LEASEHOLD MORTGAGE, ASSIGNMENT OF PRODUCTION, SECURITY AGREEMENT AND FINANCING STATEMENT from KY USA ENERGY, INC. (Federal Income Tax Identification No. [________]) (Grantor and Debtor) to NSES 12, LLC (Federal Income Tax Identification No....
Exhibit
4.4
from
KY
USA
ENERGY, INC.
(Federal
Income Tax Identification No. [________])
(Grantor
and Debtor)
to
NSES
12,
LLC
(Federal
Income Tax Identification No. [_____________])
(Lender/Mortgagee
and Secured Party)
A
CARBON,
PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A
FINANCING STATEMENT. FOR PURPOSES OF FILING THIS INSTRUMENT AS A FINANCING
STATEMENT, THE ADDRESS OF THE GRANTOR AND DEBTOR IS 000 XXXXXXXX XX., XXXXXX,
XXXXXXXX 00000, AND THE ADDRESS OF THE LENDER AND SECURED PARTY IS 00 XXXXX
XXXXXX, XXXXXXXX X, XXXXXXXXXX, XXXXXXXXXXX 00000.
THIS
INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.
THIS
INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.
THIS
INSTRUMENT COVERS PROCEEDS OF COLLATERAL.
THIS
INSTRUMENT COVERS PRODUCTS OF COLLATERAL.
THIS
INSTRUMENT COVERS FIXTURES.
THIS
INSTRUMENT COVERS MINERALS, AS-EXTRACTED COLLATERAL AND OTHER SUBSTANCES OF
VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING, WITHOUT LIMITATION,
OIL
AND GAS). THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD, AMONG OTHER
PLACES, IN THE REAL ESTATE RECORDS OF THE COUNTY RECORDERS OF THE COUNTIES
LISTED ON EXHIBIT
A
HERETO.
THE GRANTOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE CONCERNED, WHICH
INTEREST IS DESCRIBED IN EXHIBIT
A
ATTACHED
HERETO.
THIS
INSTRUMENT WAS PREPARED BY AND WHEN RECORDED OR FILED SHOULD BE RETURNED
TO:
Xxxxxxx
X. Xxxxxx
Xxxxxxxxx
Xxxxxxx LLP
0000
Xxxxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxx 00000
LEASEHOLD
MORTGAGE, ASSIGNMENT OF PRODUCTION,
KY
USA
ENERGY, INC., a Kentucky corporation, with an office at 000 Xxxxxxxx Xxxx,
Xxxxxx, Xxxxxxxx 00000 (hereinafter referred to as “Grantor”),
for
and in consideration of the sum of TEN DOLLARS ($10.00) to Grantor in hand
paid
by NSES 12, LLC, a Delaware limited liability company, with an office at 00
Xxxxx Xxxxxx, Xxxxxxxx X, Xxxxxxxxxx, Xxxxxxxxxxx 00000 (“Lender”),
to
extend credit to Grantor, as evidenced by that certain Senior Secured Credit
Agreement (such agreement, as modified, amended, or supplemented hereinafter
called the “Credit
Agreement”)
dated
as of [_____________, 2008], by and among Grantor and Lender, and by the
promissory notes hereinafter described, and of the loans as hereinafter recited,
and in order to secure the payment of the indebtedness hereinafter referred
to
and the performance of the obligations, covenants, agreements and undertakings
of Grantor hereinafter described, does hereby GRANT, BARGAIN, SELL, CONVEY,
MORTGAGE, PLEDGE, TRANSFER, ASSIGN and SET OVER to the Lender all of Lender’s
leasehold interest in the following property:
(a) All
of
Grantor’s rights, titles, interests and estates whether now owned or hereafter
acquired, in and to the Hydrocarbons (defined in paragraph (c) below)
attributable to the leases which are described on Exhibit
A
attached
hereto (all references herein to such Exhibit
A
shall
include the introductory and explanatory comments thereto contained in the
preamble to Exhibit A),
including, without limitation, overriding royalty interests, production
payments, net profits interests or other interests irrespective of whether
such
interests are cost bearing and of whatsoever nature or kind and however
characterized, together with any and all mineral interests, royalty interests,
fee interests or other interests derived from a landowner or landowners of
the
lands described on the attached Exhibit A
or in
the documents described on Exhibit A,
all of
which such rights, titles, interests and estates of Grantor and howsoever
characterized being hereinafter collectively called the “Leases”;
(b) All
rights, titles, interests and estates now owned or hereafter acquired by Grantor
in and to (i)
the
properties now or hereafter pooled or unitized with any of the Leases;
(ii)
all
presently existing or future unitization, communitization, pooling agreements
and declarations of pooled units and the units created thereby (including,
without limitation, all units created under orders, regulations, rules or other
official acts of any Federal, State or other governmental body or agency having
jurisdiction and so called “working
interest units”
created
under operating agreements or otherwise) which may affect all or any portion
of
the Leases including, without limitation, those units which may be described
on
Exhibit
A;
(iii)
all
operating agreements, contracts, farm out agreements, farm in agreements, area
of mutual interest agreements, equipment leases and other agreements which
relate to any of the Leases or interests in the Leases described or referred
to
herein on Exhibit
A
or to
the production, sale, purchase, exchange, processing, transporting or marketing
of the Hydrocarbons (hereinafter defined) from or attributable to such Leases
or
interests; and (iv) the
Leases described on Exhibit
A
and
covered by this Mortgage (hereinafter defined) even though Grantor’s interest
therein be incorrectly described or a description of a part or all of such
Leases or Grantor’s interest therein be omitted; it being intended by Grantor,
the Lender and the Noteholder (hereinafter defined) herein to cover and affect
hereby all interests which Grantor may now own or may hereafter acquire in
and
to the Leases and lands described on Exhibit
A
notwithstanding that the interests as specified on Exhibit
A
be
limited to particular lands, specified depths or particular types of property
interests;
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1
(c) All
rights, titles, interests and estates now owned or hereafter acquired by Grantor
in and to all oil, gas, casinghead gas, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined therefrom and all
other minerals (collectively called the “Hydrocarbons”)
in and
under which may be produced and saved from or attributable to the Leases, the
lands covered thereby and Grantor’s interests therein, including all oil in
tanks and all rents, issues, profits, proceeds, products, revenues and other
income from or attributable to the Leases, the lands covered thereby, and
Grantor’s interests therein which are subjected or required to be subjected to
the liens and security interests of this Mortgage; and further including any
and
all liens and security interests in the Hydrocarbons and the proceeds therefrom
securing payment of proceeds from the sale of Hydrocarbons;
(d) All
tenements, hereditaments, appurtenances and properties in anywise appertaining,
belonging, affixed or incidental to the Leases, properties, rights, titles,
interests and estates described or referred to in subparagraphs (a) and (b)
above, which are now owned or which may hereafter be acquired by Grantor,
including, without limitation, any and all property, real or personal, now
owned
or hereafter acquired and situated upon, used, held for use, or useful in
connection with the operating, working or development of any of such Leases
or
properties (excluding drilling rigs, trucks, automotive equipment or other
personal property which may be taken to the premises for the purpose of drilling
a well or for other similar temporary uses) and including any and all oil xxxxx,
gas xxxxx, injection xxxxx or other xxxxx, buildings, structures, field
separators, liquid extraction plants, plant compressors, pumps, pumping units,
wellhead valves, field gathering systems, pipelines, salt water disposal
facilities, tanks and tank batteries, fixtures, valves, fittings, machinery
and
parts, engines, boilers, meters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, casing, tubing and rods, power, telephone
and
telegraph lines, surface leases, rights-of-way, easements, servitudes, licenses
and other surface rights together with all additions, substitutions,
replacements, accessions and attachments to any and all of the foregoing
properties;
(e) Any
property that may from time to time hereafter, by writing of any kind, be
subjected to the lien and security interest hereof by Grantor or by anyone
on
Grantor’s behalf; and the Mortgagee is hereby authorized to receive the same at
any time as additional security hereunder;
(f) All
of
the rights, titles and interests of every nature whatsoever now owned or
hereafter acquired by Grantor in and to the Leases, as the same may be enlarged
by the discharge of any payments out of production or by the removal of any
charges or Encumbrances (hereinafter defined) to which any Leases, properties,
rights, titles, interests or estates are subject, or otherwise; together with
any and all renewals and extensions of any of the Leases, properties, rights,
titles, interests or estates; all contracts and agreements supplemental to
or
amendatory of or in substitution for the contracts and agreements described
or
mentioned above; and any and all additional interests of any kind hereafter
acquired by Grantor in and to the Leases, properties, rights, titles, interests
or estates;
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2
(g) All
accounts, goods that are, or are to become, fixtures, equipment, as-extracted
collateral, inventory and contract rights and other general intangibles as
such
terms are defined in Article 9 of the Uniform Commercial Code from time to
time
in effect in the Commonwealth of Kentucky (including, without limitation, all
seismic data, geological data, geophysical data and interpretations of any
of
the foregoing to the extent a security interest therein may be granted)
constituting a part of, relating to, or arising out of the property and
collateral described or mentioned in paragraphs (a) through (f) above, and
all
proceeds and products of the property and collateral described or mentioned
in
this and said preceding paragraphs; and
(h) All
of
Grantor’s rights, now owned or hereafter acquired, in and to all lease records,
well records and production records which relate to any of the foregoing
property;
provided,
however,
the
foregoing is made subject to the overriding royalties, unit declarations,
operating agreements, contracts, encumbrances, agreements, exceptions,
limitations and other matters, if any, described or referred to in Exhibit
A
(all of
the properties, interests and rights, subject as aforesaid, being hereinafter
sometimes referred to as the “Mortgaged
Properties”).
