EXHIBIT 10.3
RESTATED SENIOR
SECURED LOAN AGREEMENT
AMONG
SOUTHWEST ROYALTIES, INC.,
AS BORROWER,
AND
CERTAIN SUBSIDIARIES OF BORROWER,
AS GUARANTORS,
AND
BANK ONE, TEXAS, N.A. AND BANQUE PARIBAS,
AS BANKS
AND
BANK ONE, TEXAS, N.A.
AS AGENT
OCTOBER 9, 1997
SENIOR LOAN AGREEMENT
TABLE OF CONTENTS
Page
----
1. Definitions............................................................ 2
2. Commitments of the Bank................................................ 10
(a) Revolving Commitment............................................ 10
(b) Procedure for Borrowing......................................... 11
(c) Monthly Reduction of Revolving Commitment....................... 11
(d) Voluntary Reduction of Revolving Commitment..................... 11
3. Notes Evidencing Loan.................................................. 12
(a) Form of Notes................................................... 12
(b) Interest Rate on the Note or Notes.............................. 12
(c) Payment of Interest............................................. 12
(d) Payment of Principal............................................ 12
(e) General......................................................... 12
(f) Issuance of Additional Notes.................................... 12
(g) Payments by Agent to Banks...................................... 13
(h) Sharing of Payments, Etc........................................ 13
(i) Capital Adequacy................................................ 13
4. Interest Rates......................................................... 14
(a) Options......................................................... 14
(b) Interest Rate Determination..................................... 15
(c) Conversion Option............................................... 15
(d) Recoupment...................................................... 15
5. Special Provisions Relating to Eurodollar Loans........................ 15
(a) Unavailability of Funds or Inadequacy of Pricing................ 15
(b) Reserve Requirements............................................ 16
(c) Taxes........................................................... 16
(d) Change in Laws.................................................. 17
(e) Option to Fund.................................................. 17
(f) Indemnity....................................................... 17
(g) Payments Not at End of Interest Period.......................... 18
6. Collateral Security.................................................... 18
i
7. Borrowing Base......................................................... 19
(a) Initial Borrowing Base.......................................... 19
(b) Subsequent Determinations of Borrowing Base..................... 19
(c) Sublimits....................................................... 20
8. Fees................................................................... 21
(a) Unused Portion Fee.............................................. 21
(b) Borrowing Base Increase Fees.................................... 21
(c) Agency Fee...................................................... 21
9. Prepayments............................................................ 21
(a) Voluntary Prepayments of Note or Notes.......................... 21
(b) Mandatory Prepayment of Note or Notes........................... 21
10. Representations and Warranties......................................... 22
(a) Corporate Existence............................................. 22
(b) Corporate Power and Authorization............................... 22
(c) Binding Obligations............................................. 22
(d) No Legal Bar or Resultant Lien.................................. 22
(e) No Consent...................................................... 22
(f) Financial Condition............................................. 23
(g) Liabilities..................................................... 23
(h) Litigation...................................................... 23
(i) Taxes; Governmental Charges..................................... 23
(j) Titles, Etc..................................................... 23
(k) Defaults........................................................ 24
(l) Casualties; Taking of Properties................................ 24
(m) Use of Proceeds; Margin Stock................................... 24
(n) Location of Business and Offices................................ 24
(o) Compliance with the Law......................................... 24
(p) No Material Misstatements....................................... 25
(q) Not A Utility................................................... 25
(r) ERISA........................................................... 25
(s) Public Utility Holding Company Act.............................. 25
(t) Subsidiaries.................................................... 25
(u) Environmental Matters........................................... 25
(v) Ownership of.................................................... 26
(w) Liens........................................................... 26
11. Conditions of Lending.................................................. 26
12. Affirmative Covenants.................................................. 28
(a) Financial Statements and Reports................................ 28
ii
(b) Certificates of Compliance...................................... 29
(c) Accountants' Certificate........................................ 29
(d) Taxes and Other Liens........................................... 30
(e) Compliance with Laws............................................ 30
(f) Further Assurances.............................................. 30
(g) Performance of Obligations...................................... 30
(h) Insurance....................................................... 30
(i) Accounts and Records............................................ 31
(j) Right of Inspection............................................. 31
(k) Notice of Certain Events........................................ 32
(l) ERISA Information and Compliance................................ 32
(m) Environmental Reports and Notices............................... 32
(n) Maintenance..................................................... 32
(o) Operation of Properties......................................... 33
(p) Compliance with Leases and Other Instruments ................... 33
(q) Certain Additional Assurances Regarding Maintenance
and Operations of Properties.................................... 34
(r) Title Matters................................................... 34
(s) Curative Matters................................................ 34
(t) Change of Principal Place of Business........................... 34
13. Negative Covenants..................................................... 34
(a) Liens........................................................... 35
(b) Consolidations, Mergers and Sales of Assets..................... 35
(c) Current Ratio................................................... 35
(d) Minimum Interest Coverage Ratio................................. 35
(e) Tangible Net Worth.............................................. 35
(f) Debts, Guaranties and Other Obligations......................... 35
(g) Dividends....................................................... 36
(h) Loans and Advances.............................................. 36
(i) Investments..................................................... 37
(j) Sale or Discount of Receivables................................. 37
(k) Nature of Business.............................................. 37
(l) Hedging Transactions............................................ 37
(m) Amendment of Articles of Incorporation or Bylaws................ 37
14. Sale of Assets......................................................... 37
(a) Transactions with Affiliates.................................... 38
(b) Partnerships.................................................... 38
15. Events of Default...................................................... 38
16. Exercise of Rights..................................................... 41
iii
17. Notices................................................................ 41
18. Expenses............................................................... 41
19. Indemnity.............................................................. 41
20. The Agent and the Banks................................................ 42
(a) Appointment and Authorization................................... 42
(b) Note Holders.................................................... 43
(c) Consultation with Counsel....................................... 43
(d) Documents....................................................... 43
(e) Resignation or Removal of Agent................................. 44
(f) Responsibility of Agent......................................... 44
(g) Independent Investigation....................................... 45
(h) Indemnification................................................. 46
(i) Benefit of Section 19........................................... 46
(j) Pro Rata Treatment.............................................. 46
(k) Interests of Banks.............................................. 46
21. Invalid Provisions..................................................... 47
22. Maximum Interest Rate.................................................. 47
23. Amendments............................................................. 47
24. Multiple Counterparts.................................................. 47
25. Conflict............................................................... 47
26. Survival............................................................... 48
27. Parties Bound.......................................................... 48
28. Participations......................................................... 48
29. Financial Terms........................................................ 48
30. Governing Law.......................................................... 48
31. Choice of Forum: Consent to Service of Process and Jurisdiction........ 48
32. Other Agreements....................................................... 49
iv
33. Execution by Guarantors................................................ 49
EXHIBITS
--------
Exhibit "A" - Note
Exhibit "B" - Notice of Borrowing
Exhibit "C" - Guaranty Agreement
Exhibit "D" - Compliance Certificate
SCHEDULES
---------
Schedule 1 - Partnerships
Schedule 2 - Permitted Liens
Schedule 3 - Addresses of Banks
Schedule 4 - Financial Condition
Schedule 5 - Liabilities
Schedule 6 - Litigation
Schedule 7 - Environmental Matters
Schedule 8 - Ownership of Borrower
Schedule 9 - Curative Matters
Schedule 10 - Additional Mortgages
Schedule 11 - Debts, Guarantees and other Obligations
Schedule 12 - Loans and Advances
v
RESTATED SENIOR SECURED LOAN AGREEMENT
THIS RESTATED SENIOR SECURED LOAN AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 9th day of October, 1997, by and among SOUTHWEST
ROYALTIES, INC., a Delaware corporation ("SWR"), SOUTHWEST ROYALTIES HOLDINGS,
INC., a Delaware corporation ("Holdings"), ESPERO ENERGY CORPORATION, a Delaware
corporation ("Espero"), MIDLAND SOUTHWEST SOFTWARE, INC. a Delaware corporation
("Software") (Holdings, Espero and Software are hereinafter collectively
referred to as "Guarantors" and, where appropriate, as a "Guarantor"), BANK ONE,
TEXAS, N.A., a national banking association ("Bank One"), BANQUE PARIBAS
("Banque Paribas") (Bank One and Banque Paribas, together with each and every
future holder of any note or notes issued pursuant to the Loan Agreement (as
hereinafter defined) are hereinafter collectively referred to as the "Banks" and
individually as "Bank") and Bank One, as "Agent".
W I T N E S S E T H:
WHEREAS, Borrower, Guarantor, Midland Southwest Corporation ("MSC"), SW
Acquisition, Inc. ("Acquisition"), Midland Southwest Cold Lake, Inc. ("Cold
Lake"), Midland Southwest ▇▇▇▇▇▇▇▇, Inc. ("▇▇▇▇▇▇▇▇"), SWR Leasing Company
("Leasing") (MSC, Acquisition, Cold Lake, ▇▇▇▇▇▇▇▇ and Leasing are hereinafter
collectively referred to as the "Merged Subsidiaries," and, when appropriate,
singularly as a "Merged Subsidiary"), Bank One and NationsBank of Texas, N.A.
("NationsBank"), entered into a Senior Loan Agreement, dated as of April 13,
1995 (as amended, the "Loan Agreement") under the terms of which Bank One and
NationsBank agreed to provide Borrower and MSC (Borrower and MSC are sometimes
collectively referred to herein as "Borrowers") with a reducing revolving line
of credit facility in an amount of up to $75,000,000; and
WHEREAS, as of August 2, 1995, Bank One purchased the $37,500,000.00 Note
held by NationsBank, all of NationsBank's rights and obligations under the Loan
Agreement and its interests in the Liens, and the other Loan Documents; and
WHEREAS, as of August 10, 1995, Bank One and Borrowers entered into a First
Amendment to Senior Loan Agreement (the "First Amendment"); and
WHEREAS, as of August 15, 1995, Bank One and Borrowers entered into a
Second Amendment to Senior Loan Agreement (the "Second Amendment"); and
WHEREAS, as of December 4, 1995, Bank One and Borrowers entered into a
Third Amendment to Senior Loan Agreement (the "Third Amendment"); and
WHEREAS, as of November 5, 1996, Bank One and Borrowers entered into a
Fourth Amendment to Senior Loan Agreement (the "Fourth Amendment"); and
WHEREAS, as of March 31, 1997, Bank One and Borrowers entered into a Fifth
Amendment to Senior Loan Agreement (the "Fifth Amendment"); and
WHEREAS, as of July 1, 1997, the Merged Subsidiaries merged with and into
Borrower, with Borrower being the surviving entity; and
WHEREAS, pursuant to that certain Assignment and Acceptance Agreement dated
as of August 22, 1997 (the "Assignment"), Banque Paribas purchased a $15,000,000
participation in the current outstanding Revolving Loans (as defined in the Loan
Agreement), and all rights appurtenant to, and associated with, such
participation (the "Assigned Interest") as provided in the Assignment; and
WHEREAS, as of August 22, 1997, Banks and Borrower entered into a Sixth
Amendment to Senior Loan Agreement (the "Sixth Amendment"); and
WHEREAS, the Borrower and Banks have agreed to further amend the Loan
Agreement to add certain provisions thereto and in connection therewith restates
the Loan Agreement in its entirety;
NOW, THEREFORE, the parties hereto agree to restate the Loan Agreement as
follows:
DEFINITIONS. When used herein the terms "Agent", "Agreement,"
"Borrower", "Bank", "Banks", "Bank One", "Espero", "Guarantor", "Guarantors",
"Holdings" and "Software" shall have the meanings indicated above. When used
herein the following terms shall have the following meanings:
(a) Advance or Advances - A loan or loans hereunder.
(b) Affiliate - 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.
(c) Borrowing Base - The value assigned by the Banks from time to
time to the Oil and Gas Properties and other collateral in accordance with
Section 7(b) hereof. Until the
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next determination of the Borrowing Base pursuant to Section 7(b) hereof
the Borrowing Base for the Revolving Commitment shall be $40,000,000.00.
(d) Borrowing Date - The date elected by the Borrower pursuant to
Section 2(a) hereof for an Advance on the Revolving Loan.
(e) Business Day - The normal banking hours during any day (other
than Saturdays or Sundays) that banks are legally open for business in
Dallas, Texas.
(f) Change of Control - A Change of Control shall occur if ▇. ▇.
▇▇▇▇▇▇▇, III, ever owns less than 51% of the voting securities of Holdings,
as such ownership is shown on Schedule "8" hereto.
(g) Change of Management - A Change of Management shall occur if ▇.▇.
▇▇▇▇▇▇▇, III ceases to act as chief executive officer of SWR or Holdings,
whether in the capacity of President or Chairman.
(h) Collateral - Collateral is used herein as defined in Section 6
hereof.
(i) Commitment - As to all Banks up to $75,000,000 and as to any
Bank, its obligation to make Advances on the Revolving Commitment in
amounts not exceeding in the aggregate the amounts set forth next to their
respective names on this Agreement or any amendments hereto. As of the
Effective Date, the Commitment of each Bank to make Advances on the
Revolving Loan is as follows:
Bank One $46,875,000.00
Paribas $28,125,000.00
(j) Commitment Percentage - For each Bank the percentage derived by
dividing its commitment at the time of determination by the Commitments of
all Banks at the time of determination.
(k) Current Assets - The total of Borrower's consolidated current
assets, determined in accordance with GAAP.
(l) Current Liabilities - The total of Borrower's consolidated
current liabilities as determined in accordance with GAAP, excluding
therefrom current maturities of the Revolving Loan.
(m) Determination Date - Determination Date is used herein as defined
in Section 7 hereof.
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(n) EBITDA - Consolidated earnings for any period before provision for
interest expense, depreciation, depletion and amortization, income taxes,
gains or losses from the sale of capital assets, extraordinary income or
losses, earnings or losses attributable to Midland Red Oak Realty, Inc. and
earnings or losses attributable to Borrower's minority interests in Sierra
Well Service, Inc. for any period.
(o) Effective Date - The date of this Agreement.
