Document:

star_ex10502.htm

EXHIBIT 10.5.02

 

 

 

 

SECURITY AGREEMENT

(General)

from

Starboard Resources, Inc.,

as Debtor

in favor of

Independent Bank,

as Secured Party

 

June 27, 2013

 

 

 

 

  

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SECURITY AGREEMENT

 

(General)

 

THIS SECURITY AGREEMENT (“Agreement” or “Security Agreement”) is entered into as of June 27, 2013, by Starboard Resources, Inc., a Delaware corporation (the “Debtor”), in favor of the Secured Party.  Certain terms used herein are defined in Article I hereof.

 

RECITALS:

 

WHEREAS, reference is made to that certain Credit Agreement, dated June 27, 2013 by and among the Borrower and Secured Party (as it may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”); and

 

WHEREAS, in consideration of the extensions of credit and other accommodations as set forth in the Credit Agreement, the Debtor has agreed as set forth herein;

 

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Debtor and the Secured Party agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1. Definitions.

 

1.1.1. Unless the context otherwise requires, the following terms shall have the respective meanings given each such term in the Code and, when used herein, each such term shall include such item whether now existing or hereafter arising or acquired:  accession, account, as-extracted collateral, certificated security, chattel paper, collateral, commercial tort claim, commodity account, commodity contract, consumer goods, deposit account, document, equipment, farm products, fixtures, general intangible, goods, instrument, inventory, investment property, letter of credit rights, money, payment intangible, proceeds, promissory note, record, security, security certificate, security entitlement, securities account, software, standing timber, supporting obligation and uncertificated security.

 

1.1.2. As used herein,

 

“Account Debtor” means each Person who is obligated on a Receivable or any supporting obligation related thereto.

 

“Bankruptcy Code” means Title 11 of the United States Code.

 

“Borrower” means Debtor.

 

“Code” or “UCC” means the Uniform Commercial Code as in effect in the State of Texas.

 

  

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“Collateral” means the interests of the Debtor identified in Section 2.1 hereof.

 

“Collateral Records” means books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon.

 

“Collateral Support” means all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property.

 

“Credit Agreement” has the meaning given such term in the recitals of this Agreement.

 

“Debtor” has the meaning given such term in the initial paragraph of this Agreement.

 

“Default” means the occurrence of any of the following:

 

(i) the failure of the Borrower to pay when due any principal on the Notes; or

 

(ii) the occurrence of an “Event of Default,” as such term is defined in the Credit Agreement.

 

“Equity Interest” has the meaning given such term in the Credit Agreement.

 

“Excluded Collateral” has the meaning given such term in Section 2.4.

 

“INB” means Independent Bank, a Texas banking association, its successors and assigns.

 

“Insurance” means all insurance policies covering any or all of the Collateral (regardless of whether the Secured Party is the loss payee thereof).

 

“Lender” means INB.

 

“Lien” has the meaning given such term in the Credit Agreement.

 

“Loan Documents” means this Agreement, the Credit Agreement, the Notes and all other documents, instruments and certificates delivered pursuant to the terms of any of the foregoing, but excluding the Hedge Intercreditor Agreement and the Second Lien Intercreditor Agreement.

 

“Notes” means the promissory note or notes issued pursuant to the Credit Agreement, including any amendment, modification, renewal or replacement of any such promissory note.

 

“Permitted Liens” has the meaning given such term in the Credit Agreement.

 

  

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“Person” means any natural person, corporation, partnership, limited liability company, association, trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

 

“Personal Property Collateral” with respect to Debtor means all of Debtor’s accounts, accounts receivable, as-extracted collateral, goods, documents, equipment, general intangibles, Hedging Agreements, Hedging Transactions, goods, inventory, fixtures, documents, instruments, chattel paper, securities, investment property, letter of credit rights, money, payment intangibles, commercial tort claims, farm products, fixtures, Receivables and Receivable Records, insurance, software, supporting obligations, Collateral Records, Collateral Support, and all deposit accounts at INB or elsewhere; together with proceeds of any and all of the foregoing.  Consumer goods are not intended to be covered by this Agreement.

 

“Pledged Equity Interests” shall mean all ownership, voting, trust or other interests the Debtor may now or hereafter have in the Persons set forth on Schedule 3.1.6, including without limitation (a) the interests described on Schedule 3.1.6, (b) the certificates, if any, representing such ownership, voting or other interests, (c) any interest of the Debtor on the books and records of such Persons or on the books and records of any securities intermediaries pertaining to such interests, and (d) all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing.

 

“Receivables” means all rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, including without limitation all such rights constituting or evidenced by any account, chattel paper, instrument, general intangible or investment property, together with all of Debtor’s rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and supporting obligations related thereto and all Receivables Records.

 

“Receivables Records” means (i) all original copies of all documents, instruments or other writings or electronic records or other records evidencing the Receivables, (ii) all books, correspondence, credit or other files, records, ledger sheets or cards, invoices, and other papers relating to Receivables, including all tapes, cards, computer tapes, computer discs, record keeping systems and other papers and documents relating to the Receivables, whether in the possession or under the control of the Debtor or any computer bureau or agent from time to time acting for the Debtor or otherwise; (iii) all evidences of the filing of financing statements and the registration of other instruments in connection therewith, and amendments, supplements or other modifications thereto, notices to other creditors, and certificates, acknowledgements, or other writings, including lien search reports, from filing or other registration officers, (iv) all credit information, reports and memoranda relating thereto and (v) all other written or non-written forms of information related in any way to the foregoing or any Receivable.

 

“Secured Obligation” has the meaning assigned to such term in Section 2.2 hereof.

 

  

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“Secured Party” means INB.

 

“Security Interests” means (i) the pledge and security interest in the Collateral granted in this Agreement and (ii) all other pledges and security interests arising pursuant to the provisions of this Agreement.

 

1.1.3. References.  References in this Agreement to Exhibits, Schedules, Annexes, Appendixes, Attachments, Articles, Sections, Recitals or clauses shall be to exhibits, schedules, annexes, appendixes, attachments, articles, sections, recitals or clauses of this Agreement, unless expressly stated to the contrary.  References in this Agreement to “hereby,” “herein,” “hereinafter,” “hereinabove,” “hereinbelow,” “hereof,” “hereunder” and words of similar import shall be to this Agreement in its entirety and not only to the particular Exhibit, Schedule, Annex, Appendix, Attachment, Article, or Section in which such reference appears.  References to any document, instrument, or agreement (a) shall include all exhibits, schedules, and other attachments thereto, and (b) shall include all documents, instruments, or agreements issued or executed in replacement thereof.  This Agreement, for convenience only, has been divided into Articles and Sections; and it is understood that the rights and other legal relations of the parties hereto shall be determined from this instrument as an entirety and without regard to the aforesaid division into Articles and Sections and without regard to headings prefixed to such Articles or Sections.  The phrases “this Section” and “this clause” and similar phrases refer only to the sections or clauses hereof in which such phrases occur.  Whenever the context requires, reference herein made to the single number shall be understood to include the plural; and likewise, the plural shall be understood to include the singular.  Definitions of terms defined in the singular or plural shall be equally applicable to the plural or singular, as the case may be.  Words denoting sex shall be construed to include the masculine, feminine and neuter, when such construction is appropriate; and specific enumeration shall not exclude the general but shall be construed as cumulative; the word “or” is not exclusive; the word “including” (in its various forms) shall mean “including, without limitation”; in the computation of periods of time, the word “from” means “from and including” and the words “to” and “until” mean “to but excluding”; and all references to money refer to the legal currency of the United States of America.  The Exhibits, Schedules, Annexes, Appendixes and Attachments attached to this Agreement and items referenced as being attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for all purposes.

 

1.1.4. Terms defined in the Credit Agreement are used herein as therein defined, unless otherwise defined herein or the context otherwise requires.

 

1.1.5. Each term which is defined in the Code shall have the same meaning when used herein, unless otherwise defined herein or in the Credit Agreement or the context otherwise requires.

 

  

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ARTICLE II

 

COLLATERAL AND SECURED OBLIGATION

 

Section 2.1. Grant of Security Interest.  The Debtor hereby pledges with and assigns to the Secured Party and grants to the Secured Party a continuing security interest and Lien in the following:

 

2.1.1. All Personal Property Collateral of the Debtor, whether now owned or hereafter acquired or arising.

 

2.1.2. The balance of every deposit account of the Debtor with Wells Fargo, which shall be transferred to INB substantially contemporaneously with the Closing Date, and all other claims of the Debtor against the Lender, now or hereafter existing, whether liquidated or unliquidated.

 

2.1.3. Cash and noncash proceeds and accessions arising with respect to any of the foregoing.

 

Notwithstanding any contrary language in this Agreement or in any financing statement filed in connection herewith, this Agreement shall not be construed as covering consumer goods.

 

Section 2.2. Secured Obligation.  The Security Interests herein created shall secure the full and punctual payment and performance of the following indebtedness, duties and obligations and all renewals and extensions thereof (collectively, the “Secured Obligation”):

 

2.2.1. All principal, interest, fees, reimbursement obligations and other amounts now or hereafter payable by the Borrower to the Lender pursuant to the terms and provisions of the Credit Agreement, the Notes, and the other Loan Documents (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a) (and any successor provision thereof)).

 

2.2.2. The “Obligations”, as such term is defined in the Credit Agreement.

 

2.2.3. All covenants and agreements to be performed by the Borrower pursuant to the terms of the Credit Agreement or any other Loan Document.

 

2.2.4. All sums expended or advanced by the Secured Party pursuant to any term or provision of any Loan Document, and all other and additional debts, obligations and liabilities of every kind and character of the Borrower now or hereafter owing to the Lender, regardless of whether such debts, obligations and liabilities are direct or indirect, primary or secondary, joint, several, or joint and several, fixed or contingent and whether incurred by the Borrower as a maker, endorser, guarantor or otherwise.

 

Section 2.3. Continuing Liability Under Collateral.  Notwithstanding anything herein to the contrary, (i) the Debtor shall remain liable for all obligations under the Collateral, and nothing contained herein is intended or shall be a delegation of duties to the Secured Party, (ii) the Debtor shall remain liable under each of the contracts and agreements included in the Collateral and to perform all of the obligations undertaken by it thereunder all in accordance with and pursuant to the terms and provisions thereof and (iii) the exercise by the Secured Party of any of its rights hereunder shall not release the Debtor from any of its duties or obligations under the contracts and agreements included in the Collateral.

 

  

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Section 2.4. Certain Limited Exclusions.  Notwithstanding anything herein to the contrary, in no event shall the security interest granted under Section 2.1 attach to any lease, license, contract, property rights or agreement to which the Debtor is a party or any of its rights or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of the right, title or interest of the Debtor therein or (ii) a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract property rights or agreement (other than to the extent that any such term of such lease, license, contract, property rights or agreement would otherwise be rendered ineffective pursuant any applicable law (including, without limitation, the Code and the Bankruptcy Code or principles of equity) (collectively, the “Excluded Collateral”); provided, however, that such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied, and to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in clauses (i) or (ii) above (and all of the Debtor’s rights, title and interest in such lease, license, contract, property rights or agreements, or portion thereof, shall automatically be included in and considered as Collateral).

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Section 3.1. Representations and Warranties.  The Debtor hereby represents and warrants to the Secured Party and to the holders of the Secured Obligation as follows:

 

3.1.1. The Debtor has good and indefeasible title to the Collateral and, as to all Collateral whether now existing or hereafter acquired, will continue to have such title, in each case free and clear of any Lien except for the Security Interests created by this Agreement and Permitted Liens (provided however, that the Debtor hereby acknowledges that no intention to subordinate the first priority liens, security interests, and encumbrances granted in favor of the Secured Party is implied or expressed or is to be inferred by the permitted existence of such Permitted Liens).

 

3.1.2. No financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office, except such as may have been filed in favor of the Secured Party, and except for financing statements or mortgages held by Mutual of Omaha Bank which shall be terminated substantially contemporaneously with the execution of this Agreement, and except for financing statements for which proper termination statements have been delivered to the Secured Party for filing or for which the secured party thereunder has consented to the termination thereof, for which the Debtor hereby grants its consent for such filing or termination.

 

3.1.3. The Debtor has set forth on Schedule 3.1.3: (i) the type of organization of the Debtor, (ii) the jurisdiction of organization of the Debtor, (iii) its organizational identification number and (iv) the jurisdiction where the chief executive office or its sole place of business is (or the principal residence if the Debtor is a natural person), and for the one-year period preceding the date hereof has been, located.

 

  

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3.1.4. The full, exact legal name of the Debtor is as set forth on Schedule 3.1.4, and in the last five years it has not done, and does not do, business under any other name (including any trade name or fictitious business name) except for those names set forth on Schedule 3.1.4.

 

3.1.5. Except as provided on Schedule 3.1.4, the Debtor has not changed its name, jurisdiction of organization, chief executive office or sole place of business (or principal residence if the Debtor is a natural person) or its corporate structure in any way (e.g., by merger, consolidation, change in corporate form or otherwise) within the past five years.

 

3.1.6. Schedule 3.1.6 sets forth all of the Equity Interests owned by the Debtor as of the date of the execution of this Agreement, such Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof, as applicable, indicated on such Schedule, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Equity Interests.

 

3.1.7. None of the Pledged Equity Interests, if any, are or represent interests in issuers that are: (a) registered as investment companies, (b) are dealt in or traded on securities exchanges or markets, or (c) for issuers that are limited liability companies or partnerships, have opted to be treated as securities under the uniform commercial code of any jurisdiction.

 

3.1.8. The Debtor has not within the last five years become bound (whether as a result of merger or otherwise) as debtor under a security agreement entered into by another Person which has not heretofore or contemporaneously herewith been terminated.

 

3.1.9. Upon the filing of all UCC financing statements naming the Debtor as “debtor” and the Secured Party as “secured party” and describing the Collateral with the secretary of state of the jurisdiction of Debtor’s organization, the security interests granted to the Secured Party hereunder will constitute valid and perfected first priority Liens (subject, in the case of priority only, to Permitted Liens) on all of the Collateral to which the filing of a UCC financing statement will perfect the Security Interest.

 

3.1.10. This Agreement has been duly authorized, executed and delivered by the Debtor and constitutes a valid and binding agreement of the Debtor enforceable in accordance with its terms except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors’ rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability.

 

  

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3.1.11. Each Receivable (i) is and will be the legal, valid and binding obligation of the Account Debtor in respect thereof, representing an unsatisfied obligation of such Account Debtor, (b) is and will be enforceable in accordance with its terms, (c) is not and will not be subject to any setoffs, defenses, taxes, counterclaims (except with respect to refunds, returns and allowances in the ordinary course of business with respect to damaged merchandise) and (d) is and will be in compliance with all applicable laws, whether federal, state, local or foreign.

 

3.1.12. None of the Account Debtors in respect of any Receivable is the government of the United States, any agency or instrumentality thereof, any state or municipality or any foreign sovereign.

 

3.1.13. No Receivable is evidenced by, or constitutes, an instrument or chattel paper which has not been delivered to, or otherwise subjected to the control of, the Secured Party.

 

3.1.14. Neither the ownership or intended use of the Collateral by the Debtor, nor the grant of the security interest by the Debtor to the Secured Party herein, nor the exercise by the Secured Party of its rights or remedies hereunder, will conflict with any provision of (a) any domestic or foreign law, statute, rule or regulation, or (b) any agreement, judgment, license, order or permit applicable to or binding upon the Debtor.

 

3.1.15. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or other Person is required which has not been taken (i) for the grant by the Debtor of the Security Interests, (ii) for the execution, delivery or performance of this Agreement by the Debtor, (iii) for the exercise by the Secured Party of the voting or other rights provided for in this Agreement, if any, (iv) for the perfection of the Security Interests or (v) except for such notices as are required by the Code, for the exercise by the Secured Party of the Secured Party’s rights and remedies in respect of any Collateral (whether specifically granted or created hereunder or created or provided for by applicable law), except (A) for the termination statements, if any, contemplated by Section 3.1.2 and the filings contemplated by Section 3.1.9 above and (B) as may be required, in connection with the disposition of any investment property, by laws generally affecting the offering and sale of securities.

