AMENDED AND RESTATED MORTGAGE DEED OF TRUST, SECURITY AGREEMENT

AMENDED AND RESTATED

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION FROM PETROL OIL AND GAS, INC., AS MORTGAGOR (“PETROL”),

NEODESHA PIPELINE, INC., AS MORTGAGOR (“NEODESHA”)

AND COAL CREEK PIPELINE INC., AS MORTGAGOR (“COAL CREEK”)

(PETROL, NEODESHA AND COAL CREEK, COLLECTIVELY, “MORTGAGORS”)

TO LAURUS MASTER FUND, LTD., AS MORTGAGEE

DATED: OCTOBER 31, 2005

THIS MORTGAGE IS, AMONG OTHER THINGS, A FINANCING STATEMENT UNDER THE UNIFORM COMMERCIAL CODE COVERING MINERALS, AS-EXTRACTED COLLATERAL AND THE LIKE (INCLUDING OIL AND GAS), ACCOUNTS RESULTING FROM THE SALE OF MINERALS, AS EXTRACTED COLLATERAL AND THE LIKE (INCLUDING OIL AND GAS), AND GOODS WHICH ARE, OR ARE TO BECOME, FIXTURES ON THE REAL/UNMOVABLE PROPERTY HEREIN DESCRIBED. THE OIL AND GAS INTERESTS OR ACCOUNTS INCLUDED IN THE MORTGAGED PROPERTY WILL BE FINANCED AT THE WELLHEADS LOCATED ON THE REAL/UNMOVABLE PROPERTY DESCRIBED IN EXHIBIT A ATTACHED HERETO. THIS MORTGAGE IS TO BE RECORDED IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE COUNTY OR PARISH RECORDER OF EACH COUNTY OR PARISH IN EACH STATE IN WHICH IS SITUATED ANY OF THE COLLATERAL COVERED HEREBY. THE REAL/UNMOVABLE PROPERTY SUBJECT HERETO IS DESCRIBED IN EXHIBIT A ATTACHED HERETO.

THIS MORTGAGE CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

MORTGAGORS OWN A RECORD INTEREST IN THE MORTGAGED PROPERTY.

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

EMPLOYER IDENTIFICATION NUMBER OF PETROL: 90-0066187

EMPLOYER IDENTIFICATION NUMBER OF NEODESHA: 20-2746356

EMPLOYER IDENTIFICATION NUMBER OF COAL CREEK: 20-3684935

ORGANIZATIONAL IDENTIFICATION NUMBER OF PETROL: NVC5970-2000

ORGANIZATIONAL IDENTIFICATION NUMBER OF NEODESHA: NVC35767-04

ORGANIZATIONAL IDENTIFICATION NUMBER OF COAL CREEK: NVE0691432005-5

 

 

 

 

 

 

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION

THIS MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION (this “ Mortgage ”) is from PETROL OIL AND GAS, INC., a Nevada corporation, as Mortgagor (“ Petrol ”), Neodesha Pipeline, Inc., a Nevada corporation, as Mortgagor (“ Neodesha ”) and Coal Creek Pipeline, Inc., a Nevada corporation, as Mortgagor (“ Coal Creek ” together with Petrol and Neodesha, each a “ Mortgagor ” and collectively, “ Mortgagors ”), to LAURUS MASTER FUND, LTD., a Cayman Islands company (“ Mortgagee ”), or, alternatively, to N/A as Trustee (“ Trustee ”) for the benefit of Mortgagee. The addresses of Mortgagors and Mortgagee are set forth in Section 7.14 hereof.

RECITALS.:

WHEREAS, Petrol entered into a Mortgage, Deed of Trust, Security Agreement, Financing Statement and Assignment of Production dated November 3, 2004 in favor of Mortgagee (the “ Original Mortgage ”).

WHEREAS, in order to secure the Secured Indebtedness (defined below), each Mortgagor has agreed to execute and deliver this Mortgage pursuant to which, among other things, the Mortgaged Property (defined below) is granted and assigned by such Mortgagor to Mortgagee to further secure the Secured Indebtedness (defined below).

