MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND PROCEEDS, FINANCING STATEMENT AND FIXTURE FILING from RECOVERY ENERGY, INC. (Organizational I.D. No. 74-3231613), AS DEBTOR to and for the benefit of HEXAGON INVESTMENTS, LLC, AS SECURED PARTY...
Exhibit
10.4
WHEN
RECORDED
AND/OR
FILED
RETURN TO:
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
MORTGAGE, SECURITY
AGREEMENT,
ASSIGNMENT OF PRODUCTION AND
PROCEEDS,
FINANCING STATEMENT AND
FIXTURE FILING
from
(Organizational
I.D. No. ▇▇-▇▇▇▇▇▇▇),
AS
DEBTOR
to and
for the benefit of
HEXAGON
INVESTMENTS, LLC, AS SECURED PARTY
Dated as
of January 29, 2010
THIS
INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.
THIS
INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.
EXHIBIT ”A”
CONTAINS A LEGAL DESCRIPTION OF THE REAL ESTATE CONCERNED. DEBTOR HAS
AN INTEREST OF RECORD IN THE REAL ESTATE. SOME OF THE PERSONAL
PROPERTY CONSTITUTING A PORTION OF THE COLLATERAL IS OR IS TO BECOME FIXTURES
RELATED TO THE REAL ESTATE.
THIS
INSTRUMENT COVERS FIXTURES AND AS-EXTRACTED COLLATERAL.
THIS
INSTRUMENT IS TO BE RECORDED IN THE REAL ESTATE RECORDS OF THE COUNTY RECORDER
IN EACH COUNTY WHERE THE REAL ESTATE IS LOCATED.
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MORTGAGE,
SECURITY
AGREEMENT,
ASSIGNMENT OF PRODUCTION AND
PROCEEDS,
FINANCING
STATEMENT
AND FIXTURE
FILING
This
Mortgage, Security Agreement, Assignment of Production and Proceeds, Financing
Statement and Fixture Filing (this “Instrument”), dated
as of January 29, 2010, is from RECOVERY ENERGY, INC., a
Nevada corporation (“Debtor”), with
Organizational I.D. No. ▇▇-▇▇▇▇▇▇▇ and with an address of ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, to and for the benefit of HEXAGON INVESTMENTS, LLC, a
Colorado limited liability company (“Secured Party”), with
an address of ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
COLLATERAL
All of
the property described in paragraphs 1 through 8 below is herein collectively
called the “Collateral”:
1. The
entire estates or the undivided interests therein as described in Exhibit “A” in
and to all of the mineral estates, surface estates, leasehold estates and other
estates described in Exhibit “A” and in and to the mineral interests, royalty
interests, working interests, operating rights interest, record title interests,
overriding royalty interests, production payment interests, net profit interests
and other interests described in Exhibit “A” and in and to the leases, licenses,
subleases, sublicenses, easements, rights-of-way, farmouts, farmins, minerals
agreements, unit agreements, cooperative development agreements, communitization
agreements, unit operating agreements, pooling agreements, joint operating
agreements and other documents and instruments described in Exhibit “A” and any
other estates, property interests and rights described in Exhibit “A”, covering
or relating to all or any part of the land described either in Exhibit “A” or in
the leases, licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in Exhibit “A” (the
“Land”; the
term “Land” as
used herein includes, without limitation, the land specifically described in
Exhibit “A” and all land described in or covered by the leases, licenses,
subleases, sublicenses, easements, rights-of-way, agreements and other documents
and instruments described in Exhibit “A” whether or not such land is
specifically described in Exhibit “A”), together with any and all other right,
title and interest of Debtor of whatever kind or character (whether now owned or
hereafter acquired by operation of law or otherwise) (which right, title and
interest of Debtor shall, for all purposes of this Instrument, be deemed to
include, without limitation, any and all right, title and interest now owned or
hereafter acquired by Debtor in any amendment, modification, supplement,
restatement, extension, renewal or replacement of any of the leases, licenses,
subleases, sublicenses, easements, rights-of-way, agreements and other documents
and instruments described in Exhibit “A”) in, to and under or that covers,
affects or otherwise relates to the Land or the leases, licenses, subleases,
sublicenses, easements, rights of way, agreements and other documents and
instruments described in Exhibit “A” or to any of the estates, property,
interests or rights described or referred to above or herein, including the
following:
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(a) All of
Debtor’s right, title and interest of whatever kind or character (whether now
owned or hereafter acquired by operation of law or otherwise) in, to and under
or that covers, affects or otherwise relates to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit “A” or to any of the estates,
property, interests or rights described or referred to above or herein, even
though Debtor’s interest therein may be incorrectly described in, omitted from
or not described in Exhibit “A”;
(b) All of
Debtor’s right, title and interest (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under all presently existing and
hereafter created oil, gas or mineral unitization, cooperative development,
pooling, spacing or communitization agreements, declarations or orders, and in
and to the lands and properties covered and the units created thereby (including
units formed under orders, rules, regulations or other official acts of any
federal, state, tribal, local or other authority having jurisdiction and so
called “working interest units” created under operating and similar agreements
or otherwise), that cover, affect or otherwise relate to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit “A” or to any of the estates,
property, interests or rights described or referred to above or
herein;
(c) All of
Debtor’s right, title and interest (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under all presently existing and
hereafter created operating agreements, equipment leases, production sales,
purchase, exchange or processing agreements, transportation or gathering
agreements, farmout or farmin agreements, disposal agreements, area of mutual
interest agreements and other contracts or agreements that cover, affect or
otherwise relate to the Land or the leases, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and instruments
described in Exhibit “A” or to any of the estates, property, interests or rights
described or referred to above or herein or the operations thereon, or the
production, treatment, storage, gathering, transportation, handling, processing,
manufacturing, sale or marketing of Hydrocarbons (as hereinafter defined)
produced therefrom or allocated or attributed thereto, including those contracts
and agreements listed in Exhibit “A” as the same may be amended or supplemented
from time to time; and
(d) All of
Debtor’s right, title and interest of whatever kind or character (whether now
owned or hereafter acquired by operation of law or otherwise) in, to and under
all presently existing or hereafter created easements, servitudes,
rights-of-way, surface leases, licenses, permits and other surface rights used,
or held for use, in connection with the Land or any of the estates, property,
interests or rights described or referred to above or herein, or the operations
thereon, or the production, treatment, storage, gathering, transportation,
handling, processing, manufacturing, sale or marketing of Hydrocarbons produced
therefrom or allocated or attributed thereto, including the easements and
rights-of-way described in Exhibit “A” hereto as same may be amended or
supplemented from time to time;
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2. All of
the oil, gas, drip gasoline, natural gasoline, natural gas liquids, condensate,
distillate, casinghead gas and other solid, liquid or gaseous hydrocarbons and
other associated or related substances of whatever kind or character and in
whatever form or phase, including gases produced from coal-bearing formations
and strata such as so-called “coal-bed gas” and “coal-bed methane”
(collectively, “Hydrocarbons”) in,
on, under or allocated or attributed to any of the estates, property, interests
or rights described or referred to above or herein or any other interest of
Debtor (whether now owned or hereafter acquired by operation of law or
otherwise) in, to and under or that covers, affects or otherwise relates to the
Land or to any of the estates, property, interests or rights described or
referred to above or herein;
3. All
▇▇▇▇▇, platforms, derricks, casing, tubing, tanks, tank batteries, treaters,
separators, rods, pumps, pumping units, flow lines, water lines, transportation
lines, gathering lines, gas lines, machinery, pipelines, power lines and other
goods and equipment, and all of the personal property and fixtures, as defined
under applicable state law, now or hereafter located in, on, under, affixed,
allocated or attributed to or obtained or used in connection with any of the
estates, property, interests or rights described or referred to above or herein
or any other interest of Debtor (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under or that covers, affects or
otherwise relates to the Land or to any of the estates, property, interests or
rights described or referred to above or herein, or that are used or purchased
for the production, treatment, storage, gathering, transportation, handling,
processing, manufacturing, sale or marketing of Hydrocarbons;
4. All of
the accounts, contract rights and general intangibles now or hereafter arising
in connection with the production, treatment, storage, gathering,
transportation, handling, processing, manufacturing, sale or marketing of
Hydrocarbons produced from or allocated or attributed to any of the estates,
property, interests or rights described or referred to above or herein or any
other interest of Debtor (whether now owned or hereafter acquired by operation
of law or otherwise) in, to or under or that covers, affects or otherwise
relates to the Land or to any of the estates, property, interests or rights
described or referred to above or herein and all other accounts, contract rights
and general intangibles now or hereafter arising in connection with the estates,
property, interests or rights described or referred to above or
herein;
5. All of
the severed and extracted Hydrocarbons, including “as-extracted collateral” (as
defined in the applicable version of the Uniform Commercial Code in effect in
each jurisdiction in which any of the Land is located) produced from or
allocated or attributed to any of the estates, property, interests or rights
described or referred to above or herein or any other interest of Debtor
(whether now owned or hereafter acquired by operation of law or otherwise) in,
to and under or that covers, affects or otherwise relates to the Land or to any
of the estates, property, interests or rights described or referred to above or
herein;
6. All
renewals, extensions and restatements of, modifications, changes, amendments and
supplements to, and substitutions for the estates, property, interests and
rights described or referred to in paragraphs 1 through 5 above, and all
additions and accessions thereto;
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7. All of
the rights, privileges, benefits, hereditaments and appurtenances in any way
belonging, incidental or appertaining to the estates, property, interests and
rights described or referred to in paragraphs 1 through 6 above;
and
8. All of
the proceeds and products of the estates, property, interests and rights
described or referred to in paragraphs 1 through 7 above, including,
condemnation awards and the proceeds of any and all insurance policies
(including title insurance policies as well as other types of insurance
policies) covering all or any part of said estates, property, interests or
rights and, to the extent they may constitute proceeds, instruments, accounts,
securities, general intangibles, contract rights and inventory.
GRANTING
CLAUSES
In
consideration of ten dollars and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Debtor, and the
matters hereinafter set forth, Debtor hereby irrevocably:
A. Real
Property. Grants, bargains, sells, assigns, transfers,
mortgages and conveys to Secured Party, that part of the Collateral that is real
property (including any fixtures that are real property under applicable state
law), subject to the assignment made under paragraph C below; TO HAVE AND TO
HOLD all of the Collateral that is real property (including any fixtures that
are real property under applicable state law), together with all of the rights,
privileges, benefits, hereditaments and appurtenances in any way belonging,
incidental or pertaining thereto, to Secured Party and its successors and
assigns, forever, for the security and benefit of Secured Party and its
successors and assigns, subject to all of the terms, conditions, covenants,
agreements and trusts herein set forth;
B. Personal
Property. Grants to Secured Party a security interest in that
part of the Collateral that is personal property (including any fixtures that
are personal property under applicable state law); and
C. Assignment of
Production. Absolutely assigns to Secured Party all of the
severed and extracted Hydrocarbons produced from or allocated or attributed to
any of the Collateral or any other interest of Debtor (whether now owned or
hereafter acquired by operation of law or otherwise) in, to and under or that
covers, affects or otherwise relates to the Land or to any of the estates,
property rights or other interests described or referred to above, together with
all of the proceeds thereof.
