EXHIBIT 10.13
Execution Copy
LOAN AGREEMENT
between
SYNERGY RESOURCES CORPORATION
as Borrower
and
BANK OF CHOICE, a Division of BANK MIDWEST, N.A.
as Lender
Dated Effective November 30, 2011
{00452209.7} 28
TABLE OF CONTENTS
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Article 1 - Interpretation and Definitions.....................................1
1.1 Rules of Interpretation................................................1
1.2 Definitions............................................................2
Article 2 - Amount and Terms of the Loan......................................10
2.1 The Loan..............................................................10
2.2 Manner of Borrowing under the Note....................................10
2.3 Payment Procedure.....................................................10
2.4 Interest..............................................................10
2.5 Order of Application..................................................11
2.6 Facility Fee..........................................................11
2.7 Adjustment of Commitment Limit or Collateral..........................11
2.8 Termination of Existing Bank of Choice Note...........................11
2.9 Limitations on Release of Collateral..................................11
Article 3 - Collateral........................................................12
Article 4 - Representations and Warranties....................................12
4.1 Authorization.........................................................12
4.2 Enforceable Obligations...............................................12
4.3 No Conflicts or Consents..............................................12
4.4 Other Obligations.....................................................12
4.5 Investments and Guarantees............................................13
4.6 Litigation............................................................13
4.7 Taxes.................................................................13
4.8 Title to Properties; Liens............................................13
4.9 Leases................................................................13
4.10 No Default............................................................13
4.11 ERISA Plans...........................................................13
4.12 Principal Business Office and Location of Records.....................13
4.13 Licenses, Permits and Franchises, etc.................................13
4.14 No Material Omissions or Misstatements................................14
4.15 Subsidiaries..........................................................14
4.16 Environmental Matters.................................................14
4.17 Financial Information.................................................15
Article 5 - Conditions Precedent..............................................15
5.1 Conditions to Initial Advance.........................................15
5.2 Conditions to All Advances............................................17
Article 6 - Affirmative Covenants.............................................17
6.1 Financial Statements and Other Information............................17
6.2 Taxes; Other Claims...................................................19
6.3 Maintenance of Insurance..............................................19
6.4 Reimbursement of Fees and Expenses....................................19
6.5 Indemnification.......................................................19
6.6 Further Assurances....................................................19
6.7 Inspection and Visitation.............................................20
6.8 Compliance With Laws..................................................20
6.9 Accounts and Records..................................................20
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6.10 Environmental Complaints..............................................20
6.11 Compliance Certificate................................................20
6.12 Use of Proceeds.......................................................21
6.13 Performance...........................................................21
6.14 Change of Location....................................................21
6.15 Title to Assets and Property..........................................21
6.16 Banking Relationship; Accounts........................................21
6.17 Other Information.....................................................21
6.18 Additional Assurances.................................................21
Article 7 - Negative Covenants................................................21
7.1 Liens.................................................................21
7.2 Merger, Etc...........................................................21
7.3 Extensions of Credit..................................................22
7.4 Borrowings............................................................22
7.5 Dividends and Distributions...........................................22
7.6 Modification of Organizational Documents..............................22
7.7 Change in Nature of Business..........................................22
7.8 Arm's Length Transactions.............................................22
7.9 Subsidiaries..........................................................22
7.10 Plan Obligations......................................................22
Article 8 - Financial Covenants...............................................23
8.1 Definitions...........................................................23
8.2 Minimum Debt-Service Coverage.........................................24
8.3 Debt to Capitalization Ratio..........................................24
8.4 Testing - Effect of Derivative Contracts..............................24
Article 9 - Default and Remedies..............................................24
9.1 Events of Default.....................................................24
9.2 Remedies..............................................................25
9.3 Right of Setoff.......................................................26
9.4 Delegation of Duties and Rights.......................................26
9.5 Lender Not in Control.................................................26
9.6 Waivers by Lender.....................................................26
9.7 Cumulative Rights.....................................................26
9.8 Expenditures by Lender................................................26
Article 10 - General Terms....................................................27
10.1 Survival of Representations and Warranties............................27
10.2 Communications........................................................27
10.3 Binding on Successors.................................................27
10.4 Choice of Law and Venue...............................................27
10.5 Waiver of Jury Trial..................................................28
10.6 Usury Savings Clause..................................................28
10.7 Severability..........................................................29
10.8 Non-Waiver............................................................29
10.9 Counterparts..........................................................29
10.10 Amendments and Waivers................................................29
10.11 Terms and Headings....................................................29
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10.12 Conflicts.............................................................29
10.13 Environmental Indemnity...............................................29
10.14 Renewal, Extension or Rearrangement...................................30
10.15 Negotiation, Representation and Construction..........................30
Exhibit A - Form of Request for Advance
---------------------------------------
Exhibit B - Form of Note
------------------------
Exhibit C - Form of Borrowing Base Calculation
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LOAN AGREEMENT
--------------
This Loan Agreement (this "Agreement"), is made as of November 30, 2011 (the
"Effective Date") between:
1. SYNERGY RESOURCES CORPORATION, a Colorado corporation ("Borrower"), and
2. BANK OF CHOICE, a Division of BANK MIDWEST, N.A., a national association
("Lender").
INTRODUCTION
Borrower has requested that Lender extend credit to Borrower in the form of
a revolving line of credit loan facility not to exceed $15,000,000 outstanding
at any time (subject to the limitations and reductions as herein set forth), to
be used to fund Borrower's capital expenditures required to purchase and/or
drill and complete new oil wells, fees and expenses associated therewith as well
as purchase inventory including but not limited to pipe and casing.
AGREEMENT
The parties agree as follows:
Article 1
Interpretation and Definitions
------------------------------
1.1 Rules of Interpretation. Unless otherwise specified:
(a) .whenever a term is defined herein, the definition ascribed to
such term shall be equally applicable to both the singular and plural forms of
such term and to masculine, feminine and neuter genders of such term;
(b) .an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP or regulatory accounting principles, as
applicable, in effect at the time of application of interpretation; Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement or any other Loan
Document, such determination, consolidation or computation shall be made in
accordance with GAAP, except where such principles are inconsistent with the
requirements of this Agreement;
(c) "or" is not exclusive and includes "and/or";
(d) "including" means "including, without limitation";
(e) references to Articles, Sections, Subsections, Schedules and
Exhibits shall refer to such portions of this Agreement unless otherwise
specified, all of which are part of this Agreement; and
(f) unless the context shall clearly indicate otherwise, or may
otherwise require, in this Agreement the terms "herein," "hereunder," "hereby,"
"hereto," "hereof" and any similar terms refer to this Agreement as a whole and
not to any particular Article, Section or Subsection.
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1.2 Definitions. The terms set forth below shall have the specified
meanings for all purposes of this Agreement. Other terms are defined in the text
of this Agreement, and throughout this Agreement those terms shall have the
meanings respectively ascribed to them.
"Advance" means any loan disbursement to or on behalf of Borrower under the
Loan Documents including, without limitation, all amounts advanced upon the
execution hereof under the Note and all Subsequent Advances.
"Affiliate" means, as to any Person, (a) any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person or (b) any Person who is a director, officer or partner (i) of
such Person, (ii) of any subsidiary of such Person or (iii) of any Person
described in the preceding clause (a). For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (i)
vote 10% or more of the ownership interests having ordinary voting power for the
election of directors or managers of such Person or (ii) direct or cause the
direction of the management and policies of such Person whether by contract or
otherwise.
"Agreement" means this Loan Agreement, as amended, restated, supplemented,
or otherwise modified from time to time.
"Bank of Choice Payoff Amount" means that amount necessary to pay all Debt
owed by the Borrower to Lender pursuant to the Existing Bank of Choice Note,
including any due and unpaid interest accrued thereon and any penalties or other
amounts payable related thereto, which amount is equal to $0.00.
"Borrowing Base" means the amount available to Borrower as Advances under
the Facility calculated consistently with the example set forth in Exhibit C
attached hereto, as the same may be adjusted pursuant to the terms of Section
2.7 of this Agreement.
"Business Day" means every day on which Lender is open for banking
business.
"Collateral" means all of the property described in paragraphs (a) through
(h) below:
(a) The entire estates or the undivided interests therein to the Mortgaged
Properties (which right, title and interest of Borrower shall be deemed to
include, without limitation, any and all right, title and interest now owned or
hereafter acquired by Borrower in any amendment, modification, supplement,
restatement, extension, renewal or replacement of any of the oil and gas leases,
working interests, overriding royalty interests, production payments, licenses,
subleases, sublicenses, easements, rights-of-way, agreements and other documents
and instruments described in the Deed of Trust) in, to and under or that covers,
affects or otherwise relates to the Mortgaged Properties or the oil and gas
leases, working interests, overriding royalty interests, production payments,
licenses, subleases, sublicenses, easements, rights of way, agreements and other
documents and instruments described in the Deed of Trust or to any of the
estates, property, interests or rights described or referred to above or herein;
including, without limitation, the following:
(i) All of Borrower's right, title and interest of whatever kind or
character (whether now owned or hereafter acquired by operation
of law or otherwise) in, to and under or that covers, affects or
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otherwise relates to the Mortgaged Properties or the leases,
licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in the
Deed of Trust or to any of the estates, property, interests or
rights described or referred to above or herein, even though
Borrower's interest therein may be incorrectly described in,
omitted from or not described in the Deed of Trust;
(ii) All of Borrower's right, title and interest (whether now owned or
hereafter acquired by operation of law or otherwise) in, to and
under all presently existing and hereafter created oil, gas or
mineral unitization, cooperative development, pooling, spacing or
communitization agreements, declarations or orders, and in and to
the lands and properties covered and the units created thereby
(including, without limitation, units formed under orders, rules,
regulations or other official acts of any federal, state, tribal,
local or other authority having jurisdiction and so called "working
interest units" created under operating and similar agreements or
otherwise), that cover, affect or otherwise relate to the Mortgaged
Properties or the leases, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and
instruments described in the Deed of Trust or to any of the estates,
property, interests or rights described or referred to above or in
the Deed of Trust;
(iii) All of Borrower's right, title and interest (whether now owned or
hereafter acquired by operation of law or otherwise) in, to and
under all presently existing and hereafter created operating
agreements, equipment leases, production sales, purchase, exchange
or processing agreements, transportation or gathering agreements,
farmout or farmin agreements, disposal agreements, area of mutual
interest agreements joint venture agreements, and other contracts or
agreements that cover, affect or otherwise relate to the Mortgaged
Properties or the leases, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and
instruments described in the Deed of Trust or to any of the estates,
property, interests or rights described or referred to above or
herein or the operations thereon, or the production, treatment,
storage, gathering, transportation, handling, processing,
manufacturing, sale or marketing of Hydrocarbons (as hereinafter
defined) produced therefrom or allocated or attributed thereto,
including, without limitation, those contracts and agreements listed
in the Deed of Trust or the Security Agreement as the same may be
amended or supplemented from time to time; and
(iv) All of Borrower's right, title and interest of whatever kind or
character (whether now owned or hereafter acquired by operation of
law or otherwise) in, to and under all presently existing or
hereafter created easements, servitudes, rights-of-way, surface
leases, licenses, permits and other surface rights used, or held for
use, in connection with the Mortgaged Property or any of the
estates, property, interests or rights described or referred to
above or herein, or the operations thereon, or the production,
treatment, storage, gathering, transportation, handling, processing,
manufacturing, sale or marketing of Hydrocarbons produced therefrom
or allocated or attributed thereto, including, without limitation,
the easements and rights-of-way described in the Deed of Trust as
same may be amended or supplemented from time to time;
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(b) Hydrocarbons in, on, under or allocated or attributed to any of the
estates, property, interests or rights described or referred to above or herein
or any other interest of Borrower (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under or that covers, affects or
otherwise relates to the Mortgaged Properties or to any of the estates,
property, interests or rights described or referred to above or in the Deed of
Trust;
(c) All wells, platforms, derricks, casing, tubing, tanks, tank batteries,
treaters, separators, rods, pumps, pumping units, flow lines, water lines,
transportation lines, gathering lines, gas lines, machinery, pipelines, power
lines and other goods and equipment, and all of the personal property and
fixtures, as defined under applicable state law, now or hereafter located in,
on, under, affixed, allocated or attributed to or obtained or used in connection
with any of the estates, property, interests or rights described or referred to
above or herein or any other interest of Borrower (whether now owned or
hereafter acquired by operation of law or otherwise) in, to and under or that
covers, affects or otherwise relates to the Mortgaged Properties or to any of
the estates, property, interests or rights described or referred to above or
herein, or that are used or purchased for the production, treatment, storage,
gathering, transportation, handling, processing, manufacturing, sale or
marketing of Hydrocarbons;
(d) All of the accounts, contract rights and general intangibles now or
hereafter arising in connection with the production, treatment, storage,
gathering, transportation, handling, processing, manufacturing, sale or
marketing of Hydrocarbons produced from or allocated or attributed to any of the
estates, property, interests or rights described or referred to above or herein
or any other interest of Borrower (whether now owned or hereafter acquired by
operation of law or otherwise) in, to or under or that covers, affects or
otherwise relates to the Mortgaged Properties or to any of the estates,
property, interests or rights described or referred to above or herein and all
other accounts, contract rights and general intangibles now or hereafter arising
in connection with the estates, property, interests or rights described or
referred to above or in the Deed of Trust;
(e) All of the severed and extracted Hydrocarbons, including, without
limitation, "as-extracted collateral" (as defined in the applicable version of
the Uniform Commercial Code in effect in each jurisdiction in which any of the
Mortgaged Properties is located) produced from or allocated or attributed to any
of the estates, property, interests or rights described or referred to above or
herein or any other interest of Borrower (whether now owned or hereafter
acquired by operation of law or otherwise) in, to and under or that covers,
affects or otherwise relates to the Mortgaged Properties or to any of the
estates, property, interests or rights described or referred to above or in the
Deed of Trust;
(f) All renewals, extensions and restatements of, modifications, changes,
amendments and supplements to, and substitutions for the estates, property,
interests and rights described or referred to in paragraphs (a) through (e)
above, and all additions and accessions thereto;
(g) All of the rights, privileges, benefits, hereditaments and
appurtenances in any way belonging, incidental or appertaining to the estates,
property, interests and rights described or referred to in paragraphs (a)
through (f) above; and
(h) All of the proceeds and products of the estates, property, interests
and rights described or referred to in paragraphs (a) through (g) above,
including, without limitation, condemnation awards and the proceeds of any and
all insurance policies (including title insurance policies as well as other
types of insurance policies) covering all or any part of said estates, property,
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interests or rights and, to the extent they may constitute proceeds,
instruments, accounts, securities, general intangibles, contract rights and
inventory.
"Commitment" means the obligation of the Lender as set forth herein from
the Effective Date through the date that is thirty-six (36) months after the
Effective Date to extend credit to the Borrower by means of Advances, with the
sum of all such Advances made pursuant to Sections 2.1 and 2.2 not to exceed at
any time the Commitment Limit.
"Commitment Limit" means $15,000,000, as adjusted pursuant to the terms of
Section 2.7 of this Agreement.
"Convertible Notes" means those certain Convertible Promissory Notes issued
by Borrower to the "Secured Parties" (as defined in the Convertible Notes
Mortgage).
"Convertible Notes Mortgage" means that certain Mortgage, Security
Agreement and Assignment of Production and Proceeds dated as of February 10,
2011 from Borrower to the Secured Parties (as defined therein), which was
recorded on February 14, 2011 in Weld, Colorado at Reception number 3750316.
"Debt" means, for any Person, at any particular date, and without
duplication, the sum at such date of: (i) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services for
which such Person is liable, contingently or otherwise, as obligor, guarantor or
otherwise, or in respect of which such Person otherwise assures a creditor
against loss; (ii) all obligations of such Person under leases which shall have
been, or should have been, in accordance with GAAP in effect on the Effective
Date, recorded as capital leases in respect of which such Person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations such Person otherwise assures a creditor against loss, (iii)
unfunded vested benefits under any ERISA Plan; (iv) all indebtedness and other
liabilities secured by any Lien on any property owned by such Person even though
such Person has not assumed or otherwise become liable for payment thereof; (v)
all obligations of such Person in respect of letters of credit, acceptances or
similar obligations issued or created for the account of such Person; and (vi)
indebtedness of such Person evidenced by a bond, debenture, note or similar
instrument; provided, however, Debt shall not include accounts payable incurred
in the ordinary course of such Person's business.
"Deed of Trust" means those mortgages, deed of trust, assignments of
production, security agreements, and financing statements, as amended from time
to time, in favor of Lender encumbering every interest of Borrower in
Collateral, including Mineral Interests now owned or hereafter acquired by
Borrower and which become Mortgaged Properties, the Mortgaged Properties being
security for the Obligation, including, without limitation, any such property
consisting of royalty interests, overriding royalty interests, working
interests, and reversionary rights relating to either developed or undeveloped
leasehold acreage.
"Default Rate" means the then effective Interest Rate plus four percent
(4%).
"Environmental Complaint" means any complaint, order, citation, notice or
other written communication from any Person or Governmental Authority with
respect to the existence or alleged existence of a violation of any requirement
of law or liability resulting from any air emission, water discharge, noise
emission, asbestos, Hazardous Substance or any other environmental, health or
safety matter at, upon, under, or within any of the property owned, operated, or
used by Borrower.
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"Event of Default" has the meaning specified in Section 9.1.
"Existing Bank of Choice Note" means that certain Promissory Note
(Commercial Revolving Draw) dated as of June 6, 2011 made by Borrower in favor
of Lender.
"Facility" means the loan advanced pursuant to Section 2.1.
"Facility Fee" means $20,000, to be paid by the Borrower to the Lender upon
the execution of this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied on a basis consistent with the most recent financial
statements of Borrower delivered to Lender.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Hazardous Substance" has the meaning specified in Section 4.17.
"Highest Lawful Rate" means the maximum rate of interest (or, if the
context so requires, an amount calculated at such rate) which Lender is allowed
to contract for, charge, take, reserve or receive under applicable law after
taking into account, to the extent required by applicable law, any and all
relevant payments or charges under the Loan Documents.
"Hydrocarbons" means all of the oil, gas, drip gasoline, natural gasoline,
natural gas liquids, condensate, distillate, casinghead gas and other solid,
liquid or gaseous hydrocarbons and other associated or related substances of
whatever kind or character and in whatever form or phase, including, without
limitation, gases produced from coal-bearing formations and strata such as
so-called "coal-bed gas" and "coal-bed methane".
"Interest Rate" means, at any one time, the greater of (i) three and a
quarter percent (3.25%) and (ii) the Prime Rate, but not in excess of the
Highest Lawful Rate.
"Lien" means any interest in property securing an obligation owed to, or a
claim by, a Person other than the owner of the property, whether such interest
is based on the common law, statute or contract, and including but not limited
to the lien or security interest arising from any mortgage, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, or preference, priority or other
security agreement (including, without limitation, any conditional sale or other
title retention agreement or trust receipt or a lease, consignment or bailment
for security purposes). The term "Lien" shall also include reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting any
of the Mortgaged Properties.
"Loan Documents" means: (i) this Agreement; (ii) the Note; (iii) the
Security Agreement, (iv) the Deed of Trust, and (vi) any and all notes,
mortgages, security agreements, financing statements, guarantees, and other
agreements, documents, certificates, letters and instruments ever delivered or
executed pursuant to, or in connection with, this Agreement, whether existing on
the Effective Date or thereafter created, as any of the same may hereafter be
amended, supplemented, extended, or restated.
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"Material Adverse Effect" means any set of circumstances or events which:
(i) has, will or could reasonably be expected to have any material adverse
effect upon the validity, performance or enforceability of any Loan Document;
(ii) is or could reasonably be expected to be material and adverse to the
financial condition or business operations of Borrower, as represented to Lender
in this Agreement; (iii) will or could reasonably be expected to impair the
ability of Borrower to fulfill its obligations under the terms and conditions of
the Loan Documents; or (iv) will or could reasonably be expected to cause an
Event of Default.
"Material Agreement" of any Person means any written or oral agreement,
contract, commitment, arrangement or understanding to which such Person is a
party, by which such Person is directly or, to such Person's knowledge,
indirectly bound, or to which any asset of such Person may be subject, which is
not subject to cancellation by such Person upon 30 days or less notice without
liability for further payment other than nominal penalties, excluding, however,
such agreements, contracts, commitments, arrangements or understandings pursuant
to which the subject matter thereof does not exceed $50,000 in the aggregate.
"Maturity Date" means November 30, 2014, or as otherwise set forth in the
Note.
"Mineral Interests" means rights, estates, titles, and interests in and to
oil, gas, sulphur, or other minerals (or any combination thereof), leases (and
all extensions, amendments, ratifications, and subleases thereof or thereunder),
licenses, subleases, sublicenses, easements, rights of way, farmouts, farmins,
mineral agreements, and any mineral interests, royalty and overriding royalty
interests, working interests, production payment and net profits interests,
mineral fee interests, operating rights interest, record title interests,
contractual rights, and rights therein, including, without limitation, any
reversionary or carried interests relating to the foregoing, together with
rights, titles, and interests created by or arising under the terms of any
contract or agreement, unitization, joint-operating, communitization, secondary
recovery and pooling agreements or arrangements, and all properties, rights, and
interests covered thereby, whether arising by contract, by order, or by
operation of law, which now or hereafter include all or any part of the
foregoing.
"Mortgaged Property" or "Mortgaged Properties" means those Mineral
Interests covered or to be covered, by the Deed of Trust.
"Note" means the promissory note, as further described in Section 2.1 and
in the form of Exhibit B.
"Obligation" means the obligations of Borrower:
(a) to pay all indebtedness arising out of this Agreement, and
all renewals, extensions or amendments of such indebtedness or any part
thereof;
(b) to pay the principal of and interest on the Note in accordance
with the terms thereof, and all renewals, extensions, modifications and
amendments of such Note or any part thereof, and any future advances made
pursuant thereto;
(c) to repay to Lender all amounts advanced by Lender hereunder or
under the other Loan Documents on behalf of Borrower, including, without
limitation, advances for principal or interest payments to prior secured
parties, mortgagees, or lien holders, or for taxes, levies, insurance, rent,
repairs to or maintenance or storage of any of the Collateral;
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(d) to pay any and all other indebtedness of Borrower to Lender of
every kind, nature and description, direct or indirect, primary or secondary,
secured or unsecured, joint or several, absolute or contingent, due or to become
due, now existing or hereafter arising, regardless of how it may be evidenced,
including without limitation all future advances, whether or not presently
contemplated by the parties hereto;
(e) to perform fully all of the terms and provisions of each of
the instruments constituting the Loan Documents; and
(f) to reimburse Lender, on demand, for all of Lender's expenses
and costs, arising out of or related to this Agreement, the Facility and the
Loan Documents.
"PEM" means Petroleum Exploration & Management, LLC, a Colorado limited
liability company.
"PEM Indebtedness" means all Debt owed by the Borrower to PEM pursuant to
that certain 5.25% Secured Note in the original principal amount of Five Million
Two Hundred Thousand and NO/100 Dollars ($5,200,000.00) dated as of May 24,
2011, including any due and unpaid interest accrued thereon and any penalties or
other amounts payable related thereto.
"PEM Payoff Amount" means that amount necessary to pay the PEM Indebtedness
in full as set forth in a payoff letter delivered to Borrower and Lender by PEM,
in a form reasonably satisfactory to Lender.
"Permitted Liens" means: (a) liens in favor of Lender; (b) liens for taxes,
assessments or similar charges, incurred in the ordinary course of business that
are not yet due and payable or that are being contested in good faith; (c) liens
of mechanics, materialmen, warehousemen, carriers, operators, and other like
liens securing obligations incurred in the ordinary course of business that are
not yet due and payable or that are being contested in good faith; (d)
landlord's liens for rentals not yet due and payable or that are being contested
in good faith; (e) royalties, overriding royalties, reversionary interests,
production payments and similar burdens; (f) sales contracts or other
arrangements for the sale of hydrocarbons which would not (when considered
cumulatively with the matters discussed in clause (e) immediately preceding)
deprive Borrower of any material right in respect of Borrower's assets or
properties; (g) liens permitted by the Deed of Trust or the Security Agreement;
(h) purchase money mortgages, liens, or security interests on any property
hereafter acquired; and (i) contracts, agreements, lease provisions, defects,
and irregularities which were in effect when the properties were acquired and
which do not materially interfere with the operation, value, or use thereof.
"Person" means a corporation, an association, a joint venture, an
organization, a business, a legal entity, an individual or a government or
political subdivision thereof or any governmental agency.
"Prime Rate" means that variable rate of interest per annum established in
the money rate table of The Wall Street Journal, a Dow Jones publication.
