Exhibit 10.5

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

Pillsbury Winthrop Shaw Pittman LLP
909 Fannin, Suite 2000
Houston, Texas  77010
Attn:  Carol M. Burke
 

DEED OF TRUST, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT, FIXTURE FILING, AND FINANCING STATEMENT
 
by
 
TRI-VALLEY OIL & GAS CO.
as Trustor

to
 
FIRST AMERICAN TITLE COMPANY
as Trustee
 
for the benefit of
 
GEORGE T. GAMBLE 1991 TRUST
as Beneficiary
 
Dated as of March 30, 2012
 
NOTICE TO TRUSTOR:

A POWER OF SALE HAS BEEN GRANTED IN THIS DEED OF TRUST.  IN CERTAIN STATES, A
POWER OF SALE MAY ALLOW TRUSTEE ON BEHALF OF BENEFICIARY TO TAKE THE MORTGAGED
PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT
BY TRUSTOR UNDER THIS DEED OF TRUST.

THIS DEED OF TRUST CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.  THIS DEED OF
TRUST SECURES PAYMENT OF FUTURE ADVANCES.  THIS DEED OF TRUST COVERS ALL
PRODUCTS AND PROCEEDS OF THE MORTGAGED PROPERTY.

THIS DEED OF TRUST COVERS THE INTEREST OF TRUSTOR IN MINERALS OR THE LIKE
(INCLUDING OIL AND GAS) BEFORE EXTRACTION AND THE INTEREST OF TRUSTOR IN REAL
PROPERTY AND FACILITIES, EQUIPMENT AND SYSTEMS FOR THE TRANSPORTATION AND SALE
OF MINERALS AND FOR THE TRANSPORTATION AND DISPOSAL OF WATER, AND THE SECURITY
INTEREST CREATED BY THIS DEED OF TRUST ATTACHES TO SUCH FACILITIES, EQUIPMENT
AND SYSTEMS AND TO ANY MINERALS OR THE LIKE THEREIN AND AS EXTRACTED AND TO THE
ACCOUNTS RESULTING FROM THE SALE THEREOF, INCLUDING, WITHOUT LIMITATION, AT THE
WELLHEAD OR WELLHEADS OF THE WELL OR WELLS LOCATED ON THE REAL PROPERTY HEREIN
DESCRIBED.  THIS DEED OF TRUST COVERS GOODS THAT ARE, OR ARE TO BECOME, FIXTURES
ON THE REAL PROPERTY DESCRIBED HEREIN, AND IT IS TO BE FILED FOR RECORD AS A
FIXTURE FILING, AMONG OTHER PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF
THE RECORDERS OF THE COUNTIES LISTED ON EXHIBIT A HERETO.
 
 
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THIS DEED OF TRUST IS, AMONG OTHER THINGS, A FINANCING STATEMENT UNDER THE
UNIFORM COMMERCIAL CODE COVERING AS-EXTRACTED COLLATERAL THAT IS RELATED TO, AND
GOODS THAT ARE, OR ARE TO BECOME, FIXTURES ON, THE REAL PROPERTY HEREIN
DESCRIBED.  THE TRUSTOR HAS AN INTEREST OF RECORD IN SUCH REAL PROPERTY.
 
THIS DEED OF TRUST IS TO BE FILED IN THE REAL ESTATE RECORDS FOR THE COLLATERAL
OR MORTGAGED PROPERTY LYING IN THE STATE OF CALIFORNIA.
 
 
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DEED OF TRUST, ASSIGNMENT OF PRODUCTION,
SECURITY AGREEMENT,
FIXTURE FILING, AND FINANCING STATEMENT

THIS DEED OF TRUST, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT, FIXTURE
FILING, AND FINANCING STATEMENT (this “Deed of Trust”) is entered into as of
March 30, 2012, by Tri-Valley Oil & Gas Co., a corporation duly formed and
existing under the laws of the State of California, whose address for notice is
4927 Calloway Drive, Bakersfield, California 93312, Attention: Chief Financial
Officer, as Trustor (“Trustor”), to First American Title Company (“Trustee”)
whose address for notice is 1 First American Way, Santa Ana, CA  92707, for the
benefit of George T. Gamble 1991 Trust (“Beneficiary”), whose address for notice
is P. O. Box 128, Oakville, California  94562.
 
RECITALS:
 
A.           Trustor’s parent company, Tri-Valley Corporation, a Delaware
corporation, (“Parent”), is a party to that certain Senior Secured Note and
Warrant Purchase Agreement dated as of March 30, 2012 (all supplements thereto
and amendments or modifications thereof, and all agreements given in
substitution therefor or in restatement, renewal or extension thereof, in whole
or in part, the “Agreement”).  All defined terms not otherwise defined herein
shall have the meanings set forth in the Agreement.
 
B.           Trustor executed that certain Guaranty Agreement dated as of March
30, 2012, and all supplements thereto and amendments or modifications thereof,
and all agreements given in substitution therefor or in restatement, renewal or
extension thereof, in whole or in part, in favor of Beneficiary (the “Guaranty
Agreement”).
 
C.           Pursuant to the Agreement and the Guaranty Agreement, Trustor has
agreed to enter into this Deed of Trust.  In addition, it is a condition to the
obligations of Beneficiary to make such loan to the Parent that this Deed of
Trust be executed and delivered to Beneficiary.
 
NOW, THEREFORE, in consideration of the foregoing, in order to comply with the
terms, provisions, and conditions of the Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Trustor hereby enters into this Deed of Trust on the following
terms and conditions:
 
ARTICLE I
 
Granting Clause; Description of Indebtedness and Obligations Secured
 
Section 1.01          Granting Clause.  In order to secure the payment of the
Indebtedness and Obligations Secured (as hereinafter defined in Section 1.03)
and in order to secure the performance of the covenants, obligations,
agreements, warranties, and undertakings contained herein and in the Transaction
Documents, including, without limitation, the Agreement and the Guaranty
Agreement, Trustor does hereby GRANT, BARGAIN, SELL, ASSIGN, PLEDGE, GIVE,
MORTGAGE, WARRANT, SET OVER, TRANSFER, HYPOTHECATE, and CONVEY to Trustee and
Trustee’s successors and assigns WITH POWER OF SALE (to the extent permitted by
applicable law), for the use and benefit of the real and personal property,
rights, titles, interests and estates described hereinafter, but, with respect
to the personal property, only to the extent a security interest may be granted
therein without causing a default under or permitting the termination of any
presently existing contractual obligation of Trustor (herein collectively called
the “Mortgaged Property”):
 
 
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(a)           The oil, gas and mineral leases, described in Exhibit B (and the
interest of the lessee under each such lease as stated therein), hereinafter
referred to as the “Hydrocarbon Properties”;
 
(b)           The rights-of-way, surface use agreements, easements, lands,
rights, titles, interests and estates or other conveyances or agreements
described in Exhibit C or in the instruments described or referenced in Exhibit
C and the gas gathering and gas transportation systems and equipment, water
gathering and disposal systems and equipment, and other systems and equipment
located in, on or under the same or used or useful in connection with the same
(hereinafter referred to as the “Hydrocarbon Related Properties”);
 
(c)           To the extent not included in (a) above, all rights, benefits,
titles, interests, and estates now owned or existing or hereafter acquired by
Trustor in and to (or with respect to) any lands, leases, wells, units or
property described in Exhibit B or in any instrument described or referenced in
Exhibit B or in and to the Oil and Gas Properties, specifically including (but
not limited to) Hydrocarbon Interests, consisting of interests in or related to
real property owned or hereafter acquired by Trustor (all of the foregoing being
hereinafter referred to as “Trustor’s Oil and Gas Properties”), and also, to the
extent not included in the foregoing, all rights, benefits, titles, interests,
estates, tenements, hereditaments, and appurtenances now owned or existing or
hereafter acquired by Trustor in and to or with respect to: (i) all production
units and drilling and spacing units (and the property covered thereby) which
may affect all or any portion of the Hydrocarbon Properties or all or any
portion of Trustor’s Oil and Gas Properties, including those units now or
hereafter pooled or unitized with the same; (ii) all presently existing or
future unitization, communitization, pooling agreements and declarations of
pooled units and the units created thereby, including, but not limited to,
spacing orders and pooling orders of any Governmental Authority or other orders,
regulations, rules or other official acts of any Governmental Authority  having
jurisdiction over any of the Mortgaged Property and any units created solely
among working interest owners pursuant to operating agreements or otherwise that
may affect all or any portion of the Hydrocarbon Properties or all or any
portion of Trustor’s Oil and Gas Properties, including, without limitation,
those units, if any, that may be described or referred to on attached Exhibit B;
(iii) all operating agreements, production sales or other contracts, farmout
agreements, farm-in agreements, area of mutual interest agreements, joint
development agreements, joint exploration agreements, equipment leases and other
agreements described or referred to in this Deed of Trust or that cover, affect
or relate to any of the Hydrocarbon Properties or to any of Trustor’s Oil and
Gas Properties or to the production, sale, purchase, exchange, processing,
handling, storage, transporting or marketing of Hydrocarbons therefrom or
attributable thereto; and (iv) subject to applicable restrictions on disclosure
and/or transfer, all geological, geophysical, engineering, accounting, title,
and other technical or business data concerning the Hydrocarbon Properties
and/or Trustor’s Oil and Gas Properties, including all books, files, records,
magnetic media, computer records, and other forms of recording or obtaining
access to such data (all of the foregoing being hereinafter referred to as the
“Additional Properties”);
 
 
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(d)           To the extent not included in (b) and (c) above, all rights,
benefits, titles, interests, and estates now owned or hereafter acquired by
Trustor in and to or with respect to any easements, rights-of-way, or other
interests or estates (whether of a similar nature or not) in or relating to the
property or lands in any way described in Exhibit C and located on the
Hydrocarbon Properties or in or relating to the property or lands in any way
described in or covered by the instruments described or referenced in Exhibit
C and located on the Hydrocarbon Properties or in or relating to Oil and Gas
Properties consisting of or related to real property or interests in real
property owned or hereafter acquired by Trustor (all of the foregoing being
hereinafter referred to as “Trustor’s Oil and Gas Related Properties”), and
also, to the extent not included in the foregoing, all rights, benefits, titles,
interests, estates, tenements, hereditaments, and appurtenances now owned or
existing or hereafter acquired by Trustor in and to or relating to: (i) all
production units and drilling and spacing units (and the property covered
thereby) including any of the Oil and Gas Properties owned by Parent or any
Guarantor; (ii) all presently existing or future unitization, communitization,
pooling agreements and declarations of pooled units and the units created
thereby, including, but not limited to, spacing orders and pooling orders of any
Governmental Authority (together with all other units created under orders,
regulations, rules or other official acts of any Governmental Authority having
jurisdiction and any units created solely among working interest owners pursuant
to operating agreements or otherwise) including any of the Oil and Gas
Properties owned by Parent or any Guarantor; (iii) all operating agreements,
production sales or other contracts, farmout agreements, farm-in agreements,
area of mutual interest agreements, joint development agreements, joint
exploration agreements, equipment leases and other agreements described or
referred to in this Deed of Trust or that cover, affect or relate to any of the
Oil and Gas Properties owned by Parent or any Guarantor or to any of the
Hydrocarbon Related Properties or to the production, sale, purchase, exchange,
processing, handling, storage, transporting or marketing of Hydrocarbons; (iv)
all gas gathering and gas transportation systems and equipment, all water
gathering and disposal systems and equipment, and all rights-of-way, easements,
lands, rights, titles, interests, systems and equipment held or used in
connection with the production, sale, purchase, exchange, processing, handling,
storage, transporting or marketing of Hydrocarbons or the transportation or
disposal of water; and (v) subject to applicable restrictions on disclosure
and/or transfer, all geological, geophysical, engineering, accounting, title,
and other technical or business data concerning the Hydrocarbon Related
Properties and/or Trustor’s Oil and Gas Related Properties, including all books,
files, records, magnetic media, computer records, and other forms of recording
or obtaining access to such data (all of the foregoing being hereinafter
referred to as the “Additional Related Properties”);
 
