EXHIBit 10.5
RECORDING REQUESTED BY:
WHEN RECORDED MAIL TO:
LORD BISSELL & BROOK LLP
000 X. Xxxxx Xxx., 0xx Xxxxx
Xxx Xxxxxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxx, III, Esq.
(Space Above For Recorder's Use)
DEED OF TRUST,
SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FIXTURE FILING
Dated: September 30, 2004
CUBIC ENERGY, INC., a Texas corporation, , as Trustor
(Borrower)
to
Xxxx Xxxxxxx, as Trustee
(Trustee)
for the benefit of
X. X. Xxxxxx & Company, on behalf of Investors of
7% Senior Secured Convertible Debentures,
as Beneficiary (Lender)
THIS SECURITY INSTRUMENT IS, AMONG OTHER THINGS, A FINANCING STATEMENT UNDER THE
UNIFORM COMMERCIAL CODE COVERING MINERALS AND THE LIKE (INCLUDING OIL AND GAS)
ACCOUNTS RESULTING FROM THE SALE OF MINERALS AND THE LIKE (INCLUDING OIL AND
GAS), INVENTORY, GOODS, EQUIPMENT, GENERAL INTANGIBLES AND GOODS WHICH ARE OR
ARE TO BECOME FIXTURES ON THE REAL PROPERTY HEREIN DESCRIBED. THIS SECURITY
INSTRUMENT IS TO BE RECORDED IN THE REAL ESTATE RECORDS OF THE COUNTY CLERK OR
RECORDER OF EACH COUNTY IN EACH STATE IN WHICH IS SITUATED ANY OF THE COLLATERAL
COVERED HEREBY. THE REAL PROPERTY SUBJECT HERETO IS DESCRIBED IN EXHIBIT A
ATTACHED HERETO. THIS SECURITY INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY
PROVISIONS AND COVERS PROCEEDS OF COLLATERAL.
A POWER OF SALE HAS BEEN GRANTED IN THIS SECURITY INSTRUMENT. A POWER OF SALE
MAY ALLOW THE LENDER OR THE TRUSTEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT
WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY BORROWER UNDER
THIS SECURITY INSTRUMENT.
Exhibit 10.5 - Page 1
TABLE OF CONTENTS
Page
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ARTICLE 1 - GRANTS OF SECURITY.................................................7
SECTION 1.1 PROPERTY MORTGAGED...........................................7
SECTION 1.2 ADDITIONAL PROPERTY MORTGAGED AND CONVEYED...................9
SECTION 1.3 ASSIGNMENT OF PRODUCTION....................................11
SECTION 1.3 SECURITY AGREEMENT..........................................13
SECTION 1.4 SECURITY AGREEMENT..........................................13
SECTION 1.5 FIXTURE FILING..............................................13
ARTICLE 2 - DEBT AND OBLIGATIONS SECURED......................................15
SECTION 2.1 DEBT........................................................15
SECTION 2.2 OTHER OBLIGATIONS...........................................15
SECTION 2.3 DEBT AND OTHER OBLIGATIONS..................................15
SECTION 2.4 PAYMENTS....................................................15
ARTICLE 3 - BORROWER COVENANTS................................................16
SECTION 3.1 PAYMENT OF DEBT.............................................16
SECTION 3.2 INCORPORATION BY REFERENCE..................................16
SECTION 3.3 TITLE TO PROPERTY...........................................16
SECTION 3.5 INSURANCE...................................................20
SECTION 3.6 CONDEMNATION................................................21
SECTION 3.6 MAINTENANCE OF PROPERTY.....................................21
SECTION 3.7 WASTE.......................................................21
SECTION 3.8 COMPLIANCE WITH LAWS........................................22
SECTION 3.11 BOOKS AND RECORDS...........................................22
SECTION 3.9 BOOKS AND RECORDS...........................................22
SECTION 3.12 PAYMENT FOR LABOR AND MATERIALS.............................23
SECTION 3.10 PAYMENT FOR LABOR AND MATERIALS.............................23
SECTION 3.13 PERFORMANCE OF OTHER AGREEMENTS.............................23
SECTION 3.11 PERFORMANCE OF OTHER AGREEMENTS.............................23
SECTION 3.14 CHANGE OF NAME, IDENTITY OR STRUCTURE.......................23
SECTION 3.12 CHANGE OF NAME, IDENTITY OR STRUCTURE.......................23
SECTION 3.15 EXISTENCE...................................................23
SECTION 3.13 EXISTENCE...................................................23
ARTICLE 4 - SPECIAL COVENANTS.................................................23
SECTION 4.1 DEFENSE OF TITLE............................................23
SECTION 4.2 ERISA.......................................................24
SECTION 4.3 LEASE PROVISION.............................................24
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES....................................25
SECTION 5.1 AUTHORITY...................................................25
SECTION 5.1 AUTHORITY...................................................25
SECTION 5.2 LEGAL STATUS AND AUTHORITY..................................25
SECTION 5.2 LEGAL STATUS AND AUTHORITY..................................25
SECTION 5.3 VALIDITY OF DOCUMENTS.......................................26
SECTION 5.3 VALIDITY OF DOCUMENTS.......................................26
SECTION 5.4 LITIGATION..................................................26
SECTION 5.4 LITIGATION..................................................26
SECTION 5.5 NO FOREIGN PERSON...........................................26
SECTION 5.5 NO FOREIGN PERSON...........................................26
SECTION 5.6 ERISA COMPLIANCE............................................26
SECTION 5.6 ERISA COMPLIANCE............................................26
SECTION 5.7 FINANCIAL CONDITION.........................................27
Exhibit 10.5 - Page 2
SECTION 5.7 FINANCIAL CONDITION.........................................27
SECTION 5.8 BUSINESS PURPOSES...........................................27
SECTION 5.8 BUSINESS PURPOSES...........................................27
SECTION 5.9 TAXES.......................................................27
SECTION 5.9 TAXES.......................................................27
SECTION 5.10 MAILING ADDRESS.............................................27
SECTION 5.10 MAILING ADDRESS.............................................27
SECTION 5.11 NO CHANGE IN FACTS OR CIRCUMSTANCES.........................27
SECTION 5.11 NO CHANGE IN FACTS OR CIRCUMSTANCES.........................27
SECTION 5.12 DISCLOSURE..................................................27
SECTION 5.12 DISCLOSURE..................................................27
SECTION 5.13 ILLEGAL ACTIVITY............................................27
SECTION 5.13 ILLEGAL ACTIVITY............................................27
ARTICLE 6 - DEBTOR/CREDITOR RELATIONSHIP......................................27
SECTION 6.1 RELATIONSHIP OF BORROWER AND LENDER.........................27
SECTION 6.2 SERVICING OF THE LOAN.......................................27
ARTICLE 7 - FURTHER ASSURANCES................................................28
SECTION 7.1 RECORDING OF SECURITY INSTRUMENT, ETC.......................28
SECTION 7.2 FURTHER ACTS, ETC...........................................28
SECTION 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS......28
SECTION 7.4 ESTOPPEL CERTIFICATES.......................................29
SECTION 7.6 SPLITTING OF SECURITY INSTRUMENT............................29
SECTION 7.5 SPLITTING OF SECURITY INSTRUMENT............................29
SECTION 7.7 REPLACEMENT DOCUMENTS.......................................29
SECTION 7.8 AMENDED FINANCING STATEMENTS................................29
SECTION 7.7 AMENDED FINANCING STATEMENTS................................29
ARTICLE 8 - DUE ON SALE/ENCUMBRANCE...........................................30
SECTION 8.1 NO SALE/ENCUMBRANCE.........................................30
SECTION 8.2 SALE/ENCUMBRANCE DEFINED....................................30
SECTION 8.3 LENDER'S RIGHTS.............................................30
ARTICLE 9 - PREPAYMENT........................................................31
ARTICLE 10 - DEFAULT..........................................................31
SECTION 10.1 EVENTS OF DEFAULT...........................................31
ARTICLE 11 - RIGHTS AND REMEDIES..............................................32
SECTION 11.1 REMEDIES....................................................32
SECTION 11.2 APPLICATION OF PROCEEDS.....................................35
SECTION 11.3 RIGHT TO CURE DEFAULTS......................................35
SECTION 11.4 ACTIONS AND PROCEEDINGS.....................................35
SECTION 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID........................35
SECTION 11.6 EXAMINATION OF BOOKS AND RECORDS............................35
SECTION 11.7 OTHER RIGHTS, ETC...........................................35
SECTION 11.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY................36
SECTION 11.9 VIOLATION OF LAWS...........................................36
SECTION 11.10 RIGHT OF ENTRY..............................................36
ARTICLE 12 - ENVIRONMENTAL HAZARDS............................................36
SECTION 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES................37
SECTION 12.2 ENVIRONMENTAL COVENANTS.....................................38
SECTION 12.3 LENDER'S RIGHTS.............................................39
ARTICLE 13 - INDEMNIFICATION..................................................39
SECTION 13.1 GENERAL INDEMNIFICATION.....................................39
ARTICLE 14 - WAIVERS..........................................................39
SECTION 14.1 WAIVER OF COUNTERCLAIM......................................39
SECTION 14.2 MARSHALING AND OTHER MATTERS................................39
SECTION 14.3 WAIVER OF NOTICE............................................40
SECTION 14.4 WAIVER OF STATUTE OF LIMITATIONS............................40
Exhibit 10.5 - Page 3
SECTION 14.5 SOLE DISCRETION OF LENDER...................................40
SECTION 14.6 SURVIVAL....................................................40
SECTION 14.7 WAIVER OF TRIAL BY JURY.....................................40
ARTICLE 15 - INTENTIONALLY OMITTED............................................40
ARTICLE 16 - NOTICES..........................................................41
SECTION 16.1 NOTICES.....................................................41
ARTICLE 17 - APPLICABLE LAW...................................................41
SECTION 17.1 CHOICE OF LAW...............................................41
SECTION 17.2 USURY LAWS..................................................41
SECTION 17.3 PROVISIONS SUBJECT TO APPLICABLE LAW........................42
SECTION 17.4 INAPPLICABLE PROVISION......................................42
ARTICLE 18 - SECONDARY MARKET.................................................42
SECTION 18.1 DISSEMINATION OF INFORMATION................................42
ARTICLE 19 - COSTS............................................................43
SECTION 19.1 PERFORMANCE AT BORROWER'S EXPENSE...........................43
SECTION 19.2 ATTORNEYS' FEES FOR ENFORCEMENT.............................43
ARTICLE 20 - DEFINITIONS......................................................43
SECTION 20.1 GENERAL DEFINITIONS.........................................43
SECTION 20.2 HEADINGS, ETC...............................................43
ARTICLE 21 - MISCELLANEOUS PROVISIONS.........................................44
SECTION 21.1 NO ORAL CHANGE..............................................44
SECTION 21.1 LIABILITY...................................................44
SECTION 21.3 DUPLICATE ORIGINALS; COUNTERPARTS...........................44
SECTION 21.4 NUMBER AND GENDER...........................................44
SECTION 21.5 SUBROGATION.................................................44
SECTION 21.6 ENTIRE AGREEMENT............................................44
ARTICLE 22 - TRUSTEE PROVISIONS...............................................45
SECTION 22.1 THE TRUSTEE.................................................45
ARTICLE 23 - LOCAL LAW PROVISIONS.............................................46
EXHIBITS -
Exhibit A - Description of Land
Exhibit B - Local Law Provisions
DEFINITIONS
The terms set forth below are defined in the following Sections of this Security
Instrument:
Accounts: Subsection 1.1(h)
ADA: Subsection 3.10(a);
Applicable Law: Subsection 3.10(a);
Attorneys' Fees/Counsel Fees: Section 20.1;
Borrower: Preamble;
Business Day: Section 16.1;
Casualty Consultant: Subsection 4.4(b)(iii);
Casualty Retainage: Subsection 4.4(b)(iv);
Collateral: Section 1.4;
Debt: Section 2.1;
Default Rate: Section 11.3;
Demised Premises: Section 4.3(b)
Environmental Indemnity: Subsection 10.1(c);
Exhibit 10.5 - Page 4
Environmental Law: Section 12.1;
Environmental Liens: Section 12.2;
Environmental Report: Section 12.1;
ERISA: Subsection 4.2(a);
Event: Section 19.1;
Event of Default: Section 10.1;
Hazardous Substances: Section 12.1;
Hydrocarbons: Subsection 1.1(c);
Impositions: Section 4.3(b)
Indemnified Parties: Section 13.1;
Indemnitor: Subsection 10.1(c);
Insurance Premiums: Subsection 3.3(b);
Investor: Section 18.1;
Lands: Subsection 1.1(f);
Lease: Section 4.3
Lender: Preamble;
Loan Application: Section 5.15;
Losses: Section 13.1;
Net Proceeds: Subsection 4.4(b);
Net Proceeds Deficiency: Subsection 4.4(b)(vi);
Notes: Recitals;
Obligations: Section 2.3;
Other Charges: Subsection 3.4(a);
Other Obligations: Section 2.2;
Other Minerals: Subsection 1.1(d);
Other Personal Property: Subsection 1.2(c)
Other Security Documents: Section 3.2;
Participations: 18.1;
Permitted Exceptions: Section 5.1;
Person: Section 20.1;
Personal Property: Subsection 1.1(e);
Policies/Policy: Subsection 3.3(b);
Property: Section 1.1;
Purchase Agreement: Recitals
Property Records: Subsection 1.2(g);
Qualified Insurer: Subsection 3.3(b);
Rating Agency: Subsection 3.3(b);
Release: Section 12.1;
Remediation: Section 12.1;
Rents: Subsection 1.1(f);
Restoration: Subsection 3.3(d);
Securities: Section 18.1;
Securitization: Section 18.1;
Security Instrument: Preamble;
Servicer: Section 6.2;
Subject Contracts: Subsection 1.1(g);
Subject Interests: Subsection 1.1(a);
Subject Interest Personal Property: Subsection 1.1(f);
Surface Rights: Subsection 1.1(e)
Exhibit 10.5 - Page 5
Taxes: Subsection 3.4(a);
Trustee: Preamble; and
Uniform Commercial Code: Subsection 1.1(e).
Exhibit 10.5 - Page 6
THIS DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND
FIXTURE FILING (the "Security Instrument") is made as of the 30th day of
September, 2004, by CUBIC ENERGY, INC., a Texas corporation, having its
principal place of business at 0000 Xxxxx Xxxx, Xxxxxx, Xxxxx 00000, as trustor
("Borrower"), to Xxxx Xxxxxxx, having an address at 00000 Xxx Xxxxxx Xxxxxx,
Xxxxx 000, Xxxxxx, Xxxxxxxxxx 00000, as trustee ("Trustee"), for the benefit of
X. X. Xxxxxx & Company, on behalf of the investors of 7% Senior Secured
Convertible Debentures, having an address at 00000 Xxx Xxxxxx Xxxxxx, Xxxxx 000,
Xxxxxx, Xxxxxxxxxx 00000, as beneficiary (collectively "Lender").
RECITALS:
Borrower, by its Senior Secured Convertible Debentures of even date
herewith issued by Borrower to Lender is indebted to Lender in the principal sum
of $2,585,000 in lawful money of the United States of America. The Debentures,
together with all extensions, renewals, modifications, consolidations,
substitutions, replacements, restatements and increases thereof, all as more
particularly described in that certain Securities Purchase Agreement by and
among Borrower, as issuer, and Lender, as purchaser (the "Purchase Agreement")
shall collectively be referred to as the "Notes"). Interest accrues on the Notes
from the date thereof at the rates set forth in the Notes, principal and
interest to be payable in accordance with the terms and conditions provided in
the Notes. The references to Lender herein are in the singular for convenience
only, and the rights and liens created by this instrument are for the ratable
benefit of all holders of the Obligations, or any part thereof, all to the
extent contemplated in the Purchase Agreement.
Borrower desires to secure the payment of the Debt (as defined in
Article 2) and the performance of all of its obligations under the Notes and the
Other Obligations (as defined in Article 2).
