MORTGAGE, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

FROM MIDWEST ENERGY, INC., A NEVADA CORPORATION AND ENERJEX RESOURCES, INC., A
NEVADA CORPORATION AS MORTGAGOR,

TO DKR SOUNDSHORE OASIS HOLDING FUND LTD., WEST COAST OPPORTUNITY FUND, LLC.,
ENABLE GROWTH PARTNERS LP, ENABLE OPPORTUNITY PARTNERS LP, GLACIER PARTNERS LP
AND FREY LIVING TRUST AS MORTGAGEE

                                                                               
DATED: June 21, 2007.

THIS MORTGAGE IS, AMONG OTHER THINGS, A FINANCING STATEMENT UNDER THE UNIFORM
COMMERCIAL CODE COVERING MINERALS, AS-EXTRACTED COLLATERAL AND THE LIKE
(INCLUDING OIL AND GAS), ACCOUNTS RESULTING FROM THE SALE OF MINERALS, AS
EXTRACTED COLLATERAL AND THE LIKE (INCLUDING OIL AND GAS), AND GOODS WHICH ARE,
OR ARE TO BECOME, FIXTURES ON THE REAL/UNMOVABLE PROPERTY HEREIN DESCRIBED. THE
OIL AND GAS INTERESTS OR ACCOUNTS INCLUDED IN THE MORTGAGED PROPERTY WILL BE
FINANCED AT THE WELLHEADS LOCATED ON THE REAL/UNMOVABLE PROPERTY DESCRIBED IN
EXHIBIT A ATTACHED HERETO. THIS MORTGAGE IS TO BE RECORDED IN THE REAL ESTATE OR
COMPARABLE RECORDS OF THE COUNTY OR PARISH RECORDER OF EACH COUNTY OR PARISH IN
EACH STATE IN WHICH IS SITUATED ANY OF THE COLLATERAL COVERED HEREBY. THE
REAL/UNMOVABLE PROPERTY SUBJECT HERETO IS DESCRIBED IN EXHIBIT A ATTACHED
HERETO.

THIS MORTGAGE CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

MORTGAGOR OWNS A RECORD INTEREST IN THE MORTGAGED PROPERTY.

AMOUNT OF MORTGAGE:

$9,000,000.00

 

 

 

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MORTGAGE, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

THIS MORTGAGE, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF
PRODUCTION (this “Mortgage”) is from MIDWEST ENERGY, INC., a Nevada Corporation
and ENERJEX RESOURCES, INC., a Nevada Corporation, as Mortgagor (“Mortgagor”
whether single or together), to DKR SOUNDSHORE OASIS HOLDING FUND LTD., WEST
COAST OPPORTUNITY FUND, LLC., ENABLE GROWTH PARTNERS LP, ENABLE OPPORTUNITY
PARTNERS LP, GLACIER PARTNERS LP AND FREY LIVING TRUST (“Mortgagee” whether one,
more than one or all). The addresses of Mortgagor and Mortgagee are set forth in
Section 7.14 hereof.

RECITALS:

WHEREAS, Mortgagor entered into a Mortgage, Deed of Trust, Security Agreement,
Financing Statement and Assignment of Production dated June 21, 2007 in favor of
Mortgagee (the “Original Mortgage”).

WHEREAS, in order to secure the Secured Indebtedness (defined below), Mortgagor
has agreed to execute and deliver this Mortgage pursuant to which, among other
things, the Mortgaged Property (defined below) is granted and assigned by
Mortgagor to Mortgagee to further secure the Secured Indebtedness (defined
below).

NOW, THEREFORE, in consideration of the sum of $10.00 and other good and
valuable consideration, in hand paid by Mortgagee, the receipt and adequacy of
which are hereby acknowledged and confessed by Mortgagor, Mortgagor hereby
agrees as follows:

ARTICLE I

DEFINITIONS

1.1       Certain Defined Terms. For all purposes of this Mortgage, unless the
context otherwise requires:

“Accounts and Contract Rights” shall mean all accounts (including accounts in
the form of joint interest billings under applicable operating agreements),
contract rights and general intangibles of Mortgagor now or hereafter existing,
or hereafter acquired by, or on behalf of, Mortgagor, or Mortgagor’s successors
in interest, relating to or arising from the ownership, operation and
development of the Mortgaged Property and to the production, processing,
treating, sale, purchase, exchange or transportation of Hydrocarbons (defined
below) produced or to be produced from or attributable to the Mortgaged Property
or any units or pooled interest units in which all or a portion of the Mortgaged
Property forms a part, together with all accounts and proceeds accruing to
Mortgagor attributable to the sale of Hydrocarbons produced from the Mortgaged
Property or any units or pooled interest units in which all or a portion of the
Mortgaged Property forms a part.

“Article” shall mean and refer to an Article of this Mortgage, unless
specifically indicated otherwise.

 

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“Code” shall mean the Uniform Commercial Code in effect in each of the
jurisdictions where the Mortgaged Property or a portion thereof is situated.

“Credit Agreements” shall mean, collectively, each Securities Purchase Agreement
and the other Related Agreements as defined therein, and “Credit Agreement”
shall mean any one of the foregoing.

“Effective Date” shall mean June 21, 2007.

“Event of Default” shall mean the occurrence of any breach by Mortgagor of any
term or provision of this Mortgage or the occurrence of any Event of Default
under and as defined in the applicable Credit Agreement.

“Exhibit A” shall mean, unless specifically indicated otherwise, Exhibit A
attached hereto and incorporated herein by reference for all purposes.

“Gas Balancing Agreement” means any agreement or arrangement whereby Mortgagor,
or any other party having an interest in any Hydrocarbons to be produced from
Mineral Interests in which Mortgagor owns an interest, has a right or an
obligation to take more or less than its proportionate share of production
therefrom.

“Hydrocarbons” shall mean oil, gas, coalbed methane gas, casinghead gas, drip
gasolines, natural gasoline, condensate, distillate, as-extracted collateral and
all other liquid or gaseous hydrocarbons produced or to be produced in
conjunction therewith, and all products, byproducts and all other substances
derived therefrom or the processing thereof, and all other minerals and
substances, including, but not limited to, sulphur, lignite, coal, uranium,
thorium, iron, geothermal steam, water, carbon dioxide, helium and any and all
other minerals, ores, or substances of value and the products and proceeds
therefrom, including, without limitation, all gas resulting from the in-situ
combustion of coal or lignite.

“Lands” shall mean the lands described in Exhibit A and shall include any lands,
the description of which is contained in Exhibit A or incorporated in Exhibit A
by reference to another instrument or document, including, without limitation,
all lands described in the Oil and Gas Leases listed on Exhibit A hereto, and
shall also include any lands now or hereafter unitized, pooled, spaced or
otherwise combined, whether by statute, order, agreement, declaration or
otherwise, with lands the description of which is contained in Exhibit A or is
incorporated in Exhibit A by reference.

“Lien” shall mean any mortgage, deed of trust, collateral assignment, lien,
pledge, charge, security interest or other encumbrance.

“Loans” shall mean collectively, all amounts advanced by the Mortgagee to
Mortgagor under the Agreements executed between the parties and incorporated
herein by reference including, but not limited to The Securities Purchase
Agreement and Pledge and Security Agreement as well as other credit agreements.

“Material Adverse Effect” shall mean a material adverse effect on (a) the
assets, liabilities, financial condition, results of operations or prospects of
Mortgagor, (b) the right or ability of Mortgagor to fully, completely and timely
perform its obligations under the Credit Agreements, or (c) the validity or
enforceability of any Credit Agreement against Mortgagor, or the rights or
remedies of Mortgagee thereunder.

 

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“Mortgaged Property” shall have the meaning stated in Article 2 of this
Mortgage.

“Net Revenue Interest” shall mean Mortgagor’s share of all Hydrocarbons produced
from the Lands, after deducting the appropriate proportionate part of all
lessors’ royalties, overriding royalties, production payments and other payments
out of or measured by production which burden Mortgagor’s share of all such
production, subject to non-consent provisions contained in joint operating
agreements.

“Note” shall have the meaning set forth in the Credit Agreements.

