1
EXHIBIT 10.5
================================================================================
CREDIT AGREEMENT
BETWEEN
COMPASS BANK
AND
TORMIN, INC.
December 15, 1998
------------------------------------
$5,900,000 TERM LOAN
-------------------------------------
================================================================================
2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS ................................................................ 1
SECTION 1.1 Definitions .......................................... 1
ARTICLE II
COMMITMENT TO LEND ......................................................... 11
SECTION 2.1 Commitment ........................................... 11
SECTION 2.2 The Loan ............................................. 11
SECTION 2.3 Note ................................................. 11
SECTION 2.4 Certain Payments and Prepayments of Principal ........ 11
SECTION 2.5 Interest ............................................. 12
SECTION 2.6 Engineering and Facility Fees; Authorized
Payments by Lender .............................. 12
SECTION 2.7 Determination of Borrowing Base; Borrowing
Base Deficiency ...................................... 12
ARTICLE III
GENERAL PROVISIONS ......................................................... 13
SECTION 3.1 General Provisions as to Payments and Loan ........... 13
SECTION 3.2 Computation of Interest .............................. 14
SECTION 3.3 Overdue Principal and Interest ....................... 14
ARTICLE IV
COLLATERAL ................................................................. 14
SECTION 4.1 Security ............................................. 14
ARTICLE V
CONDITIONS PRECEDENT TO LOAN ............................................... 15
SECTION 5.1 The Loan. In the case of the Loan ................... 15
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER ............................. 16
SECTION 6.1 Existence and Power .................................. 17
SECTION 6.2 Corporate and Governmental Authorization;
Contravention ................................... 17
SECTION 6.3 Binding Effect ....................................... 17
SECTION 6.4 Subsidiaries; Ownership .............................. 17
SECTION 6.5 Disclosure ........................................... 18
SECTION 6.6 Financial Information ................................ 18
SECTION 6.7 Litigation ........................................... 18
i
3
SECTION 6.8 Plans ................................................. 18
SECTION 6.9 Taxes and Filing of Tax Returns ....................... 18
SECTION 6.10 Title to Properties; Liens; Environmental
Liability; Type of Interests .................... 18
SECTION 6.11 Business; Compliance .................................. 19
SECTION 6.12 Licenses, Permits, Etc ................................ 19
SECTION 6.13 Compliance with Law.................................... 19
SECTION 6.14 Governmental Consent .................................. 19
SECTION 6.15 Investment Company Act ................................ 19
SECTION 6.16 Public Utility Holding Company Act; State
Utility ......................................... 19
SECTION 6.17 Year 2000 Preparedness ................................ 20
SECTION 6.18 Refunds; Certain Contracts ............................ 20
SECTION 6.19 No Default ............................................ 20
ARTICLE VII
COVENANTS .................................................................... 20
SECTION 7.1 Use of Proceeds ....................................... 20
SECTION 7.2 Financial Statements; Reserve Reports;
Compliance Certificates; Certain Notices ........ 21
SECTION 7.3 Inspection of Properties and Books .................... 23
SECTION 7.4 Maintenance of Security; Insurance; Operating
Accounts; Transfer Orders ....................... 23
SECTION 7.5 Payment of Taxes and Claims ........................... 24
SECTION 7.6 Payment of Debt; Additional Debt ...................... 24
SECTION 7.7 Liens ................................................. 24
SECTION 7.8 Loans and Advances to Others; Investments;
Restricted Payments ............................. 25
SECTION 7.9 Consolidation, Merger, Maintenance, Change of
Control; Disposition of Property; Restrictive
Agreements; Hedging Agreements; Issuance of
Securities ...................................... 25
SECTION 7.10 Primary Business; Location of Borrower's Office;
Ownership of Assets ............................. 26
SECTION 7.11 Changes to Certain Contracts .......................... 26
SECTION 7.12 Transactions with Affiliates .......................... 26
SECTION 7.13 Plans ................................................. 26
SECTION 7.14 Compliance with Laws and Documents .................... 27
SECTION 7.15 Certain Financial Covenants ........................... 27
SECTION 7.16 Additional Documents; Quantity of Documents;
Title Data; Additional Information .............. 27
SECTION 7.17 ENVIRONMENTAL INDEMNIFICATION ......................... 28
SECTION 7.18 Year 2000 ............................................ 29
SECTION 7.19 Exceptions to Covenants ............................... 29
ii
4
ARTICLE VIII
DEFAULTS; REMEDIES ......................................................... 29
SECTION 8.1 Events of Default; Acceleration of Maturity .......... 29
SECTION 8.2 Suits for Enforcement ................................ 31
SECTION 8.3 Remedies Cumulative .................................. 31
SECTION 8.4 Remedies Not Waived .................................. 31
ARTICLE IX
MISCELLANEOUS .............................................................. 32
SECTION 9.1 Amendments and Waivers ............................... 32
SECTION 9.2 Highest Lawful Interest Rate ......................... 32
SECTION 9.3 INDEMNITY ............................................ 32
SECTION 9.4 Expenses ............................................. 33
SECTION 9.5 Taxes ................................................ 34
SECTION 9.6 Notices .............................................. 34
SECTION 9.7 Right of Set-Offs .................................... 34
SECTION 9.8 Survival ............................................. 35
SECTION 9.9 Successors and Assigns: Rights of Other Holders ...... 35
SECTION 9.10 Applicable Law; Venue; Waiver of Jury Trial ......... 35
SECTION 9.11 Headings ............................................ 36
SECTION 9.12 Counterparts ........................................ 36
SECTION 9.13 Invalid Provisions, Severability .................... 36
SECTION 9.14 Preclusion of Oral Agreements ....................... 37
FORM OF PROMISSORY NOTE
FORM OF COMPLIANCE CERTIFICATE
OFFICERS' CORPORATE CERTIFICATE
(Tormin, Inc.)
OFFICERS'CORPORATE CERTIFICATE
(Toreador Exploration & Production, Inc.)
OFFICERS' CORPORATE CERTIFICATE
(Toreador Royalty Corporation)
FORM OF CERTIFICATE OF OWNERSHIP INTERESTS
iii
5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of December 15, 1998, by and
between Tormin, Inc., a Delaware corporation, and COMPASS BANK, an Alabama state
bank.
RECITALS:
A. Tormin, Inc. ("Tormin") desires to borrow funds from Compass
Bank.
B. Tormin desires to acquire certain mineral acreage from Xxxxxx
Petroleum Corp.
C. This is not a revolving credit facility.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Acceptable Hedging Agreements" means Hedging Agreements meeting all
the following criteria:
(a) The quantity of hydrocarbons owned by the Borrower subject to
Hedging Agreements shall not be greater than 75% of the monthly production of
the Collateral forecast in the Lender's most recent engineering evaluation
delivered to the Borrower, without the prior written approval of the Lender;
(b) The "strike prices" under any Hedging Agreements shall not be less
than the lowest prices utilized in the Lender's most recent base case evaluation
of the Collateral reported to the Borrower, except that under certain downside
conditions such lower strike price as the Lender may approve in writing
following a written request by the Borrower;
(c) The Lender must have given its written consent to the
counter-parties under the Hedging Agreements; and
(d) The Lender shall have received first and prior perfected security
interests pursuant to security agreements in form and substance reasonably
satisfactory to the Lender in and to the Hedging Agreements.
1
6
"Affiliate" means any Person directly or indirectly controlling, or
under common control with, the Borrower and includes any Subsidiary of the
Borrower and any "affiliate" of the Borrower within the meaning of Reg. Section
240.12b-2 of the Securities Exchange Act of 1934, as amended, with "control," as
used in this definition, meaning possession, directly or indirectly, of the
power to direct or cause the direction of management, policies or action through
ownership of voting securities, contract, voting trust, or membership in
management or in the group appointing or electing management or otherwise
through formal or informal arrangements or business relationships. The term
"Affiliate" shall include Affiliates of Affiliates (and so on). The term
"Affiliate" shall also include each Guarantor and their Subsidiaries.
"Agreement" means this Credit Agreement, as the same may hereafter be
modified or amended from time to time.
"Borrower" means Tormin, Inc., a Delaware corporation.
"Borrowing Base" means the amount most recently determined and
designated by the Lender as the Borrowing Base in accordance with Section
2.8(a), but in no event in excess of the Commitment Amount. The Borrowing Base
under Section 2.8(a) is agreed to be $5,900,000 as of the Closing Date.
"Borrowing Base Deficiency" means, as of the date of determination of a
new Borrowing Base under Section 2.8(a), the amount, if any, by which the
outstanding principal balance of the Loan exceeds the Borrowing Base.
"Business Day" means any day (other than Saturdays and Sundays) on
which the Lender is open for general banking business in Dallas, Texas.
"CBIR Rate" means, on any day, the prime rate as published in The Wall
Street Journal's "Money Rates" table for such day. If multiple prime rates are
quoted in such table, then the highest prime rate quoted therein shall be the
CBIR Rate. In the event that a prime rate is not published in The Wall Street
Journal's "Money Rates" table, the Lender will choose a substitute CBIR Rate,
for purposes of calculating the interest rate applicable hereunder, which is
based on comparable information, until such time as a prime rate is published in
The Wall Street Journal's "Money Rates" table. Each change in the CBIR Rate
shall become effective without notice to the Borrower on the effective date of
each such change.
"Change of Control Event" means the failure of the Parent to own and
control at least 100% of every class of equity interests of the Borrower.
"Closing" means the consummation of the transactions contemplated
herein.
"Closing Date" means the date of this Agreement.
"Collateral" means the Property pledged to the Lender as security for
the Note.
2
7
"Collateral Value" means, with respect to any Property, the positive
dollar amount which such Property contributed to the most recently determined
Borrowing Base.
"Commitment Amount" means the amount of $5,900,000.
"Commonly Controlled Entity" means any Person which is under common
control with the Borrower within the meaning of Section 4001 of ERISA.
