HomeMy WebLinkAbout900778CHAVES COUNTY, NEW MEXICO
EDDY COUNTY, NEW MEXICO
LEA COUNTY, NEW MEXICO
GRANT COUNTY, OKLA~tOMA
STEPHENS COUNTY, OKLAHOMA
CROOK COUNTY, WYOMING
LINCOLN COUNTY, WYOMING
ATASCOSA COUNTY, TEXAS
MONTGOMERY COUNTY, TEXAS
NOLAN COUNTY, TEXAS
NUECES COUNTY, TEXAS
OLDHAM COUNTY, TEXAS
POTTER COUNTY, TEXAS
SMITH COUNTY, TEXAS
DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
PRODI'JCTION AND FINANCING STATEMENT
(As-extracted collateral including, but not limited to, oil, gas and other minerals)
[Corkran Energy,,l~PI !~:i~i3~i\/E~3
. ; ed as of Jnne 28, 2'004 -' ~ ' ' 3:
Please V, ett~rn documents with filing inl~rmation to:
James R. Leeton, Jr.
MORGAN & LEETON, P.C.
306 West Wall, Suite 700
Midland, Texas 79701
THIS DEED OF TRUST (INCLUDING FINANCING STATEMENT) IS TO BE FilLED FOR
RECORD IN THE REAL ESTATE RECORDS.
THIS INSTRUMENT CONI'AINS AFI'ER-ACQUIRED PROPERTY PROVISIONS,
SECURES PAYMENT OF FUTURE ADVANCES AND COVERS PROCEEDS OF
COLLATERAL.
THIS INSTRUMENT CONTAINS A NOTICE OF SEC URITY INSTRUMENT AFFECTING
REAL PROPERTY IN EACH COUNTY IN WHICH IT IS RECORDED.
THIS INSTRUMENT COVERS "OTHER INDEBTEDNESS" AS DEFINED IN SECTION
11.2 OF THIS DEED OF TRUST AND IS TO BE TREATED AS A "LINE OF CREDIT
MORTGAGE" WITHIN THE MEANING OF SECTION 48-7-4, NMSA 1978.
TIIIS INSTRUMENT SHALL BE EFFECTIVE AS, AMONG OTHER TILINGS, A
SECURITY ' '
AGREEMENT AND FINANCING STATEMENT UNDER THE UNIFOPd¥1
COMMERCIAL CODE. .COLLATERAL INCLUDES FIXTURES AFFIXED TO, AS-
EXTRACTED COLLATER&L (INCLUDING, BUT NOT LIMITED TO, OIL, GAS AND
OTHER MINERALS) PRODUCED FROM AND ACCOUNTS ATTRIBUTABLE
THERETO, SAID PRODUCTION AND ACCOUNTS BEING FINANCED AT THE
WELLHEAD OF THE WELLS LOCATED ON TIlE PROPERTIES DESCRIBED IN
EXHIBIT "A" ATTACHED ]!tERETO AND MADE A PART HEREOF.
A POWER OF SALE HAS BEEP;/G1L&NTED IN THIS INSTRUMENT. A POWER OF SALE MAY
ALLOW THE TRUSTEE, BENEFICIARY OR MORTGAGEE TO TAKE TIlE MORTGAGED
PROPERTY AND SELL IT WlTItO UT GOING TO COURT IN A FORECLOSURI~ ACTION UPON
DEFAULT BY THE MORTGAGOR UNDER THIS INSTRUMENT.
NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAiL PERSON, YOU
MAY REMOVE OR STRI}[E ANY OF THE FOLLOWING INFORMATION FROM THIS
INSTRUMENT BEFORE FI IS FILED FOR RECORD IN THE PUBLIC RECORDS:
YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S LICENSE NUMBER.
DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT
NOTICE OF CONFDENTIAL1TY RIGHTS: IF YOU ARE A NATURAl. PERSON, YOU MAY
REMOVE OR STRIKE ANY'OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT
BEFORE IT IS FiLED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY
NUMBER OR YOUR DRIVER'S LICENSE NUMBER.
This Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing
Statement (this "Mortgage"),
WITNE S SETH:
ARTICLE I.
Granting, Clauses; Secured Indebtedness
Section 1.1 Grant o?.I.4e.n. CORICRAN ENERGY, LP, a Texas limited partnership, whose
General Partner is ttummingb!:rd Investments, LLC, a Texas limited liability company, whose address
is 2219 Westlake Drive, Suite 120, Austin, Texas 78746, and whose organizational number is 14341310,
(herein called "Grantor," whethe:r one or more), for and.in consideration of the sum ofTen Dollars ($10.00)
to Grantor in hand paid by ROBERT D. SOUTHERLAND, Trustee (herein Called "Trustee"), in order to
secure the payment of the sect'tred indebtedness (as hereinafter defined) and the performance of the
obligations, covenants, agreement;;, warranties and undertakings of Grantor hereinafter described, does
hereby GRANT, BARGAIN, SEL,.L, CONVEY, TRANSFER, ASSIGN and SET OVER to Trustee (and
where appropriate to effectuate the provisions of Section 4.4 bereof, does hereby grant to Trustee a POWER
OF SALE with respect thereto pu?suant to this Mortgage and applicable law, and where appropriate to
effectuate the provisions.of Sect!on 4.5 hereof, does hereby MORTGAGE and wAIG~.ANT to Noteholder
(as hereinafter defined)) the follo,~ing:
A. The oil[ gas and/or other mineral properties which are described in Exhibit A
attached hereto and made a part hereof;
B. Without limitation of the foregoing, all other right, title and interest of Grantor of
wbatever kind or character (whether now owned or hereafter acquired by operation of law or
otherwise) in and to the lands which are described or referred to in Exhibit A hereto as a part of the
descriptions (contained in iiuch Exhibit A) of oil, gas and/or other mineral properties, or which are
otberwise described in any of the leases or other instruments described in Exhibit A hereto, even
though the interest of Grantor in such lands may be incorrectly described in, or omitted from, Exhibit
A hereto;
C. All of Gmntor's interest (whether now owned or hereafter acquired by operation of
law or otherwise) in and to all presently existing and hereafter created oil, gas and/or mineral
unitization, pooling and/.or comnmnitization agreements, declarations and/or orders, and m and to
the properties covered and the units created thereby (including, without limitation, units formed
under orders, rules, regu'~ations or other official acts of any federal, state or other authority having
jurisdiction and so called "Working interest units" created under operating agreemeuts or otherwise),
which cover, affect or otherwise relate to the properties described in clause A or B above;
D. All of Grantor's interest in and rights under (whether now owned or hereafter
acquired by operation of law or otherwise)all presently existing and hereafter created operating
agreements, equipment 15ases, production sales, purchase, exchange and/or processing agreements,
transportation agreements, farmout and/or farm-in agreements, salt water disposal agreements, area
of mutual interest agreements, and other contracts and/or agreements which cover, affect, or
otherwise relate to the p~:operties described in clause A, B or C above or to the operation of such
properties or to the treating, handling, storing, transporting or marketing of oil, gas, other
hydrocarbons, or other minerals produced from (or allocated to) such properties, including, but not
limited to, those contracts listed in Exhibit A hereto, as same may be amended or supplemented from
time to time; and
E. All of G;i'antor's interest (whether now owned or hereafter acquired by operation of
law or otherwise) in and te all.equlpment, improvements, materials, supplies, fixtures and other
property (including, withoat limitation, all wells, pumping units, wellhead equipment, tanks,
pipelines, flow lines, gaff~ering lines, compressors, dehydration units, separators, meters, buildings,
injection facilities, salt water disposal facilities, and power, telephone and telegraph lines) and all
easements, servitudes, righlts-of-way, surface leases and other surface rights, which are now or
hereafter used, or held tbrluse, in connection with the properties described in clauses A, B and C
above, or in connection with the operation of such properties, or in connection with the treating,
handling, storing, transporting or marketing of oil, gas, other hydrocarbons, or other minerals
produced from (or allocated to) such properties.
TO HAVE AND TO ttO[D the foregoing rights, interests and properties, and all rights, estates,
powers and privileges appurtenant thereto (herein collectively called the "Mortgaged Properties" and
individually called a "Mortgaged Property"), unto Trustee, and his successors or substitutes in this trust, and
t6 his or their successors and ass'iD~s, in trust, however, upon the terins, provisions and conditions herein set
forth. :
Section 1.2 Grant of Security Interest. In order to fimher secure the payment of the secured
indebtedness and the performange of the obligations, covenants, agreements, warranties, and undertakings
of Grantor hereinafter described, Grantor hereby grants to Noteholder a security interest in the entire interest
of Grantor (whether now ownec'., or hereafter acquired by operation of law or otherwise) in and to:
(a) the Mortgaged Properties;
(b) all oil, gas, other hydrocarbons, and other minerals produced from or allocated to
the Mortgaged PropertieS, and any products processed or obtained therefrom (herein collectively
called the "Production"), and all liens and security interests in the Production securing payment of
the proceeds of the Pr6duction including, but not limited to, those'liens and security interests
provided under statutes ~enacted in the jurisdictions in which the Mortgaged Properties are located;
, (c) all equlpment, inventory, improvements, fixtures, accessions, goods anti other
person'al property of u~haiever nature now or hereafter located on or used or held for use in
connection with the Mbrtgaged Properties (or in connection with the operation thereof or the
treating, handling, storing, .transporting, processing, or marketing of Production) and all renewals
or replacements thereof or substitutions theretbr;
'(d) all contract rights, contractual rights, and. other general intangibles related to the
Mortgaged Properties, the Operation thereof (whether Grantor is operator or non-operator), or the
treating, handling, storing, transporting, processing, or marketing of Production, or under which the
proceeds of Production arise or are evidenced or governed;
(e) all geologi.:al, geophysical, engineering, accounting, title., legal, and other technical
or business data concerrr, in!u~, the Mortgaged Properties, the Production, or any other item of Property
(as hereinafter defined),wliich are in.the possession of Grantor or in which Grantor can otherwise
grant a security interest, and all books, files, records, magnetic media, computer records, and other
forms of recording or obtaining access to such data;
(f) all mon. ey, documents, instruments, chattel paper, securities, accounts, or general
iniangibles arising from orby virtue of any transaction related to the Mortgaged Properties or the
Production (all of the properties, rights and interests described in subsections (a), (b), (c), (d), and
(e) above and this subsectii)n (f) being herein sometimes collectively called the "Collateral"); and
(g) all proceeds of the Collateral or payments in lieu of Production (such as "take or
pay" payments), whethq'r Such proceeds or payments are goods, money, documents, instruments,
chattel paper, securities, accounts, general intangibles, fixtures, real property, or other assets (the
Mortgaged Properties, the Collateral and the proceeds of the Collateral and payments in lieu of
Production being herei, sometimes collectively called the "Property").
Section 1.3 Note, .Lg'_a__n Documents, Other Obligations. This Mortgage is made to secure and
enforce the payment and performance of the folloxving promissory notes, obligations, indebtedness and
liabilities:
(a) All ind¢ bte'dness and other obligations noxv or hereafter incurred or arising pursuant
to the provisions of that b. er!'ain Loan Agreement dated as of even date herewith, among Grantor and
COMMUNITY NATIONAL BANK, whose address is P.O. Box 3903,/vlidland, Midland County,
Texas 79702 (herein tall'ed "Lender"), and all supplements thereto and amendments or modifications
thereof; and all agreemcnt~, given in substitution therefor or in restatement, renewal or extension
thereof, in whole or i~'~ part (such Loan Agreement as the same may from time to ti~ne be
supplemented, amended or' modified, and all other agreements given in substitution therefor or in
restatement, renewal or extension thereof, in whole or in part, being herein called the "Agreement");
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(b) Two p?OmissorY notes dated of even date herewith having a face amount of O~
MILLION FIVE HU?'U)~D THOUSA~ DOLLARS ($1,500,000.00) and in the original
principal amount of ONE MILLION ~NE HUNDRED SIXTY-EIGIIT THOUSA~)
DOLLARS ($1,968,000.00) made by Grantor and payable to the order of Lender on or before
January 28, 2006, beating interest as therein provided, and containing a provision for the payment
of a reasonable additioral amount as attorneys' fees, and all other notes given in substitution or
replacement therefor or'in lnodification, renewal or extension thereof, in whole or in part (such
note(s), as from time to t(me supplemented, amended, or modified and all other notes given in
substitution or replacement theretbr, or in modification, renewal or extension thereol~ in whole or
in part, being hereinafte7 called the "Note" and Lender and each subsequent holder of the Note or
any part thereof or interest therein, or any of the other secured indebtedness being herein called
"Noteholder");
(c) All indebtedness and other obligations owed to Noteholder now or hereafter incurred
or arising pursuant to orlpermitted by the provisions of the Note, the Agreement, this Mortgage or
any other instrument noW pr hereafter evidencing, governing, guaranteeing or securing the secm-ed
indebtedness or any par! thereof or otherwise executed in connection with the loan evidenced or
governed by the Note or the Agreement (the Note, the Agreement, this Mortgage and such other
instruments being hereid sometimes collectively called the "Loan Documents"); and
(d) All othe'r loans and fi~ture advances made by Noteholder to Grantor and all other
debts, obligations and liabilities'of Grantor of every kind and character now or hereafter existing in
favor of Noteholder, whether direct or indirect, primary or secondary, joint or several, fixed or
contingent, and whethef' originally payable to Noteholder or to a third party and subsequently
acquired by Noteholder, including, without limitation, all obligations of Grantor to Noteholder in
connection with letters :of credit issued by Noteholder at the application of Grantor, it being
contemplated that Grantr)r. may hereafter become indebted to Noteholder for such further debts,
obligations and liabilitie, s. ,.
Section 1.4 Secured Indebtedness. The indebtedness referred to in Section 1.3, and all renewals,
extensions and modifications thereof, and all substitutions tbere£or, in whole or in part, are hereinafter
sometimes referred to as the "secu~'ed indebtedness" or the "indebtedness secured hereby."
ARTICLE Il.
