LOAN AGREEMENT
BETWEEN
XXXXXX OIL COMPANY
("Borrower")
AND
BANK ONE, TEXAS, N.A.
("Bank")
March 20, 1996
LOAN AGREEMENT
TABLE OF CONTENTS
Page
1. Definitions 1
2. Commitments of the Bank 9
(a) Revolving Commitment 9
(b) Advance Line of Credit 9
(c) Procedure for Borrowing 9
(d) Monthly Reduction of Revolving Commitment 10
(e) Voluntary Reduction of Revolving Commitment
and the Advance Line of Credit 10
3. Notes Evidencing Loans 10
(a) Form of Revolving Note 10
(b) Form of Advance Note 11
(c) Interest Rate on the Notes 11
(d) Payment of Interest on the Revolving Note 11
(e) Payment of the Principal of the Revolving Note 11
(f) Payment on Principal and Interest on the Advance Note 11
(g) General 11
4. Interest Rates 12
(a) Options For Revolving Loan 12
(b) Interest Rate Determination 13
(c) Conversion Option 13
(d) Advance Loan 13
(e) Recoupment 13
5. Special Provisions Relating to Eurodollar Loans 14
(a) Unavailability of Funds or Inadequacy of Pricing 14
(b) Reserve Requirements 14
(c) Taxes 14
(d) Change in Laws 15
(e) Option to Fund 15
(f) Indemnity 16
(g) Payments Not at End of Interest Period 16
6. Collateral Security 16
7. Borrowing Base 17
(a) Initial Borrowing Base 17
(b) Subsequent Determinations of Borrowing Base 17
8. Fees 18
(a) Unused Portion Fee 18
(b) Commitment Fee 19
(c) Facility Fee 19
(d) Borrowing Base Increase Fee 19
9. Prepayments 19
(a) Voluntary Prepayments of Notes 19
(b) Mandatory Prepayment of Revolving Note 19
(c) Mandatory Prepayment of Advance Line of Credit 20
10. Representations and Warranties 20
(a) Corporate Existence 20
(b) Corporate Power and Authorization 20
(c) Guarantor 20
(d) Binding Obligations 21
(e) No Legal Bar or Resultant Lien 21
(f) No Consent 21
(g) Financial Condition 21
(h) Liabilities 21
(i) Litigation 22
(j) Taxes; Governmental Charges 22
(k) Titles, Etc. 22
(l) Defaults 22
(m) Casualties; Taking of Properties 22
(n) Use of Proceeds; Margin Stock 22
(o) Location of Business and Offices 23
(p) Compliance with the Law 23
(q) No Material Misstatements 23
(r) Not A Utility 23
(s) ERISA 24
(t) Public Utility Holding Company Act 24
(u) Subsidiaries 24
(v) Environmental Matters 24
(w) Liens 24
11. Conditions of Lending 24
12. Affirmative Covenants 26
(a) Financial Statements and Reports 27
(b) Certificates of Compliance 28
(c) Accountants' Certificate 28
(d) Taxes and Other Liens 28
(e) Compliance with Laws 29
(f) Further Assurances 29
(g) Performance of Obligations 29
(h) Insurance 29
(i) Accounts and Records 30
(j) Right of Inspection 30
(k) Notice of Certain Events 31
(l) ERISA Information and Compliance 31
(m) Environmental Reports and Notices 31
(n) Maintenance 31
(o) Operation of Properties 32
(p) Compliance with Leases and Other Instruments 32
(q) Certain Additional Assurances Regarding Main-
tenance and Operations of Properties 33
(r) Title Matters 33
(s) Curative Matters 33
(t) Change of Principal Place of Business 33
13. Negative Covenants 33
(a) Liens 34
(b) Consolidations, Mergers and Sales of Assets 34
(c) Current Ratio 34
(d) Debt Service Ratio 34
(e) Minimum Tangible Net Worth 34
(f) Total Bank Debt 34
(g) Debts, Guaranties and Other Obligations 34
(h) Dividends 35
(i) Loans and Advances 35
(j) Investments 36
(k) Sale or Discount of Receivables 36
(l) Nature of Business 36
(m) Hedging Transactions 36
(n) Amendment of Articles of Incorporation or Bylaws 37
(o) Sale of Assets 37
(p) Transactions with Affiliates 37
14. Events of Xxxxxxx 00
00. Exercise of Rights 39
16. Notices 40
17. Expenses 40
18. Indemnity 40
19. Invalid Provisions 41
20. Maximum Interest Rate 41
21. Amendments 42
22. Multiple Counterparts 42
23. Conflict 42
24. Survival 42
25. Parties Bound 42
26. Participations 42
27. Financial Terms 43
28. Governing Law 43
29. Choice of Forum: Consent to Service of Process and
Jurisdiction 43
30. Other Agreements 44
EXHIBITS
Exhibit "A" - Notice of Borrowing
Exhibit "B" - Revolving Note
Exhibit "C" - Advance Note
Exhibit "D" - Compliance Certificate
SCHEDULES
Schedule 1 - Permitted Liens
Schedule 2 - Financial Condition
Schedule 3 - Liabilities
Schedule 4 - Litigation
Schedule 5 - Subsidiaries
Schedule 6 - Environmental Matters
Schedule 7 - Title Matters
Schedule 8 - Curative Matters
Schedule 9 - Debts, Guarantees and other Obligations
Schedule 10 - Loans and Advances
LOAN AGREEMENT
THIS LOAN AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 20th day of March, 1996, between
XXXXXX OIL COMPANY, a Colorado corporation (hereinafter referred to
as the "Borrower"), XXXXXX RESOURCES CORPORATION, a Colorado
corporation (hereinafter referred to as the "Guarantor") and BANK
ONE, TEXAS, N.A., a national banking association (hereinafter
sometimes referred to as "Bank").
W I T N E S S E T H:
WHEREAS, Borrower has requested that the Bank provide Borrower
with a reducing revolving line of credit facility and an advance
line of credit and Bank is willing to make such facilities
available to Borrower.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Definitions. When used herein the terms "Agreement,"
"Bank," "Borrower" and "Guarantor" shall have the meanings
indicated above. When used herein the following terms shall have
the following meanings (all terms defined in this Section 1 or
other provisions of this Agreement in the singular shall have the
same meanings when used in the plural or vice versa):
"Advance or Advances" shall mean a loan or loans hereunder.
"Advance Line of Credit" shall mean the commitment
contained in Section 2(b) hereof.
"Advance Loan" shall mean loan or loans made under the
Advance Line of Credit pursuant to Section 2(b) hereof.
"Advance Loan Maturity Date" shall mean September 30, 1997.
"Advance Note" shall mean the $2,000,000 Advance Note
described in Section 3(b) hereof.
"Affiliate" shall mean any Person which, directly or
indirectly, controls, is controlled by or is under common control
with the relevant Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with
respect to any Person, shall mean a member of the board of
directors, a partner or an officer of such Person, or any other
Person with possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
such Person, through the ownership (of record, as trustee, or by
proxy) of voting shares, partnership interests or voting rights,
through a management contract or otherwise. Any Person owning or
controlling directly or indirectly ten percent or more of the
voting shares, partnership interests or voting rights, or other
equity interest of another Person shall be deemed to be an
Affiliate of such Person.
"Approved AFE" shall mean the AFE's for each well in the
Drilling Program (as herein defined) which are approved by Bank
prior to the Effective Date.
"Base Rate" shall mean the fluctuating rate of interest per
annum established from time to time by Bank as its Base Rate (which
rate of interest may not be the lowest, best or most favorable rate
of interest which Bank may charge on loans to its customers). Each
change in the Base Rate shall become effective without prior notice
to Borrower automatically as of the opening of business on the date
of such change in the Base Rate.
"Base Rate Interest Period" shall mean with respect to any
Base Rate Loan, the period ending on the last day of each month,
provided, however, that (i) if any Base Rate Interest Period would
end on a day which is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day, and(ii) if
any Base Rate Interest Period would otherwise end after the
Maturity Date or the Advance Loan Maturity Date, as the case may
be, such Interest Period shall end on the Maturity Date or the
Advance Loan Maturity Date, as the case may be.
"Base Rate Loan" shall mean any loan during any period
which bears interest at the Base Rate plus the Base Rate Margin, or
which would bear interest at such rate if the Maximum Rate ceiling
was not in effect at a particular time.
"Base Rate Margin" shall mean for the Revolving Commitment,
three-fourths of one percent (.75%).
"Borrowing Base" shall mean the value assigned by the Bank
from time to time to the Oil and Gas Properties and other
collateral in accordance with Section 7(b) hereof. Until the next
determination of the Borrowing Base pursuant to Section 7(b) hereof
the Borrowing Base for the Revolving Commitment shall be
$10,500,000.00.
"Borrowing Date" shall mean the date elected by the
Borrower pursuant to Section 2 hereof for an Advance on the
Revolving Commitment or the Advance Line of Credit.
"Business Day" shall mean the normal banking hours during
any day (other than Saturdays or Sundays) that banks are legally
open for business in Dallas, Texas.
"Cash Flow" shall mean Borrower's Net Income or loss less
preferred dividends plus non-cash charges, all as calculated in
accordance with GAAP.
"Change of Management" shall occur if Xxxxxx X. Xxxxxx, Xx.
or both Xxxxx X. Xxxxxx, Xx. and Xxxxx X. Xxxxxxxxxx should cease
to act as senior officers of Borrower.
"Collateral" is used herein as defined in Section 6 hereof.
"Contract Rate" shall mean the rate of interest per annum
which Bank shall charge Borrower on the Advance Line of Credit,
which rate shall be equal to the greater of (i) twelve and one-half
percent (12.5%) per annum or (ii) the Base Rate plus four percent
(4%) per annum.
"Current Assets" shall mean the total of Borrower's current
assets, determined in accordance with GAAP, plus current
availability under the Revolving Commitment and the Advance Line of
Credit.
"Current Liabilities" shall mean the total of Borrower's
current liabilities as determined in accordance with GAAP,
excluding therefrom current maturities of the principal and
interest due on the Revolving Commitment and the Advance Line of
Credit.
"Debt Service" shall mean Total Bank Debt divided by a
number equal to the economic half life of the Oil and Gas
Properties as determined by the Bank from time to time pursuant to
Section 7(b).
"Determination Date" is used herein as defined in Section 7
hereof.
"Drilling Program" shall mean the development drilling
program proposed by Borrower and approved by Bank prior to the
Effective Date.
"Effective Date" shall mean the date of this Agreement.
"Environmental Laws" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Super Fund Amendments and Reauthorization Act of
1986, 42 U.S.C.A. Section 9601, et seq., the Resource Conservation and
Recovery Act, as amended by the Hazardous Solid Waste Amendment of
1984, 42 U.S.C.A. Section 6901, et seq., the Clean Air Act, 42 U.S.C.A.
Section 1251, et seq., the Toxic Substances Control Act, 15 U.S.C.A.
Section 2601, et seq., The Oil Pollution Act of 1990, 33 U.S.G. Section 2701,
et seq., and all other laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, order
and restrictions of any federal, state, county, municipal and other
governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign, relating
to air pollution, water pollution, noise control and/or the
handling, discharge, disposal or recovery of on-site or off-site
asbestos or "hazardous substances" as defined by 42 U.S.C. Section 9601,
et seq., as amended, as each of the foregoing may be amended from
time to time.
"Environmental Liability" shall mean any claim, demand,
obligation, cause of action, accusation, allegation, order,
violation, damage, injury, judgment, penalty or fine, cost of
enforcement, cost of remedial action or any other costs or expense
whatsoever, including reasonable attorneys' fees and disbursements,
resulting from the violation or alleged violation of any
Environmental Law or the imposition of any Environmental Lien (as
hereinafter defined).
"Environmental Lien" shall mean a Lien in favor of any
court, governmental agency or instrumentality or any other Person
(i) for any Environmental Liability or (ii) for damages arising
from or cost incurred by such court or governmental agency or
instrumentality or other person in response to a release or
threatened release of hazardous or toxic waste, substance or
constituent into the environment.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"Eurodollar Business Day" shall mean a Business Day on
which dealings in U.S. Dollar deposits are carried on in the London
interbank market.
"Eurodollar Interest Period" shall mean with respect to any
Eurodollar Loan (i) initially, the period commencing on the date
such Eurodollar Loan is made and ending one (1), two (2) or three
(3) months thereafter and (ii) thereafter, each period commencing
on the day following the last day of the next preceding Interest
Period applicable to such Eurodollar Loan and ending one (1), two
(2) or three (3) months thereafter; provided, however, that (i) if
any Eurodollar Interest Period would otherwise expire on a day
which is not a Eurodollar Business Day, such Interest Period shall
expire on the next succeeding Eurodollar Business Day unless the
result of such extension would be to extend such Interest Period
into the next calendar month, in which case such Interest Period
shall end on the immediately preceding Eurodollar Business Day,
(ii) if any Eurodollar Interest Period begins on the last
Eurodollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at
the end of such Interest Period) such Interest Period shall end on
the last Eurodollar Business Day of a calendar month, and (iii) any
Eurodollar Interest Period which would otherwise expire after the
Revolving Maturity Date shall end on such Revolving Maturity Date.