Any
fractions or percentages specified on Exhibit
A
referring to Grantor’s interest (whether working interest, net revenue interest
or otherwise) are contained thereon solely for the purpose of the warranties
made by Grantor under Article
II
hereof
and shall not limit the quantum of interest granted hereunder with respect
to
any unit or well. If any Lease or unit described on Exhibit
A
respecting any well mentioned herein is incorrectly described, nevertheless
this
Mortgage shall cover all Grantor’s interest in the Leases allocable to and the
unit for such well. If any of the lands covered by the Lease or other instrument
mentioned on Exhibit
A
are
incorrectly described, then nevertheless this Mortgage shall cover all Grantor’s
interest in such Lease or other instrument as to all of the lands covered
thereby, unless limited by express words to the contrary on Exhibit
A.
TO
HAVE
AND TO HOLD the Mortgaged Properties, together with all and singular the rights,
estates, hereditaments, powers and privileges appurtenant or incident thereto,
unto the Mortgagee and its successors and assigns, forever.
BUT
IN
TRUST, NEVERTHELESS, for the benefit and security of the holders of the
indebtedness secured hereby and upon the trusts and subject to the terms and
provisions herein set forth.
ARTICLE
I.
Secured
Indebtedness
1.1 This
Mortgage is made to secure and enforce the payment of the
following:
(a) the
Credit Agreement and the other Loan Documents to which the Mortgagor is a party,
including that certain term promissory note up to the principal amount of TEN
MILLION and No/100 Dollars ($10,000,000) executed by the MORTGAGOR and payable
to the order of the Mortgagee on or before [____________, 2011], and all other
notes given in substitution for the foregoing promissory notes, or in
modification, renewal or extension thereof, in whole or in part (such promissory
notes, as from time to time supplemented, amended or modified and all other
notes given in substitution therefor or in modification, renewal or extension
thereof, in whole or in part, being hereafter collectively called the
“Notes”);
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3
(b) any
agreement with respect to any Swap Agreements and any swap, forward, future
or
derivative transaction or option or similar agreement, whether exchange traded,
“over-the-counter” or otherwise, involving, or settled by reference to, one or
more rates, currencies, commodities, equity or debt instruments or securities,
or economic, financial or pricing indices or measures of economic, financial
or
pricing risk or value or any similar transaction or any combination of these
transactions entered into between the Mortgagor and the Mortgagee, including
any
amounts payable in respect of an early termination under any such agreements
described in this Section 1.1(b);
(c) any
sums
which may be advanced or paid by the Mortgagee or the Lenders under the terms
hereof or of the Credit Agreement or other Loan Documents on account of the
failure of the Mortgagor to comply with the covenants of the Mortgagor contained
herein, or the failure of the Mortgagor to comply with the covenants of the
Mortgagor or any other obligor contained in the Credit Agreement; and all other
indebtedness of the Mortgagor arising pursuant to the provisions of this
Mortgage, including penalties, indemnities, legal and other fees, charges and
expenses, and amounts advanced by and expenses incurred in order to preserve
any
collateral or security interest, whether due after acceleration or
otherwise;
(d) all
interest (including, without limitation, interest accruing at any post-default
rate and interest accruing after the filing of any petition in bankruptcy,
or
the commencement of any insolvency, reorganization or like proceeding, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding) in respect of all of the obligations described in this Section 1.1
and all
costs of collection and attorneys’ fees, all as provided herein and
therein;
(e) any
additional loans or advances made by the Mortgagee to or for the benefit of
the
Mortgagor pursuant to the Credit Agreement or any other Loan Document (it being
contemplated that the Mortgagee may lend additional sums to the Mortgagor
pursuant to the Credit Agreement from time to time, but shall not be obligated
to do so, and the Mortgagor agrees that the payment of any such additional
loans
shall be secured by this Mortgage); and
(f) punctual
performance when due of all obligations of the Mortgagor under any Loan Document
or Swap Agreement to the Mortgagor, the Mortgagee; and
(g) all
renewals, extensions, amendments and changes of, or substitutions or
replacements for, all or any part of the Secured Indebtedness described in
clauses (a) through (f).
1.2 The
indebtedness referred to in clauses (a) through (f) of Section 1.1
and all
renewals, extensions and rearrangements thereof are hereinafter sometimes
referred to as the “Secured
Indebtedness.”
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4
1.3 This
Mortgage is executed and granted for the benefit and security of the Mortgagee,
any Person secured hereby and any and all future holders of an interest in
the
Secured Indebtedness and the interest thereon for so long as same remains unpaid
and thereafter for so long as the Mortgagee or any Person secured hereby (or
any
Affiliate) has any obligations under the Credit Agreement to lend money or
has
any obligations under any Swap Agreements (including those described in
Section
1.1)
or
until the Liens hereby created are released by the Mortgagee or such Person;
it
being understood and agreed that possession of any Note at any time by the
Mortgagor shall not in any manner extinguish the Secured Indebtedness, such
Notes or this Mortgage securing payment thereof, and the Mortgagor shall have
the right to issue and reissue any of the Notes from time to time as its
interest or as convenience may require, without in any manner extinguishing
or
affecting the Secured Indebtedness, the obligations under any of the Notes,
or
the security of this Mortgage.
1.4 Each
capitalized term used in this Mortgage and not defined in this Mortgage shall
have the meaning assigned such term in the Credit Agreement, and if not therein
defined, such capitalized term shall have the meaning assigned such term in
the
Uniform Commercial Code. Uncapitalized terms used herein that are defined in
the
Uniform Commercial Code shall have the same meaning in this Mortgage. As used
herein, “Uniform
Commercial Code”
means
the Uniform Commercial Code presently in effect in the Commonwealth of Kentucky
as the same may be amended from time to time, and any successor statute thereto,
except to the extent that the Uniform Commercial Code of some other jurisdiction
applies mandatorily.
ARTICLE
II.
Representations,
Warranties and Covenants
2.1 Grantor
represents, warrants and covenants to the Lender and the Noteholder that Grantor
is the lawful owner of the Mortgaged Properties and has good right and authority
to grant, bargain, sell, transfer, assign and mortgage the same; that Grantor’s
interests in each identified Mortgaged Property is no less than that Net Revenue
Interest and no greater than the Working Interest set forth on Exhibit A;
that
all oil, gas and/or mineral lease and leasehold estates, gas purchase and sales
contracts, pipeline easements and rights-of-way, processing contracts,
franchises, licenses and other agreements comprising or relating to the
Mortgaged Properties or any portion thereof are valid and subsisting and are
in
full force and effect; that such leases are subject to no overriding royalties
or other burdens or charges, except as reflected herein or in the Exhibit
annexed hereto and that all rents, royalties and other payments due and payable
by Grantor under each of the Mortgaged Properties have been properly and timely
paid and all ad valorem, property, oil and gas production, excise and severance
taxes payable by Grantor have been duly paid; that the Mortgaged Properties
are
free and clear from all liens and encumbrances except the lien evidenced by
this
Mortgage and except for the Permitted Encumbrances described herein or shown
in
Exhibit
A;
that
all producing xxxxx located on the Mortgaged Properties or properties unitized
therewith have been legally drilled and are not deviated from the vertical
more
than the maximum permitted by applicable laws, rules and regulations, and that
such xxxxx are in fact bottomed under and are producing from lands described
in
said Exhibit
A
or lands
unitized therewith; and Grantor does hereby bind itself, its heirs, legal
representatives, successors and assigns to forever warrant and defend the title
to the Mortgaged Properties unto the Lender, its successors and assigns, against
the claims of all persons whomsoever claiming or to claim the same or any part
thereof. Any additional rights, title, or interest which Grantor may hereafter
acquire or become entitled to in the properties aforesaid or in the oil, gas
or
other minerals in and under or produced therefrom shall inure to the benefit
of
this trust, the same as if expressly described and conveyed herein.
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5
2.2 So
long
as the Secured Indebtedness or any part thereof remains unpaid, Grantor
covenants and agrees with the Noteholder as follows:
(a) That
Grantor will make prompt payment of the Note and of all installments of
principal and interest thereon as the same become due, and also of all other
Secured Indebtedness.
(b) That
Grantor will continuously maintain Grantor’s existence as a Kentucky corporation
with full power to own and operate the Mortgaged Properties and, if required
by
law, Grantor’s right to do business in each State where any part of the
Mortgaged Properties is situated, and that Grantor will promptly pay, if
applicable, all income, franchise and other taxes owing by Grantor and any
stamp, documentary or recording taxes which may be required to be paid with
respect to this Mortgage or any other instrument evidencing or securing any
of
the Secured Indebtedness.
