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EXHIBIT 10.12
LOAN AGREEMENT
BETWEEN
▇▇▇▇▇▇▇ OIL & GAS, L.P.,
AS BORROWER
AND
BANK ONE, TEXAS, N.A.,
AS BANK
APRIL 1, 1996
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LOAN AGREEMENT
TABLE OF CONTENTS
Page
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Commitments of the Bank . . . . . . . . . . . . . . . . . . . . . . 9
(a) Terms of Revolving Commitment . . . . . . . . . . . . . . . 9
(b) Procedure for Borrowing . . . . . . . . . . . . . . . . . . 9
(c) Letters of Credit . . . . . . . . . . . . . . . . . . . . . 10
(d) Procedure for Obtaining Letters of Credit . . . . . . . . . 10
(e) Voluntary Reduction of Revolving Commitment . . . . . . . . 11
(f) Monthly Commitment Reduction . . . . . . . . . . . . . . . . 11
3. Note Evidencing Loans . . . . . . . . . . . . . . . . . . . . . . . 11
(a) Form of Note . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Interest Rate . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Payment of Interest . . . . . . . . . . . . . . . . . . . . 12
(d) Payment of Principal . . . . . . . . . . . . . . . . . . . . 12
4. Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) Options . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Interest Rate Determination . . . . . . . . . . . . . . . . 13
(c) Conversion Option . . . . . . . . . . . . . . . . . . . . . 13
(d) Recoupment . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Default Rate . . . . . . . . . . . . . . . . . . . . . . . . 14
5. Special Provisions Relating to Eurodollar Loans. . . . . . . . . . 14
(a) Unavailability of Funds or Inadequacy of Pricing . . . . . . 14
(b) Reserve Requirements . . . . . . . . . . . . . . . . . . . . 14
(c) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Change in Laws . . . . . . . . . . . . . . . . . . . . . . . 15
(e) Option to Fund . . . . . . . . . . . . . . . . . . . . . . . 15
(f) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . 16
(g) Payments Not at End of Interest Period . . . . . . . . . . . 16
6. Collateral Security . . . . . . . . . . . . . . . . . . . . . . . . 16
7. Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) Initial Borrowing Base . . . . . . . . . . . . . . . . . . . 17
(b) Subsequent Determinations of Borrowing Base . . . . . . . . 17
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8. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Origination Fee . . . . . . . . . . . . . . . . . . . . . . 19
(b) Unused Portion Fee . . . . . . . . . . . . . . . . . . . . . 19
(c) Borrowing Base Increase Fee . . . . . . . . . . . . . . . . 19
(d) Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . 19
9. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Voluntary Prepayments . . . . . . . . . . . . . . . . . . . 19
(b) Mandatory Prepayment . . . . . . . . . . . . . . . . . . . . 19
10. Representations and Warranties . . . . . . . . . . . . . . . . . . 20
(a) Partnership Existence . . . . . . . . . . . . . . . . . . . 20
(b) Authority of Managing General Partner . . . . . . . . . . . 20
(c) Binding Obligations . . . . . . . . . . . . . . . . . . . . 20
(d) No Legal Bar or Resultant Lien . . . . . . . . . . . . . . . 20
(e) No Consent . . . . . . . . . . . . . . . . . . . . . . . . . 21
(f) Financial Condition . . . . . . . . . . . . . . . . . . . . 21
(g) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 21
(h) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 21
(i) Taxes; Governmental Charges . . . . . . . . . . . . . . . . 21
(j) Titles, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 22
(k) Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(l) Casualties; Taking of Properties . . . . . . . . . . . . . . 22
(m) Use of Proceeds; Margin Stock . . . . . . . . . . . . . . . 22
(n) Location of Business and Offices . . . . . . . . . . . . . . 22
(o) Compliance with the Law . . . . . . . . . . . . . . . . . . 23
(p) No Material Misstatements . . . . . . . . . . . . . . . . . 23
(q) Not A Utility . . . . . . . . . . . . . . . . . . . . . . . 23
(r) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(s) Environmental Matters . . . . . . . . . . . . . . . . . . . 23
(t) Ownership of Borrower . . . . . . . . . . . . . . . . . . . 24
(u) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11. Conditions of Lending . . . . . . . . . . . . . . . . . . . . . . . 24
12. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Financial Statements and Reports . . . . . . . . . . . . . . 27
(b) Certificates of Compliance . . . . . . . . . . . . . . . . . 28
(c) Taxes and Other Liens . . . . . . . . . . . . . . . . . . . 28
(d) Compliance with Laws . . . . . . . . . . . . . . . . . . . . 29
(e) Further Assurances . . . . . . . . . . . . . . . . . . . . . 29
(f) Performance of Obligations . . . . . . . . . . . . . . . . . 29
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 29
(h) Accounts and Records . . . . . . . . . . . . . . . . . . . . 30
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(i) Right of Inspection . . . . . . . . . . . . . . . . . . . . 30
(j) Notice of Certain Events . . . . . . . . . . . . . . . . . . 30
(k) ERISA Information and Compliance . . . . . . . . . . . . . . 31
(l) Environmental Reports and Notices . . . . . . . . . . . . . 31
(m) Maintenance . . . . . . . . . . . . . . . . . . . . . . . . 31
(n) Operation of Properties . . . . . . . . . . . . . . . . . . 32
(o) Compliance with Leases and Other Instruments . . . . . . . . 32
(p) Certain Additional Assurances Regarding Maintenance and
Operations of Properties . . . . . . . . . . . . . . . . . . 33
(q) Sale of Certain Assets/Prepayment of Proceeds . . . . . . . 33
(r) Title Matters . . . . . . . . . . . . . . . . . . . . . . . 33
(s) Curative Matters . . . . . . . . . . . . . . . . . . . . . . 34
(t) Change of Principal Place of Business . . . . . . . . . . . 34
(u) Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 34
(v) Additional Collateral . . . . . . . . . . . . . . . . . . . 35
13. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . 35
(a) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Current Ratio . . . . . . . . . . . . . . . . . . . . . . . 35
(c) Debt Service Coverage Ratio . . . . . . . . . . . . . . . . 35
(d) Debts, Guaranties and Other Obligations . . . . . . . . . . 35
(e) Loans and Advances . . . . . . . . . . . . . . . . . . . . . 36
(f) Nature of Business . . . . . . . . . . . . . . . . . . . . . 36
(g) Hedging Transactions . . . . . . . . . . . . . . . . . . . . 37
(h) Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . 37
(i) Transactions with Affiliates . . . . . . . . . . . . . . . . 37
(j) Consolidations and Mergers . . . . . . . . . . . . . . . . . 37
(k) Distributions . . . . . . . . . . . . . . . . . . . . . . . 37
(l) Investments . . . . . . . . . . . . . . . . . . . . . . . . 38
(m) Amendment of Partnership Agreement . . . . . . . . . . . . . 38
(n) Payment of Subordinated Debt . . . . . . . . . . . . . . . . 38
(o) Amendment of Subordinated Debt Agreement . . . . . . . . . . 38
(p) Sale or Discount of Receivable . . . . . . . . . . . . . . . 39
14. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . 39
15. Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . 41
16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
17. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
18. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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19. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
20. Choice of Forum: Consent to Service of Process and Jurisdiction . . 43
21. Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . 44
22. Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . 44
23. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
24. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . 45
25. Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
26. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
27. Parties Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
28. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . 45
29. Financial Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 46
30. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 46
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Exhibits
Exhibit "A" - Notice of Borrowing
Exhibit "B" - Note
Exhibit "C" - Certificate of Compliance
Schedules
Schedule 1 - Ownership of Borrower
Schedule 2 - Liens
Schedule 3 - Financial Condition
Schedule 4 - Liabilities
Schedule 5 - Litigation
Schedule 6 - Environmental Matters
Schedule 7 - Form of Report on Properties
Schedule 8 - Curative Matters
Schedule 9 - Loans and Advances
Annexes
Annex 1 - Negative Pledge Properties
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LOAN AGREEMENT
THIS LOAN AGREEMENT (hereinafter referred to as the "Agreement")
executed as of the 1st day of April, 1996, by and between ▇▇▇▇▇▇▇ OIL & GAS,
L.P., a Delaware limited partnership (hereinafter referred to as the
"Borrower") and BANK ONE, TEXAS, N.A., a national banking association
(hereinafter sometimes referred to as "Bank").
W I T N E S S E T H:
WHEREAS, Borrower has requested that the Bank provide Borrower with a
reducing revolving loan facility and the Bank is willing to make such facility
available to Borrower in amounts of up to $25,000,000 on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. DEFINITIONS. When used herein the terms "Agreement," "Borrower"
and "Bank" shall have the meanings indicated above. When used herein the
following terms shall have the following meanings (all terms defined in this
Section 1 or other provisions of this Agreement in the singular shall have the
same meanings when used in the plural or vice versa):
"Advance or Advances" shall mean a loan or loans hereunder.
"Affiliate" shall mean any Person which, directly or indirectly,
controls, is controlled by or is under common control with the relevant
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common
control with"), as used with respect to any Person, shall mean a member
of the board of directors, a partner or an officer of such Person, or
any other Person with possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such
Person, through the ownership (of record, as trustee, or by proxy) of
voting shares, partnership interests or voting rights, through a
management contract or otherwise. Any Person owning or controlling
directly or indirectly more than twenty percent of the voting shares,
partnership interests or voting rights, or other equity interest of
another Person shall be deemed to be an Affiliate of such Person.
"Base Rate" shall mean the fluctuating rate of interest per annum
established from time to time by Bank as its Base Rate (which rate of
interest may not be the lowest, best or most favorable rate of interest
which Bank may charge on loans to its customers). Each change in the
Base Rate shall become effective without prior notice to Borrower
automatically as of the opening of business on the date of such change
in the Base Rate.
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"Base Rate Interest Period" shall mean, with respect to any Base
Rate Loan, the period ending on the first day of each month, provided,
however, that (i) if any Base Rate Interest Period would end on a day
which is not a Business Day, such Interest Period shall be extended to
the next succeeding Business Day, and (ii) if any Base Rate Interest
Period would otherwise end after the Maturity Date such Interest Period
shall end on the Maturity Date.
"Base Rate Loans" shall mean any loan during any period which
bears interest based upon the Base Rate or which would bear interest
based upon the Base Rate if the Maximum Rate ceiling was not in effect
at that particular time.
"Borrowing Base" shall mean the value assigned by the Bank from
time to time to the Collateral in accordance with Section 7(b) hereof.
Until the next determination of the Borrowing Base pursuant to Section
7(b) hereof the Borrowing Base for the Revolving Commitment shall be
$6,200,000.00.
"Borrowing Date" shall mean the date elected by the Borrower
pursuant to Section 2(b) hereof for an Advance on the Revolving Loan.
"Business Day" shall mean the normal banking hours during any day
(other than Saturdays or Sundays) that banks are legally open for
business in Dallas, Texas.
"Change of Control" shall mean a Change of Control shall occur if
there is any change in the ownership of the general partnership interest
in Borrower owned by ▇▇▇▇▇▇▇ Exploration Company as of the Effective
Date as such ownership is shown on Schedule "1" hereto except such
changes in ownership as contemplated by that certain Note Purchase
Agreement dated August 24, 1995, among Borrower, RIMCO Partners, ▇.▇.
▇▇, RIMCO Partners, L.P. III and RIMCO Partners, ▇.▇. ▇▇ (the
"Subordinated Debt Agreement").
"Change of Management" shall mean a Change of Management shall
occur if ▇▇▇ ▇. ▇▇▇▇▇▇▇ ceases to act as Chief Executive Officer of
Borrower.
"Collateral" is used herein as defined in Section 6 hereof.
"Current Assets" shall mean the total of Borrower's current
assets as determined in accordance with GAAP, plus, as of any date, the
current unused availability under the Revolving Commitment.
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"Current Liabilities" shall mean the total of Borrower's current
liabilities as determined in accordance with GAAP, excluding therefrom,
as of any date, current maturities on the Revolving Loan.
"Debt Service" shall mean, for any fiscal quarter, the total of
the Monthly Commitment Reductions for such quarter plus all interest
expense paid by Borrower during such quarter.
"Effective Date" shall mean the date of this Agreement.
"Environmental Laws" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the
Super Fund Amendments and Reauthorization Act of 1986, 42 U.S.C.A.
Section 9601, et seq., the Resource Conservation and Recovery Act, as
amended by the Hazardous Solid Waste Amendment of 1984, 42 U.S.C.A.
Section 6901, et seq., the Clean Air Act, 42 U.S.C.A. Section 1251, et
seq., the Toxic Substances Control Act, 15 U.S.C.A. Section 2601, et
seq., The Oil Pollution Act of 1990, 33 U.S.G. Section 2701, et seq.,
and all other laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, order and
restrictions of any federal, state, county, municipal and other
governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign, relating to
air pollution, water pollution, noise control and/or the handling,
discharge, disposal or recovery of on-site or off-site asbestos or
"hazardous substances" as defined by 42 U.S.C. Section 9601, et seq.,
as amended, as each of the foregoing may be amended from time to time.
"Environmental Liability" shall mean any claim, demand,
obligation, cause of action, accusation, allegation, order, violation,
damage, injury, judgment, penalty or fine, cost of enforcement, cost of
remedial action or any other costs or expense whatsoever, including
reasonable attorneys' fees and disbursements, resulting from the
violation or alleged violation of any Environmental Law or the
imposition of any Environmental Lien (as hereinafter defined) which
could reasonably be expected to individually or in the aggregate have a
Material Adverse Effect.
