Document:

MORTGAGE,
SECURITY AGREEMENT, FINANCING STATEMENT AND

ASSIGNMENT
OF PRODUCTION AND REVENUES

 

FROM

 

WORKING
INTEREST, LLC

(Mortgagor and Debtor)

 

TO

 

TEXAS CAPITAL BANK, N.A.

(Mortgagee and Secured Party)

 

For
purposes of filing this instrument as a financing statement, the mailing address of Mortgagor/Debtor is 4040 Broadway, Suite 305,
San Antonio, Texas 78209; the mailing address of Mortgagee/Secured Party is ONE RIVERWAY, SUITE 2100, HOUSTON, TEXAS 77056.

 

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

 

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

 

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

 

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

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

 

This instrument was prepared by Matthew
D. Lea, PORTER HEDGES LLP, 1000 Main Street, 36th Floor, Houston, Texas 77002.

 

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

 

RECORDED DOCUMENT SHOULD BE RETURNED TO:

 

PORTER HEDGES LLP

1000 Main Street, 36th Floor

Houston, Texas 77002

Attn: Matthew D. Lea

 

    	 

    	 

    

 

MORTGAGE,
SECURITY AGREEMENT, FINANCING STATEMENT

AND ASSIGNMENT
OF PRODUCTION and revenues

 

(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED
PROPERTY PROVISIONS)

 

Article I

 

GRANT OF LIENS AND SECURITY INTERESTS

 

KNOW ALL MEN BY THESE
PRESENTS: That the undersigned WORKING INTEREST, LLC, a Kansas limited liability company (“Mortgagor”),
whose mailing address is 4040 Broadway, Suite 305, San Antonio, Texas 78209, for valuable consideration, the receipt of which is
hereby acknowledged, and in consideration of the debt, effective as of December __, 2012, has granted, bargained, sold, conveyed,
transferred and assigned, and by these presents does GRANT, BARGAIN, WARRANT, SELL, CONVEY, MORTGAGE, PLEDGE, TRANSFER, ASSIGN
AND SET OVER to TEXAS CAPITAL BANK, N.A., a national banking association, whose address is One Riverway, Suite 2100, Houston,
Texas 77056, (“Mortgagee”), for itself, the Banks (as defined in the Credit Agreement), and for any Approved
Counterparty (as defined in the Credit Agreement) under an Intercreditor Agreement (as defined in the Credit Agreement), all of
Mortgagor’s rights, titles, interests and estates in and to the following property, whether real, personal or mixed, whether
now owned or hereafter acquired under law or in equity (collectively, the “Mortgaged Property”); the inclusion
of certain specific types and items of property and interests in one or more of the following Paragraphs are not intended in any
way to limit the effect of the more general descriptions:

 

OIL AND GAS PROPERTIES

 

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

 

B.           All
of Mortgagor’s rights, titles, interests and estates, now owned or hereafter acquired by Mortgagor, in and to present and
future drilling, spacing, proration or production units, as created by the terms of any unitization, communitization and pooling
agreements and orders, and all properties, property rights and estates created thereby which include, belong or appertain to the
Subject Interests, including, without limitation, all such units formed voluntarily or under or pursuant to any Law relating to
any of the Subject Interests. As used herein, the term “Law” means all applicable statutes, laws, ordinances,
regulations, orders, writs, injunctions, or decrees of any state, commonwealth, nation, territory, possession, county, township,
parish, municipality, or Tribunal, and the term “Tribunal” means any court or governmental department, commission,
board, bureau, agency, or instrumentality of the United States or of any state, commonwealth, nation, territory, possession, county,
parish, or municipality, whether now or hereafter constituted or existing.

 

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

 

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

 

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

 

F.           All
rights, titles, interests and estates now owned or hereafter acquired by Mortgagor (including, without limitation, all rights to
receive payments) under or by virtue of all easements, permits, licenses, rights-of-way, surface leases, franchises, servitudes,
division orders, transfer orders and other agreements relating or pertaining to purchasing, exchanging, exploring for, developing,
operating, treating, processing, storing, marketing or transporting Hydrocarbons now or hereafter found in, on or under, or produced
from, any of the Subject Interests, or under or by virtue of any contract relating in any way to all or any part of the Mortgaged
Property otherwise described herein, including, without limitation, farmout contracts, farmin contracts, operating or joint operating
agreements, trade letter agreements and all agreements creating rights-of-way for ingress and egress to and from the Subject Interests
(all of such rights, titles, interests and estates referred to or described in this Paragraph F are hereinafter collectively referred
to as the “Subject Contracts”).

 

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

 

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

 

PIPELINE

 

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

 

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

 

K.          All
leases, leaseholds, easements, rights-of-way, licenses, franchises, privileges, permits, ordinances, grants, rights, consents,
servitudes, surface leases or rights, amendatory grants and interests in land for the installation, maintenance and operation of
the Pipelines or the assets associated with the Pipelines or any portion thereof, now owned or held or hereafter owned or held
by Mortgagor including, without limitation, those leases, leaseholds, easements, rights-of-way, licenses, franchises, privileges,
permits, ordinances, grants, rights, consents, servitudes, surface leases or rights, amendatory grants and interests in land applicable
to the Pipelines or the Pipeline Assets now owned or held or hereafter owned or held by Mortgagor and those leases, leaseholds,
easements, rights-of-way, licenses, franchises, privileges, permits, ordinances, grants, rights, consents, servitudes, surface
leases or rights, amendatory grants and interests in land owned or held by Mortgagor and described on Exhibit A-2 attached
hereto or arising by virtue of the documents described in Exhibit A-2 (collectively, the “Rights-of-Way and Franchises”).

 

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

 

GENERAL

 

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

 

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N.           To
further secure the full and complete payment and performance of the Secured Indebtedness (defined below), Mortgagor, as debtor,
hereby grants to Mortgagee and Mortgagee’s successors in title and assigns, as secured party, a first and prior security
interest in and to all of Mortgagor’s right, title and interest now owned or hereafter acquired in and to the following types
and items of property and interests now owned or hereafter acquired by Mortgagor (all of which are included within the term “Mortgaged
Property”): (a) all Personal Property, Subject Contracts and Accounts; (b) all Subject Interests, Hydrocarbons and Other
Minerals including all as-extracted collateral (including Accounts), as defined in and subject to the Uniform Commercial Code as
enacted, amended and in effect in each jurisdiction in which any of the Mortgaged Property is situated (the “UCC”),
and for which the creation and perfection of a security interest or Lien therein is governed by the provisions of the UCC; (c)
all other Mortgaged Property described in “A” through “M” above consisting of Accounts, contract rights,
general intangibles, chattel paper, documents, instruments, inventory, equipment, fixtures and other goods and articles of personal
property of any kind or character defined in and subject to the UCC; (d) all increases, profits, combinations, reclassifications,
improvements and products of, accessions, attachments and other additions to, tools, parts and equipment used in connection with,
and substitutes and replacements for, all or any part of the Mortgaged Property described in this or any other clause of this Paragraph
N; (e) all Accounts, contract rights, general intangibles, chattel paper, documents, instruments, cash and noncash proceeds and
other rights arising from or by virtue of, or from the voluntary or involuntary sale or other disposition of, or collections with
respect to, or insurance proceeds payable with respect to, or proceeds payable by virtue of warranty or other claims against manufacturers
of, or claims against any other person or entity with respect to, all or any part of the Hydrocarbons, the Other Minerals or the
Mortgaged Property described in this or any other clause of this Paragraph N; and (f) all security for the payment to Mortgagor
of any of the Mortgaged Property described in this or any other clause of this Paragraph N and goods which gave or will give rise
to any of such Mortgaged Property or are evidenced, identified, or represented therein or thereby; provided that nothing in this
paragraph shall be deemed to permit any action prohibited by this instrument or by terms incorporated in this instrument.

