1
EXHIBIT 4.2
LOAN AGREEMENT
$10,000,000.00
SECURED REDUCING REVOLVING LINE OF CREDIT
FROM
COMPASS BANK
TO
ENCINITAS PARTNERS LTD
June 26, 1996
2
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.01 The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.02 Advances and Payments of Principal Under the Note . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.03 Payments of Interest under the Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.04 Provisions Relating to Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.05 Advances to Satisfy Obligations of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.06 Mandatory Prepayment of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.07 Borrowing Base Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.08 Assignment of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.09 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.10 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.11 Addition of Borrowing Base Oil & Gas Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE III. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.01 Receipt of Note, Agreement and Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . . 14
3.02 Receipt of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.03 Receipt of Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.04 Receipt of Certified Copy of Partnership/Corporate Proceedings and Certificates of Incumbency . . . 14
3.05 Receipt of Certificates of Authority and Certificates of Good Standing . . . . . . . . . . . . . . . 15
3.06 UCC Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.07 Bank Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.08 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.09 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.10 Request for Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.11 Accuracy of Representations and Warranties and No Event of Default . . . . . . . . . . . . . . . . . 15
3.12 Legal Matters Satisfactory to Counsel to Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.13 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.14 Status of Record Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.15 Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.16 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.17 Documents Required for Subsequent Disbursements . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.18 McGill Bros. NCT-1 No. 74 Well and Xxxxxx #1 Well . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.01 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.02 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
i
3
PAGE
----
4.03 Valid and Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.04 Title to Borrowing Base Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.05 Oil and Gas Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.06 Interest in the Borrowing Base Oil and Gas Properties . . . . . . . . . . . . . . . . . . . . . . . 18
4.07 Oil and Gas Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.08 Producing Xxxxx . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.10 Scope and Accuracy of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.11 Liabilities, Litigation and Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.12 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.13 Authorizations and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.14 Compliance with Laws, Rules, Regulations and Orders . . . . . . . . . . . . . . . . . . . . . . . . 20
4.15 Proper Filing of Tax Returns and Payment of Taxes Due . . . . . . . . . . . . . . . . . . . . . . . 21
4.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.17 Investment Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.18 Public Utility Holding Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.19 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.01 Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.02 Maintenance and Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.03 Quarterly Unaudited Financial Statements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . 23
5.04 Annual Unaudited Financial Statements of Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.05 Annual Audited Financial Statements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.06 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.07 Statement of Material Adverse Change in Condition . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.08 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.09 Compliance with Laws and Payment of Assessments and Charges . . . . . . . . . . . . . . . . . . . . 24
5.10 Maintenance of Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.12 Initial Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.13 Subsequent Expenses of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.14 Maintenance of Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.15 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.16 Inspection of Tangible Assets/Right of Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.17 Payment of Note and Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.18 ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.19 Tangible Net Worth Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ii
4
PAGE
----
5.20 Cash Flow to Debt Service Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.21 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.22 Hazardous Substances Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.23 Changes in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.24 Operating Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.01 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.02 Guaranty of Payment or Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.03 Loans or Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.04 Mortgages or Pledges of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.05 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.06 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.07 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.08 Payment of Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.09 Cancellation of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.10 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.11 Changes in Business Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.01 Enumeration of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.02 Rights Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.01 Security Interests in Deposits and Right of Offset or Banker's Lien . . . . . . . . . . . . . . . . 32
8.02 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . 32
8.03 Notices and Other Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.04 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.05 Renewals and Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.06 No Waiver by Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.07 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.08 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.09 Incorporation of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.10 Survival Upon Unenforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.11 Rights of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.12 Amendments or Modifications of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.13 Agreement Construed as an Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.14 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.16 Controlling Provision Upon Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
iii
5
PAGE
----
8.17 Time, Place and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.18 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
EXHIBITS
EXHIBIT A Borrowing Base Properties
EXHIBIT B Compliance Certificate
EXHIBIT C Note
EXHIBIT D Security Instruments
EXHIBIT E Form of Request for Advance
SCHEDULES
3.09 Matters to be Covered by Opinion of Counsel for Borrower and
Guarantor
4.09 Purchasers of Production
4.11 Litigation
iv
6
LOAN AGREEMENT
THIS LOAN AGREEMENT, is entered into as of the 26th day of
June 1996, by and among ENCINITAS PARTNERS LTD., a Texas limited partnership
(the "Borrower"), CARRIZO PRODUCTION, INC., a Texas corporation (the
"Guarantor"), and COMPASS BANK, a Texas chartered bank (the "Bank").
W I T N E S S E T H
WHEREAS, Borrower desires to obtain a loan from Bank in order
to refinance existing debt, acquire additional oil and gas reserves, conduct
developmental drilling, and use as working capital for other ordinary business
of the partnership; and
WHEREAS, Guarantor is the sole general partner of Borrower and
owns a partnership interest in Borrower, and accordingly, Guarantor will
benefit from the loans to Borrower pursuant to this Agreement; and
WHEREAS, Bank is willing to loan such funds to Borrower in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, Bank, Borrower and Guarantor agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings indicated:
"Affiliate" means, as applied to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
1
7
"Agreement" means this Loan Agreement, as the same may be
amended or supplemented from time to time.
"Bank" has the meaning set forth in the preamble hereof.
"Borrower" has the meaning set forth in the preamble hereof.
"Borrowing Base" means the maximum loan amount supported by
the Borrowing Base Properties, as determined by Bank from time to time in
accordance with Section 2.07 of this Agreement, and which is $3,000,000.00 as
of the date of this Agreement.
"Borrowing Base Properties" means those properties of Borrower
that are to be made subject to the liens created by the Security Instruments to
secure the Obligations, which initial Borrowing Base Properties are described
in Exhibit "A" attached hereto and made a part hereof, together with such
additional Oil and Gas Properties as are subsequently added to the Borrowing
Base Properties pursuant to Section 2.11.
"Business Day" means a day other than a Saturday, Sunday or
legal holiday for commercial banks under the laws of the State of Texas.
"Compliance Certificate" means the certificate of the
president or vice president of the sole general partner of Borrower required to
be submitted to Bank from time to time pursuant to this Agreement, which
certificate shall be in the form attached hereto as Exhibit "B."
"Environmental Laws" means (a) the following federal laws as
they may be cited, referenced and amended from time to time: the Clean Air Act,
the Clean Water Act, the Safe Drinking Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Endangered Species
Act, the Resource Conservation and Recovery Act, the Occupational Safety and
Health Act, the Hazardous Materials Transportation Act, the Superfund
Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b)
any and all environmental statutes of any state in which property of Borrower
is situated, as they may be cited, referenced and amended from time to time;
(c) any rules or regulations promulgated under or adopted pursuant to the above
federal and state laws; and (d) any other federal, state or local
2
8
statute or any requirement, rule, regulation, code, ordinance or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal, handling
or release of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Event of Default" means any of the events specified in
Section 7.01 of this Agreement.
"Financial Statements" means the statements of the financial
condition of the indicated Person, as at the point in time and for the period
indicated and consisting of at least a consolidated balance sheet, income
statement and statement of cash flows, and, when the foregoing are audited,
accompanied by the certification of such Person's independent certified public
accountants and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP applied on a basis consistent with that of the
preceding year.
"Floating Rate" means the Index Rate in effect from time to
time plus three-quarters of one percent (.75%).
"GAAP" means generally accepted accounting principles, applied
on a consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their respective
successors and which are applicable in the circumstances as of the date in
question. Accounting principles are applied on a "consistent basis" when the
accounting principles observed in a current period are comparable in all
material respects to those accounting principles applied in a preceding period.
"Guarantor" has the meaning set forth in the preamble hereof.
3
9
"Guaranty" means the guaranty of all of Borrower's Obligations
to Bank arising under this Agreement, in form and substance satisfactory to
Bank, duly executed by Guarantor.
"Hazardous Substances" means flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material containing
asbestos, polychlorinated biphenyls (PCBs), toxic substances or related
materials, petroleum and petroleum products and associated oil or natural gas
exploration, production and development wastes or any substances defined as
"hazardous substances", "hazardous materials", "hazardous wastes" or "toxic
substances" under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, the Superfund Amendments and Reauthorization Act, as
amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as
amended, or any other Environmental Laws now or hereafter enacted or
promulgated by any regulatory authority or governmental body.
"Indebtedness" means, as to any Person, (a) all items of
indebtedness or liability (other than capital, surplus, deferred credits and
reserves, as such) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date as of which Indebtedness is to be determined, (b) indebtedness
secured by any mortgage, pledge or lien existing on or encumbering property
owned by the Person whose Indebtedness is being determined, whether or not the
indebtedness secured thereby shall have been assumed, and (c) all indebtedness
of others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted with recourse, agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire, or in respect of which such Person has agreed
to supply or advance funds (whether by way of loan, purchase of securities or
capital contribution, through a commitment to pay for property or services
regardless of the nondelivery of such property or the nonfurnishing of such
services or otherwise), or in respect of which such Person has otherwise become
directly or indirectly liable, contingently or otherwise, whether now existing
or hereafter arising.
"Index Rate" means, at any time, the prime rate established in
The Wall Street Journal's "Money Rates" or similar table. If multiple prime
rates are quoted in the table, then the
4
10
highest prime rate will be the Index Rate. In the event that the prime rate is
no longer published by The Wall Street Journal in the "Money Rates" or similar
table, then Bank may select an alternative published index based upon
comparable information as a substitute Index Rate. Upon the selection of a
substitute Index Rate, the applicable interest rate shall thereafter vary in
relation to the substitute index. Such substitute index shall be the same
index that is generally used as a substitute by Bank on all Index Rate loans.
The Index Rate is eight and one-quarter percent (8.25%) as of the date of this
Agreement.
"Investment" in any Person means any stock, bond, note or
other evidence of Indebtedness or any other security (other than current trade
and customer accounts) of, or loan to, such Person.
"Leases" means oil and gas leases and all oil, gas and mineral
leases constituting any part of the Borrowing Base Properties.
