EXHIBIT 10.3
CREDIT AGREEMENT
_________________________________________
INFINITY OIL & GAS OF WYOMING, INC.
and
U.S. BANK NATIONAL ASSOCIATION
_________________________________________
September 4, 2003
TABLE OF CONTENTS
Page
ARTICLE I Definitions and References 1
Section 1.1 Defined Terms 1
Section 1.2 Incorporation of Exhibits 6
Section 1.3 Amendment of Defined Instruments 7
Section 1.4 References and Titles 7
Section 1.5 Calculations and Determinations 7
ARTICLE II The Loan 7
Section 2.1 The Loan 7
Section 2.2 The Note; Interest 8
Section 2.3 Mandatory Principal Payments 8
Section 2.4 Voluntary Prepayments 9
Section 2.5 Termination of Agreement 9
Section 2.6 Payments to USB 9
Section 2.7 Use of Proceeds 9
Section 2.8 Borrowing Base Procedures 9
ARTICLE III Security; Fees 10
Section 3.1 The Security 10
Section 3.2 Perfection and Protection of Security
Interests and Liens 10
Section 3.3 Bank Accounts and Offset 10
Section 3.4 Fees 10
Section 3.5 Obligations Absolute 11
Section 3.6 Indemnification 11
Section 3.7 Liability of USB 11
ARTICLE IV Conditions Precedent to Loan 12
Section 4.1 Conditions Precedent to Initial Advance 12
Section 4.2 Additional Conditions Precedent 13
ARTICLE V Representations and Warranties 14
Section 5.1 Borrower's Representations and Warranties 14
Section 5.2 Representations by USB 17
ARTICLE VI Covenants of Borrower 17
Section 6.1 Affirmative Covenants 17
Section 6.2 Negative Covenants 21
ARTICLE VII Events of Default and Remedies 25
Section 7.1 Events of Default 25
Section 7.2 Remedies 27
Section 7.3 Indemnity 27
ARTICLE VIII Miscellaneous
Section 8.1 Waiver and Amendment 28
Section 8.2 Survival of Agreements; Cumulative Nature 28
Section 8.3 Notices 28
Section 8.4 Parties in Interest 29
Section 8.5 USB's Damage Limitation 29
Section 8.6 Governing Law 29
Section 8.7 Limitation on Interest 29
Section 8.8 Severability 30
Section 8.9 Counterparts 30
Section 8.10 Conflicts 30
Section 8.11 Entire Agreement 30
Section 8.12 Arbitration 30
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of September 4, 2003, is by and between
INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation ("Borrower"), and
U.S. BANK NATIONAL ASSOCIATION, a national banking association ("USB").
RECITAL
Borrower and USB desire that this Credit Agreement be executed and
delivered in order to provide for the terms upon which USB will make advances
to Borrower and issue letters of credit upon the request of Borrower and by
which such advances and letters of credit will be governed and repaid.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
Definitions and References
Section 1.1 Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it in this Section 1.1 or in the
sections and subsections referred to below:
"Advance" means an advance of funds by USB to or for the account of
Borrower pursuant to Article II below.
"Affiliate" means, as to any Person, each Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by or is under common control with, such Person; provided that, for
the purposes of this definition, a Person shall be deemed to control another
entity if the controlling Person possesses, directly or indirectly, the power
to direct or control the direction of the management and policies of such
entity, whether through the ownership of capital stock, partnership interests,
membership interests or other interests therein, by contract or otherwise, and
shall include without limitation any controlling shareholder, general partner,
controlling member or controlling owner thereof.
"Agreement" means this Credit Agreement.
"Borrower" means Infinity Oil & Gas of Wyoming, Inc., a Wyoming
corporation.
"Borrowing Base" means, at any time, the aggregate loan value of all
Borrowing Base Properties, as determined by USB in its sole and absolute
discretion, using such assumptions as to pricing, discount factors, discount
rates, expenses and other factors as USB customarily uses as to borrowing-base
oil and gas loans at the time such determination is made; provided that the
Borrowing Base for the time period from the date of this Agreement through
December 31, 2003 shall be $5,500,000, unless Borrower and USB hereafter
mutually agree upon a different amount or unless the Borrowing Base is
redetermined or reduced pursuant to Section 2.8 below prior to such date.
"Borrowing Base Notice" means a written notice sent to Borrower by USB
notifying Borrower of the Borrowing Base determined by USB for the upcoming
Borrowing Base Period or other time period.
"Borrowing Base Period" means: (a) the time period from the date of this
Agreement through December 31, 2003; (b) thereafter, each six-month time
period beginning on January 1 or July 1 of each year, until the January 1 or
July 1 most immediately preceding the Maturity Date; and (c) thereafter, the
time period from the January 1 or July 1 most immediately preceding the
Maturity Date through the Maturity Date.
"Borrowing Base Properties" means, at any time, any and all interests of
Borrower, whether now owned or hereafter acquired, in any and all oil and/or
gas ▇▇▇▇▇, leases and other related rights and assets which have been
evaluated by USB in connection with any determination of the Borrowing Base.
"Business Day" means any day which is not a Saturday, a Sunday or a legal
holiday on which commercial banks are authorized or required to be closed in
Denver, Colorado.
"Cash Flow Leverage Ratio" means, at any time, the ratio of: (a)
Borrower's funded, interest-bearing indebtedness (excluding Subordinated Debt)
at that time, determined in accordance with GAAP; to (b) the greater of: (1)
four times Borrower's EBITDAX for the then most recently completed Fiscal
Quarter of Borrower, or (2) Borrower's EBITDAX for the then most recently
completed four consecutive Fiscal Quarters of Borrower.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
"Collateral" means all tangible or intangible real or personal property
which, under the terms of any Security Document, is or is purported to be
covered thereby or subject thereto.
"Commitment Amount" means, at any time, the lesser of: (a) the Maximum
Loan Amount, or (b) the Borrowing Base.
"Consolidated" means, as to any Person, the combined financial
statements, financial position, financial condition, net income, assets,
liabilities and other financial data of such Person and of any and all
Affiliates of such Person that would be considered consolidated Affiliates
under GAAP.
"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notice and/or the passage of
time, constitute an Event of Default.
"Distribution" means any distribution payable in cash or property to any
shareholder of Borrower, or any purchase, redemption or retirement of, or
other payment with respect to, any capital stock of Borrower.
"Duke Agreement" means the Amended and Restated Gas Gathering Agreement
dated as of June 19, 2001, between Borrower and Duke Energy Field Services,
LP, as presently in effect and as amended pursuant to any amendments hereafter
entered into with the written consent of USB.
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"EBITDAX" means, for any Fiscal Quarter: (a) net income for that Fiscal
Quarter, excluding any and all gains and losses from the sale of capital
assets and other extraordinary items and from any ▇▇▇▇-to-market of
unliquidated commodity hedge contracts, plus (b) the following, to the extent,
and only to the extent, that they have been deducted in computing net income
for that Fiscal Quarter: interest expenses, income taxes, depreciation,
depletion, amortization, intangible drilling costs, exploration expenses and
non-cash impairments, all determined in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time (and any successor statute), together with all rules
and regulations promulgated thereunder or with respect thereto.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which, together with any Obligated Person, would be deemed to be
a single employer (as described in Section 4001(b)(1) of ERISA or any of
subsections (b), (c), (m) or (o) of Section 414 of the Code).
"ERISA Plan" means any employee pension benefit plan subject to Title IV
of ERISA maintained by any Obligated Person or any ERISA Affiliate with
respect to which any Obligated Person or any ERISA Affiliate has a fixed or
contingent liability.
"Event of Default" has the meaning given such term in Section 7.1 below.
"Fiscal Quarter" means a three-month time period ending on the last day
of March, June, September or December of any year.
"Fiscal Year" means a twelve-month time period ending on December 31 of
any year.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or
any generally recognized successor) and which, in the case of Borrower or
Guarantor: (a) are applied for all periods in a consistent manner, and (b) are
consistently applied for all periods after the date hereof so as to properly
reflect the financial condition, the results of operations and the changes in
financial position of Borrower or Guarantor, as applicable.
"Guarantor" means Infinity, Inc., a Colorado corporation.
"Guaranty" means the Guaranty executed and delivered by Guarantor to USB
to guaranty the Obligations.
"Initial Advance" means the first Advance on the Loan, to be made on or
about September 5, 2003, in the amount required to repay in full the
Pertrobridge Indebtedness and the Kansas City Indebtedness, up to, but not in
excess of, the Commitment Amount.
"Initial Engineering Reports" means: (a) the report dated as of January
1, 2003, covering some of the Borrowing Base Properties, prepared by R. E.
▇▇▇▇▇ Associates, Inc., and (b) the report dated as of January 1, 2003,
covering some of the Borrowing Base Properties, prepared by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
Company, Inc., copies of which have been furnished by Borrower to USB.
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"Initial Financial Statements" means the audited annual Consolidated and
consolidating financial statements of Guarantor dated as of December 31, 2002,
and the quarterly unaudited financial statements of Borrower dated as of June
30, 2003, and the unaudited Consolidated and consolidating financial
statements of Guarantor dated as of June 30, 2003, copies of all of which
Initial Financial Statements have heretofore been delivered by Borrower and
Guarantor to USB.
"Interest Coverage Ratio" means, at any time after the date hereof, the
ratio of: (a)(1) Borrower's EBITDAX for the then most recently completed
Fiscal Quarter of Borrower; minus (2) the Replacement Capital Expenditure
Amount for the then most recently completed Fiscal Quarter of Borrower; to (b)
the aggregate amount of interest paid by Borrower on funded indebtedness
(excluding Subordinated Debt), whether under this Agreement or otherwise, for
the then most recently completed Fiscal Quarter of Borrower.
"Kansas City Indebtedness" means indebtedness of Guarantor in the
aggregate current outstanding principal amount of $295,000, owed to: (a)
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ pursuant to that certain $250,000 Bridge Loan Agreement dated
effective January 23, 2003; (b) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ pursuant to that certain
$250,000 Bridge Loan Agreement dated effective January 23, 2003; (c) ▇▇▇▇▇▇▇
▇▇▇▇▇ pursuant to that certain $150,000 Bridge Loan Agreement dated effective
January 23, 2003; and (d) U.S. Capital Fund LLC pursuant to that certain
$100,000 Bridge Loan Agreement dated effective January 23, 2003.
"Letter of Credit" means a standby letter of credit issued by USB
pursuant to Article II below.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether primary or secondary, direct or indirect,
absolute or contingent.
"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to him or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, including without limitation any lien,
mortgage, security interest, pledge, deposit, rights of a vendor under any
title retention or conditional sale agreement or lease substantially
equivalent thereto, or any other charge or encumbrance for security purposes,
whether arising by law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of business.
"Loan" has the meaning given such term in Section 2.1 below.
"Loan Documents" means this Agreement, the Security Documents, the Note,
the Guaranty, applications for Letters of Credit, Advance requests and all
other agreements, certificates and other documents, instruments and writings
heretofore or hereafter delivered in connection herewith or therewith.
"Maturity Date" means the earlier of: (a) June 30, 2006, or (b) such date
on which the Loan is due and payable in full by reason of the occurrence of an
Event of Default, as established pursuant to Section 7.1 below; provided that,
upon the request of Borrower, USB may, in its sole discretion, extend such
date to a date not later than December 31, 2008, but nothing contained in this
Agreement, the Note or any other Loan Document shall be deemed to commit or
require USB to grant any such extension.