Borrower shall not be permitted to have outstanding at any time
more than three (3) Eurodollar Tranches.
"Eurodollar Loan" shall mean any loan during any period
which bears interest at the Eurodollar Rate, or which would bear
interest at such rate if the Maximum Rate ceiling was not in effect
at a particular time.
"Eurodollar Margin" shall mean two and one-half percent
(2.50%).
"Eurodollar Rate" shall mean with respect to each
Eurodollar Interest Period, the rate of interest per annum at which
deposits in immediately available and freely transferable funds in
U.S. Dollars are offered to the Bank (at approximately 10:00 a.m.,
Dallas, Texas time three Eurodollar Business Days prior to the
first day of each Eurodollar Interest Period) in the London
interbank market for delivery on the first day of such Eurodollar
Interest Period such deposits being for a period of time equal to
or comparable to such Eurodollar Interest Period and in an amount
equal to or comparable to the principal amount of the Eurodollar
Loan to which such Eurodollar Interest Period relates. Each
determination of the Eurodollar Rate by the Bank shall, in the
absence of error, be conclusive and binding
"Eurodollar Tranche" shall mean a Eurodollar Loan.
"Financial Statements" shall mean balance sheets, income
statements, statements of cash flow, and, on an annual basis,
appropriate footnotes and schedules, prepared in accordance with
GAAP.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Guaranty" shall mean the unconditional guaranty of
Guarantor.
"Interest Payment Date" shall mean the earlier of (i) the
last day of each Interest Period or (ii) the first day of each
calendar month.
"Interest Period" shall mean any Base Rate Interest Period,
or Eurodollar Interest Period.
"Lien" shall mean any lien, mortgage, security interest,
tax lien, pledge, encumbrance, Environmental Lien, consolidated
sale or title retention arrangement or other interest in property
designed to secure repayment of a liability whether arising by
agreement or under law, or otherwise.
"Loan Documents" shall mean this Agreement, the Notes, the
Guaranty, the Security Instruments and all other documents executed
in connection with the transaction described in this Agreement.
"Material Adverse Effect" shall mean any circumstances or
events which could have a material adverse effect (i) on the assets
or properties, liabilities, financial condition, business,
operations, affairs or circumstances of Borrower or from the facts
represented or warranted in this Agreement or any other Security
Instrument (other than any representation or warranty related
solely to a different point in time), or (ii) the ability of
Borrower to carry out its business as it exists on the date of this
Agreement or as proposed at the date of this Agreement to be
conducted or to meet its obligations under the Notes, this
Agreement or the other Security Instruments on a timely basis.
"Maximum Rate" shall mean, at any particular time in
question, the maximum rate of interest which under applicable law
may then be charged on the Note. If such maximum rate changes
after the date hereof, the Maximum Rate shall be automatically
increased or decreased, as the case may be, without notice to
Borrower from time to time as the effective date of each change in
such maximum rate. If the applicable law ceases to provide for a
maximum rate of interest, the Maximum Rate shall be equal to
eighteen percent (18%) per annum.
"Midland" shall mean Midland Bank, P.L.C.
"Monthly Commitment Reduction" is used herein as defined in
Section 2 hereof.
"Net Income" shall mean the Borrower's net income as
determined in accordance with GAAP.
"Net Operating Revenue" shall mean gross revenues from the
oil and gas properties in the Drilling Program less production
taxes, operating expenses and interest paid on the Advance Note.
"Notes" shall mean the Revolving Note and the Advance Note.
"Oil and Gas Properties" shall mean all oil, gas and
mineral properties and interests, and related personal properties,
in which Borrower have granted and hereinafter grants to Bank a
first and prior lien and security interest.
"Permitted Liens" shall mean (i) royalties, overriding
royalties, reversionary interests, production payments and similar
burdens on any of the Oil and Gas Properties that existed as of the
Effective Date or otherwise may be consented to by the Banks; (ii)
sales contracts or other arrangements for the sale of production of
oil, gas or associated liquid or gaseous hydrocarbons which would
not (when considered cumulatively with the matters discussed in
clause (i) above) deprive the Borrower of any material right in
respect of any of Borrower's assets or properties (except for
rights customarily granted with respect to such contracts and
arrangements); (iii) statutory Liens for taxes or other assessments
that are not yet delinquent (or that, if delinquent, are being
contested in good faith by appropriate proceedings, levy and
execution having been stayed and continue to be stayed, and for
which the Borrower have set aside on their books adequate reserves
in accordance with GAAP); (iv) easements, rights of way,
servitudes, permits, surface leases and other rights in respect to
surface operations, pipelines, grazing, logging, canals, ditches,
reservoirs or the like, conditions, covenants and other
restrictions, and easements of streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other
easements and rights of way on, over or in respect of any of
Borrower's assets or properties and that do not, individually or in
the aggregate, cause a Material Adverse Effect; (v) materialmen's,
mechanic's, repairman's, employee's, warehousemen's, landlord's,
carrier's, pipeline's, contractor's, sub-contractor's, operator's,
non-operators (arising under operating or joint operating
agreements), and other Liens (including any financing statements
filed in respect thereof) incidental to the construction,
maintenance, development, transportation, storage or operation of
Borrower's assets or properties to the extent not delinquent (or
which, if delinquent, are being contested in good faith by
appropriate proceedings and for which the Borrower have set aside
on its books adequate reserves in accordance with GAAP); (vi) all
contracts, agreements and instruments, and all defects and
irregularities and other matters affecting the Borrower's assets
and properties which are in existence at the Effective Date and
all routine operational agreements entered into in the ordinary
course of business, which contracts, agreements, instruments,
defects, irregularities and other matters and routine operational
agreements are not such as to, individually or in the aggregate,
interfere materially with the operation, value or use of Borrower's
assets and properties, considered in the aggregate; (vii) liens in
connection with workmen's compensation, unemployment insurance or
other social security, old age pension or public liability
obligations; (viii) legal or equitable encumbrances deemed to exist
by reason of the existence of any litigation or other legal
proceeding or arising out of a judgment or award with respect to
which an appeal is being prosecuted in good faith and levy and
execution thereon have been stayed and continue to be stayed; (ix)
rights reserved to or vested in any municipality, governmental,
statutory or other public authority to control or regulate any
Borrower's assets and properties in any manner, and all applicable
laws, rules and orders from any governmental authority; (x) Liens
created by or pursuant to this Agreement or the Security
Instruments; (xi) Liens existing at the date of this Agreement
which have been disclosed to Bank on Schedule "1" hereto; (xii)
Liens previous granted to Midland which are either being assigned
to Bank on the Effective Date or released; or (xiii) any and all
renewals and extensions of all or any of the foregoing.
"Person" shall mean an individual, a corporation, a
partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
"Plan" shall mean any plan subject to Title IV of ERISA and
maintained by Borrower, or any such plan to which Borrower are
required to contribute on behalf of their employees.
"Revolving Commitment" shall mean the commitment contained
in Section 2(a) of this Agreement.
"Revolving Loan" shall mean loan or loans made under the
Revolving Commitment pursuant to Section 2(a) hereof.
"Revolving Maturity Date" shall mean March 31, 1999.
"Revolving Note" shall mean the $35,000,000.00 Revolving
Note described in Section 3(a) hereof.
"Security Instruments" shall mean this Agreement, all Deeds
of Trust, Mortgages, Security Agreements, Assignments of Production
and Financing Statements, all Mortgages, Security Agreements,
Assignments of Production and Financing Statements, and other
collateral documents covering certain of Borrower's Oil and Gas
Properties, and related personal property, equipment, oil and gas
inventory and proceeds of the foregoing, all such documents to be
in form and substance reasonably satisfactory to Bank.
"Subsidiary" shall mean any corporation or other entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other
persons performing similar functions are at the time directly or
indirectly owned by the Borrower.
"Tangible Net Worth" shall mean an amount equal to
Guarantor's consolidated stockholder's equity, as determined in
accordance with GAAP.
"Total Bank Debt" shall mean as of any date, the aggregate
principal amount outstanding on the Revolving Note and the Advance
Note.
"Unscheduled Redeterminations" shall mean a redetermination
of the Borrowing Base made at any time other than on the dates set
for the regular semi-annual redetermination of the Borrowing Base
which are made (A) at the reasonable request of Borrower, (B) at
any time it appears to the Bank, in the exercise of its discretion,
that either (i) there has been a material decrease in the value of
the Oil and Gas Properties, or (ii) an event has occurred which is
reasonably expected to have a Material Adverse Effect.
2. Commitments of the Bank
(a) Revolving Commitment. On the terms and conditions
hereinafter set forth, the Bank agrees to make Advances to the
Borrower from time to time during the period beginning on the
Effective Date and ending on the Revolving Maturity Date in such
amounts as Borrower may request up to an amount not to exceed, in
the aggregate principal amount outstanding at any time, the lesser
of (i) the Borrowing Base or (ii) $35,000,000.00 (the "Revolving
Commitment"). Within the limit of this Section 2, the Borrower may
borrow, repay without premium or penalty, and reborrow.
Notwithstanding any other provision of this Agreement, no Advance
shall be required to be made hereunder if any Event of Default (as
hereinafter defined) has occurred and is continuing or if any event
or condition has occurred that may, with notice, be an Event of
Default. Each Advance under the revolving line of credit shall be
an aggregate amount of at least $100,000.
(b) Advance Line of Credit. On the terms and conditions
hereinafter set forth, the Bank agrees to make Advances to Borrower
from time to time during the period beginning on the Effective Date
and ending on the Advance Loan Maturity Date in such amounts as
Borrower may request up to the aggregate amount of $2,000,000.00
(the "Advance Line of Credit"). Advances under the Advance Line of
Credit shall be used solely for the Drilling Program. The maximum
amount that may be advanced for any well in the Drilling Program
shall be limited to the lesser of 80% of (i) the Approved AFE for
such well, or (ii) the actual cost to Borrower of such well. Once
repaid, amounts may not be reborrowed hereunder. Notwithstanding
any other provision of this Agreement, no Advance shall be required
to be made hereunder if any Event of Default (as hereinafter
defined) has occurred and is continuing or if any event or
condition has occurred that may, with notice, be an Event of
Default. Each Advance under the Advance Line of Credit shall be an
aggregate amount of at least $25,000.00.
(c) Procedure for Borrowing. Whenever Borrower desires
an Advance on either the Revolving Loan or the Advance Loan, it
shall give Bank telegraphic, telex, facsimile or telephonic notice
("Notice of Borrowing") of such requested Advance, which in the
case of telephonic notice, shall be promptly confirmed in writing.
Each Notice of Borrowing shall be in the form of Exhibit "A"
attached hereto and shall be received by Bank not later than 11:00
a.m. Dallas, Texas time, (i) one Business Day prior to the
Borrowing Date in the case of Base Rate Loans; and (ii) three (3)
Business Days prior to any proposed Borrowing Date in the case of
Eurodollar Loans. Each Notice of Borrowing shall specify (i)
whether the Advance is a Revolving Loan or Advance Loan, (ii) if an
Advance Loan, the Approved AFE amount for each well for which
payment is to be made and the amount paid to date on each such
Approved AFE, (iii) the Borrowing Date (which, if a Base Rate Loan
shall be a Business Day, and if a Eurodollar Loan, a Eurodollar
Business Day), (iv) the principal amount to be borrowed, (v) the
portion of the borrowing constituting Base Rate Loans and/or
Eurodollar Loans, (vi) if any portion of the proposed borrowing is
to constitute Eurodollar Loans, the initial Interest Period
selected by Borrower pursuant to Section 4 hereof to be applicable
thereto, and (vii) the date upon which disbursement is required.
Not later than 2:00 p.m., Dallas, Texas time, on the date for which
the Advance was requested, Bank shall make available to Borrower at
the same office, in immediately available funds, the aggregate
amount of such requested Advance. Bank shall not incur any
liability to Borrower in acting upon any notice referred to above
which Bank believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf
of Borrower or for otherwise acting in good faith under this
Section 2(c).
(d) Monthly Reduction of Revolving Commitment. The
Revolving Commitment shall be reduced as of the last day of each
month beginning June 30, 1996, by an amount determined by the Bank
pursuant to Section 7(b) hereof (the "Monthly Commitment
Reduction"). The Monthly Commitment Reduction shall be $130,000.00
per month until redetermined pursuant to Section 7(b) hereof.
(e) Voluntary Reduction of Revolving Commitment and the
Advance Line of Credit. Borrower may at any time, or from time to
time, upon not less than three (3) Business Days prior written
notice to Bank, reduce or terminate either the Revolving Commitment
or the Advance Line of Credit or both, provided, however, that (i)
each reduction must be in a minimum amount of at least $100,000 and
(ii) each reduction must be accompanied by a prepayment of the
Revolving Note or the Advance Note, as the case may be, in the
amount by which the principal balance of the Revolving Note or the
Advance Note, as the case may be, exceeds the Revolving Commitment
or the Advance Line of Credit, as the case may be, as reduced
pursuant to this Section 2(e).