"Limitation Period" means any period while any amount remains
owing on the Note and interest on such amount calculated at the Floating Rate,
plus any fees payable hereunder and deemed to be interest under applicable law,
would exceed the Maximum Rate.
"Loan" means, singly, any advance by Bank to Borrower pursuant
to this Agreement and "Loans" means, cumulatively, the aggregate sum of all
money advanced by Bank to Borrower pursuant to this Agreement.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, guaranties, and other instruments, documents, and
agreements executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be amended,
modified, renewed, extended, or supplemented from time to time.
"Loan Excess" means, at any point in time, the amount, if any,
by which the outstanding balance on the Loans evidenced by the Note exceeds the
Revolving Commitment then in effect.
"Marketable Title" means good and indefeasible title free and
clear of all mortgages, liens and encumbrances, except for Permitted
Encumbrances.
5
11
"Maturity Date" means June 1, 1998.
"Maximum Rate" means the maximum non-usurious interest rate
permissible under applicable laws of the State of Texas or those of the United
States of America applicable to Bank.
"Monthly Borrowing Base Reduction" means the amount of the
automatic monthly reduction to the Borrowing Base, as determined by Bank from
time to time in accordance with Section 2.07 of this Agreement.
"Multi-employer Plan" means a plan described in Section
4001(a)(3) of ERISA which covers employees of Borrower or any ERISA Affiliate.
"Note" means that certain promissory note in the original face
amount of $10,000,000.00, dated of even date herewith, made by Borrower payable
to the order of Bank, in the form attached hereto as Exhibit "C," together with
all deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence the advances to
Borrower by Bank pursuant to Section 2.01 hereof.
"Obligations" means all obligations, indebtedness, and
liabilities of Borrower to Bank, now existing or hereafter arising, including,
but not limited to, the indebtedness evidenced by the Note, whether direct,
indirect, related, unrelated, fixed, contingent, specified, unspecified, joint,
several, or joint and several, and all interest and fees accruing thereon and
all attorneys' fees and other expenses incurred in the enforcement or
collection thereof.
"Oil and Gas Properties" means fee, leasehold or other
interests in or under mineral estates or oil, gas and other liquid or gaseous
hydrocarbon leases with respect to properties situated in the United States,
including, without limitation, overriding royalty and royalty interests,
leasehold estate interests, net profits interests, production payment interests
and mineral fee interests, together with all contracts executed in connection
therewith, all oil, gas and other minerals produced and to be produced
therefrom, all proceeds thereof, and all tenements, hereditaments,
appurtenances and properties, real or personal, appertaining, belonging,
affixed or incidental thereto.
6
12
"Permitted Encumbrances" means:
(A) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business that are not yet
due and payable;
(B) Liens of mechanics, materialmen, warehousemen,
carriers, or other similar liens, securing obligations
incurred in the ordinary course of business that are not yet
due and payable;
(C) Encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property,
none of which materially impairs the use of such property by
Borrower in the operation of its business, and none of which
is violated in any material respect by existing or proposed
operations;
(D) Liens in favor of Bank;
(E) The following, if the validity or amount thereof is
being contested in good faith by appropriate and lawful
proceedings, so long as levy and execution thereon have been
stayed and continue to be stayed, and in Bank's sole judgment
they do not, in the aggregate, materially detract from the
value of the property of Borrower or any Subsidiary, or
materially impair the use thereof in the operation of its
business:
(1) Claims or liens for taxes, assessments, or
similar charges; and
(2) Claims or liens of mechanics, materialmen,
warehousemen, carriers, or other similar liens.
"Person" means an individual, company, corporation,
partnership, limited partnership, joint venture, trust, association,
unincorporated organization or a government or any agency or political
subdivision thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
7
13
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as
amended from time to time.
"Proved Reserves" means the estimated quantities of crude oil,
condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable by
primary producing mechanisms in future years from known reservoirs underlying
lands or interests therein constituting Oil and Gas Properties, under existing
economic and operating conditions. Reserves which can be produced economically
through application of improved recovery techniques (e.g., fluid injection)
will be included in Proved Reserves when successful testing by a pilot project
or the operation of an installed program in the reservoir provides support for
the engineering analysis on which the pilot project or installed program was
based. In general, the economic productivity of the estimated proved reserves
is supported by actual production or a conclusive formation test; however, in
certain instances proved reserves are assigned to reservoirs on the basis of a
combination of electrical and other type logs and core analyses which indicate
these reservoirs are analogous to similar reservoirs in the same field which
are producing or have demonstrated the ability to produce on a formation test.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"Request for Advance" means the written request by Borrower
for an advance by Bank pursuant to this Agreement, which Request for Advance
shall be in a form, and shall include the information and accompanying
supporting documentation, as prescribed in Exhibit "E" attached hereto.
"Revolving Commitment" means the obligation of Bank, subject
to the provisions of this Agreement and existing only through the last Business
Day prior to the Maturity Date, to advance to Borrower funds, not to exceed at
any one time outstanding an amount equal to the Borrowing Base then in effect.
"Security Instruments" means the security instruments
described on Exhibit "D," in form and substance satisfactory to Bank, to be
executed by Borrower pursuant to Section 3.15, and any
8
14
and all other instruments or documents hereafter executed in connection with or
as security for the payment of the Note.
"Subsidiary" means, with respect to Borrower and Guarantor,
respectively, (a) any corporation in which Borrower or Guarantor, directly or
indirectly through its Subsidiaries, owns more than fifty percent (50%) of the
stock of any class or classes having by the terms thereof the ordinary voting
power to elect a majority of the directors of such corporation; and (b) any
partnership, association, joint venture, or other entity in which Borrower or
Guarantor, respectively, directly or indirectly through its Subsidiaries, has
more than a fifty percent (50%) equity interest at the time.
"Tangible Net Worth" means the total assets of Borrower
exclusive of (a) those assets classified as intangible, including, without
limitation, goodwill, patents, trademarks, trade names, copyrights, franchises
and deferred charges, (b) treasury stock and minority interests in any Person,
(c) cash set apart and held in a sinking or other analogous fund established
for the purpose of redemption or other retirement of capital stock, (d) to the
extent not already deducted from total assets, allowances for depreciation,
depletion, obsolescence and/or amortization of properties, uncollectible
accounts, and contingent but probable liabilities as to which an amount can be
established, (e) deferred taxes and (f) all assets arising from advances to
officers, former officers or sales representatives of Borrower made outside of
the ordinary course of business; less total liabilities of Borrower; all of the
above being determined in accordance with GAAP.
"Unmatured Event of Default" means any event or occurrence
which solely with the lapse of time or the giving of notice or both will ripen
into an Event of Default.
Undefined financial accounting terms used in this Agreement
shall be defined in accordance with GAAP.
ARTICLE II. THE LOAN
2.01 The Loan. Upon the terms and conditions (including,
without limitation, the right of Bank to terminate the Revolving Commitment
hereunder upon an Event of Default or an Unmatured Event of Default) and
relying on the representations and warranties contained in this Agreement, Bank
agrees, for a period
9
15
from and after the date hereof through the last Business Day prior to the
Maturity Date, to make advances for the account of Borrower from time to time
following receipt of a Request for Advance; provided, however, that the
aggregate principal amount of all Loans at any one time outstanding shall not
exceed the Revolving Commitment.
Through the last Business Day prior to the Maturity Date,
Borrower may use this revolving credit by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions of this Agreement. The
borrowings made by Borrower pursuant to the Revolving Commitment shall be made
at the principal office of Bank and shall be evidenced by the Note. The entire
principal amount of the Note is due on the Maturity Date.
2.02 Advances and Payments of Principal Under the Note.
Each time an advance is made against or payment is made on the Note, Bank is
hereby irrevocably authorized by Borrower to make appropriate entries of such
in its records in accordance with the usual and customary practices of
accounting for advances and payments on notes; provided, however, the failure
of Bank to do so shall not relieve Borrower of its correct liability hereunder
or under the Note.
The aggregate unpaid amount of advances reflected by the
notations by Bank on its records or the ledger sheets affixed to the Note shall
be deemed rebuttably presumptive evidence of the principal amount owing on the
Note. The liability for payment of principal and interest evidenced by the
Note shall be limited to principal amounts actually advanced to Borrower and
outstanding under this Agreement and interest on such amounts calculated in
accordance with this Agreement. Interest provided for in the Note and herein
shall be calculated on unpaid sums actually advanced and outstanding under the
Note pursuant to the terms of this Agreement and only for the period from the
date or dates of such advances until repayment.
2.03 Payments of Interest under the Note. Subject to the
terms and provisions of this Agreement, interest on the Loan, calculated at the
Floating Rate, shall be due and payable monthly as it accrues beginning August
1, 1996, and continuing thereafter on the first day of each succeeding calendar
month while any amount remains owing on the Note and at the Maturity Date, the
interest payment in each instance to be that which has been earned and
10
16
remains unpaid. The rate of interest charged on the Loan shall be adjusted,
effective on the effective date of each change in the Index Rate.
2.04 Provisions Relating to Interest. All Loans
hereunder and outstanding from time to time shall bear interest at a daily rate
equal to the Floating Rate per annum, each such change in the rate of interest
charged on the Loans to become effective without notice to Borrower, on the
effective date of each change in the Index Rate, calculated on the basis of a
year of three hundred sixty-five or three hundred sixty-six (365 or 366) days,
as applicable, from the date of advance through the date of repayment.
