Attached files
EXHIBIT 10.22
THIRD AMENDMENT TO CREDIT AGREEMENT
This Third Amendment to Credit Agreement (this "Amendment") is made and
entered into effective as of December 20, 2013 (the "Effective Date"), by and
between Synergy Resources Corporation, a Colorado corporation (the "Borrower"),
each of the Lenders party to the Credit Agreement (as defined below)
("Lenders"), SunTrust Bank ("SunTrust"), KeyBank National Association ("Key
Bank"), and Community Banks of Colorado, a division of NBH Bank, N.A.,
individually, as Issuing Bank and as administrative agent for the Lenders (in
such capacity, together with its successors in such capacity, the
"Administrative Agent"), and is as follows:
Preliminary Statements
A. Lenders, the Administrative Agent and the Borrower are parties to
an Amended and Restated Credit Agreement dated as of November 28, 2012, as
amended by that First Amendment dated as of February 12, 2013 (the "First
Amendment") and that Second Amendment (the "Second Amendment") dated as of June
28, 2013 (as amended, the "Credit Agreement"). Capitalized terms which are used,
but not defined, in this Amendment will have the meanings given to them in the
Credit Agreement.
B. The Borrower has requested that Lenders and the Administrative
Agent make certain amendments to the Credit Agreement, all as more particularly
set forth herein.
C. Lenders and the Administrative Agent are willing to consent to
such requests and so amend the Credit Agreement to reflect such modifications,
all on the terms of this Amendment.
Statement of Amendment
In consideration of the mutual covenants and agreements set forth in this
Amendment, and for other good and valuable consideration, Lenders, the
Administrative Agent, SunTrust, Key Bank and the Borrower hereby agree as
follows:
1. Amendments to Credit Agreement. Subject to the terms and provisions of
this Amendment, the Credit Agreement is hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended to add
thereto in alphabetical order the following definitions which shall read in full
as follows:
"Commodity Exchange Act" means the Commodity Exchange Act (7 U.S.C.
ss. 1 et seq.), as amended from time to time, and any successor statute,
and any regulations promulgated thereunder.
"Excluded Swap Obligations" means, with respect to any Guarantor,
any Swap Obligation if, and to the extent that, all or a portion of the
guarantee of such Guarantor of, or the grant by such Guarantor of a
security interest to secure, such Swap Obligation (or any guarantee
thereof) is or becomes illegal under the Commodity Exchange Act or any
rule, regulation or order of the Commodity Futures Trading Commission (or
the application or official interpretation of any thereof) by virtue of
such Guarantor's failure for any reason to constitute an "eligible
contract participant" as defined in the Commodity Exchange Act and the
regulations thereunder at the time the guarantee of such Guarantor or the
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grant of such security interest becomes effective with respect to such
Swap Obligation. If a Swap Obligation arises under a master agreement
governing more than one swap, such exclusion shall apply only to the
portion of such Swap Obligation that is attributable to swaps for which
such guarantee or security interest is or becomes illegal.
"Qualified ECP Guarantor" means, in respect of any Swap Obligation,
each Guarantor that (a) has total assets exceeding $10,000,000 at the time
any guaranty of obligations under such Swap Obligation or grant of the
relevant security interest becomes effective or (b) otherwise constitutes
an "eligible contract participant" under the Commodity Exchange Act and
can cause another Person to qualify as an "eligible contract participant"
at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of
the Commodity Exchange Act.
"Swap Obligation" means, with respect to any Guarantor, any
obligation to pay or perform under any agreement, contract or transaction
that constitutes a "swap" within the meaning of section 1a(47) of the
Commodity Exchange Act.
(b) The following definitions in Section 1.01 of the Credit
Agreement are hereby amended and restated in their entirety as follows:
"Approved Counterparty" means (a) any Lender or any Affiliate of a
Lender, or (b) any other Person whose (y) credit rating assigned by
Moody's or S&P (or their equivalent) to its unsecured long-term
indebtedness is not lower than Baa3 or BBB-, respectively, or (z)
obligations under any Hedging Agreement with the Borrower are guaranteed
by an entity whose credit rating assigned by Moody's or S&P (or their
equivalent) to its unsecured long-term indebtedness is not lower than Baa3
or BBB-, respectively.
"Excepted Liens" means: (a) Liens for Taxes, assessments or other
governmental charges or levies which are not delinquent or which are being
contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (b) Liens in
connection with workers' compensation, unemployment insurance or other
social security, old age pension or public liability obligations which are
not delinquent or which are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in accordance
with GAAP; (c) statutory landlord's liens, operators', vendors',
carriers', warehousemen's, repairmen's, mechanics', suppliers', workers',
materialmen's, construction or other like Liens arising by operation of
law in the ordinary course of business or incident to the exploration,
development, operation and maintenance of Oil and Gas Properties each of
which is in respect of obligations that are not delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (d) contractual
Liens which arise in the ordinary course of business under operating
agreements, joint venture agreements, oil and gas partnership agreements,
oil and gas leases, farm-out agreements, division orders, contracts for
the sale, transportation or exchange of oil and natural gas, unitization
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and pooling declarations and agreements, area of mutual interest
agreements, royalty agreements, overriding royalty agreements, marketing
agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal
agreements, seismic or other geophysical permits or agreements and other
agreements which are usual and customary in the oil and gas business and
are for claims which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP, provided that any such Lien referred
to in this clause does not materially impair the use of the Property
covered by such Lien for the purposes for which such Property is held by
the Borrower or any Subsidiary or materially impair the value of such
Property subject thereto; (e) Liens arising solely by virtue of any
statutory or common law provision relating to banker's liens, rights of
set-off or similar rights and remedies and burdening only deposit accounts
or other funds maintained with a creditor depository institution, provided
that no such deposit account is a dedicated cash collateral account or is
subject to restrictions against access by the depositor in excess of those
set forth by regulations promulgated by the Board and no such deposit
account is intended by the Borrower or any of its Subsidiaries to provide
collateral to the depository institution; (f) easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations in
any Property of the Borrower or any Subsidiary for the purpose of roads,
pipelines, transmission lines, transportation lines, distribution lines
for the removal of gas, oil, coal or other minerals or timber, and other
like purposes, or for the joint or common use of real estate, rights of
way, facilities and equipment, and Liens related to surface leases and
surface operations, that do not secure any monetary obligations and which
in the aggregate do not materially impair the use of such Property for the
purposes of which such Property is held by the Borrower or any Subsidiary
or materially impair the value of such Property subject thereto; (g) Liens
on cash or securities pledged to secure performance of tenders, surety and
appeal bonds, government contracts, performance and return of money bonds,
bids, trade contracts, leases, statutory obligations, regulatory
obligations and other obligations of a like nature incurred in the
ordinary course of business; (h) judgment and attachment Liens not giving
rise to an Event of Default; and (i) Liens arising from the debt
associated with Secured Hedging Agreement, provided that any appropriate
legal proceedings which may have been duly initiated for the review of
such judgment shall not have been finally terminated or the period within
which such proceeding may be initiated shall not have expired and no
action to enforce such Lien has been commenced; provided, further that
Liens described in clauses (a) through (e) shall remain "Excepted Liens"
only for so long as no action to enforce such Lien has been commenced and
no intention to subordinate the first priority Lien granted in favor of
the Administrative Agent and the Lenders is to be hereby implied or
expressed by the permitted existence of such Excepted Liens.
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"Fee Letter" means that that letter agreement dated October 11,
2012, by and between the Borrower and the Administrative Agent, related
to, among other things, the payment of certain fees by the Borrower, as
amended by that letter agreement dated as of December 20, 2013, by and
between the Borrower and the Administrative Agent.
"Indebtedness" means any and all amounts owing or to be owing by the
Borrower or any Guarantor (whether direct or indirect (including those
acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising): (a) to the Administrative Agent, any
Issuing Bank, any Lender or any Affiliate of a Lender, or any Secured
Hedging Counterparty under any Loan Document; and (b) all renewals,
extensions and/or rearrangements of any of the above; provided that solely
with respect to any Guarantor that is not an "eligible contract
participant" under the Commodity Exchange Act, Excluded Swap Obligations
of such Guarantor shall in any event be excluded from "Indebtedness" owing
by such Guarantor.
"Required Lenders" means Lenders holding, in the aggregate, at least
sixty-six and two-thirds percent (66 2/3%) of the outstanding Revolving
Credit Exposure, unless there is no outstanding Revolving Credit Exposure
at such time, and in such case, then Lenders holding, in the aggregate, at
least sixty-six and two-thirds percent (66 2/3%) of the existing
Commitments at such time; provided, however, that under if any one Lender
holds 66 2/3% of the outstanding Revolving Credit Exposure or of the
existing Commitments, as applicable, then the Required Lenders shall mean
such Lender and at least one other Lender.
(c) Section 2.06(c) of the Credit Agreement is hereby amended by
increasing the amount in clause (ii) from $150,000,000 to $300,000,000.
(d) Clause (i) of Section 2.07(f) of the Credit Agreement is hereby
amended and restated in its entirety as follows:
"(i) If the Borrower or any Subsidiary novates, sells, assigns,
unwinds, terminates, restructures, modifies, amends or otherwise
affects ("Unwinds") any Borrowing Base Hedging Agreement, the Borrower
shall promptly provide the Administrative Agent with written notice of
such Unwind and the Borrowing Base then in effect shall automatically
be reduced by an amount equal to the mark-to-market value (as
determined by the Administrative Agent) of such Borrowing Base Hedging
Agreement as of the date of such Unwind, if any, resulting from such
event (which right shall be in addition to the Administrative Agent's
right to request Interim Redetermination between each Scheduled
Redetermination)."
(e) Clause (b) of Section 5.01 of the Credit Agreement is hereby
amended and restated in its entirety as follows:
"(b) Capital Requirements. If any Change in Law regarding capital or
liquidity requirements has the effect of reducing the rate of return on a
Lender's or Issuing Bank's capital or on the capital of such Lender's or
Issuing Bank's holding company, if any, as a consequence of this Agreement
or the Loans made by, or participations in Letters of Credit held by, such
Lender, or the Letters of Credit issued by any Issuing Bank, to a level
below that which such Lender or Issuing Bank or such Lender's or Issuing
Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or Issuing Bank's policies and
the policies of such Lender's or Issuing Bank's holding company with
respect to capital adequacy), then from time to time the Borrower will pay
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to such Lender or Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or Issuing Bank or such Lender's
or Issuing Bank's holding company for any such reduction suffered."
(f) A new Section 8.19 of the Credit Agreement shall be added to
Article VIII of the Credit Agreement in appropriate numerical order to
read in full as follows:
"Section 8.19 Commodity Exchange Act Keepwell Provisions. The
Borrower hereby guarantees the payment and performance of all Indebtedness
of each Guarantor and absolutely, unconditionally and irrevocably
undertakes to provide such funds or other support as may be needed from
time to time by each Guarantor in order for such Guarantor to honor its
obligations under its respective guaranty agreement including obligations
with respect to Swap Obligations (provided, however, that the Borrower
shall only be liable under this Section 8.19 for the maximum amount of
such liability that can be hereby incurred without rendering its
obligations under this Section 8.19, or otherwise under this Agreement or
any Loan Document, as it relates to such other Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer,
and not for any greater amount). The obligations of the Borrower under
this Section 8.19 shall remain in full force and effect until all
Indebtedness is paid in full to the Lenders, the Administrative Agent and
all other Secured Parties, and all of the Lenders' Commitments are
terminated. The Borrower intends that this Section 8.19 constitute, and
this Section 8.19 shall be deemed to constitute, a "keepwell, support, or
other agreement" for the benefit of each other Guarantor for all purposes
of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act."
(g) Section 9.18 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"Section 9.18 Hedging Agreements.
(a) The Borrower shall neither assign, terminate, unwind nor
sell any Hedging Agreements listed on Schedule 7.20. The Borrower shall
not enter into Hedging Agreements in respect of commodities other than
Hydrocarbons. In the case of Hydrocarbons, the Borrower shall not enter
into Hedging Agreements if the effect thereof would be to cause the
notional volumes of all Hedging Agreements and additional fixed-price
physical off-take contracts, in the aggregate, to exceed (i) 85% of the
projected production from the Borrower's Proved Developed Producing
Reserves reflected in the most recently completed Reserve Report for any
month continuing through and including the date that is twelve (12) months
following the effective date of each such Hedging Agreement, (ii) 70% of
the projected production from the Borrower's Proved Developed Producing
Reserves for any month beginning at the expiration of the period in clause
(i) and continuing through and including the date that is twelve (12)
months following such date, (iii) 60% of the projected production from the
Borrower's Proved Developed Producing Reserves for any month beginning at
the expiration of the period in clause (ii) and continuing through and
including the date that is twelve (12) months following such date and (iv)
50% of the projected production from the Borrower's Proved Developed
Producing Reserves for any month beginning at the expiration of the period
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clause (iii) and continuing through and including the date that is twelve
(12) months following such date (it being understood that any put
contracts entered into for non speculative purposes shall not count
against the above limitation). The Borrower shall not enter into Hedging
Agreements converting interest rates. The Borrower shall not post any
collateral to secure Hedging Agreements, except as contemplated by the
Loan Documents in the case of a Secured Hedging Counterparty.
(b) In addition to the Hedging Agreements permitted under
Section 9.18(a), if after the date of the latest Reserve Report the
Borrower converts any of its Oil and Gas Properties (through drilling
operations or otherwise) from Proved Developed Nonproducing Reserves or
Proved Undeveloped Reserves (in each case, as shown in the latest Reserve
Report) to Proved Developed Producing Reserves (such converted reserves
being referred to herein as "Additional Proved Producing Reserves"), the
Borrower may, but shall not be obligated to, provide the Administrative
Agent with the Borrower's good faith estimated production forecast (which
forecast shall be prepared showing monthly production numbers, a
"Production Forecast") for the Additional Proved Producing Reserves. If
the Borrower provides a Production Forecast to the Administrative Agent,
the Borrower shall also provide the Administrative Agent with any other
information requested by the Administrative Agent with respect to such
Additional Proved Producing Reserves. Unless the Administrative Agent
notifies the Borrower in writing within five Business Days of its receipt
of a Production Forecast that the Administrative Agent is rejecting the
Borrower's treatment of such reserves as Additional Proved Producing
Reserves or is otherwise modifying the Borrower's production estimates set
forth in the Production Forecast, the Borrower shall be permitted to enter
into Hedging Agreements for up to 70% of the projected production from
such Additional Proved Producing Reserves, but only with respect to that
production that is forecasted in the Production Forecast to occur during
the 12 month period beginning with the first month after the expiration of
such 5-day period. The Additional Proved Producing Reserves shall be
included in the next Reserve Report prepared in accordance with Section
8.12 and, at such time, the Borrower shall be subject to the limitations
on Hedging Agreements contemplated by Section 9.18 with respect to such
Additional Proved Producing Reserves.
(c) The limitations on Hedging Agreements set forth in this Section
9.18 shall be calculated based upon barrels of oil or cubic feet of
natural gas, as the case may be, as set forth in the relevant Reserve
Report (in the case of Section 9.18(a)) or the Production Forecast (in the
case of Section 9.18(b)) and shall not be based on barrel of oil
equivalent (or BOE) computations."
(h) Clause (c) of Section 10.02 of the Credit Agreement is hereby
amended by inserting the following language immediately following clause (c),
which shall read in its entirety as follows:
"Notwithstanding the foregoing, amounts received from the Borrower
or any Guarantor that is not an "eligible contract participant" under the
Commodity Exchange Act shall not be applied to any Excluded Swap
Obligations (it being understood, that in the event that any amount is
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applied to Indebtedness other than Excluded Swap Obligations as a result
of this this clause, the Administrative Agent shall make such adjustments
as it determines are appropriate to distributions pursuant to clause
fourth above from amounts received from "eligible contract participants"
under the Commodity Exchange Act to ensure, as nearly as possible, that
the proportional aggregate recoveries with respect to Indebtedness
described in clause fourth above by the holders of any Excluded Swap
Obligations are the same as the proportional aggregate recoveries with
respect to other Indebtedness pursuant to clause fourth above)."
(i) Clause (b) of Section 12.02 of the Credit Agreement is hereby
amended and restated in its entirety as follows:
"(b) Neither this Agreement nor any provision hereof nor any
Security Instrument nor any provision thereof may be waived, amended or
modified except pursuant to an agreement or agreements in writing entered
into by the Borrower and the Lenders or by the Borrower and the
Administrative Agent with the consent of the Lenders; provided that no
such agreement shall (i) increase the Commitment or the Maximum Credit
Amount of any Lender without the written consent of such Lender, (ii)
increase the Borrowing Base without the written consent of each Lender,
decrease or maintain the Borrowing Base without the written consent of
each Lender (other than any Defaulting Lender), or modify Section 2.07 in
any manner without the consent of each Lender (other than any Defaulting
Lender); provided that a Scheduled Redetermination may be postponed by the
Lenders, (iii) reduce the principal amount of any Loan or LC Disbursement
or reduce the rate of interest thereon, or reduce any fees payable
hereunder, or reduce any other Indebtedness hereunder or under any other
Loan Document, without the written consent of each Lender affected
thereby, (iv) postpone the scheduled date of payment or prepayment of the
principal amount of any Loan or LC Disbursement, or any interest thereon,
or any fees payable hereunder, or any other Indebtedness hereunder or
under any other Loan Document, or reduce the amount of, waive or excuse
any such payment, or postpone or extend the Termination Date without the
written consent of each Lender affected thereby, (v) change Section
4.01(b) or Section 4.01(c) in a manner that would alter the pro rata
sharing of payments required thereby, without the written consent of each
Lender, (vi) waive or amend Section 3.04(c), Section 6.01, Section 8.14,
Section 10.02(c) or Section 12.14, without the written consent of each
Lender (other than any Defaulting Lender),(vii) release any Guarantor from
its obligations under any guaranty agreement that relates to the
Indebtedness, without the written consent of each Lender (other than any
Defaulting Lender), (viii) release the Liens contemplated by any Security
Instrument on all or substantially all of the collateral covered thereby
(other than a release of Liens related to Oil and Gas Properties
transferred in accordance with Section 9.11), without the written consent
of each Lender (other than any Defaulting Lender) or (ix) change any of
the provisions of this Section 12.02(b) or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or under any other Loan Documents or make any
determination or grant any consent hereunder or any other Loan Documents,
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without the written consent of each Lender (other than any Defaulting
Lender); provided further that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent or any
Issuing Bank hereunder or under any other Loan Document without the prior
written consent of the Administrative Agent or such Issuing Bank, as the
case may be. Notwithstanding the foregoing, any supplement to Schedule
7.24 (Material Agreements) shall be effective simply by delivering to the
Administrative Agent a supplemental schedule clearly marked as such and,
upon receipt, the Administrative Agent will promptly deliver a copy
thereof to the Lenders.
(j) Annex I to the Credit Agreement is hereby amended and restated
in its entirety to conform to Annex I attached hereto. The adjustment to
each Lender's Applicable Percentage as set forth on Annex I attached
hereto shall be effective as of the Increase Date (defined below) and each
Lender's Applicable Percentage prior to the Increase Date shall be as set
forth in Annex I to the Credit Agreement.
2. Eligible Lenders. The parties to this Amendment agree that SunTrust and
Key Bank are Eligible Lenders. Each of SunTrust and Key Bank hereby agrees that
upon the execution of this Amendment, it shall become a party to the Credit
Agreement and shall be fully bound by, and subject to, all of the covenants,
terms and conditions of the Credit Agreement as though an original party
thereto. From and after the date hereof, all references in the Credit Agreement
and in all other Loan Documents to the "Lenders" shall be deemed to include
SunTrust and Key Bank.
3. Adjustments. On the Effective Date, the Borrower shall, in coordination
with the Administrative Agent, repay the outstanding Loans of certain Lenders,
and incur additional Loans from certain other Lenders, in each case to the
extent necessary so that all of the Lenders participate in the Borrowings
ratably on the basis of their respective Commitments (after giving effect to any
adjustments contemplated by Section 1(j) hereof).
4. Borrowing Base. In connection with the second Scheduled Redetermination
contemplated by Section 2.07 of the Credit Agreement, the Administrative Agent,
the Lenders and the Borrower have agreed that the Borrowing Base shall be
increased to $90,000,000, which Borrowing Base adjustment shall be effective as
of the later of December 20, 2013, or the satisfaction of the conditions set
forth in Section 7 hereof (the "Increase Date").
5. Reaffirmation of Security. The Borrower, Lenders and the Administrative
Agent hereby expressly intend that this Amendment shall not in any manner (a)
constitute the refinancing, refunding, payment or extinguishment of the
Indebtedness evidenced by the existing Loan Documents; (b) be deemed to evidence
a novation of the outstanding balance of the Indebtedness; or (c) replace,
impair, or extinguish the creation, attachment, perfection or priority of the
Liens on the Borrowing Base Properties. The Borrower ratifies and reaffirms any
and all grants of Liens to Lenders and the Administrative Agent on the Borrowing
Base Properties as security for the Indebtedness, and the Borrower acknowledges
and confirms that the grants of the Liens to Lenders and the Administrative
Agent on the Borrowing Base Properties: (i) represent continuing Liens on all of
the Borrowing Base Properties, (ii) secure all of the Indebtedness, and (iii)
represent valid, first and best Liens on all of the Borrowing Base Properties
except to the extent of any Permitted Liens
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6. Collateral Agent. The Borrower, Lenders and the Administrative Agent
hereby expressly authorize Community Banks of Colorado to serve as collateral
agent (the "Collateral Agent") under any of the Security Instruments for the
ratable benefits of Lenders, the Administrative Agent, any Secured Hedging
Counterparties and the Collateral Agent and agree that any Lien granted to the
Collateral Agent by the Borrower or any Guarantor to secure the Indebtedness
shall be held by the Collateral Agent for the ratable benefit of Lenders, the
Administrative Agent, any Secured Hedging Counterparties and the Collateral
Agent. Community Banks of Colorado is further authorized to cause any Liens
granted to it under the Security Instruments in its capacity as Administrative
Agent to be transferred and conveyed to it in its capacity as Collateral Agent.
7. Conditions Precedent. This Amendment will not become effective until
the date on which each of the following conditions is satisfied:
(a) The Borrower shall have executed and delivered to the
Administrative Agent the Promissory Notes attached hereto as Exhibit A (the
"Amendment Notes"). These Amendment Notes, to the extent that they are for the
benefit of Lenders other than SunTrust and Key Bank, are issued in substitution
for and replacement of, but not repayment of (i) those certain Amended and
Restated Promissory Notes, dated as of June 28, 2013, issued by the Borrower in
favor of those Lenders in connection with the Second Amendment, and (ii) that
Promissory Note, dated as of June 28, 2013, issued by the Borrower in favor of
Texas Capital Bank, N.A. in connection with the Second Amendment. The Amendment
Notes shall constitute a "Note" as defined and described in the Credit
Agreement. From and after the date hereof, all references in the Credit
Agreement and in all other Loan Documents to the "Notes" shall be deemed to be
references to the Amendment Notes.
(b) The Administrative Agent shall have received counterparts of
this Amendment from the Borrower and each of the Lenders.
(c) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the effective date of this Amendment.
(d) The Administrative Agent shall have received title information
satisfactory to it on at least 80% (by NPV) of the total Proved Reserves
attributable to the Oil and Gas Properties evaluated in such Reserve Report,
with such 80% first being satisfied from Proved Developed Producing Reserves,
next from Proved Developed Nonproducing Reserves and thereafter from Proved
Undeveloped Reserves.
(e) The Administrative Agent shall have received information and
evidence satisfactory to it that the Mortgaged Properties represent at least 80%
(by NPV) of the Oil and Gas Properties evaluated in the most recently completed
Reserve Report, with such 80% first being satisfied from Proved Developed
Producing, next from Proved Developed Nonproducing Reserves and thereafter from
Proved Undeveloped Reserves.
(f) No Default or Event of Default shall have occurred that is
continuing.
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(g) The Administrative Agent shall have received such other
documents as the Administrative Agent or counsel to the Administrative Agent may
reasonably request.
The Administrative Agent shall notify the Borrower and the Lenders of the
effectiveness of this Amendment, and such notice shall be conclusive and
binding.
8. Representations. To induce Lenders and the Administrative Agent to
accept this Amendment, the Borrower hereby represents and warrants to Lenders
and the Administrative Agent as follows:
(a) Power and Authority. The Borrower has full power and authority
to enter into, and to perform its obligations under, this Amendment, and the
execution and delivery of, and the performance of its obligations under and
arising out of, this Amendment have been duly authorized by all necessary
corporate action.
(b) Legal, Valid and Binding Obligation. This Amendment constitutes
the legal, valid and binding obligation of the Borrower enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
(c) Continued Representations and Warranties. After giving effect to
the amendments contained in this Amendment, the Borrower's representations and
warranties contained in the Loan Documents are complete and correct as of the
date of this Amendment with the same effect as though these representations and
warranties had been made again on and as of the date of this Amendment, subject
to those changes as are not prohibited by, or do not constitute Events of
Default under, the Credit Agreement.
(d) No Defenses. The Borrower has no defenses to payment,
counterclaims, or right of set-off with respect to any Indebtedness existing as
of the Effective Date.
(e) No Events of Default. No Event of Default has occurred and is
continuing.
(f) Material Adverse Effect. The Borrower hereby affirms that no
Material Adverse Effect has occurred
9. First Amendment. The parties acknowledge and agree that the First
Amendment was dated as of February 12, 2013 and that such date shall be the
Effective Date (as such term is used in the First Amendment) for all purposes
related to the First Amendment.
10. Fees, Costs and Expenses. As a condition of this Amendment, the
Borrower will (i) in connection with the execution and delivery of this
Amendment, pay to the Administrative Agent (A) for the account of SunTrust, a
commitment fee of $37,500, (B) for the account of Key Bank, a commitment fee of
$37,500, and (C) for the account of the Administrative Agent, an Administrative
Fee of $19,644.26, and (ii) reimburse the Administrative Agent's for all out of
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pocket expenses (including reasonable attorneys' fees) incurred in connection
with this Amendment.
11. Release. The Borrower, on its behalf and, as applicable, on behalf of
the Borrower's officers, directors, shareholders, Affiliates, Subsidiaries,
successors and assigns (collectively, the "Releasing Parties"), hereby
represents and warrants that such Releasing Parties have no claims,
counterclaims, setoffs, actions or causes of action, damages or liabilities of
any kind or nature whatsoever, whether in law or in equity, in contract or in
tort, whether now accrued or hereafter maturing (collectively, "Claims") against
Lenders or the Administrative Agent, their direct or indirect Affiliates, or any
of the foregoing's respective directors, officers, employees, attorneys and
legal representatives, or the heirs, administrators, successors or assigns of
any of them (collectively, "Lender Parties") to the extent that any such Claim
directly or indirectly arises out of, is based upon or is in any manner
connected with, any Prior Related Event. The Borrower, on its behalf and, as
applicable, on behalf of the other Releasing Parties, voluntarily releases and
forever discharges all Lender Parties from any and all Claims, whether known or
unknown, to the extent that any such Claim directly or indirectly arises out of,
is based upon or is in any manner connected with any Prior Related Event. "Prior
Related Event" means any transaction, event, circumstance, action, failure to
act, occurrence of any type or sort, whether known or unknown, which occurred,
existed, was taken, was permitted or begun in accordance with, pursuant to or by
virtue of: (a) any of the terms of any Loan Document or this Amendment, (b) any
actions, transactions, matters or circumstances related hereto or to any Loan
Document, (c) the conduct of the relationship between any Lender Party and the
Borrower and its Subsidiaries, or (d) any other actions or inactions by any
Lender Party, in each case on or prior to the Effective Date.