(p) Environmental Laws - 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. (S)9601, et seq.,
the Resource Conservation and Recovery Act, as amended by the Hazardous
Solid Waste Amendment of 1984, 42 U.S.C.A. (S)6901, et seq., the Clean Air
Act, 42 U.S.C.A. (S)1251, et seq., the Toxic Substances Control Act, 15
U.S.C.A. (S)2601, et seq., The Oil Pollution Act of 1990, 33 ▇.▇.▇.
(▇)▇▇▇▇, 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. (S) 9601, et seq., as amended, as each
of the foregoing may be amended from time to time.
(q) Environmental Liability - 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).
(r) Environmental Lien - 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.
(s) ERISA - The Employee Retirement Income Security Act of 1974, as
amended.
(t) Eurodollar Business Day - A Business Day on which dealings in
U.S. Dollar deposits are carried on in the London interbank market.
(u) Eurodollar Interest Period - With respect to any Eurodollar Loan
(i) initially, the period commencing on the date such Eurodollar Loan is
made and ending one (1),
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two (2), three (3) or six (6) 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), three (3) or six (6) 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, only one (1) of which may be a six (6) month Tranche.
(v) Eurodollar Loan - 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.
(w) Eurodollar Margin - A percentage on any date determined by the
percentage of the Revolving Commitment outstanding on that date as follows:
% Revolving Commitment Outstanding Eurodollar Rate Margin
---------------------------------- ----------------------
0-50% 1.75
51-70% 2.00
71-80% 2.25
81-100% 2.50
(x) Eurodollar Rate - With respect to each Eurodollar Loan a rate per
annum equal to the following:
Interbank Offered Rate + Eurodollar Margin
------------------------------------
1.0 - Eurodollar Reserve Requirement
(y) Eurodollar Reserve Requirement. On any day, that percentage
(expressed as a decimal) which is in effect on such day, as provided by the
Board of Governors of the Federal Reserve System (or any successor
governmental body) applied for determining the maximum reserve requirements
for Banks (including without limitation, basic, supplemental, marginal and
emergency reserves) under Regulation D with respect to "Eurocurrency
liabilities" as currently defined in Regulation D, or under any similar or
successor regulation with respect to Eurocurrency liabilities or
Eurocurrency funding. Each determination by
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Agent of the Eurodollar Reserve Requirement shall, in the absence of
manifest error, be conclusive and binding.
(z) Eurodollar Tranche - A Eurodollar Loan.
(aa) Financial Statements - Balance sheets, income statements,
statements of cash flow, and, on an annual basis, appropriate footnotes and
schedules, prepared in accordance with GAAP.
(bb) GAAP - Generally accepted accounting principles, consistently
applied.
(cc) Guaranty Agreements - The Guaranty Agreements of even date
herewith, executed by each of the Guarantors.
(dd) Interbank Offered Rate - 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
Agent (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 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 Interbank Offered Rate by the
Agent shall, in the absence of error, be conclusive and binding.
(ee) Interest Payment Date - The earlier of (i) the last day of each
Interest Period or (ii) the first day of each calendar month.
(ff) Interest Period - Any Prime Rate Interest Period, or Eurodollar
Interest Period.
(gg) Lien - 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.
(hh) Loan Documents - This Agreement, the Note or Notes, the Security
Instruments, the Guaranties and all other documents executed in connection
with the transaction described in this Agreement.
(ii) Majority ▇▇▇▇▇ - ▇▇▇▇▇ holding 100% of the Revolving Commitment.
(jj) Material Adverse Effect - Any circumstances or events which could
(i) have a material adverse effect on the assets or properties,
liabilities, financial condition, business, operations, affairs or
circumstances of either Borrower or from the facts represented or warranted
in this Agreement or any other Security Instrument (other than any
representation
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or warranty related solely to a different point in time), or (ii)
materially impair the ability of either 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 Note or
Notes, this Agreement or the other Security Instruments on a timely basis.
(kk) Maximum Rate - At any particular time in question, the maximum
rate of interest which under applicable law may then be charged on the Note
or Notes. 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.
(ll) Minimum Interest Coverage Ratio - The ratio of EBITDA to Total
Interest Expense for the period being measured.
(mm) Monthly Commitment Reduction - Monthly Commitment Reduction is
used herein as defined in Section 2 hereof.
(nn) Note or Notes - One or more revolving notes of Borrower,
substantially in the form of Exhibit "A" hereto, issued or to be issued
hereunder to each Bank, respectively, to evidence indebtedness to such Bank
arising by reason of Advances on the Revolving Loan, together with all
renewals and extensions thereof or any part thereof.
(oo) Oil and Gas Properties - All oil, gas and mineral properties and
interests, and related personal properties, in which Borrower have granted
and hereinafter grants to Banks a first and prior lien and security
interest.
(pp) Partnerships - The limited partnerships identified on Schedule 1
formed by SWR as the managing or sole general partner to acquire producing
and non-producing oil, gas and mineral properties, as well as similar
entities formed in the future.
(qq) Permitted Liens - The term Permitted Lien shall mean (i)
royalties, overriding royalties, reversionary interests, production
payments and similar burdens on any of the Oil and Gas Properties that
existed at the time of, or were created in connection with, Borrower's
acquisition of such Oil and Gas Properties 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
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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 were in existence at the time
the Borrower's assets and properties were originally acquired by the
Borrower 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 securing the Subordinated Debt; (xi)
Liens created by or pursuant to this Agreement or the Security Instruments;
(xii) Liens existing at the date of this Agreement which have been
disclosed to Banks on Schedule "2" hereto; and (xiii) any and all renewals
and extensions of all or any of the foregoing.
(rr) Person - 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.
(ss) Plan - 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.
(tt) Prime Rate - The fluctuating rate of interest per annum
established from time to time by Agent as its Prime 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
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in the Prime Rate shall become effective without prior notice to Borrower
automatically as of the opening of business on the date of such change in
the Prime Rate.
(uu) Prime Rate Interest Period - With respect to any Prime Rate Loan,
the period ending on the last day of each month, provided, however, that
(i) if any Prime 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 Prime Rate Interest Period would otherwise end
after the Revolving Maturity Date such Interest Period shall end on the
Revolving Maturity Date.
(vv) Prime Rate Margin - A percentage on any date determined by the
percentage of the Revolving Commitment outstanding on that date as
follows:
% Revolving Commitment Outstanding Prime Rate Margin
---------------------------------- -----------------
0-50% 0.25
51-70% 0.50
71-80% 0.75
81-100% 1.00
(ww) Pro Rata or Pro Rata Part - For each Bank, means (i) for all
purposes when no Revolving Loan is outstanding, such Bank's Commitment
Percentage, and (ii) otherwise, the proportion which the portion of the
outstanding Revolving Loan owned to such Bank bears to the aggregate
outstanding Revolving Loan owed to all Banks at the time in question.
(xx) Restricted Subsidiary - Southwest Royalties Securities, Inc.
(yy) Revolving Commitment - The commitment contained in Section 2(a) of
this Agreement.
(zz) Revolving Loan - Loan or loans made under the Revolving
Commitment pursuant to Section 2(a) hereof.
(aaa) Revolving Maturity Date - February 28, 1999.
(bbb) Security Instruments - The term Security Instruments is used
collectively herein to 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 security agreements and
pledge agreements covering proceeds of partnership interest, stock,
promissory notes and similar collateral, all such documents to be in form
and substance reasonably satisfactory to Agent.
-9-
(ccc) Senior Unsecured Notes - The 10-1/2% Senior Notes due 2004 issued
by Borrower pursuant to that certain Indenture dated as of October __, 1997
by and among Borrower and State Street Bank and Trust Company, N.A., as
Trustee.
(ddd) Subsidiary or Subsidiaries - 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 either of
the Borrower.
(eee) SWR - SWR is used herein to mean Borrower.
(fff) Tangible Net Worth - An amount equal to Borrower's consolidated
stockholder's equity, as determined in accordance with GAAP, plus
Borrower's redeemable common stock and the Borrower's $1,731,940 loan to
▇.▇. ▇▇▇▇▇▇▇, III.
(ggg) Total Interest Expense - Total interest expense of Borrower on
all of its indebtedness, as determined in accordance with GAAP.
(hhh) Unscheduled Redeterminations - 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 Banks, in
the exercise of their 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, each Bank agrees severally 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) $75,000,000.00
(the "Revolving Commitment"). The obligation of each Bank to make Advances
under the Revolving Commitment shall be limited to such Bank's Commitment
Percentage of such Advance. The obligation of the Borrower hereunder shall
be evidenced by this Agreement and any Note or Notes issued in connection
herewith, said Note or Notes to be as described in Section 3 hereof.
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. Irrespective of the face amount or
amounts of any Note or Notes outstanding at any time, the Banks shall never
have the
-10-
obligation to Advance any amount or amounts in excess of the Borrowing Base
or to increase the Borrowing Base amount.
(b) Procedure for Borrowing. Whenever Borrower desires an Advance on
the Revolving Loan, they shall give Agent 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 "B" attached
hereto and shall be received by Agent not later than 11:00 a.m. Dallas,
Texas time, (i) one Business Day prior to the Borrowing Date in the case of
Prime 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) the Borrowing Date (which, if a Prime Rate Loan shall be
a Business Day, and if a Eurodollar Loan, a Eurodollar Business Day), (ii)
the principal amount to be borrowed, (iii) the portion of the borrowing
constituting Prime Rate Loans and/or Eurodollar Loans, (iv) 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 (v) the date upon which disbursement is required.
Upon receipt of such notice, Agent shall advise each Bank thereof. Not
later than 1:00 p.m., Dallas, Texas time, on the date upon which the
Advances to be made, each Bank shall provide Agent at its offices at ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, in immediately available funds, its Pro
Rata Share of the requested Advance. Not later than 2:00 p.m., Dallas,
Texas time, on the date for which the Advance was requested, Agent shall
make available to Borrower at the same office, in immediately available
funds, the aggregate amount of such requested Advance. Neither Agent or
any Bank shall incur any liability to Borrower in acting upon any notice
referred to above which Agent or such 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(b). Upon funding of Advances by Banks in accordance with
this Agreement pursuant to any such notice, Borrower shall have effected
Advances hereunder.
(c) Monthly Reduction of Revolving Commitment. The Revolving
Commitment shall be reduced as of the 1st day of each month by an amount
determined by the Banks pursuant to Section 7(b) hereof (the "Monthly
Commitment Reduction"). The Monthly Commitment Reduction shall be $-0- per
month from the Effective Date until February 1, 1998, the next scheduled
redetermination of the Borrowing Base.
(d) Voluntary Reduction of Revolving Commitment. Borrower may at any
time, or from time to time, upon not less than three (3) Business Days
prior written notice to Agent, reduce or terminate the Revolving
Commitment; provided, however, that (i) each reduction in the Revolving
Commitment must be in a minimum amount of at least $100,000 and (ii) each
reduction must be accompanied by a prepayment of the Note or Notes in the
amount by which the principal balance of the Note or Notes exceeds the
Revolving Commitment as reduced pursuant to this Section 2(d).
-11-
3. NOTES EVIDENCING LOAN. The loan described above in Section 2 shall be
evidenced by promissory notes of Borrower as follows:
(a) Form of Notes - The Revolving Loan shall be evidenced by a Note
or Notes in an aggregate amount of $75,000,000.00, and shall be in the form
of Exhibit "A" hereto with appropriate insertion. Notwithstanding the
principal amount of the Note or Notes, as stated on the face thereof, the
actual principal amount due from Borrower to Bank on account of the Note or
Notes, as of any date of computation, shall be the sum of Advances then and
theretofore made on account thereof, less all principal payments actually
received by Bank in collected funds with respect thereto. Although the
Note or Notes 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
Note or Notes may be higher, the Note or Notes 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 loans.
(b) Interest Rate on the Note or Notes - The unpaid principal balance
of the Note or Notes shall bear interest from time to time as set forth in
Section 4(a) hereof.
(c) Payment of Interest - Interest on the Note or Notes shall be
payable on the last day of each Interest Period.
(d) Payment of Principal - Principal of the Note or Notes 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.
(e) 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.
(f) Issuance of Additional Notes. At the Effective Date there shall
be outstanding two notes in the aggregate face amount of $75,000,000 issued
under the Revolving Commitment, one in the face amount of $46,875,000,000
payable to the order of Bank One, and one in the face amount of $28,125,000
payable to the order of Paribas. From time to time during the period from
the Effective Date to the Revolving Maturity Date, additional Notes may be
issued to the Bank or to other Banks as such Banks become parties to this
Agreement. The face amount of each such new Note shall be in an amount
equal to the maximum Commitment of such Bank under the Revolving
Commitment. The aggregate face amount of all such Notes issued and
outstanding as of any date shall never exceed $75,000,000. Provided,
however, that the Banks shall never have the obligation to lend any
-12-
amount in excess of the face amount of their respective commitments as the
same are described above. Upon request from Agent, Borrower shall execute
and deliver to Agent any such new or additional Notes. From time to time as
new Notes are issued the Agent shall require that each Bank exchange their
Notes for newly issued Notes to better reflect the extent of each Bank's
Commitment hereunder.
(g) Payments by Agent to Banks - Each Bank's Pro Rata Part of payment
or prepayment of the Revolving Loan made to Agent by Borrower shall be
directed by wire transfer by Agent to such Bank at the address set forth
for such Bank on Schedule 3 hereto for payments no later than 2:00 p.m.
Dallas time on the Business Day such payments or prepayments are deemed
hereunder to have been received by Agent. Any payment or prepayment
received by Agent at any time after 12:00 noon Dallas time on a Business
Day shall be deemed to have been received on the next Business Day.
Interest shall cease to accrue on any principal as of the end of the day
preceding the Business Day on which any such payment or prepayment is
deemed hereunder to have been received by Agent. If Agent fails to
transfer any principal amount to any Bank as provided above, then Agent
shall promptly direct such principal amount by wire transfer to such Bank.