'_Representations, Warranties and Covenants
Section 2.1 Grantor'represents, warrants, and covenants as follows:
(a) Title and Permitted Encumbrances. Grantor has, and Grantor covenants to maintain,
good and defensible ti';lelto the Property free and clear of all liens, security interests, and
encumbrances except fm (i) the contracts, agreements, burdens, encumbrances aod other matters set
forth in the descriptionS oft!ertain of the Mortgaged Properties on Exhibit A hereto, (ii) the liens and
security interests evide~.~ced by this Mortgage, (iii) statutory liens for taxes which are not yet
delinquent, (iv) liens unCer operating agreements, pooling orders and unitization agreements, and
mechanics' and materiahhen's liens, with respect to obligations which are not yet due, (v) other liens
and security interests (if any) in favor of Lender, (vi) minor defects and irregularities in title to any
Property, so long as such defects and irregularities neither (A) are liens or security interests which
secure other indebtedness or obligations nor (B) materially impair the value of such Property or the
use thereof for the purposes for which such Property is held and (vii) liens permitted by the
Agreement (the matters described in the foregoing clauses (i), (ii), (iii), (iv), (v)', (vi) and (vii) being
herein called the "Permitted Encumbrances"); Grantor will warrant and defend title to the Property,'
subject as aforesaid, aga!ns,t the claims and demands (including claims which would be a Permitted
Encumbrance under iteCn (vii) above) of all persons clainfing or to claim the same or any part
thereof. With respect to each Mortgaged Property, the Ownership o£ Grantor in such lMortgaged
Property does and will, (i) with respect to each tract of land described in Exhibit A hereto in
connection with such Mortgaged Property, (A) entitle Grantor to receive (subject to the terms and
provisions of this Mortgage) a decimal, percentage or fiactional share of the Production produced
from, or allocated to, suqh tract equal to not less than the decimal, percentage or fractional share set
forth in Exhibit A in conr,ection with such tract opposite the words "Net Revenue Interest" (or words
of similar import), (B) ca~se Grantor to be obligated to bear a decimal, percentage or fractional Share
of the cost of exploration, development and operation of such tract of land not greater than the
decimal, percentage or fractional share set forth in Exhibit A in connection with such tract opposite
the words "Working Int0.re,st" (or words of similar import) and (ii) if such Mortgaged Property is
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: '
shown in Exhibit A to be subject to a Unit or units, with respect to each such unit, (A) entitle Grantor
to receive (subject to t~e !erms and provisions of this Mortgage) a decimal, percentage or fi'actional
share of Production produced from, or allocated to, such nnit equal to not less than the decimal,
percentage or fractional Share set foflh in Exhibit A in connection with such Mo~gaged ProperW
opposite the words "Unit Net Revenue ~/erest" or words of similar impo~ (and if such Moflgaged
Proper~ is subject to (me~re than one unit, words identifying such interest with such unit), and (B)
obligate Grantor to bdar a decimal share of the cost of exploration, development and operation of
such unit not ~eater than the decimal share set lbrth in Exhibit A in connection with such
Mo~gaged ProperW o'~3lmsite the words "Unit Working Interest" or words of similar import (and if
such Mo~gaged Prope'rty~ is subject to more than one unit, words identi~ing such interest with such
unit); such shares °fP'~od, uction which Grantor is entitled to receive, and sbares of expenses which
Grantor is obligated to b;:ar, are not and will not be subject to change (other than changes which
arise pursuant to non-consent provisions of operating a~eements described in Exhibit A in
connection with such Mortgaged Properties, respectively, in connection with operations hereatier
proposed) except, and only to the extent that, such changes are reflected in Exhibit A. There is not
and will not be any unexpired financing statement covering any part of the Prope~y on file in any
public office naming any pafly other than Lender as secured parW. The execution, delivery and
performance of this Mortgage and the creation of the liens hereunder do not violate any provision
or constitute a defhult under any operating agreement or other instrument which afl~cts any
Mo~gaged ProperW or to which Grantor is a parW.
(b) Leases and Contracts. The oil, gas and/or mineral leases, contracts and other
agreements forming a part of the Property, to the extent the same cover or otherwise relate to the
lands described or retched to in Exhibit A, are in full force and effect,, and Grantor agrees to
maint~qin them in fifil force and effect, including without limitation maintenance of productive
capaci'ty of each well or nnit comprising the Mortgaged Properties. All rents, royalties and other
payments due and payable under such leases, contracts and other agn-eements, or under the Pemfitted
Encumbrances, have been, and Grantor covenants such payments shall be, properly and timely paid,
and Grantor is not in c~'efzult and Will never be in default with respect to Grantor's obligations (and
Grantor is not aware of any default by any third party with respect to such third party's obligations)
under Such leases, cc,nt~:acts and other agreements, or ~,mder the Permitted Encumbrances, or
otherwise attendant tc the ownership or operation of any part of the Property, where such default
could adversely affect the ownership or operation of the Property. Grantor is not currently
accounting (and will not t~ereafter agree to account) fox-any royalties, or overriding royalties or other
payments out ofprodueti0n, on a basis (other than delivery in kind) where such payments are based
other than on proceeds received by Grantor from sale, and Grantor has advised Lender in writing of
situations, if any, whe-e a contingent liability to so account may exist.
(c) Contracts and Credits for Sale of Productmn. Neither Grantor, nor its predecessors
in title, have received prepayments (including, but not limited to, payments for gas not taken
pursuant to "take or pay" arrangements) for Production produced or to be produced from tile
Mortgaged Properties ~,~ft~r the Effective Date (as hereinafter defined), except as expressly set tbrth
in Exhibit A hereto following the descriptiou of each affected Mortgaged Property. No Mortgaged
Property is or will become subject to a gas sales contract containing a "take or pay" or "take and pay"
provision as to which flmpurchaser's obligations under such provision may be satisfied in whole or
in part by the purchase or transportation of gas from another property. No Mortgaged Property is
or will become subject to any contractual or other arrangement whereby payment for production
from such Mortgaged Property is to be deferred for a substantial period after the month in which
such production is delivered (i.e., in tile case of oil, not in excess of 60 days, and in tile case of gas,
not in excess of 90 da:/s)~ No Mortgaged Property is or will become subject to any contractual or
other arrangement for th~ sale of Production which cannot be canceled On 90 days' (or less) notice
or which otherwise contains terms which are not customary in the industry at the time such contract
is entered into. NO Mortgaged Property is subject at tile present time to any regulatory refund
obligation and, to the bes~ ofGrantor's Imowledge, no facts exist which might cause the same to be
imposed. Except as set forth in Exhibit A, no Mortgaged Property is or will be subject to a gas
balancing arrangement under which an imbalance exists with respect to which imbalance Grantor
is in an overproduced status and is required to (i) permit one or more third parties to take a portion
of the production attributable to such Mortgaged Property without payment (or without full payment)
therefor and/or (ii) make payment in cash in order to correct such imbalance.
(d) ConditiOn of Personal Prope .m/. The inventory, equipment, fixtures and other
tangible personal propert): forming a part of the Property are and will remain, in good repair and
condition and are and will be adequate for the normal operation of the Property in accordance with
prudent industry standards; all of such Properly is, and will remain, located on the Mortgaged
Properties, except for that., portion thereof which is or shall be located elsewhere (including that
usually located on the Mortgaged Properties but temporarily located elsewhere) but within the same
State in the course of the normal operation of the Property. Upon request of Noteholder, Grantor
will deliver to Noteholder an inventory and/or financing statements describing and showing the
make, model, serial nurrber and location of all equipment, inventory, fixtures and other tangible
personal property forming a part of the Property and schedules of.all internal and third party
information identifying th/: Property (such as, for example, lease names and numbers assigned by
Grantor or the operator o~!'z~ny Mortgaged Property, division order and payment names and numbers
assigned by Purchasers p!? Production, and internal identification names and numbers used by
Grantor in accounting 5o:r revenues, costs, and joint interest transactions attributable to the
Mortgaged Properties)
(e) Operaticn of Morteaged Properties. Tile Mortgaged Properties '(and proPerties
unitized therewith) are being (and, to the extent the same could adversely affect tile ownership or
operation of the Mortgagee Properties after the Effective Date, have in the past been) and hereafter
will be maintained, operated and developed in a good and workmanlike manner and in conformity
with all applicable laws a~i~t!i'i all rules, regulations and orders of all duly constituted authorities having
jurisdiction and in confomnty with all oil, gas and/or other mineral leases and other contracts and
agreements forming a part of the Property and in conformity with the Permitted Encumbrances.
Without limiting the foregoing, (i) no Mortgaged Property is subject to having allowable production
after the Effective Date,reduced beloW the full and regular allowable (including the .maxinmm
permissible tolerance) because of any overproduction (whether or not the'same was permissible at
the time) prior to the Effective Date and (ii) none of tile wells located on the Mortgaged Properties
(or properties unitized therewith) are or will be deviated from the vertical more than the maximum
permitted by applicable laws, regulations, rules and orders, and such wells are, in fact and will
remain, bottomed under and are producing from, and tile well bores are wholly within, the
Mortgaged Properties (or, in the case of wells located on properties unitized therewith, such unitized
properties).
(f) Taxes ar..'d'Other Obligations. Grantor will pay and discharge when due all of the
secured indebtedness and~ its other indebtedness and obligations. Grantor has filed, and will file, all
required tax returns and has paid, and will pay, all taxes and other governmental charges or levies
imposed upon or against .its income, properties or profits, before the same became, or becomes, in
default, including but not li~nited to all ad valorem taxes assessed against the Property or any part
thereof and all fi'anchise tax!es, occupation taxes and all production, severance, windthll profit, excise
and other taxes assessed'against, or measured by, the Production or the value, or proceeds, of the
Production; provided that. Crantor may delay paying and discharging any indebtedness or obligations
(other than the secured in~tdbtedness) so long as it is in good faith contesting the validity thereol'by
appropriate proceedings m3d has set aside on its books adequate reserves therefor.
(g) Suits and Claims. There are no suits, actions, claims, investigations, inquiries,
proceedings or demands pending (or, to Grantor's knowledge, threatened) which affect the Property
(including, without limit~tion, any which challenge or otherwise pertain to Grantor's title to the
Properly) and no judicial~ or administrative actions, suits or proceedings pending (or, to Grantor's
knowledge, threatened) against Grantor.
(h) Reports. ;All reports, statements and other data heretofore fUrnished or hereafter to
be furnished by or on behalf%f Grantor to Noteholder in connection with the loan or loans evidenced
by the Loan Documents (i(~cluding, without limitation, information with respect to the amount of
Production from the Mort~;a ged Properties, and information, whether furnished directly or subsumed
in the assumptions made.~n any engineering report furnished to Noteholder, concerning contractual
and regulatory constraint~ on the prices at which such Production can be sold) are and will be true
and correct in all material respects as of their respective dates and do not and will not onfit to state
any fact or circumstance necessary to make the statements contained therein not misleading.
(i) Name and Place of Business. Grantor has not, during tile preceding five years, been
known by or used any other :corporate or partnership, trade or fictitious name. Grantor will not cause
or permit any change to be made in its name, identity, or corporate or partnership structure, unless
Grantor shall have notifie,t Noteholder of such change at least thirty (30) days prior to the effective
'date of such change, and shall have first taken all action reqt, ired by Noteholder for the pnrpose of
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further perfecting or protegting the lien and security interest of Noteholder in the Property. Grantor's
principal place of business and chief executive office, and the place where Grantor keeps its books
and records concerning th~} Property (including, particularly, the records with respect to Production
Proceeds (as defined in Section 3.1) hereof, from the Mortgaged Properties) has for the preceding
four months and will continue to be (unless Grantor notifies Noteholder of any change in writing at
least thirty (30) days prior to the date of such change) the address set forth opposite the signature of
Grantor to this Mortgage.,
(.j) Organi?'.ation. In the event Grantor is a corporation, partnership, or other legal entity
which is not a natural person, Grantor is and will continue to be duly organized, validly existing and
in good standing tinder the.laws of its state of incorporation or other form of organization and is and
will continue to be autimrized to do business in, and in good standing in, each state Which the
Mortgaged Properties are located and in each other jurisdiction where Ihe nature of Grantor or the
nature of the business tt'ar,;sacted by Grantor makes such qualification necessary. Grantor has all
requisite corporate or ether power to carry on its business and to enter into, and can-y out, the
transactions contempla~.ed' by the Loan Documents and perform its obligations tinder the Loan
Documents. All necessa~ corporate or other action has been taken to authorize the execution and
delivery by Grantor (and the. individuals acting on behalf of Grantor) of the Loan Documents and
to authorize the consmmnhtion of the transactions contemplated hy the Loan Documents and the
pedbrmance by Grantor: of'its obligations under the Loan Documents. The execution and delivery
by Grantor of the Loan Documents, the consumrnation of the transactions contemplated by the Loan
Documents and the perf0rrnance by Grantor of its obligations under the Loan Documents do not and
will not (i) conflict with ,an~, provision of any (A) law, statute, rule, or regulation in effect on the date
hereof, (B) the Articles 9r!Certificate of Incorporation or Bylaws, or the partnership agreement or
other c~arter documents, 0i'Grantoi-, or (C) any judgment, decree, order, license, permit or agreement
applic~ible to or binding upon Grantor or Grantor's assets or properties Or (ii) result in the creation
of any lien, charge or encumbrance against any assets or properties of Grantor except as expressly
contemplated by the Lo~n Documents. No waiver, consent, approval, authorization or order of any
court or governmental authority or third party is required in connection with the execution and
delivery by Grantor of tl~:e ~oan Documents, or the consummation of the transactions contemplated
thereby or the pertbrmange by Grantor of its obligations therfunder. The Loan Documents constitute
legal, valid and binding obligations of Grantor enforceable in accordance with their terms, except
as limited by bankTup'icy, insolvency or similar laws of general application related to the
enforcement of creditor's r;ghts and except as the availability of certain remedies may be limited by
general equitable principles~
(k) Environmental.
