EXHIBIT 19-(3)
AMENDED AND RESTATED CREDIT AGREEMENT
by and between
AMERAC ENERGY CORPORATION
and
BANK ONE, TEXAS, NATIONAL ASSOCIATION
Dated as of May 12, 1995
AMENDED AND RESTATED CREDIT AGREEMENT
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This Amended and Restated Credit Agreement, dated as of May 12, 1995,
is by and between AMERAC ENERGY CORPORATION, a Delaware corporation (the
"Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
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association (the "Lender").
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W I T N E S S E T H T H A T:
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The Borrower and the Lender entered into that Credit Agreement dated
as of April 28, 1995 (the "Prior Agreement") providing for a revolving line of
credit facility in favor of the Borrower. The Borrower has requested the Lender
to increase and extend its revolving line of credit facility in order to enable
the Borrower to borrow from time to time on or before May 31, 1997 sums not in
excess of the aggregate principal amount of $15,000,000.00 to be used for the
acquisition of oil and gas producing properties and for general corporate
purposes. The Lender agrees to extend such credit to the Borrower upon the terms
and subject to the conditions hereinafter set forth.
Now, therefore, in consideration of the mutual covenants and
agreements herein contained and of the loans and commitment hereinafter referred
to, the Borrower and the Lender agree to amend and restate the Prior Agreement
as follows:
ARTICLE 1
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DEFINITIONS AND ACCOUNTING TERMS
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1.1 Defined Terms. As used in this Agreement, the following terms
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have the following meanings:
"Advance" means a direct advance of immediately available funds by the
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Lender to the Borrower pursuant to Section 2.1 of this Agreement.
"Affiliate" means any Person controlling, controlled by, or under
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common control with, any other Person. For purposes of this definition,
"control" (including "controlled by" and "under common control with") means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities or otherwise.
"Agreement" means this Amended and Restated Credit Agreement and all
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exhibits and schedules hereto, as the same may be amended, supplemented,
restated or otherwise modified from time to time according to the terms
hereof.
"Bank One Texas Base Rate" means at any time the rate of interest per
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annum then most recently established by the Lender as its Bank One Texas
Base Rate.
"Base Rate" means, for any day, a rate per annum (rounded upwards to
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the nearest one-eighth of one percent (1/8%)) equal to the greater of (a)
the Bank One Texas Base Rate in effect on such day or (b) the sum of (i)
the Federal Funds Rate in effect for such day plus (ii) one-fourth of one
percent (1/4%). If for any reason the Lender shall have determined (which
determination shall be conclusive and binding, absent manifest error) that
it is unable to ascertain the Federal Funds Rate for any reason, including,
without limitation, the inability or failure of the Lender to obtain
sufficient bids or publications in accordance with the terms hereof, the
Base Rate shall be the Bank One Texas Base Rate until the circumstances
giving rise to such inability no longer exist. For purposes of this
Agreement, any change in the Base Rate due to a change in the Bank One
Texas Base Rate shall be effective on the effective date of such change in
the Bank One Texas Base Rate and any change in the Base Rate due to a
change in the Federal Funds Rate shall be effective on the effective date
of such change in the Federal Funds Rate, all without notice to the
Borrower.
"Borrower" has the meaning indicated in the opening paragraph hereof.
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"Borrowing Base" means the maximum value, for loan purposes, of the
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Borrowing Base Properties, as determined, at the sole good faith discretion
of the Lender in accordance with its customary lending practices, from time
to time in accordance with Section 2.4 of this Agreement; provided,
however, at any time that any Oil and Gas Property that is a Borrowing Base
Property ceases, for any reason, to be a Borrowing Base Property, the
Lender, at its sole good faith discretion in accordance with its customary
lending practices, may redetermine the Borrowing Base by excluding the
value, for loan purposes, of such Oil and Gas Property, which determination
shall be made by the Lender at its sole good faith discretion in accordance
with its customary lending practices, and which redetermined Borrowing Base
shall become effective upon notice to the Borrower by the Lender.
"Borrowing Base Properties" means the undivided interest the Borrower
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owns in each of those certain Oil and Gas Properties identified by their
commonly known names as set forth on Exhibit C attached hereto.
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"Borrowing Request" means a written application by the Borrower for an
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Advance. Each such Borrowing Request shall specify the requested amount of
such Advance and the requested date of such Advance.
"Business Day" means a day other than a Saturday, Sunday or legal
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holiday for commercial banks in the State of Texas.
"Closing Date" means the date when all the conditions precedent set
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forth in Section 3.1 of this Agreement have been fulfilled.
"Collateral" means the Property now or at any time hereafter securing
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the Obligations.
"Commitment" means the obligation of the Lender, through the
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Termination Date, to extend credit to the Borrower by means of Advances,
with the sum of all outstanding Advances not to exceed at any time the
Commitment Limit.
"Commitment Limit" means the lesser of (a) $15,000,000.00 or (b) the
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Borrowing Base.
"Compliance Certificates" means the certificates of the president,
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chief executive officer or chief financial or accounting officer of the
Borrower submitted to the Lender from time to time pursuant to this
Agreement, which certificates shall be substantially in the form attached
hereto as Exhibit B.
"Contested in Good Faith" means contested in good faith by appropriate
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and lawful proceedings diligently conducted, reasonably satisfactory to the
Lender, (a) in which foreclosure, distraint, sale, forfeiture, levy,
execution or other similar proceedings have not been initiated or have been
stayed and continue to be stayed, (b) in which a good faith contest will
not materially detract from the value of the Collateral, jeopardize the
Rights of the Lender with respect to the Collateral, interfere in any
material respect with the operation by the Borrower of its business, or
otherwise have a Material Adverse Effect, and (c) for which matter a
reserve or other appropriate provision has been established to the extent
required in accordance with GAAP.
"Debt" of any Person means, to the extent of such Person's liability,
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(a) all items of indebtedness for borrowed money, obligations, and
liabilities (whether matured or unmatured, liquidated or unliquidated,
direct
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or indirect, joint or several, contingent or otherwise), which in
accordance with GAAP should be classified upon such Person's balance sheet
as liabilities, but in any event including liabilities secured by any Lien
existing on Property of such Person or a Subsidiary of such Person, (b) the
deferred purchase price of Property or services and direct and contingent
obligations incurred in connection with letters of credit and similar
agreements and obligations as a lessee under leases which have been, or
which in accordance with GAAP should be, capitalized for financial
reporting purposes, (c) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business), and other
contingent obligations of such Person with respect to obligations of other
Persons of the types described in clauses (a) and/or (b) of this
definition, (d) liabilities for unfunded vested benefits under any Plan,
and (e) all obligations to supply funds to, invest in or maintain working
capital or equity capital of any other Person, or otherwise to maintain the
net worth or solvency or any balance sheet condition of any other Person.
"Debtor Relief Laws" means the Bankruptcy Code of the United States of
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America, as amended from time to time, and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, or similar debtor relief Laws or
general equitable principles from time to time in effect affecting the
Rights of creditors generally.
"Default Rate" means a per annum rate of interest equal to the Base
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Rate plus five percent (5%), but in no event to exceed the Highest Lawful
Rate.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"ERISA Affiliate" means any trade or business (whether or not
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incorporated) which together with the Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Event of Default" means any of the events specified in Section 7.1,
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provided that the requirements, if any, for the giving of notice, the lapse
of time, or both, or any other condition specified in Section 7.1 have been
satisfied.
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"Federal Funds Rate" means at any time a fluctuating interest rate per
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annum equal for each day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Lender from three Federal funds
brokers of recognized standing selected by it.
"Financial Statements" means statements of financial condition, as at
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the point in time and for the period indicated, and consisting of at least
a balance sheet and related statements of operations, stockholders' equity
and cash flows, and, when audited, accompanied by the certification of
independent certified public accountants, and footnotes to any of the
foregoing.
"GAAP" means generally accepted accounting principles established by
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the Financial Accounting Standards Board and in effect in the United States
from time to time during the term of this Agreement and applied on a basis
consistent with that adopted in the Financial Statements.
"Highest Lawful Rate" means the maximum rate (or, if the context so
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permits or requires, an amount calculated at such rate) of interest (if
any) that, at the time in question, would not cause the interest charged on
the Obligations owed to the Lender to exceed the maximum amount that the
Lender would be allowed to contract for, charge, take, reserve or receive
under applicable Law after taking into account, to the extent required by
applicable Law, all relevant payments and charges under the Loan Documents.
"Investment" in any Person means any stock, bond, note or other
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evidence of Debt or any other security (other than current trade and
customer accounts) of, investment or partnership interest in or loan to,
such Person.
"Laws" means all applicable statutes, laws, ordinances, rules,
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rulings, interpretations, regulations, judgments, requirements,
governmental authorizations (including licenses, permits, franchises and
other governmental consents necessary for the ownership or operation of
Property), orders, writs, injunctions or decrees (or interpretations of any
of the foregoing) of
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any political subdivision, state, commonwealth, nation, country, territory,
possession, county, parish, municipality or Tribunal.
"Lender" has the meaning indicated in the opening paragraph hereof.
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"Lien" means any lien, charge, claim, restriction, mortgage,
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mechanic's lien, materialmen's lien, pledge, hypothecation, inchoate lien,
assignment, deposit arrangement, conditional sale or other title retention
agreement, financing lease, security interest, security agreement or other
encumbrance, whether arising by contract or under Law, and includes
reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, leases and other title exceptions and the filing of
any financing statement under the Uniform Commercial Code of the State of
Texas or comparable Law of any jurisdiction.
"Limitation Period" means any period during which the calculation of
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interest as provided in any of the Loan Documents would result in interest
exceeding the Highest Lawful Rate.
"Liquid Investments" means Investments in (a) United States government
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issued securities, obligations of the United States government or any
agency thereof and any obligations guaranteed by the United States
government with maturities of no more than one year, (b) certificates of
deposit or repurchase agreements issued by the Lender, (c) certificates of
deposit, in an aggregate amount not to exceed $100,000.00 at any one time
as to any one issuer, issued by other banks or financial institutions
organized under the Laws of the United States or any state thereof, having
capital surplus and undivided profits aggregating at least $100,000,000.00
and with deposits insured by the Federal Deposit Insurance Corporation, and
(d) commercial paper with a rating by Moody's Investor Service, Inc. of no
less than A and with maturities of no more than nine months from the date
of acquisition thereof.
"Litigation" means any proceeding, claim, lawsuit, and/or
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investigation conducted, or threatened and known to the Person in question,
by or before any Tribunal.
"Loan Documents" means this Agreement, the Note, the Security
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Documents and all other notes, deeds of trust, restatements, ratifications
and amendments of deeds of trust, financing statements, guaranties,
security agreements, pledge agreements, documents, instruments and
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other agreements now or hereafter delivered pursuant to the terms of, or in
connection with, this Agreement, the Obligations and/or the Collateral, and
all renewals, extensions and restatements of, and amendments and
supplements to any or all of the foregoing.
