American Natural Energy Corporation  - Exhibit 10.7 - Filed by newsfilecorp.com






Exhibit 10.7 

State of Louisiana 

	MORTGAGE, INDENTURE, SECURITY AGREEMENT, FIXTURE FILING,
    
	FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION 
	  
	(Oil and Gas) 
	  
	FROM 
	  
	AMERICAN NATURAL ENERGY CORPORATION 
	6100 South Yale Ave., Suite 300 
	Tulsa, OK 74136 
	(“Mortgagor”) 
	  
	TO 
	  
	TCA GLOBAL CREDIT MASTER FUND, LP 
	1404 Rodman Street 
	Hollywood, FL 33020 
	(“Mortgagee”) 
	  
	As of December 29, 2011 
	 


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

MORTGAGOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE WHICH IS
DESCRIBED IN EXHIBIT “A” HERETO. SOME OF THE PERSONAL PROPERTY
CONSTITUTING A PORTION OF THE COLLATERAL IS OR IS TO BECOME FIXTURES RELATED TO
THE REAL ESTATE. 

THE OIL AND GAS INTERESTS INCLUDED IN THE MORTGAGED PROPERTY
WILL BE FINANCED AT THE WELL HEADS OF THE WELLS LOCATED ON THE MORTGAGED
PROPERTIES DESCRIBED ON EXHIBIT “A” HERETO AND THIS FINANCING
STATEMENT IS TO BE FILED, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS.

THE PRINCIPAL AMOUNT OF DEBTS SECURED BY THIS MORTGAGE (NOT
INCLUDING SUMS ADVANCED TO PROTECT THE SECURITY OF THIS MORTGAGE) SHALL NOT
EXCEED, AT ANY ONE TIME, THE AMOUNT OF $6,000,000.00. 

THIS INSTRUMENT IS A MORTGAGE OF BOTH REAL AND PERSONAL
PROPERTY AND IS, AMONG OTHER THINGS, A SECURITY AGREEMENT AND FINANCING
STATEMENT UNDER THE UNIFORM COMMERCIAL CODE. A CARBON, PHOTOGRAPHIC, FACSIMILE,
OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT.


WHEN RECORDED AND/OR FILED RETURN TO: 
David Kahan, Esq.

David Kahan, P.A. 
3125 W. Commercial Blvd., Suite 100 

  Ft. Lauderdale, Florida 33309 




MORTGAGE, INDENTURE, SECURITY AGREEMENT, FIXTURE FILING,
FINANCING 
STATEMENT AND ASSIGNMENT OF
PRODUCTION 

          THIS
MORTGAGE, INDENTURE, SECURITY AGREEMENT, FIXTURE FILING, FINANCING STATEMENT AND
ASSIGNMENT OF PRODUCTION (herein called the “Mortgage”), is
executed on the date indicated in the notarial certificate affixed hereto, but
is made, delivered and effective as of the 29th day of December, 2011
(the “Effective Date”), by and between AMERICAN NATURAL ENERGY
CORPORATION, an Oklahoma corporation, with a mailing address of 6100 South Yale
Ave., Suite 300, Tulsa, OK 74136 (“Mortgagor”) and TCA GLOBAL
CREDIT MASTER FUND, LP, a Cayman Islands limited partnership, whose address is
1404 Rodman Street, Hollywood, FL 33309 (“Mortgagee”). 

WITNESSETH:

          WHEREAS,
pursuant to a Securities Purchase Agreement dated as of December 29, 2011
between Mortgagor and Mortgagee (the “Purchase Agreement”),
Mortgagor has agreed to issue to the Mortgagee, and the Mortgagee has agreed to
purchase from Mortgagor up to Three Million Dollars ($3,000,000) of Mortgagor’s
senior secured redeemable debentures (the “Debentures”), all as
more specifically set forth in the Purchase Agreement; and 

          WHEREAS,
in order to induce the Mortgagee to purchase the Debentures, Mortgagor has
agreed to execute and deliver this Mortgage in favor of the Mortgagee, for the
benefit of the Mortgagee and to grant to Mortgagee a continuing, first priority
lien and security interest in the “Mortgaged Properties” (as hereinafter
defined) to secure the prompt payment, performance and discharge in full of all
of Mortgagor’s obligations under the Debentures, the Purchase Agreement and the
other “Transaction Documents” (as hereinafter defined);

          NOW,
THEREFORE, in consideration of the premises contained herein, and in order
to secure payment of both the principal of, and the interest and any other sums
payable on or by reason of, the Debentures, and the “Obligations” (as
hereinafter defined), and the performance and observance of all of the
covenants and provisions hereof and of the Debentures, the Purchase Agreement
and the other Transaction Documents, and all renewals, amendments,
substitutions, extensions and modifications hereof and thereof, Mortgagor does
hereby MORTGAGE, GRANT, BARGAIN, SELL, ASSIGN, WARRANT, TRANSFER and CONVEY unto
Mortgagee and to Mortgagee’s successors and assigns, the following described
real and personal property, rights, titles, interests and estates (herein
collectively called the “Mortgaged Properties”): 

          (a)     
All rights, titles, interests and estates now owned or hereafter acquired by
Mortgagor in and to the oil and gas and/or the oil, gas and mineral leases
described on Exhibit “A” attached hereto (herein sometimes
collectively called the “Leases”), together with all operating
rights, forced pooling orders, farmout agreements, participation agreements and
other contractual or other rights of any nature whatsoever relating to oil, gas
and mineral rights associated with such Leases, including, without limitation,
all of Mortgagor’s undivided interests in the Leases; 

          (b)      All
rights, titles, interests and estates now owned or hereafter acquired by
Mortgagor in and to: (i) the properties now or hereafter pooled or unitized with
the Leases; (ii) all presently existing or future unitization, communitization,
pooling agreements and declarations of pooled units and the units created
thereby (including, without limitation, all units created under orders,
regulations, rules or other official acts of any Federal, State or other
governmental body or agency having jurisdiction) which may affect all or any
portion of the Leases, including, without limitation, those units, if any, which
may be described or referred to in Exhibit “A”; (iii) all area of
mutual interest agreements, development agreements, geologic and geophysical survey agreements,
operating agreements, contracts and other agreements of any nature or kind which
relate in any manner to any of the Leases or interests in the Leases, or
otherwise relating to the production, sale, purchase, exchange or processing of
the “Hydrocarbons” (as hereinafter defined) from or attributable to such
Leases or interests; and (iv) the Leases, even though Mortgagor’s interests
therein be incorrectly described or a description of a part or all of such
Leases or Mortgagor’s interests therein be omitted; 

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          (c)     
All rights, titles, interests and estates now owned or hereafter acquired by
Mortgagor in and to all oil, gas, casinghead gas, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined therefrom and all
other minerals of whatever kind or character and in whatever form or phase
(herein collectively called the “Hydrocarbons”) in and under and
which may be produced and saved from or attributable to the Leases, the lands
covered thereby and Mortgagor’s interests therein, including, without
limitation, all oil in tanks and all rents, issues, profits, proceeds, products,
revenues and other income from or attributable to the Leases or the
Hydrocarbons, the lands covered thereby and Mortgagor’s interests therein which
are subjected or required to be subjected to the liens and security interests of
this Mortgage;

          (d)     
All tenements, hereditaments, appurtenances and properties in anywise
appertaining, belonging, affixed or incidental to the Leases, properties,
rights, titles, interests and estates described or referred to in subparagraphs
(a) and (b) and (c) above, which are now owned or which may hereafter be
acquired by Mortgagor, 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 such Leases or properties and including any and all oil wells, gas wells,
injection wells or other wells of any nature or kind relating to or within the
lands described in the Leases, buildings, structures, field 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 properties;

          (e)     
The easements, rights-of-way, servitudes, real property, and permits, licenses,
orders, certificates, and related instruments (collectively herein referred to
as the “Easements”) in any way related or appurtenant to the
Leases or the lands described herein, or otherwise necessary, required,
beneficial or associated with the operation, working or development of the
Leases and the Hydrocarbons, and any strips and gores within or adjoining any
real property included in or covered by the Easements, all rights of ingress and
egress to and from such real property, all easements, servitudes, rights-of-way,
surface leases, fee tracts and other surface rights affecting said Easements,
and all rights appertaining to the use and enjoyment of said Easements, rights,
estates, titles, claims, and interests, including, without limitation, lateral
support, drainage, mineral, water, oil and gas rights (the Easements and all of
the property and other rights, privileges, interests, titles, estates, and
claims appurtenant thereto are hereinafter collectively called the
“Gathering System Premises”);

          (f)      All
gathering systems and/or pipeline systems, and all materials, equipment, and
other property now or hereafter located on the Gathering System Premises or used
or held for use, regardless of where the same are located, in connection with,
or otherwise related to such gathering systems and/or pipeline systems, and all
equipment, including, but not limited to, all fittings, furnishings, appliances,
apparatus, machinery, treatment, storage, transportation, exchange units, gas,
liquid product and other storage tanks, liquid product truck loading terminals,
and other assets now or hereafter located on or in (or, whether or not located
thereon or therein, used or held for use in connection with) the Gathering
System Premises or such gathering systems or pipeline systems (that portion of
the Mortgaged Properties described in this paragraph (f) is herein collectively
called the “Gathering Systems”);