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"Maximum Loan Amount" means $5,500,000; provided that, upon the request
of Borrower, USB may, in its sole discretion, increase said amount to an
amount not greater than $25,000,000 by giving written notice of such increase
to Borrower, but nothing contained in this Agreement, the Note or any other
Loan Document shall be deemed to commit or require USB to grant any such
increase.
"Note" means a Promissory Note in the form of Exhibit A attached hereto
and made a part hereof, duly executed and delivered by Borrower.
"Obligated Person" means Borrower or Guarantor.
"Obligations" means all liabilities and obligations from time to time
owing by Borrower to USB under or pursuant to any of the Loan Documents.
"Obligation" means any part of the Obligations.
"Oil and Gas Interests" means any and all oil or gas leases, mineral
interests, royalty interests, overriding royalty interests, properties,
gathering systems and other real and personal property and interests now or
hereafter owned by Borrower.
"Payment Date" means the last day of each calendar month, commencing
September 30, 2003, through the Maturity Date.
"Permitted Indebtedness" means the indebtedness evidenced by the
following: (a) Note dated July 30, 2001, from Borrower to Ford Motor Credit,
in the amount of $28,316.64, (b) Note dated September 17, 2001, from Borrower
to Thunder Basin Ford, Lincoln Mercury, LLC, in the amount of $27,731.00, (c)
Note dated August 9, 2001, from Borrower to Ford Motor Credit, in the amount
of $29,384.48, (d) Promissory Note dated March 27, 2003 from Borrower to Bank
of Commerce, in the principal amount of $250,000, and (e) Note dated August
31, 2001, from Borrower to Toyota Financing U.S., in the principal amount of
$38,010.92.
"Person" means an individual, corporation, partnership, association,
joint-stock company, trust or trustee thereof, estate or executor thereof,
limited liability company, unincorporated organization or joint venture, court
or governmental unit or any agency or subdivision thereof, or any other
legally recognizable entity.
"Petrobridge Credit Agreement" means the Credit Agreement dated as of
July 2, 2003, among Borrower, as borrower, Highbridge/▇▇▇▇▇ Capital
Management, LLC, as administrative agent, and the lenders named therein.
"Petrobridge Indebtedness" means the indebtedness owed by Borrower under
or in connection with the Petrobridge Credit Agreement.
"Prime Rate" means the fluctuating interest rate per annum announced from
time to time by USB as its prime rate (which may not be the lowest interest
rate charged by USB), adjusted effective as of the effective date of any
change in the prime rate so announced by USB.
"Replacement Capital Expenditure Amount" means, for any Fiscal Quarter of
Borrower: (a)(1) the volume of crude oil produced and sold by Borrower during
such Fiscal Quarter, expressed in barrels, times (2) $3.00 per barrel; plus
(b)(1) the volume of natural gas produced and sold by Borrower during such
Fiscal Quarter, expressed in mcf, times (2) $0.75 per mcf.
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"Security Documents" means all security agreements, deeds of trust,
mortgages, chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter delivered by any or all of the
Obligated Persons or any other person to USB in connection with this Agreement
or any transaction contemplated hereby to secure or guaranty the payment of
any part of the Obligations or the performance of any other duties and
obligations of any or all of the Obligated Persons under the Loan Documents,
whenever made or delivered.
"Strickstein Indebtedness" means indebtedness in the maximum principal
amount of $3,000,000 presently owed by Guarantor to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and/or
▇▇▇▇▇ Associates.
"Subordinated Debt" means any indebtedness or other obligations of
Borrower, to the extent that the rights of the holders thereof to enforce the
indebtedness and other obligations of Borrower thereunder have been
subordinated to the rights of USB hereunder or in connection herewith by
subordination agreements executed by the holders of the Subordinated Debt and
satisfactory in form and substance to USB.
"Taxes" has the meaning given such term in Section 3.7 below.
"Termination Event" means: (a) the occurrence with respect to any ERISA
Plan of a reportable event (as described in Section 4043 of ERISA or the
regulations promulgated thereunder); or (b) the withdrawal of any Obligated
Person or of any ERISA Affiliate from an ERISA Plan during a plan year in
which it was a substantial employer (as defined in Section 4001(a)(2) of
ERISA); or (c) the filing of a notice of intent to terminate any ERISA Plan or
the treatment of any ERISA Plan amendment as a termination under Section 4041
of ERISA; or (d) the institution of proceedings to terminate any ERISA Plan by
the Pension Benefit Guaranty Corporation; (e) the receipt by any Obligated
Person or any ERISA Affiliate of a notice of withdrawal liability pursuant to
Section 4202 of ERISA; or (f) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any ERISA Plan.
"Working Capital" means: (a) the aggregate current assets of Borrower
(including the excess, if any, of the Commitment Amount over: (1) the
aggregate amount of all Advances outstanding hereunder, plus (2) the face
amounts of all Letters of Credit outstanding hereunder, excluding assets
resulting from any ▇▇▇▇-to-market of unliquidated commodity hedge contracts),
minus (b) the aggregate current liabilities of Borrower (excluding current
maturities of the Loan and liabilities resulting from any ▇▇▇▇-to-market of
unliquidated commodity hedge contracts), all determined in accordance with
GAAP.
Section 1.2 Incorporation of Exhibits. All Exhibits attached to this
Agreement are a part hereof for all purposes.
Section 1.3 Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein, the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions and modifications of such
agreement, instrument or document; provided that nothing contained in this
Section 1.3 shall be construed to authorize any such renewal, extension or
modification.
6
Section 1.4 References and Titles. All references in this Agreement
to Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this
section" and "this subsection" and similar phrases refer only to the sections
or subsections hereof in which such phrases occur. The word "or" has the
inclusive meaning frequently identified by the phrase "and/or". Pronouns in
masculine, feminine and neuter genders shall be construed to include any other
gender, and words in the singular form shall be construed to include the
plural and vice versa, unless the context otherwise requires.
Section 1.5 Calculations and Determinations. All interest and fees
accruing under the Loan Documents shall be calculated on the basis of actual
days elapsed (including the first day but excluding the last) and a year of
360 days. Unless otherwise expressly provided herein or unless USB otherwise
consents, all financial statements and reports furnished to USB hereunder
shall be prepared and all financial computations and determinations pursuant
hereto shall be made in accordance with GAAP.
ARTICLE II
The Loan
Section 2.1 The Loan.
(a) Subject to the other terms and conditions of this Agreement,
USB agrees to: (1) make Advances to Borrower from time to time requested upon
written notice to USB from Borrower no later than noon, Denver time, at least
one Business Day prior to any Advance, and (2) issue Letters of Credit from
time to time requested upon written notice to USB from Borrower no later than
five Business Days prior to the date of issuance of such Letter of Credit.
(b) Each request by Borrower for an Advance shall be in the form
of Exhibit B attached hereto and made a part hereof. Each request by Borrower
for the issuance or amendment of a Letter of Credit shall be in the form of
Exhibit C attached hereto and made a part hereof, and shall be accompanied by
an application for issuance or amendment of a letter of credit on USB's
then-standard form, duly executed by Borrower.
(c) USB shall not have any obligation to: (1) make an Advance on
or after the Maturity Date, (2) issue or renew a Letter of Credit which does
not expire prior to five Business Days before the Maturity Date, (3) make an
Advance in an amount less than $10,000, or (4) make an Advance or issue a
Letter of Credit if, after such Advance is made or such Letter of Credit is
issued, the aggregate amount of all Advances outstanding hereunder plus the
face amounts of all Letters of Credit outstanding hereunder would exceed the
Commitment Amount.
(d) Each payment by USB under a Letter of Credit shall be deemed
to be an Advance, bearing interest from the date of such payment. Each
payment by USB under a Letter of Credit shall be a demand obligation owing by
Borrower to USB, bearing interest from the date of such payment at the rate
described in Section 2.2(b)(2) below. Each payment by USB under any Letter of
Credit shall be entitled to all benefits of the Security Documents and shall
be subject to all terms of this Agreement and any and all other applicable
Loan Documents.
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(e) Within the limitation of the Commitment Amount and subject
to the other terms and provisions hereof, Borrower may borrow, repay and
reborrow hereunder. The Advances, Letters of Credit and demand obligations
described above shall be herein collectively referred to as the "Loan".
Borrower hereby expressly requests and irrevocably authorizes USB to make the
Loan.
Section 2.2 The Note; Interest.
(a) Borrower's obligation to repay the Loan, with interest
thereon, shall be evidenced by the Note. In the event any provision contained
in the Note conflicts with a provision contained in this Agreement, the
provisions of this Agreement shall control.
(b) (1) Except as otherwise provided in (2) below, interest on
the Loan shall accrue at a fluctuating annual rate equal to the Prime Rate
plus one percentage point per annum. (2) From and after the occurrence, and
during the continuance, of any Event of Default hereunder (including without
limitation any failure by Borrower to pay the entire outstanding principal
balance of the Loan, together with all accrued interest, fees and other
amounts payable in connection therewith, on or before the Maturity Date),
interest on the Loan shall accrue, from the date of occurrence of the Event of
Default until the date the Event of Default is cured, at a fluctuating annual
rate equal to the Prime Rate plus five percentage points per annum.
(c) Interest accrued on the Loan shall be due and payable on
each Payment Date. All accrued and unpaid interest shall be due and payable
not later than the Maturity Date.
Section 2.3 Mandatory Principal Payments.
(a) If for any reason the aggregate outstanding principal
balance of all Advances plus the aggregate face amount of all outstanding
Letters of Credit shall exceed the Commitment Amount, Borrower shall, after
written notice thereof from USB: (1) pay the excess to USB in a lump sum
within 10 days after such notice; or (2) commence, as of the last day of the
calendar month in which such notice is given (and thereafter continue), an
amortization schedule under which Borrower repays the Loan in an amount at
least equal to the excess in six equal monthly principal installments on the
last day of each calendar month, which amounts shall be in addition to the
monthly interest payments and any other principal payments otherwise due, such
that the entire excess is paid within six months; or (3) within 10 days after
such notice, execute and deliver to USB additional mortgages, supplements to
mortgages or other instruments in form and substance reasonably satisfactory
to USB, by which Borrower mortgages, pledges or hypothecates to USB, or
creates a security interest in for the benefit of USB, sufficient additional
Oil and Gas Interests to induce USB to make a redetermination of the Borrowing
Base such that the Commitment Amount is increased to an amount no less than
the aggregate outstanding principal balance of all Advances plus the sum of
the face amounts of all outstanding Letters of Credit.
(b) Any and all payments made by USB under any Letter of Credit
shall be repaid by Borrower to USB immediately after USB demands payment
thereof.
(c) The outstanding principal balance of all Advances, together
with all unpaid fees and expenses, shall be due and payable not later than the
Maturity Date.
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Section 2.4 Voluntary Prepayments. Borrower shall have the right to
prepay any or all Advances at any time, in whole or in part, without penalty
or premium.
Section 2.5 Termination of Agreement. Borrower shall have the right
at any time and from time to time, upon not less than three Business Days'
prior written notice to USB, to terminate this Agreement. Upon any
termination of this Agreement, Borrower shall, at the time of such
termination, prepay the Note in full and cause any and all outstanding Letters
of Credit to be terminated and USB released from any liability thereunder.
Any such prepayment shall be without penalty or premium.