Article 1 - GRANTS OF SECURITY
Section 1.1 Property Mortgaged. Borrower does hereby irrevocably (i)
mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to
Trustee and to its successors and assigns in trust with power of sale in
accordance with the terms and conditions hereof, for the use and benefit of
Lender, and (ii) grant a security interest to Lender and to its successors and
assigns in, the following property, rights, interests and estates now owned, or
hereafter acquired by Borrower (collectively, the "Property"):
(a) All those certain oil, gas and mineral leases, rights of use,
easements, servitudes and the estates created thereby, royalty interests,
mineral interests, mineral properties, overriding royalty interests, production
payments, net profits interests, fee interests, carried interests, reversionary
interests and all other rights described or referred to in Exhibit A attached
hereto and made a part hereof (or described in any of the instruments described
or referred to in Exhibit A), whether such rights, titles, interests and estates
are correctly described therein or not, or a description be inadvertently
deleted form Exhibit A and further without regard to depth or other limitations
that may be set forth in Exhibit A (all of which rights, titles, interests and
estates described in this Paragraph are hereinafter collectively referred to as
the "Subject Interests"). The term "oil, gas and mineral leases" as used in this
Security Instrument and in Exhibit A includes, in addition to oil, gas and
mineral leases, oil and gas leases, oil, gas and sulphur leases, other mineral
leases, co-lessor's agreements and extensions, amendments, ratifications and
subleases of all of the foregoing, all as may be appropriate;
(b) All present and future rights, titles, interests and estates in and
to present and future drilling, spacing, proration or production units, as
created by the terms of any unitization, communitization and pooling agreements,
Exhibit 10.5 - Page 7
and all properties, property rights and estates created thereby which include,
belong or appertain to the Subject Interests, including, without limitation, all
such units formed or re-formed voluntarily or under or pursuant to any Law
relating to any of the Subject Interests (all of which rights, titles, interests
and estates described in this subsection (b) are hereinafter included within the
term "Subject Interests");
(c) All present and future oil, gas, coal seam gas, casinghead gas,
drip gasoline, natural gasoline, distillate, all other liquid or gaseous
hydrocarbons produced or to be produced in conjunction therewith, all products,
by-products and all other substances derived therefrom or the processing
thereof, and all other similar minerals now or hereafter accruing to,
attributable to or produced from the Subject Interests or the Subject Contracts
(hereinafter defined) or to which Borrower now or hereafter may be entitled as a
result or by virtue of Borrower's ownership of the Subject Interests or rights
or interests under the Subject Contracts (collectively "Hydrocarbons") ;
(d) All present and future sulphur, lignite, coal, uranium, thorium,
iron, geothermal steam, water, carbon dioxide, helium and all other minerals,
ores or substances of value (whether similar to the foregoing or not), and the
products and proceeds therefrom, including, without limitation, all gas
resulting from the in-situ combustion of coal or lignite now or hereafter
accruing to, attributable to or produced from the Subject Interests or the
Subject Contracts or to which Borrower now or hereafter may be entitled as a
result of or by virtue of Borrower's ownership of the Subject Interests or
rights or interests under the Subject Contracts (collectively, "Other
Minerals");
(e) All present and future rights, titles and interest in and to all
surface fees, fee estates, easements, permits, licenses, rights-of-way, rights
of use, surface leases, servitudes, plant sites, compressor sites, treating
facility sites, and all property and fixtures located thereon which relate to or
are used or held for use in connection with the Subject Interests, including
without limitation those described or referred to on Exhibit A, whether such
surface fees, fee estates, easements, permits, licenses, rights-of-way, rights
of use, surface leases, compressor sites or treating facility sites are fee
simple estates, leasehold estates or otherwise (all of such rights, titles,
interests and estates referred to or described in this subsection (e) are
hereinafter collectively referred to as the "Surface Rights");
(f) All present and future oil and/or gas xxxxx, disposal and injection
xxxxx, rigs, improvements, fixtures, machinery and other equipment, inventory
and articles of personal property of any kind or character whatsoever, wherever
located, which are appurtenant to, or used or held for use in connection with,
the production, gathering or transporting of Hydrocarbons or Other Minerals, or
now or hereafter located on any of the lands encumbered by any of the Subject
Interests (the "Lands"), or used on or about the Lands in connection with the
operations thereon with respect to the production of Hydrocarbons or Other
Minerals, including, without limitation, connections and flow lines from xxxxx
to tanks, xxxxx, pipelines, gathering lines, trunk lines, lateral lines, flow
lines, compressor, dehydration and pumping equipment, pumping plants, gas
plants, processing plants, treating facilities, pumps, dehydration units,
separators, heater treaters, valves, gauges, meters, derricks, rig
substructures, buildings, tanks, reservoirs, tubing, rods, liquid extractors,
engines, boilers, tools, appliances, cables, wires, tubular goods, machinery,
supplies, together with all present and future improvements or products of,
accessions, attachments and other additions to, tools, parts and equipment used
in connection with, and substitutes and replacements for, all or any part of the
foregoing (all of the types of items of property and interests described in this
subsection (f) are hereinafter collectively referred to as the "Subject Interest
Personal Property");
Exhibit 10.5 - Page 8
(g) All present and future rights, titles, interests and estates
(including, without limitation, all rights to receive payments) under or by
virtue of all easements, permits, licenses, rights-of-way, rights of use,
surface leases, underground storage leases agreements, certificates of public
convenience and necessity, franchises, servitudes, division orders, production
sales contracts, processing agreements, gathering agreements, transportation
agreements, transfer orders and other contracts and agreements relating or
pertaining to purchasing, selling, exchanging, exploring for, developing,
operating, treating, processing, storing, marketing, gathering or transporting
Hydrocarbons or Other Minerals or any other contract or agreement relating in
any way to all or any part of the Property otherwise described herein,
including, without limitation, farmout contracts, farm-in contracts, operating
or joint operating agreements, trade letter agreements and all agreements
creating rights-of-way for ingress and egress to and from the Subject Interests
or the Surface Rights (all of such rights, titles, interests and estates
referred to or described in this subsection (g) are hereinafter collectively
referred to as the "Subject Contracts");
(h) All present and future accounts (including, but not limited to, all
open accounts receivable and accounts receivable arising under or pursuant to
any of the Subject Contracts), general intangibles, contract rights, chattel
paper, documents, instruments, cash and noncash proceeds and other rights
relating to, arising from, by virtue of, or from the voluntary or involuntary
sale of other disposition of, or collections with respect to, or insurance
proceeds payable with respect to, or proceeds payable by virtue of warranty or
other claims against manufacturers of, or claims against any other person or
entity with respect to, all or any part of the Property described in this
subsection (h) or any of the preceding subsections (a) through (g) (all of which
types and items of property and interests described in this subsection (h) are
hereinafter collectively referred to as the "Accounts");
(i) All present and future tenements, hereditaments, appurtenances,
profits and properties in anywise appertaining, belonging, affixed or incidental
to, or used or useful in connection with, all or any part of the Subject
Interests or the Surface Rights, including, without limitation, all reversions,
remainders, carried interests, tolls, rents, revenues, issues, proceeds,
deposits, tax refunds other than income tax refunds (and claims for tax refunds
other than income tax refunds), easements, permits, licenses, servitudes,
surface leases, rights-of-way and franchises (to the extent any of the foregoing
are assignable or transferable), relating to all or any part of the Property;
(j) All of the following collateral, now owned or hereafter acquired,
in connection with any and all of the Subject Interests: oil and gas equipment
(including accessions), oil, gas, as-extracted collateral, casinghead gas, and
other hydrocarbons; accounts, documents, instruments, contract rights and
general intangibles relating to the sale thereof; together with all proceeds
thereof; and
(k) All other interests of every kind and character which Borrower has
or at any time hereafter acquires in and to the types and items of property and
interests described in subsections (a) through (j) preceding and all property
which is used or useful in connection with the Subject Interests, the Surface
Rights or otherwise and the proceeds and products of all of the foregoing,
whether now owned or hereafter acquired.
Section 1.2 Additional Property Mortgaged and Conveyed. To further
secure the full and complete payment and performance of the Obligations,
Borrower does hereby irrevocably (i) mortgage, grant, bargain, sell, pledge,
assign, warrant, transfer and convey to Trustee and to its successors and
assigns in trust with power of sale in accordance with the terms and conditions
hereof, for the use and benefit of Lender, and (ii) grant a security interest to
Lender and to its successors and assigns in, the following property, rights,
interests and estates now owned, or hereafter acquired by Borrower (all of which
are included within the term "Property"):
Exhibit 10.5 - Page 9
(a) All present and future Subject Interests, Surface Rights,
Hydrocarbons and Other minerals;
(b) All present and future Subject Interest Personal Property, Subject
Contracts and Accounts;
(c) To the extent not otherwise covered above, all of Borrower's
present and future accounts, general intangibles, chattel paper, documents,
instruments, inventory, equipment and fixtures, as those terms are defined in
the Uniform Commercial Code of the state where the Property is located (all of
the types of property described in this Paragraph are hereinafter collectively
referred to as the "Other Personal Property");
(d) All of the commodity swap, futures or hedging accounts owned by
Borrower and agreements relating thereto to which Borrower is a party and which
affect any of the Property, the net equity margins therein, the credit balances
therein, and all instruments, uncertificated securities and money held therein
or pursuant to the agreements establishing or governing such accounts and all
general intangibles (including, without limitation, all futures contracts and
options contracts therein) relating to any of the foregoing;
(e) All present and future increases, profits, combinations,
reclassifications, improvements and products of, accessions, attachments and
other additions to, tools, parts and equipment used in connection with, and
substitutes and replacements for, all or any part of the Property described in
this or any other subsection hereof or of Section 1.1:
(f) All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash proceeds
and other rights arising from or by virtue of, or from the voluntary or
involuntary sale or other disposition of, or collections with respect to, or
insurance proceeds payable with respect to, the Property, or proceeds payable by
virtue of warranty or other claims against manufacturers of, or claims against
any other person or entity with respect to, all or any part of the Property;
(g) All present and future logs, drilling reports, lease and well
files, property records, all financial, geological, geophysical and other
records, books, records, files, data, plans, manuals, computer software,
computer tapes, computer disks, computer programs, source codes, object codes,
abstracts, title opinions, rights to receive information from third parties,
memoranda and other written information pertaining to the Property, or any part
thereof (collectively, the "Property Records");
(h) All present and future security and collateral for the payment to
Borrower of any of the Accounts and goods which gave or will give rise to any of
such Accounts or are evidenced, identified, or represented therein or thereby;
(i) All condemnation proceeds pertaining to any of the Property; and
(j) Any and all products and proceeds (including insurance proceeds) of
any of the foregoing.
Exhibit 10.5 - Page 10
Section 1.3 Assignment of Production.
(a) Borrower hereby absolutely and unconditionally assigns to Lender
all of the following (collectively, the "Proceeds"):
(i) All Hydrocarbons and Other Minerals, and the proceeds
therefrom, and the products obtained or processed therefrom, and proceeds
thereof;
(ii) All amounts or proceeds hereafter payable to or to become
payable to Borrower or to which Borrower is entitled pursuant to all Subject
Contracts now or hereafter relating to any part of the Subject Interests or the
Surface Rights; and
(iii) All amounts, sums, monies, revenues and income which
become payable to Borrower from, or with respect to, any of the Property or
pursuant to any Subject Contract, present or future, now or hereafter
constituting a part of the Property.
TO HAVE AND TO HOLD said interests unto Lender, its successors and
assigns, forever, subject however, to the terms and provisions of this Security
Instrument.
(b) Borrower authorizes and empowers Lender to demand, collect, receive
and receipt for the Proceeds, and to endorse and cash any checks and drafts
payable to Borrower or to Lender for the account of Borrower received in
connection with the Proceeds. BORROWER IRREVOCABLY APPOINTS LENDER AS THE AGENT
AND ATTORNEY-IN-FACT OF BORROWER FOR THE PURPOSE OF EXECUTING ANY "RECEIPTS"
(DEFINED HEREIN TO MEAN ANY TRANSFER ORDER, PAYMENT ORDER, DIVISION ORDER,
RECEIPT, RELEASE OR OTHER INSTRUMENT) THAT LENDER DEEMS NECESSARY IN ORDER FOR
LENDER TO DEMAND, COLLECT, RECEIVE AND RECEIPT FOR THE PROCEEDS. In addition,
Borrower agrees that upon Lender's request, Borrower shall promptly execute and
deliver to Lender such Receipts as Lender may deem necessary, convenient or
appropriate in connection with the payment and delivery directly to Lender of
all Proceeds. Borrower authorizes and directs all "Purchasers" (defined herein
to mean all pipeline companies, purchasers, transporters, and any other Person
now or hereafter purchasing Hydrocarbons, or any part thereof, or now or
hereafter having in their possession or control any proceeds, or any part
thereof, or now or hereafter otherwise owing monies to Borrower under the
Subject Contracts herein assigned), to pay or deliver such Proceeds directly to
Lender at the address set forth in the Preamble hereof, or in such other manner
as Lender may direct the Purchasers in writing, and this authorization shall
continue until this Security Instrument is released. All Receipts may be relied
upon in all respects by Purchasers and the same shall be binding upon Borrower.
No Purchaser shall have any responsibility to see to the application of the
assignment herein contained and each Purchaser shall be released hereby from any
and all liability to Borrower to the full extent and amount of all Proceeds so
paid or delivered. Borrower agrees to indemnify and hold harmless each Purchaser
against any and all liabilities, actions, claims, judgments, costs, changes,
costs of investigation and attorneys' fees resulting from the paying of any such
Proceeds to Lender. Should Lender bring suit against any Purchaser for
collection of any amounts or sums included within this assignment (and Lender
shall have the right to bring any such suit), it may xxx either in its own name
or in the name of Borrower.
(c) For its convenience, Lender has elected not to exercise immediately
its right to receive payment to it directly of the Proceeds and the Purchasers
may continue to make such payment or delivery of the Proceeds to Borrower until
such time as Borrower and the Purchasers have received notice that an Event of
Default has occurred and is continuing, and that the Purchasers are directed to
make payment or delivery of the Proceeds directly to Lender. Such failure by
Exhibit 10.5 - Page 11
Lender to exercise its rights immediately shall not in any way waive the right
of Lender to receive any of the Proceeds, or to make any such demand, or to
affect any such assignment as to any Proceeds not theretofore paid or delivered
to Borrower. In this regard, if any of the Proceeds are paid or delivered
directly to Lender, and then, at the request of Lender, the Proceeds are, for a
period of time, paid or delivered to Borrower, Lender shall nevertheless have
the right, effective upon written notice, to require that future Proceeds be
again paid or delivered directly to it. Lender shall never be required to send
any such notice to all Purchasers, and may direct such notice only to those
Purchasers as it may, in its discretion, desire. It shall never be necessary for
Lender to institute legal proceedings to enforce the assignment of Hydrocarbons,
Other Minerals, Proceeds or other rents, profits or income contained in this
Security Instrument. It shall not be necessary for Lender to obtain possession
of the Property as a prerequisite to Lender's right to collect or receive any
Hydrocarbons, Other Minerals, Proceeds or other rents, profits or income
assigned to Lender under this Security Instrument. Borrower and Lender expressly
agree and it is the express intention of Borrower and Lender that in no event
will any reduction in the Obligations be measured by the fair market value of
the Hydrocarbons, Other Minerals, Proceeds or other rents, profits or income
assigned to Lender under this Security Instrument.
(d) Independently of the foregoing provisions and authorities herein
granted, Borrower shall execute and deliver any and all Receipts that may be
requested by Lender or that may be required by any Purchaser to effect payment
or delivery of the Proceeds directly to Lender. If pursuant to any existing
Subject Contract, any Proceeds are required to be paid or delivered by any
Purchaser directly to Borrower so that under such existing Subject Contract, the
Proceeds cannot be paid or delivered directly to Lender in the absence of
foreclosure, then, if Lender has requested that the Proceeds be paid or
delivered directly to it under the assignment herein contained, the Proceeds
which for any reason must be paid or delivered to Borrower shall, when received
by Borrower, constitute trust funds in Borrower's hands and shall be immediately
paid over by Borrower to Lender. Promptly upon the request of Lender at
reasonable intervals, Borrower shall furnish Lender with the names and addresses
of each Purchaser. Borrower knows of no agreement under which the Proceeds
cannot be paid to Lender.
(e) Lender is hereby absolved from all liability for failure to enforce
the collection of the Proceeds assigned under this Section 1.3, and from all
other responsibility in connection therewith, except the responsibility to
account (by application upon the Obligations or otherwise) for funds actually
received. If Lender receives monies in excess of the amount of the Proceeds to
which Borrower may be entitled, Lender will make a reasonable effort to pay any
such excess monies of which Lender is aware to the other Persons legally
entitled thereto; provided that Borrower agrees to indemnify and hold Trustee
and Lender harmless against any and all liabilities, actions, claims, judgments,
costs, charges and attorneys' fees by reason of the assertion that the or either
of them have received, either before or after payment and performance in full of
the Obligations, funds from the Proceeds of Hydrocarbons or Other Minerals
claimed by a third Person, or any other Proceeds in which a person claims an
adverse interest. Trustee and Lender shall each have the right to defend against
any such claims or actions, employ attorneys of their own selection, and if not
furnished with indemnity satisfactory to each of them, they alone shall each
have the right to compromise and adjust any such claims, actions and judgments,
and in addition to the rights to be indemnified as herein provided, all amounts
paid by Trustee or by Lender in compromise, satisfaction or discharge of any
such claim, action or judgment, and all court costs, attorneys' fees and other
expenses of every character incurred by Trustee or by Lender pursuant to the
provisions of this Section 1.3 shall be demand obligations owning by Borrower
and shall bear interest at the Default Rate from the date of expenditure until
paid, and any such payments so made by Lender and the interest thereon shall be
part of the Obligations and shall be secured by the liens evidenced by this
Security Instrument.
Exhibit 10.5 - Page 12
(f) The rights of Lender pursuant hereto shall be cumulative of all
other security of any and every character now or hereafter existing to secure
the payment and performance of the Obligations. Proceeds received by Lender
pursuant to its exercise of its rights after an Event of Default, as provided in
this Section 1.3 shall be applied against the Obligations in the manner and
order provided for in this Security Instrument or the other Loan Documents,
provided that such Proceeds shall not be deemed applied to payment of the
Obligations unless and until such Proceeds are actually applied thereto. Lender
may, in its sole discretion, permit Proceeds received by it to be returned to
Borrower (rather than applied to the Obligations) for use in Borrower's
operations, without affecting the priority of the liens hereunder.