"Relevant Environmental Law" means all requirements of law from time to
time applicable to any property owned, leased, operated or used by Borrower or
any part thereof with respect to (i) the installation, existence or removal of
asbestos; (ii) the existence, discharge or removal of Hazardous Substances;
(iii) air emissions, water discharges, noise emissions and any other
8
environmental, health or safety matters; and (iv) effects on the environment of
any of such properties or any part thereof or of any activity theretofore, now
or hereafter conducted on any of such properties.
"Revenues" means for any period and without duplication, (a) with respect
to each Mortgaged Property, all cash, checks, drafts or other similar items of
payment relating to or constituting payments made in respect of any Mortgaged
Property arising from the operation of such property during such period,
including revenues from the sale of hydrocarbons, proceeds from hedge contracts,
proceeds of liability insurance and business interruption insurance and other
payments for interruption of operations.
"Rights" means rights, remedies, powers, privileges and benefits.
"SEC" means the U. S. Securities and Exchange Commission.
"Subsidiary" means, with respect to any Person (the "parent"), any
corporation, limited liability company, partnership, association or other entity
the accounts of which would be consolidated with those of the parent in the
parent's consolidated financial statements if such financial statements were
prepared in accordance with the Borrower's method of accounting as of such date,
as well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership
interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise controlled, by the parent or one or more Subsidiaries of
the parent or by the parent and one or more Subsidiaries of the parent.
"Security Agreement" means that certain Security Agreement and Assignment
of Contract Rights, dated as of the Effective Date, executed by Borrower in
favor of Lender, in which Borrower pledges and grants a security interest to
Lender in the property described therein to secure the payment of the
Obligation, as the same may be amended, restated, supplemented, and/or modified
from time to time.
"Security Documents" means collectively, the Deed of Trust and the Security
Agreement.
"Subsequent Advance" means any disbursement to or on behalf of Borrower
after the initial Advance under the Note, pursuant to the provisions of Sections
2.1 and 2.2 hereof.
9
Article 2
Amount and Terms of the Loan
----------------------------
2.1 The Loan. Subject to the terms and conditions and relying on the
representations and warranties contained in this Agreement, Lender agrees to
make a loan to the Borrower in the principal amount requested by Borrower up the
Commitment Limit (the "Facility"). If less than the Commitment Limit is borrowed
initially, and if no Event of Default has occurred and is continuing, and all
conditions have been satisfied, subject to the terms, conditions, obligations
and rights of Lender under this Agreement, Borrower shall be entitled to request
that Advances be made to it in amounts determined by Borrower in its discretion,
such that the total loan outstanding would equal the Commitment Limit.
(a) Contemporaneously with the execution and delivery hereof,
Borrower shall execute and deliver to the Lender the Note in substantially the
form of Exhibit B, in the original principal amount of Fifteen Million and
No/100 Dollars ($15,000,000.00). The Note shall mature on the Maturity Date, and
shall bear interest on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum as provided in the Note.
Principal and interest on the Note shall be payable in the manner specified
herein and in the Note, and on the dates specified in the Note.
(b) The initial Advance permitted under the Facility will be for
(i) the Facility Fee, (ii) reasonable and documented attorneys fees relating to
the preparation of the Loan Documents, (iii) the Bank of Choice Payoff Amount,
and (iv) the PEM Payoff Amount.
(c) Amounts prepaid or repaid with respect to the Facility may be
re-borrowed pursuant to the terms of this Agreement and the Note.
2.2 Manner of Borrowing under the Note.
(a) All Advances following the initial Advance shall require one
(1) day prior written notice and shall be made pursuant to a Request for Advance
in the form of Exhibit A. Each such request by Borrower to Lender for an Advance
under the Facility shall specify the aggregate amount of such requested Advance,
and the requested date of such Advance.
(b) Upon fulfillment of all applicable conditions and requirements
for each Advance, Lender shall, before 2:00 o'clock p.m. on the day of the
requested borrowing date, pay or deliver each Advance under the Facility to or
upon the order of Borrower, by wire transfer in immediately available funds.
2.3 Payment Procedure. Beginning thirty (30) days after the Effective Date,
payments will be due on the first business day of each month. Payments will be
accrued interest only for the term of the Note, with all amounts due and owing
(including principal and accrued and unpaid interests thereon) to be paid on the
Maturity Date (as defined in the Note).
2.4 Interest. For the period from the Effective Date until the Maturity
Date (as defined in the Note), the Obligation shall bear interest from day to
day at a rate per annum equal to the Interest Rate. All interest hereunder shall
be computed on the basis of a year of 360 days, and in each case shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day). All of the past due Obligation and accrued interest
thereon shall, at the option of Lender, bear interest from maturity (stated or
by acceleration) until paid at a rate per annum equal to the lesser of the
Default Rate or the Highest Lawful Rate. Interest calculations may be made prior
10
to any interest installment due date under the Note, in which event, if there is
an adjustment in the interest rate in accordance with the terms hereof during
the intervening period, then Borrower shall subsequently, on demand, pay to
Lender any underpayment, or Lender shall pay to Borrower any overpayment, as the
case may be, as a result of any adjustment during such period.
2.5 Order of Application. Except as otherwise provided in the Loan
Documents, all payments and prepayments on the Obligation, including proceeds
from the exercise of any rights of Lender under the Loan Documents, shall be
applied to the Obligation in the following order: (i) first, to reasonable
expenses for which Lender shall not have been reimbursed under the Loan
Documents and then to all amounts to which Lender is entitled to indemnification
under the Loan Documents; (ii) then, to the accrued interest on the Note being
paid or prepaid; (iii) then, to the principal of the Note being paid or prepaid,
with amounts prepaid to be applied upon installments of most remote maturity;
and (iv) finally, to the remaining Obligation.
2.6 Facility Fee. Upon the Effective Date, Borrower will pay to Lender the
Facility Fee.
2.7 Adjustment of Commitment Limit or Collateral. Lender shall engage a
third-party consultant, at the sole cost and expense of Borrower, to review the
Annual Reserve Report delivered to Lender pursuant to Section 6.1(c) of this
Agreement which review shall include preparation of a price-deck established by
Lender at PV9 for the purposes of establishing a new Borrowing Base. If Lender
delivers to Borrower written notification that, in Lender's sole discretion, the
new Borrowing Base does not provide sufficient collateral to support Advances up
to the Commitment Limit, then the Commitment Limit shall be immediately reduced
to such an amount as is supported by the adjusted Borrowing Base. Provided,
however, that, in the event the Borrowing Base is reduced pursuant to this
Section 2.7, Borrower may pledge additional assets as Collateral to Lender as
may be necessary, in Lender's sole discretion, to support an increase in the
Commitment Limit back to 15,000,000, and the Commitment Limit shall be so
adjusted following documentation of such pledge of additional assets as
Collateral, such documentation to be determined in the reasonable discretion of
Lender. Provided, further that, if the Commitment Limit has been reduced
pursuant to this Section 2.7 or pursuant to Section 2.9 and in subsequent years
the Annual Reserve Report displays a Borrowing Base that would support a
Commitment Limit greater than the then-existing Commitment Limit, then the
Commitment Limit shall be increased to an amount (not to exceed $15,000,000)
that, in Lender's reasonable discretion, would be supported by the information
regarding the Collateral contained in such Annual Reserve Report.
2.8 Termination of Existing Bank of Choice Note. Upon execution and
delivery of this Agreement and the Loan Documents related hereto and payment of
the Bank of Choice Payoff Amount, the parties hereby agree that (a) all
outstanding indebtedness (including, without limitation, for principal, interest
and fees) and other obligations of Borrower to Lender under the Existing Bank of
Choice Note and all documents and instruments relating thereto shall be paid and
satisfied in full and terminated and released, (b) all security interests and
other liens granted to or held by Lender in any assets or properties of Borrower
as security for the Existing Bank of Choice Note shall be released and
discharged, and Borrower and its respective agents and representatives shall be
authorized to file UCC termination statements evidencing the release and
termination of all such liens, (c) the Existing Bank of Choice Note and all
documents and agreements relating thereto shall terminate and be of no further
force or effect, and (d) Lender shall have no more obligations to make any
further advances to Borrower pursuant to the terms of the Existing Bank of
Choice Note.
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2.9 Limitations on Release of Collateral. Notwithstanding anything in this
Agreement or any other Loan Documents to the contrary, Lender shall have no
obligation to provide any release of any Liens encumbering any Collateral
created by any Loan Documents if the effect of such release would be to cause
the Borrowing Base to be reduced such that the adjusted Borrowing Base would not
provide sufficient collateral to support Advances up to the then-effective
Commitment Limit. Provided, however, that, in the event that the Borrower
requests in writing that Lender release Liens encumbering Collateral and
following release of such Liens the remaining Collateral would not be sufficient
to support Advances up to the then-existing Commitment Limit, the Lender shall
permit the release of such Liens only if (a) no Event of Default has occurred
and is continuing, (b) the Commitment Limit is reduced upon release of such
Liens to an amount that, in the sole discretion of Lender, is supported by the
remaining Collateral, and (c) the sum of all outstanding Advances immediately
prior to such release is no greater than the reduced Commitment Limit described
in paragraph (b) above.
Article 3
Collateral
----------
The payment and performance of the Note and all of the other Obligations
hereunder and under the Loan Documents shall be secured by, among other things,
(i) a first priority lien against the entire interest of Borrower in the
Mortgaged Properties and the Collateral pursuant to the terms of one or more
Deeds of Trust covering Borrower's interest in the Mortgaged Properties and the
Collateral, which shall be in form and substance satisfactory to Lender, (ii) a
first priority lien against the Collateral, pursuant to the Security Agreement,
which shall be in form and substance satisfactory to Lender, and shall be
covered by appropriate UCC-1 Financing Statements covering the Collateral for
filing with the appropriate authorities and (iii) any other documents,
agreements or instruments necessary to create an acceptable security interest in
the Collateral.
Article 4
Representations and Warranties
------------------------------
As an inducement to Lender to enter into this Agreement, Borrower
represents and warrants to Lender that:
4.1 Authorization. Borrower is duly authorized and empowered to create and
issue the Note and to execute and deliver this Agreement, the other Loan
Documents and all other instruments referred to or mentioned herein, and all
action on the part of the Borrower requisite for the due execution, delivery,
and performance of this Agreement, the Note, and the other Loan Documents has
been duly and effectively taken.
4.2 Enforceable Obligations. This Agreement is, and the other Loan
Documents when duly executed and delivered will be, legal, valid, and binding
obligations of Borrower, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, insolvency or other laws generally affecting
the enforcement of creditors' rights).
4.3 No Conflicts or Consents. The execution and delivery by Borrower of the
Loan Documents, the performance by Borrower under the Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (a) conflict with any provision of the organizational documents
under which Borrower was created, or (b) except as to matters that could not
12
reasonably be expected to have a Material Adverse Effect, result in the
acceleration of any Debt owed by Borrower, or conflict with any law, statute,
rule, regulation or Material Agreement, judgment, license, order or permit
applicable to or binding upon Borrower or any of its properties or assets, or
require the consent, approval, authorization or order of, or notice to or filing
with, any Governmental Authority or third party, or result in or require the
creation of any Lien upon any material assets or properties of Borrower, except
as permitted in the Loan Documents.
4.4 Other Obligations. As of the Effective Date, Borrower does not have any
outstanding Debt or other material liabilities, direct or indirect, absolute or
contingent, which are, in the aggregate, material to Borrower and not shown in
the financial statements previously provided to Lender. There is no fact,
circumstance, act, condition or development that will have or that threatens to
have any Material Adverse Effect on Borrower's present financial condition. All
Debt relating to the Convertible Notes has been paid in full or such notes have
been fully converted pursuant to the terms and conditions of all instruments
evidencing such Debt and Borrower has well and truly performed all of the
covenants set forth in the Convertible Note Mortgage.
4.5 Investments and Guarantees. As of the Effective Date, and except for
usual and customary investments in oil and gas properties, Borrower has not made
investments in, advances to or guarantees of the obligations of any Person,
except as reflected in the Financial Statements or otherwise disclosed to the
Lender in writing.
4.6 Litigation. As of the Effective Date, there is no litigation, legal,
administrative or arbitral proceeding, investigation or other action of any
nature pending or, to the knowledge of the Borrower, threatened against or
affecting Borrower that involves the possibility of any judgment or liability
not fully covered by indemnity agreements or insurance, and which would have a
Material Adverse Effect. No unusual or unduly burdensome restriction, restraint,
or hazard exists by contract, law or governmental regulation or otherwise
relative to the business, properties or assets of Borrower, except as disclosed
to the Lender in writing.
4.7 Taxes. All tax returns required to be filed by the Borrower with all
Governmental Authorities have been filed, and to Borrower's knowledge, all
taxes, assessments, fees and other governmental charges upon Borrower or upon
any of its property, income or franchises which are due and payable, have been
paid (other than the amount or validity of which are currently being contested
in good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Borrower); and no
tax lien has been filed and, to the knowledge of Borrower, no claim is being
asserted with respect to any such tax, fee or other charge.
4.8 Title to Properties; Liens. Borrower has good record and defensible
title to, or a valid leasehold interest in the Collateral and, except for
Permitted Liens, there are no Liens on the Collateral.
4.9 Leases. All material lease agreements under which Borrower is lessee or
tenant are in full force and effect, and no default or potential default exists
thereunder.
4.10 No Default. Borrower is not in default under or with respect to any
Material Agreement in any respect, other than defaults which could not have a
Material Adverse Effect. No Event of Default has occurred and is continuing.
13
4.11 ERISA Plans. Borrower does not have any plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA Plan").
4.12 Principal Business Office and Location of Records. The principal place
of business and chief executive offices of Borrower are located at 20203 Highway
60, Platteville,, CO 80651, United States, and the records of Borrower
concerning its ownership of assets, business, and operations are located at such
address.
4.13 Licenses, Permits and Franchises, etc. Borrower has all rights,
licenses, permits, franchises, and intellectual property rights necessary or
required for the ownership or operation of any of its properties and the conduct
of its business. Borrower is not aware of any fact or condition that might cause
any of such rights not to be renewed in due course.
4.14 No Material Omissions or Misstatements. No information, exhibit, or
report furnished to Lender by Borrower in connection with the negotiation of
this Agreement contains any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading. Without limiting the generality of the foregoing, there are no
material facts relating to the Loan Documents or the financial condition,
assets, liabilities, results of operations or business of the Borrower that
could, collectively or individually, have a Material Adverse Effect and that
have not been disclosed in writing to Lender as an exhibit to this Agreement or
in the Financial Statements.
4.15 Subsidiaries. Borrower does not have any Subsidiaries.
4.16 Environmental Matters.
(a) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and, to the knowledge of Borrower, no investigation or
review is pending or threatened by any Governmental Authority or other Person:
(i) with respect to any alleged violation of any law,
ordinance, rule, regulation or order of any Governmental Authority in
connection with the property, operations or conduct of the business of
Borrower;
(ii) with respect to any alleged failure to have any permit,
certificate, license, approval, requisition, or authorization required in
connection with the property, operations, or conduct of the business of
Borrower; or
(iii) with respect to any generation, treatment, storage,
recycling, transportation, disposal, or release, all as defined in 42 USC
ss. 9601(22) (each a "Release") (other than Releases in compliance with
Relevant Environmental Laws or permits issued thereunder), of any toxic,
caustic, or otherwise hazardous substance, including petroleum, its
derivatives, by-products, and other hydrocarbons, solid waste,
contaminants, polychlorinated biphenyls, paint containing lead, urea,
formaldehyde, foam insulation, and discharge of sewage or effluent,
whether or not regulated under federal, state or local environmental
statutes, ordinances, rules, regulations or orders ("Hazardous Substance")
generated by the operations or business, or located at any property, of
Borrower.
(b) Except in substantial compliance with Relevant Environmental
Laws and permits issued thereunder:
14
(i) neither the Borrower nor any business conducted by
Borrower has placed, held, located or disposed of any Hazardous Substance
on, under or at any property now or previously owned or leased by
Borrower, and, to the knowledge of Borrower, none of such properties has
been used as a dump site or storage (whether permanent or temporary) site
for any Hazardous Substance;
(ii) to the knowledge of Borrower, no polychlorinated
biphenyls, urea or formaldehyde is or has been present at any property now
or previously owned or leased by Borrower;
(iii) to the knowledge of Borrower, no asbestos is or has been
present at any property now or previously owned or leased by Borrower;
(iv) to the knowledge of Borrower, there are no underground
storage tanks that have been used to store or have contained any Hazardous
Substance, active or abandoned, located on any property now or previously
owned or leased by Borrower; and
(v) to the knowledge of Borrower, no Hazardous Substance has
been released or is present, in a reportable or threshold quantity, where
such a quantity has been established by statute, ordinance, rule,
regulation or order, at, on or under any property now or previously owned
or leased by Borrower.
(c) Borrower has not transported or arranged for the
transportation (directly or indirectly) of any Hazardous Substance to any
location which is listed or proposed for listing under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS") or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations.
(d) There are no environmental Liens on any property owned or
leased by Borrower, and no actions by any Governmental Authority have been
taken, are in process or, to the knowledge of Borrower, are threatened which
could subject any of such properties to such Liens.
(e) Prior to the Effective Date, Borrower provided to Lender all
environmental investigations, studies, audits, tests, reviews or other analyses
conducted by or which are in the possession of Borrower in relation to any
property or facility now or previously owned or leased by Borrower.
4.17 Financial Information. The annual audited financial statements of
Borrower dated as of August 31, 2010 and the quarterly unaudited financial
statements dated as of May 31, 2011 (the "Financial Statements") furnished to
Lender are true and correct in all material respects, prepared in accordance
with GAAP, applied on a consistent basis, and each such Financial Statement
fairly represents the financial condition, solvency and results of operations of
Borrower as of the date thereof. To Borrower's knowledge, Borrower has no
contingent obligations or liabilities that were not disclosed or reserved
against in such Financial Statements or in the notes thereto. Since May 31,
2011, there has been no change in the financial condition or business of
Borrower that would cause a Material Adverse Effect that have not been disclosed
to Lender in writing.
15
Article 5
Conditions Precedent
--------------------
5.1 Conditions to Initial Advance. The obligation of Lender to make the
initial Advance pursuant to this Agreement under the Note shall be subject to
the satisfaction and fulfillment of each of the following conditions precedent
which shall have occurred on or before the date of that initial Advance, unless
compliance therewith shall have been waived in writing by Lender:
(a) Execution of Loan. Borrower shall have executed, or caused to
be executed, and delivered to the Lender the following:
(i) this Agreement;
(ii) the Note;
(iii) the Deed of Trust;
(iv) the Security Agreement;
(v) each document required by the Security Agreement or
under applicable law or reasonably requested by the
Lender to be filed, registered or recorded in order
to create in favor of the Lender a perfected Lien on
the Collateral described therein, prior and superior
in right to any other Person (other than Permitted
Liens that have priority over the Lender's Lien by
operation of law), shall have been filed, registered
or recorded or shall have been delivered to Lender in
proper form for filing, registration or recordation
and Borrower shall have paid in full (or caused to be
paid in full) all stamp duties and other taxes
relating to the filing, registration and recordation
of such documents, and such other documents or
instruments as Lender may require.
(b) Entity Documentation. Lender shall have received, reviewed,
approved of such evidence as Lender requires as to the existence, good standing,
authority and capacity of Borrower, including a Certificate of Authority (the
"Certificate of Authority"), as applicable, for Borrower, having attached
thereto, (i) a true and complete copy of an executed copy of its Articles of
Incorporation and all amendments thereto, (ii) a true, and complete copy of an
executed copy of its Bylaws and all amendments thereto, (iii) a true and correct
copy of the resolutions of Borrower authorizing the Loan Documents and the
transactions contemplated hereby and thereby, (iv) a list of the Borrower's
current executive management, with appropriate biographical information, and (v)
the Financial Statements.
(c) Insurance Certificate. Lender shall have received evidence
that Borrower has complied with the provisions of Section 6.3 hereof.
(d) Officer's Certificate. Borrower shall have provided Lender
with a certification from the President of Borrower confirming the terms of the
Borrower's representations, in form and substance satisfactory to Lender.
16
(e) Release of Liens. Borrower shall deliver to Lender evidence,
reasonably satisfactory to Lender, of the release of all Liens (other than
Permitted Liens) on or affecting the Collateral, including, without limitation:
(i) release of the Convertible Notes Mortgage and all other
security agreements, mortgages, deeds of trust and other
instruments securing the Convertible Notes;
(ii) release of all security agreements, mortgages, deeds of
trust and other instruments securing the PEM
Indebtedness; and
(iii) release of all security agreements, mortagages, deeds of
trust and other instruments securing the Existing Bank
of Choice Note.
5.2 Conditions to All Advances. In addition to the conditions precedent
stated in Section 5.1 above, the obligation of the Lender to make any subsequent
Advance under the Note requested by the Borrower on any date shall be subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations
and warranties made by Borrower in or pursuant to the Loan Documents shall be
true and correct in all material respects on and as of such date as if made on
and as of such date.
(b) No Event of Default. No Event of Default shall have occurred
and be continuing on such date or after giving effect to the Advance requested
by the Borrower on such date.
(c) No Material Litigation and No Material Adverse Change. No
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority shall be pending or, to the knowledge of Borrower,
threatened by or against Borrower or Lender with respect to the transactions
contemplated by this Agreement or the other Loan Documents.
(d) No Material Changes. Lender shall have received satisfactory
evidence that (i) no Material Adverse Change has occurred in the business,
assets, liabilities (actual or contingent), operations, condition (financial or
otherwise) or prospects of Borrower since the closing date of its most recent
financial statements, and (ii) there is no suit, action, investigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental authority that purports to: (1) affect materially and adversely
Borrower, or (2) to affect any transaction contemplated by the Loan Documents,
or the ability of Borrower to perform its obligations thereunder.
(e) Expenses. Borrower shall have paid all reasonable expenses of
Lender in connection with the preparation of the Loan Documents and the making
of the Loan, including but not limited to, the fees and expenses of counsel for
Lender.
(f) Other Conditions. All of the conditions and requirements
specified in Section 2.1 and 2.2 shall have been met to Lender's satisfaction,
and Borrower shall have fulfilled such other conditions as Lender may reasonably
impose.
Article 6
Affirmative Covenants
---------------------
17
As an inducement to Lender to enter into this Agreement, and unless
otherwise expressly consented to in writing by Lender, Borrower covenants and
agrees that from the Effective Date until payment in full of the Obligation:
6.1 Financial Statements and Other Information. Borrower shall promptly
furnish, at Borrower's sole cost and expense, to Lender copies of: (i) such
information regarding its business and affairs and financial condition as Lender
may reasonably request and (ii) without request, the following:
(a) as soon as available, but in any event not later than ninety
(90) days after the end of each fiscal year of Borrower, a consolidated audited
financial statement covering Borrower's financial performance as of the end of
such year and the related statements of income, changes in shareholders' equity,
and changes in cash flows for such year, to be prepared in accordance with GAAP,
beginning with the 2011 fiscal year to be certified by a senior financial
officer of Borrower;
(b) as soon as available, but in any event not later than the
forty-five (45) days after the end of each fiscal quarter of Borrower, the
unaudited quarterly consolidated balance sheet and consolidated statement of
income, shareholders' equity, and cash flow, prepared in accordance with GAAP,
covering Borrower as of the end of such quarter as filed by Borrower with the
SEC;
(c) as soon as available, but in any event not later than ninety
(90) days after the end of each fiscal year of Borrower, an annual reserve
report in a form approved by Lender or as required by the SEC, prepared by or
audited by a professional petroleum engineer approved in advance by Lender on
Borrower's oil and gas properties as of the end of such fiscal year, which
report shall include a price deck as mandated by the SEC (the "Annual Reserve
Report");
(d) as soon as available, but in any event not later than fifteen
(15) days after filing any such a report, copies of all regulatory reports which
could have a Material Adverse Effect filed by the Borrower with any
administrative agency having jurisdiction over the Mortgaged Properties;
(e) immediately upon becoming aware of the existence of, or any
material change in the status of, any litigation which could have a Material
Adverse Effect if determined adversely against Borrower, a written communication
to Lender of such matter;
(f) immediately upon becoming aware of an Event of Default or the
existence of any condition or event which constitutes, or with notice or lapse
of time, or both, would constitute an Event of Default, a verbal notification to
Lender specifying the nature and period of existence thereof and what action
Borrower is taking or proposes to take with respect thereto and, immediately
thereafter, a written confirmation to Lender of such matters; and
(g) immediately upon becoming aware that any Person has given
notice or taken any action with respect to a claimed default under any
indenture, mortgage, deed of trust, promissory note, loan agreement, note
agreement, joint venture agreement or any other Material Agreement or other
undertaking to which Borrower is a party, a verbal notification to Lender
specifying the notice given or action taken by such Person and the nature of the
claimed default and what action Borrower is taking or proposes to take with
respect thereto and, immediately thereafter, a written communication to Lender
of such matters.
