EXHIBIT 99.2
MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF
PRODUCTION AND FINANCING STATEMENT
(WYOMING)
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MORTGAGOR/GRANTOR/DEBTOR:
KESTREL ENERGY, INC.,
Address:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
MORTGAGEE/BENEFICIARY/SECURED PARTY:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Address:
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
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THIS INSTRUMENT IS TO BE RECORDED AS A MORTGAGE OR DEED OF TRUST AND FILED
AS A FINANCING STATEMENT PURSUANT TO THE UNIFORM COMMERCIAL CODE AND IS INTENDED
TO BE EFFECTIVE AS: (1) A MORTGAGE OR DEED OF TRUST OF THE OIL, GAS, MINERAL AND
OTHER REAL PROPERTY DESCRIBED HEREIN; (2) A FINANCING STATEMENT COVERING
HYDROCARBONS TO BE EXTRACTED FROM THE PROPERTIES DESCRIBED HEREIN, ACCOUNTS
RESULTING FROM THE SALE THEREOF AT THE WELLHEADS OF THE ▇▇▇▇▇ LOCATED ON SUCH
PROPERTIES AND THE PROCEEDS THEREOF; (3) A FIXTURE FILING COVERING GOODS WHICH
ARE OR ARE TO BECOME FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN; AND (4) A
FINANCING STATEMENT COVERING ALL OTHER PERSONAL PROPERTY INCLUDED IN THE
MORTGAGED PROPERTIES DESCRIBED HEREIN (THE MORTGAGED PROPERTIES ARE DESCRIBED ON
PAGES 2 AND 3 HEREOF.)
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY AND SECURES FUTURE
ADVANCES.
THE OIL AND GAS INTERESTS INCLUDED IN THE MORTGAGED PROPERTIES WILL BE
FINANCED AT THE WELLHEADS OF THE ▇▇▇▇▇ LOCATED ON THE PROPERTIES DESCRIBED IN
EXHIBIT A HERETO, AND THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG
OTHER PLACES, IN THE REAL ESTATE RECORDS.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY
ALLOW THE MORTGAGEE TO DIRECT THE TRUSTEE TO TAKE POSSESSION OF THE PROPERTY AND
SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
MORTGAGOR UNDER THIS MORTGAGE.
MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF
PRODUCTION AND FINANCING STATEMENT
THIS MORTGAGE (the "Mortgage") is made as of this 5th day of May, 2003 (the
"Effective Date"), between KESTREL ENERGY, INC., (the "Mortgagor"), whose
address is ▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ (the "Mortgagee"), whose address is ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇.
In consideration of the sum of one dollar to Mortgagor in hand paid, and
for the purpose of securing the payment and performance of Mortgagor's
obligations to Mortgagee (collectively, the "Indebtedness"), including the
payment of that certain Revolving Credit Master Note (the "Note") of even date
hereof from Mortgagor, as borrower, to Mortgagee in the original principal
amount of $200,000, together with any amendments, substitutions, modifications,
extensions, or renewals thereof, and for other good and valuable consideration,
the receipt of which is hereby confessed and acknowledged, Mortgagor does hereby
mortgage, warrant, grant, bargain, sell, assign, transfer and convey unto
Mortgagee, its successors and assigns, forever, with power of sale, and also
grants to Mortgagee, its successors and assigns, a security interest in: (i) the
oil, gas and/or mineral interest and estates, including leasehold estates, of
Mortgagor, and any and all fee interests in surface and related mineral rights
(in each case whether now owned or hereafter acquired), which are described on
Exhibit A, attached hereto and incorporated herein by this reference, and all
interests with which any of such interests and estates are now or hereafter may
be in whole or in part unitized or pooled; (ii) all right, title and interest of
Mortgagor (whether now existing or hereafter arising) in and to those well bores
described on Exhibit A, and any recompletions thereof, including recompletions
in different horizons whether or not resulting from the deepening of any such
well, and any ▇▇▇▇▇ drilled in replacement therefor, (iii) all interest of
Mortgagor (whether now existing or hereafter arising) in and to all ▇▇▇▇▇,
casing tubing, rods, flow lines, pipelines, derricks, tanks, separators, pumps,
machinery, tools, equipment, camp sites, water flood equipment, buildings and
all other personal property and fixtures now or hereafter located upon or used
in connection with any of the properties described in Exhibit A or properties
unitized or pooled therewith; (iv) all interest of Mortgagor (whether now
existing or hereafter arising) in any compressors, pipelines, gas separation and
treating equipment, gathering equipment, buildings and other property
incorporated in or used in connection with any gathering or processing system of
Mortgagor and which now or hereafter serves any of the ▇▇▇▇▇ or properties
described on Exhibit A or any other ▇▇▇▇▇ or properties, and any and all rights
of way, licenses, surface use rights now or hereafter used in connection
therewith, including, without limitation, gathering and processing equipment,
rights of way, licenses and other surface use rights (collectively, the
"Gathering Systems"); (v) all interest of Mortgagor (whether now existing or
hereafter arising) in, to and under all contracts, operating agreements, gas
gathering agreements, gas balancing agreements, sales contracts, rights of way,
easements, surface leases, permits, licenses, pooling or unitization agreements,
pooling designation and pooling orders now or hereafter affecting any of the
interest now or hereafter covered hereby or which are useful or appropriate in
drilling for, producing, treating, handling, storing, transporting or marketing
oil, gas or other minerals from any of the ▇▇▇▇▇ or properties described in
Exhibit A or ▇▇▇▇▇ or properties unitized or pooled therewith (collectively, the
"Contract Rights"); (vi) all interest of Mortgagor (whether now existing or
hereafter arising) in oil, gas, other hydrocarbons and other minerals produced
from or allocated to the ▇▇▇▇▇ or properties described in Exhibit A or ▇▇▇▇▇ or
properties unitized or pooled therewith, all proceeds
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thereof, and all accounts of Mortgagor under which such proceeds may arise; and
(vii) all accounts and other rights to payment of Mortgagor arising under any of
the Contract Rights or as a result of the operation of the Gathering Systems
(all of such properties, interests and rights being hereinafter sometimes
referred to as the "Mortgaged Properties").