 

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

 

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

 

TO HAVE AND TO HOLD
all and singular the Mortgaged Property and all other property which, by the terms hereof, has or may hereafter become subject
to the Lien of this Mortgage, Security Agreement, Financing Statement and Assignment of Production and Revenues (the “Mortgage”),
together with all rights, hereditaments and appurtenances in anywise belonging to the Mortgagee or assigns forever. Any additional
right, title or interest which Mortgagor may hereafter acquire or become entitled to in all assets of the types described above
shall inure to the benefit of and be covered by this Mortgage and constitute “Mortgaged Property,” the same
as if expressly described and conveyed herein. Mortgagor hereby binds itself, its successors and permitted assigns, to warrant
and forever defend all and singular the above described property, rights, and interests constituting the Mortgaged Property to
Mortgagee and to its successors and assigns forever, against every person whomsoever lawfully claiming or to claim the same or
any part thereof.

 

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Article II

 

SECURED INDEBTEDNESS

 

This Mortgage is executed
and delivered, to secure and enforce the payment of the following indebtedness, obligations and liabilities:

 

		(a)	That certain promissory note dated October 3, 2011,
in the face amount of $50,000,000 executed by EnerJex Resources, Inc., Enerjex Kansas, Inc., DD Energy, Inc., Black Sable Energy,
LLC and Mortgagor (collectively, the “Borrowers”), and made payable to Mortgagee bearing interest and payable
as therein provided, with the final payment thereof due on or before the Maturity Date (as defined in the Credit Agreement hereinafter
described), and containing the usual provisions in notes of this character, and all renewals, rearrangements, amendments, modifications
and extensions thereof (whether one or more, the “Note”);

 

		(b)	All Obligations of Borrowers owed to Mortgagee and the
Banks arising pursuant to the terms of that certain Amended and Restated Credit Agreement dated as of October 3, 2011 (as amended
by that certain First Amendment thereto dated December 14, 2011, as amended by that certain Second Amendment thereto dated August
31, 2012, as amended by that certain Third Amendment thereto dated November 2, 2012, as amended by that certain Fourth Amendment
thereto of even date herewith and as amended, restated, supplemented or otherwise modified from time to time, collectively, the
“Credit Agreement”; all capitalized terms used but not defined within the Mortgage bear the meanings set forth
in the Credit Agreement);

 

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

 

		(d)	All obligations of each Guarantor under its Guaranty
owed to Mortgagee;

 

		(e)	All obligations of Borrowers owed to Approved Counterparty,
as counterparty under those certain Permitted Swap Contracts arising pursuant to the terms of the Credit Agreement and referenced
as “Swap Documents” in the Intercreditor Agreement, including without limitation, that certain Master Swap Agreement
dated as of July 3, 2008 between Mortgagor and Approved Counterparty (together will all schedules and confirmations in respect
thereof, as amended, supplemented, restated, extended or replaced from time to time);

 

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

 

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

 

		(h)	NOTWITHSTANDING ANYTHING TO THE CONTRARY IN ARTICLE II
HEREOF OR ANY OTHER PROVISION HEREOF, THE MAXIMUM AMOUNT OF SECURED INDEBTEDNESS SHALL NOT EXCEED AT ANY ONE TIME OUTSTANDING
ONE MILLION DOLLARS ($1,000,000).

 

Article III

 

REPRESENTATIONS AND WARRANTIES

 

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

 

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

 

		(b)	Power to Create Lien. Mortgagor has full power
and lawful authority to bargain, grant, sell, mortgage, assign, transfer, convey, pledge and hypothecate and grant a security
interest in all of Mortgaged Property all in the manner and form herein provided and without obtaining the waiver, consent or
approval of any lessor, sublessor, Governmental Authority or other Person whomsoever or whatsoever, except to the extent the approval
or consent of the State of Kansas or the Department of the Interior, United States of America, as the case may be, is required
by applicable Law to the transfer, deed or assignment of an interest in any of the Mortgaged Property.

 

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

 

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

 

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

 

		(f)	Pipelines and Pipeline Assets. All Pipelines and
Pipeline Assets have been constructed and operated in conformity in all material respects with all applicable Laws.

 

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

 

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Article IV

 

COVENANTS OF MORTGAGOR

 

In consideration of
the Secured Indebtedness, Mortgagor, for itself and its successors and its permitted assigns, hereby ratifies, covenants and agrees
that Mortgagor shall comply with all Affirmative Covenants described in Article VI of the Credit Agreement, and Mortgagor shall
not violate any of the Negative Covenants described in Article VII of the Credit Agreement. In addition, Mortgagor hereby covenants
and agrees as follows:

 

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

 

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

 

C.           Notifications.
Mortgagor will notify Mortgagee of the destruction, loss, termination or acquisition of any Mortgaged Property within two (2) Business
Days of Mortgagor’s receipt of notice thereof.

 

D.           Pooling.
Except as required by applicable Law, Mortgagor will not, without the prior written consent of Mortgagee, which consent shall not
be unreasonably withheld, voluntarily pool or unitize all or any part of the Mortgaged Property where the pooling or unitization
would result in the diminution of Mortgagor’s net revenue interest in production from the pooled or unitized lands. Immediately
after the formation of any pool or unit in accordance herewith, Mortgagor will furnish to Mortgagee a conformed copy of the pooling
agreement, declaration of pooling, or other instrument creating the pool or unit. The interest of Mortgagor included in any pool
or unit attributable to the Mortgaged Property or any part thereof shall become a part of the Mortgaged Property and shall be subject
to Liens hereof in the same manner and with the same effect as though the pool or unit and the interest of Mortgagor therein were
specifically described in Exhibit A-1 hereto. In the event any proceedings of any governmental body which could result in
pooling or unitizing all or any part of the Mortgaged Property are commenced, Mortgagor shall give immediate written notice thereof
to Mortgagee.

 

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		E.	Maintenance and Operation of Mortgaged Property.

