MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT AND FINANCING STATEMENT
This Instrument contains After Acquired Property Provisions
This MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT AND FINANCING STATEMENT,
dated as of March 16, 2007 (this "Mortgage"), is granted and entered into by
BASELINE OIL & GAS CORP., a Nevada corporation (the "Company"), to and for the
benefit of LAKEWOOD GROUP, LLC, the holder (the "Holder") of the Company's
Senior Secured Debenture dated March 15, 2007, in the original aggregate
principal amount of ONE MILLION SEVEN HUNDRED THOUSAND Dollars ($1,700,000) (the
"Debenture").
W I T N E S S E T H:
WHEREAS, pursuant to the Debenture, the Holder has agreed to extend a loan
to the Company evidenced by the Debenture; and
WHEREAS, in order to induce the Holder to extend the loan evidenced by the
Debenture, the Company has agreed to execute and deliver to the Holder this
Mortgage and to grant the Holder, a mortgage and security interest in certain
property of the Company to secure the prompt payment, performance and discharge
in full of all of the Company's obligations under the Debenture;
NOW, THEREFORE, in consideration of the agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Mortgage, the following terms
shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Mortgage that are defined in Article 9 of the UCC
(such as "account", "chattel paper", "commercial tort claim", "deposit account",
"document", "equipment", "fixtures", "general intangibles", "goods",
"instruments", "inventory", "investment property", "letter-of-credit rights",
"proceeds" and "supporting obligations") shall have the respective meanings
given such terms in Article 9 of the UCC. In addition capitalized terms not
otherwise defined herein shall have the meaning set forth in the Debenture.
(a) "Agent" means the Person appointed as Agent pursuant to the terms of
Section 15 of this Mortgage and Annex 1 attached hereto and incorporated herein.
It is permissible for the Lender to be appointed and serve as the Agent.
(b) "Areas of Interest" means, collectively, the "Contract Area" as
defined in that certain Operating Agreement dated May 1, 2006, between El Paso
Production Company, as Operator, and Pogo Producing Company, Aurora Energy,
Ltd., Aurora Operating, L.L.C., and New Albany-Indiana, LLC, as Non-Operators,
covering the South ▇▇▇▇▇ Prospect Area (Initial Test - ▇▇▇▇▇▇ 1-10H), Green
County, Indiana, without regard to any subsequent amendment thereof; the "Area
of Mutual Interest" as defined in that certain Exploration Agreement Dated
January 27, 2006, effective as of November 1, 2005, between Aurora Energy, Ltd.,
and New Albany - Indiana, LLC without regard to any subsequent amendment
thereof; and the "Area of Mutual Interest" as defined in that certain
Exploration Agreement dated April 7, 2006, by and among Source Rock Resources,
Inc., New Albany-Indiana, LLC, and Aurora Energy, Ltd. without regard to any
subsequent amendment thereof.
(c) "Contracts" has the meaning set forth in clause (vi) of the definition
of the Mortgaged Property.
(d) "Environmental Laws" means all applicable statutes, laws, ordinances,
regulations, rules, rulings, orders, restrictions, requirements, writs,
injunctions, decrees or other official acts relating to the environment or
hazardous substances, whether now or hereafter enacted or imposed by (a) the
United States of America, (b) any state, commonwealth, county, parish,
municipality, territory, possession or other governmental subdivision within the
United States of America or under the jurisdiction of the United States of
America, or (c) any Tribunal; and including, without limitation, the following:
The Resource Conservation and Recovery Act of 1976 (42 U.S.C. ss.ss.6901, et.
seq.), The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended by The Superfund Amendments and Reauthorization Act of 1986
(42 U.S.C. ss.ss.9601, et. seq.), Title III of The Superfund Amendments and
Reauthorization Act of 1986, such Title III being also referred to as The
Emergency Planning and Community Right to Know Act (42 U.S.C. ss.ss.11001, et.
seq.), The Clean Water Act (33 U.S.C. ss.ss.1251, et. seq.), The Safe Drinking
Water Act (42 U.S.C. ss.ss.201, et. seq.), The Clean Air Act (42 U.S.C.
ss.ss.7401, et. seq.), The Hazardous Material Transportation Act (49 U.S.C.
ss.ss.1801, et. seq.), as each of such Acts is in effect at the date of this
Mortgage, and to any subsequent provisions of any such Act, amendatory thereof,
supplemental thereto or substitute therefor.
(e) "General Laws" means all applicable statutes, laws, ordinances,
regulations, rules, rulings, orders, restrictions, requirements, writs,
injunctions, decrees or other official acts of (a) the United States of America,
(b) any state, commonwealth, county, parish, municipality, territory, possession
or other governmental subdivision within the United States of America or under
the jurisdiction of the United States of America, or (c) any Tribunal; except
such term shall not include Environmental Laws, ERISA, Hydrocarbon Laws and Tax
Laws.
(f) "Hazardous Materials" means any "hazardous waste" or "hazardous
substance" defined in any Environmental Law, asbestos, polychlorinated
biphenyls, underground storage tanks (whether empty, filled or partially filled
with any substance), any substance the presence of which on any Lease is
prohibited by any Environmental Law, and any other substances which by any
Environmental Law requires special handling or notification of any Tribunal.
(g) "Hazardous Materials Contamination" means the contamination (whether
now existing or hereafter occurring) of any improvements, facilities, soil,
groundwater, air or other elements on or of any Leases or the contamination of
any improvements, facilities, soil, groundwater, air or other elements on or of
any other lands as a result of Hazardous Materials at any time (before or after
the date of this Mortgage) emanating from any Leases.
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(h) "Hydrocarbon Laws" means all applicable statutes, laws, ordinances,
regulations, rules, rulings, orders, restrictions, requirements, writs,
injunctions, decrees or other official acts relating to exploration,
development, pooling, unitization, production, treating, storing, transporting,
handling, marketing, re-injecting or processing Hydrocarbons, and now or
hereafter enacted or imposed by (a) the United States of America, (b) any state,
commonwealth, county, parish, municipality, territory, possession or other
governmental subdivision within the United States of America or under the
jurisdiction of the United States of America, or (c) any Tribunal.
(i) "Leases" has the meaning set forth in clause (i) of the definition of
Mortgaged Property.
(j) "Liens" shall mean a lien, pledge, charge, security interest,
encumbrance, right of first refusal, preemptive right or other restriction.
(k) "Mineral Interests" has the meaning set forth in clause (i) of the
definition of Mortgaged Property.
(l) "Mortgaged Property" means,
(i) all of the rights, titles, and interests of the Company
(including in each case, without limitation, fee mineral interests,
leasehold interests, royalty interests, overriding royalty interests,
production payments, net profits interests, carried interests,
reversionary interests, possibilities of reverter, and conversion rights
and options) in, to, under, or derived from (a) the oil and gas leases
described more particularly on Exhibit A or in which the Company hereafter
acquires an interest with respect to any lands within the Areas of
Interest, the leasehold estates created thereby, as to all lands and
depths covered thereby or the applicable part or portion thereof if
specifically limited in depth and/or areal extent in Exhibit A (whether
one or more, the "Leases"), (b) the lands covered by the Leases or
otherwise described on Exhibit A, (c) all units created by the pooling,
unitization, and communitization agreements in effect with respect to the
Leases and the lands covered thereby or otherwise described on Exhibit A,
and (d) the oil and gas leases and lands included in any units with which
the Leases or the lands covered thereby or otherwise described on Exhibit
A may have been pooled, unitized, or communitized, and all other rights,
interests, privileges, benefits, and powers of any kind or character
conferred upon Assignor as the owner of any of such interests, it being
the express intent that, notwithstanding any description in Exhibit A
setting forth working interests, fractional leasehold interests,
overriding royalty interests, net profits interests or other interests,
the Mortgaged Property shall include all such interests of the Company
conveyed or intended to be conveyed to the Company by New Albany -
Indiana, LLC pursuant to the redemption of the Company's membership
interest therein or in which the Company hereafter acquires an interest
with respect to any lands within the Areas of Interest (all such rights,
estates and interests described in this clause (i) of the definition of
Mortgaged Property, the "Mineral Interests");
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(ii) all of the rights, titles, and interests of the Company in and
to the ▇▇▇▇▇ for the production of Hydrocarbons that are located on or
within the Mineral Interests, whether now existing or hereafter installed
(collectively, the "▇▇▇▇▇");
(iii) all of the rights, titles, and interests of the Company in and
to all crude oil, natural gas, condensate, distillate, natural gasoline,
natural gas liquids, other liquid or gaseous hydrocarbons, sulphur, and
every other mineral or substance, or any of them, the right to explore for
which, or an interest in which, is granted pursuant to the Mineral
Interests ("Hydrocarbons") produced from or allocable to the Mineral
Interests or the ▇▇▇▇▇;
(iv) all of the rights, titles, and interests of the Company in and
to all fee surface interests in land, surface leases, easements,
rights-of-way, servitudes, licenses, franchises, road, railroad, and other
surface use permits or agreements, and similar rights and interests (if
any) located on the lands covered by or related to the Mineral Interests
or the ▇▇▇▇▇;
(v) all of the rights, titles, and interests of the Company in and
to all equipment, machinery, fixtures, inventory, improvements, and other
personal, mixed, or movable property located on the lands covered by the
Mineral Interests or used in connection with or attributable to the
Mineral Interests or the ▇▇▇▇▇, including, without limitation: water
▇▇▇▇▇; saltwater disposal ▇▇▇▇▇ and facilities; injection ▇▇▇▇▇ and
facilities; well equipment; casing; rods; tanks and tank batteries;
boilers; tubing; pumps; pumping units and engines; platforms; Christmas
trees; production facilities; compression facilities; dehydration units
and facilities; heater-treaters; processing, fractionation, treatment, and
separation plants and facilities; testing and sampling equipment; sulfur
recovery units and facilities; valves; gauges; meters; generators; motors;
gun barrels; flow lines; water lines; gas lines; gathering lines, laterals
and trunk lines, and other pipe lines; gas systems (for gathering,
treatment, and compression); chemicals; solutions; water systems (for
treatment, disposal, and injection); power plants; poles; lines;
transformers; starters and controllers; whether now owned or hereafter
acquired and any and all additions or accessions to, substitutions for,
and replacements of any of the foregoing, together with all attachments,
components, parts, equipment, and accessories installed thereon or affixed
thereto (collectively, the "Operating Equipment");
(vi) all of the rights, titles, and interests of the Company in, to,
and under the contracts, agreements, options, leases, licenses, and other
rights owned by the Company, in whole or in part, or to which the Company
is a party, that are (x) appurtenant to or affect the properties and
rights comprising the items otherwise listed in this definition of
Mortgaged Property, or (y) used or held for use in connection with the
use, ownership, or operation thereof, including all presently existing and
future Hydrocarbon purchase, sale or exchange agreements, farm out
agreements, farm in agreements, exploration agreements, participation
agreements, option agreements, division and transfer orders, advance
