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American Natural Energy Corporation  - Exhibit 10.6 - Filed by newsfilecorp.com

Exhibit 10.6 

SECURITY AGREEMENT

          THIS
SECURITY AGREEMENT (“Agreement”) is made as of this
29th day of December, 2011, by and between AMERICAN NATURAL ENERGY
CORPORATION, an Oklahoma corporation (the “Company”), in favor
of TCA GLOBAL CREDIT MASTER FUND, LP, a Cayman Islands limited
partnership (the “Secured Party”). 

RECITALS 

          WHEREAS,
pursuant to a Securities Purchase Agreement dated of even date herewith between
Company and the Secured Party (the “Purchase Agreement”), Company
has agreed to issue to the Secured Party and the Secured Party has agreed to
purchase from Company certain senior secured redeemable debentures (the
“Debentures”), as more specifically set forth in the Purchase
Agreement; and 

          WHEREAS,
in order to induce the Secured Party to purchase the Debentures, Company has
agreed to execute and deliver to the Secured Party this Agreement for the
benefit of the Secured Party and to grant to it a continuing, first priority
security interest and lien in all of the assets and property of Company to
secure the prompt payment, performance and discharge in full of all of Company’s
obligations under the Debentures, the Purchase Agreement and the other
Transaction Documents; 

          NOW,
THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties each
intending to be legally bound, hereby do agree as follows: 

          1.     
Recitals. The recitations set forth in the preamble of this Agreement are
true and correct and incorporated herein by this reference. 

          2.     
Construction and Definition of Terms. In this Agreement, unless the
express context otherwise requires: (i) the words “herein,” “hereof” and
“hereunder” and words of similar import refer to this Agreement as a whole and
not to any particular provision of this Agreement; (ii) references to the words
“Section” or “Subsection” refer to the respective Sections and Subsections of
this Agreement, and references to “Exhibit” or “Schedule” refer to the
respective Exhibits and Schedules attached hereto; (iii) wherever the word
“include,” “includes” or “including” is used in this Agreement, it will be
deemed to be followed by the words “without limitation.” All capitalized terms
used in this Agreement that are defined in the Purchase Agreement or otherwise
defined in Articles 8 or 9 of the Code shall have the meanings assigned to them
in the Purchase Agreement or the Code, respectively and as applicable, unless
the context of this Agreement requires otherwise. In addition to the capitalized
terms defined in the Code and the Purchase Agreement, unless the context
otherwise requires, when used herein, the following capitalized terms shall have
the following meanings (provided that if a capitalized term used herein is
defined in the Purchase Agreement and separately defined in this Agreement, the
meaning of such term as defined in this Agreement shall control for purposes of
this Agreement):

                    (a)      “Agreement”
means this Security Agreement and all amendments, modifications and supplements
hereto. 

                    (b)     
“Bankruptcy Code” means the United States Bankruptcy Code, as
amended from time to time, or any other similar laws, codes, rules or
regulations relating to bankruptcy, insolvency or the protection of creditors.

                    (c)      “Business
Premises” shall mean the Company’s offices located at 6100 South Yale
Ave., Suite 2010, Tulsa, OK 74136. 

                    (d)     
“Closing” shall mean the date on which this Agreement is fully
executed by both parties. 

                    (e)     
“Code” shall mean the Uniform Commercial Code as in effect from
time to time in the State of Florida, provided that terms used herein which are
defined in the Code as in effect in the State of Florida on the date hereof
shall continue to have the same meaning notwithstanding any replacement or
amendment of such statute, except as the Secured Party may otherwise agree. 

                    (f)      “Collateral”
shall mean any and all property of the Company, of any kind or description,
tangible or intangible, real, personal or mixed, wheresoever located and whether
now existing or hereafter arising or acquired, including the following: (i) all
property of, or for the account of, the Company now or hereafter coming into the
possession, control or custody of, or in transit to, Secured Party or any agent
or bailee for Secured Party or any parent, affiliate or subsidiary of Secured
Party or any participant with Secured Party in the Obligations (whether for
safekeeping, deposit, collection, custody, pledge, transmission or otherwise),
including all cash, earnings, dividends, interest, or other rights in connection
therewith and the products and proceeds therefrom, including the proceeds of
insurance thereon; (ii) the following additional property of the Company,
whether now existing or hereafter arising or acquired, and wherever now or
hereafter located, together with all additions and accessions thereto,
substitutions, betterments and replacements therefor, products and Proceeds
therefrom, and all of the Company’s books and records and recorded data relating
thereto (regardless of the medium of recording or storage), together with all of
the Company’s right, title and interest in and to all computer software required
to utilize, create, maintain and process any such records or data on electronic
media, including all: (A) Accounts, and all goods whose sale, lease or other
disposition by the Company has given rise to Accounts and have been returned to,
or repossessed or stopped in transit by, the Company, or rejected or refused by
an Account debtor; (B) As-extracted Collateral; (C) Chattel Paper (whether
tangible or electronic); (D) Commodity Accounts; (E) Commodity Contracts; (F)
Deposit Accounts, including all cash and other property from time to time
deposited therein and the monies and property in the possession or under the
control of the Secured Party or any affiliate, representative, agent, designee
or correspondent of the Secured Party; (G) Documents; (H) Equipment; (I) Farm
Products; (J) Fixtures; (K) General Intangibles (including all Payment
Intangibles); (L) Goods, and all accessions thereto and goods with which the
Goods are commingled; (M) Health-Care Insurance Receivables; (N) Instruments;
(O) Inventory, including raw materials, work-in-process and finished goods; (P)
Investment Property; (Q) Letter-of-Credit Rights; (R) Promissory Notes; (S)
Software; (T) all Supporting Obligations; (U) all commercial tort claims
hereafter arising; (V) all other tangible and intangible personal property of
the Company (whether or not subject to the Code), including, all bank and other
accounts and all cash and all investments therein, all proceeds, products,
offspring, accessions, rents, profits, income, benefits, substitutions and
replacements of and to any of the property of the Company described within the
definition of Collateral (including, any proceeds of insurance thereon and all
causes of action, claims and warranties now or hereafter held by the Company in
respect of any of the items listed within the definition of Collateral), and all
books, correspondence, files and other Records, including, all tapes, desks,
cards, Software, data and computer programs in the possession or under the
control of the Company or any other Person from time to time acting for the
Company, in each case, to the extent of the Company’s rights therein, that at
any time evidence or contain information relating to any of the property
described or listed within the definition of Collateral or which are otherwise
necessary or helpful in the collection or realization thereof; (W) real estate
property owned by the Company, leasehold interests owned by the Company in real
property and the interest of the Company in fixtures or any other assets or
property related to such real property or leasehold interests; and (X)
Proceeds, including all Cash Proceeds and Noncash Proceeds, and products of any
or all of the foregoing, in each case howsoever the Company’s interest therein
may arise or appear (whether by ownership, security interest, claim or
otherwise). In addition, whether or not included in the foregoing, the
Collateral shall include all receivables and rights in connection with the
Company’s relationship with Sun Oil, an operating subsidiary of Texxon. 

