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RESTATED LOAN AGREEMENT
THIS RESTATED LOAN AGREEMENT (this "Agreement") is entered
into this 31st day of July, 1995 by and between PARALLEL PETROLEUM
CORPORATION, a Delaware corporation ("Borrower"); and NATIONSBANK
OF TEXAS, N.A., a national banking association ("Lender").
Recitals
A. Borrower and Lender entered into that certain Loan
Agreement dated June 6, 1991, as amended by First Amendment to Loan
Agreement and Note dated September 21, 1992, by Second Amendment to
Loan Agreement dated May 1, 1993, by Third Amendment to Loan
Agreement dated September 29, 1993, and by Fourth Amendment to Loan
Agreement and First Amendment to Note dated October 17, 1994 (the
"Prior Loan Agreement").
B. Pursuant to the terms of the Prior Loan Agreement,
Borrower executed that certain promissory note dated September 29,
1993, in the original principal amount of $15,000,000 payable to
the order of Lender (as amended by Fourth Amendment to Loan
Agreement and First Amendment to Note dated October 17, 1994, the
"Prior Note"), which note was given in renewal, extension and
rearrangement, but not in extinguishment, of that certain
promissory note dated June 6, 1991, in the original principal
amount of $10,000,000 executed by Borrower and payable to the order
of Lender.
C. Borrower has requested that Lender renew and extend the
indebtedness evidenced by the Prior Note, which Lender has agreed
to do subject to the terms and conditions contained herein. The
parties hereto agree that this Agreement replaces the Prior Loan
Agreement and that this Agreement and the other Loan Papers shall
govern the terms of the loans made hereunder in their entirety and
shall control over the Prior Loan Agreement.
Agreement
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained and other good and valuable considera-
tion, it is hereby agreed between the parties as follows:
ARTICLE I
Definitions
1.1 Certain Defined Terms. For the purposes of this
Agreement, the following terms shall have the respective meanings
assigned to them in this section or in the section or recital
referred to below:
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"Advance" means any disbursement to or on behalf of Borrower
under any of the Loan Papers, including, without limitation, all
amounts advanced under the Prior Note or the Note.
"Agreement": the preamble.
"Bank Liens" means Liens in favor of Lender, securing all or
any portion of the Obligation, including, without limitation,
Rights in any of the Collateral created in favor of Lender, whether
by mortgage, pledge, hypothecation, assignment, transfer or other
granting or creation of Liens.
"Borrower": the preamble.
"Borrowing Base": Section 3.1.
"Borrowing Base Redetermination Fee": Section 3.4.
"Business Day" means every day (other than a Saturday or
Sunday) on which Lender is open to the public generally for the
transaction of banking business.
"Claims": Section 7.8.
"Collateral": Article IV.
"Commitment": Section 2.1(a).
"Commitment Fee": Section 2.3.
"Current Assets" of any person shall mean, as of any date, the
current assets that would be reflected on a balance sheet of such
person prepared as of such date in conformity with GAAP.
"Current Liabilities" of any person shall mean, as of any
date, the current liabilities that would be reflected on a balance
sheet of such person prepared as of such date in conformity with
GAAP.
"Current Ratio" means, as of any date, the ratio of Borrower's
Current Assets (including, for purposes of this calculation, up to
$500,000 of unused availability under the Note during the Revolving
Credit Period only) to its Current Liabilities (excluding, for
purposes of this calculation, current maturities of the Note).
"Deed of Trust" means one or more mortgages, deeds of trust,
assignments of production and security agreements and financing
statements in favor of Lender encumbering every interest of Borrow-
er in every oil and gas property owned by Borrower and selected by
Lender to be encumbered as security for the Obligation, including,
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without limitation, any such property consisting of royalty
interests, overriding royalty interests and/or reversionary rights
relating to either developed or undeveloped leasehold acreage, it
being specifically recognized that if any such interest selected is
in a state where a mortgage, deed of trust, assignment of produc-
tion and security agreement or financing statement is, or may be,
ineffective, a document appropriate for use in that state shall be
required.
"ERISA": Section 6.10.
"Event of Default": Section 9.1.
"GAAP" shall mean those generally accepted accounting
principles and practices that are recognized as such by the
American Institute of Certified Public Accountants acting through
its Accounting Principles Board or by the Financial Accounting
Standards Board (or any other appropriate board or committee
thereof), applied on a basis consistent with that of prior periods
so as to properly reflect the financial condition, results of
operations and cash flows of a person, except that any accounting
principle or practice required to be changed by the said Accounting
Principles Board or Financial Accounting Standards Board (or any
other board or committee thereof) in order to continue as a gener-
ally accepted accounting principle or practice may so be changed
and when so changed shall constitute generally accepted accounting
principles in accordance with the terms hereof.
"Highest Lawful Rate" means the maximum nonusurious rate of
interest (or, if the context so requires, an amount calculated at
such rate) that Lender is allowed to contract for, charge, take,
reserve or receive under applicable law after taking into account,
to the extent required by applicable law, any and all relevant
payments or charges under the Loan Papers.
"Intangible Assets" of any person shall mean, as of any date,
those assets of a person that are (i) deferred assets, other than
prepaid insurance and prepaid taxes; (ii) patents, copyrights,
trademarks, tradenames, franchises, goodwill, experimental expenses
and other similar assets that would be classified as intangible
assets on a balance sheet of such person, prepared in accordance
with GAAP; (iii) unamortized debt discount and expense; and (iv)
assets located, and notes and receivables due from obligors
domiciled, outside of the United States of America.
"Investments": Section 8.4.
"Lender": the preamble.
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"Lien" means any lien, mortgage, security interest, charge, or
encumbrance of any kind, including, without limitation, the Rights
of a vendor, lessor, or similar party under any conditional sales
agreement or other title retention agreement or lease substantially
equivalent thereto, any production payment, and any other Right of,
or arrangement with, any creditor to have his claim satisfied out
of any property or assets, or the proceeds therefrom, prior to the
general creditors of the owner thereof.
"Loan": Section 2.1(a).
"Loan Papers" means (i) this Agreement, (ii) any and all
notes, mortgages, deeds of trust, security agreements, financing
statements, guaranties, and other agreements, documents, certifi-
cates, letters and instruments ever delivered or executed pursuant
to, or in connection with, this Agreement, as any of the same may
hereafter be amended, supplemented or restated (including, without
limitation, the Note and the Deed of Trust), and (iii) any and all
future renewals and extensions or restatements of, or amendments or
supplements to, all or any part of the foregoing.
"Material Adverse Change" means any set of circumstances or
events that (i) will or could reasonably be expected to have any
adverse effect upon the validity, performance, or enforceability of
any Loan Paper, (ii) is or could reasonably be expected to be
material and adverse to the financial condition or business
operations of Borrower, (iii) will or could reasonably be expected
to impair the ability of Borrower to fulfill its obligations under
the terms and conditions of the Loan Papers, or (iv) will or could
reasonably be expected to cause an Event of Default.
"Material Agreement" of any person means any material written
or oral agreement, contract, commitment, or understanding to which
such person is a party, by which such person is directly or
indirectly bound, or to which any asset of such person may be
subject, which is not cancelable by such person upon 30 days or
less notice without liability for further payment other than
nominal penalty.
"Mineral Interests" means Rights, estates, titles, and
interests in and to oil, gas, sulphur, or other mineral (or any
combination thereof) leases (and all extensions, amendments,
ratifications, and subleases thereof or thereunder) and any mineral
interests, royalty and overriding royalty interests, production
payment and net profits interests, mineral fee interests, and
rights therein, including, without limitation, any reversionary or
carried interests relating to the foregoing, together with Rights,
titles, and interests created by or arising under the terms of any
unitization, communization, and pooling agreements or arrangements,
and all properties, rights, and interests covered thereby, whether
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arising by contract, by order, or by operation of law, which now or
hereafter include all or any part of the foregoing.
"Note": Section 2.4(a).
"Obligation" means all present and future indebtedness,
obligations and liabilities, including Swap Debt, and all renewals
and extensions thereof, or any part thereof, now or hereafter owed
to Lender by Borrower, arising from, by virtue of, or pursuant to
any Loan Paper (including, without limitation, amounts owed to
Lender by Borrower on account of any letters of credit issued by
Lender for the account of Borrower), or otherwise, together with
all interest accruing thereon and reasonable costs, expenses, and
attorneys' fees incurred in the enforcement or collection thereof,
whether such indebtedness, obligations, and liabilities are direct,
indirect, fixed, contingent, liquidated, unliquidated, joint,
several, or joint and several or were, prior to acquisition thereof
by Lender, owed to some other person.
