Document:

Unassociated Document

    
      Exhibit
        10.35

       

      DEFAULT
        DEPOSIT ACCOUNT CONTROL AGREEMENT

    

    This
      Default Deposit Account Default Control Agreement dated as of May 11, 2007
      (this
“Agreement”)
      among
TEKOIL
      AND GAS GULF COAST, LLC,
      a
      Delaware limited liability company (the “Debtor”),
      J.
      ARON & COMPANY,
      as
      administrative agent for the beneficiaries (the “Secured
      Party”)
      and
AMEGY
      BANK NATIONAL ASSOCIATION,
      a
      national banking association, in its capacity as a “bank” as defined in Section
      9-102 of the UCC (in such capacity, the “Financial
      Institution”).
      Capitalized terms used but not defined herein shall have the meaning assigned
      thereto in the Pledge and Security Agreement, dated as of May 11, 2007, among
      the Debtor, the other Grantors party thereto, and the Secured Party (as amended,
      restated, supplemented or otherwise modified from time to time, the
“Security
      Agreement”).
      Capitalized terms used but not otherwise defined herein or in the Security
      Agreement shall have the meaning assigned thereto in the Credit and Guaranty
      Agreement, dated as of May 11, 2007, among the Debtor, Tekoil & Gas
      Corporation, other guarantors party thereto, various lenders, and the Secured
      Party, as administrative agent for the various lenders. All references herein
      to
      the “UCC” shall mean the Uniform Commercial Code as in effect in the State of
      New York.

     

    Section
      1. Establishment
      of Deposit Account.
      The
      Financial Institution hereby confirms and agrees that:

     

(a) The
  Financial Institution has established account number XXXXXXX
  in the name “Tekoil
  and Gas Gulf Coast - Master/Operating Account”
  and account number XXXXXXXXX
  in
  the name of “Tekoil
  and Gas Gulf Coast - Controlled Disbursement/Check Disbursements”
  (each such account and any successor account to each such account, a “Deposit
  Account”,
  and collectively, the “Deposit
  Accounts”)
  and the Financial Institution shall not change the name or account number of
  the Deposit Accounts without the prior written consent of the Secured Party;
  and

     

    (b) Each
      Deposit Account is a “deposit account” within the meaning of Section
      9-102(a)(29) of the UCC.

     

    Section
      2. Control
      of the Deposit Account.

     

    (a) The
      Deposit Accounts shall be under the control of the Secured Party. The Secured
      Party shall at all times have "control" (as defined in Section 9-104 of the
      Uniform Commercial Code as adopted in the state of Texas) of the Deposit
      Accounts. The Financial Institution shall comply with instructions originated
      by
      the Secured Party directing disposition of funds in the Depository Account
      without further consent by the Debtor.

     

    (b) Unless
      the Financial Institution shall have received written notice of a default from
      the Secured Party (a "Default Notice") that an "event of default" has occurred
      under the loan documents between the Debtor and the Secured Party (an "Event
      of
      Default") (subject to paragraph (d) below), the Debtor shall have full right
      of
      access to and withdrawal from the Deposit Accounts.

     

    DEFAULT
      DEPOSIT
      ACCOUNT
      CONTROL
      AGREEMENT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (c) Subject
      to paragraph (d) below, from and after the receipt by the Financial Institution
      of a Default Notice (and until the Financial Institution receives a written
      withdrawal of such notice), (i) the Secured Party shall have exclusive dominion
      and control over the Deposit Accounts, (ii) neither the Debtor nor any person
      acting through or on behalf of the Debtor shall have any right of access to
      or
      withdrawal from the Deposit Accounts, and (iii) the Financial Institution shall
      not comply with any instructions originated by the Debtor or any such person
      directing disposition of funds in the Deposit Accounts.

     

    (d) Any
      Default Notice shall be in writing, shall refer to this Agreement and shall
      include clear and specific instruction with respect to the disposition of funds
      in the Deposit Accounts. The Financial Institution shall act on a Default Notice
      from the Secured Party, upon effective delivery thereof, pursuant to the terms
      of this Agreement within a reasonable period of time not to exceed one (1)
      Business Day (hereinafter defined) following the date on which the Financial
      Institution receives such Default Notice to act on such Default Notice. The
      Financial Institution may rely on a Default Notice notwithstanding any other
      or
      conflicting information it may receive from the Debtor. With limiting the
      foregoing, upon receipt of a Default Notice, the Financial Institution shall
      have no obligation to determine whether an Event of Default has occurred. As
      used in this Agreement, the term "Business Day" means any day on which the
      Financial Institution and the Secured Party are not authorized or required
      to
      close.

     

    Section
      3. Subordination
      of Lien; Waiver of Set-Off.
      In the
      event that the Financial Institution has or subsequently obtains by agreement,
      by operation of law or otherwise a security interest in the Deposit Accounts
      or
      any funds credited thereto, the Financial Institution hereby agrees that such
      security interest shall be subordinate to the security interest of the Secured
      Party. Money and other items credited to the Deposit Accounts will not be
      subject to deduction, set-off, banker’s lien, or any other right in favor of any
      person other than the Secured Party (except that the Financial Institution
      may
      set off (i) all amounts due to the Financial Institution in respect of customary
      fees and expenses for the routine maintenance and operation of the Deposit
      Accounts and (ii) the face amount of any checks which have been credited to
      such
      Deposit Accounts but are subsequently returned unpaid because of uncollected
      or
      insufficient funds).

     

    Section
      4. Certain
      Matters Affecting Financial Institution.

     

    (a) Neither
      this Agreement nor the Security Agreement imposes or creates any obligation
      or
      duty of the Financial Institution except for those expressly set forth in this
      Agreement, and no implied obligations shall be read into this Agreement against
      the Financial Institution.

    

    (b) Financial
      Institution may rely on notices and communications it reasonably believes have
      been given by an authorized representative of the Secured Party or the Debtor,
      and the Financial Institution shall have no obligation to review or confirm
      that
      actions taken pursuant to any such notice in accordance with this Agreement
      comply with any other agreement or document.

    

    (c) If
      the
      Debtor becomes subject to a bankruptcy proceeding or if the Financial
      Institution is otherwise served with legal process which the Financial
      Institution believes affects funds deposited in the Deposit Account, the
      Financial Institution shall have the right to place a hold on funds in the
      Deposit Account until such time as the Financial Institution receives an
      appropriate court order or other assurances satisfactory to the Financial
      Institution establishing that funds may continue to be disbursed in accordance
      with this Agreement. 

     

    DEFAULT
      DEPOSIT
      ACCOUNT
      CONTROL
      AGREEMENT

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (d) If
      at any
      time the Financial Institution, in good faith, is in doubt as to the action
      it
      should take under this Agreement, the Financial Institution shall have the
      right
      (i) to place a hold on funds in the Deposit Account until such time as the
      Financial Institution receives an appropriate court order or other assurances
      satisfactory to the Financial Institution as to the disposition of funds in
      the
      Deposit Account, or (ii) to commence an interpleader action in an appropriate
      court and to take no further action except in accordance with joint instructions
      from the Secured Party and the Debtor or in accordance with the final order
      of
      the court in such action.

    

    (e) All
      of
      the Financial Institution's obligations under this Agreement shall be subject
      to
      applicable laws and regulations. Nothing in this Agreement shall require the
      Financial Institution to act in violation of any law or regulation.

    

    (f) The
      Financial Institution will not be liable to any party hereunder for any expense,
      claim, cause of action, liability, loss, damage or cost arising out of or
      relating to the Deposit Account or this Agreement other than those resulting
      from the Financial Institution’s acts or omissions constituting gross negligence
      or willful misconduct, and the Debtor agrees to indemnify and hold the Financial
      Institution harmless from any such expense, claim, cause of action, liability,
      loss, damages or cost. 

    

    (g) The
      Financial Institution shall not be liable for losses or delays resulting from
      computer malfunction, interruption of communication facilities, labor
      difficulties, acts of God, terrorist acts, and other causes beyond the Financial
      Institution’s reasonable control. In no event shall the Financial Institution be
      liable for any indirect, special, consequential, exemplary or punitive damages
      including, without limitation, lost profits.

     

    Section
      5. Choice
      of Law.
      This
      Agreement and each Deposit Account shall each be governed by the laws of the
      State of New York. Regardless of any provision in any other agreement, for
      purposes of the UCC, New York shall be deemed to be the Financial Institution’s
      jurisdiction (within the meaning of Section 9-304 of the UCC) and each Deposit
      Account shall be governed by the laws of the State of New York.