It is the intention of the parties hereto to comply strictly
with the usury laws of the State of Texas and the United States of America and,
in this connection, there shall never be collected, charged or received on any
sums advanced hereunder interest in excess of the Maximum Rate. For purposes
of Article 5069-1.04, Vernon's Texas Civil Statutes, as amended, Borrower
agrees that the maximum rate to be charged shall be the "indicated (weekly)
rate ceiling" as defined in said Article, provided that Bank may also rely to
the extent permitted by applicable laws of the State of Texas or the United
States of America, on alternative maximum rates of interest under other
applicable laws of the State of Texas or the United States of America
applicable to Bank, if greater. Interest on past due interest and principal
shall be at a daily rate equal to the lesser of (a) the Maximum Rate per annum
or (b) the Floating Rate plus three percent (3%) per annum, calculated on the
basis of a year of three hundred sixty-five or three hundred sixty-six (365 or
366) days, as applicable, for the number of days elapsed; and if no Maximum
Rate exists, all past due interest and principal shall bear interest at a daily
rate equal to the Floating Rate plus three percent (3%) per annum, calculated
on a year of three hundred sixty-five or three hundred sixty-six (365 or 366),
as applicable, days for the number of days elapsed. Notwithstanding anything
herein or in the Note to the contrary, during any Limitation Period, the
interest rate to be charged on amounts evidenced by the Note shall be the
Maximum Rate and the obligation of Borrower for any fees payable hereunder and
deemed to be interest under applicable law shall be suspended. During any
period or periods of time following a Limitation Period, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the interest rate to be charged hereunder shall remain at the Maximum
Rate until such time as there has been
11
17
paid to Bank (a) the amount of interest in excess of the Maximum Rate that Bank
would have received during the Limitation Period had the interest rate remained
at the relevant Floating Rate and (b) all interest and fees otherwise due to
Bank but for the effect of such Limitation Period.
If under any circumstances the aggregate amounts paid on the
Note or under this Agreement include amounts which by law are deemed interest
and which would exceed the amount permitted if the Maximum Rate were in effect,
Borrower stipulates that such payment and collection will have been and will be
deemed to have been, to the extent permitted by applicable laws of the State of
Texas or the United States of America, the result of mathematical error on the
part of both Borrower and Bank, and Bank shall promptly refund the amount of
such excess (to the extent only of such interest payments above the Maximum
Rate which could lawfully have been collected and retained) upon discovery of
such error by Bank or notice thereof from Borrower.
2.05 Advances to Satisfy Obligations of Borrower. Bank
may, but shall not be obligated to, make advances hereunder and apply same to
the satisfaction of any condition, warranty, representation or covenant of
Borrower contained in this Agreement, and the funds so advanced and applied
shall be part of the Loan proceeds advanced under this Agreement and evidenced
by the Note.
2.06 Mandatory Prepayment of the Notes. In the event
that Bank or Borrower determine that a Loan Excess exists, Borrower shall
immediately, but in no event later than thirty (30) days following notice from
Bank of any such determination, (i) prepay the principal of the Note in an
aggregate amount at least equal to such Loan Excess or (ii) add to the
Borrowing Base Properties additional Oil and Gas Properties of Borrower
sufficient in value, as determined by Bank in its sole discretion pursuant to
Section 2.07, to increase the Borrowing Base to equal the unpaid principal
amount of the Note.
2.07 Borrowing Base Determination. The initial Borrowing
Base is hereby established at $3,000,000.00, effective as of the date hereof.
Subject to the other provisions of this Agreement, the Borrowing Base shall be
automatically reduced commencing on August 1, 1996, by the Monthly Borrowing
Base Reduction, which is initially established at $90,000.00.
12
18
If and when both of the XxXxxx Brothers NCT-1 #77 and #78
xxxxx (as more fully described on Exhibit "A" attached hereto) are completed as
xxxxx capable of producing oil or gas in paying quantities on or before the
first Borrowing Base review occurring after the date of this Agreement, have
been producing oil or gas for at least ten consecutive days, and have commenced
sales of such production, Borrower shall notify Bank thereof and provide Bank
with the completion reports for such xxxxx, documentary evidence that the
production and sale of oil and gas therefrom have commenced, and such other
information relative to the xxxxx as Bank may request. Following the Bank's
evaluation of such information, if the Bank determines in its sole discretion
that its preliminary evaluation of such xxxxx has been reconfirmed, the
Borrowing Base then in effect will increase by $800,000.00, effective upon
Bank's written notification to Borrower of such increase.
On or before October 1, 1996, Borrower shall furnish to Bank
information sufficient to update to an effective date of July 1, 1996, the most
recent petroleum engineering reports and geological data provided to Bank prior
to Closing relative to the Proved Reserves that are attributable to the Oil and
Gas Properties that constitute part of the Borrowing Base Properties, as well
as such other information as Bank may request regarding volumes of production
produced and sold, contracts, pricing, gross revenues, expenses, and other
information and engineering and geological data as may relate to the Borrowing
Base Properties (collectively the "Borrowing Base Property Data"). Upon
receipt of such Borrowing Base Property Data, Bank shall, in the normal course
of business, endeavor to make a determination by December 1, 1996, of the
Borrowing Base and the Monthly Borrowing Base Reduction which shall become
effective upon written notification from Bank to Borrower, and which, subject
to the other provisions of this Agreement, shall be the basis on which the
Borrowing Base shall thereafter be calculated until the effective date of the
next redetermination of the Borrowing Base and the Monthly Borrowing Base
Reduction as set forth in this Section. Thereafter, on or before each
succeeding April 1 and October 1 until the Maturity Date, Borrower shall
furnish to Bank a report, in form and substance satisfactory to Bank, which
report shall set forth, as of each preceding January 1 or July 1, as
applicable, such Borrowing Base Property Data as Bank may request attributable
to the Borrowing Base Properties. Each report to be provided on or before each
April 1 shall be a complete report relating to the Borrowing Base Property
Data, prepared by an independent petroleum engineer or firm of engineers
satisfactory to
13
19
Bank. Each report to be provided on or before each October 1 shall simply
update the previous complete report, and may be prepared by Borrower's own
engineers and shall be certified by the President of the general partner of
Borrower. Upon receipt of each such report, Bank shall, in the normal course
of business, make a determination of the Borrowing Base and the Monthly
Borrowing Base Reduction which shall become effective upon written notification
from Bank to Borrower, and which, subject to the other provisions of this
Agreement, shall be the basis on which the Borrowing Base shall thereafter be
calculated until the effective date of the next redetermination of the
Borrowing Base and the Monthly Borrowing Base Reduction as set forth in this
Section. Bank may redetermine the Borrowing Base and the Monthly Borrowing
Base Reduction at any time, and from time to time, which redetermination shall
become effective upon written notification from Bank to Borrower and which,
subject to the other provisions of this Agreement, shall be the basis on which
the Borrowing Base shall thereafter be calculated until the effective date of
the next redetermination of the Borrowing Base and the Monthly Borrowing Base
Reduction, as set forth in this Section.
Beginning with the delivery of the Borrowing Base Property
Data due by October 1, 1996, and continuing as and when Borrower is required to
provide to Bank each semi-annual report, as required by the provisions of this
Section, Borrower shall contemporaneously pay an engineering fee of $5,000.00
to Bank for Bank's analysis of such report and redetermination of the Borrowing
Base and the Monthly Borrowing Base Reduction. At any time engineering reviews
are requested by Borrower in connection with a Borrowing Base redetermination,
other than the semi-annual reviews required by Bank, an additional fee of
$5,000.00 shall be paid to Bank for Bank's analysis of such report and
redetermination of the Borrowing Base.
The Borrowing Base shall represent Bank's determination, in
accordance with its customary lending practices in effect from time to time, of
the maximum loan amount that may be supported by the Borrowing Base Properties.
Borrower and Bank acknowledge that (a) due to the uncertainties of the oil and
gas extraction process, the Borrowing Base Properties are not subject to
evaluation with a high degree of accuracy and are subject to potential rapid
deterioration in value, and (b) for this reason and the difficulties and
expenses involved in liquidating and collecting against the Borrowing Base
Properties, Bank's determination of the
14
20
maximum loan amount with respect to the Borrowing Base Properties contains an
equity cushion, which equity cushion is acknowledged by Borrower as essential
for the adequate protection of Bank.
2.08 Assignment of Production. Certain of the Security
Instruments covering the Borrowing Base Properties contain an assignment unto
and in favor of Bank of all oil, gas and other minerals produced and to be
produced from or attributable to the Oil and Gas Properties that constitute
part of the Borrowing Base Properties, together with all of the revenues and
proceeds attributable to such production, and such Security Instruments further
provide that all such revenues and proceeds which may be so collected by Bank
pursuant to the assignment shall be applied to the payment of the Note and the
satisfaction of all other Indebtedness to be secured by such Security
Instruments. Borrower hereby appoints Bank as its agent and attorney-in-fact
for all purposes deemed by Bank to be necessary or desirable in connection with
such assignment of production, including, but not limited to, completing the
letter transfer orders delivered to Bank pursuant to Sections 3.15 and/or 3.17
hereof, which power is coupled with an interest and is not revocable.
2.09 Commitment Fee. As consideration for the commitment
of Bank to make Loans to Borrower through the Maturity Date pursuant to this
Agreement, Borrower agrees to pay to Bank within three (3) Business Days of
receipt of Bank's statement as to quarterly periods ending March 31, June 30,
September 30 and December 31 of each year (except the first period shall be for
a period of time from the Closing to September 30, 1996) during the period
commencing on the date of this Agreement to and including the Maturity Date and
at the Maturity Date, a fee equal to 1/2 of 1% per annum (computed on the basis
of 365 or 366 days, as the case may be) multiplied by an amount equal to the
daily average excess, if any, of the Revolving Commitment over the aggregate
principal amount outstanding on the Note during the period from the date of
this Agreement or previous calculation date provided above, whichever is later,
to the relevant calculation date or the Maturity Date, as the case may be.
2.10 Facility Fee. As consideration for the commitment
of Bank to make Loans to Borrower pursuant to this Agreement, Borrower shall
pay to Bank a fee ("Facility Fee") of $38,000.00, one-half of which has
heretofore been paid, and the remaining $19,000.00 of which shall be paid
simultaneously with the Closing.
15
21
If the Revolving Commitment is ever increased to an amount exceeding
$3,800,000.00, then at the time such increase becomes effective, Borrower shall
pay Bank an additional Facility Fee equal to one percent (1.0%) of the amount
by which such increased Revolving Commitment exceeds either: (a)
$3,800,000.00, or (b) the highest Revolving Commitment amount previously in
effect, if greater than $3,800,000.00.