12. Continuing Effect of Credit Agreement; Reaffirmation of Loan
Documents. The provisions of the Credit Agreement (as amended by this Amendment)
shall remain in full force and effect in accordance with its terms following the
effectiveness of this Amendment. Except as expressly amended hereby, all of the
provisions of the Credit Agreement are ratified and confirmed. The existing Loan
Documents, except as amended by this Amendment, shall remain in full force and
effect, and each of them is hereby ratified and confirmed by the Borrower,
Lenders and the Administrative Agent.
13. One Agreement; References; Fax Signature. The Credit Agreement, as
amended by this Amendment, will be construed as one agreement. Each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein", or
words of like import shall mean and be a reference to the Credit Agreement as
amended hereby, and each reference to the Credit Agreement in any Loan Document
or any other document, instrument or agreement executed and/or delivered in
connection with the Credit Agreement shall mean and be a reference to the Credit
Agreement as amended hereby. This Amendment may be signed by facsimile
signatures or other electronic delivery of an image file reflecting the
execution hereof, and if so signed, (a) may be relied on by each party as if the
document were a manually signed original and (b) will be binding on each party
for all purposes.
11
14. No Implied Consent or Waiver. This Amendment shall not be construed as
consent to the departure from, or a waiver of the terms and conditions of, the
Credit Agreement except as expressly set forth herein.
15. Captions. The headings to the Sections of this Amendment have been
inserted for convenience of reference only and shall in no way modify or
restrict any provisions hereof or be used to construe any such provisions.
16. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be an original but all of which together shall constitute
one and the same instrument.
17. Entire Agreement. This Amendment sets forth the entire agreement of
the parties with respect to the subject matter of this Amendment and supersedes
all previous understandings, written or oral, in respect of this Amendment. At
no time shall the prior or subsequent course of conduct by the Borrower, Lenders
or the Administrative Agent directly or indirectly limit, impair or otherwise
adversely affect any of the parties' rights or remedies in connection with this
Amendment or any of the documents, instruments and agreements executed in
connection herewith, as Lenders, the Administrative Agent and the Borrower agree
that this Amendment shall only be amended by written instruments executed by
Lenders, the Administrative Agent and the Borrower. Except to the extent that
the Loan Documents are expressly amended by this Amendment, if there is any
conflict, ambiguity, or inconsistency, in the Administrative Agent's judgment,
between the terms of this Amendment and any of the other Loan Documents, then
the applicable terms and provisions, in the Administrative Agent's judgment,
providing Lenders and the Administrative Agent with greater rights, remedies,
powers, privileges, or benefits will control.
18. Governing Law; Severability. This Amendment shall be governed by and
construed in accordance with the internal laws of the State of Colorado (without
regard to its conflicts of law principles). If any term of this Amendment is
found invalid under Colorado law or laws of mandatory application by a court of
competent jurisdiction, the invalid term will be considered excluded from this
Amendment and will not invalidate the remaining terms of this Amendment.
19. WAIVER OF JURY TRIAL. THE BORROWER, LENDERS AND THE ADMINISTRATIVE
AGENT EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AMENDMENT, ANY OF THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY.
[signature page follows]
12
The parties have caused this Amendment to be duly executed and delivered
as of the day and year first above written.
THE BORROWER: SYNERGY RESOURCES CORPORATION
By:
------------------------------
Name: Frank L. Jennings
Title: Chief Financial Officer
ADMINISTRATIVE AGENT: COMMUNITY BANKS OF COLORADO,
as Administrative Agent
By:
-----------------------------
Name: Sarah Burchett
Title: Vice President
LENDERS: COMMUNITY BANKS OF COLORADO,
as a Lender
By:
------------------------------
Name: Sarah Burchett
Title: Vice President
COBIZ BANK, A COLORADO CORPORATION,
DBA COLORADO BUSINESS BANK,
as a Lender
By:
------------------------------
Name: Douglas K. Derks
Title: Senior Vice President
13
AMEGY BANK NATIONAL ASSOCIATION,
as a Lender
By:
------------------------------
Name: Kevin Donaldson
Title: Senior Vice President
TEXAS CAPITAL BANK, N.A.,
as a Lender
By:
------------------------------
Name:
Title:
SUNTRUST BANK,
as a Lender
By:
------------------------------
Name: Scott Mackey
Title: Director
KEYBANK NATIONAL ASSOCIATION,
as a Lender
By:
------------------------------
Name: Paul J. Pace
Title: Senior Vice President
14
ANNEX I
LIST OF MAXIMUM CREDIT AMOUNTS
Aggregate Maximum Credit Amounts
Name of Lender Applicable Maximum Credit Amount of
Percentage Amount Commitment on the
Effective Date
-------------------------------------------------------------------------------------
Community Banks of Colorado 27.7777777778% $ 83,333,333.33 $ 25,000,000.00
Amegy Bank National Association 25.5555555556% $ 76,666,666.67 $ 23,000,000.00
Texas Capital Bank, N.A. 18.8888888889% $ 56,666,666.67 $ 17,000,000.00
CoBiz Bank, a Colorado 11.1111111111% $ 33,333,333.33 $ 10,000,000.00
corporation, dba Colorado
Business Bank
SunTrust Bank, Inc. 8.3333333334% $ 25,000,000.00 $ 7,500,000.00
Key Bank National Association 8.3333333334% $ 25,000,000.00 $ 7,500,000.00
TOTAL 100.0000000000% $ 300,000,000.00 $ 90,000,000.00
15
EXHIBIT A
[see attached]
16
RECORDING REQUESTED BY AND )
)
WHEN RECORDED RETURN TO: )
)
)
)
Charles Bybee )
)
Faegre Baker Daniels LLP )
)
3200 Wells Fargo Center )
)
1700 Lincoln Street )
)
Denver, Colorado, 80203 )
)
______________________________________________________________________________
SECOND AMENDED AND RESTATED DEED OF TRUST, MORTGAGE, FIXTURE FILING,
ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT AND
FINANCING STATEMENT
FROM
SYNERGY RESOURCES CORPORATION,
AS BORROWER,
TO
COMMUNITY BANKS OF COLORADO,
AS SECURED PARTY
______________________________________________________________________________
A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES FUTURE
ADVANCES AND OBLIGATIONS ARISING FROM A REVOLVING CREDIT ARRANGEMENT (UP TO A
MAXIMUM PRINCIPAL AMOUNT OF $325,000,000), AND COVERS PROCEEDS OF COLLATERAL.
THIS INSTRUMENT COVERS OIL AND GAS, AS-EXTRACTED COLLATERAL, AND THE ACCOUNTS
RELATED THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS OF THE WELL OR WELLS
LOCATED ON THE PROPERTIES DESCRIBED AS THE MORTGAGED PROPERTY HEREIN. THIS
INSTRUMENT COVERS GOODS WHICH ARE OR ARE TO BECOME FIXTURES ON THE
REAL/IMMOVABLE PROPERTY DESCRIBED HEREIN, AND IT IS TO BE FILED FOR RECORD AS A
FIXTURE FILING, AMONG OTHER PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF
THE RECORDERS OF THE COUNTIES LISTED ON EXHIBIT A HERETO.
BORROWER HAS AN INTEREST OF RECORD IN THE REAL ESTATE AND IMMOVABLE PROPERTY
CONCERNED, WHICH INTEREST IS DESCRIBED IN SECTION 1.01 OF THIS INSTRUMENT.
TABLE OF CONTENTS
Page
ARTICLE I Grant of Lien and Obligations Secured..............................3
Section 1.01 Grant of Liens..............................................3
Section 1.02 Grant of Security Interest..................................6
Section 1.03 Real Property in Weld County Colorado.......................7
Section 1.04 Real Property in Boulder County Colorado....................7
Section 1.05 Obligations Secured.........................................7
Section 1.06 Fixture Filing, As-extracted Collateral, Etc................9
Section 1.07 Pro Rata Benefit............................................9
Section 1.08 Defined Terms...............................................9
Section 1.09 Certain Definitions........................................10
ARTICLE II Assignment of As-Extracted Collateral............................10
Section 2.01 Assignment.................................................10
Section 2.02 No Modification of Payment Obligations.....................11
Section 2.03 Rights of Producers........................................11
ARTICLE III Representations, Warranties and Covenants.......................12
Section 3.01 Title......................................................12
Section 3.02 Perfected Liens; Defend Title; Further Assurances..........12
Section 3.03 Further Assurances.........................................13
Section 3.04 Not a Foreign Person.......................................14
Section 3.05 Power to Create Lien and Security..........................14
Section 3.06 Revenue and Cost Bearing Interest..........................14
Section 3.07 Rentals Paid; Leases in Effect.............................14
Section 3.08 Operation of Mortgaged Property, Etc.......................14
Section 3.09 Operation By Third Parties.................................15
Section 3.10 Abandon, Sales.............................................15
Section 3.11 Instruments and Chattel Paper..............................15
Section 3.12 Limitations on Modifications, Waivers, Extensions of
Agreements Giving Rise to Accounts.........................16
Section 3.13 Insurance..................................................16
Section 3.14 Further Identification of Collateral.......................16
Section 3.15 Failure to Perform.........................................16
ARTICLE IV Rights and Remedies..............................................17
Section 4.01 Event of Default...........................................17
Section 4.02 Foreclosure by Advertisement and Sale......................17
Section 4.03 Collections on Accounts, Etc...............................20
Section 4.04 Proceeds...................................................21
i
Section 4.05 Agents.....................................................21
Section 4.06 Judicial Foreclosure; Receivership.........................21
Section 4.07 Foreclosure for Installments...............................22
Section 4.08 Separate Sales.............................................22
Section 4.09 Possession of Mortgaged Property and Collateral............22
Section 4.10 Remedies Cumulative, Concurrent and Nonexclusive...........23
Section 4.11 No Release of Obligations..................................23
Section 4.12 No Impairment of Security..................................23
Section 4.13 Release of and Resort to Collateral........................24
Section 4.14 Waiver of Redemption, Notice and Marshalling of Assets,
Etc........................................................24
Section 4.15 Discontinuance of Proceedings..............................24
Section 4.16 Application of Proceeds....................................25
Section 4.17 Resignation of Operator....................................25
Section 4.18 Indemnity..................................................25
Section 4.19 Secured Party Not "Secured Party-In-Possession"............26
ARTICLE V Attorney-in-Fact..................................................26
Section 5.01 Secured Party Attorney-In-Fact.............................26
ARTICLE VI Miscellaneous....................................................27
Section 6.01 Instrument Construed as Mortgage, Etc; Perpetuities........27
Section 6.02 Release of Mortgage........................................27
Section 6.03 Severability...............................................27
Section 6.04 Partial Releases...........................................27
Section 6.05 Successors and Assigns of Parties..........................27
Section 6.06 Satisfaction of Prior Encumbrance..........................27
Section 6.07 Subrogation of Secured Party...............................28
Section 6.08 Nature of Covenants........................................28
Section 6.09 Notices....................................................28
Section 6.10 Counterparts...............................................28
Section 6.11 Governing Law..............................................28
Section 6.12 Exculpation Provisions.....................................29
Section 6.13 Terms Generally; Rules of Construction.....................29
Section 6.14 Recording..................................................30
Section 6.15 Application of Payments to Certain Obligations.............30
Section 6.16 Financing Statement; Fixture Filing........................30
Exhibit A. Hydrocarbon Property
ii
SECOND AMENDED AND RESTATED DEED OF TRUST, MORTGAGE,
FIXTURE FILING, ASSIGNMENT OF AS-EXTRACTED COLLATERAL,
SECURITY AGREEMENT AND FINANCING STATEMENT
This SECOND AMENDED AND RESTATED DEED OF TRUST, MORTGAGE, FIXTURE FILING,
ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT AND FINANCING
STATEMENT (this "Agreement") dated as of December 20, 2013 (the "Effective
Date") is from SYNERGY RESOURCES CORPORATION, a Colorado corporation
("Borrower"), and to the Public Trustee of Weld County, Colorado (the "Weld
Trustee") and to the Public Trustee of Boulder County, Colorado (the "Boulder
Trustee" and together with the Weld Trustee, the "Trustees" and each "Trustee")
and to and for the benefit of COMMUNITY BANKS OF COLORADO, a division of NBH
Bank, N.A., as Collateral Agent ("Secured Party"), for the benefit of itself and
the Secured Creditors (as defined below).
R E C I T A L S:
---------------
A.....Borrower and Community Banks of Colorado formerly known as Bank of
Choice, a division of Bank Midwest, N.A. (in its capacity as lender under the
Existing Credit Agreement, the "Predecessor Lender"), previously entered into
that certain Loan Agreement effective November 30, 2011, as amended by that
Amendment #1 to Loan Agreement, dated as of April 23, 2012 and by that Amendment
#2 to Loan Agreement, dated as of October 18, 2012 (as amended, supplemented and
modified prior to the date of this Agreement, the "Predecessor Credit
Agreement"), pursuant to which the Predecessor Lender made loans and other
extensions of credit to Borrower.
B.....The indebtedness, obligations and liabilities of Borrower arising
under the Predecessor Credit Agreement and the other Loan Documents (solely in
this instance, as defined in the Predecessor Credit Agreement) (the "Predecessor
Obligations"), were secured by, among other things, that certain Deed of Trust,
Mortgage, Security Agreement, Financing Statement and Fixture Filing, dated as
of November 30, 2011, as amended by that Amendment of Deed of Trust, Assignment
of Rents, Security Agreement and Fixture Filing, dated as of April 23, 2012 and
by that Amendment of Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing, dated as of October 18, 2012 (as amended before the date of this
Agreement, the "Predecessor Mortgage"), by which Borrower granted liens on and
security interests in certain properties to the Predecessor Lender, including
the Collateral (defined below).
C.....Borrower, the Lenders (as defined in the Credit Agreement), and
Community Banks of Colorado, in its capacity as administrative agent (the
"Administrative Agent"), amended and restated the Predecessor Credit Agreement
as of November 28, 2012 (such agreement, the "Existing Credit Agreement") which
amended and restated in its entirety the Predecessor Credit Agreement to
provide, among other things: the appointment of Administrative Agent as
administrative agent, the refinancing of the Predecessor Credit Agreement, and
for the extension of credit for general corporate purposes of Borrower,
including, without limitation, working capital and capital expenditures related
to the acquisition, development and production of oil and gas properties.
1
D.....The Existing Credit Agreement has been amended by that First
Amendment, dated as of February 12, 2012, that Second Amendment, dated as of
June 28, 2013 and that Third Amendment dated as of December 20, 2013 (the "Third
Amendment"; and the Existing Credit Agreement, as modified, amended,
supplemented or restated from time to time, the "Credit Agreement"). The
indebtedness, obligations and liabilities of Borrower arising under the Credit
Agreement and the other Loan Documents (as defined in the Credit Agreement)
shall be referred to as the "Existing Obligations".
E.....Effective as of November 28, 2012, the parties hereto acknowledge
and agree that (a) the Predecessor Mortgage was amended and restated as set
forth in that Amended and Restated Deed of Trust, Mortgage, Fixture Filing,
Assignment of As-Extracted Collateral, Security Agreement and Financing
Statement dated as of November 28, 2012, and recorded in the office of the clerk
and recorder for (i) Weld County, Colorado, on December 3, 2012, at Reception
Number 3892604, and (ii) Boulder County, Colorado, on December 3, 2012, at
Reception Number 03271548 (as amended, supplemented, restated or otherwise
modified from time to time, the "Existing Mortgage"). The Existing Mortgage was
amended by that First Amendment of Amended and Restated Deed of Trust, Mortgage,
Fixture Filing, Assignment of As-Extracted Collateral, Security Agreement and
Financing Statement dated June 28, 2013, and recorded in the office of the clerk
and recorder for Weld County, Colorado, on July 3, 2013, at Reception Number
3945393. In connection with the Existing Mortgage, (i) the Predecessor
Obligations were not satisfied or extinguished but rather were carried forward
as set forth in the Credit Agreement and Notes executed pursuant thereto, (ii)
the liens created and evidenced by the Predecessor Mortgage were not released,
extinguished or otherwise impaired, but continued to secure the Existing
Obligations with the same priority of lien and (iii) Borrower granted liens on
and security interests in certain properties to the Administrative Agent,
including the Collateral.
F.....Borrower, the Lenders BP Energy Company, the Administrative Agent,
and Community Banks of Colorado in its capacity as collateral agent (the
"Collateral Agent") for the benefit and on behalf of the Secured Parties (as
defined therein) have entered into that Collateral Agency and Intercreditor
Agreement, dated as of December 20, 2013 (the "Intercreditor Agreement").
G.....Borrower and certain Secured Hedging Counterparties have or may
enter into certain Secured Hedging Agreements (collectively, the "Secured
Hedging Agreements"). The Credit Agreement, the Secured Hedging Agreements and
the other Loan Documents are collectively referred to herein as the "Secured
Transaction Documents").
H.....Secured Party and the other Secured Creditors have conditioned their
obligations under the Secured Transaction Documents upon the execution and
delivery by Borrower of this Agreement, and Borrower has agreed to enter into
this Agreement to secure the Obligations as defined herein.
I.....Effective as of the date hereof, the parties hereto acknowledge and
agree that (a) the Existing Mortgage is being amended and restated as set forth
in this Agreement, (b) the Existing Obligations are not being satisfied or
extinguished but rather are being carried forward as set forth in the Credit
Agreement and Notes executed thereto, and (c) the liens created and evidenced by
2
the Existing Mortgage shall not be released, extinguished or otherwise impaired,
but shall continue to secure such carried forward indebtedness and obligations
with the same priority of lien.
J.....In connection with Secured Party's appointment as collateral agent
hereunder and under the Intercreditor Agreement, the Administrative Agent has
agreed to assign all liens and security interests securing the payment of the
Existing Obligations, including, without limitation, the Existing Mortgage, to
Secured Party in its capacity as Collateral Agent for the ratable benefit of
each Lender (as provided in the Credit Agreement) and the other Secured
Creditors.
K.....In furtherance of the foregoing, (a) the Lenders, the Administrative
Agent Secured Party and Borrower desire to provide for the assignment of record
of all right, title and interest of the Administrative Agent in, to and under
the Existing Mortgage, to Secured Party in its capacity as Collateral Agent for
the ratable benefit of each Lender (as provided in the Credit Agreement) and the
other Secured Creditors, and (b) Secured Party and Borrower desire to amend and
restate the Existing Mortgage to evidence and reflect the assignment of certain
of the rights and obligations of the Administrative Agent under the Existing
Mortgage to Secured Party in its capacity as Collateral Agent for the ratable
benefit of each Lender (as provided in the Credit Agreement) and the other
Secured Creditors and the inclusion of certain properties as additional
Mortgaged Property to secure the payment and performance of the Obligations (as
defined below), including, without limitation, the obligations and indebtedness
otherwise described in the Existing Mortgage and the Credit Agreement.
L.....Now, therefore, in order to comply with the terms and conditions of
the Credit Agreement and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower hereby agrees with
Secured Party as follows:
ARTICLE I
Grant of Lien and Obligations Secured
Grant of Liens. To secure the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations (as defined herein) and the performance of the
covenants and obligations herein contained, Borrower does by these presents
hereby GRANT, BARGAIN, SELL, ASSIGN, MORTGAGE, TRANSFER and CONVEY unto Secured
Party, WITH POWER OF SALE and right of entry and possession for the use and
benefit of Secured Party and the Secured Creditors, the real and personal
property, rights, titles, interests and estates described in Section 1.01(a)
through (h) (collectively called the "Mortgaged Property"):
(a) All rights, titles, interests and estates now owned or hereafter
acquired by Borrower (including all royalty, net revenue and working
interests) in and to (1) the oil and gas leases and/or oil, gas, other
liquid or gaseous hydrocarbon leases, and other mineral leases and other
interests and estates and lands and premises covered or affected thereby
which are described on Exhibit A hereto (the "Subject Leases"), and (2)
3
the wells (whether oil, gas or otherwise) identified on Exhibit A (the
"Subject Wells") together with all lands that are located within the
Spacing Unit (as defined below) for each Subject Well (all such rights,
titles and estates described in this clause (a) being collectively
referred to as the "Hydrocarbon Property").
(b) All rights, titles, interests and estates now owned or hereafter
acquired by Borrower in and to (1) the properties now or hereafter pooled
or unitized with the Hydrocarbon Property; (2) all presently existing or
future unitization, communitization, spacing, pooling agreements and
declarations of pooled units and the units created thereby (including,
without limitation, all units created under orders, regulations, rules or
other official acts of any federal, state or other governmental body or
agency having jurisdiction and any units created solely among working
interest owners pursuant to operating agreements or otherwise) which
pertain to all or any portion of the Hydrocarbon Property; (3) all
operating agreements, production sales or other contracts, farmout
agreements, farm-in agreements, area of mutual interest agreements, water
use agreements, CO2 purchase agreements, transportation agreements,
equipment leases and other agreements but only to the extent they
specifically relate to any of the Hydrocarbon Property or interests in the
Hydrocarbon Property or to the production, sale, purchase, exchange,
processing, injection, extraction, handling, storage, transporting or
marketing of the Hydrocarbons (as hereinafter defined) from or
attributable to such Hydrocarbon Property or interests; (4) all
geological, geophysical, engineering, accounting, title, legal and other
technical or business data concerning the Hydrocarbon Property, which are
in the possession of Borrower or in which Borrower can grant a security
interest, and all books, files, records, magnetic media, computer records
and other forms of recording or obtaining access to such data; and (5) the
Hydrocarbon Property even though Borrower's interests therein be
incorrectly described or a description of a part or all of such
Hydrocarbon Property or Borrower's interests therein be omitted; it being
intended by Borrower and Secured Party herein to cover and affect hereby
all interests which Borrower may now own or may hereafter acquire in and
to the Hydrocarbon Property.
(c) All of Borrower's rights, titles and interests in and to all
easements, rights-of-way, or similar property interests or surface rights
related to the Subject Leases or the Spacing Units associated with the
Subject Wells, and all related licenses and permits, together with all
present and future rights, titles, easements and estates now owned or
hereafter acquired by Borrower under or in connection with such interests
(all of which properties described in this Section 1.01(c) are referred to
collectively as the "Surface Rights").
(d) All rights, titles, interests and estates now owned or hereafter
acquired by Borrower in and to all oil, gas, casinghead gas, drip gas,
natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom (collectively
called the "Hydrocarbons"), in and under and which may be produced and
saved from or attributable to the Hydrocarbon Property, the lands spaced,
pooled or unitized therewith and Borrower's interests therein, including
Borrower's interests in all oil in tanks and all rents, issues, profits,
proceeds, products, revenues and other income from or attributable to the
Hydrocarbon Property, the lands spaced, pooled or unitized therewith and
Borrower's interests therein which are subjected to the Liens and security
4
interests of this Agreement and including specifically all Liens and
security interests in such Hydrocarbons securing payment of proceeds
resulting from the sale of Hydrocarbons.
(e) All tenements, hereditaments, appurtenances and properties in
any way appertaining, belonging, affixed or incidental to the Hydrocarbon
Property and the Surface Rights, rights, titles, interests and estates
described or referred to in Section 1.01(a) through (c), which are now
owned or which may hereafter be acquired by Borrower, including any and
all property, real or personal, immovable or movable, now owned or
hereafter acquired and situated upon, used, held for use, or useful in
connection with the operating, working or development of any of such
Hydrocarbon Property or the lands pooled or unitized therewith and the
Surface Rights (excluding drilling rigs, trucks, automotive equipment or
other personal property which may be taken to the premises for the purpose
of drilling a well or for other similar temporary uses) and including
Borrower's interest (if any) in any and all oil wells, gas wells,
injection wells or other wells, buildings, structures, field separators,
liquid extraction plants, plant compressors, pumps, pumping units,
pipelines, sales and flow lines, gathering systems, field gathering
systems, salt water disposal facilities, tanks and tank batteries,
fixtures, valves, fittings, machinery and parts, engines, boilers, steam
generation facilities, meters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, casing, tubing and rods, surface
leases, rights-of-way, easements, servitudes, licenses and other surface
and subsurface rights together with all additions, substitutions,
replacements, accessions and attachments to any and all of the foregoing
properties.
(f) Any property that may from time to time hereafter, by delivery
or by writing of any kind, be subjected to the Lien and security interest
hereof by Borrower or by anyone on Borrower's behalf; and Secured Party is
hereby authorized to receive the same at any time as additional security
hereunder.
(g) All of the rights, titles and interests of every nature
whatsoever now owned or hereafter acquired by Borrower in and to the
Hydrocarbon Property rights, titles, interests and estates and every part
and parcel thereof, including the Hydrocarbon Property rights, titles,
interests and estates as the same may be enlarged by the discharge of any
payments out of production or by the removal of any charges or Liens to
which any of the Hydrocarbon Property rights, titles, interests or estates
are subject; all rights of Borrower to Liens and security interests
securing payment of proceeds from the sale of production from the
Mortgaged Property; together with any and all renewals and extensions of
any of the Hydrocarbon Property rights, titles, interests or estates; all
contracts and agreements supplemental to or amendatory of or in
substitution for the contracts and agreements described or mentioned
above; and any and all additional interests of any kind hereafter acquired
by Borrower in and to the Hydrocarbon Property rights, titles, interests
or estates.
(h) All property of every kind and character which Borrower has or at
any time hereafter acquires, whether real or personal property, tangible or
intangible, or mixed, all other interests of every kind and character in
and to the types and items of property and interests described in Section
1.01(a) through (g) preceding to the extent such properties are used or
5
useful in connection with the Hydrocarbon Properties, and the proceeds and
products of all of the foregoing, whether now owned or hereafter acquired,
including, without limitation:
(i) All present and future personal property which is used or
useful in connection with the Hydrocarbon Property;
(ii) 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 and interests described above;
(iii) All present and future As-extracted collateral,
Accounts, Goods, Equipment, Inventory, contract rights, General
Intangibles (including, without limitation, rights in and under any
hedging agreements), Chattel Paper, Documents, Instruments,
Fixtures, Letter-of-Credit Rights (whether or not the letter of
credit is evidenced by a writing), all books and records pertaining
to the Hydrocarbon Property, Deposit Accounts (other than payroll,
withholding tax and other fiduciary Deposit Accounts), Commodity
Accounts, Hydrocarbons, cash and noncash Proceeds, and other rights
and other Supporting Obligations 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 or unearned
insurance premiums 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 Hydrocarbons or the Hydrocarbon Property;
TO HAVE AND TO HOLD the Mortgaged Property unto Secured Party and its
successors and assigns, for the use and benefit of the Secured Creditors, to
secure the payment of the Obligations and to secure the performance of the
covenants, agreements, and obligations of Borrower herein contained.
Notwithstanding any provision in this Deed of Trust to the contrary, in no
event is any Building (as defined in the applicable Flood Insurance Regulation)
or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance
Regulation) included in the definition of "Mortgaged Property" and no Building
or Manufactured (Mobile) Home is hereby encumbered by this Deed of Trust.
Any fractions or percentages specified on Exhibit A hereto in referring to
Borrower's interests are solely for purposes of the warranties made by Borrower
pursuant to ARTICLE III hereof and shall in no manner limit the quantum of
interest affected by this Section 1.01 with respect to any Hydrocarbon Property
or with respect to any unit or well identified on such Schedules.