"Compliance Certificate" means a certificate, substantially in the form
attached hereto entitled "Form of Compliance Certificate", executed by a
Responsible Officer of the Borrower and furnished to the Lender from time to
time in accordance with Section 7.2(a).
"Debt" of any Person means at any date, without duplication:
(a) all obligations of such Person for money borrowed, including,
without limitation, (i) the obligations of such Person for money borrowed by a
partnership of which such Person is a general partner, (ii) obligations which
are secured in whole or in part by the Property of such Person, and (iii) any
obligations of such Person in respect of letters of credit and repurchase
agreements;
(b) all obligations of such Person evidenced by notes, debentures,
bonds or similar instruments;
(c) all obligations of such Person to pay the deferred purchase price
of property or services (except trade accounts arising in the ordinary course of
business if interest is not paid or accrued thereon);
(d) all obligations of such Person as lessee under capital leases,
other than usual and customary oil and gas leases; and
(e) all Guarantees by such Person of Debt of another Person.
"Default" means the occurrence of an Event of Default or any event
which with notice, lapse of time or both would, unless cured or waived, become
an Event of Default.
"Default Rate" means a per annum interest rate equal to the CBIR Rate
plus five percent (plus 5.0%), but in no event exceeding the Highest Lawful
Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Environmental Laws" means: any law, statute, regulation, order or rule
promulgated by any Governmental Authority, whether local, state or federal
relating to air pollution, water pollution, noise control and/or transporting,
storing, handling, discharge, disposal or recovery of on-site or off-site
hazardous substances or materials, as each of the foregoing may be amended from
time to time.
3
8
"Environmental Liability" means any claim, demand, obligation, cause of
action, accusation, allegation, order, violation, damage, injury, judgment,
penalty or fine, cost of enforcement, cost of remedial action or any other cost
or expense whatsoever, including reasonable attorneys, fees and disbursements,
resulting from the violation or alleged violation of any Environmental Law or
the imposition of any Environmental Lien.
"Environmental Lien" means a Lien in favor of a Tribunal or other
Person (i) for any liability under an Environmental Law or (ii) for damages
arising from or costs incurred by such Tribunal or other Person in response to a
release or threatened release of hazardous or toxic waste, substance or
constituent into the environment.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, together with all presently effective and future regulations issued
pursuant thereto.
"Event of Default" has the meaning stated in Section 8.1 hereof.
"Final Maturity" means June 1, 2000.
"Floating Rate" means a per annum interest rate equal to the sum of the
CBIR Rate from time to time in effect plus one fourth of one percent (plus 1/4
of 1.0%), but in no event exceeding the Highest Lawful Rate.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof. Any accounting principle or practice required to be changed
by the Accounting Principles Board or Financial Accounting Standards Board (or
other appropriate board or committee of such Boards) in order to continue as a
generally accepted accounting principle or practice may be so changed. In the
event of a change in GAAP, the Loan Papers shall continue to be construed in
accordance with GAAP as in existence on the date hereof.
"Governmental Authority" means any nation, country, commonwealth,
territory, government, state, county, parish, municipality, or other political
subdivision and any entity exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining to government.
"Gross Proceeds" means for any period all cash proceeds received by the
Borrower or on the Borrower's behalf or for the Borrower's benefit from all
sources, including without limitation, cash proceeds from the sale of oil and
gas or oil and gas mineral interests.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to
4
9
purchase assets, goods, securities or services, to take-or-pay, to make
reimbursement in connection with any letter-of-credit or to maintain financial
statement conditions, by "comfort letter" or other similar undertaking of
support or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part). The term "Guarantee" includes the pledging or other encumbrance of assets
by a Person to secure the obligations of another Person and restrictions or
limitations on a Person or its assets agreed to in connection with the
obligations of another Person, but does not include endorsements for collection
or deposit in the ordinary course of business; and "Guaranteed" by a Person
shall mean the act or condition of providing a Guarantee by such Person or
permitting a Guarantee of such Person to exist.
"Guarantors" means the Parent and Toreador Exploration & Production,
Inc., a Texas corporation.
"Guaranty" means the guaranty of each Guarantor in favor of the Lender
guarantying the Obligations of the Borrower to the Lender, in form and substance
satisfactory to the Lender and each such Guarantor.
"Hedging Agreement" means (i) any interest rate or currency swap, rate
cap, rate floor, rate collar, forward agreement, or other exchange or rate
protection agreement or any option with respect to any such transaction and (ii)
any swap agreement, cap, floor, collar, exchange transaction, forward agreement,
or other exchange or protection agreement relating to hydrocarbons or any option
with respect to any such transaction.
"Highest Lawful Rate" means the maximum non-usurious interest rate, if
any (or, if the context so requires, an amount calculated at such rate), that at
any time or from time to time may be contracted for, taken, reserved, charged,
or received under applicable laws of the State of Texas or the United States of
America, whichever authorizes the greater rate, as such laws are presently in
effect or, to the extent allowed by applicable law, as such laws may hereafter
be in effect and which allow a higher maximum non-usurious interest rate than
such laws now allow. To the extent the laws of the State of Texas are applicable
for the purpose of determining the "Highest Lawful Rate", such term shall mean
the "weekly ceiling" from time to time in effect as referred to and defined in
Chapter 303 of the Finance Code of Texas, as amended. The determination of the
Highest Lawful Rate shall, to the extent required by applicable law, take into
account as interest paid or contracted for any and all relevant payments or
charges under the Loan Documents.
"Insolvency Proceeding" of any Person means application (whether
voluntary or instituted by another Person) for or the consent to the appointment
of a receiver, trustee, conservator, custodian, or liquidator of such Person or
of all or a substantial part of the Property of such Person, or the filing of a
petition (whether voluntary or instituted by another Person) 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.
5
10
"Intangible Assets" of any Person means those assets of such Person
which are (i) deferred assets, other than prepaid insurance and prepaid taxes,
(ii) Intellectual Property, (iii) goodwill, experimental expenses and other
assets which would be classified as intangible assets on a balance sheet of such
Person, prepared in accordance with GAAP, (iv) unamortized debt discount and
expenses, and (v) costs in excess of fair value of the net assets acquired.
"Intellectual Property" means all patents, patent applications,
trademarks, trade names, franchise agreements, license agreements, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos, formulae, recipes, trade secrets, other source and
business identifiers, copyrights and the like.
"Investment" in any Person shall mean any stock, bond, note, or other
evidence of Debt, or any other security (other than current trade and customer
accounts) of, investment or partnership interest in or loan or advance to, such
Person.
"Lender" means Compass Bank, an Alabama state bank, and its successors
and assigns.
"Lien" means, as to any Person, any mortgage, lien, pledge, adverse
claim, charge, security interest, negative pledge or other encumbrance in or on,
or any interest or title of any vendor, lessor, lender or other secured party to
or of the Person under any conditional sale or other title retention agreement
or capital lease with respect to, any property or asset of the Person, or the
signing or filing of a financing statement which names the Person as debtor, or
the signing of any security agreement authorizing any other Person as the
secured party thereunder to file any financing statement.
" Loan" means the loan made or to be made by the Lender to the Borrower
pursuant to this Agreement or the aggregate outstanding amount of such loan, as
the context may require.
"Loan Documents" or "Loan Papers" shall mean this Agreement, the Note,
the Security Instruments, and all other documents and instruments now or
hereafter delivered pursuant to the terms of or in connection with this
Agreement, the Note, or the Security Instruments, and all renewals and
extensions of, amendments and supplements to, and restatements of, any or all of
the foregoing from time to time in effect.
"Loan Papers". See Loan Documents.
"Material Adverse Effect" shall mean (i) any material adverse effect on
the business, operations, properties, or condition (financial or otherwise), of
the Borrower, or (ii) any material adverse effect upon the Collateral or the
priority or enforceability of the Liens securing the Note.
"Material Agreement" means, with respect to any Person, any material
written or oral agreement, contract, commitment, or understanding to which such
Person is a party, by which such Person is directly or indirectly bound, or to
which any Property of such Person may be subject, which is not cancellable by
such Person upon notice of 90 days or less without (i) liability for further
payment other than nominal penalty or (ii) forfeiture of valuable Property.
6
11
"Margin Regulations" means Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Mortgages" mean deeds of trust, mortgages, assignments of production,
security agreements, collateral mortgages, and acts of pledge in form and
substance acceptable to the Lender to be executed by the appropriate Person
pursuant to which the Lender is granted a first and prior Lien on the
Collateral, subject only to Permitted Liens.
"Net Proceeds" means for any period, an amount equal to 95% of the
difference of (i) Gross Proceeds for such period less (ii) general and
administration actually incurred for such period.
"Note" means the promissory note of the Borrower (and any renewal or
extension thereof) evidencing the obligation of the Borrower to repay the Loan,
substantially in the form attached hereto entitled "Form of Promissory Note",
with appropriate insertions.
"Obligations" shall mean, without duplication, (i) all Debt evidenced
by the Note, (ii) the obligation of the Borrower for the payment of the fees
payable hereunder or under the other Loan Documents, and (iii) all other
obligations and liabilities of the Borrower to the Lender, now existing or
hereafter incurred, under, arising out of or in connection with any Loan
Document, and to the extent that any of the foregoing includes or refers to the
payment of amounts deemed or constituting interest, only so much thereof as
shall have accrued, been earned and which remains unpaid at each relevant time
of determination.
"Officer's Certificate" means as to the Borrower a certificate signed
by a Responsible Officer.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Parent" means Toreador Royalty Corporation, a Delaware corporation.
"Permitted Indebtedness" means (i) the Obligations, (ii) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 120 days beyond the date above or are being contested in
good faith and as to which such reserve as is required by GAAP has been made and
on which interest charges are not paid or accrued, (iii) accrued taxes and
unsecured accounts payable owed to insurance companies for insurance contracts
maintained by Borrower in its ordinary course of business, (iv) endorsements of
negotiable instruments in the ordinary course of business or (v) Debt owed to
the Parent described in Section 4.1(a)(iii).