“Obligations” shall mean all present and future indebtedness, obligations and
liabilities, and all renewals, refinancings and extensions thereof, or any part
thereof, of Mortgagor to Mortgagee arising pursuant to any of the Credit
Agreements, or arising pursuant to any commodity, interest rate, currency or
other swap, option, collar, futures contract or other contract pursuant to which
a Person hedges risks related to commodity prices, interest rates, currency
exchange rates, securities prices or financial market conditions and any other
commodity price hedging agreements by and between Mortgagor and Mortgagee and
all interest accrued on any of the foregoing, and reasonable costs, expenses,
and attorneys’ fees incurred in the enforcement or collection thereof,
regardless of whether such indebtedness, obligations and liabilities are direct,
indirect, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several.

“Oil and Gas Leases” shall mean oil, gas and mineral leases, oil and gas leases,
oil leases, gas leases, other mineral leases, subleases, top leases, any rights
resulting in an ownership interest in Hydrocarbons and all operating rights
relating to any of the foregoing (whether operated by virtue of such leases, or
assignments or applicable operating agreements), and all other interests
pertaining to any of the foregoing, including, without limitation, all royalty
and overriding royalty interests, production payments and net profit interests,
production payments and net profit interests, mineral fee interests, and all
reversionary, remainder, carried and contingent interests relating to any of the
foregoing and all other rights therein which are described and/or to which
reference may be made on Exhibit A.

“Operation Equipment” shall mean all Personal Property and fixtures affixed or
situated upon all or any part of the Mortgaged Property, including, without
limitation, all surface or subsurface machinery, equipment, facilities or other
property of whatsoever kind or nature now or hereafter located on any of the
Lands which are useful for the production, treatment, storage or transportation
of oil or gas, including, but not by way of limitation, all oil wells, gas
wells, water wells, injection wells, casing, tubing, rods, pumping units and
engines, Christmas trees, derricks, separators, gun barrels, flow lines, tanks,
gas systems (for gathering, treating and compression), water systems (for
treating, disposal and injection), power plants, poles, lines, transformers,
starters and controllers, machine shops, tools, storage yards and equipment
stored therein, buildings and camps, telegraph, telephone and other
communication systems, roads, loading racks and shipping facilities.

“Permitted Encumbrances” shall mean with respect to the Mortgaged Property:

 

(a)

Liens securing the obligations;

(b)       minor defects in title which do not secure the payment of money and
otherwise have no material adverse effect on the value or operation of the
subject property, including, without limitation, easements, rights-of-way,
servitudes, permits, surface leases, and other similar rights in respect of
surface operations, and easements for pipelines, streets, alleys, highways,
telephone lines, power lines, railways and other easements and rights-of-way,
on,

 

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over or in respect of any of the properties of Mortgagor that are customarily
granted in the oil and gas industry;

(c)       inchoate statutory or operators’ Liens securing obligations for labor,
services, materials and supplies furnished to Mineral Interests, which are not
more than 60 days delinquent and are not being contested in good faith by the
appropriate actions;

(d)       mechanic’s, materialman’s, warehouseman’s, journeyman’s and carrier’s
Liens, and other similar Liens arising by operation of law in the ordinary
course of business, securing obligations which are not more than 60 days
delinquent and are not being contested in good faith by the appropriate actions;

(e)       Liens for taxes or assessments not yet due or not yet delinquent, or,
if delinquent, that are being contested in good faith in the normal course of
business by appropriate action;

(f)        Lease burdens payable to third parties which are deducted in the
calculation of discounted present value in any reserve report delivered by
Mortgagor pursuant to the Credit Agreements including, without limitation, any
royalty, overriding royalty, net profits interest, production payment, carried
interest or reversionary working interest; and

(g)       Liens, charges and encumbrances upon Mortgagor’s assets, other than
Proved Mineral Interests, which in the aggregate do not have a value in excess
of $50,000.

“Person” shall mean any individual, corporation, partnership, limited liability
company, association, trust, other entity or organization, or any court or
governmental department, commission, board, bureau, agency, or instrumentality
of any nation or of any province, state, commonwealth, nation, territory,
possession, county, parish, or municipality, whether now or hereafter
constituted or existing.

“Personal Property” shall mean that portion of the Mortgaged Property that is
personal property.

“Proved Mineral Interests” shall mean, collectively, Proved Producing Mineral
Interests, Proved Nonproducing Mineral Interests, and Proved Undeveloped Mineral
Interests.

“Proved Nonproducing Mineral Interests” shall mean all Subject Interests which
constitute proved developed nonproducing reserves.

“Proved Producing Mineral Interests” shall mean all Subject Interests which
constitute proved developed producing reserves.

“Proved Undeveloped Mineral Interests” shall mean all Subject Interests which
constitute proved undeveloped reserves.

“Section” shall mean and refer to a section of this Mortgage, unless
specifically indicated otherwise.

“Secured Indebtedness” shall have the meaning stated in Article 3 of this
Mortgage.

“Securities Purchase Agreements” means, collectively, the Securities Purchase
Agreement and other documents associated therewith executed by and between the
parties connected to and associated with this transaction, as each may be
amended, modified and supplemented from time to time.

 

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“Subject Interests” shall have the meaning stated in Article 2 of this Mortgage.

“Subsidiary” shall mean, for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions (including that of a general partner) are at the time directly or
indirectly owned, collectively, by such Person and any Subsidiaries of such
Person. “Subsidiary” shall include Subsidiaries of Subsidiaries (and so on).

“Well Data” shall mean all logs, drilling reports, division orders, transfer
orders, operating agreements, contracts and other agreements, abstracts, title
opinions, files, records, seismic data, memoranda and other information in the
possession or control of Mortgagor or to which Mortgagor has access relating to
the Lands and/or any wells located thereon.

1.2       Other Terms. Unless otherwise defined or indicated herein, all terms
with their initial letter capitalized shall have the meaning given such terms in
the Revolving Credit Agreement.

ARTICLE II

GRANTING CLAUSE: MORTGAGED PROPERTY

Mortgagor, for and in consideration of the sum of $10.00 and other good and
valuable consideration, in hand paid by Mortgagee, the receipt and adequacy of
which are hereby acknowledged and confessed by Mortgagor, and for and in
consideration of the debt and purposes hereinafter set forth, to secure the full
and complete payment and performance of the Secured Indebtedness and to secure
the performance of the covenants, obligations, agreements and undertakings of
Mortgagor hereinafter described, hereby acknowledges, confirms and agrees that
Mortgagee has and shall continue to have a security interest in all Collateral
heretofore granted by Assignor to Mortgagee pursuant to the Mortgage and
Mortgagor has GRANTED, BARGAINED, WARRANTED, MORTGAGED, ASSIGNED, TRANSFERRED
and CONVEYED, and by these presents does GRANT, BARGAIN, WARRANT, MORTGAGE,
ASSIGN, TRANSFER and CONVEY (a) unto Mortgagee and Mortgagee’s substitutes or
successors, and its and their assigns, or (b) alternatively, with respect to
Kansas and any other jurisdiction wherein a portion of the Mortgaged Property is
situated that does not recognize, permit or require Mortgagor to mortgage or
convey the Mortgaged Property to Mortgagee for the benefit of Mortgagee, then,
with respect to the Mortgaged Property located in Kansas and such other
jurisdiction, unto Mortgagee and Mortgagee’s successors in title and assigns, as
herein provided, for the uses and purposes herein set forth, with warranties and
covenants of title only to the extent provided herein and in the Credit
Agreements, all of Mortgagor’s right, title and interest, whether now owned or
hereafter acquired, in all of the hereinafter described properties, rights and
interests; and, insofar as such properties, rights and interests consist of
equipment, general intangibles, accounts, contract rights, inventory, goods,
chattel paper, instruments, documents, money, fixtures, as-extracted collateral,
proceeds and products of collateral or any other Personal Property of a kind or
character defined in or subject to the applicable provisions of the Code,
Mortgagor hereby grants to Mortgagee a security interest therein, whether now
owned or hereafter acquired, namely:

(a)       all of those certain Oil and Gas Leases and Lands (all such Oil and
Gas Leases and Lands being herein called the “Subject Interests,” as hereinafter
further defined) which are described in Exhibit A and/or to which reference may
be made in Exhibit A and/or which are covered by any of the leases described on
Exhibit A, which Exhibit A is made a part of this Mortgage for all purposes, and
is incorporated herein by reference as fully as if copied at length in the body
of this Mortgage at this point;

 

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(b)       all rights, titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to (i) any and all properties now or hereafter
pooled or unitized with any of the Subject Interests, and (ii) all presently
existing or future operating agreements and unitization, communitization and
pooling agreements and the units operated thereby to the extent the same relate
to all or any part of the Subject Interests, including, without limitation, all
units formed under or pursuant to any applicable laws (the rights, titles,
interests and estates described in this clause (b) also being included within
the term “Subject Interests” as used herein);

(c)       all presently existing and future agreements entered into between
Mortgagor and any third party that provide for the acquisition by Mortgagor of
any interest in any of the properties or interests specifically described in
Exhibit A or which relate to any of the properties and interests specifically
described in Exhibit A;

(d)       the Hydrocarbons (including inventory) which are in, under, upon,
produced or to be produced from or attributable to the Lands from and after the
Effective Date;

 

(e)

the Accounts and Contract Rights;

 

(f)

the Operating Equipment;

 

(g)

the Well Data;

(h)       the rights and security interests of Mortgagor held by Mortgagor to
secure the obligation of the first purchaser to pay the purchase price of the
Hydrocarbons;

(i)        all surface leases, rights-of-way, franchises, easements, servitudes,
licenses, privileges, tenements, hereditaments and appurtenances now existing or
in the future obtained in connection with any of the aforesaid, and all other
items of value and incident thereto which Mortgagor may, at any time, have or be
entitled; and

(j)        all and any different and additional rights of any nature, of value
or convenience in the enjoyment, development, operation or production, in any
way, of any property or interest included in any of the foregoing clauses, and
in all revenues, income, rents, issues, profits and other benefits arising
therefrom or from any contract now in existence or hereafter entered into
pertaining thereto, and in all rights and claims accrued or to accrue for the
removal by anyone of Hydrocarbons from, or other act causing damage to, any of
such properties or interests.

All the aforesaid properties, rights and interests, together with any and all
substitutions, replacements, corrections or amendments thereto, or renewals,
extensions or ratifications thereof, or of any instrument relating thereto, and
together with any additions thereto which may be subjected to the Lien of this
Mortgage by means of supplements hereto, being hereinafter called the “Mortgaged
Property”.

Subject, however, to (i) Permitted Encumbrances, and (ii) the condition that
Mortgagee shall not be liable in any respect for the performance of any covenant
or obligation of Mortgagor with respect to the Mortgaged Property.

TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee and its successors,
legal representatives and assigns, forever, subject to Section 7.3 hereof, to
secure, in each such instance, the payment and performance of the Secured
Indebtedness and the Obligations.

 

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ARTICLE III

SECURED INDEBTEDNESS

This Mortgage is given to secure all of the Obligations under and as described
in the Credit Agreements, including, without limitation:

(a)       interest on all credit outstanding under the Credit Agreements at the
rates provided in the Credit Agreements;

(b)       the Obligations, including, without limitation, the indebtedness
evidenced by the Debentures;

(c)       payment and performance of any and all present and future obligations
of Mortgagor according to the terms of any present or future hedge transaction,
including, without limitation, any present or future swap agreements, cap,
floor, collar, exchange transaction, forward agreement or other exchange or
protection agreements relating to any such transaction now existing or hereafter
entered into between Mortgagor, on the one hand and Mortgagee on the other hand;

(d)       any sums advanced as expenses or costs incurred by, or on behalf of,
Mortgagee which are made or incurred pursuant to the terms of this Mortgage or
any Credit Agreement, plus interest thereon at the rate set forth in the
applicable Debentures from the date of advance or expenditure until reimbursed;
and

(e)       all other additional debts, obligations and liabilities of every kind
and character of Mortgagor now existing or hereafter arising in connection with
any of the Credit Agreements or otherwise. (All of the obligations and
indebtedness referred to in this Article 3, and all renewals, refinancings,
extensions and modifications thereof, and all substitutions therefor, in whole
or in part, are herein sometimes referred to as the “Secured Indebtedness”.)

ARTICLE IV

COVENANTS, REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MORTGAGOR

Mortgagor hereby covenants, represents, warrants and agrees that:

4.1       Payment of Indebtedness. Mortgagor will duly and punctually pay or
cause to be paid when due all of the Secured Indebtedness.

4.2       Warranties. (a) Mortgagor, to the extent of the interests specified in
Exhibit A, has good and defensible title, subject to Permitted Encumbrances, to
each property right or interest constituting the Mortgaged Property, and has a
good and legal right to make the grant and conveyance made in this Mortgage; (b)
Mortgagor’s present Net Revenue Interest in the Mortgaged Property is not less
than that specified in Exhibit A and, if no interest is specified, includes all
its interests however specified in and to the Oil and Gas Leases and Lands
described on Exhibit A; and (c) the Mortgaged Property is free from all Liens
other than Permitted Encumbrances. Mortgagor will warrant and forever defend
(subject to those Permitted Encumbrances described in clauses (b) and (f) of the
definition of “Permitted Encumbrances” set forth above) the Mortgaged Property
unto Mortgagee and Mortgagee’s successors, legal representatives and assigns,
and Mortgagee and Mortgagee’s successors, legal representatives and assigns,
against every Person whomsoever lawfully claiming the same or any part thereof,
and Mortgagor will maintain and preserve the Lien hereby created so long as any
of the Secured

 

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Indebtedness remains unpaid, except where such failure to comply would not have
a Material Adverse Effect.

4.3       Further Assurances. Mortgagor will execute and deliver such other and
further instruments and will do such other and further acts as in the reasonable
discretion of Mortgagee may be necessary or desirable to carry out more
effectively the purposes of this Mortgage, including, without limiting the
generality of the foregoing, (a) prompt correction of any material defect which
may hereafter be discovered in the title to the Mortgaged Property or in the
execution and acknowledgment of this Mortgage, any Notes, or any other document
used in connection herewith or at any time delivered to Mortgagee in connection
with any Obligations, and (b) if required by Section 8.1 hereof, prompt
execution and delivery of all division or transfer orders that in the reasonable
discretion of Mortgagee are needed to transfer effectively the assigned proceeds
of production from the Mortgaged Property to Mortgagee.

4.4       Taxes. To the extent and in the manner required by the Credit
Agreements, and to the extent not prohibited by applicable law, Mortgagor will
promptly pay, or cause to be paid, all taxes legally imposed upon this Mortgage
or upon the Mortgaged Property or upon the interest of Mortgagee therein, or
upon the income, profits, proceeds and other revenues thereof.

4.5       Operation of the Mortgaged Property. So long as the Secured
Indebtedness or any part thereof remains unpaid:

(a)       Mortgagor shall maintain and operate the Subject Interests in a good
and workmanlike manner and will observe and comply with all of the terms and
provisions, express or implied, of all Oil and Gas Leases relating to the
Subject Interests so long as such Oil and Gas Leases are capable of producing
Hydrocarbons in paying quantities, except where such failure to comply would not
have a Material Adverse Effect;

(b)       Mortgagor shall comply with all contracts and agreements applicable to
or relating to the Mortgaged Property or the production and sale of Hydrocarbons
therefrom, except to the extent a failure to so comply would not have a Material
Adverse Effect;

(c)       Mortgagor shall, at all times, maintain, preserve and keep all
Operating Equipment used with respect to the Mortgaged Property in proper
repair, working order and condition, and make all necessary or appropriate
repairs, renewals, replacements, additions and improvements thereto so that the
efficiency of such Operating Equipment shall at all times be properly preserved
and maintained, except where such failure to comply would not have a Material
Adverse Effect; provided that no item of Operating Equipment need be so
repaired, renewed, replaced, added to or improved, if Mortgagor shall in good
faith determine that such action is not necessary or desirable for the continued
efficient and profitable operation of the Subject Interests;

(d)       Mortgagor shall cause the Mortgaged Property to be kept free and clear
of all Liens other than Permitted Encumbrances;

(e)       Mortgagor shall comply with the terms of the Credit Agreements with
respect to maintenance of the Mortgaged Property; and

(f)        Mortgagor shall not sell, lease, transfer, abandon or otherwise
dispose of any portion of the Mortgaged Property or any of Mortgagor’s rights,
titles or interests therein or thereto, except as specifically permitted in the
Credit Agreements.

