Exhibit 10.10
LOAN AGREEMENT
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This Loan Agreement (the "Agreement") is entered into as of September 14,
2009, by and between HAPPY STATE BANK, a state banking association ("Bank"), the
Borrower and Guarantors described below.
In consideration of the Loan described below and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, Bank,
Borrower and Guarantor agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms defined
herein, the following terms shall have the meaning set forth with respect
thereto:
A. Borrower: EXTERRA ENERGY, INC., a Nevada corporation
B. Borrower's Address: 701 S. Taylor, Suite 440, Amarillo, Texas 79101
C. Guarantors: TODD ROYAL and ROBERT ROYAL, TRUSTEE OF THE ROYAL TRUST
D. Guarantors' Addresses: 701 S. Taylor, Suite 440
Amarillo, Texas 79101
E. Hazardous Materials. Hazardous Materials include all materials defined
as hazardous materials or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum products, oil
and asbestos.
F. Loan. Any loan described in Section 2 hereof and any subsequent loan
which states that it is subject to this Loan Agreement.
G. Property. The oil and gas properties and lands (and all improvements
situated thereon) more fully described in the Loan Documents and on
Exhibit "A" attached hereto and made a part hereof for all purposes.
H. Loan Documents. Loan Documents means this Loan Agreement and any and
all promissory notes executed by Borrower in favor of Bank and all
other documents, instruments, guarantees, certificates and agreements
executed and/or delivered by Borrower, any guarantor or third party in
connection with any Loan, including but not limited to (i) the Note
(as hereinafter defined), (ii) Commercial Guaranty Agreements of even
date herewith from Guarantors to Bank and (iii) Deed of Trust,
Security Agreement, Assignment of Production and Financing Statement
(the "Deed of Trust") of even date herewith from Borrower to Gary
Wells, Trustee for the benefit of Bank, securing the Note and covering
the Property.
I. Accounting Terms. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such
terms under generally accepted accounting principles ("GAAP"), as in
effect from time to time, consistently applied, with respect to the
financial statements referenced in Section 3.H. hereof.
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2. LOAN.
A. Loan. Bank hereby agrees to make (or has made) the following loan to
Borrower:
Reducing Revolving Line of Credit Promissory Note dated September 14,
2009, in the original principal amount of up to $10,000,000.00,
executed by Borrower, payable to the order of Bank, and having the
maturity date, repayment terms and interest rate as set forth therein,
and being secured by the Deed of Trust. This Reducing Revolving Line
of Credit Promissory Note, together with any and all renewals,
extensions, rearrangements or other modifications thereof, is
hereinafter referred to as the "Note."
B. Use of Loan Proceeds. Borrower agrees that monies extended or advanced
under the Loan will be used solely by the Borrower for oil and gas
investments, development of oil and gas properties and working capital
associated with operating oil and gas properties.
C. Prepayments. Borrower may prepay the Note in any amount at any time
prior to maturity without premium or penalty. Any payments made on the
Note while accrued interest is not yet due and payable shall be
applied first to outstanding principal and then to accrued interest.
Any payments made on the Note while accrued interest is due and
payable shall be applied first to accrued interest and then to
outstanding principal. The records of Bank shall be prima facie
evidence of all amounts owing on the Note.
D. Conditions Precedent to the Loan. The obligation of Bank to make the
Loan to Borrower is subject to the condition precedent that Bank shall
have received on or before the date of the Loan, each of the
following, in form and substance satisfactory to Bank and its counsel:
i. The Note duly executed by Borrower;
ii. The Deed of Trust, duly executed by Borrower, together with
copies of financing statements duly filed under the Uniform
Commercial Code of all jurisdictions necessary, or in the opinion
of Bank, desirable to perfect the security interests created by
the Deed of Trust;
iii. Copies of the Borrower's most recent balance sheet and profit and
loss statement, all in reasonable detail and certified by each
entity as correct. Copies of the Guarantors' most recent
financial statements, all in reasonable detail and certified by
Guarantor as correct;
iv. A Guaranty duly executed by each of the Guarantors;
v. Payment to Bank of a loan origination fee equal to $14,750; and
vi. Any other documents, instruments and certificates as Bank may
reasonably require.
