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EXHIBIT 4.4
LOAN AGREEMENT
$25,000,000.00
SECURED REDUCING REVOLVING LINE OF CREDIT
FROM
COMPASS BANK
TO
CARRIZO OIL & GAS, INC.
December 6, 1996
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TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.01 The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.02 Advances and Payments of Principal Under the Note . . . . . 9
2.03 Payments of Interest under the Note . . . . . . . . . . . . 9
2.04 Provisions Relating to Interest . . . . . . . . . . . . . . 10
2.05 Advances to Satisfy Obligations of Borrower . . . . . . . . 11
2.06 Mandatory Prepayment of the Notes . . . . . . . . . . . . . 11
2.07 Borrowing Base Determination . . . . . . . . . . . . . . . . 11
2.08 Assignment of Production . . . . . . . . . . . . . . . . . . 14
2.09 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . 14
2.10 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . 15
2.11 Addition of Borrowing Properties . . . . . . . . . . . . . . 15
2.12 Letters of Credit . . . . . . . . . . . . . . . . . . . . . 15
2.13 Repayment of Letters of Credit . . . . . . . . . . . . . . . 16
2.14 Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.01 Receipt of Note, Agreement and Certificate of Compliance . . 16
3.02 Receipt of Guaranty . . . . . . . . . . . . . . . . . . . . 16
3.03 Receipt of Organizational Documents . . . . . . . . . . . . 16
3.04 Receipt of Certified Copy of Corporate Proceedings and
Certificates of Incumbency . . . . . . . . . . . . . . . . . 16
3.05 Receipt of Certificates of Authority and Certificates of
Good Standing . . . . . . . . . . . . . . . . . . . . . . . 17
3.06 UCC Search . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.07 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.08 Financial Statements . . . . . . . . . . . . . . . . . . . . 17
3.09 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . 17
3.10 Payment of Other Indebtedness and Release of Liens . . . . . 17
3.11 Subordination Agreement . . . . . . . . . . . . . . . . . . 17
3.12 Request for Advance . . . . . . . . . . . . . . . . . . . . 18
3.13 Accuracy of Representations and Warranties and No Event of
Default . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.14 Legal Matters Satisfactory to Counsel to Bank . . . . . . . 18
3.15 No Material Adverse Change . . . . . . . . . . . . . . . . . 18
3.16 Status of Title . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Security Instruments . . . . . . . . . . . . . . . . . . . . 18
3.18 Legal Fees . . . . . . . . . . . . . . . . . . . . . . . . . 18
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3.19 Documents Required for Subsequent Disbursements . . . . . . 19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 19
4.01 Existence and Good Standing . . . . . . . . . . . . . . . . 19
4.02 Due Authorization . . . . . . . . . . . . . . . . . . . . . 19
4.03 Valid and Binding Obligations . . . . . . . . . . . . . . . 19
4.04 Title to Borrowing Base Properties . . . . . . . . . . . . . 20
4.05 Oil and Gas Leases . . . . . . . . . . . . . . . . . . . . . 20
4.06 Interest in the Borrowing Base Oil and Gas Properties . . . 20
4.07 Oil and Gas Contracts . . . . . . . . . . . . . . . . . . . 20
4.08 Producing Xxxxx . . . . . . . . . . . . . . . . . . . . . . 21
4.09 Purchasers of Production . . . . . . . . . . . . . . . . . . 21
4.10 Scope and Accuracy of Financial Statements . . . . . . . . . 21
4.11 Liabilities, Litigation and Restrictions . . . . . . . . . . 22
4.12 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . 22
4.13 Authorizations and Consents . . . . . . . . . . . . . . . . 22
4.14 Compliance with Laws, Rules, Regulations and Orders . . . . 22
4.15 Proper Filing of Tax Returns and Payment of Taxes Due . . . 23
4.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.17 Investment Company Act Compliance . . . . . . . . . . . . . 23
4.18 Public Utility Holding Company Act Compliance . . . . . . . 23
4.19 Environmental Laws . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 24
5.01 Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . 25
5.02 Maintenance and Access to Records . . . . . . . . . . . . . 25
5.03 Quarterly Unaudited Financial Statements of Borrower . . . . 25
5.04 Annual Audited Financial Statements of Borrower . . . . . . 25
5.05 Annual Unaudited Financial Statements of Guarantor . . . . . 25
5.06 Guarantor's Tax Returns. . . . . . . . . . . . . . . . . . . 25
5.07 Compliance Certificate . . . . . . . . . . . . . . . . . . . 25
5.08 Monthly Borrowing Base Certificate . . . . . . . . . . . . . 26
5.09 Statement of Material Adverse Change in Condition . . . . . 26
5.10 Additional Information . . . . . . . . . . . . . . . . . . . 26
5.11 Compliance with Laws and Payment of Assessments and Charges 26
5.12 Maintenance of Existence and Good Standing . . . . . . . . . 26
5.13 Further Assurances . . . . . . . . . . . . . . . . . . . . . 26
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5.14 Initial Expenses of Bank . . . . . . . . . . . . . . . . . . 27
5.15 Subsequent Expenses of Bank . . . . . . . . . . . . . . . . 27
5.16 Maintenance of Tangible Property . . . . . . . . . . . . . . 27
5.17 Maintenance of Insurance . . . . . . . . . . . . . . . . . . 28
5.18 Inspection of Tangible Assets/Right of Audit . . . . . . . . 28
5.19 Payment of Note and Performance of Obligations . . . . . . . 28
5.20 ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . 28
5.21 Tangible Net Worth Requirement . . . . . . . . . . . . . . . 28
5.22 Cash Flow to Debt Service Ratio . . . . . . . . . . . . . . 28
5.23 Compliance with Environmental Laws . . . . . . . . . . . . . 29
5.24 Hazardous Substances Indemnification . . . . . . . . . . . . 29
5.25 Changes in Management . . . . . . . . . . . . . . . . . . . 30
5.26 Operating Accounts . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 30
6.01 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . 30
6.02 Guaranty of Payment or Performance . . . . . . . . . . . . . 31
6.03 Loans or Advances . . . . . . . . . . . . . . . . . . . . . 31
6.04 Mortgages or Pledges of Assets . . . . . . . . . . . . . . . 31
6.05 Nature of Business . . . . . . . . . . . . . . . . . . . . . 31
6.06 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . 31
6.07 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.08 Payment of Accounts Payable . . . . . . . . . . . . . . . . 31
6.09 Cancellation of Insurance . . . . . . . . . . . . . . . . . 31
6.10 Investments . . . . . . . . . . . . . . . . . . . . . . . . 31
6.11 Changes in Business Structure . . . . . . . . . . . . . . . 32
6.12 Shareholder Control . . . . . . . . . . . . . . . . . . . . 32
6.13 Transactions with Affiliates . . . . . . . . . . . . . . . . 32
ARTICLE VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 32
7.01 Enumeration of Events of Default . . . . . . . . . . . . . . 32
7.02 Rights Upon Default . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 34
8.01 Security Interests in Deposits and Right of Offset or Banker's
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.02 Survival of Representations, Warranties and Covenants . . . 34
8.03 Notices and Other Communications . . . . . . . . . . . . . . 34
8.04 Parties in Interest . . . . . . . . . . . . . . . . . . . . 35
8.05 Renewals and Extensions . . . . . . . . . . . . . . . . . . 35
8.06 No Waiver by Bank . . . . . . . . . . . . . . . . . . . . . 35
8.07 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 35
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8.08 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . 36
8.09 Incorporation of Exhibits . . . . . . . . . . . . . . . . . 36
8.10 Survival Upon Unenforceability . . . . . . . . . . . . . . . 36
8.11 Rights of Third Parties . . . . . . . . . . . . . . . . . . 36
8.12 Amendments or Modifications of this Agreement . . . . . . . 36
8.13 Agreement Construed as an Entirety . . . . . . . . . . . . . 36
8.14 Number and Gender . . . . . . . . . . . . . . . . . . . . . 36
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS . . . . . . . . . 37
8.16 Controlling Provision Upon Conflict . . . . . . . . . . . . 37
8.17 Time, Place and Method of Payments . . . . . . . . . . . . . 37
8.18 Counterpart Execution . . . . . . . . . . . . . . . . . . . 37
EXHIBITS
EXHIBIT A Compliance Certificate
EXHIBIT B Note
EXHIBIT C Security Instruments
EXHIBIT D Form of Request for Advance
EXHIBIT E Form of Monthly Borrowing Base Certificate
SCHEDULES
1.01(a) Borrowing Base Oil and Gas Properties
1.01(b) Borrowing Base Cash
2.07 Borrowing Base Adjustment for Successfully Completed Xxxxx
3.09 Form of Opinion of Counsel for Borrower
3.10 Indebtedness to be Discharged
3.11 Indebtedness to be Subordinated
4.09 Purchasers of Production
4.11 Litigation
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LOAN AGREEMENT
THIS LOAN AGREEMENT, is entered into as of the 6th day of
December 1996, by and among CARRIZO OIL & GAS, INC., a Texas corporation (the
"Borrower") and COMPASS BANK, a Texas chartered bank (the "Bank").
W I T N E S S E T H
WHEREAS, Borrower desires to obtain a loan from Bank in order to
refinance existing debt, acquire additional oil and gas reserves, conduct
developmental drilling, obtain letters of credit, and use as working capital
for other ordinary business of Borrower; and
WHEREAS, each Guarantor is a stockholder in Borrower, and
together constitute all of the stockholders of Borrower, and accordingly,
Guarantor will benefit from the loans to Borrower pursuant to this Agreement;
and
WHEREAS, Bank is willing to loan such funds to Borrower in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, Bank and Borrower agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings indicated:
"Affiliate" means, as applied to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
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"Agreement" means this Loan Agreement, as the same may be amended
or supplemented from time to time.
"Bank" has the meaning set forth in the preamble hereof.
"Borrower" has the meaning set forth in the preamble hereof.
"Borrowing Base" means the aggregate sum of: (a) Three Million
Dollars ($3,000,000.00), plus (b) the maximum loan amount supported by the
Borrowing Base Properties, as determined by Bank from time to time in
accordance with Section 2.07 of this Agreement.
"Borrowing Base Properties" means the Borrowing Base Oil and Gas
Properties, the Borrowing Base Cash, and the Borrowing Base Securities.
"Borrowing Base Oil and Gas Properties" means those Oil and Gas
Properties of Borrower that are to be made subject to the liens created by
certain of the Security Instruments to secure the Obligations, which initial
Borrowing Base Oil and Gas Properties are described in Schedule 1.01(a)
attached hereto and made a part hereof, together with such additional Oil and
Gas Properties as are subsequently added to the Borrowing Base Properties
pursuant to Section 2.11.
"Borrowing Base Cash" means the Cash and Cash Equivalent of
Borrower that is to be made subject to the liens created by certain of the
Security Instruments to secure the Obligations, which initial Borrowing Base
Cash is described in Schedule 1.01(b) attached hereto and made a part hereof,
together with such additional Cash and Cash Equivalent as is subsequently added
to the Borrowing Base Properties pursuant to Section 2.11.
"Borrowing Base Securities" means Eligible Marketable Securities
of Borrower that are added to the Borrowing Base Properties pursuant to Section
2.11.
"Business Day" means a day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the State of Texas.