To Have and To Hold the Mortgaged Properties unto Mortgagee forever;
provided, nevertheless, that this Mortgage is upon express condition that if the
Indebtedness shall be paid to Mortgagee as and when due and payable and if
Mortgagor shall keep and perform each and every covenant and agreement of
Mortgagor herein contained, then this Mortgage and the estate hereby granted
shall cease and be and become void and shall be released of record at the
expense of Mortgagor; otherwise this Mortgage shall be and remain in full force
and effect.
Mortgagor represents, warrants and covenants that Mortgagor is the lawful
owner of the Mortgaged Properties and the Proceeds of Runs (as hereinafter
defined) and has good right and authority to grant, bargain, sell, transfer,
assign and mortgage the same; that all oil, gas and/or mineral leases and oil
and gas leasehold estates and other agreements or interests described in Exhibit
A attached hereto are valid and subsisting and are in full force and effect;
that all rents and royalties due and payable thereunder and all severance,
production and crude oil windfall profits taxes payable with respect to the
production therefrom have been duly paid; that the Mortgaged Properties and the
Proceeds of Runs are free and clear from all liens and encumbrances except for
those liens and encumbrances described on Exhibit B-1, attached hereto and
incorporated herein by this reference (collectively, "Permitted Liens"); that
all producing ▇▇▇▇▇ located on the Mortgaged Properties or the properties
unitized therewith have been drilled, operated and produced in conformity with
all applicable laws and all rules, regulations and orders of all regulatory
authorities having jurisdiction thereover and are subject to no penalties on
account of past production; that none of such ▇▇▇▇▇ are deviated from the
vertical more than the maximum permitted by applicable laws, rule and
regulations; that such ▇▇▇▇▇ are in fact bottomed under and are producing from,
and the well bores are wholly within, the Mortgaged Properties or properties
unitized therewith; and that Mortgagor will warrant and forever defend the title
to the Mortgaged Properties against the claims of all persons whomsoever
claiming or to claim the same or any part thereof.
Mortgagor further covenants and agrees as follows:
1. PAYMENT OF THE INDEBTEDNESS. Mortgagor will duly and punctually pay
the Indebtedness in accordance with the terms of the Note and the Revolving
Credit Loan Agreement of even date between Mortgagor and Mortgagee (the "Credit
Agreement") when and as due and payable. The provisions of the Credit Agreement
are hereby incorporated by reference into this Mortgage as fully as if set forth
at length herein.
2. APPLICATION OF PAYMENTS. All payments received by Mortgagee from
Mortgagor under the Credit Agreement, the Note or this Mortgage, including the
Proceeds of Runs (as hereinafter defined), shall be applied by Mortgagee in the
following order of priority: (i) interest then due and payable on advances made
pursuant to paragraph 12 hereof; (ii) principal then due and payable on advances
made pursuant to paragraph 12 hereof; (iii) the Indebtedness, in the manner set
forth in the Credit Agreement; and (iv) any other sums then due and payable
secured by this Mortgage in such order of application as Mortgagee may
determine.
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3. PAYMENT OF TAXES. Assessments and Other Charges. Subject to paragraph
7 hereof relating to contests, Mortgagor shall pay before they become delinquent
or before any penalty might attach for nonpayment thereof, all production,
severance and crude oil windfall profits taxes now due or hereafter to be
accrued from production from the Mortgaged Properties and all taxes and
assessments and all other similar charges whatsoever levied upon or assessed or
placed against the Mortgaged Properties, except that assessments may be paid in
installments so long as no fine or penalty is added to any installment for the
nonpayment thereof. Mortgagor shall likewise pay all taxes, assessments and
other charges, levied upon or assessed, placed or made against, or measured by,
this Mortgage, or the recordation hereof, or the Indebtedness secured hereby,
provided that Mortgagor shall not be obligated to pay such tax, assessment or
charge if such payment would be contrary to law or would result in the payment
of an unlawful rate of interest on the Indebtedness secured hereby; and provided
further that nothing herein contained shall be construed as requiring Mortgagor
to pay any net income, profits or revenue taxes of Mortgagee. At any time upon
the request of Mortgagee, Mortgagor shall promptly furnish to Mortgagee all
notices received by Mortgagor of amounts due under this paragraph and shall
promptly furnish to Mortgagee receipts evidencing such payments.
4. PAYMENT OF CHARGES AND EXPENSES OF OPERATION. Subject to paragraph 7
hereof relating to contests, Mortgagor will promptly pay or cause to be paid all
material debts, liabilities and charges with respect to the Mortgaged Properties
of any character, including without intending to limit the foregoing, its share
under any joint operating agreement affecting the Mortgaged Properties and all
liabilities for labor, materials and equipment, incurred in the operation and
development of the Mortgaged Properties, and will promptly discharge all
obligations to the holders of royalty interests and other interests in the
Mortgaged Properties. Mortgagor shall not enter into any new operating agreement
or any material amendment of any existing operating agreement affecting the
Mortgaged Properties without the written consent of Mortgagee (not to be
unreasonably withheld) and shall promptly furnish, as and when requested by
Mortgagee, such information as to the status of any joint account maintained
with others under any such operating agreement as the Mortgagee shall reasonably
request.