 

3.1.16. All Excluded Collateral existing as of the date of this Agreement is set forth on Schedule 3.1.16 hereto.

 

ARTICLE IV

 

DEBTOR’S COVENANTS

 

Section 4.1. Generally.  The Debtor hereby covenants and agrees with the Secured Party that until the Secured Obligation is paid and performed in full:

 

  

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4.1.1. The Debtor will not create, incur or permit to be placed or imposed or continued upon the Collateral any Lien other than Liens in favor of the Secured Party (and Permitted Liens).

 

4.1.2. The Debtor will pay and discharge promptly when due all taxes, assessments, forced contributions, governmental charges, fines and penalties, of every description, payable by the Debtor with respect to (or which, if not paid could result in an encumbrance upon) any of the Collateral.  In the event that the Debtor should, for any reason, fail to pay and discharge promptly any such taxes, assessments, forced contributions, governmental charges, fines or penalties when due, then the Secured Party shall be authorized but not obligated to pay the same, with full subrogation to all rights of any Person by reason of such payment, and the amounts so paid, together with interest thereon as provided herein, shall be secured by the Security Interests.

 

4.1.3. The Debtor will not sell, mortgage, transfer or otherwise encumber any Collateral in any manner without the prior written consent of the Secured Party (except sales of inventory in the ordinary course of business), which consent shall not be unreasonably withheld, and any such written consent to any such sale, mortgage, transfer or encumbrance shall not be construed to be a waiver of this provision in respect of any subsequent proposed sale, mortgage, transfer or encumbrance.

 

4.1.4. The Debtor will, at its expense and in such manner and form as the Secured Party may from time to time require, execute, deliver, file and record any financing statement, specific assignment or other paper and take any other action that may be necessary or desirable, or that the Secured Party may from time to time request, in order to create, preserve, perfect or validate any Security Interests or to enable the Secured Party to exercise and enforce its rights hereunder with respect to any of the Collateral.  To the extent permitted by applicable law, the Debtor hereby authorizes the Secured Party to execute and file, in the name of the Debtor or otherwise, UCC financing statements, continuation statements and amendments to the foregoing which the Secured Party in its sole discretion may deem necessary or appropriate to further perfect the Security Interests.

 

4.1.5. The Debtor will (i) maintain, at the place where the Debtor is entitled to receive notices hereunder, current Collateral Records, including records of the location of all Collateral, (ii) upon two days’ notice from Secured Party, permit representatives of the Secured Party at any time during normal business hours to inspect and make copies of such records and render to the Secured Party, at the Debtor’s cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto, and (iii) furnish to the Secured Party, at such intervals as the Secured Party may request, such documents, lists, descriptions, certificates and other information as the Secured Party deems necessary or proper to keep the Secured Party informed with respect to the identity, location, status, condition and value of the Collateral.

 

4.1.6. The Debtor will, upon two days’ notice from the Secured Party to the Debtor, grant the Secured Party and its representatives the right to enter, during normal business hours, any premises of the Debtor where any of the Collateral is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein.

 

4.1.7. The Debtor will perform all of the Debtor’s duties and obligations under and in connection with each transaction to which the Collateral, or any part thereof, relates, so that the amounts thereof shall actually become payable in their entirety to the Debtor.

 

  

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4.1.8. The Debtor will keep the Collateral that is equipment in good repair, working order and condition (normal wear and tear excepted) and make all necessary repairs or replacements thereof.

 

4.1.9. The Debtor will not take or permit any action or fail to take any action which could reasonably be expected to impair the Secured Party’s rights in the Collateral.

 

4.1.10. As to any issuer of Pledged Equity Interests, the Debtor will not consent to the issuance of any additional equity interests of any class of such issuer.

 

4.1.11. The Debtor will not enter into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of any Pledged Equity Interests, except as consented to in writing by the Secured Party.

 

4.1.12. Within ten days of the Debtor’s learning of any claim, action or proceeding affecting title to any of the Collateral or the Security Interests, the Debtor shall provide the Secured Party notice thereof and, at the request of the Secured Party, appear in and defend, at the Debtor’s expense, any such action or proceeding.

 

4.1.13. The Debtor will not use or permit any Collateral to be used unlawfully or in violation of any applicable statute, regulation or ordinance or any Insurance covering the Collateral.

 

4.1.14. The Debtor will not relocate the Debtor’s principal place of business or place where the Debtor’s Collateral Records or books and records related to accounts are kept unless prior thereto the Debtor (i) gives the Secured Party ten days’ prior written notice of such proposed relocation and (ii) executes and delivers all such additional documents, and performs all additional acts, as the Secured Party in its sole discretion may reasonably request in order to continue or maintain the existence and priority of the Security Interests.

 

4.1.15. The Debtor will maintain or cause to be maintained on the Collateral which is equipment and inventory, insurance with insurance companies acceptable to the Secured Party in such amounts and against such risks as are customarily carried by similar businesses on similar assets.  The Debtor shall from time to time provide the Secured Party with such information as the Secured Party may request to evidence the Debtor’s maintenance of such insurance.

 

Section 4.2. Investment Property.

 

4.2.1. General Covenants and Agreements.  The Debtor hereby covenants and agrees that:

 

  

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(i) Except as provided in the next sentence, in the event the Debtor receives any dividends, interest or distributions on any investment property, or any securities or other property upon the merger, consolidation, liquidation or dissolution of any issuer of any investment property, then (a) such dividends, interest or distributions and securities or other property shall be included in the definition of Collateral without further action and (b) the Debtor shall immediately take all steps, if any, necessary or advisable to ensure the validity, perfection, priority and, if applicable, control of the Secured Party over such investment property (including delivery thereof to the Secured Party), and pending any such action, the Debtor shall be deemed to hold such dividends, interest, distributions, securities or other property in trust for the benefit of the Secured Party and it shall be segregated from all other property of the Debtor.  Notwithstanding the foregoing, so long as no Default shall have occurred and be continuing, the Secured Party authorizes the Debtor to retain all ordinary cash dividends and distributions paid in the normal course of the business of the issuer and consistent with the past practice of the issuer and all scheduled payments of interest.

 

(ii) In the event the Debtor acquires rights in any investment property after the date hereof, it shall deliver same to the Secured Party, together with a supplement or amendment hereto reasonably satisfactory to the Secured Party reflecting such new investment property and all other investment property.  Notwithstanding the foregoing, it is understood and agreed that the security interest of the Secured Party shall attach to all investment property immediately upon the Debtor’s acquisition of rights therein and shall not be affected by the failure of the Debtor to deliver a supplement as required hereby.

 

4.2.2. Delivery and Control.  The Debtor agrees that with respect to any investment property in which it currently has rights, it shall comply with the provisions of this Section on or before the Closing Date, and with respect to any investment property hereafter acquired by the Debtor, it shall comply with the provisions of this Section immediately upon acquiring rights therein, in each case in form and substance satisfactory to the Secured Party.  With respect to any investment property that is represented by a certificate or that is an “instrument” (other than any investment property credited to a Securities Account) it shall cause such certificate or instrument to be delivered to the Secured Party, indorsed in blank by an “effective indorsement” (as defined in the Code), regardless of whether such certificate constitutes a certificated security for purposes of the Code.  With respect to any investment property that is an uncertificated security for purposes of the Code (other than any uncertificated securities credited to a Securities Account), it shall cause the issuer of such uncertificated security to either (i) register the Secured Party as the registered owner thereof on the books and records of the issuer or (ii) execute an agreement in form and substance satisfactory to the Secured Party, pursuant to which such issuer agrees to comply with the Secured Party’s instructions with respect to such uncertificated security without further consent by the Debtor.

 

4.2.3. Voting and Distributions.  So long as no Default shall have occurred and be continuing:

 

(i) Except as otherwise provided under the covenants and agreements relating to investment property in this Agreement or elsewhere herein or in the Credit Agreement, the Debtor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the investment property or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, however, that the Debtor shall not exercise or refrain from exercising any such right if the Secured Party shall have notified the Debtor that, in the Secured Party’s reasonable judgment, such action would have a material and adverse effect on the value of the investment property or any part thereof.

 

  

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Section 4.3. Further Assurances.  The Debtor will, at its expense and at any time and from time to time, promptly execute and deliver all further instruments, documents and endorsements and take all further action that may be necessary or desirable or that the Secured Party may request in order (i) to perfect and protect the Security Interest created or purported to be created hereby and the first priority of such Security Interest; (ii) to enable the Secured Party to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) to otherwise effect the purposes of this Agreement, including furnishing to the Secured Party from time to time information, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may reasonably request, all in reasonable detail.

 

ARTICLE V

 

GENERAL AUTHORITY AND POWERS AND REMEDIES UPON DEFAULT

 

Section 5.1. Right to Receive Proceeds.  The Secured Party shall have the right to receive and, upon the occurrence and continuance of a Default, retain as Collateral hereunder all payments, distributions and proceeds (including, without limitation, Insurance proceeds) made upon or with respect to the Collateral and the Debtor shall take all actions at the request of the Secured Party that the Secured Party may deem necessary or appropriate to give effect to such right.  All such payments, distributions and proceeds which are received by the Debtor shall be received in trust for the benefit of the Secured Party and, if a Default has occurred and is continuing or the Secured Party so directs, shall be segregated from the other assets of the Debtor and promptly paid over or delivered to the Secured Party in the same form as received (with any necessary endorsement).

 

Section 5.2. General Authority.  The Debtor hereby irrevocably appoints the Secured Party the true and lawful attorney-in-fact of the Debtor, with full power of substitution, in the name of the Debtor, the Secured Party or otherwise, for the sole use and benefit of the Secured Party (but at the Debtor’s expense) to the extent permitted by law to exercise, at any time and from time to time while a Default has occurred and is continuing, any or all of the following powers with respect to any or all of the Collateral:

 

5.2.1. To ask, demand, sue for, collect, receive and give acquittance and receipts for any and all monies due or to become due upon or by virtue thereof.

 

5.2.2. To receive, endorse and collect any drafts or other instruments, documents or chattel paper in connection with Section 5.2.1.

 

5.2.3. To settle, compromise, compound, prosecute or defend any action or proceeding with respect thereto.

 

  

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5.2.4. To sell, transfer, assign or otherwise deal in or with the same or the proceeds thereof as fully and effectually as if the Secured Party were the absolute owner thereof.

 

5.2.5. To extend the time of payment of any part thereof and to make any allowance and other adjustments with reference thereto.

 

5.2.6. To obtain and adjust Insurance required to be maintained by the Debtor or paid to the Secured Party pursuant to the Credit Agreement, if any.

 

5.2.7. To prepare and file any financing statements against the Debtor covering the Collateral.

 

Section 5.3. Remedies Upon Default.  If any Event of Default occurs, the Secured Party may exercise all the rights of a secured party under the Code (whether or not the Code is in effect in the jurisdiction where such rights are exercised, unless prohibited by applicable law). In addition, the Secured Party may, without being required to give any notice, except as herein provided or as may be required by law, sell the Collateral or any part thereof at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery, and at such price or prices as the Secured Party may deem satisfactory. Any holder of the Secured Obligation may be the purchaser of any or all of the Collateral so sold at any public sale (or, if the Collateral is of a type customarily sold in a recognized market or is of a type which is the subject of widely distributed standard price quotations, at any private sale) and thereafter hold the same absolutely, free from any right or claim of the Debtor of whatever kind. Any holder of the Secured Obligation shall have the right to offset the amount of its bid against an equal amount of the Secured Obligation held by such holder. The Secured Party is authorized, in connection with any such sale, (a) to restrict the prospective bidders on or purchasers of any of the Collateral to a limited number of sophisticated and accredited investors who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or sale of any of such Collateral and (b) to impose such other limitations or conditions in connection with any such sale as the Secured Party deems necessary or advisable, including, without limitation, a condition that any prospective purchaser execute an investment letter, it being acknowledged by the Debtor that such restrictions and conditions will likely yield a lower price than otherwise obtainable if such Collateral were offered to a large number of potential purchasers or were registered under the applicable federal and state securities laws and sold pursuant thereto. The Debtor covenants and agrees that the Debtor will execute and deliver such documents and take such other action as the Secured Party deems necessary or advisable in order that any such sale may be made in compliance with law. Upon any such sale the Secured Party shall have the right to deliver, assign and transfer to the purchaser thereof the Collateral so sold. Each purchaser at any such sale shall hold the Collateral so sold absolutely, free from any claim or right of the Debtor of whatsoever kind, including any equity or right of redemption of the Debtor. The Debtor agrees that five days’ written notice from the Secured Party to the Debtor of the Secured Party’s intention to make any such public or private sale or sale at a broker’s board or on a securities exchange shall constitute “reasonable notification” within the meaning of the Code.  Such notice shall (i) in case of a public sale, state the time and place fixed for such sale, (ii) in case of sale at a broker’s board or on a securities exchange, state the board or exchange at which such sale is to be made and the day on which the Collateral, or the portion thereof so being sold, will first be offered for sale at such board or exchange and (iii) in the case of a private sale, state the day after which such sale may be consummated. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Secured Party may fix in the notice of such sale.  At any such sale the Collateral may be sold in one lot as an entirety or in separate parcels, as the Secured Party may determine. The Secured Party shall not be obligated to make any such sale pursuant to any such notice. The Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. In case of any sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by the Secured Party until the selling price is paid by the purchaser thereof, but the Secured Party shall not incur any liability in case of the failure of such purchaser to take up and pay for the Collateral so sold and in case of any such failure, such Collateral may again be sold upon like notice. The Secured Party, instead of exercising the power of sale herein conferred upon it, may proceed by a suit or suits at law or in equity to foreclose the Security Interests and sell the Collateral, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

 

  

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Section 5.4. Waivers by Debtor.  Neither the Debtor nor anyone claiming by, through or under the Debtor (to the extent the Debtor may lawfully so agree) shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension or redemption law now or hereafter in force in any locality where any of the Collateral is situated in order to prevent, hinder or delay the enforcement of this Agreement, or the absolute sale of the Collateral; and the Debtor, in the Debtor’s own right and for all who may claim under the Debtor, hereby waives, to the fullest extent that the Debtor may lawfully do so, the benefit of all such laws and any and all rights to have the Collateral marshalled upon any enforcement of the Security Interests herein granted, and the Debtor agrees that the Secured Party or any court having jurisdiction to enforce the Security Interests may sell the Collateral in parts or as an entirety.

 

Section 5.5. Application of Proceeds.  The Secured Party shall apply amounts realized hereunder as follows (as modified, if necessary, by the requirements of applicable law):

 

5.5.1. First, to the payment of all costs and expenses of any foreclosure and collection hereunder and all proceedings in connection therewith, including reasonable compensation to the Secured Party and its agents and counsel.

 

5.5.2. Then, to the reimbursement of the Secured Party for all disbursements made by the Secured Party for taxes, assessments or Liens superior to the Security Interests and which the Secured Party shall deem expedient to pay.

 

5.5.3. Then, to the reimbursement of the Secured Party for any other disbursements made by, or expenses incurred by, the Secured Party in accordance with the terms hereof.

 

5.5.4. Then, to or among the amounts of fees, interest and principal then owing and unpaid in respect of the Secured Obligation.

 

5.5.5. The remainder of such proceeds, if any, shall be paid to the Debtor.

 

Section 5.6. Deficiency.  If a sale, collection or other realization of or upon the Collateral by the Secured Party occurs and the proceeds of any such sale, collection or realization of or upon Collateral by the Secured Party are insufficient to pay all amounts to which the Secured Party is legally entitled, the Borrower shall be liable for the deficiency, together with interest thereon as provided in the governing Loan Documents or (if no interest is so provided) at such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees of any attorneys employed by the Secured Party to collect such deficiency.