Section 1.4 Security Agreement. This Security Instrument is both a real
property mortgage and a "security agreement" within the meaning of the Uniform
Commercial Code of the state that the property is located. The Property includes
both real and personal property and all other rights and interests, whether
tangible or intangible in nature, of Borrower in the Property. By executing and
delivering this Security Instrument, Borrower hereby grants to Lender, as
security for the Obligations, a security interest in the Property to the full
extent that the Property may be subject to the Uniform Commercial Code of the
state where the property is located (said portion of the Property so subject to
the Uniform Commercial Code, the "Collateral"). The grant of a security interest
to Lender in the granting clauses of this Security Instrument shall not be
construed to derogate from or impair the lien or rights of Lender under this
Security Instrument with respect to any property described therein which is real
property, or which the parties have agreed to treat as real property.
Section 1.5 Fixture Filing. This Security Instrument is intended to
serve as a fixture filing filed in the Real Estate Records of the County Clerk
or Recorder of the County in which the Property is located, pursuant to the
terms of the applicable provisions of the Uniform Commercial Code of the state
in which the Property is located, with respect to all fixtures included within
the term "Property" as used in this Security Instrument, and with respect to any
goods, Collateral or other personal property that may now be or later become
fixtures. It is understood and agreed to that if any fixture owned by Borrower
on the Property, or any part of any fixture, is replaced or added to, or any new
fixture owned by Borrower is installed by Borrower, and in each case the fixture
has a cost or fair market value in excess of One Thousand and No/100 Dollars
($1,000.00), and the fixture is or may be subject to a security interest held by
a seller or any other party, the following will apply:
(a) Borrower or any owner of all or any part of the Property will,
before the replacement, addition, or installation of any such fixture, obtain
the prior written approval of Lender, and give Lender written notice that a
security agreement with respect to the fixture has been or will be consummated,
and the notice will contain the following information:
(i) a description of the fixture(s) to be replace, added to,
installed or substituted;
(ii) a recital of the location at which the fixture(s) will be
replaced, added to, installed or substituted;
(iii) a statement of the name and address of the Lender and
amount of the security interest; and
(iv) the date of the purchase of the fixture(s).
Exhibit 10.5 - Page 13
Neither this subsection, nor any consent by Lender pursuant to this subsection,
will constitute an agreement to subordinate any right of Lender in fixtures or
other Property covered by this Security Instrument.
(b) Lender may at any time pay the balance due under the security
agreement and the amount paid will be:
(i) secured by this Security Instrument and will be a lien on
the Property, enjoying the same priorities as this Security Instrument;
(ii) added to the amount of the Obligations secured by this
Security Instrument; and
(iii) payable on demand with interest at the Default Rate from
the time of the payment; and if Borrower is in default for ten (10) days after
demand, the entire principal sum secured with all unpaid interest will, at
Lender's sole option, become immediately due, regardless of any contrary
provision in this Security Instrument or the Note; or Lender will have the
privilege of acquiring by assignment from the Lender of the security interest
any contract rights, accounts receivable, chattel paper, negotiable or
nonnegotiable instruments, or other evidence of Borrower's indebtedness for the
fixtures, and, on acquiring these interests by assignment, will have the right
to enforce the security interest as an assignee, in accordance with the Uniform
Commercial Code of the state in which the Property is located and other
applicable law.
(c) Whether or not Lender has paid or taken an assignment of the
security interest, if at any time Borrower is in default for a period of ten
(10) days under the security agreement covering the fixtures, that default will
be considered a material breach of Borrower's covenants under this Security
Instrument, and will, at Lender's option, constitute an Event of Default under
this Security Instrument, and the Obligations secured will, at Lender's option,
become immediately due.
(d) The provisions of subsections (b) and (c) above will not apply if
the goods that may become fixtures are of at least equivalent value and quality
as any property being replaced and if the rights of the party holding the
security interest have been expressly subordinated, at no cost to Lender, to the
lien of this Security Instrument in a manner satisfactory to Lender, including,
without limitation, at Lender's option, providing to Lender a satisfactory
opinion of counsel that this Security Instrument constitutes a valid and
subsisting first lien on the fixtures that is not subordinate to the lien of the
security interest under any applicable law, including, without limitation, the
provisions of the Uniform Commercial Code of the state in which the Property is
located.
CONDITIONS TO GRANT
TO HAVE AND TO HOLD the above granted and described Property unto the
Trustee and its successors and assigns, in trust with power of sale in
accordance with the terms and conditions hereof, for the use and benefit of
Lender, and the successors and assigns of Lender, forever;
PROVIDED, HOWEVER, these presents are upon the express condition that,
if Borrower shall well and truly pay to Lender the Debt at the time and in the
manner provided in the Notes and this Security Instrument, shall well and truly
perform the Other Obligations as set forth in this Security Instrument and shall
well and truly abide by and comply with each and every covenant and condition
set forth herein and in the Note, these presents and the estate hereby granted
shall cease, terminate and be void.
Exhibit 10.5 - Page 14
Article 2 - DEBT AND OBLIGATIONS SECURED
Section 2.1 Debt. This Security Instrument and the grants, assignments
and transfers made in Article 1 are given for the purpose of securing the
following, in such order of priority as Lender may determine in its sole
discretion (the "Debt"):
(a) the payment of the indebtedness evidenced by the Notes in lawful
money of the United States of America;
(b) the payment of interest, default interest, late charges and other
sums, as provided in the Note, this Security Instrument or the Other Security
Documents;
(c) the payment of all other monies agreed or provided to be paid by
Borrower in the Note, this Security Instrument or the Other Security Documents;
(d) the payment of all sums advanced pursuant to this Security
Instrument to protect and preserve the Property and the lien and the security
interest created hereby; and
(e) the payment of all sums advanced and costs and expenses incurred by
Lender or Trustee in connection with the Debt or any part thereof, any renewal,
extension, modification, consolidation, change, substitution, replacement,
restatement or increase of the Debt or any part thereof, or the acquisition or
perfection of the security therefor, whether made or incurred at the request of
Borrower or Lender.
Section 2.2 Other Obligations. This Security Instrument and the grants,
assignments and transfers made in Article 1 are also given for the purpose of
securing the following (the "Other Obligations"):
(a) the performance of all other obligations of Borrower contained
herein;
(b) the performance of each obligation of Borrower contained in the
Notes in addition to the payment of the Debt and of Borrower contained in the
Other Security Documents;
(c) the performance of each obligation of Borrower contained in any
renewal, extension, modification, consolidation, change, substitution,
replacement for, restatement or increase of all or any part of the Note, this
Security Instrument or the Other Security Documents; and contained in the
Purchase Agreement;
(d) the payment and performance of each obligation of Borrower
Section 2.3 Debt and Other Obligations. Borrower's obligations for the
payment of the Debt and the performance of the Other Obligations shall be
referred to collectively below as the "Obligations."
Section 2.4 Payments. Unless payments are made in the required amount
in immediately available funds at the place where the Notes is payable,
remittances in payment of all or any part of the Debt shall not, regardless of
any receipt or credit issued therefor, constitute payment until the required
amount is actually received by Lender in funds immediately available at the
place where the Notes is payable (or any other place as Lender, in Lender's sole
Exhibit 10.5 - Page 15
discretion, may have established by delivery of written notice thereof to
Borrower) and shall be made and accepted subject to the condition that any check
or draft may be handled for collection in accordance with the practice of the
collecting bank or banks. Acceptance by Lender of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only, and the
failure to pay the entire amount then due shall be and continue to be an Event
of Default.
Article 3 - BORROWER COVENANTS
Borrower covenants and agrees with Trustee and Lender that:
Section 3.1 Payment of Debt. Borrower will pay the Debt at the time and
in the manner provided in the Notes and in this Security Instrument.
Section 3.2 Incorporation by Reference. All the covenants, conditions
and agreements contained in (a) the Notes and (b) all and any of the documents
other than the Notes or this Security Instrument now or hereafter executed by
Borrower and by or in favor of Lender, which wholly or partially secure or
guaranty payment of the Notes or the other Obligations (the "Other Security
Documents"), are hereby made a part of this Security Instrument to the same
extent and with the same force as if fully set forth herein.
Section 3.3 Title to Property.
(a) Borrower has, and Borrower covenants to maintain, good and
marketable title to the Property, free and clear of all liens, except to the
extent described in writing to Lender by Borrower prior to the recordation
hereof, or approved by Lender, in advance in writing, after the execution
hereof. Borrower will warrant and defend title to the Property, subject as
aforesaid, against the claims and demands of all persons claiming or to claim
the same or any part thereof. Borrower's ownership of the Subject Interests does
and will, (i) with respect to each tract of land described in Exhibit A hereto
(whether described directly in such Exhibit A or described by reference to
another instrument) in connection with such Property, (A) entitle Borrower to
receive (subject to the terms and provisions of this Security Instrument) a
decimal share of the Hydrocarbons and Other Mineral Interests produced from, or
allocated to, such tract equal to not less than the decimal share set forth in
Exhibit A in connection with such tract opposite the words "NRI" or "Net Revenue
Interest" (or words of similar import), (B) cause Borrower to be obligated to
bear a decimal share of the cost of exploration, development and operation of
such tract of land nor greater than the decimal share set forth in Exhibit A in
connection with such tract opposite the words "WI" or "Working Interest" or
words of similar import (unless there is a corresponding increase in the record
Net Revenue Interest), and (ii) if such Property is shown on Exhibit A to be
subject to a unit or units, with respect to each such unit, (A) entitle Borrower
to receive (subject to the terms and provisions of this Security Instrument) a
decimal share of all substances covered by such unit which are produced from, or
allocated to, such unit equal to not less than the decimal share set forth in
Exhibit A in connection with such Property opposite the words "Unit NRI" or
"Unit Net Revenue Interest" or words of similar import (and if such Property is
subject to more than one unit, words identifying such interest with such unit),
and (B) obligate Borrower to bear a decimal share of the cost of exploration,
development and operation of such unit not greater than the decimal share set
forth in Exhibit A in connection with such Property opposite the words "Unit WI"
or Unit Working Interest" or words of similar import (unless there is a
corresponding increase in the record Unit Net Revenue Interest). With respect to
each Property, described in Exhibit A hereto which is subject to a voluntary or
involuntary pooling, unitization or communitization agreement and/or order, the
term "tract of land" as used in this Section 3.3 (a) shall mean the pooled,
Exhibit 10.5 - Page 16
unitized or communitized area as an entirety and shall not be deemed to refer to
any individual tract committed to said pooled, unitized or communitized area.
Such shares of production which Borrower is entitled to receive and shares of
expenses which Borrower is obligated to bear are not subject to change and such
shares of production and the Hydrocarbons and Other Mineral interests to which
they relate are (and, unless and until released by Lender, shall remain)
encumbered by this Security Instrument. Borrower is receiving payment for
Borrower's share of production from the Subject Instrument, and no material
payments for Borrower's share of such production are being withheld or are
currently in suspense. Except for liens approved in writing by Lender, there is
not and will not be any unexpired financing statement covering any part of the
Property on file in any public office naming any person other than Lender as
secured party. Upon request by Lender, Borrower will deliver to Lender schedules
of all internal and third person information identifying the Property (such as,
for example, lease names and numbers assigned by Borrower or the operator for
any Property, well and/or unit and/or property names and numbers assigned by
Purchasers, and internal identification names and numbers used by Borrower in
accounting for revenues, costs and joint interest transactions attributable to
the Property). All Accounts are free from any claim for credit, deduction or
allowance of any person obligated in respect thereof and free from any defense,
dispute, setoff or counterclaim, and there is no extension or indulgence with
respect thereto.
(b) The Hydrocarbon and Other Mineral leases forming a part of the
Property, the Surface Rights and the Subject Contracts, to the extent the same
cover or otherwise relate to the Property, are in full force and effect, and,
Borrower agrees to so maintain them in full force and effect, and are not
subject to any override or senior financial interest, except to the extent
disclosed in writing to Lender by Borrower. All rents, royalties and other
payments due and payable under such Hydrocarbon and Other Mineral leases, under
the Subject Contracts, or otherwise attendant to the ownership or operation of
the Property, have been, and will continue to be properly and timely paid.
Borrower is not in default with respect to Borrower's obligations (and Borrower
is not aware of any default by any third person with respect to such third
person's obligations) under such Hydrocarbon and other Mineral leases, under the
Subject Contracts, or otherwise attendant to the ownership or operation of any
part of the Property, which default could adversely and materially, either in
the aggregate or on a property-by-property (i.e., lease-by-lease) basis, affect
Borrower's ownership or operation of any part of the Property (where such
default could adversely and materially, either in the aggregate or on a
property-by-property (i.e., lease by lease) basis, affect Borrower's ownership
or operation of the Property, Borrower will fulfill all such obligations coming
due in the future). Borrower is not currently accounting (and will not hereafter
agree to account) for any royalties, or overriding royalties or other payments
out of production, on a basis (other than delivery in kind) other than proceeds
received by Borrower from sale of production, and there are not situations where
a contingent liability to account on another basis may exist.
(c) No Property is or will become subject to any contractual or other
arrangement (i) whereby payment for gathering or production is or can be
deferred to a substantial period after the month in which such gathering
services are rendered or such production is delivered (i.e., in the case of
gathering not in excess of 60 days, and in case of production of oil, not in
excess of 60 days, and the case of production of gas, not in excess of 90 days)
or (ii) whereby payments are made to Borrower other than by checks, drafts, wire
transfer advises or other similar writings, instruments or communications for
the immediate payment of money. Borrower is presently receiving a price for all
production from (or attributable to) each Property covered by a production sales
contract as computed in accordance with the terms of such contract, and is not
having deliveries of production from such Property curtailed substantially below
such Property's delivery capacity, except for normal maintenance operations.
Neither Borrower nor any of its predecessors-in-title has received prepayments
(including, but not limited to, payments for gas not taken pursuant to
"take-or-pay" or other similar arrangements) for any Hydrocarbons produced or to
Exhibit 10.5 - Page 17
be produced from the Property after the effective date of this Security
Instrument, and Borrower shall not enter into any Advance Payment Contract. No
Property is or will become subject to any "take-or-pay" or other similar
arrangement which can be satisfied in whole or in part by the production or
transportation of gas from other properties or, as a result of which production
from the Property may be required to be delivered to one or more third persons
without payment (or without full payment) therefor as a result of payments made,
or other actions taken, with respect to other properties. Except as would not
result in a Material Adverse Effect (as defined in the Loan Agreement) or as may
be taken into account in the most recent Engineering Report provided by Borrower
to Lender for the Property, there is no portion of the Property with respect to
which Borrower, or its predecessors in title, has, prior to the effective date
of the Security Instrument, taken more ("overproduced"), or less
("underproduced"), gas from the lands covered thereby (or pooled or unitized
therewith) than its ownership interest in such Property would entitle it to
take. Upon request, Borrower shall furnish to Lender a certificate which
accurately reflects, for each well or unit with respect to which such an
imbalance is shown on such certificate to exist, (1) whether Borrower is
overproduced or underproduced, (2) the volume (in Mcf) of such overproduction or
underproduction and the effective date of such information, and (3) if
production can be taken from other xxxxx or units (or other gas reserves) to
correct such balance, and, if production can be so taken, such other xxxxx or
units (or other gas reserves) upon Lender's request. Except for existing
"overproduced" positions, Borrower will undertake any action legally available
to it to avoid becoming materially overproduced with respect to any well on the
Property (or on any unit in which the Property participates), in an amount in
excess of Borrower's share of gas produced from such well during the preceding
four calendar months. Except for existing arrangements, no Property is or will
become subject to a gas balancing arrangement under which one or more third
persons may take a portion of the production attributable to such Property
without payment (or without full payment) therefor as a result of production
having been taken from, or as a result of other actions or inactions with
respect to, other properties. To the best of Borrower's knowledge, none of the
proceeds from the sale of Hydrocarbons from the Property is subject at the
present time to any refund obligation and no facts exist which might cause the
same to be imposed.
(d) The Personal Property is and will remain in good repair and
condition (ordinary wear and tear excepted) and is and will be adequate for the
normal operation of the Property in accordance with prudent industry standards;
all of the Subject Interest Personal Property is, and will remain, located on
the Lands, except for that portion thereof which is or shall be located
elsewhere (including that usually located on the Lands but temporarily located
elsewhere) in the course of the normal operation of the Property. Upon request
of Lender, Borrower will use all reasonable efforts to deliver to Lender an
inventory and/or financing statements describing and showing the make, model,
serial number and location of all material Personal Property.