"Loans" means the loans and extensions of credit by the Lender to or
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for the account of the Borrower pursuant to this Agreement.
"Material Adverse Effect" means any material and adverse effect on (a)
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the assets, liabilities, financial condition, business or operations of the
Borrower that are material to the business or financial condition of the
Borrower, or (b) the ability of the Borrower to meet its Obligations under
any of the Loan Documents on a timely basis as provided herein or therein.
"Mortgaged Properties" means those Oil and Gas Properties of the
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Borrower identified by their commonly known names as set forth on Exhibit D
attached hereto.
"Multi-employer Plan" means a Plan described in Section 4001(9)(3) of
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ERISA which covers employees of the Borrower or any ERISA Affiliate.
"Note" means that certain promissory note in the face amount of
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$15,000,000.00 dated of even date herewith made by the Borrower to the
order of the Lender, in the form attached hereto as Exhibit A, together
with all deferrals, renewals or extensions thereof, which promissory note
shall evidence the Advances made to the Borrower by the Lender pursuant to
Section 2.1 and funds advanced and applied pursuant to Section 2.10.
"Obligations" means all present and future loans, advances,
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indebtedness, obligations, covenants and liabilities, and all renewals for
any period, increases and extensions thereof, or any part thereof, now or
hereafter owing to the Lender by the Borrower arising from or pursuant to
any of the Loan Documents, together with all interest accruing thereon, and
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, and all other indebtedness or obligations of
any type whatsoever now or hereafter owing to the Lender by the Borrower,
whether or not in connection with any of the Loan Documents.
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"Oil and Gas Properties" means fee, leasehold or other interests in or
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under mineral estates or oil, gas and other liquid or gaseous hydrocarbon
leases with respect to properties situated in the United States, including,
without limitation, overriding royalty and royalty interests, leasehold
estate interests, net profits interests, production payment interests and
mineral fee interests, together with contracts executed in connection
therewith and all tenements, hereditaments, appurtenances and properties,
real or personal, appertaining, belonging, affixed or incidental thereto.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
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successor thereof, established pursuant to Subtitle A of Title IV of ERISA.
"Permitted Liens" means: (a) Liens for Taxes, not yet due or which are
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being Contested in Good Faith; (b) Liens in connection with workers'
compensation, unemployment insurance or other social security (other than
Liens created by Section 4068 of ERISA), old age pension or public
liability obligations which are not yet due or which are being Contested in
Good Faith; (c) vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction or other similar Liens
arising by operation of Law in the ordinary course of business or incident
to the construction or improvement of any Property in respect of
obligations which are not yet due or which are being Contested in Good
Faith; (d) Liens to operators and non-operators under joint operating
agreements arising in the ordinary course of business to secure amounts
owing, which amounts are not yet due or are being Contested in Good Faith;
(e) Liens under production sales agreements, division orders, operating
agreements and other agreements customary in the oil and gas business for
processing, producing and selling hydrocarbons; (f) Liens created in favor
of the Lender securing Obligations hereunder and other Liens expressly
permitted under the Security Documents; (g) easements, rights-of-way,
restrictions and other similar encumbrances, and minor defects in the chain
of title which are customarily accepted in the oil and gas financing
industry, none of which interfere with the ordinary conduct of the business
of the owner of the Property or materially detract from the value or use of
the Property to which they apply; (h) Liens of record under terms and
provisions of the leases, unit agreements, assignments and other transfer
of title documents in the chain of title under which the owner of the
relevant Property acquired such Property; and (i) Liens securing the
purchase price or existing under conditional sale contracts, title
retention contracts or
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lease agreements for equipment purchased or leased in the normal course of
business of the Borrower, provided that such Lien shall not extend to or
cover any other Property of the Borrower.
"Person" means any individual, sole proprietorship, firm, corporation,
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trust, association, institution, partnership, joint venture, limited
liability company, Tribunal or other entity.
"Plan" means any pension plan that is covered by Title IV of ERISA and
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maintained by the Borrower or any such plan to which the Borrower is
required to contribute.
"Preferred Stock" means shares of the Borrower's $4.00 Senior
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Preferred Stock more particularly described in and offered pursuant to that
certain Offering Circular and Consent Solicitation of the Borrower dated
February 3, 1995.
"Prior Agreement" has the meaning set forth in the recitals of this
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Agreement.
"Property" means any interest in any kind of property or asset,
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whether real, personal or mixed, tangible or intangible.
"Proved Reserves" means the estimated quantities of crude oil,
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condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable by
primary producing mechanisms in future years from known reservoirs
underlying lands or interests therein constituting Oil and Gas Properties,
under existing economic and operating conditions. Reserves which can be
produced economically through application of improved recovery techniques
(i.e., fluid injection) will be included in Proved Reserves when successful
testing by a pilot project or the operation of an installed program in the
reservoir provides support for the engineering analysis on which the pilot
project or installed program was based. In general, the economic
productability of the estimated Proved Reserves is supported by actual
production or a conclusive formation test; however, in certain instances
Proved Reserves are assigned to reservoirs on the basis of a combination of
electrical and other type logs and core analyses which indicate these
reservoirs are analogous to similar reservoirs in the same field which are
producing or have demonstrated the ability to produce on a formation test.
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"Reportable Event" and "Prohibited Transaction" have the meanings
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given to those terms under ERISA.
"Revolving Rate" means a varying rate of interest per annum equal to
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the Base Rate, from time to time in effect, plus three-quarters of one
percent (3/4%).
"Rights" means rights, remedies, powers and privileges.
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"Section" or "Subsection" means a section or subsection in this
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Agreement unless specified otherwise.
"Security Documents" means the documents described in Subsection
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3.1(a)(7) of this Agreement and all other documents now or hereafter
existing which provide the Lender with Collateral, as the same may be
amended or restated from time to time.
"Subordinated Debt" means those certain 12% Convertible Senior
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Subordinated Notes due May 15, 1995 with a principal amount outstanding as
of the date hereof of $1,448,000.00 and those certain 4-1/2% Senior
Subordinated Notes due May 15, 1995 with a principal amount outstanding as
of the date hereof of $431,000.00.
"Subsidiary" of any Person means any corporation of which an aggregate
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of fifty percent (50%) or more of the stock of any class or classes is
owned of record or beneficially, directly or indirectly, by such Person, if
the holders of the stock of such class or classes are ordinarily entitled
to vote for the election of a majority of the directors (or individuals
performing similar functions) of such corporation (irrespective of whether,
at the time in question, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the
happening of any contingency).
"Taxes" means all taxes, assessments, filing or other fees, levies,
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imposts, duties, deductions, withholdings, stamp taxes, interest
equalization taxes, capital transaction taxes, foreign exchange taxes or
charges, or other charges of any nature whatsoever from time to time or at
any time imposed by any Law or Tribunal.
"Termination Date" means May 31, 1997.
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"Tribunal" means any court, governmental department or authority,
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commission, board, bureau, agency, arbitrator or instrumentality of any
state, political
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subdivision, commonwealth, nation, territory, county, parish or
municipality, whether now or hereafter existing, having jurisdiction over
the Lender, the Borrower or any of their respective Property.
"Unmatured Event of Default" means any event or occurrence which
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solely with the lapse of time or the giving of notice or both will ripen
into an Event of Default.
"Unused Amount of the Commitment" means an amount calculated for each
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day the Commitment is in existence and which equals the difference between
(a) the Commitment Limit and (b) all outstanding Advances evidenced by the
Note.
1.2 Accounting Terms. All accounting and financial terms used in any
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of the Loan Documents and the compliance with each covenant contained in the
Loan Documents that relates to financial matters shall be determined in
accordance with GAAP, except to the extent that a deviation therefrom is
expressly stated in such Loan Documents.
1.3 Number and Gender of Words. Whenever the singular number is used
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in any Loan Document, the same shall include the plural where appropriate, and
vice versa; words of any gender in any Loan Document shall include each other
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gender where appropriate; and the words "herein," "hereof," "hereunder" and
other words of similar import refer to the relevant Loan Document as a whole and
not to any particular part, section or subdivision thereof.
ARTICLE 2
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TERMS OF FACILITY
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2.1 Revolving Commitment. Subject to the terms and conditions
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(including, without limitation, the right of the Lender to terminate the
Commitment hereunder upon an Event of Default or Unmatured Event of Default) and
relying on the representations and warranties contained in this Agreement and
the other Loan Documents, from time to time until the Termination Date, the
Lender agrees to make Advances to the Borrower following receipt by the Lender
of a Borrowing Request on or before 10:00 a.m. Central Standard or Daylight
Savings Time, as the case may be, one (1) Business Day prior to the date of the
requested Advance, in such amounts as the Borrower may request, provided,
however, that each Advance shall be in an amount not less than $50,000.00 and no
Advance shall be made which will cause the sum of all outstanding Advances to
exceed the Commitment Limit, and further provided, however, the initial Advance
shall be as of the date of execution of this Agreement and in the amount of
$699,457.48, which amount
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represents a renewal, rearrangement and extension of the outstanding principal
Debt evidenced by that certain Promissory Note dated April 28, 1995 in the face
amount of $1,000,000.00 executed by the Borrower and payable to the order of the
Lender. The Borrower may transmit Borrowing Requests to the Lender by mail,
personal delivery, telefacsimile, telex or other method; but the Lender shall
not be obligated to make Advances on the requested date unless the Lender has
received, on or before 10:00 a.m. Central Standard or Daylight Savings Time, as
the case may be, one (1) Business Day prior to such date a Borrowing Request.
Subject to the conditions and limitations set forth in this Agreement,
the Borrower may borrow, repay without penalty or premium, and reborrow
hereunder, from the date of this Agreement until the Termination Date, either
the entire Commitment Limit or any lesser sum.
The Advances made by the Lender to the Borrower pursuant to the
Commitment shall be made at the office of the Lender at 910 Travis, Houston,
Texas 77002 and shall be evidenced by the Note.
2.2 Advances and Payments Under the Note. The Lender is authorized
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by the Borrower to attach to and to make a part of the Note a ledger (and
continuations thereto, if necessary) reflecting the amount of all Advances made
by the Lender and each payment made by the Borrower. Each time such an Advance
is made against or payment (including a prepayment) is made on the Note, the
Lender is authorized but not required to make a notation on the ledger forming a
part thereof reflecting the amount advanced or paid and the date thereof;
provided, however, that the failure of the Lender to do so shall not relieve the
Borrower of its liability hereunder or under the Note.
The aggregate unpaid amount of such Advances reflected by the
notations by the Lender on its records or the ledger sheets affixed to the Note
shall be deemed rebuttably presumptive evidence of the principal amounts owing
on the Note. The liability for payment of principal and interest evidenced by
the Note shall be limited to principal amounts actually advanced and outstanding
pursuant to this Agreement and the other Loan Documents and interest accrued on
such amounts calculated in accordance with this Agreement.