(e)           All rights, titles, interests and estates now owned or hereafter
acquired by Trustor in and to Hydrocarbons in and under and that may be produced
and saved from or attributable to the Hydrocarbon Properties or the Additional
Properties;
 
(f)           All rights, titles, interests and estates now owned or hereafter
acquired by Trustor in and to the Hydrocarbon Related Properties and the
Additional Related Properties;
 
(g)           To the extent not included in (a), (b), (c), (d), (e) or (f)
above, all tenements, hereditaments, appurtenances, fixtures and properties in
anywise appertaining, belonging, affixed or incidental to the Hydrocarbon
Properties, Trustor’s Oil and Gas Properties, Trustor’s Oil and Gas Related
Properties, the Hydrocarbon Related Properties, the Additional Properties or the
Additional Related Properties, including, without limitation, any and all
property, real or personal, now owned or hereafter acquired and situated upon,
used, held for use, or useful in connection with the operating, working or
development of any of the Hydrocarbon Properties, Trustor’s Oil and Gas
Properties, Trustor’s Oil and Gas Related Properties, the Hydrocarbon Related
Properties, the Additional Properties or the Additional Related Properties
(excluding drilling rigs, trucks, automotive equipment or other personal
property that may be taken to the premises for the purpose of drilling a well or
for other similar temporary uses) and including without limitation any and all
oil wells, gas wells, coalbed methane wells, injection wells, disposal wells and
other wells, buildings, structures, field or other separators, liquid extraction
plants, plant and other compressors, pumps, pumping units, pipelines, sales and
flow lines, gathering systems located on the Hydrocarbon Properties, field
gathering systems located on the Hydrocarbon Properties, salt water disposal
facilities, tanks and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, meters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, casing, tubing and rods, surface leases
located on the Hydrocarbon Properties, rights-of-way, easements located on the
Hydrocarbon Properties, servitudes, rights of ingress and egress, licenses and
other surface and subsurface rights together with all additions, substitutions,
replacements, accessions and attachments to any and all of the foregoing
properties;
 
 
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(h)           Any property that may from time to time hereafter, by delivery or
by writing of any kind, be subjected to the lien and security interest hereof by
Trustor or by anyone on Trustor’s behalf;
 
(i)            All of the rights, benefits, titles, interests and estates of
every nature whatsoever now owned or hereafter acquired by Trustor in and to the
Hydrocarbon Properties, Trustor’s Oil and Gas Properties, Trustor’s Oil and Gas
Related Properties, the Hydrocarbon Related Properties, the Additional
Properties or the Additional Related Properties, including, without limitation,
all such rights, titles, interests and estates as the same may be enlarged by
the discharge of any payments out of production or by the removal of any charges
to which any of such rights, titles, interests or estates are subject, or
otherwise; all rights of Trustor to liens and security interests securing
payment of proceeds from the sale of production from, or with respect to the
disposal of water from, the Oil and Gas Properties, the Hydrocarbon Properties,
Trustor’s Oil and Gas Properties, Trustor’s Oil and Gas Related Properties, the
Hydrocarbon Related Properties, the Additional Properties or the Additional
Related Properties, together with any and all renewals and extensions of any of
such liens and security interests; all contracts and agreements supplemental to
or amendatory of or in substitution for the contracts and agreements described
or mentioned above, including, without limitation, any such contracts and
agreements comprising or giving rise to any portion of the Hydrocarbon
Properties, Trustor’s Oil and Gas Properties, Trustor’s Oil and Gas Related
Properties, the Hydrocarbon Related Properties, the Additional Properties or the
Additional Related Properties; and any and all additional interests of any kind
hereafter acquired by Trustor in and to such rights, titles, interests or
estates;
 
(j)            All payments received in lieu of production from the Hydrocarbon
Properties, Trustor’s Oil and Gas Properties or the Additional Properties
(regardless of whether such payments accrued, and/or the events that gave rise
to such payments occurred, on, before or after the date hereof), including,
without limitation, “take or pay” payments and similar payments, payments
received in settlement of, or pursuant to a judgment rendered with respect to,
take or pay or similar obligations or other obligations under a production sales
contract, payments received in buyout or buydown or other settlement of a
production sales contract, and payments received under a gas balancing or
similar agreement as a result of (or received otherwise in settlement of or
pursuant to a judgment rendered with respect to) rights held by Trustor as a
result of Trustor (and/or its predecessors in title) taking or having taken less
Hydrocarbons from the Hydrocarbon Properties, Trustor’s Oil and Gas Properties
or the Additional Properties than its ownership would entitle it to receive; and
 
(k)           All land title records, lease records, well records and production
records which relate to any of the Hydrocarbon Properties, Trustor’s Oil and Gas
Properties or the Additional Properties.
 
 
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TO HAVE AND TO HOLD the Mortgaged Property unto Trustee, and its successors and
assigns, for the benefit of the Beneficiary, upon the terms, provisions, and
conditions set forth herein.  Trustor, for itself and its successors and
permitted assigns, covenants with the Beneficiary that the Trustor has good and
defensible title to the interests in the Oil and Gas Properties reflected on
Exhibits B and C hereto and has a good and lawful right to grant this Deed of
Trust; that the same are free of all liens, encumbrances and title defects,
other than: (i) the Permitted Encumbrances (as defined below in this Deed of
Trust) and (ii) the “Permitted Encumbrances” (as defined in the Agreement), and
that Trustor and its successors and permitted assigns so long as any of the
Indebtedness and Obligations remains unpaid will appear in and defend any action
or proceeding purporting to affect the security hereof or the rights or powers
of Beneficiary or Trustee; and will pay all costs and expenses, including cost
of evidence of title and attorneys’ fees in a reasonable sum, in any such action
or proceeding in which Beneficiary or Trustee may reasonably appear.
 
Section 1.02          Grant of Security Interest.  To further secure the
Indebtedness and Obligations Secured (as hereinafter defined in Section 1.03),
Trustor hereby grants to Beneficiary, subject to the reservations and
restrictions set forth herein below, a security interest in and to the Mortgaged
Property (whether now or hereafter acquired by operation of law or otherwise)
insofar as the Mortgaged Property consists of equipment, goods, As-Extracted
Collateral (as hereinafter defined), accounts, geological and geophysical data
(including, without limitation, raw data and interpretations), contract rights,
general intangibles (and in the case of geological and geophysical data
(including without limitation raw data and interpretations), contract rights and
general intangibles, subject to any existing restrictions on disclosure and/or
transfer), insurance contracts, insurance proceeds, inventory, Hydrocarbons,
fixtures, chattel paper, deposit accounts, documents, instruments and personal
property of any kind or character defined in and subject to the provisions of
the Uniform Commercial Code presently in effect in the jurisdiction in which the
Mortgaged Property is situated (the “Applicable UCC”), including the proceeds
and products from any and all of such personal property, whether such proceeds
or products are As-Extracted Collateral, goods, money, documents, instruments,
chattel paper, securities, accounts, general intangibles, fixtures, real or
immovable property, personal or movable property, or other assets.  In addition
to all other rights and remedies afforded to Trustee and Beneficiary pursuant to
this Deed of Trust, upon the happening of any Event of Default, Beneficiary is
and shall be entitled to all of the rights, powers and remedies afforded a
secured party by the Applicable UCC with reference to the personal property and
fixtures in which Beneficiary has been granted a security interest herein, or
Beneficiary may proceed as to both the real and personal property covered hereby
in accordance with the rights and remedies granted under this Deed of Trust in
respect of the real property covered hereby.  Such rights, powers and remedies
shall be cumulative and in addition to those granted to Trustee and Beneficiary
under any other provision of this Deed of Trust or under any other security
instrument.  Written notice mailed to Trustor as provided herein at least thirty
(30) days prior to the date of public sale of any part of the Mortgaged Property
that is personal property subject to the provisions of the Applicable UCC, or
prior to the date after which private sale of any such part of the Mortgaged
Property will be made, shall constitute reasonable notice.  It is Trustor’s
intention that the security interest granted pursuant to this Deed of Trust
encumber Trustor’s interest in As-Extracted Collateral (as hereinafter
defined).  For purposes of this Deed of Trust, the term “As-Extracted
Collateral” shall have the meaning ascribed to such term in the Applicable UCC.
 
Section 1.03          Indebtedness and Obligations Secured.  This Deed of Trust
is executed and delivered by Trustor to secure and enforce the following
(collectively, the “Indebtedness and Obligations Secured”), subject, however, to
the limitation set forth in Section 1.06 below:
 
(a)           Full payment and performance of the Guarantor Obligations under
(and as defined in) the Guaranty Agreement;
 
(b)           Full payment and performance of all amounts due and obligations
under this Deed of Trust; and
 
 
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(c)           Full payment and performance of the loans in the aggregate maximum
principal amount of Three Million Two Hundred Ninety-Eight Thousand Three
Hundred Nine and 84/100 Dollars ($3,298,309.84), the Obligations and all
advances, borrowings, indebtedness and other obligations now or hereafter
incurred by Parent or arising pursuant to the provisions of the Agreement or any
of the other Transaction Documents, plus any amounts advanced to protect the
security of this Deed of Trust.
 
