CREDIT AGREEMENT
BETWEEN
XXXXXX RESOURCES CORPORATION
a Colorado corporation
and
XXXXXX OIL COMPANY,
a Colorado corporation
(collectively, "Borrower")
AND
AQUILA ENERGY CAPITAL CORPORATION,
a Delaware corporation
("Lender")
_________________________________
Dated as of September 9, 1999
TABLE OF CONTENTS
PAGE
ARTICLE I: Definitions and References 1
Section 1.1 Defined Terms 1
Section 1.2 Exhibits and Schedules 10
Section 1.3 Amendment of Defined Instruments 11
Section 1.4 References and Titles 11
Section 1.5 Calculations and Determinations 11
ARTICLE II: The Loans 11
Section 2.1 The Loans. 11
Section 2.2 Use of Proceeds 13
Section 2.3 Repayment of the Loans 14
Section 2.4 Prepayment of the Loans 14
Section 2.5 Application of Receipts 14
Section 2.6 Mandatory Prepayment of the Loans 15
Section 2.7 Initial Swap Agreement 15
ARTICLE III: Security 15
Section 3.1 Security 15
Section 3.2 Perfection and Protection of Security Interests and Liens 15
Section 3.3 Release of Collateral 16
ARTICLE IV: Representations and Warranties 16
Section 4.1 Representations and Warranties of Borrower 16
Section 4.2 Employees 20
ARTICLE V: Notice of Certain Events 20
Section 5.1 Notice of Unmatured Event of Default, Event of Default,
and Other Matters 20
Section 5.2 Other Information 21
ARTICLE VI: Special Provisions Relating to Equipment 21
Section 6.1 Location: Records 21
Section 6.2 Maintenance 21
Section 6.3 Dispositions 22
ARTICLE VII: Covenants of Borrower 22
Section 7.1 Affirmative Covenants 22
Section 7.2 Negative Covenants 28
ARTICLE VIII: Further Rights of Lender 31
Section 8.1 Maintenance of Security Interests 31
Section 8.2 Performance of Obligations 31
Section 8.3 Access to Collateral 32
Section 8.4 Issuance of Xxxxxx Stock to Lender 32
Section 8.5 Overriding Royalty Interest 34
Section 8.6 ORRI Option 34
Section 8.7 Removal and Appointment of Operator 35
Section 8.8 Set-Off Rights 35
Section 8.9 Joint and Several Liability of Borrowers 36
ARTICLE IX: Closing; Conditions to Closing 36
Section 9.1 Closing 36
Section 9.2 Conditions to Closing 36
Section 9.3 Conditions Precedent to Funding of Development Loans 38
ARTICLE X: Events of Default and Remedies 39
Section 10.1 Events of Default 39
Section 10.2 Acceleration 41
Section 10.3 Remedies 42
Section 10.4 Indemnity 42
ARTICLE XI: Miscellaneous 43
Section 11.1 Waivers and Amendments; Acknowledgments and Admissions 43
Section 11.2 Survival of Agreements: Cumulative Nature 44
Section 11.3 Notices 45
Section 11.4 Parties in Interest; Transfers 46
Section 11.5 Governing Law; Submission to Process 46
Section 11.6 Limitation on Interest 46
Section 11.7 Termination; Limited Survival 47
Section 11.8 Severability 47
Section 11.9 Counterparts 48
Section 11.10 Further Assurances 48
Section 11.11 Waiver of Jury Trial, Punitive Damages, Etc. 48
Section 11.12 Controlling Provision Upon Conflict 48
ARTICLE XII: Arbitration 48
Section 12.1 Arbitration 48
EXHIBITS
Exhibit A Hydrocarbon Producing Property Descriptions and Related Assets
of Borrower
Exhibit B Advancing Note
Exhibit C Property Operating Statement
Exhibit D Development Notice
Exhibit E Cost Certificate
Exhibit F Overriding Royalty Interest Conveyance
SCHEDULES
Schedule 1.1(b) Gas Plant Assets
Schedule 2.1 Development Operations
Schedule 4.1(c) Shareholder obligations
Schedule 4.1(g) Parent Borrower's Financial Statements
Schedule 4.1(h) Other obligations and restrictions
Schedule 4.1(j) Claims and Litigation
Schedule 4.1(l) Borrower's Places of Business
Schedule 4.1(m) Unpaid bills
Schedule 4.1(n) Liens other than Permitted Encumbrances
Schedule 4.1(o) Purchasers of Hydrocarbons
Schedule 4.1(p) Existing Hydrocarbon Sales Agreements
Schedule 4.1(q) Existing Swap Agreements
Schedule 4.1(v) Compliance with environmental and other laws
Schedule 6.1 Equipment descriptions
Schedule 7.2(k)(i) Costa Rica Subsidiary
Schedule 7.2(k)(ii) Planned Equity Offering
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into this 9th day of September
1999, by and among XXXXXX RESOURCES CORPORATION, a Colorado corporation and
XXXXXX OIL COMPANY, a Colorado corporation (collectively, the "Borrower"), and
AQUILA ENERGY CAPITAL CORPORATION, a Delaware corporation (the "Lender").
WHEREAS, Borrower has requested that Lender make available, and Lender is
willing to make available to Borrower on the terms and conditions hereinafter
set forth, a loan for the development of certain oil and gas properties located
in various counties in the states of New Mexico, Alabama, Colorado, North
Dakota, Oklahoma, and Wyoming.
NOW, THEREFORE, the parties hereto in consideration of the foregoing and
the terms, covenants, provisions and conditions hereinafter set forth hereby
agree as follows:
ARTICLE I: Definitions and References
Section I.1 Defined Terms. As used in this Agreement, each of the following
terms has the meaning given it in this Section 1.1 or in the sections and
subsections referred to below
"Advancing Note" has the meaning assigned to such term in Section 2.1 of
this Agreement.
"AFE" means Authorization for Expenditures.
"Affiliate(s)" means, as to any Person (as hereinafter defined), any other
Person who directly or indirectly controls, is under common control with, or is
controlled by such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
means possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event (i) any Person who owns directly or indirectly 10% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a business entity or 10% or more of the partnership or
other ownership interests of any other Person will be deemed to control such
other Person, (ii) any subsidiary of Borrower shall be deemed to be an
Affiliate of Borrower, and (iii) the parent and any sister entity of Borrower
shall be deemed to be an Affiliate of Borrower.
"Agency Agreement" has the meaning given to such term in Section 7.1(b) of
this Agreement.
"Agreement" means this Credit Agreement, as the same may be amended,
supplemented, restated or otherwise modified from time to time in compliance
with applicable provisions hereof.
"Approved Overhead" shall mean Borrower's general and administrative costs
and expenses in the agreed amount of Two Hundred Eight Thousand Three Hundred
Thirty-Three and No/100 Dollars ($208,333.00) per month for each production
month from September 1999 through August 2001.
"Arbitration Notice" has the meaning given to such term in Section 12(c).
"Borrower" has the meaning given to such term in the preamble of this
Agreement.
"Borrower Stock" means common stock of Parent Borrower, free and clear of
any lien, claim or encumbrance.
"Borrower's Public Reports" shall mean the annual, quarterly and special
reports most recently filed by Parent Borrower prior to the Closing with the
Securities and Exchange Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, including Parent Borrower's proxy materials.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Houston, Texas.
"Closing" has the meaning given such term in Section 9.1.
"Closing Date" has the meaning given such term in Section 9.1.
"Collateral" means all property of any kind which, pursuant to any Loan
Document, is subject to a Lien in favor of Lender or is purported or intended
to be subject to such a Lien, including without limitation, the Equipment
(including Fixtures), the Properties and the Hydrocarbons produced therefrom or
attributable thereto, but excluding the Gas Plant Assets.
"Cost Certificate" has the meaning set forth in Section 2.1.
"Debt" means, as to the Borrower, all indebtedness, liabilities and
obligations of Borrower, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered debt pursuant to GAAP,
excluding, however, trade payables and accrued expenses incurred in the ordinary
course of business so long as the same are being paid prior to becoming
delinquent or are being diligently contested in good faith by appropriate
proceedings, and further excluding Borrower's deferred revenue and revenue
received and held by Borrower on behalf of third parties.
"Debt Service" means the principal and interest due pursuant to the
Advancing Note for any Interest Period.
"Dedication Rate" has the meaning given in Section 2.5(b).
"Defensible Title" means (i) with respect to the Properties, such title
that: (A) with respect to each well or Unit located on the Leases entitles
Subsidiary Borrower to receive, free and clear of all royalties, overriding
royalties and net profits interests (except the ORRI), or other burdens on or
measured by production of Hydrocarbons, not less than the Net Revenue Interests
of Subsidiary Borrower reflected in Exhibit A for such xxxxx or Units for the
productive life of such well or Unit (subject only to the Permitted
Encumbrances); and (B) with respect to each well or Unit located on the Leases
obligates Subsidiary Borrower to bear costs and expenses relating to the
maintenance, development and operation of such well or Unit in an amount not
greater than the Working Interests of Subsidiary Borrower reflected in Exhibit
A for the productive life of such well or Unit (subject only to the Permitted
Encumbrances); free and clear of any security interest, lien, encumbrance,
mortgage, claim, security agreement or other charge, other than the Permitted
Encumbrances and any liens, mortgages, and security interests in favor of Lender
and its Affiliates or which are permitted hereunder.
"Development Loan(s)" means the loan or loans made or to be made from
Lender to Borrower to fund Borrower's share of the costs and expenses
attributable to the Development Operations.
"Development Notice" means a written request from Borrower to Lender for
an advance of funds under the Development Loan, in the form attached hereto
as Exhibit E.
"Development Operations" means those operations described on Schedule 2.1
attached hereto.
"Direct Taxes" means (a) Property Taxes, (b) Severance Taxes, (c) ad
valorem taxes, (d) conservation taxes, and (e) any other taxes of any kind,
excluding only income taxes and franchise taxes, imposed on Borrower or any
producer in connection with or as a result of its ownership of interests in
the Properties.
"Engineers" means, unless specifically provided otherwise, Xxxxx Xxxxx Co.
or such other independent petroleum engineering firm as is mutually agreed upon
by Borrower and Lender.
"Environmental Laws" means any and all federal, state or local statutes,
laws (including common law), regulations, ordinances, rules, judgments, orders,
decrees, permits, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment including ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes. For purposes of this definition,
"chemicals" includes all substances referred to in the second sentence of the
definition herein of "Hazardous Materials".
"Equipment" means all equipment of Borrower of every kind and nature used
for or in the operation of the Properties, whether located on the Properties or
located elsewhere, including but not limited to, pipelines, well and lease
equipment and surface equipment, casing, tubing, connections, rods, pipe,
machines, compressors, gathering systems, meters, motors, pumps, tankage,
fixtures, storage and handling equipment and all other equipment or movable
property of any kind and nature and wherever situated now or hereafter owned by
Borrower or in which Borrower may now or hereafter have any interest (to the
extent of such interest), together with all additions and accessions thereto,
all replacements and all accessories and parts therefor, all logs and records in
connection therewith, all rights against suppliers, warrantors, manufacturers,
sellers or others in connection therewith, and together with all substitutes for
any of the foregoing, specifically including, but not limited to, the Equipment
described on Schedule 6.1, but specifically excluding the Gas Plant Assets.
"Equipment Lender" means the Person who makes the Equipment Loan to
Borrower.
"Equipment Loan" means a loan or a sale-leaseback transaction in an amount
not to exceed $5,500,000.00 entered into by Borrower with a third Person at or
prior to Closing, the proceeds of which shall be used to repay at or prior to
Closing certain Indebtedness owed by Borrower to Bank One, Texas, N.A. in order
to obtain a release of such bank's liens and security interests on the Gas Plant
Assets, and which transaction shall involve or be secured by solely the Gas
Plant Assets.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any employee pension benefit plan which is maintained
by any Person subject to Title IV of ERISA.
"Event of Default" has the meaning given such term in Section 10.1;
"Financial Statements" has the meaning given such term in Section 4.l(g).
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or
any generally recognized successor).
"Gas Plant Assets" means the East Xxxxxx Gas Plant in Rio Arriba County,
New Mexico and the assets associated therewith, as more fully described on
Schedule 1.1(b).
"Gas Transportation Fees" means natural gas gathering and transportation
fees incurred by Subsidiary Borrower upstream of the point of sale of
Subsidiary Borrower's share of gas produced from the Leases, but only to the
extent that such fees are not first deducted in order to determine the price
payable to Subsidiary Borrower for the sale of such gas and excluding any such
fees that are otherwise included in Operating Expenses.
"Gross Receipts" means, in connection with the Loans or Advancing Note for
any Interest Period, Borrower's share (inclusive of royalty and overriding
royalty interests attributable thereto) of all sums received by Borrower during
such Interest Period in connection with the Properties, including, but not
limited to, Swap Settlement Proceeds and proceeds under gas purchase agreements,
oil purchase agreements, natural gas liquids purchase agreements, operating
agreements, and any other receipts relating to or arising from the Properties.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise. "Hazardous
Materials" also includes (a) any petroleum, any fraction of petroleum, natural
gas, natural gas liquids, liquefied natural gas and synthetic gas usable for
fuel (including any mixtures of the foregoing) that has been or may be emitted,
discharged or released into the environment, and (b) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal reserves.
"Hydrocarbons" means crude oil, condensate, natural gas, natural gas
liquids and other hydrocarbons.
"Hydrocarbon Purchase and Sale Agreement" means a base agreement for sales
of gas by Borrower and purchases of such gas by Lender or its Affiliate
(subject to individual transaction confirmations), in form mutually acceptable
to Borrower and Lender.
"Indebtedness" means and includes (i) all obligations for borrowed money
of any kind or nature, including funded and unfunded debt or guarantees thereof
and contingent obligations in respect of any of the foregoing including, without
limitation, reimbursement obligations in respect of letters of credit, and (ii)
all obligations for the acquisition or use of any fixed asset or improvements
thereto, including capitalized leases but excluding operating leases, which are
payable over a period longer than one year or guarantees thereof, regardless of
the term thereof or the Person or Persons (each as hereinafter defined) to whom
the same is payable; provided, however, that Indebtedness shall not include
trade payables and accrued expenses incurred in the ordinary course of business
so long as the same are being paid prior to becoming delinquent or being
diligently contested in good faith.
"Initial Loan" has the meaning set forth in Section 2.1.
"Initial Reserve Report" means that certain reserve report dated January 1,
1999 prepared by Xxxxx Xxxxx Co. with respect to the Properties.
"Intercreditor Agreement" means that certain agreement in form and
substance satisfactory to Lender, in its discretion, by and among Borrower,
Lender and the Equipment Lender pursuant to which Borrower and the Equipment
Lender shall each be required to provide to Lender copies of each notice sent or
received by either such party pursuant to any and all agreements on other
documents relating to the Equipment Loan, and pursuant to which Lender shall
have the right, but not the obligation, to cure any default by Borrower with
respect to the Equipment Loan, and/or to obtain from the Equipment Lender an
assignment of the Equipment Loan, all liens and security interests securing
same, and all rights associated therewith by paying to the Equipment Lender the
outstanding unpaid obligations of Borrower then due on the Equipment Loan.
"Interest Period" means each monthly period beginning on (and including)
the Repayment Date in one calendar month and ending on (but not including) the
Repayment Date in the next following calendar month, provided that the first
Interest Period for the Advancing Note and Loans shall begin on the date such
Advancing Note and Loans are first funded and be for the duration specified in
such Advancing Note.
"Interest Rate" means that interest rate stated in the Advancing Note.
"Investment" in any Person means the amount paid or committed to be paid
or the value of property or wages contributed or committed to be contributed by
the Person making the Investment on its account for or in connection with its
acquisition of any stock, bonds, notes, debentures, partnership or other
ownership interest or any other security of the Person in whom such Investment
is made or any evidence of Indebtedness of such Person in whom the Investment is
made.