2 

                    (g)     
“Event of Default” shall mean any of the events described in
Section 4 hereof. 

                    (h)      “Obligations”
shall mean any and all obligations of the Company to Secured Party, whether
arising, existing or incurred under this Agreement, the Purchase Agreement or
any other Transaction Documents, or any other agreement between the Company and
the Secured Party, in each case, whether now or hereafter existing or incurred,
voluntary or involuntary, direct or indirect, absolute or contingent, liquidated
or unliquidated, whether or not jointly owed with others, and whether or not
from time to time decreased or extinguished and later decreased, created or
incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from the Secured Party as a preference, fraudulent
transfer or otherwise as such obligations may be amended, supplemented,
converted, extended or modified from time to time. 

          3.     
Security. 

                    (a)     
Grant of Security Interest. As security for the full payment and
performance of all of the Obligations, whether or not any instrument or
agreement relating to any Obligation specifically refers to this Agreement or
the security interest created hereunder, the Company hereby assigns, pledges and
grants to Secured Party an unconditional, continuing, first-priority security
interest in all of the Collateral. Secured Party’s security interest shall
continually exist until all Obligations have been indefeasibly satisfied and/or
paid in full. 

                    (b)      Representations,
Warranties, Covenants and Agreement of the Company. With respect to all of
the Collateral, Company covenants, warrants and represents, for the benefit of
the Secured Party, as follows: 

                              (i)     
The Company has the requisite corporate power and authority to enter into this
Agreement and otherwise to carry out its obligations hereunder. The execution,
delivery and performance by the Company of this Agreement and the filings
contemplated herein have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. This
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor’s rights generally. 

                              (ii)      The
Company represents and warrants that it has no place of business or offices
where its respective books of account and records are kept or places where
Collateral is stored or located, except for the Business Premises. 

                              (iii)      The
Company is the sole owner of the Collateral (except for non-exclusive licenses
granted by the Company in the Ordinary Course of Business), free and clear of
any and all Encumbrances. The Company is fully authorized to grant the security
interests in and to pledge the Collateral to Secured Party. There is not on file
in any agency, land records or other office of any Governmental Authority, an
effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that have been
filed in favor of the Secured Party pursuant to this Agreement) covering or
affecting any of the Collateral. So long as this Agreement shall be in effect,
the Company shall not execute and shall not permit to be on file in any such
agency, land records or other office any such financing statement or other
document or instrument (except to the extent filed or recorded in favor of the
Secured Party pursuant to the terms of this Agreement).

3 

                              (iv)      No
part of the Collateral has been judged invalid or unenforceable. No Claim,
Proceeding or other notice or other similar item has been received by the
Company that any Collateral or the Company’s use of any Collateral violates the
rights of any Person. There has been no adverse decision or claim to the
Company’s ownership rights in or exclusive rights to use the Collateral in any
jurisdiction or to the Company’s right to keep and maintain such Collateral in
full force and effect, and there is no Claim or Proceeding of any nature
involving said rights pending or, to the best knowledge of the Company,
threatened, before any Governmental Authority.

                              (v)      The
Company shall at all times maintain its books of account and records relating to
the Collateral and maintain the Collateral at the Business Premises, and the
Company shall not relocate such books of account and records or Collateral,
except and unless: (A) Secured Party first approves of such relocation, which
approval may be withheld in Secured Party’s sole and absolute discretion; and
(B) evidence that appropriate financing statements and other necessary documents
have been filed and recorded and other steps have been taken to create in favor
of the Secured Party valid, perfected and continuing liens in the Collateral.

                              (vi)      Upon
making the filings described in the immediately following sentence, this
Agreement creates, in favor of the Secured Party, a valid, perfected,
first-priority security interest in the Collateral. Except for the filing of
financing statements on Form-1 under the Code with the State of Oklahoma, no
authorization or approval of, or filing with, or notice to any Governmental
Authority is required either: (A) for the grant by the Company of, or the
effectiveness of, the security interest granted hereby or for the execution,
delivery and performance of this Agreement by the Company; or (B) for the
perfection of or exercise by the Secured Party of its rights and remedies
hereunder.

                              (vii)     
Simultaneous with the execution of this Agreement, the Company hereby authorizes
the Secured Party to file one or more UCC financing statements, and any
continuations, amendments, or assignments thereof, with respect to the security
interests on the Collateral granted hereby, with the State of Oklahoma and in
such other jurisdictions as may be requested or desired by the Secured Party.

                              (viii)      The
execution, delivery and performance of this Agreement, and the granting of the
security interests contemplated hereby, will not: (A) constitute a violation of
or conflict with the Certificate of Incorporation, Bylaws or any other
organizational or governing documents of the Company; (B) constitute a violation
of, or a default or breach under (either immediately, upon notice, upon lapse of
time, or both), or conflicts with, or gives to any other Person any rights of
termination, amendment, acceleration or cancellation of, any provision of any
Contract or agreement to which Company is a party or by which any of the
Collateral may be bound; (C) constitute a violation of, or a default or breach
under (either immediately, upon notice, upon lapse of time, or both), or
conflicts with, any Judgment of any Governmental Authority; (D) constitute a
violation of, or conflict with, any Law; or (E) result in the loss or adverse
modification of, or the imposition of any fine, penalty or other Encumbrance
with respect to, any Permit granted or issued to, or otherwise held by or for
the use of, the Company or any of the Collateral. No Consent (including from
stockholders or creditors of the Company) is required for the Company to enter
into and perform its obligations hereunder. 

4 

                              (ix)      The
Company shall at all times maintain the liens and security interests provided
for hereunder as valid and perfected first-priority liens and security interests
in the Collateral in favor of the Secured Party until this Agreement and the
security interests hereunder shall terminate pursuant to Section 8(o) below. The
Company shall at all times safeguard and protect all Collateral, at its own
expense, for the account of the Secured Party. At the request of the Secured
Party, the Company will sign and deliver to the Secured Party at any time, or
from time to time, one or more financing statements pursuant to the Code (or any
other applicable statute) in form reasonably satisfactory to the Secured Party
and will pay the cost of filing the same in all public offices wherever filing
is, or is deemed by the Secured Party to be, necessary or desirable to effect
the rights and obligations provided for herein. Without limiting the generality
of the foregoing, the Company shall pay all fees, taxes and other amounts
necessary to maintain the Collateral and the security interests granted
hereunder, and the Company shall obtain and furnish to the Secured Party from
time to time, upon demand, such releases and/or subordinations of claims and
liens which may be required to maintain the priority of the security interests
hereunder.

                              (x)     
The Company will not transfer, pledge, hypothecate, encumber, license, sell or
otherwise dispose of any of the Collateral without the prior written consent of
the Secured Party, which consent may be withheld in the Secured Party’s sole and
absolute discretion, except for transfers, sales or licenses made in the
Ordinary Course of Business. 