"Prior Loan Agreement": Recital A.
"Prior Note": Recital B.
"Revolving Credit Period": Section 2.1(a).
"Rights" means rights, remedies, powers, privileges and
benefits.
"Subsidiary" means any corporation fifty percent (50%) or more
of the Voting Shares of which is owned, directly or indirectly, by
Borrower.
"Swap Debt" means all indebtedness or obligations of Borrower
to Lender, or any affiliate of Lender, under any currency and/or
rate swap, cap, floor, collar, future rate, asset swap, or
commodity, securities, index, market or price-linked transaction or
agreement, other exchange or rate protection agreement (however
designated), any combination of such transactions or agreements, or
any option with respect to any such transaction or agreement.
"Tangible Net Worth" of any person shall mean, as of any date,
(i) the total stockholders' equity (including capital stock,
additional paid-in capital and retained earnings after deducting
treasury stock) that would appear on a consolidated balance sheet
of such person prepared as of such date in conformity with GAAP;
less (ii) the sum of the aggregate book value of Intangible Assets.
"Term Loan Period": Section 2.1(a).
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"Voting Shares" of any corporation shall mean outstanding
shares of capital stock of any class or classes (however desig-
nated) having ordinary voting power for the election of at least a
majority of the members of the Board of Directors (or other govern-
ing body) of such corporation, other than shares having such power
only by reason of the happening of a contingency.
1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the
above described meanings when used in any other Loan Paper or in
any certificate, report or other document made or delivered
pursuant to this Agreement, unless same shall otherwise expressly
require.
(b) Terms used herein in the singular shall import the
plural and vice versa.
(c) Terms not specifically defined herein shall have the
meanings accorded them under GAAP, customary oil and gas industry
practices or the Texas Uniform Commercial Code, as appropriate.
(d) The words "hereof," "herein," "hereto," "hereunder"
and similar terms when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement.
ARTICLE II
Loan
2.1 Loan.
(a) Subject to the terms and conditions hereof, during
the period from the date hereof through May 31, 1997 (the
"Revolving Credit Period"), Lender agrees to extend to Borrower a
revolving line of credit which shall not exceed at any time out-
standing the lesser of (i) $25,000,000, or (ii) the Borrowing Base
from time to time in effect (such lesser amount being referred to
herein as the "Commitment"). Subject to the foregoing limitations
and the requirements set forth herein and in the Note, Borrower may
borrow, repay, and reborrow hereunder during the Revolving Credit
Period. Effective June 1, 1997, the loan shall convert
automatically to a term loan and during the period from June 1,
1997 through May 31, 2001 (the "Term Loan Period"), Borrower shall
not be entitled to any further Advances. The aggregate unpaid
principal balance of all Advances is herein referred to as the
"Loan". The Loan shall never exceed the Commitment.
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(b) Borrower may at any time during the Revolving Credit
Period upon at least one (1) Business Day's notice in writing to
Lender reduce (in $100,000 integer multiples) or terminate the
Commitment. If the Commitment is reduced, Lender shall thereafter
have no obligation to make any Advance that would result in the
Loan exceeding the Commitment as so reduced; if the Commitment is
terminated, no further Advance shall be made pursuant to this
Agreement. Notwithstanding anything to the contrary contained
herein, (i) once reduced or terminated, the Commitment may not be
increased or reinstated except upon the mutual written agreement of
Borrower and Lender; and (ii) Borrower shall not reduce the Commit-
ment to an amount that is less than the Loan on the effective date
of such reduction.
2.2 Manner of Borrowing.
(a) Each request by Borrower to Lender for an Advance
shall be in the form of Exhibit 2.2 hereto and shall specify the
aggregate amount of such requested Advance and the requested date
of such Advance. Borrower shall furnish to Lender each request for
Advance at least one (1) Business Day prior to the requested
borrowing date (which must be a Business Day). Each Advance shall
be in the minimum amount of $50,000 or the unadvanced portion of
the Commitment, whichever is less.
(b) Upon fulfillment of all applicable conditions set
forth in Section 5.2 hereof (and assuming the prior satisfaction of
all conditions pursuant to Section 5.1 hereof), Lender shall before
2:00 o'clock p.m. (Midland, Texas time) on the requested borrowing
date, pay or deliver each Advance to or upon the order of Borrower
at the principal banking office of Lender in Midland, Texas in
immediately available funds.
2.3 Commitment Fee. In addition to the payments provided for
in the Note, Borrower shall pay to Lender a revolving credit loan
commitment fee at the rate of one-half percent (1/2%) per annum on
the difference between the Commitment and the average daily amount
of the Loan for each calendar quarter (or portion thereof) during
the Revolving Credit Period. Such fee shall be payable on the
fifteenth (15th) day following each such calendar quarter,
beginning August 15, 1995. The parties acknowledge and agree that
the commitment fees payable hereunder are bona fide commitment fees
and are intended as reasonable compensation to Lender for
committing to make funds available to Borrower as described herein
and for no other purpose.
Upon the effective date of a change in the Commitment (whether
due to a reduction of the Commitment pursuant to Section 2.1(b) or
a change in the Borrowing Base pursuant to Section 3.2), the
commitment fee payable pursuant to this Section 2.3 shall be
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calculated on the basis of the amount of the Commitment, as so
changed. Upon the effective date of a termination of the Commit-
ment (pursuant to Section 2.1(b)), Borrower shall have no further
liability for such commitment fee (except for that portion of the
quarter prior to termination of the Commitment).
2.4 Note.
(a) The Advances made by Lender under the Loan shall be
evidenced by a promissory note (the "Note"), which shall be (i)
dated as of the date hereof, (ii) in the principal amount of
$25,000,000, and (iii) in the form of Exhibit 2.4 hereto with
blanks appropriately completed in conformity herewith. Notwith-
standing the principal amount of the Note as stated on the face
thereof, the amount of principal actually owing on the Note at any
given time shall be the aggregate of all Advances theretofore made
to Borrower under the Loan, less all payments of principal thereto-
fore actually received by Lender and applied to the Note.
(b) It is expressly agreed that the Note is given in
renewal, extension and rearrangement, but not in extinguishment, of
the indebtedness evidenced by the Prior Note.
2.5 Principal Payments. The principal of the Loan shall be
payable as provided in the Note.
2.6 Interest Rate; Interest Payments. The Loan shall bear
interest at the rate specified in the Note. Interest on the Loan
shall be payable as provided in the Note.
2.7 Capital Adequacy. If at any time after the date hereof,
and from time to time, any law, rule, regulation or treaty now
existing or hereafter promulgated regarding capital adequacy, or
any adoption thereof, ruling thereon, change therein, or
interpretation thereof now existing or hereafter made by any
governmental authority, central bank or comparable agency regarding
capital adequacy, or compliance by Lender with any request,
directive, or requirement now existing or hereafter imposed by any
governmental authority, central bank or comparable agency regarding
capital adequacy (whether or not having the force of law), shall
result in Lender incurring a reduction in the rate of return on
Lender's capital as a consequence of Lender's obligations hereunder
to a level below that which Lender otherwise could have achieved in
an amount deemed by Lender to be material (and Lender may, in
determining such amount, utilize such assumptions and allocations
of costs and expenses as Lender shall deem reasonable and may use
any reasonable averaging or attribution method), then, Lender may,
from time to time, notify Borrower and deliver to Borrower a
certificate setting forth in reasonable detail the calculation of
the amount necessary to compensate Lender for the reductions
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incurred. In such event, Borrower agrees that it shall, within
thirty (30) days, either (i) pay such amount to Lender, or (ii)
renegotiate the interest rate on the Note to a rate mutually
acceptable to Borrower and Lender. Failing Borrower's payment of
such amount pursuant to clause (i) above or the renegotiation of
the interest rate pursuant to clause (ii) above, Borrower agrees
that it shall, within ninety (90) days thereafter, pay the
Obligation in full and terminate this Agreement.
2.8 Prepayments. Borrower may, without premium or penalty,
prepay the principal or interest of the Note, in whole or in part,
at any time or from time to time; provided, however, that the
Commitment shall be terminated if the unpaid principal balance of
the Note is at any time reduced to less than $1,000.
