NOTE AGREEMENT
This Note Agreement (this "Agreement") dated as of September 29, 2000, is
entered into by and between BASELINE CAPITAL, INC., ("BaseLine") and ENERGY
PRODUCERS, INC. ("EPI").
In consideration of the Loan described below and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, BaseLine
and EPI agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined
herein, the following terms shall have the meaning set forth with respect
thereto:
A. Hazardous Materials. Hazardous Materials means all materials defined
as hazardous materials or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
B. Deed of Trust. Deed of Trust means that certain Deed of Trust,
Mortgage, Assignment, Security Agreement and Financing Statement of
even date herewith executed by EPI for the benefit of BaseLine and
covering the Subject Properties.
C. Loan. Loan means any loan described in Section 2 hereof.
D. Loan Documents. Loan Documents means this Agreement, the Note (as
hereinafter defined), the Deed of Trust, all other documents referred
to herein and any and all other promissory notes executed by EPI in
favor of BaseLine and all other documents, instruments, guarantees,
certificates, deeds of trust, security agreements and agreements
executed and/or delivered by EPI or third party in connection with any
Loan.
E. Accounting Terms. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such
terms under generally accepted accounting principles ("GAAP"), as in
effect from time to time, consistently applied, with respect to the
financial statements referenced in Section 4.H. hereof.
F. Subject Properties. Subject Properties means all of EPI's interest in
the oil and gas properties described in the Deed of Trust.
2. LOAN.
A. Loan. Subject to the terms and conditions hereof, BaseLine hereby
agrees to make a loan to EPI in the aggregate principal face amount of
$1,050,000.00. The obligation to repay the loans is evidenced by a
promissory note dated of even date herewith in the principal amount of
$1,050,000.00 executed by EPI and payable to the order of BaseLine
(such promissory note together with any and all renewals, extensions
or rearrangements thereof being hereafter collectively referred to as
the "Note"), having a maturity date, repayment terms and interest
rates as set forth in the Note.
3. ASSIGNMENT OF PRODUCTION AND METHOD OF PAYMENT.
A. Delivery of Production Proceeds to BaseLine. Pursuant to the Deed of
Trust, EPI has assigned to BaseLine the production and proceeds of
production from the Subject Properties. EPI shall deliver to each of
the purchasers of production from the Subject Properties a letter in
substantially the same form as that attached hereto as Exhibit A,
requesting that each such purchaser deliver to BaseLine all proceeds
of production from EPI's interests in the Subject Properties. EPI
further agrees that BaseLine shall, and authorizes BaseLine to,
receive such production proceeds and make such distributions therefrom
as provided in this Section 3.
B. Deduction and Distribution of Expenses. Each month upon receipt of the
production proceeds as provided above, BaseLine shall deduct from such
production proceeds and distribute the following amounts: (i) an
amount equal to the monthly total lease operating expenses up to
$5,000 and distribute such amount to the operator of the Subject
Properties, and (ii) $2,000.00 each month to be distributed to
BaseLine as a management fee for services rendered in connection with
the management, administration and operation of EPI's interests in the
Subject Properties.
C. Distribution of Net Production Proceeds. BaseLine shall distribute the
Net Production Proceeds as follows: (i) 80% to BaseLine in payment of
the Note and the obligations under this Agreement and the other Loan
Documents, and (ii) 20% to EPI. EPI further authorizes and directs
BaseLine to deduct from the 20% of Net Production Proceeds
distributable to EPI and pay to the consultant the amount of all
consulting fees payable by EPI under that certain Consulting Agreement
between EPI and ▇▇▇▇ ▇. ▇▇▇▇▇▇ of even date herewith.
4. REPRESENTATIONS AND WARRANTIES. EPI represents and warrants to BaseLine as
follows:
A. Good Standing. EPI is a corporation, duly organized, validly existing
and in good standing under the laws of the state of its incorporation,
and has qualified as a foreign corporation and is in good standing in
each other state or jurisdiction wherein its operations, transaction
of business or ownership of property make such qualification
necessary.
B. Capitalization and Reservation of Shares. EPI has 50 million shares of
common stock authorized, 10,891,812 of which are outstanding as of the
date hereof, and does not have any securities outstanding which are
convertible into shares of common stock. EPI has reserved 2,600,000
shares of its common stock for issuance under the Initial Stock
Options and the Payout Stock Option (as defined herein).
C. Authority and Compliance. EPI has full power and authority to execute
and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly
authorized by all proper and necessary action of the appropriate
governing body of EPI. No consent or approval of any public authority
or other third party is required as a condition to the validity of any
Loan Document, and EPI is in compliance with all laws and regulatory
requirements to which it is subject.
D. Binding Agreement. This Agreement and the other Loan Documents
executed by EPI constitute valid and legally binding obligations of
EPI, as applicable, enforceable in accordance with their terms.
E. Litigation. There is no litigation or similar proceeding involving EPI
pending or, to the knowledge of EPI, threatened before any court or
governmental authority, agency or arbitration authority.
F. No Conflicting Agreements. There is no charter, bylaw, stock
provision, trust provision or other document pertaining to the
organization, power or authority of EPI and no provision of any
existing agreement, mortgage, indenture or contract binding on EPI or
affecting its properties, which would conflict with or in any way
prevent the execution, delivery or carrying out of the terms of this
Agreement and the other Loan Documents.
G. Ownership of Assets. EPI has good and defensible title to its assets,
free and clear of liens, except those granted to BaseLine.
H. Taxes. All taxes and assessments due and payable by EPI has been paid
or are being contested in good faith by appropriate proceedings. EPI
has filed all tax returns which it is required to file.
I. Financial Statements. The financial statements of EPI heretofore
delivered to BaseLine have been prepared on a consistent basis
throughout the period involved and fairly present such party's
financial condition as of the date or dates thereof, and there has
been no material adverse change in its financial condition or
operations since the dates of such financial statements. All factual
information furnished by EPI to BaseLine in connection with this
Agreement and the other Loan Documents is and will be accurate and
complete on the date as of which such information is delivered to
BaseLine and is not and will not be incomplete by the omission of any
material fact necessary to make such information not misleading.
J. Place of Business. EPI's chief executive office is located at ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, Arizona.
K. Environmental. The conduct of EPI's business operations and the
condition of EPI's property does not and will not violate any federal
laws, rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency, any applicable local or state
law, rule, regulation or rule of common law or any judicial
interpretation thereof relating primarily to the environment or
Hazardous Materials.
5. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of EPI under the Loan Documents, EPI will, unless BaseLine
consents otherwise in writing (and without limiting any requirement of any
other Loan Document):
A. Financial Statements and Other Information. Maintain a system of
accounting satisfactory to BaseLine and on a consistent basis
throughout the period involved, permit BaseLine's officers or
authorized representatives to visit and inspect EPI's books of account
and other records at such reasonable times and as often as BaseLine
may desire, and pay the reasonable fees and disbursements of any
accountants or other agents of BaseLine selected by BaseLine for the
foregoing purposes. Unless written notice of another location is given
to BaseLine, EPI's books and records will be located at EPI's chief
executive office set forth above. All financial statements and other
information called for below shall be prepared in form and content
acceptable to BaseLine.
In addition, EPI will:
i. Furnish to BaseLine financial statements (including a balance
sheet and profit and loss statement) of EPI , auditied by a
nationally-recognized independent accounting firm, for each
fiscal year of EPI within 90 days after the close of each such
fiscal year, which shall include a statement of cash flow and
contingent obligations and a report by the auditing accountants.
ii. Furnish to BaseLine unaudited financial statements (including a
liability statement and profit and loss statement) of EPI for
each fiscal quarter of EPI within 45 days after the close of each
such fiscal quarter, which shall include a statement of cash flow
and contingent obligations and a certification by the chief
financial officer of EPI as to accuracy, completeness and
consistent application of GAAP.
iii. Furnish to BaseLine a report showing EPI's production, revenues
and expenses from each of EPI's oil and gas properties within 45
days following the end of each calendar quarter.
iv. Furnish to BaseLine semi-annually on or before March 31st and
October 31st of each year, commencing March 31, 2001, an oil and
gas reserve evaluation as of said dates covering all of EPI's
pledged oil and gas properties, prepared by independent petroleum
engineers selected by EPI and approved by BaseLine.
v. Furnish to BaseLine promptly such additional information, reports
and statements respecting the business operations and financial
condition of EPI, from time to time, as BaseLine may reasonably
request.
B. Insurance. Maintain insurance with responsible insurance companies on
such of its properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same
vicinity, specifically to include fire and extended coverage insurance
covering all assets of EPI, business interruption insurance, workers
compensation insurance and liability insurance, all to be with such
companies and in such amounts as are satisfactory to BaseLine and
providing for at least 30 days prior notice to BaseLine before any
cancellation thereof. Satisfactory evidence of such insurance will be
supplied to BaseLine upon request.
C. Existence and Compliance. Maintain its existence, good standing and
qualification to do business where required and comply with all laws,
regulations and governmental requirements including, without
limitation, environmental laws applicable to it or to any of its
property, business operations and transactions.
D. Adverse Conditions or Events. Promptly advise BaseLine in writing of
(i) any condition, event or act which comes to its attention that
would or might materially adversely affect the financial condition or
operations of EPI or BaseLine's rights under the Loan Documents, (ii)
any litigation filed by or against EPI, (iii) any event that has
occurred that would constitute a default or event of default under any
Loan Document, and (iv) any uninsured or partially uninsured loss
through fire, theft, liability or property damage.
E. Taxes and Other Obligations. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and
payable, except to the extent the same are being contested in good
faith by appropriate proceedings in a diligent manner. Promptly upon
payment and otherwise upon request of BaseLine, EPI shall provide to
BaseLine evidence of payment of all ad valorem and severance taxes
related to the Subject Properties.
F. Maintenance. Maintain all of its tangible property in good condition
and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits,
franchises, certificates and the like necessary for the operation of
its businesses.
G. Environmental. Immediately advise BaseLine in writing of (i) any and
all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting its business operations;
and (ii) all claims made or threatened by any third party against it
relating to damages, contribution, cost recovery, compensation, loss
or injury resulting from any Hazardous Materials. EPI shall
immediately notify BaseLine of any remedial action taken by it with
respect to its business operations. EPI will not use or permit any
other party to use any Hazardous Materials at its places of business
or at any other property owned by it except such materials as are
incidental to its normal course of business, maintenance and repairs
and which are handled in compliance with all applicable environmental
laws. EPI agrees to permit BaseLine, its agents, contractors and
employees to enter and inspect any of its places of business or any
other property at any reasonable times upon three (3) days prior
notice for the purposes of conducting an environmental investigation
and audit (including taking physical samples) to insure compliance
with this covenant and EPI shall reimburse BaseLine on demand for the
costs of any such environmental investigation and audit. EPI shall
provide BaseLine, its agents, contractors, employees and
representatives with access to and copies of any and all data and
documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by its business
operations within five (5) days of the request therefor.
H. Liens on Other Assets. If requested by BaseLine, EPI shall execute and
deliver to BaseLine one or more mortgages, deeds of trust, assignments
of production, security agreements and financing statements in favor
of BaseLine covering material oil and gas properties of EPI selected
by BaseLine, whether now owned or hereafter acquired.
I. Use of Proceeds. EPI will use the proceeds of the Loan for acquiring
the Subject Properties.
J. Title to Property. EPI shall maintain good and defensible title to all
of its assets, free and clear of all liens, claims and other
encumbrances other than liens in favor of BaseLine, and shall provide
to BaseLine evidence of such title upon request.
6. NEGATIVE COVENANTS. Until full payment and performance of all obligations
of EPI under the Loan Documents, EPI will not, without the prior written
consent of BaseLine (and without limiting any requirement of any other Loan
Documents):
A. Transfer of Assets or Control. Sell, lease, assign or otherwise
dispose of or transfer any assets outside the normal course of EPI's
business, or enter into any merger or consolidation, or allow a change
in control of management or operations of EPI or form or acquire any
subsidiary.
B. Liens. Grant, suffer or permit any contractual or noncontractual lien
on or security interest in the Subject Properties, except in favor of
BaseLine, or fail to promptly pay when due all lawful claims, whether
for labor, materials or otherwise.
C. Extensions of Credit, Investments. Make any loan or advance to any
person or entity, or purchase or otherwise acquire, any capital stock,
assets, obligations, or other securities of, make any capital
contribution to, or otherwise invest in or acquire any interest in any
entity, or participate as a partner or joint venturer with any person
or entity, except for those in amounts less than $100,000 and except
for the purchase of direct obligations of the United States or any
agency thereof with maturities of less than one year.
D. Borrowings. Create, incur, assume or become liable in any manner for
any indebtedness (for borrowed money, deferred payment for the
purchase of assets, lease payments, as surety or guarantor for the
debt for another, or otherwise) other than to BaseLine, except for
those amounts less than $250,000 and except for normal trade debts
incurred in the ordinary course of business.
E. Character of Business. Change the general character of its business as
conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
F. Management Change. Make any substantial change in EPI's present
executive or management personnel.
G. Lease Obligations. Have outstanding lease payment obligations
exceeding $50,000 for any fiscal year of EPI.
7. ADDITIONAL AGREEMENTS.
A. Initial Stock Options. As an inducement to enter into this Agreement
and in consideration for BaseLine's prior commitment to enter into
this transaction and for BaseLine otherwise assisting EPI in the
acquisition of the Subject Properties, EPI shall execute and deliver
to Baseline or one or more of its designees contemporaneously with the
execution of this Agreement the following options to purchase common
stock of EPI in a form of option agreement substantially similar to
that attached hereto as Exhibit B (the "Initial Stock Options"):
i. An option or options for 200,000 shares of common stock of EPI at
an exercise price of $0.95 per share, exercisable after the
expiration of six (6) months from the date of this Agreement and
expiring three (3) years thereafter.
ii. An option or options for 200,000 shares of common stock of EPI at
an exercise price of $1.05 per share, exercisable after the
expiration of twelve (12) months from the date of this Agreement
and expiring three (3) years thereafter.
iii. An option or options for 200,000 shares of common stock of EPI at
an exercise price of $1.15 per share, exercisable after the
expiration of eighteen (18) months from the date of this
Agreement and expiring three (3) years thereafter.
B. Back-In Upon Payout. In consideration for BaseLine's prior commitment
to enter into this transaction and for BaseLine otherwise assisting
EPI in the acquisition of the Subject Properties, upon Payout (as
hereinafter defined), Baseline or one or more of its designees shall
be entitled to either (the "Payout Interest") (i) a fifty five percent
(55%) working interest in EPI's Interest in the Subject Properties as
evidenced by an assignment of that interest in substantially the form
attached hereto as Exhibit C (with property descriptions for the
Subject Properties attached thereto), and delivered by EPI to Baseline
upon execution of this Agreement but effective upon Payout (the
"Working Interest Back-In"), or (ii) 2,000,000 shares of common stock
of EPI as evidenced by a stock option in substantially the form
attached hereto as Exhibit D, and delivered by EPI to Baseline upon
execution of this Agreement exercisable upon Payout (the "Payout Stock
Option"), or (c) a proportionate combination of the Working Interest
Back-In and the Payout Stock Option whereby the percentage elected of
one form results in a reduction in the same percentage of the other
form. Upon Payout, BaseLine and/or its designees shall elect the form
of the Payout Interest from the foregoing and shall surrender or
assign, as the case may be, to EPI that portion of the Working
Interest Back-In and/or the Payout Stock Option not included in such
election. As used herein, the term "Payout" means the payment in full
of the principal balance of the Note, and may be conclusively
established by an affidavit of Baseline expressly stating that Payout
has occurred.
C. EPI Stock. (i) A registration statement registering the shares of EPI
common stock subject to the Initial Stock Options under applicable
securities laws shall be filed within six (6) months of the date of
this Agreement resulting in shares being freely tradeable by BaseLine
and its designees. If not so filed within six (6) months, EPI shall
issue to BaseLine or its designees within ten (10) days a total of
600,000 shares of EPI common stock at no cost or expense to BaseLine
or such designees; and if the registration statement is not filed
within twelve (12) months of the date of this Agreement, EPI shall
assign the Subject Properties to BaseLine within ten (10) days. Any
failure to comply with these requirements shall constitute an event of
default hereunder and entitle BaseLine to its remedies hereunder,
under the other Loan Documents and at law, including without
limitation the foreclosure of the Subject Properties.
(ii) A registration statement registering the shares of EPI common
stock subject to the Payout Stock Option under applicable securities
laws shall be filed on or before twenty-four (24) months from the date
of this Agreement resulting in shares being freely tradeable by
BaseLine and its designees. If not so filed within twenty-four (24)
months, it shall constitute an event of default hereunder and entitle
BaseLine to its remedies hereunder, under the other Loan Documents and
at law, including without limitation the foreclosure of the Subject
Properties.
(iii) EPI shall pay all costs and expenses related to any such
registration or other action necessary to cause such shares of EPI
common stock to be freely tradable by Baseline and/or its designees.
Any such costs and expenses paid or advanced by Baseline shall become
part of the obligations hereunder and under the Deed of Trust, secured
by a lien on the Subject Properties pursuant to the Deed of Trust.
D. Participation of Loan. EPI agrees and consents to BaseLine
transferring participation interests in the Loan, including the
Initial Stock Options and the Payout Interest, to participants
selected by BaseLine in its sole discretion. Participated interests
may be held in the name of the participants or in BaseLine's name on
behalf of such participants, and EPI agrees to execute and deliver
such documents and instruments as BaseLine may request in connection
with such participations.
E. Operations Respecting Subject Properties. EPI agrees to include
BaseLine as a party to any operating agreement or related agreement
concerning the Subject Properties for the sole purposes of receiving
copies of all notices to EPI under such agreements and to participate
in any vote, consent or election by EPI under such agreements to the
extent of the amount of the Loan as compared to the total purchase
price for the Subject Properties (the "BaseLine Voting Interest"). EPI
agrees not to take any action on such vote, consent or election
without BaseLine receiving written notice thereof at least twenty (20)
days prior to such vote, consent or election, and EPI further agrees
to cause BaseLine's decision on such matters to control as to the
BaseLine Voting Interest. EPI AGREES TO INDEMNIFY AND HOLD BASELINE
AND THE OTHER BASELINE PARTIES (AS DEFINED HEREIN) HARMLESS AS
PROVIDED IN SECTION 14F HEREOF WITH RESPECT TO OR IN CONNECTION WITH
ANY SUCH OPERATING OR SIMILAR AGREEMENT WHETHER RESULTING FROM THE
ACTION, INACTION OR NEGLIGENCE OF EPI, BASELINE OR ANY THIRD PARTY,
ALL AS MORE FULLY SET FORTH IN SECTION 14F.
F. EPI agrees to pay to BaseLine upon execution of this Agreement the sum
of $36,000 in consideration for consulting and other services provided
by BaseLine to EPI in connection with EPI's acquisition of the Subject
Properties.
8. DEFAULT. EPI shall be in default under this Agreement and under each of the
other Loan Documents (i) if EPI defaults in the payment of any amounts due
and owing under the Note, (ii) if EPI fails to timely and properly observe,
keep or perform any term, covenant, agreement or condition of this
Agreement or in any other Loan Document or in any other loan agreement,
promissory note, security agreement, deed of trust, mortgage, assignment or
other contract securing, guaranteeing or evidencing payment of any
indebtedness of EPI to BaseLine, (iii) if a default or an event of default
shall occur under the Deed of Trust or any other Loan Document, or (iv) if
a default or an event of default shall occur under any operating agreement
or similar agreement effecting the Subject Properties.
9. REMEDIES UPON DEFAULT. If an event of default shall occur, BaseLine shall
have all rights, powers and remedies available under each of the Loan
Documents as well as all rights and remedies available at law or in equity,
including, without limitation, the right to declare the Note immediately
due and payable.
10. CLOSING. The Loan shall be closed in September 29, 2000 at the offices of
BaseLine, or at such other time or place as agreed upon by the parties. At
closing, EPI shall deliver to BaseLine the following fully executed
documents:
(i) This Note Agreement.
(ii) The Note.
(iii) The Deed of Trust.
(iv) One or more stock option agreements in the name(s) of BaseLine and its
designees covering the Initial Stock Option.
(v) A stock option agreement in favor of BaseLine covering the Payout
Stock Option. (vi) The assignment of the Working Interest Back-In.
(vii) Certificate of Good Standing of EPI.
(viii) A copy of the EPI corporate resolutions authorizing this
transaction, certified by an officer of EPI.
(ix) Opinion of counsel for EPI regarding the matters set forth in Sections
4A, 4B, 4C, 4D, 4E and 4F.
(x) Letter(s) to purchaser(s) of production from the Subject Properties.
11. NOTICES. All notices, requests or demands which any party is required or
may desire to give to any other party under any provision of this Agreement
must be in writing delivered to the other party at the following address:
EPI: ENERGY PRODUCERS, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
BaseLine: BASELINE CAPITAL, INC.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
or to such other address as any party may designate by written notice to
the other party. Each such notice, request and demand shall be deemed given
or made (a) if sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class postage prepaid;
or (b) if sent by any other means, upon delivery.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. EPI shall pay to BaseLine immediately
upon demand the full amount of all costs and expenses, including reasonable
attorneys' fees and engineering fees, incurred at any time by BaseLine
(whether before, after or during the loan closing) in connection with (a)
the Loan, (b) the negotiation and preparation of this Agreement and each of
the Loan Documents and any rights, remedies or interests hereunder or
thereunder, (c) the maintenance, renewal or collection of the Loan or any
rights or remedies under any Loan Documents, and (d) all other costs and
attorneys' fees incurred by BaseLine for which EPI is obligated to
reimburse BaseLine in accordance with the terms of the Loan Documents.