(e) The Property is being (and, to the extent the same could materially
adversely affect the ownership or operation of the Property after the effective
date, has in the past been), and hereafter will be, maintained, operated and
developed in a good workmanlike manner and operating condition, in accordance
with prudent industry standards and in conformity with all Applicable Laws of
all duly constituted authorities having jurisdiction and in conformity with all
Hydrocarbons and Other Mineral leases included in the Property, the Subject
Contracts, and the Permitted Liens, and Borrower shall restore, repair and
replace, as necessary, any and all fixtures and equipment constituting the
Property; specifically in this connection, (i) no Property is subject to having
allowable production after the effective date of this Security Instrument
materially reduced below the full and regular allowable (including the maximum
permissible tolerance) because of any overproduction (whether or not the same
was permissible at the time) prior to the effective date of this Security
Instrument, and (ii) none of the xxxxx located on the Property is or will be
deviated from the vertical more than the maximum permitted by Applicable Laws,
and such xxxxx are, and will remain, bottomed under and producing from, with the
wellbores wholly within, the Property. Borrower has, and will have in the
Exhibit 10.5 - Page 18
future, all governmental licenses and permits necessary or appropriate to own
and operate the Property. Borrower has not received notice of any material
violations in respect of such licenses or permits except those which Borrower
has previously remedied or in the ordinary course will remedy. (f) Borrower will
not, without the prior written consent of Lender, sell, exchange, lease,
transfer or otherwise dispose of any part of, or interest in, the Property other
than (i) sales, transfers and other dispositions of the Property specifically
authorized by Lender in writing, (ii) sales, transfers and other dispositions of
Personal Property in connection with the abandonment of a well that is not
capable of producing Hydrocarbons in commercial quantities (as determined
without considering the effect of this Security Instrument or the Obligations),
(iii) sales, transfers and other dispositions of Personal Property which is (A)
obsolete for its intended purpose and disposed of in the ordinary course of
business or (B) replaced by articles of at least equal suitability and value
owned by Borrower free and clear of all liens except this Security Instrument;
and (iv) sales of Hydrocarbons which are made in the ordinary course of business
and in compliance with Section 3.3(c) hereof; provided that nothing in the
clause (iv) shall be construed as limiting Lender's Rights under Article 11
hereof. Borrower shall account fully and faithfully for and, if required under
the provisions of this Security Instrument or the other Loan Documents, shall
promptly pay or turn over to Lender the proceeds in whatever form received from
disposition in any manner of any of the Property. Borrower shall at all times
keep the Property and its proceeds separate and distinct from other property of
Borrower and shall keep accurate and complete records of the Property and its
proceeds.
(g) Except as previously disclosed in writing to Lender, as of the
effective date of the Security Instrument, to the best of Borrower's knowledge,
each of the xxxxx located on the Lands or on lands pooled or unitized therewith
that are described in the most recent Engineering Report, delivered to Lender by
Borrower, as producing xxxxx ("Xxxxx") are each capable of, and each is
presently, producing oil or gas in paying quantities, except such Xxxxx which
are currently utilized as water or gas injection xxxxx or as water disposal
xxxxx. Borrower will not, without prior written consent of Lender, permanently
abandon, or consent to permanent abandonment of, any well producing from the
Property so long as such well is capable of producing Hydrocarbons in commercial
quantities (as determined without considering the effect of this Security
Instrument or the Obligations). Borrower will not, without prior written consent
of Lender (which consent shall not be unreasonably withheld), elect not to
participate in a proposed operation on the Property where the effect of such
election would be the forfeiture either temporarily (i.e., until a certain sum
of money is received out of the forfeited interest) or permanently of any
interest in the Property.
(h) Borrower has paid and discharged, and will continue to pay and
discharge, all ad valorem taxes assessed against the Property or any part
thereof and all production, severance and other taxes assessed against, or
measured by, the Hydrocarbons or the value, or proceeds, of the Hydrocarbons;
provided that Borrower may delay paying or discharging any such taxes so long as
it is in good faith contesting the validity thereof by appropriate proceedings
and has set aside on its books adequate reserves therefor.
(i) There are no suits, actions, claims, investigations, inquiries,
proceedings or demands pending (or, to Borrower's knowledge, threatened) which
affect the Property (including, without limitation, any which challenge or
otherwise pertain to Borrower's title to the Property) and no judicial or
administrative actions, suits or proceedings pending (or, to Borrower's
knowledge, threatened) against Borrower.
(j) Borrower will observe and comply, or cause such observance and
compliance, with all terms and provisions, express or implied, of the Subject
Interests and the Subject Contracts, in order to keep the same in full force and
Exhibit 10.5 - Page 19
effect and, without limiting the foregoing, Borrower will not permit the
surrender, abandonment, release or termination of any Hydrocarbon or Other
Mineral lease or any Subject Contract, and will continue, or cause to continue,
the operation of the Xxxxx, and will make payment, or cause to be paid, in the
ordinary course of business, all amounts payable, pursuant to any Subject
Contract provided that nothing in this paragraph shall preclude Borrower from
contesting in good faith the amount of such payment, or asserting the breach of
any Subject Contract, so long as provision for such payment and for the
fulfillment of Borrower's obligations with respect to all such debts and
liabilities satisfactory to Lender has been made.
(k) Borrower will develop, maintain, and operate, or cause the
development, maintenance and operation of, the Subject Interests in a good and
workmanlike manner to protect from diminution the productive capacity of the
Subject Interests and each Well, in compliance with all Applicable Laws and
Subject Contracts relating thereto.
(l) Borrower acknowledges and agrees that it is Borrower's intention to
execute and cause to be recorded in the real estate records of the County Clerk
or County Recorder of each County in each State where Borrower holds any
interest in Property, as that term is defined herein, whether such interest is
now owned or is hereafter acquired. In this regard, as of the Closing Date, as
that term is defined in the Purchase Agreement, Borrower shall execute a series
of Security Instruments, each of which will identify, to the fullest extent
possible, with sufficient particularity, the real property to which the Property
of Borrower is related, to give constructive notice of a mortgage under the law
of the state in which such Property is located. In this regard, Borrower
covenants and agrees that it will, promptly upon the request of Lender or
Borrower's discovery of facts requiring such action: (a) correct any defect,
error or omission which may be discovered in the descriptions of the Property
contained in each Security Instrument executed by Borrower to secure the
Obligations; (b) execute, acknowledge, deliver and record and/or file such
further instruments, including, without limitation, further deeds of trust,
mortgages, security agreements, financing statements, continuation statements
and assignments of production, accounts, funds, contract rights, general
intangibles and proceeds, and do such further acts as may be necessary,
desirable or proper to carry out more effectively the purposes of this Security
Instrument and the other Loan Documents, and to more fully identify and subject
to the liens hereof any property intended to be covered hereby, including
specifically, but without limitation, any renewals, additions, substitutions,
replacements or appurtenances to the Property; and (c) execute, acknowledge,
deliver and file and/or record any document or instrument, including
specifically any financing statement, desired by Lender to protect the liens
hereunder against the rights or interests of third persons. Borrower shall pay
all fees, costs and expenses in connection with any of the following, including,
without limitation, reasonable attorneys' fees of Lender.
Section 3.4 Insurance. Borrower will keep, or cause to be kept, such
part of the Property which is of an insurable nature and of a character usually
insured as required by the Loan Agreement. If there is any loss or damage to any
of the Property covered by any such policy of insurance, Lender shall have the
right to collect the proceeds paid to Borrower, it being understood that Lender
shall not be, under any circumstances, liable or responsible for failure to
collect, or exercise diligence in the collection of, any such proceeds, and all
amounts received pursuant to the terms of such policy of insurance shall be
applied first toward costs, charges and expenses, including, without limitation,
attorneys' fees and costs of investigation, if any incurred in the collection
thereof, then second to the payment of the Obligations in such order as Lender
may determine, and then, third to Borrower; further provided that Borrower may,
if permitted by Lender (which permission shall not be unreasonably withheld),
receive all of said proceeds so collected less the costs of collecting same, for
the sole purpose of reimbursing Borrower for property expenditures made in
repairing or restoring the damaged property, and the payment of said proceeds
Exhibit 10.5 - Page 20
impair any right or lien hereunder; and Lender is hereby authorized to be the
agent and attorney-in-fact of Borrower, but is not obligated to enforce, in its
name or in the name of Borrower, payment of any and all of said policies or to
settle or to compromise any claim in respect thereof and to collect and make
receipts for the proceeds thereof.
Section 3.5 Condemnation. Borrower shall promptly give Lender notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to Lender copies of any and all papers served in
connection with such proceedings. Lender may participate in any such proceedings
to the extent permitted by law. Upon an Event of Default, Borrower shall deliver
to Lender all instruments requested by it to permit such participation. Borrower
shall, at its expense, diligently prosecute any such proceedings, and shall
consult with Lender, its attorneys and experts, and cooperate with them in the
carrying on or defense of any such proceedings. Borrower shall not make any
agreement in lieu of condemnation of the Property or any portion thereof without
the prior written consent of Lender in each instance, which consent shall not be
unreasonably withheld or delayed in the case of a taking of an insubstantial
portion of the Property. Notwithstanding any taking by any public or
quasi-public authority through eminent domain or otherwise (including, but not
limited to any transfer made in lieu of or in anticipation of the exercise of
such taking), Borrower shall continue to pay the Debt at the time and in the
manner provided for its payment in the Notes and in this Security Instrument and
the Debt shall not be reduced until any award or payment therefor shall have
been actually received and applied by Lender, after the deduction of expenses of
collection, to the reduction or discharge of the Debt. Lender shall not be
limited to the interest paid on the award by the condemning authority but shall
be entitled to receive out of the award interest at the rate or rates provided
herein or in the Note. If the Property or any portion thereof is taken by the
power of eminent domain, Borrower shall promptly commence and diligently
prosecute the Restoration of the Property in accordance with, and otherwise
comply with the provisions of, Section 4.4 of this Security Instrument. If the
Property is sold, through foreclosure or otherwise, prior to the receipt by
Lender of the award or payment, Lender shall have the right, whether or not a
deficiency judgment on the Notes shall have been sought, recovered or denied, to
receive the award or payment, or a portion thereof sufficient to pay the Debt.
Section 3.6 Maintenance of Property. Borrower shall cause the Property
to be maintained in a good and safe condition and repair. The subject Personal
Property shall not be removed, demolished or materially altered (except for
normal replacement of the Personal Property) without the consent of Lender.
Borrower shall promptly repair, replace or rebuild any part of the Property
which may be destroyed by any casualty, or become damaged, worn or dilapidated
or which may be affected by any proceeding of the character referred to in
Section 3.6 hereof and shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Borrower shall not initiate,
join in, acquiesce in, or consent to any change in any private restrictive
covenant, zoning law or other public or private restriction, limiting or
defining the uses which may be made of the Property or any part thereof. If
under applicable zoning provisions the use of all or any portion of the Property
is or shall become a nonconforming use, Borrower will not cause or permit the
nonconforming use or Improvement to be discontinued or abandoned without the
express written consent of Lender.
Section 3.7 Waste. Borrower shall not commit or suffer any waste of the
Property or make any change in the use of the Property which will in any way
materially increase the risk of fire or other hazard arising out of the
operation of the Property, or take any action that might invalidate or give
cause for cancellation of any Policy, or do or permit to be done thereon
anything that may in any way impair the value of the Property or the security of
this Security Instrument.
Exhibit 10.5 - Page 21
Section 3.8 Compliance With Laws.
(a) Borrower shall promptly comply with all existing and future
federal, state and local laws, orders, ordinances, governmental rules and
regulations or court orders affecting the Property, or the use thereof
including, but not limited to, the Americans with Disabilities Act ("ADA")
(collectively, "Applicable Laws").
(b) Borrower shall from time to time, upon Lender's request, provide
Lender with evidence reasonably satisfactory to Lender that the Property
complies with all Applicable Laws or is exempt from compliance with Applicable
Laws.
(c) Notwithstanding any provisions set forth herein or in any document
regarding Lender's approval of alterations of the Property, Borrower shall not
alter the Property in any manner which would materially increase Borrower's
responsibilities for compliance with Applicable Laws without the prior written
approval of Lender. Lender's approval of the plans, specifications, or working
drawings for alterations of the Property shall create no responsibility or
liability on behalf of Lender for their completeness, design, sufficiency or
their compliance with Applicable Laws. Lender may condition any such approval
upon receipt of a certificate of compliance with Applicable Laws from an
independent architect, engineer, or other person acceptable to Lender.
(d) Borrower shall give prompt notice to Lender of the receipt by
Borrower of any notice related to a violation of any Applicable Laws and of the
commencement of any proceedings or investigations which relate to compliance
with Applicable Laws.
(e) After prior written notice to Lender, Borrower, at its own expense,
may contest by appropriate legal proceeding, promptly initiated and conducted in
good faith and with due diligence, the Applicable Laws affecting the Property,
provided that (i) no Event of Default has occurred and is continuing under the
Note, this Security Instrument or any of the Other Security Documents; (ii)
Borrower is permitted to do so under the provisions of any other mortgage, deed
of trust or deed to secure debt affecting the Property; (iii) such proceeding
shall be permitted under and be conducted in accordance with the provisions of
any other instrument to which Borrower is subject and shall not constitute a
default thereunder; (iv) neither the Property nor any part thereof or interest
therein nor any of the tenants or occupants thereof shall be affected in any
material adverse way as a result of such proceeding; and (v) Borrower shall have
furnished to Lender all other items reasonably requested by Lender.
Section 3.9 Books and Records. Borrower or control and its affiliates
shall furnish Lender with such operational, financial or management information
in the possession of Borrower as may, from time to time, be reasonably required
by Lender in form and substance satisfactory to Lender. Borrower shall deliver
to Lender all operating agreements, pooling or unitization agreements, sales or
processing contracts, drilling and/or development agreements, pipeline
transportation agreements and all other material agreements pertaining to the
Property. Furthermore, Borrower will deliver to Lender copies of all reports,
forms and other documents and data submitted by Borrower to governmental
authorities and agencies, including state resource and conservation agencies and
the Federal Energy Regulatory Commission. Further, Borrower shall make available
to Lender and its representatives, during reasonable business hours, at any time
requested, the Property records, and if Lender takes possession of the Property,
or any portion thereof, pursuant to the Security Instrument, any other Loan
Documents or applicable law, Lender shall be entitled to prompt possession of
the Property Records, and should the liens of this Security Instrument be
foreclosed, the purchaser at the resulting foreclosure sale shall be entitled to
all Property Records.
Exhibit 10.5 - Page 22
Section 3.10 Payment For Labor and Materials. Borrower will promptly
pay when due all bills and costs for labor, materials, and specifically
fabricated materials incurred in connection with the Property and never permit
to exist beyond the due date thereof in respect of the Property or any part
thereof any lien or security interest (including, without limitation, any
statutory mineral contractor's lien), even though inferior to the liens and the
security interests hereof, and in any event never permit to be created or exist
in respect of the Property or any part thereof any other or additional lien or
security interest other than the liens or security interests hereof.
Section 3.11 Performance of Other Agreements. Borrower shall observe
and perform each and every term to be observed or performed by Borrower pursuant
to the terms of any agreement or recorded instrument affecting or pertaining to
the Property.
Section 3.12 Change of Name, Identity or Structure. Borrower will not
change Borrower's name, identity (including its trade name or names) or, if not
an individual, Borrower's corporate, partnership or other structure without
notifying the Lender of such change in writing at least thirty (30) days prior
to the effective date of such change and, in the case of a change in Borrower's
structure, without first obtaining the prior written consent of the Lender.
Section 3.13 Existence. Borrower will continuously maintain (a) its
existence and shall not dissolve or permit its dissolution, (b) its rights to do
business in the state where the Property is located and (c) its franchises and
trade names.
Article 4 - SPECIAL COVENANTS
Borrower covenants and agrees with Trustee and Lender that:
Section 4.1 Defense of Title. If the validity of priority of this Deed
of Trust or of any rights, titles or liens created or evidenced hereby with
respect to the Property or any part thereof or the title of Borrower to the
Property shall be endangered or questioned or shall be attacked directly or
indirectly or if any legal proceedings are instituted against Borrower with
respect thereto, Borrower will give prompt written notice thereof to Lender and
at Borrower's own cost and expense will diligently endeavor to cure any defect
that may be developed or claimed, and will take all necessary and property steps
for the defense of such legal proceedings, including, but not limited to, the
employment of counsel, the prosecution or defense of litigation and the release
or discharge of all adverse claims, and Trustee and Lender or either of them
(whether or not named as parties to legal proceedings with respect thereto), are
hereby authorized and empowered to take such additional steps as in their
judgment and discretion may be necessary or proper for the defense of any such
legal proceedings or the protection of the validity or priority of this Security
Instrument and the rights, titles, and liens created or evidenced hereby,
including but not limited to the employment of independent 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 liens, and all expenditures so made of every kind and character
shall be demand obligation (which obligation Borrower hereby expressly promises
to pay) owing by Borrower to Lender or Trustee (as the case may be) and shall
bear interest from the date expended until paid at the Default Rate, and the
person incurring such expenses shall be subrogated to all rights of the person
receiving such payment. Borrower shall never permit to be placed against the
Property, or any part thereof, any lien other than liens approved in advance by
Lender, even though inferior to the liens hereof, and if any lien is placed
against the Property or any part thereof, Borrower will cause the same to be
promptly discharged and released at Borrower's sole cost and expense.
Exhibit 10.5 - Page 23
Section 4.2 ERISA.
