Exhibit 10.16
LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into effective as of
the 12th day of March, 2004, by and between FORELAND CORPORATION, a Nevada
corporation whose principal office is in Amarillo, Texas ("Borrower"), and RIATA
ENERGY, INC., a Texas corporation ("Lender").
WITNESSETH:
In consideration of the mutual covenants herein contained, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender agree as follows:
SECTION I
THE LOAN
1.1 The Loan. Lender, upon the terms and subject to the conditions
hereinafter set forth and on the date of this Agreement, agrees to make advances
to Borrower from time to time during the period from the date of this Agreement
to June 11, 2004, in the aggregate principal amount not to exceed $150,000 (the
"Loan").
1.2 Purpose of the Loan. The purpose of the Loan is to provide
operating funds to Borrower. Borrower agrees that the proceeds of the Loan will
be used only for the payment of operating expenses incurred in the ordinary
course of business which includes payment of professional fees, salary
obligations (including accrued but unpaid salary expenses), governmental fees,
filing fees, and other expenses incurred by Borrower in the ordinary course of
business. Prior to the first advance hereunder, Borrower will provide an
operating expense budget (the "Operating Budget") to provide detail of the
anticipated use of advances to be made by Lender.
1.3 Advances. From time to time Xxxxx Xxxxxx, in his capacity as
President of Borrower, shall submit an application for an advance to Lender.
Upon receipt of an application for an advance, Lender shall make the advance to
Borrower if the Borrower has complied with the terms of this Agreement. Advances
are subject to the following limitations and conditions:
a. A written application for advance shall be submitted not
more frequently than monthly and shall detail the operating expenses that will
be paid with the requested advance of loan proceeds;
b. The Lender has no obligation to make advances if the
requested advance would cause Borrower to exceed the budgeted amount for any
budget item under the Operating Budget by more than ten percent (10%); and
c. The Lender has no obligation to make advances unless and
until the conditions precedent set forth below have been satisfied.
1.4 Limitation on Aggregate Amount of Advances. In no event shall
Lender be required to make any advance if the making of such advance would cause
the Loan to exceed $150,000.00 or cause Lender to violate any law, rule, or
regulation to which Lender is subject limiting the amount that may be advanced
by Lender as contemplated in this Agreement.
1.5 The Note.
a. The Loan shall be evidenced by and repaid with interest in
accordance with, a Promissory Note (the "Note") of even date herewith in the
principal amount of up to $150,000.00, with an interest rate equal to the prime
rate of interest published by The Wall Street Journal plus 2% per annum,
executed by Borrower, payable to the order of Lender, and maturing on June 11,
2004.
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b. The records of Lender shall be prima facie evidence of the
amount owing on the Note.
1.6 Prepayment. Borrower may prepay the Note in full or in part without
penalty at any time prior to maturity.
1.7 Security.
a. The Note shall be secured by a Security Agreement (the
"Security Agreement") of even date herewith, by and between Lender and Borrower
that creates a security interest in (i) all of Borrower's right, title, and
interest in and to all of Borrower's intellectual property including
specifically Borrower's files, records, and documents relating to the
geophysical properties of the State of Nevada (collectively, "Borrower's
Database"), (ii) all of Borrower's right, title and interest in and under
leases, rental agreements, contract rights and chattel paper (collectively, the
"Contracts"), (iii) all equipment, fixtures and personal property owned by
Borrower and covered under the Contracts, and (iv) all revenue generated by
Borrower from Borrower's Database including all accounts, accounts receivable,
notes receivable, general intangibles, promissory notes, drafts, checks, and
other evidence of the Borrower's right to the payment of money arising from
sale, lease, rental or use of the Database. All of the foregoing whether now or
hereafter acquired and all proceeds thereof are collectively referred to herein
as the "Collateral"
b. Borrower shall perfect the security interests created by
the Security Agreement by (1) executing and delivering such financing
statements, instruments, assignments, and documents as Lender may, from time to
time, deem reasonably necessary or desirable, and (2) doing such acts as Lender
may, from time to time, deem reasonably necessary or desirable. Borrower
consents to Lender filing all financing statements covering the Collateral as
Lender deems reasonably necessary and desirable.
1.8 Method of Payment. Borrower shall make each payment on the Note to
Lender not later than 2:00 p.m. (central time) on the date when due in
immediately available funds. Whenever any payment to be made under the Note
shall be stated to be due on a Saturday, Sunday, or a public holiday, such
payment shall be made on the next succeeding business day, and the extension of
time shall be included in the computation of the payment of interest. Payment of
the Note will be deemed made when actually received by Lender.
