Exhibit 4.2
ADDENDUM TO MEMORANDUM OF TERM LOAN AGREEMENT
This shall amend the Memorandum of Term Loan Agreement ("Memorandum
Agreement") between Xxxxx X. Xxxxxxx ("Xxxxxxx") and Edge Joint Venture II
("Edge") dated December 20, 1994 which sets forth the terms and provisions of a
$2,000,000.00 loan/line of credit between Xxxxxxx and Edge ("the Loan").
1. With respect to the Western 3-D Grid, Buckeye Project Area, Spartan,
Spartan Extension, Belco (BTA1 and BTA2) Hiawatha and any other 3-D grid
areas identified and developed by Edge prior to the Change of Interest
Date (the "3-D Grids"), Xxxxxxx shall receive a .1% of 8/8ths overriding
royalty interest ("ORRI") and a 1% of 8/8ths reversionary working
interest after payout ("RWI") in all xxxxx (and the associated leases
and/or unit) located in Prospects within such areas where the well is
proposed (either by Edge or its working interest partners) prior to the
date of the Change of Interest Date. In all Prospects which are subject
to the Memorandum Agreement and which cover lands located outside of
such 3-D Grid areas, Xxxxxxx shall receive his .2% of 8/8ths ORRI and 1%
of 8/8ths RWI on all xxxxx and related leases in such Prospects where
the well is proposed prior to the Change of Interest Date. The "Change
of Interest Date" is defined as the date the Loan is paid in full, but
if the loan is paid in full prior to the date of an event causing
dissolution of the Joint Venture, the Change of Interest Date shall be
the date of dissolution of the Joint Venture. Xxxxxxx'x XXXX, however,
will only apply to Prospects that have not been marketed as of December
20, 1994 or which were not subject to a prior loan agreement between
Xxxxxxx and Edge (ie. for example, Tyler). On Prospects which were
marketed by Edge prior to December 20, 1994, Xxxxxxx'x RWI shall apply,
but the ORRI shall not apply, in accordance with the terms of the
December 20, 1994 Memorandum Agreement.
2. At the Change of Interest Date, Xxxxxxx and Edge shall create an AMI
(the "3-D AMI") consisting of all acreage in which Edge or its partners
as of the Change of Interest Date (a) have shot or acquired 3-D
geophysical data, or (b) have a firm contractual commitment to permit
or shoot 3-D geophysical data. A separate 3-D AMI shall be created for
each such 3-D area. From and after the Change of Interest Date, Xxxxxxx
shall be entitled to receive (i) .1% of 8/8ths ORRI and 1/2 of 1% of
8/8ths RWI in all xxxxx and leases in all geological Prospects located
within each such 3-D AMI area where the well is proposed after the
Change of Interest Date (except for the xxxxx and leases in which
Xxxxxxx'x interests have vested pursuant to Paragraph No. 1 above), and
(ii) 1/2 of .2% ORRI and 1/2 of 1% RWI on all such xxxxx in all
Prospects and leases which are subject to the Memorandum Agreement and
which cover lands located outside of such 3-D AMI areas (except for the
xxxxx and leases in which Xxxxxxx'x interests have vested pursuant to
Paragraph No. 1 above). Xxxxxxx'x rights in each such 3-D AMI and
Prospect shall continue in perpetuity as long as Edge owns any interest
therein.
3. Notwithstanding the foregoing, on any Prospect located entirely outside
of the 3-D Grids described in Paragraph 1 above and the 3-D AMIs
described in Paragraph 2 above, where Edge promotes a third-party
investor by retaining a reversionary, carried or other promoted
interest, then Xxxxxxx'x XXXX shall be his full, regular .2% ORRI (as
set forth
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in the Memorandum Agreement) with respect to xxxxx proposed prior to the
Change of Interest Date and 1/2 of .2% ORRI with regard to xxxxx
proposed thereafter with respect to such Prospect. On all Prospects
located inside such 3-D AMI's and 3-D Grids, the ORRI of Xxxxxxx shall
be .1% notwithstanding any promote by Edge of a third party.
4. After the Change of Interest Date, Xxxxxxx shall not be entitled to any
additional interests in any other Edge Prospects or 3-D areas other than
those described in the Memorandum Agreement, as herein amended, and in
the AMIs created pursuant to Paragraph 2 hereof.
5. In cases where Edge acquires less than 100% of the outstanding working
interest due to the existence of a pre-existing, outstanding, non-
promoted leasehold owner, the Xxxxxxx XXXX and RWI shall be reduced
proportionately to the working interest acquired by Edge in each lease
in such Prospect. The ORRI and RWI of Xxxxxxx shall be subject to
pooling, unitization and farmout by Edge in the same manner as Edge's
other internal ORRI's and RWI's.