(h) Sharing of Payments, Etc. - If any Bank shall obtain any payment
(whether voluntary, involuntary, or otherwise) on account of the Revolving
Loan which is in excess of its ratable share of payments on the Revolving
Loan obtained by all Banks, such Bank shall purchase from the other Banks
such participation as shall be necessary to cause such purchasing Bank to
share the excess payment ratably with each of them, provided that, if all
or any portion of such excess payment is thereafter recovered from such
purchasing Bank, the purchase shall be rescinded and the purchase price
restored to the extent of the recovery. The Borrower agrees that any Bank
so purchasing a participation from another Bank pursuant to this section
may to the fullest extent permitted by Law, exercise all of its rights of
payment (including the right of offset) with respect to such participation
as fully as if such Bank were the direct creditor of the Borrower in the
amount of such participation.
(i) Capital Adequacy - If either (i) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any law, rule or regulation, or (ii) the introduction or
implementation of or the compliance with any mandatory request, directive
or guideline from any central bank or other governmental authority (whether
or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by any Bank or any
corporation controlling any Bank, then upon demand by such Bank, Borrower
will pay to such Bank, from time to time as specified by such Bank, such
additional amount or amounts which such Bank shall reasonably determine to
be appropriate to compensate such Bank or any corporation controlling such
Bank in light of such circumstances, to the extent that such Bank
reasonably determines that the amount of any such capital would be
increased or the rate of return on any such capital would be reduced by or
in whole or in part based on the existence of the amount of the Revolving
Loan or such Bank's Commitment under this Agreement.
-13-
4. INTEREST RATES.
(a) Options.
(i) Prime Rate Loans. Borrower agrees to pay interest on the Note or
Notes 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 Prime 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 Prime Rate plus the applicable
Prime Rate Margin. Subject to the provisions of this Agreement as to
prepayment, the principal of the Note or Notes representing Prime Rate
Loans shall be payable as specified in Section 3(d) hereof and the interest
in respect of each Prime 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 Prime 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 applicable Eurodollar
Margin. Subject to the provisions of this Agreement with respect to
prepayment, the principal of the Note or Notes shall be payable as
specified in Section 3(d) 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 Banks of any Eurodollar Loan (in the case of the initial Interest
Period therefor) on the expiration date of each succeeding Interest Period
(in the case of subsequent Interest Period therefor), 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 30, 60, 90 or 180 day
period. If Agent 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 Prime Rate Loans.
Borrower shall not be permitted to have outstanding at any time more than
three (3) Eurodollar Tranches, only one (1) of which may be a 180 day
Tranche.
-14-
(b) Interest Rate Determination. The Agent shall determine each
interest rate applicable to the Note or Notes hereunder. The Agent 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 Prime Rate Loans by
giving Agent 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 Prime Rate Loans to Eurodollar Loans by giving the Agent 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 Note or Notes.
(d) Recoupment. If at any time the applicable rate of interest
selected pursuant to Sections 4(a)(i) or 4(a)(ii) 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 or Notes below the Maximum Rate until the total amount of interest
accrued on the Note or Notes equals the amount of interest which would have
accrued on the Note or Notes if the rate or rates selected pursuant to
Sections 4(a)(i) or 4(a)(ii), 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, Agent (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 the Banks in the London interbank market; or (ii) in good faith
determines that the Eurodollar Interest Rate will not adequately reflect
the cost to the Banks of maintaining or funding the Eurodollar Loans for
such Interest Period, the obligations of the Banks 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 the Agent shall make
such determination it shall promptly notify Borrower in writing and
Borrower 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 Prime Rate Loans in the case of
Eurodollar Loans on the last day of the then current Interest Period for
such Eurodollar Loan.
-15-
(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 Banks 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 of deposits with or for the account of,
or credit extended by, the Banks or shall impose on the Banks 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 Banks in making or maintaining its Eurodollar
Loans or to reduce any amount (or the effective return on any amount)
received by the Banks hereunder, then Borrower shall either (i) pay to the
Banks upon demand of the Banks as additional interest on the Note or Notes
evidencing the Eurodollar Loans such additional amount or amounts as will
reimburse the Banks for such additional cost or such reduction or (ii)
convert such Eurodollar Loans to Prime Rate Loans. The Agent 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
Agent setting forth the basis for the determination of such amount
necessary to compensate the Banks 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 Note or Notes
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 Note or Notes evidencing the Eurodollar Loan or on any
payment on the Note or Notes evidencing the Eurodollar Loans made to the
Banks, then, and in any such event, Borrower shall pay to the Banks upon
demand of the Banks such additional amounts as may be necessary so that
every net payment of principal and interest on the Note or Notes 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 Banks of principal of or
interest on the Note or Notes 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 the Banks) then
Borrower will pay upon demand by Banks the amount of loss to the extent
that such loss is caused by such a change. The Agent shall give notice to
Borrower upon becoming aware of the amount of any loss incurred by the
Banks through enactment or promulgation of any such law which materially
changes the basis of taxation of payments to the Banks. The Agent 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 any Bank setting forth the basis for the
determination of such loss and the computation of
-16-
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 Banks to maintain or fund its Eurodollar Loan
hereunder, then the Banks shall promptly notify Borrower in writing and
Borrower shall either (i) repay the outstanding Eurodollar Loan owed to the
Banks, without penalty, on the last day of the current Interest Periods
(or, if the Banks 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 Prime Rate loans.
(e) Option to Fund. The Banks 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 Note or Notes 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 Note or Notes. Each Bank shall be
entitled to fund and maintain its funding of all or any part of that
portion of the principal balance of the Note or Notes in any manner it sees
fit, but all such determinations hereunder shall be made as if the Banks
have actually funded and maintained that portion of the principal balance
of the Note or Notes 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 Note or Notes to which such
Eurodollar Loan is applicable and having a maturity corresponding to such
Interest Period. Each Bank may fund the outstanding principal balance of
the Note or Notes which is to be subject to any Eurodollar Loan from any
branch or office of such Bank as such Bank may designate from time to time.
(f) Indemnity. Borrower shall indemnify and hold harmless the Banks
against all reasonable and necessary out-of-pocket costs and expenses which
the Banks may sustain (i) if (other than as a result of a default by the
Banks 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
Banks 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 Banks on demand for any loss, cost
or expense incurred by the Banks 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 Banks in respect of such principal amount so paid, for the
remainder of the
-17-
Interest Period applicable to such sum, reduced, if the Banks are able to
redeposit such principal amount so paid for the balance of the Interest
Period, by the interest earned by Banks as a result of so redepositing such
principal amount, plus (ii) any expense or penalty incurred by the Banks in
redepositing such principal amount. A certificate of any 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 or Notes 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 has
heretofore granted and assigned to the Agent for the benefit of the Banks a
first and prior security interest and Lien on certain of its Oil and Gas
Properties, certain related equipment, oil and gas inventory and proceeds of the
foregoing, proceeds of partnership interests, stock of Subsidiaries, promissory
notes of Subsidiaries and similar collateral. Contemporaneously with the
execution and delivery of this Agreement and the Notes (i) Borrower shall grant
and assign to Agent for the benefit of the Banks a first and prior security
interest and Lien on certain additional Oil and Gas Properties, related
equipment, oil and gas inventory and the proceeds thereof including those oil
and gas properties being acquired by Borrower from Conoco, Inc. and (ii) Espero
shall grant and assign to Agent for the benefit of the Banks a first and prior
security interest and Lien on certain of their Oil and Gas Properties, related
equipment, oil and gas inventory and the proceeds thereof. All Oil and Gas
Properties and other collateral in which Borrower and Espero have herewith
granted or hereafter grants to the Banks a first and prior Lien (to the
satisfaction of the Banks) in accordance with this Section 6, 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 and Espero shall be pursuant to Security Instruments in form and
substance reasonably satisfactory to the Agent. Concurrently with the delivery
of each of the Security Instruments, Borrower and Espero shall furnish to the
Agent mortgage and title opinions and other documents reasonably satisfactory to
Agent with respect to the title and Lien status of Borrower's and Espero's
interests in such of the Oil and Gas Properties covered by the Security
Instruments as Agent shall have designated. Borrower and Espero will cause to
be executed and delivered to the Agent, in the future, additional Security
Instruments if the Agent reasonably deems such are necessary to insure
perfection or maintenance of Banks' security interests and Liens in the Oil and
Gas Properties or any part thereof.
The obligations of Borrower hereunder, and under the Note or Notes and
Security Instruments, shall be additionally secured by the Guaranty Agreements,
executed by each of the Guarantors, the form of which Guaranty Agreement is
attached hereto as Exhibit "C".
-18-
7. BORROWING BASE.
(a) Initial Borrowing Base. During the period from the date hereof
to the next Determination Date (as hereinafter defined), the total
Borrowing Base shall be $40,000,000.00; subject to the limitations on use
set forth in Section 7(c) hereof.
(b) Subsequent Determinations of Borrowing Base. Subsequent
determinations of the Borrowing Base shall be made by the Banks at least
semi-annually on April 1 and October 1 of each year, beginning April 1,
1998, or as Unscheduled Redeterminations. In connection with each such
redetermination of the Borrowing Base, the Banks shall also redetermine the
Monthly Commitment Reduction. Borrower shall furnish to the Banks as soon
as possible but in any event no later than March 1 or September 1 of each
year, beginning March 1, 1998 or September 1, 1998, as the case may be,
with an engineering report in form and substance satisfactory to Agent
prepared by an independent petroleum engineer acceptable to Agent covering
the Oil and Gas Properties utilizing pricing parameters used by Agent as
established from time to time, together with such other information
concerning the value of the Collateral as the Banks may deem necessary to
determine the value of such Collateral. By March 1 and by September 1
(being the date other than the date on which Borrower shall have provided
the engineering report prepared by the independent petroleum engineer) of
each year thereafter, beginning March 1, 1998 or September 1, 1998, as the
case may be, or within thirty (30) days after either (i) receipt of notice
from Agent that it requires an Unscheduled Redetermination, or (ii)
Borrower give notice to Agent of their desire to have an Unscheduled
Redetermination performed, Borrower shall furnish to the Banks an
engineering report in form and substance satisfactory to the Banks 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 Banks shall deem reasonably necessary to
determine the value of such Collateral. The engineering reports furnished
March 1 and September 1 pursuant to this Section 7 shall be prepared as of
the preceding December 31 and June 30, respectively. Agent shall notify
Borrower of the new Borrowing Base, Sublimits (as hereinafter defined) and
Monthly Commitment Reduction 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 Banks, the Agent shall notify Borrower
within a reasonable time after receipt of all requested information of the
new Borrowing Base, if any, and such new Borrowing Base 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 Banks may nonetheless
designate the Borrowing Base, Sublimits and Monthly Commitment Reduction at
any amounts which the Banks determine in their discretion and may
redesignate the Borrowing Base from time to time thereafter until the Banks
receive all such information, reports and data, whereupon the Banks shall
designate a new Borrowing Base, Sublimits and Monthly Commitment Reduction
as
-19-
described above. The Banks 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 each 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 each
Bank customarily considers in evaluating similar oil and gas credits. If
the Banks cannot otherwise agree on the Borrowing Base, Sublimits or
Monthly Commitment Reduction, each Bank shall submit in writing to the
Agent its proposed Borrowing Base and Monthly Commitment Reduction and the
Borrowing Base and Monthly Commitment Reduction shall be set on the basis
of the lowest Borrowing Base and Sublimits, and highest Monthly Commitment
Reduction proposed by any Bank. 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 assigned to such collateral by the
Banks as of the most recent Borrowing Base redetermination. It is expressly
understood that each Bank has no obligation to designate the Borrowing
Base, Sublimits or the Monthly Commitment Reduction at any particular
amount, except in the exercise of its discretion, whether in relation to
the Revolving Commitment or otherwise, and that the Banks' commitment to
advance funds hereunder is determined by reference to the Borrowing Base
from time to time in effect. Provided, however, that the Banks shall never
have the obligation to designate a Borrowing Base in excess of its legal or
internal lending limits. If Borrower is ever required to purchase and
redeem any of the Senior Unsecured Notes or if any portion of the Senior
Unsecured Notes become due for any reason, the Borrowing Base shall
immediately and automatically be reduced to $0.
(c) Sublimits. The Borrowing Base shall be divided as of each
Determination Date into two categories: (i) Sublimit A to be used by
Borrower for general corporate purposes and/or drilling expenditures, and
(ii) Sublimit B to be used by Borrower for the acquisition of producing oil
and gas properties (Sublimit A and Sublimit B are hereinafter referred to
as the "Sublimits"). At each Determination Date the Banks shall notify
Borrower of the amount of the Borrowing Base allocation to each Sublimit
and such Sublimits shall continue in effect until the next Determination
Date. Until redetermined the Sublimits shall be as follows:
Sublimit A - $25,000,000
Sublimit B - $15,000,000
8. FEES.
(a) Unused Portion Fee. For and in consideration of the Revolving
Commitment, Borrower shall pay to Agent for the ratable benefit of the
Banks 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
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Base. The Unused Portion Fee shall be payable in arrears on the first
Business Day of each calendar quarter beginning June 1, 1995, 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 Agent for the
ratable benefit of the Banks, on the date of such termination, the total
Unused Portion Fee due for the period in which such termination occurs.
(b) Borrowing Base Increase Fees. Borrower agrees to pay to the
Agent for the ratable benefit of the Banks, from time to time, a Borrowing
Base increase fee equal to one-half of one percent (0.50%) of the amount of
any increase in the Borrowing Base. The Borrowing Base increase fee shall
be payable immediately upon notice to Borrower of any such increase.
(c) Agency Fee. Borrower agrees to pay to the Agent an Agency Fee
for its services as Agent hereunder in an amount to be negotiated between
Borrower and Agent.