"Lease" or "Leases" means, whether one or more, (i) those certain oil and
gas leases set forth in the description of the Property attached hereto as
Exhibit A, and any other interests in the Leases, whether now owned or hereafter
acquired by Borrower, and any extension, renewals, corrections, modifications,
elections or amendments (such as those relating to unitization) of any such
Lease or Leases, or (ii) other oil, gas and/or mineral leases or other interests
pertaining to the Properties which may now and hereafter be made subject to the
lien of any of the Security Documents and any extension, renewals, corrections,
modifications, elections or amendments (such as those relating to unitization)
of any such lease or leases.
"Lender" has the meaning assigned to such term in the first paragraph of
this Agreement, and its successors and assigns as holders of the Advancing Note.
"Letters in Lieu" means those certain letters in lieu of transfer orders,
duly executed by Borrower, in the form satisfactory to Lender.
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Debt owed to it or any other arrangement
with such creditor which provides for the payment of such Debt out of such
property or assets or which allows it to have such Debt satisfied out of such
property or assets prior to the satisfaction of general creditors of the owner
of such property or assets, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of unregistered
securities), or any other arrangement or action which would serve to perfect a
Lien described in the preceding sentence, regardless of whether such financing
statement is filed, such registration is made, or such arrangement or action is
undertaken before or after such Lien exists.
"Loans" means, collectively, the Initial Loan and the Development Loans
and "Loan" means, individually, the Initial Loan and/or any of the Development
Loans as described in Section 2.1.
"Loan Documents" means this Agreement, the Advancing Note, the Mortgage,
the Security Agreement, the Overriding Royalty Interest Conveyance, the Agency
Agreement, and all other security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements or instruments now, heretofore or
hereafter delivered by Borrower to Lender in connection with this Agreement or
any transaction contemplated hereby to secure or guarantee the payment of any
part of the Obligations.
"Loan Termination Date" means the earlier of (a) September 9, 2003, (b)
the date of payment and performance in full of all the Obligations of Borrower
under the Loan Documents (other than the Overriding Royalty Interest
Conveyance), and (c) the date on which Lender notifies Borrower of the
acceleration of payment of all Obligations because of the occurrence of an Event
of Default.
"Maximum Rate" means the maximum non-usurious rate of interest that Lender
is permitted under applicable law to contract for, take, charge, or receive
from Borrower.
"Mortgage" has the meaning given such term in Section 3.1.
"Net Revenue" means Gross Receipts minus Subsidiary Borrower's share of
Operating Expenses, Direct Taxes, royalties and overriding royalty interests
with respect to each Property, Gas Transportation Fees, Approved Overhead
payments, Swap Settlement Payables and marketing fees due under the Agency
Agreement.
"Net Revenue Interest" or "NRI" have the meaning given such terms in the
Mortgage.
"Obligations" means all Debt and performance obligations from time to time
owing from Borrower to Lender or any of Lender's Affiliates under or pursuant to
any of the Loan Documents in connection with this Agreement or any transaction
contemplated hereby, including without limitation, all principal, interest,
fees, expenses, costs, covenants and indemnities.
"Operating Agreements" means operating agreements relating to the Properties,
including, without limitation, all those certain operating agreements
which relate to or arise from the Properties, pursuant to which Borrower is or
hereafter becomes the operator.
"Operating Expenses" means (a) direct lease operating expenses and well
maintenance expenses (such well maintenance expenses shall be limited to those
expenditures authorized to be made without additional approval under the
applicable operating agreements, not to exceed $200,000.00 in the aggregate net
to Subsidiary Borrower's interest, during any rolling twelve-month period),
which arise from Subsidiary Borrower's Working Interests in the xxxxx that are
subject to the Mortgage, that are billed to Subsidiary Borrower by the Operator
or incurred by the Subsidiary Borrower, as Operator, of the Properties, and (b)
Subsidiary Borrower's Working Interest share of expenses incurred in the repair,
maintenance and replacement of damaged or obsolete Equipment.
"Operating Report" has the meaning given such term in Section 7.1(v).
"Operator" means any operators, including contract operators, of the
Properties (as such terms are generally understood in the oil and gas industry)
and as approved by Lender pursuant to Section 8.7 hereof.
"ORRI" means, except as otherwise defined and used in the Mortgage, that
overriding royalty interest in Hydrocarbons in, under and produced from or
attributable to the Leases constituting the Properties, if required to be
conveyed by Borrower to Lender pursuant to the Overriding Royalty Interest
Conveyance.
"ORRI Option" means the option, at Borrower's sole discretion, to purchase
the ORRI from Lender after such interest has been valued by a mutually agreeable
independent engineering firm.
"ORRI Sale Date" has the meaning given such term in Section 8.6.
"Overriding Royalty Interest Conveyance" means an assignment, in the form
attached hereto as Exhibit F, pursuant to which Subsidiary Borrower grants to
Lender a cost-free overriding royalty interest equal to a percentage determined
pursuant to Section 8.5 of the Hydrocarbons and other minerals attributable to
Subsidiary Borrower's Working Interest in the Properties, such grant to be made
if and when required by Section 8.4.
"Parent Borrower" means Xxxxxx Resources Corporation, a Colorado
corporation.
"Permitted Encumbrances" has the meaning given such term in the Mortgage.
"Person" means an individual, corporation, partnership, association, joint
stock company, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable entity.
"Properties" means those certain properties described in Exhibit A,
attached hereto and made a part hereof collectively.
"Property Operating Statement" means the monthly statement, in the form
attached hereto as Exhibit C, to be prepared and delivered by Borrower to
Lender, pursuant to Section 2.5 hereof.
"Property Taxes" means taxes imposed annually on Borrower which are based
on or measured by the estimated value (at the time such taxes are assessed) of
any oil and gas situated within the Properties.
"Proved Developed Producing Reserves" means Proved Reserves that are estimated
to be recoverable by existing xxxxx that are then capable of producing
such reserves.
"Proved Reserves" means the current estimated quantity of Hydrocarbons
which analysis of geologic and engineering data demonstrate with reasonable
certainty to be recoverable in the future from known oil and gas reservoirs
under existing economic and operating conditions based on either actual
production or conclusive formation tests.
"Purchasers of Hydrocarbons" means the Persons listed on Schedule 4.1(o)
attached hereto, and all other Persons who, now or may in the future, purchase
Hydrocarbons attributable or allocable to Subsidiary Borrower's Working Interest
in the Properties.
"Put Option" has the meaning given such term in Section 8.4.
"Put Price" has the meaning given such term in Section 8.4.
"Repayment Date" means, prior to the satisfaction of all Obligations, the
thirtieth (30th) day of each month (except that February shall be on the 28th
day), commencing November 1999.
"Request for Commitment" means a written request from Borrower to Lender for
an advance of funds under the Development Loan to fund Subsidiary Borrower's
share of costs and expenses to be incurred in Substitute Development Operations,
which shall be substantially in the same form as the Development Notice attached
hereto as Exhibit E, except that the title shall be revised to read "Request for
Commitment" and it shall otherwise conform to the requirements set forth in
Section 2.1 hereof.
"Reserve Report" means, unless specifically denoted otherwise, the
petroleum engineering report defined in Section 7.1(f) hereof.
"Security Agreement" means a security agreement (Accounts, Equipment,
General Intangibles and Inventory) executed by Borrower as debtor in favor of
Lender as secured party dated as of the date hereof, in form and substance
satisfactory to Lender, as the same may be modified, amended or supplemented
pursuant to the terms of this Agreement.
"Security Documents" means the Mortgage and all other security agreements,
deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing
statements, continuation statements, extension agreements and other agreements
or instruments now, heretofore, or hereafter delivered by Borrower to Lender in
connection with this Agreement or any transaction contemplated hereby to secure
or guarantee the payment of any part of the Obligations.
"Severance Taxes" means taxes imposed on Hydrocarbons produced from a well
that are based on or measured by the amount or value of such production..
"Structuring Fee" means the fee owed by Borrower to Lender as
consideration, in part, for Lender's assistance to Borrower in structuring the
transactions contemplated under this Agreement and the other Loan Documents, in
an amount equal to one percent (1.0%) of the maximum aggregate Loans available
to be advanced to Borrower pursuant to Section 2.1.
"Subsidiary" means for any Person any corporation of which more than fifty
percent (50%) of the issued and outstanding securities having ordinary voting
power for the election of directors is owned directly or indirectly, by such
Person and/or one or more of its subsidiaries.
"Subsidiary Borrower" means Xxxxxx Oil Company, a Colorado corporation,
the wholly owned subsidiary of Parent Borrower.
"Substitute Development Operations" means drilling, sidetracking,
deepening, completing, recompleting or reworking operations proposed to be
conducted by Borrower with respect to any of the Leases and that are not
included in the Development Operations described on Schedule 2.1 attached
hereto.
"Swap Agreement" means: (a) any (i) interest rate or currency swap, rate
cap, rate collar, forward agreement and other exchange or rate protection
agreements or any option with respect to any such transaction and (ii) any swap
agreement, cap, collar, floor, exchange transaction, forward agreement or
exchange or protection agreement related to Hydrocarbons or any option with
respect to such transaction, as more specifically provided in those certain
master swap agreements on International Swap Dealers Association forms and the
schedules thereto and any confirmations thereunder which Borrower enters into
with or through Lender of even date herewith and any other confirmations which
Borrower may hereafter enter into with or through Lender; and (b) all those
certain agreements listed on Schedule 4.1(q) attached hereto.
"Swap Settlement Payables" means any settlement amounts payable by
Borrower under the terms of any executed Swap Agreement.
"Swap Settlement Proceeds" means any settlement amounts paid to Borrower
under the terms of any executed Swap Agreement.
"Tax Claim" means any claim by a taxing authority that Borrower owes any
amount of taxes of any kind other than claims for Severance Taxes and Property
Taxes.
"Title Opinions" means those certain title opinions to be addressed and
delivered to Borrower and Lender on or prior to the Closing Date and certain
post-closing title opinions, reports or other evidences of title acceptable to
Lender delivered pursuant to Section 7.1(t), as the same may be or are required
to be updated under this Agreement, covering all of the Properties from
inception.
"Unit" means a pooled unit or proration unit as designated by an effective
designation of unit, proration unit plan, or other instrument of similar impact
properly filed with the appropriate governmental authority.
"Unmatured Event of Default" means any event or condition which would, with
the giving of any requisite notices and/or the passage of any requisite
periods of time, constitute an Event of Default.
"Working Interest" or "WI" have the meaning given such terms in the Mortgage.
Section I.2 Exhibits and Schedules. All exhibits and schedules attached to
this Agreement are incorporated herein by reference and made a part hereof
for all purposes.
Section I.3 Amendment of Defined Instruments . Unless the context otherwise
requires or unless otherwise provided herein, the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document; provided, that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section I.4 References and Titles. All references in this Agreement to exhibits,
schedules, articles, sections, subsections and other subdivisions refer to the
exhibits, schedules, articles, sections, subsections and other subdivisions of
this Agreement unless otherwise expressly provided. Section and subdivision
headings are for convenience only, do not constitute any part of such sections
or subdivisions and shall be disregarded in construing the language contained in
such sections or subdivisions. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular sections or subdivisions
unless expressly so limited. The phrases "this section" and "this subsection"
and similar phrases refer only to the sections or subsections hereof in which
such phrases occur.
The word "or" is not exclusive, and the word "including" (in its various forms)
means "including without limitation". Pronouns in masculine, feminine and
neuter genders shall be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
Section I.5 Calculations and Determinations. All calculations pursuant to the
Loan Documents of fees and of interest shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 365 days.
Unless otherwise expressly provided herein or Lender otherwise consents in
writing, all financial statements and reports to be furnished to Lender under
the Loan Documents shall be prepared and all financial computations and
determinations made pursuant to the Loan Documents, and with respect to the
financial statements, shall be made in accordance with GAAP.
ARTICLE II: The Loans
Section II.1 The Loans. Subject to satisfaction of all terms and conditions of
this Agreement and the other Loan Documents, including, without limitation,
Lender's receipt from Borrower of the Cost Certificate relating to each
Development Loan disbursement, and provided no Unmatured Event of Default or
Event of Default shall have occurred and be continuing, Borrower shall have the
right to request and receive advances from Lender of the Loan(s) up to an
aggregate of Forty-Five Million Seven Thousand Dollars ($45,700,000.00), to be
used exclusively for refinancing certain indebtedness and for those certain
development operations described in Schedule 2.1 attached hereto. At Closing,
subject to satisfaction of all terms and conditions of this Agreement and the
other Loan Documents, Lender shall advance to Borrower an initial Loan in the
amount of Thirty Million, Two Hundred Fifty Thousand Dollars ($30,250,000.00)
(the "Initial Loan") out of the aggregate Loans available hereunder, to be used
by Borrower exclusively for the purposes set forth in Section 2.2(a) hereof.
The Loan(s) shall be evidenced by the Advancing Note. The Interest Rate on such
Advancing Note shall be as specified therein and the final maturity date of such
Advancing Note shall be the Loan Termination Date. The Advancing Note shall be
secured by the Mortgages and the other Security Documents.
At least thirty (30) days prior to the commencement of any Development
Operation, Borrower shall send to Lender a Development Notice listing all
applicable expenditures that Borrower desires to make to conduct such
Development Operations; provided, however, that with respect to all Development
Operations that are shown on Schedule 2.1 as having an estimated commencement
date within thirty (30) days from the date of Closing, Borrower is hereby deemed
to have provided the requisite Development Notice to Lender.
If Borrower desires to conduct any Substitute Development Operation, it must
send a Request for Commitment to Lender at least thirty (30) days prior to
the proposed commencement date of such Substitute Development Operation. The
Request for Commitment shall be in substantially the same form as a Development
Notice, except that the title thereof shall be revised to read "Request for
Commitment," and such Request for Commitment shall not only include a detailed
description of the Substitute Development Operations desired to be conducted,
together with a detailed listing of all estimated expenditures relating thereto,
but it shall also identify the Development Operations listed on Schedule 2.1
that Borrower proposes to delete from Schedule 2.1 and for which the estimated
expenditures shown on Schedule 2.1 equal or exceed the estimated expenditures
relating to the proposed Substitute Development Operations. Within fifteen (15)
days after Lender has received from Borrower a Request for Commitment and any
additional information relating to the proposed Substitute Development
Operations as Lender may request, Lender shall notify Borrower whether Lender
approves of the proposed Substitute Development Operations, and if so approved
by Lender, Lender shall thereafter be committed to advance to Borrower, as part
of the Development Loan, the estimated expenditures attributable to such
Substitute Development Operations.
After Borrower has incurred any of the costs and expenses attributable to
the Development Operation identified in any such Development Notice or to an
approved Substitute Development Operation identified in any such Request for
Commitment, Borrower may submit to Lender a Cost Certificate, duly executed by
an officer of Borrower, certifying the amount of costs and expenses that have
been incurred by Borrower and are payable in connection with such proposed
Development Operations or Substitute Development Operations, together with the
supporting documentation referred to in the form of Cost Certificate attached
hereto as Exhibit E. All Cost Certificates to be submitted to Lender during any
Calendar month shall be submitted to Lender on or before the twentieth (20th)
day of such calendar month along with the Property Operating Statement to be
submitted to Lender during that month in accordance with Section 2.5 hereof.
Within five (5) business days after receipt from Borrower of a Cost Certificate
and supporting documentation, in compliance with the requirements of this
Section, Lender shall fund the advances so substantiated by such Cost
Certificate.