"Permitted Investments" means investments in (i) indebtedness,
evidenced by notes maturing not more than 180 days after the date of issue,
issued or guaranteed by the government of the United States of America, (ii)
certificates of deposit maturing not more than 180 days after the date of issue,
issued by commercial banking institution each of which is a member of the
Federal Reserve System and which has combined capital and surplus and undivided
profits of not less than $50,000,000, (iii)
7
12
commercial paper, maturing not more than 90 days after the date of issue, issued
by (a) the Lender (or any parent corporation of the Lender) or (b) a corporation
(other than an Affiliate of the Borrower) with a rating of "P1" (or its then
equivalent) according to Xxxxx'x Investors Service, Inc., "A-1" (or its then
equivalent) according to Standard & Poor's Corporation or "F-1" (or its then
equivalent) according to Fitch's Investors Services, Inc. or (iv) such other
instruments, evidences of indebtedness or investment securities as the Lender
may approve.
"Permitted Liens" means, with respect to any Property,
(a) Liens in favor of the Lender;
(b) the following, if the validity and amount thereof are being
contested in good faith and by appropriate legal proceedings and so long as (i)
levy and execution thereon have been stayed and continue to be stayed, (ii) they
do not in the aggregate materially detract from or threaten the value of the
asset, or materially impair the use thereof in the operation of the Borrower's
business, and (iii) a reserve therefor, if appropriate, has been established:
claims and Liens for Taxes due and payable; claims and Liens upon and defects of
title to real and personal property, including any attachment of personal or
real property or other legal process prior to adjudication of a dispute on the
merits; claims and Liens of mechanics, materialmen, warehousemen, or carriers,
or similar Liens; and adverse judgments on appeal;
(c) Liens for Taxes not past due;
(d) mechanics' and materialmen's Liens for services or materials
for which payment is not past due;
(e) operators' Liens incurred pursuant to operating agreements
entered into by the Borrower in the ordinary course of business which secure
obligations not past due; and
(f) Liens in favor of the lessor on the Property being leased
under any capital lease permitted hereunder.
(g) the net profits interest of Xxxxxx Petroleum Corporation
reserved in the Purchase and Sale Agreement dated November 12, 1998, as amended
on or prior to the date hereof.
"Permitted Loans and Investments" means (i) loans by the Borrower to or
the acquisition of Investments by the Borrower in any Person not exceeding in
the aggregate outstanding at any time the amount of $25,000 and not otherwise
permitted under this Agreement and (ii) Permitted Investments.
"Person" means a corporation, an association, a joint venture, an
organization, a business, an individual or a government or political subdivision
thereof or any governmental agency.
8
13
"Plan" means, at any time, any employee benefit plan which is covered
by ERISA and in respect of which the Borrower or any Commonly Controlled Entity
is (or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
"Requirement of Law" means, as to any Person, the certificate or
articles of incorporation and by-laws or other organizational or governing
documents of such Person, and any applicable law, treaty, ordinance, order,
judgment, rule, decree, regulation, or determination of an arbitrator, court, or
other Governmental Authority, including, without limitation, rules, regulations,
orders, and requirements for permits, licenses, registrations, approvals, or
authorizations, in each case as such now exist or may be hereafter amended and
are applicable to or binding upon such Person or any of its Property or to which
such Person or any of its Property is subject. Unless otherwise specified, the
"Person" referred to in this definition shall be deemed to be the Borrower.
"Responsible Officer" means as to the Borrower, the President or any
Vice President of the Borrower.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Restricted Payment" means:
(a) the declaration or payment of any dividend on, or the
incurrence of any liability to make any other payment or distribution in respect
of, any shares of or other ownership interests in the Borrower;
(b) any payment or distribution on account of the purchase,
redemption or other retirement of any shares of or other ownership interests in
the Borrower, or of any warrant, option or other right to acquire such shares or
such other ownership interests, or any other payment or distribution made in
respect thereof, either directly or indirectly;
(c) the repayment by the Borrower of any Debt owed to an
Affiliate; or
(d) any loan or extension of credit by the Borrower to any
Affiliate.
The amount of any Restricted Payment in Property shall be deemed to be the
greater of its fair market value or its net book value ("fair market value" will
be determined by an appraisal in form, and prepared by an appraiser, selected by
the Borrower and acceptable to the Lender).
"Security Document". See Security Instruments.
9
14
"Subsidiary" means for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned, collectively, by such
Person and any Subsidiaries of such Person. The term Subsidiary shall include
Subsidiaries of Subsidiaries (and so on).
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or charges, or other
charges of any nature whatsoever from time to time or at any time imposed by any
law or Tribunal.
"Transferee" means any Person to which the Lender has sold, assigned,
transferred, or granted a participation in any of the Obligations, as authorized
hereunder, and any Person acquiring, by purchase, assignment, transfer, or
participation, from any such purchaser, assignee, transferee, or participant,
any part of such Obligations.
"Tribunal" means any court, tribunal, governmental body, agency,
arbitration panel, or instrumentality.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
SECTION 1.2 Accounting Terms and Determinations; Changes in
Accounting.
(a) Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP, applied on a basis consistent (except for changes
concurred in by the independent public accountants and with respect to which the
Borrower shall have promptly notified the Lender on becoming aware thereof) with
the most recent financial statements of the Borrower delivered to the Lender.
(b) The Borrower will not change its method of accounting, other than
immaterial changes in methods, changes permitted by GAAP in which the Borrower's
independent public accountants concur and changes required by a change in GAAP,
without the prior written consent of the Lender.
SECTION 1.3 References. References in this Agreement to Exhibits,
Schedules, Annexes, Appendixes, Attachments, Articles, Sections or clauses shall
be to Exhibits, Schedules, Annexes, Appendixes, Attachments, Articles, Sections
or clauses of this Agreement, unless expressly stated to the contrary.
References in this Agreement to "hereby," "herein," "hereinafter,"
"hereinabove," "hereinbelow," "hereof," "hereunder" and words of similar import
shall be to this Agreement in its entirety and not only to the particular
Exhibit, Schedule, Annex, Appendix, Attachment, Article, or Section in which
such reference appears. This Agreement, for convenience only, has been divided
10
15
into Articles and Sections; and it is understood that the rights and other legal
relations of the parties hereto shall be determined from this instrument as an
entirety and without regard to the aforesaid division into Articles and Sections
and without regard to headings prefixed to such Articles or Sections. 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. Definitions of terms defined in the singular or plural
shall be equally applicable to the plural or singular, as the case may be,
unless otherwise indicated. 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. The Exhibits, Schedules, Annexes, Appendixes and Attachments
attached to this Agreement and items referenced as being attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
ARTICLE II
COMMITMENT TO LEND
SECTION 2.1 Commitment.
(a) The Lender agrees, subject to the other terms and conditions of
this Agreement, to lend to the Borrower in a single advance, the amount of the
Commitment Amount.
(b) This is not a revolving credit facility and amounts repaid or
prepaid on the Note may not be reborrowed.
SECTION 2.2. The Loan. The amount to be advanced to the Borrower
pursuant to Section 2.1 shall be advanced to the Borrower on the Closing Date or
as soon thereafter as all conditions thereto have been satisfied.
SECTION 2.3. Note. The Loan shall be evidenced by the Note issued by
the Borrower, payable to the order of the Lender in the Commitment Amount.
SECTION 2.4. Certain Payments and Prepayments of Principal. (a) The
Borrower shall pay to the Lender for application to the Loan an amount equal to
Net Proceeds received by the Borrower or for its benefit during each calendar
month, such amount to be paid on or before five (5) days following the end of
each such calendar month. The amounts so paid to the Lender shall be (i) first
applied to interest accrued on the Loan during the immediately preceding
calendar month (or portion thereof) under Section 2.5, (ii) next applied to
principal of the Loan then payable under clause (b) below and (iii) finally
applied as a prepayment of principal under clause (c) below until the Loan and
all accrued interest thereon is paid in full.
11
16
(b) The unpaid principal balance of the Loan shall be payable in
monthly installments of $60,000 each. Such principal payment for any calendar
month (or portion thereof) shall be due on the fifth (5th) day following the
last day of such month.
(c) If at any time the aggregate principal of the Loan outstanding
exceeds the Borrowing Base then in effect, the provisions of Section 2.7(b)
shall apply.
(d) The Borrower may prepay the principal of the Loan in whole or in
part at any time without premium or penalty.
(e) Prepayments under clauses (c) or (d) above shall not reduce the
amounts payable under clause (a) above, and all prepayments shall be applied to
installments of principal in the inverse order of their maturity.
(f) All unpaid principal and accrued, unpaid interest shall be due and
payable at Final Maturity.
SECTION 2.5 Interest. (a) The unpaid principal balance of the Loan
shall bear interest, at a rate per annum equal to the lesser of the (i) Highest
Lawful Rate or (ii) the Floating Rate. Accrued interest for any calendar month
(or portion thereof) shall be due on the fifth (5th) day following the last day
of such month.
(b) Each change in the rate of interest charged hereunder shall become
effective automatically and without notice to the Borrower upon the effective
date of each change in the Floating Rate or the Highest Lawful Rate, as the case
may be.
SECTION 2.6 Engineering and Facility Fees; Authorized Payments by
Lender. (a) The Borrower shall pay to the Lender an engineering fee in the
amount of $5,000 on the Closing Date and thereafter shall pay an engineering fee
in the amount of $5,000 if the Lender's internal engineers perform the
engineering review of the Collateral or the actual fees and expenses of any
third-party engineers retained by the Lender to prepare an engineering report,
payable at the time of the scheduled or Borrower requested determination of the
Borrowing Base referred to in Section 2.8(a).
(b) To compensate the Lender for the costs of the extension of credit
hereunder, the Borrower shall pay to the Lender on the Closing Date, a facility
fee in the amount of $59,000.