 

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4.6       Recording. Mortgagor will promptly and at Mortgagor’s sole cost and
expense, record, register, deposit and file this Mortgage and every other
instrument in addition or supplemental hereto in such offices and places and at
such times and as often as may be necessary to preserve, protect and renew the
Lien hereof as a perfected Lien on real or personal property, as the case may
be, subject only to Permitted Encumbrances, and the rights and remedies of
Mortgagee, and otherwise will do and perform all matters or things necessary or
expedient to be done or observed by reason of any law or regulation of any state
or of the United States or of any other competent authority, for the purpose of
effectively operating, maintaining and preserving the Lien hereof on the
Mortgaged Property.

4.7       No Government Approvals. Mortgagor warrants that no approval or
consent of any Person is necessary to authorize the execution and delivery of
this Mortgage, or any of the other Credit Agreements or the Notes, or to
authorize the observance or performance by Mortgagor of the covenants herein or
therein contained.

4.8       Right of Entry. Mortgagor will permit Mortgagee, or the agents or
designated representatives of Mortgagee, to enter upon the Mortgaged Property,
and all parts thereof, for the purposes of investigating and inspecting the
condition and operation thereof.

The representations and warranties set forth in the Credit Agreements are
incorporated herein by reference as if set forth herein, and each such
representation and warranty is true and correct.

ARTICLE V

ADDITIONS TO MORTGAGED PROPERTY

It is understood and agreed that Mortgagor may periodically subject additional
properties to the Lien of this Mortgage. In the event that additional properties
are to be subjected to the Lien hereof, the parties hereto agree to execute a
supplemental mortgage, satisfactory in form and substance to Mortgagee, together
with any security agreement, financing statement or other security instrument
required by Mortgagee, all in form and substance satisfactory to Mortgagee and
in a sufficient number of executed (and, where necessary or appropriate,
acknowledged) counterparts for recording purposes. Upon execution of such
supplemental mortgage, all additional properties thereby subjected to the Lien
of this Mortgage shall become part of the Mortgaged Property for all purposes.

ARTICLE VI

ENFORCEMENT OF THE SECURITY

6.1       General Remedies. Upon the occurrence and during the continuance of an
Event of Default, Mortgagee may do any one or more of the following, subject to
and in accordance with any applicable provision of the Credit Agreements, and to
any mandatory requirements or limitations of applicable law then in force:

(a)       exercise all of the rights, remedies, powers and privileges of
Mortgagor with respect to the Mortgaged Property or any part thereof, give or
withhold all consents required therein which, with respect to the Mortgaged
Property or any part thereof, Mortgagor would otherwise be entitled to give or
withhold, and perform or attempt to perform any covenants in this Mortgage which
Mortgagor is obligated to perform; provided, however, Mortgagee may not take
possession of the Mortgaged Property or operate the Subject Interests prior to
acceleration of the Secured Indebtedness as hereinafter provided; and provided
further that, no payment or performance by Mortgagee shall constitute a waiver
of any Event of Default, and Mortgagee shall be subrogated to all rights and
Liens securing the payment of any

 

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debt, claim, tax or assessment for the payment of which Mortgagee may make an
advance, or which Mortgagee may pay.

(b)       execute and deliver to such Person or Persons as may be designated by
Mortgagee appropriate powers of attorney to act for and on behalf of Mortgagor
in all transactions with any federal, state or local agency with respect to any
of the Mortgaged Property.

(c)       exercise any and all other rights or remedies granted to Mortgagee
pursuant to the provisions of any of the Credit Agreements and applicable law.

(d)       if Mortgagor has failed to keep or perform any covenant whatsoever
contained in any Credit Agreement or this Mortgage, Mortgagee may, at its
option, perform or attempt to perform such covenant except that Mortgagee may
not take possession of the Mortgaged Property or operate the Subject Interests
prior to acceleration of the Secured Indebtedness as hereinafter provided. Any
payment made or expense incurred in the performance or attempted performance of
any such covenant shall be a part of the Secured Indebtedness, and Mortgagor
promises, upon demand, to pay to Mortgagee, at the place where the Note is
payable, or at such other place as Mortgagee may direct by written notice, all
sums so advanced or paid by Mortgagee, with interest at the rate set forth in
Section 4.11 of the Note from the date when paid or incurred by Mortgagee. No
such payment by Mortgagee shall constitute a waiver of any Event of Default.

(e)       Mortgagee may, at its option, after giving 30 days written notice to
Mortgagor of the acceleration of the Secured Indebtedness and its Declaration
that the entire unpaid Secured Indebtedness shall become immediately due and
payable at the end of such notice period (if the Event of Default is not cured
within such period), declare the entire unpaid balance of the Secured
Indebtedness, or any part thereof, immediately due and payable, and upon such
declaration, it shall be immediately due and payable, and the Liens hereof shall
then be subject to foreclosure in accordance with applicable law. The notice of
the acceleration and Declaration shall fully describe the default or defaults
comprising the Event of Default for which the notice is given. If the Mortgagor
cures the default within the notice period or as hereinbefore provided, the
acceleration of the Subject Indebtedness shall not occur and the provisions of
this Mortgage shall continue the same as though such Event of Default had not
occurred.

(f)        Upon the acceleration of the Secured Indebtedness after notice of
acceleration and failure to cure the defaults as provided above, this Mortgage
may be foreclosed as to the Mortgaged Properties, or any part thereof, in any
manner permitted by applicable law.

Upon acceleration, Mortgagee may to the extent permitted by applicable law,
proceed with foreclosure and sell all or any part 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 requirement, as Mortgagee may deem
appropriate, and to make conveyance to the purchaser or purchasers thereof. Any
such sale shall be made to the highest bidder or bidders for cash, at the
courthouse door of the county wherein the Mortgaged Property is situated;
provided that, if the Mortgaged Property is situated in more than one county,
such sale of the Mortgaged Property, or part thereof, may be made in any county
wherein any part of the Mortgaged Property is situated. Such sale shall be made
at public outcry, on the day of any month, during the hours of such day, and
after written notices thereof have been publicly posted in such places and for
such time periods and all Persons

 

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entitled to notice thereof have been sent such notice, all as required by
applicable law. If the applicable law in force as of the Effective Date hereof
should hereafter be amended to require a different notice of sale applicable to
sales of property of the nature of the Mortgaged Property under powers of sale
conferred by mortgages or deeds of trust, Mortgagee may, in its sole discretion,
to the extent permitted by applicable law, give either the notice of sale
required by applicable law in effect on the Effective Date or the notice of sale
prescribed by the amended law; and nothing herein shall be deemed to require
Mortgagee to do, and Mortgagee shall not be required to do, any act other than
as required by applicable law in effect at the time of any such sale. After such
sale, Mortgagee shall make to the purchaser or purchasers thereunder good and
sufficient deeds, assignments or bills of sale in the name of Mortgagor,
conveying or transferring the Mortgaged Property, or any part thereof, so sold
to the purchaser or purchasers containing such warranties of title as are
customarily given, which warranties shall be binding upon Mortgagor.