13. SAVINGS CLAUSE. All agreements between EPI and BaseLine, whether now
existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency shall the interest paid or agreed to be
paid to BaseLine exceed the maximum amount permitted under applicable law.
If, under any circumstance whatsoever, interest would otherwise be payable
to BaseLine at a rate in excess of the highest lawful rate, then the
interest payable to BaseLine shall be reduced to the maximum amount
permitted under applicable law, and if under any circumstance whatsoever
BaseLine shall ever receive anything of value deemed interest by applicable
law which would exceed interest at the highest lawful rate, then any
excessive interest paid shall be applied to the reduction of the principal
amount hereunder and not to the payment of interest or if such excess
interest exceeds the unpaid principal balance hereof, such excess shall be
refunded to EPI. All interest paid or agreed to be paid to BaseLine shall,
to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period until payment in full
obligations of EPI to BaseLine (including the period of any renewal or
extension) so that the rate of interest hereon is uniform throughout the
term hereof.
14. MISCELLANEOUS. EPI and BaseLine further covenant and agree as follows,
without limiting any requirement of any other Loan Document:
A. Cumulative Rights and Waiver of Notice. Each and every right granted
to BaseLine under any Loan Document, or allowed it by law or equity
shall be cumulative of each other and may be exercised in addition to
any and all other rights of BaseLine, and no delay in exercising any
right shall operate as a waiver thereof, nor shall any single or
partial exercise by BaseLine of any right preclude any other or future
exercise thereof or the exercise of any other right. EPI expressly
waives any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice
of acceleration. No notice to or demand on EPI shall, of itself,
entitle EPI to any other or future notice or demand in similar or
other circumstances. B. Applicable Law. This Agreement and the rights
and obligations of the parties hereunder shall be governed by, and
construed in accordance with, the laws of the State of Texas, and are
performable in Midland, Midland County, Texas.
C. Amendment. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by EPI
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of BaseLine, and then shall be effective only in
the specified instance and for the purpose for which given. This
Agreement is binding upon EPI, its respective heirs, successors and
assigns, and inures to the benefit of BaseLine, its successors and
assigns; however, no assignment or other transfer of EPI's rights or
obligations hereunder shall be made or be effective without BaseLine's
prior written consent, nor shall it relieve EPI of any obligations
hereunder. There is no third party beneficiary of this Agreement.
D. Documents. All documents, certificates and other items required under
this Agreement to be executed and/or delivered to BaseLine shall be in
form and content satisfactory to BaseLine and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person
or circumstance shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
F. INDEMNIFICATION. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN
SECTION 14(G), EPI SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS BASELINE,
AND ITS OFFICERS, EMPLOYEES, AGENTS, SHAREHOLDERS, DIRECTORS,
SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE "BASELINE PARTIES") FROM AND
AGAINST ANY AND ALL CLAIMS, DEMANDS, SUITS, LOSSES, DAMAGES,
ASSESSMENTS, FINES, PENALTIES, COSTS OR OTHER EXPENSES (COLLECTIVELY,
THE "BASELINE PARTNERS") (INCLUDING REASONABLE ATTORNEYS' FEES AND
COURT COSTS) ARISING FROM OR IN ANY WAY RELATED TO ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING BUT NOT LIMITED TO ANY
OPERATIONS OR OPERATIONAL DECISIONS, OR ACTUAL OR THREATENED DAMAGE TO
THE ENVIRONMENT, AGENCY COSTS OF INVESTIGATION, PERSONAL INJURY OR
DEATH, OR PROPERTY DAMAGE, DUE TO A RELEASE OR ALLEGED RELEASE OF
HAZARDOUS MATERIALS, ARISING FROM EPI'S BUSINESS OPERATIONS, ANY OTHER
PROPERTY OWNED BY EPI OR IN THE SURFACE OR GROUND WATER ARISING FROM
EPI'S BUSINESS OPERATIONS, OR GASEOUS EMISSIONS ARISING FROM EPI'S
BUSINESS OPERATIONS OR ANY OTHER CONDITION EXISTING OR ARISING FROM
EPI'S BUSINESS OPERATIONS RESULTING FROM THE USE OR EXISTENCE OF
HAZARDOUS MATERIALS, WHETHER SUCH CLAIM PROVES TO BE TRUE OR FALSE.
EPI FURTHER AGREES THAT ITS INDEMNITY OBLIGATIONS SHALL INCLUDE, BUT
ARE NOT LIMITED TO, LIABILITY FOR DAMAGES RESULTING FROM THE PERSONAL
INJURY OR DEATH OF AN EMPLOYEE OF EPI, REGARDLESS OF WHETHER EPI HAS
PAID THE EMPLOYEE UNDER THE WORKMEN'S COMPENSATION LAWS OF ANY STATE
OR OTHER SIMILAR FEDERAL OR STATE LEGISLATION FOR THE PROTECTION OF
EMPLOYEES. THE TERM "PROPERTY DAMAGE" AS USED IN THIS PARAGRAPH
INCLUDES, BUT IS NOT LIMITED TO, DAMAGE TO ANY REAL OR PERSONAL
PROPERTY OF EPI, BASELINE, BASELINE PARTIES AND OF ANY THIRD PARTIES.
EPI'S OBLIGATIONS UNDER THIS PARAGRAPH SHALL SURVIVE THE REPAYMENT OF
THE LOAN AND ANY DEED IN LIEU OF FORECLOSURE OR FORECLOSURE OF ANY
DEED OF TRUST, SECURITY AGREEMENT OR MORTGAGE SECURING THE LOAN. THE
PARTIES HERETO INTEND FOR THE PROVISIONS OF THIS PARAGRAPH TO APPLY TO
AND PROTECT EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ITS OWN
NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING
OR CONCURRING CAUSE OF ANY CLAIMS INDEMNIFIED AGAINST IN THIS
PARAGRAPH.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive
the making of the Loan and shall continue in full force and effect so
long as the Loan is outstanding.
15. NOTICE OF FINAL AGREEMENT. THIS WRITTEN NOTE AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
EPI: BaseLine:
ENERGY PRODUCERS, INC. BASELINE CAPITAL, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, President
--- -------------- ---------------------------------
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman and CEO President
EXHIBIT A
ENERGY PRODUCERS, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
September 29, 2000
Re:Oil and Gas Properties
Ladies and Gentlemen:
Energy Producers, Inc. ("EPI") is the owner of various oil and gas
properties and interests ("Properties") further described on the schedule
attached. By Deed of Trust, Mortgage, Security Agreement, Assignment of
Production and Financing Statement ("Deed of Trust") dated September 29, 2000,
EPI mortgaged and pledged the Properties for the benefit of BaseLine Capital,
Inc. ("BaseLine"). The Deed of Trust contains an assignment to BaseLine of all
of the oil and gas produced, saved and sold attributable to the Properties, and
the Deed of Trust grants to BaseLine the right to receive payment for the
proceeds of all such production.
We understand that you are either:
(a) purchasing production from the Properties and making payment to EPI
for the proceeds of such production, or
(b) receiving from the purchaser thereof the proceeds of production
attributable to the Properties and distributing those proceeds to EPI,
under your division or transfer orders or other authority or
instructions which are described in the schedule attached hereto. This
schedule contains three columns. In the first column there appears the
Owner Number or other designation assigned by you to EPI. In the
second column, there appears the Property Number or other designation
assigned by you to the Properties from which there is produced the oil
and gas for which you are making payment. In the third column there
appears the total interest in gross production for which you are
making payment to EPI, and for which payment should be made to
BaseLine for the account of EPI, as provided below.
EPI hereby authorizes you to pay the proceeds attributable to EPI's
interest in the gross production from the Properties to BaseLine, for the
account of EPI at the following address:
BaseLine Capital, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇
This letter is executed as an agreement in lieu of separate transfer and
division orders with respect to those properties, production and proceeds, so
that it will not be necessary to execute transfer or division orders to replace
those previously executed and currently in effect. BaseLine agrees that, with
respect to all proceeds distributed by you to BaseLine hereunder, BaseLine will,
as mortgagee and assignee of EPI, be bound by the terms, conditions,
representations, warranties and covenants of all transfer and division orders
previously executed by EPI and now in force and effect covering any of such
properties, production or proceeds, with the same effect as if BaseLine had
joined in the execution of each transfer order and division order.
No suspension or interruption in payment is intended because of this change
in payment. If because of the time this notice is received, you make payment to
EPI for purchases made after the date set forth above, an accounting will be
effected between EPI and BaseLine.
EPI authorizes BaseLine to receive and endorse all checks for production
proceeds. You are further assured that you and the banks on which such checks
are drawn may safely pay the same when bearing the endorsement of BaseLine, and
without being required to look to the proper application of the funds
represented by such checks. A signed copy of this letter is being delivered to
BaseLine as evidence of its authority to receive and endorse the checks as above
indicated.
The Deed of Trust is recorded in the counties in which the Properties are
situated. If you require, BaseLine will furnish to you copies of the recorded
Deed of Trust. If you have any questions or instructions, please contact ▇▇▇▇ ▇.
▇▇▇▇▇▇, President, BaseLine Capital, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and whose telephone number is (▇▇▇) ▇▇▇-▇▇▇▇.
This arrangement shall remain in effect until you are notified in writing
by EPI and BaseLine that this arrangement has been terminated.
Yours very truly,
ENERGY PRODUCERS, INC.
By:
Name:
Title:
BASELINE CAPITAL, INC.
By: ▇▇▇▇ ▇. ▇▇▇▇▇▇, President
EXHIBIT B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of September 22, 2000 between Energy
Producers, Inc. a Nevada corporation, with its principal office at ▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (the "Company") and (the
"Optionee").
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its stockholders to grant to the Optionee
an option to purchase shares of the common stock, par value $.001 per share (the
"Common Stock"), of the Company upon the terms set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option
1.1 The Company grants to the Optionee, on the terms and conditions
hereinafter set forth, an option (the "Option"') to purchase shares in Common
Stock of the Company as provided herein (the "Option Shares").
1.2 Optionee understands that the Option is not entitled to special tax
treatment under Section 422 of the Intemal Revenue Code as amended to date and
as may be amended from time to time.
2. Price and Payment for Shares
The Option shall vest in the following increments (subject to Section 6
hereof) at the following exercise prices per share (the "Purchase Price"):
_________ shares at $0.95 per share from and after the expiration of one
hundred eighty (180) days following the date of this Agreement.
_________ shares at $1.05 per share from and after the expiration of three
hundred sixty (360) days following the date of this Agreement.
_________ shares at $1.15 per share from and after the expiration of one
year and six months (520) days following the date of this Agreement.
3. Exercise Period. The Option is exercisable in whole or in part from time
to time during the period(s) (the "Exercise Period(s)") commencing, as to each
increment, on the date of vesting as provided in Section 2 and terminating on a
date which is 5:00 P.M. Phoenix, Arizona time three (3) years from such date of
vesting; provided, however, that if such date is a day on which banks in the
State of Arizona are authorized or permitted to be closed, then the Exercise
Period shall end at 5:00 P.M. Phoenix, Arizona time on the next day which is not
such a day.
4. Exercise of Option
4.1 The Option may be exercised only by delivering or transmitting by
registered or certified mail to the Secretary or the Treasurer of the Company,
at the Company's then principal office, a written notice signed by an authorized
officer of the Optionee on the Optionee's behalf specifying the number of Option
Shares that the Optionee has irrevocably elected to purchase under the Option.
Optionee shall pay the Purchase Price in cash or by delivering shares of Common
Stock already owned by it having a fair market value on the date of exercise
equal to the Purchase Price, or any combination of cash or shares, or by
surrendering a number of Option Shares having a fair market value equal to the
Purchase Price in a cashless exercise. The Purchase Price shall be paid not
later than ten (10) days after the date of a statement from the Company
following exercise setting forth the Purchase Price. If the Optionee fails to
pay the Purchase Price within said ten (10) day period, the Company shall have
the right to take whatever action it deems appropriate, including, without
limitation, voiding the option exercise and reinstating the portion of the
Option relating thereto. The Company shall not issue or transfer Option Shares
upon exercise of the Option until the Purchase Price is fully paid.
4.2 Upon the exercise of the Option, in whole or in part, the Company shall
promptly issue stock certificates for the shares of Common Stock purchased and
the Optionee shall be deemed to be the holder of the shares of Common Stock
purchased as of the date of issuance of certificates for such shares to it. The
Optionee will not be nor deemed to be a holder of any shares subject to the
Option unless and until certificates for such shares are issued to it under the
terms of this Agreement.
5. Transferability of Option
The Option herein granted shall be assignable and transferable by the
Optionee, provided that the Optionee shall notify the Company within five
business days of any such transfer or assignment and any such transfer is in
compliance with applicable securities laws as reasonably determined by the
Company.
6. Termination; Acceleration
All rights of the Optionee in the Option to the extent not exercised shall
terminate at the expiration of the Exercise Period(s) herein defined or, if
sooner, 30 days after the stockholders of the Company shall have approved an
agreement to merge or consolidate with or into another corporation (and the
Company is not the survivor of such merger or consolidation) or an agreement to
sell or otherwise dispose of all or substantially all of the Company's assets
(including a plan of liquidation). Immediately upon the occurrence of any such
events or any change in a majority of the Board of Directors of the Company, the
entire Option shall automatically become fully vested and exercisable
notwithstanding Section 2 hereof.
7. Registration
7.1 If at any time after the date of this Agreement and prior to the
expiration of all Exercise Period(s), the Company proposes to file a
registration statement to register any Common Stock (other than Common Stock
issued with respect to any acquisition or any employee stock option, stock
purchase or similar plan) under the Securities Act of 1933, as amended (the
"Securities Act") for sale to the public in an underwritten offering, it will at
each such time give prior written notice to the Optionee of its intention to do
so ("Notice of Intent") and, upon the written request of the Optionee made
within 30 calendar days after the receipt of any such notice (which request must
specify the number of Option Shares Optionee requests to be included in the
registration, the Company will use its best efforts to effect the registration
under the Securities Act of the Option Shares which the Company has been so
requested to register, provided, however, that if the managing underwriter shall
certify in writing that inclusion of all or any of the Option Shares would, in
such managing underwriter's opinion, materially interfere with the proposed
distribution and marketing of the Common Stock in respect of which registration
was originally to be effected (such writing to state the basis of such opinion
and the maximum number of shares which may be distributed without such
interference), then the Company may, upon written notice to the Optionee, have
the right to exclude from such registration such number of Option Shares which
it would otherwise be required to register hereunder as is necessary to reduce
the total amount of Common Stock to be so registered to the maximum amount which
can be so marketed.
7.2 The Option Shares will be subject to a lock up agreement to be entered
into by the Optionee upon effectiveness of the registration statement that will
limited the sale of the shares during a six month period after effectiveness,
whereby one sixth (1/6) of the Option Shares shall become available for sale
each month from and after the effective date of the registration statement.
7.3 In addition to the foregoing, the Company shall be required to file for
the registration of the Option Shares within six (6) months of the date of this
Agreement. Should the registration not be filed within such six month period of
time all of the Option Shares shall be immediately issued to Optionee without
payment by and at no cost to Optionee, and shall be restricted common stock of
the Company under Rule 144 of the Securities Act within ten (10) days of the
expiration of such six month period.
7.4 If the Company fails to file the registration statement within the
period set forth in Section 7.3, the Company shall be required to file for the
registration of the Option Shares within twelve (12) months of the date of this
Agreement. Should the registration not be filed within such twelve month period,
the properties listed in Exhibit A attached hereto shall be assigned by the
Company to Optionee within ten (10) days of the expiration of such twelve month
period by a form of assignment acceptable to Optionee.
8. Registration Expenses
The costs and expenses (other than underwriting discounts
and commissions) of all registrations and qualifications under the
Securities Act, and of all other actions the Company is required to take or
effect pursuant to this Agreement shall be paid by the Company (including,
without limitation, all registration and filing fees, printing expenses.
fees and expenses of complying with Blue Sky laws, and fees and disbursements of
counsel for the Company and of independent public accountants.
9. Registration Procedures
If and whenever the Company is required to effect or file for the
registration of any Option Shares under the Securities Act as provided in this
Agreement, the Company will promptly:
9.1 prepare and file with the Securities and Exchange Commission
("Commission") a registration statement with respect to such Option Shares and
use its best efforts to cause such registration statement to become effective;
9.2 prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
such Option Shares and other securities covered by such registration statement
until the earlier of such time as all of such Option Shares and other securities
have been disposed of in accordance with such registration statement, or the
expiration of all Exercise Periods;
9.3 furnish to the Optionee such number of copies of such registration
statement and of each such amendment and supplement thereto, such number of
copies of the prospectus included in such registration statement, in conformity
with the requirements of the Securities Act;
9.4 use its best efforts to register or qualify the Option Shares covered
by such registration statement under such other securities or Blue Sky laws of
such, jurisdictions within the United States of America (including territories
and commonwealths thereof) as the Optionee shall reasonably request, except that
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it is not so
qualified, to subject itself to taxation in any such jurisdiction;
9.5 The Company may require the Optionee to furnish the Company such
information regarding it and the distribution of such Option Shares as the
Company may from time to time request in writing and as shall be required by law
to effect such registration.
10. Termination of Obligations
The obligations of the Company imposed by Section 7 through 9 above shall
cease and terminate, as to any particular Option Shares, when such shares shall
have been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering such securities.
11. Availability of Information
The Company shall use its best efforts to make publicly available such
information and documentation as may be presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Option Shares.
12. Dilution or Other Adjustments
In the event of any change in the Common Stock subject to the Option
granted by this Agreement through merger, consolidation, reorganization,
recapitalization, stock split, stock dividend, or the issuance to stockholders
of rights to subscribe to stock of the same class, or in the event of any change
in the capital structure or other increase or decrease in the number of issued
shares of Common Stock effected without the receipt of consideration by the
Company, (i) the number of Option Shares, (ii) the Purchase Price, and (iii) any
provision of this Agreement, shall be automatically adjusted as necessary in
order to prevent dilution or enlargement of the Option and the rights granted
hereunder. The Company shall promptly notify Optionee of any such adjustment.
13. Miscellaneous
13.1 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Arizona without giving
effect to the provisions, principles or policies thereof relating to choice or
conflict of law.
13.2 Any and all notices referred to herein shall be sufficient if
furnished in writing and delivered in person or mailed by certified mail (return
receipt requested) to the respective parties at their addresses set forth above
or to such other address as either party may from time to time designate in
writing.
13.3 As used herein, the masculine gender shall include the feminine
gender. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13.4 No amendment, change or modification of this document shall be valid
unless in writing and signed by all of the parties hereto.
13.5 No reliance upon or waiver of one or more provisions of this Agreement
shall constitute a waiver of any other provisions hereof.
13.6 All of the terms and provisions contained herein shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
heirs, personal representatives, successors and assigns.
13.7 The captions appearing at the commencement of the sections hereof are
descriptive only and are for convenience of reference. Should there be any
conflict between any such caption and the section at the head of which it
appears, the substantive provisions of such section and not such caption shall
control and govern in the construction of this document.
13.8 This Agreement constitutes the entire understanding and agreement of
the parties with respect to the subject matter of this Agreement, and any and
all prior agreements, understandings or representations are hereby terminated
and canceled in their entirety.
13.9 The Option shall be effective as of September 29, 2000.
ENERGY PRODUCERS, INC.
By:___________________________________
▇▇▇ ▇▇▇▇▇▇
Authorized Signatory
OPTIONEE
-----------------------------------
Authorized Signatory
Exhibit C
ASSIGNMENT AND ▇▇▇▇ OF SALE
STATE OF TEXAS ss.
COUNTY OF YOUNG
This Assignment and ▇▇▇▇ of Sale is made by and between Energy Producers,
Inc., ▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, as Assignor,
and BaseLine Capital, Inc., ▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, as
Assignee.
WHEREAS, Assignor is the present owner of certain oil, gas and mineral
leases, as more particularly described on Exhibit "A", attached hereto and made
a part hereof, referred to herein as the "Subject Leases"; and
WHEREAS, Assignor has agreed to grant, sell, assign, transfer and convey to
Assignee, a portion of its right, title and working interest in and to the
Subject Leases and all property and rights appurtenant thereto as herein
described, effective upon "Payout" (as such term is defined in that certain Note
Agreement between Assignor and Assignee dated September 29, 2000 (the "Note
Agreement")), all for the consideration and on the terms and conditions as
expressed herein.