Section 1.04          Fixture Filing, Etc.  Without in any manner limiting the
generality of any of the other provisions of this Deed of Trust: (i) some
portions of the goods described or to which reference is made herein are or are
to become fixtures on the land described or to which reference is made herein or
on attached Exhibit B; (ii) the security interests created hereby under
applicable provisions of the Applicable UCC will attach to Hydrocarbons at the
wellhead or minehead located on the land described or on lands pooled or
unitized therewith or to which reference is made herein and also to the accounts
or proceeds resulting from the sale of such Hydrocarbons; and (iii) this Deed of
Trust may be filed of record, among other places, in the real estate or
comparable records as a fixture filing with respect to all fixtures comprising
any part of the Mortgaged Property and as a financing statement with respect to
any As-Extracted Collateral and any other personal property comprising any part
of the Mortgaged Property pursuant to the Applicable UCC.  Trustor is the record
owner of the real estate or interests in the real estate comprising the
Mortgaged Property to the extent comprised of interests in real estate.
 
Section 1.05          Defined Terms; Interpretation.  Unless otherwise defined
herein, terms used in this Deed of Trust, including its preamble and recitals,
have the meanings provided in the Agreement.  All other rules of interpretation
set forth in Section 1.03 of the Agreement shall apply to this Deed of Trust and
are hereby incorporated herein by reference. For the avoidance of doubt, the
following terms are reproduced in this Deed of Trust as follows:
 
(a)           “Hydrocarbon Interests” means all rights, titles, interests and
estates now owned or hereafter acquired in and to oil and gas leases, oil, gas
and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests and
production payment interests, including any reserved or residual interests of
whatever nature.
 
(b)           “Hydrocarbons” means all minerals, oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons, coal bed gas and occluded natural gas and all products refined or
separated therefrom.
 
(c)           “Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c)
all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
Interests; (d) all operating agreements, contracts and other agreements,
including production sharing contracts and agreements, that relate to any of the
Hydrocarbon Interests or the production, sale, purchase, exchange or processing
of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all
Hydrocarbons in and under and which may be produced and saved from or
attributable to the Hydrocarbon Interests, including all oil in tanks, and all
rents, issues, profits, proceeds, products, revenues and other incomes from or
attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment, rental equipment or other personal Property that may
be on such premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells, injection wells
or other wells, buildings, structures, fuel separators, liquid extraction
plants, plant compressors, pumps, pumping units, field gathering systems, tanks
and tank batteries, fixtures, valves, fittings, machinery and parts, engines,
boilers, meters, apparatus, equipment, appliances, tools, implements, cables,
wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements
and servitudes together with all additions, substitutions, replacements,
accessions and attachments to any and all of the foregoing.
 
 
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Section 1.06          Amount Secured by Mortgage.  The maximum principal
indebtedness secured by this Deed of Trust at any one time shall be Three
Million Two Hundred Ninety-Eight Thousand Three Hundred Nine and 84/100 Dollars
($3,298,309.84).
 
ARTICLE II
 
Assignment of Production
 
Section 2.01          Assignment.  Trustor has hereby absolutely and
unconditionally assigned, transferred, set over, and conveyed, and does hereby
absolutely and unconditionally assign, transfer, set over, and convey unto
Beneficiary, its successors and assigns, all of the Hydrocarbons produced from
or attributable to the Mortgaged Property and all products obtained or processed
therefrom, and the revenues and proceeds now and hereafter attributable to those
Hydrocarbons and said products and all payments in lieu of the Hydrocarbons such
as “take or pay” payments or settlements, together with the immediate and
continuing right to collect and receive all of the foregoing (the “Production
Proceeds”).  The Hydrocarbons and products are to be delivered into pipelines
connected with the Mortgaged Property, or to the purchaser thereof, to the
credit of Beneficiary, free and clear of all taxes, charges, costs, and
expenses; and at the sole direction of Beneficiary, all such revenues and
proceeds shall be paid directly to Beneficiary, to its designated banking
account, with no duty or obligation of any party paying the same to inquire into
the rights of Beneficiary to receive the same, what application is made thereof,
or as to any other matter.  Trustor agrees to perform all such acts, and to
execute all such further assignments, transfers and division orders, and other
instruments as may be required or desired by Beneficiary or any party in order
to have said proceeds and revenues so paid to Beneficiary.  Beneficiary is fully
authorized to receive and receipt for said revenues and proceeds; to endorse and
cash any and all checks and drafts payable to the order of Trustor or
Beneficiary for the account of Trustor received from or in connection with said
revenues or proceeds and to hold the proceeds thereof in a bank account as
additional collateral securing the Indebtedness and Obligations Secured; and to
execute transfer and division orders in the name of Trustor, or otherwise, with
warranties binding Trustor.  All proceeds received by Beneficiary pursuant to
this assignment shall be applied as provided in the other Transaction
Documents.  Beneficiary shall not be liable for any delay, neglect, or failure
to effect collection of any proceeds or to take any other action in connection
therewith or hereunder; but Beneficiary shall have the right, at its election,
in the name of Trustor or otherwise, to prosecute and defend any and all actions
or legal proceedings deemed advisable by Beneficiary in order to collect such
funds and to protect the interests of Beneficiary, and/or Trustor, with all
reasonable costs, reasonable expenses and reasonable attorneys’ fees incurred in
connection therewith being paid by Trustor.  Trustor hereby appoints Beneficiary
as its attorney in fact to pursue any and all rights of Trustor to liens on and
security interests in the Hydrocarbons securing payment of proceeds of runs
attributable to the Hydrocarbons.  In addition to the rights granted to
Beneficiary in this Deed of Trust, Trustor hereby further transfers and assigns
to Beneficiary any and all such liens, security interests, financing statements
or similar interests of Trustor attributable to its interest in the Hydrocarbons
and proceeds of runs therefrom arising under or created by statutory provision,
judicial decision or otherwise.  The power of attorney granted to Beneficiary in
this Section 2.01, being coupled with an interest, shall be irrevocable so long
as the Indebtedness and Obligations Secured or any part thereof remains unpaid
or unperformed.  Notwithstanding the foregoing, Trustor is authorized to collect
all Production Proceeds, and all such Production Proceeds shall be delivered to
Trustor, unless and until Beneficiary shall in good faith notify the purchaser
or other party paying the same that an Event of Default has occurred and is
continuing and that Beneficiary has given Trustor written notice of such Event
of Default; and upon receipt of said notice, the purchaser or other party paying
the Production Proceeds shall thereafter make payments to Beneficiary as above
provided with no duty or obligation of such party to inquire into the truth or
validity of such notice by Beneficiary.
 
 
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Section 2.02          No Modification of Payment Obligations.  Nothing herein
contained shall modify or otherwise alter the obligation of Trustor or anyone
else to make prompt payment of all principal and interest owing under or with
respect to any Transaction Documents when and as the same become due regardless
of whether the proceeds of the Hydrocarbons are sufficient to pay the same and
the rights provided in accordance with the foregoing assignment provision shall
be cumulative of all other security of any and every character now or hereafter
existing to secure payment of the Indebtedness and Obligations Secured.
 
Section 2.03          Release from Liability.  Beneficiary and its successors
and assigns are hereby absolutely absolved (a) from all liability for failure to
enforce collection of the proceeds from runs attributable to the Mortgaged
Property or from Hydrocarbons produced from or attributable to the Mortgaged
Property and (b) from all other responsibility in connection therewith, except
the responsibility to account to Trustor for funds actually received by
Beneficiary and to notify Trustor within five (5) days of receipt of any such
funds.
 
Section 2.04          Absolute Obligation of Parties.  Nothing herein contained
shall detract from or limit the obligations of any Trustor, Parent or any
Guarantor to make payment as required pursuant to the terms of the Transaction
Documents, regardless of whether the assignment of production described in this
Article II is sufficient to pay same, and the rights under this Article II shall
be cumulative of all other rights of Beneficiary under the Transaction
Documents.
 
ARTICLE III
 
Representations, Warranties and Covenants
 
In order to induce Beneficiary to enter into the transactions described in the
Agreement, Trustor hereby represents, warrants and covenants to Beneficiary as
follows:
 
Section 3.01          Title.  To the extent of the undivided interests in the
Oil and Gas Properties specified on attached Exhibits B and C, Trustor is
possessed of such interests in the Mortgaged Property, and Trustor has, and
Trustor covenants to maintain, good and defensible title to the Mortgaged
Property.  The Mortgaged Property is free of any and all Encumbrances except:
(i) Encumbrances granted pursuant to this Deed of Trust, (ii) Encumbrances, if
any, described in Exhibit D (collectively, the “Permitted Encumbrances”), and
(iii) those encumbrances defined as “Permitted Encumbrances” in the Agreement.
 
Section 3.02          Defend Title.  So long as the Indebtedness and Obligations
remains unpaid, this Deed of Trust shall be kept a direct first lien and
security interest upon the Mortgaged Property subject only to the Permitted
Encumbrances, and, except for Permitted Encumbrances, Trustor shall not create
or suffer to be created or permit to exist any lien, security interest or charge
prior to or on a parity with the title conveyed by this Deed of Trust or the
lien and security interest of this Deed of Trust upon the Mortgaged Property or
any part thereof or upon the rents, issues, revenues, profits and other income
therefrom.  Trustor hereby warrants and Trustor does by these presents agree to
forever defend the Mortgaged Property (and the title thereto) against the claims
and demands of all other Persons whomsoever and to maintain and preserve the
lien and title created hereby so long as any of the Indebtedness and Obligations
Secured remains unpaid.  Should an adverse claim be made against or a cloud
develop upon the title to any part of the Mortgaged Property, Trustor agrees it
shall defend against such adverse claim or take appropriate action to remove
such cloud at Trustor’s cost and expense, and Trustor further agrees that
Beneficiary may take such other action as it deems advisable to protect and
preserve its interests in the Mortgaged Property, and in such event Trustor
shall indemnify Beneficiary against any and all reasonable cost, reasonable
attorneys’ fees and other reasonable expenses that it may incur in defending
against any such adverse claim or taking action to remove any such cloud.
 
 
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Section 3.03          Not a Foreign Person.  Trustor is not a “foreign person”
within the meaning of the Internal Revenue Code of 1986, as amended (hereinafter
called the “Code”), Sections 1445 and 7701 (i.e., Trustor is not a non-resident
alien, foreign corporation, foreign partnership, foreign trust or foreign estate
as those terms are defined in the Code and any regulations promulgated
thereunder).
 
Section 3.04           Existence; Power to Create Lien and Security; Enforceable
Obligations.
 
(a)           Trustor is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its formation and in good standing and
qualified to do business in each jurisdiction where its ownership or lease of
any of the Mortgaged Property or conduct of its business requires such
qualification, except where the failure to so qualify could not reasonably be
expected to cause a Material Adverse Effect.
 
(b)           The execution, delivery and performance by Trustor of this Deed of
Trust and the consummation of the transactions contemplated hereby and thereby
(i) are within such Trustor’s powers, (ii) have been duly authorized by all
necessary governing action, and (iii) do not violate (A) Trustor’s governance
documents, or (B) any Governmental Requirements or any indenture, agreement or
other instrument binding on Trustor.
 