NOW, THEREFORE, in consideration of the sum of $10.00 and other good and valuable consideration, in hand paid by Mortgagee, the receipt and adequacy of which are hereby acknowledged and confessed by each Mortgagor, each Mortgagor hereby agrees as follows:

ARTICLE I

DEFINITIONS

1.1           Certain Defined Terms . For all purposes of this Mortgage, unless the context otherwise requires:

“ Accounts and Contract Rights ” shall mean all accounts (including accounts in the form of joint interest billings under applicable operating agreements), contract rights and general intangibles of each Mortgagor now or hereafter existing, or hereafter acquired by, or on behalf of, such Mortgagor, or such Mortgagor’s successors in interest, relating to or arising from the ownership, operation and development of the Mortgaged Property and to the production, processing, treating, sale, purchase, exchange or transportation of Hydrocarbons (defined below) produced or to be produced from or attributable to the Mortgaged Property or any units or pooled interest units in which all or a portion of the Mortgaged Property forms a part, together with all accounts and proceeds accruing to each Mortgagor attributable to the sale of Hydrocarbons produced from the Mortgaged Property or any units or pooled interest units in which all or a portion of the Mortgaged Property forms a part.

“ Article ” shall mean and refer to an Article of this Mortgage, unless specifically indicated otherwise.

 

 

 

 

 

 

 

“ Code ” shall mean the Uniform Commercial Code in effect in each of the jurisdictions where the Mortgaged Property or a portion thereof is situated.

“ Credit Agreements ” shall mean, collectively, each Securities Purchase Agreement and the other Related Agreements as defined therein, and “ Credit Agreement ” shall mean any one of the foregoing.

“ Effective Date ” shall mean November 3, 2004.

“ Event of Default ” shall mean the occurrence of any breach by any Mortgagor of any term or provision of this Mortgage or the occurrence of any Event of Default under and as defined in the applicable Credit Agreement.

“ Exhibit A ” shall mean, unless specifically indicated otherwise, Exhibit A attached hereto and incorporated herein by reference for all purposes.

“ Gas Balancing Agreement ” means any agreement or arrangement whereby any Mortgagor, or any other party having an interest in any Hydrocarbons to be produced from Mineral Interests in which any Mortgagor owns an interest, has a right or an obligation to take more or less than its proportionate share of production therefrom.

“ Guaranties ” shall mean, collectively, each Guaranty dated as of the date hereof executed by any Mortgagor in favor of Mortgagee pursuant to which such Mortgagor guaranteed all debts, liabilities and obligations of Petrol to Mortgagee, as the same may be amended, modified and supplemented from time to time.

“ Guaranty Agreements ” shall mean, collectively, the Guaranties and all the other documents, instruments and agreements executed in connection therewith, as each of the same may be amended, modified and supplemented from time to time.

“ Guaranty Obligations ” shall mean all present and future indebtednesses of each Mortgagor arising pursuant to any Guaranty Agreement.

“ Hydrocarbons ” shall mean oil, gas, coalbed methane gas, casinghead gas, drip gasolines, natural gasoline, condensate, distillate, as-extracted collateral and all other liquid or gaseous hydrocarbons produced or to be produced in conjunction therewith, and all products, byproducts and all other substances derived therefrom or the processing thereof, and all other minerals and substances, including, but not limited to, sulphur, lignite, coal, uranium, thorium, iron, geothermal steam, water, carbon dioxide, helium and any and all other minerals, ores, or substances of value and the products and proceeds therefrom, including, without limitation, all gas resulting from the in-situ combustion of coal or lignite.

“ Lands ” shall mean the lands described in Exhibit A and shall include any lands, the description of which is contained in Exhibit A or incorporated in Exhibit A by reference to another instrument or document, including, without limitation, all lands described in the Oil and Gas Leases listed on Exhibit A hereto, and shall also include any lands now or hereafter unitized, pooled, spaced or otherwise combined, whether by statute, order, agreement, declaration or otherwise, with lands the description of which is contained in Exhibit A or is incorporated in Exhibit A by reference.

