<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
------------------------
Date of Report (Date of Earliest event reported):
December 15, 1997
------------------------
SHERIDAN ENERGY, INC.
(Exact name of registrant as specified in its charter)
------------------------
Delaware 1-10201 76-0507664
(State of Incorporation) (Commission File Number) (IRS Employee
Identification No.)
------------------------
1000 Louisiana
Suite 800
Houston, Texas 77002
(Address of principal executive offices)
Registrant's telephone number, including area code
(713) 651-7899
================================================================================
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On December 15, 1997, Sheridan Energy, Inc. ("Sheridan" or the
"Registrant") completed the previously announced acquisition (the "Acquisition")
of certain oil and gas properties from Pioneer Natural Resources USA, Inc.
("Pioneer") in a cash-for-assets transaction.
Pursuant to the terms of the Acquisition, Sheridan acquired Pioneer's
interest in 436 wells (net 179) of which 213 wells (net 154 wells) are operated
for a purchase price of $49.9 million.
In order to obtain financing for the Acquisition, the Registrant sold to
Enron Capital & Trade Resources Corp. ("Enron") 1 million shares of a new issue
of the Registrant's senior redeemable preferred stock for $10 million, and
1,600,000 shares of the Registrant's common stock for an additional $10 million.
In addition, the Registrant entered into a First Amended and Restated
Credit Agreement with Bank One, Texas N.A. (the "Bank") whereby the Bank has
committed to loan to the Registrant, up to $100 million pursuant to a secured
term loan agreement of which the current borrowing base is $37.9 million.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements required by this item will be filed by
amendment not later than sixty days after the date of the filing of this
Form 8-K report.
(b) Exhibits
10.1 First Amended and Restated Credit Agreement between Bank One,
Texas N.A. and the Registrant - filed herewith.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SHERIDAN ENERGY, INC.
(REGISTRANT)
By: /s/ MICHAEL A. GERLICH
-------------------------------
Michael A. Gerlich
Chief Financial Officer
DATED: December 16, 1997
3
<PAGE>
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
BETWEEN
SHERIDAN ENERGY, INC.
AND
BANK ONE, TEXAS, N.A.
Effective September 30, 1997
---------------------------------
REDUCING REVOLVING LINE OF CREDIT OF UP TO $100,000,000
---------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above....................................... 1
1.2 Additional Defined Terms.................................. 1
1.3 Undefined Financial Accounting Terms...................... 15
1.4 References................................................ 15
1.5 Articles and Sections..................................... 15
1.6 Number and Gender......................................... 15
1.7 Incorporation of Exhibits................................. 15
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit.................................. 15
2.2 Use of Loan Proceeds...................................... 16
2.3 Interest.................................................. 16
2.4 Repayment of Loans and Interest........................... 16
2.5 Outstanding Amounts....................................... 17
2.6 Time, Place, and Method of Payments....................... 17
2.7 Borrowing Base Determinations............................. 17
2.8 Mandatory Prepayments..................................... 18
2.9 Voluntary Prepayments..................................... 18
2.10 Reduction or Termination of Commitment.................... 19
2.11 Commitment Fee............................................ 19
2.12 Engineering Fee........................................... 19
2.13 Facility Fee.............................................. 19
2.14 Loans to Satisfy Obligations of Borrower.................. 19
2.15 Security Interest in Accounts; Right of Offset............ 20
2.16 General Provisions Relating to Interest................... 20
2.17 Yield Protection.......................................... 21
2.18 Power of Attorney......................................... 22
2.19 Letter of Credit Facility................................. 22
2.20 Letter of Credit Fee...................................... 23
2.21 Limitation on Types of Loans.............................. 23
2.22 Limitations on Interest Periods........................... 24
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items................. 24
3.2 Each Loan and Letter of Credit............................ 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization......................................... 28
4.2 Corporate Existence....................................... 28
4.3 Valid and Binding Obligations............................. 28
4.4 Security Instruments...................................... 29
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.5 Title to Assets........................................... 29
4.6 Scope and Accuracy of Financial Statements................ 29
4.7 No Material Misstatements................................. 29
4.8 Liabilities, Litigation, and Restrictions................. 29
4.9 Authorizations; Consents.................................. 29
4.10 Compliance with Laws...................................... 30
4.11 ERISA..................................................... 30
4.12 Environmental Laws........................................ 30
4.13 Compliance with Federal Reserve Regulations............... 31
4.14 Investment Company Act Compliance......................... 31
4.15 Public Utility Holding Company Act Compliance............. 31
4.16 Proper Filing of Tax Returns; Payment of Taxes Due........ 31
4.17 Refunds................................................... 31
4.18 Gas Contracts............................................. 32
4.19 Intellectual Property..................................... 32
4.20 Casualties or Taking of Property.......................... 32
4.21 Locations of Borrower..................................... 32
4.22 Subsidiaries.............................................. 32
4.23 Notice of Utility Security Instrument..................... 32
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records......................... 33
5.2 Monthly Financial Statements; Compliance Certificates..... 33
5.3 Annual Financial Statements............................... 33
5.4 Oil and Gas Reserve Reports............................... 33
5.5 Title Opinions; Title Defects............................. 34
5.6 Notices of Certain Events................................. 34
5.7 Letters in Lieu of Transfer Orders; Division Orders....... 36
5.8 Additional Information.................................... 36
5.9 Compliance with Laws...................................... 36
5.10 Payment of Assessments and Charges........................ 36
5.11 Maintenance of Corporate Existence and Good Standing...... 37
5.12 Payment of Notes; Performance of Obligations.............. 37
5.13 Further Assurances........................................ 37
5.14 Initial Fees and Expenses of Counsel to Lender............ 37
5.15 Subsequent Fees and Expenses of Lender.................... 37
5.16 Operation of Oil and Gas Properties....................... 38
5.17 Maintenance and Inspection of Properties.................. 38
5.18 Maintenance of Insurance.................................. 38
5.19 INDEMNIFICATION........................................... 39
5.20 Lockbox Arrangement....................................... 40
5.21 Development Program....................................... 40
5.22 Approved Acquisition...................................... 40
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness.............................................. 40
6.2 Contingent Obligations.................................... 41
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
6.3 Liens..................................................... 41
6.4 Sales of Assets........................................... 41
6.5 Leasebacks................................................ 41
6.6 Sale or Discount of Receivables........................... 42
6.7 Loans or Advances......................................... 42
6.8 Investments............................................... 42
6.9 Dividends................................................. 42
6.10 Issuance of Stock; Changes in Corporate Structure......... 42
6.11 Lines of Business......................................... 42
6.12 Rental or Lease Agreements................................ 43
6.13 ERISA Compliance.......................................... 43
6.14 Current Ratio............................................. 43
6.15 Tangible Net Worth........................................ 43
6.16 Debt Coverage Ratio....................................... 43
6.17 Capital Expenditures...................................... 43
6.18 General and Administrative Expenses....................... 43
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default.......................... 43
7.2 Remedies.................................................. 46
RTICLE VIII MISCELLANEOUS
8.1 Transfers; Participations................................. 47
8.2 Release by Borrower....................................... 47
8.3 Survival of Representations, Warranties, and Covenants.... 47
8.4 Notices and Other Communications.......................... 48
8.5 Parties in Interest....................................... 48
8.6 Rights of Third Parties................................... 48
8.7 Renewals; Extensions...................................... 48
8.8 No Waiver; Rights Cumulative.............................. 49
8.9 Survival Upon Unenforceability............................ 49
8.10 Amendments; Waivers....................................... 49
8.11 Controlling Agreement..................................... 49
8.12 Disposition of Collateral................................. 49
8.13 GOVERNING LAW............................................. 49
8.14 JURISDICTION AND VENUE.................................... 49
8.15 WAIVER OF RIGHTS TO JURY TRIAL............................ 50
8.16 ENTIRE AGREEMENT.......................................... 50
8.17 ACKNOWLEDGMENT REGARDING CERTAIN PROVISIONS............... 50
8.18 Counterparts.............................................. 50
</TABLE>
LIST OF EXHIBITS
Exhibit I - Form of Note
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Compliance Certificate
-iii-
<PAGE>
Exhibit IV - Disclosures - Liabilities, Litigation, Environmental
Matters, Refunds, Gas Contracts, Casualties, Subsidiaries
Exhibit V - Lockbox Agreement
Exhibit VI - List and Description of Accrued Pre-Petition Liabilities
-iv-
<PAGE>
EXHIBIT 10.1
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------------
THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT is made and entered
into as of the 30th day of September, 1997, by and between SHERIDAN ENERGY, INC.
(successor in interest by merger to TGX CORPORATION), a Delaware corporation
(the "Borrower"), and BANK ONE, TEXAS, N.A., national banking association (the
"Lender").
W I T N E S S E T H:
-------------------
In consideration of the mutual covenants and agreements herein
contained, the Borrower and the Lender hereby agree as follows, amending and
restating in its entirety the Amended and Restated Credit Agreement dated as of
July 13, 1994, as amended, by and between the Borrower and the Lender.
ARTICLE I
----------
DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Terms Defined Above. As used in this Agreement, the terms
"Borrower" and "Lender" shall have the meaning assigned to them hereinabove.
1.2 Additional Defined Terms. As used in this Agreement, each of the
following terms shall have the meaning assigned thereto in this Section, unless
the context otherwise requires:
"Additional Costs" shall mean costs which the Lender determines in its
reasonable discretion are attributable to its obligation to make or its
making or maintaining any LIBO Rate Loan, or any reduction in any amount
receivable by the Lender in respect of any such obligation or any LIBO Rate
Loan, resulting from any Regulatory Change which (a) changes the basis of
taxation of any amounts payable to the Lender under this Agreement or the
Note in respect of any LIBO Rate Loan (other than franchise taxes and taxes
imposed on the overall net income of the Lender), (b) imposes or modifies
any reserve, special deposit, minimum capital, capital rates, or similar
requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, the Lender (including LIBO Rate
Loans and Dollar deposits in the London interbank market in connection with
LIBO Rate Loans), or any commitments of the Lender hereunder, (c) increases
the Assessment Rate, or (d) imposes any other materially adverse condition
affecting this Agreement or any of such extensions of credit, liabilities,
or commitments.
<PAGE>
"Adjusted LIBO Rate" shall mean, for any LIBO Rate Loan, an interest
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Lender to be equal to the sum of the LIBO Rate for such
Loan plus the Applicable Margin, but in no event exceeding the Highest
Lawful Rate.
"Affiliate" shall mean any Person directly or indirectly controlling,
or under common control with, the Borrower and includes any Subsidiary of
the Borrower and any "affiliate" of the Borrower within the meaning of Reg.
(S)240.12b-2 of the Securities Exchange Act of 1934, as amended, with
"control," as used in this definition, meaning possession, directly or
indirectly, of the power to direct or cause the direction of management,
policies or action through ownership of voting securities, contract, voting
trust, or membership in management or in the group appointing or electing
management or otherwise through formal or informal arrangements or business
relationships.
"Agreement" shall mean this First Amended and Restated Credit
Agreement, as it may be amended, supplemented, or restated from time to
time.
"Applicable Margin" shall mean as to each LIBO Rate Loan, 2.50%.
"Available Commitment " shall mean, at any time, an amount equal to
the remainder, if any, of (a) the lesser of the Commitment Amount or the
Borrowing Base in effect at such time minus (b) the Loan Balance.
"Base Rate" shall mean the interest rate announced or published by the
Lender from time to time as its general reference rate of interest, which
Base Rate shall change upon any change in such announced or published
general reference interest rate and which Base Rate may not be the lowest
interest rate charged by the Lender.
"Borrowing Base" shall mean, at any time, the amount determined by the
Lender in accordance with Section 2.7 and then in effect.
"Borrowing Request" shall mean each written request, in substantially
the form attached hereto as Exhibit , by the Borrower to the Lender for a
borrowing pursuant to Sections 2.1 or 2.9, each of which shall:
(a) be signed by a Responsible Officer of the Borrower;
(b) be accompanied by a Compliance Certificate;
(c) specify the amount requested and the date of the borrowing
(which shall be a Business Day);
2
<PAGE>
(d) when requesting a Floating Rate Loan, be delivered to the
Lender no later than 1:00 p.m. Central Standard or Daylight Savings
Time, as the case may be, on the Business Day of the requested
borrowing, conversion, or prepayment;
(e) when requesting a LIBO Rate Loan, be delivered to the Lender
no later than 1:00 p.m., Central Standard or Daylight Savings Time, as
the case may be, three (3) Business Days preceding the requested
borrowing, conversion, or prepayment and designate the Interest Period
requested with respect to such Loan.
"Business Day" shall mean (a) for all purposes other than as covered
by clause (b) of this definition, a day other than a Saturday, Sunday,
legal holiday for commercial banks under the laws of the State of Texas, or
any other day when banking is suspended in the State of Texas, and (b) with
respect to all requests, notices, and determinations in connection with,
and payments of principal and interest on, LIBO Rate Loans, a day which is
a Business Day described in clause (a) of this definition and which is a
day for trading by and between banks for Dollar deposits in the London
interbank market.
"Cash Flow" shall mean, for any period, on a consolidated basis, net
income before extraordinary gains or losses of the Borrower for such period
plus depreciation, amortization, depletion, and other non-cash expenses of
the Borrower for such period less non-cash revenues for such period less
Mandatory Capital Expenditures plus other cash revenues not reflected in
net income of Borrower.
"Closing Date" shall mean the effective date of this Agreement.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" shall mean the Mortgaged Properties and any other
Property now or at any time used or intended as security for the payment or
performance of all or any portion of the Obligations.
"Commitment" shall mean the obligation of the Lender, subject to
applicable provisions of this Agreement, to make Loans to or for the
benefit of the Borrower pursuant to Section 2.1 and to issue Letters of
Credit pursuant to Section 2.19.
"Commitment Amount" shall be $37,900,000.
"Commitment Fee" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 2.11.
3
<PAGE>
"Commitment Period" shall mean the period from and including the
Closing Date to but not including the Commitment Termination Date.
"Commitment Termination Date" shall mean June 30, 2000.
"Commonly Controlled Entity" shall mean any Person which is under
common control with the Borrower within the meaning of Section 4001 of
ERISA.
"Compliance Certificate" shall mean each certificate, substantially in
the form attached hereto as Exhibit III, executed by a Responsible Officer
of the Borrower and furnished to the Lender from time to time in accordance
with Section 5.2.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "primary obligation") in any manner, whether directly
or indirectly, including, without limitation, any obligation of such
Person, regardless of whether such obligation is contingent, (a) to
purchase any primary obligation or any Property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any primary obligation, or (ii) to maintain working
or equity capital of any other Person in respect of any primary obligation,
or otherwise to maintain the net worth or solvency of any other Person, (c)
to purchase Property, securities or services primarily for the purpose of
assuring the owner of any primary obligation of the ability of the Person
primarily liable for such primary obligation to make payment thereof, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof, with the amount of any
Contingent Obligation being deemed to be equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
"Current Assets" shall mean all assets which would, in accordance with
GAAP, be included as current assets on a consolidated balance sheet of the
Borrower and its Subsidiaries after eliminating any intercompany items, as
of the date of calculation and after deducting adequate reserves, in each
case in which a reserve is proper in accordance with GAAP, plus an amount
equal to the Available Commitment.
"Current Liabilities" shall mean all liabilities which would, in
accordance with GAAP, be included as current liabilities on a consolidated
balance sheet of the Borrower and its Subsidiaries as of the date of
calculation, but excluding (i) current maturities in respect of the
Obligations, both principal and interest.