ARTICLE
I
Obligations
Section
1.1 Obligations
Secured. This Instrument is executed, acknowledged and
delivered by Debtor to secure and enforce the following indebtedness,
liabilities and obligations (the “Obligations”):
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A. Note. All
indebtedness (including principal, interest, fees and penalties), liabilities
and obligations under or pursuant to the Promissory Note, dated January 29,
2010, in the principal amount of $4,500,000, made by Debtor and payable to the
order of Secured Party (the “Note”);
B. Credit
Agreement. All indebtedness, liabilities and obligations of
whatever kind or character, now existing or hereafter created or arising under
or pursuant to that certain Credit Agreement (the “Credit Agreement”),
dated as of January 29, 2010, between Secured Party and
Debtor;
C. This
Instrument. All indebtedness, liabilities and obligations of
Debtor to Secured Party of whatever kind or character, now existing or hereafter
created or arising under or pursuant to this Instrument, including those arising
under or pursuant to the representations, warranties, covenants and indemnities
contained herein and any and all amounts advanced to protect the liens and
security interests herein granted and all reasonable attorneys’ fees, court
costs, and expenses of whatever kind or character now existing or hereafter
created or arising, incident thereto or to the collection of the indebtedness,
liabilities and obligations hereby secured and enforcement of the liens and
security interests herein granted and created;
D. Other
Obligations. All other indebtedness, liabilities and
obligations of Debtor to Secured Party of whatever kind or character now
existing or hereafter created or arising, whether fixed, absolute or contingent,
direct or indirect, primary or secondary, joint, several or joint and several,
due or to become due, and however evidenced whether by note, open account,
overdraft, endorsement, surety agreement, guarantee or otherwise, it being
contemplated that Debtor may hereafter become indebted to Secured Party in such
further sum or sums; and
E. Renewals, Extensions and
Amendments. All indebtedness, liabilities and obligations of
whatever kind or character, now existing or hereafter created or arising under
or pursuant to all renewals, extensions and restatements of, modifications,
changes, amendments and supplements to and substitutions for, all or any part of
the foregoing.
Section
1.2 Indebtedness
Secured. Debtor and Secured Party agree and acknowledge that
Secured Party may elect to make additional advances under the terms of the Note,
the Credit Agreement or otherwise, and that any such future advances shall be
subject to, and secured by, this Instrument. Should the Obligations
decrease or increase pursuant to the terms of the Note, the Credit Agreement or
otherwise, at any time or from time to time, this Instrument shall retain its
priority position of record until the termination of the Credit Agreement and
until full, final and complete payment of all the Obligations. The
aggregate unpaid principal amount of the Obligations outstanding at any
particular time (after having given effect to all advances and all repayments
made prior to such time) which is secured by the Collateral shall not aggregate
in excess of Nine Million Dollars ($9,000,000). Such amount does not
in any way imply that Secured Party is obligated to make any future advances to
Debtor at any time unless specifically so provided in the Credit
Agreement or any other loan document.
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ARTICLE
II
Warranties, Representations
and Covenants
Section
2.1 Representations and
Warranties. Debtor warrants and represents as
follows:
A. Power and
Authority. Debtor has the power and authority to mortgage,
pledge and hypothecate the Collateral as provided herein.
B. Title. Unless
otherwise indicated in Exhibit “A”, to the best of Debtor's knowledge the
oil and gas leases and licenses described in Exhibit “A” cover all of the oil,
gas and other Hydrocarbons in and under the Land. Debtor has good and
defensible title to the Collateral; and Debtor has good and defensible title to
the undivided interests in the leases, licenses, sublicenses, sublicensing,
easements, rights-of-way, agreements and other documents and instruments as
described in Exhibit “A” free and clear of all royalties and other burdens,
charges, liens, security interests, encumbrances, agreements, contracts,
assignments and other matters, except (1) landowner’s royalties and the
overriding royalties and the agreements and contracts specifically described in
Exhibit “A”, (2) the liens and security interests evidenced by this Instrument,
(3) statutory liens for taxes which are not yet delinquent, (4) liens under
operating agreements, pooling orders and unitization agreements, and mechanics'
and materialmen's liens, with respect to obligations which are not yet due, and
(5) other interests in favor of Secured Party. To the best of
Debtor's knowledge the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
Exhibit “A” are valid and subsisting and are in full force and
effect. To the best of Debtor's knowledge, all rents and royalties
due and payable under the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
Exhibit “A” have been paid. All ▇▇▇▇▇ located on the Land have been
drilled, operated and produced in conformity with all applicable laws and rules,
regulations and orders of all regulatory authorities having jurisdiction, and
are subject to no penalties on account of past production. To the
best of Debtor's knowledge none of such ▇▇▇▇▇ are deviated from the vertical
more than the maximum permitted by applicable laws, rules, regulations and
orders. To the best of Debtor's knowledge such ▇▇▇▇▇ are in fact
bottomed under and are producing from, and the well bores are wholly within, the
lands described in Exhibit “A”. Debtor warrants and will forever
defend the title to the Collateral, subject to the aforesaid, against the claims
of all persons claiming or to claim the same or any part thereof by, through or
under the Debtor but not otherwise.
C. Working and Net Revenue
Interests.
1. With
respect to each of the oil and gas leases and ▇▇▇▇▇ described in
Exhibit “A,” Debtor’s share of development and operating costs with respect
to the portion of the Land covered thereby as described in Exhibit “A”,
without regard to pooling and unitization, is not greater than the “Working
Interest” or “WI” specified in Exhibit “A”; and Debtor’s share of the gross
production of all oil, gas and other Hydrocarbons produced, saved and marketed
from said Land, without regard to pooling and unitization, is no less than the
“Net Revenue Interest” or “NRI” specified in Exhibit “A”.
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2. With
respect to each of the overriding royalty interests described in
Exhibit “A”, Debtor’s share of the gross production of oil, gas and other
Hydrocarbons produced, saved and marketed from the portion of the Land subject
thereto as described in Exhibit “A”, is no less than the percentage
specified in Exhibit “A”.
3. With
respect to each of the mineral interests described in Exhibit “A”, Debtor’s
share of the oil, gas and other Hydrocarbons in and under and that may be
produced, saved and marketed from the portion of the Land subject thereto as
described in Exhibit “A” is no less than the stated percentage specified in
Exhibit “A”.
4. With
respect to each of the royalty interests described in Exhibit “A”, Debtor’s
share of the gross production of oil, gas and other Hydrocarbons produced, saved
and marketed from the portion of the Land subject thereto as described in
Exhibit “A” is no less than the percentage specified in
Exhibit “A”.
5. With
respect to each of the units and pools described in Exhibit “A”, Debtor’s
share of development and operating costs with respect to the portion of the Land
covered thereby as described in Exhibit “A” or in the agreements creating
such units and pools recorded as described in Exhibit “A” and the ▇▇▇▇▇ on
said Land, is no greater than the “Working Interest” or “WI” specified in
Exhibit “A”; and Debtor’s share of the gross production of oil, gas and
other Hydrocarbons produced, saved and marketed from said Land and said ▇▇▇▇▇ is
no less than the “Net Revenue Interest” or “NRI” specified in
Exhibit “A.”
All such
shares of development and operating costs and of gross production are not and
will not be subject to change (other than changes that arise pursuant to
nonconsent provisions of operating agreements described in Exhibit “A” in
connection with operations hereafter proposed) except, and only to the extent
that such changes are reflected in Exhibit “A”.
D. Operations of Oil and Gas
Properties. The Collateral (and all properties spaced,
communitized, unitized or otherwise aggregated therewith) will be maintained,
operated and developed in a good and workmanlike manner and in conformity in all
material respects with all applicable laws, rules, regulations and orders of all
federal, state, tribal and local governmental bodies, authorities and agencies
and in conformity in all material respects with the provisions of all leases,
subleases or other contracts and agreements comprising a part of the
Collateral. To the best of Debtor's knowledge none of the Collateral
is subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of an
overproduction (whether or not the same was permissible at the time) prior to
the date hereof.
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E. Sale of
Production.
1. All
proceeds from the sale of Debtor’s interests in Hydrocarbons from the Collateral
are currently being paid in full to Debtor by the purchaser or remitter thereof
on a timely basis and at prices and terms comparable to market prices and terms
generally available at the time such prices and terms were negotiated for oil
and gas production from producing areas situated near the Collateral, and none
of such proceeds are currently being held in suspense by such purchaser or any
other party.
2. Neither
Debtor, nor to the best of Debtor's knowledge its predecessors in title, have
entered into or are subject to any agreement or arrangement (including “take or
pay” or similar arrangements) nor to the best of Debtor's knowledge is the
Collateral subject to any such agreement or arrangement, to deliver Hydrocarbons
produced or to be produced from the Collateral at some future time without then
or thereafter receiving full payment therefor.
3. To the
best of Debtor's knowledge none of the Collateral is or will become subject to
any contractual or other arrangement whereby payment for production from such
Collateral is to be deferred for a substantial period after the month in which
such production is delivered (that is, in the case of oil, not in excess of 60
days, and in the case of gas, not in excess of 90 days).
4. Except
for existing production sales contracts, processing agreements or transportation
agreements, none of the Collateral is or will become subject to any contractual
or other arrangement for the sale of crude oil that cannot be canceled on 180
days’ or less notice; and none of the Collateral is or will become subject to a
gas sales contract that contains terms that are not customary in the
industry.
5. To the
best of Debtor's knowledge none of the Collateral is subject at the present time
to any regulatory refund obligation and, no facts exist that might cause the
same to be imposed.
6. None of
the Collateral is subject to a gas balancing arrangement under which an
imbalance exists with respect to which imbalance Debtor or the Collateral 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 Collateral
without payment (or without full payment) therefor or (ii) make payment in
cash, in order to correct such imbalance.
F. Condition of Personal
Property. The inventory, equipment, fixtures and other
tangible personal property and fixtures forming a part of the Collateral are in
good repair and condition. All of such Collateral is located on the
Land.
G. Contracts and
Agreements. Except for contracts and agreements that do not
have a material effect on the use, ownership, value or operation of the
Collateral, to the best of Debtor's knowledge Exhibit “A” sets forth all
operating agreements, equipment leases, production sales, purchase, exchange or
processing
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agreements,
transportation or gathering agreements, farmout or farmin agreements, disposal
agreements, area of mutual interest agreements and other contracts and
agreements that cover, effect or otherwise relate to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit ”A” that relate to
operations thereon, or the production, treatment, storage, gathering,
transportation, handling, processing, manufacturing, sale or marketing of
hydrocarbons produced therefrom or allocated or attributed
thereto.
H. Consents and Preferential
Rights to Purchase. Except as specifically set forth in
Exhibit A, to the best of Debtor's knowledge there are no preferential
rights to purchase all or any portion of the Collateral and there are no rights
of third parties to consent to the transfer of all or any portion of the
Collateral.
I. Taxes. To
the best of Debtor's knowledge all ad valorem, property, production, severance,
excise and similar taxes and assessments based on or measured by the ownership
of property or the production of Hydrocarbons or the receipt of proceeds
therefrom relating to the Collateral that have become due and payable have been
properly and timely paid.