Grant of Security Interest. Without limitation of the foregoing
grants, to secure the Obligations, Borrower hereby grants to Secured Party a
security interest in and to all of Borrower's right, title and interest in and
to that portion of the Mortgaged Property consisting of property for which a
security interest may be granted under Article 9 of the Uniform Commercial Code
(including, without limitation, personal property and fixtures), now owned or at
any time hereafter acquired by Borrower or in which Borrower now has or at any
6
time in the future may acquire any right, title or interest and whether now
existing or hereafter coming into existence (collectively, the "Collateral") as
collateral security for the prompt and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
Real Property in Weld County Colorado. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Borrower, and the matters hereinafter set forth, Borrower hereby irrevocably
grants bargains, sells assigns, transfers and conveys to the Weld Trustee, with
POWER OF SALE, for the benefit of Secured Party, and to Secured Party, with
POWER OF SALE, that part of the Mortgaged Property that is real property located
in Weld County, Colorado (including any fixtures that are real property under
applicable state law); TO HAVE AND TO HOLD all of the Mortgaged Property that is
real property located in Weld County, Colorado (including any fixtures that are
real property under applicable state law), together with all of the rights,
privileges, benefits, hereditaments and appurtenances in any way belonging,
incidental or pertaining thereto, to the Weld Trustee and its successors and
assigns, forever IN TRUST, NEVERTHELESS, for the security and benefit of Secured
Party and its successors and assigns and to Secured Party and its successors and
assigns, subject to the terms, conditions, covenants, agreements and trusts
herein set forth.
Real Property in Boulder County Colorado. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Borrower, and the matters hereinafter set forth, Borrower hereby irrevocably
grants bargains, sells assigns, transfers and conveys to the Boulder Trustee,
with POWER OF SALE, for the benefit of Secured Party, and to Secured Party, with
POWER OF SALE, that part of the Mortgaged Property that is real property located
in Boulder County, Colorado (including any fixtures that are real property under
applicable state law); TO HAVE AND TO HOLD all of the Mortgaged Property that is
real property located in Boulder County, Colorado (including any fixtures that
are real property under applicable state law), together with all of the rights,
privileges, benefits, hereditaments and appurtenances in any way belonging,
incidental or pertaining thereto, to the Boulder Trustee and its successors and
assigns, forever IN TRUST, NEVERTHELESS, for the security and benefit of Secured
Party and its successors and assigns and to Secured Party and its successors and
assigns, subject to the terms, conditions, covenants, agreements and trusts
herein set forth.
Obligations Secured. This Agreement is executed and delivered by
Borrower to secure and enforce the following (collectively, the "Obligations"):
(a) All Indebtedness, obligations and liabilities, whether now in
existence or hereafter arising, whether by acceleration or otherwise, of
Borrower, arising out of or under the Credit Agreement and each other Loan
Document to which Borrower is a party, including, without limitation all
Indebtedness evidenced by all promissory notes executed by Borrower
pursuant to the Credit Agreement and all notes given in substitution for
the foregoing promissory notes, or in modification, renewal or extension
thereof, in whole or in part (such promissory notes, as from time to time
supplemented, amended or modified and all other notes given in
substitution therefor or in modification, renewal, rearrangement or
extension thereof, in whole or in part, being hereafter collectively
called the "Notes"), together with interest, collection fees and
attorneys' fees, all as provided in the Credit Agreement and the Loan
7
Documents, whether such Notes are held by the original payees thereunder
or by any assignee or successor of any of said initial payees.
(b) All Indebtedness, obligations and liabilities, whether now in
existence or hereafter arising, whether by acceleration or otherwise, in
respect of all Letters of Credit issued pursuant to the Credit Agreement
and all reimbursement obligations in respect thereof;
(c) All additional loans or advances made by the Lenders to or for
the benefit of Borrower pursuant to the Credit Agreement or any other Loan
Document (it being contemplated that the Lenders may lend additional sums
to Borrower pursuant to the Credit Agreement from time to time, and
Borrower agrees that any such additional loans shall be secured by this
Agreement).
(d) All Indebtedness, obligations and liabilities of Borrower under
any Secured Hedging Agreement (including, without limitation, any amounts
payable in respect of a liquidation of, an acceleration of obligations
under, or an early termination of, such Secured Hedging Agreement, and any
unpaid amounts owing in respect thereof), but excluding any additional
transactions or confirmations entered into after any Secured Hedging
Counterparty to whom such obligations are owed ceases to be a Secured
Hedging Counterparty.
(e) Any sums which may be advanced or paid by Secured Party or the
Lenders under the terms hereof or of the Credit Agreement or other Loan
Documents on account of the failure of Borrower to comply with the
covenants of Borrower contained herein, or the failure of Borrower to
comply with the covenants of Borrower contained in the Credit Agreement or
any other Loan Documents; and all other indebtedness of Borrower to the
Secured Creditors arising pursuant to the provisions of this Agreement,
including penalties, indemnities, reasonable legal and other fees, charges
and expenses, and amounts advanced and expenses incurred in order to
preserve any collateral or security interest, whether due after
acceleration or otherwise.
(f) All interest (including, without limitation, interest accruing
at any post-default rate and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding) in respect of all
of the Obligations described in this Section 1.05 and all costs of
collection and reasonable attorneys' fees, all as provided herein and in
the other Loan Documents.
(g) Punctual performance when due of all present and future
obligations, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired, of Borrower under any Security
Instruments or this Agreement to Secured Party or any other Secured
Creditor.
(h) To the extent not otherwise included, payment and performance of
all Indebtedness.
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(i) All renewals, extensions, amendments and changes of, or
substitutions or replacements for, all or any part of the Obligations
described under paragraphs (a) through (h) in this Section 1.05.
Fixture Filing, As-extracted Collateral, Etc. Without in any manner
limiting the generality of any of the other provisions of this Agreement: (i)
some portions of the goods described or to which reference is made herein are or
are to become fixtures on the land described or to which reference is made
herein or on any Exhibit attached hereto; (ii) the security interests created
hereby under applicable provisions of the Uniform Commercial Code will attach to
the Hydrocarbons as and when they constitute As-extracted collateral, or the
Accounts resulting from the sale thereof at the wellhead or minehead located on
the land described or to which reference is made herein; (iii) this Agreement is
to be filed of record in the real estate records of the County in which the
Mortgaged Property is located as a financing statement and a fixture filing; and
(iv) Borrower is the record owner of the real estate or interests in the real
estate comprising the Mortgaged Property. A carbon, photographic, facsimile or
other reproduction of this Agreement or of any financing statement relating to
this Agreement shall be sufficient as a financing statement for any of the
purposes referred to in this Section 1.06.
Pro Rata Benefit. This Agreement is executed and granted for the pro
rata benefit and security of the Secured Party, the other Secured Creditors, and
any and all future holders of an interest in the Obligations and the interest
thereon for so long as same remain unpaid and thereafter for so long as any
Secured Creditor (or any Affiliate) has any obligations under the Credit
Agreement or any other Loan Documents to lend money or issue Letters of Credit
in favor of Borrower or has any obligations under any Secured Hedging Agreements
(including those described in Section 1.05) or until the Liens hereby created
are released by Secured Party or such other Secured Creditor; it being
understood and agreed that possession of any Notes at any time by Borrower shall
not by itself extinguish the Obligations, such Notes or this Agreement securing
payment thereof, and Borrower shall have the right to issue and reissue any of
the Notes from time to time as convenience may require, without in any manner
extinguishing or affecting the Obligations, the obligations under any of the
Notes, or the security of this Agreement.
Defined Terms. Each capitalized term used in this Agreement and not
defined in this Agreement shall have the meaning assigned such term in the
Credit Agreement, and if not therein defined, such capitalized term shall have
the meaning assigned such term in the Uniform Commercial Code. Terms used herein
that are defined in the Uniform Commercial Code shall have the same meaning in
this Agreement. As used herein, "Uniform Commercial Code" means the Uniform
Commercial Code presently in effect in the State of Colorado, as the same may be
amended from time to time, and any successor statute thereto, except to the
extent that the Uniform Commercial Code of some other jurisdiction applies
mandatorily.
Certain Definitions. For all purposes of this Agreement, the
following term shall have the meaning set forth below:
"Flood Insurance Regulations" means (a) the National Flood Insurance
Act of 1968 as now or hereafter in effect or any successor statute thereto, (b)
the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any
successor statute thereto, (c) the National Flood Insurance Reform Act of 1994
9
(amending 42 USC ss. 4001, et seq.), as the same may be amended or recodified
from time to time, and (d) the Flood Insurance Reform Act of 2004 and any
regulations promulgated thereunder.
"Secured Creditors" means the Administrative Agent, the Collateral
Agent, the Lenders and any Secured Hedging Counterparty.
"Spacing Unit" means the drilling unit established for each Subject
Well prior to the commencement of drilling operations, which drilling unit shall
comply with any applicable rules and regulations of the Colorado Oil and Gas
Conservation Commission and the relevant operating agreement.
ARTICLE II
Assignment of As-Extracted Collateral
Section 2.01 Assignment.
(a) As security for payment and performance of the Obligations,
Borrower does hereby absolutely and unconditionally assign, transfer,
convey and grant a security interest unto Secured Party, its successors
and assigns (for the benefit of Secured Party and the other Secured
Creditors), in and to:
(i) all of its As-extracted collateral located in or relating
to any Hydrocarbon Property located in any county where this
Agreement is filed, including all As-extracted collateral relating
to the Hydrocarbon Property, the Hydrocarbons and all products
obtained or processed therefrom;
(ii) the revenues and proceeds now and hereafter attributable
to such Hydrocarbon Property, including the Hydrocarbons, and said
products and all payments in lieu, such as "take or pay" payments or
settlements; and
(iii) all amounts and proceeds hereafter payable to or to
become payable to Borrower or now or hereafter relating to any part
of the subject interests described in (i) and (ii) above, and all
amounts, sums, monies, revenues and income which become payable to
Borrower from, or with respect to, any of the Mortgaged Property,
present or future, now or hereafter constituting a part of the
Mortgaged Property.
(b) Following the occurrence and during the continuation of an Event
of Default, Borrower agrees to perform all such acts, and to execute all
such further assignments, transfers and division orders, and other
instruments as may be required or desired by Secured Party in order to
have said proceeds and revenues so paid to Secured Party. In addition to
any and all rights of a secured party under Sections 9-607 and 9-609 of
the Uniform Commercial Code, following the occurrence and during the
continuation of an Event of Default, Secured Party is fully authorized to
receive said revenues and proceeds; to endorse and cash any and all checks
10
and drafts payable to the order of Borrower or Secured Party for the
account of Borrower received from or in connection with said revenues or
proceeds and to hold the proceeds thereof in a bank account as additional
collateral securing the Obligations; and to execute transfer and division
orders in the name of Borrower, or otherwise, with warranties binding
Borrower. During the continuation of an Event of Default, all proceeds
received by Secured Party pursuant to this grant and assignment shall be
at Secured Party's sole discretion either remitted to Borrower or applied
as provided in the Credit Agreement and the Intercreditor Agreement.
Secured Party shall not be liable for any delay, neglect, or failure to
effect collection of any proceeds or to take any other action in
connection therewith or hereunder; but, following the occurrence and
during the continuation of an Event of Default, Secured Party shall have
the right, at its election, in the name of Borrower or otherwise, to
prosecute and defend any and all actions or legal proceedings deemed
advisable by Secured Party in order to collect such funds and to protect
the interests of Secured Party, and/or Borrower, with all costs, expenses
and reasonable attorneys' fees incurred in connection therewith being paid
by Borrower. Borrower hereby appoints Secured Party as its
attorney-in-fact to pursue any and all rights of Borrower to Liens on and
security interests in the Hydrocarbons securing payment of proceeds of
runs attributable to the Hydrocarbons. In addition to the rights granted
to Secured Party in Section 1.01 of this Agreement, Borrower hereby
further transfers and assigns to Secured Party any and all such Liens,
security interests, financing statements or similar interests of Borrower
attributable to its interest in the Hydrocarbons and proceeds of runs
therefrom arising under or created by any statutory provision, judicial
decision or otherwise. The power of attorney granted to Secured Party in
this Section 2.01, being coupled with an interest, shall be irrevocable so
long as the Obligations or any part thereof remains unpaid. Until such
time as an Event of Default has occurred and is continuing, Secured Party
hereby grants to Borrower a license to sell such Hydrocarbons and receive
proceeds from the sale of Hydrocarbons, which license shall automatically
terminate upon such Event of Default and for so long as the same
continues.
No Modification of Payment Obligations. Nothing herein contained
shall modify or otherwise alter the obligation of Borrower to make prompt
payment of all principal and interest owing on the Obligations when and as the
same become due regardless of whether the proceeds of the Hydrocarbons are
sufficient to pay the same and the rights provided in accordance with the
foregoing assignment provision shall be cumulative of all other security of any
and every character now or hereafter existing to secure payment of the
Obligations. Nothing in this ARTICLE II is intended to be an acceptance of
collateral in satisfaction of the Obligations.
Rights of Producers. As security for payment and performance of the
Obligations, Borrower hereby grants, sells, assigns, sets over and mortgages
unto Secured Party during the term hereof, all of Borrower's rights and
interests (if any) pursuant to any provision of applicable law granting
producers of oil and gas a lien on the oil and gas produced by them and on the
resulting accounts receivable, hereby vesting in Secured Party all of Borrower's
rights as an interest owner to the continuing security interest in and lien upon
the Mortgaged Property.
11
ARTICLE III
Representations, Warranties and Covenants
Borrower hereby represents, warrants and covenants as follows:
Title. To the extent of the undivided interests specified on any
Exhibit attached hereto, Borrower has good and defensible title to, or a valid
and enforceable leasehold interest in, all the real property included in the
Mortgaged Property, and good title to, or a valid leasehold interest in, all
personal property included in the Mortgaged Property. The Mortgaged Property is
free of any and all Liens except Liens allowed by the Credit Agreement, if any.
Borrower is the legal and beneficial owner of the Collateral free and clear of
any and all Liens except Liens allowed in the Credit Agreement, if any. No
financing statement or other public notice with respect to all or any part of
the Collateral is on file or of record in any public office, except such as have
been filed in favor of Secured Party, for its benefit and the ratable benefit of
the Secured Creditors, pursuant to this Agreement, the Security Instruments or
as are filed to secure Liens permitted by the Credit Agreement.
Section 3.02 Perfected Liens; Defend Title; Further Assurances.
(a) This Agreement is, and during the term hereof will be kept, a
direct first priority Lien and security interest upon the real and
personal property presently constituting the Mortgaged Property. The
security interests granted in the Collateral pursuant to this Agreement
upon the filing of financing statements in the appropriate offices in the
appropriate jurisdictions (which filings have been delivered to Secured
Party in completed form) will constitute valid perfected security
interests in all of the Collateral in favor of Secured Party, for the
ratable benefit of the Secured Creditors, as collateral security for the
Obligations, enforceable in accordance with the terms hereof against all
creditors of Borrower and any Persons purporting to purchase any
Collateral from Borrower (to the extent provided in the Uniform Commercial
Code) and are prior to all other Liens on the Collateral in existence on
the date hereof except for Liens that have priority claim on the
Collateral by operation of law.
(b) Borrower will not create or suffer to be created or permit to
exist any Lien, security interest or charge prior to or on a parity with
the Lien and security interest of this Agreement upon the Mortgaged
Property or the Collateral or any part thereof or upon the rents, issues,
revenues, profits and other income therefrom other than as contemplated by
or permitted under the Credit Agreement to exist, to the extent
contemplated by the terms thereof. Borrower will not create or suffer to
be created or permit to exist any Lien, security interest or charge junior
to the Lien and security interest of this Agreement upon the Mortgaged
Property or the Collateral or any part thereof or upon the rents, issues,
revenues, profits and other income therefrom other than as contemplated by
the Credit Agreement.
(c) Borrower will warrant and defend the title to the Mortgaged
Property and the Collateral against the claims and demands of all other
Persons whomsoever and will maintain and preserve the Lien created hereby
12
so long as any of the Obligations secured hereby remains unpaid. Should an
adverse claim (other than as contemplated by this Section 3.02) be made
against or a cloud develop upon the title which materially affects part of
the Mortgaged Property or the Collateral, Borrower agrees it will
immediately defend against such adverse claim or take appropriate action
to remove such cloud at Borrower's cost and expense, and Borrower further
agrees that Secured Party may (following notice to Borrower and failure of
Borrower to cure (or diligently contest) such claim or cloud within thirty
(30) days of such notice, unless sooner action is required in order to
preserve the value of the collateral) take such other action as it deems
advisable to protect and preserve the interests of the Secured Creditors
in the Mortgaged Property and the Collateral, and in such event Borrower
will indemnify Secured Party against any and all costs, reasonable
attorney's fees and other expenses which Secured Party may incur in
defending against any such adverse claim or taking action to remove any
such cloud.
Section 3.03 Further Assurances.
(a) At any time and from time to time, upon the request of Secured
Party or any Secured Creditor, and at the sole expense of Borrower,
Borrower will promptly and duly give, execute, deliver, indorse, file or
record any and all financing statements, continuation statements,
amendments, notices (including, without limitation, notifications to
financial institutions and any other Person), contracts, agreements,
assignments, certificates, stock powers or other instruments, obtain any
and all governmental approvals and consents and take or cause to be taken
any and all steps or acts that may be necessary or as Secured Party or any
Secured Creditor may reasonably request to create, perfect, establish the
priority of, or to preserve the validity, perfection or priority of, the
Liens granted by this Agreement or to enable Secured Party or any other
Secured Creditor to enforce its rights, remedies, powers and privileges
under this Agreement and any other Loan Document with respect to such
Liens or to otherwise obtain or preserve the full benefits of this
Agreement and the rights, powers and privileges herein granted.
(b) Without limiting the obligations of Borrower under Section
3.03(a) or under any other provision of this Agreement, upon the request
of Secured Party, Borrower shall take or cause to be taken all actions
(other than any actions required to be taken by Secured Party) requested
by Secured Party to cause Secured Party to (i) have "control" (within the
meaning of Sections 9-104, 9-105, 9-106 and 9-107 of the Uniform
Commercial Code) over any Mortgaged Property or Collateral constituting
Deposit Accounts, Electronic Chattel Paper, Investment Property or
Letter-of-Credit Rights, including, without limitation, executing and
delivering any agreements, in form and substance satisfactory to Secured
Party, with securities intermediaries, issuers or other Persons in order
to establish "control", and Borrower shall promptly notify Secured Party
of Borrower's acquisition of any such Collateral, (ii) with respect to
Collateral other than Goods covered by a Document in the possession of a
Person other than Borrower or Secured Party, Borrower shall obtain written
acknowledgment that such Person holds possession subject to Secured
Party's rights under this Agreement; and (iii) with respect to any
Collateral constituting Goods that are in the possession of a bailee,
Borrower shall provide prompt notice to Secured Party of any such
Collateral then in the possession of such bailee, and Borrower shall take
13
or cause to be taken all actions (other than any actions required to be
taken by Secured Party) necessary or requested by Secured Party to cause
Secured Party to have a perfected security interest in such Mortgaged
Property or Collateral under applicable law.
(c) This Section 3.03 and the obligations imposed on Borrower by
this Section 3.03 shall be interpreted as broadly as possible in favor of
Secured Party and the Secured Creditors in order to effectuate the purpose
and intent of this Agreement.
Not a Foreign Person. Borrower is not a "foreign person" within the
meaning of the Internal Revenue Code of 1986, as amended (hereinafter called the
"Code"), Sections 1445 and 7701 (i.e., Borrower is not a non-resident alien,
foreign corporation, foreign partnership, foreign trust or foreign estate as
those terms are defined in the Code and any regulations promulgated thereunder).
Power to Create Lien and Security. Borrower has full power and
lawful authority to grant, bargain, sell, assign, transfer, mortgage, and convey
a security interest in all of the Mortgaged Property and the Collateral in the
manner and form herein provided and without obtaining the authorization,
approval, consent or waiver of any lessor, sublessor, Governmental Authority or
other party or parties whomsoever.
Revenue and Cost Bearing Interest. Borrower's ownership of the
Hydrocarbon Property and the undivided interests therein as specified on any
Exhibit attached hereto will, after giving full effect to all Liens allowed by
the Credit Agreement, if any, afford Borrower not less than those net interests
(expressed as a fraction, percentage or decimal) in the production from or which
is allocated to such Hydrocarbon Property specified as Net Revenue Interest on
any Exhibit attached hereto and will cause Borrower to bear not more than that
portion (expressed as a fraction, percentage or decimal), specified as Working
Interest on any Exhibit attached hereto, of the costs of drilling, developing
and operating the units identified on any Exhibit attached hereto, except to the
extent of any proportionate corresponding increase in the Net Revenue Interest.
Rentals Paid; Leases in Effect. All rentals and royalties due and
payable in accordance with the terms of any leases or subleases comprising a
part of the Hydrocarbon Property have been duly paid or provided for and, to
Borrower's knowledge, all leases or subleases comprising a part of the
Hydrocarbon Property are in full force and effect.
Operation of Mortgaged Property, Etc. Except with respect to those
which Borrower elects to allow to expire in the ordinary course of business,
Borrower will promptly pay and discharge all rentals, delay rentals, royalties
and indebtedness accruing under, and perform or cause to be performed each and
every act, matter or thing required by, each and all of the assignments, deeds,
leases, sub-leases, contracts and agreements described or referred to herein or
affecting Borrower's interests in the Mortgaged Property, and will do all other
things necessary to keep unimpaired Borrower's rights with respect thereto and
prevent any forfeiture thereof or default thereunder. To Borrower's knowledge,
the Mortgaged Property (and any properties unitized therewith) has been
maintained, operated and developed in a good and workmanlike manner and in
conformity with all applicable laws and all rules, regulations and orders of all
duly constituted authorities having jurisdiction and in conformity with the
provisions of all leases, subleases or other contracts comprising a part of the
14
Hydrocarbon Property and other contracts and agreements forming a part of the
Mortgaged Property, except where the failure to so maintain, operate or develop
would not have a Material Adverse Effect on Borrower. Borrower will operate the
Mortgaged Property in a careful and efficient manner in accordance with the
practices of the industry and in compliance with all applicable contracts and
agreements and in compliance with all applicable proration and conservation laws
of the jurisdiction in which such Mortgaged Property is situated, and all
applicable laws, rules and regulations of every other agency and authority from
time to time constituted to regulate the development and operation of such
Mortgaged Property and the production and sale of Hydrocarbons therefrom. In the
case of any Mortgaged Property for which Borrower is the operator, Borrower will
or will cause to be done such development work as may be reasonably necessary to
the prudent and economical operation of such Mortgaged Property in accordance
with the most approved practices of operators in the industry, including all to
be done that may be appropriate to protect from diminution the productive
capacity of such Mortgaged Property and each producing well thereon including,
without limitation, cleaning out and reconditioning each well from time to time,
plugging and completing at a different level each such well, drilling a
substitute well to conform to changed spacing regulations and to protect such
Mortgaged Property against drainage whenever and as often as is necessary.
Operation By Third Parties. All or portions of the Mortgaged
Property may be comprised of interests in the Hydrocarbon Property which may be
operated by a party or parties other than Borrower or its Affiliates, and with
respect to all or any such interests and properties which may be operated by
parties other than Borrower or its Affiliates, Borrower's covenants as expressed
in this ARTICLE III are modified as follows: to the extent Borrower has
Knowledge of noncompliance, Borrower shall use its commercially reasonable
efforts to obtain compliance with such covenants by the working interest owners
or the operator or operators of such leases or properties (to the extent
required by the operating or other agreements to which they are subject).
Abandon, Sales. Borrower will not sell, lease, assign, transfer or
otherwise dispose or abandon any of the Mortgaged Property or the Collateral
except as permitted by the Credit Agreement or this Agreement.
Instruments and Chattel Paper. Borrower shall notify Secured Party
promptly after the receipt of any Collateral constituting Instruments or Chattel
Paper in which the amount payable thereunder equals or exceeds $100,000. At the
request of Secured Party, Borrower shall deliver to Secured Party all Collateral
constituting Instruments and Tangible Chattel Paper, duly endorsed in a manner
satisfactory to Secured Party, to be held as collateral pursuant to this
Agreement. Borrower will undertake to assure that no Collateral constituting
Chattel Paper or Instruments contains, nor will it hereafter contain, any
statement therein to the effect that such Collateral has been assigned to an
identified party other than Secured Party, and the grant of a security interest
in such Collateral in favor of Secured Party hereunder does not violate the
rights of any other Person as a secured party.
Limitations on Modifications, Waivers, Extensions of Agreements
Giving Rise to Accounts. Except in the ordinary course of business, Borrower
will not (a) amend, modify, terminate or waive any provision of any Chattel
15
Paper, Instrument or any agreement giving rise to an Account or Payment
Intangible in any manner which could reasonably be expected to materially
adversely affect the value of such Chattel Paper, Instrument, Payment Intangible
or Account as Collateral, or (b) fail to exercise promptly and diligently each
and every material right which it may have under any Chattel Paper, Instrument
and each agreement giving rise to an Account or Payment Intangible (other than
any right of termination). Borrower shall deliver to Secured Party a copy of
each material demand, notice or document received by it relating in any way to
any Chattel Paper, Instrument or any agreement giving rise to an Account or
Payment Intangible.
Insurance. In the event of any loss to any Collateral under any
insurance policies required to be carried by Borrower pursuant to the Credit
Agreement, Secured Party shall have the right (but not the obligation) to make
proof of loss and collect the same, and all amounts so received shall be applied
toward costs, charges and expenses (including reasonable attorneys' fees), if
any, incurred in the collection thereof, then to the payment, in the order
determined by Secured Party, in its own discretion, of the Obligations, and any
balance remaining shall be subject to the order of Borrower. As and to the
extent any such insurance policies cover the Collateral, Secured Party is hereby
authorized but not obligated to enforce in its name or in the name of Borrower
payment of any or all of said policies or settle or compromise any claim in
respect thereof, and to collect and make receipts for the proceeds thereof, and
Secured Party is hereby appointed Borrower's agent and attorney-in-fact to
endorse any check or draft payable to Borrower in order to collect the proceeds
of such insurance. In the event of foreclosure of this Agreement, or other
transfer of title to the Mortgaged Property in extinguishment in whole or in
part of the Obligations, all right, title and interest of Borrower in and to
such policies then in force concerning the Mortgaged Property and all proceeds
payable thereunder with respect to the Mortgaged Property (to the extent
permitted by such policies) shall thereupon vest in the purchaser at such
foreclosure or Secured Party, as the case may be, or other transferee in the
event of such other transfer of title in connection with a foreclosure of the
Mortgage.
Further Identification of Collateral. Borrower will furnish to
Secured Party and the Secured Creditors from time to time, at Borrower's sole
cost and expense, statements and schedules further identifying and describing
the Mortgaged Property and the Collateral and such other reports in connection
with the Mortgaged Property and Collateral as Secured Party may reasonably
request, all in reasonable detail.
Failure to Perform. Borrower agrees that if Borrower fails to
perform any act or to take any action which Borrower is required to perform or
take hereunder or pay any money which Borrower is required to pay hereunder,
each of Secured Party and the Secured Creditors, in Borrower's name or its or
their own name may (upon prior written notice to Borrower), but shall not be
obligated to perform or cause to perform such act or take such action or pay
such money, and any expenses so incurred by either of them and any money so paid
by either of them shall be a demand obligation owing by Borrower to Secured
Party or such Secured Creditor, as the case may be, and Secured Party or any
Secured Creditor, upon making such payment, shall be subrogated to all of the
rights of the Person receiving such payment. Each amount due and owing by
Borrower to each of Secured Party and the Secured Creditors pursuant to this
Agreement shall bear interest from the date of such expenditure or payment or
other occurrence which gives rise to such amount being owed to such Person until
16
paid at the Post Default Rate set forth in the Credit Agreement, and all such
amounts together with such interest thereon shall be a part of the Obligations
described in Section 1.05.