2.3 Repayment Provisions. All outstanding principal Debt for all
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Advances evidenced by the Note and made by the Lender prior to or on the
Termination Date shall be paid on or before the Termination Date.
Interest as it accrues on principal amounts evidenced by the Note and
calculated as provided herein and in the Note shall be due and payable monthly
commencing on the last day of May, 1995, and continuing thereafter on the last
day of each succeeding
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calendar month while any amount remains owing on the Note and upon the
Termination Date, the interest payment in each instance to be that which has
been earned and remains unpaid.
Notwithstanding the foregoing, in the event all outstanding Advances
evidenced by the Note shall exceed the Commitment Limit, the Borrower shall
within thirty (30) days after receipt of notice thereof from the Lender (a) make
a principal payment on the Note in an amount of immediately available funds such
that there shall no longer exist such an excess, (b) add to the Borrowing Base
additional Oil and Gas Properties sufficient to increase the Borrowing Base to
equal the unpaid principal amount of the Note, the determination of the value of
the Oil and Gas Properties so added shall be made by the Lender, at its sole
good faith discretion, or (c) any combination of the actions described in (a)
and (b) above.
All payments required pursuant to this Agreement or the Note shall be
made in immediately available funds; shall be deemed received by the Lender on
the next Business Day following receipt if such receipt is after 2:00 p.m. on
any Business Day; and shall be made at the offices of the Lender at 910 Travis,
Houston, Texas 77002, provided, however, the Lender may, upon notice to the
Borrower, designate a different place of payment.
Certain of the Security Documents contain an assignment unto and in
favor of the Lender of all oil, gas and other minerals produced and to be
produced from or attributable to the Borrowing Base Properties such Security
Documents encumber together with all of the revenues and proceeds attributable
to such production, and such Security Documents further provide that all such
revenues and proceeds which may be so collected by the Lender pursuant to such
assignment shall be applied to the payment of the Note and the satisfaction of
all other Debt to be secured by such Security Documents. The Lender and the
Borrower expressly acknowledge and agree that so long as no Event of Default
shall have occurred and be continuing, the Lender shall be entitled only to
payment on the Note as set forth in the preceding paragraphs of this Section
2.3, and the Borrower, to the extent of its rights apart from this Agreement,
shall be entitled to receive all proceeds of production directly from the
relevant purchasers or parties accounting for proceeds from the sale of
production. In connection with the rights of the Lender to all proceeds of
production upon the occurrence and continuation of an Event of Default, the
Borrower hereby grants the Lender a power of attorney, which power is coupled
with an interest and is irrevocable, to complete in all respects and deliver to
the addressee the letter transfer orders executed in connection with the
Security Documents upon the occurrence and continuance of an Event of Default.
2.4 Borrowing Base Determinations. The initial Borrowing Base is
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hereby established at $4,000,000.00.
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The Borrower has furnished the Lender a report prepared internally by
the Borrower and reviewed and audited by Ryder Scott Company which sets forth
the Proved Reserves attributable to the Borrowing Base Properties as of December
31, 1994. Promptly after January 1 of each year, commencing January 1, 1996,
and in any event prior to March 1 of each such year, the Borrower shall furnish
to the Lender (a) a report, in form satisfactory to the Lender and prepared
internally by the Borrower and reviewed and audited by an independent petroleum
engineer or firm of engineers satisfactory to the Lender, which report shall set
forth, as of December 31 of the previous year, the Proved Reserves attributable
to the Borrowing Base Properties, and (b) such other information concerning the
Borrowing Base Properties as the Lender may reasonably request, including,
without limitation, engineering, geological and performance data. Such other
information concerning the Borrowing Base Properties shall be certified by the
president, chief executive officer or chief engineering officer of the Borrower
as being true, correct and complete in all material respects. Upon receipt of
such report and other information, the Lender shall, in the normal course of
business, make a determination of the Borrowing Base, which Borrowing Base shall
become effective upon written notification from the Lender to the Borrower.
In addition, promptly after July 1 of each year, commencing July 1,
1996, and in any event prior to September 1 of each such year, the Borrower
shall furnish to the Lender a report, in form satisfactory to the Lender,
prepared internally by the Borrower (and certified by the president, chief
executive officer or chief engineering officer of the Borrower as being true,
correct and complete in all material respects), which report shall set forth, as
of June 30 of the appropriate year, any material additions to, deletions from,
or any other material changes in the Proved Reserves attributable to Borrowing
Base Properties reflected in the report most recently furnished to the Lender
pursuant to the preceding paragraph of this Section 2.4. Upon receipt of such
report, the Lender shall, in the normal course of business, make a determination
of the Borrowing Base, which Borrowing Base shall become effective upon written
notification from the Lender to the Borrower.
Notwithstanding anything in this Section 2.4 to the contrary, the
Lender shall have the right at any time to request additional reports with
respect to the Borrowing Base Properties, which additional reports shall be
limited to one additional report per year in absence of an Event of Default and
shall be in form satisfactory to the Lender, prepared internally by the Borrower
(and certified by the president, chief executive officer or chief engineering
officer of the Borrower as being true, correct and complete in all material
respects), which shall set forth, as of the date the Lender indicates, any
material additions to, deletions from or any other material changes in the
Proved Reserves
14
attributable to the Borrowing Base Properties reflected in the report most
recently furnished to the Lender as provided hereinabove. Upon receipt of any
such additional report the Lender shall, in the normal course of business, make
a determination of the Borrowing Base, which Borrowing Base shall become
effective upon written notification from the Lender to the Borrower.
The determination of the Borrowing Base shall be made, at the sole
discretion of the Lender, by reviewing the estimates of the projected rate of
production and projected revenues from the Borrowing Base Properties and the
financial condition of the Borrower. The Lender may make adjustments, in good
faith and at its sole discretion and in accordance with its customary practices,
to such estimates.
The Borrowing Base shall represent the Lender's determination, in
accordance with its customary lending practices, of the value, for loan
purposes, of the Borrowing Base Properties, and the Borrower acknowledges, for
purposes of this Agreement, such determination by the Lender as being the value,
for loan purposes, of the Borrowing Base Properties.
The Borrower and the Lender acknowledge that (a) due to the
uncertainties of the oil and gas extraction process, oil and gas properties are
not subject to evaluation with a high degree of accuracy and are subject to
potential rapid deterioration in value and (b) for this reason and the
difficulties and expenses involved in liquidating and collecting against oil and
gas properties, the Lender's determination of the value, for loan purposes, of
the Borrowing Base Properties contains an equity cushion (meaning market value
in excess of the Borrowing Base), which equity cushion is acknowledged by the
Borrower as essential for the adequate protection of the Lender.
2.5 Interest Rates. Principal amounts outstanding under the Note
--------------
shall bear interest at the Revolving Rate (but in no event greater than the
Highest Lawful Rate) per annum, calculated on a year of three hundred sixty-five
(365) or three hundred sixty-six (366) days, as the case may be, and counting
the actual number of days elapsed. Should default occur in the payment of the
Note and collection proceedings be instituted, all past due interest and
principal under the Note shall bear interest at the lesser of the Highest Lawful
Rate or the Default Rate per annum, calculated on a year of three hundred sixty-
five (365) or three hundred sixty-six (366) days, as the case may be, and
counting the actual number of days elapsed; and if no Highest Lawful Rate
exists, all past due interest and principal under the Note shall bear interest
at the Default Rate, calculated on a year of three hundred sixty-five (365) or
three hundred sixty-six (366) days, as the case may be, and counting the actual
number of days elapsed.
15
2.6 Commitment Fee. As consideration for the Commitment, the
--------------
Borrower shall pay to the Lender a commitment fee equal to one-half of one
percent (1/2%) per annum (computed on the basis of a year of three hundred
sixty-five (365) or three hundred sixty-six (366) days, as the case may be, and
counting the actual number of days elapsed) of the average daily Unused Amount
of the Commitment during the period of determination. This commitment fee shall
commence to accrue as of the date of this Agreement and shall cease to accrue on
the earlier of the Termination Date or the day the Commitment is otherwise
terminated hereunder. Accrued commitment fees under this Section 2.6 shall be
payable on each September 1, December 1, March 1 and June 1, commencing
September 1, 1995, and on the first day after the earlier of the Termination
Date or the day the Commitment is otherwise terminated hereunder and shall be
determined for each period from and inclusive of the date on which this
Agreement was executed or the previous payment date, as the case may be, but
exclusive of the date of payment.
2.7 Facility Fee. As consideration for the Commitment, the Borrower
------------
shall pay to the Lender (a) on the date on which this Agreement is executed by
the Borrower and the Lender a facility fee equal to the difference between (i)
one percent (1%) of the amount of the Borrowing Base on such date and (ii) the
amount paid by the Borrower to the Lender as a facility fee in connection with
the Prior Agreement and (b) on the date of any increase in the Borrowing Base to
an amount in excess of the highest Borrowing Base previously in effect during
the term of this Agreement, a facility fee equal to one percent (1%) of the
amount by which the Borrowing Base was increased from the amount of the
previously established highest Borrowing Base.
2.8 Engineering Fee. The Borrower has reimbursed the Lender the
---------------
amount of $5,000.00 related to engineering costs incurred by the Lender in
connection with the Prior Agreement and for the initial determination of the
Borrowing Base. Commencing with the reserve report due prior to March 1, 1996
pursuant to Section 2.4, the Borrower shall reimburse the Lender on the earlier
of (a) the actual date of delivery of each engineering report required to be
delivered to the Lender pursuant to the second and third paragraphs of Section
2.4 of this Agreement or (b) the required date of delivery of each such
engineering report, the amount of $5,000.00 related to engineering costs
incurred by the Lender.
2.9 General Provisions Relating to Interest. It is the intention of
---------------------------------------
the parties hereto to comply strictly with the applicable usury Laws as in
effect from time to time; and in this connection, there shall never be taken,
reserved, contracted for, collected, charged or received on any Loan or any
other Obligation interest in excess of that which would accrue at the Highest
Lawful Rate. For purposes of Article 5069-1.04, Vernon's Texas Civil Statutes,
--------------------
as amended, the Borrower agrees that the Highest Lawful
16
Rate shall be the "indicated rate ceiling" as defined in such article, provided
that the Lender may also rely, to the extent permitted by applicable Laws, on
alternative maximum rates of interest under such other applicable Laws, if
greater.
Notwithstanding anything herein or in the Note or the other Loan
Documents to the contrary, if during any Limitation Period the calculation of
interest at the rate otherwise due to the Lender would result in interest in
excess of that which would accrue at the Highest Lawful Rate, then during such
Limitation Period, the interest rate to be charged on the Obligations shall be
the Highest Lawful Rate, and the requirement of the Borrower for the payment of
other amounts, if any, constituting interest, shall be suspended only to the
extent that such fees are, when added to interest accruing on the Note and other
Obligations, if any, in excess of the Highest Lawful Rate. During any period of
time following a Limitation Period, to the extent permitted by Laws applicable
to the Lender, the interest rate to be charged on the Obligations shall remain
at the Highest Lawful Rate until such time as there has been paid to the Lender:
(a) the amount of interest in excess of the amount accruing at the Highest
Lawful Rate that the Lender would have received during the Limitation Period if
the otherwise applicable rate had been in effect at all times and (b) all
interest and fees otherwise payable to the Lender hereunder as if the otherwise
applicable rate had been in effect at all times during such Limitation Period.