Any Development Notice shall relate solely to Development Operations that are
described in Schedule 2.1 and any Request for Commitment shall relate solely
to Substitute Development Operations, in each case subject, without limitation,
to the following:
(a) All statements of costs and estimates provided to Lender shall, subject
to satisfaction of all terms and conditions hereof and of the
other Loan Documents, and provided no Unmatured Event of Default or Event
of Default shall have occurred and be continuing, be rendered in
sufficient detail to give Lender complete and accurate information as to
the purpose for and amount of all items included therein, and Lender shall
be entitled to such additional information regarding such expenditures as
Lender may reasonably request. All such data shall be subject to audit by
Lender's representatives at any time mutually agreeable to the parties.
(b) The parties acknowledge that the amounts and scope of the
Development Loan(s) identified in this Section 2.1 are based upon
estimated costs of the planned development activities described on
Schedule 2.1 and may not precisely reflect the ultimate cost of the
contemplated activities. Notwithstanding the foregoing or anything herein
to the contrary, in no event shall Lender make any Development Loans
pursuant to this Section 2.1 in excess of $14,100,000.00 or aggregate
Loans in excess of $45,700,000.00; provided, however, that within thirty
days after Lender's receipt of each Reserve Report that is due to be
provided by Borrower on or before April 1 of each year prior to the Loan
Termination Date, Lender shall redetermine the maximum, aggregate amount
of outstanding Loans that it is willing to advance hereunder and shall
notify Borrower thereof; and if Borrower and Lender and agree, the maximum
amount of Loans available to be advanced pursuant to this Agreement may be
increased.
All advances of Loans made by Lender to Borrower may be made to the account
of Parent Borrower or to such other account designated by Parent Borrower
on which Lender may agree, and each such Loan shall conclusively be deemed to
have been advanced jointly to Parent Borrower and Subsidiary Borrower.
Section II.2 Use of Proceeds.
(a) Initial Loan. Proceeds from the Initial Loan may be used by
Borrower exclusively for the purposes of: (i) repaying the revolving loan
portion of the current senior secured indebtedness of Borrower as
described on Schedule 4.1(h) attached hereto, (ii) paying the trade
payables required to be paid pursuant to Section 7.1(l)(iii) hereof (which
may be paid subsequent to Closing but which must be paid within thirty
(30) days after Closing), (iii) paying expenses incurred by Borrower after
July 1, 1999 associated with land and title work, and environmental
assessment and review in connection with the Loans and related documents,
(iv) paying legal fees and expenses incurred by Lender in connection with
the Loans, (v) paying filing fees which may be required to properly file
any and all Security Documents, and (vi) paying the Structuring Fee
pursuant to Section 7.1(u) hereof, provided, however, that Lender will
advance not more than $75,000.00 of the Initial Loan proceeds to enable
Borrower to pay the items listed in clauses (iii) through (v) of this
Section 2.2(a).
(b) Development Loans. Proceeds advanced by Lender to Borrower for
subsequent Development Loans may be used by Borrower exclusively for the
purposes of funding Borrower's share of costs and expenses relating to the
conduct of the Development Operations described in Schedule 2.1 hereof, or
such Substitute Development Operations as may be subsequently approved by
Lender.
(c) Prohibited Uses. In no event shall funds from the Loans be used
directly or indirectly by Borrower, for any purpose not expressly
permitted by the terms of this Agreement, including, but not limited to,
for personal, family, household or agricultural purposes, or any other
purpose not specifically described in this Section 2.2.
Section II.3 Repayment of the Loans. Borrower shall repay the Loans plus
all interest accrued thereon by the Loan Termination Date.
Section II.4 Prepayment of the Loans. Borrower may prepay the Advancing Note in
whole or in part at any time, without premium or penalty. Any principal prepaid
pursuant to this section shall be in addition to, and not in lieu of, all
payments otherwise required to be paid under the Loan Documents at the time of
such prepayment; provided, however, that Borrower will bear responsibility for
the resulting Swap Settlement Payables associated with any Swap Agreements that
must be terminated as a result of such prepayment. With respect to any Swap
Agreements that need not be terminated as the result of such prepayment and
which Borrower elects to maintain in effect, notwithstanding the prepayment of
the Advancing Note, so long as any Swap Agreements remain outstanding, the
Security Documents shall remain in force and effect (and shall be promptly
amended by Borrower and Lender to the extent necessary) to secure Borrower's
obligation to pay any Swap Settlement Payables associated with such Swap
Agreements.
Section II.5 Application of Receipts. Net Revenue shall be calculated by Lender
based on the Property Operating Statement. Borrower shall prepare and deliver
the Property Operating Statement to Lender no later than the 20th day of each
month. Such Property Operating Statement shall detail Borrower's Gross Receipts,
Operating Expenses, Direct Taxes, royalties and overriding royalty interests
with respect to each Property relating to production and operations for the
months prior to the immediately preceding month, and the Approved Overhead for
such month. The first Property Operating Statement shall be delivered on
November 20, 1999, which will detail Gross Receipts and Expenses for the month
of September 1999. On the Repayment Date at the end of each Interest Period,
Gross Receipts for such Interest Period shall be applied as follows:
(a) First, to the amount necessary to pay the Operating Expenses,
Direct Taxes, royalties and overriding royalties, if any, associated with
the Properties, Gas Transportation Fees, Approved Overhead, Swap
Settlement Payables and the marketing fees due under the Agency Agreement.
(b) Second, Borrower shall pay to Lender one hundred percent (100%)
of the Net Revenue to be applied by Lender to payment of amounts which are
included within Debt Service and other Obligations to Lender for such
Interest Period. The percentage stated in this section shall be known as
the "Dedication Rate". The amount paid to Lender pursuant to this subpart
(b) shall be applied first to any interest due on the Advancing Note until
all accrued interest is paid in full, and any remaining amounts paid
pursuant to this subpart (b) shall be applied to remaining unpaid
principal of the Advancing Note.
At any Repayment Date, Borrower shall have the right to net out from the
payments owed to Lender pursuant to Section 2.5 (b) the amount of any
Development Loans then due to be made from Lender to Borrower on such Repayment
Date. If on such Repayment Date, such Development Loans are less than the sums
payable to Lender pursuant to Section 2.5(b), then Borrower shall pay such
difference to Lender. If such Development Loans are more than the sums payable
to Lender pursuant to Section 2.5(b), then Lender shall advance such difference
to Borrower. The right of Borrower to offset from amounts owed to Lender
pursuant to Section 2.5(b) any Development Loans then owed by Lender to Borrower
shall be suspended upon written notice from Lender to Borrower that any
conditions required for the advances of Development Loans from Lender to
Borrower, as set forth in this Agreement, have not been satisfied.
Section II.6 Mandatory Prepayment of the Loans. Borrower shall promptly pay to
Lender 100% of all proceeds from the sale of any assets of Borrower that
comprise any part of the Collateral (provided, however, that this provision is
subject to Section 7.2 (a) and shall not be deemed to be a consent by Lender to
any such sale); except that Borrower shall not be obligated to pay to Lender any
such proceeds that are expended, within one hundred twenty (120) days after the
sale from which the proceeds arose, to acquire additional assets acceptable to
Lender that are added to the Collateral if the discounted present value of the
Proved Reserves attributable to such assets, determined in accordance with
Section 7.1(f), is at least equal to the proceeds paid to acquire such assets.
All proceeds of any such sale, less those excepted pursuant to the preceding
sentence, shall be immediately applied to repayment of the Loans and accrued
interest thereon in accordance with Section 2.5(b) hereof.
Section II.7 Initial Swap Agreement. At Closing, Borrower and Lender shall
enter into a Swap Agreement in the form and substance satisfactory to Lender,
subject to the provisions of Section 7.1(s).
ARTICLE III: Security
Section III.1 Security. The Obligations will be secured by the Collateral as
set forth in the various Security Documents concurrently or hereafter delivered
by Borrower, including a separate Act of Mortgage, Assignment of Production,
Security Agreement and Financing Statement and/or Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement
(individually and collectively, the "Mortgage") executed by Borrower in favor
of Lender for each Property in the form satisfactory to Lender. Pursuant to
the Loan Documents, Borrower will grant to Lender a first mortgage lien on and
a first priority security interest in the Collateral, subject to Permitted
Encumbrances.
Section III.2 Perfection and Protection of Security Interests and Liens.
Borrower will from time to time deliver to Lender any security agreements,
financing statements, continuation statements, extension agreements, amendments,
confirmations and other documents, properly completed and executed (and
acknowledged when required) by Borrower in form and substance satisfactory to
Lender, which Lender requests for the purpose of perfecting, confirming,
protecting or establishing the priority of any Liens or other rights in the
Collateral securing any Obligations.
Section III.3 Release of Collateral. Upon the payment in full by Borrower of
the entire outstanding principle balance of the Loans and all accrued, unpaid
interest due thereon, and the performance by Borrower of all other Obligations
under the Loan Documents that were to have been performed as of the date of such
payment, Lender shall deliver or cause to be delivered to Borrower, at
Borrower's expense, releases and satisfactions of all financing statements,
mortgages and other registrations of security with respect to the Collateral and
Borrower shall deliver to Lender a general release of all of Lender's
liabilities and obligations under the Loan Documents and an acknowledgment
that the same have been terminated.
ARTICLE IV: Representations and Warranties
Section IV.1 Representations and Warranties of Borrower. To confirm Lender's
understanding concerning Borrower and Borrower's businesses, properties and
obligations, and to induce Lender to enter into this Agreement and to make the
Loans, each Borrower represents and warrants to Lender that:
(a) No Default. No event has occurred and is continuing which would
constitute a an Event of Default or an Unmatured Event of Default.
(b) Organization and Good Standing. Each Borrower is a corporation
duly organized, validly existing and in good standing under the laws of
Colorado, having all powers necessary to carry on its businesses and to
enter into and consummate the transactions contemplated by the Loan
Documents. Each Borrower is duly qualified, in good standing, and
authorized to do business in all other jurisdictions wherein the character
of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary or desirable.
Subsidiary Borrower is qualified under applicable Bureau of Land
Management and Bureau of Indian Affairs regulations to act as Operator of
the Leases, where required.
(c) Capitalization: Compliance with Security Laws. Except as
disclosed on Schedule 4.1(c) and in Borrower's Public Reports: (i)
Borrower is not subject to any agreement under which there may become
outstanding, nor are there currently outstanding, any rights to purchase,
or securities convertible into or exchangeable for, any stock in Borrower
including, but not limited to, options, warrants or rights; (ii) Borrower
is under no obligation (contingent or otherwise) to purchase or otherwise
acquire or retire any of its shares of stock; and (iii) except as
contemplated by this Agreement, there are no agreements, understandings,
plans or arrangements in existence which pertain to the distribution
rights, voting, sale or transfer of any shares of stock of Borrower.
(d) Authorization. Borrower has taken all actions necessary to
authorize the execution and delivery of the Loan Documents and to
authorize the consummation of the transactions contemplated thereby and
the performance of its obligations thereunder. Borrower is duly
authorized to borrow funds hereunder.
(e) No Conflicts or Consents. The execution and delivery by Borrower
of the Loan Documents, the performance of its obligations under the Loan
Documents, and the consummation of the transactions contemplated by the
various Loan Documents does not and will not (i) conflict with any
provision of (A) any domestic or foreign law, statute, rule or regulation,
(B) the Articles of Incorporation or Bylaws of either Borrower, or (C) any
agreement, judgment, license, order or permit applicable to or binding
upon Borrower, (ii) result in the acceleration of any Debt owed by
Borrower, or (iii) result in or require the creation of any Lien upon any
assets or properties of Borrower, except as expressly contemplated in the
Loan Documents. Except as expressly contemplated in the Loan Documents,
no consent, approval, authorization or order of, and no notice to or
filing with, any court or governmental authority or third party is
required in connection with the execution, delivery or performance by
Borrower of any Loan Document or to consummate any transactions
contemplated by the Loan Documents.
(f) Enforceable Obligations. This Agreement is, and the other Loan
Documents when executed and delivered by each Borrower will be, legal,
valid and binding obligations of such Borrower, enforceable in accordance
with their terms except as such enforcement may be limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights or by principles of equity applicable to
the enforcement of creditors' rights generally.
(g) Financial Statements. Attached hereto as Schedule 4.l(g) are,
with respect to Parent Borrower, Parent Borrower's unaudited financial
statements as of June 30, 1999 (the "Financial Statements"). The
Financial Statements present fairly the financial condition of the
Borrower as of the dates thereof and the results of operations for the
period then ended, and are in accordance with the books and records of
Borrower. There have been no material transactions other than in the
ordinary course of business since the date of the Financial Statements.
As of the date of the Financial Statements, (i) Borrower has not had any
material liabilities of any nature (matured or unmatured, fixed or
contingent) required to be provided for therein or described in the notes
thereto which were not provided for therein or described in the notes
thereto, (ii) all reserves established by Borrower and set forth therein
are adequate for the purposes for which they were established, and (iii)
there is no Indebtedness of Borrower to any shareholders or Affiliates of
Borrower.
(h) Other Obligations and Restrictions. Except for: (i) the secured
Debt owed by Borrower to Bank One, Texas, N.A., which is described on
Schedule 4.1(h) and which shall be repaid in full at Closing, (ii) an
unsecured loan in the amount of One Hundred Forty Two Thousand Dollars
($142,000.00) owed to Bank One, Colorado, N.A., and (iii) the Equipment
Loan, Borrower has no outstanding Debt of any kind (including contingent
obligations, tax assessments, and forward or long-term commitments), other
than Debt under the Loan Documents, which is material to such Borrower and
not disclosed in the Financial Statements. No Tax Claim or other claim
for past due Property Taxes or Severance Taxes exists. Borrower is not
subject to or restricted by any franchise, contract, deed, charter
restriction or other instrument or restriction which could materially and
adversely affect Borrower's financial condition, or Borrower's ability to
timely pay the Advancing Note and the other Obligations and to perform its
obligations under the Loan Documents.
(i) Full Disclosure. No certificate, statement or other information
delivered herewith or heretofore by Borrower to Lender in connection with
the negotiation of this Agreement or in connection with any transaction
contemplated hereby contains any untrue statement of a material fact or
omits to state any material fact known to Borrower necessary to make the
statements contained herein or therein not misleading as of the date made
or deemed made. No facts are known to Borrower that have not been
disclosed to Lender in writing which could materially and adversely affect
Borrower's financial condition, or Borrower's ability to timely pay or
perform its obligations.
(j) Litigation. Except as disclosed on Schedule 4.1(j), there are
no actions, suits or legal, equitable, arbitrative or administrative
proceedings pending, or to the knowledge of Borrower threatened, against
Borrower before any federal, state, municipal or other court, department,
commission, body, board, bureau, agency or instrumentality, domestic or
foreign, and there are no outstanding judgments, injunctions, writs,
rulings or orders by any such governmental entity against Borrower.
(k) ERISA Liabilities. There are no ERISA Plans with respect to
which Borrower has any fixed or contingent liability, and Borrower is in
compliance with ERISA in all material respects.
(l) Names and Places of Business. Borrower has not during the
preceding three (3) years had, been known by or used any other company,
trade or fictitious name. The principal office and principal place of
business of Borrower is set forth in Section 11.3 hereof. Borrower does
not now have and has not previously had any other office or place of
business, except as listed on Schedule 4.1(l). Borrower is not and has not
engaged in any business or activity other than the acquisition, ownership,
operation and development of the Properties, except that until 1997,
Borrower owned a majority of the stock of Laguna Gold Company, and
Borrower continues to own a substantial percentage of that company's
stock.
(m) Unpaid Bills. Except as disclosed to Lender in Schedule 4.1(m)
and except as incurred in the ordinary course of business and which are
not yet due, Borrower has no knowledge of any unpaid bills with respect to
improvements to any of the Collateral which may give rise to mechanic's,
materialman's or other similar liens arising by ieeration of applicable
law should such bills remain unpaid.