(c)           This Deed of Trust has been duly executed and delivered by
Trustor.  This Deed of Trust is the legal, valid and binding obligation of
Trustor enforceable against Trustor in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors’ rights generally
and by general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
 
Section 3.05          Net Revenue and Cost Bearing Interest.  With respect to
each lease listed on Exhibit B hereto that comprises a part of the Mortgaged
Property, Trustor’s ownership of such Mortgaged Property does and will, with
respect to each such lease (whether such lease is presently unitized or is
presently producing on a lease basis) (a) entitle Trustor to receive (subject to
the terms and conditions of this Deed of Trust) a decimal share of the
Hydrocarbons produced from, or allocated to, such lease equal to not less than
the decimal share set forth on Exhibit C in connection with such lease under the
column on Exhibit C designated by the words “Net Revenue Interest,” the
abbreviation “NRI,” or words or abbreviations of similar import (hereinafter
called “Net Revenue Interest”), and (b) cause Trustor to be obligated to bear a
decimal share of the cost of exploration, development and operation of such
lease not greater than the decimal share set forth in Exhibit C in connection
with such lease under the column on Exhibit C designated by the words “Working
Interest,” the abbreviation “WI,” or words or abbreviations of similar import
(hereinafter called “Working Interest”) (unless there is a corresponding
increase in the Net Revenue Interest).  The shares of production that Trustor is
entitled to receive and the shares of expenses that Trustor is obligated to bear
are not, and will not be, subject to change other than changes that (i) arise
pursuant to non-consent provisions of operating agreements in connection with
operations proposed after the date the original mortgage being restated by this
Deed of Trust was entered into, or (ii) are expressly described on Exhibit C.
 
 
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Section 3.06          Rentals Paid; Leases in Effect.  Trustor shall maintain
all leases and agreements comprising or relating to the Mortgaged Property in
compliance with the requirements of the Agreement.
 
Section 3.07          Operation of Mortgaged Property.
 
(a)           The Mortgaged Property (and properties unitized therewith) is, and
hereafter will be, maintained, operated and developed in compliance with the
requirements of the Agreement and Governmental Requirements.
 
(b)           To the extent any interest owned by Trustor in the Mortgaged
Property is not a working interest, Trustor covenants and agrees to take all
commercially reasonable action and to exercise all commercially reasonable
rights and remedies as are available to Trustor to cause the owner or owners of
the working interest in such properties to comply with the covenants and
agreements set forth in this Deed of Trust.
 
(c)           To the extent Trustor’s ownership of any particular well
constituting the Mortgaged Property is a working interest but such well is
operated by a party other than Trustor, Trustor agrees to take all such action
and to exercise all rights and remedies as are reasonably available to Trustor
(including, without limitation, all rights under any operating agreement) to
cause the party who is the operator of such well to comply with the covenants
and agreements set forth in this Deed of Trust.
 
Section 3.08          Abandonment, Sales.  Trustor shall not sell, lease,
assign, transfer or otherwise dispose of or abandon any of the Mortgaged
Property except in compliance with the requirements of the Agreement.
 
Section 3.09          Insurance.  Trustor shall carry and maintain insurance as
provided in the Agreement.
 
Section 3.10          Further Assurances.  Trustor shall cure promptly any
defects in the execution and delivery of this Deed of Trust or any of the other
Transaction Documents.  Trustor hereby authorizes the Beneficiary to file any
financing statements to the extent permitted by Governmental Requirements in
order to perfect or maintain the perfection of any security interest granted
under any of the Transaction Documents.  Trustor, at its expense, shall promptly
execute and deliver to the Beneficiary upon request all such other documents,
agreements and instruments to comply with or accomplish the covenants and
agreements of Trustor, Parent or any Guarantor in this Deed of Trust or any
other Transaction Document, or to further evidence and more fully describe the
collateral intended as security for the Indebtedness and Obligations Secured, or
to correct any omissions in the Transaction Documents, or to state more fully
the security obligations set out in this Deed of Trust or in any of the other
Transaction Documents, or to perfect, protect or preserve any Encumbrances
created pursuant to any of the Transaction Documents, or to make any recordings,
to file any notices or obtain any approvals or consents, all as may be necessary
or appropriate in connection therewith or to enable the Beneficiary to exercise
and enforce its rights and remedies with respect to the Mortgaged Property.
 
Section 3.11          Intentionally Omitted.
 
 
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Section 3.12          Failure to Perform.  Trustor agrees that if Trustor, after
receipt from Beneficiary of written notice and demand, fails to perform any act
or to take any action that Trustor is required to perform or take hereunder or
pay any money that Trustor is required to pay hereunder and an Event of Default
results and continues, Beneficiary in Trustor’s name or its own name may, but
shall not be obligated to, perform or cause to be performed such act or take
such action or pay such money, and any expenses so incurred by Beneficiary and
any money so paid by it shall be a demand obligation owing by Trustor to
Beneficiary, and Beneficiary, upon making such payment, shall be subrogated to
all of the rights of the Person receiving such payment.  Each amount due and
owing by Trustor to Beneficiary pursuant to this Deed of Trust shall bear
interest from the date of such expenditure or payment or other occurrence that
gives rise to such amount being owed to such Person until paid at the
post-default interest rate described in the Agreement, and all such amounts
together with such interest thereon shall be a part of the Indebtedness and
Obligations Secured described in Section 1.03 hereof.
 
ARTICLE IV
 
Rights and Remedies
 
Section 4.01          Event of Default.  An “Event of Default” under the
Agreement shall be an Event of Default under this Deed of Trust.
 
Section 4.02          Foreclosure and Sale.
 
(a)           Upon the occurrence of an Event of Default, then and in each such
event, Beneficiary may declare all sums secured hereby immediately due and
payable either by commencing an action to foreclose this Deed of Trust as a
mortgage, or by the delivery to Trustee of a written declaration of default and
demand for sale and of written notice of default and of election to cause the
Mortgaged Property to be sold, which notice Trustee shall cause to be duly filed
for record in case of foreclosure by exercise of the power of sale.  Should
Beneficiary elect to foreclose by exercise of the power of sale, Beneficiary
shall also deposit with Trustee this Deed of Trust, the Note and such receipts
and evidence of expenditures made and secured hereby as Trustee may require, and
notice of sale having been given as then required by law and after lapse of such
time as may then be required by law after recordation of such notice of default,
Trustee, without demand on Trustor, shall sell the Mortgaged Property at the
time and place of sale fixed by Beneficiary in said notice of sale, either as a
whole or in separate parcels, and in such order as Beneficiary may determine, at
public auction to the highest bidder for cash in lawful money of the United
States, payable at time of sale.  Neither Trustor nor any other Person or entity
other than Beneficiary shall have the right to direct the order in which the
Mortgaged Property is sold.  Trustee may postpone sale of all or any portion of
the Mortgaged Property by public announcement at such time and place of sale,
and from time to time thereafter may postpone such sale by public announcement
at the time fixed by the preceding postponement.  Trustee shall deliver to such
purchaser its deed or deeds conveying the Mortgaged Property, or any portion
thereof, so sold, but without any covenant or warranty, express or implied.  The
recitals in such deed or deeds of any matters or facts shall be conclusive proof
of the truthfulness thereof.  Any Person, including Trustor, Trustee or
Beneficiary, may purchase at such sale.
 
 
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(b)           In conducting any foreclosure sale under this Deed of Trust,
Beneficiary or the sheriff or other official or Person making the sale shall
have the right and option to proceed with foreclosure by proceeding 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, and to make conveyance to the
purchaser or purchasers.  Any such sale shall operate as a foreclosure of this
Deed of Trust only as to the property sold, and if the Indebtedness and
Obligations Secured are not thereby satisfied in full, the other Mortgaged
Property continues as security for the Indebtedness and Obligations Secured, and
there may be a further foreclosure of the Mortgage, either by sale under the
power of sale or by judicial foreclosure or sale.  Nothing contained in this
Section 4.02 shall be construed so as to limit in any way Beneficiary’s rights
to sell or have sold the Mortgaged Property, or any portion thereof, by private
sale if, and to the extent that, such private sale is permitted under the laws
of the applicable jurisdiction or by public or private sale after entry of a
judgment by any court of competent jurisdiction so ordering.  At sale of the
Mortgaged Property: (i) whether made under the power herein contained or any
other legal enactment, or by virtue of any judicial proceedings or any other
legal right, remedy or recourse, it shall not be necessary for Beneficiary to
have physically present, or to have constructive possession of, the Mortgaged
Property (Trustor hereby covenanting and agreeing to deliver to Beneficiary any
portion of the Mortgaged Property not actually or constructively possessed by
Beneficiary immediately upon demand by Beneficiary) and the title to and right
of possession of any such property shall pass to the purchaser thereof as
completely as if the same had been actually present and delivered to purchaser
at such sale, (ii) each instrument of conveyance executed by Beneficiary (or its
agent or attorney) or by the sheriff or other official or Person making the sale
shall contain a general warranty of title, binding upon Trustor and its
successors and assigns, (iii) each and every recital contained in any instrument
of conveyance made by Beneficiary (or its agent or attorney) or by the sheriff
or other official or Person making the sale shall conclusively establish the
truth and accuracy of the matters recited therein, including, without
limitation, nonpayment of the Indebtedness and Obligations Secured and
advertisement and conduct of such sale in the manner provided herein and
otherwise by law, (iv) any and all prerequisites to the validity thereof shall
be conclusively presumed to have been performed, (v) the receipt of Beneficiary
(or its agent or attorney) or of the sheriff or other official or Person making
the sale shall be a sufficient discharge to the purchaser or purchasers for its
purchase money and no such purchaser or purchasers, or its assigns or personal
representatives, shall thereafter be obligated to see to the application of such
purchase money, or be in any way answerable for any loss, misapplication or
nonapplication thereof, (vi) to the fullest extent permitted by law, Trustor
shall be completely and irrevocably divested of all of its right, title,
interest, claim and demand whatsoever, either at law or in equity, in and to the
property sold, and such sale shall be a perpetual bar both at law and in equity
against Trustor, and against any and all other Persons claiming or to claim the
property sold or any part thereof, by, through or under Trustor, and (vii) to
the fullest extent and under such circumstances as are permitted by law,
Beneficiary or any Secured Party may be a purchaser at any such sale, and shall
have the right, after paying or accounting for all costs of said sale or sales,
to credit the amount of the bid upon the amount of the Indebtedness and
Obligations Secured held by such purchaser, if any (in the order of priority set
forth in Section 4.13 hereof) in lieu of cash payment.
 