1.9 Place of Payment. Lender designates Riata Energy, Inc., x/x X.
Xxxxxx Xxxxxxxx 0xx, 000 Xxxx Xxxxx, Xxxxxxxx, Xxxxx, 00000, for funding and
receiving payments on the Loan and may change such address from time to time by
giving notice of such change to Borrower. Payments are to be made to Lender in
care of N. Xxxxxx Xxxxxxxx 3rd.
1.10 Loan Documents. The term "Loan Documents," as used in this
Agreement, shall mean this Agreement, the Note, the Security Agreement, and all
other instruments executed by the Borrower that evidence, secure or relate to
the Loan or any part of the Loan.
SECTION 2
CONDITIONS PRECEDENT
2.1 Condition Precedent to Initial Advance. The obligation of Lender to
make the initial advance is subject to the condition precedent set forth below:
a. Lender has received on or before the day of the advance
each of the following, in form and substance satisfactory to Lender and its
counsel:
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(i) The executed Note;
(ii) The executed Security Agreement; and
(iii) Such other documents, instruments, and
certificates as Lender may reasonably
require.
b. Borrower has executed documents providing Lender:
(i) First right of refusal to purchase the
Borrower's Database; and
(ii) First right of refusal to participate in any
prospect generated by Borrower, whether
directly or through the efforts of Great
Basin.
c. Lender obtaining a consulting agreement from Great Basin
[for consideration to be negotiated with Great Basin Exploration Consultants,
Inc. ("Great Basin")] to provide exclusive services to Borrower and Lender with
respect to Borrower's Database;
d. Borrower's agreement to physically transfer Borrower's
Database to Amarillo, Texas, as soon as is reasonably practical, and agreement
to allow Lender's designated agent(s) in Amarillo, Texas, access to Borrower's
Database;
e. Agreement of Borrower's principal, Xxxxx Xxxxxx, to enter
into a long-term (minimum of 3 years) consulting agreement with Borrower and
Lender, to manage Borrower's Database and solicit prospects generated from
Borrower's Database, which agreement is assignable and will remain in effect in
the event Lender forecloses, or otherwise acquires, Borrower's Database.
f. Each of Borrower, Xxxxx Xxxxxx, Great Basin, and the
principals of Great Basin have executed Confidentiality Agreement as may be
reasonably required by Lender(either as a separate document, or as part of other
Agreements contemplated herein).
2.2 Conditions Precedent to All Advances. The obligation of Lender to
make each advance (including the initial advance and final advance) shall be
subject to the additional conditions precedent that on the date of the advance:
a. Lender has received, on or before the date of the
advance,(i) a financial report comparing actual year-to-date operating expenses
of Borrower to the Operating Budget, and (ii) such other documents, instruments,
and reports as Lender may reasonably require;
b. The representations and warranties contained in this
Agreement are correct on and as of the date of the advance; and
c. No event of default has occurred and is continuing or would
result from the advance.
SECTION 3
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
3.1 Organization and Good Standing. Borrower is duly organized, validly
existing, and in good standing under the applicable laws of the state of its
incorporation or creation as a corporation, limited liability company,
partnership, or legal entity, as the case may be, and is qualified to do
business and is in good standing in the states where it transacts business, with
full power and authority to transact the business in which it is now engaged and
to enter into this Agreement.
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3.2 Power and Authority. The execution, delivery, and performance by
Borrower of its obligations under the Loan Documents to which it is a party have
been duly authorized by all necessary corporate action and do not and will not:
a. Require any additional consent or approval of the members,
managers, partners, stockholders, board of directors, or officers of Borrower;
b. Contravene the charter or governing corporate documents of
Borrower;
c. Violate any provision of any law, rule, regulation, order,
judgment, or injunction presently in effect having applicability to Borrower;
d. Result in the breach of or constitute a default under any
indenture, agreement, or instrument to which Borrower is a party or by which
Borrower or its properties may be bound or affected; or
e. Result in or require the creation or imposition of any lien
or encumbrance upon or with respect to any of the properties now owned or
hereafter acquired by Borrower, except as created by the Loan Documents.
3.3 Enforceability. The Loan Documents to which Borrower is a party
constitute legal, valid, and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms, except to the extent
that such enforcement may be limited by applicable bankruptcy, insolvency, and
other similar laws affecting creditors' rights generally.
3.4 Other Agreements. Borrower is not subject to any corporate or
partnership restriction that could have a material adverse effect on the
business, properties, assets, operations, or condition (financial or otherwise)
of Borrower, or the ability of Borrower to carry out its obligations under the
Loan Documents to which it is a party.
3.5 Litigation. There is no pending or threatened action or proceeding
against or affecting Borrower before any court, governmental agency, or
arbitrator.