                              (xi)      The
Company shall keep, maintain and preserve all of the Collateral in good
condition, repair and order and the Company will use, operate and maintain the
Collateral in compliance with all Laws, and in compliance with all applicable
insurance requirements and regulations. 

                              (xii)      The
Company shall, within five (5) days of obtaining knowledge thereof, advise the
Secured Party promptly, in sufficient detail, of any substantial or material
change in the Collateral, and of the occurrence of any event which would have a
Material Adverse Effect on the value of the Collateral or on the Secured Party’s
security interest therein. 

                              (xiii)      The
Company shall promptly execute and deliver to the Secured Party such further
deeds, mortgages, assignments, security agreements, financing statements or
other instruments, documents, certificates and assurances and take such further
action as the Secured Party may from time to time request and may in its sole
discretion deem necessary to perfect, protect or enforce its security interest
in the Collateral, including, placing legends on Collateral or on books and
records pertaining to Collateral stating that Secured Party has a security
interest therein. 

                              (xiv)      The
Company will take all steps reasonably necessary to diligently pursue and seek
to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Collateral. 

                              (xv)      The
Company shall promptly notify the Secured Party in sufficient detail upon
becoming aware of any litigation, attachment, garnishment, execution or other
legal process levied against any Collateral or of any litigation, attachment,
garnishment, execution or other legal process which Company knows or has reason
to believe is pending or threatened against it or the Collateral, and of any
other information received by the Company that may materially affect the value
of the Collateral, the security interests granted hereunder or the rights and
remedies of the Secured Party hereunder. 

5 

                              (xvi)     
All information heretofore, herein or hereafter supplied to the Secured Party by
or on behalf of the Company with respect to the Collateral is accurate and
complete in all material respects as of the date furnished. 

                              (xvii)      Company
will promptly pay when due all taxes and all transportation, storage,
warehousing and all other charges and fees affecting or arising out of or
relating to the Collateral and shall defend the Collateral, at Company’s
expense, against all claims of any Persons claiming any interest in the
Collateral adverse to Company or Secured Party. 

                              (xviii)      At
all reasonable times, Secured Party and its agents and designees may enter the
Business Premises and any other premises of the Company and inspect the
Collateral and all books and records of the Company (in whatever form), and the
Company shall pay the reasonable costs of such inspections. 

                              (xix)      The
Company shall maintain comprehensive casualty insurance on the Collateral
against such risks, in such amounts, with such loss deductible amounts and with
such companies as may be reasonably satisfactory to the Secured Party, and each
such policy shall contain a clause or endorsement satisfactory to Secured Party
naming Secured Party as loss payee and a clause or endorsement satisfactory to
Secured Party that such policy may not be canceled or altered and Secured Party
may not be removed as loss payee without at least thirty (30) days prior written
notice to Secured Party. In all events, the amounts of such insurance coverages
shall conform to prudent business practices and shall be in such minimum amounts
that Company will not be deemed a co-insurer under applicable insurance laws,
policies or practices. The Company hereby assigns to Secured Party and grants to
Secured Party a security interest in any and all proceeds of such policies and
authorizes and empowers Secured Party to adjust or compromise any loss under
such policies and to collect and receive all such proceeds. The Company hereby
authorizes and directs each insurance company to pay all such proceeds directly
and solely to Secured Party and not to the Company and Secured Party jointly.
The Company authorizes and empowers Secured Party to execute and endorse in
Company’s name all proofs of loss, drafts, checks and any other documents or
instruments necessary to accomplish such collection, and any persons making
payments to Secured Party under the terms of this subsection are hereby relieved
absolutely from any obligation or responsibility to see to the application of
any sums so paid. After deduction from any such proceeds of all costs and
expenses (including attorney’s fees) incurred by Secured Party in the collection
and handling of such proceeds, the net proceeds shall be applied as follows: if
no Event of Default shall have occurred and be continuing, such net proceeds may
be applied, at Company’s option, either toward replacing or restoring the
Collateral, in a manner and on terms satisfactory to Secured Party, or as a
credit against such of the Obligations, whether matured or unmatured, as Secured
Party shall determine in Secured Party’s sole discretion. In the event that
Company may and does elect to replace or restore any of the Collateral as
aforesaid, then such net proceeds shall be deposited in a segregated account
opened in the name and for the benefit of Secured Party, and such net proceeds
shall be disbursed therefrom by Secured Party in such manner and at such times
as Secured Party deems appropriate to complete and insure such replacement or
restoration; provided, however, that if an Event of Default shall occur at any
time before or after replacement or restoration has commenced, then thereupon
Secured Party shall have the option to apply all remaining net proceeds either
toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to Secured Party, or as a credit against such of the Obligations,
whether matured or unmatured, as Secured Party shall determine in Secured
Party’s sole discretion. If an Event of Default shall have occurred prior to
such deposit of the net proceeds, then Secured Party may, in its sole
discretion, apply such net proceeds either toward replacing or restoring the
Collateral, in a manner and on terms satisfactory to Secured Party, or as a
credit against such of the Obligations, whether matured or unmatured, as Secured
Party shall determine in Secured Party’s sole discretion. 

6 

                              (xx)      The
Company shall cooperate with Secured Party to obtain and keep in effect one or
more control agreements in Deposit Accounts, Electronic Chattel Paper,
Investment Property and Letter-of-Credit Rights Collateral, or any other
Collateral that may, in Secured Party’s sole discretion, require any such
control agreements. In addition, the Company, at the Company’s expense, shall
promptly: (A) execute all notices of security interest for each relevant type of
Software and other General Intangibles in forms suitable for filing with any
United States or foreign office handling the registration or filing of patents,
trademarks, copyrights and other intellectual property and any successor office
or agency thereto; and (B) take all commercially reasonable steps in any
Proceeding before any such office or any similar office or agency in any other
country or any political subdivision thereof, to diligently prosecute or
maintain, as applicable, each application and registration of any Software,
General Intangibles or any other intellectual property rights and assets that
are part of the Collateral, including filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings. 

                              (xxi)      Company
shall not file any amendments, correction statements or termination statements
concerning the Collateral without the prior written consent of Secured Party.

                    (c)     
Collateral Collections. After an Event of Default shall have occurred,
Secured Party shall have the right at any and all times to enforce the Company’s
rights against all Persons obligated on any of the Collateral, including the
right to: (i) notify and/or require the Company to notify any or all Persons
obligated on any of the Collateral to make payments directly to Secured Party or
in care of a post office lock box under the sole control of Secured Party
established at Company’s expense, and to take any or all action with respect to
Collateral as Secured Party shall determine in its sole discretion, including,
the right to demand, collect, sue for and receive any money or property at any
time due, payable or receivable on account thereof, compromise and settle with
any Person liable thereon, and extend the time of payment or otherwise change
the terms thereof, without incurring any liability or responsibility to the
Company whatsoever; and/or (ii) require the Company to segregate and hold in
trust for Secured Party and, on the day of Company’s receipt thereof, transmit
to Secured Party in the exact form received by the Company (except for such
assignments and endorsements as may be required by Secured Party), all cash,
checks, drafts, money orders and other items of payment constituting any portion
of the Collateral or proceeds of the Collateral. Secured Party’s collection and
enforcement of Collateral against Persons obligated thereon shall be deemed to
be commercially reasonable if Secured Party exercises the care and follows the
procedures that Secured Party generally applies to the collection of obligations
owed to Secured Party.

