1
EXHIBIT 10.31
BANK OF TEXAS, N.A.
0000 Xxxxxx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Xxxxx 0, 0000
XXXXX AM, INC.
0000 Xxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Re: Loan Agreement
Ladies and Gentlemen:
This letter sets forth the Loan Agreement among GREKA AM, INC.
("Borrower"), a Colorado corporation; GREKA ENERGY CORPORATION ("Guarantor"), a
Colorado corporation; and BANK OF TEXAS, NATIONAL ASSOCIATION ("Bank"), with
respect to loans and obligations of Borrower and Guarantor to Bank.
1. Loan. (a) Subject to the terms and conditions set forth in this Loan
Agreement and the other agreements, instruments, and documents executed and
delivered in connection herewith (collectively the "Loan Documents"), Bank
agrees to make a revolving loan in the face amount of $75,000,000.00 to Borrower
(the "Revolving Loan") on the terms set forth in the Revolving Promissory Note
attached as Exhibit A (the "Revolving Note"), for the purposes set forth below.
The unpaid principal balance of the Revolving Note shall bear interest from the
date advanced until paid or until default or maturity at the rates elected by
Borrower from the following options under the terms of the Revolving Note: (i)
the difference between the Stated Rate less the Applicable Margin, or (ii) the
sum of the LIBOR Rate plus the LIBOR Spread. The Applicable Margin and the LIBOR
Spread will vary as set forth below based on whether the average principal
balance owing on the Revolving Note for the prior quarter is greater than or
equal to seventy-five percent (75%) of the then-current Borrowing Base (as
defined below):
% of Borrowing Base Applicable Margin LIBOR Spread
------------------- ----------------- ------------
Greater than or equal to 75% 0.50% 2.50%
Less than 75% 0.75% 2.25%
The "Stated Rate" shall be equal to the greater of (i) the rate of interest per
annum then most recently published by The Wall Street Journal as the "prime
rate" on corporate loans for large U.S. commercial banks, or (ii) the sum of the
rate of interest, then most recently published by The Wall Street Journal as the
"federal funds" rate for reserves traded among commercial banks for overnight
use, plus one half of one percent (0.5%), both as published in the Money Rates
section of The Wall Street Journal. The "LIBOR Rate" means the rate of interest
per annum at which deposits in U.S.
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dollars are offered by the major London clearing banks, as reported by Reuters
news service (or such other similar news reporting service as Bank may subscribe
to at the time such LIBOR Rate is determined), in the London interbank
Eurodollar market for a period of time equal or comparable to a 30, 60, or 90
day interest period, as elected by Borrowers, and in an amount equal to or
comparable to the principal amount of the LIBOR balance to which such interest
period relates.
(b) Subject to the terms and conditions hereof, Borrower may
borrow, repay and reborrow on a revolving basis from time to time during the
period commencing on the date hereof and continuing through 11:00 a.m. (Dallas,
Texas time) on March 1, 2004 (the "Termination Date"), such amounts as Borrower
may request under the Revolving Loan; provided, however, the total principal
amount outstanding at any time shall not exceed the lesser of (i) the aggregate
sums permitted under the Borrowing Base (as defined below), which is initially
set at $13,215,000, or (ii) $75,000,000.00. In addition, Bank has set the
initial MCR (as defined in Section 3(c) below) at $335,000.00 per month, and the
Borrowing Base will decline by that amount each month, commencing April 30,
2001; and thus the Revolving Loan may not exceed at any time the amounts set
forth below on or after the dates set forth:
Date Borrowing Base*
---- --------------
March 1, 2001 $13,215,000.00
April 30, 2001 $12,880,000.00
May 31, 2001 $12,545,000.00
June 30, 2001 $12,210,000.00
July 31, 2001 $11,875,000.00
August 30, 2001 $11,540,000.00
*Maximum amount of principal that may be outstanding
on each date and on any date thereafter until the next date indicated.
All sums advanced under the Revolving Loan, together with all accrued but unpaid
interest thereon, shall be due and payable in full on the Termination Date.
(c) Advances on the Revolving Loan may be used only for the
following purposes: (i) to refinance existing indebtedness owing by Borrower to
CIBC, Inc., (ii) the acquisition and development of oil and gas properties by
Borrower, (iii) the issuance of letters of credit for the account of Borrower,
(iv) Borrower's working capital purposes, and (v) subject to the limit set forth
below, for funding payments or distributions from Borrower to Guarantor.
Notwithstanding anything to the contrary, no advance on the Revolving Loan
(excluding the initial advance) will be permitted for payments, loans,
dividends, or distributions to Guarantor, unless (i) Borrower will still have
not less than $1,500,000.00 in Borrowing Base availability on the Revolving Loan
after the requested advance; and (ii) Borrower is in compliance with the Current
Ratio requirement in Section 7c. To the extent of $______________, proceeds of
the Revolving Loan have been used to pay the outstanding balance owed on a
promissory note dated June 19, 2000, in the principal amount of $47,500,000,
executed by Borrower and payable to the order of CIBC, Inc.
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(d) At the request of Borrower, Bank may from time to time
issue one or more letters of credit for the account of Borrower (the "Letters of
Credit"). Borrower's availability on the Revolving Loan will be reduced by the
face amount of all unexpired Letters of Credit. Any fundings under any Letters
of Credit will be treated as an advance on the Revolving Loan and will be
secured by the Security Documents (as defined below). At no time may the
aggregate face amount of all outstanding Letters of Credit exceed ten percent
(10%) of the Borrowing Base. All Letters of Credit shall be for a term of up to
one year and shall expire not later than five days prior to the Termination
Date. Borrower will sign and deliver Bank's customary forms for the issuance of
Letters of Credit. Borrower agrees to pay to Bank a Letter of Credit fee equal
to three-quarters of one percent (0.75%) per annum, calculated on the aggregated
stated amount of each Letter of Credit for the stated duration thereof (computed
on the basis of actual days elapsed as of each year consisted of 360 days), plus
an additional $500 per Letter of Credit, due upon issuance, for any Letter of
Credit issued in an amount less than $100,000.00. Any renewal or extension of a
Letter of Credit will be treated as a new issuance for the purpose of the Letter
of Credit fees. These fees are payable quarterly in arrears on the last day of
each calendar quarter.
(e) Borrower agrees to pay to Bank the following fees that are
non-refundable and earned by Bank upon execution of this Loan Agreement:
(i) Upon execution of this Loan Agreement,
Borrower agrees to pay Bank an origination fee in the amount of $120,000. In
connection with the commitment letter, Borrower prepaid $15,000 of this fee.
(ii) Upon any increase in the Borrowing Base,
Borrower agrees to pay Bank an increase fee equal to one quarter of one percent
(0.25%) of the increase in the Borrowing Base.
(iii) Borrower agrees to pay to Bank a facility
fee equal to Facility Fee Rate set forth below per annum (computed on the basis
of actual days elapsed and as if each calendar year consisted of 360 days) of
the average for the period of calculation of an amount determined daily equal to
the difference between the Borrowing Base and the aggregate outstanding
principal balance of the Revolving Loan at such time. The Facility Fee Rate will
vary as set forth below based on whether the average principal balance owing on
the Revolving Note for the prior quarter is greater than or equal to
seventy-five percent (75%) of the then-current Borrowing Base:
Percentage of Borrowing Base Facility Fee Rate
---------------------------- -----------------
Greater than or equal to 75% 0.500%
Less than 75% 0.375%
This fee is payable quarterly within ten (10) days of Borrower's receipt of an
invoice from Bank, setting forth evidence of the calculation of the facility fee
for the preceding calendar quarter.
(f) The Revolving Loan, all other loans now or hereafter made
by Bank to Borrower, and any renewals or extensions of or substitutions for
those loans, will be referred to
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collectively as the "Loans." The Revolving Note, all other promissory notes now
or hereafter payable by Borrower to Bank, and any renewals or extensions of or
substitutions for those notes, will be referred to collectively as the "Notes."
(g) A default in any of the Notes will be a default in all
other Notes and all Loan Documents, and a default in any Loan Documents will be
a default in all of the Notes.
2. Collateral. (a) Payment of the Notes will be secured by the first
liens and first security interests created or described in the following
(collectively the "Security Documents"): (i) a Deed of Trust and Security
Agreement (the "Deed of Trust") of even date, executed by Borrower in favor of
Bank, and covering oil and gas properties located in Xxxx and Orange Counties,
California, and Lea County, New Mexico; (ii) a Mortgage, Collateral Assignment,
Security Agreement, and Financing Statement (the "Louisiana Mortgage") of even
date, executed by Borrower in favor of Bank, and covering oil and gas properties
located in Plaquemines Parish, Louisiana; and (iii) a Pledge Agreement (the
"Pledge") of even date, executed by Borrower and Guarantor in favor of Bank, and
covering the issued and outstanding capital stock of Greka AM, Inc., which is a
wholly-owned subsidiary of Guarantor, and all capital stock or partnership
interests of all existing and hereafter acquired companies, subsidiaries, or
partnerships owned by Borrower. The Deed of Trust and Louisiana Mortgage will
renew and consolidate liens and security interests granted by Borrower to CIBC,
Inc.; and Borrower shall cause CIBC, Inc. to assign its liens and security
interest to Bank. All oil and gas properties now or hereafter mortgaged to Bank
by Borrower, including the oil and gas properties covered by the Deed of Trust
and the Louisiana Mortgage, will be referred to as the "Properties." If
requested by Bank, Borrower will execute in favor of Bank mortgages, deeds of
trust, security agreements, or amendments, in Proper Form (as defined below)
acceptable to Bank, mortgaging any additional properties and all additional
interests in the Properties acquired by Borrower, and Bank will redetermine the
Borrowing Base.
(b) Payment of the Notes will also be guaranteed by Guarantor
pursuant to a Guaranty in Proper Form (collectively the "Guaranty"). The Loans
shall also be guaranteed by all existing and hereafter acquired companies,
subsidiaries, or partnerships of Borrower; and Borrower agrees to cause all such
companies, subsidiaries, and partnerships to execute and deliver guaranties in
Proper Form to Bank (and Bank will redetermine the Borrowing Base).