 

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

 

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

 

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

 

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

 

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

 

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

 

		(g)	Mortgagor will cause, or in the event Mortgagor is not
the operator of the Pipeline Assets, use its best efforts to cause, the Pipeline Assets to be maintained, developed, and continuously
operated for the gathering, storing, transmission and distribution of Hydrocarbons in a good and workmanlike manner as would be
operated by a prudent operator and in compliance with all applicable operating agreements and contracts, and all applicable Laws,
excepting those being diligently contested in good faith.

 

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

 

F.           Taxes/Insurance.
Mortgagor will carry with standard insurance companies satisfactory to the Mortgagee, insurance with respect to the Mortgaged Property
against such liabilities, casualties, risks and contingencies and in amounts as is customary in the industry; and acceptable certificates
evidencing the same thereof shall be delivered to Mortgagee annually after the execution of this Mortgage. Mortgagor will at all
times maintain workers’ compensation insurance with a responsible insurance company where required by, and in accordance
with, the applicable Laws of the state (i) in which the Mortgaged Property is located or (ii) which requires workers’ compensation
to be maintained on such employees. In the event Mortgagor fails or neglects to pay any taxes, general or special, or fails or
neglects to relieve the Mortgaged Property from any Lien which might become superior or equal to the Lien of this Mortgage, or
fail to carry such workers’ compensation or other insurance, Mortgagee, at its option, may pay such taxes, Liens or charges,
or any part thereof, or effect such workmen’s compensation insurance, and Mortgagor will promptly reimburse Mortgagee, as
the case may be, therefor; and any and all such sums so paid hereunder shall be paid by Mortgagor upon demand at Mortgagee’s
principal offices, and shall constitute a part of the Secured Indebtedness.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Article V

 

RIGHTS AFTER EVENT OF DEFAULT

 

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

 

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

 

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

 

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

 

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

 

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

 

G.           Every
right, power and remedy herein given to Mortgagee shall be cumulative and in addition to every other right, power and remedy herein
specifically given or now or hereafter existing in equity, at law or by statute (including specifically those granted by the UCC
in effect and applicable to the Mortgaged Property or any portion thereof) each and every right, power and remedy whether specifically
herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient
by Mortgagee, and the exercise, or the beginning of the exercise, of any such right, power or remedy shall not be deemed a waiver
of the right to exercise, at the same time or thereafter any other right, power or remedy. No delay or omission by Mortgagee in
the exercise of any right, power or remedy shall impair any such right, power or remedy or operate as a waiver thereof or of any
other right, power or remedy then or thereafter existing.

 

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

 

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

 

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

 

K.          In
case Mortgagee shall have proceeded to invoke any right, remedy or recourse permitted hereunder or under the Credit Agreement and
shall thereafter elect to discontinue or abandon same for any reason, Mortgagee shall have the unqualified right so to do and,
in such an event, Mortgagor and Mortgagee shall be restored to their former positions with respect to the Secured Indebtedness,
this Mortgage, the Credit Agreement, the Mortgaged Property and otherwise, and the rights, remedies, recourses and powers of Mortgagee
shall continue as if same had never been invoked.

 

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

 

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

 

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

 

THIRD, to Borrowers, Mortgagor
or as otherwise required by any applicable Law.

 

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

 

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Article VI

 

ASSIGNMENT OF PRODUCTION AND REVENUES

(this “Assignment”)

 

Production

 

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

 

Revenues

 

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

 

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General

 

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

 

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

 

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E.           Mortgagor
authorizes and empowers Mortgagee to receive, hold and collect all sums of money paid to Mortgagee in accordance with this Assignment,
and to apply the same as hereinafter provided, all without any liability or responsibility on the part of Mortgagee, save and except
as to good faith in so receiving and applying such sums. All payments provided for in this Assignment shall be paid promptly to
Mortgagee, and any provisions contained in the Note or any part thereof to the contrary notwithstanding, Mortgagee may apply the
same or so much thereof as it elects to the payment of the Secured Indebtedness, application to be made in such manner as it may
elect, regardless of whether the application so made shall exceed the payments of principal and interest then due as provided in
the Note. After such application has been so made by Mortgagee, the balance of any such payment or payments remaining shall be
paid to Mortgagor. Mortgagee agrees to give Mortgagor written notice simultaneously with its notice to the purchaser that such
payments are to be paid to Mortgagee in accordance with the terms of this Article.

 

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

 

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

 

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

 

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

 

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

 

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Article VII

 

ADDITIONAL REMEDIES

 

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

 

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

 

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

  

    	20

    	 

    

  

Article VIII

 

MISCELLANEOUS

 

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

 

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

 

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

 

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

 

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

 

F.           It
is contemplated by the parties hereto that from time to time additional interests and properties may or will be added to the interests
and properties on Exhibit A-1 and Exhibit A-2 attached hereto by means of supplements or amendments identifying this Mortgage
and describing such interests and properties to be so added and included, and upon the execution of any such supplements or amendments,
the Lien, rights, titles and interests created herein shall immediately attach to and be effective as of the date of such supplemental
indenture in respect to any such interests and properties so described, and the same being included in the term “Mortgaged
Property,” as used herein.

 

    	21

    	 

    

  

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

 

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

 

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

 

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

 

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

 

L.           The
failure or delay of Mortgagee to file or give any notice as to this Mortgage, or to exercise any right, remedy or option to declare
the maturity of the principal debt, or any other sums hereby secured, or the payment by Mortgagee of any taxes, Liens, charges
or assessments, shall not be taken or deemed a waiver of any rights to exercise such right or option or to declare any such maturity
as to any past or subsequent violations of any of such covenants or stipulations, and shall not waive or prejudice any right or
Lien hereunder. Any election or failure by Mortgagee to exercise any rights, remedies or options hereunder shall not constitute
a waiver or prejudice the exercise of other rights or remedies existing hereunder. All rights, powers, immunities, remedies and
Liens of Mortgagee existing and to exist hereunder or under any other instruments, and all other or additional security, and Mortgagee’s
rights at law and in equity, shall be cumulative and not exclusive, each of the other; and Mortgagee shall, in addition to the
remedies herein expressly provided, be entitled to such other remedies as may now or hereafter exist at law or in equity for securing
and collecting the Secured Indebtedness, for enforcing the covenants herein, and for foreclosing the Liens hereof. Resort by Mortgagee
to any remedy provided for hereunder or at law or in equity shall not prevent concurrent or subsequent resort to the same or any
other remedy or remedies.

 

    	22

    	 

    

  

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

 

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

 

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

 

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

 

    	23

    	 

    

  

[Signature
and acknowledgement pages follow]

 

    	 

    	 

    

  

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

 

	 	MORTGAGOR/DEBTOR:
	 	 
	 	WORKING INTEREST, LLC,
	 	a Kansas limited liability company
	 	 
	 	By:	 
	 	 	Robert G. Watson, Jr.
	 	 	Chief Executive Officer

 

	THE STATE OF TEXAS	§	 
	 	§	 
	COUNTY OF BEXAR	§	 

  

BEFORE ME, the undersigned
authority, on this day personally appeared Robert G. Watson, Jr., Chief Executive Officer of Working Interest, LLC, a Kansas limited
liability company, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that
he executed the same for the purposes and consideration therein expressed, as the act and deed of such limited liability company
and in the capacity therein stated.