                    (d)      Care
of Collateral. Company shall have all risk of loss of the Collateral.
Secured Party shall have no liability or duty, either before or after the
occurrence of an Event of Default, on account of loss of or damage to, to
collect or enforce any of its rights against, the Collateral, to collect any
income accruing on the Collateral, or to preserve rights against Persons with
prior interests in the Collateral. If Secured Party actually receives any
notices requiring action with respect to Collateral in Secured Party’s
possession, Secured Party shall take reasonable steps to forward such notices to
the Company. The Company is responsible for responding to notices concerning the
Collateral, voting the Collateral, and exercising rights and options, calls and
conversions of the Collateral. Secured Party’s sole responsibility is to take
such action as is reasonably requested by Company in writing, however, Secured
Party is not responsible to take any action that, in Secured Party’s sole
judgment, would affect the value of the Collateral as security for the
Obligations adversely. While Secured Party is not required to take certain
actions, if action is needed, in Secured Party’s sole discretion, to preserve
and maintain the Collateral, Company authorizes Secured Party to take such
actions, but Secured Party is not obligated to do so. 

7 

          4.      Events
of Default. The occurrence of any one or more of the following events shall
constitute an “Event of Default” hereunder: 

                    (a)      Failure
to Pay. The failure of Company to pay any sum due under or as part of the
Obligations as and when due and payable (whether by acceleration, declaration,
extension or otherwise). 

                    (b)     
Covenants and Agreements. The failure of Company to perform, observe or
comply with any and all of the covenants, promises and agreements of the Company
in this Agreement, the Purchase Agreement or any other Transaction Documents,
which such failure is not cured by the Company within ten (10) days after
receipt of written notice thereof from Secured Party, except that there shall be
no notice or cure period with respect to any failure to pay any sums due under
or as part of the Obligations. 

                    (c)      Information,
Representations and Warranties. If any representation or warranty made
herein, in the Purchase Agreement or any other Transaction Documents, or if any
information contained in any financial statement, application, schedule, report
or any other document given by the Company in connection with the Obligations,
with the Collateral, or with any Transaction Document, is not in all respects
true, accurate and complete, or if the Company omitted to state any material
fact or any fact necessary to make such information not misleading. 

                    (d)      Default
on Other Obligations. The occurrence of any default under any other
borrowing or Obligation of the Company, if the result of such default would: (i)
permit the acceleration of the maturity of any note, loan or other Contract
between Company and any Person other than Secured Party; or (ii) materially and
adversely affect, as determined by Secured Party in good faith, but in its sole
discretion, any of the Collateral, the value thereof or Secured Party’s rights
and remedies to realize upon such Collateral as set forth herein. 

                    (e)     
Insolvency. Company shall be or become insolvent or unable to pay its
debts as they become due, or admits in writing to such insolvency or to such
inability to pay its debts as they become due. 

                    (f)     
Involuntary Bankruptcy. There shall be filed against Company an
involuntary petition or other pleading seeking the entry of a decree or order
for relief under the Bankruptcy Code or any similar foreign, federal or state
insolvency or similar laws ordering: (i) the liquidation of the Company; or (ii)
a reorganization of Company or the business and affairs of Company; or (iii) the
appointment of a receiver, liquidator, assignee, custodian, trustee, or similar
official for Company of the property of Company, and the failure to have such
petition or other pleading denied or dismissed within thirty (30) calendar days
from the date of filing. 

                    (g)     
Voluntary Bankruptcy. The commencement by the Company of a voluntary case
under the Bankruptcy Code or any foreign, federal or state insolvency or similar
laws or the consent by the Company to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, or similar official for
Company of any of the property of the Company or the making by the Company of an
assignment for the benefit of creditors, or the failure by the Company generally
to pay its debts as the debts become due. 

8 

                    (h)      Judgments,
Awards. The entry of any final and non-appealable Judgment or other
determination or adjudication against the Company and a determination by Secured
Party, in good faith but in its sole discretion, that any such Judgment or other
determination or adjudication could have a Material Adverse Effect on the
prospect for Secured Party to fully and punctually realize the full benefits
conferred on Secured Party by this Agreement. 

                    (i)     
Injunction. The injunction or restraint of the Company in any manner from
conducting its business in whole or in part and a determination by Secured
Party, in good faith but in its sole discretion, that the same could have a
Material Adverse Effect on the prospect for Secured Party to fully and
punctually realize the full benefits conferred on Secured Party by this
Agreement. 

                    (j)      Attachment
by Other Parties. Any Assets of the Company shall be attached, levied upon,
seized or repossessed, or come into the possession of a trustee, receiver or
other custodian and a determination by Secured Party, in good faith but in its
sole discretion, that the same could have a Material Adverse Effect on the
prospect for Secured Party to fully and punctually realize the full benefits
conferred on Secured Party by this Agreement. 

                    (k)      Adverse
Change in Financial Condition. The determination in good faith by Secured
Party that a Material Adverse Change has occurred in the financial condition or
operations of the Company, or the Collateral, which change could have a Material
Adverse Effect on the prospect for Secured Party to fully and punctually realize
the full benefits conferred on Secured Party by this Agreement. 

                    (l)     
Adverse Change in Value of Collateral. The determination in good faith by
Secured Party that the security for the Obligations is or has become inadequate.

                    (m)      Prospect
of Payment or Performance. The determination in good faith by Secured Party
that the prospect for payment or performance of any of the Obligations is
impaired for any reason. 

          5.     
Rights and Remedies. 

                    (a)     
Rights and Remedies of Secured Party. Upon and after the occurrence of an
Event of Default, Secured Party may, without notice or demand, exercise in any
jurisdiction in which enforcement hereof is sought, the following rights and
remedies, in addition to the rights and remedies available to Secured Party
under the Purchase Agreement and any other Transaction Documents, the rights and
remedies of a secured party under the Code, and all other rights and remedies
available to Secured Party under applicable law or in equity, all such rights
and remedies being cumulative and enforceable alternatively, successively or
concurrently: 

                              (i)      Take
absolute control of the Collateral, including transferring into the Secured
Party’s name or into the name of its nominee or nominees (to the extent the
Secured Party has not theretofore done so) and thereafter receive, for the
benefit of the Secured Party, all payments made thereon, give all consents,
waivers and ratifications in respect thereof and otherwise act with respect
thereto as though it were the outright owner thereof; 