(c) After an Event of Default (as defined below) or if there
is an existing Borrowing Base deficiency [after the 30-day period set forth in
Section 3(b)], Bank reserves the right to require Borrower to set up a lockbox
account to be managed by Bank for the purpose of collection of production
proceeds from the Properties. Borrower agrees that upon Bank's election to
require the lockbox after an Event of Default, Bank will receive the proceeds of
oil and gas produced from or attributable to the Properties for application to
the Revolving Note; and Borrower hereby directs all production purchasers or
operators distributing proceeds to pay Borrower's distributions attributable to
the Properties directly to Bank, if Bank so elects. All production proceeds
attributable to the Properties received in the lockbox account by Bank in excess
of the current scheduled monthly payment will be transferred to Borrower at the
end of each month for its unlimited use, so long as there is no existing Event
of Default. If the production proceeds received
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by Bank during any month are not sufficient to make the scheduled monthly
payment, Borrower will pay Bank the deficiency within ten days.
Contemporaneously with the execution of this Loan Agreement, Borrower will sign
and deliver letters in lieu of transfer orders to all purchasers of production
directing those parties to pay all proceeds from the Properties to the lockbox
account, and these letters, signed in blank, will be held by Bank until such
time as Bank elects to require the lockbox after an Event of Default. It will be
an Event of Default under the Loan Agreement if production payments for oil and
gas produced from or attributable to the Properties are directed to any party
other than the lockbox maintained by Bank following the establishment of the
lockbox under this section.
3. Borrowing Base. (a) On or about March 31 and September 30 of each
year, commencing September 30, 2001, and at any other time and from time to time
while this Loan Agreement is in force, Bank may determine or redetermine, in its
sole discretion, a Borrowing Base (as defined below). In addition, Bank may
require an unscheduled redetermination once during each six month period, and
Borrower shall have the right to request once before the first redetermination
on September 30, 2001, and once per year thereafter, an unscheduled
redetermination of the Borrowing Base by Bank, and Bank shall conduct such
redetermination using the methods described in this section. The term "Borrowing
Base" refers to the designated loan value (as calculated by Bank in its sole
discretion) assigned to the discounted present value of future net income
accruing to the Properties based upon Bank's in-house evaluation of Borrower's
oil and gas properties. Bank's determination of the Borrowing Base will use such
methodology, assumptions, and discount rates customarily used by Bank with
respect to credits of a similar size and nature in assigning collateral value to
oil and gas properties and will be based upon such other credit factors or
financial information available to Bank at the time of each determination,
including, without limitation, Borrower's assets, liabilities, cash flow,
liquidity, business, properties, prospects, management, and ownership. If Bank
redetermines the Borrowing Base, Bank will notify Borrower in writing that it is
doing so. Borrower acknowledges that increases in the Borrowing Base are subject
to appropriate credit approval by Bank. The first scheduled Borrowing Base
redetermination will be effective as of September 30, 2001.
(b) The outstanding principal balance owing on the Revolving
Note plus the aggregate face amount of all Letters of Credit may not exceed the
Borrowing Base at any time, subject to the payout provisions below in the event
of a Borrowing Base decrease. A decrease in the Borrowing Base will result in an
immediate decrease in Bank's commitment under the Revolving Loan. If the
redetermined Borrowing Base is less than the sum of the outstanding principal
then owing on the Revolving Note plus the aggregate face amount of all Letters
of Credit, Bank will notify Borrower of the amount of the Borrowing Base and the
amount of the deficiency. Within 30 days after notice is sent by Bank, Borrower
shall remedy the deficiency by either: (i) making a lump sum payment on the
Revolving Note to reduce the principal outstanding plus Letters of Credit to an
amount equal to or less than the new Borrowing Base; (ii) committing to make six
equal monthly installment payments to reduce the principal plus Letters of
Credit to an amount equal to or less than the new Borrowing Base; or (iii)
mortgaging additional collateral, which must be acceptable to Bank as to type,
value, and title. A failure by Borrower to resolve a Borrowing
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Base deficiency to Bank's satisfaction within the period set forth above will
constitute a default under this Loan Agreement.
(c) At the time of any redetermination, Bank reserves the
right to establish an equal Monthly Commitment Reduction ("MCR") amount by which
the Borrowing Base shall be automatically reduced effective as of the last day
of each successive calendar month until the next Borrowing Base redetermination.
Bank's determination of the MCR will use such methodology, assumptions, and
discount rates customarily used by Bank with respect to credits of a similar
size and nature in determining commitment reductions and will be based upon such
other credit factors or financial information available to Bank at the time of
each determination, including, without limitation, the economic half-life of the
Properties, and Borrower's assets, liabilities, cash flow, liquidity, business,
properties, prospects, management, and ownership. The MCR will initially be set
at three hundred thirty-five thousand dollars ($335,000.00) per month. If the
outstanding principal balance owing on the Revolving Note, plus the face amount
of all unexpired and outstanding Letters of Credit, shall exceed the Borrowing
Base solely because of an MCR reduction, Borrower shall promptly make a single
lump sum payment in an amount not to exceed the MCR to reduce the outstandings
below the Borrowing Base. If the outstanding principal balance owing on the
Revolving Note, plus the face amount of all unexpired and outstanding Letters of
Credit, shall exceed the Borrowing Base because of a Borrowing Base
redetermination (or a Borrowing Base redetermination combined with a required
MCR), Borrower shall have the right to cure set forth in subsection (b) above;
provided, however, that if the MCR was applicable before the Borrowing Base
redetermination, then the MCR amount will be due in a lump sum and Bank may
continue MCR at the same amount or change the MCR effective on the
redetermination date.
(d) After the first scheduled redetermination, upon each
request by Borrower for an unscheduled redetermination of the Borrowing Base,
Borrower will pay a fee equal to $5,000, unless the amount of the loan value
added as a result of the redetermination, as calculated by Bank in its sole
discretion, exceeds ten percent (10%) of the then-existing Borrowing Base, in
which case the fee shall be waived.
(e) After the first scheduled redetermination, each time that
Borrower voluntarily pledges additional oil and gas properties for the purpose
of increasing the Borrowing Base and upon each request by Borrower for an
unscheduled redetermination, Borrower shall pay to Bank a fee equal to the
greater of (i) $5,000 or (ii) one percent (1.0%) of the amount of the increase
in the Borrowing Base. However, should the amount of the loan value of the
additional collateral pledged, as determined by Bank in its sole discretion,
exceed ten percent (10%) of the then-existing Borrowing Base, the fee shall be
waived.
(f) If the Borrower sells, transfers, or otherwise disposes of
any Properties that have an aggregate sales price in excess of ten percent (10%)
of the most recent Borrowing Base, the Borrowing Base will be immediately
reduced. Any deficiency resulting from the sale of any Properties shall be
immediately eliminated by Borrower pursuant to a single lump sum payment, and
Bank will release its liens and security interests on the sold Properties.
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4. Conditions Precedent. (a) The obligation of Bank to make the Loan is
subject to Borrower's satisfaction, in Bank's sole discretion of the following
conditions precedent:
(1) Bank's receipt and satisfactory review by Bank of the 1999
fiscal year-end and September 30, 2000 year-to-date financial statements of
Borrower, Guarantor, and any subsidiaries, including a balance sheet, an income
statement, and a cash flow statement, prepared in conformity with GAAP.
(2) the negotiation, execution, and delivery of Loan Documents
in Proper Form, including, but not limited to, the following:
(i) this Loan Agreement;
(ii) the Revolving Note;
(iii) the Deed of Trust;
(iv) the Pledge;
(v) the Louisiana Mortgage;
(vi) the Guaranty;
(vii) Borrowing Resolution;
(viii) Guarantor Resolution; and
(ix) Letters in Lieu.
(4) satisfactory evidence that Bank holds perfected liens and
security interests in all collateral for the Loans, subject to no other liens or
security interests.
(5) receipt and satisfactory review by Bank of Reserve Reports
for the Borrowing Base properties.
(6) there shall not have occurred a material adverse change in
the business, assets, liabilities (actual and contingent), operations, condition
(financial or otherwise) of Borrower and any subsidiaries taken as a whole or in
the facts and information regarding such entities as represented to date, from
that reflected in Borrower's financial statements for the year ending December
31, 2000, as provided to Bank.
(7) there being no order or injunction or other pending or
threatened litigation in which there is a reasonable possibility, in Bank's
judgment, of a decision which could materially adversely affect the ability of
Borrower to perform under the Loan Documents.
(8) Bank shall have completed and approved a review of title
to, and the status of the environmental condition of, Borrower's oil and gas
properties, including the Borrowing Base properties, and that the results of
such review shall be acceptable to Bank in its sole discretion.
(10) Bank's receipt and review, with results satisfactory to
Bank and its counsel, of information regarding litigation, tax, accounting,
insurance, pension liabilities (actual or
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contingent), real estate leases, material contracts, debt agreements, property
ownership, and contingent liabilities of Borrower and any subsidiaries.
(11) Borrower's establishment of an operating account with
Bank's Houston location for the receipt of the proceeds of all oil and gas
production.
(12) Borrower shall deliver legal opinions in Proper Form,
from Borrower's counsel, regarding Borrower's authority, the enforceability of
the Loan Documents, and other matters reasonably required by Bank.
(b) Bank will not be obligated to make the Loans or any
advance on the Loans, if, prior to the time that a loan or advance is made, (i)
there has been any material adverse change in Borrower's financial condition
since the most-recent financial statements furnished to Bank, (ii) any
representations or warranties made by Borrower in this Loan Agreement or the
other Loan Documents is untrue or incorrect as of the date of the advance or
loan, (iii) Bank's review of Borrower's title to the Properties indicates that
Borrower's title is unacceptable to Bank, in its sole discretion, (iv) Bank has
not received all Loan Documents appropriately executed by Borrower and all other
proper parties, (v) Bank has requested that Borrower execute additional loan or
security documents and those documents have not yet been properly executed,
delivered, and recorded, (vi) Borrower is not in compliance with the Borrowing
Base and all reporting requirements, or (vii) an Event of Default (as defined
below) has occurred.
