<PAGE>
EXHIBIT 10.8
WHEN RECORDED RETURN TO:
Katten Muchin Zavis Rosenman
525 W. Monroe
Chicago, Illinois 60661
Attn: Mark D. Wood Esq.
MORTGAGE, DEED OF TRUST, ASSIGNMENT OF
PRODUCTION,
SECURITY AGREEMENT, FIXTURE FILING AND FINANCING
STATEMENT
FROM
DOLPHIN ENERGY CORPORATION
TO
__________________, AS TRUSTEE
FOR THE BENEFIT OF
PROMETHEAN ASSET MANAGEMENT L.L.C.
A CARBON, PHOTOGRAPHIC, FACSIMILE OR OTHER
REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.
A POWER OF SALE HAS BEEN GRANTED IN THIS
INSTRUMENT. IN CERTAIN STATES, A POWER
OF SALE MAY ALLOW THE TRUSTEE OR 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 INSTRUMENT.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED
PROPERTY PROVISIONS.
THIS INSTRUMENT SECURES PAYMENT OF FUTURE
ADVANCES.
THIS INSTRUMENT COVERS PROCEEDS OF
MORTGAGED PROPERTY.
THIS INSTRUMENT COVERS MINERALS AND OTHER
SUBSTANCES OF VALUE WHICH MAY BE
EXTRACTED FROM THE EARTH (INCLUDING WITHOUT
LIMITATION OIL AND GAS) AND WHICH
WILL BE FINANCED AT THE WELLHEADS OF THE
WELL OR WELLS LOCATED ON THE PROPERTIES
DESCRIBED IN EXHIBIT A HERETO. THIS
FINANCING STATEMENT IS TO BE FILED OR FILED
FOR RECORD, AMONG OTHER PLACES, IN THE REAL
ESTATE RECORDS OR SIMILAR RECORDS OF
THE COUNTY RECORDERS OF THE COUNTIES LISTED
ON EXHIBIT A HERETO. THE MORTGAGOR
HAS AN INTEREST OF RECORD IN THE REAL
ESTATE CONCERNED, WHICH INTEREST IS
DESCRIBED IN EXHIBIT A ATTACHED HERETO.
PORTIONS OF THE MORTGAGED PROPERTY ARE
GOODS WHICH ARE OR ARE TO BECOME AFFIXED
TO OR FIXTURES ON THE LAND DESCRIBED IN OR
REFERRED TO IN EXHIBIT A HERETO. THIS
FINANCING STATEMENT IS TO BE FILED FOR
RECORD OR RECORDED, AMONG OTHER PLACES,
IN THE REAL ESTATE RECORDS OR SIMILAR
RECORDS OF EACH COUNTY IN WHICH SAID LAND
OR ANY PORTION THEREOF IS LOCATED. THE
MORTGAGOR IS THE OWNER OF RECORD INTEREST
IN THE REAL ESTATE CONCERNED. THIS
INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX
OF FINANCING STATEMENTS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S>
<C>
ARTICLE I
Grant of
Lien and Indebtedness Secured
Section
1.01 Grant of
Liens.......................................................
1
Section
1.02 Grant of
Security Interest...........................................
4
Section
1.03
Indebtedness
Secured.................................................
5
Section
1.04 Fixture
Filing, Etc..................................................
5
Section
1.05 Defined
Terms........................................................
5
ARTICLE II
Assignment
of Production, Accounts and Proceeds
Section
2.01
Assignment...........................................................
5
Section
2.02 Rights
Under Certain Lien Statutes...................................
6
Section
2.03 No
Modification of Payment Obligations...............................
6
Section
2.04
Effectuating Payment of Production Proceeds to
Mortgagee............. 7
Section
2.05 Application
of Production Proceeds...................................
7
Section
2.06 Release
from Liability; Indemnification..............................
7
ARTICLE III
Representations, Warranties and Covenants
Section
3.01
Title................................................................
8
Section
3.02 Defend
Title.........................................................
8
Section
3.03 Not a
Foreign Person.................................................
9
Section
3.04 Rentals
Paid; Leases in Effect.......................................
9
Section
3.05 Operation
By Third Parties...........................................
9
Section
3.06 Failure to
Perform...................................................
9
Section
3.07 Sale,
Encumbrance or Removal.........................................
9
Section
3.08 Sale of
Production...................................................
10
Section
3.09 Operation
of Mortgaged Property......................................
10
Section 3.10 Suits and
Claims.....................................................
11
Section
3.11
Environmental........................................................
11
Section
3.12 Not Abandon
Wells; Participate in Operations.........................
12
Section
3.13
Condemnation
Awards..................................................
13
Section
3.14
Insurance............................................................
13
Section
3.15 Compliance
with Leases...............................................
13
Section
3.16 Further
Assurance....................................................
13
Section
3.17 Name and
Place of Business...........................................
14
Section
3.18 Compliance
with Laws and Agreements..................................
14
Section
3.19 Inspection;
Management...............................................