(c) That
Grantor will cause its interests in the Hydrocarbons leases included in or
relating to the Mortgaged Properties (herein called “Subject
Leases”)
to be
maintained and operated for the production of Hydrocarbons in a good and
workmanlike manner and in accordance with sound field practices and all
applicable federal, state and local laws, rules and regulations and will not
allow any of Subject Leases to be surrendered, abandoned, or terminated or
impaired in any manner.
(d) That
Grantor will cause all debts and liabilities of any character incurred in the
operation, maintenance or development of the Mortgaged Properties (including,
without limitation, all costs of the administration and development of each
Subject Lease, and all leasehold costs attributable thereto, including, but
not
by way of limitation, all costs of completing, processing, storing, transporting
and marketing Hydrocarbons which are allocated as leasehold expenses by
customary industry account) to be paid punctually when due.
(e) That
Grantor will use reasonable commercial efforts to cause the Mortgaged Properties
and all related machinery, pipelines, equipment, improvements and personal
property of any kind now or hereafter used or obtained in connection with the
operation thereof to be kept in safe, good and effective operating condition
and
all necessary repairs, replacements, additions and improvements thereto to
be
made.
(f) That
Grantor will observe and comply with all of the terms and provisions, express
or
implied, of the Subject Leases and assignments constituting a part of the
Mortgaged Properties in order to keep the same in full force and effect. Grantor
will also protect the Subject Leases against drainage of Hydrocarbons thereunder
by reason of production on other properties.
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6
(g) That
Grantor will observe and comply with all of the terms and provisions of all
easements, licenses, franchises, permits and contracts (both existing and
future) which are part of the Mortgaged Properties or which are incident to
the
operation of any of the Mortgaged Properties. Without limiting the foregoing,
Grantor agrees to fully comply with all covenants and make timely payments
of
all amounts payable under Hydrocarbons purchase and processing contracts held
by
Grantor and also to fully perform all obligations and covenants of the seller
under all Hydrocarbons sales and processing contracts held by
Grantor.
(h) That
if
the validity or priority of this Mortgage or of any right, titles, liens or
interests created or evidenced hereby with respect to the Mortgaged Properties
or any part thereof shall be endangered or questioned or shall be attacked
directly or indirectly or if any legal proceedings are instituted against
Grantor with respect thereto, Grantor will give written notice thereof to the
Noteholder promptly and, at Grantor’s own cost and expense, Grantor will
diligently endeavor to cure any defect that may be developed or claimed, and
will take all necessary and proper steps for the defense of such legal
proceedings, including, but not limited to, the employment of counsel agreeable
to the Noteholder, the prosecution or defense of litigation and the release
or
discharge of all adverse claims. If Grantor fails or refuses to take such
action, the Lender and the Noteholder, or any of them (whether or not named
as
parties to legal proceedings with respect thereto), are hereby authorized and
empowered to take such additional steps as in their judgment and discretion
may
be necessary or proper for the defense of any such legal proceedings, including,
but not limited to, the employment of independent counsel, the prosecution
or
defense of litigation, and the compromise or discharge of any adverse claims
made with respect to the Mortgaged Properties, and all expenses so incurred
of
every kind and character shall be a demand obligation owing by Grantor and
shall
bear interest at the Interest Rate (as defined in the Credit Agreement) from
the
date of expenditure until paid and shall be secured by the lien evidenced by
this Mortgage and the party incurring such expenses shall be subrogated to
all
rights of the person receiving such payment.
(i) That
Grantor will not, without the prior written consent of the Noteholder, suffer
or
permit any lien other than Permitted Encumbrances (as defined herein or
described in Exhibit
A
hereto)
to be hereafter claimed or created on any of the Mortgaged Properties, and
should a lien other than Permitted Encumbrances become attached hereafter in
any
manner to any part of the Mortgaged Properties without the prior written consent
of the Noteholder, Grantor will cause such lien to be promptly
discharged.
(j) That
Grantor will pay all taxes and assessments of every kind and character charged,
levied or assessed against the Mortgaged Properties, or any part thereof, and
all franchise taxes, production, severance or other similar taxes or charges,
before any such taxes and assessments shall become delinquent; but Grantor
shall
have the right to contest any such tax in good faith, and while any such contest
is pending shall not be in default hereunder; and, in the event Grantor should
fail or refuse to pay or discharge the same, the holder of said indebtedness
hereunder shall have the right, but shall not be obligated, to pay off said
charges against said property and shall be subrogated to the rights, liens
and
equities thereof, and the amount so paid, together with interest at the same
rate as is provided in the Note for interest on past due principal from the
date
of payment, shall be added to said indebtedness and shall be part of the Secured
Indebtedness.
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7
(k) That
none
of the buildings, improvements and personal property constituting portions
of
the Mortgaged Properties will be removed or destroyed if to do so would have
a
Material Adverse Effect.
(l) That
Grantor will keep accurate books and records in which full, true and correct
entries shall be promptly made as to all operations on the Mortgaged Properties,
and all such books and records shall at all times during reasonable business
hours be subject to inspection by the Noteholder and its duly accredited
representatives, and if, and as often as, reasonably requested by the
Noteholder, Grantor shall make reports of such income in such form as the
Noteholder prescribes setting out full data as to production and revenues from
the Mortgaged Properties.
(m) That
Grantor will, on request of the Noteholder, promptly correct any defect, error
or omission which may be discovered in the contents of this Mortgage, the Note,
or other documents executed in connection herewith or in the execution or
acknowledgment of any thereof, and will execute and deliver any and all
additional instruments as may be requested by the Noteholder to correct such
defect, error or omission or to identify any additional properties which are
or
become subject to this Mortgage and will execute, acknowledge and deliver such
further assurances and instruments as shall be, in the opinion of the
Noteholder, necessary or proper to convey and assign to the Lender all of the
Mortgaged Properties herein conveyed or assigned, or intended so to
be.
(n) That
Grantor will indemnify and hold harmless the Lender and the Noteholder from
and
against all claims, demands, liabilities and causes of action on account of
any
act performed or omitted to be performed hereunder or on account of any
transaction arising out of or in any way connected with the Mortgaged Properties
or with this Mortgage or any of the Secured Indebtedness, save and except for
their gross negligence, willful misconduct or breach by Lender or Noteholder
of
the Security Documents or any document or instruments executed in connection
with the Security Documents.
(o) That
Grantor will proceed with reasonable diligence to correct any material defect
in
title to the Mortgaged Properties which, in the opinion of Lender or Noteholder,
constitutes a material defect that is found to exist after the execution and
delivery of this instrument; and in this connection, should it be found after
the execution and delivery of this instrument that there exists upon the
Mortgaged Properties any lien or encumbrance, equal or superior in rank to
the
lien created by this instrument, or should any such hereafter arise, Grantor
will promptly discharge and remove any such lien or encumbrance from said
property.
(p) That
Grantor will keep such part of the Mortgaged Properties as is of an insurable
nature and of a character usually insured by persons operating similar
properties insured with companies of recognized responsibility satisfactory
to
the Noteholder against loss or damage by fire and against other hazards
customarily insured against and in such amounts as provided in and as otherwise
required under the Credit Agreement.
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(q) That
Grantor will promptly pay its share of all costs and expenses incurred under
any
joint operating agreement affecting the Mortgaged Properties or any portion
thereof and will furnish the Noteholder as and when requested full information
as to the status of any joint account maintained with others under any such
operating agreement.
(r) That
Grantor will permit the Noteholder and its accredited agents, representatives
and employees at all times to go upon, examine, inspect and remain on the
Mortgaged Properties, and to go upon the xxxxxxx floor of any well at any time
drilled or being drilled thereon, provided that such examination or inspection
shall be at the risk of the Noteholder and its agents, representatives and
employees and shall not unreasonably interfere with the business of Grantor
or
any operator or the operations on the Mortgaged Properties, and will furnish
to
the Noteholder on request all pertinent information in regard to the development
and operation of the Mortgaged Properties or any part thereof.
(s) That
the
Noteholder at all times shall have the right to release any part of the property
now or hereafter subject to the lien hereof or any part of the proceeds of
production or other income herein or hereafter assigned or pledged or any other
security it now has or may hereafter have securing said indebtedness, without
releasing any other part of said property, proceeds or income, and without
affecting the lien hereof as to the part or parts thereof not so released,
or
the right to receive future proceeds and income.
(t) That,
promptly upon receipt of any written request from the Noteholder, Grantor will
furnish and deliver, pursuant to such request, all title materials in the
possession of Grantor or to which Grantor has access, including all title
opinions and abstracts of title prepared by competent abstractors and covering
title to the real property hereby mortgaged. Should Grantor fail to furnish
such
title opinions and abstracts upon such request, the Noteholder may proceed
to
obtain such title materials, and any and all costs so incurred shall be added
to
and included in the indebtedness secured hereby and shall be payable by Grantor
upon demand, the obligation for such payment being secured by all liens and
remedies granted in this Mortgage. Any abstracts furnished by Grantor or so
acquired by the Noteholder shall be and constitute a part of the Mortgaged
Properties, as above defined.