SECTION 2.7. Determination of Borrowing Base; Borrowing Base
Deficiency. (a) On the basis of the information furnished to the Lender
hereunder and such other reports, appraisals and information as the Lender may
deem appropriate, the Lender shall have the right to determine a new Borrowing
Base as of each January 1 and July 1 during the term of the Note (the "scheduled
determinations") commencing July 1, 1999, or at such other or additional times
during the term of the Note as the Lender in its reasonable discretion and at
its sole cost may elect (the "discretionary determinations"). Such
determinations, if made, shall be in accordance with the Lender's customary
12
17
practices and standards for loans of a similar nature as in effect at the time
such determinations are made and shall be conclusive, and any increases in the
Borrowing Base shall be subject to the Lender's complete credit approval
process. Any new Borrowing Base determined under this Section shall be effective
immediately upon its communication to the Borrower.
(b) Upon the occurrence of a Borrowing Base Deficiency, the Borrower
shall, within thirty (30) days following notice by the Lender of the existence
of such Borrowing Base Deficiency, do any one or more of the following in an
aggregate amount at least equal to such Borrowing Base Deficiency: (i) prepay
the principal of the outstanding Loan or (ii) cause to be created first and
prior perfected Liens (subject only to Permitted Liens) in favor of the Lender,
by instruments satisfactory to the Lender, on producing oil and gas properties
which in the opinion of the Lender would increase the Borrowing Base by an
amount sufficient, in combination with clause (i) preceding, to eliminate such
Borrowing Base Deficiency.
(c) Upon each redetermination of the Borrowing Base, the Lender may
notify an officer of the Borrower orally (confirming such notice promptly in
writing) of such determination, and the Borrowing Base so communicated to the
Borrower shall become effective upon such oral notification and shall remain in
effect until the next redetermination of the Borrowing Base.
ARTICLE III
GENERAL PROVISIONS
SECTION 3.1 General Provisions as to Payments and Loan.
(a) All payments of principal and interest on the Loan and of fees
hereunder shall be made by 12:00 noon (Dallas, Texas time) on the date such
payments are due in federal or other funds immediately available at the
principal office of the Lender referred to in Section 9.6, and, if not made by
such time or in immediately available funds, then such payment shall be deemed
made when such funds are available to the Lender for its full and unrestricted
use. Whenever any payment of principal of or interest on the Loan or of fees
hereunder shall be due on a day which is not a Business Day, the date for
payment thereof shall be extended to the next succeeding Business Day. If the
date for any payment is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) All payments made by the Borrower on the Loan shall be made free
and clear of, and without reduction by reason of, any Taxes.
(c) The Loan shall be made available to the Borrower on a Business Day
at the Lender's address referred to in Section 9.6.
(d) All payments and fundings shall be denominated in United States of
America dollars.
13
18
SECTION 3.2. Computation of Interest. Each determination of interest
and fees hereunder shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding the
last day), subject to the limitations of the Highest Lawful Rate.
SECTION 3.3. Overdue Principal and Interest. Unless waived by the
Lender, any overdue principal and, to the extent permitted by law, overdue
interest on the Loan shall bear interest at the Default Rate.
ARTICLE IV
COLLATERAL
SECTION 4.1 Security.
(a) To secure full and complete payment and performance of the
obligations of the Borrower to the Lender, the Borrower will cause the
appropriate Person to execute and deliver to the Lender the following documents
and instruments:
(i) the Mortgages from the Borrower granting the Lender a
first and prior Lien on the certain oil and gas and minerals Properties
of the Borrower as designated by the Lender, together with financing
statements relating thereto, subject only to Permitted Liens;
(ii) the Guaranties of the Guarantors; and
(iii) a pledge agreement in form and substance satisfactory to
the Lender and the Parent granting a first and prior Lien on 100% of
the equity in the Borrower, together with the stock certificates
related thereto and stock powers executed in blank and a first and
prior lien on the promissory note of the Borrower to the Parent in the
approximate amount of $7,100,000, endorsed (with recourse) by the
Parent to the Lender.
(b) All documents delivered or to be delivered hereunder shall be in
form and substance reasonably satisfactory to the Lender and its counsel and
shall be supported by such legal opinions as the Lender or its counsel may
reasonably request.
(c) All Liens to be created by delivery of the documents referred to in
this Section shall be first and prior perfected Liens in favor of the Lender,
subject only to Permitted Liens.
14
19
ARTICLE V
CONDITIONS PRECEDENT TO LOAN
The obligation of the Lender to make the Loan shall be subject to the
satisfaction of each of the following conditions:
SECTION 5.1 The Loan. In the case of the Loan:
(a) Receipt by the Lender of the following:
(i) copies of the Articles or Certificates of Incorporation
(or Articles of Organization or similar documents), and all amendments thereto,
of the Borrower and each Guarantor, accompanied by certificates that such copies
are correct and complete, one issued by the Secretary of State of the state of
incorporation or formation of the Borrower and each Guarantor, dated a current
date, and one executed by the President or a Vice President and the Secretary or
an Assistant Secretary (or other authorized representatives) of the Borrower and
each Guarantor, dated the Closing Date;
(ii) copies of the Bylaws (or Regulations or similar
documents) , and all amendments thereto, of the Borrower and each Guarantor,
accompanied by certificates that such copies are correct and complete of the
President or a Vice President and the Secretary or an Assistant Secretary (or
other authorized representatives) of the Borrower and each Guarantor, dated the
Closing Date;
(iii) certificates of the appropriate Tribunals of each
jurisdiction in which the Borrower has an executive office or principal place of
business, the Borrower or each Guarantor was formed or in which any Collateral
is located (if the Borrower or such Guarantor is required to qualify to do
business in such state), each dated a current date, to the effect that the
Borrower or such Guarantor, as applicable, is in good standing with respect to
the payment of franchise and/or other Taxes and, if required by law, are duly
qualified to transact business in such jurisdictions, accompanied by the
certificate of the President or a Vice President and the Secretary or an
Assistant Secretary (or other authorized representatives) of the Borrower or
such Guarantor, as applicable, that such Tribunal certificates are true and
correct as of the Closing Date;
(iv) certificates of incumbencies and signatures of all
officers of the Borrower and each Guarantor who will be authorized to execute or
attest any of the Loan Papers on behalf of the Borrower and such Guarantor,
executed by the President or a Vice President and the Secretary or an Assistant
Secretary (or other authorized representatives) of the Borrower or such
Guarantor, as applicable, dated the Closing Date;
(v) copies of resolutions approving the Loan Papers and
authorizing the transactions contemplated therein, duly adopted by the Board of
Directors (or authorized body
15
20
serving a similar function) of the Borrower, and each Guarantor, accompanied by
certificates of the Secretary or an Assistant Secretary (or other authorized
representative) of the Borrower or each Guarantor, as applicable, that such
copies are true and correct copies of resolutions duly adopted at the meeting
of, or by the unanimous written consent of, the Board of Directors (or
authorized body serving a similar function) of the Borrower or each Guarantor,
as applicable, and that such resolutions constitute all the resolutions adopted
with respect to such transactions, have not been amended, modified or revoked in
any respect, and are in full force and effect as of the Closing Date;
(b) receipt by the Lender of the duly executed Note in the Commitment
Amount, dated the Closing Date;
(c) receipt by the Lender of the documents described in Section 4.1(a),
each duly executed and delivered by the appropriate Person;
(d) receipt by the Lender of such documentation, opinions and
information as may be required by the Lender to satisfy the Lender of the status
of the title of the Collateral;
(e) receipt by the Lender of a Certificate of Ownership Interests in
the form attached hereto, certifying as to the Borrower's ownership interest in
its oil and gas Properties;
(f) receipt by the Lender of a certificate from the President or a Vice
President and the Secretary or an Assistant Secretary (or other authorized
representatives) of the Borrower certifying as to the truth and correctness of
each representation and warranty contained in Article VI hereof as of the
Closing Date;
(g) receipt by the Lender of satisfactory evidence that prior Liens, if
any, on the Collateral are being released concurrently with the Closing;
(h) receipt by the Lender of the opinions of counsel to the Borrower in
form and substance satisfactory to the Lender and its counsel; and
(i) receipt by the Lender of such additional information and
documentation as the Lender may reasonably require relating to the Loan Papers
(and all renewals, extensions, amendments, restatements and modifications of the
same) and the transactions contemplated hereby and thereby.
16
21
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Lender as follows:
SECTION 6.1 Existence and Power. Each of the Borrower and each
Guarantor:
(a) is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware (or with respect to Toreador
Exploration & Production, Inc., the laws of the State of Texas);
(b) has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted;
(c) is duly qualified to transact business as a foreign entity in each
jurisdiction where the nature of its business requires the same, except where
the failure to so qualify could not reasonably be expected to have a Material
Adverse Effect on its business or financial condition; and
(d) owns, both beneficially and of record, all of its assets reflected
in its financial statements delivered to the Lender.
SECTION 6.2 Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance by each Person (other than the Lender)
purporting to execute the same of this Agreement or the other Loan Papers are
within such Person's power, have been duly authorized by all necessary action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (except that the perfection of Liens created by certain of
the Security Documents may require the filing of financing statements, mortgages
or similar instruments in the appropriate recordation offices), and do not
contravene, or constitute a default under, any provision of applicable law or
regulation (including, without limitation, the Margin Regulations) or any
agreement creating or governing such Person or any agreement, judgment,
injunction, order, decree or other instrument binding upon such Person or result
in the creation or imposition of any Lien on any Property of the Borrower,
except Liens securing the Obligations.
SECTION 6.3 Binding Effect. (a) This Agreement constitutes a valid and
binding agreement of the Borrower; the Note, when executed and delivered in
accordance with this Agreement, will constitute the valid and binding obligation
of the Borrower; the Security Documents, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations of
each Person purporting to execute the same;
(b) Each Loan Paper is enforceable in accordance with its terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors, rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
SECTION 6.4 Subsidiaries; Ownership. (a) The Borrower has no
Subsidiaries.
(b) At least 100% of all equity interests in the Borrower are owned
legally and beneficially by the Parent.
17
22
(c) Toreador Exploration & Production, Inc. is a wholly-owned
Subsidiary of Parent.