14
ARTICLE IV
Rights and
Remedies
Section
4.01 Event of
Default.....................................................
15
Section
4.02 Foreclosure
and Sale.................................................
15
Section
4.03
Agents...............................................................
16
Section
4.04 Judicial
Foreclosure; Receivership...................................
16
</TABLE>
i
<PAGE>
<TABLE>
<S>
<C>
Section
4.05 Foreclosure
for Installments.........................................
16
Section
4.06 Separate
Sales.......................................................
17
Section
4.07 Possession
of Mortgaged Property.....................................
17
Section
4.08 Occupancy
After Foreclosure..........................................
17
Section
4.09 Remedies
Cumulative, Concurrent and Nonexclusive.....................
17
Section
4.10 No Release
of Obligations............................................
18
Section
4.11 Release of
and Resort to Collateral..................................
18
Section
4.12 Waiver of
Redemption, Notice and Marshalling of Assets, Etc..........
18
Section
4.13
Discontinuance of
Proceedings........................................ 18
Section
4.14 Application
of Proceeds..............................................
19
Section
4.15 Resignation
of Operator..............................................
19
Section
4.16
Indemnity............................................................
19
ARTICLE V
Trustee
Section
5.01 Duties,
Rights, and Powers of Trustee................................
20
Section
5.02 Successor
Trustee....................................................
20
Section
5.03 Retention
of Moneys..................................................
20
ARTICLE VI
Miscellaneous
Section
6.01 Instrument
Construed as Mortgage, Etc................................
21
Section
6.02 Release of
Mortgage..................................................
21
Section
6.03
Severability.........................................................
21
Section
6.04 Successors
and Assigns of Parties....................................
21
Section
6.05
Satisfaction of Prior
Encumbrance.................................... 21
Section
6.06 Subrogation
of Trustee...............................................
21
Section 6.07
Nature of
Covenants..................................................
22
Section
6.08
Notices..............................................................
22
Section
6.09
Counterparts.........................................................
22
Section
6.10 Effective
as a Financing Statement...................................
22
Section
6.11 No
Impairment of Security............................................
22
Section
6.12 Acts Not
Constituting Waiver.........................................
22
Section
6.13 Mortgagor's
Successors...............................................
23
Section
6.14 Certain
Consents.....................................................
23
Section
6.15 Governing
Law........................................................
23
Section
6.16 Exculpation
Provisions...............................................
23
Section
6.17 FINAL
AGREEMENT......................................................
24
Section
6.18 Prior
Mortgages......................................................
24
</TABLE>
ii
<PAGE>
MORTGAGE, DEED OF TRUST, ASSIGNMENT OF
PRODUCTION, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING
STATEMENT
This
MORTGAGE, DEED OF TRUST, ASSIGNMENT OF PRODUCTION, SECURITY
AGREEMENT, FIXTURE FILING AND FINANCING
STATEMENT (this "Mortgage") is entered
into as of the effective time and date
hereinafter stated (the "Effective Date")
by DOLPHIN ENERGY CORPORATION, a Nevada
corporation, 1331 - 17th Street, Suite
730, Denver, Colorado 80202 ("Mortgagor"),
to _________________, as Trustee,
whose address for notice is
_____________________________________ ("Trustee")
for the benefit of PROMETHEAN ASSET
MANAGEMENT L.L.C., a Delaware limited
liability company, 750 Lexington, 22nd
Floor, New York, New York 10022, on its
own behalf and in its capacity as
collateral agent (the "Collateral Agent") for
the benefit of the holders of the Notes (as
defined below) ("Mortgagee").
R E C I T A L S:
A.
Pursuant
to that certain Securities Purchase Agreement dated as of
August 19, 2004 (as amended, restated,
supplemented or otherwise modified from
time to time, the "Purchase Agreement"),
between Galaxy Energy Corporation, a
Colorado corporation ("Galaxy") and the
investors listed on the Schedule of
Buyers thereto, each of which is a holder
of a Note (as defined below) (together
with their respective successors and
assigns, the "Holders"), each initial
Holder made loans and certain other
financial accommodations (collectively, the
"Loans") to Galaxy, as evidenced by those
certain Senior Secured Convertible
Notes, dated as of August 19, 2004, made by
Galaxy payable to each applicable
Holder in the original aggregate principal
amount of up to $20,000,000 (such
notes, together with any promissory notes
or other securities issued in exchange
or substitution therefor or replacement
thereof, and as any of the same may be
amended, restated, modified or supplemented
and in effect from time to time,
being herein referred to as the
"Notes").
B.
Mortgagor
has executed and delivered to Mortgagee that certain
Guaranty dated as of the date hereof as
amended, restated, supplemented or
otherwise modified from time to time, the
"Guaranty"), pursuant to which
Mortgagor has guaranteed all of the
"Obligations" under (and as defined in) the
Guaranty.
C.
Mortgagor has agreed that
all of the Indebtedness (as defined in
Section 1.03 hereof) is intended to be
secured in part by this Mortgage and
recorded in those jurisdictions as set
forth on, Schedule 1 of this Mortgage.