Section 2.6 Payments to USB. Borrower will pay to USB each payment
which Borrower owes under the Loan Documents not later than 12:00 noon, Denver
time, on the due date, in lawful money of the United States of America and in
immediately available funds. Any payment received after such time will be
deemed to have been made on the next following Business Day. Should any such
payment become due and payable on a day other than a Business Day, the
maturity of such payment shall be extended to the next succeeding Business
Day, and, in the case of a payment of principal or past due interest, interest
shall accrue and be due and payable thereon for the period of such extension.
Each payment under a Loan Document shall be due and payable at the place
provided therein or, if no specific place of payment is provided, shall be due
and payable at the place of payment of the Note.
Section 2.7 Use of Proceeds. In no event shall the Loan proceeds be
used directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" (as such
term is defined in Regulation U promulgated by the Board of Governors of the
Federal Reserve System) or to extend credit to others directly or indirectly
for the purpose of purchasing or carrying any such margin stock. Borrower
represents and warrants to USB that Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit to others
for the purpose of purchasing or carrying such margin stock. Borrower will
use the Loan and the Loan proceeds solely to repay, on behalf of Guarantor,
the outstanding balance of the Petrobridge Indebtedness, to repay, on behalf
of Guarantor, the outstanding balance of the Kansas City Indebtedness, to fund
capital expenditures relating to the acquisition, exploration or development
of oil and gas properties, to fund Borrower's general working capital needs
and for the issuance of Letters of Credit in connection with Borrower's
business.
Section 2.8 Borrowing Base Procedures. The Borrowing Base will be
redetermined by USB as of the first day of each Borrowing Base Period (and not
more than one additional time per calendar year as requested by Borrower and
not more than one additional time per calendar year as requested by USB),
based upon the engineering reports and other information submitted by Borrower
pursuant to Section 6.1(b) below and upon such other information and data as
USB reasonably deems relevant. USB shall advise Borrower of each
redetermination of the Borrowing Base by providing to Borrower a Borrowing
Base Notice as of the date of effectiveness of the redetermined Borrowing
Base; provided that if, due to any failure by Borrower to submit in a timely
manner any engineering report or other information required to be submitted by
Borrower hereunder or, if requested in writing by USB, any additional
information or data needed in connection with a redetermination of the
Borrowing Base or due to any other reason beyond the control of USB, USB does
not provide a Borrowing Base Notice at the time described above, then, unless
USB gives notice to the contrary to Borrower, the Borrowing Base from the
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previous period shall be carried over into the new period until a Borrowing
Base Notice has been sent to Borrower by USB. Borrower shall have the right
from time to time, by giving at least three Business Days' prior notice to
USB, to elect to reduce the Borrowing Base by any integral multiple of
$100,000; provided that no such reduction shall reduce the Borrowing Base to
an amount less than $2,000,000; provided further that, as to any time period
for which Borrower has so elected to reduce the Borrowing Base, the reduced
Borrowing Base shall remain in effect until the next redetermination of the
Borrowing Base hereunder (or, if sooner, the next election by Borrower to
reduce the Borrowing Base pursuant to this Section).
ARTICLE III
Security; Fees
Section 3.1 The Security. The Obligations will be secured by the
Security Documents executed and delivered contemporaneously herewith and any
additional Security Documents hereafter delivered by any Obligated Person and
accepted by USB.
Section 3.2 Perfection and Protection of Security Interests and
Liens. Borrower will from time to time deliver to USB any amendments,
financing statements, continuation statements, extension agreements and other
documents, properly completed and executed (and acknowledged when required) by
Borrower in form and substance reasonably satisfactory to USB, which USB may
request for the purpose of perfecting, confirming or protecting USB's Liens
and other rights in the Collateral.
Section 3.3 Bank Accounts and Offset. Borrower will establish,
within 90 days of the date of this Agreement, and will thereafter maintain,
until this Agreement has been terminated and any and all amounts payable by
Borrower hereunder have been repaid in full, at USB, Borrower's primary
depositary account, into which account Borrower will deposit or cause to be
deposited any and all proceeds of production received by Borrower from the
Collateral. To secure the repayment of the Obligations, Borrower hereby
grants to USB a security interest, a lien, and a right of offset, each of
which shall be upon and against: (a) any and all moneys, securities or other
property (and the proceeds therefrom) of Borrower now or hereafter held or
received by or in transit to USB from or for the account of Borrower, whether
for safekeeping, custody, pledge, transmission, collection or otherwise, (b)
any and all deposits (general or special, time or demand, provisional or
final) of Borrower with USB, and (c) any other credits and claims of Borrower
at any time existing against USB, including without limitation claims under
certificates of deposit. Upon the occurrence of any Event of Default, USB is
hereby authorized to foreclose upon, offset, appropriate and apply, at any
time and from time to time, without notice to Borrower, any and all items
hereinabove referred to against the Obligations (whether or not such
Obligations are then due and payable).
Section 3.4 Fees.
(a) Borrower shall pay to USB, for the time period commencing on
the date hereof through the Maturity Date, within 30 days after the end of
each calendar quarter prior to the Maturity Date, commencing with the calendar
quarter ending September 30, 2003, and on the Maturity Date, for the time
period from the end of the last such calendar quarter through the Maturity
Date, a commitment fee in an amount equal to one-half of one percent per
annum, times the excess, if any, of: (1) the Commitment Amount, over (2) the
sum of the aggregate outstanding principal balance of all Advances plus the
face amounts of all outstanding Letters of Credit, computed on a daily basis
for such calendar quarter or other time period.
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(b) Borrower shall pay to USB with respect to each Letter of
Credit a fee in an amount equal to the greater of: (1) $500.00, or (2) one and
one-half percent per annum times the face amount of such Letter of Credit,
which fee shall be due and payable at the time of issuance (and again at the
time of any renewal) of such Letter of Credit.
(c) Borrower shall pay to USB, at the time of the execution and
delivery of this Agreement, a facility fee in the amount of $110,000.
(d) Borrower shall pay to USB, within 30 days after the
effective date of each of the Borrowing Base redeterminations scheduled for
July 1, 2004 and July 1, 2005, a loan fee in the amount of: (1) one-half of
one percent, times (2) the Commitment Amount in effect immediately after each
of the above-described redeterminations.
(e) Contemporaneously with any and all increases in the Maximum
Loan Amount hereafter requested by Borrower and agreed to by USB, Borrower
shall pay to USB a facility fee in an amount equal to two percent times the
amount by which the Maximum Loan Amount is being increased in excess of the
greater of: (1) $5,500,000 or (2) the highest Maximum Loan Amount as to which
the fee pursuant to this Section 3.4(e) has previously been paid.
Section 3.5 Obligations Absolute. The obligation of Borrower to
repay any amount drawn on USB pursuant to the terms of a Letter of Credit
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(a) The existence of any claim, set-off, defense or other right
which Borrower may have at any time against any beneficiary of a Letter of
Credit (or any Person for whom any such beneficiary may be acting) or any
other Person, whether in connection with this Agreement, the transactions
contemplated hereby or any unrelated transactions;
(b) Any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect
whatsoever; or
(c) Payment by USB under any Letter of Credit against
presentation of a draft or certificate which does not comply in all material
respects with the terms of such Letter of Credit.
Payment by Borrower of a reimbursement obligation in connection with a Letter
of Credit issued pursuant to this Agreement shall not be deemed a waiver of
any rights of Borrower against USB under Section 3.7(d) below.
Section 3.6 Indemnification. Borrower hereby indemnifies and agrees
to hold harmless USB from and against any and all claims, damages, losses,
liabilities, costs or expenses whatsoever which USB may incur (or which may be
claimed against USB by any Person) by reason of or in connection with the
execution and delivery or transfer of or payment or failure to pay under any
Letter of Credit; provided, however, that Borrower shall not be required to
indemnify USB for any claims, damages, losses, liabilities, costs or expenses
to the extent, but only to the extent, caused by the willful misconduct or
gross negligence of USB in connection with paying a draft presented under a
Letter of Credit or by the breach of USB's obligations under any Loan Document
if such breach arises by reason of the willful misconduct or gross negligence
of USB. Nothing in this Section 3.6 is intended to limit the obligation of
Borrower to repay any amount drawn on USB pursuant to the terms of a Letter of
Credit.
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Section 3.7 Liability of USB. Borrower assumes all risks of the acts
or omissions of any beneficiary or permitted transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither USB nor any
of its employees, officers or directors shall be liable or responsible for:
(a) The use which may be made of any Letter of Credit or for any
acts or omissions of any beneficiary or transferee thereof in connection
therewith;
(b) The validity, sufficiency or genuineness of documents, or of
any endorsements thereon, even if such documents should in fact prove to be in
any or all respects invalid, insufficient, fraudulent or forged;
(c) Payment by USB against presentation of documents which do
not comply with the terms of the applicable Letter of Credit, including
failure of any documents to bear any reference or adequate reference to the
applicable Letter of Credit; or
(d) Any other circumstance whatsoever in making or failing to
make payment under the Letter of Credit, except only that Borrower shall have
a claim against USB, and USB shall be liable to Borrower, to the extent, but
only to the extent, of any direct (as opposed to consequential) damages
suffered by Borrower which were caused by:
(1) USB's willful misconduct, bad faith or gross
negligence in connection with the Letter of Credit;
(2) USB's bad-faith or grossly negligent failure to pay
under any Letter of Credit after the presentation to it by the
beneficiary of a draft and certificate strictly complying with the terms
and conditions of such Letter of Credit; or
(3) USB's breach of its obligations under any Loan
Document if such breach arises from the willful misconduct or gross
negligence of USB.
ARTICLE IV
Conditions Precedent to Loan
Section 4.1 Conditions Precedent to Initial Advance. USB shall have
no obligation to make the Initial Advance or to issue any Letter of Credit
unless USB shall have received all of the following at its office in Denver,
Colorado, duly executed and delivered and in form, substance and date
satisfactory to USB:
(a) The Note.
(b) An "Omnibus Certificate" of an officer of Borrower, which
shall contain the names and signatures of the officers of Borrower authorized
to execute Loan Documents and which shall certify to the truth, correctness
and completeness of the following exhibits attached thereto: (1) a copy of
the articles of incorporation of Borrower and all amendments thereto, (2) a
copy of the bylaws of Borrower and all amendments thereto, and (3) a copy of
the resolutions of the Board of Directors of Borrower, authorizing this
Agreement and the transactions contemplated hereby.
(c) A "Compliance Certificate" of an officer of Borrower in
which such person certifies to the satisfaction of the conditions set out in
subsections (a), (b), and (c) of Section 4.2 below.
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(d) The Security Documents.
(e) Subordination Agreements from Guarantor and from the holders
of the Strickstein Indebtedness subordinating all obligations now or hereafter
owed by Borrower to Guarantor or to the holders of the Strickstein
Indebtedness to the Obligations.
(f) Recordable releases of the Liens securing the Petrobridge
Indebtedness (or payoff letters obligating the holders of the relevant Liens
to deliver recordable releases of such Liens upon payment of amounts to be
advanced as part of the Initial Advance).
(g) Such opinions concerning the due execution, delivery,
authorization, enforceability and other matters concerning the Loan Documents
as may be satisfactory to USB.
(h) Such title opinions, supplemental title opinions, UCC
searches and other title information concerning Borrower's title to the
Borrowing Base Properties or any portions thereof as may be satisfactory to
USB.
(i) Such reports, certifications and other information as may be
satisfactory to USB concerning the condition of the Borrowing Base Properties
and the compliance or non-compliance with all applicable environmental laws,
regulations and standards by the owners and operators thereof.