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3. REPRESENTATIONS AND WARRANTIES. Borrower and Guarantors hereby represent
and warrant to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Nevada
and has the power and authority to own its property and to carry on
its business in each jurisdiction in which it does business.
B. Authority and Compliance. Borrower has the full power and authority to
execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly
authorized by all proper and necessary action of the appropriate
governing body of Borrower. No consent or approval of any public
authority or other third party is required as a condition to the
validity of any Loan Document, and Borrower and Guarantors are in
compliance with all laws and regulatory requirements to which they are
subject.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower and Guarantors constitute valid and legally
binding obligations of Borrower and Guarantors, enforceable in
accordance with their terms.
D. Litigation. There is no proceeding involving Borrower or Guarantors
pending or, to the knowledge of Borrower or Guarantors, threatened
before any court or governmental authority, agency or arbitration
authority, except as disclosed to Bank in writing and acknowledged by
Bank prior to the date of this Agreement.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower or Guarantors and no
provision of any existing agreement, mortgage, indenture or contract
binding on Borrower or Guarantors or affecting their property, which
would conflict with or in any way prevent the execution, delivery or
carrying out of the terms of this Agreement and the other Loan
Documents.
F. Ownership of Assets. Borrower has good title to the Property and all
assets owned or used in connection therewith, and the Property and
such assets are free and clear of liens, except those granted to Bank
and as disclosed to Bank in writing prior to the date of this
Agreement.
G. Taxes. All taxes and assessments due and payable by Borrower and
Guarantors have been paid or are being contested in good faith by
appropriate proceedings and the Borrower and Guarantors have filed all
tax returns which they are required to file.
H. Financial Statements. The financial statements of Borrower and
Guarantors heretofore delivered to Bank have been prepared in
accordance with GAAP applied on a consistent basis throughout the
period involved and fairly present Borrower's and Guarantors'
financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's or Guarantors' financial
condition or operations since the date or dates thereof. All factual
information furnished by Borrower and Guarantors to Bank in connection
with this Agreement and the other Loan Documents is and will be
accurate and complete on the date as of which such information is
delivered to Bank and is not and will not be incomplete by the
omissions of any material fact necessary to make such information not
misleading.
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I. Place of Business. Borrower's principal office is located at 701 S.
Taylor, Suite 440, Amarillo, Texas 79101.
J. Environmental. The conduct of Borrower's and Guarantors' business
operations and the condition of Borrower's and Guarantors' property
does not and will not violate any federal laws, rules or ordinances
for environmental protection, regulations of the Environmental
Protection Agency, any applicable local or state law, rule, regulation
or rule of common law or any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials.
K. Permits and Consents. Each permit, consent, approval, or authorization
of, or filing, registration, or qualification with, any governmental
authority required to be obtained or effected by Borrower or any
Guarantor in connection with the operation of Borrower's business or
the execution and delivery of this Agreement and the Loan Documents,
or the undertaking or performance of any obligation hereunder or
thereunder has been duly obtained or effected.
L. Continuation of Representations and Warranties. All representations
and warranties made under this Agreement shall be deemed to be made at
and as of the date hereof and at and as of the date of any advance
under the Loan.