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"Cash" means legal tender of the United States of America.
"Cash Equivalent" means certificates of deposit issued by the
Bank and/or other certificates of deposit approved by the Bank in its sole
discretion.
"Compliance Certificate" means the certificate of the president
or vice president of Borrower required to be submitted to Bank from time to
time pursuant to this Agreement, which certificate shall be in the form
attached hereto as Exhibit "A."
"Eligible Marketable Securities" means the unrestricted shares
of stock in Falcon Drilling Company, Inc. and Reading & Xxxxx Corporation, and
any other unrestricted shares of stock that are approved by the Bank in its
sole discretion.
"Environmental Laws" means (a) the following federal laws as they
may be cited, referenced and amended from time to time: the Clean Air Act, the
Clean Water Act, the Safe Drinking Water Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Endangered Species Act, the
Resource Conservation and Recovery Act, the Occupational Safety and Health Act,
the Hazardous Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
environmental statutes of any state in which property of Borrower is situated,
as they may be cited, referenced and amended from time to time; (c) any rules
or regulations promulgated under or adopted pursuant to the above federal and
state laws; and (d) any other federal, state or local statute or any
requirement, rule, regulation, code, ordinance or order adopted pursuant
thereto, including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling or release of
Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) which together with Borrower would be treated as a single
employer under Section 4001 of ERISA.
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"Event of Default" means any of the events specified in Section
7.01 of this Agreement.
"Financial Statements" means the statements of the financial
condition of the indicated Person, as at the point in time and for the period
indicated and consisting of at least a consolidated balance sheet, income
statement and statement of cash flows, and, when the foregoing are audited,
accompanied by the certification of such Person's independent certified public
accountants and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP applied on a basis consistent with that of the
preceding year.
"Floating Rate" means the Index Rate in effect from time to time
plus three-quarters of one percent (.75%).
"GAAP" means generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Guarantor" means, individually and collectively, Xxxx X. Xxxx,
Xx., Xxxxx X. Xxxxxx, Xxxxxx X. Xxxxxxx, Xxxxxxx X.X. Xxxxxxxx and X. X.
Xxxxxxx.
"Guaranty" means the guaranty of all of Borrower's Obligations to
Bank arising under this Agreement, in form and substance satisfactory to Bank,
duly executed by each Guarantor.
"Hazardous Substances" means flammables, explosives, radioactive
materials, hazardous wastes, asbestos or any material containing asbestos,
polychlorinated biphenyls (PCBs), toxic substances or related materials,
petroleum and petroleum products and associated oil or natural gas exploration,
production and development wastes or any substances defined as "hazardous
substances", "hazardous materials", "hazardous wastes" or "toxic substances"
under the Comprehensive Environmental Response, Compensation and Liability Act,
as amended, the Superfund
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Amendments and Reauthorization Act, as amended, the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery Act, as
amended, the Toxic Substances Control Act, as amended, or any other
Environmental Laws now or hereafter enacted or promulgated by any regulatory
authority or governmental body.
"Indebtedness" means, as to any Person, (a) all items of
indebtedness or liability (other than capital, surplus, deferred credits and
reserves, as such) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date as of which Indebtedness is to be determined, (b) indebtedness
secured by any mortgage, pledge or lien existing on or encumbering property
owned by the Person whose Indebtedness is being determined, whether or not the
indebtedness secured thereby shall have been assumed, and (c) all indebtedness
of others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted with recourse, agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire, or in respect of which such Person has agreed
to supply or advance funds (whether by way of loan, purchase of securities or
capital contribution, through a commitment to pay for property or services
regardless of the nondelivery of such property or the nonfurnishing of such
services or otherwise), or in respect of which such Person has otherwise become
directly or indirectly liable, contingently or otherwise, whether now existing
or hereafter arising.
"Index Rate" means, at any time, the prime rate established in
The Wall Street Journal's "Money Rates" or similar table. If multiple prime
rates are quoted in the table, then the highest prime rate will be the Index
Rate. In the event that the prime rate is no longer published by The Wall
Street Journal in the "Money Rates" or similar table, then Bank may select an
alternative published index based upon comparable information as a substitute
Index Rate. Upon the selection of a substitute Index Rate, the applicable
interest rate shall thereafter vary in relation to the substitute index. Such
substitute index shall be the same index that is generally used as a substitute
by Bank on all Index Rate loans. The Index Rate is eight and one-quarter
percent (8.25%) as of the date of this Agreement.
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"Investment" in any Person means any stock, bond, note or other
evidence of Indebtedness or any other security (other than current trade and
customer accounts) of, or loan to, such Person.
"Leases" means oil and gas leases and all oil, gas and mineral
leases constituting any part of the Borrowing Base Oil and Gas Properties.
"Letters of Credit" means letters of credit to be issued by the
Bank for the account of the Borrower pursuant to Section 2.12, in the form
acceptable to the Bank, and all extensions, renewals and modifications thereof.
"Limitation Period" means any period while any amount remains
owing on the Note and interest on such amount calculated at the Floating Rate,
plus any fees payable hereunder and deemed to be interest under applicable law,
would exceed the Maximum Rate.
"Loan" means, singly, any advance by Bank to Borrower pursuant to
this Agreement and "Loans" means, cumulatively, the aggregate sum of all money
advanced by Bank to Borrower pursuant to this Agreement.
"Loan Documents" means this Agreement and all promissory notes,
security agreements, guaranties, and other instruments, documents, and
agreements executed and delivered pursuant to or in connection with this
Agreement, as such instruments, documents, and agreements may be amended,
modified, renewed, extended, or supplemented from time to time.
"Loan Excess" means, at any point in time, the amount, if any, by
which the outstanding balance on the Loans evidenced by the Note exceeds the
Revolving Commitment then in effect.
"Marketable Title" means good and indefeasible title and
ownership, free and clear of all mortgages, liens and encumbrances, except for
Permitted Encumbrances.
"Maturity Date" means June 1, 1998.
"Maximum Rate" means the maximum non-usurious interest rate
permissible under applicable laws of the State of Texas or those of the United
States of America applicable to Bank.
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"Monthly Borrowing Base Certificate" means a certificate of the
President or Chief Financial Officer of Borrower attesting to Borrower's
calculation of the Borrowing Base as of the last day of the month preceding the
month in which such certificate is executed and delivered to the Bank, pursuant
to Section 5.08, in the form attached hereto as Exhibit "E."
"Monthly Borrowing Base Reduction" means the amount of the
automatic monthly reduction to the Borrowing Base, as determined by Bank from
time to time in accordance with Section 2.07 of this Agreement.
"Multi-employer Plan" means a plan described in Section
4001(a)(3) of ERISA which covers employees of Borrower or any ERISA Affiliate.
"Note" means that certain promissory note in the original face
amount of $25,000,000.00, dated of even date herewith, made by Borrower payable
to the order of Bank, in the form attached hereto as Exhibit "B," together with
all deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence the advances to
Borrower by Bank pursuant to Section 2.01 hereof.
"Obligations" means all obligations, indebtedness, and
liabilities of Borrower to Bank, now existing or hereafter arising, including,
but not limited to, the indebtedness evidenced by the Note, whether direct,
indirect, related, unrelated, fixed, contingent, specified, unspecified, joint,
several, or joint and several, and all interest and fees accruing thereon and
all attorneys' fees and other expenses incurred in the enforcement or
collection thereof.
"Oil and Gas Properties" means fee, leasehold or other interests
in or under mineral estates or oil, gas and other liquid or gaseous hydrocarbon
leases with respect to properties situated in the United States, including,
without limitation, overriding royalty and royalty interests, leasehold estate
interests, net profits interests, production payment interests and mineral fee
interests, together with all contracts executed in connection therewith, all
oil, gas and other minerals produced and to be produced therefrom, all proceeds
thereof, and all tenements, hereditaments, appurtenances and properties, real
or personal, appertaining, belonging, affixed or incidental thereto.
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"Permitted Encumbrances" means:
(A) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business that are not yet due and
payable;
(B) Liens of mechanics, materialmen, warehousemen, carriers,
or other similar liens, securing obligations incurred in the
ordinary course of business that are not yet due and payable;
(C) Encumbrances consisting of zoning restrictions, easements,
or other restrictions on the use of real property, none of which
materially impairs the use of such property by Borrower in the
operation of its business, and none of which is violated in any
material respect by existing or proposed operations;
(D) Liens in favor of Bank;
(E) The following, if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings, so
long as levy and execution thereon have been stayed and continue
to be stayed, and in Bank's sole judgment they do not, in the
aggregate, materially detract from the value of the property of
Borrower or any Subsidiary, or materially impair the use thereof
in the operation of its business:
(1) Claims or liens for taxes, assessments, or similar
charges; and
(2) Claims or liens of mechanics, materialmen,
warehousemen, carriers, or other similar liens.
"Person" means an individual, company, corporation, partnership,
limited partnership, joint venture, trust, association, unincorporated
organization or a government or any agency or political subdivision thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
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"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as
amended from time to time.
"Proved Reserves" means the estimated quantities of crude oil,
condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable by
primary producing mechanisms in future years from known reservoirs underlying
lands or interests therein constituting Oil and Gas Properties, under existing
economic and operating conditions. Reserves which can be produced economically
through application of improved recovery techniques (e.g., fluid injection)
will be included in Proved Reserves when successful testing by a pilot project
or the operation of an installed program in the reservoir provides support for
the engineering analysis on which the pilot project or installed program was
based. In general, the economic productivity of the estimated proved reserves
is supported by actual production or a conclusive formation test; however, in
certain instances proved reserves are assigned to reservoirs on the basis of a
combination of electrical and other type logs and core analyses which indicate
these reservoirs are analogous to similar reservoirs in the same field which
are producing or have demonstrated the ability to produce on a formation test.
"Reportable Event" means any of the events set forth in Section
4043 of ERISA.
"Request for Advance" means the written request by Borrower for
an advance by Bank pursuant to this Agreement, which Request for Advance shall
be in a form, and shall include the information and accompanying supporting
documentation, as prescribed in Exhibit "D" attached hereto.
"Revolving Commitment" means the obligation of Bank, subject to
the provisions of this Agreement and existing only through the last Business
Day prior to the Maturity Date, to advance to Borrower funds, not to exceed at
any one time outstanding an amount equal to the lesser of: (a) Six Million
Dollars ($6,000,000.00), or (b) the Borrowing Base then in effect.
"Security Instruments" means the security instruments described
on Exhibit "C," in form and substance satisfactory to Bank, to be executed by
Borrower pursuant to Section 3.17, and any
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and all other instruments or documents hereafter executed in connection with or
as security for the payment of the Note.
"Subsidiary" means, with respect to Borrower and Guarantor,
respectively, (a) any corporation in which Borrower or Guarantor, directly or
indirectly through its Subsidiaries, owns more than fifty percent (50%) of the
stock of any class or classes having by the terms thereof the ordinary voting
power to elect a majority of the directors of such corporation; and (b) any
partnership, association, joint venture, or other entity in which Borrower or
Guarantor, respectively, directly or indirectly through its Subsidiaries, has
more than a fifty percent (50%) equity interest at the time.