6. With respect to the Xxxx Shallow Prospect and Four Sisters Prospect,
Xxxxxxx shall be entitled to receive one-half of his regular interests,
or .1% overriding royalty interest and .5% reversionary working
interest, on a prospect-by-prospect basis for each shallow Prospect
developed by Edge. In all other respects such interests in such shallow
Prospects shall be computed in the same manner as set forth herein.
7. "Payout" for purposes of Xxxxxxx'x RWI shall be computed separately on
each Prospect. "Prospect" as used herein means a separate reservoir area
that contains, or based on the application of sound geological and/or
geophysical principles is reasonably believed to have the potential to
contain, a reservoir of oil and/or gas, and will be limited in depth to
the base of the particular strata or formation involved. For purposes of
calculating payout, Edge shall attempt to allocate the cost to acquire
the 3-D seismic data for each 3-D Grid or AMI equally between the first
ten (10) successful prospects drilled in each 3-D Grid or 3-D AMI. By
"successful prospect" it is meant a prospect which is drilled and with
respect to which the initial test well is capable of producing oil or
gas in commercial quantities. However, Edge reserves the right to adjust
and reallocate the 3-D seismic costs in any manner it deems reasonable
so that all such costs are recovered prior to the Xxxxxxx RWI becoming
effective as regards and Prospects and production therefrom situated
inside of the applicable 3-D Grid or AMI. Payout will be calculated by
Edge in the usual manner taking into account the allocated cost of
seismic, the costs of acquiring leases, and brokerage together with the
cost of drilling, testing, completing and operating each prospect until
payout, and shall occur when Edge has recouped all such costs from all
sources related to the prospect including, without limitations, any
prospects sales.
8. By way of clarification of Xxxxxxx'x rights as set forth in Paragraph 7
of the December 20, 1994 Memorandum Term Loan Agreement, in any
transaction which involves a public offering and in which the assets of
Edge Petroleum Corporation or Edge Group II Limited Partnership are
combined, Xxxxxxx shall have the right to sell his proved producing
(both proved developed producing and proved developed non-producing)
reserves in return for stock of Edge Petroleum Corporation or the new
entity based on
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the value of such proved reserves net to Xxxxxxx'x interest as
determined by the same June 30, 1996 Xxxxx Xxxxx report or other similar
independent petroleum engineering evaluation report as is used to value
Edge Joint Venture II's reserves. Such valuation will be made at the
same time as Edge Petroleum Corporation's interests are valued.
Xxxxxxx'x interests in possible reserves or non-producing properties
including AMI rights shall not be contributed to the new entity, and
Xxxxxxx will receive no value therefor. Xxxxxxx will be given the option
to receive a number of shares of stock in the new entity equal to the
value of his proved reserves (which shall be the present value of
estimated future net revenues after income tax discounted at 10% as
determined by the above Xxxxx Xxxxx report) contributed to the new
entity divided by the per share offering price to the public. Edge
Petroleum Corporation or the new entity may offer the securities to
Xxxxxxx by means of a private placement under relevant securities laws.
9. Xxxxxxx'x XXXX and RWI in any 3-D area or Prospect covered hereby which
are subject to this Agreement must vest, if at all, prior to the last to
die of all of the presently living descendants of Xxxxxx X. Xxxxxxx,
father of the late President of the United States, plus a period of
twenty-one (21) years.
In all other respects the Memorandum Agreement as previously amended and
as amended hereby, shall remain in full force and effect in accordance with its
terms. This Agreement is binding on the successors and assigns of the parties
hereto, and may be executed in counterparts.
EXECUTED THIS __________ DAY OF ___________, 1996.
EDGE JOINT VENTURE II
BY EDGE PETROLEUM CORPORATION,
MANAGING PARTNER
By /s/ Xxxx X. Xxxxxxx
_____________________________________
Xxxx X. Xxxxxxx
President/C.E.O.
By /s/ Xxxxx X. Xxxxxxx
_____________________________________
Xxxxx X. Xxxxxxx
AGREED:
EDGE GROUP II LIMITED PARTNERSHIP
By: /s/ Xxxx Xxxxxxxxx
______________________________
Xxxx Xxxxxxxxx
General Partner
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TERMS OF PROPOSED $2,000,000 LOAN/LINE OF CREDIT
BETWEEN XXXXX X. XXXXXXX AND EDGE JOINT VENTURE II
1. Existing balance of $350,000 loan rolled up into new loan.
2. $650,000 new advance to be funded by February 1, 1995.