(j) Any and all other Loan Documents.
(k) The fee payable pursuant to Section 3.4(c) above.
Section 4.2 Additional Conditions Precedent. USB shall have no
obligation to make the Initial Advance or any subsequent Advance or to issue
any Letter of Credit unless the following conditions precedent have been
satisfied:
(a) All representations and warranties made by any Obligated
Person in any Loan Document shall be true in all material respects on and as
of the date of the Advance or the date of issuance of the Letter of Credit as
if such representations and warranties had been made as of the date hereof.
(b) No Default shall exist as of the date of the Advance or the
date of issuance of the Letter of Credit.
(c) Each Obligated Person shall have performed and complied in
all material respects with all agreements and conditions herein required to be
performed or complied with by it on or prior to the date of the Advance or the
date of issuance of the Letter of Credit.
(d) The making of the Advance or the issuance of the Letter of
Credit shall not be prohibited by any law or any regulation or order of any
court or governmental agency or authority and shall not subject USB to any
penalty or other onerous condition under or pursuant to any such law,
regulation or order.
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ARTICLE V
Representations and Warranties
Section 5.1 Borrower's Representations and Warranties. To induce USB
to enter into this Agreement and to make the Loan, Borrower represents and
warrants to USB (which representations and warranties shall survive the
delivery of the Note and shall be deemed to be continuing representations and
warranties until repayment in full of the Note) that:
(a) No Default. Borrower is not in default in any material
respect in the performance of any of the covenants and agreements contained
herein. No event has occurred and is continuing which constitutes a Default.
(b) Organization and Good Standing. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Wyoming, having all powers required to carry on its business and
enter into and carry out the transactions contemplated hereby. Borrower is
duly qualified, in good standing and authorized to do business in all other
jurisdictions wherein the character of the properties owned or held by it or
the nature of the business transacted by it makes such qualification
necessary, unless the failure so to qualify would not reasonably be expected
to have a material adverse effect on Borrower.
(c) Authorization. Borrower has duly taken all action necessary
to authorize the execution and delivery by it of the Loan Documents and to
authorize the consummation of the transactions contemplated thereby and the
performance of its obligations thereunder.
(d) No Conflicts or Consents. The execution and delivery by the
various Obligated Persons of the Loan Documents to which each is a party, the
performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents,
do not and will not: (1) conflict with any provision of: (A) any domestic or
foreign law, statute, rule or regulation, (B) the governing documents of
Borrower, or (C) any agreement, judgment, license, order or permit applicable
to or binding upon any Obligated Person, unless such conflict would not
reasonably be expected to have a material adverse effect on Borrower, (2)
result in the acceleration of any indebtedness owed by any Obligated Person,
or (3) result in or require the creation of any Lien upon any assets or
properties of any Obligated Person except as expressly contemplated by the
Loan Documents. Except as expressly contemplated by the Loan Documents, no
consent, approval, authorization or order of, and no notice to or filing with,
any court or governmental authority or third party is required in connection
with the execution, delivery or performance by any Obligated Person of any
Loan Document or to consummate any transactions contemplated by the Loan
Documents.
(e) Enforceable Obligations. This Agreement is, and the other
Loan Documents when duly executed and delivered will be, legal and binding
obligations of each Obligated Person which is a party hereto or thereto,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights and as limited by general equitable
principles.
(f) Initial Financial Statements. Except for the Liabilities
incurred pursuant to the Petrobridge Credit Agreement, the Initial Financial
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Statements fairly present in all material respects Borrower's and Guarantor's
respective financial positions at the dates thereof. Since the dates of the
Initial Financial Statements, no material adverse change has occurred in
Borrower's or Guarantor's financial condition or business. The Initial
Financial Statements of Borrower and Guarantor were prepared in accordance
with GAAP.
(g) Other Obligations. Except for the Liabilities incurred
pursuant to the Petrobridge Credit Agreement, Borrower has no material
outstanding Liabilities of any kind (including contingent obligations, tax
assessments and unusual forward or long-term commitments) which are not shown
in the Initial Financial Statements.
(h) Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by Borrower to USB in connection
with the negotiation of this Agreement or in connection with any transaction
contemplated hereby contains any untrue statement of a material fact or omits
to state any material fact known to Borrower necessary to make the statements
contained herein or therein not misleading in any material respect as of the
date made or deemed made. At the date of this Agreement, Borrower is not
aware of any material fact that has not been disclosed to USB in writing which
could materially and adversely affect Borrower's properties, businesses or
condition (financial or otherwise). The copies of the Initial Engineering
Reports heretofore furnished by Borrower to USB are true and correct copies of
such reports. To Borrower's knowledge, the Initial Engineering Reports, as of
their dates, were based upon complete and accurate factual information in all
material respects, it being understood that the Initial Engineering Reports
are necessarily based upon professional opinions, estimates and projections
and that Borrower does not warrant that such opinions, estimates and
projections will ultimately prove to have been accurate.
(i) Litigation. Except as disclosed in the Initial Financial
Statements or as otherwise disclosed in writing by Borrower to USB prior to
the date hereof: (1) there are no actions, suits or legal, equitable,
arbitrative or administrative proceedings pending, or to the knowledge of
Borrower threatened, against any Obligated Person before any federal, state,
municipal or other court, department, commission, body, board, bureau, agency
or instrumentality, domestic or foreign, which do or may materially and
adversely affect any Obligated Person, any Affiliate of any Obligated Person,
any Obligated Person's ownership or use of any of its assets or properties,
its business or financial condition, or the right or ability of any Obligated
Person to enter into the Loan Documents or perform its obligations thereunder
and (2) there are no outstanding judgments, injunctions, writs, rulings or
orders by any such governmental entity against any Obligated Person which have
or would reasonably be expected to have any such effect.
(j) Title to Properties. Subject to typical oil-industry
operating agreements and product-purchase contracts and except as heretofore
disclosed by Borrower to USB in writing: (1) Borrower has good and defensible
title to the Borrowing Base Properties, free and clear of all liens,
encumbrances and defects of title, except for covenants, restrictions, rights,
easements, liens, encumbrances and minor irregularities in title which do not
materially interfere with the occupation, use and enjoyment of such Borrowing
Base Properties in the normal course of business as presently conducted or
materially impair the value thereof for such business, (2) Borrower enjoys
peaceful and undisturbed possession under all material leases under which
Borrower operates with respect to the Borrowing Base Properties, and (3) all
such leases are valid and subsisting, with no material default existing
thereunder.
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(k) Place of Business. The chief executive office and principal
place of business of Borrower are located at the address of Borrower set out
in Section 8.3 below.
(l) Taxes. All tax returns required to be filed by Borrower in
any jurisdiction prior to the date hereof have been filed; all taxes,
assessments, fees and other governmental charges upon Borrower or upon any of
Borrower's properties, income or franchises, which are due and payable have
been paid, or adequate reserves have been provided for payment thereof.
(m) Use of Proceeds. Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U or X of the Board of Governors of the Federal Reserve System),
and no part of the proceeds of the Loan will be used to purchase or carry any
such margin stock or to extend credit to any Person for the purpose of
purchasing or carrying any such margin stock. Neither Borrower nor any Person
acting on Borrower's behalf has taken or will take any action which might
cause this Agreement or the Note or the application of the proceeds of the
Loan to violate either of said Regulations U or X or any other regulation of
the Board of Governors of the Federal Reserve System or to violate the
Securities Exchange Act of 1934, in each case as now in effect or as the same
may hereafter be in effect. Borrower will use the Loan and the Loan proceeds
solely to repay, on behalf of Guarantor, the outstanding balance of the
Petrobridge Indebtedness, to repay, on behalf of Guarantor, the outstanding
balance of the Kansas City Indebtedness, to fund capital expenditures relating
to the acquisition, exploration or development of oil and gas properties, to
fund Borrower's general working capital needs and for the issuance of Letters
of Credit in connection with Borrower's business.
(n) Investment Company Act Not Applicable. Borrower is not an
"investment company" or a person "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(o) Public Utility Holding Company Act Not Applicable. Borrower
is not a "holding company," or a "subsidiary company" of a "holding company,"
or an "affiliate" of a "holding company," or of a "subsidiary company" of a
"holding company" as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
(p) ERISA Liabilities. All currently existing ERISA Plans have
been disclosed in writing by Borrower to USB. Except as disclosed in the
Initial Financial Statements, no Termination Event has occurred with respect
to any ERISA Plan, and the Obligated Persons and all ERISA Plans are in
compliance with ERISA in all material respects. No act, omission or
transaction has occurred which could result in the imposition on any Obligated
Person or any ERISA Affiliate (whether directly or indirectly) of a civil
penalty assessed pursuant to any of subsections (c), (i) or (l) of Section 502
of ERISA, a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or a
breach of fiduciary duty liability damages under Section 409 of ERISA. No
ERISA Plan (other than a defined contribution plan) or any trust created under
any ERISA Plan has been terminated since September 2, 1974. No liability to
the Pension Benefit Guaranty Corporation (other than for the payment of
current premiums that are not past due) by any Obligated Person or any ERISA
Affiliate has been or is expected by any Obligated Person or any ERISA
Affiliate to be incurred with respect to any ERISA Plan. No Obligated Person
is required to contribute to, or has any other absolute or contingent
liability in respect of, any multiemployer plan (as defined in Section 4001 of
ERISA). Except as set forth in the Initial Financial Statements: (1) the
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Obligated Persons and the ERISA Affiliates have made full payment of any and
all amounts required to be paid under the terms of each ERISA Plan or
applicable law, and no accumulated funding deficiency (as defined in Section
302 of ERISA or Section 412 of the Code) exists with respect to any ERISA
Plan, whether or not waived by the Secretary of the Treasury or his delegate,
and (2) the actuarial present value of each ERISA Plan's benefit liabilities
(as defined in Section 4041 of ERISA) does not exceed the current value of
such ERISA Plan's assets (computed on a plan termination basis in accordance
with Title IV of ERISA) available for the payment of such benefits. Neither
any Obligated Person nor any ERISA Affiliate sponsors, maintains or
contributes to an employee welfare benefit plan (as defined in Section 3(l) of
ERISA), including without limitation any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by
such Obligated Person or ERISA Affiliate in its sole discretion at any time
without material liability. Neither any Obligated Person nor any ERISA
Affiliate is required to provide security under Section 401(a)(29) of the Code
because of an amendment to an ERISA Plan that results in an increase in
current liability for such ERISA Plan.
Section 5.2 Representations by USB. USB hereby represents that it
will acquire the Note for its own account in the ordinary course of its
commercial banking business; however, the disposition of USB's property shall
at all times be and remain within its control and this section does not
prohibit USB's sale of the Note or of any participation in the Note to any
bank, financial institution, investor or other purchaser.
ARTICLE VI
Covenants of Borrower
Section 6.1 Affirmative Covenants. Borrower warrants, covenants and
agrees that, until the full and final payment of the Obligations and the
termination of this Agreement, unless USB has previously agreed otherwise in
writing:
(a) Payment and Performance. Borrower will pay all amounts due
under the Loan Documents in accordance with the terms thereof and will in all
material respects observe, perform and comply with every term, covenant and
condition, express or implied, in the Loan Documents.