3. Notes Evidencing Loans. The loans described above in
Section 2 shall be evidenced by a promissory note of Borrower as
follows:
(a) Form of Revolving Note - The Revolving Loan shall be
evidenced by a Revolving Note in the face amount of $35,000,000.00,
and shall be in the form of Exhibit "B" hereto with appropriate
insertion. Notwithstanding the principal amount of the Revolving
Note, as stated on the face thereof, the actual principal amount
due from Borrower to Bank on account of the Revolving Note, as of
any date of computation, shall be the sum of Advances then and
theretofore made on account thereof, less all principal payments or
prepayments actually received by Bank in collected funds with
respect thereto. Although the Revolving Note shall be dated as of
the Effective Date, interest in respect thereof shall be payable
only for the period during which the loans evidenced thereby are
outstanding and, although the stated amount of the Revolving Note
may be higher, the Revolving Note shall be enforceable, with
respect to Borrower's obligation to pay the principal amount
thereof, only to the extent of the unpaid principal amount of the
applicable Advances.
(b) Form of Advance Note. The Advance Loan shall be
evidenced by a Advance Note in the face amount of $2,000,000.00,
and shall be in the form of Exhibit "C" attached hereto with
appropriate insertions. Notwithstanding the principal amount of
the Advance Note, as stated on the face thereof, the actual
principal amount due from Borrower to Bank on account of the
Advance Note, as of any date of computation, shall be the sum of
Advances then and theretofore made on account thereof, less all
principal payments actually or prepayments received by Bank in
collected funds with respect thereto. Although the Advance Note
shall be dated as of the Effective Date, interest in respect
thereof shall be payable only for the period during which the loans
evidenced thereby are outstanding and, although the stated amount
of the Advance Note may be higher, the Advance Note shall be
enforceable, with respect to Borrower's obligation to pay the
principal amount thereof, only to the extent of the unpaid
principal amount of the applicable Advances.
(c) Interest Rate on the Notes - The unpaid principal
balance of the Revolving Note and the Advance Note shall bear
interest from time to time as set forth in Section 4(a) and 4(d)
hereof.
(d) Payment of Interest on the Revolving Note - Interest
on the Revolving Note shall be payable on the last day of each
Interest Period.
(e) Payment of the Principal of the Revolving Note -
Principal of the Revolving Note shall be due on the Revolving
Maturity Date, unless earlier due in whole or in part pursuant to
the mandatory prepayment requirements of Section 9(b) hereof.
(f) Payment on Principal and Interest on the Advance Note
- Interest of the Advance Note shall be due and payable on the last
day of each month. Principal on the Advance Note shall be due and
payable monthly on the last day of each month in an amount equal to
100% of the Net Operating Revenue from the Project. The unpaid
principal and interest due on the Advance Note shall be due and
payable on the Advance Loan Maturity Date unless earlier due in
whole or in part pursuant to the mandatory prepayment provisions of
Section 9(c) hereof.
(g) General - Borrower shall pay the outstanding principal
amount of each Eurodollar Loan on the last day of the Interest
Period applicable thereto, which may be done by reborrowing
hereunder so long as (i) the aggregate unpaid principal balance
outstanding after any such reborrowing does not exceed the
Revolving Commitment in effect at such time, as the same may be
reduced from time to time hereunder, and (ii) no Event of Default
has occurred and is continuing.
4. Interest Rates
(a) Options For Revolving Loan.
(i) Base Rate Loans. Borrower agrees to pay interest
on the Revolving Note calculated on the basis of the actual days
elapsed in a year consisting of 365 or, if appropriate, 366 days
with respect to the unpaid principal amount of each Base Rate Loan
from the date the proceeds thereof are made available to Borrower
until maturity (whether by acceleration or otherwise), at a varying
rate per annum equal to the lesser of (i) the Maximum Rate (defined
herein), or (ii) the Base Rate plus the Base Rate Margin. Subject
to the provisions of this Agreement as to prepayment, the principal
of the Revolving Note representing Base Rate Loans shall be payable
as specified in Section 3(e) hereof and the interest in respect of
each Base Rate Loan shall be payable on each Interest Payment Date.
Past due principal and, to the extent permitted by law, past due
interest in respect to each Base Rate Loan, shall bear interest,
payable on demand, at a rate per annum equal to the Maximum Rate.
(ii) Eurodollar Loans. Borrower agrees to pay
interest calculated on the basis of a year consisting of 360 days
with respect to the unpaid principal amount of each Eurodollar Loan
from the date the proceeds thereof are made available to Borrower
until maturity (whether by acceleration or otherwise), at a varying
rate per annum equal to the lesser of (i) the Maximum Rate, or (ii)
the Eurodollar Rate plus the Eurodollar Margin. Subject to the
provisions of this Agreement with respect to prepayment, the
principal of the Revolving Note shall be payable as specified in
Section 3(e) hereof and the interest with respect to each
Eurodollar Loan shall be payable on each Interest Payment Date.
Past due principal and, to the extent permitted by law, past due
interest shall bear interest, payable on demand, at a rate per
annum equal to the Maximum Rate. Upon three (3) Eurodollar
Business Days written notice prior to the making by the Bank of any
Eurodollar Loan (in the case of the initial Interest Period
therefor) or the expiration date of each succeeding Interest Period
(in the case of subsequent Interest Periods), Borrower shall have
the option, subject to compliance by Borrower with all of the
provisions of this Agreement, as long as no Event of Default
exists, to specify whether the Interest Period commencing on any
date shall be a one (1), two (2) or three (3) month period. If
Bank shall not have received timely notice of a designation of such
Interest Period as herein provided, Borrower shall be deemed to
have elected to convert all maturing Eurodollar Loans to Base Rate
Loans. Borrower shall not be permitted to have outstanding at any
time more than three (3) Eurodollar Tranches.
(b) Interest Rate Determination. The Bank shall determine
each interest rate applicable to the Revolving Note hereunder. The
Bank shall give prompt notice to the Borrower of each rate of
interest so determined and its determination thereof shall be
conclusive absent error.
(c) Conversion Option. Borrower may elect from time to
time (i) to convert all of any part of their Eurodollar Loans to
Base Rate Loans by giving Bank irrevocable notice of such election
in writing prior to 10:00 a.m. (Dallas, Texas time) on the
conversion date and such conversion shall be made on the requested
conversion date, provided that any such conversion of Eurodollar
Loan shall only be made on the last day of the Eurodollar Interest
Period with respect thereof, (ii) to convert all or any part of
their Base Rate Loans to Eurodollar Loans by giving the Bank
irrevocable written notice of such election three (3) Eurodollar
Business Days prior to the proposed conversion and such conversion
shall be made on the requested conversion date or, if such
requested conversion date is not a Eurodollar Business Day or a
Business Day, as the case may be, on the next succeeding Eurodollar
Business Day or Business Day, as the case may be. Any such
conversion shall not be deemed to be a prepayment of any of the
loans for purposes of this Agreement or the Revolving Note.
(d) Advance Loan. The unpaid principal balance of the
Advance Note shall bear interest (calculated on the basis of actual
days in a year consisting of 365 or, if appropriate, 366 days) at a
fluctuating rate per annum from day to day equal to the lesser of
(i) the Maximum Rate, or (ii) the Contract Rate. Subject to the
provisions of this Agreement as to prepayment, the principal and
interest on the Advance Note shall be payable as specified in
Section 3(f) hereof. Past due principal and, to the extent
permitted by law, past due interest in respect of the Advance Loan,
shall bear interest, payable on demand, at a rate per annum equal
to the Maximum Rate.
(e) Recoupment. If at any time the applicable rate of
interest selected pursuant to Sections 4(a)(i), 4(a)(ii) or 4(d)
above shall exceed the Maximum Rate, thereby causing the interest
on the Note to be limited to the Maximum Rate, then any subsequent
reduction in the interest rate so selected or subsequently selected
shall not reduce the rate of interest on the Note below the Maximum
Rate until the total amount of interest accrued on the Note equals
the amount of interest which would have accrued on the Note if the
rate or rates selected pursuant to Sections 4(a)(i), 4(a)(ii) or
4(d), as the case may be, had at all times been in effect.
5. Special Provisions Relating to Eurodollar Loans
(a) Unavailability of Funds or Inadequacy of Pricing. In
the event that, in connection with any proposed Eurodollar Loan,
Bank (i) shall have determined that U.S. Dollar deposits of the
relevant amount and for the relevant Eurodollar Interest Period for
Eurodollar Loans are not available to Bank in the London interbank
market; or (ii) in good faith determines that the Eurodollar
Interest Rate will not adequately reflect the cost to the Bank of
maintaining or funding the Eurodollar Loans for such Interest
Period, the obligations of the Bank to make the Eurodollar Loans,
as the case may be, shall be suspended until such time as Bank in
its sole discretion reasonably exercised determines that the event
resulting in such suspension has ceased to exist. If Bank shall
make such determination it shall promptly notify Borrower in
writing and Borrower, at its option, shall either repay the
outstanding Eurodollar Loans, as the case may be, owed to Bank,
without penalty, on the last day of the current Interest Period or
convert the same to Base Rate Loans in the case of Eurodollar Loans
on the last day of the then current Interest Period for such
Eurodollar Loan.
(b) Reserve Requirements. In the event of any change in
any applicable law, treaty or regulation or in the interpretation
or administration thereof, or in the event any central bank or
other fiscal monetary or other authority having jurisdiction over
the Bank or the loans contemplated by this Agreement shall impose,
modify or deem applicable any reserve requirement of the Board of
Governors of the Federal Reserve System on any Eurodollar Loan or
loans, or any other reserve, special deposit, or similar
requirements against assets or deposits with or for the account of,
or credit extended by, the Bank or shall impose on the Bank or the
London interbank market, as the case may be, any other condition
affecting this Agreement or the Eurodollar Loans and the result of
any of the foregoing is to increase the cost to the Bank in making
or maintaining its Eurodollar Loans or to reduce any amount (or the
effective return on any amount) received by the Bank hereunder,
then Borrower, at its option, shall either (i) pay to the Bank upon
demand of the Bank as additional interest on the Revolving Note
evidencing the Eurodollar Loans such additional amount or amounts
as will reimburse the Bank for such additional cost or such
reduction or (ii) convert such Eurodollar Loans to Base Rate Loans.
The Bank shall give notice to Borrower upon becoming aware of any
such change or imposition which may result in any such increase or
reduction. A certificate of the Bank setting forth the basis for
the determination of such amount necessary to compensate the Bank
as aforesaid shall be delivered to Borrower and shall be conclusive
as to such determination and such amount, absent error.
(c) Taxes. Both principal and interest on the Revolving
Note evidencing any Eurodollar Loan are payable without withholding
or deduction for or on account of any taxes. If any taxes are
levied or imposed on or with respect to the Revolving Note
evidencing the Eurodollar Loan or on any payment on the Revolving
Note evidencing the Eurodollar Loans made to the Bank, then, and in
any such event, Borrower shall pay to the Bank upon demand of the
Bank such additional amounts as may be necessary so that every net
payment of principal and interest on the Revolving Note evidencing
the Eurodollar Loan, after withholding or deduction for or on
account of any such taxes, will not be less than any amount
provided for herein. In addition, if at any time when the
Eurodollar Loan are outstanding any laws enacted or promulgated, or
any court of law or governmental agency interprets or administers
any law, which, in any such case, materially changes the basis of
taxation of payments to the Bank of principal of or interest on the
Revolving Note evidencing the Eurodollar Loan by reason of
subjecting such payments to double taxation or otherwise (except
through an increase in the rate of tax on the overall net income of
Bank) then Borrower will pay upon demand by Bank the amount of loss
to the extent that such loss is caused by such a change. The Bank
shall give notice to Borrower upon becoming aware of the amount of
any loss incurred by the Bank through enactment or promulgation of
any such law which materially changes the basis of taxation of
payments to the Bank. The Bank shall also give notice on becoming
aware of any such enactment or promulgation which may result in
such payments becoming subject to double taxation or otherwise. A
certificate of the Bank setting forth the basis for the
determination of such loss and the computation of such amounts
shall be delivered to Borrower and shall be conclusive of such
determination and such amount, absent error.
(d) Change in Laws. If at any time any new law or any
change in existing laws or in the interpretation of any new or
existing laws shall make it unlawful for the Bank to maintain or
fund its Eurodollar Loan hereunder, then the Bank shall promptly
notify Borrower in writing and Borrower, at its option, shall
either (i) repay the outstanding Eurodollar Loan owed to the Bank,
without penalty, on the last day of the current Interest Periods
(or, if the Bank may not lawfully continue to maintain and fund
such Eurodollar Loan, immediately), or (ii) Borrower may convert
such Eurodollar Loan at such appropriate time to Base Rate loans.