(c)           With respect to any foreclosure by Beneficiary pursuant to the
power of sale granted to Beneficiary in this Deed of Trust the following
provisions of this Deed of Trust shall apply:
 
(i)           The notices shall be given as and when required therein;
 
(ii)          All notices that are required to be given to Trustor may be given
to Trustor at the address that is set forth in the first paragraph of this Deed
of Trust, or if such address has been changed in accordance with the express
requirements of this Deed of Trust related to such a change of address, to that
changed address;
 
(iii)         Beneficiary may purchase part or all of the Mortgaged Property at
any such sale;
 
(iv)        Trustor stipulates that the total amounts owing under this Deed of
Trust benefit, have benefited, and will benefit Trustor substantially and are
not unconscionable in amount, and therefore the total amount of the Indebtedness
and Obligations Secured, less the fair market value of the Mortgaged Property
sold pursuant to the California law, and any prior indebtedness, shall be
available as a deficiency judgment against Trustor;
 
 
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(v)         The purchaser under any sale of the Mortgaged Property conducted
pursuant to the California law may, to the extent available, seek and obtain a
writ of assistance by application to the District Court in the county in
California in which the portion of the Mortgaged Property to be foreclosed upon
is located, or the United States District Court having jurisdiction and venue
for actions arising in such county;
 
(vi)        Beneficiary may, at its option, proceed with foreclosure under
judicial proceedings instead of exercising the rights of the power of sale
granted by Trustor to Trustee in this Deed of Trust;
 
(vii)       All other terms, conditions, procedures, and requirements of the
California law shall be followed;
 
(viii)      After the completion of the sale as contemplated by the California
law, the purchaser shall have all of Trustor’s right, title and interest in and
to Mortgaged Property sold pursuant to such sale, free and clear of all rights
of Trustor, and free and clear of all rights of any Person with a priority that
is subordinate to the lien of this Deed of Trust, except any right that may be
reserved under the California law;
 
(ix)         Any recitation in any notice, publication thereof, recordation
thereof, or deed, of the existence of an Event of Default, giving, publication,
service and recordation of notice, occurrence of the sale at the time and place
set forth in such notice or any postponement authorized and effective under the
California law, circumstances of sale and bidding, and compliance with the terms
of the California law, shall be presumed to be statements of fact and no Person
shall be required to investigate the truthfulness or accuracy of any such
recitation;
 
(x)          The proceeds of any such sale shall be applied as required by
applicable law, or in the absence of any such requirement, as follows: first to
the costs, attorney fees, and expenses of such sale, next to the payment of the
Indebtedness and Obligations Secured; except that if any application of proceeds
conflicts with any Governmental Requirement, the proceeds of such sale shall be
applied as provided in such Governmental Requirement, but in such event only to
the extent of any such conflict; and
 
The foregoing provisions of this Section 4.02(c) shall not limit, to the extent
available under applicable law, the other provisions of this Deed of Trust.
 
A POWER OF SALE HAS BEEN GRANTED IN THIS DEED OF TRUST.  A POWER OF SALE MAY
ALLOW TRUSTEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY THE TRUSTOR UNDER THIS DEED OF TRUST.
 
Section 4.03          Substitute Agents.  Beneficiary may appoint or delegate
any one or more Persons as agent to perform any act or acts necessary or
incident to any sale held by Trustee on behalf of Beneficiary, including the
posting of notices and the conduct of sale, but in the name and on behalf of
Beneficiary.
 
 
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Section 4.04          Judicial Foreclosure; Receivership.
 
(a)           Upon the occurrence of any Event of Default or if any of the
Indebtedness and Obligations Secured shall become due and payable and shall not
be promptly paid, Trustee and Beneficiary shall have the right and power, in
lieu of or in addition to exercising any other powers hereby granted, without
notice, demand or declaration of default, which are hereby waived by Trustor, to
proceed by a suit or suits in equity or at law for the seizure and sale of the
Mortgaged Property or any part thereof, and/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 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 Beneficiary in connection with any such
receivership shall be a demand obligation (which obligation Trustor hereby
expressly promises to pay) owing by Trustor to Beneficiary and shall bear
interest from the date of making such advance by Beneficiary until paid at the
interest rate applicable to periods following an Event of Default in the
Agreement.
 
(b)           Any sale of the Mortgaged Property under this Deed of Trust shall
take place at such place or places and otherwise in such manner and upon such
notice as may be required by law or judicial decree; or, in the absence of any
such requirement, as Beneficiary may deem appropriate.
 
(c)           Beneficiary and any Secured Party shall have the right to become
the purchaser at any sale made pursuant to the provisions of this Article IV and
shall have the right to credit upon the amount of the bid made therefor the
amount payable to Beneficiary out of the net proceeds of such sale.  Recitals
contained in any conveyance to any purchaser at any sale made hereunder will
conclusively establish the truth and accuracy of the matters therein stated,
including, without limitation, nonpayment of the Indebtedness and Obligations
Secured and advertisement and conduct of such sale in the manner provided
herein.
 
Section 4.05          Foreclosure for Installments.  To the fullest extent
permitted by Governmental Requirements, Beneficiary also shall have the option
to proceed with foreclosure in satisfaction of any installments of the
Indebtedness and Obligations Secured that have not been paid when due either
through the courts or by exercise of the power of sale as if conducting a full
foreclosure, but without declaring the entire principal balance and accrued
interest due; such sale may be made subject to the unmatured portion of the
Indebtedness and Obligations Secured, and any such sale shall not in any manner
affect the unmatured portion of the Indebtedness and Obligations Secured, but as
to such unmatured portion of the Indebtedness and Obligations Secured, this Deed
of Trust shall remain in full force and effect just as though no sale had been
made hereunder.  It is further agreed that, to the fullest extent permitted by
Governmental Requirements, several sales may be made hereunder without
exhausting the right of sale for any unmatured part of the Indebtedness and
Obligations Secured, it being the purpose hereof to provide for a foreclosure
and sale of the security for any matured portion of the Indebtedness and
Obligations Secured without exhausting the power to foreclose and sell the
Mortgaged Property for any subsequently maturing portion of the Indebtedness and
Obligations Secured.
 
Section 4.06          Separate Sales.  To the fullest extent permitted by
Governmental Requirements, the Mortgaged Property may be sold in one or more
parcels and in such manner and order as Beneficiary, in its 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.
 
 
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Section 4.07          Occupancy After Foreclosure.  In the event there is a
foreclosure sale hereunder and at the time of such sale Trustor or Beneficiary’s
heirs, devisees, representatives, successors or assigns or any other Person
claiming any interest in the Mortgaged Property by, through or under Trustor,
are occupying or using the Mortgaged Property or any part thereof, each and all
shall immediately become the tenant of the purchaser at such sale, which tenancy
shall be a tenancy from day to day, terminable at the will of either the
landlord or tenant, or at a reasonable rental per day based upon the value of
the property occupied, such rental to be due daily to the purchaser; to the
extent permitted by Governmental Requirements, the purchaser at such sale shall,
notwithstanding any language herein apparently to the contrary, have the sole
option to demand immediate possession following the sale or to permit the
occupants to remain as tenants at will.  In the event the tenant fails to
surrender possession of said property upon demand, the purchaser shall be
entitled to institute and maintain a summary action for possession of the
Mortgaged Property (such as an action for forcible entry and detainer) in any
court having jurisdiction and to exercise and receive the benefits of all other
rights and remedies provided by Governmental Requirements.
 
Section 4.08          Remedies Cumulative, Concurrent and Nonexclusive.  Every
right, power and remedy herein given to Beneficiary 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 Applicable UCC in effect and applicable to the Mortgaged
Property or any portion thereof).  Additionally, 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
Beneficiary, 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 Beneficiary 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.
 
Section 4.09          No Release of Obligations.  Neither Trustor nor any other
Person hereafter obligated for payment or performance of all or any part of the
Indebtedness and Obligations Secured shall be relieved of such obligation by
reason of (a) the failure of Beneficiary to comply with any request of Trustor
or any other Person so obligated to foreclose the lien of this Deed of Trust or
to enforce any provision hereunder or under the 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; or (c) any other act or occurrence save and except the complete
payment of the Indebtedness and Obligations Secured and the complete fulfillment
of all obligations hereunder and under the Agreement.
 
Section 4.10          Release of and Resort to Mortgaged Property.  Beneficiary
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 title, lien or security interest created in or evidenced by this
Deed of Trust or its stature as a first and prior title, 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 Indebtedness and Obligations Secured.  For payment of the Indebtedness and
Obligations Secured, Beneficiary may resort to any other security therefor held
by Beneficiary in such order and manner as Beneficiary may elect.
 
 
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Section 4.11          Waiver of Redemption, Notice and Marshalling of Assets,
Etc.  To the fullest extent permitted by Governmental Requirements, Trustor
hereby irrevocably and unconditionally waives and releases (a) all benefits that
might accrue to Trustor 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 and
(b) any right to a marshalling of assets or a sale in inverse order of
alienation.  If any law referred to in this Deed of Trust and now in force, of
which Trustor or its 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.  Provided, however, that if the laws of any state do not permit the
redemption period to be waived, the redemption period is specifically reduced to
the minimum amount of time allowable by statute.  Provided further,
notwithstanding the foregoing, in the event of judicial foreclosure,
appraisement of the Mortgaged Property is hereby waived or not waived, at the
option of Beneficiary, such option to be exercised at or before entry of
judgment in any action to foreclose this Deed of Trust.
 
Section 4.12          Discontinuance of Proceedings.  In case Beneficiary shall
have proceeded to invoke any right, remedy or recourse permitted hereunder or
under the Agreement and shall thereafter elect to discontinue or abandon same
for any reason, Beneficiary shall have the unqualified right so to do, and in
such an event, Trustor and Beneficiary shall be restored to their former
positions with respect to the Indebtedness and Obligations Secured, this Deed of
Trust, the Agreement, the Mortgaged Property and otherwise, and the rights,
remedies, recourses and powers of Beneficiary shall continue as if same had
never been invoked.
 
Section 4.13          Application of Proceeds.  The proceeds of any sale of the
Mortgaged Property or any part thereof and all other monies received by
Beneficiary in any proceedings for the enforcement hereof or otherwise, whose
application has not elsewhere herein been specifically provided for, shall be
applied as required by Governmental Requirement, or in the absence of any such
requirement, as follows:
 
(a)           first, to the payment of all reasonable expenses incurred by
Beneficiary incident to the enforcement of this Deed of Trust, the Agreement or
any of the Indebtedness and Obligations Secured (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 legal fees and disbursements), and to
the payment of all other charges, reasonable expenses, liabilities and advances
incurred or made by Beneficiary under this Deed of Trust, the Agreement or any
other Transaction Document or in executing any right or power hereunder or
thereunder;
 
(b)           second, to the extent not covered by the foregoing, to payment of
the Indebtedness and Obligations Secured; and
 
(c)           third, the balance, if any, to be paid to Trustor or as otherwise
required by any Governmental Requirement.
 