                              (ii)     
Require the Company to, and the Company hereby agrees that it will at its
expense and upon request of the Secured Party forthwith, assemble all or part of
the Collateral as directed by the Secured Party and make it available to the Secured Party
at a place or places to be designated by the Secured Party that is convenient to
Secured Party, and the Secured Party may enter into and occupy the Business
Premises or any other premises owned or leased by the Company where the
Collateral or any part thereof is located or assembled in order to effectuate
the Secured Party’s rights and remedies hereunder or under law, including
removing such Collateral therefrom, without any obligation or liability to the
Company in respect of such occupation, the Company HEREBY WAIVING ANY AND ALL
RIGHTS TO PRIOR NOTICE AND TO JUDICIAL HEARING WITH RESPECT TO REPOSSESSION OF
COLLATERAL AND THE COMPANY HEREBY GRANTING TO SECURED PARTY AND ITS AGENTS AND
REPRESENTATIVES FULL AUTHORITY TO ENTER SUCH PREMISES; 

9 

                              (iii)      Without
notice, except as specified below, and without any obligation to prepare or
process the Collateral for sale: (A) sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Secured Party’s
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Secured Party may deem
commercially reasonable; and/or (B) lease, license or dispose of the Collateral
or any part thereof upon such terms as the Secured Party may deem commercially
reasonable. The Company agrees that, to the extent notice of sale or any other
disposition of the Collateral shall be required by law, at least ten (10) days’
notice to the Company of the time and place of any public sale or the time after
which any private sale or other disposition of the Collateral is to be made
shall constitute reasonable notification. The Secured Party shall not be
obligated to make any sale or other disposition of any Collateral regardless of
notice of sale having been given. The Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor and such sale may, without further notice, be made at the time and
place to which it was so adjourned. The Company hereby waives any claims and
actions against the Secured Party arising by reason of the fact that the price
at which any of the Collateral may have been sold at a private sale was less
than the price which might have been obtained at a public sale or was less than
the aggregate amount of the Obligations, even if the Secured Party accepts the
first offer received and does not offer such Collateral to more than one
offeree, and waives all rights that the Company may have to require that all or
any part of such Collateral be marshaled upon any sale (public or private)
thereof. The Company hereby acknowledges that: (X) any such sale of the
Collateral by the Secured Party shall be made without warranty; (Y) the Secured
Party may specifically disclaim any warranties of title, possession, quiet
enjoyment or the like; and (Z) such actions set forth in clauses (X) and (Y)
above shall not adversely affect the commercial reasonableness of any such sale
of Collateral. In addition to the foregoing: (1) upon written notice to the
Company from the Secured Party after and during the continuance of an Event of
Default, the Company shall cease any use of any intellectual property or any
trademark, patent or copyright similar thereto for any purpose described in such
notice; (2) the Secured Party may, at any time and from time to time after and
during the continuance of an Event of Default, license, whether general, special
or otherwise, and whether on an exclusive or non-exclusive basis, any of the
Company’s intellectual property, throughout the universe for such term or terms,
on such conditions, and in such manner, as the Secured Party shall in its sole
discretion determine; and (3) the Secured Party may, at any time, pursuant to
the authority granted under this Agreement (such authority being effective upon
the occurrence and during the continuance of an Event of Default), execute and
deliver on behalf of the Company, one or more instruments of assignment of any
intellectual property (or any application or registration thereof), in form
suitable for filing, recording or registration in any country. 

                              (iv)     
Operate, manage and control the Collateral (including use of the Collateral and
any other property or assets of Company in order to continue or complete
performance of Company’s obligations under any contracts of Company), or permit
the Collateral or any portion thereof to remain idle or store the same, and
collect all rents and revenues therefrom. 

10 

                              (v)     
Enforce the Company’s rights against any Persons obligated upon any of the
Collateral. 

                              (vi)      The
Company hereby acknowledges that if the Secured Party complies with any
applicable foreign, state, provincial or federal law requirements in connection
with a disposition of the Collateral, such compliance will not adversely affect
the commercial reasonableness of any sale or other disposition of the
Collateral.

                              (vii)      The
Secured Party shall not be required to marshal any present or future collateral
security (including, this Agreement and the Collateral) for, or other assurances
of payment of, the Obligations or any of them or to resort to such collateral
security or other assurances of payment in any particular order, and all of the
Secured Party’s rights hereunder and in respect of such collateral security and
other assurances of payment shall be cumulative and in addition to all other
rights, however existing or arising. To the extent that the Company lawfully
may, the Company hereby agrees that it will not invoke any law relating to the
marshaling of collateral which might cause delay in or impede the enforcement of
the Secured Party’s rights under this Agreement or under any other instrument
creating or evidencing any of the Obligations or under which any of the
Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
the Company hereby irrevocably waives the benefits of all such laws. 

                    (b)     
Power of Attorney. Effective upon the occurrence of an Event of Default,
Company hereby designates and appoints Secured Party and its designees as
attorney-in-fact of and for the Company, irrevocably and with full power of
substitution, with authority to endorse the Company’s name on any notes,
acceptances, checks, drafts, money orders, instruments or other evidences of
payment or proceeds of the Collateral that may come into Secured Party’s
possession; to execute proofs of claim and loss; to adjust and compromise any
claims under insurance policies; and to perform all other acts necessary and
advisable, in Secured Party’s sole discretion, to carry out and enforce this
Agreement and the rights and remedies conferred upon the Secured Party by this
Agreement, the Purchase Agreement or any other Transaction Documents. All acts
of said attorney or designee are hereby ratified and approved by the Company and
said attorney or designee shall not be liable for any acts of commission or
omission, nor for any error of judgment or mistake of fact or law. This power of
attorney is coupled with an interest and is irrevocable so long as any of the
Obligations remain unpaid or unperformed or there exists any commitment by
Secured Party which could give rise to any Obligations. 

                    (c)     
Costs and Expenses. The Company agrees to pay to the Secured Party, upon
demand, the amount of any and all costs and expenses, including the reasonable
fees, costs, expenses and disbursements of counsel for the Secured Party and of
any experts and agents, which the Secured Party may incur in connection with:
(i) the preparation, negotiation, execution, delivery, recordation,
administration, amendment, waiver or other modification or termination of this
Agreement; (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any Collateral; (iii) the exercise
or enforcement of any of the rights of the Secured Party hereunder; or (iv) the
failure by the Company to perform or observe any of the provisions hereof.
Included in the foregoing shall be the amount of all expenses paid or incurred
by Secured Party in consulting with counsel concerning any of its rights
hereunder, under the Purchase Agreement or under applicable law, as well as such
portion of Secured Party’s overhead as Secured Party shall allocate to
collection and enforcement of the Obligations in Secured Party’s sole but
reasonable discretion. All such costs and expenses shall bear interest from the
date of outlay until paid, at the highest rate set forth in the Debenture, or if
none is so stated, the highest rate allowed by law. The provisions of this
Subsection shall survive the termination of this Agreement and Secured Party’s
security interest hereunder and the payment of all Obligations. 