5. LIENS. Subject to paragraph 7 hereof relating to contests, Mortgagor
shall not create, incur or suffer to exist any lien, encumbrance or charge on
the Mortgaged Properties or any part thereof, whether prior, equal or
subordinate to the lien of this Mortgage, except the lien of current real estate
taxes and installments of special assessments with respect to which no penalty
is yet payable and any Permitted Liens.
6. COMPLIANCE WITH LAWS. Subject to paragraph 7 hereof relating to
contests, and except to the extent that failure to do any of the following will
not expose Mortgagor to material liabilities or interfere in any material way
with the use of, or production of, oil, gas, other hydrocarbons or other
minerals from the Mortgaged Properties, Mortgagor shall comply with all present
and future statutes, laws, rules, orders, regulations and ordinances affecting
the Mortgaged Properties, any part thereof or the use thereof, including without
intending to limit the foregoing, laws, rules, orders, regulations and
ordinances relating to the operation of the Mortgaged Properties for the
production of oil, gas, other hydrocarbons or other minerals.
7. PERMITTED CONTESTS. Mortgagor shall not be required to (i) pay any
tax, assessment or other charge referred to in paragraph 3 hereof, (ii) pay any
debt, liability or charge
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referred to in paragraph 4 hereof, (iii) discharge or remove any lien,
encumbrance or charge referred to in paragraph 5 hereof, or (iv) comply with any
statute, law, rule, regulation or ordinance referred to in paragraph 6 hereof,
so long as Mortgagor (a) shall contest, in good faith, the existence, amount or
the validity thereof, the amount of damages caused thereby or the extent of its
liability therefor, by appropriate proceedings which shall operate during the
pendency thereof to prevent (A) the collection of, or other realization upon the
tax, assessment, charge or lien, so contested, (B) the sale, forfeiture or loss
of the Mortgaged Properties or any non-de minimis part thereof, and (C) any
material interference with the use of, or production of oil, gas, other
hydrocarbons or other minerals from, the Mortgaged Properties or any part
thereof, and (b) shall give such security to Mortgagee as may be reasonably
demanded by Mortgagee to insure compliance with the foregoing provisions of this
paragraph 7. Mortgagor shall give prompt written notice to Mortgagee of the
commencement of any contest referred to in this paragraph.
8. INSURANCE.
(a) RISKS TO BE INSURED. In addition to any insurance required to be
maintained in accordance with the Credit Agreement, Mortgagor, at its sole
cost and expense, will maintain, or cause to be maintained, insurance of
the following character:
(i) With respect to such part of the Mortgaged Properties which is of
an insurable nature and of a character usually insured by persons
operating similar properties, insurance against loss or damage by
fire and from such other cause customarily insured against.
(ii) Comprehensive general liability insurance protecting against
claims arising from any accident or occurrence in or upon the
Mortgaged Properties in an amount acceptable to Mortgagee.
(b) ASSIGNMENT OF POLICY. If the Mortgaged Properties are sold at a
foreclosure sale or if Mortgagee shall acquire title to the Mortgaged
Properties, Mortgagee shall have all of the right, title and interest of
Mortgagor in and to any insurance policies required under subparagraph
(a)(i) hereof and the unearned premiums thereon and in and to the proceeds
resulting from any damage to the Mortgaged Properties prior to such sale or
acquisition.
(c) NOTICE OF DAMAGE OR DESTRUCTION; ADJUSTING LOSS. If the Mortgaged
Properties or any part thereof shall be damaged or destroyed by fire or
other casualty, Mortgagor will promptly give written notice thereof to the
insurance carrier and Mortgagee and will not adjust any damages or loss
which is estimated by Mortgagor in good faith to exceed $20,000 unless
Mortgagee shall have joined in such adjustment; but if there has been no
adjustment of any such damage or loss within four months from the date of
occurrence thereof and if an Event of Default shall exist at the end of
such four-month period or at any time thereafter, Mortgagee may alone make
proof of loss, adjust and compromise any claim under the policies and
appear in and prosecute any action arising from such policies. In
connection therewith, Mortgagor does hereby irrevocably authorize, empower
and appoint Mortgagee as attorney-in-fact for Mortgagor (which
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appointment is coupled with an interest) to do any and all of the foregoing
in the name and on behalf of Mortgagor.
9. PRESERVATION, MAINTENANCE AND OPERATION OF MORTGAGED PROPERTIES.
Mortgagor, to the extent permitted by any applicable operating agreement, (i)
shall cause the Mortgaged Properties to be operated in a good and workmanlike
manner in accordance with the provisions of the oil, gas and/or mineral leases
or other instruments described in Exhibit A hereto; (ii) shall maintain all of
the Mortgaged Properties consisting of tangible property in good operating
condition, ordinary wear and tear excepted, and shall cause all necessary
repairs, renewals, replacements, additions and improvements thereto to be
promptly made in accordance with good oil field practice; (iii) shall, upon
damage or destruction to the Mortgaged Properties or any material part thereof
by fire or other casualty, restore, repair, replace or rebuild the property that
is damaged or destroyed to the condition it was in immediately prior to such
damage or destruction, whether or not any insurance proceeds are available or
sufficient for such purposes; (iv) shall not remove, or allow to be removed,
from the land upon which it is located any of the fixtures or tangible personal
property included in the Mortgaged Properties unless the same (a) is no longer
necessary for the operation of the Mortgaged Properties in accordance with good
oil field practice and is disposed of in the ordinary course of business or (b)
is immediately replaced with property of at least equal value and utility, and
this Mortgage becomes a valid first lien on such property; and (v) shall prevent
drainage of the Mortgaged Properties.