18
6.2 Taxes; Other Claims. Borrower shall promptly pay and discharge all
taxes, assessments, and governmental charges or levies imposed upon Borrower, or
upon or in respect of all or any part of the income, property or business of
Borrower, ("Expenses") and all trade accounts payable in accordance with usual
and customary business terms, and all claims for work, labor or materials,
which, if unpaid, might become a Lien or charge upon any or all of the property
of Borrower; provided, however, Borrower shall not be required to pay any such
tax, assessment, charge, levy, account payable or claim if (i) the validity,
applicability or amount thereof is currently being contested in good faith by
appropriate actions or proceedings diligently conducted which will prevent the
forfeiture or sale of any property of Borrower or any material interference with
the use thereof by Borrower, and (ii) Borrower shall have set aside on its books
reserves therefore deemed adequate under GAAP.
6.3 Maintenance of Insurance. Borrower now maintains and will continue to
maintain with financially sound and reputable insurers, insurance with respect
to the Collateral against such liabilities, risks, and contingencies and in such
types and amounts as is customarily carried by companies engaged in the same or
similar businesses and similarly situated. From time to time, the Borrower will
furnish Lender with copies of certificates, binders, and policies necessary to
give Lender reasonable assurance of the existence of such coverage. Borrower
agrees to promptly notify Lender of any termination or other material change in
such insurance coverage and, if requested by Lender, to provide Lender with all
information about the renewal of each policy at least fifteen (15) days prior to
the expiration thereof. In the case of any fire, accident, or other casualty
causing loss or damage to any Collateral of Borrower, the proceeds of such
policies in excess of $50,000 shall, at the option of the Lender, be used to (a)
replace the lost or damaged property with similar property having a value at
least equivalent to the lost or damaged property, or (b) prepay the Note.
Borrower shall take steps as are necessary to name Lender as an additional payee
on any and all insurance policies maintained by the Borrower.
6.4 Reimbursement of Fees and Expenses. Borrower shall pay all reasonable
fees and expenses incurred by Lender and its designated representatives in
connection with this Agreement, all renewals hereof, the other Loan Documents or
other transactions pursuant hereto or to the other Loan Documents, whether the
services provided thereunder are provided directly by Lender or by a third party
selected by Lender, as well as all costs of filing and recordation, all legal
and accounting fees, all costs associated with enforcing any of Lender's rights
under the Loan Documents, including, without limitation, costs of repossessing,
storing, transporting, preserving and insuring any Collateral that Borrower may
pledge to Lender, all court costs associated with enforcing or defending
Lender's rights against Borrower, any Guarantor, or any third party challenging
said Rights and any other cost or expense incurred by Lender or its designated
representatives in connection herewith or with the other Loan Documents,
together with interest at the Default Rate per annum on each such amount
commencing 30 days after notice of such expenditure is given to Borrower by
Lender until the date it is repaid to Lender.
6.5 Indemnification. Borrower shall indemnify and hold Lender and its
respective directors, officers, agents, and employees harmless from and against
any and all liabilities, actions, claims, judgments, costs, charges and
reasonable attorneys' fees, made against or incurred by Lender in any way
relating to or arising out of any act or failure to act on the part of Borrower
in connection with or affecting this Agreement, the Note or any other Loan
Document, which may be claimed by third parties, either before or after the
payment in full of the Obligation, and either before or after the release,
either partially or wholly, of the Lender's Liens. The covenants and conditions
of this Section 6.5 shall remain in full force and effect notwithstanding the
payment in full of the Obligation and the release, either partially or wholly,
19
of the Lender's Liens or any foreclosure thereunder. All such claims, judgments,
costs, charges and attorneys' fees as may be paid by Lender shall bear interest
at the Default Rate per annum on each such amount commencing 30 days after
notice of such claims, judgments, costs, charges or attorneys' fees is given to
Borrower by Lender until paid by Borrower and shall be part of the Obligation.
6.6 Further Assurances. Borrower shall promptly use its best efforts to
cure any defects in the execution and delivery of any of the Loan Documents, and
in any other instrument or document referred to or mentioned herein. Borrower
shall immediately execute and deliver to Lender upon Lender's request, all such
other and further instruments as may be reasonably required by Lender from time
to time in compliance with or accomplishment of the covenants and agreements of
Borrower made herein and in the other Loan Documents. Additionally, Borrower
will provide Lender with any and all information reasonably requested.
6.7 Inspection and Visitation. Borrower shall permit any officer, employee,
agent or representative of Lender to visit and inspect any of the Collateral,
examine all of its books, records and accounts, and take copies and extracts
therefrom, all at such reasonable times as Lender may request and, further,
Borrower shall allow and does hereby grant Lender the right to contact at
anytime any member of Borrower's management team and any of Borrower's
associates, Affiliates, officers, accountants, and auditors.
6.8 Compliance With Laws. Borrower shall comply with all laws, ordinances,
or rules and regulations to which it is subject, the violation of which could
have a Material Adverse Effect.
6.9 Accounts and Records. Borrower will keep books of record and account in
which full, true and correct entries will be made of all dealings or
transactions in relation to its business and activities, in accordance with
GAAP.
6.10 Environmental Complaints. Borrower shall promptly give notice to
Lender:
(a) of any Environmental Complaint affecting Borrower, any
property owned, operated or used by Borrower or any part thereof or the
operations of Borrower, or any other Person on or in connection with such
property or any part thereof, including receipt by Borrower of any notice of
(i) the happening of any event involving the use, spill,
release, leak, seepage, discharge or clean-up of any Hazardous Substance
or
(ii) any complaint, order, citation or notice with regard to
air emissions, water discharges, or any other environmental, health or
safety matter affecting Borrower from any Person or entity (including
without limitation the United States Environmental Protection Agency); and
(b) of any notice from any Person of
(i) any violation or alleged violation of any Relevant
Environmental Law relating to any such property or any part thereof or any
activity at any time conducted on any such property,
(ii) the occurrence of any release, spill or discharge in a
quantity that is reportable under any Relevant Environmental Law, or
20
(iii) the commencement of any clean-up pursuant to or in
accordance with any Relevant Environmental Law of any Hazardous Substance
on or about any such property or any part thereof.
6.11 Compliance Certificate. Upon request of Lender, but not more
frequently than once per fiscal quarter, Borrower shall furnish to Lender a
certificate executed by the chief financial representative of Borrower or
another Person acceptable to Lender (a) showing the calculation details and
results for each of the financial covenants set forth in Article 8, (b)
certifying that all of the representations and warranties in this Agreement are
true and correct in all material respects, except as noted in the certificate,
(c) certifying that no Event of Default has occurred under this Agreement,
except as noted in the certificate and (d) certifying that no event has occurred
which, with notice, the lapse of time or otherwise, could constitute an Event of
Default under this Agreement, except as noted in the certificate.
6.12 Use of Proceeds. Except as otherwise contemplated herein, unless
specifically consented to by Lender in writing, Borrower shall use Advances
solely to fund the working capital needs of Borrower, including, without
limitation, to provide funding for the purchase, drilling and development of oil
and gas leases and wells and the purchase of inventory, pipe and casing and to
finance ordinary and necessary expenses of the business operations of Borrower
incurred in the ordinary course of its business. Borrower is hereby authorized
to use a portion of the proceeds from the initial Advance to repay the PEM
Indebtedness and the Existing Bank of Choice Note in full. Borrower agrees not
to use the proceeds of any advance to acquire or carry margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System).
6.13 Performance. Borrower shall, in all material respects, perform and
comply with the terms, conditions and provisions set forth in this Agreement and
in all other instruments and agreements of Borrower with or in favor of Lender
in a timely manner.
6.14 Change of Location. Borrower shall immediately notify Lender in
writing of any additions to or changes in its business location or chief
executive office location.
6.15 Title to Assets and Property. Borrower shall maintain good and
marketable title to all of the Collateral, subject to Permitted Liens.
6.16 Banking Relationship; Accounts. Borrower shall establish and maintain
Lender as the principal and primary banking establishment; shall establish and
maintain all of its deposit and operating accounts with Lender, where practical.
6.17 Other Information. Borrower shall, from time to time, provide Lender
with such other information about Borrower and its business and assets as Lender
may reasonably request.
6.18 Additional Assurances. Borrower shall make, execute and deliver to
Lender such promissory notes, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure Borrower's Debt to Lender.
21
Article 7
Negative Covenants
------------------
As an inducement to Lender to enter into this Agreement, Borrower covenants
and agrees that from the Effective Date until payment in full of the Obligation:
7.1 Liens. Borrower shall not create, incur, assume or permit to exist any
Lien upon any of the Collateral except Permitted Liens, whether now owned or
hereafter acquired, or agree to do any of the foregoing.
7.2 Merger, Etc. Borrower shall not enter into any merger or consolidation
or liquidation or dissolution.
7.3 Extensions of Credit. Borrower shall not make any loan or advance to
any Person without consent of Lender, except (a) intercompany adjustments among
Borrower and its Affiliates occurring in the ordinary course of business, (b)
advances made to employees of Borrower for the payment by them of items for
which an expense report or voucher will be filed and which items will constitute
ordinary and necessary business expenses of Borrower, and (c) accounts
receivable or joint interest billings incurred in the ordinary course of
business.
7.4 Borrowings. Borrower shall not create, incur, assume, or become liable
in any manner for any Debt other than to Lender, except for (a) normal trade
debts incurred in the ordinary course of Borrower' business (including, but not
limited to, farmins and authorizations for expenditure), (b) existing Debt
disclosed to Lender in writing and acknowledged by Lender prior to the Effective
Date, and (c) leases of personal property which are not "capital leases" under
GAAP and for which the lessor's remedy for a breach by the lessee thereunder is
limited to recovery of the item leased. Provided, however, that in the event
that there are future changes in GAAP that materially alter the definition of
"capital leases" under GAAP, then Lender and Borrower shall agree to negotiate
in good faith to revise paragraph (c) of this Section 7.4 as necessary to effect
the intent hereof.
7.5 Dividends and Distributions. Borrower shall not declare or pay any
distributions; or purchase, redeem, retire or otherwise acquire for value any of
its membership interests, or ownership interests, now or hereafter outstanding;
or make any distribution of assets to its members or owners, whether in cash,
assets, or in obligations of Borrower; or allocate or otherwise set apart any
sum for the payment of any distribution on, or for the purchase, redemption, or
retirement of any membership interests or ownership interests, or make any other
distribution by reduction of capital or otherwise in respect of any of its
membership interests, or ownership interests.
7.6 Modification of Organizational Documents. Borrower shall not materially
modify, directly or indirectly, or change, waive any provision of, amend,
supplement, substitute, terminate, cancel, or replace its Articles of
Organization or its Operating Agreement, or other organizational documents,
provided, however, such organizational documents may be amended if (a) Borrower
gives Lender prior written notice thereof, and (b) the proposed modification or
amendment does not in Lender's judgment, adversely affect the interests of
Lender under the Loan Documents or constitute or result in a breach of any of
the provisions contained in any of the Loan Documents, and (c) no Event of
Default has occurred and is continuing.
22
7.7 Change in Nature of Business. Borrower shall not conduct any business
other than, or make any material change in the nature of, its business as
carried on as of the Effective Date.
7.8 Arm's Length Transactions. Borrower shall not enter into a transaction
with any Affiliate, except a transaction upon terms that are not less favorable
to it than would be obtained in a transaction negotiated at arm's length with an
unrelated third party.
7.9 Subsidiaries. Borrower shall not form or acquire any Subsidiaries
without the prior written consent of Lender.
7.10 Plan Obligations. Borrower shall not assume or otherwise become
subject to an obligation to contribute to or maintain any ERISA plan or acquire
any entity which has at any time had an obligation to contribute to or maintain
any ERISA plan.
Article 8
Financial Covenants
-------------------
Borrower covenants and agrees with Lender that as long as this Agreement remains
in effect, Borrower shall comply with the following financial covenants:
8.1 Definitions. For purposes of testing compliance with these financial
covenants, the following terms shall have the following meanings. Where
applicable, and except as otherwise provided by these defined terms, all
computations made to determine compliance with these financial covenants shall
be made in accordance with GAAP, applied on a consistent basis.
"Debt-Service Requirements" means, during the period of determination, the
amount of cash required for the repayment of Interest Expense and all principal
due and payable on Debt of Borrower.
"Derivative Contracts" means a financial contract, arranged through a
dealer (including, without limitation, Lender), that derives its value by
reference to an underlying asset, interest rate, exchange rate or index.
Derivate Contracts include, without limitation, interest rate swap contracts,
interest rate cap contracts, interest rate collar contracts, interest rate floor
contracts, interest rate exchange contacts or other similar interest rate
hedging contracts.
"Change in Fair Value of Derivative Conversion Liability" means, as of the
end of the period of determination, the change in the fair value of the
derivative conversion liability of Borrower, as reflected in Borrower's
quarterly financial statements provided to Lender pursuant to the terms of
Sections 6.1(a) and 6.1(b).
"EBITDA" means, during the period of determination, the amount of earnings
before deduction of Interest Expense and income taxes, depreciation and
amortization expense.
"Intangibles" means, as of the end of the period of determination, the
aggregate of all goodwill, purchase premiums, trademarks, patents, copyrights,
organizational expenses and similar intangible assets of Borrower.
"Interest Bearing Debt" means, as of the end of the period of
determination, all interest-bearing Debt of Borrower.
23
"Interest Expense" means, during the period of determination, the sum of
all interest expense incurred by Borrower on any Debt of Borrower.
"Stock Based Compensation" means, as of the end of the period of
determination, the expense to Borrower for the grant of stock options and for
restricted stock awards based upon the estimated fair value of the financial
instruments at the date of the grant or award, pro-rated over the term of the
service required under the terms of the instrument, as reflect in Borrower's
quarterly financial statements provided to Lender pursuant to the terms of
Sections 6.1(a) and 6.1(b).
"Tangible Net Worth" mean, as of the end of the period of determination,
Total Net Worth less Intangibles.
"Total Assets" means, as of the end of the period of determination, the
total book value of all assets of Borrower (less contra- assets).
"Total Liabilities" means, as of the end of the period of determination,
the sum of all liabilities of Borrower.
"Total Net Worth" means, as of the end of the period of determination,
Total Assets less Total Liabilities.
8.2 Minimum Debt-Service Coverage. Borrower shall maintain Debt-Service
Coverage of no less than 2.50 calculated on a rolling 12-month basis and
reported quarterly to Borrower, where "Debt Service Coverage" is calculated as
follows:
EBITDA + Change in Fair Value of Derivative Conversion Liability + Stock Based
Compensation
----------------------------------------------
Debt-Service Requirements (during the rolling 12-month period)
8.3 Debt to Capitalization Ratio. Borrower shall maintain a Debt to
Capitalization Ratio of no more than twenty-five percent (25%), calculated on a
rolling 12-month basis, where "Debt to Capitalization Ratio" is calculated as
follows:
Interest Bearing Debt
----------------------------------------------
Interest Bearing Debt + Tangible Net Worth
8.4 Testing - Effect of Derivative Contracts. Testing for compliance with
these financial covenants shall be made without giving effect to any non-cash
mark-to-market adjustments for outstanding Derivative Contracts that would
otherwise be required under GAAP.
Article 9
Default and Remedies
--------------------
9.1 Events of Default. If any one or more of the following shall occur and
shall not have been remedied in the period provided for in this Section 9.1, if
any, an "Event of Default" shall be deemed to have occurred hereunder and with
respect to all of the Obligations, unless waived in writing by Lender:
24
(a) default occurs in the payment when due of any installment of
principal or interest on the Note or any other Obligation;
(b) any representation or warranty made by Borrower herein or in
any of the other Loan Documents or in any certificate, document or financial or
other statement furnished to Lender under or in connection with this Agreement
or any other Loan Document is or proves to have been incorrect or untrue or
misleading in any material respect on or as of the date made or deemed made and
shall continue unremedied for a period of 15 days after the earlier of (i) the
date on which Borrower becomes aware of such default or (ii) the date on which
Lender gives notice thereof to Borrower;
(c) Borrower defaults in the due performance or observance of any
covenant, condition or agreement contained in this Agreement or in any of the
other Loan Documents and such default continues unremedied for a period of 15
days after the earlier of (i) the date on which Borrower becomes aware of the
default or (ii) the date on which Lender gives notice thereof to Borrower;
(d) Borrower shall (i) apply for or consent to the appointment of
a receiver, trustee or liquidator of all or a substantial part of the assets of
Borrower; (ii) be unable, or admit in writing its inability, or fail to confirm
its ability (when requested to do so by Lender) to pay its debts as they become
due; (iii) make a general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent or file a voluntary petition in bankruptcy;
(v) file a petition or an answer seeking reorganization or an arrangement with
creditors or to take advantage of any bankruptcy or insolvency law; (vi) file an
answer admitting the material allegations of, or consent to, or default in
answering, a petition filed against it in any bankruptcy, reorganization or
insolvency proceedings; or (vii) take any action for the purpose of effecting
any of the foregoing;
(e) an order, judgment or decree is entered by any court of
competent jurisdiction appointing a receiver, trustee or liquidator of Borrower
or of all or a substantial part of its assets, and such order, judgment or
decree continues unstayed in effect for any period of 30 consecutive days;
(f) the failure of Borrower to have discharged within a period of
30 days after the commencement thereof any attachment, sequestration or similar
proceeding against any of its properties or assets having a value of $50,000 or
more;
(g) any acceleration, notice of default, default, filing of suit
or notice of breach by any lender, lessor, creditor or other party to any
Material Agreement to which Borrower is a party, or to which the Mortgaged
Properties are subject;
(h) the occurrence of a Material Adverse Effect with respect to
Borrower;
(i) final judgment or judgments shall be entered against Borrower
involving in the aggregate a liability (not paid or fully covered by insurance
or not otherwise covered by indemnity agreements acceptable to Lender in its
sole discretion) of $50,000 or more, and such judgment or judgments shall not
have been vacated, discharged, stayed or bonded pending appeal within 60 days
from the entry thereof; or
25
(j) invalidity of any of the Loan Documents caused by Borrower and
not cured within fifteen (15) days after request by Lender.
9.2 Remedies.
(a) Upon the occurrence of any Event of Default described in
Sections 9.1(d) or 9.1(e) hereof, the lending obligations, if any, of Lender
hereunder shall immediately terminate, and the entire principal amount of all
Obligations then outstanding together with interest then accrued and unpaid
thereon shall become immediately due and payable, all without demand and
presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of intention to accelerate maturity or notice of
acceleration of maturity, or any other notice of default of any kind, all of
which are hereby expressly waived by Borrower.
(b) Upon the occurrence and at any time during the continuance of
any Event of Default specified in Section 9.1 hereof, other than an Event of
Default of the type described in Section 9.2(a), Lender may, after giving
written notice to Borrower and a fifteen (15) day time period within which
Borrower may cure the Event of Default,
(i) declare the entire principal amount of the Obligation then
outstanding together with interest then accrued and unpaid thereon to be
immediately due and payable without demand and presentment for payment,
notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of intention to accelerate maturity or notice of acceleration of
maturity, or any other notice of default of any kind, all of which are
hereby expressly waived by Borrower, and
(ii) terminate the lending obligations, if any, of Lender
hereunder unless and until Lender shall reinstate same in writing.
9.3 Right of Setoff. Upon the occurrence and during the continuance of any
Event of Default, or if Borrower becomes insolvent, as reasonbly evidenced,
Lender is hereby authorized at any time and from time to time, without prior
notice to Borrower (any such notice being expressly waived by the Borrower), to
setoff and apply any and all deposits (except as to (a) special deposits, where
there would be excluded any funds held in trust or otherwise for the benefit of
third parties and (b) any other amounts held in trust or otherwise for the
benefit of overriding royalty interest owners, working interest partners, land
owners or similar third parties) at any time held and other indebtedness at any
time owing by Lender to or for the credit or the account of Borrower against any
and all of the Obligations due and payable, to the extent permitted by Colorado
law now in effect. Lender agrees promptly to notify Borrower after any such
setoff and application, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights of Lender under
this Section 9.3 are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which Lender may have.
9.4 Delegation of Duties and Rights. Lender may perform any of its duties
or exercise any of its Rights under the Loan Documents by or through its
officers, directors, employees, attorneys, agents or other representatives.
9.5 Lender Not in Control. None of the covenants or other provisions
contained in this Agreement or the other Loan Documents shall, or shall be
deemed to, give Lender the Right to exercise control over the affairs or
management of Borrower.
26
9.6 Waivers by Lender. The acceptance by Lender at any time and from time
to time of part payment on the Obligation shall not be deemed to be a waiver of
any Event of Default then existing. No waiver by Lender of any Event of Default
shall be deemed to be a waiver of any other then-existing or subsequent Event of
Default. No delay or omission by Lender in exercising any Right under this
Agreement or any of the other Loan Documents shall impair such Right or be
construed as a waiver thereof or any acquiescence therein.
9.7 Cumulative Rights. All Rights available to Lender under this Agreement
and the other Loan Documents are cumulative of, and in addition to, all other
Rights available to Lender at law or in equity. The exercise or partial exercise
of any such Right shall not preclude the exercise of any other Right under the
Loan Documents or otherwise.
9.8 Expenditures by Lender. All court costs, reasonable attorneys' fees,
other costs of collection, and other sums spent by Lender pursuant to the
exercise of any Right provided herein shall be payable to Lender on demand,
shall become part of the Obligation, and shall bear interest at the Default Rate
per annum on each such amount commencing on the date notice of such claims,
judgments, costs, charges or attorneys' fees is given to Borrower by Lender
until the date paid by Borrower.
Article 10
General Terms
-------------
10.1 Survival of Representations and Warranties. All representations and
warranties of Borrower made hereunder, in the other Loan Documents and in any
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
Note.
10.2 Communications. Any notice of an Event of Default to be provided by
Lender to Borrower shall be transmitted to Borrower by certified mail, return
receipt requested. Unless specifically otherwise provided, whenever any Loan
Document requires or permits any consent, approval, notice, request, or demand
from one party to another, such communication must be in writing (which may be
by cable, telex, telecopy, fax, or other similar means of remote facsimile
transmission) to be effective and shall be deemed to have been given on the day
actually delivered or, if mailed, on the third day (or if such third day is not
a Business Day, then on the next succeeding Business Day) after it is enclosed
in an envelope, addressed to the party to be notified at the address stated
below, properly stamped, sealed, and deposited in the appropriate official
postal service. Until changed by notice pursuant hereto, the address of each
party for purposes of this Agreement is as follows:
If to Borrower: With a copy to:
Synergy Resources Corporation Hart & Trinen, L.L.P
20203 Highway 60 1624 Washington Street
Platteville, CO 80651-8802 Denver, Colorado 80203
Attn: Ed Holloway Attn: Bill Hart, Esq.
Phone: (970) 737-1073 Phone: (303) 839-0061
Fax: (970) 737-1045 Fax: (303) 839-5414
27
If to Lender: With a copy to:
Bank of Choice Dufford & Brown, P.C.
3780 W 10th Street 1700 Broadway, Suite
2100
Greeley, CO 80634 Denver, Colorado 80290
Attn: Sarah Burchett Attn: Randall J.
Feuerstein, Esq.
Phone: (970) 352-6400 Phone: (303) 861-8013
Fax: (970) 336-8464 Fax: (303) 832-3804
10.3 Binding on Successors. All covenants and agreements herein contained
by or on behalf of Borrower shall bind their successors and assigns and shall
inure to the benefit of Lender and its successors and assigns; provided,
however, that Borrower may not assign its Rights or obligations hereunder
without the prior written consent of Lender.
10.4 Choice of Law and Venue.
(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE
STATE OF COLORADO AND SHALL BE PERFORMABLE IN WELD COUNTY, COLORADO. The parties
hereto irrevocably submit themselves to the jurisdiction of any Colorado state
court or any United States court located in the State of Colorado (or any court
having jurisdiction over appeals from any such court) in any proceeding between
or among them arising out of or in any way relating to this Agreement or the
Loan Documents whether arising in contract, tort or otherwise. Any suit, action
or proceeding may be brought in the courts of the State of Colorado, County of
Weld, or in the United States District Court for the District of Colorado. All
parties hereto irrevocably consent to the service of process in any suit, action
or proceeding in said court by the mailing thereof, by registered or certified
mail, postage prepaid, to its address for notices set forth in this Agreement.