11 

          6.      Security
Interest Absolute. All rights of the Secured Party and all Obligations of
the Company hereunder, shall be absolute and unconditional, irrespective of: (i)
any lack of validity or enforceability of this Agreement, the Purchase
Agreement, and any other Transaction Documents or any agreement entered into in
connection with the foregoing, or any portion hereof or thereof; (ii) any change
in the time, manner or place of payment or performance of, or in any other term
of, all or any of the Obligations, or any other amendment or waiver of or any
consent to any departure from the terms and provisions of the Purchase
Agreement, any other Transaction Documents, or any other agreement entered into
in connection with the foregoing; (iii) any exchange, release or non-perfection
of any of the Collateral, or any release or amendment or waiver of or consent to
departure from any other collateral for, or any guaranty, or any other security,
for all or any of the Obligations; (iv) any action by the Secured Party to
obtain, adjust, settle and cancel in its sole discretion any insurance claims or
matters made or arising in connection with the Collateral; or (v) any other
circumstance which might otherwise constitute any legal or equitable defense
available to the Company, or a discharge of all or any part of the security
interests granted hereby. Until the Obligations shall have been paid and
performed in full, the rights of the Secured Party shall continue even if the
Obligations are barred for any reason, including, the running of the statute of
limitations or bankruptcy. In the event that at any time any transfer of any
Collateral or any payment received by the Secured Party hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the Bankruptcy Code or any
other similar insolvency or bankruptcy laws of any jurisdiction, or shall be
deemed to be otherwise due to any party other than the Secured Party, then, in
any such event, the Company’s obligations hereunder shall survive cancellation
of this Agreement, and shall not be discharged or satisfied by any prior payment
thereof and/or cancellation of this Agreement, but shall remain a valid and
binding obligation enforceable in accordance with the terms and provisions
hereof. The Company waives all right to require the Secured Party to proceed
against any other Person or to apply any Collateral which the Secured Party may
hold at any time, or to pursue any other remedy. The Company waives any defense
arising by reason of the application of the statute of limitations to any
obligation secured hereby. 

          7.      Indemnity.
The Company agrees to defend, protect, indemnify and hold the Secured Party
forever harmless from and against any and all Claims of any nature or kind
(including reasonable legal fees, costs, expenses, and disbursements of counsel)
to the extent that they arise out of, or otherwise result from, this Agreement
(including, enforcement of this Agreement). This indemnity shall survive
termination of this Agreement. 

     8.      Miscellaneous.

                    (a)     
Performance for Company. The Company agrees and hereby authorizes that
Secured Party may, in Secured Party’s sole discretion, but Secured Party shall
not be obligated to, whether or not an Event of Default shall have occurred,
advance funds on behalf of the Company, without prior notice to the Company, in
order to insure the Company’s compliance with any covenant, warranty,
representation or agreement of the Company made in or pursuant to this
Agreement, the Purchase Agreement, or any other Transaction Documents, to
continue or complete, or cause to be continued or completed, performance of the
Company’s obligations under any Contracts of the Company, or to preserve or
protect any right or interest of Secured Party in the Collateral or under or
pursuant to this Agreement, the Purchase Agreement or any other Transaction
Documents, including, the payment of any insurance premiums or taxes and the
satisfaction or discharge of any Claim, Obligation, Judgment or any other
Encumbrance upon the Collateral or other property or Assets of Company;
provided, however, that the making of any such advance by Secured Party shall not
constitute a waiver by Secured Party of any Event of Default with respect to
which such advance is made, nor relieve the Company of any such Event of
Default. The Company shall pay to Secured Party upon demand all such advances
made by Secured Party with interest thereon at the highest rate set forth in the
Debenture, or if none is so stated, the highest rate allowed by law. All such
advances shall be deemed to be included in the Obligations and secured by the
security interest granted Secured Party hereunder; provided, however, that the
provisions of this Subsection shall survive the termination of this Agreement
and Secured Party’s security interest hereunder and the payment of all other
Obligations. 

12 

                    (b)      Applications
of Payments and Collateral. Except as may be otherwise specifically provided
in this Agreement or the Purchase Agreement, all Collateral and proceeds of
Collateral coming into Secured Party’s possession and all payments made by any
Person to Secured Party with respect to any Collateral may be applied by Secured
Party (after payment of any amounts payable to the Secured Party pursuant to
Section 5(c) hereof) to any of the Obligations, whether matured or unmatured, as
Secured Party shall determine in its sole, but reasonable discretion. Any
surplus held by the Secured Party and remaining after the indefeasible payment
in full in cash of all of the Obligations shall be paid over to whomsoever shall
be lawfully entitled to receive the same or as a court of competent jurisdiction
shall direct. Secured Party may defer the application of Noncash Proceeds of
Collateral, to the Obligations until Cash Proceeds are actually received by
Secured Party. In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Secured Party is
legally entitled, the Company shall be liable for the deficiency, together with
interest thereon at the highest rate specified in the Debenture for interest on
overdue principal thereof or such other rate as shall be fixed by applicable
law, together with the costs of collection and the reasonable fees, costs,
expenses and other client charges of any attorneys employed by the Secured Party
to collect such deficiency. 

                    (c)      Waivers
by Company. The Company hereby waives, to the extent the same may be waived
under applicable law: (i) notice of acceptance of this Agreement; (ii) all
claims and rights of the Company against Secured Party on account of actions
taken or not taken by Secured Party in the exercise of Secured Party’s rights or
remedies hereunder, under the Purchase Agreement, and other Transaction
Documents or under applicable law; (iii) all claims of the Company for failure
of Secured Party to comply with any requirement of applicable law relating to
enforcement of Secured Party’s rights or remedies hereunder, under the Purchase
Agreement, under any other Transaction Documents or under applicable law; (iv)
all rights of redemption of the Company with respect to the Collateral; (v) in
the event Secured Party seeks to repossess any or all of the Collateral by
judicial proceedings, any bond(s) or demand(s) for possession which otherwise
may be necessary or required; (vi) presentment, demand for payment, protest and
notice of non-payment and all exemptions applicable to any of the Collateral or
the Company; (vii) any and all other notices or demands which by applicable law
must be given to or made upon the Company by Secured Party; (viii) settlement,
compromise or release of the obligations of any Person primarily or secondarily
liable upon any of the Obligations; (ix) all rights of the Company to demand
that Secured Party release account debtors or other Persons liable on any of the
Collateral from further obligation to Secured Party; and (x) substitution,
impairment, exchange or release of any Collateral for any of the Obligations.
The Company agrees that Secured Party may exercise any or all of its rights
and/or remedies hereunder, under the Purchase Agreement, the other Transaction
Documents and under applicable law without resorting to and without regard to
any Collateral or sources of liability with respect to any of the Obligations.
Upon termination of this Agreement and Secured Party’s security interest
hereunder and payment of all Obligations, within ten (10) business days
following the Company’s request to Secured Party, Secured Party shall release
control of any security interest in the Collateral perfected by control and
Secured Party shall send Company a statement terminating any financing statement
filed against the Collateral. 

13 

                    (d)     
Waivers by Secured Party. No failure or any delay on the part of Secured
Party in exercising any right, power or remedy hereunder, under this Agreement,
the Purchase Agreement, and other Transaction Documents or under applicable law,
shall operate as a waiver thereof. 