(i) Cnrrent Stares. The Property and Grantor and, to the best knowledge of
Grantor, a/~y property adjoining the Property are not in violation of or subject to any
existing, pending or, to the best kmowledge of Grantor, threatened investigation or
inquiry iby any governmental authority or to any remedial obligations under any
applical,,)le laws or regulations pertaining to heal'th or tile environment (such laws
or regulations as they now exist or are bereafter enacted and/or amended hereinafter
sometin?g collectively called "Applicable Environmental Laws"), including without
limitati¢~n, the Comprehensive Environmental Response, Compensation, and
Liability 'Act of 1980, as amended by the Superfund Amendments and
Reautheri~ation Act of 1986 (as amended, hereinafter called "CERCLA"), the
Resource Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling.Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984 (as amended, hereinafter called
"RCRA");.the Toxic Substance Contro! Act, the Texas Water Code, the Texas Solid
Waste DiSposal Act and the Texas Clean Ail' Act, and this representation will
continue t9 be true and correct following disclosure to tile applicable governmental
authorit'ies of all relevant facts, conditioni and circumstances, if any, pertaining to
the ProPerty and Grantor. Grantor undertook, at the time of acquisition of the
Property, alt appropriate inquiry into the previous ownership and uses of the
Propei-~i, consistent with good commercial or customary praciice to determine if the
Property is in violation of any Applicable Environmental Laws. Grantor has taken
all steps necessary to determine and has determined that no hazardous substances
or solidiWastes have been disposed of or otherwise released on or to the Property
except i~n accordance with Applicable Environmental Laws. The use which Grantor
makes and intends to make of the Property will not result in the disposal or other
release of &ny hazardous substance or solid waste on or to the Property except in
833
accordm ice with Applicable Environmental Laws. The terms "hazardous substance"
and "release" as used in this Mortgage shall have the meanings specified in
CERCL~, and the terms "solid waste" and '!disposal" (or "disposed") shall have the
meaningS; specified in RCRA; provided, in the event either CERCLA or RCRA is
amendei5 so as to broaden the meaning of any term defined thereby, such broader
meaning Shall apply subsequent to the effective date of such amendment and
provide~ further, to the extent that the laws of the State of Texas or other applicable
jurisdict:on establish a meaning for "hazardous substance;" "release," "solid waste,"
or "disposal" which is broader than that specified in either CERCLA or RCRA,
such broader meaning shall apply. The "Associated Property" (as hereinafter
defined) i:; not in violation of any Applicable Environmental Law for which
Grantor or its predecessors in interest m the Property would be responsible. As
used in ti!if; Mortgage, the term "Associated Properly" means any and all real and/or
personal: property interests.in and to (and/or carved out of) the lands which are
described or referred to in Exhibit A hereto, or which are otherwise described in any
of the oil', gas and/or mineral leases or other instruments described or referred to in
such Exhibit A.
(ii) Fu*ture Performance. Grantor will not cause or permit the Property, the
Associate£! Property or Grantor to be in violation of, or do anything or permit
anything to be done which willsubject the Property or the Associated Property to
any remedial obligations under any Applicable Environmental Laws, including
without lin!itation CERCLA, RCRA, the Toxic Substance Control Act, the Texas
Water'Cgde, the Texas Clean Air Act and tbe Texas Solid Waste Disposal Act,
assuming disclosure to the applicable governmental authorities of all relevant facts,
conditior~s:and circumstances, if any, pertaining to the Property or Associated
Property iaod Grantor will promptly notify Noteholder in writing of the presence of
any haza./:dOus substance or solid waste on the Property or the Associated Property
and of any existing, pending or, to the best knowledge of Grantor, threatened
investigatibn or inquiry by any governmental authority in connection with any
Applicable:Environmental Laws. Grantor x. vill take all steps necessary to determine
that no hazardoUs substances or solid wastes have been disposed of or otherwise
released ;~n or to the Property or Associated Properly except in accordance with
Applicable Environmental Laws. Grantor will not cause or permit the disposal or
otber release of any hazardous substance or solid waste on or to the Property, or the
Associated Property or any properly adjoining the Property except in accordance
with Applicable Environmental Laws and covenants and agrees to keep or cause the
Property and the Associated Property to be kept free of any hazardous substance or
solid waste and to remove the same (or if removal is prohibited by law, to take
whatev% action is required by law) promptly upon discovery at its sole expense.
Upon No re.holder's reasonable request, at any time and from time to time during the
existence of this Mortgage, Grantor will provide at Grantor's sole expense an
inspection Or audit of the Property and the Associated Property from an engineering
or consulting firm approved by Noteholder, indicating the presence or absence of
hazardotfg Substances and solid waste on the Property.
(1) Not a Foreign Person. Grantor is not a "foreign person" within the meaning of the
h~ternal Revenue Code of,1986, as amended (hereinafter called the "Code"), Sections 1445 and 7701
(i.e. Grantor is not a non:reSident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those te ~nn~ are defined in the Code and any regulations Promulgated thereunder).
(m) Payment. Grantor will make due and ptlnctual pa)qnent of the Note and of all other
Secured indebtedness and of all installments of principal thereof or interest thereon, as tbe same
become due and payable, whether at a date for payment of a fixed installment, or contingent or other
payment, or as a result ofacceleration or otherwise. Grantor will timely and properly perform all
of the covenants, agreements, and conditions imposed upon it by this Mortgage or the Loan
Documents and will not p~ermit a default to occur hereunder or thereunder.
'i
(n) Not AbandOn Wells and Participate in Operations. Grantor will not, without prior
written consent of Notehoidi:r, abandon, or consent to the abandonment of, any well producing from
the Mortgaged Properties: (Or properties unitized therewith) so long as such well is capable (or is
subject to being made ca")able through drilling, reworking or other operations whigh it would be
commercially feasible to conduct) of producing oil, gas, or other hydrocarbons or other minerals in
commercial quantities (as determined without considering the effect of this Mortgage), Grantor will
7
not, without prior written consent of Noteholder, elect not to participate in a proposed operation on
the Mortgaged Propert?es where the effect of such election would be the tbr Feiture either temporarily
(i.e. until a certain sum of money is received out of the forfeited interest) or permanently of any
interest in the Mortgaged Properties.
(o) Defense of Mortgage. If the validity or priority of this Mortgage or of any rights,
titles, liens or security !nterests created or evidenced hereby with respect to the Property or an y part
thereof or the title of Grantor to the Property shall be enda n gered or questioned or shall be attacked
directly or indirectly or if:any legal proceedings are instituted against Grantor with respect thereto,
Grantor will give prom)t';arritten notice thereof to Noteholder and at Grantor% own cost and expense
will diligently endeavor to cure any defect that may be developed or claimed, and will take all
necessary and proper s':eys for the defense of such legal proceedings, including, but not litnited to,
the employment of counsel, the prosecution or defense of litigation and the release or discharge of
all adverse claims, and Trustee and Noteholder, or either of them (whether or not named as pames
to legal proceedings With respect thereto), are hereby authorized and empowered to take such
additional steps as in their judgnnent and discretion may be necessary or proper for the defense of
any such legal proceedings or the protection of the validity or priority of this Mortgage and the
rights, titles, liens and sec arity interests created or evidenced hereby, including but not limited to the
employment of indepeadmt counsel, the prosecution or defense of litigation, the compromise or
discharge of any adverse claims made with respect to the Property, the purchase of any tax title and
the removal of prior lfen's or security interests, and all expenditures so made of every kind and
character shall be a demand obligation (which obligation Grantor hereby expressly promises to pay)
owing by Grantor to Noteholder or Trustee (as the case may be) and shall bear interest from the date
expended until paid at me.rate described in Section 2.3 hereof, and the party incurring such expenses
shall be subrogated to all rights of the person receiwng such payment.
(p) Further Assurances. Grantor will, on request ofNoteholder, (i) promptly correct any
defect, error or omission which may be discovered in the contents of this Mortgage, or in any other
Loan Docnment, or in the execution or ackmowledgmem of this Mortgage or any other Loan
Document; (ii) execute, acknowledge, deliver and record and/or file such fi~rther instruments
(including, without limitation, further deeds of trust, sect}rity agreements, financing statements,
continuation statements, and assignments of production, accounts, funds, contract rights, general
intangibles, and proceeds) and do such filrther acts as may be necessary, desirable or proper to carry
out more effectively the. parposes of this Mortgage and tl~e other Loan Documents and to more fifily
identify and subject to the liens and security interests hereof any property intended to be covered
hereby, including specilically, but without limitation, any renewals, additions, substitutions,
replacements, or appmtenances to the Property; and (iii) execute, acknowledge, deliver, and file
and/or record any document or instrument (inch, ding specifically any financing statement)
reasonably requested by Noteholder to protect the lien or the security interest hereunder against the
rights or interests of third:persons. Grantor shall pay all costs connected with any of the foregoing.
(q) Fees ahd,Expenses; Indemnity. Grantor xvill pay all appraisal fees, recording fees,
taxes, brokerage fees and commissions, abstract and other records search fees, attorneys' fees and
expenses and all other 'zosts and expenses of every character incurred by Grantor or Noteholder in
connection with the closing of the loan or loans evidenced by the Loan Documents and any and all
amendments, supplements or modifications to such loan transaction or transactions. Grantor wilt
reimburse Trustee and Noteholder for all expenditures, including reasonable attorneys' fees and
expenses, incurred or expended in connection with (i) the breach by Grantor of any covenant,
agreement or condition contained herein or in any other Loan Document, (ii) Noteholder's exercise
of any of its rights ar, d 'remedies hereunder or under any other Loan Document, and (iii) the
protection of the Property and/or Noteholder's liens and security interests therein. Grantor will
indemnify and hold harmless Trustee and Noteholder (for purposes of this paragraph, the terms
"Trustee" and "Noteholder" shall include the directors, officers, partners, employees and agents of
Trustee and Noteholder, respectively, and anypersons or entities owned or controlled by or affiliated
with Trustee and Notel~older, respectively) from and against all claims, demands, liabilities, losses,
damages (including v, ithout limitation consequential damages), causes of action, judgments,
penalties, costs and expen'ses (including without limitation reasonable attorneys' fees and expenses)
which may be imposed' upon, asserted against or incurred or paid by either of them on account
in connection with, or arising out of(A) any bodily injury or death or property damage occurring in
or upon or in the vicinity of the Property through any cause whatsoever, (B) any act performed or
omitted to be performerl hereunder or the breach of any representation or warranty herein, (C) the
exercise of Noteholder'; rights and remedies hereunder or under any other Loan Docu. ment, (D) any
transaction, act, omission, event or circumstance arising out of or in any way connected with the
Property or with this Mortgage or any other Loan Document, (E) any violation on or before the
835
Release Date (as hereina'fl~r defined) of any Applicable Environmental Law in effect on or before
the Release Date, (F) any act, onfission, event or circumstance existing or occurring on or prior to
the Release Date (inclUding without limitation the presence on the ProPerty or the Associated
Property or release fi-omihe Property or the Associated Property of hazardous substances or solid
wastes disposed of or otherwise released, on or prior to the Release Date), resulting from or in
connection with the oum.,erihip, construction, occupancy, operation, use and/or maintenance of the
Property or the Associ.at~d Property, regardless of whether tile act, omission, event or circumstance
constituted a violation 0f any Applicable Environmental Law at the time of its existence or
occurrence, and (G) an3 and all claims or proceedings (whether brought by private party or
governmental agencies) fi)r bodilyinjury, property damage, abatement or remediation, environmental
damage or impairment o(any other injury or damage resulting from or'relating to any hazardous or
toxic substance, solid was'ie or contaminated material located upon or migrating into, from or
through the Property or the Associated Property (whether or not the release of such materials was
caused by Grantor, a tenv, nt or subtenant or ~ prior owner or tenant or subtenant on the Property or
the Associated Property.and whether or not the alleged liability is attributable to the handling,
storage, generation, transportation, removal or disposal of suc!l substance, waste or material or the
mere presence of such st'~b~tance, waste or material on the Property or the Associated Property),
which the Noteholder and/c'r the Trustee may incur due to the making of'the loan evidenced by the
Note, the exercise of any of their rights tinder the Loan Documents or otherwise. The "Release
Date" as used herein shall mean the earlier of the following two dates: (i) the date on .which the
indebtedness secured he'eby have been paid and performed iu tull and this Mortgage' has been
released, or (ii) the date 0n which the lien of this Mortgage is foreclosed or a deed in lieu of such
foreclosure is fully effective. WITHOUT LIMITATION, IT IS THE INTENTION OF
GRANTOR AND GRANTOR AGREES THAT THE FOREGOING INDEMNITIEs SHALL
APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO ,CLAIMS, DEMANDS,
LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES,
COSTS AND "
EXPENSI~,S (INCLUDING WITIIOUT LIMITATION REASONABLE
ATTOILNEYS' FEES)W]/HCH IN WHOLE OR IN PART ARE. CAUSED BY OR ARISE
OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTIIER) INDEMNIFIED PARTY.
HoWever, such indemnities 5hall not apply to any particular indemnified party (but shall apply to the
Other indemnified parties) to the extent the subject of the in. demnification is caused by or arises out
of the gross negligence or v~:illful ~nisconduct of such particular indenmified party. The foregoing
indemnities shall not terminate upon the Release Date or upon the release, foreclosure or other
termination of this Mortgage but will survive the Release Date, foreclosure of this Mortgage or
conveyance in lieu of forc'cl6sure, and the repayment of the secured indebtedness and the discharge
and release of this Mortgage and the other Loan Documents. Any amount to be paid hereunder by
Grantor to Noteholder and/olr Trustee shall be a demand obligation owing by Grantor to Noteholder
and/or Trustee and shall be subject to and covered by the provisions of paragraph 2.3 hereof.
(r) Disposititm: of Property. Grantor shall account fully and faithfully for and, il'
Noteholder so elects, shall promptly pay or turn over to Noteholdcr the proceeds in whatever form
received from dispositior~ in any manner of any of tile Property.