"Tangible Net Worth" means the total assets of Borrower exclusive
of (a) those assets classified as intangible, including, without limitation,
goodwill, patents, trademarks, trade names, copyrights, franchises and deferred
charges, (b) treasury stock and minority interests in any Person, (c) cash set
apart and held in a sinking or other analogous fund established for the purpose
of redemption or other retirement of capital stock, (d) to the extent not
already deducted from total assets, allowances for depreciation, depletion,
obsolescence and/or amortization of properties, uncollectible accounts, and
contingent but probable liabilities as to which an amount can be established,
(e) deferred taxes and (f) all assets arising from advances to officers, former
officers or sales representatives of Borrower made outside of the ordinary
course of business; less total liabilities of Borrower; all of the above being
determined in accordance with GAAP.
"Unmatured Event of Default" means any event or occurrence which
solely with the lapse of time or the giving of notice or both will ripen into
an Event of Default.
Undefined financial accounting terms used in this Agreement shall
be defined in accordance with GAAP.
ARTICLE II. THE LOAN
2.01 The Loan. Upon the terms and conditions (including,
without limitation, the right of Bank to terminate the Revolving Commitment
hereunder upon an Event of Default or an Unmatured Event of Default) and
relying on the representations and warranties contained in this Agreement, Bank
agrees, for a period
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from and after the date hereof through the last Business Day prior to the
Maturity Date, to make advances for the account of Borrower from time to time
following receipt of a Request for Advance; provided, however, that the
aggregate principal amount of all Loans at any one time outstanding shall not
exceed the Revolving Commitment.
Through the last Business Day prior to the Maturity Date,
Borrower may use this revolving credit by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions of this Agreement. The
borrowings made by Borrower pursuant to the Revolving Commitment shall be made
at the principal office of Bank and shall be evidenced by the Note. The entire
principal amount of the Note is due on the Maturity Date.
2.02 Advances and Payments of Principal Under the Note. Each
time an advance is made against or payment is made on the Note, Bank is hereby
irrevocably authorized by Borrower to make appropriate entries of such in its
records in accordance with the usual and customary practices of accounting for
advances and payments on notes; provided, however, the failure of Bank to do so
shall not relieve Borrower of its correct liability hereunder or under the
Note.
The aggregate unpaid amount of advances reflected by the
notations by Bank on its records or the ledger sheets affixed to the Note shall
be deemed rebuttably presumptive evidence of the principal amount owing on the
Note. The liability for payment of principal and interest evidenced by the
Note shall be limited to principal amounts actually advanced to Borrower and
outstanding under this Agreement and interest on such amounts calculated in
accordance with this Agreement. Interest provided for in the Note and herein
shall be calculated on unpaid sums actually advanced and outstanding under the
Note pursuant to the terms of this Agreement and only for the period from the
date or dates of such advances until repayment.
2.03 Payments of Interest under the Note. Subject to the terms
and provisions of this Agreement, interest on the Loan, calculated at the
Floating Rate, shall be due and payable monthly as it accrues beginning January
1, 1997, and continuing thereafter on the first day of each succeeding calendar
month while any amount remains owing on the Note and at the Maturity Date, the
interest payment in each instance to be that which has been earned and
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remains unpaid. The rate of interest charged on the Loan shall be adjusted,
effective on the effective date of each change in the Index Rate.
2.04 Provisions Relating to Interest. All Loans hereunder and
outstanding from time to time shall bear interest at a daily rate equal to the
Floating Rate per annum, each such change in the rate of interest charged on
the Loans to become effective without notice to Borrower, on the effective date
of each change in the Index Rate, calculated on the basis of a year of three
hundred sixty-five or three hundred sixty-six (365 or 366) days, as applicable,
from the date of advance through the date of repayment.
It is the intention of the parties hereto to comply strictly with
the usury laws of the State of Texas and the United States of America and, in
this connection, there shall never be collected, charged or received on any
sums advanced hereunder interest in excess of the Maximum Rate. For purposes
of Article 5069-1.04, Vernon's Texas Civil Statutes, as amended, Borrower
agrees that the maximum rate to be charged shall be the "indicated (weekly)
rate ceiling" as defined in said Article, provided that Bank may also rely to
the extent permitted by applicable laws of the State of Texas or the United
States of America, on alternative maximum rates of interest under other
applicable laws of the State of Texas or the United States of America
applicable to Bank, if greater. Interest on past due interest and principal
shall be at a daily rate equal to the lesser of (a) the Maximum Rate per annum
or (b) the Floating Rate plus three percent (3%) per annum, calculated on the
basis of a year of three hundred sixty-five or three hundred sixty-six (365 or
366) days, as applicable, for the number of days elapsed; and if no Maximum
Rate exists, all past due interest and principal shall bear interest at a daily
rate equal to the Floating Rate plus three percent (3%) per annum, calculated
on a year of three hundred sixty-five or three hundred sixty-six (365 or 366),
as applicable, days for the number of days elapsed. Notwithstanding anything
herein or in the Note to the contrary, during any Limitation Period, the
interest rate to be charged on amounts evidenced by the Note shall be the
Maximum Rate and the obligation of Borrower for any fees payable hereunder and
deemed to be interest under applicable law shall be suspended. During any
period or periods of time following a Limitation Period, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the interest rate to be charged hereunder shall remain at the Maximum
Rate until such time as there has been
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paid to Bank (a) the amount of interest in excess of the Maximum Rate that Bank
would have received during the Limitation Period had the interest rate remained
at the relevant Floating Rate and (b) all interest and fees otherwise due to
Bank but for the effect of such Limitation Period.
If under any circumstances the aggregate amounts paid on the Note
or under this Agreement include amounts which by law are deemed interest and
which would exceed the amount permitted if the Maximum Rate were in effect,
Borrower stipulates that such payment and collection will have been and will be
deemed to have been, to the extent permitted by applicable laws of the State of
Texas or the United States of America, the result of mathematical error on the
part of both Borrower and Bank, and Bank shall promptly refund the amount of
such excess (to the extent only of such interest payments above the Maximum
Rate which could lawfully have been collected and retained) upon discovery of
such error by Bank or notice thereof from Borrower.
2.05 Advances to Satisfy Obligations of Borrower. Bank may,
but shall not be obligated to, make advances hereunder and apply same to the
satisfaction of any condition, warranty, representation or covenant of Borrower
contained in this Agreement, and the funds so advanced and applied shall be
part of the Loan proceeds advanced under this Agreement and evidenced by the
Note.
2.06 Mandatory Prepayment of the Notes. In the event that Bank
or Borrower determine that a Loan Excess exists, Borrower shall immediately,
but in no event later than fifteen (15) days following the earlier of either:
(a) Borrower becoming aware that a Loan Excess exists, or (b) notice from Bank
of any such determination, (i) prepay the principal of the Note in an aggregate
amount at least equal to such Loan Excess or (ii) add to the Borrowing Base
Properties additional Oil and Gas Properties, Cash, Cash Equivalent, and/or
Eligible Marketable Securities of Borrower sufficient in value, as determined
by Bank in its sole discretion pursuant to Section 2.07, to increase the
Borrowing Base to equal the unpaid principal amount of the Note plus all
accrued, unpaid interest.
2.07 Borrowing Base Determination. The initial Borrowing Base
is hereby established at $4,000,000.00 effective as of the date hereof.
Subject to the other provisions of this Agreement, the Borrowing Base shall be
automatically reduced
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commencing on January 1, 1997, by the Monthly Borrowing Base Reduction, which
is initially established at $15,000.00.
a. Borrowing Base Oil and Gas Properties. If and when
the La Brisa Ranch #1-A (Ranier), La Brisa Land & Cattle #1 (XxXxxxxx) and La
Brisa Ranch #1 (Xxxxxxx) xxxxx (as more fully described on Schedule 1.01(a)
attached hereto): (i) are completed as xxxxx capable of producing oil or gas in
paying quantities on or before the first scheduled Borrowing Base review
occurring after the date of this Agreement, (ii) have been producing oil or gas
for at least ten consecutive days, and (iii) have commenced sales of such
production, Borrower shall notify Bank thereof and provide Bank with the
completion reports for such xxxxx, documentary evidence that the production and
sale of oil and gas therefrom have commenced, and such other information
relative to the xxxxx as Bank may request. Following the Bank's evaluation of
such information, if the Bank determines in its sole discretion that its
preliminary evaluation of such xxxxx has been reconfirmed, the Borrowing Base
and Monthly Borrowing Base Reduction then in effect with respect to the
Borrowing Base Oil and Gas Properties will be redetermined to the respective
amounts reflected on Schedule 2.07 attached hereto, effective upon Bank's
written notification to Borrower of such increase.
On or before April 1, 1997, Borrower shall furnish to Bank
information sufficient to update to an effective date of January 1, 1997, the
most recent petroleum engineering reports and geological data provided to Bank
prior to Closing relative to the Proved Reserves that are attributable to the
Oil and Gas Properties that constitute part of the Borrowing Base Oil and Gas
Properties, as well as such other information as Bank may request regarding
volumes of production produced and sold, contracts, pricing, gross revenues,
expenses, and other information and engineering and geological data as may
relate to the Borrowing Base Oil and Gas Properties (collectively the
"Borrowing Base Property Data"). Upon receipt of such Borrowing Base Property
Data, Bank shall, in the normal course of business, redetermine the Borrowing
Base and the Monthly Borrowing Base Reduction attributed to the Borrowing Base
Oil and Gas Properties, which redetermination shall become effective upon
written notification from Bank to Borrower, and which, subject to the other
provisions of this Agreement, shall be the basis on which the Borrowing Base
shall thereafter be calculated until the effective date of the next
redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction
as set
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forth in this Section. Thereafter, on or before each succeeding October 1 and
April 1 until the Maturity Date, Borrower shall furnish to Bank a report, in
form and substance satisfactory to Bank, which report shall set forth, as of
each preceding July 1 or January 1, as applicable, such Borrowing Base Property
Data as Bank may request attributable to the Borrowing Base Oil and Gas
Properties. Each report to be provided on or before each April 1 (except for
April 1, 1997) shall be a complete report relating to the Borrowing Base
Property Data, prepared by an independent petroleum engineer or firm of
engineers satisfactory to Bank. Each report to be provided on or before each
October 1 (and the one to be provided on or before April 1, 1997) shall simply
update the previous complete report, and may be prepared by Borrower's own
engineers and shall be certified by the President of the general partner of
Borrower. Upon receipt of each such report, Bank shall, in the normal course
of business, make a determination of the Borrowing Base and the Monthly
Borrowing Base Reduction which shall become effective upon written notification
from Bank to Borrower, and which, subject to the other provisions of this
Agreement, shall be the basis on which the Borrowing Base attributable to the
Borrowing Base Oil and Gas Properties shall thereafter be calculated until the
effective date of the next redetermination of the Borrowing Base and the
Monthly Borrowing Base Reduction as set forth in this Section.