4
<PAGE>
"Debt Service" shall mean, the principal amount outstanding under the
Note at the end of any fiscal quarter divided by 20, plus preferred stock
dividends paid in cash during such fiscal quarter.
"Default" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"Default Rate" shall mean a per annum interest rate equal to the Base
Rate plus five percent (5%), but in no event exceeding the Highest Lawful
Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Engineering Fee" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 2.12.
"Environmental Complaint" shall mean any written or oral complaint,
order, directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority or any other
Person with respect to (a) air emissions, (b) spills, releases, or
discharges to soils, any improvements located thereon, surface water,
groundwater, or the sewer, septic, waste treatment, storage, or disposal
systems servicing any Property of the Borrower, (c) solid or liquid waste
disposal, (d) the use, generation, storage, transportation, or disposal of
any Hazardous Substance, or (e) other environmental matters affecting any
Property of the Borrower or the business conducted thereon.
"Environmental Laws" shall mean (a) the following federal laws as they
may be cited, referenced, and amended from time to time: the Clean Air
Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Endangered
Species Act, the Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Superfund Amendments and Reauthorization
Act, the Toxic Substances Control Act, the Oil Pollution Act of 1990; and
the Federal Water Pollution Control Act; (b) any and all equivalent
environmental statutes of any state in which Property of the Borrower is
situated, as they may be cited, referenced and amended from time to time;
(c) any rules or regulations promulgated under or adopted pursuant to the
above federal and state laws; and (d) any other equivalent federal, state,
or local statute or any requirement, rule, regulation, code, ordinance, or
order adopted pursuant thereto, including, without limitation, those
relating to the generation, transportation, treatment, storage, recycling,
disposal, handling, or release of Hazardous Substances.
5
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder and
interpretations thereof.
"Event of Default" shall mean any of the events specified in
Section 7.1.
"Facility Fee" shall mean the fee payable to the Lender by the
Borrower pursuant to Section 2.13.
"Final Maturity" shall mean June 30, 2000.
"Financial Statements" shall mean statements of the financial
condition of the Borrower as at the point in time and for the period
indicated and consisting of at least a balance sheet and related statements
of operations, common stock and other stockholders' equity, and cash flows
for the Borrower and, when required by applicable provisions of this
Agreement to be audited, accompanied by the unqualified certification of a
nationally-recognized firm of independent certified public accountants
acceptable to the Lender and footnotes to any of the foregoing, all of
which shall be prepared in accordance with GAAP (except for interim
statements subject to year end adjustments) consistently applied and in
comparative form with respect to the corresponding period of the preceding
fiscal period.
"Floating Rate" shall mean an interest rate per annum equal to the
Base Rate from time to time in effect, but in no event exceeding the
Highest Lawful Rate. This Floating Rate shall be effective as of the date
of the acquisition from Pioneer.
"GAAP" shall mean generally accepted accounting principles established
by the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants and in effect in the United States from time
to time.
"Governmental Authority" shall mean any nation, country, commonwealth,
territory, government, state, county, parish, municipality, or other
political subdivision and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"Hazardous Substances" shall mean flammables, explosives, radioactive
materials, hazardous wastes, asbestos, or any material containing asbestos,
polychlorinated biphenyls (PCBs), toxic substances or related materials,
petroleum, petroleum products, associated oil or natural gas exploration,
production, and development wastes, or any substances defined as "hazardous
substances," "hazardous materials," "hazardous wastes," or "toxic
substances" under the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Superfund Amendments and Reauthorization
Act, as amended, the Hazardous Materials Transportation Act, as amended,
the Resource Conservation and
6
<PAGE>
Recovery Act, as amended, the Toxic Substances Control Act, as amended,
or any other law or regulation now or hereafter enacted or promulgated by
any Governmental Authority.
"Highest Lawful Rate" shall mean the maximum non-usurious interest
rate, if any (or, if the context so requires, an amount calculated at such
rate), that at any time or from time to time may be contracted for, taken,
reserved, charged, or received under applicable laws of the State of Texas
or the United States of America, whichever authorizes the greater rate, as
such laws are presently in effect or, to the extent allowed by applicable
law, as such laws may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than such laws now allow.
"Indebtedness" shall mean, as to any Person, without duplication, (a)
all liabilities (excluding reserves for deferred income taxes, deferred
compensation liabilities, and other deferred liabilities and credits) which
in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet, (b) all obligations of
such Person evidenced by bonds, debentures, promissory notes, or similar
evidences of indebtedness, (c) all other indebtedness of such Person for
borrowed money, (d) all obligations of others, to the extent any such
obligation is secured by a Lien on the assets of such Person (whether or
not such Person has assumed or become liable for the obligation secured by
such Lien), (e) all obligations of such Person (whether contingent or
otherwise) in respect of bankers' acceptances, letters of credit, surety or
other bonds and similar instruments; and (f) all obligations of such Person
to pay the deferred purchase price of Property or services in the ordinary
course of business of such Person.
"Insolvency Proceeding" shall mean application (whether voluntary or
instituted by another Person) for, or the consent to, the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial part of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor's relief, or other similar law of the United
States, the State of Texas, or any other jurisdiction.
"Insolvent" or "Insolvency" shall mean, with respect to any
Multiemployer Plan, that such Plan is insolvent within the meaning of such
term as used in Section 4245 of ERISA.
"Intellectual Property" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"Interest Period" shall mean, subject to the limitations set forth in
Section 2.22, with respect to any LIBO Rate Loan, a period commencing on
the date such
7
<PAGE>
Loan is made or converted from a Loan of another type pursuant to this
Agreement or the last day of the next preceding Interest Period with
respect to such Loan and ending on the numerically corresponding day in the
calendar month that is one, two, three, or, six months thereafter, as the
Borrower may request in the Borrowing Request for such Loan.
"Investment" in any Person shall mean any stock, bond, note, or other
evidence of Indebtedness, or any other security (other than current trade
and customer accounts) of, investment or partnership interest in or loan
to, such Person.
"L/C Exposure" shall mean, at any time, the aggregate maximum amount
available to be drawn under outstanding Letters of Credit at such time, not
including Letters of Credit for commodity hedge transactions.
"Letter of Credit" shall mean any standby letter of credit issued by
the Lender for the account of the Borrower pursuant to Section 2.19.
"Letter of Credit Application" shall mean the standard letter of
credit application employed by the Lender from time to time in connection
with letters of credit.
"Letter of Credit Fee" shall mean each fee payable to the Lender by
the Borrower pursuant to Section 2.20 upon or in connection with the
issuance of a Letter of Credit.
"LIBO Rate" shall mean, with respect to any Interest Period for any
LIBO Rate Loan, the lesser of (a) the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) equal to the offered quotation
appearing on Telerate Page 3750 (British Bankers' Association Interest
Settlement Rates) (or if such Telerate Page shall not be available, any
successor or similar service selected by the Lender and the Borrower) as of
approximately 11:00 a.m., London time, on the day two Business Days prior
to the first day of such Interest Period for Dollar deposits in an amount
comparable to the principal amount of such LIBO Rate Loan and having a term
comparable to the Interest Period for such LIBO Rate Loan, or (b) the
Highest Lawful Rate. If neither such Telerate Page 3750 nor any successor
or similar service is available, the term "LIBO Rate" shall mean, with
respect to any Interest Period for any LIBO Rate Loan, the lesser of (a)
the rate per annum (rounded upwards if necessary, to the nearest 1/16 of
1%) quoted to the Lender by prime banks in the London interbank market for
Dollar deposits in an amount comparable to the principal amount of such
LIBO Rate Loan and having a term comparable to the Interest Period for such
LIBO Rate Loan at approximately 11:00 a.m., London time two Business Days
prior to the first day of such Interest Period for such LIBO Rate Loan, or
(b) the Highest Lawful Rate.
8
<PAGE>
"LIBO Rate Loan" shall mean any Loan and any portion of the Loan
Balance which the Borrower has requested, in the initial Borrowing Request
for such Loan or a subsequent Borrowing Request for such portion of the
Loan Balance, bear interest at the Adjusted LIBO Rate and which is
permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of such Property, whether
such interest is based on common law, statute, or contract, and including,
but not limited to, the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt,
or a lease, consignment, or bailment for security purposes (other than true
leases or true consignments), liens of mechanics, materialmen, and
artisans, maritime liens and reservations, exceptions, encroachments,
easements, rights of way, covenants, conditions, restrictions, leases, and
other title exceptions and encumbrances affecting Property which secure an
obligation owed to, or a claim by, a Person other than the owner of such
Property (for the purpose of this Agreement, the Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease, or other arrangement pursuant
to which title to the Property has been retained by or vested in some other
Person for security purposes), and the filing or recording of any financing
statement or other security instrument in any public office.
"Limitation Period" shall mean any period while (i) any amount remains
owing on the Note and (ii) interest on such amount, calculated at the
applicable interest rate, plus any fees or other sums payable under any
Loan Document and deemed to be interest under applicable law, would exceed
the amount of interest which would accrue at the Highest Lawful Rate.
"Loan" shall mean any loan made by the Lender to or for the benefit of
the Borrower pursuant to this Agreement and any payment made by the Lender
under a Letter of Credit.
"Loan Balance" shall mean, at any time, the outstanding principal
balance of the Note plus the L/C Exposure at such time.
"Loan Documents" shall mean this Agreement, the Note, the Letter of
Credit Applications, the Letters of Credit, the Security Instrument, and
all other documents and instruments now or hereafter delivered pursuant to
the terms of or in connection with this Agreement, the Note, the Letter of
Credit Applications, the Letters of Credit, or the Security Instruments,
and all renewals and extensions of, amendments and supplements to, and
restatements of, any or all of the foregoing from time to time in effect.
9
<PAGE>
"Lockbox" shall mean P.O. Box 297084, Houston, Texas 77297,
established by the Borrower with the Lender to which each purchaser of
production and disburser of the proceeds of production from or attributable
to the Mortgaged Properties shall be directed to make remittance.
"Lockbox Account" shall mean account No. 1884148238 of the Borrower
established with the Lender in association with the Lockbox and to which
the Borrower and the Lender shall have access by way of draft, check, wire
transfer of funds, or otherwise to the extent specified in Section 5.20.
"Lockbox Agreement" shall mean the lockbox agreement between the
Borrower and the Lender relating to the Lockbox and being in form and
substance satisfactory to the Lender, as the same may be amended, restated,
or supplemented from time to time.
"Mandatory Capital Expenditures" shall mean the capital expenditures
which were projected to have been expended during such period in Lender's
engineering analysis.
"Material Adverse Effect" shall mean (a) any adverse effect on the
business, operations, properties, or condition (financial or otherwise) of
the Borrower and its Subsidiaries taken as a whole, which materially
increases the risk that any of the Obligations will not be repaid as and
when due, or (b) any material adverse effect upon the Collateral taken as a
whole, provided, however, that any change or event resulting from (i)
changes in the prices of oil, gas, natural gas liquids or other hydrocarbon
products, or (ii) changes in general economic conditions, including general
stock market conditions and interest rate changes shall not constitute a
Material Adverse Effect.
"Monthly Reduction Amount" shall mean, at any time, the amount
determined by the Lender in accordance with Section 2.7 and then in effect.
"Mortgaged Properties" shall mean all Oil and Gas Properties of the
Borrower subject to a perfected first-priority Lien in favor of the Lender,
subject only to Permitted Liens, as security for the Obligations.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"Net Income" shall mean, for any period, the net income of the
Borrower on a consolidated basis for such period, determined in accordance
with GAAP.
10
<PAGE>
"Note" shall mean the promissory note of the Borrower, in the form
attached hereto as Exhibit I, together with all renewals, extensions for
any period, increases, and rearrangements thereof.
"Obligations" shall mean, without duplication, (a) all Indebtedness
evidenced by the Note, (b) the Reimbursement Obligations, (c) the undrawn,
unexpired amount of all outstanding Letters of Credit, (d) the obligation
of the Borrower for the payment of Commitment Fees, Facility Fees, Letter
of Credit Fees, and Engineering Fees, and (e) all other obligations and
liabilities of the Borrower to the Lender, now existing or hereafter
incurred, under, arising out of or in connection with any Loan Document and
including any agreement executed with the Lender in regard to interest rate
hedges, and to the extent that any of the foregoing includes or refers to
the payment of amounts deemed or constituting interest, only so much
thereof as shall have accrued, been earned and which remains unpaid at each
relevant time of determination.
"Oil and Gas Properties" shall mean fee, leasehold, or other interests
in or under mineral estates or oil, gas, and other liquid or gaseous
hydrocarbon leases with respect to Properties situated in the United States
or offshore from any State of 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 appertaining,
belonging, affixed, or incidental thereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any entity succeeding to any
or all of its functions under ERISA.
"Permitted Liens" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies which are not delinquent or remain
payable without penalty, or to the extent non-payment thereof is permitted
by the terms hereof or which (if foreclosure, distraint, sale, or other
similar proceedings shall not have been initiated) are being contested in
good faith by appropriate proceedings, and such reserve as may be required
by GAAP shall have been made therefor, (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 by appropriate proceedings, if such reserve as may
be required by GAAP shall have been made therefor, (c) Liens in favor of
vendors, carriers, warehousemen, repairmen, mechanics, workmen,
materialmen, construction, artisans, or similar Liens arising by operation
of law in the ordinary course of business in respect of obligations which
are not overdue by more than 30 days, or if overdue by more than 30 days,
which are being contested in good faith by appropriate proceedings, (d)
11
<PAGE>
Liens in favor of operators and non-operators under joint operating
agreements or similar contractual arrangements arising in the ordinary
course of the business of the Borrower to secure amounts owing, which
amounts are not overdue by more than 30 days, or if overdue by more than 30
days, which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(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 provided that such Liens do
not secure obligations to deliver hydrocarbons at some future date without
receiving full payment therefor within 90 days of delivery, (f) easements,
rights of way, restrictions, licenses, reservations, provisions, covenants,
conditions, waivers 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 in the aggregate materially interfere
with the ordinary conduct of the business of the Borrower or in the
aggregate materially detract from the value or use of the Property to which
they apply to the extent that it would cause a Material Adverse Effect, (g)
Liens in favor of the Lender and other Liens expressly permitted under the
Security Instruments, (h) Liens incurred or deposits made in the ordinary
course of business, to secure insurance in the ordinary course of business,
the performance of bids, tenders, contracts, leases, statutory obligations,
surety, appeal and performance bonds and other similar obligations incurred
in the ordinary course of business, not in any of the cases specified
herein, incurred in connection with the borrowing of money, the obtaining
of advances or the payment of the deferred purchase price of property, (i)
attachments, judgment and other similar Liens arising in connection with
court proceedings, provided that the execution and enforcement of such
Liens are effectively stayed and the claims secured thereby are being
contested in good faith, (j) Liens securing obligations in connection with
capital leases provided that such capital leases are permitted under the
provisions of this Agreement, (k) Liens arising from precautionary Uniform
Commercial Code filings with respect to operating leases or consignment
arrangements otherwise permitted hereunder, (l) licenses, leases and
subleases permitted under this Agreement and granted to others that do not
interfere in any material respect to the business and operations of the
Borrower and its subsidiaries taken as a whole, and (m) extensions,
renewals and replacements of Liens referred to in clauses (a) through (m)
above.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"Plan" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or any Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
12
<PAGE>
"Principal Office" shall mean the principal office of the Lender in
Houston, Texas, presently located at 910 Travis Street, Houston, Texas
77002-5860.
"Prohibited Transaction" shall have the meaning assigned to such term
in Section 4975 of the Code.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from
time to time.