(s) Records 0nd Financial Reports. Grantor Will keep accurate books and records in
which full, true and correct entries shall be promptly made with respect to the Property and the
operation thereof. Unless otherwise directed in any loan or credit agreement which is one of the
Loan Documents, Grantor' will furnish to Noteholder, as soon as reasonably practicable, but inany
event within 60 days afim'.the end of each fiscal quarter of Grantor, a balance sheet as of the end of
such quarter and a statenmnt'ofoperations for such quarter, and as soon as reasonably practical, but
in any event within 120 days following the end of each fiscal year, similar data with respect to such
fiscal year and a report thereon prepared by independent certified public accountants acceptable to
Noteholder. Grantor will? u)on request, furnish to Noteholder any information which Noteholder
may from time to time re,~:sonablY request concerning any covenant, provision or condition of this
Mortgage or any other of, thee Loan Documents or any matter in connection with the business and
operations of Grantor. · (,jra~ntor will permit representatives appointed by Noteholder, inch}ding
independent accountants,.~gents, attorneys, appraisers, inspectors and any other persons, to visit and
inspect during its norma~ business hours and at any other reasonable times any of its property,
including its books ofaccaunt, other books and records, and any facilities or other business assets,
and to make extra copies ~therefrom, photocopies thereot; photographs thereof, and to xvrite down
and record any infonnatiou such representatives obtain, and shall permit Noteholder or its
representatives to investigat~ and verify the accuracy of tile information furnished to Noteholder
under or in connection withlthis Mortgage or any of the other Loan Documents and to discuss all
such matters with its officerS, employees and representatives. Grantor will furnish'to Noteholder
at Grantor's expense all evidence which Noteholder may flora time to time reasonably request as to
9
.-. ,..83G
the accuracy and validity 0for compliance with all representations, warranties and covenants made
by Grantor in the Loan Documents, the satisfaction of all conditions contained therein, and all other
matters pertaining thereto.
(t) No CrSdiis Against Take or PaY Provisions. Grantor will not, without prior written
consent of Noteholder,;authorize the purchaser or transporter of gas fi-om nnotber property to satisfy
such purchaser's or transl~orter's obligations under a "take or pay" or "take and pay" provision of a
gas sales contract covering all or any part of the Mortgaged Properties by the purchase or
transportation of gas fi'om such other property.
(u) Insurance. Grantor will keep such part of the Property which is of an insurable
nature and of a characterl usually insured by persons operating similar properties, insured with
companies of recognized responsibility satisfactory to Noteholder and in such amounts as are
acceptable to Noteholc'er (and in the absence of specification of such amounts by Noteholder, in the
amount of the thll value of such Property, less reasonable deductibles not to exceed deductibles
customary in the industry!for similarly situated bnsinesses and properties), against loss or damage
by fire, casualty and fi:on::~ other hazards customarily insured against by persons operating similar
properties. Grantor st-_all'ialso provide such other insurance as Noteholder may from time to time
reasonably require; such coverage to be carried With companies of recognized responsibility
satisfactory to Notebolder. All policies evidencing such insurance shall contain clauses providing
that the proceeds there6fsj~all be payable to Noteholder as its interest may appear and providing that
Such policies may not 5e .:anceled, reduced or otherwise affected without at least thirty (30) days'
prior written notice to Notcholder. Upon request by Noteholder, Grantor shall deliver to Notebolder
the original, policies, evi&mce of payment of premiums, certificates evidencing renewals, and such
other information rega. rding such insurance as Noteholder may request. In the event of any loss
under ~ny of such policiesl, Noteholder shall have the right (but not tile obligation) to make proof of
loss and collect the satne,~ and all amounts, so received shall be applied toward costs, charges and
expenses (including reasonable attorneys' fees), if any, incurred in the collection thereof, then to the
payment, in the order determined by Noteholder in its own discretion, of the secured indebtedness,
and any balance remaining shall be subject to the order of Grantor. Noteh01der is hereby authorized
but not obligated to enforce itl its name or in the name of Grantor payment of any or all of said
policies or settle or compromise any claim in respect thereof, and to collect and make receipts for
the proceeds thereof and Noteholder is hereby appointed Grantor's Agent and Attorney-in-Fact (such
power of attorney being coupled with interest and irrevocable until the secured indebtedness is paid
in full and this Mortgage has been released) to endorse any check or draft payable to Grantor in order
to collect the proceeds of insurance. In the event of foreclosnre of this Mortgage, or other transfer
of title to the Property in extinguishment in whole or m part of the secured indebteduess, all right,
title and interest of Grantor in and to such policies then in tbrce concerning the Property and all
proceeds payable there~under shall thereupon vest in the purchaser at such foreclosure or Noteh01der
or other transferee in the ~event of such other transfer of title. Grantor shall at all times maintain
adequate insurance against its liability on account of damages to persons or property, which
insurance shall be carried by companies of recognized responsibility satisfactory to Noteholder, and
shall be for such amounts and insure against Such risks as are cnstomary in the industry for similarly
situated businesses and properties. Grantor shall at all times maintain cost of regaining control of
well insurance and similar insurance to the extent customary in the industry in the pertinent area of
operations.
(v) Taxes on Note or Mortgage: Grantor will promptly pay all income, franchise and
other taxes owing by Grantor and any stamp taxes or other taxes (unless such payment by Grantor
is prohibited by law) which may be required to be paid with respect to the Note, this Mortgage or
any other instrument evk!encing or securing any of the secured indebtedness. In the event of the
enactment after this date t!fany law of any governmental entity applicable to Noteholder, the Note,
the Property or this Mortgage deducting from the value of property for the purpose of taxation any
lien or security interest thereon, or imposing upon Noteh01der the payment of the whole or any part
of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in
anY way the laws relating, to the taxation of deeds of trust or mortgages or security agreements or
debts secured by deeds of mist or mortgages or security agreements or the interest of the mortgagee
or secured party in tile property covered thereby, or the manner of collection of such taxes, so as to
affect this Mortgage o~ the indebtedness secured hereby or Noteholder, then, and in any such event,
Grantor, upon demand by Noteholder, shall pay such taxes, assessments, charges or liens, or
reimburse Noteholder t!mTefor; provided, however, that if in the opinion of counsel for Notebolder
(i) it might be unlawfu? to.require Grantor to make such payment or (ii) the making of such payment
might result in the imposition of interest beyond the maximum amount permitted by law, then and
in such event, Noteholder may elect, by notice in writing given to Grantor, to declare all of the
837
indebtedness secured he~reby to be and become due and payable sixty (60) days from the giving of
such notice..
(w) Statement Concerning Note 0r Mortgage. Gramor shall at any time and fi'om time
to time furnish promptly upon request by Noteholder a wrillen statement in such fo~ as may be
required by Noleholder ~;tqting that (i) tlm Note, this Mortgage and the other Loan Documems are
valid and binding obligati0'~s of Grantor, enforceable against Grantor in accordance with lheir lerms
except as limited by bar ~uptcy, insolwnoy or similar laws.of general application related to the
enforcement of creditor's rights and except as the availabilily of certain remedies may 1)e limited by
general equitable principles; (ii) the unpaid p~ncipal balance of the Note; (iii) the date to which
interest on the Note is paid; (iv) that tim Nora, this Mortgage and the olher Loan Documents haw
not been released, subordinated or modified; and (v) that there are no offsets or defenses against the
enforcement of the Note, .this Mortgage or any other Loan Document. If any of the foregoing
statements are untrue, Grantor shall, alternatively, specify the reasons therefbr.
Section 2.2 Compliance by Operator. As to any part of the Mortgaged Properties which is not
a working interest, Grantor agrees, to take all such action and to exercise all rights and remedies as are
available to Grantor to cause the owner or owners of the working interest in such Properties to comply wilh
the covenants and agreements contained herein; and as to any part of the Mortgaged Properties which is a
working interest but which is ope.i'a,ted by a party other than Grantor, Grantor agrees to take all such action
and to exercise all rights and remedies as are available to Grantor (including, but not limited to, all rights
under any Operating Agreement)"to; cause the party who is the operator of such property to comply with the
covenants and agreements contail)ed herein.
Sectiop2.3 Perf°rmz'~i:ebvNoteholder on Grantor's Behalf. Grantor agrees that, if Grantor fails
to perform any' act or to take any'action which hereunder Grantor is required to perform or take, or to pay
any money which hereunder Grafito? is required to pay, Noteholder, in Grantor's name or its own name, may,
but shall not be obligated to, per?om~ or cause to be performed such act or take such action or pay such
money, and any expenses so ingurred by Noteholder and any money so paid by Noteholder, shall be a
demand obligation owing by Grant;)r to Noteholder (which obligation Grantor hereby expressly promises
to pay) and Noteholder, upon makipg such paYment, shall be subrggated to all of the rights of the person,
corporation or body politic receix;ing such payment. Each amount due and owing by Grantor to Noteholder
pursuant to this Mortgage shall bear interest each day, from the date of such expenditure or paYment until
paid, at a rate equal t° tim rate as provided for past-due principal under the Note (provided that, should
applicable law provide for a maximum permissible rate of interest on such amounts, such rate shall not be
.. greater than such maximum permi§sible rate); all such amounts, together with such interest thereon, shall be
a part of the secured indebtedness; and shall be secured by this Mortgage.
ARTICLE III.
Assi~tment of Production, Accounts, and Proceeds
Section 3.1 Assi~,mment of Production. Grantor does hereby absolutely and unconditionally
assign, transfer and set over to N0teholder all Production which accrues after the Effective Date to Grantor's
interest in the Mortgaged Properties (all proceeds of such Production and paYments in lieu of Production
such as "take or pay" proceeds and pfiYments in lieu of Production being herein referred to as the "Production
Proceeds"), together with the immediate and continuing right to collect and receive such Production
Proceeds. Grantor directs and instructs any and all purchasers of any Production to pay to Noteholder all
of the Production Proceeds accruing to Grantor's interest until such time as such purchasers have been
furnished with evidence that all sedu[ed indebtedness has been paid and that ibis Mortgage bas been released.
Grantor agrees that no purchaserslof the Production shall haye any responsibility for the application of any
funds paid to Noteholder.
Section 3.2 Effectuating Pa. yment of Production Proceeds to Noteholder. independent of the
foregoing provisions and authorities herein granted, Grantor agrees to execute and deliver any and all transl~r
orders, division orders and other instruments that may be requested by Noteholder or that may be required
by any purchaser of any Production for the purpose of effectuating pay~nent of the Production Proceeds to
Noteholder. If under any existiOg isales agreements, other than division orders or transfer orders, any
Production Proceeds are require~,i to be paid by the purchaser to Grantor so that under such existing
agreements payment cannot be made of such Production Proceeds to Noteholder, Grantor's interest in all
Production Proceeds under such sales agreements and in all other Production Proceeds which for any reason
may be paid to Grantor shall, when received by Grantor, constitute trust fimds in Grantor's hands and shall
be immediately'paid over to Noteholder. Without linfitation upon any of the foregoing, Grantor hereby
constitutes and appoints Noteholdler as Grantor's special attorney-in-fact (with fifil power of substitution,
11
either generally or for such periods or purp.oses as Noteholder may flora time to time prescribe) in tbename,
place and stead of Grantor to c'o any and every act and exercise any and every power that Grantor might or
could do or exercise personally wi th respect to all Production and Production Proceeds (the same having been
assigned by Grantor to Noteho. ldcr pursuant to Section 3.1 hereof), expressly inclusive, but not limited
the right, power and autbority to:
(a) Execute and deliver in the name of Grantor any and all transfer orders, division
orders, letters in lieu of transfer orders, indemnifications, certificates and other instruments of every
nature that may be requested or reqnired by any purchaser of Production from any of the Mortgaged
Properties for the purposes of effectuating payment of the Production Proceeds to Noteholder or
which Notebolder may otherwise deem necessary or appropriate to effect the intent and purposes of
the assigmnent contained in Section 3.1; and
(b) If under m~y product sales agreements other than division orders or transfer orders,
any Production Proceeds are required to be paid by the purchaser to Grantor so that under such
existing agreements payment cannot be made of such Product. ion Proceeds to Noteholder, to make,
execute and enter into such sales agreements or other agreements as are necessary to direct
Production Proceed;: to be payable to Noteholder;
giving and granting unto said attorney-in-fact full power and authority to do and perform any and every act
and thing whatsoever necessary and requisite to be done.as tully and to all intents and purposes, as Grantor
might or could do if personally present; and Grantor Shall be bound thereby as fully and effectively as if
Grantor had personally executed, a :knowledged and delivered any o fthe foregoing certificates or documents.
The powers and authorities her~in conferred upon Noteholder may be exercised by Noteholder through any
person who, at the time of the e:':ec'ution of the particular instrument, is an officer of Notebolder. The power
of attorney hei'ein conferred is granted for valuable consideration and hence is Coupled with an interest and
is in-evocable so long as the seci~re~l indebtedness, or any part thereof, shall remain unpaid and this Mortgage
is unreleased. Ail persons deal~ngwith Noteholder or any substitute, shall be fiflly protected in treating the
powers and authorities conferr2M by this paragraph as continuing in fi211 force and effect until advised by '
Notebolder that all the secured,indebtedness is fully and finally paid and this Mortgage is released.
Section 3.3 Cbang~_.~o.f Purchaser. Should any person now or hereafter purchasing or taking
Production fail to make paymm,~t promptly to Noteholder of the Production Proceeds, Noteholder shall have
the right to make, or to require Gra ator to make, a change of connection and the right to designate or approve
the purchaser with whose lhcil/ties a new connection shall be made, and Noteholder shall have no liability
or responsibility in connection.therewitb so long as ordinary care is used in making such designation.
Section 3.4 Al~l~licati,)n of Production Proceeds. So long as no default has occurred hereunder,
the Production Proceeds received ~by Noteholder during each calendar month shall on the first business day
of the next succeeding calendar rnYnth (or, at the option of Noteholder, on any earlier date or any regular
payment date specified for payments on the Note) be applied by Noteholder as follows:
FIRST, to the payment of all secured indebtedness then due and payable, in such manner and
order as Noteholder de'e,'ms advisable;
SECOND, to tl-~e prepayment (without penalty) of any other secured indebtedness (including
any accrued interest) in such manner and order and to such extent as Noteholder deems advisable;
and
THIRD, tbe remainder, if any, of the Production Proceeds shall be paid over to Grantor or
to Grantor's order or tosuch other parties as may b~ entitled thereto'by law.