Sale of a part of the Mortgaged Property shall not exhaust the power of sale
granted hereby, but sales may be made from time to time until the Secured
Indebtedness is paid and performed in full. It shall not be necessary to have
present or to exhibit at any such sale any of the Personal Property. In addition
to the rights and other powers of sale granted under the preceding provisions of
this Section 6.1(f), if default is made in the payment of any installment of the
Obligations and upon the acceleration of the Secured Indebtedness as
hereinbefore provided, Mortgagee may, at its option, at once or at any time
thereafter while any matured installment remains unpaid, enforce the Liens
created by this Mortgage and sell the Mortgaged Property subject to such matured
indebtedness and the Liens 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 this Section 6.1(f).
After such sale, Mortgagee shall make due conveyance to the purchaser or
purchasers. Sales 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 this Section
6.1(f), the unmatured balance of the Secured Indebtedness (except as to any
proceeds of any sale which Mortgagee may apply as prepayment of the Secured
Indebtedness), or the Liens securing payment of the Secured Indebtedness. The
sale or sales of less than the whole of the Mortgaged Property shall not exhaust
the power of sale herein granted, and Mortgagee is specifically empowered to
make successive sale or sales under such power until the whole of the Mortgaged
Property shall be sold. It is intended by each of the foregoing provisions of
this Section 6.1(f) that Mortgagee may sell not only the Subject Interests but
also all other items constituting a part of the Mortgaged Property along with
the Subject Interests, 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. If the proceeds of such sale or sales of
less than the whole of such Mortgaged Property shall be less than the aggregate
of the Secured Indebtedness and the expense of enforcing the trust created by
this Mortgage, the Liens of this Mortgage shall remain in full force and effect
as to the unsold portion of the Mortgaged Property just as though no sale or
sale of less than the whole of the Mortgaged Property had occurred, but
Mortgagee shall have the right, at its sole election, to sell less than the
whole of the Mortgaged Property. In the event any questions should be raised as
to the regularity or validity of any sale hereunder, Mortgagee shall have the
right and is hereby authorized to make resale of said property so as to remove
any questions or doubt as to the regularity or validity of the previous sale,
and as many resales may be made as may be appropriate. It is agreed that, in any
deed or deeds given by Mortgagee any and all statements of fact or other
recitals therein made as to the identity of Mortgagee, or as to the occurrence
or existence of any Event of Default, 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 trustee, and, without being

 

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limited by the foregoing, as to any other act or thing having been duly done by
Mortgagee shall be taken by any Governmental Authority as prima facie evidence
that the said statements or recitals are true and correct and are without
further question to be so accepted, and Mortgagor does hereby ratify and confirm
any and all acts that Mortgagee may lawfully do in the premises by virtue
hereof.

(g)       Mortgagee may in lieu of or in addition to exercising the power of
sale provided for in Section 6.1(f) hereof, proceed by suit or suits, at law or
in equity, to enforce the payment and performance of the Secured Indebtedness in
accordance with the terms hereof, and of the Credit Agreements evidencing it, to
foreclose the Liens of this Mortgage as against all or any part of the Mortgaged
Property, and to have all or any part of the Mortgaged Property sold under the
judgment or decree of a court of competent jurisdiction.

(h)       To the extent permitted by law, upon the acceleration of the Secured
Indebtedness, Mortgagee, as a matter of right and without regard to the
sufficiency of the Mortgaged Property, and without any showing of insolvency,
fraud or mismanagement on the part of Mortgagor, and without the necessity of
filing any judicial or other proceeding other than the proceeding for
appointment of a receiver, shall be entitled to the appointment of a receiver or
receivers of the Mortgaged Property, or any part thereof, and of the income,
royalties, revenues, bonuses, production payments, delay rentals, benefits,
rents, issues and profits thereof. Mortgagor hereby consents to the appointment
of such receiver or receivers and agrees not to oppose any application therefor
by Mortgagee.

(i)        Upon the acceleration of the Secured Indebtedness, Mortgagee may
(upon providing the notice as set forth in 6.1(e), if permitted by applicable
law) enter upon the Mortgaged Property, take possession of the Mortgaged
Property, and remove the Personal Property, or any part thereof, with or without
judicial process, and, in connection therewith, without any responsibility or
liability on the part of Mortgagee, 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 Mortgagor’s expense. If necessary to obtain the
possession provided for in this Section 6.1 (i), Mortgagee may undertake any and
all remedies to dispossess Mortgagor, including, specifically, one or more
actions for forcible entry and detainer, trespass to try title and restitution.

(j)        Mortgagee may require Mortgagor to assemble any Personal Property and
any other items of the Mortgaged Property, or any part thereof, and make it
available to Mortgagee at a place to be designated by Mortgagee which is
reasonably convenient to Mortgagor and Mortgagee.

(k)       Mortgagee may retain the Personal Property and any other items of the
Mortgaged Property, or any part thereof, in satisfaction or partial satisfaction
of the Secured Indebtedness whenever the circumstances are such that Mortgagee
is entitled to do so under the Code.

(l)        Mortgagee shall have the right to become the purchaser at any sale of
the Mortgaged Property held by Mortgagee or by any court, receiver or public
officer, and Mortgagee shall have the right to credit upon the amount of the bid
made therefor, the amount payable out of the net proceeds of such sale to
Mortgagee. Recitals contained in any conveyance made to any purchaser at any
sale made hereunder shall conclusively establish the truth and accuracy of the
matters therein stated, including, without limiting the generality of the
foregoing, nonpayment of the unpaid principal sum of, interest accrued on, and
fees payable in respect of, the Secured Indebtedness after the same have become
due and payable,

 

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and advertisement and conduct of such sale in the manner provided herein or
appointment of any trustee hereunder.

(m)      Mortgagee may buy any Personal Property and any other items of the
Mortgaged Property, or any part thereof, at any private disposition if the
Mortgaged Property or the part thereof being disposed of, is a type customarily
sold in a recognized market or a type which is the subject of widely distributed
standard price quotations.

(n)       Mortgagee shall have and may exercise any and all other rights which
Mortgagee may have under the Code, by virtue of the Credit Agreements, this
Mortgage, at law, in equity or otherwise.

Mortgagee shall have no obligation to do, or refrain from doing, any of the
acts, or to make or refrain from making any payment, referred to in this Section
6.1.

6.2       Foreclosure by Judicial Proceedings. Upon the occurrence of an Event
of Default, Mortgagee may proceed, where permitted by law, by a suit or suits in
equity or at law, whether for a foreclosure hereunder, or for the sale of the
Mortgaged Property, or for the specific performance of any covenant or agreement
herein contained or in aid of the execution of any power herein granted, or for
the appointment of a receiver pending any foreclosure hereunder or the sale of
the Mortgaged Property, or for the enforcement of any other appropriate legal or
equitable remedy.

6.3       Receipt to Purchaser. Upon any sale by virtue of judicial proceedings,
the receipt of the officer making such sale under judicial proceedings shall be
sufficient discharge to the purchaser or purchasers at any sale for his or their
purchase money, and such purchaser or purchasers, or his or their assigns or
personal representatives, shall not, after paying such purchase money and
receiving such receipt of such officer therefor, be obligated to see to the
application of such purchase money, or be in any way answerable for any loss,
misapplication or non-application thereof.

6.4       Effect of Sale. Any sale or sales of the Mortgaged Property or
portions thereof where permitted by law shall operate to divest all right,
title, interest, claim and demand whatsoever either at law or in equity, of
Mortgagor of, in and to the premises and the property sold, and shall be a
perpetual bar, both at law and in equity, against Mortgagor, and Mortgagor’s
successors, legal representatives or assigns, and against any and all Persons
claiming or who shall thereafter claim all or any of the property sold by,
through or under Mortgagor, or Mortgagor’s successors, legal representatives and
assigns. Nevertheless, Mortgagor, if requested by Mortgagee to do so, shall join
in the execution and delivery of all proper conveyances, assignments and
transfers of the properties so sold.

6.5       Application of Proceeds. The proceeds of any sale of or other
realization on the Mortgaged Property, or any part thereof, shall be applied by
Mortgagee to the Secured Indebtedness in such order as Mortgagee shall elect.

6.6       Mortgagor’s Waiver of Appraisement, Marshaling, etc.; Rights.
Mortgagor agrees, to the full extent that Mortgagor may lawfully so agree, that
Mortgagor will not at any time, insist upon or plead or, in any manner
whatsoever, claim the benefit of any stay, extension or redemption law now or
hereafter in force, in order to prevent or hinder the enforcement or foreclosure
of this Mortgage or the absolute sale of the Mortgaged Property or any portion
thereof or the possession thereof by any purchaser at any sale made pursuant to
any provision hereof, or pursuant to the decree of any court of competent
jurisdiction; but Mortgagor, and all who may claim through or under Mortgagor,
so far as Mortgagor or those claiming through or

 

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under Mortgagor now or hereafter lawfully may, hereby waives the benefit of all
such laws. Mortgagor and all who may claim through or under Mortgagor, waives,
to the extent that Mortgagor or those claiming through or under Mortgagor may
lawfully do so, any and all rights of appraisement and any and all right to have
the Mortgaged Property marshaled upon any foreclosure of the Lien hereof, or
sold in inverse order of alienation, and agrees that any court having
jurisdiction to foreclose such Lien may sell the Mortgaged Property as an
entirety. If any law in this Section 6.6 referred to and now in force, of which
Mortgagor or Mortgagor’s successor or successors might take advantage despite
the provisions hereof, shall hereafter be repealed or cease to be in force, such
law shall not thereafter be deemed to constitute any part of the contract herein
contained or to preclude the operation or application of the provisions of this
Section 6.6.