9. PREPAYMENTS.
(a) Voluntary Prepayments of Note or Notes. The Borrower may at any
time and from time to time, without penalty or premium, prepay the Note or
Notes, in whole or in part. Each such prepayment shall be made on at least
one (1) Business Day's notice to Agent and shall be in a minimum amount of
$100,000 or the unpaid balance on the Note or Notes, 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 Note or Notes. In the event the
aggregate principal amount outstanding on the Note or Notes ever exceeds
the Borrowing Base as determined by Agent pursuant to Section 6(b) hereof,
Borrower shall, within thirty (30) days after notification from the Agent,
either (A) by instruments reasonably satisfactory in form and substance to
the Agent, provide the Banks with additional collateral with value and
quality in amounts satisfactory to the Banks in their sole discretion in
order to increase the Borrowing Base by an amount at least equal to such
excess, (B) prepay, without premium or penalty, the principal amount of the
Note or Notes in an amount at least equal to such excess plus interest
thereon to the date of such prepayment or (C) by notice to Agent, pay (in
addition to the Monthly Commitment Reduction then in effect) the deficiency
in six (6) equal monthly installments equal to one-sixth (1/6) of the
amount of the deficiency, with the first such payment thereof to be payable
on the date on which Borrower notify Agent of its election to amortize the
deficiency over a six (6) month period, and continuing on the same day of
each month thereafter until the deficiency is paid in full.
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10. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks to enter
into this Agreement, Borrower hereby represent and warrant to the Banks (which
representations and warranties will survive the delivery of the Note or Notes)
that:
(a) Corporate Existence. Each Borrower, each Guarantor and the
Restricted Subsidiary is 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. Each Borrower is duly
authorized and empowered to create and issue the Note or Notes; and each
Borrower is duly authorized and empowered to execute, deliver and perform
the Security Instruments, including this Agreement; and each Guarantor is
duly authorized and empowered to execute, deliver and perform this
Agreement and its Guaranty; and all corporate and other action on
Borrower's part requisite for the due creation and issuance of the Note or
Notes and on the Borrower's and Guarantors' part requisite for the due
execution, delivery and performance of the Security Instruments, including
this Agreement, and the Guaranties, respectively, has been duly and
effectively taken.
(c) Binding Obligations. This Agreement does, and the Note or Notes,
Guaranties and other Security Instruments upon their creation, issuance,
execution and delivery will, constitute valid and binding obligations of
Borrower and Guarantors, respectively, 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).
(d) No Legal Bar or Resultant Lien. The Note or Notes, the Security
Instruments, including this Agreement, and the Guaranties do not and will
not, to the best of Borrower's or Guarantors' knowledge, violate any
provisions of any contract, agreement, law, regulation, order, injunction,
judgment, decree or writ to which either Borrower, any Guarantor or any
Restricted Subsidiary is subject, or result in the creation or imposition
of any lien or other encumbrance upon any assets or properties of Borrower
or Guarantors, other than those contemplated by this Agreement.
(e) No Consent. The execution, delivery and performance by Borrower
and Guarantors of the Note or Notes and the Security Instruments, including
this Agreement and the Guaranties, as the case may be, 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
-22-
which consents have been obtained by Borrower) and other than those the
failure to obtain could cause a Material Adverse Effect.
(f) Financial Condition. The Financial Statements of Borrower dated
June 30, 1997, which have been delivered to Agent 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 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 which could have a Material Adverse Effect, except as disclosed to
the Banks in Schedule "4" attached hereto.
(g) Liabilities. Neither Borrower nor Guarantors have any material
(individually or in the aggregate) liability, direct or contingent, except
as disclosed to the Banks in the Financial Statements and on Schedule "5"
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 or Guarantors
which could have a Material Adverse Effect.
(h) Litigation. Except as described in the Financial Statements, or
as otherwise disclosed to the Banks in Schedule "6" 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, threatened against or affecting Borrower, Guarantors, the
Partnerships or the Restricted Subsidiary which involves the possibility of
any judgment or liability not fully covered by insurance, and which could
have a Material Adverse Effect.
(i) Taxes; Governmental Charges. Borrower, Guarantors and the
Restricted Subsidiary have 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.
(j) Titles, Etc. Borrower and Guarantors have good and defensible
title to all of their assets, including without limitation, the Oil and Gas
Properties, free and clear of all liens or other encumbrances except
Permitted Liens.
(k) Defaults. Neither the Borrower, the Guarantors nor the
Restricted Subsidiary are 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
-23-
instrument to which either Borrower, any Guarantor or any Restricted
Subsidiary is a party in any respect that could have a Material Adverse
Effect. No Event of Default hereunder has occurred and is continuing.
(l) Casualties; Taking of Properties. Since the dates of the latest
Financial Statements of Borrower delivered to Banks, neither the business
nor the assets or properties of Borrower or Guarantors 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.
(m) Use of Proceeds; Margin Stock. The proceeds of the loans
hereunder will be used by Borrower for the purposes of refinancing of
existing debt, working capital and general corporate purposes. Neither
Borrower is 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 of the Borrower nor any person or entity acting on behalf of
Borrower 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.
(n) Location of Business and Offices. The principal place of
business of Borrower is located at ▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇.
(o) Compliance with the Law. To the best of Borrower's knowledge,
neither Borrower nor Guarantors:
(i) are in violation of any law, judgment, decree, order,
ordinance, or governmental rule or regulation to which Borrower, or any
of their assets or properties are subject; and
(ii) have 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;
-24-
which violation or failure is reasonably expected to have a Material
Adverse Effect.
(p) No Material Misstatements. To the best of the knowledge of the
Borrower and the Guarantors, there are no significant material facts or
conditions relating to the Loan Documents, any of the Collateral, or the
financial condition, assets, or business prospects of the Borrower,
Guarantors, any Subsidiary or any Partnership that could, collectively or
individually, have a Material Adverse Effect and that have not been
related, in writing, to the Banks as an attachment to this Agreement.
(q) Not A Utility. Neither Borrower 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.
(r) ERISA. Borrower and Guarantors are 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 either Borrower is reasonably likely to cause a
Material Adverse Effect.
(s) Public Utility Holding Company Act. Neither Borrower 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.
(t) Subsidiaries. SWR's only Subsidiaries are Southwest Royalties
Securities, Inc., Threading Products International, LLC, Midland Red Oak
Realty, Inc., Midland Southwest Software, Inc. and Espero Energy
Corporation.
(u) Environmental Matters. Except as disclosed on Schedule "7",
neither of the Borrower, any Guarantor, any Partnership, nor the Restricted
Subsidiary has received notice or otherwise learned of (i) 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 no 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) any federal or state investigation evaluating
whether any remedial action is needed to respond to a release or threatened
release of any toxic or
-25-
hazardous waste into the environment for which either Borrower, any
Guarantor, any Partnership or any Restricted Subsidiary is or may be liable
which could result in a Material Adverse Effect.
(v) Ownership of Borrower. The equity securities of the Borrower are
owned by the individuals and entities listed on Schedule "8".
(w) Liens. Except for Permitted Liens, the assets and properties of
Borrower are free and clear of all liens and encumbrances.
11. CONDITIONS OF LENDING.
(a) The obligation of the Banks to make the initial Advance under the
Revolving Commitment shall be subject to the following conditions
precedent:
(i) Execution and Delivery. Borrower shall have executed and
delivered to the Agent the Note or Notes, the Security Instruments and
other required documents, all in form and substance satisfactory to the
Agent;
(ii) Guaranty Agreements. Agent shall have received the Guaranty
Agreements duly executed by the Guarantors;
(iii) Legal Opinion. The Agent shall have received from
Borrower'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) and (h) hereof, and (ii) as to such other
matters as Bank or its counsel may reasonably request;
(iv) Corporate Resolutions. The Agent shall have received
appropriate certified corporate resolutions of Borrower and Guarantors;
(v) Good Standing and Existence. The Agent shall have received
evidence of existence and good standing for the Borrower and Guarantors;
(vi) Incumbency. The Agent shall have received a signed
certificate of the officers of Borrower and Guarantors, certifying the
names of each of the officers of Borrower and Guarantors authorized to
sign loan documents on behalf of the Borrower and Guarantors, together
with the true signatures of each such officer. The Banks may
conclusively rely on such certificate until the Agent receives a further
certificate of the authorized officers of Borrower canceling or amending
the prior certificate and submitting signatures of the officers named in
such further certificate;
-26-
(vii) Articles of Incorporation and Bylaws. The Agent shall have
received copies of the Articles of Incorporation of Borrower and
Guarantors and all amendments thereto, certified by the Secretary of
State of the state of the Borrower's and Guarantors' incorporation and a
copy of the bylaws of the Borrower and Guarantors and all amendments
thereto, certified by one or more officers of Borrower and Guarantors as
being true, correct and complete;
(viii) Engineering Review. The Banks shall have completed their
engineering evaluation of the oil and gas properties being acquired by
Borrower from Conoco, Inc.; and
(ix) Mortgaging. The Agent shall have received Security
Instruments in form and substance satisfactory to it covering certain of
Espero's Oil and Gas Properties, as well as certain of the oil and gas
properties being acquired from Conoco, Inc.; and
(x) Title. The Agent shall have received satisfactory evidence of
the state of the title to the newly mortgaged Oil and Gas Properties
referred to above in Section 11(a)(ix); and
(xi) Senior Unsecured Notes. The Agent shall have received
satisfactory evidence that the Senior Unsecured Note transaction shall
have closed, and that the interest rate on the Senior Unsecured Notes is
no greater than twelve percent (12%); and
(xii) Other Documents. The Agent shall have received such other
instruments and documents incidental and appropriate to the transaction
provided for herein as the Agent or its counsel may reasonably request,
and all such documents shall be in form and substance reasonably
satisfactory to the Agent; and
(xiii) Legal Matters Satisfactory. All legal matters incident to
the consummation of the transactions contemplated hereby shall be
reasonably satisfactory to special counsel for the Agent retained at the
expense of Borrower.
(b) The obligation of the Banks to make any Advance (including the
initial Advance) on the Revolving Commitment shall be subject to the
following additional conditions precedent that, at the date of making each
such Advance and after giving effect thereto:
-27-
(i) Representation and Warranties. With respect to any Advance, the
representations and warranties of Borrower 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 Agent shall have received such other
instruments and documents incidental and appropriate to the transaction
provided for herein as the Agent or its counsel may reasonably request, and
all such documents shall be in form and substance reasonably satisfactory
to the Agent; 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 Agent 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 Banks. Without the prior written
consent of the Banks, Borrower 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 is in existence.
(a) Financial Statements and Reports. Borrower shall promptly
furnish to the Banks from time to time upon request such information
regarding the business and affairs and financial condition of the Borrower,
as the Banks may reasonably request, and will furnish to the Banks:
(i) Annual Audited Financial Statements - as soon as available,
and in any event within one hundred twenty (120) days after the close of
each fiscal year, the annual audited Financial Statements (consolidated and
consolidating) of the Borrower, prepared by an independent accounting firm
reasonably acceptable to the Agent;
(ii) Quarterly Financial Statements - as soon as available, and
in any event within sixty (60) days after the end of each calendar quarter
of each year (except the last calendar quarter in any fiscal year), the
quarterly
-28-
unaudited Financial Statements (consolidated and consolidating) of the
Borrower;
(iii) Report on Properties - as soon as available and in any
event on or before March 1, and September 1 of each calendar year, and at
such other times as any Bank, in accordance will Section 7 hereof, may
request, the engineering reports required to be furnished to the Banks
under such Section 6 on the Oil and Gas Properties; and
(iv) Additional Information - promptly upon request of the Agent
from time to time any additional financial information or other information
that any 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 Agent
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 will furnish or cause to be furnished
to the Agent a certificate in the form of Exhibit "D" attached hereto,
signed by the President, Chief Executive Officer or chief financial officer
of the Borrower (i) stating that the Borrower have fulfilled in all
material respects its obligations under the Note or Notes 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
Agent, specifically affirming compliance of the Borrower in all material
respects with any of its 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 Agent 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 will furnish a statement from the firm of independent public
accountants which prepared such statements to the effect that nothing has
come to their attention to cause them to believe that there existed on the
date of such statements any Event of Default.
(d) Taxes and Other Liens. The Borrower and the Guarantors will (and
SWR and MSC will cause each Partnership and each Restricted Subsidiary to)
pay and discharge
-29-
promptly all taxes, assessments and governmental charges or levies imposed
upon Borrower or upon the income or any assets or property of the Borrower
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 and which
could reasonably be expected to result in a Material Adverse Effect;
provided, however, that Borrower, the Guarantors and the Partnerships 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,
the Guarantors or the Partnerships, or any of them, as the case may be,
shall have set up adequate reserves therefor, if required, under GAAP.
(e) Compliance with Laws. The Borrower and the Guarantors will (and
SWR and MSC will cause each Partnership and each Restricted Subsidiary to)
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 and Guarantors will cure promptly
any defects in the creation and issuance of the Note or Notes and the
execution and delivery of the Note or Notes and the Security Instrument,
including this Agreement. Borrower and Guarantors at their sole expense
will promptly execute and deliver to Agent 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
and the Guaranties, or to correct any omissions in the Note or Notes or
more fully to state the obligations set out herein.
(g) Performance of Obligations. Borrower will pay the Note or Notes
and other obligations incurred by it hereunder according to the reading,
tenor and effect thereof and hereof; and Borrower and Guarantors will do
and perform every act and discharge all of the obligations provided to be
performed and discharged by Borrower or the Guarantors under the Security
Instruments, including this Agreement, at the time or times and in the
manner specified.
(h) Insurance. Borrower and Guarantors 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 Agent, Borrower and Guarantors
will furnish or cause to be furnished to the Agent from time to time a
summary of the respective insurance coverage of Borrower and Guarantors in
form and substance satisfactory to the Agent, and,
-30-
if requested, will furnish the Agent copies of the applicable policies.
Upon demand by Agent 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 Agent, (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 Agent may
reasonably require. Borrower and Guarantors shall at all times maintain
adequate insurance with respect to the Collateral 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 Guarantors shall at all
times maintain cost of control of well insurance with respect to the
Collateral which shall insure Borrower and Guarantors against seepage and
pollution expense if deemed economical in the reasonable discretion of
Borrower and Guarantors; redrilling expense; and cost of control of well;
fires, blowouts, etc. Additionally, Borrower and Guarantors shall at all
times maintain adequate insurance with respect to all of their other assets
and ▇▇▇▇▇ in accordance with prudent business practices.
(i) Accounts and Records. Borrower and Guarantors will (and Borrower
will cause the Restricted Subsidiary to) 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 auditors.