(u) That
Grantor will, if requested by the Noteholder, furnish the Noteholder any
information or data possessed by Grantor with respect to the Mortgaged
Properties, and in the case of the Subject Leases full information, including
independent engineering reports and seismic data and interpretation, shall
be
furnished with regard to the xxxxx drilled or reworked or drilling or reworking
operations being conducted thereon, including, without limitation, electrical
logs, core analyses and well pressure reports; provided, that Grantor shall
not
be obligated to disclose information subject to a valid and binding
confidentiality agreement with a third party without first obtaining the consent
of such third party, and Grantor, to the extent requested by the Noteholder,
will use its reasonable efforts to obtain such consent.
Page
9
(v) That
Grantor shall make available to the Noteholder, or its engineers, attorneys
or
representatives, at any time requested, its complete files and contracts on
the
properties included in this instrument and the xxxxx, pipelines and other
property located thereon, or regarding the operations of (or the production
from) the Mortgaged Properties, and in the event the Noteholder or the Lender
should take possession of the Mortgaged Properties under this Mortgage, the
Noteholder shall be entitled to possession of all such files and contracts
including seismic data and interpretation. Should this Mortgage be foreclosed
(howsoever such foreclosure may be effected), the purchaser at the foreclosure
sale shall be entitled to all such files.
(w) That
Grantor will not enter into any new operating agreement or any material
amendment of any existing operating agreement affecting the Mortgaged Properties
without the prior written consent of the Noteholder.
(x) That
Grantor will, promptly upon demand by the Noteholder, pay all costs and expenses
heretofore or hereafter incurred by the Noteholder for legal, engineering or
geological services rendered to it in connection with the making of the initial
or any future loan to Grantor secured in whole or in part by the lien hereof
and/or in the enforcement of any of its rights hereunder.
(y) That
Grantor will use reasonable commercial efforts to continuously maintain in
good
condition and operate, or cause to be maintained and operated, in a good and
workmanlike manner any pipelines and pipeline systems owned by Grantor and
included in the Mortgaged Properties in accordance with the valid rules and
regulations of duly constituted authorities.
2.3 Grantor
agrees to take all such reasonable action and to exercise all rights and
remedies as are reasonably available to Grantor to cause the owner or owners
of
the working interest in the Mortgaged Properties to comply with the covenants
and agreements contained herein. With respect to those Subject Leases which
are
being operated by operators other than Grantor, Grantor shall not be obligated
itself to perform any undertakings contemplated by the covenants and agreements
contained herein which are performable only by such operators and are beyond
the
control of Grantor; provided, however, Grantor agrees to promptly take all
reasonable actions available to Grantor under any operating agreement or
otherwise to bring about the performance of any such undertakings required
to be
performed by such operators.
2.4 Grantor
agrees that, if Grantor fails to perform any act or to take any action which
hereunder Grantor is required to perform or take or to pay any money which
hereunder Grantor is required to pay, the Noteholder, in Grantor’s name or its
own name, may (but shall not be obligated to) perform or cause to be performed
such act or take such action or pay such money, and any expenses so incurred
by
the Noteholder and any money so paid by the Noteholder shall be a part of the
Obligations under the Credit Agreement owing by Grantor and shall bear interest
from the date of making such payment until paid at the Interest Rate (as defined
in the Credit Agreement) and shall be a part of the Secured Indebtedness and
shall be secured by the lien evidenced by this Mortgage and by any other
instrument securing the Secured Indebtedness, and the Noteholder, upon making
such payment, shall be subrogated to all of the rights of the person,
corporation or body politic receiving such payment.
Page
10
ARTICLE
III
Assignment
of Production, Accounts,
Contract
Rights and Proceeds
3.1 To
facilitate the discharge of all such indebtedness and as cumulative of any
and
all rights and remedies herein provided for, Grantor hereby BARGAINS, SELLS,
TRANSFERS, ASSIGNS, SETS OVER and DELIVERS to the Noteholder, its successors
and
assigns, all of the following which shall be applied by Noteholder as provided
herein and in the Credit Agreement:
(a) All
Hydrocarbons, and the proceeds therefrom, produced and to be produced from
the
interests of Grantor in the Subject Leases, properties, processing plants and
interests now or hereafter constituting a part of the Mortgaged Properties
from
and after the Effective Date (as hereafter defined), and Grantor hereby
authorizes and empowers said Noteholder to demand, collect and receive said
Hydrocarbons, and the proceeds therefrom, produced and to be produced from
the
interests of Grantor in said Mortgaged Properties, and to execute any release,
receipt, division order, transfer order and relinquishment or other instrument
that may be required or necessary to collect and receive such production or
the
proceeds therefrom and Grantor hereby authorizes and directs all pipeline
companies, gathering companies and others purchasing Hydrocarbon production
from
said properties or having in their possession any production from said
properties or the proceeds therefrom, to pay and deliver to the Noteholder
all
such production or proceeds therefrom accruing. Grantor agrees that all division
orders, transfer orders, receipts and other instruments which the Noteholder
may
from time to time execute and deliver for the purpose of collecting or
receipting for such production or the proceeds therefrom may be relied upon
in
all respects, and that the same shall be binding upon Grantor, and Grantor’s
successors and assigns. Grantor agrees to execute and deliver all necessary
and
appropriate instruments, including transfer and division orders, which may
be
required by the Noteholder in connection with the receipt by the Noteholder
of
such production or the proceeds therefrom and to indemnify and keep and hold
the
Noteholder free and harmless from all parties whomsoever having or claiming
an
adverse interest in said leases, properties and interests and the production
and
proceeds therefrom, and in this respect agrees to pay all expenses, costs,
charges and reasonable attorneys’ fees that may be incurred by the Noteholder as
to any of said matters.
(b) All
amounts or proceeds hereafter payable to, or to become payable to, Grantor
or to
which Grantor is entitled under all Hydrocarbon sales contracts, all Hydrocarbon
transportation contracts, and all Hydrocarbon treating and processing contracts
relating to or now or hereafter to become a part of the Mortgaged
Properties.
(c) All
amounts, sums, revenues and income which become payable to Grantor from any
of
the Mortgaged Properties (including after-acquired properties) or under any
contract, present or future, relating to any Hydrocarbon pipeline system and
processing plant or unit now or hereafter constituting a part of the Mortgaged
Properties.
Page
11
Grantor
hereby authorizes and directs that all such pipeline companies, purchasers,
transporters and other parties owing monies to Grantor under contracts herein
assigned, pay such amounts direct to the Noteholder as follows:
|
If
by wire transfer:
|
||
|
Account:
|
00000000
|
|
|
Bank:
|
Citibank,
F.S.B.
|
|
|
000
Xxxx Xxxxxx
|
||
|
Xxxxxxxxxx,
XX 00000
|
||
|
ABA
#:
|
000000000
|
|
|
Reference:
|
New
Stream Secured Capital, LP
|
|
|
If
by check:
|
||
|
NSES
12, LLC
|
||
|
Attention:
Xxxxx Xxxxxxxx
|
||
|
00
Xxxxx Xxxxxx, Xxxxxxxx X
|
||
|
Xxxxxxxxxx,
Xxxxxxxxxxx 00000
|
||
and
such
authorization shall continue until this Mortgage is released. The Noteholder
is
authorized to collect, receive and receipt for all such amounts and no party
making payment shall have any responsibility to see to the application of any
funds paid to the Noteholder, but shall be fully protected in making such
payment to the Noteholder under the assignments herein contained. Should the
Noteholder bring suit against any third party for collection of any amounts
or
sums included within this assignment (and the Noteholder shall have the right
to
bring any such suit) it may xxx either in its own name or in the name of
Grantor.
The
office where the records of Grantor with respect to the accounts and contract
rights concerning the Mortgaged Properties are kept is located at the address
shown opposite the signature of Grantor to this Mortgage, and Grantor agrees
that the place at which such records are kept will not be changed without the
prior written consent of the Noteholder, which consent shall not be unreasonably
withheld.
3.2 Independent
of the foregoing provisions and authorities herein granted, Grantor agrees
to
execute and deliver any and all transfer orders, payment orders, division orders
and other instruments that may be requested by the Noteholder or that may be
required by any purchaser of the production from any of the Mortgaged Properties
for the purpose of effectuating payment to the Noteholder of the proceeds of
Hydrocarbon sales to the Noteholder. If under any existing sales agreements,
other than division orders or transfer orders, any proceeds of Hydrocarbon
sales
are required to be paid by the purchaser to Grantor so that under such existing
agreement payment of such proceeds of Hydrocarbon sales cannot be made to the
Noteholder, Grantor’s interest in all proceeds of Hydrocarbon sales under such
sales agreements and in all other proceeds of Hydrocarbon sales which for any
reason may be paid to Grantor shall, when received by Grantor, constitute trust
funds in Grantor’s hands and shall be immediately paid over to the
Noteholder.