Service shall be deemed effective five (5) days after such mailing. If requested
to do so by any party, each party hereto agrees to waive service of process and
to execute any and all documents necessary to implement such waiver in
accordance with the Colorado Rules of Civil Procedure. The parties irrevocably
waive any objections which they may now or hereafter have (including any based
on the grounds of forum non conveniens) to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the Loan
Documents brought in the courts located in Larimer, Colorado. Nothing herein
impairs the right to bring proceedings in the courts of any other jurisdiction
or to effect service of process in any other manner permitted.
(b) The parties recognize that courts outside of Weld County,
Colorado, may also have jurisdiction over suits, actions or proceedings arising
out of this Agreement and the Loan Documents. Except for proceedings brought by
Lender in those jurisdictions where the Mortgaged Properties are located, in the
event any party shall institute a proceeding involving this Agreement or the
Loan Documents in a jurisdiction outside Weld County, Colorado (except for
federal court in the District of Colorado), the party instituting such
litigation shall indemnify the other party for any losses and expenses that may
result from the breach of the foregoing covenant to institute such proceeding
only in such courts, including, without limitation any additional expenses
incurred as the result of litigating in another jurisdiction; such expenses and
reasonable fees of local counsel and travel and lodging expenses of the
indemnified parties, its witnesses, experts and support personnel.
28
10.5 Waiver of Jury Trial. BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
10.6 Usury Savings Clause. It is the intention of the parties hereto that
Lender shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to Lender under laws
applicable to it (including the laws of the United States of America and the
State of Colorado or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions hereof), then, in that
event, notwithstanding anything to the contrary in the Note, this Agreement or
any other Loan Document or other agreement entered into in connection with or as
security for the Note, it is agreed as follows: (i) the aggregate of all
consideration which is contracted for, taken, reserved, charged or received by
Lender under the Note, this Agreement or any other Loan Document or agreement
entered into in connection with or as security for the Note shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be credited by Lender on the principal amount of the Obligation to
Lender (or, to the extent that the principal amount of the Obligation shall have
been or would thereby be paid in full, refunded by Lender to the Borrower); and
(ii) if the maturity of the Note is accelerated by reason of an Event of Default
under this Agreement or otherwise, or in the event of any prepayment, then such
consideration that constitutes interest under law applicable to Lender may never
include more than the maximum amount allowed by such applicable law, and excess
interest, if any, provided for in the Note, this Agreement or otherwise shall be
canceled automatically by Lender as of the date of such acceleration of
prepayment and, if theretofore paid, shall be credited by Lender on the
principal amount of the Obligation (or, to the extent that the principal amount
of such Obligation shall have been or would thereby be paid in full, refunded by
Lender to the Borrower).
10.7 Severability. If one or more of the provisions contained herein or in
the Note or any of the other Loan Documents shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, the
Note or any of the other Loan Documents.
10.8 Non-Waiver. No Advance hereunder shall constitute a waiver of the
representations, warranties, conditions or agreements of Borrower or of any of
the conditions of Lender's obligations to make further Advances. If Borrower is
unable to satisfy any such representation, warranty, condition or agreement, no
such Advance shall have the effect of precluding Lender from thereafter
declaring such inability to be an Event of Default as hereinabove provided.
10.9 Counterparts. The parties may execute this Agreement in multiple
counterparts, each of which constitutes an original, and all of which,
collectively, constitute only one agreement. The signatures of all of the
parties need not appear on the same counterpart, and delivery of an executed
counterpart signature page by facsimile is as effective as executing and
delivering this Agreement in the presence of the other parties to this
Agreement. This Agreement is effective upon delivery of one executed counterpart
from each party to the other party. In proving this Agreement, a party must
produce or account only for the executed counterpart of the party to be charged.
10.10 Amendments and Waivers. Neither this Agreement, the Note nor any of
the other Loan Documents may be amended or waived orally, but only by an
29
instrument in writing signed by Borrower and Lender (and any other Person who is
a party to the Loan Document being amended or waived).
10.11 Terms and Headings. Terms used herein but not defined shall have the
meanings accorded them under GAAP basis accounting principles, or the Colorado
Uniform Commercial Code, as appropriate. All headings used herein are for
convenience and reference purposes only and shall not affect the substance of
this Agreement.
10.12 Conflicts. If there is ever a conflict between any of the terms,
conditions, representations, warranties or covenants contained in this Agreement
and the terms, conditions, representations, warranties or covenants in any of
the other Loan Documents executed by Borrower and Lender, the provisions of this
Agreement shall govern and control; provided, however, the fact that any term,
condition, representation, warranty or covenant contained in such other Loan
Document is not contained herein shall not be, or be deemed to be, a conflict.
10.13 Environmental Indemnity. Borrower hereby agrees to defend, indemnify,
pay and hold Lender and its officers, directors, employees and agents (each, an
"Indemnitee") harmless from and against, and shall reimburse each Indemnitee
for, any and all loss, claim, liability, damages, injunctive relief, penalty,
judgment, suit, obligation, injury to persons, property or natural resources,
cost, expense or disbursement of any kind or nature whatsoever including,
without limitation, attorneys' fees and costs attributable to any action or
cause of action (whether or not each Indemnitee shall be designated a party
thereto), arising, directly or indirectly, in whole or in part, out of the
release or presence, or alleged release or alleged presence, or any Hazardous
Substance, at, on, or under, surrounding or in connection with any of the
Mortgaged Property, or any portion thereof, whether foreseeable or
unforeseeable, regardless of the source of such release and regardless of when
such release occurred or such presence is discovered. The foregoing indemnity
includes, without limitation, all cost in law or in equity of removal,
remediation of any kind and disposal of any such Hazardous Substance, all costs
of determining whether the Mortgaged Properties are in compliance, and causing
the Mortgaged Properties to be in compliance, with all applicable laws relating
to Hazardous Substances, all costs associated with claims for damages to
persons, property or natural resources, and each Indemnitee's consultants' fees
(including attorneys' fees and costs) and court costs. The obligations of
Borrower under this indemnity shall survive the repayment of the Note and shall
be independent of the obligations of Borrower to the Indemnitees in connection
with the Note. The rights of each Indemnitee under this indemnity shall be in
addition to any other rights and remedies of such Indemnitee under any guarantee
or any document or instrument now or hereafter executed in connection with this
Agreement, the Note, the Loan Documents or at law or in equity.
10.14 Renewal, Extension or Rearrangement. All provisions of this Agreement
and any of the other Loan Documents relating to the Note or any other Obligation
shall apply with equal force and effect to each and all promissory notes
hereafter executed which in whole or in part represent a renewal, extension for
any period, increase or rearrangement of any part of the Obligation originally
represented by the Note or any part of such other Obligation.
10.15 Negotiation, Representation and Construction. This Agreement and all
Loan Documents are the product of negotiation between sophisticated individuals,
each of whom were either represented by counsel or had an opportunity to be so
represented, and each of whom had an opportunity to participate in and did
participate in, the drafting of each provision hereof, and the parties agree
that,
30
(a) each party has contributed to the drafting of this
Agreement and all Loan Documents,
(b) this Agreement and all Loan Documents have been prepared
jointly,
(c) each party has read and understands this Agreement and all
Loan Documents,
(d) each party was represented by legal counsel (or had the
opportunity to be represented by legal counsel) in connection with this
Agreement and all Loan Documents, and that each of them and their counsel have
reviewed this Agreement, or have had an opportunity to do so.
Accordingly, the provisions herein contained shall not be construed against
either Borrower or Lender as having been the person or persons responsible for
the preparation thereof, and the parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any Loan Documents or any amendments hereto or thereto.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE ENTIRE AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Signature page follows]
31
IN WITNESS WHEREOF, the parties hereto have executed this Loan Agreement as of
the Effective Date.
LENDER:
-------
BANK OF CHOICE, a Division of Bank
Midwest, N.A., a national
association
By /s/ Sarah Burchett
----------------------------------
Name: Sarah Burchett
Title: Senior Approval Officer
BORROWER:
---------
SYNERGY RESOURCES CORPORATION
a Colorado corporation
By /s/ Edward Holloway
----------------------------------
Name: Edward Holloway
Title: President
Signature Page to Synergy Loan Agreement
32
EXHIBIT A
FORM OF
REQUEST FOR ADVANCE
Bank of Choice
3780 W 10th Street
Greeley, CO 80634
Attention: Sarah Burchett
Date: ___________
To Whom It May Concern:
Reference is made to the Loan Agreement dated as of November 30, 2011 (as
may be further amended and restated, and in effect on the date hereof, the "Loan
Agreement"), between Synergy Resources Corporation, a Colorado corporation, as
Borrower, and Bank of Choice, as Lender. Terms defined in the Loan Agreement are
used herein with the same meanings. This notice constitutes a Request for
Advance and the Borrower hereby requests an advance under the Loan Agreement,
and in that connection the Borrower specifies the following information with
respect to the Borrowing requested hereby:
(A) Principal amount of advance: ________________
(B) Date of advance (which is a Business Day): ______________
(C) Location and number of Borrower's account to which proceeds of advance
are to be disbursed:
Synergy Resources Corporation
ABA No.
Account No.
For Further Credit To:
The Borrower hereby represents and warrants that no Event of Default has
occurred and is continuing under the Loan Agreement.
Very truly yours,
SYNERGY RESOURCES CORPORATION
By:
----------------------------------
33
EXHIBIT B
---------
NOTE
SYNERGY RESOURCES CORPORATION
SECURED PROMISSORY NOTE
-----------------------
Greeley, Colorado
$ 15,000,000 November 30, 2011
The undersigned Borrower promises to pay to the order of BANK OF CHOICE, a
Division of BANK MIDWEST, N.A., a national association, ("Lender", which term
shall include all subsequent holders of this Note by assignment or otherwise),
at its offices located in Greeley, Colorado, the sum of FIFTEEN MILLION AND
NO/100 DOLLARS ($15,000,000.00), or so much thereof as may be advanced by Lender
hereunder, together with interest as required under this Note. Sums shall be
advanced to Borrower by Lender hereunder pursuant to the terms and conditions of
that certain Loan Agreement of even date herewith, by and between Lender and
Borrower (the "Loan Agreement"). The outstanding principal amount due hereunder
may fluctuate up and down from time to time, but shall not exceed FIFTEEN
MILLION AND NO/100 DOLLARS ($15,000,000.00) in the aggregate principal amount
outstanding at any one time. All capitalized terms used herein and not otherwise
defined shall have the meanings given such terms in the Loan Agreement.
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT
(THE "SECURITY AGREEMENT") AND A DEED OF TRUST (THE "DEED OF TRUST") DATED AS OF
THE DATE OF THIS NOTE AND SIGNED BY BORROWER IN FAVOR OF LENDER.
The principal outstanding under this Note shall bear interest from day to
day at the Interest Rate (as hereinafter defined). The term "Interest Rate"
means a rate per annum equal to the greater of (i) three and a quarter percent
(3.25%) and (ii) the Prime Rate, provided, however, that upon and/or after and
during the continuance of an Event of Default, interest on the unpaid principal
balance shall accrue at the Default Rate, limited by the Highest Lawful Rate, as
those terms are defined in the Loan Agreement. Interest shall accrue at the
applicable rate notwithstanding the occurrence of any Event of Default,
acceleration of the Obligations, the entry of any judgment, or the commencement
of any bankruptcy, reorganization, receivership or other proceedings. Interest
hereunder shall be computed on the basis of a three hundred sixty (360) day
year, calculated for the actual number of days elapsed, provided, however, that
the Interest Rate charged hereunder shall never exceed the maximum rate allowed,
from time to time, by applicable law.
34
Monthly payments of accrued interest only at the Interest Rate shall be due
and payable beginning on January 1, 2012, and continuing on the first (1st) day
of each month thereafter until the Maturity Date.
The "Maturity Date" of this Note shall be November 30, 2014.
A payment due hereunder shall be deemed late if it is not received by the
Lender on or before ten (10) days after the due date of such payment, and each
late payment shall automatically incur a late charge, payable immediately, equal
to five percent (5%) of such payment. This late charge provision shall not limit
the operation of any other provision of this Note regarding payments that are
not made when due hereunder. Further, notwithstanding any other rate of interest
provided for herein, the Interest Rate applicable to any payment or payments of
principal or interest, or any part thereof, not received by the Lender within
ten (10) days after the due date thereof shall thereafter be the Default Rate
defined in the Loan Agreement.
Borrower shall be in default of this Note if
(1) any payment of principal or interest, or any part thereof, is not
received by the Lender on the due date of such payment, or
(2) upon the occurrence of any other default hereunder or
(3) an Event of Default under the terms of the Loan Agreement or any
default under any Deed of Trust, the Security Agreement or other
Loan Document securing or made at any time in connection with this
Note or with any loan cross-defaulted with this Note. Borrower shall
be in default under this Note if Borrower is in default under, or if
an Event of Default has occurred, in any obligation to Lender, which
default shall be a cross-default under this Note.
If any default remains uncured upon the expiration of any applicable grace
or cure period, including as set forth in Section 9.2 of the Loan Agreement, the
principal sum remaining unpaid hereunder, together with all accrued and unpaid
interest thereon, and all other liabilities of the Borrower under this Note,
shall become due and payable at any time thereafter at the option of the Lender,
immediately upon the Lender's written notice or demand. Also in that event, the
Lender shall have the remedies of a secured party under the Uniform Commercial
Code. In addition to the foregoing remedies, upon the occurrence or existence of
any default, Lender may exercise any other right, power or remedy granted to it
by the Loan Agreement, the Security Agreement, or the Deed of Trust or otherwise
permitted to it by law or equity.
No delay or omission on the part of Lender in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note. Presentment, demand, protest, notice of dishonor, and extension of
time without notice are hereby waived by Borrower. Except as otherwise expressly
provided in this Note or by applicable law, any notice to Borrower regarding
35
this Note shall be sufficiently served for all purposes if placed in the mail,
postage prepaid, addressed to or left upon the premises at the address shown
below or any other address shown on the Lender's records. Time is of the essence
in all matters relating to this Note.
JURY TRIAL WAIVER. BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A
TRIAL BY JURY IN RESPECT TO ANY LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW
OR IN EQUITY, BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDER ENTERING INTO THIS AGREEMENT. FURTHER, BORROWER
HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER, NOR LENDER'S COUNSEL
HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the
date first above written.
SYNERGY RESOURCES CORPORATION
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
36
EXHIBIT C
---------
FORM OF BORROWING BASE CALCULATION
---------------------------------------------------------------------------
Future Net PV 9 Advance Rate Total
Income
---------------------------------------------------------------------------
PDP $24,242,211 $14,581,669 65% $ 9,478,085
---------------------------------------------------------------------------
PDP<6 $ 1,696,270 $ 731,758 60% $ 439,055
---------------------------------------------------------------------------
PDNP $22,801,236 $12,377,639 50% $ 6,188,820
---------------------------------------------------------------------------
PUD $60,775,771 $14,490,974 10% $ 1,449,097
---------------------------------------------------------------------------
Total $ 17,555,057
---------------------------------------------------------------------------
Borrowing Base Agreement - Maximum concentration in Loan to Value
---------------------------------------------------------------------------
Total Type of Maximum Allowable Amount Actual Amount
Margined Well Concentration based on Margined Collateral
Collateral LTV Collateral
---------------------------------------------------------------------------
$17,555,057 PDP 100% $17,555,057 $ 9,478,085
---------------------------------------------------------------------------
$17,555,057 PDP<6 30% $ 5,266,517 $ 439,055
---------------------------------------------------------------------------
$17,555,057 PDNP 20% $ 3,511,011 $ 3,511,011
---------------------------------------------------------------------------
$17,555,057 PUD 10% $ 1,755,506 $ 1,449,097
---------------------------------------------------------------------------
$ 14,877,248
---------------------------------------------------------------------------
37
WHEN RECORDED
AND/OR
FILED RETURN TO:
Randall J. Feuerstein
Dufford & Brown, P.C.
1700 Broadway, Suite 2100
Denver, Colorado 80290
DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
FINANCING STATEMENT AND FIXTURE FILING
from
SYNERGY RESOURCES CORPORATION
(Organizational I.D. No. 20051109690)
AS DEBTOR
to
THE PUBLIC TRUSTEE OF WELD COUNTY, COLORADO, AS TRUSTEE WITH RESPECT TO REAL
PROPERTY LOCATED IN WELD COUNTY, COLORADO
and to
THE PUBLIC TRUSTEE OF BOULDER COUNTY, COLORADO, AS TRUSTEE WITH RESPECT TO
REAL PROPERTY LOCATED IN BOULDER COUNTY, COLORADO
and to and for the benefit of
BANK OF CHOICE
a Division of Bank Midwest, N.A.
Dated as of November 30, 2011
Page 1 of 27
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS. EXHIBIT A CONTAINS
A LEGAL DESCRIPTION OF THE REAL ESTATE CONCERNED. DEBTOR HAS AN INTEREST OF
RECORD IN THE REAL ESTATE. SOME OF THE PERSONAL PROPERTY CONSTITUTING A PORTION
OF THE COLLATERAL IS OR IS TO BECOME FIXTURES RELATED TO THE REAL ESTATE.
THIS INSTRUMENT COVERS FIXTURES, AS-EXTRACTED COLLATERAL AND MINERALS OR THE
LIKE OR OTHER SUBSTANCES OF VALUE WHICH MAY BE EXTRACTED FROM THE EARTH AND THE
ACCOUNTS RELATING THERETO, INCLUDING ACCOUNTS RESULTING FROM THE SALE THEREOF AT
THE MINEHEAD THEREOF. THIS INSTRUMENT IS TO BE FILED FOR RECORD AS A FINANCING
STATEMENT, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS.
THIS INSTRUMENT IS TO BE RECORDED IN THE REAL ESTATE RECORDS OF THE COUNTY
RECORDER IN EACH COUNTY WHERE THE REAL ESTATE IS LOCATED.
A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. A POWER OF SALE MAY ALLOW
SECURED PARTY OR THE RELEVANT TRUSTEE TO TAKE THE COLLATERAL AND SELL IT WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION.
Page 2 of 27
DEED OF TRUST, MORTGAGE,
------------------------
SECURITY AGREEMENT,
-------------------
FINANCING STATEMENT
-------------------
AND FIXTURE FILING
------------------
This Deed of Trust, Mortgage, Security Agreement, Financing Statement and
Fixture Filing (this "Instrument" or "Agreement"), dated as of November 30,
2011, is from SYNERGY RESOURCES CORPORATION, a Colorado corporation ("Debtor"),
with Organizational I.D. No. 20051109690 and with an address of 20203 Highway
60, Platteville, CO 80651, to the Public Trustee of Weld County, Colorado ("Weld
Trustee") and to the Public Trustee of Boulder County, Colorado ("Boulder
Trustee", and together with the Weld Trustee, the "Trustees" and each a
"Trustee"), and to and for the benefit of BANK OF CHOICE, a Division of Bank
Midwest, a national association ("Secured Party"), with an address of 3780 W
10th Street, Greeley, CO 80634.
COLLATERAL
----------
All of the property described in paragraphs 1 through 8 below is herein
collectively called the "Collateral":
1. The entire estates or the undivided interests therein as described in Exhibit
A in and to all of the mineral estates, surface estates, leasehold estates and
other estates described in Exhibit A and in and to the mineral interests,
royalty interests, working interests, operating rights interests, record title
interests, overriding royalty interests, production payment interests, net
profit interests and other interests described in Exhibit A and in and to the
leases, licenses, subleases, sublicenses, easements, rights-of-way, surface use
agreements, farmouts, farmins, minerals agreements, unit agreements, cooperative
development agreements, communitization agreements, unit operating agreements,
pooling agreements, joint operating agreements and other documents and
instruments relating to the properties described in Exhibit A and any other
estates, property interests and rights described in Exhibit A, covering or
relating to all or any part of the land described either in Exhibit A or in the
leases, licenses, subleases, sublicenses, easements, rights-of-way, agreements
and other documents and instruments described in Exhibit A (the "Land"; the term
"Land" as used herein includes, without limitation, the land specifically
described in Exhibit A, and all land described in or covered by the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit A or relating to the properties
described in Exhibit A whether or not such land is specifically described in
Exhibit A together with any and all other right, title and interest of Debtor of
whatever kind or character (whether now owned or hereafter acquired by operation
of law or otherwise) (which right, title and interest of Debtor shall, for all
purposes of this Instrument, be deemed to include, without limitation, any and
all right, title and interest now owned or hereafter acquired by Debtor in any
amendment, modification, supplement, restatement, extension, renewal or
replacement of any of the oil and gas leases, working interests, overriding
royalty interests, production payments, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and instruments
described in Exhibit A or relating to the properties described in Exhibit A) in,
to and under or that covers, affects or otherwise relates to the Land or the oil
and gas leases, working interests, overriding royalty interests, production
payments, licenses, subleases, sublicenses, easements, rights of way, agreements
and other documents and instruments described in Exhibit A or to any of the
estates, property, interests or rights described or referred to above or herein;
including, without limitation, the following:
Page 3 of 27
(a) All of Debtor's right, title and interest of whatever kind or character
(whether now owned or hereafter acquired by operation of law or otherwise) in,
to and under or that covers, affects or otherwise relates to the Land or the
leases, licenses, subleases, sublicenses, easements, rights-of-way, agreements
and other documents and instruments described in Exhibit A or to any of the
estates, property, interests or rights described or referred to above or herein,
even though Debtor's interest therein may be incorrectly described in, omitted
from or not described in Exhibit A;
(b) All of Debtor's right, title and interest (whether now owned or
hereafter acquired by operation of law or otherwise) in, to and under all
presently existing and hereafter created oil, gas or mineral unitization,
cooperative development, pooling, spacing or communitization agreements,
declarations or orders, and in and to the lands and properties covered and the
units created thereby (including, without limitation, units formed under orders,
rules, regulations or other official acts of any federal, state, tribal, local
or other authority having jurisdiction and so called "working interest units"
created under operating and similar agreements or otherwise), that cover, affect
or otherwise relate to the Land or the leases, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and instruments
relating to the properties described in Exhibit A or to any of the estates,
property, interests or rights described or referred to above or herein;
(c) All of Debtor's right, title and interest (whether now owned or
hereafter acquired by operation of law or otherwise) in, to and under all
presently existing and hereafter created operating agreements, equipment leases,
production sales, purchase, exchange or processing agreements, transportation or
gathering agreements, farmout or farmin agreements, disposal agreements, area of
mutual interest agreements, joint venture agreements and other contracts or
agreements that cover, affect or otherwise relate to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments relating to the properties described in Exhibit A or
to any of the estates, property, interests or rights described or referred to
above or herein or the operations thereon, or the production, treatment,
storage, gathering, transportation, handling, processing, manufacturing, sale or
marketing of Hydrocarbons (as hereinafter defined) produced therefrom or
allocated or attributed thereto, including, without limitation, those contracts
and agreements relating to the properties described in Exhibit A hereto as the
same may be amended or supplemented from time to time; and
(d) All of Debtor's right, title and interest of whatever kind or character
(whether now owned or hereafter acquired by operation of law or otherwise) in,
to and under all presently existing or hereafter created easements, servitudes,
rights-of-way, surface leases, surface use agreements, licenses, permits and
other surface rights used, or held for use, in connection with the Land or any
of the estates, property, interests or rights described or referred to above or
herein, or the operations thereon, or the production, treatment, storage,
gathering, transportation, handling, processing, manufacturing, sale or
marketing of Hydrocarbons produced therefrom or allocated or attributed thereto,
including, without limitation, the easements and rights-of-way relating to the
properties described in Exhibit A as same may be amended or supplemented from
time to time;
2. All of the oil, gas, drip gasoline, natural gasoline, natural gas liquids,
condensate, distillate, casinghead gas and other solid, liquid or gaseous
hydrocarbons and other associated or related substances of whatever kind or
character and in whatever form or phase, including, without limitation, gases
produced from coal-bearing formations and strata such as so-called "coal-bed
gas" and "coal-bed methane" (collectively, "Hydrocarbons") in, on, under or
Page 4 of 27
allocated or attributed to any of the estates, property, interests or rights
described or referred to above or herein or any other interest of Debtor
(whether now owned or hereafter acquired by operation of law or otherwise) in,
to and under or that covers, affects or otherwise relates to the Land or to any
of the estates, property, interests or rights described or referred to above or
herein;
3. All wells (including without limitation the oil and gas wells listed on
Exhibit A attached hereto), platforms, derricks, casing, tubing, tanks, tank
batteries, treaters, separators, rods, pumps, pumping units, flow lines, water
lines, transportation lines, gathering lines, gas lines, machinery, pipelines,
power lines and other goods and equipment, and all of the personal property and
fixtures, as defined under applicable state law, now or hereafter located in,
on, under, affixed, allocated or attributed to or obtained or used in connection
with any of the estates, property, interests or rights described or referred to
above or herein or any other interest of Debtor (whether now owned or hereafter
acquired by operation of law or otherwise) in, to and under or that covers,
affects or otherwise relates to the Land or to any of the estates, property,
interests or rights described or referred to above or herein, or that are used
or purchased for the production, treatment, storage, gathering, transportation,
handling, processing, manufacturing, sale or marketing of Hydrocarbons;
4. All of the accounts, contract rights and general intangibles now or hereafter
arising in connection with the production, treatment, storage, gathering,
transportation, handling, processing, manufacturing, sale or marketing of
Hydrocarbons produced from or allocated or attributed to any of the estates,
property, interests or rights described or referred to above or herein or any
other interest of Debtor (whether now owned or hereafter acquired by operation
of law or otherwise) in, to or under or that covers, affects or otherwise
relates to the Land or to any of the estates, property, interests or rights
described or referred to above or herein and all other accounts, contract rights
and general intangibles now or hereafter arising in connection with the estates,
property, interests or rights described or referred to above or herein;
5. All of the severed and extracted Hydrocarbons, including, without limitation,
"as-extracted collateral" (as defined in the applicable version of the Uniform
Commercial Code in effect in each jurisdiction in which any of the Land is
located) produced from or allocated or attributed to any of the estates,
property, interests or rights described or referred to above or herein or any
other interest of Debtor (whether now owned or hereafter acquired by operation
of law or otherwise) in, to and under or that covers, affects or otherwise
relates to the Land or to any of the estates, property, interests or rights
described or referred to above or herein;
6. All renewals, extensions and restatements of, modifications, changes,
amendments and supplements to, and substitutions for the estates, property,
interests and rights described or referred to in paragraphs (1) through (5)
above, and all additions and accessions thereto;
7. All of the rights, privileges, benefits, hereditaments and appurtenances in
any way belonging, incidental or appertaining to the estates, property,
interests and rights described or referred to in paragraphs (1) through (6)
above; and
8. All of the proceeds and products of the estates, property, interests and
rights described or referred to in paragraphs (1) through (7) above, including,
without limitation, condemnation awards and the proceeds of any and all
insurance policies (including title insurance policies as well as other types of
insurance policies) covering all or any part of said estates, property,
interests or rights and, to the extent they may constitute proceeds,
instruments, accounts, securities, general intangibles, contract rights and
inventory.