(b) Books, Financial Statements and Records. Borrower will at
all times maintain full and accurate books of account and records. Borrower
will maintain a standard system of accounting in accordance with GAAP and will
furnish the following statements and reports to USB at Borrower's expense:
(1) As soon as available, and in any event within 120 days
after the end of each Fiscal Year of Guarantor and Borrower, the audited
Consolidated and the unaudited consolidating financial statements of
Guarantor and the unaudited financial statements of Borrower, containing
at least a statement of income, shareholders' equity and cash flow for
each of Guarantor and Borrower for such Fiscal Year and a balance sheet
for each of Guarantor and Borrower as at the end of such Fiscal Year,
setting forth in comparative form the corresponding figures for the
preceding Fiscal Year, in reasonable detail in accordance with GAAP,
accompanied, in the case of Guarantor, by the related opinion of a firm
of independent certified public accountants chosen by Guarantor and
reasonably acceptable to USB, which opinion shall be unqualified and
shall state that said financial statements have been prepared in
accordance with GAAP and fairly present the financial positions and the
results of operations for Guarantor as of the end of and for such Fiscal
Year;
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(2) As soon as available and in any event within 60 days
after the end of each of the first three Fiscal Quarters of each Fiscal
Year of Guarantor and Borrower, the unaudited Consolidated and
consolidating financial statements of Guarantor and the unaudited
financial statements of Borrower for such Fiscal Quarter and for the
then-current Fiscal Year, containing at least a statement of income,
shareholders' equity and cash flow for each of Guarantor and Borrower
for such Fiscal Quarter and for the Fiscal Year to date and a balance
sheet for each of Guarantor and Borrower as at the end of such Fiscal
Quarter, setting forth in comparative form the corresponding figures for
the same Fiscal Quarter of the preceding Fiscal Year and for the
preceding Fiscal Year to date, prepared in reasonable detail in
accordance with GAAP;
(3) At the time of submission of the financial statements
described in (1) and (2) above, a report signed by the president or the
chief financial officer of Guarantor and by the president or the chief
financial officer of Borrower: (A) attesting to the authenticity of such
financial statements, (B) stating that he has read this Agreement and
the Security Documents, and (C) stating whether, after reviewing the
financial statements described above, he has concluded that there did or
did not exist any condition or event as of the date of such financial
statements or at the time of his report which constituted a Default,
and, if he did conclude that any such condition or event existed,
specifying the nature and period of existence of any such condition or
event, and (D) showing the calculation of, and Borrower's compliance or
non-compliance with, all of the financial covenants contained herein;
(4) By: (A) April 30 of each year, an engineering report
and economic evaluation prepared by one or more independent petroleum
engineers chosen by Borrower and reasonably acceptable to USB, covering
all oil and/or gas properties and interests included or proposed to be
included in the Borrowing Base Properties; and (B) October 31 of each
year, commencing October 31, 2004, an engineering report and economic
evaluation prepared by Borrower, covering all oil and/or gas properties
and interests included or proposed to be included in the Borrowing Base
Properties. These engineering reports shall be in form and substance
reasonably satisfactory to USB and shall contain information and
analysis comparable in scope to that contained in the Initial
Engineering Reports;
(5) At the time of submission of each of the engineering
reports described in Section 6.1(b)(4)(A) or (B) above, a report setting
forth, for each of the preceding six calendar months, the volume of
production and sales attributable to production (and the prices at which
such sales were made and the revenues derived from such sales) for such
calendar month from the Borrowing Base Properties, and setting forth the
related ad valorem, severance and production taxes and lease operating
expenses attributable thereto and incurred for such calendar month; and
(6) Promptly upon their becoming available, copies of all
reports, notices and proxy statements sent by Guarantor to its
shareholders and all final registration statements, periodic reports and
other statements and schedules filed by Guarantor with any securities
exchange, the Securities and Exchange Commission or any similar
governmental authority.
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(c) Other Information and Inspections. Each Obligated
Person will furnish to USB any information which USB may from time to
time request concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with the Obligated Persons'
businesses and operations. Each Obligated Person will permit
representatives appointed by USB, including independent accountants,
agents, attorneys, appraisers and any other persons, to visit and
inspect, upon reasonable prior notice, at their sole risk, any of such
Obligated Person's property, including its books of account, other books
and records, and any facilities or other business assets, and to make
extra copies therefrom and photocopies and photographs thereof, and to
write down and record any information such representatives obtain, and
each Obligated Person shall permit USB or its representatives to
investigate and verify the accuracy of the information furnished to USB
in connection with the Loan Documents and to discuss all such matters
with its officers, employees and representatives.
(d) Notice of Material Events. Borrower will promptly
notify USB: (1) of any material adverse change in the financial
condition of any Obligated Person, (2) of the occurrence of any Default,
(3) of the acceleration of the maturity of any Liability owed by any
Obligated Person or of any default by any Obligated Person under any
indenture, mortgage, material agreement, material contract or other
material instrument to which any of them is a party or by which any of
them or any of their properties is bound, if such default could
reasonably be expected to have a material adverse effect upon such
Obligated Person or such properties, (4) of the receipt of any uninsured
written claim of $100,000 or more arising from any alleged breach of
contract or tortious action or inaction by any Obligated Person, (5) of
the filing of any suit or proceeding against any Obligated Person (or
the occurrence of any material development in any such suit or
proceeding) in which an adverse decision could have a material adverse
effect upon any Obligated Person's financial condition, business or
operations (or would reasonably be expected to result in a judgment not
covered by insurance of $100,000 or more against any Obligated Person),
(6) of the merger or consolidation of Borrower with any other business
entity or the formation, acquisition or funding of any new subsidiary of
Borrower, (7) of the occurrence of any Termination Event or any material
adverse development with respect to any ERISA Plan, and (8) of the sale,
transfer, lease, exchange or disposal by Borrower of any of the
Collateral or any of the Borrowing Base Properties, except sales of
already-severed hydrocarbons and other products in the ordinary course
of Borrower's business and sales of obsolete or damaged items. Upon the
occurrence of any of the foregoing, the Obligated Persons will take all
necessary or appropriate steps to remedy promptly any such material
adverse change, Default, or default, to protect against any such adverse
claim, to defend any such suit or proceeding, and to resolve all
controversies on account of any of the foregoing. Borrower will also
notify USB in writing at least twenty Business Days prior to the date
that Borrower changes its name, the state under the laws of which it is
organized, the location of its chief executive office or principal place
of business or the place where it keeps its books and records concerning
the Collateral, furnishing with such notice any necessary financing
statement amendments or requesting USB and its counsel to prepare the
same.
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(e) Maintenance of Existence and Qualifications. Borrower will
maintain and preserve its existence and its rights and franchises in full
force and effect and will qualify to do business in all states or
jurisdictions where required by applicable law, except where the failure so to
qualify would not reasonably be expected to have any material adverse effect
on Borrower.
(f) Maintenance of Properties. Borrower will in all material
respects maintain, preserve, protect and keep the Collateral and the Borrowing
Base Properties in accordance with the standards of a reasonable and prudent
operator or non-operating working interest owner.
(g) Payment of Trade Debt, Taxes, etc. Each Obligated Person
will: (1) timely file all required tax returns; (2) timely pay all material
taxes, assessments, and other governmental charges or levies imposed upon it
or upon its income, profits or property; (3) pay all Liabilities not subject
to any contingency and owed by it on ordinary trade terms to vendors,
suppliers and other Persons providing goods and services used by it in the
ordinary course of its business; and (4) maintain appropriate accruals and
reserves for all of the foregoing Liabilities in accordance with its present
system of accounting. Each Obligated Person will pay and discharge in all
material respects, when due, all other Liabilities not subject to any
contingency, taxes or assessments now or hereafter owed by it. Each Obligated
Person may, however, delay paying or discharging any such Liability so long as
it is in good faith contesting the validity thereof by appropriate action and,
if required under GAAP, has set aside on its books adequate reserves therefor.
(h) Insurance. Borrower will maintain with financially sound
and reputable insurance companies, insurance with respect to its business,
operations and properties in at least such amounts and against at least such
risks as are usually insured against in the same general area by companies of
established repute engaged in the same or a similar business.
(i) Payment of Expenses. Borrower will promptly (and in any
event within 30 days after any invoice or other statement or notice) pay all
reasonable costs and expenses incurred by or on behalf of USB (including
attorneys' fees) in connection with: (1) the preparation, execution and
delivery of this Agreement and the other Loan Documents (including without
limitation any and all future amendments or supplements thereto or
restatements thereof), and any and all consents, waivers or other documents or
instruments relating thereto, (2) the filing, recording, refiling and
re-recording of any Security Documents and any other documents or instruments
or further assurances required to be filed or recorded or refiled or
re-recorded by the terms of any Loan Document, (3) the examination of
Borrower's title to the Collateral, and (4) the enforcement, after the
occurrence of a Default or an Event of Default, of the Loan Documents.
(j) Performance on Borrower's Behalf. If any Obligated Person
fails to pay any taxes, insurance premiums or other amounts it is required to
pay under any Loan Document, USB may pay the same. Borrower shall immediately
reimburse USB for any such payments and each amount paid shall constitute a
part of the Obligations, shall be secured by the Security Documents and shall
bear interest at the rate described in Section 2.2(b)(2) above from the date
such amount is paid by USB until the date such amount is repaid to USB.
(k) Compliance with Agreements and Law. Borrower will perform
all material obligations it is required to perform under the terms of each
indenture, mortgage, deed of trust, security agreement, lease, franchise,
20
agreement, contract or other instrument or obligation to which it is a party
or by which it or any of its properties is bound in such a way that they
result in no material adverse effect upon any of the Borrowing Base Properties
or Borrower's ability to perform its obligations under this Agreement.
Borrower will in all material respects conduct its business and affairs in
compliance with all laws, regulations, and orders applicable thereto
(including those relating to pollution and other environmental matters).
(l) Certifications of Compliance. Each Obligated Person will
furnish to USB at such Obligated Person's or Borrower's expense all
certifications which USB from time to time reasonably requests, as to the
accuracy and validity of or compliance with all representations, warranties
and covenants made by any Obligated Person in the Loan Documents, the
satisfaction of all conditions contained therein, and all other matters
pertaining thereto.
(m) Additional Security Documents. Promptly after a request
therefor by USB at any time and from time to time, Borrower will execute and
deliver to USB such additional Security Documents and/or amendments to
existing Security Documents as USB may deem necessary or appropriate in order
to grant to USB a perfected lien on and security interest in any or all
Borrowing Base Properties owned by Borrower.
(n) Subsidiaries. If Borrower hereafter forms, acquires or
funds any subsidiary, Borrower shall promptly cause such subsidiary to become
an Obligated Person by executing and delivering to USB such Loan Documents as
may be required by USB, in form and substance reasonably satisfactory to USB.
(o) ERISA Compliance. Each Obligated Person will: (1) make
prompt payment of all contributions required under its ERISA Plans and
required to meet the minimum funding standard set forth in ERISA with respect
to its ERISA Plans, (2) if so requested by USB, within 30 days after the
filing thereof, furnish to USB each annual report/return, as well as all
schedules and attachments required to be filed with the Department of Labor or
the Internal Revenue Service pursuant to ERISA, and the regulations
promulgated thereunder, in connection with each of its ERISA Plans for each
ERISA Plan year, and (3) notify USB immediately of any fact, including, but
not limited to, any reportable event (as described in Section 4043 of ERISA or
the regulations promulgated thereunder) arising in connection with any of its
ERISA Plans, which might constitute grounds for termination thereof by the
Pension Benefit Guaranty Corporation or for the appointment by the appropriate
United States District Court of a trustee to administer such ERISA Plans,
together with a statement, if requested by USB, as to the reason therefor and
the action, if any, proposed to be taken with respect thereto.