"Regulatory Change" shall mean the passage, adoption, institution, or
amendment of any federal, state, local, or foreign Requirement of Law
(including, without limitation, Regulation D), or any interpretation,
directive, or request (whether or not having the force of law) of any
Governmental Authority or monetary authority charged with the enforcement,
interpretation, or administration thereof, occurring after the Closing Date
and applying to a class of banks including the Lender.
"Reimbursement Obligation" shall mean the obligation of the Borrower
to provide to the Lender or reimburse the Lender for any amounts payable,
paid, or incurred by the Lender with respect to Letters of Credit.
"Release of Hazardous Substances" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with a valid permit,
license, certificate, or approval of the relevant Governmental Authority,
of any Hazardous Substance into or upon (a) the air, (b) soils or any
improvements located thereon, (c) surface water or groundwater, or (d) the
sewer or septic system, or the waste treatment, storage, or disposal system
servicing any Property of the Borrower.
"Reorganization" shall mean, with respect to any Multiemployer Plan,
that such Plan is in reorganization within the meaning of such term in
Section 4241 of ERISA.
"Reportable Event" shall mean the occurrence of any "reportable event"
as such term is defined in Section 4043 of ERISA, which could reasonably be
expected to have a Material Adverse Effect, for which the disclosure
requirements of Section 4043 promulgated by the Pension Benefit Guaranty
Corporation (or any entity succeeding to any or all of its functions under
ERISA) have not been waived.
"Requirement of Law" shall mean, as to any Person, the certificate or
articles of incorporation and by-laws or other organizational or governing
documents of such
13
<PAGE>
Person, and any applicable law, treaty, ordinance, order, judgment, rule,
decree, regulation, or determination of an arbitrator, court, or other
Governmental Authority, including, without limitation, rules, regulations,
orders, and requirements for permits, licenses, registrations, approvals,
or authorizations, in each case as such now exist or may be hereafter
amended and are applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.
"Reserve Report" shall mean each report delivered to the Lender
pursuant to Section 5.4.
"Responsible Officer" shall mean, as to any Person, its President, its
Chief Executive Officer or its Chief Financial Officer or any Vice
President.
"Security Instruments" shall mean the security instruments executed
and delivered in satisfaction of the condition set forth in Section 3.1(f),
and all other documents and instruments at any time executed as security
for all or any portion of the Obligations, as such instruments may be
amended, restated, or supplemented from time to time.
"Single Employer Plan" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"Subsidiary" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation are at the
time owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
"Superfund Site" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
"Tangible Net Worth" shall mean (a) total assets, as would be
reflected on a balance sheet of the Borrower prepared on a consolidated
basis and in accordance with GAAP, exclusive of Intellectual Property,
experimental or organization expenses, franchises, licenses, permits, and
other intangible assets, unamortized underwriters' debt discount and
expenses, and goodwill minus (b) total liabilities, as would be reflected
on a balance sheet of the Borrower prepared on a consolidated basis and in
accordance with GAAP.
"Transferee" shall mean any Person to which the Lender has sold,
assigned, transferred, or granted a participation in any of the
Obligations, as authorized pursuant to Section 8.1, and any Person
acquiring, by purchase, assignment, transfer,
14
<PAGE>
or participation, from any such purchaser, assignee, transferee, or
participant, any part of such Obligations.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
1.3 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP at
the time in effect.
1.4 References. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears.
1.5 Articles and Sections. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
1.7 Incorporation of Exhibits. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
ARTICLE II
----------
TERMS OF FACILITY
-----------------
2.1 Revolving Line of Credit. (a) Upon the terms and conditions
(including, without limitation, the right of the Lender to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, the Lender agrees,
during the Commitment Period, to make Loans, in immediately available funds at
the Principal Office, to or for the benefit of the Borrower, from time to time
on any Business Day designated by the Borrower following receipt by the Lender
of a Borrowing Request; provided, however, no Loan shall exceed the then
existing Available Commitment.
15
<PAGE>
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow such funds. Except for
prepayments made pursuant to Section 2.8, each borrowing and prepayment of
principal of Loans shall be in an amount at least equal to $50,000.00. Each
borrowing, prepayment, or conversion of or into a Loan of a different type or,
in the case of a LIBO Rate Loan, having a different Interest Period, shall be
deemed a separate borrowing, conversion, and prepayment for purposes of the
foregoing, one for each type of Loan or Interest Period. Anything in this
Agreement to the contrary notwithstanding, the aggregate principal amount of
LIBO Rate Loans having the same Interest Period shall be at least equal to
$100,000; and if any LIBO Rate Loan would otherwise be in a lesser principal
amount for any period, such Loan shall be a Floating Rate Loan during such
period.
(c) The Loans shall be made and maintained at the Principal Office and
shall be evidenced by the Note.
2.2 Use of Loan Proceeds. Proceeds of all Loans shall be used solely
for acquisition, exploration, production, processing, transporting and
development of oil and gas properties and general corporate working capital.
Letters of Credit shall be used solely for general corporate purposes; provided,
however, no Letter of Credit may be used in lieu or in support of stay or appeal
bonds.
2.3 Interest. Subject to the terms of this Agreement (including,
without limitation, Section 2.16), interest on the Loans shall accrue and be
payable at a rate per annum equal to the Floating Rate for each Floating Rate
Loan, the Adjusted LIBO Rate for each LIBO Rate Loan. Interest on all Floating
Rate Loans shall be computed on the basis of a year of 365, or 366 where
applicable, days and actual days elapsed (including the first day but excluding
the last day) during the period for which payable. Interest on all LIBO Rate
Loans shall be computed on the basis of a year of 360 days, and actual days
elapsed (including the first day but excluding the last day) during the period
for which payable. Notwithstanding the foregoing, interest on past-due
principal and, to the extent permitted by applicable law, past-due interest,
shall accrue at the Default Rate, computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day but
excluding the last day) during the period for which payable, and shall be
payable upon demand by the Lender at any time as to all or any portion of such
interest. In the event that the Borrower fails to select the duration of any
Interest Period for any LIBO Rate Loan within the time period and otherwise as
provided herein, such Loan (if outstanding as a LIBO Rate Loan) will be
automatically converted into a Floating Rate Loan on the last day of the then
current Interest Period for such Loan or (if outstanding as a Floating Rate
Loan) will remain as, or (if not then outstanding) will be made as, a Floating
Rate Loan. Interest provided for herein shall be calculated on unpaid sums
actually advanced and outstanding pursuant to the terms of this Agreement and
only for the period from the date or dates of such advances until repayment.
2.4 Repayment of Loans and Interest. Accrued and unpaid interest on
each outstanding Floating Rate Loan shall be due and payable monthly on the
first day of each calendar month while any Floating Rate Loan remains
outstanding, the payment in each instance to be the amount of interest which has
accrued and remains unpaid in respect of the relevant Loan. Accrued
16
<PAGE>
and unpaid interest on each outstanding LIBO Rate Loan shall be due and payable
on the last day of the Interest Period for such LIBO Rate Loan and, in the case
of any Interest Period in excess of three months, on the day of the third
calendar month following the commencement of such Interest Period corresponding
to the day of the calendar month on which such Interest Period commenced, the
payment in each instance to be the amount of interest which has accrued and
remains unpaid in respect of the relevant Loan. The Loan Balance, together with
all accrued and unpaid interest thereon, shall be due and payable at Final
Maturity. At the time of making each payment hereunder or under the Note, the
Borrower shall specify to the Lender the Loans or other amounts payable by the
Borrower hereunder to which such payment is to be applied. In the event the
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Lender may apply such payment as it may elect in its sole
discretion.
2.5 Outstanding Amounts. The outstanding principal balance of the
Note reflected by the notations by the Lender on its records or ledger sheets
affixed to the Note shall be deemed rebuttably presumptive evidence of the
principal amount 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 interest on such amounts
calculated in accordance with this Agreement.
2.6 Time, Place, and Method of Payments. All payments required
pursuant to this Agreement or the Note shall be made in lawful money of the
United States of America and 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., Central Standard or Daylight Savings Time, as the
case may be, on any Business Day, and shall be made at the Principal Office.
Except as provided to the contrary herein, if the due date of any payment
hereunder or under the Note would otherwise fall on a day which is not a
Business Day, such date shall be extended to the next succeeding Business Day,
and interest shall be payable for any principal so extended for the period of
such extension.
2.7 Borrowing Base Determinations. (a) The Borrowing Base as of the
date of the acquisition from Pioneer Natural Resources USA, Inc. ("Pioneer") is
acknowledged by the Borrower and the Lender to be $37,900,000. The Monthly
Reduction Amount as of December 1, 1997, is acknowledged by the Borrower and the
Lender to be $625,000. Commencing on January 1, 1998, and continuing thereafter
on the first day of each calendar month through the next Borrowing Base review
and redetermination, the amount of the Borrowing Base shall be reduced by
$550,000.
(b) The Borrowing Base and the Monthly Reduction Amount shall be
redetermined semi-annually (by June 1st and December 1st of each year beginning
June 1, 1998), on the basis of information supplied by the Borrower in
compliance with the provisions of this Agreement, including, without limitation,
Reserve Reports, and all other information available to the Lender.
Notwithstanding the foregoing, the Lender may at its sole discretion redetermine
the Borrowing Base and the Monthly Reduction Amount at any time and from time to
time.
17
<PAGE>
(c) Upon each determination of the Borrowing Base by the Lender, the
Lender shall notify the Borrower promptly in writing of such determination, and
the Borrowing Base and the Monthly Reduction Amount so communicated to the
Borrower shall become effective upon such notification and shall remain in
effect until the next subsequent determination of the Borrowing Base and the
Monthly Reduction Amount.
(d) The Borrowing Base and the Monthly Reduction Amount shall
represent, respectively, the determination by the Lender, in accordance with the
applicable definitions and provisions herein contained and its customary lending
practices for loans of this nature, of the value, for loan purposes, of the
Mortgaged Properties and the estimated, monthly decline in such value.
Furthermore, the Borrower acknowledges that the determination of the Borrowing
Base contains an equity cushion (market value in excess of loan value), which is
acknowledged by the Borrower to be essential for the adequate protection of the
Lender.
2.8 Mandatory Prepayments. If at any time the Loan Balance exceeds
the lesser of the Commitment Amount or the Borrowing Base then in effect, the
Borrower shall, within 30 days of notice from the Lender of such occurrence, (a)
prepay, or make arrangements acceptable to the Lender for the prepayment of, the
amount of such excess for application on the Loan Balance, (b) provide
additional collateral, of character and value satisfactory to the Lender in its
sole and reasonable discretion, to secure the Obligations by the execution and
delivery to the Lender of security instruments in form and substance
satisfactory to the Lender, or (c) effect any combination of the alternatives
described in clauses (a) and (b) of this Section and acceptable to the Lender in
its sole and reasonable discretion. In the event that a mandatory prepayment is
required under this Section and the outstanding principal balance of the Note is
less than the amount required to be prepaid, the Borrower shall repay the entire
outstanding principal balance of the Note and, in accordance with the provisions
of the relevant Letter of Credit Applications executed by the Borrower or
otherwise to the satisfaction of the Lender, deposit with the Lender, as
additional collateral securing the Obligations, an amount of cash, in
immediately available funds, equal to the L/C Exposure minus the lesser of the
Commitment Amount or the Borrowing Base. The cash deposited with the Lender in
satisfaction of the requirement provided in this Section may be invested, at the
sole and reasonable discretion of the Lender and then only at the express
direction of the Borrower as to investment vehicle and maturity (which shall be
no later than the latest expiry date of any then outstanding Letter of Credit),
for the account of the Borrower in cash or cash equivalent investments offered
by or through the Lender.
2.9 Voluntary Prepayments. Subject to applicable provisions of this
Agreement, the Borrower shall have the right at any time or from time to time to
prepay Loans without prepayment penalty provided, however, (a) the Borrower
shall pay all accrued and unpaid interest on the amounts prepaid, and (b) no
such prepayment shall serve to postpone the repayment when due of any
Obligation. Provided, however, that in the event this facility is voluntarily
refinanced by another commercial bank or is voluntarily canceled by Borrower in
its entirety before Final Maturity, the Borrower will pay to Lender a prepayment
fee of $250,000 if such occurs in the calendar years of 1997 or 1998 and
$150,000 if in the calendar year 1999. Provided, further, that if such
refinancing or cancellation in its entirety occurs or results from an
acceleration of the Note due to
18
<PAGE>
an Event of Default other than resulting from a deliberate attempt by Borrower
to invite or suffer the same to occur in an attempt to avoid such prepayment
penalty for a voluntary refinancing or cancellation in its entirety, no such
prepayment penalty shall be due and payable by Borrower.
2.10 Reduction or Termination of Commitment. The Borrower shall have
the right to terminate in whole the Commitment Amount upon at least three (3)
Business Days prior notice (which notice shall be irrevocable) to the Lender
specifying the effective date, thereof, the amount by which the unpaid principal
amount of the Loans exceeds the Commitment Amount (after giving effect to such
notice) plus accrued and unpaid interest on the principal amount so prepaid.
The Commitment Amount may not be reinstated after it has been terminated.
2.11 Commitment Fee. In addition to interest on the Note as provided
herein and the Engineering Fees, Facility Fees and Letter of Credit Fees, and to
compensate the Lender for maintaining funds available, the Borrower shall pay to
the Lender, in immediately available funds, on the first day of October, 1997,
and on the first day of each third calendar month thereafter during the
Commitment Period, a fee in the amount of three-eighths of one percent (3/8%)
per annum, calculated on the basis of a year of 365 or 366 days, as the case may
be, and actual days elapsed (including the first day but excluding the last
day), on the average daily amount of the Available Commitment during the
preceding three month period. The fees shall become effective September 30,
1997. The Commitment Fee due on the Commitment Termination Date shall be
calculated from the date of the immediately preceding Commitment Fee payment
date through the Commitment Termination Date.
2.12 Engineering Fee. In addition to interest on the Note as
provided herein and the Commitment Fees, Facility Fees and Letter of Credit Fees
payable hereunder and to compensate the Lender for the costs of evaluating the
Collateral and reviewing the Reserve Reports, the Borrower shall pay to the
Lender, in immediately available funds, on the date of each redetermination of
the Borrowing Base, an engineering fee in the amount of $5,000.
2.13 Facility Fee. In addition to interest on the Note as provided
herein and Commitment Fees, Engineering Fees and Letter of Credit Fees payable
hereunder and to compensate the Lender for the costs of the extension of credit
hereunder, the Borrower shall pay to the Lender on the date of any increase in
the Borrowing Base, in immediately available funds, a facility fee in the amount
equal to one-half percent (1/2%) on the amount of any increase in the Borrowing
Base above $40,000,000, effective November 30, 1997. This Facility Fee of
$300,000, of which $100,000 has been paid prior to the execution hereof, leaving
a balance of $200,000 shall be paid upon the execution of this Agreement.
2.14 Loans to Satisfy Obligations of Borrower. The Lender may, but
shall not be obligated to, make Loans for the benefit of the Borrower and apply
proceeds thereof to the satisfaction of any condition, warranty, representation,
or covenant of the Borrower contained in this Agreement or any other Loan
Document. Any such Loan shall be evidenced by the Note and shall bear interest
at the Floating Rate.