     

    Section
      6. Interpleader.
      If at
      any time the Financial Institution receives conflicting claims to or demands
      regarding the Deposit Accounts and reasonably believes it may become subject
      to
      liability as a result of complying with this Agreement or any instructions
      from
      the Secured Party, the Financial Institution may (a) freeze and hold all funds
      in the Deposit Accounts pending resolution of such issues, and/or (b) interplead
      all Deposit Account funds and deposits in an action commenced in a court of
      competent jurisdiction naming the Debtor, the Secured Party, and any competing
      claimants as defendants. Upon interpleading such funds, the Financial
      Institution will be released from all further liability under this Agreement
      and
      the costs and expenses of the Financial Institution relating to the interpleader
      action, including filling fees and reasonable attorneys fees, shall be paid
      by
      the Debtor and, if the Debtor fails to pay, the Secured Party shall pay such
      fees.

     

    DEFAULT
      DEPOSIT
      ACCOUNT
      CONTROL
      AGREEMENT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    Section
      7. Conflict
      with Other Agreements.
      

     

    (a) In
      the
      event of any conflict between this Agreement (or any portion thereof) and any
      other agreement now existing or hereafter entered into, the terms of this
      Agreement shall prevail;

     

    (b) No
      amendment or modification of this Agreement or waiver of any right hereunder
      shall be binding on any party hereto unless it is in writing and is signed
      by
      all of the parties hereto; and

     

    (c) The
      Financial Institution hereby confirms and agrees that: 

     

    (i) There
      are
      no other agreements entered into between the Financial Institution and the
      Debtor with respect to the Deposit Accounts; and

     

    (ii) It
      has
      not entered into, and until the termination of this Agreement, will not enter
      into, any agreement with any other person relating the Deposit Accounts and/or
      any funds credited thereto pursuant to which it has agreed to comply with
      instructions originated by such persons as contemplated by Section 9-104 of
      the
      UCC.

     

    Section
      8. Adverse
      Claims.
      The
      Financial Institution does not know of any liens, claims or encumbrances
      relating to the Deposit Accounts. If any person asserts any lien, encumbrance
      or
      adverse claim (including any writ, garnishment, judgment, warrant of attachment,
      execution or similar process) against the Deposit Accounts, the Financial
      Institution will promptly notify the Secured Party and the Debtor thereof.
      

     

    Section
      9. Maintenance
      of Deposit Account.
      In
      addition to, and not in lieu of, the obligation of the Financial Institution
      to
      honor instructions as set forth in Section 2 hereof, the Financial Institution
      agrees to maintain the Deposit Accounts as follows:

     

    (a) Statements
      and Confirmations.
      Upon
      receipt of a written request by Secured Party, the Financial Institution will
      promptly send copies of all statements, confirmations and other correspondence
      concerning the Deposit Accounts simultaneously to each of the Debtor and the
      Secured Party at the address for each set forth in Section 11 of this Agreement;
      and

     

    (b) Tax
      Reporting.
      All
      interest, if any, relating to the Deposit Accounts, shall be reported to the
      Internal Revenue Service and all state and local taxing authorities under the
      name and taxpayer identification number of the Debtor. 

     

    Section
      10. Representations,
      Warranties and Covenants of the Financial Institution.
      The
      Financial Institution hereby makes the following representations, warranties
      and
      covenants:

     

    (a) The
      Deposit Accounts have been established as set forth in Section 1 and each such
      Deposit Account will be maintained in the manner set forth herein until
      termination of this Agreement; and 

     

    DEFAULT
      DEPOSIT
      ACCOUNT
      CONTROL
      AGREEMENT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (b) This
      Agreement is the valid and legally binding obligation of the Financial
      Institution.

     

    Section
      11. Indemnification
      of Financial Institution.
      The
      Debtor and the Secured Party hereby agree that (a) the Financial Institution
      is
      released from any and all liabilities to the Debtor and the Secured Party
      arising from the terms of this Agreement and the compliance of the Financial
      Institution with the terms hereof, except to the extent that such liabilities
      arise from the Financial Institution’s negligence and (b) the Debtor, its
      successors and assigns shall at all times indemnify and save harmless the
      Financial Institution from and against any and all claims, actions and suits
      of
      others arising out of the terms of this Agreement or the compliance of the
      Financial Institution with the terms hereof, except to the extent that such
      arises from the Financial Institution’s negligence, and from and against any and
      all liabilities, losses, damages, costs, charges, counsel fees and other
      expenses of every nature and character arising by reason of the same, until
      the
      termination of this Agreement.

     

    Section
      12. Successors;
      Assignment.
      The
      terms of this Agreement shall be binding upon, and shall inure to the benefit
      of, the parties hereto and their respective corporate successors or heirs and
      personal representatives who obtain such rights solely by operation of law.
      The
      Secured Party may assign its rights hereunder only with the express written
      consent of the Financial Institution and by sending written notice of such
      assignment to the Debtor.

     

    Section
      13. Notices.
      Any
      notice, request or other communication required or permitted to be given under
      this Agreement shall be in writing and deemed to have been properly given when
      delivered in person, or when sent by telecopy or other electronic means and
      electronic confirmation of error free receipt is received or two (2) days after
      being sent by certified or registered United States mail, return receipt
      requested, postage prepaid, addressed to the party at the address set forth
      below.

     

    
      	Debtor:	 	Tekoil and Gas Gulf Coast, LLC
	 	 	25045 I-45 North, Suite 525
	 	 	The Woodlands, Texas 77380
	 	 	Attention: Mark Western
	 	 	Telecopier: 281-364-8007
	 	 	 
	Secured Party: 	 	J. Aron & Company
	 	 	85 Broad Street
	 	 	New York, New York 10004
	 	 	Attention: Steve Bunkin
	 	 	Telecopier: 212-428-3675
	 	 	 
	with a copy to:	 	Goldman Sachs E&P Capital
	 	 	1000 Louisiana, Suite 550
	 	 	Houston, Texas 77002
	 	 	Attention: John K. Howie
	 	 	Telecopier:
              713-658-2603

    

     

    DEFAULT
      DEPOSIT
      ACCOUNT
      CONTROL
      AGREEMENT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    
      	Financial Institution:	 	Amegy Bank National Association
	 	 	Five Post Oak Park
	 	 	4400 Post Oak Parkway
	 	 	Houston, TX 77027
	 	 	Attention: Mark Serice
	 	 	Telecopier: ______________
	 	 	 
	 	 	And
	 	 	 
	 	 	Amegy Bank National Association
	 	 	Five Post Oak Park
	 	 	4400 Post Oak Parkway
	 	 	Houston, TX 77027
	 	 	Attention: Kacy Karl
	 	 	Telecopier:
              713-561-0186

    

     

    Any
      party
      may change its address for notices in the manner set forth above.

     

    Section
      14. Termination.
      The
      obligations of the Financial Institution to the Secured Party pursuant to this
      Agreement shall continue in effect until the security interest of the Secured
      Party in each Deposit Account has been terminated pursuant to the terms of
      the
      Security Agreement and the Secured Party has notified the Financial Institution
      of such termination in writing. The Secured Party agrees to provide Notice
      of
      Termination in substantially the form of Exhibit
      A
      hereto
      to the Financial Institution upon the request of the Debtor on or after the
      termination of the Secured Party’s security interest in each Deposit Account
      pursuant to the terms of the Security Agreement. The termination of this
      Agreement shall not terminate the Deposit Accounts or alter the obligations
      of
      the Financial Institution to the Debtor pursuant to any other agreement with
      respect to the Deposit Accounts.

     

    Section
      15. Counterparts.
      This
      Agreement may be executed in any number of counterparts, all of which shall
      constitute one and the same instrument, and any party hereto may execute this
      Agreement by signing and delivering one or more counterparts.

     

    [Remainder
      of page intentionally left blank.]

     

    DEFAULT
      DEPOSIT
      ACCOUNT
      CONTROL
      AGREEMENT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Default Deposit Account
      Control Agreement to be executed as of the date first above written by their
      respective officers thereunto duly authorized.