4. CONDITIONS PRECEDENT TO ADVANCES. The Bank's obligation to make advances to
Borrower under the Note is expressly conditioned upon and subject to the
following requirements and limits:
A. Borrowing Base Limitation on Advances. This Loan is subject to a
Borrowing Base limitation equal to the amount of the loan value Bank
assigns to the collateral pledged by Borrower to Bank under the Deed
of Trust. The amount of the initial Borrowing Base is $1,475,000.00,
but the Borrowing Base shall automatically be reduced monthly be a
principal amount equal to one-thirtieth (1/30) of the then-outstanding
Borrowing Base beginning April 1, 2010, and continuing on the 1st day
of each month thereafter until and including August 1, 2012 and shall
be reduced by the face amount of any letters of credit, if any, issued
by Lender. The Borrowing Base shall be redetermined by Bank on or
before March 1, 2010, and semi-annually thereafter on the 1st day of
March and September of each succeeding year of the loan term and any
renewals and extensions thereof. Between the dates of the scheduled
Borrowing Base redeterminations, Bank shall always have the right to
redetermine the Borrowing Base in the event that it appears to Bank,
in its sole discretion, that there has been a material change in the
value of the collateral securing the Loan. In the event that the
unpaid principal balance of the Note shall, at any time, be in excess
of the Borrowing Base, Borrower shall in the Bank's sole discretion,
either (a) within thirty (30) days thereafter, by instruments
satisfactory in form and substance to Bank, provide Bank with
additional collateral with value in amounts satisfactory to Bank in
order to increase the Borrowing Base by an amount at least equal to
such excess, or (b) within thirty (30) days thereafter, prepay the
principal of the Note in an amount at last equal to such excess, or
(c) prepay the Note (together with accrued interest on the principal
amount so prepaid) in six (6) equal monthly installments (beginning on
the first business day of the month following Bank's notification to
Borrower of the redetermined Borrowing Base and continuing on the
first business day of each month thereafter) in such amounts such that
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the outstanding principal balance of the Note and the face amount of
letters of credit do not exceed the Borrowing Base at the end of such
six (6) month period (which prepayments shall be in addition to the
scheduled principal and interest payments on the Note). All Borrowing
Base redeterminations shall be made by Bank in the exercise of its
sole discretion in accordance with its customary practices and
standards for loans in similar amounts to borrowers similarly situated
at the time and under the circumstances then prevailing. If, at any
time, the Borrowing Base is increased, then Borrower shall pay to Bank
a "Borrowing Base Increase Fee" in an amount equal to one-quarter
percent (0.25%) of the amount by which the Borrowing Base is
increased.
B. Loan Document Requirements. Borrower must satisfy all requirements
pertaining to advances as set forth in this Agreement and the other
Loan Documents.
C. No Defaults. No default under this Agreement or the other Loan
Documents by Borrower or either Guarantor shall have occurred and be
continuing.
5. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower and Guarantors under the Loan Documents, Borrower
and Guarantors will, unless Bank consents otherwise in writing (and without
limiting any requirement of any other Loan Document):
A. Financial Condition. Maintain Borrower's financial condition as
follows, determined in accordance with GAAP applied on a consistent
basis throughout the period involved except to the extent modified by
the following definitions, if any:
i. Borrower will maintain a debt service coverage ratio of 1.1 to
1.0 or better. The debt service coverage ratio shall be
calculated by dividing (i) the sum of Borrower's net income,
depreciation and amortization expense, interest expense and
income taxes, by (ii) Borrower's total debt service for the
preceding calendar quarter. Within twenty (20) days after each
calendar quarter during the term of the Note, Borrower shall
provide to Bank a certificate, certified by the President of
Borrower in writing, to evidence Borrower's compliance with the
financial covenants for the preceding calendar quarter.
ii. Borrower will maintain a minimum current ratio (current assets
divided by current liabilities) of 1.1 to 1.0 or better, which
will be tested quarterly.
B. Financial Statements and Other Information. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on
a consistent basis throughout the period involved, permit Bank's
officers or authorized representatives to visit and inspect Borrower's
and Guarantors' books of account and other records at such reasonable
times and as often as Bank may desire, and pay the reasonable fees and
disbursements of any accountants or other agents of Bank selected by
Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's and Guarantors' books and
records will be located at Borrower's and Guarantors' chief executive
offices set forth above. All financial statements called for below
shall be prepared in form and content acceptable to Bank.
In addition, Borrower and Guarantors shall cause to be furnished to
Bank:
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i. Within ninety (90) days following the end of Borrower's fiscal
year, a copy of all the statements resulting from the closing of
Borrower's books as of the end of such fiscal year. Such annual
statements shall be prepared, audited, and certified by a
certified public accountant and shall include a balance sheet as
of the last day of the fiscal year, statements of income, and a
statement of changes in financial position. Such annual
statements must be in reasonable detail and be prepared in
accordance with GAAP. In addition, within thirty (30) days after
the filing of the Borrower's tax return each year, the Borrower
shall furnish a copy of its tax return to Bank; and
ii. Within thirty (30) days following the end of each quarter,
financial statements of the Borrower. Such quarterly statements
shall include a balance sheet as of the last day of the preceding
quarter and statements of income reflecting the most recent
operating period and year-to-date period for the Borrower. Such
quarterly statements must be in reasonable detail and be prepared
in accordance with GAAP; and
iii. Current financial statements on each Guarantor within ninety (90)
days following December 31 of each year or at other times
requested by Bank. In addition, within thirty (30) days after the
filing of each Guarantor's tax return each year, Borrower shall
cause to be furnished a copy of each Guarantor's tax return to
Bank; and
iv. Such additional information, reports and statements respecting
the business operations and financial condition of Borrower and
Guarantors, respectively, from time to time, as Bank may
reasonably request.