Page
12
3.3 Grantor
authorizes and empowers the Noteholder to receive, hold and collect all sums
of
money paid to the Noteholder in accordance with this assignment and to apply
the
same as is hereinafter provided, all without any liability or responsibility
on
the part of the Noteholder, save as to good faith in so receiving and applying
said sums. All payments provided for in this assignment shall be paid promptly
to the Noteholder, and applied pursuant to the terms of the Credit Agreement.
It
is understood and agreed that should said payments provided for by this
assignment be less than the sum or sums then due on said indebtedness, such
sum
or sums then due shall nevertheless be payable by Grantor in accordance with
the
provisions of the note or notes or other instrument or instruments evidencing
said indebtedness and neither this assignment nor any provision herein contained
shall in any manner be construed to affect the terms and provisions of said
note
or notes or other instrument or instruments. Likewise, neither this assignment
nor any provision herein contained shall in any manner be construed to affect
the lien, rights and remedies herein granted securing said indebtedness, nor
Grantor’s liability therefor. The rights under this assignment are cumulative of
the other rights, remedies and powers granted under this Mortgage and are
cumulative of any other security which the Noteholder now holds or may hereafter
hold to secure the payment of said indebtedness.
3.4 If
a
default under Section 6.1
has
occurred and is continuing, should any person now or hereafter purchasing or
taking Hydrocarbons attributed to the Mortgaged Properties fail to make payment
promptly to the Noteholder of the hereby assigned proceeds of Hydrocarbon sales,
the Noteholder shall have the right to make, or to require Grantor to make,
a
change of connection and the right to designate or approve the purchaser with
whose facilities a new connection shall be made, without liability or
responsibility in connection therewith, so long as ordinary care is used in
making such designation, and Grantor agrees to pay to the Noteholder the amount
of any proceeds of Hydrocarbon sales not promptly paid to the Noteholder by
any
person having responsibility for payment thereof; provided,
however,
Noteholder shall only require the change of purchaser if such change would
not
cause a breach of Grantor’s obligation to an existing purchaser.
3.5 The
Lender and Noteholder and their successors and assigns are hereby absolved
from
all liability for failure to enforce collection of the proceeds of Hydrocarbon
sales and from all other responsibility in connection therewith, except the
responsibility to account to Grantor for funds actually received. Grantor agrees
to indemnify and hold harmless the Lender and Noteholder against any and all
liabilities, actions, claims, judgments, costs, charges and attorneys’ fees by
reason of the assertion that Lender or Noteholder received with respect to
the
Mortgaged Properties or for Grantor’s account either before or after payment in
full of the Secured Indebtedness funds from the production of Hydrocarbons
claimed by third persons, and if Grantor fails to do so, the Lender and
Noteholder shall each have the right to defend against any such claims or
actions, employing attorneys of their own selection, and if not furnished with
indemnity satisfactory to them, they shall have the right to compromise and
adjust any such claims, actions and judgments, and in addition to the rights
to
be indemnified as herein provided, all amounts paid by the Lender or Noteholder
in compromise, satisfaction or discharge of any such claim, action or judgment,
and all court costs, attorneys’ fees and other expenses of every character
incurred by the Lender or the Noteholder pursuant to the provisions of this
section shall be part of the Obligations under the Credit Agreement owing by
Grantor, shall bear interest from date of expenditure until paid at the Interest
Rate (as defined in the Credit Agreement), and shall be a part of the Secured
Indebtedness. Notwithstanding the foregoing, nothing contained herein shall
be
deemed to require Grantor to indemnify Lender or Noteholder for its willful
misconduct or gross negligence or material breach by Lender or Noteholder of
the
provisions of the Security Documents or any documents or instruments executed
in
connection with the Security Documents.
Page
13
3.6 Nothing
herein contained shall detract from or limit the absolute obligation of Grantor
to make prompt payment of the Note, of all amounts owing thereon, and of all
amounts owing hereunder at the time and in the manner provided in the Note,
the
Credit Agreement or provided herein, regardless of whether the proceeds herein
assigned are sufficient to pay the same, and the rights under this assignment
shall be cumulative of all other security of any and every character now or
hereafter existing to secure the payment of the Note and all other Secured
Indebtedness.
ARTICLE
IV
Waiver
and Partial Release
4.1 The
Noteholder may at any time and from time to time in writing:
(a) Waive
compliance by Grantor with any covenant herein made by Grantor to the extent
and
in the manner specified in such writing;
(b) Consent
to Grantor’s doing any act which hereunder Grantor is prohibited from doing, or
to Grantor’s failing to do any act which hereunder Grantor is required to do, to
the extent and in the manner specified in writing; or
(c) Release
any part of the Mortgaged Properties, or any interest therein, or any proceeds
of Hydrocarbon sales from the lien of this Mortgage, without the joinder of
the
Mortgagee.
No
such
act by Noteholder shall in any way impair the rights of the Noteholder hereunder
except to the extent specifically agreed to by the Noteholder in such
writing.
4.2 The
lien
and other security rights of the Noteholder hereunder shall not be impaired
by
any indulgence, including but not limited to:
(a) Any
forbearance, renewal, extension or modification (whether one or more) which
the
Noteholder may grant with respect to any Secured Indebtedness; or
(b) Any
surrender, compromise, release, renewal, extension, exchange or substitution
which the Noteholder may grant in respect of any item of the Mortgaged
Properties or any part thereof or any interest therein, or any of the proceeds
of Hydrocarbon sales; or
Page
14
(c) Any
release or indulgence granted to any endorser, guarantor or surety of any
Secured Indebtedness.
ARTICLE
V
Possession
Until Default; Defeasance
5.1 Unless
a
default specified in Section
6.1
hereof
shall occur and be continuing, Grantor shall retain full right to the Mortgaged
Properties (except the proceeds of Hydrocarbon sales assigned under Section
3.1
hereof),
subject, however, to all of the terms and provisions of this
Mortgage.
5.2 If
all of
the Secured Indebtedness is paid as the same becomes due and payable and if
the
covenants, warranties, undertakings and agreements made in this Mortgage are
kept and performed, then, and in that event only all rights under this Mortgage
shall terminate and the properties hereby conveyed shall become wholly clear
of
the liens, conveyances and assignments evidenced hereby, and such liens shall
be
released by the Noteholder in due form at Grantor’s cost.
ARTICLE
VI
Remedies
in Event of Default
6.1 The
term
“default” as used in this Mortgage shall mean the occurrence of an Event of
Default under the Credit Agreement.
6.2 Following
and during the continuation of a default by Grantor under this Mortgage, the
provisions of this Section
6.2
(and no
other provision of this Mortgage) shall specify the effects of any such default,
the remedies available to Noteholder following any such default.
(a) Upon
the
occurrence of a default, all Secured Indebtedness in its entirety shall, at
the
option of the Noteholder and following two (2) business days prior written
notice by Noteholder (except in the event of bankruptcy, insolvency of Grantor,
appointment of a receiver for Grantor, and similar defaults in which event
no
prior written notice by Noteholder is required), become immediately due and
payable without notice, presentation or demand of any kind including, without
limitation, notice of intent to accelerate and notice of acceleration, all
of
which are hereby waived, and the liens evidenced hereby shall be subject to
foreclosure in any manner provided for herein or provided for by law as the
Noteholder may elect.
(b) Noteholder
may exercise all rights under the Credit Agreement.
(c) Noteholder
may institute proceedings to enforce the lien of this Mortgage.
(d) Noteholder
may take such steps to protect and enforce its rights whether by action, suit
or
proceeding in equity or at law for the specific performance of any covenant,
condition or agreement in the Note or in this Mortgage, or in aid of the
execution of any power herein granted, or for the enforcement of any other
appropriate legal or equitable remedy or otherwise as Noteholder shall elect,
including appointment of a receiver for the Mortgaged Properties.
Page
15
(e) Upon
any
default by Grantor in payment of the indebtedness hereby secured or any part
thereof, or in the event of Grantor's breach of any covenant or agreement
contained in this Mortgage, including, but not limited to, the covenants to
pay
when due or within any applicable grace period any sums secured by this
Mortgage, Noteholder, its successors and assigns, is hereby authorized and
empowered to grant, bargain and sell, release and convey the Mortgaged
Properties at public venue, and to execute and deliver to the purchasers at
such
sale good and sufficient deeds of conveyances in law, pursuant to the statute
in
such case made and provided, rendering any surplus monies after payment of
the
monies due hereon, the attorney's fee provided by law, and the cost and charges
of such venue and sale, to Grantor, its successors and assigns.
(f) In
the
event of any foreclosure sale of the Mortgaged Property, the same may be sold
in
one or more parcels.