19
<PAGE>
2.15 Security Interest in Accounts; Right of Offset. As security for
the payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Lender and grants to the Lender a security interest
in all funds of the Borrower now or hereafter or from time to time on deposit
with the Lender, with such interest of the Lender to be retransferred,
reassigned, and/or released by the Lender, as the case may be, at the expense of
the Borrower upon payment in full and complete performance by the Borrower of
all Obligations. All remedies as secured party or assignee of such funds shall
be exercisable by the Lender upon the occurrence of any Event of Default,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof. Furthermore,
during the continuance of an Event of Default the Borrower hereby grants to the
Lender the right, exercisable at such time as any Obligation shall mature,
whether by acceleration of maturity or otherwise, of offset or banker's lien
against all funds of the Borrower now or hereafter or from time to time on
deposit with the Lender, regardless of whether the exercise of any such remedy
would result in any penalty or loss of interest or profit with respect to any
withdrawal of funds deposited in a time deposit account prior to the maturity
thereof. Nothing contained herein, however, shall be construed to grant to
Lender a security interest in, or otherwise encumber, any funds of royalty
owners, other working interest owners, partnerships for which Borrower acts as
general partner, or other third parties for which Borrower receives and
disburses proceeds in the ordinary course of business.
2.16 General Provisions Relating to Interest. (a) It is the intention
of the parties hereto to comply strictly with the usury laws of the State of
Texas and the United States of America. In this connection, there shall never
be collected, charged, or received on the sums advanced hereunder interest in
excess of that which would accrue at the Highest Lawful Rate. For purposes of
Article 5069-1D.001, et seq., Vernon's Texas Civil Statutes, as amended, the
Borrower agrees that the Highest Lawful Rate shall be the "indicated (weekly)
rate ceiling" as defined in such Article, provided that the Lender may also
rely, to the extent permitted by applicable laws of the State of Texas or the
United States of America, on alternative maximum rates of interest under other
laws of the State of Texas or the United States of America applicable to the
Lender, if greater.
(b) Notwithstanding anything herein or in the Note to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Note shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower for the payment of fees or other charges deemed to be
interest under applicable law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
laws of the State of Texas or the United States of America, the interest rate to
be charged hereunder shall remain at the Highest Lawful Rate until such time as
there has been paid to the Lender (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that the Lender would have received during
the Limitation Period had the interest rate remained at the otherwise applicable
rate, and (ii) all interest and fees otherwise payable to the Lender but for the
effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Note or under this Agreement or any other Loan Document include amounts which by
law are deemed interest and which would exceed the amount permitted if the
Highest Lawful Rate were in effect, the Borrower
20
<PAGE>
stipulates that such payment and collection will have been and will be deemed to
have been, to the extent permitted by applicable laws of the State of Texas or
the United States of America, the result of mathematical error on the part of
the Borrower and the Lender; and the Lender shall promptly refund the amount of
such excess (to the extent only of such interest payments in excess of that
which would have accrued and been payable on the basis of the Highest Lawful
Rate) upon discovery of such error by the Lender or notice thereof from the
Borrower. In the event that the maturity of any Obligation is accelerated, by
reason of an election by the Lender or otherwise, or in the event of any
required or permitted prepayment, then the consideration constituting interest
under applicable laws may never exceed the Highest Lawful Rate; and excess
amounts paid which by law are deemed interest, if any, 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 to the Borrower.
(d) All sums paid, or agreed to be paid, to the Lender for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term hereof 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.
2.17 Yield Protection. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrower shall pay to
the Lender from time to time such amounts as the Lender may determine are
necessary to compensate it for any Additional Costs incurred by the Lender.
(b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender from
time to time on request such amounts as the Lender may reasonably determine are
necessary to compensate the Lender for any costs attributable to the maintenance
by the Lender, pursuant to any Regulatory Change, of capital in respect of the
Commitment, such compensation to include, without limitation, an amount equal to
any reduction of the rate of return on assets or equity of the Lender to a level
below that which the Lender could have achieved but for such Regulatory Change.
(c) The Lender shall furnish the Borrower with a certificate setting
forth in reasonable detail the basis and amount of increased costs incurred or
reduced amounts receivable as a result of any such event, and the statements set
forth therein shall be conclusive, absent manifest error.
(d) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender such
amounts as shall be sufficient in the reasonable opinion of the Lender to
compensate it for any actual loss (but not lost profits), cost, or expense
incurred by and as a result of:
(i) any payment, prepayment, or conversion by the Borrower of a
LIBO Rate Loan on a date other than the last day of an Interest Period for such
Loan; or
21
<PAGE>
(ii) any failure by the Borrower to borrow a LIBO Rate Loan from
the Lender on the date for such borrowing specified in the relevant Borrowing
Request.
The Lender will furnish calculations of its actual losses.
(e) Notwithstanding the provisions of Sections 2.17(a), (b), (c) and
(d) above:
(i) the Borrower shall not be required to pay to Lender
reimbursement with regard to any costs or expenses described in such Sections
unless the Lender notifies the Borrower of such costs or expenses within 30 days
after the date such are paid or incurred.
(ii) the Lender shall not be permitted to pass through to the
Borrower charges and costs under such Sections on a discriminatory basis (i.e.,
which are not also passed through by Lender to all other customers of the Lender
similarly situated where such customer is subject to documents providing for
such pass through).
2.18 Power of Attorney. The Borrower hereby designates the Lender as
its agent and attorney-in-fact, to act in its name, place, and stead for the
purpose of completing and, upon and only upon the occurrence of an Event of
Default, delivering any and all of the letters in lieu of transfer orders
delivered by the Borrower to the Lender pursuant to Section 3.1(i)(iv),
3.1(i)(v) or Section 5.7, including, without limitation, completing any blanks
contained in such letters and attaching exhibits thereto describing the relevant
Collateral. The Borrower hereby ratifies and confirms all that the Lender shall
reasonably and lawfully do or cause to be done by virtue of this power of
attorney and the rights granted with respect to such power of attorney. This
power of attorney is coupled with the interests of the Lender in the Collateral,
shall commence and be in full force and effect as of the Closing Date (but shall
not be exercisable unless and until an Event of Default has occurred and is
continuing) and shall remain in full force and effect and shall be irrevocable
so long as any Obligation remains outstanding or unpaid or any Commitment
exists. The powers conferred on the Lender by this appointment are solely to
protect the interests of the Lender under the Loan Documents and shall not
impose any duty upon the Lender to exercise any such powers. The Lender shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.
2.19 Letter of Credit Facility. (a) Upon the terms and conditions
(including, without limitation, the right of the Lender to decline to issue any
Letter of Credit so long as any Default or Event of Default exists) and relying
on the representations and warranties contained in this Agreement, the Lender
agrees, during the Commitment Period, to issue Letters of Credit following the
receipt not less than two (2) Business Days prior to the requested date for
issuance of the relevant Letter of Credit, of a Letter of Credit Application
executed by the Borrower; provided,
22
<PAGE>
however, (a) no Letter of Credit shall have an expiration date which is more
than three hundred sixty-five (365) days after the issuance thereof or
subsequent to the Commitment Termination Date, and (b) the Lender shall not be
obligated to issue any Letter of Credit if (i) the face amount thereof would
exceed the Available Commitment, or (ii) after giving effect to the issuance
thereof, (A) the Loan Balance then outstanding, would exceed the lesser of the
Commitment Amount or the Borrowing Base then in effect, or (B) the L/C Exposure
would exceed $500,000.00.
(b) Should the Lender be called upon by the beneficiary of any Letter of
Credit to honor all or any portion of the commitment thereunder, whether upon
the presentation of drafts or otherwise, such payment by the Lender on account
of such Letter of Credit shall be treated, for all purposes, as an advance
against the Note.
2.20 Letter of Credit Fee. In addition to interest on the Note as
provided herein and Commitment Fees and Facility Fees payable hereunder, the
Borrower agrees to pay to the Lender, on the date of issuance of each Letter of
Credit, a fee equal to two percent (2%) per annum, calculated on the basis of a
year of 365 or 366 days and actual days elapsed (including the first day but
excluding the last day), on the face amount of such Letter of Credit during the
period for which such Letter of Credit is issued. The Borrower also agrees to
pay to the Lender on demand its customary letter of credit transactional fees,
including, without limitation, amendment fees, payable with respect to each
Letter of Credit.
2.21 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, no more than five separate Loans shall be outstanding at any
one time, with, for purposes of this Section, all Floating Rate Loans
constituting one Loan, and all LIBO Rate Loans for the same Interest Period
constituting one Loan. Anything herein to the contrary notwithstanding, if, on
or prior to the determination of any interest rate for any LIBO Rate Loan for
any Interest Period therefor:
(a) the Lender determines (which determination shall be conclusive)
that quotations of interest rates for the deposits referred to in the
definition of "LIBO Rate" in Section 1.2 are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining
the rate of interest for such Loan as provided in this Agreement; or
(b) the Lender determines (which determination shall be conclusive)
that the rates of interest referred to in the definition of "LIBO Rate" in
Section 1.2 upon the basis of which the rate of interest for such Loan for
such Interest Period is to be determined do not accurately reflect the cost
to the Lender of making or maintaining such Loan for such Interest Period,
then the Lender shall give the Borrower prompt notice thereof; and so long as
such condition remains in effect, the Lender shall be under no obligation to
make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate Loans,
and the Borrower shall, on the last day of the then current Interest Period for
each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan
23
<PAGE>
or convert such Loan into another type of Loan in accordance with Section 2.9.
Before giving such notice pursuant to this Section, the Lender will designate a
different available Applicable Lending Office for LIBO Rate Loans or take such
other action as the Borrower may request if such designation or action will
avoid the need to suspend the obligation of the Lender to make LIBO Rate Loans
hereunder and will not, in the opinion of the Lender, be materially
disadvantageous to the Lender.
2.22 Limitations on Interest Periods. Each Interest Period selected
by the Borrower (a) which commences on the last Business Day of a calendar month
(or, with respect to any LIBO Rate Loan, any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month,
(b) which would otherwise end on a day which is not a Business Day shall end on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business Day), (c)
which would otherwise commence before and end after Final Maturity shall end on
Final Maturity, and (d) shall have a duration of not less than one month, as to
any LIBO Rate Loan, and, if any Interest Period would otherwise be a shorter
period, the relevant Loan shall be a Floating Rate Loan during such period.
ARTICLE III
------------
CONDITIONS
----------
The obligations of the Lender to enter into this Agreement and to make
the initial Loan or issue any initial Letters of Credit hereunder are subject to
the satisfaction of the following conditions precedent:
3.1 Receipt of Loan Documents and Other Items. The Lender shall have
no obligation under this Agreement to make any initial loan unless and until all
matters incident to the consummation of the transactions contemplated herein,
including, without limitation, the review by the Lender or its counsel of the
title of the Borrower to its Oil and Gas Properties up to the amount of the
Borrowing Base, shall be satisfactory to the Lender, and the Lender shall have
received, reviewed, and approved the following documents and other items,
appropriately executed when necessary and, where applicable, acknowledged by one
or more authorized officers of the Borrower, all in form and substance
satisfactory to the Lender and dated, where applicable, of even date herewith or
a date prior thereto and acceptable to the Lender:
(a) multiple counterparts of this Agreement, as requested by the
Lender;
(b) the Note;
(c) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of the Borrower
24
<PAGE>
accompanied by a certificate issued by the secretary or assistant secretary
of the Borrower to the effect that each such copy is correct and complete;
(d) certificates of incumbency and signatures of all officers of the
Borrower who are authorized to execute Loan Documents on behalf of the
Borrower, each such certificate being executed by the secretary of the
Borrower;
(e) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted
by the board of directors of the Borrower, accompanied by certificates of
the secretary of the Borrower to the effect that such copies are true and
correct copies of resolutions duly adopted at a meeting or by unanimous
consent of the board of directors of the Borrower and that such resolutions
constitute all the resolutions adopted with respect to such transactions,
have not been amended, modified, or revoked in any respect, and are in full
force and effect as of the date of such certificate;
(f) the following documents ratifying, amending, and otherwise
establishing Liens in favor of the Lender in and to the Collateral:
(i) Ratification of Amended and Restated Mortgage, Deed of Trust,
Indenture, Security Agreement, Assignment of Production, and Financing
Statement from the Borrower covering certain designated Oil and Gas
Properties of the Borrower situated in the States of Arkansas,
Oklahoma and Texas and all improvements, personal property, and
fixtures related thereto;
(ii) Financing Statements from the Borrower, as debtor,
constituent to the instrument described in clause (i) above;
(iii) Ratification of Collateral Mortgage and Security Agreement
from the Borrower covering certain designated Oil and Gas Properties
of the Borrower situated in the State of Louisiana and all
improvements, personal property, and fixtures related thereto; and
(iv) Mortgage, Deed of Trust, Indenture, Security Agreement,
Assignment of Production and Financing Statement from the Borrower
covering the Oil and Gas Properties purchased from Pioneer and other
newly acquired property;
(v) Financing Statements from the Borrower, as debtor, constituent
to the instrument described in clause (iv) above;
(vi) notification letters, in form and substance satisfactory to
the Lender, from the Borrower to each purchaser of production and
25
<PAGE>
disburser of the proceeds of production from or attributable to the
Mortgaged Properties, authorizing and directing the addressees to make
payments attributable to production from the Mortgaged Properties
directly to the Lockbox or the Lender, as requested by the Lender;
(g) certificates dated as of a recent date from the Secretary of State
or other appropriate Governmental Authority evidencing the existence or
qualification and good standing of the Borrower in its jurisdiction of
incorporation and in any other jurisdictions where it does business;
(h) results of searches of the UCC Records of the Secretary of State
of the States of Texas, Louisiana, Mississippi, Alabama and Oklahoma from a
source acceptable to the Lender and reflecting no Liens against any of the
Collateral as to which perfection of a Lien is accomplished by the filing
of a financing statement;
(i) confirmation, acceptable to the Lender, of the title of the
Borrower to the Oil and Gas Property purchased from Pioneer, free and clear
of Liens other than Permitted Liens;
(j) the Lender shall have received the payment of all Engineering
Fees, Facility Fees, Letter of Credit Fees, and other fees payable to the
Lender hereunder and reimbursement from the Borrower, or special legal
counsel for the Lender shall have received payment from the Borrower, for
(i) all reasonable fees and expenses of counsel to the Lender for which the
Borrower is responsible pursuant to applicable provisions of this Agreement
and for which invoices have been presented as of or prior to the date of
the relevant Loan or Letter of Credit Application, and (ii) estimated fees
charged by filing officers and other public officials incurred or to be
incurred in connection with the filing and recordation of any Security
Instruments, for which invoices have been presented as of or prior to the
date of the requested Loan or Letter of Credit Application; and
(k) proof satisfactory to the Lender that the Pioneer purchase has
been completed and that the purchase of $20,000,000 of stock described in
the Stock Purchase Agreement dated November 28, 1997, between Enron Capital
& Trade Resources Corp. and the Borrower has been completed.
(l) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may reasonably
request.
3.2 Each Loan and Letter of Credit. The Lender shall not be
obligated to make any Loan or issue any Letter of Credit unless:
26
<PAGE>
(a) the Borrower shall have delivered to the Lender a Borrowing
Request at least the requisite time prior to the requested date for the
relevant Loan, or a Letter of Credit Application at least two Business Days
prior to the requested issuance date for the relevant Letter of Credit; and
each statement or certification made in such Borrowing Request or Letter of
Credit Application, as the case may be, shall be true and correct in all
material respects on the requested date for such Loan or the issuance of
such Letter of Credit;
(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan or the issuance of the requested
Letter of Credit;
(c) if requested by the Lender, the Borrower shall have delivered
evidence satisfactory to the Lender substantiating any of the matters
contained in this Agreement which are necessary to enable the Borrower to
qualify for such Loan or the issuance of such Letter of Credit;
(d) to the extent appropriate, with respect to the addition of
additional Oil and Gas Properties as a component included in the Borrowing
Base, the Lender shall have received, reviewed, and approved such
additional documents and items as described in Section 3.1 as may be
requested by the Lender with respect to such Loan or Letter of Credit;
(e) no event shall have occurred which, in the reasonable opinion of
the Lender, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in this
Agreement shall be true and correct and shall be deemed to be repeated by
the Borrower as if made on the requested date for such Loan or the issuance
of such Letter of Credit (except for such representations and warranties
which expressly refer to a prior date in which case they shall be true and
correct as of such earlier date); provided; however, that for purposes of
this Section 3.2, in each representation and warranty in Article IV that
makes reference to an Exhibit, the representation under this Section 3.2
that such representation and warranty in Article IV is true on and as of
the date of making of such Loan or issuance of such Letter of Credit shall
take into account (i) subsequent amendments to any Exhibit referred to
therein, (ii) notice received by the Lender which makes specific reference
to the applicable Exhibit specifying any exception, or (ii) disclosure made
by the Borrower prior to the date of such representation or warranty
provided that such amendment, exception or disclosure amends or waives
provisions of this Agreement or is otherwise required under the terms of
this Agreement.