Page 5 of 27
GRANTING CLAUSES
----------------
In consideration of ten dollars and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by Debtor, and the
matters hereinafter set forth, Debtor hereby irrevocably:
A. Real Property in Weld County, Colorado. Grants, bargains, sells,
assigns, transfers and conveys to Weld Trustee, with POWER OF SALE, for the
benefit of Secured Party, and to Secured Party, with POWER OF SALE, that part of
the Collateral 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 Collateral 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 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 all of the terms,
conditions, covenants, agreements and trusts herein set forth;
B. Real Property in Boulder County, Colorado. Grants, bargains, sells,
assigns, transfers and conveys to Boulder Trustee, with POWER OF SALE, for the
benefit of Secured Party, and to Secured Party, with POWER OF SALE, that part of
the Collateral 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 Collateral 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
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 all of the terms,
conditions, covenants, agreements and trusts herein set forth; and
C. Personal Property. Grants to Secured Party a security interest in that
part of the Collateral that is personal property (including any fixtures that
are personal property under applicable state law).
ARTICLE 1
Obligations
-----------
Section 1.1 Obligations Secured. This Instrument is executed, acknowledged
and delivered by Debtor to secure and enforce the following indebtedness,
liabilities and obligations (the "Obligations"):
A. Note. All indebtedness (including principal, interest, fees and
penalties), liabilities and obligations under or pursuant to a Secured
Promissory Note dated November 30, 2011, in the principal amount of $15,000,000,
made by Debtor and payable to the order of Secured Party (the "Note");
B. Loan Agreement. All indebtedness, liabilities and obligations of
whatever kind or character, now existing or hereafter created or arising under
Page 6 of 27
or pursuant to that certain Loan Agreement (the "Loan Agreement"), dated as of
November 30, 2011, between Secured Party and Debtor;
C. Security Agreement. All indebtedness, liabilities and obligations of
whatever kind or character, now existing or hereafter created or arising under
or pursuant to that certain Security Agreement and Assignment of Contract Rights
(the "Security Agreement"), dated as of November 30, 2011, between the Debtor
and Secured Party.
D. This Instrument. All indebtedness, liabilities and obligations of Debtor
to Secured Party of whatever kind or character, now existing or hereafter
created or arising under or pursuant to this Instrument, including, without
limitation, those arising under or pursuant to the representations, warranties,
covenants and indemnities contained herein and any and all amounts advanced to
protect the liens and security interests herein granted and all reasonable
attorneys' fees, court costs, and expenses of whatever kind or character now
existing or hereafter created or arising, incident thereto or to the collection
of the indebtedness, liabilities and obligations hereby secured and enforcement
of the liens and security interests herein granted and created;
E. Other Obligations. All other indebtedness, liabilities and obligations
of Debtor to Secured Party of whatever kind or character now existing or
hereafter created or arising, whether fixed, absolute or contingent, direct or
indirect, primary or secondary, joint, several or joint and several, due or to
become due, and however evidenced whether by note, open account, overdraft,
endorsement, surety agreement, guarantee or otherwise, it being contemplated
that Debtor may hereafter become indebted to Secured Party in such further sum
or sums; and
F. Renewals, Extensions and Amendments. All indebtedness, liabilities and
obligations of whatever kind or character, now existing or hereafter created or
arising under or pursuant to all renewals, extensions and restatements of,
modifications, changes, amendments and supplements to and substitutions for, all
or any part of the foregoing.
Section 1.2 Maximum Indebtedness Secured. Debtor, Secured Party and the
relevant Trustee agree and acknowledge that Secured Party may elect to make
additional advances under the terms of the Note, the Loan Agreement or
otherwise, and that any such future advances shall be subject to, and secured
by, this Instrument. Should the Obligations decrease or increase pursuant to the
terms of the Note, the Loan Agreement or otherwise, at any time or from time to
time, this Instrument shall retain its priority position of record until the
termination of the Loan Agreement and until full, final and complete payment of
all the Obligations. The aggregate unpaid principal amount, exclusive of
interest, of the Obligations outstanding at any particular time (after having
given effect to all advances and all repayments made prior to such time) which
is secured by the Collateral shall not aggregate in excess of Fifteen Million
Dollars Thousand ($15,000,000). Such amount does not in any way imply that the
Secured Party is obligated to make any future advances to Debtor at any time
unless specifically so provided in the Loan Agreement or any other loan
document.
ARTICLE 2
Warranties, Representations and Covenants
-----------------------------------------
Section 2.1 Representations and Warranties. Debtor warrants and represents
as follows:
A. Power and Authority. Debtor has the power and authority to mortgage,
pledge and hypothecate the Collateral as provided herein.
Page 7 of 27
B. Title. Unless otherwise indicated in Exhibit A, to the best of Debtor's
knowledge the oil and gas leases and licenses described in Exhibit A cover all
of the oil, gas and other Hydrocarbons in and under the Land. Debtor has good
and defensible title to the Collateral; and Debtor has good and defensible title
to the undivided interests in the leases, licenses, sublicenses, sublicensing,
easements, rights-of-way, agreements and other documents and instruments
relating to the properties as described in Exhibit A free and clear of all
royalties and other burdens, charges, liens, security interests, encumbrances,
agreements, contracts, assignments, and other matters, except (1) landowner's
royalties, the overriding royalties of other parties and the agreements,
contracts and other interests of other parties, if any, specifically excepted in
Exhibit A, (2) the liens and security interests evidenced by this Instrument,
(3) statutory liens for taxes which are not yet delinquent, (4) liens under
operating agreements, pooling orders and unitization agreements, and mechanics'
and materialmen's liens, with respect to obligations which are not yet due, and
(5) other interests in favor of Secured Party. To the best of Debtor's knowledge
the leases, licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in or relating to
properties described in Exhibit A are valid and subsisting and are in full force
and effect. Debtor warrants and will forever defend the title to the Collateral,
subject to the aforesaid, against the claims of all persons claiming or to claim
the same or any part thereof by, through or under the Debtor but not otherwise.
C. Working and Net Revenue Interests.
1. With respect to each of the oil and gas leases and wells described
in Exhibit A, Debtor's share of development and operating costs with
respect to the portion of the Land covered thereby as described in Exhibit
A, without regard to pooling and unitization, is not greater than the
"Working Interest" or "WI" specified in Exhibit A; and Debtor's share of
the gross production of all oil, gas and other Hydrocarbons produced, saved
and marketed from said Land, without regard to pooling and unitization, is
no less than the "Net Revenue Interest" or "NRI" specified in Exhibit A.
2. With respect to each of the overriding royalty interests described
in Exhibit A, Debtor's share of the gross production of oil, gas and other
Hydrocarbons produced, saved and marketed from the portion of the Land
subject thereto as described in Exhibit A, is no less than the percentage
specified in Exhibit A.
3. With respect to each of the mineral interests described in Exhibit
A, Debtor's share of the oil, gas and other Hydrocarbons in and under and
that may be produced, saved and marketed from the portion of the Land
subject thereto as described in Exhibit A is no less than the stated
percentage specified in Exhibit A.
4. With respect to each of the royalty interests described in Exhibit
A, Debtor's share of the gross production of oil, gas and other
Hydrocarbons produced, saved and marketed from the portion of the Land
subject thereto as described in Exhibit A is no less than the percentage
specified in Exhibit A.
5. With respect to each of the units and pools described in Exhibit A,
Debtor's share of development and operating costs with respect to the
portion of the Land covered thereby as described in Exhibit A or in the
agreements creating such units and pools recorded as described in Exhibit A
and the wells on said Land, is no greater than the "Working Interest" or
"WI" specified in Exhibit A; and Debtor's share of the gross production of
oil, gas and other Hydrocarbons
Page 8 of 27
produced, saved and marketed from said Land and said wells is no less than the
"Net Revenue Interest" or "NRI" specified in Exhibit A.
All such shares of development and operating costs and of gross production
are not and will not be subject to change (other than changes that arise
pursuant to nonconsent provisions of operating agreements described in Exhibit A
in connection with operations hereafter proposed) except, and only to the
extent, that such changes are reflected in Exhibit A.
D. Operations of Oil and Gas Properties. The Collateral (and all properties
spaced, communitized, unitized or otherwise aggregated therewith) will be
maintained, operated and developed in a good and workmanlike manner and in
conformity in all material respects with all applicable laws, rules, regulations
and orders of all federal, state, tribal and local governmental bodies,
authorities and agencies and in conformity in all material respects with the
provisions of all leases, subleases or other contracts and agreements comprising
a part of the Collateral. To the best of Debtor's knowledge none of the
Collateral is subject to having allowable production reduced below the full and
regular allowable (including the maximum permissible tolerance) because of an
overproduction (whether or not the same was permissible at the time) prior to
the date hereof.
E. Sale of Production.
1. All proceeds from the sale of Debtor's interests in Hydrocarbons
from the Collateral when made shall be paid in full to Debtor by the
purchaser or remitter thereof on a timely basis and at prices and terms
comparable to market prices and terms generally available at the time such
prices and terms were negotiated for oil and gas production from producing
areas situated near the Collateral, and no more than $700,000 of such
proceeds are currently being held in suspense by such purchaser or any
other party.
2. Neither Debtor, nor to the best of Debtor's knowledge its
predecessors in title, have entered into or are subject to any agreement or
arrangement (including "take or pay" or similar arrangements) nor to the
best of Debtor's knowledge is the Collateral subject to any such agreement
or arrangement, to deliver Hydrocarbons produced or to be produced from the
Collateral at some future time without then or thereafter receiving full
payment therefor.
F. Condition of Personal Property. The inventory, equipment, fixtures and
other tangible personal property and fixtures forming a part of the Collateral
are in good repair and condition. All of such Collateral is located on the Land.
G. Contracts and Agreements. Except for contracts and agreements that do
not have a material effect on the use, ownership, value or operation of the
Collateral, Debtor acknowledges that its interest in all operating agreements,
equipment leases, production sales, purchase, exchange or processing agreements,
transportation or gathering agreements, farmout or farmin agreements, disposal
agreements, area of mutual interest agreements and other contracts and
agreements that cover, affect or otherwise relate to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements, surface
agreements, and other documents and instruments relating to the properties
described in Exhibit A that relate to operations thereon, or the production,
treatment, storage, gathering, transportation, handling, processing,
manufacturing, sale or marketing of hydrocarbons produced therefrom or allocated
or attributed thereto is under this Instrument part of the Collateral and
represents and warrants that such agreements, documents and instruments remain
in full force and effect and are to the best of Debtor's knowledge without any
existing defaults.
Page 9 of 27
H. Consents and Preferential Rights to Purchase. To the best of Debtor's
knowledge there are no preferential rights to purchase all or any portion of the
Collateral and there are no rights of third parties to consent to the transfer
of all or any portion of the Collateral.
I. Taxes. To the best of Debtor's knowledge all ad valorem, property,
production, severance, excise and similar taxes and assessments based on or
measured by the ownership of property or the production of Hydrocarbons or the
receipt of proceeds therefrom relating to the Collateral that have become due
and payable have been properly and timely paid.
J. Environmental Matters.
1. To the best of Debtor's knowledge the Collateral is being operated
in compliance with all applicable Environmental Laws (as hereinafter
defined); and no conditions exist on or with respect to the Collateral or,
on any property adjoining the Collateral that would subject Debtor, Secured
Party or the owner of any adjoining property to any damages (including
actual, consequential, exemplary and punitive damages), penalties,
injunctive relief or cleanup costs under any Environmental Laws (as
hereinafter defined), or that require or are likely to require cleanup,
removal, remedial action or other response by Debtor, Secured Party or the
owner of any adjoining property pursuant to any Environmental Laws. Debtor
is not a party to any litigation or administrative proceeding, nor, to the
best of Debtor's knowledge, is any litigation, administrative proceeding or
investigation threatened against Debtor or the Collateral, that asserts or
alleges that Debtor or its predecessors in title to the Collateral violated
or are violating Environmental Laws or that Debtor or such predecessors are
required to clean up, remove or take remedial or other responsive action
due to the use, storage, treatment, disposal, discharge, leaking or release
of any Hazardous Substances or Solid Waste (as such terms are hereinafter
defined). Neither Debtor nor to the best of Debtor's knowledge such
predecessors or any part of the Collateral is subject to any judgment,
decree, order or citation related to or arising out of Environmental Laws
and Debtor has not been named or listed as a potentially responsible party
by any governmental or other entity in a matter arising under or relating
to any Environmental Laws. This representation shall continue to be true
and correct following disclosure to the applicable governmental authorities
of all relevant facts, conditions, and circumstances, if any, pertaining to
the Collateral or to Debtor.
2. To the best of Debtor's knowledge no Hazardous Substances or Solid
Waste have been disposed of or otherwise released on, to or from the
Collateral, except in full compliance with all Environmental Laws. The use
which Debtor makes and intends to make of the Collateral will not result in
the use or storage of any Hazardous Substances or Solid Waste on, in or in
connection with the Collateral, or disposal from the Collateral, except in
full compliance with all Environmental Laws, or result in any requirement
that Debtor apply for or obtain a permit under RCRA (as hereinafter
defined) or other Environmental Law for the treatment, storage or disposal
of Hazardous Substances or Solid Waste. To the best of Debtor's knowledge
there are no regulated underground storage tanks located on or in the
Collateral.
3. As used herein, the term "Environmental Laws" shall mean any and
all present and future laws (whether common or statutory), compacts,
treaties, conventions or rules, regulations, codes, plans, requirements,
criteria, standards, orders, decrees, judgments, injunctions, notices or
demand letters issued, promulgated or entered thereunder by any federal,
tribal, state or local governmental entity relating to public or employee
health and safety, pollution or protection of the environment, including
Page 10 of 27
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended by the Superfund Amendment and Reauthorization Act of
1986 ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
Amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984,
("RCRA"), the Federal Safe Drinking Water Act, the Federal Water Pollution
Control Act, the Oil Pollution Act of 1990, the Emergency Planning and
Community Right-to-Know Act of 1986, the Clean Air Act and any and all
other federal, state, tribal and local laws, rules, regulations and orders
relating to reclamation of land, wetlands and waterways or relating to use,
storage, emissions, discharge, cleanup, release or threatened release of
pollutants, contaminants, chemicals or industrial, toxic or Hazardous
Substances or Solid Waste on or into the workplace or the environment
(including ambient air, oceans, waterways, wetlands, surface water, ground
water (tributary and nontributary), land surface or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation or handling of pollutants,
contaminants, chemicals or industrial, toxic, hazardous or similar
substances, as all of the foregoing may be amended, supplemented and
reauthorized from time to time.
4. As used herein, the term "Hazardous Substances" shall mean any and
all (a) "hazardous substances," as defined by CERCLA; (b) "hazardous
wastes," as defined by RCRA; (c) any pollutant, contaminate or hazardous,
dangerous or toxic chemicals, materials or substances within the meaning of
any Environmental Law; (d) any radioactive material, including any source,
special nuclear or by-product material as defined at 42 U.S.C. ss. 2011 et
seq., as amended; and (e) asbestos in any form or condition. As used
herein, the term "release" shall have the meaning specified in CERCLA, and
the terms "Solid Waste," "disposal" or "disposed" shall have the meaning
specified in RCRA. In the event CERCLA, RCRA or any other applicable
Environmental Law is amended so as to broaden the meaning of any terms
defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment; and to the extent that the laws of any
state in which the Collateral are located establish a meaning for
"hazardous substance," "release," "solid waste," "hazardous wastes," or
"disposal" that is broader than that specified in either CERCLA or RCRA,
such broader meaning shall apply.
Section 2.2 Covenants. Debtor covenants and agrees as follows:
A. Obligations. Debtor shall pay when due and perform the Obligations in
accordance with the terms thereof and hereof.
B. Recording and Filing. Debtor shall (1) promptly and at Debtor's own
expense, file in such offices, at such times and as often as may be necessary,
this Instrument and every other instrument in addition or supplemental hereto,
including applicable financing statements, as may be necessary to create,
perfect, maintain and preserve the first priority of the liens and security
interests intended to be created hereby and the rights and remedies of Secured
Party and Trustees hereunder; (2) promptly furnish to Secured Party evidence
satisfactory to Secured Party of all such filings; and (3) otherwise do all
things necessary or expedient to be done effectively to create, perfect,
maintain and preserve the priority of the liens and security interests intended
to be created hereby as a first lien on real property and fixtures and a first
priority security interest in personal property and fixtures.
C. Modifications and Dispositions. Without the prior written consent of
Secured Party, Debtor shall not (1) materially amend, modify or otherwise revise
any lease, license or other agreement described in Exhibit A; (2) release,
Page 11 of 27
surrender, abandon or forfeit the Collateral or any part thereof; (3) sell,
convey, assign, lease, sublease, alienate, mortgage or grant security interests
in or otherwise dispose of or encumber the Collateral or any part thereof,
except to the extent explicitly permitted by the Loan Agreement (subject to the
provisions of Section 2.7 and 2.9 of the Loan Agreement) and except sales of
severed Hydrocarbons in the ordinary course of Debtor's business and for fair
consideration, and except for the liens and security interests created by this
Instrument and liens for taxes, assessments and governmental charges not
delinquent; or (4) consent to, permit or authorize any such act by another party
with respect to the Land, the Collateral or any part thereof.
D. Maintenance of Collateral. Debtor shall, at Debtor's own expense, (1)
keep in full force and effect all of the leases, licenses and other agreements
described in Exhibit A or relating to the properties described in Exhibit A and
all rights-of-way, easements and privileges necessary or appropriate for the
proper operation of such leases, licenses and agreements, by the proper payment
of all rentals, royalties and other sums due thereunder and the proper
performance of all obligations and other acts required thereunder; (2) cause the
Collateral to be properly maintained, developed and continuously operated for
the production of Hydrocarbons and protected against drainage and damage in a
good and workmanlike manner as a prudent operator would in accordance with good
oil field practice and applicable federal, state, tribal and local laws, rules,
regulations and orders; (3) pay or cause to be paid when due all expenses
incurred in connection with such maintenance, development, operation and
protection of the Collateral; (4) keep all goods, including equipment, inventory
and fixtures included in the Collateral in good and effective repair, working
order and operating condition and make all repairs, renewals, replacements,
substitutions, additions and improvements thereto and thereof as are necessary
and proper; (5) permit Secured Party, and its respective agents, employees,
contractors, designees and consultants, to enter upon the Collateral for the
purpose of investigating and inspecting the condition and operation of the
Collateral, and do all things necessary or proper to enable Secured Party to
exercise this right whenever Secured Party so desires; and (6) do all other
things necessary to keep unimpaired Secured Party's and Trustees' interests in
the Collateral.
E. Notification of Breach. Debtor shall promptly, and in no event later
than 3 days after becoming aware, notify Secured Party (1) if any representation
or warranty of Debtor contained in this Agreement is discovered to be or becomes
untrue, or (2) Debtor fails to perform or comply with any covenant or agreement
contained in this Agreement or it is reasonably anticipated that Debtor will be
unable to perform or comply with any covenant or agreement contained in this
Agreement. Debtor shall cause all the representations and warranties of Debtor
contained in this Agreement to be true and correct in all material respects from
time to time and all times.
F. Defense of Title. If the title or interest of Debtor, any Trustee or
Secured Party to the Collateral or any part thereof, or the lien or encumbrance
created by this Instrument, or the rights or powers of Secured Party or any
Trustee hereunder, shall be attacked, either directly or indirectly, or if any
legal proceedings are commenced against Debtor or the Collateral, Debtor shall
promptly give written notice thereof to Secured Party and at Debtor's own
expense shall take all reasonable steps diligently to defend against any such
attack or proceedings, employing attorneys acceptable to Secured Party. Secured
Party and any Trustee may take such independent action in connection therewith
as they may in their discretion deem advisable, and all costs and expenses,
including, without limitation, attorneys' fees and legal expenses, incurred by
or on behalf of Secured Party and by any Trustee in connection therewith shall
be a demand obligation owing by Debtor to Secured Party and shall bear interest
at the Default Rate until paid, and shall constitute a part of the Obligations
and be indebtedness secured and evidenced by this Instrument.
Page 12 of 27
G. Environmental Matters. Debtor shall comply with all Environmental Laws
and shall maintain and obtain all permits, licenses and approvals required under
Environmental Laws. Debtor shall not cause or permit the Collateral or Debtor to
be in violation of, or do anything or permit anything to be done that will
subject the Collateral, Debtor or Secured Party to any remedial obligations
under any applicable Environmental Laws, assuming disclosure to the applicable
governmental authorities of all relevant facts, conditions and circumstances, if
any, pertaining to the Collateral or otherwise. Debtor shall not cause or permit
the use or storage of Hazardous Substances or Solid Waste on, in or in
connection with the Collateral or disposal of Hazardous Substances or Solid
Waste from the Collateral, except in full compliance with all Environmental
Laws.
H. Further Assurances. Debtor shall execute, acknowledge and deliver, or
cause to be executed, acknowledged or delivered, to Secured Party such other and
further instruments and do such other acts as in the reasonable opinion of
Secured Party may be necessary or desirable to effect the intent of this
Instrument, promptly upon request of Secured Party and at Debtor's expense.
Section 2.3 Costs, Expenses and Indemnities. Debtor agrees to pay and
indemnify Secured Party and all Trustees as follows:
A. Costs and Expenses. Debtor shall indemnify Secured Party and all
Trustees from and reimburse and pay Secured Party for all fees, costs and
expenses (including, without limitation, attorneys' fees, court costs and legal
expenses and consultant's and expert's fees and expenses), incurred or expended
by Secured Party or any Trustee in connection with (1) the breach by Debtor of
any representation or warranty contained in this Instrument, the Loan Agreement,
the Note or any other documents and instruments evidencing, securing or
otherwise relating to the Obligations, (2) the failure by Debtor to perform any
agreement, covenant, condition, indemnity or obligation contained in this
Instrument, the Loan Agreement, the Note or any other documents and instruments
evidencing, securing or otherwise relating to the Obligations, (3) Secured
Party's or any Trustee's exercise of any of its rights and remedies under this
Instrument, the Loan Agreement, the Note and the other documents and instruments
evidencing, securing or otherwise relating to the Obligations, or (4) the
protection of the Collateral and the liens thereon and security interests
therein. All such fees, costs and expenses shall be a demand obligation owing by
Debtor to Secured Party and shall bear interest at the Default Rate until paid,
and shall constitute a part of the Obligations and be indebtedness secured and
evidenced by this Instrument. The liabilities of Debtor as set forth in this
Section 2.3-A shall survive the termination of this Instrument.