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
and other good and valuable consideration paid by Assignee to Assignor, the
receipt and sufficiency of which are hereby acknowledged, Assignor does hereby
GRANT, SELL, ASSIGN, TRANSFER AND CONVEY unto Assignor, the following:
- Fifty-five percent (55%) of Assignor's undivided right, title and
interest in and to the Subject Leases, including without limitation,
working interests, net revenue interests and any other interests of
similar nature;
- Fifty-five percent (55%) of Assignor's undivided interest in and to
all documents and agreements relating to the Subject Leases, including
without limitation, surface leases, operating agreements, salt water
disposal agreements, easements, permits, licenses, unitization or
pooling orders and all other executory contracts and agreements
relating to the Subject Leases; and
- Fifty-five percent (55%) of Assignor's undivided interest in and to
all property and rights appurtenant to the Subject Leases, including,
but not necessarily limited to, all ▇▇▇▇▇, equipment and facilities
which are located on, appurtenant to, or used directly in connection
with the production, treatment or transportation of oil and gas or the
disposal of produced water or other by-products from lands covered by
the Subject Leases or pooled or unitized therewith, collectively
referred to as the "Properties".
This Assignment and ▇▇▇▇ of Sale shall be effective upon Payout (the
"Effective Date"), which may be conclusively established by an affidavit of
Assignee in accordance with the Note Agreement. In the event Payout does not
occur on or before September 30, 2020, then this Assignment shall be of no
further force and effect.
This Assignment and ▇▇▇▇ of Sale is executed without any warranty of title
whatsoever, either express or implied, except as to parties claiming or to claim
the same or any part thereof, by, through or under Assignor. EXCEPT AS PROVIDED
HEREIN, THE PROPERTIES HEREIN DESCRIBED ARE ASSIGNED, TRANSFERRED AND ACCEPTED
BY ASSIGNEE WITHOUT WARRANTY OF ANY NATURE, EITHER EXPRESS, STATUTORY OR
IMPLIED, WHETHER AS TO DESCRIPTION, CONDITION, QUALITY OR FITNESS FOR ANY
PURPOSE AND, ASSIGNEE ACCEPTS SAME "AS IS" AND "WHERE IS", WITH ALL DEFECTS AND
ALL RISKS INHERENT IN USING AND OPERATING SAME.
TO HAVE AND TO HOLD the Subject Leases and Properties unto Assignee, its
successors and assigns forever.
IN WITNESS WHEREOF, this Assignment and ▇▇▇▇ of Sale is executed this 29th
day of September, 2000, but effective as of the Effective Date.
ASSIGNOR:
ENERGY PRODUCERS, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇
----------------------
▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer
ASSIGNEE:
BASELINE CAPITAL, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------
▇▇▇▇ ▇▇▇▇▇▇, President
STATE OF ARIZONA
ss.
COUNTY OF __________
This instrument was acknowledged before me this ___ day of September, 2000,
by ▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer of Energy Producers, Inc., a Nevada
corporation, on behalf of said corporation.
-------------------------------
Notary Public, State of Arizona
-------------------------------
Notary's Printed Name
My Commission Expires:
STATE OF TEXAS
ss.
COUNTY OF MIDLAND
This instrument was acknowledged before me this ___ day of September, 2000,
by ▇▇▇▇ ▇▇▇▇▇▇, President of BaseLine Capital, Inc., a Texas corporation, on
behalf of said corporation.
-----------------------------
Notary Public, State of Texas
-----------------------------
Notary's Printed Name
My Commission Expires:
PROMISSORY NOTE
$1,050,000.00
September 29, 2000
FOR VALUE RECEIVED, the undersigned, Energy Producers, Inc. (hereinafter
called "Maker"), promises to pay to the order of BaseLine Capital, Inc.
(hereinafter called "Payee") to the address set forth below, the principal sum
of One Million Fifty Thousand and No/100 Dollars ($1,050,000.00) in coin or
currency of the United States of America, without interest, except for interest
on past due amounts at the rate specified below; provided that in no event shall
the interest exceed the maximum amount of nonusurious interest allowed from time
to time by applicable law ("Highest Lawful Rate"). Maker shall pay the amounts
due hereunder to the Payee at the following address:
BaseLine Capital, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
The principal of this Note (and any interest accrued on past due amounts
hereunder) is payable in monthly installments equal to the greater of (i) eighty
percent (80%) of Maker's Net Production Proceeds (as defined herein) for the
second calendar month immediately preceding the calendar month in which such
payment is due, or (ii) $25,000.00. Such monthly installments shall be due and
payable on the 1st day of each month beginning December 1, 2000 and continuing
each month thereafter until all unpaid principal and accrued and unpaid
interest, if any, on this Note is paid in full. If not sooner paid pursuant to
the foregoing, all outstanding principal and accrued and unpaid interest on this
Note is due and payable on September 30, 2005, the maturity date of this Note.
As used herein, "Net Production Proceeds" means all revenue received by or
otherwise credited to Maker's interests in and to the oil and gas properties
securing this Note under the Deed of Trust (as defined herein) (the
"Properties") from the sale of hydrocarbons in, under or produced from the
Properties after deducting royalties, existing overriding royalties, normal and
reasonable operating expenses, the management, administrative and operating fees
payable to Payee and severance, ad valorem and excise taxes.
All past due installments of principal shall bear interest at the lesser of
eighteen percent (18%) per annum or the highest lawful rate from the due date
until paid. Interest shall be calculated based upon a three hundred sixty-five
(365) day year.
If this Note is not paid when due and is placed in the hands of any
attorney for collection, or suit is filed hereon, or proceedings are made in
probate, bankruptcy, receivership, arrangement or otherwise for collection
hereof, Maker and each endorser, guarantor and surety liable upon or for payment
of this Note agree to pay all reasonable expenses and costs incurred by Payee in
connection with such collection, suit or proceedings, including without
limitation, reasonable attorney's fees.
Maker reserves the right to prepay all or any portion of the remaining
principal balance due at any time, and from time to time, without penalty or
fee. However, any prepayment hereunder shall be applied first to accrued unpaid
interest, if any, owing on this Note and the balance to principal. Any
prepayment hereunder shall not reduce the amount or timing of the monthly
installments due hereunder until this Note is paid in full.
Upon any default in payment of this Note or any default or event of default
under the Note Agreement (as hereinafter defined), Deed of Trust or any other
document or instrument executed in connection herewith or therewith, Payee shall
be entitled to all rights and remedies under the Note Agreement, the Deed of
Trust, such other documents and instruments and applicable law, including
without limitation, the right to declare all amounts under this Note immediately
due and payable.
Maker, as well as any persons or entities which become liable for the
payment of this Note, hereby expressly (a) waives (i) presentment for payment of
this Note, (ii) protest, bringing of suit or diligence in collection, (iii)
notice of default, demand, notice of intent to accelerate and notice of
acceleration, and/or (iv) any defense on account of the extension of time of
payments; (b) consents to any the release of any party primarily or secondarily
liable hereon; and (c) agrees that (i) the acceptance of late payment(s)
hereunder by Payee hereof, (ii) waiver of any event(s) of default hereunder
and/or any instrument securing or guaranteeing the payment hereof or (iii) other
forgiveness of any other defaults by the Maker, shall not constitute a waiver by
the Payee hereof of any subsequent defaults, late payments or other violations
of Maker's obligations hereunder and/or in the terms of any instrument securing
or guaranteeing the payment hereof.
All agreements between the Maker and Payee, whether now existing or
hereafter arising and whether written or oral, are hereby limited so that in no
contingency shall the interest paid or agreed to be paid to Payee exceed the
maximum amount permitted under applicable law. If, under any circumstance
whatsoever, interest would otherwise be payable to Payee at a rate in excess of
the Highest Lawful Rate, then the interest payable to Payee shall be reduced to
the maximum amount permitted under applicable law, and if under any circumstance
whatsoever Payee shall ever receive anything of value deemed interest by
applicable law which would exceed interest at the Highest Lawful Rate, then any
excessive interest paid shall be applied to the reduction of the principal
amount hereunder and not to the payment of interest or if such excess interest
exceeds the unpaid principal balance hereof, such excess shall be refunded to
Maker. All interest paid or agreed to be paid to Payee shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full period until payment in full of the principal of this Note
so that the rate of interest hereon is uniform throughout the term hereof. This
paragraph shall control all agreements between the undersigned and the Payee.
This Note is being executed and delivered in connection with and pursuant
to that certain Note Agreement of even date herewith, by and between Maker and
Payee (the "Note Agreement"), and is secured by that certain Deed of Trust,
Mortgage, Assignment, Security Agreement and Financing Statement of even date
herewith executed by Maker for the benefit of Payee (the "Deed of Trust").
Any check, draft, money order or other instruments given in payment of all
or any portion of this Note may be accepted by the Payee and handled for
collection in the customary manner, but the same shall not constitute payment
hereunder or diminish any rights of the Payee except to the extent that actual
cash proceeds of such instruments are unconditionally received by the Payee and
applied to this Note in the manner hereinabove provided.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
EXCEPT FOR CONFLICTS OF LAWS PRINCIPALS WHICH WOULD RESULT IN THE LAWS OF
ANOTHER JURISDICTION TO APPLY.
IN WITNESS WHEREOF, Maker has executed this Note as of the 29th day of
September, 2000.
ENERGY PRODUCERS, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
By: /s/ ▇▇▇ ▇▇▇▇▇▇
--------------------
Name: ▇▇▇ ▇▇▇▇▇▇
Title: Chairman and CEO
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of September 22, 2000 between Energy
Producers, Inc. a Nevada corporation, with its principal office at ▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (the "Company") and BaseLine
Capital, Inc. located at ▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (the
"Optionee").
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its stockholders to grant to the Optionee
an option to purchase 2,000,000 shares of the common stock, par value $.001 per
share (the "Common Stock"), of the Company upon the terms set forth below.
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option
1.1 The Company grants to the Optionee, on the terms and conditions
hereinafter set forth, an option (the "Option"') to purchase 2,000,000 shares in
Common Stock of the Company as provided herein (the "Option Shares").
1.2 Optionee understands that the Option is not entitled to special tax
treatment under Section 422 of the Intemal Revenue Code as amended to date and
as may be amended from time to time.
2. Price and Payment for Shares
The Option shall vest upon "Payout", as that term is defined in that
certain Note Agreement between the Company and Optionee dated as of September
29, 2000, and shall have an exercise price of $0.85 per share (the "Purchase
Price").
3. Exercise Period. The Option is exercisable in whole or in part from time
to time during the period (the "Exercise Period") commencing on the date of
vesting as provided in Section 2 and terminating on a date which is 5:00 P.M.
Phoenix, Arizona time three (3) years from such date of vesting; provided,
however, that if such date is a day on which banks in the State of Arizona are
authorized or permitted to be closed, then the Exercise Period shall end at 5:00
P.M. Phoenix, Arizona time on the next day which is not such a day.
4. Exercise of Option
4.1 The Option may be exercised only by delivering or transmitting by
registered or certified mail to the Secretary or the Treasurer of the Company,
at the Company's then principal office, a written notice signed by an authorized
officer of the Optionee on the Optionee's behalf specifying the number of Option
Shares that the Optionee has irrevocably elected to purchase under the Option.
Optionee shall pay the Purchase Price in cash. The Purchase Price shall be paid
not later than ten (10) days after the date of a statement from the Company
following exercise setting forth the Purchase Price. If the Optionee fails to
pay the Purchase Price within said ten (10) day period, the Company shall have
the right to take whatever action it deems appropriate, including, without
limitation, voiding the option exercise and reinstating the portion of the
Option relating thereto. The Company shall not issue or transfer Option Shares
upon exercise of the Option until the Purchase Price is fully paid.
4.2 Upon the exercise of the Option, in whole or in part, the Company shall
promptly issue stock certificates for the shares of Common Stock purchased and
the Optionee shall be deemed to be the holder of the shares of Common Stock
purchased as of the date of issuance of certificates for such shares to it. The
Optionee will not be nor deemed to be a holder of any shares subject to the
Option unless and until certificates for such shares are issued to it under the
terms of this Agreement.
5. Transferability of Option
The Option herein granted shall be assignable and transferable by the
Optionee, provided that the Optionee shall notify the Company within five
business days of any such transfer or assignment and any such transfer is in
compliance with applicable securities laws as reasonably determined by the
Company.
6. Termination; Acceleration
All rights of the Optionee in the Option to the extent not exercised shall
terminate at the expiration of the Exercise Period herein defined or, if sooner,
30 days after the stockholders of the Company shall have approved an agreement
to merge or consolidate with or into another corporation (and the Company is not
the survivor of such merger or consolidation) or an agreement to sell or
otherwise dispose of all or substantially all of the Company's assets (including
a plan of liquidation). Immediately upon the occurrence of any such events or
any change in a majority of the Board of Directors of the Company, the entire
Option shall automatically become fully vested and exercisable notwithstanding
Section 2 hereof.
7. Registration
7.1 If at any time after the date of this Agreement and prior to the
expiration of all Exercise Period(s) the Company proposes to file a registration
statement to register any Common Stock (other than Common Stock issued with
respect to any acquisition or any employee stock option, stock purchase or
similar plan) under the Securities Act of 1933, as amended (the "Securities Act)
for sale to the public in an underwritten offering, it will at each such time
give written notice to the Optionee of its intention to do so ("Notice of
Intent") and, upon the written request of the Optionee made within 30 calendar
days after the receipt of any such notice (which request must specify the number
of Option Shares Optionee requests to be included in the registration, the
Company will use its best efforts to effect the registration under the
Securities Act of the Option Shares which the Company has been so requested to
register, provided, however, that if the managing underwriter shall certify in
writing that inclusion of all or any of the Option Shares would, in such
managing underwriter's opinion, materially interfere with the proposed
distribution and marketing of the Common Stock in respect of which registration
was originally to be effected (such writing to state the basis of such opinion
and the maximum number of shares which may be distributed without such
interference), then the Company may, upon written notice to the Optionee, have
the right to exclude from such registration such number of Option Shares which
it would otherwise be required to register hereunder as is necessary to reduce
the total amount of Common Stock to be so registered to the maximum amount which
can be so marketed.
7.2 Notwithstanding the foregoing, the Company shall file for the
registration of the Option Shares on or before twenty-four (24) months from the
date hereof.
7.3 After the registration required under Section 7.2 has become effective,
the Option Shares shall be available for sale by Optionee (and any transferee)
at no more than 20% of the total Trading Volume. The "Trading Volume" shall be
the average daily volume for the twenty days beginning twenty-two days before
and ending two days before the sale.
8. Registration Expenses
The costs and expenses (other than underwriting discounts and commissions)
of all registrations and qualifications under the Securities Act, and of all
other actions the Company is required to take or effect pursuant to this
Agreement shall be paid by the Company (including, without limitation, all
registration and filing fees, printing expenses. fees and expenses of complying
with Blue Sky laws, and fees and disbursements of counsel for the Company and of
independent public accountants.
9. Registration Procedures
If and whenever the Company is required to effect of file for the
registration of any Option Shares under the Securities Act as provided in this
Agreement, the Company will promptly:
9.1 prepare and file with the Securities and Exchange Commission
("Commission") a registration statement with respect to such Option Shares and
use its best efforts to cause such registration statement to become effective;
9.2 prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
such Option Shares and other securities covered by such registration statement
until the earlier of such time as all of such Option Shares and other securities
have been disposed of in accordance with such registration statement, or the
expiration of the Exercise Period;
9.3 furnish to the Optionee such number of copies of such registration
statement and of each such amendment and supplement thereto, such number of
copies of the prospectus included in such registration statement, in conformity
with the requirements of the Securities Act;
9.4 use its best efforts to register or qualify the Option Shares covered
by such registration statement under such other securities or Blue Sky laws of
such, jurisdictions within the United States of America (including territories
and commonwealths thereof) as the Optionee shall reasonably request, except that
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it is not so
qualified, to subject itself to taxation in any such jurisdiction;
9.5 The Company may require the Optionee to furnish the Company such
information regarding it and the distribution of such Option Shares as the
Company may from time to time request in writing and as shall be required by law
to effect such registration.
10. Termination of Obligations
The obligations of the Company imposed by Section 7 through 9 above shall
cease and terminate, as to any particular Option Shares, when such shares shall
have been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering such securities.
11. Availability of Information
The Company shall use its best efforts to make publicly available such
information and documentation as may be necessary presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Option Shares.
12. Dilution or Other Adjustments
In the event of any change in the Common Stock subject to the Option
granted by this Agreement through merger, consolidation, reorganization,
recapitalization, stock split, stock dividend, or the issuance to stockholders
of rights to subscribe to stock of the same class, or in the event of any change
in the capital structure or other increase or decrease in the number of issued
shares of Common Stock effected without the receipt of consideration by the
Company, (i) the number of Option Shares, (ii) the Purchase Price, and (iii) any
provision of this Agreement, shall be automatically adjusted as necessary in
order to prevent dilution or enlargement of the Option and the rights granted
hereunder. The Company shall promptly notify Optionee of any such adjustment.
13. Miscellaneous
13.1 The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Arizona without giving
effect to the provisions, principles or policies thereof relating to choice or
conflict of law.
13.2 Any and all notices referred to herein shall be sufficient if
furnished in writing and delivered in person or mailed by certified mail (return
receipt requested) to the respective parties at their addresses set forth above
or to such other address as either party may from time to time designate in
writing.
13.3 As used herein, the masculine gender shall include the feminine
gender. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
13.4 No amendment, change or modification of this document shall be valid
unless in writing and signed by all of the parties hereto.
13.5 No reliance upon or waiver of one or more provisions of this Agreement
shall constitute a waiver of any other provisions hereof.
13.6 All of the terms and provisions contained herein shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
heirs, personal representatives, successors and assigns.
13.7 The captions appearing at the commencement of the sections hereof are
descriptive only and are for convenience of reference. Should there be any
conflict between any such caption and the section at the head of which it
appears, the substantive provisions of such section and not such caption shall
control and govern in the construction of this document.
13.8 This Agreement constitutes the entire understanding and agreement of
the parties with respect to the subject matter of this Agreement, and any and
all prior agreements, understandings or representations are hereby terminated
and canceled in their entirety.
13.9 The Option shall be effective as of September 29, 2000
ENERGY PRODUCERS, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇, CEO
-----------------------
▇▇▇ ▇▇▇▇▇▇
Authorized Signatory
OPTIONEE
▇▇▇▇ ▇. ▇▇▇▇▇▇, President
-------------------------
Authorized Signatory
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
TRUSTEE (AS HEREINAFTER DEFINED) TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM
WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE GRANTOR (AS
HEREINAFTER DEFINED) UNDER THIS MORTGAGE.
DEED OF TRUST, MORTGAGE, ASSIGNMENT,
SECURITY AGREEMENT AND FINANCING STATEMENT
THIS DEED OF TRUST, MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT AND FINANCING
STATEMENT (Line of Credit Mortgage) (this "Mortgage"),
W I T N E S S E T H:
ARTICLE I.
Granting Clauses; Secured Indebtedness
Section 1.1. Grant of Lien. Energy Producers, Inc., a Nevada corporation
(herein called "Grantor"), for and in consideration of the sum of Ten Dollars
($10.00) to Grantor in hand paid, in order to secure the payment of the secured
indebtedness (as hereinafter defined) and the performance of the obligations,
covenants, agreements, warranties and undertakings of Grantor hereinafter
described, does hereby GRANT, BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and SET
OVER to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee (herein called "Trustee") (and where appropriate
to effectuate the provisions of Section 4.4 hereof, does hereby grant to Trustee
a POWER OF SALE with respect thereto pursuant to this Mortgage and applicable
law, and where appropriate to effectuate the provisions of Section 4.5 hereof,
does hereby MORTGAGE, GRANT, BARGAIN, CONVEY, ASSIGN, WARRANT, PLEDGE and
HYPOTHECATE to Noteholder (as hereinafter defined), and grant to Noteholder a
POWER OF SALE with respect thereto pursuant to this Mortgage and applicable law)
the following:
A. The oil, gas and/or other mineral properties which are described in
Exhibit A attached hereto and made a part hereof;
B. Without limitation of the foregoing, all other right, title and
interest of Grantor of whatever kind or character (whether now owned or
hereafter acquired by operation of law or otherwise) in and to the lands
which are described or referred to in Exhibit A hereto as a part of the
descriptions (contained in such Exhibit A) of oil, gas and/or other mineral
properties, or which are otherwise described in any of the leases or other
instruments described in Exhibit A hereto, even though the interest of
Grantor in such lands may be incorrectly described in, or omitted from,
Exhibit A hereto;
C. All of Grantor's interest (whether now owned or hereafter acquired
by operation of law or otherwise) in and to all presently existing and
hereafter created oil, gas and/or mineral unitization, pooling and/or
communitization agreements, declarations and/or orders, and in and to the
properties covered and the units created thereby (including, without
limitation, units formed under orders, rules, regulations or other official
acts of any federal, state or other authority having jurisdiction and so
called "working interest units" created under operating agreements or
otherwise), which cover, affect or otherwise relate to the properties
described in clause A or B above;
D. All of Grantor's interest in and rights under (whether now owned or
hereafter acquired by operation of law or otherwise) all presently existing
and hereafter created operating agreements, equipment leases, production
sales, purchase, exchange and/or processing agreements, transportation
agreements, farmout and/or farm-in agreements, salt water disposal
agreements, area of mutual interest agreements, and other contracts and/or
agreements which cover, affect, or otherwise relate to the properties
described in clause A, B or C above or to the operation of such properties
or to the treating, handling, storing, transporting or marketing of oil,
gas, other hydrocarbons, or other minerals produced from (or allocated to)
such properties, including, but not limited to, those contracts listed in
Exhibit A hereto, as same may be amended or supplemented from time to time;
and
E. All of Grantor's interest (whether now owned or hereafter acquired
by operation of law or otherwise) in and to all equipment, improvements,
materials, supplies, fixtures, movable or immovable property and other
property (including, without limitation, all ▇▇▇▇▇, pumping units, wellhead
equipment, tanks, pipelines, flow lines, gathering lines, compressors,
dehydration units, separators, meters, buildings, injection facilities,
salt water disposal facilities, and power, telephone and telegraph lines)
and all easements, servitudes, rights-of-way, surface leases and other
surface rights, which are now or hereafter used, or held for use, in
connection with the properties described in clauses A, B and C above, or in
connection with the operation of such properties, or in connection with the
treating, handling, storing, transporting or marketing of oil, gas, other
hydrocarbons, or other minerals produced from (or allocated to) such
properties.