(g) all of the Security Instruments shall be in full force and effect
and provide to the Lender the security intended thereby;
27
<PAGE>
(h) neither the consummation of the transactions contemplated hereby
nor the making of such Loan or the issuance of such Letter of Credit shall
contravene, violate, or conflict with any Requirement of Law except where
such contravention, violation or conflict would not reasonably be expected
to have a Material Adverse Effect; and
(i) the Borrower shall hold full legal title to the Collateral and be
the sole beneficial owner thereof, subject, however, to any Permitted
Liens.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender to enter into this Agreement and to make the
Loans and issue Letters of Credit, the Borrower represents and warrants to the
Lender (which representations and warranties shall survive the delivery of the
Note) that:
4.1 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, the repayment of the Note and interest and fees provided
for in the Note and this Agreement, the execution and delivery of the Security
Instruments by the Borrower and the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary corporate action by the Borrower, and do
not and will not (a) require the consent of any Governmental Authority, (b) to
the Borrower's knowledge contravene or conflict with any Requirement of Law, the
contravention or violation of which would be expected to have a Material Adverse
Effect, (c) contravene or conflict with any indenture, instrument, or other
agreement to which the Borrower is a party or by which any Property of the
Borrower may be presently bound or encumbered, the contravention of which would
be expected to have a Material Adverse Effect, or (d) result in or require the
creation or imposition of any Lien in, upon or of any Property of the Borrower
under any such indenture, instrument, or other agreement, other than the Loan
Documents and Permitted Liens.
4.2 Corporate Existence. The Borrower is a corporation duly
organized, legally existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and is in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
4.3 Valid and Binding Obligations. All Loan Documents when duly
executed and delivered by the Borrower, will be the legal, valid, and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency and
other similar laws or judicial decisions affecting creditors' rights generally
and by general equitable principals.
28
<PAGE>
4.4 Security Instruments. The provisions of each Security Instrument
are effective to create in favor of the Lender, a legal, valid, and enforceable,
except as may be limited by bankruptcy, insolvency and other similar laws or
judicial decisions affecting creditors' rights generally and by general
equitable principals, Lien in all right, title, and interest of the Borrower in
the Collateral described therein, which Liens, assuming the accomplishment of
recording and filing in accordance with applicable laws prior to the
intervention of rights of other Persons, shall constitute fully perfected first-
priority Liens on all right, title, and interest of the Borrower in the
Collateral described therein subject, however, to Permitted Liens.
4.5 Title to Assets. The Borrower has defensible title to all of its
Properties necessary or used in the ordinary course of the Borrower's business,
free and clear of all Liens except Permitted Liens except where the failure to
do so would not have a Material Adverse Effect.
4.6 Scope and Accuracy of Financial Statements. The Financial
Statements of the Borrower as of December 31, 1996, present fairly the financial
position and results of operations and cash flows of the Borrower in accordance
with GAAP as at the relevant point in time or for the period indicated, as
applicable. As of the Closing Date, no event or circumstance has occurred since
December 31, 1996, which could reasonably be expected to have a Material Adverse
Effect except as has been disclosed to the Lender.
4.7 No Material Misstatements. No information, exhibit, statement,
or report furnished to the Lender by or at the direction of the Borrower in
connection with this Agreement contains any material misstatement of fact or
omits to state a material fact or any fact necessary to make the statements
contained therein not misleading in any material respect as of the date made or
deemed made.
4.8 Liabilities, Litigation, and Restrictions. Other than as listed
under the heading "Liabilities" on Exhibit attached hereto, the Borrower has no
liabilities, direct, or contingent, which may materially and adversely affect
its business or operations or its ownership of the Collateral. Except as set
forth under the heading "Litigation" on Exhibit IV hereto, no litigation or
other action of any nature affecting the Borrower is pending before any
Governmental Authority or, to the best knowledge of the Borrower, threatened
against or affecting the Borrower which might reasonably be expected to result
in any impairment of its ownership of any material Collateral or have a Material
Adverse Effect. To the best knowledge of the Borrower, after due inquiry, no
unusual or unduly burdensome restriction, restraint or hazard exists by
contract, Requirement of Law, or otherwise relative to the business or
operations of the Borrower or the ownership and operation of the Collateral
other than such as relate generally to Persons engaged in business activities
similar to those conducted by the Borrower or which would not reasonably be
expected to have a Material Adverse Effect.
4.9 Authorizations; Consents. Except as expressly contemplated by
this Agreement, no authorization, consent, approval, exemption, franchise,
permit, or license of, or filing with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection with the
valid execution and delivery by the Borrower of the Loan Documents
29
<PAGE>
or any instrument contemplated hereby, the repayment by the Borrower of the Note
and interest and fees provided in the Note and this Agreement, or the
performance by the Borrower of the Obligations.
4.10 Compliance with Laws. To the best knowledge of the Borrower, the
Borrower and its Property, including, without limitation, the Mortgaged
Property, are in compliance with all applicable Requirements of Law, including,
without limitation, Environmental Laws, the Natural Gas Policy Act of 1978, as
amended, and ERISA, except to the extent non-compliance with any such
Requirements of Law could not reasonably be expected to have a Material Adverse
Effect.
4.11 ERISA. No Reportable Event has occurred with respect to any
Single Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the best knowledge of the Borrower, (a) no Reportable
Event has occurred with respect to any Multiemployer Plan, and (b) each
Multiemployer Plan has complied with and been administered in all material
respects with applicable provisions of ERISA and the Code except where such
occurrence or non-compliance would not reasonably be expected to have a Material
Adverse Effect. The present value of all benefits vested under each Single
Employer Plan maintained by the Borrower or any Commonly Controlled Entity
(based on the assumptions used to fund such Plan) did not, as of the last annual
valuation date applicable thereto, exceed the value of the assets of such Plan
allocable to such vested benefits. Neither the Borrower nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan for which there is any withdrawal liability of more than
$500,000. As of the most recent valuation date applicable to any Multiemployer
Plan, neither the Borrower nor any Commonly Controlled Entity would become
subject to any liability by more than $500,000 under ERISA if the Borrower or
such Commonly Controlled Entity were to withdraw completely from such
Multiemployer Plan. Neither the Borrower nor any Commonly Controlled Entity has
received notice that any Multiemployer Plan is Insolvent or in Reorganization.
To the best knowledge of the Borrower, no such Insolvency or Reorganization is
reasonably likely to occur. Based upon GAAP existing as of the date of this
Agreement and current factual circumstances, the Borrower has no reason to
believe that the annual cost during the term of this Agreement to the Borrower
and all Commonly Controlled Entities for post-retirement benefits to be provided
to the current and former employees of the Borrower and all Commonly Controlled
Entities under Plans which are welfare benefit plans (as defined in Section 3(1)
of ERISA) will, in the aggregate, have a Material Adverse Effect.
4.12 Environmental Laws. To the best knowledge and belief of the
Borrower, except as would not have a Material Adverse Effect, or as described on
Exhibit IV under the heading "Environmental Matters:"
(a) no Property of the Borrower is currently on or has ever been on,
or is adjacent to any Property which is on or has ever been on, any federal
or state list of Superfund Sites;
30
<PAGE>
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by the Borrower at a site which was, at the time of such
generation, transportation, and/or disposal, or has since become, a
Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by the Borrower
or from, affecting, or related to any Property of the Borrower or adjacent
to any Property of the Borrower has occurred; and
(d) no Environmental Complaint has been received by the Borrower.
4.13 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, T, U, or X.
4.14 Investment Company Act Compliance. The Borrower is not, nor is
the Borrower directly or indirectly controlled by or acting on behalf of any
Person which is, an "investment company" or an "affiliated person" of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
4.15 Public Utility Holding Company Act Compliance. The Borrower is
not a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
4.16 Proper Filing of Tax Returns; Payment of Taxes Due. The Borrower
has duly and properly filed its United States income tax return and all other
material tax returns which are required to be filed, other than for those
returns which are not yet due or for which appropriate extensions have been
received, including those for partnerships for which the Borrower is a general
partner, and has paid all federal and other material taxes due except (i) such
as are being contested in good faith, and (ii) taxes, assessments, levies or
other charges imposed by any other governmental authority (other than federal
income taxes) with respect to which the failure to make payments would not, by
reason of the amount thereof or of remedies available to such governmental
authorities, reasonably be expected to have a Material Adverse Effect. The
respective charges and reserves on the books of the Borrower with respect to
taxes and other governmental charges are adequate.
4.17 Refunds. Except as described on Exhibit under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any
Governmental Authority exist which could result in the Borrower being required
to refund any material portion of the proceeds received or to be received from
the sale of hydrocarbons constituting any material part of the Mortgaged
Property.
31
<PAGE>
4.18 Gas Contracts. Except as described on Exhibit IV under the
heading "Gas Contracts," the Borrower (a) is not obligated in any material
respect by virtue of any prepayment made under any material contract containing
a "take-or-pay" or "prepayment" provision or under any similar agreement to
deliver hydrocarbons produced from or allocated to any of the Mortgaged Property
at some future date without receiving full payment therefor within 90 days of
delivery, and (b) has not produced gas, in any material amount, subject to, and
neither the Borrower nor any material portion of the Mortgaged Properties is
subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements, except as to such matters for which the
Borrower has established monetary reserves adequate in amount to satisfy such
obligations.
4.19 Intellectual Property. The Borrower owns or is licensed to use
all Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business is
currently conducted except where the failure to own or be licensed would not
reasonably be expected to have a Material Adverse Effect. No claim has been
asserted or is pending by any Person with the respect to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any such Intellectual Property; and the Borrower knows of no
valid basis for any such claim. The use of such Intellectual Property by the
Borrower does not infringe on the rights of any Person, except for such claims
and infringements would not reasonably be expected to have a Material Adverse
Effect.
4.20 Casualties or Taking of Property. Except as disclosed on Exhibit
IV under the heading "Casualties," from December 31, 1996, to the Closing Date,
neither the business nor any Property of the Borrower has been materially
adversely affected as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance, embargo,
requisition or taking of Property, or cancellation of contracts, permits, or
concessions by any Governmental Authority, riot, activities of armed forces, or
acts of God.
4.21 Locations of Borrower. The principal place of business and chief
executive office of the Borrower is located at the address of the Borrower set
forth in Section 8.4 or at such other location as the Borrower may have, by
proper written notice hereunder, advised the Lender, provided that such other
location is within a state in which appropriate financing statements from the
Borrower in favor of the Lender have been filed.
4.22 Subsidiaries. As of the Closing Date, the Borrower has no
Subsidiaries except those described on Exhibit IV under the heading
"Subsidiaries".
4.23 Notice of Utility Security Instrument. The Borrower has never
filed a notice of utility security instrument affecting real property pursuant
to Section 35.07 of the Texas Business and Commerce Code.
32
<PAGE>
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower shall:
5.1 Maintenance and Access to Records. Keep adequate records, in
accordance with GAAP subject to customary adjustments, of all its transactions
so that at any time, and from time to time, its true and complete financial
condition may be readily determined, and promptly following the reasonable
request of the Lender upon 15 day prior written notice (except if an Event of
Default has occurred and is continuing, in which event no prior notice shall be
required), make such records available for inspection by the Lender during
normal business hours and allow the Lender to make and take away copies thereof.
Unless an Event of Default has occurred and is continuing, the Lender shall pay
its own costs and expenses relating to the exercise of its rights under this
Section and such inspection shall be limited to no more than once in any
calendar year.
5.2 Monthly Financial Statements; Compliance Certificates. Deliver
to the Lender, (a) on or before the 30th day after the month end of the
Borrower, a copy of the unaudited consolidated Financial Statements of the
Borrower as at the close of such monthly period and from the beginning of such
fiscal year to the end of such period, such Financial Statements to be certified
by a Responsible Officer of the Borrower as having been prepared in accordance
with GAAP consistently applied subject to customary adjustments and as a fair
presentation of the condition of the Borrower subject to changes resulting from
normal year-end audit adjustments, and (b) on or before the 45th day after the
close of each fiscal quarter, a Compliance Certificate.
5.3 Annual Financial Statements. (a) Deliver to the Lender, on or
before the 90th day after the close of each fiscal year of the Borrower, a copy
of the annual audited consolidated Financial Statements of the Borrower prepared
by Price Waterhouse & Company or another national accounting firm.
(b) Deliver within 30 days of any request therefor to the Lender all
Financial Statements, federal tax returns or other information on any
partnership in which the Borrower or any of its subsidiaries as may be
reasonably requested by the Lender, from time to time.
(c) Deliver within 30 days of any request therefore to the Lender all
Financial Statements on the Comite Field Plant Venture and copies of Associated
Natural Gas, Inc.'s calculations of Borrower's net profits interest for the
Comite Field Gas Gathering System as may be in the possession or control of the
Borrower and reasonably requested by the Lender from time to time.
5.4 Oil and Gas Reserve Reports. (a) Deliver to the Lender no later
than April 1 of each year during the term of this Agreement, engineering reports
in form and substance satisfactory to the Lender prepared by Netherland, Sewell
& Associates or another consulting petroleum engineering firm reasonably
acceptable to the Lender as fairly and accurately setting forth (i) the proven
and producing, shut-in, behind-pipe, and undeveloped oil and gas reserves
(separately classified as such) attributable to the Mortgaged Properties as of
December 31 of the previous year for which such reserve reports are furnished,
(ii) the aggregate present value of the future net income
33
<PAGE>
with respect to such Mortgaged Properties, discounted at a stated per annum
discount rate of proven and producing reserves, and (iii) projections of the
annual rate of production, gross income, and net income with respect to such
proven and producing reserves. Simultaneously therewith, Borrower shall furnish
to Lender information with respect to any material "take-or-pay," "prepayment,"
and gas-balancing liabilities of the Borrower.
(b) Deliver to the Lender no later than October 1 of each year during
the term of this Agreement, engineering reports in form and substance
satisfactory to the Lender prepared by Netherland, Sewell & Associates (or other
consulting petroleum engineers reasonably acceptable to Lender) or by or under
the supervision of the chief petroleum engineer of the Borrower evaluating the
Mortgaged Properties as of June 30 of the year for which such reserve reports
are furnished and updating the information provided in the reports pursuant to
Section 5.4(a).
(c) Each of the reports provided pursuant to this Section shall be
submitted to the Lender together with additional data concerning pricing,
quantities of production from the Mortgaged Properties, volumes of production
sold, purchasers of production, gross revenues, expenses, and such other
information and engineering and geological data with respect thereto as the
Lender may reasonably request.