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          (g)      All
materials, goods, surface or subsurface machinery, equipment, and other property
now or hereafter located on the Gathering System Premises, and all other surface
or subsurface machinery and equipment, line pipe and pipe connections, fittings,
flanges, welds or interconnects, valves, control equipment, cathodic or
electrical protection units, by-passes, regulators, drips, meters and metering
stations, compression equipment, pumphouses and pumping stations, treating
equipment, dehydration equipment, separation equipment, processing equipment,
telephone, telegraph and other communication systems, office equipment and
furniture, files and records, computer equipment and software, storage sheds,
vehicles, loading docks, loading racks, towers, process tanks, storage tanks and
other storage facilities, and shipping facilities, gas and electric fixtures,
radiators, heaters, engines and machinery, boilers, elevators and motors, pipes,
faucets and other air conditioning, plumbing, and heating fixtures,
refrigerators and appurtenances which relate to Mortgagor’s use of the Gathering
Systems (collectively, the “Gathering System Equipment”), and all
building materials and supplies now or hereafter delivered to the Gathering
System Premises and intended to be installed thereon; all other personal
property of whatever kind and nature at present contained in or hereafter placed
on the Gathering System Premises in which Mortgagor has a possessory or title
interest; and all renewals or replacements thereof or articles in substitution
thereof; and all proceeds and profits thereof, all of which shall be deemed to
be a portion of the security for the “Obligations” (as hereafter
defined). If the lien of this Mortgage on any fixtures or personal property is
subject to a lease agreement, conditional sales agreement or chattel mortgage
covering such property, then all the right, title and interest of Mortgagor in
and to any and all deposits made thereon or therefor are hereby assigned to
Mortgagee, together with the benefit of any payments now or hereafter made
thereon. Mortgagor also transfers, sets over and assigns to Mortgagee, its
successors and assigns, all leases and use agreements covering machinery,
equipment and other personal property of Mortgagor related to the Gathering
System Premises or the conduct of its business thereon, under which Mortgagor is
the lessee of, or entitled to use, such items;

          (h)     
All inventory and all materials used or consumed in the processing of
Hydrocarbons, and all products thereof, now or hereafter located in or on, or
stored in or on, transported through or otherwise related to the lands covered
by the Leases and the Gathering System Premises (herein collectively, the
“Premises”), including all inventory (as such term is used in the
Uniform Commercial Code of the State of Louisiana (the “Uniform Commercial
Code”)) and such other property held by Mortgagor for sale or lease (or
in the possession of other persons while on lease or consignment) or furnished
or to be furnished under any service contract and all raw materials, work in
process and materials and supplies used or consumed in Mortgagor’s business
relating to the Premises, and returned or repossessed goods, together with any
bill of lading, dock warrant, dock receipt, warehouse receipt or order for the
delivery of such goods of Mortgagor related to the Leases and Gathering System,
and any other document which in the regular course of business or financing is
treated as adequately evidencing that the person in possession of it is entitled
to receive, hold and dispose of the document and the goods that it covers (the
Mortgaged Properties described in this paragraph (h) are hereinafter
collectively referred to as the “Inventory”), and all proceeds
thereof and all accounts, contract rights and general intangibles under which
such proceeds may arise, and together with all liens and security interests
securing payment of the proceeds of the Inventory, including, but not limited
to, those liens and security interests provided for under statutes enacted in
the jurisdictions in which the Mortgaged Properties are located;

          (i)      All
presently existing and hereafter created Hydrocarbon purchase agreements,
Hydrocarbon sales agreements, supply agreements, raw material purchase
agreements, product purchase agreements, product sales agreements, processing
agreements, exchange agreements, gathering agreements, transportation agreements
and other contracts and agreements which cover, affect, or otherwise relate to
the production, extraction, transportation and/or processing of Hydrocarbons
through or in the Premises or any other part of the Mortgaged Properties, and
all other contracts and agreements (including, without limitation, equipment
leases, maintenance agreements, electrical supply contracts, hedge or swap
agreements, cap, floor, collar, exchange, forward or other hedge or protection
agreements or transactions relating to crude oil, natural gas or other
Hydrocarbons, or any option with respect to any such agreement or transaction,
and other contracts and agreements) which cover, affect or otherwise relate to
the Premises, or any part thereof, together with any and all amendments,
modifications, renewals or extensions (now or hereafter existing) to any of the
foregoing (the Mortgaged Properties described in this paragraph (i) are herein
collectively called the “Contracts”);

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          (j)      All
accounts, including, but not limited to: (i) all of Mortgagor’s rights to
receive payment, whether or not earned by Mortgagor’s performance and however
acquired or evidenced, which arise out of or in connection with: (A) Mortgagor’s
sale of Hydrocarbons; (B) Mortgagor’s sale, assignment, lease, hiring out or
allowance of use of, consignment, licensing or other voluntary disposition,
whether permanent or temporary, of Inventory or other goods or property related
to the Premises and/or the conduct of Mortgagor’s business thereon (including,
without limitation, all payments received in lieu of payment for Inventory
regardless of whether such payments accrued, and/or the events which gave rise
to such payments occurred, on or before or after the date hereof, including,
without limitation, “take or pay” or “minimum bill” payments and similar
payments, payments received in settlement of or pursuant to a judgment rendered
with respect to take or payor minimum bill or similar obligations or other
obligations under a sales contract, and payments received in buyout or other
settlement of a contract covered by this Mortgage); (C) rendering of services
related to the Gathering Systems and/or Premises and/or the conduct of
Mortgagor’s business thereon; or (D) any loan, advance, or other extension of
credit made by Mortgagor; (ii) any and all rights and interests Mortgagor may
have in connection with any of the transactions described in the preceding
clause (i) and relating to the Premises, whether now existing or hereafter
acquired, including, without limitation, and rights and interests: (A) to demand
and receive payment or other performance from any guarantor, surety,
accommodation party or other person indirectly or secondarily obligated to
Mortgagor in respect of the Leases, Hydrocarbons, Gathering Systems and/or the
Premises and/or the conduct of Mortgagor’s business thereon; (B) arising out of
the enforcement of any of Mortgagor’s rights to payment or performance by means
of judicial or administrative proceedings, including, without limitation, any
rights to receive payment under or in connection with any settlement of such
proceedings, any judgment or any administrative order or decision arising out of
actions related to the Leases, Hydrocarbons, Gathering Systems and/or the
Premises and/or the conduct of Mortgagor’s business thereon; (C) in and to the
goods or other property related to the Premises and/or the conduct of
Mortgagor’s business thereon that is the subject of any such transaction,
including, without limitation: (1) in the case of goods, an unpaid seller’s or
lessor’s rights of rescission, replevin or to stop such goods in transit, and
all rights to such goods on return or repossession; and (2) in the case of other
property, rights of an unpaid seller, assignor or licensor to rescind or cancel
the applicable agreement and demand the return of such property or, if such
property is intangible, of any writing or other tangible evidence of its
existence and/or disposition; and (D) to proceed against any collateral security
related to the Premises provided by any obligor and to realize any proceeds
thereof; and (iii) all contracts and other agreements and writings, all
accounts, chattel paper, documents, general intangibles and instruments, and all
other items of property now or hereafter owned by Mortgagor or in which
Mortgagor now has or hereafter acquires any rights or interests, whether
tangible or intangible and related to the Premises that in any way constitute,
embody or evidence any payment rights described in clause (i) of this paragraph
(j) or any of Mortgagor’s other rights and interests described in clause (ii) of
this paragraph (j) (the Mortgaged Properties described in this paragraph (j) are
hereinafter collectively referred to as the “Accounts
Receivable”);

          (k)     
All contracts, agreements, leases, permits, orders, franchises, servitudes,
certificates, privileges, rights, technology, licenses and general intangibles
(including, without limitation, all trademarks, trade names, and symbols) which
are now or hereafter used, or held for use, in connection with or otherwise
relate to the Premises, the Gathering Systems, the Gathering System Equipment
and/or the other items described in paragraph (g), the Inventory, the Contracts,
and/or the Accounts Receivable (the Premises, the Gathering Systems, the
Gathering System Equipment and the other items described in paragraph (g), the Inventory, the Contracts, and the Accounts
Receivable are hereinafter collectively referred to as the
“Property”) or the conduct of Mortgagor’s business on the Leases
and/or Gathering System Premises whether now or hereafter created, acquired, or
entered into and all right, title and interest of Mortgagor thereunder,
including, without limitation, rights, incomes, profits, revenues, royalties,
accounts, contract rights and general intangibles under any and all of the
foregoing;

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          (l)      Any
and all data, books and records related to the Premises and Mortgagor’s
operations thereon, including, but not limited to, accounting records, files,
computer software, employee records, engineering drawings or plans, surveys,
site assessments, environmental reports, customer lists, production records,
laboratory and testing records, sales and administrative records, and any other
material or information relating to the ownership, maintenance, or operation of
the Property (the “Books and Records”);

          (m)     
All unearned premiums, accrued, accruing or to accrue under insurance policies
now or hereafter obtained by Mortgagor for the Property or the conduct of
Mortgagor’s business on the Premises and all judgments, awards of damages and
settlements hereafter made as a result of or in lieu of any taking of the
Premises or any part thereof or any interest therein under the power of eminent
domain, or for any damage (whether caused by such taking or otherwise) to the
Leases and/or Gathering System Premises or any part thereof or interest therein,
including any award for change of grade of streets;