10. PRESERVATION OF LEASES. Mortgagor shall observe and comply with all of
the material terms and provisions, express or implied, of the oil, gas and/or
mineral leases, agreements and other instruments described in Exhibit A and,
except with the prior written consent of Mortgagee, will not amend or terminate
any of such agreements or surrender, abandon or release any of such leases in
whole or in part so long as any well situated thereon, or located on any unit
containing all or any part of such leases, is capable of producing oil, gas,
other hydrocarbons or other mineral in economic paying quantities. If any such
leases will terminate or be cancelled pursuant to the terms thereof unless
payment of delayed rental is made, drilling is commenced or any other action
within the power of Mortgagor to take is taken, Mortgagor shall pay any delay
rentals or take such other action as is necessary to avoid termination or
cancellation of any such lease unless the Mortgagee consents in writing to the
termination or cancellation thereof in the exercise of its reasonable
discretion.
11. INSPECTION. Mortgagee or its agents shall have the right at all
reasonable times to enter upon the Mortgaged Properties including, without
limitation, the ▇▇▇▇▇▇▇ floor of any well which has been or is being drilled,
for the purposes of inspecting the Mortgaged Properties or any part thereof.
Mortgagee shall, however, have no duty to make such inspection.
12. PROTECTION OF MORTGAGEE'S SECURITY. Subject to the rights of Mortgagor
under paragraph 7 hereof, if Mortgagor fails to perform any of the covenants and
agreements contained in this Mortgage or if any action or proceeding is
commenced which has a material negative effect on the Mortgaged Properties or
the interest of Mortgagee therein, or the title thereto, then Mortgagee, at
Mortgagee's option, may perform such covenants and agreements, defend against
and/or investigate such action or proceeding, and take such other action as
Mortgagee deems necessary, in its reasonable discretion, to protect Mortgagee's
interest. Mortgagee is hereby given the irrevocable power of attorney (which
power is coupled with an interest and is
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irrevocable) to enter upon the Mortgaged Properties as Mortgagor's agent in
Mortgagor's name to perform any and all covenants and agreements to be performed
by Mortgagor as herein provided if such covenants and agreements are not duly
performed by Mortgagor. Any amounts or expenses disbursed or incurred by
Mortgagee pursuant to this paragraph, with interest thereon, shall become
additional Indebtedness of Mortgagor secured by this Mortgage. Unless Mortgagor
and Mortgagee agree in writing to other terms of repayment, such amounts shall
be immediately due and payable, and shall bear interest from the date of
disbursement at the annual rate stated in the Credit Agreement, unless
collection from Mortgagor of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest at the highest
rate which may be collected from Mortgagor under applicable law. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage, deed of trust,
or other lien discharged in whole or in part by the Indebtedness or by Mortgagee
under the provision thereof, and any such subrogation rights shall be additional
and cumulative security for this Mortgage. Nothing contained in this paragraph
shall require Mortgagee to incur any expense or do any act hereunder, and
Mortgagee shall not be liable to Mortgagor for any damages or claims arising out
of action taken by Mortgagee pursuant to this paragraph.
13. CONDEMNATION.
(a) Mortgagor hereby irrevocably assigns to Mortgagee any award or
payment which becomes payable by reason of any taking of the Mortgaged
Properties, or any part thereof, whether directly or indirectly or
temporarily or permanently, in or by condemnation or other eminent domain
proceedings or by reason of sale under threat thereof, or in anticipation
of the exercise of the right of condemnation or other eminent domain
proceedings (hereinafter called a "Taking"). Forthwith upon receipt by
Mortgagor of notice of the institution of any proceedings or negotiations
for a Taking, Mortgagor shall give notice thereof to Mortgagee. Mortgagee
may appear in any such proceedings and participate in any such negotiations
and may be represented by counsel. Mortgagor, notwithstanding that
Mortgagee may not be a party to any such proceeding, will promptly give to
Mortgagee copies of all notices, pleadings judgments, determinations and
other papers received by Mortgagor therein. Mortgagor will not enter into
any agreement permitting or consenting to the Taking of the Mortgaged
Properties, or any part thereof, or providing for the conveyance thereof in
lieu of condemnation, with anyone authorized to acquire the same in
condemnation or by eminent domain unless Mortgagee shall first have
consented thereto in writing, which consent will not be unreasonably
withheld. All Taking awards shall be adjusted jointly by Mortgagor and
Mortgagee. All awards payable as a result of a Taking shall be paid to
Mortgagee, which may, at its option, apply them after first deducting
expenses incurred in the collection thereof, to the payment of the
Indebtedness, whether or not due and in such order of application as
Mortgagee may determine, or to the repair or restoration of the Mortgaged
Properties, in such manner as Mortgagee may determine.