    
      	 	 	 
	 	
              TEKOIL
                AND GAS GULF COAST, LLC

            
	 
 	 
 	 
 
	 	By:	Tekoil & Gas Corporation, its Managing
              Member
	 	 	 
	 	 	 
	
            	By:  	/s/
              Mark
              Western 
	 	
              
Name:
              Mark Western
	 	Title:
              CEO and Chairman of the Board of
              Directors

    

     

    
      SIGNATUREPAGE
        TO
        DEFAULT
        DEPOSIT
        ACCOUNT
        CONTROL
        AGREEMENT

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	
              J.
                ARON & COMPANY,

            
	 	as Secured Party
	 
 	 
 	 
 
	
            	By:  	/s/
              Colleen Foster 
	 	
              
Name:
              Colleen Foster
	 	Title:
              Managing Director

    

     

    SIGNATUREPAGE
      TO
      DEFAULT
      DEPOSIT
      ACCOUNT
      CONTROL
      AGREEMENT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	 	 
	 	
              AMEGY
                BANK NATIONAL ASSOCIATION

            
	 	
              as
                Financial Institution

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Kenneth R. Batson, III 
	 	
              
Name:
              Kenneth R. Batson, III
	 	Title:
              Vice President. Energy Lending

    

     

    SIGNATUREPAGE
      TO
      DEFAULT
      DEPOSIT
      ACCOUNT
      CONTROL
      AGREEMENT

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    TO
      DEFAULT DEPOSIT ACCOUNT CONTROL AGREEMENT

     

    [Letterhead
      of the Secured Party]

     

    [Date]

     

    [Name
      and
      Address of the Financial Institution]

     

    Attention:

     

    
      	 	
              Re:

            	
              Termination
                of Default Deposit Account Control
                Agreement

            

    

     

    You
      are
      hereby notified that the Default Deposit Account Control Agreement dated as
      of
      May 11, 2007 among Tekoil and Gas Gulf Coast, LLC, you and the undersigned
      (a
      copy of which is attached) is terminated and you have no further obligations
      to
      the undersigned pursuant to such Agreement. Notwithstanding any previous
      instructions to you, you are hereby instructed to accept all future directions
      with respect to account number(s) __________________from Tekoil and Gas Gulf
      Coast, LLC. This notice terminates any obligations you may have to the
      undersigned with respect to such account, however nothing contained in this
      notice shall alter any obligations which you may otherwise owe to Tekoil and
      Gas
      Gulf Coast, LLC pursuant to any other agreement.

     

    You
      are
      instructed to deliver a copy of this notice by facsimile transmission to Tekoil
      and Gas Gulf Coast, LLC.

    
      	 	 	 
	 	
              Very
                truly yours,

            
	 	 
	 	
              J.
                ARON & COMPANY,

            
	 	as Secured Party
	 
 	 
 	 
 
	
            	By:  	
            
	 	
              
                

              

               

              Name: 

              
                

              

            
	 	
              Title:

              
                

              

            

    

    
      EXHIBIT
        A TO
        DEFAULT
        DEPOSIT
        ACCOUNT
        CONTROL
        AGREEMENTUnassociated Document

    
      Exhibit
        10.36

       

      THIS
        DOCUMENT PREPARED BY AND WHEN RECORDED, PLEASE MAIL TO:

    

    

    BRACEWELL
      & GIULIANI LLP

    SOUTH
      TOWER, PENNZOIL PLACE

    711
      LOUISIANA STREET, SUITE 2300

    HOUSTON,
      TX 77002

    ATTN:
      BRANDIE M. MARTIN

    

    CONVEYANCE
      OF
      OVERRIDING
      ROYALTY INTEREST

    

    This
      Conveyance of Overriding Royalty Interest (as from time to time supplemented,
      amended or otherwise modified, this "Conveyance"),
      dated
      as of May 11, 2007, but effective as of October 1, 2006 at 12:00 a.m. local
      time
      at the location of the property described herein (the "Effective
      Date")
      is
      made by TEKOIL AND GAS GULF COAST, LLC, a Delaware limited liability company
      (together with its Affiliates, the "Assignor"),
      whose
      address is 25050 I-45 North, Suite 525, The Woodlands, Texas 77380 to and in
      favor of MTGLQ INVESTORS, L.P., a Delaware limited partnership, whose address
      is
      c/o Goldman, Sach & Co., 85 Broad Street, New York, NY 10004 ("Assignee";
      Assignor and Assignee are referred to collectively herein as the "Parties"
      and
      each as a "Party").

     

    R
      E C I T A L S

     

    WHEREAS,
      Assignor owns certain leasehold interests in various properties more fully
      set
      forth on Exhibit A; and

     

    WHEREAS,
      pursuant to that certain Credit and Guaranty Agreement by and between Assignor,
      Tekoil & Gas Corporation, and J. Aron & Company as Administrative Agent,
      dated of even date herewith (the "Credit
      Agreement"),
      Assignor has agreed to convey to Assignee an overriding royalty interest in
      the
      properties described on Exhibit A;

     

    C
      O N V E Y A N C E

     

    NOW
      THEREFORE, KNOW ALL MEN BY THESE PRESENTS:

     

    ARTICLE
      I

     

    Defined
      Terms

     

    Section
      1.1 Defined
      Terms.
      Capitalized terms used in this Conveyance but not defined shall have the meaning
      ascribed to such terms in the Credit Agreement. When used in this
      Conveyance
      or
      in
      any
      exhibit or
      schedule
      hereto (unless otherwise defined in any such exhibit or
      schedule),
      the following terms have the respective meanings assigned to them in this
      section or
      in
      the
      sections, subsections, exhibits and schedules referred to
      below:

     

    "Fixed
      Rate"
      means,
      for any day, the rate of twelve percent (12%) per annum, based on actual days
      elapsed and a year of 360 days.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    "ORRI"
      has the
      meaning assigned to such term in Section 2.1.

     

    "ORRI
      Hydrocarbons"
      has the
      meaning assigned to such term in Section 2.1.

     

    "Purchase
      and Sale Agreement"
      means
      that certain Purchase and Sale Agreement dated effective as of October 1, 2006
      by and between Masters Resources, LLC, Masters Oil and Gas, LLC and Tekoil
&
Gas Corporation, together with all amendments, supplements, and assignments
      thereof.

     

    "Reimbursable
      Expenses"
      means
      all costs and expenses paid or
      incurred
      by or
      on
      behalf
      of Assignee
      or
      its
      Affiliates
      which
      are
      related to: (a)
      the
      negotiation, acquisition, ownership, enforcement, or
      termination
      of the ORRI,
      this
      Conveyance,
      or
      any
      waivers or
      amendments
      hereto or
      thereto,
      or
      (b)
      any
      litigation, contest, release or
      discharge
      of any adverse claim or
      demand
      made or
      proceeding
      instituted by any Person
      affecting
      in any manner whatsoever the ORRI,
      any
ORRI
      Hydrocarbons,
      this
      Conveyance,
      the
      enforcement or
      defense
      hereof
      or
      thereof,
      or
      the
      defense of Assignee's and its Affiliates'
      exercise of their rights hereunder
      or
      thereunder.
      Included among the Reimbursable
      Expenses are
      (i)
      all
      recording and filing fees, (ii)
      all
      actual and reasonable fees and expenses of counsel, engineers, accountants
      and
      other consultants, experts and advisors for Assignee
      and
      its
Affiliates
      and
      mortgagees, and (iii)
      all
      amounts which Assignee
      is
      entitled to receive hereunder
      and
      all
      costs of Assignee
      in
      exercising any of its remedies hereunder.

     

    "Specified
      Taxes"
      means
      all ad valorem or
      property
      taxes assessed against the ORRI and all severance
      taxes or other similar taxes assessed against or
      measured
      by production and severance of ORRI
      Hydrocarbons or
      the
      value
      thereof.

     

    "Subject
      Hydrocarbons"
      means
      that portion of the Hydrocarbons in and under and that may be produced from
      (or,
      to the
      extent pooled or
      unitized,
      allocated to) the Subject
      Lands which
      are
      attributable to the Subject
      Interests.

     

    "Subject
      Interests"
      means:

     

    (a)     All
      of the leasehold interests and other property interests described in Exhibit
      A
attached
      hereto (such interests are sometimes referred to herein as the "Leases");

     

    (b)     Without
      limitation of the foregoing, all other right, title and interest (of whatever
      kind or
      character,
      whether legal or
      equitable
      and whether vested or
      contingent)
      of Assignor
      in
      and to
the
      oil,
      gas
      and other minerals in
      and
      under or
      that
      may
      be produced from any Subject
      Lands (including
      interests
      in oil, gas or
      mineral
      leases to the extent the same cover such lands, overriding
      royalties, production payments and
      net
      profits interests in such lands or
      such
      leases, and fee mineral interests, fee royalty interests and other interests
      in
such
      oil,
      gas
      and other minerals)
      even
      though Assignor's interest in such
      oil,
      gas
      and other minerals may
      be
      incorrectly described in, or
      omitted
      from, Exhibit
      A;
      and

     

    (c)     All
      rights, titles and interests of Assignor
      in
      and
      to, or
      otherwise
      derived from, all presently existing and valid oil, gas or
      mineral
      unitization, pooling, or
      communitization
      agreements, declarations or
      orders
      and in and to the properties covered and the units created thereby
      (including
      all
      units
      formed under orders, rules, regulations, or
      other
      official acts of any federal, state, or
      other
      authority having jurisdiction, voluntary unitization agreements, designations
      or
      declarations,
      and so-called "working interest units" created under operating agreements
or
      otherwise)
      relating to the properties described in subsections (a)
      or
      (b)
      above
      in
      this definition.