"Environmental Lien" shall mean a Lien in favor of any court,
governmental agency or instrumentality or any other Person (i) for any
Environmental Liability or (ii) for damages arising from or cost
incurred by such court or governmental agency or instrumentality or
other person in response to a release or threatened release of hazardous
or toxic waste, substance or constituent into the environment, the
imposition of which could reasonably be expected to have a Material
Adverse Effect.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Eurodollar Interest Period" shall mean with respect to any
Eurodollar Loan (i) initially, the period commencing on the date such
Eurodollar Loan is made and ending one (1), two (2), three (3) or six
(6) months thereafter as selected by the Borrower pursuant to Section
4(a)(ii), and (ii) thereafter, each period commencing on the day
following the last day of the next preceding Interest Period applicable
to such Eurodollar Loan and ending one (1), two (2), three (3) or six
(6) months thereafter, as selected by the Borrower pursuant to Section
4(a)(ii); provided, however, that (i) if any Eurodollar Interest Period
would otherwise expire on a day which is not a Eurodollar Business Day,
such Interest Period shall expire on the next succeeding Eurodollar
Business Day unless the result of such extension would be to extend such
Interest Period into the next calendar month, in which case such
Interest Period shall end on the immediately preceding Eurodollar
Business Day, (ii) if any Eurodollar Interest Period begins on the last
Eurodollar Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) such Interest Period shall end on the last
Eurodollar Business Day of a calendar month, and (iii) any Eurodollar
Interest Period which would otherwise expire after the Maturity Date
shall end on such Maturity Date.
"Eurodollar Loan" shall mean any loan during any period which
bears interest at the Eurodollar Rate, or which would bear interest at
such rate if the Maximum Rate ceiling was not in effect at a particular
time.
"Eurodollar Margin" shall mean the fluctuating Eurodollar Margin
in effect from day to day shall be:
(i) two and one-quarter percent (2.25%) per annum
whenever the Total Outstandings are greater than 75% of the
Borrowing Base in effect at the time in question, reducing to two
percent (2%) per annum when the Borrowing Base is equal to or
greater than sixteen million dollars;
(ii) two percent (2.0%) per annum whenever the Total
Outstandings are greater than 50%, but less than or equal to 75%,
of the Borrowing Base in effect at the time in question, reducing
to one and three-quarters percent (1.75%) per annum when the
Borrowing Base is equal to or greater than sixteen million
dollars; or
(iii) one and three-quarter percents (1.75%) per annum
whenever the Total Outstandings are 50% or less of the Borrowing
Base in effect at the
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time in question, reducing to one and one-half percent (1.5%)
per annum when the Borrowing Base is equal to or greater than
sixteen million dollars.
"Eurodollar Rate" shall mean with respect to each Eurodollar
Interest Period, the rate of interest per annum at which deposits in
immediately available and freely transferable funds in U.S. Dollars are
offered to the Bank (at approximately 10:00 a.m., Dallas, Texas time
three Eurodollar Business Days prior to the first day of each Eurodollar
Interest Period) in the London interbank market for delivery on the
first day of such Eurodollar Interest Period in an amount equal to or
comparable to the principal amount of the Eurodollar Loan to which such
Eurodollar Interest Period relates. Each determination of the
Eurodollar Rate by the Bank shall, in the absence of error, be
conclusive and binding.
"Financial Statements" shall mean balance sheets, income
statements, statements of cash flow and appropriate footnotes, prepared
in accordance with GAAP.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Interest Payment Date" shall mean for Base Rate Loans the
earlier of (i) the last day of each Base Rate Interest Period and for
Eurodollar Loans the last day of each Eurodollar Interest Period or if
such Eurodollar Interest is six (6) months, the last day successive
three (3) month periods.
"Interest Period" shall mean any Base Rate Interest Period, or
Eurodollar Interest Period.
"Letters of Credit" is used herein as defined in Section 2(c).
"Lien" shall mean any mortgage, deed of trust, pledge, security
interest, assignment or lien (statutory or otherwise) of every kind and
character.
"Loan Documents" shall mean this Agreement, the Note, the
Security Instruments and all other documents executed in connection with
the transaction described in this Agreement.
"Lockbox Account" shall mean a lockbox account maintained by
Borrower at Bank in accordance with the provisions of Section 12(u) of
this Agreement.
"Material Adverse Effect" shall mean any circumstances or events
which could have a material adverse effect on (i) the assets or
properties, liabilities, financial
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condition, business, operations, affairs or circumstances of Borrower as
reflected in the Financial Statements of Borrower or from the facts
represented or warranted in this Agreement or any other Loan Document
(other than any representation or warranty related solely to a different
point in time), or (ii) the ability of Borrower to carry out its
business as it exists on the date of this Agreement or as proposed at
the date of this Agreement to be conducted or to meet its obligations
under the Note, this Agreement or the other Loan Documents on a timely
basis.
"Maturity Date" shall mean March 31, 1999.
"Maximum Rate" shall mean at any particular time in question, the
maximum rate of interest which under applicable law may then be charged
on the Note. If such maximum rate changes after the date hereof, the
Maximum Rate shall be automatically increased or decreased, as the case
may be, without notice to Borrower from time to time as the effective
date of each change in such maximum rate. If the applicable law ceases
to provide for a maximum rate of interest, the Maximum Rate shall be
equal to eighteen percent (18%) per annum.
"Monthly Commitment Reduction" is used herein as defined in
Section 2(f) herein.
"Net Cash Flow" shall mean net income plus depreciation,
depletion, amortization and other non-cash charges, excluding gains or
losses from the sale of capital assets, less any distributions paid
pursuant to Section 13(k) hereof, plus interest expense paid, all
calculated in accordance with GAAP, as of the end of each fiscal
quarter.
"Note" shall mean the $25,000,000 note described in Section 3
hereof, together with all renewals and extensions thereof or any part
thereof.
"Oil and Gas Properties" shall mean all oil, gas and mineral
properties and interests and related personal properties in which
Borrower grants to Bank either a first and prior lien and security
interest pursuant to Section 6 hereof or a negative pledge pursuant to
Section 13 hereof on the oil and gas properties listed and described in
Annex 1 hereto.
"Operating Accounts" shall mean Borrower's demand deposit
accounts, established and maintained by Borrower at Bank in accordance
with the provisions of Section 12(u) of this Agreement.
"Permitted Liens" shall mean (i) royalties, overriding royalties,
reversionary interests, production payments and similar burdens; (ii)
sales contracts or other
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arrangements for the sale of production of oil, gas or associated liquid
or gaseous hydrocarbons which would not (when considered cumulatively
with the matters discussed in clause (i) above) deprive the Borrower of
any material right in respect of the Borrower's assets or properties
(except for rights customarily granted with respect to such contracts
and arrangements); (iii) statutory Liens for taxes or other assessments
that are not yet delinquent (or that, if delinquent, are being contested
in good faith by appropriate proceedings, levy and execution thereon
having been stayed and continue to be stayed and for which the Borrower
has set aside on its books adequate reserves in accordance with GAAP);
(iv) easements, rights of way, servitudes, permits, surface leases and
other rights in respect to surface operations, pipelines, grazing,
logging, canals, ditches, reservoirs or the like, conditions, covenants
and other restrictions, and easements of streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other easements
and rights of way on, over or in respect of the Borrower's assets or
properties and that do not individually or in the aggregate, cause a
Material Adverse Effect; (v) materialmen's, mechanic's, repairman's,
employee's, warehousemen's, landlord's, carrier's, pipeline's,
contractor's, sub-contractor's, operator's, non-operator's (arising
under operating or joint operating agreements or otherwise), and other
Liens (including any financing statements filed in respect thereof)
incidental to obligations incurred by the Borrower in connection with
the construction, maintenance, development, transportation, storage or
operation of the Borrower's assets or properties to the extent not
delinquent (or which, if delinquent, are being contested in good faith
by appropriate proceedings and for which the Borrower has set aside on
its books adequate reserves in accordance with GAAP); (vi) all
contracts, agreements and instruments, and all defects and
irregularities and other matters affecting the Borrower's assets and
properties which were in existence at the time the Borrower's assets and
properties were originally acquired by the Borrower and all operational
agreements entered into in the ordinary course of business, which
contracts, agreements, instruments, defects, irregularities and other
matters and operational agreements are not such as, individually or in
the aggregate, could reasonably be expected to have a Material Adverse
Effect; (vii) liens in connection with workmen's compensation,
unemployment insurance or other social security, old age pension or
public liability obligations; (viii) legal or equitable encumbrances
deemed to exist by reason of the existence of any litigation or other
legal proceeding or arising out of a judgment or award with respect to
which an appeal is being prosecuted in good faith and levy and execution
thereon have been stayed and continue to be stayed; (ix) rights reserved
to or vested in any municipality, governmental, statutory or other
public authority to control or regulate the Borrower's assets and
properties in any manner, and all applicable laws, rules and orders from
any governmental authority; (x) landlord's liens; (xi) Liens incurred
pursuant to the Security Instruments; and (xii) Liens existing at the
date of this Agreement which have been disclosed to Bank in the
Borrower's December 31, 1995 Financial Statements or
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identified in Schedule "2" hereto; (xiii) matters disclosed in, or on
any exhibit to, a Security Instrument; (xiv) Liens securing indebtedness
permitted by Section 13(d)(iv) hereof; and (xv) any and all renewals and
extensions of all or any of the foregoing.
"Person" shall mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality
thereof.
"Plan" shall mean any plan subject to Title IV of ERISA and
maintained by Borrower, or any such plan to which Borrower is required
to contribute on behalf of its employees.
"Reimbursement Obligations" shall mean, as of any date, the
obligations of the Borrower with respect to all Letters of Credit then
outstanding to reimburse amounts paid by the Bank in respect of any
drawing or drawings under any of such Letter of Credit.
"Revolving Commitment" shall mean the lesser of (i) $25,000,000
or (ii) the Borrowing Base, as reduced from time to time pursuant to
Sections 2(e) and 2(f) hereof.
"Revolving Loan" shall mean the loan or loans made under the
Revolving Commitment pursuant to Section 2 hereof.
"Security Instruments" shall mean this Agreement, all Deeds of
Trust, Mortgages, Security Agreements, Assignments of Production and
Financing Statements, and other collateral documents covering Borrower's
Oil and Gas Properties and related personal property, equipment, oil and
gas inventory and proceeds of the foregoing, all such documents to be in
form and substance reasonably satisfactory to Bank.
"Total Outstandings" shall mean as of any date, the sum of (i)
the total principal balance outstanding of the Note, plus (ii) the then
total undrawn amount of all outstanding Letters of Credit plus (iii) the
total amount of all unpaid Reimbursement Obligations.
"Tranche" shall mean a Eurodollar Loan or Base Rate Loan.
"Unscheduled Redeterminations" shall mean a redetermination of
the Borrowing Base made at any time other than on the dates set for the
regular semi-annual redetermination of the Borrowing Base which are made
(A) at the
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reasonable request of Borrower, (B) at any time it appears to the Bank,
in the exercise of its reasonable discretion, that either (i) there has
been a material decrease in the value of the Oil and Gas Properties, or
(ii) an event has occurred which is reasonably expected to have a
Material Adverse Effect.
2. COMMITMENTS OF THE BANK.
(a) Terms of Revolving Commitment. On the terms and
conditions hereinafter set forth, Bank agrees to make Advances to the
Borrower from time to time during the period beginning on the Closing
Date and ending on the Maturity Date in such amounts as the Borrower may
request up to an amount not to exceed, in the aggregate principal amount
outstanding at any time, the Revolving Commitment. The obligation of
the Borrower hereunder shall be evidenced by this Agreement and the Note
issued in connection herewith, said Note to be as described in Section 3
hereof. Notwithstanding any other provision of this Agreement, no
Advance shall be required to be made hereunder if any Event of Default
(as hereinafter defined) has occurred and is continuing or if any event
or condition has occurred or failed to occur which with the passage of
time or service of notice, or both, would constitute an Event of
Default. Each Advance under the Revolving Commitment shall be an
aggregate amount of at least $100,000 or a whole number multiple
thereof. Irrespective of the face amount of the Note, the Bank shall
never have the obligation to Advance any amount or amounts in excess of
the Borrowing Base or to increase the Revolving Commitment. The total
number of Tranches which may be outstanding at any time hereunder shall
never exceed four (4), whether such Tranches are Base Rate Loans,
Eurodollar Loans, or a combination thereof.
(b) Procedure for Borrowing. Whenever the Borrower desires an
Advance hereunder, it shall give Bank telegraphic, telex, facsimile or
telephonic notice ("Notice of Borrowing") of such requested Advance,
which in the case of telephonic notice, shall be promptly confirmed in
writing. Each Notice of Borrowing shall be in the form of Exhibit "A"
attached hereto and shall be received by Bank not later than 11:00 a.m.
Dallas, Texas time, (i) one Business Day prior to the Borrowing Date in
the case of the Base Rate Loan, or (ii) three Business Days prior to any
proposed Borrowing Date in the case of Eurodollar Loans. Each Notice of
Borrowing shall specify (i) the Borrowing Date (which, if at Base Rate
Loan, shall be a Business Day and if a Eurodollar Loan, a Eurodollar
Business Day), (ii) the principal amount to be borrowed, (iii) the
portion of the Advance constituting Base Rate Loans and/or Eurodollar
Loans, (iv) if any portion of the proposed Advance is to constitute
Eurodollar Loans, the initial Interest Period selected by Borrower
pursuant to Section 4 hereof to be applicable thereto, and (v) the date
upon which such Advance is required.