 

GIVEN UNDER MY HAND
AND SEAL OF OFFICE this _______ day of December, 2012.

  

	 	 
	 	NOTARY PUBLIC, STATE OF TEXAS

 

(Signature and Acknowledgement
Page to Mortgage)

 

    	 

    	 

    

 

	 	MORTGAGEE:
	 	 
	 	TEXAS CAPITAL BANK, N.A.,
	 	a national banking association
	 	 
	 	By:	 
	 	 	W. David McCarver IV
	.	 	Senior Vice President

 

	THE STATE OF TEXAS	§	 
	 	§	 
	COUNTY OF HARRIS	§	 

  

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

 

GIVEN UNDER MY HAND
AND SEAL OF OFFICE this ____ day of December, 2012.

  

	 	 
	 	NOTARY PUBLIC, STATE OF TEXAS

 

(Signature and Acknowledgement
Page to Mortgage)

 

    	 

    	 

    

 

EXHIBIT A 

 

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

  

Exhibit A

    	 

    	 

    

 

EXHIBIT A-1

TO
MORTGAGE

 

Oil
and Gas Properties

 

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

 

In addition, the designation
“Working Interest” or “WI” means an interest owned in an oil, gas, and mineral lease that determines the
cost bearing percentage of the owner of such interest. The designation “Net Revenue Interest” or “NRI”
means net revenue interest, or that portion of the production attributable to the owner of a working interest after deduction for
all royalty burdens, overriding royalty burdens, or other burdens on production, except severance, production, windfall profits
and other similar taxes. The designation “Overriding Royalty Interest” or “ORRI” means an interest in production
which is free of any obligation for the expense of exploration, development and production, bearing only its pro rata share of
severance, production, windfall profits and other similar taxes.

  

Exhibit A-1

    	 

    	 

    

 

PROPERTY EXHIBIT

 

Miami County, Kansas

  

	Name	 	 	Legal
    Description	 	Section	 	 	Township	 	 	Range	 	 	Net
    Revenue 
Interest	 	 	Working
    
Interest	 	 	Book	 	 	Page	 
	Howell-Gorges	 	 	E/2 SW/4 (part, 62 acres), SE/4 (part 60 acres)	 	 	1	 	 	 	18S		 	 	21E	 	 	 	0.79750000	 	 	 	1.0000000	 	 	 	345	 	 	 	157	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

    	 

    	 

    

  

EXHIBIT A-2

TO
MORTGAGE

 

Pipelines

 

All pipelines, gathering
systems and related fixtures and equipment associated with the Wells and the Subject Interests.Exhibit 4.14

 

CERTIFICATE OF DESIGNATION

OF

SERIES A NON-VOTING CONVERTIBLE PREFERRED
STOCK

OF

VENTRUS BIOSCIENCES, INC.

 

Pursuant to Section 151 of the

Delaware General Corporation Law

 

Ventrus Biosciences,
Inc., a Delaware corporation (the “Corporation”), in accordance with the provisions of Section 103
of the Delaware General Corporation Law (the “DGCL”) does hereby certify that, in accordance with Sections
141(c) and 151 of the DGCL, the following resolution was duly adopted by the Board of Directors of the Corporation at a meeting
duly convened on January 29, 2013:

 

RESOLVED, that
pursuant to the authority granted to and vested in the Board of Directors of the Corporation in accordance with the provisions
of the Certificate of Incorporation of the Corporation, as amended (the “Certificate of Incorporation”),
there is hereby established a series of the Corporation’s authorized preferred stock, par value $0.001 per share (the “Preferred
Stock”), which series shall be designated as the Series A Non-Voting Convertible Preferred Stock, par value $0.001
per share, of the Corporation, with the designation, number of shares, powers, preferences, rights, qualifications, limitations
and restrictions thereof (in addition to any provisions set forth in the Certificate of Incorporation which are applicable to the
Preferred Stock of all classes and series) as follows:

 

SERIES A NON-VOTING CONVERTIBLE PREFERRED
STOCK

 

SECTION 1. DEFINITIONS.
For the purposes hereof, the following terms shall have the following meanings:

 

“Affiliate”
means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is
under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities
Act. With respect to a Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment
manager as such Holder will be deemed to be an Affiliate of such Holder.

 

“Alternate
Consideration” shall have the meaning set forth in Section 7(c).

 

“Beneficial
Ownership Limitation” shall have the meaning set forth in Section 6(c).

 

“Business
Day” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or
any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to
close.

 

“Buy-In”
shall have the meaning set forth in Section 6(d)(iii).

 

“Closing
Sale Price” means, for any security as of any date, the last closing trade price for such security prior to 4:00
p.m., New York City time, on the principal securities exchange or trading market where such security is listed or traded, as reported
by Bloomberg, L.P. (or an equivalent, reliable reporting service mutually acceptable to and hereafter designated by Holders of
a majority of the then-outstanding Series A Preferred Stock and the Corporation), or if the foregoing do not apply, the last trade
price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg,
L.P., or, if no last trade price is reported for such security by Bloomberg, L.P., the average of the bid prices of any market
makers for such security as reported on the OTC Pink Market by OTC Markets Group, Inc. If the Closing Sale Price cannot be calculated
for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be
the fair market value as determined in good faith by the Board of Directors of the Corporation.

 

    	 

    	 

    

 

“Commission”
means the Securities and Exchange Commission.

 

“Common
Stock” means the Corporation’s common stock, par value $0.001 per share, and stock of any other class of securities
into which such securities may hereafter be reclassified or changed into.

 

“Conversion
Date” shall have the meaning set forth in Section 6(a).

 

“Conversion
Price” shall mean $2.50, as adjusted pursuant to paragraph 7 hereof.

 

“Conversion
Ratio” shall have the meaning set forth in Section 6(b).

 

“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series A Preferred
Stock in accordance with the terms hereof.

 

“Daily
Failure Amount” means the product of (x) 0.005 multiplied by (y) the Closing Sale Price of the Common Stock
on the applicable Share Delivery Date.

 

“DGCL” shall mean the Delaware General Corporation Law.

 

“Distribution”
shall have the meaning set forth in Section 7(b).

 

“DTC”
shall have the meaning set forth in Section 6(a).

 

“DWAC Delivery”
shall have the meaning set forth in Section 6(a).

 

“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“Fundamental
Transaction” shall have the meaning set forth in Section 7(c).

 

“Holder”
means any holder of Series A Preferred Stock.

 

“Junior
Securities” shall have the meaning set forth in Section 5(a).

 

“Liquidation
Event” shall have the meaning set forth in Section 5(b).

 

“Notice
of Conversion” shall have the meaning set forth in Section 6(a).