ARTICLE IV
Rights and Remedies
Event of Default. An "Event of Default" under the Credit
Agreement shall be an Event of Default under this Agreement.
Section 4.02 Foreclosure by Advertisement and Sale.
(a) If an Event of Default shall occur and be continuing, Secured
Party shall become and be entitled, as of right, without regard to the
adequacy of the Mortgaged Property or the Collateral as security for the
Obligations hereby secured, to employ counsel to enforce payment of the
Obligations secured hereby, to commence and maintain a foreclosure sale by
judicial action or by a public trustee's sale to foreclose this Agreement
and to sell the Mortgaged Property in accordance with the power of sale
granted herein and applicable Colorado law, and exercise such other rights
and remedies granted herein, in any other Loan Document or by law and
equity, which rights and remedies shall be cumulative and not exclusive.
Secured Party may sell the Mortgaged Property either as a whole or in
separate parcels, and in such order as it may determine. The purchase
price shall be payable in lawful money of the United States at the time of
the sale. In exercising the power of sale contained herein, Secured Party
may hold one or more sales of all or any portion of the Mortgaged Property
by public announcement at the time and place of sale set forth in the
notice thereof, and from time to time thereafter may postpone such sale or
sales of all or any portion of the Mortgaged Property to the same or
separate days by public announcement at such time fixed by the preceding
postponement. Any Person, including Secured Party or any Secured Creditor,
may purchase at such sale. Secured Party may credit bid at any such sale,
and if Secured Party is the successful purchaser, it may apply any of the
outstanding Obligations secured hereby in settlement of the purchase
price. Secured Party may resort to and realize upon the security hereunder
and any other real or personal property security now or hereafter held by
Secured Party for the Obligations secured hereby in such order and manner
as Secured Party may, in its sole discretion, determine. Any or all such
security may be taken concurrently or successively and in one or several
consolidated or independent judicial actions or nonjudicial proceedings,
or both. Nothing contained herein shall be construed so as to limit in any
way Secured Party's rights to sell the Mortgaged Property, or any portion
thereof, by private sale if, and to the extent that, such private sale is
17
permitted under the laws of the applicable jurisdiction or by public or
private sale after entry of a judgment by any court of competent
jurisdiction so ordering. At any such sale: (i) whether made under the
power herein contained or any other legal enactment, or by virtue of any
judicial proceedings or any other legal right, remedy or recourse, it
shall not be necessary for Secured Party to have physically present, or to
have constructive possession of, the Mortgaged Property (Borrower hereby
covenanting and agreeing to deliver to Secured Party any portion of the
Mortgaged Property not actually or constructively possessed by Secured
Party immediately upon demand by Secured Party) and the title to and right
of possession of any such property shall pass to the purchaser thereof as
completely as if the same had been actually present and delivered to
purchaser at such sale, (ii) each instrument of conveyance executed by
Secured Party shall contain a special warranty of title, binding upon
Borrower and its successors and assigns, (iii) any and all prerequisites
to the validity thereof shall be conclusively presumed to have been
performed, (iv) the receipt of Secured Party or of such other party or
officer making the sale shall be a sufficient discharge to the purchaser
or purchasers for its purchase money and no such purchaser or purchasers,
or its assigns or personal representatives, shall thereafter be obligated
to see to the application of such purchase money, or be in any way
answerable for any loss, misapplication or nonapplication thereof, (v) to
the fullest extent permitted by law, Borrower shall be completely and
irrevocably divested of all of its right, title, interest, claim and
demand whatsoever, either at law or in equity, in and to the property sold
and such sale shall be a perpetual bar both at law and in equity against
Borrower, and against any and all other persons claiming or to claim the
property sold or any part thereof, by, through or under Borrower, and (vi)
to the extent and under such circumstances as are permitted by law,
Secured Party may be a purchaser at any such sale, and shall have the
right, after paying or accounting for all costs of said sale or sales, to
credit (in lieu of a cash payment) the amount of the bid against the
amount of the Obligations.
(b) Upon the happening and during the continuance of any of the
Events of Default, Secured Party is and shall be entitled to all of the
rights, powers and remedies afforded a secured party by the Uniform
Commercial Code with respect to the Collateral, or Secured Party may
proceed as to both the real and personal property covered hereby in
accordance with the rights and remedies granted under this Agreement in
respect of the real property covered hereby. Without limiting the
generality of the foregoing, Secured Party, without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon Borrower
or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral,
or any part thereof, and/or may forthwith sell, lease, assign, give option
or options to purchase, or otherwise dispose of and deliver the Collateral
or any part thereof (or contract to do any of the foregoing), in one or
more parcels at public or private sale or sales, at any exchange, broker's
board or office of Secured Party or any Secured Creditor or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as
it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk, all in accordance with any requirements of
applicable law. Secured Party or any Secured Creditor shall have the right
upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase the whole or any part of
the Collateral so sold, free of any right or equity of redemption in
Borrower, which right or equity is hereby waived and released. If an Event
of Default shall occur and be continuing, Borrower further agrees, at
Secured Party's request, to assemble the Collateral and make it available
to Secured Party at places which Secured Party shall reasonably select,
whether at Borrower's premises or elsewhere. Upon any such sale or
transfer, Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold or
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transferred. Secured Party shall apply the net proceeds of any action
taken by it pursuant to this Section 4.02, after deducting all reasonable
costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any of the Collateral or in any
way relating to the Collateral or the rights of Secured Party and the
Secured Creditors hereunder, including, without limitation, reasonable
attorneys' fees and disbursements, to the payment in whole or in part of
the Obligations, in accordance with the Credit Agreement, and only after
such application and after the payment by Secured Party of any other
amount required by any provision of law, including, without limitation,
Section 9-615 of the Uniform Commercial Code, need Secured Party account
for the surplus, if any, to Borrower. To the extent permitted by
applicable law, Borrower waives all claims, damages and demands it may
acquire against Secured Party or any Secured Creditor arising out of the
exercise by them of any rights hereunder, other than claims, damages or
demands resulting from the gross negligence or willful misconduct of
Secured Party or any Secured Creditor, as the case may be. If any notice
of a proposed sale or other disposition of Collateral shall be required by
law, such notice shall be deemed reasonable and proper if given at least
ten (10) days before such sale or other disposition.
(c) If an Event of Default shall occur and be continuing, in the
event that Secured Party elects not to sell the Collateral, Secured Party
retains its rights to dispose of or utilize the Collateral or any part or
parts thereof in any manner authorized or permitted by law or in equity,
and to apply the proceeds of the same towards payment of the Obligations.
Each and every method of disposition of the Collateral described in this
Agreement shall constitute disposition in a commercially reasonable
manner. Secured Party may appoint any Person as agent to perform any act
or acts necessary or incident to any sale or transfer of the Collateral.
(d) If an Event of Default shall occur and be continuing, Secured
Party may proceed as to the Mortgaged Property constituting Collateral in
accordance with Secured Party's rights and remedies in respect to the
Mortgaged Property or sell the Mortgaged Property constituting Collateral
separately and without regard to the remainder of the Mortgaged Property
in accordance with Secured Party's rights and remedies provided by this
Agreement, the other Loan Documents, the Uniform Commercial Code, as well
as other rights and remedies at law or in equity.
(e) If an Event of Default shall occur and be continuing with
respect to the environmental covenants of the Credit Agreement, if any,
then Secured Party (and, to the extent necessary or appropriate, the
Administrative Agent) may seek a judgment that Borrower has breached its
covenants, representations, or warranties in this Agreement or any other
covenants, representations, or warranties contained in the Credit
Agreement that are deemed to be environmental provisions (each an
"Environmental Provision"), by commencing and maintaining an action or
actions in any court of competent jurisdiction, whether commenced prior to
or after foreclosure of the lien of this Agreement. Secured Party or its
agents, representatives, and employees may also seek an injunction to
cause Borrower to abate any action being taken by Borrower in violation of
any Environmental Provision and may seek the recovery of all costs,
damages, expenses, fees, penalties, fines, judgments, indemnification
payments to third parties, and other out-of-pocket costs or expenses of
Secured Party (collectively, "Environmental Costs") incurred or advanced
by Secured Party relating to the cleanup, remedy, or other response action
19
required by any environmental law, or any environmental claim, or which
Secured Party believes necessary to protect the Mortgaged Property, in
each such case, which Borrower was required, but failed, to perform under
applicable law or pursuant to the Loan Documents; provided, however, that
Secured Party's recovery hereunder shall be limited to the relevant
Environmental Costs that are attributable to Borrower's interest in the
relevant Mortgaged Property to which the expenditure relates unless
Borrower is the operator of such property. It will be conclusively
presumed between Secured Party and Borrower that all Environmental Costs
incurred or advanced by Secured Party relating to the cleanup, remedy, or
other response action of or to the Mortgaged Property were made by Secured
Party in good faith. All Environmental Costs incurred by Secured Party
under this Section 4.02(e) (including, without limitation, court costs,
reasonable consultant fees, and reasonable attorney fees, whether incurred
in litigation and whether before or after judgment) will bear interest at
the rate applicable to the Notes from the date of expenditure until those
sums have been paid in full. Secured Party will be entitled to bid, at any
trustee's or foreclosure sale of the Mortgaged Property, the amount of the
costs, expenses, and interest in addition to the amount of other
Indebtedness. Secured Party may waive its lien against the Mortgaged
Property or any portion of it, including the improvements and the personal
Mortgaged Property, to the extent that any of the Mortgaged Property is
found to be environmentally impaired, and to exercise all rights and
remedies of an unsecured creditor against Borrower and all of Borrower's
assets and property for the recovery of any deficiency and Environmental
Costs, including, but not limited to, seeking an attachment order.
Collections on Accounts, Etc. Secured Party hereby authorizes
Borrower to collect upon the Accounts, Instruments, Chattel Paper and Payment
Intangibles, and Secured Party may curtail or terminate said authority at any
time after the occurrence and during the continuance of an Event of Default.
Upon the request of Secured Party at any time after the occurrence and during
the continuance of an Event of Default, Borrower shall notify the Account
Debtors that the applicable Accounts, Chattel Paper and Payment Intangibles have
been assigned to Secured Party, for its benefit and the ratable benefit of the
Secured Creditors, and that payments in respect thereof shall be made directly
to Secured Party. Following the occurrence of an Event of Default, Secured Party
may in its own name or in the name of others communicate with the Account
Debtors to verify with them to its satisfaction the existence, amount and terms
of any Accounts, Chattel Paper or Payment Intangibles.
Proceeds. If required by Secured Party at any time after the
occurrence and during the continuance of an Event of Default, any payments of
Accounts, Instruments, Chattel Paper and Payment Intangibles, when collected or
received by Borrower, and any other cash or non-cash Proceeds received by
Borrower upon the sale or other disposition of any Collateral, shall be
forthwith (and, in any event, within two Business Days) deposited by Borrower in
the exact form received, duly indorsed by Borrower to Secured Party if required,
in a special collateral account maintained by Secured Party, subject to
withdrawal by Secured Party, for its benefit and the ratable benefit of the
Secured Creditors, only, as hereinafter provided, and, until so turned over,
shall be held by Borrower in trust for Secured Party, for its benefit and the
ratable benefit of the Secured Creditors, segregated from other funds of
Borrower. All Proceeds from the disposition of Collateral (including, without
20
limitation, Proceeds constituting collections of Accounts, Chattel Paper,
Instruments) while held by Secured Party (or by Borrower in trust for Secured
Party, for its benefit and the ratable benefit of the Secured Creditors) shall
continue to be collateral security for all of the Obligations and shall not
constitute payment thereof until applied as hereinafter provided. If an Event of
Default shall have occurred and be continuing, at any time at Secured Party's
election, Secured Party shall apply all or any part of the funds on deposit in
said special collateral account on account of the Obligations in such order as
Secured Party may elect, and any part of such funds which Secured Party elects
not so to apply and deems not required as collateral security for the
Obligations shall be paid over from time to time by Secured Party to Borrower or
to whomsoever may be lawfully entitled to receive the same.
Agents. Secured Party or its successor or assigns may appoint or
delegate any one or more Persons as agent to perform any act or acts necessary
or incident to any sale held by Secured Party, including, without limitation,
the posting of notices and the conduct of sale, but in the name and on behalf of
Secured Party or its successor or substitute, as applicable. If Secured Party or
its successors or assigns shall have given notice of sale hereunder, any
successor or substitute to such Person thereafter appointed may complete the
sale and the conveyance of the property pursuant thereto as if such notice had
been given by the successor or substitute conducting the sale.
Judicial Foreclosure; Receivership. If an Event of Default shall
occur and be continuing, Secured Party shall have the right and power to proceed
by a suit or suits in equity or at law, whether for the specific performance of
any covenant or agreement herein contained or in aid of the execution of any
power herein granted, or by any foreclosure hereunder or for the sale of the
Mortgaged Property or the Collateral under the judgment or decree of any court
or courts of competent jurisdiction, or by the ex parte appointment of a
receiver pending any foreclosure hereunder or the sale of the Mortgaged Property
or the Collateral under the order of a court or courts of competent jurisdiction
or under executory or other legal process, or by the enforcement of any other
appropriate legal or equitable remedy. Any money advanced by Secured Party in
connection with any such receivership shall be a demand obligation (which
obligation Borrower hereby expressly promises to pay) owing by Borrower to
Secured Party and shall bear interest from the date of making such advance by
Secured Party until paid at the post default rate set forth in the Credit
Agreement. In addition, Borrower agrees that, upon the occurrence and during the
continuance of an Event of Default, Secured Party shall as a matter of right be
entitled to the appointment of a receiver or receivers for all or any part of
the Mortgaged Property, whether such receivership be incident to a proposed sale
(or sales) of such property or otherwise, and without regard to the value of the
Mortgaged Property or the solvency of any person or persons liable for the
payment of the Obligations, and Borrower does hereby consent to the appointment
of such receiver or receivers, waives any and all defenses to such appointment,
and agrees not to oppose any application therefor by Secured Party and agrees
that such appointment shall in no manner impair, prejudice or otherwise affect
the rights of Secured Party under ARTICLE II hereof. Borrower expressly waives
notice of a hearing for appointment of a receiver and the necessity for bond or
an accounting by the receiver. Nothing herein is to be construed to deprive
Secured Party or any other Secured Creditor of any other right, remedy or
privilege it may now or hereafter have under the law to have a receiver
appointed. Any money advanced by Secured Party or any other Secured Creditor in
21
connection with any such receivership shall be a demand obligation (which
obligation Borrower hereby expressly promises to pay) owing by Borrower to
Secured Party or such Secured Creditor and shall bear interest from the date of
making such advancement by Secured Party or such Secured Creditor until paid, at
the Post Default Rate set forth in the Credit Agreement.
Foreclosure for Installments. If an Event of Default shall occur and
be continuing, Secured Party shall also have the option to proceed with
foreclosure in satisfaction of any installments of the Obligations which have
not been paid when due either through the courts or by proceeding with
foreclosure in satisfaction of the matured but unpaid portion of the Obligations
as if under a full foreclosure, conducting the sale as herein provided as to a
portion of the Mortgaged Property and without declaring the entire principal
balance and accrued interest due; such sale may be made subject to the unmatured
portion of the Obligations, and any such sale shall not in any manner affect the
unmatured portion of the Obligations, but as to such unmatured portion of the
Obligations this Agreement shall remain in full force and effect as to any
Mortgaged Property that was not sold just as though no sale had been made
hereunder. It is further agreed that several sales of a portion of the Mortgaged
Property may be made hereunder without exhausting the right of sale for any
unmatured part of the Obligations, it being the purpose hereof to provide for a
foreclosure and sale of the security for any matured portion of the Obligations
without exhausting the power to foreclose and sell the remainder of the
Mortgaged Property for any subsequently maturing portion of the Obligations.
Separate Sales. The Mortgaged Property may be sold in one or more
parcels and to the extent permitted by applicable law in such manner and order
as Secured Party, in its sole discretion, may elect, it being expressly
understood and agreed that the right of sale arising out of any Event of Default
shall not be exhausted by any one or more sales.
Possession of Mortgaged Property and Collateral. Borrower agrees to
the full extent that it lawfully may, that, in case one or more of the Events of
Default shall have occurred and shall not have been remedied, then, and in every
such case, Secured Party shall have the right and power to enter into and upon
and take possession of all or any part of the Mortgaged Property or the
Collateral in the possession of Borrower, its successors or assigns, or its
agents or servants, and may exclude Borrower, its successors or assigns, and all
Persons claiming under Borrower, and its agents or servants wholly or partly
therefrom; and, holding the same, Secured Party may use, administer, manage,
operate and control the Mortgaged Property or the Collateral and conduct the
business thereof to the same extent as Borrower, its successors or assigns,
might at the time do and may exercise all rights and powers of Borrower, in the
name, place and stead of Borrower, or otherwise as Secured Party shall deem
best. All reasonable and customary costs, expenses and liabilities incurred by
Secured Party in administering, managing, operating, and controlling the
Mortgaged Property or the Collateral shall constitute a demand obligation (which
obligation Borrower hereby expressly promises to pay) owing by Borrower to
Secured Party and shall bear interest from date of expenditure until paid at the
Post Default Rate set forth in the Credit Agreement, all of which shall
constitute a portion of the Obligations and shall be secured by this Agreement
and all other Security Instruments.
Remedies Cumulative, Concurrent and Nonexclusive. Each and every
right, power, privilege and remedy shall be cumulative and in addition to (i)
those granted to Secured Party or any Secured Creditor under this Agreement, any
22
other Loan Document and in any other instrument or agreement securing,
evidencing or relating to the Obligations, (ii) all rights, remedies, powers and
privileges of a secured party under the applicable Uniform Commercial Code
(whether the Uniform Commercial Code is in effect in the jurisdiction where such
rights, remedies, powers or privileges are asserted) or (iii) any other
applicable law or otherwise available at law or equity; each and every right,
power, privilege and remedy whether specifically herein given or otherwise
existing may be exercised from time to time and so often and in such order as
may be deemed expedient by Secured Party or any Secured Creditor and the
exercise, or the beginning of the exercise, or the abandonment, of any such
right, power, privilege or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter any other right, power, privilege or
remedy. No delay or omission by Secured Party or any Secured Creditor in the
exercise of any right, power, privilege or remedy shall impair any such right,
power, privilege or remedy or operate as a waiver thereof or of any other right,
power, privilege or remedy then or thereafter existing.
No Release of Obligations. Neither Borrower nor any other Person
hereafter obligated for payment of all or any part of the Obligations shall be
relieved of such obligation by reason of (a) the failure of Secured Party to
comply with any request of Borrower or any other Person so obligated to
foreclose the Lien of this Agreement or to enforce any provision hereunder or
under the Credit Agreement; (b) the release, regardless of consideration, of the
Mortgaged Property or the Collateral or any portion thereof or interest therein
or the addition of any other property to the Mortgaged Property or the
Collateral; or (c) by any other act or occurrence save and except the complete
payment of the Obligations and the complete fulfillment of all obligations
hereunder or under the Credit Agreement or any other Loan Document of the
Obligations in accordance with their terms.
No Impairment of Security. The Lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by any
indulgence, moratorium or partial release granted by Secured Party including,
but not limited to, any renewal, extension or modification which Secured Party
or the Secured Creditors may grant with respect to any of the Obligations, or
any surrender, compromise, partial release, renewal, extension, exchange or
substitution which Secured Party or the Secured Creditors may grant in respect
of the Mortgaged Property or any part thereof or any interest therein, or any
release or indulgence granted to any endorser, guarantor or surety of any of the
Obligations.
Release of and Resort to Collateral. Secured Party may release,
regardless of consideration, any part of the Mortgaged Property or the
Collateral without, as to the remainder, in any way impairing, affecting,
subordinating or releasing the Lien or security interest created in or evidenced
by this Agreement or its stature as a first and prior Lien and security interest
in and to the Mortgaged Property and the Collateral, and without in any way
releasing or diminishing the liability of any Person or entity liable for the
repayment of the Obligations. For payment of the Obligations, Secured Party may
resort to any other security therefor held by Secured Party in such order and
manner as Secured Party may elect.
Waiver of Redemption, Notice and Marshalling of Assets, Etc. To the
fullest extent permitted by law, Borrower hereby irrevocably and unconditionally
23
waives and releases (a) all benefits that might accrue to Borrower by virtue of
any present or future moratorium law or other law exempting the Mortgaged
Property or the Collateral from attachment, levy or sale on execution or
providing for any appraisement, valuation, stay of execution, exemption from
civil process, or extension of time for payment; (b) all notices of Secured
Party's intention to accelerate maturity of the Obligations or of Secured
Party's election to exercise or its actual exercise of any right, remedy or
recourse provided for hereunder or under the Credit Agreement; and (c) any
rights, legal and equitable, to a marshalling of assets or a sale in inverse
order of alienation. Each successor and assign of Borrower, including without
limitation, a holder of a Lien subordinate to the Lien created hereby (without
implying that Borrower has, except as expressly provided herein, a right to
grant an interest in, or a subordinate Lien on, the Mortgaged Property or the
Collateral), by acceptance of its interest or Lien agrees that it shall be bound
by the above waiver, as if it gave the waiver itself. The right to plead any and
all statutes of limitation as a defense to any demand secured by or made
pursuant to this Agreement is hereby waived to the full extent permitted by law.
If any law referred to in this Agreement and now in force, of which Borrower or
its successor or successors might take advantage despite the provisions hereof,
shall hereafter be repealed or cease to be in force, such law shall thereafter
be deemed not to constitute any part of the contract herein contained or to
preclude the operation or application of the provisions hereof. Secured Party
may enforce its rights hereunder without prior judicial process or judicial
hearing to the extent permitted by applicable law, and to the extent permitted
by law, Borrower expressly waives any and all legal rights which might otherwise
require Secured Party to enforce its rights by judicial process. To the fullest
extent permitted by law, Borrower waives and agrees not to assert any rights or
privileges which it may acquire under the Uniform Commercial Code or any other
applicable law. Borrower shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Mortgaged Property or the Collateral
conducted in accordance with applicable law are insufficient to pay its
Obligations and the reasonable fees and disbursements of any attorneys employed
by Secured Party and any Secured Creditor to collect such deficiency. Payments
to be made by Borrower under any Loan Document are to be made without defense,
deduction, recoupment, set-off, or counterclaim.
Discontinuance of Proceedings. In case Secured Party (and, to the
extent necessary or appropriate, the Administrative Agent) shall have proceeded
to invoke any right, remedy or recourse permitted hereunder or under the Credit
Agreement and shall thereafter elect to discontinue or abandon same for any
reason, Secured Party (and the Administrative Agent at the direction of the
Secured Party) shall have the unqualified right so to do and, in such an event,
Borrower and Secured Party shall be restored to their former positions with
respect to the Obligations, this Agreement, the Credit Agreement, the Mortgaged
Property and the Collateral and otherwise, and the rights, remedies, recourses
and powers of Secured Party shall continue as if same had never been invoked.
Application of Proceeds. The proceeds of any sale of the Mortgaged
Property or the Collateral or any part thereof and all other monies received by
Secured Party in any proceedings for the enforcement hereof, whose application
has not elsewhere herein been specifically provided for, shall be applied first
to the payment of all reasonable expenses incurred by Secured Party incident to
the enforcement of this Agreement, the Credit Agreement or any of the
Obligations (including, without limiting the generality of the foregoing,
expenses of any entry or taking of possession, of any sale, of advertisement
thereof, and of conveyances, and court costs, reasonable compensation of agents,
24
and reasonable legal fees), and to the payment of all other reasonable charges,
expenses, liabilities and advances incurred or made by Secured Party under this
Agreement or in executing any trust or power hereunder; and then as set forth in
the Credit Agreement.
Resignation of Operator. In addition to all rights and remedies
under this Agreement, at law and in equity, if any Event of Default shall occur
and be continuing and Secured Party shall exercise any remedies under this
Agreement with respect to any portion of the Mortgaged Property or the
Collateral (or Borrower shall transfer any Mortgaged Property or the Collateral
"in lieu of" foreclosure), Secured Party shall have the right to request that
any operator of any Mortgaged Property which is either Borrower or any Affiliate
of Borrower resign as operator under the joint operating agreement applicable
thereto, and no later than 60 days after receipt by Borrower of any such
request, Borrower shall resign (or cause such other party to resign) as operator
of such Mortgaged Property.
Indemnity. IN CONNECTION WITH ANY ACTION TAKEN BY SECURED PARTY
PURSUANT TO THIS AGREEMENT, SECURED PARTY, EACH ISSUING BANK, THE SECURED
CREDITORS AND THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS,
ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") SHALL NOT BE LIABLE
FOR ANY LOSS SUSTAINED BY BORROWER RESULTING FROM AN ASSERTION THAT SECURED
PARTY HAS RECEIVED FUNDS FROM THE PRODUCTION OF HYDROCARBONS CLAIMED BY THIRD
PERSONS OR ANY ACT OR OMISSION OF ANY INDEMNIFIED PARTY IN ADMINISTERING,
MANAGING, OPERATING OR CONTROLLING THE MORTGAGED PROPERTY OR THE COLLATERAL
INCLUDING SUCH LOSS WHICH MAY RESULT FROM THE ORDINARY NEGLIGENCE OF AN
INDEMNIFIED PARTY UNLESS SUCH LOSS IS CAUSED BY THE WILLFUL MISCONDUCT OR GROSS
NEGLIGENCE OF AN INDEMNIFIED PARTY, NOR SHALL SECURED PARTY AND ANY OTHER
INDEMNIFIED PARTY BE OBLIGATED TO PERFORM OR DISCHARGE ANY OBLIGATION, DUTY OR
LIABILITY OF BORROWER. BORROWER SHALL AND DOES HEREBY AGREE TO INDEMNIFY EACH
INDEMNIFIED PARTY FOR, TO DEFEND AND TO HOLD EACH INDEMNIFIED PARTY HARMLESS
FROM, ANY AND ALL LIABILITY, LOSS OR DAMAGE WHICH MAY OR MIGHT BE INCURRED BY
ANY INDEMNIFIED PARTY BY REASON OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS OR
REMEDIES HEREUNDER, INCLUDING WITHOUT LIMITATION SUCH LIABILITY, LOSS OR DAMAGE
AS MAY OR MIGHT ARISE OUT OF OR BE CAUSED BY THE ORDINARY NEGLIGENCE OF ANY OF
THE INDEMNIFIED PARTIES, UNLESS SUCH LOSS IS CAUSED BY THE WILLFUL MISCONDUCT OR
GROSS NEGLIGENCE OF AN INDEMNIFIED PARTY. SHOULD SECURED PARTY MAKE ANY
EXPENDITURE ON ACCOUNT OF ANY SUCH LIABILITY, LOSS OR DAMAGE, THE AMOUNT
THEREOF, INCLUDING COSTS, EXPENSES AND REASONABLE OUT OF POCKET ATTORNEYS' FEES,
SHALL BE A DEMAND OBLIGATION (WHICH OBLIGATION BORROWER HEREBY EXPRESSLY
PROMISES TO PAY) OWING BY BORROWER TO SECURED PARTY AND SHALL BEAR INTEREST FROM
THE DATE EXPENDED UNTIL PAID AT THE POST-DEFAULT RATE AS SET FORTH IN THE CREDIT
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AGREEMENT, SHALL BE A PART OF THE OBLIGATIONS AND SHALL BE SECURED BY THIS
AGREEMENT AND ANY OTHER SECURITY INSTRUMENT. THE LIABILITIES OF BORROWER AS SET
FORTH IN THIS SECTION 4.18 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT.