3. $1,000,000 line of credit during term of loan agreement. Requires 30
day notice to drawdown. Partial drawdowns are permitted.
4. Interest Rate: 10% per annum payable monthly in arrears on outstanding
principal amount. Interest payments due on first of each month or the
next day that is not a Saturday, Sunday or legal holiday.
5. Term of Loan: Due in full on April 8, 1996. At Edge Joint Venture II's
option, it may extend the due date to coincide with the end of the
"Windup Period" of the Edge Joint Venture II, not to exceed two years
from April 8, 1996. The loan can be prepaid, but Xxxxx X. Xxxxxxx will
be entitled to receive the RWI and ORRI set forth herein on any
prospects which are leased or commenced to be leased during the term of
the Edge Joint Venture II and including the "Windup Period", but with
regard to any prospect which Edge Joint Venture II transfers to Edge
Petroleum Corporation, Edge Group II L.P. or any other party during the
"Windup Period", Xxxxx X. Xxxxxxx'x RWI and ORRI will only apply to the
leases and interests in leases in such prospects which Edge Joint
Venture II owned as of the date of such transfer, and if such leases
cover less than 100% of the leasehold estate in the tracts included in
the prospect, Xxxxx X. Xxxxxxx'x interest shall be reduced
proportionately.
6. Security: A lien on all assets of Edge Joint Venture II subject to the
rights of RIMCO or any party who succeeds to RIMCO's position as a first
lienholder.
7. Xxxxx X. Xxxxxxx will have the option to participate, on a net basis, up
to the amount of his loan balance in any new permanent debt financing
that occurs before the termination of the Joint Venture or within 6
months after the termination. By "net" basis it is meant that Xxxxx X.
Xxxxxxx'x participation will not be diluted by any brokerage or
underwriting fees or expenses associated with any such new debt
financing. If as a result of the termination of the Edge Joint Venture
II, Edge Petroleum Corporation elects to enter into a transaction
whereby the oil and gas interests attributable to the limited partner
interests of Edge Group II L.P. are rolled up into Edge Petroleum
Corporation or another entity in return for stock, Xxxxx X. Xxxxxxx
shall have the option to roll in his oil and gas interests on the same
valuation basis as the limited partners. Such
Terms of Proposed $2,000,000 Loan/Line of Credit
between Xxxxx X. Xxxxxxx and Edge Joint Venture II
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valuation will be based on the same independent engineering evaluation
report (ie., Xxxxx Xxxxx or other independent petroleum valuation
consultant) as is used to value the Edge Group II L.P. limited partner
oil and gas interests.
8. Xxxxx X. Xxxxxxx will earn the following in all prospects undrilled as
of the date hereof that are leased or commenced to be leased during the
term of the Edge Joint Venture II and including the "Windup Period":
a. 1% of 8/8ths reversionary working interest; and
b. .2% of 8/8ths overriding royalty interest on all prospects that
have not yet been marketed as of the date hereof.
Xxxxx X. Xxxxxxx understands that his right to receive an assignment of
his interests will be subject to obtaining any necessary consents or
approvals. If Edge is unable to obtain the necessary consents or
approvals to the assignments of the Xxxxxxx interest, Edge will account
to Xxxxx X. Xxxxxxx monthly, on a net profits basis or other mutually
agreeable arrangement for the equivalent economic interest that Xxxxx X.
Xxxxxxx would be entitled to receive had such assignments been approved.
9. The reversionary working interest in any particular respect will be
reduced proportionately in the event Edge retains, net to its interest
in the prospect, less than 18.75% working interest (regardless of
whether such 18.75% working interest consists of reversionary interest,
working interest, carried interest or other type of working interest) or
a combination of any of the foregoing. In any prospect in which Edge
participates on an arms-length initial joint venture basis with a third
party partner whose interest is not promoted by Edge, and, as a result
of such joint venture participation receives an initial assignment in
the prospect leases of less than 100%, then the .2% ORRI of Xxxxx X.
Xxxxxxx shall be reduced proportionately to the percentage interest in
the prospect leases which Edge receives. The interests earned by Xxxxx
X. Xxxxxxx will be assigned on Edge's usual form and will be subject to
pooling, unitization and farmout by Edge in the same manner as other
interests in the prospect leases are. Payout of the Xxxxx X. Xxxxxxx 1%
RWI will be computed in the same manner as payout of Edge Joint Venture
II's reversionary interest. In cases where Edge acquires a working
interest, payout of the Xxxxx X. Xxxxxxx 1% RWI will occur when Edge
recovers 100% of the costs of acquiring such working interest.
