FIRST AMENDMENT TO LOAN AGREEMENT
EXHIBIT
10.14
FIRST
AMENDMENT
TO
THIS
FIRST AMENDMENT TO LOAN AGREEMENT (this “Amendment”) is entered into as of the
9th
day of
August 2007, by and among CHANCELLOR GROUP, INC., a Nevada corporation, whose
address for purposes of this Agreement is 000 X. Xxxxx Xxxx, Xxxxx, Xxxxx 00000
(“Chancellor”), GRYPHON PRODUCTION COMPANY, LLC, a Texas limited liability
company, whose address for purposes of this Agreement is P. O. Xxx 000, Xxxxx,
Xxxxx 00000 (“Production”), and GRYPHON FIELD SERVICES, LLC, a Texas limited
liability company, whose address for purposes of this Agreement is P. O. Xxx
000, Xxxxx, Xxxxx 00000 (“Field Services”)(Chancellor, Production, and Field
Services being collectively referred to herein as the “Borrowers”), and CAPWEST
RESOURCES, INC., a Texas corporation, whose address for purposes of this
Agreement is 000 Xxxx Xxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000 (the
ALender@).
NOTICE
IS
TAKEN OF THE FOLLOWING:
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A.
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Borrowers
and Lender have previously entered into that certain Loan Agreement,
dated
as of April 13, 2007 (the “Loan Agreement”). Capitalized terms not
otherwise defined, or re-defined herein, are defined in the Loan
Agreement.
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B.
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The
Loan Agreement provides for an advancing line of credit/term loan
in the
amount of Ten Million and No/100 Dollars ($10,000,000.00), with an
existing Borrowing Base in the amount of Three Million Seven Hundred
Thousand ($3,700,000.00) (the “Loan”). The Loan is evidenced by an
Advancing Line of Credit/Term Note, dated as of April 13, 2007, executed
by the Borrowers in favor of the Lender (the “Note”). The Note is
collateralized by second lien Deeds of Trust covering oil and gas
properties in Xxxxxx and Xxxx Counties, Texas (collectively, the
“Deeds of
Trust”), as well as equipment
and other personal property identified in and covered by the Security
Agreement, and the Warrants.
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C.
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The
Borrowers have asked the Lender to modify the Loan to reflect an
increase
in the Borrowing Base from Three Million Seven Hundred Thousand Dollars
($3,700,000.00) to Three Million Nine Hundred Fifty Thousand Dollars
($3,950,000.00), and the Lender has agreed to that request. In
consideration of the Lender’s consent to their requested increase in the
Borrowing Base, the Borrowers have agreed to the modification of
various
covenants found in the Loan Agreement.
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D.
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The
Borrowers and the Lender have agreed to execute this Amendment in
order to
recognize the increase in the Borrowing Base of the Loan and the
modification of various covenants found in the Loan Agreement.
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NOW,
THEREFORE, for and in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
parties hereto agree to amend the terms of the Loan Agreement as
follows:
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1.
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Definitions.
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Unless
otherwise specifically defined herein, all defined terms used in this Amendment
shall have their respective meanings set forth in the Loan Agreement.
Capitalized terms not otherwise defined herein shall have the same definitions
assigned to them under the terms of the Loan Agreement.
2. Amendments.
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A.
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The
definition of “Contractual
Rights”
found
in the Loan Agreement is hereby amended by deleting it in its entirety
and
substituting the following:
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“Contractual
Rights”
means
that certain personal property interest in contractual rights, created pursuant
to the terms of the Loan Agreement, which shall now be increased from fifteen
percent (15%) to twenty percent (20%) of Borrowers’ Gross Oil and Gas Proceeds,
as defined in the Loan Agreement, derived and produced from Borrowers’ Mineral
Interests in those certain oil and gas leases and xxxxx located in Xxxxxx and
Xxxx Counties, Texas, as set forth in the Loan Agreement. The additional five
percent (5%) of such proceeds shall be conveyed to Lender by Borrowers under
that certain Xxxx of Sale and Assignment of Contractual Rights, dated of even
date herewith, by and among Borrowers and Lender.
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B.
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Subsection
2.2 (a) of the Loan Agreement is hereby amended by deleting it in
its
entirety and substituting the
following:
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2.2
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Borrowing
Base.
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(a)
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The
Borrowing Base is hereby established at
$3,950,000.00.
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C.
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Article
VI of the Loan Agreement is hereby amended by adding the following
sections:
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6.16
-
Interest
Payments.
On or
before August 20, 2007, Chancellor agrees to tender to Lender all accrued and
owing interest payments, specifically including, but not limited to those
interest payment due as of July 30, 2007, and the Borrowers agree to be
completely current on all interest payment due and accrued on or before August
30, 2007. Lender agrees to accept payments of interest only (and not payments
based upon Borrowers’ Gross Oil and Gas Proceeds) through December 30, 2007.
Thereafter, as to all payments beginning with the one to be made on January
30,
2008, payments shall be tendered based upon the formula provided in the Loan
Agreement under Section 2.4.
6.17
-
Use
of
Loan Proceeds Attributable to the Increased Borrowing Base.