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(c) Letters of Credit. On the terms and conditions
hereinafter set forth, the Bank shall from time to time during the
period beginning on the Closing Date and ending on the Maturity Date
upon request of Borrower issue standby Letters of Credit for the account
of Borrower (the "Letters of Credit") in such face amounts as Borrower
may request, but not to exceed in the aggregate face amount at any time
outstanding the sum of One Million Dollars ($1,000,000.00) or such
amount as designated by Bank in writing. The face amount of all Letters
of Credit issued and outstanding hereunder shall be considered as
Advances for Borrowing Base purposes and all payments made by the Bank
on such Letters of Credit shall be considered as Advances under the
Note. Each Letter of Credit issued for the account of Borrower
hereunder shall (i) be in favor of such beneficiaries as specifically
requested by Borrower, (ii) have an expiration date not exceeding the
Maturity Date, and (iii) contain such other terms and provisions as may
reasonably be required by Bank. The Borrower hereby unconditionally
agrees to pay and reimburse the Bank for account of the Bank for the
amount of each demand for payment under any Letter of Credit that is in
compliance with the provisions of any such Letter of Credit at or prior
to the date on which payment is to be made by the Bank to the
beneficiary thereunder, without presentment, demand, protest or other
formalities of any kind. Upon receipt from any beneficiary of any
Letter of Credit of any demand for payment under such Letter of Credit,
the Bank shall promptly notify the Borrower of the demand and the date
upon which such payment is to be made by the Bank to such beneficiary in
respect of such demand. Forthwith upon receipt of such notice from the
Bank, Borrower shall advise the Bank whether or not they intend to
borrow hereunder to finance their obligations to reimburse the Bank, and
if so, submit a Notice of Borrowing as provided in Section 2(b) hereof.
(d) Procedure for Obtaining Letters of Credit. The amount and
date of issuance, renewal, extension or reissuance of a Letter of Credit
pursuant to the Bank's commitment above in Section 2(c) shall be
designated by Borrower's written request delivered to Bank at least
three (3) Business Days prior to the date of such issuance, renewal,
extension or reissuance. Concurrently with or promptly following the
delivery of the request for a Letter of Credit, Borrower shall execute
and deliver to the Bank an application and agreement with respect to the
Letters of Credit, said application and agreement to be in the form used
by the Bank. The Bank shall not be obligated to issue, renew, extend or
reissue such Letters of Credit if (A) the amount thereon when added to
the amount of the outstanding Letters of Credit exceeds One Million
Dollars ($1,000,000.00) or such amount as designated by Bank in writing
(B) the amount thereof when added to the Total Outstandings would exceed
the Revolving Commitment. Borrower agrees to pay the Bank commissions
for issuing the Letters of Credit (calculated separately for each Letter
of Credit) in an amount equal to the greater of (i) one percent (1%) per
annum on the maximum face amount of the Letter of Credit or (ii)
$400.00. Such commissions shall be
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payable prior to the issuance of each Letter of Credit and thereafter on
each anniversary date of such issuance while such Letter of Credit is
outstanding. In addition, any amendment to any Letter of Credit shall
be subject to a $50 amendment fee due on the date of such amendment.
(e) Voluntary Reduction of Revolving Commitment. The Borrower
may at any time, or from time to time, upon not less than three (3)
Business Days prior written notice to Bank, reduce or terminate the
Revolving Commitment; provided, however, that (i) each reduction in the
Revolving Commitment must be in the amount of $100,000 or more, in
increments of $100,000 and (ii) each reduction must be accompanied by a
prepayment of the Note in the amount by which the outstanding principal
balance of the Note exceeds the Revolving Commitment as reduced pursuant
to this Section 2.
(f) Monthly Commitment Reduction. The Revolving Commitment
shall be reduced as of the first day of each month beginning on the
first day of the first month after the Closing Date by an amount
determined by the Bank pursuant to Section 7(b) hereof (the "Monthly
Commitment Reduction"). The Monthly Commitment Reduction shall be $0
per month until redetermined pursuant to Section 7(b) hereof. If, as a
result of the Monthly Commitment Reduction required pursuant to this
Section 2(f), the Total Outstandings ever exceed the Borrowing Base,
Borrower shall within five (5) days of receipt of notice thereof,
prepay, without penalty or premium, the principal amount of the Note in
an amount at least equal to such excess plus interest thereon to the
date of such prepayment.
3. NOTE EVIDENCING LOANS. The loans described above in Section 2
shall be evidenced by a promissory note of Borrower as follows:
(a) Form of Note - The Revolving Loan shall be evidenced by a
Note in the face amount of $25,000,000, and shall be in the form of
Exhibit "B" hereto with appropriate insertion. Notwithstanding the
principal amount of the Note, as stated on the face thereof, the actual
principal amount due from Borrower to Bank on account of the Note, as of
any date of computation, shall be the sum of Advances then and
theretofore made on account thereof, less all principal payments
actually received by Bank in collected funds with respect thereto.
Although the Note shall be dated as of the Effective Date, interest in
respect thereof shall be payable only for the period during which the
loans evidenced thereby are outstanding and, although the stated amount
of the Note may be higher, the Note shall be enforceable, with respect
to Borrower's obligation to pay the principal amount thereof, only to
the extent of the unpaid principal amount of the loans.
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(b) Interest Rate - The unpaid principal balance of the Note
shall bear interest from time to time as set forth in Section 4 hereof.
(c) Payment of Interest - Interest on the Note shall be
payable on each Interest Payment Date.
(d) Payment of Principal - Principal of the Note shall be due
on the Maturity Date, unless earlier due in whole or in part pursuant to
the mandatory prepayment provisions of Sections 2(f) and 9(b) hereof.
4. INTEREST RATES.
(a) Options.
(i) Base Rate Loans. Borrower agrees to pay interest
on the Note calculated on the basis of the actual days elapsed in
a year consisting of 365 or, if appropriate, 366 days with
respect to the unpaid principal amount of each Base Rate Loan
from the date the proceeds thereof are made available to Borrower
until maturity (whether by acceleration or otherwise), at a
varying rate per annum equal to the lesser of (i) the Maximum
Rate (defined herein), or (ii) the Base Rate. Subject to the
provisions of this Agreement as to prepayment, the principal of
the Note representing Base Rate Loans shall be payable as
specified in Section 3(d) hereof and the interest in respect of
each Base Rate Loan shall be payable on each Interest Payment
Date. Past due principal and, to the extent permitted by law,
past due interest in respect to each Base Rate Loan, shall bear
interest, payable on demand, at a rate per annum equal to the
Default Rate (as hereinafter defined).
(ii) Eurodollar Loans. Borrower agrees to pay interest
calculated on the basis of a year consisting of 360 days with
respect to the unpaid principal amount of each Eurodollar Loan
from the date the proceeds thereof are made available to Borrower
until maturity (whether by acceleration or otherwise), at a
varying rate per annum equal to the lesser of (i) the Maximum
Rate, or (ii) the Eurodollar Rate plus the Eurodollar Margin.
Subject to the provisions of this Agreement with respect to
prepayment, the principal of the Note shall be payable as
specified in Section 3(d) hereof and the interest with respect to
each Eurodollar Loan shall be payable on each Interest Payment
Date. Past due principal and, to the extent permitted by law,
past due interest shall bear interest, payable on demand, at a
rate
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per annum equal to the Default Rate. Upon three (3) Eurodollar
Business Days' written notice prior to the making by the Bank of
any Eurodollar Loan (in the case of the initial Interest Period
therefor) or the expiration date of each succeeding Interest
Period (in the case of subsequent Interest Periods therefor),
Borrower shall have the option, subject to compliance by Borrower
with all of the provisions of this Agreement, as long as no Event
of Default exists, to specify whether the Interest Period
commencing on any such date shall be a one (1), two (2), three
(3) or six (6) month period. If Bank shall not have received
timely notice of a designation of such Interest Period as herein
provided, Borrower shall be deemed to have elected to convert all
maturing Eurodollar Loans to Base Rate Loans.
(b) Interest Rate Determination. The Bank shall determine
each interest rate applicable to the Revolving Loan hereunder. The Bank
shall give prompt notice to the Borrower of each rate of interest so
determined and its determination thereof shall be conclusive absent
error.
(c) Conversion Option. Borrower may elect from time to time
(i) to convert all or any part of its Eurodollar Loans to Base Rate
Loans by giving Bank irrevocable notice of such election in writing
prior to 10:00 a.m. (Dallas, Texas time) on the conversion date and such
conversion shall be made on the requested conversion date, provided that
any such conversion of Eurodollar Loan shall only be made on the last
day of the Eurodollar Interest Period with respect thereof, (ii) to
convert all or any part of its Base Rate Loans to Eurodollar Loans by
giving the Bank irrevocable written notice of such election three (3)
Eurodollar Business Days prior to the proposed conversion and such
conversion shall be made on the requested conversion date or, if such
requested conversion date is not a Eurodollar Business Day or a Business
Day, as the case may be, on the next succeeding Eurodollar Business Day
or Business Day, as the case may be. Any such conversion shall not be
deemed to be a prepayment of any of the loans for purposes of this
Agreement or the Note.
(d) Recoupment. If at any time the applicable rate of
interest selected pursuant to Sections 4(a)(i) or 4(a)(ii) above shall
exceed the Maximum Rate, thereby causing the interest on the Note to be
limited to the Maximum Rate, then any subsequent reduction in the
interest rate so selected or subsequently selected shall not reduce the
rate of interest on the Note below the Maximum Rate until the total
amount of interest accrued on the Note equals the amount of interest
which would have accrued on the Note if the rate or rates selected
pursuant to Sections 4(a)(i) or (ii), as the case may be, had at all
times been in effect.
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(e) Default Rate. After maturity (whether by acceleration or
otherwise), the principal balance of the Note shall bear interest to the
extent permitted by law at a rate per annum equal to the lesser of (i)
the Maximum Rate, or (ii) the Base Rate plus five percent (5%) (the
"Default Rate").
5. SPECIAL PROVISIONS RELATING TO EURODOLLAR LOANS.
(a) Unavailability of Funds or Inadequacy of Pricing. In the
event that, in connection with any proposed Eurodollar Loan, Bank (i)
shall have determined that U.S. Dollar deposits of the relevant amount
and for the relevant Eurodollar Interest Period for Eurodollar Loans are
not available to Bank in the London interbank market; or (ii) in good
faith determines that the Eurodollar Interest Rate will not adequately
reflect the cost to the Bank of maintaining or funding the Eurodollar
Loans for such Interest Period, the obligations of the Bank to make the
Eurodollar Loans, as the case may be, shall be suspended until such time
such Bank in its sole discretion reasonably exercised determines that
the event resulting in such suspension has ceased to exist. If Bank
shall make such determination it shall promptly notify Borrower in
writing, and Borrower shall either repay the outstanding Eurodollar
Loans, as the case may be, owed to Bank, without penalty, on the last
day of the current Interest Period or convert the same to Base Rate
Loans in the case of Eurodollar Loans on the last day of the then
current Interest Period for such Eurodollar Loan.
(b) Reserve Requirements. In the event of any change in any
applicable law, treaty or regulation or in the interpretation or
administration thereof, or in the event any central bank or other fiscal
monetary or other authority having jurisdiction over the Bank or the
loans contemplated by this Agreement shall impose, modify or deem
applicable any reserve requirement of the Board of Governors of the
Federal Reserve System on any Eurodollar Loan or loans, or any other
reserve, special deposit, or similar requirements against assets to,
deposits with or for the account of, or credit extended by, the Bank or
shall impose on the Bank or the London interbank market, as the case may
be, any other condition affecting this Agreement or the Eurodollar Loans
and the result of any of the foregoing is to increase the cost to the
Bank in making or maintaining its Eurodollar Loans or to reduce any
amount (or the effective return on any amount) received by the Bank
hereunder, then Borrower shall pay to the Bank upon demand of the Bank
as additional interest on the Note evidencing the Eurodollar Loans such
additional amount or amounts as will reimburse the Bank for such
additional cost or such reduction. The Bank shall give notice to
Borrower upon becoming aware of any such change or imposition which may
result in any such increase or reduction. A certificate of Bank setting
forth the basis for the determination of such amount
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necessary to compensate Bank as aforesaid shall be delivered to Borrower
and shall be conclusive as to such determination and such amount, absent
error.
(c) Taxes. Both principal and interest on the Note evidencing
the Eurodollar Loans are payable without withholding or deduction for or
on account of any taxes. If any taxes are levied or imposed on or with
respect to the Note evidencing the Eurodollar Loans or on any payment on
the Note evidencing the Eurodollar Loans made to the Bank, then, and in
any such event, Borrower shall pay to the Bank upon demand of the Bank
such additional amounts as may be necessary so that every net payment of
principal and interest on the Note evidencing the Eurodollar Loans,
after withholding or deduction for or on account of any such taxes, will
not be less than any amount provided for herein. In addition, if at any
time when the Eurodollar Loans are outstanding any laws enacted or
promulgated, or any court of law or governmental agency interprets or
administers any law, which, in any such case, materially changes the
basis of taxation of payments to the Bank of principal of or interest on
the Note evidencing the Eurodollar Loans by reason of subjecting such
payments to double taxation or otherwise (except through an increase in
the rate of tax on the overall net income of Bank) then Borrower will
pay the amount of loss to the extent that such loss is caused by such a
change. The Bank shall give notice to Borrower upon becoming aware of
the amount of any loss incurred by the Bank through enactment or
promulgation of any such law which materially changes the basis of
taxation of payments to the Bank. The Bank shall also give notice on
becoming aware of any such enactment or promulgation which may result in
such payments becoming subject to double taxation or otherwise. A
certificate of any Bank setting forth the basis for the determination of
such loss and the computation of such amounts shall be delivered to
Borrower and shall be conclusive of such determination and such amount,
absent error.