C. Insurance. Borrower shall maintain insurance covering the Property
with financially sound and reputable insurance companies or
associations in such amounts and covering the full replacement value
thereof (as applicable) and such risks as are usually carried by
companies engaged in the same or similar business and similarly
situated, including, without limitation, fire and extended coverage
insurance covering the Property, workers compensation insurance and
liability insurance. Policies evidencing such insurance (i) shall
contain a standard mortgagees endorsement; (ii) shall provide for
payment of any loss to Bank (except for losses that are unrelated to
the Property); (iii) shall provide that there shall be no recourse
against Bank for payment of premiums or other amounts with respect
thereto; and (iv) shall provide for a minimum of ten (10) days prior
written notice to Bank of any cancellation. Satisfactory evidence of
such insurance will be supplied to Bank prior to funding under the
Loan and thirty (30) days prior to each policy renewal.
D. Existence and Compliance. Cause Borrower to maintain its existence,
good standing and qualification to do business, where required and
comply with all laws, regulations and governmental requirements
including, without limitation, environmental laws applicable to it or
to any of its property, business operations and transactions.
E. Adverse Conditions or Events. Cause Borrower to promptly advise Bank
in writing of (i) any condition, event or act which comes to its
attention that would or might materially adversely affect Borrower's
financial condition or operations or Bank's rights under the Loan
Documents, (ii) any litigation filed by or against Borrower greater
than $50,000, (iii) any event that has occurred that would constitute
an Event of Default under any of the Loan Documents, and (iv) any
uninsured or partially uninsured loss through fire, theft, liability
or property damage in excess of an aggregate of $100,000.
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F. Taxes and Other Obligations. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and
payable, except to the extent the same are being contested in good
faith by appropriate proceedings in a diligent manner, and provide
proof of such payment to Bank on an annual basis.
G. Subordination of Debt. If Borrower is now or hereafter indebted to any
joint venturer, partner, officer, or employee of Borrower, any person
or entity affiliated with Borrower, or any Guarantor (each referred to
herein as the "Subordinating Party") in any amount, the Borrower shall
cause written subordination agreements to be furnished to Bank which
have been duly executed by the Borrower and the Subordinating Party,
under which the Borrower and the Subordinating Party shall agree (i)
that all present and future indebtedness and obligations owing by the
Borrower to the Subordinating Party, and all security interests
created by the Borrower in favor of the Subordinating Party, are
subordinate in right of payment, claim, and priority to all present
and future indebtedness and obligations owing by the Borrower to Bank,
and to all security interests created by the Borrower in favor of
Bank, (ii) that no security interest in favor of the Subordinating
Party shall be foreclosed until the Loan and all such other
indebtedness and obligations owing by the Borrower to Bank have been
paid in full, and (iii) that, if an event has occurred that, if not
timely cured, would be an Event of Default under this Agreement, no
payments of principal or interest shall be made by the Borrower on the
subordinated indebtedness to the Subordinating Party until the Event
of Default is cured. The Borrower shall not prepay the subordinated
debt, or in any way modify or change the Borrower's repayment
obligations under the subordinated debt in a manner that would
adversely affect the Borrower's ability to repay the Loan, without the
prior written consent of Bank.
H. Maintenance. Cause Borrower to maintain all of its tangible property
in good condition and repair and make all necessary replacements
thereof, and preserve and maintain all licenses, trademarks,
privileges, permits, franchises, certificates and the like necessary
for the operation of its business.