(e) Option to Fund. The Bank shall have the option if
Borrower elect a Eurodollar Loan, to purchase one or more deposits
in order to fund or maintain its funding of the principal balance
of the Revolving Note to which such Eurodollar Loan is applicable
during the Interest Period in question; it being understood that
the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest
to be paid under such Eurodollar Loan and any amounts owing
hereunder and under the applicable Revolving Note. The Bank shall
be entitled to fund and maintain its funding of all or any part of
that portion of the principal balance of the Revolving Note in any
manner it sees fit, but all such determinations hereunder shall be
made as if the Bank have actually funded and maintained that
portion of the principal balance of the Revolving Note to which a
Eurodollar Loan is applicable during the applicable Interest Period
through the purchase of deposits in an amount equal to the
principal balance of the Revolving Note to which such Eurodollar
Loan is applicable and having a maturity corresponding to such
Interest Period. The Bank may fund the outstanding principal
balance of the Revolving Note which is to be subject to any
Eurodollar Loan from any branch or office of the Bank as the Bank
may designate from time to time.
(f) Indemnity. Borrower shall indemnify and hold harmless
the Bank against all reasonable and necessary out-of-pocket costs
and expenses which the Bank may sustain (i) if (other than as a
result of a default by the Bank hereunder) the making of any loan
or loans as a Eurodollar Loan does not occur on the date, if any,
specified therefor in the notice given by Borrower pursuant to
Section 2(c)(ii), (ii) as a consequence of any default by Borrower
under this Agreement, or (iii) any other loss suffered by the Bank
as a result of the making of any loan or loans as a Eurodollar
Loan.
(g) Payments Not at End of Interest Period. If the
Borrower make any payment of principal with respect to any
Eurodollar Loan on any day other than the last day of the Interest
Period applicable to such Eurodollar Loan, then Borrower shall
reimburse the Bank on demand for any loss, cost or expense incurred
by the Bank as a result of the timing of such payment or in
redepositing such principal amount, including the sum of (i) the
cost of funds to the Bank in respect of such principal amount so
paid, for the remainder of the Interest Period applicable to such
sum, reduced, if the Bank is able to redeposit such principal
amount so paid for the balance of the Interest Period, by the
interest earned by Bank as a result of so redepositing such
principal amount, plus (ii) any expense or penalty incurred by the
Bank in redepositing such principal amount. A certificate of Bank
setting forth the basis for the determination of the amount owed by
Borrower pursuant to this Section 5(g) shall be delivered to the
Borrower and shall be conclusive in the absence of manifest error.
6. Collateral Security. To secure the performance by
Borrower of their obligations hereunder, and under the Note and
Security Instruments, whether now or hereafter incurred, matured or
unmatured, direct or contingent, joint or several, or joint and
several, including extensions, modifications, renewals and
increases thereof, and substitutions therefore, Borrower shall
contemporaneously with or prior to the execution of this Agreement
and the Note, grant and assign to the Bank a first and prior
security interest and Lien on certain of its Oil and Gas
Properties, and on certain related equipment, oil and gas inventory
and proceeds of the foregoing. To further secure the foregoing,
Bank shall have the right to acquire the note and liens previously
granted to the Midland or any holders thereof by Borrower. All Oil
and Gas Properties and other collateral in which Borrower have
herewith granted or hereafter grants to the Bank a first and prior
Lien (to the satisfaction of the Bank) in accordance with this
Section 6 or Oil and Gas Properties covered by the Liens which are
acquired by Bank from the Midland or any holders thereof, as such
properties and interests are from time to time constituted, are
hereinafter collectively called the "Collateral."
The granting and assigning of such security interests and
Liens by Borrower shall be pursuant to Security Instruments in form
and substance reasonably satisfactory to the Bank. Concurrently
with the delivery of each of the Security Instruments, Borrower
shall furnish to the Bank mortgage and title opinions and other
documents reasonably satisfactory to Bank with respect to the title
and Lien status of Borrower's interests in such of the Oil and Gas
Properties covered by the Security Instruments as Bank shall have
designated. Borrower will cause to be executed and delivered to
the Bank, in the future, additional Security Instruments if the
Bank reasonably deems such are necessary to insure perfection or
maintenance of Bank's security interests and Liens in the Oil and
Gas Properties or any part thereof.
7. Borrowing Base.
(a) Initial Borrowing Base. During the period from
the date hereof to the next Determination Date (as hereinafter
defined), (i) the Borrowing Base shall be $10,500,000.00, and
(ii) the Monthly Commitment Reduction shall be $130,000.00 per
month.
(b) Subsequent Determinations of Borrowing Base
Subsequent determinations of the Borrowing Base shall be made by
the Bank at least semi-annually on June 30 and December 31 of each
year, beginning June 30, 1996, or as Unscheduled Redeterminations.
In connection with each such redetermination of the Borrowing Base,
the Bank shall also redetermine the Monthly Commitment Reduction
and the economic half life of the Oil and Gas Properties (the "Half
Life"). Borrower shall furnish to the Bank as soon as possible but
in any event no later than March 31 of each year, beginning
March 31, 1996, with an engineering report in form and substance
satisfactory to Bank prepared by Schlumberger GeoQuest or other
independent petroleum engineer acceptable to Bank covering the Oil
and Gas Properties utilizing pricing parameters used by Bank as
established from time to time, together with such other information
concerning the value of the Collateral as the Bank may deem
necessary to determine the value of such Collateral. By October 31
of each year, beginning October 31, 1996, or within thirty (30)
days after either (i) receipt of notice from Bank that it requires
an Unscheduled Redetermination, or (ii) Borrower give notice to
Bank of their desire to have an Unscheduled Redetermination
performed, Borrower shall furnish to Bank an engineering report in
form and substance satisfactory to Bank prepared by Borrower's in-
house engineering staff valuing the Oil and Gas Properties using
substantially the same methodology utilized by the independent
petroleum engineer who prepared the most recent independent
engineering report, together with such other information, reports
and data concerning the value of the Collateral as the Bank shall
deem reasonably necessary to determine the value of such
Collateral. Bank shall notify Borrower of the new Borrowing Base,
Monthly Commitment Reduction and Half Life for the period beginning
on the date of such notice (herein called the "Determination Date")
and continuing until, but not including, the next Determination
Date. If an Unscheduled Redetermination is made by the Bank, the
Bank shall notify Borrower within a reasonable time after receipt
of all requested information of the new Borrowing Base, Monthly
Commitment Reduction and Half Life, if any, and such new Borrowing
Base, Monthly Commitment Reduction and Half Life shall continue
until the next Determination Date. If Borrower do not furnish all
such information, reports and data by the date specified in this
Section 7(b), unless such failure is of no fault of Borrower, the
Bank may nonetheless designate the Borrowing Base, Monthly
Commitment Reduction and Half Life at any amounts which the Bank
determines in its discretion and may redesignate the Borrowing
Base, Monthly Commitment Reduction and Half Life from time to time
thereafter until the Bank receives all such information, reports
and data, whereupon the Bank shall designate a new Borrowing Base,
Monthly Commitment Reduction and Half Life as described above. The
Bank shall determine the amount of the Borrowing Base based upon
the loan collateral value which it in its discretion (using such
methodology, assumptions and discounts rates as Bank customarily
uses in assigning collateral value to oil and gas properties)
assigns to such Oil and Gas Properties of Borrower at the time in
question and based upon such other credit factors consistently
applied (including, without limitation, the assets, liabilities,
cash flow, business, properties, prospects, management and
ownership of Borrower and its affiliates) as the Bank customarily
considers in evaluating similar oil and gas credits. If at any
time any of the Collateral is sold by Borrower, the Borrowing Base
then in effect shall automatically be reduced by a sum equal to the
value attributable to such Collateral for Borrowing Base purposes.
It is expressly understood that the Bank has no obligation to
designate the Borrowing Base or the Monthly Commitment Reduction or
the Half Life at any particular amount, except in the exercise of
its discretion, whether in relation to the Revolving Commitment or
otherwise, and that the Bank's commitment to advance funds
hereunder is determined by reference to the Borrowing Base from
time to time in effect. Provided, however, that the Bank shall
never have the obligation to designate a Borrowing Base in excess
of its legal or internal lending limits.
8. Fees.
(a) Unused Portion Fee. For and in consideration of the
Revolving Commitment, Borrower shall pay to Bank an Unused Portion
Fee (hereinafter referred to as the "Unused Portion Fee")
equivalent to three-eighths of one percent (3/8%) per annum on the
daily average of the unadvanced amount of the Borrowing Base. The
Unused Portion Fee shall be payable in arrears on the first
Business Day of each calendar quarter beginning July 1, 1996 (with
the payment due on July 1, 1996 to cover the period from the
Effective Date until July 1, 1996), with the final fee payment due
on the Revolving Maturity Date for any period then ending for which
the Unused Portion Fee shall not have been theretofore paid. In
the event the Revolving Commitment terminates on any date prior to
the end of any such quarterly period, Borrower shall pay to Bank,
on the date of such termination, the pro rated portion of the total
Unused Portion Fee due for the period in which such termination
occurs.
(b) Commitment Fee. For and in consideration of the
Advance Line of Credit, Borrower shall pay to Bank an Commitment
Fee (hereinafter referred to as the "Commitment Fee") equivalent to
three-fourths of one percent (3/4%) per annum on the daily average
of the unadvanced amount of the Advance Line of Credit. The
Commitment Fee shall be payable in arrears on the first Business
Day of each calendar quarter beginning July 1, 1996 (with the
payment due on July 1, 1996 to cover the period from the Effective
Date until July 1, 1996), with the final fee payment due on the
Advance Loan Maturity Date for any period then ending for which the
Commitment Fee shall not have been theretofore paid. In the event
the Advance Line of Credit terminates on any date prior to the end
of any such quarterly period, Borrower shall pay to Bank, on the
date of such termination, the pro rated portion of the total
Commitment Fee due for the period in which such termination occurs.
(c) Facility Fee. For and in consideration of the Advance
Line of Credit, Borrower shall pay to Bank on the Effective Date a
Facility Fee (hereinafter referred to as the "Facility Fee") in the
amount of $50,000.00.
(d) Borrowing Base Increase Fee. Borrower agrees to pay
to Bank from time to time a Borrowing Base Increase Fee
(hereinafter referred to as the "Borrowing Base Increase Fee")
equal to one-half of one percent (1/2%) per annum of the amount of
any increase in the Borrowing Base from the amount of the Borrowing
Base set as of the preceding Determination Date, said Borrowing
Base Increase Fee to be payable upon notice to Borrower of such
increase.
9. Prepayments.
(a) Voluntary Prepayments of Notes. The Borrower may at
any time and from time to time, without penalty or premium, prepay
the Notes, in whole or in part. Each such prepayment shall be made
on at least one (1) Business Day's notice to Bank and shall be in a
minimum amount of $100,000 or the unpaid balance on the Notes or
Notes being prepaid, whichever is less. Provided, however, that if
Borrower shall prepay the principal of any Eurodollar Loan on any
date other than the last day of the Interest Period applicable
thereto, Borrower shall make the additional payments, if any,
required by Section 5(g) hereof.
(b) Mandatory Prepayment of Revolving Note. In the event
the aggregate principal amount outstanding on the Revolving Note
ever exceeds the Borrowing Base as determined by Bank pursuant to
Section 7(b) hereof, Borrower shall, within thirty (30) days after
notification from the Bank, either (A) by instruments reasonably
satisfactory in form and substance to the Bank, provide the Bank
with additional collateral with value and quality in amounts
satisfactory to the Bank in its sole discretion in order to
increase the Borrowing Base by an amount at least equal to such
excess, or (B) prepay, without premium or penalty, the principal
amount of the Revolving Note in an amount at least equal to such
excess plus interest thereon to the date of such prepayment.
(c) Mandatory Prepayment of Advance Line of Credit. In
the event the Borrowing Base as determined by Bank pursuant to
Section 7(b) hereof increases, Borrower shall within ten (10) days
of receipt of notice of such increase, either (i) give Bank written
notice of its intent to use all or any part thereof of such
increased availability to acquire proven oil and gas reserves, and
complete any such acquisition within sixty (60) days or (ii) use
the increased capacity, or any portion thereof not used in
accordance with Section 9(c)(i) hereof, to prepay, without premium
or penalty, the principal amount of the Advance Note in an amount
equal to such increased availability or such portion thereof.
10. Representations and Warranties. In order to induce
the Bank to enter into this Agreement, Borrower and Guarantor
hereby represent and warrant to the Bank (which representations and
warranties will survive the delivery of the Note) that:
(a) Corporate Existence. Borrower and Guarantor are each
a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it was incorporated and
is duly qualified as a foreign corporation in all jurisdictions
wherein the failure to qualify could result in Material Adverse
Effect.
(b) Corporate Power and Authorization. Borrower is duly
authorized and empowered to create and issue the Notes; and
Borrower is duly authorized and empowered to execute, deliver and
perform the Security Instruments, including this Agreement; and all
corporate and other action on Borrower's part requisite for the due
creation and issuance of the Notes and on the Borrower's part
requisite for the due execution, delivery and performance of the
Security Instruments, including this Agreement has been duly and
effectively taken.