J. Federal State and Tribal
Interests Leases. Debtor is duly qualified to own, hold and
operate leases, easements, rights-of-way, mineral agreements and other
agreements covering, affecting or otherwise relating to federal, state and
tribal lands (including leases, easements and rights-of-way issued by the Bureau
of Land Management; leases, easements and rights-of-way issued by the Bureau of
Indian Affairs; and leases, easements, rights-of-way, mineral agreements and
other agreements with tribal governments or agencies or allottees).
K. Environmental
Matters.
1. To the
best of Debtor's knowledge the Collateral is being, operated in compliance with
all applicable Environmental Laws (as hereinafter defined); and no conditions
exist on or with respect to the Collateral or, on any property adjoining the
Collateral that would subject Debtor, Secured Party or the owner of any
adjoining property to any damages (including actual, consequential, exemplary
and punitive damages), penalties, injunctive relief or cleanup costs under any
Environmental Laws (as hereinafter defined), or that require or are likely to
require cleanup, removal, remedial action or other response by Debtor, Secured
Party or the owner of any adjoining property pursuant to any Environmental
Laws. Debtor is not a party to any litigation or administrative
proceeding, nor, to the best of Debtor’s knowledge, is any litigation,
administrative proceeding or investigation threatened against Debtor or the
Collateral, that asserts or alleges that Debtor or its predecessors in title to
the Collateral violated or are violating Environmental Laws or that Debtor or
such predecessors are required to clean up, remove or take remedial or other
responsive action due to the use, storage, treatment, disposal, discharge,
leaking or release of any Hazardous Substances or Solid Waste (as such terms are
hereinafter defined). Neither Debtor nor to the best of Debtor's
knowledge such predecessors or any part of the Collateral is subject to any
judgment, decree, order or citation related to or arising out of Environmental
Laws and Debtor has not been named or listed as a potentially responsible party
by any governmental or other entity in a matter arising under or relating to any
Environmental Laws. This representation shall 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
Collateral or to Debtor.
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2. Debtor
undertook, at the time of acquisition of the Collateral, all appropriate inquiry
into the previous ownership and uses of the Collateral consistent with good
commercial and industry practice. To the best of Debtor's knowledge
no Hazardous Substances or Solid Waste have been disposed of or otherwise
released on, to or from the Collateral, except in full compliance with all
Environmental Laws. The use which Debtor makes and intends to make of
the Collateral will not result in the use or storage of any Hazardous Substances
or Solid Waste on, in or in connection with the Collateral, or disposal from the
Collateral, except in full compliance with all Environmental Laws, or result in
any requirement that Debtor apply for or obtain a permit under RCRA (as
hereinafter defined) or other Environmental Law for the treatment, storage or
disposal of Hazardous Substances or Solid Waste. To the best of
Debtor's knowledge there are no regulated underground storage tanks located on
or in the Collateral.
3. As used
herein, the term “Environmental Laws”
shall mean any and all present and future laws (whether common or statutory),
compacts, treaties, conventions or rules, regulations, codes, plans,
requirements, criteria, standards, orders, decrees, judgments, injunctions,
notices or demand letters issued, promulgated or entered thereunder by any
federal, tribal, state or local governmental entity relating to public or
employee health and safety, pollution or protection of the environment,
including the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of
1986 (“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, (“RCRA”), the Federal
Safe Drinking Water Act, the Federal Water Pollution Control Act, the Oil
Pollution Act of 1990, the Emergency Planning and Community Right-to-Know Act of
1986, the Clean Air Act and any and all other federal, state, tribal and local
laws, rules, regulations and orders relating to reclamation of land, wetlands
and waterways or relating to use, storage, emissions, discharge, cleanup,
release or threatened release of pollutants, contaminants, chemicals or
industrial, toxic or Hazardous Substances or Solid Waste on or into the
workplace or the environment (including ambient air, oceans, waterways,
wetlands, surface water, ground water (tributary and nontributary), land surface
or subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic, hazardous or similar
substances, as all of the foregoing may be amended, supplemented and
reauthorized from time to time.
4. As used
herein, the term “Hazardous Substances” shall mean any and all
(a) “hazardous substances,” as defined by CERCLA; (b) “hazardous
wastes,” as defined by RCRA; (c) any pollutant, contaminate or hazardous,
dangerous or toxic chemicals, materials or substances within the meaning of any
Environmental Law; (d) any radioactive material, including any source,
special nuclear or by-product material
11
as
defined at 42 U.S.C. § 2011 et seq., as amended;
and (e) asbestos in any form or condition. As used herein, the
term “release” shall have the meaning specified in CERCLA, and the terms “Solid Waste,”
“disposal” or “disposed” shall have the meaning specified in RCRA. In
the event CERCLA, RCRA or any other applicable Environmental Law is amended so
as to broaden the meaning of any terms defined thereby, such broader meaning
shall apply subsequent to the effective date of such amendment; and to the
extent that the laws of any state in which the Collateral are located establish
a meaning for “hazardous substance,” “release,” “solid waste,” “hazardous
wastes,” or “disposal” that is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply.
L. Non-Foreign Person
Status. Debtor is not a “foreign person” within the meaning of
the Internal Revenue Code of 1986, as amended (the “Code”), Sections 1445
and 7701; that is, Debtor is not a nonresident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate as those terms are defined
in the Code and any regulations promulgated thereunder.
M. Structure. Debtor’s
name, identity, entity structure, organizational identification number and state
of organization are correctly reflected in the preamble to this
Instrument.
Section
2.2 Covenants. Debtor
covenants and agrees as follows:
A. Obligations. Debtor
shall pay when due and perform the Obligations in accordance with the terms
thereof and hereof.
B. Recording and
Filing. Debtor shall (1) promptly and at Debtor’s own
expense, file in such offices, at such times and as often as may be necessary,
this Instrument and every other instrument in addition or supplemental hereto,
including applicable financing statements, as may be necessary to create,
perfect, maintain and preserve the first priority of the liens and security
interests intended to be created hereby and the rights and remedies of Secured
Party hereunder; (2) promptly furnish to Secured Party evidence
satisfactory to Secured Party of all such filings; and (3) otherwise do all
things necessary or expedient to be done effectively to create, perfect,
maintain and preserve the priority of the liens and security interests intended
to be created hereby as a first lien on real property and fixtures and a first
priority security interest in personal property and fixtures.
C. Modifications and
Dispositions. Without the prior written consent of Secured
Party, Debtor shall not (1) amend, modify or otherwise revise any lease,
license or other agreement described in Exhibit “A”; (2) release,
surrender, abandon or forfeit the Collateral or any part thereof; (3) sell,
convey, assign, lease, sublease, alienate, mortgage or grant security interests
in or otherwise dispose of or encumber the Collateral or any part thereof,
except to the extent explicitly permitted by the Credit Agreement and except
sales of severed Hydrocarbons in the ordinary course of Debtor’s business and
for fair consideration, and except for the liens and security interests created
by this Instrument and liens for taxes, assessments and governmental charges not
delinquent; or (4) consent to, permit or authorize any such act by another
party with respect to the Land, the Collateral or any part thereof.
12
D. Maintenance of
Collateral. Debtor shall, at Debtor’s own expense,
(1) keep in full force and effect all of the leases, licenses and other
agreements described in Exhibit “A” and all rights-of-way, easements and
privileges necessary or appropriate for the proper operation of such leases,
licenses and agreements, by the proper payment of all rentals, royalties and
other sums due thereunder and the proper performance of all obligations and
other acts required thereunder; (2) cause the Collateral to be properly
maintained, developed and continuously operated for the production of
Hydrocarbons and protected against drainage and damage in a good and workmanlike
manner as a prudent operator would in accordance with good oil field practice
and applicable federal, state, tribal and local laws, rules, regulations and
orders; (3) pay or cause to be paid when due all expenses incurred in
connection with such maintenance, development, operation and protection of the
Collateral; (4) keep all goods, including equipment, inventory and fixtures
included in the Collateral in good and effective repair, working order and
operating condition and make all repairs, renewals, replacements, substitutions,
additions and improvements thereto and thereof as are necessary and proper;
(5) permit Secured Party, and its respective agents, employees,
contractors, designees and consultants, to enter upon the Collateral for the
purpose of investigating and inspecting the condition and operation of the
Collateral, and do all things necessary or proper to enable Secured Party to
exercise this right whenever Secured Party so desires; and (6) do all other
things necessary to keep unimpaired Secured Party’s interests in the
Collateral.
E. Notification of
Breach. Debtor shall promptly, and in no event later than 3
days after becoming aware, notify Secured Party (1) if any representation
or warranty of Debtor contained in this Agreement is discovered to be or becomes
untrue, or (2) Debtor fails to perform or comply with any covenant or
agreement contained in this Agreement or it is reasonably anticipated that
Debtor will be unable to perform or comply with any covenant or agreement
contained in this Agreement. Debtor shall cause all the
representations and warranties of Debtor contained in this Agreement to be true
and correct in all material respects from time to time and all
times.
F. Defense of
Title. If the title or interest of Debtor or Secured Party to
the Collateral or any part thereof, or the lien or encumbrance created by this
Instrument, or the rights or powers of Secured Party hereunder, shall be
attacked, either directly or indirectly, or if any legal proceedings are
commenced against Debtor or the Collateral, Debtor shall promptly give written
notice thereof to Secured Party and at Debtor’s own expense shall take all
reasonable steps diligently to defend against any such attack or proceedings,
employing attorneys acceptable to Secured Party. Secured Party may
take such independent action in connection therewith as it may in its discretion
deem advisable, and all costs and expenses, including attorneys’ fees and legal
expenses, incurred by or on behalf of Secured Party in connection therewith
shall be a demand obligation owing by Debtor to Secured Party and shall bear
interest at the Default Rate (as defined in the Credit Agreement) until paid,
and shall constitute a part of the Obligations and be indebtedness secured and
evidenced by this Instrument.
13
G. Environmental
Matters. Debtor shall comply with all Environmental Laws and
shall maintain and obtain all permits, licenses and approvals required under
Environmental Laws. Debtor shall not cause or permit the Collateral
or Debtor to be in violation of, or do anything or permit anything to be done
that will subject the Collateral, Debtor or Secured Party to any remedial
obligations under any applicable Environmental Laws, assuming disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Collateral or
otherwise. Debtor shall promptly notify Secured Party in writing of
any existing, pending or threatened investigation or inquiry by any governmental
authority in connection with any applicable Environmental
Laws. Debtor shall take all steps necessary to determine that no
Hazardous Substances or Solid Waste have been used or stored on, in or in
connection with the Collateral, or disposed of or otherwise released on, to or
from the Collateral, except in full compliance with all Environmental
Laws. Debtor shall not cause or permit the use or storage of
Hazardous Substances or Solid Waste on, in or in connection with the Collateral
or disposal of Hazardous Substances or Solid Waste from the Collateral, except
in full compliance with all Environmental Laws, or make any use of the
Collateral that results in any requirement that Debtor apply for or obtain a
permit under RCRA or other Environmental Law for the treatment, storage or
disposal of Hazardous Substances or Solid Waste. Debtor covenants and
agrees to keep or cause the Collateral to be kept free of any Hazardous
Substances or Solid Waste except in full compliance with all Environmental Laws,
and, promptly upon the discovery that the presence of any such substance on the
Collateral is not in full compliance, to remove the same (or if removal is
prohibited by law, to take whatever action is required by law) at its sole
expense. Upon Secured Party’s reasonable request based upon the
condition of or operations on the Collateral, at any time and from time to time,
Debtor shall provide at Debtor’s sole expense inspections, tests and audits of
the Collateral from an engineering or consulting firm approved by Secured Party
indicating the presence or absence of Hazardous Substances or Solid Waste on, in
or under the Collateral that are not in compliance with applicable Environmental
Laws. If Debtor fails to provide same after 20 days’ notice, Secured
Party may order same, and Debtor grants to Secured Party and its respective
employees, agents, contractors, designees and consultants access to the
Collateral and a license (which is coupled with an interest and irrevocable) to
perform inspections, tests and audits. The cost of such inspections,
tests and audits shall be a demand obligation owing by Debtor to Secured Party
and shall bear interest at the Default Rate until paid, and shall constitute a
part of the Obligations and be indebtedness secured and evidenced by this
Instrument. Nothing contained herein shall relieve Debtor from
conducting its own inspections, tests and audits or taking any other steps
necessary to comply with all Environmental Laws, nor shall anything contained
herein be construed to imply or impose any duty on Secured Party concerning
Debtor’s compliance or noncompliance therewith. Secured Party’s
rights under this paragraph are for the sole purpose of protecting Secured
Party’s security for the repayment of the Obligations and shall not under any
circumstances be construed as granting the right to participate or constitute
participation in the management of the Collateral or the business conducted
thereon.