payment agreements, processing contracts, plant agreements, operating
agreements, gas balancing or deferred production agreements, pooling,
unitization or communitization agreements, pipeline, gathering or
transportation agreements, platform agreements, drilling contracts,
injection or repressuring agreements, cycling agreements, construction
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agreements, salt water or other disposal agreements, leases or rental
agreements and any and all other contracts or agreements covering, arising
out of, used or useful in connection with or otherwise pertaining to the
exploration, development, operation, production, sale, use, purchase,
exchange, storage, separation, dehydration, treatment, compression,
gathering, transportation, processing, improvement, marketing, disposal or
handling of applicable to the Mineral Interests or ▇▇▇▇▇ or Hydrocarbons
produced therefrom or allocable thereto, in each case whether the Company
may now be a party thereto or may acquire rights therein in the future
(collectively, the "Contracts") including without limitation those
Contracts described more particularly on Exhibit B (the "Scheduled
Contracts");
(vii) all permits, licenses, authorizations, certificates,
registrations, or other approvals granted by any Governmental Authority
that pertain or relate in any way to the items listed in this definition
of Mortgaged Property, and that may be pledged, assigned or are otherwise
transferable by the Company;
(viii) all of the Company's intangible rights, inchoate rights,
transferable rights under warranties made by prior owners, manufacturers,
vendors, and third Persons, and rights accruing under applicable statutes
of limitation or prescription, insofar only as the foregoing rights and
interests relate or are attributable to the items otherwise listed in this
definition of Mortgaged Property;
(ix) all maps, logs, geological, geophysical, reserve engineering,
and other scientific and technical information, reports, and data
(including, without limitation, conventional and 3-D seismic data) that
relate to the items listed in this definition of Mortgaged Property, are
owned by the Company, and the pledge or assignment of which is not
prohibited by confidentiality or other contractual arrangements;
(x) all rights, titles and interests of the Company in and to all
Proceeds of and other rights relating to insurance or condemnation payable
or accruing by reason of the loss of, damage to, or taking of all or any
part of the properties or interests otherwise described in this definition
of Mortgaged Property; and
(xi) all rights, titles and interests of the Company in and to all
documents, instruments, drafts, acceptances, general intangibles, chattel
paper, accounts, causes of action and all the Proceeds therefrom or
attributable thereto, whether now or hereafter existing, arising out of or
relating to the sale, use, exchange, exploration, development, operation,
production, storage, gathering, transportation, dehydration, separation,
processing, treatment, improvement, marketing, disposal, lease, handling,
or other dealings with or of all or any portion of the properties or
interests otherwise described in this definition of Mortgaged Property;
(xii) all right, title and interest of the Company in and to the
Proceeds from or attributable to the rights, titles and interests
hereinabove referred to in this definition of the Mortgaged Property, all
guarantees and suretyship agreements relating to any such Proceeds, or
such rights, titles and interests of the Company therein, and all security
for payment or performance thereof, now or hereafter existing or arising.
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(m) "Obligations" means all of the liabilities and obligations (primary,
secondary, direct, contingent, sole, joint or several) due or to become due, or
that are now or may be hereafter contracted or acquired, or owing, of the
Company to the Holder under this Mortgage, the Debenture, and any other
instruments, agreements or other documents executed and/or delivered in
connection herewith or therewith, in each case, whether now or hereafter
existing, voluntary or involuntary, direct or indirect, absolute or contingent,
liquidated or unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later increased, created
or incurred, and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or recovered
directly or indirectly from the Holder as a preference, fraudulent transfer or
otherwise as such obligations may be amended, supplemented, converted, extended
or modified from time to time. Without limiting the generality of the foregoing,
the term "Obligations" shall include, without limitation: (i) principal of, and
interest on the Debenture and the loan extended pursuant thereto; (ii) any and
all other fees, indemnities, costs, obligations and liabilities of the Company
from time to time under or in connection with this Mortgage, the Debenture, and
any other instruments, agreements or other documents executed and/or delivered
in connection herewith or therewith; and (iii) all amounts (including but not
limited to post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Company.
(n) "Operating Equipment" has the meaning set forth in clause (v) of the
definition of Mortgaged Property.
(o) "Organizational Documents" means the Company's Articles of
Incorporation and Bylaws.
(p) "Permitted Liens" means the individual and collective reference to the
following: (i) Liens for taxes, assessments and other governmental charges or
levies not yet due or Liens for taxes, assessments and other governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the management of the
Company) have been established in accordance with GAAP; (ii) the Mineral
Interests, the Scheduled Contracts and any joint operating agreement applicable
to all or a portion of the Mineral Interests as expressly contemplated in, and
in the form required by, the applicable exploration agreement set forth in the
Scheduled Contracts, including any operator's liens and liens contained in
leases securing performance of the lessee's obligations; (iii) Liens imposed by
law which were incurred in the ordinary course of the Company's business, such
as carriers', warehousemen's and mechanics' Liens, statutory landlords' Liens,
operator's Liens, and other similar Liens arising in the ordinary course of the
Company's business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially
impair the use thereof in the operation of the business of the Company and its
consolidated Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the
foreseeable future the forfeiture or sale of the property or asset subject to
such Lien; and (iv) Liens granted by the Company to secure the Debenture.
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(q) "Proceeds" means all of the following: (i) monies, rents, revenues,
royalties, accounts receivable, profits, income, securities, proceeds and other
sums; (ii) services to be performed by parties other than the Company under any
Contract; and (c) products and benefits.
(r) "Scheduled Contracts" has the meaning set forth in clause (vi) of the
definition of Mortgaged Property.
(s) "Taxes" means all taxes, assessments, fees, levies, imposts, duties,
deductions, withholdings, or other charges, together with any interest and
penalties payable in connection therewith, from time to time or at any time
imposed or assessed by any statute, law, ordinance, regulation, rule, ruling,
order, writ, injunction, decree or other official act of (a) the United States
of America, (b) any state, commonwealth, county, parish, municipality,
territory, possession or other governmental subdivision, body politic or
corporate within the United States of America or under the jurisdiction of the
United States of America, or (c) any Tribunal, (a) against the Company by reason
of the Company's ownership, sale or other disposition of all or any part of the
Mortgaged Properties, (b) upon or with respect to, measured by or charged
against, required to be deducted or withheld from or otherwise attributable to
all or any part of the Mortgaged Properties (or the sale or other disposition
thereof), or (c) upon or against this Mortgage or the Holder or the Agent by
reason of this Mortgage or the liens, assignments or security interests
hereunder, including, without limitation, franchise, sales, transfer, gross
receipts, profits, income, property, ad valorem, production, severance and
windfall profit excise taxes.
(t) "Tax Laws" means all applicable statutes, laws, ordinances,
regulations, rules, rulings, orders, restrictions, requirements, writs,
injunctions, decrees or other official acts relating to the reporting,
imposition, rendition, collection, enforcement, or other aspects of Taxes, of
every kind or character now imposed or hereafter enacted by (a) the United
States of America, (b) any state, commonwealth, county, parish, municipality,
territory, possession or other governmental subdivision within the United States
of America or under the jurisdiction of the United States of America, or (c) any
Tribunal.
(u) "Transaction Documents" means the Debenture and the Mortgage, and the
exhibits and schedules thereto.
(v) "Tribunal" means any court or any governmental department, commission,
board, bureau, agency, or instrumentality of the United States of America or of
any state, commonwealth, territory, possession, county, parish, municipality or
other governmental subdivision within the United States of America or under the
jurisdiction of the United States of America, whether now or hereafter
constituted or existing.
(w) "UCC" means the Uniform Commercial Code of the state of Indiana and or
any other applicable law of any state or states which has jurisdiction with
respect to all, or any portion of, the Mortgaged Property or this Mortgage, from
time to time. It is the intent of the parties that defined terms in the UCC
should be construed in their broadest sense so that the term "Mortgaged
Property" will be construed in its broadest sense. Accordingly if there are,
from time to time, changes to defined terms in the UCC that broaden the
definitions, they are incorporated herein and if existing definitions in the UCC
are broader than the amended definitions, the existing ones shall be
controlling.
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2. Grant of Mortgage and Security Interest in Mortgaged Property. As an
inducement for the Holder to extend the loan as evidenced by the Debenture and
to secure the complete and timely payment, performance and discharge in full, as
the case may be, of all of the Obligations, the Company hereby unconditionally
and irrevocably, mortgages, grants, warrants, pledges and hypothecates to the
Holder a mortgage and security interest in the Mortgaged Property.
3. Representations, Warranties, Covenants and Agreements of the Company.
The Company represents and warrants to, and covenants and agrees with, the
Mortgagees as follows:
(a) The Company has the requisite corporate power and authority to
enter into this Mortgage and otherwise to carry out its obligations
hereunder. The execution, delivery and performance by the Company of this
Mortgage and the filings contemplated herein have been duly authorized by
all necessary action on the part of the Company and no further action is
required by the Company. This Mortgage has been duly executed and
delivered by the Company. This Mortgage constitutes the legal, valid and
binding obligation of the Company, enforceable against it in accordance
with its terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors
and by general principles of equity.
(b) The Company has no place of business or offices where their
respective books of account and records are kept (other than temporarily
at the offices of its attorneys or accountants) or places where portions
of Mortgaged Property constituting personal property is stored or located,
except as set forth on Schedule I attached hereto. The organizational
identification number of the Company is as set forth on Schedule I
attached hereto. There exists no mortgage or other Liens on any of the
Mortgaged Property except for Permitted Liens. None of such Mortgaged
Property is in the possession of any consignee, bailee, warehouseman,
agent or processor.