5. Representations and Warranties. Borrower and Guarantor hereby
represent and warrant to Bank as follows:
(a) The execution, delivery, and performance of this Loan Agreement,
the Notes, the Security Documents, and all of the other Loan Documents by
Borrower have been duly authorized by the Borrower's board of directors and
constitute legal, valid, and binding obligations of Borrower, enforceable in
accordance with their respective terms; and the execution, delivery, and
performance of this Loan Agreement, the Guaranty, and all of the other Loan
Documents by Guarantor have been duly authorized by the Guarantor's board of
directors and constitute legal, valid, and binding obligations of Guarantor,
enforceable in accordance with their respective terms;
(b) The execution, delivery, and performance of this Loan Agreement,
the Notes, the Security Documents, the Guaranty, and the other Loan Documents,
and the consummation of the transaction contemplated, do not require the
consent, approval, or authorization of any third party and do not and will not
conflict with, result in a violation of, or constitute a default under (i) any
provision of Borrower's articles of incorporation or bylaws, or any other
agreement or instrument binding upon Borrower, (i) any provision of Guarantor's
articles of incorporation or bylaws, or any other agreement or instrument
binding upon Guarantor, or (iii) any law, governmental regulation, court decree,
or order applicable to Borrower or Guarantor;
(c) Each financial statement of Borrower or Guarantor, now or
hereafter supplied to Bank, was (or will be) prepared in accordance with
generally accepted accounting principles
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("GAAP"), consistently applied, in effect on the date such statement was
prepared, in Proper Form, and truly discloses and fairly presents Borrower's and
Guarantor's financial condition as of the date of each such statement, and there
has been no material adverse change in such financial condition subsequent to
the date of the most recent financial statement supplied to Bank;
(d) There are no actions, suits, or proceedings pending or to
Borrower's or Guarantor's knowledge threatened against or affecting Borrower,
Guarantor, or the Properties, before any court or governmental department,
commission, or board, which, if determined adversely, would have a material
adverse effect on the Properties or the operations or financial condition of
Borrower or any Guarantor;
(e) Borrower and Guarantor have filed or will file all federal,
state, and local tax reports and returns required by any law or regulation to be
filed and have either duly paid all taxes, duties, and charges indicated due on
the basis of such returns and reports, or made adequate provision for the
payment thereof, and the assessment of any material amount of additional taxes
in excess of those paid and reported is not reasonably expected;
(f) To their knowledge, Borrower and Guarantor are in compliance in
all material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended or recodified from time to time
("ERISA"); Borrower and Guarantor have not violated any provision of any defined
employee pension benefit plan (as defined in ERISA) maintained or contributed to
by Borrower (each a "Plan"); no Reportable Event as defined in ERISA has
occurred and is continuing with respect to any Plan initiated by Borrower or
Guarantor; and Borrower and Guarantor have met their minimum funding
requirements under ERISA with respect to each Plan;
(g) To its knowledge, Borrower has disclosed to Bank all of the
terms of all material agreements affecting Borrower's oil and gas properties or
its operations, including all gas balancing agreements and advance payment
contracts; and
(h) Borrower is a wholly-owned subsidiary of Guarantor.
(i) To Borrower's knowledge, all of the xxxxx or groups of xxxxx
described in Schedule C attached are in fact located on, are bottomed under, and
the well bores are wholly within, the lands (or in the case of xxxxx located on
unitized or pooled properties, such units) covered by the leases that are the
subject of the title opinions described in Schedule C attached. If applicable,
all xxxxx are producing oil and gas from the horizons or zones covered by the
leases that are the subject of the title opinions described in Schedule C
attached (or in the case of xxxxx located on unitized or pooled properties, such
units), to Borrower's knowledge.
(j) There are no agreements between Borrower and any other party
that allocate operating expenses to Borrower in excess of Borrower's working
interest in the particular oil and gas property.
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6. Covenants. Until the Loans and all other obligations and liabilities
of Borrower under this Loan Agreement, the Notes, the Security Documents, and
the other Loan Documents are fully paid and satisfied, Borrower and Guarantor
agree and covenant that they shall, unless Bank otherwise consents in writing:
(a) (i) maintain their existence in good standing in the state of
their incorporation, maintain their authority to do business in all other states
in which either is required to qualify, and maintain full legal capacity to
perform all their obligations under this agreement and the Loan Documents, (ii)
continue to operate their business as presently conducted, (iii) not permit any
changes in Borrower's or Guarantor's officers or directors that alter a majority
of the current officers and directors, (iv) not permit either of their
dissolution, liquidation, or other termination of existence or forfeiture of
right to do business, and (v) Borrower will not form any subsidiary or permit a
merger or consolidation (unless Borrower is the surviving entity) or acquire all
or substantially all of the assets of any other entity.
(b) Borrower will manage the Properties in an orderly and efficient
manner consistent with good business practices, and perform and comply with all
statutes, rules, regulations, and ordinances imposed by any governmental unit
upon the Properties or Borrower and its operations including, without
limitation, compliance with all applicable laws relating to the environment.
(c) Borrower will maintain insurance as customary in the industry,
including but not limited to, casualty, comprehensive property damage, and
commercial general liability, and other insurance, including worker's
compensation (if necessary to comply with law), naming Bank as an additional
insured or a loss payee, and containing provisions prohibiting their
cancellation without prior written notice to Bank, and provide Bank with
evidence of the continual coverage of those policies prior to the lapse of any
policy.
(d) If requested by Bank, Borrower shall mortgage to Bank any or all
additional oil and gas properties now owned or hereafter acquired by Borrower
(and Bank will redetermine the Borrowing Base).
(e) Not sell, transfer, pledge, encumber, or otherwise dispose of
all or any interest in the Properties or any collateral covered by the Pledge
Agreement, except for the sale of hydrocarbons and equipment in the ordinary
course of business, and except for the sale of oil and gas properties having an
aggregate sales price not in excess of ten percent (10%) of the Borrowing Base,
without the prior written consent of Bank, and provided that Bank shall not
withhold its consent for any sale unreasonably so long as: (i) the net sales
proceeds received by Borrowers are equal to or greater than net present value of
the proved developed producing oil and gas reserves as of the most recent
redetermination date (scheduled or otherwise) discounted at fifteen percent
(15%); (ii) any resulting borrowing base deficiency is immediately eliminated by
a single lump sum payment; and (iii) there is no existing Event of Default.
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(f) Promptly inform Bank of (i) any and all material adverse changes
in Borrower's or Guarantor's financial condition, (ii) all litigation and claims
which could materially affect the financial condition of Borrower, Guarantor, or
the Properties, (iii) all actual or contingent material liabilities, (iv) the
occurrence of any default under this Loan Agreement, (v) any change in name,
identity, or structure of Borrower or Guarantor, and (vi) any uninsured or
partially insured loss of any collateral through fire, theft, liability, or
property damage.
(g) Maintain Borrower's and Guarantor's books and records in
accordance with GAAP, applied on a consistent basis, and upon forty-eight hours
notice, permit Bank to examine, audit, and make and take away copies or
reproductions of Borrower's and Guarantor's books and records, reasonably
required by Bank, at all reasonable times; and permit such persons as Bank may
designate at reasonable times to visit and inspect the Properties and examine
all records with respect to the Properties, and pay for the reasonable cost of
such inspections required by Bank.
(h) Pay and discharge when due all indebtedness and obligations,
including without limitation, all assessments, taxes, governmental charges,
levies, and liens, of every kind and nature, imposed upon Borrower, Guarantor,
or the Properties, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon the
Properties, income, or profits, and pay all trade payables and other liabilities
incurred in the ordinary course of business within 90 days of their due date;
provided, however, Borrower and Guarantor will not be required to pay and
discharge any such assessment, tax, charge, levy, lien, or claim so long as (i)
the legality of the same shall be contested in good faith by appropriate
judicial, administrative, or other legal proceedings, and (ii) Borrower or
Guarantor has established adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
(i) Borrower will not directly or indirectly create, incur, assume,
or permit to exist any indebtedness (including guaranties), secured or
unsecured, absolute or contingent, except for (i) the indebtedness to Bank, (ii)
any indebtedness or current liabilities incurred in normal day-to-day course of
business, (iii) any indebtedness already incurred and disclosed in writing to
Bank, including two existing real estate loans in the amounts of $350,000 and
$80,000, respectively, and (iv) additional indebtedness not to exceed $50,000.00
in the aggregate.
(j) Borrower will not mortgage, assign, hypothecate, pledge, or
encumber, and not create, incur, or assume any lien or security interest on or
in, the Properties (or any interest in the Properties) or any of Borrower's
property or assets, except (i) those in favor of Bank, (ii) those existing and
disclosed to Bank in writing, (iii) liens for taxes not delinquent or being
contested in good faith, (iv) mechanic's and materialman's liens with respect to
obligations not overdue or being contested in good faith, (v) liens resulting
from deposits to secure the payments of workers' compensation or social
security, and (vi) purchase money security interests or construction liens that
attach solely to the asset acquired or constructed, that secure indebtedness in
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GREKA AM, INC.
March 1, 2001
Page 12 of 22
an amount less than the cost and the fair market value of the asset acquired or
constructed, and that are in an aggregate amount not to exceed $25,000.
(k) Borrower will not make any loans, advances, dividends, or other
distributions to any party, including without limitation, Guarantor, or any
shareholders, officers, directors, and affiliates, and any profit sharing or
retirement plan, without Bank's prior written consent; and not purchase,
acquire, redeem, or retire any stock of Borrower; and not permit any transaction
or contract with any affiliates or related parties, except at arms length and on
market terms.
(l) Borrower will maintain its primary depository accounts and
principal banking relationship at Bank.
(m) Borrower will not invest in speculative options, futures, or
other derivatives.
(n) Borrower will maintain a program satisfactory to Bank for
hedging, forward sale, or swap of part of Borrower's projected production of
crude oil and natural gas.