 

  

15

  

 

Section 5.7. Collection.  Upon receipt of notice from the Secured Party, each obligor with respect to any payments on any of the Collateral (including, without limitation, insurance proceeds payable by reason of loss or damage to any of the Collateral) is hereby authorized and directed by the Debtor to make payment directly to the Secured Party.  The Debtor hereby authorizes the Secured Party, in its own name or in the name of the Debtor, to compromise or extend time of payment with respect to any of the Collateral for such amounts and upon such terms as the Secured Party may determine; to demand, collect, receive, receipt for, sue for, compound and give acquittances for any and all amounts due or to become due with respect to any Collateral; to take control of cash and other proceeds of any Collateral; to endorse the name of the Debtor on any notes, acceptances, checks, drafts, money orders or other evidences of payment on any Collateral that may come into possession of the Secured Party; to sign the name of the Debtor on any invoice or bill of lading relating to any Collateral, on any drafts against obligors or other Persons making payment with respect to Collateral, on assignments and verifications of accounts or other Collateral and on notices to obligors required to make payment with respect to Collateral; to send requests for verification of obligations to any obligor; and to do all other acts deemed necessary or proper by the Secured Party.  If any obligor fails or refuses to make payment on any of the Collateral when due, the Secured Party is hereby authorized, either in its own name or in the name of the Debtor, to take such action as the Secured Party deems appropriate, in its sole discretion, for the collection of any amounts owed with respect to Collateral or upon which a delinquency exists; provided that the Secured Party shall never be liable for its failure to collect, or for its failure to exercise diligence in the collection of, any amounts owed with respect to any Collateral, and the Secured Party shall not be under any duty to anyone (except the Debtor to account for the funds that it shall actually receive hereunder.  The rights granted the Secured Party under this Section may be exercised at any time, whether or not a Default has occurred.

 

Section 5.8. Use and Operation of Collateral.  Should any Collateral come into the possession of the Secured Party, the Secured Party may use or operate such Collateral for the purpose of preserving it or its value.  The Debtor shall promptly reimburse the Secured Party for all reasonable expenses, costs, taxes and other charges incurred by the Secured Party in connection with its custody and preservation of the Collateral, and all such expenses, costs, taxes and other charges shall bear interest at the rate specified in the Notes until repaid and, together with such interest, shall be payable by the Debtor to the Secured Party upon demand; provided that the risk of accidental loss or damage to, or diminution in value of, the Collateral is on the Debtor, and the Secured Party shall have no liability for the failure to obtain or maintain Insurance, or to determine whether any Insurance ever in force is adequate as to amount or as to the risks insured.  The Secured Party shall have no duty to use diligence to collect any amount payable in respect of the Collateral, but shall be liable only to account to the Debtor for what it may actually collect or receive thereon.  The provisions of this Section shall be applicable whether or not a Default has occurred.

 

Section 5.9. Purchase Money Collateral.  To the extent that the Secured Party has advanced or will advance funds to or for the account of the Debtor to enable the Debtor to purchase or otherwise acquire rights in any Collateral, the Secured Party, at its option, may pay such funds (a) directly to the Person for whom the Debtor will make such purchase or acquire such rights, or (b) to the Debtor, in which case the Debtor covenants to promptly pay the same to such Person, and, upon request, furnish to the Secured Party evidence satisfactory to the Secured Party that such payment has been made from the funds so provided by the Secured Party for such payment.

 

Section 5.10. Indemnification.  The Debtor hereby assumes all liability for the Collateral and for any use, possession, maintenance and management of all or any of the Collateral, including, without limitation, any taxes arising as a result of, or in connection with the transactions contemplated herein, and agrees to assume liability for all claims, causes of action or liability for injuries to or deaths of Persons and damage to property, however arising in connection with such use, possession, maintenance and management, whether such Persons be agents or employees of the Debtor or of others, or such damage be to property of the Debtor or of others.  To the fullest extend permitted by applicable law, the Debtor agrees to indemnify, save and hold the Secured Party harmless on a current basis from and against, and covenants to defend the Secured Party against, all losses, damages, claims, costs, penalties, liabilities and expenses, including, without limitation, court costs and attorneys’ fees, however arising or incurred, in connection with the Collateral or any use, possession, maintenance or management thereof INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING CAUSED BY THE SOLE, CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE SECURED PARTY but not the gross negligence or willful misconduct of any Person seeking indemnification under this Section.

 

Section 5.11. Right of Entry.  In addition to all other remedies available to the Secured Party upon the occurrence and continuance of a Default, the Secured Party shall have the right to enter upon the premises where any of the Collateral is located, take possession of such Collateral and remove the same with or without judicial process (if such taking without judicial process can be done reasonably and without breach of the peace).  The Debtor hereby expressly waives the right to any notice, legal process or judicial hearing prior to such taking of possession by the Secured Party.  The Debtor understands that the right to prior notice and hearing is a valuable right and agrees to the waiver thereof as a part of the consideration for and as an inducement to the Secured Party to extend credit now and hereafter in connection with the Secured Obligation.

 

  

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ARTICLE VI

 

THE SECURED PARTY

 

Section 6.1. No Liability of Secured Party.  Neither the acceptance of this Agreement by the Secured Party, nor the exercise of any rights hereunder by the Secured Party, shall be construed in any way as an assumption by the Secured Party of any obligations, responsibilities or duties of the Debtor arising in connection with the Collateral or otherwise bind the Secured Party to the performance of any obligations of the Debtor respecting the Collateral.  The Secured Party shall not be obligated to perform, observe or discharge any obligation, responsibility, duty or liability of the Debtor in respect of any of the Collateral, including, without limitation, appearing in or defending any action, expending any money or incurring any expense in connection therewith.

 

Section 6.2. Right of Secured Party to Defend Actions.  The Secured Party may, at the Debtor’s expense, appear in and defend any action or proceeding at law or in equity purporting to affect the Secured Party’s Security Interests under this Agreement.

 

Section 6.3. Right of Secured Party to Prevent or Remedy Default.  If the Debtor fails to perform any covenant or agreement required to be performed and observed by the Debtor under the Loan Documents or in respect of the Collateral, the Secured Party may itself perform or cause the performance of any such covenant or agreement or take any action the Secured Party deems necessary or desirable to prevent or remedy any such failure to perform by the Debtor or otherwise to protect the Security Interests and the Secured Party may advance or expend such sums of money for the account of the Debtor as the Secured Party in its sole discretion deems necessary for any such purpose.  In no event, however, shall the Secured Party have any obligation or duty whatsoever to perform any covenant or agreement of the Debtor contained herein, and any such performance by the Secured Party shall be wholly discretionary with the Secured Party and shall not constitute a waiver of the Secured Party’s  right to refrain from such performance thereafter.

 

Section 6.4. Secured Party’s Expenses.  The Debtor will promptly upon demand pay to the Secured Party:

 

6.4.1. The amount of any taxes which the Secured Party may have been required to pay by reason of the Security Interests (including any applicable transfer taxes) or to free any of the Collateral from any Lien thereon.

 

6.4.2. The amount of any and all reasonable out-of-pocket expenses, including, without limitation, the reasonable fees and disbursements of counsel and of any agents or experts, which the Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the collection, sale or other disposition of any of the Collateral, (iii) the exercise by the Secured Party of any of the rights conferred upon it hereunder or (iv) any Default on the part of the Debtor hereunder.

 

Section 6.5. No Waiver.  If the Secured Party shall have proceeded to enforce any right or remedy hereunder and such proceeding shall have been discontinued or abandoned for any reason, then in every such case, the Debtor and the Secured Party shall be restored to their former positions and rights hereunder with respect to the Collateral, and all rights, remedies and powers of the Secured Party shall continue as if no such proceeding had been taken.  No failure or delay on the part of the Secured Party in exercising, and no course of dealing with respect to, any right under this Agreement or in insisting upon strict performance by the Debtor hereunder or in giving notice hereunder shall operate as a waiver of the same or any other right, and no single or partial exercise of any such right shall preclude any other or further exercise thereof or the exercise of any other such right.  The Secured Party, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by the Debtor of any and all of the terms and conditions of this Agreement to be performed by the Debtor.  The collection and application of proceeds and the exercise of the rights of the Secured Party contained in the Loan Documents, including this Agreement, shall not cure or waive any Default, or affect any notice of Default, or invalidate any acts done pursuant to such notice.  No waiver by the Secured Party of any Default by the Debtor hereunder shall be deemed to alter or affect the Secured Party’s rights hereunder with respect to any prior or subsequent Default.

 

  

17

  

 

Section 6.6. Remedies.  No right or remedy herein reserved to the Secured Party is intended to be exclusive of any other right or remedy, but each and every such right or remedy shall be cumulative of and in addition to all other rights and remedies given under this Agreement, the other Loan Documents or law.  Any and all of the Secured Party’s rights and remedies may be exercised from time to time and as often as such exercise is deemed necessary or desirable by the Secured Party.

 

Section 6.7. Actions Not Releases.  The Security Interests and the Debtor’s obligations and the rights of the Secured Party hereunder shall not be released, diminished or affected for any reason, including, without limitation, the occurrence of any one or more of the following events:

 

6.7.1. The taking or accepting of any other security or assurance for any or all of the Secured Obligation.

 

6.7.2. Any release, surrender, exchange, subordination, nonperfection or loss of any other security or assurance at any time existing in connection with any or all of the Secured Obligation.

 

6.7.3. The modification of, amendment to, or waiver of compliance with, any of the terms of any documents executed by any Person (other than the Debtor) relating to the Secured Obligations without the notification or consent of the Debtor (any right to such notification or consent being hereby specifically waived by the Debtor).

 

6.7.4. The insolvency, bankruptcy or lack of corporate or trust power of any Person at any time liable for the payment of any or all of the Secured Obligation, whether now existing or hereafter occurring.

 

6.7.5. Any renewal, extension or rearrangement of the payment of any or all of the Secured Obligation, either with or without notice to or consent of the Debtor, or any adjustment, indulgence, forbearance or compromise that may be granted or given by the Secured Party to any Person at any time obligated for the payment of any or all of the Secured Obligation.

 

6.7.6. Any neglect, delay, omission, failure or refusal of the Secured Party to take or prosecute any action in connection with any other agreement, document, guaranty or instrument evidencing, securing or assuring the payment of all or any of the Secured Obligation.

 

6.7.7. Any failure of the Secured Party to notify the Debtor of any renewal, extension or assignment of the Secured Obligation or any part thereof, or the release of any security, or of any other action taken or refrained from being taken by the Secured Party against any Person or any new agreement among the Secured Party and any Person, it being understood that the Secured Party shall not be required to give any Person any notice of any kind under any circumstances whatsoever with respect to or in connection with the Secured Obligation, including, without limitation, notice of acceptance of this Agreement or any Collateral ever delivered to or for the account of the Secured Party.

 

6.7.8. The illegality, invalidity or unenforceability of all or any part of the Secured Obligation against any Person obligated with respect thereto by reason of the fact that the Secured Obligation, or the interest paid or payable with respect thereto, exceeds the amount permitted by applicable law, the act of creating the Secured Obligation, or any part thereof, is ultra vires, or the officers or trustees creating the same acted in excess of their authority, or for any other reason.

 

6.7.9. Any payment by any Person obligated with respect thereto is held to constitute a preference under applicable laws or if for any other reason the Secured Party is required to refund such payment or pay the amount thereof to any other Person.

 

  

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ARTICLE VII

 

MISCELLANEOUS

 

Section 7.1. Terms Commercially Reasonable.  The terms of this Agreement shall be deemed commercially reasonable within the meaning of the Code in effect and applicable hereto.

 

Section 7.2. Amendment.  No change, amendment, modification, cancellation or discharge of any provision of this Agreement shall be valid unless consented to in writing by the party against whom enforcement is sought.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy, e-mail, facsimile or other electronic means shall be effective as a delivery of a manually executed counterpart of this Agreement.

 

Section 7.3. Parties in Interest.  As and when used herein, the term “Debtor” shall mean and include the Debtor herein named and its successors and permitted assigns, and the term “Secured Party” shall mean and include the Secured Party herein named and its successors and assigns, and all covenants and agreements herein shall be binding upon and inure to the benefit of the Debtor and the Secured Party and their respective successors and assigns; provided that the Debtor shall have no right to assign the Debtor’s rights or duties hereunder to any Person without the prior written consent of the Secured Party.  The Secured Party shall have the right to assign all or any portion of its rights in this Agreement to any owner or holder of the Secured Obligation or any portion thereof.

 

Section 7.4. Applicable Law. This Agreement has been negotiated, is being executed and delivered, and will be performed in whole or in part, in the State of Texas.  This Agreement, the other Loan Documents, the entire relationship of the parties hereto, and any litigation between the parties (whether grounded in contract, tort, statute, law or equity) shall be governed by, construed in accordance with, and interpreted and enforced pursuant to the laws of the State of Texas (and the applicable federal laws of the United States of America) without giving effect to its choice of law principles, except to the extent the laws of any jurisdiction where Collateral is located require application of such laws with respect to such Collateral.

 

Section 7.5. Notices.  All notices, requests and other communications to any party hereunder shall be in writing (including facsimile or similar writing) and shall be given to such party at its address or facsimile number (if any) set forth below or such other address or facsimile number as such party may hereafter specify for the purpose by notice to the Secured Party and the Debtor.  Each such notice, request or other communication shall be effective (a) if given by electronic means, when a facsimile is transmitted to the facsimile number specified in this Section and the receipt thereof is acknowledged, (b) if given by mail, 72 hours after such communication is deposited in the mails (certified, return receipt requested), addressed as aforesaid or (c) if given by any other means, when delivered at the address specified in this Section or, in the case of Debtor, when otherwise delivered to the Debtor or any officer of the Debtor:

 

	
          If to the Debtor:

	
Starboard Resources, Inc. 

300 E. Sonterra, Suite 1220

San Antonio, Texas  78258

Attention:  Michael J. Pawelek

Facsimile Number:  210/999-5401

 

	
          If to the Secured Party:

	
Independent Bank 

2101 Cedar Springs Road, Suite 725

Dallas, Texas 75201

Attention: Energy Lending

Facsimile Number:  214/740-9400

 

Such addresses may be changed from time to time by serving notice as provided above.

 

  

19

  

 

Section 7.6. Survival. All representations, warranties and covenants made by the Debtor herein shall be considered to have been relied upon by the Secured Party and shall survive the execution and delivery to the Secured Party of this Agreement, regardless of any investigation made by or on behalf of the Secured Party.

 

Section 7.7. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable, this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by such illegal, invalid or unenforceable provision or by its severance herefrom.  Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.

 

Section 7.8. Financing Statement. The Secured Party shall be entitled at any time to file a photographic or other reproduction of this Agreement as a financing statement or to complete and file a financing statement covering the Collateral.

 

Section 7.9. Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same instrument, and in making proof of this Agreement it shall not be necessary to produce or account for more than one such counterpart.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy, e-mail, facsimile or other electronic means shall be effective as a delivery of a manually executed counterpart of this Agreement.

 

[Signature Page follows]

 

  

20

  

 

IN WITNESS WHEREOF, the Debtor has executed this Agreement as of the day and year first above written.

 

	 	

DEBTOR:

	 
	 	 	 
	 	Starboard Resources, Inc.	 
	 	 	 
	
 

	
By: 

	/s/ 	 
	 	 	Name: Michael J. Pawelek	 
	 	 	Title: Chief Executive Officer	 

 

 

  

21

  

 

SCHEDULE 3.1.3

 

DEBTOR ORGANIZATIONAL MATTERS

 

Type of Organization:  Corporation

 

Jurisdiction of Organization:  Delaware

 

Organizational Identification Number:  4991392

 

 

 

 

 

 

  

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SCHEDULE 3.1.4

 

DEBTOR NAMES

 

 

Exact Legal Name:  Starboard Resources, Inc.

 

Other names used during prior 5 years:  Starboard Resources, LLC

 

Other information required by Sections 3.1.4 and 3.1.5:  None

 

 

 

 

  

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SCHEDULE 3.1.6

 

PLEDGED EQUITY INTERESTS

 

Pledged Stock:

 

	
Grantor

	
Stock Issuer

	
Class of Stock

	
Certificated (Y/N)

	
Stock Cert. No.