After a default hereunder has oc~,urred, all Production Proceeds fi-om time to time in the hands of Noteholder
shall be applied by it toward the'pa3'ment of all secured indebtedness (principal, interest, attorneys' fees and
other fees and expenses) at such' times and in such manner and order and to such extent as Noteholder deems
advisable.
Section 3.5. Release From Liability; Indemnification. Noteholder and its successors and assigns
are hereby absolved from all lia:bil'.ty for failure to enforce collection of the Production Proceeds and from
all other responsibility in conn¢cti!)n therewith, except the responsibility of each to account lo Grantor for
funds actually received by each'. Grantor agrees to indemnify and hold harmless Noteholder (for purposes
of this paragraph, the term 'Not :hoMer" shall include tbe directors, officers, partners, employees and agents
of Noteholder and any persons ('ir entities owned or controlled by or affiliated with Noteholder) against any
and all clailns, demands, liabilities, losses, damages (including without limitation consequential damages),
12
,.i'839
causes of action,judgments, penalties, costs and expenses (including without limitation reasonable attorneys'
fees and expenses) by reason of the assertion that Noteholder received, either before or after payment in full
of the secured indebtedness, fdnds from the production of oil, gas, other hydrocarbons or other minerals
claimed by third persons (and/c4r funds attributable to sales of production which (i) were made at prices in
excess of the maximum price p.ermitted by applicable law or (ii) were otherwise n~ade in violation of laws,
roles, regulations and/or orders ig0verning such sales), and Notebolder shall have the right to defend against
any Such claims or actions, em.13lOying attorneys of its own selection, and if not furnished with indemnity
satisfactory to it, Noteholder s!~!ail have the right to compromise and adjust any such claims, actions and
judgments, and in addition to th~ rights to be indemnified as herein provided, all amounts paid by Noteholder
in compromise, satisfaction or discharge of any such claim, action or judgment, and all court costs, attorneys'
fees and other expenses of every character expended by Noteholder pursuant to the provisions of this section
shall be a demand obligation (which obligation Grantor hereby expressly promises to pay) owing by Grantor
to Noteholder and shall bear interest, from the date expended nntil paid, at the rate described in Section 2.3
hereof. WITHOUT LIMITATION, IT liS TIIE INTENTION OF GRANTOR AND GRANTOR
AGREES THAT THE FORE'o°OING INDEMNITIES SIIALL APPLY TO EACH INDEMNIFIED
PARTY WITH RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES
(INCLUDING WITHOUT LIMITATION CONSEQUENTIAL DAMAGES), CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND EXPENSES 0NCLUDING WITHOUT LINIITATION
REASONABLE ATTORNEYS' FEES AND EXPENSES) WItlCH IN WIIOLE OR IN PART ARE
CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER)
INDEMNIFIED PARTY. However, such indemnitie, s shall not apply to any particular indemnified party
(but shall apply to the other indemnified parties) to the extent tile subject of the indemnilication is caused
by or arises out of the gross negligence or willfid misconduct of such particular indemnified party.
SectioB 316 Grantor's'Absolute Obligation to Pay Note. Nothing herein contained shall detract
from or limit the obligations of Grantor to make prompt payment of the Note, and any and all other secured
indebtedness, at the time and in the manner provided herein and in the Loan Documents, regardless of
whether the Production and Prodtiction Proceeds herein assigned are sufficient to pay same, and the rights
under this Article IH shall be cU~ulative of all other rights of Noteholder under the Loan Documents.
Section3.7 RightsUfider Oklahoma Oil and Gas Owne[s' Lien Act. Grantorherebygrants, sells,
assigns, sets over and inortgages unto Noteholder during the term hereof, all of Grantor's fights and interests
pursuant to the provisions of thc Oil and Gas Owners' Lien Act (OKLA. STAT. tit. 52, §§548.1-548.6 (the
"Oklahoma Act"), hereby vesting in Noteholder all of Grantor's rights as an interest owner to the continuing
security interest in and lien upon !~he Production. Noteholder may, at its option, file the vefified notice of
lien in order to perfect such lien, but shall not be obligated to make such filing and shall not be held liable
to Grantor for any act or omissibn pursuant to the Oklahoma Act.
SectiOn 3.8 Righ. ts. Urlder New Mexico Act. Grantor hereby grants, sells, assigns, sets over and
mortgages unto Noteholder during the term hereoI; all of Grantor's rights and interests pursuant to the
provisions of Sections 48-9-1, et seq., N.M.S.A. 1978 Comp. (tim "New Mexico Act"), hereby vesting in
Noteholder all ofGrantor's right,s ~s an interest owner to the continuing security interest in and lien upon the
Production. Noteholder may, ar iI:s option, file the verified notice of lien in order to perfect such lien, but
shall not be obligated to make :~uch filing and shall not be held liable to Grantor for any act or omission
pursuant to the New Mexico Act.
Section 3.9 Rights 'Under Texas Act Grantor hereby grants, sells, assigns, sets over and
mortgages unto Noteholder during the term hereof, all of Grantor's rights and interests pursuant to the
provisions of Section 9.319 of the Texas Business and Commerce Code hereby vesting in Noteholder all of
Grantor's rights as an interest owner to the continuing security interest in and lien upon the Production.
ARTICLE IV.
Remedies Upon Default
Section 4.1 DefauF, Tbe term "default" as used in this Mortgage shall mean tile occurrence of
any of the following events:
(a) the fail ,ute of Grantor to make due and punctual payment of the Note or of any other
secured indebtedness or of any installment of principal thereof or interest thereon, or any part
thereof, as the same shall become due and payable, whether at a date for payment of a fixed
installment or contingent or other payment, or as a result of acceleration, or otherwise; or
13
(b) the failUreofGrantor to pay over to Noteholder any Production Proceeds which are
receivable by Noteholder u, nder this Mortgage but which are paid to Grantor rather than Noteholder
(either as provided for in Section 3.2 hereof or otherwise), except Production Proceeds paid over to
Grantor by Noteholder t,m:~er clause THIRD of Section 3.4 and such failure is not remedied within
5 days after written notice ~and demand by Noteholder; or
(c) the failure of Grantor timely and properly to observe, keep or perform any covenant,
agreement, warranty or ':zondition herein or in any other Loan Document required to be observed,
kept or performed (othe' than covenants and agreements to pay the secured indebtedness), if such
failure is not remedied widfin the applicable grace period provided for in such Loan Document; or
(d) any representation contained herein or contained in any other Loan Document, or
otherwise heretofore or hereafter made by or on behalf of Grantor to Noteholder, shall prove to have
been fitlse or misleading in any material respect on the date, or as of which, made and such
representation is not made rote and correct (as of the time such corrective action is taken) within the
applicable grace period orovided for in such Loan Document; or
(e) the sale., exchange, lease, transfer, or other disposal, without the prior written
consent of Noteholder, df any part of, or interest in, the Property other than (i) sales, transfers and
other dispositions of machinery, equipment and other personal property and fixtures made in
connection with a release, surrender or abandonment of a lease (to which Noteholder has given its
prior ~vritten consent), (it~) sales, transfers and other disPositions of machinery, equipment and other
personal'property and fi>:.tures in connection with the abandonment (to which Noteholder bas given
its prior written consent) of a well, (iii) sales, transfers and other dispositions of machinery,
equipment and other personal property and fixt-ures which are replaced by articles of at least equal
suitability and value owned by Grantor free and clear of all liens except this Mortgage and the
Permitted Encumbrancel;, ond (iv) sales of Production that has been produced, which are made in
the ordinary course of business in bona fide arms length transactions with third parties not affiliated
with Grantor and at the best price (and on the best terms) available (which shall, in the case of
Production which is subjeC~t to price controls and/or is sold, in accordance with customary industry
practice, pursuant to long iterm purchase contracts, be determined giving consideration to such
matters) and for which payments are made by checks, drafts, wire transfer advices or other similar
writings, instruments or boinmunications for the immediate payment of money; provided that sales
arrangements permitted by:clause (iv) shall provide that payment of proceeds of sale of Production
will not be deferred for a substantial period after the end of the calendar month in which delivery
occurred (in no event more than 90 days for gas and 60 days for oil) and will not be received prior
to delivery (and payment of such proceeds will not, in lhct, be so deferred or received Prior to
delivery), and nothing inlclause (iv) shall be construed as limiting Noteholder's rights under Article
III of this Mortgage; or"
(0 Grantor, suiffers the entry against it of a judgment, decree or order for relief by a
court ofcompetentjurisciction in an involuntary Case commenced under any applicable bankruptcy,
insolvency or other stint'far:law of any jurisdiction noxv or hereafter in effect, including the United
States Bankruptcy Code.' a~; amended; or
(g) Grantor' st',ffers the appoinhnent of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or Similar official for a substantial part of its assets'or for any part of the
Property in a proceeding.brought against it and (1) such appointment is neither made ineffective nor
discharged within thirty days after the making thereof, or (2) such appointment is consented to,
requested by, or acquies~:'ed to by Grantor; or
(h) Grantor!'commences an action or voluntary case under any applicable bankruPtcy,
insolvency or sinfilar lav,z now or hereafter in efl~ct, including the United States Bankruptcy Code,
as amended; or consents ~o the entry of an order for relief in an involuntary case under any such law
or to the appointment of ~r taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar official of any substantial part of its assets or any part of the Property;
or
(i) Grantor makes a general assit,mment for the benefit of creditors or fifils generally
to pay .its debts as such C ebts become due or takes corporate or other action in fi~rtherance thereof
or in furtherance of any proceeding described in subparagraph (h) immediately above; or
14
(j) Grantor'suffers a writ or warrant of attachment or any similar process to be issued
by any court against all or any substantial part Of its property or any part of the Property, and such
writ or warrant of attachment or any similar process is not stayed or released within thirty days after
the enrry or levy thereof} or
(k) Any of ih: events referred to above m subsections (c), (d), (f), (g), (h), (i) and (j)
shall occur with respect' to any guarantor of the secured indebtedness and shall not be remedied
within the applicable grace period (if any) set forth in such subsections; or
(1) a "default" or "event of default" occurs under any Loan Document, other than this
Mortgage, which defines either such term and the same is not remedied within the applicable period
of grace (if any) provided in such Loan Docmnent.
Section 4.2 Acceleration of Secured Indebtedness. Upon the occurrence of a default described
in subsection (f), (g), or (h) of section 4.1 above, all of the secured indebtedness shall thereupon be
immediately due and payable, without presentment, demand, protest, notice of protest, declaration or notice
of acceleration or intention to accelerate, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Gra~ntor. During the continuance of auy other default, Noteholder at any time
and from time to time may without notice to Grantor or any other person declare any or all of the secured
indebtedness immediately due and payable and all such secured indebtedness shall thereupon be immediately
due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of
intention to accelerate or any o"her notice or declaration of any kind, all of.which are hereby expressly
waived by Grantor, and the liens evidenced hereby shall be subject to foreclosure in any manner provided
for herein or provided for by !aw as Noteholder may elect.
Section 4.3 Pre-Foraclosure Remedies. Upon the occurrence of a default, or any event or
circumstance which, with the lapse of time or the giving of notice, or both, would constitute a default
hereunder, Noteholder is authorized, prior or subsequent to the mstitutmn of any foreclosure proceedings,
to enter upon the Property, or any part thereof, and to take possession of the Property and all books and
records relating tbereto, and to e'~eccise without interference from Grantor any and all rights which Grantor
has with respect to the management, possession, operation, protection or preservation of the Property. All
costs, expenses and liabilities of every character incurred by Noteholder in managing, operating, maintaining,
protecting or preserving the Property shall constitute a demand obligation (which obligation Grantor hereby
expressly promises to pay) owing by Grantor to Noteholder and shall bear interest from date df expenditure
until paid at the rate described in Section 2.3 hereof, all of which shall constitute a portion of the secured
indebtedness and shall be secured by this Mortgage and by any other instrument securing the secured
indebtedness. If necessary to obtain the possession provided for above, Noteholder may invoke any and all
lawful remedies to dispossess G"antor. In connection with any action taken by Noteholder pursuant to this
Section 4.3, Noteho!der shall o.ot be liable for any loss sustained by Grantor resulting from any act or
omission of Noteholder in managihg the Property unless such loss is caused by the willfid misconduct and
bad faith of Noteholder, nor sha',ll Noteholder be obligated to perform or discharge any obligation, duty or
liability of Grantor arising under, any agreement forming a part of the Property or arising under any Permitted
Encumbrance or otherwise arising.. Grantor hereby assents to, ratifies and confirms any and all actions of
Noteholder with respect to the Property taken tinder this Section 4.3. without wilthl misconduct and bad
faith.