                    (e)      Secured
Party’s Setoff. Secured Party shall have the right, in addition to all other
rights and remedies available to it, following an Event of Default, to set off
against any Obligations due Secured Party, any debt owing to the Company by
Secured Party. 

                    (f)     
Modifications, Waivers and Consents. No modifications or waiver of any
provision of this Agreement, the Purchase Agreement, or any other Transaction
Documents, and no consent by Secured Party to any departure by the Company
therefrom, shall in any event be effective unless the same shall be in writing,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given, and any single or partial written waiver by
Secured Party of any term, provision or right of Secured Party hereunder shall
only be applicable to the specific instance to which it relates and shall not be
deemed to be a continuing or future waiver of any other right, power or remedy.
No notice to or demand upon the Company in any case shall entitle Company to any
other or further notice or demand in the same, similar or other circumstances.

                    (g)      Notices.
All notices of request, demand and other communications hereunder shall be
addressed to the parties as follows: 

	 	If to the Company: 	American Natural Energy Corporation 
	 	  	6100 South Yale Ave., Suite 2010 
	 	  	Tulsa, Oklahoma 74136 
	 	  	Attn: Mr. Michael Paulk, CEO 
	 	  	Telephone: (918) 481-1440 
	 	  	Facsimile: (918) 481-1473 
	 	  	E-Mail: Mike@annrg.com
      and Steve@annrg.com 
	 	  	  
	 	With a copy to: 	Ira “Buddy” Edwards 
	 	  	Riggs, Abney, Neal, Turpen, Orbison & Lewis
    
	 	  	502 West Sixth Street 
	 	  	Tulsa, Oklahoma 74119-1010 
	 	  	Telephone: 918-699-8979 
	 	  	Fax: 918-587-9708 
	 	  	E-Mail: bedwards@riggsabney.com 
	 	  	  
	 	If to the Secured Party: 	TCA Global Credit Master Fund, LP 
	 	  	1404 Rodman Street 
	 	  	Hollywood, FL 33020 
	 	  	Attn: Mr. Robert Press 
	 	  	Telephone: (786) 323-1650 
	 	  	Facsimile: (786) 323-1651 
	 	  	E-Mail: bpress@trafcap.com 
	 	  	  
	 	With a copy to: 	David Kahan, P.A. 
	 	  	3125 W. Commercial Blvd., Suite 100 
	 	  	Ft, Lauderdale, FL 33309 

14 

	 	Attn: David Kahan, Esq. 
	 	Telephone: (954) 548-3930 
	 	Facsimile: (954) 548-3910 
	 	E-Mail: david@dkpalaw.com 

unless the address is changed by the party by like notice given
to the other parties. Notice shall be in writing and shall be deemed delivered:
(i) if mailed by certified mail, return receipt requested, postage prepaid and
properly addressed to the address below, then three (3) business days after
deposit of same in a regularly maintained U.S. Mail receptacle; or (ii) if
mailed by Federal Express, UPS or other nationally recognized overnight courier
service, next business morning delivery, then one (1) business day after deposit
of same in a regularly maintained receptacle of such overnight courier; or (iii)
if hand delivered, then upon hand delivery thereof to the address indicated on
or prior to 5:00 p.m., EST, on a business day. Any notice hand delivered after
5:00 p.m., EST, shall be deemed delivered on the following business day.
Notwithstanding the foregoing, notice, consents, waivers or other communications
referred to in this Debenture may be sent by facsimile, e-mail, or other method
of delivery, but shall be deemed to have been delivered only when the sending
party has confirmed (by reply e-mail or some other form of written confirmation)
that the notice has been received by the other party. 

                    (h)     
Applicable Law and Consent to Jurisdiction. This Agreement shall be
construed in accordance with the laws of the State of Florida, without regard to
the principles of conflicts of laws, except to the extent that the validity and
perfection or the perfection and the effect of perfection or non-perfection of
the security interest created hereby, or remedies hereunder, in respect of any
particular Collateral are governed under the Code by the law of a jurisdiction
other than the State of Florida, in which case such issues shall be governed by
the laws of the jurisdiction governing such issues under the Code. The parties
further agree that any action between them shall be heard in Broward County,
Florida and expressly consent to the jurisdiction and venue of the State Court
sitting in Broward County, Florida and the United States District Court for the
Southern District of Florida for the adjudication of any civil action asserted
pursuant to this Agreement, provided, however, that nothing herein shall prevent
from bringing suit or taking legal action in any other jurisdiction. By its
execution hereof, the Company hereby irrevocably waives any objection and any
right of immunity on the ground of venue, the convenience of the forum or the
jurisdiction of such courts or from the execution of judgments resulting
therefrom. The Company hereby irrevocably accepts and submits to the
jurisdiction of the aforesaid courts in any such suit, action or proceeding.

                    (i)     
Survival: Successors and Assigns. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery hereof, shall survive Closing and shall continue in full force and
effect until all Obligations have been paid in full, there exists no commitment
by Secured Party which could give rise to any Obligations and all appropriate
termination statements have been filed terminating the security interest granted
Secured Party hereunder. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party. In the event that Secured Party assigns this Agreement
and/or its security interest in the Collateral, Secured Party shall give written
notice to the Company of any such assignment and such assignment shall be
binding upon and recognized by the Company. All covenants, agreements,
representations and warranties by or on behalf of the Company which are
contained in this Agreement shall inure to the benefit of Secured Party, its
successors and assigns. The Company may not assign this Agreement or delegate
any of its rights or obligations hereunder, without the prior written consent of
Secured Party, which consent may be withheld in Secured Party’s sole and
absolute discretion. 

15 

                    (j)      Severability.
If any term, provision or condition, or any part thereof, of this Agreement
shall for any reason be found or held invalid or unenforceable by any court or
governmental authority of competent jurisdiction, such invalidity or
unenforceability shall not affect the remainder of such term, provision or
condition nor any other term, provision or condition, and this Agreement shall
survive and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein. 

                    (k)      Merger
and Integration. This Agreement and the attached Schedules (if any),
together with the Purchase Agreement and the other Transaction Documents,
contain the entire agreement of the parties hereto with respect to the matters
covered and the transactions contemplated hereby and thereby, and no other
agreement, statement or promise made by any party hereto or thereto, or by any
employee, officer, agent or attorney of any party hereto, which is not contained
herein or therein shall be valid or binding. 

                    (l)      WAIVER
OF JURY TRIAL. THE COMPANY HEREBY: (a) COVENANTS AND AGREES NOT TO ELECT A
TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY; AND (b) WAIVES TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY AND SECURED PARTY MAY BE
PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS
AGREEMENT, THE PURCHASE AGREEMENT AND/OR ANY TRANSACTIONS, OCCURRENCES,
COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING
IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD
AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS SECURITY AGREEMENT. THIS WAIVER OF JURY
TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE
COMPANY AND THE COMPANY HEREBY AGREES THAT NO REPRESENTATIONS OF FACT OR OPINION
HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN
ANY WAY MODIFY OR NULLIFY ITS EFFECT. SECURED PARTY IS HEREBY AUTHORIZED TO
SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER
AND THE COMPANY AND SECURED PARTY, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH
WAIVER OF RIGHT TO TRIAL BY JURY. THE COMPANY REPRESENTS AND WARRANTS THAT IT
HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS
WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT
IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. 