(j) Right of Inspection. Borrower and Guarantors will permit any
officer, employee or agent of the Banks to examine Borrower's and
Guarantors' books, records and accounts, and take copies and extracts
therefrom, all at such reasonable times and as often as the Banks may
reasonably request. The Banks 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 Banks'
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
Banks' rights and remedies and this Agreement, the Guaranties, the Note or
Notes and the Security Instruments.
(k) Notice of Certain Events. The Borrower and the Guarantors shall
promptly notify the Agent if Borrower or Guarantors learn of the occurrence
of (i) any event which constitutes an Event of Default (including but not
limited to, a Change of Control) together
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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, the Guarantors or any of the Partnerships 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, the Guarantors or any of the Partnerships 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 event or
circumstance which requires the prepayment, purchase or redemption of any
of the Senior Unsecured Notes, or (v) any other matter which in Banks'
opinion could have a Material Adverse Effect.
(l) ERISA Information and Compliance. The Borrower and the
Guarantors will promptly furnish to the Agent 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 the Guarantors be, specifying the nature thereof, what
action Borrower or the Guarantors are 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. The Borrower will deliver to
the Agent (i) promptly upon its becoming available, one copy of each report
sent by the Borrower, the Guarantors and each Partnership to any court,
governmental agency or instrumentality pursuant to any Environmental Law,
(ii) notice, in writing, promptly upon Borrower', Guarantors' or any
Partnership'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, the Guarantors or any of the Partnerships 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, the Guarantors or any of the Partnerships and Borrower, the
Guarantors or any Partnerships, as the case may be, shall immediately
deliver a copy of any such notice to Agent.
(n) Maintenance. The Borrower and the Guarantors will (and SWR and
MSC will cause each Partnership and the Restricted Subsidiary to) (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
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conducted properly and efficiently at all times in the opinion of the
Borrower, Guarantors or each Partnership 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, Guarantors or any
Partnerships 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 Agent upon request
evidence satisfactory to Agent that there are no Liens, claims or
encumbrances superior to the Lien of Banks 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 Guarantors will (and SWR will cause each
Partnership to) 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, Guarantors and
each Partnership 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
Guarantors will (and SWR will cause each Partnership to) pay or cause to be
paid and discharge all rentals, delay rentals, royalties, production
payments and indebtedness required to be paid by the Borrower, Guarantors
or any Partnership (or required to keep unimpaired in all material respects
the rights of Borrower, the Guarantors and such Partnership 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, Guarantors or any Partnership by each and all of the assignments,
deeds, leases, subleases, contracts, and agreements in any way relating to
the Borrower, Guarantors or any Partnership or any of the Oil and Gas
Properties and do all other things necessary of the Borrower, Guarantors or
any Partnership to keep unimpaired in all material respects the rights of
the Borrower, Guarantors and each Partnership thereunder and to prevent the
forfeiture thereof or default thereunder; provided, however, that nothing
in this Agreement shall be deemed to require the Borrower, Guarantors and
each Partnership 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
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the Borrower, Guarantors or any Partnership 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, Guarantors or any Partnership exercised
in good faith, it is not in the best interest of the Borrower, Guarantors
or any Partnership 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, Borrower, Guarantors and the
Partnerships 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, Guarantors and the Partnerships; however,
Borrower, Guarantors and each Partnership 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 sixty (60) days after the Effective Date
with respect to the matters listed on Schedule 9, Borrower will provide
title opinions and/or acceptable title information to Agent. As to any Oil
and Gas Properties hereafter mortgaged to the Banks, Borrower will promptly
(but in no event more than sixty (60) days following such mortgaging),
furnish Agent with title opinions and/or title information reasonably
satisfactory to Agent 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 "10" and, thereafter, within
ninety (90) days after receipt by Borrower from Agent or its counsel of
written notice of title defects the Agent reasonably requires to be cured,
Borrower shall either (i) provide such curative information, in form and
substance satisfactory to Agent, or (ii) substitute Oil and Gas Properties
of value and quality satisfactory to the Banks 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 Agent covering the Oil and Gas
Properties so substituted.
(t) Change of Principal Place of Business. Borrower and Guarantors
shall give Agent 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 12(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 Banks. Without the prior written
consent of the Banks, Borrower 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 is in existence.
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(a) Liens. Neither Borrower nor Guarantors will, nor will Borrower
permit the Restricted Subsidiary to, (and SWR will use its best efforts to
not allow any Partnership, unless in SWR's good faith judgment the use of
its best efforts would breach a duty owed by SWR to any Partnership under
applicable laws, regulations or agreements, to) 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
Guarantors will consolidate or merge with or into any other Person, except
that the Borrower and Guarantors may merge with another Person if the
Borrower party or Guarantor party to the merger is the corporation
surviving such merger and if, after giving effect thereto, no Event of
Default shall have occurred and be continuing .
(c) Current Ratio. Borrower will not allow their ratio of
consolidated Current Assets to consolidated Current Liabilities to ever be
less than 1.0 to 1.0.
(d) Minimum Interest Coverage Ratio. Borrower will not allow its
Minimum Interest Coverage ratio to be less than (i) 1.40 to 1.0 during the
period beginning January 1, 1998 and continuing through December 31, 1998,
and (ii) 1.75 to 1.0 thereafter; said ratio to be tested as of the end of
each calendar quarter beginning with the calendar quarter ending March 31,
1998.
(e) Tangible Net Worth. Borrower will not allow their consolidated
Tangible Net Worth to ever be less than an amount equal to $2,000,000.00
(adjusted for any future offering of Borrower's common or preferred stock)
from the date hereof through the Revolving Maturity Date.
(f) Debts, Guaranties and Other Obligations. Neither Borrower nor
any of the Guarantors will nor will Borrower permit any Restricted
Subsidiary to (and SWR will use its best efforts to not allow any
Partnership, unless in SWR's good faith judgment the use of its best
efforts would breach a duty owed by SWR to any Partnership under applicable
laws, regulations or agreements, to) incur, create, assume or in any manner
become or be liable in respect of any indebtedness, liabilities or other
obligations, nor will the Borrower, Guarantors or any Partnership 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:
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(i) the Note or Notes, or other indebtedness heretofore
disclosed to Agent in Borrower's or Guarantors' Financial Statements or
on Schedule "11" hereto;
(ii) obligations incurred in connection with the issuance of
preferred stock to which Banks consent in writing prior to such
issuance;
(iii) 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;
(iv) indebtedness incurred in the ordinary course of business as
conducted on the Effective Date;
(v) the Senior Unsecured Notes; or
(vi) renewals and extensions of any or all of the foregoing.
(g) Dividends. SWR will not 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 of its assets to its stockholders as such; provided, however,
that in event Borrower successfully concludes an issue of its preferred
stock to which Banks have previously consented in writing, then the
foregoing restriction shall not apply to cash dividends paid on such
preferred stock 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.
(h) Loans and Advances. Neither Borrower, any Guarantor nor any
Restricted Subsidiary shall (and SWR will use its best efforts to not allow
any Partnership, unless in SWR's good faith judgment the use of its best
efforts would breach a duty owed by SWR to any Partnership under applicable
laws, regulations or agreements, to) 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 heretofore
furnished to the Banks or have otherwise heretofore been disclosed to
the Banks on Schedule "12" hereto;
(ii) so long as no Event of Default exists and is continuing,
loans and advances to and among Guarantors;
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(iii) loans and advances not exceeding in the aggregate
outstanding at any time the sum of $2,500,000;
(iv) the $1,731,940 loan previously made to ▇. ▇. ▇▇▇▇▇▇▇, III;
and
(v) advances made in the ordinary course of Borrower's or the
Guarantors' oil and gas business.
(i) Investments. From and after the Effective Date, the Borrower
shall not make investments in any Person or entity except the foregoing
restriction shall not apply to:
(i) investments of up to $1,700,000 in the aggregate in Sierra
Well Service, Inc.;
(ii) investments of up to $10,000,000 in the aggregate in
Midland Red Oak Realty, Inc.;
(iii) investments of up to $500,000 in the aggregate after the
Effective Date in Threading Products International, LLC; and
(iv) investments in the Guarantors.
(j) Sale or Discount of Receivables. Neither Borrower nor Guarantors
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.
(k) Nature of Business. Neither Borrower nor Guarantors will permit
any material change to be made in the character of their business as
carried on at the date hereof.
(l) Hedging Transactions. Neither Borrower nor Guarantors will enter
into any transaction or transactions providing for the hedging, forward
sale or swap of crude oil or natural gas of more than fifty percent (50%)
of the discounted present worth of the Oil and Gas Properties in the
aggregate.
(m) Amendment of Articles of Incorporation or Bylaws. Neither
Borrower nor Guarantors will permit any material amendment to, or other
alteration of, their Articles of Incorporation or Bylaws.
14. Sale of Assets. Neither Borrower nor Guarantors shall sell, transfer
or otherwise dispose of any of its assets except for (i) Oil and Gas Properties
sold or transferred by Borrower for fair market value not exceeding $250,000 in
the aggregate between each Determination Date; and
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(ii) production from oil, gas and mineral property and other assets sold in the
ordinary course of Borrower's or Guarantors' business.
(a) Transactions with Affiliates. Neither Borrower nor Guarantors
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.
(b) Partnerships. SWR will not take any action seeking to cause any
agreement governing any of the Partnerships to be amended (or otherwise
seek or cause any Partnership to take any action), if the effect of such
amendment or action would:
(i) remove the prohibition against a Partnership incurring
indebtedness to third parties, except in accordance with the governing
agreement prior to such amendment or action;
(ii) permit a partnership to sell or otherwise dispose of assets
outside the authorities of SWR to permit such action as managing general
partnerships of a Partnership; or
(iii) remove SWR as managing general partner of any Partnership.
(c) New Partnerships. Borrower will not, without the prior written
consent of the Agent, form any new Partnerships after the Effective Date
that have the ability to incur recourse indebtedness.
(r) Subsidiaries. Borrower will not, without the prior written
consent of the Agent, sell or otherwise dispose of any of the equity
securities of the Guarantors or the Restricted Subsidiary that they own as
of the Effective Date.
15. 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, the Note or 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 under this
Agreement, or in any certificate or statement furnished or made to Banks
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 under any Security
-38-
Instrument, 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 contained in the Security
Instruments, 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 Agent to Borrower; or
(d) Default shall be made in the due observance or performance of any
of the covenants of the Borrower contained in Section 13 of this Agreement;
or
(e) Default shall be made in respect of any obligation for borrowed
money, other than the Note or Notes, for which Borrower is liable
(directly, by assumption, as guarantor or otherwise), including, without
limitation, the Senior Unsecured Debt 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 Borrower 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) Borrower 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 Borrower 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 Borrower 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
$500,000.00 (or judgments or orders aggregating in excess of $500,000.00)
shall be rendered against the Borrower and such judgments or orders shall
continue unsatisfied and unstayed for a period of thirty (30) days; or
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(i) The aggregate principal amount outstanding under the Note or
Notes shall exceed the Borrowing Base established for the Note or Notes and
Borrower shall fail to either provide additional Collateral or prepay the
principal of the Note or Notes, in compliance with the provisions of
Section 9(b) hereof; or
(j) Borrower shall fail to make the mandatory prepayment required by
Section 8(c) hereof;
(k) A Change of Control shall occur; or
(l) 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 or Notes 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 Agent, upon request of the Majority Banks, shall by notice to
Borrower terminate the Revolving Commitment and declare the principal of, and
all interest then accrued on, the Note or 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 waive, anything contained
herein or in the Note or 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 Note or 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 Banks are hereby authorized at any time and from time to time,
without notice to Borrower (any such notice being expressly waived by Borrower),
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 any Bank to or for the credit or the account of the Borrower against any and
all of the indebtedness of the Borrower under the Note or Notes and the Security
Instrument, including this Agreement, irrespective of whether or not the Banks
shall have made any demand under the Security Instrument, including this
Agreement or the Note or Notes and although such indebtedness may be unmatured.
Any amount set-off by either of the Banks shall be applied against the
indebtedness owed the Banks by Borrower pursuant to this Agreement and the Note
or Notes. The Banks agree 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 Banks under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Banks may have. Within five (5)
Business Days after any such set-off or appropriation by the Banks, the Banks
shall give Borrower written notice thereof. However, a failure to give such
notice will not affect the validity of the set-off or appropriation.
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16. EXERCISE OF RIGHTS. No failure to exercise, and no delay in
exercising, on the part of the Banks, 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 or Notes 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.
17. 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 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: SOUTHWEST ROYALTIES, INC., ▇▇▇ ▇. ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇, Attention: ▇.▇.
▇▇▇▇▇▇▇, III, President; (b) BANKS C/O AGENT: BANK ONE, TEXAS, N.A., ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Facsimile No. ▇▇▇-▇▇▇-▇▇▇▇, Attention: Wm. ▇▇▇▇
▇▇▇▇▇▇▇, Assistant Vice President, and (c) any Bank at its address shown on any
Schedule or Amendment hereto. Any such notice or other communication shall be
deemed to have been given (whether actually received or not) 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.
18. EXPENSES. The Borrower shall pay (i) all reasonable and necessary
out-of-pocket expenses of the Agent, including reasonable fees and disbursements
of special counsel for the Bank, in connection with 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 Agent, including reasonable fees and disbursements of
special counsel for the Agent 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 Agent,
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 Banks 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 or Notes.
19. INDEMNITY. The Borrower agrees to indemnify and hold harmless the
Banks 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 Banks, including all local counsel hired by such counsel) ("Claim") incurred
by the Banks in investigating
-41-
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 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 to the Banks hereunder or at common law or otherwise, and shall survive
any termination of this Agreement, the expiration of the Revolving Loan and the
payment of all indebtedness of the Borrower to the Banks hereunder and under the
Note or Notes, provided that the Borrower shall have no obligation under this
Section to the Banks with respect to any of the foregoing arising out of the
gross negligence or willful misconduct of the Banks. 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 expense, counsel of the Indemnified Parties' choosing and to control
the defense of the Claim. The Borrower 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 STRICT LIABILITY IMPOSED OR THREATENED TO BE IMPOSED ON ANY
SUCH INDEMNIFIED PARTY AS WELL AS FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE,
WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR CONCURRING CAUSE OF
ANY CLAIM.