(b) If the Taking involves a Taking of any building or other
improvement which constitutes part of the Mortgaged Properties, Mortgagor
shall proceed with reasonable diligence to demolish and remove any ruins
and complete repair or restoration of the Mortgaged Properties as nearly as
possible to their respective size, type and character immediately prior to
the Taking, whether or not the condemnation awards are
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available or adequate to complete such repair or restoration. Mortgagor
shall promptly reimburse Mortgagee upon demand for all of Mortgagee's
expenses (including reasonable attorney's fees) incurred in the collection
of awards and their disbursement in accordance with this paragraph, and all
such expenses, together with interest from the date of disbursement at the
annual rate stated in the Credit Agreement (unless collection of interest
from Mortgagor at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from Mortgagor under applicable law), shall be additional amounts
secured by this Mortgage.
14. ASSIGNMENT OF PRODUCTION, ACCOUNTS, CONTRACT RIGHTS AND PROCEEDS.
(a) For the purpose of additionally securing the payment, and to
facilitate the discharge, of the Indebtedness, Mortgagor hereby bargains,
sells, transfers, assigns, sets over and delivers to the Mortgagee and
grants Mortgagee a security interest in all of Mortgagor's right, title and
interest in oil, gas, other hydrocarbons and other minerals produced from
or allocated to the Mortgaged Properties after 7:00 o'clock a.m. on the
date hereof, and all proceeds thereof, all accounts and contract rights of
Mortgagor under which such proceeds may arise and all proceeds of oil, gas
and other hydrocarbons and other minerals produced from or allocated to the
Mortgaged Properties prior to such date and with respect to which payment
has not yet been made (all such proceeds including the accounts being
herein called the "Proceeds of Runs").
(b) Mortgagee is hereby authorized, at any time, to give notice to
Mortgagor and the operator or operators of the Mortgaged Properties
directing and instructing the operator or operators of the Mortgaged
Properties and any and all purchasers of the oil, gas, other hydrocarbons
and other minerals produced from or allocated to the Mortgaged Properties
to pay, all of the Proceeds of Runs to Mortgagee until such time as such
operators or purchasers have been furnished with written notice from
Mortgagee that payment should again be made to Mortgagor. At any time after
Mortgagor or Mortgagee gives notice that Proceeds of Runs shall be paid to
the Mortgagee, Mortgagee may (but need not), in its own name or in
Mortgagor's name, demand, ▇▇▇ for, collect or receive any and all Proceeds
of Runs and may (but need not) make any compromise or settlement or
otherwise agree to waive, modify, amend or change any obligations with
respect thereto. All Proceeds of Runs received by Mortgagee pursuant to
this Mortgage shall be applied by Mortgagee as provided in paragraph 2
hereof. No purchaser of the production attributed to the Mortgaged
Properties shall have any responsibility for the application of any funds
paid to Mortgagee.
(c) Mortgagor agrees to execute and deliver any and all transfer
orders, division orders and other instruments that may be required by the
operator of any of the Mortgaged Properties or by any purchaser of the
production from any of the Mortgaged Properties for the purpose of
effectuating payment of the Proceeds of Runs to the Mortgagee. If under any
existing sales agreements, other than division orders or transfer orders,
any Proceeds of Runs are required to be paid to Mortgagor so that under
such existing agreement payment of such Proceeds of Runs cannot be made to
the Mortgagee, Mortgagor's interest in all Proceeds of Runs under such
sales agreements and in all other Proceeds of Runs which for any reason may
be paid to Mortgagor after notice is given
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that payment shall thereafter be made to Mortgagee, such amounts shall,
when received by Mortgagor, constitute trust funds in Mortgagor's hands and
shall be immediately paid over to Mortgagee.
(d) Should any person now or hereafter purchasing or taking oil, gas,
other hydrocarbons or other minerals attributed to the Mortgaged Properties
fail promptly to pay the Proceeds of Runs to the Mortgagee after receiving
notice to pay the Proceeds of Runs to the Mortgagee, the Mortgagee shall
have the right to make, or to require Mortgagor to make a change of
connection (but only to the extent that the Mortgagor may legally make a
change of connection and the costs of making a new connection are not
unreasonable) and shall have the right to designate or approve the
purchaser with whose facilities a new connection shall be made, without
liability or responsibility in connection therewith, so long as ordinary
care is used in making such designation, and Mortgagor agrees to pay to the
Mortgagee, on demand in writing therefor from the Mortgagee, the amount of
any Proceeds of Runs not promptly paid to the Mortgagee by any person
having responsibility for payment thereof.
(e) Mortgagee and its successors and assigns are hereby absolved from
all liability for failure to enforce collection of the Proceeds of Runs and
from all other responsibility in connection therewith, except the
responsibility to account to Mortgagor for funds actually received.
Mortgagor agrees to indemnify and hold harmless Mortgagee against any and
all liabilities, actions, claims, judgments, costs, charges and attorneys'
fees by reason of the assertion that it received either before or after
payment in full of the Indebtedness, funds from the production of oil, gas,
other hydrocarbons or other minerals claimed by third persons. Mortgagee
shall have the right to defend against any such claims or actions,
employing attorneys of its own selection, and if not furnished with
indemnity satisfactory to it, shall have the right to compromise and adjust
any such claims, actions and judgments. In addition to the rights to be
indemnified as herein provided, all amounts paid by Mortgagee in
compromise, satisfaction or discharge of any such claim, action or
judgment, and all court costs, attorneys' fees and other expenses of every
character incurred by Mortgagee pursuant to the provisions of this
paragraph shall be additional Indebtedness of Mortgagor secured by this
Mortgage. Unless Mortgagor and Mortgagee agree in writing to other terms of
payment, such amounts shall be immediately due and payable and shall bear
interest from date of expenditure until paid at the same annual rate stated
in the Credit Agreement (unless collection of interest from Mortgagor at
such rate would be contrary to applicable law, in which event such amounts
shall bear interest at the highest rate which may be collected from
Mortgagor under applicable law).