 

“Parity
Securities” shall have the meaning set forth in Section 5(a).

 

“Person”
means any individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

    	2

    	 

    

 

“Senior
Securities” shall have the meaning set forth in Section 5(a).

 

“Series
A Preferred Stock Register” shall have the meaning set forth in Section 2(b).

 

“Share
Delivery Date” shall have the meaning set forth in Section 6(d)(i).

 

“Stated
Value” shall mean $25.00.

 

“Trading
Day” means a day on which the Common Stock is traded for any period on the principal securities exchange or if the
Common Stock is not traded on a principal securities exchange, on a day that the Common Stock is traded on another securities market
on which the Common Stock is then being traded.

 

SECTION 2. DESIGNATION,
AMOUNT AND PAR VALUE; ASSIGNMENT.

 

(a)          The
series of preferred stock designated by this Certificate shall be designated as the Corporation’s “Series A Non-Voting
Convertible Preferred Stock” (the “Series A Preferred Stock”) and the number of shares so designated
shall be 220,000. Each share of Series A Preferred Stock shall have a par value
of $0.001 per share.

 

(b)          The
Corporation shall register shares of the Series A Preferred Stock, upon records to be maintained by the Corporation for that purpose
(the “Series A Preferred Stock Register”), in the name of the Holders thereof from time to time. The
Corporation may deem and treat the registered Holder of shares of Series A Preferred Stock as the absolute owner thereof for the
purpose of any conversion thereof and for all other purposes. The Corporation shall register the transfer of any shares of Series
A Preferred Stock in the Series A Preferred Stock Register, upon surrender of the certificates evidencing such shares to be transferred,
duly endorsed by the Holder thereof, to the Corporation at its principal place of business or such other office of the Corporation
as may be designated by the Corporation. Upon any such registration or transfer, a new certificate evidencing the shares of Series
A Preferred Stock so transferred shall be issued to the transferee and a new certificate evidencing the remaining portion of the
shares not so transferred, if any, shall be issued to the transferring Holder, in each case, within three (3) Business Days. The
provisions of this Certificate are intended to be for the benefit of all Holders from time to time and shall be enforceable by
any such Holder.

 

SECTION 3. DIVIDENDS.
Holders shall be entitled to receive, and the Corporation shall pay, dividends on shares of the Series A Preferred Stock equal
(on an as-if-converted-to-Common-Stock basis without giving effect for such purposes to the Beneficial Ownership Limitation set
forth in Section 6(c) hereof) to and in the same form as dividends (other than dividends in the form of Common Stock) actually
paid on shares of the Common Stock when, as and if such dividends (other than dividends in the form of Common Stock) are paid on
shares of the Common Stock.

 

SECTION 4.
VOTING RIGHTS. Except as otherwise provided herein or as otherwise required by the DGCL, the Series A Preferred Stock
shall have no voting rights. However, as long as any shares of Series A Preferred Stock are outstanding, the Corporation
shall not, whether by merger, consolidation or otherwise, without the affirmative vote of the Holders of a majority of the
then outstanding shares of the Series A Preferred Stock: (a) alter or change adversely the powers, preferences or
rights given to the Series A Preferred Stock as set forth herein or alter or amend this Certificate of
Designation, (b) increase the number of authorized shares of Series A Preferred Stock, or (c) enter into any
agreement with respect to any of the foregoing; provided, however, that the foregoing shall not preclude the Corporation from
designating or issuing any Junior Securities, Parity Securities or Senior Securities. The Corporation shall not pay or cause
to be paid, directly or indirectly, to any Holder or any of its Affiliates any consideration of any type in connection with a
vote of Holders relating to Sections 4(a), (b) or (c). The Corporation shall not, directly or indirectly, redeem or
repurchase any Series A Preferred Stock unless such offer of redemption or repurchase is made pro rata to all Holders on
identical terms.

 

    	3

    	 

    

 

SECTION 5. RANK;
LIQUIDATION.

 

(a)          The
Series A Preferred Stock shall rank: (i) senior to all of the Common Stock; (ii) senior to any class or series of capital
stock of the Corporation hereafter created specifically ranking by its terms junior to any Series A Preferred Stock (“Junior
Securities”); (iii) on parity with any class or series of capital stock of the Corporation hereafter created
specifically ranking by its terms on parity with the Series A Preferred Stock (“Parity Securities”);
and (iv) junior to any class or series of capital stock of the Corporation hereafter created specifically ranking by its terms
senior to any Series A Preferred Stock (“Senior Securities”), in each case, as to dividends, distributions
of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntarily or involuntarily. The foregoing shall
not preclude the Corporation from designating or issuing any Junior Securities, Parity Securities or Senior Securities.

 

(b)          Subject
to the prior and superior rights of the holders of any Senior Securities of the Corporation, upon liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary (each, a “Liquidation Event”), each holder of
shares of Series A Preferred Stock shall be entitled to receive, in preference to any distributions of any of the assets or surplus
funds of the Corporation to the holders of the Common Stock and Junior Securities and pari passu with any distribution to the holders
of Parity Securities, an amount equal to $0.001 per share of Series A Preferred Stock, plus an additional amount equal to any dividends
declared but unpaid on such shares, before any payments shall be made or any assets distributed to holders of any class of Common
Stock or Junior Securities. If, upon any such Liquidation Event, the assets of the Corporation shall be insufficient to pay the
holders of shares of the Series A Preferred Stock the amount required under the preceding sentence, then all remaining assets of
the Corporation shall be distributed ratably to holders of the shares of the Series A Preferred Stock and Parity Securities.

 

(c)          After
payment to the holders of shares of the Series A Preferred Stock of the amount required under Section 5(b) and subject to
the prior and superior rights of the holders of any Senior Securities of the Corporation, the remaining assets or surplus funds
of the Corporation, if any, available for distribution to stockholders shall be distributed ratably among the holders of the Series
A Preferred Stock, any other class or series of capital stock that participates with the Common Stock in the distribution of assets
upon any Liquidation Event and the Common Stock, with the holders of the Series A Preferred Stock deemed to hold that number of
shares of Common Stock into which such shares of Series A Preferred Stock are then convertible (without giving effect for such
purposes to the Beneficial Ownership Limitation set forth in Section 6(c) hereof).

 

SECTION 6. CONVERSION.