Section 6.2 Negative Covenants. Borrower warrants, covenants and
agrees that, until the full and final payment of the Obligations and the
termination of this Agreement, unless USB has previously agreed otherwise in
writing:
(a) Financial Covenants. (1) Borrower will not permit the
Working Capital of Borrower to be less than $300,000 at any time on or after
the date hereof. (2) Borrower will not permit the Cash Flow Leverage Ratio of
Borrower to be greater than 3.5:1.0 at any time on or after the date hereof.
(3) Borrower will not permit the Interest Coverage Ratio of Borrower to be
less than 5.5:1.0 at any time on or after the date hereof.
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(b) Limitation on Liens. Borrower will not create, assume or
permit to exist any mortgage, deed of trust, pledge, encumbrance, lien or
charge of any kind (including any security interest in or vendor's lien on
property purchased under conditional sales or other title retention agreements
and including any lease intended as security or in the nature of a title
retention agreement) upon any of Borrower's properties or assets, whether now
owned or hereafter acquired except:
(1) Liens at any time existing in favor of USB;
(2) Liens not created by, through or under Borrower and
constituting minor irregularities in title which do not materially
interfere with the occupation, use and enjoyment of the burdened
properties or assets in the normal course of business as presently
conducted or materially impair the value thereof for such business
including, but not limited to, easements, restrictions, servitudes,
permits, conditions, covenants, exceptions or reservations in any
property of Borrower for the purpose of roads, pipelines, transmission
lines, transportation lines, distribution lines for the removal of gas,
oil, coal or other minerals or timber, and other like purposes, or for
the joint or common use of real estate, rights of way, facilities and
equipment;
(3) statutory Liens for taxes, mechanics', materialmen's
and operators' Liens arising by operation of law and other similar Liens
incurred in the ordinary course of business; provided that such Liens
shall secure only Liabilities which are not delinquent or which are
being contested as provided in Section 6.1(g) above;
(4) purchase-money security interests granted by Borrower
on office equipment, vehicles and other personal property acquired by
Borrower in the ordinary course of business and capital leases entered
into by Borrower in the ordinary course of business; provided that the
aggregate amount secured by all such security interests outstanding at
any one time plus the aggregate amount of rents for which Borrower is
liable under all such capital leases shall not exceed $300,000 at any
time;
(5) contractual Liens which arise in the ordinary course
of business or incident to the exploration, development, operation and
maintenance of Oil and Gas Interests under operating agreements, joint
venture agreements, oil and gas partnership agreements, oil and gas
leases, farm-out agreements, division orders, contracts for the sale,
transportation or exchange of oil and natural gas, unitization and
pooling declarations and agreements, area of mutual interest agreements,
overriding royalty agreements, marketing agreements, processing
agreements, net profits agreements, development agreements, gas
balancing or deferred production agreements, injection, repressuring and
recycling agreements, salt water or other disposal agreements, seismic
or other geophysical permits or agreements, or other agreements that are
usual and customary in the oil and gas business and are for claims that
are not delinquent or are being contested as provided in Section 6.1(g)
above:
(6) Liens on cash or securities pledged to secure
performance of tenders, surety and appeal bonds, government contracts,
performance and return of money bonds, bids, trade cojntracts, leases,
statutory obligations, regulatory obligations and other obligations of a
like nature incurred in the ordinary course of business;
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(7) 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, so long as enforcement thereof is stayed; and
(8) Liens created pursuant to the following documents from
Borrower in favor of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ Associates, each of
which secures the Stickstein Indebtedness: (A) that certain Mortgage,
Security Agreement, Assignment of Production and Financing Statement
dated July 2, 2003, recorded in Moffat County, Colorado; (b) that
certain Mortgage, Security Agreement, Assignment of Production and
Financing Statement dated July 2, 2003, recorded in Routt County,
Colorado; (c) that certain Mortgage, Security Agreement, Assignment of
Production and Financing Statement dated July 2, 2003, recorded in
Carbon County, Wyoming; (d) that certain Mortgage, Security Agreement,
Assignment of Production and Financing Statement dated July 2, 2003,
recorded in Sweetwater County, Wyoming; and (e) that certain
Subordinated Mortgage, Security Agreement, Assignment of Production and
Financing Statement dated July 2, 2003, recorded in Sublette County,
Wyoming.
(c) Additional Indebtedness. Borrower will not create, incur,
assume or permit to exist Liabilities of Borrower, except: (1) the Loan, (2)
trade debt owed to suppliers, pumpers, mechanics, materialmen and others
furnishing goods or services to Borrower in the ordinary course of Borrower's
business, (3) Liabilities incurred in the ordinary course of Borrower's
business in connection with commodity-price hedging transactions and
gas-balancing contracts, (4) Subordinated Debt, (5) Liabilities of the types
permitted to be secured by the security interests described in any of Sections
6.2(b)(3), 6.2(b)(4), 6.2(b)(5), 6.2(b)(6), 6.2(b)(7) or 6.2(b)(8) above,
incuding without limitation, as to Section 6.2(b)(4) above, the Permitted
Indebtedness; provided that the aggregate amount of Liabilities permitted to
be secured by such security interests do not exceed the limits set forth in
said Section, (6) Liabilities pursuant to the Duke Agreement, and (7) other
unsecured indebtedness in an aggregate outstanding principal amount not in
excess of $250,000 at any time.
(d) Limitation on Sales of Property. Borrower will not sell,
transfer, lease, exchange, alienate or dispose of any of the Collateral or any
of the Borrowing Base Properties except as follows (and the following
exceptions shall be subject to any limitations contained in the Security
Documents):
(1) equipment which is replaced by equipment of equal
suitability and value, which is salvaged from ▇▇▇▇▇ which have been
plugged and abandoned by or on behalf of Borrower or which is no longer
necessary in connection with Borrower's business;
(2) inventory (including oil and gas sold as produced)
which is sold in the ordinary course of business; and
(3) personal property located on oil and gas properties
operated by third parties, the sale of which personal property cannot be
prevented by Borrower.
(e) Limitation on Credit Extensions. Borrower will not extend
credit, make advances or make loans other than: (1) normal and prudent
extensions of credit to customers buying goods and services in the ordinary
course of business, which extensions shall not be for longer time periods than
those extended by similar businesses operated in a normal and prudent manner,
and (2) short-term advances to employees of Borrower for reasonable travel and
similar business expenses.
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(f) Fiscal Year. Borrower will not change its fiscal year.
(g) Amendment of Contracts. Borrower will not amend or permit
any amendment to any contract which could reasonably be foreseen to release,
qualify, limit, make contingent or otherwise detrimentally affect, in any
material way, the rights and benefits of USB under or acquired pursuant to any
of the Security Documents.
(h) ERISA. Borrower will not: (1) engage in, or permit any
other Obligated Person or ERISA Affiliate to engage in, any transaction in
connection with which any Obligated Person or any ERISA Affiliate could be
subjected to a civil penalty assessed pursuant to any of subsections (c), (i)
or (l) of Section 502 of ERISA or a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code, (2) terminate, or permit any other Obligated Person or
ERISA Affiliate to terminate, any ERISA Plan in a manner, or take any other
action with respect to any ERISA Plan, which could result in any liability of
any Obligated Person or any ERISA Affiliate, (3) fail to make, or permit any
other Obligated Person or ERISA Affiliate to fail to make, full payment when
due of all amounts which, under the provisions of any ERISA Plan, agreement
relating thereto or applicable law, any Obligated Person or ERISA Affiliate is
required to pay as a contribution thereto, (4) permit to exist, or allow any
other Obligated Person or ERISA Affiliate to permit to exist, any accumulated
funding deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code) with respect to any ERISA Plan, whether or not waived by the Secretary
of the Treasury or his delegate, (5) permit, or allow any other Obligated
Person or ERISA Affiliate to permit, the actuarial present value of any ERISA
Plan's benefit liabilities (as defined in Section 4041 of ERISA) to exceed the
current value of such ERISA Plan's assets (computed on a plan termination
basis in accordance with Title IV of ERISA) allocable to such benefit
liabilities, (6) contribute to, or assume an obligation to contribute to, any
multiemployer plan (as defined in Section 4001 of ERISA), (7) acquire, or
permit any other Obligated Person or ERISA Affiliate to acquire, an interest
in any Person that causes such Person to become an ERISA Affiliate if such
Person sponsors, maintains or contributes to, or, at any time in the six-year
period preceding such acquisition, has sponsored, maintained or contributed
to, any multiemployer plan (as defined in Section 4001 of ERISA) or any other
plan that is subject to Title IV of ERISA under which the actuarial present
value of such plan's benefit liabilities (as defined in Section 4041 of ERISA)
exceeds the current value of such plan's assets (computed on a plan
termination basis in accordance with Title IV of ERISA) allocable to such
benefit liabilities, (8) incur, or permit any other Obligated Person or ERISA
Affiliate to incur, any liability to or on account of an ERISA Plan under any
of Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA, (9) contribute to,
or assume an obligation to contribute to, or permit any other Obligated Person
or ERISA Affiliate to contribute to, or assume an obligation to contribute to,
any employee welfare benefit plan (as defined in Section 3(l) of ERISA),
including without limitation any such plan maintained to provide benefits to
former employees of such entities, that may not be terminated by such
Obligated Person or ERISA Affiliate in its sole discretion at any time without
material liability, or (10) amend, or permit any other Obligated Person or
ERISA Affiliate to amend, any ERISA Plan resulting in an increase in current
liability such that any Obligated Person or any ERISA Affiliate is required to
provide security to such ERISA Plan under Section 401(a)(29) of the Code.
(i) Limitation on Guaranties. Borrower will not assume,
guaranty, endorse or be or become secondarily liable for any Liability which
is the primary obligation of any other Person, except for: (1) endorsements of
financial instruments in the ordinary course of business, and (2) Liabilities
for obligations of joint venturers and co-owners arising in the ordinary
24
course of Borrower's oil and gas business in connection with multi-party
drilling contracts, operating agreements, product purchase contracts and other
typical oil-industry contractual arrangements.
(j) Distributions. Borrower will not make any Distributions,
except as follows (and such exceptions shall not apply if, immediately before,
immediately after or as of the end of the Fiscal Quarter in which any such
Distribution occurs, Borrower would be in violation of any of the covenants
contained in this Agreement or any of the other Loan Documents): (1) for any
Fiscal Year of Borrower, at the times when taxes (or estimated taxes) are due
and payable by Guarantor, as the shareholder of Borrower (up to and including
April 15 of the succeeding calendar year), Borrower may make Distributions to
Guarantor in an aggregate amount not greater than the product of: (A) the
average corporate income tax rate payable by Guarantor on its ordinary taxable
income under the tax laws of the United States for the relevant Fiscal Year,
times (B) the taxable income of Borrower for such Fiscal Year, to the extent
that such taxable income is required to be included in the taxable income of
Guarantor (or, if such applicable tax rate or such taxable income is not known
at such time, the then-current best estimates of such tax rate or taxable
income; provided that when the actual tax rate and taxable income are
determined for any Fiscal Year, an Event of Default shall be deemed to have
occurred unless Guarantor repays to Borrower any excess distributions made by
reason of their being based upon the estimated tax rate of Guarantor and the
estimated taxable income of Borrower for such Fiscal Year), or (2) additional
Distributions in the aggregate amount of up to $300,000 per Fiscal Year, to
the extent that Guarantor is permitted to receive and retain such
Distributions pursuant to the terms of the applicable subordination agreement
between Guarantor and USB.