	
Par Value

	
No. of Pledged Shares

	
% of Outstanding Stock of the Stock Issuer

	  	  	  	  	  	  	  	  
	  	  	  	  	  	  	  	  
	  	  	  	  	  	  	  	  

 

Pledged LLC Interests:

 

	
Grantor

	
Limited Liability Company

	
Certificated (Y/N)

	
Certificate No. (if any)

	
No. of Pledged Units

	
% of Outstanding LLC Interests of the Limited Liability Company

	
Starboard Resources, Inc.

	
ImPetro Resources, LLC

	  	  	  	  

 

  

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Pledged Partnership Interests:

 

	
Grantor

	
Limited Partnership

	
Certificated (Y/N)

	
Certificate No. (if any)

	
No. of Pledged Units

	
% of Outstanding Partnership Interests of the Limited Partnership

	  	  	  	  	  	  
	  	  	  	  	  	  
	  	  	  	  	  	  

 

Pledged Trust Interests:  ______.

 

Securities Accounts:  _____.

 

Commodities Accounts:  ______.

 

Deposit Accounts:

 

	
Grantor

	
Name of Depositary Bank

	
Account Number

	
Account Name

	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  
	  	  	  	  

 

  

25

  

SCHEDULE 3.1.16

 

EXCLUDED COLLATERAL

 

NONE.

 

 

 

 

 

 

 

 

Schedule 3.1.16 to Security Agreement

(Starboard Resources, Inc.)

 

26star_ex10503.htm

Exhibit 10.5.03

 

NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OR ALL OF THE FOLLOWING INFORMATION FROM ANY INSTRUMENT THAT TRANSFERS AN INTEREST IN REAL PROPERTY BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS:  YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S LICENSE NUMBER.

 

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FIXTURE FILING AND FINANCING STATEMENT

 

(Texas Oil and Gas Properties)

 

FROM

 

STARBOARD RESOURCES, INC., Mortgagor

 

(Charter/File No. 4991392)

 

TO

 

John E. Davis, Trustee

 

AND

 

INDEPENDENT BANK, Mortgagee

 

Dated as of June 27, 2013

 

 

A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE.  A POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS MORTGAGE.

 

THIS INSTRUMENT IS A MORTGAGE OF BOTH REAL AND PERSONAL PROPERTY AND IS, AMONG OTHER THINGS, A MORTGAGE OF CHATTELS, A SECURITY AGREEMENT, A FIXTURE FILING AND A FINANCING STATEMENT.

 

“THIS INSTRUMENT CONTAINS AFTER ACQUIRED PROPERTY PROVISIONS.”

 

“THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.”

 

THIS INSTRUMENT WAS PREPARED BY, AND RECORDED COUNTERPARTS SHOULD BE RETURNED TO:

 

JACKSON WALKER L.L.P.

901 Main Street, Suite 6000

Dallas, Texas 75202-3797

Attention:   Frank P. McEachern, Esq.

 

  

1

  

 

MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FIXTURE FILING AND FINANCING STATEMENT

 

THIS MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (the “Mortgage” or “Deed of Trust”) is from Starboard Resources, Inc., a Delaware corporation, as mortgagor, (the “Mortgagor” or “Grantor”), to John E. Davis of Dallas, Texas, as trustee, (“Trustee”), for the benefit of Mortgagee (hereinafter defined).  The addresses of the Mortgagor and the Mortgagee are set forth in Section 9.14 hereof.

 

ARTICLE I

 

DEFINITIONS

 

1.1. For all purposes of this Mortgage, unless the context otherwise requires:

 

“Accounts and Contract Rights” means all accounts (including accounts in the form of joint interest billings), contract rights and general intangibles of the Mortgagor now or hereafter existing, or hereafter acquired by, or on behalf of, the Mortgagor or the Mortgagor’s successors in interest, relating to the sale, purchase, exchange, transportation or processing of Hydrocarbons produced or to be produced from the Mortgaged Property, together with all accounts and proceeds accruing to the Mortgagor attributable to the sale of Hydrocarbons produced from the Mortgaged Property.

 

“As-Extracted Collateral” means Hydrocarbons which may be extracted from the Mortgaged Property, and the accounts relating thereto, which will be financed at the wellheads of the wells located on the Mortgaged Property and accounts arising out of the sale thereof.

 

“Borrower” means the Mortgagor.

 

“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in Dallas, Texas, are authorized or required by law to remain closed.

 

“Certificates of Ownership Interests” means the Certificates of Ownership Interests, if any, delivered by the Mortgagor in connection with the Credit Agreement.

 

“Code” means the Uniform Commercial Code as in effect in each of the jurisdictions where the Mortgaged Property is situated.

 

“Credit Agreement” means the Credit Agreement between the Borrower and the Lender pursuant to which one or more of the Notes were issued, as the Credit Agreement may be amended from time to time.

 

“Credit Parties” means INB and, for so long as the Hedge Intercreditor Agreement remains in effect and the Swap Counterparty remains a party thereto and entitled to the benefits conferred thereby, the Swap Counterparty, and “Credit Party” means either of them.

 

“Debtor” has the meaning given such term in Section 9.13 hereof.

 

“Effective Date” means the date on which this Mortgage is executed.

 

  

2

  

 

“Event of Default” has the meaning stated in Article VII of this Mortgage.

 

“Exhibit A” means, unless specifically indicated otherwise, Exhibit A attached hereto.

 

“Governmental Authority” means any nation, country, commonwealth, territory, government, state, county, parish, municipality, or other political subdivision and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government.

 

“Hedge Intercreditor Agreement” means each intercreditor agreement among the Borrower, one or more Approved Swap Counterparties and the Lender, as in effect from time to time and as any such intercreditor agreement is amended from time to time.

 

“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline and condensate and all other liquid or gaseous hydrocarbons.

 

“INB” means Independent Bank, a Texas banking association, its successors and assigns.

 

 “Lands” means the lands described in Exhibit A and includes any lands, the description of which is contained in Exhibit A or incorporated in or referred to in Exhibit A by reference to another instrument or document, including, without limitation, all lands described in the Oil and Gas Leases, and also includes any lands now or hereafter unitized, pooled, spaced, or otherwise combined, whether by statute, order, agreement, declaration or otherwise, with lands the description of which is contained in Exhibit A or is incorporated in Exhibit A by reference.

 

“Law” means at any time with respect to any Person or its Property, any statute, law, executive order, treaty, ordinance, order, writ, injunction, judgment, ruling, decree, regulation, or determination of an arbitrator, court or other Governmental Authority, existing at such time which are applicable to or binding upon such Person or such Property or to which such Person or such Property is subject.

 

“Lender” means INB.

 

“Loan Obligations” means the “Obligations,” as such term is defined in the Credit Agreement.

 

“Loan Papers” means the Notes, this Mortgage, the Credit Agreement and all other documents, instruments and agreements delivered to the Lender at any time in connection with the Credit Agreement, as any of the foregoing are amended, restated or supplemented, renewed or extended from time to time, but excluding any and all Hedge Intercreditor Agreements and the Second Lien Intercreditor Agreement.

 

“Mortgaged Property” has the meaning stated in Article II of this Mortgage.

 

“Mortgagee” means INB, as contractual representative for itself and the other Credit Parties.

 

“Net Revenue Interest” means Mortgagor’s share of the total production of oil, gas and other Hydrocarbons produced from the Lands, after deducting Mortgagor’s share of all lessors’ royalties, overriding royalties, production payments and other payments out of, or measured by, production.

 

  

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“Notes” means the promissory note or notes identified in Section 3.1.1 of this Mortgage, and all renewals, extensions, replacements and modifications thereof.

 

“Oil and Gas Leases” means, collectively, oil, gas and mineral leases, oil and gas leases, oil leases, gas leases, other mineral leases, subleases and assignments of operating rights pertaining to any of the foregoing, and all other interests pertaining to any of the foregoing, including, without limitation, all royalty and overriding royalty interests, production payments and net profit interests, mineral fee interests, and all contingent reversionary and carried interests relating to any of the foregoing and all other rights therein, which are described and/or to which reference may be made on Exhibit A and/or in any document or instrument referred to in Exhibit A and/or which cover or relate to any of the Lands.

 

“Operating Equipment” means all personal property and fixtures pertaining, affixed or incidental to, situated upon or used or useful in connection with all or any part of the Mortgaged Property, including, without limitation, all surface or subsurface machinery, equipment, facilities, or other personal property of whatsoever kind or nature (excluding drilling rigs, trucks, automotive equipment or other personal property taken to the premises to drill a well or for other similar temporary uses) now or hereafter located on any of the Lands which are useful for the production, treatment, storage, transportation or sale of oil or gas, including, but not by way of limitation, all oil wells, gas wells, water wells, injection wells, casing, tubing, rods, pumping units and engines, Christmas trees, derricks, separators, gun barrels, flow lines, tanks, gas systems, (for gathering, treating and compression), water systems (for treating, disposal and injection), power plants, poles, lines, transformers, starters and controllers, machine shops, tools, storage yards and equipment stored therein, buildings and camps, telegraph, telephone and other communication systems, roads, loading racks and shipping facilities.

 

“Person” means a natural person, a corporation, a partnership, a limited partnership, a limited liability company, an association, a joint venture, a trust or any other entity or organization including a government or political subdivision or any governmental agency or instrumentality thereof.

 

“Proceeds” has the meaning given such term in Section 5.1 hereof.

 

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible.

 

“Section” and “Article” mean and refer to a section or article of this Mortgage, unless specifically indicated otherwise.

 

“Secured Indebtedness” means all the indebtedness, obligations, and liabilities described or referred to in Section 3.1 of this Mortgage.

 

“Secured Party” has the meaning given such term in Section 9.13.1 hereof.

 

“Subject Interests” has the meaning stated in Article II of this Mortgage.

 

“Swap Counterparty” means, at any time, an Approved Swap Counterparty which is a party to a then-effective Hedge Intercreditor Agreement.

 

  

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“Swap Obligations” has the meaning given such term in any Hedge Intercreditor Agreement in effect at the time a determination is being made.

 

“Trustee” means the Trustee identified in the first paragraph of this Mortgage and any other person who may from time to time be serving as duly appointed substitute trustee hereunder.

 

“Well Data” means all logs, drilling reports, division orders, transfer orders, operating agreements, abstracts, title opinions, files, records, memoranda and other written or electronic information in the possession or control of the Mortgagor relating to any wells located on any of the Lands described in Exhibit A.

 

1.2. Other Defined Terms.  The capitalized terms used herein have the meanings assigned to them in the Credit Agreement, unless they are otherwise defined herein or the context otherwise requires.

 

ARTICLE II

 

GRANTING CLAUSE - MORTGAGED PROPERTY

 

2.1. The Mortgagor, for and in consideration of the premises and of the Secured Indebtedness hereinafter defined, has GRANTED, BARGAINED, SOLD, WARRANTED, MORTGAGED, PLEDGED, ASSIGNED, TRANSFERRED and CONVEYED, and by these presents does GRANT, BARGAIN, SELL, WARRANT, MORTGAGE, PLEDGE, ASSIGN, TRANSFER and CONVEY, unto the Trustee and to the Trustee’s substitutes and successors in this trust, with power of sale, for the benefit of the Mortgagee, or, if the provisions of Section 9.5 hereof are applicable, unto the Mortgagee with power of sale, all the Mortgagor’s right, title and interest, whether now owned or hereafter acquired, in all of the hereinafter described properties, rights and interests; and, insofar as such properties, rights and interests consist of equipment, general intangibles, accounts, contract rights, inventory, fixtures, proceeds and products of collateral or any other personal property of a kind or character defined in or subject to the applicable provisions of the Code, the Mortgagor hereby grants to the Mortgagee a security interest therein, whether now owned or hereafter acquired, namely:

 

2.1.1. All of those certain Oil and Gas Leases, Lands, minerals, interests, and other properties (all such Oil and Gas Leases, Lands, interests and other properties being herein called the “Subject Interests”, as hereinafter further defined) which are described on Exhibit A and/or to which reference may be made on Exhibit A and/or which cover any of the Lands described on Exhibit A and/or which are located in or under any of the Lands described on Exhibit A and/or which are covered by any of the leases, assignments or documents described on or referred to in any document or instrument referred to in Exhibit A, which Exhibit A is made a part of this Mortgage for all purposes, and is incorporated herein by reference as fully as if copied at length in the body of this Mortgage at this point;

 

2.1.2. All rights, titles, interests, and estates now owned or hereafter acquired by the Mortgagor in and to (i) any and all properties now or hereafter pooled or unitized with any of the Subject Interests, and (ii) all presently existing or future unitization, communitization, and pooling agreements and the units created thereby which include all or any part of the Subject Interests, including, without limitation, all units formed under or pursuant to any Law. The rights, titles, interests, and estates described in this Section 2.1.2 shall also be included within the term “Subject Interests” as used herein.

 

  

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2.1.3. All presently existing and future agreements hereafter entered into between the Mortgagor and any third party that provide for acquisition by the Mortgagor of any interest in any of the properties or interests specifically described in Exhibit A or which relate to any of the properties and interests specifically described in Exhibit A;

 

2.1.4. The Hydrocarbons (including inventory) which are in, under, upon, produced or to be produced from or attributable to the Lands and/or the Subject Interests;

 

2.1.5. The Accounts and Contract Rights;

 

2.1.6. The As-Extracted Collateral;

 

2.1.7. The Operating Equipment;

 

2.1.8. The Well Data;

 

2.1.9. The rights and security interests of the Mortgagor held by the Mortgagor to secure the obligation of the first purchaser to pay the purchase price of the Hydrocarbons, including, without limitation, those accruing to the Mortgagor pursuant to Section 9.343 of the Code as enacted in Texas as the Business and Commerce Code together with any and all accounts, proceeds, substitutions, replacements, corrections or amendments to, or renewals, extensions or ratifications of, any of the foregoing, or of any instrument relating thereto;

 

2.1.10. All surface leases, rights-of-way, franchises, easements, servitudes, licenses, privileges, tenements, hereditaments and appurtenances now existing or in the future obtained in connection with any of the aforesaid, and all other things of value and incident thereto which the Mortgagor may at any time have or be entitled to; and

 

2.1.11. All and any different and additional rights of any nature, of value or convenience in the enjoyment, development, operation or production, in any wise, of any Property or interest included in any of the foregoing clauses, and in all revenues, income, rents, issues, profits and other benefits arising therefrom or from any contract now in existence or hereafter entered into pertaining thereto, and in all rights and claims accrued or to accrue for the removal by anyone of oil and gas from, or other act causing damage to, any of such properties or interests;

 

all the aforesaid properties, rights and interests, together with any additions thereto which may be subjected to the lien of this Mortgage by means of supplements hereto, being hereinafter called the “Mortgaged Property”; subject, however, to (i) the restrictions, exceptions, reservations, conditions, limitations, interests and other matters, if any, set forth or referred to in the specific descriptions of such properties and interests in Exhibit A (including all presently existing royalties, overriding royalties, payments out of production and other burdens which are referred to in Exhibit A and which are taken into consideration in computing the decimal or fractional interest as set forth in the Certificates of Ownership Interests); (ii) any operator’s lien arising by operation of applicable Law (or pursuant to the provisions of an operating agreement designating a Person other than the Mortgagor as operator) which has been perfected under applicable Law prior to the date of this Mortgage or of which the Mortgagee has constructive or actual notice as of the date hereof; (iii) the assignment of production contained in Article V hereof; and (iv) the condition that neither the Trustee nor the Mortgagee shall be liable in any respect for the performance of any covenant or obligation of the Mortgagor with respect to the Mortgaged Property;

 

  

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TO HAVE AND TO HOLD the Mortgaged Property unto the Trustee, his successors and substitutes in this trust, forever, for the benefit of the Mortgagee, or, if the provisions of Section 9.5 hereof are applicable, unto Mortgagee, its successors and assigns, forever, to secure the payment of the Secured Indebtedness and to secure the performance of the obligations of the Mortgagor contained herein.