(a) Borrower shall not engage in any transaction which would cause any
obligation, or action taken or to be taken, hereunder (or the exercise by Lender
of any of its rights under the Note, this Security Instrument and the Other
Security Documents) to be a non-exempt (under a statutory or administrative
class exemption) prohibited transaction under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
(b) Borrower further covenants and agrees to deliver to Lender such
certifications or other evidence from time to time throughout the term of this
Security Instrument, as requested by Lender in its sole discretion, that (i)
Borrower is not an "employee benefit plan" as defined in Section 3(32) of ERISA,
which is subject to Title I of ERISA, or a "governmental plan" within the
meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to state
statutes regulating investments and fiduciary obligations with respect to
governmental plans; and (iii) one or more of the following circumstances is
true:
(A) Equity interests in Borrower are publicly offered
securities, within the meaning of 29 C.F.R. ss. 2510.3-101(b)(2);
(B) Less than 25 percent of each outstanding class of equity
interests in Borrower are held by "benefit plan investors" within the meaning of
29 C.F.R. ss. 2510.3-101(f)(2); or
Borrower qualifies as an "operating company" or a "real estate
operating company" within the meaning of 29 C.F.R. ss. 2510.3-101(c) or (e) or
an investment company registered under The Investment Company Act of 1940.
Section 4.3 Lease Provision. Borrower hereby covenants and agrees that
Borrower will at all times fully perform and comply with all agreements,
covenants, terms and conditions required to be performed or complied with by it
under the Leases. Borrower further covenants and agrees that any default by
Borrower under the Leases shall be an Event of Default under this Security
Instrument. Borrower shall promptly pay and perform and observe all of the
terms, covenants and conditions required to be performed and observed by
Borrower under the Leases within the stated opportunity to cure periods provided
in the Leases, or such lesser opportunity to cure periods as are provided in
this Security Instrument, and shall do all things necessary to preserve and to
keep unimpaired Borrower's rights under the Leases. If Borrower shall fail to
make any payment required to be paid by Borrower under the Leases at the time or
in the manner provided in the Leases, or if Borrower shall fail to perform or
observe any other term, covenant or condition required to be performed or
observed by Borrower under the Leases, without limiting the generality of any
other provision of this Security Instrument and without releasing Borrower from
any of its obligations under this Security Instrument, Lender shall have the
right, but not the obligation, to pay any such payment, and may take such action
as may be appropriate to cause such other term, covenant or condition to be
promptly performed or observed on behalf of Borrower, to the end that Borrower's
rights under the Leases shall be kept unimpaired from default, and Borrower
shall permit Lender to enter upon the Property with or without notice and to do
anything which Lender shall deem necessary or prudent for such purpose. Borrower
shall (i) promptly notify Lender in writing of any default by Borrower under the
Leases, or of the receipt by Borrower of any notice (other than notices
Exhibit 10.5 - Page 24
customarily sent on a regular periodic basis) from the lessor(s) under the
Leases, including, without limitation, any notice claiming any default by
Borrower in the performance or observance of any of the terms, covenants or
conditions to be performed or observed by Borrower under the Leases; (ii)
promptly notify Lender in writing of the receipt by Borrower of any notice from
the lessor(s) under the Leases of termination of the Lease pursuant to any
provision of the Leases; and (iii) promptly cause a copy of each such notice
received by Borrower to be delivered to Lender. Borrower shall not, without the
prior written consent of Lender, consent to any agreement which releases
Borrower from any of its obligations under the Leases, exercise any option or
right of first refusal to purchase any Property subject to the Leases, that may
be contained in the Leases, consent to or permit any waiver or modification or
cancellation of any provision of the Leases, nor to the surrender or termination
of the Leases nor to the subordination of the Lease to any mortgage of the fee
interest of lessor(s) of any of the Property. If, at any time, Borrower, or any
party claiming by, through or under Borrower and/or any trustee in bankruptcy,
shall have the right to assume or reject the Lease pursuant to Section 365(a) of
the Bankruptcy Reform Act of 1978, or any successor statute, then Lender shall
have (and is hereby granted) the exclusive right to exercise such right to
assume or reject. In the event that the foregoing grant is held to be
unenforceable by a court of competent jurisdiction, then and in such case
Borrower hereby covenants and agrees that Borrower, any person claiming by,
through and under Borrower, and/or any trustee in bankruptcy, shall not exercise
any rights or assume or reject the Leases without having first obtained the
prior written consent of Lender. Borrower shall execute and deliver, at the
request of Lender, such instruments as Lender may deem useful or required to
permit Lender to cure any default under the Leases or to permit Lender to take
such other action as Lender considers desirable to cure or remedy the matter in
default and preserve the interest of Lender in the Property subject to the
Leases. If any of the Leases shall be terminated prior to the natural expiration
of their term due to default of Borrower, and if Lender shall acquire from the
lessor(s) under the Leases a new lease or leases, Borrower shall have no right,
title or interest in or to such new lease(s) or the leasehold estate(s) created
thereby. Any greater or additional interest or estate that Borrower shall
acquire in the Demised Premises, such as the fee estate, shall ipso facto be
encumbered by this Security Instrument with the same force and effect as if part
of the mortgaged estate on the date hereof.
Article 5 - REPRESENTATIONS AND WARRANTIES
The representations and warranties of Borrower set forth in this
Article 5 are subject to the Disclosure Schedules delivered to Lender
concurrently with the Purchase Agreement, as well as to all matters filed of
record by Borrower with the United States Securities and Exchange Commission.
With respect to Property owned by the Company prior to the advance of funds
under the Notes and the recordation of this Security Instrument, such
representations and warranties are made to the actual knowledge of the directors
and executive officers of Borrower, without independent investigation.
Section 5.1 Authority. Borrower (and the undersigned representative of
Borrower, if any) has full power, authority and legal right to execute this
Security Instrument, and to mortgage, grant, bargain, sell, pledge, assign,
warrant, transfer and convey the Property pursuant to the terms hereof and to
keep and observe all of the terms of this Security Instrument on Borrower's part
to be performed.
Section 5.2 Legal Status and Authority. Borrower (a) is duly organized,
validly existing and in good standing under the laws of its state of
organization or incorporation; (b) is duly qualified to transact business and is
Exhibit 10.5 - Page 25
in good standing in the State where the Property is located; and (c) has all
necessary approvals, governmental and otherwise, and full power and authority to
own the Property and carry on its business as now conducted and proposed to be
conducted. Borrower now has and shall continue to have the full right, power and
authority to operate and lease the Property, to encumber the Property as
provided herein and to perform all of the other obligations to be performed by
Borrower under the Note, this Security Instrument and the Other Security
Documents.
Section 5.3 Validity of Documents. (a) The execution, delivery and
performance of the Note, this Security Instrument and the Other Security
Documents and the borrowing evidenced by the Notes (i) are within the power and
authority of Borrower; (ii) have been authorized by all requisite organizational
action; (iii) have received all necessary approvals and consents, corporate,
governmental or otherwise; (iv) will not violate, conflict with, result in a
breach of or constitute (with notice or lapse of time, or both) a default under
any provision of law (including, without limitation, any usury laws), any order
or judgment of any court or governmental authority, the articles of
incorporation, by-laws, partnership or operating agreement, or other governing
instrument of Borrower, or any indenture, agreement or other instrument to which
Borrower is a party or by which it or any of its assets or the Property is or
may be bound or affected; (v) will not result in the creation or imposition of
any lien, charge or encumbrance whatsoever upon any of its assets, except the
lien and security interest created hereby; and (vi) will not require any
authorization or license from, or any filing with, any governmental or other
body (except for the recordation of this instrument in appropriate land records
in the State where the Property is located and except for Uniform Commercial
Code filings relating to the security interest created hereby), and (b) the
Note, this Security Instrument and the Other Security Documents constitute the
legal, valid and binding obligations of Borrower.
Section 5.4 Litigation. There is no action, suit or proceeding,
judicial, administrative or otherwise (including any condemnation or similar
proceeding), pending or, to the best of Borrower's knowledge, threatened or
contemplated against Borrower, any person guaranteeing the payment of the Debt
or any portion thereof or performance by Borrower of any terms of this Security
Instrument (a "Guarantor"), if any, an Indemnitor (defined in Subsection
10.1(c)), if any, or against or affecting the Property that (a) has not been
disclosed to Lender, and has a material, adverse effect on the Property or
Borrower's, any Guarantor's or any Indemnitor's ability to perform its
obligations under the Note, this Security Instrument or the Other Security
Documents, or (b) is not adequately covered by insurance, each as determined by
Lender in its sole and absolute discretion.
Section 5.5 No Foreign Person. Borrower is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended and the related Treasury Department regulations, including temporary
regulations.
Section 5.6 ERISA Compliance.
(a) As of the date hereof and throughout the term of this Security
Instrument, (i) Borrower is not and will not be an "employee benefit plan" as
defined in Section 3(32) of ERISA, which is subject to Title I of ERISA, and
(ii) the assets of Borrower do not and will not constitute "plan assets" of one
or more such plans for purposes of Title I of ERISA; and
(b) As of the date hereof and throughout the term of this Security
Instrument, (i) Borrower is not and will not be a "governmental plan" within the
meaning of Section 3(32) of ERISA, and (ii) transactions by or with Borrower are
not and will not be subject to state statutes applicable to Borrower regulating
investments of and fiduciary obligations with respect to governmental plans.
Exhibit 10.5 - Page 26
Section 5.7 Financial Condition. (a) Borrower is solvent, and no
bankruptcy, reorganization, insolvency or similar proceeding under any state or
federal law with respect to Borrower has been initiated, (b) it has received
reasonably equivalent value for the granting of this Security Instrument, and
(c) the granting of this Security Instrument does not constitute a fraudulent
conveyance. Borrower is not in default in the payment of any debt owed to any
Person.
Section 5.8 Business Purposes. The loan evidenced by the Notes is
solely for the business purpose of Borrower, and is not for personal, family,
household, or agricultural purposes.
Section 5.9 Taxes. Borrower, has filed all federal, state, county,
municipal, and city income and other tax returns required to have been filed by
them and have paid all taxes and related liabilities which have become due
pursuant to such returns or pursuant to any assessments received by them.
Borrower does not know of any basis for any additional assessment in respect of
any such taxes and related liabilities for prior years.
Section 5.10 Mailing Address. Borrower's mailing address, as set forth
in the opening paragraph hereof or as changed in accordance with Article 16, is
true and correct.
Section 5.11 No Change in Facts or Circumstances. All information in
all financial statements, rent rolls, reports, certificates and other documents
submitted to Lender relating to the Property are accurate, complete and correct
in all respects. There has been no adverse change in any condition, fact,
circumstance or event that would make any such information inaccurate,
incomplete or otherwise misleading.
Section 5.12 Disclosure. Borrower has disclosed to Lender all material
facts and has not failed to disclose any material fact that could cause any
representation or warranty made herein to be materially misleading.
Section 5.13 Illegal Activity. No portion of the Property has been or
will be purchased, improved, fixtured, equipped or furnished with proceeds of
any criminal or other illegal activity and to the best of Borrower's knowledge,
there are no illegal activities or activities relating to controlled substance
at the Property.
Article 6 - DEBTOR/CREDITOR RELATIONSHIP
Section 6.1 Relationship of Borrower and Lender. The relationship
between Borrower and Lender is solely that of debtor and creditor, and Lender
has no fiduciary or other special relationship with Borrower, and no term or
condition of any of the Note, this Security Instrument and the Other Security
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.
Section 6.2 Servicing of the Loan. At the option of Lender, the loan
secured hereby may be serviced by a servicer/trustee (the "Servicer") selected
by Lender and Lender may delegate all or any portion of its responsibilities
under the Note, this Security Instrument, and the Other Security Documents to
the Servicer.
Exhibit 10.5 - Page 27
Article 7 - FURTHER ASSURANCES
Section 7.1 Recording of Security Instrument. Borrower forthwith upon
the execution and delivery of this Security Instrument and thereafter, from time
to time, will cause this Security Instrument and any of the Other Security
Documents creating a lien or security interest or evidencing the lien hereof
upon the Property and each instrument of further assurance to be filed,
registered or recorded in such manner and in such places as may be required by
any present or future law in order to publish notice of and fully to protect and
perfect the lien or security interest hereof upon, and the interest of Trustee
and of Lender in, the Property. Borrower will pay all taxes, filing,
registration or recording fees, and all expenses incident to the preparation,
execution, acknowledgment and/or recording of the Note, this Security
Instrument, the Other Security Documents, any note or mortgage supplemental
hereto, any security instrument with respect to the Property and any instrument
of further assurance, and any modification or amendment of the foregoing
documents, and all federal, state, county and municipal taxes, duties, imposts,
assessments and charges arising out of or in connection with the execution and
delivery of this Security Instrument, any mortgage supplemental hereto, any
security instrument with respect to the Property or any instrument of further
assurance, and any modification or amendment of the foregoing documents, except
where prohibited by law so to do.
Section 7.2 Further Acts. Borrower will, at the cost of Borrower, and
without expense to Lender, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Trustee (where appropriate) and to Lender, the property and
rights hereby mortgaged, granted, bargained, sold, conveyed, confirmed, pledged,
assigned, warranted and transferred or intended now or hereafter so to be, or
which Borrower may be or may hereafter become bound to convey or assign to
Trustee or to Lender, or for carrying out the intention or facilitating the
performance of the terms of this Security Instrument or for filing, registering
or recording this Security Instrument, or for complying with all Applicable
Laws. Borrower, on demand, will execute and deliver and hereby authorizes Lender
and Trustee to execute in the name of Borrower or without the signature of
Borrower to the extent Lender or Trustee may lawfully do so, one or more
financing statements, chattel mortgages or other instruments, to evidence or
perfect more effectively the security interest of Trustee or Lender in the
Property. Borrower grants to Lender and Trustee an irrevocable power of attorney
coupled with an interest for the purpose of exercising and perfecting any and
all rights and remedies available to Trustee or Lender pursuant to this Section
7.2.
Section 7.3 Changes in Tax, Debt Credit and Documentary Stamp Laws.
(a) If any law is enacted or adopted or amended after the date of this
Security Instrument which deducts the Debt from the value of the Property for
the purpose of taxation or which imposes a tax, either directly or indirectly,
on the Debt or Lender's interest in the Property, Borrower will pay the tax,
with interest and penalties thereon, if any. If Lender is advised by counsel
chosen by it that the payment of tax by Borrower would be unlawful or taxable to
Lender or unenforceable or provide the basis for a defense of usury, then Lender
shall have the option by written notice of not less than ninety (90) days to
declare the Debt immediately due and payable.
(b) Borrower will not claim or demand or be entitled to any credit or
credits on account of the Debt for any part of the Taxes or Other Charges
assessed against the Property, or any part thereof, and no deduction shall
otherwise be made or claimed from the assessed value of the Property, or any
part thereof, for real estate tax purposes by reason of this Security Instrument
Exhibit 10.5 - Page 28
or the Debt. If such claim, credit or deduction shall be required by law, Lender
shall have the option, by written notice of not less than ninety (90) days, to
declare the Debt immediately due and payable.
(c) If at any time the United States of America, any State thereof or
any subdivision of any such State shall require revenue or other stamps to be
affixed to the Note, this Security Instrument, or any of the Other Security
Documents or impose any other tax or charge on the same, Borrower will pay for
the same, with interest and penalties thereon, if any.
Section 7.4 Estoppel Certificates.
After request by Lender, Borrower, within ten (10) days, shall furnish
Lender or any proposed assignee with a statement, duly acknowledged and
certified, setting forth (i) the amount of the original principal amount of the
Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest
of the Note, (iv) the terms of payment and maturity date of the Note, (v) the
date installments of interest and/or principal were last paid, (vi) that, except
as provided in such statement, there are no defaults or events which with the
passage of time or the giving of notice or both, would constitute an event of
default under the Notes or the Security Instrument, (vii) that the Notes and
this Security Instrument are valid, legal and binding obligations and have not
been modified or if modified, giving particulars of such modification, (viii)
whether any offsets or defenses exist against the obligations secured hereby
and, if any are alleged to exist, a detailed description thereof, (ix) that all
Subject Contracts are in full force and effect and have not been modified (or if
modified, setting forth all modifications), (x) the date to which the payments
have been made pursuant to the Subject Interests and Subject Contracts, (xi)
whether or not, to the best knowledge of Borrower, any of the parties to the
Subject Contracts are in default under the Subject Contracts, and, if any of the
parties to the Subject Contracts are in default, setting forth the specific
nature of all such defaults, (xii) the amount of security deposits held by
Borrower under each Lease and that such amounts are consistent with the amounts
required under each Lease, and (xiii) as to any other matters reasonably
requested by Lender and reasonably related to the Subject Interests or the
Subject Contracts, the obligations secured hereby, the Property or this Security
Instrument.
Section 7.5 Splitting of Security Instrument. This Security Instrument
and the Notes shall, at any time until the same shall be fully paid and
satisfied, at the sole election of Lender, be split or divided into two or more
notes and two or more security instruments, each of which shall cover all or a
portion of the Property to be more particularly described therein. To that end,
Borrower, upon written request of Lender, shall execute, acknowledge and deliver
to Lender and/or its designee or designees substitute notes and security
instruments in such principal amounts, aggregating not more than the then unpaid
principal amount secured by this Security Instrument, and containing terms,
provisions and clauses no less favorable to Borrower than those contained herein
and in the Note, and such other documents and instruments as may be required by
Lender to effect the splitting of the Notes and this Security Instrument.
Section 7.6 Replacement Documents. Upon receipt of an affidavit of an
officer of Lender as to the loss, theft, destruction or mutilation of the Notes
or any Other Security Document which is not of public record, and, in the case
of any such mutilation, upon surrender and cancellation of such Notes or Other
Security Document, Borrower will issue, in lieu thereof, a replacement Notes or
Other Security Document, dated the date of such lost, stolen, destroyed or
mutilated Notes or Other Security Document in the same principal amount thereof
and otherwise of like tenor.