2.9 Manner and Application of Payments. All payments of
principal and interest on the Note shall be made by Borrower to
Lender before 1:30 o'clock p.m. (Midland, Texas time), in lawful
money of the United States of America and in immediately available
funds, at Lender's principal banking office in Midland, Texas. In
any case where a payment of principal or interest on the Note, or
any commitment or other fee, is due on a day other than a Business
Day, the maturity thereof shall be extended to the next succeeding
Business Day, but interest shall continue to accrue until the
payment is in fact made. All payments and prepayments on the
Obligation, including proceeds from the exercise of any Rights
under the Loan Papers or proceeds of any of the Collateral, shall
be applied to the Obligation in the order deemed appropriate by
Lender, but Lender shall always retain the right to apply same in
the following order: (i) to expenses for which Lender shall not
have been reimbursed under the Loan Papers and then to all indem-
nified amounts due Lender under the terms of the Loan Papers; (ii)
to accrued and unpaid interest on the Note; (iii) to principal of
the Note; and (iv) to the remaining Obligation.
ARTICLE III
Borrowing Base and Required Prepayments Under Note
3.1 Borrowing Base. The "Borrowing Base" (which is the
maximum principal balance that may be outstanding at any time under
the Note) is initially set at the sum of $11,250,000 but shall be
subject to redetermination as further provided in this Article.
3.2 Redeterminations of Borrowing Base. Lender shall re-
determine the Borrowing Base semi-annually, on or about May 1 and
November 1 of each year. Lender may require a redetermination of
the Borrowing Base at any time if it appears to Lender, in its sole
discretion, that there has been a material change in the value of
Borrower's Mineral Interests. In addition, Borrower may request
<PAGE 10>
that Lender redetermine the Borrowing Base at any time, and Lender
agrees to respond to such request within thirty (30) days. Prompt-
ly following each redetermination of the Borrowing Base, Lender
shall notify Borrower of any change in the amount of the Borrowing
Base. Until such time as Lender has notified Borrower in writing
of a change in the amount of the Borrowing Base, the Borrowing Base
will remain unchanged.
Borrower shall furnish to Lender, no later than thirty (30)
days prior to each redetermination date hereunder (or within thirty
(30) days after receipt of notice from Lender that it has
determined that a material change may have occurred in the value of
Borrower's Mineral Interests), as directed, by Lender, such
information as Lender may request, in form and substance acceptable
to Lender, requisite to Lender's redetermination of the Borrowing
Base.
3.3 Standards for Redetermination. All Borrowing Base
redeterminations shall be made by Lender in the exercise of its
sole discretion in accordance with its customary practices and
standards for loans in similar amounts to Borrower similarly
situated, at the time and under the circumstances then prevailing.
3.4 Borrowing Base Redetermination Fee. In addition to the
payments provided for in the Note, Borrower shall pay to Lender at
the time Lender provides the notice required by Section 3.2 in
connection with any increase in the Borrowing Base upon a scheduled
or non-scheduled Borrowing Base redetermination, an amount equal to
the greater of (i) $750, or (ii) one-half percent (1/2%) of the
amount of any such increase. The parties acknowledge and agree
that the Borrowing Base redetermination fee payable hereunder is
intended as reasonable compensation to Lender for its efforts in
redetermining the Borrowing Base during the Revolving Credit Period
and for no other purpose.
3.5 Mandatory Increase in Collateral or Prepayment of
Principal of the Note. In the event that the Obligation shall, at
the time of notification of the redetermination of the Borrowing
Base by Lender to Borrower, be in excess of the Commitment,
Borrower shall (i) within thirty (30) days thereafter, by
instruments satisfactory in form and substance to Lender, provide
Lender with additional collateral with value in amounts satisfac-
tory to Lender, in its sole discretion, in order to increase the
Borrowing Base by an amount at least equal to such excess, (ii)
within thirty (30) days thereafter, prepay the principal of the
Note (together with accrued interest on the principal amount so
prepaid) in an amount at least equal to such excess, or (iii)
within six (6) months thereafter, in lieu of regularly scheduled
payments, prepay the principal of the Note in not more than six (6)
equal monthly installments (together with accrued interest on the
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principal amount so prepaid) aggregating the amount of such excess
(provided, that if Borrower's payments under this clause (iii) are
less than the regularly scheduled payments under the Note, Borrower
shall instead make such regularly scheduled payments).
ARTICLE IV
Security and Assignment
To secure full and complete payment and performance of the
Obligation, Borrower hereby grants and conveys to and creates in
favor of Lender Bank Liens in, to and on all of the following items
and types of property (referred to collectively herein as the
"Collateral"), all as more particularly described in the Loan
Papers:
(a) all present and future interest now owned or here-
after acquired by Borrower in the Mineral Interests identified in
the Deed of Trust, together with all proceeds of production
therefrom;
(b) all present and future increases, profits,
combinations, reclassifications, improvements and products of,
accessions, attachments, and other additions to, tools, parts and
equipment used in connection with, and substitutes and replacements
for, any of the Collateral;
(c) all cash and noncash proceeds and other Rights
arising from or by virtue of, or from the voluntary or involuntary
sale, lease or other disposition of, or collections with respect
to, or insurance proceeds payable with respect to, or proceeds
payable by virtue of warranty or other claims against manufacturers
of, or claims against any other person with respect to, any of the
Collateral;
(d) all present and future security for the payment to
Borrower for any of the Collateral;
(e) all goods which gave or will give rise to any of the
Collateral or are evidenced, identified or represented therein or
thereby; and
(f) all certificates of title, manufacturer's statements
of origin, or other documents, accounts and chattel paper arising
from or related to any of the Collateral.
All Bank Liens created in favor of Lender pursuant to the
Prior Loan Agreement are hereby ratified, renewed and extended,
without lapse or interruption of perfection or priority.
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ARTICLE V
Conditions Precedent
5.1 Renewal and Extension. The obligation of Lender to
accept the Note in renewal and extension of the Prior Note shall be
subject to satisfaction of each of the following conditions
precedent:
(a) There shall have been executed, where appropriate,
and delivered by Borrower (and/or any other requisite party
thereto) (i) the documents listed on Schedule 5.1 hereto, all of
which shall be in form and substance satisfactory to Lender and its
counsel, and (ii) such other documents or instruments as Lender may
reasonably require.
(b) All requirements of notice necessary to perfect each
Bank Lien shall have been accomplished or arrangements made
therefor to the satisfaction of Lender and its counsel.
(c) Lender shall have received from Borrower's legal
counsel a favorable legal opinion in form and substance
satisfactory to Lender and its counsel respecting the matters set
forth in Section 6.1, 6.2 and 6.5 hereof.
(d) No Material Adverse Change shall have occurred in
the financial condition, assets or business prospects of Borrower
since March 31, 1995.
(e) All accrued and unpaid interest on the Prior Note
shall have been paid up to the date hereof.
5.2 All Advances. The obligation of Lender to make any
Advance hereunder shall be subject to satisfaction of each of the
following conditions precedent:
(a) An authorized individual shall have requested such
Advance in accordance with the requirements of Section 2.2(a)
hereof.
(b) No Event of Default shall have occurred that has not
been waived in writing by Lender, and there shall exist no
condition or event that, with the giving of notice or lapse of time
or both, would constitute an Event of Default.
(c) Borrower shall have observed, performed and complied
with all covenants, agreements, duties and obligations contained in
the Loan Papers.
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ARTICLE VI
Representations and Warranties
In order to induce Lender to enter into this Agreement,
Borrower represents and warrants to Lender as of the date hereof,
which representations and warranties shall survive the delivery of
the Note, as follows:
6.1 Existence and Authority. Borrower is (i) a corporation
duly organized, legally existing and in good standing under the
laws of the State of Delaware, and (ii) duly qualified as a foreign
corporation and in good standing in the State of Texas. Except to
the extent that the failure to qualify would not cause or result in
a Material Adverse Change, there are no other states or
jurisdictions wherein Borrower's operations, transaction of
business or ownership of property makes such qualification
necessary.
6.2 Powers. Borrower is duly authorized and empowered to
create and issue the Note and to execute and deliver this Agree-
ment, the other Loan Papers and all other instruments referred to
or mentioned herein, and all action (corporate or otherwise) on
Borrower's part requisite for the due creation, issuance and
delivery of the Note and the due execution and delivery of this
Agreement and the other Loan Papers has been duly and effectively
taken. This Agreement is, and the other Loan Papers when duly
executed and delivered will be, legal, valid and binding obliga-
tions of Borrower enforceable in accordance with their terms
(subject to any applicable bankruptcy, insolvency or other laws
generally affecting the enforcement of creditors' rights). The
Loan Papers do not violate any provisions of Borrower's articles of
incorporation or bylaws or of any contract, partnership or other
agreement, law or regulation to which Borrower is subject, and the
same do not require the consent or approval of any regulatory
authority or governmental body of the United States or of any
state.
