIS

§

BEFORE ME, the undersigned authority, on this day personally appeared Steve
Cochennet, Chief Executive Officer of ENERJEX KANSAS, INC., a Nevada
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, as the act and deed of such
corporation and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of July, 2008.

 

/s/      

NOTARY PUBLIC, STATE OF TEXAS

 

 

 

(Signature and Acknowledgement Page to Kansas Mortgage)

 

--------------------------------------------------------------------------------

 

DD ENERGY, INC.,

 

a Nevada corporation

 

 

 

By: /s/ Steve Cochennet

 

Steve Cochennet

 

Chief Executive Officer

 

 

                

 

THE STATE OF TEXAS

§

§

COUNTY OF HARRIS

§

BEFORE ME, the undersigned authority, on this day personally appeared Steve
Cochennet, Chief Executive Officer of DD ENERGY, INC., a Nevada corporation,
known to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he executed the same for the purposes
and consideration therein expressed, as the act and deed of such corporation and
in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of July, 2008.

 

/s/      

NOTARY PUBLIC, STATE OF TEXAS

 

 

 

(Signature and Acknowledgement Page to Kansas Mortgage)

 

--------------------------------------------------------------------------------

MORTGAGEE:

TEXAS CAPITAL BANK, N.A.,

a national banking association

 

 

By: /s/ Jonathan Gregory

 

Jonathan Gregory

 

.

Executive Vice President

 

.

 

THE STATE OF TEXAS

§

§

COUNTY OF HARRIS

§

BEFORE ME, the undersigned authority, on this day personally appeared Jonathan
Gregory, Executive Vice President of TEXAS CAPITAL BANK, N.A., a national
banking association, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed, as the act and deed of such
national banking association and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this ____ day of July, 2008.

 

/s/      

NOTARY PUBLIC, STATE OF TEXAS

 

 

(Signature and Acknowledgement Page to Kansas Mortgage)

 

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EXHIBIT A  

 

 

This Exhibit A consists of Exhibit A-1 and Exhibit A-2

 

 

 

A-1

 

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EXHIBIT A-1

TO MORTGAGE

Oil and Gas Properties

This Exhibit A-1 sets forth the description of the property interests covered by
the Mortgage to which this Exhibit A-1 is attached. All of the terms defined in
the Mortgage are used in this Exhibit A-1 with the same meanings given therein.
This Exhibit A-1 and the Mortgage cover and include the following:

(a)       Mortgagors’ interest in the Mortgaged Property as such may be enlarged
by the discharge of any payments out of production or by the removal of any
charges or encumbrances together with the Mortgagors’ interests in, to and under
or derived from all renewals and extensions of any oil, gas and mineral leases
described herein, it being specifically intended hereby that any new oil and gas
lease (i) in which an interest is acquired by the Mortgagors after the
termination or expiration of any oil and gas lease, the interests of the
Mortgagors in, to and under or derived from which are subject to the lien and
security interest hereof, and (ii) that covers all or any part of the property
described in and covered by such terminated or expired leases, shall, to the
extent, and only to the extent such new oil and gas lease may cover such
property, be considered a renewal or extension of such terminated or expired
lease; and

(b)       All right, title and interest of the Mortgagors in, to and under or
derived from all existing and future permits, licenses, easements and similar
rights and privileges that relate to or are appurtenant to any of the described
leases and/or lands.

Notwithstanding the intention of this Agreement to cover all of the right, title
and interest of Mortgagors in and to the described leases and/or lands,
Mortgagors hereby specifically warrant and represent that the interests covered
by this Exhibit A-1 are not greater than the working interest (without a
proportionate increase in the associated NRI) nor less than the net revenue
interest, overriding royalty interest, net profit interest, production payment
interest or other interest payable out of or measured by production set forth in
connection with each oil and gas well described in this Exhibit A-1. In the
event the Mortgagors own any other or greater interest, such additional interest
shall also be covered by and included in this Agreement. The designation
“Working Interest” or “WI” means an interest owned in an oil, gas, and mineral
lease that determines the cost bearing percentage of the owner of such interest.
The designation “Net Revenue Interest” or “NRI” means net revenue interest, or
that portion of the production attributable to the owner of a working interest
after deduction for all royalty burdens, overriding royalty burdens, or other
burdens on production, except severance, production, windfall profits and other
similar taxes. The designation “Overriding Royalty Interest” or “ORRI” means an
interest in production which is free of any obligation for the expense of
exploration, development and production, bearing only its pro rata share of
severance, production, windfall profits and other similar taxes.

 

 

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Exhibit A-1

 

EXHIBIT A-2

TO MORTGAGE

Pipelines

 

All pipelines, gathering systems and related fixtures and equipment associated
with the Wells and the Subject Interests.

 

 

 

Exhibit A-2