D.
Each
Holder has conditioned its obligation to make the Loans upon
the execution and delivery by Mortgagor of
this Mortgage, and Mortgagor has
agreed to enter into this Mortgage.
THEREFORE,
in order to comply with the terms and conditions of the
Purchase Agreement and for other good and
valuable consideration, the receipt
and sufficiency of which are hereby
acknowledged, Mortgagor hereby agrees with
Mortgagee as follows:
ARTICLE I
Grant of Lien and Indebtedness Secured
Section
1.01 Grant of Liens. To secure payment of the Indebtedness (as
defined in Section 1.03) and the
performance of the covenants and obligations
herein contained, Mortgagor does by these
presents hereby GRANT, BARGAIN, SELL,
ASSIGN, MORTGAGE, PLEDGE, HYPOTHECATE,
1
<PAGE>
TRANSFER and CONVEY unto Trustee and
Trustee's successors and substitutes in
trust hereunder, WITH A POWER OF SALE, for
the use and benefit of Mortgagee, the
real and personal property, rights, titles,
interests and estates described in
the following paragraphs (a) through (g)
(collectively called the "Mortgaged
Property"):
(a)
All rights,
titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to the oil and
gas leases and/or oil, gas and other
mineral leases, other mineral properties,
mineral servitudes and/or mineral
rights, "as extracted collateral" (as
defined in the Applicable UCC) and other
interests and estates and the lands and
premises covered or affected thereby
which are described on Exhibit A hereto
without regard to any limitations as to
specific lands or depths that may be set
forth in Exhibit A (collectively called
the "Hydrocarbon Property") or which
Hydrocarbon Property is otherwise referred
to herein, and specifically, but without
limitation, the undivided interests of
Mortgagor which are more particularly
described on attached Exhibit A.
(b)
All rights,
titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to (i) the
properties now or hereafter pooled or
unitized with any Hydrocarbon Property;
(ii) all presently existing or future
unitization, communitization, pooling
agreements and designations, orders or
declarations of pooled units and the units
created thereby (including, without
limitation, all units created under orders,
regulations, rules or other official
acts of any Federal, State or other
governmental body or agency having
jurisdiction and any units created solely
among working interest owners pursuant
to operating agreements or otherwise) which
may affect all or any portion of the
Hydrocarbon Property including, without
limitation, those units which may be
described or referred to on attached
Exhibit A; (iii) all operating agreements,
production sales or other contracts,
processing agreements, transportation
agreements, gas balancing agreements,
farmout agreements, farm-in agreements,
salt water disposal agreements, area of
mutual interest agreements, equipment
leases and other agreements described or
referred to in this Mortgage or which
relate to any of the Hydrocarbon Property
or interests in the Hydrocarbon
Property described or referred to herein or
on attached Exhibit A or to the
production, sale, purchase, exchange,
processing, handling, storage,
transporting or marketing of the
Hydrocarbons (as defined in Section 1.01(c)
hereof) from or attributable to such
Hydrocarbon Property or interests; (iv) all
geological, geophysical, engineering,
accounting, title, legal, and other
technical or business data concerning the
Mortgaged Property, the Hydrocarbons,
or any other item of Property which are in
the possession of Mortgagor or in
which Mortgagor can otherwise grant a
security interest, and all books, files,
records, magnetic media, computer records,
and other forms of recording or
obtaining access to such data; and (v) the
Hydrocarbon Property described on
attached Exhibit A and covered by this
Mortgage even though Mortgagor's
interests therein be incorrectly described
or a description of a part or all of
such Hydrocarbon Property or Mortgagor's
interests therein be omitted; it being
intended by Mortgagor and Mortgagee herein
to cover and affect hereby all
interests which Mortgagor may now own or
may hereafter acquire in and to the
Hydrocarbon Property notwithstanding that
the interests as specified on Exhibit
A may be limited to particular lands,
specified depths or particular types of
property interests.
(c)
All rights,
titles, interests and estates now owned or hereafter
acquired by Mortgagor in and to all oil,
gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined
therefrom and all other minerals
(collectively called the "Hydrocarbons") in and
under and which may be produced and saved
from or attributable to the
Hydrocarbon Property, the lands pooled or
unitized therewith and Mortgagor's
interests therein, including all oil in
tanks and all rents, issues, profits,
proceeds, products, revenues and other
income from or attributable to the
Hydrocarbons, the Hydrocarbon Property, the
lands pooled or unitized therewith
and Mortgagor's interests therein.