(c) The Company is fully authorized to grant the mortgage and
security interests contemplated herein, and is the sole owner of the
Mortgaged Property free and clear of any Liens, except for Permitted
Liens. Except for memoranda of applicable joint operating agreements in
the form contemplated by the applicable exploration agreements listed in
the Scheduled Contracts, there is not on file in any governmental or
regulatory authority, agency or recording office an effective financing
statement, security agreement, notice or memorandum of interest, license
or transfer or any notice of any of the foregoing (other than those that
will be filed in favor of the Holder pursuant to this Mortgage) covering
or affecting any of the Mortgaged Property. Except pursuant to this
Mortgage, or with respect to memoranda of joint operating agreements in
the form contemplated by the applicable exploration agreements listed in
the Scheduled Contracts, as long as this Mortgage shall be in effect, the
Company shall not, with respect to the Mortgaged Property, execute and
shall not knowingly permit to be on file in any such office or agency any
other financing statement or other document or instrument (except to the
extent filed or recorded in favor of the Holder pursuant to the terms of
this Mortgage). Without limiting the warranties set forth hereinabove and
elsewhere in that Mortgage, the Agent, on behalf of the Holder, is hereby
granted full power of substitution and subrogation in and to all covenants
and warranties of all predecessors in title of the Company in and to the
Mortgaged Property.
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(d) No written claim has been received that any Mortgaged Property
or the Company's use of any Mortgaged Property violates the rights of any
third party. There has been no adverse decision to the Company's claim of
ownership rights in or exclusive rights to use the Mortgaged Property in
any jurisdiction or to the Company's right to keep and maintain such
Mortgaged Property in full force and effect, and there is no proceeding
involving said rights pending or, to the best knowledge of the Company,
threatened before any Tribunal.
(e) The Company shall at all times maintain its books of account and
records relating to the Mortgaged Property at its principal place of
business as set forth on Schedule I and its Mortgaged Property at the
locations set forth on Schedule I attached hereto and may not relocate
such books of account and records or tangible Mortgaged Property unless it
delivers to the Agent and the Holder at least thirty (30) days prior to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements under the UCC and other necessary
documents have been filed and recorded and other steps have been taken to
perfect the security interests of the Holder to continue within the Holder
a valid, perfected and continuing perfected Lien in the Mortgaged
Property.
(f) This Mortgage creates in favor of the Holder a valid first
mortgage and security interest in the Mortgaged Property, subject only to
Permitted Liens, securing the payment and performance of the Obligations.
Upon making the filings described in the immediately following paragraph,
all security interests created hereunder in any Mortgaged Property which
may be perfected by filing Uniform Commercial Code financing statements
shall have been duly perfected. Except for the recording of this Mortgage
with the Recorders of Clay, ▇▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇ and ▇▇▇▇▇▇▇▇ Counties,
Indiana, and any other such County in which any of the Mineral Interests
may be situated, and the filing of this Uniform Commercial Code financing
statements referred to in the immediately following paragraph, no action
is necessary to create, perfect or protect the mortgage and security
interests created hereunder. Without limiting the generality of the
foregoing, except for the filing of this Mortgage and said financing
statements as referenced herein, no consent of any third parties and no
authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for (i)
the execution, delivery and performance of this Mortgage, (ii) the
creation or perfection of the mortgage and security interests created
hereunder in the Mortgaged Property or (iii) the enforcement of the rights
of the Agent and the Holder hereunder.
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(g) The Company hereby authorizes the Agent to file one or more
financing statements under the UCC, with respect to the security interests
of the Holder in the Mortgaged Property with the proper filing and
recording agencies in any jurisdiction deemed proper by it.
(h) The execution, delivery and performance of this Mortgage by the
Company does not (i) violate any of the provisions of any Organizational
Documents of the Company or any judgment, decree, order or award of any
Tribunal or any applicable law, rule or regulation applicable to the
Company, or (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing the
Company's debt or otherwise) or other understanding to which the Company
is a party or by which any property or asset of the Company is bound or
affected. If any, all required consents (including, without limitation,
from stockholders or creditors of the Company) necessary for the Company
to enter into and perform its obligations hereunder have been obtained.
(i) The Company shall at all times maintain the mortgage and
security interests provided for hereunder as valid and perfected Liens in
the Mortgaged Property, in favor of the Holder until this Mortgage and the
security interests hereunder shall be terminated pursuant to Section 12
hereof. The Company hereby agrees to defend the same against the claims of
any and all persons and entities. The Company shall safeguard and protect
all Mortgaged Property for the account of the Holder. At the request of
the Agent, the Company will sign and deliver to the Agent on behalf of the
Holder at any time or from time to time one or more financing statements
pursuant to the UCC or recordable instruments evidencing the existence and
terms of this Mortgage in form reasonably satisfactory to the Agent and
will pay the cost of filing the same in all public offices wherever filing
or recording is, or is deemed by the Agent to be, necessary or desirable
to effect the rights and obligations provided for herein. Without limiting
the generality of the foregoing, the Company shall pay all fees, Taxes and
other amounts necessary to maintain the Mortgaged Property and the
mortgage and security interests hereunder, and the Company shall obtain
and furnish to the Agent from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to
maintain the priority of the mortgage and security interests hereunder.
(j) The Company will not transfer, pledge, hypothecate, encumber,
license, sell or otherwise dispose of any of the Mortgaged Property
(except for sales of Hydrocarbons in its ordinary course of business and
Permitted Liens incurred in the ordinary course of business) or surrender
or permit the termination of any of the Leases (except for terminations at
the conclusion of the primary term, as permissibly extended, of a Lease,
as permitted by Section 4(ii) hereof) without the prior written consent of
the Holder.
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(k) To the extent applicable, the Company shall maintain with
financially sound and reputable insurers, insurance with respect to the
Mortgaged Property, including Mortgaged Property hereafter acquired,
against loss or damage of the kinds and in the amounts customarily insured
against by entities of established reputation having similar properties
similarly situated and in such amounts as are customarily carried under
similar circumstances by other such entities and otherwise as is prudent
for entities engaged in similar businesses but in any event sufficient to
cover the full replacement cost thereof. The Company shall cause each
insurance policy issued in connection herewith to provide, and the insurer
issuing such policy to certify to the Agent that (i) the Agent will be
named as lender loss payee and additional insured under each such
insurance policy; (ii) if such insurance be proposed to be cancelled or
materially changed for any reason whatsoever, such insurer will promptly
notify the Agent and such cancellation or change shall not be effective as
to the Agent for at least thirty (30) days after receipt by the Agent of
such notice, unless the effect of such change is to extend or increase
coverage under the policy; and (iii) the Agent will have the right (but no
obligation) at its election to remedy any default in the payment of
premiums within thirty (30) days of notice from the insurer of such
default. If no Event of Default exists and if the proceeds arising out of
any claim or series of related claims do not exceed $100,000, loss
payments in each instance will be applied by the Company to the repair
and/or replacement of property with respect to which the loss was incurred
to the extent reasonably feasible, and any loss payments or the balance
thereof remaining, to the extent not so applied, shall be payable to the
Company, provided, however, that payments received by the Company after an
Event of Default occurs and is continuing or in excess of $50,000 for any
occurrence or series of related occurrences shall be paid to the Agent on
behalf of the Holder and, if received by the Company, shall be held in
trust for the Holder and immediately paid over to the Agent unless
otherwise directed in writing by the Agent. Copies of such policies or the
related certificates, in each case, naming the Agent as lender loss payee
and additional insured shall be delivered to the Agent at least annually
and at the time any new policy of insurance is issued. To the extent that,
immediately following the date of this Mortgage, the Company has not yet
obtained such insurance and is relying on the applicable operator's
insurance, the Company shall cause, to the extent permissible, the Agent
to be named as lender loss payee and additional insured with respect to
the Company's interest in such insurance.
(l) The Company shall, within ten (10) days of obtaining knowledge
thereof, advise the Agent and the Holder, in sufficient detail, of any
material adverse change in the Mortgaged Property, and of the occurrence
of any event which would have a material adverse effect on the value of
the Mortgaged Property or on the Holder's security interest therein.
(m) The Company shall promptly execute and deliver to the Agent and
the Holder such further deeds, mortgages, assignments, security
agreements, financing statements or other instruments, documents,
certificates and assurances and take such further action as the Agent may
from time to time request and may in its sole discretion deem necessary to
perfect, protect or enforce the Holder's mortgage and security interest in
the Mortgaged Property.
11
(n) The Company shall permit the Agent and its representatives and
agents to inspect the Mortgaged Property during normal business hours and
upon reasonable prior notice, and to make copies of records pertaining to
the Mortgaged Property as may be reasonably requested by the Agent from
time to time.
(o) The Company shall timely observe and duly perform all
obligations under the Contracts, shall diligently enforce all rights under
the Contracts (unless waiver thereof is consented to by the Holder) and
shall take all steps reasonably necessary to diligently pursue and seek to
preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Mortgaged Property.
(p) The Company shall promptly notify the Agent and the Holder in
sufficient detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Mortgaged Property and
of any other information received by the Company that may materially
affect the value of the Mortgaged Property, the mortgage and security
interests granted herein or the rights and remedies of the Holder
hereunder.
(q) All information heretofore, herein or hereafter supplied to the
Holder by or on behalf of the Company with respect to the Mortgaged
Property is and shall be accurate and complete in all material respects as
of the date furnished.
(r) The Company shall at all times preserve and keep in full force
and effect its valid existence and good standing and any rights and
franchises material to its business.
(s) Except as set forth on Schedule II, the Company has never
conducted business under any name other than Baseline Oil & Gas Corp. and
has not changed its organization identification number (if applicable).
The Company will not change its name, type of organization, jurisdiction
of organization, organizational identification number (if applicable),
legal or corporate structure, or identity, or add any new fictitious name
unless it provides at least thirty (30) days prior written notice to the
Mortgagees of such change and, at the time of such written notification,
the Company provides any financing statements or fixture filings necessary
to perfect and continue the perfection of the mortgage and security
interests granted and evidenced by this Mortgage.
(t) To the extent applicable, except in the ordinary course of
business, the Company may not consign any of its inventory or sell any of
its inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale without the consent of the Agent which shall not
be unreasonably withheld.
(u) At any time and from time to time that any Mortgaged Property
consists of instruments, certificated securities or other items that
require or permit possession by the secured party to perfect the security
interest created hereby, the Company shall deliver such Mortgaged Property
to the Agent.