6.3 Financial Statements. The audited financial statements
of Borrower for the three (3) months ended March 31, 1995 which
have been delivered to Lender, are complete and correct, have been
prepared in conformity with GAAP, and fairly present the financial
condition and results of operations of Borrower as of the dates and
for the periods stated. No Material Adverse Change in the
financial condition of Borrower has occurred since March 31, 1995.
6.4 Liabilities. As of the date hereof, Borrower has no
material liabilities, direct or contingent, other than those set
forth in the financial statements of Borrower referred to in
Section 6.3 hereof. Borrower knows of no fact, circumstance, act,
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condition or development that will or could cause a Material
Adverse Change.
6.5 Litigation. Except for the litigation described on
Schedule 6.5, Borrower is not involved in, nor is aware of the
threat of, any material litigation, nor are there any outstanding
or unpaid judgments against Borrower, and none of the litigation
described on Schedule 6.5 could, collectively or individually,
create a Material Adverse Change if determined adversely against
Borrower.
6.6 Taxes. All tax returns required to be filed by Borrower
in all jurisdictions have been filed, and all taxes, assessments,
fees and other governmental charges upon Borrower or upon any of
its property, income or franchises, which are due and payable, have
been paid, or adequate reserves determined in conformity with GAAP
have been provided for payment thereof.
6.7 Purpose of Loan. The proceeds of any Advances (a) are
not and will not be used directly or indirectly for the purpose of
purchasing or carrying, or for the purpose of extending credit to
others for the purpose of purchasing or carrying, any "margin
stock" as that term is defined in Regulation U of the Board of
Governors of the Federal Reserve System, as amended; and (b) will
be otherwise used for lawful purposes.
6.8 Properties; Liens.
(a) With regard to the Mineral Interests included in the
Deed of Trust, except as disclosed in title opinions furnished to
Lender in connection with the closing hereunder, (i) Borrower has
good and marketable title to all such Mineral Interests, free and
clear of all Liens except Liens permitted under Section 8.1 hereof,
and has full authority to create Bank Liens thereon; and (ii) all
such Mineral Interests are valid, subsisting and in full force and
effect, and all rentals, royalties and other amounts due and
payable in respect thereof have been duly paid.
(b) Borrower has good and marketable title to all of its
other respective properties reflected on the financial statements
referred to in Section 6.3 hereof, and, except for the Liens
permitted under Section 8.1, there is no Lien on any asset of
Borrower.
(c) Subject to the Liens described in Schedule 8.1 or
permitted under Section 8.1 and Liens that neither materially
detract from the marketability of the property nor impair the use
of the property, and except as may be limited or otherwise affected
by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, upon execution, delivery and
15
recording, or filing, as appropriate, the Loan Papers will be
effective to create in favor of Lender a legal, valid and
continuing first Lien on the property (real and personal, tangible
and intangible) described therein, prior and superior to all other
existing or future Liens, and, upon the filing of the appropriate
notice documents, will be enforceable as such against creditors and
purchasers from Borrower, and no other filings, recordings or other
actions are necessary or desirable in order to establish, preserve,
protect and perfect such Lien in favor of Lender as a valid and
perfected first Lien on such property, except a continuation
statement may be required under the Uniform Commercial Code.
(d) Except as set forth on Schedule 6.8, none of the
Collateral is or will be subject to a gas balancing arrangement
under which a material imbalance exists with respect to which
imbalance Borrower is in an overproduced status and is required to
(i) permit one or more third parties to take a portion of the
production attributable to such Collateral without payment (or
without full payment) therefor, and/or (ii) make payment in cash in
order to correct such imbalance.
6.9 Material Agreements. Except for the Loan Papers, the
Material Agreements described on Schedule 6.9, agreements, docu-
ments and instruments giving rise to Mineral Interests, farmout
agreements, gas contracts and operating and joint operating
agreements related to any Mineral Interests, there are no Material
Agreements of Borrower. The performance by Borrower under any
Material Agreement will not cause a Material Adverse Change.
Borrower is not, nor will the execution, delivery and performance
of and compliance with the terms of the Loan Papers cause Borrower
to be, in default (nor has any potential default occurred) under
any Material Agreement, any agreement, document or instrument
giving rise to Mineral Interests, farmout agreements, gas contracts
or any operating or joint operating, or unitization agreements
related to Mineral Interests, other than in each case such defaults
or potential defaults which could not, individually or
collectively, cause a Material Adverse Change. A default by
Borrower under any operating or joint operating agreement related
to any Mineral Interests it owns will not result in any loss or
diminution of any other Mineral Interests it owns.
6.10 ERISA. All plans maintained by Borrower are in
compliance with all funding and other requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and
none have been terminated or have accrued any funding deficiency
for which Borrower would be liable under said statute.
6.11 Location of Records. The records of Borrower concerning
the Collateral are kept at the following location: 110 North
Marienfeld, Suite 465, Midland, Texas 79701.
16
6.12 Permits and Franchises, Etc. Borrower has all rights,
licenses, permits, franchises, patents, patent rights, trademarks,
trademark rights and copyrights that are required in order for it
to conduct its business as now conducted without known conflict
with the rights of others. Borrower is not aware of any fact or
condition that might cause any of such rights not to be renewed in
due course.
6.13 Subsidiaries. Borrower presently has no Subsidiary or
owns any stock in any other corporation or association, except as
set forth on Schedule 6.13. Borrower is not a member of any
general or limited partnership, joint venture or association of any
type whatsoever except those listed in Schedule 6.13 and asso-
ciations, joint ventures or other relationships (a) that are
established pursuant to a standard form operating agreement or
similar agreement or that are partnerships for purposes of federal
income taxation only, (b) that are not corporations or partnerships
(or subject to the Uniform Partnership Act) under applicable state
law, and (c) whose businesses are limited to the exploration,
development and operation of oil, gas or mineral properties and
interests owned directly by the parties in such associations, joint
ventures or relationships.
6.14 Hazardous Wastes and Substances. Borrower and its
properties are in compliance with applicable state and federal
environmental laws and regulations and Borrower is not aware of and
has not received any notice of any violation of any applicable
state or federal environmental law or regulation and, except as set
forth on Schedule 6.14 or otherwise previously disclosed in writing
to Lender, there has not heretofore been filed any complaint, nor
commenced any administrative procedure, against Borrower or any of
its predecessors, alleging a violation of any environmental law or
regulation. Except in substantial compliance with relevant
environmental laws, Borrower has not installed, used, generated,
stored or disposed of any hazardous waste, toxic substance,
asbestos or related material ("Hazardous Materials") on its
properties. For the purposes of this Agreement, Hazardous
Materials shall include, but shall not be limited to, substances
defined as "hazardous substances" or "toxic substances" in the
Comprehensive Environmental Response Compensation and Liability Act
of 1980, as amended, 42 U.S.C. 9061, et seq., Hazardous Materials
Transportation Act, 49 U.S.C. 1802, et seq., and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901, et seq., or as
"hazardous substances," "hazardous waste" or "pollutant or
contaminant" in any other applicable federal, state or local
environmental law or regulation. There do not exist upon any
property owned by Borrower any underground storage tanks or
facilities, and to the knowledge of Borrower, none of such property
has ever been used for the treatment, storage, recycling, or
disposal of any Hazardous Materials.
17
6.15 General. There are no significant material facts or
conditions relating to the Loan Papers, any of the Collateral, or
the financial condition or business of Borrower that could, collec-
tively or individually, cause a Material Adverse Change and that
have not been related, in writing, to Lender as an attachment to
this Agreement; and all writings heretofore or hereafter exhibited
or delivered to Lender by or on behalf of Borrower are and will be
genuine and in all respects what they purport and appear to be.