Section 4.4 Foreclosnre. Upon the occurrence of a default, Trustee, or bis successor or
substitute, is authorized and empo.~vered and it shall be his special duty at the request of Noteholder to sell
the Mortgaged Properties or an~/part thereof as an entirety or in parcels as Noteholder may elect, at such
place or places and otherwise in the manner and upon such notice as may be required by law or, in the
absence of any such reqtfirement, as Trustee may deem appropriate. To the extent permitted by applicable
law, any sale may be adjourned l~.y announcement at the time and place appointed for such sale without
further notice except as may be r~q:.dred by law. The sale by Trustee of less than the wlmle of the Mortgaged
Properties shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make
successive sale or sales under st*cl~ power until the whole of the Mortgaged Properties shall be sold; and, if
the proceeds of such sale ofless~than the whole of the Mortgaged Properties shall be less than the aggregate
of the indebtedness secured hero'by and the expense of executing this trust as provided herein, this Mortgage
and the lien hereof shall remain ;in fidl force and effect as to the unsold portion of the Mortgaged Properties
just as though no sale had been ina.de; provided, however, that Grantor shall never have any right to require
the sale of less than the whole ~f the Mortgaged Properties but Noteholder shall have the right, at its sole
election, to request Trustee to sell !ess than the whole of the Mortgaged Properties. Alter each sale, Trustee
shall make to the purchaser or..purchasers at such sale good and sufficient conveyances i~ the name of
Grantor, conveying the propert;} so sold to the purchaser or purchasers with special warranty of title, and
shall receive the proceeds of said sale or sales and apply the same as herein provided. The power of sale
15
granted herein shall not be exhausted by any sale held hereunder by Trustee or his substitute or successor,
and such power of sale may be exercised from time to titne and as many times as Notebolder may deem
necessary until all of the Mortgaged Properties have been duly sold and all secured indebtedness bas been
fully paid. In the event any sak': hereunder is not completed or is defective in the opinion of Notebolder, such
sale shall not exhaust the power oTsale hereunder and Noteholder shall have the right to cause a subsequent
sale or sales to be made hereun~ter'. Any and all statements of fact or other recitals made in any deed or deeds
given by Trustee or any successor or substitute appointed hereunder as to nonpayment of the secured
indebtedness or as to the occur:ence of any event of default, or as to Noteholder's having declared all of said
indebtedness to be due and payable, or as to the request to sell, or as to notice of time, place and terms of sale
and the properties to be sold havir~g been duly given, or as to the refi~sal, failure or inability to act of Trustee
or any substitute or successor m~stee, or as to the appointment of any substitute or successor trustee, or as
to any other act or thing having been duly done by Noteholder or by such Trustee, substitute or successor,
shall be 'taken as prima facie evi,:lence of the truth of the facts so stated and recited. The Trustee or bis
successor or substitute may aptSoint or delegate anyone or more persons as agent to perform any act or acts
necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale,
but in the name and on behalfofT:-ustee, his successor or substitute. If Trustee or his successor or substitme
shall have given notice of sale hereunder, any successor or substitute Trustee. thereafter appointed may
complete the sale and the conviey~mce of the property pursuant thereto as if such notice had been given by
the successor or substitute Trt:'stee conducting the sale. Cumulative of the foregoing provisions, it being
expressly understood that: '
(a) As to Mortgaged Properties located in the State of Texas, such sales of all or any
part of such Mortgagec, l Properties shall be conducted at the courthouse of any county (whether or
not the counties in whi,:h the Mortgaged Properties are located are contiguous) in the State of Texas
in which any part of the Mortgaged Properties is situated, at public vendue to the highest bidder for
cash l~etween the hours often o'clock a.m. and four o'clock p.m. (and not later than three hours after
the time of sale set ibrth in the notice thereof) on the first Tuesday in any montb or at such other
place, time and date as provided by the statutes of the State of Texas then in force governing sales
of real estate under pc.wers conferred by deed of trust, after having given notice of such sale in
accordance with such ~;tatutes.
(b) As to ,Mortgaged Properties located in the State of Oklahoma; Grantor hereby
Confers on Trustee, tm behalf of Noteholder, the power to sell the Mortgaged Properties in
accordance with the Oklahoma Power of Sale Mortgage Foreclosure Act (OK[~A. STAT. tit. 46,
§§41-49), as the same ina), be amended from time to time. Grantor hereby represents and warrants
to Noteholder and Trustee that tbis Mortgage transaction does not involve a consmner loan as said
term is defined in Section 3-104 of Title 14A of the Oklahoma Statutes, that this Mortgage does not
secure an extension of.credit made primarily for agricultural purposes as defined in paragraph 4 of
Section 1-301 of Title 14A of the Oklahoma Statutes, and that this Mortgage is not a mortgage on
the Mortgagor's homestea~d.
A POWER OF SALE HAS BEEN GRANTED IN TillS MORTGAGE. A POWER OF SALE
MAY ALLOW TRIJSTEE TO TAKE TIlE MORTGAGED PROPERTIES AND SELL THEM
·
WITHOIJT GOING TO CO[qlT 1N A FORECLOSURE ACTI ON UI ON DEFAULT BY GRANTOR
UNDER THIS MORTGAGE.
Section 4.5 Effective as Mortgage. This instrument shall be effective as a mortgage as well as
a deed of trust and upon the occtlrrence of a default may be foreclosed as to any of the Property in any
manner permitted by applicable law, and any foreclosure suit may be brought by Trustee or by Notebolder.
To the extent, if any, required to cause this instrument to be so effective as a mortgage as well as a deed of
trust, Grantor hereby mortgages the Mortgaged Properties to Notebolder. In the event a foreclosure
hereunder shall be commenced by .Frustee, or bis substitute or successor, Noteholder may at any time before
the sale of the Property direct Trustee to abandon the sale, and may then institute suit for the collection of
the Note and/or any other secured indebtedness, and for the lbreclosure of this Mortgage. It is agreed that
ifNoteholder should institute a :su~t for the collection of the Note Or any other secured indebtedness and for
the foreclosure of this Mortgage, Noteholder may at any time belore the entry of a final judgment in said suit
dismiss the same, and require Trustee, his substitute or successor to sell the Property in accordance with the
provisions of this Mortgage. ·
Section 4.6 Recei~er. In addition to all other remedies herein provided for, Grantor agrees that,
upon the occurrence ora default or any event or circumstance which, with the lapse of time or the giving or
notice, or both, would constitut',:~ a default hereunder, Noteholder shall as a matter of right be entitled to the
appointment of a receiver or r,pceivers for all or any part of the Property, whether such receivership be
incident to a proposed sale (or Sales) of such Property or otherwise, and without regard to the value of the
16
Properly or the Solvency of any Person or persons liable for the payment of the indebtedness secured herebyl
and Grantor does hereby consent to the appointment of such receiver or receivers, waives any and all
defenses to such appointment, and agrees not to oppose any application therefor by Noteholder, and agrees
that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Noteholder under
Article Ill hereof. Notlfing herein is to be construed to deprive Noteholder of any other right, remedy or
privilege it may now or hereafter bare under the law to bare a receiver appointed. Any money advanced by
Noteholder ia connection with ally ,such receivership shall be a demand obligation (which obligation Grantor
hereby expressly promises to pa:y) owing by Grantor to Noteholder and shall bear interest fi'om the date of
making such advancement by N)teholder until paid, at the rate described in SeCtion 2.3 herco~:
Section 4.7 Proceeds of Foreclosure. The proceeds of any Sale held by Trustee or any receiver
or public officer in foreclosure Of!he liens and security interests evidenced hereby shall be applied:
FIRST, to the p~yment o fall necessary costs and expenses incident to such foreclosure sale,
including but not limited to all court costs and charges of every character in the event foreclosed by
suit, and a reasonable f~e (not exceeding five percent (5'70) of the gross proceeds of such sale) to
Trustee acting under the provisions of Section 4.4 if foreclosed by power of sale as provided in said
section;
SECOND, to the Payment of the secured indebtedness (including specifically without
limitation the principal, '!nterest and attorneys' fees due and unpaid on the Note and tt!e amounts due
and unpaid and owed to"Notehokter under this Mortgage) in such manner and order as Noteholder
may elect; and
THIRD, the remainder, if any there shall be, shall be paid to Grantor, or to Grantor's heirs,
devisees, representatives, successors or assilsms, or such other persons as may be entitled thereto by
law.
Section 4.8 Noteholder as Purchaser. Noteholder shall have the right to become the purchaser
at any sale held by any Trustee or substitute or successor or by any receiver or public office~: and any
Noteholder purchasing at any such sale shall have the fight to credit upon the mnount of the bid made
therefor, to the extent necessary to satisfy such bid, the secured indebtedness owing to such Noteholder, or
if such Noteholder holds less than all of such indebtedness, the pro rata part thereof owing to such
Noteholder, accounting to all otbm Noteholders not joining in such bid in cash for the portion of such bid
or bids aPportionable to such non-bidding Noteholder or Noteholders.
Section 4.9 Persontil ProPerty Foreclosure. Upon the occurrence cfa default, Noteholder may
exercise its rights of enforceme~at ~ith respect to the Collateral under the Texas Business and Commerce
Code as amended (or under the Unfform Commercial Code in force in any other state to the extent the same
is applicable law) and in conjunb, ti0n with, in addition to or in substitution for those rights and remedies:
(a) Noteholder may enter upon Grantor's premises to take possession of, assemble and
collect the Collateral or;to ~-ender it unusable; and
(b) Notehc;lder may require Grantor to assemble the Collateral and make it available at
a place Noteholder designates which is mutually convenient to allow Noteholder to take possession
or dispose of the Collatqra!~; and
(c) written notice mailed to Grantor as provided herein at least five (5) days prior to the
date of public sale of the,Collateral or prior to the date after which private sale of the Collateral will
be made shall constitute re;asonable notice; and
(d) any sale. made pursuant to the provisions of this section shall be deemed to have
been a public sale conducted in a conunercially reasonable manner if held contemporaneously with
and upon the same notice Is required for the sale of the Mortgaged Properties under power of sale
as provided in Section 4.4 of this Mortgage; and
(e) in the event of a foreclosure sale, whether made by Trustee under the terms hereof,
or under judgment of a ~,zo~rt, lhe Collateral and the Ivlortgaged Properties may, at the option of
Noteholder, be s01d as a, whole; and
(1) it sba'_l not be necessary that Noteholder take possession of the Collateral or any part
thereof prior to the time that any sale pursuant to the provisions of this section is conducted and it
shall not be necessary that the Collateral or any part thereof be present at the location of such sale;
and
(g) prior to application of proceeds of disposition of the Collateral to the secured
indebtedness, such proceeds shall be applied to the reasonable expenses of retaking, holding,
preparing for sale or lease, selling, leasing and the like and the reasonable attorneys' fees and legal
expenses incurred by No~eholder; and
(h) any m:d ~/11 statements of fact or other recitals made in any bill of sale or assignment
or other instrument e,,idcncing any foreclosure sale hereunder as to nonpayment of the secured
indebtedness or as to the ;)ccurrence of any del:ault, or as to Noteholder having declared all of such
indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the
properties to be sold having been duly given, or as to any other act or thing having been duly done
by Noteholder, shall be taken as prima facie evidence of the truth of the facts so stated and recited;
and
(i) Noteh0lder may appoint or delegate any one or more persons as agent to pertbrm
any act or acts necessa,ry or incident to any sale held by Noteholder, including tile sending of notices
and the conduct of the sa!e, but in the name and-on behalf of Noteholder.
Section 4.10 Foreclosure as to Matured Debt. Upon lhe occurrence ora default, Noteholder shall
have the right to proceed with lbreclosure of the liens and security interests hereunder without declaring the
entire secured indebtedness due, and in such event, any such foreclosure sale may be made subject to the
unmatured pai-t of the secured indebtedness and shall not in any manner affect the unmatured part of the
secured indebtedness, but as to' su6h unmatured part, this Mortgage shall remain in full fi)rce ,4nd effect just
as though no sale bad been made. The proceeds of such sale shall be applied as provided in Section 4.7
except that the amount paid under clause SECOND thereof shall be only the matured portion of the secured
indebtedness and any proceeds of ]uch sale in excess of those providedfor in clauses FIRST and SECOND
(modified as provided above) shall be applied as provided in claus, e SECOND AND THIRD of Section 3.4
hereof. Several sales may be made hereunder without exhausting thc right of sale for any unmatured part
of the secured indebtedness.
Section 4.11 Remedies Cumulative. All remedies herein expressly provided for are cumulative
of each other and of all other remedies existing at law or in equity and are cumulative of any and all other
remedies provided for in any other Loan Document, and Trustee and Noteholder shall, in addition to the
remedies herein provided, be entitled t° avail themselves of all such other remedies as may now or hereafter
exist at law or in equity for the :ol'iection of the secured indebtedness and the enforcement of the covenants
herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any remedy
provided for hereunder or unde~ any such other Loan Document or provided for by law shall not prevent the
concurrent or subsequent empl.oyment of any other appropriate remedy or remedies.
Section 4.12 Noteht)ldisr's Discretion as to Security. Noteholder may resort to any security given
by this Mortgage or to any othe~ se~:urity now existing or hereatler given to secure the payment of the secured
indebtedness, in whole or in'.pa(t, and in such portions and itl such order as Noteholder may deem
appropriate, and any such action shall not in any way be considered as a waiver of any °fthe rights, benefits,
liens or security interests evidenced by this Mortgage.
Section 4.13 Grantc',r's Waiver of Certain Rights. To the full extent Grantor may do so, Grantor
agrees that Grantor will not at zny lime insist upon, plead, claim or take the benefit or advantage of any law
now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, and
Grantor, for Grantor, Grantor's heirs, devisees, representatives, successors and assigns, and for any and all
persons ever claiming any inter:st ~in the Property, to the extent permitted by applicable law, hereby waives
and releases all rights ofredeml~tion; valuation, appraisement, stay of execution, notice o fintention to mature
or declare due the whole of the secured indebtedness, notice of election to mature or declare due the whole
of the secured indebtedness and all rights to a marshaling of assets of Grantor, including thc Property, or to
a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby
created. To the fifll extent Grantor may do so, Grantor shall not have or assert any right under any statute
or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of
homestead, the administration of estates of decedents, or other matters whatever to defeat, reduce or affect
the right of Noteholder under the terms of this Mortgage to a sale of the Property for the cgllection of the
secured indebtedness without any prior or different resort for collection, or the right of Notebolder under the
terms of this Mortgage to the payment of the secured indebtedness out of the proceeds of sale of the Property
1¸8
other clmmant whatever. If any law re£erred to in this section and now in force, of
in preference to every
which Grantor or Grantor's heirs, devisees, representatives, successors or assigns or any other persons
claiming any interest in the Mortgaged Properties or the Collateral nfight take advantage despite this section,
shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to preclude the
application of this section. "
Section 4.14 Grantor~'as Tenant Post-Foreclosure. In the event there is a tbreclosure sale
hereunder and at the time of such Sale Grantor or Grantor's heirs, devisees, representatives, successors or
assigns or any other persons claiming any interest in the Property by, through or tinder Grantnr are occupying
or using the Property, or any par~.thereof, each and all shall inunediately become the tenant of the purchaser
at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either landlord or
tenant, at a reasonable rental per,day based t, pon the value of thc Property occupied, such rental to be due
daily to the purchaser. To the extent permitted by applicable law, the purchaser at such sale shall,
notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate
possession following the sale or to permit the occupants to remain as tenants at will. In the event the tenant
fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and
maintain a summary action for p6s:;ession of the property (snch as an action for tbrcible entry and detainer)
in any court having jurisdiction. '
Section 4.15 Waiver of Oklahoma Appraisement. As to Property situated in or otherwise subject
to the jurisdiction of the State of(0klahoma, appraisement of the Property is hereby waived (or not) at the
option of Noteholder, such optm;.? to be exercised at the time judgment is rendered in any foreclosure hereof
or at any time prior thereto.