12
(v) The Company shall cause all tangible chattel paper constituting
Mortgaged Property to be delivered to the Agent, or, if such delivery is
not possible, then to cause such tangible chattel paper to contain a
legend noting that it is subject to the security interest created by this
Mortgage. To the extent that any Mortgaged Property consists of electronic
chattel paper, the Company shall cause the underlying chattel paper to be
"marked" within the meaning of Section 9-105 of the UCC (or successor
section thereto).
(w) If there is any investment property or deposit account included
as Mortgaged Property that can be perfected by "control" through an
account control Mortgage, the Company shall cause such an account control
Mortgage, in form and substance in each case satisfactory to the Agent, to
be entered into and delivered to the Agent for the benefit of the Holder.
(x) To the extent that any Mortgaged Property consists of
letter-of-credit rights, the Company shall cause the issuer of each
underlying letter of credit to consent to an assignment of the proceeds
thereof to the Holder.
(y) To the extent that any Mortgaged Property is in the possession
of any third party, the Company shall join with the Agent in notifying
such third party of the Holder's security interest in such Mortgaged
Property and shall use its best efforts to obtain an acknowledgement and
Mortgage from such third party with respect to the Mortgaged Property, in
form and substance reasonably satisfactory to the Agent.
(z) If the Company shall at any time hold or acquire a commercial
tort claim applicable in whole or part to the Mortgaged Property, the
Company shall promptly notify the Holder in a writing signed by the
Company of the particulars thereof and grant to the Holder in such writing
a security interest therein and in the proceeds thereof, all upon the
terms of this Mortgage, with such writing to be in form and substance
satisfactory to the Agent.
(aa) The Company shall immediately provide written notice to the
Holder and the Agent of any and all accounts which arise out of contracts
with any governmental authority and, to the extent necessary to perfect or
continue the perfected status of the security interests in such accounts
and proceeds thereof, shall execute and deliver to the Agent an assignment
of claims for such accounts and cooperate with the Agent in taking any
other steps required, in its judgment, under the Federal Assignment of
Claims Act or any similar federal, state or local statute or rule to
perfect or continue the perfected status of the security interests in such
accounts and proceeds thereof.
(bb) The Company shall from time to time, at the its expense,
promptly execute and deliver all such further instruments and documents,
and take all such further action as may be necessary or desirable, or as
the Agent may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable
the Holder to exercise and enforce their rights and remedies hereunder and
with respect to any Mortgaged Property or to otherwise carry out the
purposes of this Mortgage.
13
(cc) None of the account debtors or other persons or entities
obligated on any of the Mortgaged Property is a governmental authority
covered by the Federal Assignment of Claims Act or any similar federal,
state or local statute or rule in respect of such Mortgaged Property.
(dd) [Reserved]
(ee) All bonuses, rentals, royalties, payments and obligations due
and payable or performable under or on account of the Mortgaged Properties
have been or will be, in a timely manner, duly paid, performed or provided
for. All Taxes due and payable have been or will be, in a timely manner
duly paid and all returns and reports required under any Tax Law with
respect thereto have been and will be duly and timely filed.
(ff) Each Mineral Interest and Contract and the interest of the
Company therein or attributable thereto are presently valid, subsisting
and in full force and effect, no default now exists thereunder, the
Company has not received any notice of default or claimed default
thereunder, and the Company has no knowledge of any event or circumstance
which with notice or passage of time or both could constitute a default
thereunder. To the extent applicable the Mortgaged Properties are and
shall be held, used, developed, operated and maintained in compliance with
the terms of Mineral Interests and the Contracts.
(gg) The Company's interest (after deducting all lessors' royalties,
overriding royalties, production payments and payments out of production
to the full extent which the same burden or affect the Company's interest)
in the total production of Hydrocarbons produced and saved from or
attributable to (i) each Lease is not less than an undivided 40.423% of
the "Net Revenue Interest" therefor as set forth in Exhibit A; and the
Company's interest in each Lease bears and is chargeable with not more
than that share of all development or operating costs and expenses
represented by an undivided 40.423% of the "Working Interest" therefor as
set forth in Exhibit A. In instances where the "Net Revenue Interest" or
"Working Interest" set forth in Exhibit A is subject to being decreased or
increased upon the occurrence of "payout" or any other event, the amount
of such potential increase or decrease, as the case may be, is set forth
and expressly identified (as opposed to mere reference to another
instrument) in Exhibit A.
(hh) The Company has and shall have the right to receive proceeds
attributable to an undivided 40.423% of the "Net Revenue Interest" set
forth in Exhibit A, without bond or indemnity (other than general
indemnity under standard form division orders) to the purchaser of
production or other person owing, paying or disbursing proceeds from the
sale of Hydrocarbons. The Company shall only be charged with or bear that
share of all development or operating costs and expenses represented by an
undivided 40.423% of the "Working Interest" as set forth in Exhibit A for
the Mineral Interest involved.
14
(ii) The Company shall, at its cost and expense and irrespective of
who may be the operator(s) of the Mortgaged Property, cause:
(1) all bonuses, rentals, royalties, and any other payments
payable with respect to each of the Mineral Interests to be promptly
paid when due or payable, and all other obligations on the part of
the Company with respect to the Mineral Interests or with respect to
any Contract to be punctually performed, and each Contract, right of
way, easement, lease, franchise, permit, license, right and
privilege necessary to the development, operation, transportation,
processing, marketing or other dealings with or of the Mortgaged
Property, to be kept in full force and effect (without amendment,
modification or revision unless the Agent's written consent is first
obtained), free of cancellation, forfeiture or any accrued right of
termination, renewed and extended as necessary, by the payment of
whatever sums may become payable and by the performance of whatever
obligations may become performable;
(2) each Mineral Interest to be maintained, developed,
continuously operated and improved (each to the extent applicable)
in conformity with the terms and provisions of such Mineral
Interest, as well as in accordance with generally approved practices
of prudent operators in the industry and with applicable
Environmental Laws, General Laws and Hydrocarbon Laws as well as all
permits, franchises, licenses and other rights granted under such
Environmental Laws, General Laws or Hydrocarbon Laws;
(3) in addition to and without limitation of the obligations
of the Company under any other subsection of this Section 4(ii),
additional expenditures to be made for the development of the
Mineral Interest from funds (other than sums due and payable in
respect of the Obligations) as would be made by a prudent operator
in accordance with generally approved practices in the industry to
improve the production of Hydrocarbons from the Mineral Interests;
(4) all to be done that, according to generally approved
practices of prudent operators in the industry, is appropriate to
maintain and to protect from diminution the productive capacity of
the Mineral Interests, including, without limitation, cleaning out
and reconditioning the producing ▇▇▇▇▇ thereon from time to time,
plugging and completing at different levels such ▇▇▇▇▇, drilling
substitute ▇▇▇▇▇ (including supplying of all necessary related
facilities therefor) to the same formation from time to time and
drilling of additional ▇▇▇▇▇ (including supplying of all necessary
related facilities therefor) to protect the Mineral Interests
against drainage whenever and as often as necessary;
(5) all liabilities of the Company incurred with respect to or
affecting the Mortgaged Property to be paid punctually when due;
(6) promptly after the Company acquires knowledge thereof,
written notice to be given to the Agent of (i) any inquiry or
proceeding of any Tribunal with respect to any Hazardous Material
in, or under any Lease or relating to any Environmental Law with
respect to any Lease or (ii) every adverse claim or demand made or
proceeding instituted by any person affecting in any material
respect the Mortgaged Property or any part thereof;
15
(7) all Taxes to be rendered and paid punctually before the
same become delinquent, together with any interest and penalty
payable in connection therewith;
(8) all Mineral Interests to be maintained in full force and
effect for the stated term thereof (without amendment, modification
or revision unless the Beneficiary's written consent is first
obtained) and use the Company's best efforts to renew or obtain the
renewal of each such Mineral Interests on terms not less favorable
to the Company than the terms of such Lease in effect on the date of
this Mortgage and maintain the same in full force and effect for the
renewed term thereof; provided, however, the Company shall not be
obligated hereby to attempt to renew a lease if the failure to renew
such lease (i) is, in the good faith opinion of the Company, in the
Company's best interests, (ii) is not prejudicial in any respect to
the Holder, and (iii) does not diminish the amount of any reserves
attributed to the Mortgaged Properties in any reports, estimates or
appraisals furnished by the Company to the Agent or the Holder or
adversely affect the production of Hydrocarbons in paying
quantities;
(9) written notice to be given to the Agent immediately upon
any Company's acquiring knowledge of the presence of any Hazardous
Materials on any Mineral Interests or of any Hazardous Materials
Contamination with a full description thereof;
(10) prompt compliance with any order, judgment or other
direction of any Tribunal requiring the removal, treatment or
disposal of such Hazardous Materials or Hazardous Materials
Contamination and provide the Agent with satisfactory evidence of
such compliance; and
(11) to be furnished to the Agent, within thirty (30) days
after demand by the Agent, with a bond, letter of credit or similar
financial assurance evidencing to the Agent's satisfaction that the
necessary funds are available to pay the cost of removing, treating
and disposing of such Hazardous Materials or Hazardous Materials
Contamination and discharging any assessments that may be
established on any of the Mortgaged Property as a result thereof.
Anything in this Section 4(ii) to the contrary notwithstanding, the
Company, with respect to any Mortgaged Property that are operated by
operators other than the Company, shall not be obligated to perform
undertakings performable only by such operators and that are beyond the
reasonable control of the Company. In each such case, however, the Company
will promptly take all actions reasonably available to the Company to
bring about the performance of any such undertakings to the full extent
required to be performed by such operator under all applicable agreements
to which such operator is a party or applicable Environmental Laws,
General Laws or Hydrocarbon Laws.
16
(jj) The Company is not and shall not be, without the consent of the
Holder, obligated, by virtue of prepayment made under any Contract, by any
advance payment agreement, or by the terms of any other arrangement, to
now or hereafter deliver any Hydrocarbons from the Mortgaged Property
without then or thereafter receiving full payment therefor.
(kk) The Company is not and shall not be in violation of any term of
any agreement, instrument, Environmental Law, General Law or Hydrocarbon
Law applicable to the Company or any part of the Mortgaged Property, or
the exploration, development, operation, transportation, processing, sale
or marketing of Hydrocarbons from any Mineral Interest.