(o) Borrower will not enter into any transaction providing for
hedging, forward sale, or swap of crude oil, natural gas, or other commodities,
except hedging required by Bank and except for transactions which meet the
following requirements:
(i) Hedging, forward sale, or swap transactions resulting
in a cap on the price to be received by Borrower, involving in the aggregate at
any time not more than seventy-five percent (75%), or in the case of hedging,
forward sale, or swap transactions resulting only in a floor price per barrel or
mcf, not more than one hundred percent (100%), of Borrower's anticipated
production from its proved developed producing oil and gas properties according
to Borrower's most-recent engineering evaluation provided to Bank; and
(ii) Hedging, forward sale, or swap transactions that would
not result in a price per barrel or MMBtu lower than the base case price used by
Bank in the most-recent engineering evaluation of Borrower's oil and gas
properties, adjusted for variances between the hedging price and Borrower's
actual product price as determined by Bank.
Borrower and Bank may enter into swaps, collars, floors, caps, options,
corridors, or other contracts, as such terms are referred to in the capital
markets, which are intended to reduce or eliminate the risk of fluctuation in
interest rates.
(p) Within thirty (30) days of the date of this Loan Agreement,
Borrower will enter into transactions providing for hedging, forward sale, or
swap of natural gas meeting the following requirements: (i) Hedging, forward
sale, or swap transactions involving in the aggregate at least fifty percent
(50%) of Borrower's anticipated production from its proved developed producing
gas properties according to Borrower's most-recent engineering evaluation
provided to
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GREKA AM, INC.
March 1, 2001
Page 13 of 22
Bank; (ii) Hedging, forward sale, or swap transactions for a period of not less
than one year; and (iii) Hedging, forward sale, or swap transactions resulting
in a fixed price or floor price per barrel or mcf equal to or greater than the
base case price used by Bank in the most-recent engineering evaluation of
Borrower's gas properties, adjusted for variances between the hedging price and
Borrower's actual product price as determined by Bank.
(q) Indemnify Bank against all losses, liabilities, withholding and
other taxes, claims, damages, or expenses relating to the Loans, the Loan
Documents, or the Borrower's use of the Loan proceeds, including but not limited
to attorneys and other professional fees and settlement costs, but excluding,
however, those caused solely by or resulting solely from any action or failure
to act by Bank; and this indemnity shall survive the termination of this Loan
Agreement.
(r) Comply in all material respects with all applicable provisions
of the ERISA, not violate any provision of any Plan, meet its minimum funding
requirements under ERISA with respect to each Plan, and notify Bank in writing
of the occurrence and nature of any Reportable Event or Prohibited Transaction,
each as defined in ERISA, or any funding deficiency with respect to any Plan.
(s) Execute and deliver, or cause to be executed and delivered, any
and all other agreements, instruments, or documents which Bank may reasonably
request in order to give effect to the transactions contemplated under this Loan
Agreement and the Loan Documents, and to grant, perfect, and maintain liens and
security interests on or in the Properties and related collateral, and promptly
cure any defects in the execution and delivery of any Loan Documents.
(t) Guarantor will not sell, transfer, pledge, encumber, or
otherwise dispose of all or any interest in Borrower.
7. Financial Covenants. Until the Loans and all other obligations and
liabilities of Borrower under this Loan Agreement, the Notes, the Security
Documents, and the other Loan Documents are fully paid and satisfied, Borrower
agrees and covenants that it will, unless Bank otherwise consents in writing,
maintain the following financial covenants:
(a) Maintain at the end of each fiscal quarter a minimum Debt
Service Coverage Ratio greater than or equal to 1.25 to 1.0. "Debt Service
Coverage Ratio" is defined as the ratio of (1) the sum of Borrower's most recent
quarter's net income, plus depletion, depreciation, amortization, and other
non-cash charges for the same period, minus gains from the sale of assets (or
plus losses from the sale of assets), divided by (2) the sum of the current
maturities of long term debt (excluding the Revolving Loan) for the quarter,
plus the monthly commitment reductions for the quarter as required by Bank under
Section 3(c) above.
(b) Maintain at the end of each fiscal quarter a minimum Interest
Coverage Ratio greater than or equal to 3.0 to 1.0. "Interest Coverage Ratio" is
defined as the ratio of (1) the sum of Borrower's most recent four-quarter net
income, plus interest expense, income taxes, depreciation, depletion,
amortization, and other non-cash charges for the same period, divided by (2)
interest expense.
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GREKA AM, INC.
March 1, 2001
Page 14 of 22
(c) Maintain at the end of each fiscal quarter a minimum Current
Ratio greater than or equal to 1.0 to 1.0. "Current Ratio" is defined as the
ratio of (1) Borrower's current assets, plus availability on the Revolving Loan,
divided by (2) current liabilities (excluding current maturities of long-term
debt).
8. Reporting Requirements. Until the Loans and all other obligations
and liabilities of Borrower under this Loan Agreement, the Notes, the Security
Documents, and the other Loan Documents are fully paid and satisfied, Borrower
and Guarantor will, unless Bank otherwise consents in writing, furnish to Bank
in Proper Form:
(a) As soon as available, and within ninety (90) days of the end of
their fiscal year, audited financial statements for Borrower and Guarantor on a
consolidated basis, consisting of at least a balance sheet, a statement of cash
flows, a statement of operations, a statement of changes in shareholders'
equity, and a statement of contingent liabilities, certified by authorized
officers of Borrower and Guarantor and by an independent certified public
accountant acceptable to Bank (i) as being true and correct in all material
aspects to the best of their knowledge, (ii) as fairly reporting the financial
condition of Borrower and Guarantor as of the close of the fiscal year and the
results of their operations for the year, and (iii) as having been prepared in
accordance with GAAP, consistently applied;
(b) As soon as available, and within sixty (60) days of the end of
the first three fiscal quarters of each year, unaudited quarterly financial
statements for Borrower and Guarantor on a consolidated basis, consisting of at
least a balance sheet, a statement of cash flows, a statement of operations, a
statement of changes in shareholders' equity, and a statement of contingent
liabilities, for the quarter and for the period from the beginning of the fiscal
year to the close of the quarter, certified by authorized officers of Borrower
and Guarantor (i) as being true and correct in all material aspects to the best
of their knowledge, (ii) as fairly reporting the financial condition of Borrower
and Guarantor as of the close of the fiscal quarter and the results of their
operations for the quarter, and (iii) as having been prepared in accordance with
GAAP, consistently applied;
(c) As soon as available, and in any event within forty-five (45)
days after the end of each calendar quarter, quarterly operating statements and
cash flow statements for the Properties, a hedge transaction report, and a gas
balancing report, all in Proper Form and duly certified by an authorized
representative of Borrower (i) as being true and correct in all material aspects
to the best of his or her knowledge and (ii) as having been prepared in
accordance with GAAP, consistently applied;
(d) Within fifteen (15) days of filing, copies of Borrower's income
tax returns, with all schedules and exhibits;
(e) On or before March 1 of each year, a report dated as of the
prior December 31, prepared by an independent petroleum engineer or engineering
firm acceptable to Bank, and on or before September 1 of each year, a report
dated as of the prior June 30, prepared by Borrower, both reports prepared on a
consistent basis, in accordance with the customary standards and
15
GREKA AM, INC.
March 1, 2001
Page 15 of 22
procedures of the petroleum industry, estimating the quantity of oil, gas, and
associated hydrocarbons recoverable from the Properties and the projected income
and expense attributable to the Properties, including, without limitation, a
description of reserves, net revenue interests and working interests
attributable to the reserves, rates of production, gross revenues, operating
expenses, ad valorem taxes, capital expenditures necessary to cause the
Properties to achieve the rate of production set forth in the report, net
revenues and present value of future net revenues attributable to the reserves
and production therefrom, a statement of the assumptions upon which the
determinations were made and any other matters related to the operations of the
Properties and the estimated income therefrom;
(f) Within sixty (60) days of the end of each month, a report on a
lease-by-lease or unit basis, showing the gross proceeds from the sale of oil,
gas, and associated hydrocarbons produced from the Properties, the quantity of
oil, gas, and associated hydrocarbons sold, the severance, gross production,
occupation, or gathering taxes deducted from or paid out of the proceeds, the
lease operating expenses, tangible drilling costs, and capital expenditures, the
number of xxxxx operated (or the numbers of pooled units), drilled, or
abandoned, the name, address, telephone number, and contact with the first
purchaser of production for all of the Properties, and such other information as
Bank may reasonably request;
(g) At any time upon request by Bank and within thirty (30) days of
any change thereafter, a list showing the name and address of each purchaser of
oil, gas, and associated hydrocarbons produced from or attributable to the
Properties;
(h) With the quarterly and annual financial statements required
above, a quarterly compliance certificate in the form of Exhibit B attached,
signed by an authorized officer of Borrower and Guarantor and certifying
compliance with the financial covenants and other matters in this Loan
Agreement;
(i) As soon as possible and in any event within five (5) days after
the occurrence of any Event of Default, or any event which, with the giving of
notice or lapse of time or both, would constitute an Event of Default, the
written statement of the President or the Chief Financial Officer of Borrower
and Guarantor setting forth the details of such Event of Default or event and
the action which Borrower proposes to take with respect thereto;
(j) Within three (3) days of any payment or transfer, Borrower will
provide written notice to Bank of any payment, loan, dividend, or distribution
to Guarantor, including the amount; and
(k) Such other information respecting the condition and the
operations, financial or otherwise, of Borrower, Guarantor, and the Properties
as Bank may from time to time reasonably request.
9. Events of Default. (a) The occurrence at any time of any of the
following events or the existence of any of the following conditions shall be
called an "Event of Default":
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GREKA AM, INC.