H. Change in
Structure. Debtor shall not cause or permit any change
to be made in its name, identity, entity structure, organizational
identification number or state of organization,
14
unless
Debtor shall have notified Secured Party of such change at least thirty days
prior to the effective date of such change, and shall have first taken all
action required by Secured Party for the purpose of further perfecting or
protecting the security interest in favor of Secured Party in the
Collateral. In any notice furnished pursuant to this Subsection
2.2-H, Debtor shall expressly state that the notice is required by this
Instrument and contains facts that may require additional filings of financing
statements or other notices for the purposes of continuing perfection of Secured
Party’s security interest in the Collateral.
I. Further
Assurances. Debtor shall execute, acknowledge and deliver, or
cause to be executed, acknowledged or delivered, to Secured Party such other and
further instruments and do such other acts as in the reasonable opinion of
Secured Party may be necessary or desirable to effect the intent of this
Instrument, promptly upon request of Secured Party and at Debtor’s
expense.
Section
2.3 Costs, Expenses and
Indemnities. Debtor agrees to pay and indemnify Secured Party
as follows:
A. Costs and
Expenses. Debtor shall indemnify Secured Party from and
reimburse and pay Secured Party for all fees, costs and expenses (including
attorneys’ fees, court costs and legal expenses and consultant’s and expert’s
fees and expenses), incurred or expended by Secured Party in connection with
(1) the breach by Debtor of any representation or warranty contained in
this Instrument, the Credit Agreement, the Note or any other documents and
instruments evidencing, securing or otherwise relating to the Obligations,
(2) the failure by Debtor to perform any agreement, covenant, condition,
indemnity or obligation contained in this Instrument, the Credit Agreement, the
Note or any other documents and instruments evidencing, securing or otherwise
relating to the Obligations, (3) Secured Party’s exercise of any of its
rights and remedies under this Instrument, the Credit Agreement, the Note and
the other documents and instruments evidencing, securing or otherwise relating
to the Obligations, or (4) the protection of the Collateral and the liens
thereon and security interests therein. All such fees, costs and
expenses shall be a demand obligation owing by Debtor to Secured Party and shall
bear interest at the Default Rate until paid, and shall constitute a part of the
Obligations and be indebtedness secured and evidenced by this
Instrument. The liabilities of Debtor as set forth in this
Section 2.3-A shall survive the termination of this
Instrument.
B. Indemnity. Debtor
shall indemnify and hold harmless Secured Party and persons or entities owned or
controlled by or affiliated with Secured Party and their respective directors,
officers, shareholders, partners, employees, consultants and agents (herein
individually, an “Indemnified Party,”
and collectively, “Indemnified Parties”)
from and against, and reimburse and pay Indemnified Parties with respect to, any
and all claims, demands, liabilities, losses, damages (including actual,
consequential, exemplary and punitive damages), causes of action, judgments,
penalties, fees, costs and expenses (including attorneys’ fees, court costs and
legal expenses and consultant’s and expert’s fees and expenses), of any and
every kind or character, known or unknown, fixed or contingent, that may be
imposed upon, asserted against or incurred or paid by or
15
on behalf
of any Indemnified Party on account of, in connection with, or arising out of
(1) any bodily injury or death or property damage occurring in or upon or
in the vicinity of the Collateral through any cause whatsoever, (2) any act
performed or omitted to be performed hereunder or the breach of or failure to
perform any warranty, representation, indemnity, covenant, agreement or
condition contained in this Instrument, the Credit Agreement, the Note or any
other documents and instruments evidencing, securing or relating to the
Obligations, (3) any transaction, act, omission, event or circumstance
arising out of or in any way connected with the Collateral or with this
Instrument, the Credit Agreement, the Note or any other documents and
instruments evidencing, securing or relating to the Obligations, and
(4) the violation of or failure to comply with any statute, law, rule,
regulation or order, including Environmental Laws and statutes, laws, rules,
regulations and orders relating to Hazardous Substances or Solid
Waste. Without limiting the generality of the foregoing, it is the
intention of Debtor and Debtor agrees that the foregoing indemnities shall apply
to each Indemnified Party with respect to claims, demands, liabilities, losses,
damages (including actual, consequential, exemplary and punitive damages),
causes of action, judgments, penalties, fees, costs and expenses (including
attorneys’ fees, court costs and legal expenses and consultant’s and expert’s
fees and expenses) of any and every kind or character, known or unknown, fixed
or contingent, that in whole or in part are caused by or arise out of the
negligence of such Indemnified Party; however, such indemnities shall not apply
to any Indemnified Party to the extent the subject of the indemnification is
caused by or arises out of the gross negligence or willful misconduct of such
Indemnified Party. The foregoing indemnities shall not terminate upon
the release, foreclosure or other termination of this Instrument, but shall
survive the foreclosure of the liens and security interests created by this
Instrument or conveyance in lieu of foreclosure and the repayment and
performance of the Obligations and the discharge and release of the liens and
security interest created by this Instrument and the other instruments and
documents evidencing, securing or relating to the Obligations. Any
amount to be paid hereunder by Debtor to Secured Party or for which Debtor has
indemnified an Indemnified Party shall be a demand obligation owing by Debtor to
Secured Party and shall bear interest at the Default Rate until paid, and shall
constitute a part of the Obligations and be indebtedness secured and evidenced
by this Instrument. The rights, powers and remedies herein conferred
are cumulative, and not exclusive, of any and all other rights, powers and
remedies existing at law or in equity (including rights, powers and remedies
under Environmental Laws) or provided for in any other documents or instruments
evidencing, securing or relating to the Obligations and nothing in this
paragraph or elsewhere in this Instrument or in any other documents or
instruments evidencing, securing or relating to the Obligations shall limit or
impair any rights, powers or remedies of Secured Party under any Environmental
Laws, including any rights of contribution or indemnification available
thereunder. The liabilities of Debtor as set forth in this Section 2.3-B
shall survive the termination of this Instrument.
Section
2.4 Performance by Secured
Party. Debtor agrees that, if Debtor fails to perform any act
which Debtor is required to perform hereunder, Secured Party may, but shall not
be obligated to, perform or cause to be performed such act, and any expense so
incurred by Secured Party in connection therewith shall be a demand obligation
owing by Debtor to Secured Party and shall bear interest at the Default Rate
until paid, and shall constitute a part of the Obligations and be indebtedness
secured and evidenced by this Instrument, and Secured Party
16
shall be
subrogated to all of the rights of the party receiving such
payment. Debtor hereby irrevocably appoints Secured Party as Debtor’s
attorney-in-fact and proxy, with full authority in the place and stead of Debtor
and in the name of Debtor or otherwise, from time to time to take any action and
to execute any instrument which Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement. Such appointment is
coupled with an interest and shall be irrevocable from the date hereof and so
long as any part of the Obligations is outstanding.
ARTICLE
III
Collection of Proceeds of
Production
Section
3.1 Assignment of
Proceeds. Pursuant to paragraph C of the granting clause
of this Instrument, Secured Party is absolutely assigned and entitled to receive
all of the severed and extracted Hydrocarbons produced from or allocated or
attributed to all of the Collateral, together with all of the proceeds thereof
and payments in lieu thereof such as “take or pay” or similar
payments. Debtor acknowledges and agrees that said assignment is
intended to be an absolute and unconditional assignment and not merely a pledge
of or creation of a security interest in said Hydrocarbons and proceeds or an
assignment as additional security. Debtor shall execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered, transfer orders
or letters-in-lieu thereof directing all pipeline companies or other purchasers
of Hydrocarbons to make payments directly to Secured Party. All
parties producing, purchasing, receiving or having in their possession any such
Hydrocarbons or proceeds are hereby authorized and directed by Debtor to treat
and regard Secured Party as the party entitled in Debtor’s place and stead to
receive such Hydrocarbons and proceeds; and said parties shall be fully
protected in so treating and regarding Secured Party and shall be under no
obligation to see to the application by Secured Party of any such proceeds
received by it. For its convenience, Secured Party may, with respect
to any or all such Hydrocarbons or proceeds, permit Debtor to receive such
Hydrocarbons or proceeds until such time as Secured Party shall have made
written demand therefor. Such election by Secured Party shall not in
any way waive the right of Secured Party to demand and receive such Hydrocarbons
and proceeds thereafter allocated or attributed to the Collateral and shall not
in any way diminish the absolute and unconditional right of Secured Party to
receive all of such Hydrocarbons and proceeds and cash proceeds not theretofore
expended or distributed by Debtor. Any such Hydrocarbons or proceeds
received by Debtor shall, when received, constitute trust funds in Debtor’s
hands and shall be held by Debtor for the benefit of Secured
Party. Debtor hereby agrees that upon the first to occur of either
(A) written demand of Secured Party, or (B) the occurrence of any
event which constitutes an Event of Default (as hereinafter defined) or which
upon the giving (or receiving) of notice or lapse of time, or both, would
constitute such an Event of Default, all cash, proceeds, instruments and other
property, of whatever kind or character, received by Debtor on account of the
Collateral, whether received by Debtor in the exercise of its collection rights
hereunder or otherwise, shall, in accordance with instructions then given by
Secured Party, be remitted to Secured Party or deposited to an account
designated by Secured Party, in the form received (properly assigned or endorsed
to the order of Secured Party or for collection and in accordance with Secured
Party’s instructions) not later than the first banking business day following
the day of receipt, to be applied as provided in Section 3.2 hereof and, until
so applied, may be held by Secured Party in a separate account on which Debtor
may not draw. Debtor agrees not to commingle any such property,
following the receipt of any such demand from Secured Party or the occurrence of
an Event of Default, with any of its other funds or property and agrees to hold
the same upon an express trust for Secured Party until remitted to Secured
Party.