          (n)      All
proceeds of the conversion, voluntary or involuntary, of the Property or any
part thereof into cash or liquidated claims, including, without limitation,
proceeds of hazard and title insurance, subject to the terms and conditions of
this Mortgage;

          (o)      All
options, extensions, improvements, betterments, renewals, substitutions and
replacements of, and all additions and appurtenances to, the Property or any
part thereof, hereafter acquired by, or released to, Mortgagor, or constructed,
assembled or placed by Mortgagor on the Premises, and all conversions of the
security constituted thereby (Mortgagor hereby acknowledging and agreeing that
immediately upon such acquisition, release, construction, assembling, placement
or conversion, as the case may be, and in each such case, without any further
mortgage, conveyance, assignment or other act by Mortgagor, the same shall
become subject to the lien of this Mortgage as fully and completely, and with
the same effect, as though now owned by Mortgagor and specifically described
herein);

          (p)     
Any property that may from time to time hereafter by delivery or by writing of
any kind be subjected to the lien or security interests hereof by Mortgagor or
by anyone on Mortgagor’s behalf; and the Mortgagee is hereby authorized to
receive the same at any time as additional security hereunder;

          (q)      All
of the rights, titles and interests of every nature whatsoever now owned or
hereafter acquired by Mortgagor in and to the Leases, Easements, properties,
rights, titles, interests and estates and every part and parcel thereof,
including, without limitation, said Leases, properties, 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 or “Permitted
Encumbrances” (hereinafter defined) to which any of said Leases, Easements,
properties, rights, titles, interests or estates are subject, or otherwise;
together with any and all renewals and extensions of any of said Leases,
Easements, properties, rights, titles, interests or estates; and all contracts
and agreements supplemental to or amendatory of or in substitution for the
Leases, Easements, the contracts and agreements described or mentioned above and
any and all additional interests of any kind hereafter acquired by Mortgagor in
and to said Leases, Easements, properties, rights, titles, interests or estates;
and

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          (r)      All
accounts, contract rights, equipment, fixtures, inventory, general intangibles
and any and all other personal/movable property of any kind or character
constituting a part of, relating to or arising out of those portions of the
Mortgaged Properties which are described in paragraphs (a) through (q) above and
all proceeds and products of all such portions of the Mortgaged Properties.

          TO
HAVE AND TO HOLD the Mortgaged Properties unto Mortgagee, and Mortgagee’s
successors and assigns, forever, in accordance with the terms and provisions
hereof; and Mortgagor hereby covenants that Mortgagor is the lawful owner and
holder of the Mortgaged Properties, free and clear of all liens, claims and
encumbrances of any nature or kind; that Mortgagor has good right to transfer,
assign and mortgage the Mortgaged Properties, and that Mortgagor will warrant
and forever defend the same against the claims of all persons whomsoever
lawfully claiming or to claim the same or any part thereof. 

ARTICLE I. 

  OBLIGATIONS SECURED

          1.1.      The
foregoing conveyance is made to secure and enforce payment and performance of
each of the following (herein collectively called the
“Obligations”): 

          (a)      Any
and all indebtedness, liabilities and obligations arising under or evidenced by,
and the performance of all covenants, conditions and agreements undertaken by
Mortgagor in connection with the Debentures, and any amendments, renewals or
extensions thereof and substitutions or replacements therefor; and all
obligations due under, in connection with, or arising out of, all documents
evidencing, pertaining to or securing the repayment of the Debentures,
including, without limitation, the Purchase Agreement (hereinafter referred to
collectively as the “Transaction Documents”), and any amendments
to or substitutions for any of the Transaction Documents. The Transaction
Documents shall also include any documents or instruments defined as
“Transaction Documents” in the Purchase Agreement;

          (b)     
Any sums which may be advanced or paid by Mortgagee under the terms hereof or of
the Purchase Agreement or other Transaction Documents on account of the failure
of Mortgagor to comply with the covenants of Mortgagor contained herein, or the
failure of Mortgagor to comply with the covenants of Mortgagor contained in the
Purchase Agreement or any other Transaction Documents; and all other
indebtedness of the Mortgagor arising pursuant to the provisions of this
Mortgage, including penalties, indemnities, legal and other fees, charges and
expenses, and amounts advanced by and expenses incurred in order to preserve any
collateral or security interest, whether due after acceleration or
otherwise;

          (c)      All
advances, debts, liabilities, obligations, covenants and duties owing or to be
owing, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising
or incurred, by Mortgagor: (i) to Mortgagee, Indemnitee or other Indemnified
Party under any Transaction Document; (ii) to Mortgagee under any futures
contracts, forward contracts, swap, cap or collar contracts, option contracts,
hedging contracts or other derivative contracts or similar agreements covering
oil and gas commodities or prices or financial, monetary or interest rate
instruments entered into not in contravention of and subject to the terms of the
Purchase Agreement; (iii) all renewals, extensions and rearrangements of the
foregoing; and (iv) all interest (including, without limitation, interest
accruing at any post-default rate and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) in respect of all of the obligations
described in this Section 1.1 and all costs of collection or attorneys’ fees,
all as provided herein and in the other Transaction Documents; and

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          (d)     
any and all other present or future indebtedness, obligations and liabilities of
Mortgagor incurred under, arising out of or in connection with all other debts,
obligations and liabilities of every nature whatsoever presently or at any time
hereafter owing under the Purchase Agreement, the Transaction Documents, or
hereunder or under any other indebtedness by Mortgagor pursuant to the
Transaction Documents, whether direct or indirect, primary or secondary, fixed
or contingent, arising from guaranty, endorsement, suretyship, assignment or
otherwise, it being expressly contemplated that Mortgagee, may from time to time
hereafter make additional advances to or on behalf of Mortgagor and that
Mortgagor may from time to time hereafter otherwise become further obligated or
indebted to Mortgagee. 

          1.2.      This
Mortgage shall secure any additional indebtedness, not to exceed the amount of
Six Million and 00/100 Dollars ($6,000,000.00), in addition to and over and
above the original principal amount of the Debentures, which Mortgagor may owe
to Mortgagee, whether direct, indirect, existing, future, contingent or
otherwise and whether arising under this Mortgage or otherwise. 

          1.3.      Mortgagor
specifically waives presentment, protest, notices of dishonor, intention to
accelerate and acceleration. 

          1.4.      The
Purchase Agreement, Debentures, this Mortgage and the other documents now or
hereafter delivered by the Mortgagor to, or for the benefit of, the Mortgagee in
connection with Obligations are included within the Transaction Documents. All
capitalized terms not defined herein are defined in the Purchase Agreement. 

ARTICLE II. 

  REPRESENTATIONS, WARRANTIES AND COVENANTS

          2.1.      Mortgagor
represents and warrants to, and covenants and agrees with Mortgagee,
“Holder” (said term as used herein being intended to mean any
other holder or holders from time to time of the Obligations or any part thereof
or any interest therein), and with each of them, so long as the Obligations or
any part thereof remains unpaid, as follows: 

          (a)      To
the extent failure to do so would have a material adverse effect on the value of
the Mortgaged Properties, Mortgagor, or Mortgagor’s predecessor or predecessors
in title to each of the Mortgaged Properties, have properly and timely performed
whatever may be required by the provisions of each of the Leases (or by any
contract, assignment or conveyance under which Mortgagor holds title to any of
the Mortgaged Properties) to perpetuate the Leases and to perfect or maintain
Mortgagor’s title. To the extent failure to do so would have a material adverse
effect on the value of the Mortgaged Properties, Mortgagor shall pay and
discharge or cause to be paid or discharged all rentals, delay rentals,
royalties, production payments, and indebtedness required to be paid by
Mortgagor, and perform or cause to be performed, each and every act, matter, or
thing required of Mortgagor by each and all of the Leases, assignments, deeds,
subleases, contracts and agreements in any way relating to the Mortgaged
Properties and do all other things necessary of Mortgagor to keep unimpaired the
rights of Mortgagor thereunder and to prevent the forfeiture thereof or default
thereunder.

          (b)      Mortgagor
has good and defensible title to and is possessed of the Mortgaged Properties,
free of any and all adverse claims, rights of others, liens, encumbrances,
security interests, contracts, agreements, preferential purchase rights or other
restrictions or limitations of any nature or kind except those which are
“Permitted Encumbrances” as defined in Exhibit “A.”
Mortgagor owns an undivided working interest (hereinafter defined) and a net
revenue interest (hereinafter defined) in the Leases of not less than those set
forth in Exhibit “A”; no operating agreement, contract or other
agreement affecting any part of the Mortgaged Properties to which Mortgagor is a
party or to which Mortgagor is bound requires Mortgagor to bear any of the costs relating to the
Mortgaged Properties greater than the working interest of Mortgagor in any such
portion of the Mortgaged Properties, except in the event that Mortgagor is
obligated under an operating agreement to assume a portion of a non-consenting
party’s share of costs and expenses and, as a result thereof shall own and be
entitled to receive an equivalent portion of such non-consenting party’s
interests in the well and share of Hydrocarbons produced therefrom; all proceeds
from the sale of Mortgagor’s share of the Hydrocarbons being produced from the
Mortgaged Properties are currently being paid in full to Mortgagor by the
purchasers thereof on a timely basis and none of such proceeds are currently
being held in suspense by such purchaser or any other party; and Mortgagor has
full power and lawful authority to bargain, grant, sell, mortgage, assign,
transfer, warrant, convey and grant a security interest in all of the Mortgaged
Properties all in the manner and form herein provided and without obtaining the
waiver, consent or approval of any lessor, sublessor, governmental agency or
entity or party whomsoever or whatsoever. Mortgagor will at all times protect
and defend the title to all of the Mortgaged Properties, paying all expenses
incurred or to be incurred in defending the title to the same against all claims
or charges other than the Permitted Encumbrances, and will indemnify and hold
Holder harmless against any such claim or charge. 