March 1, 2001
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(1) Failure to make punctual payment when due of any sums owing
on any of the Notes or any of the other secured indebtedness (as described in
the Deed of Trust) or any other amounts owed by Borrower to Bank; or
(2) Failure of any of the Obligated Parties (as defined below)
to properly perform any of the obligations, covenants, or agreements, contained
in this Loan Agreement or any of the other Loan Documents; or any material
representation or warranty made by Borrower or Guarantor proves to have been
false, misleading, or erroneous; or
(3) Levy, execution, attachment, sequestration, or other writ
against any real or personal property, representing the security for the Loans;
or
(4) Any "Event of Default" under the Notes or any of the other
Loan Documents, the Events of Default defined in the Notes and Loan Documents
being cumulative to those contained in this Loan Agreement; or
(5) The transfer, whether voluntarily or by operation of law, of
all or any portion of the Properties, without obtaining Bank's partial release,
or except as specifically permitted by this Loan Agreement; or
(6) The failure of any of the Obligated Parties to pay any money
judgment in excess of $150,000.00, against that party before the expiration of
30 days after the judgment becomes final or the failure of any of the Obligated
Parties to obtain dismissal within 90 days of any involuntary bankruptcy
proceeding filed against that party; or
(7) Borrower's liquidation, termination of existence, merger or
consolidation with another (unless Borrower is the surviving entity), forfeiture
of right to do business, or appointment of a trustee or receiver for any part of
its property or the filing of an action seeking to appoint a trustee or
receiver; or
(8) A filing by any of the Obligated Parties of a voluntary
petition in bankruptcy, or taking advantage of any Debtor Relief Laws (as
defined below); or an answer admitting the material allegations of a petition
filed against any of the Obligated Parties, under any Debtor Relief Laws; or an
admission by any of the Obligated Parties in writing of an inability to pay its
or their debts as they become due; or the calling of any meeting of creditors of
any of the Obligated Parties for the purpose of considering an arrangement or
composition.
(b) Upon any event described in Subsection (a)(1) above regarding
payment of sums owing to Bank, Bank shall provide Borrower with an invoice for
the payment due and Borrower shall have five (5) days grace after the due date
in order to cure the default prior to acceleration of the Notes and exercise of
any remedies. Upon any other event described in Subsection (a) above, Bank shall
provide Borrower with written notice of the default and Borrower shall have
twenty (20) days after notice in order to cure the default prior to acceleration
of the Notes
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GREKA AM, INC.
March 1, 2001
Page 16 of 22
and exercise of any remedies; except Borrower shall have no cure period for any
voluntary filing by Borrower or Guarantor under any Debtor Relief Laws or for
any Event of Default that cannot be cured during that period, and provided that
Bank is not obligated to provide written notice of any default which Borrower
reports to Bank, but Borrower shall have the benefit of any applicable grace or
cure period required herein.
(c) The term "Obligated Parties" means Borrower, Guarantor, any
other party liable, in whole or in part, for the payment of the Note, whether as
maker, endorser, guarantor, surety, or otherwise, and any party executing any
deed of trust, mortgage, security agreement, pledge agreement, assignment, or
other contract of any kind executed as security in connection with or pertaining
to the Notes or Loans. The term "Debtor Relief Laws" means any applicable
liquidation, conservatorship, receivership, bankruptcy, moratorium,
rearrangement, insolvency, reorganization, or similar laws affecting the rights
or remedies of creditors generally, as in effect from time to time.
10. Remedies. (a) Upon the occurrence of any one or more of the
foregoing Events of Default and the expiration of any notice, cure, or grace
period required by Section 9(b) above, the entire unpaid principal balances of
the Notes, together with all accrued but unpaid interest thereon, and all other
indebtedness then owing by Borrower to Bank, shall, at the option of Bank,
become immediately due and payable without further presentation, demand for
payment, protest or notice of protest of any kind, all of which are expressly
waived by Borrower. Any and all rights and remedies of Bank pursuant to this
Loan Agreement or any of the other Loan Documents may be exercised by Bank, at
its option, upon the occurrence of an Event of Default and the expiration of any
cure or grace period required by Section 9(b) above. All remedies of Bank may be
exercised singularly, concurrently, or consecutively, without waiver or
election.
(b) All rights of Bank under the terms of this Loan Agreement
shall be cumulative of, and in addition to, the rights of Bank under any and all
other agreements between Borrower and Bank (including, but not limited to, the
other Loan Documents), and not in substitution or diminution of any rights now
or hereafter held by Bank under the terms of any other agreement.
11. Waiver and Amendment. Neither the failure nor any delay on the part
of Bank to exercise any right, power, or privilege herein or under any of the
other Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power, or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. No waiver of any provision in this Loan Agreement or in any of the
other Loan Documents and no departure by Borrower therefrom shall be effective
unless the same shall be in writing and signed by Bank, and then shall be
effective only in the specific instance and for the purpose for which given and
to the extent specified in such writing. No modification or amendment to this
Loan Agreement or to any of the other Loan Documents shall be valid or effective
unless the same is signed by the party against whom it is sought to be enforced.
12. Savings Clause. Regardless of any provision contained in this Loan
Agreement, the Notes, or any of the Loan Documents, it is the express intent of
the parties that at no time shall
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GREKA AM, INC.
March 1, 2001
Page 18 of 22
Borrower or any of the Obligated Parties pay interest in excess of the Maximum
Rate (or any other interest amount which might in any way be deemed usurious),
and Bank will never be considered to have contracted for or to be entitled to
charge, receive, collect, or apply as interest on any of the Notes, any amount
in excess of the Maximum Rate (or any other interest amount which might in any
way be deemed usurious). In the event that Bank ever receives, collects, or
applies as interest any such excess, the amount which would be excessive
interest will be applied to the reduction of the principal balances of the
Notes, and, if the principal balances of the Notes are paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining whether the
interest paid or payable exceeds the Maximum Rate (or any other interest amount
which might in any way be deemed usurious), Borrower and Bank shall, to the
maximum extent permitted under applicable law: (i) characterize any
non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense or fee rather than as interest; (ii)
exclude voluntary prepayments and the effect thereof; and (iii) amortize, pro
rate, or spread the total amount of interest throughout the entire contemplated
term of the Notes so that the interest rate is uniform throughout the term. The
term "Maximum Rate" means the maximum interest rate which may be lawfully
charged under applicable law.
13. Notices. Any notice or other communications provided for in this
Loan Agreement shall be in writing and shall be given to the party at the
address shown below:
Bank: BANK OF TEXAS, N.A.
Attention: Xxxxxxx X. Xxxxxxx, Senior Vice President
0000 Xxxxxx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax Number (000) 000-0000
With a copy
to counsel
for Bank: Xxxx X. Xxxxxxxx
XXXXXX, XXXXXX & XXXXX, P.C.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000-0000
Fax Number (000) 000-0000
19
GREKA AM, INC.
March 1, 2001
Page 19 of 22
Borrower: GREKA AM, INC.
Attention: Xxxxxxx X. Xxxxxxx, Vice President
0000 Xxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Fax Number (000) 000-0000
Guarantor: GREKA ENERGY CORPORATION
Attention: Xxxxxxx X. Xxxxxx,
Chairman, Chief Executive Officer, and President
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Fax Number (000) 000-0000
Any such notice or other communication shall be deemed to have been given on the
day it is personally delivered or, if mailed, on the third day after it is
deposited in an official receptacle for the United States mail, or, if faxed, on
the date it is received by the party. Any party may change its address for the
purposes of this Loan Agreement by giving notice of such change in accordance
with this paragraph.
14. Miscellaneous. (a) This Loan Agreement shall be binding upon and
inure to the benefit of Bank, Borrower, and Guarantor, and their respective
heirs, personal representatives, successors, and assigns; provided, however,
that Borrower and Guarantor may not, without the prior written consent of Bank,
assign any rights, powers, duties, or obligations under this Loan Agreement or
any of the other Loan Documents.
(b) THIS LOAN AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS.
BORROWER, GUARANTOR, AND BANK IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR
CLAIM RELATED TO THIS LOAN AGREEMENT, THE NOTES, THE LOANS, THE GUARANTY, OR THE
PROPERTIES SHALL BE IN COURT IN DALLAS COUNTY, TEXAS.
(c) If any provision of this Loan Agreement or any of the other
Loan Documents is held to be illegal, invalid, or unenforceable under present or
future laws, such provision shall be fully severable and the remaining
provisions of this Loan Agreement or any of the other Loan Documents shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance.
(d) All covenants, agreements, undertakings, representations, and
warranties made in this Loan Agreement and the other Loan Documents shall
survive any closing hereunder.
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GREKA AM, INC.
March 1, 2001
Page 20 of 22
(e) All documents delivered by Borrower or Guarantor to Bank
must be in Proper Form. The term "Proper Form" means in form, substance, and
detail satisfactory to Bank in its sole discretion.
(f) Without limiting the effect of any provision of any Loan
Document which provides for the payment of expenses and attorneys fees upon the
occurrence of certain events, Borrower shall pay all costs and expenses
(including, without limitation, the reasonable attorneys fees of Bank's inside
or independent legal counsel) in connection with (i) the preparation of this
Loan Agreement and the other Loan Documents, and any and all extensions,
renewals, amendments, supplements, extensions, or modifications thereof, (ii)
any action reasonably required in the course of administration of the Loans,
(iii) resolution of any disputes with Borrower or Guarantor related to the Loans
or this Loan Agreement, and (iv) any action in the enforcement of Bank's rights
upon the occurrence of an Event of Default.
(g) If there is a conflict between the terms of this Loan
Agreement and the terms of any of the other Loan Documents, the terms of this
Loan Agreement will control.
(h) This Loan Agreement may be separately executed in any
number of counterparts, each of which will be an original, but all of which,
taken together, shall be deemed to constitute one agreement.
(i) Bank shall have the right, with the consent of the
Borrower (unless an Event of Default has occurred and is continuing, in which
case no consent is needed), which will not be unreasonably withheld, (i) to
assign the loan or commitment and be released from liability thereunder, and
(ii) to transfer or sell participations in the loan or commitment with the
transferability of voting rights limited to principal, rate, fees, and term.
(j) This Loan Agreement may be executed in counterparts, and
Bank is authorized to attach the signature pages from the counterparts to copies
for Bank and Borrower. At Bank's option, this Loan Agreement and the Loan
Documents may also be executed by Borrower and Guarantor in remote locations
with signature pages faxed to Bank. Borrower and Guarantor agree to promptly
deliver the original signatures for the Loan Agreement and all Loan Documents,
and it will be an Event of Default if they fail to promptly deliver all required
original signatures.