SECTION 6.5 Disclosure. No document, certificate or statement delivered
to the Lender by or on behalf of the Borrower in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact. All information heretofore furnished by the Borrower to the Lender for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all such information hereafter furnished by the Borrower to the
Lender will be, true and accurate in every material respect or based on
reasonable estimates on the date as of which such information is stated or
certified. The Borrower has disclosed to the Lender in writing any and all facts
(except facts of general public knowledge) which may have a Material Adverse
Effect (to the extent the Borrower can now reasonably foresee) or affect the
ability of the Borrower to perform its obligations under this Agreement.
SECTION 6.6 Financial Information.
(a) The Borrower is a newly formed Delaware corporation and has no
material liabilities, direct or contingent.
SECTION 6.7 Litigation. There is no action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting the
Borrower before any Tribunal or arbitrator in which there is a reasonable
possibility of an adverse decision which could materially and adversely affect
the business, financial position or results of operations of the Borrower, or
which could in any manner draw into question the validity of this Agreement or
any other Loan Papers.
SECTION 6.8 Plans. The Borrower has no Plans.
SECTION 6.9 Taxes and Filing of Tax Returns. The Borrower has filed or
properly extended all returns required to have been filed or extended with
respect to Taxes and has paid all Taxes shown to be due and payable by it on
such returns, including interest and penalties, and all other Taxes which are
payable by it, to the extent the same have become due and payable (unless, with
respect to such other Taxes, the criteria set forth in Section 7.5 are being
met). The Borrower does not know of any proposed assessment of Taxes of a
material amount against it and all liabilities for Taxes of the Borrower are
adequately provided for.
SECTION 6.10 Title to Properties; Liens; Environmental Liability; Type
of Interests. (a) The Borrower has good and indefeasible title to all Collateral
(except for Permitted Liens, minor defects in title and minor encumbrances not
in any case materially detracting from the value of the assets affected
thereby). All Property of the Borrower is free and clear of all Liens other than
Permitted Liens and Liens in favor of the Lender. Upon the recordation of the
Security Documents in the appropriate recordation offices, the Liens covering
the Collateral will be valid, enforceable, first and prior, perfected Liens in
favor of the Lender, except for Permitted Liens.
18
23
(b) The Borrower has not (i) received notice or otherwise learned of
any Environmental Liability which could individually or in the aggregate have a
Material Adverse Effect arising in connection with (A) any non-compliance with
or violation of the requirements of any Environmental Law or (B) the release or
threatened release of any toxic or hazardous waste, substance or constituent, or
other substance into the environment, or (ii) received notice or otherwise
learned of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any toxic or
hazardous waste, substance or constituent into the environment for which the
Borrower is or may be liable which would individually or in the aggregate have a
Material Adverse Effect.
(c) The Borrower is not acquiring and does not own any "working
interests" in oil and gas properties and, thus, is not and will not be obligated
to pay drilling expenses for xxxxx drilled on its Property or to bear any costs
of operations of any xxxxx now or hereafter on its Property.
SECTION 6.11 Business; Compliance. The Borrower has performed and
abided by all obligations required to be performed by it to the extent it could
be materially and adversely affected under any license, permit, order,
authorization, grant, contract, agreement, or regulation to which it is a party
or by which it or any of its Property is bound.
SECTION 6.12 Licenses, Permits, Etc. The Borrower possesses such valid
franchises, certificates of convenience and necessity, operating rights,
licenses, permits, consents, authorizations, exemptions and orders of Tribunals
as are necessary to carry on its business as now being conducted and to own its
properties.
SECTION 6.13 Compliance with Law. The business and operations of the
Borrower have been and are being conducted in material compliance with all
applicable laws, rules and regulations of all Tribunals, other than violations
which could not (either individually or collectively) have a Material Adverse
Effect.
SECTION 6.14 Governmental Consent. No consent, approval or
authorization of, or declaration or filing with, any governmental authority is
required for the valid execution, delivery and performance of this Agreement or
any other Loan Papers.
SECTION 6.15 Investment Company Act. The Borrower is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 6.16 Public Utility Holding Company Act; State Utility. (a) The
Borrower is not a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company," or of a "subsidiary company"
of a "holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
19
24
(b) The Borrower is not defined as a "utility" under the laws of the
State of Texas or any other jurisdiction wherein the Borrower is required to
qualify to do business.
SECTION 6.17. Year 2000 Preparedness. The Borrower has (i) initiated a
review and assessment of all areas within its business and operations (including
those affected by suppliers, vendors and customers) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower (or its suppliers, vendors and customers) may
be unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii) developed a
plan and timeline for addressing the Year 2000 Problem on a timely basis, and
(iii) to date, implemented that plan in accordance with that timetable. Based on
the foregoing, the Borrower believes that all computer applications (including
those of its suppliers, vendors and customers) that are material to its business
and operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
(that is, be "Year 2000 compliant"), except to the extent that a failure to do
so could not reasonably be expected to have Material Adverse Effect.
SECTION 6.18 Refunds; Certain Contracts. (a) No orders of, proceedings
pending before, or other requirements of, the Federal Energy Regulatory
Commission, the Texas Railroad Commission, or any Governmental Authority exist
which could result in the Borrower being required to refund any material portion
of the proceeds received or to be received from the sale of hydrocarbons
constituting part of the Collateral.
(b) The Borrower (i) is not obligated in any material respect by virtue
of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery, and (ii) has not
produced gas, in any material amount, subject to, and neither the Borrower nor
any of the Collateral is subject to, balancing rights of third parties or
subject to balancing duties under governmental requirements.
SECTION 6.19 No Default. No Default has occurred which is continuing as
of the Closing Date.
ARTICLE VII
COVENANTS
So long as any principal of or interest on the Note shall remain
unpaid, the Borrower will duly perform and observe each and all of the covenants
and agreements hereinafter set forth:
SECTION 7.1 Use of Proceeds. (a) The Borrower will use the proceeds of
the Loan solely to finance the acquisition of mineral and royalty interests.
20
25
(b) The Borrower will not, directly or indirectly, use any of the
proceeds of the Loan for the purpose of purchasing or carrying any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 C.F.R. 221, as amended), or any "security that is
publicly-held" within the meaning of Regulation T of such Board of Governors (12
C.F.R. 220, as amended), or otherwise take or permit any action which would
involve a violation of such Regulation U, Regulation T or Regulation X (12
C.F.R. 224, as amended) or any other regulation of such Board of Governors. The
Loan is not secured, directly or indirectly, in whole or in part, by collateral
that includes any "margin stock" within the meaning of Regulation U. The
Borrower will not engage principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
"margin stock" within the meaning of such Regulation U.
SECTION 7.2 Financial Statements; Reserve Reports; Compliance
Certificates; Certain Notices. The Borrower will furnish to the Lender:
(a) (i) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, copies of the consolidated balance
sheet of the Parent and its Subsidiaries as of the end of such fiscal year, and
copies of the related statements of operations, changes in stockholders' equity
and cash flow for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP and reported on (in an unqualified manner) by a
recognized firm of independent certified public accountants acceptable to the
Lender;
(ii) as soon as available and in any event within 90 days
after the end of each fiscal year of the Borrower, copies of the consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal
year, and copies of the related statements of operations, changes in
stockholders' equity and cash flow for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP;
(iii) on or before the 60th day after the last day of each
fiscal quarter, a copy of (A) the unaudited balance sheet of the Borrower as at
the close of such quarter and from the beginning of such fiscal year to the end
of such quarter and (B) the related statements of operations, changes in
stockholders' equity and cash flows for the quarter just ended and for that
portion of the year ending on such date, all in reasonable detail and prepared
on a basis consistent with the financial statements previously delivered under
this clause (ii) preceding;
(iv) simultaneously with the delivery of each set of financial
statements pursuant to the preceding clauses (ii) and (iii) of this Section, a
Compliance Certificate of the Borrower stating that such financial statements
fairly and accurately reflect the financial condition and results of operation
of the Borrower for the periods and as of the dates set forth therein, and that
the signers have reviewed the terms of this Agreement and the other Loan Papers,
and have made, or caused to be made under their supervision, a review of the
transactions and financial condition of the Borrower during the fiscal period
covered by such financial statements, and that such review has not disclosed
21
26
the existence during such period, and that the signers do not have knowledge of
the existence as of the date of such certificate, of any condition or event
which constitutes a Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Borrower has taken or is taking or proposes to take with respect thereto;
and
(v) within 60 days after each filing thereof by the Borrower
with any Governmental Authority, complete copies of the federal and state tax
returns so filed.
(b) (i) within 60 days following each January 1 and July 1,
production reports in form and substance satisfactory to the Lender in its
reasonable judgment, prepared by the Borrower containing data concerning
pricing, quantities of production from the oil and gas Properties of the
Borrower, volumes of production sold, purchasers of production, gross revenues,
expenses, production taxes, and such other information with respect thereto as
the Lender may reasonably request for use by the Lender to prepare for its own
exclusive use, internally generated engineering reports;
(ii) simultaneously with the delivery of such engineering and
production reports, an Officer's Certificate from the Borrower stating that such
engineering and production report fairly and accurately reflects the production
and the operating cash flow for the oil and gas Properties of the Borrower for
the periods covered in such report;
(iii) within 60 days following each month end, monthly reports
of oil, gas and liquids production volumes by major field and by total of all
fields, prepared by the Borrower; and
(iv) simultaneously with the delivery of the production report
referred to in clause (iii) an Officer's Certificate from the Borrower stating
that such production report fairly and accurately reflects the production of the
Borrower from the fields reflected in the report for the periods covered in such
report.