Secured Party Not "Secured Party-In-Possession". It is understood
and agreed that neither the assignment of Hydrocarbons, products therefrom,
revenues and proceeds to Secured Party pursuant to Section 2.01 nor the exercise
by Secured Party of any of its rights or remedies hereunder shall be deemed to
make Secured Party a "Secured Party-in-possession" or otherwise responsible or
liable in any manner with respect to the Mortgaged Property or the use,
occupancy, enjoyment or operation of all or any portion thereof, nor shall
appointment of a receiver for the Mortgaged Property by any court at the request
of Secured Party or by agreement with Borrower or the entering into possession
of the Mortgaged Property or any part thereof by such receiver be deemed to make
Secured Party a "Secured Party-in-possession" or otherwise responsible or liable
in any manner with respect to the Mortgaged Property or the use, occupancy,
enjoyment or operation of all or any portion thereof.
ARTICLE V
Attorney-in-Fact
Secured Party Attorney-In-Fact. Borrower hereby irrevocably
constitutes and appoints Secured Party the attorney-in-fact of Borrower, and in
such capacity, Secured Party, its counsel or its representative, may from time
to time, execute, deliver and file with the appropriate filing officer or office
such security agreements, financing statements, continuation statements,
amendments, other filing or recording documents or instruments as Secured Party
may request or require, in such form as Secured Party reasonably determines
appropriate, in order to impose, perfect, protect, preserve the priority of, or
enforce, the Liens on the Collateral.
ARTICLE VI
Miscellaneous
Instrument Construed as Mortgage, Etc; Perpetuities. This Agreement
may be construed as a deed of trust, mortgage, chattel mortgage, conveyance,
assignment, security agreement, pledge, financing statement, hypothecation or
contract, or any one or more of them, as necessary fully to effectuate the Lien
hereof and the purposes and agreements herein set forth. Notwithstanding
anything to the contrary contained herein, if any interest in real property
granted pursuant to this Agreement does not vest upon the execution and delivery
of this Agreement, it shall vest, if at all, not later than 20 years after the
execution and delivery of this Agreement.
Release of Mortgage. If all Obligations secured hereby shall be paid
in full in accordance with the Credit Agreement and all of the Commitments of
the Lenders and all Letters of Credit under the Credit Agreement are terminated,
Secured Party shall forthwith cause reconveyance, satisfaction and discharge of
this Agreement to be entered upon the record and shall execute and deliver or
cause to be executed and delivered such instruments of reconveyance,
satisfaction and reassignment as may be appropriate. Otherwise, this Agreement
shall remain and continue in full force and effect.
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Severability. If any provision hereof is invalid or unenforceable in
any jurisdiction, the other provisions hereof shall remain in full force and
effect in such jurisdiction and the remaining provisions hereof shall be
liberally construed in order to effectuate the provisions hereof, and the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of any such provision in any other
jurisdiction.
Partial Releases. If any of the Mortgaged Property shall be sold,
transferred or otherwise disposed of by Borrower in a transaction permitted by
the Credit Agreement, then Secured Party, at the request and sole expense of
Borrower, shall promptly execute and deliver to Borrower all releases or other
documents reasonably necessary or desirable for the release of the Liens created
hereby on the Mortgaged Property.
Successors and Assigns of Parties. The term "Secured Party" as used
herein shall mean and include Community Banks of Colorado, a division of NBH
Bank, N.A., and its successors and assigns acting as Administrative Agent for
the benefit of any legal owner, holder, assignee or pledgee of any of the
Obligations secured hereby. The terms used to designate Secured Party and
Borrower shall be deemed to include the respective heirs, legal representatives,
successors and assigns of such parties.
Satisfaction of Prior Encumbrance. To the extent that proceeds of
the Credit Agreement are used to pay indebtedness secured by any outstanding
Lien, security interest, charge or prior encumbrance against the Mortgaged
Property, such proceeds have been advanced by Secured Party at Borrower's
request, and Secured Party shall be subrogated to any and all rights, security
interests and Liens owned by any owner or holder of such outstanding Liens,
security interests, charges or encumbrances, irrespective of whether said Liens,
security interests, charges or encumbrances are released, and it is expressly
understood that, in consideration of the payment of such other indebtedness by
Secured Party, Borrower hereby waives and releases all demands and causes of
action for offsets and payments to, upon and in connection with the said
indebtedness.
Subrogation of Secured Party. This Agreement is made with full
substitution and subrogation of Secured Party and its successors and assigns in
and to all covenants and warranties by others heretofore given or made in
respect of the Mortgaged Property or any part thereof.
Nature of Covenants. The covenants and agreements herein contained
shall constitute covenants running with the land and interests covered or
affected hereby and shall be binding upon the heirs, legal representatives,
successors and assigns of the parties hereto.
Notices. All notices, requests, consents, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed sufficiently given or furnished if delivered by registered or certified
United States mail, postage prepaid, or by personal service (including express
or courier service) at the addresses specified at the end of this Agreement
(unless changed by similar notice in writing given by the particular party whose
address is to be changed). Any such notice or communication shall be deemed to
have been given either at the time of personal delivery or, in the case of
delivery at the address and in the manner provided herein, upon receipt;
provided that, service of notice as required by the laws of any state in which
27
portions of the Mortgaged Property may be situated shall for all purposes be
deemed appropriate and sufficient with the giving of such notice. Borrower
requests that a copy of any notice of sale or combined notice hereunder be sent
to it by express or courier service at the address of Borrower set forth below.
Counterparts. This Agreement is being executed in several
counterparts, all of which are identical, except that to facilitate recordation,
if the Mortgaged Property is situated in more than one county, descriptions of
only those portions of the Mortgaged Property located in the county in which a
particular counterpart is recorded shall be attached as a Schedule thereto. A
Schedule containing a description of all Mortgaged Property wheresoever situated
will be attached to that certain counterpart to be attached to a Financing
Statement and filed with the Secretary of State of Colorado in the Uniform
Commercial Code Records. Each of such counterparts shall for all purposes be
deemed to be an original and all such counterparts shall together constitute but
one and the same instrument.
Governing Law. INSOFAR AS PERMITTED BY OTHERWISE APPLICABLE LAW,
THIS AGREEMENT AND THE OBLIGATIONS SHALL BE CONSTRUED UNDER AND GOVERNED BY THE
LAWS OF THE STATE OF COLORADO (EXCLUDING CHOICE OF LAW AND CONFLICT OF LAW
RULES); PROVIDED, HOWEVER, THAT, WITH RESPECT TO ANY PORTION OF THE MORTGAGED
PROPERTY OR COLLATERAL LOCATED OUTSIDE OF THE STATE OF COLORADO, THE LAWS OF THE
PLACE IN WHICH SUCH PROPERTY IS OR IS DEEMED TO BE LOCATED IN, OR OFFSHORE
ADJACENT TO (AND STATE LAW MADE APPLICABLE AS A MATTER OF FEDERAL LAW), SHALL
APPLY TO THE EXTENT OF PROCEDURAL AND SUBSTANTIVE MATTERS RELATING ONLY TO THE
CREATION, PERFECTION, FORECLOSURE OF LIENS AND ENFORCEMENT OF RIGHTS AND
REMEDIES AGAINST THE MORTGAGED PROPERTY OR COLLATERAL.
Exculpation Provisions. EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT; AND AGREES THAT IT IS CHARGED
WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT; THAT IT HAS IN FACT
READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF
THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN
REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT; AND HAS RECEIVED THE
ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT; AND THAT IT RECOGNIZES
THAT CERTAIN OF THE TERMS OF THIS AGREEMENT RESULT IN ONE PARTY ASSUMING THE
LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER
PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND
COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS AGREEMENT ON THE BASIS THAT THE PARTY HAD NO
NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
Terms Generally; Rules of Construction. The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
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corresponding masculine, feminine and neuter forms. . The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". The word "will" shall be construed to have the same meaning and
effect as the word "shall". Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any law shall be construed as referring to such law
as amended, modified, codified or reenacted, in whole or in part, and in effect
from time to time, (c) any reference herein to any Person shall be construed to
include such Person's successors and assigns (subject to the restrictions
contained herein), (d) the words "herein", "hereof" and "hereunder", and words
of similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (e) with respect to the
determination of any time period, the word "from" means "from and including" and
the word "to" means "to and including" and (f) any reference herein to Articles,
Sections and Schedules shall be construed to refer to Articles and Sections of,
and Schedules to, this Agreement. No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any Person solely
because such Person or its legal representative drafted such provision.
Recording. Borrower will cause this Agreement and all amendments and
supplements thereto and substitutions therefor and all financing statements and
continuation statements relating thereto to be recorded, filed, re-recorded and
refiled in such a manner and in such places as Secured Party shall reasonably
request and will pay all such recording, filing, re-recording and refiling
taxes, fees and other charges.
Application of Payments to Certain Obligations. If any part of the
Obligations cannot be lawfully secured by this Agreement or if any part of the
Mortgaged Property cannot be lawfully subject to the lien and security interest
hereof to the full extent of the Obligations, then all payments made shall be
applied on said Obligations first in discharge of that portion thereof which is
not secured by this Agreement.
Financing Statement; Fixture Filing. This Agreement shall be
effective as a financing statement filed as a fixture filing with respect to all
fixtures included within the Mortgaged Property and is to be filed or filed for
record in the real estate records, Agreement records or other appropriate
records of each jurisdiction where any part of the Mortgaged Property (including
said fixtures) are situated. This Agreement shall also be effective as a
financing statement covering As-extracted collateral, including oil and gas or
the like and accounts financed at the wellhead or minehead of wells or mines
located on the properties subject to the Uniform Commercial Code and is to be
filed for record in the real estate records, Mortgage records or other
appropriate records of each jurisdiction where any part of the Mortgaged
Property is situated. Borrower hereby authorizes Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Mortgaged Property without the signature of Borrower at
any time after the execution of this Agreement, and hereby ratifies any thereof
filed prior to the execution of this Agreement. In addition, Borrower shall
execute and deliver to Secured Party, upon Secured Party's request, any
financing statements or amendments thereof or continuation statements thereto
29
that Secured Party may require to perfect a security interest in said items or
types of property. Borrower shall pay all costs associated with filing such
instruments. In that regard, the following information is provided:
Name of Borrower: Synergy Resources Corporation
Mailing Address of Borrower
& County of Residence
(chief executive office): 20203 Highway 60
Platteville, CO 80651
Attention: Edward Holloway, CEO and Director
Facsimile: 970-737-1045
Jurisdiction of incorporation
Organizational ID #: Colorado/ID No. 20051109690
Name of Secured Party: Community Banks of Colorado, as Administrative
Agent
Mailing Address of
Secured Party: 5570 DTC Parkway
Denver, Colorado 80111
Attention: Sarah Burchett
Facsimile: 855-621-4007
Telephone: 303-892-8700
Owner of Record of
Mortgaged Property: Borrower
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WITNESS THE EXECUTION HEREOF, as of the Effective Date.
BORROWER:
SYNERGY RESOURCES CORPORATION
By:
---------------------------
Frank L. Jennings,
Chief Financial Officer
The name and address of Borrower is:
Synergy Resources Corporation
20203 Highway 60
Platteville, CO 80651
Phone: 970-737-1073
Fax: 970-737-1045
Attn: Edward Holloway
The name and address of Secured Party is:
Community Banks of Colorado
as Administrative Agent
5570 DTC Parkway
Denver, Colorado 80111
Phone: 303-892-8702
Fax: 855-621-4007
Attn: Sarah Burchett
STATE OF COLORADO )
)ss.
CITY AND COUNTY OF DENVER )
The foregoing instrument was acknowledged before me on December 20, 2013,
by Frank L. Jennings, as Chief Financial Officer of SYNERGY RESOURCES
CORPORATION, a Colorado corporation, on behalf of said corporation. Witness my
hand and official seal.
_____________________________
Notary Public
(SEAL)...... My commission expires:____________,20___
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Exhibit A
1. ...Capitalized terms used herein without definition shall have the
meaning ascribed thereto in the Mortgage.
2.....The terms "Working Interest" and "WI" as used herein with respect to
a lease, shall mean the interest in and to the full and entire leasehold estate
created under and by virtue of the lease described as to the described lands and
formations (or as to all formations if no formation is described) and arising
therefrom, insofar as said interest in said leasehold estate is burdened with
the obligation to bear and pay costs of operations, without regard of any valid
lessor's royalties, overriding royalties or similar burdens, and without regard
to the percent of the mineral estate underlying the lands covered by the lease
owned by the lessor(s) of the referenced lease.
3. ...The terms "Net Revenue Interest" and "NRI" as used herein with
respect to a lease shall mean the interest in and to applicable production of
all Hydrocarbons produced, saved and sold from, under or by virtue of the lease
described herein as to the described lands and formations (or as to all
formations if no formation is described).
4. ...The terms "Working Interest" and "WI" as used herein with respect to
a well, unit, pool or communitized area, shall mean the interest in and to the
well or the full and entire unitized, pooled or communitized area created under
and by virtue of each of the described unitization, pooling, communitization or
similar agreements, and all rights of every kind and character appurtenant
thereto, arising therefrom insofar as the said interest in said well or
unitized, pooled, communitized or other interest is burdened with the obligation
to bear and pay costs of operations, without regard to any valid lessor's
royalties, overriding royalties or similar burdens.
5. ...The terms "Net Revenue Interest" and "NRI" as used herein with
respect to a well, unit, pool or communitized area, shall mean the interest in
and to applicable production of all Hydrocarbons produced, saved and sold from,
under or by virtue of such well or such unitized, pooled or communitized area.
7. ...The Mortgage covers all right, title and interest of Debtor (whether
now owned or hereafter acquired by operation of law or otherwise) in and to the
land specifically described in this Exhibit A and the land described in or
covered by the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in this
Exhibit A whether or not such land is specifically described in this Exhibit A;
and any references to specific lands, depth limitations, horizons, formations,
zones, unit designations, unit tract descriptions and descriptions of undivided
leasehold interests, "Working Interest" or "WI" and "Net Revenue Interest" or
"NRI" contained in this Exhibit A are for the purposes of defining the nature
and extent of Debtor's warranties and shall not be deemed to limit or restrict
the interests covered by the Mortgage or the liens and security interests
created thereby.
8. ...This Exhibit A consists of this Preamble and the following subparts:
Exhibit A-1 (55 pages), Exhibit A-2 (79 pages), Exhibit A-3 (1 page), Exhibit
A-4 (9 pages) and Exhibit A-5 (1 page).
9. ...To facilitate recording, only the relevant subparts of this Exhibit
A may be filed for recording as follows:
County: Relevant subparts for filing:
WELD Exhibits A-1, A-2, and A-4
BOULDER Exhibits A-3 and A-5
SECOND AMENDED AND RESTATED
PLEDGE AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (as it may
be amended, restated, supplemented or modified from time to time, this "Security
Agreement") is entered into as of December 20, 2013, by and among each of the
undersigned identified on the signature pages hereto as Grantors (together with
any other entity that may become a party hereto as provided herein, each a
"Grantor, and collectively, the "Grantors"), and Community Banks of Colorado, a
division of NBH Bank, N.A., in its capacity as collateral agent (the "Secured
Party") for the Secured Creditors (as defined herein).
PRELIMINARY STATEMENTS
A. Synergy Resources Corporation, a Colorado corporation (the "Borrower"),
and Community Banks of Colorado formerly known as Bank of Choice, a division of
Bank Midwest, N.A. (in its capacity as lender under the Existing Credit
Agreement, the "Predecessor Lender"), previously entered into that certain Loan
Agreement effective November 30, 2011, as amended by that Amendment #1 to Loan
Agreement, dated as of April 23, 2012 and by that Amendment #2 to Loan
Agreement, dated as of October 18, 2012 (as amended, supplemented and modified
prior to the date of this Agreement, the "Predecessor Credit Agreement"),
pursuant to which the Predecessor Lender made loans and other extensions of
credit to Borrower.
B. The indebtedness, obligations and liabilities of the Borrower arising
under the Predecessor Credit Agreement and the other Loan Documents (solely in
this instance, as defined in the Existing Credit Agreement) (the "Predecessor
Obligations"), were secured by, among other things, that certain Security
Agreement and Assignment of Contract Rights effective November 30, 2011 (as
amended before the date of this Security Agreement, the "Predecessor Security
Agreement"), by which the Borrower granted security interests in certain
property to the Predecessor Lender, including the Collateral (defined below).
C. Borrower, the Lenders (as defined in the Credit Agreement), and
Community Banks of Colorado, in its capacity as administrative agent (the
"Administrative Agent"), amended and restated the Predecessor Credit Agreement
as of November 28, 2012 (such agreement, the "Existing Credit Agreement") which
amended and restate in its entirety the Predecessor Credit Agreement to provide,
among other things: the appointment of Administrative Agent as administrative
agent, the refinancing of the Predecessor Credit Agreement, and for the
extension of credit for general corporate purposes of the Borrower, including,
without limitation, working capital and capital expenditures related to the
acquisition, development and production of oil and gas properties.
D. The Existing Credit Agreement has been amended by that First Amendment,
dated as of February 12, 2012, that Second Amendment, dated as of June 28, 2013
and that Third Amendment dated as of December 20, 2013 (the "Third Amendment";
and the Existing Credit Agreement, as modified, amended, supplemented or
restated from time to time, the "Credit Agreement"). The indebtedness,
obligations and liabilities of Borrower arising under the Credit Agreement and
the other Loan Documents (as defined in the Credit Agreement) shall be referred
to herein as the "Existing Obligations".
E. Effective as of November 28, 2013, the parties hereto acknowledge and
agree that (a) the Predecessor Security Agreement was amended and restated as
set forth in that Amended and Restated Pledge and Security Agreement dated as of
November 28, 2012 (as amended, supplemented, restated or otherwise modified from
time to time, the "Existing Security Agreement"). In connection with the
Existing Security Agreement, (i) the Predecessor Obligations were not satisfied
or extinguished but rather were carried forward as set forth in the Credit
Agreement and Notes executed pursuant thereto, (ii) the liens created and
evidenced by the Predecessor Mortgage were not released, extinguished or
otherwise impaired, but continued to secure the Existing Obligations with the
same priority of lien and (iii) Borrower granted liens on and security interests
in certain properties to the Administrative Agent, including the Collateral.
F. Borrower, the Lenders BP Energy Company, the Administrative Agent, and
Community Banks of Colorado in its capacity as collateral agent (the "Collateral
Agent") for the benefit and on behalf of the Secured Parties (as defined
therein) have entered into that Collateral Agency and Intercreditor Agreement,
dated as of December 20, 2013 (the "Intercreditor Agreement").
G. The Borrower and/or certain of its Subsidiaries and certain Secured
Hedging Counterparties have or may enter into certain Secured Hedging Agreements
(collectively, the "Secured Hedging Agreements"). The Credit Agreement, the
Secured Hedging Agreements and the other Loan Documents are collectively
referred to herein as the "Secured Transaction Documents").
H. The Administrative Agent and the other Lenders have conditioned their
obligations under the Secured Transaction Documents upon the execution and
delivery by the Grantors of this Security Agreement, which amends and restates
the Existing Security Agreement, and the Grantors have agreed to enter into this
Security Agreement to secure all obligations owing to the Administrative Agent
and the other Lenders under the Secured Transaction Documents.
I. Effective as of the date hereof, the parties hereto hereby acknowledge
and agree that (a) the Existing Security Agreement is being amended and restated
as set forth in this Agreement, (b) the Existing Obligations are not being
satisfied or extinguished but rather are being carried forward as set forth in
the Credit Agreement and Notes executed pursuant thereto, and (c) the liens
created and evidenced by the Existing Security Agreement shall not be released,
extinguished or otherwise impaired, but shall continue to secure such carried
forward indebtedness and obligations with the same priority of lien.
J. In connection with Secured Party's appointment as collateral agent
hereunder and under the Intercreditor Agreement, the Administrative Agent has
agreed to assign all liens and security interests securing the payment of the
Existing Obligations, including, without limitation, the Existing Security
Agreement, to Secured Party for the ratable benefit of each Lender (as provided
in the Credit Agreement) and the other Secured Creditors.
2
K. In furtherance of the foregoing, (a) the Administrative Agent, the
Secured Party and the Borrower desire to provide for the assignment of record of
all right, title and interest of Predecessor Lender in, to and under the
Existing Security Agreement, to the Secured Party for the ratable benefit of
each Lender (as provided in the Credit Agreement) and the other Secured
Creditors, and (b) the Collateral Agent and the Borrower desire to amend and
restate the Existing Security Agreement to evidence and reflect the assignment
of certain of the rights and obligations of Administrative Agent under the
Existing Security Agreement to the Secured Party for the ratable benefit of each
Lender (as provided in the Credit Agreement) and the other Secured Creditors and
the inclusion of certain properties as additional Collateral to secure the
payment and performance of the Obligations, including, without limitation, the
obligations and indebtedness otherwise described in the Existing Security
Agreement and the Credit Agreement.
L. Each Grantor has determined that valuable benefits will be derived by it
as a result of the Credit Agreement and the extension of credit made (and to be
made) by the Secured Creditors thereunder.
ACCORDINGLY, the Grantors and the Secured Party, on behalf of the Secured
Creditors, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined in Credit Agreement. All capitalized terms used herein
and not otherwise defined shall have the meanings assigned to such terms in the
Credit Agreement.
1.2 Terms Defined in UCC. Terms defined in the UCC which are not otherwise
defined in this Security Agreement (including, without limitation, Accounts,
Chattel Paper, Commercial Tort Claims, Commodity Accounts, Deposit Accounts,
Documents, Equipment, Financial Asset, Fixtures, General Intangibles, Goods,
Instruments, Inventory, Investment Property, Letter-of-Credit-Rights, Security,
Securities Accounts and Supporting Obligations) are used herein as defined in
the UCC.
1.3 Definitions of Certain Terms Used Herein. As used in this Security
Agreement, in addition to the terms defined in the introductory paragraph hereto
and in the Preliminary Statements, the following terms shall have the following
meanings:
"Account Debtor" means a Person who is obligated on an Account.
"Article" means a numbered article of this Security Agreement, unless
another document is specifically referenced.
"Assigned Contracts" means, collectively, all of the Grantors' rights and
remedies under, and all moneys and claims for money due or to become due to any
Grantor under those contracts set forth on Exhibit L hereto, and any other
material contracts, and any and all amendments, supplements, extensions, and
renewals thereof including all rights and claims of the Grantors now or
hereafter existing: (a) under any insurance, indemnities, warranties, and
guarantees provided for or arising out of or in connection with any of the
3
foregoing agreements; (b) for any damages arising out of or for breach or
default under or in connection with any of the foregoing contracts; (c) to all
other amounts from time to time paid or payable under or in connection with any
of the foregoing agreements; or (d) to exercise or enforce any and all
covenants, remedies, powers and privileges thereunder.
"Collateral" shall have the meaning set forth in Article II.
"Collateral Access Agreement" means any landlord waiver or other agreement,
in form and substance satisfactory to the Secured Party, between the Secured
Party and any third party (including any bailee, consignee, customs broker, or
other similar Person) in possession of any Collateral or any landlord of the
Borrower or any Subsidiary for any real property where any Collateral is
located, as such landlord waiver or other agreement may be amended, restated,
supplemented or otherwise modified from time to time.
"Collateral Account" means any Deposit Account under the sole dominion and
control of the Secured Party established by the Secured Party as provided in
Section 7.1.
"Collateral Report" means any certificate, report or other document
delivered by any Grantor to the Secured Party or any Lender with respect to the
Collateral pursuant to this Agreement or any other Loan Document.
"Colorado Courts" means the state courts of the State of Colorado and the
United States District Court for the District of Colorado.
"Commodity Account Control Agreement" means an agreement, in form and
substance reasonably satisfactory to the Secured Party, among the Borrower or
any Subsidiary a commodity intermediary holding such Borrower or Subsidiary's
assets, including funds and commodity contracts, and the Secured Party with
respect to collection and control of all deposits, commodity contracts and other
balances held in a Commodity Account maintained by the Borrower or any
Subsidiary with such commodity intermediary.
"Control" shall have the meaning set forth in Article 8 or, if applicable,
in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.
"Control Account" means a Securities Account or Commodity Account that is
the subject of an effective Securities Account Control Agreement or Commodity
Account Control Agreement and that is maintained by the Borrower or any
Subsidiary with a securities or commodity intermediary. "Control Account"
includes all Financial Assets held in a Securities Account or a Commodity
Account and all certificates and instruments, if any, representing or evidencing
the Financial Assets contained therein.
"Control Agreement" means a Deposit Account Control Agreement, a Securities
Account Control Agreement or a Commodities Account Control Agreement, as context
may require.
"Copyrights" means, with respect to any Person, all of such Person's right,
title, and interest in and to the following: (a) all copyrights, rights and
interests in copyrights, works protectable by copyright, copyright
registrations, and copyright applications; (b) all renewals of any of the
foregoing; (c) all income, royalties, damages, and payments now or hereafter due
4
and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements for any of the foregoing;
(d) the right to sue for past, present, and future infringements of any of the
foregoing; and (e) all rights corresponding to any of the foregoing throughout
the world.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Deposit Account Control Agreement" means an agreement, in form and
substance satisfactory to the Secured Party, among the Borrower or any
Subsidiary, a banking institution holding such Borrower or such Subsidiary's
funds, and the Secured Party with respect to collection and control of all
deposits and balances held in a Deposit Account maintained by the Borrower or
such Subsidiary with such banking institution.
"Effective Date" has the meaning assigned to such term in the Credit
Agreement.
"Event of Default" means an event described in Section 5.1.
"Hydrocarbons" shall have the meaning set forth in the Credit Agreement.
"Hydrocarbon Collateral" means (a) the leasehold estates created by the
Leases, (b) the Wells, (c) all personal property fixtures, improvements,
permits, rights-of-way and easements used or held for use in connection with the
production, treatments, compression, storing, sale or disposal of Hydrocarbons
or water produced from the property described or covered by the Leases; and (d)
the Hydrocarbons produced or to be produced through the Wells and all contract
rights, privileges, surface, reversionary or remainder interests and other
interest associated with the Leases.
"Leases" means all oil and gas leases and/or oil, gas, other liquid or
gaseous hydrocarbon leases, and other mineral leases and other interests and
estates specifically described on Exhibit A hereto.
"Licenses" means, with respect to any Person, all of such Person's right,
title, and interest in and to (a) any and all licensing agreements or similar
arrangements in and to its Patents, Copyrights, or Trademarks, (b) all income,
royalties, damages, claims, and payments now or hereafter due or payable under
and with respect thereto, including, without limitation, damages and payments
for past and future breaches thereof, and (c) all rights to sue for past,
present, and future breaches thereof.
"Patents" means, with respect to any Person, all of such Person's right,
title, and interest in and to: (a) any and all patents and patent applications;
(b) all inventions and improvements described and claimed therein; (c) all
reissues, divisions, continuations, renewals, extensions, and
continuations-in-part thereof; (d) all income, royalties, damages, claims, and
payments now or hereafter due or payable under and with respect thereto,
including, without limitation, damages and payments for past and future
5
infringements thereof; (e) all rights to sue for past, present, and future
infringements thereof; and (f) all rights corresponding to any of the foregoing
throughout the world.