(f) Nothing herein contained shall detract from or limit the absolute
obligation of Mortgagor to make prompt payment of all the Indebtedness when
and as the same is due, regardless of whether the Proceeds of Runs herein
assigned are sufficient to pay the same. The rights under this assignment
shall be in addition to all other security of any and every character now
or hereafter existing to secure the payment of the Indebtedness.
-9-
15. SECURITY AGREEMENT AND FINANCING STATEMENT. This Mortgage shall
constitute a security agreement with respect to personal property and fixtures
in which Mortgagee has been granted a security interest hereby, and shall also
constitute a Financing Statement pursuant to the Uniform Commercial Code to be
filed in the real estate records of the respective counties in which the
Mortgaged Properties are located. Mortgagor authorizes Mortgagee to file from
time to time where permitted by law, such financing statements against the
Mortgaged Properties as required or desired by Mortgagee to perfect the security
interest granted in this Mortgage. Mortgagor will from time to time, at the
request of Mortgagee, execute any and all additional documents in a form
satisfactory to Mortgagee which Mortgagee may consider necessary or appropriate
to perfect its security interest.
16. EVENTS OF DEFAULT. Each of the following occurrences shall constitute
an event of default hereunder (herein called an "Event of Default"):
(a) Mortgagor shall fail to duly and punctually pay any installment of
the Indebtedness when due and payable, after expiration of any applicable
cure period.
(b) Any representation or warranty made by Mortgagor herein shall
prove to have been inaccurate in any material respect on or as of the date
made or deemed made.
(c) Mortgagor shall fail to pay over to Mortgagee within 5 business
days after receipt of written demand therefor any proceeds of the sale of
the oil, gas, other hydrocarbons and other minerals produced, saved or sold
from or allocated to the Mortgaged Properties which are paid to Mortgagor
rather than the Mortgagee, as provided in paragraph 14 hereof (after
Mortgagee has redirected payment thereof pursuant to paragraph 14(b)), or
Mortgagor shall fail duly to perform or observe any other covenant or
agreement set forth in paragraph 14 hereof within 5 business days after
receipt of written demand therefor.
(d) Mortgagor shall fail duly to perform or observe any of the
covenants or agreements contained in this Mortgage (other than as provided
in subparagraphs (a), (b) and (c) of this paragraph 16) and such failure
shall continue for 30 days after there has been given, by certified mail to
Mortgagor by the Mortgagee, a written notice specifying such default or
breach and requiring it to be remedied.
(e) Mortgagor shall sell or convey the Mortgaged Properties or any
part thereof or any interest therein without obtaining in each instance the
prior written consent of Mortgagee.
(f) (i) Mortgagor shall commence any case, proceeding or other action
(A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or Mortgagor shall make a general assignment for the benefit
-10-
of its creditors; or (ii) there shall be commenced against Mortgagor any
case, proceeding or other action of a nature referred to in clause (i)
above that (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
Mortgagor any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets that results in the entry of an order
for any such relief that shall not have been vacated, discharged, or stayed
or bonded pending appeal within 60 days from the entry thereof; or (iv)
Mortgagor shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in
clause (i), (ii), or (iii) above; or (v) Mortgagor shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due;
(g) An Event of Default shall occur under the Credit Agreement.
17. ACCELERATION; FORECLOSURE. Upon the occurrence of any Event of Default
and during the continuance thereof, Mortgagee may, at its option, exercise one
or more of the following rights and remedies (and any other rights and remedies
available to it):
(a) Mortgagee may, by written notice to Mortgagor, declare immediately
due and payable all unmatured Indebtedness secured by this Mortgage, and
the same shall thereupon be immediately due and payable, without further
notice or demand; and
(b) Without limiting in any way the rights of the Mortgagee under
paragraph 14 hereof, Mortgagee shall have and may exercise with respect to
all personal property and fixtures which are part of the Mortgaged
Properties, all the rights and remedies accorded upon default to a secured
party under the Uniform Commercial Code, as in effect in the state in which
the Mortgaged Properties in question are located. If notice to Mortgagor of
intended disposition of such property is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given to
Mortgagor (in the manner specified in paragraph 20) at least 10 calendar
days prior to the date of intended disposition;
(c) Mortgagee may, prior or subsequent to institution of any
foreclosure proceedings, enter upon the Mortgaged Properties, or any part
thereof, and exercise without interference from Mortgagor any and all
rights which Mortgagor has with respect to the management, possession and
operation of the Mortgaged Properties. All costs, expenses and liabilities
of every character incurred by Mortgagee in managing, operating and
maintaining such properties shall become additional Indebtedness of
Mortgagor secured by the Mortgage. Unless Mortgagor and Mortgagee agree in
writing to other terms of repayment, such amounts shall be immediately due
and payable and shall bear interest from date of expenditure until paid at
the same annual rate stated in the Credit Agreement, including the rate
payable on occurrence of or Event Default (unless collection of interest
from Mortgagor at such rate would be contrary to applicable law in which
event such amount shall bear interest at the highest rate which may be
collected from Mortgagor under applicable law); and
-11-
(d) Mortgagee may (and is hereby authorized and empowered to)
foreclose this Mortgage by action or by advertisement under the power of
sale, pursuant to the laws of the State of Wyoming, in such case made and
provided, power being expressly granted to sell the Mortgaged Properties at
public auction and convey the same to the purchaser in fee simple and, out
of the proceeds arising from such sale, to pay all Indebtedness secured
hereby with interest, and all legal costs and charges of such foreclosure
and reasonable attorneys' fees (to the extent permitted by law), which
costs, charges and fees the Mortgagor agrees to pay. Mortgagee shall be
entitled to bid at any sale and the Mortgagee shall have the right to
credit upon the amount of the bid made therefore, to the extent necessary
to satisfy such bid, the Indebtedness secured hereby owing to the
Mortgagee. In connection with any such foreclosure, the Mortgagor waives
all rights of appraisal.