15. Special Provisions. (a) Subordinate Debt. All debts now or
hereafter payable to Guarantor by Borrower shall be called the "Subordinate
Debt." Borrower has incurred and may hereafter incur Subordinate Debt owed to
Guarantor. If requested by Bank, Borrower and Guarantor agree to sign and
deliver in favor of Bank, a subordination agreement (the "Subordination
Agreement") in Proper Form, by which Borrower and Guarantor subordinate the
Subordinate Debt to repayment of the Loans. Borrower and Guarantor hereby agree
that (i) repayment of the Subordinate Debt is subordinate to repayment of the
Loans, (ii) all liens or security interests securing payment of the Subordinate
Debt are subordinate and inferior to all liens and security interests now or
hereafter securing payment of the Loans, (iii) the Subordinate Debt may not
mature by its terms or by acceleration of the maturity before March 1, 2004, and
(iv) unless
21
GREKA AM, INC.
March 1, 2001
Page 21 of 22
and only to the extent that Bank gives its prior written consent, no payments of
principal or interest will be permitted on the Subordinate Debt until the Loans
are paid in full (excluding the inter-company debt payment permitted under
Section 1(c) of this Loan Agreement).
(b) Title Due Diligence. Bank has required title opinions on
certain of the Properties. Borrower hereby agrees to cause all objections to
title or requirements raised in the updated title opinions or by Bank's
attorneys to be cured to Bank's satisfaction within thirty (30) days after
written notice from Bank. Borrower and Guarantor agree that the failure to
satisfy the title matters set forth in Schedule D, and cure the objections to
title or requirements, within the time set forth, will be an Event of Default
under this Loan Agreement.
16. Notice of Final Agreement. (a) In connection with the Loans,
Borrower, Guarantor, and Bank have executed and delivered this Loan Agreement
and the Loan Documents (collectively the "Written Loan Agreement").
(b) It is the intention of Borrower, Guarantor, and Bank that this
paragraph be incorporated by reference into each of the Loan Documents.
Borrower, Guarantor, and Bank each warrant and represent that their entire
agreement with respect to the Loans is contained within the Written Loan
Agreement, and that no agreements or promises have been made by, or exist by or
among, Borrower, Guarantor, and Bank that are not reflected in the Written Loan
Agreement.
(c) THE WRITTEN LOAN AGREEMENT REPRESENTS 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 AGREEMENTS BETWEEN THE PARTIES.
If the foregoing correctly sets forth our agreement, please so
acknowledge by signing and returning the additional copy of this Loan Agreement
enclosed to me.
Yours very truly,
BANK OF TEXAS, N.A.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxx,
Senior Vice President
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GREKA AM, INC.
March 1, 2001
Page 22 of 22
Accepted and agreed to this 1st day of March, 2001:
BORROWER: GUARANTOR:
GREKA AM, INC. GREKA ENERGY CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxx Xxxxxx
-------------------------------- ----------------------------------
Xxxxxxx X. Xxxxxxx, Xxxxx Xxxxxx,
Vice President Secretary
Exhibits and Schedules
A - Revolving Note
B - Compliance Certificate
C - Xxxxx and Title Opinions
D - Title Matters
23
EXHIBIT "A"
REVOLVING PROMISSORY NOTE
$75,000,000.00 Dallas, Texas March 1, 2001
PROMISE TO PAY. For value received, on or before March 1, 2004
("Maturity Date"), GREKA AM, INC., a Colorado corporation ("Borrower"), promises
to pay to the order of BANK OF TEXAS, NATIONAL ASSOCIATION ("Bank"), at its
offices in Dallas County, Texas at 0000 Xxxxxx Xxxx, Xxxxx 0000, Xxxxxx, Xxxxx
00000, the principal amount of Seventy Five Million Dollars ($75,000,000.00)
("Total Principal Amount"), or such amount less than the Total Principal Amount
which has been advanced to Borrower under this Promissory Note ("Note"),
together with interest on the portion of the Total Principal Amount advanced to
Borrower from the date advanced until paid at the rates per annum provided
below.
DEFINITIONS. For purposes of this Note, unless the context otherwise
requires, certain terms used herein shall be defined as follows:
"Adjusted LIBOR Rate" means with respect to each Interest Period, an
amount equal to the sum of (i) the LIBOR Spread, plus (ii) the LIBOR Rate with
respect to such Interest Period. Each determination by Bank of the Adjusted
LIBOR Rate shall, in the absence of manifest error, be conclusive and binding.
The LIBOR Spread will vary as set forth below based on whether the average
principal balance owing on this Note for the prior quarter is greater than or
equal to seventy-five percent (75%) of the then-current Borrowing Base (as
defined in the Loan Agreement):
Percentage of Borrowing Base LIBOR Spread
---------------------------- ------------
Greater than or equal to 75% 2.50%
Less than 75% 2.25%
"Business Day" means any day other than a Saturday, Sunday or any other
day on which national banking associations are authorized to be closed.
"Consequential Loss" means, with respect to Borrower's payment of all
or any portion of the then-outstanding principal amount of any LIBOR Balance on
a day other than the last day of the Interest Period related thereto, any loss,
cost, or expense incurred by Bank in redepositing such principal amount,
including the sum of (i) the interest which, but for such payment, Bank would
have earned in respect of such principal amount so paid, for the remainder of
the Interest Period applicable to such sum, reduced, if Bank is able to
redeposit such principal amount so paid for the balance of such Interest Period,
by the interest earned by Bank as a result of so redepositing such principal
amount plus (ii) any expense or penalty incurred by Bank on redepositing such
principal amount, but excluding taxes on the income of Bank imposed by any
governmental authority.
Revolving Promissory Note - Page 1 of 10
24
"Contract Rate" means the Adjusted LIBOR Rate or the Stated Rate, as in
effect from time to time under this Note.
"Dollars" means lawful currency of the United States of America.
"Excess Interest Amount" means, on any date, the amount by which (i)
the amount of all interest which would have accrued prior to such date on the
principal of this Note, had the applicable Contract Rate at all times been in
effect without limitation by the Maximum Rate, exceeds (ii) the aggregate amount
of interest accrued on this Note on or prior to such date as limited by the
Maximum Rate.
"Interest Notice" means the notice given by Borrower to Bank of an
Interest Option selected hereunder. Each Interest Notice given by Borrower under
this Note shall be irrevocable and must be given not later than 10:00 a.m.
(Dallas, Texas time) on a day which is not less than the number of Business Days
or LIBOR Business Days required below for an Interest Option.
"Interest Option" means Borrower's option to select an Adjusted LIBOR
Rate or the Stated Rate, as described more fully below.
"Interest Payment Date" means quarterly interest payments on the Stated
Rate Balance, due on the first day of each January, April, July, and October
hereafter, the last day of the applicable Interest Period for interest on the
LIBOR Balance, and on the Maturity Date.
"Interest Period" means, with respect to any LIBOR Balance, a period
commencing: (i) on any date which, pursuant to an Interest Notice, the principal
amount of such LIBOR Balance begins to accrue interest at the Adjusted LIBOR
Rate, or (ii) the Business Day following the last day of the immediately
preceding Interest Period in the case of a rollover to a successive Interest
Period, and ending 30, 60, or 90 days thereafter as Borrower shall elect in
accordance with the provisions hereof; provided that: (A) any Interest Period
which would otherwise end on a day which is not a LIBOR Business Day shall be
extended to the succeeding LIBOR Business Day and (B) any Interest Period which
would otherwise end after the Maturity Date shall end on the Maturity Date.
"Loan Agreement" means the Loan Agreement of even date, among Borrower,
Greka Energy Corporation, and Bank.
"LIBOR Balance" means the principal balance of this Note, which,
pursuant to an Interest Notice, bears interest at the Adjusted LIBOR Rate.
"LIBOR Business Day" means a day on which dealings in Dollars are
carried out in the London interbank Eurodollar market.
"LIBOR Rate" means the rate of interest per annum at which deposits in
Dollars are offered by the major London clearing banks, as reported by Reuters
news service (or such other
Revolving Promissory Note - Page 2 of 10
25
similar news reporting service as Bank may subscribe to at the time such LIBOR
Rate is determined), in the London interbank Eurodollar market for a period of
time equal or comparable to an Interest Period and in an amount equal to or
comparable to the principal amount of the LIBOR Balance to which such Interest
Period relates. The LIBOR Rate for the Interest Period to which it relates shall
(i) be determined as of 11:00 a.m. (London, England time) two (2) LIBOR Business
Days prior to the first day of such Interest Period, and (ii) shall be rounded
upward, if necessary, to the nearest one-hundreth of one percent.
"Maximum Rate" means at the particular time in question the maximum
rate of interest which, under applicable law, may then be charged on this Note.
If the maximum rate of interest changes after the date hereof, the Maximum Rate
shall be automatically increased or decreased, as the case may be, without
notice to Borrower from time to time as of the effective date of each change in
the maximum rate. If applicable law ceases to provide for a maximum rate of
interest, the Maximum Rate shall be equal to eighteen percent (18%) per annum.
"Stated Rate" means the difference between (1) the greater of (i) the
rate of interest per annum then most recently published by The Wall Street
Journal as the "prime rate" on corporate loans for large U.S. commercial banks,
or (ii) the sum of the rate of interest, then most recently published by The
Wall Street Journal as the "federal funds" rate for reserves traded among
commercial banks for overnight use, plus one half of one percent (0.5%), both
as published in the Money Rates section of The Wall Street Journal, less (2) the
Applicable Margin. The Applicable Margin will vary as set forth below based on
whether the average principal balance owing on this Note for the prior quarter
is greater than or equal to seventy-five percent (75%) of the then-current
Borrowing Base:
% of Borrowing Base Applicable Margin
------------------- -----------------
Greater than or equal to 75% 0.50%
Less than 75% 0.75%
"Stated Rate Balance" means the principal balance of this Note bearing
interest at a rate based upon the Stated Rate.