5.5 Title Opinions; Title Defects. Promptly upon the request of the
Lender, furnish to the Lender title opinions, in form and substance and by
counsel satisfactory to the Lender, or other confirmation of title acceptable to
the Lender, covering Oil and Gas Properties constituting not less than 85% of
the present worth value, determined by the Lender in its sole discretion, of the
Mortgaged Properties; and promptly, but in any event within 60 days after notice
by the Lender of any defect, material in the opinion of the Lender in value, in
the title of the Borrower to any of its Oil and Gas Properties, cure such title
defects, and, in the event any such title defects are not cured in a timely
manner, Lender may redetermine the Borrowing Base in accordance with Section 2.7
taking such title defects into account, and to the extent that the Loan Balance
exceeds such redetermined Borrowing Base, Borrower shall eliminate such excess
in accordance with the provisions of Section 2.8.
5.6 Notices of Certain Events. Deliver to the Lender, within the
earlier of a reasonable period of time considering the nature of such occurrence
or five (5) Business Days after having knowledge of the occurrence of any of the
following events or circumstances, a written statement with respect thereto,
signed by a Responsible Officer of the Borrower and setting forth the relevant
event or circumstance and the steps being taken by the Borrower with respect to
such event or circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of the Borrower or any litigation, investigation, or proceeding between the
Borrower and any Governmental Authority which, in either case, if not cured
or if adversely
34
<PAGE>
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) any litigation or proceeding involving the Borrower as a defendant
or in which any Property of the Borrower is subject to a claim and in which
the amount involved and relating to Borrower is $500,000 or more and which
is not covered by insurance or in which injunctive or similar relief is
sought;
(d) the receipt by the Borrower of any Environmental Complaint which
could reasonably be expected to have a Material Adverse Effect;
(e) any actual, proposed, or threatened testing or other investigation
by any Governmental Authority or other Person concerning the environmental
condition of, or relating to, any Property of the Borrower or adjacent to
any Property of the Borrower following any allegation of a violation of any
Requirement of Law in each case which would reasonably be expected to have
a Material Adverse Effect;
(f) any Release of Hazardous Substances by the Borrower or from,
affecting, or related to any Property of the Borrower or adjacent to any
Property of the Borrower except in accordance with applicable Requirements
of Law or the terms of a valid permit, license, certificate, or approval of
the relevant Governmental Authority, or the violation of any Environmental
Law, or the revocation, suspension, or forfeiture of or failure to renew,
any permit, license, registration, approval, or authorization in each case
which could reasonably be expected to have a Material Adverse Effect;
(g) the change in identity or address of any Person remitting to the
Borrower proceeds from the sale of hydrocarbon production from or
attributable to any Mortgaged Property on a monthly basis;
(h) any change in the senior management (which, for the purposes
hereof shall mean the President, Chief Executive Officer, Chief Operating
Officer, or the Chief Financial Officer) of the Borrower;
(i) any Reportable Event or imminently expected Reportable Event with
respect to any Plan; any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan; the institution of
proceedings or the taking of any other action by the PBGC, the Borrower or
any Commonly Controlled Entity or Multiemployer Plan with respect to the
withdrawal from, or the termination, Reorganization or Insolvency of, any
Single Employer Plan or Multiemployer Plan; or any Prohibited Transaction
in connection with any Plan or any trust created thereunder and the action
being taken by the Internal Revenue Service with respect thereto, in each
case, which would reasonably be expected to have a Material Adverse Effect;
and
35
<PAGE>
(j) any other event or condition which could reasonably be expected to
have a Material Adverse Effect.
5.7 Letters in Lieu of Transfer Orders; Division Orders. Within 10
days of the request therefor by the Lender at any time and from time to time,
and without limitation on the rights of the Lender pursuant to Section 2.18,
execute such letters in lieu of transfer orders, in addition to the letters
signed by the Borrower and delivered to the Lender in satisfaction of the
condition set forth in Section 3.1(i)(iv), 3.1(i)(v) and/or division and/or
transfer orders as are necessary or appropriate, after an Event of Default, to
transfer and deliver to the Lender proceeds from or attributable to any
Mortgaged Property.
5.8 Additional Information. Furnish to the Lender, within ten days
after any material report (other than financial statements) or other
communication is sent by the Borrower to its stockholders or filed by the
Borrower with the Securities and Exchange Commission or any successor or
analogous Governmental Authority, copies of such report or communication and,
promptly upon the request of the Lender, such additional financial or other
information concerning the assets, liabilities, operations, and transactions of
the Borrower or its partnerships as the Lender may from time to time reasonably
request; and notify the Lender not less than ten Business Days prior to the
occurrence of any condition or event that may change the proper location for the
filing of any financing statement or other public notice or recording for the
purpose of perfecting a Lien in any Collateral, including, without limitation,
any change in its name or the location of its principal place of business or
chief executive office; and upon the request of the Lender, execute such
additional Security Instruments as may be necessary or appropriate in connection
therewith.
5.9 Compliance with Laws. Except to the extent the failure to comply
or cause compliance would not have a Material Adverse Effect, comply with all
applicable Requirements of Law, including, without limitation, (a) the Natural
Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental Laws, and (d)
all permits, licenses, registrations, approvals, and authorizations (i) related
to any natural or environmental resource or media located on, above, within, in
the vicinity of, related to or affected by any Property of the Borrower, (ii)
required for the performance of the operations of the Borrower, or (iii)
applicable to the use, generation, handling, storage, treatment, transport, or
disposal of any Hazardous Substances; and cause all employees, crew members,
agents, contractors, subcontractors, and future lessees (pursuant to appropriate
lease provisions) of the Borrower, while such Persons are acting within the
scope of their relationship with the Borrower, to comply with all such
Requirements of Law as may be necessary or appropriate to enable the Borrower to
so comply except to the extent that failure to comply or cause compliance would
not reasonably be expected to have a Material Adverse Effect.
5.10 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien other than a Permitted Lien against the Property of the Borrower,
including all trade creditors and vendors within sixty (60) days of receipt of
their invoices, except any of the foregoing being contested in good faith and as
to which adequate reserve in accordance with GAAP has been established or unless
failure to pay would not have a Material Adverse Effect.
36
<PAGE>
5.11 Maintenance of Corporate Existence and Good Standing. Maintain
its corporate existence or qualification and good standing in its jurisdictions
of incorporation and in all jurisdictions wherein the Property now owned or
hereafter acquired or business now or hereafter conducted necessitates same,
unless the failure to do so would not have a Material Adverse Effect.
5.12 Payment of Notes; Performance of Obligations. Pay the Note
according to the reading, tenor, and effect thereof, as modified hereby, and do
and perform every act and discharge all of its other Obligations.
5.13 Further Assurances. Promptly cure any defects in the execution
and delivery of any of the Loan Documents and all agreements contemplated
thereby, and execute, acknowledge, and deliver such other assurances and
instruments as shall, in the opinion of the Lender, be necessary to fulfill the
express terms of the Loan Documents.
5.14 Initial Fees and Expenses of Counsel to Lender. On the Closing
Date, promptly reimburse the Lender for all reasonable fees and expenses of
Jackson Walker L.L.P., special counsel to the Lender, in connection with the
preparation of this Agreement and all documentation contemplated hereby, the
satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Instruments, and the consummation of the transactions
contemplated in this Agreement.
5.15 Subsequent Fees and Expenses of Lender. Within 30 days of
request by the Lender, promptly reimburse the Lender (to the fullest extent
permitted by law) for all amounts reasonably expended, advanced, or incurred by
or on behalf of the Lender to satisfy any obligation of the Borrower under any
of the Loan Documents; to collect the Obligations; to ratify, amend, restate, or
prepare additional Loan Documents, as the case may be; for the filing and
recordation of Security Instruments; to enforce the rights of the Lender under
any of the Loan Documents; and to protect the Properties or business of the
Borrower including, without limitation, the Collateral, which amounts shall be
deemed compensatory in nature and liquidated as to amount upon notice to the
Borrower by the Lender and which amounts shall include, but not be limited to
(a) all court costs, (b) reasonable attorneys' fees, (c) reasonable fees and
expenses of auditors and accountants incurred to protect the interests of the
Lender subsequent to the occurrence, and during the continuance of an Event of
Default, (d) reasonable fees and expenses incurred in connection with the
participation by the Lender as a member of the creditors' committee in a case
commenced under any Insolvency Proceeding, (e) fees and expenses incurred in
connection with lifting the automatic stay prescribed in (S)362 Title 11 of the
United States Code, and (f) reasonable fees and expenses incurred in connection
with any action pursuant to (S)1129 Title 11 of the United States Code all
reasonably incurred by the Lender in connection with the collection of any sums
due under the Loan Documents, together with interest, if any, at the per annum
interest rate equal to the Floating Rate, calculated on a basis of a calendar
year of 365 or 366 days, as the case may be, counting the actual number of days
elapsed, on each such amount from the date which is thirty (30) days after
receipt of notification that the same was expended, advanced, or incurred by the
Lender until 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 Insolvency Proceeding and being binding upon the
37
<PAGE>
Borrower and/or a trustee, receiver, custodian, or liquidator of the Borrower
appointed in any such case.
5.16 Operation of Oil and Gas Properties. Develop, maintain, and
operate its Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
5.17 Maintenance and Inspection of Properties. Maintain all of its
material tangible Properties in good repair and condition, ordinary wear and
tear excepted; make all necessary replacements thereof and operate such
Properties in a good and workmanlike manner; and permit any authorized
representative of the Lender to visit and inspect any tangible Property of the
Borrower during normal business hours after fifteen (15) days prior notice to
the Borrower (provided that no such prior notice shall be required if an Event
of Default exists and is continuing). Unless an Event of Default has occurred
and is continuing, the Lender shall pay it sown costs and expenses relating to
the exercise of its rights under this Section and such inspections shall be
limited to no more than once during any calendar year.
5.18 Maintenance of Insurance. Maintain insurance with respect to its
Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lender and, within 30 days of the Closing Date for property
damage insurance covering Collateral and business interruption insurance, if
any, maintained by Borrower, naming the Lender as loss payee, and, upon any
renewal of any such insurance and at other times upon request by the Lender,
furnish to the Lender evidence, reasonably satisfactory to the Lender, of the
maintenance of such insurance. If an Event of Default has occurred and is
continuing, the Lender shall have the right to collect, and the Borrower hereby
assigns to the Lender, any and all monies that may become payable under any
policies of insurance relating to business interruption or by reason of damage,
loss, or destruction of any of the Collateral. If an Event of Default has
occurred and is continuing, in the event of any damage, loss, or destruction for
which insurance proceeds relating to business interruption or Collateral exceed
$1,000,000, the Lender may, at its option, apply all such sums or any part
thereof received by it toward the payment of the Obligations, whether matured or
unmatured, application to be made first to interest and then to principal, and
shall deliver to the Borrower the balance, if any, after such application has
been made. In the event of any such damage, loss, or destruction for which
insurance proceeds are $1,000,000 or less, provided that no Default or Event of
Default has occurred and is continuing (other than those which exist as a result
of such damage, loss or destruction), the Lender shall deliver any such proceeds
received by it to the Borrower. In the event the Lender receives insurance
proceeds not attributable to Collateral or business interruption, or otherwise
permitted to be paid to or retained by the Borrower as provided in this Section,
the Lender shall deliver any such proceeds to the Borrower.
38
<PAGE>
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE LENDER AND ITS
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND
AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE LENDER UNDER ANY SECURITY
INSTRUMENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES, DAMAGES,
LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS
AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND ENFORCEMENT ACTIONS OF
ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN CONNECTION THEREWITH
(INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES AND EXPENSES),
ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE PRESENCE OF
ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE BORROWER WHETHER
PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON
OR OFF ANY PROPERTY OF ANY OF THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM
HEREOF, AND WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE, EMPLOYEE,
AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER PERSON AT ANY
TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE HANDLING,
TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION, OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER
SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE
BORROWER, (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING IN
CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER OR ANY EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS ARE ACTING
WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER, IRRESPECTIVE OF
WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH
APPLICABLE REQUIREMENTS OF LAW, AND (E) THE PERFORMANCE AND ENFORCEMENT OF ANY
LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF A LETTER OF CREDIT OF A
WRONGFUL DISHONOR BY THE LENDER OF A CLAIM OR DRAFT PRESENTED THEREUNDER, OR ANY
OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY. THE FOREGOING INDEMNITY SHALL COVER AND
INCLUDE ANY OF THE FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE (OTHER THAN
GROSS NEGLIGENCE OR WILFUL MISCONDUCT), WHETHER SOLE OR CONCURRENT, ON THE PART
OF THE LENDER OR ANY OF ITS SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS-IN-FACT, OR AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE
LENDER UNDER ANY SECURITY INSTRUMENT, AND SHALL COVER ALL CLAIMS, DAMAGES,
LIABILITIES, AND EXPENSES, INCLUDING ATTORNEYS FEES, WHICH MAY BE ASSERTED
AGAINST LENDER IN CONNECTION WITH OR ARISING OUT OF ANY INVESTIGATION,
LITIGATION OR PROCEEDING RELATED TO THIS TRANSACTION; PROVIDED, HOWEVER, THAT
THE INDEMNIFICATION PROVIDED HEREIN SHALL NOT APPLY TO ANY SUCH CLAIMS, DAMAGES
OR LIABILITIES ARISING FROM THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF LENDER
OR ANY OF ITS OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES. THE FOREGOING INDEMNITY
SHALL SURVIVE SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS
AGREEMENT.
39
<PAGE>
5.20 Lockbox Arrangement. Execute, maintain in full force and effect,
and comply in all respects with the provisions of such documentation as may be
reasonably required by the Lender to establish the Lockbox and the Lockbox
Account (including, without limitation, the Lockbox Agreement with attached
schedule of Lockbox Standard Processing Procedures and an associated Lockbox
Setup Checklist); direct all purchasers of production from the Mortgaged
Properties to make remittance to the Lockbox; and deposit directly into the
Lockbox Account all funds received by the Borrower, if any, from purchasers of
production from the Mortgaged Properties. Funds received in the Lockbox shall
be transferred daily by the Lender to the Lockbox Account. Prior to the
occurrence of an Event of Default, the Borrower shall have full access to the
Lockbox Account and all funds of Borrower therein by way of draft, check, wire
transfer of funds, or otherwise. Upon the occurrence of an Event of Default,
access by the Borrower to the Lockbox Account and the funds therein shall
terminate, and the Lender may, at its option, apply any or all of such funds to
the Obligations, whether matured or unmatured. Nothing contained herein,
however, shall be construed to grant to Lender a security interest in, or
otherwise encumber, any funds of royalty owners, other working interest owners,
partnerships for which Borrower acts as general partner, or other third parties
for which Borrower receives and disburses proceeds in the ordinary course of
business.
5.21 Interest Rate Hedge. Enter into an agreement hedging the
interest rate risk associated with a minimum of $20,000,000 of the Commitment
Amount for a minimum of 24 months. All interest rate hedges will be executed
with the Lender or an entity acceptable to the Lender.
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower will not:
6.1 Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 60 days over due date or are being contested in good faith
and as to which such reserve as is required by GAAP has been made, (c) other
Indebtedness not exceeding $150,000.00 in the aggregate at any time outstanding,
(d) Indebtedness arising under production sales agreements, operating
agreements, oil, gas and mineral leases, processing agreements and similar
agreements customary in the oil and gas business and entered into by Borrower in
the ordinary course of business, (e) any renewals and extensions or
substitutions or replacements of any of the foregoing; (f) crude oil, natural
gas, or other hydrocarbon floor, collar, cap, price protection, or swap
agreements, in form and substance and with a Person acceptable to the Lender,
provided that (i) each commitment issued under such agreement must also be
approved by the Lender, (ii) such agreements shall not be entered into with
respect to Mortgaged Properties constituting more than
40
<PAGE>
75% of the present value of estimated future net revenues, computed using a
discount factor of 10%, of all proved developed producing Mortgaged Properties,
and (iii) that the floor prices in such agreements are not less than the prices
used by the Lender in its most recent Borrowing Base determination, and (g) any
Indebtedness with respect to interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements or agreements entered into by the
borrower for the purpose of reducing the Borrower's exposure to interest rate
fluctuations and not for speculative purposes, as the same may be from time to
time amended, modified, restated or supplemented in form and substance and with
a person acceptable to the Lender not to exceed the Commitment Amount and
maturity not beyond the Commitment Termination Date.
