EXHIBIT 10.10
CAPWEST RESOURCES, INC.
ADVANCING LINE OF CREDIT/TERM NOTE
$10,000,000.00 Midland, Texas April 13, 2007
1. For value received, CHANCELLOR GROUP, INC., a Nevada corporation, GRYPHON
PRODUCTION COMPANY, LLC, a Texas limited liability company, and GRYPHON FIELD
SERVICES, LLC, a Texas limited liability company (collectively, the "Maker"),
promises to pay to the order of CAPWEST RESOURCES, INC., a Texas corporation
(alternatively, "CapWest" or the "Lender"), at its offices at 508 West Wall
Street, Suite 1100, Midland, Midland County, Texas 79701, in lawful money of the
United States of America, the sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00), or so much thereof as shall have been advanced and remain
unpaid and outstanding hereunder, together with interest thereon, from the date
hereof until maturity at a variable rate of interest, based upon the unpaid
principal balance outstanding from time to time ("Variable Rate"), equal to the
Prime Rate, as defined below, plus four percent (4.0%), but in no event to
exceed the "Highest Lawful Rate," as defined below, with adjustments in the
Variable Rate to be made on the same date as any change in the Prime Rate and
adjustments due to changes in the Highest Lawful Rate to be made on the
effective date of any change in the Highest Lawful Rate.
2. This Note is executed pursuant to the terms of that Loan Agreement, dated as
of April 13, 2007, by and between Maker, as Borrower; and CapWest, as Lender
(the "Loan Agreement"). This Note incorporates by reference the terms of the
Loan Agreement. In the event of a conflict between the terms of this Note and
the terms of the Loan Agreement, the terms of the Loan Agreement shall be deemed
to be controlling.
3. Notwithstanding the foregoing, if at any time the Variable Rate exceeds the
Highest Lawful Rate, the rate of interest to accrue on this Note shall be
limited to the Highest Lawful Rate, but any subsequent reductions in such
Variable Rate shall not reduce the rate of interest to accrue on this Note below
the Highest Lawful Rate until the total amount of interest accrued on this Note
equals the amount of interest which would have accrued if the Variable Rate had
at all times been in effect.
4. If at maturity or final payment of this Note the total amount of interest
paid or accrued under the foregoing provisions is less than the total amount of
interest which would have accrued if the Variable Rate had at all times been in
effect, then Maker agrees to pay to CapWest, to the extent permitted by law, an
amount equal to the difference between (a) the lesser of (i) the amount of
interest which would have accrued on this Note if the Highest Lawful Rate had at
all times been in effect, or (ii) the amount of interest which would have
accrued if the Variable Rate had at all times been in effect, and (b) the amount
of interest accrued in accordance with the other provisions of this Note.
5. The term "Prime Rate" shall be defined as that rate established as the prime
rate in the money rate table of The Wall Street Journal, a Dow Jones
publication, as of each Business Day, as hereinafter defined, (and for holidays
or weekends, the Prime Rate shall be the prime rate published in that money rate
table of The Wall Street Journal, as of the close of business on the most recent
Business Day immediately preceding such weekend or holiday). Without notice to
the Borrower or any other person, the Prime Rate may change from time to time
pursuant to the preceding sentence, with the effective date of each change to be
the effective date reflected in the money rate table of The Wall Street Journal.
The Prime Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. CapWest may make commercial loans
or other loans at rates of interest at, above, or below the Prime Rate.
"Business Day" shall mean a day other than a Saturday, Sunday or legal holiday
for commercial banks under the laws of the State of Texas.
6. The term "Highest Lawful Rate" shall mean the maximum nonusurious interest
rate, if any, that at any time or from time to time may be contracted for,
taken, reserved, charged, collected or received by CapWest in connection with
this Note under laws applicable to CapWest which are presently in effect or, to
the extent allowed by law, under applicable laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws now allow.
7. Maker and CapWest contemplate that CapWest will make advances under this Note
from time to time up to, but not greater than, the sum of $10,000,000.00, but no
advances shall affect or impair the validity or enforceability of this Note as
to future advances hereunder. In no event shall the cumulative total of
principal advances hereunder exceed the face amount of this Note.