Section 7.7 Amended Financing Statements. Borrower will deliver to the
Lender, prior to or contemporaneously with the effective date of any such
change, any financing statement or financing statement change required by the
Exhibit 10.5 - Page 29
Lender to establish or maintain the validity, perfection and priority of the
security interest granted herein. At the request of the Lender, Borrower shall
execute a certificate in form satisfactory to the Lender listing the trade names
under which Borrower intends to operate the Property, and representing and
warranting that Borrower does business under no other trade name with respect to
the Property.
Article 8 - DUE ON SALE/ENCUMBRANCE
Section 8.1 No Sale/Encumbrance. Borrower agrees that Borrower shall
not, without the prior written consent of Lender, sell, convey, mortgage, grant,
bargain, encumber, pledge, assign, or otherwise transfer the Property or any
part thereof or permit the Property or any part thereof to be sold, conveyed,
mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise
transferred, except as set forth in Section 3.3 of this Security Instrument.
Borrower agrees that Borrower shall not incur any debt, secured or unsecured,
direct or contingent (including guaranteeing any obligation), other than the
Debt and trade payables incurred in the ordinary course of business in
connection with the operation of the Property, provided same are paid when due.
Section 8.2 Sale/Encumbrance Defined. A sale, conveyance, mortgage,
grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning
of this Article 8 shall be deemed to include, but not be limited to (a) an
installment sales agreement wherein Borrower agrees to sell the Property or any
part thereof for a price to be paid in installments; (b) an agreement by
Borrower leasing all or a substantial part of the Property for other than actual
occupancy by a space tenant thereunder or a sale, assignment or other transfer
of, or the grant of a security interest in, Borrower's right, title and interest
in and to any Leases or any Rents; (c) if Borrower, or any general partner or
managing member (or if no managing member, any member) of Borrower is a
corporation, the voluntary or involuntary sale, conveyance, transfer or pledge
of such corporation's stock (or the stock of any corporation directly or
indirectly controlling such corporation by operation of law or otherwise) or the
creation or issuance of new stock by which an aggregate of more than 49% of such
corporation's stock shall be vested in a party or parties who are not now owners
of more than 49% of such corporation's stock; (d) if Borrower, or any general
partner or managing member (or if no managing member, any member) of Borrower,
is a limited or general partnership or joint venture, the change, removal or
resignation of a general partner or the transfer or pledge of the partnership
interest of any general partner or any profits or proceeds relating to such
partnership interest or the transfer or pledge of any partnership interest of
any limited partner or any profits or proceeds relating to any such partnership
interest, which, whether singly or in the aggregate, result in more than 49% of
the beneficial interests in Borrower, or the profits or proceeds relating
thereto, having been transferred or pledged; and (e) if Borrower, any general
partner or member of Borrower, is a limited liability company, the change,
removal or resignation of a managing member or the transfer or pledge of the
membership interest of a managing member or any profits or proceeds relating to
such membership interest or the transfer or pledge of any membership interest of
any other member or any profits or proceeds relating to any such membership
interest, which, whether singly or in the aggregate, result in more than 49% of
the beneficial interests in Borrower, or the profits or proceeds relating
thereto, having been transferred or pledged.
Section 8.3 Lender's Rights. Subject to the conditions provided in the
second sentence of Section 8.1 above, Lender reserves the right to condition the
consent required hereunder upon a modification of the terms hereof and on
assumption of the Note, this Security Instrument and the Other Security
Documents as so modified by the proposed transferee, payment of a transfer fee
and all of Lender's and Trustee's expenses incurred in connection with such
transfer, or such other conditions as Lender shall determine in its sole
Exhibit 10.5 - Page 30
discretion to be in the interest of Lender. Lender shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Debt immediately due and payable upon
Borrower's sale, conveyance, mortgage, grant, bargain, encumbrance, pledge,
assignment, or transfer of the Property without Lender's consent. This provision
shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance,
pledge, assignment, or transfer of the Property regardless of whether voluntary
or not, or whether or not Lender has consented to any previous sale, conveyance,
mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the
Property.
Article 9 - PREPAYMENT
The Debt may be prepaid only in strict accordance with the express
terms and conditions of the Notes including, without limitation, payment of the
Yield Maintenance Payment, Prepayment Premium, and/or Exit Fee, if applicable.
Article 10 - DEFAULT
Section 10.1 Events of Default. The occurrence of any one or more of
the following events shall constitute an "Event of Default":
(a) if any Event of Default (as defined in the Note, for purposes of
this Section 10.1(a) only) occurs under the Note;
(b) if any representation or warranty of Borrower, any person
indemnifying Lender against liabilities relating to Hazardous Substances (an
"Indemnitor") pursuant to an environmental indemnity agreement (the
"Environmental Indemnity"), if any, any Guarantor, or any member, general
partner, principal or beneficial owner of any of the foregoing, made herein or
in any Environmental Indemnity or in any guaranty, or in any certificate,
report, financial statement or other instrument or document furnished to Lender
shall have been false or misleading in any material respect when made;
(c) if any default occurs under the Purchase Agreement executed in
connection herewith and such default continues after the expiration of
applicable grace periods, if any;
(d) except for the specific defaults set forth in this Section 10.1,
any other default hereunder or under any of the Other Security Documents by
Borrower, which default is not cured (i) in the case of any default which can be
cured by the payment of a sum of money, within five (5) days after written
notice from Lender to Borrower, or (ii) in the case of any other default, within
thirty (30) days after written notice from Lender to Borrower; provided that if
such default cannot reasonably be cured within such thirty (30) day period and
Borrower shall have commenced to cure such default within such thirty (30) day
period and thereafter diligently and expeditiously proceeds to cure the same,
such thirty (30) day period shall be extended for so long as it shall require
Borrower in the exercise of due diligence to cure such default, it being agreed
that no such extension shall be for a period in excess of sixty (60) days;
(e) if Borrower shall make an assignment for the benefit of creditors
or if Borrower shall generally not be paying its debts as they become due; or
(f) if (i) Borrower shall commence any case, proceeding or other action
(A) under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, conservatorship or relief of
debtors, seeking to have an order for relief entered with respect to it, or
Exhibit 10.5 - Page 31
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for it or
for all or any substantial part of its assets, or the Borrower shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against Borrower or Indemnitor any case, proceeding or other action of
a nature referred to in clause (i) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of ninety (90) days; or (iii)
there shall be commenced against the Borrower any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of any order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within ninety (90) days from the
entry thereof; or (iv) the Borrower shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the Borrower Indemnitor shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due.
Article 11 - RIGHTS AND REMEDIES
Section 11.1 Remedies.
(a) Upon the occurrence of any Event of Default, Borrower agrees that
Lender, and when requested to do so by Lender, Trustee, may take such action,
without notice or demand, as it deems advisable to protect and enforce the
rights of Lender and Trustee against Borrower and in and to the Property,
including, but not limited to the following actions, each of which may be
pursued concurrently or otherwise, at such time and in such order as Lender may
determine, in its sole discretion, without impairing or otherwise affecting the
other rights and remedies of Lender or Trustee:
(i) declare the entire unpaid Debt to be immediately due and
payable;
(ii) institute proceedings, judicial or otherwise, for the
complete foreclosure of this Security Instrument under any applicable provision
of law in which case the Property or any interest therein may be sold for cash
or upon credit in one or more parcels or in several interests or portions and in
any order or manner;
(iii) with or without entry, to the extent permitted and
pursuant to the procedures provided by applicable law, institute proceedings for
the partial foreclosure of this Security Instrument for the portion of the Debt
then due and payable, subject to the continuing lien and security interest of
this Security Instrument for the balance of the Debt not then due, unimpaired
and without loss of priority;
(iv) sell for cash or upon credit the Property or any part
thereof and all estate, claim, demand, right, title and interest of Borrower
therein and rights of redemption thereof, pursuant to power of sale or
otherwise, at one or more sales, as an entity or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by law;
(v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained herein,
in the Notes or in the Other Security Documents;
Exhibit 10.5 - Page 32
(vi) proceed by suit or suits, at law or in equity, to enforce
payment and performance of the Obligations in accordance with the terms hereof,
and recover judgment on the Notes either before, during, after or in lieu of any
proceedings for the enforcement of this Security Instrument or the Other
Security Documents;
(vii) apply for the appointment of a receiver, trustee,
liquidator or conservator of the Property, without notice and without regard for
the adequacy of the security for the Debt and without regard for the solvency of
Borrower, any Guarantor, Indemnitor or of any person, liable for the payment of
the Debt;
(viii) subject to any Applicable Law, the license granted to
Borrower under Section 1.2 shall automatically be revoked and Lender may enter
into or upon the Property, either personally or by its agents, nominees or
attorneys and dispossess Borrower and its agents and servants therefrom, without
liability for trespass, damages or otherwise and exclude Borrower and its agents
or servants wholly therefrom, and take possession of all books, records and
accounts relating thereto and Borrower agrees to surrender possession of the
Property and of such books, records and accounts to Lender upon demand, and
thereupon Lender may (A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Property and
conduct the business thereat; (B) complete any construction on the Property in
such manner and form as Lender deems advisable; (C) make alterations, additions,
renewals, replacements and improvements to or on the Property; (D) exercise all
rights and powers of Borrower with respect to the Property, whether in the name
of Borrower or otherwise, including, without limitation, the right to make,
cancel, enforce or modify Leases, obtain and evict tenants, and demand, xxx for,
collect and receive all Rents of the Property and every part thereof; (E)
require Borrower to pay monthly in advance to Lender, or any receiver appointed
to collect the Rents, the fair and reasonable rental value for the use and
occupation of such part of the Property as may be occupied by Borrower; (F)
require Borrower to vacate and surrender possession of the Property to Lender or
to such receiver and, in default thereof, Borrower may be evicted by summary
proceedings or otherwise; and (G) apply the receipts from the Property to the
payment of the Debt, in such order, priority and proportions as Lender shall
deem appropriate in its sole discretion after deducting therefrom all expenses
(including reasonable attorneys' fees) incurred in connection with the aforesaid
operations and all amounts necessary to pay the Taxes, Other Charges, insurance
and other expenses in connection with the Property, as well as just and
reasonable compensation for the services of Lender, its counsel, agents and
employees;
(ix) exercise any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code, including, without
limiting the generality of the foregoing: (A) the right to take possession of
the Collateral or any part thereof, and to take such other measures as Trustee
or Lender may deem necessary for the care, protection and preservation of the
Collateral, and (B) request Borrower at its expense to assemble the Collateral
and make it available to Trustee or Lender at a convenient place acceptable to
Lender. Any notice of sale, disposition or other intended action by Trustee or
Lender with respect to the Collateral sent to Borrower in accordance with the
provisions hereof at least five (5) days prior to such action, shall constitute
commercially reasonable notice to Borrower;
(x) apply any sums held in escrow or otherwise by Lender in
accordance with the terms of this Security Instrument or any Other Security
Document to the payment of the following items in any order in its sole and
absolute discretion:
(A) Taxes and Other Charges;
Exhibit 10.5 - Page 33
(B) Insurance Premiums;
(C) Interest on the unpaid principal balance of the
Note;
(D) amortization of the unpaid principal balance of
the Note; and all other sums payable pursuant to the Note, this Security
Instrument and the Other Security Documents, including, without limitation,
advances made by Lender pursuant to the terms of this Security Instrument;
(xi) surrender the Policies maintained pursuant to Article 3
hereof, collect the unearned Insurance Premiums and apply such sums as a credit
on the Debt in such priority and proportion as Lender in its discretion shall
deem proper, and in connection therewith, Borrower hereby appoints Lender as
agent and attorney-in-fact (which is coupled with an interest and is therefore
irrevocable) for Borrower to collect such Insurance Premiums;
(xii) apply the undisbursed balance of any Net Proceeds or any
Net Proceeds Deficiency deposit, together with interest thereon, to the payment
of the Debt in such order, priority and proportions as Lender shall deem to be
appropriate in its discretion;
(xiii) prohibit Borrower and anyone claiming on behalf of or
through Borrower from making use of or withdrawing any sums from any lockbox or
similar account, if any;
(xiv) pursue such other remedies as Lender or Trustee may have
under Applicable Law.
(b) In the event of a sale, by foreclosure, power of sale, or
otherwise, of less than all of the Property, this Security Instrument shall
continue as a lien and security interest on the remaining portion of the
Property unimpaired and without loss of priority. Notwithstanding the provisions
of this Section 11.1 to the contrary, if any Event of Default as described in
Subsection 10.1 (h)(i) or (ii) shall occur, the entire unpaid Debt shall be
automatically due and payable, without any further notice, demand or other
action by Lender.
(c) Lender may adjourn from time to time any sale by it to be made
under or by virtue of this Security Instrument by announcement at the time and
place appointed for such sale or for such adjourned sale or sales; and, except
as otherwise provided by any applicable provision of law, Lender, without
further notice or publication, may make such sale at the time and place to which
the same shall be so adjourned.
(d) Upon any sale made under or by virtue of this Section 11.1, whether
made under a power of sale or under or by virtue of judicial proceedings or of a
judgment or decree of foreclosure and sale, Lender may bid for and acquire the
Property or any part thereof and in lieu of paying cash therefor may make
settlement for the purchase price by crediting upon the Debt the net sales price
after deducting therefrom the expenses of the sale and costs of the action and
any other sums which Lender is authorized to deduct under this Security
Instrument.
(e) This Security Instrument shall be effective as a mortgage or a deed
of trust and upon the occurrence of an Event of Default may be foreclosed as to
any of the Property in any manner permitted by the laws of the state in which
Exhibit 10.5 - Page 34
any part of the Property is located, and any foreclosure suit may be brought by
the Trustee or Lender; to the extent, if any, required under applicable law to
cause this Security Instrument to be effective as a mortgage, Borrower hereby
mortgages the Property to Lender.
Section 11.2 Application of Proceeds. The purchase money, proceeds and
avails of any disposition of the Property, or any part thereof, or any other
sums collected by Lender pursuant to the Note, this Security Instrument or the
Other Security Documents, may be applied by Lender to the payment of the Debt in
such priority and proportions as Lender in its discretion shall deem proper.
Section 11.3 Right to Cure Defaults. Upon the occurrence of any Event
of Default, Lender may, but without any obligation to do so and without notice
to or demand on Borrower and without releasing Borrower from any obligation
hereunder, cure the same in such manner and to such extent as Lender may deem
necessary to protect the security hereof. Lender is authorized to enter upon the
Property for such purposes, or appear in, defend, or bring any action or
proceeding to protect its interest in the Property or to foreclose this Security
Instrument or collect the Debt, and the cost and expense thereof (including
reasonable attorneys' fees to the extent permitted by law), with interest as
provided in this Section 11.3, shall constitute a portion of the Debt and shall
be due and payable to Lender upon demand. All such costs and expenses incurred
by Lender in remedying such Event of Default or in appearing in, defending, or
bringing any such action or proceeding shall bear interest at the Default Rate
(as defined in the Note), for the period after notice from Lender that such cost
or expense was incurred to the date of payment to Lender. All such costs and
expenses incurred by Lender together with interest thereon calculated at the
Default Rate shall be deemed to constitute a portion of the Debt and be secured
by this Security Instrument and the Other Security Documents and shall be
immediately due and payable upon demand by Lender therefor.
Section 11.4 Actions and Proceedings. After the occurrence and during
the continuance of an Event of Default, Lender has the right to appear in and
defend any action or proceeding brought with respect to the Property and to
bring any action or proceeding, in the name and on behalf of Borrower, which
Lender, in its discretion, decides should be brought to protect its interest in
the Property.
Section 11.5 Recovery of Sums Required To Be Paid. Lender shall have
the right from time to time to take action to recover any sum or sums which
constitute a part of the Debt as the same become due, without regard to whether
or not the balance of the Debt shall be due, and without prejudice to the right
of Lender thereafter to bring an action of foreclosure, or any other action, for
a default or defaults by Borrower existing at the time such earlier action was
commenced.
Section 11.6 Examination of Books and Records. Lender, its agents,
accountants and attorneys shall have the right upon prior written notice to
examine the records, books, management and other papers of Borrower and its
affiliates or of any Guarantor or Indemnitor which reflect upon their financial
condition, at the Property or at any office regularly maintained by Borrower,
its affiliates or any Guarantor or Indemnitor where the books and records are
located. Lender and its agents shall have the right upon notice to make copies
and extracts from the foregoing records and other papers. In addition, Lender,
its agents, accountants and attorneys shall have the right to examine and audit
the books and records of Borrower and its affiliates or of any Guarantor or
Indemnitor pertaining to the income, expenses and operation of the Property
during reasonable business hours at any office of Borrower, its affiliates or
any Guarantor or Indemnitor where the books and records are located.
Section 11.7 Other Rights, Etc.
Exhibit 10.5 - Page 35
(a) The failure of Lender to insist upon strict performance of any term
hereof shall not be deemed to be a waiver of any term of this Security
Instrument. Borrower shall not be relieved of Borrower's obligations hereunder
by reason of (i) the failure of Lender or Trustee to comply with any request of
Borrower, any Guarantor or any Indemnitor to take any action to foreclose this
Security Instrument or otherwise enforce any of the provisions hereof or of the
Notes or the Other Security Documents, (ii) the release, regardless of
consideration, of the whole or any part of the Property, or of any person liable
for the Debt or any portion thereof, or (iii) any agreement or stipulation by
Lender extending the time of payment or otherwise modifying or supplementing the
terms of the Note, this Security Instrument or the Other Security Documents.