(c) Guarantor. The Guarantor is duly authorized and
empowered to execute and deliver its Guaranty, and all corporate
actions on Guarantor's part requisite for the due execution,
delivery and performance of its Guaranty have been duly and
effectively taken. The Guaranty constitutes the valid and binding
obligation of Guarantor enforceable in accordance with its terms
(except that enforcement may be subject to any applicable
bankruptcy, insolvency, or similar debtor relief laws now or
hereafter in effect and relating to or affecting the enforcement of
creditors' rights generally). The execution and delivery of the
Guaranty by the Guarantor does not require the consent or approval
of any other person or entity nor does such execution and delivery
violate the provisions of any contract, agreement, law, regulation,
order, injunction, decree or writ to which Guarantor is subject.
(d) Binding Obligations. This Agreement does, and the
Notes and other Security Instruments upon their creation, issuance,
execution and delivery will, constitute valid and binding
obligations of Borrower enforceable in accordance with their
respective terms (except that enforcement may be subject to any
applicable bankruptcy, insolvency, or similar debtor relief laws
now or hereafter in effect and relating to or affecting the
enforcement of creditors rights generally).
(e) No Legal Bar or Resultant Lien. The Notes, the
Security Instruments, including this Agreement, do not and will
not, to the best of Borrower's knowledge, violate any provisions of
any contract, agreement, law, regulation, order, injunction,
judgment, decree or writ to which Borrower is subject, or result in
the creation or imposition of any lien or other encumbrance upon
any assets or properties of Borrower, other than those contemplated
by this Agreement.
(f) No Consent. The execution, delivery and performance
by Borrower of the Notes and the Security Instruments, including
this Agreement does not require the consent or approval of any
other person or entity, including without limitation any regulatory
authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any
state thereof except for consents required for federal, state and,
in some instances, private leases, right of ways and other
conveyances or encumbrances of oil and gas leases (all of which
consents have been obtained by Borrower) and other than those the
failure to obtain could cause a Material Adverse Effect.
(g) Financial Condition. The Financial Statements of
Borrower dated September 30, 1995 and the Financial Statements of
Guarantor dated September 30, 1995 which have been delivered to
Bank are complete and correct in all material respects, and fully
and accurately reflect in all material respects the financial
condition and results of the operations of the Borrower and
Guarantor as of the date or dates and for the period or periods
stated, and such Financial Statements have been prepared in
accordance with GAAP. No change has since occurred in the
condition, financial or otherwise, of Borrower or Guarantor which
could have a Material Adverse Effect, except as disclosed to the
Bank in Schedule "2" attached hereto.
(h) Liabilities. Neither Borrower nor Guarantor have any
material (individually or in the aggregate) liability, direct or
contingent, except as disclosed to the Bank in the Financial
Statements or on Schedule "3" attached hereto. No unusual or
unduly burdensome restrictions, restraint, or hazard exists by
contract, law or governmental regulation or otherwise relative to
the business, assets or properties of Borrower which could have a
Material Adverse Effect.
(i) Litigation. Except as described in the Financial
Statements, or as otherwise disclosed to the Bank in Schedule "4"
attached hereto, there is no litigation, legal or administrative
proceeding, investigation or other action of any nature pending or,
to the knowledge of the officers of Borrower or Guarantor,
threatened against or affecting Borrower or Guarantor which
involves the possibility of any judgment or liability not fully
covered by insurance, and which could have a Material Adverse
Effect.
(j) Taxes; Governmental Charges. Borrower and Guarantor
have each filed all tax returns and reports required to be filed
and has paid all taxes, assessments, fees and other governmental
charges levied upon it or its assets, properties or income which
are due and payable, including interest and penalties, the failure
of which to pay could have a Material Adverse Effect, or has
provided adequate reserves, if required, in accordance with GAAP
for the payment thereof, except such as are being contested in good
faith by appropriate proceedings and for which adequate reserves
for the payment thereof as required by GAAP has been provided and
levy and execution thereon have been stayed and continue to be
stayed.
(k) Titles, Etc. Borrower and Guarantor each have good
and defensible title to all of its assets, including without
limitation, the Oil and Gas Properties, free and clear of all liens
or other encumbrances except Permitted Liens.
(l) Defaults. Neither Borrower nor Guarantor is in
default and no event or circumstance has occurred which, but for
the passage of time or the giving of notice, or both, would
constitute a default under any loan or credit agreement, indenture,
mortgage, deed of trust, security agreement or other agreement or
instrument to which Borrower or Guarantor is a party in any respect
that could have a Material Adverse Effect. No Event of Default
hereunder has occurred and is continuing.
(m) Casualties; Taking of Properties. Since the dates of
the latest Financial Statements of Borrower and Guarantor delivered
to Bank, neither the business nor the assets or properties of
Borrower or Guarantor have been affected (to the extent it could
have a Material Adverse Effect), as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike
or other labor disturbance, embargo, requisition or taking of
property or cancellation of contracts, permits or concessions by
any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy.
(n) Use of Proceeds; Margin Stock. The proceeds of the
Revolving Loan will be used by Borrower for the purposes of
refinancing of existing debt, for development drilling, for
acquisitions of oil and gas properties and payment of approved
payables. The proceeds of the Advance Loan will only be used by
Borrower for the Drilling Program. Borrower is not engaged
principally or as one of its important activities in the business
of extending credit for the purpose of purchasing or carrying any
"margin stock" as defined in Regulation U of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 221), or for the
purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry a margin stock or for any
other purpose which might constitute this transaction a "purpose
credit" within the meaning of said Regulation U.
Neither Borrower, Guarantor nor any person or entity acting on
behalf of Borrower or Guarantor have taken or will take any action
which might cause the loans hereunder or any of the Security
Instruments, including this Agreement, to violate Regulation U or
any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Securities Exchange Act of 1934 or
any rule or regulation thereunder, in each case as now in effect or
as the same may hereafter be in effect.
(o) Location of Business and Offices. The principal
places of business of Borrower and Guarantor are located at 000
00xx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxxxxx 00000.
(p) Compliance with the Law. To the best of Borrower's
and Guarantor's knowledge, neither Borrower nor Guarantor:
(i) is in violation of any law, judgment, decree,
order, ordinance, or governmental rule or regulation to which
Borrower, or any of its assets or properties are subject; and
(ii) has failed to obtain any license, permit,
franchise or other governmental authorization necessary to the
ownership of any of its assets or properties or the conduct of
their business;
which violation or failure is reasonably expected to have a
Material Adverse Effect.
(q) No Material Misstatements. No information, exhibit
or report furnished by Borrower or Guarantor to the Bank in
connection with the negotiation of this Agreement contained any
material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statement contained therein not
materially misleading.
(r) Not A Utility. Neither Borrower nor Guarantor is an
entity engaged in the State of Texas in the (i) generation,
transmission, or distribution and sale of electric power; (ii)
transportation, distribution and sale through a local distribution
system of natural or other gas for domestic, commercial,
industrial, or other use; (iii) ownership or operation of a
pipeline for the transmission or sale of natural or other gas,
crude oil or petroleum products to other pipeline companies,
refineries, local distribution systems, municipalities, or
industrial consumers; (iv) provision of telephone or telegraph
service to others; (v) production, transmission, or distribution
and sale of steam or water; (vi) operation of a railroad; or (vii)
provision of sewer service to others.
(s) ERISA. Borrower and Guarantor are each in compliance
in all material respects with the applicable provisions of ERISA,
and no "reportable event", as such term is defined in Section 4043
of ERISA, has occurred with respect to any Plan of Borrower which
is reasonably likely to cause a Material Adverse Effect.
(t) Public Utility Holding Company Act. Neither Borrower
nor Guarantor is a "holding company", or "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", or a "public utility"
within the meaning of the Public Utility Holding Company Act of
1935, as amended.
(u) Subsidiaries. All of Borrower's subsidiaries are
listed on Schedule "5" hereto.
(v) Environmental Matters. Except as disclosed on
Schedule "6", neither Borrower nor Guarantor (i) has received
notice or otherwise learned of any Environmental Liability which
could individually or in the aggregate have a Material Adverse
Effect arising in connection with (A) any non-compliance with or
violation of the requirements of any Environmental Law or (B) the
release or threatened release of any toxic or hazardous waste into
the environment, (ii) has threatened or actual liability in
connection with the release or threatened release of any toxic or
hazardous waste into the environment which could individually or in
the aggregate have a Material Adverse Effect or (iii) has received
notice or otherwise learned of any federal or state investigation
evaluating whether any remedial action is needed to respond to a
release or threatened release of any toxic or hazardous waste into
the environment for which Borrower or Guarantor is or may be liable
which could result in a Material Adverse Effect.
(w) Liens. Except for Permitted Liens, the assets and
properties of Borrower and Guarantor are free and clear of all
liens and encumbrances.
11. Conditions of Lending.
(a) The obligation of the Bank to make the initial Advance
under the Revolving Commitment and the initial Advance under the
Advance Line of Credit shall be subject to the following conditions
precedent:
(i) Execution and Delivery. (A) Borrower shall have
executed and delivered to the Bank the Notes, the Security
Instruments and other required documents, and (B) Guarantor shall
have executed and delivered its Guaranty in the form of Exhibit "D"
hereto, all in form and substance satisfactory to the Bank;
(ii) Legal Opinion. The Bank shall have received from
Borrower's and Guarantor's legal counsel a favorable legal opinion
in form and substance satisfactory to Bank (i) as to the matters
set forth in Subsections 10(a), (b), (c), (d), (e), (f) and (i)
hereof, and (ii) as to such other matters as Bank or its counsel
may reasonably request;
(iii) Corporate Resolutions. The Bank shall have
received appropriate certified corporate resolutions of Borrower
and Guarantor;
(iv) Good Standing and Existence. The Bank shall have
received evidence of existence and good standing for the Borrower
and Guarantor;
(v) Incumbency. The Bank shall have received a
separate signed certificate of the officers of Borrower and
Guarantor, certifying the names of each of the officers of Borrower
or Guarantor authorized to sign loan documents on behalf of the
Borrower and Guarantor, together with the true signatures of each
such officer. The Bank may conclusively rely on such certificate
until the Bank receives a further certificate of the authorized
officers of Borrower and Guarantor canceling or amending the prior
certificate and submitting signatures of the officers named in such
further certificate;
(vi) Articles of Incorporation and Bylaws. The Bank
shall have received copies of the Articles of Incorporation of
Borrower and Guarantor and all amendments thereto, certified by the
Secretary of State of the state of the Borrower's and Guarantor's
incorporation and a copy of the bylaws of the Borrower and
Guarantor and all amendments thereto, certified by one or more
officers of Borrower and Guarantor as being true, correct and
complete;
(vii) Title. The Bank shall have received
satisfactory evidence as to the state of the title to the Oil and
Gas Properties;
(viii) Release. The Bank shall have received one or
more executed copies of a Release executed by Midland releasing all
liens held by Midland on the Borrower's Oil and Gas Properties and
other assets;
(ix) Drilling Program. The Bank shall have approved
Borrower's Drilling Program.
(x) Other Documents. The Bank shall have received
such other instruments and documents incidental and appropriate to
the transaction provided for herein as the Bank or its counsel may
reasonably request, and all such documents shall be in form and
substance reasonably satisfactory to the Bank; and
(xi) Legal Matters Satisfactory. All legal matters
incident to the consummation of the transactions contemplated
hereby shall be reasonably satisfactory to special counsel for the
Bank retained at the expense of Borrower.
(b) The obligation of the Bank to make any Advance
(including the initial Advance) on the Revolving Commitment or
Advance Line of Credit shall be subject to the following additional
conditions precedent that, at the date of making each such Advance
and after giving effect thereto:
(i) Representation and Warranties. With respect to
any Advance, the representations and warranties of Borrower and
Guarantor under this Agreement are true and correct in all material
respects as of such date, as if then made (except to the extent
that such representations and warranties related solely to an
earlier date);
(ii) No Event of Default. No Event of Default shall
have occurred and be continuing nor shall any event have occurred
or failed to occur which, with the passage of time or service of
notice, or both, would constitute an Event of Default;
(iii) Other Documents. The Bank shall have received
such other instruments and documents incidental and appropriate to
the transaction provided for herein as the Bank or its counsel may
reasonably request, and all such documents shall be in form and
substance reasonably satisfactory to the Bank; and
(iv) Legal Matters Satisfactory. All legal matters
incident to the consummation of the transactions contemplated
hereby shall be reasonably satisfactory to special counsel for the
Bank retained at the expense of Borrower.
12. Affirmative Covenants. A deviation from the provisions of
this Section 12 shall not constitute an Event of Default under this
Agreement if such deviation is consented to in writing by the Bank.
Without the prior written consent of the Bank, Borrower and
Guarantor will at all times comply with the covenants contained in
this Section 12 from the date hereof and for so long as any part of
the Revolving Commitment or Advance Line of Credit is in existence.