 

ARTICLE III

 

INDEBTEDNESS SECURED

 

3.1. Notes and Secured Indebtedness. This Mortgage is given to secure the following indebtedness, obligations and liabilities:

 

3.1.1. The Loan Obligations, as evidenced in part by those certain promissory notes (together with all renewals, extensions, and modifications thereof) executed by the Borrower and payable to the order of the Lender in the aggregate original principal amount of up to $100,000,000.00, which notes bear interest as provided therein and contain provisions for payment of attorneys’ fees as therein set forth;

 

3.1.2. The Swap Obligations, including, without limitation, the indebtedness and obligations of the Borrower to each Swap Counterparty with respect to Acceptable Commodity Hedging Transactions for so long as a Hedge Intercreditor Agreement is in effect and such Swap Counterparty is party thereto and entitled to the benefits conferred thereby;

 

3.1.3. Any sums advanced as expenses or costs incurred by, or on behalf of, the Mortgagee (or any receiver appointed hereunder) which are made or incurred pursuant to, or permitted by, the terms of this Mortgage or the other Loan Papers, plus interest thereon at the rate herein specified or otherwise agreed upon, from the date of advance or expenditure until reimbursed; and

 

3.1.4. All other and additional debts, obligations and liabilities of every kind and character of the Mortgagor now or hereafter owed to the Lender, regardless of whether such debts, obligations and liabilities are specifically listed and described above or are direct or indirect, primary or secondary, joint, several, or joint and several, fixed or contingent, and whether incurred by the Mortgagor as a maker, endorser, guarantor, surety or otherwise, and regardless of whether such present or future debts, obligations and liabilities may, prior to their acquisition by the Lender, be or have been payable to, or be or have been in favor of, some other Person or have been acquired by the Lender in a transaction with one other than the Mortgagor, together with any and all renewals and extensions of such debts, obligations and liabilities, or any part thereof (it being contemplated that the Lender may in the future lend additional sums of money to the Mortgagor, from time to time, but shall not be obligated to do so, and that all such additional sums and loans shall be part of the Secured Indebtedness.

 

3.2. Final Maturity.  Unless earlier payment is required by the terms of the Notes or the Credit Agreement (including earlier payment as a result of the acceleration of payment of the Notes or amounts owed pursuant to the Credit Agreement), the Notes and amounts owed under the Credit Agreement shall mature ten years following the date of this Mortgage or, if such due date can be extended under applicable Law without filing an amendment to this Mortgage, such later date as is specified (by amendment or otherwise) in the Notes or Credit Agreement.

 

  

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ARTICLE IV

 

COVENANTS, REPRESENTATIONS, WARRANTIES

AND AGREEMENTS OF MORTGAGOR

 

The Mortgagor covenants, represents, warrants, and agrees that:

 

4.1. Payment of Secured Indebtedness. The Mortgagor will duly and punctually pay or cause to be paid all of the Secured Indebtedness.

 

4.2. Warranties. (a) The Oil and Gas Leases are valid, subsisting leases, superior and paramount to all other oil and gas leases respecting the properties to which they pertain; (b) the Mortgagor owns an interest in the oil and gas leases and properties described in Exhibit A hereto and, to the extent of the interest specified in the Certificates of Ownership Interests, has valid and defensible title to each property right or interest constituting the Mortgaged Property and has a good and legal right to make the grant and conveyance made in this Mortgage, it being understood that the Mortgagor’s interest in each Oil and Gas Lease or Operating Equipment shall exceed Mortgagor’s Net Revenue Interest in production from such Oil and Gas Lease to the extent of the Mortgagor’s proportionate share of all royalties, overriding royalties, and other such payments out of production burdening the Mortgagor’s interest in each such Oil and Gas Lease; (c) the Mortgagor’s present Net Revenue Interest in the Mortgaged Property is not less than that specified in the Certificates of Ownership Interests; (d) the Mortgaged Property is free from all encumbrances or liens whatsoever, except as may be specifically set forth in Exhibit A or as permitted by the provisions of Section 4.5.6; and (e) the Mortgagor is not obligated, by virtue of any deficiency presently existing under any contract providing for the sale by the Mortgagor of Hydrocarbons which contains a “take or pay” clause or under any similar arrangement, to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor. The Mortgagor will warrant and forever defend the Mortgaged Property unto the Trustee and the Trustee’s successors or substitutes hereunder, for the benefit of the Mortgagee (or, if the provisions of Section 9.5 hereof are applicable, unto the Mortgagee, its successors and assigns) against every Person whomsoever lawfully claiming the same or any part thereof, and the Mortgagor will maintain and preserve the lien and security interest hereby created so long as any of the Secured Indebtedness remains unpaid.

 

4.3. Further Assurances. The Mortgagor will execute and deliver such other and further instruments and will do such other and further acts as in the opinion of the Trustee or the Mortgagee may be necessary or desirable to carry out more effectively the purposes of this Mortgage.

 

4.4. Taxes. Subject to the Mortgagor’s right to contest the same in good faith and by appropriate proceedings, the Mortgagor will promptly pay all taxes, assessments and governmental charges legally imposed upon this Mortgage or upon the Mortgaged Property or upon the interest of the Trustee or the Mortgagee therein, or upon the income, profits, proceeds and other revenues thereof; provided that, in the alternative, the Mortgagor may, in the event of the enactment of such a Law, and must, if it is unlawful for the Mortgagor to pay such taxes, prepay that portion of the Secured Indebtedness which the Mortgagee in good faith determines is secured by Property covered by such Law within 60 days after demand therefor by the Mortgagee.

 

  

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4.5. Operation of the Mortgaged Property. So long as the Secured Indebtedness or any part thereof remains unpaid, and whether or not the Mortgagor is the operator of the Mortgaged Property, the Mortgagor shall, at the Mortgagor’s own expense and subject to the terms of the Loan Papers:

 

4.5.1. Maintain, develop and operate the Subject Interests in a good and workmanlike manner and will observe and comply with all of the terms and provisions, express or implied, of the Oil and Gas Leases in order to keep the Oil and Gas Leases in full force and effect so long as the Oil and Gas Leases are capable of producing Hydrocarbons in commercial quantities;

 

4.5.2. Comply in all material respects with all contracts and agreements applicable to or relating to the Mortgaged Property or the production and sale of Hydrocarbons therefrom and all applicable proration and conservation Law of the jurisdictions in which the Mortgaged Property is located, and all applicable Law, rules and regulations of every agency and authority from time to time constituted to regulate the development and operation of the Mortgaged Property and the production and sale of Hydrocarbons therefrom;

 

4.5.3. Commence such development as may be reasonably necessary to the prudent and economical operation of the Mortgaged Property, including such work as may be appropriate to protect the Mortgaged Property from diminution in the production capacity thereof and against drainage of Hydrocarbons thereunder by reason of production on other Property;

 

4.5.4. At all times, maintain, preserve and keep all Operating Equipment in proper repair, working order and condition, and make all necessary or appropriate repairs, renewals, replacements, additions and improvements thereto, so that the efficiency of such Operating Equipment shall at all times be properly preserved and maintained, provided that no item of Operating Equipment need be so repaired, renewed, replaced, added to or improved, if the Mortgagor shall in good faith determine that such action is not necessary or desirable for the continued efficient and profitable operation of the business of the Mortgagor, and that the failure to take such action will not prejudice the interests of the Mortgagee;

 

4.5.5.  Not abandon or cease developing, maintaining, operating and producing Hydrocarbons from, or cause or permit its agent to abandon, cease developing, maintaining, operating, and producing Hydrocarbons from, any producing Mortgaged Property without first having undertaken and completed all reasonably prudent measures under the circumstances to restore such producing Mortgaged Property to economic production, and then only if the aggregate projected future ad valorem and severance taxes and operating expenses with respect to said Mortgaged Property exceed the projected future gross revenues attributable thereto;

 

4.5.6. Cause the Mortgaged Property to be kept free and clear of all liens, security interests, charges and encumbrances of every character, other than (i) Permitted Liens and (ii) those hereafter consented to in writing by the Mortgagee; provided, that no intention to subordinate the first priority liens, security interests, and encumbrances granted in favor of the Mortgagee is hereby implied or expressed or is to be inferred by the permitted existence of the liens, security interests and encumbrances referred to in this Section 4.5.6 or elsewhere herein;

 

  

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4.5.7. Maintain or cause to be maintained insurance with such insurers, in such amounts and covering such risks as is required by the Credit Agreement; and

 

4.5.8. Not sell, convey, trade, exchange, pool or unitize any portion of the Mortgaged Property or any of Mortgagor’s rights, titles, or interests therein or thereto, except as specifically provided otherwise herein;

 

provided, however, that with respect to Mortgaged Property which is operated by operators other than the Mortgagor, the Mortgagor shall not be obligated itself to perform any undertakings contemplated by the covenants and agreements contained herein which are performable only by such operators and are beyond the control of the Mortgagor; and provided further, that the Mortgagor agrees to promptly take all actions available to the Mortgagor under any operating agreement or otherwise to bring about the performance of any such undertaking required to be performed by such operators.

 

4.6. Recording. The Mortgagor will promptly and at the Mortgagor’s expense, record, register, deposit and file this Mortgage and every other instrument in addition or supplemental hereto in such offices and places and at such times and as often as may be necessary to preserve, protect and renew the lien and security interest hereof as a first lien and security interest on real or personal property, as the case may be, and the rights and remedies of the Trustee and of the Mortgagee, and otherwise will do and perform all matters or things necessary or expedient to be done or observed by reason of any Law of any state or of the United States or of any other competent authority, for the purpose of effectively creating, maintaining and preserving the lien and security interest hereof on the Mortgaged Property.  In this connection and at the option of the Mortgagee but at the Mortgagor’s expense, the Mortgagee may record, register, deposit and file this Mortgage and supplements hereto.

 

4.7. Records, Statements and Reports. The Mortgagor will keep proper books of record and account in which complete correct entries will be made of the Mortgagor’s transactions in accordance with sound accounting principles consistently applied and will furnish or cause to be furnished to the Mortgagee (a) all reports required under the Loan Papers and (b) such other information concerning the business and affairs and financial condition of the Mortgagor as the Mortgagee may from time to time reasonably request.

 

4.8. No Governmental Approvals. The Mortgagor warrants that no approval or consent of any regulatory or administrative commission or authority, or of any other governmental body, is necessary to authorize the execution and delivery of this instrument, or any of the other Loan Papers or the Notes, or to authorize the observance or performance by the Mortgagor of the covenants herein or therein contained.

 

4.9. Right of Entry. The Mortgagor will permit the Trustee or the Mortgagee, or the agents or designated representatives of either of them, to enter upon the Mortgaged Property, and all parts thereof, for the purpose of investigating and inspecting the condition and operation thereof.

 

  

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4.10. Flood Insurance Regulation.  Notwithstanding any provision in this Mortgage to the contrary, in no event is any Building (as defined in the applicable Flood Insurance Regulation) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulation) located on the Mortgaged Property within an area having special flood hazards and in which flood insurance is available under the National Flood Insurance Act of 1968 included in the definition of “Mortgaged Property” and no Building or Manufactured (Mobile) Home is hereby encumbered by this Mortgage. As used herein, “Flood Insurance Regulations” shall mean (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statue thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et seq.), as the same may be amended or recodified from time to time, and (iv) the Flood Insurance Reform Act of 2004 and any regulations promulgated thereunder.

 

ARTICLE V

 

ASSIGNMENT OF PRODUCTION

 

5.1. Assignment. As further security for the payment of the Secured Indebtedness and performance of the obligations contained herein, the Mortgagor hereby transfers, assigns, warrants and conveys to the Mortgagee all Hydrocarbons, and the proceeds and products obtained or processed therefrom (such proceeds and products being in this Article V called “Proceeds”), produced and to be produced from, or which accrue by pooling, unitization or otherwise, to the Mortgaged Property, in order to provide a source of future payment of the Loan Obligations and the other Secured Indebtedness. All parties producing, purchasing or receiving any such Hydrocarbons, or having such, or Proceeds therefrom, in their possession for which they or others are accountable to the Mortgagee by virtue of the provisions of this Article V, are authorized and directed to treat and regard the Mortgagee as the assignee and transferee of the Mortgagor and entitled in the Mortgagor’s place and stead to receive such Hydrocarbons and all Proceeds therefrom; and such parties and each of them shall be fully protected in so treating and regarding the Mortgagee, and shall be under no obligation to see to the application by the Mortgagee of any such proceeds or payments received by the Mortgagee.

 

5.2. Payments. This Article V constitutes a present assignment effective as of the Effective Date, but in the event that the Mortgagee should elect not to exercise immediately its right to receive Hydrocarbons or Proceeds, then the purchasers or other persons obligated to make such payment may continue to make payment to Mortgagor until such time as written demand has been made upon them by the Mortgagee that payment be made directly to the Mortgagee. Such failure to notify shall not in any way waive the right of the Mortgagee to receive any payments not theretofore paid out to the Mortgagor before the giving of written notice. In the event payments are made directly to the Mortgagee, and then, at the request of the Mortgagee, payments are for a period or periods of time paid to the Mortgagor, the Mortgagee shall nevertheless have the continuing right, effective upon written notice, to require that future payments be again made to the Mortgagee.  The Mortgagor and the Mortgagee agree, and it is the intention of the Mortgagor and the Mortgagee, that in no event will any reduction in the Loan Obligations or the other Secured Indebtedness be measured by the fair market value of the Hydrocarbons, other minerals, proceeds, or other rents, profits, or income assigned to the Mortgagee under this instrument.

 

5.3. No Restriction on the Rights. Nothing herein contained shall detract from or limit the absolute obligation of the Mortgagor to make payment of the Secured Indebtedness regardless of whether the Hydrocarbons and Proceeds assigned by this Article V are sufficient to pay the same, and the rights under this Article V shall be in addition to all other security now or hereafter existing to secure the payment of the Secured Indebtedness.

 

5.4. Use of Proceeds. The Mortgagee or any receiver appointed in judicial proceedings for the enforcement of this Mortgage shall have the right to receive all of the Hydrocarbons herein assigned and the Proceeds therefrom and may, in the sole discretion of the Mortgagee (but subject to the terms of any then-effective Hedge Intercreditor Agreement and any mandatory requirements of Law), apply all of such Proceeds as follows or in such other order of priority as the Mortgagee may determine:

 

  

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First: To the payment and satisfaction of all costs and expenses incurred in connection with the collection of such Proceeds;

 

Second:  To the payment and satisfaction of (i) the Loan Obligations that constitute “Loan Obligations” as defined in any then-effective Hedge Intercreditor Agreement and (ii) the Swap Obligations, all in accordance with the Hedge Intercreditor Agreement, or if at the time of application there is no Hedge Intercreditor Agreement then in effect, then to the payment and satisfaction of the Loan Obligations (as defined herein);

 

Third: To the payment and satisfaction of the Obligations (as defined in the Credit Agreement but without duplication of payments);

 

Fourth: To the payment of any other amounts owed to INB; and

 

Fifth: Any surplus thereafter remaining shall be paid to the Mortgagor or the Mortgagor’s successors or assigns, as their interests may appear of record, or otherwise as required by Law.

 

Upon any sale of the Mortgaged Property or any part thereof pursuant to Article VIII, the Hydrocarbons thereafter produced from the Mortgaged Property so sold, and the Proceeds therefrom, shall be included in such sale and shall pass to the purchaser free and clear of the assignment contained in this Article V.