17
Section
3.2 Application of
Proceeds. Secured Party shall apply all of the proceeds
received pursuant to Section 3.1 hereof in satisfaction of the Obligations as
provided below, unless otherwise agreed to by Secured Party and
Debtor. All such proceeds received and to be applied by Secured Party
up to the close of business on the last day of each calendar month shall be
applied by Secured Party on or before the fifth business day of the next
succeeding calendar month as follows (with any balance remaining after such
application to be paid to Debtor):
A. First, to
the payment to Secured Party of all outstanding or unreimbursed fees, costs and
expenses incurred by Secured Party pursuant hereto, and any part of the
Obligations not evidenced by written instrument, including all charges and
penalties, including interest thereon, due Secured Party;
B. Second,
to the payment of all interest accrued on the Obligations; and
C. Third, to
the payment or prepayment of the principal of the Obligations in any order the
Secured Party may elect from time to time;
If any
date of application specified above shall be a Saturday, Sunday or legal
holiday, the proceeds to be applied by Secured Party pursuant to this Section
3.2 shall be applied on the business day next succeeding such date which is not
a Saturday, Sunday or legal holiday, and the amount to be applied as described
above shall be the amount accrued up to such date. If the proceeds
received by Secured Party pursuant to Section 3.1 during any month are not
sufficient to make the minimum payments of principal of and interest on the
Obligations required by the terms of the Credit Agreement or the Note, then
Debtor on or before the due date shall make payment to Secured Party of an
amount sufficient when added to such proceeds received to make the minimum
required payments of principal and interest of the Obligations.
Section
3.3 Inclusion in
Sale. Upon any sale of any of the Collateral pursuant to
Article V hereof and expiration of any mandatory redemption periods, the
Hydrocarbons thereafter produced from or attributed to the part of the
Collateral so sold, and the proceeds thereof, shall be included in such sale and
shall pass to the purchaser free and clear of the provisions of this Article
III.
Section
3.4 No Liability in Secured
Party. Secured Party is hereby absolved from all liability for
failure to enforce collection of any such proceeds and from all other
responsibility in connection therewith, except the responsibility to account to
Debtor for proceeds actually received.
Section
3.5 Indemnity. Debtor
shall indemnify Secured Party against all claims, actions, liabilities,
judgments, costs, attorneys’ fees or other charges of every kind or nature
(“Claims”) made
against or incurred by Secured Party as a consequence of the assertion, either
before or after the payment in full of the Obligations, that Secured Party
received Hydrocarbons or proceeds pursuant to this Article III which were
claimed by third persons. Secured Party shall have the right to
employ attorneys and to defend against any Claims, and unless furnished with
reasonable indemnity, Secured Party shall
18
have the
right to pay or compromise and adjust all Claims. Debtor shall
indemnify and pay to Secured Party all such amounts as may be paid with respect
thereto or as may be successfully adjudicated against Secured Party, and such
amounts shall be a demand obligation owing by Debtor to Secured Party and shall
bear interest at the Default Rate until paid, and shall constitute a part of the
Obligations and be indebtedness secured and evidenced by this
Instrument. The liabilities of Debtor as set forth in this
Section 3.5 shall survive the termination of this
Instrument.
Section
3.6 Rights of Secured
Party. Secured Party shall have the immediate and continuing
right to demand, collect, receive and receipt for all production, proceeds and
payments assigned hereunder, and Secured Party is hereby appointed agent and
attorney-in-fact of Debtor (which appointment is coupled with an interest and is
irrevocable) for the purpose of executing any release, receipt, division order,
transfer order, relinquishment or other instrument that Secured Party deems
necessary in order for Secured Party to collect and receive such production,
proceeds and payments. In addition, Debtor agrees that, upon the
request of Secured Party, it will promptly execute and deliver to Secured Party
such transfer orders, payment orders, division orders and other instruments as
Secured Party may deem necessary, convenient or appropriate in connection with
the payment and delivery directly to Secured Party of all proceeds, production,
and payments assigned hereunder. Debtor hereby authorizes and directs
that, upon the request of Secured Party, all pipeline companies, purchasers,
transporters and other parties now or hereafter purchasing oil, gas or other
mineral production produced from or allocated or attributed to the Collateral or
any other interest of Debtor (whether now owned or hereafter acquired by
operation of law or otherwise), in, to or relating to the Land or to any of the
estates, property, rights or other interests included in the Collateral, or any
part thereof, or now or hereafter having in their possession or control any
production from or allocated to the Collateral or any other interest of Debtor
(whether now owned or hereafter acquired by operation of law or otherwise), in,
to or relating to the Land or to any of the estates, property, rights or other
interests included in the Collateral, or any part thereof, or the proceeds
therefrom, or now or hereafter otherwise owing monies to Debtor under contracts
and agreements herein assigned, shall, until Secured Party directs otherwise,
pay and deliver such proceeds, production or amounts directly to Secured Party
at Secured Party’s address set forth in the introduction to this Instrument, or
in such other manner as Secured Party may direct such parties in writing, and
this authorization shall continue until the assignment of production and
proceeds contained herein is released and reassigned. Debtor agrees
that all division orders, transfer orders, receipts and other instruments that
Secured Party may from time to time execute and deliver for the purpose of
collecting and receipting for such proceeds, production or payments may be
relied upon in all respects, and that the same shall be binding upon Debtor and
its successors and assigns. No payor making payments to Secured Party
at its request under the assignment of production and proceeds contained herein
shall have any responsibility to see to the application of any of such funds,
and any party paying or delivering proceeds, production or amounts to Secured
Party under such assignments shall be released thereby from any and all
liability to Debtor to the full extent and amount of all payments, production or
proceeds so delivered. Should Secured Party bring suit against any
third party for collection of any amounts or sums included within the assignment
of production and proceeds contained herein (and Secured Party shall have the
right to bring any such suit), it may ▇▇▇ either in its own name or in the name
of Debtor, or both.
19
Section
3.7 Change of
Connection. Should any purchaser taking the production from
the Collateral or any other interest of Debtor (whether now owned or hereafter
acquired by operation of law or otherwise), in, to or relating to the Land or to
any of the estates, property, rights or other interests included in the
Collateral, or any part thereof, fail to make any payment promptly to Secured
Party, in accordance with the assignment of production and proceeds herein made,
then Secured Party, to the fullest extent permissible under applicable law,
shall have the right to demand a change of connection and to designate another
purchaser with whom a new connection may be made, without any liability on the
part of Secured Party in making such selection; and failure of Debtor to consent
to and promptly effect such change of connection shall constitute an Event of
Default under Article V below.
Section
3.8 No Delegation or
Assumption. Nothing in this Instrument shall be deemed or
construed to create a delegation to or assumption by Secured Party, of the
duties and obligations of Debtor under any agreement or contract relating to the
Collateral or any portion thereof, and all of the parties to any such contract
shall continue to look to Debtor for performance of all covenants and other
obligations and the satisfaction of all representations, warranties, covenants,
indemnities and other agreements of Debtor thereunder, notwithstanding the
assignment of production and proceeds contained herein or the exercise by
Secured Party, prior to foreclosure, of any of its rights hereunder or under
applicable law.
Section
3.9 Cumulative. The
assignment of production and proceeds contained herein shall not be construed to
limit in any way the other rights and remedies of Secured Party hereunder,
including its right to accelerate the indebtedness evidenced by the Obligations
upon an Event of Default and the other rights and remedies herein conferred,
conferred in the other documents and instruments evidencing, securing or
relating to the Obligations, or conferred by operation of law. Monies
received under the assignment of production and proceeds contained herein shall
not be deemed to have been applied in payment of the Obligations unless and
until such monies actually are applied thereto by Secured Party.
ARTICLE
IV
Termination and
Release
Section
4.1 Release Upon
Termination. If all of the Obligations shall be paid in full
and otherwise satisfied pursuant to the terms and conditions of this Instrument
and the other documents and instruments evidencing, securing or relating to the
Obligations, and if Secured Party has no further obligation to advance any
amounts to Debtor, then all of the Collateral shall revert to Debtor, the liens
and security interests created by this Instrument shall terminate and Secured
Party shall, promptly after the request of Debtor or as otherwise required by
applicable law, execute, acknowledge and deliver to Debtor a release or
reconveyance of this Instrument and such other instruments as may be necessary
to evidence the termination of the liens and security interests created by this
Instrument.
Section
4.2 Partial
Release. No partial release or reconveyance from the liens and
security interests created by this Instrument of any part of the Collateral by
Secured Party shall in any way alter, vary or diminish the force or effect of
this Instrument or impair, release or subordinate the liens and security
interests created by this Instrument on the remainder of the
Collateral.
20
Except as
specifically provided in any such partial release or reconveyance (i) this
Instrument and liens and security interests created hereby shall remain in full
force and effect, (ii) such partial release or reconveyance will not modify
or affect the terms, conditions or provisions of this Instrument, and
(iii) nothing contained in any such partial release or reconveyance shall
be deemed to be, or construed as, a waiver of any such terms, conditions or
provisions or as a waiver of any other term, condition or
provision. All releases and reconveyances executed in connection with
this Instrument shall be without warranty of any kind, express, implied or
statutory.
Section
4.3 Costs, Expenses and
Effect. Debtor shall pay all legal fees and other fees, costs
and expenses incurred by Secured Party for preparing and reviewing instruments
of termination and release or reconveyance and the execution and delivery
thereof and Secured Party may require payment of the same prior to delivery of
such instruments. The release and reconveyance of this Instrument and
the termination of the liens and security interests created by this Instrument,
in whole or in part, shall not terminate or otherwise affect Secured Party’s
right or ability to exercise any right, power or remedy relating to any claim
for breach of warranty or representation, for failure to perform any covenant or
other agreement, under any indemnity or for fraud, deceit or other
misrepresentation or omission.
ARTICLE
V
Default
Section
5.1 Events of
Default. The occurrence of any of the following events shall
constitute an event of default (“Event of Default”)
and upon the occurrence thereof the liens and security interests created hereby
shall be subject to foreclosure in any manner provided for herein or provided
for by applicable law:
A. Failure
of Debtor to pay any fee or other amount due Secured Party under this Instrument
within 10 days after the date that any such payment is due;
B. Failure
of Debtor to perform or observe any covenant, agreement, indemnity, condition or
provision in this Instrument and such failure shall continue for 30 days after
the earlier to occur of (1) Debtor becoming aware of such failure, and
(2) written notice of such failure has been given to Debtor;
C. Any of
Debtor’s representations or warranties made in this Instrument or any statement
or certificate at any time given in writing pursuant hereto or in connection
herewith shall be false or misleading in any material respect as of the date
made or deemed made; or
D. An “Event
of Default” as defined in the Credit Agreement shall
occur.
Section
5.2 Treatment of
Fixtures. If an Event of Default shall have occurred and be
continuing, if deemed appropriate by Secured Party or if required by applicable
law, Secured Party may elect to treat the fixtures included in the Collateral
either as real property or as personal property, or both, and proceed to
exercise such rights as apply to the type of property selected.