(d) Change in Laws. If at any time any new law or any change
in existing laws or in the interpretation of any new or existing laws
shall make it unlawful for the Bank to maintain or fund its Eurodollar
Loans hereunder, then the Bank shall promptly notify Borrower in writing
and Borrower shall either repay the outstanding Eurodollar Loans owed to
the Bank, without penalty, on the last day of the current Interest
Periods (or, if the Bank may not lawfully continue to maintain and fund
such Eurodollar Loans, immediately), or Borrower may convert such
Eurodollar Loans at such appropriate time to Base Rate Loans.
(e) Option to Fund. The Bank shall have the option if the
Borrower elects a Eurodollar Loan, to purchase one or more deposits in
order to fund or maintain its funding of the principal balance of the
Note to which such Eurodollar Loan is applicable during the Interest
Period in question; it being understood that the provisions of this
Agreement relating to such funding are included only for the
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purpose of determining the rate of interest to be paid under such
Eurodollar Loan and any amounts owing hereunder and under the Note. The
Bank shall be entitled to fund and maintain its funding of all or any
part of that portion of the principal balance of the Note in any manner
it sees fit, but all such determinations hereunder shall be made as if
the Bank had actually funded and maintained that portion of the
principal balance of the Note to which a Eurodollar Loan is applicable
during the applicable Interest Period through the purchase of deposits
in an amount equal to the principal balance of the Note to which such
Eurodollar Loan is applicable and having a maturity corresponding to
such Interest Period. The Bank may fund the outstanding principal
balance of the Note which is to be subject to any Eurodollar Loan from
any branch or office of the Bank as the Bank may designate from time to
time.
(f) Indemnity. Borrower shall indemnify and hold harmless the
Bank against all reasonable and necessary out-of-pocket costs and
expenses which the Bank may sustain (i) as a consequence of any default
by Borrower under this Agreement, or (ii) as a result of the making of
any loan or loans as a Eurodollar Loan under this Agreement.
(g) Payments Not at End of Interest Period. If the Borrower
makes any payment of principal with respect to any Eurodollar Loan on
any day other than the last day of the Interest Period applicable to
such Eurodollar Loan, then Borrower shall reimburse the Bank on demand
for any loss, cost or expense incurred by the Bank as a result of the
timing of such payment or in redepositing such principal amount,
including the sum of (i) the cost of funds to the Bank in respect of
such principal amount so paid, for the remainder of the Interest Period
applicable to such sum, reduced, if the Bank is able to redeposit such
principal amount so paid for the balance of the Interest Period, by the
interest earned by Bank as a result of so redepositing such principal
amount, plus (ii) any expense or penalty incurred by the Bank in
redepositing such principal amount. A certificate of Bank setting forth
the basis for the determination of the amount owed by Borrower pursuant
to this Section 5(g) shall be delivered to the Borrower and shall be
conclusive in the absence of manifest error.
6. COLLATERAL SECURITY. To secure the performance by Borrower of
its obligations hereunder, and under the Note and Security Instruments, whether
now or hereafter incurred, matured or unmatured, direct or contingent, joint or
several, or joint and several, including extensions, modifications, renewals
and increases thereof, and substitutions therefore, Borrower shall
contemporaneously with or prior to the execution of this Agreement and the
Note, grant and assign to the Bank a first and prior security interest and Lien
on certain of its Oil and Gas Properties, and on certain related equipment, oil
and gas inventory and proceeds of the foregoing. All Oil and Gas Properties
and other
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collateral in which Borrower has herewith granted or hereafter grants to the
Bank either a first and prior Lien (to the satisfaction of the Bank) in
accordance with this Section 6 or a negative pledge (to the satisfaction of the
Bank) pursuant to Section 13 hereof or the Oil and Gas Properties listed and
described on Annex 1, as such properties and interests are from time to time
constituted, are hereinafter collectively called the "Collateral."
The granting and assigning of such security interests and Liens by
Borrower shall be pursuant to Security Instruments in form and substance
reasonably satisfactory to the Bank. Concurrently with the delivery of each of
the Security Instruments, Borrower shall furnish to the Bank mortgage and title
opinions and other documents reasonably satisfactory to Bank with respect to
the title and Lien status of Borrower's interests in not less than 81% of the
Engineered Value of the Oil and Gas Properties. "Engineered Value" for this
purpose shall mean future net revenues discounted at the discount rate being
used by the Bank as of the date of any such determination utilizing the pricing
parameters used in the engineering report furnished to the Bank pursuant to
Sections 7 and 12 hereof. Borrower will cause to be executed and delivered to
the Bank, in the future, additional Security Instruments if the Bank reasonably
deems such are necessary to insure perfection or maintenance of Bank's security
interests and Liens in the Oil and Gas Properties or any part thereof.
7. BORROWING BASE.
(a) Initial Borrowing Base. During the period from the date
hereof to the next Determination Date (as hereinafter defined), the
Borrowing Base shall be $6,200,000.00.
(b) Subsequent Determinations of Borrowing Base. Subsequent
determinations of the Borrowing Base shall be made by the Bank at least
semi-annually as set forth hereinbelow or as Unscheduled
Redeterminations. In connection with each such determination of the
Borrowing Base, the Bank shall also determine the Monthly Commitment
Reduction. Borrower shall furnish to the Bank as soon as possible but
in any event no later than March 1 of each year, beginning March 1,
1997, with an engineering report in form and substance reasonably
satisfactory to Bank prepared by an independent petroleum engineer
acceptable to Bank covering the Oil and Gas Properties utilizing pricing
parameters used by Bank in its reasonable discretion as established from
time to time, together with such other information concerning the value
of the Collateral as the Bank may reasonably deem necessary to determine
the value of the Collateral. By September 1 of each year, beginning
September 1, 1996, or within thirty (30) days after either (i) receipt
of notice from Bank that it requires an Unscheduled Redetermination, or
(ii) Borrower gives notice to Bank of its desire to have an Unscheduled
Redetermination performed, Borrower shall furnish to Bank an engineering
report
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in form and substance satisfactory to Bank prepared in-house by Borrower
valuing the Oil and Gas Properties using substantially the same
methodology utilized by the independent petroleum engineer who prepared
the most recent independent engineer's report, together with such other
information, reports and data concerning the value of the Collateral as
the Bank shall deem reasonably necessary to determine the value of such
Collateral. Within thirty (30) days after receipt by Bank of such
required information, or within a reasonable time thereafter, Bank shall
notify Borrower of the new Borrowing Base and Monthly Commitment
Reduction for the period beginning on the date of such notice (herein
called the "Determination Date") and continuing until, but not
including, the next Determination Date. If an Unscheduled
Redetermination is made by the Bank, the Bank shall notify Borrower
within a reasonable time after receipt of all requested information of
the new Borrowing Base and Monthly Commitment Reduction, if any, and
such new Borrowing Base and Monthly Commitment Reduction shall continue
until the next Determination Date. If Borrower does not furnish all
such information, reports and data by the date specified in this Section
7(b), unless such failure is of no fault of Borrower, the Bank may
nonetheless designate the Borrowing Base and Monthly Commitment
Reduction at any amount which the Bank determines in its discretion to
be appropriate and may redesignate the Borrowing Base and Monthly
Commitment Reduction from time to time thereafter until the Bank
receives all such information, reports and data, whereupon the Bank
shall designate a new Borrowing Base and Monthly Commitment Reduction as
described above. If the information furnished by Borrower in connection
with any scheduled Borrowing Base determination shall ever be
unacceptable to the Bank, Bank shall have the right to require Borrower
to furnish information acceptable to Bank, prepared by an independent
engineer acceptable to Bank. The Bank shall determine the amount of the
Borrowing Base and Monthly Commitment Reduction based upon the loan
collateral value which it in its discretion (using such methodology,
assumptions and discounts rates as Bank customarily uses in assigning
collateral value to oil and gas properties) assigns to such Oil and Gas
Properties of Borrower at the time in question and based upon such other
credit factors consistently applied (including, without limitation, the
assets, liabilities, cash flow, business, properties, prospects,
management and ownership of Borrower and its affiliates) as the Bank
customarily considers in evaluating similar oil and gas credits. It is
expressly understood that the Bank has no obligation to designate the
Borrowing Base or Monthly Commitment Reduction at any particular amount,
except in the exercise of its discretion, whether in relation to the
Revolving Commitment or otherwise, and that the Bank's commitment to
advance funds hereunder is determined by reference to the Borrowing Base
from time to time in effect. Provided, however, that the Bank shall
never have the obligation to designate a Borrowing Base in excess of its
legal or internal lending limits. If at any time any of the Oil and Gas
Properties are sold pursuant to Section 12(q) hereof, the Borrowing Base
then in effect shall
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immediately and automatically be reduced by a sum equal to the amount
prepaid by Borrower pursuant to Section 12(q). The Borrowing Base shall
be additionally reduced from time to time pursuant to the provisions of
Sections 2(e) and 2(f) hereof.
8. FEES.
(a) Origination Fee. Borrower shall pay to Bank on the
Effective Date an Origination Fee (the "Origination Fee") equal to
$10,000.00.
(b) Unused Portion Fee. Borrower shall pay to Bank an Unused
Portion Fee (hereinafter referred to as the "Unused Portion Fee")
equivalent to one-half of one percent ( 1/2%) per annum on the daily
average of the unadvanced amount of the Revolving Commitment as reduced
from time to time pursuant to Sections 2(e) and (f) hereof. The Unused
Portion Fee shall be payable in arrears on the last day of each calendar
quarter beginning June 30, 1996, with the final fee payment on the
Maturity Date for any period then ending for which the Unused Portion
Fee shall not have been theretofore paid. In the event the Revolving
Commitment terminates on any date prior to the end of any such calendar
quarter, Borrower shall pay to Bank, on the date of such termination,
the total Unused Portion Fee due for the period in which such
termination occurs.
(c) Borrowing Base Increase Fee. Borrower agrees to pay to
Bank a Borrowing Base Increase Fee (hereinafter referred to as the
"Borrowing Base Increase Fee") equal to one-fourth of one percent (
1/4%) of the amount of any increase in the Borrowing Base from the
amount of the Borrowing Base set as of the preceding Determination Date,
said fee to be payable upon notice to Borrower of such increase.
(d) Letter of Credit Fee. Borrower shall pay to Bank the
Letter of Credit fees and amendment fees required above in Section 2(d).
9. PREPAYMENTS.
(a) Voluntary Prepayments. The Borrower may at any time and
from time to time, without penalty or premium, prepay the Note, in whole
or in part. Each such prepayment shall be made on at least one (1)
Business Day's notice to Bank and shall be in a minimum amount of
$100,000 or the unpaid balance on the Note, whichever is less.
(b) Mandatory Prepayment. In the event the aggregate
principal amount outstanding on the Note ever exceeds the Borrowing Base
as determined by Bank
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pursuant to Section 7(b) hereof (a "Borrowing Base Deficiency"),
Borrower shall, within sixty (60) days after written notification from
the Bank, either (A) by instruments reasonably satisfactory in form and
substance to the Bank, provide the Bank with additional collateral with
value and quality in amounts satisfactory to the Bank in its sole
discretion in order to increase the Borrowing Base by an amount at least
equal to such excess, or (B) prepay, without premium or penalty, the
principal amount of the Note in an amount at least equal to such excess
plus interest thereon to the date of such prepayment.
10. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this Agreement, Borrower hereby represents and warrants to the Bank
(which representations and warranties will survive the delivery of the Note)
that:
(a) Partnership Existence. Borrower is a limited partnership
duly formed under the laws of the State of Delaware and is duly
qualified in all jurisdictions wherein the failure to qualify could
reasonably be expected to result in Material Adverse Effect.
(b) Authority of Managing General Partner. ▇▇▇▇▇▇▇
Exploration Company ("BEC") is the managing general partner of Borrower
and on behalf of Borrower is duly authorized and empowered to create and
issue the Note; and BEC is duly authorized and empowered to execute,
deliver and perform the Security Instruments, including this Agreement;
and all action on BEC's part requisite for due creation and issuance of
the Note and for the due execution, delivery and performance of the
Security Instrument, including this Agreement, has been duly and
effectively taken.
(c) Binding Obligations. This Agreement does, and the Note
and other Loan Documents upon their creation, issuance, execution and
delivery will, constitute valid and binding obligations of Borrower,
enforceable in accordance with its terms (except that enforcement may be
subject to any applicable bankruptcy, insolvency, or similar debtor
relief laws now or hereafter in effect and relating to or affecting the
enforcement of creditors rights generally).