Section4.16 Limitation on New Mexico Redemption Period. Pursuant to Section 39-5-19 of New
Mexico Statutes, 1978 Annotated, ~.l~e redemption period after ibreclosure sale for any Property situated in
or otherwise subject to the jurisdiction of the State of New IVlexico shall be limited to one (1) month.
ARTICLE V.
Miscellaneous
Section 5.1 Scope of Mortgal~e. This Mortgage is a deed of trust and niortgage of both real and
personal property, a security agreement, a financing statement and an absolute assign~nent, and also covers
proceeds and fixtures.
Section 5.2 Effective as a Financing Statement. This Mortgage covers goods which are or are
to become fixtures on the real property described herein. This Mortgage shall be effective as a financing
statement filed as a fixture filinglwith respect to all fixtures included within the Property and is to be filed
for record in the real estate recor:ls of each county where any part of the Mortgaged Properties (including
said fixtures) is situated. This M~-)r!gage shall also be effective as a financing statement covering minerals
or the like (including oil and ga;;):and accounts subject to Subsection (e) of Section 9.103 of the Texas
Business and Conunerce Code, as amended, and similar provisions (i fany) of the Uniform Commercial Code
as enacted in any other state where the Mortgaged Properties are situated which will be financed at the
wellhead or minehead of the wells o.r mines located on the Mortgaged Properties and is to be filed for record
in the real estate records of each county where any part of the Mortgaged Properties is sit'uated. This
Mortgage shall also be effective asa financing statement covering any other Property and may be filed in
any other appropriate filing or re6O'rding office. The mailing address of Grantor is the address of Grantor
set forth at the end of this Mortgage and tbe address of Noteholder from which information concerning the
security interests hereunder may be obtained is the address of Noteholder set forth at tbe end of this
Mortgage.
Section 5.3 Reprodu'ction of Mortgage as Financing Statement. A carbon, photographic or other
reproduction of this Mortgage or.of any financing statement relating to this Mortgage shall be sufficient as
a financing statement for any of the puq~oses referred to in Section 5.2.
Section 5.4 Notice to Account Debtors. In addition to the rights granted in Article HI hereof,
Noteholder may at any time notify the account debtors or obligors of any accounts, chattel paper, negotiable
instruments or other evidences o[" indebtedness included in the Collateral to pay Noteholder directly.
Section 5.5 Waiver b~ Noteholder. Noteholder may at any time and from time to time in writing
waive compliance by Grantor with any covenant herein made by Grantor to the extent and .in the manner
specified in such writing, or consfint to Grantor's doing any act which hereunder Grantor is prohibited from
doing, or to Grantor's failing to d~ any act which hereunder Grantor is required to do, to the extent and in
19
the manner specified in such wr~iting, or release any part of tim iProperty or any interest therein or any
proceeds of Production from the lien and security interest of this Mortgage, without the joinder of Trustee,
or release any party liable, either directly or indirectly, for the secured indebtedness or for any covenant
herein or in any other Loan Document, without impairing or releasing the liability of any other party. No
such ncr shall in any way impair the rights or powers of Noteholder or Trustee hereunder except to the extent
specifically agreed to by Noteholder in such writing.
Section 5.6 No Impairment of Secnrity. The lien, security interest and other security rights of
Noteholder hereunder shall not.be impaired by any indulgence, moratorium or release granted by Noteholder
including, bnt not limited to, any renewal, extension or modification which Noteholder may grant with
respect to any secured indebtedness, or any surrender, compromise, release, renewal, extension, exchange
or substitution which Noteholder may grant in respect of the Property (including without limitation
Production Proceeds), or any p~rt thereof or any interest therein, or any release or indulgence granted to any
endorser, guarantor or surety of any secured indebtedness.
Section 5.7 Acts N'ot Constituting Waiver by Noteholder. Noteholder may waive any default
without waiving any other priorm Subsequent default. Noteholder may remedy any detht,lt without waiving
the default remedied. Neither failure bY Noteholder to exercise, nor delay by Notebolder in exercising, any
right, power or remedy upon any default shall be construed as a waiver of such default or as a waiver of the
right to exercise any such right, pgwer or remedy at a later date. No single or partial exercise by Noteholder
of any right, power or remedyhereunder shall exhaust the same or shall preclude any other or further exercise
thereof, and every such right, Power or remedy hereunder may be exercised at any time and 1¥om time to~
time. NO modification or waiver of any provision hereof nor consent to any departnre by Grantor therefrom
shall in any event be effective uniess the same shall be in writing and signed by Noteholder and then such
waiver or cons, ent shall be effective only in the specific instances, for the purpose for which given and to the
extent therein ~pecified. No notic.~, to nor demand on Grantor in any case shall ofitsel fentitle Grantor to any
other or further notice of dernand in similar or other circumstances. Acceptance by Noteholder of any
payment in an amount less than'the amount then due on any secured indebtedness shall be deemed an
acceptance on account only an:l shall not in any way excuse the existence of a default heretmder.
Section 5.8 Grant°r'~. Successors. In tile event the owIlership of the Property or any part thereof
becomes vested in a person otlrer than Grantor, Noteholder may, Without notice to Grantor, deal with such
successor or successors in intei'est with reference to this Mortgage and to the indebtedness secured hereby
in the same manner.as with Grantor, without in any way vitiating or discharging Grantor's liability hereunder
or for the payment of the indebtedness or performance of the obligations secured hereby. No transfer of the
ProPerty, no forbearance on the part of Notebolder, and no extension of the time for the payment of the
indebtedness secured hereby given by Noteholder shall operate to release, discharge, modify, change or
affect, in whole or in part, the liability of Grantor hereunder or for the payment of the indebtedness or
performance of the obligation3 secured hereby or the liability of any other person herennder or for the
payment of the ~ndebtedness'st:cured hereby.
Section 5.9 Place of Payment. All secured indebtedness which may be owing hereunder at any
time by Grantor shall be payable :at the place designated in the Note (or if no such designation is made, at
the address of Noteholder indicated at the end of this Mortgage), or at such other place as Noteholder may
desigmate in writing.
Section 5.10 Subrogaiion to Existing[ Liens. To the extent that proceeds of the Note are used to
pay indebtedness secured by an'y outstanding lien, security interest, charge or prior encumbrance against the
Property, such proceeds have been advanced by Noteholder at Grantor's request, and Noteholder shall be
subrogated to any and all rights, security interests and liens owned by any owner or holder of such
outstanding liens, security interests, charges or encumbrances, in-cspective of whether said liens, security
interests,.charges or encumbrances are released, and it is expressly understood that, in consideration of the
payment of such indebtedness by Noteholder, Grantor hereby waives and releases all demands and causes
of action for offsets and paymentx to, upon and in connection with the said indebtedness.
Section 5.11 Appljcat!on of Payments to Certain Indebtedness. if any part of tile secured
indebtedness cannot be lawfully secured by this Mortgage or if any part of the Property cannot be lawfully
subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made
shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this
Mortgage. ~
20
Section 5.12 Compliance Witb Usury Laws. It is the intent of Grantor and Noteholder and all
other parties to the Loan Docum/:ms to contract in strict compliance witb applicable nsury law from time to
time in effect. In furtherance ,!hereof, it is stipulated and agreed that none of the terms and provisions
contained herein and in the Loan Documents shall ever be construed to create a contract to pay, for the use,
forbearance or detention of money., interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. Neither Grantor nor any present or fi~ture guarantors,
endorsers or other parties now o'r Lereafter becoming liable for payment of the secured indebtedness shall
ever be liable for unearned interest'thereon or shall ever be required to pay interest thereon in excess of the
maximum interest that may be l~twfully charged under applicable law from time to time in effect, and the
provisions of this paragraph shal; control over all other provisions hereof and of the Loan Documents which
may be in conflict or apparent conflict with any applicable law. Noteholder expressly disavows any intention
to charge or collect excessive unearned interest or finance charges itl the event the maturity of the secured
indebtedness is accelerated. If(a) the maturity of the secured indebtedness is accelerated for any reason, (b)
the secured indebtedness is prep~id and as a result any amounts held to constitute interest are determined to
be in excess of the legal maximum, or (c) Noteholder or any other holder of any or all of the secured
indebtedness shall otherwise collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of fl~e secured indebtedness to an amount in excess of tbat
permitted to be charged by applic~able law then in effect, then all such sums determined to constitute interest
in excess of such legal linfit sh[.dl, without penalty, be promptly applied to reduce tile then outstanding
principal of the secured indebtedress or, at Noteholder's or such holder's option, promptly returned t'o Grantor
or the other payor thereof upon. such determination. In .determining whether or not the interest paid or
payable, under any specific contingency, exceeds the maximum amount permitted under applicable law,
Grantor (and any other payor the~ eof) and Noteholder shall to the greatest extent permitted under applicable
law (a) characterize any non-principal payment as an expense, fee or premium rather than as interest, (b)
exclude volunt~ary prepayments anti the effects thereof, and (c) amortize, prorate, allocate, and spread the
total amount of interest throughom the entire contemplated term of the instruments evidencing the secured
indebtedness m accordance with the amounts outstanding from time to time thereunder and the maximum
legal rate of interest from time to time in effect under applicable laX, v in order to lawfully charge the
maximum amount of interest permitted under applicable law. In the event that applicable law provides for
an interest ceiling, that ceiling shall be the weekly ceiling provided for in Chapter 303 of the Texas Finance
Code. As used in this section, the re,am "applicable law" shall mean the laws of the State ofTexa s or the laws
of the United States, whichever laws allow the [,n-eater interest, as such laws now exist or may be changed
or amended or come into effect in the fim~re.
Section 5.13 Trustees. The Trustee may resign by an instrument in writing addressed to
Noteholder, or Trustee may be removed at any time with or without cause by an instrument in writing
executed by Noteholder. In case'of the death, resignation, removal, or disqualification of Trustee, or if tbr
any reason N0teholder shall deem it desirable to appoint a substitute or successor trustee to act instead of
the herein named trustee or any sub~;titute or successor trustee or to appoint an additional trustee or trustees
to serve concurrently with Trustee, then Noteholder shall have the right and is hereby authorized and
empowered to appoint a successo[ tr,~stee, a substitute trustee or an additional trustee, without other formality
than appointment and designatior, in writing executed by Noteholdcr and the authority hereby conferred shall
extend to the appointment of o':her successor, substitute and additional trustees successively until the
indebtedness secured hereby has"been paid in full, or until the Property is sold hereunder. In the event the
secured indebtedness is owned l:y ~nore than one person or entity, the holder or holders of not less than a
majority in fl~e amount of such indebtedness shall have the right and authority to make the appointment of
a successor or substitute tn~stee as provided for in the preceding sentence or to remove Trustee as provided
in the first sentence of this sect~qn. Such appointment and designation by Noteholder, or by the bolder or
holders of not less than a majority oi~the indebtedness secured hereby, shall be full evidence of the right and
authority to make the same and oTall facts therein recited. IfNoteholder is a corporation or association and
such appointment is executed in i's behalf by an officer of such corporation or association, such appointment
shall be conclusively presumed t6 be executed with autbority and shall be valid and sufficient without proof
of any action by the board of directors or any superior officer of the corporation or association. Upon the
making of any such appointment ~nd designation of a successor or substitute trustee, all of the estate and title
of Trustee in the Property shall 7est in the named successor or substitute Trustee and he shall thereupon
succeed to, and shall hold, poss~ss and execute, all the rights, powers, privileges, immunities and duties
herein conferred upon Trustee. [~.lpt;n the making of any such appointment and designation of an additional
trustee, such additional trustee ghatl succeed to and hold, possess and execute all of the rights, powers,
privileges, imnmnities and duties de'signated in such appointment and designation. All references herein to
Trustee shall be deemed to include any successor, substitute or additional trustee appointed and designated
as herein provided, from time to time acting hereunder.
21
Section 5.14 No Liabilit¥ for Trustee. Thc Trustee shall not be liable for any error of judgment
or act done by Trustee in good h;th, or be otherwise responsible or accountable under any circumstances
whatsoever, except for Trustee's gross negligence or willful misconduct. The Trustee shall have the right
to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to
be taken by him hereunder, believed by him in good faith to be genuine. All moneys received by Trustee
shall, until used or applied as !mrein provided, be held in trust for the purposes tbr which they were received,
but need not be segregated in any manner from any other moneys(except to the extent required by law), and
Trustee shall be under no liability for interest on any moneys received by him hereunder. Grantor hereby
ratifies and confirms any and.'all acts which the herein named Trustee or his successor or successors,
substitute or substitutes, in this.irust, shall do lawfully bY virtue hereof. Grantor will reimburse Trnstee for,
and save him harmless againsl?, any and all liability and expenses which may be incurred by him in the
performance of his duties.
Section 5.15 Relea? o;fMort~age. If all of the secured indebtedness be paid as the same becomes
due and payable and all of the '~oyenants, warranties, undertakings and agreements made in this Mortgage
are kept and performed and Ncteholder shall have no further obligation to provide credit or advance funds
to Grantor or the maker of an.y Note secured hereby, then, and in that event 0nly, all rights nnder this
Mortgage shall terminate (except to tile extent expressly provided herein with respect to indemnifications
and other rights whicb are to continue following the release hereof) and the Property shall become wholly
clear of the liens, security interests, conveyances and assignments evidenced hereby, and such liens and
security interests shall be relea~sed by Noteholder in dueform at Grantor's cost.