 

5.5. Mortgagee as Agent and Attorney-in-Fact. The Mortgagor hereby irrevocably designates and appoints the Mortgagee as the Mortgagor’s true and lawful agent and attorney-in-fact (with full power of substitution, either generally or for such limited periods or purposes as the Mortgagee may from time to time prescribe), with full power and authority, for and on behalf and in the name of the Mortgagor, to execute, acknowledge and deliver all such division orders, transfer orders, certificates and other documents of every nature, with such covenants, warranties, indemnities and other provisions as may from time to time, in the opinion of the Mortgagee, be necessary or proper to effectuate the intent and purpose of the assignment contained in Section 5.1 hereof. The Mortgagor shall be bound thereby as fully and effectively as if the Mortgagor had personally executed, acknowledged and delivered any such division order, transfer order, certificate and other documents. The powers and authorities herein conferred on the Mortgagee may be exercised by the Mortgagee through any person who, at the time of the execution of a particular instrument, is an officer of the Mortgagee. The power of attorney conferred by this Section 5.5 is granted for a valuable consideration and hence is coupled with an interest and is irrevocable so long as the Secured Indebtedness, or any part thereof, shall remain unpaid. All Persons dealing with the Mortgagee, or any officer thereof above designated, or any substitute, shall be fully protected in treating the powers and authorities conferred by this Section 5.5 as continuing in full force and effect until advised in writing by the Mortgagee that all the Secured Indebtedness is fully and finally paid.

 

  

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5.6. Indemnity. The Mortgagor agrees to indemnify the Mortgagee and the Trustee and each Credit Party on a current basis against all claims, actions, liabilities, judgments, costs, attorneys’ fees or other charges of whatsoever kind or nature INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING IN THIS SECTION ARISING FROM THE SOLE, COMPARATIVE, CONCURRENT OR CONTRIBUTORY NEGLIGENCE OF THE MORTGAGEE OR THE TRUSTEE OR ANY CREDIT PARTY (all hereinafter in this Section 5.6 called “claims”) made against or incurred by the Mortgagee or Trustee or any Credit Party as a consequence of the assertion, either before or after the payment in full of the Secured Indebtedness, that the Mortgagee or Trustee or any Credit Party received Hydrocarbons herein assigned or the proceeds thereof claimed by third persons, and each of the Mortgagee and Trustee shall have the right to defend against any such claims, employing attorneys therefor, and unless furnished with reasonable indemnity, the Mortgagee or Trustee, as applicable, shall have the right to pay or compromise and adjust all such claims against it, but the Trustee shall not have the power or authority, and shall not, compromise the rights of the Mortgagee.  The Mortgagor will indemnify and pay to the Mortgagee or Trustee or any Credit Party any and all such amounts as may be paid in respect thereof or as may be successfully adjudged against the Mortgagee or Trustee or any Credit Party.  The obligations of the Mortgagor as hereinabove set forth in this Section 5.6 shall survive the release of this instrument.

 

ARTICLE VI

 

ADDITIONS TO MORTGAGED PROPERTY; SUBROGATION

 

6.1. Additions to Mortgaged Property. It is understood and agreed that the Mortgagor may periodically subject additional properties to the lien and security interest of this Mortgage. In the event that additional properties are to be subjected to the lien and security interest hereof, the parties hereto agree to execute a supplemental mortgage, satisfactory in form and substance to the Mortgagee, together with any security agreement, financing statement or other security instrument required by the Mortgagee, all in form and substance satisfactory to the Mortgagee and in a sufficient number of executed (and, where necessary or appropriate, acknowledged) counterparts for recording purposes. Upon execution of such supplemental mortgage, all additional properties thereby subjected to the lien and security interest of this Mortgage shall become part of the Mortgaged Property for all purposes.

 

6.2. Subrogation.  To the extent that the proceeds of any Secured Indebtedness was or is used to pay any indebtedness or obligations secured by any lien, security interest, charge or prior encumbrance against the Mortgaged Properties and such proceeds have been or will be advanced by the Mortgagee or any Credit Party to the Mortgagor or to any other Person or taxing authority, then the Mortgagee shall be subrogated to any and all of such liens, security interests, charges or prior encumbrances, irrespective of whether such liens, security interests, charges or prior encumbrances are released (unless such release is executed by the Mortgagee).  In this connection but not in limitation of the foregoing, the initial amounts advanced by the Mortgagee will be used to refinance indebtedness and liens held by Mutual of Omaha Bank, and it is the intention of the parties that the Trustee be subrogated to such liens for the benefit of the Mortgagee (or if the provisions of Section 9.5 hereof are applicable, the Mortgagee shall be so subrogated), irrespective of any releases executed by Mutual of Omaha Bank.

 

ARTICLE VII

 

EVENTS OF DEFAULT

 

7.1. Events of Default. In case anyone or more of the following “Events of Default” has occurred and has not been waived by the Mortgagee:

 

  

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7.1.1. Any Event of Default (as defined in the Credit Agreement) or Triggering Event (as defined in any then-effective Hedge Intercreditor Agreement) shall have occurred and the cure period, if any, with respect thereto shall have elapsed; or

 

7.1.2. The failure of the Notes to be paid at the maturity thereof, whether stated or by acceleration..

 

ARTICLE VIII

 

ENFORCEMENT OF THE SECURITY

 

8.1. General Remedies. Upon the occurrence and during the continuance of an Event of Default, the Mortgagee may, at its sole option and discretion, subject to any mandatory requirements or limitations of Law then in force and applicable thereto:

 

8.1.1. Exercise all of the rights, remedies, powers and privileges of the Mortgagor with respect to the Mortgaged Property or any part thereof, give or withhold all consents required therein which the Mortgagor would otherwise be entitled to give or withhold, and perform or attempt to perform any covenants in this Mortgage which the Mortgagor is obligated to perform; provided that, no payment or performance by the Mortgagee shall constitute a waiver of any Event of Default, and the Mortgagee shall be subrogated to all rights and liens securing the payment of any debt, claim, tax, or assessment for the payment of which the Mortgagee may make an advance or pay;

 

8.1.2. Appoint as a matter of right, or seek the appointment of, a receiver or receivers to serve without bond for all or any part of the Mortgaged Property, whether such receivership be incident to a proposed sale thereof or otherwise, and the Mortgagor does hereby consent to the appointment of such receiver or receivers to serve without bond and does hereby agree not to oppose any application therefor by the Mortgagee and does hereby agree that there shall be no necessity of showing fraud, insolvency or mismanagement by the Mortgagor for the appointment of a receiver or receivers of the Mortgaged Properties;

 

8.1.3. Execute and deliver to such person or persons as may be designated by the Mortgagee appropriate powers of attorney to act for and on behalf of the Mortgagor in all transactions with any federal, state or local agency relating to any of the Mortgaged Property; and

 

8.1.4. Exercise any and all other rights or remedies granted to the Mortgagee pursuant to the provisions of any of the Loan Papers or by Law;

 

provided, that the Mortgagee shall have no obligation to do or refrain from doing any of the acts, or to make or refrain from making any payment, referred to in this Section 8.1.  Any receiver or receivers of the Mortgaged Property, or any portion thereof, shall serve without bond.

 

  

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8.2. Power of Sale; Abandonment of Sale. The Mortgagee may, where permitted by Law, request the Trustee to proceed with foreclosure, and in such event the Trustee is hereby authorized and empowered, and it shall be his special duty, upon such request of the Mortgagee, to sell the Mortgaged Property, or any part thereof, at public auction to the highest bidder or bidders for cash, at the courthouse door of the county (or judicial district thereof) in the State wherein the Lands then subject to the lien and security interest hereof are situated; provided that if the Lands are situated in more than one county (or judicial district thereof), and if permitted by applicable Law, such sale of the Mortgaged Property, or part thereof, may be made in any county in the State wherein any part of the Lands then subject to the lien and security interest hereof are situated. Any such sale shall be made at public outcry, on the day of any month, during the hours of such day, and after written notices thereof have been publicly posted in such places and for such time periods and all persons and entities entitled to notice thereof have received such notice, all as required by applicable Law.  The affidavit of any person having knowledge of the facts to the effect that such service of notice was completed shall be prima facie evidence of the facts of service of notice.  If the applicable Law in force as of the date hereof should hereafter be amended to require a different notice of sale applicable to sales of Property of the nature of the Mortgaged Property under power of sales conferred by mortgages or deeds of trust, the Trustee may, in his sole discretion, and to the extent permitted by applicable Law, either give the notice of sale required by applicable Law in effect on the date hereof or the notice of sale required by the amended Law; and nothing herein shall be deemed to require the Mortgagee or Trustee to perform, and the Mortgagee and Trustee shall not be required to do, any act other than as required by applicable Law in effect at the time of any such sale.  After such sale, the Trustee shall make to the purchaser or purchasers thereunder good and sufficient deeds and assignments, in the name of the Mortgagor, conveying the Mortgaged Property, or any part thereof, so sold to the purchaser or purchasers with appropriate warranties of title on behalf of the Mortgagor. Sale of a part of the Mortgaged Property shall not exhaust the power of sale, and sales may be made from time to time until the Secured Indebtedness is paid and performed in full. It shall not be necessary to have present or to exhibit at any such sale any of the personal property. In addition to the rights and powers of sale granted under the preceding provisions of this Section 8.2, if default is made in the payment of any installment of, or performance of, the Secured Indebtedness, the Mortgagee, at its option, at once, or at any time thereafter while any matured installment remains unpaid, without declaring the entire Secured Indebtedness to be due and payable, may orally or in writing direct the Trustee to enforce this trust and to sell the Mortgaged Property subject to such unmatured Secured Indebtedness and the liens and security interests securing its payment, in the same manner, on the same terms, at the same place and time, and after having given notice in the same manner, all as provided in the preceding provisions of this Section 8.2. After such sale, the Trustee shall make due conveyance to the purchaser or purchasers. Sales made without maturing the Secured Indebtedness may be made hereunder whenever there is a default in the payment of any installment of the Secured Indebtedness without exhausting the power of sale granted hereby, and without affecting in any way the power of sale granted under this Section 8.2 or the unmatured balance of the Secured Indebtedness (except as to any proceeds of any sale which the Mortgagee may apply as a prepayment on the Secured Indebtedness) or the liens and security interests securing payment of the Secured Indebtedness.  It is intended by each of the foregoing provisions of this Section 8.2 that the Trustee may, where permitted by Law, after any request or direction by the Mortgagee, sell not only the Subject Interests but also all items constituting a part of the Mortgaged Property, or any part thereof, together with the Lands, or any part thereof, all as a unit and as a part of the single sale, or may sell any part of the Mortgaged Property separately from the remainder of the Mortgaged Property. It is agreed that in any deed or deeds given by the Trustee any and all statements of fact or other recitals therein made as to the identity of the Mortgagee, or as to the occurrence or existence of any Event of Default, or as to the acceleration of the maturity of the Secured Indebtedness, or as to the request to sell, notice of sale, time, place, terms, and manner of sale and receipt, distribution, and application of the money realized therefrom, or as to the due and proper appointment of a substitute Trustee, and, without being limited by the foregoing, as to any other act or thing having been duly done by the Mortgagee or by the Trustee, shall be taken by all courts of Law and equity as prima facie evidence that such statements or recitals are for all purposes correct statements of the facts and are without further question to be so accepted, and the Mortgagor does hereby ratify and confirm any and all acts that the Trustee may lawfully perform by virtue hereof. In the event of the resignation or death of the Trustee, or his failure, refusal, or inability, for any reason, to make any such sale or to perform any of the trusts herein declared, or, at the option of the Mortgagee, without cause, Mortgagee may appoint, in writing, a substitute Trustee, who shall thereupon succeed to all the estates, titles, rights, powers, and trusts herein granted to and vested in the Trustee. Such appointment may be made on behalf of the Mortgagee by any person who is then the president, or a vice president, or the cashier or secretary, or any other duly authorized officer or agent, of the Mortgagee. In the event of the resignation or death of any such substitute Trustee, or his failure, refusal, or inability to make any such sale or perform such trusts, or, at the option of the Mortgagee, without cause, successive substitute Trustees may thereafter, from time to time, be appointed in the same manner. In the event a foreclosure hereunder should be commenced by the Trustee in accordance with this Section, Mortgagee may at any time before the sale direct the Trustee to abandon the sale, and may then institute suit for the collection of the Secured Indebtedness, and/or for the foreclosure of the liens hereof.

 

  

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8.3. Judicial Proceedings; Receiver. This Mortgage shall be effective as a mortgage as well as a deed of trust and may be foreclosed as to any of the Property covered hereby in any manner permitted by the Law of any state in which the affected Mortgaged Property is situated, and any foreclosure suit may be brought, to the extent permitted by Law, by the Trustee or by the Mortgagee. Upon occurrence of an Event of Default which has not been waived by the Mortgagee, the Trustee or the Mortgagee, in lieu of or in addition to exercising the power of sale hereinabove given, may proceed, where permitted by Law, by a suit or suits in equity or at Law, whether for a foreclosure hereunder, or for the sale of the Mortgaged Property, or for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or without any showing of fraud, insolvency or mismanagement by the Mortgagor, for the appointment of a receiver or receivers of the Mortgaged Property and of the income, rents issues, products, profits and proceeds thereof (any such receiver or receivers to serve without bond) pending any foreclosure hereunder or the sale of the Mortgaged Property, or for the enforcement of any other appropriate legal or equitable remedy. The appointment of a receiver shall in no manner affect the rights of the Mortgagee under Article V hereof.  If Mortgagee should institute a suit for the collection of the Secured Indebtedness and/or for a foreclosure of the liens hereof, it may at any time before the entry of a final judgment in said suit dismiss the same, and, where permitted by Law, (a) require the Trustee to sell the Mortgaged Property, or any part thereof, in accordance with the provisions of this Mortgage or (b) commence to sell the Mortgaged Property under the power of sale granted hereunder in accordance with the terms of this Mortgage.

 

8.4. Certain Aspects of a Sale.  The Mortgagee shall have the right to become the purchaser at any sale of the Mortgaged Property to the extent not prohibited by Law, and the Mortgagee shall have the right to credit upon the amount of the bid made therefor, the amount payable out of the net proceeds of such sale to it. Recitals contained in any conveyance made to any purchaser at any sale made hereunder shall conclusively establish the truth and accuracy of the matters therein stated, including, without limiting the generality of the foregoing, nonpayment of the unpaid principal sum of, interest accrued on, and fees payable in respect of, the Secured Indebtedness after the same have become due and payable, and advertisement and conduct of such sale in the manner provided herein or appointment of any successor Trustee hereunder.

 

8.5. Receipt to Purchaser. Upon any sale, whether made under the power of sale herein granted and conferred or by virtue of judicial proceedings, the receipt of the Trustee, the Mortgagee, or of the officer making such sale under judicial proceedings, shall be sufficient discharge to the purchaser or purchasers at any sale for his or their purchase money, and such purchaser or purchasers, or his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Trustee, the Mortgagee or of such officer therefor, be obligated to see to the application of such purchase money, or be in anywise answerable for any loss, misapplication or nonapplication thereof.

 

8.6. Effect of Sale. Any sale or sales of the Mortgaged Property, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, where permitted by Law, shall operate to divest all right, title, interest, claim and demand whatsoever either at Law or in equity, of the Mortgagor of, in, and to the premises and the Property sold, and shall be a perpetual bar, both at Law and in equity, against the Mortgagor, and the Mortgagor’s successors or assigns, and against any and all persons claiming or who shall thereafter claim all or any of the Property sold from, through, or under the Mortgagor, or the Mortgagor’s successors or assigns. Nevertheless, the Mortgagor, if requested by the Trustee or the Mortgagee to do so, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold.

 

  

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8.7. Application of Proceeds. The proceeds of any sale of the Mortgaged Property, or any part thereof, whether under the power of sale herein granted and conferred or by virtue of judicial proceedings, shall be applied as follows (as appropriately modified to comply with any mandatory provisions of Law):

 

First:  To the payment of all expenses incurred by the Trustee or the Mortgagee in the performance of his or its duties including, without limiting the generality of the foregoing, all expenses of any entry, or taking of possession, of any sale, of advertisement thereof,  and of conveyances, and, as well, court costs, compensation of agents and employees and legal fees;

 

Second:  To the payment and satisfaction of the Loan Obligations that constitute “Loan Obligations” as defined in any then-effective Hedge Intercreditor Agreement and the Swap Obligations, all in accordance with then-effective Hedge Intercreditor Agreement, or, if at the time of application there is no Hedge Intercreditor Agreement then in effect, then to the payment and satisfaction of the Loan Obligations (as defined herein);

 

Third:  To the payment and satisfaction of the Obligations (as defined in the Credit Agreement, but without duplication of payments);

 

Fourth:  To the payment of any other amounts owed to INB; and

 

Fifth:  Any surplus thereafter remaining shall be paid to the Mortgagor or the Mortgagor’s successors or assigns, as their interests shall appear of record, or as otherwise required by law.