(c) (i) immediately after any Responsible Officer of the Borrower
becomes aware of the occurrence of any condition or event which constitutes a
Default, an Officer's Certificate of the Borrower specifying the nature of such
condition or event, the period of existence thereof, what action the Borrower
has taken or is taking and proposes to take with respect thereto and the date,
if any, on which it is estimated the same will be remedied;
(ii) if and when the Borrower (A) gives or is required to give
notice to the PBGC of any "reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC; (B) receives notice of complete or partial withdrawal liability under
Title IV of ERISA, a copy of such notice;
22
27
or (C) receives notice from the PBGC under Title IV of ERISA of an intent to
terminate or appoint a trustee to administer any Plan, a copy of such notice;
(iii) promptly after the delivery of the same to any lender of
any report required to be delivered pursuant to any debt instrument to which the
Borrower is a party and not otherwise required to be delivered hereunder, a copy
of such report;
(iv) promptly upon the Borrower's learning that it has
received notice or otherwise learned of any claim, demand, action, event,
condition, report or investigation indicating any potential or actual liability
which could reasonably be expected to have a Material Adverse Effect arising in
connection with (i) the non-compliance with or violation of the requirements of
any Environmental Law, (ii) the release or threatened release of any toxic or
hazardous waste, substance or constituent into the environment, or (iii) the
existence of any Environmental Lien on any Properties of the Borrower, notice
thereof;
(v) promptly upon the Borrower's learning of any litigation or
other event or circumstance which could have a Material Adverse Effect on the
Borrower, notice thereof;
(vi) within 60 days after the end of each fiscal quarter, the
change in identity or address of any Person remitting to the Borrower proceeds
from the sale of hydrocarbon production from or attributable to any Collateral
during such quarter; and
(vii) any Change of Control Event.
(d) with reasonable promptness, such other information relating
directly or indirectly to the financial condition, business or Properties of the
Borrower as from time to time may reasonably be requested by the Lender.
SECTION 7.3 Inspection of Properties and Books. The Borrower will
permit any officer, employee or agent of the Lender to visit and inspect any of
the Properties of the Borrower, to examine its books of account (and to make
copies thereof and take extracts therefrom) and to discuss its affairs, finances
and accounts (including transactions, agreements and other relations with any
shareholders) with, and to be advised as to the same by, its officers and
independent public accountants, all at such reasonable times and intervals as
the Lender may desire and, if a Default has occurred and is continuing, at the
expense of the Borrower.
SECTION 7.4 Maintenance of Security; Insurance; Operating Accounts;
Transfer Orders. (a) The Borrower shall execute and deliver, or cause the
appropriate Person to execute and deliver, to the Lender all mortgages, deeds of
trust, security agreements, financing statements, assignments and such other
documents and instruments (including division and transfer orders), and
supplements and amendments thereto, and take such other actions as the Lender
deems necessary or desirable in order to (i) maintain as valid, enforceable,
first-priority, perfected Liens (subject only to the
23
28
Permitted Liens), all Liens granted to the Lender to secure the Note or (ii)
monitor or control the proceeds therefrom.
(b) The Borrower will at all times maintain or cause to be maintained
insurance covering such risks as are customarily carried by businesses similarly
situated.
(c) The Borrower will maintain its primary operating accounts with the
Lender, although such requirement shall not be construed a requiring the
Borrower to maintain deposit balances with the Lender.
(d) Upon request of the Lender, the Borrower shall execute such
transfer orders, letters-in-lieu of transfer orders or division orders as the
Lender may from time to time request in respect of the Collateral to effect a
transfer and delivery to the Lender of the proceeds of production attributable
to the Collateral.
SECTION 7.5 Payment of Taxes and Claims. The Borrower will pay (a) all
Taxes imposed upon it or any of its assets or with respect to any of its
franchises, business, income or profits before any material penalty or interest
accrues thereon and (b) all material claims (including, without limitation,
claims for labor, services, materials and supplies) for sums which have become
due and payable and which have or might become a Lien (other than a Permitted
Lien) on any of its assets; provided, however, that no payment of such Taxes or
claims shall be required if (i) the amount, applicability or validity thereof is
currently being contested in good faith by appropriate action promptly initiated
and diligently conducted, (ii) the Borrower shall have set aside on its books
reserves (segregated to the extent required by GAAP) reasonably deemed by it to
be adequate with respect thereto, and (iii) the Borrower has notified the Lender
of such circumstances, in detail satisfactory to the Lender.
SECTION 7.6 Payment of Debt; Additional Debt. (a) The Borrower will (i)
pay, renew or extend or cause to be paid, renewed or extended the principal of,
and the prepayment charge, if any, and interest on all Debt heretofore or
hereafter incurred or assumed by it when and as the same shall become due and
payable; (ii) faithfully perform, observe and discharge all unwaived covenants,
conditions and obligations imposed on it by any instrument evidencing such Debt
or by any indenture or other agreement securing such Debt or pursuant to which
such Debt is issued; and (iii) not permit the occurrence of any act or omission
which would constitute a default under any such instrument, indenture or
agreement.
(b) The Borrower will not create, incur or suffer to exist any Debt,
except without duplication (a) Debt to the Lender and (b) Permitted
Indebtedness.
SECTION 7.7 Liens. The Borrower will not create, suffer to exist or
otherwise allow any Liens to be on or otherwise to affect any of its oil and gas
and mineral Properties whether now owned or hereafter acquired, except Permitted
Liens.
24
29
SECTION 7.8 Loans and Advances to Others; Investments; Restricted
Payments. (a) The Borrower will not make or suffer to exist any loan, advance or
extension of credit to any Person except (i) current trade and customer accounts
receivable which are for goods furnished or services rendered in the ordinary
course of business and which are payable in accordance with customary trade
terms and (ii) Permitted Loans and Investments.
(b) the Borrower will not make any capital contribution to or to
acquire any Investment in, or to purchase or make a commitment to purchase any
interest in, any Person except as set forth in clause (a) above.
(c) The Borrower will not, directly or indirectly, make any Restricted
Payment without the prior written consent of the Lender.
(d) The Borrower shall not form or acquire any Subsidiaries without the
prior written consent of the Lender and the amendment of this Agreement.
SECTION 7.9 Consolidation, Merger, Maintenance, Change of Control;
Disposition of Property; Restrictive Agreements; Hedging Agreements; Issuance of
Securities. (a) The Borrower will not: (i) consolidate or merge with or into any
other Person (unless the Borrower is the surviving entity and no Default has
occurred and is continuing or will result from such merger or consolidation)
without the prior written consent of the Lender, (ii) sell, lease or otherwise
transfer all or substantially all of its Property to any other Person, (iii)
terminate, or fail to maintain, its existence as a corporation in its state of
incorporation represented in Section 6.1(a) or (iv) terminate, or fail to
maintain, its good standing and qualification to transact business in all
jurisdictions where the nature of its business requires the same (except where
the failure to maintain its good standing or qualification could not reasonably
be expected to have a Material Adverse Effect) or (v) permit a Change of Control
Event to occur.
(b) The Borrower will not sell, encumber, or otherwise transfer all or
any portion of the Collateral or any of its other oil and gas or mineral
Properties without the prior written consent of the Lender, except for (i) sales
of oil and gas after severance in the ordinary course of business provided that
no contract for the sale of hydrocarbons shall obligate the Borrower to deliver
hydrocarbons produced from any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery or (ii) the sale or
other disposition of its personal Property destroyed, worn out, damaged, or
having only salvage value. Any consent by the Lender to the sale of Collateral
or other Property of the Borrower may include a requirement that a new Borrowing
Base be determined under Section 2.7(a) and that the proceeds of such sale plus
such additional amounts as the Lender deems necessary to avoid the occurrence of
a Borrowing Base Deficiency be applied to the Obligations. In this connection,
the Lender will not unreasonably withhold its consent to sales during any
12-month period of Property of the Borrower, in the aggregate, having Collateral
Value of up to 20% of all Property of the Borrower having Collateral Value.
25
30
(c) The Borrower will not be or become party to or bound by any
agreement (including, without limitation, any undertaking in connection with the
incurrence of Debt or issuance of securities) which imposes any limitation on
the disposition of the Collateral more restrictive than those set forth above or
which in any way would be contravened by the Borrower's performance of its
obligations hereunder or under the other Loan Papers or which contains any
negative pledge on all or any portion of the Borrower's Property (except in
favor of the Lender).
(d) The Borrower will not enter into any Hedging Agreement, other than
Acceptable Hedging Agreements.
(e) The Borrower will not issue any common stock or other equity
securities to any Person without the prior written consent of the Lender.
SECTION 7.10 Primary Business; Location of Borrower's Office; Ownership
of Assets. (a) The primary business of the Borrower shall be and remain the
ownership of mineral and royalty interests. The Borrower shall not be or become
a working interest owner obligated to pay the drilling, completion, reworking or
operational expenses with respect to any oil and gas or mineral Property without
the prior written consent of the Lender.
(b) The location of the Borrower's principal place of business and
executive office shall remain at the address for the Borrower set forth on the
signature page hereof, unless at least 10 days prior to any change in such
address the Borrower provides the Lender with written notice of such pending
change.
(c) The Borrower will at all time own, both beneficially and of record,
all assets reflected in its financial statements delivered to the Lender from
time to time.
SECTION 7.11 Changes to Certain Contracts. (a) The Borrower will not
amend, alter or change in any material respect which could reasonably be
expected to be adverse to the interests of the Borrower or the Lender any
agreements relating to the Borrower's operations or business arrangements or the
sale or transportation of oil and gas without the prior written consent of the
Lender, which consent shall not be unreasonably withheld.
SECTION 7.12 Transactions with Affiliates. The Borrower will not engage
in any transaction with an Affiliate unless (i) such transaction is at least as
favorable to the Borrower as could be obtained in an arm's length transaction
with an unaffiliated third party, (ii) such transaction is not disadvantageous
to the Lender as holder of the Note and (iii) the Lender is advised in writing
of the terms of such transaction prior to the consummation thereof.
SECTION 7.13 Plans. The Borrower will not assume or otherwise become
subject to an obligation to contribute to or maintain any Plan or acquire any
Person which has at any time had an obligation to contribute to or maintain any
Plan.
26
31
SECTION 7.14 Compliance with Laws and Documents. The Borrower will not,
directly or indirectly, violate the provisions of any laws, its certificate of
incorporation (or similar organizational documents) or bylaws (or similar
regulatory documents) or any Material Agreement, if such violation, alone or
when combined with all other such violations, could have a Material Adverse
Effect.