Section 4.14          Resignation of Operator.  In addition to all rights and
remedies under this Deed of Trust, at law and in equity, if any Event of Default
shall occur and Beneficiary shall exercise any possessory remedies under this
Deed of Trust with respect to any portion of the Mortgaged Property (or Trustor
shall transfer any Mortgaged Property “in lieu of” foreclosure), Beneficiary
shall have the right to request that any operator of any Mortgaged Property that
is either Trustor or any Affiliate of Trustor to resign as operator under the
joint operating agreement applicable thereto, and no later than one hundred and
twenty (120) days after receipt by Trustor of any such request, Trustor shall
resign (or cause such other party to resign) as operator of such Mortgaged
Property.
 
 
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Section 4.15          Release.  In connection with any action taken in good
faith by Beneficiary pursuant to this Deed of Trust, Beneficiary and its
officers, directors, employees, representatives, agents, attorneys, accountants
and experts (“Released Parties”) shall not be liable for any loss sustained by
Trustor resulting from an assertion that Beneficiary has received funds from the
production of Hydrocarbons claimed by third Persons or any act or omission of
any Released Party in administering, managing, operating or controlling the
Mortgaged Property INCLUDING SUCH LOSS THAT MAY RESULT FROM THE NEGLIGENCE OF A
RELEASED PARTY unless such loss is caused by the gross negligence or willful
misconduct of a Released Party, nor shall Beneficiary be obligated to perform or
discharge any obligation, duty or liability of Trustor. Trustor hereby assents
to, ratifies and confirms any and all actions of Beneficiary with respect to the
Mortgaged Property taken under, and in compliance with the terms of, this Deed
of Trust.
 
Section 4.16          Limitation on Rights and Waivers.  All rights, powers, and
remedies herein conferred shall be exercisable by Beneficiary only to the extent
not prohibited by Governmental Requirements; and all waivers and relinquishments
of rights and similar matters shall only be effective to the extent such waivers
or relinquishments are not provided by Governmental Requirement.
 
Section 4.17          Appointment of Receiver.  Upon the occurrence of an Event
of Default, Beneficiary, as a matter of right and without notice to Trustor or
anyone claiming under Trustor, and without regard to the then value of the
Mortgaged Property or the interest of Trustor therein, shall have the right to
apply to any court having jurisdiction to appoint a receiver or receivers of the
Mortgaged Property or any portion thereof, and Trustor hereby irrevocably
consents to such appointment and waives notice of any application therefor.  Any
such receiver or receivers shall have all the usual powers and duties of
receivers in like or similar cases and all the powers and duties of Beneficiary
in case of entry as provided herein and shall continue as such and exercise all
such powers until the date of confirmation of sale of the Property unless such
receivership is sooner terminated.
 
Section 4.18          Other Remedies.  Upon the occurrence of any Event of
Default, Beneficiary shall be entitled to exercise all other remedies provided
to Beneficiary under any of the Transaction Documents or otherwise available
under California law or set forth herein, including, without limitation, (a) the
institution of a suit in equity or other appropriate proceedings for specific
performance or an injunction against a violation of this Deed of Trust or any
other Transaction Document; and/or (b) termination of all other obligations of
Beneficiary and all rights of Trustor under the Transaction Documents.  All of
such remedies may be exercised without notice to or demand upon Trustor, which
are expressly waived by Trustor.
 
ARTICLE V
 
Hazardous Substances Provisions
 
Section 5.01          Definitions.  In this Deed of Trust and the Agreement, the
following definitions shall apply:
 
(a)           “Environmental Laws” means all foreign, federal, state and local
laws (whether under common law, statute or otherwise), ordinances, rules,
regulations and guidance documents now or hereafter in force, as amended from
time to time, in any way relating to or regulating human health or safety,
industrial hygiene or environmental conditions, protection of the environment,
Hazardous Substances, pollution or contamination of the air, soil, surface water
or groundwater, and includes, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
§ 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901,
et seq., the Clean Water Act, 33 U.S.C. § 1251, et seq., the Clean Air Act, 42
U.S.C. § 7401, et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651,
et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801, et seq.,
the Federal Water Pollution Control Act, 33 U.S.C. § 1321, et seq., the Toxic
Substances Control Act, 15 U.S.C. § 2601, et seq., the Hazardous Substance
Account Act, California Health and Safety Code § 25300, et seq., the Hazardous
Waste Control Law, California Health and Safety Code § 25100, et seq., the
Medical Waste Management Act, California Health and Safety Code § 25015, et seq.
and the Porter-Cologne Water Quality Control Act, California Water Code § 13000,
et seq.
 
 
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(b)           “Hazardous Substance(s)” means any substance or material that is
described as a toxic or hazardous substance, waste, material, pollutant,
contaminant or infectious waste, or words of similar import, in any of the
Environmental Laws, or any other words which are intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity or reproductive toxicity and
includes, without limitation, asbestos, petroleum (including crude oil or any
fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel, or any mixture thereof), petroleum products,
polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter,
medical waste, otherwise regulated materials and chemicals which may cause
cancer or reproductive toxicity.
 
(c)           “Hazardous Substance Activity” means any actual, proposed or
threatened Release, storage, holding, existence, use, generation, processing,
production, manufacture, treatment, abatement, removal, repair, cleanup or
detoxification, disposition, handling or transportation of any Hazardous
Substance from, under, into or on the Mortgaged Property or the surrounding
property, or any other activity or occurrence that causes or would cause such
event to exist.
 
(d)           “Indemnitee(s)” means Beneficiary and its successors, assigns,
participants, transferees (including, without limitation, transferees through
purchase at a foreclosure sale or by a deed in lieu of foreclosure) and its and
their respective parent, subsidiary and affiliated corporations, and the
respective directors, officers, members, shareholders, employees, partners,
affiliates, trustees, heirs, devisees, agents, attorneys and representatives of
each of the foregoing.
 
(e)           “Person” means any natural person, any organization or legal
entity of any kind, and any government or governmental agency or authority of
any kind, including without limitation, the U.S. Environmental Protection Agency
and the California Department of Toxic Substances Control.
 
(f)           “Release” means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment, including continuing migration, of Hazardous Substances into,
onto or through soil, surface water or groundwater.
 
(g)           “Remediation Work” means the clean up and removal of all Hazardous
Substances released in, on under or at the Mortgaged Property and the
restoration of the Mortgaged Property to its original physical condition in
compliance with all applicable Environmental Laws and other applicable laws,
ordinances, rules and regulations, and as approved by all Persons having
jurisdiction over the Mortgaged Property.
 
Section 5.02          Representations.    Trustor (i) is in compliance with
Environmental Laws, (ii) has received and is in compliance with all Permits
required of it under applicable Environmental Laws to conduct its business and
(iii) has not received notice of any actual or potential liability for the
investigation or remediation of any disposal or Release of hazardous or toxic
substances or wastes, pollutants or contaminants, except, in each case, where
such non-compliance with Environmental Laws, failure to receive required
Permits, or liability has not had or would not reasonably be expected to result
in, individually or in the aggregate, a Material Adverse Effect, whether or not
arising from transactions in the ordinary course of business. Trustor has not
been named as a “potentially responsible party” under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended.  The terms “Permits” and “Material Adverse Effect” used in this Section
5.02 shall have the meanings set forth in the Agreement.
 
 
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Section 5.03          Covenants.
 
(a)           Compliance.  Trustor shall not engage in or otherwise permit the
occurrence of any Hazardous Substance Activity in, on, under or at the Mortgaged
Property.  Trustor shall comply, and shall cause all Persons using or occupying
the Mortgaged Property (including without limitation, the soil and groundwater
on or under the Mortgaged Property) or any part thereof to comply, with all
Environmental Laws applicable to the Mortgaged Property, or the use, occupancy,
operations or activities in or on the Mortgaged Property or any part
thereof.  Trustor shall not allow to exist on, under or about the Mortgaged
Property, any underground storage tanks or other underground containers, vessels
or deposits containing Hazardous Materials.
 
(b)           Permits.  Trustor shall obtain all permits, licenses and approvals
required by all applicable Environmental Laws for the use and occupancy of, and
all operations and activities in, the Mortgaged Property.  Trustor shall comply
fully with all such permits, licenses and approvals, and keep all such permits,
licenses and approvals in full force and effect.
 
(c)           Notice.  Within fifteen (15) days after Trustor obtains any
information indicating that any Hazardous Substances may be present or any
Release or threatened Release of any Hazardous Substances may have occurred in,
on or under the Mortgaged Property (or any nearby real property which could
migrate to the Mortgaged Property) or that any violation of any Environmental
Laws may have occurred at the Mortgaged Property, Trustor shall give written
notice of such matters to Beneficiary.  Such notice will include a reasonably
detailed description of the event, occurrence or condition in question.  Trustor
shall immediately furnish to Beneficiary copies of all written communications
received by Trustor from any Person (including notices, claims or citations that
any Release or threatened Release of any Hazardous Substances or any violation
of any Environmental Laws has actually or allegedly occurred) or given by
Trustor to any Person concerning: (i) the presence of any Hazardous Substances
in, on, under or at the Mortgaged Property; (ii) any past or present Release or
threatened Release of any Hazardous Substances in, on, under or at the Mortgaged
Property (or any nearby real property which could migrate to the Mortgaged
Property); or (iii) any past or present violation of any Environmental Laws at
the Mortgaged Property.  Trustor shall immediately notify Beneficiary in writing
upon Trustor’s discovery of any occurrence or condition on any nearby real
property that could cause the Mortgaged Property or any part thereof to be
classified as “border zone property” or upon Trustor’s receipt of any notice in
connection therewith.
 
(d)           Inspection.  Beneficiary (and its representatives and independent
contractors and consultants) shall have the right, at all reasonable times and
after reasonable prior notice (except no notice shall be required in an
emergency), to (i) inspect (including soil and groundwater sampling) all or any
portion of the Mortgaged Property; and (ii) review all books, records and files
of Trustor, wherever located, relating to the presence of any Hazardous
Substances in, on, under or at the Mortgaged Property, any past or present
Release or threatened Release of any Hazardous Substances in, on, under or at
the Mortgaged Property or any past or present violation of any Environmental
Laws at the Mortgaged Property.  Trustor shall give Beneficiary (and its
representatives) access to the Mortgaged Property and the other locations where
such records are kept, at all reasonable times (and at any time in an
emergency), for such purposes.  Beneficiary shall make reasonable efforts to
avoid interfering with Trustor’s use of the Mortgaged Property in exercising its
rights of inspection and review hereunder.  Trustor acknowledges that all
inspections and reviews undertaken by Beneficiary are solely for the protection
of Beneficiary’s security interest in the Mortgaged Property and agrees that
Beneficiary shall have no duty to Trustor with respect to Hazardous Substances
or Environmental Laws as a result of any such inspections or reviews.  No site
visit, observation or testing by Beneficiary shall impose any liability on
Beneficiary with respect to Hazardous Substances or Environmental Laws as a
result of any such site visit, observation or testing.
 