(a) Financial Statements and Reports. Borrower shall
promptly furnish to the Bank from time to time upon request such
information regarding the business and affairs and financial
condition of the Borrower, as the Bank may reasonably request, and
will furnish to the Bank:
(i) Annual Audited Financial Statements - as soon as
available, and in any event within ninety (90) days after the close
of each fiscal year, the annual audited consolidated and
consolidating Financial Statements of the Borrower and the
Guarantor, prepared in accordance with GAAP and accompanied by an
unqualified opinion rendered by an independent accounting firm
reasonably acceptable to the Bank;
(ii) Quarterly Financial Statements - as soon as
available, and in any event within forty-five (45) days after the
end of each calendar quarter of each year (except the last calendar
quarter in any fiscal year), the quarterly consolidated and
consolidating unaudited Financial Statements of the Borrower and
Guarantor prepared in accordance with GAAP;
(iii) Monthly Lease Operating Reports - within thirty
(30) days after the end of each month, a monthly report, in form
and substance reasonably satisfactory to Bank, indicating sales
volumes, sales revenues, production taxes, operating expenses, net
operating income and capital expenditures and other production
information from the Oil and Gas Properties, with detailed
calculations and worksheets, all in form and substance reasonably
satisfactory to Bank;
(iv) Report on Properties - as soon as available and
in any event on or before March 31, 1996, and thereafter on March
31, and October 31 of each calendar year, and at such other times
as the Bank, in accordance will Section 7 hereof, may request, the
engineering reports required to be furnished to the Bank under such
Section 7 on the Oil and Gas Properties;
(v) Budget - contemporaneously with the delivery of
the engineering information required above in Subsection 12(a)(iv),
provide a budget setting forth all anticipated sources and uses of
funds for the succeeding twelve (12) months; and
(vi) Additional Information - promptly upon request of
the Bank from time to time any additional financial information or
other information that the Bank may reasonably request.
All such information, reports, balance sheets and Financial
Statements referred to in Subsection 12(a) above shall be in such
detail as the Bank may reasonably request and shall be prepared in
a manner consistent with the Financial Statements.
(b) Certificates of Compliance. Concurrently with the
furnishing of the annual audited Financial Statements pursuant to
Subsection 12(a)(i) hereof and each of the quarterly unaudited
Financial Statements pursuant to Subsection 12(a)(ii) hereof,
Borrower and Guarantor will furnish or cause to be furnished to the
Bank a certificate in the form of Exhibit "D" attached hereto,
signed by the President, or chief financial officer of the Borrower
and the Guarantor (i) stating that the Borrower and the Guarantor
have fulfilled in all material respects their respective
obligations under the Note, the Guaranty and the Security
Instruments, including this Agreement, and that all representations
and warranties made herein and therein continue (except to the
extent they relate solely to an earlier date) to be true and
correct in all material respects (or specifying the nature of any
change), or if an Event of Default has occurred, specifying the
Event of Default and the nature and status thereof; (ii) to the
extent requested from time to time by the Bank, specifically
affirming compliance of the Borrower and the Guarantor in all
material respects with any of their respective representations
(except to the extent they relate solely to an earlier date) or
obligations under said instruments; (iii) setting forth the
computation, in reasonable detail as of the end of each period
covered by such certificate, of compliance with Sections 13(c),
(d), (e) and (f); and (iv) containing or accompanied by such
financial or other details, information and material as the Bank
may reasonably request to evidence such compliance.
(c) Accountants' Certificate. Concurrently with the
furnishing of the annual audited Financial Statement pursuant to
Section 12(a)(i) hereof, Borrower and Guarantor shall furnish a
statement from the firm of independent public accountants which
prepared the consolidated Financial Statements to the effect that,
in conducting the aforementioned audit, nothing came to their
attention that caused them to believe that Xxxxxx Resources was
not in compliance with the provisions of Section 13 subsections
(c), (d) and (e) of this Agreement, insofar as they relate to
accounting matters, or, if an instance of non-compliance was noted,
specifying its nature and period of existence.
(d) Taxes and Other Liens. The Borrower and Guarantor
will pay and discharge promptly all taxes, assessments and
governmental charges or levies imposed upon Borrower or Guarantor
or upon the income or any assets or property of the Borrower or
Guarantor as well as all claims of any kind (including claims for
labor, materials, supplies and rent) which, if unpaid, might become
a Lien or other encumbrance upon any or all of the assets or
property of Borrower or Guarantor and which could reasonably be
expected to result in a Material Adverse Effect; provided, however,
that Borrower and the Guarantor shall not be required to pay any
such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings diligently conducted, levy
and execution thereon have been stayed and continue to be stayed,
and Borrower or the Guarantor, as the case may be, shall have set
up adequate reserves therefor, if required, under GAAP.
(e) Compliance with Laws. Borrower and Guarantor will
observe and comply, in all material respects, with all applicable
laws, statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, orders and restrictions
relating to environmental standards or controls or to energy
regulations of all federal, state, county, municipal and other
governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign.
(f) Further Assurances. Borrower will cure promptly any
defects in the creation and issuance of the Note and the execution
and delivery of the Note and the Security Instrument, including
this Agreement. Borrower at its sole expense will promptly execute
and deliver to Bank upon its reasonable request all such other and
further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements in this Agreement,
or to correct any omissions in the Note or more fully to state the
obligations set out herein. Guarantor, at its sole expense, will
cure, or cause to be cured promptly any defect in the execution and
delivery of the Guaranty.
(g) Performance of Obligations. Borrower will pay the
Notes and other obligations incurred by it hereunder according to
the reading, tenor and effect thereof and hereof; and Borrower will
do and perform every act and discharge all of the obligations
provided to be performed and discharged by Borrower under the
Security Instruments, including this Agreement, at the time or
times and in the manner specified. The Guarantor will do and
perform every act and discharge all other obligations provided to
be performed and discharged by Guarantor under the Guaranty and
this Agreement.
(h) Insurance. Borrower and Guarantor now maintain and
will continue to maintain insurance with financially sound and
reputable insurers with respect to their assets against such
liabilities, fires, casualties, risks and contingencies and in such
types and amounts as is customary in the case of persons engaged in
the same or similar businesses and similarly situated. Upon
request of the Bank, Borrower and Guarantor will furnish or cause
to be furnished to the Bank from time to time a summary of the
respective insurance coverage of Borrower and Guarantor in form and
substance satisfactory to the Bank, and, if requested, will furnish
the Bank copies of the applicable policies. Upon demand by Bank
any insurance policies covering any such property shall be endorsed
(i) to provide that such policies may not be canceled, reduced or
affected in any manner for any reason without fifteen (15) days
prior notice to Bank, (ii) to provide for insurance against fire,
casualty and other hazards normally insured against, in the amount
of the full value (less a reasonable deductible not to exceed
amounts customary in the industry for similarly situated business
and properties) of the property insured, and (iii) to provide for
such other matters as the Bank may reasonably require. Borrower
and Guarantor shall at all times maintain adequate insurance with
respect to the Collateral and other oil and gas properties against
their liability for injury to persons or property, which insurance
shall be by financially sound and reputable insurers and shall
without limitation provide the following coverages: comprehensive
general liability (including coverage for damage to underground
resources and equipment, damage caused by blowouts or cratering,
damage caused by explosion, damage to underground minerals or
resources caused by saline substances, broad form property damage
coverage, broad form coverage for contractually assumed liabilities
and broad form coverage for acts of independent contractors),
worker's compensation and automobile liability. Borrower and
Guarantor shall at all times maintain cost of control of well
insurance with respect to the Collateral which shall insure
Borrower against seepage and pollution expense if deemed economical
in the reasonable discretion of Borrower; redrilling expense; and
cost of control of well; fires, blowouts, etc. Additionally,
Borrower and Guarantor shall at all times maintain adequate
insurance with respect to all of their other assets and xxxxx in
accordance with prudent business practices.
(i) Accounts and Records. Borrower and Guarantor will
keep books, records and accounts in which full, true and correct
entries will be made of all dealings or transactions in relation to
its business and activities, prepared in a manner consistent with
prior years, subject to changes required by GAAP or suggested by
Borrower's or Guarantor's auditors.
(j) Right of Inspection. Borrower and Guarantor will
permit any officer, employee or agent of the Bank to examine
Borrower's and Guarantor's books, records and accounts, and take
copies and extracts therefrom, all at such reasonable times and as
often as the Bank may reasonably request. The Bank will keep all
such information confidential and will not without prior written
consent disclose or reveal the information or any part thereof to
any person other than the Bank's officers, employees, legal
counsel, regulatory authorities or advisors to whom it is necessary
to reveal such information for the purpose of effectuating the
agreements and undertakings specified herein or as otherwise
required by law or in connection with the enforcement of the Bank's
rights and remedies and this Agreement, the Notes and the Security
Instruments.
(k) Notice of Certain Events. Borrower and Guarantor
shall promptly notify the Bank if Borrower or Guarantor learns of
the occurrence of (i) any event which constitutes an Event of
Default, together with a detailed statement by Borrower of the
steps being taken to cure the Event of Default; or (ii) any legal,
judicial or regulatory proceedings affecting the Borrower or
Guarantor, or any of the assets or properties of the Borrower
which, if adversely determined, could have a Material Adverse
Effect; or (iii) any dispute between the Borrower or Guarantor and
any governmental or regulatory body or any other person or entity
which, if adversely determined, could cause a Material Adverse
Effect; or (iv) any other matter which in Borrower's or Guarantor's
opinion could have a Material Adverse Effect.
(l) ERISA Information and Compliance. Borrower and
Guarantor will promptly furnish to the Bank immediately upon
becoming aware of the occurrence of any "reportable event", as such
term is defined in Section 4043 of ERISA, or of any "prohibited
transaction", as such term is defined in Section 4975 of the
Internal Revenue Code of 1954, as amended, in connection with any
Plan or any trust created thereunder, a written notice signed by
the President or the chief financial officer of the Borrower or
Guarantor, as the case may be, specifying the nature thereof, what
action Borrower or Guarantor is taking or proposes to take with
respect thereto, and, when known, any action taken by the Internal
Revenue Service with respect thereto.
(m) Environmental Reports and Notices. Borrower and
Guarantor will deliver to the Bank (i) promptly upon its becoming
available, one copy of each report sent by the Borrower or
Guarantor to any court, governmental agency or instrumentality
pursuant to any Environmental Law, (ii) notice, in writing,
promptly upon Borrower's or Guarantor's learning that they have
received notice or otherwise learned of any claim, demand, action,
event, condition, report or investigation indicating any potential
or actual liability arising in connection with (x) the non-
compliance with or violation of the requirements of any
Environmental Law which could have a Material Adverse Effect; (y)
the release or threatened release of any toxic or hazardous waste
into the environment which could have a Material Adverse Effect or
which release Borrower or Guarantor would have a duty to report to
any court or government agency or instrumentality, or (iii) the
existence of any Environmental Lien on any properties or assets of
the Borrower or Guarantor, and Borrower or Guarantor shall
immediately deliver a copy of any such notice to Bank.
(n) Maintenance. Borrower and Guarantor will (i) observe
and comply in all material respects with all Environmental Laws;
(ii) except as provided in Subsections 12(o) and 12(p) below,
maintain the Oil and Gas Properties and other assets and properties
in good and workable condition at all times and make all repairs,
replacements, additions, betterments and improvements to the Oil
and Gas Properties and other assets and properties as are needed
and proper so that the business carried on in connection therewith
may be conducted properly and efficiently at all times in the
opinion of the Borrower or Guarantor exercised in good faith; (iii)
take or cause to be taken whatever actions are necessary or
desirable to prevent an event or condition of default by Borrower
or Guarantor under the provisions of any gas purchase or sales
contract or any other contract, agreement or lease comprising a
part of the Oil and Gas Properties or other collateral security
hereunder which default could result in a Material Adverse Effect;
and (iv) furnish Bank upon request evidence satisfactory to Bank
that there are no Liens, claims or encumbrances superior to the
Lien of Bank on the Oil and Gas Properties, except laborers',
vendors', repairmen's, mechanics', worker's, or materialmen's liens
arising by operation of law or incident to the construction or
improvement of property if the obligations secured thereby are not
yet due or are being contested in good faith by appropriate legal
proceedings or Permitted Liens.
(o) Operation of Properties. Except as provided in
Subsection 12(p) and (q) below, Borrower and Guarantor will
operate, or use reasonable efforts to cause to be operated, all Oil
and Gas Properties in a careful and efficient manner in accordance
with the practice of the industry and in compliance in all material
respects with all applicable laws, rules, and regulations, and in
compliance in all material respects with all applicable proration
and conservation laws of the jurisdiction in which the properties
are situated, and all applicable laws, rules, and regulations, of
every other agency and authority from time to time constituted to
regulate the development and operation of the properties and the
production and sale of hydrocarbons and other minerals therefrom;
provided, however, that Borrower and Guarantor shall have the right
to contest in good faith by appropriate proceedings, the
applicability or lawfulness of any such law, rule or regulation and
pending such contest may defer compliance therewith, as long as
such deferment shall not subject the properties or any part thereof
to foreclosure or loss.