2.11 Addition of Borrowing Base Oil & Gas Properties.
Borrower may, from time to time upon thirty (30) days prior written notice to
Bank, propose to add Oil and Gas Properties of Borrower to the Borrowing Base
Properties. Any such proposal to add Oil and Gas Properties of Borrower to the
Borrowing Base Properties shall be accompanied by an engineering report
applicable to such Oil and Gas Properties that conforms to the requirements of
Section 2.07, evidence sufficient to establish that Borrower has Marketable
Title to such Oil and Gas Properties, and such other data as Bank may
reasonably request. Any such addition shall become effective at such time as:
(a) Bank has made its determination in the ordinary course of business of the
amount by which the Borrowing Base would be increased as the result of such
addition and (b) the conditions set forth in Article III hereof, to the extent
they are applicable to such additional Oil and Gas Properties of Borrower, have
been satisfied.
ARTICLE III. CONDITIONS
The obligation of Bank to make the Loan referred to in Article
II of this Agreement is subject to satisfaction of the following conditions
precedent stated in this Article III. The obligation of Bank to make
subsequent advances pursuant to this Agreement is subject to the prior or
contemporaneous satisfaction of the conditions precedent stated in Sections
3.10 through 3.17.
3.01 Receipt of Note, Agreement and Certificate of
Compliance. Bank shall have received the Note, multiple counterparts of this
Agreement, as requested by Bank, and the Certificate of Compliance duly
executed by an authorized officer for Borrower and, as to the Agreement, by
Guarantor.
3.02 Receipt of Guaranty. Bank shall have received from
Guarantor the Guaranty, duly executed by Guarantor.
3.03 Receipt of Organizational Documents.
16
22
a. Bank shall have received from Borrower its
Certificate of Limited Partnership certified by the Secretary of State of the
state of its formation and its Partnership Agreement certified by the secretary
or an assistant secretary of the general partner of Borrower.
b. Bank shall have received from Guarantor its Articles
of Incorporation certified by the Secretary of State of the state of its
incorporation and its bylaws certified by the secretary or an assistant
secretary of Guarantor.
3.04 Receipt of Certified Copy of Partnership/Corporate
Proceedings and Certificates of Incumbency. Bank shall have received from
Guarantor, in its capacity as Guarantor and in its capacity as general partner
of Borrower, copies of all resolutions of its board of directors with respect
to the transactions set forth in this Agreement and the execution of this
Agreement, the Note (as to Borrower only) and those of the Security Instruments
to which it is a party, such copy or copies to be certified by the secretary or
an assistant secretary as being true and correct and in full force and effect
as of the date hereof. In addition, Bank shall have received from Guarantor,
in its capacity as Guarantor and in its capacity as general partner of
Borrower, a certificate of incumbency signed by the secretary or an assistant
secretary of Guarantor setting forth (a) the names of the officers executing
this Agreement, the Note (as to Borrower only) and those of the Security
Instruments to which it is a party, (b) the office(s) to which such Persons
have been elected and in which they presently serve and (c) an original
specimen signature of each such person.
3.05 Receipt of Certificates of Authority and
Certificates of Good Standing. Bank shall have received certificates, as of
the most recent dates practicable, of the Secretary of State of each state in
which Borrower is qualified as a foreign limited partnership, and the
department of revenue or taxation of each of the foregoing states, as to the
good standing of Borrower;
3.06 UCC Search. The results of a Uniform Commercial
Code search showing all financing statements and other documents or instruments
on file against Borrower and Guarantor, in the Offices of the Secretaries of
State of the State of Texas and in the counties in which Borrowing Base
Properties are located, such
17
23
search to be as of a date no more than ten (10) days prior to the date of the
advance of the Loan.
3.07 Bank Fees. Bank shall have contemporaneously
received the facility fee required by Section 2.10.
3.08 Financial Statements. Bank shall have received
consolidated Financial Statements of Borrower and Guarantor, respectively, as
of March 31, 1996, with respect to Borrower and as of December 31, 1995, with
respect to Guarantor, showing financial information consistent with that
previously provided to Bank.
3.09 Opinion of Counsel. Bank shall received a
satisfactory legal opinion from the firm of Gardere Xxxxx Xxxxxx & Xxxxx,
L.L.P., counsel for Borrower and Guarantor, in form and substance acceptable to
Bank, covering the matters prescribed on Schedule 3.09 hereof.
3.10 Request for Advance. Bank shall have received from
Borrower a Request for Advance.
3.11 Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in Article IV
of this Agreement shall be true and correct in all material respects on the
date of the making of such Loans or advances with the same effect as though
such representations and warranties had been made on such date; and no Event of
Default shall have occurred and be continuing or will have occurred at the
completion of the making of such Loans or advances, and Bank shall have
received a Compliance Certificate signed by the president or controller of the
general partner of Borrower.
3.12 Legal Matters Satisfactory to Counsel to Bank. All
legal matters incident to the consummation of the transactions hereby
contemplated shall be satisfactory to counsel for Bank.
3.13 No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the condition,
financial or otherwise, of Borrower or Guarantor.
3.14 Status of Record Title. Bank shall have been
satisfied that Borrower has Marketable Title to its Borrowing Base Properties,
and that Borrower owns record title to an undivided net revenue interest in the
production from each Oil and Gas Property
18
24
that is Borrowing Base Property that is not less than the net revenue interest
therein attributed to Borrower in the Loan Documents, as amended from time to
time, as well as an undivided working interest in each such Oil and Gas
Property that is not greater than the working interest therein attributed to
Borrower in the Loan Documents, as amended from time to time (unless there is a
corresponding increase in the net revenue interest attributed to such party
therein).
3.15 Collateral Documents. As security for the payment
of the Note and the performance of the obligations of Borrower under this
Agreement, Bank shall have received the duly executed Security Instruments.
3.16 Legal Fees. All legal fees and disbursements owed
to Bank's special counsel who provided representation to this Bank in
connection with this Agreement or any amendment hereto and in connection with
the review of title to the Borrowing Base Properties shall have been paid.
3.17 Documents Required for Subsequent Disbursements. As
of the time of funding any additional advances to Borrower that have been
approved by Bank pursuant to Section 2.01 and are made in conjunction with the
addition of Oil and Gas Properties owned by Borrower to the Borrowing Base
Properties, Borrower shall have duly delivered to Bank: (i) the Security
Instruments that are necessary or appropriate, in the opinion of Bank, relating
to such additional Oil and Gas Properties, and (ii) Transfer Order Letters
applicable to the production of oil and gas from any additional Oil and Gas
Properties added to the Borrowing Base Properties.
3.18 McGill Bros. NCT-1 No. 74 Well and Xxxxxx #1 and #3
Xxxxx. Bank shall have received evidence satisfactory to it, in its sole
discretion, confirming that the production of oil or gas in paying quantities
has commenced from the McGill Bros. NCT-1 No. 74 Well and the Xxxxxx #1 and #3
Xxxxx.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement and to make the
Loan hereunder, Borrower and, except as otherwise provided, Guarantor represent
and warrant to Bank (which representations and warranties will survive the
delivery of the Note) that:
19
25
4.01 Existence and Good Standing.
a. Borrower is a limited partnership, duly
organized, legally existing and in good standing under the laws of its
jurisdiction of formation and is duly qualified and in good standing as a
foreign limited partnership in all jurisdictions wherein the property owned or
the business transacted by it makes such qualification necessary, other than
those jurisdictions wherein the failure to so qualify does not have a material
adverse effect on Borrower, and Guarantor is the duly appointed and acting sole
general partner of Borrower.
b. Guarantor is a corporation, duly organized,
legally existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified and in good standing as a foreign
corporation in all jurisdictions wherein the property owned or the business
transacted by it makes such qualification necessary, other than those
jurisdictions wherein the failure to so qualify does not have a material
adverse effect on Guarantor.
4.02 Due Authorization. As to Borrower, the execution
and delivery by Borrower of this Agreement and the borrowings hereunder; the
execution and delivery by Borrower of the Note and the Security Instruments;
and the repayment by Borrower of Indebtedness evidenced by the Note and
interest and fees provided in the Note and this Agreement are (a) within the
partnership power of Borrower; (b) have been duly authorized by all necessary
partnership action; and (c) do not and will not (i) require the consent of any
regulatory authority or governmental body, (ii) violate any provision of law or
of the certificate of limited partnership or limited partnership agreement of
Borrower, (iii) cause a default to occur under the terms and provisions of any
indenture, instrument or other agreement to which Borrower is a party or by
which its property may be presently bound or encumbered, or (iv) result in or
require the creation or imposition of any mortgage, lien, pledge, security
interest, charge or other encumbrance in, upon or of any of the properties or
assets of Borrower under any such indenture, instrument or other agreement,
other than under any of the Security Instruments. As to Guarantor, the
execution and delivery of this Agreement and the Guaranty are (a) within the
corporate power of Guarantor; (b) have been duly authorized by all necessary
corporate action, and (c) do not and will not (i) require the consent of any
regulatory authority or
20
26
governmental body, (ii) violate any provision of law or of the charter or
bylaws of Guarantor, (iii) cause a default to occur under the terms and
provisions of any indenture, instrument or other agreement to which Guarantor
is a party or by which Guarantor may be presently bound or encumbered, or (iv)
result in or require the creation or imposition of any mortgage, lien, pledge,
security interest, charge or any other encumbrance in, upon or of any of the
properties or assets of Guarantor under such indenture, instrument or other
agreement, other than under this Agreement or the Guaranty.
4.03 Valid and Binding Obligations. This Agreement, the
Note, the Security Instruments and the Guaranty, when duly executed and
delivered, will be, as to each such instrument executed by Borrower and
Guarantor, respectively, the legal, valid and binding obligations of and
enforceable against Borrower and Guarantor, as applicable, in accordance with
their respective terms (subject to any applicable bankruptcy, insolvency or
other laws of general application affecting creditors' rights and judicial
decisions interpreting any of the foregoing).