 

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“ Lien ” shall mean any mortgage, deed of trust, collateral assignment, lien, pledge, charge, security interest or other encumbrance.

“ Loans ” shall mean collectively, all amounts advanced by the Mortgagee to each Mortgagor under the Note and the Credit Agreements.

“ Material Adverse Effect ” shall mean a material adverse effect on (a) the assets, liabilities, financial condition, results of operations or prospects of any Mortgagor, (b) the right or ability of any Mortgagor to fully, completely and timely perform its obligations under the Credit Agreements, or (c) the validity or enforceability of any Credit Agreement against any Mortgagor, or the rights or remedies of Mortgagee thereunder.

“ Mortgaged Property ” shall have the meaning stated in Article 2 of this Mortgage.

“ Net Revenue Interest ” shall mean each Mortgagor’s share of all Hydrocarbons produced from the Lands, after deducting the appropriate proportionate part of all lessors’ royalties, overriding royalties, production payments and other payments out of or measured by production which burden such Mortgagor’s share of all such production, subject to non-consent provisions contained in joint operating agreements.

“ Note ” shall have the meaning set forth in the Credit Agreements.

“ Obligations ” shall mean all present and future indebtedness, obligations and liabilities (including, without limitation all Guaranty Obligations), and all renewals, refinancings and extensions thereof, or any part thereof, of each Mortgagor to Mortgagee arising pursuant to any of the Credit Agreements, or arising pursuant to any commodity, interest rate, currency or other swap, option, collar, futures contract or other contract pursuant to which a Person hedges risks related to commodity prices, interest rates, currency exchange rates, securities prices or financial market conditions and any other commodity price hedging agreements by and between any Mortgagor and Mortgagee and all interest accrued on any of the foregoing, and reasonable costs, expenses, and attorneys’ fees incurred in the enforcement or collection thereof, regardless of whether such indebtedness, obligations and liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated, joint, several or joint and several.

“ October 2004 Securities Purchase Agreement ” shall mean the Securities Purchase Agreement dated as of October 28, 2004 between Petrol and Mortgagee, as amended, modified and supplemented from time to time.

“ October 2005 Securities Purchase Agreement ” shall mean the Securities Purchase Agreement dated as of the date hereof between Petrol and Mortgagee, as amended, modified and supplemented from time to time.

“ Oil and Gas Leases ” shall mean oil, gas and mineral leases, oil and gas leases, oil leases, gas leases, other mineral leases, subleases, top leases, any rights resulting in an ownership interest in Hydrocarbons and all operating rights relating to any of the foregoing (whether operated by virtue of such leases, or assignments

 

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or applicable operating agreements), and all other interests pertaining to any of the foregoing, including, without limitation, all royalty and overriding royalty interests, production payments and net profit interests, production payments and net profit interests, mineral fee interests, and all reversionary, remainder, carried and contingent interests relating to any of the foregoing and all other rights therein which are described and/or to which reference may be made on Exhibit A .

“ Operating Equipment ” shall mean all Personal Property and fixtures affixed or situated upon all or any part of the Mortgaged Property, including, without limitation, all surface or subsurface machinery, equipment, facilities or other property of whatsoever kind or nature now or hereafter located on any of the Lands which are useful for the production, treatment, storage or transportation of oil or gas, including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, rods, pumping units and engines, Christmas trees, derricks, separators, gun barrels, flow lines, tanks, gas systems (for gathering, treating and compression), water systems (for treating, disposal and injection), power plants, poles, lines, transformers, starters and controllers, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading racks and shipping facilities.