(d)
All tenements,
hereditaments, appurtenances and properties in
anywise appertaining, belonging, affixed or
incidental to the Hydrocarbon
Property, rights, titles, interests and
estates described
2
<PAGE>
or referred to in paragraphs (a) and (b)
above, which are now owned or which may
hereafter be acquired by Mortgagor,
including, without limitation, any and all
property, real or personal, now owned or
hereafter acquired and situated upon,
used, held for use, or useful in connection
with the operating, working,
extraction, treatment, marketing,
gathering, transmission or development of any
of such Hydrocarbon Property or the lands
pooled or unitized therewith
(excluding drilling rigs, trucks,
automotive equipment or other personal
property which may be taken to the premises
for the purpose of drilling a well
or for other similar temporary uses) and
including any and all oil wells, gas
wells, injection wells or other wells,
buildings, structures, field separators,
liquid extraction plants, plant
compressors, pumps, pumping units, pipelines,
sales and flow lines, gathering systems,
field gathering systems, salt water
disposal facilities, tanks and tank
batteries, fixtures, valves, fittings,
machinery and parts, engines, boilers,
meters, apparatus, goods, inventory,
equipment, appliances, tools, implements,
cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way,
easements, servitudes, licenses and
other surface and subsurface rights
together with all additions, substitutions,
replacements, accessions and attachments to
any and all of the foregoing
properties.
(e)
Any property
that may from time to time hereafter, by delivery or by
writing of any kind, be subjected to the
lien and security interest hereof by
Mortgagor or by anyone on Mortgagor's
behalf; and Trustee or Mortgagee is hereby
authorized to receive the same at any time
as additional security hereunder.
(f)
All of the
rights, titles and interests of every nature whatsoever
now owned or hereafter acquired by
Mortgagor in and to the Hydrocarbon Property
rights, titles, interests and estates and
every part and parcel thereof,
including, without limitation, the
Hydrocarbon Property rights, titles,
interests and estates as the same may be
enlarged by the discharge of any
payments out of production or by the
removal of any charges or Permitted
Encumbrances (as hereinafter defined in
Section 3.01) to which any of the
Hydrocarbon Property rights, titles,
interests or estates are subject, or
otherwise; all rights of Mortgagor to liens
and security interests securing
payment of proceeds from the sale of
production from the Mortgaged Property,
including, but not limited to, those liens
and security interests provided in
Section 9.319 of the Applicable UCC (as
defined in Section 1.02), as amended
from time to time, any other statute
enacted in the jurisdiction in which the
Hydrocarbon Property is located or statute
made applicable to the Hydrocarbon
Property under federal law (or some
combination of federal and state law);
together with any and all renewals and
extensions of any of the Hydrocarbon
Property rights, titles, interests or
estates; all contracts and agreements
supplemental to or amendatory of or in
substitution for the contracts and
agreements described or mentioned above;
and any and all additional interests of
any kind hereafter acquired by Mortgagor in
and to the Hydrocarbon Property
rights, titles, interests or estates.
(g)
All accounts,
contract rights, inventory, choses in action (i.e.,
rights to enforce contracts or to bring
claims thereunder), commercial tort
claims, general intangibles, insurance
contracts and insurance proceeds
(regardless of whether the same arose,
and/or the events which gave rise to the
same occurred, on or before or after the
date hereof) and all proceeds and
products of all such portions of the
Hydrocarbon Property and payments in lieu
of production, whether such proceeds or
payments are goods, money, documents,
instruments, chattel paper, securities,
accounts, general intangibles, fixtures,
real property, or other assets and
regardless of whether such payments accrued,
and/or the events which gave rise to such
payments occurred, on or before or
after the date hereof, including, without
limitation, "take or pay" payments and
similar payments, payments received in
settlement of or pursuant to a judgment
rendered with respect to take or pay or
similar obligations or other obligations
under a production sales contract, payments
received in buyout or buydown or
other settlement of a production sales
contract, and payments received under a
gas balancing or similar agreement as a
result of (or received otherwise in
settlement of or pursuant to judgment
rendered with respect to) rights held by
Mortgagor as a result of Mortgagor (and/or
its predecessors in title) taking or
having taken less gas from lands covered by
a
3
<PAGE>
Hydrocarbon Property (or lands pooled or
unitized therewith) than its ownership
of such Hydrocarbon Property would entitle
it to receive.
(h)
Without
limitation of the generality of the foregoing, any rights
and interests of Mortgagor under any
present or future hedge or swap agreements,
cap, floor, collar, exchange, forward or
other hedge or protection agreements or
transactions relating to crude oil, natural
gas or other Hydrocarbons, or any
option with respect to any such agreement
or transaction now existing or
hereafter entered into by or on behalf of
Mortgagor.
(i)
All licenses,
permits and other regulatory approvals held by
Mortgagor relating to the Mortgaged
Property.
(j)
All proceeds of
all of the rights, titles and interests of Mortgagor
described in the foregoing paragraphs (a)
through (i) whether such proceeds or
payments are goods, money, documents,
instruments, chattel paper, securities,
accounts, payment intangibles, general
intangibles, fixtures, real/immovable
property, personal/movable property or
other assets.
Any
fractions or percentages specified on attached Exhibit A in
referring
to Mortgagor's interests are solely for
purposes of the warranties made by
Mortgagor pursuant to Sections 3.01 and
3.05 hereof and shall in no manner limit
the quantum of interest affected by this
Section 1.01 with respect to any
Hydrocarbon Property or with respect to any
unit or well identified on said
Exhibit A.