4.04 Title to Borrowing Base Properties. Borrower has
Marketable Title to all its Borrowing Base Properties, free and clear of all
mortgages, liens and encumbrances, except for Permitted Encumbrances.
4.05 Oil and Gas Leases. The Leases which constitute any
part of the Borrowing Base Properties are in full force and effect, are valid,
subsisting leases covering the entire estates to which they pertain and all
rentals, royalties and other amounts due and payable in accordance with the
terms of the Leases, overriding royalties, net profits or other production
burdens have been duly paid or provided for; the obligations to be performed
under the Leases have been duly performed; and neither Borrower nor Guarantor
is aware of any default by any third party under any of the Leases with respect
to such third party's obligations.
4.06 Interest in the Borrowing Base Oil and Gas
Properties. With respect to each of the Borrowing Base Properties, the
ownership of Borrower in such property will, with respect to the xxxxx, units
and/or tracts of land described in Exhibit "A" hereto in connection with such
property, (i) entitle Borrower to receive (subject to the terms and provisions
of this Agreement) a decimal share of the oil and gas produced from, or
allocated to,
21
27
such xxxxx, units and/or tracts equal to not less than the decimal share set
forth in Exhibit "A" in connection with such xxxxx, units and/or tracts, and
(ii) cause Borrower to be obligated to bear a decimal share of the cost of
exploration, development and operation of such xxxxx, units and/or tracts of
land not greater than the decimal share set forth in Exhibit "A" in connection
with such xxxxx, units and/or tracts, unless any increase in Borrower's share
of costs is accompanied by a pro-rata increase in Borrower's share of revenue.
Except as set forth in the instrument and agreements, if any, more particularly
described in Exhibit "A", all such shares of production which Borrower is
entitled to receive, and shares of expenses which Borrower is obligated to
bear, are not subject to change, except for changes attributable to future
elections by Borrower not to participate in operations proposed pursuant to
customary forms of applicable joint operating agreements, and except for
changes attributable to changes in participating areas under any federal units
wherein participating areas may be formed, enlarged or contracted in accordance
with the rules and regulations of the applicable governmental authority.
4.07 Oil and Gas Contracts. Borrower is not obligated,
by virtue of any prepayment under any contract providing for the sale by
Borrower of hydrocarbons which contains a "take-or-pay" clause or under any
similar prepayment agreement or arrangement, including, without limitation,
"gas balancing agreements", to deliver a material amount of hydrocarbons
produced from the Borrowing Base Properties at some future time without then or
thereafter receiving full payment therefor (i.e., in the case of oil, not in
excess of sixty (60) days, and in the case of gas, not in excess of ninety (90)
days). The Borrowing Base Properties are not subject to any contractual, or
other arrangement for the sale of crude oil which cannot be cancelled on ninety
(90) days' (or less) notice, unless the price provided for therein is equal to
or greater than the prevailing market price in the vicinity. The Borrowing
Base Properties are not subject to any gas sales contract that contains any
material terms which are not customary in the industry within the region in
which the Borrowing Base Properties affected thereby are located. The
Borrowing Base Properties are not subject to any regulatory refund obligation
and no facts exist which might cause the same to be imposed.
4.08 Producing Xxxxx. All producing xxxxx located on the
Borrowing Base Properties have been, during all times that such were under the
direction or control of Borrower and, to the
22
28
knowledge of Borrower, at all other times, drilled, operated and produced in
conformity with all applicable Laws, rules, regulations and orders of all
regulatory authorities having jurisdiction, are subject to no penalties on
account of past production, and are bottomed under and are producing from, and
the well bores are wholly within, the Borrowing Base Properties or on Oil and
Gas Properties which have been pooled, unitized or communitized with the
Borrowing Base Properties.
4.09 Purchasers of Production. The persons who are
purchasing Borrower's interests in oil and gas produced from the Borrowing Base
Properties as of the calendar month during which the Loans are made hereunder
are identified on Schedule 4.09 attached hereto.
4.10 Scope and Accuracy of Financial Statements. All
Financial Statements submitted and to be submitted to Bank hereunder,
including, without limitation, the Financial Statements of Borrower and
Guarantor, are and will be complete and correct in all material respects; are
and will be prepared in accordance with GAAP and practices consistently
applied; and do and will fairly reflect the financial condition and the results
of the operations of Borrower and Guarantor in all material respects as of the
dates and for the period stated therein (subject only to normal year-end audit
adjustments with respect to such unaudited interim statements of Borrower and
Guarantor); and no material adverse change has since occurred in the condition,
financial or otherwise, of Borrower or Guarantor, or their respective
Subsidiaries (taken as a whole).
4.11 Liabilities, Litigation and Restrictions. Except as
disclosed in the Financial Statements, neither Borrower nor Guarantor has any
liabilities, direct or contingent, which may materially and adversely affect
the business or assets of such party. Except as described on Schedule 4.11,
there is no litigation or other action of any nature pending before any court,
governmental instrumentality, regulatory authority or arbitral body or, to the
knowledge of Borrower or Guarantor, threatened against or affecting Borrower or
Guarantor, or any of their Subsidiaries, which might reasonably be expected to
result in any material, adverse change in the business or assets of Borrower or
Guarantor, or their respective Subsidiaries (taken as a whole). No unusual or
unduly burdensome restriction, restraint or hazard exists by contract, law,
governmental regulation or otherwise relative to the
23
29
business or material properties of Borrower or Guarantor other than such as
relate generally to Persons engaged in the business activities conducted by
Borrower or Guarantor, as the case may be.
4.12 Margin Stock. None of the proceeds of the Loans
will be used for the purpose of buying or carrying margin stock.
4.13 Authorizations and Consents. No authorization,
consent, approval, exemption, franchise, permit or license of, or filing with,
any governmental or public authority or any third party is required to
authorize, or is otherwise required in connection with the valid execution and
delivery by Borrower or Guarantor, as applicable, of this Agreement, the Note,
and those of the Security Instruments to which it is a party or any instrument
contemplated hereby, the repayment by Borrower of advances against the Note and
interest and fees provided in the Note and this Agreement, or the performance
by Borrower or Guarantor of its obligations under any of the foregoing.
4.14 Compliance with Laws, Rules, Regulations and Orders.
To the best of the knowledge and belief of Borrower and Guarantor, neither the
business nor any of the activities of Borrower or Guarantor, as presently
conducted, violates any law or any rule, regulation or directive of any
applicable judicial, administrative or other governmental instrumentality
(including, but not by way of limitation, any law or any rule, regulation or
directive of any judicial, administrative or other governmental instrumentality
relating to zoning, to any Environmental Law, to the stabilization of wages or
prices or to the development, production, transportation or purchase or sale of
oil, gas or other hydrocarbons) the result of which violation would have a
material adverse effect on Borrower or Guarantor, or their respective
Subsidiaries (taken as a whole), and Borrower and Guarantor each possess all
licenses, approvals, registrations, permits and other authorizations necessary
to enable it to carry on its business in all material respects as now
conducted, and all such licenses, approvals, registrations, permits and other
authorizations are in full force and effect; and neither Borrower nor Guarantor
has reason to believe that Borrower or Guarantor will be unable to obtain the
renewal of any such licenses, approvals, registrations, permits and other
authorizations.
4.15 Proper Filing of Tax Returns and Payment of Taxes
Due. Borrower and Guarantor have each duly and properly filed all
24
30
United States Income Tax returns and all other tax returns which are required
to be filed, and have paid all taxes due pursuant to said returns or pursuant
to any assessment received, except such taxes, if any, as are being contested
in good faith and as to which adequate provisions and disclosures have been
made; and the respective charges and reserves on the books of Borrower and
Guarantor with respect to any taxes or other governmental charges are adequate.
4.16 ERISA. Borrower and Guarantor are each in
compliance in all material respects with all applicable provisions of ERISA.
Neither a Reportable Event nor a Prohibited Transaction has occurred and is
continuing with respect to any plan; no notice of intent to terminate a plan
has been filed, nor has any plan been terminated; no circumstances exist which
constitute grounds under Section 4042 of ERISA entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administrate a plan, nor has
the PBGC instituted any such proceedings; neither Borrower nor Guarantor, nor
any ERISA Affiliate has completely or partially withdrawn under Sections 4201
or 4204 of ERISA from a Multi-employer plan; Borrower and Guarantor, and each
ERISA Affiliate have met their minimum funding requirements under ERISA with
respect to all of their plans and the present value of all vested benefits
under each plan exceeds the fair market value of all plan assets allocable to
such benefits, as determined on the most recent valuation date of the plan and
in accordance with the provisions of ERISA and the regulations thereunder for
calculating the potential liability of Borrower or Guarantor, or any ERISA
Affiliate to the PBGC or the plan under Title IV of ERISA; and neither Borrower
nor Guarantor, nor any ERISA Affiliate has incurred any liability to the PBGC
under ERISA.
4.17 Investment Company Act Compliance. Neither Borrower
nor Guarantor is, nor is it directly or indirectly controlled by or acting on
behalf of any person or entity which is, an investment company or an
"affiliated person" of an investment company within the meaning of the
Investment Borrower Act of 1940.