On any prospect where Edge acquires an interest in existing production
or proven reserves, Xxxxx X. Xxxxxxx shall be entitled to receive his 1%
RWI and .2% ORRI in such existing production and/or proved reserves
reduced proportionately to the interest which Edge acquires therein. The
Xxxxx X. Xxxxxxx RWI will be effective after Edge recovers all of its
costs in connection with the acquisition of such interests.
Terms of Proposed $2,000,000 Loan/Line of Credit
between Xxxxx X. Xxxxxxx and Edge Joint Venture II
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10. Xxxxx X. Xxxxxxx will be entitled to have access to all of Edge's
records, well reports, engineering and accounting information relating
to the properties in which he has an interest. In addition, Edge will
furnish Xxxxx X. Xxxxxxx at least quarterly a copy of its well status
report.
11. Edge Joint Venture II will be the sole obligor on the Note.
12. This memorandum shall exclude and not apply to any prospects in which
Xxxxx X. Xxxxxxx currently has an interest by virtue of his prior
contracts with Edge, any prospects which are currently producing or
drilling or have been drilled, and including the AMI's for such
prospects. Such excluded prospects consist of but are not limited to the
those prospects set forth in Exhibit "A" attached hereto.
13. Effective date of this memorandum of understanding is December 20, 1994.
References in this memorandum to "Edge" shall refer to Edge Joint
Venture II. This memorandum shall be subject to the terms and provisions
of the formal Note, Deed of Trust and other security agreements entered
into in connection with this loan.
/s/ XXXX X. XXXXXXX /s/ XXXXX X XXXXXXX
-------------------------- -------------------------------
Xxxx X. Xxxxxxx Xxxxx X. Xxxxxxx
SUBORDINATE PROMISSORY NOTE
---------------------------
$2,000,000.00 January 3,1995
FOR VALUE RECEIVED, the undersigned, Edge Joint Venture II ("Maker")
promises to pay to the order of Xxxxx X. Xxxxxxx ("Payee"), at his address 000
Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000, the aggregate principal sum from time
to time outstanding hereunder, not to exceed the lesser of (a) principal sum of
Two Million and No/100 Dollars ($2,000,000.00), and (b) the aggregate amount of
advances made hereunder as recorded by Payee on Schedule I attached hereto,
together, in each case, with interest on said principal equal to ten percent
(10%) per annum.
This Note shall be due and payable as follows:
Monthly payments of interest only, at 10% per annum are payable in
arrears on the outstanding principal balance hereunder and are due and
payable on the first day of each month, commencing with February 1, 1995
and monthly thereafter, or if the first day of each month is a Saturday,
Sunday, or legal holiday, then the next day that is not a Saturday,
Sunday, or legal holiday. The entire unpaid principal balance and
accrued interest shall be due and payable in full on April 8, 1996. At
Maker's option, however, Maker may extend the due date of this Note to
coincide with the end of the "Wind-up Period" of the Edge Joint
Venture II partnership, but such extended due date shall not be later
than April 8, 1998.
Interest charges will be calculated on amounts advanced hereunder on the
actual number of days said amounts are outstanding on the basis of a 365/366 day
year, as the case may be. It is the intention of Maker and Payee to conform
strictly to all applicable usury laws. It is therefore agreed that (i) in the
event that the maturity hereof is accelerated by reason of an election by Payee,
all unearned interest shall be canceled automatically or, if theretofore paid,
shall either be refunded to Maker or credited on the unpaid principal amount of
this Note, whichever remedy is chosen by Payee, (ii) the aggregate of all
interest and other charges constituting interest under applicable law and
contracted for, chargeable or receivable under this Note or otherwise in
connection with the transaction for which this Note is given shall never exceed
the maximum amount of interest, nor produce a rate in excess of the maximum rate
of interest that Payee may charge Maker under applicable law and in regard to
which Maker may not successfully assert the claim or defense of usury, and (iii)
if any excess interest is provided for, it shall be deemed a mistake and the
same shall either be refunded to Maker or credited on the unpaid principal
amount hereof and this Note shall be automatically deemed reformed so as to
permit only the collection of the maximum legal non-usurious rate and amount of
interest. All sums paid or agreed to be paid to the holder of this Note for the
use, forbearance or detention of the indebtedness evidenced hereby to the full
extent allowed by applicable law, shall be amortized, prorated, allocated and
spread through the full term of this Note.