8 




          (c)     
Mortgagor shall promptly notify Mortgagee in the event of institution of any
suit for the cancellation of or in any manner materially and adversely affecting
any of the Leases or any land covered or purported to be covered thereby or the
land or the title of Mortgagor thereto. 

          (d)      Mortgagor
shall not place nor suffer to be placed any lien against, or any security
interest in, any of the Mortgaged Properties or encumber or allow to be
encumbered any of the Mortgaged Properties, whether for indebtedness owed or
asserted to be owed by Mortgagor or by any other party, except for Permitted
Encumbrances.

          (e)      Mortgagor
shall pay and discharge promptly all taxes, assessments, and governmental
charges or levies imposed upon Mortgagor or upon the income of Mortgagor or of
any of the Mortgaged Properties as well as all claims of any kind (including
claims for labor, materials, supplies and rent) which, if unpaid, might become a
lien upon any or all of the Mortgaged Properties or Hydrocarbons; provided,
however, that Mortgagor shall not be required to pay any such tax, assessment,
charge, levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings diligently
conducted and if Mortgagor shall have set up reserves therefor adequate under
generally accepted accounting principles.

          (f)     
Mortgagor shall operate or cause to be operated all Mortgaged Properties in a
careful and efficient manner in accordance with the practice of the industry and
in compliance with all applicable laws, rules and regulations, and, in the case
of the Leases, in compliance with all applicable proration and conservation laws
of the State in which the Leases are situated, and all applicable laws, rules
and regulations of every other agency and authority from time to time
constituted to regulate the development and operation of the Leases and the
production and sale of Hydrocarbons therefrom; provided, however, Mortgagor
shall have the right to contest in good faith by appropriate proceedings, the
applicability or lawfulness of any such law, rule or regulation and, pending
such contest, may defer compliance therewith, so long as such deferment shall
not subject the Mortgaged Properties or any part thereof to foreclosure or
loss.

          (g)      Mortgagor
shall keep and maintain or cause to be kept and maintained all buildings,
improvements, equipment and personal property constituting part of the Mortgaged
Properties in good and workable condition at all times, ordinary wear and tear
excepted, and Mortgagor shall make all repairs, replacements, additions,
betterments and improvements to the Mortgaged Properties as are needed and
proper so that the business carried on in connection therewith may be conducted
properly and efficiently at all times. To the extent failure to do so would have
a material adverse effect on the value of the Mortgaged Properties, Mortgagor will not (i) commit or
suffer any waste of any of the Mortgaged Properties, (ii) commit or suffer any
violation of any law, regulation, ordinance or contract affecting any of the
Mortgaged Properties, (iii) commit or suffer any demolition, removal or material
alteration of any of the Mortgaged Properties without the prior written consent
of Mortgagee, (iv) fail to guard every part of the Mortgaged Properties from
removal, destruction and damage, or (v) do or suffer to be done any act whereby
the value of any part of the Mortgaged Properties may be lessened. Mortgagor, if
required to do so by Mortgagee, promptly shall replace any of the Mortgaged
Properties which may be removed, lost, destroyed or unsuitable for use to
maintain production of Hydrocarbons from the affected Mortgaged Properties. 

9 




          (h)      Mortgagor
shall maintain insurance on the Mortgaged Properties and as required by the
Purchase Agreement. In the case of any fire, accident or other casualty causing
loss or damage to any of the Mortgaged Properties, the proceeds of such policy
shall be used at Mortgagor’s reasonable discretion (i) to repair or replace the
damaged Mortgaged Properties, or (ii) to prepay the Obligations in any manner or
order as elected by Mortgagee at the time of such prepayment.

          (i)      Mortgagor
shall permit any officer or employee of Mortgagee or any Holder to visit and
inspect any of the Mortgaged Properties, examine Mortgagor’s books of record and
accounts, take copies and, extracts therefrom and discuss the affairs, finances
and accounts of Mortgagor, all at such times and upon notice and as often as
Mortgagee or any Holder may desire.

          (j)      Mortgagor
shall pay the Obligations according to the reading, tenor and effect thereof,
and shall do and perform every act and discharge all of the obligations provided
to be performed and discharged by Mortgagor under the Obligations and under this
instrument at the time or times and in the manner specified.

          (k)     
Consistent with the terms of the Purchase Agreement, Mortgagor shall cure
promptly any defects in the creation and issuance of the Obligations and the
execution and delivery of this instrument. Mortgagor at Mortgagor’s expense will
promptly execute and deliver to Mortgagee upon request all such other and
further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of Mortgagor herein or to further
evidence and more fully describe the Mortgaged Properties, or to correct any
omissions in this instrument, or more fully to state the security obligations
set out herein, or to perfect, protect and, or, preserve any lien or security
interest created hereby, or to make any recordings, or to file any notices, or
obtain any consents, all as may be necessary or appropriate in connection with
any thereof. Mortgagor shall pay for all costs of preparing, recording and
releasing any of the above.

          (l)      If
at any time Mortgagor materially changes the nature or method of operations on
the Mortgaged Properties, any well is hereafter drilled and completed on the
Mortgaged Properties, or there occurs any event (whether natural or due to man)
that materially affects the amount, cost, rate or lifespan of recovery of
Hydrocarbons from the Mortgaged Properties or there is a material change in the
price per unit received for the sale of Hydrocarbons produced from or
attributable to the Mortgaged Properties, upon receiving notice thereof,
Mortgagor shall immediately inform Mortgagee of such change in operations,
events or change in price.

          (m)      Mortgagor
has not created or permitted to exist and will not hereafter create or permit to
exist any gas imbalance or any take-or-pay or other prepayments with respect to
any of the Mortgaged Properties which would require the Mortgagor to deliver
Hydrocarbons produced from the Mortgaged Properties at some future time without
then or thereafter receiving full payment therefor. 

10 




          (n)      Mortgagor
will advise Mortgagee promptly of: (i) any lien, privilege, security interest,
encumbrance or claim made or asserted against all or any part of the Mortgaged
Properties and the amount claimed thereby; and (ii) the occurrence of any other
event which would have a material adverse effect on the aggregate value of the
Mortgaged Properties or on the lien and security interest created hereunder, and
the amount of the effect on the Mortgaged Properties. 

          (o)     
Mortgagor will promptly notify Mortgagee of any event causing loss or
depreciation in value of the Mortgaged Properties and the amount of such loss or
depreciation.

          2.2.     
If, without the prior written consent of each Holder (which consent shall not be
unreasonably withheld), all or any part of the Mortgaged Properties are sold,
transferred, assigned or otherwise conveyed, except as expressly provided in
Article VII hereof, or Mortgagor enters into any contract agreeing to sell,
transfer, assign or otherwise convey all or any part of the Mortgaged
Properties, or Mortgagor creates any lien or encumbrance subordinate to this
Mortgage or Mortgagor grants any easement, right-of-way or any other right
whatsoever materially affecting the value of the collateral with respect to the
Mortgaged Properties, other than the Permitted Encumbrances, (all and any of the
above herein collectively called “Transfers”), irrespective of
whether any such Transfers are evidenced by written instruments, and
irrespective if such a written instrument is filed for record, then Mortgagee
may, at its option, declare all or any part of the Obligations immediately due
and payable, and Mortgagee shall be entitled to exercise any and all remedies
provided under this Mortgage. Mortgagee, in the exercise of its sole and
absolute discretion and without any duty or obligation to do so, may waive such
option to accelerate, if, prior to any Transfers, the proposed transferee has
executed a written assumption agreement accepted in writing by Mortgagee,
containing such terms as Mortgagee, in its sole and absolute discretion may
require, including without limitation, an increase in the rate of interest
payable on the Obligations and, or, a modification of the maturity of the
Obligations. 

          2.3.     
If Mortgagor fails to perform any act which hereunder it is required to perform
or to pay any money which hereunder it is required to pay, Mortgagee, following
an occurrence of an Event of Default, may perform or cause to be performed such
act or pay such money. Mortgagor will, upon request, promptly reimburse
Mortgagee for all amounts expended, advanced or incurred by Mortgagee to satisfy
any obligation of Mortgagor under this instrument or to protect the Mortgaged
Properties or to collect the Obligations or to enforce the rights of Holder
under this instrument, which amounts will include all court costs, reasonable
attorneys fees, fees of auditors and accountants, and investigation expenses
reasonably incurred by Mortgagee in connection with any such matters, together
with interest on each such amount from the date that the same is expended,
advanced or incurred by Mortgagee until the date of payment of same, at a rate
of interest (herein called the “Default Rate”) equal to the
maximum lawful rate of interest permitted by applicable usury laws, now or
hereafter enacted, which interest rate shall change when and as said laws shall
change to the extent permitted by said laws, effective on the day such change in
said laws becomes effective (herein called the “Maximum Lawful
Rate”). 