(n) Title. Subject to Permitted Encumbrances, (i) except as set
forth in the Title Opinions, Subsidiary Borrower will have all beneficial
rights, title and interest in and to all production from or allocable to
Subsidiary Borrower's interest in the Properties and have the exclusive
right to sell the same subject to any right in the owners of royalty
interest to take their royalty interest in kind, and (ii) Subsidiary
Borrower will have Defensible Title to the Properties, the Equipment and
to its other material properties and assets. The Collateral will be owned
by Subsidiary Borrower free and clear of any and all Liens, other than
Permitted Encumbrances and Liens listed on Schedule 4.1(n).
(o) Purchasers of Hydrocarbons. All of the Persons who purchase
Hydrocarbons produced from or allocated to the Properties, and the most
recent address of each such Persons as shown in Borrower's records, is set
forth on Schedule 4.1(o) attached hereto.
(p) Hydrocarbon Sales and Related Agreements. All existing
agreements that are binding on Borrower or the Properties and that are not
terminable upon thirty (30) days or less notice for the sale, purchase,
gathering, transportation, handling, processing, treating and/or storage
of Hydrocarbons are described on Schedule 4.1(p) attached hereto.
(q) Swap Agreements. All existing Swap Agreements to which Borrower
is a party or by which Borrower is bound are described on Schedule 4.1(q)
attached hereto.
(r) Affiliates. Except for subsidiaries identified in Borrower's
Public Reports, Borrower does not have any other Affiliate or own any
stock in any other corporation or association. Borrower is not a member
of any joint venture or association of any type whatsoever.
(s) Omissions and Misstatements. To Borrower's knowledge after due
inquiry, all written data, reports and information which Borrower has
supplied to Lender or caused to be supplied by a e ird party on its behalf
in connection with the obtaining of the credit facility provided for in
this Agreement or in connection with the business transactions giving rise
to Borrower's seeking such credit are, taken as a whole, complete and
accurate in all material respects and contain no material omission or
misstatement. The Initial Reserve Report furnished to Lender prior to the
execution of this Agreement, to the best of Borrower's knowledge, was
prepared in accordance with customary oil and gas engineering practices
and in accordance with the standards promulgated by the Securities and
Exchange Commission. The Initial Reserve Report is based on historical
information which, to the best of Borrower's knowledge, is complete and
accurate in all material respects and contains no material omission or
misstatement.
(t) Holding Company. The Borrower is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(u) Investment Company. The Borrower is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(v) Environmental and Other Laws. Except as disclosed in Schedule
4.1(v), (i) Borrower is conducting its business in material compliance
with all applicable federal, state or local laws, including Environmental
Laws, and has been and is in compliance with any licenses and permits
required under any such laws which affect or relate to the Collateral;
(ii) none of the operations or properties of Borrower is the subject of
federal, state or local investigation evaluating whether any material
remedial action is needed to respond to a release of any Hazardous
Materials into the environment or to the improper storage or disposal
(including storage or disposal at offsite locations) of any Hazardous
Materials; (iii) Borrower has not filed or received any notice under any
federal, state or local law indicating that Borrower is or may be
responsible for the improper release into the environment, or the improper
storage or disposal, of any material amount of any Hazardous Materials or
that any Hazardous Materials have been improperly released, or are
improperly stored or disposed of, upon the Properties; and (iv) Borrower
is not aware of contingent liability under any Environmental Laws or in
connection with the release into the environment, or the storage or
disposal, of any Hazardous Materials, upon the Properties.
Section IV.2 Employees. Except as disclosed in Borrower's Public Reports,
Borrower is not a party to any existing employment agreements, deferred
compensation, stock option, bonus, consulting or retirement agreements or plans,
or other employee benefit plans of any kind, including without limitation any
pension or welfare benefit plans with any employee of Borrower not terminable
at-will. Except as disclosed in Borrower's Public Reports, Borrower does not
maintain nor has it ever maintained an Employee Pension Benefit Plan as defined
in Section 3(a) of ERISA, or a multi employer plan as defined in Section 3(37)
of ERISA. To Borrower's knowledge, no employees of Borrower are represented by
any labor union or collective bargaining agreement, nor is any union
organization effort pending or threatened against Borrower.
ARTICLE V: Notice of Certain Events
So long as any Obligations are owing to Lender under this Agreement or any
other Loan Documents, Borrower shall deliver to Lender or notify Lender, as the
case may be, of the following items:
Section V.1 Notice of Unmatured Event of Default, Event of Default, and
Other Matters. Borrower shall notify Lender within five (5) Business
Days after becoming aware of the existence of any Unmatured Event of
Default or Event of Default under this Agreement or after becoming aware of any
developments or other information which may materially and adversely affect the
properties, business, prospects, profits or condition (financial or otherwise)
of Borrower or its ability to perform its Obligations, including, without
limitation, the following:
(a) any dispute (including tax liability disputes) that may arise
between Borrower and any governmental regulatory body or law enforcement
authority;
(b) the commencement of any litigation or proceeding affecting
Borrower (whether by the filing of a complaint, service of process or by
attachment or arrest of any asset);
(c) any labor dispute or controversy resulting in or threatening to
result in a strike or work stoppage against Borrower;
(d) any proposal by any public authority to acquire any assets or
business of Borrower;
(e) the location of any Collateral other than at the places
indicated in or as permitted under the Loan Documents;
(f) any proposed or actual change of the name, identity or structure
of Borrower;
(g) any material loss or damage to any of Borrower's property,
business or operations;
(h) any environmental situation, circumstance or condition that
causes or may cause Section 7.l(s) to be false; or
(i) any other matter which has resulted or may result in a material
adverse change in the financial condition, operations or assets of
Borrower.
Borrower shall provide Lender with telephonic and written notice
specifying and describing the nature of such Unmatured Event of Default, Event
of Default, development or information, and anticipated effect thereof, which
notice shall be given as soon as reasonably possible.
Section V.2 Other Information. Borrower shall provide such other information
respecting the respective financial condition of Borrower or any property of
Borrower as Lender reasonably may request from time to time.
ARTICLE VI: Special Provisions Relating to Equipment
Section VI.1 Location: Records. Except in the ordinary course of business, all
Equipment owned by or on behalf of Borrower will be kept at its current
location, except as permitted by this Agreement or by the prior written consent
of Lender, and except that, so long as no Unmatured Event of Default or Event or
Default shall have occurred and be continuing, Borrower may dispose of Equipment
in accordance with the terms of the applicable operating agreements and may
dispose of obsolete, broken or worn Equipment, in either case without Lender's
consent, but upon prior written notice to Lender with respect to any such
disposition in a single transaction or series of related transactions that
involves Equipment that has a value in excess of $25,000.00; provided that
the proceeds of any such disposition shall either (i) be used to purchase
substantially similar Equipment to be used on the same Lease(s) from which
the sold Equipment was removed, or (ii) be delivered to Lender to be applied
to the Obligations in accordance with Section 2.5 on the next Repayment Date.
Borrower will at all times hereafter keep correct and accurate records
itemizing and describing the location, kind, type and condition of each
item of Equipment that has a book value of $10,000.00 or more and is
currently owned or hereafter acquired by Borrower, all of which records shall be
available during Borrower's usual business hours upon demand of any officer,
employee, agent or representative of Lender. Schedule 6.1 attached hereto sets
forth the information described in the preceding sentence for all Equipment
owned by Borrower as of the Closing Date or to be acquired by Borrower using
proceeds of the Loans.
Section VI.2 Maintenance. Borrower will keep all of its Equipment in a good
state of repair and good operating condition, will make all repairs and
replacements when and where necessary, will not waste or destroy it or any part
thereof, and will not be negligent in the care or use thereof. Borrower shall
repair and maintain all of its Equipment in a manner sufficient to continue the
operation of Borrower's business. Borrower shall use its Equipment in accordance
with law and the manufacturer's instructions.
Section VI.3 Dispositions. Where Borrower is permitted to dispose of any
Equipment under this Agreement or by consent thereto hereafter given by Lender,
Borrower shall do so in an arm's length transaction, in good faith and by
obtaining the maximum amount of recovery practicable therefor and without
impairing the operating integrity of its remaining Equipment or the Properties.
ARTICLE VII: Covenants of Borrower
Section VII.1 Affirmative Covenants. Borrower warrants, covenants and agrees
that until full and final repayment of the Obligations and the termination of
each of the Loan Documents, it will comply with the following covenants:
(a) Payment and Performance. Borrower will pay all amounts due to
Lender under the Loan Documents in accordance with the terms thereof and
will observe, perform and comply with every covenant, term and condition
expressed or implied in the Loan Documents.
(b) Preferential Right To Purchase and/or Market Hydrocarbons. At
Closing, Borrower shall execute an irrevocable agency agreement in form
satisfactory to Lender which authorizes Lender or its designated Affiliate
to act exclusively in Borrower's place and stead to market Borrower's oil
and gas (the "Agency Agreement"). The Agency Agreement shall remain in
force and effect for the term set forth therein. The rights granted to
Lender in this Section 7.1(b) may be assigned, in whole or in part, to one
or more Affiliates of Lender and shall continue in full force and effect
until the earlier of the full and final payment and performance of all of
Borrower's Obligations or the fourth (4th) anniversary of the Closing
Date. The Agency Agreement shall provide that Lender will receive a one
percent (1%) fee on all of Borrower's Hydrocarbons that are produced and
sold or used, whether marketed by Lender or its Affiliates or sold
directly by Borrower to third parties, and that Lender will have the right
to net this fee out of payments owed to Borrower for the marketing of such
Hydrocarbons.
(c) Compliance with Tax Laws. Borrower shall comply with all
federal, state or local laws and regulations regarding the collection,
payment and deposit of employee' income, employment, and social security
and sales and use taxes and taxes related to royalty payments.
(d) Books, Financial Statements and Reports. Borrower will at all
times maintain full and accurate books of account and records and a
standard system of accounting and will furnish the following statements
and reports to Lender at Borrower's expense:
(i) Annual Financial Statements. As soon as available, and in
any event within one hundred (100) days after the end of each Fiscal
Year, complete audited financial statements of Parent Borrower,
prepared in reasonable detail in accordance with GAAP. These
financial statements shall contain a balance sheet as of the end of
such Fiscal Year and statements of operations, of cash flows, and of
changes in shareholders' equity for such Fiscal Year, each setting
forth in comparative form the corresponding figures for the
preceding Fiscal Year.
(ii) Quarterly Financial Statements. As soon as available,
and in any event within sixty (60) days after the end of each Fiscal
Quarter, Parent Borrower's balance sheet as of the end of such
Fiscal Quarter and statements of Parent Borrower's operations and
cash flows for the period from the beginning of the then current
Fiscal Year to the end of such Fiscal Quarter, all in reasonable
detail and prepared in accordance with GAAP, subject to changes
resulting from normal year-end adjustments.
(iii) Third Party Reports. As and when furnished, copies of
all reports and other information provided by any other Person to
Borrower in connection with the Loan Documents. Borrower may
arrange for such reports and information to be provided directly to
Lender by the Person providing the same to Borrower.
(iv) Daily Field Activity Reports. Borrower shall provide
Lender by telecopy or e-mail, a daily report detailing all drilling,
completions and workovers from the preceding day with respect to the
Properties in form and substance satisfactory to Lender.
(v) Weekly Reports. Borrower shall provide Lender with
weekly reports by telecopy or e-mail setting forth the quantities,
types and specifications of Hydrocarbons produced from or allocable
to each of the Properties, in form and substance satisfactory to
Lender and a report detailing all costs and expenses associated with
the activities specified in the reports delivered pursuant to
subsection (iv) for the preceding week.
(vi) Operating Reports. Within thirty (30) days of the
Closing, and semi-annually thereafter, Borrower shall provide Lender
with a rolling revenue, lease operating expense and capital
expenditure forecast by month covering Borrower's interest in the
Properties for the succeeding 12 month period ("Operating Report").
Such Operating Reports shall include a brief discussion by Borrower
of operating and financial variances from the prior Operating Report
delivered to Lender.
(vii) AFE's. Borrower shall provide Lender with
authorizations for all material expenditures, representing an
estimate of work to be done, each of which shall be supported by
appropriate invoices, bids, estimates, contracts or other support
(such authorization, together with such support, an "AFE"), prior to
commencing the activity contemplated by such AFE.
(viii) Nominations. For Hydrocarbons not purchased by Lender
or its Affiliate, Borrower shall provide to Lender by the first day
of each month, reports by telecopy setting forth the nominations of
quantities of Hydrocarbons for that month, and for Hydrocarbons
purchased by Lender or its Affiliate, nominations shall be provided
pursuant to the applicable gas purchase agreement.
(e) Other Information and Inspections. Borrower will furnish to
Lender any information which Lender may from time to time request
concerning any covenant, provision or condition of the Loan Documents or
any matter in connection with the Borrower's assets, business and/or
operations. Borrower will permit representatives appointed by Lender
(including independent accountants, agents, attorneys, appraisers and any
other Persons) to visit and inspect, during reasonable business hours and
upon prior written notice, any of Borrower's property, including its books
of account, other books and records, and any facilities or other business
assets, and to make extra copies therefrom and photocopies and photographs
thereof, and to write down and record any information such representatives
obtain, and Borrower shall permit Lender or its representatives to
investigate and verify the accuracy of the information furnished to Lender
in connection with the Loan Documents and to discuss all such matters with
its officers, employees and representatives. In addition, Borrower will
permit any such representatives appointed by Lender, at the risk and
expense of Lender or such representatives, to visit and inspect, during
reasonable hours and upon advance written notice, the Properties and other
Collateral. Lender agrees that it shall keep confidential any proprietary
information given to it by Borrower; provided, however, that this
restriction shall not apply to information which (i) is at the time in
question publicly available, (ii) is required to be disclosed by law or by
any order, rule or regulation (whether valid or invalid) of any court or
governmental agency, or authority, (iii) is disclosed to Lender's
Affiliates, auditors, attorneys, lenders or agents, or (iv) is disclosed
in the course of the defense or enforcement of the Loan Documents or the
defense or enforcement of Lender's exercise of its rights thereunder,
provided that with respect to information furnished to Persons identified
in clause (iii) (except when furnished pursuant to clause (iv)) such
Person shall be subject to the foregoing confidentiality obligations
applicable to Lender; and provided, further, that with respect to any such
information of which a third party seeks disclosure pursuant to clause
(ii), Lender shall give Borrower written notice of such third party
attempt to require disclosure in order to afford Borrower the opportunity
to pursue any remedies that it may have to prevent or limit such
disclosure.
(f) Reserve Reports. On or before each April 1 after the Closing
Date until the Loan Termination Date, Borrower shall cause the preparation
and delivery to Lender of petroleum engineering reports relating to the
Properties in a form satisfactory to Lender, and effective as of the
preceding December 31 (collectively, the "Reserve Reports" and
individually, a "Reserve Report"). Each Reserve Report required hereby
shall be prepared by mutually agreeable third-party engineers and shall be
prepared at Borrower's sole expense. Each Reserve Report shall set forth
updated estimates of proved developed producing reserves, proved developed
non-producing reserves, proved undeveloped reserves, projected production
profiles and overall economics of the Properties. Each Reserve Report
will be based on the following assumptions:
(i) The oil and gas price assumptions utilized in the
preparation of each Reserve Report will be the New York Mercantile
Exchange futures contract market prices (until the last month for
which there exists a futures contract and held flat thereafter at
the price for the last such month) at the effective date of the
Reserve Report adjusted for (a) the then current (as of the
effective date of the Reserve Report) basis differential (between
delivery point for the futures contract and the point of sales
delivery for the Property location) generally employed by Lender and
independent third parties making over-the-counter markets for oil
and gas commodities financial derivatives, (b) gathering,
transportation and processing fees applicable to the Hydrocarbons
production (to the extent not included as deductions in the Reserve
Report for purposes of calculating net operating revenues), and (c)
MMBTU adjustments or other quality adjustments to account for
differences in the specifications for the futures contracts and the
quality of actual production from the Properties.