6.2 Contingent Obligations. Create, incur, assume, or suffer to
exist any Contingent Obligation; provided, however, the foregoing restriction
shall not apply to (a) performance guarantees and performance surety or other
bonds provided in the ordinary course of business, (b) trade credit incurred or
operating leases entered into in the ordinary course of business, (c) any
Contingent Obligations, Indebtedness arising under production sales agreements,
operating agreements, oil, gas and mineral leases, processing agreements and
similar agreements customary in the oil and gas business and entered into by
Borrower in the ordinary course of business and (d) with respect to other
Indebtedness permitted under the Agreement.
6.3 Liens. Create, incur, assume, or suffer to exist any Lien on any
of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to Permitted Liens of the types described in (a) through (g) of the
definition thereof with respect to Oil and Gas Properties or Permitted Liens
with respect to other Property.
6.4 Sales of Assets. Without the prior written consent of the
Lender, sell, transfer, or otherwise dispose of, in one or any series of
transactions, assets, whether now owned or hereafter acquired and which are
included in the calculation of the Borrowing Base with a present value which
exceeds $500,000 or unlimited if not included in the Borrowing Base, or enter
into any agreement to do so; provided, however, the foregoing restriction shall
not apply to (a) the sale of hydrocarbons or inventory in the ordinary course of
business provided that no contract for the sale of hydrocarbons shall obligate
the Borrower to deliver hydrocarbons produced from any of the Mortgaged Property
at some future date without receiving full payment therefor within 90 days of
delivery, (b) the sale or other disposition of Property destroyed, lost, worn
out, damaged, or having only salvage value or no longer used or useful in the
business of the Borrower, (c) transfers resulting from casualty or condemnation
of Property, (d) intercompany sales or transfers of goods, (e) licenses or
sublicenses of Intellectual Property and general intangibles and licenses,
leases or subleases of other Property in the ordinary course of business and
which do not materially interfere with Borrower's business or operation or
otherwise have a Material Adverse Effect, and (f) sales of any investment assets
(including, without limitations, stocks, bond, cash equivalents, etc.) in the
ordinary course of business.
6.5 Leasebacks. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
41
<PAGE>
6.6 Sale or Discount of Receivables. Except to minimize losses on
bona fide debts previously contracted, discount or sell with recourse, or sell
for less than the greater of the face or market value thereof, any of its notes
receivable or accounts receivable.
6.7 Loans or Advances. Make or agree to make or allow to remain
outstanding any loans or advances to any Person; provided, however, the
foregoing restrictions shall not apply to (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, and (b)
advances to employees of the Borrower for the payment of expenses in the
ordinary course of business.
6.8 Investments. Acquire investments in, or purchase or otherwise
acquire all or substantially all of the assets of, any Person; provided,
however, the foregoing restriction shall not apply to (a) the purchase or
acquisition of, or other investment in, whether directly or indirectly, Oil and
Gas Properties, and other assets relating thereto, including, without
limitation, assets or properties associated with the exploration, development,
production, marketing, processing or transportation of such Oil and Gas
Properties and the hydrocarbons and other minerals produced therefrom, and (b)
Investments in the form of (i) debt securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, or (ii) Bank One, Texas, N.A. banker's acceptances and
certificates of deposit or other deposit accounts maintained with any financial
institution having a combined capital and surplus in excess of $250,000,000.
6.9 Dividends. Effective December 31, 1997, declare, pay, or make,
whether in cash or Property of the Borrower, any dividend or distribution on, or
purchase, redeem, or otherwise acquire for value, any share of any class of its
capital stock except for dividends or distributions payable solely in shares of
the common capital stock or additional shares of preferred stock of Borrower.
Notwithstanding the above, cash dividends on any preferred stock will be allowed
if Borrower maintains a minimum ratio of Cash Flow to Debt Service of 1.20 to
1.00 and no Default or Event of Default exists and the payment of such dividends
would not result in an Event of Default.
6.10 Changes in Corporate Structure. Enter into any transaction of
consolidation, merger, or amalgamation; liquidate, wind up, or dissolve (or
suffer any liquidation or dissolution). Notwithstanding the foregoing (a) any
Subsidiary may merge with Borrower provided that Borrower is the surviving
entity, or with one or more Subsidiaries provided that if any merger is between
a wholly-owned Subsidiary and a Subsidiary which is not a wholly-owned
Subsidiary, such wholly-owned Subsidiary shall be the surviving entity, (b) any
Subsidiary may sell all or substantially all of its assets (upon voluntary
liquidation or otherwise) to Borrower or another wholly-owned Subsidiary, (c)
any inactive Subsidiary or Subsidiary not material to the operations of Borrower
and its Subsidiaries taken as a whole may be liquidated or dissolved, and (d)
mergers, consolidations or dissolutions by any Subsidiary of Borrower to change
state of incorporation or to change the form of entity are not prohibited.
6.11 Lines of Business. Expand, on its own or through any Subsidiary,
into any line of business other than those in which the Borrower is engaged as
of the date hereof which include, without limitation, the acquisition,
exploration, production, processing, transporting and development of oil and gas
properties.
42
<PAGE>
6.12 Rental or Lease Agreements. Enter into any contract to rent or
lease any Properties, real or personal, the aggregate of rental and lease
payments under which in any calendar or fiscal year will exceed the sum of
$500,000.00; provided, however, the foregoing restriction shall not apply to
oil, gas, and mineral leases.
6.13 ERISA Compliance. Permit any Plan maintained by it or any
Commonly Controlled Entity to (a) engage in any Prohibited Transaction, (b)
incur any "accumulated funding deficiency," as such term is defined in Section
302 of ERISA in excess of $500,000, or (c) terminate in a manner which could
result in the imposition of a Lien on any Property of the Borrower pursuant to
Section 4068 of ERISA; or assume an obligation to contribute to any
Multiemployer Plan; or acquire any Person or the assets of any Person which has
now or has had at any time an obligation to contribute to any Multiemployer
Plan.
6.14 Current Ratio. Permit the ratio of Current Assets to Current
Liabilities on a quarterly consolidated basis to be less than 1.00 to 1.00.
6.15 Tangible Net Worth. Permit Tangible Net Worth as of the close of
any fiscal quarter to be less than the amount existing on June 30, 1997, less
$500,000, plus 90% of positive Net Income and 75% of the net proceeds realized
from the sale or issuance of equity for all fiscal periods ending subsequent to
June 30, 1997.
6.16 Debt Coverage Ratio. Effective December 31, 1997, ;permit, as of
the close of any fiscal quarter, on a consolidated basis, the ratio of Cash Flow
to Debt Service to be less than 1.10 to 1.00.
6.17 Capital Expenditures. Make expenditures for capital or fixed
assets in any fiscal year other than for domestic oil and gas properties and
related assets required in the ordinary course of business and not to exceed the
aggregate amount of $50,000.00.
6.18 General and Administrative Expenses. Effective December 31,
1997, Borrower shall not permit general and administrative expenses to be more
than 14% of gross revenues as determined on a rolling four quarter basis.
ARTICLE VII
-----------
EVENTS OF DEFAULT
-----------------
7.1 Enumeration of Events of Default. Any of the following events
shall constitute an Event of Default:
(a) default shall be made by the Borrower in the payment or prepayment
when due of any installment of principal or interest under this Agreement
or the Note or in the payment when due of any fee or other sum payable
under any Loan Document;
43
<PAGE>
(b) default shall be made by the Borrower in the due observance or
performance of any of its obligations under the Loan Documents, and such
default shall continue for 30 days after the earlier of written notice
thereof to the Borrower by the Lender or knowledge thereof by the Borrower;
(c) any representation or warranty made by the Borrower in any of the
Loan Documents proves to have been untrue in any material respect or any
representation, statement (including Financial Statements), certificate, or
data furnished or made to the Lender in connection herewith proves to have
been untrue or misleading in any material respect as of the date the facts
therein set forth were stated or certified;
(d) default shall be made by the Borrower (as principal or guarantor
or other surety) in the payment or performance of any bond, debenture,
note, or other Indebtedness, any other 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 the effect of which would have a Material Adverse Effect;
(e) the Borrower shall be unable to satisfy any condition or cure any
circumstance specified in Article III, the satisfaction or curing of which
is precedent to the right of the Borrower to obtain a Loan or the issuance
of a Letter of Credit, and such inability shall continue for a period in
excess of 30 days;
(f) the Borrower shall (i) apply for or consent to the appointment of
a receiver, trustee, or liquidator of it or all or a substantial part of
its assets, (ii) file a voluntary petition commencing an Insolvency
Proceeding, (iii) make a general assignment for the benefit of creditors,
(iv) be unable, or admit in writing its inability, to pay its debts
generally as they become due, or (v) file an answer admitting the material
allegations of a petition filed against it in any Insolvency Proceeding;
(g) an order, judgment, or decree shall be entered against the
Borrower by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise, granting
relief in any Insolvency Proceeding or approving a petition seeking
reorganization or an arrangement of its debts or appointing a receiver,
trustee, conservator, custodian, or liquidator of it or all or any
substantial part of its assets, and such order, judgment, or decree shall
not be dismissed or stayed within 90 days;
(h) the levy against any significant portion of the Property of the
Borrower or any execution, garnishment, attachment, sequestration, or other
writ or similar proceeding which is not permanently dismissed or discharged
within 90 days after the entry thereof;
(i) a final and non-appealable order, judgment, or decree shall be
entered against the Borrower for money damages and/or Indebtedness due in
an amount in
44
<PAGE>
excess of $500,000, and such order, judgment, or decree shall not be
dismissed or stayed within 90 days of the entry thereof;
(j) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against the Borrower under the
Racketeering Influence and Corrupt Organizations Statute (18 U.S.C. (S)1961
et seq.), the reasonably likely result of which would be the forfeiture or
transfer of any material Property of the Borrower subject to a Lien in
favor of the Lender without (i) satisfaction or provision for satisfaction
of such Lien, or (ii) such forfeiture or transfer of such Property being
expressly made subject to such Lien;
(k) the Borrower shall have (i) concealed, removed, or diverted, or
permitted to be concealed, removed, or diverted, any part of its Property,
with intent to hinder, delay, or defraud its creditors or any of them, (ii)
made or suffered a transfer of any of its Property which may be fraudulent
under any bankruptcy, fraudulent conveyance, or similar law, except as
requested by the Lender, (iii) made any transfer of its Property to or for
the benefit of a creditor at a time when other creditors similarly situated
have not been paid amounts owing thereto when due, except as requested by
the Lender, or (iv) shall have suffered or permitted, while insolvent, any
creditor, other than Lender, to obtain a Lien upon any of its Property
through legal proceedings or distraint which is not vacated within 90 days
from the date thereof;
(l) any Security Instrument shall for any reason not, or cease to,
create valid and perfected first-priority Liens subject to Permitted Liens
against the Collateral purportedly covered thereby;
(m) the occurrence of a Material Adverse Effect and the same shall
remain unremedied for in excess of 30 days after notice given by the
Lender; or
(n) except to the extent that the occurrence of such event would not
reasonably be expected to result in a Material Adverse Effect, the Borrower
shall engage in any "prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Code) involving any Plan; any "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan for which an excise tax is due
or would be due in the absence of a waiver; a Reportable Event shall occur
with respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any Single
Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Lender,
likely to result in the termination of such Plan for purposes of Title IV
of ERISA; any Single Employer Plan shall terminate for purposes of Title IV
of ERISA; the Borrower or any Commonly Controlled Entity shall incur, or in
the reasonable opinion of the Lender, be likely to incur any liability in
connection with a withdrawal from, or the Insolvency or Reorganization of,
a Multiemployer Plan; or any other event or condition shall occur or exist
with respect to a Plan and the result of such events or conditions referred
to in this Section 7.1(o) could subject the Borrower or any Commonly
Controlled Entity to any tax (other than an excise tax under Section
45
<PAGE>
4980 of the Code), penalty or other liabilities which taken in the
aggregate would have a Material Adverse Effect and any such circumstance
shall exist for in excess of 30 days.
7.2 Remedies. (a) Upon the occurrence of an Event of Default
specified in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lender
in writing; and (iii) the Lender is hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being expressly waived
by the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held by the Lender and any and all other
indebtedness at any time owing by the Lender to or for the credit or account of
the Borrower against any and all of the Obligations; and (iv) access by the
Borrower to the Lockbox Account and all funds therein shall terminate and the
Lender is hereby authorized at any time and from time to time, without notice to
the Borrower (any such notice being expressly waived by the Borrower), to set-
off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Lender, including, without limitation, the
funds of the Borrower held in the Lockbox or Lockbox Account, and any and all
other indebtedness at any time owing by the Lender to or for the credit or
account of the Borrower against any and all of the Obligations.
(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Lender may, by notice to the
Borrower, declare all Obligations immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lender
in writing; and (iii) the Lender is hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being expressly waived
by the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held by the Lender and any and all other
indebtedness at any time owing by the Lender to or for the credit or account of
the Borrower against any and all of the Obligations although such Obligations
may be unmatured; and (iv) access by the Borrower to the Lockbox Account and all
funds therein shall terminate and the Lender is hereby authorized at any time
and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) held by the Lender,
including, without limitation, the funds of the Borrower held in the Lockbox or
Lockbox Account, and any and all other indebtedness at any time owing by the
Lender to or for the credit or account of the Borrower against any and all of
the Obligations.
(c) Upon the occurrence of any Event of Default, the Lender may, in
addition to the foregoing in this Section, exercise any or all of its rights and
remedies provided by law or pursuant to the Loan Documents.
46
<PAGE>
ARTICLE VIII
------------
MISCELLANEOUS
-------------
8.1 Transfers; Participations. The Lender may, at any time, sell,
transfer, assign, or grant participations in the Obligations or any portion
thereof, provided, however, that Lender (i) shall not sell, transfer, assign or
grant participations in any portion of the Obligations to Bank of Montreal or
any affiliate thereof, and (ii) shall be the legal and beneficial holder of at
least 20% of the Obligations at all times and Borrower shall be entitled to deal
solely with Lender with respect to the payment of the Obligations and the
performance of its other obligations under this Agreement and the other Loan
Documents, regardless of the existence of such Transferees; and the Lender may
forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable.
8.2 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Note and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.
8.3 Notices and Other Communications. Except as to verbal notices
expressly authorized herein, which verbal notices shall be confirmed in writing,
all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
when deposited in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:
(a) if to the Lender, to:
Bank One, Texas, N.A.
910 Travis Street
Houston, Texas 77002
Attention: Christine M. Macan
(or for notice by mail, to:
P.O. Box 2629
Houston, Texas 77252-2629
Attention: Christine M. Macan
Title: Vice President
Telephone: (713) 751-3484
Telecopy: (713) 751-3544
(b) if to the Borrower, to:
Sheridan Energy, Inc.
1000 Louisiana, Suite 800
47
<PAGE>
Houston, Texas 77002
Attention: B.A. Berilgan
Title: President and CEO
Telephone: (713) 651-7899
Telecopy: (713) 651-3056
with a copy to:
Winstead Sechrest & Minick P.C.