          2.4.     
To the full extent permitted by applicable law, Mortgagor agrees to defend,
indemnify and hold harmless Mortgagee and each Holder and their respective
directors, officers, employees, attorneys and agents (“Indemnified
Parties”) from and against any and all loss, cost, expense or liability
(including attorneys’ fees and court costs) incurred by any Indemnified Party in
connection with or otherwise arising out of any and all claims or proceedings
(whether brought by a private party, governmental agency or otherwise) for
bodily injury, property damage, abatement, remediation, environmental damage or
impairment or any other injury or damage resulting from or relating to any
hazardous or toxic substance or contaminated material located upon, migrating
into, from or through or otherwise relating to the Mortgaged Properties (whether
or not the release of such materials was caused by Mortgagor, a tenant or
subtenant of Mortgagor, a prior owner, a tenant or subtenant of any prior owner
or any other party and whether or not the alleged liability is attributable to
the handling, storage, generation, transportation or disposal of such substance or the
mere presence of the substance on the Mortgaged Properties), which any
Indemnified Party may incur due to the making of the loan evidenced by the
Obligations, the exercise of any of its rights under this Mortgage, or
otherwise, but excluding any loss, cost, expense or liability due to any
Indemnified Party’s gross negligence or willful misconduct. For the purposes of
the indemnity contained in this paragraph, hazardous or toxic substances or
contaminated material include, but are not limited to, asbestos and those
substances within the scope of all federal, state and local environmental laws
and ordinances, including the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act and the
Superfund Amendment and Reauthorization Act as same may be amended from time to
time. The provisions of this paragraph shall survive, and shall in no manner or
to any extent be extinguished, diminished, novated or affected by, any
foreclosure of the liens created by this Mortgage or any conveyance in lieu of
foreclosure and the repayment of the Obligations and the discharge and release
of this Mortgage.

11 




ARTICLE III. 
ASSIGNMENT OF RUNS


          3.1.      For
the purpose of additionally securing the payment of the Obligations and to
facilitate the discharge of any of the Obligations and as cumulative of any and
all rights and remedies herein provided for, effective as of the Effective Date,
Mortgagor hereby bargains, sells, transfers, assigns, sets over and conveys unto
Mortgagee, its successors and assigns, Mortgagor’s interest in the Hydrocarbons,
together with its share of the proceeds derived from the sale thereof (such
proceeds being hereinafter called “Proceeds of Runs”). Mortgagor
directs and instructs each purchaser of the Hydrocarbons to pay to Mortgagee all
of the Proceeds of Runs until such time as such purchaser has been furnished
evidence that all Obligations has been paid and that the lien evidenced hereby
has been released. Mortgagor authorizes Mortgagee to receive and collect all
sums of money derived from the Proceeds of Runs, and no purchaser of the
Hydrocarbons shall have the responsibility for the application of any funds paid
to Mortgagee.

          3.2.      Independent
of the foregoing provisions and authorities herein granted, Mortgagor agrees to
execute and deliver any and all transfer orders, division orders and other
instruments that may be requested by Mortgagee or that may be required by the
purchaser of the Hydrocarbons for the purpose of effectuating payment for the
Proceeds of Runs to Mortgagee following an Event of Default, as such term is
defined below. 

          3.3.     
Upon the occurrence and any continuance of an Event of Default, the monthly
Proceeds of Runs actually received by Mortgagee may be held by Mortgagee and
applied first to the payment of all accrued interest of the Obligations and then
to the payment of installments of principal of the Obligations in stated order
of maturity owing by Mortgagor to Mortgagee in such manner as Mortgagee may
elect, with the balance, if any, to be returned to Mortgagor. In its sole
discretion, Mortgagee may elect to return any part of said funds to Mortgagor or
to deposit the same to Mortgagor’s account without applying it to the
Obligations. 

          3.4.      The
receipt by Mortgagee of any monies, including but not limited to money received
as Proceeds of Runs, shall not in any manner change or alter in any respect the
obligations of Mortgagor upon the Obligations, and nothing herein contained
shall be construed as limiting Mortgagee to the collection of any of the
Obligations out of the Proceeds of Runs. The Obligations shall continue as the
absolute and unconditional obligation of Mortgagor to pay, as provided in the
instruments evidencing the Obligations, the amounts therein specified at their
respective maturity dates, whether by acceleration or otherwise. 

12 




          3.5.      Mortgagee
is hereby absolved from all liability for failure to enforce collection of the
Proceeds of Runs and from all other responsibility in connection therewith
except the responsibility to account to Mortgagor for funds actually received.
Mortgagor agrees to indemnify and hold Mortgagee or any Holder harmless against
any and all liabilities, actions, claims, judgments, costs, charges and
reasonable attorneys’ fees by reason of the assertion that Mortgagee or any
Holder has received, either before or after the payment in full of the
Obligations, funds from the sale of Hydrocarbons claimed by third persons,
except for third parties who have valid claims. Mortgagee or any Holder shall
have the right to defend against any such claims or actions, employing attorneys
of its own selection. If not furnished with indemnity satisfactory to the
Mortgagee, Mortgagee shall have the right to compromise and adjust any such
claims, actions and judgments, and, in addition to the rights to be indemnified
as herein provided, all amounts paid by Mortgagee or any Holder in compromise,
satisfaction or discharge of any such claim, action or judgment and all court
costs, reasonable attorneys’ fees and other expenses of every character incurred
by Mortgagee or any Holder shall be a demand obligation owing by Mortgagor,
shall be secured by the lien and security interest evidenced by this instrument
and shall bear interest on each such amount from the date that the same is
expended, advanced or incurred by Mortgagee until the date of payment of same,
at the Default Rate.

ARTICLE IV. 
DEFEASANCE 

          4.1.     
If all Obligations be paid as the same becomes due and payable and if the
covenants, warranties, undertakings and agreements made in this instrument are
kept and performed, then and in that case only, this document shall have no
force and effect, this Mortgage shall become null and void, the Mortgaged
Properties hereby conveyed shall become wholly clear of the liens, conveyances,
assignments and security interests evidenced hereby, and all such liens,
conveyances, assignments and security interests shall be released in due form at
Mortgagor’s cost. 

ARTICLE V. 

  REMEDIES IN EVENT OF DEFAULT

          5.1.     
The term “Event of Default” as used herein shall mean any breach
or default by Mortgagor of any terms, covenants, provisions, agreements,
representations and warranties under this Mortgage, as well as the occurrence of
any default or “Event of Default” under the Purchase Agreement by and between
Mortgagor and Mortgagee of even date herewith, or under any of the other
Transaction Documents.

          5.2.      Upon
the occurrence and during the continuance of any Event of Default, Mortgagee or
any Holder may, at its option, without notice to Mortgagor, declare the
principal of and interest accrued on the Obligations to be forthwith due and
payable, whereupon the same shall become due and payable without any
presentment, demand, protest, notice of protest, notice of intent to accelerate,
notice of acceleration or notice of any kind, all of which are all hereby
waived. 

          5.3.     
Upon the occurrence and during the continuance of any Event of Default and in
every such case the Mortgagee may: (a) proceed to protect and enforce its rights
by a suit or suits in equity or at law, either for the specific performance of
any covenant or agreement contained herein, in the Transaction Documents, or in
aid of the execution of any power herein or therein granted, or for the
foreclosure of this Mortgage, or for the enforcement of any other appropriate
legal or equitable remedies; (b) take possession of and sell all or part, as
determined by Mortgagee in its sole discretion, of the Mortgaged Properties,
under the applicable laws of the State of Louisiana pertaining to the
foreclosure of mortgages and subsequent sale of foreclosed assets; (c) take
possession of the Mortgaged Properties; maintain, operate and control the
Mortgaged Properties, and apply all proceeds derived therefrom, after payment of royalties and operating expenses, to the payment of the
Obligations hereby secured and all necessary and reasonable costs and expenses,
including reasonable attorneys’ fees, until fully paid, Mortgagor agrees to give
Mortgagee immediate, peaceable possession; (d) to the extent permitted by law,
resort to and realize upon the security hereunder and any other security now or
later held by Mortgagee concurrently or successively in one or several
consolidated or independent judicial actions or lawfully taken non-judicial
proceedings, or both, and to apply the proceeds received upon the Obligations
all in such order and manner as Mortgagee determines in Mortgagee’s sole
discretion and to the extent provided by law; and (e) in any action to
foreclose, appoint a receiver of the rents, issues and profits of the Mortgaged
Properties as a matter of right and without notice, with power to collect the
rents, issues and the value of the Mortgaged Properties. Mortgagor, for itself
and any subsequent owner or owners, hereby waives any and all defenses to the
application for a receiver as above provided, and hereby specifically consents
to such appointment with notice; but nothing herein contained is to be construed
to deprive Mortgagee of any other right, remedy or privilege it may now have
under the law to have a receiver appointed. The provision for the appointment of
a receiver of the rents and profits is made an express condition upon which the
loan evidenced by the Debenture is made.


13 




          5.4.      Upon
the occurrence and during the continuation of an Event of Default, Mortgagee
may, in its sole and absolute discretion, elect to treat the fixtures
constituting a part of the Mortgaged Properties as either real property or
personal property and proceed to exercise such rights as apply to such type of
property above or under the Uniform Commercial Code. 