(ii) Average lease operating expenses and production taxes
will be based upon the Operator's best estimate and historical
operating expenses, subject to Lender's approval.
(g) Notice of Investigations or Proceedings. Borrower shall give
Lender immediate written notice of any proceeding at law or in equity
against Borrower, or any investigation or proceeding before or by any
administrative or governmental agency.
(h) Notice of Damage to Collateral. Borrower shall give Lender
prompt written notice of any destruction or substantial damage to any of
the Collateral and of the occurrence of any condition or event which has
caused, or may cause, material loss or depreciation in the value of any
property subject to Lender's Liens or the Mortgage.
(i) Maintenance of Licenses. Borrower shall maintain all licenses,
permits, charters and registrations which are required for the conduct of
its business.
(j) Maintenance of Rights. Borrower will maintain, preserve,
protect and keep all of its contractual and property rights, and will not
waive, amend or release any such rights, other than as expressly permitted
by the Loan Documents, and specifically, without limitation, Borrower
shall use its best efforts to perform, or cause to be performed, all of
the terms, conditions and covenants of the lessee in the Leases comprising
the Properties.
(k) Maintenance of Existence and Qualifications. Borrower will
maintain and preserve its corporate existence and its rights and
franchises in full force and effect and will qualify and/or remain
qualified to do business as a foreign corporation in all states or
jurisdictions where required by applicable law.
(l) Payment of Trade Debt. Borrower will (i) timely pay all taxes,
assessments and other governmental charges or levies imposed upon it or
upon its income, profits or property; (ii) in the ordinary course of
business, and in any event within not more than ninety (90) days after the
same becomes due, pay all Debt (other than the Obligations) owed by it;
(iii) within thirty (30) days after Closing pay all trade debt listed on
Schedule 4.1(m) that is more than ninety (90) days overdue as of the date
of Closing, and provide to Lender within thirty-five (35) days after
closing a certificate of the President or Chief Financial Officer of
Parent Borrower listing all trade debt that was paid by Borrower during
the thirty (30) day period following the Closing; and (iv) maintain
appropriate accruals and reserves for all of the foregoing Debt in
accordance with GAAP.
(m) Creditors. On or before the twentieth (20th) day of each month,
along with the delivery of the Property Operating Statement due on such
day, Borrower shall provide Lender with a statement showing the identity
of Borrower's creditors, the amount due to each and the date each payment
is due thereunder. Borrower shall notify Lender immediately if Borrower
fails to make any payment to lessors, suppliers, vendors, owners of
royalty interest, tax authorities or other Persons, where such nonpayment
could result in any Lien against any item of Collateral or otherwise
interfere with or jeopardize performance by Borrower of its obligations
under the Loan Documents.
(n) Interest. Borrower hereby promises to pay interest to Lender
pursuant to the terms and at the rate stated in the Advancing Note on all
Obligations (including Obligations to pay fees or to reimburse or
indemnify Lender) after such Obligations become due. Borrower further
agrees that any interest which has accrued and is not paid when due shall
be added to and become part of the Loans.
(o) Compliance with Agreements and Law. Borrower will perform all
material obligations it is required to perform under the terms of the Loan
Documents. Borrower will conduct its business and affairs in compliance
with all laws, regulations and orders applicable thereto, including
Environmental Laws.
(p) Insurance. Borrower shall keep or cause to be kept all of the
Mortgaged Properties (as that term is defined in the Mortgage) that are
fixtures or personal property insured for their replacement value by
insurance companies licensed to do business in the States in which the
Mortgaged Properties are located against loss or damage by fire or other
risk usually insured against by owners or users of similar properties in
similar businesses under extended coverage endorsement and against theft,
burglary and pilferage, together with other insurance covering such other
hazards as Lender may from time to time reasonably request, in amounts in
accordance with industry standards and from companies satisfactory to
Lender. Borrower shall deliver the policy or policies of such insurance
or certificates of insurance to Lender at Closing, and such policies and
all proceeds thereof shall be security for all Obligations. All such
insurance shall contain endorsements in form satisfactory to Lender
showing Lender as a loss payee and additional party insured as its
interest may appear; provided that Lender shall not be named as an
additional insured on the policies described in subpart (v) of this
Section to the extent such policies apply to vehicles. The following
types of insurance covering the Collateral and the interest and
liabilities incident to the ownership, possession and operation thereof
shall be secured by Borrower:
(i) Worker's compensation insurance and employer's liability
insurance covering the employees of Borrower engaged in operations
contemplated hereunder in compliance with all applicable state and
federal law and endorsed to provide all states coverage and
occupational disease coverage, as follows:
Workers Compensation Statutory
Employers Liability $500,000 Each Accident
$500,000 Disease Each Employee
(ii) Comprehensive general liability insurance with combined
single limit of not less than $1,000,000 per occurrence and endorsed
to provide coverage for explosion, collapse and underground damage
hazards to property of others, contractual liability, products and
completed operations, and for damage to underground resources, and
accidental pollution, bodily injury and property damage coverage in
sufficient amounts to meet umbrella underlying requirements;
(iii) Comprehensive automobile liability insurance covering
all owned, hired or non-owned vehicles with a combined single limit
of not less than $500,000 per occurrence;
(iv) Excess umbrella liability insurance with a combined
single limit of not less than $20,000,000 per occurrence and policy
aggregate;
(v) Property insurance on a replacement value basis fully
covering the personal property and fixtures constituting the Gas
Plant Assets.
During the period of the drilling of xxxxx and the construction of any
other improvements comprising a part of the Collateral (as defined in the
Security Agreement), Borrower shall cause its contractors or
subcontractors to obtain and maintain worker's compensation insurance
covering all persons employed by Borrower's agents or subcontractors of
any tier in connection with any construction affecting the Collateral,
including, without limitation, all agents and employees of Borrower's
subcontractors with respect to whom death or bodily injury claims could be
asserted against Borrower.
(q) Policy Counterparts or Certificates of Insurance. Borrower
shall deliver to Lender valid counterparts of all insurance policies and
all endorsements thereto (or, at its option, valid certificates of such
insurance) which are required hereunder to be obtained and maintained by
Borrower.
(r) Prudent Operations. Borrower shall prudently develop, and cause
the Properties to be continuously operated and maintained to produce the
output from or allocable to such property in a good and workmanlike manner
consistent with prudent operator practices to maximize production from or
allocable over the productive life thereof.
(s) Hydrocarbon Production Swap Agreements. In addition to the Swap
Agreement as provided in Section 2.7 and those described on Schedule
4.1(q), Borrower will from time to time, upon thirty (30) days' notice by
Lender, enter into one or more Hydrocarbon price swaps pursuant to an
approved Swap Agreement in form and substance mutually satisfactory to
Borrowers and Lender, such that up to 65% of the volume of Proved
Developed Producing Reserves scheduled to be produced during the remaining
term of the Loans (based upon the most recent Reserve Report) are
dedicated to the Swap Agreements or such other price risk management
program as approved by Lender. Borrower and Lender shall endeavor to
agree upon a swap strategy that will most accurately reflect the make-up
and pricing of the Hydrocarbons produced and sold by Borrower. The price
component of any such price swaps shall be determined following
discussions between Borrower and Lender regarding the appropriate index
and basis differential for each point of delivery, and following such
discussions, Lender and Borrower shall implement the price swaps(s)
required by this section on terms determined by Lender in a commercially
reasonable manner.
(t) Legal Fees. Borrower will pay to Lender's counsel, on or before
the Closing Date, all legal fees and expenses incurred by Lender in
connection with the Credit Agreement and the Loan Documents, plus a
deposit for estimated costs and expenses, including recording fees, of
$5,000.00, not to exceed, in the aggregate, $75,000.00. Thereafter,
Borrower shall reimburse Lender for all reasonable legal fees and expenses
incurred in connection with any subsequent amendment, mortgage, extension
or renewal of any Loan Document and all reasonable legal fees and expenses
attributable to the enforcement and administration of this Agreement and
any of the Loan Documents.
(u) Structuring Fee. The Structuring Fee in the amount of
$475,000.00 shall be payable by Borrower to Lender out of the advances
evidenced by the Advancing Note. A Loan in the amount of the Structuring
Fee will be deemed to have been advanced by Lender to Borrower on the
Closing Date, with such Structuring Fee having been contemporaneously paid
by Borrower to Lender.
(v) Obligation to Cure Liens. Borrower shall cure any existing lien
against the Properties prior to the Closing Date.
(w) Changes to Purchasers of Hydrocarbons. Borrower shall notify
Lender in writing on the twentieth (20th) day of each month of the
identity and address of each Person who purchased Hydrocarbons produced
from or allocable to the Properties during the prior calendar month.
Section VII.2 Negative Covenants. Borrower warrants, covenants and agrees that
until the full and final repayment of the Obligations and the termination of
each of the Loan Documents:
(a) Limitation on Sales of Collateral. Borrower will not sell,
transfer, lease, exchange, alienate or dispose of any Collateral or any
interest therein, except for the sale of Hydrocarbons in the ordinary
course of business and/or other sales to the extent pursuant to or as
expressly allowed under this Agreement and the Security Documents
encumbering such Collateral.
(b) Compensation. The Borrower shall not, directly or indirectly,
enter into any employment agreement or other arrangement with or for the
benefit of an officer, director or employee of the Borrower other than for
reasonable compensation for services as an officer, director or employee.
(c) Limitation on Credit Extensions. Except for loans made pursuant
to Borrower's Stock Ownership Encouragement Program, Borrower will not
extend credit, make advances or make loans to any Person other than in the
ordinary course of business, whether or not as Affiliate of Borrower.
(d) Certain Contracts; Amendments; ERISA Plans. Borrower will not
amend or permit any amendment to any contract or lease which releases,
qualifies, limits, makes contingent or otherwise detrimentally affects the
rights and benefits of Lender under or acquired pursuant to any Loan
Documents. Borrower will not incur any fixed or contingent obligation to
contribute to any ERISA Plan.
(e) Indebtedness. Except for Permitted Encumbrances, Borrower shall
not create, incur, assume or suffer to exist any Debt, except Obligations
to Lender hereunder, or sell, discount or factor their accounts,
instruments, intangibles, leases or chattel paper; provided, however,
Borrower may incur Debt not to exceed $100,000 per transaction and an
aggregate amount not to exceed $1,000,000 at any time outstanding with
regard to direct costs and expenses incurred in the operation of the
Properties.
(f) Liabilities. Except as expressly provided herein, Borrower
shall not assume, guaranty, or endorse or otherwise become directly or
contingently liable in connection with any other liability of any other
Person except for the indemnification contained herein; provided, however,
that the foregoing shall not prohibit the endorsement of negotiable
instruments for deposit or collection or incurrence of obligations under
operating agreements and similar transactions in the ordinary course of
business. For the purposes hereof, "guaranty" shall include any
agreement, whether such agreement is on a contingency basis or otherwise,
to purchase, repurchase or otherwise acquire any obligation or liability
of any other Person, or to purchase, sell or lease, as lessee or lessor,
property or services in any such case primarily for the purpose of
enabling another Person to make payment of any such debt or liability, or
to make any payment (whether as a capital contribution, purchase of any
equity interest or otherwise) to assure a minimum equity, asset base,
working capital or other balance sheet or financial condition, in
connection with Debt or liability of another Person, or to supply funds to
or in any manner invest in another Person in connection with such Person's
Debt or liability.
(g) Acquisition. Borrower shall not acquire or commit or agree to
acquire any of the stock, securities or other equity ownership of any
other Person without written consent of Lender, provided that such an
acquisition may be made without Lender's consent if such stock, securities
and/or other equity ownership becomes part of the Collateral and
contemporaneously with its acquisition it is subjected to Security
Documents acceptable to Lender.
(h) Cancellation of Claims. Without Lender's written consent,
Borrower shall not cancel any claim or debt in excess of a total of fifty
thousand dollars ($50,000) during the term of the Loans, except for
reasonable consideration and in the ordinary course of its business.
(i) Defaults. Borrower shall not cause a default under any lease,
mortgage, deed of trust or lien on real estate owned or leased by Borrower
including an Unmatured Event of Default or an Event of Default.
(j) Security Interests and Liens. Subject to Borrower's right to
contest in good faith or cure within 30 days of the filing of any lien,
Borrower shall not suffer to exist any valid lien, encumbrance, mortgage
or security interest or consent to the filing of any financing statements
on any of its Property other than the Liens created by the Loan Documents
granted herein and Permitted Encumbrances.
(k) Creation of Subsidiary. Borrower shall not (i) create any
direct or indirect subsidiary except the entity to be created to pursue
oil and gas opportunities in Costa Rica, as described on Schedule
7.2(k)(i) hereof, or divest itself of any material assets by transferring
them to any future subsidiary or by entering into a partnership, joint
venture or similar arrangement, or (ii) make any material change in its
capital structure, except any such change resulting from the planned
equity offering described on Schedule 7.2(k)(ii) hereof.
(l) Certain Changes. Borrower shall not transfer its principal
office or its registered offices outside of the State of Colorado or
change its name or keep Collateral at any location(s) other than those at
which the same are presently kept or without written consent of Lender.
Borrower shall not change its fiscal year.
(m) Loan Documents. Borrower shall not alter, amend or cause the
alteration or amendment of any of the Loan Documents without the prior
written consent of Lender.
(n) Amendments to Formation Documents. Borrower shall not adopt any
amendment, modification or waiver of any provision of its Articles of
Incorporation or Bylaws.
(o) Disposition. Borrower shall not dedicate, sell, encumber or
dispose of, or suffer to exist any agreement for the sale, disposition or
encumbrance of, Subsidiary Borrower's Working Interest and/or Net Revenue
Interest in the Properties or of any Hydrocarbon production attributable
to Subsidiary Borrower's Working Interest and/or Net Revenue Interest in
the Properties except in the ordinary course of business.
(p) Investments. Without Lender's prior written consent, Borrower
will not make, or suffer to exist, any Investment except Investments in
certificates of deposit or other obligations of a bank or trust company
having capital, surplus and undivided profits of at least $100,000,000,
obligations of the United States government or any agency thereof, or
investment grade commercial paper.
(q) Change of Management. No change shall be permitted to occur
with regard to the individuals who currently hold the positions of
Chairman and President of Parent Borrower, being Xx. Xxxxxx Xxxxxx, or
Executive Vice President of Parent Borrower, being Mr. Xxxxx Xxxxxxxxxx,
nor shall the powers or duties of such officers of Parent Borrower be
diminished by any amendment of the Articles or Bylaws of Parent Borrower.
ARTICLE VIII: Further Rights of Lender
Section VIII.1 Maintenance of Security Interests. Until the Obligations are
repaid in full, Borrower, at its own expense, shall do all things and shall
deliver all instruments reasonably requested by Lender to protect or perfect
any security interest, mortgage or lien given hereunder or under any Security
Documents, including, without limitation, financing statements under the
Uniform Commercial Code. Lender may examine, inspect and copy or make extracts
from all books and records of Borrower at any time during regular business hours
upon prior notice to Borrower. Borrower authorizes Lender to execute alone any
financing statement or other documents or instruments that Lender may require to
perfect, protect or establish any lien or security interest hereunder or under
any Security Documents and further authorizes Lender to sign Borrower's name on
the same. Borrower hereby authorizes Lender, during the continuance of any
Event of Default, to appoint such Person or Persons as Lender may designate
as its agent and attorney-in-fact to endorse the name of Borrower on any checks,
notes, drafts or other forms of payment or security that may come into the
possession of either Lender or any Affiliate of Lender, to sign Borrower's
name on invoices or bills of lading, drafts against customers, notices of
assignment, verifications and schedules and, generally, to do all things
necessary to carry out this Agreement and the Security Documents. The powers
granted herein, being coupled with an interest, are irrevocable. Neither Lender
nor the agent and attorney-in-fact shall be liable for any act or omission,
error in judgment or mistake of law so long as the same is not malicious or
grossly negligent. Upon payment and performance of all Obligations of Borrower
to Lender, such power of attorney will become null and void.