 
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Section 5.04          Release and Remediation Work.  If any Release or
threatened Release of any Hazardous Substances in, on, under or at the Mortgaged
Property exists or occurs, or if Beneficiary obtains any information that
Beneficiary believes in good faith indicates a reasonable possibility that any
of the occurrences described in Subsection 5.03(c) above may have happened, then
Trustor shall promptly and timely undertake and complete all of the following at
Trustor’s sole cost and expense:
 
(a)           Notice.  Trustor shall immediately give detailed written notice of
the condition to Beneficiary.
 
(b)           Investigation.  Trustor shall, at the sole expense of Trustor,
promptly retain a qualified environmental engineer.  Such engineer shall
investigate the presence, Release or threatened Release of such Hazardous
Substances and the existence of such violation of Environmental Laws and prepare
and submit to Beneficiary a written report containing the findings and
conclusions resulting from such investigation.  The environmental engineer who
will prepare the report shall be subject to the prior approval of Beneficiary.
 
(c)           Plans.  Trustor shall submit to Beneficiary complete plans and
specifications for all Remediation Work to be done by Trustor before any
Remediation Work is performed, except in an emergency.  Such plans and
specifications shall (i) be prepared by qualified licensed engineers or
contractors approved in writing by Beneficiary; (ii) comply with all applicable
Environmental Laws and other applicable laws, ordinances, rules and regulations;
and (iii) be in form and substance sufficient to secure the approval of all
Persons with jurisdiction over the Mortgaged Property or the Remediation Work.
 
(d)           Performance of Remediation Work.  Trustor shall cause all
Remediation Work to be performed in a good and workmanlike manner by a qualified
licensed contractor approved in writing by Beneficiary, under the supervision of
a qualified environmental engineer approved in writing by Beneficiary, in
accordance with the plans and specifications for the Remediation Work described
above, and in compliance with all applicable Environmental Laws and other
applicable laws, ordinances, rules and regulations.  Trustor shall promptly and
timely obtain all required permits, licenses and approvals for the Remediation
Work, prosecute the Remediation Work diligently, and complete the Remediation
Work.
 
(e)           Payment.  Trustor shall pay for all Remediation Work, including
without limitation, the cost of plans and specifications, utilities, permits,
fees, taxes and insurance premiums in connection therewith.  Under no
circumstances shall Beneficiary be liable to Trustor for any damage, loss, cost
or expense incurred by Trustor on account of any plans and specifications for
the Remediation Work, the performance of any Remediation Work, or any delay in
completion of any Remediation Work.
 
(f)           Reports.  Trustor shall furnish to Beneficiary, promptly upon
receipt or preparation, copies of all reports, studies, analyses,
investigations, notices, contracts, correspondence, claims, complaints,
pleadings and other information and communications received or prepared by
Trustor at any time in connection with any Remediation Work.
 
 
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(g)           Beneficiary’s Right.  Beneficiary shall have the right, but not
the obligation, to participate in any action or proceeding relating to the
presence of Hazardous Substances in, on, under or at the Mortgaged Property or
any past or present Release or threatened Release of any Hazardous Substances
in, on, under or at the Mortgaged Property, or any past or present violation of
any Environmental Laws at the Mortgaged Property.  Beneficiary shall have the
right, but not the obligation, to participate in any action or proceeding
relating to the necessity for, or adequacy of, any Remediation Work.
 
Section 5.05          Indemnity.  Trustor shall indemnify and defend Indemnitees
against and hold Indemnitees harmless from all claims, demands, judgments,
fines, encumbrances, liens, liabilities, losses, damages (including all
consequential damages, all stigma damages and all damages for personal injury,
including death or disease, or damage or destruction to property of others or
damage or destruction to natural resources occurring on or off the Mortgaged
Property, whether foreseeable or unforeseeable), costs and expenses in any way
arising from, relating to or connected with:  (a) any Hazardous Substances in,
on, under or at the Mortgaged Property; (b) any past, present or future
violation of any Environmental Laws at the Mortgaged Property except for
violations which occur after Trustor no longer has any right, title or interest
in any portion of the Mortgaged Property; (c) any breach of any representation
or warranty made by Trustor in this Deed of Trust; (d) any failure to perform
any obligation of Trustor in accordance with this Deed of Trust; (e) any
investigation, inquiry, order (whether voluntary or involuntary), hearing,
action or other proceeding by or before any governmental or quasi-governmental
agency in connection with any actual or alleged Hazardous Substance Activity;
(f) any loss of value of the Mortgaged Property directly or indirectly arising
as a result of the presence of any Hazardous Substances in, on, under or at the
Mortgaged Property or any Hazardous Substance Activity; and (g) any action or
other proceeding to enforce this indemnity.  The foregoing indemnification shall
include all costs and expenses of investigation, monitoring, Remediation Work,
containment, abatement, removal, repair, cleanup, restoration and remedial work,
penalties and fines, attorneys’ fees and disbursements, consultants’ fees,
contractors’ fees, experts’ fees, laboratory fees, and other response costs.  If
Trustor fails to perform any obligation of Trustor in accordance with this Deed
of Trust, Beneficiary shall have the right, but not the obligation, to perform
such obligation on behalf of Trustor.  Trustor shall, on demand, pay to
Beneficiary all sums expended by Beneficiary in the performance of any such
obligations of Trustor, together with interest thereon from the date of
expenditure until paid at the Default Rate.
 
Section 5.06          Assessment.  If any Default or Event of Default occurs, or
if Beneficiary has reason to believe that there has been a Hazardous Substance
Activity on the Mortgaged Property, Beneficiary shall have the right, but not
the obligation, at the expense of Trustor, to obtain a comprehensive
environmental assessment and report of the Mortgaged Property, including soil
and groundwater sampling in scope satisfactory to Beneficiary, prepared by an
engineer selected by Beneficiary.  The purpose of such assessment will be to
ascertain whether any Hazardous Substances are present or any Release or
threatened Release of any Hazardous Substances has occurred in, on, under or at
the Mortgaged Property (or any nearby real property which could migrate to the
Mortgaged Property) or any violation of any Environmental Laws exists at the
Mortgaged Property.  Trustor shall, on demand, pay to Beneficiary all sums
expended by Beneficiary in connection with any such comprehensive environmental
assessment and report, together with interest thereon from the date of
expenditure until paid at the Default Rate.
 
 
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Section 5.07          Independent Obligations.  The obligations of Trustor under
this Article V are separate from and in addition to the obligations to pay the
indebtedness evidenced by the Note and to perform the other obligations secured
by this Deed of Trust.  The liability of Trustor under this Article V shall not
be limited to or measured by the amount of the indebtedness owed under the Note,
the Agreement or this Deed of Trust or the value of the Mortgaged
Property.  Trustor shall be fully and personally liable for all obligations of
Trustor under this Article V and a separate action may be brought and prosecuted
against Trustor under this Article V.  The liability of Trustor under this
Article V shall not be subject to any limitation set forth in the Note or
elsewhere in this Deed of Trust on personal liability for the payment of the
indebtedness evidenced by the Note, or the remedies of Beneficiary for
enforcement of the obligations under the Note, the Agreement or this Deed of
Trust, or the recourse of Beneficiary for satisfaction of such
obligations.  Trustor agrees that no action for the enforcement of or recovery
of damages under this Article V shall constitute an action within the meaning of
California Code of Civil Procedure § 726, which section shall not apply to this
Article V.  No judgment against Trustor in any action pursuant to this Article V
shall constitute a money judgment or a deficiency judgment within the meaning of
California Code of Civil Procedure §§ 580a, 580b, 580d or 726.  This Article V
and the obligations of Trustor hereunder shall survive, and remain in full force
and effect after, the repayment or satisfaction of the Note, any reconveyance of
this Deed of Trust or any foreclosure of this Deed of Trust (whether by judicial
action, exercise of the power of sale, deed in lieu of foreclosure, or
otherwise), and Beneficiary shall have the right to enforce this Article V after
any such repayment, satisfaction, reconveyance or foreclosure.  Trustor waives
the right to assert any statute of limitations as a bar to the enforcement of
this Article V or to any action brought to enforce this Article V.  This Article
V shall not affect, impair or waive any rights or remedies of Beneficiary or any
obligations of Trustor with respect to any Environmental Laws (including
Beneficiary’s rights of reimbursement or contribution under Environmental
Laws).  The remedies in this Article V are cumulative and in addition to all
remedies provided by law.  The provisions of this Article V are intended to be
“environmental provisions” pursuant to California Code of Civil Procedure §§
726.5 and 736.
 
ARTICLE VI
 
Miscellaneous
 
Section 6.01         Instrument Construed as Mortgage, Etc.  This Deed of Trust
may be construed as a mortgage, deed of trust, chattel mortgage, conveyance,
assignment, security agreement, pledge, financing statement, hypothecation or
contract, or any one or more of them, in order fully to effectuate the lien
hereof and the purposes and agreements herein set forth.
 
Section 6.02          Release of Mortgage.  This Deed of Trust is executed and
delivered upon the condition that, if all Indebtedness and Obligations Secured
are fully paid and satisfied at the times and in the manner required and if all
and singular the covenants and promises in this Deed of Trust, the Note, the
Agreement, and the other Transaction Documents, and all renewals, extensions,
amendments and modifications thereof, are fully kept, performed and observed,
all without fraud or delay, and the Agreement is terminated, then this Deed of
Trust shall cease, determine and become void.  Otherwise, this Deed of Trust
shall remain and continue in full force and effect.
 
Section 6.03          Severability.  If any provision hereof is invalid or
unenforceable in any jurisdiction, the other provisions hereof shall remain in
full force and effect in such jurisdiction and the remaining provisions hereof
shall be liberally construed in favor of Beneficiary in order to effectuate the
provisions hereof, and the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
any such provision in any other jurisdiction.
 
Section 6.04          Successors and Assigns of Parties.  The term “Beneficiary”
as used herein shall include any legal owner, holder, assignee or pledgee of any
of the Indebtedness and Obligations Secured.  The terms used to designate
Beneficiary and Trustor shall be deemed to include the respective heirs, legal
representatives, successors and assigns of such parties, subject, however, to
the limitations herein on the Trustor’s rights to assign, transfer or convey any
of the Mortgaged Property.
 
 
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Section 6.05          Satisfaction of Prior Encumbrance.  To the extent that
proceeds of the Agreement are used to pay indebtedness secured by any
outstanding lien, security interest, charge or prior encumbrance against the
Mortgaged Property, such proceeds have been advanced by Beneficiary at Trustor’s
request, and Beneficiary shall be subrogated to any and all rights, security
interests and liens owned by any owner or holder of such outstanding liens,
security interests, charges or encumbrances, and it is expressly understood
that, in consideration of the payment of such other indebtedness by Beneficiary,
Trustor hereby waives and releases all demands and causes of action against
Beneficiary for offsets and payments to, upon and in connection with the said
indebtedness.
 