TO HAVE
AND TO HOLD the Mortgaged Property unto Trustee and to his
successors and assigns forever to secure
the payment of the Indebtedness and to
secure the performance of the covenants,
agreements, and obligations of
Mortgagor herein contained.
Section
1.02 Grant of Security Interest. To further secure the
Indebtedness, Mortgagor hereby grants to
Mortgagee a security interest in and to
the Mortgaged Property (whether now or
hereafter acquired by operation of law or
otherwise) insofar as the Mortgaged
Property consists of equipment, accounts,
contract rights, general intangibles,
insurance contracts, insurance proceeds,
inventory, Hydrocarbons, fixtures and any
and all other personal property of any
kind or character defined in and subject to
the provisions of the Uniform
Commercial Code presently in effect in the
jurisdiction in which the Mortgaged
Property is situated ("Applicable UCC"),
including the proceeds and products
from any and all of such personal property.
Upon the happening of any of the
Events of Default (as defined in Section
4.01), Mortgagee is and shall be
entitled to all of the rights, powers and
remedies afforded a secured party by
the Applicable UCC with reference to the
personal property and fixtures in which
Mortgagee has been granted a security
interest herein, or Trustee or Mortgagee
may proceed as to both the real and
personal property covered hereby in
accordance with the rights and remedies
granted under this Mortgage in respect
of the real property covered hereby. Such
rights, powers and remedies shall be
cumulative and in addition to those granted
to Trustee or Mortgagee under any
other provision of this Mortgage or under
any other security instrument. Written
notice mailed to Mortgagor as provided
herein at least five (5) Business Days
(as defined in the Note) prior to the date
of public sale of any part of the
Mortgaged Property which is personal
property subject to the provisions of the
Applicable UCC, or prior to the date after
which private sale of any such part
of the Mortgaged Property will be made,
shall constitute reasonable notice.
Except as otherwise expressly provided in
this Mortgage, all terms in this
Mortgage relating to the Mortgaged Property
and the grant of the foregoing
security interest which are defined in the
Applicable UCC shall have the
meanings assigned to them in Article 9 (or,
absent definition in Article 9, in
any other Article) of the Applicable UCC,
as those meanings may be amended,
revised or replaced from time to time.
Notwithstanding the foregoing, the
parties intend that the terms
4
<PAGE>
used herein which are defined in the
Applicable UCC have, at all times, the
broadest and most inclusive meanings
possible.
Section
1.03 Indebtedness Secured. This Mortgage is executed and
delivered
by Mortgagor to secure and enforce the
following (the "Indebtedness"):
(a)
Payment of and
performance of any and all indebtedness, obligations
and liabilities of Mortgagor pursuant to
the Guaranty including the
"Obligations" under and as defined in such
Guaranty.
(b)
Payment of and
performance of any and all other indebtedness,
obligations and liabilities of Mortgagor,
Galaxy and any direct or indirect
subsidiary of Galaxy (collectively, the
"Galaxy Parties") pursuant to the
Purchase Agreement, the Notes, the
Warrants, the Registration Rights Agreement,
the Guaranty, the other Security Documents
(as defined in the Note) and all of
the other documents and instruments
contemplated thereby and executed in
connection therewith including
(collectively, the "Loan Documents"), including,
without limitation, (i) principal and
interest (including without limitation,
interest accruing subsequent to the filing
of a petition or other action
concerning bankruptcy or other similar
proceeding) on the Notes, (ii)
reimbursement obligations under any letters
of credit, (iii) obligations under
any hedging agreements with any Holder or
their respective affiliates, and (iv)
obligations owing under any other Loan
Document; and all renewals, extensions,
rearrangements and/or other modifications
of any of the foregoing.
(c)
Any sums which
may be advanced or paid by Mortgagee, Trustee or any
Holder under the terms hereof or under any
other Loan Document on account of the
failure of Mortgagor or any other Galaxy
Party to comply with the covenants
contained herein or in any other Loan
Document; and all other indebtedness of
Galaxy Parties arising pursuant to the
provisions of the Loan Documents, this
Mortgage and any other documents or
instruments executed in connection
therewith.
(d)
Without limiting
the generality of the foregoing, all post-petition
interest, expenses and other duties and
liabilities with respect to indebtedness
or other obligations described above in
this Section 1.03, which would be owed
but for the fact that they are
unenforceable or not allowable due to the
existence of a bankruptcy, reorganization
or similar proceeding.
Section
1.04 Fixture Filing, Etc. Without in any manner limiting the
generality of any of the other provisions
of this Mortgage: (i) some portions of
the goods described or to which reference
is made herein are or are to become
fixtures on the land described or to which
reference is made herein or on
attached Exhibit A; (ii) the security
interests created hereby under applicable
provisions of the Applicable UCC will
attach to Hydrocarbons (minerals including
oil and gas), as extracted collateral or
the accounts resulting from the sale
thereof at the wellhead or minehead located
on the land described or to which
reference is made herein; (iii) this
Mortgage is to be filed of record in the
real estate records as a financing
statement, and (iv) Mortgagor is the record
owner of the real estate or interests in
the real estate comprised of the
Mortgaged Property.