Section VIII.2 Performance of Obligations. In the event that Borrower fails to
purchase or maintain insurance in accordance with the requirements of this
Agreement, or to pay any tax, assessment, government charge or levy, except as
the same may be otherwise permitted hereunder, or in the event that any lien,
encumbrance or security interest prohibited hereby shall not be paid in full or
discharged, or in the event that Borrower shall fail to perform or comply with
any other covenant, promise or Obligation to Lender hereunder or under any Loan
Document, Lender may, but shall not be required to, perform, pay, satisfy,
discharge or bond the same for the account of Borrower, and all monies so paid
by Lender, including, without limitation, reasonable attorneys' fees and
disbursements, shall be treated as an additional Obligation of Borrower to
Lender hereunder and under the Loan Documents.
Section VIII.3 Access to Collateral. Lender may examine and inspect the
Collateral and may examine, inspect and copy all books and records with respect
thereto or relevant to the Obligations during Borrower's normal business hours
upon prior written notice to Borrower. Upon prior written notice to Borrower,
Lender may discuss with Borrower's officers, independent accountants and other
Persons, and such Persons are hereby authorized to discuss with Lender
Borrower's business, assets, liabilities, financial condition, results of
operations and business prospects, and Borrower hereby irrevocably authorizes
Lender to obtain from such Persons maintaining any such records, any service
records relating to Borrower or any of the Collateral subject to Lender's
security interest or Lien. Upon the occurrence and during the continuance of an
Event of Default, Lender may (i) enter Borrower's premises at any time; and (ii)
until it completes the enforcement of its rights in the Equipment or other
Collateral subject to its security interest or lien hereunder and the sale or
other disposition of any property subject thereto, take possession of such
premises without charge, rent or payment therefor, or place custodians in
control thereof, remain on such premises and use the same and any of
Borrower's Equipment and other Collateral for the purpose of completing any
work in process, preparing any Collateral for disposing of or collecting any
Collateral.
Section VIII.4 Issuance of Xxxxxx Stock to Lender. (a) At Closing Parent
Borrower shall issue to Lender 420,000 shares of Borrower Stock, free and clear
of any lien, claim or encumbrance.
(b) Within 30 days after the Closing, Borrower shall prepare and caused
to be filed with the United States Securities and Exchange Commission and any
necessary state securities authorities, a shelf registration statement on Form
S-3 (or such other form for which the Borrower is then eligible) covering the
resale of the Borrower Stock (the "Registration Statement"). Thereafter,
Borrower shall use its best efforts to cause the Registration Statement to
become effective as soon as practicable, but in any event within 120 days after
Closing, and to continuously maintain the effectiveness of the Registration
Statement for a period of two years or until the Borrower Stock is sold,
whichever first occurs. Promptly after effectiveness of the Registration
Statement, Borrower shall provide Lender with such number of prospectuses, as
from time to time supplemented, as Lender may reasonably request and shall cause
the Borrower Stock to be listed for trading on the Nasdaq National Market System
("Nasdaq"). All expenses of registration, including filing fees, printing costs
and the fees and expenses of the respective legal counsel of Borrower and
Lender, shall be borne by the Borrower.
(c) Borrower shall indemnify Lender and its officers, directors, employees,
attorneys and agents and each person controlling any of them, against
all claims losses, damages and liabilities, including legal and other expenses
reasonably incurred, arising out of any untrue or allegedly untrue statement of
a material fact contained in the Registration Statement, or any omission or
alleged omission to state a material fact required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading, or arising out of any violation or alleged violation by the Company
of the Securities Act of 1933, the Securities Exchange Act of 1934, any state
securities or "bluesky laws," or any applicable rule or regulation, each as
amended from time to time. Such indemnification shall not apply to claims,
losses, damages and liabilities caused by an untrue statement of material fact
or omission of material fact base on written material provided by Lender to
Borrower for inclusion in the Registration Statement.
(d) Lender shall have the right to put up to 420,000 shares of Borrower Stock
to the Borrower at a price of Twelve and 50/100 Dollars ($12.50) per share
(the "Per Share Option Exercise Price") within thirty (30) days after the fourth
anniversary of the Closing (the "Put Option"). If Borrower fails or refuses to
consummate Lender's exercise of the Put Option within thirty (30) days after
receipt of Lender's written notice of such exercise, including, but not limited
to, the payment to Lender of a cash sum determined by multiplying the Per Share
Option Exercise Price times the number of shares of Borrower Stock as to which
Lender has exercised the Put Option (the result being hereinafter called "Put
Price"), then Lender shall have the right to either: (1) increase on its books
and records the aggregate amount of the Loans advanced to Borrower by an amount
equal to the Put Price, which shall then be deemed to have been advanced from
Lender to Borrower and used by Borrower to pay the Put Price, provided the
Advancing Note is then in effect and Lender has not released the Collateral
pursuant to Section 3.3, or (2) require Borrower to transfer to Lender
additional shares of Borrower Stock, pursuant to Subsection (e) of this Section,
or (3) require the conveyance of the ORRI described in Section 8.5 and retain
the ORRI and all revenues and other benefits derived therefrom or attributable
thereto while pursuing: (x) specific performance of Borrower's obligation to
honor the Put Option and/or (y) any and all other remedies available to Lender
as a result of Borrower's failure to honor the Put Option. If the ORRI is
conveyed to Lender as provided in the preceding sentence, then at such time as
either: (i) specific performance of Borrower's obligation has been ordered
through arbitration or by a court of competent jurisdiction and consummated,
(ii) Lender has been awarded damages or other relief through arbitration or by a
court of competent jurisdiction to compensate Lender for Borrower's breach of
its obligation to consummate the Put Option and such damages or other relief
have been paid, delivered and/or performed, as applicable, or (iii) Borrower has
performed its obligations under any settlement agreement entered into by
Borrower and Lender as a result of such breach, then unless the applicable
arbitration award, court judgement and/or settlement agreement provides to the
contrary, Lender shall quitclaim, release and reconvey the ORRI to Borrower,
without warranty of title, express or implied, effective as of the date that all
of the damages and/or other relief awarded to Lender therein have been paid,
delivered and/or performed, as applicable, and Lender shall retain all proceeds
and other benefits accruing to such ORRI prior to such effective date.
(e) If Lender has exercised the Put Option in accordance with Subsection
8.4(d) and Parent Borrower has failed or refused to consummate the Put Option
within the time and in the manner thereby required, then Lender may, but shall
not be obligated to, exercise the rights set forth in this Subsection 8.4(e).
If Lender elects to exercise the rights set forth in this Subsection, then
within sixty (60) days after Borrower was required to have consummated Lender's
exercise of the Put Option, Lender may sell on Nasdaq the number of shares of
Borrower Stock as to which it had elected to exercise the Put Option. If the
proceeds received by Lender from such sale are less than the Put Price for the
number of shares of Borrower Stock as to which Lender exercised its Put Option,
calculated in accordance with Subsection 8.4(d), then one hundred fifteen
percent (115%) of the difference between the Put Price minus the proceeds
received by Lender for the sale of such Borrower Stock shall constitute the
"Shortfall."
Promptly after receipt of written demand from Lender, and in any event not later
than sixty (60) days after the date of such written demand, Parent Borrower
shall then authorize, if necessary, register in accordance with Subsection
8.4(b) and issue to Lender a number of additional shares of Borrower Stock
determined by dividing the Shortfall by the per-share market value of such
Borrower Stock, as traded on Nasdaq as of the close of the trading day preceding
the date on which such additional stock is issued and delivered to Lender. For
example, if the number of shares of Borrower Stock as to which Lender had
exercised the Put Option was three hundred thousand (300,000), then the Put
Price would be Three Million Seven Hundred Fifty Thousand Dollars ($3,750,000).
If Borrower failed or refused to consummate the Put Option within the time
prescribed herein for doing so, and if Lender then were to sell such three
hundred thousand (300,000) shares of Borrower Stock within sixty (60) days after
Borrower was required to have consummated the Put Option and the aggregate
proceeds received by Lender for the sale of such Borrower Stock were Three
Million Dollars ($3,000,000), and if at the time that such additional Borrower
Stock were transferred to Lender, the per-share trading price on Nasdaq as of
the close of the preceding trading day were Nine Dollars ($9.00), then the
number of additional shares of registered Borrower Stock required to be
transferred to Lender would be calculated as follows:
[115% X ($3,750,000 - $3,000,000)] / $9.00 = 95,834 shares
Section VIII.5 Overriding Royalty Interest. If and when required pursuant to
Section 8.4, Borrower shall assign to Lender the ORRI by executing and
delivering to Lender the Overriding Royalty Interest Conveyance in the form
satisfactory to Lender, and Borrower shall also exercise good faith and the
utmost due diligence to obtain any and all approvals of such Overriding Royalty
Interest Conveyance as are necessary to give full effect thereto, including, but
not limited to, any required approvals of the lessors of the oil and gas leases
burdened by such ORRI. The percentage ORRI to be conveyed shall be calculated
to result in the percentage necessary such that the discounted present value of
such ORRI as of the fourth anniversary of the date of this Agreement, calculated
pursuant to the specifications set forth in Section 7.1(f)(i) hereof, is Five
Million, Two Hundred Fifty Thousand Dollars ($5,250,000.00).
Section VIII.6 ORRI Option. Pursuant to the terms of the Overriding Royalty
Interest Conveyance, Borrower shall have an option to repurchase the ORRI at a
price (the "Purchase Price") to be determined by a Reserve Report that
incorporates, without limitation, pricing assumptions that conform to the
specifications set forth in Section 7.1(f)(i) hereof, verified operating
expenses, and proven reserves that is prepared by a mutually agreeable third
party such as Xxxxx Xxxxx or the engineering firm that prepared the Reserve
Report most recently delivered hereunder, using a ten percent (10%) discount
rate, not to exceed, however, a Purchase Price of Five Million, Nine Hundred
Thirty Thousand Dollars ($5,930,000.00). The ORRI Option is a non-assignable
option granted by Lender solely to Borrower and, notwithstanding any right that
may be granted to Borrower in the Overriding Royalty Interest Conveyance to
assign, sell, transfer or otherwise convey any of the Properties, the exercise
of the ORRI Option shall be solely by Borrower and shall be with relation to the
entire ORRI as granted in the Overriding Royalty Interest Conveyance.
Furthermore, any notice from Lender to Borrower hereunder shall be deemed as
actual notice to its assignees of the Properties ("Assignees"), if any.
Borrower may exercise its option by first obtaining a Reserve Report that
satisfies the parameters set forth in this Section, and then sending written
notice of such exercise to Lender, along with a copy of such Reserve Report,
specifying an effective date for the purchase of the ORRI that is the effective
date of the Reserve Report, which date shall not be earlier than the first day
of the month preceding the month in which the notice is delivered to Lender
("ORRI Sale Date"), accompanied by the Reserve Report that established the
Purchase Price, and stating that Borrower is ready, willing and able to close
such purchase and pay the Purchase Price within thirty (30) days from the date
of the notice, without any conditions with respect to obtaining financing, or
otherwise. If the Purchase Price established in the Reserve Report was
appropriately determined based on the parameters set forth in Section 7.1(f)(i)
hereof, then the parties shall proceed to close such purchase and sale
transaction within thirty (30) days from Lender's receipt of Borrower's option
exercise notice. At the closing, Borrower shall pay the Purchase Price to
Lender in cash or by wire transfer to an account designated by Lender, and
Lender shall assign the ORRI to Borrower by recordable form of assignment with
special warranty of title by, through and under Lender, but not otherwise. The
Purchase Price shall be adjusted, downward, by the amount of any net revenues
received by Lender prior to the closing for production attributable to the ORRI
subsequent to the ORRI Sale Date, and shall be adjusted upward for any revenues
that have accrued with respect to the ORRI for production prior to the ORRI Sale
Date, that have not yet been paid to Lender. After the closing, any revenues
received by Lender that are attributable to the ORRI shall be promptly remitted
to Borrower.
If Lender does not agree with the Purchase Price proposed by Borrower in the
option exercise notice, it shall promptly notify Borrower within ten (10) days
after the receipt of such notice, and the parties shall endeavor to reach
agreement on the Purchase Price within thirty (30) days thereafter. If they
are able to do so, closing, as provided above, shall occur within ten (10) days
after they have reached agreement on the Purchase Price. If they are unable to
reach agreement on the Purchase Price, either party may elect to have the
Purchase Price determined through arbitration in accordance with Article XII
hereof, and the closing shall then occur within ten (10) days after the
arbitrator(s) have notified Lender and Borrower of the Purchase Price that has
been so determined. After Borrower has notified Lender of Borrower's election to
exercise its option to purchase the ORRI, such election shall not be revocable,
and Lender shall have the right to enforce specific performance of Borrower's
resulting obligation to purchase.
Section VIII.7 Removal and Appointment of Operator. Lender shall, in its
reasonable discretion, have the right to approve or disapprove any action taken
by Borrower to resign as Operator of any of the Properties, or to appoint,
remove or replace the Operator of any of the Properties.
Section VIII.8 Set-Off Rights. Upon the occurrence and during the continuance of
an Event of Default, Lender shall have the right to set-off and apply against
the Obligations in such manner as Lender may determine, at any time to Borrower,
any and all deposits (general or special, time or demand, provisional or final)
or other sums at any time credited by or owing from Lender or any depositary to
Borrower whether or not the Obligations are then due, except for any amounts
owing to third-party Working Interest and Royalty Interest holders of which the
Lender shall have been notified. Lender shall provide notice to Borrower not
later than five (5) days following any application of such funds. As further
security for the Obligations, Borrower hereby grants to Lender a security
interest in all money, instruments, and other property of Borrower now or
hereafter held by Lender, including, without limitation, property held in
safekeeping. In addition to Lender's right of set-off and as further security
for the Obligations, Borrower hereby grants to Lender a security interest and
lien in all deposits (general or special, time or demand, provisional or final)
and other accounts of Borrower now or hereafter on deposit with or held by
Lender or any depositary and all other sums at any time credited by or owing
from Lender or any depositary to Borrower. The rights and remedies of Lender
hereunder are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Lender may have.
Section VIII.9 Joint and Several Liability of Borrowers. Each Borrower shall be
jointly, severally and primarily liable for the payment and performance of all
Obligations of Borrower hereunder. When and if Lender exercises any of its
rights or remedies under this Agreement or any other Loan Document, it may do so
against both Borrowers jointly, against both Borrowers pursuing different rights
or remedies with respect to each, and/or against either Borrower, without
pursuing any rights or remedies against the other. Should either Borrower
become insolvent or seek protection under the federal Bankruptcy Code or other
similar law of any jurisdiction or have an involuntary proceeding filed against
it pursuant to the federal Bankruptcy Code or other similar law of any
jurisdiction while the other Borrower is not insolvent and not subject to any
such bankruptcy proceeding, the parties hereby agree that the pendency of the
insolvency or bankruptcy proceedings relating to one such Borrower shall not
stay or otherwise impede the right of Lender to pursue its rights and remedies
against the other Borrower, and should any legal proceeding involving Lender and
both Borrowers be initiated by any such party at a time when one of the
Borrowers, but not the other, is insolvent or subject to a bankruptcy
proceeding, each Borrower hereby stipulates, agrees and hereby confesses a
judgment that Lender shall have the absolute right to have the action(s)
involving Lender and the Borrower that is not insolvent or subject to a
bankruptcy proceeding severed from the action(s) involving Lender and the
Borrower that is insolvent or subject to such bankruptcy proceeding.