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    "Subject
      Lands"
      means
      the lands described or
      referred
      to in Exhibit
      A
or
      in
      the
      leases and other instruments described in Exhibit A.

     

    "Subject
      Wells"
      means
      all wells now located on the Subject
      Lands (whether
      fully drilled and completed or
      not)
      or
      hereafter
      drilled on the Subject
      Lands,
      and
any
      other
      wells now or
      hereafter
      located on lands or
      leases
      pooled, communitized or
      unitized
      with the Subject
      Interests.

     

    "Working
      Interest"
      means
      the interest owned in oil and gas leaseholds or other oil and gas interests
      (including leasehold interests, operating rights interests or other cost-bearing
      interests, and mineral fee or ownership interests) that determines the
      percentage share of costs borne by the owner of such interest.

     

    "Environmental
      Laws"
      means
      any and all current or future foreign or domestic, federal or state (or any
      subdivision of either of them), statutes, ordinances, orders, rules,
      regulations, judgments, Governmental Authorizations, or any other requirements
      of Governmental Authorities relating to (a) environmental matters, including
      those relating to any Hazardous Materials Activity; (b) the generation, use,
      storage, transportation or disposal of Hazardous Materials; or (c) occupational
      safety and health, industrial hygiene, land use or the protection of human,
      plant or animal health or welfare, in any manner applicable to Company or any
      of
      its Subsidiaries or any of their respective properties.

     

    "Hazardous
      Materials"
      means
      any substances regulated under any Environmental Law, whether as pollutants,
      contaminants, or chemicals, or as industrial, toxic or hazardous substances
      or
      wastes, or otherwise.

     

    "Hazardous
      Materials Activity"
      means
      any past, current, proposed or threatened activity, event or occurrence
      involving any Hazardous Materials, including the use, manufacture, possession,
      storage, holding, presence, existence, location, Release, threatened Release,
      discharge, placement, generation, transportation, processing, construction,
      treatment, abatement, removal, remediation, disposal, disposition or handling
      of
      any Hazardous Materials, and any corrective action or response action with
      respect to any of the foregoing.

     

    "Release"
      means
      any release, spill, emission, leaking, pumping, pouring, injection, escaping,
      deposit, disposal, discharge, dispersal, dumping, leaching or migration of
      any
      Hazardous Material into the indoor or outdoor environment (including the
      abandonment or disposal of any barrels, containers or other closed receptacles
      containing any Hazardous Material), including the movement of any Hazardous
      Material through the air, soil, surface water or groundwater.

     

    Section
      1.2     Rules
      of Construction.
      All
      references in this
      Conveyance
      to
      articles, sections, subsections and other subdivisions refer to corresponding
      articles, sections, subsections and other subdivisions of this
      Conveyance
      unless
      expressly provided otherwise. Titles appearing at the beginning of any of such
      subdivisions are for convenience only and shall not constitute part of such
      subdivisions and shall be disregarded in construing the language contained
      in
      such subdivisions. The words "this
      Conveyance",
      "this
      instrument",
      "herein",
      "hereof",
      "hereunder"
      and
      words of similar import refer to this
      Conveyance
      as
      a
      whole and not to any particular subdivision unless expressly so limited. Unless
      the context otherwise requires: "including"
      and its
      grammatical variations mean "including
      without limitation";
      "or"
      is not
      exclusive; words in the singular form shall be construed to include the plural
      and vice versa; words in any gender include all other genders; references
herein
      to
      any
      instrument or
      agreement
      refer to such instrument or
      agreement
      as it may be from time to time amended or
      supplemented;
      and references herein
      to
      any
Person
      include
      such Person's
      successors and assigns. All references in this
      Conveyance
      to
      exhibits and schedules refer to exhibits and schedules to this
      Conveyance
      unless
      expressly provided otherwise, and all such exhibits and schedules are hereby
      incorporated herein
      by
      reference and made a part hereof
      for
      all
      purposes.

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      II

     

    Granting
      Provisions

     

    Section
      2.1     Granting
      Clause.
      For and
      in consideration of the sum of ONE HUNDRED AND NO/100 DOLLARS ($100.00) and
      other good and valuable consideration to Assignor in hand paid by Assignee,
      the
      receipt and sufficiency of which is hereby acknowledged, Assignor does hereby
      BARGAIN, TRANSFER, GRANT, ASSIGN, SELL, WARRANT, CONVEY, SET OVER and DELIVER
      and by these presents has hereby BARGAINED, TRANSFERRED, GRANTED, ASSIGNED,
      SOLD, WARRANTED, CONVEYED, SET OVER and DELIVERED unto Assignee, effective
      as of
      the Effective Date, an overriding royalty interest of 2% of 8/8ths (the
      "ORRI
      Percentage")
      of all
      of the (i) oil, (ii) gas, (iii) associated hydrocarbons, and (iv) other minerals
      of every type and description (collectively, the "Subject
      Hydrocarbons";
      the
      portion of the Subject Hydrocarbons attributable to the ORRI are referred to
      herein as the "ORRI
      Hydrocarbons")
      that
      inure to the benefit Assignor under the Subject Interests, subject to the terms
      and provisions set forth herein.

     

    TO
      HAVE
      AND
      TO HOLD the ORRI
      unto
      Assignee, its
      successors and assigns,
      forever, subject, however, to the following terms, provisions and
      conditions.

     

    This
      Conveyance
      is
      made
      with full substitution and subrogation of Assignee
      in
      and to
      all covenants and warranties by others heretofore given or
      made.
      The
      ORRI is subject to all applicable laws, rules, regulations and orders of any
      applicable governmental authorities.

     

    Section
      2.2     Non-Operating,
      Non-Cost-Bearing Interest.
      Except
      for Specified Taxes (which are for the account of Assignee), the ORRI
and
      the
ORRI
      Hydrocarbons shall
      be
      free and clear of (a)
      all
      taxes of any kind, (b) all
      costs
      and expenses associated with acquiring, exploring, developing, maintaining,
      producing, operating, reworking, recompleting, and remediating the Subject
      Interests,
      (c)
      all
      royalties, overriding
      royalties, production payments,
      and
      similar charges burdening the Subject
      Interests,
      and (d)
      all costs for separating, gathering, compressing, treating, processing or
      marketing ORRI Hydrocarbons or for transporting ORRI Hydrocarbons from the
      wellhead to the point of sale in a condition to meet pipeline or transporter
      specifications and qualifications.
      All of
      the foregoing taxes (other than Specified Taxes), costs and expenses, royalties,
      overriding
      royalties, production payments,
      and
      similar charges shall be paid by Assignor
      promptly,
      on or
      before
      the dates the same become delinquent (unless being disputed in good faith by
      appropriate proceedings being diligently pursued and for which adequate reserves
      have been established). In addition, Assignor
      will
      promptly (and in any event within 30 days after receiving any notice
or
      statement
      for the same) pay all Reimbursable
      Expenses which
      have been incurred and are unpaid and reimburse Assignee
      for
      any
Reimbursable
      Expenses which
      have been paid by or
      on
      behalf
      of Assignee. Each amount which is to be paid by Assignor
      pursuant
      to this Section 2.2
      which
      is
      instead paid by or
      on
      behalf
      of Assignee
      shall
      bear interest at the Fixed
      Rate on
      each
      day from and including
      the
      date
      of such payment until but not including
      the
      date
      repaid by Assignor.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    Section
      2.3     Measurement
      of ORRI.
      Assignee, and its successors and assigns, shall have the right to take in kind
      the ORRI Hydrocarbons. In the event that Assignee does not elect to take the
      ORRI Hydrocarbons in kind, Assignor shall account to Assignee for the ORRI
      Hydrocarbons on the following basis: 

     

    (a)     On
      oil, condensate, and other liquid hydrocarbons recovered by conventional,
      field-type separation processes (collectively, the "Liquids"),
      produced pursuant to the Subject Interests, (i) when sold, the ORRI Percentage
      of the proceeds received by Assignor from such sale, or (ii) when used off
      the
      Lease premises, the ORRI Percentage of the amount so used payable in the same
      manner as if said Liquids have been sold under the contract then in existence
      between Assignor and the purchaser of Liquids from the subject Lease or Leases,
      or in the event there is no such contract, the Override Percentage of the market
      value thereof at the wellhead, in each case free of all costs and expenses
      of
      production, treating, and transportation prior to the point of delivery to
      the
      purchaser thereof or its agent; and