“ Permitted Encumbrances ” shall mean with respect to the Mortgaged Property:

(a)

Liens securing the obligations;

(b)          minor defects in title which do not secure the payment of money and otherwise have no material adverse effect on the value or operation of the subject property, including, without limitation, easements, rights-of-way, servitudes, permits, surface leases, and other similar rights in respect of surface operations, and easements for pipelines, streets, alleys, highways, telephone lines, power lines, railways and other easements and rights-of-way, on, over or in respect of any of the properties of any Mortgagor that are customarily granted in the oil and gas industry;

(c)          inchoate statutory or operators’ Liens securing obligations for labor, services, materials and supplies furnished to Mineral Interests, which are not more than 60 days delinquent;

(d)          mechanic’s, materialman’s, warehouseman’s, journeyman’s and carrier’s Liens, and other similar Liens arising by operation of law in the ordinary course of business, securing obligations which are not more than 60 days delinquent;

(e)          Liens for taxes or assessments not yet due or not yet delinquent, or, if delinquent, that are being contested in good faith in the normal course of business by appropriate action;

(f)           lease burdens payable to third parties which are deducted in the calculation of discounted present value in any reserve report delivered by any Mortgagor pursuant to the Credit Agreements including, without limitation, any royalty, overriding royalty, net profits interest, production payment, carried interest or reversionary working interest; and

 

 

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(g)          Liens, charges and encumbrances upon any Mortgagor’s assets, other than Proved Mineral Interests, which in the aggregate do not have a value in excess of $50,000.

“ Person ” shall mean any individual, corporation, partnership, limited liability company, association, trust, other entity or organization, or any court or governmental department, commission, board, bureau, agency, or instrumentality of any nation or of any province, state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereafter constituted or existing.

“ Personal Property ” shall mean that portion of the Mortgaged Property that is personal property.

“ Proved Mineral Interests ” shall mean, collectively, Proved Producing Mineral Interests, Proved Nonproducing Mineral Interests, and Proved Undeveloped Mineral Interests.

“ Proved Nonproducing Mineral Interests ” shall mean all Subject Interests which constitute proved developed nonproducing reserves.

“ Proved Producing Mineral Interests ” shall mean all Subject Interests which constitute proved developed producing reserves.

“ Proved Undeveloped Mineral Interests ” shall mean all Subject Interests which constitute proved undeveloped reserves.

“ Section ” shall mean and refer to a section of this Mortgage, unless specifically indicated otherwise.

“ Secured Indebtedness ” shall have the meaning stated in Article 3 of this Mortgage.

“ Securities Purchase Agreements ” means, collectively, the October 2004 Securities Purchase Agreement and the October 2005 Securities Purchase Agreement, as each may be amended, modified and supplemented from time to time.

“ Subject Interests ” shall have the meaning stated in Article 2 of this Mortgage.

“ Subsidiary ” shall mean, for any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions (including that of a general partner) are at the time directly or indirectly owned, collectively, by such Person and any Subsidiaries of such Person. “Subsidiary” shall include Subsidiaries of Subsidiaries (and so on).

“ Well Data ” shall mean all logs, drilling reports, division orders, transfer orders, operating agreements, contracts and other agreements, abstracts, title opinions, files, records, seismic data, memoranda and other information in the possession or control of any Mortgagor or to which any Mortgagor has access relating to the Lands and/or any wells located thereon.

 

 

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1.2           Other Terms . Unless otherwise defined or indicated herein, all terms with their initial letter capitalized shall have the meaning given such terms in the Securities Purchase Agreements.