ARTICLE VII
Affirmative Covenants
As an inducement to Lender to enter into this Agreement,
Borrower covenants and agrees that, from the date hereof and until
termination of this Agreement and payment in full of the Obligation
(except as otherwise provided in this Article), unless otherwise
agreed to by Lender in writing:
7.1 Financial Statements and Other Information. Borrower
will promptly furnish to Lender copies of (i) such information
regarding its business and affairs and financial condition as
Lender may reasonably request, and (ii) without request, the
following:
(a) as soon as available and in any event within ninety
(90) days after the end of each fiscal year of Borrower, a
consolidated balance sheet of Borrower as of the close of such
fiscal year and the related statements of income, cash flows and
stockholders' equity of Borrower for such year, which shall be
audited and accompanied by the unqualified opinion and report
thereon issued by Borrower's independent public accountants;
(b) as soon as available and in any event within forty-
five (45) days after the end of each fiscal quarter of Borrower, a
balance sheet as of the close of such fiscal quarter and the
related statements of income and stockholders' equity for such
fiscal quarter;
(c) as soon as available and in any event within
forty-five (45) days after the end of each fiscal quarter of
Borrower, a report summarizing production, gross revenues,
expenses, and net revenues from all of Borrower's Mineral Interests
for such quarter on a field by field basis and, if requested by
Lender, on a lease by lease basis;
(d) on or before March 31 of each year, an oil and gas
reserve evaluation as of the close of the immediately preceding
fiscal year covering all of Borrower's Mineral Interests under the
defined categories of proved developed producing, proved developed
18
nonproducing, and proved undeveloped, prepared by independent
petroleum engineers selected by Borrower and satisfactory to
Lender;
(e) within forty-five (45) days after the end of each
fiscal quarter of Borrower, the Compliance Certificate in the form
of Exhibit 7.1 hereto signed by the President or Chief Financial
Officer of Borrower;
(f) immediately upon becoming aware of the existence of,
or any material change in the status of, any litigation which could
create a Material Adverse Change if determined adversely against
Borrower, a written communication to Lender of such matter;
(g) immediately upon becoming aware of an Event of
Default or the existence of any condition or event that
constitutes, or with notice or lapse of time, or both, would
constitute an Event of Default, a verbal notification to Lender
specifying the nature and period of existence thereof and what
action Borrower is taking or proposes to take with respect thereto
and, immediately thereafter, a written confirmation to Lender of
such matters;
(h) immediately upon becoming aware that any person has
given notice or taken any other action with respect to a claimed
default under any material indenture, mortgage, deed of trust,
promissory note, loan agreement, note agreement, drilling contract,
operating or joint venture agreement or any other Material
Agreement or undertaking to which Borrower is a party, a verbal
notification to Lender specifying the notice given or action taken
by such person and the nature of the claimed default and what
action Borrower is taking or proposes to take with respect thereto
and, immediately thereafter, a written communication to Lender of
such matters; and
(i) immediately upon becoming aware of the commencement
of any material action or material proceeding against Borrower or
any of its properties by any governmental agency, including,
without limitation, the Internal Revenue Service, the Environmental
Protection Agency, the U.S. Department of Energy or the Federal
Energy Regulatory Commission, a written communication to Lender of
such matter.
All financial statements, schedules and other financial information
delivered hereunder shall be prepared in conformity with GAAP and
shall be certified as true and correct by the President or Chief
Financial Officer of Borrower by signature and date thereon.
7.2 Taxes. Borrower will pay and discharge or cause to be
paid and discharged all taxes, assessments and governmental charges
19
or levies imposed upon it or upon its income and profits or upon
any of its property, real, personal or mixed, or upon any part
thereof, before the same shall become in default, as well as all
lawful claims for labor, materials and supplies or otherwise,
which, if not paid, might become a Lien upon such properties or any
part thereof; provided that Borrower shall not be required to pay
and discharge or cause to be paid or discharged any such tax,
assessment, charge, levy or claim contested by it in good faith by
appropriate proceedings if Borrower shall have set up adequate
reserves therefor, if required, under GAAP; and provided, further,
that the immediately preceding provision shall not apply to any
Lien imposed by the U.S. Government for failure to pay income, pay-
roll, FICA or similar taxes, and payment with respect to any such
tax, assessment, charge, levy or claim shall be made before any
property of Borrower shall be seized and sold in satisfaction
thereof.
7.3 Discharge of Contractual Obligations. Borrower will do
and perform every act and discharge all of the obligations provided
to be performed and discharged under the Loan Papers, and any and
all of the instruments or documents referred to or mentioned herein
at the time or times and in the manner required.
7.4 Legal Status. Borrower will do or cause to be done all
things necessary to preserve, renew and keep in full force and
effect its existence, rights, licenses, permits and franchises and
comply with all laws and regulations applicable to it, and,
further, comply with all applicable laws and regulations, whether
now in effect or hereafter enacted or promulgated by any
governmental authority having jurisdiction over any of its assets
or properties, noncompliance with which would cause a Material
Adverse Change.
7.5 Maintenance and Evidence of Priority of Bank Liens.
Borrower shall perform such acts and duly authorize, execute,
acknowledge, deliver, file, and record (or cause to be filed and
recorded) such additional assignments, security agreements, deeds
of trust, mortgages and other agreements, documents, instruments
and certificates as Lender may reasonably deem necessary or
appropriate in order to perfect and maintain the Bank Liens and
preserve and protect the Rights of Lender in respect of all present
and future Collateral, and cause to be furnished to Lender such
opinions of counsel as Lender may request regarding the priority of
Borrower's title to, and the Bank Liens upon, the assets of
Borrower, all of which opinions shall be prepared by such law firm
or firms as may be acceptable to Lender.
7.6 Insurance. Borrower presently maintains and will
continue to maintain such policies of liability, hazard, damage,
business interruption and workmen's compensation insurance as are
20
customarily carried by companies similarly situated. If requested
by Lender, any such policies of insurance shall show Lender therein
as loss payee. Upon request by Lender, Borrower will furnish
Lender with certificates and policies necessary to give Lender
reasonable assurance of the existence of such coverage. Borrower
agrees to notify promptly Lender of any termination or other
material change in Borrower's insurance coverage, and to provide
Lender, upon request, with all information about the renewal of
each policy at least 15 days prior to the expiration thereof.
7.7 Reimbursement of Fees and Expenses. Borrower agrees to
pay, on demand, all reasonable out-of-pocket fees and expenses
incurred by Lender or its designated representatives in connection
with the negotiation, preparation and execution of this Agreement,
all renewals hereof, the other Loan Papers or other transactions
pursuant hereto or to the Loan Papers, as well as all costs of
filing and recordation, all legal and accounting fees, all costs
associated with Borrowing Base redeterminations, all inspection,
environmental audit and similar costs related to the evaluation of
the Collateral, all costs associated with enforcing any of Lender's
Rights under the Loan Papers (including, without limitation, costs
of repossessing, storing, transporting, preserving and insuring any
of the Collateral), all court costs associated with enforcing or
defending any Rights against Borrower or any third party
challenging said Rights and any other cost or expense incurred by
Lender or its designated representatives in connection herewith or
with the other Loan Papers, together with interest at the Highest
Lawful Rate per annum on each such amount commencing 10 days after
the date notice of such expenditure is given to Borrower by Lender
until the date it is repaid to Lender.
7.8 Indemnification. Borrower agrees to indemnify Lender,
its officers, directors, shareholders, employees, and affiliates
(collectively "Indemnitee"), from and against any and all
liabilities, obligations, claims, losses, damages, penalties,
actions, judgments, suits, remedial actions, costs, expenses or
disbursements (collectively, "Claims") of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against
Indemnitee growing out of or resulting from (i) the Loan Papers and
the transactions and events at any time associated therewith
(including, without limitation, the enforcement of the Loan Papers
and the defense of Indemnitee's actions and inactions in connection
with the Loan), except to the limited extent such Claims are proxi-
mately caused by Indemnitee's gross negligence or willful
misconduct; (ii) the presence of any Hazardous Materials on or
under the properties covered by the Deed of Trust; or (iii) any
activity carried on or undertaken on or off the properties covered
by the Deed of Trust, whether prior to or during the term hereof
and whether by Borrower or by any third person, in connection with
the treatment, storage, recycling, removal, handling or disposal of
21
Hazardous Materials at any time located on or under the properties
covered by the Deed of Trust. Indemnitee shall have the right to
defend any such Claims, employing its attorneys therefor. While
Borrower shall also be entitled to employ its own attorneys and to
participate in the defense of any such Claims, Indemnitee shall, if
not furnished with reasonable indemnity, have the right to
compromise and adjust all such Claims. The covenants and
conditions of this section shall at all times be construed to be
personal covenants in favor of Indemnitee and shall not run with
the lands; provided, however, that such covenants and indemnity
shall remain in full force and effect notwithstanding the payment
in full of the Obligation and the release, either partially or
wholly, of the Bank Liens or any foreclosure thereunder. All such
Claims as may be paid by Indemnitee shall bear interest at the
Highest Lawful Rate per annum until paid by Borrower and shall be
part of the Obligation secured by the Bank Liens. THE PARTIES
HERETO INTEND FOR THE PROVISIONS OF THIS PARAGRAPH TO APPLY TO AND
PROTECT EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ITS OWN
NEGLIGENCE (EXCEPT GROSS NEGLIGENCE), WHETHER OR NOT THAT
NEGLIGENCE IS THE SOLE, CONTRIBUTING OR CONCURRING CAUSE OF ANY
CLAIMS INDEMNIFIED AGAINST IN THIS PARAGRAPH.