B. Indemnity. Debtor shall indemnify and hold harmless Secured Party and
persons or entities owned or controlled by or affiliated with Secured Party and
their respective directors, officers, shareholders, partners, employees,
consultants and agents (herein individually, an "Indemnified Party," and
collectively, "Indemnified Parties") from and against, and reimburse and pay
Indemnified Parties with respect to, any and all claims, demands, liabilities,
losses, damages (including, without limitation, actual, consequential, exemplary
and punitive damages), causes of action, judgments, penalties, fees, costs and
expenses (including, without limitation, attorneys' fees, court costs and legal
expenses and consultant's and expert's fees and expenses), of any and every kind
or character, known or unknown, fixed or contingent, that may be imposed upon,
asserted against or incurred or paid by or on behalf of any Indemnified Party on
account of, in connection with, or arising out of (1) any bodily injury or death
or property damage occurring in or upon or in the vicinity of the Collateral
through any cause whatsoever, (2) any act performed or omitted to be performed
hereunder or the breach of or failure to perform any warranty, representation,
indemnity, covenant, agreement or condition contained in this Instrument, the
Loan Agreement, the Note, the Security Agreement or any other documents and
Page 13 of 27
instruments evidencing, securing or relating to the Obligations, (3) any
transaction, act, omission, event or circumstance arising out of or in any way
connected with the Collateral or with this Instrument, the Loan Agreement, the
Note, the Security Agreement or any other documents and instruments evidencing,
securing or relating to the Obligations, and (4) the violation of or failure to
comply with any statute, law, rule, regulation or order, including, without
limitation, Environmental Laws and statutes, laws, rules, regulations and orders
relating to Hazardous Substances or Solid Waste. Without limiting the generality
of the foregoing, it is the intention of Debtor and Debtor agrees that the
foregoing indemnities shall apply to each Indemnified Party with respect to
claims, demands, liabilities, losses, damages (including, without limitation,
actual, consequential, exemplary and punitive damages), causes of action,
judgments, penalties, fees, costs and expenses (including, without limitation,
attorneys' fees, court costs and legal expenses and consultant's and expert's
fees and expenses) of any and every kind or character, known or unknown, fixed
or contingent, that in whole or in part are caused by or arise out of the
negligence of such Indemnified Party; however, such indemnities shall not apply
to any Indemnified Party to the extent the subject of the indemnification is
caused by or arises out of the gross negligence or willful misconduct of such
Indemnified Party. The foregoing indemnities shall not terminate upon the
release, foreclosure or other termination of this Instrument, but shall survive
the foreclosure of the liens and security interests created by this Instrument
or conveyance in lieu of foreclosure and the repayment and performance of the
Obligations and the discharge and release of the liens and security interest
created by this Instrument and the other instruments and documents evidencing,
securing or relating to the Obligations. Any amount to be paid hereunder by
Debtor to Secured Party or for which Debtor has indemnified an Indemnified Party
shall be a demand obligation owing by Debtor to Secured Party and shall bear
interest at the Default Rate until paid (unless paid within 30 days of demand),
and shall constitute a part of the Obligations and be indebtedness secured and
evidenced by this Instrument. The rights, powers and remedies herein conferred
are cumulative, and not exclusive, of any and all other rights, powers and
remedies existing at law or in equity (including, without limitation, rights,
powers and remedies under Environmental Laws) or provided for in any other
documents or instruments evidencing, securing or relating to the Obligations and
nothing in this paragraph or elsewhere in this Instrument or in any other
documents or instruments evidencing, securing or relating to the Obligations
shall limit or impair any rights, powers or remedies of Secured Party under any
Environmental Laws, including, without limitation, any rights of contribution or
indemnification available thereunder. The liabilities of Debtor as set forth in
this Section 2.3-B shall survive the termination of this Instrument.
Section 2.4 Performance by Secured Party. Debtor agrees that, if Debtor
fails to perform any act which Debtor is required to perform hereunder, Secured
Party and any Trustee may, but shall not be obligated to, perform or cause to be
performed such act, and any expense so incurred by Secured Party or by any
Trustee in connection therewith shall be a demand obligation owing by Debtor to
Secured Party and shall bear interest at the Default Rate until paid, and shall
constitute a part of the Obligations and be indebtedness secured and evidenced
by this Instrument, and Secured Party shall be subrogated to all of the rights
of the party receiving such payment. Debtor hereby irrevocably appoints Secured
Party as Debtor's attorney-in-fact and proxy, with full authority in the place
and stead of Debtor and in the name of Debtor or otherwise, from time to time to
take any action and to execute any instrument which Secured Party may deem
necessary or advisable to accomplish the purposes of this Agreement. Such
appointment is coupled with an interest and shall be irrevocable from the date
hereof and so long as any part of the Obligations is outstanding.
Page 14 of 27
ARTICLE 3
As-Extracted Collateral and Proceeds
------------------------------------
Section 3.1 Collateral Assignment of Production and Proceeds. Without
limiting the generality of any other provisions of this Agreement or any other
Loan Documents, all Collateral that is severed and extracted Hydrocarbons,
including, without limitation, "as-extracted collateral" (as defined in the
applicable version of the Uniform Commercial Code in effect in each jurisdiction
in which any of the Land is located) produced from or allocated or attributed to
any Collateral (whether now owned or hereafter acquired by operation of law or
otherwise) and all proceeds and products therefrom shall be treated according to
the appropriate provisions of the Uniform Commercial Code in effect in each
jurisdiction in which any of the Land is located.
ARTICLE 4
Termination and Release
-----------------------
Section 4.1 Release Upon Termination. If all of the Obligations shall be
paid in full and otherwise satisfied pursuant to the terms and conditions of
this Instrument and the other documents and instruments evidencing, securing or
relating to the Obligations, and if Secured Party has no further obligation to
advance any amounts to Debtor, then all of the Collateral shall revert to
Debtor, the liens and security interests created by this Instrument shall
terminate and Secured Party or any Trustee, or all of them, as required by
applicable law, shall, promptly after the request of Debtor or as otherwise
required by applicable law, execute, acknowledge and deliver to Debtor a release
or reconveyance of this Instrument and such other instruments as may be
necessary to evidence the termination of the liens and security interests
created by this Instrument.
Section 4.2 Partial Release. No partial release or reconveyance from the
liens and security interests created by this Instrument of any part of the
Collateral by any Trustee or Secured Party shall in any way alter, vary or
diminish the force or effect of this Instrument or impair, release or
subordinate the liens and security interests created by this Instrument on the
remainder of the Collateral. Except as specifically provided in any such partial
release or reconveyance (i) this Instrument and liens and security interests
created hereby shall remain in full force and effect, (ii) such partial release
or reconveyance will not modify or affect the terms, conditions or provisions of
this Instrument, and (iii) nothing contained in any such partial release or
reconveyance shall be deemed to be, or construed as, a waiver of any such terms,
conditions or provisions or as a waiver of any other term, condition or
provision.
Section 4.3 Execution. Except as may be required by applicable law, Secured
Party shall have full power and authority to execute, acknowledge and deliver
any release or reconveyance of this Instrument without the joinder therein or
execution thereof by any Trustee, and any such release or reconveyance shall be
binding upon Secured Party and such Trustee. All releases and reconveyances
executed in connection with this Instrument shall be without warranty of any
kind, express, implied or statutory.
Section 4.4 Costs, Expenses and Effect. Debtor shall pay all legal fees and
other fees, costs and expenses incurred by Secured Party and any Trustee for
preparing and reviewing instruments of termination and release or reconveyance
and the execution and delivery thereof and Secured Party may require payment of
the same prior to delivery of such instruments. The release and reconveyance of
this Instrument and the termination of the liens and security interests created
by this Instrument, in whole or in part, shall not terminate or otherwise affect
Secured Party's right or ability to exercise any right, power or remedy relating
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to any claim for breach of warranty or representation, for failure to perform
any covenant or other agreement, under any indemnity or for fraud, deceit or
other misrepresentation or omission.
Section 4.5 Partial Releases. If any of the Collateral shall be sold,
transferred or otherwise disposed of by Debtor in a transaction permitted by the
Secured Party, then the Secured Party, at the request and sole expense of Debtor
and subject to the Secured Party's rights pursuant to Sections 2.7 and 2.9 of
the Loan Agreement, shall promptly execute and deliver to Debtor all releases or
other documents reasonably necessary or desirable for the release of the Liens
created hereby on such Collateral.
ARTICLE 5
Default
-------
Section 5.1 Events of Default. The occurrence of any of events defined as
an Event of Default in the Loan Agreement shall constitute events of default
hereunder (each an "Event of Default") and upon the occurrence thereof subject
to applicable cure periods (including those set forth in Section 9.2 of the Loan
Agreement), the liens and security interests created hereby shall be subject to
foreclosure in any manner provided for herein or provided for by applicable law.
Section 5.2 Treatment of Fixtures. If an Event of Default shall have
occurred and be continuing, if deemed appropriate by Secured Party or if
required by applicable law, subject to applicable cure periods (including those
set forth in Section 9.2 of the Loan Agreement), Secured Party may elect to
treat the fixtures included in the Collateral either as real property or as
personal property, or both, and proceed to exercise such rights as apply to the
type of property selected.
Section 5.3 Acceleration and Foreclosure. If an Event of Default shall have
occurred and be continuing, in addition to any other rights, powers and remedies
herein conferred or conferred by operation of law, (a) Secured Party and each
Trustee shall have all of the rights, powers and remedies of a secured party, a
beneficiary under a deed of trust, and a trustee under a deed of trust granted
under applicable law, subject to applicable cure periods (including those set
forth in Section 9.2 of the Loan Agreement), (b) Secured Party may, subject to
applicable cure periods (including those set forth in Section 9.2 of the Loan
Agreement), declare all indebtedness secured hereby due and payable, and (c)
whether or not Secured Party exercises such option, it may, at its option and in
its sole discretion, without any additional prior notice to or demand upon
Debtor, proceed by one or more actions in equity or at law for the seizure and
sale of the Collateral or any portion thereof, for the foreclosure or sale of
the Collateral or any portion thereof by judicial foreclosure by appropriate
proceedings in any court of competent jurisdiction, by the power of sale granted
herein, by a trustee's sale, or in any other manner then permitted by law, for
the specific performance of any covenant or agreement of Debtor herein contained
or in aid of the execution of any right, power or remedy herein granted, or for
the enforcement of any other appropriate equitable or legal remedy and to
recover judgment against Debtor. In furtherance, and not in limitation, thereof:
A. Deed of Trust. This Instrument shall constitute a trust deed under
applicable law, as amended and as may be amended from time to time, or any
future law containing provisions under which the sale of property securing debts
is authorized or permitted; and, if an Event of Default shall have occurred and
be continuing (subject to applicable cure periods, including those set forth in
Section 9.2 of the Loan Agreement), each Trustee shall, whenever requested by
Secured Party, cause the Collateral to be sold in accordance with the provisions
thereof and hereof. In addition, if an Event of Default shall have occurred and
be continuing, (subject to applicable cure periods, including those set forth in
Section 9.2 of the Loan Agreement) this Instrument may be foreclosed as to any
Page 16 of 27
of the Collateral by judicial action or in any manner then permitted by
applicable law.
B. Election. In the event a sale of the Collateral under the power of sale
shall be commenced by any Trustee, Secured Party may at any time before the sale
of the Collateral, elect to abandon the sale, and Secured Party may then
institute a suit for the collection of the Obligations and for the foreclosure
of this Instrument by judicial action. It is agreed that if Secured Party should
institute a suit for the foreclosure of this Instrument by judicial action,
Secured Party may at any time before the entry of a final judgment, dismiss such
suit, and then sell, cause to be sold or direct such Trustee to sell, the
Collateral under the power of sale herein granted in accordance with the
provisions of this Instrument.
C. Additional Actions. This Instrument shall also constitute and may be
enforced from time to time as an assignment, chattel mortgage, contract, deed of
trust, financing statement and security agreement, and from time to time as any
one or more thereof as appropriate under applicable law. Secured Party shall be
entitled to all of the rights, remedies and benefits of a secured party and a
beneficiary granted under applicable law; and, to the fullest extent of such
law, shall be entitled to enforce such rights, remedies and benefits. Debtor
intends and hereby grants to Secured Party all rights, powers and remedies
accorded a secured party and a beneficiary under applicable law whether or not
such rights, powers and remedies are expressly granted or reserved herein.
D. Notice, Place and Manner of Sale. Any sale of the Collateral under this
Article 5 shall take place at such place or places and otherwise in such manner
and upon such notice as may be required by law; or, in the absence of any such
requirement, as Secured Party may deem appropriate. Debtor expressly agrees
that, except as may be required by applicable law, Secured Party or any Trustee
may offer the Collateral as a whole or in such parcels or lots as Secured Party
or such Trustee elects, regardless of the manner in which the Collateral may be
described.
E. Postponement of Sale. Any sale of the Collateral conducted under this
Article 5 may be postponed from time to time as provided by applicable law; or,
in the absence of any such provisions, Secured Party may postpone the sale of
the Collateral or any part thereof by public announcement at the time and place
of such sale, and from time to time thereafter may further postpone such sale by
public announcement made at the time of sale fixed by the preceding
postponement. Sale of a part of the Collateral will not exhaust the power of
sale, and sales may be made from time to time until all Collateral is sold or
the Obligations are paid in full.
F. Secured Party's Right to Purchase. Secured Party shall have the right to
bid or to become the purchaser at any sale made pursuant to the provisions of
this Article 5, and shall have the right to credit upon the amount of the bid
made therefor the amount payable to it out of the net proceeds of such sale.
G. Conveyance to Purchaser. Any deed, bill of sale or other conveyance
executed by or on behalf of any Trustee, Secured Party, the sheriff or other
official or party responsible for conducting the sale shall be prima facie
evidence of the compliance with all statutory requirements for the sale and
execution of such deed, bill of sale or other conveyance and will conclusively
establish the truth and accuracy of the recitals and other matters stated
therein, including, without limitation, nonpayment or nonperformance of the
Obligations, violation of the terms and covenants contained herein, and the
advertisement and conduct of such sale in the manner provided herein or as
provided by applicable law. Debtor, to the extent not prohibited by applicable
law, does hereby ratify and confirm all legal acts that any Trustee and Secured
Party may do in carrying out the provisions of this Instrument. Any sale of the
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Collateral or any portion thereof pursuant to the provisions of this Article 5
will operate to divest all right, title, interest, claim and demand of Debtor in
and to the property sold and will be a perpetual bar against Debtor and shall,
subject to applicable law, vest title in the purchaser free and clear of all
liens, security interests and encumbrances, including, without limitation,
liens, security interests and encumbrances junior or subordinate to the liens,
security interests and encumbrances created by this Instrument. Upon any sale of
the Collateral or any portion thereof pursuant to the provisions of this Article
5, the receipt by Secured Party, any Trustee, the sheriff or other official or
party responsible for conducting the sale, shall be sufficient discharge to the
purchaser or purchasers at any sale for the purchase money, and such purchaser
or purchasers and the heirs, devisees, personal representatives, successors and
assigns thereof shall not, after paying such purchase money and receiving such
receipt of Secured Party, any Trustee, the sheriff or such other official or
party, be obliged to see to the application thereof or be in anywise answerable
for any loss, misapplication or nonapplication thereof. Any purchaser at a sale
will, subject to mandatory redemption periods, if any, receive immediate
possession of the Collateral purchased, and Debtor agrees that if Debtor retains
possession of the Collateral or any part thereof subsequent to such sale, Debtor
will be considered a tenant at sufferance of the purchaser, and will, if Debtor
remains in possession after demand to remove, be guilty of forcible detainer,
and will be subject to eviction and removal, forcible or otherwise, with or
without process of law and all damages to Debtor by reason thereof are hereby
expressly waived by Debtor.
Section 5.4 Personal Property. If an Event of Default shall have occurred
and be continuing, in addition to all other rights, powers and remedies herein
conferred or conferred by operation of law, Secured Party shall (subject to
applicable cure periods, including those set forth in Section 9.2 of the Loan
Agreement) have all of the rights and remedies of an assignee and secured party
granted by applicable law, including, without limitation, the applicable Uniform
Commercial Code as then in effect, and shall, to the extent permitted by
applicable law, have the right and power, but not the obligation, to take
possession of the personal property included in the Collateral and any proceeds
thereof wherever located, and for that purpose Secured Party may enter upon any
premises on which any or all of such personal property is located and take
possession of and operate such personal property or remove the same therefrom.
Secured Party may require Debtor to assemble such personal property and make it
available to Secured Party at a place to be designated by Secured Party that is
reasonably convenient to both parties. The following presumptions shall exist
and shall be deemed conclusive with regard to the exercise by Secured Party of
any of its remedies with respect to personal property.
A. If notice in addition to any notice provided for in the Loan Documents
is required by applicable law, Debtor agrees that five days' prior written
notice of the time and place of any public sale or of the time after which any
private sale or any other intended disposition thereof is to be made shall be
deemed reasonable notice to Debtor. No such notice is necessary if such property
is perishable, threatens to decline speedily in value or is of a type
customarily sold on a recognized market.
B. If Secured Party in good faith believes that the Securities Act of 1933
or any other state or federal law prohibits or restricts the customary manner of
sale or distribution of any of such property, Secured Party may sell such
property privately or in any other manner deemed advisable by Secured Party at
such price or prices as Secured Party determines in its sole discretion. Debtor
recognizes that such prohibition or restriction may cause such property to have
less value than it otherwise would have and that, consequently, such sale or
disposition by Secured Party may result in a lower sales price than if the sale
were otherwise held.
Section 5.5 Possession. If an Event of Default shall have occurred and be
continuing, in addition to all other rights, powers and remedies herein
Page 18 of 27
conferred or conferred by operation of law, Secured Party shall, to the extent
not prohibited by applicable law and subject to applicable cure periods (
including those set forth in Section 9.2 of the Loan Agreement), have the right
and power, but not the obligation, to enter upon and take immediate possession
of the Collateral or any portion thereof, to exclude Debtor therefrom, to hold,
use, operate, manage, enjoy and control such Collateral, to make all such
repairs, replacements, alterations, additions and improvements to the same as
Secured Party may deem proper or expedient, to sell all of the severed and
extracted Hydrocarbons included in the same subject to the provisions of Article
3 hereof, to demand, collect and retain all other earnings, rents, issues,
profits, proceeds and other sums due or to become due with respect to such
Collateral accounting for and applying to the payment of the Obligations only
the net earnings arising therefrom after charging against the receipts therefrom
all fees, costs, expenses, charges, damages and losses incurred by reason
thereof plus interest thereon at the Default Rate without any liability to
Debtor in connection therewith. Such possession shall at once be delivered to
Secured Party upon request, and on refusal or failure to so deliver possession,
the delivery of such possession may be enforced by Secured Party by any
appropriate civil suit, proceeding or other action.
Section 5.6 Appointment of Receiver. If an Event of Default shall have
occurred and be continuing, in addition to all other rights, powers and remedies
herein conferred or conferred by operation of law, Secured Party shall (subject
to applicable cure periods, including those set forth in Section 9.2 of the Loan
Agreement) be entitled to the appointment of a receiver of the Collateral
without the necessity of the posting of a bond or notice; and shall, to the
extent not prohibited by applicable law, be entitled to such receiver as a
matter of right, without regard to the solvency or insolvency of Debtor, the
value or adequacy of the Collateral or the Collateral being in danger of being
materially injured or reduced in value as security by removal, destruction,
deterioration, accumulation of prior liens or otherwise; and such receiver may
be appointed by any court of competent jurisdiction upon ex parte application,
and without notice, notice being expressly waived by Debtor to the extent such
waiver is not prohibited by applicable law. Debtor 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 this Article 5. Nothing
herein is to be construed to deprive Secured Party of any other right, remedy or
privilege it may now or hereafter have under law to have a receiver appointed.
Any money advanced by Secured Party in connection with any such receivership
shall be a demand obligation owing by Debtor to Secured Party and shall bear
interest, from the date of making such advancement until paid, at the Default
Rate. Any such receiver shall have all powers conferred by the court appointing
such receiver, which powers shall, to the extent not prohibited by applicable
law include, without limitation, the right to enter upon and take immediate
possession of the Collateral or any part thereof, to exclude Debtor therefrom,
to hold, use, operate, manage and control such Collateral, to make all such
repairs, replacements, alterations, additions and improvements to the same as
such receiver or Secured Party may deem proper or expedient, to lease, sell or
otherwise transfer the Collateral or any portion thereof as such receiver or
Secured Party may deem proper or expedient, to sell all of the Hydrocarbons
included in the same subject to the provisions of Article 3 hereof, to demand
and collect all of the other earnings, rents, issues, profits, proceeds and
other sums due or to become due with respect to such Collateral, accounting for
only the net earnings arising therefrom after charging against the receipts
therefrom all fees, costs, expenses, charges, damages and losses incurred by
reason thereof plus interest thereon at the Default Rate without any liability
to Debtor in connection therewith which net earnings shall be turned over by
such receiver to Secured Party to be applied by Secured Party to the payment of
the Obligations in the order set forth in Section 5.10.
Section 5.7 Waiver by Debtor. To the extent not prohibited by applicable
law, Debtor agrees that Debtor shall not at any time have, invoke, utilize or
assert any right under any laws pertaining to the marshaling of assets or liens,
Page 19 of 27
the sale of property in the inverse order of alienation, the exemption of
homesteads, the administration of estates of decedents, appraisement,
moratorium, valuation, stay, extension or redemption now or hereafter in force,
and Debtor hereby waives the benefit of all such laws to the fullest extent not
prohibited by applicable law.
Section 5.8 Remedies Cumulative. All rights, powers and remedies herein
conferred are cumulative, and not exclusive, of (a) any and all other rights and
remedies herein conferred, (b) any and all rights, powers and remedies existing
at law or in equity, and (c) any and all other rights, powers and remedies
provided for in any other documents or instruments evidencing, securing or
relating to the Obligations, and Secured Party shall, in addition to the rights,
powers and remedies herein conferred, be entitled to avail itself of all such
other rights, powers and remedies as may now or hereafter exist at law or in
equity for the collection of and enforcement of the Obligations and the
enforcement of the warranties, representations, covenants, indemnities and other
agreements contained in this Instrument and the other documents and instruments
evidencing, securing or relating to the Obligations and the foreclosure of the
liens and security interests created by this Instrument. Each and every such
right, power and remedy may be exercised from time to time and as often and in
such order as may be deemed expedient by Secured Party and the exercise of any
such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter, any other right, power or remedy. No
delay or omission by Secured Party or by any Trustee, the sheriff or other
official or person in the exercise of any right, power or remedy will impair any
such right, power or remedy or operate as a waiver thereof or of any other
right, power or remedy then or thereafter existing.
Section 5.9 Costs and Expenses. All fees, costs and expenses (including,
without limitation, reasonable attorneys' fees and legal expenses, court costs,
filing fees, and mortgage, transfer, stamp and other excise taxes, inspection
fees, appraisers' fees, outlays for documentary and expert evidence,
stenographers' charges, publication, notice and advertising costs, postage,
photocopies, telephone charges and costs of procuring all abstracts of title,
title searches and examinations, title opinions, title insurance policies and
similar title data and assurances as Secured Party or any Trustee may deem
appropriate either to prosecute such suit or to evidence to bidders at the sales
that may be had pursuant to such proceeding the condition of the title to or the
value of the Collateral, trustee's fees and expenses, sheriff's fees and
expenses, receiver's fees and expenses, and fees and expenses of agents of
Secured Party and each Trustee, costs and expenses of defending, protecting and
maintaining the Collateral and Secured Party's and each Trustee's interest
therein including repair and maintenance costs and expenses and costs and
expenses of protecting and securing the Collateral including insurance costs and
all other fees, costs and expenses provided for or authorized by applicable
law), incurred by or on behalf of Secured Party or any Trustee in protecting and
enforcing their rights hereunder or incident to the enforcement of this
Instrument and the liens and security interests created hereby, shall be a
demand obligation owing by Debtor to Secured Party and shall bear interest at
the Default Rate until paid, and shall constitute a part of the Obligations and
be indebtedness secured and evidenced by this Instrument.
Section 5.10 Application of Proceeds. The proceeds of any sale of the
Collateral or any part thereof made pursuant to this Article 5 shall be applied
as may be required by applicable law, or, in the absence of any such
requirements, as follows:
A. First, to the payment of all fees, costs and expenses referred to in
Section 6.4 of the Loan Agreement and incident to the enforcement of this
Instrument and the liens and security interests created hereby, including,
without limitation, the fees, costs and expenses described in Section 5.9
hereof;
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B. Second, to the payment of accrued interest remaining unpaid on the Note.