(k) Business. No change shall occur in the nature of Borrower's
business, which is the oil and gas exploration and production business.
(l) Reorganizations; Combinations. Borrower will not change its
name or the nature of its business, reorganize, liquidate, dissolve or enter
into any merger.
(m) Hedging Transactions. Borrower will not at any time enter
into or be or become a party to any one or more hedging transactions with
respect to its oil and gas production, except for hedging transactions
covering time periods not more than three years into the future at any time
and in amounts not in excess of 80 percent of the aggregate volumes of oil and
gas expected to be produced from Borrower's proved, developed, producing
reserves (timed in accordance with the expected production rates of such
reserves), according to the then most recent engineering report submitted
pursuant to Section 6.1(b) above.
ARTICLE VII
Events of Default and Remedies
Section 7.1 Events of Default. Each of the following events
constitutes an Event of Default under this Agreement:
(a) Borrower fails to pay any Obligation when due and payable,
including without limitation any Obligation due and payable pursuant to the
terms of any of Sections 2.2, 2.3, 3.4, 3.5, 3.6 or 6.1(i) above, whether at a
date for the payment of a fixed installment or contingent or other payment to
USB or as a result of acceleration or otherwise; or
(b) Any "default" or "event of default," after the expiration of
any applicable grace period, occurs under any Loan Document which defines
either term; or
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(c) Any Obligated Person fails to duly observe, perform or
comply with any covenant, agreement, condition or provision of any Loan
Document; provided that, except with respect to: (1) any such failure with
respect to a covenant, agreement, condition or provision constituting an Event
of Default under one or more of Sections 7.1(a), (b), (e), (g), (h) or (i), or
(2) any such failure with respect to a covenant, agreement, condition or
provision contained in Section 6.2 above, Borrower shall have a 30-day grace
period after such failure in which to cure such failure; or
(d) Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of any Obligated Person in
connection with any Loan Document shall prove to have been false or incorrect
in any material respect on any date on or as of which made; or
(e) Any Obligated Person:
(1) suffers the entry against it of a judgment, decree or
order for relief by a court of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or
other similar law of any jurisdiction now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended, or
has any such proceeding commenced against it which remains undismissed
for a period of 60 days; or
(2) suffers the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for a
substantial part of its assets or for any part of the Borrowing Base
Properties in a proceeding brought against or initiated by it, and such
appointment is neither made ineffective nor discharged within 30 days
after the making thereof, or such appointment is consented to, requested
by, or acquiesced to by it; or
(3) commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended; or
applies for or consents to the entry of an order for relief in an
involuntary case under any such law or to the appointment of or taking
possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or other similar official of any substantial part of its
assets or any part of the Borrowing Base Properties; or makes a general
assignment for the benefit of creditors; or fails generally to pay (or
admits in writing its inability to pay) its debts as such debts become
due; or takes action in furtherance of any of the foregoing; or
(4) suffers the entry against it of a final judgment for
the payment of money in excess of $100,000 (not covered by insurance),
unless the same is discharged within 30 days after the date of entry
thereof or an appeal or appropriate proceeding for review thereof is
taken within such time period and a stay of execution pending such
appeal is obtained; or
(5) suffers the entry of an order issued by any court or
tribunal taking, seizing or apprehending all or any substantial part of
its property or any part of the Borrowing Base Properties and bringing
the same into the custody of such Court or tribunal, and such order is
not stayed or released within 30 days after the entry thereof; or
26
(f) Either: (1) any accumulated funding deficiency (as defined in
Section 412(a) of the Code) in excess of $100,000 exists with respect to any
ERISA Plan, whether or not waived by the Secretary of the Treasury or his
delegate, or (2) any Termination Event occurs with respect to any ERISA Plan
and the then current value of such ERISA Plan's benefit liabilities exceeds
the then current value of such ERISA Plan's assets available for the payment
of such benefit liabilities by more than $100,000 (or in the case of a
Termination Event involving the withdrawal of a substantial employer, the
withdrawing employer's proportionate share of such excess exceeds such
amount); or
(g) Any default, after the expiration of any applicable period
of grace, occurs with respect to any other indebtedness owed by Borrower to
any Person, which other indebtedness is in an aggregate amount in excess of
$100,000, if such indebtedness is beyond its maturity date or has been
accelerated by such Person or if such Person has given notice to Borrower of
the existence of such default; or
(h) Any change in the ownership or control of Borrower occurs
that results in Guarantor owning less than 100 percent of the voting
securities of Borrower; or
(i) The Guaranty ceases to be in full force and effect and
applicable to any and all of the Obligations covered thereby in accordance
with its terms (or Guarantor takes that position), whether by operation of
law, revocation or attempted revocation or otherwise.
Upon the occurrence of an Event of Default described in subsection (e)(1),
(e)(2) or (e)(3) of this section, all of the Obligations shall thereupon be
immediately due and payable, without presentment, demand, protest, notice of
protest, declaration or notice of acceleration or intention to accelerate, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by Borrower. During the continuance of any other Event of Default, USB
at any time and from time to time (unless all Events of Default have
theretofore been remedied) may declare any or all of the Obligations
immediately due and payable, and all such Obligations shall thereupon be
immediately due and payable.
Section 7.2 Remedies. If any Default or Event of Default shall occur
and be continuing, the obligation of USB to make Advances under this Agreement
shall terminate immediately. If any Event of Default shall occur, USB may
protect and enforce its rights under the Loan Documents by any appropriate
proceedings, including proceedings for specific performance of any covenant or
agreement contained in any Loan Document, and USB may enforce the payment of
any Obligations due or enforce any other legal or equitable right. All
rights, remedies and powers conferred upon USB under the Loan Documents shall
be deemed cumulative and not exclusive of any other rights, remedies or powers
available under the Loan Documents or at law or in equity.
Section 7.3 Indemnity. Borrower hereby agrees to indemnify, defend
and hold harmless USB and its agents, affiliates, officers, directors and
employees from and against any and all claims, losses, demands, actions,
causes of action and liabilities whatsoever (including without limitation
reasonable attorneys' fees and expenses, and costs and expenses reasonably
incurred in investigating, preparing or defending against any litigation or
claim, action, suit, proceeding or demand of any kind or character) arising
out of or resulting from: (a) the Loan Documents (including without
limitation the enforcement thereof), except to the extent such claims, losses
and liabilities are proximately caused by USB's gross negligence, willful
27
misconduct or violation of its obligations under any of the Loan Documents,
(b) the contamination of any of the Borrowing Base Properties by any hazardous
substance or environmental pollutant, or (c) the violation of any federal,
state or local environmental statute, rule, regulation or ordinance, including
without limitation violation of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended from time to time, or of the
Resource Conservation and Recovery Act, as amended from time to time.
Borrower's obligations under this Section 7.3 shall survive the termination of
this Agreement.
ARTICLE VIII
Miscellaneous
Section 8.1 Waiver and Amendment. No failure or delay by USB in
exercising any right, power or remedy which it may have under any of the Loan
Documents shall operate as a waiver thereof or of any other right, power or
remedy, nor shall any single or partial exercise by USB of any such right,
power or remedy preclude any other or further exercise thereof or of any other
right, power or remedy. No waiver of any provision of any Loan Document and
no consent to any departure therefrom shall ever be effective unless it is in
writing and signed by USB, and then such waiver or consent shall be effective
only in the specific instances and for the purposes for which given and to the
extent specified in such writing. No notice to or demand on any Obligated
Person shall in any case of itself entitle any Obligated Person to any other
or further notice or demand in similar or other circumstances. No
modification or amendment of or supplement to this Agreement or the other Loan
Documents shall be valid or effective unless the same is in writing and signed
by the party against whom it is sought to be enforced.
Section 8.2 Survival of Agreements; Cumulative Nature. All of the
Obligated Persons' various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including without limitation the making or granting of the Loan and
the delivery of the Note and the other Loan Documents, and shall further
survive until all of the Obligations are paid in full to USB and all of USB's
obligations to Borrower are terminated. All statements and agreements
contained in any certificate or other instrument delivered to USB under any
Loan Document shall be deemed representations and warranties by Borrower to
USB and/or agreements and covenants of Borrower under this Agreement. The
representations, warranties, and covenants made by the Obligated Persons in
the Loan Documents, and the rights, powers, and privileges granted to USB in
the Loan Documents, are cumulative, and no Loan Document shall be construed in
the context of another to diminish, nullify or otherwise reduce the benefit to
USB of any such representation, warranty, covenant, right, power or privilege.
In particular and without limitation, no exception set out in this Agreement
to any representation, warranty or covenant herein contained shall apply to
any similar representation, warranty or covenant contained in any other Loan
Document, and each such similar representation, warranty or covenant shall be
subject only to those exceptions which are expressly made applicable to it by
the terms of the various Loan Documents.
Section 8.3 Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing and, unless otherwise specifically provided in such Loan Document,
shall be deemed sufficiently given or furnished if delivered by personal
delivery, by expedited delivery service with proof of delivery, or by
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registered or certified United States mail, return receipt requested, postage
prepaid, at the addresses specified below (unless changed by similar notice in
writing given by the particular Person whose address is to be changed). Any
such notice or communication shall be deemed to have been given upon receipt:
Borrower's address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
USB's address: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇-▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Section 8.4 Parties in Interest. All grants, covenants and
agreements contained in the Loan Documents shall bind and inure to the benefit
of the parties thereto and their respective successors and assigns; provided,
however, that no Obligated Person may assign or transfer any of its rights or
delegate any of its duties or obligations under any Loan Document without the
prior consent of USB.
Section 8.5 USB's Damage Limitation. USB shall not be liable to any
Obligated Person for consequential damages, whatever the nature of a breach by
USB in its obligations relating to the transactions governed or contemplated
by this Agreement.
Section 8.6 Governing Law. The Loan Documents shall be deemed
contracts and instruments made under the laws of the State of Colorado and
shall be construed and enforced in accordance with and governed by the laws
(excluding the conflicts of law rules) of the State of Colorado and the laws
of the United States of America, except: (a) to the extent that the law of
another jurisdiction is expressly elected in a Loan Document, and (b) with
respect to specific Liens, or the perfection thereof, evidenced by Security
Documents covering real or personal property which by the laws applicable
thereto are required to be construed under the laws of another jurisdiction.
Borrower hereby irrevocably submits itself to the non-exclusive jurisdiction
of the state and federal courts of the State of Colorado.
Section 8.7 Limitation on Interest. USB and Borrower intend to
contract in strict compliance with applicable usury law from time to time in
effect. In furtherance thereof such persons stipulate and agree that none of
the terms and provisions contained in the Loan Documents shall ever be
construed to create a contract to pay, for the use, forbearance or detention
of money, interest in excess of the maximum amount of interest permitted to be
charged by applicable law from time to time in effect. Neither any Obligated
Person nor any present or future guarantors, endorsers, or other Persons
hereafter becoming liable for payment of any Obligation shall ever be liable
for unearned interest thereon or shall ever be required to pay interest
thereon in excess of the maximum amount that may be lawfully charged under
applicable law from time to time in effect, and the provisions of this section
shall control over all other provisions of the Loan Documents which may be in
conflict or apparent conflict herewith. USB expressly disavows any intention
to charge or collect excessive unearned interest or finance charges in the
event the maturity of any Obligation is accelerated. If: (a) the maturity of
any Obligation is accelerated for any reason, (b) any Obligation is prepaid
and as a result any amounts held to constitute interest are determined to be
in excess of the legal maximum, or (c) USB or any other holder of any or all
of the Obligations shall otherwise collect moneys which are determined to
29
constitute interest which would otherwise increase the interest on any or all
of the Obligations to an amount in excess of that permitted to be charged by
applicable law then in effect, then all such sums determined to constitute
interest in excess of such legal limit shall, without penalty, be promptly
applied to reduce the then outstanding principal of the related Obligations
or, at USB's option, promptly returned to Borrower or the other payor thereof
upon such determination.