"Pledged Collateral" means all Instruments, Securities and other Investment
Property of the Grantors that constitute Collateral hereunder, whether or not
physically delivered to the Secured Party pursuant to this Security Agreement.
"Proceeds" shall have the meaning set forth in Article 9 of the UCC and, in
any event shall include, without limitation all dividends or other income from
the Pledged Collateral, collections thereon or distributions or payments with
respect thereto.
"Receivables" means Accounts, Chattel Paper, Documents, Investment
Property, Instruments and any other rights or claims to receive money which are
General Intangibles or which are otherwise included as Collateral.
"Section" means a numbered section of this Security Agreement, unless
another document is specifically referenced.
"Secured Creditors" means the Secured Party, the Administrative Agent, the
Lenders and any Secured Hedging Counterparty.
"Securities Account Control Agreement" means an agreement, in form and
substance reasonably satisfactory to the Secured Party, among the Borrower or
any Subsidiary, a securities intermediary holding such Borrower or any
Subsidiary's assets, including funds and securities, or an issuer of Securities,
and the Secured Party with respect to collection and control of all deposits,
securities and other balances held in a Securities Account maintained by the
Borrower or any Subsidiary with such securities intermediary.
"Stock Rights" means all dividends, instruments or other distributions and
any other right or property which the Grantors shall receive or shall become
entitled to receive for any reason whatsoever with respect to, in substitution
for or in exchange for any Equity Interest constituting Collateral, any right to
receive an Equity Interest and any right to receive earnings, in which the
Grantors now have or hereafter acquire any right, issued by an issuer of such
Equity Interest.
"Trademarks" means, with respect to any Person, all of such Person's right,
title, and interest in and to the following: (a) all trademarks (including
service marks), trade names, trade dress, and trade styles and the registrations
and applications for registration thereof and the goodwill of the business
symbolized by the foregoing; (b) all licenses of the foregoing, whether as
licensee or licensor; (c) all renewals of the foregoing; (d) all income,
royalties, damages, and payments now or hereafter due or payable with respect
thereto, including, without limitation, damages, claims, and payments for past
and future infringements thereof; (e) all rights to sue for past, present, and
future infringements of the foregoing, including the right to settle suits
involving claims and demands for royalties owing; and (f) all rights
corresponding to any of the foregoing throughout the world.
"UCC" means the Uniform Commercial Code, as in effect from time to time, of
the State of Colorado or of any other state the laws of which are required as a
result thereof to be applied in connection with the attachment, perfection or
6
priority of, or remedies with respect to, Secured Party's or any Lender's Lien
on any Collateral.
"Wells" means those oil and gas wells specifically described in Exhibit A
hereto and the oil and/or gas wells and equipment on or relating to the property
described in the Leases, including, without limitation, any wells drilled by the
Borrower upon the property described in the Leases.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
GRANT OF SECURITY INTEREST
Each Grantor hereby pledges, assigns and grants to the Secured Party, on
behalf of and for the ratable benefit of the Secured Creditors, a security
interest in all of its right, title and interest in, to and under all personal
property and other assets, whether now owned by or owing to, or hereafter
acquired by or arising in favor of such Grantor (including under any trade name
or derivations thereof), and whether owned or consigned by or to, or leased from
or to, such Grantor, and regardless of where located (all of which will be
collectively referred to as the "Collateral"), including:
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Copyrights, Patents and Trademarks;
(iv) all Documents;
(v) all Equipment;
(vi) all Fixtures;
(vii) all General Intangibles;
(viii) all Goods;
(ix) all Hydrocarbon Collateral;
(x) all Instruments;
(xi) all Inventory;
(xii) all Investment Property;
(xiii) all cash or cash equivalents;
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(xiv) all letters of credit, Letter-of-Credit Rights and
Supporting Obligations;
(xv) all Deposit Accounts with any bank or other financial
institution;
(xvi) all Commercial Tort Claims listed on Exhibit K hereto;
(xvii) all Securities Accounts;
(xviii) all Commodity Accounts;
(xix) all Assigned Contracts;
(xx) and all accessions to, substitutions for and
replacements, Proceeds (including Stock Rights), insurance proceeds and
products of the foregoing, together with all books and records, customer
lists, credit files, computer files, programs, printouts and other
computer materials and records related thereto and any General Intangibles
at any time evidencing or relating to any of the foregoing;
to secure the prompt and complete payment and performance of the
Indebtedness.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Grantor represents and warrants to the Secured Creditors that:
3.1 Title, Perfection and Priority. Such Grantor has good and valid rights
in or the power to transfer the Collateral and title to the Collateral with
respect to which it has purported to grant a security interest hereunder, free
and clear of all Liens except for Liens permitted under Section 4.1(e), and has
full power and authority to grant to the Secured Party the security interest in
such Collateral pursuant hereto. When financing statements have been filed in
the appropriate offices against such Grantor in the locations listed on Exhibit
I, the Secured Party will have a fully perfected first priority security
interest in that Collateral of the Grantor in which a security interest may be
perfected by filing, subject only to Liens permitted under Section 4.1(e).
3.2 Type and Jurisdiction of Organization, Organizational and
Identification Numbers. The type of entity of such Grantor, its state of
organization, the organizational number issued to it by its state of
organization and its federal employer identification number are set forth on
Exhibit B.
3.3 Principal Location. Such Grantor's mailing address and the location of
its place of business (if it has only one) or its chief executive office (if it
has more than one place of business), are disclosed in Exhibit B; excluding
locations where a Grantor is a lessee with respect to any oil and gas lease,
such Grantor has no other places of business except those set forth in Exhibit
B.
3.4 Collateral Locations. All of such Grantor's locations where Collateral
is located, excluding locations where a Grantor is a lessee with respect to any
oil and gas lease, are listed on Exhibit B. All of said locations are owned by
8
such Grantor except for locations (i) which are leased by the Grantor as lessee
and designated in Part VIII(b) of Exhibit B and (ii) at which Inventory or other
Collateral is held in a public warehouse or is otherwise held by a bailee or on
consignment as designated in Part VIII(c) of Exhibit B.
3.5 Deposit Accounts, Commodity Accounts and Securities Accounts. All of
such Grantor's Deposit Accounts, Commodity Accounts and Securities Accounts as
of the Effective Date are listed on Exhibit C.
3.6 Exact Names. Such Grantor's name in which it has executed this Security
Agreement is the exact name as it appears in such Grantor's organizational
documents, as amended, as filed with such Grantor's jurisdiction of
organization. Such Grantor (other than the Borrower) has not, during the past
five years, been known by or used any other corporate or fictitious name, or
been a party to any merger or consolidation, or been a party to any acquisition.
In the case of the Borrower, during the past five years, the Borrower has been
known by or used those corporate or fictitious name identified in Part II of
Exhibit B, and was a party to a merger with Synergy Resources Ltd. on December
19, 2008 in which the Borrower was the surviving entity.
3.7 Letter-of-Credit Rights and Chattel Paper. Exhibit D lists all
Letter-of-Credit Rights and Chattel Paper of such Grantor. All action by such
Grantor necessary or desirable to protect and perfect the Secured Party's Lien
on each item listed on Exhibit D (including the delivery of all originals and
the placement of a legend on all Chattel Paper as required hereunder) has been
duly taken. The Secured Party will have a fully perfected first priority
security interest in the Collateral listed on Exhibit D, subject only to Liens
permitted under Section 4.1(e).
3.8 Accounts and Chattel Paper.
(a) The names of the obligors, amounts owing, due dates and other
information with respect to its Accounts and Chattel Paper are and will be
correctly stated in all records of such Grantor relating thereto and in all
invoices and Collateral Reports with respect thereto furnished to the Secured
Party by such Grantor from time to time. As of the time when each Account or
each item of Chattel Paper arises, such Grantor shall be deemed to have
represented and warranted that such Account or Chattel Paper, as the case may
be, and all records relating thereto, are genuine and in all respects what they
purport to be.
(b) With respect to its Accounts, except as specifically disclosed
on the most recent Collateral Report, (i) all Accounts represent bona fide sales
of Inventory or rendering of services to Account Debtors in the ordinary course
of such Grantor's business and are not evidenced by a judgment, Instrument or
Chattel Paper; (ii) there are no setoffs, claims or disputes existing or
asserted with respect thereto and such Grantor has not made any agreement with
any Account Debtor for any extension of time for the payment thereof, any
compromise or settlement for less than the full amount thereof, any release of
any Account Debtor from liability therefor, or any deduction therefrom except a
discount or allowance allowed by such Grantor in the ordinary course of its
business for prompt payment and disclosed to the Secured Party; (iii) to such
Grantor's knowledge, there are no facts, events or occurrences which in any way
9
impair the validity or enforceability thereof or could reasonably be expected to
reduce the amount payable thereunder as shown on such Grantor's books and
records and any invoices, statements and Collateral Reports with respect
thereto; (iv) such Grantor has not received any notice of proceedings or actions
which are threatened or pending against any Account Debtor which might result in
any adverse change in such Account Debtor's financial condition; and (v) such
Grantor has no knowledge that any Account Debtor is unable generally to pay its
debts as they become due.
(c) In addition, with respect to all of its Accounts, (i) the
amounts shown on all invoices, statements and Collateral Reports with respect
thereto are actually and absolutely owing to such Grantor as indicated thereon
and are not in any way contingent; (ii) no payments have been or shall be made
thereon except payments immediately delivered to a Deposit Account subject to a
Deposit Account Control Agreement, except when such Account is held by a Lender;
and (iii) to such Grantor's knowledge, all Account Debtors have the capacity to
contract.
3.9 Inventory. With respect to any Inventory of the Borrower or any
Subsidiary scheduled or listed on the most recent Collateral Report, (a) such
Inventory (other than Inventory in transit) is located at one of such Grantor's
locations permitted in accordance with Section 4.1(g), (b) no Inventory (other
than Inventory in transit) is now, or shall at any time or times hereafter be
stored at any other location except as permitted by Section 4.1(g), (c) such
Grantor has good, indefeasible and merchantable title to such Inventory and such
Inventory is not subject to any Lien or security interest or document whatsoever
except for the Lien granted to the Secured Party, for the benefit of the Secured
Party and Lenders, and except for Excepted Liens, (d) except as specifically
disclosed in the most recent Collateral Report, such Inventory is of good and
merchantable quality, free from any defects, (e) such Inventory is not subject
to any licensing, patent, royalty, trademark, trade name or copyright agreements
with any third parties which would require any consent of any third party upon
sale or disposition of that Inventory or the payment of any monies to any third
party upon such sale or other disposition, and (f) the completion of
manufacture, sale or other disposition of such Inventory by the Secured Party
following an Event of Default shall not require the consent of any Person and
shall not constitute a breach or default under any contract or agreement to
which such Grantor is a party or to which such property is subject.
3.10 Intellectual Property. Such Grantor does not have any interest in, or
title to, any Patent, Trademark or Copyright except as set forth in Exhibit E.
This Security Agreement is effective to create a valid and continuing Lien and,
upon filing of appropriate financing statements in the offices listed on Exhibit
I and this Security Agreement (or, if applicable, such short-form intellectual
property security agreements as the parties may agree upon) with the United
States Copyright Office and the United States Patent and Trademark Office, fully
perfected first priority security interests in favor of the Secured Party on
such Grantor's Patents, Trademarks and Copyrights. Such perfected security
interests are enforceable as such as against any and all creditors of and
purchasers from such Grantor; and all action necessary or desirable to protect
and perfect the Secured Party's Lien on such Grantor's Patents, Trademarks or
Copyrights shall have been duly taken.
3.11 Filing Requirements. As of the Effective Date, none of its Equipment
is covered by any certificate of title, except for the vehicles described in
Part I of Exhibit F. None of the Collateral owned by the Grantor is of a type
for which security interests or liens may be perfected by filing under any
federal statute except for (a) the vehicles described in Part II of Exhibit F
10
and (b) Patents, Trademarks and Copyrights held by such Grantor and described in
Exhibit E. The legal description, county and street address of each property on
which any Fixtures are located (excluding locations where a Grantor is a lessee
with respect to any oil and gas lease) is set forth in Exhibit G together with
the name and address of the record owner of each such property.
3.12 No Financing Statements, Security Agreements. No financing statement
or security agreement describing all or any portion of the Collateral which has
not lapsed or been terminated naming such Grantor as debtor has been filed or is
of record in any jurisdiction except (a) for financing statements or security
agreements naming the Secured Party on behalf of the Lenders as the secured
party, (b) for financing statements or security agreements entered into in
connection with or pursuant to the Existing Credit Agreement and naming the
Predecessor Lender as the secured party, and (c) as permitted by Section 4.1(e).
3.13 Pledged Collateral.
(a) Exhibit H sets forth a complete and accurate list of all Pledged
Collateral owned by such Grantor. Such Grantor is the direct, sole beneficial
owner and sole holder of record of the Pledged Collateral listed on Exhibit H as
being owned by it, free and clear of any Liens, except for the security interest
granted to the Secured Party for the benefit of the Lenders hereunder. Such
Grantor further represents and warrants that (i) all Pledged Collateral owned by
it constituting an Equity Interest has been (to the extent such concepts are
relevant with respect to such Pledged Collateral) duly authorized, validly
issued, are fully paid and non-assessable, (ii) with respect to any certificates
delivered to the Secured Party representing an Equity Interest, either such
certificates are Securities as defined in Article 8 of the UCC as a result of
actions by the issuer or otherwise, or, if such certificates are not Securities,
such Grantor has so informed the Secured Party so that the Secured Party may
take steps to perfect its security interest therein as a General Intangible,
(iii) all such Pledged Collateral held by a securities intermediary is covered
by a Securities Account Control Agreement and (iv) all Pledged Collateral which
represents indebtedness owed to such Grantor has been duly authorized,
authenticated or issued and delivered by the issuer of such indebtedness, is the
legal, valid and binding obligation of such issuer and such issuer is not in
default thereunder.
(b) In addition, (i) none of the Pledged Collateral owned by such
Grantor has been issued or transferred in violation of the securities
registration, securities disclosure or similar laws of any jurisdiction to which
such issuance or transfer may be subject, (ii) there are existing no options,
warrants, calls or commitments of any character whatsoever relating to such
Pledged Collateral or which obligate the issuer of any Equity Interest included
in the Pledged Collateral to issue additional Equity Interests, and (iii) no
consent, approval, authorization, or other action by, and no giving of notice,
filing with, any governmental authority or any other Person is required for the
pledge by such Grantor of such Pledged Collateral pursuant to this Security
Agreement or for the execution, delivery and performance of this Security
Agreement by such Grantor, or for the exercise by the Secured Party of the
voting or other rights provided for in this Security Agreement or for the
remedies in respect of the Pledged Collateral pursuant to this Security
Agreement, except as may be required in connection with such disposition by laws
affecting the offering and sale of securities generally.
(c) Except as set forth in Exhibit H, such Grantor owns 100% of the
issued and outstanding Equity Interests which constitute Pledged Collateral
11
owned by it and none of the Pledged Collateral which represents indebtedness
owed to such Grantor is subordinated in right of payment to other indebtedness
or subject to the terms of an indenture.
ARTICLE IV
COVENANTS
From the date of this Security Agreement, and thereafter until this
Security Agreement is terminated, each Grantor agrees that:
4.1 General.
(a) Collateral Records. Such Grantor will maintain complete and
accurate books and records with respect to the Collateral owned by it, and
furnish to the Secured Party, with sufficient copies for each of the Lenders,
such reports relating to such Collateral as the Secured Party shall from time to
time request.
(b) Authorization to File Financing Statements; Ratification. Such
Grantor hereby authorizes the Secured Party to file, and if requested will
deliver to the Secured Party, all financing statements and other documents and
take such other actions as may from time to time be requested by the Secured
Party in order to maintain a first perfected security interest in and, if
applicable, Control of, the Collateral owned by such Grantor. Any financing
statement filed by the Secured Party may be filed in any filing office in any
UCC jurisdiction and may (i) indicate such Grantor's Collateral (1) as all
assets of the Grantor or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the UCC or such jurisdiction, or (2) by any other description which
reasonably approximates the description contained in this Security Agreement,
and (ii) contain any other information required by part 5 of Article 9 of the
UCC for the sufficiency or filing office acceptance of any financing statement
or amendment, including (A) whether such Grantor is an organization, the type of
organization and any organization identification number issued to such Grantor,
and (B) in the case of a financing statement filed as a fixture filing or
indicating such Grantor's Collateral as as-extracted collateral or timber to be
cut, a sufficient description of real property to which the Collateral relates.
Such Grantor also agrees to furnish any such information to the Secured Party
promptly upon request. Such Grantor also ratifies its authorization for the
Secured Party to have filed in any UCC jurisdiction any initial financing
statements or amendments thereto if filed prior to the date hereof.
(c) Further Assurances. Such Grantor will, if so requested by the
Secured Party, furnish to the Secured Party, as often as the Secured Party
requests, statements and schedules further identifying and describing the
Collateral owned by it and such other reports and information in connection with
its Collateral as the Secured Party may reasonably request, all in such detail
as the Secured Party may specify. Such Grantor also agrees to take any and all
actions necessary to defend title to the Collateral against all persons and to
defend the security interest of the Secured Party in its Collateral and the
priority thereof against any Lien not expressly permitted hereunder.
(d) Disposition of Collateral. Such Grantor will not sell, lease or
otherwise dispose of the Collateral owned by it except for dispositions
specifically permitted pursuant to Credit Agreement and the other Loan
Documents.
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(e) Liens. Such Grantor will not create, incur, or suffer to exist
any Lien on the Collateral owned by it except (i) the security interest created
by this Security Agreement, and (ii) Excepted Liens.
(f) Other Financing Statements. Such Grantor will not authorize the
filing of any financing statement naming it as debtor covering all or any
portion of the Collateral owned by it, except as permitted by Section 4.1(e).
Such Grantor acknowledges that it is not authorized to file any financing
statement or amendment or termination statement with respect to any financing
statement without the prior written consent of the Secured Party, subject to
such Grantor's rights under Section 9-509(d)(2) of the UCC.
(g) Locations. Such Grantor will not (i) maintain any Collateral
owned by it at any location other than those locations listed on Exhibit B and
those locations where such Grantor is a lessee with respect to any oil and gas
lease, (ii) otherwise change, or add to, such locations without the Secured
Party's prior written consent as required by the Credit Agreement (and if the
Secured Party gives such consent, such Grantor will concurrently therewith
obtain a Collateral Access Agreement for each such location to the extent
required by Section 4.13), or (iii) change its principal place of business or
chief executive office from the location identified on Exhibit B, other than as
permitted by the Credit Agreement.
(h) Compliance with Terms. Such Grantor will perform and comply with
all obligations in respect of the Collateral owned by it and all agreements to
which it is a party or by which it is bound relating to such Collateral.
4.2 Receivables.
(a) Certain Agreements on Receivables. Such Grantor will not make or
agree to make any discount, credit, rebate or other reduction in the original
amount owing on a Receivable or accept in satisfaction of a Receivable less than
the original amount thereof, except that, prior to the occurrence of an Event of
Default, such Grantor may reduce the amount of Accounts arising from the sale of
Inventory in accordance with its present policies and in the ordinary course of
business.
(b) Collection of Receivables. Except as otherwise provided in this
Security Agreement, such Grantor will collect and enforce, at such Grantor's
sole expense, all amounts due or hereafter due to such Grantor under the
Receivables owned by it.
(c) Delivery of Invoices. Such Grantor will deliver to the Secured
Party immediately upon its request after the occurrence and during the
continuation of an Event of Default duplicate invoices with respect to each
Account owned by it bearing such language of assignment as the Secured Party
shall specify.
(d) Disclosure of Counterclaims on Receivables. If (i) any discount,
credit or agreement to make a rebate or to otherwise reduce the amount owing on
any Receivable owned by such Grantor exists or if (ii) to the knowledge of such
Grantor, any dispute, setoff, claim, counterclaim or defense exists or has been
asserted or threatened with respect to any such Receivable, such Grantor will
promptly disclose such fact to the Secured Party in writing in connection with
the inspection by the Secured Party of any record of such Grantor relating to
13
such Receivable and in connection with any invoice or report furnished by such
Grantor to Secured Party relating to such Receivable.
(e) Electronic Chattel Paper. Such Grantor shall take all steps
necessary to grant the Secured Party Control of all electronic chattel paper of
such Grantor in accordance with the UCC and all "transferable records" as
defined in each of the Uniform Electronic Transactions Act and the Electronic
Signatures in Global and National Commerce Act.
4.3 Inventory and Equipment.
(a) Inventory. Such Grantor will do all things necessary to
maintain, preserve, protect and keep its Inventory in good repair and working
and saleable condition, except for damaged or defective goods arising in the
ordinary course of such Grantor's business.
(b) Equipment. Each Grantor represents and warrants to and agrees
with the Secured Party and Lenders that all of the Equipment is and will be used
or held for use in the Grantor's business. Each Grantor shall keep and maintain
the Equipment in good operating condition and repair (ordinary wear and tear
excepted) and shall make all reasonably necessary replacements thereof. Each
Grantor shall promptly inform the Secured Party of any material additions to or
deletions from the Equipment. Each Grantor shall not permit any Equipment to
become a fixture to real property or an accession to other personal property,
unless the Secured Party has a valid, perfected, and first priority Lien in such
real or personal property (or the Grantor's leasehold interest therein). Each
Grantor will not, without the Secured Party's prior written consent, which
consent shall not be unreasonably withheld or delayed, alter or remove any
identifying symbol or number on the Equipment. Each Grantor shall not, without
the prior written consent of the Secured Party, which consent shall not be
unreasonably withheld or delayed, sell, lease as a lessor, or otherwise dispose
of any of the Equipment, except as permitted by the Credit Agreement.
(c) Titled Vehicles. Such Grantor will give the Secured Party notice
of its acquisition of any vehicle covered by a certificate of title and upon
request by the Secured Party (such request to be in the Secured Party's sole
discretion), each Grantor will cause such Grantor to promptly deliver to the
Secured Party originals of certificates of title, manufacturer's certificates of
origin or other appropriate title documents for all new and used vehicles,
trucks, tractors, and trailers owned by such Grantor, together with such
executed documentation as the Secured Party may request to enable the Secured
Party to note the Liens in favor of the Lenders thereon.
4.4 Delivery of Instruments, Securities, Chattel Paper and Documents. Such
Grantor will (a) deliver to the Secured Party immediately upon execution of this
Security Agreement, the originals of all Chattel Paper, Securities and other
Instruments, constituting Collateral owned by it (if any then exist), (b) hold
in trust for the Secured Party upon receipt and immediately thereafter deliver
to the Secured Party any such Chattel Paper, Securities and Instruments,
constituting Collateral, (c) upon the Secured Party's request, deliver to the
Secured Party (and thereafter hold in trust for the Secured Party upon receipt
and immediately deliver to the Secured Party) any Document evidencing or
constituting Collateral and (d) upon the Secured Party's request, deliver to the
Secured Party a duly executed amendment to this Security Agreement, in the form
of Exhibit J hereto (the "Amendment"), pursuant to which such Grantor will
14
pledge such additional Collateral. Such Grantor hereby authorizes the Secured
Party to attach each Amendment to this Security Agreement and agrees that all
additional Collateral owned by it set forth in such Amendments shall be
considered to be part of the Collateral.
4.5 Uncertificated Pledged Collateral. Such Grantor will permit the Secured
Party from time to time to cause the appropriate issuers (and, if held with a
securities intermediary, such securities intermediary) of uncertificated
securities or other types of Pledged Collateral owned by it not represented by
certificates to mark their books and records with the numbers and face amounts
of all such uncertificated securities or other types of Pledged Collateral not
represented by certificates and all rollovers and replacements therefor to
reflect the Lien of the Secured Party granted pursuant to this Security
Agreement. With respect to any Pledged Collateral owned by it, such Grantor will
take any actions necessary to cause (a) the issuers of uncertificated securities
which are Pledged Collateral and (b) any securities intermediary which is the
holder of any such Pledged Collateral, to cause the Secured Party to have and
retain Control over such Pledged Collateral.
4.6 Pledged Collateral.
(a) Changes in Capital Structure of Issuers. In the case of any
issuer that is a direct or indirect Subsidiary of the Borrower, such Grantor
will not (i) permit or suffer any issuer of an Equity Interest constituting
Pledged Collateral owned by it to dissolve, merge, liquidate, retire any of its
Equity Interests or other Instruments or Securities evidencing ownership, reduce
its capital, sell or encumber all or substantially all of its assets (except for
Excepted Liens and sales of assets permitted pursuant to Section 4.1(d)) or
merge or consolidate with any other entity, or (ii) vote any such Pledged
Collateral in favor of any of the foregoing.
(b) Issuance of Additional Securities. In the case of any issuer
that is a direct or indirect Subsidiary of the Borrower, such Grantor will not
permit or suffer the issuer of an Equity Interest constituting Pledged
Collateral owned by it to issue additional Equity Interests, any right to
receive the same or any right to receive earnings, except to such Grantor.
(c) Registration of Pledged Collateral. Such Grantor will permit any
registerable Pledged Collateral owned by it to be registered in the name of the
Secured Party or its nominee at any time at the option of the Required Lenders.
(d) Exercise of Rights in Pledged Collateral.
(i) Without in any way limiting the foregoing and subject to
clause (ii) below, such Grantor shall have the right to exercise all
voting rights or other rights relating to the Pledged Collateral owned by
it for all purposes not inconsistent with this Security Agreement, the
Credit Agreement or any other Loan Document; provided however, that no
vote or other right shall be exercised or action taken which would have
the effect of impairing the rights of the Secured Party in respect of such
Pledged Collateral.
(ii) Such Grantor will permit the Secured Party or its nominee
at any time after the occurrence of an Event of Default, without notice,
to exercise all voting rights or other rights relating to the Pledged
Collateral owned by it, including, without limitation, exchange,
subscription or any other rights, privileges, or options pertaining to any
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Equity Interest or Investment Property constituting such Pledged
Collateral as if it were the absolute owner thereof.
(iii) Such Grantor shall be entitled to collect and receive
for its own use all cash dividends and interest paid in respect of the
Pledged Collateral owned by it to the extent not in violation of the
Credit Agreement other than any of the following distributions and
payments (collectively referred to as the "Excluded Payments"): (A)
dividends and interest paid or payable other than in cash in respect of
such Pledged Collateral, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for, any
Pledged Collateral; (B) dividends and other distributions paid or payable
in cash in respect of such Pledged Collateral in connection with a partial
or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in capital of an issuer; and (C) cash
paid, payable or otherwise distributed, in respect of principal of, or in
redemption of, or in exchange for, such Pledged Collateral; provided
however, that until actually paid, all rights to such distributions shall
remain subject to the Lien created by this Security Agreement; and
(iv) All Excluded Payments and all other distributions in
respect of any of the Pledged Collateral owned by such Grantor, whenever
paid or made, shall be delivered to the Secured Party to hold as Pledged
Collateral and shall, if received by such Grantor, be received in trust
for the benefit of the Secured Party, be segregated from the other
property or funds of such Grantor, and be forthwith delivered to the
Secured Party as Pledged Collateral in the same form as so received (with
any necessary endorsement). If directed by Borrower or at the discretion
of the Secured Party, any cash Excluded Payments may be applied in
satisfaction of the Obligations.