(e) Mortgagee may request, and Mortgagor agrees that Mortgagee shall
as a matter of right be entitled to, the appointment of a receiver or
receivers for all or any part of the Mortgaged Properties, whether such
receivership be incident to a proposed sale of the Mortgaged Properties or
otherwise, and Mortgagor does hereby consent to the appointment of such
receiver or receivers and agrees not to oppose any application therefor by
the Mortgagee; provided, however, that the appointment of any receiver,
trustee or other appointee by virtue of any court order, statute or
regulation shall not impair or in any manner prejudice the rights of
Mortgagee to receive payment of Proceeds of Runs as herein provided.
18. FORBEARANCE NOT A WAIVER; RIGHTS AND REMEDIES CUMULATIVE. No delay by
Mortgagee in exercising any right or remedy provided herein or otherwise
afforded by law or equity shall be deemed a waiver of or preclude the exercise
of such right or remedy, and no waiver by Mortgagee of any particular provision
of this Mortgage shall be deemed effective unless in writing signed by
Mortgagee. All such rights and remedies provided for herein or which Mortgagee
or the holder of any of the Indebtedness may have otherwise, at law or in
equity, shall be distinct, separate and cumulative and may be exercised
concurrently, independently or successively in any order whatsoever, and as
often as the occasion therefor arises. Without limiting the foregoing,
Mortgagee's taking action pursuant to paragraph 12 hereof or receiving proceeds,
awards or damages pursuant to paragraphs 8 or 13 hereof shall not impair any
right or remedy available to Mortgagee under paragraphs 14 and 17 hereof.
Acceleration of maturity of the Indebtedness, once claimed hereunder by
Mortgagee, may, at the option of Mortgagee, be rescinded by written
acknowledgment to that effect by Mortgagee, but the tender and acceptance of
partial payments alone shall not in any way affect or rescind such acceleration
of maturity of the Indebtedness, unless otherwise provided by law.
19. SUCCESSORS AND ASSIGNS BOUND; NUMBER; GENDER; AGENTS; CAPTIONS. The
covenants and agreements herein contained shall bind, and the rights hereunder
shall inure to, successors and assigns of Mortgagee and Mortgagor, but any
assignment by Mortgagor is subject to paragraph 16(e) hereof. Wherever used, the
singular number shall include the plural, and the plural the singular, and the
use of any gender shall apply to all genders. The captions and headings of the
paragraphs of this Mortgage are for convenience only and are, not to be used to
interpret or define the provision hereof.
-12-
20. NOTICE. Any notice from Mortgagee to Mortgagor or from the Mortgagor
to the Mortgagee under this Mortgage shall be deemed to have been given by
Mortgagee or the Mortgagor and received by Mortgagor or the Mortgagee, as the
case may be, when mailed by certified mail to the following addresses:
If to Mortgagor:
Kestrel Energy, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇
If to Mortgagee:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
or at such other addresses as the Mortgagor or the Mortgagee may designate in
writing to the other party.
21. GOVERNING LAW: SEVERABILITY. This Mortgage shall be governed by the
substantive laws of the state in which the Mortgaged Properties in question are
located. In the event that any provision or cause of this Mortgage conflicts
with applicable law, such conflict shall not affect other provisions of this
Mortgage which can be given effect without the conflicting provisions and to
this end the provisions of the Mortgage are declared to be severable.
22. COUNTERPARTS. This Mortgage may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
23. WAIVER OF MARSHALLING. Mortgagor, any party who consents to this
Mortgage and any party who now or hereafter acquires a lien on the Mortgaged
Properties and on the Proceeds of Runs and who has actual or constructive notice
of this Mortgage hereby waives any and all right to require the marshalling of
assets in connection with the exercise of any of the remedies permitted by
applicable law or provided herein.
IN WITNESS WHEREOF, the Mortgagor has caused the Mortgage to be duly
executed as of the day and year first above written.
KESTREL ENERGY, INC.
By /S/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Operations Manager
-13-
This instrument was drafted by:
▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
STATE OF COLORADO )
) ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 19th day of May,
2003, by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, as Operations Manager of Kestrel Energy, Inc., a
Colorado corporation.
Witness my hand and official seal.