(g) In
any
suit to foreclose the lien hereof, or enforce any other remedy, or protect
any
right of Noteholder under this Mortgage, the Credit Agreement or the Note,
there
shall be allowed and included as additional indebtedness in the decree for
sale
or other judgment or decree to the extent allowed by law all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Noteholder for attorneys' fees, appraisers' fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs and costs (which
may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, and similar data and assurances with respect to title as Noteholder
may deem reasonably necessary either to prosecute such suit or to evidence
to
bidders at any sale which may be had pursuant to such decree the true condition
of the title to or the value of the Mortgaged Properties. All expenditures
and
expenses of the nature in this paragraph mentioned, and such expenses and fees
as may be incurred in the protection of the Mortgaged Properties and the
maintenance of the lien of this Mortgage, including the reasonable fees of
any
attorney employed by Noteholder in any litigation or proceeding affecting this
Mortgage, the Note or the Mortgaged Properties, including bankruptcy
proceedings, or in preparation for the commencement or defense of any
proceeding, shall be immediately due and payable by Grantor, with interest
thereon at the Default Rate specified in the Note and shall be secured by this
Mortgage.
(h) The
proceeds of any foreclosure sale of the Mortgaged Properties shall be
distributed and applied in the following order of priority:
FIRST,
to the
payment of all costs and expenses including without limitation, all costs and
expenses incident to the foreclosure proceedings (including all such allowable
items as are mentioned in the preceding paragraph hereof);
Page
16
SECOND,
to the
payment of the Secured Indebtedness in such order as the Noteholder may elect;
and
THIRD,
the
remainder, if any there shall be, shall be paid to Grantor or to Grantor’s
representative, successors or assigns.
(i) No
remedy
herein conferred upon or reserved to Noteholder is intended to be exclusive
of
any other remedy or remedies, and each and every such remedy shall be
cumulative, and shall be in addition to every other remedy given hereunder
or
under any other document securing payment of the Note or now or hereafter
existing at law or in equity or by statute. No delay or omission of Noteholder
to exercise any right or power accruing upon any Event of Default shall impair
any such right or power, or shall be construed to be a waiver of any such Event
of Default or an acquiescence therein; and every power and remedy given by
this
Mortgage to Noteholder may be exercised from time to time as often as may be
deemed expedient by Noteholder. Nothing in this Mortgage or in the Note shall
affect the obligation of Grantor to pay the principal of, interest on, and
any
other charges related to, the Note in the manner and at the time and place
therein respectively expressed.
(j) Grantor
hereby grants unto the Noteholder the powers of attorney to act for and on
behalf of Grantor in all transactions of Grantor with any federal or state
agency relating to any of the Mortgaged Properties. Without limiting the
foregoing, this power of attorney specifically authorizes Mortgagee to execute
any documents required by the Minerals Management Service (MMS) in connection
with the foreclosure and subsequent transfer to the Mortgagee of the Mortgaged
Properties. The foregoing power of attorney shall only be exercised upon the
occurrence of a default.
(k) Upon
the
occurrence of a default, the Noteholder, on its own accord and/or through the
appointment of a receiver are authorized prior or subsequent to the institution
of any foreclosure proceedings to enter upon the Mortgaged Properties, or any
part thereof, and to exercise without interference from Grantor any and all
rights which Grantor has with respect to the management, possession and
operation of the Mortgaged Properties. All costs, expenses and liabilities
of
every character (including costs of unsuccessful workover operations or
additional xxxxx or dry holes) incurred by the Noteholder in managing, operating
and maintaining such Mortgaged Properties, including, without limitation, costs
of additional drilling and reworking, whether successful or unsuccessful, shall
constitute a demand obligation owing by Grantor and shall draw interest at
the
Interest Rate (as defined in the Credit Agreement), all of which shall
constitute a portion of the Secured Indebtedness.
(l) Upon
the
occurrence of a default, if Grantor should fail to comply with any of the
covenants or obligations of Grantor hereunder, then the Noteholder may perform
the same for the account and at the expense of Grantor but shall not be
obligated so to do, and any and all expenses incurred or paid in so doing shall
be payable by Grantor to the Noteholder with interest at the Interest Rate
(as
defined in the Credit Agreement), and the amount thereof shall be payable on
demand, and shall be secured by and under this Mortgage, and the amount and
nature of such expense and the time when paid shall be fully established by
the
affidavit of the Noteholder or any officer or agent thereof; provided,
however,
that
the exercise of the privileges granted in this paragraph shall in no way be
considered or constitute a waiver of the right of the Noteholder upon the
happening of a default hereunder to declare the Secured Indebtedness to be
at
once due and payable but is cumulative of such right and all other rights herein
given.
Page
17
ARTICLE
VII
Security
Agreement
7.1 Without
limiting any of the provisions of this instrument, Grantor (referred to in
this
Article as “Debtor”,
whether one or more), expressly GRANTS unto the Noteholder (referred to in
this
Article as “Secured
Party”,
whether one or more), a security interest in all the Mortgaged Properties
hereinabove described (including both those now and those hereafter existing)
to
the full extent that such properties may be subject to the Uniform Commercial
Code of the state or states where such properties are situated. The security
interest granted hereby also covers and includes all contract rights, equipment,
inventory, general intangibles and accounts with respect to said properties
and
all products and proceeds of said properties (said properties, contract rights,
equipment, inventory, general intangibles, accounts, products and proceeds
thereof being hereinafter collectively referred to as the “Collateral”
for
the
purposes of this paragraph). Debtor covenants and with Secured Party
that:
(a) In
addition to and cumulative of any other remedies granted in this instrument
to
Secured Party, Secured Party may, in event of default, proceed under said
Uniform Commercial Code as to all or any part of the Collateral and shall have
and may exercise with respect to the Collateral all the rights, remedies and
powers of a secured party after default under said Uniform Commercial Code,
including, without limitation, the right and power to sell, at public or private
sale or sales, or otherwise dispose of, lease or utilize the Collateral and
any
part or parts thereof in any manner authorized or permitted under said Uniform
Commercial Code after default by a debtor, and to apply the proceeds thereof
toward payment of any costs and expenses and attorneys’ fees and legal expenses
thereby incurred by Secured Party, and toward payment of the Secured
Indebtedness in such order or manner as Secured Party may elect.
(b) Upon
a
default, Secured Party shall have the right (without limitation) to take
possession of the Collateral and to enter upon any premises where same may
be
situated for such purpose without being deemed guilty of trespass or otherwise
incurring any liability for its entry upon those premises and to take any action
deemed necessary or appropriate or desirable by Secured Party, at its option
and
in its discretion, to repair, refurbish or otherwise prepare the Collateral
for
sale, lease or other use or disposition as herein authorized.
(c) To
the
extent permitted by law, Debtor expressly waives any notice of sale or other
disposition of the Collateral and any other right or remedies of a debtor or
formalities prescribed by law relative to sale or disposition of the Collateral
or exercise of any other right or remedy of Secured Party existing after default
hereunder; and to the extent any such notice is required and cannot be waived,
Debtor agrees that if such notice is mailed, postage prepaid, to Debtor at
the
address shown with debtor’s signature hereinbelow at least ten days before the
time of the sale or disposition, such notice shall be deemed reasonable and
shall fully satisfy any requirement for giving of said notice.
Page
18
(d) Secured
Party is expressly granted the right, at its option, to transfer at any time
to
itself or to its nominee the Collateral, or any part thereof, and to receive
the
monies, income, proceeds or benefits attributable or accruing thereto and to
hold the same as security for the Secured Indebtedness or to apply it on the
principal and interest or other amounts owing on any of the Secured
Indebtedness, whether or not then due, in such order or manner as Secured Party
may elect. All rights to marshaling of assets of Debtor, including any such
right with respect to the Collateral, are hereby waived.
(e) All
recitals in any instrument of assignment or any other instrument executed by
Secured Party incident to sale, transfer, assignment, lease or other disposition
or utilization of the Collateral or any part thereof hereunder shall be prima
facie evidence of the matter stated therein, no other proof shall be required
to
establish full legal propriety of the sale or other action or of any fact,
condition or thing incident thereto, and all prerequisites of such sale or
other
action and of any fact, condition or thing incident thereto shall be presumed
to
have been performed or to have occurred.
(f) Secured
Party may require Debtor to assemble the Collateral and make it available to
Secured Party at a place to be designated by Secured Party that is reasonably
convenient to both parties. All expenses of retaking, holding, preparing for
sale, lease or other use or disposition, selling, leasing or otherwise using
or
disposing of the Collateral and the like which are incurred or paid by Secured
Party as authorized or permitted hereunder, including also all attorneys’ fees,
legal expenses and costs, shall be added to the indebtedness secured by this
instrument, and Debtor shall be liable therefor.
(g) Should
Secured Party elect to exercise its right under said Uniform Commercial Code
as
to part of the personal property and fixtures described herein, this election
shall not preclude Secured Party from exercising the rights and remedies granted
by the preceding paragraphs of this instrument as to the remaining personal
property and fixtures.
(h) Any
copy
of this instrument may also serve as a financing statement under said Uniform
Commercial Code between the Debtor, whose address is designated with its
signature, and the SECURED
PARTY, WHOSE ADDRESS IS 00 XXXXX XXXXXX, XXXXXXXX X, XXXXXXXXXX, XXXXXXXXXXX
00000.