7.9 Curing of Defects. Borrower will promptly cure any
material defects in the execution and delivery of any of the Loan
Papers, and in any other instrument or document referred to or
mentioned herein. Borrower will immediately execute and deliver to
Lender, upon request, all such other and further instruments as may
be reasonably required or desired by Lender from time to time in
compliance with or accomplishment of the covenants and agreements
of Borrower made in the Loan Papers.
7.10 Inspection and Visitation. Borrower will grant Lender
access to all of its books and records, as well as to all of the
Collateral, and allow inspection and copying of same by Lender or
its designated representatives at any time during normal business
hours or such other time as Lender may reasonably request.
7.11 Notices. Borrower will give prompt written notice to
Lender of any proceedings instituted against it by or in any
federal or state court or before any commission or other regulatory
body, federal, state or local, which, if adversely determined,
would cause a Material Adverse Change.
7.12 Bank Lien on Other Assets. If requested by Lender,
Borrower shall execute and deliver to Lender one or more mortgages,
deeds of trust, assignments of production, security agreements,
financing statements, pledge agreements, or other security docu-
ments in favor of Lender covering every interest in every asset or
property (including, without limitation, Mineral Interests) owned
22
by Borrower, whether now owned or hereafter acquired, which shall
become part of the Collateral.
7.13 Compliance. Borrower will observe and comply with:
(a) all laws, statutes, codes, acts, ordinances, rules,
regulations, directions and requirements of all federal, state,
county, municipal and other governments, departments, commissions,
boards, courts, authorities, officials and officers, domestic and
foreign, where the failure to observe or comply would cause a
Material Adverse Change; and
(b) all orders, judgments, decrees, injunctions,
certificates, franchises, permits, licenses and authorizations of
all federal, state, county, municipal and other governments,
departments, commissions, boards, courts, authorities, officials
and officers, domestic and foreign, where the failure to observe or
comply would cause a Material Adverse Change and against which it
shall maintain such reserves as are appropriate under GAAP.
7.14 Compliance with Environmental Laws. The Borrower is and
will remain in substantial compliance with all state and federal
environmental laws and regulations and Borrower will not place nor
permit to be placed any Hazardous Materials on any of its
properties in violation of applicable state and federal
environmental laws. In the event Borrower should discover any
Hazardous Materials on any of its properties which could result in
a breach of the foregoing covenant, Borrower shall notify Lender
within three (3) days after such discovery. Borrower shall dispose
of all material amounts of Hazardous Materials generated by the
Borrower only at facilities and/or with carriers that maintain
valid governmental permits under the Resource Conservation and
Recovery Act, 42 U.S.C. 6901. In the event of any notice or
filing of any complaint or commencement of any administrative
hearing or procedure against the Borrower alleging a violation of
any environmental law or regulation, Borrower shall give notice to
Lender within five (5) days after Borrower has received notice of
such notice or filing.
7.15 Use of Proceeds. Borrower will use the proceeds of the
Loan for refinancing the Prior Note, financing oil and gas
acquisitions or capital expenditures, or working capital in
Borrower's oil and gas business.
7.16 Deposit Accounts. Borrower agrees to maintain all of its
significant operating demand deposit accounts with Lender.
23
ARTICLE VIII
Negative Covenants
As an inducement to Lender to enter into this Agreement,
Borrower hereby covenants and agrees that, from the date hereof and
until termination of this Agreement and payment in full of the
Obligation (except as otherwise provided in this Article), unless
otherwise agreed to by Lender in writing:
8.1 Liens. Borrower will not create, assume or suffer to
exist any Lien upon any of its properties or assets now owned or
hereafter acquired securing any indebtedness other than the
Obligation or acquire or agree to acquire any property under any
conditional sale agreement or other title retention agreement,
excluding, however, from the operation of this section:
(a) deposits or pledges to secure payments of workmen's
compensation, unemployment insurance, old age pensions or other
social security;
(b) deposits or pledges to secure performance of bids,
tenders, contracts (other than contracts for the payment of money),
leases, public or statutory obligations, surety or appeal bonds, or
other deposits or pledges for purposes of like general nature in
the ordinary course of business;
(c) Liens for taxes, assessments or other governmental
charges or levies that are not delinquent or that are in good faith
being contested or litigated, if such reserve as shall be required
by GAAP shall have been made therefor, provided, that this excep-
tion shall not allow any Lien imposed by the U.S. Government for
failure to pay income, payroll, FICA or similar taxes;
(d) mechanics', carriers', workmen's, repairman's or
other like Liens arising in the ordinary course of business
securing obligations less than ninety (90) days from the date of
invoice, and on which no suit to foreclose has been filed, or which
are in good faith being contested or litigated, if such reserve as
shall be required by GAAP shall have been made therefor;
(e) Liens created by or resulting from any litigation or
legal proceeding that is currently being contested in good faith by
appropriate proceedings, if such reserve as shall be required by
GAAP shall have been made therefor;
(f) Liens, charges and encumbrances incidental to the
conduct of its business or the ownership of its properties or
assets, which were not incurred in connection with the borrowing of
money or the obtaining of advances or credit and that do not
24
materially detract from the value of such property or assets or
materially impair the use thereof in the operation of its business;
(g) landlords' Liens for rental not yet due and payable
and which, to the extent the same encumbers any of the Collateral,
are subordinate to the Bank Liens;
(h) Liens arising in the normal course of business under
operating agreements covering oil and gas properties and interests
therein, including such Liens as may arise thereunder because of
the default of other parties to the operating agreement;
(i) the Bank Liens; or
(j) Liens disclosed on Schedule 8.1 hereto.
8.2 Indebtedness. Borrower will not create, assume, incur or
have outstanding, or in any manner become or be liable directly or
indirectly (whether by way of guaranty or otherwise) in respect of,
any indebtedness for borrowed money or the purchase price of any
property (including direct, indirect and capitalized leases),
excluding, however, from the operation of this section:
(a) the Note;
(b) indebtedness existing as of the date hereof and
identified on Schedule 8.2 hereto;
(c) accounts payable for services furnished and for the
purchase price of materials and supplies acquired in the ordinary
course of its business, not more than ninety (90) days from the
date of invoice; and
(d) other indebtedness not to exceed an aggregate amount
of $100,000 at any time outstanding.
8.3 ERISA Compliance. Borrower will not at any time permit
any plan subject to ERISA maintained by it to (i) engage in any
"prohibited transaction" as such term is defined in Section 4975 of
the Internal Revenue Code of 1986, as amended; (ii) incur any
"accumulated funding deficiency" as such term is defined in Section
302 of ERISA; or (iii) terminate any such plan in a manner which
could result in the imposition of a lien on its property pursuant
to Section 4068 of ERISA.
8.4 Investments. Borrower will not make or commit to make,
any advance, loan, extension of credit or capital contribution to,
or purchase of any stock, bonds, notes, debentures or other securi-
ties of, or make any other investment in any person, or accept any
25
item in satisfaction of indebtedness (all of the aforesaid trans-
actions being herein called "Investments"), except:
(a) Investments in accounts, contract rights and chattel
paper (as defined in the Uniform Commercial Code), and notes
receivable, arising or acquired in the ordinary course of business;
(b) Investments with maturities of not more than 180
days in direct obligations of the United States of America, or
obligations, the principal and interest of which are un-
conditionally guaranteed by the United States of America;
(c) certificates of deposit maintained with any U.S.
commercial bank whose deposits are insured by the Federal Deposit
Insurance Corporation, but not to exceed in any instance the
maximum amount of deposit insurance for any such bank;
(d) loans, advances or extensions of credit to other
persons not to exceed $100,000 in the aggregate at any time
outstanding; and
(e) Investments existing as of the date hereof and
identified in Schedule 8.4.
8.5 Mergers, Consolidations. Borrower will not (i) amend or
otherwise modify its corporate charter or otherwise change its
structure in any manner that would cause a Material Adverse Change;
(ii) form any new subsidiary company; or (iii) consolidate with or
merge into, or acquire any party or permit any party to consolidate
with or merge into, or acquire it, unless Borrower is the surviving
entity and such consolidation, merger or acquisition does not cause
an Event of Default.
8.6 Dividends and Distributions. Neither Borrower nor any
Subsidiary will declare, pay or make any loans, advances, dividends
or distributions, of any kind to its stockholders, or make any
other distribution on account of, or purchase, acquire or redeem or
retire any stock or other security issued by Borrower.