SECTION 7.15 Certain Financial Covenants.
(a) Current Ratio. The Borrower will not permit its ratio of Current
Assets to its Current Liabilities to be less than 1.25 to 1.00, determined as of
the end of each fiscal quarter of the Borrower ending on or after March 31,
1999.
"Current Assets" means the current assets of the Borrower, but
excluding the current portion of Intangible Assets and amounts due from
officers, directors and shareholders of the Borrower.
"Current Liabilities" means the current liabilities of the Borrower,
exclusive of the current portion of the Note.
(b) Limitation of General and Administrative Expense. The Borrower will
not permit its general and administrative expense as determined under GAAP for
any fiscal quarter to exceed $50,000.
SECTION 7.16 Additional Documents; Quantity of Documents; Title Data;
Additional Information. (a) The Borrower shall execute and deliver or cause to
be executed and delivered such other and further instruments or documents as in
the reasonable judgment of the Lender may be required to better effectuate the
transactions contemplated herein and in the other Loan Papers.
(b) The Borrower will deliver all certificates, opinions, reports and
documents hereunder in such number of counterparts as the Lender may reasonably
request.
(c) The Borrower shall cause to be delivered to the Lender such title
opinions as the Lender may from time to time reasonably request, in form and
substance and from attorneys acceptable to the Lender, covering such portions of
the Collateral as the Lender may from time to time specify.
(d) The Borrower shall furnish to the Lender, promptly upon the request
of the Lender, such additional financial or other information concerning the
assets, liabilities, operations, and transactions of the Borrower as the Lender
may from time to time reasonably request; and notify the Lender not less than
ten Business Days prior to the occurrence of any condition or event that may
change the proper location for the filing of any financing statement or other
public notice or recording for the purpose of perfecting a Lien in any
Collateral, including, without limitation, any change in its name or the
location of its principal place of business or chief executive office; and
27
32
upon the request of the Lender, execute such additional Security Instruments as
may be necessary or appropriate in connection therewith.
SECTION 7.17 ENVIRONMENTAL INDEMNIFICATION. THE BORROWER SHALL
INDEMNIFY, DEFEND AND HOLD THE LENDER AND ITS SHAREHOLDERS, OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE
BENEFIT OF THE LENDER UNDER ANY SECURITY INSTRUMENT (COLLECTIVELY, THE
"INDEMNIFIED PARTIES") HARMLESS ON A CURRENT BASIS 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, REASONABLE ATTORNEYS' FEES
AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE
BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED
ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR
DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE,
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER
PERSON 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, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF
THE BORROWER, OR (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES
ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE,
TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER OR ANY
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS
ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER,
IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN
ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, INCLUDING ANY OF THE FOREGOING
IN THIS SECTION ARISING FROM THE SOLE NEGLIGENCE, COMPARATIVE NEGLIGENCE OR
CONCURRENT NEGLIGENCE OF THE INDEMNIFIED PARTIES, BUT NOT ANY OF THE FOREGOING
IN THIS SECTION ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE
PART OF THE INDEMNIFIED PARTY SEEKING INDEMNIFICATION UNDER THIS SECTION; WITH
THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE
TERMINATION OF THIS AGREEMENT.
28
33
SECTION 7.18. Year 2000. The Borrower will promptly notify the Lender
in the event the Borrower discovers or determines that any computer application
(including those of its suppliers, vendors and customers) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
compliant, except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect.
SECTION 7.19 Exceptions to Covenants. The Borrower shall not be
permitted to take any action which is permitted by any of the covenants
contained in this Agreement if such action is in breach of any other covenant
contained in this Agreement.
ARTICLE VIII
DEFAULTS; REMEDIES
SECTION 8.1 Events of Default; Acceleration of Maturity. If any one or
more of the following events (each an "Event of Default") shall have occurred
and be continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body or otherwise):
(a) the Borrower shall fail to pay, when due, any principal of, or
interest on, the Note or any fees or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant or
agreement contained in Sections 7.1, 7.6(b), 7.7, 7.8 or 7.9;
(c) the Borrower or any other Person (other than the Lender) shall fail
to observe or perform any covenant or agreement contained in this Agreement or
the other Loan Papers (other than those covered by Sections 8.1(a) or (b)), for
a period of fifteen (15) days after the earlier of (i) any Responsible Officer
of the Borrower shall become aware or reasonably should have become aware
(regardless of the source of such awareness) of such default or (ii) written
notice specifying such default has been given to the Borrower by the Lender;
(d) the Borrower or either Guarantor shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate or other action to authorize any of the
foregoing;
29
34
(e) an involuntary case or other proceeding shall be commenced against
the Borrower or either Guarantor seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed or unstayed for a period of 30 days; or an order for
relief shall be entered against the Borrower or either Guarantor under the
federal bankruptcy laws as now or hereafter in effect;
(f) the Borrower shall fail to pay, when due, any amount which it shall
have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any Plan or a proceeding shall be
instituted by a fiduciary of any Plan against the Borrower to enforce Section
515 of ERISA; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan must be terminated;
(g) the Borrower or either Guarantor (i) shall default in the payment
of any of their respective Debts (other than the Note) and such default shall
continue beyond any applicable cure period, (ii) shall default in the
performance or observance of any other provision contained in any agreements or
instruments evidencing or governing such Debt and such default is not waived and
continues beyond any applicable cure period, or (iii) any other event or
condition occurs which results in the acceleration of such Debt;
(h) one or more judgments or orders for the payment of money
aggregating in excess of $50,000 shall be rendered against the Borrower or
either Guarantor and such judgment or order (i) shall continue unsatisfied or
unstayed (unless bonded with a supersedeas bond at least equal to such judgment
or order) for a period of 30 days, or (ii) is not fully paid and satisfied at
least ten (10) days prior to the date on which any of its Property may be
lawfully sold to satisfy such judgment or order;
(i) any representation, warranty, certification or statement made or
deemed to have been made by or on behalf of the Borrower in this Agreement or by
the Borrower or any other Person in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any respect when made if such incorrect representation, warranty,
certification or statement (i) could reasonably be expected to have any material
adverse effect whatsoever upon the validity, performance or enforceability of
any Loan Paper, (ii) is or might reasonably be expected to be material and
adverse to the financial condition or business operations of any Person or to
the prospects of any Person, (iii) could reasonably be expected to impair the
Borrower's ability to fulfill its obligations under the terms and conditions of
the Loan Papers, or (iv) could reasonably be expected to impair the Lender's
ability to receive full and timely payment of the Note;
(j) if any default shall have occurred and be continuing under any
Security Document;
30
35
(k) any material license, franchise, permit, or authorization issued to
the Borrower by any Tribunal is forfeited, revoked, or not renewed; or any
proceeding with respect to such forfeiture or revocation is instituted and is
not resolved or dismissed within one year of the date of the publication of the
order instituting such proceeding; or
(l) a default shall occur which shall not be cured or waived within ten
(10) Business Days under any Material Agreement, other than this Agreement, to
which the Borrower is a party or by which any of its Property is bound; or
(m) a Change of Control Event shall occur;
then, and in every such event, the Lender may, at its option, (i) declare the
outstanding principal balance of and accrued interest on the Note to be, and the
same shall thereupon forthwith become, due and payable without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration or other
notice of any kind, all of which are hereby waived by the Borrower, (ii) proceed
to foreclose the Liens securing the Note, and (iii) take such other actions as
are permitted by law; provided that in the case of any of the Events of Default
specified in clauses (d) or (e) above with respect to the Borrower, without any
notice to the Borrower or any other act by the Lender, the Note (together with
accrued interest thereon) shall become immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby waived by the
Borrower.
SECTION 8.2 Suits for Enforcement. In case any one or more of the
Events of Default specified in Section 8.1 shall have occurred and be
continuing, the Lender may, at its option, proceed to protect and enforce its
rights either by suit in equity or by action of law, or both, whether for the
specific performance of any covenant or agreement contained in this Agreement or
in aid of the exercise of any power granted in this Agreement.
SECTION 8.3 Remedies Cumulative. No remedy herein conferred upon the
Lender is intended to be exclusive of any other remedy and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
SECTION 8.4 Remedies Not Waived. No course of dealing and no delay in
exercising any rights under this Agreement or under the other Loan Papers shall
operate as a waiver of any rights hereunder or thereunder of the Lender.
31
36
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Amendments and Waivers. (a) Any term, covenant, agreement
or condition of this Agreement or any other Loan Paper may be amended, or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively) by a written instrument signed by the
Borrower and the Lender.
(b) No failure or delay by the Lender in exercising any right, power or
privilege under this Agreement or any other Loan Paper shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law or in equity or in any of the other Loan
Papers.
SECTION 9.2 Highest Lawful Interest Rate. Regardless of any provision
contained in any of the Loan Papers, the Lender shall never be entitled to
receive, collect, or apply as interest on all or any part of the Loan, any
amount in excess of the Highest Lawful Rate in effect from day to day, and, in
the event the Lender ever receives, collects, or applies as interest any such
excess, such amount which would be deemed excessive interest shall be deemed a
partial prepayment of the principal of the Loan and treated hereunder as such;
and, if the entire principal amount of the Loan owed to the Lender is paid in
full, any remaining excess shall be repaid to the Borrower. In determining
whether the interest paid or payable, under any specific contingency, exceeds
the Highest Lawful Rate in effect from day to day, the Borrower and the Lender
shall, to the maximum extent permitted under applicable law, (i) characterize
any nonprincipal payment as an expense, fee, or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the Loan so that the interest rate is uniform throughout
the entire term of the Loan; provided that, if the interest received by the
Lender for the actual period of existence thereof exceeds the Highest Lawful
Rate in effect from day to day, the Lender shall apply or refund to the Borrower
the amount of such excess as provided in this Section, and, in such event, the
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving, or receiving interest in excess of
the Highest Lawful Rate in effect from day to day.