If under any circumstances the aggregate amount paid on the
Obligations includes amounts that are by Law deemed to be interest which exceed
the Highest Lawful Rate (the "excess interest"), the Borrower stipulates that
---------------
such payment and collection will have been and will be deemed to have been, to
the fullest extent permitted by applicable Laws, the result of mathematical
error on the part of the Borrower and the Lender, and the Lender shall promptly
credit the amount of such excess interest on the principal amount of the
outstanding Obligations, or if the principal amount of the Obligations shall
have been paid in full, refund the excess interest to the Borrower. In the
event that the maturity of the Note is accelerated by reason of an election of
the Lender resulting from any Event of Default or by reason of operation of
Subsection 7.3(a), or in the event of any prepayment, then such consideration
that constitutes interest under Laws applicable to the Lender may never exceed
the Highest Lawful Rate, and excess interest, if any, provided for in the Note,
this Agreement or otherwise shall be cancelled automatically by the Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Lender on the principal amount of the Obligations, or if the
principal amount of the Obligations shall have been paid in full, refunded by
the Lender to the Borrower.
17
All sums paid, or agreed to be paid, to the Lender for the use,
forbearance, and detention of the proceeds of the Loans shall, to the extent
permitted by applicable Law, be amortized, prorated, allocated, and spread
throughout the full term of the Obligations until paid in full so that the
actual rate of interest is uniform, but does not exceed the Highest Lawful Rate,
throughout the full term hereof.
2.10 Loans to Satisfy Obligations. The Lender may, but shall not be
----------------------------
obligated to, make Loans and apply proceeds thereof to the satisfaction of any
warranty, representation, covenant or other Obligation of the Borrower contained
in this Agreement or the other Loan Documents and which are necessary, in the
good faith opinion of the Lender, to enforce its Rights, protect or preserve the
Collateral or the Liens thereon in favor of the Lender and the priorities
thereof, or avoid a Material Adverse Effect, and contemporaneously with so
doing, the Lender shall furnish the Borrower written notice as to the amount and
date of any such Loan. The Lender shall not advance funds pursuant to this
Section without notifying the Borrower of the warranty, representation, covenant
or other Obligation to be satisfied by such proposed advance of funds and shall
give the Borrower fifteen (15) days from the date of such notice to satisfy such
warranty, representation, covenant or other Obligation. Any funds so advanced
and applied shall be evidenced by the Note, shall be payable on demand and shall
bear interest at the Default Rate from the time of the making of such Loan until
the time of repayment.
2.11 Voluntary Prepayment. The Borrower shall have the right and
--------------------
option to prepay, at any time without premium or penalty, all or any part of the
balance outstanding on the Note. Any such prepayments of Debt evidenced by the
Note shall be applied to the payment of accrued and unpaid interest and to the
reduction of principal as elected by the Borrower.
2.12 Yield Protection. If at any time after the date hereof, and from
----------------
time to time, the Lender determines that the adoption or modification of any
Laws regarding the required levels of reserves of the Lender, deposit insurance
or capital (including any allocation of capital requirements or conditions), or
similar requirements, or any interpretation or administration thereof by any
Tribunal, central bank or comparable agency charged with the interpretation,
administration or compliance of the Lender with any of such requirements, has or
would have the effect of (a) increasing the costs of the Lender relating to the
Obligations of the Borrower or (b) reducing the yield or rate of return of the
Lender on the Obligations of the Borrower to a level below that which the Lender
could have achieved but for the adoption or modification of any such
requirements, the Borrower shall, within fifteen (15) days of any request by the
Lender, pay to the Lender such additional amounts as (in the good faith judgment
of the Lender based on reasonable computation) will compensate the Lender
18
for such increase in costs or reduction in yield or rate of return of the
Lender. The request by the Lender to the Borrower for such additional amounts
shall also set forth the computation by the Lender of such requested additional
amounts. No failure by the Lender to demand immediate payment of any additional
amounts payable under this Section 2.12 shall constitute a waiver of the right
of the Lender to demand payment of such amounts at any subsequent time. Nothing
contained in this Section 2.12 shall be construed or so operate as to require
the Borrower to pay any interest, fees, costs or charges greater than permitted
by applicable Laws.
2.13 Automatic Debit Authority. The Borrower hereby grants to the
-------------------------
Lender the authority, without any obligation or liability to any Person,
including, without limitation, the Borrower, to debit automatically from the
operating accounts of the Borrower maintained at the Lender any and all
repayments of Debt due and payable hereunder or under the Note, fees due and
payable hereunder and costs and expenses of the Lender the Borrower is obligated
to reimburse hereunder.
2.14 Security Interests in Deposits. To secure the Debt of the
------------------------------
Borrower evidenced by the Note, the Borrower hereby grants to the Lender a
security interest against all funds or other Property of the Borrower now or
hereafter or from time to time on deposit with or in the possession of the
Lender, including, without limitation, all certificates of deposit and other
depository accounts whether such have matured or the exercise of such right of
the Lender results in loss of interest or other penalty on such deposits. Upon
any Event of Default the Borrower may exercise any and all remedies against such
funds or Property as a secured party under the Uniform Commercial Code as
adopted in the State of Texas. Nothing in this Section shall be construed to
limit any right of offset afforded the Lender.
ARTICLE 3
---------
CONDITIONS PRECEDENT
--------------------
3.1 Conditions to Initial Advance. The obligation of the Lender to
-----------------------------
make the initial Advance referred to in Section 2.1 is subject to the
fulfillment of the following conditions precedent, with all documents to be
delivered to the Lender to be in form and substance satisfactory to the Lender:
(a) The Lender shall have received the following documents,
appropriately executed and acknowledged and in multiple counterparts as
requested by the Lender, except as to the Note :
(1) This Agreement and the Note executed by the Borrower;
19
(2) Certificates from the appropriate Tribunals of the State of
Delaware, dated reasonably near the Closing Date, to the effect that
attached thereto are the articles of incorporation of the Borrower and
all amendments thereto, and that the Borrower is duly incorporated and
in good standing with respect to the payment of all franchise taxes;
(3) Certificates of the appropriate Tribunals of the States of
Colorado, Louisiana and Texas, dated reasonably near the Closing Date,
to the effect that the Borrower is duly qualified as a foreign
corporation and in good standing with respect to the payment of all
franchise or similar Taxes;
(4) A copy of the bylaws of the Borrower and all amendments thereto,
accompanied by a certificate issued by its secretary or assistant
secretary that such copies are correct and complete;
(5) Certificate of incumbency and signatures of all officers of the
Borrower who will be authorized to execute the Loan Documents on its
behalf, executed by the president or vice president and the secretary
or an assistant secretary of the Borrower;
(6) A copy of the corporate resolutions of the Borrower approving the
Loan Documents and authorizing the transactions contemplated therein,
duly adopted by its board of directors and accompanied by a
certificate of the secretary or an assistant secretary of the Borrower
to the effect that such copy is a true and correct copy of resolutions
duly adopted by written consent or at a meeting of the board of
directors, that such resolutions constitute all the resolutions
adopted with respect to such transactions, and that such resolutions
have not been amended, modified or revoked in any respect, and are in
full force and effect as of the Closing Date;
(7) The following documents creating, evidencing and perfecting Liens
in favor or for the benefit of the Lender to secure the Obligations:
20
(i) as to the Mortgaged Properties located in Texas and not
previously encumbered by the Lender in favor of the Borrower in
connection with the Prior Agreement;
(A) A Deed of Trust, Security Agreement, Financing Statement
and Assignment of Production from the Borrower in favor of the
trustee named therein for the benefit of the Lender;
(B) A Non-Standard Financing Statement from the Borrower
covering accounts from the sale of oil and gas produced from such
Mortgaged Properties and equipment and other personal property
associated therewith;
(ii) as to the Mortgaged Properties located in Texas and previously
encumbered by the Lender in favor of the Borrower in connection with
the Prior Agreement;
(A) Ratification of and Amendment to Deed of Trust, Security
Agreement, Financing Statement and Assignment of Production
between the Borrower and the Lender;
(iii) as to the Mortgaged Properties located in Louisiana and
previously encumbered by the Lender in favor of the Borrower in
connection with the Prior Agreement;
(A) First Amendment to Collateral Mortgage of Mineral
Interests;
(B) First Amendment to Act of Pledge of the Collateral
Mortgage Note;
(C) First Amendment to Security Agreement encumbering; and
(D) UCC-3 Financing Statement;
21
(iv) as to the Mortgaged Properties located in Colorado and
previously encumbered by the Lender in favor of the Borrower in
connection with the Prior Agreement;
(A) Ratification of and Amendment to Mortgage, Deed of
Trust, Security Agreement, Financing Statement and Assignment of
Production between the Borrower and the Lender; and
(v) transfer orders directed to the party remitting to the
Borrower proceeds from the sale of production from the Mortgaged
Properties and instructing that such proceeds be remitted to the
Lender for the account of the Borrower;
(8) The written opinion, substantially in the form attached hereto as
Exhibit E, dated the Closing Date, of legal counsel to the Borrower;
and
(9) Such other agreements, documents, instruments, certificates,
waivers, consents and evidence as the Lender may reasonably request in
compliance with or to accomplish the terms and provisions of any of
the Loan Documents;
(b) The representations and warranties contained in Article 4 shall be
true and correct in all material respects on the date of execution of this
Agreement;
(c) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing;
(d) The Lender shall have approved in all respects, at its discretion
in accordance with its customary lending practices, the Borrowing Base
Properties, including, without limitation, title to and the environmental
status of the Borrowing Base Properties;
(e) All legal matters incident to the execution of this Agreement
shall be satisfactory to the firm of Babcock Henderson Hammon & Carp,
L.L.P., special counsel for the Lender.
22
3.2 Further Conditions to Each Additional Advance. The obligation of
---------------------------------------------
the Lender to make each additional Advance pursuant to Section 2.1 is subject to
the fulfillment of the following further conditions precedent:
(a) The representations and warranties contained in Article 4 shall be
true and correct in all material respects as of the date of Advance;
(b) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will have occurred at the completion of
making the Advance;
(c) No Material Adverse Effect shall have occurred since the Closing
Date;
(d) The Lender shall have received a Borrowing Request and Compliance
Certificate;
(e) The Lender shall have approved in all respects, at its discretion
in accordance with its customary lending practices, any Oil and Gas
Properties of the Borrower being or having been added as Borrowing Base
Properties since the last Advance, including, without limitation, title to
and the environmental status of such additional Borrowing Base Properties;
and
(f) All legal matters incident to the consummation of such Loan shall
be satisfactory to the then special counsel for the Lender.