21
Section
5.3 Acceleration and
Foreclosure. If an Event of Default shall have occurred and be
continuing, in addition to any other rights, powers and remedies herein
conferred or conferred by operation of law, (a) Secured Party shall have
all of the rights, powers and remedies of a creditor, secured party and
mortgagee, (b) Secured Party may, without notice, demand or declaration of
default, which are hereby waived by Debtor to the extent such waiver is not
prohibited by applicable law, declare all indebtedness secured hereby due and
payable, and (c) whether or not Secured Party exercises such option, it
may, at its option and in its sole discretion, without any prior notice to or
demand upon Debtor, proceed by one or more actions in equity or at law for the
seizure and sale of the Collateral or any portion thereof, for the foreclosure
or sale of the Collateral or any portion thereof by judicial foreclosure by
appropriate proceedings in any court of competent jurisdiction or in any other
manner then permitted by law, for the specific performance of any covenant or
agreement of Debtor herein contained or in aid of the execution of any right,
power or remedy herein granted, or for the enforcement of any other appropriate
equitable or legal remedy and to recover judgment against Debtor. In
furtherance, and not in limitation, thereof:
A. Mortgage. This
Instrument shall constitute a mortgage under applicable law, and if an Event of
Default shall have occurred and be continuing, may be foreclosed as to any of
the Collateral by judicial action or in any manner then permitted by applicable
law.
B. Additional
Actions. This Instrument shall also constitute and may be
enforced from time to time as an assignment, chattel mortgage, contract,
mortgage, financing statement and security agreement, and from time to time as
any one or more thereof as appropriate under applicable law. Secured
Party shall be entitled to all of the rights, remedies and benefits of a secured
party, mortgagee and a beneficiary granted under applicable law; and, to the
fullest extent of such law, shall be entitled to enforce such rights, remedies
and benefits. Debtor intends and hereby grants to Secured Party all
rights, powers and remedies accorded a secured party, mortgagee and a
beneficiary under applicable law whether or not such rights, powers and remedies
are expressly granted or reserved herein.
C. Notice, Place and Manner of
Sale. Any sale of the Collateral under this Article V
shall take place at such place or places and otherwise in such manner and upon
such notice as may be required by law; or, in the absence of any such
requirement, as Secured Party may deem appropriate. Debtor expressly
agrees that, except as may be required by applicable law, Secured Party may
offer the Collateral as a whole or in such parcels or lots as Secured Party
elects, regardless of the manner in which the Collateral may be
described.
D. Postponement of
Sale. Any sale of the Collateral conducted under this
Article V may be postponed from time to time as provided by applicable law;
or, in the absence of any such provisions, Secured Party may postpone the sale
of the Collateral or any part thereof by public announcement at the time and
place of such sale,
22
and from
time to time thereafter may further postpone such sale by public announcement
made at the time of sale fixed by the preceding postponement. Sale of
a part of the Collateral will not exhaust the power of sale, and sales may be
made from time to time until all Collateral is sold or the Obligations are paid
in full.
E. Secured Party’s Right to
Purchase. Secured Party shall have the right to bid or to
become the purchaser at any sale made pursuant to the provisions of this
Article V, and shall have the right to credit upon the amount of the bid
made therefor the amount payable to it out of the net proceeds of such
sale.
F. Conveyance to
Purchaser. Any deed, ▇▇▇▇ of sale or other conveyance executed
by or on behalf of Secured Party, the sheriff or other official or party
responsible for conducting the sale shall be prima facie evidence of the
compliance with all statutory requirements for the sale and execution of such
deed, ▇▇▇▇ of sale or other conveyance and will conclusively establish the truth
and accuracy of the recitals and other matters stated therein, including
nonpayment or nonperformance of the Obligations, violation of the terms and
covenants contained herein, and the advertisement and conduct of such sale in
the manner provided herein or as provided by applicable law. Debtor,
to the extent not prohibited by applicable law, does hereby ratify and confirm
all legal acts that Secured Party may do in carrying out the provisions of this
Instrument. Any sale of the Collateral or any portion thereof
pursuant to the provisions of this Article V will operate to divest all
right, title, interest, claim and demand of Debtor in and to the property sold
and will be a perpetual bar against Debtor and shall, subject to applicable law,
vest title in the purchaser free and clear of all liens, security interests and
encumbrances, including liens, security interests and encumbrances junior or
subordinate to the liens, security interests and encumbrances created by this
Instrument. Upon any sale of the Collateral or any portion thereof
pursuant to the provisions of this Article V, the receipt by Secured Party,
the sheriff or other official or party responsible for conducting the sale,
shall be sufficient discharge to the purchaser or purchasers at any sale for the
purchase money, and such purchaser or purchasers and the heirs, devisees,
personal representatives, successors and assigns thereof shall not, after paying
such purchase money and receiving such receipt of Secured Party, the sheriff or
such other official or party, be obliged to see to the application thereof or be
in anywise answerable for any loss, misapplication or nonapplication
thereof. Any purchaser at a sale will, subject to mandatory
redemption periods, if any, receive immediate possession of the Collateral
purchased, and Debtor agrees that if Debtor retains possession of the Collateral
or any part thereof subsequent to such sale, Debtor will be considered a tenant
at sufferance of the purchaser, and will, if Debtor remains in possession after
demand to remove, be guilty of forcible detainer, and will be subject to
eviction and removal, forcible or otherwise, with or without process of law and
all damages to Debtor by reason thereof are hereby expressly waived by
Debtor.
G. Federal
Transfers. Upon a sale conducted pursuant to this
Article V of all or any portion of the Collateral consisting of interests
(the “Federal
Interests”) in leases, easements, rights-of-way, agreements or other
documents and instruments covering, affecting or otherwise relating to federal
lands (including leases, easements and rights-of-way issued by the Bureau of
Land Management); Debtor agrees to take all action and execute all instruments
necessary or advisable to transfer the Federal Interests to the purchaser at
such sale, including to execute,
23
acknowledge
and deliver assignments of the Federal Interests on officially approved forms in
sufficient counterparts to satisfy applicable statutory and regulatory
requirements, to seek and request approval thereof and to take all other action
necessary or advisable in connection therewith. By separate
instruments, Debtor has irrevocably appointed, and by this Instrument hereby
irrevocably appoints, Secured Party as Debtor’s attorney-in-fact and proxy, with
full power and authority in the place and ▇▇▇▇▇ of Debtor, in the name of Debtor
or otherwise, to take any such action and to execute any such instruments on
behalf of Debtor that Secured Party may deem necessary or advisable to so
transfer the Federal Interests, including the power and authority to execute,
acknowledge and deliver such assignments, to seek and request approval thereof
and to take all other action deemed necessary or advisable by Secured Party in
connection therewith; and Debtor hereby adopts, ratifies and confirms all such
actions and instruments. By separate instruments Debtor has also
irrevocably appointed Secured Party as Debtor’s attorney-in-fact and proxy, with
full power and authority in the place and ▇▇▇▇▇ of Debtor, in the name of Debtor
or otherwise, to take any such action and to execute any such instruments on
behalf of Debtor that Secured Party may deem necessary or advisable to so
transfer the Federal Interests, including the power and authority to execute,
acknowledge and deliver such assignments, to seek and request approval thereof
and to take all other action deemed necessary or advisable by Secured Party in
connection therewith; and by such separate instruments Debtor has adopted,
ratified and confirmed all such actions and instruments. Such powers
of attorney and proxies are coupled with an interest, shall survive the
dissolution, termination, reorganization or other incapacity of Debtor and shall
be irrevocable. No action taken by Secured Party shall constitute
acknowledgment of, or assumption of liabilities relating to, the Federal
Interests, and neither Debtor nor any other party may claim that Secured Party
is bound, directly or indirectly, by any such action.
Section
5.4 Personal
Property. If an Event of Default shall have occurred and be
continuing, in addition to all other rights, powers and remedies herein
conferred or conferred by operation of law, Secured Party shall have all of the
rights and remedies of an assignee and secured party granted by applicable law,
including the applicable Uniform Commercial Code as then in effect, and shall,
to the extent permitted by applicable law, have the right and power, but not the
obligation, to take possession of the personal property included in the
Collateral and any proceeds thereof wherever located, and for that purpose
Secured Party may enter upon any premises on which any or all of such personal
property is located and take possession of and operate such personal property or
remove the same therefrom. Secured Party may require Debtor to
assemble such personal property and make it available to Secured Party at a
place to be designated by Secured Party that is reasonably convenient to both
parties. The following presumptions shall exist and shall be deemed
conclusive with regard to the exercise by Secured Party of any of its remedies
with respect to personal property:
A. If notice
is required by applicable law, Debtor agrees that five days’ prior written
notice of the time and place of any public sale or of the time after which any
private sale or any other intended disposition thereof is to be made shall be
deemed reasonable notice to Debtor. No such notice is necessary if
such property is perishable, threatens to decline speedily in value or is of a
type customarily sold on a recognized market.
24
B. If
Secured Party in good faith believes that the Securities Act of 1933 or any
other state or federal law prohibits or restricts the customary manner of sale
or distribution of any of such property, Secured Party may sell such property
privately or in any other manner deemed advisable by Secured Party at such price
or prices as Secured Party determines in its sole discretion. Debtor
recognizes that such prohibition or restriction may cause such property to have
less value than it otherwise would have and that, consequently, such sale or
disposition by Secured Party may result in a lower sales price than if the sale
were otherwise held.
Section
5.5 Possession. If
an Event of Default shall have occurred and be continuing, in addition to all
other rights, powers and remedies herein conferred or conferred by operation of
law, Secured Party shall, to the extent not prohibited by applicable law, have
the right and power, but not the obligation, to enter upon and take immediate
possession of the Collateral or any portion thereof, to exclude Debtor
therefrom, to hold, use, operate, manage, enjoy and control such Collateral, to
make all such repairs, replacements, alterations, additions and improvements to
the same as Secured Party may deem proper or expedient, to sell all of the
severed and extracted Hydrocarbons included in the same subject to the
provisions of Article III hereof, to demand, collect and retain all other
earnings, rents, issues, profits, proceeds and other sums due or to become due
with respect to such Collateral accounting for and applying to the payment of
the Obligations only the net earnings arising therefrom after charging against
the receipts therefrom all fees, costs, expenses, charges, damages and losses
incurred by reason thereof plus interest thereon at the Default Rate without any
liability to Debtor in connection therewith. Such possession shall at
once be delivered to Secured Party upon request, and on refusal or failure to so
deliver possession, the delivery of such possession may be enforced by Secured
Party by any appropriate civil suit, proceeding or other action.
Section
5.6 Appointment of
Receiver. If an Event of Default shall have occurred and be
continuing, in addition to all other rights, powers and remedies herein
conferred or conferred by operation of law, Secured Party shall be entitled to
the appointment of a receiver of the Collateral without the necessity of the
posting of a bond or notice; and shall, to the extent not prohibited by
applicable law, be entitled to such receiver as a matter of right, without
regard to the solvency or insolvency of Debtor, the value or adequacy of the
Collateral or the Collateral being in danger of being materially injured or
reduced in value as security by removal, destruction, deterioration,
accumulation of prior liens or otherwise; and such receiver may be appointed by
any court of competent jurisdiction upon ex parte application,
and without notice, notice being expressly waived by Debtor to the extent such
waiver is not prohibited by applicable law. Debtor 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 Secured Party, and agrees that such appointment shall in no manner impair,
prejudice or otherwise affect the rights of Secured Party under this
Article V. Nothing herein is to be construed to deprive Secured
Party of any other right, remedy or privilege it may now or hereafter have under
law to have a receiver appointed. Any money advanced by Secured Party
in connection with any such receivership shall be a demand obligation owing by
Debtor to Secured Party and shall bear interest, from the date of making such
advancement until paid, at the Default Rate.