Beginning with the delivery of the Borrowing Base Property Data
due by April 1, 1997, and continuing as and when Borrower is required to
provide to Bank each semi-annual report, as required by the provisions of this
Section, Borrower shall contemporaneously pay an engineering fee of $5,000.00
to Bank for Bank's analysis of such report and redetermination of the Borrowing
Base and the Monthly Borrowing Base Reduction. At any time engineering reviews
are requested by Borrower in connection with a Borrowing Base redetermination,
other than the semi-annual reviews required by Bank, an additional fee of
$5,000.00 shall be paid to Bank for Bank's analysis of such report and
redetermination of the Borrowing Base.
b. Borrowing Base Cash. At each time that the Bank
redetermines the Borrowing Base attributable to the Borrowing Base Oil and Gas
Properties, as set forth in subsection 2.07(a), it shall also include in the
Borrowing Base calculation the face value of all Borrowing Base Cash that is in
the Bank's possession and is subject to one or more of the applicable Security
Agreements.
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c. Borrowing Base Securities. At each time that the
Bank redetermines the Borrowing Base attributable to the Borrowing Base Oil and
Gas Properties, as set forth in Section 2.07(a), it shall also include in the
Borrowing Base calculation seventy-five percent (75%) of the market value of
the Borrowing Base Securities that are in the Bank's possession and are subject
to one or more of the applicable Security Agreements, with the market value
thereof to be determined based on the announced value at which such securities
were trading as of the close of trading on the last trading day of the month
preceding the month in which the Bank notifies Borrower of the redetermination
of the Borrowing Base.
d. Equity Cushion. The Borrowing Base shall represent
Bank's determination, in accordance with its customary lending practices in
effect from time to time, of the maximum loan amount that may be supported by
the Borrowing Base Properties. Borrower and Bank acknowledge that (a) due to
the uncertainties of the oil and gas extraction process, the Borrowing Base Oil
and Gas Properties are not subject to evaluation with a high degree of accuracy
and are subject to potential rapid deterioration in value, and (b) for this
reason and the difficulties and expenses involved in liquidating and collecting
against the Borrowing Base Oil and Gas Properties, Bank's determination of the
maximum loan amount with respect to the Borrowing Base Oil and Gas Properties
contains an equity cushion, which equity cushion is acknowledged by Borrower as
essential for the adequate protection of Bank.
e. Unscheduled Borrowing Base Redeterminations. In
addition to scheduled redeterminations of the Borrowing Base, the Bank may
redetermine the Borrowing Base and the Monthly Borrowing Base Reduction at any
time, and from time to time, which redetermination shall become effective upon
written notification from Bank to Borrower and which, subject to the other
provisions of this Agreement, shall be the basis on which the Borrowing Base
shall thereafter be calculated until the effective date of the next
redetermination of the Borrowing Base and the Monthly Borrowing Base Reduction,
as set forth in this Section.
2.08 Assignment of Production. Certain of the Security
Instruments covering the Borrowing Base Oil and Gas Properties contain an
assignment unto and in favor of Bank of all oil, gas and other minerals
produced and to be produced from or attributable to the Oil and Gas Properties
that constitute part of the Borrowing
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Base Oil and Gas Properties, together with all of the revenues and proceeds
attributable to such production, and such Security Instruments further provide
that all such revenues and proceeds which may be so collected by Bank pursuant
to the assignment shall be applied to the payment of the Note and the
satisfaction of all other Indebtedness to be secured by such Security
Instruments. Such Security Instruments further provide that the Bank grants to
Borrower a license to receive and collect the revenues and proceeds
attributable to such production unless and until an Event of Default shall
occur, and upon the occurrence of an Event of Default, the Bank, acting in its
sole discretion, shall have the right to terminate Borrower's license to
collect such revenues and proceeds. Borrower hereby appoints Bank as its agent
and attorney-in-fact for all purposes deemed by Bank to be necessary or
desirable in connection with such assignment of production, including, but not
limited to, completing the letter transfer orders delivered to Bank pursuant to
Sections 3.17 and/or 3.19 hereof, which power is coupled with an interest and
is not revocable.
2.09 Commitment Fee. As consideration for the commitment of
Bank to make Loans to Borrower through the Maturity Date pursuant to this
Agreement, Borrower agrees to pay to Bank within three (3) Business Days of
receipt of Bank's statement as to quarterly periods ending March 31, June 30,
September 30 and December 31 of each year (except the first period shall be for
a period of time from the Closing to December 31, 1996) during the period
commencing on the date of this Agreement to and including the Maturity Date and
at the Maturity Date, a fee equal to 1/2 of 1% per annum (computed on the basis
of 365 or 366 days, as the case may be) multiplied by an amount equal to the
daily average excess, if any, of the greater of either: (a) $6,000,000.00, or
(b) the Revolving Commitment, over the sum of: (x) the aggregate principal
amount outstanding on the Note, plus (y) the aggregate face amount of all
outstanding Letters of Credit, throughout the period from the date of this
Agreement or previous calculation date provided above, whichever is later, to
the relevant calculation date or the Maturity Date, as the case may be.
2.10 Facility Fee. As consideration for the commitment of Bank
to make Loans to Borrower pursuant to this Agreement, Borrower shall pay to
Bank a fee ("Facility Fee") of $60,000.00, one-half of which has heretofore
been paid, and the remaining $30,000.00 of which shall be paid simultaneously
with the Closing.
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If the Revolving Commitment is ever increased to an amount exceeding
$6,000,000.00, then at the time such increase becomes effective, Borrower shall
pay Bank an additional Facility Fee equal to one percent (1.0%) of the amount
by which such increased Revolving Commitment exceeds either: (a)
$6,000,000.00, or (b) the highest Revolving Commitment amount previously in
effect, if greater than $6,000,000.00.
2.11 Addition of Borrowing Properties. Borrower may, from time
to time upon thirty (30) days prior written notice to Bank, propose to add Oil
and Gas Properties, Cash, Cash Equivalent, and/or Eligible Marketable
Securities of Borrower to the Borrowing Base Properties. Any such proposal to
add Oil and Gas Properties of Borrower to the Borrowing Base Properties shall
be accompanied by an engineering report applicable to such Oil and Gas
Properties that conforms to the requirements of Section 2.07, evidence
sufficient to establish that Borrower has Marketable Title to such Oil and Gas
Properties, and such other data as Bank may reasonably request. Any such
proposal to add Eligible Marketable Securities of Borrower to the Borrowing
Base properties shall be accompanied by evidence sufficient to establish that
Borrower has Marketable Title to such Eligible Marketable Securities, and such
other data as Bank may reasonably request. Any such additions shall become
effective at such time as: (a) Bank has made its determination in the ordinary
course of business of the amount by which the Borrowing Base would be increased
as the result of such addition and (b) the conditions set forth in Article III
hereof, to the extent they are applicable to such additional Borrowing Base
Properties of Borrower, have been satisfied.
2.12 Letters of Credit. Subject to the terms and conditions of
this Agreement, the Bank agrees to issue standby Letters of Credit for the
account of the Borrower from time to time following receipt of a Request for
Advance three (3) Business Days prior to the requested date of issuance in such
amount as the Borrower may request in an aggregate amount of up to (i) One
Million Dollars ($1,000,000.00), but (ii) not to exceed at any time the
unborrowed portion of the Revolving Commitment. The amount of any such Letters
of Credit issued under the Revolving Commitment shall be deemed to be a Loan
and to reduce the amount available under the Revolving Commitment and shall be
governed by the terms of this Agreement. The Bank may require in connection
with the issuance of any Letter of Credit that Borrower execute the Bank's
then-current form of application for a Letter of Credit, but if
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there is any conflict between the terms of any such application and the terms
of this Agreement, the terms of this Agreement shall control. No Letter of
Credit shall have an expiration date that is later than one year from the date
of its issuance, or, if sooner, beyond the Maturity Date.
2.13 Repayment of Letters of Credit. If drawn upon by the
beneficiary of a Letter of Credit, all amounts so drawn shall be due and
payable by the Borrower immediately upon receipt of Bank's statement therefor.
2.14 Letter of Credit Fee. As consideration for the issuance
by the Bank of Letters of Credit for the account of the Borrower, the Borrower
agrees to pay to the Bank a fee of one percent (1.0%), per annum, of the amount
of each such Letter of Credit (subject to a $300.00 minimum fee per year on
each Letter of Credit), the first such per annum fee for each Letter of Credit
to be payable in advance of the issuance of such Letter of Credit, with
successive per annum fees to be paid in advance of the anniversary date of the
issuance of such Letter of Credit if it is to remain in effect beyond such
anniversary date.
ARTICLE III. CONDITIONS
The obligation of Bank to make the Loan referred to in Article II
of this Agreement is subject to satisfaction of the following conditions
precedent stated in this Article III. The obligation of Bank to make
subsequent advances pursuant to this Agreement is subject to the prior or
contemporaneous satisfaction of the conditions precedent stated in Sections
3.12 through 3.19.
3.01 Receipt of Note, Agreement and Certificate of Compliance.
Bank shall have received the Note, multiple counterparts of this Agreement, as
requested by Bank, and the Certificate of Compliance duly executed by an
authorized officer for Borrower.
3.02 Receipt of Guaranty. Bank shall have received from each
Guarantor the Guaranty, duly executed by Guarantor.
3.03 Receipt of Organizational Documents. Bank shall have
received from Borrower its Articles of Incorporation and its bylaws certified
by the secretary or an assistant secretary of Borrower.
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3.04 Receipt of Certified Copy of Corporate Proceedings and
Certificates of Incumbency. Bank shall have received from Borrower copies of
all resolutions of its board of directors authorizing the transactions set
forth in this Agreement, and the execution of this Agreement, the Note, and
those of the Security Instruments to which it is a party, such copy or copies
to be certified by the secretary or an assistant secretary as being true and
correct and in full force and effect as of the date hereof. In addition, Bank
shall have received from Borrower a certificate of incumbency signed by the
secretary or an assistant secretary of Borrower setting forth (a) the names of
the officers executing this Agreement, the Note, and those of the Security
Instruments to which it is a party, (b) the office(s) to which such Persons
have been elected and in which they presently serve and (c) an original
specimen signature of each such person.
3.05 Receipt of Certificates of Authority and Certificates of
Good Standing. Bank shall have received certificates, as of the most recent
dates practicable, of the Secretary of State of the state in which Borrower is
incorporated attesting to Borrower's existence, and of each state in which
Borrower is qualified to do business as a foreign corporation attesting to such
qualification, and from the department of revenue or taxation of each of the
foregoing states, as to the good standing of Borrower;
3.06 UCC Search. The results of a Uniform Commercial Code
search showing all financing statements and other documents or instruments on
file against Borrower and Guarantor, in the Offices of the Secretaries of State
of the State of Texas and in the counties in which Borrowing Base Oil and Gas
Properties are located, such search to be as of a date no more than ten (10)
days prior to the date of the advance of the Loan.
3.07 Fees. Bank shall have contemporaneously received the fees
required by Section 2.10.
3.08 Financial Statements. Bank shall have received the
Financial Statements of Borrower as of August 31, 1996, showing financial
information consistent with that previously provided to Bank.
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3.09 Opinion of Counsel. Bank shall received a satisfactory
legal opinion from the firm of Gardere Xxxxx Xxxxxx & Xxxxx, L.L.P., counsel
for Borrower, in form and substance acceptable to Bank, covering the matters
prescribed on Schedule 3.09 hereof.
3.10 Payment of Other Indebtedness and Release of Liens. Bank
shall have received evidence satisfactory to it, in its sole discretion, that
the other Indebtedness of Borrower described on Schedule 3.10 hereof has been
fully paid and discharged, and that the holder(s) of such indebtedness have
executed and delivered to Borrower recordable releases, in form satisfactory to
the Bank, in its sole discretion, releasing all liens and security interests
owned or claimed by such holder(s) to secure such Indebtedness.