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender to enter into this Agreement and to make the
Loans hereunder, the Borrower represents and warrants to the Lender (which
representations and warranties shall survive the delivery of the Note and the
making of the Loans) that:
4.1 Existence and Good Standing. The Borrower is a corporation, duly
---------------------------
organized, legally existing and in good standing under the Laws of the State of
Delaware and is duly qualified and in good standing as a foreign corporation in
all jurisdictions wherein the Borrowing Base Properties owned or the business
transacted by the Borrower makes such qualification necessary and where the
failure to so qualify would have a Material Adverse Effect.
4.2 Due Authorization. The execution and delivery by the Borrower of
-----------------
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrower of the Note and the other
23
Loan Documents, the repayment of the Loans and interest and fees provided in the
Note and this Agreement and the performance of all Obligations of the Borrower
under this Agreement and the other Loan Documents, are within the corporate
power of the Borrower, have been duly authorized by all necessary corporate
action on behalf of the Borrower and do not (a) require the consent of any
Tribunal or other Person which has not been obtained, (b) contravene or conflict
with any provision of applicable Law or the charter or bylaws of the Borrower,
(c) contravene, conflict with or result in a default under any indenture,
instrument, contract or other agreement to which the Borrower is a party or by
which its Properties may be presently bound or encumbered, or (d) result in or
require the creation or imposition of any Lien upon any Property of the
Borrower, other than Permitted Liens.
4.3 Valid and Binding Obligations. This Agreement and the other Loan
-----------------------------
Documents constitute valid and binding obligations of the Borrower, enforceable
in accordance with their respective terms, except as limited by Debtor Relief
Laws.
4.4 Scope and Accuracy of Financial Statements. The Financial
------------------------------------------
Statements of the Borrower as of December 31, 1994, including any schedules and
notes pertaining thereto, which have been delivered to the Lender have been
prepared in accordance with GAAP and fairly and accurately present the financial
condition and the results of the operations of the Borrower in all material
respects, as of the dates and for the periods stated therein.
4.5 Liabilities and Litigation. Except for (a) liabilities shown in
--------------------------
the Financial Statements of the Borrower as of December 31, 1994 and furnished
to the Lender and (b) liabilities incurred in the ordinary course of business
since the date of such Financial Statements, the Borrower does not have any
material liabilities of any nature, direct or contingent; and the Borrower is
not in default with respect to any such material liabilities or any material
agreements by which it is bound.
There is no judgment against the Borrower, nor is there any Litigation
or other action of any nature pending before any Tribunal or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or its Property
which, if determined adversely to the Borrower could reasonably be expected to
have a Material Adverse Effect.
4.6 Title to Assets. The Borrower has indefeasible title to all of
---------------
its Property, free and clear of all Liens, except for Permitted Liens and other
matters that could not reasonably be expected to have a Material Adverse Effect.
4.7 Authorizations and Consents. No authorization, consent,
---------------------------
approval, exemption, franchise, permit or license of, or filing (except for
filings required to perfect and maintain
24
perfection of the Liens created by the Security Documents) with, any Tribunal or
any third Person is required to authorize, or is otherwise required in
connection with, the valid execution, delivery and performance by the Borrower
of this Agreement, the other Loan Documents or any other agreement contemplated
hereby or the repayment by the Borrower of the Obligations.
4.8 Compliance with Laws. Neither the business nor any of the
--------------------
activities of the Borrower as presently conducted violates any applicable Law,
the result of which violation would have a Material Adverse Effect. The
Borrower possesses all licenses, approvals, registrations, permits and other
authorizations necessary to enable it to carry on its businesses in all material
respects as now conducted. All such licenses, approvals, registrations, permits
and other authorizations are in full force and effect. Furthermore, the
Borrower does not have any reason to believe that it will be unable to obtain
the renewal of any such licenses, approvals, registrations, permits and other
authorizations in due course. No transaction contemplated by this Agreement or
the other Loan Documents is in violation of any regulation promulgated by the
Board of Governors of the Federal Reserve System, including, without limitation,
Regulations G, U or X.
4.9 Proper Filing of Tax Returns and Payment of Taxes Due. The
------------------------------------------------------
Borrower has duly and properly filed or extended the date for filing all Tax
returns which are required to be filed by it and has paid all Taxes due pursuant
to such returns or pursuant to any assessment received, except such Taxes, if
any, as are being Contested in Good Faith. The charges and reserves on the
Borrower's books with respect to any Taxes are adequate, and the Borrower does
not owe any deficiency or additional assessment in a material amount in
connection with Taxes.
4.10 ERISA Compliance. The Borrower does not currently contribute to,
----------------
or have any obligation to contribute to, and has not at any time contributed to,
or had an obligation to contribute to, any Multi-employer Plan. Since the
effective date of ERISA, no Reportable Event or Prohibited Transaction has
occurred with respect to any Plan of the Borrower. Each Plan established or
maintained by the Borrower meets the minimum funding standards of Section 302 of
ERISA and otherwise is in compliance with all applicable provisions of ERISA.
The Borrower has filed all reports required by ERISA and required to be filed by
it with respect to each Plan. The Borrower does not have any knowledge of any
event that could result in any material liability of the Borrower to the PBGC.
The Borrower has met all requirements with respect to funding the Plans imposed
on the Borrower by ERISA or the PBGC. Since the effective date of Title IV of
ERISA, there have not been any, nor are there now existing any, events or
conditions that would permit any Plan to be terminated under circumstances that
would cause the lien provided under Section 4068 of ERISA to attach
25
to the assets of the Borrower. The value of the Plans' benefits guaranteed under
Title IV of ERISA on the date hereof does not exceed the value of such Plans'
assets allocable to such benefits as of the date of this Agreement and shall not
be permitted to do so hereafter.
4.11 Investment Company Act Compliance. The Borrower is not an
---------------------------------
"investment company" or directly or indirectly controlled by or acting on behalf
of any Person which is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.12 Public Utility Holding Company Act Compliance. The Borrower is
---------------------------------------------
not subject to the provisions of the Public Utility Holding Company Act of 1935,
as amended.
4.13 Lien Priority. The Liens created in favor of the Lender under
-------------
the Security Documents constitute and shall remain first priority Liens to
secure the Obligations, subject only to Permitted Liens.
4.14 Use of Proceeds. All proceeds of Advances made pursuant to this
---------------
Agreement have been used to purchase producing Oil and Gas Properties or for
other general corporate purposes.
4.15 Full Disclosure. All of the Loan Documents and all written
---------------
statements furnished by the Borrower in connection with the consummation of the
transactions contemplated by this Agreement, when taken together, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein not misleading as
of the date made or deemed made.
4.16 Places of Business. The chief executive office and principal
------------------
place of business of the Borrower is at 700 Louisiana, Suite 3330, Houston,
Texas 77002. All records of the Borrower are maintained at such offices, 306
West 7th Street, Suite 1025, Fort Worth, Texas 76102, or such other address of
which the Borrower has provided advance written notice and with respect to which
the Borrower has executed all documents reasonably requested by the Lender.
4.17 Subsidiaries. The Borrower has no Subsidiaries as of the date of
------------
this Agreement.
ARTICLE 5
---------
AFFIRMATIVE COVENANTS
---------------------
So long as any Obligations remain unpaid or unsatisfied or the Lender
remains obligated to make Advances, and in absence of written consent of the
Lender to the contrary:
26
5.1 Maintenance and Access to Records. The Borrower will keep
---------------------------------
adequate records, in accordance with GAAP or other established industry
practices, of all of its material transactions so that at any time, and from
time to time, its true and complete financial condition may be readily
determined and, at the Lender's reasonable request, make all such records
available for the Lender's inspection and permit the Lender to make and take
away copies thereof.
5.2 Financial Statements. The Borrower will deliver to the Lender,
--------------------
as soon as available but in no event later than sixty (60) days after the end of
each of the first three fiscal quarters of the Borrower, the unaudited Financial
Statements of the Borrower reflecting the financial condition and results of
operations of the Borrower as at the end of such period and from the beginning
of such fiscal year to the end of such period, as applicable. Such Financial
Statements shall be certified by the president or the chief financial or
accounting officer of the Borrower as having been prepared in accordance with
GAAP and presenting fairly the financial condition and the results of the
operations of the Borrower subject to changes resulting from year-end audit
adjustments. The Borrower will deliver to the Lender as soon as available but
in no event later than sixty (60) days after the end of each fiscal quarter of
the Borrower, a detailed calculation of the financial covenants set forth in
Sections 5.21, 5.22, 5.23 and 6.16 together with a certificate of the president
or the chief financial or accounting officer of the Borrower as to the accuracy
of such calculations.
5.3 Annual Financial Statements. The Borrower will deliver to the
---------------------------
Lender, as soon as available but in no event later than one hundred twenty (120)
days after the close of each fiscal year of the Borrower, annual audited
Financial Statements of the Borrower reflecting the financial condition of the
Borrower, together with a report and opinion on such Financial Statements issued
by a nationally recognized firm of independent certified public accountants or
another firm of independent certified public accountants satisfactory to the
Lender.
5.4 Compliance Certificates. The Borrower will deliver to the Lender
-----------------------
with the Financial Statements delivered pursuant to Sections 5.2 and 5.3 and
with each Borrowing Request a duly executed Compliance Certificate.
5.5 Sales and Production Reports. The Borrower will deliver to the
----------------------------
Lender, as soon as available and in any event within sixty (60) days after the
end of each calendar month, a report summarizing, as requested by the Lender,
(a) the gross volume of sales and actual production during such month from all
of the Borrowing Base Properties and current prices being received for such
production, (b) the related severance, gross production, occupation, excise,
sales, recording, ad valorem, gathering and
27
other similar taxes, if any, deducted from gross proceeds during such month and
(c) leasehold operating expenses and drilling expenditures attributable thereto
and incurred during such month.
5.6 Statement of Material Adverse Effect. The Borrower will deliver
------------------------------------
to the Lender, promptly upon any officer of the Borrower having knowledge of any
Event of Default or event or condition (except for events or conditions as to
the economy of the United States as a whole or the oil and gas industry as a
whole) causing or likely to cause a Material Adverse Effect, a statement of the
president, chief executive officer or chief financial officer of the Borrower
setting forth the Event of Default or event or condition causing or likely to
cause a Material Adverse Effect and the steps being taken with respect thereto.
5.7 Title Defects. Other than Permitted Liens, the Borrower will
-------------
clear any title defects to the Borrowing Base Properties material in value, in
the sole reasonable opinion of the Lender, and, in the event any such title
defects are not cured in a timely manner, pay all related costs and fees
incurred by the Lender to do so.
5.8 Additional Information. The Borrower will furnish to the Lender,
----------------------
promptly upon the Lender's request from time to time, such additional financial
or other information concerning the assets, liabilities, operations and
transactions of the Borrower, as the Lender may reasonably request.