C. Third, to the payment or prepayment of principal remaining unpaid on the
Note in such order as Secured Party may elect;
D. Fourth, to the payment or prepayment of the Obligations other than the
Obligations evidenced by the Note in such order as Secured Party may elect; and
E. Fifth, the remainder, if any, shall be paid to Debtor or such other
person or persons as may be legally entitled thereto.
Section 5.11 Waiver of Statute of Limitations. Debtor hereby waives the
right to assert any statute of limitations as a defense to the Obligations
(including, without limitation, the indebtedness, liabilities and obligations
under and pursuant to this Instrument, the Note, the Loan Agreement and any
other instrument evidencing, securing or otherwise relating to the Obligations),
to the fullest extent permitted by applicable law.
Section 5.12 Limitation on Rights and Waivers. All rights, powers and
remedies herein conferred shall be exercisable by the Trustees and Secured Party
only to the extent not prohibited by applicable law; and all waivers and
relinquishments of rights and similar matters shall only be effective to the
extent such waivers or relinquishments are not prohibited by applicable law.
ARTICLE 6
General Provisions
------------------
Section 6.1 Waiver. Any and all covenants of Debtor in this Instrument may
from time to time, be waived by Secured Party by an instrument in writing signed
by Secured Party to such extent and in such manner as Secured Party may desire,
but no such waiver will ever affect or impair Secured Party's rights hereunder,
except to the extent specifically stated in such written instrument. All changes
to, amendments and modifications of this Instrument must be in writing and
signed by Secured Party.
Section 6.2 Severability. If any provision of this Instrument or of any of
the instruments and documents evidencing, securing or relating to the
Obligations is invalid or unenforceable in any jurisdiction, such provision
shall be fully severable from this Instrument and the other provisions hereof
and of said instruments and documents shall remain in full force and effect in
such jurisdiction and the remaining provisions hereof shall be liberally
construed in favor of Secured Party and the Trustees in order to carry out the
provisions and intent hereof. The invalidity of any provision of this Instrument
in any jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction.
Section 6.3 Subrogation. This Instrument is made with full substitution and
subrogation of Secured Party and each Trustee in and to all covenants and
warranties by others heretofore given or made with respect to the Collateral or
any part thereof.
Section 6.4 Financing Statement. This Instrument shall be deemed to be and
may be enforced from time to time as an assignment, contract, deed of trust,
financing statement or security agreement, and from time to time as any one or
more thereof is appropriate under applicable state law. Debtor hereby authorizes
Secured Party to file one or more financing or continuation statements, and
amendments thereto, relative to all or any part of the Collateral without the
signature of Debtor at any time after the execution of this Instrument, and
Page 21 of 27
hereby ratifies any thereof filed prior to the execution of this Instrument. Any
such financing statement may describe the property subject thereto as "all
assets of Debtor" or words of similar meaning.
Section 6.5 Rate of Interest. Except as otherwise provided in the Loan
Agreement, all interest required hereunder and under the Obligations shall be
calculated on the basis of a year of 360 days.
Section 6.6 Recording. All recording references in the Exhibits hereto are
to the official real property records of the county in which the affected Land
is located and in which records such documents are or in the past have been
customarily recorded, whether real estate records, deed records, oil and gas
records, oil and gas lease records or other records. The references in this
Instrument and in the Exhibits hereto to liens, encumbrances and other burdens
are for the purposes of defining the nature and extent of Debtor's warranties
and shall not be deemed to ratify, recognize or create any rights in third
parties.
Section 6.7 Execution in Counterparts. This Instrument may be executed in
one or more original counterparts. To facilitate filing and recording, there may
be omitted from any counterpart the parts of the Exhibits hereto containing
specific descriptions of the Collateral that relate to land located in counties
other than the county in which the particular counterpart is to be filed or
recorded. Each counterpart shall be deemed to be an original for all purposes,
and all counterparts shall together constitute but one and the same instrument.
Section 6.8 Notices. All notices and other communications made or required
to be given pursuant to this Instrument shall be in writing and shall be deemed
given if delivered personally or by facsimile transmission (if receipt is
confirmed by the facsimile operator of the recipient), or delivered by overnight
courier service or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice; provided
that notices of a change of address shall be effective only upon receipt
thereof):
Page 22 of 27
If to Debtor: With a copy to:
------------ --------------
Synergy Resources Corporation Hart & Trinen, L.L.P
20203 Highway 60 1624 Washington Street
Platteville, CO 80651-8802 Denver, Colorado 80203
Attn: Ed Holloway Attn: Bill Hart, Esq.
Phone: (970) 737-1073 Phone: (303) 839-0061
Fax: (970) 737-1045 Fax: (303) 839-5414
If to Lender: With a copy to:
------------ ---------------
Bank of Choice Dufford & Brown, P.C.
3780 W 10th Street 1700 Broadway, Suite
2100
Greeley, CO 80634 Denver, Colorado 80290
Attn: Sarah Burchett Attn: Randall J.
Feuerstein, Esq.
Phone: (970) 352-6400 Phone: (303) 861-8013
Fax: (970) 336-8464 Fax: (303) 832-3804
Any notice hereunder delivered in person or by facsimile (if receipt is
confirmed by the facsimile operator of the recipient) shall be deemed given on
the date thereof, any notice by registered or certified mail shall be deemed
given three days after the date of mailing; and any notice by overnight courier
shall be deemed given two days after shipment or the date of receipt, whichever
is earlier.
Section 6.9 Binding Effect. This Instrument shall bind and inure to the
benefit of the respective successors and assigns of Debtor, Secured Party and
each Trustee. Notwithstanding any other provision of this Instrument, if any
right, interest or estate in property granted by this Instrument or pursuant
hereto does not vest upon the date hereof, such right, interest or estate shall
vest, if at all, within 21 years less 1 day after the death of the last
surviving descendant of Joseph P. Kennedy, father of John F. Kennedy, former
President of the United States of America, who is living on the date of the
execution of this Instrument by Debtor or the effective date hereof, whichever
is earlier.
Section 6.10 References. All references in this Instrument to Exhibits,
Articles, Sections, Subsections, paragraphs, subparagraphs and other
subdivisions refer to the Exhibits, Articles, Sections, Subsections, paragraphs,
subparagraphs and other subdivisions of this Instrument unless expressly
provided otherwise. Titles and headings appearing at the beginning of any
subdivision are for convenience only and do not constitute any part of any such
subdivision and shall be disregarded in construing the language contained in
this Instrument. The words "this Instrument," "herein," "hereof," "hereby,"
"hereunder" and words of similar import refer to this Instrument as a whole and
not to any particular subdivision unless expressly so limited. The phrases "this
Section," "this Subsection" "this paragraph," "this subparagraph" and similar
phrases refer only to the Sections, Subsections, paragraphs or subparagraphs
hereof in which the phrase occurs. Capitalized terms used herein without
definition shall have the meanings ascribed thereto in the Loan Agreement. The
word "or" is not exclusive, and the word "including" (and its derivatives) shall
mean "including, without limitation." All references to days are to calendar
days unless otherwise specifically stated. Pronouns in masculine, feminine and
neuter gender shall be construed to include any other gender. Words in the
singular form shall be construed to include the plural and words in the plural
form shall be construed to include the singular, unless the context otherwise
requires.
Page 23 of 27
Section 6.11 Filing. Some of the above described goods are or are to become
fixtures on the Land described in Exhibit A. This Instrument is to be filed for
record in, among other places, the real estate records of each county identified
in Exhibit A. This Instrument covers fixtures. Debtor is the owner of an
interest of record in the real estate concerned.
Section 6.12 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. DEBTOR HEREBY:
(A) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY
TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS INSTRUMENT, THE NOTE, THE
LOAN AGREEMENT OR ANY OTHER DOCUMENTS AND INSTRUMENTS EVIDENCING, SECURING OR
RELATING TO THE OBLIGATIONS OR ANY TRANSACTION PROVIDED FOR THEREIN OR
ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (B) 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; (C) CERTIFIES
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR 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, AND (D)
ACKNOWLEDGES THAT IT HAS NOT BEEN INDUCED TO ENTER INTO THIS INSTRUMENT, THE
NOTE, THE LOAN AGREEMENT AND ANY OTHER DOCUMENTS AND INSTRUMENTS EVIDENCING,
SECURING OR RELATING TO THE OBLIGATIONS AND THE TRANSACTIONS PROVIDED FOR HEREIN
AND THEREIN, INCLUDING AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION.
Section 6.13 USURY SAVINGS. IT IS THE INTENTION OF THE PARTIES HERETO TO
COMPLY WITH ALL APPLICABLE USURY LAWS; ACCORDINGLY, IT IS AGREED THAT
NOTWITHSTANDING ANY PROVISIONS TO THE CONTRARY IN THIS INSTRUMENT, THE NOTE, THE
LOAN AGREEMENT OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING OR
OTHERWISE RELATING TO THE OBLIGATIONS, IN NO EVENT SHALL SUCH DOCUMENTS OR
INSTRUMENTS REQUIRE THE PAYMENT OR PERMIT THE COLLECTION OF INTEREST (WHICH
TERM, FOR PURPOSES HEREOF, SHALL INCLUDE ANY AMOUNT WHICH, UNDER APPLICABLE LAW,
IS DEEMED TO BE INTEREST, WHETHER OR NOT SUCH AMOUNT IS CHARACTERIZED BY THE
PARTIES AS INTEREST) IN EXCESS OF THE MAXIMUM AMOUNT PERMITTED BY SUCH LAWS. IF
ANY EXCESS INTEREST IS UNINTENTIONALLY CONTRACTED FOR, CHARGED OR RECEIVED UNDER
THE NOTE OR UNDER THE TERMS OF THIS INSTRUMENT, THE LOAN AGREEMENT OR ANY OTHER
DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS, OR
IN THE EVENT THE MATURITY OF THE INDEBTEDNESS EVIDENCED BY THE NOTE IS
ACCELERATED IN WHOLE OR IN PART, OR IN THE EVENT THAT ALL OR PART OF THE
PRINCIPAL OR INTEREST OF THE NOTE SHALL BE PREPAID, SO THAT THE AMOUNT OF
INTEREST CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE AMOUNT OF INTEREST
CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE NOTE OR UNDER THIS INSTRUMENT, THE
LOAN AGREEMENT OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING OR
RELATING TO THE OBLIGATIONS, ON THE AMOUNT OF PRINCIPAL ACTUALLY OUTSTANDING
Page 24 of 27
FROM TIME TO TIME UNDER THE NOTE SHALL EXCEED THE MAXIMUM AMOUNT OF INTEREST
PERMITTED BY THE APPLICABLE USURY LAWS, THEN IN ANY SUCH EVENT (A) THE
PROVISIONS OF THIS SECTION SHALL GOVERN AND CONTROL, (B) NEITHER DEBTOR NOR ANY
OTHER PERSON OR ENTITY NOW OR HEREAFTER LIABLE FOR THE PAYMENT THEREOF, SHALL BE
OBLIGATED TO PAY THE AMOUNT OF SUCH INTEREST TO THE EXTENT THAT IT IS IN EXCESS
OF THE MAXIMUM AMOUNT OF INTEREST PERMITTED BY SUCH APPLICABLE USURY LAWS, (C)
ANY SUCH EXCESS WHICH MAY HAVE BEEN COLLECTED SHALL BE EITHER APPLIED AS A
CREDIT AGAINST THE THEN UNPAID PRINCIPAL AMOUNT THEREOF OR REFUNDED TO DEBTOR AT
SECURED PARTY'S OPTION, AND (D) THE EFFECTIVE RATE OF INTEREST SHALL BE
AUTOMATICALLY REDUCED TO THE MAXIMUM LAWFUL RATE OF INTEREST ALLOWED UNDER THE
APPLICABLE USURY LAWS AS NOW OR HEREAFTER CONSTRUED BY THE COURTS HAVING
JURISDICTION THEREOF. IT IS FURTHER AGREED THAT WITHOUT LIMITATION OF THE
FOREGOING, ALL CALCULATIONS OF THE RATE OF INTEREST CONTRACTED FOR, CHARGED OR
RECEIVED UNDER THE NOTE OR UNDER THIS INSTRUMENT, THE LOAN AGREEMENT OR ANY
OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE
OBLIGATIONS WHICH ARE MADE FOR THE PURPOSE OF DETERMINING WHETHER SUCH RATE
EXCEEDS THE MAXIMUM LAWFUL RATE OF INTEREST, SHALL BE MADE, TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAWS, BY AMORTIZING, PRORATING, ALLOCATING AND
SPREADING IN EQUAL PARTS DURING THE PERIOD OF THE FULL STATED TERM OF THE
OBLIGATIONS EVIDENCED THEREBY, ALL INTEREST AT ANY TIME CONTRACTED FOR, CHARGED
OR RECEIVED FROM DEBTOR OR OTHERWISE BY SECURED PARTY IN CONNECTION WITH THE
OBLIGATIONS.
Section 6.14 GOVERNING LAW. THIS INSTRUMENT AND ALL MATTERS ARISING UNDER
OR GROWING OUT HEREOF SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO ITS PRINCIPLES
OF CONFLICTS OF LAWS, AND THE LAWS OF THE UNITED STATES OF AMERICA.
Section 6.15 Negotiation, Representation and Construction. This Instrument
is the product of negotiation between sophisticated individuals, each of whom
were either represented by counsel or had an opportunity to be so represented,
and each of whom had an opportunity to participate in and did participate in,
the drafting of each provision hereof, and the parties agree that,
(a) Debtor has contributed to the drafting of this Instrument,
(b) this Instrument has been prepared jointly,
(c) Debtor has read and understands this Instrument, and
(d) Debtor was represented by legal counsel (or had the opportunity
to be represented by legal counsel) in connection with this Instrument, and
Debtor and its counsel have reviewed this Agreement, or have had an opportunity
to do so.
Accordingly, the provisions herein contained shall not be construed against
either Debtor or Secured Party as having been the person or persons responsible
for the preparation thereof, and the parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
Page 25 of 27
drafting party shall not be employed in the interpretation of this Agreement or
any Loan Documents or any amendments hereto or thereto.
Signatures on Following Page
Page 26 of 27
IN WITNESS WHEREOF, this Deed of Trust, Mortgage, Security Agreement,
Financing Statement and Fixture Filing is executed as of the date first above
written.
DEBTOR:
-------
SYNERGY RESOURCES CORPORATION
By /s/ Edward Holloway
--------------------------------
Name: Edward Holloway
Title: President
ACKNOWLEDGMENT CERTIFICATE
--------------------------
STATE OF COLORADO )
) ss.
COUNTY OF WELD )
The foregoing instrument was acknowledged before me this 30th day of
November, 2011 by Edward Holloway, President of Synergy Resources Corporation, a
Colorado corporation, on behalf of such corporation.
/s/ Rhonda Sandquist
-----------------------------------
Notary Public
My commission expires: November 25, 2015
-------------------
(NOTARIAL SEAL)
Signature Page to Synergy Deed of Trust
Page 27 of 27
Execution Copy
SECURITY AGREEMENT
------------------
and
ASSIGNMENT OF CONTRACT RIGHTS
-----------------------------
This Security Agreement and Assignment of Contract Rights (this "Agreement") is
made as of November 30, 2011 (the "Effective Date") between:
1. BANK OF CHOICE, a division of Bank Midwest N.A., a national association
(the "Secured Party"); and
2. SYNERGY RESOURCES CORPORATION, a Colorado corporation (together with its
successors and permitted assigns, the "Borrower").
INTRODUCTION
A. Pursuant to a Loan Agreement dated as of November 30, 2011 between
Borrower and Secured Party (as the same may be amended, restated, modified or
supplemented from time to time, the "Loan Agreement") Secured Party has agreed
to loan money to Borrower;
B. Borrower has issued or will issue a senior secured promissory note to
the Secured Party (the "Note") pursuant to Loan Agreement.
D. It is a requirement under the Loan Agreement and a condition precedent
to the making of loans that the Borrower shall have executed and delivered this
Agreement.
E. To induce the Secured Party to enter into, and extend credit under, the
Loan Agreement the Borrower has agreed to pledge and grant a security interest
in the Collateral to the Secured Party as collateral security for the Secured
Obligations.
SECURITY AGREEMENT
Borrower, intending to be legally bound, hereby agrees with the Secured Party as
follows:
1. Definitions. Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to such terms in the Loan Agreement. The
following terms, as used herein, shall have the following meanings:
"Account" has the meaning defined in Article 9 of the UCC.
"Agreement Collateral" means each of the agreements that cover, affect or
otherwise relate in any way to the Leases or the Wells, including, without
limitation, unit agreements, pooling agreements, operating agreements, equipment
leases, production sales, purchase, exchange or processing agreements,
transportation or gathering agreements, farmout or farmin agreements, disposal
agreements, surface use agreements, joint venture agreements and area of mutual
interest agreements, as such agreements may be amended or otherwise modified
from time to time (collectively, the "Assigned Agreements"), including, without
limitation, (a) all rights of Borrower to receive moneys due and to become due
under or pursuant to the Assigned Agreements, (b) all rights of Borrower to
receive proceeds of any insurance, indemnity, warranty, or guaranty with respect
to or for breach of or default under the Assigned Agreements, (c) claims of
1
Borrower for damages arising out of or for breach of or default under the
Assigned Agreements, and (d) the right of Borrower to terminate the Assigned
Agreements, to perform thereunder and to compel performance and otherwise
exercise all remedies thereunder.
"As-Extracted Collateral" has the meaning defined in Article 9 of the UCC,
but in any event shall include, but not be limited to, oil, gas and other
minerals and mineral rights that are subject to a security interest that: (i) is
created by a debtor having an interest in the minerals before extraction; and
(ii) attaches to the minerals as extracted; or (b) accounts arising out of the
sale at the wellhead or mine head of oil, gas, or other minerals in which the
debtor had an interest before extraction.
"Collateral" has the meaning ascribed to such term in Section 2.
"Deposit Account" has the meaning defined in Article 9 of the UCC.
"Equipment" has the meaning defined in Article 9 of the UCC and, to the
extent that items listed below under the definition of "Fixtures" are deemed to
not constitute fixtures, then Equipment for purposes of this Agreement shall
include the items defined below as Fixtures.
"Event of Default" has the meaning defined in the Loan Agreement.
"Fixtures" has the meaning defined in Article 9 of the UCC, and shall
include, as applicable and without limitation, platforms, derricks, casing,
tubing, tanks, tank batteries, treaters, separators, rods, pumps, pumping units,
flow lines, water lines, transportation lines, gathering lines, gas lines,
machinery, pipelines, and power lines.
"Goods" has the meaning defined in Article 9 of the UCC.
"Hydrocarbons" means all of the oil, gas, drip gasoline, natural gasoline,
natural gas liquids, condensate, distillate, casinghead gas and other solid,
liquid or gaseous hydrocarbons and other associated or related substances of
whatever kind or character and in whatever form or phase, including, without
limitation, gases produced from coal-bearing formations and strata such as
so-called "coal-bed gas" and "coal-bed methane".
"Inventory" has the meaning defined in Article 9 of the UCC, and shall
include, as applicable and without limitation, casing, tubing, tanks, tank
batteries, treaters, separators, rods, pumps, pumping units, flow lines, water
lines, transportation lines, gathering lines, gas lines, machinery, pipelines,
and power lines.
"Leases" means all oil and gas leases specifically described on Schedule I
hereto.
"Proceeds" has the meaning defined in Article 9 of the UCC but, in any
event, shall include, but not be limited to, (a) any and all proceeds of any
insurance (whether or not the Secured Party is named as the loss payee thereof),
indemnity, warranty or guaranty payable to Borrower or the Secured Party from
time to time with respect to any of the Collateral, (b) any and all payments (in
any form whatsoever) made or due and payable to Borrower from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any person acting under color of Governmental Authority), (c) any and all
amounts received when Collateral is sold, leased, licensed, exchanged, collected
2
or disposed of, (d) any rights arising out of Collateral, and (e) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral.
"Property 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, treatment, compression, storing, sale or disposal of Hydrocarbons or
water produced from the property described in 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
interests associated with the Leases.
"Secured Obligations" means any obligations of the Borrower under the Loan
Agreement (including any amounts payable to Secured Party thereunder), the Note
defined therein, and any other indebtedness of Borrower to Secured Party whether
now existing or hereafter arising.
"UCC" means the Uniform Commercial Code in effect on the date hereof and as
amended from time to time, and as enacted in the State of Colorado or in any
state or states which, pursuant to the Uniform Commercial Code as enacted in the
State of Colorado, has jurisdiction with respect to all, or any portion of, the
Collateral or this Agreement, from time to time. It is the intent of the parties
that the definitions set forth above should be construed in their broadest sense
so that Collateral will be construed in its broadest sense. Accordingly if there
are, from time to time, changes to defined terms in the Uniform Commercial Code
that broaden the definitions, they are incorporated herein and if existing
definitions in the Uniform Commercial Code are broader than the amended
definitions, the existing ones shall be controlling. Similarly, where the phrase
"as defined in the Uniform Commercial Code, but in any event shall include, but
not be limited to . . ." is used above, it means as defined in the Uniform
Commercial Code except that if any of the enumerated types of items specified
thereafter would not fall within the Uniform Commercial Code definition, they
shall nonetheless be included in the applicable definition for purposes of this
Agreement.
"Wells" means the oil and gas wells and equipment on or relating to the
property described in the Leases, including, without limitation, those oil and
gas wells specifically described in Schedule II hereto and any additional wells
drilled by Borrower upon the property described in the Leases.
2. Grant of Security Interest. As security for the prompt payment in full when
due (whether at stated maturity, upon acceleration, on any optional or
mandatory prepayment date or otherwise) and performance of the Secured
Obligations, Borrower hereby pledges, hypothecates, delivers grants and
assigns to the Secured Party, and creates in favor of the Secured Party, a
first priority security interest in and to, all of Borrower's right, title
and interest in and to all the following property, in all its forms, in
each case whether now or hereafter existing, whether now owned or hereafter
acquired, created or arising, and wherever located (collectively, but
without duplication, the "Collateral"):
(a) The Property Collateral;
(b) Hydrocarbons in, on, under or allocated or attributed to any of the
estates, property, interests or rights described or referred to above or herein
or any other interest of Borrower (whether now owned or hereafter acquired by
3
operation of law or otherwise) in, to and under or that covers, affects or
otherwise relates to the Property Collateral or to any of the estates, property,
interests or rights described in or covered by the Leases;
(c) All Equipment;
(d) All Inventory and other Goods;
(e) All Accounts;
(f) All Fixtures;
(g) All Deposit Accounts;
(h) All of the severed and extracted Hydrocarbons including, without
limitation, As-Extracted Collateral in all its forms, in each case whether now
or hereafter existing, whether now owned or hereafter acquired, created or
arising, in each case, to the extent produced from or allocated or attributed to
the property described in or covered by the Leases or to the Wells;
(i) The Agreement Collateral;
(j) All renewals, extensions and restatements of, modifications, changes,
amendments and supplements to, and substitutions for the estates, property,
interests and rights described or referred to in paragraphs (a) through (i)
above, and all additions and accessions thereto;
(k) All of the rights, privileges, benefits, hereditaments and
appurtenances in any way belonging, incidental or appertaining to the estates,
property, interests and rights described or referred to in paragraphs (a)
through (j) above; and
(l) All Proceeds of any and all of the foregoing, including, without
limitation, condemnation awards and the proceeds of any and all insurance
policies (including title insurance policies as well as other types of insurance
policies) covering all or any part of said estates, property, interests or
rights and, to the extent they may constitute proceeds, instruments, accounts,
securities, general intangibles, contract rights and inventory.
Notwithstanding the foregoing, nothing herein shall be deemed to constitute an
assignment of any asset which, in the event of an assignment, becomes void by
operation of applicable law or the assignment of which is otherwise prohibited
by applicable law (in each case to the extent that such applicable law is not
overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar
applicable law); provided, however, that to the extent permitted by applicable
law, this Agreement shall create a valid security interest in such asset and, to
the extent permitted by applicable law, this Agreement shall create a valid
security interest in the Proceeds of such asset.
3. Borrower's Representations and Warranties. Borrower represents and warrants
to the Secured Party as follows, which representations and warranties shall
survive execution of this Agreement and shall not be affected or waived by
any examination or inspection made by the Secured Party:
3.1 Status. Borrower is duly organized and validly existing as a
corporation in the State of Colorado. The organizational identification number
of Borrower is 20051109690. Borrower has perpetual existence and the power and
4
authority to own its property and assets and to transact the business in which
it is engaged or presently proposes to engage. Borrower has qualified to do
business in each state or jurisdiction where its business or operations so
require.