 

(a)          Conversions
at Option of Holder. Each share of Series A Preferred Stock shall be convertible, at any time and from time to time from and
after the date of the issuance thereof, at the option of the Holder thereof, into a number of shares of Common Stock equal to the
Conversion Ratio in effect at the time of such conversion. Holders shall effect conversions by providing the Corporation with the
form of conversion notice (via overnight courier, facsimile or email) attached hereto as Annex A (a “Notice
of Conversion”), duly completed and executed. For purposes of clarification, the Corporation or its transfer agent
shall not require a Holder to obtain a medallion guaranty, notary attestation or any similar deliverable in order to effectuate
the conversion of all or a portion of such Holder’s shares of Series A Preferred Stock. Other than a conversion following
a Fundamental Transaction or following a notice provided for under Section 7(e)(ii) hereof, the Notice of Conversion must
specify at least a number of shares of Series A Preferred Stock to be converted equal to the lesser of (x) 10,000 shares (such
number subject to appropriate adjustment following the occurrence of an event specified in Section 7(a) hereof) and (y) the
number of shares of Series A Preferred Stock then held by the Holder. Provided the Corporation’s Common Stock transfer agent
is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program,
the Notice of Conversion may specify, at the Holder’s election, whether the applicable Conversion Shares shall be credited
to the account of the Holder’s prime broker with DTC through its Deposit Withdrawal Agent Commission system (a “DWAC
Delivery”). The date on which a conversion of Series A Preferred Stock shall be deemed effective (the “Conversion
Date”) shall be defined as the Trading Day that the Notice of Conversion, completed and executed, and a copy of the
original certificate(s) representing such shares of Series A Preferred Stock being converted, is sent (via overnight courier, facsimile
or email) to, and received during regular business hours by, the Corporation. The calculations set forth in the Notice of Conversion
shall control in the absence of manifest or mathematical error.

 

    	4

    	 

    

 

If the Conversion Shares
are not delivered within three (3) Trading Days of the Company’s receipt of a completed and executed Notice of Conversion
(and a copy of the original certificate(s) representing such shares of Series A Preferred Stock being converted), the Company shall
pay to the Investor an amount in cash, as liquidated damages and not as a penalty, equal to $100.00 per Trading Day for each $5,000.00
of Stated Value of the shares of Series A Preferred Stock being converted, which shall increase to $200.00 per Trading Day on the
third Trading Day after such liquidated damages shall have begun to accrue, until the certificates representing such shares of
Series A Preferred Stock have been delivered as required under this Section 6(a).

 

(b)          Conversion
Ratio. The “Conversion Ratio” for each share of Series A Preferred Stock shall be equal to the Stated
Value divided by the Conversion Price.

 

(c)          Beneficial
Ownership Limitation. Notwithstanding anything herein to the contrary, the Corporation shall not effect any conversion of the
Series A Preferred Stock, and a Holder shall not have the right to convert any portion of its Series A Preferred Stock,
to the extent that, after giving effect to an attempted conversion set forth on an applicable Notice of Conversion, such Holder
(together with such Holder’s Affiliates, and any other Person whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act and the applicable rules and regulations of the Commission,
including any “group” of which the Holder is a member) would beneficially own a number of shares of Common Stock in
excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the aggregate number
of shares of Common Stock beneficially owned by such Holder and its Affiliates shall include the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock subject to the Notice of Conversion with respect to which the determination
of such sentence is being made, but shall exclude the number of shares of Common Stock which are issuable upon (A) conversion
of the remaining, unconverted shares of Series A Preferred Stock beneficially owned by such Holder or any of its Affiliates,
and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation beneficially
owned by such Holder or any of its Affiliates (including, without limitation, any convertible notes, convertible stock or warrants)
that are subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in
the preceding sentence, for purposes of this Section 6(c), beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act and the applicable rules and regulations of the Commission. In addition, for purposes hereof, “group”
has the meaning set forth in Section 13(d) of the Exchange Act and the applicable rules and regulations of the Commission. For
purposes of this Section 6(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number
of outstanding shares of Common Stock as reflected in (A) the Corporation’s most recent Form 10-K, Form 10-Q, Current
Report on Form 8-K or other public filing with the Commission, as the case may be, (B) a more recent public announcement by
the Corporation or (C) a more recent notice by the Corporation or the Corporation’s transfer agent to the Holder setting
forth the number of shares of Common Stock then outstanding. For any reason at any time, upon the written or oral request of a
Holder (which may be by email), the Corporation shall, within two (2) Business Days of such request, confirm orally and in
writing to such Holder (which may be via email) the number of shares of Common Stock then outstanding. In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to any actual conversion or exercise of securities
of the Corporation, including shares of Series A Preferred Stock, by such Holder or its Affiliates since the date as of which
such number of outstanding shares of Common Stock was last publicly reported or confirmed to the Holder. The “Beneficial
Ownership Limitation” shall be 9.98% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock pursuant to such Notice of Conversion (to the extent permitted pursuant to this
Section 6(c)). The Corporation shall be entitled to rely on representations made to it by the Holder in any Notice of Conversion
regarding its Beneficial Ownership Limitation. By written notice to the Corporation, a Holder may from time to time increase or
decrease the Beneficial Ownership Limitation to any other percentage specified in such notice; provided that any such increase
or decrease will not be effective until the sixty-fifth (65th) day after such notice is delivered to the Corporation. Notwithstanding any provision in this Section 6(c) to the contrary, written notice of a change in a Holder’s
Beneficial Ownership Limitation shall be effective immediately in the event (A) the change is to decrease the Beneficial Ownership
Limitation or (B) the change is to increase the Beneficial Ownership Limitation following the announcement by the Corporation of
a planned or pending Fundamental Transaction. The provisions
of this Section 6(c) shall be construed, corrected and implemented in a manner so as to effectuate the intended beneficial ownership
limitation herein contained and the shares of Common Stock underlying the Series A Preferred Stock in excess of the Beneficial
Ownership Limitation shall not be deemed to be beneficially owned by the Holder for any purpose including for purposes of Section
13(d) or Rule 16a-1(a)(1) of the Exchange Act.

 

    	5

    	 

    

 

(d)          Mechanics
of Conversion.

 

(i)          Delivery
of Certificate or Electronic Issuance Upon Conversion. Not later than three (3) Trading Days after the applicable Conversion
Date, or if the Holder requests the issuance of physical certificate(s), two (2) Trading Days after receipt by the Corporation
of the original certificate(s) representing such shares of Series A Preferred Stock being converted, duly endorsed, and the accompanying
Notice of Conversion (the “Share Delivery Date”), the Corporation shall: (a) deliver, or cause to
be delivered, to the converting Holder a physical certificate or certificates representing the number of Conversion Shares being
acquired upon the conversion of shares of Series A Preferred Stock (which certificate or certificates shall not have any legends
on it) or (b) in the case of a DWAC Delivery, electronically transfer such Conversion Shares by crediting the account of the
Holder’s prime broker with DTC through its DWAC system. If in the case of any Notice of Conversion such certificate or certificates
are not delivered to or as directed by or, in the case of a DWAC Delivery, such shares are not electronically delivered to or as
directed by, the applicable Holder by the Share Delivery Date, the applicable Holder shall be entitled to elect to rescind such
Conversion Notice by written notice to the Corporation at any time on or before its receipt of such certificate or certificates
for Conversion Shares or electronic receipt of such shares, as applicable, in which event the Corporation shall promptly return
to such Holder any original Series A Preferred Stock certificate delivered to the Corporation and such Holder shall promptly return
to the Corporation any Common Stock certificates or otherwise direct the return of any shares of Common Stock delivered to the
Holder through the DWAC system, representing the shares of Series A Preferred Stock unsuccessfully tendered for conversion to the
Corporation.