TO HAVE AND TO HOLD the foregoing rights, interests and properties, and all
rights, estates, powers and privileges appurtenant thereto (herein collectively
called the "Mortgaged Properties" and individually called a "Mortgaged
Property"), unto Trustee, and his successors or substitutes in this trust, and
to his or their successors and assigns, in trust, however, upon the terms,
provisions and conditions herein set forth.
Section 1.2. Grant of Security Interest. In order to further secure the
payment of the secured indebtedness and the performance of the obligations,
covenants, agreements, warranties, and undertakings of Grantor hereinafter
described, Grantor hereby grants to Noteholder a security interest in the entire
interest of Grantor (whether now owned or hereafter acquired by operation of law
or otherwise) in and to:
(a) the Mortgaged Properties;
(b) all oil, gas, other hydrocarbons, and other minerals produced from or
allocated to the Mortgaged Properties, and any products processed or
obtained therefrom (herein collectively called the "Production"), and
all liens and security interests in the Production securing payment of
the proceeds of the Production including, but not limited to, those
liens and security interests provided under statutes enacted in the
jurisdictions in which the Mortgaged Properties are located;
(c) all equipment, inventory, improvements, fixtures, accessions, goods
and other personal property of whatever nature now or hereafter
located on or used or held for use in connection with the Mortgaged
Properties (or in connection with the operation thereof or the
treating, handling, storing, transporting, processing, or marketing of
Production) and all renewals or replacements thereof or substitutions
therefor;
(d) all contract rights, contractual rights, and other general intangibles
related to the Mortgaged Properties, the operation thereof (whether
Grantor is operator or non-operator), or the treating, handling,
storing, transporting, processing, or marketing of Production, or
under which the proceeds of Production arise or are evidenced or
governed;
(e) all geological, geophysical, engineering, accounting, title, legal,
and other technical or business data concerning the Mortgaged
Properties, the Production, or any other item of Property (as
hereinafter defined) which are in the possession of Grantor or in
which Grantor can otherwise grant a security interest, and all books,
files, records, magnetic media, computer records, and other forms of
recording or obtaining access to such data;
(f) all money, documents, instruments, chattel paper, securities,
accounts, or general intangibles arising from or by virtue of any
transaction related to the Mortgaged Properties or the Production (all
of the properties, rights and interests described in subsections (a),
(b), (c), (d), and (e) above and this subsection (f) being herein
sometimes collectively called the "Collateral"); and
(g) all proceeds of the Collateral or payments in lieu of Production (such
as "take or pay" payments), whether such proceeds or payments are
goods, money, documents, instruments, chattel paper, securities,
accounts, general intangibles, fixtures, real/immovable property,
personal/movable property or other assets (the Mortgaged Properties,
the Collateral and the proceeds of the Collateral and payments in lieu
of Production being herein sometimes collectively called the
"Property").
Section 1.3. Note, Loan Documents, Other Obligations. This Mortgage is made
to secure and enforce the payment and performance of the following promissory
notes, obligations, indebtedness and liabilities:
(a) All indebtedness and other obligations now or hereafter arising
pursuant to the terms and provisions of that certain Note Agreement dated
of even date herewith between Grantor and Noteholder (herein called the
"Agreement");
(b) The following described promissory note:
(i) Promissory Note of even date herewith in the original
principal amount of One Million Fifty Thousand and 00/100 Dollars
($1,050,000.00) from Grantor, and payable to BaseLine Capital, Inc.;
and
(ii) The above described note and all other notes given in
substitution or replacement thereof or in modification, renewal or
extension thereof, in whole or in part.
The payee in the above described note, namely BaseLine Capital, Inc., is
hereinafter called "Lender". The above described note bears interest as therein
provided, and contains provisions for the payment of a reasonable additional
amount as attorneys fees. The above described note as from time to time
supplemented, amended, or modified and all other notes given in substitution or
replacement therefor, or in modification, renewal or extension thereof, in whole
or in part, being hereinafter called the "Note" and Lender and each subsequent
holder of the Note or any part thereof or interest therein, or any of the other
secured indebtedness being herein called "Noteholder";
(b) All indebtedness and other obligations owed to Noteholder now or
hereafter incurred or arising pursuant to or permitted by the provisions of
the Note, the Agreement, this Mortgage or any other instrument now or
hereafter evidencing, governing, guaranteeing or securing or otherwise
executed in connection with the loan evidenced by the Note, including but
not limited to any loan or credit agreement, tri-party financing agreement
or other agreement between Grantor and Noteholder, or among Grantor,
Noteholder and any other party or parties, pertaining to the repayment or
use of the proceeds of the loan evidenced by the Note or the Agreement (the
Agreement, the Note, this Mortgage and such other instruments being herein
sometimes collectively called the "Loan Documents"); and
(c) All other loans and future advances made by Noteholder to Grantor
and all other debts, obligations and liabilities of Grantor of every kind
and character now or hereafter existing in favor of Noteholder, whether
direct or indirect, primary or secondary, joint or several, fixed or
contingent, and whether originally payable to Noteholder or to a third
party and subsequently acquired by Noteholder, it being contemplated that
Grantor may hereafter become indebted to Noteholder for such further debts,
obligations and liabilities.
Section 1.4. Secured Indebtedness. The indebtedness referred to in Section
1.3, and all renewals, extensions and modifications thereof, and all
substitutions therefor, in whole or in part, are hereinafter sometimes referred
to as the "secured indebtedness" or the "indebtedness secured hereby".
ARTICLE II.
Representations, Warranties and Covenants
Section 2.1. Grantor represents, warrants, and covenants as follows:
(a) Title and Permitted Encumbrances. Grantor has, and Grantor covenants to
maintain, good and defensible title to the Property free and clear of all liens,
security interests, and encumbrances except for (i) the contracts, agreements,
burdens, encumbrances and other matters set forth in the descriptions of certain
of the Mortgaged Properties on Exhibit A hereto, (ii) the liens and security
interests evidenced by this Mortgage, (iii) statutory liens for taxes which are
not yet delinquent, (iv) liens under operating agreements, pooling orders and
unitization agreements, and mechanics' and materialmen's liens, with respect to
obligations which are not yet due, (v) other liens and security interests (if
any) in favor of Lender and (vi) minor defects and irregularities in title to
any Property, so long as such defects and irregularities neither (A) are liens
or security interests which secure other indebtedness or obligations nor (B)
materially impair the value of such Property or the use thereof for the purposes
for which such Property is held (the matters described in the foregoing clauses
(i), (ii), (iii), (iv), (v) and (vi) being herein called the "Permitted
Encumbrances"); Grantor will warrant and defend title to the Property, subject
as aforesaid, against the claims and demands (including claims which would be a
Permitted Encumbrance under item (vi) above) of all persons claiming or to claim
the same or any part thereof. With respect to each Mortgaged Property, the
ownership of Grantor in such Mortgaged Property does and will, (i) with respect
to each tract of land described in Exhibit A hereto in connection with such
Mortgaged Property, (A) entitle Grantor to receive (subject to the terms and
provisions of this Mortgage) a decimal or percentage share of the Production
produced from, or allocated to, such tract equal to not less than the decimal or
percentage share set forth in Exhibit A in connection with such tract opposite
the words "Net Revenue Interest" (or words of similar import), (B) cause Grantor
to be obligated to bear a decimal or percentage share of the cost of
exploration, development and operation of such tract of land not greater than
the decimal or percentage share set forth in Exhibit A in connection with such
tract opposite the words "Working Interest" (or words of similar import) and
(ii) if such Mortgaged Property is shown in Exhibit A to be subject to a unit or
units, with respect to each such unit, (A) entitle Grantor to receive (subject
to the terms and provisions of this Mortgage) a decimal or percentage share of
Production produced from, or allocated to, such unit equal to not less than the
decimal or percentage share set forth in Exhibit A in connection with such
Mortgaged Property opposite the words "Unit Net Revenue Interest" or words of
similar import (and if such Mortgaged Property is subject to more than one unit,
words identifying such interest with such unit), and (B) obligate Grantor to
bear a decimal or percentage share of the cost of exploration, development and
operation of such unit not greater than the decimal or percentage share set
forth in Exhibit A in connection with such Mortgaged Property opposite the words
"Unit Working Interest" or words of similar import (and if such Mortgaged
Property is subject to more than one unit, words identifying such interest with
such unit); such shares of Production which Grantor is entitled to receive, and
shares of expenses which Grantor is obligated to bear, are not and will not be
subject to change (other than changes which arise pursuant to non-consent
provisions of operating agreements described in Exhibit A in connection with
such Mortgaged Properties, respectively, in connection with operations hereafter
proposed) except, and only to the extent that, such changes are reflected in
Exhibit A. There is not and will not be any unexpired financing statement
covering any part of the Property on file in any public office naming any party
other than Lender as secured party. The execution, delivery and performance of
this Mortgage and the creation of the liens hereunder do not violate any
provision or constitute a default under any operating agreement or other
instrument which affects any Mortgaged Property or to which Grantor is a party.
(b) Leases and Contracts. The oil, gas and/or mineral leases, contracts and
other agreements forming a part of the Property, to the extent the same cover or
otherwise relate to the lands described or referred to in Exhibit A, are in full
force and effect, and Grantor agrees to maintain them in full force and effect,
including without limitation maintenance of productive capacity of each well or
unit comprising the Mortgaged Properties. All rents, royalties and other
payments due and payable under such leases, contracts and other agreements, or
under the Permitted Encumbrances, have been, and Grantor covenants such payments
shall be, properly and timely paid, and Grantor is not in default and will never
be in default with respect to Grantor's obligations (and Grantor is not aware of
any default by any third party with respect to such third party's obligations)
under such leases, contracts and other agreements, or under the Permitted
Encumbrances, or otherwise attendant to the ownership or operation of any part
of the Property, where such default could adversely affect the ownership or
operation of the Property. Grantor is not currently accounting (and will not
hereafter agree to account) for any royalties, or overriding royalties or other
payments out of production, on a basis (other than delivery in kind) where such
payments are based other than on proceeds received by Grantor from sale, and
Grantor has advised Lender in writing of situations, if any, where a contingent
liability to so account may exist.
(c) Contracts and Credits for Sale of Production. Neither Grantor, nor its
predecessors in title, have received prepayments (including, but not limited to,
payments for gas not taken pursuant to "take or pay" arrangements) for
Production produced or to be produced from the Mortgaged Properties after the
Effective Date, except as expressly set forth in Exhibit A hereto following the
description of each affected Mortgaged Property. No Mortgaged Property is or
will become subject to a gas sales contract containing a "take or pay" or "take
and pay" provision as to which the purchaser's obligations under such provision
may be satisfied in whole or in part by the purchase or transportation of gas
from another property. No Mortgaged Property is or will become subject to any
contractual or other arrangement whereby payment for production from such
Mortgaged Property is to be deferred for a substantial period after the month in
which such production is delivered (i.e., in the case of oil, not in excess of
60 days, and in the case of gas, not in excess of 90 days). No Mortgaged
Property is or will become subject to any contractual or other arrangement for
the sale of Production which cannot be cancelled on 90 days' (or less) notice or
which otherwise contains terms which are not customary in the industry at the
time such contract is entered into. No Mortgaged Property is subject at the
present time to any regulatory refund obligation and, to the best of Grantor's
knowledge, no facts exist which might cause the same to be imposed. Except as
set forth in Exhibit A, no Mortgaged Property is or will be subject to a gas
balancing arrangement under which an imbalance exists with respect to which
imbalance Grantor is in an overproduced status and is required to (i) permit one
or more third parties to take a portion of the production attributable to such
Mortgaged Property without payment (or without full payment) therefor and/or
(ii) make payment in cash in order to correct such imbalance.
(d) Condition of Personal Property. The inventory, equipment, fixtures and
other tangible personal property forming a part of the Property are and will
remain, in good repair and condition and are and will be adequate for the normal
operation of the Property in accordance with prudent industry standards; all of
such Property is, and will remain, located on the Mortgaged Properties, except
for that portion thereof which is or shall be located elsewhere (including that
usually located on the Mortgaged Properties but temporarily located elsewhere)
but within the same State in the course of the normal operation of the Property.
Upon request of Noteholder, Grantor will deliver to Noteholder an inventory
and/or financing statements describing and showing the make, model, serial
number and location of all equipment, inventory, fixtures and other tangible
personal property forming a part of the Property and schedules of all internal
and third party information identifying the Property (such as, for example,
lease names and numbers assigned by Grantor or the operator of any Mortgaged
Property, division order and payment names and numbers assigned by purchasers of
Production, and internal identification names and numbers used by Grantor in
accounting for revenues, costs, and joint interest transactions attributable to
the Mortgaged Properties).
(e) Operation of Mortgaged Properties. The Mortgaged Properties (and
properties unitized therewith) are being (and, to the extent the same could
adversely affect the ownership or operation of the Mortgaged Properties after
the Effective Date, have in the past been) and hereafter will be maintained,
operated and developed in a good and workmanlike manner and in conformity with
all applicable laws and all rules, regulations and orders of all duly
constituted authorities having jurisdiction and in conformity with all oil, gas
and/or other mineral leases and other contracts and agreements forming a part of
the Property and in conformity with the Permitted Encumbrances. Without limiting
the foregoing, (i) no Mortgaged Property is subject to having allowable
production after the Effective Date reduced below the full and regular allowable
(including the maximum permissible tolerance) because of any overproduction
(whether or not the same was permissible at the time) prior to the Effective
Date and (ii) none of the ▇▇▇▇▇ located on the Mortgaged Properties (or
properties unitized therewith) are or will be deviated from the vertical more
than the maximum permitted by applicable laws, regulations, rules and orders,
and such ▇▇▇▇▇ are, in fact and will remain, bottomed under and are producing
from, and the well bores are wholly within, the Mortgaged Properties (or, in the
case of ▇▇▇▇▇ located on properties unitized therewith, such unitized
properties).
(f) Taxes and Other Obligations. Grantor will pay and discharge when due
all of the secured indebtedness and its other indebtedness and obligations.
Grantor has filed, and will file, all required tax returns and has paid, and
will pay, all taxes and other governmental charges or levies imposed upon or
against its income, properties or profits, before the same became, or becomes,
in default, including but not limited to all ad valorem taxes assessed against
the Property or any part thereof and all franchise taxes, occupation taxes and
all production, severance, windfall profit, excise and other taxes assessed
against, or measured by, the Production or the value, or proceeds, of the
Production; provided that Grantor may delay paying and discharging any
indebtedness or obligations (other than the secured indebtedness) so long as it
is in good faith contesting the validity thereof by appropriate proceedings and
has set aside on its books adequate reserves therefor.
(g) Suits and Claims. There are no suits, actions, claims, investigations,
inquiries, proceedings or demands pending (or, to Grantor's knowledge,
threatened) which affect the Property (including, without limitation, any which
challenge or otherwise pertain to Grantor's title to the Property) and no
judicial or administrative actions, suits or proceedings pending (or, to
Grantor's knowledge, threatened) against Grantor.
(h) Reports. All reports, statements and other data heretofore furnished or
hereafter to be furnished by or on behalf of Grantor to Noteholder in connection
with the loan or loans evidenced by the Loan Documents (including, without
limitation, information with respect to the amount of Production from the
Mortgaged Properties, and information, whether furnished directly or subsumed in
the assumptions made in any engineering report furnished to Noteholder,
concerning contractual and regulatory constraints on the prices at which such
Production can be sold and the status of such Production for the purposes of the
Crude Oil Windfall Profit Tax of 1980, as amended) are and will be true and
correct in all material respects as of their respective dates and do not and
will not omit to state any fact or circumstance necessary to make the statements
contained therein not misleading.
(i) Name and Place of Business. Grantor has not, during the preceding five
years, been known by or used any other corporate or partnership, trade or
fictitious name. Grantor will not cause or permit any change to be made in its
name, identity, or corporate or partnership structure, unless Grantor shall have
notified Noteholder of such change at least thirty (30) days prior to the
effective date of such change, and shall have first taken all action required by
Noteholder for the purpose of further perfecting or protecting the lien and
security interest of Noteholder in the Property. Grantor's principal place of
business and chief executive office, and the place where Grantor keeps its books
and records concerning the Property (including, particularly, the records with
respect to Production Proceeds (as defined in Section 3.1) hereof, from the
Mortgaged Properties) has for the preceding four months and will continue to be
(unless Grantor notifies Noteholder of any change in writing at least thirty
(30) days prior to the date of such change) the address set forth opposite the
signature of Grantor to this Mortgage.
(j) Organization. In the event Grantor is a corporation, partnership, or
other legal entity which is not a natural person, Grantor is and will continue
to be duly organized, validly existing and in good standing under the laws of
its state of incorporation or other form of organization and is and will
continue to be authorized to do business in, and in good standing in, each state
which the Mortgaged Properties are located and in each other jurisdiction where
the nature of Grantor or the nature of the business transacted by Grantor makes
such qualification necessary. Grantor has all requisite corporate or other power
to carry on its business and to enter into, and carry out, the transactions
contemplated by the Loan Documents and perform its obligations under the Loan
Documents. All necessary corporate or other action has been taken to authorize
the execution and delivery by Grantor (and the individuals acting on behalf of
Grantor) of the Loan Documents and to authorize the consummation of the
transactions contemplated by the Loan Documents and the performance by Grantor
of its obligations under the Loan Documents. The execution and delivery by
Grantor of the Loan Documents, the consummation of the transactions contemplated
by the Loan Documents and the performance by Grantor of its obligations under
the Loan Documents do not and will not (i) conflict with any provision of any
(A) law, statute, rule, or regulation in effect on the date hereof, (B) the
Articles or Certificate of Incorporation or Bylaws, or the partnership agreement
or other charter documents, of Grantor, or (C) any judgment, decree, order,
license, permit or agreement applicable to or binding upon Grantor or Grantor's
assets or properties or (ii) result in the creation of any lien, charge or
encumbrance against any assets or properties of Grantor except as expressly
contemplated by the Loan Documents. No waiver, consent, approval, authorization
or order of any court or governmental authority or third party is required in
connection with the execution and delivery by Grantor of the Loan Documents, or
the consummation of the transactions contemplated thereby or the performance by
Grantor of its obligations thereunder. The Loan Documents constitute legal,
valid and binding obligations of Grantor enforceable in accordance with their
terms, except as limited by bankruptcy, insolvency or similar laws of general
application related to the enforcement of creditor's rights and except as the
availability of certain remedies may be limited by general equitable principles.
(k) Environmental.
(i) Current Status. The Property and Grantor and, to the best knowledge of
Grantor, any property adjoining the Property are not in violation of or subject
to any existing, pending or, to the best knowledge of Grantor, threatened
investigation or inquiry by any governmental authority or to any remedial
obligations under any applicable laws or regulations pertaining to health or the
environment (such laws or regulations as they now exist or are hereafter enacted
and/or amended hereinafter sometimes collectively called "Applicable
Environmental Laws"), including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended,
hereinafter called "CERCLA"), the Resource Conservation and Recovery Act of
1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal
Act Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended, hereinafter called "RCRA"), the Toxic Substance Control Act, the Texas
Water Code, the Texas Solid Waste Disposal Act and the Texas Clean Air Act, and
this representation will continue to be true and correct following disclosure to
the applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Property and Grantor. Grantor
undertook, at the time of acquisition of the Property, all appropriate inquiry
into the previous ownership and uses of the Property consistent with good
commercial or customary practice to determine if the Property is in violation of
any Applicable Environmental Laws. Grantor has taken all steps necessary to
determine and has determined that no hazardous substances or solid wastes have
been disposed of or otherwise released on or to the Property except in
accordance with Applicable Environmental Laws. The use which Grantor makes and
intends to make of the Property will not result in the disposal or other release
of any hazardous substance or solid waste on or to the Property except in
accordance with Applicable Environmental Laws. The terms "hazardous substance"
and "release" as used in this Mortgage shall have the meanings specified in
CERCLA, and the terms "solid waste" and "disposal" (or "disposed") shall have
the meanings specified in RCRA; provided, in the event either CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and
provided further, to the extent that the laws of the State of Texas or other
applicable jurisdiction establish a meaning for "hazardous substance,"
"release," "solid waste," or "disposal" which is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply. The "Associated
Property" (as hereinafter defined) is not in violation of any Applicable
Environmental Law for which Grantor or its predecessors in interest in the
Property would be responsible. As used in this Mortgage, the term "Associated
Property" means any and all real and/or personal property interests in and to
(and/or carved out of) the lands which are described or referred to in Exhibit A
hereto, or which are otherwise described in any of the oil, gas and/or mineral
leases or other instruments described or referred to in such Exhibit A.