ARTICLE II

GRANTING CLAUSE: MORTGAGED PROPERTY

For and in consideration of the sum of $10.00 and other good and valuable consideration, in hand paid by Mortgagee, the receipt and adequacy of which are hereby acknowledged and confessed by each Mortgagor, and for and in consideration of the debt and purposes hereinafter set forth, to secure the full and complete payment and performance of the Secured Indebtedness and to secure the performance of the covenants, obligations, agreements and undertakings of each Mortgagor hereinafter described, Petrol hereby acknowledges, confirms and agrees that Mortgagee has and shall continue to have a security interest in all of the Mortgaged Property heretofore granted by Petrol to Mortgagee pursuant to the Original Mortgage and each Mortgagor has GRANTED, BARGAINED, WARRANTED, MORTGAGED, ASSIGNED, TRANSFERRED and CONVEYED, and by these presents does GRANT, BARGAIN, WARRANT, MORTGAGE, ASSIGN, TRANSFER and CONVEY (a) unto Mortgagee and Mortgagee’s substitutes or successors, and its and their assigns, or (b) alternatively, with respect to Kansas and any other jurisdiction wherein a portion of the Mortgaged Property is situated that does not recognize, permit or require any Mortgagor to mortgage or convey the Mortgaged Property to Mortgagee for the benefit of Mortgagee, then, with respect to the Mortgaged Property located in Kansas and such other jurisdiction, unto Mortgagee and Mortgagee’s successors in title and assigns, with power of sale (to the extent permitted by applicable law), as herein provided, for the uses and purposes herein set forth, with warranties and covenants of title only to the extent provided herein and in the Credit Agreements, all of such Mortgagor’s right, title and interest, whether now owned or hereafter acquired, in all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of equipment, general intangibles, accounts, contract rights, inventory, goods, chattel paper, instruments, documents, money, fixtures, asextracted collateral, proceeds and products of collateral or any other Personal Property of a kind or character defined in or subject to the applicable provisions of the Code, each Mortgagor hereby grants to Mortgagee a security interest therein, whether now owned or hereafter acquired, namely:

(a)          all of those certain Oil and Gas Leases and Lands (all such Oil and Gas Leases and Lands being herein called the “ Subject Interests ,” as hereinafter further defined) which are described in Exhibit A and/or to which reference may be made in Exhibit A and/or which are covered by any of the leases described on Exhibit A , which Exhibit A is made a part of this Mortgage for all purposes, and is incorporated herein by reference as fully as if copied at length in the body of this Mortgage at this point;

(b)          all rights, titles, interests and estates now owned or hereafter acquired by each Mortgagor in and to (i) any and all properties now or hereafter pooled or unitized with any of the Subject Interests, and (ii) all presently existing or future operating agreements and unitization, communitization and pooling agreements and the units operated thereby to the extent the same relate to all or any part of the Subject Interests, including, without limitation, all units formed under or pursuant to any applicable laws (the rights, titles, interests and estates described in this clause (b) also being included within the term “Subject Interests” as used herein);

 

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(c)          all presently existing and future agreements entered into between each Mortgagor and any third party that provide for the acquisition by such Mortgagor of any interest in any of the properties or interests specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A ;

(d)          the Hydrocarbons (including inventory) which are in, under, upon, produced or to be produced from or attributable to the Lands from and after the Effective Date;

	(e)	the Accounts and Contract Rights;
	(f)	the Operating Equipment;
	(g)	the Well Data;

(h)          the rights and security interests of each Mortgagor held by such Mortgagor to secure the obligation of the first purchaser to pay the purchase price of the Hydrocarbons;

(i)           all surface leases, rights-of-way, franchises, easements, servitudes, licenses, .privileges, tenements, hereditaments and appurtenances now existing or in the future obtained in connection with any of the aforesaid, and all other items of value and incident thereto which each Mortgagor may, at any time, have or be entitled; and

(j)           all and any different and additional rights of any nature, of value or convenience in the enjoyment, development, operation or production, in any way, of any property or interest included in any of the foregoing clauses, and in all revenues, income, rents, issues, profits and other benefits arising therefrom or from any contract now in existence or hereafter entered into pertaining thereto, and in all rights and claims accrued or to accrue for the removal by anyone of Hydrocarbons from, or other act causing damage to, any of such properties or interests.

All the aforesaid properties, rights and interests, together with any and all substitutions, replacements, corrections or amendments thereto, or renewals, extensions or ratifications thereof, or of any instrument relating thereto, and together with any additions thereto which may be subjected to the Lien of this Mortgage by means of supplements hereto, being hereinafter called the “ Mortgaged Property ”.

Subject, however, to (i) Permitted Encumbrances, and (ii) the condition that Mortgagee shall not be liable in any respect for the performance of any covenant or obligation of any Mortgagor with respect to the Mortgaged Property.

TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee and its successors, legal representatives and assigns, forever, subject to Section 7.3 hereof, to secure, in each such instance, the payment and performance of the Secured Indebtedness and the Obligations.

 

 

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ARTICLE III

SECURED INDEBTEDNESS

This Mortgage is given to secure the Loans and all of the Obligations under and as described in the Credit Agreements, including, without limitation:

(a)          interest on all credit outstanding under the Credit Agreements at the rates provided in the Credit Agreements;

(b)          the Obligations, including, without limitation, the indebtedness evidenced by the Note;

(c)          payment and performance of any and all present and future obligations of each Mortgagor according to the terms of any present or future hedge transaction, including, without limitation, any present or future swap agreements, cap, floor, collar, exchange transaction, forward agreement or other exchange or protection agreements relating to any such transaction now existing or hereafter entered into between any Mortgagor, on the one hand and Mortgagee on the other hand;

(d)          any sums advanced as expenses or costs incurred by, or on behalf of, Mortgagee which are made or incurred pursuant to the terms of this Mortgage or any Credit Agreement, plus interest thereon at the rate set forth in the applicable Note from the date of advance or expenditure until reimbursed; and

(e)          all other and additional debts, obligations and liabilities of every kind and character of each Mortgagor now existing or hereafter arising in connection with any of the Credit Agreements or otherwise (all of the obligations and indebtedness referred to in this Article 3 , and all renewals, refinancings, extensions and modifications thereof, and all substitutions therefor, in whole or in part, are herein sometimes referred to as the “ Secured Indebtedness ”).

ARTICLE IV

COVENANTS, REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF MORTGAGORS

Each Mortgagor hereby covenants, represents, warrants and agrees that:

4.1           Payment of Indebtedness . Such Mortgagor will duly and punctually payor cause to be paid when due all of the Secured Indebtedness.

4.2           Warranties . (a) Such Mortgagor, to the extent of the interests specified in Exhibit A , has good and defensible title, subject to Permitted Encumbrances, to each property right or interest constituting the Mortgaged Property, and has a good and legal right to make the grant and conveyance made in this Mortgage; (b) such Mortgagor’s present Net Revenue Interest in the Mortgaged Property is not less than that specified in Exhibit A and if no interest is specified, includes all its interests however specified in and to the Oil and Gas Leases and Lands described on Exhibit A ; and (c) the Mortgaged Property is free from all Liens other than Permitted Encumbrances. Each Mortgagor will warrant and forever defend (subject to those Permitted Encumbrances described in clauses (b) and (f) of the definition of “Permitted Encumbrances” set

 

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forth above) the Mortgaged Property unto Mortgagee and Mortgagee’s successors, legal representatives and assigns, and Mortgagee and Mortgagee’s successors, legal representatives and assigns, against every Person whomsoever lawfully claiming the same or any part thereof, and such Mortgagor will maintain and preserve the Lien hereby created so long as any of the Secured Indebtedness remains unpaid, except where such failure to comply would not have a Material Adverse Effect.

4.3           Further Assurances . Each Mortgagor will execute and deliver such other and further instruments and will do such other and further acts as in the reasonable discretion of Mortgagee may be necessary or desirable to carry out more effectively the purposes of this Mortgage, including, without limiting the generality of the foregoing, (a) prompt correction of any material defect which may hereafter be discovered in the title to the Mortgaged Property or in the execution and acknowledgment of this Mortgage, any Note, or any other document used in connection herewith or at any time delivered to Mortgagee in connection with any Obligations, and (b) if required by Section 8.1 hereof, prompt execution and delivery of all division or transfer orders that in the reasonable discretion of Mortgagee are needed to transfer effectively the assigned proceeds of production from the Mortgaged Property to Mortgagee.

4.4           Taxes . To the extent and in the manner required by the Credit Agreements, and to the extent not prohibited by applicable law, each Mortgagor will promptly pay, or cause to be paid, all taxes legally imposed upon this Mortgage or upon the Mortgaged Property or upon the interest of Mortgagee therein, or upon the income, profits, proceeds and other revenues thereof.