20. THE AGENT AND THE BANKS.
(a) Appointment and Authorization. Each Bank hereby appoints Agent
as its nominee and agent, in its name and on its behalf: (i) to act as
nominee for and on behalf of such Bank in and under all Loan Documents;
(ii) to arrange the means whereby the funds of Banks are to be made
available to Borrower under the Loan Documents; (iii) to take such action
as may be requested by any Bank under the Loan Documents (when such Bank is
entitled to make such request under the Loan Documents); (iv) to receive
all documents and items to be furnished to Banks under the Loan Documents;
(v) to be the secured party, mortgagee, beneficiary, and similar party in
respect of, and to receive, as the case may be, the Collateral for the
benefit of Banks; (vi) to promptly distribute to each Bank all material
information, requests, documents and items received from Borrower under the
Loan Documents; (vii) to promptly distribute to each Bank such Bank's Pro
Rata Part of each payment or prepayment (whether voluntary, as proceeds of
Collateral upon or after foreclosure, as proceeds of insurance thereon, or
otherwise) in accordance with the terms of
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the Loan Documents; and (viii) to deliver to the appropriate Persons
requests, demands, approvals and consents received from Banks. With respect
to its commitments hereunder and the Notes issued to it, Bank One and any
successor Agent shall have the same rights under the Loan Documents as any
other Bank and may exercise the same as though it were not the Agent; and
the term "Bank" or "Banks" shall, unless otherwise expressly indicated,
include Bank One and any successor Agent in its capacity as a Bank. Bank
One and any successor Agent and its affiliates may accept deposits from,
lend money to, act as trustee under indentures of and generally engage in
any kind of business with Borrower, and any person which may do business
with Borrower, all as if Bank One and any successor Agent were not Agent
hereunder and without any duty to account therefor to the Banks; provided
that, if any payments in respect of any property (or the proceeds thereof)
now or hereafter in the possession or control of Agent which may be or
become security for the obligations of Borrower arising under the Loan
Documents by reason of the general description of indebtedness secured or
of property contained in any other agreements, documents or instruments
related to any such other business shall be applied to reduction of the
obligations of Borrower arising under the Loan Documents, then each Bank
shall be entitled to share in such application according to its Pro Rata
Part thereof. Each Bank, upon request of any other Bank, shall disclose to
all other Banks all indebtedness and liabilities, direct and contingent, of
Borrower to such Bank as of the time of such request.
(b) Note Holders. As of the Effective Date there are two Notes in
the aggregate amount of $75,000,000, one in the face amount of $46,875,000
payable to the order of Bank One and one in the face amount of $28,125,000
payable to the order of NationsBank both Notes being issued under the
Commitment. Hereafter as other Banks become a party to this Agreement the
Agent shall obtain execution by Borrower of additional Notes in amounts
representing the Commitment of each such new Bank, up to an aggregate face
amount of all such Notes not exceeding $75,000,000. The obligation of such
Bank shall be governed by the provisions of this Agreement, including but
not limited to, the obligations specified in Section 2 hereof. From time
to time, the Agent may require that the Banks exchange their Notes for
newly issued Notes to better reflect the Commitments of the Banks. Agent
may treat the payee of any Note or Notes as the holder thereof until
written notice of transfer has been filed with it, signed by such payee and
in form satisfactory to Agent.
(c) Consultation with Counsel. Banks agree that Agent may consult
with legal counsel selected by it and shall not be liable for any action
taken or suffered in good faith by it in accordance with the advice of such
counsel.
(d) Documents. Agent shall not be under a duty to examine or pass
upon the validity, effectiveness, enforceability, genuineness or value of
any of the Collateral or any of the Loan Documents or any other instrument
or document furnished pursuant thereto or in connection therewith, and
Agent shall be entitled to assume that the same are valid, effective,
enforceable and genuine and what they purport to be.
-43-
(e) Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any
time by giving written notice thereof to Banks and Borrower, and Agent may
be removed at any time with or without cause by all Banks. If no successor
Agent has been so appointed by all Banks (and approved by Borrower) and has
accepted such appointment within 30 days after the retiring Agent's giving
of notice of resignation or removal of the retiring Agent, then the
retiring Agent may, on behalf of Banks, appoint a successor Agent, which
appointment shall require the approval of Borrower. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation or removal hereunder as Agent, (i) the provisions of this
Section 19 shall continue in effect for its benefit in respect to any
actions taken or omitted to be taken by it while it was acting as Agent,
and (ii) any Collateral held in possession of the retiring Agent shall be
delivered to the successor Agent.
(f) Responsibility of Agent. It is expressly understood and agreed
that the obligations of Agent under the Loan Documents are only those
expressly set forth in the Loan Documents and that Agent shall be entitled
to assume that no default or Event of Default has occurred and is
continuing, unless Agent has actual knowledge of such fact or has received
notice from a Bank or the Borrower that such Bank or Borrower considers
that a default or an Event of Default has occurred and is continuing and
specifying the nature thereof. Neither Agent nor any of its directors,
officers, attorneys or employees shall be liable for any action taken or
omitted to be taken by it under or in connection with the Loan Documents,
except for its or their own gross negligence or willful misconduct.
Subject to the immediately preceding sentence, Agent shall incur no
liability under or in respect of any of the Loan Documents by acting upon
any notice, consent, certificate, warranty or other paper or instrument
believed by it to be genuine or authentic or to be signed by the proper
party or parties, or with respect to anything which it may do or refrain
from doing in the reasonable exercise of its judgment, or which may seem to
it to be necessary or desirable.
Agent shall not be responsible to Banks for any of Borrower's
recitals, statements, representations or warranties contained in any of the
Loan Documents, or in any certificate or other document referred to or
provided for in, or received by any Bank under, the Loan Documents, or for
the value, validity, effectiveness, genuineness, enforceability or
sufficiency of any of the Collateral or any of the Loan Documents or for
any failure by Borrower to perform any of its obligations hereunder or
thereunder. Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received (or any Collateral
possessed) by it or its authorized agents, for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with reasonable
care.
The relationship between Agent and each Bank is only that of agent and
principal and has no fiduciary aspects. Nothing in the Loan Documents or
elsewhere shall be construed
-44-
to impose on Agent any duties or responsibilities other than those for
which express provision is therein made. In performing its duties and
functions hereunder, Agent does not assume and shall not be deemed to have
assumed, and hereby expressly disclaims, any obligation or responsibility
toward or any relationship of agency or trust with or for Borrower or any
of its beneficiaries or other creditors. As to any matters not expressly
provided for by the Loan Documents (including, without limitation,
enforcement or collection of the Notes), Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or
to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of all Banks and such
instructions shall be binding upon all Banks and all holders of the Notes;
provided, however, that Agent shall not be required to take any action
which is contrary to the Loan Documents or applicable law.
Agent shall have the right to exercise or refrain from
exercising, without notice or liability to the Banks, any and all rights
afforded to Agent by the Loan Documents or which Agent may have as a matter
of law; provided, however, Agent shall not without the consent of Majority
Banks take any other action with regard to amending the Loan Documents,
waive any default under the Loan Documents or take any other action with
respect to the Loan Documents, except as set forth in Section 14 hereof.
Agent shall have the right and authority without necessity of notice or
liability to the Banks to release Collateral, if proceeds from such sale
equal to 100% of the value for Borrowing Base purposes of such Collateral
is paid to Agent for the ratable benefit of the Banks as a prepayment of
the Notes. For purposes of this paragraph, a Bank shall be deemed to have
consented to any such action by the Agent upon the passage of ten (10)
Business Days after written notice thereof is given to such Bank in
accordance with Section 16 hereof, unless such Bank shall have previously
given Agent notice, complying with the provision of Section 16 hereof, to
the contrary. Agent shall have no liability to Banks for failure or delay
in exercising any right or power possessed by Agent pursuant to the Loan
Documents or otherwise unless such failure or delay is caused by the gross
negligence or willful misconduct of the Agent.
(g) Independent Investigation. Each Bank severally represents and
warrants to Agent that it has made its own independent investigation and
assessment of the financial condition and affairs of Borrower in connection
with the making and continuation of its participation hereunder and has not
relied exclusively on any information provided to such Bank by Agent in
connection herewith, and each Bank represents, warrants and undertakes to
Agent that it shall continue to make its own independent appraisal of the
credit worthiness of Borrower while the Notes are outstanding or its
commitments hereunder are in force. Agent shall not be required to keep
itself informed as to the performance or observance by Borrower of this
Agreement or any other document referred to or provided for herein or to
inspect the properties or books of Borrower. Other than as provided in
this Agreement, Agent shall have no duty, responsibility or liability to
provide any Bank with any credit or other information concerning the
affairs, financial condition or business of Borrower which may come into
the possession of Agent.
-45-
(h) Indemnification. Banks agree to indemnify Agent (to the extent
not reimbursed by Borrower), ratably according to their Commitment
Percentage, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any proper and reasonable kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in any way
relating to or arising out of the Loan Documents or any action taken or
omitted by Agent under the Loan Documents, provided that no Bank shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent's gross negligence or willful misconduct. Each Bank
shall be entitled to be reimbursed by the Agent for any amount such Bank
paid to the Agent under this Section 19(h) to the extent the Agent has been
reimbursed for such payments by the Borrower or any other Person. THE BANKS
INTEND FOR THE PROVISIONS OF THIS SECTION 19(H) TO APPLY TO AND PROTECT THE
AGENT FROM THE CONSEQUENCES OF STRICT LIABILITY IMPOSED OR THREATENED TO BE
IMPOSED ON THE AGENT AS WELL AS FROM THE CONSEQUENCES OF ITS OWN
NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING OR
CONCURRING CAUSE OF SUCH LIABILITY, OBLIGATION, LOSS, DAMAGES, PENALTY,
ACTION, JUDGMENT, SUIT, COST, EXPENSE OR DISBURSEMENT.
(i) Benefit of Section 19. The agreements contained in this Section
19 are solely for the benefit of Agent and the Banks and are not for the
benefit of, or to be relied upon by, Borrower, any affiliate of Borrower or
any other person.
(j) Pro Rata Treatment. Subject to the provisions of this Agreement,
each payment (including each prepayment) by Borrower and collections by
Banks (including offsets) on account of the principal of and interest on
the Notes and fees payable by Borrower shall be made pro rata to Banks
according to the then ownership interest of each Bank in the Revolving Loan
outstanding at the date of determination thereof.
(k) Interests of Banks. Nothing in this Agreement shall be construed
to create a partnership or joint venture between Banks for any purpose.
Agent, Banks and Borrower each recognize that the respective obligations of
Banks under the Commitment shall be several and not joint and that neither
Agent nor any of Banks shall be responsible or liable to perform any of the
obligations of the other under this Agreement. Each Bank is deemed to be
the owner of an undivided interest in and to all rights, titles, benefits
and interests belonging and accruing to Agent under this Agreement,
including, without limitation, the Notes, liens and security interests in
the Collateral, fees and payments of principal and interest by Borrower
under the Commitment in the proportion that each Banks' Commitment
Percentage bears to the total of all of such loan commitments of all Banks
taken in the aggregate. Each Bank shall perform all duties and obligations
of Banks under this Agreement in the same proportion as its ownership
interest in the Revolving Loan outstanding at the date of determination
thereof.
-46-
21. 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.
22. MAXIMUM INTEREST RATE. Regardless of any provisions contained in this
Agreement or in any other documents and instruments referred to herein, the
Banks shall never be deemed to have contracted for or be entitled to receive,
collect or apply as interest on the Note or Notes any amount in excess of the
maximum rate of interest permitted to be charged by applicable law, and in the
event the Banks ever receive, collect or apply as interest any such excess, or
if acceleration of the maturities of the Note or 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 Note or Notes for which such
excess was received, collected or applied, and, if the principal balance of the
Note or Notes is paid in full, any remaining excess shall forthwith be paid to
Borrower. All sums paid or agreed to be paid to the Banks for the use,
forbearance or detention of the indebtedness evidenced by the Note or 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 Banks 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 Note at
the maximum lawful rate under applicable law.
23. 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.
24. 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 ail parties hereto.
25. 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.
-47-
26. SURVIVAL. All covenants, agreements, undertakings, representations
and warranties made in the Security Instrument, including this Agreement, the
Note or Notes 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.
27. 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 may not,
without the prior written consent of the Banks, assign any rights, powers,
duties or obligations hereunder.
28. PARTICIPATIONS. The Banks shall have the right at any time and from
time, to time, with the prior consent of the Agent and the Borrower, to sell one
or more participations in the Note or 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 to the Banks. The Borrower 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 Banks as the sole owner
of the Note or 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
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 against the payment of the note and
any other obligations of the Borrower 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 Banks written notice thereof. However, a failure to give such
notice will not affect the validity of this setoff or appropriation.
29. FINANCIAL TERMS. All accounting terms used in the Agreement which are
not specifically defined herein shall be construed in accordance with GAAP.
30. 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.
31. CHOICE OF FORUM: CONSENT TO SERVICE OF PROCESS AND JURISDICTION. THE
OBLIGATIONS OF Borrower UNDER THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS
COUNTY, TEXAS. ANY SUIT, ACTION OR PROCEEDING AGAINST Borrower 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
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TEXAS, COUNTY OF DALLAS, OR IN THE UNITED STATES COURTS LOCATED IN DALLAS, TEXAS
AND Borrower HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR
THE PURPOSE OF ANY SUCH SUIT, ACTION OR PROCEEDING. Borrower HEREBY IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURT
BY THE MAILING THEREOF BY BANKS BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO Borrower, AS APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN
SECTION 16. Borrower 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.
32. 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.