(ii) Future Performance. Grantor will not cause or permit the Property, the
Associated Property or Grantor to be in violation of, or do anything or permit
anything to be done which will subject the Property or the Associated Property
to any remedial obligations under any Applicable Environmental Laws, including
without limitation CERCLA, RCRA, the Toxic Substance Control Act, the Texas
Water Code, the Texas Clean Air Act and the Texas Solid Waste Disposal Act,
assuming disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the Property or
Associated Property and Grantor will promptly notify Noteholder in writing of
the presence of any hazardous substance or solid waste on the Property or the
Associated Property and of any existing, pending or, to the best knowledge of
Grantor, threatened investigation or inquiry by any governmental authority in
connection with any Applicable Environmental Laws. Grantor will take all steps
necessary to determine that no hazardous substances or solid wastes have been
disposed of or otherwise released on or to the Property or Associated Property
except in accordance with Applicable Environmental Laws. Grantor will not cause
or permit the disposal or other release of any hazardous substance or solid
waste on or to the Property, or the Associated Property or any property
adjoining the Property except in accordance with Applicable Environmental Laws
and covenants and agrees to keep or cause the Property and the Assciated
Property to be kept free of any hazardous substance or solid waste and to remove
the same (or if removal is prohibited by law, to take whatever action is
required by law) promptly upon discovery at its sole expense. Upon Noteholder's
reasonable request, at any time and from time to time during the existence of
this Mortgage, Grantor will provide at Grantor's sole expense an inspection or
audit of the Property and the Associated Property from an engineering or
consulting firm approved by Noteholder, indicating the presence or absence of
hazardous substances and solid waste on the Property. If Grantor fails to
provide same after ten (10) days' notice, Noteholder may order same, and Grantor
grants to Noteholder and its employees, agents, contractors and consultants
access to the Property and the Associated Property and a license (which is
coupled with an interest and irrevocable while this Mortgage is in effect) to
perform inspection and tests. The cost of such inspections and tests shall be a
demand obligation owing by Grantor to Noteholder pursuant to this Mortgage and
shall be subject to and covered by the provisions of paragraph 2.3 hereof. The
Noteholder's rights under this paragraph are for the sole purpose of protecting
the Noteholder's security for the repayment of the secured indebtedness.
(l) Not a Foreign Person. Grantor is not a "foreign person" within the
meaning of the Internal Revenue Code of 1986, as amended (hereinafter called the
"Code"), Sections 1445 and 7701 (i.e. Grantor is not a non-resident alien,
foreign corporation, foreign partnership, foreign trust or foreign estate as
those terms are defined in the Code and any regulations promulgated thereunder).
(m) Payment. Grantor will make due and punctual payment of the Note and of
all other secured indebtedness and of all installments of principal thereof or
interest thereon, as the same become due and payable, whether at a date for
payment of a fixed installment, or contingent or other payment, or as a result
of acceleration or otherwise. Grantor will timely and properly perform all of
the covenants, agreements, and conditions imposed upon it by this Mortgage or
the Loan Documents and will not permit a default to occur hereunder or
thereunder.
(n) Not Abandon ▇▇▇▇▇ and Participate in Operations. Grantor will not,
without prior written consent of Noteholder, abandon, or consent to the
abandonment of, any well producing from the Mortgaged Properties (or properties
unitized therewith) so long as such well is capable (or is subject to being made
capable through drilling, reworking or other operations which it would be
commercially feasible to conduct) of producing oil, gas, or other hydrocarbons
or other minerals in commercial quantities (as determined without considering
the effect of this Mortgage). Grantor will not, without prior written consent of
Noteholder, elect not to participate in a proposed operation on the Mortgaged
Properties where the effect of such election would be the forfeiture either
temporarily (i.e. until a certain sum of money is received out of the forfeited
interest) or permanently of any interest in the Mortgaged Properties.
(o) Defense of Mortgage. If the validity or priority of this Mortgage or of
any rights, titles, liens or security interests created or evidenced hereby with
respect to the Property or any part thereof or the title of Grantor to the
Property shall be endangered or questioned or shall be attacked directly or
indirectly or if any legal proceedings are instituted against Grantor with
respect thereto, Grantor will give prompt written notice thereof to Noteholder
and at Grantor's own cost and expense will diligently endeavor to cure any
defect that may be developed or claimed, and will take all necessary and proper
steps for the defense of such legal proceedings, including, but not limited to,
the employment of counsel, the prosecution or defense of litigation and the
release or discharge of all adverse claims, and Trustee and Noteholder, or
either of them (whether or not named as parties to legal proceedings with
respect thereto), are hereby authorized and empowered to take such additional
steps as in their judgment and discretion may be necessary or proper for the
defense of any such legal proceedings or the protection of the validity or
priority of this Mortgage and the rights, titles, liens and security interests
created or evidenced hereby, including but not limited to the employment of
independent counsel, the prosecution or defense of litigation, the compromise or
discharge of any adverse claims made with respect to the Property, the purchase
of any tax title and the removal of prior liens or security interests, and all
expenditures so made of every kind and character shall be a demand obligation
(which obligation Grantor hereby expressly promises to pay) owing by Grantor to
Noteholder or Trustee (as the case may be) and shall bear interest from the date
expended until paid at the rate described in Section 2.3 hereof, and the party
incurring such expenses shall be subrogated to all rights of the person
receiving such payment.
(p) Further Assurances. Grantor will, on request of Noteholder, (i)
promptly correct any defect, error or omission which may be discovered in the
contents of this Mortgage, or in any other Loan Document, or in the execution or
acknowledgment of this Mortgage or any other Loan Document; (ii) execute,
acknowledge, deliver and record and/or file such further instruments (including,
without limitation, further deeds of trust, security agreements, financing
statements, continuation statements, and assignments of production, accounts,
funds, contract rights, general intangibles, and proceeds) and do such further
acts as may be necessary, desirable or proper to carry out more effectively the
purposes of this Mortgage and the other Loan Documents and to more fully
identify and subject to the liens and security interests hereof any property
intended to be covered hereby, including specifically, but without limitation,
any renewals, additions, substitutions, replacements, or appurtenances to the
Property; and (iii) execute, acknowledge, deliver, and file and/or record any
document or instrument (including specifically any financing statement)
reasonably requested by Noteholder to protect the lien or the security interest
hereunder against the rights or interests of third persons. Grantor shall pay
all costs connected with any of the foregoing.
(q) Fees and Expenses; INDEMNITY. Grantor will pay all appraisal fees,
recording fees, taxes, brokerage fees and commissions, abstract and other
records search fees, attorneys' fees and expenses and all other costs and
expenses of every character incurred by Grantor or Noteholder in connection with
the closing of the loan or loans evidenced by the Loan Documents and any and all
amendments, supplements or modifications to such loan transaction or
transactions. Grantor will reimburse Trustee and Noteholder for all
expenditures, including reasonable attorneys' fees and expenses, incurred or
expended in connection with (i) the breach by Grantor of any covenant, agreement
or condition contained herein or in any other Loan Document, (ii) Noteholder's
exercise of any of its rights and remedies hereunder or under any other Loan
Document, and (iii) the protection of the Property and/or Noteholder's liens and
security interests therein. GRANTOR WILL INDEMNIFY AND HOLD HARMLESS TRUSTEE AND
NOTEHOLDER (FOR PURPOSES OF THIS PARAGRAPH, THE TERMS "TRUSTEE" AND "NOTEHOLDER"
SHALL INCLUDE THE DIRECTORS, OFFICERS, PARTNERS, EMPLOYEES AND AGENTS OF TRUSTEE
AND NOTEHOLDER, RESPECTIVELY,(AND ANY PERSONS OR ENTITIES OWNED OR CONTROLLED BY
OR AFFILIATED WITH TRUSTEE AND NOTEHOLDER, RESPECTIVELY) FROM AND AGAINST ALL
CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING WITHOUT LIMITATION
CONSEQUENTIAL DAMAGES), CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES AND EXPENSES)
WHICH MAY BE IMPOSED UPON, ASSERTED AGAINST OR INCURRED OR PAID BY EITHER OF
THEM ON ACCOUNT OF, IN CONNECTION WITH, OR ARISING OUT OF (A) ANY BODILY INJURY
OR DEATH OR PROPERTY DAMAGE OCCURRING IN OR UPON OR IN THE VICINITY OF THE
PROPERTY THROUGH ANY CAUSE WHATSOEVER, (B) ANY ACT PERFORMED OR OMITTED TO BE
PERFORMED HEREUNDER OR THE BREACH OF ANY REPRESENTATION OR WARRANTY HEREIN, (C)
THE EXERCISE OF NOTEHOLDER'S RIGHTS AND REMEDIES HEREUNDER OR UNDER ANY OTHER
LOAN DOCUMENT, (D) ANY TRANSACTION, ACT, OMISSION, EVENT OR CIRCUMSTANCE ARISING
OUT OF OR IN ANY WAY CONNECTED WITH THE PROPERTY OR WITH THIS MORTGAGE OR ANY
OTHER LOAN DOCUMENT, (E) ANY VIOLATION ON OR BEFORE THE RELEASE DATE (AS
HEREINAFTER DEFINED) OF ANY APPLICABLE ENVIRONMENTAL LAW IN EFFECT ON OR BEFORE
THE RELEASE DATE, (F) ANY ACT, OMISSION, EVENT OR CIRCUMSTANCE EXISTING OR
OCCURRING ON OR PRIOR TO THE RELEASE DATE (INCLUDING WITHOUT LIMITATION THE
PRESENCE ON THE PROPERTY OR THE ASSOCIATED PROPERTY OR RELEASE FROM THE PROPERTY
OR THE ASSOCIATED PROPERTY OF HAZARDOUS SUBSTANCES OR SOLID WASTES DISPOSED OF
OR OTHERWISE RELEASED ON OR PRIOR TO THE RELEASE DATE), RESULTING FROM OR IN
CONNECTION WITH THE OWNERSHIP, CONSTRUCTION, OCCUPANCY, OPERATION, USE AND/OR
MAINTENANCE OF THE PROPERTY OR THE ASSOCIATED PROPERTY, REGARDLESS OF WHETHER
THE ACT, OMISSION, EVENT OR CIRCUMSTANCE CONSTITUTED A VIOLATION OF ANY
APPLICABLE ENVIRONMENTAL LAW AT THE TIME OF ITS EXISTENCE OR OCCURRENCE, AND (G)
ANY AND ALL CLAIMS OR PROCEEDINGS (WHETHER BROUGHT BY PRIVATE PARTY OR
GOVERNMENTAL AGENCIES) FOR BODILY INJURY, PROPERTY DAMAGE, ABATEMENT OR
REMEDIATION, ENVIRONMENTAL DAMAGE OR IMPAIRMENT OR ANY OTHER INJURY OR DAMAGE
RESULTING FROM OR RELATING TO ANY HAZARDOUS OR TOXIC SUBSTANCE, SOLID WASTE OR
CONTAMINATED MATERIAL LOCATED UPON OR MIGRATING INTO, FROM OR THROUGH THE
PROPERTY OR THE ASSOCIATED PROPERTY (WHETHER OR NOT THE RELEASE OF SUCH
MATERIALS WAS CAUSED BY GRANTOR, A TENANT OR SUBTENANT OR A PRIOR OWNER OR
TENANT OR SUBTENANT ON THE PROPERTY OR THE ASSOCIATED PROPERTY AND WHETHER OR
NOT THE ALLEGED LIABILITY IS ATTRIBUTABLE TO THE HANDLING, STORAGE, GENERATION,
TRANSPORTATION, REMOVAL OR DISPOSAL OF SUCH SUBSTANCE, WASTE OR MATERIAL OR THE
MERE PRESENCE OF SUCH SUBSTANCE, WASTE OR MATERIAL ON THE PROPERTY OR THE
ASSOCIATED PROPERTY), WHICH THE NOTEHOLDER AND/OR THE TRUSTEE MAY INCUR DUE TO
THE MAKING OF THE LOAN EVIDENCED BY THE NOTE, THE EXERCISE OF ANY OF THEIR
RIGHTS UNDER THE LOAN DOCUMENTS OR OTHERWISE. THE "RELEASE DATE" AS USED HEREIN
SHALL MEAN THE EARLIER OF THE FOLLOWING TWO DATES: (i) THE DATE ON WHICH THE
INDEBTEDNESS SECURED HEREBY HAVE BEEN PAID AND PERFORMED IN FULL AND THIS
MORTGAGE HAS BEEN RELEASED, OR (ii) THE DATE ON WHICH THE LIEN OF THIS MORTGAGE
IS FORECLOSED OR A DEED IN LIEU OF SUCH FORECLOSURE IS FULLY EFFECTIVE. WITHOUT
LIMITATION, IT IS THE INTENTION OF GRANTOR AND GRANTOR AGREES THAT THE FOREGOING
INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS,
DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES,
COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES)
WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH
(AND/OR ANY OTHER) INDEMNIFIED PARTY. HOWEVER, SUCH INDEMNITIES SHALL NOT APPLY
TO ANY PARTICULAR INDEMNIFIED PARTY (BUT SHALL APPLY TO THE OTHER INDEMNIFIED
PARTIES) TO THE EXTENT THE SUBJECT OF THE INDEMNIFICATION IS CAUSED BY OR ARISES
OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PARTICULAR INDEMNIFIED
PARTY. THE FOREGOING INDEMNITIES SHALL NOT TERMINATE UPON THE RELEASE DATE OR
UPON THE RELEASE, FORECLOSURE OR OTHER TERMINATION OF THIS MORTGAGE BUT WILL
SURVIVE THE RELEASE DATE, FORECLOSURE OF THIS MORTGAGE OR CONVEYANCE IN LIEU OF
FORECLOSURE, AND THE REPAYMENT OF THE SECURED INDEBTEDNESS AND THE DISCHARGE AND
RELEASE OF THIS MORTGAGE AND THE OTHER LOAN DOCUMENTS. ANY AMOUNT TO BE PAID
HEREUNDER BY GRANTOR TO NOTEHOLDER AND/OR TRUSTEE SHALL BE A DEMAND OBLIGATION
OWING BY GRANTOR TO NOTEHOLDER AND/OR TRUSTEE AND SHALL BE SUBJECT TO AND
COVERED BY THE PROVISIONS OF PARAGRAPH 2.3 HEREOF.
(r) Disposition of Property. Grantor shall account fully and faithfully for
and, if Noteholder so elects, shall promptly pay or turn over to Noteholder the
proceeds in whatever form received from disposition in any manner of any of the
Property.
(s) Records and Financial Reports. Grantor will keep accurate books and
records in which full, true and correct entries shall be promptly made with
respect to the Property and the operation thereof. Unless otherwise directed in
any loan or credit agreement which is one of the Loan Documents, Grantor will
furnish to Noteholder, as soon as reasonably practicable, but in any event
within 90 days after the end of each fiscal quarter of Grantor, a balance sheet
as of the end of such quarter and a statement of operations for such quarter,
and as soon as reasonably practical, but in any event within 120 days following
the end of each fiscal year, similar data with respect to such fiscal year and a
report thereon prepared by independent certified public accountants acceptable
to Noteholder. Grantor will, upon request, furnish to Noteholder any information
which Noteholder may from time to time reasonably request concerning any
covenant, provision or condition of this Mortgage or any other of the Loan
Documents or any matter in connection with the business and operations of
Grantor. Grantor will permit representatives appointed by Noteholder, including
independent accountants, agents, attorneys, appraisers, inspectors and any other
persons, to visit and inspect during its normal business hours and at any other
reasonable times any of its property, including its books of account, other
books and records, and any facilities or other business assets, and to make
extra copies therefrom, photocopies thereof, photographs thereof, and to write
down and record any information such representatives obtain, and shall permit
Noteholder or its representatives to investigate and verify the accuracy of the
information furnished to Noteholder under or in connection with this Mortgage or
any of the other Loan Documents and to discuss all such matters with its
officers, employees and representatives. Grantor will furnish to Noteholder at
Grantor's expense all evidence which Noteholder may from time to time reasonably
request as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by Grantor in the Loan Documents,
the satisfaction of all conditions contained therein, and all other matters
pertaining thereto.
(t) No Credits Against Take or Pay Provisions. Grantor will not, without
prior written consent of Noteholder, authorize the purchaser or transporter of
gas from another property to satisfy such purchaser's or transporter's
obligations under a "take or pay" or "take and pay" provision of a gas sales
contract covering all or any part of the Mortgaged Properties by the purchase or
transportation of gas from such other property.
(u) Insurance. Grantor will keep such part of the Property which is of an
insurable nature and of a character usually insured by persons operating similar
properties, insured with companies of recognized responsibility satisfactory to
Noteholder and in such amounts as are acceptable to Noteholder (and in the
absence of specification of such amounts by Noteholder, in the amount of the
full value of such Property, less reasonable deductibles not to exceed
deductibles customary in the industry for similarly situated businesses and
properties), against loss or damage by fire, casualty and from other hazards
customarily insured against by persons operating similar properties. Grantor
shall also provide such other insurance as Noteholder may from time to time
reasonably require; such coverage to be carried with companies of recognized
responsibility satisfactory to Noteholder. All policies evidencing such
insurance shall contain clauses providing that the proceeds thereof shall be
payable to Noteholder as its interest may appear and providing that such
policies may not be cancelled, reduced or otherwise affected without at least
thirty (30) days' prior written notice to Noteholder. Upon request by
Noteholder, Grantor shall deliver to Noteholder the original policies, evidence
of payment of premiums, certificates evidencing renewals, and such other
information regarding such insurance as Noteholder may request. In the event of
any loss under any of such policies, Noteholder shall have the right (but not
the obligation) to make proof of loss and collect the same, and all amounts so
received shall be applied toward costs, charges and expenses (including
reasonable attorneys' fees), if any, incurred in the collection thereof, then to
the payment, in the order determined by Noteholder in its own discretion, of the
secured indebtedness, and any balance remaining shall be subject to the order of
Grantor. Noteholder is hereby authorized but not obligated to enforce in its
name or in the name of Grantor payment of any or all of said policies or settle
or compromise any claim in respect thereof, and to collect and make receipts for
the proceeds thereof and Noteholder is hereby appointed Grantor's Agent and
Attorney-in-Fact (such power of attorney being coupled with interest and
irrevocable until the secured indebtedness is paid in full and this Mortgage has
been released) to endorse any check or draft payable to Grantor in order to
collect the proceeds of insurance. In the event of foreclosure of this Mortgage,
or other transfer of title to the Property in extinguishment in whole or in part
of the secured indebtedness, all right, title and interest of Grantor in and to
such policies then in force concerning the Property and all proceeds payable
thereunder shall thereupon vest in the purchaser at such foreclosure or
Noteholder or other transferee in the event of such other transfer of title.
Grantor shall at all times maintain adequate insurance against its liability on
account of damages to persons or property, which insurance shall be carried by
companies of recognized responsibility satisfactory to Noteholder, and shall be
for such amounts and insure against such risks as are customary in the industry
for similarly situated businesses and properties. Grantor shall at all times
maintain cost of regaining control of well insurance and similar insurance to
the extent customary in the industry in the pertinent area of operations.
(v) Taxes on Note or Mortgage. Grantor will promptly pay all income,
franchise and other taxes owing by Grantor and any stamp taxes or other taxes
(unless such payment by Grantor is prohibited by law) which may be required to
be paid with respect to the Note, this Mortgage or any other instrument
evidencing or securing any of the secured indebtedness. In the event of the
enactment after this date of any law of any governmental entity applicable to
Noteholder, the Note, the Property or this Mortgage deducting from the value of
property for the purpose of taxation any lien or security interest thereon, or
imposing upon Noteholder the payment of the whole or any part of the taxes or
assessments or charges or liens herein required to be paid by Grantor, or
changing in any way the laws relating to the taxation of deeds of trust or
mortgages or security agreements or debts secured by deeds of trust or mortgages
or security agreements or the interest of the mortgagee or secured party in the
property covered thereby, or the manner of collection of such taxes, so as to
affect this Mortgage or the indebtedness secured hereby or Noteholder, then, and
in any such event, Grantor, upon demand by Noteholder, shall pay such taxes,
assessments, charges or liens, or reimburse Noteholder therefor; provided,
however, that if in the opinion of counsel for Noteholder (i) it might be
unlawful to require Grantor to make such payment or (ii) the making of such
payment might result in the imposition of interest beyond the maximum amount
permitted by law, then and in such event, Noteholder may elect, by notice in
writing given to Grantor, to declare all of the indebtedness secured hereby to
be and become due and payable sixty (60) days from the giving of such notice.
(w) Statement Concerning Note or Mortgage. Grantor shall at any time and
from time to time furnish promptly upon request by Noteholder a written
statement in such form as may be required by Noteholder stating that (i) the
Note, this Mortgage and the other Loan Documents are valid and binding
obligations of Grantor, enforceable against Grantor in accordance with their
terms except as limited by bankruptcy, insolvency or similar laws of general
application related to the enforcement of creditor's rights and except as the
availability of certain remedies may be limited by general equitable principles;
(ii) the unpaid principal balance of the Note; (iii) the date to which interest
on the Note is paid; (iv) that the Note, this Mortgage and the other Loan
Documents have not been released, subordinated or modified; and (v) that there
are no offsets or defenses against the enforcement of the Note, this Mortgage or
any other Loan Document. If any of the foregoing statements are untrue, Grantor
shall, alternatively, specify the reasons therefor.