I. Environmental. Cause Borrower to immediately advise Bank in writing of
(i) any and all enforcement, cleanup, remedial, removal, and other
governmental or regulatory actions instituted, completed or threatened
pursuant to any applicable federal, state, or local laws, ordinances
or regulations relating to any Hazardous Materials affecting
Borrower's business operations; and (ii) all claims made or threatened
by any third party against Borrower relating to damages, contribution,
cost recover, compensation, loss or injury resulting from any
Hazardous Materials. Borrower shall immediately notify Bank of any
remedial action taken by Borrower with respect to Borrower's business
operations. Borrower will not use or permit any other party to use any
Hazardous Materials at any of Borrower's places of business or at any
other property owned by Borrower except such materials as are
incidental to Borrower's normal course of business, maintenance and
repairs and which are handled in compliance with all applicable
environmental laws. Borrower agrees to permit Bank, its agents,
contractors and employees to enter and inspect any of Borrower's
places of business or any other property of Borrower at any reasonable
times upon three (3) days prior notice for the purposes of conducting
an environmental investigation and audit (including taking physical
samples) to insure that Borrower is complying with this covenant and
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Borrower shall reimburse Bank on demand for the costs of any such
environmental investigation and audit. Borrower shall provide Bank,
its agents, contractors, employees and representatives with access to
and copies of any and all data and documents relating to or dealing
with any Hazardous Material used, generated, manufactured, stored or
disposed of by Borrower's business operations within five (5) days of
the request therefore.
J. Leases. Maintain in full force and effect all of the oil and gas
leases, and any other agreements pertaining thereto, covering the
properties pledged to Bank as security for the Loan.
K. Engineering/Production Reports. Furnish to Bank engineering reports
and/or production reports covering the property of Borrower as may
from time to time be requested by Bank in its sole discretion, and
furnish to Bank such other studies in the possession of Borrower and
Guarantor (including any such reports obtained by Borrower or
Guarantors after the date hereof) covering or pertaining to the
Property.
L. Title Opinions. Furnish to Bank all title opinions in the possession
of Borrower and Guarantors (including any such title opinions obtained
by Borrower or Guarantors after the date hereof) covering or
pertaining to the Property. As to any oil and gas properties hereafter
mortgaged to Lender, Borrower will promptly (but in no event more than
thirty (30) days following such mortgaging), furnish Lender with title
opinions or other title information satisfactory to Lender showing
good and defensible title of the Borrower to such oil and gas
properties.
M. Additional Collateral. Upon request by Lender, the Borrower shall, by
instruments satisfactory in form and substance to the Lender, furnish
such other additional collateral and in such amounts as may be
acceptable to the Lender in its sole discretion. Any such additional
collateral shall be furnished to the Lender not later than ten (10)
days after request by the Lender.
N. Further Assurances and Documentation. Borrower shall duly execute and
deliver such instruments, documents, certificates, opinions, and
assurances, provide such additional information, and do such other
acts as Bank may, from time to time, deem reasonably necessary or
desirable in connection with this Agreement or any of the other Loan
Documents to which Borrower is a party.
6. NEGATIVE COVENANTS. Until full payment and performance of all obligations
of Borrower under the Loan Documents, Borrower will not, without the prior
written consent of Bank (and without limiting any requirement of any other
Loan Documents):
A. Transfer of Assets or Control. Merge or consolidate with, or sell,
assign, lease, or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to, any person or entity, or
acquire all or substantially all of the assets or the business of any
person or entity, without the prior consent of Bank.
B. Liens. Grant, suffer or permit any contractual or non-contractual lien
on or security interest in its assets, except in favor of Bank, or
fail to promptly pay when due all lawful claims, whether for labor,
materials or otherwise.
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C. Borrowings. Create, incur, assume or become liable in any manner for
any indebtedness (for borrowed money, deferred payment for the
purchase of assets, lease payments, as surety or guarantor for the
debt for another, or otherwise) other than to Bank, except for normal
trade debts incurred in the ordinary course of Borrower's business,
and except for existing indebtedness disclosed to Bank in writing and
acknowledge by Bank prior to the date of this Agreement.
D. Character of Business. Change the general character of business as
conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
E. Management Change. Make any substantial change in its present
executive or management personnel.