(d) No Legal Bar or Resultant Lien. The Note and the Loan
Documents, including this Agreement, do not and will not, to the best of
Borrower's knowledge, violate any provisions of any contract, agreement,
law, regulation, order, injunction, judgment, decree or writ to which
Borrower is subject, or result in the creation or imposition of any lien
or other encumbrance upon any assets or properties of Borrower, other
than those contemplated by this Agreement.
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(e) No Consent. The execution, delivery and performance by
Borrower of the Note and the Security Instruments, including this
Agreement, does not require the consent or approval of any other person
or entity, including without limitation any regulatory authority or
governmental body of the United States or any state thereof or any
political subdivision of the United States or any state thereof or any
political subdivision of the United States or any state thereof except
for (i) consents required for federal, state and, in some instances,
private leases, right of ways and other conveyances or encumbrances of
oil and gas leases (all of which consents have been obtained by
Borrower) and (ii) those consents the failure to obtain could reasonably
be expected not to cause a Material Adverse Effect.
(f) Financial Condition. The Financial Statements of Borrower
dated December 31, 1995, which have been delivered to Bank are complete
and correct in all material respects, and fully and accurately reflect
in all material respects the financial condition and results of the
operations of the Borrower as of the date or dates and for the period or
periods stated, and such Financial Statements have been prepared in
accordance with GAAP. No change has since occurred in the condition,
financial or otherwise, of Borrower which is reasonably expected to have
a Material Adverse Effect, except as disclosed to the Bank in Schedule
"3" attached hereto.
(g) Liabilities. Borrower has no material (individually or in
the aggregate) liability, direct or contingent, except as disclosed to
the Bank in the Financial Statements or on Schedule "4" attached hereto.
No unusual or unduly burdensome restrictions, restraint, or hazard
exists by contract, law or governmental regulation or otherwise relative
to the business, assets or properties of Borrower which is reasonably
expected to have a Material Adverse Effect.
(h) Litigation. Except as described in the Financial
Statements, or as otherwise disclosed to the Bank in Schedule "5"
attached hereto, there is no litigation, legal or administrative
proceeding, investigation or other action of any nature pending or, to
the knowledge of the general partner of Borrower, threatened against or
affecting Borrower which involves the possibility of any judgment or
liability not fully covered by insurance, and which is reasonably
expected to have a Material Adverse Effect.
(i) Taxes; Governmental Charges. Borrower has filed all tax
returns and reports required to be filed and has paid all taxes,
assessments, fees and other governmental charges levied upon it or its
assets, properties or income which are due and payable, including
interest and penalties, the failure of which to pay could reasonably be
expected to have a Material Adverse Effect, except such as are being
contested in good faith by appropriate proceedings and for which
adequate reserves
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for the payment thereof as required by GAAP has been provided and levy
and execution thereon have been stayed and continue to be stayed.
(j) Titles, Etc. Borrower has good and defensible title to
the Oil and Gas Properties, free and clear of all Liens except Permitted
Liens.
(k) Defaults. Borrower is not in default and no event or
circumstance has occurred which, but for the passage of time or the
giving of notice, or both, would constitute a default under any loan or
credit agreement, indenture, mortgage, deed of trust, security agreement
or other agreement or instrument to which Borrower is a party in any
respect that would be reasonably expected to have a Material Adverse
Effect. No Event of Default hereunder has occurred and is continuing.
(l) Casualties; Taking of Properties. Since the dates of the
latest Financial Statements of Borrower delivered to Bank, neither the
business nor the assets or properties of Borrower have been affected (to
the extent it could reasonably be expected to have a Material Adverse
Effect), as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of property or cancellation of contracts, permits
or concessions by any domestic or foreign government or any agency
thereof, riot, activities of armed forces or acts of God or of any
public enemy.
(m) Use of Proceeds; Margin Stock. The availability under the
Revolving Commitment shall be used by Borrower for (i) the issuance of
Letters of Credit, (ii) working capital and (iii) general business
purposes. Borrower is not engaged principally or as one of its
important activities in the business of extending credit for the purpose
of purchasing or carrying any "margin stock" as defined in Regulation U
of the Board of Governors of the Federal Reserve System (12 C.F.R. Part
221), or for the purpose of reducing or retiring any indebtedness which
was originally incurred to purchase or carry a margin stock or for any
other purpose which might constitute this transaction a "purpose credit"
within the meaning of said Regulation U.
Neither Borrower nor any person or entity acting on behalf of
Borrower has taken or will take any action which might cause the loans
hereunder or any of the Security Instruments, including this Agreement,
to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities
Exchange Act of 1934 or any rule or regulation thereunder, in each case
as now in effect or as the same may hereafter be in effect.
(n) Location of Business and Offices. The principal place of
business of Borrower is located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇.
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(o) Compliance with the Law. To the best of Borrower's
knowledge, Borrower:
(i) is not in violation of any law, judgment, decree,
order, ordinance, or governmental rule or regulation to which
Borrower, or any of its assets or properties are subject; and
(ii) has not failed to obtain any license, permit,
franchise or other governmental authorization necessary to the
ownership of any of its assets or properties or the conduct of
its business;
which violation or failure is reasonably expected to have a Material
Adverse Effect.
(p) No Material Misstatements. No information, exhibit or
report (other than financial projections and other projections relating
to Borrower's drilling and production from the Oil and Gas Properties
which are, to the best of Borrower's knowledge at the time provided,
complete and accurate projections) furnished by Borrower to the Bank in
connection with the negotiation of this Agreement contained any material
misstatement of fact or omitted to state a material fact or any fact
necessary to make the statement contained therein not materially
misleading.
(q) Not A Utility. Borrower is not an entity engaged in the
State of Texas in the (i) generation, transmission, or distribution and
sale of electric power; (ii) transportation, distribution and sale
through a local distribution system of natural or other gas for
domestic, commercial, industrial, or other use; (iii) ownership or
operation of a pipeline for the transmission or sale of natural or other
gas, crude oil or petroleum products to other pipeline companies,
refineries, local distribution systems, municipalities, or industrial
consumers; (iv) provision of telephone or telegraph service to others;
(v) production, transmission, or distribution and sale of steam or
water; (vi) operation of a railroad; or (vii) provision of sewer service
to others.
(r) ERISA. Borrower is in compliance in all material respects
with the applicable provisions of ERISA, and no "reportable event", as
such term is defined in Section 4043 of ERISA, has occurred with respect
to any Plan of Borrower which is reasonably likely to cause a Material
Adverse Effect.
(s) Environmental Matters. Except as disclosed on Schedule
"6", Borrower has not received notice or otherwise learned of (i) any
Environmental Liability which could reasonably be expected to
individually or in the aggregate have a
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Material Adverse Effect arising in connection with (A) any non-
compliance with or violation of the requirements of any Environmental
Law or (B) the release or threatened release of any toxic or hazardous
waste into the environment, (ii) any threatened or actual liability in
connection with the release or threatened release of any toxic or
hazardous waste into the environment which could reasonably be expected
to individually or in the aggregate have a Material Adverse Effect or
(iii) any federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any
toxic or hazardous waste into the environment for which Borrower is or
may be liable which could reasonably be expected to result in a Material
Adverse Effect.
(t) Ownership of Borrower. The general partnership interests
in Borrower are owned by the individuals and entities listed on Schedule
"1".
(u) Liens. Except for Permitted Liens, the Oil and Gas
Properties are free and clear of all Liens and security interests.
11. CONDITIONS OF LENDING.
(a) The obligation of the Bank to make the initial Advance
under the Revolving Commitment shall be subject to the following
conditions precedent:
(i) Execution and Delivery. Borrower shall have
executed and delivered to the Bank the Note, this Agreement and
the other Loan Documents, and other required documents, all in
form and substance satisfactory to the Bank;
(ii) Legal Opinion. The Bank shall have received from
Borrower's legal counsel a favorable legal opinion in form and
substance satisfactory to Bank (i) as to the matters set forth in
Subsections 10(a), (b), (c), (d), (e) and (h) hereof, and (ii) as
to such other matters as Bank or its counsel may reasonably
request;
(iii) Partnership Agreement. The Bank shall have
received a copy of the Borrower's Partnership Agreement and all
amendments thereto, certified to by the President or Vice
President of the General Partner as being a true and correct
copies of such Agreement and all amendments;
(iv) Good Standing and Existence. The Bank shall have
received evidence of existence and good standing for Borrower and
BEC;
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(v) Corporate Resolutions. The Bank shall have
received appropriate certified corporate resolutions of BEC;
(vi) Incumbency. The Bank shall have received a signed
certificate of the officers of BEC, certifying the names of each
of the officers of BEC authorized to sign loan documents on
behalf of Borrower, together with the true signatures of each
such officer. The Bank may conclusively rely on such certificate
until the Bank receives a further certificate of the authorized
officers of BEC canceling or amending the prior certificate and
submitting signatures of the officers named in such further
certificate;
(vii) Title. The Bank shall have received satisfactory
evidence of the state of title to at least 81% of the Engineered
Value of the Oil and Gas Properties;
(viii) Subordinated Debt. The Bank shall have received
satisfactory evidence in the form of a letter to the Lenders (as
defined in the Subordinated Debt Agreement) to the effect that
the obligations owed the Bank under this Agreement have been
designated by Borrower as "Senior Obligations" pursuant to the
provision of that certain Subordinated Debt Agreement together
with evidence of the receipt by each subordinated lender of such
letter;
(ix) Management Committee Approval. The Bank shall have
received appropriate resolutions of the Management Committee of
Borrower approving the transactions described in this Agreement;
(x) Representation and Warranties. The representations
and warranties of Borrower under this Agreement are true and
correct in all material respects as of such date, as if then made
(except to the extent that such representations and warranties
related solely to an earlier date);
(xi) No Event of Default. No Event of Default shall
have occurred and be continuing nor shall any event have occurred
or failed to occur which, with the passage of time or service of
notice, or both, would constitute an Event of Default;
(xii) Other Documents. The Bank shall have received such
other instruments and documents incidental and appropriate to the
transaction provided for herein as the Bank or its counsel may
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reasonably request, and all such documents shall be in form and
substance reasonably satisfactory to the Bank; and
(xiii) Legal Matters Satisfactory. All legal
matters incident to the consummation of the transactions
contemplated hereby shall be reasonably satisfactory to special
counsel for the Bank retained at the expense of Borrower.
(b) The obligation of the Bank to make any Advance (including
the initial Advance) on the Revolving Commitment shall be subject to the
following additional conditions precedent that, at the date of making
each such Advance and after giving effect thereto:
(i) Representation and Warranties. With respect to any
Advance, the representations and warranties of Borrower under
this Agreement are true and correct in all material respects as
of such date, as if then made (except to the extent that such
representations and warranties related solely to an earlier
date);
(ii) No Event of Default. No Event of Default shall have
occurred and be continuing nor shall any event have occurred or
failed to occur which, with the passage of time or service of
notice, or both, would constitute an Event of Default;
(iii) Other Documents. The Bank shall have received such
other instruments and documents incidental and appropriate to the
transaction provided for herein as the Bank or its counsel may
reasonably request, and all such documents shall be in form and
substance reasonably satisfactory to the Bank; and
(iv) Legal Matters Satisfactory. All legal matters
incident to the consummation of the transactions contemplated
hereby shall be reasonably satisfactory to special counsel for
the Bank retained at the expense of Borrower.
12. AFFIRMATIVE COVENANTS. A deviation from the provisions of this
Section 12 shall not constitute an Event of Default under this Agreement if
such deviation is consented to in writing by the Bank. Without the prior
written consent of the Bank, Borrower will at all times comply with the
covenants contained in this Section 12 from the date hereof and for so long as
any part of the Revolving Commitment is in existence.
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(a) Financial Statements and Reports. Borrower shall promptly
furnish to the Bank from time to time upon request such information
regarding the business and affairs and financial condition of the
Borrower, as the Bank may reasonably request, and will furnish to the
Bank:
(i) Annual Audited Financial Statements. As soon as
available, and in any event within ninety (90) days after the
close of each fiscal year beginning with the fiscal year ended
December 31, 1995, the annual audited consolidated Financial
Statements of Borrower, prepared in accordance with GAAP
accompanied by an unqualified opinion rendered by an independent
accounting firm reasonably acceptable to the Bank;
(ii) Quarterly Financial Statements. As soon as
available, and in any event within forty-five (45) days after the
end of each calendar quarter of each year (except the last
calendar quarter of any fiscal year), beginning with the fiscal
quarter ended March 31, 1996, the quarterly unaudited Financial
Statements of Borrower prepared in accordance with GAAP;
(iii) Report on Properties. As soon as available and in
any event on or before March 1 and September 1 of each calendar
year, and at such other times as Bank, in accordance with Section
7 hereof, may request, the engineering reports required to be
furnished to the Bank under such Section 7 on the Oil and Gas
Properties;
(iv) Monthly Production Reports. Within 30 days after
the end of each month, a monthly report, in form and substance
satisfactory to the Bank, indicating the next preceding month's
sales volume, sales revenues, production taxes, operating expense
and net operating income from the Oil and Gas Properties, with
detailed calculations and worksheets, in the form of Schedule "7"
attached hereto and in substance satisfactory to Bank;
(v) Schedule of Liabilities. As soon as available, and
in any event within forty-five (45) days after the end of each
calendar quarter of each year (except for the last calendar
quarter of any year where the schedules required herein shall be
delivered within ninety (90) days of the end of such quarter),
beginning with the calendar quarter ended March 31, 1996, a
schedule of all material contingent liabilities together with a
statement of the current status of each such liability, in form
and in substance satisfactory to Bank;
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34
(vi) Additional Information. Promptly upon request of
the Bank from time to time any additional financial information
or other information that the Bank may reasonably request.