3.11 Subordination Agreement. With respect to all of the other
Indebtedness described on Schedule 3.11 attached hereto, the Bank, the
Borrower, and each holder of such Indebtedness shall have entered into a
subordination agreement in form and substance acceptable to the Bank, in its
sole discretion, providing that no payments of principal or interest on the
Indebtedness covered by such subordination agreement may be paid by Borrower or
accepted by the holder of such indebtedness without the prior written consent
of the Bank.
3.12 Request for Advance. Bank shall have received from
Borrower a Request for Advance.
3.13 Accuracy of Representations and Warranties and No Event of
Default. The representations and warranties contained in Article IV of this
Agreement shall be true and correct in all material respects on the date of the
making of such Loans or advances with the same effect as though such
representations and warranties had been made on such date; and no Event of
Default shall have occurred and be continuing or will have occurred at the
completion of the making of such Loans or advances.
3.14 Legal Matters Satisfactory to Counsel to Bank. All legal
matters incident to the consummation of the transactions hereby contemplated
shall be satisfactory to counsel for Bank.
3.15 No Material Adverse Change. No material adverse change
shall have occurred since the date of this Agreement in the condition,
financial or otherwise, of Borrower or Guarantor.
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3.16 Status of Title. Bank shall have been satisfied that
Borrower has Marketable Title to its Borrowing Base Properties, and that
Borrower owns record title to an undivided net revenue interest in the
production from each Oil and Gas Property that is a Borrowing Base Property
that is not less than the net revenue interest therein attributed to Borrower
in the Loan Documents, as amended from time to time, as well as an undivided
working interest in each such Oil and Gas Property that is not greater than the
working interest therein attributed to Borrower in the Loan Documents, as
amended from time to time (unless there is a corresponding increase in the net
revenue interest attributed to such party therein).
3.17 Security Instruments. As security for the payment of the
Note and the performance of the Obligations of Borrower under this Agreement,
Bank shall have received the Security Instruments, duly executed by Borrower
with respect to Borrowing Base properties owned by Borrower and duly executed
by the applicable Guarantor with respect to Borrowing Base Properties owned by
such Guarantor.
3.18 Legal Fees. All legal fees and disbursements owed to
Bank's special counsel who provided representation to the Bank in connection
with this Agreement or any amendment hereto and in connection with the review
of title to the Borrowing Base Oil and Gas Property shall have been paid.
3.19 Documents Required for Subsequent Disbursements. As of
the time of funding any additional advances to Borrower that are made in
conjunction with the addition to the Borrowing Base Properties of Oil and Gas
Properties, Cash, Cash Equivalent, and/or Eligible Marketable Securities owned
by Borrower or any Guarantor, Borrower or such Guarantor shall have duly
delivered to Bank: (i) the Security Instruments that are necessary or
appropriate, in the opinion of Bank, relating to such additional Borrowing Base
Properties, (ii) Transfer Order Letters applicable to the production of oil and
gas from any additional Oil and Gas Properties added to the Borrowing Base
Properties, and (iii) possession of any such additional Borrowing Base Cash and
Borrowing Base Securities.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement and to make the Loan
hereunder, Borrower represents and warrants to Bank (which representations and
warranties will survive the delivery of the Note) that:
4.01 Existence and Good Standing. Borrower is a corporation,
duly organized, legally existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified and in good standing as a
foreign corporation in all jurisdictions wherein the property owned or the
business transacted by it makes such qualification necessary, other than those
jurisdictions wherein the failure to so qualify does not have a material
adverse effect on Borrower.
4.02 Due Authorization. As to Borrower, the execution and
delivery by Borrower of this Agreement and the borrowings hereunder; the
execution and delivery by Borrower of the Note and the Security Instruments;
and the repayment by Borrower of Indebtedness evidenced by the Note and
interest and fees provided in the Note and this Agreement are (a) within the
corporate power of Borrower; (b) have been duly authorized by all necessary
corporate action; and (c) do not and will not (i) require the consent of any
regulatory authority, governmental body, or any other Person, (ii) violate any
provision of law, the certificate of incorporation, the articles of
incorporation, or the bylaws of Borrower, (iii) cause a default to occur under
the terms and provisions of any indenture, instrument or other agreement to
which Borrower is a party or by which its property may be presently bound or
encumbered, or (iv) result in or require the creation or imposition of any
mortgage, lien, pledge, security interest, charge or other encumbrance in, upon
or of any of the properties or assets of Borrower under any such indenture,
instrument or other agreement, other than under any of the Security
Instruments.
4.03 Valid and Binding Obligations. This Agreement, the Note,
the Security Instruments and the Guaranty, when duly executed and delivered,
will be, as to each such instrument executed by Borrower and Guarantor,
respectively, the legal, valid and binding obligations of and enforceable
against Borrower and Guarantor, as applicable, in accordance with their
respective terms (subject to any applicable bankruptcy, insolvency or other
laws of general application affecting creditors' rights and judicial decisions
interpreting any of the foregoing).
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4.04 Title to Borrowing Base Properties. Borrower has
Marketable Title to all of its Borrowing Base Properties, and each Guarantor
has marketable title to all of its Borrowing Base Properties.
4.05 Oil and Gas Leases. The Leases which constitute any part
of the Borrowing Base Properties are in full force and effect, are valid,
subsisting leases covering the entire estates to which they pertain and all
rentals, royalties and other amounts due and payable in accordance with the
terms of the Leases, overriding royalties, net profits or other production
burdens have been duly paid or provided for; the obligations to be performed
under the Leases have been duly performed; and Borrower is not aware of any
default by any third party under any of the Leases with respect to such third
party's obligations.
4.06 Interest in the Borrowing Base Oil and Gas Properties.
With respect to each of the Borrowing Base Oil and Gas Properties, the
ownership of Borrower in such property will, with respect to the xxxxx, units
and/or tracts of land described in Schedule 1.01(a) hereto in connection with
such property, (i) entitle Borrower to receive (subject to the terms and
provisions of this Agreement) a decimal share of the oil and gas produced from,
or allocated to, such xxxxx, units and/or tracts equal to not less than the
decimal share set forth in Schedule 1.01(a) in connection with such xxxxx,
units and/or tracts, and (ii) cause Borrower to be obligated to bear a decimal
share of the cost of exploration, development and operation of such xxxxx,
units and/or tracts of land not greater than the decimal share set forth in
Schedule 1.01(a) in connection with such xxxxx, units and/or tracts, unless any
increase in Borrower's share of costs is accompanied by a pro-rata increase in
Borrower's share of revenue. Except as set forth in the instrument and
agreements, if any, more particularly described in Schedule 1.01(a), all such
shares of production which Borrower is entitled to receive, and shares of
expenses which Borrower is obligated to bear, are not subject to change, except
for changes attributable to future elections by Borrower not to participate in
operations proposed pursuant to customary forms of applicable joint operating
agreements, and except for changes attributable to changes in participating
areas under any federal units wherein participating areas may be formed,
enlarged or contracted in accordance with the rules and regulations of the
applicable governmental authority.
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4.07 Oil and Gas Contracts. Borrower is not obligated, by
virtue of any prepayment under any contract providing for the sale by Borrower
of hydrocarbons which contains a "take-or-pay" clause or under any similar
prepayment agreement or arrangement, including, without limitation, "gas
balancing agreements", to deliver a material amount of hydrocarbons produced
from the Borrowing Base Oil and Gas Properties at some future time without then
or thereafter receiving full payment therefor (i.e., in the case of oil, not in
excess of sixty (60) days, and in the case of gas, not in excess of ninety (90)
days). The Borrowing Base Oil and Gas Properties are not subject to any
contractual, or other arrangement for the sale of crude oil which cannot be
cancelled on ninety (90) days' (or less) notice, unless the price provided for
therein is equal to or greater than the prevailing market price in the
vicinity. The Borrowing Base Oil and Gas Properties are not subject to any gas
sales contract that contains any material terms which are not customary in the
industry within the region in which the Borrowing Base Oil and Gas Properties
affected thereby are located. The Borrowing Base Oil and Gas Properties are
not subject to any regulatory refund obligation and no facts exist which might
cause the same to be imposed.
4.08 Producing Xxxxx. All producing xxxxx located on the
Borrowing Base Oil and Gas Properties have been, during all times that such
were under the direction or control of Borrower and, to the knowledge of
Borrower, at all other times, drilled, operated and produced in conformity with
all applicable Laws, rules, regulations and orders of all regulatory
authorities having jurisdiction, are subject to no penalties on account of past
production, and are bottomed under and are producing from, and the well bores
are wholly within, the Borrowing Base Oil and Gas Properties or on Oil and Gas
Properties which have been pooled, unitized or communitized with the Borrowing
Base Oil and Gas Properties.
4.09 Purchasers of Production. The persons who are purchasing
Borrower's interests in oil and gas produced from the Borrowing Base Oil and
Gas Properties as of the calendar month during which the Loans are made
hereunder are identified on Schedule 4.09 attached hereto.
4.10 Scope and Accuracy of Financial Statements. All Financial
Statements submitted and to be submitted to Bank hereunder, including, without
limitation, the Financial Statements
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of Borrower and Guarantor, are and will be complete and correct in all material
respects; with RESPECT to Borrower, are and will be prepared in accordance with
GAAP and practices consistently applied; with respect to Guarantor, are and
will be prepared on a cash accounting basis and tax accounting practices
consistently applied; and do and will fairly reflect the financial condition
and the results of the operations of Borrower and Guarantor in all material
respects as of the dates and for the period stated therein (subject only to
normal year-end audit adjustments with respect to such unaudited interim
statements of Borrower and Guarantor); and no material adverse change has since
occurred in the condition, financial or otherwise, of Borrower or Guarantor, or
their respective Subsidiaries (taken as a whole).
4.11 Liabilities, Litigation and Restrictions. Except as
disclosed in the Financial Statements, neither Borrower nor Guarantor has any
liabilities, direct or contingent, which may materially and adversely affect
the business or assets of such party. Except as described on Schedule 4.11,
there is no litigation or other action of any nature pending before any court,
governmental instrumentality, regulatory authority or arbitral body or, to the
knowledge of Borrower, threatened against or affecting Borrower or Guarantor,
or any of their Subsidiaries, which might reasonably be expected to result in
any material, adverse change in the business or assets of Borrower or
Guarantor, or their respective Subsidiaries (taken as a whole). No unusual or
unduly burdensome restriction, restraint or hazard exists by contract, law,
governmental regulation or otherwise relative to the business or material
properties of Borrower or Guarantor other than such as relate generally to
Persons engaged in the business activities conducted by Borrower or Guarantor,
as the case may be.
4.12 Margin Stock. None of the proceeds of the Loans will be
used for the purpose of buying or carrying margin stock.
4.13 Authorizations and Consents. No authorization, consent,
approval, exemption, franchise, permit or license of, or filing with, any
governmental or public authority or any third party is required to authorize,
or is otherwise required in connection with the valid execution and delivery by
Borrower or Guarantor, as applicable, of this Agreement, the Note, and those of
the Security Instruments to which it is a party or any instrument contemplated
hereby, the repayment by Borrower of advances against the Note and interest and
fees provided in the Note and this
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Agreement, or the performance by Borrower or Guarantor of its obligations under
any of the foregoing.