     

    (b)     On
      gas, including casinghead gas or other gaseous substances, remaining after
      separation of the associated Liquids ("Gas"),
      produced pursuant to the Subject Interests, (i) when sold, the ORRI Percentage
      of the proceeds received by Assignor from such sale, or (ii) when used off
      the
      lease premises, the ORRI Percentage of the amount so used, payable in the same
      manner as if said Gas had been sold under the contract then in existence between
      Assignor and the purchaser of Gas from the subject lease or leases, or in the
      event there is no contract, the ORRI Percentage of the market value thereof
      at
      the wellhead, in each case free of all costs and expenses of production,
      treating and transportation prior to the point of delivery to the purchaser
      thereof or its agent; provided, however, that in the event at any time Assignor
      elects to process, or have processed, Gas produced from any of the Subject
      Interests in a gas processing plant, whether or not owned by Assignor, no ORRI
      will be paid on gasoline or other liquid hydrocarbons or other products
      manufactured or extracted from such Gas as a result of such processing, and
      in
      such event Assignor will install a meter prior to the point at which the gas
      enters the processing plant, and Assignee will be entitled to receive the ORRI
      Percentage of the proceeds which Assignor would have received under its
      applicable gas sales contract if such Gas had not been processed in a plant,
      or
      in the event there is no contract, the ORRI Percentage of the market value
      thereof at the wellhead.

     

    Section
      2.4     Measurement;
      Hydrocarbons
      Lost or
      Used.
      The
ORRI
      shall
      not
      apply to any oil,
      gas
or
      other
      minerals that
      are
      unavoidably lost in the production thereof or
      in
      the
      compression or
      transportation
      of Subject
      Hydrocarbons prior
      to
      the applicable point of sale or
      which
      are
      used by Assignor
      or
      the
      operator of any Subject
      Well for
      the
      production of Subject
      Hydrocarbons or
      for
      the
      compression or
      transportation
      thereof prior to the applicable point of sale, in each case only to the extent
      the same are lost or
      used
      in
      the course of operations which are being conducted prudently and in a good
      and
      workmanlike manner. Assignor
      hereby
      represents, warrants and covenants to Assignee
      that
      production from each Subject
      Well is
      and
      will continue to be measured at a point prior to any point where gas
or
      oil
      from
      such Subject
      Well is
      commingled with gas or
      oil
      from
      any other well or
      wells
      that are not Subject
      Wells.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    Section
      2.5     Proportionate
      Reduction.
      In the
      event that any Lease covers less than the full fee estate in the property
      subject to the Lease, the ORRI in such Lease conveyed to Assignee hereby shall
      be reduced in the proportion that the individual fee interest covered by the
      Lease bears to the full fee estate. In the event that Assignor's interest in
      any
      of the Leases is less than the full leasehold working interest in such Lease,
      the ORRI attributable to such Lease shall be reduced in the proportion that
      Assignor's interest in such Lease bears to the entire leasehold Working
      Interest. In the event of a loss or failure in title to any of Assignor's
      interests in any of the Leases, the ORRI attributable to any such Lease shall
      be
      reduced in the same proportion that the interest of Assignor in production
      from
      said Lease is reduced.

     

    Section
      2.6     Renewals
      and Extensions.
      This
Conveyance
      and
      the
ORRI
      shall
      apply to Assignor's and its Affiliates'
      interests in all renewals, extensions and other similar arrangements of each
      Lease (or
      other
      determinable interest) which is included in the Subject
      Interests,
      whether
      such renewals, extensions or
      arrangements
      have heretofore been obtained by Assignor
      or
      are
      hereafter obtained by or
      for
      Assignor
      or
      any
      Affiliate
      thereof
      and whether or
      not
      the
      same are described in Exhibit
      A.
      For
      the
      purposes of the preceding sentence, a new lease that covers the same interest
      (or
      any
      part
      thereof) covered by a prior lease, and which is acquired within one year after
      the expiration, termination, or
      release
      of such prior lease, shall be treated as a renewal or
      extension
      of such prior lease.

     

    ARTICLE
      III

     

    Marketing
      of
      ORRI
      Hydrocarbons and
      Distribution of Proceeds

     

    Section
      3.1     Nature
      of Marketing Arrangements.
      Subject
      to the right of Assignee to take the ORRI Hydrocarbons in kind described in
      Section 2.3 hereof, Assignor shall
      prudently market, or
      cause
      to
      be prudently marketed, the ORRI
      Hydrocarbons on
      behalf
      of and for the account of Assignee
      in
      arm's-length transactions with reputable purchasers, with each
      such
      marketing arrangement (including all
      arrangements relating to sales, treating, transportation, compression and
      processing) to be made upon terms and conditions that
      (a)
are
      at
      least as favorable as Assignor or
      any
      Affiliate of Assignor obtains for Assignor's share of oil,
      gas
or
      other
      minerals attributable
      to the Subject
      Interests or
      attributable
      to any other properties in the same field or
      general
      area, (b)
      are
      in accordance with the provisions of the Leases, (c) give
      due
      regard to the interests of Assignee, and (d)
      unless
      otherwise agreed by Assignee from time to time, provide for floating prices
      generally based on spot-market prices plus or
      minus
      a
      basis differential; provided, however, that no ORRI
      Hydrocarbons are
      or
      will
      become subject to any sales arrangement (i)
      whereby payment
      for ORRI
      Hydrocarbons is
      or
      can
      be
      deferred in excess of 30 days in the case of oil and in excess of 60 days in
      the
      case of gas after the month
      in
      which
      the ORRI
      Hydrocarbons are
      delivered; (ii)
      whereby payments
      may be made other than by checks, drafts, wire transfer or
      similar
      communications for the immediate payment of money; (iii) that is for a term
      in
      excess of 1 year or is not cancelable on less than or equal to sixty days
      notice. Assignor
      shall
      duly and prudently perform all obligations performable by it under any
      arrangements by which ORRI
      Hydrocarbons are
      sold
or
      otherwise
      marketed and shall take all appropriate measures to enforce the performance
      under each such arrangement of the obligations of the other parties thereto.
      As
      to any third parties, all acts of Assignor
      in
      marketing the ORRI
      Hydrocarbons and
      all
      sales or
      other
      marketing agreements executed by Assignor
      in
      accordance herewith shall be binding on Assignee
      and
      the
ORRI,
      it
      being understood and agreed hereby that the right and obligation to market
      the
ORRI
      Hydrocarbons shall
      be
      at all times vested in Assignor, and Assignee shall not have any such right
      or
      obligation.
      Accordingly, it shall not be necessary for Assignee
      to
      join
      in any production
      sales or
      marketing
      agreements or
      any
      amendments to existing production
      sales or
      marketing
      agreements.
      Amounts
      received by Assignor as payments from a purchaser of Minerals pursuant to a
      contractual provision providing for "take-or-pay" payments (including
      pre-initial delivery payments but excluding penalty amounts) shall be considered
      amounts received from the sale of ORRI Hydrocarbons. As used in this Section
      3.1, the term "penalty
      amounts"
      means
      amounts in excess of (i) the then current contract price multiplied by (ii)
      the
      difference between the amount of Minerals required to be taken under the
      contract and the amount actually taken. 