(b) It is agreed that the risk of loss or damage to the Property is on
Borrower, and Lender shall have no liability whatsoever for decline in value of
the Property, for failure to maintain the Policies, or for failure to determine
whether insurance in force is adequate as to the amount of risks insured.
Possession by Lender shall not be deemed an election of judicial relief, if any
such possession is requested or obtained, with respect to any Property or
collateral not in Lender's possession.
(c) Lender may resort for the payment of the Debt to any other security
held by Lender or Trustee in such order and manner as Lender, in its discretion,
may elect. Lender may take action to recover the Debt, or any portion thereof,
or to enforce any covenant hereof without prejudice to the right of Trustee or
Lender thereafter to foreclose this Security Instrument. The rights of Trustee
and Lender under this Security Instrument shall be separate, distinct and
cumulative and none shall be given effect to the exclusion of the others. No act
of Trustee or Lender shall be construed as an election to proceed under any one
provision herein to the exclusion of any other provision. Neither Trustee nor
Lender shall be limited exclusively to the rights and remedies herein stated but
shall be entitled to every right and remedy now or hereafter afforded at law or
in equity.
Section 11.8 Right to Release Any Portion of the Property. Trustee, at
the direction of Lender, may release any portion of the Property for such
consideration as Lender may require without, as to the remainder of the
Property, in any way impairing or affecting the lien or priority of this
Security Instrument, or improving the position of any subordinate lienholder
with respect thereto, except to the extent that the obligations hereunder shall
have been reduced by the actual monetary consideration, if any, received by
Lender for such release, and may accept by assignment, pledge or otherwise any
other property in place thereof as Lender may require without being accountable
for so doing to any other lienholder. This Security Instrument shall continue as
a lien and security interest in the remaining portion of the Property.
Section 11.9 Violation of Laws. If the Property is not in compliance
with Applicable Laws, Lender may impose additional requirements upon Borrower in
connection herewith including, without limitation, monetary reserves or
financial equivalents.
Section 11.10 Right of Entry. Lender and its agents shall have the
right upon prior written notice to enter and inspect the Property at all
reasonable times upon not less than five (5) Business Days' notice (except in
the case of emergencies when no notice shall be required) to Borrower.
Article 12 - ENVIRONMENTAL HAZARDS
The representations and warranties of Borrower set forth in this
Article 12 are subject to the Disclosure Schedules delivered to Lender
concurrently with the Purchase Agreement, as well as to all matters filed of
Exhibit 10.5 - Page 36
record by Borrower with the United States Securities and Exchange Commission.
With respect to Property owned by the Company prior to the advance of funds
under the Notes and the recordation of this Security Instrument, such
representations and warranties are made to the actual knowledge of the directors
and executive officers of Borrower, without independent investigation.
Section 12.1 Environmental Representations and Warranties. Borrower
represents and warrants, based upon information that Borrower knows, that: (a)
there are no Hazardous Substances (defined below) or underground storage tanks
in, on, or under the Property, except those that are both (i) in compliance with
Environmental Laws (defined below) and with permits issued pursuant thereto, if
any, and (ii) fully disclosed to Lender in writing pursuant to the written
reports resulting from the environmental assessments of the Property delivered
to Lender (the "Environmental Report"); (b) there are no past or present
Releases (defined below) of Hazardous Substances in violation of any
Environmental Law or which would require Remediation (defined below) by a
Governmental Authority in, on, under or from the Property except as described in
the Environmental Report; (c) there is no past or present non-compliance with
Environmental Laws, or with permits issued pursuant thereto, in connection with
the Property except as described in the Environmental Report; (d) Borrower does
not know of, and has not received, any written or oral notice or other
communication from any person (including, but not limited to a governmental
entity) relating to Hazardous Substances or Remediation thereof, of possible
liability of any person pursuant to any Environmental Law, other environmental
conditions in connection with the Property, or any actual administrative or
judicial proceedings in connection with any of the foregoing; and (e) Borrower
has truthfully and fully provided to Lender, in writing, any and all information
relating to environmental conditions in, on, under or from the Property that is
known to Borrower and that is contained in Borrower's files and records,
including, but not limited to any reports relating to Hazardous Substances in,
on, under or from the Property and/or to the environmental condition of the
Property. "Environmental Law" means any present, and for the purposes of
Sections 12.2. 12.3 and 13.4 only, future, federal, state and local laws,
statutes, ordinances, rules, regulations and the like, as well as common law,
relating to protection of human health or the environment, relating to Hazardous
Substances, relating to liability for or costs of Remediation or prevention of
Releases of Hazardous Substances or relating to liability for or costs of other
actual or threatened danger to human health or the environment. "Environmental
Law" includes, but is not limited to, the following statutes, as amended, any
successor thereto, and any regulations promulgated pursuant thereto, and any
state or local statutes, ordinances, rules, regulations and the like addressing
similar issues: the Comprehensive Environmental Response, Compensation and
Liability Act; the Emergency Planning and Community Right-to-Know Act; the
Hazardous Substances Transportation Act; the Resource Conservation and Recovery
Act (including, but not limited to Subtitle I relating to underground storage
tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act;
the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational
Safety and Health Act; the Federal Water Pollution Control Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the
National Environmental Policy Act; and the River and Harbors Appropriation Act.
"Environmental Law" also includes, but is not limited to, any present, and for
Exhibit 10.5 - Page 37
the purposes of Sections 12.2, 12.3 and 13.4 only, future, federal, state and
local laws, statutes, ordinances, rules, regulations and the like, as well as
common law: conditioning transfer of property upon a negative declaration or
other approval of a governmental authority of the environmental condition of the
property; requiring notification or disclosure of Releases of Hazardous
Substances or other environmental condition of the Property to any governmental
authority or other person, whether or not in connection with transfer of title
to or interest in property. "Hazardous Substances" include but are not limited
to any and all substances (whether solid, liquid or gas) (i) defined, listed, or
otherwise classified as pollutants, hazardous wastes, hazardous substances,
hazardous materials, extremely hazardous wastes, or words of similar meaning or
regulatory effect under any present, or for the purposes of Sections 12.2. 12.3
and 13.4 only, future, Environmental Laws or (ii) that may have a negative
impact on human health or the environment, including, but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, radon, radioactive materials, flammables and
explosives. "Release" of any Hazardous Substance includes, but is not limited to
any release, deposit, discharge, emission, leaking, spilling, seeping,
migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing
or other movement of Hazardous Substances. "Remediation" includes, but is not
limited to any response, remedial removal, or corrective action, any activity to
cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous
Substance, any actions to prevent, cure or mitigate any Release of any Hazardous
Substance, any action to comply with any Environmental Laws or with any permits
issued pursuant thereto, any inspection, investigation, study, monitoring,
assessment, audit, sampling and testing, laboratory or other analysis, or
evaluation relating to any Hazardous Substances or to anything referred to in
this Article 12.
Section 12.2 Environmental Covenants. Borrower covenants and agrees
that so long as the Borrower owns, manages, is in possession of, or otherwise
controls the operation of the Property: (a) all uses and operations on or of the
Property, whether by Borrower or any other person, shall be substantially in
compliance with all Environmental Laws and permits issued pursuant thereto; (b)
there shall be no Releases of Hazardous Substances in, on, under or from the
Property; (c) there shall be no Hazardous Substances in, on, or under the
Property, except those that are in compliance with all Environmental Laws and
with permits issued pursuant thereto, if and to the extent required; (d)
Borrower shall keep the Property free and clear of all liens and other
encumbrances imposed pursuant to any Environmental Law, whether due to any act
or omission of Borrower or any other person (the "Environmental Liens"); (e)
Borrower shall, at its sole cost and expense, fully and expeditiously cooperate
in all activities pursuant to Section 12.3 below, including, but not limited to
providing all relevant information and making knowledgeable persons available
for interviews; (f) Borrower shall, at its sole cost and expense, perform any
environmental site assessment or other investigation of environmental conditions
in connection with the Property, pursuant to any reasonable written request of
Lender after Lender has reason to believe this Section 12.2 has been violated
(including, but not limited to sampling, testing and analysis of soil, water,
air, building materials and other materials and substances whether solid, liquid
or gas), and share with Lender the reports and other results thereof, and Lender
and other Indemnified Parties (defined in Section 13.1) shall be entitled to
rely on such reports and other results thereof; (g) Borrower shall, at its sole
cost and expense, comply with all reasonable written requests of Lender to (i)
reasonably effectuate Remediation of any condition (including, but not limited
to a Release of a Hazardous Substance) in, on, under or from the Property, (ii)
comply with any Environmental Law, (iii) comply with any directive from any
governmental authority, and (iv) take any other reasonable action necessary or
appropriate for protection of human health or the environment; (h) Borrower
shall not do or allow any tenant or other user of the Property to do any act
that materially increases the dangers to human health or the environment, poses
an unreasonable risk of harm to any person (whether on or off the Property),
impairs or may impair the value of the Property, is contrary to any requirement
of any insurer, constitutes a public or private nuisance, constitutes waste, or
violates any covenant, condition, agreement or easement applicable to the
Property; and (i) Borrower shall immediately notify Lender in writing promptly
after it has become aware of (A) any presence or Releases or threatened Releases
of Hazardous Substances in, on, under, from or migrating towards the Property
which is required to be reported to a governmental authority under any
Environmental Law, (B) any actual Environmental Lien affecting the Property, (C)
any required Remediation of environmental conditions relating to the Property,
and (D) any written or oral notice or other communication of which Borrower
becomes aware from any source whatsoever (including, but not limited to a
governmental entity) relating in any way to Hazardous Substances or Remediation
thereof, possible liability of any person pursuant to any Environmental Law,
other environmental conditions in connection with the Property, or any actual or
threatened administrative or judicial proceedings in connection with anything
referred to in this Article 12.
Exhibit 10.5 - Page 38
Section 12.3 Lender's Rights. Lender, its environmental consultant, and
any other person designated by Lender, including, but not limited to any
receiver and any representative of a governmental entity, shall have the right,
but not the obligation, at intervals of not less than one year, or more
frequently if the Lender reasonably believes that a Hazardous Substance or other
environmental condition violates or threatens to violate any Environmental Law,
after notice to Borrower, to enter upon the Property at all reasonable times to
assess any and all aspects of the environmental condition of the Property and
its use, including, but not limited to conducting any environmental assessment
or audit of the Property or portions thereof to confirm Borrower's compliance
with the provisions of this Article 12, and Borrower shall cooperate in all
reasonable ways with Lender in connection with any such audit. Such audit shall
be performed in a manner so as to minimize interference with the conduct of
business at the Property. If such audit discloses that a violation of or a
liability under any Environmental Law exists or if such audit was required or
prescribed by law, regulation or governmental or quasi-governmental authority,
Borrower shall pay all costs and expenses incurred in connection with such
audit; otherwise, the costs and expenses of such audit shall, notwithstanding
anything to the contrary set forth in this Section, be paid by Lender.
Article 13 - INDEMNIFICATION
Section 13.1 General Indemnification. Borrower shall, at its sole cost
and expense, indemnify the Lenders (a) to the extent set forth in Section 4.11
of the Purchase Agreement; and (b) from and against all reasonable,
out-of-pocket expenditures, including reasonable attorneys fees and expenses,
claims, demands, liabilities, losses, damages, causes of action, judgments,
penalties, costs and expenses which may be proposed upon, asserted against or
incurred or paid by Lenders on account of, in connection with, or arising out of
(i) any bodily injury or death or property damage occurring in or upon or in the
vicinity of the Property; and (ii) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (hereinafter defined),
including, without limitation, the presence on, under or about the Property or
release from the Property of any Hazardous Substance, resulting from or in
connection the ownership, construction, occupancy, operation, use and/or
maintenance of the Property. "Release Date" shall mean the earlier of (x) the
date on which Obligation) have been paid and performed in full, or (y) the date
of the completion of the foreclosure of the Property Secured by this Security
Instrument.
Article 14 - WAIVERS
Section 14.1 Waiver of Counterclaim. Borrower hereby waives the right
to assert a counterclaim, other than a mandatory or compulsory counterclaim, in
any action or proceeding brought against it by Trustee or Lender arising out of
or in any way connected with this Security Instrument, the Note, any of the
Other Security Documents, or the Obligations.
Section 14.2 Marshaling and Other Matters. Borrower hereby waives, to
the extent permitted by law, the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshaling in the event of any sale hereunder of the Property or any
part thereof or any interest therein. Further, Borrower hereby expressly waives
any and all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, and on behalf of
each and every person acquiring any interest in or title to the Property
subsequent to the date of this Security Instrument and on behalf of all persons
to the extent permitted by Applicable Law.
Exhibit 10.5 - Page 39
Section 14.3 Waiver of Notice. To the extent permitted by Applicable
Law, Borrower shall not be entitled to any notices of any nature whatsoever from
Trustee or Lender except with respect to matters for which this Security
Instrument specifically and expressly provides for the giving of notice by
Trustee or Lender to Borrower and except with respect to matters for which
Trustee or Lender is required by Applicable Law to give notice, and Borrower
hereby expressly waives the right to receive any notice from Trustee or Lender
with respect to any matter for which this Security Instrument does not
specifically and expressly provide for the giving of notice by Trustee or Lender
to Borrower.
Section 14.4 Waiver of Statute of Limitations. Borrower hereby
expressly waives and releases to the fullest extent permitted by law, the
pleading of any statute of limitations as a defense to payment of the Debt or
performance of its Other Obligations.
Section 14.5 Sole Discretion of Lender. Wherever pursuant to this
Security Instrument (a) Lender exercises any right given to it to approve or
disapprove, (b) any arrangement or term is to be satisfactory to Lender, or (c)
any other decision or determination is to be made by Lender, the decision of
Lender to approve or disapprove all decisions that arrangements or terms are
satisfactory or not satisfactory, and all other decisions and determinations
made by Lender, shall be in the sole and absolute discretion of Lender and shall
be final and conclusive, except as may be otherwise expressly and specifically
provided herein.
Section 14.6 Survival. Except as hereinafter specifically set forth
below, the representations and warranties, covenants, and other obligations
arising under Article 12 and Section 13.4 shall in no way be impaired by: any
satisfaction or other termination of this Security Instrument, any assignment or
other transfer of all or any portion of this Security Instrument or Lender's
interest in the Property (but, in such case, shall benefit both Indemnified
Parties and any assignee or transferee), any exercise of Lender's or Trustee's
rights and remedies pursuant hereto including, but not limited to foreclosure or
acceptance of a deed in lieu of foreclosure, any exercise of any rights and
remedies pursuant to the Notes or any of the Other Security Documents, any
transfer of all or any portion of the Property (whether by Borrower, by Lender,
or by Trustee at the request of Lender following foreclosure or acceptance of a
deed in lieu of foreclosure or at any other time), any amendment to this
Security Instrument, the Notes or the Other Security Documents, and any act or
omission that might otherwise be construed as a release or discharge of Borrower
from the obligations pursuant hereto. All obligations and liabilities of
Borrower under Article 12 and Section 13.4 shall cease and terminate on the
first (1st) anniversary of the date of payment to Lender in cash of the entire
Debt, provided that contemporaneously with or subsequent to such payment,
Borrower, at its sole cost and expense, delivers to Lender an environmental
audit of the Property in form and substance, and prepared by a qualified
environmental consultant, reasonably satisfactory in all respects to Lender and
indicating the Property is in full compliance with all applicable Environmental
Laws.
Section 14.7 Waiver of Trial By Jury. BORROWER HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING
DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE APPLICATION FOR
THE LOAN EVIDENCED BY THE NOTE, THE NOTE, THIS SECURITY INSTRUMENT OR THE OTHER
SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES,
DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
Article 15 - INTENTIONALLY OMITTED
Exhibit 10.5 - Page 40
Article 16 - NOTICES
Section 16.1 Notices. All notices or other written communications
hereunder shall be deemed to have been properly given (a) upon delivery, if
delivered in person or by facsimile transmission with receipt acknowledged by
the recipient thereof, (b) one (1) Business Day (defined below) after having
been deposited for overnight delivery with any reputable overnight courier
service, or (c) three (3) Business Days after having been deposited in any post
office or mail depository regularly maintained by the U.S. Postal Service and
sent by registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to Borrower: Cubic Energy, Inc.
0000 Xxxxx Xxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxx III
Facsimile No. 000-000-0000
If to Trustee: Xxxx Xxxxxxx
c/o X. X. Xxxxxx & Company
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Facsimile No. 000-000-0000
If to Lender: X. X. Xxxxxx & Company
00000 Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxxxx
Facsimile No. 000-000-0000
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
For purposes of this Subsection, "Business Day" shall mean a day on
which commercial banks are not authorized or required by law to close in the
State of New York.