4.18 Public Utility Holding Company Act Compliance.
Neither Borrower nor Guarantor is a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
25
31
4.19 Environmental Laws. To the best of the knowledge
and belief of Borrower and Guarantor:
(a) no property of Borrower or Guarantor is currently
on, or has ever been on, any federal or state list of superfund sites
as listed on the Environmental Protection Agency National Priority
List or any comparable state registries or list in any state of the
United States (collectively "Superfund Sites");
(b) no Hazardous Substances have in the past been
generated, transported, and or disposed of, by Borrower or Guarantor
at any Superfund Site;
(c) except in accordance with a valid permit, license,
certificate or approval of the relevant regulatory authority or
governmental body, there has been no emission, spill, release,
disposal or discharge of any Hazardous Substance into or upon (i) the
air, (ii) soils or any improvements located thereon, (iii) surface
water or groundwater, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing any property of
Borrower or Guarantor; and
(d) no complaint, order, directive, claim, citation,
notice of environmental report, notice of investigation or other
notice by any regulatory authority or governmental body or any other
Person with respect to (i) air emissions, (ii) spills, releases or
discharges to soils or any improvements located thereon, surface
water, groundwater or the sewer, septic system or waste treatment,
storage or disposal systems servicing any property of Borrower or
Guarantor, (iii) solid or liquid waste disposal, (iv) the use,
generation, storage, transportation or disposal of any Hazardous
Substance, or (v) other environmental, health or safety matters
affecting any property of Borrower or Guarantor, any improvements
located thereon, or the business thereon conducted, has been received
by Borrower or Guarantor, nor has Borrower or Guarantor been given
oral or written notice thereof;
provided, however, that the representations and warranties set forth in
subparagraphs (c) and (d) above shall apply only to events and conditions which
either resulted in (i) a continuing lien or encumbrance on the property of
Borrower or Guarantor or (ii)
26
32
otherwise materially affect Borrower's or Guarantor's use or operation of its
property or Borrower's ability to repay the Indebtedness evidenced by the Note,
or Guarantor's ability to perform its Guaranty.
27
33
ARTICLE V. AFFIRMATIVE COVENANTS
Borrower and Guarantor, as applicable, covenant, so long as
any Indebtedness of Borrower to Bank remains unpaid under this Agreement or
Bank remains obligated to make advances hereunder, to:
5.01 Use of Funds. Use the proceeds advanced under the
Loan to refinance the existing Debt described on Schedule 5.01, acquire Oil and
Gas Properties, conduct developmental drilling, and use as working capital for
other ordinary business activities of Borrower, and furnish Bank such evidence
as it may reasonably require with respect to such use.
5.02 Maintenance and Access to Records. Keep adequate
records in accordance with good accounting practices, of all of its
transactions so that at any time, and from time to time, its true and complete
financial condition may be readily determined and, at Bank's reasonable
request, make all financial records and records relating to the Borrowing Base
Properties available for Bank's inspection and permit Bank to make and take
away copies thereof for Bank's internal use only and subject to such
confidentiality agreements as Borrower may reasonably require.
5.03 Quarterly Unaudited Financial Statements of
Borrower. Deliver to Bank, on or before the forty-fifth (45th) day after the
end of each calendar quarter, unaudited Financial Statements of Borrower as at
the end of such period and from the beginning of such fiscal year to the end of
the respective period, as applicable, which Financial Statements shall be
certified by the president or chief financial officer of the general partner of
Borrower as being true and correct, subject to changes resulting from year-end
audit adjustments.
5.04 Annual Unaudited Financial Statements of Guarantor.
Deliver to Bank, on or before the one hundred twentieth (120th) day after the
close of each fiscal year of Guarantor, unaudited Financial Statements of
Guarantor as at the end of such fiscal year, which Financial Statements shall
be certified by the president or chief financial officer of Guarantor as being
true and correct.
5.05 Annual Audited Financial Statements of Borrower.
Deliver to Bank, on or before the one hundred and twentieth (120th)
28
34
day after the close of each fiscal year of Borrower, a copy of the annual
audited Financial Statements of Borrower.
5.06 Compliance Certificate. Deliver to Bank a
Compliance Certificate: (a) at the time of Borrower's execution of this
Agreement, (b) at the time of delivery of the Financial Statements pursuant to
Section 5.03 above, and (c) at the time of delivery of the Financial Statements
pursuant to Section 5.05 above.
5.07 Statement of Material Adverse Change in Condition.
Deliver to Bank, promptly upon any officer of the general partner of Borrower,
or any officer of Guarantor, having knowledge of any material adverse change in
the condition, financial or otherwise, of Borrower or its Subsidiaries (or any
event or circumstance that would result in any such material adverse change in
condition including, but not limited to, litigation and changes in business), a
statement of the president or vice president of the general partner of
Borrower, setting forth the change in condition or event or circumstance likely
to result in any such change and the steps being taken by Borrower or the
applicable Subsidiary with respect to such change in condition or event or
circumstance.
5.08 Additional Information. Furnish to Bank, promptly
upon Bank's reasonable request, such additional financial or other information
concerning the assets, liabilities, operations, and transactions of Borrower
and of Guarantor, respectively, in such party's possession or to which it has
access, including, without limitation, information concerning the Borrowing
Base Properties.
5.09 Compliance with Laws and Payment of Assessments and
Charges. Comply with all applicable statutes and government regulations,
including, without limitation, ERISA, and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent, its share of all costs
and expenses incurred under any joint operating agreement, and other
obligations which, if unpaid, might become a lien against its property, except
any of the foregoing being contested in good faith and as to which satisfactory
accruals have been provided and unless failure to comply or pay would not have
a material adverse effect on the assets of Borrower and its Subsidiaries (taken
as a whole).
5.10 Maintenance of Existence and Good Standing.
Maintain Borrower's limited partnership existence and good standing
29
35
and Guarantor's corporate existence and good standing in the jurisdiction of
its respective formation or incorporation, as applicable, and in all
jurisdictions wherein the property now owned or hereafter acquired or business
now or hereafter conducted necessitates same, other than those jurisdictions
wherein the failure to so qualify will not have a material adverse effect on
Borrower or on Guarantor, as applicable.
5.11 Further Assurances. Promptly cure any defects in
the execution and delivery of this Agreement, the Note, the Security
Instruments, the Guaranty or any other instrument referred to herein or
executed in connection with the Note, and upon notice, immediately execute and
deliver to Bank, all such other and further instruments as may be reasonably
required or desired by Bank from time to time in compliance with the covenants
and agreements made in this Agreement.
5.12 Initial Expenses of Bank. Pay all fees and expenses
of special legal counsel for Bank, incurred in connection with the negotiation
and preparation of this Agreement, the Note, the Security Instruments, the
Guaranty or any other instrument referred to herein or executed in connection
with the Note, the satisfaction of the conditions precedent set forth in
Article III of this Agreement and the consummation of the transactions
contemplated in this Agreement.
5.13 Subsequent Expenses of Bank. Upon request, promptly
reimburse Bank for all reasonable amounts expended, advanced or incurred by
Bank to collect the Note or to enforce the rights of Bank under this Agreement,
the Note, the Security Instruments, the Guaranty, or any other instrument
referred to herein or executed in connection with the Note, which amounts shall
be deemed compensatory in nature and liquidated as to amount upon notice to
Borrower by Bank and which amounts will include, but not be limited to, (a) all
court costs, (b) attorneys' fees, (c) fees of auditors and accountants, (d)
investigation expenses, (e) internal fees of Bank's in-house legal counsel, (f)
fees and expenses incurred in connection with Bank's participation as a member
of the creditors' committee in a case commenced under Title 11 of the United
States Code or other similar law of the United States, the State of Texas or
any other jurisdiction, (g) fees and expenses incurred in connection with
lifting the automatic stay prescribed in Sections 362 Title 11 of the United
States Code, and (h) fees and expenses incurred in connection with any action
pursuant
30
36
to Sections 1129 Title 11 of the United States Code, incurred by Bank in
connection with the collection of any sums due under this Agreement, together
with interest at the Floating Rate per annum, calculated on a basis of a year
of three hundred sixty-five (365) or three hundred sixty-six (366) days, on
each such amount from the date of notification to Borrower that the same was
expended, advanced or incurred by Bank until the date it is repaid to Bank,
with the obligations under this Section 5.13, surviving the non-assumption of
this Agreement in a case commenced under Title 11 of the United States Code or
other similar law of the United States, the State of Texas or any other
jurisdiction and being binding upon Borrower or a trustee, receiver or
liquidator of any such party appointed in any such case.
5.14 Maintenance of Tangible Property. Maintain all of
its tangible property in good repair and condition and make all necessary
replacements thereof and operate such property in a good and workmanlike manner
in accordance with standard industry practices, unless the failure to do so
would not have a material adverse effect on Borrower and its Subsidiaries
(taken as a whole) or the value of the Borrowing Base Properties.
5.15 Maintenance of Insurance. Continue to maintain, or
cause to be maintained, insurance with respect to the properties and business
of Borrower and Guarantor against such liabilities, casualties, risks and
contingencies and in such amounts as is customary in the industry, in an amount
and form, and underwritten by an insurer or insurers, as are acceptable to Bank
in its sole discretion, and furnish to Bank, at the execution of this Agreement
and annually thereafter, certificates evidencing such insurance.
5.16 Inspection of Tangible Assets/Right of Audit.
Permit any authorized representative of Bank, to visit and inspect (at the risk
of Bank and/or such representative) any tangible asset of Borrower and
Guarantor, and/or to audit the books and records of Borrower and Guarantor
during normal business hours.
5.17 Payment of Note and Performance of Obligations. As
to Borrower, pay the Note according to the reading, tenor and effect thereof,
as modified hereby, and do and perform every act and discharge all of the
obligations provided to be performed and discharged hereunder.
31
37
5.18 ERISA Reports. Promptly after the filing or
receiving thereof, copies of all reports, including annual reports, and notices
which Borrower or Guarantor files with or receives from the PBGC or the U.S.
Department of Labor under ERISA; and promptly after Borrower or Guarantor knows
or has reason to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any plan or that the PBGC or Borrower or Guarantor has
instituted or will institute proceedings under Title IV of ERISA to terminate
any plan, Borrower will deliver to Bank a certificate of the controller of
Borrower setting forth details as to such Reportable Event or Prohibited
Transaction or plan termination and the action Borrower or Guarantor, as
applicable, proposes to take with respect thereto.