Section
1.05 Defined Terms. Any capitalized term used in this Mortgage
and
not defined in this Mortgage shall have the
meaning assigned to such term in the
Purchase Agreement.
ARTICLE II
Assignment of Production, Accounts and Proceeds
Section
2.01 Assignment. Mortgagor has absolutely and unconditionally
assigned, transferred, and conveyed, and
does hereby absolutely and
unconditionally assign, transfer and
convey
5
<PAGE>
unto Mortgagee, its successors and assigns,
all of the Hydrocarbons and all
products obtained or processed therefrom,
and the revenues and proceeds now and
hereafter attributable to the Hydrocarbons
and said products and all accounts
arising therefrom or in connection
therewith and all payments in lieu of the
Hydrocarbons such as "take or pay" payments
or settlements (the "Production
Proceeds"), together with the immediate and
continuing right to collect and
receive such Production Proceeds. The
Hydrocarbons and products are to be
delivered into pipe lines connected with
the Mortgaged Property, or to the
purchaser thereof, to the credit of
Mortgagee, free and clear of all taxes,
charges, costs, and expenses; and all such
Production Proceeds shall be paid
directly to a Deposit Account subject to a
Bank Agency Agreement (in each case,
as defined in that certain Security
Agreement of even date herewith), with no
duty or obligation of any party paying the
same to inquire into the rights of
Mortgagee to receive the same, what
application is made thereof, or as to any
other matter. Mortgagor directs and
instructs any and all purchasers of any
Hydrocarbons to pay to such Deposit
Accounts all of the Production Proceeds
accruing to Mortgagor's interest until such
time as such purchasers have been
furnished with evidence that all
Indebtedness has been paid and that this
Mortgage has been released. Mortgagor
agrees that no purchasers of the
Hydrocarbons shall have any responsibility
for the application of any funds paid
to Mortgagee. Mortgagor agrees to perform
all such acts, and to execute all such
further assignments, transfer orders and
division orders, and other instruments
as may be required or desired by Mortgagee
or any party in order to have the
Production Proceeds paid to Mortgagee. Upon
the occurrence of an Event of
Default, Mortgagee is fully authorized to
receive and receipt for the Production
Proceeds; to endorse and cash any and all
checks and drafts payable to the order
of Mortgagor or Mortgagee for the account
of Mortgagor received from or in
connection with the Production Proceeds and
to hold the Production Proceeds in a
bank account as additional collateral
securing the Indebtedness; and to execute
transfer and division orders in the name of
Mortgagor, or otherwise, with
warranties binding Mortgagor. All
Production Proceeds received by Mortgagee
pursuant to this assignment shall be
applied as provided in the other Loan
Documents. Mortgagee shall not be liable
for any delay, neglect or failure to
effect collection of any Production
Proceeds or to take any other action in
connection therewith or hereunder; but
Mortgagee shall have the right, at its
election, in the name of Mortgagor or
otherwise, to prosecute and defend any and
all actions or legal proceedings deemed
advisable by Mortgagee in order to
collect such funds and to protect the
interests of Mortgagee, and/or Mortgagor,
with all costs, expenses and attorneys'
fees incurred in connection therewith
being paid by Mortgagor and until so paid
being a part of the Indebtedness
secured by this Mortgage. Mortgagor hereby
appoints Mortgagee as its
attorney-in-fact to pursue any and all
rights of Mortgagor to liens on and
security interests in the Hydrocarbons
securing payment of proceeds of runs
attributable to the Hydrocarbons. In
addition to the rights granted to Trustee
and/or Mortgagee in Section 1.01 (f) of
this Mortgage, Mortgagor hereby further
transfers and assigns to Mortgagee any and
all such liens, security interests,
financing statements or similar interests
of Mortgagor attributable to its
interest in the Hydrocarbons and proceeds
of runs therefrom arising under or
created by any statutory provision,
judicial decision or otherwise. The power of
attorney granted to Mortgagee in this
Section 2.01, being coupled with an
interest, shall be irrevocable so long as
the Indebtedness or any part thereof
remains unpaid.
Section
2.02 Rights Under Certain Lien Statutes. Mortgagor hereby
grants,
sells, assigns, sets over and mortgages
unto Trustee, during the term hereof,
all of Mortgagor's rights and interests
pursuant to the provisions of Section
9.319 of the Applicable UCC, of the Oil and
Gas Owners Lien Act, 52 O.S. Section
548.2 and of any similar state or local
jurisdiction statute in any state
wherein the Mortgaged Property is located,
hereby vesting in Trustee all of
Mortgagor's rights as an interest owner to
the continuing security interest in
and liens upon the Mortgaged Property.