33. EXECUTION BY GUARANTORS. The Guarantors are executing this Agreement
solely for the purpose of agreeing to be bound by the representations,
warranties and covenants contained in Sections 10, 12 and 13 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
BORROWER:
SOUTHWEST ROYALTIES, INC.
a Delaware corporation
By:
----------------------------------
▇.▇. ▇▇▇▇▇▇▇, III, President
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BANKS:
BANK ONE, TEXAS, N.A.,
a national banking association
By:
----------------------------------
Wm. ▇▇▇▇ ▇▇▇▇▇▇▇, Vice President
BANQUE PARIBAS
a national banking association
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
AGENT:
BANK ONE, TEXAS, N.A.,
a national banking association
By:
----------------------------------
Wm. ▇▇▇▇ ▇▇▇▇▇▇▇, Vice President
GUARANTORS:
ESPERO ENERGY CORPORATION
a Delaware corporation
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
MIDLAND SOUTHWEST SOFTWARE, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
-▇▇-
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇.,
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
-51-
EXHIBIT "A"
NOTE
$_____________ Dallas, Texas ________, 199__
FOR VALUE RECEIVED, the undersigned SOUTHWEST ROYALTIES, INC., a Delaware
corporation (referred to herein as "Borrower"), hereby unconditionally promises
to pay to the order of _______________, ______________________________, (the
"Payee") at the office of BANK ONE, TEXAS, N.A., as Agent for the Payee and the
other Banks that are parties to the Loan Agreement (as defined below) (the
"Agent") in Dallas County, Texas, the principal sum of __________ _______ AND
No/100 DOLLARS ($_____________), or if less, so much thereof as may be advanced
pursuant to the Loan Agreement (as hereinafter defined), in lawful money of the
United States of America together with interest from the date hereof until paid
at the rates specified in the Loan Agreement. All payments of principal and
interest due hereunder are payable at the offices of Agent at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇, Bank ▇▇▇ ▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
attention: Energy Department, or at such other address as Bank shall designate
in writing to Borrower.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Loan Agreement.
This Note is executed pursuant to that certain Restated Senior Secured Loan
Agreement dated of even date herewith between Borrower, Banks and Agent (the
"Loan Agreement"), and is one of the Notes referred to therein. This Note is
secured by certain Security Instruments (as such term is defined in the Loan
Agreement) of even date herewith between Borrower and Agent. Reference is made
to the Loan Agreement and the Security Instruments for a statement of
prepayment, rights and obligations of Borrower, description of the properties
mortgaged and assigned, the nature and extent of such security and the rights of
the parties under the Security Instruments in respect to such security, for a
statement of the terms and conditions under which the due date of this Note may
be accelerated and for statements regarding other matters affecting this Note
(including without limitation the obligations of the holder hereof to advance
funds hereunder, principal and interest payment due dates, voluntary and
mandatory prepayments, exercise of rights and remedies, payment of attorneys'
fees, court costs and other costs of collection and certain waivers by Borrower
and others now or hereafter obligated for payment of any sums due hereunder).
Upon the occurrence of an Event of Default, as that term is defined in the Loan
Agreement and Security Instruments, the holder hereof shall have all rights and
remedies of the Bank under the Loan Agreement and Security Instruments. This
Note may be prepaid in accordance with the terms and provisions of the Loan
Agreement.
Regardless of any provision contained in this Note, the holder hereof shall
never be entitled to receive, collect or apply, as interest on this Note, any
amount in excess of the Maximum Rate, and, if the holder hereof ever receives,
collects, or applies as interest, any such amount which would
be excessive interest, it shall be deemed a partial prepayment of principal and
treated hereunder as such; and, if the indebtedness evidenced hereby is paid in
full, any remaining excess shall forthwith be paid to Borrower. In determining
whether or not the interest paid or payable, under any specific contingency,
exceeds the Maximum Rate, Borrower and the holder hereof 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, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) spread the total amount of
interest throughout the entire contemplated term of the obligations evidenced by
this Note and/or referred to in the Loan Agreement so that the interest rate is
uniform throughout the entire term of this Note; provided that, if this Note is
paid and performed in full prior to the end of the full contemplated term
thereof; and if the interest received for the actual period of existence thereof
exceeds the Maximum Rate, the holder hereof shall refund to Borrower the amount
of such excess or credit the amount of such excess against the indebtedness
evidenced hereby, and, in such event, the holder hereof shall not be subject to
any penalties provided by any laws for contracting for, charging, taking,
reserving or receiving interest in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become due on a
day other than a Business Day (as such term is defined in the Loan Agreement),
such payment shall be made on the next succeeding Business Day and such
extension of time shall in such case be included in computing interest in
connection with such payment.
If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrower agree to pay all costs of
collection, including, but not limited to, court costs and reasonable attorneys'
fees.
Borrower and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, notice of intention to accelerate the
maturity, protest, notice of protest and nonpayment, as to this Note and as to
each and all installments hereof, and agree that their liability under this Note
shall not be affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas, except that Tex. Rev. Civ. Stat. ▇▇▇. art. 5069, Chapter 15 (which
regulates certain revolving credit loan accounts and revolving tri-party
accounts) shall not apply to this Note.
THIS WRITTEN NOTE, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS 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.
EXECUTED as of the ____ day of _______, 199___.
BORROWER:
--------
SOUTHWEST ROYALTIES, INC.,
a Delaware corporation
By:
------------------------------
▇.▇. ▇▇▇▇▇▇▇, III, President
EXHIBIT "B"
NOTICE OF BORROWING
The undersigned hereby certifies that he is the ____________________ of
_________________, a ________________ corporation ("Borrower"), and that as such
he is authorized to executed this Notice of Borrowing on behalf of Borrower.
With reference to that certain Restated Senior Secured Loan Agreement, dated
October ___, 1997, (as same may be amended, modified, increased, supplemented
and/or restated from time to time, the "Agreement") entered into among Borrower,
Bank One, Texas, N.A., Banque Paribas and any other future holder of any Note
issued pursuant to the Agreement ("Banks"), and Bank One, Texas, N.A. as Agent
("Agent"), the undersigned further certifies, represents and warrants on behalf
of Borrower all of the following statements are true and correct (each
capitalized term used herein having the same meaning given to it in the
Agreement unless otherwise specified):
(a) Borrower request that the Banks advance Borrower the aggregate sum
of $_____________________ by no later than _______________________, 19___.
Immediately following such Advance, the aggregate outstanding balance of
Advances shall equal $_________________________________.
(b) Type of Advance: [Base Rate or Eurodollar Loan].
(c) Eurodollar Loan - Interest Period of _________ days.
(d) As of the date hereof, and as a result of the making of the
requested Advance, there does not and will not exist any Event of Default.
(e) Borrower have performed and complied with all agreements and
conditions contained in the Loan Documents which are required to be
performed or complied with by Borrower before or on the date hereof.
(f) The representations and warranties contained in the Agreement and
in the other Loan Documents are true and correct in all material respects
as of the date hereof and shall be true and correct upon the making of the
Advance, with the same force and effect as though made on and as of the
date hereof and thereof.
(g) No charge that would cause a Material Adverse Effect to the
condition, financial or otherwise, of the Borrower has occurred since the
most recent Financial Statements provided to the Banks.
EXECUTED AND DELIVERED this _______ day of ______________________, 19____.
[Borrower]
----------
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
EXHIBIT "C"
UNLIMITED GUARANTY
THIS UNLIMITED GUARANTY ("Guaranty") is made as of the ____ day of October,
1997, by Guarantor (as hereinafter defined) for the benefit of Bank (as
hereinafter defined).
1. Definitions. As used in this Guaranty, the following terms shall have
the meanings indicated below:
(a) The term "Bank" shall mean:
________________________
________________________
________________________
Attn:___________________
________________________
(b) The term "Borrower" (whether one or more shall mean the following:
SOUTHWEST ROYALTIES, INC.
▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
(c) The term "Guarantor" shall mean _____________________, whose
address for notice purposes is the following:
▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
(d) The term "Guaranteed Indebtedness" shall mean (i) all
indebtedness, obligations and liabilities of Borrower to Bank of any kind
or character now existing or hereafter arising, whether direct, indirect,
related, unrelated, fixed, contingent, liquidated, unliquidated, joint,
several or joint and several, and regardless of whether such indebtedness,
obligations and liabilities may, prior to their acquisition by Bank, be or
have been payable to or in favor of a third party and subsequently acquired
by Bank (it being contemplated that Bank may make such acquisitions from
third parties), including without limitation all indebtedness, obligations
and liabilities of Borrower to Bank now existing or hereafter arising by
note, draft, acceptance, guaranty, endorsement, letter of credit,
assignment, purchase, overdraft, discount, indemnity agreement or
otherwise, (ii) all accrued but unpaid interest on any of the indebtedness
described in (i) above, (iii) all obligations of Borrower to Bank under any
documents evidencing, securing, governing and/or pertaining to all or any
part
of the indebtedness described in (i) and (ii) above, (iv) all costs and
expenses incurred by Bank in connection with the collection and
administration of all or any part of the indebtedness and obligations
described in (i), (ii) and (iii) above or the protection or preservation
of, or realization upon, the collateral securing all or any part of such
indebtedness and obligations, including without limitation all reasonable
attorneys' fees, and (v) all renewals, extensions, modifications and
rearrangements of the indebtedness and obligations described in (i), (ii),
(iii) and (iv) above.
2. Obligations. As an inducement to Bank to extend or continue to extend
credit and other financial accommodations to Borrower, Guarantor, for value
received, does hereby unconditionally and absolutely guarantee the prompt and
full payment and performance of the Guaranteed Indebtedness when due or declared
to be due and at all times thereafter.
3. Character of Obligations. This is an absolute, continuing and
unconditional Guaranty of payment and not of collection and if at any time or
from time to time there is no outstanding Guaranteed Indebtedness, the
obligations of the Guarantor with respect to any and all Guaranteed Indebtedness
of Borrower to Bank incurred thereafter shall not be affected. All Guaranteed
Indebtedness heretofore, concurrently herewith or hereafter made by Bank to
Borrower shall be conclusively presumed to have been made or acquired in
acceptance hereof. Guarantor shall be primarily liable, jointly and severally,
with Borrower and any other guarantor of all or any part of the Guaranteed
Indebtedness.
4. Representations and Warranties. Guarantor hereby represents and
warrants the following to Bank:
(a) This Guaranty may reasonably be expected to benefit, directly or
indirectly, Guarantor, and (i) if Guarantor is a corporation, the Board of
Directors of Guarantor has determined that this Guaranty may reasonably be
expected to benefit, directly or indirectly, Guarantor, or (ii) if
Guarantor is a partnership, the requisite number of Guarantor's partners
have determined that this Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor;
(b) Guarantor is familiar with, and has independently reviewed the
books and records regarding, the financial condition of Borrower and is
familiar with the value of any and all collateral intended to be security
for the payment of all or any part of the Guaranteed Indebtedness;
provided, however, Guarantor is not relying on such financial condition or
collateral as an inducement to enter into this Guaranty;
(c) Guarantor has adequate means to obtain from Borrower on a
continuing basis information concerning the financial condition of Borrower
and Guarantor is not relying on Bank to provide such information to
Guarantor either now or in the future;
(d) Guarantor has the power and authority to execute, deliver and
perform this Guaranty and any other agreements executed by Guarantor
contemporaneously
herewith, and the execution, delivery and performance of this Guaranty and
any other agreements executed by Guarantor contemporaneously herewith does
not and will not violate (i) any agreement or instrument to which Guarantor
is a party, (ii) any law, rule, regulation or order of any governmental
authority to which Guarantor is subject, or (iii) Guarantor's Articles of
Incorporation or Bylaws if Guarantor is a corporation, or Guarantor's
Partnership Agreement if Guarantor is a partnership;
(e) Neither Bank nor any other party has made any representation,
warranty or statement to Guarantor in order to induce Guarantor to execute
this Guaranty;
(f) The financial statements and other financial information regarding
Guarantor heretofore and hereafter delivered to Bank are and shall be true
and correct in all material respects and fairly present the financial
position of Guarantor as of the dates thereof, and no material adverse
change has occurred in the financial condition of Guarantor reflected in
the financial statements and other financial information regarding
Guarantor heretofore delivered to Bank since the date of the last statement
thereof; and
(g) As of the date hereof, and after giving effect to this Guaranty
and the obligations evidenced hereby, (i) Guarantor is and will be solvent,
(ii) the fair saleable value of Guarantor's assets exceeds and will
continue to exceed Guarantor's liabilities (both fixed and contingent),
(iii) Guarantor is and will continue to be able to pay Guarantor's debts as
they mature, and (iv) if Guarantor is not an individual, Guarantor has and
will continue to have sufficient capital to carry on its business and all
businesses in which it is about to engage.
5. Covenants. Guarantor hereby covenants and agrees with Bank as
follows:
(a) Guarantor shall not, so long as Guarantor's obligations under this
Guaranty continue, transfer or pledge any material portion of Guarantor's
assets for less than full and adequate consideration;
(b) Guarantor shall promptly furnish to Bank at any time and from time
to time such financial statements and other financial information of
Guarantor as the Bank may require, in form and substance satisfactory to
Bank;
(c) Guarantor shall comply with all terms and provisions of the
instruments and agreements evidencing, governing and securing all or any
part of the Guaranteed Indebtedness that apply to Guarantor; and
(d) Guarantor shall promptly inform Bank of (i) any litigation or
governmental investigation against Guarantor or affecting any security for
all or any part of the Guaranteed Indebtedness or this Guaranty which, if
determined adversely, might have a material adverse effect upon the
financial condition of Guarantor or
upon such security or might cause a default under any of the instruments or
agreements evidencing, governing or securing all or any part of the
Guaranteed Indebtedness, (ii) any claim or controversy which might become
the subject of such litigation or governmental investigation, and (iii) any
material adverse change in the financial condition of Guarantor.
6. Consent and Waiver.
(a) Guarantor waives (i) promptness, diligence and notice of
acceptance of this Guaranty and notice of the incurring of any obligation,
indebtedness or liability to which this Guaranty applies or may apply and
waives presentment for payment, notice of nonpayment, protest, demand,
notice of protest, notice of intent to accelerate, notice of acceleration,
notice of dishonor, diligence in enforcement and indulgences of every kind,
and (ii) the taking of any other action of Bank, including without
limitation giving any notice of default or any other notice to, or making
any demand on, Borrower, any other guarantor of all or any part of the
Guaranteed Indebtedness or any other party.