(p) Compliance with Leases and Other Instruments.
Borrower and Guarantor will pay or cause to be paid and discharge
all rentals, delay rentals, royalties, production payments and
indebtedness required to be paid by the Borrower or Guarantor (or
required to keep unimpaired in all material respects the rights of
Borrower or Guarantor in the Oil and Gas Properties) accruing
under, and perform or cause to be performed in all material
respects each and every act, matter, or thing required of the
Borrower or Guarantor by each and all of the assignments, deeds,
leases, subleases, contracts, and agreements in any way relating to
the Borrower or Guarantor or any of the Oil and Gas Properties and
do all other things necessary of the Borrower or Guarantor to keep
unimpaired in all material respects the rights of the Borrower or
Guarantor thereunder and to prevent the forfeiture thereof or
default thereunder; provided, however, that nothing in this
Agreement shall be deemed to require the Borrower or Guarantor to
perpetuate or renew any oil and gas lease or other lease by payment
of rental or delay rental or by commencement or continuation of
operations nor to prevent the Borrower or Guarantor from abandoning
or releasing any oil and gas lease or other lease or well thereon
when, in any of such events, in the opinion of Borrower or
Guarantor exercised in good faith, it is not in the best interest
of the Borrower or Guarantor to perpetuate the same.
(q) Certain Additional Assurances Regarding Maintenance
and Operations of Properties. With respect to those Oil and Gas
Properties which are being operated by operators other than
Borrower or Guarantor, Borrower and Guarantor shall not be
obligated to perform any undertakings contemplated by the covenants
and agreement contained in Subsections 12(o) or 12(p) hereof which
are performable only by such operators and are beyond the control
of Borrower or Guarantor; however, Borrower and Guarantor agree to
promptly take all actions available under any operating agreements
or otherwise to bring about the performance of any such
undertakings required to be performed thereunder.
(r) Title Matters. Within ninety (90) days after the date
of this Agreement, Borrower shall provide additional title opinions
and/or acceptable title information on the Oil and Gas Properties
listed on Schedule "7" hereto. As to any Oil and Gas Properties
hereafter mortgaged to Bank, Borrower will promptly (but in no
event more than sixty (60) days following such mortgaging), furnish
Bank with title opinions and/or title information reasonably
satisfactory to Bank showing good and defensible title of Borrower
to such Oil and Gas Properties subject only to Permitted Liens.
(s) Curative Matters. Within ninety (90) days after the
date hereof with respect to matters listed on Schedule "8" and,
thereafter, within ninety (90) days after receipt by Borrower from
Bank or its counsel of written notice of title defects the Bank
reasonably requires to be cured, Borrower shall either (i) provide
such curative information, in form and substance satisfactory to
Bank, or (ii) substitute Oil and Gas Properties of value and
quality satisfactory to the Bank for all of Oil and Gas Properties
for which such title curative was requested but upon which Borrower
elected not to provide such title curative information, and, within
ninety (90) days of such substitution, provide title opinions or
title information satisfactory to the Bank covering the Oil and Gas
Properties so substituted.
(t) Change of Principal Place of Business. Borrower shall
give Bank at least thirty (30) days prior written notice of its
intention to move its principal place of business from the address
set forth in Section 10(n) hereof.
13. Negative Covenants. A deviation from the provisions of
this Section 13 shall not constitute an Event of Default under this
Agreement if such deviation is consented to in writing by the Bank.
Without the prior written consent of the Bank, Borrower and
Guarantor will at all times comply with the covenants contained in
this Section 13 from the date hereof and for so long as any part of
the Revolving Commitment or Advance of Line of Credit is in
existence.
(a) Liens. Neither Borrower nor Guarantor will create,
incur, assume or permit to exist any lien, security interest or
other encumbrance on any of its assets or properties except
Permitted Liens.
(b) Consolidations, Mergers and Sales of Assets. Neither
Borrower nor Guarantor will consolidate or merge with or into any
other Person, except that the Borrower or Guarantor may merge with
another Person if (i) the Borrower or Guarantor is the corporation
surviving such merger, or (ii) Bank has consented to such mergers
or consolidations, and (iii) if, after giving effect thereto, no
Event of Default shall have occurred and be continuing.
(c) Current Ratio. Borrower and Guarantor will not suffer
or permit their ratio of consolidated Current Assets to
consolidated Current Liabilities to ever be less than 1.0 to 1.0.
(d) Debt Service Ratio. Borrower and Guarantor will not
suffer or permit their ratio of consolidated Cash Flow to
consolidated Debt Service to ever be less than 1.10 to 1.00 after
January 1, 1996, said ratio to be tested quarterly for the
preceding twelve (12) months ( or the appropriate portion thereof
during calendar year 1996).
(e) Minimum Tangible Net Worth. Borrower and Guarantor
will not suffer or permit their consolidated Tangible Net Worth to
ever be less than $15,000,000.00.
(f) Total Bank Debt. Borrower will not permit the amount
of its Total Bank Debt to exceed an amount equal to (i) seventy-
five percent (75%) of the present value (discounted at 10%) of the
Oil and Gas Properties as determined by the Bank (the "Present
Value") during the six month period from the Effective Date to
September 30, 1996; (ii) seventy percent (70%) of Present Value
during the six month period from October 1, 1996 to March 31, 1997;
and (ii) sixty five percent (65%) of Present Value during the six
month period from April 1, 1997 to the Advance Loan Maturity Date.
(g) Debts, Guaranties and Other Obligations. Neither
Borrower, Guarantor or any of their Subsidiaries will incur,
create, assume or in any manner become or be liable in respect of
any indebtedness, liabilities or other obligations, nor will the
Borrower or Guarantor or any of their Subsidiaries guarantee or
otherwise in any manner become or be liable in respect of any
indebtedness, liabilities or other obligations of any other person
or entity, whether by agreement to purchase the indebtedness of any
other person or entity or agreement for the furnishing of funds to
any other person or entity through the purchase or lease of goods,
supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or
discharging the indebtedness of any other person or entity, or
otherwise, except that the foregoing restrictions shall not apply
to:
(i) the Notes, or other indebtedness of Borrower and
Guarantor heretofore disclosed to Bank in Borrower's or Guarantor's
Financial Statements or on Schedule "9" hereto;
(ii) taxes, assessments or other government charges
which are not yet due or are being contested in good faith by
appropriate action promptly initiated and diligently conducted, if
such reserve as shall be required by GAAP shall have been made
therefor and levy and execution thereon have been stayed and
continue to be stayed;
(iii) indebtedness incurred in the ordinary course of
business as such business is being conducted on the Effective Date;
or
(iv) renewals and extensions of any or all of the
foregoing.
(h) Dividends. Neither Borrower nor Guarantor will
declare or pay any cash dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding,
return any capital to stockholders, or make any distribution or its
assets to its stockholders as such; provided, however, that the
foregoing restriction shall not apply to (i) cash dividends paid by
Guarantor on preferred stock outstanding on the Effective Date, or
(ii) reimbursements to Guarantor by Borrower of amounts incurred by
Guarantor to pay Borrower's general and administrative expenses in
connection with Borrower's oil and gas operations, or (iii)
dividends by Guarantor of Laguna Gold Company stock to its
shareholders so long as no Event of Default has occurred and is
continuing or would occur as the result of payment of any such cash
dividends or reimbursement of general and administrative expenses.
(i) Loans and Advances. Neither Borrower nor Guarantor
shall make or permit to remain outstanding any loans or advances to
any person or entity, except that the foregoing restriction shall
not apply to:
(i) loans, advances or investments the material
details of which have been set forth in the Financial Statements of
Borrower and Guarantor heretofore furnished to Bank or have
otherwise heretofore been disclosed to Bank on Schedule "10"
hereto;
(ii) advances made or accounts receivable created in
the ordinary course of Borrower's oil and gas business; or
(iii) advances made by Guarantor to its wholly-owned
Subsidiaries to cover general and administrative expenses of such
Subsidiaries.
(j) Investments. Neither Borrower nor Guarantor shall
make any investments in any Person or entity, except such
restriction shall not apply to:
(i) investments and direct obligations of the United
States of America or any agency thereof;
(ii) investments in certificates of deposit issued by
Bank or certificates of deposit with maturities of less than one
year, issued by other commercial banks in the United States having
capital and surplus in excess of $500,000,000 and which have a
rating of (A) 50 or above by Sheshunoff and (B) "B" or above by
Xxxx-Xxxxxx; or
(iii) investments in insured money market funds and
other similar accounts at Bank or such investment with maturities
of less than ninety (90) days at other commercial banks having
capital and surplus in excess of $500,000,000 and which have a
rating of (A) 50 or above by Sheshunoff and (B) "B" or above by
Xxxx-Xxxxxx.
(k) Sale or Discount of Receivables. Neither Borrower nor
Guarantor will discount or sell with recourse, or sell for less
than the greater of the face or market value thereof, any of their
notes receivable or accounts receivable.
(l) Nature of Business. Neither Borrower nor Guarantor
will permit any material change to be made in the character of
their business as carried on at the date hereof.
(m) Hedging Transactions. Neither Borrower Nor Guarantor
will enter into any transaction providing (i) for the hedging,
forward sale or swap of crude oil, natural gas or any other
commodity, or (ii) for a swap, collar, floor, cap, option,
corridor, or other contract which is intended to reduce or
eliminate the risk of fluctuations in interest rates, as such terms
are referred to in the capital markets, except the foregoing
prohibitions shall not apply to (i) transactions consented to in
writing in advance by the Bank which are on terms acceptable to the
Bank and (ii) Pre-Approved Contracts. "Pre-Approved Contracts"
means any contract or agreement to hedge, forward sell or swap
crude oil or natural gas or otherwise sell up to 75% of expected
future production volumes from proven developed producing reserves
for a period of not longer than twenty-four (24) months and at an
effective price not less than the then-current base pricing policy
used by the Bank in determining borrowing base calculations for its
petroleum industry customers.
(n) Amendment of Articles of Incorporation or Bylaws.
Neither Borrower nor Guarantor will permit any amendment to, or
other alteration of, their Articles of Incorporation or Bylaws.
(o) Sale of Assets. Neither Borrower nor Guarantor shall
sell, transfer or otherwise dispose of any of its assets except
(i) for production from oil, gas and mineral property and other
assets sold in the ordinary course of Borrower's or Guarantor's
business and (ii) for the sale of the stock of Laguna Gold Company
by Guarantor. In the event any Oil and Gas Properties (other than
production sold in the ordinary course of business) are sold with
the prior written consent of the Bank, Borrower shall pay over to
Bank an amount equal to the value attributable of such Oil and Gas
Properties for Borrowing Base purposes.
(p) Transactions with Affiliates. Neither Borrower nor
Guarantor will enter into any transaction with any of its
Affiliates, except transactions upon terms no less favorable to it
than would be obtained in a transaction negotiated at arm's length
with a unrelated third party.
14. Events of Default. Any one or more of the following
events shall be considered an "Event of Default" as that term is
used herein:
(a) Borrower shall fail to pay when due or declared due
the principal of, and the interest on, either of the Notes or any
fee or any other indebtedness of Borrower incurred pursuant to this
Agreement or any other Security Instrument; or
(b) Any representation or warranty made by Borrower or
Guarantor under this Agreement or any other Loan Document, or in
any certificate or statement furnished or made to Bank pursuant
hereto, or in connection herewith, or in connection with any
document furnished hereunder, shall prove to be untrue in any
material respect as of the date on which such representation or
warranty is made (or deemed made), or any representation, statement
(including Financial Statements), certificate, report or other data
furnished or to be furnished or made by Borrower or Guarantor under
any Loan Document, including this Agreement, proves to have been
untrue in any material respect, as of the date as of which the
facts therein set forth were stated or certified; or
(c) Default shall be made in the due observance or
performance of any of the covenants or agreements of the Borrower
or Guarantor contained in the Loan Documents, including this
Agreement (excluding covenants contained in Section 13 of the
Agreement for which there is no cure period), and such default
shall continue for more than thirty (30) days after notice thereof
from Bank to Borrower; or
(d) Default shall be made in the due observance or
performance of any of the covenants of the Borrower or Guarantor
contained in Section 13 of this Agreement; or
(e) Default shall be made in respect of any obligation for
borrowed money, other than the Notes, for which the Borrower or
Guarantor is liable (directly, by assumption, as guarantor or
otherwise), or any obligations secured by any mortgage, pledge or
other security interest, lien, charge or encumbrance with respect
thereto, on any asset or property of the Borrower or Guarantor or
in respect of any agreement relating to any such obligations, and
such default shall continue beyond the applicable grace period, if
any; or
(f) The Borrower or Guarantor shall commence a voluntary
case or other proceedings seeking liquidation, reorganization or
other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking an appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced
against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become
due, or shall take any corporate action or authorizing the
foregoing; or
(g) An involuntary case or other proceeding, shall be
commenced against the Borrower or Guarantor seeking liquidation,
reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period
of sixty (60) days; or an order for relief shall be entered against
the Borrower or Guarantor under the federal bankruptcy laws as now
or hereinafter in effect; or
(h) A final judgment or order for the payment of money in
excess of $100,000.00 (or judgments or orders aggregating in excess
of $100,000.00) shall be rendered against the Borrower or Guarantor
and such judgments or orders shall continue unsatisfied and
unstayed for a period of thirty (30) days; or
(i) The aggregate principal amount outstanding under the
Revolving Note shall exceed the Borrowing Base established for the
Revolving Note and Borrower shall fail to either provide additional
Collateral or prepay a portion of the principal of the Revolving
Note, in compliance with the provisions of Section 9(b) hereof; or
(j) A Change of Management shall occur.