Section
2.03 No Modification of Payment Obligations. Nothing herein
contained shall modify or otherwise alter,
limit or modify the absolute
obligation of Mortgagor and the other
Galaxy Parties to make prompt payment of
all principal and interest owing on the
Indebtedness when and as the same
6
<PAGE>
become due regardless of whether the
Production Proceeds are sufficient to pay
the same and the rights provided in
accordance with the foregoing assignment
provision shall be cumulative of all other
security of any and every character
now or hereafter existing to secure payment
of the Indebtedness.
Section
2.04 Effectuating Payment of Production Proceeds to Mortgagee.
If
under any existing sales agreements, other
than division orders or transfer
orders, any Production Proceeds are
required to be paid by the purchaser to
Mortgagor so that under such existing
agreements payment cannot be made of such
Production Proceeds to Mortgagee,
Mortgagor's interest in all Production
Proceeds under such sales agreements and in
all other Production Proceeds which
for any reason may be paid to Mortgagor
shall, when received by Mortgagor,
constitute trust funds in Mortgagor's hands
and shall be immediately paid over
to Mortgagee. Without limitation upon any
of the foregoing, Mortgagor hereby
constitutes and appoints Mortgagee as
Mortgagor's special attorney-in-fact (with
full power of substitution, either
generally or for such periods or purposes as
Mortgagee may from time to time prescribe)
in the name, place and stead of
Mortgagor to do any and every act and
exercise any and every power that
Mortgagor might or could do or exercise
personally with respect to all
Hydrocarbons and Production Proceeds
expressly inclusive, but not limited to,
giving and granting unto said
attorney-in-fact full power and authority to do
and perform any and every act and thing
whatsoever necessary and requisite to be
done as fully and to all intents and
purposes, as Mortgagor might or could do if
personally present; and Mortgagor shall be
bound thereby as fully and
effectively as if Mortgagor had personally
executed, acknowledged and delivered
any of the foregoing certificates or
documents. The powers and authorities
herein conferred upon Mortgagee may be
exercised by Mortgagee through any person
who, at the time of the execution of the
particular instrument, is an officer of
Mortgagee. The power of attorney herein
conferred is granted for valuable
consideration and hence is coupled with an
interest and is irrevocable so long
as the Indebtedness, or any part thereof,
shall remain unpaid. All persons
dealing with Mortgagee or any substitute
shall be fully protected in treating
the powers and authorities conferred by
this paragraph as continuing in full
force and effect until advised by Mortgagee
that all the Indebtedness is fully
and totally paid. Mortgagee may, but shall
not be obligated to, take such action
as it deems appropriate in an effort to
collect the Production Proceeds and any
reasonable expenses (including reasonable
attorney's fees) so incurred by
Mortgagee shall be a demand obligation of
Mortgagor and shall be part of the
Indebtedness, and shall bear interest each
day, from the date of such
expenditure or payment until paid, at the
rate described the Note plus 2% per
annum.
Section
2.05 Application of Production Proceeds. The Production
Proceeds
received by Mortgagee during each calendar
month shall be paid deposited into a
Deposit Account in accordance with Section
2.01 hereof. After an Event of
Default hereunder has occurred, all
Production Proceeds from time to time in the
hands of Mortgagee shall be applied to the
payment of the Indebtedness at such
times and in such manner and order as
Mortgagee determines in Mortgagee's sole
and absolute discretion.
Section
2.06 Release from Liability; Indemnification. Mortgagee and its
successors and assigns are hereby released
and absolved from all liability for
failure to enforce collection of the
Production Proceeds and from all other
responsibility in connection therewith,
except the responsibility to account to
Mortgagor for funds actually received.
Mortgagor agrees to indemnify and hold
harmless Mortgagee (for purposes of this
paragraph, the term "Mortgagee" shall
include the directors, officers, partners,
employees and agents of Mortgagee and
any persons or entities owned or controlled
by or affiliated with Mortgagee and
any other Indemnified Party as defined in
Section 4.16 hereof) from and against
all claims, demands, liabilities, losses,
damages (including without limitation
consequential damages), causes of action,
judgments, penalties, costs and
expenses (including without limitation
reasonable attorneys' fees and expenses)
imposed upon, asserted against or incurred
or paid by Mortgagee by reason of the
assertion that Mortgagee received, either
before or after payment in full of the
Indebtedness, funds from the production of
oil, gas, other hydrocarbons or other
minerals claimed by third
7
<PAGE>
persons (and/or funds attributable to sales
of production which were made in
violation of laws, rules, regulations
and/or orders governing such sales), and
Mortgagee shall have the right to defend
against any such claims or actions,
employing attorneys of its own selection,
and if not furnished with indemnity
satisfactory to it, Mortgagee shall have
the right to compromise and adjust any
such claims, actions and judgments, and in
addition to the rights to be
indemnified as herein provided, all amounts
paid by Mortgagee in compromise,
satisfaction or discharge of any such
claim, action or judgment, and all court
costs, reasonable attorneys' fees and other
expenses of every character expended
by Mortgagee pursuant to the provisions of
this section shall be a demand
obligation (which obligation Mortgagor
hereby expressly promises to pay) owing
by Mortgagor to Mortgagee and shall bear
interest, from the date expended until
paid, at the interest rate described in the
Note plus 2%. The foregoing
indemnities shall not terminate upon the
release, foreclosure or other
termination of this Mortgage but will
survive the release, foreclosure of this
Mortgage or conveyance in lieu of
foreclosure, and the repayment of the
Indebtedness and the discharge and release
of this Mortgage and the other
documents evidencing and/or securing the
Indebtedness. WITHOUT LIMITATION, IT IS
THE INTENTION OF MORTGAGOR AND MORTGAGOR
AGREES THAT THE FOREGOING RELEASES AND
INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED
PARTY WITH RESPECT TO ALL CLAIMS,
DEMANDS, LIABILITIES, LOSSES, DAMAGES
(INCLUDING WITHOUT LIMITATION
CONSEQUENTIAL DAMAGES), CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS' FEES AND EXPENSES)
WHICH IN WHOLE OR IN PART ARE CAUSED BY OR
ARISE OUT OF THE NEGLIGENCE OF SUCH
(AND/OR ANY OTHER) INDEMNIFIED PARTY.