3.6 Ownership and Liens. Borrower has title to, or valid leasehold
interests in, all of its property and assets, real and personal, and none of the
Collateral is subject to any lien, security interest or encumbrance, except in
favor of Lender.
SECTION 4
COVENANTS OF THE BORROWER
Borrower covenants and agrees as follows:
4.1 Financial Statements; Information. Borrower shall furnish such
information concerning Borrower, financial or otherwise, as Lender may
reasonably request from time to time.
4.2 Right of Inspection. At any reasonable time and from time to time,
Borrower shall permit Lender or any agent or representative of Lender to (a)
examine and make copies of and abstracts from the books and records of Borrower,
(b) visit the properties of Borrower, and (c) discuss the affairs, finances, and
accounts of Borrower with any of Borrower's officers, agents, or independent
accountants.
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4.3 Maintenance of Insurance. Borrower shall maintain, or cause to be
maintained, insurance with financially sound and reputable insurance companies
or associations in such amounts and covering such insurable risks as are
required by Lender.
4.4 Notice of Litigation. Borrower shall promptly furnish to Lender
notice of all actions, suits, and proceedings affecting Borrower before any
court or governmental agency.
4.5 Liens. Borrower shall not create, incur, assume, or suffer to
exist, any lien, security interest, or encumbrance in the Collateral, whether
arising by agreement, under any statute or law, or otherwise, except liens in
favor of Lender.
4.6 Compliance With Laws and Regulations. Borrower shall comply in all
material respects with all applicable laws, rules, regulations, and orders,
including, without limitation, all laws in the States of Texas, Colorado, and
Nevada relating to the Collateral.
4.7 Reports of Default. As soon as possible after the occurrence of an
Event of Default (hereinafter defined) or an event which, with the passage of
time or the giving of notice, or both, would constitute an Event of Default,
Borrower shall furnish to Lender written notice setting forth the details of the
event and the action that Borrower proposes to take with respect to the event.
4.8 Further Assurances and Documentation. Borrower shall execute and
deliver any and all instruments, documents, certificates, opinions, and
assurances and do any and all other acts as Lender may, from time to time, deem
reasonably necessary or desirable in connection with this Agreement or any of
the other Loan Documents to which Borrower is a party.
SECTION 5
DEFAULTS AND REMEDIES
5.1 Events of Default. An "Event of Default" shall exist if any one or
more of the following events (hereinafter collectively referred to as "Events of
Default") shall occur and be continuing:
a. Borrower should fail to pay the principal of, or interest
on, the Note, within five (5) days after it is due and payable;
b. Any representation or warranty made or deemed made by
Borrower in this Agreement or in any of the other Loan Documents to which
Borrower is a party or which is contained in any certificate, document, opinion,
or financial or other statement furnished at any time under or in connection
with any Loan Document to which it is a party shall prove to have been incorrect
in any material respect on or as of the date made or deemed made;
c. Borrower shall fail to perform or observe any term,
covenant, or agreement contained in any Loan Document to which Borrower is a
party (other than the Note) on its part to be performed or observed, and such
failure shall continue for ten (10) days following Lender's written notice to
Borrower;
d. The dissolution or termination of Borrower without the
prior written consent of Lender;
e. Any Loan Document shall at any time after its execution and
delivery: (i) cease to create the rights purported to be created by the Loan
Document, or (ii) shall be declared null and void, the validity or
enforceability of the Loan Document shall be contested by Borrower, or Borrower
shall fail to perform any of its obligations under the Loan Document to which
Borrower is a party; or
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f. Any sale, lease, exchange, assignment, conveyance, transfer
of possession, or other disposition of all or any portion of the Collateral,
without the prior written consent of Lender.
5.2 Remedies. If an Event of Default occurs and continues, Lender may
exercise any one or more of the following rights and remedies, and any other
remedy provided in any of the Loan Documents, as Lender in its sole discretion
may deem necessary or appropriate:
a. Declare the principal of, and all interest then accrued on,
the Note and all other liabilities under this Agreement to be due and payable,
whereupon the same shall become due and payable without presentment, demand,
protest, notice of default, notice of acceleration or notice of intent to
accelerate, or other notice of any kind, all of which Borrower expressly waives;
b. Reduce any claim to judgment; or
c. Without notice of default or demand, pursue and enforce any
of Lender's rights and remedies under the Loan Documents, or otherwise provided
under any applicable law or agreement.
5.3 Cessation of Advances. Upon the occurrence of an Event of Default,
the obligation of Lender to make Advances on the Note shall, at Lender's option,
immediately terminate.