25
Any such
receiver shall have all powers conferred by the court appointing such receiver,
which powers shall, to the extent not prohibited by applicable law include,
without limitation, the right to enter upon and take immediate possession of the
Collateral or any part thereof, to exclude Debtor therefrom, to hold, use,
operate, manage and control such Collateral, to make all such repairs,
replacements, alterations, additions and improvements to the same as such
receiver or Secured Party may deem proper or expedient, to lease, sell or
otherwise transfer the Collateral or any portion thereof as such receiver or
Secured Party may deem proper or expedient, to sell all of the Hydrocarbons
included in the same subject to the provisions of Article III hereof, to
demand and collect all of the other earnings, rents, issues, profits, proceeds
and other sums due or to become due with respect to such Collateral, accounting
for only the net earnings arising therefrom after charging against the receipts
therefrom all fees, costs, expenses, charges, damages and losses incurred by
reason thereof plus interest thereon at the Default Rate without any liability
to Debtor in connection therewith which net earnings shall be turned over by
such receiver to Secured Party to be applied by Secured Party to the payment of
the Obligations in the order set forth in Section 5.10.
Section
5.7 Waiver by
Debtor. To the extent not prohibited by applicable law, Debtor
agrees that Debtor shall not at any time have, invoke, utilize or assert any
right under any laws pertaining to the marshaling of assets or liens, the sale
of property in the inverse order of alienation, the exemption of homesteads, the
administration of estates of decedents, appraisement, moratorium, valuation,
stay, extension or redemption now or hereafter in force, and Debtor hereby
waives the benefit of all such laws to the fullest extent not prohibited by
applicable law.
Section
5.8 Remedies
Cumulative. All rights, powers and remedies herein conferred
are cumulative, and not exclusive, of (a) any and all other rights and remedies
herein conferred, (b) any and all rights, powers and remedies existing at law or
in equity, and (c) any and all other rights, powers and remedies provided for in
any other documents or instruments evidencing, securing or relating to the
Obligations, and Secured Party shall, in addition to the rights, powers and
remedies herein conferred, be entitled to avail itself of all such other rights,
powers and remedies as may now or hereafter exist at law or in equity for the
collection of and enforcement of the Obligations and the enforcement of the
warranties, representations, covenants, indemnities and other agreements
contained in this Instrument and the other documents and instruments evidencing,
securing or relating to the Obligations and the foreclosure of the liens and
security interests created by this Instrument. Each and every such
right, power and remedy may be exercised from time to time and as often and in
such order as may be deemed expedient by Secured Party and the exercise of any
such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter, any other right, power or
remedy. No delay or omission by Secured Party, the sheriff or other
official or person in the exercise of any right, power or remedy will impair any
such right, power or remedy or operate as a waiver thereof or of any other
right, power or remedy then or thereafter existing.
Section
5.9 Costs and
Expenses. All fees, costs and expenses (including reasonable
attorneys’ fees and legal expenses, court costs, filing fees, and mortgage,
transfer, stamp and other excise taxes, inspection fees, appraisers’ fees,
outlays for documentary and expert evidence, stenographers’ charges,
publication, notice and advertising costs, postage, photocopies, telephone
charges and costs of procuring all abstracts of title, title searches and
examinations,
26
title
opinions, title insurance policies and similar title data and assurances as
Secured Party may deem appropriate either to prosecute such suit or to evidence
to bidders at the sales that may be had pursuant to such proceeding the
condition of the title to or the value of the Collateral, sheriff’s fees and
expenses, receiver’s fees and expenses, and fees and expenses of agents of
Secured Party, costs and expenses of defending, protecting and maintaining the
Collateral and Secured Party’s interest therein including repair and maintenance
costs and expenses and costs and expenses of protecting and securing the
Collateral including insurance costs and all other fees, costs and expenses
provided for or authorized by applicable law), incurred by or on behalf of
Secured Party in protecting and enforcing its rights hereunder or incident to
the enforcement of this Instrument and the liens and security interests created
hereby, shall be a demand obligation owing by Debtor to Secured Party and shall
bear interest at the Default Rate until paid, and shall constitute a part of the
Obligations and be indebtedness secured and evidenced by this
Instrument.
Section
5.10 Application of
Proceeds. The proceeds of any sale of the Collateral or any
part thereof made pursuant to this Article V shall be applied as may be
required by applicable law, or, in the absence of any such requirements, as
follows:
A. First, to
the payment of all fees, costs and expenses referred to in Section 6.1(k) of the
Credit Agreement and incident to the enforcement of this Instrument and the
liens and security interests created hereby, including the fees, costs and
expenses described in Section 5.9 hereof;
B. Second,
to the payment of accrued interest remaining unpaid on the Note;
C. Third, to
the payment or prepayment of principal remaining unpaid on the Note in such
order as Secured Party may elect;
D. Fourth,
to the payment or prepayment of the Obligations other than the Obligations
evidenced by the Note in such order as Secured Party may elect; and
E. Fifth,
the remainder, if any, shall be paid to Debtor or such other person or persons
as may be legally entitled thereto.
Section
5.11 Waiver of Statute of
Limitations. Debtor hereby waives the right to assert any
statute of limitations as a defense to the Obligations (including the
indebtedness, liabilities and obligations under and pursuant to this Instrument,
the Note, the Credit Agreement and any other instrument evidencing,
securing or otherwise relating to the Obligations), to the fullest extent not
prohibited by applicable law.
Section
5.12 Limitation on Rights and
Waivers. All rights, powers and remedies herein conferred
shall be exercisable by Secured Party only to the extent not prohibited by
applicable law; and all waivers and relinquishments of rights and similar
matters shall only be effective to the extent such waivers or relinquishments
are not prohibited by applicable law.
27
ARTICLE
VI
Miscellaneous
Provisions
Section
6.1 Waiver. Any
and all covenants of Debtor in this Instrument may from time to time, be waived
by Secured Party by an instrument in writing signed by Secured Party to such
extent and in such manner as Secured Party may desire, but no such waiver will
ever affect or impair Secured Party’s rights hereunder, except to the extent
specifically stated in such written instrument. All changes to,
amendments and modifications of this Instrument must be in writing and signed by
Secured Party.
Section
6.2 Severability. If
any provision of this Instrument or of any of the instruments and documents
evidencing, securing or relating to the Obligations is invalid or unenforceable
in any jurisdiction, such provision shall be fully severable from this
Instrument and the other provisions hereof and of said instruments and documents
shall remain in full force and effect in such jurisdiction and the remaining
provisions hereof shall be liberally construed in favor of Secured Party in
order to carry out the provisions and intent hereof. The invalidity
of any provision of this Instrument in any jurisdiction shall not affect the
validity or enforceability of any such provision in any other
jurisdiction.
Section
6.3 Subrogation. This
Instrument is made with full substitution and subrogation of Secured Party in
and to all covenants and warranties by others heretofore given or made with
respect to the Collateral or any part thereof.
Section
6.4 Financing
Statement. This Instrument shall be deemed to be and may be
enforced from time to time as an assignment, contract, deed of trust, financing
statement or security agreement, and from time to time as any one or more
thereof is appropriate under applicable state law. Debtor hereby
authorizes Secured Party to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral without the signature of Debtor at any time after the execution of
this Instrument, and hereby ratifies any thereof filed prior to the execution of
this Instrument. Any such financing statement may describe the
property subject thereto as “all assets of Debtor” or words of similar
meaning.
Section
6.5 Rate of
Interest. Except as otherwise provided in the Credit
Agreement, all interest required hereunder and under the Obligations shall be
calculated on the basis of a year of 360 days.
Section
6.6 Recording. All
recording references in the Exhibits hereto are to the official real
property records of the county in which the affected Land is located and in
which records such documents are or in the past have been customarily recorded,
whether real estate records, deed records, oil and gas records, oil and gas
lease records or other records. The references in this Instrument and
in the Exhibits hereto to liens, encumbrances and other burdens are for the
purposes of defining the nature and extent of Debtor’s warranties and shall not
be deemed to ratify, recognize or create any rights in third
parties.
28
Section
6.7 Execution in
Counterparts. This Instrument may be executed in one or more
original counterparts. To facilitate filing and recording, there may
be omitted from any counterpart the parts of the Exhibits hereto containing
specific descriptions of the Collateral that relate to land located in counties
other than the county in which the particular counterpart is to be filed or
recorded. Each counterpart shall be deemed to be an original for all
purposes, and all counterparts shall together constitute but one and the same
instrument.
Section
6.8 Notices. All
notices and other communications made or required to be given pursuant to this
Instrument shall be in writing and shall be deemed given if delivered personally
or by facsimile transmission (if receipt is confirmed by the facsimile operator
of the recipient), or delivered by overnight courier service or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof):
To
Debtor:
▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, Chief Executive Officer
Fax: ▇▇▇-▇▇▇-▇▇▇▇
To Secured
Party:
Hexagon
Investments, LLC
▇▇▇
▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇
Facsimile
No. ▇▇▇-▇▇▇-▇▇▇▇
Any
notice hereunder delivered in person or by facsimile (if receipt is confirmed by
the facsimile operator of the recipient) shall be deemed given on the date
thereof, any notice by registered or certified mail shall be deemed given three
days after the date of mailing; and any notice by overnight courier shall be
deemed given two days after shipment or the date of receipt, whichever is
earlier.
Section
6.9 Binding
Effect. This Instrument shall bind and inure to the benefit of
the respective successors and assigns of Debtor, Secured
Party. Notwithstanding any other provision of this Instrument, if any
right, interest or estate in property granted by this Instrument or pursuant
hereto does not vest upon the date hereof, such right, interest or estate shall
vest, if at all, within 21 years less 1 day after the death of the last
surviving descendant of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, father of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, former
President of the United States of America, who is living on the date of the
execution of this Instrument by Debtor or the effective date hereof, whichever
is earlier.
Section
6.10 References. All
references in this Instrument to Exhibits, Articles, Sections, Subsections,
paragraphs, subparagraphs and other subdivisions refer to the Exhibits,
Articles, Sections, Subsections, paragraphs, subparagraphs and other
subdivisions of this Instrument unless expressly provided
otherwise. Titles and headings appearing at the beginning of any
subdivision are for convenience only and do not constitute any part of any such
subdivision and shall be disregarded in construing the language contained in
this Instrument.
29
The words
“this Instrument,” “herein,” “hereof,” “hereby,” “hereunder” and words of
similar import refer to this Instrument as a whole and not to any particular
subdivision unless expressly so limited. The phrases “this Section,”
“this Subsection” “this paragraph,” “this subparagraph” and similar phrases
refer only to the Sections, Subsections, paragraphs or subparagraphs hereof in
which the phrase occurs. Capitalized terms used herein without
definition shall have the meanings ascribed thereto in the Credit
Agreement. The word “or” is not exclusive, and the word “including”
(and its derivatives) shall mean “including, without limitation.” All
references to days are to calendar days unless otherwise specifically
stated. Pronouns in masculine, feminine and neuter gender shall be
construed to include any other gender. Words in the singular form
shall be construed to include the plural and words in the plural form shall be
construed to include the singular, unless the context otherwise
requires.