SECTION 9.3 INDEMNITY. (A) WHETHER OR NOT ANY LOAN IS EVER FUNDED, THE
BORROWER AGREES TO INDEMNIFY AND DEFEND AND HOLD HARMLESS ON A CURRENT BASIS THE
LENDER AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND ATTORNEYS, AND EACH OF
THEM (THE "INDEMNIFIED PARTIES"), FROM AND AGAINST ANY AND ALL LIABILITIES,
LOSSES, DAMAGES, COSTS, INTEREST, CHARGES, COUNSEL FEES AND OTHER EXPENSES AND
PENALTIES OF ANY KIND WHICH ANY OF THE INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR
IN CONNECTION WITH ANY INVESTIGATIVE,
32
37
ADMINISTRATIVE OR JUDICIAL PROCEEDING (WHETHER OR NOT THE LENDER SHALL BE
DESIGNATED A PARTY THERETO) OR OTHERWISE BY REASON OF OR ARISING OUT OF THE
EXECUTION AND DELIVERY OF THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS AND/OR
THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH
INDEMNIFIED PARTY SHALL BE INDEMNIFIED UNDER THIS SECTION WITHOUT REGARD TO THE
CAUSE OR THE NEGLIGENCE OF ANY INDEMNIFIED PARTY, WHETHER SUCH NEGLIGENCE BE THE
SOLE NEGLIGENCE, COMPARATIVE NEGLIGENCE OR CONCURRENT NEGLIGENCE OF ANY
INDEMNIFIED PARTY.
(b) Any amount to be paid under this Section to the Lender shall be a
demand obligation owing by the Borrower and if not-paid within ten days of
demand shall bear interest from the date of expenditure by the Lender until paid
at a per annum rate equal to the lesser of (i) the Default Rate or (ii) the
Highest Lawful Rate. The obligations of the Borrower under this Section shall
survive payment of the Note and the assignment of any right hereunder.
SECTION 9.4 Expenses. (a) Whether or not the Loan is ever funded, the
Borrower shall pay (i) all out-of-pocket expenses of the Lender, including,
without limitation, fees and disbursements of counsel for the Lender in
connection with the preparation of this Agreement and the other Loan Papers
(including, without limitation, the furnishing of any written or oral opinions
or advice incident to this transaction) and, if appropriate, the recordation of
the Loan Papers, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder, and (ii) if an Event of Default occurs,
all out-of-pocket expenses incurred by the Lender, including, without
limitation, fees and disbursements of counsel in connection with such Event of
Default and collection and other enforcement proceedings resulting therefrom,
fees of auditors, consultants, engineers and other Persons incurred in
connection therewith (including, without limitation, the supervision,
maintenance or disposition of the Collateral) and investigative expenses
incurred by the Lender in connection therewith, which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to the Borrower
by the Lender and which amounts shall include, but not be limited to (A) all
court costs, (B) reasonable attorneys' fees, (C) reasonable fees and expenses of
auditors and accountants incurred to protect the interests of the Lender, (D)
fees and expenses incurred in connection with the participation by the Lender as
a member of the creditors' committee in a case commenced under any Insolvency
Proceeding, (E) fees and expenses incurred in connection with lifting the
automatic stay prescribed in Section 362 Title 11 of the United States Code, and
(F) fees and expenses incurred in connection with any action pursuant to Section
1129 Title 11 of the United States Code all reasonably incurred by the Lender in
connection with the collection of any sums due under the Loan Papers, together
with interest at the per annum interest rate equal to the Default Rate,
calculated on a basis of a calendar year of 365 or 366 days, as the case may be,
counting the actual number of days elapsed, on each such amount from the date of
notification that the same was expended, advanced, or incurred by the Lender
until the date it is repaid to the Lender, with the obligations under this
Section surviving the non-assumption of this Agreement in a case commenced under
any Insolvency Proceeding and being binding upon the Borrower and/or a trustee,
receiver, custodian, or liquidator of the Borrower appointed in any such case.
33
38
(b) THE BORROWER SHALL INDEMNIFY THE LENDER AGAINST ANY TRANSFER TAXES,
DOCUMENTARY TAXES, ASSESSMENTS OR CHARGES MADE BY ANY GOVERNMENTAL AUTHORITY BY
REASON OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE OTHER LOAN PAPERS.
(c) Any amount to be paid under this Section to the Lender shall be a
demand obligation owing by the Borrower and if not paid within ten days of
demand shall bear interest from the date of expenditure by the Lender until paid
at a per annum rate equal to the lessor of the Default Rate or the Highest
Lawful Rate. The obligations of the Borrower under this Section shall survive
payment of the Note and the assignment of any right hereunder.
SECTION 9.5 Taxes. The Borrower will, to the extent they may lawfully
do so, pay all Taxes (including interest and penalties but expressly excluding
federal or state income taxes) which may be payable in respect of the execution
and delivery of this Agreement or the other Loan Papers, or in respect of any
amendment of or waiver under or with respect to the foregoing, and will save the
Lender harmless against any loss or liability resulting from nonpayment or delay
in payment of any such Taxes (as limited above). The obligations of the Borrower
under this Section shall survive the payment of the Note and the assignment of
any right hereunder.
SECTION 9.6 Notices. Except as specifically provided otherwise herein,
all notices, requests and other communications to any party hereunder shall be
in writing (including by telecopy or similar writing) and shall be given to such
party at its address and to the attention of the Person set forth on the
signature pages hereof (or in the case of notices to the Borrower, to the
attention of any officer, or other Person holding a similar position, of the
Borrower) or such other address or telecopy number or Person as such party may
hereafter specify for such purpose by notice to the other party. Each such
notice, request or other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopier number specified
in this Section and the receipt thereof is acknowledged, (ii) if given by mail,
72 hours after such communication is deposited in the mails (certified, return
receipt requested) addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section or otherwise delivered
to the Borrower, provided that notice to the Lender under Section 2.2 shall not
be effective until received, and provided further that, oral notices to the
Borrower of decreases in the Borrowing Base shall be effective when communicated
to the Borrower.
SECTION 9.7 Right of Set-Offs. (a) Upon the occurrence and during the
continuance of any Event of Default, the Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Lender
to or for the credit or the account of the Borrower against the obligations of
the Borrower to the Lender, irrespective of whether or not the Lender shall have
made any demand under this Agreement or any other Loan Paper and although such
obligations may be unmatured. The Lender agrees promptly to notify the Borrower
after any such set-off and application made by the Lender, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of
34
39
the Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Lender may
have.
(b) The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in the Loan may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.8 Survival. All representations, warranties and covenants
made by or on behalf of the Borrower in this Agreement or the other Loan Papers
herein or in any certificate or other instrument delivered by it or in its
behalf under the Loan Papers shall be considered to have been relied upon by the
Lender and shall survive the delivery to the Lender of such Loan Papers or the
extension of the Loan (or any part thereof), regardless of any investigation
made by or on behalf of the Lender.
SECTION 9.9 Successors and Assigns: Rights of Other Holders. (a) This
Agreement shall be binding on the parties hereto and their respective successors
and inure to the benefit of and be enforceable by the Lender, its legal
representatives, successors and assigns. With respect to the Borrower, this
Agreement and the other Loan Papers and the rights of the Borrower hereunder and
thereunder shall not be assignable in any respect.
(b) The Lender may at any time sell, transfer, assign, or grant
participations in the Obligations or any portion thereof; and the Lender may
forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable. The
Borrower agrees that each Transferee, regardless of the nature of any transfer
to it, may exercise all rights (including, without limitation, rights of
set-off) with respect to the portion of the Obligations held by it as fully as
if such Transferee were the direct holder thereof, subject to any agreements
between such Transferee and the transferor to such Transferee.
SECTION 9.10 APPLICABLE LAW; VENUE; WAIVER OF JURY TRIAL. (a) THIS
AGREEMENT HAS BEEN NEGOTIATED, IS BEING EXECUTED AND DELIVERED, AND WILL BE
PERFORMED IN WHOLE OR IN PART, IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THE
LOAN PAPERS, EXCEPT TO THE EXTENT THE LAWS OF ANY JURISDICTION WHERE COLLATERAL
IS LOCATED REQUIRE APPLICATION OF SUCH LAWS WITH RESPECT TO SUCH COLLATERAL.
(b) ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR
INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE
LENDER, IN COURTS HAVING
35
00
XXXXX XX XXXXXX, XXXXXX XXXXXX, XXXXX. THE BORROWER HEREBY SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN DALLAS, DALLAS
COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN
ACCORDANCE WITH THIS SECTION.
(c) THE BORROWER AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT
RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR
PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH
RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR
THE LENDER ENTERING INTO THIS AGREEMENT.
SECTION 9.11 Headings. The headings in this Agreement are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof and
words such as "hereunder" or " herein" shall refer to the entirety of this
Agreement unless specifically indicated otherwise.
SECTION 9.12 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument. This Agreement shall become
effective at such time as the counterparts hereof which, when taken together,
bear the signature of the Borrower and the Lender, shall be delivered to the
Lender.
SECTION 9.13 Invalid Provisions, Severability. If any provision of this
Agreement or the other Loan Papers is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term hereof or
thereof, such provision shall be fully severable, this Agreement and the other
Loan Papers shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions hereof and thereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by its
severance therefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as a part of this
Agreement or the other Loan Papers a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid and enforceable.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
36
41
SECTION 9.14 PRECLUSION OF ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER:
TORMIN, INC.
0000 Xxxx Xxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000 By: /s/ G. XXXXXX XXXXXX, III
Telecopy: 214/521-3774 ----------------------------------------
Name: G. Xxxxxx Xxxxxx, III
Title: President
LENDER:
COMPASS BANK
0000 X. Xxxxxxx Xxxxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000 By: /s/ XXXXX X. XXXXX
Attention: Energy Group ----------------------------------------
Telecopy: 214/706-8054 Name: Xxxxx X. Xxxxx
Title: Assistant Vice President
37