4.14 Compliance with Laws, Rules, Regulations and Orders. To
the best of the knowledge and belief of Borrower, neither the business nor any
of the activities of Borrower or Guarantor, as presently conducted, violates
any law or any rule, regulation or directive of any applicable judicial,
administrative or other governmental instrumentality (including, but not by way
of limitation, any law or any rule, regulation or directive of any judicial,
administrative or other governmental instrumentality relating to zoning, to any
Environmental Law, to the stabilization of wages or prices or to the
development, production, transportation or purchase or sale of oil, gas or
other hydrocarbons) the result of which violation would have a material adverse
effect on Borrower or Guarantor, or their respective Subsidiaries (taken as a
whole), and Borrower and Guarantor each possess all licenses, approvals,
registrations, permits and other authorizations necessary to enable it to carry
on its business in all material respects as now conducted, and all such
licenses, approvals, registrations, permits and other authorizations are in
full force and effect; and Borrower has no reason to believe that either
Borrower or Guarantor will be unable to obtain the renewal of any such
licenses, approvals, registrations, permits and other authorizations.
4.15 Proper Filing of Tax Returns and Payment of Taxes Due.
Borrower and Guarantor have each duly and properly filed all United States
Income Tax returns and all other tax returns which are required to be filed,
and have paid all taxes due pursuant to said returns or pursuant to any
assessment received, except such taxes, if any, as are being contested in good
faith and as to which adequate provisions and disclosures have been made; and
the respective charges and reserves on the books of Borrower and Guarantor with
respect to any taxes or other governmental charges are adequate.
4.16 ERISA. Borrower is in compliance in all material respects
with all applicable provisions of ERISA. Neither a Reportable Event nor a
Prohibited Transaction has occurred and is continuing with respect to any plan;
no notice of intent to terminate a plan has been filed, nor has any plan been
terminated; no circumstances exist which constitute grounds under Section 4042
of ERISA entitling the PBGC to institute proceedings to terminate,
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or appoint a trustee to administrate a plan, nor has the PBGC instituted any
such proceedings; neither Borrower nor any ERISA Affiliate has completely or
partially withdrawn under Sections 4201 or 4204 of ERISA from a Multi-employer
plan; Borrower and each ERISA Affiliate have met their minimum funding
requirements under ERISA with respect to all of their plans and the present
value of all vested benefits under each plan exceeds the fair market value of
all plan assets allocable to such benefits, as determined on the most recent
valuation date of the plan and in accordance with the provisions of ERISA and
the regulations thereunder for calculating the potential liability of Borrower
or any ERISA Affiliate to the PBGC or the plan under Title IV of ERISA; and
neither Borrower nor any ERISA Affiliate has incurred any liability to the PBGC
under ERISA.
4.17 Investment Company Act Compliance. Neither Borrower nor
Guarantor is, nor is it directly or indirectly controlled by or acting on
behalf of any person or entity which is, an investment company or an
"affiliated person" of an investment company within the meaning of the
Investment Borrower Act of 1940.
4.18 Public Utility Holding Company Act Compliance. Borrower
is not a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
4.19 Environmental Laws. To the best of the knowledge and
belief of Borrower:
(a) no property of Borrower or Guarantor is currently on, or
has ever been on, any federal or state list of superfund sites as listed
on the Environmental Protection Agency National Priority List or any
comparable state registries or list in any state of the United States
(collectively "Superfund Sites");
(b) no Hazardous Substances have in the past been generated,
transported, and or disposed of, by Borrower or Guarantor at any
Superfund Site;
(c) except in accordance with a valid permit, license,
certificate or approval of the relevant regulatory authority or
governmental body, there has been no emission, spill,
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release, disposal or discharge of any Hazardous Substance into or upon
(i) the air, (ii) soils or any improvements located thereon, (iii)
surface water or groundwater, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing any property of Borrower
or Guarantor; and
(d) no complaint, order, directive, claim, citation, notice of
environmental report, notice of investigation or other notice by any
regulatory authority or governmental body or any other Person with
respect to (i) air emissions, (ii) spills, releases or discharges to
soils or any improvements located thereon, surface water, groundwater or
the sewer, septic system or waste treatment, storage or disposal systems
servicing any property of Borrower or Guarantor, (iii) solid or liquid
waste disposal, (iv) the use, generation, storage, transportation or
disposal of any Hazardous Substance, or (v) other environmental, health
or safety matters affecting any property of Borrower or Guarantor, any
improvements located thereon, or the business thereon conducted, has
been received by Borrower or Guarantor, nor has Borrower or Guarantor
been given oral or written notice thereof;
provided, however, that the representations and warranties set forth in
subparagraphs (c) and (d) above shall apply only to events and conditions which
either resulted in (i) a continuing lien or encumbrance on the property of
Borrower or Guarantor or (ii) otherwise materially affect Borrower's or
Guarantor's use or operation of its property or Borrower's ability to repay the
Indebtedness evidenced by the Note, or Guarantor's ability to perform its
Guaranty.
ARTICLE V. AFFIRMATIVE COVENANTS
Borrower covenants, so long as any Indebtedness of Borrower to
Bank remains unpaid under this Agreement or Bank remains obligated to make
advances hereunder, to:
5.01 Use of Funds. Use the proceeds advanced under the Loan to
refinance the existing Indebtedness described on Schedule 3.10, acquire Oil and
Gas Properties, conduct developmental drilling, and use as working capital for
other ordinary business activities of Borrower, and furnish Bank such evidence
as it may reasonably require with respect to such use.
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5.02 Maintenance and Access to Records. Keep adequate records
in accordance with good accounting practices, of all of Borrower's transactions
so that at any time, and from time to time, its true and complete financial
condition may be readily determined and, at Bank's reasonable request, make all
financial records and records relating to the Borrowing Base Properties
available for Bank's inspection and permit Bank to make and take away copies
thereof for Bank's internal use only and subject to such confidentiality
agreements as Borrower may reasonably require.
5.03 Quarterly Unaudited Financial Statements of Borrower.
Deliver to Bank, on or before the forty-fifth (45th) day after the end of each
of the first three calendar quarters of each fiscal year, unaudited Financial
Statements of Borrower as at the end of such period and from the beginning of
such fiscal year to the end of the respective period, as applicable, which
Financial Statements shall be certified by the president or chief financial
officer of Borrower as being true and correct, subject to changes resulting
from year-end audit adjustments.
5.04 Annual Audited Financial Statements of Borrower. Deliver
to Bank, on or before the one hundred and twentieth (120th) day after the close
of each fiscal year of Borrower, a copy of the annual audited Financial
Statements of Borrower.
5.05 Annual Unaudited Financial Statements of Guarantor.
Deliver or cause to be delivered to Bank, on or before the ninetieth (90th) day
after the close of each calendar year, unaudited personal Financial Statements
of Guarantor as at the end of such year, which Financial Statements shall
include cash flow and contingent liability information, and shall be certified
by the Guarantor as being true and correct.
5.06 Guarantor's Tax Returns. Deliver or cause to be delivered
to Bank, on or before the forty-fifth (45th) day after each Guarantor's annual
personal tax return for the preceding tax year is filed with the Internal
Revenue Service, copies of the first two pages of such annual personal tax
return of such Guarantor for the such tax year, certified by such Guarantor as
being true and correct.
5.07 Compliance Certificate. Deliver to Bank a Compliance
Certificate: (a) at the time of Borrower's execution
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of this Agreement, and (b) at the time of delivery of each of the Financial
Statements pursuant to Sections 5.03 and 5.04 above.
5.08 Monthly Borrowing Base Certificate. Deliver to Bank on or
before the 15th day of each month a Monthly Borrowing Base Certificate
evidencing Borrower's calculation of the Borrowing Base according to the
parameters described in Section 2.07, effective as of the first day of such
month.
5.09 Statement of Material Adverse Change in Condition.
Deliver to Bank, promptly upon any officer of the Borrower having knowledge of
any material adverse change in the condition, financial or otherwise, of
Borrower or its Subsidiaries (or any event or circumstance that would result in
any such material adverse change in condition including, but not limited to,
litigation and changes in business), a statement of the president or vice
president of Borrower, setting forth the change in condition or event or
circumstance likely to result in any such change and the steps being taken by
Borrower or the applicable Subsidiary with respect to such change in condition
or event or circumstance.
5.10 Additional Information. Furnish to Bank, promptly upon
Bank's reasonable request, such additional financial or other information
concerning the assets, liabilities, operations, and transactions of Borrower
and of each Guarantor, respectively, in such party's possession or to which it
has access, including, without limitation, information concerning the Borrowing
Base Properties.
5.11 Compliance with Laws and Payment of Assessments and
Charges. Comply with all applicable statutes and government regulations,
including, without limitation, ERISA, and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent, its share of all costs
and expenses incurred under any joint operating agreement, and other
obligations which, if unpaid, might become a lien against its property, except
any of the foregoing being contested in good faith and as to which satisfactory
accruals have been provided and unless failure to comply or pay would not have
a material adverse effect on the assets of Borrower and its Subsidiaries (taken
as a whole).
5.12 Maintenance of Existence and Good Standing. Maintain
Borrower's corporate existence and good standing in the
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jurisdiction of its incorporation, and in all jurisdictions wherein the
property now owned or hereafter acquired or business now or hereafter conducted
necessitates same, other than those jurisdictions wherein the failure to so
qualify will not have a material adverse effect on Borrower.
5.13 Further Assurances. Promptly cure any defects in the
execution and delivery of this Agreement, the Note, the Security Instruments,
the Guaranty or any other instrument referred to herein or executed in
connection with the Note, and upon notice, immediately execute and deliver to
Bank, all such other and further instruments as may be reasonably required or
desired by Bank from time to time in compliance with the covenants and
agreements made in this Agreement.
5.14 Initial Expenses of Bank. Pay all fees and expenses of
special legal counsel for Bank, incurred in connection with the negotiation and
preparation of this Agreement, the Note, the Security Instruments, the Guaranty
or any other instrument referred to herein or executed in connection with the
Note, the satisfaction of the conditions precedent set forth in Article III of
this Agreement and the consummation of the transactions contemplated in this
Agreement.
5.15 Subsequent Expenses of Bank. Upon request, promptly
reimburse Bank for all reasonable amounts expended, advanced or incurred by
Bank to collect the Note or to enforce the rights of Bank under this Agreement,
the Note, the Security Instruments, the Guaranty, or any other instrument
referred to herein or executed in connection with the Note, which amounts shall
be deemed compensatory in nature and liquidated as to amount upon notice to
Borrower by Bank and which amounts will include, but not be limited to, (a) all
court costs, (b) attorneys' fees, (c) fees of auditors and accountants, (d)
investigation expenses, (e) internal fees of Bank's in-house legal counsel, (f)
fees and expenses incurred in connection with Bank's participation as a member
of the creditors' committee in a case commenced under Title 11 of the United
States Code or other similar law of the United States, the State of Texas or
any other jurisdiction, (g) fees and expenses incurred in connection with
lifting the automatic stay prescribed in Sections 362 Title 11 of the United
States Code, and (h) fees and expenses incurred in connection with any action
pursuant to Sections 1129 Title 11 of the United States Code, incurred by Bank
in connection with the collection of any sums due under this
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Agreement, together with interest at the Floating Rate per annum, calculated on
a basis of a year of three hundred sixty-five (365) or three hundred sixty-six
(366) days, on each such amount from the date of notification to Borrower that
the same was expended, advanced or incurred by Bank until the date it is repaid
to Bank, with the obligations under this Section 5.15, surviving the
non-assumption of this Agreement in a case commenced under Title 11 of the
United States Code or other similar law of the United States, the State of
Texas or any other jurisdiction and being binding upon Borrower or a trustee,
receiver or liquidator of any such party appointed in any such case.