In the event of default in the payment of any installment of principal
or interest when due hereunder, or upon the occurrence of any event of default
under any document or instrument executed in connection with or as security for
this Note, or upon failure in performance of any covenant, agreement, or
obligation to be performed under any documents executed in connection with or as
security for this Note, subject to the terms and provisions of that certain
Subordination Agreement between Payee and RIMCO Partners, X.X. XX and RIMCO
Partners, L.P. III (the "Subordination Agreement"), Payee may declare the
entirety of this Note, principal and interest, immediately due and payable
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without any notice, and failure to exercise said option shall not constitute a
waiver on the part of Payee of the right to exercise the same at any other time.
All past due principal and interest on this Note shall bear interest
from maturity of such principal or interest (in whatever manner same may be
brought about) until paid at the lesser of 18% per annum or the highest
non-usurious rate allowed by applicable law. To the extent such highest
non-usurious interest rate chargeable hereunder is determined by reference to
the laws of the State of Texas, same shall be determined by reference to the
indicated (weekly) rate ceiling (as defined and described in Texas Revised Civil
Statutes, Article 069-1.04, as amended) at the applicable time in effect. In
the event default is made in the payment of this Note in whatever manner its
maturity may be brought about, and it is placed in the hands of an attorney for
collection, or is collected through probate, bankruptcy or other proceedings,
Maker promises to pay all costs and reasonable attorneys' fees incurred by Payee
as a result thereof.
Maker and every surety, endorser and guarantor of this Note waive grace,
notice, demand, presentment for payment, notice of non-payment, protest, notice
of protest, notice of intention to accelerate, notice of acceleration of the
indebtedness due hereunder and all other notice, filing of suit and diligence in
collecting this Note, and the enforcing of any of the security rights of Payee,
and consent and agree that the time of payment hereof may be extended without
notice at any time and from time to time, and for periods of time whether or not
for a term or terms in excess of the original term hereof, without notice or
consideration to, or consent from, any of them.
Subject to the terms and provisions of the Subordination Agreement, this
Note may be prepaid, in whole or in part, at any time without penalty.
Any such amounts so paid and received by Payee or other holder hereof
shall be applied to any indebtedness of Maker to Payee in such order as Payee
shall elect in its sole discretion.
The indebtedness evidenced by this Note is secured by a Mortgage, Deed
of Trust, Assignment of Production, Security Agreement and Financing Statement
on all of the oil and gas properties and other assets of Maker as described in a
deed of trust of even date herewith between Maker and Payee. Pursuant to the
Subordination Agreement, the principal and interest on this Note and the liens
securing this Note are junior, subordinate, and subject to (a) the indebtedness
owning to RIMCO Partners, X.X. XX, RIMCO Partners, L.P. III, and RIMCO/NYL, L.P.
and their successors and assigns (collectively, the "Purchasers") pursuant to
their Note Purchase Agreement with Maker (15.5% Senior Secured Notes) dated
effective April 8, 1991 as amended from time to time and (b) all liens, security
interests, assignments and other rights and interests granted to the Purchasers
under or in connection with such Note Purchase Agreement.
This Note is made pursuant to a memorandum of understanding between
Maker and Payee dated December 20, 1994, as amended by Addendum dated January 3,
1995. The initial principal advance under this Note in the amount of $500,000
was made on December 23, 1994 (advanced by Xxxxx X. Xxxxxxx, individually), and
the second principal advance in the amount of $483,727.33 (advanced by Xxxxx X.
Xxxxxxx XXX) was made on January 10, 1995. Additional drawdowns of principal
may be requested by Maker and will be funded by Payee within 30 days after Maker
delivers to Payee at the address set forth above a funding drawdown request. If
Payee has not sold his stock in Pinpoint Communications, the last $500,000 of
principal amount to be advanced hereunder will be advanced at Payee's option.
Notwithstanding any other provision of this Note, the obligation to pay
the indebtedness represented by this Note shall be nonrecourse to and without
personal liability of the partners in Maker, and their successors and assigns
for all purposes. The Payee and its successors and assigns agree to look only
to Maker and its assets for
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repayment of any and all of the indebtedness herein and not to any partner of
Maker or their successors or assigns.
The terms and provisions hereof shall be binding upon and inure to the
benefit of Maker and Payee and their respective successors and assigns.
EXECUTED EFFECTIVE the day and year first written above.
"Maker":
----
EDGE JOINT VENTURE II
BY: EDGE PETROLEUM CORPORATION,
its Managing Partner
By: /s/ XXXX X. XXXXXXX
______________________________
Xxxx X. Xxxxxxx, President
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