6.7       Mineral Leasing Act. Notwithstanding any other provisions of this
Mortgage, any Oil and Gas Leases covered by this Mortgage which are subject to
the Mineral Leasing Act of 1920, as amended, and the regulations promulgated
thereunder, shall not be sold or otherwise disposed of to any party other than
citizens of the United States, or to associations of such citizens or to any
corporation organized under the laws of the United States, or any state or
territory thereof that are qualified to own or control interests in such Oil and
Gas Leases under the provisions of such Mineral Leasing Act and regulations, or
to Persons who may acquire ownership or interest in such Oil and Gas Leases
under the provisions of 30 U.S.C. § 184(g), if applicable, as such Mineral
Leasing Act or regulations are now or may be from time to time in effect.

6.8       Costs and Expenses. All reasonable costs, expenses (including
attorneys’ fees) and payments incurred or made by Mortgagee in protecting and
enforcing its rights hereunder, shall constitute a demand obligation owing by
Mortgagor to the party incurring such or making such costs, expenses or payments
and shall bear interest at a rate per annum equal to the rate set forth in
Section 4.11 of the Note, all of which shall constitute a portion of the Secured
Indebtedness.

6.9       Operation of the Mortgaged Property by Mortgagee. Upon the occurrence
of an Event of Default that is continuing and the acceleration of the Secured
Indebtedness under this Mortgage, and in addition to all other rights herein
conferred on Mortgagee, Mortgagee (or any Person designated by Mortgagee) shall,
to the extent permitted by applicable law, have the right and power, but not the
obligation, to enter upon and take possession of any of the Mortgaged Property,
and to exclude Mortgagor, and Mortgagor’s agents or servants, wholly therefrom,
and to hold, use, administer, manage and operate the same to the extent that
Mortgagor shall be at the time entitled to do any of such things and in
Mortgagor’s place and stead. Mortgagee (or any Person designated by Mortgagee)
may operate the same without any liability or duty to Mortgagor in connection
with such operations, except to use ordinary care in the operation of such
Mortgaged Property, and Mortgagee or any Person designated by Mortgagee shall
have the right to collect and receive all Hydrocarbons produced and sold from
the Mortgaged Property, the proceeds of which shall be applied to the Secured
Indebtedness in such order as Mortgagee shall elect, to make repairs, purchase
machinery and equipment, conduct workover operations, drill additional wells and
to exercise every power, right and privilege of Mortgagor with respect to the
Mortgaged Property. When and if such expenses of such operation and development
(including costs of unsuccessful workover operations or additional wells) have
been paid and the Secured Indebtedness paid and performed in full, such
Mortgaged Property shall, if there has been no sale or foreclosure thereof, be
returned to Mortgagor.

6.10     Additional Waivers. In order to enforce this Mortgage, Mortgagee shall
not be obligated (a) to foreclose any other mortgage or deed of trust covering
Mortgaged Property

 

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located in another State, seek a deficiency after any such foreclosure, or
otherwise enforce Mortgagee’s rights in any of the other Mortgaged Property; or
(b) to seek an injunction (prohibitive or mandatory), the appointment of a
receiver, an order modifying any stay in any federal or state bankruptcy,
reorganization or other insolvency proceedings relating to any of the Mortgaged
Property or any portion thereof, or any other extraordinary relief. Mortgagor
waives, to the fullest extent permitted by law, any defense Mortgagor may have
to any liability hereunder based on Mortgagee’s failure or refusal to prosecute,
or any lack of diligence or delay in prosecuting, any action or proceeding to
enforce any other mortgage or deed of trust. If Mortgagee elects to enforce this
Mortgage before, or without, enforcing its rights with respect to any Mortgaged
Property covered by any other Mortgage, Mortgagor waives, to the fullest extent
permitted by law, any right Mortgagor may have, whether statutory or otherwise,
to set off the value of any other Mortgaged Property, or any portion thereof,
against the Secured Indebtedness. If Mortgagee elects to enforce its mortgages
or deeds of trust covering all or any portion of the Mortgaged Property located
in other States, or in conjunction with the enforcement of this Mortgage,
Mortgagee is authorized to purchase all or any part of such other Mortgaged
Property at public or private sale or as otherwise provided by applicable law,
and to credit the purchase price against the Secured Indebtedness in such order
or manner as Mortgagee determines in its sole discretion and to preserve
Mortgagee’s rights and Liens under this Mortgage for any portion of the Secured
Indebtedness that remains unpaid. Mortgagor waives to the fullest extent
permitted by applicable law any right to claim or seek any credit against the
Secured Indebtedness in excess of the actual amount bid or received by Mortgagee
in connection with the foreclosure of Mortgagee’s Liens on any of the Mortgaged
Property located in such other States. Mortgagor further agrees that Mortgagee
shall not be required (a) to seek or obtain a deficiency judgment in or pursuant
to any action or proceeding to foreclose this Mortgage as a condition of later
enforcing any mortgage or deed of trust covering Mortgaged Property located in
another State, or (b) to seek or obtain a deficiency judgment in or pursuant to
any action or proceeding to foreclose any such other mortgage or deed of trust
as a condition of later enforcing this Mortgage. Notwithstanding the foregoing,
if Mortgagee in good faith believes that it may be required either to obtain a
deficiency judgment to enforce this Mortgage after enforcement of a mortgage or
deed of trust covering Mortgaged Property located in another State, or to
enforce another mortgage or deed of trust after enforcement of this Mortgage,
then Mortgagor agrees that Mortgagee shall be entitled to seek and obtain such a
deficiency judgment notwithstanding any contrary or inconsistent provision
contained in any Credit Agreement.

ARTICLE VII

MISCELLANEOUS

7.1       Advances by Mortgagee. Each and every covenant herein contained shall
be performed and kept by Mortgagor solely at Mortgagor’s expense. If Mortgagor
shall fail to perform or keep any of the covenants of whatsoever kind or nature
contained in this Mortgage, Mortgagee or any receiver appointed hereunder, may,
but shall not be obligated to, make advances to perform the same on Mortgagor’s
behalf, and Mortgagor hereby agrees to repay such sums upon demand plus interest
at a rate per annum equal to the default rate of interest set forth in the
applicable Note. No such advance shall be deemed to relieve Mortgagor from any
Event of Default hereunder.

7.2       Defense of Claims. Mortgagor will notify Mortgagee, in writing,
promptly of the commencement of any legal proceedings of which Mortgagor has
notice affecting or which could adversely affect the Lien hereof or the status
of or title to the Mortgaged Property, or any material part thereof, and will
take such action, employing attorneys agreeable to Mortgagee, as may be
necessary to preserve Mortgagor’s or Mortgagee’s rights affected thereby; and
should Mortgagor fail or refuse to take any such action, Mortgagee may take such
action on behalf and

 

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in the name of Mortgagor and at Mortgagor’s sole cost and expense. Moreover,
Mortgagee may take such independent action in connection therewith as it may, in
its sole discretion, deem proper without any liability or duty to Mortgagor
except to use ordinary care, Mortgagor hereby agreeing that all sums advanced or
all expenses incurred in such actions plus interest at a rate per annum equal to
the default rate of interest set forth in the applicable Note, will, on demand,
be reimbursed to Mortgagee or any receiver appointed hereunder.

7.3       Defeasance. If the Secured Indebtedness shall be paid and discharged
in full, then, and in that case only, this Mortgage shall be null and void and
the interests of Mortgagor in the Mortgaged Property shall become wholly clear
of the Lien created hereby, and such Lien shall be released in due course at the
cost of Mortgagor. Mortgagee will, at Mortgagor’s sole expense, execute and
deliver to Mortgagor all releases and other instruments reasonably requested of
the Lien created hereunder. Otherwise, this Mortgage shall remain and continue
in full force and effect.