5.19 Tangible Net Worth Requirement. Borrower shall
maintain a total Tangible Net Worth of not less than $2,750,000.00, plus: (a)
fifty percent (50%) of net income (excluding losses) of Borrower subsequent to
March 31, 1996, and (b) one hundred percent (100%) of any increases in
partners' capital resulting from additional capital contributions to Borrower
or the sale or issuance of any partnership interest in Borrower subsequent to
March 31, 1996.
5.20 Cash Flow to Debt Service Ratio. Borrower will
maintain (calculated in accordance with GAAP) a ratio of quarterly Cash Flow to
quarterly Debt Service of not less than 1.25 to 1.0. Compliance with this
covenant shall begin with the quarter ending September 30, 1996. For the
purposes of calculating this ratio:
(a) "Cash Flow" shall be defined as the sum of net income plus
depreciation and other non-cash charges less non-cash income of
Borrower, and
(b) "Debt Service" shall be defined as the sum of (i) actual
principal amounts paid by Borrower during such quarter on Indebtedness
other than in connection with this Loan; and (ii) principal amounts
required to be paid by Borrower during such quarter in connection with
this Loan.
5.21 Compliance with Environmental Laws. Comply in all
material respects with any and all requirements of law, including, without
limitation, Environmental Laws, (a) related to any natural or environmental
resource or media located on, above, within, in the vicinity of, related to or
affected by any Borrowing Base
32
38
Properties or any other property of Borrower or Guarantor, or (b) required for
the performance or conduct of its operations, including, without limitation,
all permits, licenses, registrations, approvals and authorizations, and, in
this regard, comply fully and in a timely manner with, and cause all employees,
crew members, agents, contractors, subcontractors and future lessees (pursuant
to appropriate lease provisions) of Borrower and Guarantor while such Persons
are acting within the scope of their relationship with Borrower or any
Guarantor, to so comply with, all requirements of law, including, without
limitation, Environmental Laws, and other requirements with respect to the
property of Borrower or Guarantor and the operation thereof necessary or
appropriate to enable Borrower and Guarantor to fulfill their respective
obligations under all requirements of law, including, without limitation,
Environmental Laws, applicable to the use, generation, handling, storage,
treatment, transport and disposal of any Hazardous Substances now or hereafter
located or present on or under any such property.
5.22 Hazardous Substances Indemnification. Indemnify and
hold Bank harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial actions, requirements and enforcement actions
of any kind, and all costs and expenses incurred in connection therewith
(including, without limitation, attorneys' fees and expenses), arising directly
or indirectly, in whole or in part, out of (a) the presence of any Hazardous
Substances on, under or from its property, whether prior to or during the term
hereof, or (b) any activity carried on or undertaken on or off its property,
whether prior to or during the term hereof, and whether by Borrower or
Guarantor, or any predecessor in title or any employees, agents, contractors or
subcontractors of Borrower or Guarantor, or any predecessor in title, or any
third Persons at any time occupying or present on such property, in connection
with the handling, treatment, removal, storage, decontamination, cleanup,
transportation or disposal of any Hazardous Substances at any time located or
present on or under such property; with the foregoing indemnity further
applying to any residual contamination on or under the property of Borrower or
Guarantor, or any property of any other Person, or affecting any natural
resources, and to any contamination of any property or natural resources
arising in connection with the generation, use, handling, storage,
transportation or disposal of any Hazardous Substances, irrespective of whether
any of such activities were or
33
39
will be undertaken in accordance with applicable requirements of law,
including, without limitation, Environmental Laws, and surviving satisfaction
of all Indebtedness of Borrower to Bank and the termination of this Agreement,
provided, further, that the claims and other actions of any kind against Bank
which give rise to such indemnity are not barred by the applicable statute of
limitations at the time such claims or actions are instituted and such
indemnity shall not extend to any act or omission by Bank or any Affiliate of
Bank or any of Bank's employees or agents with respect to the relevant property
subsequent to Bank becoming the owner of, taking possession of to the exclusion
of Borrower or Guarantor or assuming operations of any property previously
owned by Borrower or Guarantor and with respect to which property such claim,
loss, damage, liability, fine, penalty, charge, proceeding, order, judgment,
action or requirement arises subsequent to the acquisition of title thereto,
taking possession thereof or assumption of operations thereon by Bank or any
Affiliate of Bank or any of Bank's employees or agents. Notwithstanding
anything herein to the contrary, the provisions of this Section 5.22 shall
survive any termination of this Agreement and shall survive the payment and
performance in full of all Obligations owed by Borrower and Guarantor to Bank.
5.23 Changes in Management. Notify Bank of any change in
the general partner or other senior management of Borrower or in the senior
management of Guarantor existing as of the date hereof.
5.24 Operating Accounts. Maintain all principal
operating accounts of Borrower with Bank.
ARTICLE VI. NEGATIVE COVENANTS
Without the prior written consent of Bank and so long as any
part of the principal or interest on the Note shall remain unpaid or Bank
remains obligated to make advances hereunder, Borrower and, where provided,
Guarantor, including their respective Subsidiaries, will not:
6.01 Other Indebtedness. Incur, create, assume or suffer
to exist any Indebtedness, whether by way of loan or the issuance or sale of
securities except (a) Loans hereunder, (b) loans by Bank under other credit
arrangements, (c) Indebtedness owed to Bank by any Affiliates of Borrower, and
(d) unsecured accounts payable incurred in the ordinary course of business
which
34
40
are not overdue or if overdue, are acceptable to Bank and are being contested
in good faith by appropriate proceedings.
6.02 Guaranty of Payment or Performance. Guaranty any
contract or obligation of any Person, except for any Indebtedness owed to Bank
by any Affiliates of Borrower, and except that the foregoing restriction shall
not apply to endorsements of instruments for collection in the ordinary course
of business.
6.03 Loans or Advances. As to Borrower, only, make or
agree to make or allow to remain outstanding any loans or advances to any
Person, including Affiliates of Borrower, in amounts which exceed $25,000 in
the aggregate, except advances or extensions of credit in the form of accounts
receivable incurred in the ordinary course of business.
6.04 Mortgages or Pledges of Assets. Create, incur,
assume or permit to exist, any mortgage, pledge, security interest, lien or
encumbrance on any of its properties or assets (now owned or hereafter
acquired), except that the foregoing restrictions shall not apply to any
matters that would constitute or result in Permitted Encumbrances.
6.05 Nature of Business. Permit any material change to
be made in the character of its business as conducted as of the date hereof, or
permit any Subsidiary to permit any material change to be made in the character
of such Subsidiary's business as conducted as of the date hereof.
6.06 Sales of Assets. Sell, lease, assign, transfer or
otherwise dispose of, in one or any series of related transactions, all or any
part of its assets, if such transfer is material to Borrower's operations, nor
enter into any arrangement, directly or indirectly, with any Person to sell and
rent or lease back such assets or any part thereof which are intended to be
used for substantially the same purpose or purposes as the assets sold or
transferred.
6.07 Dividends and Distributions. Declare or pay any
dividend from Borrower or make any distribution on, or purchase, redeem or
otherwise acquire for value, any interest in Borrower or its Subsidiaries.
6.08 Payment of Accounts Payable. Allow any account
payable to remain unpaid after its due date, except such as are
35
41
overdue that are acceptable to Bank, are being contested in good faith, and as
to which adequate provision or accrual has been made.
6.09 Cancellation of Insurance. Allow any insurance
policy required to be carried hereunder to be terminated or lapse or expire
without provision for adequate renewal thereof.
6.10 Investments. Make Investments in or purchase or
otherwise acquire all or substantially all of the assets of any Person other
than Borrower and its Subsidiaries, or any shares of stock of, or similar
interest in, any Person.
6.11 Changes in Business Structure. Consolidate or merge
with or purchase (for cash or securities) all or any part of the assets or
capital stock of any corporation, firm, association or enterprise, or allow any
such entity to be merged into Borrower, nor shall Borrower dissolve or
liquidate, nor shall Borrower or Guarantor, respectively, cause or permit any
change to occur in the ownership of the capital stock of Guarantor or in
Guarantor's ownership interest in Borrower (other than conversions of ownership
interest in Borrower, as prescribed in Borrower's current Agreement of Limited
Partnership).
6.12 Transactions with Affiliates. Enter into any
transaction between or among Borrower and/or any Subsidiaries with any
Affiliate on terms that are less favorable than could be obtained in an
arms-length transaction with a Person that is not an Affiliate.
ARTICLE VII. EVENTS OF DEFAULT
7.01 Enumeration of Events of Default. Any of the
following events shall be considered an Event of Default as that term is used
herein:
(a) Default shall be made by Borrower in the payment of
any installment of principal on the Note,
(b) Default shall be made by Borrower in the payment of
any installment of interest on the Note, or any fees or other monetary
obligation payable hereunder, and such default shall remain unremedied
in excess of three (3) days after notice being given by Bank,
36
42
(c) Default shall be made by Borrower or Guarantor in
the due observance or performance of any affirmative covenant required
in this Agreement, the Note, the Security Instruments, or the
Guaranty, and such default shall remain unremedied for in excess of
thirty (30) days after the earlier of: (i) such default becoming known
to Borrower or Guarantor, or (ii) notice being given by Bank.
(d) Default shall be made by Borrower or Guarantor in
the due observance or performance of any negative covenant required in
this Agreement, the Note, the Security Instruments, or the Guaranty.