4.7 Intellectual Property.
(a) Such Grantor will use its best efforts to secure all consents
and approvals necessary or appropriate for the assignment to or benefit of the
Secured Party of any License held by such Grantor and to enforce the security
interests granted hereunder.
(b) Such Grantor shall notify the Secured Party immediately if it
knows or has reason to know that any application or registration relating to any
Patent, Trademark or Copyright (now or hereafter existing) may become abandoned
or dedicated, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any court) regarding such Grantor's ownership of any Patent, Trademark
or Copyright, its right to register the same, or to keep and maintain the same.
(c) In no event shall such Grantor, either directly or through any
agent, employee, licensee or designee, file an application for the registration
of any Patent, Trademark or Copyright with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency without giving the Secured Party prior written notice thereof, and, upon
request of the Secured Party, such Grantor shall execute and deliver any and all
security agreements as the Secured Party may request to evidence the Secured
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Party's first priority security interest on such Patent, Trademark or Copyright,
and the General Intangibles of such Grantor relating thereto or represented
thereby.
(d) Such Grantor shall take all actions necessary or requested by
the Secured Party to maintain and pursue each application, to obtain the
relevant registration and to maintain the registration of each of its Patents,
Trademarks and Copyrights (now or hereafter existing), including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability and
opposition and interference and cancellation proceedings, unless such Grantor
and the Secured Party shall determine that such Patent, Trademark or Copyright
is not material to the conduct of such Grantor's business.
(e) Such Grantor shall, unless it shall reasonably determine that
such Patent, Trademark or Copyright is in no way material to the conduct of its
business or operations, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as the Secured
Party shall deem appropriate under the circumstances to protect such Patent,
Trademark or Copyright. In the event that such Grantor institutes suit because
any of its Patents, Trademarks or Copyrights constituting Collateral is
infringed upon, or misappropriated or diluted by a third party, such Grantor
shall comply with Section 4.8.
4.8 Commercial Tort Claims. Such Grantor shall promptly, and in any event
within two Business Days after the same is acquired by it, notify the Secured
Party of any commercial tort claim (as defined in the UCC) acquired by it that
could reasonably be expected to result in a judgment or settlement in such
Grantor's favor and, unless the Secured Party otherwise consents, such Grantor
shall enter into an amendment to this Security Agreement, in the form of Exhibit
J hereto, granting to Secured Party a first priority security interest in such
Commercial Tort Claim.
4.9 Letter-of-Credit Rights. If such Grantor is or becomes the beneficiary
of a letter of credit, it shall promptly, and in any event within two Business
Days after becoming a beneficiary, notify the Secured Party thereof and cause
the issuer and/or confirmation bank to consent to the assignment of any
Letter-of-Credit Rights to the Secured Party.
4.10 Federal, State or Municipal Claims. Such Grantor will promptly notify
the Secured Party of any Collateral which constitutes a claim against the United
States government or any state or local government or any instrumentality or
agency thereof, the assignment of which claim is restricted by federal, state or
municipal law.
4.11 No Interference. Such Grantor agrees that it will not interfere with
any right, power and remedy of the Secured Party provided for in this Security
Agreement or now or hereafter existing at law or in equity or by statute or
otherwise, or the exercise or beginning of the exercise by the Secured Party of
any one or more of such rights, powers or remedies.
4.12 Insurance. Each Grantor shall maintain insurance in accordance with
the requirements of Section 8.07 of the Credit Agreement. All premiums on any
such insurance shall be paid when due by such Grantor, and copies of the
policies delivered to the Secured Party. If such Grantor fails to obtain any
insurance as required by this Section, the Secured Party may obtain such
insurance at the Borrower's expense. By purchasing such insurance, the Secured
17
Party shall not be deemed to have waived any Default arising from such Grantor's
failure to maintain such insurance or pay any premiums therefor.
4.13 Collateral Access Agreements. At the request of the Secured Party,
such Grantor shall use commercially reasonable efforts to obtain a Collateral
Access Agreement, from the lessor of each leased property (other than an oil and
gas lease), mortgagee of owned property or bailee or consignee with respect to
any warehouse, processor or converter facility or other location where, in any
such case, any Collateral is stored or located, which agreement or letter shall
provide access rights, contain a waiver or subordination of all Liens or claims
that the landlord, mortgagee, bailee or consignee may assert against the
Collateral at that location, and shall otherwise be reasonably satisfactory in
form and substance to the Secured Party. Such Grantor shall timely and fully pay
and perform its obligations under all leases and other agreements with respect
to each leased location or third party warehouse where any Collateral is or may
be located.
4.14 Control Agreements. For each Deposit Account, Securities Account and
Commodities Account that such Grantor at any time maintains, such Grantor will,
substantially contemporaneously with the opening of such Deposit Account,
Securities Account or Commodities Account, pursuant to a Control Agreement in
form and substance satisfactory to the Secured Party, cause the depository bank
that maintains such Deposit Account, securities intermediary that maintains such
Securities Account, or commodities intermediary that maintains such Commodities
Account, as applicable, to agree to comply at any time with instructions from
the Secured Party to such depository bank, securities intermediary or
commodities intermediary directing the disposition of funds from time to time
credited to such Deposit Account, Securities Account or Commodities Account,
without further consent of such Grantor, or take such other action as the
Secured Party may approve in order to perfect the Secured Party's security
interest in such Deposit Account, Securities Account or Commodities Account.
This Section 4.14 shall not apply to Accounts that are maintained by one or more
of the Grantors solely and exclusively for the purpose of holding and disbursing
funds that are collected by the Grantors, but that are the property of, or
represent funds held in trust for, a third party (other than a Secured
Creditor).
4.15 Change of Name or Location; Change of Fiscal Year. Such Grantor shall
not (a) change its name as it appears in official filings in the state of its
incorporation or organization, (b) change its chief executive office, principal
place of business, mailing address, corporate offices or warehouses or locations
at which Collateral is held or stored (other than locations where such Grantor
is a lessee with respect to any oil and gas lease), or the location of its
records concerning the Collateral as set forth in the Security Agreement, (c)
change the type of entity that it is, (d) change its organization identification
number, if any, issued by its state of incorporation or other organization, or
(e) change its state of incorporation or organization, in each case, unless the
Secured Party shall have received at least ten Business Days prior written
notice of such change and the Secured Party shall have acknowledged in writing
that either (1) such change will not adversely affect the validity, perfection
or priority of the Secured Party's security interest in the Collateral, or (2)
any reasonable action requested by the Secured Party in connection therewith has
been completed or taken (including any action to continue the perfection of any
Liens in favor of the Secured Party, on behalf of the Lenders, in any
Collateral), provided that, any new location shall be in the continental U.S.
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4.16 Assigned Contracts. Such Grantor will use its best efforts to secure
all consents and approvals necessary or appropriate for the assignment to or for
the benefit of the Secured Party of any Assigned Contract held by such Grantor
and to enforce the security interests granted hereunder. Such Grantor shall
fully perform all of its obligations under each of its Assigned Contracts, and
shall enforce all of its rights and remedies thereunder, in each case, as it
deems appropriate in its business judgment; provided however, that such Grantor
shall not take any action or fail to take any action with respect to its
Assigned Contracts which would cause the termination of an Assigned Contract.
Without limiting the generality of the foregoing, such Grantor shall take all
action necessary or appropriate to permit, and shall not take any action which
would have any materially adverse effect upon, the full enforcement of all
indemnification rights under its Assigned Contracts. Such Grantor shall notify
the Secured Party and the Lenders in writing, promptly after such Grantor
becomes aware thereof, of any event or fact which could give rise to a material
claim by it for indemnification under any of its Assigned Contracts, and shall
diligently pursue such right and report to the Secured Party on all further
developments with respect thereto. Such Grantor shall deposit into a Deposit
Account subject to a Deposit Account Control Agreement, all amounts received by
such Grantor as indemnification or otherwise pursuant to its Assigned Contracts.
If such Grantor shall fail after the Secured Party's demand to pursue diligently
any right under its Assigned Contracts, or if an Event of Default then exists,
the Secured Party may, and at the direction of the Required Lenders shall,
directly enforce such right in its own or such Grantor's name and may enter into
such settlements or other agreements with respect thereto as the Secured Party
or the Required Lenders, as applicable, shall determine. In any suit, proceeding
or action brought by the Secured Party for the benefit of the Lenders under any
Assigned Contract for any sum owing thereunder or to enforce any provision
thereof, such Grantor shall indemnify and hold the Secured Creditors harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaims, recoupment, or reduction of liability whatsoever of the
obligor thereunder arising out of a breach by such Grantor of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing from such Grantor to or in favor of such obligor or its
successors. All such obligations of such Grantor shall be and remain enforceable
only against such Grantor and shall not be enforceable against any of the
Secured Creditors. Notwithstanding any provision hereof to the contrary, such
Grantor shall at all times remain liable to observe and perform all of its
duties and obligations under its Assigned Contracts, and any Secured Creditor's
exercise of any of its rights with respect to the Collateral shall not release
such Grantor from any of such duties and obligations. No Secured Creditor shall
be obligated to perform or fulfill any of such Grantor's duties or obligations
under its Assigned Contracts or to make any payment thereunder, or to make any
inquiry as to the nature or sufficiency of any payment or property received by
it thereunder or the sufficiency of performance by any party thereunder, or to
present or file any claim, or to take any action to collect or enforce any
performance, any payment of any amounts, or any delivery of any property.
4.17 Additional Grantors. Each Grantor agrees to cause each Subsidiary that
becomes a party to this Security Agreement pursuant to Section 9.15 of the
Credit Agreement to become a Grantor for all purposes of this Security Agreement
upon execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex 1 hereto.
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ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default hereunder:
(a) Any representation or warranty made by or on behalf of any
Grantor under or in connection with this Security Agreement shall be materially
false as of the date on which made.
(b) The breach by any Grantor of any of the terms or provisions of
Article IV or Article VII.
(c) The breach by any Grantor (other than a breach which constitutes
an Event of Default under any other Section of this Article V) of any of the
terms or provisions of this Security Agreement which is not remedied within ten
days after such breach.
(d) The occurrence of any "Event of Default" under, and as defined
in, the Credit Agreement.
(e) Any Equity Interest which is included within the Collateral
shall at any time constitute a Security or the issuer of any such Equity
Interest shall take any action to have such interests treated as a Security
unless (i) all certificates or other documents constituting such Security have
been delivered to the Secured Party and such Security is properly defined as
such under Article 8 of the UCC of the applicable jurisdiction, whether as a
result of actions by the issuer thereof or otherwise, or (ii) the Secured Party
has entered into a Securities Account Control Agreement with the issuer of such
Security or with a securities intermediary relating to such Security and such
Security is defined as such under Article 8 of the UCC of the applicable
jurisdiction, whether as a result of actions by the issuer thereof or otherwise.
5.2 Remedies.
(a) Upon the occurrence of an Event of Default, the Secured Party
may (individually, on in connection with the Administrative Agent), or at the
direction of the Required Lenders, shall, exercise any or all of the following
rights and remedies:
(i) those rights and remedies provided in this Security
Agreement, the Credit Agreement, the Intercreditor Agreement or any other
Loan Document; provided that, this Section 5.2(a) shall not be understood
to limit any rights or remedies available to the Secured Creditors prior
to an Event of Default;
(ii) those rights and remedies available to a secured party
under the UCC (whether or not the UCC applies to the affected Collateral)
or under any other applicable law (including, without limitation, any law
governing the exercise of a bank's right of setoff or bankers' lien) when
a debtor is in default under a security agreement;
(iii) give notice of sole control or any other instruction
under any Control Agreement and take any action therein with respect to
such Collateral;
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(iv) without notice (except as specifically provided in
Section 8.1 or elsewhere herein), demand or advertisement of any kind to
any Grantor or any other Person, enter the premises of any Grantor where
any Collateral is located (through self-help and without judicial process)
to collect, receive, assemble, process, appropriate, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of, deliver,
or realize upon, the Collateral or any part thereof in one or more parcels
at public or private sale or sales (which sales may be adjourned or
continued from time to time with or without notice and may take place at
any Grantor's premises or elsewhere), for cash, on credit or for future
delivery without assumption of any credit risk, and upon such other terms
as the Secured Party may deem commercially reasonable; and
(v) concurrently with written notice to the applicable
Grantor, transfer and register in its name or in the name of its nominee
the whole or any part of the Pledged Collateral, to exchange certificates
or instruments representing or evidencing Pledged Collateral for
certificates or instruments of smaller or larger denominations, to
exercise the voting and all other rights as a holder with respect thereto,
to collect and receive all cash dividends, interest, principal and other
distributions made thereon and to otherwise act with respect to the
Pledged Collateral as though the Secured Party was the outright owner
thereof.
(b) The Secured Party, on behalf of the Secured Creditors, may
comply with any applicable state or federal law requirements in connection with
a disposition of the Collateral and compliance will not be considered to
adversely affect the commercial reasonableness of any sale of the Collateral.
(c) The Secured Party shall have the right upon any such public sale
or sales and, to the extent permitted by law, upon any such private sale or
sales, to purchase for the benefit of the Secured Creditors, the whole or any
part of the Collateral so sold, free of any right of equity redemption, which
equity redemption the Grantor hereby expressly releases.
(d) Until the Secured Party is able to affect a sale, lease, or
other disposition of Collateral, the Secured Party shall have the right to hold
or use the Collateral, or any part thereof, to the extent that it deems
appropriate for the purpose of preserving the Collateral or its value or for any
other purpose deemed appropriate by the Secured Party. The Secured Party may, if
it so elects, seek the ex parte appointment of a receiver or keeper to take
possession of the Collateral and to enforce any of the Secured Party's remedies
(for the benefit of the Secured Creditors), with respect to such appointment
without prior notice or hearing as to such appointment.
(e) Notwithstanding the foregoing, neither the Secured Party nor any
Lender shall be required to (i) make any demand upon, or pursue or exhaust any
of their rights or remedies against, any Grantor, any other obligor, guarantor,
pledgor or any other Person with respect to the payment of the Indebtedness or
to pursue or exhaust any of their rights or remedies with respect to any
Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal
the Collateral or any guarantee of the Indebtedness or to resort to the
Collateral or any such guarantee in any particular order, or (iii) effect a
public sale of any Collateral.
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(f) Each Grantor recognizes that the Secured Party may be unable to
effect a public sale of any or all the Pledged Collateral and may be compelled
to resort to one or more private sales thereof in accordance with clause (a)
above. Each Grantor also acknowledges that any private sale may result in prices
and other terms less favorable to the seller than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall not be deemed to have been made in a commercially unreasonable manner
solely by virtue of such sale being private. The Secured Party shall be under no
obligation to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit any Grantor or the issuer of the Pledged Collateral to
register such securities for public sale under the Securities Act of 1933, as
amended, or under applicable state securities laws, even if the applicable
Grantor and the issuer would agree to do so.
5.3 Grantor's Obligations Upon Default. Upon the request of the Secured
Party after the occurrence of a Default and for so long as such Default remains
uncured, each Grantor will:
(a) assemble and make available to the Secured Party the Collateral
and all books and records relating thereto at any place or places specified by
the Secured Party, whether at a Grantor's premises or elsewhere;
(b) permit the Secured Party, by the Secured Party's representatives
and agents, to enter, occupy and use any premises where all or any part of the
Collateral, or the books and records relating thereto, or both, are located, to
take possession of all or any part of the Collateral or the books and records
relating thereto, or both, to remove all or any part of the Collateral or the
books and records relating thereto, or both, and to conduct sales of the
Collateral, without any obligation to pay the Grantor for such use and
occupancy;
(c) take, or cause an issuer of Pledged Collateral to take, any and
all actions necessary to register or qualify the Pledged Collateral to enable
the Secured Party to consummate a public sale or other disposition of the
Pledged Collateral; and
(d) at its own expense, cause the independent certified public
accountants then engaged by each Grantor to prepare and deliver to the Secured
Creditors, at any time, and from time to time, promptly upon the Secured Party's
request, the following reports with respect to the applicable Grantor: (i) a
reconciliation of all Accounts; (ii) an aging of all Accounts; (iii) trial
balances; and (iv) a test verification of such Accounts.
5.4 Grant of Intellectual Property License. For the purpose of enabling the
Secured Party to exercise the rights and remedies under this Article V at such
time as the Secured Party shall be lawfully entitled to exercise such rights and
remedies, each Grantor hereby (a) grants to the Secured Party, for the benefit
of the Secured Creditors, an irrevocable, nonexclusive license (exercisable
without payment of royalty or other compensation to any Grantor) to use, license
or sublicense any intellectual property rights now owned or hereafter acquired
by such Grantor, and wherever the same may be located, and including in such
license access to all media in which any of the licensed items may be recorded
or stored and to all computer software and programs used for the compilation or
printout thereof and (b) irrevocably agrees that the Secured Party may sell any
of such Grantor's Inventory directly to any person, including without limitation
22
persons who have previously purchased the Grantor's Inventory from such Grantor
and in connection with any such sale or other enforcement of the Secured Party's
rights under this Security Agreement, may sell Inventory which bears any
Trademark owned by or licensed to such Grantor and any Inventory that is covered
by any Copyright owned by or licensed to such Grantor and the Secured Party may
finish any work in process and affix any Trademark owned by or licensed to such
Grantor and sell such Inventory as provided herein.
ARTICLE VI
ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY
6.1 Account Verification. On and after the occurrence of a Default and
during its continuation, the Secured Party shall have the right at any time at
the Grantors' expense to (a) verify the validity, amount or any other material
information relating to any Accounts and (b) enforce collection of any such
Accounts and to adjust, settle or compromise the amount of payment thereof, all
in the same manner as the Grantors.
6.2 Authorization for Lender to Take Certain Action.
(a) Each Grantor irrevocably authorizes the Secured Party at any
time and from time to time in the sole discretion of the Secured Party and
appoints the Secured Party as its attorney in fact (i) to execute on behalf of
such Grantor as debtor and to file financing statements necessary or desirable
in the Secured Party's sole discretion to perfect and to maintain the perfection
and priority of the Secured Party's security interest in the Collateral, (ii) to
endorse and collect any cash proceeds of the Collateral, (iii) to file a carbon,
photographic or other reproduction of this Security Agreement or any financing
statement with respect to the Collateral as a financing statement and to file
any other financing statement or amendment of a financing statement (which does
not add new collateral or add a debtor) in such offices as the Secured Party in
its sole discretion deems necessary or desirable to perfect and to maintain the
perfection and priority of the Secured Party's security interest in the
Collateral, (iv) to contact and enter into one or more agreements with the
issuers of uncertificated securities which are Pledged Collateral or with
securities intermediaries holding Pledged Collateral as may be necessary or
advisable to give the Secured Party Control over such Pledged Collateral, (v) to
apply the proceeds of any Collateral received by the Secured Party to the
Indebtedness as provided in Section 7.1, (vi) to discharge past due taxes,
assessments, charges, fees or Liens on the Collateral (except for such Liens as
are specifically permitted hereunder), (vii) to contact Account Debtors for any
reason, (viii) to demand payment or enforce payment of the Receivables in the
name of the Secured Party or such Grantor and to endorse any and all checks,
drafts, and other instruments for the payment of money relating to the
Receivables, (ix) to sign such Grantor's name on any invoice or bill of lading
relating to the Receivables, drafts against any Account Debtor of the Grantor,
assignments and verifications of Receivables, (x) to exercise all of such
Grantor's rights and remedies with respect to the collection of the Receivables
and any other Collateral, (xi) to settle, adjust, compromise, extend or renew
the Receivables, (xii) to settle, adjust or compromise any legal proceedings
brought to collect Receivables, (xiii) to prepare, file and sign such Grantor's
name on a proof of claim in bankruptcy or similar document against any Account
Debtor of such Grantor, (xiv) to prepare, file and sign such Grantor's name on
any notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables, (xv) to change the address for delivery of mail
addressed to such Grantor to such address as the Secured Party may designate and
to receive, open and dispose of all mail addressed to such Grantor, and (xvi) to
23
do all other acts and things necessary to carry out this Security Agreement; and
such Grantor agrees to reimburse the Secured Party on demand for any payment
made or any expense incurred by the Secured Party in connection with any of the
foregoing; provided that, this authorization shall not relieve such Grantor of
any of its obligations under this Security Agreement, the Credit Agreement or
under any other Loan Document.
(b) All acts of said attorney or designee are hereby ratified and
approved. The powers conferred on the Secured Party, for the benefit of the
Secured Creditors, under this Section 6.2 are solely to protect the Secured
Party's interests in the Collateral and shall not impose any duty upon the
Secured Party or any Lender to exercise any such powers. The Secured Party
agrees that, except for the powers granted in Section 6.2(a)(i)-(vi) and Section
6.2(a)(xvi), it shall not exercise any power or authority granted to it unless
an Event of Default has occurred and is continuing.
6.3 Proxy. EACH GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE
SECURED PARTY AS ITS PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2
ABOVE) WITH RESPECT TO ITS PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH
PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE
RIGHT TO VOTE ANY SUCH PLEDGED COLLATERAL, THE APPOINTMENT OF THE SECURED PARTY
AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER
RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED
COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS
OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH
MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE
NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED COLLATERAL
ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER
OF SUCH PLEDGED COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE
AND DURING THE CONTINUANCE OF A DEFAULT.
6.4 Nature of Appointment; Limitation of Duty. THE APPOINTMENT OF THE
SECURED PARTY AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH
AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY
AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 8.14. NOTWITHSTANDING
ANYTHING CONTAINED HEREIN, NEITHER THE SECURED PARTY, NOR ANY LENDER, NOR ANY OF
THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED
HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY
FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO
EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR
CONSEQUENTIAL DAMAGES.
24
ARTICLE VII
COLLECTION AND APPLICATION OF RECEIVABLES AND OTHER COLLATERAL PROCEEDS
7.1 Collection and Application of Receivables and Other Collateral
Proceeds. The Secured Party hereby authorizes each Grantor to collect such
Grantor's Receivables, and the Secured Party may curtail or terminate said
authority at any time after the occurrence and during the continuance of an
Event of Default (but not at any other time). If required by the Secured Party
at any time after the occurrence and during the continuance of an Event of
Default, any Proceeds constituting collections of such Receivables, when
collected by such Grantor, (i) shall be forthwith (and, in any event, within two
Business Days) be deposited by such Grantor in the exact form received, duly
endorsed by such Grantor to the Secured Party if required, in a Collateral
Account maintained under the sole dominion and control of the Secured Party,
subject to withdrawal by the Secured Party for the account of the Secured
Creditors only as provided below in this Section, and (ii) until so turned over,
shall be held by such Grantor in trust for the Secured Creditors, segregated
from other funds of such Grantor. Each such deposit of Proceeds of Receivables
shall be accompanied by a report identifying in reasonable detail the nature and
source of the payments included in the deposit. All Proceeds constituting
collections of Receivables while held by the Collateral Account bank (or by any
Grantor in trust for the benefit of the Lenders) shall continue to be collateral
security for the Indebtedness of the applicable Grantor and shall not constitute
payment thereof until applied as hereinafter provided. At any time when an Event
of Default has occurred and is continuing, at the Secured Party's election, the
Secured Party may apply all or any part of the funds on deposit in the
Collateral Account established by the relevant Grantor to the payment of the
Indebtedness of such Grantor then due and owing, such application to be made as
set forth below in this Section. In addition to the rights of the Secured
Creditors specified above with respect to payments of Receivables, if an Event
of Default shall occur and be continuing, all Proceeds of Collateral received by
any Grantor consisting of cash, checks and other near cash items shall be held
by such Grantor in trust for the Lenders segregated from other funds of such
Grantor, and shall, at the request of the Secured Party, forthwith upon receipt
by such Grantor, be turned over to the Secured Party in the exact form received
by such Grantor (duly endorsed by such Grantor to the Secured Party, if
required). All Proceeds received by the Secured Party hereunder shall be held by
the Secured Party in a Collateral Account maintained under its sole dominion and
control. All Proceeds while held by the Secured Party in a Collateral Account
(or by such Grantor in trust for the Secured Creditors) shall continue to be
held as collateral security for all the Indebtedness and shall not constitute
payment thereof until applied as provided below in this Section. At any time
after the occurrence and during the continuance of an Event of Default, at the
Secured Party's election, the Secured Party may apply all or any part of
Proceeds of any Grantor held in any Collateral Account in payment of the
Indebtedness of such Grantor in such order as the Secured Party may elect in
compliance with the Credit Agreement, and any part of such funds which the
Secured Party elects not so to apply and deems not required as collateral
security for such Indebtedness shall be paid over from time to time by the
Secured Party to the Borrower or to whomsoever may be lawfully entitled to
receive the same. Any balance of such Proceeds remaining after the Indebtedness
shall have been paid in full shall be paid over to the Borrower or to whomsoever
may be lawfully entitled to receive the same.
25
ARTICLE VIII
GENERAL PROVISIONS
8.1 Waivers. Each Grantor hereby waives notice of the time and place of any
public sale or the time after which any private sale or other disposition of all
or any part of the Collateral may be made. To the extent such notice may not be
waived under applicable law, any notice made shall be deemed reasonable if sent
to the Grantors, addressed as set forth in Article IX, at least ten days prior
to (i) the date of any such public sale or (ii) the time after which any such
private sale or other disposition may be made. To the maximum extent permitted
by applicable law, each Grantor waives all claims, damages, and demands against
the any of the Secured Creditors arising out of the repossession, retention or
sale of the Collateral, except such as arise solely out of the gross negligence
or willful misconduct of such Secured Creditor as finally determined by a court
of competent jurisdiction. To the extent it may lawfully do so, each Grantor
absolutely and irrevocably waives and relinquishes the benefit and advantage of,
and covenants not to assert against any Secured Creditor, any valuation, stay,
appraisal, extension, moratorium, redemption or similar laws and any and all
rights or defenses it may have as a surety now or hereafter existing which, but
for this provision, might be applicable to the sale of any Collateral made under
the judgment, order or decree of any court, or privately under the power of sale
conferred by this Security Agreement, or otherwise. Except as otherwise
specifically provided herein, each Grantor hereby waives presentment, demand,
protest or any notice (to the maximum extent permitted by applicable law) of any
kind in connection with this Security Agreement or any Collateral.
8.2 Limitation on Secured Party's and any Lender's Duty with Respect to the
Collateral. The Secured Party shall have no obligation to clean-up or otherwise
prepare the Collateral for sale. The Secured Party and each Secured Creditor
shall use reasonable care with respect to the Collateral in its possession or
under its control. Neither the Secured Party nor any Secured Creditor shall have
any other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of the Secured Party or such
Secured Creditor, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. To the extent that
applicable law imposes duties on the Secured Party to exercise remedies in a
commercially reasonable manner, each Grantor acknowledges and agrees that it is
commercially reasonable for the Secured Party (i) to fail to incur expenses
deemed significant by the Secured Party to prepare Collateral for disposition or
otherwise to transform raw material or work in process into finished goods or
other finished products for disposition, (ii) to fail to obtain third party
consents for access to Collateral to be disposed of, or to obtain or, if not
required by other law, to fail to obtain governmental or third party consents
for the collection or disposition of Collateral to be collected or disposed of,
(iii) to fail to exercise collection remedies against Account Debtors or other
Persons obligated on Collateral or to remove Liens on or any adverse claims
against Collateral, (iv) to exercise collection remedies against Account Debtors
and other Persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vi) to contact other
Persons, whether or not in the same business as such Grantor, for expressions of
interest in acquiring all or any portion of such Collateral, (vii) to hire one
or more professional auctioneers to assist in the disposition of Collateral,
whether or not the Collateral is of a specialized nature, (viii) to dispose of
Collateral by utilizing internet sites that provide for the auction of assets of
the types included in the Collateral or that have the reasonable capacity of
doing so, or that match buyers and sellers of assets, (ix) to dispose of assets
in wholesale rather than retail markets, (x) to disclaim disposition warranties,
26
such as title, possession or quiet enjoyment, (xi) to purchase insurance or
credit enhancements to insure the Secured Party against risks of loss,
collection or disposition of Collateral or to provide to the Secured Party a
guaranteed return from the collection or disposition of Collateral, or (xii) to
the extent deemed appropriate by the Secured Party, to obtain the services of
other brokers, investment bankers, consultants and other professionals to assist
the Secured Party in the collection or disposition of any of the Collateral.