7.4       Renewals, Amendments and Other Security. Renewals, refinancings and
extensions of the Secured Indebtedness may be given at any time and amendments
may be made to this Mortgage, the Credit Agreements and any other agreements
relating to any part of the Secured Indebtedness, and Mortgagee may take or may
hold other security for the Secured Indebtedness. Any amendment of this Mortgage
shall be by written instrument and need be executed only by the party against
whom enforcement of such amendment is asserted. Mortgagee may resort first to
such other security or any part thereof or first to the security herein given or
any part thereof, or from time to time to either or both, even to the partial or
complete abandonment of either security, and such action shall not be a waiver
of any rights conferred by this Mortgage, which shall continue as a first Lien
upon the Mortgaged Property not expressly released until all Secured
Indebtedness secured hereby is fully paid and discharged.

7.5       Instrument and Assignment, etc. This Mortgage shall be deemed to be
and may be, enforced from time to time as an assignment, chattel mortgage,
contract, financing statement, real estate mortgage, pledge or security
agreement, and from time to time as anyone or more thereof; and to the extent
that any particular jurisdiction wherein a portion of the Mortgaged Property is
situated does not recognize or permit Mortgagor to grant, bargain, sell,
warrant, mortgage, assign, transfer or convey Mortgagor’s rights, titles and
interests to Mortgagee in the manner herein adopted, then, with respect to the
Mortgaged Property located in such jurisdiction, Mortgagor does hereby grant,
bargain, sell, warrant, mortgage, assign, transfer and convey unto Mortgagee,
the Mortgaged Property to secure the Secured Indebtedness and the Obligations of
Mortgagor contained herein.

7.6       Limitation on Interest. Regardless of any provision contained in this
Mortgage or any of the Credit Agreements, Mortgagee shall never be entitled to
receive, collect, or apply, as interest on the Loans, any amount in excess of
the Maximum Lawful Rate, and in the event Mortgagee ever receives, collects or
applies as interest any such excess, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and if the Loans are paid in full, any remaining excess shall promptly
be paid to Mortgagor. In determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Lawful Rate, Mortgagor shall,
to the extent permitted under applicable law, (a) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effect thereof, and (c) amortize, prorate,
allocate and spread, in equal parts, the total amount of the interest throughout
the entire contemplated term of the Note, so that the interest rate is the
Maximum Lawful Rate throughout the entire term of the Note; provided, however,
that if the unpaid principal balance thereof is paid and performed in full prior
to the end of the full contemplated term thereof, and if

 

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the interest received for the actual period of existence thereof exceeds the
Maximum Lawful Rate, Mortgagee shall refund to Mortgagor the amount of such
excess and, in such event, Mortgagee shall not be subject to any penalties
provided by any laws for contracting for, charging, taking, reserving or
receiving interest in excess of the Maximum Lawful Rate.

7.7       Unenforceable or Inapplicable Provisions. If any provision of this
Mortgage or in any of the Credit Agreements is invalid or unenforceable in any
jurisdiction, the other provisions hereof or of any of the Credit Agreements
shall remain in full force and effect in such jurisdiction, and the remaining
provisions hereof shall be liberally construed in favor of Mortgagee in order to
effectuate the provisions hereof, and the invalidity of any provision hereof in
any jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction. Any reference herein contained to statutes
or laws of a state in which no part of the Mortgaged Property is situated shall
be deemed inapplicable to, and not used in, the interpretation hereof.

7.8       Rights Cumulative. Each and every right, power and remedy herein given
to Mortgagee shall be cumulative and not exclusive; and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and 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 and 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.

7.9       Waiver by Mortgagee. Any and all covenants in this Mortgage may, from
time to time, by instrument in writing signed by Mortgagee, be waived to such
extent and in such manner as Mortgagee may desire, but no such waiver shall ever
affect or impair Mortgagee’s rights and remedies or Liens hereunder, except to
the extent specifically stated in such written instrument.

7.10     Successors and Assigns. This Mortgage is binding upon Mortgagor, and
Mortgagor’s heirs, devisees, successors, personal and legal representatives and
assigns, and shall inure to the benefit of Mortgagee, and their successors,
legal representatives and assigns, and the provisions hereof shall likewise be
covenants running with the Lands.

7.11     Article and Section Headings. The article and section headings in this
Mortgage are inserted for convenience and shall not be considered a part of this
Mortgage or used in its interpretation.

7.12     Counterparts. This Mortgage may be executed in any number of
counterparts, each of which shall for all purposes be deemed to be an original,
and all of which are identical except that, to facilitate recordation in any
particular county or parish, counterpart portions of Exhibit A which describe
properties situated in counties or parishes other than the county or parish in
which such counterpart is to be recorded may be omitted.

7.13     Special Filing as Financing Statements. This Mortgage shall likewise be
a security agreement and a financing statement by virtue of Mortgagor, as
debtor, granting to Mortgagee, its successors, legal representatives and
assigns, as secured party, a security interest in all personal property,
as-extracted collateral, fixtures, accounts, contract rights, general
intangibles, inventory, goods, chattel paper, instruments, documents and money
described or referred to in granting clauses (a) through (j) of Article 2 hereof
and all proceeds and products from the sale, lease or other disposition of the
Mortgaged Property or any part thereof. The addresses shown in

 

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Section 7.14 hereof are the addresses of Mortgagor and Mortgagee and information
concerning the security interest may be obtained from Mortgagee at its address.
Without in any manner limiting the generality of any of the foregoing provisions
hereof: (a) some portion of the goods described or to which reference is made
herein are or are to become fixtures on the Lands described or to which
reference is made herein; (b) the minerals and the like (including oil and gas)
included in the Mortgaged Property and the accounts resulting from the sale
thereof will be financed at the wellhead(s) or minehead(s) of the well(s) or
mine(s) located on the Lands described or to which reference is made herein; and
(c) this Mortgage is to be filed of record, among other places, in the real
estate records of each county or parish in which the Lands, or any part thereof,
are situated, as a financing statement, but the failure to do so will not
otherwise affect the validity or enforceability of this Mortgage. Mortgagor
authorizes Mortgagee to file such amendments to this Mortgage, financing
statements and amendments thereto, and continuation statements, as Mortgagee
deems reasonable or necessary to perfect and maintain the perfection of the
Liens granted herein, including such Liens with respect to any additions to the
Mortgaged Property as provided in Article 5.

7.14     Notices. Whenever this Mortgage requires or permits any consent,
approval, notice, request or demand from one party to another, such consent,
approval, notice or demand shall, unless otherwise required under applicable
law, be given in accordance with the provisions of the Credit Agreements,
addressed to the party to be notified at the address stated below (or such other
address as may have been designated in accordance with the provisions of the
Credit Agreements):

 

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MORTGAGOR

Midwest Energy, Inc., a Nevada Corporation 7300 West 110th Street Seventh Floor
Overland Park, Kansas 66210

EnerJex Resources, Inc., a Nevada Corporation 7300 W. 100th Street Seventh Floor
Overland Park, Kansas 66210

Telephone: 913-693-4600 Facsimile: 913-693-4601

Attention: Steve Cochennet, CEO

 

 

MORTGAGEE

 

DKR Soundshore Oasis Holding Fund, Ltd.

c/o DKR Oasis Management Company L.P.

1281 East Main Street

Stamford, CT 06902

Telephone:  (203) 324-8378

Facsimile:   (203) 324-8488

Attention:    Rajni A. Narasi, Assoc.