However, such indemnities shall not apply
to any particular indemnified party (but
shall apply to the other indemnified
parties) to the extent the subject of the
indemnification is caused by or arises
out of the gross negligence or willful
misconduct of such particular indemnified
party.
ARTICLE III
Representations, Warranties and Covenants
Mortgagor
hereby represents, warrants and covenants as follows:
Section
3.01 Title. Mortgagor owns an undivided working interest in
each
Mortgaged Property of not more than the
working interest set forth in Exhibit A
attached hereto (to the extent the interest
of Mortgagor is a working interest
as opposed to a royalty interest) and
Mortgagor owns an undivided net revenue
interest or royalty interest in each
Mortgaged Property of not less than the net
revenue or royalty interest set forth in
Exhibit A attached hereto. Mortgagor
has defensible title to each Mortgaged
Property except for: (i) the contracts,
agreements, burdens, encumbrances and other
matters set forth in the
descriptions of the Mortgaged Property on
Exhibit A hereto, (ii) the liens and
security interests evidenced by this
Mortgage, (iii) statutory liens for taxes
which are not yet delinquent, (iv) liens
under operating agreements, pooling
orders and unitization agreements, and
mechanics' and materialmen's liens, with
respect to obligations which are not yet
due, (v) statutory liens related to the
purchase of crude oil in the ordinary
course of business, (vi) statutory liens
or privileges with respect to obligations
not yet due, and (vii) other liens and
security interests (if any) in favor of
Mortgagee (collectively, the "Permitted
Encumbrances").
Section
3.02 Defend Title. This Mortgage is, and always will be kept, a
direct first lien and security interest
upon the Mortgaged Property subject only
to the Permitted Encumbrances and Mortgagor
will not create or suffer to be
created or permit to exist any lien,
security interest or charge prior or junior
to or on a parity with the lien and
security interest of this Mortgage upon the
Mortgaged Property or any part thereof or
upon the rents, issues, revenues,
profits and other income therefrom.
Mortgagor will
8
<PAGE>
warrant and defend the title to the
Mortgaged Property against the claims and
demands of all other persons whomsoever and
will maintain and preserve the lien
created hereby so long as any of the
Indebtedness secured hereby remains unpaid.
Should an adverse claim be made against or
a cloud develop upon the title to any
part of the Mortgaged Property, Mortgagor
agrees it will immediately defend
against such adverse claim or take
appropriate action to remove such cloud at
Mortgagor's cost and expense, and Mortgagor
further agrees that Trustee and/or
Mortgagee may take such other action as
they deem advisable to protect and
preserve their interests in the Mortgaged
Property, and in such event Mortgagor
will indemnify Trustee and Mortgagee
against any and all cost, attorney's fees
and other expenses which they may incur in
defending against any such adverse
claim or taking action to remove any such
cloud.
Section
3.03 Not a Foreign Person. Mortgagor is not a "foreign person"
within the meaning of the Internal Revenue
Code of 1986, as amended (hereinafter
called the "Code"), Sections 1445 and 7701
(i.e. Mortgagor is not a non-resident
alien, foreign corporation, foreign
partnership, foreign trust or foreign estate
as those terms are defined in the Code and
any regulations promulgated
thereunder).
Section
3.04 Rentals, Taxes, Insurance and Fees Paid; Leases in Effect.
All rentals and royalties due and payable
in accordance with the terms of any
leases or subleases comprising a part of
the Hydrocarbon Property and all
severance and production taxes payable with
respect to the production therefrom
have been duly paid or provided for and all
leases or subleases comprising a
part of the Hydrocarbon Property are in
full force and effect. In addition to
the foregoing, Mortgagee shall or shall
cause to be paid when due, all taxes,
permits, licenses, insurance premiums and
other similar amounts with re