 

8.8. Mortgagor’s Waiver of Appraisement, Marshaling, etc. Rights. The Mortgagor agrees, to the full extent that the Mortgagor may lawfully so agree, that the Mortgagor will not at any time insist upon or plead or in any manner whatever claim the benefit of any appraisement, valuation, stay, extension or redemption Law now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Mortgage or the absolute sale of the Mortgaged Property or the possession thereof by any purchaser at any sale made pursuant to any provision hereof, or pursuant to the decree of any court of competent jurisdiction; but the Mortgagor, for the Mortgagor and all who may claim through or under the Mortgagor, so far as the Mortgagor or those claiming through or under the Mortgagor now or hereafter lawfully may, hereby waives the benefit of all such Law.  The Mortgagor, for the Mortgagor and all who may claim through or under the Mortgagor, waives, to the extent that the Mortgagor may lawfully do so, any and all right to have the Mortgaged Property marshaled upon any foreclosure of the lien hereof, or sold in inverse order of alienation, and agrees that the Mortgagee or the Trustee or any court having jurisdiction to foreclose such lien may sell the Mortgaged Property as an entirety. If any Law in this Section 8.8 referred to and now in force, of which the Mortgagor or the Mortgagor’s successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such Law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the operation or application of the provisions of this Section 8.8.

 

  

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8.9. Waiver of Deficiency Statute.

 

(a) In the event an interest in any of the Mortgaged Property is foreclosed upon pursuant to a judicial or non-judicial foreclosure sale, the Mortgagor agrees as follows:  notwithstanding the provisions of Sections 51.003, 51.004, and 51.005 of the Property Code (as in effect in the state of Texas and herein so called and as the same may be amended from time to time), and to the extent permitted by law, the Mortgagor agrees that the Mortgagee shall be entitled to seek a deficiency judgment from the Mortgagor and any/or other party obligated on the Indebtedness equal to the difference between the amount owing on the Secured Indebtedness and the amount for which the Mortgaged Property was sold pursuant to judicial or non-judicial foreclosure sale.  The Mortgagor expressly recognizes that this Section 8.9(a) constitutes a waiver of the above-cited provisions of the Property Code which would otherwise permit the Mortgagor and other persons against whom recovery of deficiencies is sought or any Guarantor independently (even absent the initiation of deficiency proceedings against them) to present competent evidence of the fair market value of the Mortgaged Property as of the date of the foreclosure sale and offset against any deficiency the amount by which the foreclosure sale price is determined to be less than such fair market value.  The Mortgagor further recognizes and agrees that this waiver creates an irrebuttable presumption that the foreclosure sale price is equal to the fair market value of the Mortgaged Property for purposes of calculating deficiencies owed by the Mortgagor and/or others against whom recovery of a deficiency is sought.

 

(b) Alternatively, in the event the waiver provided for in clause (a) above is determined by a court of competent jurisdiction to be unenforceable, the following shall be the basis for the finder of fact's determination of the fair market value of the Mortgaged Property as of the date of the foreclosure sale in proceedings governed by Sections 51.003, 51.004 and 51.005 of the Property Code (as amended from time to time):  (i) the Mortgaged Property shall be  valued in an "as is" condition as of the date of the foreclosure sale, without any assumption or expectation that the Mortgaged Property will be repaired or improved in any manner (including, without limitation, the re-working of existing wells or the drilling of any new wells) before a resale of the Mortgaged Property after foreclosure; (ii) the valuation shall be based upon an assumption that the foreclosure purchaser desires a resale of the Mortgaged Property for cash promptly (but not later than 12 months) following the foreclosure sale; (iii) all reasonable closing costs customarily borne by the seller in oil and gas transactions should be deducted from the gross fair market value of the Mortgaged Property, including, without limitation, brokerage commissions, title opinions, engineering evaluations of the Mortgaged Property, tax prorations, attorneys' fees, and marketing costs; (iv) the gross fair market value of the Mortgaged Property shall be further discounted to account for any estimated holding costs associated with maintaining the Mortgaged Property pending sale, including, without limitation, utilities expenses, management fees, taxes and assessments (to the extent not accounted for in (iii) above), and other maintenance, operational and ownership expenses; and (v) any expert opinion testimony given or considered in connection with a determination of the fair market value of the Mortgaged Property must be given by persons having at least five (5) years experience in appraising property similar to the Mortgaged Property and who have conducted and prepared a complete written engineering appraisal of the Mortgaged Property taking into consideration the factors set forth above.

 

8.10. Special Provisions Applicable in Texas; Other Miscellaneous State Provisions.  Notwithstanding any contrary provisions contained elsewhere in this Mortgage:

 

8.10.1. Texas.  With respect to that portion of the Mortgaged Property located in the State of Texas:

 

(a) It is the intention of the parties to comply strictly with the provisions of Section 51.0074 of the Property Code as enacted in Texas, and any duty assigned to the Trustee in contravention thereof with respect to that portion of the Mortgaged Property located in Texas shall be deemed assigned to the Mortgagee, its successors and assigns, and shall be enforceable by the Mortgagee with respect to such Mortgaged Property to the extent not prohibited by the Law of Texas.

 

(b) The Trustee or any substitute trustee and the Mortgagee shall be entitled to the benefits of, and shall be subject to any mandatory provisions of, those provisions of Section 51.0075 of the Property Code as enacted in Texas which are applicable to it.

 

  

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8.11. Power of Attorney to Mortgagee. Mortgagor does hereby designate Mortgagee as the agent of Mortgagor to act in the name, place, and stead of Mortgagor in the exercise of each and every remedy set forth herein and in conducting any and all operations and taking any and all action reasonably necessary to do so, recognizing such agency in favor of Mortgagee to be coupled with the interests of Mortgagee under this Mortgage and, thus, irrevocable so long as this Mortgage is in force and effect.

 

8.12. Costs and Expenses. All costs, expenses (including attorneys’ fees), and payments incurred or made by the Trustee or the Mortgagee in protecting and enforcing its rights hereunder, shall constitute a demand obligation owing by the Mortgagor to the party incurring such or making costs, expenses, or payments and shall bear interest at a rate per annum equal to the maximum rate of interest permitted by applicable Law, all of which shall constitute a portion of the Secured Indebtedness.

 

8.13. Operation of the Mortgaged Property by the Mortgagee. Upon the occurrence of an Event of Default which has not been waived by the Mortgagee, and in addition to all other rights herein conferred on the Trustee or the Mortgagee, the Trustee or the Mortgagee (or any Person designated by the Trustee or the Mortgagee) shall have the right and power, but shall not be obligated, to enter upon and take possession of any of the Mortgaged Property without the necessity of posting bond, and to exclude the Mortgagor, and the Mortgagor’s agents or servants, wholly therefrom, and to hold, use, administer, manage and operate the same to the extent that the Mortgagor shall be at the time entitled to do any of such things and in the Mortgagor’s place and stead.  The Trustee or the Mortgagee (or any Person designated by the Trustee or the Mortgagee) may, but shall not be obligated to, operate the same without any liability or duty to the Mortgagor in connection with such operations, except to use ordinary care in the operation of such Mortgaged Property, and the Trustee or the Mortgagee or any Person designated by the Trustee or the Mortgagee, shall have the right to collect and receive all Hydrocarbons produced and sold from the Mortgaged Property, to make repairs, purchase machinery and equipment, conduct work-over operations, drill additional wells and to exercise every power, right and privilege of the Mortgagor with respect to the Mortgaged Property. When and if the expenses of such operation and development (including costs of unsuccessful work-over operations or additional wells) have been paid and the Secured Indebtedness paid, such Mortgaged Property shall, if there has been no sale or foreclosure thereof, be returned to the Mortgagor.

 

8.14. No Additional Duties Created; Interpretation of Actions.  Notwithstanding any provision of this Article VIII or any other provision of this Mortgage, with respect to that portion of the Mortgaged Property located in any jurisdiction, the Trustee or Mortgagee, as applicable, shall be entitled to enforce the rights and remedies described herein with respect to such portion of the Mortgaged Property in such jurisdiction in accordance with the Law in effect in such jurisdiction at the time such enforcement action is taken, and the Mortgagor hereby waives its right to require the Trustee or Mortgagee, as applicable, to comply with any contrary terms and provisions of this Mortgage in such circumstance, it being the intention of the Mortgagor and Mortgagee that the waivers of Mortgagor herein and the powers granted to the Trustee and Mortgagee herein are for the sole benefit of the Mortgagee and are neither intended to limit the rights and powers of the Trustee or the Mortgagee, as applicable, as are permissible under applicable Law to enforce the Liens granted herein, nor intended to establish a standard or duty of performance by the Trustee or the Mortgagee, as applicable, in excess of or in addition to that required by the Law of such jurisdiction as in effect at the time the particular right or remedy is sought to be enforced.  In furtherance thereof, with respect to that portion of the Mortgaged Property located in any jurisdiction, any actions by the Trustee or Mortgagee, as applicable, to enforce the Liens granted herein which are not prohibited by the Law of such jurisdiction wherein the affected Mortgaged Property is located, shall be deemed to be in compliance with, and not prohibited by or in violation of, the terms of this Mortgage.

 

  

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ARTICLE IX

 

MISCELLANEOUS

 

9.1. Advances by the Mortgagee.  Each and every covenant herein contained shall be performed and kept by the Mortgagor solely at the Mortgagor’s expense.  If the Mortgagor shall fail to perform or keep any of the covenants of whatsoever kind or nature contained in this Mortgage, the Mortgagee or any receiver appointed hereunder, may, but shall not be obligated to, make advances to perform the same in the Mortgagor’s behalf, and the Mortgagor hereby agrees to repay such sums upon demand plus interest at a rate per annum equal to the maximum rate of interest permitted by applicable Law. No such advance shall be deemed to relieve the Mortgagor from any Event of Default hereunder.

 

9.2. Defense of Claims. The Mortgagor will notify the Mortgagee, in writing, promptly of the commencement of any legal proceedings affecting or which could adversely affect the lien and security interest hereof or the status of or title to the Mortgaged Property, or any part thereof, and will take such action, employing attorneys agreeable to the Mortgagee, as may be necessary to preserve the Mortgagor’s and the Trustee’s or Mortgagee’s rights affected thereby; and should the Mortgagor fail or refuse to take any such action, the Trustee or the Mortgagee may, but shall not be obligated to, take such action on behalf and in the name of the Mortgagor and at the Mortgagor’s expense. Moreover, the Trustee or the Mortgagee may, but shall not be obligated to, take such independent action in connection therewith as it may in its discretion deem proper without any liability or duty to the Mortgagor except to use ordinary care, the Mortgagor hereby agreeing that all sums advanced or all expenses incurred in such actions plus interest at the maximum rate of interest permitted by applicable Law, will, on demand, be reimbursed to the Trustee, the Mortgagee or any receiver appointed hereunder.

 

9.3. Defeasance. If the Secured Indebtedness shall be paid and discharged in full, no Credit Party has any further obligation to advance amounts to or for the benefit of the Mortgagor, the Hedging Agreements governing any Swap Obligations and all related transactions and confirmations thereunder have expired or been terminated, as applicable, and the Mortgagee has no commitment to permit or intention to allow the creation of additional Secured Indebtedness, the Mortgagee will, upon request of the Mortgagor and at the Mortgagor’s expense, execute and deliver to the Mortgagor all releases and other instruments reasonably requested by the Mortgagor for the purpose of releasing and discharging the lien and security interest created hereunder. Otherwise this Mortgage shall remain and continue in full force and effect.

 

9.4. Other Security.  The Trustee or the Mortgagee may take or may hold other security from Persons other than the Mortgagor for the Secured Indebtedness and may release or modify the same without notice to or consent of the Mortgagor. The Trustee or the Mortgagee may resort first to such other security or any part thereof or first to the security herein given or any part thereof, or from time to time to either or both, even to the partial or complete abandonment of either security, and such action shall not be a waiver of any rights conferred by this Mortgage, which shall continue as a first lien and security interest upon the Mortgaged Property not expressly released until all Secured Indebtedness secured hereby is fully paid and no Credit Party has any commitment to advance amounts or extend credit to or for the benefit of the Mortgagor or any other payor of Secured Indebtedness.

 

9.5. Instrument an Assignment, Etc.; Grant to Mortgagee. This Mortgage shall be deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, financing statement, real estate mortgage, pledge, or security agreement, and from time to time as any one or more thereof; and to the extent that any particular jurisdiction wherein a portion of the Mortgaged Property is situated does not recognize or permit the Mortgagor to grant, bargain, sell, warrant, mortgage, pledge, assign, transfer, or convey the Mortgagor’s rights, titles, and interests to the Trustee for the benefit of the Mortgagee in the manner herein adopted (or if the attempt of the Mortgagor to grant, bargain, sell, warrant, mortgage, pledge, assign, transfer or convey the Mortgaged Property to the Trustee herein is otherwise ineffective), then, with respect to the Mortgaged Property located in such jurisdiction (or ineffectively granted to the Trustee), the Mortgagor does hereby grant, bargain, sell, warrant, mortgage, pledge, assign, transfer, and convey unto the Mortgagee, with power of sale (if permitted by applicable Law), the Mortgaged Property to secure the Secured Indebtedness and the obligations of the Mortgagor contained herein and the references herein to the rights and powers of or rights and powers granted by the Mortgagor to the Trustee shall be deemed to be rights and powers of, or rights and powers granted by the Mortgagor to, the Mortgagee.

 

9.6. Limitation on Interest. No provision of this Mortgage or of the other Loan Papers, shall require the payment or permit the collection of interest in excess of the maximum permitted by Law or which is otherwise contrary to Law. If any excess of interest in such respect is herein or in the other Loan Papers provided for, or shall be adjudicated to be so provided for herein or in the other Loan Papers, the Mortgagor shall not be obligated to pay such excess.

 

  

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9.7. Unenforceable or Inapplicable Provisions.  The parties hereto have negotiated the terms of this Mortgage for its use or possible future use in more than one jurisdiction.  Thus, if any provision of this Mortgage is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction, and the remaining provisions hereof shall be liberally construed in favor of the Trustee and the Mortgagee in order to effectuate the provisions hereof, and the invalidity of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction.  In furtherance of the foregoing and not in limitation thereof, if, for any jurisdiction wherein any of the Mortgaged Property is located, any duty, power or authority is assigned, granted or delegated to the Trustee hereunder which is impermissible to be so assigned, granted or delegated to such Trustee under the Laws of such jurisdiction (including, with respect to the State of Texas, Section 51.0074 of the Property Code as enacted in Texas), such assignment, grant or delegation shall be deemed to be an assignment, grant or delegation exclusively to the Mortgagee, its successors and assigns, and may be enforced by the Mortgagee if not prohibited by the Law of such jurisdiction.  With respect to any jurisdiction wherein a portion of the Mortgaged Property is situated, any reference herein to a statute or the Law of another jurisdiction shall be deemed inapplicable to, and not used in, the interpretation of the duties, powers or authority of the Trustee and Mortgagee under this Mortgage.

 

9.8. Rights Cumulative. Each and every right, power and remedy herein given to the Trustee or the Mortgagee shall be cumulative and not exclusive; and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient by the Trustee or the Mortgagee, as the case may be, and the exercise, or the beginning of 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 the Trustee or the Mortgagee in the exercise of any right, power or remedy shall 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.

 

9.9. Waiver of Covenants by Mortgagee. Any and all covenants in this Mortgage may from time to time by instrument in writing signed by the Mortgagee be waived to such extent and in such manner as the Mortgagee may desire, but no such waiver shall ever affect or impair the Mortgagee’s rights and remedies or liens and security interests hereunder, except to the extent specifically stated in such written instrument.