5.9 Compliance with Laws and Payment of Taxes. The Borrower will
-----------------------------------------
comply in all material respects with all Laws and pay all Taxes, claims for
labor, supplies, rent and other obligations which, if unpaid, might become a
Lien against any of the Borrowing Base Properties, except any of the foregoing
being Contested in Good Faith.
5.10 Maintenance of Existence and Good Standing. The Borrower will
------------------------------------------
maintain its corporate existence or qualification and good standing in its
jurisdiction of incorporation and in all jurisdictions wherein the Borrowing
Base Properties now owned or hereafter acquired or business now or hereafter
conducted necessitates same and where the failure to so qualify would have a
Material Adverse Effect.
5.11 Further Assurances. The Borrower will promptly cure any defects,
------------------
errors or omissions in the execution and delivery of the Loan Documents and,
upon notice, take such other action and immediately execute and deliver to the
Lender all such other and further instruments as may be reasonably required or
desired by the Lender from time to time in compliance with the covenants and
agreements made in this Agreement and the other Loan Documents, including,
without limitation, taking such action as may be reasonably required to create,
perfect and maintain Liens on the
28
Collateral and all other Property intended as security for the Obligations.
5.12 Initial Expenses of the Lender. The Borrower will pay all
------------------------------
reasonable third party fees and expenses of the Lender incurred in connection
with the preparation and negotiation of the Loan Documents, the satisfaction of
the conditions precedent set forth in Article 3 and the consummation for the
transactions contemplated herein, including attorneys' fees.
5.13 Subsequent Expenses of the Lender. Upon request, the Borrower
---------------------------------
will promptly reimburse the Lender for all amounts reasonably expended, advanced
or incurred by the Lender in connection with the preparation of any additional
Security Documents and any assignments of, renewals of and amendments to any of
the Loan Documents. Upon request, the Borrower will promptly reimburse the
Lender for all amounts reasonably expended, advanced or incurred by the Lender
to collect the Note or to enforce the Rights of the Lender under this Agreement
or any of the other Loan Documents, all of which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to the Borrower
by the Lender and which amounts will include, but not be limited to, (i) all
court costs, (ii) attorneys' fees, (iii) fees of auditors and accountants, (iv)
investigation expenses, (v) fees and expenses incurred in connection with the
Lender's participation as a member of the creditors' committee in a case
commenced under any Debtor Relief Laws, (vi) fees and expenses incurred in
connection with lifting the automatic stay prescribed in 11 U.S.C. (S)362, and
(vii) fees and expenses incurred in connection with any action pursuant to 11
U.S.C. (S)1129 incurred by the Lender in connection with the collection of any
sums due under this Agreement or the other Loan Documents, together with
interest at the Default Rate, calculated on the basis of a year of three hundred
sixty-five (365) or three hundred sixty-six (366) days, as the case may be, on
each such amount from the date of notification to the Borrower that the same was
expended, advanced or incurred by the Lender to, but not including, the date it
is repaid to the Lender, with the Obligations under this Section surviving the
non-assumption of this Agreement in a case commenced under any Debtor Relief
Laws and being binding upon the Borrower, any guarantor or a trustee, receiver
or liquidator of any such party appointed in any such case.
5.14 Maintenance of Tangible Property. The Borrower will maintain all
--------------------------------
equipment situated on or used in the operation of the Borrowing Base Properties
in good repair and working order and make all necessary replacements thereof and
will operate the Borrowing Base Properties in a good and workmanlike manner and
in accordance with standard industry practices, unless the failure to do so
would not have a Material Adverse Effect.
29
5.15 Maintenance of Insurance. The Borrower will maintain insurance
------------------------
with respect to its Property and business against such liabilities, casualties,
risks and contingencies and in such amounts as are customarily maintained in the
industry, and furnish to the Lender, on the Closing Date and annually
thereafter, certificates evidencing such insurance.
5.16 Right of Inspection. The Borrower will permit any authorized
-------------------
representative of the Lender to visit and inspect, at the sole risk and expense
of the Lender, any Collateral and any other Property of the Borrower at such
reasonable times and as often as the Lender may request.
5.17 Compliance with ERISA. The Borrower will furnish to the Lender
---------------------
(a) promptly after the filing thereof with the United States Secretary of Labor
or the PBGC, copies of each annual and other report with respect to each Plan or
any trust created thereunder and (b) immediately upon becoming aware of the
occurrence of any Reportable Event or Prohibited Transaction in connection with
any Plan or any trust created thereunder, a written notice specifying the nature
thereof, what action is being taken or is proposed to be taken with respect
thereto, and, when known, any action taken by the Internal Revenue Service or
any other Tribunal with respect thereto. The Borrower will fund all current
service pension liabilities as they are incurred under the provisions of all
Plans from time to time in effect and timely file all reports required by ERISA
and required to be filed by the Borrower with respect to each Plan.
5.18 Notice. The Borrower will immediately notify the Lender of (a)
------
the receipt of any notice from, or the taking of any action by, the holder of
any promissory note or other evidence of Debt of the Borrower with respect to a
claimed default, together with a statement specifying the notice given or other
action taken by such holder and what action the Borrower is taking or proposes
to take with respect thereto; (b) any legal, judicial or regulatory proceedings
affecting the Borrower in which the amount involved is material and is not
covered by insurance or that would, if adversely determined, have a Material
Adverse Effect; (c) any dispute between the Borrower and any Tribunal or any
Person that would, if adversely determined, have a Material Adverse Effect; (d)
information that in any way relates to or affects the filing of any financing
statement or other security instrument for the purpose of perfecting or
continuing a Lien on the Collateral; (e) any event that materially and adversely
affects the Collateral or the Rights of the Lender with respect to such
Collateral; (f) the occurrence of any Event of Default; and (g) any event or
condition (except for events or conditions to the economy of the United States
as a whole or the oil and gas industry as a whole) which could reasonably be
expected to cause a Material Adverse Effect.
30
5.19 Mortgage of Borrowing Base Properties. Upon the request of the
-------------------------------------
Lender, the Borrower shall promptly execute and deliver to the Lender to secure
the Debt evidenced by the Note first priority mortgage or deed of trust liens
and security interests on any of the Borrowing Base Properties that have not
been previously encumbered in favor of the Lender, all of such documentation to
be in the form and substance acceptable to the Lender at its reasonable
discretion.
5.20 Proceeds of Production. Direct all purchasers of production or
----------------------
disbursers of proceeds of production from the Borrowing Base Properties not
encumbered by a Lien in favor of the Lender to pay such proceeds directly to a
lock-box maintained by the Borrower and the Lender.
5.21 Tangible Net Worth Requirement. The Borrower will maintain total
------------------------------
tangible net worth (being total assets exclusive of (a) those assets classified
as intangible, including, without limitation, goodwill, patents, trademarks,
trade names, copyrights, franchises and deferred charges, (b) treasury stock and
minority interests in any Person, (c) cash set apart and held in a sinking or
other analogous fund established for the purpose of redemption or other
retirement of capital stock, (d) to the extent not already deducted from total
assets, allowances for depreciation, depletion, obsolescence and/or amortization
of properties, uncollectible accounts, and contingent but probable liabilities
as to which an amount can be established, and (e) all assets arising from
advances to officers, former officers or sales representatives made outside of
the ordinary course of business less total liabilities), of not less than
$5,675,000.00 at any time on or after the last day of the fiscal quarter of the
Borrower ending December 31, 1994; provided, however, such minimum amount shall
increase at the end of each successive fiscal quarter of the Borrower by an
amount equal to seventy percent (70%) of the net income for such fiscal quarter,
but never less than zero (0).
5.22 Current Ratio. The Borrower will maintain a ratio of (a) the sum
-------------
of current assets plus the Unused Amount of the Commitment to (b) current
liabilities (excluding, however, the Subordinated Debt and any of the Debt of
the Borrower evidenced by the Note that is classified as current) of not less
than 1.0 to 1.0.
5.23 Fixed Charge Coverage Ratio. The Borrower will maintain for each
---------------------------
four (4) fiscal quarter period beginning with the four (4) fiscal quarter period
ending March 31, 1995, a ratio of (a) net cash flow from operations exclusive of
working capital changes to (b) an amount equal to the quotient of (i) the
Borrowing Base as of the last day of the relevant fiscal quarter divided by (ii)
four, of no less than 1.15 to 1.0 for each calculation period ending in 1995 and
no less than 1.2 to 1.0 thereafter.
31
ARTICLE 6
---------
NEGATIVE COVENANTS
------------------
So long as any Obligations remain unpaid or the Lender remains
obligated to make Advances, and in the absence of written consent of the Lender
to the contrary:
6.1 Other Debt of Borrower. The Borrower will not incur, create,
----------------------
assume or suffer to exist any Debt except: (a) Loans hereunder, (b) unsecured
current accounts payable incurred in the ordinary course of business, provided
such accounts are paid within sixty (60) days of the invoice date or are being
Contested in Good Faith, (c) the Subordinated Debt (provided, however, the
Subordinated Debt shall be paid in full on or before May 15, 1995) and (d) other
Debt not in excess of $100,000.00 at any one time.
6.2 Guaranty of Payment or Performance. The Borrower will not
----------------------------------
guarantee any contract or otherwise be or become liable in connection with any
obligation of any Person, except that the foregoing restriction shall not apply
to endorsements of instruments for collection in the ordinary course of
business.
6.3 Investments. The Borrower will not make or agree to make or
-----------
allow to remain outstanding any Investment, except (a) advances or extensions of
credit in the form of accounts receivable incurred in the ordinary course of
business and upon terms common in the industry for such accounts receivable, (b)
Liquid Investments, and (c) loans and advances made to employees in the normal
course of business.
6.4 Mortgages or Pledges of Assets. The Borrower will not create,
------------------------------
incur, assume or permit to exist any Lien on any of its Property (now owned or
hereafter acquired), except Permitted Liens.
6.5 Cancellation of Insurance. The Borrower will not allow any
-------------------------
insurance policy required to be carried hereunder to be terminated or lapse or
expire without provision for adequate renewal or replacement thereof.
6.6 Sales of Borrowing Base Properties. The Borrower will not sell,
----------------------------------
transfer or otherwise dispose of any of the Borrowing Base Properties; provided,
however, the foregoing restriction shall not apply to sales of oil, gas and
other minerals produced from or attributable to the Borrowing Base Properties.
6.7 Sale and Leaseback. The Borrower will not enter into any
------------------
arrangement with any Person providing for the leasing by the Borrower of
Property which has been or is to be sold or transferred by the Borrower to such
Person or to any other Person to whom funds have been or are to be advanced by
such Person on the security of such Property or rental obligations of the
Borrower.
32
6.8 Dividends and Distributions. Except for dividends payable in
---------------------------
Preferred Stock on the Preferred Stock, the Borrower will not declare, pay or
make, whether in cash or other Property, any dividend or distribution on, or
purchase, redeem or otherwise acquire for value, any share of any class of its
capital stock.