8. Maker shall make payments of outstanding principal and interest, on a monthly
basis, in an amount equal to the greater of: (a) fifty-one percent (51%) of
Borrower's Gross Oil and Gas Proceeds, as defined in the Loan Agreement, or (b)
the accrued interest due on a monthly basis under the terms of this Note, the
first such payment to be made on July 15, 2007 and thereafter on the fifteenth
Business Day of each succeeding month until May 15, 2010, the date of final
maturity hereunder at which point all outstanding principal and accrued interest
shall be due. All payments shall be first applied to: (a) the payment of accrued
interest and principal due and owing on the Senior Debt; (ii) to the payment of
accrued interest due and owing on the Subordinate Facility; and (iii) to
principal due and outstanding under the Subordinate Debt. Following full and
final payment of the Senior Debt, payments will continue to be due to the
Subordinate Lender on the fifteenth day of each month. Interest shall be
computed and paid by Borrower upon the actual amount advanced to Borrower.
Adjustments in the Variable Rate may be made by Lender, from time to time, as
the Prime Rate may change.
9. All past due principal and interest on this Note will bear interest from the
maturity thereof until paid, at the lesser of (a) the Prime Rate plus eight
percent (8%) or (b) the Highest Lawful Rate. Interest on this Note will be
computed on a 360 day, simple interest basis; that is, by applying the ratio of
the annual interest over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal is
outstanding.
10. If any Event of Default should occur under the terms of the Loan Agreement,
thereupon at the option of CapWest, the principal balance and accrued interest
of the Note, and any and all other indebtedness of Maker to CapWest shall become
and be due and payable forthwith without demand, notice of default, notice of
acceleration, notice of intent to accelerate the maturity hereof, notice of
nonpayment, presentment, protest or notice of dishonor, all of which are hereby
expressly waived by Maker and each other liable party. CapWest may waive any
default without waiving any prior or subsequent default.
11. To the extent not prohibited by applicable law, Maker will pay all
reasonable costs and expenses and reimburse CapWest for any and all reasonable
expenditures of every character incurred or expended from time to time,
regardless of whether a default or event of default shall have occurred, in
connection with (a) CapWest's evaluating, monitoring, administering and
protecting the Mortgaged Property, as hereinafter defined, in connection with
it, and (b) CapWest's creating, perfecting or realizing upon CapWest's security
interest in and liens on the Mortgaged Property, and all costs and expenses
relating to CapWest's exercising any of its rights and remedies under this or
any other instrument now or hereafter securing the Indebtedness or at law,
including, without limitation, all filing fees, taxes, brokerage fees and
commissions, title review and abstract fees, Uniform Commercial Code search
fees, other fees and expenses incident to title searches, reports and security
interests, escrow fees, reasonable attorneys' fees, legal expenses, court costs,
fees and expenses incurred in connection with any complete or partial
liquidation of the Mortgaged Property, and all fees and expenses for any
professional services relating to the Mortgaged Property or any operations
conducted in connection with it; provided, however, that no right or option
granted by Maker or CapWest or otherwise arising pursuant to any provision of
this or any other instrument shall be deemed to impose or admit a duty on
CapWest to supervise, monitor or control any aspect of the character or
condition of the Mortgaged Property or any operations conducted in connection
with it for the benefit of Maker or any other person or entity other than
CapWest.
12. If this Note is not paid at maturity whether by acceleration or otherwise
and is placed in the hands of an attorney for collection, or suit is filed
hereon, or proceedings are had in probate, bankruptcy, receivership,
reorganization, arrangement or other legal proceedings for collection hereof,
Maker and each other liable party agree to pay CapWest its collection costs,
including a reasonable amount for attorney's fees, but in no event to exceed the
maximum amount permitted by law. Maker and each other liable party are and shall
be directly and primarily, jointly and severally, liable for the payment of all
sums called for hereunder, and Maker and each other liable party hereby
expressly waive bringing of suit and diligence in taking any action to collect
any sums owing hereon and in the handling of any security, and Maker and each
other liable party hereby consent to and agree to remain liable hereon
regardless of any renewals, extensions for any period or rearrangements hereof,
or partial prepayments hereon, or any release or substitution of security
hereof, in whole or in part, with or without notice, from time to time, before
or after maturity.