 

9.10. Successors and Assigns.

 

9.10.1. This instrument is binding upon the Mortgagor, and the Mortgagor’s heirs, successors and assigns, and shall inure to the benefit of the Trustee and the Mortgagee, and their respective successors and assigns, and the provisions hereof shall likewise be covenants running with the Lands.

 

9.10.2. The parties hereto agree that the Notes may be transferred without the necessity for a notarial act of transfer thereof, and that any such transfer shall carry with it into the hands of any future holder or holders of the Notes full and entire subrogation of title in and to the Notes and to any and all rights and privileges under this instrument herein granted to the Mortgagee, as holder of the Notes.  This Mortgage is for the benefit of the Mortgagee and for such other Person or Persons as may from time to time become or be the holders of any of the Secured Indebtedness, and this Mortgage shall be transferable and negotiable, with the same force and effect and to the same extent as the Secured Indebtedness may be transferable.

 

9.11. Article and Section Headings. The article and section headings in this instrument are inserted for convenience and shall not be considered a part of this Mortgage or used in its interpretation.

 

9.12. Counterpart. This Mortgage may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original, and all of which are identical except that, to facilitate recordation in any particular county or parish, counterpart portions of Exhibit A which describe properties situated in parishes or counties other than the county or parish in which such counterpart is to be recorded may be omitted. Exhibit A might not be paginated and any pagination might not be consecutive.  Exhibit A may also contain language indicating that it is attached to a document other than this Mortgage or that a particular page is the end of Exhibit A, when neither is applicable.  Such language shall be ignored for the purposes of interpreting this Mortgage.

 

  

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9.13. Special Filing as Financing Statement.

 

9.13.1. This Mortgage shall likewise be a Security Agreement and a Financing Statement, and Mortgagor, as debtor (the “Debtor”), hereby grants to the Mortgagee, its successors and assigns, as secured party (“Secured Party”), a security interest in all personal property, fixtures, accounts, equipment, inventory, contract rights and general intangibles described or referred to in Article II hereof and all proceeds and products from the sale, lease or other disposition of the Mortgaged Property or any part thereof. The addresses shown in this Article are the addresses of the Debtor and Secured Party and information concerning the security interest may be obtained from the Secured Party at its address. Without in any manner limiting the generality of any of the foregoing provisions hereof: (a) some portion of the goods described or to which reference is made herein are or are to become fixtures on the Lands described or to which reference is made herein; (b) the minerals and the like (including oil and gas) included in the Mortgaged Property and the accounts resulting from the sale thereof will be financed at the wellhead(s) or minehead(s) of the well(s) or mine(s) located on the Lands described or to which reference is made herein; and (c) this Mortgage is to be filed of record, among other places, in the real estate records of each county in which the Lands, or any part thereof, are situated, as a financing statement, but the failure to do so will not otherwise affect the validity or enforceability of this instrument.

 

9.13.2. The charter/file number of the Mortgagor is as set forth on the cover page hereof.

 

9.13.3. The Mortgagee is authorized to complete and file financing statements covering the security interests granted in this Mortgage.

 

9.14. Notices. Whenever this Mortgage requires or permits any consent, approval, notice, request, or demand from one party to another, the consent, approval, notice, or demand must be in writing to be effective and shall be personally delivered or sent to the party to be notified at the address or facsimile number stated below (or such other address as may have been designated by written notice by the party pursuant to this Section):

                                                                           

	MORTGAGOR-DEBTOR	 	MORTGAGEE-SECURED PARTY
	 	 	 
	
STARBOARD RESOURCES, INC.

	 	
INDEPENDENT BANK

	
300 E. Sonterra, Suite 1220

	 	
2101 Cedar Springs Road, Suite 725

	
San Antonio, Texas  78258

	 	
Dallas, Texas  75201

	
Attn:  Michael J. Pawelek

	 	
Attn:  Energy Lending

	  	 	  

Each such notice, request or other communication shall be effective (i) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received (the receipt thereof shall be deemed to have been acknowledged upon the sending Person’s receipt of its facsimile machine’s confirmation of successful transmission; provided that if the day on which such facsimile is received is not a Business Day or is after 4:00 p.m. on a Business Day, then the receipt of such facsimile shall be deemed to have been acknowledged on the next following Business Day), (ii) if given by mail, three (3) Business Days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when delivered (or, in the case of electronic transmission, received) at the address specified in this Section.

 

9.15. No Waiver by Mortgagee.  No course of dealing on the part of Mortgagee, its officers or employees, nor any failure or delay by Mortgagee with respect to exercising any of its rights or remedies hereunder shall operate as a waiver thereof nor shall the exercise or partial exercise of any such right or remedy preclude the subsequent exercise thereof or the exercise of any other right or remedy.

 

9.16. Governing Agreement.  This Mortgage is made pursuant and subject to the terms and provisions of the Credit Agreement.  In the event of a direct conflict between the terms and provisions of this Mortgage and those of the Credit Agreement, the terms and provisions of the Credit Agreement shall govern and control, except that if the two documents contain different formal definitions for the same term or terms, the formal definition of such term or terms herein shall be applicable in construing this Mortgage.  The inclusion in this Mortgage of provisions not addressed in the Credit Agreement shall not be deemed a conflict, and all such additional provisions contained herein shall be given full force and effect.  The indemnification and releases contained herein are in addition to any indemnification or releases contained in the Credit Agreement.

 

  

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9.17. Drafting of Mortgage.  Mortgagor declares that it has contributed to the drafting of this Mortgage or has had the opportunity to have it reviewed by its counsel before signing it and agrees that it has been purposefully drawn and correctly reflects its understanding of the transaction that it contemplates.

 

9.18. Execution by Mortgagee and Trustee; Corrections. The Mortgagee and/or the Trustee may at any time without obtaining the consent of the Mortgagor execute this Mortgage (and have such execution witnessed or acknowledged) for any purposes which either of them deems necessary or appropriate and, if deemed appropriate, subsequently file this Mortgage of record. Additionally, in the event it is determined that Exhibit A contains any errors or inaccurate or incomplete descriptions of the Oil and Gas Leases and Lands intended to be covered hereby or referred to in any Certificates of Ownership Interests, the Mortgagee may, without obtaining the consent of the Mortgagor, attempt to correct any such errors or omissions and make accurate and complete any such inaccuracies, omissions or misdescriptions and, if deemed appropriate, subsequently file or re-file this Mortgage of record.

 

9.19. Governing Law. This Mortgage is intended to be performed in the State of Texas and the substantive Law of such State and or the United States of America shall govern the validity, construction, enforcement and interpretation of this Mortgage.

 

9.20. Hedge Intercreditor Agreement.  This Mortgage shall be deemed to be encompassed by the definition of “Security Instruments” as such term is defined and used in any Hedge Intercreditor Agreement that may be in effect from time to time.

 

9.21. NOTICE:  THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

  

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IN WITNESS WHEREOF, the undersigned have executed or caused to be executed this Mortgage as of the date first set forth above.

 

	 	

MORTGAGOR:

	 
	 	 	 	 
	 	STARBOARD RESOURCES, INC.	 
	 	 	 	 
	 	
By: 

	 	 
	 	 	Print: Michael J. Pawelek	 
	 	 	Title: Chief Executive Officer	 

 

  

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ACKNOWLEDGEMENT

 

STATE OF TEXAS                                      §

§

COUNTY OF DALLAS                               §

 

This instrument was acknowledged before me on June ___, 2013, by Michael J. Pawelek, Chief Executive Officer of Starboard Resources, Inc., a Delaware corporation, on behalf of said corporation.

 

Before me, _____________________________, a Notary Public, on this day personally appeared Michael J. Pawelek, Chief Executive Officer of Starboard Resources, Inc., a Delaware corporation,

 

	
  

	
o

	
known to me

	
  

	
o

	
proved to me on the oath of ______________________________

	
  

	
o

	
proved to me through Texas Driver License No. ___________expiring _______

	
  

	
o

	
proved to me through ___________________________________________

 

to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed.

 

Given under my hand and seal of office this ____ day of June, A.D., 2013.

 

____________________________________ Notary Public in and for the State of Texas

 

Address of Notary Public:

 

 

  

25

  

 

IN WITNESS WHEREOF, the undersigned have executed or caused to be executed this Mortgage as of the date first set forth above.

 

 

	 	

MORTGAGEE:

	 
	 	 	 	 
	 	
INDEPENDENT BANK

	 
	 	 	 	 
	 	
By: 

	 	 
	 	 	Name: John E. Davis	 
	 	 	
Title: Executive Vice President

	 

 

 

 

 

  

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ACKNOWLEDGEMENT

 

STATE OF TEXAS                                      §

§

COUNTY OF DALLAS                               §

 

This instrument was acknowledged before me on June __, 2013, by John E. Davis, Executive Vice President of Independent Bank, a Texas banking association, on behalf of said association.

 

Before me, _____________________________, a Notary Public, on this day personally appeared John E. Davis, Executive Vice President of Independent Bank, a Texas banking association,

 

	
  

	
o

	
known to me

	
  

	
o

	
proved to me on the oath of ______________________________

	
  

	
o

	
proved to me through Texas Driver License No. ___________expiring _______

	
  

	
o

	
proved to me through ______________________

 

to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed.

 

Given under my hand and seal of office this ____ day of June, A.D., 2013.

 

____________________________________Notary Public in and for the State of Texas

 

Address of Notary Public:

 

 

  

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EXHIBIT A

 

TO MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT,

FIXTURE FILING AND FINANCING STATEMENT

 

This Exhibit A sets forth the description of certain property interests covered by the Mortgage and Deed of Trust.  All of the terms defined in the Mortgage and Deed of Trust are used in this Exhibit A with the same meanings given therein.

 

This Exhibit A and the Mortgage and Deed of Trust cover and include the following:

 

(a)           All right, title and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to the oil, gas and mineral leases described herein and/or lands described in and subject to such oil, gas and mineral leases (regardless, as to such leases and/or lands, of any surface acreage and/or depth limitations set forth in any description of any of such oil, gas and mineral leases), and all right, title and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in and to any of the oil, gas and minerals in, on or under the lands, if any, described on this Exhibit or in any document or instrument referred to in this Exhibit, including, without limitation, all contractual rights, fee interests, leasehold interests, overriding royalty interests, non-participating royalty interests, mineral interests, production payments, net profits interests or any other interest measured by or payable out of production of oil, gas or other minerals from the oil, gas and mineral leases and/or lands described herein; and

 

(b)           All of the foregoing interests of Mortgagor as such interests may be enlarged by the discharge of any payments out of production or by the removal of any charges or encumbrances, together with all interests, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to and under or derived from all renewals and extensions of any oil, gas and mineral leases described herein, it being specifically intended hereby that any new oil and gas lease (i) in which an interest is acquired by Mortgagor after the termination or expiration of any oil and gas lease, the interests of Mortgagor in, to and under or derived from which are subject to the lien and security interest hereof, and (ii) that covers all or any part of the property described in and covered by such terminated or expired leases, shall, to the extent, and only to the extent such new oil and gas lease may cover such property, be considered a renewal or extension of such terminated or expired lease; and

 

(c)           All right, title and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to and under or derived from any operating, farmout and bidding agreements, assignments and subleases, whether or not described in this Exhibit, to the extent, and only to the extent, that such agreements, assignments and subleases (i) cover or include any present right, title and interest of Mortgagor in and to the leases and/or lands described in this Exhibit, or (ii) cover or include any other undivided interests now or hereafter held by Mortgagor in, to and under the described leases and/or lands, including, without limitation, any future operating, farmout and bidding agreements, assignments, subleases and pooling, unitization and communitization agreements and the units created thereby (including, without limitation, all units formed under orders, regulations, rules or other official acts of any governmental body or agency having jurisdiction) to the extent and only to the extent that such agreements, assignments, subleases, or units cover or include the described leases and/or lands; and

 

(d)           All right, title and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to and under or derived from all presently existing and future advance payment agreements, oil, casinghead gas and gas sales, exchange and processing contracts and agreements, including, without limitation, those contracts and agreements that are described on this Exhibit, to the extent, and only to the extent, those contracts and agreements cover or include the described leases and/or lands; and

 

  

28

  

 

(e)           All right, title and interest, whether now owned and existing or hereafter acquired or arising, of Mortgagor in, to and under or derived from all existing and future permits, licenses, easements and similar rights and privileges that relate to or are appurtenant to any of the described leases and/or lands.

 

Notwithstanding the intention of the Mortgage and Deed of Trust to cover all of the right, title and interest of Mortgagor in and to the described leases and/or lands, whether now owned and existing or hereafter acquired or arising, Mortgagor hereby specifically warrants and represents that the interests covered by this Exhibit are not greater than the working interest nor less than the net revenue interest, overriding royalty interest, net profit interest, production payment interest, royalty interest or other interest payable out of or measured by production set forth in the Certificate of Ownership Interests in connection with each oil and gas well covered by this Exhibit.  In the event Mortgagor owns any other or greater interest, such additional interest shall also be covered by and included in the Mortgage and Deed of Trust.

 

Any reference herein to wells or units is for warranty of interest, administrative convenience and identification and is not intended to limit or restrict the right, title, interest of properties covered by the Mortgage and Deed of Trust and all of Mortgagor’s right, title and interest in the Lands, Subject Interests and Mortgaged Property described herein are and shall be subject to the Mortgage and Deed of Trust, regardless of the presence of any Units or Wells not herein referenced.

 

The Leases covered by the Mortgage and Deed of Trust includes all leases and force pooled interests now or thereafter owned by Mortgagor included within the counties referred to in this Exhibit whether or not the schedules of leases included in this Exhibit list all such leases.

 

No depth limitation exception contained in any description of leases and other real property interests set forth in this Exhibit shall exclude from the grants of the Mortgaged Property and collateral contained in the Mortgage and Deed of Trust any depth owned by Mortgagor within the geographic area described in this Exhibit for such leases and other real property interests.

 

The designation “Working Interest” or “W.I.” when used in this Exhibit means an interest owned in an oil, gas, and mineral lease that determines the cost-bearing percentage of the owner of such interest.  The designation “Net Revenue Interest” or “N.R.I.” means that portion of the production attributable to the owner of a working interest after deduction for all royalty burdens, overriding royalty burdens or other burdens on production, except severance, production, and other similar taxes.  The designation “Overriding Royalty Interest” or “ORRI” means an interest in production which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the overriding royalty interest so provides, costs associated with compression, dehydration, other treating or processing, or transportation of production of oil, gas, or other minerals relating to the marketing of such production.  The designation “Royalty Interest” or “RI” means an interest in production which results from an ownership in the mineral fee estate or royalty estate in the relevant land and which is free of any obligation for the expense of exploration, development, and production, bearing only its pro rata share of severance, production, and other similar taxes and, in instances where the document creating the royalty interest so provides, costs associated with compression, dehydration, other treating or processing or transportation of production of oil, gas, or other minerals relating to the marketing of such production.

 

  

29

  

 

The references to book or volume and page herein refer to the recording location of each respective Mortgaged Property described herein in the county/parish where the land covered by the Mortgaged Property is located.

 

This Mortgage and Deed of Trust covers all lands, leases and properties of the Mortgagor, whether now owned or hereafter acquired, located in any county/parish identified elsewhere in this Exhibit or located in any county/parish wherein this Mortgage and Deed of Trust has been recorded.

 

This Mortgage and Deed of Trust is intended to include each page hereinafter labeled Exhibit A, Exhibit “A” or similar label and such pages might not be numbered and, if numbered, might not be consecutively numbered.  Such Exhibit pages may have been copied from leases, purchase agreements, memoranda, assignments, division orders, legal opinions, landman reports, prior mortgages or other documents (each, a “Source”) and might contain language indicating that such pages are attached to such Source rather than this Mortgage and Deed of Trust and all such language is to be ignored for the purposes of interpreting this Mortgage and Deed of Trust.  Similarly, any other language in such Exhibit pages from a Source which is contrary to the other provisions of this Mortgage and Deed of Trust shall likewise be ignored.

 

[Exhibit A continues on next page]

 

 

 

30

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