All such information, reports, balance sheets and Financial Statements
referred to in Subsection 12(a) above shall be in such detail as the
Bank may reasonably request and shall be prepared in a manner consistent
with the Financial Statements.
(b) Certificates of Compliance. Concurrently with the
furnishing of the annual Financial Statements of Borrower pursuant to
Subsection 12(a)(i) hereof and the quarterly Financial Statements of
Borrower pursuant to Section 12(a)(ii) hereof, Borrower will furnish or
cause to be furnished to the Bank a certificate in the form of Exhibit
"C" attached hereto, signed by the Chief Financial Officer of the
Borrower (i) stating that, except as otherwise disclosed therein,
Borrower has fulfilled in all material respects its obligations under
this Agreement and the other Loan Documents and that all representations
and warranties made herein and therein continue (except to the extent
they relate solely to an earlier date) to be true and correct in all
material respects (or specifying the nature of any change), or if an
Event of Default has occurred, specifying the Event of Default and the
nature and status thereof; (ii) to the extent requested from time to
time by the Bank, specifically affirming compliance of Borrower in all
material respects with any of its representations (except to the extent
they relate solely to an earlier date) or obligations under said
instruments; (iii) setting forth the computation, in reasonable detail
as of the end of each period covered by such certificate, of compliance
with Sections 13(b) and (c); and (iv) containing or accompanied by such
financial or other details, information and material as the Bank may
reasonably request to evidence such compliance.
(c) Taxes and Other Liens. The Borrower will pay and
discharge promptly all taxes, assessments and governmental charges or
levies imposed upon Borrower or upon the income or any assets or
property of the Borrower as well as all claims of any kind (including
claims for labor, materials, supplies and rent) which, if unpaid, might
become a Lien (other than a Permitted Lien) upon any or all of the
assets or property of Borrower and which could reasonably be expected to
result in a Material Adverse Effect; provided, however, that Borrower
shall not be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings diligently
conducted, levy and execution thereon have been stayed and continue to
be stayed, and Borrower shall have set up adequate reserves therefor, if
required, under GAAP.
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(d) Compliance with Laws. Borrower will observe and comply,
in all material respects, with all applicable laws, statutes, codes,
acts, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, orders and restrictions relating to environmental standards
or controls or to energy regulations of all federal, state, county,
municipal and other governments, departments, commissions boards,
agencies, courts, authorities, officials and officers, domestic or
foreign the failure to observe and comply with which could reasonably be
expected to have a Material Adverse Effect.
(e) Further Assurances. Borrower will cure, or cause to be
cured, promptly any defects in the creation and issuance of the Note and
the execution and delivery of the Note and the other Loan Documents,
including this Agreement. Borrower at its sole expense will promptly
execute and deliver to Bank upon its reasonable request all such other
and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements in this Agreement, or to
correct any omissions in the Note or more fully to state the obligations
set out herein.
(f) Performance of Obligations. Borrower will pay the Note
and other obligations incurred by it hereunder according to the reading,
tenor and effect thereof and hereof; and Borrower will do and perform
every act and discharge all of the obligations provided to be performed
and discharged by Borrower under the Loan Documents, including this
Agreement, at the time or times and in the manner specified.
(g) Insurance. The Borrower now maintains and will continue
to maintain insurance with financially sound and reputable insurers with
respect to its assets against such liabilities, fires, casualties, risks
and contingencies and in such types and amounts as is customary in the
case of persons engaged in the same or similar businesses and similarly
situated where the failure to so maintain such insurance could
reasonably be expected to have a Material Adverse Effect. Upon request
of the Bank, the Borrower will furnish or cause to be furnished to the
Bank from time to time a summary of the respective insurance coverage of
Borrower in form and substance satisfactory to the Bank, and, if
requested, will furnish the Bank copies of the applicable policies.
Upon demand by Bank any insurance policies covering the Oil and Gas
Properties shall be endorsed (i) to provide that such policies may not
be canceled, reduced or affected in any manner for any reason without
fifteen (15) days prior notice to Bank, (ii) to provide for insurance
against fire, casualty and other hazards normally insured against, in
the amount of the full value (less a reasonable deductible not to exceed
amounts customary in the industry for similarly situated business and
properties) of the property insured, and (iii) to provide for such other
matters as the Bank may reasonably require. The Borrower shall at all
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times maintain adequate insurance with respect to the Oil and Gas
Properties or any collateral against its liability for injury to persons
or property, which insurance shall be by financially sound and reputable
insurers and shall without limitation provide the following coverages:
comprehensive general liability (including coverage for damage to
underground resources and equipment, damage caused by blowouts or
cratering, damage caused by explosion, damage to underground minerals or
resources caused by saline substances, broad form property damage
coverage, broad form coverage for contractually assumed liabilities and
broad form coverage for acts of independent contractors), worker's
compensation and automobile liability. The Borrower shall, if deemed
economical in the reasonable discretion of the Borrower, at all times
maintain cost of control of well insurance with respect to the Oil and
Gas Properties which shall insure the Borrower against seepage and
pollution expense; redrilling expense; and cost of control of well;
fires, blowouts, etc. Additionally, the Borrower shall at all times
maintain adequate insurance with respect to all of its other assets and
▇▇▇▇▇ in accordance with prudent business practices.
(h) Accounts and Records. Borrower will keep books, records
and accounts in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities,
prepared in a manner consistent with prior years, subject to changes
required by GAAP or suggested by Borrower's auditors where the failure
to maintain such books, records and account could reasonably be expected
to have a Material Adverse Effect.
(i) Right of Inspection. Borrower will permit any officer,
employee or agent of the Bank to examine the Borrower's books, records
and accounts, and take copies and extracts therefrom, all at such
reasonable times during normal business hours and as often as the Bank
may reasonably request. The Bank will keep all such information
confidential and will not without prior written consent disclose or
reveal the information or any part thereof to any person other than the
Bank's officers, employees, legal counsel, regulatory authorities or
advisors to whom it is necessary to reveal such information for the
purpose of effectuating the agreements and undertakings specified herein
or as otherwise required by law or in connection with the enforcement of
Bank's rights and remedies under the Note, this Agreement and the other
Loan Documents. The Bank will make reasonable efforts to insure that
any person to whom such confidential information is disclosed will keep
such information confidential.
(j) Notice of Certain Events. Borrower shall promptly notify
the Bank if Borrower learns of the occurrence of (i) any event which
constitutes a Default or an Event of Default (including, but not limited
to, a Change of Control) together with a detailed statement by Borrower
of the steps being taken to cure the Default
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37
or Event of Default; or (ii) any legal, judicial or regulatory
proceedings affecting the Borrower or any of the assets or properties of
the Borrower which, if adversely determined, could have a Material
Adverse Effect; or (iii) any dispute between the Borrower and any
governmental or regulatory body or any other person or entity which, if
adversely determined, could cause a Material Adverse Effect; or (iv) any
other matter which in Borrower's opinion could reasonably be expected to
have a Material Adverse Effect.
(k) ERISA Information and Compliance. Borrower will promptly
furnish to the Bank immediately upon becoming aware of the occurrence of
any "reportable event", as such term is defined in Section 4043 of
ERISA, or of any "prohibited transaction", as such term is defined in
Section 4975 of the Internal Revenue Code of 1954, as amended, in
connection with any Plan or any trust created thereunder, a written
notice signed by the President or Chief Financial Officer of Borrower
specifying the nature thereof, what action Borrower is taking or
proposes to take with respect thereto, and, when known, any action taken
by the Internal Revenue Service with respect thereto.
(l) Environmental Reports and Notices. Borrower will deliver
to the Bank (i) promptly upon its becoming available, one copy of each
report sent by the Borrower to any court, governmental agency or
instrumentality pursuant to any Environmental Law (excluding, however,
reports filed with the Texas Railroad Commission or any similar state or
federal agency in the ordinary course of Borrower's business where the
report does not disclose, or is not in response to allegations of,
violation by Borrower of an Environmental Law), (ii) notice, in writing,
promptly upon Borrower's learning that it has received notice or
otherwise learned of any claim, demand, action, event, condition, report
or investigation indicating any potential or actual liability arising in
connection with (x) the non-compliance with or violation of the
requirements of any Environmental Law which could reasonably be expected
to have a Material Adverse Effect; (y) the release or threatened release
of any toxic or hazardous waste into the environment which could
reasonably be expected to have a Material Adverse Effect or which
release Borrower would have a duty to report to any court or government
agency or instrumentality, or (iii) the existence of any Environmental
Lien on any properties or assets of the Borrower and Borrower shall
immediately deliver a copy of any such notice to Bank.
(m) Maintenance. The Borrower will (i) observe and comply in
all material respects with all Environmental Laws where the failure to
comply could reasonably be expected to have a Material Adverse Effect;
(ii) except as provided in Subsections 12(o) and 12(p) below, maintain,
preserve, and keep or cause to be maintained, preserved and kept its Oil
and Gas Properties and all appurtenances
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38
thereto, including, without limitation, all buildings, improvements,
machinery, equipment, pipelines, fixtures and other personal property of
every kind or character in respect of the Oil and Gas Properties, in
thorough repair, working order and condition, and from time to time, at
our own expense, do and cause to be done all necessary and proper
repairs, renewals, replacements and substitutions of the Oil and Gas
Properties and all appurtenances thereto, so that at all times the state
and condition of the Oil and Gas Properties and all appurtenances
thereto will be fully preserved and maintained; (iii) take or cause to
be taken whatever actions are necessary or desirable to prevent an event
or condition of default by Borrower under the provisions of any gas
purchase or sales contract or any other contract, agreement or lease
comprising a part of the Oil and Gas Properties or other collateral
security hereunder which default could reasonably be expected to result
in a Material Adverse Effect; and (iv) furnish Bank upon request with a
certificate of the chief executive officer or chief financial officer or
other evidence satisfactory to Bank to the effect that there are no
Liens, claims or encumbrances superior to the Lien of the Bank on the
Oil and Gas Properties, except laborers', vendors', repairmen's,
mechanics', worker's, or materialmen's liens arising by operation of law
or incident to the construction or improvement of property if the
obligations secured thereby are not yet due or are being contested in
good faith by appropriate legal proceedings or Permitted Liens.
(n) Operation of Properties. Except as provided in Subsection
12(o) and (p) below, the Borrower will operate, or use reasonable
efforts to cause to be operated, all Oil and Gas Properties in a careful
and efficient manner in accordance with the practice of the industry and
in compliance in all material respects with all applicable laws, rules,
and regulations, and in compliance in all material respects with all
applicable proration and conservation laws of the jurisdiction in which
the properties are situated, and all applicable laws, rules, and
regulations, of every other agency and authority from time to time
constituted to regulate the development and operation of the properties
and the production and sale of hydrocarbons and other minerals therefrom
where the failure to so operate could reasonably be expected to have a
Material Adverse Effect; provided, however, that the Borrower shall have
the right to contest in good faith by appropriate proceedings, the
applicability or lawfulness of any such law, rule or regulation and
pending such contest may defer compliance therewith, as long as such
deferment shall not subject the properties or any part thereof to
foreclosure or loss.
(o) Compliance with Leases and Other Instruments. The
Borrower will pay or cause to be paid and discharge all rentals, delay
rentals, royalties, production payment, and indebtedness required to be
paid by Borrower (or required to keep unimpaired in all material
respects the rights of Borrower in Oil and Gas Properties) accruing
under, and perform or cause to be performed in all material respects
each
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and every act, matter, or thing required of Borrower by each and all of
the assignments, deeds, leases, subleases, contracts, and agreements in
any way relating to Borrower or any of the Oil and Gas Properties and do
all other things necessary of Borrower to keep unimpaired in all
material respects the rights of Borrower thereunder and to prevent the
forfeiture thereof or default thereunder where the failure to so pay or
perform or do other things could reasonably be expected to have a
Material Adverse Effect; provided, however, that nothing in this
Agreement shall be deemed to require Borrower to perpetuate or renew any
oil and gas lease or other lease by payment of rental or delay rental or
by commencement or continuation of operations nor to prevent Borrower
from abandoning or releasing any oil and gas lease or other lease or
well thereon when, in any of such events, in the opinion of Borrower
exercised in good faith, it is not in the best interest of the Borrower
to perpetuate the same.
(p) Certain Additional Assurances Regarding Maintenance and
Operations of Properties. With respect to those Oil and Gas Properties
which are being operated by operators other than the Borrower, the
Borrower shall not be obligated to perform any undertakings contemplated
by the covenants and agreement contained in Subsections 12(m) through
12(o) hereof which are performable only by such operators and are beyond
the control of Borrower; and otherwise Borrower's covenants as expressed
in Subsections 12(m) through 12(o) are modified to require that Borrower
use reasonable efforts to obtain compliance with such covenants by the
working interest owners or the operator or operators of the Oil and Gas
Properties, including, without limitation, the exercise by Borrower of
all rights under any operating agreements to which Borrower is a party.
(q) Sale of Certain Assets/Prepayment of Proceeds. The
Borrower will, immediately pay over to the Bank as a prepayment of
principal, 100% of the Release Price (net of federal income taxes and
direct costs of sale) received by the Borrower from the sale of any or
all of the Oil and Gas Properties other than the sale of production in
the ordinary course of Borrower's business, which sale has been approved
in advance by the Bank. Any prepayment made by Borrower pursuant to
this Section 12(q) shall reduce the Borrowing Base dollar for dollar.