8.7 Transactions with Affiliates. Borrower will not,
directly or indirectly, enter into any transaction (including, but
not limited to, the sale or exchange of property or the rendering
of services) with any of its affiliates, other than in the ordinary
course of business and upon fair and reasonable terms no less
favorable than Borrower could obtain or could become entitled to in
an arm's length transaction with a person that was not an
affiliate.
26
8.8 Accounting Method and Fiscal Year. Borrower will not
make any change in its present accounting method unless such
changes are required for conformity with GAAP.
8.9 Nature of Business. Borrower will not make any sub-
stantial change in the nature of its businesses as now conducted.
8.10 Disposition of Assets. Borrower will not sell, transfer,
lease, exchange, alienate or otherwise dispose of any of its
property or assets except, to the extent not otherwise forbidden
under the Deed of Trust:
(a) equipment that is worthless or obsolete or which is
replaced by equipment of equal suitability and value;
(b) inventory that is sold in the ordinary course of
business; and
(c) interests in oil and gas leases, or portions
thereof, so long as no well situated on any such lease or located
on any unit containing all or any part thereof, is capable (or is
subject to being made capable through commercially feasible
operations) of producing oil, gas or other hydrocarbons or minerals
in commercial quantities.
8.11 Current Ratio. At all times during the term hereof,
Borrower's Current Ratio shall not be less than 1.25 to 1.
8.12 Leases. Borrower shall not pay or become liable to pay
rentals or lease payments on any lease (excluding oil and gas
leases), sublease or similar arrangement in an amount exceeding
$250,000 in the aggregate in any fiscal year.
8.13 Tangible Net Worth. At all times during the term hereof,
Borrower's Tangible Net Worth shall not be less than (A)
$7,000,000.00 plus (B) fifty percent (50%) of Borrower's Adjusted
Net Income for each fiscal quarter, if positive, and zero percent
(0%) if negative, determined on a cumulative basis, for the period
beginning April 1, 1995 and ending on the last day of the most
recent fiscal quarter as of the time in question plus (C) seventy-
five percent (75%) of the net proceeds of the sale of any equity
interest in Borrower after March 31, 1995. As used in this Section
8.13, Borrower's Adjusted Net Income means for any period,
Borrower's net income for such period, provided there shall be
excluded from such net income (to the extent otherwise included
therein) the following: (a) any extraordinary gains or losses,
including gains or losses attributable to property sales not in the
ordinary course of business; and (b) the cumulative effect of a
27
change in accounting principles and any gains or losses
attributable to write-ups or write-downs of assets.
ARTICLE IX
Default and Remedies
9.1 Events of Default. If any one or more of the following
shall occur and shall not have been remedied in the period, if any,
provided, an "Event of Default" shall be deemed to have occurred
hereunder and with respect to all of the Obligation, unless waived
in writing by Lender:
(a) default shall occur in the payment when due of the
Obligation including, without limitation, any principal or interest
due on the Note or any commitment or other fee due hereunder;
provided, however, that Borrower's failure to make any payment of
interest on the Note shall not constitute an Event of Default
unless the same shall continue for a period of five (5) days,
including the day such interest payment is due;
(b) any representation, warranty or statement made by
Borrower herein, in any of the other Loan Papers or in any
certificate furnished to Lender hereunder shall be breached or
shall prove to be untrue or misleading in any material respect at
the time when made;
(c) default shall occur in the performance or observance
of any covenant, agreement, duty or obligation of Borrower
contained herein or in any of the other Loan Papers; provided, that
breach of the covenant contained in Sections 8.11 or 8.13 hereof
shall not constitute an Event of Default unless the same shall
continue for a period of thirty (30) days;
(d) Borrower shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of it or of all or
a substantial part of its assets; (ii) be unable, or admit in
writing its inability, to pay its debts as they become due; (iii)
make a general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent or file a voluntary petition in
bankruptcy; (v) file a petition or an answer seeking reorganization
or an arrangement with creditors or to take advantage of any
bankruptcy or insolvency law; (vi) file an answer admitting the
material allegations of, or consent to, or default in answering, a
petition filed against it in any bankruptcy, reorganization or
insolvency proceedings; or (vii) take any action (corporate or
otherwise) for the purpose of effecting any of the foregoing;
(e) an order, judgment or decree shall be entered by any
court of competent jurisdiction approving a petition seeking
28
reorganization of Borrower or appointing a receiver, trustee or
liquidator of Borrower or of all or a substantial part of its
assets, and such order, judgment or decree shall continue unstayed
in effect for any period of thirty (30) consecutive days;
(f) any Lien for failure to pay income, payroll, FICA or
similar taxes shall be filed by the U.S. Government or any agent or
instrumentality thereof against Borrower or any of its assets;
(g) there shall occur any acceleration, notice of
default, filing of suit or notice of breach by any other party to
any Material Agreement to which Borrower is a party wherein the
amount involved or claimed exceeds $100,000, following the passage
of any grace period provided for thereunder;
(h) default shall occur in the payment of any indebt-
edness of Borrower aggregating $100,000 or more under any note,
loan agreement or credit agreement and such default shall continue
for more than the period of grace, if any, specified therein, or
any such indebtedness shall become due before its stated maturity
by acceleration of the maturity thereof or shall become due by its
terms and shall not be promptly paid or extended;
(i) any final judgment or judgments for the payment of
money in the amount of $100,000 or more, in the aggregate, shall be
rendered against Borrower and shall not be satisfied or discharged
at least thirty (30) days prior to the date on which any of its
assets could be lawfully sold to satisfy such judgment or
judgments;
(j) the good faith belief by Lender that the prospect of
payment or performance of the Obligation is materially impaired, or
that the value of the Collateral has, or will be, materially
decreased;
(k) a Material Adverse Change has occurred with respect
to Borrower; or
(l) A majority of the individuals comprising the current
Board of Directors of Borrower shall resign, be declared
incompetent or otherwise be removed (voluntarily or involuntarily)
or cease to serve as members of the Board of Directors of Borrower.
9.2 Remedies. Upon the occurrence of any Event of Default,
Lender shall have no further obligation to advance funds under the
Note, and Lender may declare all of the Obligation to be forthwith
due and payable, whereupon the same shall forthwith become due and
payable without further presentment, demand, protest, notice of
acceleration or the intent to accelerate, or other notice of any
kind, all of which Borrower hereby expressly waives, anything
29
contained herein, in the Note or in any of the other Loan Papers to
the contrary notwithstanding; provided that any default under
subsections (d) or (e) of Section 9.1 shall result in all of the
Obligation becoming immediately due and payable in full without the
necessity of any act by Lender. Further, Lender may, in its
discretion, but shall not be required to, exercise such Rights as
are provided it in any of the Loan Papers or at law or in equity.
Nothing contained in this Article shall be construed to limit or
amend in any way the Events of Default enumerated in the Loan
Papers or any other document executed in connection with the
transactions contemplated herein. Further, in such event, Lender
shall have all other Rights afforded to it with respect to Borrower
or any of the Collateral under any of the Loan Papers or under any
applicable law or in equity.
ARTICLE X
Miscellaneous
10.1 Survival of Representations and Warranties. All repre-
sentations and warranties of Borrower herein, and all covenants,
agreements, duties and obligations of Borrower herein not fully
performed on or before the date of this Agreement, shall survive
such date.
10.2 Communications. Unless specifically provided otherwise,
whenever any Loan Paper requires or permits any consent, approval,
notice, request, or demand from one party to another, such
communication must be in writing to be effective and shall be
deemed to have been given on the day actually delivered or, if
mailed, on the third day (or if such third day is not a Business
Day, then on the next succeeding Business Day) after it is enclosed
in an envelope, addressed to the party to be notified at the
address stated below, properly stamped, sealed, and deposited in
the appropriate official postal service. Until changed by notice
pursuant hereto, the address for each party for purposes hereof is
as follows:
BORROWER: PARALLEL PETROLEUM CORPORATION
110 North Marienfeld, Suite 465
Midland, Texas 79701
LENDER: NATIONSBANK OF TEXAS, N.A.
303 West Wall
Midland County
Midland, Texas 79701
Attention: Frank K. Stowers
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10.3 Non-Waiver.
(a) The acceptance by Lender at any time and from time
to time of part payment on the Obligation shall not operate as a
waiver of any Event of Default then existing.
(b) No waiver by Lender of any Event of Default shall
operate as a waiver of any other then existing or subsequent Event
of Default.