          5.5.      Upon
occurrence and during the continuation of an Event of Default, Mortgagee, in
lieu of or in addition to exercising any power of sale hereinabove given, may
proceed by a suit or suits in equity or at law, whether for a foreclosure
hereunder, or for the sale of the Mortgaged Properties (or a part thereof), or
for the specific performance of any covenant or agreement contained herein, or
in aid of the execution of any power herein granted, or for the appointment of a
receiver pending any foreclosure hereunder or the sale of all or part of the
Mortgaged Properties, or for the enforcement of any other appropriate legal or
equitable remedy. Upon occurrence and during the continuation of an Event of
Default, Mortgagor agrees that the appointment of a receiver shall be a matter
of right and shall not require proof of insolvency, fraud, insecurity, or
mismanagement on the part of Mortgagor. Mortgagor agrees that such receiver may
be appointed to take possession of, hold, maintain, operate, and preserve all or
a portion of the Mortgaged Properties, including the production and sale of all
Hydrocarbons therefrom, and to apply the proceeds of the sale thereof as set
forth in Section 5.10 hereof; and said receiver may be authorized to sell and
dispose of all or a portion of the Mortgaged Properties under orders of the
court appointing such receiver. The rights of entry, sale, or suit, as herein
conferred, are cumulative of all other rights and remedies herein or by law or
in equity provided, and shall not be deemed to deprive Mortgagee or any Holder
of the Obligations of any such other legal or equitable rights or remedies, by
judicial proceedings or otherwise, appropriate to enforce the conditions,
covenants, and terms of this Mortgage and of said Obligations, and the
employment of any remedy hereunder, or otherwise, shall not prevent the
concurrent or subsequent employment of any other remedy or remedies.

          5.6.     
It shall not be necessary for Mortgagee to be physically present or have
constructively in its possession at any sale held by Mortgagee or by any court,
receiver, or public officer any or all of the Mortgaged Properties, and
Mortgagor shall deliver to the purchaser at such sale on the date of sale the
Mortgaged Properties purchased by such purchasers at such sale, and if it should
be impossible or impracticable for any of such purchasers to take actual
delivery of the Mortgaged Property purchased by it, then the title and right of
possession to the Mortgaged Property shall pass to the purchaser at such sale as
completely as if the same had been actually present and delivered. 

          5.7.      Mortgagee
shall have the right to become the purchaser at any sale held by any court,
receiver or public officer, and Mortgagee shall have the right to credit the
outstanding and unpaid Obligations with the amount of the bid made at that sale with
the amount payable being the net proceeds of such sale. Recitals contained in
any conveyance made to any purchaser of any sale made hereunder shall be prime
facie evidence of the truth and accuracy of the matters therein stated,
including, without limiting the generality of the foregoing, nonpayment of the
unpaid principal sum of, and the interest accrued on, the Obligations after the
same shall have become due and payable, advertisement and conduct of such sale
in the manner provided herein. 

14 




          5.8.      Upon
any sale, whether made under the Uniform Commercial Code, the power of sale
herein granted and conferred, or by virtue of judicial proceedings, the delivery
of a receipt by Mortgagee or of the officer making a sale under judicial
proceedings, which acknowledges the payment of purchase money with respect
thereto, shall be sufficient discharge to the purchaser or purchasers at any
sale for his or their purchase money, and such purchaser or purchasers and his
or their successors, assigns or personal representatives, shall not, after
paying such purchase money and receiving the receipt of Mortgagee or of such
officer therefor, be obliged to see to the application of such purchase money
hereunder, or be in any way answerable for any loss, misapplication or
non-application thereof hereunder. 

          5.9.     
Any sale or sales of the Mortgaged Properties, or any part thereof, whether
under the Uniform Commercial Code, the power of sale herein granted and
conferred, or by virtue of judicial proceedings, shall operate to divest all
rights, titles, interests, claims and demands whatsoever either at law or in
equity, of Mortgagor, in and to the Mortgaged Property sold, and shall be a
perpetual bar, both at law and in equity, against Mortgagor, and Mortgagor’s
successors or assigns, and against any and all persons claiming or who shall
thereafter claim all or any of the Mortgaged Property sold, including,
Mortgagor’s successors or assigns. Nevertheless, Mortgagor, if requested by
Mortgagee so to do, shall join in the execution and delivery of all conveyances,
assignments and transfers of the Mortgaged Properties so sold. 

          5.10.     
The proceeds of any sale of the Mortgaged Properties, or any part thereof,
whether under the Uniform Commercial Code, the power of sale herein granted and
conferred, or by virtue of judicial proceeding, whose application has not
elsewhere herein been specifically provided for, shall be applied to the
Obligations as follows:


  
    First: To the payment of all reasonable expenses incurred
      by Mortgagee incident to the enforcement of the Transaction Documents, or
      the collection of any of the Obligations, including, without limiting the
      generality of the foregoing, all expenses of any entry or taking of possession,
      of any sale, of advertisement thereof, and of conveyances, and as well,
      court and related costs, compensation of agents and employees, reasonable
      attorney fees and a reasonable fee to Mortgagee, the payment of all other
      reasonable costs, charges, expenses, liabilities and advances incurred or
      made by Mortgagee or owed by Mortgagor under any Transaction Document, or
      in executing any trust or power hereunder by Mortgagee or owed by Mortgagor
      under any Transaction Document. 

    Second: To the payment of the Obligations, including the
      Debenture, with accrued interest thereon to the date of such payment, in
      such order and manner as determined by Mortgagee; and

    Third: Any surplus thereafter remaining shall be paid to
      Mortgagor or other third Persons as a court of competent jurisdiction may
      direct.

  



          5.11.      Mortgagee
at all times shall have the right to release any part of the Mortgaged
Properties now or hereafter subject to the lien or security interests created
hereby or any other lien or security interest it now has or may hereafter have,
without releasing any other part of said Mortgaged Properties, and without affecting the lien or security interest created
hereby or under any Transaction Document, as to the part or parts thereof not so
released. 

15 




          5.12.      The
obligations of Mortgagor hereunder shall survive the non-assumption of and the
commencement of any Insolvency Proceeding and shall remain binding upon
Mortgagor, or a trustee, receiver, custodian or liquidator of Mortgagor
appointed in any such case.

          5.13.      Mortgagor
agrees, to the full extent that Mortgagor may lawfully so agree, that Mortgagor
shall not at any time insist upon or plead or in any manner whatsoever claim the
benefit of any operator’s lien, appraisement, valuation, stay, extension or
redemption of law now or hereafter in force, in order to prevent or hinder the
enforcement or foreclosure of any Transaction Document, the absolute sale of any
or all of the Mortgaged Properties, or the possession thereof by any purchaser
at any sale made pursuant to any provision hereof or any Transaction Document,
or pursuant to the decree of any court of competent jurisdiction and Mortgagor,
for Mortgagor and all who may claim by, through or under Mortgagor, so far as
Mortgagor or those claiming by, through or under Mortgagor now or hereafter
lawfully may, hereby waive the benefit of all such laws. Mortgagor, for
Mortgagor and all who may claim by, through or under Mortgagor (including,
without limitation, a holder of a lien or security interest subordinate to the
lien or security interests created by this Mortgage, without implying that
Mortgagor has, except as expressly provided herein, a right to grant a security
interest or lien upon or subordinate a lien or security interest with respect to
the Mortgaged Properties), hereby waives, to the fullest extent permitted by
applicable law any and all right to have all or any portion of the Mortgaged
Properties marshaled upon any foreclosure of the lien and security interest
hereof, or sold in inverse order of alienation, and agrees that any court having
jurisdiction to foreclose such lien or security interest may sell the Mortgaged
Properties as an entirety. If any law referred to in this Section 5.13 and now
in force, of which Mortgagor or Mortgagor’s successors or assigns might take
advantage despite the provisions hereof, shall hereafter be repealed or cease to
be in force, such law shall not thereafter be deemed to constitute any part of
the agreement herein contained or to preclude the operation or application of
the provisions of this Section 5.13.

          5.14.      All
costs and expenses (including, without limitation, reasonable attorneys’ fees,
court costs and related costs) incurred by Mortgagee in protecting and enforcing
their rights under any Transaction Document, shall, to the extent permitted by
applicable law, constitute a demand obligation owing by Mortgagor to the party
incurring such costs and expenses and shall bear interest until paid in
accordance with the Debenture, this Mortgage and the Purchase Agreement. 

ARTICLE VI. 