The term "Release Price" as used herein shall mean a price determined by
the Bank in its discretion based upon the loan collateral value which
Bank in its discretion (using such methodology, assumptions and
discounts rates as Bank customarily uses in assigning collateral value
to oil and gas properties, oil and gas gathering systems, gas processing
and plant operations) assigns to such Oil and Gas Properties at the time
in question.
(r) Title Matters. As to any Oil and Gas Properties hereafter
mortgaged to Bank, Borrower will promptly (but in no event more than
sixty (60) days
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following such mortgaging), furnish Bank with title opinions and/or
title information reasonably satisfactory to Bank showing good and
defensible title of Borrower to such Oil and Gas Properties subject only
to Permitted Liens.
(s) Curative Matters. Within ninety (90) days after the date
hereof with respect to matters listed on Schedule "8" (except for item
#3 on Schedule "8" for which there is only a ten (10) day cure period)
and, thereafter, within ninety (90) days after receipt by Borrower from
Bank or its counsel of written notice of title defects the Bank
reasonably requires to be cured, Borrower shall either (i) provide such
curative information, in form and substance satisfactory to Bank, (ii)
substitute Oil and Gas Properties of value and quality satisfactory to
the Bank for all of Oil and Gas Properties for which such title curative
was requested but upon which Borrower elected not to provide such title
curative information, and, within ninety (90) days of such substitution,
provide title opinions or title information satisfactory to the Bank
covering the Oil and Gas Properties so substituted, or (iii) make a
prepayment of principal equal to the amount, if any, the principal
amount due on the Note exceeds the Borrowing Base as a result of the
value of such Oil and Gas Properties (as determined by the Bank pursuant
to Section 7(b) hereof) being deducted from the then available Borrowing
Base.
(t) Change of Principal Place of Business. Borrower shall
give Bank at least thirty (30) days prior written notice of its
intention to move its principal place of business from the address set
forth in Section 16 hereof.
(u) Bank Accounts. Borrower shall establish and maintain with
Bank one or more operating accounts for Borrower (the "Operating
Accounts") and a lockbox accounts for Borrower ("Lockbox Account"), the
maintenance of each of which shall be subject to such rules and
regulations as the Bank shall from time to time specify. Such accounts
shall be maintained with the Bank until all amounts due hereunder and
under the Note have been paid in full. Borrower shall, within ten (10)
days of the Effective Date, instruct and cause all monetary proceeds of
production from the Oil and Gas Properties to be remitted to the Lockbox
Accounts. Such proceeds of production shall not be redirected without
the prior written consent of the Bank until such time as all
indebtedness due Bank by Borrower has been paid in full. If no Event of
Default has occurred and is continuing, the full balance of the Lockbox
Account each day will be deposited into the Operating Accounts. The
Borrower hereby grants a security interest to Bank in and to the Lockbox
Account and the Operating Accounts (collectively, the "Cash Collateral
Accounts") and all checks, drafts and other items ever received by Bank
for deposit therein. If any Event of Default shall occur and be
continuing, Bank shall have the immediate right, without prior notice or
demand, to take and apply against the Borrower's obligations
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hereunder any and all funds legally and beneficially owned by the
Borrower then or thereafter on deposit in the Cash Collateral Accounts.
(v) Additional Collateral. Borrower agrees to regularly
monitor on or before each Determination Date all producing oil and gas
properties and interests acquired and/or drilled by Borrower on or after
the date hereof used in the calculation of the Borrowing Base and pledge
or cause to be pledged such of the same to Bank in substantially the
form of the Security Instruments, as applicable, so that the Bank shall
at all times during the existence of the Revolving Commitment be secured
by perfected Liens covering not less than ninety percent (90%) of the
Engineered Value of all producing oil and gas properties of Borrower
used in the calculation of the Borrowing Base.
13. NEGATIVE COVENANTS. A deviation from the provisions of this
Section 13 shall not constitute an Event of Default under this Agreement if
such deviation is consented to in writing by the Bank. Without the prior
written consent of the Bank, Borrower will at all times comply with the
covenants contained in this Section 13 from the date hereof and for so long as
any part of the Revolving Commitment is in existence.
(a) Liens. Borrower will not create, incur, assume or permit
to exist any Lien or security interest on any of its assets or
properties (except office equipment) except Permitted Liens.
(b) Current Ratio. Borrower will not allow its ratio of
Current Assets to Current Liabilities to be less than 1.0 to 1.0 during
any period beginning on the Effective Date and ending on the Maturity
Date, said ratio to be tested at the end of each fiscal quarter.
(c) Debt Service Coverage Ratio. Borrower will not allow its
ratio of Net Cash Flow to Debt Service for any fiscal quarter, to ever
be less than 1.0 to 1.0; provided, however, that at any time the Monthly
Commitment Reduction equals $0 per month, then in such event, the
Borrower will not allow its ratio of Net Cash Flow to Debt Service to be
less than (i) 2.0 to 1.0 for any fiscal quarter ended on or before
September 30, 1996, (ii) 2.25 to 1.0 for the fiscal quarter ended
December 31, 1996 and (iii) 2.5 to 1.0 for any fiscal quarter
thereafter.
(d) Debts, Guaranties and Other Obligations. Borrower will
not incur, create, assume or in any manner become or be liable in
respect of any indebtedness, nor will the Borrower guarantee or
otherwise in any manner become or be liable in respect of any
indebtedness, liabilities or other obligations of any other person or
entity, whether by agreement to purchase the indebtedness of any other
person or entity or agreement for the furnishing of funds to any other
person or entity
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through the purchase or lease of goods, supplies or services (or by way
of stock purchase, capital contribution, advance or loan or issuance of
preferred stock or other quasi-equity) for the purpose of paying or
discharging the indebtedness of any other person or entity, or
otherwise, except that the foregoing restrictions shall not apply to:
(i) the Note, or other indebtedness of Borrower
heretofore disclosed to Bank in Borrower's Financial Statements
or on Schedule "4" hereto;
(ii) taxes, assessments or other government charges
which are not yet due or are being contested in good faith by
appropriate action promptly initiated and diligently conducted,
if such reserve as shall be required by GAAP shall have been made
therefor;
(iii) indebtedness incurred in the ordinary course of
business, including, but not limited to indebtedness for
drilling, completing, leasing and reworking oil and gas ▇▇▇▇▇;
(iv) indebtedness or lease obligations incurred for the
purchase of computers and/or telephone systems and/or other
equipment related to Borrower's operations; or
(v) renewals or extensions of any or all of the
foregoing.
(e) Loans and Advances. Borrower shall not make or permit to
remain outstanding any loans or advances to any person or entity, except
that the foregoing restriction shall not apply to:
(i) loans or advances the material details of which
have been set forth in the Financial Statements of Borrower
heretofore furnished to Bank or have otherwise heretofore been
disclosed to Bank on Schedule "9" hereto; and
(ii) advances made in the ordinary course of Borrower's
business as conducted on the Effective Date.
(f) Nature of Business. Borrower will not permit any material
change to be made in the character of its business as carried on at the
date hereof which could reasonably be expected to have a Material
Adverse Effect.
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(g) Hedging Transactions. Borrower will not enter into any
transaction providing (i) for the hedging, forward sale or swap of crude
oil or natural gas or other commodities, or (ii) for a swap, collar,
floor, cap, option, corridor, or other contract which is intended to
reduce or eliminate the risk of fluctuation in interest rates, as such
terms are referred to in the capital markets, except the foregoing
prohibitions shall not apply to (x) transactions consented to in writing
by the Bank which are on terms acceptable to the Bank, or (y)
Pre-approved Contracts. The term "Pre-Approved Contracts" as used
herein shall mean any contract or agreement (i) to hedge, forward, sell
or swap crude oil or natural gas or otherwise sell up to 75% of
Borrower's monthly production forecast for all of Borrower's proved and
producing oil and gas properties for the period covered by the proposed
hedging transaction, (ii) with a maturity of twelve (12) months or less,
(iii) with "strike prices" per barrel greater than the Bank's forecasted
price in the most recent engineering evaluation of the Borrower's oil
and gas properties, adjusted for the difference between the forecasted
price and the Borrower's actual product price as determined by Bank, and
(iv) with counter-parties to the hedging agreement which are approved by
Bank.
(h) Sale of Assets. Borrower shall not sell, transfer or
otherwise dispose of the Oil and Gas Properties except for production
from the oil and gas properties and undeveloped leases or acreage sold
in the ordinary course of Borrower's business.
(i) Transactions with Affiliates. Borrower will not enter
into any transaction with any of its affiliates, except transactions
upon terms no less favorable to it than would be obtained in a
transaction negotiated at arm's length with a unrelated third party.
(j) Consolidations and Mergers. Borrower will not consolidate
or merge with or into any other Person, except that Borrower may merge
with another Person if Borrower is the surviving entity in such merger
and if, after giving effect thereto, no Default or Event of Default
shall have occurred and be continuing.
(k) Distributions. Borrower will not make any distribution of
any kind to its partners except cash distributions to the partners in
Borrower for the payment by such partner or partners of federal or state
income taxes on such partner or partners' proportionate share of the
Borrower's taxable income, such distribution for such purpose to assume
the maximum tax rate for each such partner. Provided, however, that
prior to making any such distribution of any partner, Borrower will
provide to the Bank a certificate of its chief financial officer
certifying that such distribution was made in compliance with the
aforesaid standard or requirement. In addition, Borrower shall provide
Bank with a copy of the K-1 Supplemental
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Exhibit to Internal Revenue Service Form 1065 relating to such partner
or partners at the same time the K-1 is made available to the partner or
partners.
(l) Investments. Borrower shall not make any investments in
any person or entity, except such restriction shall not apply to:
(i) investments and direct obligations of the United
States of America or any agency thereof;
(ii) investments in certificates of deposit issued by
Bank or certificates of deposit with maturities of less than one
year, issued by other commercial banks in the United States
having capital and surplus in excess of $500,000,000 and which
have a rating of (A) 50 or above by Sheshunoff and (B) "B" or
above by ▇▇▇▇-▇▇▇▇▇▇; or
(iii) investments in insured money market funds,
Eurodollar investment accounts and other similar accounts at Bank
or such investment with maturities of less than ninety (90) days
at other commercial banks having capital and surplus in excess of
$500,000,000 and which have a rating of (A) 50 or above by
Sheshunoff and (B) "B" or above by ▇▇▇▇-▇▇▇▇▇▇.
(m) Amendment of Partnership Agreement. Borrower will not
permit any amendment to, or any alteration of, its Partnership Agreement
without the written consent of the Bank. If any amendment or alteration
is made to the Partnership Agreement after receipt of consent of the
Bank, the Borrower shall provide a copy of such amendment or alteration
to the Bank within five (5) days of the execution thereof.
(n) Payment of Subordinated Debt. Borrower will not make any
payment, principal or interest, on the subordinated debt created
pursuant to that certain Note Purchase Agreement dated as of August 24,
1995 among Borrower, RIMCO Partners, ▇.▇. ▇▇, RIMCO Partners, L.P. III
and RIMCO Partners, ▇.▇. ▇▇ (the "Subordinated Debt") or make any other
payment or distribution of cash in respect of the Subordinated Debt when
any such payment would be prohibited pursuant to Section 9 of the
Subordinated Debt Agreement.
(o) Amendment of Subordinated Debt Agreement. Borrower will
not permit any amendment to, or alteration of, the Subordinated Debt
Agreement that would increase the amount of the Subordinated Debt,
change the interest rate thereon, change the maturity thereof, would
provide security for the Subordinated Debt, alter in any respect the
provisions relating to subordination of the
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Subordinated Debt, alter in any respect the provisions regarding the
Borrower's ability or inability to make payment thereon, agree to any
waiver of any provision relating to any of the foregoing, or make any
other change which affects the senior status of the obligations owed
under this Agreement.
(p) Sale or Discount of Receivable. Borrower will not
discount or sell with recourse, or sell for less than the greater of the
face or market value thereof, any of its notes receivable or accounts
receivable.
