AGREEMENT
THIS AGREEMENT ("Agreement") is made effective this ____ day of May, 1999,
by XXXXXX X. XXXXXXX XX. ("Xxxxxxx") and FAN ENERGY INC., a Nevada corporation
("Fan").
RECITALS
X. Xxxxxxx is the Chairman and a substantial shareholder of Fan. The Board
of Directors of Fan has requested that Xxxxxxx guarantee a line of credit loan
made to Fan by U.S. National Bank, Denver, Colorado, in the amount of $150,000
(the "Fan Loan").
X. Xxxxxxx has agreed to guarantee the repayment of the Fan Loan only if:
(i) Fan agrees that no person other than Xxxxxxx holds or will acquire any lien,
security interest, mortgage or similar interest in and to any interest in any
oil or natural gas producing or exploration property in any state and (ii) that
Fan will indemnify Xxxxxxx from any loss, damage or expense to Xxxxxxx as a
consequence of his guarantee of the Fan Loan.
X. Xxxxxxx, as a shareholder of Fan, expects to derive indirect benefit
from the Fan Loan as portion of the proceeds will be used to repay accounts owed
by Fan to Xxxxxxx and for development of Fan's oil and gas properties to the
benefit of shareholders, including Xxxxxxx.
D. As a condition for guarantying the Fan Loan, Xxxxxxx has required that
Fan enter into this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the matters recited above, the receipt
and sufficiency of which is mutually acknowledged, Fan hereby undertakes and
agrees as follows, intending to be legally bound:
1. Maintain Properties Free From Liens. Fan represents that no person or
entity holds any lien, security interest, mortgage or similar interests (other
than liens for taxes arising in the ordinary course, statutory materialmen and
supplier's liens for obligations not in default) with respect to any interest in
any oil or natural gas properties in which Fan holds an interest. Fan agrees it
will permit nor suffer no person or entity to acquire any lien, security,
mortgage or similar interest in any of such properties without the prior written
consent of Xxxxxxx at any time while the Fan Loan is outstanding and Xxxxxxx'x
guarantee remains in place. Further, Fan agrees that while the Xxxxxxx guarantee
is in place, it will promptly pay or cause to be paid all amounts due to any
materialman, supplier or similar provider of goods or services who could, in the
absence of payment, be deemed to hold a mechanic's or similar lien with respect
to all oil or natural gas properties in which Fan holds an interest. Any
material breach of provisions of this Section 1 shall be deemed to constitute a
default of this Agreement.
2. Indemnification. In the event Xxxxxxx suffers any Adverse Consequences
(as defined below) as a result of his guarantee of the Fan Loan (the "Guaranty")
or arising out of, relating to, in the nature of or cause by the existence of
such Guaranty, then Fan shall indemnify Xxxxxxx from and against the entirety of
any Adverse Consequences that Xxxxxxx may suffer through and after the date of
the claim for indemnification. For purposes of this paragraph, Adverse
Consequences shall include: the payment to U. S. National Bank by Xxxxxxx of any
amount required to be paid by Fan under the Fan Loan, all damages from
complaints, actions, suits, proceedings, hearings, investigations, claims,
demands, judgments, orders, decrees, stipulations, injunctions, damages, dues,
penalties, fines, costs, amounts paid in settlement, liabilities, obligations,
taxes, liens, losses, expenses and fees, including all reasonable attorneys'
fees and court costs.
In that event that an obligation to indemnify Xxxxxxx arises under this
Section 1, then Fan shall, immediately upon the receipt of written notice from
Xxxxxxx, pay to Xxxxxxx an amount equal to Xxxxxxx'x out-of-pocket losses
incurred as a result of the Guaranty.
In the event that the Bank notifies Xxxxxxx of any Event of Default under
any document evidencing or securing the Fan Loan ("Loan Documents"), then
Xxxxxxx shall notify Fan in writing, provided, however, that no delay on the
part of Xxxxxxx in notifying Fan shall relieve Fan from any liability or
obligation hereunder unless (and then solely to the extent) Fan is thereby
damaged and materially prejudiced from adequately defending such claim. In the
event Xxxxxxx so notifies Xxx, Xxx shall defend Xxxxxxx against the matter, with
counsel of Xxxxxxx'x choice reasonably satisfactory to Fan. Xxxxxxx may retain
separate co-counsel at his sole cost and expense. In no event shall Fan consent
to the entry of any judgment or enter into any settlement or compromise with
respect to the matter without the written consent of Xxxxxxx which consent shall
not be unreasonably withheld. Further, Fan will not consent to the entry of any
judgment with respect to the matter, or enter into any settlement or compromise
which does not include a provision whereby the plaintiff or claimant in the
matter releases Xxxxxxx from all liability with respect thereto without the
written consent of Xxxxxxx, which consent shall not be unreasonably withheld.