7. EVENTS OF DEFAULT. It shall be an Event of Default under this Agreement if
any one of the following events shall occur:
A. Borrower fail to pay the principal or interest on the Note when due;
or
B. Borrower is out of compliance with the Borrowing Base and fails to
bring the Borrowing Base into compliance in accordance with Section
4.A.ii above; or
C. Borrower fails to perform or observe any term, covenant, agreement, or
provision of this Agreement or other Loan Documents (except for
payment under the Note), unless such failure has been consented to in
writing by Bank, and such failure to perform continues for thirty (30)
days after receipt of written notice from Bank; or
D. Any representation or warranty made or deemed made by Borrower in this
Agreement, in any Security Agreement, or in any Deed of Trust or which
is contained in any certificate, document, or other statement
furnished at any time under or in connection with any Loan Document
shall prove to have been false, incomplete or incorrect in any
material respect on or as of the day when made; provided, however,
that Bank shall provide Borrower written notice of any such
misrepresentation or breached warranty and Borrower shall have ten
(10) days after the notice to convince Bank that the misrepresentation
or breach of warranty did not occur or was immaterial, which
determination shall be made by Bank in its sole discretion; or
E. Borrower shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay debts generally, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against Borrower seeking to
adjudicate the Borrower insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee
or other similar official for it or for any substantial part of its
property; or
F. a Guarantor defaults under any obligation or liability of the
Guarantor under the Loan Documents, and the default continues for
thirty (30) days after the Guarantor's receipt of written notice of
the default; or
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G. the outstanding principal on the Note is greater than the Borrowing
Base for more than ten (10) days; or
H. Borrower shall sell, lease, exchange, assign, convey, transfer
possession of or enter into any other disposition of any portion of
the Property whether directly, by operation of law, or otherwise,
without having first been released by Bank; or
I. Any Loan Document shall at any time after its execution and delivery
(i) cease to create the rights purported to be created by the Loan
Document, or (ii) shall be declared null and void, the validity or
enforceability of the Loan Document shall be contested by Borrower or
Guarantors, or Borrower or Guarantors shall fail to perform any of
their obligations under the Loan Document; or
J. Any Guarantor shall die, provided, however, that Borrower shall not be
in default if Borrower shall within ninety (90) days after the death
provide Bank with an acceptable plan, as determined by Bank in its
sole discretion, that (i) outlines the financial and management impact
of such death on Borrower and how Borrower will handle such management
and financial changes, and (ii) provides sufficient security to Bank
to replace the Guaranty of the deceased Guarantor. If Bank finds the
plan unacceptable, Bank may declare an Event of Default.
8. REMEDIES UPON DEFAULT. If an Event of Default shall have occurred and be
continuing, Bank's obligation to make advances under the Note shall be
suspended or terminated and Bank may exercise any one or more of the
following remedies and any other remedy provided in any of the Loan
Documents, at law, or in equity, as Bank, in its sole discretion, may deem
necessary or appropriate:
A. Declare the unpaid interest and principal of the Note, or any renewal
or extension thereof, immediately due and payable, together with any
other debt owed by Borrower to Bank, and the same thereupon shall be
immediately due and payable, without presentment, demand, notice of
intent to accelerate, notice of acceleration, or any other notice of
any kind, all of which are expressly waived by Borrower.
B. Proceed to protect and enforce its rights by any appropriate
proceeding, whether for specific performance of any covenant or
agreement contained in this Agreement or in aid of the exercise of any
power granted in this Agreement, may proceed to enforce the payment of
indebtedness due hereunder, or to enforce any other legal or equitable
right, or may proceed to enforce any covenant, agreement, or remedy
provided in any of the Loan Documents.
9. RIGHT OF SET OFF. Borrower gives Bank, or any other holder, a lien and
option to set off all deposits of Borrower and any other property of
Borrower in Bank's possession, actual or constructive, against the
indebtedness of Borrower.
10. NOTICES. All notices, requests or demands which any party is required or
may desire to give to any other party under any provision of this Agreement
must be in writing delivered to the other party at the following address:
Borrower: 701 S. Taylor, Suite 440, Amarillo, Texas 79101
--------
Guarantors: 701 S. Taylor, Suite 440, Amarillo, Texas 79101
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Bank: 221 Gray Avenue, Pampa, Texas 79065
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or to such other address as any party may designate by written notice to
the other party. Each such notice, request and demand shall be deemed given
or made as follows:
A. If sent by mail, upon the earlier of the date of receipt or five (5)
days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means, upon delivery.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower and Guarantors shall pay to
Bank immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and
all allocated costs of Bank's in-house counsel if permitted by applicable
law), incurred by Bank in connection with (a) negotiation and preparation
of this Agreement and each of the Loan Documents, and (b) all other costs
and attorneys' fees incurred by Bank for which Borrower and Guarantors are
obligated to reimburse Bank in accordance with the terms of the Loan
Documents.