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    Section
      3.2     Distribution
      of Funds.
      Until
      notified by Assignee
      to
      the
      contrary, Assignor
      shall
      receive all payments for (or
      on
      account of) ORRI
      Hydrocarbons and
      shall, on or
      before
      noon on the last Business Day of each calendar month (the "Monthly
      Record Date"),
      distribute any such payments received during such calendar month (a
      "Monthly
      ORRI Payment")
      to
Assignee,
      net only of Specified Taxes, by
      wire
      transfer (or, if consented to by Assignee, by check) to such accounts
or
      locations
      as Assignee
      may
      direct from time to time in writing. Assignee
      shall
      have the right at all times, upon written notice sent to Assignor, to
      immediately begin receiving payment for (or
      on
      account of) all ORRI
      Hydrocarbons directly
      from the purchasers thereof or
      from
      any
      other parties obligated to make payment therefor. In the event Assignee
      exercises
      its right to receive payment for (or
      on
      account of) ORRI
      Hydrocarbons directly,
      Assignor
      shall
      immediately cause to be prepared and executed such division orders, transfer
      orders, or
      instructions
      in lieu thereof, as Assignee
      (or
      any
      third
      party) may require from time to time to cause payments to be made directly
      to
      Assignee. In the event that, for any reason, Assignee
      cannot
      (or
      does
      not)
      receive such payments directly, the same shall be collected by Assignor
      and
      shall
      constitute trust funds in Assignor's hands, to be immediately paid over to
      Assignee
      by
      wire
      transfer or check to such account or
      location
      as Assignee
      may
      direct from time to time in writing (or
      by
      such
      other form of transfer reasonably specified by Assignee). If, at any time,
      Assignor pays the ORRI based upon Monthly ORRI Payments as to which Assignor
      is
      subsequently required to make any refund payment (including any such refund
      payments made pursuant to settlements entered into by Assignor as a result
      of an
      overpayment made to Assignor in connection with the sale or sales of Subject
      Hydrocarbons) and Assignor has remitted the Monthly ORRI Payment to which such
      refund payment pertains to Assignee, Assignee shall not be obligated to return
      any of such Monthly ORRI Payment to Assignor, but the ORRI shall not be payable
      to Assignee on the succeeding Monthly Record Dates following the calendar month
      in which Assignor is so required to make such refund payments to the extent
      that
      Assignor has not recovered the portion of such refund payments attributable
      to
      the ORRI. With respect to such refund payments, Assignor may only recover the
      portion thereof attributable to the ORRI from succeeding Monthly ORRI Payments
      received from Assignor to which such refund payment obligation
      relates.

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Section
      3.3     Production
      Records, Statements and Payments.
      Assignor
      shall
      keep full, true, and correct records of the
      oil,
      gas, and other hydrocarbons produced
      from or
      attributable
      to the Leases, and the portion thereof attributable to the ORRI.
      Such
      records may be inspected by Assignee
      or
      its
      authorized representatives and copies made thereof at all reasonable times.
      On
or
      before
      the Monthly Record Date for each calendar month, Assignor
      shall
      send to Assignee
      a
      statement setting forth (i)
      the
      production from the Subject
      Interests for
      the
      current calendar month, (ii)
      the
      portion of such production attributable to the ORRI,
      (iii)
      to
      the
      extent Assignee
      does
      not
      receive direct payment of proceeds from sale of ORRI
      Hydrocarbons pursuant
      to Section 3.2
      above,
      the gross proceeds attributable to the sale of ORRI
      Hydrocarbons
      and any
      Specified Taxes deducted therefrom, and (iv)
      such
      other data as Assignee
      may
      reasonably request, in such form as Assignee
      may
      reasonably request.

     

    Section
      3.4     Initial
      Monthly ORRI Payment.
      On or
      before the Monthly Record Date for the month ending May 31, 2007, and in
      accordance with the terms of Section 3.2 hereof, Assignor shall pay to Assignee
      the Monthly ORRI Payment for the calendar months ending October 31, 2006;
      November 30, 2006; December 31, 2006; January 31, 2007; February 28, 2007;
      March
      31, 2007; and April 30, 2007 (collectively, "Accrued
      ORRI Payment"),
      which
      Accrued ORRI Payment shall be calculated as set forth in Article II hereof
      based
      upon any and all Subject Hydrocarbons, proceeds from the sale thereof, or any
      other amounts to which Assignor is or becomes entitled pursuant to the Purchase
      and Sale Agreement for the period beginning on the Effective Date and ending
      on
      April 30, 2007. For the avoidance of doubt, the payment by Assignor of the
      Accrued ORRI Payment shall not modify Assignee's right to receive (and Assignee
      shall be entitled to receive) the Monthly ORRI Payment for the calendar month
      ending May 31, 2007 based upon the full calendar month of May, 2007, on the
      Monthly Record Date for the month of May, 2007.

     

    ARTICLE
      IV

     

    Representations,
      Warranties and Covenants

     

    Assignor
      hereby
      represents, warrants and covenants for the benefit of Assignee
      as
      follows:

     

    Section
      4.1     Operations.
      Assignor
      shall
      develop, operate and maintain the Leases as would a prudent operator. Assignor
      shall make decisions with regard to the conduct of operations without
      considering the effect of the ORRI
      as
      a
      burden on the Leases. As to any portions of the Subject
      Leases for
      which
Assignor
      is
      not
      the operator, Assignor
      shall
      take all such action and exercise all such rights and remedies as are legally
      available to it to cause the operator to so develop, maintain and operate such
      portions of the Leases as would a prudent operator.

     

    Section
      4.2     Leases,
      Deeds and Contracts; Performance of Obligations.
      The
      oil, gas or
      mineral
      leases, contracts, servitudes, fees, deeds, and other agreements forming a
      part
      of the Subject
      Interests,
      to the
      extent the same cover or
      otherwise
      relate to the Subject
      Interests,
      are in
      full force and effect, and Assignor
      agrees
      to
      so maintain them in full force and effect to the extent a prudent operator,
      without giving effect to the ORRI
      or
      this
      Conveyance,
      would
      do so.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    Section
      4.3     Pooling
      and Unitization.
      Assignor, at its option, shall have the right and power (provided that such
      power is exercised in good faith) to pool or combine the acreage covered by
      any
      portion of the Subject Interests as to the Hydrocarbons or any part thereof,
      with other land or leases to the fullest extent provided in the underlying
      leases comprising the portion of the Subject Interests pooled, and Assignee
      does
      hereby consent to such pooling and agrees that Assignee's ORRI shall be subject
      to any such pooled unit, provided,
      however, that such consent and agreement of Assignee shall not apply to any
      such
      pooling or combination of Subject Interests with other acreage owned by Assignor
      or any of its Affiliates and Assignor agrees that, unless Assignee otherwise
      consents in writing at the time in question, Assignor will not make any such
      pooling or combination of Subject Interests with any other acreage owned by
      Assignor or any of its Affiliates.

     

    Section
      4.4     Gas
      Balancing.
      

     

    (a)     Definitions.
      As used
herein,
      "undertake"
      means
      that an owner of production from a Subject
      Well takes
      a
      lesser share of oil or
      gas
      produced from such Subject
      Well than
      the
      share which such owner is entitled to take by virtue of its ownership interest,
      determined without regard to any rights under any production balancing agreement
      or
      similar
      arrangement or
      any
      rights under common law
      with
      respect to production balancing, and "overtake"
      means
      that an owner of production from a Subject
      Well takes
      a
      greater share of oil or
      gas
      produced from such Subject
      Well than
      the
      share which such owner is entitled to take by virtue of its ownership interest,
      again determined without regard to any rights under any production balancing
      agreement or
      similar
      arrangement or
      any
      rights under common law
      with
      respect to production balancing. If an owner undertakes, the amount of
      production not taken is "underproduction"
      and if
      an owner overtakes, the extra share of production taken is "overproduction".

     

    (b)     Gas
      Balancing Agreements.
      The
      interests of Assignor in the leasehold working interests in the Leases currently
      may be subject to gas balancing agreements that permit an owner of the leasehold
      working interest to store its proportionate share of Gas while the other owners
      are permitted to take gas that is greater than their proportionate share (a
      "Gas
      Balancing Arrangement").
      Subject to the terms of this Section 4.4, Assignor shall have the right and
      power to commit its leasehold working interests in the Leases to future Gas
      Balancing Arrangements. The ORRI is and shall be bound by and subject to the
      terms of and provisions thereof. In the event that Assignor is or becomes an
      underproduced party under any present or future Gas Balancing Arrangement,
      the
      ORRI shall not be payable to Assignee with respect to any Gas attributable
      to
      the interest of Assignor that is deemed to be stored under the terms of such
      Gas
      Balancing Arrangement. In addition, in the event that Assignor becomes an
      overproduced party under any present or future Gas Balancing Arrangement, then
      the ORRI shall not be payable to Assignee with respect to any portion of the
      Gas
      taken by an underproduced party as "make-up" Gas that would otherwise be
      attributable to the interest of Assignor. The ORRI shall be payable with respect
      to any "make-up" Gas taken by Assignor as a result of its underproduction,
      any
      cash received by Assignor as a balancing of accounts either as an interim
      balancing or at the depletion of the reservoir, and any overproduction that
      Assignor receives as an underproduced party.