  SECURITY AGREEMENT

          6.1.      Mortgagor
hereby agrees that with respect to all items of the Mortgaged Property
constituting “personal property” (including any fixtures and as-extracted
collateral that are personal property under applicable state law) as that term
is used in the Uniform Commercial Code, this Mortgage constitutes a
“Security Agreement,” as that term is used in the Uniform
Commercial Code, and to further secure the Obligations, Mortgagor hereby grants
to Mortgagee a security interest in all of Mortgagor’s rights, titles and
interests in and to the Mortgaged Properties insofar as such Mortgaged
Properties consist of the goods, equipment, accounts, contract rights, general
intangibles, inventory, hydrocarbons, fixtures and any and all other personal
property of any kind or character defined in and subject to the provisions of
the Uniform Commercial Code, including the proceeds and products from any and
all of such personal property (all of the foregoing being in this Article VI
collectively called the “Collateral”). Upon the occurrence and
during the continuance of any Event of Default, Mortgagee is and shall be
entitled to all of the rights, powers and remedies afforded a secured party by
the Uniform Commercial Code with reference to the personal property and fixtures
in which Mortgagee has been granted a security interest herein, or Mortgagee may proceed as to both the real and
personal property covered hereby in accordance with the rights and remedies
granted under this instrument in respect of the real property covered hereby.
Such rights, powers and remedies shall be cumulative and in addition to those
granted Mortgagee under any other provision of this instrument or under any
other instrument executed in connection with the Purchase Agreement or any of
the Obligations. Mortgagor, as Debtor (and in this Article VI and otherwise
herein called “Debtor”) covenants and agrees with Mortgagee, as
Secured Party (and in this Article VI and otherwise hereinafter called
“Secured Party”) that:

16 




          (a)      To
the extent permitted by law, Debtor expressly waives any notice of sale or other
disposition of the Collateral and any other right or remedies of a debtor or
formalities prescribed by law relative to sale or disposition of the Collateral
or exercise of any other right or remedy of Secured Party existing after default
hereunder; and to the extent any such notice is required and cannot be waived,
Debtor agrees that if such notice is mailed, postage prepaid, to Debtor at
Debtor’s address set out herein at least ten (10) days before the time of the
sale or disposition, such notice shall be deemed reasonable and shall fully
satisfy any requirement for giving of said notice.

          (b)     
Following the occurrence and during the continuance of an Event of Default,
Secured Party is expressly granted the right at its option, to transfer at any
time to itself or to its nominee the Collateral, or any part thereof, and to
receive the monies, income, proceeds, or benefits attributable or accruing
thereto and to hold the same as security for the obligations or to apply it on
the principal and interest or other amounts owing on any of the Obligations,
whether or not then due, in such order or manner as Secured Party may elect. All
rights to marshalling of assets of Debtor, including any such right with respect
to the Collateral, are hereby waived. 

          (c)      All
recitals in any instrument of assignment or any other instrument executed by
Secured Party incident to sale, transfer, assignment or other disposition or
utilization of the Collateral or any part thereof hereunder shall, in the
absence of manifest error, be prima facie evidence of the matter stated therein,
no other proof shall be required to establish full legal propriety of the sale
or other action or of any fact, condition or thing incident thereto, and all
prerequisites of such sale or other action and of any fact, condition or thing
incident thereto shall be presumed to have been performed or to have occurred.


          (d)      All
expenses of preparing for sale, or other use or disposition, selling or
otherwise using or disposing of the Collateral and the like which are incurred
or paid by Secured Party as authorized or permitted hereunder, including also
all reasonable attorneys’ fees, legal expenses and costs, shall be added to the
Obligations and the Debtor shall be liable therefor. 

          (e)      Should
Secured Party elect to exercise its rights under the Uniform Commercial Code as
to part of the Collateral, this election shall not preclude Secured Party or the
Mortgagee from exercising any other rights and remedies granted by this
instrument as to the remainder of the Collateral.

          (f)      Any
copy of this instrument may also serve as a financing statement under the
Uniform Commercial Code of the applicable jurisdiction between the Debtor, whose
present address is Mortgagor’s address listed on the first page of this
Mortgage, and Secured Party, whose present address is the Mortgagee’s address
listed on the first page of this Mortgage. 

          (g)      So
long as any amount remains unpaid on any of the Obligations, Debtor will not
file in any public office any financing statement or statements affecting the
Collateral other than financing statements in favor of Secured Party hereunder
and financing statements pertaining to Permitted Encumbrances, unless the prior
written specific consent and approval of Secured Party shall have first been
obtained. 

17 




          (h)      Secured
Party is authorized to file, in any jurisdiction where Secured Party deems it
necessary, a financing statement or statements covering the Collateral, and
Debtor will pay the cost of filing or recording this instrument, as a financing
statement, in all public offices at any time and from time to time whenever
filing or recording of any financing statement or of this instrument is
reasonably deemed by Secured Party to be necessary or desirable. 

          (i)      The
office where Debtor keeps Debtor’s accounting records concerning the Collateral
covered by this Security Agreement is Mortgagor’s address as set forth on the
first page of this Mortgage. 

          6.2.      Portions
of the Collateral consist of: (i) oil, gas and other minerals produced or to be
produced from the lands described in the Leases and to the accounts resulting
from the sale thereof at the wellhead; or (ii) goods which are or will become
fixtures attached to the real estate constituting a portion of the Mortgaged
Properties, and Debtor hereby agrees that this instrument shall be filed in the
Real Property Records of the Counties in which the Mortgaged Properties are
located as a financing statement to perfect the security interest of Secured
Party in said portions of the Collateral. The said oil, gas and other minerals
and accounts will be financed at the wellhead of the oil and gas wells located
on the lands described in the Leases. The name of the record owner of the
Mortgaged Properties is the party named herein as Mortgagor and Debtor. Nothing
herein contained shall impair or limit the effectiveness of this document as a
security agreement or financing statement for other purposes. 

          6.3.      Subject
to any limitations set forth on Exhibit “A”, Debtor further
warrants and represents to Secured Party that, except for: (a) the security
interest in the Collateral granted hereby; and (b) the Permitted Encumbrances,
Debtor is the owner of the Collateral free of any adverse claim, security
interest or encumbrance, and Debtor agrees to defend the Collateral against all
other claims and demands against the same or any interest therein. Debtor
further warrants and represents that there are no financing statements signed by
Debtor now on file in any public office which have not been terminated, except
those statements true and correct copies of which have been delivered to Secured
Party and financing statements pertaining to Permitted Encumbrances. 

ARTICLE VII. 

  MISCELLANEOUS PROVISIONS

          7.1.      All
options and rights of election herein provided for the benefit of Mortgagee are
continuing, and the failure to exercise any such option or right of election
upon a particular Event of Default or upon any subsequent Event of Default shall
not be construed as waiving the right to exercise such option or election at any
later date. By the acceptance of payment of any sum secured hereby after its due
date, Mortgagee shall not be deemed to have waived the right either to require
prompt payment when due of all other sums so secured or to regard as an Event of
Default the failure to pay any other sums due which are secured hereby. No
exercise of the rights and powers herein granted and no delay or omission in the
exercise of such rights and powers shall be held to exhaust the same or be
construed as a waiver thereof, and every such right and power may be exercised
at any time and from time to time. 

          7.2.      If
two (2) or more parties shall at any time be Mortgagees of the Obligations, all
of them may jointly exercise any right, option, election or other power,
authority or benefit granted herein to Mortgagee, or any of them may do so with
the express consent of the other or others of them.

          7.3.     
All Obligations shall be payable as provided in the Purchase Agreement or at
such place as Mortgagee may from time to time designate in writing. 

          7.4.     
The terms, provisions, covenants and conditions hereof shall be binding upon
Mortgagor, Mortgagor’s successors, legal representatives, and assigns, and shall
inure to the benefit of Mortgagee, its successors and assigns, and all other Holders of the
Obligations, or any part thereof, and their respective successors and assigns,
subject to the restrictions on assignment set forth in the Purchase Agreement. 

18 




          7.5.     
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 the Mortgagee 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.

          7.6.     
It is the intention of the parties hereto to comply with applicable usury laws;
accordingly, notwithstanding any provision to the contrary in this Mortgage, the
Purchase Agreement or in any of the other Transaction Documents securing the
payment hereof or otherwise relating hereto, in no event shall this Mortgage,
the Purchase Agreement or such other Transaction Documents require the payment
or permit the payment, taking, reserving, receiving, collection, or charging of
any sums constituting interest under applicable laws, if any, which exceed the
maximum amount permitted by such laws. If any such excess interest is called
for, contracted for, charged, taken, reserved, or received in connection with
the Obligations evidenced by the Purchase Agreement or in any of the Transaction
Documents securing the payment thereof or otherwise relating thereto, or in any
communication by the Mortgagee or any other person to the Mortgagor or any other
person, or in the event all or part of the principal or interest thereof shall
be prepaid or accelerated, so that under any of such circumstances or under any
other circumstance whatsoever the amount of interest contracted for, charged,
taken, reserved, or received on the amount of principal actually outstanding
from time to time under the Purchase Agreement shall exceed the maximum amount
of interest permitted by applicable usury laws, then in any such event it is
agreed as follows: (i) the provisions of this paragraph shall govern and
control, (ii) neither the Mortgagor nor any other person or entity now or
hereafter liable for the payment of the Obligations shall be obligated to pay
the amount of such interest to the extent such interest is in excess of the
maximum amount of interest permitted by applicable usury laws, (iii) any such
excess which is or has been received notwithstanding this paragraph shall be
credited against the then unpaid principal balance of the Obligations or, if the
Obligations have been or would be paid in full, refunded to the Mortgagor, and
(iv) the provisions of this Mortgage, the Purchase Agreement and the other
Transaction Documents securing the payment hereof and otherwise relating hereto,
and any communication to the Mortgagor, shall immediately be deemed reformed and
such excess interest reduced, without the necessity of executing any other
document, to the maximum lawful rate allowed under applicable laws as now or
hereafter construed by courts having jurisdiction hereof or thereof. Without
limiting the foregoing, all calculations of the rate of the interest contracted
for, charged, taken, reserved, or received in connection with the Obligations or
this Mortgage which are made for the purpose of determining whether such rate
exceeds the Maximum Lawful Rate shall be made to the extent permitted by
applicable laws by amortizing, prorating, allocating and spreading during the
period of the full term of the Obligations, including all prior and subsequent
renewals and extensions, all interest at any time contracted for, charged,
taken, reserved, or received. The terms of this paragraph shall be deemed to be
incorporated in every document and communication relating to the Purchase
Agreement, the Obligations or any other Transaction Document. 