ARTICLE IX: Closing; Conditions to Closing
Section IX.1 Closing. Subject to the conditions set forth in this Agreement,
the Closing shall occur at a mutually agreeable time on or before September 15,
1999. The date the Closing actually occurs is hereby called the "Closing Date."
The Closing shall be held at the offices of Lender's counsel in Houston, Texas,
or at such other place as Borrower and Lender may agree in writing.
Section IX.2 Conditions to Closing. As conditions precedent to the making of
the Initial Loan hereunder and to the making of any Development Loans, Borrower
shall have delivered to Lender the following documents duly executed and in
form and substance satisfactory to Lender:
(a) the Advancing Note and multiple counterparts of this Agreement;
(b) a certificate of the secretary or assistant secretary of each
Borrower dated the Closing Date, certifying the incumbency of its officers
executing this Agreement and any other documents required hereby and
certifying resolutions adopted by the board of directors of each Borrower
authorizing each Borrower's execution and delivery of this Agreement, the
Advancing Note, the Mortgage and all other documents and instruments
contemplated by this Agreement;
(c) a certificate of the president, chief executive officer or a
vice president of each Borrower dated the Closing Date, certifying the
truth and accuracy of the representations and warranties of such Borrower
set forth in this Agreement and such Borrower's performance and compliance
with all agreements and covenants required by this Agreement to be
performed or complied with prior to the making of the Loans;
(d) a copy of the Articles of Incorporation of each Borrower
certified by the Secretary of State of the State of Colorado and a copy of
its bylaws certified by the secretary or an assistant secretary of such
Borrower;
(e) a certificate of the president, chief executive officer or a
vice president of each Borrower dated the Closing Date, certifying the
truth and accuracy of all Schedules attached to this Agreement;
(f) certificates, as of the most recent dates practicable, of the
Secretary of State of Colorado attesting to each Borrower's existence and
good standing, and of each applicable department or agency of each state
in which such Borrower is qualified to do business as a foreign
corporation attesting to such qualification and good standing of such
Borrower;
(g) each Mortgage dated as of the Closing Date and in as many
counterparts as Lender may require;
(h) Letters in Lieu of Transfer Order in as many counterparts as
Lender may require;
(i) U.C.C.-1 financing statements to be filed under the Uniform
Commercial Code;
(j) the written opinions of Borrower's counsel dated the Closing
Date and addressed to Lender in the form satisfactory to Lender;
(k) evidence that Borrower has obtained insurance in accordance with
Sections 7.1(p) and (q) hereof;
(l) a Reserve Report satisfactory to Lender's staff petroleum
engineer from an engineer attesting to the quantity of reserves underlying
the Properties and their classification (e.g., Proved Developed Producing
Reserves), as calculated in accordance with the standards of the
Securities and Exchange Commission;
(m) Title Opinions satisfactory to Lender establishing that
Subsidiary Borrower has Defensible Title to the Properties, subject only
to Permitted Encumbrances;
(n) a Swap Agreement;
(o) the results of a Uniform Commercial Code search showing all
financing statements and other documents or instruments on file against
Borrower, in the Offices of the Secretary of State of the States of
Colorado and New Mexico, and in the counties in which Properties are
located, such search to be as of a date no more than ten (10) days prior
to the date of the advance of the Loans;
(p) any and all fees required under this Agreement are paid in full;
(q) the Security Agreement;
(r) the Hydrocarbon Purchase and Sale Agreement;
(s) the Agency Agreement;
(t) the Intercreditor Agreement, duly executed by Borrower and the
Equipment Lender;
(u) a duly authorized and issued certificate evidencing Lender's
ownership of 420,000 shares of Borrower Stock;
(v) evidence that any existing Liens affecting title to the
Properties, including, but not limited to, the Liens securing the Debt
described on Schedule 4.1(h) attached hereto, have been unconditionally
released;
(w) evidence satisfactory to Lender that the "Employee Participation
Agreement, Xxxxx Ranch Prospect, Rio Arriba County, New Mexico" dated
September 12, 1986 between Xxxxxx Oil Company and Xxxxxx X. Xxxxxx, Xx.
has been terminated;
(x) evidence that Borrower and Equipment Lender have entered into
the Equipment Loan on terms satisfactory to Lender; and
(y) such other documents and instruments as Lender may reasonably
request; and
(z) Lender shall have received satisfactory due diligence analysis
including, but not limited to, financial and operational data, title and
environmental review, all such data to be provided by Borrower; and
(aa) Lender shall have received satisfactory information regarding
existing gas sales and oil sales which will include, for gas sales on a
well-by-well basis, where applicable, transportation costs, gathering
costs, processing costs, gas stream heating content, then-current market
prices for gas of similar quality and copies of existing sales contracts
and for oil sales, individual well specific gravity of produced oil,
transportation costs, sulfur content, purchase bonuses, then-current
market prices for oil of similar quality, and copies of existing sales
contracts.
Section IX.3 Conditions Precedent to Funding of Development Loans. Lender
shall not make any Development Loan available unless the following conditions
precedent have been satisfied.
(a) There is no Event of Default, Unmatured Event of Default or Tax
Claim under this Agreement, the Mortgage or any other Loan Document;
(b) All of Borrower's representations and warranties made in any
Loan Document shall be true and correct as if made on the date of such
loan (except to the extent that the facts upon which such representation
are based have been changed by the extension of credit hereunder);
(c) Borrower shall have performed and complied with all agreements
and conditions in the Loan Documents which are required to be performed or
complied with by it on or prior to the date of such Loans;
(d) No law, regulation, order, judgment or decree of any
governmental authority is in effect or pending which shall enjoin,
prohibit or restrain such loan or impose, or result in the imposition of,
any adverse condition upon Lender; and
(e) Lender shall have received all documents and instruments which
Lender has then reasonably requested as to, (i) the accuracy and validity
of or compliance with all representations, warranties and covenants made
by any Person in any Loan Document, (ii) the satisfaction of all
conditions contained herein or therein, and (iii) all other matters
pertaining hereto and thereto. All such additional documents and
instruments shall be satisfactory to Lender (in reasonable exercise of its
discretion) in form, substance, and date.
ARTICLE X: Events of Default and Remedies
Section X.1 Events of Default. Each of the following events constitutes an
Event of Default under this Agreement:
(a) Borrower fails to pay any Obligation for principal or interest
owing under the Advancing Note when the same is due and payable, whether
at a date for the payment of a fixed installment or as a contingent or
other payment becomes due and payable or as a result of acceleration or
otherwise;
(b) Projected Net Revenue attributable to Proved Reserves, based on
any of the Reserve Reports to be delivered to Lender after the Closing
Date (after being adjusted to incorporate the parameters set forth in
Section 7.1(f) hereof) is insufficient to fully amortize the Loans by
their stated maturity;
(c) Any Loan Document at any time ceases to be valid, binding and
enforceable against Borrower for any reason other than its release or
subordination made with the consent of Lender, and such cessation is not
remedied in full within thirty (30) days after Borrower receives notice
thereof;
(d) Any "Event of Default" (as defined in the Mortgage) (other than
an event which is referred to in subsection (a) through (b) above) occurs
under the Mortgage, and the same is not remedied within the applicable
period of grace (if any) provided in such Mortgage;
(e) Borrower fails (other than as referred to in subsections (a)
through (c) above) to duly observe, perform or comply with any covenant,
agreement, condition or provision of any Loan Document, and such failure
is not remedied within thirty (30) days of the time at which Borrower
receives notice from Lender or otherwise knows or should have known of
such failure;
(f) Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of Borrower in connection with
any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made;
(g) Any lien against the Mortgaged Property resulting from a Tax
Claim or any other Lien against the Mortgaged Property for $250,000 or
more is asserted and such Lien is not withdrawn, stayed, vacated, bonded,
paid or otherwise disposed of within thirty (30) days thereafter;
(h) Subject to Permitted Encumbrances, Lender shall at any time not
have a perfected first priority security interest and/or Lien on all or
any part of the Collateral;
(i) Subsidiary Borrower's Working Interest and/or Net Revenue
Interest on the Properties is decreased, other than by virtue of the
Overriding Royalty Interest Conveyance, from those set forth in Exhibit A
to the Mortgage without the prior written consent of Lender;
(j) Borrower:
(i) has entered against it a judgment, decree or order for
relief by a court of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or
other similar law of any jurisdiction now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended,
or has any such proceeding commenced against it which remains
undismissed for a period of sixty (60) days; or
(ii) commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended;
or applies for or consents to the entry of an order for relief in an
involuntary case under any such law; or makes a general assignment
for the benefit of creditors; or fails generally to pay (or admits
in writing its inability to pay) debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing;
or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of
any part of the Collateral in a proceeding brought against or
initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within sixty (60) days after
the making thereof, or such appointment or taking possession is at
any time consented to, requested by or acquiesced to by it; or
(iv) suffers the entry against it of a judgment for the
payment of money in excess of $500,000, unless: (i) the same is
discharged within thirty (30) days after the date of entry thereof,
(b) an appeal or appropriate proceeding for review thereof is taken
within such period and a stay of execution pending such appeal is
obtained, or (c) the judgment is covered by insurance and the
insurance company has accepted liability therefor; or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any court against all or any substantial
part of its assets or any part of the Collateral, and such writ or
warrant of attachment or any similar process is not stayed or
released within sixty (60) days after the entry or levy thereof or
after any stay is vacated or set aside; or
(vi) fails to pay any Indebtedness in excess of $150,000
(other than Indebtedness hereunder) or any interest or premium
thereon, when due (whether at scheduled maturity or by acceleration,
demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to any such Indebtedness or any other event
shall occur and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of
such default or event is to accelerate or to permit the acceleration
of, the maturity of such Indebtedness (in excess of $150,000), or
if, as the result of such a default, any such Indebtedness (in
excess of $150,000) shall be declared to be due and payable, or is
required to be prepaid, prior to the stated maturity thereof; or
(vii) fails to perform its obligations under the Overriding
Royalty Interest Conveyance or any Swap Agreement and such failure
continues beyond any applicable grace period set forth therein; or
(k) Borrower defaults in the payment or performance of its
obligations under the Equipment Loan or with respect to any
representation, warranty or covenant in any agreement or other document
made or entered into by Borrower in connection with the Equipment Loan.
Section X.2 Acceleration.
(a) Automatic Acceleration. Upon the occurrence of an Event of
Default described in subsection (j)(i), (j)(ii) or (j)(iii) of Section
10.1, all of the Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration
of any kind, all of which are hereby expressly waived by Borrower and each
obligor who at any time ratifies or approves this Agreement. After any
acceleration under this subsection, any obligation of Lender to make any
further Loans or advances of any kind under any Loan Document shall at the
option of Lender be permanently terminated.
(b) Partial Acceleration. Upon the occurrence and during the
continuance of any Event of Default described in subsection (a), (c), (d),
(e) or (g) of Section 10.1 with respect to any Obligation owing or Loan
Document executed in connection thereto, Lender at any time and from time
to time may, without notice to Borrower, except as may otherwise be
required hereunder, declare any and all such Obligations immediately due
and payable, without demand, presentment, notice of demand or of dishonor
and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by
Borrower.
(c) Tax Claims. Upon the occurrence and during the continuance of
an Event of Default described in subsection (g) of Section 10.1 with
respect to any Tax Claim of $250,000.00 or more, Lender may at any time
and from time to time and without notice to Borrower, except as may
otherwise be required hereunder, declare any or all of the Obligations
associated with such Tax Claim (or which Lender in its reasonable
discretion believes will be likely to become associated with such Tax
Claim or any similar future Tax Claim) immediately due and payable, and
all such Obligations shall thereupon be immediately due and payable,
without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration
of any kind, all of which are hereby expressly waived by Borrower.
(d) Other Acceleration. Upon the occurrence and during the
continuance of any Event of Default not described in the preceding
subsections (a), (b) or (c) of this Section 10.2, Lender may at any time
and from time to time and without notice to Borrower, except as may
otherwise be required hereunder, declare any or all of the Obligations
immediately due and payable, and all such Obligations shall thereupon be
immediately due and payable, without demand, presentment, notice of demand
or of dishonor and nonpayment, protest, notice of protest, notice of
intention to accelerate, declaration or notice of acceleration, or any
other notice or declaration of any kind, all of which are hereby expressly
waived by Borrower.
Section X.3 Remedies. If any Event of Default shall occur and be continuing,
Lender's obligation to make any Development Loan(s) shall be suspended, and
Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and Lender may enforce the
payment of any Obligations due or enforce any other legal or equitable right.
All rights, remedies and powers conferred upon Lender under the Loan Documents
shall be deemed cumulative and not exclusive of any other rights, remedies or
powers available under the Loan Documents or at law or in equity. If any
Unmatured Event of Default shall occur and be continuing, Lender's obligation
to make any Development Loans shall be suspended, except as expressly provided
to the contrary herein, so long as any such Unmatured Events of Default or
resulting Event of Default is continuing.
Section X.4 Indemnity. Except to the extent expressly provided otherwise in
another Loan Document, Borrower agrees to indemnify Lender, upon demand, from
and against any and all liabilities, obligations, claims, losses, damages,
penalties, fines, actions, judgments, suits, settlements, costs, expenses or
disbursements (including reasonable fees of attorneys, experts and advisors) of
any kind or nature whatsoever (in this section collectively called "liabilities
and costs") which to any extent (in whole or in part) may be imposed on,
incurred by or asserted against Lender growing out of, resulting from or in any
other way associated with any of the Collateral, the Loan Documents or the
transactions and events including the enforcement or defense thereof at any time
associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Person or any liabilities or
duties of any Person with respect to Hazardous Materials found in or released
into the environment). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT
SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR
IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY LENDER PROVIDED ONLY
THAT NO PERSON SHALL BE ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION
FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS CAUSED BY SUCH
PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. As used in this section the
term "Lender" shall refer not only to the Person designated as such in Section
1.1, but also to its lender(s) and members and, with respect to each of the
foregoing, each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.
ARTICLE XI: Miscellaneous
Section XI.1 Waivers and Amendments; Acknowledgments and Admissions.
(a) Waivers and Amendments. No failure or delay (whether by course
of conduct or otherwise) by Lender in exercising any right, power or
remedy which Lender may have under any of the Loan Documents shall operate
as a waiver thereof or of any other right, power or remedy, nor shall any
single or partial exercise by Lender of any such right, power or remedy
preclude any other or further exercise thereof or of any other right,
power or remedy. No waiver of any provision of any Loan Document and no
consent to any departure therefrom shall ever be effective unless it is in
writing and signed by Lender, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which
given and to the extent specified in such writing. No notice to or demand
on Borrower shall in any case of itself entitle Borrower to any other or
further notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire understanding
and agreement of the parties hereto and thereto with respect to the
transactions contemplated herein and therein and supersede all prior
discussions and understandings with respect to the subject matter hereof
and thereof, and no modification or amendment of or supplement to this
Agreement or the other Loan Documents shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought
to be enforced.