Upon occurrence of any Event of Default specified in
Subsections 14(f) and (g) hereof, the Revolving Commitment shall
terminate and the entire principal amount due under the Note and
all interest then accrued thereon, and any other liabilities of
Borrower hereunder, shall become immediately due and payable all
without notice and without presentment, demand, protest, notice of
protest or dishonor or any other notice of default of any kind, all
of which are hereby expressly waived by Borrower. In any other
Event of Default, the Bank may by notice to Borrower terminate the
Revolving Commitment and the Advance Line of Credit and declare
the principal of, and all interest then accrued on, the Notes and
any other liabilities hereunder to be forthwith due and payable,
whereupon the same shall forthwith become due and payable without
presentment, demand, protest or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein
or in the Notes to the contrary notwithstanding. Nothing contained
in this Section shall be construed to limit or amend in any way the
Events of Default enumerated in the Notes, or any other document
executed in connection with the transaction contemplated herein.
Upon the occurrence and during the continuance of any Event of
Default, the Bank is hereby authorized at any time and from time to
time, without notice to Borrower (any such notice being expressly
waived by Borrower and Guarantor), to set-off and apply any and all
deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by the
Bank to or for the credit or the account of the Borrower against
any and all of the indebtedness of the Borrower or Guarantor under
the Note and the Loan Documents, including this Agreement and the
Guaranty, irrespective of whether or not the Bank shall have made
any demand under the Loan Documents, including this Agreement or
the Note and although such indebtedness may be unmatured. Any
amount set-off by the Bank shall be applied against the
indebtedness owed the Bank by Borrower pursuant to this Agreement
and the Note. The Bank agrees promptly to notify Borrower after
any such setoff and application, provided that the failure to give
such notice shall not affect the validity of such set-off and
application. The rights of the Bank under this Section are in
addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Bank may have.
15. Exercise of Rights. No failure to exercise, and no delay
in exercising, on the part of the Bank, any right hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or
the exercise of any other right. The rights of the Bank hereunder
shall be in addition to all other rights provided by law. No
modification or waiver of any provision of the Security Agreement,
including this Agreement, or the Note nor consent to departure
therefrom, shall be effective unless in writing, and no such
consent or waiver shall extend beyond the particular case and
purpose involved. No notice or demand given in any case shall
constitute a waiver of the right to take other action in the same,
similar or other circumstances without such notice or demand.
16. Notices. Any notices or other communications required or
permitted to be given by this Agreement or any other documents and
instruments referred to herein must be given in writing (which may
be by facsimile transmission) and must be personally delivered,
faxed and confirmed by telephone call, or mailed by prepaid
certified or registered mail to the party to whom such notice or
communication is directed at the address of such party as follows:
(a) BORROWER AND GUARANTOR: c/x XXXXXX RESOURCES CORPORATION, 000
00XX XXXXXX, XXXXX 0000, XXXXXX, XXXXXXXX 00000, Facsimile No.
(000) 000-0000, Attention: Xxxxxx X. Xxxxxx, Xx., President; and
(b) BANK: BANK ONE, TEXAS, N.A., 0000 Xxxx Xxxxxx, Xxxxxx, Xxxxx
00000, Facsimile No. 000-000-0000, Attention: Xxxx X. Xxxxxxxx,
Vice President. Any such notice or other communication shall be
deemed to have been given on the day it is personally delivered as
aforesaid or, if mailed, on the fifth day after it is mailed as
aforesaid. Any party may change its address for purposes of this
Agreement by giving notice of such change to the other party
pursuant to this Section.
17. Expenses. The Borrower shall pay (i) all reasonable and
necessary out-of-pocket expenses of the Bank, including reasonable
fees and disbursements of special counsel for the Bank, in
connection with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any default or Event
of Default or alleged default or Event of Default hereunder, (ii)
all reasonable and necessary out-of-pocket expenses of the Bank,
including reasonable fees and disbursements of special counsel for
the Bank in connection with the preparation of any participation
agreement for a participant or participants requested by Borrower
or any amendment thereof and (iii) if a default or an Event of
Default occurs, all reasonable and necessary out-of-pocket expenses
incurred by the Bank, including fees and disbursements of counsel,
in connection with such default and Event of Default and collection
and other enforcement proceedings resulting therefrom. The
Borrower shall indemnify the Bank against any transfer taxes,
document taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement
or the Note.
18. Indemnity. The Borrower and Guarantor agree to indemnify
and hold harmless the Bank and its respective officers, employees,
agents, attorneys and representatives (singularly, an "Indemnified
Party", and collectively, the "Indemnified Parties") from and
against any loss, cost, liability, damage or expense (including the
reasonable fees and out-of-pocket expenses of counsel to the Bank,
including all local counsel hired by such counsel) ("Claim")
incurred by the Bank in investigating or preparing for, defending
against, or providing evidence, producing documents or taking any
other action in respect of any commenced or threatened litigation,
administrative proceeding or investigation under any federal
securities law, federal or state environmental law, or any other
statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon any
acts, practices or omissions or alleged acts, practices or
omissions of the Borrower, Guarantor or their agents or arises in
connection with the duties, obligations or performance of the
Indemnified Parties in negotiating, preparing, executing,
accepting, keeping, completing, countersigning, issuing, selling,
delivering, releasing, assigning, handling, certifying, processing
or receiving or taking any other action with respect to the Loan
Documents and all documents, items and materials contemplated
thereby even if any of the foregoing arises out of an Indemnified
Party's ordinary negligence. The indemnity set forth herein shall
be in addition to any other obligations or liabilities of the
Borrower and Guarantor to the Bank hereunder or at common law or
otherwise, and shall survive any termination of this Agreement, the
expiration of the Loan and the payment of all indebtedness of the
Borrower and Guarantor to the Bank hereunder and under the Note,
provided that the Borrower and Guarantor shall have no obligation
under this Section to the Bank with respect to any of the foregoing
arising out of the gross negligence or willful misconduct of the
Bank. If any Claim is asserted against any Indemnified Party, the
Indemnified Party shall endeavor to notify the Borrower of such
Claim (but failure to do so shall not affect the indemnification
herein made except to the extent of the actual harm caused by such
failure). The Indemnified Party shall have the right to employ, at
the Borrower's and Guarantor's expense, counsel of the Indemnified
Parties' choosing and to control the defense of the Claim. The
Borrower and Guarantor may at their own expense also participate in
the defense of any Claim. Each Indemnified Party may employ
separate counsel in connection with any Claim to the extent such
Indemnified Party believes it reasonably prudent to protect such
Indemnified Party. The parties intend for the provisions of this
Section to apply to and protect each Indemnified Party from the
consequences of its own negligence, whether or not that negligence
is the sole, contributing, or concurring cause of any Claim.
19. Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such
provisions shall be fully severable and this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
20. Maximum Interest Rate. Regardless of any provisions
contained in this Agreement or in any other documents and
instruments referred to herein, the Bank shall never be deemed to
have contracted for or be entitled to receive, collect or apply as
interest on the Notes any amount in excess of the maximum rate of
interest permitted to be charged by applicable law, and in the
event the Bank ever receives, collects or applies as interest any
such excess, or if acceleration of the maturities of the Notes or
if any prepayment by Borrower results in Borrower having paid any
interest in excess of the maximum rate, such amount which would be
excessive interest shall be applied to the reduction of the unpaid
principal balance of the Notes for which such excess was received,
collected or applied, and, if the principal balance of the Notes
are paid in full, any remaining excess shall forthwith be paid to
Borrower. All sums paid or agreed to be paid to the Bank for the
use, forbearance or detention of the indebtedness evidenced by the
Notes and/or this Agreement shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full
so that the rate or amount of interest on account of such
indebtedness does not exceed the maximum lawful rate permitted
under applicable law. In determining whether or not the interest
paid or payable under any specific contingency exceeds the maximum
rate of interest permitted by law, Borrower and the Bank shall, to
the maximum extent permitted under applicable law, (i) characterize
any non-principal payment as an expense, fee or premium, rather
than as interest; and (ii) exclude voluntary prepayments and the
effect thereof; and (iii) compare the total amount of interest
contracted for, charged or received with the total amount of
interest which could be contracted for, charged or received
throughout the entire contemplated term of the Notes at the maximum
lawful rate under applicable law.
21. Amendments. This Agreement may be amended only by an
instrument in writing executed by an authorized officer of the
party against whom such amendment is sought to be enforced.
22. Multiple Counterparts. This Agreement may be executed in a
number of identical separate counterparts, each of which for all
purposes is to be deemed an original, but all of which shall
constitute, collectively, one agreement. No party to this
Agreement shall be bound hereby until a counterpart of this
Agreement has been executed by all parties hereto.
23. Conflict. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the Security
Instruments, the terms or provisions contained in this Agreement
shall be controlling.
24. Survival. All covenants, agreements, undertakings,
representations and warranties made in the Security Instruments,
including this Agreement, the Note or other documents and
instruments referred to herein shall survive all closings hereunder
and shall not be affected by any investigation made by any party.
25. Parties Bound. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors, assigns, heirs, legal representatives and estates,
provided, however, that Borrower or Guarantor may not, without the
prior written consent of the Bank, assign any rights, powers,
duties or obligations hereunder.
26. Participations. The Bank shall have the right at any time
and from time to time to sell one or more participations in the
Notes or any Advance thereunder. To the extent of any such
participation the provisions of this Agreement shall inure to the
benefit of, and be binding on, each participant, including, but not
limited to, any indemnity from Borrower or the Guarantor to the
Bank. The Borrower and the Guarantor shall have no obligation or
liability to and no obligation to negotiate or confer with, any
participant, and Borrower shall be entitled to treat the Bank as
the sole owner of the Notes without regard to notice or actual
knowledge of any such participation. Upon the occurrence of a
default or an Event of Default, each participant will have and is
hereby granted the right to setoff against and to appropriate and
apply from time to time, without prior notice to the Borrower or
the Guarantor or any other party, any such notice being hereby
expressly waived, any and all deposits (general or special or other
indebtedness or claims, direct or indirect, contingent or
otherwise), at any time held or owing by the participant to or for
the credit or account of Borrower or the Guarantor against the
payment of the Notes and any other obligations of the Borrower or
the Guarantor hereunder, provided, however, none of the rights
granted in this Section shall apply to any deposits held by any
participant constituting trust funds and so identified to such
participant at the time the applicable deposit account is created.
Within five (5) Business Days after such setoff or appropriation by
a participant, that participant shall give Borrower and Bank
written notice thereof. However, a failure to give such notice
will not affect the validity of this setoff or appropriation.
27. Financial Terms. All accounting terms used in the
Agreement which are not specifically defined herein shall be
construed in accordance with GAAP.
28. Governing Law. THIS AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND
THE SUBSTANTIVE LAWS OF TEXAS SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND
ALL OTHER DOCUMENTS AND INSTRUMENTS REFERRED TO HEREIN, UNLESS
OTHERWISE SPECIFIED THEREIN.
29. Choice of Forum: Consent to Service of Process and
Jurisdiction. THE OBLIGATIONS OF BORROWER AND GUARANTOR UNDER THE
LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ANY SUIT,
ACTION OR PROCEEDING AGAINST BORROWER OR GUARANTOR WITH RESPECT TO
THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT
THEREOF, MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY
OF DALLAS, OR IN THE UNITED STATES COURTS LOCATED IN DALLAS, TEXAS
AND BORROWER AND GUARANTOR HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH SUIT,
ACTION OR PROCEEDING. BORROWER AND GUARANTOR HEREBY IRREVOCABLY
CONSENT TO SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN
SAID COURT BY THE MAILING THEREOF BY BANK BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER OR GUARANTOR, AS
APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN SECTION 16.
BORROWER AND GUARANTOR HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH
THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS,
COUNTY OF DALLAS, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM
THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
30. Other Agreements. THIS WRITTEN LOAN AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
BORROWER:
XXXXXX OIL COMPANY
a Colorado corporation
By: /s/ Xxxxx X. Xxxxxxxxxx
Xxxxx X. Xxxxxxxxxx,
President
GUARANTOR:
XXXXXX RESOURCES CORPORATION,
a Colorado corporation
By: /s/ Xxx X. Xxxx
Xxx X. Xxxx,
Executive Vice President
BANK:
BANK ONE, TEXAS, N.A.,
a national banking association
By: /s/ Xxxx X. Xxxxxxxx
Xxxx X. Xxxxxxxx, Vice President