(i) So
long
as any amount remains unpaid on the Secured Indebtedness, Debtor will not
authorize for filing in any public office any financing statement or statements
affecting the Collateral other than financing statements in favor of Secured
Party hereunder, unless the prior written specific consent and approval of
Secured Party shall have first been obtained.
Page
19
(j) Secured
Party is authorized to file, in any jurisdiction where Secured Party deems
it
necessary, one or more financing statements pursuant to the Uniform Commercial
Code in form satisfactory to Secured Party, and Debtor will pay the cost of
filing or recording those financing statements or this instrument as a financing
statement in all public offices at any time and from time to time whenever
filing or recording of any financing statement or of this instrument is deemed
by Secured Party to be necessary or desirable.
(k) The
office where the records of Debtor with respect to the Collateral and the
Mortgaged Properties are kept is located at the address shown opposite the
signature of Debtor to this Mortgage, and Debtor agrees that the place at which
such records are kept will not be changed without the prior written consent
of
the Noteholder, which consent shall not be unreasonably withheld.
Debtor
further warrants and represents to Secured Party that, except for the security
interest granted hereby in the Collateral and other claims previously disclosed
in writing to Secured Party, Debtor is the owner and holder of the Collateral,
free of any adverse claim, security interest or encumbrance, and Debtor agrees
to defend the Collateral against all claims and demands of any person at any
time claiming the same or any interest therein. Debtor further warrants and
represents that it has not heretofore signed any financing statement and no
financing statement signed by Debtor is now on file in any public office except
those statements true and correct copies of which have been delivered to Secured
Party.
ARTICLE
VIII
Miscellaneous
8.1 This
instrument is a leasehold mortgage of both real and personal property, a
security agreement, a financing statement and an assignment, and also covers
proceeds and fixtures.
8.2 Notwithstanding
the existence of any other security interests in the Mortgaged Properties held
by the Noteholder or by any other person or entity, Noteholder shall have the
right to determine the order in which any or all of the Mortgaged Properties
shall be subjected to the remedies provided herein, and the order in which
any
or all portions of the obligations owed pursuant to the terms of the Credit
Agreement and Loan Documents secured hereby are satisfied from the proceeds
realized upon the exercise of any remedies provided herein. Grantor and any
other person or entity now or hereafter acquiring a security interest in the
Mortgaged Properties and having actual or constructive notice of this Mortgage,
waives any and all right to require the marshalling of assets in connection
with
the exercise of any of the remedies permitted by applicable law or in equity
or
provided in this Mortgage.
8.3 All
options and rights of election herein provided for the benefit of the Noteholder
are continuing, and the failure to exercise any such option or right of election
upon a particular default or breach or upon any subsequent default or breach
shall not be construed as waiving the right to exercise such option or election
at any later date. By the acceptance of payment of any indebtedness secured
hereby after its due date, the Noteholder does not waive the right either to
require prompt payment when due of all other sums so secured or to regard as
a
default failure to pay any other sums due which are secured hereby. No exercise
of the rights and powers herein granted and no delay or omission in the exercise
of such rights and powers shall be held to exhaust the same or be construed
as a
waiver thereof, and every such right and power may be exercised at any time
and
from time to time.
Page
20
8.4 No
release of any part of the Mortgaged Properties shall in any way alter, vary
or
diminish the force, effect or lien of this instrument on the balance of
Mortgaged Properties.
8.5 Any
provision contained herein or in the Note or in any other instrument evidencing
or relating to any Secured Indebtedness to the contrary notwithstanding, neither
Lender nor any Noteholder nor the holder of any other Secured Indebtedness
shall
be entitled to receive or collect, nor shall Grantor be obligated to pay,
interest on any of the Secured Indebtedness in excess of the maximum rate of
interest permitted by applicable law, and if any provision of the Note or of
any
other such instrument shall ever be construed or held to permit the collection
or to require the payment of any amount of interest in excess of that permitted
by applicable law, the provisions of this section shall control and shall
override any contrary or inconsistent provision of the Note or other
instrument.
8.6 Any
notice, request, demand or other instrument which may be required or permitted
to be given or furnished to or served upon Grantor shall be addressed to it
at
its address set forth below, or such other address as Grantor may furnish to
the
Noteholder in writing. Notices to the Noteholder shall be deemed to have been
properly given if delivered in like fashion to them at 00 Xxxxx Xxxxxx, Xxxxxxxx
X, Xxxxxxxxxx, Xxxxxxxxxxx 00000, with a copy to the Noteholder’s counsel at
Xxxxxxxxx Xxxxxxx LLP, 0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000,
Attn: Xxxx Xxxxxx, or at such other address as the Noteholder may furnish to
Grantor in writing.
8.7 Renewals
and extensions of the Secured Indebtedness may be given at any time and
amendments may be made to this Mortgage and other agreements relating to any
of
the Secured Indebtedness or the Mortgaged Properties and/or such properties
may
at any time be released or partially released and/or the Noteholder may take
or
hold other security for the Secured Indebtedness without notice to or joinder
or
consent of any persons hereafter acquiring any interest in the Mortgaged
Properties. The Noteholder may resort first to such other security or any part
thereof or first to the security herein given or any part thereof, or from
time
to time to either or both, even to the partial or complete abandonment of either
security, and such action shall not be a waiver of any rights conferred by
this
instrument, which shall continue as a first lien upon all of the Mortgaged
Properties not expressly released until the Secured Indebtedness is fully
paid.
8.8 If
any
provision hereof or of the Credit Agreement or the Note is invalid or
unenforceable in any jurisdiction, the other provisions hereof or of the Note
shall remain in full force and effect in such jurisdiction, and the remaining
provisions hereof shall be liberally construed in favor of the Lender and the
Noteholder in order to effectuate the provisions hereof, and the invalidity
or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of any such provision in any other
jurisdiction.
Page
21
8.9 All
of
the terms, provisions, covenants and conditions hereof shall be binding upon
Grantor, and the successors and assigns of Grantor and the Noteholder and
successors and assigns of Noteholder, and shall inure to the benefit of the
Noteholder and their respective successors and assigns and Grantor’s covenants
shall constitute covenants running with the lands covered by the Mortgaged
Properties, but this provision shall not be construed to authorize any sale
or
other disposition of the Mortgaged Properties contrary to any other provisions
hereof.
8.10 The
Mortgage may be executed in multiple counterparts, each of which is deemed
to be
an original for all purposes although all such executed copies shall evidence
and constitute one and the same Mortgage; provided
that it
shall never be necessary for Noteholder to produce more than one fully executed
counterpart with all divisions to prove the existence of all such counterparts.
The counterpart recorded in a particular jurisdiction may have attached to
it
only the division or subdivisions of the exhibit that contain descriptions
of
Mortgaged Properties located in such jurisdiction. Whenever a recorded
counterpart of the Mortgage contains less than all of the divisions, the
descriptions contained in the omitted divisions are hereby incorporated into
said recorded counterpart by reference.
8.11 The
term
“Grantor”
herein
used shall mean and include the limited liability company executing this
instrument, and its successor in interest in the Mortgaged Properties. The
number and gender of pronouns used in referring to Grantor shall be construed
to
mean and correspond with the number and gender of the individuals and/or
entities executing this instrument as Grantor, and, further, the term “Grantor”
herein used shall mean and include both all of the parties executing this
instrument as Grantor as well as any single one or more of them.
8.12 With
reference to KRS 382.520, it is acknowledged and agreed that this Mortgage
secures not only the obligations evidenced by the Note and Credit Agreement,
but
also all future advances and all other additional indebtedness, whether direct,
indirect, future, contingent or otherwise in an amount of not greater than
$10,000,000.
8.13 The
“Effective
Date”
of
this
instrument is 7:00 a.m. local time on [__________, 2008] at the location of
the
Mortgaged Properties, respectively.
8.14 This
Mortgage shall be governed by and construed and interpreted under the laws
of
the State of New York (without giving effect to conflicts of laws principles),
except to the extent that the laws of the State where the Mortgaged Properties
are located shall be mandatorily applicable.
8.15 TO
THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, EACH OF THE UNDERSIGNED HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT WHICH IT MAY HAVE TO A TRIAL
BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING
OUT
OF, UNDER OR IN CONNECTION WITH THE TERM NOTE, THIS AGREEMENT OR THE OTHER
SECURITY DOCUMENTS, OR ANY TRANSACTION CONTEMPLATED THEREBY, BEFORE OR AFTER
MATURITY.