          7.7.      This
Mortgage may be executed in several counterparts, all of which are identical,
except that to facilitate recordation, certain counterparts hereof may include
only that part of Exhibit “A” which contains descriptions of the
properties located in (or otherwise subject to the requirements and/or
protection of the recording or filing acts or regulations of) the recording
jurisdiction in which the particular counterpart is to be recorded, and other
parts of Exhibit “A” shall be included in such counterparts by
reference only. All such counterparts together shall constitute one and the same
instrument. Complete counterparts of this Mortgage containing the entire
Exhibit “A” have been retained by Mortgagor and Mortgagee. For
convenience of recorders, it is noted that the pagination of
Exhibit “A,” even with a particular recording
counterpart, may not be consecutive.

19 




          7.8.     
THIS INSTRUMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE UNITED STATES AND THE STATE OF FLORIDA, EXCEPT TO THE EXTENT REQUIRED BY
LOCAL LAW OF THE STATE WHEREIN THE MORTGAGED PROPERTIES ARE LOCATED (OR WHICH IS
OTHERWISE APPLICABLE TO A PORTION OF THE MORTGAGED PROPERTIES) NECESSARILY OR IN
THE DISCRETION OF THE MORTGAGEE, APPROPRIATELY GOVERNS WITH RESPECT TO
PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND
ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF
THE MORTGAGEE GRANTED HEREIN, THE LAW OF SUCH STATE SHALL APPLY AS TO THAT
PORTION OF THE MORTGAGED PROPERTIES LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS
OF) SUCH STATE.

          7.9.      This
instrument may, as Mortgagee elects, be enforced from time to time as a
mortgage, mortgage-collateral real estate mortgage, conveyance, assignment,
security agreement, fixture filing, financing statement, contract or anyone or
more of these as may be appropriate under applicable law, in order fully to
effectuate the lien hereof and the purposes and agreements herein set forth.

          7.10.      Each
of the provisions of this Mortgage shall be deemed a covenant running with the
land and shall be binding upon Mortgagor, its successors and assigns, and inure
to the benefit of Mortgagee, its successors and assigns. 

          7.11.      THE
MORTGAGOR AND MORTGAGEE ACKNOWLEDGE THAT THE TIME AND EXPENSE REQUIRED FOR TRIAL
BY JURY EXCEED THE TIME AND EXPENSE REQUIRED FOR A BENCH TRIAL AND HEREBY
KNOWINGLY AND VOLUNTARILY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, AND
AFTER HAVING CONSULTED OR HAVING HAD AMPLE OPPORTUNITY TO CONSULT THEIR
RESPECTIVE LEGAL COUNSEL CONCERNING THE CONSEQUENCES OF SUCH WAIVER, TRIAL BY
JURY IN AN ACTION OR OTHER PROCEEDING BROUGHT TO ENFORCE OR DEFEND AGAINST
COLLECTION OF OR OTHERWISE IN CONNECTION WITH THIS MORTGAGE OR THE OTHER
TRANSACTION DOCUMENTS.

          7.12.      The
terms of the Purchase Agreement shall govern in the event there is a conflict
between the terms of this Mortgage and the terms of the Purchase Agreement.

NOTICE: THIS DOCUMENT, THE TRANSACTION DOCUMENTS AND ALL
OTHER DOCUMENTS RELATING TO THIS LOAN TOGETHER CONSTITUTE A WRITTEN PURCHASE
AGREEMENT WHICH REPRESENTS 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 RELATING TO THIS LOAN. 

[Signatures on the following page] 

20 




          IN
WITNESS WHEREOF, this instrument is executed in multiple counterparts, each of
which shall be deemed an original for all purposes.

	 	MORTGAGOR: 
	 	  
	 	AMERICAN NATURAL ENERGY CORPORATION 
	 	  
	 	  
	 	By: /s/ Michael Paulk 
	 	Name: Michael Paulk 
	 	Title: President 


STATE OF OKLAHOMA 

COUNTY OF TULSA 

          The
foregoing instrument was acknowledged before me on this 31st day of January,
2012, by Michael Paulk, as President of American Natural Energy Corporation, an
Oklahoma corporation, on behalf of the corporation. 

          My
commission expires: 1-30-14. 

Delores Lack 
Notary Public


[AFFIX SEAL] 

 

 

THIS INSTRUMENT PREPARED BY: 

_____________________________________________________
David
Kahan, Esq. 
David Kahan, P.A. 
3125 W. Commercial Blvd., Suite 100

Ft. Lauderdale, Florida 33309 


21 




EXHIBIT “A” 

DEFINITIONS: 

          1.      The
terms used in Exhibit “A” have the same meaning as defined in the
Mortgage. 

          2.     
The term “working interest” as used herein means (a) when applied to individual
leases, the undivided interest owned by Mortgagor in the leasehold estate, out
of which are paid Mortgagor’s share of (i) all costs of drilling, completing,
equipping and operating a well or wells, and (ii) all royalties, overriding
royalties, production payments and other interests in or measured by production,
and (b) when applied to leases described as unitized or pooled, the undivided
interest owned by Mortgagor and out of which is paid all costs of drilling,
completing, equipping and operating a well or wells producing oil and gas, or
either of them, from the portions of the leases so unitized or pooled. The term
“net revenue interest” as used herein means that portion of oil and gas (or oil
only, or gas only, where so limited herein) produced from the respective
properties herein described to which Mortgagor is entitled after deduction of
all royalties, overriding royalties, production payments and other interests in
or measured by production which are borne by Mortgagor.

          3.      The
term “Permitted Encumbrances” shall mean: (i) only such liens or
encumbrances which have been specifically approved by Mortgagee in writing;
provided that such liens or encumbrances do not materially interfere with the
use and value of the Mortgaged Properties. 

          4.      With
respect to the descriptions of each of the Mortgaged Properties, if the
description requires, such description may continue on several successive pages
of Exhibit “A.” Certain property descriptions are in
abbreviated form as to Sections, Townships and Ranges. In such descriptions the
following terms may be abbreviated as follows:

Northwest Quarter NW, NWI4 or NW1/4;

Southwest Quarter SW, SWI4 or SW1/4; 
Southeast Quarter SE, SE/4 or
SE1/4; 
Northeast Quarter NE, NE/4 or NE1/4; 
North Half N/2 or N1/2;

South Half S/2 or S1/2; 
East Half E/2 or E1/2; and
West HalfW/2 or
W1/2. 


The applicable Section, Township and Range may be identified by
a series of three numbers, each separated by a dash, with the first number being
the Section number, the second number being the Township number and the third
number being the Range number. The Township and Range numbers are followed by an
N, S, E or W to indicate whether the Township or Range is North, South, East or
West, respectively. In some instances, the Section number may be stated by
itself and not in conjunction with a series of dashed numbers representing the
appropriate Township and Range, e.g., the description “N/2 14, SESW 21 29N 8W”
means “North one half of Section 14 and Southeast quarter of Southwest quarter
of Section 21, all in Township 29 North, Range 8 West.” Certain descriptions
merely refer to the subdivision or survey in which the property is located in
whole or in part. In such cases, the recorded Leases and any amendments thereof
and any other recorded instruments affecting Mortgagor’s title more particularly
describe the land within such subdivision or survey in which Mortgagor owns an
interest, and the descriptions contained in such instruments are incorporated
herein by this reference. 

A-1 




SYMBOLS AND ABBREVIATIONS: 

          1.     
The abbreviation “BPO” or the term “before payout” as used herein means that the
figure next to which this abbreviation appears represents Mortgagor’s net income
interest until such time as the operator of the well or wells situated on the
described property has recovered from production from that well or those wells
all costs as specified in underlying farmout assignments or other documents in
the chain of title, usually including costs of drilling, completing and
equipping a well or wells plus costs of operating the well or wells during the
recoupment period. 

          2.      The
abbreviation “APO” or the term “after payout” as used herein means that the
figure next to which this abbreviation appears represents Mortgagor’s net income
interest after the point in time when the operator of the well or wells situated
on the described property has recovered from production from that well or those
wells all costs as specified in underlying farmout assignments or other
documents in the chain of title, usually including costs of drilling, completing
and equipping a well or wells plus costs of operating the well or wells during
the recoupment period.

DESCRIPTION OF LEASES 

          The
Leases listed on the attached Schedule of Leases are described by reference to
the Lessor, the Lessee/Assignor, the Assignee, the date of the instrument, the
County, Section, Township and Range in which the property is located, and the
book and page in the recorder’s office at which the instrument is recorded. The
description of the properties included in the Leases and the instruments to
which the attached Schedule of Leases refers are incorporated herein by
reference with the same force and effect as if the same were set forth at length
herein. 

A-2 




Schedule of Leases 

All of Mortgagor’s right, title and interest, including,
without limitation, all of Mortgagor’s undivided working interest and net
revenue interest in the Lease more specifically described on Schedule
1 attached hereto. 

A-3