6.9 Changes in Corporate Structure. The Borrower will not issue or
------------------------------
agree to issue additional shares of capital stock (provided, however, the
foregoing restriction shall not apply to the issuance or exchange, as
consideration for Oil and Gas Properties, of shares of its common stock which do
not aggregate in excess of 3,000,000 shares from the date of this Agreement);
enter into any transaction of consolidation, merger or amalgamation; liquidate,
wind up or dissolve (or suffer any liquidation or dissolution); or convey, sell,
lease, assign, transfer or otherwise dispose of all or substantially all of its
Property or business.
6.10 Payment of Accounts Payable. The Borrower will not allow any
---------------------------
account payable to be in excess of sixty (60) days past due, except such as are
being Contested in Good Faith.
6.11 Transactions with Affiliates. The Borrower will not directly or
----------------------------
indirectly, enter into any transaction (including the sale, lease or exchange of
Property or the rendering of service) with any of its Affiliates, other than
upon fair and reasonable terms no less favorable than could be obtained in an
arm's length transaction with a Person which was not an Affiliate.
6.12 Limitation on Negative Pledge Clauses. The Borrower will not
-------------------------------------
enter into any agreement with any Person other than the Lender which prohibits
or limits the ability of the Borrower create, incur, assume or suffer to exist
any Lien upon any of its Property, whether now owned or hereafter acquired.
6.13 Nature of Business. The Borrower will not make any material
------------------
change in the character of its business as carried on at the date hereof.
6.14 No Subsidiaries. The Borrower will not own any Subsidiary.
---------------
6.15 Hedge Agreements. The Borrower will not enter into any commodity
----------------
swap or hedge agreement.
6.16 Overhead Expense. For the 1995 fiscal year of the Borrower, the
----------------
Borrower will not incur general and administrative expenses in excess of
$1,500,000.00. For each fiscal quarter of the Borrower after the 1995 fiscal
year of the Borrower, the Borrower will not incur general and administrative
expenses in excess of thirty-six percent (36%) of gross revenues attributable to
its oil and gas operations for any such fiscal quarter.
33
ARTICLE 7
---------
EVENTS OF DEFAULT
-----------------
7.1 Events of Default. The occurrence of any of the following
-----------------
events shall constitute an Event of Default:
(a) The Borrower shall fail to pay when due any installment of
principal or interest on the Note or any fee payable under this Agreement
and, as to interest only, such failure to pay shall remain unremedied for
in excess of five (5) days;
(b) Default shall occur in the due observance or performance of any
affirmative covenant required in this Agreement, the Note, any of the
Security Documents or any of the other Loan Documents and such default
shall remain unremedied for in excess of ten (10) days after the earlier of
(i) written notice given by the Lender, or (ii) actual knowledge thereof by
the Borrower;
(c) Default shall occur in the due observance or performance of any
negative covenant required in this Agreement, the Note, any of the Security
Documents or any of the other Loan Documents;
(d) Any Financial Statement, representation, warranty or certificate
made or furnished by or on behalf of the Borrower to the Lender in
connection with this Agreement or any other Loan Document, or as an
inducement to the Lender to enter into this Agreement, or in any instrument
furnished in compliance with or in reference to this Agreement or any other
Loan Document, shall be materially false, incorrect, or incomplete at or as
of the time made with the result of a Material Adverse Effect;
(e) Default shall be made by the Borrower (as principal or guarantor
or other surety) in payment or performance of any bond, debenture, note or
other evidence of Debt for borrowed money having an outstanding principal
amount in excess of $50,000.00, or under any credit agreement, loan
agreement, indenture, promissory note or similar agreement or instrument
executed in connection with any of the foregoing, and such default shall
remain unremedied for in excess of the period of grace, if any, with
respect thereto, with the effect of accelerating the maturity of any such
Debt or establishing a right to accelerate the maturity of such Debt;
34
(f) The Borrower shall file a petition seeking relief for itself under
Debtor Relief Laws, or file an answer consenting to, admitting the material
allegations of or otherwise not controverting, or fail timely to controvert
a petition filed against it seeking relief under Debtor Relief Laws;
(g) An order for relief shall be entered against the Borrower under
any Debtor Relief Laws, which order is not stayed, or upon the entry of an
order, judgment or decree by operation of Law or by a court of competent
jurisdiction which is not stayed, ordering relief against the Borrower
under, or approving as properly filed, a petition seeking relief against
any such Person under the provisions of any Debtor Relief Laws, or
appointing a receiver, liquidator, assignee, sequestrator, trustee or
custodian of the Borrower or of any substantial part of its Property, or
ordering the reorganization, winding up or liquidation of any the
Borrower's affairs, or upon the expiration of ninety (90) days after the
filing of any involuntary petition against the Borrower seeking any of the
relief specified in the preceding Subsection or this Subsection without the
petition being dismissed prior to that time;
(h) The Borrower shall (i) make a general assignment for the benefit
of its creditors, (ii) consent to the appointment of or taking possession
by a receiver, liquidator, assignee, sequestrator, trustee or custodian of
the Borrower or any substantial part of its Property, (iii) admit
insolvency or inability to pay its debts generally as such debts become
due, (iv) fail generally to pay its debts as such debts become due, or (v)
take any action (or an action shall be taken by its directors or majority
stockholders) looking to the dissolution or liquidation of the Borrower;
(i) Final judgment for the payment of money in excess of $50,000.00
shall be rendered against the Borrower and such judgment shall remain
undischarged for a period of 30 days during which execution shall not be
effectively stayed;
(j) The Security Documents shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and
valid, binding and enforceable in accordance with their terms, cease to
create a valid Lien of the priority required thereby on any of the
Collateral purported to be covered thereby, or, upon perfection, cease to
be a perfected Lien on any of the Collateral purported to be covered
thereby, or the Borrower or any other Person who may have granted or
35
purported to grant such Lien shall so state in writing and such default
shall remain unremedied for in excess of ten (10) days after the earlier of
(i) written notice given by the Lender, or (ii) actual knowledge thereof by
the Borrower;
(k) A judgment creditor of the Borrower shall obtain possession of any
of the Collateral by any means, including, without limitation, levy,
attachment or self help;
(l) The validity or enforceability of any of the Loan Documents shall
be contested by the Borrower or the Borrower shall deny that it has any or
further liability or Obligation under any of the Loan Documents or allege
that any of the Loan Documents shall be construed or enforced other than in
accordance with their terms; or
(m) The Borrower shall have concealed, removed, or permitted to be
concealed or removed, any part of its Property with the intent to hinder,
delay or defraud its creditors or any of them, or made or suffered a
transfer of any of its Property which is fraudulent under any Debtor Relief
Laws (except for such transfers in favor of the Lender); or shall have made
any transfer (other than in the ordinary course of business) of its
Property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid.
7.2 Rights Upon Occurrence of Unmatured Event of Default. At any time
----------------------------------------------------
that there exists an Unmatured Event of Default, any obligation of the Lender
hereunder to make Advances to or for the benefit of the Borrower shall be
suspended unless and until the Lender shall reinstate the same in writing, the
Unmatured Event of Default shall have been waived by the Lender or the relevant
Unmatured Event of Default shall have been remedied prior to ripening into an
Event of Default.
7.3 Rights Upon Occurrence of an Event of Default.
---------------------------------------------
(a) Upon the occurrence of any Event of Default specified in
Subsections (f), (g), (h) or (i) of Section 7.1, immediately and without
notice, (i) all Obligations shall immediately become due and payable
without presentment, demand, protest, notice of protest or dishonor, notice
of intent to accelerate, notice of acceleration or other notice of any
kind, all of which are expressly waived by the Borrower and (ii) all
obligations of the Lender, if any, under this Agreement shall immediately
and automatically cease and terminate unless and until the Lender shall
reinstate any such obligation in writing.
36
(b) Upon the occurrence and at any time during the continuance of any
other Event of Default, (i) all obligations of the Lender, if any, under
this Agreement shall immediately and automatically cease and terminate
unless and until the Lender shall reinstate any such obligation in writing
and (ii) the Lender may by written notice to the Borrower declare all
Obligations to be immediately due and payable without presentment, demand,
protest, notice of protest or dishonor, notice of intention to accelerate,
notice of acceleration or other notice of any kind, all of which are
expressly waived by the Borrower. The Borrower acknowledges and
understands that under the Laws of the State of Texas, unless waived, the
Borrower has the right to notice of the Lender's intent to accelerate the
Obligations evidenced by the Note, the right to notice of the actual
acceleration of the Obligations evidenced by the Note, and the right to
presentment of the Note by the Lender's demand for payment. The Borrower
acknowledges that it understands that it can waive these rights and by the
Borrower's execution of this Agreement it agrees to waive its right to
notice of intent to accelerate, its right to notice of acceleration, and
its right to presentment or other demand for payment.
(c) In addition to the foregoing, upon the occurrence of any Event of
Default, the Lender may exercise any or all of the Rights provided in any
or all of the Loan Documents.
ARTICLE 8
---------
MISCELLANEOUS
-------------
8.1 Notices. Any notice required or permitted to be given under or
-------
in connection with this Agreement or any of the other Loan Documents (except as
may otherwise be expressly required therein) shall be in writing and shall be
mailed by certified mail, return receipt requested, postage prepaid, or sent by
telex, telegram, telecopy or other similar form of rapid transmission confirmed
by mailing (by certified mail, return receipt requested, postage prepaid)
written confirmation at substantially the same time as such rapid transmission,
or personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered,
(a) if to the Borrower, to Amerac Energy Corporation, 700 Louisiana,
Suite 3330, Houston, Texas 77002, Attn: Jeffrey B. Robinson, or to such
other address or to such individual's or department's attention as the
Borrower may have furnished the Lender in writing; or
37
(b) if to the Lender, to Bank One, Texas, National Association, 910
Travis, Houston, Texas 77002 (if personally delivered), or P.O. Box 2629,
Houston, Texas 77252 (if mailed), Attn: Ms. Melanie M. Ottens, or to such
other address or to such individual's or department's attention as the
Lender may have furnished the Borrower in writing.
Any communication so addressed and mailed shall be deemed to be given when so
mailed, and any notice so sent by rapid transmission is acknowledged, and any
communication so delivered in person shall be deemed to be given when receipted
for or actually received by an authorized officer of the Borrower or the Lender,
as the case may be.
8.2 Amendments and Waivers. Any provision of this Agreement or any
----------------------
of the other Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and the Lender
(and/or any other Person which is a party to any Loan Document being amended or
with respect to which a waiver is being obtained).
8.3 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or any of the other Loan Documents shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or any other Loan Document.
8.4 Survival of Agreements. All representations and warranties of
----------------------
the Borrower herein or in the other Loan Documents and all covenants and
agreements not fully performed before the effective date or dates of this
Agreement or the other Loan Documents shall survive such date or dates.
8.5 Successors and Assigns. All covenants and agreements by or on
----------------------
behalf of the Borrower in this Agreement and all of the other Loan Documents
shall bind its legal representatives, successors and assigns and shall inure to
the benefit of the Lender and its legal representatives, successors and assigns.