5.16 Maintenance of Tangible Property. Maintain all of
Borrower's tangible property in good repair and condition and make all
necessary replacements thereof and operate such property in a good and
workmanlike manner in accordance with standard industry practices, unless the
failure to do so would not have a material adverse effect on Borrower and its
Subsidiaries (taken as a whole) or the value of the Borrowing Base Oil and Gas
Properties.
5.17 Maintenance of Insurance. Continue to maintain, or cause
to be maintained, insurance with respect to the properties and business of
Borrower against such liabilities, casualties, risks and contingencies and in
such amounts as is customary in the industry, in an amount and form, and
underwritten by an insurer or insurers, as are acceptable to Bank in its sole
discretion, and furnish to Bank, at the execution of this Agreement and
annually thereafter, certificates evidencing such insurance.
5.18 Inspection of Tangible Assets/Right of Audit. Permit (or
cause to be permitted) any authorized representative of Bank, to visit and
inspect (at the risk of Bank and/or such representative) any tangible asset of
Borrower and Guarantor, and/or to audit the books and records of Borrower and
Guarantor during normal business hours.
5.19 Payment of Note and Performance of Obligations. As to
Borrower, pay the Note according to the reading, tenor and effect thereof, as
modified hereby, and do and perform every act and discharge all of the
obligations provided to be performed and discharged hereunder.
5.20 ERISA Reports. Promptly after the filing or receiving
thereof, copies of all reports, including annual reports,
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and notices which Borrower files with or receives from the PBGC or the U.S.
Department of Labor under ERISA; and promptly after Borrower knows or has
reason to know that any Reportable Event or Prohibited Transaction has occurred
with respect to any plan or that the PBGC or Borrower has instituted or will
institute proceedings under Title IV of ERISA to terminate any plan, Borrower
will deliver to Bank a certificate of the controller of Borrower setting forth
details as to such Reportable Event or Prohibited Transaction or plan
termination and the action Borrower proposes to take with respect thereto.
5.21 Tangible Net Worth Requirement. Borrower shall maintain a
total Tangible Net Worth of not less than $1,000,000.00, plus: (a) fifty
percent (50%) of net income (excluding losses) of Borrower subsequent to
December 31, 1996, and (b) one hundred percent (100%) of any increases in
shareholders' equity resulting from the sale or issuance of stock in Borrower
subsequent to December 31, 1996. For purposes of this section 5.21, Tangible
Net Worth shall include notes payable by the Borrower to its shareholders,
together with accrued interest thereon, provided that such Indebtedness is
expressly subordinated to the Obligations of Borrower to the Bank pursuant to a
subordination agreement executed in accordance with Section 3.11 hereof.
5.22 Cash Flow to Debt Service Ratio. Borrower will maintain
(calculated in accordance with GAAP) a ratio of quarterly Cash Flow to
quarterly Debt Service of not less than 1.25 to 1.0. Compliance with this
covenant shall begin with the quarter ending March 31, 1997. For the purposes
of calculating this ratio:
(a) "Cash Flow" shall be defined as the sum of net income plus
depreciation and other non-cash charges less non-cash income of
Borrower, and
(b) "Debt Service" shall be defined as the sum of (i) actual
principal amounts paid by Borrower during such quarter on Indebtedness
other than in connection with this Loan; and (ii) principal amounts
required to be paid by Borrower during such quarter in connection with
this Loan.
5.23 Compliance with Environmental Laws. Comply in all
material respects with any and all requirements of law, including, without
limitation, Environmental Laws, (a) related to any natural or environmental
resource or media located on, above, within, in
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the vicinity of, related to or affected by any Borrowing Base Oil and Gas
Properties or any other property of Borrower, or (b) required for the
performance or conduct of its operations, including, without limitation, all
permits, licenses, registrations, approvals and authorizations, and, in this
regard, comply fully and in a timely manner with, and cause all employees, crew
members, agents, contractors, subcontractors and future lessees (pursuant to
appropriate lease provisions) of Borrower while such Persons are acting within
the scope of their relationship with Borrower, to so comply with, all
requirements of law, including, without limitation, Environmental Laws, and
other requirements with respect to the property of Borrower and the operation
thereof necessary or appropriate to enable Borrower to fulfill its obligations
under all requirements of law, including, without limitation, Environmental
Laws, applicable to the use, generation, handling, storage, treatment,
transport and disposal of any Hazardous Substances now or hereafter located or
present on or under any such property.
5.24 Hazardous Substances Indemnification. Indemnify and hold
Bank harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial actions, requirements and enforcement actions
of any kind, and all costs and expenses incurred in connection therewith
(including, without limitation, attorneys' fees and expenses), arising directly
or indirectly, in whole or in part, out of (a) the presence of any Hazardous
Substances on, under or from its property, whether prior to or during the term
hereof, or (b) any activity carried on or undertaken on or off its property,
whether prior to or during the term hereof, and whether by Borrower or any
predecessor in title or any employees, agents, contractors or subcontractors of
Borrower or any predecessor in title, or any third Persons at any time
occupying or present on such property, in connection with the handling,
treatment, removal, storage, decontamination, cleanup, transportation or
disposal of any Hazardous Substances at any time located or present on or under
such property; with the foregoing indemnity further applying to any residual
contamination on or under the property of Borrower, or any property of any
other Person, or affecting any natural resources, and to any contamination of
any property or natural resources arising in connection with the generation,
use, handling, storage, transportation or disposal of any Hazardous Substances,
irrespective of whether any of such activities were or will be
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undertaken in accordance with applicable requirements of law, including,
without limitation, Environmental Laws, and surviving satisfaction of all
Indebtedness of Borrower to Bank and the termination of this Agreement,
provided, further, that the claims and other actions of any kind against Bank
which give rise to such indemnity are not barred by the applicable statute of
limitations at the time such claims or actions are instituted and such
indemnity shall not extend to any act or omission by Bank or any Affiliate of
Bank or any of Bank's employees or agents with respect to the relevant property
subsequent to Bank becoming the owner of, taking possession of to the exclusion
of Borrower or assuming operations of any property previously owned by Borrower
and with respect to which property such claim, loss, damage, liability, fine,
penalty, charge, proceeding, order, judgment, action or requirement arises
subsequent to the acquisition of title thereto, taking possession thereof or
assumption of operations thereon by Bank or any Affiliate of Bank or any of
Bank's employees or agents. Notwithstanding anything herein to the contrary,
the provisions of this Section 5.24 shall survive any termination of this
Agreement and shall survive the payment and performance in full of all
Obligations owed by Borrower to Bank.
5.25 Changes in Management. Notify Bank of any change in the
senior management of Borrower existing as of the date hereof.
5.26 Operating Accounts. Maintain all principal operating
accounts of Borrower with Bank.
ARTICLE VI. NEGATIVE COVENANTS
Without the prior written consent of Bank and so long as any part
of the principal or interest on the Note shall remain unpaid or Bank remains
obligated to make advances hereunder, Borrower and its Subsidiaries will not:
6.01 Other Indebtedness. Incur, create, assume or suffer to
exist any Indebtedness, whether by way of loan or the issuance or sale of
securities except (a) Loans hereunder, (b) loans by Bank under other credit
arrangements, (c) Indebtedness owed to Bank by any Affiliates of Borrower, and
(d) unsecured accounts payable incurred in the ordinary course of business
which are not overdue or if overdue, are acceptable to Bank and are being
contested in good faith by appropriate proceedings; provided that Borrower
shall be permitted to increase the amount of Indebtedness
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owed the holders thereof identified on Schedule 3.11 hereof, provided that any
increased amount of such Indebtedness shall contemporaneously be subordinated
to all of Borrower's Obligations to the Bank on terms that are satisfactory to
the Bank, in its sole discretion.
6.02 Guaranty of Payment or Performance. Guaranty any contract
or obligation of any Person, except for any Indebtedness owed to Bank by any
Affiliates of Borrower, and except that the foregoing restriction shall not
apply to endorsements of instruments for collection in the ordinary course of
business.
6.03 Loans or Advances. As to Borrower, only, make or agree to
make or allow to remain outstanding any loans or advances to any Person,
including Affiliates of Borrower, in amounts which exceed $25,000 in the
aggregate, except advances or extensions of credit in the form of accounts
receivable incurred in the ordinary course of business.
6.04 Mortgages or Pledges of Assets. Create, incur, assume or
permit to exist, any mortgage, pledge, security interest, lien or encumbrance
on any of its properties or assets (now owned or hereafter acquired), except
that the foregoing restrictions shall not apply to any matters that would
constitute or result in Permitted Encumbrances.
6.05 Nature of Business. Permit any material change to be made
in the character of its business as conducted as of the date hereof, or permit
any Subsidiary to permit any material change to be made in the character of
such Subsidiary's business as conducted as of the date hereof.
6.06 Sales of Assets. Sell, lease, assign, transfer or
otherwise dispose of, in one or any series of related transactions, all or any
part of its assets, if such transfer is material to Borrower's operations, nor
enter into any arrangement, directly or indirectly, with any Person to sell and
rent or lease back such assets or any part thereof which are intended to be
used for substantially the same purpose or purposes as the assets sold or
transferred.
6.07 Dividends and Distributions. Declare or pay any dividend
from Borrower or make any distribution on, or purchase, redeem or otherwise
acquire for value, any interest in Borrower or its Subsidiaries.
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6.08 Payment of Accounts Payable. Allow any account payable to
remain unpaid after its due date, except such as are overdue that are
acceptable to Bank, are being contested in good faith, and as to which adequate
provision or accrual has been made.
6.09 Cancellation of Insurance. Allow any insurance policy
required to be carried hereunder to be terminated or lapse or expire without
provision for adequate renewal thereof.
6.10 Investments. Make Investments in or purchase or otherwise
acquire all or substantially all of the assets of any Person other than
Borrower and its Subsidiaries, or any shares of stock of, or similar interest
in, any Person.
6.11 Changes in Business Structure. Consolidate or merge with,
or purchase (for cash or securities) all or substantially all of the assets or
all or any part of the capital stock of any corporation, firm, association or
enterprise, or allow any such entity to be merged into Borrower, nor shall
Borrower dissolve or liquidate; provided that Borrower shall be permitted to
merge with Carrizo Production, Inc. ("CPI"), if, at the time of such merger,
CPI owes no Indebtedness and contemporaneous with the consummation of such
merger the Tangible Net Worth that Borrower is required to maintain pursuant to
Section 5.21 shall be increased by the amount of the Tangible Net Worth of CPI.