3.2 Authority to Execute Agreement; Binding Agreement. Borrower has the
power to execute, deliver and perform its obligations under this Agreement, the
Loan Agreement, the Note and any other agreement or document contemplated hereby
and thereby to which it is, or is to be, a party (collectively, the "Loan
Documents") (including, without limitation, the right and power to give the
Secured Party a security interest in the Collateral) and has taken all necessary
corporate and other action to authorize the execution, delivery and performance
of this Agreement, the Loan Agreement, the Note and each other Loan Document to
which it is, or is to be, a party. The Loan Agreement and Note have been duly
executed and delivered by Borrower. The Loan Agreement and Note constitute the
legal, valid and binding obligation of Borrower, enforceable against Borrower in
accordance with their terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors. This
Agreement has been duly executed by Borrower. This Agreement constitutes the
legal, valid and binding obligation of Borrower, enforceable against Borrower in
accordance with its terms except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of creditors.
3.3 Borrower's Title. Except for the security interests granted hereunder,
Borrower is, as to all Collateral presently owned, and shall be as to all
Collateral hereafter acquired, the owner or in the case of leased or licensed
assets, the lessee or licensee, of said Collateral free and clear from any
liens, security interests, encumbrances or adverse claims.
3.4 Agreement Collateral. The Assigned Agreements have been duly
authorized, executed, and delivered by all parties thereto, have not been
amended or otherwise modified, are in full force and effect and are binding upon
and enforceable against all parties thereto in accordance with their respective
terms. There exists no default under any Assigned Agreement by any party
thereto. The execution and delivery of this Agreement shall not require the
consent of any other Person who is party to any Assigned Agreement nor create
any default under any of the Assigned Agreements.
3.5 Perfected Security Interest. This Agreement creates a valid, first
priority security interest in the Collateral, securing payment of the Secured
Obligations. Upon the filing of the UCC financing statements in the offices set
forth on Schedule 3.5 hereto, all security interests which may be perfected by
filing shall have been duly perfected. Except for the filing of the UCC
financing statements referred to in the preceding sentence, no action is
necessary to create, perfect or protect such security interest. Without limiting
the generality of the foregoing, except for the filing of said financing
statements, no consent of any third parties and no authorization, approval or
other action by, and no notice to or filing with any Governmental Authority or
regulatory body is required for (i) the execution, delivery and performance of
this Agreement, the Loan Agreement, the Note or any other Loan Document, (ii)
the creation or perfection of the security interest in the Collateral or (iii)
the enforcement of the Secured Party's rights hereunder and under the Note.
3.6 Absence of Conflicts with Other Agreements, Etc. Neither the pledge of
the Collateral hereunder nor any of the provisions hereof (including, without
limitation, the remedies provided hereunder) violates any of the provisions of
any organizational documents of Borrower, or any other agreement to which
5
Borrower or any of its property is a party or is subject, or any judgment,
decree, order or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to the same. None of the
provisions of the Note violates any of the provisions of any organizational
documents of the Borrower, or any other agreement to which Borrower or any of
its property is a party or is subject, or any judgment, decree, order or award
of any court, governmental body or arbitrator or any applicable law, rule or
regulation applicable to the same.
4. Covenants of Borrower. Borrower covenants that:
4.1 Filing of Financing Statements and Preservation of Interests.
Concurrently with the execution and delivery of this Agreement, the Borrower
shall (a) file in each office set forth on Schedule 3.5 UCC financing statements
and other documents in such offices as shall be necessary or as the Secured
Party may reasonably request to perfect and establish the priority of the Liens
granted by this Agreement, (b) deliver and pledge to the Secured Party any and
all Instruments comprising any part of the Collateral, endorsed or accompanied
by such instruments of assignment and transfer in such form and substance as the
Secured Party may request and (c) take all such other actions as shall be
necessary or as the Secured Party may reasonably request to perfect and
establish the priority of the Liens granted by this Agreement, in each case in
form and substance satisfactory to the Secured Party. Without limiting the
obligation of the Borrower set forth in the preceding sentence, Borrower hereby
authorizes the Secured Party, and appoints the Secured Party as its
attorney-in-fact, to file in such office or offices as the Secured Party deems
necessary or desirable such financing and continuation statements and amendments
and supplements thereto (including, without limitation, an "all assets" filing),
and such other documents as the Secured Party may require to perfect, preserve
and protect the security interests granted herein and ratifies all such actions
taken by the Secured Party.
4.2 Records; Collection of Receivables. Borrower shall keep at its chief
place of business and chief executive office where it keeps its records
concerning all Accounts and As-Extracted Collateral, and the original copies of
the Assigned Agreements and the originals of all chattel paper that evidence
Accounts, As-Extracted Collateral or receivables. Borrower will hold and
preserve such records, Assigned Agreements and chattel paper and will permit
representatives of the Secured Party at any time during normal business hours to
inspect and make abstracts from such records and chattel paper.
4.3 Transfer of Collateral. Other than the disposition of Collateral in the
ordinary course of the Borrower's business as presently conducted, and subject
to the provisions of Sections 2.7 and 2.9 of the Loan Agreement and Section 4.5
of the Deed of Trust, Borrower shall not sell, assign, transfer, encumber or
otherwise dispose of any Collateral without the prior written consent of the
Secured Party. For purposes of this provision, "dispose of any Collateral" shall
include, without limitation, the creation of a security interest or other
encumbrance (whether voluntary or involuntary) on such Collateral.
4.4 Agreement Collateral.
(a) Borrower shall at its expense:
(i) Perform and observe all the terms and provisions of the
Assigned Agreements to be performed or observed by it, maintain the
Assigned Agreements in full force and effect, enforce the Assigned
Agreements in accordance with their respective terms, and take all such
action to such end as may be from time to time reasonably requested by the
Secured Party;
6
(ii) Furnish to the Secured Party promptly upon receipt
thereof copies of all notices, requests, and other documents received by
the Borrower under or pursuant to the Assigned Agreements, and from time
to time (a) furnish to the Secured Party such information and reports
regarding the Collateral as the Secured Party may reasonably request and
(b) upon request of the Secured Party make to any other party to any
Assigned Agreement such demands and requests for information and reports
or for action as the Borrower is entitled to make thereunder.
(b) Other than actions taken in the ordinary course of business (subject to
the provisions of Sections 2.7 and 2.9 of the Loan Agreement and Section 4.5 of
the Deed of Trust), Borrower shall not, without the Secured Party's written
consent,
(i) Cancel or terminate any Assigned Agreement or consent to
or accept any material cancellation or termination thereof;
(ii) Materially amend or otherwise modify, in a manner
detrimental to the Secured Party, any Assigned Agreement or give any
material consent, waiver, or approval thereunder;
(iii) Waive any material default under or breach of any
Assigned Agreement; or
(iv) Take any other action in connection with any Assigned
Agreement which would materially impair the value of the interest or
rights of the Borrower thereunder or which would materially impair the
interest or rights of the Secured Party.
4.5 Other Assurances. Borrower agrees that from time to time, at the
expense of Borrower, it will promptly execute and deliver all such further
instruments and documents, and take all such further action as may be necessary
or desirable, or as the Secured Party may reasonably request, in order to
perfect and protect the Secured Party's first priority security interest granted
or purported to be granted hereby or to enable the Secured Party to exercise and
enforce its rights and remedies hereunder and with respect to any Collateral or
to otherwise carry out the purposes of this Agreement.
5. Remedies Upon Default.
5.1 Upon the occurrence and during the continuation of an Event of Default
(subject to applicable cure periods, including those set forth in Section 9.2 of
the Loan Agreement), the Secured Party may exercise, in addition to any other
rights and remedies provided herein, under other contracts and under law, all
the rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, upon the occurrence and during the continuation of
an Event of Default (subject to applicable cure periods, including those set
forth in Section 9.2 of the Loan Agreement): (a) at the request of the Secured
Party, Borrower shall, at its cost and expense, assemble the Collateral owned or
used by it as directed by the Secured Party; (b) the Secured Party shall have
the right (but not the obligation) to notify any account debtors and any
obligors under Accounts to make payments directly to the Secured Party and to
enforce the Borrowers' rights against account debtors and obligors; and (c) the
Secured Party may (but is not obligated to), without notice except as provided
below, sell the Collateral at public or private sale, on such terms as the
Secured Party deems to be commercially reasonable. Borrower agrees that ten (10)
days notice of any sale referred to in clause (c) above shall constitute
7
sufficient notice. The Secured Party may purchase Collateral at any such sale.
The Borrower shall be liable to the Secured Party for any deficiency amount.
5.2 The Secured Party may comply with any applicable law in connection with
a disposition of Collateral and compliance will not be considered adversely to
affect the commercial reasonableness of any sale of the Collateral. The Secured
Party may sell the Collateral without giving any warranties and may specifically
disclaim such warranties. If the Secured Party sells any of the Collateral on
credit, the Borrower will only be credited with payments actually made by the
purchaser. The Secured Party may purchase Collateral at any such sale. In
addition, Borrower waives any and all rights that it may have to a judicial
hearing in advance of the enforcement of any of the Secured Party's rights and
remedies hereunder, including, without limitation, its right following an Event
of Default (subject to applicable cure periods, including those set forth in
Section 9.2 of the Loan Agreement) to take immediate possession of the
Collateral and to exercise its rights and remedies with respect thereto.
5.3 For the purpose of enabling the Secured Party to further exercise
rights and remedies under this Section 5 or elsewhere provided by agreement or
applicable law, Borrower hereby grants to the Secured Party an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to such Borrower) to use, license or sublicense following an Event
of Default (subject to applicable cure periods, including those set forth in
Section 9.2 of the Loan Agreement), any Intellectual Property now owned or
hereafter acquired by such Borrower, 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.
6. Obligations Absolute.
6.1 Change of Circumstance. THE RIGHTS OF THE SECURED PARTY HEREUNDER AND
THE OBLIGATIONS OF BORROWER HEREUNDER SHALL BE ABSOLUTE AND UNCONDITIONAL, SHALL
NOT BE SUBJECT TO ANY COUNTERCLAIM, SETOFF, RECOUPMENT OR DEFENSE BASED UPON ANY
CLAIM THAT BORROWER OR ANY OTHER PERSON MAY HAVE AGAINST ANY SECURED PARTY AND
SHALL REMAIN IN FULL FORCE AND EFFECT UNTIL FULL AND INDEFEASIBLE SATISFACTION
OF THE SECURED OBLIGATIONS.
6.2 Waiver of Right of Subrogation, Etc. Borrower hereby waives any and all
rights of subrogation, reimbursement, or indemnity whatsoever arising out of
remedies exercised by the Secured Party hereunder until full and indefeasible
payment of the Secured Obligations.
6.3 Other Waivers. Borrower hereby waives promptness, diligence and notice
of acceptance of this Agreement. In connection with any sale or other
disposition of Collateral, to the extent permitted by applicable law, Borrower
waives any right of redemption or equity of redemption in the Collateral.
Borrower further waives presentment and demand for payment of any of the Secured
Obligations, protest and notice of protest, dishonor and notice of dishonor or
notice of default or any other similar notice with respect to any of the Secured
Obligations, and all other similar notices to which Borrower might otherwise be
entitled, except as otherwise expressly provided in the Loan Documents. Secured
Party is under no obligation to pursue any rights against third parties with
respect to the Secured Obligations and Borrower hereby waives any right it may
have to require otherwise. Borrower (to the extent that it may lawfully do so)
covenants that it shall not at any time insist upon or plead, or in any manner
claim or take the benefit of, any stay, valuation, appraisal or redemption now
or at any time hereafter in force that, but for this waiver, might be applicable
8
to any sale made under any judgment, order or decree based on this Agreement;
and Borrower (to the extent that it may lawfully do so) hereby expressly waives
and relinquishes all benefit of any and all such laws and hereby covenants that
it will not hinder, delay or impede the execution of any power in this Agreement
delegated to the Secured Party, but that it will suffer and permit the execution
of every such power as though no such law or laws had been made or enacted.
6.4 Borrower further waives to the fullest extent permitted by law any
right it may have under the constitution of the State of Colorado (or under the
constitution of any other state in which any of the Collateral or Borrower may
be located), or under the Constitution of the United States of America, to
notice (except for notice specifically required hereby) or to a judicial hearing
prior to the exercise of any right or remedy provided by this Agreement to the
Secured Party, and waives its rights, if any, to set aside or invalidate any
sale duly consummated in accordance with the foregoing provisions hereof on the
grounds (if such be the case) that the sale was consummated without a prior
judicial hearing.
6.5 BORROWER'S WAIVERS UNDER THIS SECTION 6 HAVE BEEN MADE VOLUNTARILY,
INTELLIGENTLY AND KNOWINGLY AND AFTER BORROWER HAS BEEN APPRISED AND COUNSELED
BY ITS ATTORNEY AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.
7. No Implied Waivers. No failure or delay on the part of the Secured Party in
exercising any right, power or privilege under this Agreement or the other
Loan Documents and no course of dealing between the Borrower, on the one
hand, and the Secured Party, on the other hand, shall operate as a waiver
of any such right, power or privilege. No single or partial exercise of any
right, power or privilege under this Agreement or the other Loan Documents
precludes any other or further exercise of any such right, power or
privilege or the exercise of any other right, power or privilege. The
rights and remedies expressly provided in this Agreement and the other Loan
Documents are cumulative and not exclusive of any rights or remedies which
the Secured Party would otherwise have.
8. Standard of Care.
8.1 In General. No act or omission of the Secured Party (or agent or
employee of the Secured Party) shall give rise to any defense, counterclaim or
offset in favor of Borrower or any claim or action against the Secured Party (or
agent or employee thereof), in the absence of gross negligence or willful
misconduct of the Secured Party (or agent or employee thereof) as determined in
a final, nonappealable judgment of a court of competent jurisdiction. The
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which the Secured Party accords
to other Collateral it holds, it being understood that it has no duty to take
any action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Collateral or to preserve any rights of any
parties and shall only be liable for losses which are a result of its gross
negligence or willful misconduct as determined in a final, nonappealable
judgment of a court of competent jurisdiction.
8.2 No Duty to Preserve Rights. Without limiting the generality of the
foregoing:
(a) the Secured Party has no duty (either before or after an Event of
Default) to collect any amounts in respect of the Collateral or to preserve any
rights relating to the Collateral;
9
(b) the Secured Party has no obligation to clean-up or otherwise prepare
the Collateral for sale; and
(c) Borrower shall remain obligated and liable under each contract or
agreement included in the Collateral to be observed or performed by such
Borrower thereunder, and the Secured Party shall not have any obligation or
liability under any such contract or agreement by reason of or arising out of
this Agreement or the receipt by the Secured Party of any payment relating to
any of the Collateral.
8.3 Appointment and Powers of Secured Party. Borrower hereby irrevocably
constitutes and appoints Secured Party and any officer or agent thereof, with
full power of substitution, as its true and lawful attorneys-in-fact and with
full irrevocable power and authority in the place and stead of Borrower or in
the Secured Party's own name, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments that may be necessary or useful to accomplish the
purposes of this Agreement.
9. General Terms.
9.1 Assignment. Borrower shall not delegate any obligations or assign or
transfer this Agreement or any rights hereunder without the prior written
consent of the Secured Party. Notwithstanding the foregoing, if there should be
any assignment of any rights or obligations by operation of law or in
contravention of the terms of this Agreement or otherwise, then all covenants,
agreements, representations and warranties made herein or pursuant hereto by or
on behalf of Borrower shall bind the successors and assigns of Borrower,
together with the preexisting Borrower. The rights and privileges of the Secured
Party under this Agreement shall inure to the benefit of its successors and
assigns.
9.2 Notices. All notices, requests, demands, directions and other
communications provided for herein shall be in writing and shall be delivered or
mailed in the manner specified in the Loan Agreement.
9.3 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision of this Agreement shall be invalid, illegal
or unenforceable for any reason, the validity, legality and enforceability of
the remaining provisions shall not be affected or be impaired thereby. Any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
9.4 Costs and Expenses. Without limiting any other cost reimbursement
provisions in the Loan Documents, upon demand, the Borrowers shall pay to the
Secured Party the amount of any and all reasonable expenses incurred by the
Secured Party hereunder or in connection herewith.
9.5 Counterparts; Integration. This Agreement may be signed in
counterparts, including facsimiles thereof (and by different parties hereto in
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement and
the other Loan Documents constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof.
10
9.6 Amendments and Waivers. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by the
Borrower and the Secured Party.
10. Termination; Partial Release.
10.1 At such time as all the Secured Obligations have been paid and
performed in full, the security provided for herein shall terminate, provided,
however, that all indemnities of the Borrower contained in this Agreement shall
survive and remain operative and in full force and effect regardless of the
termination of this Agreement.
10.2 Effective upon the closing of a disposition of any Collateral in
conformity with the provisions of the Deed of Trust and the Loan Agreement, and
receipt by the Secured Party of a certification to such effect from an
authorized officer of the Borrower, the security interest in the Collateral so
disposed of shall terminate and the Secured Party shall deliver such releases as
may be appropriate, provided, however, the security interest in all remaining
Collateral shall remain in full force and effect.
11. Governing Law; Jurisdiction; Waiver Of Jury Trial.
11.1 Governing Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed and interpreted in accordance with the laws
of the State of Colorado (excluding the laws applicable to conflicts or choice
of law).
11.2 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
13. Negotiation, Representation and Construction.
This Agreement and all Loan Documents are the product of negotiation
between sophisticated individuals, each of whom were either represented by
counsel or had an opportunity to be so represented, and each of whom had an
opportunity to participate in and did participate in, the drafting of each
provision hereof, and the parties agree that,
(a) each party has contributed to the drafting of this Agreement and all
Loan Documents,
(b) this Agreement and all Loan Documents have been prepared jointly,
11
(c) each party has read and understands this Agreement and all Loan
Documents,
(d) each party was represented by legal counsel (or had the opportunity to
be represented by legal counsel) in connection with this Agreement and all Loan
Documents, and that each of them and their counsel have reviewed this Agreement,
or have had an opportunity to do so.
Accordingly, the provisions herein contained shall not be construed against
either Borrower or Secured Party or any Secured Party as having been the person
or persons responsible for the preparation thereof, and the parties hereto agree
that any rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement or any Loan Documents or any amendments hereto or thereto.
[Signature page follows]
12
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
and Assignment of Contract Rights to be executed in the name and on behalf of
the parties hereto as of the date first above written.
BORROWER:
---------
SYNERGY RESOURCES CORPORATION
a Colorado corporation
By /s/ Edward Holloway
-----------------------------------
Name: Edward Holloway
Title: President
ACKNOWLEDGMENT CERTIFICATE
STATE OF COLORADO )
) ss.
COUNTY OF WELD )
The foregoing instrument was acknowledged before me this 30th day of
November, 2011 by Edward Holloway, President of Synergy Resources Corporation, a
Colorado corporation, on behalf of such corporation.
/s/ Rhonda Sandquist
-------------------------------
Notary Public
My commission expires: November 25, 2015
-------------------
(NOTARIAL SEAL)
SECURED PARTY:
--------------
BANK OF CHOICE, a division of Bank
Midwest, N.A., a national
association
By /s/ Sarah Burchett
------------------------------
Name: Sarah Burchett
Title: Senior Approval Officer
Signature Page to Synergy Security Agreement
13
Execution Copy
{
SYNERGY RESOURCES CORPORATION
SECURED PROMISSORY NOTE
-----------------------
Greeley, Colorado
$ 15,000,000 November 30, 2011
The undersigned Borrower promises to pay to the order of BANK OF CHOICE, a
Division of BANK MIDWEST, N.A., a national association, ("Lender", which term
shall include all subsequent holders of this Note by assignment or otherwise),
at its offices located in Greeley, Colorado, the sum of FIFTEEN MILLION AND
NO/100 DOLLARS ($15,000,000.00), or so much thereof as may be advanced by Lender
hereunder, together with interest as required under this Note. Sums shall be
advanced to Borrower by Lender hereunder pursuant to the terms and conditions of
that certain Loan Agreement of even date herewith, by and between Lender and
Borrower (the "Loan Agreement"). The outstanding principal amount due hereunder
may fluctuate up and down from time to time, but shall not exceed FIFTEEN
MILLION AND NO/100 DOLLARS ($15,000,000.00) in the aggregate principal amount
outstanding at any one time. All capitalized terms used herein and not otherwise
defined shall have the meanings given such terms in the Loan Agreement.
THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT
(THE "SECURITY AGREEMENT") AND A DEED OF TRUST (THE "DEED OF TRUST") DATED AS OF
THE DATE OF THIS NOTE AND SIGNED BY BORROWER IN FAVOR OF LENDER. The principal
outstanding under this Note shall bear interest from day to day at the Interest
Rate (as hereinafter defined). The term "Interest Rate" means a rate per annum
equal to the greater of (i) three and a quarter percent (3.25%) and (ii) the
Prime Rate, provided, however, that upon and/or after and during the continuance
of an Event of Default, interest on the unpaid principal balance shall accrue at
the Default Rate, limited by the Highest Lawful Rate, as those terms are defined
in the Loan Agreement. Interest shall accrue at the applicable rate
notwithstanding the occurrence of any Event of Default, acceleration of the
Obligations, the entry of any judgment, or the commencement of any bankruptcy,
reorganization, receivership or other proceedings. Interest hereunder shall be
computed on the basis of a three hundred sixty (360) day year, calculated for
the actual number of days elapsed, provided, however, that the Interest Rate
charged hereunder shall never exceed the maximum rate allowed, from time to
time, by applicable law.
Monthly payments of accrued interest only at the Interest Rate shall be due
and payable beginning on January 1, 2012, and continuing on the first (1st) day
of each month thereafter until the Maturity Date.
The "Maturity Date" of this Note shall be November 30, 2014.
1
A payment due hereunder shall be deemed late if it is not received by the
Lender on or before ten (10) days after the due date of such payment, and each
late payment shall automatically incur a late charge, payable immediately, equal
to five percent (5%) of such payment. This late charge provision shall not limit
the operation of any other provision of this Note regarding payments that are
not made when due hereunder. Further, notwithstanding any other rate of interest
provided for herein, the Interest Rate applicable to any payment or payments of
principal or interest, or any part thereof, not received by the Lender within
ten (10) days after the due date thereof shall thereafter be the Default Rate
defined in the Loan Agreement.
Borrower shall be in default of this Note if
(1) any payment of principal or interest, or any part thereof, is not
received by the Lender on the due date of such payment, or
(2) upon the occurrence of any other default hereunder or
(3) an Event of Default under the terms of the Loan Agreement or any
default under any Deed of Trust, the Security Agreement or other Loan
Document securing or made at any time in connection with this Note or
with any loan cross-defaulted with this Note. Borrower shall be in
default under this Note if Borrower is in default under, or if an
Event of Default has occurred, in any obligation to Lender, which
default shall be a cross-default under this Note.
If any default remains uncured upon the expiration of any applicable grace
or cure period, including as set forth in Section 9.2 of the Loan Agreement, the
principal sum remaining unpaid hereunder, together with all accrued and unpaid
interest thereon, and all other liabilities of the Borrower under this Note,
shall become due and payable at any time thereafter at the option of the Lender,
immediately upon the Lender's written notice or demand. Also in that event, the
Lender shall have the remedies of a secured party under the Uniform Commercial
Code. In addition to the foregoing remedies, upon the occurrence or existence of
any default, Lender may exercise any other right, power or remedy granted to it
by the Loan Agreement, the Security Agreement, or the Deed of Trust or otherwise
permitted to it by law or equity.
No delay or omission on the part of Lender in exercising any right
hereunder shall operate as a waiver of such right or of any other right under
this Note. Presentment, demand, protest, notice of dishonor, and extension of
time without notice are hereby waived by Borrower. Except as otherwise expressly
provided in this Note or by applicable law, any notice to Borrower regarding
this Note shall be sufficiently served for all purposes if placed in the mail,
postage prepaid, addressed to or left upon the premises at the address shown
below or any other address shown on the Lender's records. Time is of the essence
in all matters relating to this Note.
JURY TRIAL WAIVER. BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, AND IRREVOCABLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A
TRIAL BY JURY IN RESPECT TO ANY LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW
OR IN EQUITY, BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
2
AGREEMENT AND ANY OTHER DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDER ENTERING INTO THIS AGREEMENT. FURTHER, BORROWER
HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER, NOR LENDER'S COUNSEL
HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS PROVISION.
Signature on Following Page
3
IN WITNESS WHEREOF, Borrower has executed and delivered this Note on the
date first above written.
SYNERGY RESOURCES CORPORATION
By: /s/ Edward Holloway
------------------------------------
Name: Edward Holloway
------------------------------------
Title: President
4