(ll) All ▇▇▇▇▇ have been (with respect to ▇▇▇▇▇ existing on the date
hereof) or shall be (with respect to future ▇▇▇▇▇) drilled, completed and
bottomed within the boundaries (including vertical and horizontal) of the
Mortgaged Property, and all drilling, completion and bottoming of the
▇▇▇▇▇ included in each Mortgaged Property and all development and
operations of such Mortgaged Property have been and shall be conducted in
compliance with all applicable Environmental Laws, General Laws and
Hydrocarbon Laws. Each person operating a Well shall hold validly existing
permits and authorizations from each and every Tribunal having
jurisdiction to the full extent required by Environmental Laws, General
Laws and Hydrocarbon Laws applicable to such person or any part of the
Mortgaged Property, or the exploration, development, operation,
transporting, processing, sale or marketing of Hydrocarbons from any
Mineral Interest; and all operations and activities of such persons with
respect to the Mineral Interests shall be conducted in accordance with all
provisions of such permits and authorizations.
(mm) The Company has no knowledge of any basis for any claim,
demand, suit, action, proceeding or investigation that is likely to result
in a judgment, decree or order having a material adverse effect on the
Mortgaged Property, the Company's title to any of the Mortgaged Property
or the use, exploration, development, processing, maintenance, operation,
transportation or marketing of the Mortgaged Property. In the event
subsequent to the delivery of this Mortgage the foregoing representation
and warranty shall cease to be true and accurate in all respect the
Company shall give immediate notice to the Agent of the facts and
circumstances resulting in such occurrence.
(nn) The Company shall not market any of the Hydrocarbons subject to
this Mortgage for less than the fair market value thereof at the wellhead,
at the tailgate of the processing plant or other place, as the case may
be, where and when marketed, or, in the case of sales pursuant to then
existing Contracts, at the contract prices receivable thereunder, subject
to the following provisions of this subsection. The Company in performing
its obligations hereunder shall comply with (except to the extent
contested by the Company in good faith and in appropriate proceedings, if
any), and all obligations of the Company hereunder shall be subject to
compliance by the Company with, all applicable General Laws and
Hydrocarbon Laws relating to allocation and price control. The prices
permitted to be paid for such Hydrocarbons under said General Laws and
Hydrocarbon Laws shall be deemed to control if less than the prices
established in Contracts.
17
(oo) The Company will, if requested by the Agent, furnish the Agent
any information or data possessed by the Company with respect to the
Mortgaged Property, and in the case of the Mineral Interest full
information shall be furnished with regard to the ▇▇▇▇▇ drilled or
reworked or drilling or reworking operations being conducted thereon,
including, without limitation, electrical logs, core analyses and well
pressure reports.
(pp) In the event the Company should acquire from and after the date
of this Mortgage any additional Mineral Interests within the Areas of
Interest, the respective instrument of conveyance or assignment shall be
duly and properly recorded with the applicable County Recorder and,
contemporaneously with the recording of the instrument of assignment or
conveyance granting or assigning such Mineral Interest to the Company, the
Company shall execute, deliver and record a Supplement to this Mortgage,
in form and substance approved by the Agent, confirming of record the
grant by the Company of a mortgage and security interest in such
additional Mineral Interests to secure the Obligations pursuant to the
terms of this Mortgage.
4. Defaults. The following events shall be "Events of Default":
(a) The occurrence of an Event of Default under the Debenture;
(b) Any representation or warranty of the Company in this Mortgage
shall prove to have been incorrect in any material respect when made;
(c) The failure by the Company to observe or perform any of its
covenants hereunder for five (5) days after delivery to the Company of
notice of such failure by or on behalf of the Holder unless such default
is capable of cure but cannot be cured within such time frame and the
Company is using best efforts to cure same in a timely fashion; or
(d) If any provision of this Mortgage shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by the Company, or a proceeding shall be
commenced by the Company, or by any governmental authority having
jurisdiction over the Company, seeking to establish the invalidity or
unenforceability thereof, or the Company shall deny that it has any
liability or obligation purported to be created under this Mortgage.
5. Duty to Hold In Trust. Upon the occurrence of any Event of Default and
at any time thereafter, the Company shall, upon receipt of any revenue, income,
dividend, interest or other sums subject to the security interests granted
herein, whether payable pursuant to the Debenture or otherwise, or of any check,
draft, note, trade acceptance or other instrument evidencing an obligation to
pay any such sum, hold the same in trust for the Holder and shall forthwith
endorse and transfer any such sums or instruments, or both, to the Holder for
application to the satisfaction of the Obligations.
18
6. Rights and Remedies upon Default.
(a) Upon the occurrence of any Event of Default and at any
time thereafter, the Holder, acting through the Agent, shall have the
right to exercise all of the remedies conferred hereunder and under the
Debenture, and the Holder shall have all the rights and remedies of a
mortgagee under Indiana law and a secured party under the UCC as to
applicable portions of the Mortgaged Property. Without limitation, the
Agent, for the benefit of the Holder, shall have the following rights and
powers:
(i) The Agent shall have the right and power to sell, to the
extent permitted by law, at one or more sales, as an entirety or in
parcels or portions, as it may elect, the Mortgaged Property, 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 the Agent may deem appropriate, and to make
conveyance to the purchaser or purchasers. The Agent may postpone
the sale of all or any portion of the Mortgaged Property by public
announcement at the time and place of such sale, and from time to
time thereafter may further postpone such sale by public
announcement made at time of sale fixed by the preceding
postponement. The right of sale hereunder shall not be exhausted by
one or any sale, and the Agent may make other and successive sales
until all of the Mortgaged Property is legally sold. It shall not be
necessary for the Agent to be physically present at any such sale or
to have constructively in their possession any or all of the
personal property covered by this instrument, and the Company shall
deliver all of such personal property to the purchaser at such sale
on the date of sale, and if it should be impossible or impracticable
to make actual delivery of such property, then the title and right
of possession to such property shall pass to the purchaser at such
sale as completely as if the same had been actually present and
delivered.
(ii) The Agent may proceed by a suit or suits in equity or at
law, whether for a foreclosure hereunder, or for the sale of all or
any portion of the Mortgaged Property, or for the specific
performance of any covenant or agreement herein contained, or in aid
of the execution of any power herein granted, or for the appointment
of a receiver pending any foreclosure hereunder or the sale of all
or any portion of the Mortgaged Property, or for the enforcement of
any other appropriate legal or equitable remedy.
(iii) The Agent and the Holder, and each of them, shall have
the right to become the purchaser at any sale held by it or by any
court, receiver or public officer, and the Holder, and each of them,
shall have the right to credit upon the amount of the bid made
therefor, the amount payable out of the net proceeds of such sale to
it. Recitals contained in any conveyance made to any purchaser at
any sale made hereunder shall conclusively establish the truth and
accuracy of the matters therein stated, including, without limiting
the generality of the foregoing, nonpayment of the unpaid principal
sum of, and the interest accrued on the Obligations after the same
have become due and payable, advertisement and conduct of such sale
in the manner provided.
19
(iv) Any sale or sales of the Mortgaged Property, whether
under the power of sale herein granted and conferred or by virtue of
judicial proceedings, shall operate to divest all right, title,
interest, claim and demand whatsoever either at law or in equity, of
the Company of, in and to the premises and the property sold, and
shall be a perpetual bar, both at law and in equity, against the
Company, the Company's successors or assigns, and against any and
all persons claiming or who shall thereafter claim all or any of the
property sold from, through, or under the Company, or the Company's
successors or assigns; nevertheless, the Company, if requested by
the Agent to do so, shall join in the execution and delivery of all
proper conveyances, assignments and transfers to the properties so
sold.
(v) The Bank may elect to treat the fixtures constituting a
part of the Mortgaged Property as either real property collateral or
personal property collateral and proceed to exercise such rights as
apply to such type of collateral.
(vi) Upon any sale, whether made under the power of sale
herein granted and conferred or by virtue of judicial proceedings,
the receipt of the Agent, or of the officer making sale under
judicial proceedings, shall be sufficient discharge to the purchaser
or purchasers at any sale for his or their purchase money, and such
purchaser or purchasers, or his or their assigns or personal
representatives, shall not, after paying such purchase money and
receiving such receipt of the Agent or of such officer therefor, be
obliged to see to the application of such purchase money, or be in
anywise answerable for any loss, misapplication or non-application
thereof.
(vii) The Agent and the Holder shall have all rights and
remedies granted by law, and particularly by the UCC, including, but
not limited to, the right to take possession of all Operating
Equipment or other personal property constituting a part of the
Mortgaged Property, and for this purpose the Agent (or any person,
firm or corporation designated by the Agent) may enter upon any
premises on which any or all of such personal property is situated
and take possession of and operate such personal property (or any
portion thereof) or remove it therefrom. The Agent, or any person,
firm or corporation designated by the Agent, may operate the same
without any liability to the Company in connection with such
operations, except to use ordinary care in the operation of such
properties, and the Agent or any person, firm or corporation
designated by the Agent, shall have the right to collect, receive
and receipt for all Hydrocarbons produced and sold from said
properties, to make repairs, purchase machinery and equipment,
conduct work-over operations, drill additional ▇▇▇▇▇ and to exercise
every power, right and privilege of the Company with respect to the
Mortgaged Property. When and if the expenses of such operations and
development (including costs of unsuccessful work-over operations or
additional ▇▇▇▇▇) have been paid and the Obligations paid, said
properties shall, if there has been no sale or foreclosure, be
returned to the Company. The Agent may require the Company to
assemble such personal property and make it available to the Agent
at a place to be designated by the Agent which is reasonably
convenient to all parties.
20
(viii) Without limitation, and in addition to all other rights
and appointments, the Company hereby irrevocably authorizes and
empowers the Agent, at the Agent's election exercisable at any time
or from time to time from and after an Event of Default, to demand,
collect and receive any and all proceeds, including without
limitation proceeds payable upon the sale of Hydrocarbons produced
form the Mortgaged Property, to endorse and cash any checks and
drafts payable to the Company for the account of the Company
received from or in connection therewith and to execute any release,
receipt, division order, transfer order, relinquishment or other
instrument that may be required or necessary to collect and receive
the same. From and after such election by the Agent, the Company
hereby irrevocably authorizes and directs all operators, purchasers,
pipeline companies, gathering companies, processors and other
persons producing, purchasing, taking, processing or receiving any
Hydrocarbons from the Mortgaged Property, owing any proceeds, or
having in their possession any proceeds, to pay, perform and/or
deliver all such proceeds directly to the Agent at the Agent's
office address or to such other location as the Agent may from time
to time direct. The Company agrees that all division orders,
transfer orders, receipts and other instruments that the Agent may
from time to time execute and deliver for the purpose of collecting
or receipting for such proceeds may be relied upon in all respects,
and that the same shall be binding upon the Company and the
Company's successors, assigns, heirs, executors, administrators and
legal representatives.