Section 6.06          Subrogation of Beneficiary.  This Deed of Trust is made
with full substitution and subrogation of Beneficiary and its successors and
assigns in and to all covenants and warranties by others heretofore given or
made in respect of the Mortgaged Property or any part thereof.
 
Section 6.07          Nature of Covenants.  The covenants and agreements herein
contained shall constitute covenants running with the land and interests covered
or affected hereby and shall be binding upon and inure to the benefit of the
heirs, legal representatives, successors and assigns of the parties hereto.
 
Section 6.08          Notices.  All notices and other communications shall be in
writing and mailed by certified mail, return receipt requested, hand delivered,
or delivered by a nationally recognized overnight courier, at the address for
the appropriate party specified in the first paragraph of this Deed of Trust or
at such other address as shall be designated by such party in a written notice
to the other parties.  All such notices and communications shall, when so mailed
or hand delivered or delivered by a nationally recognized overnight courier, be
effective when received if mailed or when delivered by such messenger or
courier, respectively.  A copy of any Notice of Default and a copy of any Notice
of Sale shall hereunder be delivered to Trustor as specified herein.
 
Section 6.09          Counterparts.  This Deed of Trust is being executed in
several counterparts, all of which are identical, except that to facilitate
recordation, if the Mortgaged Property is situated in more than one county or
recording jurisdiction, then, at the option of Beneficiary, descriptions of only
those portions of the Mortgaged Property located in the county or recording
jurisdiction in which a particular counterpart is recorded shall be attached as
Exhibit B and Exhibit C thereto.  Each of such counterparts shall for all
purposes be deemed to be an original and all such counterparts shall together
constitute but one and the same instrument.
 
Section 6.10          Exculpation Provisions.  Each of the parties hereto
specifically agrees that it is charged with notice and knowledge of the terms of
this Deed of Trust; that it has in fact read this Deed of Trust and is fully
informed and has full notice and knowledge of the terms, conditions and effects
of this Deed of Trust; that it has been represented by independent legal counsel
of its choice throughout the negotiations preceding its execution of this Deed
of Trust; and has received the advice of its attorney in entering into this Deed
of Trust; and that it recognizes that certain of the terms of this Deed of Trust
result in one party assuming the liability inherent in some aspects of the
transaction and relieving the other party of its responsibility for such
liability.  Each party hereto agrees and covenants that it will not contest the
validity or enforceability of any exculpatory provision of this Deed of Trust on
the basis that the party had no notice or knowledge of such provision or that
the provision is not “conspicuous.”
 
Section 6.11          Security Agreement.  With respect to any portion of the
Mortgaged Property that constitutes fixtures or other property governed by the
Applicable UCC, this Deed of Trust shall constitute a security agreement between
Trustor, as the debtor, and Beneficiary, as the secured party.  Cumulative of
all other rights of Beneficiary hereunder, Beneficiary shall have all of the
rights conferred upon secured parties by the Applicable UCC.
 
 
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Section 6.12          Intentionally Omitted.
 
Section 6.13          Time of the Essence.  Time is of the essence in the
performance of each and every obligation under this Deed of Trust.
 
Section 6.14          Intentionally Omitted.
 
Section 6.15          Waivers.  Subject to the Agreement, Beneficiary may at any
time and from time to time in writing waive compliance by Trustor with any
covenant herein made by Trustor to the extent and in the manner specified in
such writing, or consent to Trustor’s doing any act that Trustor is prohibited
from doing hereunder, or to Trustor’s failing to do any act that Trustor is
required to do hereunder, to the extent and in the manner specified in such
writing, or release any part of the Mortgaged Property or any interest therein
or any Production Proceeds from the lien and security interest of this Deed of
Trust.  Any party liable, either directly or indirectly, for the Indebtedness
and Obligations Secured or for any covenant herein or in any other Transaction
Document may be released from all or any part of such obligations without
impairing or releasing the liability of any other party.  No such act shall in
any way impair any rights or powers hereunder except to the extent specifically
agreed to in such writing.
 
Section 6.16          FINAL AGREEMENT OF THE PARTIES.  THIS DEED OF TRUST, THE
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
 
Section 6.17          Governing Law.  This Deed of Trust shall be governed by
and construed in accordance with the laws of New York, without giving effect to
its laws relating to conflicts of laws, except to the extent that the laws of
any other jurisdiction where the Mortgaged Property  is located (or which is
otherwise applicable to a portion of the Mortgaged Property) mandatorily govern
the creation of, or the manner or procedure for enforcement of the lien created
by this Deed of Trust, the laws of such jurisdiction shall govern, provided that
any rights or remedies herein provided for shall be valid under the laws of the
jurisdiction where proceedings for the enforcement hereof shall be taken and
shall not be affected by the invalidity, if any, of such rights or remedies
under the laws of the State of New York.
 
Section 6.18          Rule Against Perpetuities Saving Clause.  Anything herein
to the contrary notwithstanding, this Deed of Trust is not intended to, and does
not, convey to Beneficiary any interest in property that may be acquired by
Trustor or a Subsidiary of Trustor after the expiration of a period of 20 years
after the death of the last surviving member of a class composed of all
currently living descendants of Rose Kennedy, the mother of former President
John F. Kennedy.  The sole purpose of this clause is to insure that no interest
in property covered or conveyed by this Deed of Trust violates the common law or
any statutory rule against perpetuities.
 
 
Deed of Trust - Page 24

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Section 6.19          Waivers.  Trustor, for itself and any subsequent owner of
the Property, hereby expressly consents that, from time to time and without
notice to it, time for the performance and/or observance by Parent of the
agreements contained in the Note, the Agreement and this Deed of Trust may be
extended, or such performance or observance may be waived by the holder of the
Note, the Agreement and this Deed of Trust, and the Note and the Agreement may
be amended and/or supplemented (including any increase of the indebtedness
evidenced by the Note), and payment of any sum owing or payable hereunder or
thereunder may be extended in whole or in part, without affecting the lien and
security interest created by this Deed of Trust.  Trustor, for itself and any
subsequent owner of the Property, hereby waives presentment of payment or
acceptance, demand of payment, protest or notice of dishonor or nonpayment, and
notice of extension of time, change in nature or form of indebtedness, or
release of security with respect to this Deed of Trust, the Agreement and the
Note, and all demands whatsoever, and any defense, except payment, which it
might have in any judicial or nonjudicial proceeding under the Note, the
Agreement or this Deed of Trust, including specifically, but without limitation,
any rights of subrogation it may have against Parent.  Trustor, for itself and
any subsequent owner of the Property, consents to any form or election of remedy
pursued by any holder of the indebtedness secured hereby to enforce its rights
under the Note, the Agreement or this Deed of Trust, in whatever order it may
choose, including any remedies that may result in the relinquishment of a
deficiency judgment in its favor against Parent, and it waives any rights it may
have under California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848,
2849, 2850, 2899 and 3433, or any successor sections.  The liens granted herein
and the enforceability of this Deed of Trust at all times shall remain effective
to secure the full amount of all the obligations secured hereby, even though the
obligations secured hereby, including any part thereof or any other security or
guaranty therefor, may be or hereafter may become invalid or otherwise
unenforceable as against Parent and whether or not Parent shall have any
personal liability with respect thereto.  Trustor represents and warrants to
Beneficiary that Trustor has established adequate means of obtaining from
Parent, on a continuing basis, financial and other information pertaining to the
businesses, operations and conditions (financial and otherwise) of Parent and
Parent’s properties, and Trustor now is and hereafter will be completely
familiar with the businesses, operations and conditions (financial or otherwise)
of Parent.  Trustor hereby expressly waives and relinquishes any duty on the
part of Beneficiary to disclose to Trustor any matter relating to the
businesses, operations and conditions (financial or otherwise) of Parent or
Parent’s properties, whether now known or hereafter known by Beneficiary during
the term of this Deed of Trust.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK -
SIGNATURE PAGE FOLLOWS]
 
 
Deed of Trust - Page 25

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IN WITNESS HEREOF, Trustor has executed and delivered this Deed of Trust to be
effective as of the day and year first above written.
 
 

 
TRUSTOR:
 
 
TRI-VALLEY OIL & GAS CO.,
 
a California corporation
             
By:
/s/ Maston N. Cunningham
   
Maston N. Cunningham, President and Chief
Executive Officer

 
 
 
 
Deed of Trust – Signature Page

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ACKNOWLEDGEMENT
 
 
STATE OF CALIFORNIA
)
     
)
ss.
 
COUNTY OF KERN
)
           
On March ___, 2012, before me, _____________________________
,
   

 
 
personally appeared Maston N. Cunningham, President and Chief Executive Officer
of Tri-Valley Oil & Gas Co., a California corporation,

 
who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
 
 

 
I certify under PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.
     
WITNESS my hand and official seal.
           
Place Notary Seal Above
Signature of Notary Public

 
 
 
Deed of Trust – Signature Page

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EXHIBIT A

RECORDING JURISDICTIONS

KERN COUNTY, STATE OF CALIFORNIA
 
 
Deed of Trust – Exhibit “A”

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EXHIBIT B

HYDROCARBON PROPERTIES
CLAFLIN LEASE – That certain Oil and Gas Lease entered on May 10, 2006 by and
between Lawrence Randall Stafford, Trustee of the Fighting Dragon Trust dated
May 8, 2002, as Lessor, and Tri-Valley Oil & Gas Co., as Lessee, as to which a
Memorandum of Oil and Gas Lease (Short Form Lease) dated May 17, 2007 was
recorded with the Official Records of Kern County on May 18, 2007 as Document
No. 0207105189.

APNs: 388-010-26, 27, 28, 29, 07MR & 08MR
Containing 80.0 acres, more or less

Portion of Section 26, Township 29 South, Range 29 East, M.D.B. & M., Kern
County, California

Section 26:  West Half of the Southwest Quarter (W/2 SW/4)

 
Deed of Trust – Exhibit “B”

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EXHIBIT C

HYDROCARBON RELATED PROPERTIES

HYDROCARBON
PROPERTY
 
NET REVENUE INTEREST
WORKING INTEREST
 
Claflin Lease
 
.875 or 87.5% less 2%
Overriding Royalty Interest in
favor of Beneficiary
 
1.00 or 100%

 
Deed of Trust – Exhibit “C”

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EXHIBIT D

PERMITTED ENCUMBRANCES

With respect to the Hydrocarbon Properties, each lessor’s royalties,
non-participating royalties, overriding royalties, division orders, sales,
gathering, transportation and transportation-related services contracts
containing customary terms and provisions, reversionary interests, and similar
burdens if the net cumulative effect of such burden does not operate to reduce
the Net Revenue Interest in any lease to an amount less than the Net Revenue
Interest set forth on Exhibit C, or increase the Working Interest of any Well
from that set forth in Exhibit C without a corresponding increase in the Net
Revenue Interest.
 
 
Deed of Trust – Exhibit “D”

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