 

    	6

    	 

    

 

(ii)         Obligation
Absolute. Subject to any limitations on the beneficial ownership of Series A Preferred Stock to which a Holder may be subject
and subject to such Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i) above, the Corporation’s
obligation to issue and deliver the Conversion Shares upon conversion of Series A Preferred Stock in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any
setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person
of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other Person, and irrespective
of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the
issuance of such Conversion Shares. Subject to any limitations on the beneficial of ownership of Series A Preferred Stock to which
a Holder may be subject and subject to such Holder’s right to rescind a Conversion Notice pursuant to Section 6(d)(i)
above, in the event a Holder shall elect to convert any or all of its Series A Preferred Stock, the Corporation may not refuse
conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation
of law, agreement or for any other reason, unless an injunction from a court, on notice to such Holder, restraining and/or enjoining
conversion of all or part of the Series A Preferred Stock of such Holder shall have been sought and obtained by the Corporation,
and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the value of the Conversion Shares
into which would be converted the Series A Preferred Stock which is subject to such injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder
to the extent it obtains judgment. In the absence of such injunction, the Corporation shall, subject to any limitations on the
beneficial ownership of Series A Preferred Stock to which a Holder may be subject and subject to such Holder’s right to rescind
a Conversion Notice pursuant to Section 6(d)(i) above, issue Conversion Shares upon a properly noticed conversion. If the
Corporation fails to deliver to a Holder such certificate or certificates, or electronically deliver (or cause its transfer agent
to electronically deliver) such shares in the case of a DWAC Delivery, pursuant to Section 6(d)(i) on or prior to the third
(3rd) Trading Day after the Share Delivery Date applicable to such conversion (other than a failure caused by incorrect or
incomplete information provided by such Holder to the Corporation), then, unless the Holder has rescinded the applicable Conversion
Notice pursuant to Section 6(d)(i) above, the Corporation shall pay (as liquidated damages and not as a penalty) to such Holder
an amount payable in cash equal to the product of (x) the number of Conversion Shares required to have been issued by the
Corporation on such Share Delivery Date, (y) an amount equal to the Daily Failure Amount and (z) the number of Trading
Days actually lapsed after such third (3rd) Trading Day after the Share Delivery Date during which such certificates have
not been delivered, or, in the case of a DWAC Delivery, such shares have not been electronically delivered. Nothing herein shall limit a Holder’s right to pursue actual
damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall
have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief; provided that Holder shall not receive duplicate damages for the Corporation’s
failure to deliver Conversion Shares within the period specified herein. The exercise of any such rights shall not prohibit a Holder
from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

    	7

    	 

    

 

(iii)        Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. If the Corporation fails to deliver to a Holder the applicable
certificate or certificates or to effect a DWAC Delivery, as applicable, by the Share Delivery Date pursuant to Section 6(d)(i)
(other than a failure caused by incorrect or incomplete information provided by such Holder to the Corporation), and if after such
Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or
the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder
of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a
“Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies
available to or elected by such Holder) the amount by which (x) such Holder’s total purchase price (including any brokerage
commissions) for the shares of Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares
of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price
at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at
the option of such Holder, either reissue (if surrendered) the shares of Series A Preferred Stock equal to the number of shares
of Series A Preferred Stock submitted for conversion or deliver to such Holder the number of shares of Common Stock that would
have been issued if the Corporation had timely complied with its delivery requirements under Section 6(d)(i). For example,
if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of shares of Series A Preferred Stock with respect to which the actual sale price (including any brokerage commissions)
giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the
Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice, within three
(3) Trading Days after the occurrence of a Buy-In, indicating the amounts payable to such Holder in respect of such Buy-In
together with applicable confirmations and other evidence reasonably requested by the Corporation. Nothing herein shall limit a
Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation,
a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of the shares of Series A Preferred Stock as required pursuant to the terms
hereof; provided, however, that the Holder shall not be entitled to both (i) require the reissuance of the shares of Series
A Preferred Stock submitted for conversion for which such conversion was not timely honored and (ii) receive the number of
shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under
Section 6(d)(i).

 

(iv)        Reservation
of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series A Preferred Stock,
free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holders of the Series A Preferred
Stock, not less than such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments
of Section 7) upon the conversion of all outstanding shares of Series A Preferred Stock. The Corporation covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.

 

(v)         Fractional
Shares. No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon the conversion of
the Series A Preferred Stock. As to any fraction of a share which a Holder would otherwise be entitled to receive upon such conversion,
the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Conversion Price or round up to the next whole share.

 

(vi)        Transfer
Taxes. The issuance of certificates for shares of the Common Stock upon conversion of the Series A Preferred Stock shall be
made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the registered
Holder(s) of such shares of Series A Preferred Stock and the Corporation shall not be required to issue or deliver such certificates
unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax
or shall have established to the satisfaction of the Corporation that such tax has been paid.

 

    	8

    	 

    

 

(e)          Status
as Stockholder. Upon each Conversion Date: (i) the shares of Series A Preferred Stock being converted shall be deemed
converted into shares of Common Stock and (ii) the Holder’s rights as a holder of such converted shares of Series A
Preferred Stock shall cease and terminate, excepting only the right to receive certificates for or electronic delivery of such
shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of
a failure by the Corporation to comply with the terms of this Certificate of Designation. In all cases, the holder shall retain
all of its rights and remedies for the Corporation’s failure to convert Series A Preferred Stock.

 

SECTION 7. CERTAIN
ADJUSTMENTS.

 

(a)          Stock
Dividends and Stock Splits. If the Corporation, at any time while the Series A Preferred Stock is outstanding: (i) pays
a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of shares of Series A Preferred Stock)
with respect to the then outstanding shares of Common Stock; (ii) subdivides outstanding shares of Common Stock into a larger
number of shares; or (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number
of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event and of which
the denominator shall be the number of shares of Common Stock outstanding immediately after such event (excluding any treasury
shares of the Corporation). Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision or combination.

 

(b)          Rights
Upon Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights
to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation,
any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), a Holder shall
be entitled to receive the dividend or distribution of assets that would have been payable to such Holder pursuant to the Distribution
had such Holder converted his or her shares of Series A Preferred Stock (or, if he or she had partially converted such shares prior
to the Distribution, any unconverted portion thereof) immediately prior to such record date without giving effect for such purposes
to the Beneficial Ownership Limitation set forth in Section 6(c) hereof.