6.12 Shareholder Control. Cause or permit any change to occur
in Guarantor's ownership interests in Borrower that would reduce Guarantor's
aggregate ownership of the voting common stock of Borrower to less than fifty-
one percent (51%).
6.13 Transactions with Affiliates. Enter into any transaction
between or among Borrower and/or any Subsidiaries with any Affiliate on terms
that are less favorable than could be obtained in an arms-length transaction
with a Person that is not an Affiliate.
ARTICLE VII. EVENTS OF DEFAULT
7.01 Enumeration of Events of Default. Any of the following
events shall be considered an Event of Default as that term is used herein:
(a) Default shall be made by Borrower in the payment of any
installment of principal on the Note,
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(b) Default shall be made by Borrower in the payment of any
installment of interest on the Note, or any fees or other monetary
obligation payable hereunder, and such default shall remain unremedied
in excess of three (3) days after notice being given by Bank,
(c) Default shall be made by Borrower or Guarantor in the due
observance or performance of any affirmative covenant required in this
Agreement, the Note, the Security Instruments, or the Guaranty, and such
default shall remain unremedied for in excess of thirty (30) days after
the earlier of: (i) such default becoming known to Borrower, or (ii)
notice being given by Bank.
(d) Default shall be made by Borrower or Guarantor in the due
observance or performance of any negative covenant required in this
Agreement, the Note, the Security Instruments, or the Guaranty.
(e) Any representation or warranty herein made by Borrower
proves to have been untrue in any respect material to Borrower or
Guarantor, or any representation, statement (including Financial
Statements), certificate or data furnished or made by Borrower or
Guarantor to Bank in connection herewith proves to have been untrue in
any respect material to Borrower or Guarantor as of the date the facts
therein set forth were stated or certified;
(f) Default shall be made by Borrower or Guarantor (as
principal or guarantor or other surety) in payment or performance of any
bond, debenture, note or other evidence of Indebtedness for borrowed
money, or any other credit agreement, loan agreement, indenture,
promissory note or similar agreement or instrument executed in
connection with any of the foregoing in excess of $25,000 in the
aggregate; and such default shall remain unremedied for in excess of the
period of grace, if any, with respect thereto, with the effect of
accelerating the maturity of any such Indebtedness;
(g) Borrower or Guarantor applies for or consents to the
appointment of a receiver, trustee or liquidator of it or all or a
substantial part of its assets, or (ii) files a voluntary petition
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization or rearrangement or taking advantage of any
bankruptcy,
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insolvency, debtor's relief or other similar law of the United States,
the State of Texas or any other jurisdiction, or (iii) makes a general
assignment for the benefit of creditors, or (iv) is unable, or admits in
writing its inability to pay its debts generally as they become due, or
(v) files an answer admitting the material allegations of a petition
filed against it in any case commenced under Title 11 of the United
States Code or any reorganization, insolvency, conservatorship or
similar proceeding under any bankruptcy, insolvency, debtor's relief or
other similar law of the United States, the State of Texas or any other
jurisdiction;
(h) An order, judgment or decree shall be entered against
Borrower or Guarantor by any court of competent jurisdiction or by any
other duly authorized authority, on the petition of a creditor or
otherwise, granting relief under Title 11 of the United States Code or
under any bankruptcy, insolvency, debtor's relief or other similar law
of the United States, the State of Texas or any other jurisdiction,
approving a petition seeking reorganization or an arrangement of its
debts or appointing a receiver, trustee, conservator, custodian or
liquidator of it or all or any substantial part of its assets, and the
failure to have such order, judgment or decree dismissed within ten (10)
days of its entry;
(i) Borrower or Guarantor has concealed, removed, or permitted
to be concealed or removed, any part of its property, with intent to
hinder, delay or defraud its creditors or any of them; or has made or
suffered a transfer of any of its property which may be fraudulent under
any bankruptcy, fraudulent conveyance or similar law; or has made any
transfer of its property to or for the benefit of a creditor at a time
when other creditors similarly situated have not been paid; or has
suffered or permitted, while insolvent, any creditor to obtain a lien
upon any of its property through legal proceedings or distraint which is
not vacated within thirty (30) days from the date thereof.
7.02 Rights Upon Default. Upon the happening of an Event of
Default specified in Subsections 7.01 (g) or (h), the entire aggregate
principal amount of all Indebtedness then outstanding hereunder and the
interest accrued thereon shall automatically become immediately due and
payable, and upon the happening and continuation of any other Event of Default,
Bank may declare the entire aggregate principal amount of all Indebtedness
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then outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other notice of default or dishonor of any kind, except as provided to the
contrary elsewhere herein, all of which are hereby expressly waived by
Borrower.
Upon the happening and continuation of any Event of Default, all
obligations (if any) of Bank hereunder shall immediately cease and terminate
unless and until Bank shall reinstate the same in writing.
ARTICLE VIII. MISCELLANEOUS
8.01 Security Interests in Deposits and Right of Offset or
Banker's Lien. Borrower hereby transfers, assigns and pledges to Bank and/or
grants to Bank a security interest (as security for the payment and/or
performance of the obligations of Borrower under this Agreement and the Note,
with such interest of Bank to be retransferred, reassigned and/or released by
Bank at the expense of Borrower upon payment in full and/or complete
performance by Borrower of all such obligations) and the right, exercisable at
such time as any obligation hereunder shall mature, whether by acceleration of
maturity or otherwise of offset or banker's lien against all funds or other
property of Borrower now or hereafter or from time to time on deposit with or
in the possession of Bank, including, without limitation, all certificates of
deposit and other depository accounts.
8.02 Survival of Representations, Warranties and Covenants.
All representations and warranties of Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Note and this
Agreement and shall remain in force and effect so long as any debt is
outstanding under the Note, or any renewal or extension of this Agreement or
the Note, or Bank remains obligated to make advances hereunder.
8.03 Notices and Other Communications. Notices, requests and
communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, telex, telegram or
hand):
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(a) If to Bank:
COMPASS BANK
00 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Energy Lending
Fax: (000) 000-0000
(b) If to Borrower:
CARRIZO OIL & GAS, INC.
00000 Xx. Xxxx'x Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx X. Xxxxxx
Fax: (000) 000-0000
Any party may, by proper written notice hereunder to the other,
change the individuals or addresses to which such notices to it shall
thereafter be sent.
8.04 Parties in Interest. All covenants and agreements herein
contained by or on behalf of Borrower shall be binding upon Borrower and its
successors and assigns and inure to the benefit of Bank and its successors and
assigns.
8.05 Renewals and Extensions. All provisions of this Agreement
relating to the Note shall apply with equal force and effect to each and all
promissory notes hereafter executed which in whole or in part represent a
renewal, extension, amendment, modification or rearrangement of any part of the
Indebtedness originally represented by the Note.
8.06 No Waiver by Bank. No course of dealing on the part of
Bank, its officers or employees, nor any failure or delay by Bank with respect
to exercising any of its rights, powers or privileges under this Agreement, the
Note, the Security Instruments or any other instrument referred to herein or
executed in connection with the Note shall operate as a waiver thereof. The
rights and remedies of Bank under this Agreement, the Note, the Security
Instruments or any other instrument referred to herein or executed in
connection with the Note shall be cumulative and the exercise or partial
exercise of any such right or remedy shall not preclude the exercise of any
other right or remedy. In the event that Borrower is unable to satisfy any
covenant, warranty or condition herein, no advance of loan proceeds by Bank
shall have
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the effect of precluding Bank from thereafter declaring any such continuing
inability to be an Event of Default as hereinabove provided.
8.07 INDEMNIFICATION. BORROWER HEREBY RELEASES AND AGREES TO
INDEMNIFY AND HOLD BANK AND ITS OFFICERS, EMPLOYEES, DIRECTORS, AGENTS AND
ATTORNEYS (COLLECTIVELY THE "BANK PARTIES") HARMLESS, FROM AND AGAINST ALL
CLAIMS, DAMAGES, LIABILITIES AND EXPENSES, KNOWN OR UNKNOWN, ACCRUED AND
UNACCRUED, INCLUDING ANY OF THE FOREGOING ALLEGED TO HAVE RESULTED FROM
NEGLIGENCE OF ANY OF THE BANK PARTIES, UNLESS ATTRIBUTABLE TO BANK PARTIES' OWN
GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THAT MAY NOW OR HEREAFTER BE ASSERTED
AGAINST ANY OF BANK PARTIES IN CONNECTION WITH OR ARISING OUT OF ANY
INVESTIGATION, LITIGATION OR PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO OR
ARISING OUT OF ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
8.08 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
8.09 Incorporation of Exhibits. The Exhibits attached to this
Agreement are incorporated herein for all purposes and shall be considered a
part of this Agreement.
8.10 Survival Upon Unenforceability. In the event any one or
more of the provisions contained in this Agreement, the Note, the Security
Instruments or in any other instrument referred to herein or executed in
connection with the Note shall, for any reason, be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof or of any other
instrument referred to herein or executed in connection herewith.
8.11 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of Bank and Borrower and no
other Person shall have standing to require satisfaction of such provisions in
accordance with their terms or be entitled to assume that Bank will refuse to
make advances in the absence of strict compliance with any or all thereof and
any or all of such provisions may be freely waived in whole or in part by Bank
at any time if in its sole discretion it deems it advisable to do so.
8.12 Amendments or Modifications of this Agreement. Neither
this Agreement nor any provision hereof may be changed,
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waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge
or termination is sought.
8.13 Agreement Construed as an Entirety. This Agreement, for
convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties and other legal
relations of the parties hereto shall be determined from this Agreement as an
entirety and without regard to the aforesaid division into Articles and
Sections and without regard to headings prefixed to said Articles or Sections.
8.14 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative.
8.15 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS
AGREEMENT, TOGETHER WITH THE NOTE AND THE SECURITY INSTRUMENTS, CONSTRUED
TOGETHER WITH THE REVOLVING CREDIT AGREEMENT AND ALL INSTRUMENTS EXECUTED
PURSUANT THERETO, REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE
PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
8.16 Controlling Provision Upon Conflict. In the event of a
conflict between the provisions of this Agreement and those of the Note, the
Security Instruments or any other instrument referred to herein or executed in
connection with the Note, the provisions of this Agreement shall control.
8.17 Time, Place and Method of Payments. All payments required
pursuant to this Agreement or the Note shall be made in immediately available
funds; shall be deemed received by Bank on the next Business Day following
receipt if such receipt is after 3:00 p.m., on any Business Day, and shall be
made at the principal banking quarters of Bank.
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8.18 Counterpart Execution. This Agreement may be executed as
one instrument signed by all parties or in separate counterparts hereof, each
of which counterparts shall be considered an original and all of which shall be
deemed to be one instrument, and any signed counterpart shall be deemed
delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.
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IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
BORROWER:
CARRIZO OIL & GAS, INC.
By: /s/ XXXXX X. XXXXXX
------------------------------
Xxxxx X. Xxxxxx
Vice President and Chief
Financial Officer
BANK:
COMPASS BANK
By: /s/ XXXXXXXX X. XXXXX
------------------------------
Xxxxxxxx X. Xxxxx
Vice President
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SCHEDULES AND EXHIBITS
The schedules and exhibits have been intentionally omitted herefrom.
The Company will furnish supplementally a copy of any or all of such omitted
schedules and exhibits to the Commission upon request.
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