Section 8.8 Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms
and provisions of the Loan Documents shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable law.
Section 8.9 Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 8.10 Conflicts. To the extent of any irreconcilable
conflicts between the provisions of this Agreement and the provisions of any
of the Loan Documents, the provisions of this Agreement shall prevail.
Section 8.11 Entire Agreement. This Agreement, the Note, the
Security Documents and the other Loan Documents from time to time executed in
connection herewith state the entire agreement between the parties with
respect to the subject matter hereof.
Section 8.12 Arbitration. Subject to the provisions of the next
paragraph below, USB and Borrower agree to submit to binding arbitration any
and all claims, disputes and controversies between USB and Borrower (and their
respective employees, officers, directors, attorneys and other agents)
relating to the Loan, the Loan Documents and the negotiation, execution,
collateralization, administration, repayment, modification, extension or
collection of the foregoing. Such arbitration shall proceed in Denver,
Colorado, shall be governed by Colorado law (including without limitation the
provisions of CRS 13-21-102(5)) and shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"). Any award entered in an arbitration, whether on motions or at a
hearing, with or without testimony from witnesses, shall be made by a written
opinion stating the reasons for the award made. The decision of any
arbitration pursuant to this Agreement shall be made based on Colorado law
without reference to any choice of law rules. Judgment on any award hereunder
may be entered in any court having jurisdiction.
Nothing in the preceding paragraph, nor the exercise of any right to
arbitrate thereunder, shall limit the right of any party hereto: (a) to
foreclose against any real or personal property collateral by the exercise of
the power of sale under a deed of trust, mortgage, or other security agreement
or instrument or applicable law; (b) to exercise self-help remedies such as
setoff or repossession; or (c) to obtain provisional or ancillary remedies
such as replevin, injunctive relief, attachment or appointment of a receiver
from a court having jurisdiction, before, during or after the pendency of any
arbitration proceeding. The institution and maintenance of any action for
such judicial relief, or pursuit of provisional or ancillary remedies, or
exercise of self-help remedies shall not constitute a waiver of the right or
obligation of any party to submit any claim or dispute to arbitration,
including those claims or disputes arising from exercise of any judicial
relief, or pursuit of provisional or ancillary remedies or exercise of
self-help remedies.
30
Arbitration hereunder shall be before a three-person panel of neutral
arbitrators, consisting of one person from each of the following categories:
(1) an attorney who has practiced in the area of commercial law for at least
10 years or a retired judge at the Colorado or United States District Court or
an appellate court level: (2) a person with at least 10 years experience in
commercial lending: and (3) a person with at least 10 years experience in the
petroleum industry. The AAA shall submit a list of persons meeting the
criteria outlined above for each category of arbitrator, and the parties shall
select one person from each category in the manner established by the AAA.
Section 8.13. Release. Except to the extent that any of the rights and
obligations of the parties hereto are specifically stated to survive the
termination of this Agreement, upon full payment and satisfaction of the Loan
and all other amounts due in connection therewith as provided herein, the
parties shall thereupon automatically each be fully, finally and forever
released and discharged from any further claim, liability or obligation in
connection with the Loan.
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
INFINITY OIL & GAS OF WYOMING, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇,
President
U.S. BANK NATIONAL ASSOCIATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
Vice President
31
EXHIBIT A
PROMISSORY NOTE
$25,000,000 September 4, ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
FOR VALUE RECEIVED, INFINITY OIL & GAS OF WYOMING, INC., a Wyoming
corporation ("Borrower"), promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION ("Payee"), the principal sum of $25,000,000 (or so much thereof as
may be borrowed hereunder), together with interest on the outstanding unpaid
balance of such principal amount at the rates provided below.
This Note is issued pursuant to, and is subject to the terms and
provisions of, the Credit Agreement dated as of September 4, 2003, between
Borrower and Payee, as now in effect or as the same may hereafter be amended,
restated, extended, renewed or otherwise modified (the "Credit Agreement").
Except as otherwise defined herein, terms defined in the Credit Agreement
shall have the same meanings when used herein.
The outstanding principal amount of this Note shall be due and payable as
provided in the Credit Agreement. Any then-unpaid principal balance of this
Note shall be due and payable on the Maturity Date (unless due and payable
sooner pursuant to the terms of the Credit Agreement) and shall bear interest
at the rates provided in the Credit Agreement.
Interest shall accrue daily on the unpaid principal balance of this Note,
shall be due and payable on the last day of each calendar month and at the
maturity of this Note, and shall be calculated on the basis of a 360-day year,
and the actual number of days elapsed.
All payments of principal and interest hereon shall be made at Payee's
offices at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other
place as Payee shall have designated to Borrower in writing, in immediately
available funds and without set-off or counterclaim or deduction of any kind.
All payments received hereunder shall be applied first to costs of collection,
second to accrued interest as of the date of payment and third to the
outstanding principal balance of this Note.
Notwithstanding anything to the contrary contained in this Note, from and
after the expiration of any applicable period of grace provided for in the
Credit Agreement, overdue principal, and (to the extent permitted under
applicable law) overdue interest, whether caused by acceleration of maturity
or otherwise, shall bear interest at a fluctuating rate, adjustable the day of
any change in such rate, equal to three and one-half percentage points above
the Prime Rate, until paid, and shall be due and payable on demand.
This Note is secured by, and the holder of this Note is entitled to the
benefits of, the documents described in the Credit Agreement (the "Security
Documents"). Reference is made to the Security Documents for a description of
the property covered thereby and the rights, remedies and obligations of the
holder hereof in respect thereto.
Subject to the expiration of any applicable period of grace provided for
in the Credit Agreement, in the event of: (a) any default in any payment of
the principal of or interest on this Note when due and payable, or (b) any
other Event of Default (as defined in the Credit Agreement), then the whole
principal sum of this Note plus accrued interest and all other obligations of
Borrower to Payee, direct or indirect, absolute or contingent, now existing or
hereafter arising, shall, at the option of Payee, become immediately due and
A-1
payable, and any or all of the rights and remedies provided herein and in the
Credit Agreement and the Security Documents, as they may be amended, modified
or supplemented from time to time may be exercised by Payee.
If Borrower fails to pay any amount due under this Note and Payee has to
take any action to collect the amount due or to exercise its rights under the
Security Documents, including without limitation retaining attorneys for
collection of this Note, or if any suit or proceeding is brought for the
recovery of all or any part of or for protection of the indebtedness or to
foreclose the Security Documents or to enforce Payee's rights under the
Security Documents, then Borrower agrees to pay on demand all reasonable costs
and expenses of any such action to collect, suit or proceeding, or any appeal
of any such suit or proceeding, incurred by Payee, including without
limitation the reasonable fees and disbursements of Payee's attorneys and
their staff.
Borrower waives presentment, notice of dishonor and protest, and assents
to any extension of time with respect to any payment due under this Note, to
any substitution or release of collateral and to the addition or release of
any party, except as provided in the Credit Agreement. No waiver of any
payment or other right under this Note shall operate as a waiver of any other
payment or right.
If any provision in this Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provisions shall not be in any way affected or impaired in any
other jurisdiction.
No delay or failure of the holder of this Note in the exercise of any
right or remedy provided for hereunder shall be deemed a waiver of such right
by the holder hereof, and no exercise of any right or remedy shall be deemed a
waiver of any other right or remedy that the holder may have.
All notices given hereunder shall be given as provided in the Credit
Agreement.
At the option of the holder hereof, an action may be brought to enforce
this Note in the District Court in and for the City and County of Denver,
State of Colorado, in the United States District Court for the District of
Colorado or in any other court in which venue and jurisdiction are proper.
Borrower and all signers or endorsers hereof consent to venue and jurisdiction
in the District Court in and for the City and County of Denver, State of
Colorado and in the United States District Court for the District of Colorado
and to service of process under Sections 13-1-124(1)(a) and 13-1-125, Colorado
Revised Statutes (2001), as amended, in any action commenced to enforce this
Note.
This Note is to be governed by and construed according to the laws of the
State of Colorado.
INFINITY OIL & GAS OF WYOMING, INC.
By:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇,
President
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EXHIBIT B
ADVANCE REQUEST
_______, ____
U.S. Bank National Association
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇-▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Gentlemen:
1. This Advance Request is delivered to you pursuant to Section 2.1
of the Credit Agreement dated as of September 4, 2003 (the "Credit
Agreement"), between Infinity Oil & Gas of Wyoming, Inc. and U.S. Bank
National Association. Except as otherwise defined herein, terms defined in
the Credit Agreement shall have the same meanings when used herein.
2. Borrower hereby requests an Advance as follows:
(a) Proposed Date of Advance:
(b) Amount of Advance:
3. Borrower hereby represents and warrants that as of the date hereof
and as of the date of the Advance requested hereunder, all statements
contained in Section 4.2(a), (b) and (c) of the Credit Agreement are and will
be true and correct in all material respects.
4. Borrower agrees that if, at any time prior to the date of the
Advance requested by Borrower hereunder, any representation or warranty of
Borrower contained herein is not true and correct as of such time, Borrower
will immediately so notify USB. Except to the extent of any such notification
by Borrower, the acceptance by Borrower of any Advance requested hereunder
shall be deemed a re-certification by Borrower as of the date of such Advance
of the representations and warranties made by Borrower herein.
INFINITY OIL & GAS OF WYOMING, INC.
By:
_______________________
B-1
EXHIBIT C
REQUEST FOR ISSUANCE OF LETTER OF CREDIT
________, ____
U.S. Bank National Association
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇-▇▇-▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Gentlemen:
1. This Request for Issuance of Letter of Credit is delivered to you
pursuant to Section 2.1 of the Credit Agreement dated as of September 4, 2003
(the "Credit Agreement"), between Infinity Oil & Gas of Wyoming, Inc. and U.S.
Bank National Association. Except as otherwise defined herein, terms defined
in the Credit Agreement shall have the same meanings when used herein.
2. Borrower hereby requests that USB issue a Letter of Credit as
follows:
(a) Name of Beneficiary:
(b) Proposed Issuance Date:
(c) Expiration Date:
(d) Face Amount:
(e) Payment Instructions (if any):
3. Borrower hereby represents and warrants that as of the date hereof
and as of the date of issuance of the Letter of Credit requested hereunder,
all statements contained in Section 4.2(a), (b) and (c) of the Credit
Agreement are and will be true and correct in all material respects.
4. Borrower agrees that if, at any time prior to the date of issuance
of the Letter of Credit requested by Borrower hereunder, any representation or
warranty of Borrower contained herein is not true and correct as of such time,
Borrower will immediately so notify USB. Except to the extent of any such
notification by Borrower, the acceptance by Borrower of any Letter of Credit
requested hereunder shall be deemed a re-certification by Borrower as of the
date of issuance of such Letter of Credit of the representations and
warranties made by Borrower herein.
INFINITY OIL & GAS OF WYOMING, INC.
By:
_______________________
C-1