THIS
WRITTEN AGREEMENT AND THE OTHER SECURITY DOCUMENTS DESCRIBED IN THE CREDIT
AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Page
22
IN
WITNESS WHEREOF, the undersigned have caused this instrument to be executed
by
their duly authorized undersigned officers effective as of [___________,
2008].
| “GRANTOR” | |||
|
ADDRESS
OF GRANTOR:
|
KY USA ENERGY, INC. | ||
| a Kentucky corporation | |||
|
KY
USA Energy, Inc.
|
|||
|
000
Xxxxxxxx Xxxx
|
By:
|
|
|
|
Xxxxxx,
XX 00000
|
Name:
|
|
|
|
Telephone:
(000) 000-0000
|
Title:
|
|
|
|
Telecopy:
[______________]
|
|||
ACKNOWLEDGMENTS
|
STATE
OF [_________]
|
§
|
|
§
|
|
|
COUNTY OF [___________]
|
§
|
The
foregoing instrument was acknowledged before me on this ___ day of __________,
2008, by _______________, _____________ of KY USA Energy, Inc., a Kentucky
corporation.
|
NOTARY PUBLIC, STATE OF [_____________]
|
|
Prepared
by:
|
|
Xxxxxxx
X. Xxxxxx
|
|
Xxxxxxxxx
Xxxxxxx
|
|
0000
Xxxxxxxxx, Xxxxx 0000
|
|
Xxxxxxx,
Xx 00000
|
|
(000)
000-0000
|
THIS
IS A SIGNATURE AND ACKNOWLEDGMENT PAGE TO THE
LEASEHOLD
MORTGAGE, ASSIGNMENT OF PRODUCTION,
EXHIBIT
A
ATTACHED
TO AND FORMING A PART OF THE
MORTGAGE,
ASSIGNMENT OF PRODUCTION,
DATED
AS
OF [________________, 2008]
FROM
KY
USA
ENERGY, INC.
TO
NSES
12,
LLC
PREAMBLE
This
Exhibit
A
contains
this Preamble and the specific description of the “Leases”
comprising a portion of the “Mortgaged
Properties”,
as
those terms are defined in the Mortgage, Assignment of Production, Security
Agreement and Financing Statement (the “Mortgage”)
to
which this Exhibit
A
is
attached.
Divisions.
This
Exhibit
A
may be
composed of several divisions and subdivisions--at least one for each state
and
county in each state in which any part of the Mortgaged Properties is located
in
more than one county, the division hereof containing the description of such
Hydrocarbon (as defined in the Mortgage) lease will generally include the
relevant portion of each of the counties in which any part of such oil, gas
and
mineral lease is located. Counties containing portions of such multi-county
leases may therefore be covered by more than one division of this Exhibit
A.
Each
subdivision is in turn composed of further subdivisions—each one covering one or
more of the oil, gas and mineral leases included among the Mortgaged
Properties.
Counterparts.
The
Mortgage may be executed in multiple counterparts, each of which is deemed
to be
an original for all purposes although all such executed copies shall evidence
and constitute one and the same Mortgage; provided
that it
shall never be necessary for Noteholder to produce more than one fully executed
counterpart with all divisions to prove the existence of all such counterparts.
The counterpart recorded in a particular county may have attached to it only
the
division or subdivisions of this exhibit that contain descriptions of Mortgaged
Properties located in such county or parish. Whenever a recorded counterpart
of
the Mortgage contains less than all of the divisions, the descriptions contained
in the omitted divisions are hereby incorporated into said recorded counterpart
by reference.
Definitions.
For all
purposes of this Exhibit
A,
the
following terms shall have indicated meanings:
“Block”
means
several leases within an immediate vicinity.
“Net
Revenue Interest”
means
with respect to any Property, the decimal or percentage share of production
from
or allocable to such property, after deduction of all overriding royalties
and
other burdens (including lessor royalties), that an owner of a Working Interest
is entitled to receive
“Working
Interest”
means
the property interest which entitles the owner thereof to explore and develop
certain land for Hydrocarbon production purposes, whether under an oil and
gas
lease or unit, a compulsory pooling order or otherwise.
“Overriding
Royalty Interest”
means
(i)
with
respect to a Unit for which an Overriding Royalty Interest is stated, that
interest in the applicable Hydrocarbons produced, saved, and sold from such
unitized area which is afforded to Grantor by virtue of its ownership of such
expense-free interest in the Leases included in whole or in part in such area
after deducting landowner royalties and any other burdens to which such interest
may be subject, and (ii)
with
respect to a Well for which an Overriding Royalty Interest is stated, an
expense-free interest in the applicable Hydrocarbons produced, saved and sold
from a Well or Subject Lease which is afforded to Grantor by virtue of its
ownership of such expense-free interest in the Lease (hereinafter defined)
on
which such Well is located after deducting landowner royalties and any other
burdens to which such interest may be subject.
“Well”
means
any existing oil or gas well, salt water disposal well, injection well, water
supply well or any other well located on or related to the Properties or any
well which may hereafter be drilled and/or completed on the Properties, or
any
facility or equipment in addition to or replacement of any well, including
a
well producing or capable of producing oil and/or gas that is described or
referred to in this Exhibit
A.
“Unit”
means
a
unit, pool, or communitized area described or referred to in this Exhibit
A.
“Permitted
Encumbrances”
shall
mean (i)
minor
irregularities in title which do not (a) materially interfere with the
occupation, use and enjoyment by Grantor of any of the Mortgaged Properties
in
the normal course of business as presently conducted, or (b) materially impair
the value thereof for such Mortgaged Properties, (ii)
all
interests in the Mortgaged Properties securing obligations owed to, or claimed
by, any Person other than Noteholder, whether such interest is based on the
common law, statute or contract, and whether such interest includes liens or
security interests arising by virtue of mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or lease, consignment or bailment
for security purposes, so long as each said interest has been expressly
consented to by Noteholder in writing, (iii)
Liens
of landlords, vendors, including purchase money liens incident to the purchase
of new Equipment, carriers, warehousemen, mechanics, laborers and materialmen
arising by law, and of operators arising by contract, in the ordinary course
of
business for sums not yet due or being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such reserve as shall
be
required by generally accepted accounting principles shall have been made
therefor; (iv)
the
specific exceptions and encumbrances affecting each of the Mortgaged Properties
as described in this Exhibit, (v) any liens which are subordinate to the liens
created hereby pursuant to a Subordination Agreement approved by Lender; and
(vi)
the
agreements and matters set forth in Exhibit
B,
if any;
INSOFAR ONLY as the foregoing exceptions, encumbrances and agreements are valid
and subsisting and are enforceable against the particular Lease(s) which are
made subject to said exceptions, encumbrances or agreements.
Scope
and Format of Description.
The
Subject Interests are expressly limited to the Subject Leases insofar and only
insofar as they cover lands and depth intervals in which Grantor owns an
undivided interest and do not include lands and depth intervals in which Grantor
owns no undivided interest even though such lands or depth intervals are covered
by the Subject Leases; provided,
however, that this provisions shall not impair Lender’s/Mortgagee’s rights under
the warranty of title contained in the Mortgage. The format of the description
is as follows:
With
respect to each Lease, the description includes the Lease, the date, the Lessor,
the Lessee, the recording information, the governmental or state serial number
assigned to the lease (if applicable), and a description of the lands covered
by
the Lease. If the recorded instrument is a short form of memorandum of a Lease,
the term “Lease”
shall be
deemed to include all of the terms and provisions of the Lease referred to
in
such short form or memorandum. Certain property descriptions are in abbreviated
to Sections, Townships, and Ranges. In such descriptions, the following terms
may be abbreviated as follows:
|
XX,
XX/0, or NW/4;
|
|
|
Xxxxxxxxx
Xxxxxxx
|
XX,
XX/0, or SW/4;
|
|
Southeast
Quarter
|
SE,
SE/4, or SE/4;
|
|
Northeast
Quarter
|
NE,
NE/4, or NE/4;
|
|
North
Half
|
N/2
or N/2;
|
|
South
Half
|
S/2
or S/2;
|
|
E/2
or E/2;
|
|
|
West
Half
|
W/2
or W/2;
|
The
applicable Blocks are followed by an N, S, E, or W to indicate whether the
Block
is North, South, East, or West. Certain descriptions merely refer to the Block
in which the property is located in whole or in part. In such cases, the
recorded Leases and any amendments thereof and any other recorded instruments
affecting Grantor’s title more particularly describe the land within such Block
in which Grantor owns an interest, and the descriptions contained in such
instruments are incorporated herein by this reference. In the case of certain
federal and state leases, the interests set forth may be in the nature of either
record, title or operating rights. The land description does not necessarily
signify that Grantor owns the entire interest in such Lease as to all of such
land or as to all depth intervals. The statement of an Working Interest and
a
Net Revenue Interest for a Well or Unit does not necessarily signify that
Grantor owns the same applicable Lease or leases as to the areas or depth
intervals not attributable to the Well or Unit.
The
statement of a Working Interest and a Net Revenue Interest with respect to
a
Well or Xxxxx signifies that Grantor owns that Working Interest and Net Revenue
Interest in the Well or Xxxxx with respect to the intervals in which the Well
or
Xxxxx are currently completed, and excludes a unitized area or formation, if
any, included within a Unit which is also described in this Exhibit
A.
Each
Well
or Unit with respect to which the Working Interest and Net Revenue Interest
of
Grantor is stated is described as follows: (i)
each
well is described by reference to the Well name given to the Well in Grantor’s
records, which may or may not be the name stated in the records of the
applicable state or federal regulatory authority, and (ii)
each
Unit is described by the name by which such Unit is referred to in Grantor’s
records, which may or may not be the name used (if a name is used) in the
instrument creating such Unit.