(c) No delay or omission by Lender in exercising any
Right shall impair such Right or operate as a waiver thereof, nor
shall any single or partial exercise of any such Right preclude
other or further exercise thereof, or the exercise of any other
Right under the Loan Papers or otherwise.
(d) No notice or demand given by Lender in any case
shall operate as a waiver of Lender's right to take other action in
the same, similar or other instances without such notice or demand.
(e) No Advance hereunder shall operate as a waiver by
Lender of (i) the representations, warranties and covenants of
Borrower under the Loan Papers; (ii) any Event of Default; or (iii)
any of the conditions to Lender's obligation, if any, to make
further Advances.
10.4 Strict Compliance. If any action or failure to act by
Borrower violates any covenant of Borrower contained herein or in
any other Loan Paper, then such violation shall not be excused by
the fact that such action or failure to act would otherwise be
permitted by any covenant (or exception to any covenant) other than
the covenant violated.
10.5 Cumulative Rights. The Rights of Lender under the Loan
Papers are in addition to all other Rights provided by law, whether
or not the Obligation is due and payable and whether or not Lender
has instituted any suit for collection or other action in connec-
tion with the Loan Papers.
10.6 Governing Law. This Agreement has been prepared, is
being executed and delivered, and is intended to be performed, in
the State of Texas. The substantive laws of such state and the
applicable federal laws of the United States of America shall
govern the validity, construction, enforcement and interpretation
of this Agreement and the other Loan Papers, without regard to
principles of conlicts of law, PROVIDED, HOWEVER, THAT THE RIGHTS
PROVIDED IN THE LOAN PAPERS WITH REFERENCE TO PROPERTIES SITUATED
IN OTHER STATES MAY BE GOVERNED BY THE LAWS OF SUCH OTHER STATES.
31
10.7 Choice of Forum; Consent to Service of Process and
Jurisdiction. Any suit, action or proceeding against Borrower
arising out of or relating to any of the Loan Papers or any
judgment entered by any court in respect thereof, may be brought or
enforced in the courts of the State of Texas, County of Midland, or
in the United States courts located in the State of Texas, County
of Midland, or in the United States courts located in the State of
Texas, as Lender in its sole discretion may elect, and Borrower
hereby submits to the nonexclusive 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 any of said courts by the mailing thereof
by Lender by registered or certified mail, postage prepaid, to
Borrower, at its address set forth herein. Borrower hereby irre-
vocably waives any objections that it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out
of or relating to any of the other Loan Papers brought in any of
said courts 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.
10.8 Usury Savings Clause. Nothing contained in this Agree-
ment, the Note, any other Loan Paper or in any other Agreement or
undertaking relating hereto or to the Obligation shall be construed
to obligate Borrower, under any circumstances whatsoever, to pay
interest at a rate in excess of the Highest Lawful Rate. All sums
paid hereunder or under the Note that are deemed to be interest
shall be spread and prorated over the entire period for which the
Note is outstanding. In the event that any sums received hereunder
from Borrower are at any time under applicable law deemed or held
to provide a rate of interest in excess of the Highest Lawful Rate,
the effective rate of interest on the Obligation shall be deemed
reduced to and shall be the Highest Lawful Rate, and Borrower and
any other parties hereby agree to accept as their sole remedy under
such circumstances either the return of any sums of interest that
may have been collected in excess of the Highest Lawful Rate or the
application of these sums as a credit against the unpaid principal
amount of the Note, whichever remedy may be elected by Lender. In
addition, in the event that the maturity of the Note is accelerated
by reason of the election by Lender hereunder, then earned interest
may never include more than the amount calculated pursuant to the
Highest Lawful Rate, and if unearned interest is provided for in
the Note or the other Loan Papers, Borrower and any other parties
liable on said documents hereby agree to accept as their sole
remedy under such circumstances either (a) the cancellation of said
unearned interest, or (b) if theretofore paid, either the return to
Borrower or the crediting of said unearned interest on the princi-
pal amount due under the Note or other documents, whichever action
may be elected by Lender. To the extent the Highest Lawful Rate is
determined by reference to the laws of the State of Texas, same
32
shall be the indicated (weekly) rate ceiling as defined in Article
5069-1.04, Texas Revised Civil Statutes, provided that Lender may,
by notice to Borrower, elect such other reference as is allowed by
said statute.
10.9 Enforceability. If one or more of the provisions
contained in the Loan Papers shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provi-
sion of the Loan Papers or any other instrument referred to herein.
10.10 Binding Effect. The Loan Papers shall be binding
upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns; provided, however, that Borrower
shall not assign any Rights, duties or obligations under the Loan
Papers without the prior written consent of Lender.
10.11 No Third Party Beneficiary.
(a) The parties do not intend the benefits of the Loan
Papers to inure to any third party, nor shall the Loan Papers be
construed to make or render Lender liable to any third party,
including, without limitation, any materialman, supplier, contrac-
tor, subcontractor, purchaser, lessor or lessee having a claim
against Borrower. Notwithstanding anything contained in the Loan
Papers, or any conduct or course of conduct by any or all of the
parties hereto, whether before or after signing this Agreement or
any other Loan Paper, no Loan Paper shall be construed as creating
any right, claim or cause of action against Lender in favor of any
third party, including, without limitation, any materialman,
supplier, contractor, subcontractor, purchaser, lessor or lessee
having a claim against Borrower.
(b) All conditions to the obligation of Lender to make
Advances hereunder are imposed solely and exclusively for the
benefit of Lender, and no other person shall have standing to
require satisfaction of such conditions in accordance with their
terms or be entitled to assume that Lender will make or refuse to
make Advances in the absence of strict compliance therewith, and
any or all of such conditions may be freely waived in whole or in
part by Lender at any time if Lender, in its sole and absolute
discretion, deems it advisable to do so.
10.12 Delegation by Lender. Lender may perform any of its
duties or exercise any of its Rights by or through its officers,
directors, employees, attorneys, agents or other representatives.
10.13 Setoff. Borrower hereby grants to Lender (and to
each participant to whom Lender has conveyed or may hereafter
convey a participation in the Note) the right of setoff to secure
33
payment of the Obligation upon any and all moneys, securities or
other property of Borrower and the proceeds therefrom, now or
hereafter held or received by or in transit to, Lender or any such
participant or any agent of Lender or such participant, from or for
the account of Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and also upon any and all
deposits (general or specific) and credits of Borrower and any and
all claims of Borrower against Lender or any such participant at
any time existing. Notwithstanding the foregoing, nothing
contained herein shall grant to Lender the right of setoff against
an account if Lender has actual knowledge that any person other
than Borrower or any Subsidiary of Borrower has an ownership
interest in such account.
10.14 Additional Documents. It is contemplated that there
may be certain supplementary and/or corrective mortgages, deeds of
trust, security agreements and similar items prepared by Lender to
be executed by Borrower subsequent hereto, as well as certain other
corrective and additional documentation not executed concurrently
with this Agreement because of the unavailability of information
such as property and collateral descriptions at the time of the
execution hereof. Borrower hereby agrees to cooperate with Lender
and provide such information in connection therewith as Lender may
reasonably request, and to execute and deliver such other and
further documentation as Lender shall reasonably request so as to
provide Lender with a Bank Lien on the Collateral.
10.15 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute one and
the same instrument.
10.16 Amendments. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated
orally but only by an instrument in writing signed by Borrower and
Lender.
10.17 Headings. All headings used herein are for conveni-
ence and reference purposes only and shall not affect the substance
of this Agreement.
10.18 Conflicts. In the event that there exists any
conflict or inconsistency between the terms hereof and the terms of
any other Loan Paper, the terms hereof shall govern and control,
provided that the fact that any representation, warranty or
covenant contained in any other Loan Paper is not contained herein
shall not be, or be deemed to be, a conflict or inconsistency.
10.19 Entirety. This Agreement and the other Loan Papers
embody the entire agreement among the parties and supersede and
34
supplant all prior agreements and understandings with respect to
the matters contained herein.
10.20 Notice of Final Agreement. THIS WRITTEN AGREEMENT
AND THE OTHER LOAN PAPERS REPRESENT 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.
EXECUTED as of the date first above written.
PARALLEL PETROLEUM CORPORATION,
a Delaware corporation
By: /s/ Thomas R. Cambridge
-------------------------------
Thomas R. Cambridge
Chairman of the Board
By: /s/ Larry C. Oldham
-------------------------------
Larry C. Oldham
President
NATIONSBANK OF TEXAS, N.A.
By: /s/ Frank K. Stowers
-------------------------------
Frank K. Stowers
Vice President