General Counsel

 

West Coast Opportunity Fund, LLC. 2151 Alessandro Drive, Suite 100

Ventura, CA 93001

Telephone:  (805) 653-5333

Facsimile:   (805) 648-6488

Attention:    Atticus Lowe

 

Enable Growth Partners LP

Enable Capital Management

One Ferry Building, Suite 255

San Francisco, CA 94111

Telephone:  (415) 677-1578

Attention:    Brendan O’Neil, CFA and                         Principal &
Portfolio

Manager

Enable Opportunity Partners LP

Enable Capital Management

One Ferry Building, Suite 255

San Francisco, CA 94111

Telephone:  (415) 677-1578

Attention:    Brendan O’Neil, CFA and
                         Principal & Portfolio

Manager

Glacier Partners LP

Glacier Partners Management, LLC

812 Anacapa #b

Santa Barbara, CA 93101

Telephone:  (805) 564-6769

Attention:    Peter Castellanos

 

Frey Living Trust

4105 NE Rigels Cove Way

Jensen Beach, FL 34957

Telephone:  (772) 334-0474

Attention:    Phil Frey

 

with copies to:

with copies to:

Stoecklein Law Group
402 W. Broadway, Suite 400
San Diego, California 92101
Attention:     Donald J. Stoecklein
Facsimile:    619-595-4883

McDermott Will & Emery LLP
340 Madison Avenue
New York, New York 10173
Telephone:     (212) 547-5400
Facsimile:      (212) 547-5444
Attention:       Stephen E. Older, Esq.
                            Meir A. Lewittes, Esq.

For DKR Soundshore and West Coast Opportunity Fund

 

 

Feldman Weinstein & Smith LLP

420 Lexington Avenue, Suite 2620

New York, New York 10170

Telephone: (212) 931-8719

Facsimile: (212) 997-4242 Attention: Joseph A. Smith

For Enable Growth partners and Enable Opportunity Partners

7.15     GOVERNING LAW. THIS MORTGAGE, THE NOTE AND THE CREDIT AGREEMENTS SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF KANSAS
AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THAT THE LAWS
OF ANY STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED NECESSARILY GOVERNS THE

 

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VALIDITY, PERFECTION, PRIORITY AND ENFORCEABILITY OF, AND THE EXERCISE OF ANY
REMEDIES WITH RESPECT TO, ANY LIEN INTENDED TO BE CREATED HEREBY ON THE
MORTGAGED PROPERTY LOCATED IN SUCH STATE.

7.16     Future Advances: Maximum Secured Amount. This Mortgage covers not only
the proceeds of the Loan, but all advances hereafter made by Mortgagee to or for
the benefit of Mortgagor. The maximum principal amount secured by this Mortgage
at anyone time shall be $9,000,000.00.

7.17     Recording. Executed original counterparts of this Mortgage are to be
filed for record in the records of the jurisdictions wherein the Mortgaged
Property is situated, and shall have annexed thereto as Exhibit A, only the
portions or divisions containing specific descriptions of the Mortgaged Property
relating to the Lands located in such jurisdictions. Whenever a recorded
counterpart of this Mortgage contains specific descriptions which are less than
all of the descriptions contained in any full counterpart lodged with Mortgagee,
the omitted descriptions are hereby included by reference in such recorded
counterpart as if each recorded counterpart conformed to any full counterpart
lodged with Mortgagee.

7.18     No Paraphed Notes. Mortgagor acknowledges that no promissory note or
other instrument has been presented to the undersigned notary public(s) to be
paraphed for identification herewith.

ARTICLE VIII

ASSIGNMENT OF PRODUCTION

8.1       Assignment. For the purpose of further securing the Secured
Indebtedness and the performance of Mortgagor’s covenants hereunder, Mortgagor
does hereby TRANSFER, ASSIGN, AND CONVEY unto Mortgagee any and all of the
interests of Mortgagor in and to the Hydrocarbons that may be produced from, or
attributable to, the Mortgaged Property on and after the Effective Date,
together with the proceeds of the sale thereof and attributable thereto. This
assignment is made upon the following terms and conditions: (a) pipeline
companies and others purchasing the oil, gas, minerals and other substances
listed above produced and to be produced from said property are hereby
authorized and directed to pay directly to Mortgagee the interests of Mortgagor
in and to the proceeds of the sale of the oil, gas, minerals and other
substances listed above produced, to be produced and attributable to said
property, and to continue such payments until they have been furnished with a
release hereof executed in writing by Mortgagee, and the receipt of Mortgagee
for monies so paid to it shall be a full and complete release, discharge and
acquittance to any such pipeline company or other purchaser, to the extent of
all amounts so paid, (b) Mortgagee is hereby authorized to receive and collect
the proceeds of the sale of the oil, gas, minerals and other substances listed
above 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, then in
such order as provided in the Intercreditor Agreement 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 Mortgagor, (c)
Mortgagee shall have the right, at its sole option, at any time, and from time
to time, to release to, or on the order of, Mortgagor all or any portion of the
funds assigned to Mortgagee hereunder, and no such releases shall affect or
impair the Lien of this Mortgage or the validity and effect of the assignment
contained in this Article 8, (d) Mortgagee 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) Mortgagor covenants to cause all pipeline companies or other
purchasers of the oil, gas, minerals and other substances listed above produced
from and attributable to said

 

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property, to pay promptly to Mortgagee, at the office of Mortgagee at the
address of Mortgagee stated above, the interests of Mortgagor in and to the
proceeds of the sale thereof, and (f) upon the full and final payment of the
Secured Indebtedness, Mortgagee, at the request of Mortgagor, and at Mortgagor’s
sole cost and expense, shall execute and deliver to Mortgagor a reassignment
hereof, without recourse, representations or warranties. Notwithstanding the
foregoing provisions of this Section 8.1, so long as no Event of Default has
occurred and shall be continuing, Mortgagor may continue to receive from the
purchasers of production, all such Hydrocarbons and proceeds of the sale
thereof, subject, however, to the Liens created under this Mortgage. If an Event
of Default has occurred and is continuing, Mortgagee may exercise all rights and
remedies granted hereunder, including, without limitation, the right to obtain
possession of all Hydrocarbons and proceeds of the sale thereof then held by
Mortgagor or to receive directly from the purchasers all other Hydrocarbons and
proceeds of the sale thereof.

8.2       Power of Attorney. In consideration of the Loans evidenced by the
Note, Mortgagor hereby designates and appoints Mortgagee as Mortgagor’s true and
lawful agent and attorney-in-fact (with full power of substitution, either
generally or for such limited periods or purposes as Mortgagee may, from time to
time, prescribe), with full power and authority, for and on behalf and in the
name of Mortgagor, upon the occurrence of an Event of Default that is
continuing, to execute, acknowledge and deliver all such division orders,
transfer orders, certificates and any and all other documents of every nature as
may, from time to time, be necessary or proper to effectuate the intent and
purpose of the assignment contained in Section 8.1 hereof. Mortgagor shall be
bound thereby as fully and effectively as if Mortgagor had personally executed,
acknowledged and delivered any such division order, transfer order, certificate
or other documents. The powers and authorities herein conferred on Mortgagee may
be exercised by any authorized officer or director of Mortgagee. The power of
attorney conferred by this Section 8.2 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
Mortgagee, any officer or director thereof above designated or any substitute
thereof, shall be fully protected in treating the powers and authorizations
conferred by this Section 8.2 as continuing in full force and effect until
advised by Mortgagee that all of the Secured Indebtedness is fully and finally
paid.

[Signature Page to Follow]

 

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IN WITNESS WHEREOF, Mortgagor, acting by and through its duly authorized officer
has executed this Mortgage on the date of its acknowledgment.

 

 

MIDWEST ENERGY, INC.,

 

BY:

 

 

/s/Steve Cochennet 

 

STEVE COCHENEET, CEO

 

7300 W. 110th St., 7th Floor

 

Overland Park, KS 66210

 

 

ENERJEX RESOURCES, INC.,

 

 

/s/Steve Cochennet 

 

STEVE COCHENEET, CEO

 

7300 W. 110th St., 7th Floor

 

Overland Park, KS 66210

 

This Mortgage was prepared by, and recorded counterparts should be returned to:

 

James R. Campbell, Esq.

511 Neosho St.

P.O. Box 122

Burlington, KS 66839

620-364-3094

 

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STATE OF Kansas, COUNTY OF Johnson, ss:

 

This instrument was acknowledged before me on June 14, 2007 by Steve Cochennet,
CEO of EnerJex Resources, Inc.

(SEAL)

/s/Maureen Elton

Printed Name: Maureen Elton

 

My commission expires: 9/18/2010