 

    	9

    	 

    

 

(c)          Fundamental
Transaction. If, at any time while the Series A Preferred Stock is outstanding: (i) the Corporation effects any merger
or consolidation of the Corporation with or into another Person (other than a merger in which the Corporation is the surviving
or continuing entity and its Common Stock is not exchanged for or converted into other securities, cash or property), (ii) the
Corporation effects any sale of all or substantially all of its assets in one transaction or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which all
of the Common Stock is exchanged for or converted into other securities, cash or property, or (iv) the Corporation effects any
reclassification of the Common Stock or any compulsory share exchange pursuant (other than as a result of a dividend, subdivision
or combination covered by Section 7(a) above) to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent
conversion of this Series A Preferred Stock, the Holders shall have the right to receive, in lieu of the right to receive Conversion
Shares, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such
Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon
the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of
one share of Common Stock (the “Alternate Consideration”). For purposes of any such subsequent conversion,
the determination of the Conversion Ratio shall be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation
shall adjust the Conversion Ratio in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holders shall be given the same choice as to the Alternate Consideration it receives upon any conversion
of this Series A Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions,
any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation
with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing
the Holders’ right to convert such preferred stock into Alternate Consideration. The terms of any agreement to which the
Corporation is a party and pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor
or surviving entity to comply with the provisions of this Section 7(b) and ensuring that the Series A Preferred Stock (or
any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
The Corporation shall cause to be delivered (via overnight courier, facsimile or email) to each Holder, at its last address as
it shall appear upon the books and records of the Corporation, written notice of any Fundamental Transaction at least ten (10)
calendar days prior to the date on which such Fundamental Transaction is expected to become effective or close.

 

(d)          Calculations.
All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may
be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given
date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.

 

(e)          Notice
to the Holders.

 

(i)          Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation
shall promptly deliver to each Holder a notice setting forth the Conversion Ratio after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

 

(ii)         Other
Notices. If: (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock,
(B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be
required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a
party, any sale or transfer of all or substantially all of the assets of the Corporation, of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall
cause to be delivered (via overnight courier, facsimile or email) to each Holder at its last address as it shall appear upon the
books and records of the Corporation, at least ten (10) calendar days (or in the event of a voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, at least seventy-five (75) calendar days) prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined
or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange
their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery
thereof shall not affect the validity of the corporate action required to be specified in such notice.

 

    	10

    	 

    

 

SECTION 8. MISCELLANEOUS.

 

(a)          Notices.
Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation,
any Notice of Conversion, shall be in writing and delivered personally, by email, facsimile, or sent by a nationally recognized
overnight courier service, addressed to the Corporation, at 99 Hudson Street, 5th Floor, New York, New York 10013, facsimile number
(646) 706-5101, or such other facsimile number or address or email address as the Corporation
may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile,
or sent by a nationally recognized overnight courier service or email addressed to each Holder at the facsimile number or address
of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the
Corporation, at the principal place of business of such Holder. Any notice or other communication or deliveries hereunder shall
be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered
via facsimile or email at the facsimile number or email address specified in or pursuant to this Section prior to 5:30 p.m. (New
York City time) on any date, (ii) the date immediately following the date of transmission, if such notice or communication
is delivered via facsimile or mail at the facsimile number or email address specified in or pursuant to this Section between 5:30
p.m. and 11:59 p.m. (New York City time) on any date, (iii) the second (2nd) Business Day following the date
of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.

 

(b)          Lost
or Mutilated Series A Preferred Stock Certificate. If a Holder’s Series A Preferred Stock certificate shall be mutilated,
lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of
a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the
shares of Series A Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft
or destruction of such certificate, and of the ownership thereof, reasonably satisfactory to the Corporation and, in each case,
customary and reasonable indemnity, if requested. Applicants for a new certificate under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Corporation may prescribe.

 

(c)          Waiver.
Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as
or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate
of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to
any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or
any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of
Designation. Any waiver by the Corporation or a Holder must be in writing.

 

    	11

    	 

    

 

(d)          Severability.
If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation
shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable
to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates
the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum
rate of interest permitted under applicable law.

 

(e)          Next
Business or Trading Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day
or a Trading Day, such payment shall be made on the next succeeding Business Day or Trading Day, as the case may be.

 

(f)          Headings.
The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not
be deemed to limit or affect any of the provisions hereof.

 

(g)          Status
of Converted Series A Preferred Stock. If any shares of Series A Preferred Stock shall be converted or reacquired by the Corporation,
such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series
A Preferred Stock.

 

IN WITNESS WHEREOF,
the Corporation has caused this Certificate of Designation to be signed by its duly authorized officer this [___]th
day of January, 2013.

 

	 	VENTRUS BIOSCIENCES, INC.
	 	 	 
	 	By:	 
	 	 	Name:
	 	 	Title:

 

    	12

    	 

    

 

ANNEX A

 

NOTICE OF CONVERSION

 

(TO BE EXECUTED BY THE REGISTERED HOLDER
IN ORDER TO

CONVERT SHARES OF SERIES A PREFERRED STOCK)

 

The undersigned Holder hereby irrevocably
elects to convert the number of shares of Series A Convertible Preferred Stock indicated below, represented by stock certificate
No(s). _______________ (the “Preferred Stock Certificates”), into shares of common stock, par value $0.001 per
share (the “Common Stock”), of Ventrus Biosciences, Inc., a Delaware corporation (the “Corporation”),
as of the date written below. If securities are to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto. Capitalized terms utilized but not defined herein shall have the meaning
ascribed to such terms in that certain Certificate of Designation of Preferences, Rights and Limitations (the “Certificate
of Designation”) of Series A Non-Voting Convertible Preferred Stock (the “Series A Preferred Stock”)
filed by the Corporation on _____________, 2013.

 

As of the date hereof, the number of shares
of Common Stock beneficially owned by the undersigned Holder (together with such Holder’s Affiliates, and any other Person
whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Exchange
Act and the applicable regulations of the Commission, including any “group” of which the Holder is a member), including
the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock subject to this Notice of Conversion,
but excluding the number of shares of Common Stock which are issuable upon (A) conversion of the remaining, unconverted Series A
Preferred Stock beneficially owned by such Holder or any of its Affiliates, and (B) exercise or conversion of the unexercised
or unconverted portion of any other securities of the Corporation (including any warrants) beneficially owned by such Holder or
any of its Affiliates that are subject to a limitation on conversion or exercise similar to the limitation contained in Section
6(c) of the Certificate of Designation, is _______________. For purposes hereof, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Exchange Act and the applicable regulations of the Commission. In addition, for purposes hereof, “group”
has the meaning set forth in Section 13(d) of the Exchange Act and the applicable regulations of the Commission.

 

Conversion calculations:

 

Date to Effect Conversion:
_______________

Number of shares of
Series A Preferred Stock owned prior to Conversion: _______________

Number of shares of
Series A Preferred Stock to be Converted: _______________

Number of shares of
Common Stock to be Issued: _______________

Address for delivery
of physical certificates: ________________________________________

Or for DWAC Delivery:

DWAC Instructions:

Broker no: _______________

Account no: _______________

 

	 	[HOLDER]	 
	 	 	 	 
	 	By:	 	 
	 	 	Name:	 
	 	 	Title	 
	 	 	Date:

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