(ix) Upon direction from the Agent, the Company promptly
execute and deliver all necessary, convenient or appropriate
instruments, including transfer orders, payment orders, division
orders and other instruments, as may be needed by the Agent or
requested by the Agent incident to having all proceeds of the
Mortgaged Property paid, delivered, performed or otherwise made
directly to the Agent at its office or to such other location as the
Agent may from time to time direct. The Agent is irrevocably
authorized to collect, receive and receipt for all such proceeds of
the Mortgaged Property, and no party making payment or delivering
any proceeds to the Agent shall have any responsibility to review
the application of any proceeds paid or delivered to the Agent but
shall be fully protected in making such payment to the Agent under
the assignments herein contained. Should the Agent bring suit
against any third party for collection of any amounts or sums
included within this assignment (and the Agent shall have the right
to bring any such suit), it may sue either in its own name or in the
name of the Company.
21
(x) Upon notice to the Company by Agent, all rights of the
Company to exercise the voting and other consensual rights which it
would otherwise be entitled to exercise with respect to the
Mortgaged Property and all rights of the Company to receive the
royalties, payments and interest which it would otherwise be
authorized to receive and retain, shall cease. Upon such notice,
Agent shall have the right to receive, for the benefit of the
Holder, any interest, royalties or other payments on the Mortgaged
Property and, at the option of Agent, to exercise in such Agent's
discretion all voting rights pertaining thereto. Without limiting
the generality of the foregoing, Agent shall have the right (but not
the obligation) to exercise all rights with respect to the Mortgaged
Property as if it were the sole and absolute owner thereof,
including, without limitation, to vote and/or to exchange, at its
sole discretion, any or all of the Mortgaged Property in connection
with a merger, reorganization, consolidation, recapitalization or
other readjustment concerning or involving the Mortgaged Property or
the Company or any of its direct or indirect subsidiaries.
(xi) The Agent shall have the right (but not the obligation)
to notify any account debtors and any obligors under instruments or
accounts, relating to the Mortgaged Property, to make payments
directly to the Agent, on behalf of the Holder, and to enforce the
Company's rights against such account debtors and obligors.
(xii) The Agent, for the benefit of the Holder, may (but is
not obligated to) direct any financial intermediary or any other
person or entity holding any investment property, relating to the
Mortgaged Property, to transfer the same to the Agent, on behalf of
the Holder, or its designee.
(xiii) All costs and expenses (including reasonable attorneys?
fees) incurred by the Agent or the Holder in protecting and
enforcing its rights hereunder shall constitute a demand Obligation
owing by the Company to the party incurring such costs and expenses
and shall bear interest at the rate of 18% per annum, all of which
shall constitute a portion of the Obligations.
(b) The Agent shall comply with any applicable law in connection
with a disposition of Mortgaged Property and such compliance will not be
considered adversely to affect the commercial reasonableness of any sale
of the Mortgaged Property. The Agent may sell the Mortgaged Property
without giving any warranties and may specifically disclaim such
warranties. If the Agent sells any of the Mortgaged Property on credit,
the Company will only be credited with payments actually made by the
purchaser. In addition to the extent permitted by law, the Company waives
any and all rights that it may have to a judicial hearing in advance of
the enforcement of any of the Agent's rights and remedies hereunder,
including, without limitation, its right following an Event of Default to
take immediate possession of the Mortgaged Property and to exercise its
rights and remedies with respect thereto.
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7. Applications of Proceeds. The proceeds of any such sale, lease or other
disposition of the Mortgaged Property hereunder or from payments made on account
of any insurance policy insuring any portion of the Mortgaged Property shall be
applied first, to the expenses of retaking, holding, storing, processing and
preparing for sale, selling, and the like (including, without limitation, any
taxes, fees and other costs incurred in connection therewith) of the Mortgaged
Property, to the reasonable attorneys' fees and expenses incurred by the Agent
in enforcing the Holder's rights hereunder and in connection with collecting,
storing and disposing of the Mortgaged Property, and then to satisfaction of the
Obligations, and to the payment of any other amounts required by applicable law,
after which the Holder shall pay to the Company any surplus proceeds. If, upon
the sale, license or other disposition of the Mortgaged Property, the proceeds
thereof are insufficient to pay all amounts to which the Holder is legally
entitled, the Company will be liable for the deficiency, together with interest
thereon, at the rate of eighteen percent (18%) per annum or the lesser amount
permitted by applicable law (the "Default Rate"), and the reasonable fees of any
attorneys employed by the Holder to collect such deficiency. To the extent
permitted by applicable law, the Company waives all claims, damages and demands
against the Holder arising out of the repossession, removal, retention or sale
of the Mortgaged Property, unless due solely to the gross negligence or willful
misconduct of the Holder as determined by a final judgment (not subject to
further appeal) of a court of competent jurisdiction.
8. Costs and Expenses. The Company agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any recording
filing required hereunder, including without limitation, any recording of this
Mortgage in any county or filing of any financing statements pursuant to the
UCC, continuation statements, partial releases and/or termination statements
related thereto or any expenses of any searches reasonably required by the
Agent. The Company shall also pay all other claims and charges which in the
reasonable opinion of the Agent is reasonably likely to prejudice, imperil or
otherwise affect the Mortgaged Property or the security interests therein. The
Company will also, upon demand, pay to the Agent the amount of any and all
reasonable expenses, including the reasonable fees and expenses of its counsel
and of any experts and agents, which the Agent, for the benefit of the Holder,
may incur in connection with (i) the enforcement of this Mortgage, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Mortgaged Property, or (iii) the exercise or
enforcement of any of the rights of the Holder under the Debenture. Until so
paid, any fees payable hereunder shall be added to the principal amount of the
Debenture and shall bear interest at the Default Rate.
9. Responsibility for Mortgaged Property.
(a) The Company assumes all liabilities and responsibility in
connection with all Mortgaged Property, and the Obligations shall in no
way be affected or diminished by reason of the loss, destruction, damage
or theft of any of the Mortgaged Property or its unavailability for any
reason. Without limiting the generality of the foregoing, (a) neither the
Agent nor the Holder (i) has any duty (either before or after an Event of
Default) to collect any amounts in respect of the Mortgaged Property or to
preserve any rights relating to the Mortgaged Property, or (ii) has any
obligation to clean-up or otherwise prepare the Mortgaged Property for
sale, and (b) the Company shall remain obligated and liable under each
contract or agreement included in the Mortgaged Property to be observed or
performed by the Company thereunder. Neither the Agent nor the Holder
shall have any obligation or liability under any such contract or Mortgage
by reason of or arising out of this Mortgage or the receipt by the Agent
or the Holder of any payment relating to any of the Mortgaged Property,
nor shall the Agent or the Holder be obligated in any manner to perform
any of the obligations of the Company under or pursuant to any such
contract or agreement, to make inquiry as to the nature or sufficiency of
any payment received by the Agent or the Holder in respect of the
Mortgaged Property or as to the sufficiency of any performance by any
party under any such contract or agreement, to present or file any claim,
to take any action to enforce any performance or to collect the payment of
any amounts which may have been assigned to the Agent or to which the
Agent or the Holder may be entitled at any time or times.
23
(b) Each and every covenant herein contained shall be performed and
kept by the Company solely at the Company's expense. If the Company shall
fail to perform or keep any of the covenants of whatsoever kind or nature
contained in this instrument, the Agent or the Holder, or any of them, or
any receiver appointed hereunder, may, but shall not be obligated to, make
advances to perform the same in the Company's behalf, and the Company
hereby agrees to repay such sums upon demand plus interest at the rate of
18% per annum or, in the event any promissory note evidences such
indebtedness, upon the terms and conditions thereof. No such advance shall
be deemed to relieve the Company from any default hereunder.
(c) The Company will notify the Agent, in writing, promptly of the
commencement of any legal proceedings affecting the lien hereof or the
Mortgaged Property, or any part thereof, and will take such action,
employing attorneys agreeable to the Agent as may be necessary to preserve
the Company's and the Agent's rights affected thereby; and should the
Company fail or refuse to take any such action, the Agent may, upon giving
prior written notice thereof to the Company, take such action on behalf
and in the name of the Company and at the Company's expense. Moreover, the
Agent may take such independent action in connection therewith as it may
in its discretion deem proper, the Company hereby agreeing that all sums
advanced or all expenses incurred in such actions plus interest at the
rate of eighteen percent (18%) per annum will, on demand, be reimbursed to
the Agent or any receiver appointed hereunder.
10. Security Interests Absolute. All rights of the Holder and all
obligations of the Company hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Mortgage,
the Debenture or any agreement entered into in connection with the foregoing, or
any portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Debenture or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Mortgaged
Property, or any release or amendment or waiver of or consent to departure from
any other Mortgaged Property for, or any guarantee, or any other security, for
all or any of the Obligations; (d) any action by the agreement to obtain,
adjust, settle and cancel in its sole discretion any insurance claims or matters
made or arising in connection with the Mortgaged Property; or (e) any other
circumstance which might otherwise constitute any legal or equitable defense
available to the Company, or a discharge of all or any part of the Security
Interests granted hereby. Until the Obligations shall have been paid and
performed in full, the rights of the Holder shall continue even if the
24
Obligations are barred for any reason, including, without limitation, the
running of the statute of limitations or bankruptcy. The Company expressly
waives presentment, protest, notice of protest, demand, notice of nonpayment and
demand for performance. In the event that at any time any transfer of any
Mortgaged Property or any payment received by the Holder hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Holder, then, in any such event, the Company's obligations
hereunder shall survive cancellation of this Mortgage, and shall not be
discharged or satisfied by any prior payment thereof and/or cancellation of this
Mortgage, but shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. The Company waives all right to
require the Holder to proceed against any other person or entity or to apply any
Mortgaged Property which the Holder may hold at any time, or to marshal assets,
or to pursue any other remedy. The Company waives any defense arising by reason
of the application of the statute of limitations to any obligation secured
hereby.