910 Travis Street, Suite 2400
Houston, Texas 77002
Attention: Arthur S. Berner
Telephone: (713) 650-2729
Telecopy: (713) 650-2400
Any party may, by proper written notice hereunder to the others,
change the individuals or addresses to which such notices to it shall thereafter
be sent.
8.4 Parties in Interest. Subject to the restrictions on changes in
corporate structure set forth in Section 6.10 and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrower or the Lender shall be binding upon and inure to the benefit of
the Borrower or the Lender, as the case may be, and their respective legal
representatives, successors, and assigns.
8.5 Rights of Third Parties. All provisions herein are imposed
solely and exclusively for the benefit of the Lender and the Borrower. No other
Person shall have any right, benefit, priority, or interest hereunder or as a
result hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms, 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
it deems it advisable to do so.
8.6 Renewals; Extensions. All provisions of this Agreement relating
to the Note shall apply with equal force and effect to each promissory note
hereafter executed which in whole or in part represents a renewal or extension
of any part of the Indebtedness of the Borrower under this Agreement, the Note,
or any other Loan Document.
8.7 No Waiver; Rights Cumulative. No course of dealing on the part
of the Lender, its officers or employees, nor any failure or delay by the Lender
with respect to exercising any of its rights under any Loan Document shall
operate as a waiver thereof. The rights of the Lender under the Loan Documents
shall be cumulative and the exercise or partial exercise of any such right shall
not preclude the exercise of any other right. Neither the making of any Loan
nor the issuance of a Letter of Credit shall constitute a waiver of any of the
covenants, warranties, or conditions of the Borrower contained herein. In the
event the Borrower is unable to satisfy any such covenant, warranty, or
condition, neither the making of any Loan nor the issuance of a Letter of Credit
shall have the effect of precluding the Lender from thereafter declaring such
inability to be an Event of Default as hereinabove provided.
48
<PAGE>
8.8 Survival Upon Unenforceability. In the event any one or more of
the provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.
8.9 Amendments; Waivers. Neither this Agreement nor any provision
hereof may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
8.10 Controlling Agreement. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.
8.11 Disposition of Collateral. Notwithstanding any term or
provision, express or implied, in any of the Security Instruments, the
realization, liquidation, foreclosure, or any other disposition on or of any or
all of the Collateral shall be in the order and manner and determined in the
sole discretion of the Lender; provided, however, that in no event shall the
Lender violate applicable law or exercise rights and remedies other than those
provided in such Security Instruments or otherwise existing at law or in equity.
8.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO BE
CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS
FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
8.13 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON, HARRIS
COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.
8.14 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER AND THE LENDER
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM,
OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR
ANY
49
<PAGE>
OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL
INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.
8.15 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
8.16 ACKNOWLEDGMENT REGARDING CERTAIN PROVISIONS. EACH OF THE PARTIES
HERETO SPECIFICALLY ACKNOWLEDGES AND AGREES (A) THAT IT HAS A DUTY TO READ THIS
AGREEMENT AND THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS HEREOF,
(B) THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND AS FULL
NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT, (C)
THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND HAS RECEIVED THE
ADVICE OF SUCH COUNSEL IN CONNECTION WITH ENTERING INTO THIS AGREEMENT, AND (D)
THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT PROVIDE FOR THE
ASSUMPTION BY ONE PARTY OF, AND/OR RELEASE OF THE OTHER PARTY, FROM CERTAIN
LIABILITIES ATTRIBUTABLE TO THIS TRANSACTION OR THE ASSETS THAT SUCH PARTY WOULD
OTHERWISE BE RESPONSIBLE FOR UNDER THE LAW. EACH PARTY HERETO FURTHER AGREES
AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
SUCH PROVISIONS OF THIS AGREEMENT ON THE BASIS THAT THE PARTY HAD NO NOTICE OR
KNOWLEDGE OF SUCH PROVISION OR THAT SUCH PROVISIONS ARE NOT "CONSPICUOUS".
8.17 Counterparts. For the convenience of the parties, this Agreement
may be executed in multiple counterparts, each of which for all purposes shall
be deemed to be an original, and all such counterparts shall together constitute
but one and the same Agreement.
8.18 Confidentiality. (a) The Lender, notwithstanding any other
provision of this Agreement, shall hold all nonpublic information, trade secrets
and other confidential information (collectively "Confidential Information")
obtained from any of Borrower or any of its Subsidiaries or any of their
respective officers, employees, agents, attorneys, accountants or Affiliates
(whether furnished by Borrower or such Subsidiaries to the Lender or discovered
pursuant to any inspection
50
<PAGE>
by the Lender) confidential and shall not make any unauthorized disclosure of
any Confidential Information, or make any unauthorized use thereof of such
information.
(b) The Lender's obligations under this Section 8.18 shall not extend
to:
(i) Confidential Information which is or becomes part of the public
domain or is or becomes available to the public by publication or without
the disclosure by such person; or
(ii) Confidential Information which, either prior to or subsequent to
the Borrower's or a Subsidiary's disclosure to the Lender with an
obligations of confidentiality, was disclosed to the Lender by a third
party who did not acquire such information directly or indirectly, from
such Lender, or the Borrower or any Subsidiary, or any third party who is
under this obligation or confidentiality; or
(iii) Any disclosure of confidential information by the Lender
which is required by law, including deposition or trial testimony by such
Person pursuant to subpoena.
(c) The provisions of this Section 8.18 shall survive the date of
termination of this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed executed effective as of
the date first above written.
BORROWER:
SHERIDAN ENERGY, INC.
By: __________________________________________
Michael A. Gerlich
Vice President and Chief Financial Officer
LENDER:
BANK ONE, TEXAS, N.A.
By: ___________________________________________
Christine M. Macan
Vice President
51
<PAGE>
EXHIBIT I
---------
[FORM OF NOTE]
PROMISSORY NOTE
---------------
$100,000,000 Houston, Texas September 30, 1997
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker")
promises to pay to the order of Bank One, Texas, N.A. ("Payee"), at its banking
quarters in Houston, Harris County, Texas, the sum of ONE HUNDRED MILLION
DOLLARS ($100,000,000), or so much thereof as may be advanced and outstanding
against this Note pursuant to the First Amended and Restated Credit Agreement
dated of even date herewith by and between Maker and Payee (as amended,
restated, or supplemented from time to time, the "Credit Agreement"), together
with interest at the rates and calculated as provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, certain events which will entitle the
holder hereof to accelerate the maturity of all amounts due hereunder.
Capitalized terms used but not defined in this Note shall have the meanings
assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is the "Note" under, and is payable
as provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.
This Note is issued, in whole or in part, in renewal and extension,
but not in novation or discharge, of the remaining principal balance existing on
September 30, 1997.
Without being limited thereto or thereby, this Note is secured by the
Security Instruments.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW;
PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL
NOT APPLY TO THIS NOTE.
SHERIDAN ENERGY, INC.
By: ___________________________________________
Michael A. Gerlich
Vice President and Chief Financial Officer
I-i
<PAGE>
EXHIBIT II
----------
[FORM OF BORROWING REQUEST]
Bank One, Texas, National Association
910 Travis Street
Houston, Texas 77002
Attention: Energy Group, 6th Floor
Re: First Amended and Restated Credit Agreement dated as of September 30,
1997, by and between Sheridan Energy, Inc. and Bank One, Texas,
National Association (as amended, restated, or supplemented from time
to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower hereby makes the
requests indicated below:
1. Loans
(a) Amount of new Loan: $________________
(b) Requested funding date: ___________, 19___
(c) $________________ of such Loan is to be a Floating Rate Loan;
$________________ of such Loan is to be a LIBO Rate Loan.
Requested Interest Period for LIBO Rate Loan: ____ months.
2. Continuation or conversion of LIBO Rate Loan maturing on __________:
(a) Amount to be continued as a LIBO Rate Loan is $______________________,
with an Interest Period of ____ months;
(b) Amount to be converted to a Floating Rate Loan is $________________;
and
3. Conversion of Floating Rate Loan:
(a) Requested conversion date: __________, 19____.
(b) Amount to be converted to a LIBO Rate Loan is $________, with an
Interest Period of _____ months.
The undersigned certifies that [s]he is the [__________] of the
Borrower, has obtained all consents necessary, and as such [s]he is authorized
to execute this request on behalf of the Borrower.
II-i
<PAGE>
The undersigned further certifies, represents, and warrants on behalf of the
Borrower that the Borrower is entitled to receive the requested borrowing,
continuation, or conversion under the terms and conditions of the Credit
Agreement.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
SHERIDAN ENERGY, INC.
By: ____________________________________
Printed Name: __________________________
Title: _________________________________
II-ii
<PAGE>
EXHIBIT III
-----------
[FORM OF COMPLIANCE CERTIFICATE]
______________, 19__
Bank One, Texas, National Association
910 Travis
Houston, Texas 77002
Attention: Energy Group, 6th Floor
Re: First Amended and Restated Credit Agreement dated as of September 30,
1997, by and between Sheridan Energy, Inc. and Bank One, Texas,
National Association (as amended, restated, or supplemented from time
to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower, hereby certifies to you
the following information as true and correct as of the date hereof or for the
period indicated, as the case may be:
[1. To the best of the knowledge of the undersigned, no Default or Event
of Default exists as of the date hereof or has occurred since the date of
our previous certification to you, if any.]
[1. To the best of the knowledge of the undersigned, the following
Defaults or Events of Default exist as of the date hereof or have occurred
since the date of our previous certification to you, if any, and the
actions set forth below are being taken to remedy such circumstances:]
2. The compliance of the Borrower with the financial covenants of the
Credit Agreement, as of the close of business on ____________________, is
evidenced by the following:
(a) Section 6.9: Dividends
Effective December 31, 1997, declare, pay, or make, whether in cash or
Property of the Borrower, any dividend or distribution on, or
purchase, redeem, or otherwise acquire for value, any share of any
class of its capital stock except for dividends or distributions
payable solely in shares of the common capital stock or additional
shares of preferred stock of Borrower. Notwithstanding the above,
cash dividends on any preferred stock will be allowed if Borrower
maintains a minimum ratio of Cash Flow to Debt Service of 1.20 to 1.00
and no Default or Event of Default exists and the payment of such
dividends would not result in an Event of Default.
III-i
<PAGE>
Dividends Paid
Debt Service Ratio Debt Service Rate In Cash
Required Actual $____________
-------- ------
(b) Section 6.14: Current Ratio
Permit the ratio of Current Assets to Current Liabilities on a
quarterly consolidated basis to be less than 1.00 to 1.00.
Required Actual
-------- ------
Not less than 1.0 to 1.0 ______ to 1.0
(c) Section 6.15: Tangible Net Worth
Permit Tangible Net Worth as of the close of any fiscal quarter to be
less than the amount existing on June 30, 1997, less $500,000, plus
90% of positive Net Income and 75% of the net proceeds realized from
the sale or issuance of equity for all fiscal periods ending
subsequent to June 30, 1997.
Required Actual
-------- ------
(d) Section 6.16: Debt Coverage Ratio
Effective December 31, 1997, ;permit, as of the close of any fiscal
quarter, on a consolidated basis, the ratio of Cash Flow to Debt
Service to be less than 1.10 to 1.00.
Required Actual
-------- ------
Not less than 1.10 to 1.00 ______ to 1.0
(e) Section 6.17: Capital Expenditure
Make expenditures for capital or fixed assets in any fiscal year other
than for domestic oil and gas properties and related assets required
in the ordinary course of business and not to exceed the aggregate
amount of $50,000.00.
Not to Exceed ______
-------------
$50,000.00/year $_______________
III-ii
<PAGE>
(f) Section 6.18: General Administrative Expenses
Effective December 31, 1997, Borrower shall not permit general and
administrative expenses to be more than 14% of gross revenues as
determined on a rolling four quarter basis.
Not to Exceed ______
-------------
see Loan Agreement $_______________
3. No Material Adverse Effect has occurred since the date of the Financial
Statements dated as of ______________________.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
SHERIDAN ENERGY, INC.
By: __________________________________
Printed Name: ________________________
Title: _______________________________
III-iii
<PAGE>
EXHIBIT IV
The following matters are excerpted from the representations and warranties set
forth in Article IV of the Agreement:
LIABILITIES (4.8)
None
LITIGATION (4.8)
1. Vannie Morgan Edwards, et al vs. Sheridan Energy, Inc. (formerly TGX
Corporation), Number 383844, Division "A", 19th Judicial District court,
Parish of East Baton Rouge, State of Louisiana.
2. R. Gene Cobb, et al vs. Sheridan Energy, Inc. (formerly TGX
Corporation), et al, United States District Court, Middle District of
Louisiana, Case No. 418651, Civil Action No. 95-774-B.
3. Samson Resources Company vs. Sheridan Energy, Inc., (formerly TGX
Corporation), United States District Court, Western District of
Oklahoma, Case No. CIV-97-1036-L.
4. Tomcat Exploration, Inc., Excelsior Exploration Corporation and the
Comite Gas Plant, L.L.C., vs. Sheridan Energy, Inc. (formerly TGX
Corporation), 215th Judicial District Court of Harris County, Texas,
Cause No. 96-61561.
ENVIRONMENTAL MATTERS (4.12)
1. New York - Underground storage tanks removed from Westfield yard
pursuant to agreement with Belden and Blake Corporation. Soil currently
being remediated.
REFUNDS (4.17)
None
IV-i
<PAGE>
GAS CONTRACTS (4.18)
a. Take-or-Pay or Prepayments
None.
b. Gas Balancing - overproduction
WELL EST. OVER-
NUMBER WELL NAME OWNER PRODUCTION DATE
- -------- ----------- ------- ------------ ------
OKT008-01 Cupp C #1 (1) Sheridan Energy, Inc. 67,205 (3/97)
OKT017-04 Marie Smith #1-6 Sheridan Energy, Inc. 23,000 (12/95)
OKT062-01 Langston #25-A (3) Sheridan Energy, Inc. 26,069 (12/96)
OKT093-03 Burrows #1-29 Sheridan Energy, Inc. 53,664 (12/96)
OKT139-02 State #2-33 Sheridan Energy, Inc. 8,271 (9/96)
OKT139-02 State #1-33 Sheridan Energy, Inc. 15,884 (9/96)
TXT031-01 Bryant #1-22 Sheridan Energy, Inc. 29,698 (5/96)
OKT140-01 Baker #1-22 Sheridan Energy, Inc. 38,583 (2/97)
OKT087-06 Walker #1-12 Sheridan Energy, Inc. 55,174 (12/96)
OKT098-01 Barry #1 (1) Sheridan Energy, Inc. 116,863 (8/94)
OKT098-01 Barry #1 (2) Amarex 78 77,037 (8/94)
OKT098-01 Barry #1 (2) Amarex 78A 20,819 (8/94)
LAT011-03 Norman Dowling #29-1 Sheridan Energy, Inc. 31,172 (3/97)
- ----------
(1) Joint Operating Agreement rejected by TGX in its Chapter 11 Bankruptcy.
Pre-petition imbalance is pre-petition debt dealt with under Plan of
Reorganization.
(2) Joint Operating Agreement rejected by Amarex in its Chapter 11 Bankruptcy.
Pre-petition imbalance debt dealt with under Plan of Reorganization.
IV-ii
<PAGE>
(3) Joint Operating Agreement rejected by Amarex Partnership in its Chapter 11
Bankruptcy. Pre-petition imbalance is pre-petition debt dealt with under
Plan of Reorganization.
SUBSIDIARIES (4.22)
Templeton Energy Income Corporation.
IV-iii