Section 5.16 Notices. All notices, requests, consents, demands and other communications
required or permitted hereunder: orI under any other Loan Document shall be in writing and, unless otherwise
specifically p?vided in such other Loan Document, shall be deemed sufficiently given or furnished if
delivered by personal delivery,., b3! telegram or telex, by expedited delivery service with proof of delivery,
or by registered or certified United States mail, postage prepaid, at the addresses specified at the end of this
Mortgage (unless changed by similar notice in writing given by the particular party whose address is to be
changed). Any such notice or communication shall be deemed to have been given either at the time of
personal delivery or, in the cas: o~' delivm3' service or mail, as of the date of first attempted delivery at the
address and in the manner provided herein, or, in the case of telegr,qm or telex, upon receipt; provided that,
service of a notice required by Texas Property Code {}51.002, as amended, or any similar statute in any state
where any part of the Mortgaged Properties are located shall be considered complete xvhen the requirements
of the appllcable statute fro- such part of the Mortgaged Properties located in the respective state are met.
Section 5.17 Invalidity of Certain Provisions. A determination that any provision of this
Mortgage is unenforceable or invalid shall not affect the enforceability or validity of any other provision and
the determination that the aPplica~tion of any provision of this Mortgage to any person or circumstance is
illegal or unenforceable shall not .affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
Section 5.18 Genderl Title_s. Within this Mortgage, words of any gender shall be held and
construed to include any othe( gender, and words in the singular number shall be held and construed to
include the plural, unless the context otherwise requires. Titles appearing at the beginning of any
subdivisions hereof are for cor, venience only, do not constitute any part of such subdivisions, and shall be
disregarded in construing the language contained in such subdivisions.
Section 5.19 Recori.ling. Grantor will cause this Mortgage and all amendments and supplements
thereto and substitutions therefor and all financing statements and continuation statements relating thereto
to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Noteholder
shall reasonably request and, to the maximum extent permitted by applicable law, will pay all such recording,
filing, re-recording and refiling, taxes, lees and other charges.
Section 5.20 Lende'r as Noteholder. All persons dealing with tile Property (other than Grantor)
shall be entitled to assume that Lender is the only Noteholder, and may deal with Lender (including without
limitation accepting from or relying upon full or partial releases hereof executed by Lender only) without
further inquiry as to the existence of other Noteholders, until given actual notice of facts to the contrary or
until this Mortgage is supplement,~.d or amended of record to show the existence of other Noteholders.
Section 5.21 Reporhn~[ Compliance. Grantor agrees to comply with any and all reporting
requirements applicable to the:transaction evidenced by the Note and secured by this Mortgage which are
set forth in any law, statute, ordinance, rule, regulation, order or determination of any governmental
authority, including but not linfited to The International Investment Survey Act of 1976, The Agricultural
Foreign h~vestment Disclosure Act of 1978, The Foreign Investment in Real Property Tax Act of 1980 and
22
The Tax Reform Act of 1984 '~nd further agrees upon request of Noteholder to furnish Noteholder with
evidence of such compliance.:
Section 5.22 Noteho~der's Consent. Except wl~ere otherwise expressly provided herein, in any
instance hereunder where the approval, consent or the exercise of judgment of Noteholder is required, the
granting or denial of such approval or consent and the exercise of such judgment shall be within the sole
discretion of Noteholder, and Ni:,teholder shall not, for any reason or to any extent, be required to grant such
approval or consent or exercise'~suc'h judgment in any particular manner, regardless of the reasonableness of
either the request or Noteholder~s .judgment.
Section 5.23 Grantor. Unless the context clearly indicates otherwise, as used in this Mortgage,
"Grantor" means the grantors n~med in Section 1.1 hereof or any of them. The obligations of Grantor
hereunder shall be joint and se~veri,1.
Section 5.24 Counterp~.rts. This Mortgage may be executed in several counterparts, all of which
are identical, except that, to facilitate recordation, in certain counterparts hereof only that portion of Exhibit
A which contains specific descriptions of the Mortgaged Properties located in the recording jurisdiction in
which the particular counterpart.is to be recorded may be included, and all other portions of Exhibit A shall
be included by reference only2~ All of such counterparts together shall constitute one and the same
instrument. A complete copy Of this Mortgage containing the entire Exhibit A has been filed in Eddy
County, New Mexico.
Section 5.25 Successors and Assigns. The terms, provisions, covenants and conditions hereof
shall be binding upon Grantor, ahd. the heirs, devisees, representatives, successors and assigns of Grantor,
and shall inure, to the benefit of Trustee and Noteholder and their respective heirs, devisees, representatives,
successors and assigns and sha[ constitute covenants running with the land described in Exhibit A. All
references in this Mortgage to Gre. ntor, Trustee or Noteholder shall be deemed to include all such heirs,
devisees, representatives, successors, substitutes and assigns.
Section 5.26 CHOICE OFLAW. WITHOUTREGAIUOTO PRINCIPLES OF CONFLICTS OF
LAW, THIS MORTGAGE SHALI_;BE CONSTRUED AND ENFOJ~CED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS 0F TIlE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE
AND TO BE PERFOICMED ENT]ilLELY WITHIN TIlE STATE OF TEXAS AND THE LAWS OF THE
'UNITED STATES OF AMEILICAi EXCEPT THAT TO THE EXTENT THAT THE LAW OF ANOTHER
STATE IN WHICH A PORTION OF THE PROPERTY IS LOCATED (OR WHICH IS OTIlERWISE
APPLICABLE TO A PORTION OF THE PROPERTY) NECESSARILY OR, 1N THE SOLE DISCI~E~TION
OF NOTEItOLDER, APPROFR[ATELY GOVERNS WITtt RESPECT TO PROCEDURAL AND
SUBSTANTIVE MATq'ERS RELATING TO TIlE CREATION, PERFECTION AND ENFORCEMENT
OF TIlE LIENS, SECURITY IN'~'E~LESTS AND OTHER RIGHTS AND REMEDIES GRANTED HEREIN,
THE LAW OF SUCH OTHER STATE SHALL APPLY AS TO TItAT PORTION OF THE PROPERTY
LOCATED 1N (OR OTHERWI$1E SUBJECT TO THE LAWS OF) SUCII STATE.
Section 5.27 Loan Agreement. This Deed of Trust is subject to the terms and conditions of that
certain Loan Agreement dated as 0f the date of this Deed of Trust by and between Grantor, Dennis D.
Corkran and Lender.
Section 5.28 Effective Date. The "Effective Date" of this instrument is 7:00 ^.M. local time on
the first clay of the month set fortk, below in the date of this Mortgage, at the location of the Mortgaged
Properties; respectively.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
(Signature page tbllows)
23
T}HS DEED OF TRUST, THE NOTES DESCRIBED ABOVE AND THE ACCOMPANYING UCC-1
FINANCING STATEMENT, GUARANTY AND LOAN AGREEMENT AND/OR ANY AND ALL
OTIIER DOCUMENTS EXECUTED AT OR NEAR TIlE TIME OF THIS EXECUTION
CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF TIlE TEXAS
BUSINESS & COMMERCE CODE, AND REPRESENTS TIlE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPOIC~NEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. TI1ERE
ARE NO UNWRITTEN ORAL: AGREEMENTS BETWEEN TIlE PARTIES.
IN WITNESS WHEREOF, this instrument is dated the 28'h day of June, 2004, although is executed
on the date of the aclmowledgment annexed hereto.
GRANTOR:
CORKIL4N ENERGY, LP, a Texas limited
partnership
By:
Hummingbird Investments, LLC, a Texas
limited liability company, its General
Partner
Dennis D. Corkran, President
Operating Manager
and
BENEFICIARY:
COMMUNITY NATIONAL BANK
By:
Da,;,,y C pbell' l cU tive
P 'esi'lent
STATE OF TEXAS §:
COUNTY O §
This instalment was ackno:wledged before me on Ibis ,,~ day of June, 2004 by DENNIS D.
CORKRAN, as President and Operating Manager of HUMM1NGBfi~D INVESTMENTS, LLC, as General
Pafl'ner for COR~N ENERG~ti~t~t&Texas limited parmersbip on behalf of said limited partnershi
~ k / ~NOT~Y P~}C, STATE OF
.
CO~TY OF M~LA~
This instrument was ac ~knowledged before me on the Z )v~{ day of June, 2004 by R. DANNY
CAMPBELL, as Executive Vic~il,~V~g~l~boJ~} COMMUNrI'Y NATIONAL BANK, on behalf of said bank
~ ",. qre o~$3~.'}~ MOTARY PUBLIC, STATE ~I'EX~S
(1)
(2)
· 85 ! wvo n c
EXHIBIT "A"
Attached to and made a F art:: of the following documents:
Deed of Trust, Mortgage,· Security Agreement, Assignment of Production and Financing Slatement
dated June 28, 2004, front COILKICAN ENERGY, LP, as Grantor, lbr the benefit of COMMUNITY
NATIONAL BANK; ant
UCC-1 Financing State/nent from CO1LKRAN ENERGY, LP, as Debtor, for the benefit of
COMMUNITY NATIONAL BANK, as Secured Party.
1. All of Grantor's a~nd!or Debtor's (hereinafter collectively referred to as "Grantor") interest in
oil, gas and other mineral leases or ifil and gas leases, ovemding royalties, minerals, royalties and properties
as deschbed below or covering the lands described below, whether m whole or in part, together with all of
Grantor's interest in all oil, gas and Other mineral leases or oil and gas leases, overriding royalties, minerals,
royalties and properties with whict, any of the foregoing may now or hereafter be pooled, unitized or
connnunitized (m~d any extensions told renewals thereof), regardless of the descriptions, working interests and
net revenue interests set out below,~ if any. The depth limitations, land descriptions and descriptions of
undivided working interests and he*: revenue interests reflected below and the listing of any percentages,
decimal or fi-actional interest in thi ~ Exhibit "A" shall not be deemed to linut or otherwise diminish the interests
being subjected to the lien, secuh(~, interest and assignment of this instrument. It is intended that this
instrument shall cover and affect Grantor's entire present and future interest in the Mortgaged Properties. The
listings of depth limitations, land des~criptions, working interests and net revenue interests in this Exhibit "A"
are made tbr the sole purpose of ~:iving effect to the title warranties of Grantor contained in this instrument.
2. Some of the land descriptions in this Exhibit "A" may refer only to a portion of the land
covered by a particular Lease. Some of the land descriptions in this Exhibit "A" for certain Leases may be land
descriptions of pooled or proration units pertaining to one or more o f suc h Leases and, theretbre, describe more
lands than are covered by a particu!ar Lease. This instrument is not limited to the land described in this
Exhibit "A" but is intended to cover the entire present and future interest of Grantor in any Lease described
below, even if such interest relates ti) land not described in this Exhibit "A." Reference is made to the land
descriptions contained in the documents of title ~vhether Oil and Gas Leases or Assignments of Oil and Gas
Leases as described in this Exhibit "A" and/or filed with the respective County Clerks' Office, Office of the
Recorder, Bureau of Land Management or applicable state land office. To the extent that the land descriptions
in this Exhibit "A" are inconqplete, incorrect, or not legally sufficient, the land descriptions contained in the
documents so recorded and/or filed are incorporated herein by this reference.
3. If applicable, the terms "BPO WI" and "BPO NRI" in this Exhibit "A" specify the warranted
working interest and net revenue interest of Grantor in a particular well or property before the occurrence of
a particular event such as payout of costs with respect to such well or properly. The terms "APO WI" and
"APO NRi" in this Exhibit "A" spec!fy the warranted working interest and net revenue interest of Grantor in
a particular well or property after the occurrence of a particular event such as payout of costs with respect to
such well or property. '
4. Within each Lease or Assignment description, the following explanations apply:
"Lessor" and "Lessee"/'et'er to the original lessor and lessee set forth in the lease.
"Assignor" and "Assigne? refer to the parties identified in a particular document transferring an
interest in the affected properties "::o Grantor.
The descriptions are given b:.? fractions of each section, Section number, Township and Range. For
example, ~
T = Township, R = Range!, E'dk. = Block, Sec. = Section, N = North, S = South, E = East, W = West
The descriptions may also i~nclude characterizations of interests described by abbreviations. For
example, ,: :
APO = "after pay-out", BP O = "before payout", WI = "working interest", NRI = "net revenue interest",
RI = "royalty interest", ORRI = '%vemding royalty interest"
The designation "T~22-S, R-:}7-E refers to Township 22 South, Range 37 East. The description N/2
of the SE/4 of Section 8, T-23-~; R-37-E" refers to the North half of the Southeast quarter of Section 8,
Township 23 South, Range 37 East.
Fractions are fractions ora section. Fractions may also be written with alpha characters as numerators
and numeric characters as denom nators. For example, N~V/4 = the Northwest one~quarter of a section.
Page 1 of 2
1. WM Federal
CROOK COUNTY, WYOMING
All of Grantor's right, title and interest in and to the following described Oil and Gas Lease(s)
and/or Oil, Gas and Mineral Lease(s), insofar as said lease(s) covers the lands described
below:
Lessor:
Lessee:
Date:
Description:
.United States of America- W 66386
K~5 stie iRae Cobb
March 1, 1979
The SW/4 of the NW/4 of Section 9, Township 52 North, Range
68 West, 6th P.M, Crook County, Wyoming
LINCOLN COUNTY, WYOMING
Fontenelle Unit and Font Federal Wells
All of Grantor's right, Atle and interest in and to the following described Oil and Gas
Lease(s) and/or Oil, Gas and Mineral Lease(s), insofar as said lease(s) covers the lands
described below:
Lessor:
Lessee:
Date:
Recorded:
Description:
United States of America Serial No. W 38501
Unknown.
February 28, 1983
Not required.
Township 25 North, Range 111 West, 6"~ PM, Lincoln County,
Wyoming
Se,ition 6: Lots 6 and 7, the E/2 of the SW/4 and the SE/4
Section 7: Lots 3 and 4, the E/2 of the SW/4 and the SE/4
Section 5: The W/2
Al, in Lincoln County, Wyoming
[THE REMAINDER OF TillS PAGE IS INTENTIONALLY LEFT BLANK]
c:\cnbXcokran\dot.exa(wyoming)
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