11. Term of Mortgage. This Mortgage and the mortgage and security
interests granted herein shall terminate on the date on which all payments under
the Debenture have been indefeasibly paid in full and all other Obligations have
been paid or discharged; provided, however, that all indemnities of the Company
contained in this Mortgage (including, without limitation, Annex 1 hereto) shall
survive and remain operative and in full force and effect regardless of the
termination of this Mortgage.
12. Power of Attorney; Further Assurances.
(a) The Company authorizes the Agent, and does hereby make,
constitute and appoint the Agent and its officers, agents, successors or
assigns with full power of substitution, as the Company's true and lawful
attorney-in-fact, with power, in the name of the Agent or the Company, to,
after the occurrence and during the continuance of an Event of Default,
(i) endorse any note, checks, drafts, money orders or other instruments of
payment (including payments payable under or in respect of any policy of
insurance) in respect of the Mortgaged Property that may come into
possession of the Agent; (ii) to sign and endorse any financing statement
pursuant to the UCC or any invoice, freight or express bill, bill of
lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts, and
other documents relating to the Mortgaged Property; (iii) to pay or
discharge taxes, liens, security interests or other encumbrances at any
time levied or placed on or threatened against the Mortgaged Property;
(iv) to demand, collect, receipt for, compromise, settle and sue for
monies due in respect of the Mortgaged Property; (v) to execute and
deliver any necessary, convenient or appropriate instruments, including
transfer orders, division orders and other instruments, as may be needed
by the Agent or deemed appropriate by the Agent incident to having all
proceeds of the Mortgaged Property paid, delivered, performed or otherwise
made directly to the Agent; and (vi) generally, at the option of the
Agent, and at the expense of the Company, at any time, or from time to
time, to execute and deliver any and all documents and instruments and to
do all acts and things which the Agent deems necessary to protect,
preserve and realize upon the Mortgaged Property and the security
interests granted therein in order to effect the intent of this Mortgage
and the Debenture all as fully and effectually as the Company might or
could do; and the Company hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof. This power of attorney
is coupled with an interest and shall be irrevocable for the term of this
Mortgage and thereafter as long as any of the Obligations shall be
outstanding. The designation set forth herein shall be deemed to amend and
supersede any inconsistent provision in the Organizational Documents or
other documents or Mortgages to which the Company is subject or to which
the Company is a party.
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(b) On a continuing basis, the Company will make, execute,
acknowledge, deliver, file and record, as the case may be, with the proper
filing and recording agencies in any jurisdiction, including, without
limitation, the jurisdictions indicated on Schedule III attached hereto,
all such instruments, and take all such action as may reasonably be deemed
necessary or advisable, or as reasonably requested by the Agent, to
perfect the Security Interests granted hereunder and otherwise to carry
out the intent and purposes of this Mortgage, or for assuring and
confirming to the Agent the grant or perfection of a perfected security
interest in all the Mortgaged Property under applicable law, including the
UCC.
(c) The Company hereby irrevocably appoints the Agent as the
Company's attorney-in-fact, with full authority in the place and instead
of the Company and in the name of the Company, from time to time in the
Agent's discretion, to take any action and to execute any instrument which
the Agent may deem necessary or advisable to accomplish the purposes of
this Mortgage, including the filing, in its sole discretion, of one or
more financing or continuation statements and amendments thereto, relative
to any of the Mortgaged Property without the signature of the Company
where permitted by law. This power of attorney is coupled with an interest
and shall be irrevocable for the term of this Mortgage and thereafter as
long as any of the Obligations shall be outstanding.
13. Reserved.
14. Other Security. To the extent that the Obligations are now or
hereafter secured by property other than the Mortgaged Property or by the
guarantee, endorsement or property of any other person, firm, corporation or
other entity, then the Agent shall have the right, in its sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Mortgagees' rights
and remedies hereunder.
15. Appointment of Agent. The Holder hereby appoints LAKEWOOD GROUP, LLC
to act as its Agent for purposes of exercising any and all rights and remedies
of the Holder hereunder. Such appointment shall continue until revoked in
writing by the Holder, at which time the Holder shall appoint a new Agent. The
Agent shall have the rights, responsibilities and immunities set forth in Annex
1 hereto.
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16. Miscellaneous.
(a) No course of dealing between the Company and the Holder, nor any
failure to exercise, nor any delay in exercising, on the part of the
Holder, any right, power or privilege hereunder or under the Debenture
shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or thereunder preclude
any other or further exercise thereof or the exercise of any other right,
power or privilege.
(b) All of the rights and remedies of the Holder with respect to the
Mortgaged Property, whether established hereby or by the Debenture or by
any other mortgages, instruments or documents or by law shall be
cumulative and may be exercised singly or concurrently.
(c) The Transaction Documents, including this Mortgage and the
exhibits and schedules hereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such
matters, which the parties acknowledge have been merged into the
Transaction Documents, including this Mortgage and the exhibits and
schedules hereto. No provision of this Mortgage may be waived, modified,
supplemented or amended except in a written instrument signed, in the case
of an amendment, by the Company and the Holder or, in the case of a
waiver, by the party against whom enforcement of any such waived provision
is sought.
(d) If any term, provision, covenant or restriction of this Mortgage
is held by a court of competent jurisdiction to be invalid, illegal, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their commercially reasonable efforts to find and employ
an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It
is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(e) No waiver of any default with respect to any provision,
condition or requirement of this Mortgage shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall
any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right.
(f) This Mortgage shall be binding upon and inure to the benefit of
the parties and their successors and permitted assigns. The Company may
not assign this Mortgage or any rights or obligations hereunder without
the prior written consent of the Holder (other than by merger). The Holder
may assign any or all of its rights under this Mortgage to any person to
whom such Holder assigns or transfers the Debenture, provided such
transferee agrees in writing to be bound, with respect to the transferred
Debenture, by the provisions of this Mortgage that apply to the "Holder."
27
(g) Each party shall take such further action and execute and
deliver such further documents as may be necessary or appropriate in order
to carry out the provisions and purposes of this Mortgage.
(h) All questions concerning the construction, validity, enforcement
and interpretation of this Mortgage shall be governed by and construed and
enforced in accordance with the internal laws of the state of Indiana.
Each party hereto hereby irrevocably waives personal service of process
and consents to process being served in any such proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices
to it under this Mortgage and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
and all right to trial by jury in any legal proceeding arising out of or
relating to this Mortgage or the transactions contemplated hereby. If any
party shall commence a proceeding to enforce any provisions of this
Mortgage, then the prevailing party in such proceeding shall be reimbursed
by the other party for its reasonable attorney's fees and other costs and
expenses incurred with the investigation, preparation and prosecution of
such proceeding.
(i) THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
LITIGATION BASED ON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THIS
MORTGAGE, THE DEBENTURES, ANY OTHER TRANSACTION DOCUMENT, ANY OTHER
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION THEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR
WRITTEN) OR ACTIONS RELATED THERETO.
(j) This Mortgage may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all
of which taken together shall constitute one and the same Mortgage. In the
event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same
force and effect as if such facsimile signature were the original thereof.
(k) The terms of this Mortgage have been negotiated between the
parties and their respective counsel and in the construction hereof shall
not be construed against a party based upon counsel for such party having
drafted this Mortgage or any portion thereof. This Mortgage evidences the
complete agreement of the parties with respect to the subject matter
hereof and supercedes all prior agreements or undertakings (written or
oral) related to the subject matter set forth herein, but does not
supercede provisions of any of the other Transaction Documents.
Notwithstanding the foregoing should any prior draft of this Mortgage be
determined to be admissible parole evidence the deletion or modification
of any term or covenant within a prior draft of this Mortgage shall not be
construed to evidence the opposite intent.
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(l) The Company shall indemnify, reimburse and hold harmless the
Agent and the Holder and their respective partners, members, shareholders,
officers, directors, employees and agents (and any other persons with
other titles that have similar functions) (collectively, "Indemnitees")
from and against any and all losses, claims, liabilities, damages,
penalties, suits, costs and expenses, of any kind or nature, (including
fees relating to the cost of investigating and defending any of the
foregoing) imposed on, incurred by or asserted against such Indemnitee in
any way related to or arising from or alleged to arise from this Mortgage
or the Mortgaged Property, except any such losses, claims, liabilities,
damages, penalties, suits, costs and expenses which result from the gross
negligence or willful misconduct of the Indemnitee as determined by a
final, nonappealable decision of a court of competent jurisdiction. This
indemnification provision is in addition to, and not in limitation of, any
other indemnification provision in any other agreement, instrument or
other document executed or delivered in connection herewith or therewith.
Signature Page Follows
29
IN WITNESS WHEREOF, the parties hereto have caused this Mortgage to be
duly executed on the day and year first above written.
BASELINE OIL & GAS CORP.
By:
----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
STATE OF TEXAS )
)SS:
COUNTY OF ▇▇▇▇▇▇ )
The undersigned, a Notary Public in and for the County and State
aforesaid, do hereby certify that ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, personally known to me to
be the same person whose name is subscribed to the foregoing instrument as the
President of BASELINE OIL & GAS CORP., in its capacity as a mortgagor, appeared
before me this day in person and acknowledged that he signed and delivered the
said instrument in behalf of BASELINE OIL & GAS CORP. as his free and voluntary
act, for the uses and purposes set forth therein.
WITNESS my hand and Notarial Seal this 16th day of March, 2007.
Notary Public:
-----------------------
Residing in
My commission expires:
THIS INSTRUMENT PREPARED BY ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ OF SCOPELITIS, GARVIN, LIGHT &
▇▇▇▇▇▇, P.C., ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
TELEPHONE (▇▇▇) ▇▇▇-▇▇▇▇.
I affirm, under the penalties for perjury, that I have taken reasonable care to
redact each Social Security number in this document, unless required by law.
----------------------------
SCHEDULE I
Organizational Identification Number of the Company:
Nevada Entity Number: C2466-2004
Principal Place of Business of Company:
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Locations Where Mortgaged Property is Located or Stored:
Well personal property located on the various Leases described on Exhibit A to
the Mortgage.
SCHEDULE II
Other Names and Organizational Numbers
The Company was previously known as College Oak Investments, Inc.