Each Grantor acknowledges that the purpose of this Section 8.2 is to provide
non-exhaustive indications of what actions or omissions by the Secured Party
would be commercially reasonable in the Secured Party's exercise of remedies
against the Collateral and that other actions or omissions by the Secured Party
shall not be deemed commercially unreasonable solely on account of not being
indicated in this Section 8.2. Without limitation upon the foregoing, nothing
contained in this Section 8.2 shall be construed to grant any rights to any
Grantor or to impose any duties on the Secured Party that would not have been
granted or imposed by this Security Agreement or by applicable law in the
absence of this Section 8.2.
8.3 Compromises and Collection of Collateral. The Grantors and the Secured
Party recognize that setoffs, counterclaims, defenses and other claims may be
asserted by obligors with respect to certain of the Receivables, that certain of
the Receivables may be or become uncollectible in whole or in part and that the
expense and probability of success in litigating a disputed Receivable may
exceed the amount that reasonably may be expected to be recovered with respect
to a Receivable. In view of the foregoing, each Grantor agrees that the Secured
Party may at any time and from time to time, if an Event of Default has occurred
and is continuing, compromise with the obligor on any Receivable, accept in full
payment of any Receivable such amount as the Secured Party in its sole
discretion shall determine or abandon any Receivable, and any such action by the
Secured Party shall be commercially reasonable so long as the Secured Party acts
in good faith based on information known to it at the time it takes any such
action.
8.4 Lender Performance of Debtor Obligations. Without having any obligation
to do so, the Secured Party may perform or pay any obligation which any Grantor
has agreed to perform or pay in this Security Agreement and the Grantors shall
reimburse the Secured Party for any amounts paid by the Secured Party pursuant
to this Section 8.4. The Grantors' obligation to reimburse the Secured Party
pursuant to the preceding sentence shall be Indebtedness payable on demand.
8.5 Specific Performance of Certain Covenants. Each Grantor acknowledges
and agrees that a breach of any of the covenants contained in Sections 4.1(d),
4.1(e), 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.12, 4.13, 4.14, 4.15, 4.16, 5.3,
or 8.6 or in Article VII will cause irreparable injury to the Secured Party and
the Secured Creditors, that the Secured Party and Secured Creditors have no
adequate remedy at law in respect of such breaches and therefore agrees, without
limiting the right of the Secured Party or the Secured Creditors to seek and
obtain specific performance of other obligations of the Grantors contained in
this Security Agreement, that the covenants of the Grantors contained in the
Sections referred to in this Section 8.5 shall be specifically enforceable
against the Grantors.
8.6 Dispositions Not Authorized. No Grantor is authorized to sell or
otherwise dispose of the Collateral except as set forth in Section 4.1(d) and
27
notwithstanding any course of dealing between any Grantor and the Secured Party
or other conduct of the Secured Party, no authorization to sell or otherwise
dispose of the Collateral (except as set forth in Section 4.1(d)) shall be
binding upon the Secured Party or the Lenders unless such authorization is in
writing signed by the Secured Party with the consent or at the direction of the
Required Lenders.
8.7 No Waiver; Amendments; Cumulative Remedies. No delay or omission of the
Secured Party or any Secured Creditor to exercise any right or remedy granted
under this Security Agreement shall impair such right or remedy or be construed
to be a waiver of any Default or an acquiescence therein, and any single or
partial exercise of any such right or remedy shall not preclude any other or
further exercise thereof or the exercise of any other right or remedy. No
waiver, amendment or other variation of the terms, conditions or provisions of
this Security Agreement whatsoever shall be valid unless in writing signed by
the Secured Party with the concurrence or at the direction of the Lenders
required under Section 12.02 of the Credit Agreement and then only to the extent
in such writing specifically set forth. All rights and remedies contained in
this Security Agreement or by law afforded shall be cumulative and all shall be
available to the Secured Party and the Lenders until the Indebtedness have been
paid in full.
8.8 Limitation by Law; Severability of Provisions. All rights, remedies and
powers provided in this Security Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable or not entitled to be recorded or registered, in whole or
in part. Any provision in this Security Agreement that is held to be
inoperative, unenforceable, or invalid in any jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable, or invalid without affecting the
remaining provisions in that jurisdiction or the operation, enforceability, or
validity of that provision in any other jurisdiction, and to this end the
provisions of this Security Agreement are declared to be severable.
8.9 Reinstatement. This Security Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Grantor for liquidation or reorganization, should any Grantor become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of any
Grantor's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Indebtedness, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee of the Indebtedness,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Indebtedness shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
8.10 Benefit of Agreement. The terms and provisions of this Security
Agreement shall be binding upon and inure to the benefit of the Grantors, the
Secured Party and the Secured Creditors and their respective successors and
assigns (including all persons who become bound as a debtor to this Security
28
Agreement), except that no Grantor shall have the right to assign its rights or
delegate its obligations under this Security Agreement or any interest herein,
without the prior written consent of the Secured Party. No sales of
participations, assignments, transfers, or other dispositions of any agreement
governing the Indebtedness or any portion thereof or interest therein shall in
any manner impair the Lien granted to the Secured Party, for the benefit of the
Secured Creditors, hereunder.
8.11 Survival of Representations. All representations and warranties of the
Grantors contained in this Security Agreement shall survive the execution and
delivery of this Security Agreement.
8.12 Taxes and Expenses. Any Taxes (other than Excluded Taxes) payable or
ruled payable by Federal or State authority in respect of this Security
Agreement shall be paid by the Grantors, together with interest and penalties,
if any. The Grantors shall reimburse the Secured Party for any and all
out-of-pocket expenses and internal charges (including reasonable attorneys',
auditors' and accountants' fees and reasonable time charges of attorneys,
paralegals, auditors and accountants who may be employees of the Secured Party)
paid or incurred by the Secured Party in connection with the preparation,
execution, delivery, administration, collection and enforcement of this Security
Agreement and in the audit, analysis, administration, collection, preservation
or sale of the Collateral (including the expenses and charges associated with
any periodic or special audit of the Collateral). Any and all costs and expenses
incurred by the Grantors in the performance of actions required pursuant to the
terms hereof shall be borne solely by the Grantors.
8.13 Headings. The title of and section headings in this Security Agreement
are for convenience of reference only, and shall not govern the interpretation
of any of the terms and provisions of this Security Agreement.
8.14 Termination. This Security Agreement shall continue in effect
(notwithstanding the fact that from time to time there may be no Indebtedness
outstanding) until (i) the Credit Agreement has terminated pursuant to its
express terms and (ii) all of the Indebtedness have been indefeasibly paid and
performed in full (or with respect to any outstanding Letters of Credit, a cash
deposit or supporting Letter of Credit has been delivered to the Secured Party
as required by the Credit Agreement) and no commitments of the Secured Party or
the Lenders which would give rise to any Indebtedness are outstanding.
8.15 Entire Agreement. This Security Agreement embodies the entire
agreement and understanding between the Grantors and the Secured Party relating
to the Collateral and supersedes all prior agreements and understandings between
the Grantors and the Secured Party relating to the Collateral.
8.16 CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF COLORADO.
8.17 COLLECTION OF JUDGMENT; WAIVERS.
(a) SUBJECT TO THE PROVISIONS OF THIS AGREEMENT, EACH GRANTOR HEREBY
EXPRESSLY, UNCONDITIONALLY AND IRREVOCABLY CONSENTS TO COLLECTION OF ANY
29
JUDGMENT, LIEN, ATTACHMENT OR ARBITRATION AWARD AGAINST THE ASSETS AND
PROPERTIES OF SUCH GRANTOR.
(b) EACH GRANTOR HEREBY (1) IRREVOCABLY AND UNCONDITIONALLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN; (2) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND (3) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS. EACH GRANTOR
FURTHER ACKNOWLEDGES AND AGREES THAT THE AGREEMENTS AND WAIVERS CONTAINED IN
THIS SECTION 8.17 ARE MATERIAL INDUCEMENTS FOR SECURED PARTY AND THE OTHER
LENDERS TO ENTER INTO THIS SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS AND
THAT WITHOUT SUCH WAIVERS AND AGREEMENTS SECURED PARTY AND THE OTHER LENDERS
WOULD NOT HAVE ENTERED INTO THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT.
8.18 Indemnity. Each Grantor hereby agrees to indemnify the Secured
Creditors, and their respective successors, assigns, agents and employees, from
and against any and all liabilities, damages, penalties, suits, costs, and
expenses of any kind and nature (including, without limitation, all expenses of
litigation or preparation therefor whether or not the any Secured Creditor is a
party thereto) imposed on, incurred by or asserted against the Secured
Creditors, or their respective successors, assigns, agents and employees, in any
way relating to or arising out of this Security Agreement, or the manufacture,
purchase, acceptance, rejection, ownership, delivery, lease, possession, use,
operation, condition, sale, return or other disposition of any Collateral
(including, without limitation, latent and other defects, whether or not
discoverable by the Secured Party or the Lenders or any Grantor, and any claim
for Patent, Trademark or Copyright infringement).
8.19 Counterparts. This Security Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Security Agreement by signing any
such counterpart. Delivery of an executed counterpart of a signature page of
this Security Agreement by telecopy or other electronic transmission shall be
effective as delivery of a manually executed counterpart of this Security
Agreement.
8.20 Lien Absolute. All obligations of each Grantor hereunder, shall be
absolute and unconditional irrespective of:
30
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any of the Indebtedness, by operation of law or otherwise,
or any obligation of any other guarantor of any of the Indebtedness, or any
default, failure or delay, willful or otherwise, in the payment or performance
of the Indebtedness;
(b) any lack of validity or enforceability relating to or against
the Borrower, any Subsidiary or any other guarantor of any of the Indebtedness,
for any reason related to the Credit Agreement, any other Loan Document or any
other agreement or instrument governing or evidencing any Indebtedness, or any
Governmental Requirements purporting to prohibit the payment by the Borrower,
any Subsidiary or any other guarantor of the Indebtedness of the principal of or
interest on the Indebtedness;
(c) any modification or amendment of or supplement to the Credit
Agreement or any other Loan Document;
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any part of the Indebtedness, or any other amendment or
waiver of or any consent to any departure from the Credit Agreement, any other
Loan Document or any other agreement or instrument governing or evidencing any
Indebtedness, including any increase or decrease in the rate of interest
thereon;
(e) any change in the corporate existence, structure or ownership of
the Borrower, any Subsidiary or any other guarantor of any of the Indebtedness,
or any insolvency, bankruptcy, reorganization or other similar proceeding
affecting the Borrower, any Subsidiary or any other guarantor of the
Indebtedness, or any of their assets or any resulting release of discharge of
any obligation of the Borrower, any Subsidiary or any other guarantor or any of
the Indebtedness;
(f) any present or future law, regulation or order of any
jurisdiction (whether of right or in fact) or of any agency thereof purporting
to reduce, amend, restructure or otherwise affect any term of any Loan Document
or Indebtedness;
(g) any other setoff, defense or counterclaim whatsoever (in any
case, whether based on contract, tort or any other theory) with respect to the
Credit Agreement, any other Loan Document, any other agreement or instrument or
the transactions contemplated thereby which might constitute a legal or
equitable defense available to, or discharge of any Grantor; or
(h) any other act or omission to act or delay of any kind by the
Borrower, any Subsidiary, any other guarantor of the Indebtedness, the Secured
Party, any Secured Creditor or any other Person or any other circumstance
whatsoever which might, but for the provisions of this paragraph, constitute a
legal or equitable discharge of any Grantor's obligations hereunder.
8.21 Release. Each Grantor consents and agrees that the Secured Party may
at any time, or from time to time, in its discretion:
(a) renew, extend or change the time of payment, and/or the manner,
place or terms of payment of all or any part of the Indebtedness in accordance
with the terms of the Credit Agreement; and
31
(b) exchange, release and/or surrender all or any of the Collateral
(including the Pledged Collateral), or any part thereof, by whomsoever
deposited, which is now or may hereafter be held by the Secured Party in
connection with all or any of the Indebtedness; all in such manner and upon such
terms as the Secured Party may deem proper, and without notice to or further
assent from any Grantor, it being hereby agreed that each Grantor shall be and
remain bound upon this Security Agreement, irrespective of the value or
condition of any of the Collateral, and notwithstanding any such change,
exchange, settlement, compromise, surrender, release, renewal or extension, and
notwithstanding also that the Indebtedness may, at any time, exceed the
aggregate principal amount thereof set forth in the Credit Agreement, or any
other agreement governing any Indebtedness.
ARTICLE IX
NOTICES
9.1 Sending Notices. Any notice required or permitted to be given under
this Security Agreement shall be sent by certified or registered mail, facsimile
transmission, personal delivery or nationally established overnight courier
service, and shall be deemed received (a) when received, if sent by hand or
overnight courier service, or mailed by certified or registered mail notices or
(b) when sent, if sent by facsimile transmission (except that, if not given
during normal business hours for the recipient, shall be deemed to have been
given at the opening of business on the next Business Day for the recipient), in
each case addressed to the Grantors at the notice address set forth on Exhibit
B, and to the Secured Party (in care of the Administrative Agent) and the
Lenders at the addresses set forth in accordance with Section 12.01 of the
Credit Agreement.
9.2 Change in Address for Notices. Each of the Grantors, the Secured Party
and the Lenders may change the address for service of notice upon it by a notice
in writing to the other parties.
ARTICLE X
THE SECURED PARTY
Community Banks of Colorado, a division of NBH Bank, N.A., has been
appointed Secured Party for the Secured Creditors hereunder pursuant to the
Intercreditor Agreement and the Credit Agreement. It is expressly understood and
agreed by the parties to this Security Agreement that any authority conferred
upon the Secured Party hereunder is subject to the terms of the delegation of
authority made by the Secured Creditors to the Secured Party pursuant to the
Intercreditor Agreement and the Credit Agreement, and that the Secured Party has
agreed to act (and any successor Secured Party shall act) as such hereunder only
on the express conditions contained in such Intercreditor Agreement and the
Credit Agreement. Any successor Secured Party appointed pursuant to the
Intercreditor Agreement and the Credit Agreement shall be entitled to all the
rights, interests and benefits of the Secured Party hereunder.
[Signature Page Follows]
32
IN WITNESS WHEREOF, the Grantors and the Secured Party have executed this
Security Agreement as of the date first above written.
GRANTORS:
SYNERGY RESOURCES CORPORATION
By:
--------------------------------------
Name: Frank L. Jennings
Title: Chief Financial Officer
SECURED PARTY:
COMMUNITY BANKS OF COLORADO,
as Secured Party
By:-----------------------------------------
Name: Sarah Burchett
Title:______________________Vice President
EXHIBIT A
See Attached.
A-1
EXHIBIT B
(See Sections 3.2, 3.3, 3.4, 3.9, 4.1 and 9.1 of Security Agreement)
NOTICE ADDRESS FOR ALL GRANTORS
Synergy Resources Corporation
20203 Highway 60
Platteville, CO 80651
Attention: Edward Holloway, CEO and Director
Telephone: (970) 737-1073
Facsimile: (970) 737-1045
INFORMATION AND COLLATERAL LOCATIONS OF SYNERGY RESOURCES CORPORATION
I. Name of Grantor: Synergy Resources Corporation
II. Previous Names of Grantor: Blue Star Energy, Inc. and Brishlin Resources,
Inc.
III. State of Incorporation or Organization: Colorado
IV. Type of Entity: corporation
V. Organizational Number assigned by State of Incorporation or Organization:
20051109690
VI. Federal Identification Number: 20-2835920
VII. Place of Business (if it has only one) or Chief Executive Office (if more
than one place of business) and Mailing Address:
Synergy Resources Corporation
20203 Highway 60
Platteville, CO 80651
Attention: Edward Holloway, CEO and Director
VIII. Locations of Collateral:
(a) Properties Owned by the Grantor:
None other than those referenced on Exhibit A.
(b) Properties Leased by the Grantor (other than locations where a Grantor
is a lessee with respect to any oil and gas lease) (Include Landlord's Name):
20203 Highway 60
Platteville, CO 80651
Landlord: HS Land & Cattle, LLC
B-1
(c) Public Warehouses or other Locations pursuant to Bailment or
Consignment Arrangements (include name of Warehouse Operator or other Bailee or
Consignee):
None.
B-2
EXHIBIT C
(See Section 3.5 of Security Agreement)
DEPOSIT ACCOUNTS
----------------------------------------------------------------------------
Name of Grantor Name of Institution Account Number Description of
Account
----------------------------------------------------------------------------
Synergy Community Banks of 9690407 Demand Deposit
Resources Colorado Account
Corporation
Synergy Community Banks of 9707395 Demand Deposit
Resources Colorado Account
Corporation
Synergy Community Banks of 9707408 Demand Deposit
Resources Colorado Account
Corporation
Synergy Community Banks of 22609000070 Repurchase Savings
Resources Colorado Account
Corporation
Synergy Community Banks of 22609000089 Repurchase Savings
Resources Colorado Account
Corporation
COMMODITY ACCOUNTS
Name of Grantor Name of Institution Account Number Description of
Account
----------------------------------------------------------------------------
N/A N/A N/A N/A
SECURITIES ACCOUNTS
----------------------------------------------------------------------------
Name of Grantor Name of Institution Account Number Description of
Account
----------------------------------------------------------------------------
N/A N/A N/A N/A
C-1
EXHIBIT D
(See Section 3.7 of Security Agreement)
LETTER OF CREDIT RIGHTS
None.
CHATTEL PAPER
None.
D-1
EXHIBIT E
(See Section 3.10 and 3.11 of Security Agreement)
INTELLECTUAL PROPERTY RIGHTS
PATENTS
Name of Grantor Patent Description Patent Number Issue Date
---------------------------------------------------------------------------
N/A N/A N/A N/A
---------------------------------------------------------------------------
PATENT APPLICATIONS
Name of Grantor Patent Application Application Filing Application Serial
Date Number
-------------------------------------------------------------------------------
N/A N/A N/A N/A
-------------------------------------------------------------------------------
TRADEMARKS
Name of Grantor Trademark Registration Date Registration Number
-----------------------------------------------------------------------------
N/A N/A N/A N/A
-----------------------------------------------------------------------------
TRADEMARK APPLICATIONS
Name of Grantor Trademark Application Filing Application Serial
Application Date Number
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N/A N/A N/A N/A
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COPYRIGHTS
Name of Grantor Copyright Registration Date Registration Number
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N/A N/A N/A N/A
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COPYRIGHT APPLICATIONS
Name of Grantor Copyright Application Filing Application Serial
Application Date Number
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N/A N/A N/A N/A
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INTELLECTUAL PROPERTY LICENSES
Name of Grantor Name of Agreement Date of Agreement Parties to Agreement
--------------- ----------------- ----------------- --------------------
N/A N/A N/A N/A
E-1
EXHIBIT F
(See Section 3.11 of Security Agreement)
TITLE DOCUMENTS
I. Vehicles subject to certificates of title:
Name of Grantor Description Title Number State Where Issued
Synergy Resources 2011 Ford F-150 1FTEX1EM9BFB46741 Colorado
Corporation
Synergy Resources 2010 Dodge Ram 2500 3D7UT2CL4AG126164 Colorado
Corporation
Synergy Resources 2010 Ford F-150 1FTFW1EV0AKE70862 Colorado
Corporation
Synergy Resources 2010 Ford F-150 1FTFW1EVXAKC54601 Colorado
Corporation
II. Aircraft/engines/parts, ships, railcars and other vehicles governed by
federal statute:
Name of Grantor Description Registration Number
N/A N/A N/A
F-1
EXHIBIT G
(See Section 3.11 of Security Agreement)
FIXTURES
I. Legal description, county and street address of property on which Fixtures
are located, other than locations where a Grantor is a lessee with respect to
any oil and gas lease (by Grantor):
None other than those covered by Exhibit A to this Agreement.
II. Name and Address of Record Owner:
None other than those covered by Exhibit A to this Agreement.
G-1
EXHIBIT H
(See Section 3.13 of Security Agreement and Definition of "Pledged Collateral")
LIST OF PLEDGED COLLATERAL, SECURITIES AND OTHER INVESTMENT PROPERTY
STOCKS
Precenatge
of
Name of Certificate Number of Class of Outstanding
Grantor Issuer Number(s) Shares Stock Shares
------- ------ ----------- --------- -------- -----------
N/A N/A N/A N/A N/A N/A
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BONDS
Name of Grantor Issuer Number Face Amount Coupon Rate Maturity
--------------------------------------------------------------------------------
N/A N/A N/A N/A N/A N/A
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GOVERNMENT SECURITIES
Name of Issuer Number Type Face Amount Coupon Rate Maturity
Grantor
--------------------------------------------------------------------------------
N/A N/A N/A N/A N/A N/A N/A
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OTHER SECURITIES OR OTHER INVESTMENT PROPERTY
(CERTIFICATED AND UNCERTIFICATED)
Name of Grantor Issuer Description of Percentage
--------------- ------ Collateral Ownership Interest
---------- ------------------
N/A N/A N/A N/A
H-1
EXHIBIT I
(See Section 3.1 and 3.10 of Security Agreement)
OFFICES IN WHICH FINANCING STATEMENTS HAVE BEEN FILED
1. Clerk and Recorder for Weld County, Colorado
2. Clerk and Recorder for Boulder County, Colorado
3. Colorado Secretary of State
I-1
EXHIBIT J
(See Section 4.4 and 4.8 of Security Agreement)
AMENDMENT
This Amendment, dated ________________, ___ is delivered pursuant to Section 4.4
of the Security Agreement referred to below. All defined terms herein shall have
the meanings ascribed thereto or incorporated by reference in the Security
Agreement. The undersigned hereby certifies that the representations and
warranties in Article III of the Security Agreement are and continue to be true
and correct. The undersigned further agrees that this Amendment may be attached
to that certain Amended and Restated Pledge and Security Agreement, dated as of
November 28, 2012, between the undersigned, as the Grantors, and Community Banks
of Colorado, a division of NBH Bank, N.A, as the Secured Party, (the "Security
Agreement") and that the Collateral listed on Schedule I to this Amendment shall
be and become a part of the Collateral referred to in said Security Agreement
and shall secure all Indebtedness referred to in said Security Agreement.
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
J-1
SCHEDULE I TO AMENDMENT
STOCKS
Percentage
of
Name of Certificate Number of Class of Outstanding
Grantor Issuer Number(s) Shares Stock Shares
------- ------ ----------- --------- -------- -----------
BONDS
Name of Issuer Number Face Amount Coupon Rate Maturity
Grantor
GOVERNMENT SECURITIES
Name of Issuer Number Type Face Amount Coupon Rate Maturity
Grantor
OTHER SECURITIES OR OTHER INVESTMENT PROPERTY
(CERTIFICATED AND UNCERTIFICATED)
Description of Percentage
Name of Grantor Issuer Collateral Ownership Interest
--------------- ------ --------------- ------------------
[Add description of custody accounts or arrangements with securities
intermediary, if applicable]
COMMERCIAL TORT CLAIMS
Case Number; Name
of Court where case
Name of Grantor Description of Claim Parties was Filed
EXHIBIT K
COMMERCIAL TORT CLAIMS
Case Number; Name
of Court where case
Name of Grantor Description of Claim Parties was Filed
--------------- -------------------- ------- -------------------
N/A N/A N/A N/A
K-1
EXHIBIT L
(See "Assigned Contracts" Definition)
Suncor Energy (USA) Marketing Inc. - Crude Oil Purchaser
DCP Midstream, LP - Gas Purchaser
Kerr McGee Gathering LLC - Gas Purchaser
FEI-Energy Fund LLC - Joint Operating Agreement
Sundance Energy, Inc. - Joint Operating Agreement
Texas T LLC - Joint Operating Agreement
Ash Creek Ventures LLC - Joint Operating Agreement
L-1
Annex 1 to
Pledge and Security Agreement
ASSUMPTION AGREEMENT, dated as of __________________________, 20___, by
______________________________, a ____________________ (the "Additional
Grantor"), in favor of COMMUNITY BANKS OF COLORADO, A DIVISION OF NBH BANK,
N.A., as Secured Party (in such capacity, the "Secured Party") for the Secured
Creditors. All capitalized terms not defined herein shall have the meaning
ascribed to them in the Credit Agreement (as defined below).
PRELIMINARY STATEMENTS
A. SYNERGY RESOURCES CORPORATION, a Colorado corporation (the "Borrower"),
the Lenders and the Administrative Agent have entered into an Amended and
Restated Credit Agreement, dated as of November 28, 2012 (as amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement").
B. In connection with the Credit Agreement, the Borrower and/or certain
other Credit Parties have entered into (i) the Pledge and Security Agreement,
dated as of November 28, 2012 (as amended, restated, supplemented or otherwise
modified from time to time, the "Security Agreement") and (ii) the Guaranty
Agreement, dated as of November 28, 2012 (as amended, restated, supplemented or
otherwise modified from time to time, the "Guaranty"), in favor of the Secured
Party for the benefit of the Lenders.
C. Pursuant to Section 9.15 of the Credit Agreement, the Administrative
Agent requires the Additional Grantor to become a party to the Security
Agreement and the Guaranty.
D. The Additional Grantor has agreed to execute and deliver this Assumption
Agreement in order to become a party to the Security Agreement and the Guaranty.
ACCORDINGLY, IT IS AGREED:
Security Agreement. By executing and delivering this Assumption Agreement,
the Additional Grantor, as provided in Section 4.17 of the Security Agreement,
hereby becomes a party to the Security Agreement as a "Grantor" thereunder with
the same force and effect as if originally named therein as a Grantor and,
without limiting the generality of the foregoing, hereby expressly assumes all
obligations and liabilities of a Grantor thereunder. The information set forth
in Annex 1-A hereto is hereby added to the information set forth in the
appropriate Exhibits to the Security Agreement. The Additional Grantor hereby
represents and warrants that each of the representations and warranties
contained in Article III of the Security Agreement is, as to itself, true and
correct on and as the date hereof (after giving effect to this Assumption
Agreement) as if made on and as of such date.
Guaranty. By executing and delivering this Assumption Agreement, the
Additional Grantor, as provided in Section 27 of the Guaranty, hereby becomes a
party to the Guaranty as a "Guarantor" thereunder with the same force and effect
as if originally named therein as a Guarantor and, without limiting the
generality of the foregoing, hereby expressly assumes all obligations and
liabilities of a Guarantor thereunder. The Additional Grantor hereby represents
and warrants that each of the representations and warranties contained in
Section 10 of the Guaranty is, as to itself, true and correct on and as the date
hereof (after giving effect to this Assumption Agreement) as if made on and as
of such date.
GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF COLORADO.
IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement
to be duly executed and delivered as of the date first above written.
[ADDITIONAL GRANTOR]
---------------------------------------,
a
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By:
-------------------------------------
Name:
-------------------------------------
Title:
-----------------------------------