     

    (c)     No
      Undertakes
      Without
      Consent.
      Notwithstanding anything to the contrary contained in this Conveyance, Asignor
      will not undertake
      or
      overtake
      from
      a
Subject
      Well (either
      for itself or
      on
      behalf
      of Assignee)
      if an Affiliate
      of
      Assignor
      thereby
      overtakes or
      undertakes.
      Assignor
      may
      otherwise elect to undertake
      or
      overtake
      in
      its
      reasonable business judgment exercised for the benefit of itself and Assignee.
      If any undertake
      by
      Assignor
      occurs
      in
      violation of this subsection (c),
      the
ORRI
      Hydrocarbons shall
      be
      determined (to the maximum extent allowed under applicable Law)
      without
      regard thereto.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (d)     No
      Balancing From Other Properties.
      Notwithstanding
      anything to the contrary contained in this Conveyance, Assignor
      will not allow any Subject
      Interest to
      be
      subject to any Gas Balancing Arrangement under which one or
      more
      third Persons
      may
      overtake
      a
      portion
      of the production attributable to such Subject
      Interest as
      a
      result of undertakes or
      overtakes
      (or
      other
      actions or
      inactions)
      with respect to properties other than such Subject
      Interest.
      For the
      purposes of this subsection (d),
      a
      production unit in which all parties have uniform interests shall be considered
      to be a single Subject
      Interest.

     

    Section
      4.5     Title.
      Assignor has good and defensible title to the Subject Interests free and clear
      of all liens, security interests, and encumbrances. Assignor hereby binds itself
      to WARRANT and FOREVER DEFEND all and singular title to the ORRI unto Assignee
      and its
      successors and assigns,
      against
      every person
      lawfully
      claiming or
      to
      claim
      the same or
      any
      part
      thereof. This Conveyance
      is
      made
      with full substitution and subrogation of Assignee in and to all covenants,
      representations and warranties by others heretofore given or
      made
      with
      respect to the Subject
      Interests.

     

    Section
      4.6     Compliance
      with Laws.
      The
Subject
      Lands,
      and
      Assignor's present and proposed operations thereon, are in compliance in all
      material respects with all applicable Laws,
      including
      all
      Environmental
      Laws;
      (b)
      Assignor
      has taken all steps reasonably necessary to determine and has determined that
      no
Release
      of Hazardous Materials has
      occurred on the Subject
      Lands or as a result of operations on the Subject Lands,
      and the
      use which Assignor
      makes
      and
      intends to make of the Subject
      Lands will
      not
      result in any such Release; (c)
      to
      the
      best of Assignor's knowledge, none of such operations of Assignor, and none
      of
      the Subject
      Lands,
      is the
      subject of any federal, state or
      local
      investigation evaluating whether any remedial action is needed to respond to
      a
      Release of any Hazardous
      Materials into
      the
      environment or
      to
      the
      improper storage or
      disposal
      (including
      storage
      or
      disposal
      at offsite locations) of any Hazardous
      Materials;
      (d)
      neither
      Assignor
      nor,
      to
      the best knowledge of Assignor, any other Person
      has
      filed
      any notice under any Environmental
      Law indicating
      that Assignor
      is
      responsible for the Release into the environment, or
      the
      improper storage or
      disposal,
      of any Hazardous
      Materials that
      are
      now located on, were removed from, or
      are
      in
      any way related to any Subject
      Lands,
      or
      that
      any
Hazardous
      Materials have
      been
      Released, or
      are
      improperly stored or
      disposed
      of, upon any Subject
      Lands;
      and
(e)
      neither
      Assignor
      nor
      any
      of its Affiliates
      otherwise
      has any material contingent liability in connection with operations on any
      Subject
      Lands for
      the
      Release into the environment, or
      the
      improper storage or
      disposal,
      of any Hazardous Materials. Assignor
      will
      not
      cause or
      permit
      the Subject
      Lands or
      Assignor
      to
      be in
      violation of any Environmental
      Laws or
      other
      Laws
      with
      respect to the Subject
      Lands or
      do
      anything or
      permit
      anything to be done which will subject Assignor, Assignee
      or
      the
      Subject
      Lands to
      any
      material remedial obligations under any Environmental
      Laws,
      assuming
      in each case disclosure to the applicable governmental authorities of all
      relevant facts, conditions and circumstances, if any, pertaining to the
Subject
      Lands,
      and
Assignor
      will
      promptly notify Assignee
      in
      writing of any existing, pending or,
      to the
      best knowledge of Assignor, threatened investigation or
      inquiry
      of a material nature affecting any Subject
      Lands by
      any
      private party or
      governmental
      authority in connection with any Environmental
      Laws.
      Assignor
      will
      take
      all steps reasonably necessary to determine that no Hazardous
      Materials are
      disposed of or
      otherwise
      Released on or
      to
      the
Subject
      Lands in
      violation of any Environmental
      Laws.
      Assignor
      will
      not
      cause or
      permit
      the Release of any Hazardous
      Materials on
      or
      to
      the
Subject
      Lands in
      violation of any Environmental
      Law and
      covenants and agrees to remove or
      remediate
      any Hazardous
      Materials which
      has
      been Released on the Subject
      Lands in
      amounts which would violate any Environmental
      Laws.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      V

     

    [RESERVED]

     

    ARTICLE
      VI

     

    Assignments
      and
      Transfers

     

    Section
      6.1     Assignment
      and Transfer by Assignee.
      Assignee
      may,
      and
      nothing herein
      contained
      shall in any way limit or
      restrict
      the right of Assignee
      to,
      sell,
      convey, assign, mortgage or
      otherwise
      dispose of the ORRI
      (including
      its
      rights, titles, interests, estates, remedies, powers and privileges appurtenant
      or
      incident
      to the ORRI
      under
      this
      Conveyance),
      in
      whole or
      in
      part.
      No change of ownership of the ORRI
      shall
      be
      binding upon Assignor, however, until Assignor
      is
      furnished with copies of the documents evidencing such change. Upon receipt
      by
Assignor
      of
      copies
      of the documents evidencing a sale, conveyance, assignment, mortgage
or
      other
      disposition of the ORRI,
      Assignor
      shall
      thereafter deal with the transferee Assignee in place of the
      transferring Assignee and
      references herein
      to
      the
"Assignee"
      shall
      thereafter be deemed to be references to such transferee Assignee, provided
      that
      the transferring Assignee shall continue to have, and benefit from, all rights
      to indemnification and reimbursement that are provided herein.

     

    Section
      6.2     Assignment
      and Transfer by Assignor.
      Any
      sale, conveyance, assignment, mortgage or
      other
      disposition of the Subject
      Interests,
      or
      any
      part
      thereof or
      interest
      therein, by Assignor
      shall
      be
      subject to this
      Conveyance,
      and in
      the instrument affecting such transfer or
      other
      disposition the transferee or
      other
      disposition recipient shall expressly recognize and assume all obligations,
      covenants and agreements of Assignor
      hereunder
      with
      respect to the Subject Interests so sold, conveyed, assigned or otherwise
      disposed of (the "Transferred
      Subject Interests").
      Any
      sale, conveyance, assignment, mortgage, or other disposition of the Subject
      Interests in violation of this Conveyance shall be voidable at the option of
      Assignee. 

     

    Section
      6.3     Covenants
      Running With the Land.
      All
      covenants and agreements of Assignor
      herein
      contained
      shall be deemed to be covenants running with the Subject Lands. All of the
      provisions hereof
      shall
      inure to the benefit of the Parties and their
      respective successors and assigns.

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      VII

     

    Miscellaneous
      Provisions

     

    Section
      7.1     Further
      Assurances.
      Assignor
      agrees
      to
      execute and deliver to Assignee, and, to the extent it is within Assignor's
      power to do so, to cause any third parties to execute and deliver to Assignee,
      all such other and additional instruments and to do all such further acts and
      things as may be necessary or
      appropriate
      to more fully vest in and assure to Assignee
      all
      of
      the rights, titles, interests, remedies, powers and privileges herein
      granted.

     

    Section
      7.2     No
      Waiver.
      The
      failure of Assignee to insist upon strict performance of a covenant hereunder
      or
      of
      any
      obligation hereunder,
      irrespective of the length of time for which such failure continues, shall
      not
      be a waiver of Assignee's right to demand strict compliance in the future.
      No
      consent or
      waiver,
      express or
      implied,
      to or
      of
      any
      breach or
      default
      in the performance of any obligation hereunder
      shall
      constitute a consent or
      waiver
      to
or
      of
      any
      other breach or
      default
      in the performance of the same or
      any
      other
      obligation hereunder.
      No
      provision of this
      Conveyance
      shall
      be
      deemed a waiver by Assignee
      of
      any
      rights granted to Assignee
      under
      applicable Law
      governing
      overriding royalty interests and the rights of the owners
      thereof.

     

    Section
      7.3     Applicable
      Law.
      This
Conveyance
      and
      the
      rights and obligations of the parties hereunder
      shall,
      without regard to principles of conflicts of laws, be governed by and
      interpreted, construed and enforced in accordance with the substantive laws
      of
      the State
      of
Texas
      without reference to choice of law provisions.