/S/LANSING ▇. ▇▇▇▇▇▇▇
-----------------------------------------
Notary Public
My Commission Expires: 9-30-03
--------------------
-14-
EXHIBIT A
1. Well: Government 14-17
.046875 Working Interest
.037500 Net
Revenue Interest
Prospect: Deep Draw
Location: TOWNSHIP 53 NORTH, RANGE 69 WEST
--------------------------------
Section 17: Lots 13 and 14
▇▇▇▇▇▇▇▇ County, Wyoming
Lease Date: 2/1/77
Lessor: USA W-57318
Lessee: ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇
Description: TOWNSHIP 53 NORTH, RANGE 69 WEST
--------------------------------
Section 17: Lots 13 and 14, below the base of the
Cretaceous formation
Recorded: Not Recorded
2. Well: KD Federal 33-1
.12000 Working Interest
.09303 Net Revenue Interest
3. Well: KD Federal 33-8
.12000 Working Interest
.09303 Net Revenue Interest
4. Well: KD Federal 33-9
.13000 Working Interest
.096175 Net Revenue Interest
Prospect: Kicker Draw
Location: TOWNSHIP 47 NORTH, RANGE 70 WEST
Section 33: E/2
▇▇▇▇▇▇▇▇ County, Wyoming
Lease Date: 10/1/84
Lessor: USA W-76330
Lessee: ▇▇▇▇▇ ▇▇▇▇▇▇
Description: TOWNSHIP 47 NORTH, RANGE 70 WEST
Section 33: NE, SE
Recorded: Book 325, Page 522
5. Well: ▇▇▇▇▇▇▇ 27-2
.125000 Working Interest
.099375 Net Revenue Interest
Prospect: Double Shield
Location: TOWNSHIP 51 NORTH, RANGE 70 WEST
--------------------------------
Section 27: NENW
▇▇▇▇▇▇▇▇ County, Wyoming
Lease Date: 11/1/68
Lessor: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, etux
Lessee: ▇▇▇▇▇▇ ▇ ▇▇▇▇▇
Description: TOWNSHIP 51 NORTH, RANGE 70 WEST
--------------------------------
Section 27: NENW
Recorded: Book 867, Page 198
Lease Date: 11/6/68
Lessor: USA W-15548A
Lessee: ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇
Description: TOWNSHIP 51 NORTH, RANGE 70 WEST
--------------------------------
Section 27: S/2NW, SWNE
Recorded: Not Recorded
6. Well Name: ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇
1.0 Working Interest
.8234375 Net Revenue Interest
Prospect: ▇▇▇▇▇▇ Unit
Location: TOWNSHIP 48 NORTH, RANGE 70 WEST
--------------------------------
Section 34: Lot 1 (NENE)
▇▇▇▇▇▇▇▇ County, Wyoming
Lease Date: 11/1/75
Lessor: USA W-52273
Lessee: ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇
Recorded: Not Recorded
7. Well Name: ▇▇▇▇▇▇ Unit Tract 1B
.625000 Working Interest
.520625 Net Revenue Interest
Prospect: ▇▇▇▇▇▇ Unit
Location: TOWNSHIP 48 NORTH, RANGE 70 WEST
--------------------------------
Section 34: Lot 2 (NWNE)
▇▇▇▇▇▇▇▇ County, Wyoming
Lease Date: 11/1/75
Lessor: USA W-52273
Lessee ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇
Recorded: Not Recorded
8. Well Name: ▇▇▇▇▇▇ ▇▇▇▇ ▇
1.0 Working Interest
.8086979 Net Revenue Interest
Prospect: ▇▇▇▇▇▇ Unit
Location: TOWNSHIP 48 NORTH, RANGE 70 WEST
--------------------------------
Section 27: ▇▇▇ ▇ (▇▇▇▇), ▇▇▇ ▇▇ (▇▇▇▇), ▇▇▇ ▇▇ (▇▇▇▇)
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Wyoming
Lease Date: 11/1/77
Lessor: USA W-60839
Lessee: ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇
Recorded: Not Recorded
9. Well Name: ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇
1.0000 Working Interest
.80625 Net Revenue Interest
Prospect: ▇▇▇▇▇▇ Unit
Location: TOWNSHIP 48 NORTH, RANGE 70 WEST
--------------------------------
Section 26: ▇▇▇ ▇▇ (▇▇▇▇), ▇▇▇ ▇▇ (▇▇▇▇)
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Wyoming
Lease Date: 8/1/88
Lessor: USA WY-112287
Lessee: Exxon Corporation
Recorded: Not Recorded
EXHIBIT B-1
Permitted Liens
(a) Liens existing on the Effective Date and listed on Exhibit B-2,
attached hereto and incorporated herein by this reference, and any renewals or
extensions thereof, provided that the property covered thereby is not increased,
the amount of the indebtedness secured thereby is not increased, and any renewal
or extension of the obligations secured or benefited thereby is permitted under
this Mortgage.
(b) Liens for taxes not yet due or which are being contested in good faith
and by appropriate proceedings, so long as Mortgagor is in compliance with
subsections (a) and (b) and the last sentence of Section 7 of the Mortgage with
respect to such liens.
(c) Carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like liens arising in the ordinary course of business which are not
overdue for a period of more than 30 days or which are being contested in good
faith and by appropriate proceedings, so long as Mortgagor is in compliance with
subsections (a) and (b) and the last sentence of Section 7 of the Mortgage with
respect to such liens.
(d) Pledges or deposits in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation, other than any lien imposed by ERISA.
(e) Deposits to secure the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case incurred
in the ordinary course of business.
(f) Easements, rights-of-way, restrictions and other similar encumbrances
affecting real property which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of Mortgagor.
(g) Any interest or title of a lessor under any lease entered into by
Mortgagor or any parent, subsidiary or affiliate thereof in the ordinary course
of its business and covering only the assets so leased.
EXHIBIT B-2
None.