SECTION 6
MISCELLANEOUS
6.1 Captions. The section and paragraph headings in this Agreement are
included for the convenience of reference only and shall not constitute a part
of this Agreement for any other purpose.
6.2 Notice. Any notice or demand to Borrower shall be deemed given or
served for all purposes when mailed, first class, postage prepaid, addressed to
Borrower at the address set forth below, or to any other address Borrower may
furnish in writing to Lender for notices.
Riata Energy, Inc.
ATTN: N. Xxxxxx Xxxxxxxx 3rd
000 Xxxx Xxxxx
Xxxxxxxx, Xxxxx 00000
With copy to:
Xxxxxxx Xxxxxxx Xxxxx PC
ATTN: Xxxxxxx X. Xxxxxxx
000 X. Xxxxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Foreland Corporation
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxx 00000
With copy to:
Xxxxx Xxxxxx
0000 Xxxxx 0000 Xxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxx 00000
Xxxxx, Xxxxx & Xxxxxxx, LLC
ATTN: Xxxxx X. Xxxxx
00 Xxxx Xxxxxxxx (300 South)
Xxxx Xxxx Xxxx, Xxxx 00000-0000
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6.3 Governing Law. The Loan Documents shall be governed by and
construed, interpreted, and enforced in accordance with the laws of the State of
Texas and the applicable federal laws of the United States of America.
6.4 Whole Agreement. This Agreement constitutes the entire agreement by
and between Lender and Borrower with respect to the matters covered by this
Agreement, and any and all prior agreements or representations, whether oral or
in writing, relating to the same matters, are hereby null and void. No person is
authorized to alter, waive, modify, forgive, or in any manner change any
provision of any Loan Document orally.
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same agreement.
6.6 Gender; Number. Whenever the context of this Agreement requires,
the masculine gender includes the feminine or neuter, and the singular number
includes the plural, and vice versa.
6.7 No Waiver; Cumulative Remedies. No failure on the part of Lender to
exercise, and no delay in exercising, any right, power, or remedy under any of
the Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any of the Loan Documents preclude any other
or further exercise of the right or the exercise of any other right. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
6.8 Maximum Interest Rate. It is expressly stipulated and agreed to be
the intent of the Borrower and Lender at all times to comply with the applicable
Texas law governing the maximum rate or amount of interest payable on or in
connection with the Note (or applicable United States federal law to the extent
that it permits Lender to contract for, charge, take, reserve, or receive a
greater amount of interest than under Texas law). If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under the
Note or under any other Loan Documents, or contracted for, charged, taken,
reserved, or received with respect to the Note, or if acceleration of the
maturity of the Note or if any prepayment by the Borrower results in the
Borrower having paid any interest in excess of that permitted by law, then it is
the Borrower's and Lender's express intent that all excess amounts theretofore
collected by Lender be credited on the principal balance of the Note (or, if the
Note has been or would thereby be paid in full, refunded to the Borrower), and
the provisions of the Note and the other Loan Documents immediately be deemed
reformed and the amounts thereafter collectible under the Note reduced, without
the necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for under the Note. The right to accelerate the maturity of the Note does
not include the right to accelerate any interest which has not otherwise accrued
on the date of the acceleration, and Lender does not intend to collect any
unearned interest in the event of acceleration. All sums paid or agreed to be
paid to Lender for the use, forbearance, or detention of the indebtedness
evidenced by the Note shall, to the extent permitted by applicable law, be
amortized, prorated, allocated, and spread throughout the full term of the
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indebtedness until payment in full so that the rate or amount of interest on
account of the indebtedness does not exceed the applicable usury ceiling. In no
event shall the provisions of Chapter 15 of the Texas Consumer Protection Code
(TEX. REV. CIV. STAT. XXX. art. 5069-15.01, et seq.) be applicable to the Loan.
As used herein, the term "Maximum Rate" shall mean the maximum nonusurious rate
of interest which may be lawfully contracted for, charged, taken, reserved, or
received by Lender from the Borrower in connection with the Loan under
applicable Texas law (or applicable United States federal law to the extent that
it permits Lender to contract for, charge, take, reserve, or receive a greater
amount of interest than under Texas law).
6.9 Participations. Lender shall be entitled to sell one or more
participations in the Loan from time to time and at any time.
BORROWER: FORELAND CORPORATION,
a Nevada corporation
By: /s/ Xxxxx Xxxxxx
---------------------------------
Xxxxx Xxxxxx, President
LENDER: RIATA ENERGY, INC.,
a Texas corporation
By: /s/ N. Xxxxxx Xxxxxxxx
---------------------------------
N. Xxxxxx Xxxxxxxx 3rd, President
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