                    (m)     
Execution. This Agreement may be executed in one or more counterparts,
all of which taken together shall be deemed and considered one and the same
Agreement, and same shall become effective when counterparts have been signed by
each party and each party has delivered its signed counterpart to the other
party. In the event that any signature is delivered by facsimile transmission or
by e-mail delivery of a “.pdf” format file or other similar format file, such
signature shall be deemed an original for all purposes and shall create a valid
and binding obligation of the party executing same with the same force and
effect as if such facsimile or “.pdf” signature page was an original thereof.

                    (n)      Headings.
The headings and sub-headings contained in the titling of this Agreement are
intended to be used for convenience only and shall not be used or deemed to
limit or diminish any of the provisions hereof. 

16 

                    (o)     
Termination. This Agreement and the security interests hereunder shall
terminate on the date on which all Obligations have been indefeasibly paid or
discharged in full. Upon such termination, the Secured Party, at the request and
at the expense of the Company, will join in executing any termination statement
with respect to any financing statement executed and filed pursuant to this
Agreement. 

                    (p)      Gender
and Use of Singular and Plural. All pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identity of the party or
parties or their personal representatives, successors and assigns may require.

                    (q)     
Further Assurances. The parties hereto will execute and deliver such
further instruments and do such further acts and things as may be reasonably
required to carry out the intent and purposes of this Agreement. 

                    (r)     
Time is of the Essence. The parties hereby agree that time is of the
essence with respect to performance of each of the parties’ obligations under
this Agreement. The parties agree that in the event that any date on which
performance is to occur falls on a Saturday, Sunday or state or national
holiday, then the time for such performance shall be extended until the next
business day thereafter occurring. 

                    (s)      Joint
Preparation. The preparation of this Agreement has been a joint effort of
the parties and the resulting documents shall not, solely as a matter of
judicial construction, be construed more severely against one of the parties
than the other. 

                    (t)      Increase
in Obligations. It is the intent of the parties to secure payment of the
Obligations, as the amount of such Obligations may increase from time to time in
accordance with the terms and provisions of the Purchase Agreement, and all of
the Obligations, as so increased from time to time, shall be and are secured
hereby. Upon the execution hereof, the Company shall pay any and all documentary
stamp taxes and/or other charges required to be paid in connection with the
execution and enforcement of the Purchase Agreement and this Agreement, and if,
as and to the extent the Obligations are increased from time to time in
accordance with the terms and provisions of the Debenture, then the Company
shall immediately pay any additional documentary stamp taxes or other charges in
connection therewith. 

[Signatures on the following page] 

17 

          IN
WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the
day and year first above written. 

	 	COMPANY: 
	 	 
		AMERICAN NATURAL ENERGY
      CORPORATION 
	 	 
	 	By: /s/ Michael Paulk 
	 	Name: Michael Paulk 
	 	Title: President 
	 	 
	 	Date: 1/31/12 
	 	 
	 	 
	 	SECURED PARTY: 
	 	 
		TCA GLOBAL CREDIT MASTER FUND, LP
    
	 	 
		By: TCA Global Credit Fund GP, Ltd., its
      general partner 
	 	 
	 	By: /s/ Robert Press 
	 	Name: Robert Press 
	 	Title: Director 
	 	 
	 	Date: 1/31/12 

18American Natural Energy Corporation  - Exhibit 10.7 - Filed by newsfilecorp.com

Exhibit 10.7 

State of Louisiana 

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

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

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

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

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

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

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

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

  Ft. Lauderdale, Florida 33309 

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

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

WITNESSETH:

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

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

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

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

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

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

          (d)     
All tenements, hereditaments, appurtenances and properties in anywise
appertaining, belonging, affixed or incidental to the Leases, properties,
rights, titles, interests and estates described or referred to in subparagraphs
(a) and (b) and (c) above, which are now owned or which may hereafter be
acquired by Mortgagor, including, without limitation, any and all property, real
or personal, now owned or hereafter acquired and situated upon, used, held for
use, or useful in connection with the operating, working or development of any
of such Leases or properties and including any and all oil wells, gas wells,
injection wells or other wells of any nature or kind relating to or within the
lands described in the Leases, buildings, structures, field separators, liquid
extraction plants, plant compressors, pumps, pumping units, field gathering
systems, tanks and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, meters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements and servitudes together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing properties;

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

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

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

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

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

4 

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

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

5 

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

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

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

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

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

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

6 

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

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

ARTICLE I. 

  OBLIGATIONS SECURED

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

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

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

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

7 

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

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

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

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

ARTICLE II. 

  REPRESENTATIONS, WARRANTIES AND COVENANTS

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

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

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

8 

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

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

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

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

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

9 

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

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

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

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

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

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

10 

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

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

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

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

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

11 

ARTICLE III. 
ASSIGNMENT OF RUNS

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

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

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

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

12 

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

ARTICLE IV. 
DEFEASANCE 

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

ARTICLE V. 

  REMEDIES IN EVENT OF DEFAULT

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

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

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

13 

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

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

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

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

14 

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

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

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

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

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

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

  

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

15 

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

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

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

ARTICLE VI. 

  SECURITY AGREEMENT

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

16 

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

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

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

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

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

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

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

17 

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

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

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

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

ARTICLE VII. 

  MISCELLANEOUS PROVISIONS

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

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

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

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

18 

          7.5.     
If any provision hereof is invalid or unenforceable in any jurisdiction, the
other provisions hereof shall remain in full force and effect in such
jurisdiction, and the remaining provisions hereof shall be liberally construed
in favor of the Mortgagee in order to effectuate the provisions hereof, and the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of any such provision in any other
jurisdiction.

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

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

19 

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

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

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

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

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

NOTICE: THIS DOCUMENT, THE TRANSACTION DOCUMENTS AND ALL
OTHER DOCUMENTS RELATING TO THIS LOAN TOGETHER CONSTITUTE A WRITTEN PURCHASE
AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES RELATING TO THIS LOAN. 

[Signatures on the following page] 

20 

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

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

STATE OF OKLAHOMA 

COUNTY OF TULSA 

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

          My
commission expires: 1-30-14. 

Delores Lack 
Notary Public

[AFFIX SEAL] 

 

 

THIS INSTRUMENT PREPARED BY: 

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

Ft. Lauderdale, Florida 33309 

21 

EXHIBIT “A” 

DEFINITIONS: 

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

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

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

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

Northwest Quarter NW, NWI4 or NW1/4;

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

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

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

A-1 

SYMBOLS AND ABBREVIATIONS: 

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

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

DESCRIPTION OF LEASES 

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

A-2 

Schedule of Leases 

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

A-3

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