(b) Acknowledgments and Admissions. Borrower hereby represents,
warrants and acknowledges that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is
a party, (ii) it has made independent decisions to enter into this
Agreement and the other Loan Documents to which it is a party, without
reliance on any representation, warranty, covenant or undertaking by
Lender, whether written, oral or implicit, other than as expressly set out
in this Agreement or in another Loan Document delivered on or after the
date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by Lender to Borrower as to the Loan Documents
except as expressly set out in this Agreement or in another Loan Document
delivered on or after the date hereof, (iv) Lender owes no fiduciary duty
to Borrower with respect to any Loan Document or the transactions
contemplated thereby, (v) the relationship pursuant to the Loan Documents
between Borrower, on one hand, and Lender, on the other hand, is and shall
be solely that of debtor and creditor, respectively, (vi) no partnership
or joint venture exists with respect to the Loan Documents between
Borrower and Lender, (vii) should an Event of Default or Unmatured Event
of Default occur or exist Lender will determine in its sole discretion and
for its own reasons what remedies and actions it will or will not exercise
or take at that time, (viii) without limiting any of the foregoing,
Borrower is not relying upon any representation or covenant by Lender, or
any representative thereof, and no such representation or covenant has
been made, that Lender will, at the time of an Event of Default or
Unmatured Event of Default, or at any other time, waive, negotiate,
discuss or take or refrain from taking any action permitted under the Loan
Documents with respect to any such Event of Default or Unmatured Event of
Default or any other provision of the Loan Documents, and (ix) Lender has
relied upon the truthfulness of the acknowledgments in this section in
deciding to execute and deliver this Agreement and to make the Loans.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES 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.
Section XI.2 Survival of Agreements: Cumulative Nature. Lender may assign and/
or transfer its rights and privileges under the Loan Documents at any time and
from time to time, including, but not limited to, any collateral assignment to
secure any Indebtedness of Lender to any other Person. Any assignee of any of
Lender's rights under any of the Loan Documents shall be subrogated to any
related rights and remedies that Lender may exercise against Borrower. All of
the various representations, warranties, covenants and agreements of Borrower in
the Loan Documents shall survive the execution and delivery of this Agreement
and the other Loan Documents and the performance hereof and thereof, including
the making or granting of the Loans and the delivery of the Advancing Note and
the other Loan Documents, and shall further survive until all of the Obligations
are paid in full to Lender and all of Lender's obligations to Borrower are
terminated. The representations, warranties and covenants made by Borrower in
the Loan Documents, and the rights, powers and privileges granted to Lender in
the Loan Documents, are cumulative, and, except for expressly specified waivers
and consents, no Loan Document shall be construed in the context of another to
diminish, nullify or otherwise reduce the benefit to Lender of any such
representation, warranty, covenant, right, power or privilege. In particular
and without limitation, no exception set out in this Agreement to any
representation, warranty or covenant herein contained shall apply to any similar
representation, warranty or covenant contained in any other Loan Document, and
each such similar representation, warranty or covenant shall be subject only to
those exceptions which are expressly made applicable to it by the terms of the
various Loan Documents.
Section XI.3 Notices. All notices, requests, consents, demands and other
communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document, and shall
be deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy, by delivery service with proof of delivery or by registered or
certified United States mail, postage prepaid, (unless changed by similar notice
in writing given by the particular Person whose address is to be changed). Any
such notice or communication shall be deemed to have been given (a) in the case
of personal delivery or delivery service, as of the date of delivery at the
address and in the manner provided herein, (b) in the case of telecopy, upon
receipt, or (c) in the case of registered or certified United States mail three
(3) business days after deposit in the mail.
For mail delivery to:
Xxxxxx Resources Corporation
Attention: Xx. Xxxxxx X. Xxxxxx, Xx.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Phone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with copies to:
Holme Xxxxxxx & Xxxx, L.L.P.
Attention: Xx. Xxxxxx X. Xxxxxxxxxx
0000 Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-0000
Phone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
For mail delivery to:
Aquila Energy Capital Corporation
Attention: Xx. Xxx-Xxx Xxxx
909 Xxxxxx, Suite 0000
Xxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000-0000
Phone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with copies to:
Xxxxxx & Xxxxxx, L.L.P.
Attention: Xx. Xxxxxxx X. Xxxxx
000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Phone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
All notices and other communications from Lender to Borrower hereunder shall be
deemed effectively given or made to each Borrower if given to the Parent
Borrower. All notices and other communications from Borrower to Lender
hereunder shall be give or made by Parent Borrower on behalf of each Borrower,
and Lender shall have no obligation to respond to, or otherwise be bound by any
notice or communication received by it solely from the Subsidiary Borrower.
Section XI.4 Parties in Interest; Transfers. All grants, covenants and
agreements contained in the Loan Documents shall bind and inure to the benefit
of the parties thereto and their respective successors and assigns; provided,
however, that Borrower shall not assign or transfer any of its rights or
delegate any of its duties or obligations under any Loan Document without the
prior written consent of Lender which shall not unreasonably be withheld. Lender
may assign or transfer any of its rights or delegate any of its duties or
obligations under any Loan Document to any third party (including Affiliates of
Lender) that has a credit rating by Standard & Poors that is as good as or
better than Standard & Poors' credit rating of Lender's parent company, Aquila
Energy Corporation. Nothing expressed or referred to in this Agreement shall be
construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns.
Section XI.5 Governing Law; Submission to Process. Except to the extent that
the law of another jurisdiction is expressly elected in a Loan Document, the
Loan Documents shall be deemed contracts and instruments made under the laws of
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of the State of Texas, without regard to principles of
conflicts of law. This Agreement has been entered into in Houston, Texas and
shall be performable for all purposes in Xxxxxx County, Texas. Subject to the
provisions of Article XII, courts within the State of Texas shall have
jurisdiction over any and all disputes between Borrower and Lender, whether in
law or equity, including, but not limited to, any and all disputes arising out
of or relating to this Agreement or any other Loan Document; and venue in any
such dispute whether in federal or state court shall be laid in Xxxxxx County,
Texas.
Section XI.6 Limitation on Interest. Lender, Borrower and any other parties to
any Loan Documents intend to contract in strict compliance with applicable usury
law from time to time in effect. In furtherance thereof, the parties stipulate
and agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay, for the use, forbearance or
detention of money, interest in excess of the maximum amount of interest
permitted to be charged by applicable law from time to time in effect. Neither
Borrower nor any present or future guarantors, endorsers or other Persons
hereafter becoming liable for payment of any Obligation shall ever be liable for
unearned interest thereon or shall ever be required to pay interest thereon in
excess of the maximum amount that may be lawfully charged under applicable law
from time to time in effect, and the provisions of this section shall control
over all other provisions of the Loan Documents which may be in conflict or
apparent conflict herewith. Lender expressly disavows any intention to charge
or collect excessive unearned interest or finance charges in the event the
maturity of any Obligation is accelerated. If (a) the maturity of any
Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a
result any amounts held to constitute interest are determined to be in excess of
the legal maximum, or (c) Lender or any other holder of any or all of the
Obligations shall otherwise collect moneys which are determined to constitute
interest which would otherwise increase the interest on any or all of the
Obligations to an amount in excess of that permitted to be charged by applicable
law then in effect, then all such sums determined to constitute interest in
excess of such legal limit shall, without penalty, be promptly applied to reduce
the then outstanding principal of the related Obligations or, at Lender's or
such holder's option, promptly returned to Borrower or the other payor thereof
upon such determination. In determining whether or not the interest paid or
payable under any specific circumstance exceeds the maximum amount permitted
under applicable law, Lender and Borrower (and any other payors thereof) shall
to the greatest extent permitted under applicable law, (x) characterize any non-
principal payment as an expense, fee or premium rather than as interest, (y)
exclude voluntary prepayments and the effects thereof, and (z) amortize,
prorate, allocate and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable law.
Section XI.7 Termination; Limited Survival. In their sole and absolute
discretion, Borrower and Lender may each, at any time that no Obligations are
owing, elect in a notice delivered to the other to terminate this Agreement.
Upon receipt of such a notice, if no Obligations are then owing, this Agreement
and all other Loan Documents shall thereupon be terminated and the parties
thereto released from any prospective obligations thereunder. Notwithstanding
the foregoing or anything herein to the contrary, any waivers or admissions made
by Borrower or Lender in any Loan Documents, and any obligations which any
Person may have to indemnify or compensate Lender shall survive any termination
of this Agreement or any other Loan Document. At the request and expense of
Borrower, Lender shall prepare and execute all necessary instruments to reflect
and effect such termination of the Loan Documents; provided however, that
nothing in this Section 11.7 shall affect any and all continuing rights,
validity and enforceability of the ORRI if it has been or is required to have
been conveyed.
Section XI.8 Severability. If any term or provision of any Loan Document shall
be determined to be illegal or unenforceable, all other terms and provisions of
the Loan Documents shall nevertheless remain effective and shall be enforced to
the fullest extent permitted by applicable law.
Section XI.9 Counterparts. This Agreement may be separately executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Agreement.
Section XI.10 Further Assurances. The parties agree (a) to furnish upon request
to each other such information, (b) to execute and deliver to each other such
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the Loan Documents.
Section XI.11 Waiver of Jury Trial, Punitive Damages, Etc . BORROWER AND
LENDER HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE,
TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY
TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY; (b) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW ANY
RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION OR ARBITRATION
ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFY THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION OR ARBITRATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (d)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
Section XI.12 Controlling Provision Upon Conflict. Except as may be expressly
provided otherwise herein, in the event of a conflict between the provisions of
this Agreement and those of any other Loan Document or any other instrument
referred to herein or executed in connection with this Agreement, the provisions
of this Agreement shall control.
ARTICLE XII: Arbitration
Section XII.1 Arbitration.
(a) Borrower and Lender and any other obligor party (the "parties") will
attempt in good faith to resolve any controversy or dispute arising out of or
relating to this Agreement promptly by negotiations between themselves. The
negotiation process may be started by the giving of written notice by any party
to the other parties in accordance with the terms of Section 11.3 hereof, and
the parties agree to negotiate in good faith, and select an independent mediator
to facilitate the negotiations and conduct up to eight consecutive hours of
mediated negotiations in Houston, Texas within 30 days after the notice is first
sent. If, within 10 days after the initial notice, the parties are not able to
agree upon a mediator, the party originally giving the notice shall promptly
notify American Arbitration Association ("AAA"), 0000 Xxxxxx, Xxxxxxx, Xxxxx
00000, (000) 000-0000. AAA will promptly designate a mediator who is
independent and impartial, and AAA's decision about the identity of the mediator
will be final and binding.
(b) No arbitration may be commenced by any party unless and until a
negotiation complying with the foregoing paragraph has been completed, and no
litigation or other proceeding may ever be instituted at any time in any court
for the purpose of adjudicating, interpreting or, except as may be set forth in
Section 12.1(h) hereof, enforcing any rights or obligations of the parties
hereto or any rights or obligations relating to the subject matter hereof,
whether or not covered by the express terms of this Agreement, or for the
purpose of adjudicating a breach or determination of the validity of this
Agreement, or for the purpose of appealing any decision of an arbitrator.
(c) If a controversy or dispute is not resolved after completion of the
negotiation process described above, then, upon notice by any party to the other
parties (an "Arbitration Notice") and to AAA, the controversy or dispute shall
be submitted to an arbitration panel for binding arbitration in Houston, Texas,
in accordance with AAA's Commercial Arbitration Rules (the "Rules"). The
parties agree that they will faithfully observe this Agreement and the Rules and
that they will abide by and perform any award rendered by the arbitration panel.
The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1-16 (or by the same principles enunciated by such Act in the event it
may not be technically applicable). The award or judgment of the arbitration
panel shall be final and binding on all parties and judgment upon the award or
judgment of the arbitration panel may be entered and enforced by any court
having jurisdiction. If any party becomes the subject of a bankruptcy,
receivership or other similar proceeding under the laws of the United States of
America, any state or commonwealth or any other nation or political subdivision
thereof, then, to the extent permitted or not prohibited by applicable law, any
factual or substantive legal issues arising in or during the pendency of any
such proceeding shall be subject to all of the foregoing mandatory mediation and
arbitration provisions and shall be resolved in accordance therewith. The
agreements contained herein have been given for valuable consideration, are
coupled with an interest and are not intended to be executory contracts. The
fees and expenses of the arbitration panel will be shared by all parties engaged
in the dispute or controversy on a basis determined to be fair and equitable by
the arbitrator, taking into account the relative fault of each party, the
relative credibility and merit of all claims and defenses made by each party and
the cooperation, speed and efficiency of each party in conducting the
arbitration proceedings and complying with the Rules and with orders and
requests of the arbitrator.
(d) Promptly after the Arbitration Notice is given, each party will select
an arbitrator who will in turn select an independent and impartial third
arbitrator. If the arbitrators selected by the parties are unable to agree on
a third arbitrator, then one of the parties shall notify AAA and AAA shall
select the third arbitrator. The decision of AAA with respect to the selection
of the arbitrator will be final and binding in such case. Such three
arbitrators will constitute the arbitration panel. Any arbitration regarding
the Purchase Price for the ORRI shall be conducted by arbitrators who are
petroleum engineers employed by one or more of the firms designated in Section
7.1(f) hereof.
(e) Within 10 days after the selection of the arbitration panel, the
parties and their counsel will appear before the arbitration panel at a place
and time in Houston, Texas, as may be designated by the arbitration panel for
the purpose of each party making a one hour or less presentation and summary of
the case. Thereafter, the arbitration panel will set dates and times for
additional hearings until the proceeding is concluded. The desire and goal of
the parties is, and the arbitration panel will be advised that its goal should
be, to conduct and conclude the arbitration proceeding as expeditiously as
possible. If any party or his counsel fails to appear at any hearing, the
arbitration panel shall be entitled to reach a decision based on the evidence
which has been presented to it by the parties who did appear. Any arbitral
award may be confirmed by a Texas state court.
(f) Any arbitral award may be enforced in the courts of the state of Texas
or of the United States of America for the Southern District of Texas, and, by
execution and delivery of this Agreement, the parties hereby accept for
themselves and in respect of their property, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts for said purpose and the
parties hereby irrevocably waive to the fullest extent permitted by law any
objection, including without limitation, any objection to the laying of venue or
based on the grounds of forum non conveniens, which they may now or hereafter
have to the bringing of any such action or proceeding in such respective
jurisdictions.
(g) The arbitration panel will have no authority to award punitive or
other damages not measured by the prevailing party's actual damages and may not,
in any event, make any ruling, finding, or award that does not conform to the
terms and conditions of this Agreement.
(h) The provisions of this Section 12.1 relating to arbitration of
disputes shall not apply to litigation that is instituted for the sole purpose
of either: (i) compelling a party to submit to arbitration in accordance with
the provisions of this Section 12.1, (ii) obtaining enforcement of any award or
judgment of the arbitrator(s) issued pursuant to this Section 12.1, or (iii)
Lender's enforcement of any rights or remedies arising out of an Event of
Default pursuant to Section 10.1(b) of this Agreement..
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
BORROWER:
XXXXXX RESOURCES CORPORATION,
a Colorado corporation
By:
Xxxxx X. Xxxxxxxxxx
Executive Vice President
XXXXXX OIL COMPANY,
a Colorado corporation
By:
Xxxxx X. Xxxxxxxxxx
President
LENDER:
AQUILA ENERGY CAPITAL CORPORATION
By:
Xxxxxxx X. Xxxxx
Vice President
NOTICE TO BORROWER
THIS WRITTEN CREDIT AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT
BETWEEN BORROWER AND LENDER. THIS WRITTEN CREDIT AGREEMENT MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL CREDIT AGREEMENT OR IF A
CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND LENDER.
Affirmation of No Unwritten Oral Credit Agreements. Borrower and Lender
affirm by the initials below of their authorized officers or representatives
that no unwritten, oral credit agreement exists between them.
Xxxxxx Resources Xxxxxx Oil Lender's
Corporation's Company's Representative's
Representative's Representative's Initials
Initials Initials