12. MISCELLANEOUS. Borrower, Guarantors and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted to Bank
under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and
all other rights of Bank, and no delay in exercising any right shall
operate as a waiver thereof, nor shall any single or partial exercise
by Bank of any right preclude any other or future exercise thereof or
the exercise of any other right. Borrower and Guarantors expressly
waive any presentment, demand, protest or other notice of any kind,
including but not limited to notice of intent to accelerate and notice
of acceleration. No notice to or demand on Borrower or Guarantors in
any case shall, of itself, entitle Borrower or Guarantors to any other
or future notice or demand in similar or other circumstances.
B. Applicable Law. This Loan Agreement and the rights and obligations of
the parties hereunder shall be governed by and interpreted in
accordance with the laws of the State of Texas and applicable United
States federal law.
C. Amendment. No modification, consent, amendment, or waiver of any
provision of this Loan Agreement, nor consent to any departure by
Borrower or Guarantors therefrom, shall be effective unless the same
shall be in writing and signed by an officer of Bank, and then shall
be effective only in the specified instance and for the purpose for
which given. This Loan Agreement is binding upon Borrower and
Guarantors, their heirs, successors and assigns, and inures to the
benefit of Bank, its successors and assigns; however, no assignment or
other transfer of Borrower's or Guarantors' rights or obligations
hereunder shall be made or be effective without Bank's prior written
consent, nor shall it relieve Borrower or Guarantors of any
obligations hereunder. There is no third party beneficiary of this
Loan Agreement.
D. Documents. All documents, certificates and other items required under
this Loan Agreement to be executed and/or delivered to Bank shall be
in form and content satisfactory to Bank and its counsel.
Page 11 of 15
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability
or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person
or circumstance shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
F. Indemnification. Notwithstanding anything to the contrary contained in
this Agreement, Borrower and Guarantors shall indemnify, defend and
hold Bank and its successors and assigns harmless from and against any
and all claims, demands, suits, losses, damages, assessments, fines,
penalties, costs or other expenses (including reasonable attorneys'
fees and court costs) arising from or in any way related to any of the
transactions contemplated hereby, including but not limited to actual
or threatened damage to the environment, agency costs of
investigation, personal injury or death, or property damage, due to a
release or alleged release of Hazardous Materials, arising from
Borrower's or Guarantors' business operations, any other property
owned by Borrower or Guarantors or in the surface or ground water
arising from Borrower's or Guarantors' business operations, or gaseous
emissions arising from Borrower's or Guarantors' business operations
or any other condition existing or arising from Borrower's or
Guarantors' business operations resulting from the use or existence of
Hazardous Materials, whether such claim proves to be true or false.
Borrower and Guarantors further agree that their indemnity obligations
shall include, but are not limited to, liability for damages resulting
from the personal injury or death of an employee of the Borrower or
Guarantors, regardless of whether the Borrower or Guarantors have paid
the employee under the workmen's compensation laws of any state or
other similar federal or state legislation for the protection of
employees. The term "property damage" as used in this paragraph
includes, but is not limited to, damage to any real or personal
property of the Borrower or Guarantors, the Bank, and any third
parties. The Borrower's and Guarantors' obligations under this
Paragraph shall survive the repayment of the Loan and any deed in lieu
of foreclosure or foreclosure of any Deed to Secure Debt, Deed of
Trust, Security Agreement or Mortgage securing the Loan.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive
the making of the Loan and shall continue in full force and effect so
long as the Loan is outstanding or the obligation of the Bank to make
any advances under the Line shall not have expired.
H. Updated Appraisals and Maintenance of Collateral Value. Bank, upon a
default, may at its option obtain at Borrower's and Guarantors'
expense, an appraisal of any real property securing payment of the
Loan, prepared in accordance with applicable bank regulatory agency
regulations and the written instructions from Bank by a third party
appraiser engaged directly by Bank. The costs of each such appraisal
shall be payable by Borrower and Guarantors to Bank on demand.