SCHEDULE III
Jurisdictions for filing of UCC-1 Financing Statements, etc.
and recording Mortgage
1. Nevada (UCC-1 Financing Statement)
2. Clay County, Indiana (Recording of Mortgage)
▇▇▇▇▇▇ County, Indiana (Recording of Mortgage)
▇▇▇▇ County, Indiana (Recording of Mortgage)
▇▇▇▇ County, Indiana (Recording of Mortgage)
▇▇▇▇▇▇▇▇ County, Indiana (Recording of Mortgage)
(any other County in which any of the Mineral Interests may be situated)
ANNEX 1
to
MORTGAGE
THE AGENT
1. Appointment. The Holder (all capitalized terms used herein and not
otherwise defined shall have the respective meanings provided in the Mortgage to
which this Annex 1 is attached and into which it is incorporated (the
"Mortgage")), by its acceptance of the benefits of the Mortgage, hereby
designates LAKEWOOD GROUP, LLC ("Agent") as the Agent to act as specified herein
and in the Mortgage. The Holder shall be deemed irrevocably to authorize the
Agent to take such action on its behalf under the provisions of the Mortgage and
any other Transaction Document (as such term is defined in the Mortgage) and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The Agent
may perform any of its duties hereunder by or through its agents or employees.
2. Nature of Duties. The Agent shall have no duties or responsibilities
except those expressly set forth in the Mortgage. Neither the Agent nor any of
its partners, members, shareholders, officers, directors, employees or agents
shall be liable for any action taken or omitted by it as such under the Mortgage
or hereunder or in connection herewith or therewith, be responsible for the
consequence of any oversight or error of judgment or answerable for any loss,
unless caused solely by its or their gross negligence or willful misconduct as
determined by a final judgment (not subject to further appeal) of a court of
competent jurisdiction. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have by reason of the Mortgage or
any other Transaction Document a fiduciary relationship in respect of the
Company or any Holder; and nothing in the Mortgage or any other Transaction
Document, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of the Mortgage or any other
Transaction Document except as expressly set forth herein and therein.
3. Lack of Reliance on the Agent. Independently and without reliance upon
the Agent, each Holder, to the extent it deems appropriate, has made and shall
continue to make (i) its own independent investigation of the financial
condition and affairs of the Company and its subsidiaries in connection with
such ▇▇▇▇▇▇'s investment in the Company, the creation and continuance of the
Obligations, the transactions contemplated by the Transaction Documents, and the
taking or not taking of any action in connection therewith, and (ii) its own
appraisal of the creditworthiness of the Company and its subsidiaries, and of
the value of the Mortgaged Property from time to time, and the Agent shall have
no duty or responsibility, either initially or on a continuing basis, to provide
any Holder with any credit, market or other information with respect thereto,
whether coming into its possession before any Obligations are incurred or at any
time or times thereafter. The Agent shall not be responsible to the Company or
any Holder for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith, or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of the
Mortgage or any other Transaction Document, or for the financial condition of
the Company or the value of any of the Mortgaged Property, or be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of the Mortgage or any other Transaction
Document, or the financial condition of the Company, or the value of any of the
Mortgaged Property, or the existence or possible existence of any default or
Event of Default under the Mortgage or the Debenture.
4. Certain Rights of the Agent. The Agent shall have the right to take any
action with respect to the Mortgaged Property, on behalf of the Holder. To the
extent practical, the Agent shall request instructions from the Holder with
respect to any material act or action (including failure to act) in connection
with the Mortgage or any other Transaction Document, and shall be entitled to
act or refrain from acting in accordance with the instructions of the Holder; if
such instructions are not provided despite the Agent's request therefor, the
Agent shall be entitled to refrain from such act or taking such action, and if
such action is taken, shall be entitled to appropriate indemnification from the
Holder in respect of actions to be taken by the Agent; and the Agent shall not
incur liability to any person or entity by reason of so refraining. Without
limiting the foregoing, (a) the Holder shall have any right of action whatsoever
against the Agent as a result of the Agent acting or refraining from acting
hereunder in accordance with the terms of the Mortgage or any other Transaction
Document, and the Company shall have no right to question or challenge the
authority of, or the instructions given to, the Agent pursuant to the foregoing
and (b) the Agent shall not be required to take any action which the Agent
believes (i) could reasonably be expected to expose it to personal liability or
(ii) is contrary to this Mortgage, the Transaction Documents or applicable law.
5. Reliance. The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order
or other document or telephone message signed, sent or made by the proper person
or entity, and, with respect to all legal matters pertaining to the Mortgage and
the other Transaction Documents and its duties thereunder, upon advice of
counsel selected by it and upon all other matters pertaining to this Mortgage
and the other Transaction Documents and its duties thereunder, upon advice of
other experts selected by it. Anything to the contrary notwithstanding, the
Agent shall have no obligation whatsoever to the Holder to assure that the
Mortgaged Property exists or is owned by the Company or is cared for, protected
or insured or that the liens granted pursuant to the Mortgage have been properly
or sufficiently or lawfully created, perfected, or enforced or are entitled to
any particular priority.
6. Indemnification. To the extent that the Agent is not reimbursed and
indemnified by the Company, the Holder reimburse and indemnify the Agent from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in performing its duties hereunder or under the Mortgage or any other
Transaction Document, or in any way relating to or arising out of the Mortgage
or any other Transaction Document except for those determined by a final
judgment (not subject to further appeal) of a court of competent jurisdiction to
have resulted solely from the Agent's own gross negligence or willful
misconduct. Prior to taking any action hereunder as Agent, the Agent may require
the Holder to deposit with it sufficient sums as it determines in good faith is
necessary to protect the Agent for costs and expenses associated with taking
such action.
7. Resignation by the Agent.
(a) The Agent may resign from the performance of all its functions
and duties under the Mortgage and the other Transaction Documents at any
time by giving thirty (30) days' prior written notice (as provided in the
Mortgage) to the Company and the Holder. Such resignation shall take
effect upon the appointment of a successor Agent pursuant to clauses (b)
and (c) below.
(b) Upon any such notice of resignation, the Holder shall appoint a
successor Agent hereunder.
(c) If a successor Agent shall not have been so appointed within
said 30-day period, the Agent shall then appoint a successor Agent who
shall serve as Agent until such time, if any, as the Holder appoints a
successor Agent as provided above. If a successor Agent has not been
appointed within such 30-day period, the Agent may petition any court of
competent jurisdiction or may interplead the Company and the Holder in a
proceeding for the appointment of a successor Agent, and all fees,
including, but not limited to, extraordinary fees associated with the
filing of interpleader and expenses associated therewith, shall be payable
by the Company on demand.
8. Rights with respect to Mortgaged Property. The Holder agrees with the
Agent (i) that it shall not, and shall not attempt to, exercise any rights with
respect to its security interest in the Mortgaged Property, whether pursuant to
any other Mortgage or otherwise (other than pursuant to this Mortgage), or take
or institute any action against the Agent in respect of the Mortgaged Property
or its rights hereunder (other than any such action arising from the breach of
this Mortgage) and (ii) that the Holder has no other rights with respect to the
Mortgaged Property other than as set forth in this Mortgage and the other
Transaction Documents. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and the retiring Agent shall be discharged from its duties and obligations under
the Mortgage. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of the Mortgage including this Annex 1 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent.
EXHIBIT A
Mineral Interests
The following pages contain the list of the Leases, as well as any relevant
amendments and ratifications, that constitute Mineral Interests within the
Mortgage. In most cases, the Leases or documents are described in a matrix or
spreadsheet format. Each row describes a separate document.
If there is a memorandum relating to a particular Lease, then the description of
the memorandum appears in the row following the description of the Lease. If a
Lease has been amended or ratified, then the description of the Lease is as
amended or ratified by the document identified as amending or ratifying the
Lease. If a Lease has been pooled, then the unit declaration forming the unit is
described below the last Lease of that pooled unit.
The undivided Working Interests and Net Revenue Interests shown for the Leases
are the aggregate undivided interests in the Leases, as a whole; however, the
rights, title and interests of the Company are an undivided 40.423% of those
Working Interests and Net Revenue Interests. The lands covered by each Lease are
all lands and subsurface intervals described therein unless otherwise noted
EXHIBIT B
Scheduled Contracts
1. Purchase and Sale Agreement dated November 15, 2006, by and between Aurora
Energy, Ltd., and New Albany-Indiana, LLC.
2. Purchase and Sale Agreement dated March 3, 2006, by and between Source Rock
Resources, Inc., and New Albany-Indiana, LLC.
3. Farmout and Participation Agreement dated as of July 19, 2005, between Aurora
Energy, Ltd., and Wabash Energy Partners, as Farmors, and JetEx LLC, as Farmee,
covering lands located in Green, Clay, and ▇▇▇▇▇ Counties, Indiana (the "JetEx
Farmout").
4. Assignment of Farmout and Participation Agreement dated January 31, 2006,
between Aurora Energy, Ltd., and New Albany-Indiana, LLC.
5. Exploration Agreement dated January 27, 2006, effective as of November 1,
2005, between Aurora Energy, Ltd., and New Albany - Indiana, LLC.
6. Exploration Agreement dated April 7, 2006, by and among Source Rock
Resources, Inc., New Albany-Indiana, LLC, and Aurora Energy, Ltd.
7. Grant of Option dated January 27, 2006, between Aurora Energy, Ltd., and New
Albany-Indiana, LLC.
8. Operating Agreement dated May 1, 2006, between El Paso Production Company, as
Operator, and Pogo Producing Company, Aurora Energy, Ltd., Aurora Operating,
L.L.C., and New Albany-Indiana, LLC, as Non-Operators, covering the South ▇▇▇▇▇
Prospect Area (Initial Test - ▇▇▇▇▇▇ 1-10H), ▇▇▇▇▇▇ County, Indiana, a
memorandum of which is recorded in Book 66, Page 840, Instrument Number
200600003777, Public Records of ▇▇▇▇▇▇ County, Indiana.
9. Operating Agreement dated effective as of April 1, 2006, among Aurora Energy,
Ltd., as Operator, and New Albany-Indiana, LLC, Venator Energy, LLC, and ▇▇▇▇▇
▇▇▇▇▇▇▇, as Non-Operators, relating to the Cardinal Unit, ▇▇▇▇▇▇ County,
Indiana.
10. Operating Agreement dated effective as of April 1, 2006, among Aurora
Energy, Ltd., as Operator, and New Albany - Indiana, LLC, Venator Energy, LLC,
and ▇▇▇▇▇ ▇▇▇▇▇▇▇, as Non-Operators, relating to the Eagle Unit, ▇▇▇▇▇▇ County,
Indiana.