4.5           Operation of the Mortgaged Property . So long as the Secured Indebtedness or any part thereof remains unpaid:

(a)          Each Mortgagor shall maintain and operate the Subject Interests in a good and workmanlike manner and will observe and comply with all of the terms and provisions, express or implied, of all Oil and Gas Leases relating to the Subject Interests so long as such Oil and Gas Leases are capable of producing Hydrocarbons in paying quantities, except where such failure to comply would not have a Material Adverse Effect;

(b)          Each Mortgagor shall comply with all contracts and agreements applicable to or relating to the Mortgaged Property or the production and sale of Hydrocarbons therefrom, except to the extent a failure to so comply would not have a Material Adverse Effect;

(c)          Each Mortgagor shall, at all times, maintain, preserve and keep all Operating Equipment used with respect to the Mortgaged Property in proper repair, working order and condition, and make all necessary or appropriate repairs, renewals, replacements, additions and improvements thereto so that the efficiency of such Operating Equipment shall at all times be properly preserved and maintained, except where such failure to comply would not have a Material Adverse Effect; provided that no item of Operating Equipment need be so repaired, renewed, replaced, added to or improved, if such Mortgagor shall in good faith determine that such action is not necessary or desirable for the continued efficient and profitable operation of the Subject Interests;

 

 

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(d)          Each Mortgagor shall cause the Mortgaged Property to be kept free and clear of all Liens other than Permitted Encumbrances;

(e)          Each Mortgagor shall comply with the terms of the Credit Agreements with respect to maintenance of insurance. All loss payable clauses or provisions in said policy or policies shall be endorsed in favor of and made payable to Mortgagee, as its interest may appear. Mortgagee shall have the right to collect, and each Mortgagor hereby assigns to Mortgagee, any and all monies that may become payable under any such policies of insurance by reason of damage, loss or destruction of any of the Mortgaged Property, and Mortgagee may, at its election, either apply all or any part of the sums so collected toward payment of the Secured Indebtedness, whether or not such Secured Indebtedness, or any portion thereof, is then due and payable, in such manner as Mortgagee may elect, or release same to Mortgagors; and

(f)           No Mortgagor shall sell, lease, transfer, abandon or otherwise dispose of any portion of the Mortgaged Property or any of such Mortgagor’s rights, titles or interests therein or thereto, except as specifically permitted in the Credit Agreements.

4.6           Recording . Each Mortgagor will promptly and at Mortgagors’ sole cost and expense, record, register, deposit and file this Mortgage and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the Lien hereof as a perfected Lien on real or personal property, as the case may be, subject only to Permitted Encumbrances, and the rights and remedies of Mortgagee, and otherwise will do and perform all matters or things necessary or expedient to be done or observed by reason of any law or regulation of any state or of the United States or of any other competent authority, for the purpose of effectively operating, maintaining and preserving the Lien hereof on the Mortgaged Property.

4.7           Records. Statements and Reports . Each Mortgagor will keep proper books of record and account in which complete and correct entries will be made of such Mortgagor’s transactions in accordance with sound accounting principles consistently applied and will, to the extent required by the Credit Agreements, furnish or cause to be furnished to Mortgagee (a) all reports required under the Credit Agreements, and (b) such other information concerning the business and affairs and financial condition of such Mortgagor as Mortgagee may, from time to time reasonably request.

4.8           No Government Approvals . Each Mortgagor warrants that no approval or consent of any Person is necessary to authorize the execution and delivery of this Mortgage, or any of the other Credit Agreements or the Note, or to authorize the observance or performance by such Mortgagor of the covenants herein or therein contained.

4.9           Right of Entry . Each Mortgagor will permit Mortgagee, or the agents or designated representatives of Mortgagee, to enter upon the Mortgaged Property, and all parts thereof, for the purposes of investigating and inspecting the condition and operation thereof.

The representations and warranties set forth in the Credit Agreement are incorporated herein by reference as if set forth herein, and each such representation and warran