I. Participations. Bank shall be entitled to sell one or more
participations in the indebtedness arising under the Loan from time to
time and at any time.
J. Warranties. Borrower agrees that Bank has made no warranties,
covenants, or statements, either express or implied, outside this
Agreement, and in no event has Bank made any representation whatsoever
regarding the advisability or safety of the investment for which the
proceeds of this Agreement will be used or the tax effect on Borrower
of the same. Borrower further agrees that Bank's rights and interests
Page 12 of 15
under this Agreement, the Note, and the instruments now or hereafter
securing the notes, shall not be deemed to indicate that Bank is in
control of the business, management, or properties of Borrower or has
power over the daily management functions and operating decisions of
Borrower. Borrower expressly acknowledges that Bank is not obligated
or expected to monitor the performance of Borrower's investment or any
agent of Borrower whom Borrower retains to perform any function.
K. Counterparts. This Agreement may be simultaneously executed in
multiple counterparts, all of which shall constitute one and the same
instrument, and each of which shall be deemed to be an original.
Execution and delivery of this Agreement by facsimile or other
electronic transmission shall be binding on the parties.
13. NO ORAL AGREEMENTS. THIS LOAN AGREEMENT AND ALL THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN BANK, BORROWER AND THE OTHER PARTIES
TO THE LOAN DOCUMENTS AND SUPERCEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF, AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
BORROWER: BANK:
EXTERRA ENERGY, INC. HAPPY STATE BANK
By: /s/ Todd Royal By: /s/ Ryan Monroe
- ------------------ -------------------
Todd Royal, President Ryan Monroe, President - Pampa
GUARANTORS:
/s/ Todd Royal
- --------------
TODD ROYAL
/s/ Robert Royal
- ----------------
ROBERT ROYAL, TRUSTEE OF THE
ROYAL TRUST
Page 13 of 15
Exhibit "A"
-----------
The following Oil and Gas Leases, the lands covered thereby and the wells
located thereon, to-wit:
Wright Star Unit 1 #2
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-673 as further described in the lease.
Recorded: Vol. 1878, Page 591, Real Property Records of Wise County, Texas
Aaron Star #1H
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-919 as further described in the lease.
Recorded: Vol. 1878, Page 587, Real Property Records of Wise County, Texas
Bullard 1 H Well
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-673 as further described in the lease.
Recorded: Vol. 1878, Page 575, Real Property Records of Wise County, Texas
Garrett Star
Lessor: Concha Energy
Lessee: Exterra Energy
Dated: November 8, 200
Description: Wise County, A-586 as further described in the lease.
Recorded: Vol. 2000, Page 834, Real Property Records of Wise County, Texas
Hodges #1H
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-963 as further described in the lease.
Recorded: Vol. 1878, Page 568, Real Property Records of Wise County, Texas
Lucky Lady
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-673 as further described in the lease.
Recorded: Vol. 1878, Page 579, Real Property Records of Wise County, Texas
Page 14 of 15
Oates-Star #3
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-919 as further described in the lease.
Recorded: Vol. 1959, Page 493, Real Property Records of Wise County, Texas
RSK Star Vaughn Unit #7
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-294 as further described in the lease.
Recorded: Vol. 1878, Page 587, Real Property Records of Wise County, Texas
RSK Star #5
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-294 as further described in the lease.
Recorded: Vol. 1878, Page 583, Real Property Records of Wise County, Texas
Shepherd Star #1H
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-455 as further described in the lease.
Recorded: Vol. 1878, Page 587, Real Property Records of Wise County, Texas
Wright Star Unit 1 #1
Lessor: Star of Texas Energy Services
Lessee: Exterra Energy
Dated: November 8, 2007
Description: Wise County, A-673 as further described in the lease.
Recorded: Vol. 1878, Page 595, Real Property Records of Wise County, Texas
University ABCD
Lessor: Leonard Brothers
Lessee: Exterra Energy
Dated: November 12, 2008
Description: All wells located in Block 17, University Lands, Pecos Country,
as more fully described in the lease.
Recorded: Vol. 805, Page 534, Real Property Records of Wise County, Texas
This Loan Agreement covers all of Grantor's interests, of whatsoever kind, in
and to all of the above-described lands, including but not limited to any
lease(s) covering said lands, whether or not described above.
Page 15 of 15