Section
6.11 Filing. Some
of the above described goods are or are to become fixtures on the Land described
in Exhibit “A”. This Instrument is to be filed for record in, among
other places, the real estate records of each county identified in Exhibit
“A”. This Instrument covers fixtures. Debtor is the owner
of an interest of record in the real estate concerned.
Section
6.12 WAIVER OF JURY TRIAL,
PUNITIVE DAMAGES, ETC. DEBTOR
HEREBY: (A) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS INSTRUMENT, THE NOTE, THE CREDIT AGREEMENT OR ANY OTHER
DOCUMENTS AND INSTRUMENTS EVIDENCING, SECURING OR RELATING
30
TO THE
OBLIGATIONS OR ANY TRANSACTION PROVIDED FOR THEREIN OR ASSOCIATED THEREWITH,
BEFORE OR AFTER MATURITY; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS INSTRUMENT,
THE NOTE, THE CREDIT AGREEMENT AND ANY OTHER DOCUMENTS AND
INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS AND THE
TRANSACTIONS PROVIDED FOR HEREIN AND THEREIN, AMONG OTHER THINGS, THE WAIVERS
AND CERTIFICATIONS CONTAINED IN THIS SECTION.
Section
6.13 USURY
SAVINGS. IT IS THE INTENTION OF THE PARTIES HERETO TO COMPLY
WITH ALL APPLICABLE USURY LAWS; ACCORDINGLY, IT IS AGREED THAT NOTWITHSTANDING
ANY PROVISIONS TO THE CONTRARY IN THIS INSTRUMENT, THE NOTE, THE CREDIT
AGREEMENT OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING
OR OTHERWISE RELATING TO THE OBLIGATIONS, IN NO EVENT SHALL SUCH DOCUMENTS OR
INSTRUMENTS REQUIRE THE PAYMENT OR PERMIT THE COLLECTION OF INTEREST (WHICH
TERM, FOR PURPOSES HEREOF, SHALL INCLUDE ANY AMOUNT WHICH, UNDER APPLICABLE LAW,
IS DEEMED TO BE INTEREST, WHETHER OR NOT SUCH AMOUNT IS CHARACTERIZED BY THE
PARTIES AS INTEREST) IN EXCESS OF THE MAXIMUM AMOUNT PERMITTED BY SUCH
LAWS. IF ANY EXCESS INTEREST IS UNINTENTIONALLY CONTRACTED FOR,
CHARGED OR RECEIVED UNDER THE NOTE OR UNDER THE TERMS OF THIS INSTRUMENT, THE
CREDIT AGREEMENT OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING,
SECURING OR RELATING TO THE OBLIGATIONS, OR IN THE EVENT THE MATURITY OF THE
INDEBTEDNESS EVIDENCED BY THE NOTE IS ACCELERATED IN WHOLE OR IN PART, OR IN THE
EVENT THAT ALL OR PART OF THE PRINCIPAL OR INTEREST OF THE NOTE SHALL BE
PREPAID, SO THAT THE AMOUNT OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED
UNDER THE AMOUNT OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE NOTE
OR UNDER THIS INSTRUMENT, THE CREDIT AGREEMENT OR ANY OTHER DOCUMENTS
OR INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS, ON THE
AMOUNT OF PRINCIPAL ACTUALLY OUTSTANDING FROM TIME TO TIME UNDER THE NOTE SHALL
EXCEED THE MAXIMUM AMOUNT OF INTEREST PERMITTED BY THE APPLICABLE USURY LAWS,
THEN IN ANY SUCH EVENT (A) THE PROVISIONS OF THIS SECTION SHALL GOVERN AND
CONTROL, (B) NEITHER DEBTOR NOR ANY OTHER PERSON OR ENTITY NOW OR HEREAFTER
LIABLE FOR THE PAYMENT THEREOF, SHALL BE OBLIGATED TO PAY THE AMOUNT OF SUCH
INTEREST TO THE EXTENT THAT IT IS IN EXCESS OF THE MAXIMUM AMOUNT OF INTEREST
PERMITTED BY SUCH APPLICABLE USURY LAWS, (C) ANY SUCH EXCESS WHICH MAY HAVE
BEEN COLLECTED SHALL BE EITHER APPLIED AS A CREDIT AGAINST THE THEN UNPAID
PRINCIPAL AMOUNT THEREOF OR REFUNDED TO DEBTOR AT SECURED PARTY’S OPTION, AND
(D) THE EFFECTIVE RATE OF INTEREST SHALL BE AUTOMATICALLY REDUCED TO THE MAXIMUM
LAWFUL RATE OF INTEREST ALLOWED UNDER THE APPLICABLE USURY LAWS AS NOW OR
HEREAFTER CONSTRUED BY THE COURTS HAVING JURISDICTION THEREOF. IT IS
FURTHER AGREED THAT WITHOUT LIMITATION OF THE FOREGOING, ALL CALCULATIONS OF THE
RATE OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE NOTE OR UNDER
THIS INSTRUMENT, THE CREDIT AGREEMENT OR ANY OTHER DOCUMENTS OR
INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS WHICH ARE MADE
FOR THE PURPOSE OF DETERMINING WHETHER SUCH RATE EXCEEDS THE MAXIMUM LAWFUL RATE
OF INTEREST, SHALL BE MADE, TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAWS, BY
AMORTIZING, PRORATING, ALLOCATING AND SPREADING IN EQUAL PARTS DURING THE PERIOD
OF THE FULL STATED TERM OF THE OBLIGATIONS EVIDENCED THEREBY, ALL INTEREST AT
ANY TIME CONTRACTED FOR, CHARGED OR RECEIVED FROM DEBTOR OR OTHERWISE BY SECURED
PARTY IN CONNECTION WITH THE OBLIGATIONS.
31
Section
6.14 GOVERNING
LAW. THIS INSTRUMENT AND ALL MATTERS ARISING UNDER OR GROWING
OUT HEREOF SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS
OF LAWS, AND THE LAWS OF THE UNITED STATES OF AMERICA.
Executed
as of the date first above written.
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DEBTOR:
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||
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a
Nevada corporation
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By
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/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, Chief Executive Officer
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||
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Organizational
I.D. No. ▇▇-▇▇▇▇▇▇▇
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||
32
ACKNOWLEDGMENT
CERTIFICATE
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STATE
OF COLORADO
|
)
|
|
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)
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ss.
|
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CITY
AND COUNTY OF DENVER
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)
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This
instrument was acknowledged before me this 26th day of February, 2010,
by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as Chief Executive Officer of RECOVERY ENERGY, INC.,
a Nevada corporation.
Witness
my hand an official seal.
/s/ ▇▇▇▇ ▇.
▇▇▇▇▇
Notary
Public
Name: ▇▇▇▇
▇. ▇▇▇▇▇
My
commission expires: 4/30/2013
(NOTARIAL
SEAL)
33
EXHIBIT
“A”
Attached
to and made a part of that certain
Mortgage,
Security Agreement, Assignment of Production and Proceeds,
Financing
Statement and Fixture Filing,
dated as
of January 29, 2010 (the “Mortgage”),
from
Recovery Energy, Inc., as Debtor,
to and
for the benefit of
Hexagon
Investments, LLC, as Secured Party
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1.
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Capitalized
terms used herein without definition shall have the meaning ascribed
thereto in the Mortgage.
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2.
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The
terms “Working Interest” and “WI” as used herein with respect to a lease,
shall mean the interest in and to the full and entire leasehold estate
created under and by virtue of the lease described as to the described
lands and formations (or as to all formations if no formation is
described) and arising therefrom, insofar as said interest in said
leasehold estate is burdened with the obligation to bear and pay costs of
operations, without regard of any valid lessor’s royalties, overriding
royalties or similar burdens, and without regard to the percent of the
mineral estate underlying the lands covered by the lease owned by the
lessor(s) of the referenced lease.
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3.
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The
terms “Net Revenue Interest” and “NRI” as used herein with respect to a
lease shall mean the interest in and to applicable production of all
Hydrocarbons produced, saved and sold from, under or by virtue of the
lease described herein as to the described lands and formations (or as to
all formations if no formation is
described).
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4.
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The
terms “Working Interest” and “WI” as used herein with respect to a well,
unit, pool or communitized area, shall mean the interest in and to the
well or the full and entire unitized, pooled or communitized area created
under and by virtue of each of the described unitization, pooling,
communitization or similar agreements, and all rights of every kind and
character appurtenant thereto, arising therefrom insofar as the said
interest in said well or unitized, pooled, communitized or other interest
is burdened with the obligation to bear and pay costs of operations,
without regard to any valid lessor’s royalties, overriding royalties or
similar burdens.
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5.
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The
terms “Net Revenue Interest” and “NRI” as used herein with respect to a
well, unit, pool or communitized area, shall mean the interest in and to
applicable production of all Hydrocarbons produced, saved and sold from,
under or by virtue of such well or such unitized, pooled or communitized
area.
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6.
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The
abbreviation “APO” means “after payout” and the abbreviation “BPO” means
“before payout,” and such terms indicate that Debtor’s Working Interest
and Net Revenue Interest are subject to change based on the terms of
certain instruments or agreements specifically described and
referenced. The abbreviation “ORRI” means overriding royalty
interest.
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i
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7.
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The
Mortgage covers all right, title and interest of Debtor (whether now owned
or hereafter acquired by operation of law or otherwise) in and to the land
specifically described in this Exhibit “A” and the land described in
or covered by the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
this Exhibit “A” whether or not such land is specifically described
in this Exhibit “A”; and any references to specific lands, depth
limitations, horizons, formations, zones, unit designations, unit tract
descriptions and descriptions of undivided leasehold interests, “Working
Interest” or “WI” and “Net Revenue Interest” or “NRI” contained in this
Exhibit “A” are for the purposes of defining the nature and extent of
Debtor’s warranties and shall not be deemed to limit or restrict the
interests covered by the Mortgage or the liens and security interests
created thereby.
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8.
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This
Exhibit “A” consists of this Preamble and 1 page numbered
A-1.
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9.
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To
facilitate recording, only the pertinent pages of the Exhibits will be
filed for recording as follows:
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ii
DESCRIPTION OF COLLATERAL
AND LAND
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▇▇▇▇▇▇ LEASE and LANDS:
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Lessor:
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▇▇▇▇
▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇, husband and wife
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Lessee:
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King
Resources Company
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Dated:
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August
10, 1966
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Recorded:
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Book
583, Page 71
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Description:
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Township 1 North, Range 53
West
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Section
29: NE/4
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▇▇▇▇▇▇
WELL
Well
Name: ▇▇▇▇▇▇
#3-29
Located: ▇▇/▇
▇▇ ▇▇▇▇▇▇▇ ▇▇, ▇▇▇-▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇
▇▇▇: ▇▇-▇▇▇-▇▇▇▇▇ Working
Interest: 100.00% Net Revenue
Interest: 80.00%
Equipment
and Inventory: consisting of a pumping unit, rods, tubing and
casing
▇▇▇▇▇▇
Tank Battery consisting of 2 – PR&R 500 bolted bbl tanks and a 6 X 20
vertical inside leg cold weather treater
COMANCHE FARMS PROSPECT
LEASES and LANDS:
A-1