PAYMENTS OF INTEREST AND PRINCIPAL. The principal of and all accrued
but unpaid interest on this Note shall be due and payable as follows:
(a) accrued, unpaid interest on this Note shall be due and payable on
each Interest Payment Date, commencing on the date of this Note, and continuing
until the Maturity Date;
(b) the principal of this Note shall be due and payable as required by
the Loan Agreement to meet any Monthly Commitment Reductions (if and when
required by Bank under the Loan Agreement); and
Revolving Promissory Note - Page 3 of 10
26
(c) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
REVOLVING CREDIT. Under the Loan Agreement, Borrower may request
advances and make payments hereunder from time to time, provided that it is
understood and agreed that the aggregate principal amount outstanding from time
to time hereunder shall not at any time exceed the Total Principal Amount or the
Borrowing Base (as defined in the Loan Agreement). In addition, pursuant to the
Loan Agreement, Bank may set a monthly commitment reduction under which the
Borrowing Base and Bank's commitment under this Note may decline monthly, and
the amount outstanding under this Note may not exceed this declining Borrowing
Base. The unpaid balance of this Note shall increase and decrease with each new
advance or payment hereunder, as the case may be. This Note shall not be deemed
terminated or canceled prior to the Maturity Date, although the entire principal
balance hereof may from time to time be paid in full. Borrower may borrow, repay
and reborrow hereunder. Unless otherwise agreed to in writing or otherwise
required by applicable law, payments will be applied first to unpaid accrued
interest, then to principal, and any remaining amount to any unpaid collection
costs, delinquency charges, and other charges; provided, however, upon
delinquency or other Event of Default, Bank reserves the right to apply payments
among principal, interest, delinquency charges, collection costs, and other
charges, at its discretion. All payments of principal of or interest on this
Note shall be made in lawful money of the United States of America in
immediately available funds, at the address of Bank indicated above, or such
other place as the holder of this Note shall designate in writing to Borrower.
If any payment of principal of or interest on this Note shall become due on a
day which is not a Business Day or LIBOR Business Day, such payment shall be
made on the next succeeding Business Day or LIBOR Business Day, as applicable,
and any such extension of time shall be included in computing interest in
connection with such payment. The books and records of Bank shall be prima facie
evidence of all outstanding principal of and accrued and unpaid interest on this
Note.
ACCRUAL OF INTEREST. The unpaid principal of the Stated Rate Balance
shall bear interest at a rate per annum which shall from day to day be equal to
the lesser of (i) the Stated Rate, or (ii) the Maximum Rate. The unpaid
principal of each LIBOR Balance shall bear interest at a rate per annum which
shall be equal to the lesser of (i) the Adjusted LIBOR Rate for the Interest
Period in effect with respect to the LIBOR Balance, or (ii) the Maximum Rate.
Each change in the Stated Rate shall become effective without prior notice to
Borrower automatically as of the opening of business on the date of such change
in the Stated Rate. Interest on this Note shall be calculated on the basis of
the actual days elapsed, but computed as if each year consisted of 360 days.
INTEREST OPTIONS. Subject to the provisions hereof, Borrower shall have
the option (the "Interest Option") of having the unpaid principal balance of
this Note bear interest at the Adjusted LIBOR Rate or the Stated Rate; provided,
however, that only three (3) Interest Period options shall be in effect at any
one time during the term hereof and the selection of the Adjusted
Revolving Promissory Note - Page 4 of 10
27
LIBOR Rate for a particular Interest Period shall be for no less than $1,000,000
of unpaid principal and in even multiples of $100,000 in principal. The Interest
Option shall be exercised in the manner provided below:
(a) Advances. With each request for an Advance by Borrower, Borrower
shall give Bank an Interest Notice indicating the Interest Option selected with
respect to the principal balance of the Advance.
(b) Conversion From Stated Rate. During any period in which the
principal hereof bears interest at the Stated Rate, Borrower shall have the
right, on any LIBOR Business Day (the "Conversion Date"), to convert all or part
of the principal balance owed on the Note from the Stated Rate Balance to a
LIBOR Balance by giving Bank an Interest Notice of such selection at least two
(2) LIBOR Business Days prior to the Conversion Date.
(c) At Expiration of Interest Periods. At least two (2) LIBOR Business
Days prior to the termination of each Interest Period, Bank shall receive from
Borrower an Interest Notice indicating the Interest Option to be applicable to
the corresponding LIBOR Balance upon the expiration of such Interest Period. If
the required Interest Notice shall not have been timely received by Bank,
Borrower shall be deemed to have selected the Stated Rate to be applicable to
the LIBOR Balance upon the expiration of the Interest Period and to have given
Bank notice of such selection.
INTEREST RECAPTURE. If on each Interest Payment Date or any other date
on which interest payments are required hereunder, Bank does not receive
interest on this Note computed at the Stated Rate or Adjusted LIBOR Rate because
such Contract Rate exceeds or has exceeded the Maximum Rate, then Borrower
shall, upon the written demand of Bank, pay to Bank in addition to the interest
otherwise required to be paid hereunder, on each Interest Payment Date
thereafter, the Excess Interest Amount (calculated as of such later Interest
Payment Date); provided that in no event shall Borrower be required to pay, for
any Interest Period, interest at a rate exceeding the Maximum Rate effective
during such period.
INTEREST ON PAST DUE AMOUNTS. To the extent any interest is not paid on
or before the date it becomes due and payable, Bank may, at its option, add such
accrued but unpaid interest to the principal of this Note. Notwithstanding
anything herein to the contrary, upon acceleration of the maturity hereof
following an uncured Event of Default (as hereinafter defined) or at the
Maturity Date, all principal of this Note shall, at the option of Bank, bear
interest at the Maximum Rate until paid.
LOAN AGREEMENT/SECURITY. This Note is subject to the terms and
provisions of the Loan Agreement. This Note is secured by all liens and security
interests described in the Loan Agreement. This Note, the Loan Agreement, and
all other documents evidencing, securing, governing, guaranteeing, or pertaining
to this Note are hereinafter collectively referred to as the
Revolving Promissory Note - Page 5 of 10
28
"Loan Documents." The holder of this Note is entitled to the benefits and
security provided in the Loan Documents.
PREPAYMENTS; CONSEQUENTIAL LOSS. Borrower may from time to time prepay
all or any portion of the principal of this Note without premium or penalty,
except as set forth herein. Any prepayment made hereunder shall be made together
with all interest accrued but unpaid on this Note through the date of such
prepayment. If Borrower makes any prepayment of principal with respect to any
LIBOR Balance on any day prior to the last day of the Interest Period applicable
to such LIBOR Balance, Borrower shall reimburse the Bank on demand the
Consequential Loss incurred by Bank as a result of the timing of such payment. A
certificate of Bank setting forth the basis for the determination of a
Consequential Loss shall be delivered to Borrower and shall, in the absence of
manifest error, be prima facie evidence as to such determination and amount.
SPECIAL PROVISIONS FOR LIBOR PRICING. Borrower agrees to the following
special provisions regarding LIBOR pricing:
(a) If Bank determines that, by reason of circumstances
affecting the interbank Eurodollar market generally, deposits in Dollars (in the
applicable amounts) are not being offered to United States financial
institutions in the interbank Eurodollar market for the applicable Interest
Period, or that the rate at which such Dollar deposits are being offered will
not adequately and fairly reflect the cost to Bank of making or maintaining a
LIBOR Balance for the applicable Interest Period, Bank shall forthwith give
written notice to Borrower, and thereafter until Bank notifies Borrower that the
circumstances giving rise to such suspension no longer exist, (i) the right of
Borrower to select the Adjusted LIBOR Rate as an Interest Option under this Note
shall be suspended, and (ii) Borrower shall be deemed to have converted each
LIBOR Balance to a Stated Rate Balance under this Note in accordance with the
provisions hereof on the last day of the then-current Interest Period applicable
to such LIBOR Balance.
(b) If the adoption of any applicable law, rule, or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or agency
charged with the interpretation or administration thereof, or compliance by Bank
with any request or directive (whether or not having the force of law) of any
such authority, central bank, or agency shall make it unlawful or impossible for
Bank to make or maintain a LIBOR Balance, Bank shall so notify Borrower. Upon
receipt of such written notice, Borrower shall be deemed to have converted any
LIBOR Balance to a Stated Rate Balance under this Note, on either (i) the last
day of the then-current Interest Period applicable to such LIBOR Balance if Bank
may lawfully continue to maintain and fund such LIBOR Balance to such day, or
(ii) immediately if Bank may not lawfully continue to maintain such LIBOR
Balance to such day.
(c) If any governmental authority, central bank, or other
comparable authority,
Revolving Promissory Note - Page 6 of 10
29
shall at any time after the date of this Note impose, modify, or deem applicable
any reserve (including, without limitation, any imposed by the Board of
Governors of the Federal Reserve System but excluding any reserve requirement
included in any of this Note), special deposit, or similar requirement against
assets of, deposits with or for the account of, or credit extended by, Bank, or
shall impose on Bank (or its LIBOR lending office) or the interbank Eurodollar
market any other condition affecting its LIBOR Balance, this Note, or its
obligation to make LIBOR advances; and the result of any of the foregoing is to
increase the cost to Bank of making or maintaining its LIBOR Balance, or to
reduce the amount of any sum received or receivable by Bank under this Note by
an amount reasonably deemed by Bank to be material; then, within five (5) days
after demand by Bank, Borrower shall pay to Bank, such additional amount or
amounts as will compensate Bank for such increased cost or reduction. Bank will
promptly notify Borrower and Bank of any event of which it has knowledge,
occurring after the date hereof, which will entitle Bank to compensation
pursuant to this Subsection. A certificate of Bank claiming compensation under
this Subsection and setting forth the additional amount or amounts to be paid to
it hereunder shall be conclusive in the absence of manifest error. If Bank
demands compensation under this Subsection, then Borrower may at any time, upon
at least five (5) Business Days prior notice to Bank, either (i) repay in full
the then outstanding LIBOR Balance, together with accrued interest thereon to
the date of prepayment, or (ii) convert such LIBOR Balance to Stated Rate
Balance in accordance with the provisions of this Note; provided, however, that
Borrower shall be liable for any Consequential Loss arising pursuant to such
actions.