Section 2.2. Compliance by Operator. As to any part of the Mortgaged
Properties which is not a working interest, Grantor agrees to take all such
action and to exercise all rights and remedies as are available to Grantor to
cause the owner or owners of the working interest in such properties to comply
with the covenants and agreements contained herein; and as to any part of the
Mortgaged Properties which is a working interest but which is operated by a
party other than Grantor, Grantor agrees to take all such action and to exercise
all rights and remedies as are available to Grantor (including, but not limited
to, all rights under any Operating Agreement) to cause the party who is the
operator of such property to comply with the covenants and agreements contained
herein.
Section 2.3. Performance by Noteholder on Grantor's Behalf. Grantor agrees
that, if Grantor fails to perform any act or to take any action which hereunder
Grantor is required to perform or take, or to pay any money which hereunder
Grantor is required to pay, Noteholder, in Grantor's name or its own name, may,
but shall not be obligated to, perform or cause to be performed such act or take
such action or pay such money, and any expenses so incurred by Noteholder and
any money so paid by Noteholder, shall be a demand obligation owing by Grantor
to Noteholder (which obligation Grantor hereby expressly promises to pay) and
Noteholder, upon making such payment, shall be subrogated to all of the rights
of the person, corporation or body politic receiving such payment. Each amount
due and owing by Grantor to Noteholder pursuant to this Mortgage shall bear
interest each day, from the date of such expenditure or payment until paid, at
the rate of 18% per annum; all such amounts, together with such interest
thereon, shall be a part of the secured indebtedness and shall be secured by
this Mortgage.
ARTICLE III.
Assignment of Production, Accounts, and Proceeds
Section 3.1. Assignment of Production. Grantor does hereby absolutely and
unconditionally assign, transfer and set over to Noteholder all Production which
accrues after the Effective Date (as hereinafter defined) to Grantor's interest
in the Mortgaged Properties, all proceeds of such Production and payments in
lieu of Production such as "take or pay" proceeds and payments in lieu of
Production being herein referred to as the "Production Proceeds"), together with
the immediate and continuing right to collect and receive such Production
Proceeds. Grantor directs and instructs any and all purchasers of any Production
to pay to Noteholder all of the Production Proceeds accruing to Grantor's
interest until such time as such purchasers have been furnished with evidence
that all secured indebtedness has been paid and that this Mortgage has been
released. Grantor agrees that no purchasers of the Production shall have any
responsibility for the application of any funds paid to Noteholder.
Section 3.2. Effectuating Payment of Production Proceeds to Noteholder.
Independent of the foregoing provisions and authorities herein granted, Grantor
agrees to execute and deliver any and all transfer orders, division orders and
other instruments that may be requested by Noteholder or that may be required by
any purchaser of any Production for the purpose of effectuating payment of the
Production Proceeds to Noteholder. If under any existing sales agreements, other
than division orders or transfer orders, any Production Proceeds are required to
be paid by the purchaser to Grantor so that under such existing agreements
payment cannot be made of such Production Proceeds to Noteholder, Grantor's
interest in all Production Proceeds under such sales agreements and in all other
Production Proceeds which for any reason may be paid to Grantor shall, when
received by Grantor, constitute trust funds in Grantor's hands and shall be
immediately paid over to Noteholder. Without limitation upon any of the
foregoing, Grantor hereby constitutes and appoints Noteholder as Grantor's
special attorney-in-fact (with full power of substitution, either generally or
for such periods or purposes as Noteholder may from time to time prescribe) in
the name, place and stead of Grantor to do any and every act and exercise any
and every power that Grantor might or could do or exercise personally with
respect to all Production and Production Proceeds (the same having been assigned
by Grantor to Noteholder pursuant to Section 3.1 hereof), expressly inclusive,
but not limited to, the right, power and authority to:
(a) Execute and deliver in the name of Grantor any and all transfer orders,
division orders, letters in lieu of transfer orders, indemnifications,
certificates and other instruments of every nature that may be requested or
required by any purchaser of Production from any of the Mortgaged Properties for
the purposes of effectuating payment of the Production Proceeds to Noteholder or
which Noteholder may otherwise deem necessary or appropriate to effect the
intent and purposes of the assignment contained in Section 3.1; and
(b) If under any product sales agreements other than division orders or
transfer orders, any Production Proceeds are required to be paid by the
purchaser to Grantor so that under such existing agreements payment cannot be
made of such Production Proceeds to Noteholder, to make, execute and enter into
such sales agreements or other agreements as are necessary to direct Production
Proceeds to be payable to Noteholder; giving and granting unto said
attorney-in-fact full power and authority to do and perform any and every act
and thing whatsoever necessary and requisite to be done as fully and to all
intents and purposes, as Grantor might or could do if personally present; and
Grantor shall be bound thereby as fully and effectively as if Grantor had
personally executed, acknowledged and delivered any of the foregoing
certificates or documents. The powers and authorities herein conferred upon
Noteholder may be exercised by Noteholder through any person who, at the time of
the execution of the particular instrument, is an officer of Noteholder. The
power of attorney herein conferred is granted for valuable consideration and
hence is coupled with an interest and is irrevocable so long as the secured
indebtedness, or any part thereof, shall remain unpaid and this Mortgage is
unreleased. All persons dealing with Noteholder or any substitute, shall be
fully protected in treating the powers and authorities conferred by this
paragraph as continuing in full force and effect until advised by Noteholder
that all the secured indebtedness is fully and finally paid and this Mortgage is
released.
Section 3.3. Change of Purchaser. Should any person now or hereafter
purchasing or taking Production fail to make payment promptly to Noteholder of
the Production Proceeds, Noteholder shall have the right to make, or to require
Grantor to make, a change of connection and the right to designate or approve
the purchaser with whose facilities a new connection shall be made, and
Noteholder shall have no liability or responsibility in connection therewith so
long as ordinary care is used in making such designation.
Section 3.4. Application of Production Proceeds. So long as no default has
occurred hereunder, the Production Proceeds received by Noteholder during each
calendar month shall be applied by Noteholder as provided in the Agreement.
After a default hereunder has occurred, all Production Proceeds from time to
time in the hands of Noteholder shall be applied by it toward the payment of all
secured indebtedness (principal, interest, attorneys' fees and other fees and
expenses) at such times and in such manner and order and to such extent as
Noteholder deems advisable.
Section 3.5. RELEASE FROM LIABILITY; INDEMNIFICATION. NOTEHOLDER AND ITS
SUCCESSORS AND ASSIGNS ARE HEREBY RELEASED AND ABSOLVED FROM ALL LIABILITY FOR
FAILURE TO ENFORCE COLLECTION OF THE PRODUCTION PROCEEDS AND FROM ALL OTHER
RESPONSIBILITY IN CONNECTION THEREWITH, EXCEPT THE RESPONSIBILITY OF EACH TO
ACCOUNT TO GRANTOR FOR FUNDS ACTUALLY RECEIVED BY EACH. GRANTOR AGREES TO
INDEMNIFY AND HOLD HARMLESS NOTEHOLDER (FOR PURPOSES OF THIS PARAGRAPH, THE TERM
"NOTEHOLDER" SHALL INCLUDE THE DIRECTORS, OFFICERS, PARTNERS, EMPLOYEES AND
AGENTS OF NOTEHOLDER AND ANY PERSONS OR ENTITIES OWNED OR CONTROLLED BY OR
AFFILIATED WITH NOTEHOLDER) AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES,
LOSSES, DAMAGES (INCLUDING WITHOUT LIMITATION CONSEQUENTIAL DAMAGES), CAUSES OF
ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS' FEES AND EXPENSES) BY REASON OF THE ASSERTION THAT
NOTEHOLDER RECEIVED, EITHER BEFORE OR AFTER PAYMENT IN FULL OF THE SECURED
INDEBTEDNESS, FUNDS FROM THE PRODUCTION OF OIL, GAS, OTHER HYDROCARBONS OR OTHER
MINERALS CLAIMED BY THIRD PERSONS (AND/OR FUNDS ATTRIBUTABLE TO SALES OF
PRODUCTION WHICH (i) WERE MADE AT PRICES IN EXCESS OF THE MAXIMUM PRICE
PERMITTED BY APPLICABLE LAW OR (ii) WERE OTHERWISE MADE IN VIOLATION OF LAWS,
RULES, REGULATIONS AND/OR ORDERS GOVERNING SUCH SALES), AND NOTEHOLDER SHALL
HAVE THE RIGHT TO DEFEND AGAINST ANY SUCH CLAIMS OR ACTIONS, EMPLOYING ATTORNEYS
OF ITS OWN SELECTION, AND IF NOT FURNISHED WITH INDEMNITY SATISFACTORY TO IT,
NOTEHOLDER 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 NOTEHOLDER IN COMPROMISE, SATISFACTION OR
DISCHARGE OF ANY SUCH CLAIM, ACTION OR JUDGMENT, AND ALL COURT COSTS, ATTORNEYS'
FEES AND OTHER EXPENSES OF EVERY CHARACTER EXPENDED BY NOTEHOLDER PURSUANT TO
THE PROVISIONS OF THIS SECTION SHALL BE A DEMAND OBLIGATION (WHICH OBLIGATION
GRANTOR HEREBY EXPRESSLY PROMISES TO PAY) OWING BY GRANTOR TO NOTEHOLDER AND
SHALL BEAR INTEREST, FROM THE DATE EXPENDED UNTIL PAID, AT THE RATE DESCRIBED IN
SECTION 2.3 HEREOF. WITHOUT LIMITATION, IT IS THE INTENTION OF GRANTOR AND
GRANTOR AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED
PARTY WITH RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES
(INCLUDING WITHOUT LIMITATION CONSEQUENTIAL DAMAGES), CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS' FEES AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY
OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY.
HOWEVER, SUCH INDEMNITIES SHALL NOT APPLY TO ANY PARTICULAR INDEMNIFIED PARTY
(BUT SHALL APPLY TO THE OTHER INDEMNIFIED PARTIES) TO THE EXTENT THE SUBJECT OF
THE INDEMNIFICATION IS CAUSED BY OR ARISES OUT OF THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH PARTICULAR INDEMNIFIED PARTY.
Section 3.6. Grantor's Absolute Obligation to Pay Note. Nothing herein
contained shall detract from or limit the obligations of Grantor to make prompt
payment of the Note, and any and all other secured indebtedness, at the time and
in the manner provided herein and in the Loan Documents, regardless of whether
the Production and Production Proceeds herein assigned are sufficient to pay
same, and the rights under this Article III shall be cumulative of all other
rights of Noteholder under the Loan Documents.
Section 3.7. Rights Under Texas Act Grantor hereby grants, sells, assigns,
sets over and mortgages unto Noteholder during the term hereof, all of Grantor's
rights and interests pursuant to the provisions of Section 9.319 of the Texas
Business and Commerce Code hereby vesting in Noteholder all of Grantor's rights
as an interest owner to the continuing security interest in and lien upon the
Production.
ARTICLE IV.
Remedies Upon Default
Section 4.1. Default. The term "default" as used in this Mortgage shall
mean the occurrence of any of the following events:
(a) the failure of Grantor to make due and punctual payment of the Note or
of any other secured indebtedness or of any installment of principal thereof or
interest thereon, or any part thereof, as the same shall become due and payable,
whether at a date for payment of a fixed installment or contingent or other
payment, or as a result of acceleration, or otherwise; or
(b) the failure of Grantor to pay over to Noteholder any Production
Proceeds which are receivable by Noteholder under this Mortgage but which are
paid to Grantor rather than Noteholder (either as provided for in Section 3.2
hereof or otherwise), except Production Proceeds paid over to Grantor by
Noteholder under clause THIRD of Section 3.4 and such failure is not remedied
within 5 days after written notice and demand by Noteholder; or
(c) the failure of Grantor timely and properly to observe, keep or perform
any covenant, agreement, warranty or condition herein or in any other Loan
Document required to be observed, kept or performed, if such failure is not
remedied within the applicable grace period provided for in such Loan Document;
or
(d) any representation contained herein or contained in any other Loan
Document, or otherwise heretofore or hereafter made by or on behalf of Grantor
to Noteholder, shall prove to have been false or misleading in any material
respect on the date, or as of which, made and such representation is not made
true and correct (as of the time such corrective action is taken) within the
applicable grace period provided for in such Loan Document; or
(e) the sale, exchange, lease, transfer, or other disposal, without the
prior written consent of Noteholder, of any part of, or interest in, the
Property other than (i) sales, transfers and other dispositions of machinery,
equipment and other personal property and fixtures made in connection with a
release, surrender or abandonment of a lease (to which Noteholder has given its
prior written consent), (ii) sales, transfers and other dispositions of
machinery, equipment and other personal property and fixtures in connection with
the abandonment (to which Noteholder has given its prior written consent) of a
well, (iii) sales, transfers and other dispositions of machinery, equipment and
other personal property and fixtures which are replaced by articles of at least
equal suitability and value owned by Grantor free and clear of all liens except
this Mortgage and the Permitted Encumbrances, and (iv) sales of Production that
has been produced, which are made in the ordinary course of business in bona
fide arms length transactions with third parties not affiliated with Grantor and
at the best price (and on the best terms) available (which shall, in the case of
Production which is subject to price controls and/or is sold, in accordance with
customary industry practice, pursuant to long term purchase contracts, be
determined giving consideration to such matters) and for which payments are made
by checks, drafts, wire transfer advices or other similar writings, instruments
or communications for the immediate payment of money; provided that sales
arrangements permitted by clause (iv) shall provide that payment of proceeds of
sale of Production will not be deferred for a substantial period after the end
of the calendar month in which delivery occurred (in no event more than 90 days
for gas and 60 days for oil) and will not be received prior to delivery (and
payment of such proceeds will not, in fact, be so deferred or received prior to
delivery), and nothing in clause (iv) shall be construed as limiting
Noteholder's rights under Article III of this Mortgage; or
(f) Grantor dies or suffers the entry against it of a judgment, decree or
order for relief by a court of competent jurisdiction in an involuntary case
commenced under any applicable bankruptcy, insolvency or other similar law of
any jurisdiction now or hereafter in effect, including the United States
Bankruptcy Code, as amended; or
(g) Grantor suffers the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for a substantial part of
its assets or for any part of the Property in a proceeding brought against it
and (1) such appointment is neither made ineffective nor discharged within
thirty days after the making thereof, or (2) such appointment is consented to,
requested by, or acquiesced to by Grantor; or
(h) Grantor commences an action or voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect, including the
United States Bankruptcy Code, as amended; or consents to the entry of an order
for relief in an involuntary case under any such law or to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar official of any substantial part of its assets or
any part of the Property; or
(i) Grantor makes a general assignment for the benefit of creditors or
fails generally to pay its debts as such debts become due or takes corporate or
other action in furtherance thereof or in furtherance of any proceeding
described in subparagraph (h) immediately above; or
(j) Grantor suffers a writ or warrant of attachment or any similar process
to be issued by any court against all or any substantial part of its property or
any part of the Property, and such writ or warrant of attachment or any similar
process is not stayed or released within thirty days after the entry or levy
thereof; or
(k) Any of the events referred to above in subsections (c), (d), (f), (g),
(h), (i) and (j) shall occur with respect to any guarantor of the secured
indebtedness and shall not be remedied within the applicable grace period (if
any) set forth in such subsections; or
(l) a "default" or "event of default" occurs under any Loan Document, other
than this Mortgage, which defines either such term and the same is not remedied
within the applicable period of grace (if any) provided in such Loan Document.
Section 4.2. Acceleration of Secured Indebtedness. Upon the occurrence of a
default described in subsection (f), (g), or (h) of section 4.1 above, all of
the secured indebtedness shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, declaration or notice of
acceleration or intention to accelerate, or any other notice or declaration of
any kind, all of which are hereby expressly waived by Grantor. During the
continuance of any other default, Noteholder at any time and from time to time
may without notice to Grantor or any other person declare any or all of the
secured indebtedness immediately due and payable and all such secured
indebtedness shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, notice of acceleration or of
intention to accelerate or any other notice or declaration of any kind, all of
which are hereby expressly waived by Grantor, and the liens evidenced hereby
shall be subject to foreclosure in any manner provided for herein or provided
for by law as Noteholder may elect.
Section 4.3. Pre-Foreclosure Remedies. Upon the occurrence of a default, or
any event or circumstance which, with the lapse of time or the giving of notice,
or both, would constitute a default hereunder, Noteholder is authorized, prior
or subsequent to the institution of any foreclosure proceedings, to enter upon
the Property, or any part thereof, and to take possession of the Property and
all books and records relating thereto, and to exercise without interference
from Grantor any and all rights which Grantor has with respect to the
management, possession, operation, protection or preservation of the Property.
All costs, expenses and liabilities of every character incurred by Noteholder in
managing, operating, maintaining, protecting or preserving the Property shall
constitute a demand obligation (which obligation Grantor hereby expressly
promises to pay) owing by Grantor to Noteholder and shall bear interest from
date of expenditure until paid at the rate described in Section 2.3 hereof, all
of which shall constitute a portion of the secured indebtedness and shall be
secured by this Mortgage and by any other instrument securing the secured
indebtedness. If necessary to obtain the possession provided for above,
Noteholder may invoke any and all lawful remedies to dispossess Grantor. In
connection with any action taken by Noteholder pursuant to this Section 4.3,
Noteholder shall not be liable for any loss sustained by Grantor resulting from
any act or omission of Noteholder in managing the Property unless such loss is
caused by the willful misconduct and bad faith of Noteholder, nor shall
Noteholder be obligated to perform or discharge any obligation, duty or
liability of Grantor arising under any agreement forming a part of the Property
or arising under any Permitted Encumbrance or otherwise arising. Grantor hereby
assents to, ratifies and confirms any and all actions of Noteholder with respect
to the Property taken under this Section 4.3. without wilful misconduct and bad
faith.
Section 4.4. Foreclosure. Upon the occurrence of a default, Trustee, or his
successor or substitute, is authorized and empowered and it shall be his special
duty at the request of Noteholder to sell the Mortgaged Properties or any part
thereof as an entirety or in parcels as Noteholder may elect, at such place or
places and otherwise in the manner and upon such notice as may be required by
law or, in the absence of any such requirement, as Trustee may deem appropriate.
To the extent permitted by applicable law, any sale may be adjourned by
announcement at the time and place appointed for such sale without further
notice except as may be required by law. The sale by Trustee of less than the
whole of the Mortgaged Properties shall not exhaust the power of sale herein
granted, and Trustee is specifically empowered to make successive sale or sales
under such power until the whole of the Mortgaged Properties shall be sold; and,
if the proceeds of such sale of less than the whole of the Mortgaged Properties
shall be less than the aggregate of the indebtedness secured hereby and the
expense of executing this trust as provided herein, this Mortgage and the lien
hereof shall remain in full force and effect as to the unsold portion of the
Mortgaged Properties just as though no sale had been made; provided, however,
that Grantor shall never have any right to require the sale of less than the
whole of the Mortgaged Properties but Noteholder shall have the right, at its
sole election, to request Trustee to sell less than the whole of the Mortgaged
Properties. After each sale, Trustee shall make to the purchaser or purchasers
at such sale good and sufficient conveyances in the name of Grantor, conveying
the property so sold to the purchaser or purchasers with special warranty of
title, and shall receive the proceeds of said sale or sales and apply the same
as herein provided. The power of sale granted herein shall not be exhausted by
any sale held hereunder by Trustee or his substitute or successor, and such
power of sale may be exercised from time to time and as many times as Noteholder
may deem necessary until all of the Mortgaged Properties have been duly sold and
all secured indebtedness has been fully paid. In the event any sale hereunder is
not completed or is defective in the opinion of Noteholder, such sale shall not
exhaust the power of sale hereunder and Noteholder shall have the right to cause
a subsequent sale or sales to be made hereunder. Any and all statements of fact
or other recitals made in any deed or deeds given by Trustee or any successor or
substitute appointed hereunder as to nonpayment of the secured indebtedness or
as to the occurrence of any event of default, or as to Noteholder's having
declared all of said indebtedness to be due and payable, or as to the request to
sell, or as to notice of time, place and terms of sale and the properties to be
sold having been duly given, or as to the refusal, failure or inability to act
of Trustee or any substitute or successor trustee, or as to the appointment of
any substitute or successor trustee, or as to any other act or thing having been
duly done by Noteholder or by such Trustee, substitute or successor, shall be
taken as prima facie evidence of the truth of the facts so stated and recited.
The Trustee or his successor or substitute may appoint or delegate any one or
more persons as agent to perform any act or acts necessary or incident to any
sale held by Trustee, including the posting of notices and the conduct of sale,
but in the name and on behalf of Trustee, his successor or substitute. If
Trustee or his successor or substitute shall have given notice of sale
hereunder, any successor or substitute Trustee thereafter appointed may complete
the sale and the conveyance of the property pursuant thereto as if such notice
had been given by the successor or substitute Trustee conducting the sale.