(b) Guarantor waives any rights Guarantor has under, or any
requirements imposed by, Chapter 34 of the Texas Business and Commerce
Code, as in effect on the date of this Guaranty or as it may be amended
from time to time.
(c) Bank may at any time, without the consent of or notice to
Guarantor, without incurring responsibility to Guarantor and without
impairing, releasing, reducing or affecting the obligations of Guarantor
hereunder: (i) change the manner, place or terms of payment of all or any
part of the Guaranteed Indebtedness, or renew, extend, modify, rearrange or
alter all or any part of the Guaranteed Indebtedness; (ii) sell, exchange,
release, surrender, subordinate, realize upon or otherwise deal with in any
manner and in any order any collateral for all or any part of the
Guaranteed Indebtedness or this Guaranty or setoff against all or any part
of the Guaranteed Indebtedness; (iii) neglect, delay, omit, fail or refuse
to take or prosecute any action for the collection of all or any part of
the Guaranteed Indebtedness or this Guaranty or to take or prosecute any
action in connection with any instrument or agreement evidencing, governing
or securing all or any part of the Guaranteed Indebtedness or this
Guaranty; (iv) exercise or refrain from exercising any rights against
Borrower or others, or otherwise act or refrain from acting; (v) settle or
compromise all or any part of the Guaranteed Indebtedness and subordinate
the payment of all or any part of the Guaranteed Indebtedness to the
payment of any obligations, indebtedness or liabilities which may be due or
become due to Bank or others; (vi) apply any deposit balance, fund,
payment, collections through process of law or otherwise or other
collateral of Borrower to the satisfaction and liquidation of the
indebtedness or obligations of Borrower to Bank not guaranteed under this
Guaranty pursuant to paragraph 4 herein; and (vii) apply any sums paid to
Bank by Guarantor, Borrower or others to the Guaranteed Indebtedness in
such order and manner as Bank, in its sole discretion, may determine.
(d) Notwithstanding any provision in this Guaranty to the contrary,
Guarantor hereby waives and releases (i) any and all rights of subrogation,
reimbursement, indemnification or contribution which Guarantor may have,
after payment in full or in part of the Guaranteed Indebtedness, against
others liable on all or any part of the Guaranteed Indebtedness, (ii) any
and all rights to be subrogated to the rights of Bank in any collateral or
security for all or any part of the Guaranteed Indebtedness after payment
in full or in part of the Guaranteed Indebtedness, and (iii) any and all
other rights and claims of such Guarantor against Borrower or any third
party as a result of such Guarantor's payment of all or any part of the
Guaranteed Indebtedness.
(e) Should Bank seek to enforce the obligations of Guarantor hereunder
by action in any court or otherwise, Guarantor waives any requirement,
substantive or procedural, that (i) Bank first enforce any rights or
remedies against Borrower or any other person or entity liable to Bank for
all or any part of the Guaranteed Indebtedness, including without
limitation that a judgment first be rendered against Borrower or any other
person or entity, or that Borrower or any other person or entity should be
joined in such cause, or (ii) Bank shall first enforce rights against any
collateral which shall ever have been given to secure all or any part of
the Guaranteed Indebtedness or this Guaranty. Such waiver shall be without
prejudice to Bank's right, at its option, to proceed against Borrower or
any other person or entity, whether by separate action or by joinder.
(f) In addition to any other waivers, agreements and covenants of
Guarantor set forth herein, Guarantor hereby further waives and releases
all claims, causes of action, defenses and offsets for any act or omission
of Bank, its directors, officers, employees, representatives or agents in
connection with Bank's administration of the Guaranteed Indebtedness,
except for Bank's willful misconduct and gross negligence.
7. Obligations Not Impaired.
(a) Guarantor agrees that Guarantor's obligations hereunder shall not
be released, diminished, impaired, reduced or affected by the occurrence of
any one or more of the following events: (i) the death, disability or lack
of corporate power of Borrower, Guarantor or any other guarantor of all or
any part of the Guaranteed Indebtedness, (ii) any receivership, insolvency,
bankruptcy or other proceedings affecting Borrower, Guarantor or any other
guarantor of all or any part of the Guaranteed Indebtedness, or any of
their respective property; (iii) the partial or total release or discharge
of Borrower or any other guarantor of all or any part of the Guaranteed
Indebtedness, or any other person or entity from the performance of any
obligation contained in any instrument or agreement evidencing, governing
or securing all or any part of the Guaranteed Indebtedness, whether
occurring by reason of law or otherwise; (iv) the taking or accepting of
any collateral for all or any part of the Guaranteed Indebtedness or this
Guaranty; (v) the taking or accepting of any
other guaranty for all or any part of the Guaranteed Indebtedness; (vi) any
failure by Bank to acquire, perfect or continue any lien or security
interest on collateral securing all or any part of the Guaranteed
Indebtedness or this Guaranty; (vii) the impairment of any collateral
securing all or any part of the Guaranteed Indebtedness or this Guaranty;
(viii) any failure by Bank to sell any collateral securing all or any part
of the Guaranteed Indebtedness or this Guaranty in a commercially
reasonable manner or as otherwise required by law; (ix) any invalidity or
unenforceability of or defect or deficiency in any instrument or agreement
evidencing, governing or securing all or any part of the Guaranteed
Indebtedness or this Guaranty; or (x) any other circumstances which might
otherwise constitute a defense available to, or discharge of, Borrower or
any other guarantor of all or any part of the Guaranteed Indebtedness.
(b) This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of all or any part of the
Guaranteed Indebtedness is rescinded or must otherwise be returned by Bank
upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor,
any other guarantor of all or any part of the Guaranteed Indebtedness, or
otherwise, all as though such payment had not been made.
(c) In the event Borrower is a corporation, joint stock association or
partnership, or is hereafter incorporated, none of the following shall
affect Guarantor's liability hereunder: (i) the unenforceability of all or
any part of the Guaranteed Indebtedness against Borrower by reason of the
fact that the Guaranteed Indebtedness exceeds the amount permitted by law;
(ii) the act of creating all or any part of the Guaranteed Indebtedness is
ultra ▇▇▇▇▇; or (iii) the officers or partners creating all or any part of
the Guaranteed Indebtedness acted in excess of their authority. Guarantor
hereby acknowledges that withdrawal from, or termination of, any ownership
interest in Borrower now or hereafter owned or held by Guarantor shall not
alter, affect or in any way limit the obligations of Guarantor hereunder.
8. Actions against Guarantor. In the event of a default in the payment
or performance of all or any part of the Guaranteed Indebtedness when such
Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or
otherwise, Guarantor shall, without notice or demand, promptly pay the amount
due thereon to Bank, in lawful money of the United States, at Bank's address set
forth hereinabove. One or more successive or concurrent actions may be brought
against Guarantor, either in the same action in which Borrower is sued or in
separate actions, as often as Bank deems advisable. The exercise by Bank of any
right or remedy under this Guaranty or under any other agreement or instrument,
at law, in equity or otherwise, shall not preclude concurrent or subsequent
exercise of any other right or remedy. The books and records of Bank shall be
admissible in evidence in any action or proceeding involving this Guaranty and
shall be prima facie evidence of the payments made on, and the outstanding
balance of, the Guaranteed Indebtedness.
9. Payment by Guarantor. Whenever Guarantor pays any sum which is or may
become due under this Guaranty, written notice must be delivered to Bank
contemporaneously with such payment. Such notice shall be effective for
purposes of this paragraph when contemporaneously
with such payment Bank receives such notice either by: (a) personal delivery to
the address and designated department of Bank identified in subparagraph 1(a)
above, or (b) United States mail, certified or registered, return receipt
requested, postage prepaid, addressed to Bank at the address shown in
subparagraph 1(a) above. In the absence of such notice to Bank by Guarantor in
compliance with the provisions hereof, any sum received by Bank on account of
the Guaranteed Indebtedness shall be conclusively deemed paid by Borrower.
10. Notice of Sale. In the event that Guarantor is entitled to receive
any notice under the Uniform Commercial Code, as it exists in the state
governing any such notice, of the sale or other disposition of any collateral
securing all or any part of the Guaranteed Indebtedness or this Guaranty,
reasonable notice shall be deemed given when such notice is deposited in the
United States mail, postage prepaid, at the address for Guarantor set forth in
subparagraph 1(c) above, five (5) days prior to the date any public sale, or
after which any private sale, of any such collateral is to be held; provided,
however, that notice given in any other reasonable manner or at any other
reasonable time shall be sufficient.
11. Waiver of Bank. No delay on the part of Bank in exercising any right
hereunder or failure to exercise the same shall operate as a waiver of such
right. In no event shall any waiver of the provisions of this Guaranty be
effective unless the same be in writing and signed by an officer of Bank, and
then only in the specific instance and for the purpose given.
12. Successors and Assigns. This Guaranty is for the benefit of Bank, its
successors and assigns. This Guaranty is binding upon Guarantor's heirs,
executors, administrators, personal representatives and successors, including
without limitation any person or entity obligated by operation of law upon the
reorganization, merger, consolidation or other change in the organizational
structure of Guarantor.
13. Costs and Expenses. Guarantor shall pay on demand by Bank all costs
and expenses (including without limitation all reasonable attorneys' fees)
incurred by Bank in connection with the preparation, administration, enforcement
and/or collection of this Guaranty. This covenant shall survive the payment of
the Guaranteed Indebtedness.
14. Severability. If any provision of this Guaranty is held by a court of
competent jurisdiction to be illegal, invalid or enforceable under present or
future laws, such provision shall be fully severable, shall not impair or
invalidate the remainder of this Guaranty and the effect thereof shall be
confined to the provision held to be illegal, invalid or unenforceable.
15. No Obligation. Nothing contained herein shall be construed as an
obligation on the part of Bank to extend or continue to extend credit to
Borrower.
16. Amendment. No modification or amendment of any provision of this
Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by an officer of Bank,
and then shall be effective only in the specific instance and for the purpose
for which given.
17. Cumulative Rights. All rights and remedies of Bank hereunder are
cumulative of each other and of every other right or remedy which Bank may
otherwise have at law or in equity or under any instrument or agreement, and the
exercise of one or more of such rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of any other rights or remedies.
18. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.
19. Venue. This Guaranty has been entered into in the county in Texas
where Bank's address for notice purposes is located, and it shall be performable
for all purposes in such county. Courts within the State of Texas shall have
jurisdiction over any and all disputes arising under or pertaining to this
Guaranty and venue for any such disputes shall be in the county or judicial
district where the Bank's address for notice purposes is located.
20. Compliance with Applicable Usury Laws. Notwithstanding any other
provision of this Guaranty or of any instrument or agreement evidencing,
governing or securing all or any part of the Guaranteed Indebtedness, Guarantor
and Bank by its acceptance hereof agree that Guarantor shall never be required
or obligated to pay interest in excess of the maximum nonusurious interest rate
as may be authorized by applicable law for the written contracts which
constitute the Guaranteed Indebtedness. It is the intention of Guarantor and
Bank to conform strictly to the applicable laws which limit interest rates, and
any of the aforesaid contracts for interest, if and to the extent payable by
Guarantor, shall be held to be subject to reduction to the maximum nonusurious
interest rate allowed under said law.
21. Descriptive Headings. The captions in this Guaranty are for
convenience only and shall not define or limit the provisions hereof.
22. Gender. Within this Guaranty, words of any gender shall be held and
construed to include the other gender.
23. Guarantor's Liability. The liability of Guarantor with respect to its
obligations hereunder shall be limited to the maximum amount of liability that
can be incurred without rendering this Unlimited Guaranty, as it relates to any
Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer, and not for any greater amount.
24. Entire Agreement. This Guaranty contains the entire agreement between
Guarantor and Bank regarding the subject matter hereof and supersedes all prior
written and oral agreements and understandings, if any, regarding same;
provided, however, this Guaranty is in addition to and does not replace, cancel,
modify or affect any other guaranty of Guarantor now or hereafter held by Bank
that relates to Borrower or any other person or entity.
EXECUTED as of the date first above written.
GUARANTOR:
---------
_____________________________________
_____________________________________
_____________________________________
_____________________________________
EXHIBIT "D"
CERTIFICATE OF COMPLIANCE
The undersigned hereby certifies that he is the _______ of
______________________ ("________")(______________ together with
________________ are hereinafter called the "Borrower"), and that as such he is
authorized to execute this Certificate of Compliance on behalf of the Borrower.
With reference to that certain Restated Senior Secured Loan Agreement, dated as
of October ___, 1997 (as same may be amended, modified, increased, supplemented
and/or restated from time to time, the "Loan Agreement"), entered into between
the Borrower, BANK ONE, TEXAS, N.A., a national banking association ("Bank One")
and BANQUE PARIBAS ("Paribas") (Bank One and Paribas in their capacities as
lenders are hereinafter referred to as "Banks") and Bank One as "Agent" and
Paribas, as "Co-Agent", the undersigned further certifies, represents and
warrants on behalf of the Trust that all of the following statements are true
and correct (each capitalized term used herein having the same meaning given to
it in the Agreement unless otherwise specified):
(a) The Borrower have fulfilled in all material respects their
obligations under the Note and Security Instruments, including the Loan
Agreement, and 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 [if the representations and
warranties are not true and correct, the party signing this certificate
shall except from the foregoing statement the matters for which such
representations and warranties are no longer true specifying the nature of
any such change.]
(b) No Event of Default has occurred under the Security Instruments,
including the Loan Agreement [if an Event of Default has occurred, the
party certifying hereto shall specify the facts constituting the Event of
Default and the nature and status thereof].
(c) To the extent requested from time to time by the Agent, the
certifying party shall specifically affirm compliance of the Borrower in
all material respects with any of its representations and warranties
(except to the extent they relate solely to an earlier date) or obligations
under said instruments.
(d) Financial Computations (provide calculation) as of __________,
199___:
(i) Current Ratio;
(ii) Minimum Interest Coverage Ratio; and
(iii) Tangible Net Worth.
EXECUTED, DELIVERED AND CERTIFIED TO this ______ day of __________, 19__.
______________________________
By:
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Name:
---------------------------
Title:
---------------------------