(d) If (i) the obligation of Bank to permit LIBOR Balance has
been suspended pursuant to subsections (a) or (b) above or (ii) Bank has
demanded compensation under subsection (c) above, then, unless and until Bank
notifies Borrower that the circumstances giving rise to such suspension or
demand for compensation no longer apply, all advances on this Note which would
otherwise be made by Bank as LIBOR Balance shall be made instead as Stated Rate
Balance.
BUSINESS LOAN. Borrower agrees that no advances under this Note shall
be used for personal, family, or household purposes, and that all advances
hereunder shall be used solely for business, commercial, investment, or other
similar purposes.
EVENT OF DEFAULT. Borrower agrees that upon the occurrence of any one
or more of the following events of default ("Event of Default"):
(a) failure of Borrower to pay any installment of principal of or
interest on this Note when due; or
(b) the occurrence of any Event of Default specified in the Loan
Agreement;
Revolving Promissory Note - Page 7 of 10
30
and the expiration of any notice and cure period provided in the Loan Agreement,
the holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid interest
on this Note at once due and payable, (ii) refuse to advance any additional
amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv)
pursue any and all other rights, remedies, and recourses available to the holder
hereof, including but not limited to any such rights, remedies, or recourses
under the Loan Documents, at law or in equity, or (v) pursue any combination of
the foregoing.
NO WAIVER BY BANK. The failure to exercise the option to accelerate the
maturity of this Note or any other right, remedy, or recourse available to the
holder hereof upon the occurrence of an Event of Default hereunder shall not
constitute a waiver of the right of the holder of this Note to exercise the same
at that time or at any subsequent time with respect to such Event of Default or
any other Event of Default. The rights, remedies, and recourses of the holder
hereof, as provided in this Note and in any other Loan Documents, shall be
cumulative and concurrent and may be pursued separately, successively, or
together as often as occasion therefore shall arise, at the sole discretion of
the holder hereof. The acceptance by the holder hereof of any payment under this
Note which is less than the payment in full of all amounts due and payable at
the time of such payment shall not (i) constitute a waiver of or impair, reduce,
release, or extinguish any right, remedy, or recourse of the holder hereof, or
nullify any prior exercise of any such right, remedy, or recourse, or (ii)
impair, reduce, release, or extinguish the obligations of any party liable under
any of the Loan Documents as originally provided herein or therein.
USURY SAVINGS CLAUSE. This Note and all other Loan Documents are
intended to be performed in accordance with, and only to the extent permitted
by, all applicable usury laws. If any provision hereof or of any other Loan
Documents or the application thereof to any person or circumstance shall, for
any reason and to any extent, be invalid or unenforceable, neither the
application of such provision to any other person or circumstance nor the
remainder of the instrument in which such provision is contained shall be
affected thereby, and all provisions shall be enforced to the greatest extent
permitted by law. It is expressly stipulated and agreed to be the intent of the
holder hereof to at all times comply with the usury and other applicable laws
now or hereafter governing the interest payable on the indebtedness evidenced by
this Note. If the applicable law is ever revised, repealed, or judicially
interpreted so as to render usurious any amount called for under this Note or
under any other Loan Documents, or contracted for, charged, taken, reserved, or
received with respect to the indebtedness evidenced by this Note, or if Bank's
exercise of the option to accelerate the maturity of this Note or if any
prepayment by Borrower results in Borrower having paid any interest in excess of
that permitted by law, then it is the express intent of Borrower and Bank that
all excess amounts theretofore collected by Bank be credited on the principal
balance of this Note (or, if this Note and all other indebtedness arising under
or pursuant to the other Loan Documents have been paid in full, refunded to
Borrower), and the provisions of this Note and the other Loan Documents
immediately be deemed reformed and the amounts thereafter collectable hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the then-
Revolving Promissory Note - Page 8 of 10
31
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid, or agreed to be paid, by
Borrower for the use, forbearance, detention, taking, charging, receiving, or
reserving of the indebtedness of Borrower to Bank under this Note or arising
under or pursuant to the other Loan Documents shall, to the maximum extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
usury ceiling from time to time in effect and applicable to such indebtedness
for so long as such indebtedness is outstanding. To the extent federal law
permits Bank to contract for, charge, or receive a greater amount of interest,
Bank will rely on federal law instead of Texas Finance Code, as supplemented by
Texas Credit Title, for the purpose of determining the Maximum Rate.
Additionally, to the maximum extent permitted by applicable law now or hereafter
in effect, Bank may, at its option and from time to time, implement any other
method of computing the Maximum Rate under the Texas Finance Code, as
supplemented by Texas Credit Title, or under other applicable law by giving
notice, if required, to Borrower as provided by applicable law now or hereafter
in effect. Notwithstanding anything to the contrary contained herein or in any
other Loan Documents, it is not the intention of Bank to accelerate the maturity
of any interest that has not accrued at the time of such acceleration or to
collect unearned interest at the time of such acceleration.
APPLICABILITY OF LAWS. In no event shall Chapter 346 of the Texas
Finance Code (which regulates certain revolving loan accounts and revolving
tri-party accounts) apply to this Note. To the extent that Chapter 303 of the
Texas Finance Code is applicable to this Note, the "weekly ceiling" specified in
Chapter 303 is the applicable ceiling; provided that, if any applicable law
permits greater interest, the law permitting the greatest interest shall apply.
ATTORNEYS FEES. If this Note is placed in the hands of an attorney for
collection, or is collected in whole or in part by suit or through probate,
bankruptcy, or other legal proceedings of any kind, Borrower agrees to pay, in
addition to all other sums payable hereunder, all costs and expenses of
collection, including but not limited to reasonable attorneys fees.
BORROWER'S WAIVER. Except as expressly provided herein, Borrower and
any and all endorsers and guarantors of this Note severally waive presentment
for payment, notice of nonpayment, protest, demand, notice of protest, notice of
intent to accelerate, notice of acceleration and dishonor, diligence in
enforcement and indulgences of every kind and without further notice hereby
agree to renewals, extensions, exchanges or releases of collateral, taking of
additional collateral, indulgences, or partial payments, either before or after
maturity.
Revolving Promissory Note - Page 9 of 10
32
APPLICABLE LAW. THIS NOTE HAS BEEN EXECUTED UNDER, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS,
EXCEPT AS SUCH LAWS ARE PREEMPTED BY APPLICABLE FEDERAL LAWS.
CAPTIONS. Captions used herein are for convenience only and should not
be used in interpreting this Note.
GREKA AM, INC.
By:
--------------------------------------
Xxxxxxx X. Xxxxxxx, Vice President
This note was prepared by:
XXXXXX, XXXXXX & XXXXX, P.C.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000
(000) 000-0000
Revolving Promissory Note - Page 10 of 10
33
EXHIBIT "B"
QUARTERLY COMPLIANCE CERTIFICATE
Pursuant to the Loan Agreement (the "Loan Agreement") dated March 1,
2001, among GREKA AM, INC. ("Borrower"), a Colorado corporation; GREKA ENERGY
CORPORATION ("Guarantor"), a Colorado corporation; and BANK OF TEXAS, NATIONAL
ASSOCIATION ("Bank"), Borrower and Guarantor have reviewed their activities for
the fiscal quarter ending on ______________________, and hereby represent and
warrant to Bank that the information set forth below, calculated on a
consolidated basis, is true and correct as of that date (capitalized terms below
have the meanings assigned in the Loan Agreement):
1. Financial Covenants. Required Actual
(a) Debt Service Coverage Ratio (minimum) 1.25 to 1.0 _____ to 1.0
to be tested quarterly
Net Income $__________
DD&A $__________
Gains or losses $__________
CMLTD $__________
MCRs $__________
For the purposes of this calculation, "Debt Service Coverage Ratio" is defined
as the ratio of (1) the sum of Borrower's most recent quarter's net income, plus
depletion, depreciation, amortization, and other non-cash charges for the same
period, minus gains from the sale of assets (or plus losses from the sale of
assets), divided by (2) the sum of the current maturities of long term debt
(excluding the Revolving Loan) for the quarter, plus the monthly commitment
reductions for the quarter as required by Bank under Section 3(c) above.
(b) Interest Coverage Ratio (minimum) 3.0 to 1.0 _____ to 1.0
to be tested quarterly
EBITDA $__________
Interest expense $__________
For the purpose of this calculation, "Interest Coverage Ratio" is defined as the
ratio of (1) the sum of Borrower's most recent four-quarter net income, plus
interest expense, income taxes, depreciation, depletion, amortization, and other
non-cash charges for the same period, divided by (2) interest expense.
34
(c) Current Ratio (minimum) 1.0 to 1.0 _____ to 1.0
to be tested quarterly
Current Assets $__________
Current Liabilities $__________
For the purpose of this calculation, "Current Ratio" is defined as the ratio of
(1) Borrower's current assets, plus availability on the Revolving Loan, divided
by (2) current liabilities (excluding current maturities of long-term debt).
2. The undersigned officer hereby certifies on behalf of Borrower and
Guarantor that (a) Borrower and Guarantor are in compliance with all covenants
of the Loan Agreement, and (b) as of the effective date of this compliance
certificate and the date received by Bank, no Event of Default or event that
would, with the lapse of time or giving of notice, or both, be an Event of
Default, has occurred. The Revolving Note and Loan Agreement are acknowledged,
ratified, confirmed, and agreed by Borrower and Guarantor to be valid,
subsisting, and binding obligations. Borrower agrees that there is no right to
set off or defense to payment of the Revolving Note. Guarantor agrees that there
is no right to set off or defense to payment under the Guaranty.
Dated , 200 .
-------------------- --
BORROWER: GUARANTOR:
GREKA AM, INC. GREKA ENERGY CORPORATION
By: By:
------------------------------------- ------------------------------
Name: Name:
----------------------------------- ----------------------------
Title: Title:
---------------------------------- ---------------------------