Cumulative of the foregoing provisions, it being expressly understood that as to
Mortgaged Properties located in the State of Texas, such sales of all or any
part of such Mortgaged Properties shall be conducted at the courthouse of any
county (whether or not the counties in which the Mortgaged Properties are
located are contiguous) in the State of Texas in which any part of the Mortgaged
Properties is situated, at public vendue to the highest bidder for cash between
the hours of ten o'clock a.m. and four o'clock p.m. (and not later than three
hours after the time of sale set forth in the notice thereof) on the first
Tuesday in any month or at such other place, time and date as provided by the
statutes of the State of Texas then in force governing sales of real estate
under powers conferred by deed of trust, after having given notice of such sale
in accordance with such statutes.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY
ALLOW TRUSTEE TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT GOING TO
COURT IN A FORECLOSURE ACTION UPON DEFAULT BY GRANTOR UNDER THIS MORTGAGE.
Section 4.5. Effective as Mortgage. This instrument shall be effective as a
mortgage as well as a deed of trust and upon the occurrence of a default may be
foreclosed as to any of the Property in any manner permitted by applicable law,
and any foreclosure suit may be brought by Trustee or by Noteholder. To the
extent, if any, required to cause this instrument to be so effective as a
mortgage as well as a deed of trust, Grantor hereby mortgages the Mortgaged
Properties to Noteholder. In the event a foreclosure hereunder shall be
commenced by Trustee, or his substitute or successor, Noteholder may at any time
before the sale of the Property direct Trustee to abandon the sale, and may then
institute suit for the collection of the Note and/or any other secured
indebtedness, and for the foreclosure of this Mortgage. It is agreed that if
Noteholder should institute a suit for the collection of the Note or any other
secured indebtedness and for the foreclosure of this Mortgage, Noteholder may at
any time before the entry of a final judgment in said suit dismiss the same, and
require Trustee, his substitute or successor to sell the Property in accordance
with the provisions of this Mortgage.
Section 4.6. Receiver. In addition to all other remedies herein provided
for, Grantor agrees that, upon the occurrence of a default or any event or
circumstance which, with the lapse of time or the giving or notice, or both,
would constitute a default hereunder, Noteholder shall as a matter of right be
entitled to the appointment of a receiver or receivers for all or any part of
the Property, whether such receivership be incident to a proposed sale (or
sales) of such Property or otherwise, and without regard to the value of the
Property or the solvency of any person or persons liable for the payment of the
indebtedness secured hereby, and Grantor does hereby consent to the appointment
of such receiver or receivers, waives any and all defenses to such appointment,
and agrees not to oppose any application therefor by Noteholder, and agrees that
such appointment shall in no manner impair, prejudice or otherwise affect the
rights of Noteholder under Article III hereof. Nothing herein is to be construed
to deprive Noteholder of any other right, remedy or privilege it may now or
hereafter have under the law to have a receiver appointed. Any money advanced by
Noteholder in connection with any such receivership shall be a demand obligation
(which obligation Grantor hereby expressly promises to pay) owing by Grantor to
Noteholder and shall bear interest from the date of making such advancement by
Noteholder until paid, at the rate described in Section 2.3 hereof.
Section 4.7. Proceeds of Foreclosure. The proceeds of any sale held by
Trustee or any receiver or public officer in foreclosure of the liens and
security interests evidenced hereby shall be applied:
FIRST, to the payment of all necessary costs and expenses incident to such
foreclosure sale, including but not limited to all court costs and charges of
every character in the event foreclosed by suit, and a reasonable fee (not
exceeding five percent (5%) of the gross proceeds of such sale) to Trustee
acting under the provisions of Section 4.4 if foreclosed by power of sale as
provided in said section;
SECOND, to the payment of the secured indebtedness (including specifically
without limitation the principal, interest and attorneys' fees due and unpaid on
the Note and the amounts due and unpaid and owed to Noteholder under this
Mortgage) in such manner and order as Noteholder may elect; and
THIRD, the remainder, if any there shall be, shall be paid to Grantor, or
to Grantor's heirs, devisees, representatives, successors or assigns, or such
other persons as may be entitled thereto by law.
Section 4.8. Noteholder as Purchaser. Noteholder shall have the right to
become the purchaser at any sale held by any Trustee or substitute or successor
or by any receiver or public officer and any Noteholder purchasing at any such
sale shall have the right to credit upon the amount of the bid made therefor, to
the extent necessary to satisfy such bid, the secured indebtedness owing to such
Noteholder, or if such Noteholder holds less than all of such indebtedness, the
pro rata part thereof owing to such Noteholder, accounting to all other
Noteholders not joining in such bid in cash for the portion of such bid or bids
apportionable to such non-bidding Noteholder or Noteholders.
Section 4.9. Personal Property Foreclosure. Upon the occurrence of a
default, Noteholder may exercise its rights of enforcement with respect to the
Collateral under the Texas Business and Commerce Code as amended (or under the
Uniform Commercial Code in force in any other state to the extent the same is
applicable law) and in conjunction with, in addition to or in substitution for
those rights and remedies:
(a) Noteholder may enter upon Grantor's premises to take possession of,
assemble and collect the Collateral or to render it unusable; and
(b) Noteholder may require Grantor to assemble the Collateral and make it
available at a place Noteholder designates which is mutually convenient to allow
Noteholder to take possession or dispose of the Collateral; and
(c) written notice mailed to Grantor as provided herein at least five (5)
days prior to the date of public sale of the Collateral or prior to the date
after which private sale of the Collateral will be made shall constitute
reasonable notice; and
(d) any sale made pursuant to the provisions of this section shall be
deemed to have been a public sale conducted in a commercially reasonable manner
if held contemporaneously with and upon the same notice as required for the sale
of the Mortgaged Properties under power of sale as provided in Section 4.4 of
this Mortgage; and
(e) in the event of a foreclosure sale, whether made by
Trustee under the terms hereof, or under judgment of a court, the Collateral and
the Mortgaged Properties may, at the option of Noteholder, be sold as a whole;
and
(f) it shall not be necessary that Noteholder take possession of the
Collateral or any part thereof prior to the time that any sale pursuant to the
provisions of this section is conducted and it shall not be necessary that the
Collateral or any part thereof be present at the location of such sale; and
(g) prior to application of proceeds of disposition of the Collateral to
the secured indebtedness, such proceeds shall be applied to the reasonable
expenses of retaking, holding, preparing for sale or lease, selling, leasing and
the like and the reasonable attorneys' fees and legal expenses incurred by
Noteholder; and
(h) any and all statements of fact or other recitals made in any ▇▇▇▇ of
sale or assignment or other instrument evidencing any foreclosure sale hereunder
as to nonpayment of the secured indebtedness or as to the occurrence of any
default, or as to Noteholder having declared all of such indebtedness to be due
and payable, or as to notice of time, place and terms of sale and of the
properties to be sold having been duly given, or as to any other act or thing
having been duly done by Noteholder, shall be taken as prima facie evidence of
the truth of the facts so stated and recited; and
(i) Noteholder may appoint or delegate any one or more persons as agent to
perform any act or acts necessary or incident to any sale held by Noteholder,
including the sending of notices and the conduct of the sale, but in the name
and on behalf of Noteholder.
Section 4.10. Foreclosure as to Matured Debt. Upon the occurrence of a
default, Noteholder shall have the right to proceed with foreclosure of the
liens and security interests hereunder without declaring the entire secured
indebtedness due, and in such event, any such foreclosure sale may be made
subject to the unmatured part of the secured indebtedness and shall not in any
manner affect the unmatured part of the secured indebtedness, but as to such
unmatured part, this Mortgage shall remain in full force and effect just as
though no sale had been made. The proceeds of such sale shall be applied as
provided in Section 4.7 except that the amount paid under clause SECOND thereof
shall be only the matured portion of the secured indebtedness and any proceeds
of such sale in excess of those provided for in clauses FIRST and SECOND
(modified as provided above) shall be applied as provided in clause SECOND AND
THIRD of Section 3.4 hereof. Several sales may be made hereunder without
exhausting the right of sale for any unmatured part of the secured indebtedness.
Section 4.11. Remedies Cumulative. All remedies herein expressly provided
for are cumulative of each other and of all other remedies existing at law or in
equity and are cumulative of any and all other remedies provided for in any
other Loan Document, and Trustee and Noteholder shall, in addition to the
remedies herein provided, be entitled to avail themselves of all such other
remedies as may now or hereafter exist at law or in equity for the collection of
the secured indebtedness and the enforcement of the covenants herein and the
foreclosure of the liens and security interests evidenced hereby, and the resort
to any remedy provided for hereunder or under any such other Loan Document or
provided for by law shall not prevent the concurrent or subsequent employment of
any other appropriate remedy or remedies.
Section 4.12. Noteholder's Discretion as to Security. Noteholder may resort
to any security given by this Mortgage or to any other security now existing or
hereafter given to secure the payment of the secured indebtedness, in whole or
in part, and in such portions and in such order as Noteholder may deem
appropriate, and any such action shall not in any way be considered as a waiver
of any of the rights, benefits, liens or security interests evidenced by this
Mortgage.
Section 4.13. Grantor's Waiver of Certain Rights. To the full extent
Grantor may do so, Grantor agrees that Grantor will not at any time insist upon,
plead, claim or take the benefit or advantage of any law now or hereafter in
force providing for any appraisement, valuation, stay, extension or redemption,
and Grantor, for Grantor, Grantor's heirs, devisees, representatives, successors
and assigns, and for any and all persons ever claiming any interest in the
Property, to the extent permitted by applicable law, hereby waives and releases
all rights of redemption, valuation, appraisement, stay of execution, notice of
intention to mature or declare due the whole of the secured indebtedness, notice
of election to mature or declare due the whole of the secured indebtedness and
all rights to a marshaling of assets of Grantor, including the Property, or to a
sale in inverse order of alienation in the event of foreclosure of the liens
and/or security interests hereby created. To the full extent Grantor may do so,
Grantor shall not have or assert any right under any statute or rule of law
pertaining to the marshaling of assets, sale in inverse order of alienation, the
exemption of homestead, the administration of estates of decedents, or other
matters whatever to defeat, reduce or affect the right of Noteholder under the
terms of this Mortgage to a sale of the Property for the collection of the
secured indebtedness without any prior or different resort for collection, or
the right of Noteholder under the terms of this Mortgage to the payment of the
secured indebtedness out of the proceeds of sale of the Property in preference
to every other claimant whatever. If any law referred to in this section and now
in force, of which Grantor or Grantor's heirs, devisees, representatives,
successors or assigns or any other persons claiming any interest in the
Mortgaged Properties or the Collateral might take advantage despite this
section, shall hereafter be repealed or cease to be in force, such law shall not
thereafter be deemed to preclude the application of this section.
Section 4.14. Grantor as Tenant Post-Foreclosure. In the event there is a
foreclosure sale hereunder and at the time of such sale Grantor or Grantor's
heirs, devisees, representatives, successors or assigns or any other persons
claiming any interest in the Property by, through or under Grantor are occupying
or using the Property, or any part thereof, each and all shall immediately
become the tenant of the purchaser at such sale, which tenancy shall be a
tenancy from day to day, terminable at the will of either landlord or tenant, at
a reasonable rental per day based upon the value of the Property occupied, such
rental to be due daily to the purchaser. To the extent permitted by applicable
law, the purchaser at such sale shall, notwithstanding any language herein
apparently to the contrary, have the sole option to demand immediate possession
following the sale or to permit the occupants to remain as tenants at will. In
the event the tenant fails to surrender possession of said property upon demand,
the purchaser shall be entitled to institute and maintain a summary action for
possession of the property (such as an action for forcible entry and detainer)
in any court having jurisdiction.
ARTICLE V.
Miscellaneous
Section 5.1. Scope of Mortgage. This Mortgage is a deed of trust and
mortgage of both real and personal property, a security agreement, a financing
statement and an absolute assignment, and also covers proceeds and fixtures.
Section 5.2. Effective as a Financing Statement. This Mortgage covers goods
which are or are to become fixtures on the real property described herein. This
Mortgage shall be effective as a financing statement filed as a fixture filing
with respect to all fixtures included within the Property and is to be filed for
record in the real estate records of each county where any part of the Mortgaged
Properties (including said fixtures) is situated. This Mortgage shall also be
effective as a financing statement covering minerals or the like (including oil
and gas) and accounts subject to Subsection (e) of Section 9.l03 of the Texas
Business and Commerce Code, as amended, and similar provisions (if any) of the
Uniform Commercial Code as enacted in any other state where the Mortgaged
Properties are situated which will be financed at the wellhead or minehead of
the ▇▇▇▇▇ or mines located on the Mortgaged Properties and is to be filed for
record in the real estate records of each county where any part of the Mortgaged
Properties is situated. This Mortgage shall also be effective as a financing
statement covering any other Property and may be filed in any other appropriate
filing or recording office. The mailing address of Grantor is the address of
Grantor set forth at the end of this Mortgage and the address of Noteholder from
which information concerning the security interests hereunder may be obtained is
the address of Noteholder set forth at the end of this Mortgage.
Section 5.3. Reproduction of Mortgage as Financing Statement. A carbon,
photographic or other reproduction of this Mortgage or of any financing
statement relating to this Mortgage shall be sufficient as a financing statement
for any of the purposes referred to in Section 5.2.
Section 5.4. Notice to Account Debtors. In addition to the rights granted
in Article III hereof, Noteholder may at any time notify the account debtors or
obligors of any accounts, chattel paper, negotiable instruments or other
evidences of indebtedness included in the Collateral to pay Noteholder directly.
Section 5.5. Waiver by Noteholder. Noteholder may at any time and from time
to time in writing waive compliance by Grantor with any covenant herein made by
Grantor to the extent and in the manner specified in such writing, or consent to
Grantor's doing any act which hereunder Grantor is prohibited from doing, or to
Grantor's failing to do any act which hereunder Grantor is required to do, to
the extent and in the manner specified in such writing, or release any part of
the Property or any interest therein or any proceeds of Production from the lien
and security interest of this Mortgage, without the joinder of Trustee, or
release any party liable, either directly or indirectly, for the secured
indebtedness or for any covenant herein or in any other Loan Document, without
impairing or releasing the liability of any other party. No such act shall in
any way impair the rights or powers of Noteholder or Trustee hereunder except to
the extent specifically agreed to by Noteholder in such writing.
Section 5.6. No Impairment of Security. The lien, security interest and
other security rights of Noteholder hereunder shall not be impaired by any
indulgence, moratorium or release granted by Noteholder including, but not
limited to, any renewal, extension or modification which Noteholder may grant
with respect to any secured indebtedness, or any surrender, compromise, release,
renewal, extension, exchange or substitution which Noteholder may grant in
respect of the Property (including without limitation Production Proceeds), or
any part thereof or any interest therein, or any release or indulgence granted
to any endorser, guarantor or surety of any secured indebtedness.
Section 5.7. Acts Not Constituting Waiver by Noteholder. Noteholder may
waive any default without waiving any other prior or subsequent default.
Noteholder may remedy any default without waiving the default remedied. Neither
failure by Noteholder to exercise, nor delay by Noteholder in exercising, any
right, power or remedy upon any default shall be construed as a waiver of such
default or as a waiver of the right to exercise any such right, power or remedy
at a later date. No single or partial exercise by Noteholder of any right, power
or remedy hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time. No modification or waiver of any
provision hereof nor consent to any departure by Grantor therefrom shall in any
event be effective unless the same shall be in writing and signed by Noteholder
and then such waiver or consent shall be effective only in the specific
instances, for the purpose for which given and to the extent therein specified.
No notice to nor demand on Grantor in any case shall of itself entitle Grantor
to any other or further notice of demand in similar or other circumstances.
Acceptance by Noteholder of any payment in an amount less than the amount then
due on any secured indebtedness shall be deemed an acceptance on account only
and shall not in any way excuse the existence of a default hereunder.
Section 5.8. Grantor's successors. In the event the ownership of the
Property or any part thereof becomes vested in a person other than Grantor,
Noteholder may, without notice to Grantor, deal with such successor or
successors in interest with reference to this Mortgage and to the indebtedness
secured hereby in the same manner as with Grantor, without in any way vitiating
or discharging Grantor's liability hereunder or for the payment of the
indebtedness or performance of the obligations secured ▇▇▇▇▇▇.▇▇ transfer of the
Property, no forbearance on the part of Noteholder, and no extension of the time
for the payment of the indebtedness secured hereby given by Noteholder shall
operate to release, discharge, modify, change or affect, in whole or in part,
the liability of Grantor hereunder or for the payment of the indebtedness or
performance of the obligations secured hereby or the liability of any other
person hereunder or for the payment of the indebtedness secured hereby.
Section 5.9. Place of Payment. All secured indebtedness which may be owing
hereunder at any time by Grantor shall be payable at the place designated in the
Note (or if no such designation is made, at the address of Noteholder indicated
at the end of this Mortgage), or at such other place as Noteholder may designate
in writing.
Section 5.10. Subrogation to Existing Liens. To the extent that proceeds of
the Note are used to pay indebtedness secured by any outstanding lien, security
interest, charge or prior encumbrance against the Property, such proceeds have
been advanced by Noteholder at Grantor's request, and Noteholder shall be
subrogated to any and all rights, security interests and liens owned by any
owner or holder of such outstanding liens, security interests, charges or
encumbrances, irrespective of whether said liens, security interests, charges or
encumbrances are released, and it is expressly understood that, in consideration
of the payment of such indebtedness by Noteholder, Grantor hereby waives and
releases all demands and causes of action for offsets and payments to, upon and
in connection with the said indebtedness.
Section 5.11. Application of Payments to Certain Indebtedness. If any part
of the secured indebtedness cannot be lawfully secured by this Mortgage or if
any part of the Property cannot be lawfully subject to the lien and security
interest hereof to the full extent of such indebtedness, then all payments made
shall be applied on said indebtedness first in discharge of that portion thereof
which is not secured by this Mortgage.
Section 5.12. Compliance With Usury Laws. It is the intent of Grantor and
Noteholder and all other parties to the Loan Documents to contract in strict
compliance with applicable usury law from time to time in effect. In furtherance
thereof, it is stipulated and agreed that none of the terms and provisions
contained herein and in the Loan Documents shall ever be construed to create a
contract to pay, for the use, forbearance or detention of money, interest in
excess of the maximum amount of interest permitted to be charged by applicable
law from time to time in effect. Neither Grantor nor any present or future
guarantors, endorsers or other parties now or hereafter becoming liable for
payment of the secured indebtedness shall ever be liable for unearned interest
thereon or shall ever be required to pay interest thereon in excess of the
maximum interest that may be lawfully charged under applicable law from time to
time in effect, and the provisions of this paragraph shall control over all
other provisions hereof and of the Loan Documents which may be in conflict or
apparent conflict with any applicable law. Noteholder expressly disavows any
intention to charge or collect excessive unearned interest or finance charges in
the event the maturity of the secured indebtedness is accelerated. If (a) the
maturity of the secured indebtedness is accelerated for any reason, (b) the
secured indebtedness is prepaid and as a result any amounts held to constitute
interest are determined to be in excess of the legal maximum, or (c) Noteholder
or any other holder of any or all of the secured indebtedness shall otherwise
collect moneys which are determined to constitute interest which would otherwise
increase the interest on any or all of the secured indebtedness to an amount in
excess of that permitted to be charged by applicable law then in effect, then
all such sums determined to constitute interest in excess of such legal limit
shall, without penalty, be promptly applied to reduce the then outstanding
principal of the secured indebtedness or, at Noteholder's or such holder's
option, promptly returned to Grantor or the other payor thereof upon such
determination. In determining whether or not the interest paid or payable, under
any specific contingency, exceeds the maximum amount permitted under applicable
law, Grantor (and any other payor thereof) and Noteholder shall to the greatest
extent permitted under applicable law (a) characterize any non-principal payment
as an expense, fee or premium rather than as interest, (b) exclude voluntary
prepayments and the effects thereof, and (c) amortize, prorate, allocate, and
spread the total amount of interest throughout the entire contemplated term of
the instruments evidencing the secured indebtedness in accordance with the
amounts outstanding from time to time thereunder and the maximum legal rate of
interest from time to time in effect under applicable law in order to lawfully
charge the maximum amount of interest permitted under applicable law. In the
event that applicable law provides for an interest ceiling, that ceiling shall
be the weekly ceiling provided for in Chapter 303 of the Texas Finance Code. As
used in this section, the term "applicable law" shall mean the laws of the State
of Texas or the laws of the United States, whichever laws allow the _greater
interest, as such laws now exist or may be changed or amended or come into
effect in the future.
Section 5.13. Trustees. The Trustee may resign by an instrument in writing
addressed to Noteholder, or Trustee may be removed at any time with or without
cause by an instrument in writing executed by Noteholder. In case of the death,
resignation, removal, or disqualification of Trustee, or if for any reason
Noteholder shall deem it desirable to appoint a substitute or successor trustee
to act instead of the herein named trustee or any substitute or successor
trustee or to appoint an additional trustee or trustees to serve concurrently
with Trustee, then Noteholder shall have the right and is hereby authorized and
empowered to appoint a successor trustee, a substitute trustee or an additional
trustee, without other formality than appointment and designation in writing
executed by Noteholder and the authority hereby conferred shall extend to the
appointment of other successor, substitute and additional trustees successively
until the indebtedness secured hereby has been paid in full, or until the
Property is sold hereunder. In the event the secured indebtedness is owned by
more than one person or entity, the holder or holders of not less than a
majority in the amount of such indebtedness shall have the right and authority
to make the appointment of a successor or substitute trustee as provided for in
the preceding sentence or to remove Trustee as provided in the first sentence of
this section. Such appointment and designation by Noteholder, or by the holder
or holders of not less than a majority of the indebtedness secured hereby, shall
be full evidence of the right and authority to make the same and of all facts
therein recited. If Noteholder is a corporation or association and such
appointment is executed in its behalf by an officer of such corporation or
association, such appointment shall be conclusively presumed to be executed with
authority and shall be valid and sufficient without proof of any action by the
board of directors or any superior officer of the corporation or association.