Borrowers agree that out of the loan proceeds attributable to Lender’s consent
to the increase in the Borrowing Base provided for in this Amendment, Borrowers
will use a maximum of Eighty Thousand Dollars ($80,000.00) of such proceeds
for
the payment of operating expenses, and a minimum of One Hundred and Seventy
Thousand Dollars ($170,000.00) for the purpose of restoring existing oil and
gas
xxxxx to productive status.
6.18
- Equity
Contributions.
On or
before October 31, 2007, Borrowers shall have obtained an additional equity
contribution of Two Hundred Fifty Thousand Dollars ($250,000.00).
6.19
- Reduction
in General and Administrative Expenses.
Borrowers agree to reduce their consolidated general and administrative expenses
paid to members of its management team to a maximum of Twenty Thousand Dollars
($20,000.00), beginning with those payments to be tendered to such management
team members for their services during the month of August. Borrowers agree
to
maintain such general and administrative expenses at this level until such
time
as Borrowers have fulfilled the covenant stated in Section 6.18 above and have
demonstrated to the satisfaction of the Lender (acting in its sole and absolute
discretion) that the Borrowers have met, and are continuing to meet, the
forecasts for monthly production, revenues, and expenses, as stated in the
pro
forma business plan that Borrowers presented to the Lender in connection with
their application for the Loan.
6.20
-
Budgeted
Oil and Gas Sales Figures.
Borrowers agree that they will reach the budgeted oil and gas sales figures
of
5,300 barrels of oil (“BO”)(with net production to Borrowers of 4,134 BO) and
10,000 million cubic feet (“MCFG”) of natural gas production (producing net
production to Borrowers of 8,750 MCFG), forecast in their pro forma business
plan, and attain a producing well count of 245 xxxxx on or before December
31,
2007. Should Borrowers fail to fulfill this covenant, they agree to reduce
the
general and administrative expenses provide for in Section 6.19 above from
the
amount of Twenty Thousand Dollars ($20,000.00) to the amount of Ten Thousand
Dollars ($10,000.00), beginning with general and administrative expenses paid
to
management for the month of January 2008.
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6.21
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Bank
Statements from Bank of America, N.A.
Within
fifteen (15) days of the execution of this Amendment, Borrowers shall provide
Lender with copies of any and all statements that they have received from Bank
of America, N.A. in Pampa, Texas. Following the initial delivery of copies
of
such statements, Borrowers shall continue to provide Lender with such copies,
by
transmitting such a copy to Lender, via certified mail, return receipt
requested, or electronically, on or before fifteen (15) days after their receipt
of such a statement.
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D.
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Section
7.1 of the Loan Agreement is hereby amended by adding the following
sections:
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7.1
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Consolidated
Debt Service Coverage Ratio.
Beginning with the financial reports due for July 2007, Borrowers shall attempt
to comply with Section 7.1 of the Loan Agreement by not permitting their
Consolidated Debt Service Coverage Ratio to be less than 1.1 to 1.0 at any
time.
As stated in the Loan Agreement, the Consolidated Debt Service Coverage Ratio
shall be calculated monthly based upon year-to-date figures for the current
calendar year, beginning on July 1, 2007, and shall be reported to Lender by
Borrowers within forty-five (45) days after the end of each calendar month.
Should Borrowers be unable to fulfill this negative covenant or the covenant
covering the same matter in the Senior Loan Agreement, the Lender agrees to
reduce its minimum Consolidated Debt Service Coverage Ratio to the same level
as
that required by the Senior Lender, until December 31, 2007, at which point
the
Lender’s original ratio shall be automatically reinstated into the terms of this
Loan Agreement.
3. Effectiveness.
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A.
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Except
to the extent specifically amended and supplemented hereby, all of
the
terms, conditions and provisions of the Loan Agreement shall remain
unmodified, and the Loan Agreement, as amended and supplemented by
this
Amendment, is ratified and confirmed as being in full force and
effect.
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B.
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All
references to the Loan Agreement herein or in any other document
or
instrument between Borrower and Lender shall hereinafter be construed
to
be references to the Loan Agreement as modified by this
Amendment.
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4.
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Counterparts:
This Amendment may be executed in any number of counterparts, each
of
which when executed and delivered shall be deemed an original, but
all of
which constitute one instrument. In making proof of this Amendment,
it
shall not be necessary to produce or account for more than one counterpart
thereof signed by each of the parties
hereto.
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5.
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Notice
of Final Agreement:
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THIS
WRITTEN AGREEMENT AND ANY OTHER INSTRUMENTS EXECUTED BY THE PARTIES
CONTEMPORANEOUSLY HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
{The
remainder of this page is intentionally left blank. Signature page
follows.}
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| BORROWERS: | ||
| CHANCELLOR GROUP, INC. | ||
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| By: | /s/ Xxxxxxx Xxxxxxx | |
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XXXXXXX
XXXXXXX
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President
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| GRYPHON PRODUCTION COMPANY, LLC | ||
| By: | By: /s/ Xxxxxxx Xxxxxxx | |
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XXXXXXX
XXXXXXX
President
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GRYPHON
FIELD SERVICES, LLC
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| By: | By: /s/ Xxxxxxx Xxxxxxx | |
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XXXXXXX
XXXXXXX
President
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| LENDER: | ||
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CAPWEST
RESOURCES, INC.
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| By: | By: /s/ Xxxx XxXxxxxx | |
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XXXX
X. XXXXXXXX
President
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