(e) Any representation or warranty herein made by
Borrower or Guarantor proves to have been untrue in any respect
material to Borrower or Guarantor, or any representation, statement
(including Financial Statements), certificate or data furnished or
made by Borrower or Guarantor to Bank in connection herewith proves to
have been untrue in any respect material to Borrower or Guarantor as
of the date the facts therein set forth were stated or certified;
(f) Default shall be made by Borrower or Guarantor (as
principal or guarantor or other surety) in payment or performance of
any bond, debenture, note or other evidence of Indebtedness for
borrowed money, or any other credit agreement, loan agreement,
indenture, promissory note or similar agreement or instrument executed
in connection with any of the foregoing in excess of $25,000 in the
aggregate; and such default shall remain unremedied for in excess of
the period of grace, if any, with respect thereto, with the effect of
accelerating the maturity of any such Indebtedness;
(g) Borrower or Guarantor applies for or consents to the
appointment of a receiver, trustee or liquidator of it or all or a
substantial part of its assets, or (ii) files a voluntary petition
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization or rearrangement or taking advantage of
any bankruptcy, insolvency, debtor's relief or other similar law of
the United States, the State of Texas or any other jurisdiction, or
(iii) makes a general assignment for the benefit of creditors, or (iv)
is unable, or admits in writing its inability to pay its debts
generally as they become due, or (v) files an answer admitting the
material allegations of a petition filed against
37
43
it in any case commenced under Title 11 of the United States Code or
any reorganization, insolvency, conservatorship or similar proceeding
under any bankruptcy, insolvency, debtor's relief or other similar law
of the United States, the State of Texas or any other jurisdiction;
(h) An order, judgment or decree shall be entered
against Borrower or Guarantor by any court of competent jurisdiction
or by any other duly authorized authority, on the petition of a
creditor or otherwise, granting relief under Title 11 of the United
States Code or under any bankruptcy, insolvency, debtor's relief or
other similar law of the United States, the State of Texas or any
other jurisdiction, approving a petition seeking reorganization or an
arrangement of its debts or appointing a receiver, trustee,
conservator, custodian or liquidator of it or all or any substantial
part of its assets, and the failure to have such order, judgment or
decree dismissed within ten (10) days of its entry;
(i) Borrower or Guarantor has concealed, removed, or
permitted to be concealed or removed, any part of its property, with
intent to hinder, delay or defraud its creditors or any of them; or
has made or suffered a transfer of any of its property which may be
fraudulent under any bankruptcy, fraudulent conveyance or similar law;
or has made any transfer of its property to or for the benefit of a
creditor at a time when other creditors similarly situated have not
been paid; or has suffered or permitted, while insolvent, any creditor
to obtain a lien upon any of its property through legal proceedings or
distraint which is not vacated within thirty (30) days from the date
thereof.
7.02 Rights Upon Default. Upon the happening of an Event
of Default specified in Subsections 7.01 (g) or (h), the entire aggregate
principal amount of all Indebtedness then outstanding hereunder and the
interest accrued thereon shall automatically become immediately due and
payable, and upon the happening and continuation of any other Event of Default,
Bank may declare the entire aggregate principal amount of all Indebtedness then
outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other
38
44
notice of default or dishonor of any kind, except as provided to the contrary
elsewhere herein, all of which are hereby expressly waived by Borrower and
Guarantor.
Upon the happening and continuation of any Event of Default,
all obligations (if any) of Bank hereunder shall immediately cease and
terminate unless and until Bank shall reinstate the same in writing.
ARTICLE VIII. MISCELLANEOUS
8.01 Security Interests in Deposits and Right of Offset
or Banker's Lien. Borrower hereby transfers, assigns and pledges to Bank
and/or grants to Bank a security interest (as security for the payment and/or
performance of the obligations of Borrower under this Agreement and the Note,
with such interest of Bank to be retransferred, reassigned and/or released by
Bank at the expense of Borrower upon payment in full and/or complete
performance by Borrower of all such obligations) and the right, exercisable at
such time as any obligation hereunder shall mature, whether by acceleration of
maturity or otherwise of offset or banker's lien against all funds or other
property of Borrower now or hereafter or from time to time on deposit with or
in the possession of Bank, including, without limitation, all certificates of
deposit and other depository accounts.
8.02 Survival of Representations, Warranties and
Covenants. All representations and warranties of Borrower and Guarantor and
all covenants and agreements herein made shall survive the execution and
delivery of the Note and this Agreement and shall remain in force and effect so
long as any debt is outstanding under the Note, or any renewal or extension of
this Agreement or the Note, or Bank remains obligated to make advances
hereunder.
8.03 Notices and Other Communications. Notices, requests
and communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, telex, telegram or
hand):
(a) If to Bank:
COMPASS BANK
00 Xxxxxxxx Xxxxx, Xxxxx 0000
39
45
Xxxxxxx, Xxxxx 00000
Attention: Energy Lending
Fax: (000) 000-0000
(b) If to Borrower:
Encinitas Partners Ltd.
00000 Xx. Xxxx'x Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xx. Xxxxx X. Xxxxxx
Fax: (000) 000-0000
(c) If to Guarantor:
Carrizo Production, Inc.
00000 Xx. Xxxx'x Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xx. Xxxxx X. Xxxxxx
Fax: (000) 000-0000
Any party may, by proper written notice hereunder to the
other, change the individuals or addresses to which such notices to it shall
thereafter be sent.
8.04 Parties in Interest. All covenants and agreements
herein contained by or on behalf of Borrower and Guarantor shall be binding
upon Borrower and Guarantor and their respective successors and assigns and
inure to the benefit of Bank and its successors and assigns.
8.05 Renewals and Extensions. All provisions of this
Agreement relating to the Note shall apply with equal force and effect to each
and all promissory notes hereafter executed which in whole or in part represent
a renewal, extension, amendment, modification or rearrangement of any part of
the Indebtedness originally represented by the Note.
8.06 No Waiver by Bank. No course of dealing on the part
of Bank, its officers or employees, nor any failure or delay by Bank with
respect to exercising any of its rights, powers or privileges under this
Agreement, the Note, the Security Instruments or any other instrument referred
to herein or executed in connection with the Note shall operate as a waiver
thereof. The rights and remedies of Bank under this Agreement, the Note, the
Security Instruments or any other instrument referred to herein or
40
46
executed in connection with the Note shall be cumulative and the exercise or
partial exercise of any such right or remedy shall not preclude the exercise of
any other right or remedy. In the event that Borrower or Guarantor is unable
to satisfy any covenant, warranty or condition herein, no advance of loan
proceeds by Bank shall have the effect of precluding Bank from thereafter
declaring any such continuing inability to be an Event of Default as
hereinabove provided.
8.07 INDEMNIFICATION. BORROWER AND GUARANTOR HEREBY
RELEASE AND AGREE TO INDEMNIFY AND HOLD BANK AND ITS OFFICERS, EMPLOYEES,
DIRECTORS, AGENTS AND ATTORNEYS (COLLECTIVELY THE "BANK PARTIES") HARMLESS,
FROM AND AGAINST ALL CLAIMS, DAMAGES, LIABILITIES AND EXPENSES, KNOWN OR
UNKNOWN, ACCRUED AND UNACCRUED, INCLUDING ANY OF THE FOREGOING ALLEGED TO HAVE
RESULTED FROM NEGLIGENCE OF ANY OF THE BANK PARTIES, UNLESS ATTRIBUTABLE TO
BANK PARTIES' OWN GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THAT MAY NOW OR
HEREAFTER BE ASSERTED AGAINST ANY OF BANK PARTIES IN CONNECTION WITH OR ARISING
OUT OF ANY INVESTIGATION, LITIGATION OR PROCEEDING DIRECTLY OR INDIRECTLY
RELATING TO OR ARISING OUT OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
8.08 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
8.09 Incorporation of Exhibits. The Exhibits attached to
this Agreement are incorporated herein for all purposes and shall be considered
a part of this Agreement.
8.10 Survival Upon Unenforceability. In the event any
one or more of the provisions contained in this Agreement, the Note, the
Security Instruments or in any other instrument referred to herein or executed
in connection with the Note shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof or of any other
instrument referred to herein or executed in connection herewith.
8.11 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of Bank, Borrower and Guarantor
and no other Person shall have standing to require satisfaction of such
provisions in accordance with their terms or be entitled to assume that Bank
will refuse to make advances in the absence of strict compliance with any or
all thereof and any or all
41
47
of such provisions may be freely waived in whole or in part by Bank at any time
if in its sole discretion it deems it advisable to do so.
8.12 Amendments or Modifications of this Agreement.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
8.13 Agreement Construed as an Entirety. This Agreement,
for convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties and other legal
relations of the parties hereto shall be determined from this Agreement as an
entirety and without regard to the aforesaid division into Articles and
Sections and without regard to headings prefixed to said Articles or Sections.
8.14 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative.
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS
AGREEMENT, TOGETHER WITH THE NOTE AND THE Security Instruments, CONSTRUED
TOGETHER WITH THE REVOLVING CREDIT AGREEMENT AND ALL INSTRUMENTS EXECUTED
PURSUANT THERETO, REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE
PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8.16 Controlling Provision Upon Conflict. In the event
of a conflict between the provisions of this Agreement and those of the Note,
the Security Instruments or any other instrument referred to herein or executed
in connection with the Note, the provisions of this Agreement shall control.
42
48
8.17 Time, Place and Method of Payments. All payments
required pursuant to this Agreement or the Note shall be made in immediately
available funds; shall be deemed received by Bank on the next Business Day
following receipt if such receipt is after 3:00 p.m., on any Business Day, and
shall be made at the principal banking quarters of Bank.
8.18 Counterpart Execution. This Agreement may be
executed as one instrument signed by all parties or in separate counterparts
hereof, each of which counterparts shall be considered an original and all of
which shall be deemed to be one instrument, and any signed counterpart shall be
deemed delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
BORROWER:
ENCINITAS PARTNERS LTD.
By: CARRIZO PRODUCTION, INC.,
its sole general partner
By: /s/ Xxxxx X. Xxxxxx
-------------------------
Xxxxx X. Xxxxxx
Vice President
BANK:
COMPASS BANK
By: /s/ Xxxxxxxx X. Xxxxx
------------------------------
Xxxxxxxx X. Xxxxx
Vice President
43
49
GUARANTOR:
CARRIZO PRODUCTION, INC.
By: /s/ XXXXX X. XXXXXX
--------------------------
Xxxxx X. Xxxxxx
Vice President
44
50
SCHEDULES AND EXHIBITS
The schedules and exhibits have been intentionally omitted herefrom.
The Company will furnish supplementally a copy of any or all of such omitted
schedules and exhibits to the Commission upon request.
45