Article 17 - APPLICABLE LAW
Section 17.1 Choice of Law. THIS SECURITY INSTRUMENT SHALL BE GOVERNED,
CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE
THE PROPERTY IS LOCATED AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
Section 17.2 Usury Laws. This Security Instrument and the Notes are
subject to the express condition that at no time shall Borrower be obligated or
required to pay interest on the Debt at a rate which could subject the Lender of
the Notes to either civil or criminal liability as a result of being in excess
of the maximum interest rate which Borrower is permitted by applicable law to
contract or agree to pay. If by the terms of this Security Instrument or the
Note, Borrower is at any time required or obligated to pay interest on the Debt
Exhibit 10.5 - Page 41
at a rate in excess of such maximum rate, the rate of interest under the
Security Instrument and the Notes shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate and all prior interest payments in excess of such maximum rate shall be
applied and shall be deemed to have been payments in reduction of the principal
balance of the Note. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Notes until payment in full so that the rate or amount
of interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
Section 17.3 Provisions Subject to Applicable Law. All rights, powers
and remedies provided in this Security Instrument may be exercised only to the
extent that the exercise thereof does not violate any applicable provisions of
law and are intended to be limited to the extent necessary so that they will not
render this Security Instrument invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any Applicable Law.
Section 17.4 Inapplicable Provision. If any term of this Security
Instrument or any application thereof shall be invalid or unenforceable, the
remainder of this Security Instrument and any other application of the term
shall not be affected thereby.
Article 18 - SECONDARY MARKET
Section 18.1 Dissemination of Information. If Lender determines at any
time to sell, transfer or assign the Note, this Security Instrument and the
Other Security Documents, and any or all servicing rights with respect thereto,
or to grant participations therein (the "Participations") or issue mortgage
pass-through certificates or other securities (such sale and/or issuance, the
"Securitization") evidencing a beneficial interest in a rated or unrated public
offering or private placement (the "Securities"), Lender may forward to each
purchaser, transferee, assignee, servicer, participant, investor, or their
respective successors in such Participations and/or Securities (collectively,
the "Investor") or any Rating Agency rating such Securities and each prospective
Investor, all documents and information which Lender now has or may hereafter
acquire relating to the Debt and to Borrower, any Guarantor, any Indemnitors and
the Property (including, without limitation, all financial statements), which
shall have been furnished by Borrower, any Guarantor or any Indemnitors, as
Lender determines necessary or desirable. Borrower, any Guarantor and any
Indemnitor agree to cooperate with Lender in connection with any transfer made
or any Securities created pursuant to this Section, such documents as may be
reasonably requested by Lender and, upon Lender's reasonable request, meeting
with any Rating Agency for due diligence purposes. Borrower shall also furnish
and Borrower, any Guarantor and any Indemnitor consent to Lender furnishing to
such Investors or such prospective Investors or any Rating Agency any and all
information concerning the Property, the Leases, the financial condition of
Borrower, any Guarantor and any Indemnitor as may be requested by Lender, any
Investor or any prospective Investor or Rating Agency in connection with any
sale, transfer or Participation. Borrower shall deliver on the date hereof, at
Borrower's sole cost and expense, a nonconsolidation opinion, and within ten
(10) days after demand of Lender, an update of same (which update Borrower will
not be required to provide more than once), each in form and substance and
delivered by counsel acceptable to Lender and the Rating Agency rating or
proposed to rate the Securities, as may be required by Lender and/or such Rating
Agency. Borrower's failure to deliver the opinions required hereby shall
constitute an Event of Default hereunder.
Exhibit 10.5 - Page 42
Article 19 - COSTS
Section 19.1 Performance at Borrower's Expense. Borrower acknowledges
and confirms that Lender shall impose certain administrative processing and/or
commitment fees in connection with (a) the extension, renewal, modification,
amendment and termination of its loans, (b) the release or substitution of
collateral therefor, (c) obtaining certain consents, waivers and approvals with
respect to the Property, or (d) the review of any Lease or proposed Lease or the
preparation or review of any subordination, non-disturbance agreement (the
occurrence of any of the above shall be called an "Event"). Borrower further
acknowledges and confirms that it shall be responsible for the payment of all
costs of reappraisal of the Property or any part thereof, whether required by
law, regulation, Lender or any governmental or quasi-governmental authority.
Borrower hereby acknowledges and agrees to pay, immediately, with or without
demand, all such fees (as the same may be increased or decreased from time to
time), and any additional fees of a similar type or nature which may be imposed
by Lender from time to time, upon the occurrence of any Event or otherwise.
Wherever it is provided for herein that Borrower pay any costs and expenses,
such costs and expenses shall include, but not be limited to, all legal fees and
disbursements of Lender (whether of retained firms, the reimbursement for the
expenses of in-house staff or otherwise) and all costs and expenses of Trustee,
if any.
Section 19.2 Attorneys' Fees for Enforcement. (a) Borrower shall pay
all legal fees incurred by Lender in connection with (i) the preparation of the
Note, this Security Instrument and the Other Security Documents; and (ii) the
items set forth in Section 19.1 above, and (b) Borrower shall pay to Lender on
demand any and all expenses, including legal expenses and reasonable attorneys'
fees, incurred or paid by Lender or Trustee in protecting its interest in the
Property or the Collateral or in collecting any amount payable hereunder or in
enforcing its rights hereunder with respect to the Property or the Collateral,
whether or not any legal proceeding is commenced hereunder or thereunder and
whether or not any default or Event of Default shall have occurred and is
continuing, together with interest thereon at the Default Rate from the date
paid or incurred by Lender or Trustee until such expenses are paid by Borrower.
Article 20 - DEFINITIONS
Section 20.1 General Definitions. Unless the context clearly indicates
a contrary intent or unless otherwise specifically provided herein, words used
in this Security Instrument may be used interchangeably in singular or plural
form and the word "Borrower" shall mean "each Borrower and any subsequent owner
or owners of the Property or any part thereof or any interest therein," the word
"Lender" shall mean "Lender and any subsequent Lender of the Note," the word
"Note" shall mean "the Notes and any other evidence of indebtedness secured by
this Security Instrument," the word "person" shall include an individual,
corporation, limited liability company, partnership, trust, unincorporated
association, government, governmental authority, and any other entity, the word
"Property" shall include any portion of the Property and any interest therein,
the word "Trustee" shall mean "Trustee and its successors and assigns", and the
phrases "attorneys' fees" and "counsel fees" shall include any and all
attorneys', paralegal and law clerk fees and disbursements, including, but not
limited to fees and disbursements at the pre-trial, trial and appellate levels
incurred or paid by Lender in protecting its interest in the Property, the
Leases and the Rents and enforcing its rights under this Security Instrument.
Section 20.2 Headings, Etc. The headings and captions of various
Sections of this Security Instrument are for convenience of reference only and
are not to be construed as defining or limiting, in any way, the scope or intent
of the provisions hereof.
Exhibit 10.5 - Page 43
Article 21 - MISCELLANEOUS PROVISIONS
Section 21.1 No Oral Change. This Security Instrument, and any
provisions hereof, may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower, Lender or Trustee, but only by an agreement in writing signed by the
party against whom enforcement of any modification, amendment, waiver,
extension, change, discharge or termination is sought.
Section 21.1 Liability. If Borrower consists of more than one person,
the obligations and liabilities of each such person hereunder shall be joint and
several. This Security Instrument shall be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and assigns forever.
Section 21.3 Duplicate Originals; Counterparts. This Security
Instrument may be executed in any number of duplicate originals and each
duplicate original shall be deemed to be an original. This Security Instrument
may be executed in several counterparts, each of which counterparts shall be
deemed an original instrument and all of which together shall constitute a
single Security Instrument. The failure of any party hereto to execute this
Security Instrument, or any counterpart hereof, shall not relieve the other
signatories from their obligations hereunder.
Section 21.4 Number and Gender. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
Section 21.5 Subrogation. If any or all of the proceeds of the Notes
have been used to extinguish, extend or renew any indebtedness heretofore
existing against the Property, then, to the extent of the funds so used, Lender
shall be subrogated to all of the rights, claims, liens, titles, and interests
existing against the Property heretofore held by, or in favor of, the Lender of
such indebtedness and such former rights, claims, liens, titles, and interests,
if any, are not waived but rather are continued in full force and effect in
favor of Lender and are merged with the lien and security interest created
herein as cumulative security for the repayment of the Debt, the performance and
discharge of Borrower's obligations hereunder, under the Notes and the Other
Security Documents and the performance and discharge of the Other Obligations.
Section 21.6 Entire Agreement. The Note, this Security Instrument and
the Other Security Documents constitute the entire understanding and agreement
between Borrower, Lender and Trustee with respect to the transactions arising in
connection with the Debt and supersede all prior written or oral understandings
and agreements between Borrower and Lender with respect thereto. Borrower hereby
acknowledges that, except as incorporated in writing in the Note, this Security
Instrument and the Other Security Documents, there are not, and were not, and no
persons are or were authorized by Lender to make, any representations,
understandings, stipulations, agreements or promises, oral or written, with
respect to the transaction which is the subject of the Note, this Security
Instrument and the Other Security Documents.
Exhibit 10.5 - Page 44
Article 22 - TRUSTEE PROVISIONS
Section 22.1 The Trustee.
(a) It shall be no part of the duty of Trustee to see to any recording,
filing or registration of this Security Instrument or any other instrument in
addition or supplemental hereto, or to give any notice thereof, or to see to the
payment of or be under any duty in respect of any tax or assessment or other
governmental charge which may be levied or assessed on the Property, or any part
thereof, or against Borrower, or to see to the performance or observance by
Borrower of any of the covenants and agreements contained herein. Trustee shall
not be responsible for the execution, acknowledgment or validity of this
Security Instrument or of any instrument in addition or supplemental hereto or
for the sufficiency of the security purported to be created hereby, and makes no
representation in respect thereof or in respect of the rights of Lender. Trustee
shall have the right to advice of counsel upon any matters arising hereunder and
shall be fully protected in relying as to legal matters on the advice of
counsel. Trustee shall not incur any personal liability hereunder except for his
own gross negligence or willful misconduct and 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 Trustee hereunder and believed by
Trustee in good faith to be genuine.
(b) Trustee may resign by an instrument in writing addressed to Lender,
or Trustee may be removed at any time with or without cause by an instrument in
writing executed by Lender. In case of the death, resignation, removal or
disqualification of Trustee, or if for any reason Lender shall deem it desirable
to appoint a substitute or successor trustee to act instead of the herein named
trustee or any substitute or successor trustee, then Lender shall have the right
and is hereby authorized and empowered to appoint a successor trustee, or a
substitute trustee, without other formality than appointment and designation in
writing executed by Lender, which substituted trustee may be Lender or an
affiliate of Lender, and the authority hereby conferred shall extend to the
appointment of other successor and substitute trustees successively until the
Debt secured hereby has been paid in full, or until the Property is fully and
finally sold hereunder. Such appointment and designation by Lender shall be full
evidence of the right and authority to make the same and of all facts therein
recited. If Lender is a corporation or association and such appointment is
executed in its behalf by an officer of such corporation or association, such
appointment shall be conclusively presumed to be executed with authority 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 and designation, all of the estate and title of
Trustee in the Property shall vest in the named successor or substitute Trustee,
and he shall thereupon succeed to and shall hold, possess and execute all of the
rights, powers, privileges, immunities and duties herein conferred upon Trustee;
but, nevertheless, upon the written request of Lender or of the successor or
substitute Trustee, the trustee ceasing to act shall execute and deliver an
instrument transferring to such successor or substitute Trustee all of the
estate and title in the Property of the trustee so ceasing to act, together with
all the rights, powers, privileges, immunities and duties herein conferred upon
the Trustee, and shall duly assign, transfer and deliver any of the properties
and moneys held by said trustee hereunder to said successor or substitute
Trustee. All references herein to "Trustee" shall be deemed to refer to Trustee
(including any successor or substitute appointed and designated as herein
provided) from time to time acting hereunder.
(c) Trustee shall not be liable for any error of judgment or act done
by Trustee in good faith, or be otherwise responsible or accountable under any
circumstances whatsoever (including Trustee's negligence), except for Trustee's
gross negligence or willful misconduct. 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
Exhibit 10.5 - Page 45
genuine. All moneys received by Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for 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. Borrower hereby ratifies and confirms any and
all acts which the herein-named Trustee or his successor or successors,
substitute or substitutes, in this trust, shall do lawfully by virtue hereof.
Borrower will reimburse Trustee for, and save him harmless against, any and all
liability and expenses which may be incurred by him in the performance of his
duties. The foregoing indemnity shall not terminate upon discharge of the
secured Debt or foreclosure, or release or other termination, of this Security
Instrument.
Article 23 - LOCAL LAW PROVISIONS
The provisions set forth on Exhibit B annexed hereto are incorporated
herein by reference as if fully set forth herein.
[remainder of page intentionally left blank]
Exhibit 10.5 - Page 46
IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by
Borrower as of the date first above written.
BORROWER:
CUBIC ENERGY, INC.,
a Texas corporation
By: /s/ Xxxxxx X. Xxxxxx III
-------------------------------
Name: Xxxxxx X. Xxxxxx III
--------------------------
Title: Chief Executive Officer
-------------------------
Exhibit 10.5 - Page 47
EXHIBIT A
(Description of Land)
1. That .25 working interest of Cubic Energy, Inc. to be acquired in two
xxxxx To Be Drilled- Xxxxxxx 00-0, Xxxxxxx 00-0, Xxxx 00X, Xxxxx 00X,
Sections 25, 26, Desoto Parish, Louisiana
2. That 25% Mineral Interest of Cubic Energy, Inc. in Eight Sections to be
acquired, Desoto Parish, Louisiana [excluding the interests in the
Xxxxxxx 00-0, Xxxxxxx 25-1, and Xxxxxxx 00-0] -
Xxxx 00X, Xxxxx 00X, Sections 24, 25, 00 Xxxx 00X, Xxxxx 00X,
Sections 18, 19, 20, 29, 30
3. The after-acquired working interest of Cubic Energy, Inc. in the
Xxxxxxx 24-1 Well in Desoto Parish, Louisiana -
Town 14N, Range 16W, Section 24
4. That .25 interest to be acquired in the production facilities and
gathering systems in Desoto Parish, Xxxxxxxxx
Xxxx 00X, Xxxxx 00X, Sections 24, 25, 00 Xxxx 00X, Xxxxx 00X,
Sections 18, 19, 20, 29, 30
5. Existing Working Interest ["WI"], Net Revenue Interests ["NRI"] as
below:
WI NRI
-- ---
Yeats No. 1 0.90 0.72
Xxxxxxx 0, Xxxxx 0, X. & X. X.X. Co. Survey, A-848
Palo Pinto County, Texas
Xxxxx X. Xxxxx No. 1A 0.90 0.72
Xxxxxxx 0, Xxxxx 0, X. & X. X.X. Co. Survey, A-848
Palo Pinto County, Texas
Yeats No. 2 0.90 0.72
Xxxxxxx 0, Xxxxx 0, X. & X. X.X. Co. Survey, A-848
Palo Pinto County, Texas
Yeats No. 3 0.90 0.72
Xxxxxxx 0, Xxxxx 0, X. & X. X.X. Co. Survey, A-848
Palo Pinto County, Texas
Yeats No. 4 0.90 0.72
B.B.B. & C. #46 Survey, A-58 Palo Pinto County, Texas
Yeats No. 5 0.90 0.72
Xxxxxxx 0, Xxxxx 0, X. & X. X.X. Co. Survey, A-848
Palo Pinto County, Texas
Exhibit 10.5 - Page 48
X.X. Xxxxxx Xx. 00-0, 00-0, 00-0, 00-0X 0.00 0.0525
Xxxxxxx 00, Xxxxx 0, X. & X. X.X. Co. Survey, A-813
Palo Pinto County, Texas
X.X. Xxxxxx No. 2011 1.00 0.865
Xxxxxxx 00, Xxxxx 0, X. & X. X.X. Co. Survey, X-000
Xxxx Xxxxx Xxxxxx, Xxxxx
Xxxxxx Xx. 0000 1.00 0.865
Xxxxxxx 00, Xxxxx 0, X. & X. X.X. Co. Survey, X-000
Xxxx Xxxxx Xxxxxx, Xxxxx
Xxxxxx Xx. 0000 1.00 0.865
Xxxxxxx 00, Xxxxx 0, X. & X. X.X. Co. Survey, X-000
Xxxx Xxxxx Xxxxxx, Xxxxx
Xxxxxx Xx. 0000 1.00 0.865
Xxxxxxx 00, Xxxxx 0, X. & X. X.X. Co. Survey, A-813
Palo Pinto County, Texas
Xxxx Xxxxxx No. 112 1.00 0.875
Xxxxxxx 00, Xxxxx 0, X. & X. X.X. Co. Survey, X-0000
Xxxx Xxxxx Xxxxxx, Xxxxx
Xxxx Xxxxxx No. 312 1.00 0.875
Xxxxxxx 00, Xxxxx 0, X. & X. X.X. Co. Survey, X-0000
Xxxx Xxxxx Xxxxxx, Xxxxx
Xxxxx No. 1 0.80 0.64
Xxxxx Xxxxx #17 Survey, X-000
Xxxxxxxx Xxxxxx, Xxxxx
Xxxxxx Xx. 0 0.80 0.64
Xxxxx Xxxxx #00 Xxxxxx, X-000
Xxxxxxxx Xxxxxx, Xxxxx
Xxxxxxx No. 1 0.80 0.64
Xxxxx Xxxxx #00 Xxxxxx, X-000
Xxxxxxxx Xxxxxx, Xxxxx
Exhibit 10.5 - Page 49