14. EVENTS OF DEFAULT. Any one or more of the following events shall
be considered an "Event of Default" as that term is used herein:
(a) Borrower shall fail to pay when due or declared due the
principal of, and the interest on, the Note or any fee or any other
indebtedness of Borrower incurred pursuant to this Agreement or any
other Loan Document; or
(b) Any representation or warranty made by Borrower under this
Agreement, or in any certificate or statement furnished or made to Bank
pursuant hereto, or in connection herewith, or in connection with any
document furnished hereunder, shall prove to be untrue in any material
respect as of the date on which such representation or warranty is made
(or deemed made), or any representation, statement (including Financial
Statements), certificate, report or other data furnished or to be
furnished or made by Borrower under any Loan Document, including this
Agreement, proves to have been untrue in any material respect, as of the
date as of which the facts therein set forth were stated or certified;
or
(c) Default shall be made in the due observance or performance
of any of the covenants or agreements of Borrower contained in the Loan
Documents, including this Agreement (excluding covenants contained in
Section 13 of the Agreement for which there is no cure period) and such
default shall continue for more than thirty (30) days; or
(d) Default shall be made in the due observance or performance
of any of the covenants of the Borrower contained in Section 13 of this
Agreement; or
(e) Default shall be made in respect of any equipment lease
obligation or obligation for borrowed money, other than the Note
(including, without limitation, any subordinated indebtedness), for
which Borrower is liable (directly, by assumption, as guarantor or
otherwise), or any obligations secured by any mortgage, pledge or other
security interest, lien, charge or encumbrance with respect thereto, on
any asset or property of the Borrower or in respect of any
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agreement relating to any such obligations, and such default shall
continue beyond the applicable grace period, if any; or
(f) Borrower shall commence a voluntary case or other
proceedings seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking an appointment of a
trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay its debts as they become due, or shall take
any corporate action or authorizing the foregoing; or
(g) An involuntary case or other proceeding, shall be
commenced against Borrower seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency
or similar law now or hereafter in effect or seeking the appointment of
a trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period of
sixty (60) days; or an order for relief shall be entered against the
Borrower under the federal bankruptcy laws as now or hereinafter in
effect; or
(h) A final judgment or order for the payment of money in
excess of $100,000.00 (or judgments or orders aggregating in excess of
$100,000.00) shall be rendered against Borrower and such judgments or
orders shall continue unsatisfied and unstayed for a period of thirty
(30) days; or
(i) In the event the aggregate principal amount outstanding
under the Note shall at any time exceed the Borrowing Base established
for the Note, Borrower shall fail to provide such additional Collateral
or prepay the principal of such Note, or either of them, in compliance
with the provisions of Section 9(b) hereof; or
(j) A Change of Control shall occur; or
(k) A Change of Management shall occur.
Upon occurrence of any Event of Default specified in Subsections 14(f)
and (g) hereof, the Revolving Commitment shall terminate and the entire
principal amount due under the Note and all interest then accrued thereon, and
any other liabilities of Borrower hereunder, shall become immediately due and
payable all without notice and without presentment, demand, protest, notice of
protest or dishonor or any other notice of default
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47
of any kind, all of which are hereby expressly waived by Borrower. Upon the
occurrence and during the continuation of any other Event of Default, the Bank
may by notice to Borrower terminate the Revolving Commitment and declare the
principal of, and all interest then accrued on, the Note and any other
liabilities hereunder to be forthwith due and payable, whereupon the same shall
forthwith become due and payable without presentment, demand, protest or other
notice of any kind, all of which Borrower hereby expressly waives, anything
contained herein or in the Note to the contrary notwithstanding. Nothing
contained in this Section 14 shall be construed to limit or amend in any way
the Events of Default enumerated in the Note, or any other document executed in
connection with the transaction contemplated herein.
Upon the occurrence and during the continuance of any Event of Default,
the Bank is hereby authorized at any time and from time to time, without notice
to Borrower (any such notice being expressly waived by Borrower), to set-off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by either
of the Bank to or for the credit or the account of the Borrower against any and
all of the indebtedness of the Borrower under the Note and the Security
Instrument, including this Agreement, irrespective of whether or not the Bank
shall have made any demand under the Security Instrument, including this
Agreement or the Note and although such indebtedness may be unmatured. Any
amount set-off by either of the Bank shall be applied against the indebtedness
owed the Bank by Borrower pursuant to this Agreement and the Note. The Bank
agrees promptly to notify Borrower after any such setoff and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Bank under this Section 14 are
in addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Bank may have. Within five (5) Business Days
after any such set-off or appropriation by the Bank, the Bank shall give
Borrower written notice thereof. However, a failure to give such notice will
not affect the validity of the set-off or appropriation.
15. EXERCISE OF RIGHTS. No failure to exercise, and no delay in
exercising, on the part of the Bank, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The
rights of the Bank hereunder shall be in addition to all other rights provided
by law. No modification or waiver of any provision of the Security Agreement,
including this Agreement, or the Note nor consent to departure therefrom, shall
be effective unless in writing, and no such consent or waiver shall extend
beyond the particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other action in the
same, similar or other circumstances without such notice or demand.
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16. NOTICES. Any notices or other communications required or
permitted to be given by this Agreement or any other documents and instruments
referred to herein must be given in writing (which may be by facsimile
transmission) and must be personally delivered or mailed by prepaid certified
or registered mail to the party to whom such notice or communication is
directed at the address of such party as follows: (a) BORROWER: ▇▇▇▇▇▇▇ OIL &
GAS, L.P., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Facsimile No.
▇▇▇-▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Financial Officer; (b) BANK:
BANK ONE, TEXAS, N.A., ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Facsimile No.
▇▇▇-▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President. Any such notice or
other communication shall be deemed to have been given (whether actually
received or not) on the day it is personally delivered as aforesaid or, if
mailed, on the fifth day after it is mailed as aforesaid. Any party may change
its address for purposes of this Agreement by giving notice of such change to
the other party pursuant to this Section 16.
17. EXPENSES. The Borrower shall pay (i) all reasonable and
necessary out-of-pocket expenses of the Bank, including reasonable fees and
disbursements of special counsel for the Bank, in connection with the
preparation of this Agreement, any waiver or consent hereunder or any amendment
hereof or any default or Event of Default or alleged default or Event of
Default hereunder, (ii) all reasonable and necessary out-of-pocket expenses of
the Bank, including reasonable fees and disbursements of special counsel for
the Bank in connection with the preparation of any participation agreement for
a participant or participants requested by Borrower or any amendment thereof
and (iii) if a default or an Event of Default occurs, all reasonable and
necessary out-of-pocket expenses incurred by the Bank, including fees and
disbursements of counsel, in connection with such default and Event of Default
and collection and other enforcement proceedings resulting therefrom. The
Borrower shall indemnify the Bank against any transfer taxes, document taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery of this Agreement or the Note.
18. INDEMNITY. The Borrower agrees to indemnify and hold harmless
the Bank and its respective officers, employees, agents, attorneys and
representatives (singularly, an "Indemnified Party", and collectively, the
"Indemnified Parties") from and against any loss, cost, liability, damage or
expense (including the reasonable fees and out-of-pocket expenses of counsel to
the Bank, including all local counsel hired by such counsel) ("Claim") incurred
by the Bank in investigating or preparing for, defending against, or providing
evidence, producing documents or taking any other action in respect of any
commenced or threatened litigation, administrative proceeding or investigation
under any federal securities law, federal or state environmental law, or any
other statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon any acts,
practices or omissions or alleged acts, practices or omissions of the Borrower,
or its agents or arises in connection with the duties, obligations or
performance of the Indemnified Parties in negotiating, preparing, executing,
accepting, keeping,
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completing, countersigning, issuing, selling, delivering, releasing, assigning,
handling, certifying, processing or receiving or taking any other action with
respect to the Loan Documents and all documents, items and materials
contemplated thereby even if any of the foregoing arises out of an Indemnified
Party's ordinary negligence. The indemnity set forth herein shall be in
addition to any other obligations or liabilities of the Borrower to the Bank
hereunder or at common law or otherwise, and shall survive any termination of
this Agreement, the expiration of the Loan and the payment of all indebtedness
of the Borrower to the Bank hereunder and under the Note, provided that the
Borrower shall have no obligation under this Section 18 to the Bank with
respect to any of the foregoing arising out of the gross negligence or willful
misconduct of the Bank. If any Claim is asserted against any Indemnified
Party, the Indemnified Party shall endeavor to notify the Borrower of such
Claim (but failure to do so shall not affect the indemnification herein made
except to the extent of the actual harm caused by such failure). The
Indemnified Party shall have the right to employ, at the Borrower's expense,
counsel of the Indemnified Parties' choosing and to control the defense of the
Claim. The Borrower may at its own expense also participate in the defense of
any Claim. Each Indemnified Party may employ separate counsel in connection
with any Claim to the extent such Indemnified Party believes it reasonably
prudent to protect such Indemnified Party. THE PARTIES INTEND FOR THE
PROVISIONS OF THIS SECTION 18 TO APPLY TO AND PROTECT EACH INDEMNIFIED PARTY
FROM THE CONSEQUENCES OF ANY LIABILITY INCLUDING STRICT LIABILITY IMPOSED OR
THREATENED TO BE IMPOSED ON SUCH INDEMNIFIED PARTY AS WELL AS FROM THE
CONSEQUENCES OF ITS OWN NEGLIGENCE OTHER THAN ITS GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR
CONCURRING CAUSE OF ANY CLAIM.
19. GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND THE SUBSTANTIVE LAWS OF
TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION
OF THIS AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS REFERRED TO HEREIN,
UNLESS OTHERWISE SPECIFIED THEREIN.
20. CHOICE OF FORUM: CONSENT TO SERVICE OF PROCESS AND JURISDICTION.
THE OBLIGATIONS OF BORROWER UNDER THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS
COUNTY, TEXAS. ANY SUIT, ACTION OR PROCEEDING AGAINST BORROWER WITH RESPECT TO
THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF, MAY
BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY OF DALLAS, OR IN THE
UNITED STATES COURTS LOCATED IN DALLAS, TEXAS AND BORROWER HEREBY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH SUIT,
ACTION OR PROCEEDING. BORROWER HEREBY IRREVOCABLY CONSENTS TO SERVICE OF
PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURT BY THE MAILING THEREOF
BY BANK BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER, AS
APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN
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SECTION 15. BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED
IN THE STATE OF TEXAS, COUNTY OF DALLAS, AND HEREBY FURTHER IRREVOCABLY WAIVES
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
21. INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future laws effective
during the term of this Agreement, such provisions shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
22. MAXIMUM INTEREST RATE. Regardless of any provisions contained in
this Agreement or in any other documents and instruments referred to herein,
the Bank shall never be deemed to have contracted for or be entitled to
receive, collect or apply as interest on the Note any amount in excess of the
maximum rate of interest permitted to be charged by applicable law, and in the
event the Bank ever receives, collects or applies as interest any such excess,
or if acceleration of the maturities of the Note or if any prepayment by
Borrower results in Borrower having paid any interest in excess of the maximum
rate, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance of the Note for which such excess was
received, collected or applied, and, if the principal balance of such Note is
paid in full, any remaining excess shall forthwith be paid to Borrower. All
sums paid or agreed to be paid to the Bank for the use, forbearance or
detention of the indebtedness evidenced by the Note and/or this Agreement
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the maximum lawful rate permitted under applicable
law. In determining whether or not the interest paid or payable under any
specific contingency exceeds the maximum rate of interest permitted by law,
Borrower and the Bank shall, to the maximum extent permitted under applicable
law, (i) characterize any non-principal payment as an expense, fee or premium,
rather than as interest; and (ii) exclude voluntary prepayments and the effect
thereof; and (iii) compare the total amount of interest contracted for, charged
or received with the total amount of interest which could be contracted for,
charged or received throughout the entire contemplated term of the Note at the
maximum lawful rate under applicable law.
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23. AMENDMENTS. This Agreement may be amended only by an instrument
in writing executed by an authorized officer of the party against whom such
amendment is sought to be enforced.
24. MULTIPLE COUNTERPARTS. This Agreement may be executed in a
number of identical separate counterparts, each of which for all purposes is to
be deemed an original, but all of which shall constitute, collectively, one
agreement. No party to this Agreement shall be bound hereby until a
counterpart of this Agreement has been executed by ail parties hereto.
25. CONFLICT. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the Security Instruments,
the terms or provisions contained in this Agreement shall be controlling.
26. SURVIVAL. All covenants, agreements, undertakings,
representations and warranties made in the Loan Documents, including this
Agreement, the Note or other documents and instruments referred to herein shall
survive all closings hereunder and shall not be affected by any investigation
made by any party.
27. PARTIES BOUND. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns,
heirs, legal representatives and estates, provided, however, that Borrower may
not, without the prior written consent of the Bank, assign any rights, powers,
duties or obligations hereunder.
28. PARTICIPATIONS. The Bank shall have the right at any time and
from time to time to sell one or more participations in the Note or any Advance
thereunder. To the extent of any such participation the provisions of this
Agreement shall inure to the benefit of, and be binding on, each participant,
including, but not limited to, any indemnity from Borrower to the Bank. The
Borrower shall have no obligation or liability to and no obligation to
negotiate or confer with, any participant, and Borrower shall be entitled to
treat the Bank as the sole owner of the Note without regard to notice or actual
knowledge of any such participation. Upon the occurrence of a default or an
Event of Default, each participant will have and is hereby granted the right to
setoff against and to appropriate and apply from time to time, without prior
notice to the Borrower or any other party, any such notice being hereby
expressly waived, any and all deposits (general or special or other
indebtedness or claims, direct or indirect, contingent or otherwise), at any
time held or owing by the participant to or for the credit or account of
Borrower against the payment of the note and any other obligations of the
Borrower hereunder; provided, however, none of the rights granted in this
Section 28 shall apply to any deposits held by any participant constituting
trust funds and so identified to such participant at the time the applicable
deposit account is created. Within five (5) Business Days after such setoff or
appropriation by a participant, that participant shall give Borrower and Bank
written notice thereof.
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However, a failure to give such notice will not affect the validity of this
setoff or appropriation.
29. FINANCIAL TERMS. All accounting terms used in this Agreement
which are not specifically defined herein shall be construed in accordance with
GAAP.
30. OTHER AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
BORROWER:
▇▇▇▇▇▇▇ OIL & GAS, L.P.,
a Delaware limited partnership
By: ▇▇▇▇▇▇▇ EXPLORATION COMPANY
its managing general partner
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
Executive Vice President
BANK:
BANK ONE, TEXAS, N.A.,
a national banking association
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President
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