13. It is the intent of the Maker and CapWest in the execution and performance
of this note to contract in strict compliance with the usury laws of the State
of Texas and the United States of America from time to time in effect. For
purposes hereof, "interest" shall include the aggregate of all charges which
constitute interest under such laws that are contracted for, reserved, taken,
charged or received under this note. In furtherance thereof, CapWest and the
Maker stipulate and agree that none of the terms and provisions contained in
this note, shall ever be construed to create a contract to pay for the use,
forbearance or detention of money with interest at a rate in excess of the
Highest Lawful Rate. In the event CapWest or any other holder of the note ever
charges or contracts for any amount in excess of lawful interest, the documents
or instruments constituting such charge or contract shall be ipso facto modified
without any further action by any party so that no amount in excess of lawful
interest shall be charged or contracted for. If CapWest or any other holder of
the note ever receives, collects or applies as interest any amount in excess of
lawful interest, such amount which would be excessive interest shall be applied
to the reduction of the unpaid principal balance of the note, and, if upon such
application the principal balance of the note is paid in full, any remaining
excess shall be forthwith paid to the Maker. In determining whether or not the
interest paid or payable under any specific contingency exceeds the Highest
Lawful Rate, the Maker and CapWest shall, to the maximum extent permitted under
applicable law, (a) treat all advances as but a single extension of credit (and
the Maker and CapWest agree that such is the case and that provision herein for
multiple advances is for convenience only), (b) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (c) exclude
voluntary prepayments and the effects thereof, and (d) "spread" the total amount
of interest throughout the entire contemplated term of the note. The provisions
of this paragraph shall control over all other provisions of the note or other
documents executed in connection with this note which may be in apparent
conflict herewith.
14. Maker reserves the option of prepaying the principal of this Note, in whole
or in part, at any time after the date hereof without penalty. At the option of
CapWest, it may demand (at any time at or after prepayment) all accrued and
unpaid interest with respect to the principal amount prepaid through the date of
prepayment. All amounts of principal so prepaid and received by the owner and
holder of this Note shall be applied to the last maturing installments of this
Note in their inverse order of maturity.
15. This Note is secured by those certain Second Lien Deeds of Trust, or
amendments thereto, dated as of April 13, 2007, and recorded in the records of
Carson and Gray Counties, in the State of Texas (collectively, the "Deeds of
Trust"). This Note is further secured by that certain Warrant Pledge Agreement,
also dated as of April 13, 2007, executed by Borrower in favor of CapWest. This
Note is further secured by a $1,000,000 life insurance policy insuring the life
of Brad Fischer, the proceeds of which are payable to CapWest.
A failure to describe all or part of the security will not be considered as a
waiver of such security.
16. CapWest reserves the right, exercisable in CapWest's sole discretion and
without notice to Maker or any other person, to sell participations, to assign
its interest or both, in all or any part of the Note or the debt evidenced by
the Note.
17. Maker warrants and represents to CapWest, and to all other holders of this
Note that any debt evidenced by this Note, is and shall be for business,
commercial, investment or other similar purposes and not primarily for personal,
family, household or agricultural use, as such terms are used in Chapter One of
Title 79, Texas Revised Civil Statutes, 1925, as amended.
18. Unless otherwise specified below, this Note shall be construed under and
governed by the laws of the State of Texas (including applicable federal law),
but in any event TEX. FIN. CODE ANN. SECTION 346.001 et. seq. (which regulates
certain revolving loan accounts and revolving tripartite accounts) shall not
apply to the loan evidenced by this Note.
19. Unless changed in accordance with the law, the applicable rate ceiling under
Texas law shall be the indicated (weekly) rate ceiling from time to time in
effect as provided in TEX. FIN. CODE ANN. Section 303.001 et seq., as amended.
20. By execution of this Note, Maker acknowledges the receipt of the following
notices from CapWest:
"THIS NOTE, AND ALL OTHER LOAN PAPERS EXECUTED SUBSTANTIALLY
CONCURRENTLY HEREWITH TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT
WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES."
"THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES."
{The remainder of this page is intentionally left blank. Signature page
follows.}
Address:
216 S. Price Road CHANCELLOR GROUP, INC.
Pampa, Texas 79065
By: /s/ Bradley W. Fischer
------------------------------------
Bradley W. Fischer
President
GRYPHON PRODUCTION COMPANY, LLC
By: /s/ Bradley W. Fischer
------------------------------------
Bradley W. Fischer
President
GRYPHON FIELD SERVICES, LLC
By: /s/ Bradley W. Fischer
------------------------------------
Bradley W. Fischer
President
MAKER
By its signature, CapWest acknowledges the truth of the notice
hereinabove.
CAPWEST RESOURCES, INC.
By: /s/ Mark D. McKinney
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Mark D. McKinney
President
LENDER