The Borrower may not assign its respective Rights or Obligations hereunder or
under the Note without the prior consent of the Lender.
8.6 Renewal, Extension or Rearrangement. All provisions of this
-----------------------------------
Agreement and of any other Loan Documents, as presently existing or as they may
hereafter be amended, relating to the Note or other Obligations shall apply with
equal force and effect to each and all promissory notes hereinafter executed
which in whole or in part represent a renewal, extension for any period,
increase or rearrangement of any part of the Obligations originally evidenced by
the Note or of any part of such other Obligations.
38
8.7 Waivers. No waiver by the Lender of any of its Rights under this
-------
Agreement, the other Loan Documents or otherwise shall be considered a waiver of
any other or subsequent Right. No course of dealing on the part of the Lender,
its officers, employees, consultants or agents, nor any failure or delay by the
Lender with respect to exercising any Right under any of the Loan Documents
shall operate as a waiver thereof.
8.8 Cumulative Rights. The Rights of the Lender under the Note, this
-----------------
Agreement and each other Loan Document shall be cumulative, and the exercise or
enforcement of any such Right shall not preclude the exercise or enforcement of
any other Right.
8.9 Taxes, Etc. Any assessments, filing fees, mortgage registration
-----------
tax, stamp tax or other charge in connection with the filing or recordation of
any of the Security Documents with any governmental authority shall be paid by
the Borrower.
8.10 Exhibits; Conflicts. The exhibits attached to this Agreement are
-------------------
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein. In the event of any direct conflict between any of the
provisions of such exhibits or any of the other Loan Documents and the
provisions of this Agreement, the provisions of this Agreement shall prevail.
8.11 Titles of Articles, Sections and Subsections. All titles or
--------------------------------------------
heading to articles, Sections, Subsections or other divisions of this Agreement
or the exhibits hereto are only for the convenience of the parties and shall not
be construed to have any effect or meaning with respect to the other content of
such articles, Sections, Subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
8.12 Jurisdiction. All actions or proceedings with respect to the
------------
Note, this Agreement or any of the other Loan Documents may be instituted in the
courts of the State of Texas, the United States District Court for the Southern
District of Texas, or elsewhere to the extent that jurisdiction shall exist
apart from the provisions of this Section, as the Lender may elect. By
execution and delivery of this Agreement, the Borrower irrevocably and
unconditionally submits to the jurisdiction (both subject matter and personal)
of each such court, and irrevocably and unconditionally waives (a) any objection
it may now or hereafter have to the laying of venue in any of such courts and
(b) any claim that any action or proceeding brought in any of such courts has
been brought in an inconvenient forum. The Borrower hereby designates and
appoints C T Corporation System as its authorized agent in the State of Texas to
accept and acknowledge service of process in the State of Texas and agrees that
any service of process upon such agent shall be deemed in every respect
effective service. The Borrower agrees that so long as it shall be
39
obligated to the Lender under any of the Loan Documents, it shall maintain a
duly appointed agent satisfactory to the Lender for the service of process in
the State of Texas and shall keep the Lender advised in writing of the identity
and location of such agent. The failure of such agent to give notice to the
Borrower of any such service shall not impair or affect the validity of such
service or of any judgment rendered in any action or proceeding based thereon.
8.13 Counterparts. This Agreement may be executed in two or more
------------
counterparts and multiple originals of such counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained on any one
counterpart hereof. Any executed Agreement or any counterpart thereof shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.14 Effectiveness. This Agreement shall not be effective until
-------------
delivered to, accepted and executed by the Lender and the Borrower.
8.15 Documents. All Loan Documents and any other certificate,
---------
agreement or other document provided or to be provided under the terms hereof
shall be in form and substance satisfactory to the Lender.
8.16 Rights of Third Person. All provisions of this Agreement are
----------------------
imposed solely and exclusively for the benefit of the Lender and the Borrower.
No other Person shall have standing to require satisfaction for such provisions
in accordance with their terms or be entitled to assume that the Lender will
refuse to perform its obligations hereunder in the absence of strict compliance
with any or all thereof, and any or all of such provisions may be freely waived
in whole or in part by the Lender at any time if in its sole discretion its
deems it advisable to do so.
8.17 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
-------------
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF
AMERICA AND THE STATE OF TEXAS (EXCEPT TO THE EXTENT THE LOCATION OR NATURE OF
THE COLLATERAL REQUIRES THE APPLICATION OF THE LAWS OF OTHER JURISDICTIONS TO BE
APPLIED AS TO MATTERS OF CREATION, PERFECTION AND PRIORITY OF LIENS AND THE
RIGHTS OF THE LENDERS OR THE AGENT UPON DEFAULT), PROVIDED, HOWEVER, THAT THE
PROVISIONS OF CHAPTER 15, TITLE 79 OF THE REVISED CIVIL STATUTES OF TEXAS
(ARTICLE 5069-15.01, ET SEQ., TEX. REV. CIV. STAT. ANN.) SHALL NOT APPLY TO ANY
-- ---
OF THE LOAN DOCUMENTS.
8.18 Review of Financial Covenants. The Lender, acting at its
-----------------------------
discretion and in accordance with its customary lending practices, will from
time to time review changes to the financial condition of the Borrower caused by
the Borrower's growth or acquisition of Oil and Gas Properties and consider
amending the
40
covenants set forth in Sections 5.21, 5.22, 5.23 and 6.16 to accommodate such
changed financial condition.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed effective as of the date first above written.
AMERAC ENERGY CORPORATION
By: ___________________________
Jeffrey B. Robinson
President and
Chief Executive Officer
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: ___________________________
Melanie M. Ottens
Vice President
41
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 - DEFINITIONS AND ACCOUNTING TERMS................... 1
1.1 Defined Terms.................................. 1
1.2 Accounting Terms............................... 11
1.3 Number and Gender of Words..................... 11
ARTICLE 2 - TERMS OF FACILITY.................................. 11
2.1 Revolving Commitment........................... 11
2.2 Advances and Payments Under the Note........... 12
2.3 Repayment Provisions........................... 12
2.4 Borrowing Base Determinations.................. 13
2.5 Interest Rates................................. 15
2.6 Commitment Fee................................. 16
2.7 Facility Fee................................... 16
2.8 Engineering Fee................................ 16
2.9 General Provisions Relating to Interest........ 16
2.10 Loans to Satisfy Obligations................... 18
2.11 Voluntary Prepayment........................... 18
2.12 Yield Protection............................... 18
2.13 Automatic Debit Authority...................... 19
2.14 Security Interests in Deposits................. 19
ARTICLE 3 - CONDITIONS PRECEDENT............................... 19
3.1 Conditions to Initial Advance.................. 19
3.2 Further Conditions to Each Additional Advance.. 23
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES..................... 23
4.1 Existence and Good Standing.................... 23
4.2 Due Authorization.............................. 23
4.3 Valid and Binding Obligations.................. 24
4.4 Scope and Accuracy of Financial Statements..... 24
4.5 Liabilities and Litigation..................... 24
4.6 Title to Assets................................ 24
4.7 Authorizations and Consents.................... 24
4.8 Compliance with Laws........................... 25
4.9 Proper Filing of Tax Returns and Payment of
Taxes Due...................................... 25
4.10 ERISA Compliance............................... 25
4.11 Investment Company Act Compliance.............. 26
4.12 Public Utility Holding Company Act Compliance.. 26
4.13 Lien Priority.................................. 26
4.14 Use of Proceeds................................ 26
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4.15 Full Disclosure................................ 26
4.16 Places of Business............................. 26
4.17 Subsidiaries................................... 26
ARTICLE 5 - AFFIRMATIVE COVENANTS.............................. 26
5.1 Maintenance and Access to Records.............. 27
5.2 Financial Statements........................... 27
5.3 Annual Financial Statements.................... 27
5.4 Compliance Certificates........................ 27
5.5 Sales and Production Reports................... 27
5.6 Statement of Material Adverse Effect........... 28
5.7 Title Defects.................................. 28
5.8 Additional Information......................... 28
5.9 Compliance with Laws and Payment of Taxes...... 28
5.10 Maintenance of Existence and Good Standing..... 28
5.11 Further Assurances............................. 28
5.12 Initial Expenses of the Lender................. 29
5.13 Subsequent Expenses of the Lender.............. 29
5.14 Maintenance of Tangible Property............... 29
5.15 Maintenance of Insurance....................... 30
5.16 Right of Inspection............................ 30
5.17 Compliance with ERISA.......................... 30
5.18 Notice 30
5.19 Mortgage of Borrowing Base Properties.......... 31
5.20 Proceeds of Production......................... 31
5.21 Tangible Net Worth Requirement................. 31
5.22 Current Ratio.................................. 31
5.23 Fixed Charge Coverage Ratio.................... 31
ARTICLE 6 - NEGATIVE COVENANTS................................. 32
6.1 Other Debt of Borrower......................... 32
6.2 Guaranty of Payment or Performance............. 32
6.3 Investments.................................... 32
6.4 Mortgages or Pledges of Assets................. 32
6.5 Cancellation of Insurance...................... 32
6.6 Sales of Borrowing Base Properties............. 32
6.7 Sale and Leaseback............................. 32
6.8 Dividends and Distributions.................... 33
6.9 Changes in Corporate Structure................. 33
6.10 Payment of Accounts Payable.................... 33
6.11 Transactions with Affiliates................... 33
6.12 Limitation on Negative Pledge Clauses.......... 33
6.13 Nature of Business............................. 33
6.14 No Subsidiaries................................ 33
6.15 Hedge Agreements............................... 33
6.16 Overhead Expense............................... 33
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ARTICLE 7 - EVENTS OF DEFAULT.................................. 34
7.1 Events of Default.............................. 34
7.2 Rights Upon Occurrence of Unmatured Event of
Default........................................ 36
7.3 Rights Upon Occurrence of an Event of Default.. 36
ARTICLE 8 - MISCELLANEOUS...................................... 37
8.1 Notices........................................ 37
8.2 Amendments and Waivers......................... 38
8.3 Invalidity..................................... 38
8.4 Survival of Agreements......................... 38
8.5 Successors and Assigns......................... 38
8.6 Renewal, Extension or Rearrangement............ 38
8.7 Waivers........................................ 39
8.8 Cumulative Rights.............................. 39
8.9 Taxes, Etc..................................... 39
8.10 Exhibits; Conflicts............................ 39
8.11 Titles of Articles, Sections and Subsections... 39
8.12 Jurisdiction................................... 39
8.13 Counterparts................................... 40
8.14 Effectiveness.................................. 40
8.15 Documents...................................... 40
8.16 Rights of Third Person......................... 40
8.17 GOVERNING LAW.................................. 40
8.18 Review of Financial Covenants.................. 40
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Compliance Certificate
Exhibit C Borrowing Base Properties
Exhibit D Mortgaged Properties
Exhibit E Form of Opinion of Counsel
iii