     

    Section
      7.4     Severability.
      Every
      provision in this
      Conveyance
      is
      intended to be severable. If any term or
      provision
      hereof
      is
      determined to be invalid, illegal or
      unenforceable
      for any reason whatsoever, such invalidity, illegality or
      unenforceability
      shall not affect the validity, legality and enforceability of the remainder
      of
this
      Conveyance.

     

    Section
      7.5     No
      Liability of Assignee; Indemnity.
      No
Assignee
      Indemnitee (as
      such
      term is defined below) shall be responsible for any part of the costs, expenses
      or
      liabilities
      incurred in connection with:

     

    (a)     the
      exploring, developing, operating, owning, maintaining, reworking or
      recompleting
      of the Subject
      Interests or
      Subject
      Lands,
      any
      obligations of Assignor
      with
      respect to any tax partnerships burdening the Subject
      Interests,
      the
      physical condition of the Subject
      Interests or
      the
      Subject
      Lands,
      or
      the
      handling, treating or
      transporting
      of oil,
      gas
or
      other
      minerals produced
      from the Subject
      Lands (including
      any
      costs, expenses, losses or
      liabilities
      related
      to violation of an Environmental
      Law or
      otherwise
      related to damage to or
      remediation
      of the environment, whether the same arise out of Assignee's ownership of an
      interest in property or
      out
      of
      the actions of Assignor
      or
      Assignee
      or
      of
      third
      parties or
      arise
      otherwise), or

     

    (b)     the
      failure by Assignor
      to
      have
      good and defensible title to the Subject
      Interests free
      and
      clear of all burdens, encumbrances, liens and title defects (including
      any
      costs, expenses, losses or
      liabilities
      suffered
      by any Assignee
      Indemnitee as
      a
      result of any claim that such Assignee
      Indemnitee must
      deliver or
      pay
      over
      to any person
      any
      part
      of the ORRI
      Hydrocarbons or
      any
      proceeds thereof at any time previously received or
      thereafter
      to be received by such Assignee
      Indemnitee),

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    Section
      7.6     Indemnity.
      Assignor agrees
      to
      indemnify and hold each Assignee
      Indemnitee harmless
      from and against all costs, expenses, losses and liabilities incurred by any
      Assignee
      Indemnitee (i)
      pursuant
      to Section 7.5 hereof,
      (ii)
in
      connection with the ORRI,
      this
      Conveyance,
      or
      the
      transactions and events (including
      the
      enforcement or
      defense
      thereof or
      hereof)
      at any
      time associated with or
      contemplated
      in any of the foregoing, or
      (iii)
      in
      connection with any tax partnership burdening any of the Subject
      Interests.
      Such
      indemnity shall also cover all reasonable costs and expenses of any
Assignee
      Indemnitee,
      including
      reasonable
      legal fees and expenses, which are incurred incident to the matters indemnified
      against. As used in this Article VII,
      "Assignee
      Indemnitees"
      means
Assignee
      and
      Assignee's successors and assigns and purchasers (including
      any
      Person
      who
      at
      any time purchases ORRI
      Hydrocarbons),
      all of
      their respective Affiliates,
      and all
      of their officers, directors, agents, beneficiaries, trustees, attorneys and
      employees.

     

    Section
      7.7     Express
      Negligence.
      THE
      INDEMNITIES
      CONTAINED IN THIS ARTICLE VII SHALL APPLY WHETHER
      OR NOT ARISING OUT OF THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR STRICT
      LIABILITY OF
      ANY ASSIGNEE
      INDEMNITEE AND
      SHALL APPLY, WITHOUT LIMITATION, TO ANY LIABILITY IMPOSED UPON ANY
ASSIGNEE
      INDEMNITEE AS
      A RESULT OF ANY THEORY OF STRICT LIABILITY OR
      ANY
      OTHER DOCTRINE OF LAW,
      PROVIDED THAT THE FOREGOING INDEMNITY SHALL NOT APPLY TO ANY
      COSTS, EXPENSES, LOSSES OR
      LIABILITIES
      INCURRED
      BY ANY ASSIGNEE
      INDEMNITEE TO
      THE EXTENT PROXIMATELY CAUSED SOLELY BY THE GROSS NEGLIGENCE
OR
      WILLFUL
      MISCONDUCT OF SUCH ASSIGNEE
      INDEMNITEE.
      THE FOREGOING INDEMNITY SHALL SURVIVE ANY TERMINATION OF THIS
      CONVEYANCE.
      ASSIGNOR AGREES THAT THIS SECTION 7.7 IS CONSPICUOUS.

     

    Section
      7.8     Counterparts.
      This
Conveyance
      may
      be
      executed in multiple originals, all of which shall constitute one and the same
      Conveyance.

     

    Section
      7.9     Partition.
      Assignor and Assignee acknowledge that neither has any right or interest that
      would permit it to partition any portion of the Subject Interests as against
      the
      other, and each waives any such right.

     

    Section
      7.10     Perpetuities.
      It is
      not the intent of Assignor or Assignee that any provision herein violate any
      applicable law regarding the rule against perpetuities, the suspension of the
      absolute power of alienation, or other rules regarding the vesting or duration
      of estates, and this Conveyance shall be construed as not violating such rule
      to
      the extent the same can be so construed consistently with the intent of the
      parties. In the event, however, that any provision hereof is determined to
      violate such rule, then such provision shall nevertheless be effective for
      the
      maximum period (but not longer than the maximum period) permitted by such rule
      that will result in no violation. To
      the
      extent that maximum period is permitted to be determined by reference to "lives
      in being", Assignor and Assignee agree that "lives in being" shall refer to
      the
      lifetime of the last to die of the living lineal descendants of the late Joseph
      P. Kennedy (father of the late President of the United States of
      America).

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    Section
      7.11     Credit
      Agreement.
      This
      Conveyance is hereby made expressly subject to the terms of the Credit
      Agreement. In the event of a conflict between the Credit Agreement and the
      terms
      hereof, the terms of the Credit Agreement shall control.

     

    Section
      7.12     Incorporation
      by Reference.
      The
      terms of the Credit Agreement are incorporated herein by reference, including,
      without limitation, the representations and warranties made by Assignor therein.
      

     

    [REMAINDER
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        14

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS
      WHEREOF, THIS
      CONVEYANCE IS
      EXECUTED on the date set forth in the acknowledgments below, to be effective
      for
      all purposes as of the Effective Date.

     

    
      	 	 	 
	 	ASSIGNOR:
	 	 
	 	TEKOIL
              AND
              GAS GULF COAST, LLC
	 	 
	 	
              By:
                Tekoil & Gas Corporation, its Managing Member

            
	 
 	 
 	 
 
	 	By:  	/s/ Mark
              Western
	 	
              

              Name:
                Mark Western

            
	 	
              Title:
                CEO and Chairman of the Board of Directors

            

    

    

     

     

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    STATE
      OF
      TEXAS  §

                                                    
      §

    COUNTY
      OF
      HARRIS         §

    

    This
      instrument was acknowledged before me on May 11, 2007, by Mark Western, the
      CEO
      and Chairman of the Board of Directors of Tekoil & Gas Corporation, a
      Delaware corporation, Managing Member of Tekoil and Gas Gulf Coast, LLC., a
      Delaware limited liability company, on behalf of such limited liability
      company.

    

    /s/
      Rhondee M. Damon  

    Notary
      Public in and for the State of Texas

    RHONDEE
      M. DAMON

    Notary
      Public, State of Texas

    My
      Commission Expires

    April
      26,
      2009

    

    [AFFIX
      SEAL]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    
      	 	 	 
	 	ASSIGNEE:
	 	 
	 	MTGLQ
              INVESTORS, L.P.
	 	 	 
	
            	By:	MLQ, L.L.C.,
	 
 	 
 	its
              general partner
 
	 	By:  	/s/ Milton
              R. Millman
	 	
              
Milton
              R. Millman
	 	Authorized
              Signatory

    

     

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    STATE
      OF
      NEW
      YORK      §

                                                    
      §

    COUNTY
      OF
      KINGS           
§

    

    This
      instrument
      was acknowledged before me on
      May 10,
      2007,
      by
Milton
      R., Millman,
      as
      ___________________ of MLQ, L.L.C., a Texas limited liability company, on behalf
      of such limited liability company in its capacity as General Partner of MTGLQ
      Investors, L.P., a Delaware limited partnership.

    

    /s/
      Mary T. Bannan   

    Notary
      Public in and for the State of Texas

    

    MARY
      T.
      BANNAN

    Notary
      Public, State of New York

    No.
      24-4866986

    Qualified
      in Kings County

    Commission
      Expires August 18, 2010

    

    [AFFIX
      SEAL]

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