3. Security for Obligations of Fan. As security to Xxxxxxx for the prompt
payment of amounts which may become due to Xxxxxxx under this Agreement, Fan
shall execute and deliver to Xxxxxxx a mortgage on all of the interests of Fan
in oil and natural gas producing, nonproducing and exploratory properties in
Sweetwater County, Wyoming and Xxxxxx County, California. Such mortgage shall
create a first-in-priority security interest in favor of Xxxxxxx as security for
the prompt payment by Fan of the obligations set forth in this Agreement and
shall include a security interest in all oil or natural gas properties in
Sweetwater County, Wyoming and Xxxxxx County, California in which Fan has an
interest at the time that the mortgage is to be filed of record and recorded. If
at any time Fan is unable to make a payment of required interest or principal or
to make other payments to the Bank as required under the Loan Documents and it
appears to Xxxxxxx, in his reasonable judgment, that Xxxxxxx will be called upon
to make such payments to the Bank under the Guaranty, then Xxxxxxx shall be and
hereby is authorized, without further action, to cause to be prepared, signed by
Xxxxxxx as an officer of Fan and filed and recorded in the appropriate
governmental offices, one or more mortgages or other instruments creating
security interests to secure the obligations of Fan under this Agreement. The
form of such mortgage or other security interest shall be any form of mortgage
sufficient to create the security interest and lien described in this Agreement
and contemplated by the parties.
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4. Survival. The obligation of Fan hereunder shall survive and continue in
full force and effect until Xxxxxxx has been released by The Bank of his
obligation arising under the Guaranty.
5. Preferential Payment. Fan agrees that to the extent it or Xxxxxxx makes
any payment to the Bank in connection with the Loan Documents and all or any
part of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by the Bank or paid over to a
trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereafter referred to as a "Preferential
Payment"), then this Agreement shall continue to be effective or shall be
reinstated, as the case may be.
6. Authorization of Certain Changes. Fan authorizes Xxxxxxx, without notice
or demand and without affecting Fan's liability hereunder, from time to time, to
renew, modify, compromise, extend, accelerate or otherwise change the terms of
his Guaranty with the Bank, as Xxxxxxx may in his discretion, determine. The
provisions of this Agreement shall extend and be applicable notwithstanding such
renewals, extensions and modifications.
7. Waiver by Fan. Fan waives and agrees not to assert the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
hereof; demand, diligence, presentment for payment, protest and demand, and
notice of extension, dishonor, protest, demand, nonpayment and acceptance;
notice of the existence, creation or incurring of new or additional indebtedness
of Fan to the Bank; the benefits of any laws limiting the liability of a surety;
any defense arising by reason of any disability or other defense of Fan or by
reason of the cessation from any cause whatsoever (other than payment in full)
of the liability of Fan for the sums identified in the Loan Documents; any
defense that may arise by reason of the incapacity, lack of authority, death or
disability of Fan, or the failure of Xxxxxxx to file or enforce a claim against
the estate (either in administration, bankruptcy, or other proceeding) of Fan or
others; any defense based upon an election of remedies by Xxxxxxx, which
destroys or otherwise impairs the right of Fan to proceed against Fan for
reimbursement.
8. Attorneys' Fees. Fan agrees to pay all attorneys' fees and all other
costs and expenses which may be incurred by Xxxxxxx in enforcing Fan's
obligations hereunder.
9. Enforceability. Should any one or more provisions of this Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
10. Entire Agreement. This Agreement sets forth the entire agreement of Fan
and Xxxxxxx with respect to the subject matter hereof and supersedes all prior
oral and written agreements and representations by one party to the other. No
modification or waiver of any provision of this Agreement or any right of
Xxxxxxx hereunder and no release of Fan from a effective unless in a writing
executed by Xxxxxxx. There are no conditions, oral or otherwise, on the
effectiveness of this Agreement.
11. Governing Law. This Agreement shall be governed by and construed
according to the laws of the state of Colorado.
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IN WITNESS WHEREOF these presents are executed as of the day and year first
above written.
FAN ENERGY INC.
By
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Xxxxxxx X. Xxxxxxx, President
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Xxxxxx X. Xxxxxxx Xx.
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Social Security Number
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