Upon the making of any such appointment and designation of a successor or
substitute trustee, all of the estate and title of Trustee in the Property shall
vest in the named successor or substitute Trustee and he shall thereupon succeed
to, and shall hold, possess and execute, all the rights, powers, privileges,
immunities and duties herein conferred upon Trustee. Upon the making of any such
appointment and designation of an additional trustee, such additional trustee
shall succeed to and hold, possess and execute all of the rights, powers,
privileges, immunities and duties designated in such appointment and
designation. All references herein to Trustee shall be deemed to include any
successor, substitute or additional trustee appointed and designated as herein
provided, from time to time acting hereunder.
Section 5.14. No Liability for Trustee. The Trustee shall not be liable for
any error of judgment or act done by Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever, except for
Trustee's gross negligence or willful misconduct. The Trustee shall have the
right to rely on any instrument, document or signature authorizing or supporting
any action taken or proposed to be taken by him hereunder, believed by him in
good faith to be genuine. All moneys received by Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated in any manner from any other moneys
(except to the extent required by law), and Trustee shall be under no liability
for interest on any moneys received by him hereunder. Grantor hereby ratifies
and confirms any and all acts which the herein named Trustee or his successor or
successors, substitute or substitutes, in this trust, shall do lawfully by
virtue hereof. Grantor will reimburse Trustee for, and save him harmless
against, any and all liability and expenses which may be incurred by him in the
performance of his duties.
Section 5.15. Release of Mortgage. If all of the secured indebtedness be
paid as the same becomes due and payable and all of the covenants, warranties,
undertakings and agreements made in this Mortgage are kept and performed and
Noteholder shall have no further obligation to provide credit or advance funds
to Grantor or the maker of any Note secured hereby, then, and in that event
only, all rights under this Mortgage shall terminate (except to the extent
expressly provided herein with respect to indemnifications and other rights
which are to continue following the release hereof) and the Property shall
become wholly clear of the liens, security interests, conveyances and
assignments evidenced hereby, and such liens and security interests shall be
released by Noteholder in due form at Grantor's cost.
Section 5.16. Notices. All notices, requests, consents, demands and other
communications required or permitted hereunder or under any other Loan Document
shall be in writing and, unless otherwise specifically provided in such other
Loan Document, shall be deemed sufficiently given or furnished if delivered by
personal delivery, by telegram or telex, by expedited delivery service with
proof of delivery, or by registered or certified United States mail, postage
prepaid, at the addresses specified at the end of this Mortgage (unless changed
by similar notice in writing given by the particular party whose address is to
be changed). Any such notice or communication shall be deemed to have been given
either at the time of personal delivery or, in the case of delivery service or
mail, as of the date of first attempted delivery at the address and in the
manner provided herein, or, in the case of telegram or telex, upon receipt;
provided that, service of a notice required by Texas Property Code ss.51.002, as
amended, or any similar statute in any state where any part of the Mortgaged
Properties are located shall be considered complete when the requirements of the
applicable statute for such part of the Mortgaged Properties located in the
respective state are met.
Section 5.17. Invalidity of Certain Provisions. A determination that any
provision of this Mortgage is unenforceable or invalid shall not affect the
enforceability or validity of any other provision and the determination that the
application of any provision of this Mortgage to any person or circumstance is
illegal or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
Section 5.18. Gender; Titles. Within this Mortgage, words of any gender
shall be held and construed to include any other gender, and words in the
singular number shall be held and construed to include the plural, unless the
context otherwise requires. Titles appearing at the beginning of any
subdivisions hereof are for convenience only, do not constitute any part of such
subdivisions, and shall be disregarded in construing the language contained in
such subdivisions.
Section 5.19. Recording. Grantor will cause this Mortgage and all
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation statements relating thereto to be recorded, filed,
re-recorded and refiled in such manner and in such places as Trustee or
Noteholder shall reasonably request and, to the maximum extent permitted by
applicable law, will pay all such recording, filing, re-recording and refiling
taxes, fees and other charges.
Section 5.20. Lender as Noteholder. All persons dealing with the Property
(other than Grantor) shall be entitled to assume that Lender is the only
Noteholder, and may deal with Lender (including without limitation accepting
from or relying upon full or partial releases hereof executed by Lender only)
without further inquiry as to the existence of other Noteholders, until given
actual notice of facts to the contrary or until this Mortgage is supplemented or
amended of record to show the existence of other Noteholders.
Section 5.21. Reporting Compliance. Grantor agrees to comply with any and
all reporting requirements applicable to the transaction evidenced by the Note
and secured by this Mortgage which are set forth in any law, statute, ordinance,
rule, regulation, order or determination of any governmental authority,
including but not limited to The International Investment Survey Act of 1976,
The Agricultural Foreign Investment Disclosure Act of 1978, The Foreign
Investment in Real Property Tax Act of 1980 and The Tax Reform Act of 1984 and
further agrees upon request of Noteholder to furnish Noteholder with evidence of
such compliance.
Section 5.22. Noteholder's Consent. Except where otherwise expressly
provided herein, in any instance hereunder where the approval, consent or the
exercise of judgment of Noteholder is required, the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of Noteholder, and Noteholder shall not, for any reason or to any
extent, be required to grant such approval or consent or exercise such judgment
in any particular manner, regardless of the reasonableness of either the request
or Noteholder's judgment.
Section 5.23. Final Agreement of the Parties. THE WRITTEN LOAN DOCUMENTS
REPRESENT 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.
Section 5.24. Grantor. Unless the context clearly indicates otherwise, as
used in this Mortgage, "Grantor" means the grantors named in Section 1.1 hereof
or any of them. The obligations of Grantor hereunder shall be joint and several.
Section 5.25. Counterparts. This Mortgage may be executed in several
counterparts, all of which are identical, except that, to facilitate
recordation, in certain counterparts hereof only that portion of Exhibit A which
contains specific descriptions of the Mortgaged Properties located in the
recording jurisdiction in which the particular counterpart is to be recorded may
be included, and all other portions of Exhibit A shall be included by reference
only. All of such counterparts together shall constitute one and the same
instrument. Complete copies of this Mortgage containing the entire Exhibit A
have been retained by Grantor and Noteholder and may be recorded in any
jurisdiction where any of the Mortgaged Properties are located.
Section 5.26. Successors and Assigns. The terms, provisions, covenants and
conditions hereof shall be binding upon Grantor, and the heirs, devisees,
representatives, successors and assigns of Grantor, and shall inure to the
benefit of Trustee and Noteholder and their respective heirs, devisees,
representatives, successors and assigns and shall constitute covenants running
with the land described in Exhibit A. All references in this Mortgage to
Grantor, Trustee or Noteholder shall be deemed to include all such heirs,
devisees, representatives, successors, substitutes and assigns.
Section 5.27. Effective Date. The "Effective Date" of this instrument is
7:00 o'clock a.m. local time on the first day of the month set forth below in
the date of this Mortgage, at the location of the Mortgaged Properties,
respectively.
Section 5.28. Choice of Law. WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW, THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO
BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED STATES OF
AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A PORTION OF
THE PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE
PROPERTY) NECESSARILY OR, IN THE SOLE DISCRETION OF LENDER, 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 TRUSTEE OR THE LENDER GRANTED HEREIN, THE LAW OF SUCH
STATE SHALL APPLY AS TO THAT PORTION OF THE PROPERTY LOCATED IN (OR OTHERWISE
SUBJECT TO THE LAWS OF) SUCH STATE.
IN WITNESS WHEREOF, this instrument is executed this 29th day of September,
2000.
NOTEHOLDER:
GRANTOR:
BaseLine Capital, Inc.
Energy Producers, Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
By: /s/ ▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇ ▇▇▇▇▇▇
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Title: President
Title: Chairman and CEO
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Address:
Address of Grantor:
▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
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STATE OF ss.
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COUNTY OF ss.
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This instrument was acknowledged before me this ___________ day of
______________, 2000, by , President of Energy Producers, Inc., a Texas
corporation, on behalf of said corporation.
Notary Public - State of Texas
STATE OF TEXAS ss.
COUNTY OF MIDLAND ss.
This instrument was acknowledged before me this ___________ day of
_______________, 2000, by ▇▇▇▇ ▇. ▇▇▇▇▇▇, President of BaseLine Capital, Inc., a
Texas corporation, on behalf of said corporation.
Notary Public - State of Texas
EXHIBIT "A"
TO
DEED OF TRUST, MORTGAGE, ASSIGNMENT,
SECURITY AGREEMENT AND FINANCING STATEMENT
FROM ENERGY PRODUCERS, INC. TO OR FOR
THE BENEFIT OF BASELINE CAPITAL, INC.
All of Grantor's oil, gas and/or mineral leasehold, mineral, royalty,
overriding royalty or other oil, gas and mineral interest (whether now owned or
hereafter acquired) in all of the leases and/or lands described or referred to
in this Exhibit "A", together with all of Grantor's interest in all leases,
lands and interest with which any of said interests may now or hereafter be
pooled, unitized or communitized. This exhibit shall include all of Grantor's
interests in the leases described or referred to herein as reflected of record
in the county records whether or not all lands covered by said leases are
specifically described or referred to herein and whether or not all of Grantor's
interest in said leases are specifically described or referred to herein. The
specific interests set forth herein are the interests hereby represented and
warranted to be owned by Grantor in the properties described herein, but this
exhibit shall be deemed to cover any additional interests of Grantor that are in
excess of the specific interests set forth herein and such designations shall
not be deemed a limitation on the interest covered hereby. The lease names
and/or well names set forth herein are for information purposes only and such
designations shall not be deemed a limitation on the properties covered hereby.
All recording references in this Exhibit "A" shall be deemed references to the
applicable real property records of the named county or counties in which the
Mortgaged Properties are located.
ENERGY PRODUCERS, INC.
Board of Directors Resolution
LET IT BE KNOWN BY ALL MEN present this Twenty-third day of September,
2000, that the Board of Directors of ENERGY PRODUCERS, INC. (the "Company"),
having met in a duly convened meeting hereby resolve, ratify and approve the
following measures be taken: Approve and authorize ▇▇. ▇▇▇ ▇▇▇▇▇▇ its chairman
and CEO, and Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ its President and Director as signatories and
one or both of them as may be deemed required on behalf of the company here
directed towards the final approval and completion of various loan and stock
option agreements with Baseline Capital, Inc. its associates, counterparts,
designees, participants, and assigns (see exhibit agreements attached hereto).
A total of 2,600,000 shares of common stock of the Company are authorized
and reserved for issuance under the above-referenced stock option agreements
with Baseline Capital, Inc., its associates, counterparts, designees,
participants and assigns.
Further, it is authorized and approved by the Board of Directors that one
or both ▇▇. ▇▇▇ ▇▇▇▇▇▇ and Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall provide or direct to be
provided all items and requirements as may be deemed necessary from time to time
as to fulfill and provide for all actions requisite in behalf of said
requirements of the formal agreements to be done before and upon signing
thereof, and take such other actions as they deem necessary or appropriate in
connection with the transactions and matters described herein.
With no further business, the meeting was adjourned.
The Chairman directed a true and correct copy be placed in the minute books
of the corporation.
/s/ ▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇ ▇▇▇▇▇▇, Chairman ▇▇▇ ▇. ▇▇▇▇▇▇, Director
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Director ▇▇▇▇▇ ▇. ▇▇▇▇▇, Director
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Director
The enclosed is a certified true and correct copy for placement in the minute
books of the corporation this 23rd day of September, 2000.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Secretary
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement") is made and entered into as of
the 29th day of September, 2000, by and between Energy Producers, Inc. ("EPI")
and ▇▇▇▇ ▇. ▇▇▇▇▇▇ (the "Consultant"), with reference to the following facts:
Consultant has experience in the oil and gas business in the State of
Texas.
EPI intends to acquire oil and gas properties located in Young County,
Texas and more fully described on Exhibit A attached hereto and made a part
hereof for all purposes (the "Subject Properties").
EPI desires to retain Consultant to provide, and Consultant has agreed to
provide to EPI, certain consulting services with respect to the Subject
Properties on and subject to the terms and conditions set forth herein.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises, covenants
and agreements set forth herein, the parties hereto agree as follows:
Consulting Services to Be Provided. Consultant agrees to respond to
questions presented by representatives of EPI and otherwise generally discuss
matters with representatives of EPI pertaining to the Subject Properties (the
"Consulting Services"); provided, however, that the Consulting Services shall
not include and Consultant shall not be obligated to perform any manual labor,
bookkeeping, document preparation, clerical work or any similar activities.
Availability of Consultant. Consultant agrees to be available to provide
the Consulting Services at such times and places as may be agreed upon in
advance by Consultant and EPI. Notwithstanding the foregoing, however,
Consultant may provide Consulting Services by telephone in his sole discretion,
and shall not be required to travel or appear in person unless Consultant
expressly agrees to do so.
Compensation. EPI agrees to pay Consultant a monthly consulting retainer
fee (the "Monthly Retainer Fee") in the amount of $2,000.00, payable on the 1st
day of each month beginning October 1, 2000 and continuing until this Agreement
is terminated as provided in Section 4.
Term and Termination. This Agreement shall become effective as of the date
hereof and shall remain in effect until the earlier of (a) EPI pays to BaseLine
Capital, Inc. ("BaseLine") all sums due and performs all other obligations under
and pursuant to that certain Note Agreement dated September 29, 2000 by and
between EPI and BaseLine, and all other documents and instruments related
thereto, (b) EPI ceases to own the Subject Properties, or (c) thirty (30) days
after Consultant has given EPI notice of termination of this Agreement by
Consultant in his sole discretion. Upon any termination of this Agreement, EPI
shall pay to Consultant the entire amount of the Monthly Retainer Fee accrued
through the date of termination, determined for any partial month on the basis
of the number of days in that month prior to the date of termination.
Notwithstanding any termination of this Agreement, the provisions set forth in
Sections 5, 6 and 7 hereof shall survive any such termination and continue in
full force and effect.
Confidentiality and Other Businesses.
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Each of the parties hereto agree to maintain any and all information
received from or related to the other party or any of their respective
businesses and not disclose any such information to any person without the prior
written consent of the other party, except for such disclosure as may be
required by law or court order.
Each of the parties hereto acknowledge and agree that each of them engage
in businesses, including the oil and gas business, separate and apart from the
matters governed by this Agreement, and hereby consent to each other engaging in
such business, including without limitation, those in competition with one
another, without offering any business opportunities to each other.
Responsibility. CONSULTANT SHALL HAVE NO RESPONSIBILITY OR LIABILITY FOR OR
IN CONNECTION WITH THE SUBJECT PROPERTIES OR ANY BUSINESS DECISIONS OR ACTIONS
TAKEN BY EPI OR ANY OF ITS OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS
OR REPRESENTATIVES (COLLECTIVELY, THE "EPI PARTIES"). EPI AGREES TO INDEMNIFY
AND HOLD HARMLESS CONSULTANT, AND HIS HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS (COLLECTIVELY WITH CONSULTANT, THE "CONSULTANT PARTIES"),
FROM AND AGAINST, ANY AND ALL CLAIMS, DAMAGES, CAUSES OF ACTION, LOSSES,
LIABILITIES OR OBLIGATIONS OF ANY KIND (THE "CLAIMS") ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, THE SUBJECT PROPERTIES OR ANY RELATED MATTERS,
WHETHER RESULTING FROM OR RELATED TO ANY ACTION, FAILURE TO TAKE ACTION,
STATEMENT OR OMISSION OR THE SOLE, CONCURRENT OR GROSS NEGLIGENCE OF ANY ONE OR
MORE OF THE EPI PARTIES, THE CONSULTANT OR ANY OTHER PERSON OR ENTITY.
Release. The EPI Parties hereby waive and release any and all Claims,
whether known, unknown, contingent or otherwise, which any of the EPI Parties
may now or hereafter have against the Consultant Parties.
Independent Contractor. The parties hereto acknowledge and agree that
Consultant is an independent contractor, and shall not be considered an employee
of EPI for any purpose. The parties further agree that no special, fiduciary
and/or confidential relationship or partnership exists between Consultant and
EPI in connection with or as a result of this Agreement or the services to be
performed hereunder.
Miscellaneous Provisions.
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THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED UNDER AND IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, EXCEPT FOR ANY CONFLICT OF LAW PRINCIPLES OF
SUCH STATE WHICH WOULD RESULT IN THE LAWS OF ANOTHER JURISDICTION TO GOVERN THIS
AGREEMENT.
This Agreement shall be binding upon and enure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and assigns. Notwithstanding the foregoing, neither party to this Agreement may
assign any of his rights or obligations hereunder without the prior written
consent of the other party.
In case any one or more of the provisions contained in this Agreement shall
for any reason be held invalid, illegal, or unenforceable in any respect, such
invalidity, illegality or unenforceabililty shall not effect any other provision
of this Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
This Agreement may only be amended, modified or altered by a writing signed
by all the parties hereto.
This Agreement represents the complete understanding between Consultant and
EPI and supersedes all prior negotiations, representations or agreements, either
written or oral. No ambiguity shall be construed against either party on the
grounds that such party caused or could have prevented it.
Notices shall be in writing, given in person or by prepaid mail or express
delivery and effective when received in person or at the address of the
receiving party shown below. Notice given by mail shall be deemed received three
(3) days after being mailed (postage prepaid) to the address of the receiving
party shown below.
IN WITNESS WHEREOF, this Agreement is executed by the following parties on
the date first above written.
EPI:
ENERGY PRODUCERS, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇ ▇▇▇▇▇▇
Title: Chairman and CEO
Address for Notice:
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▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
CONSULTANT:
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇
Address for Notice:
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▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
ENERGY PRODUCERS, INC.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
September 29, 2000
Conoco Inc.
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▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Re:Oil and Gas Properties
Ladies and Gentlemen:
Energy Producers, Inc. ("EPI") is the owner of various oil and gas
properties and interests ("Properties") further described on the schedule
attached. By Deed of Trust, Mortgage, Security Agreement, Assignment of
Production and Financing Statement ("Deed of Trust") dated September 29, 2000,
EPI mortgaged and pledged the Properties for the benefit of BaseLine Capital,
Inc. ("BaseLine"). The Deed of Trust contains an assignment to BaseLine of all
of the oil and gas produced, saved and sold attributable to the Properties, and
the Deed of Trust grants to BaseLine the right to receive payment for the
proceeds of all such production.
We understand that you are either:
(a) purchasing production from the Properties and making payment to EPI for
the proceeds of such production, or
(b) receiving from the purchaser thereof the proceeds of production
attributable to the Properties and distributing those proceeds to EPI, under
your division or transfer orders or other authority or instructions which are
described in the schedule attached hereto. This schedule contains three columns.
In the first column there appears the Owner Number or other designation assigned
by you to EPI. In the second column, there appears the Property Number or other
designation assigned by you to the Properties from which there is produced the
oil and gas for which you are making payment. In the third column there appears
the total interest in gross production for which you are making payment to EPI,
and for which payment should be made to BaseLine for the account of EPI, as
provided below.
EPI hereby authorizes you to pay the proceeds attributable to EPI's
interest in the gross production from the Properties to BaseLine, for the
account of EPI at the following address:
BaseLine Capital, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇
This letter is executed as an agreement in lieu of separate transfer and
division orders with respect to those properties, production and proceeds, so
that it will not be necessary to execute transfer or division orders to replace
those previously executed and currently in effect. BaseLine agrees that, with
respect to all proceeds distributed by you to BaseLine hereunder, BaseLine will,
as mortgagee and assignee of EPI, be bound by the terms, conditions,
representations, warranties and covenants of all transfer and division orders
previously executed by EPI and now in force and effect covering any of such
properties, production or proceeds, with the same effect as if BaseLine had
joined in the execution of each transfer order and division order.
No suspension or interruption in payment is intended because of this change
in payment. If because of the time this notice is received, you make payment to
EPI for purchases made after the date set forth above, an accounting will be
effected between EPI and BaseLine.
EPI authorizes BaseLine to receive and endorse all checks for production
proceeds. You are further assured that you and the banks on which such checks
are drawn may safely pay the same when bearing the endorsement of BaseLine, and
without being required to look to the proper application of the funds
represented by such checks. A signed copy of this letter is being delivered to
BaseLine as evidence of its authority to receive and endorse the checks as above
indicated.
The Deed of Trust is recorded in the counties in which the Properties are
situated. If you require, BaseLine will furnish to you copies of the recorded
Deed of Trust. If you have any questions or instructions, please contact ▇▇▇▇ ▇.
▇▇▇▇▇▇, President, BaseLine Capital, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and whose telephone number is (▇▇▇) ▇▇▇-▇▇▇▇.
This arrangement shall remain in effect until you are notified in writing
by EPI and BaseLine that this arrangement has been terminated.
Yours very truly,
ENERGY PRODUCERS, INC.
By: /s/ ▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇ ▇▇▇▇▇▇
Title: Chairman and CEO
BASELINE CAPITAL, INC.
By: ▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇, President