Exhibit 10(i)a
February 16, 2000
Ray Singleton, President
Basic Earth Science Systems, Inc.
8547 E. Arapahoe Road, #J464
Greenwood Village, CO
80112-1436
Re: Loan Agreement between Basic Earth Science Systems, Inc. and
Norwest Bank Colorado, National Association
Dear Mr. Singleton:
Norwest Bank Colorado, National Association is pleased to continue the existing
revolving loan facility to Basic Earth Science Systems, Inc. on the following
terms and conditions. The loan facility is presently evidenced by the Borrower's
Promissory Note dated August 1, 1994 in the original face amount of $500,000, as
the same has been amended, increased and extended from time to time (the
"Note").
1. TERMS
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Borrower
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Basic Earth Science Systems, Inc., a Delaware corporation ("Borrower").
Norwest
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Norwest Bank Colorado, National Association ("Norwest").
Prior Agreements
----------------
All prior credit agreements between Borrower and Norwest are hereby superseded
by the terms of this Agreement.
Commitment Amount
-----------------
Not to exceed the lesser of the Borrowing Base Amount or $1,000,000. The
revolving loan shall continue to be evidenced by Borrower's Note, all
modifications and extensions to that promissory note and that
Modification/Extension Agreement of even date herewith extending the maturity
date of the promissory note to December 31, 2001. Norwest's obligation to make
advances is limited to the Borrowing Base Amount. Although the Note face amount
is $2,500,000, it is expressly understood that Norwest's obligation to lend is
limited to the approved Borrowing Base Amount which is, and may continue to be,
less than $2,500,000.
<PAGE>
Fees
----
Borrower shall pay Norwest an annual collateral evaluation fee of $1,500 on
August 1 of each year.
In addition, Borrower shall pay Norwest a facility fee for the period commencing
on the date hereof and continuing until the last to occur of the Maturity Date
or the date on which the loan made hereunder is paid in full, equal to one-half
<PAGE>
percent (1/2%) of the daily average of the difference between the Borrowing Base
Amount and the principal balance of the loan, payable quarterly, in arrears,
commencing March 31, 2000 until the loan is paid in full or the Maturity Date,
whichever is the last to occur.
Security
--------
The Note will continue to be secured by a first priority Mortgage, Deed of
Trust, Assignment of Production, Security Agreement and Financing Statement, and
any necessary modifications or amendments thereto, on oil and gas properties
owned by Borrower and selected by Norwest. Reasonable legal fees, recording and
filing fees (including any mortgage tax) will be paid by Borrower.
The Borrower and Norwest agree that all obligations and liabilities of Borrower
to Norwest, or any of its affiliates, under the terms of any contracts or
agreements between them for the purchase, sale or hedging of commodities,
including oil or gas, or trading positions therein will be secured by the
mortgages and other collateral security documents executed by Borrower in favor
of Norwest.
Repayment Structure
-------------------
The outstanding principal balance of the loan will be repaid by Borrower to
Norwest as needed to maintain compliance with the Borrowing Base Amount. At no
time shall the principal balance of the loan exceed the Commitment Amount or
Borrowing Base Amount. Interest shall accrue at the fluctuating prime rate
announced by Norwest from time to time, plus two percent (2%) per annum). All
principal and accrued interest shall be paid in full no later than December 31,
2001.
Loan Structure
--------------
Advances of loan proceeds may be available on a revolving basis and Borrower may
borrow, repay and reborrow so long as the outstanding amount of the loan does
not exceed the Commitment Amount.
Borrowing Base Amount Determination
-----------------------------------
Effective as of the date hereof the Borrowing Base Amount shall be $501,000. The
Borrowing Base Amount shall reduce by the amount of $20,000 on the last day of
each calender month.
The Borrowing Base Amount means the maximum amount that may be outstanding under
the terms hereof at any time prior to the Maturity Date, as determined by
Norwest in the exercise of its sole and absolute discretion based upon, among
other things, a determination by Norwest of the value of the oil and gas
reserves and/or other assets of Borrower pledged to Norwest as security.
Norwest will perform semi-annual reviews of the Borrowing Base Amount on January
1 and July 1 of each year, commencing July 1, 2000. In addition, Norwest, at its
sole discretion, may redetermine the Borrowing Base Amount one additional time
per year in addition to the semi-annual Borrowing Base Amount determinations. If
any determination results in the Borrowing Base Amount being changed, Norwest
shall promptly notify Borrower; if any determination results in no change being
made in the Borrowing Base Amount, no notification shall be made.
<PAGE>
If at any time the Borrowing Base Amount is less than the amount outstanding
under the Note, the Borrower shall, within ten (10) days after receipt of
written notice from Norwest (the "Notice Date") make a principal reduction on
the Note in the amount outstanding sufficient to repay the excess. The unpaid
amount of the Note shall no longer exceed the Borrowing Base Amount on or before
ten (10) days after the Notice Date.
Purpose
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Loan proceeds may be used only to finance working capital requirements, drilling
and completion costs, property acquisitions and to fund letters of credit issued
on behalf of Borrower provided such letters of credit are for a purpose, and are
in form and substance, satisfactory to Norwest. The issuance of a letter of
credit hereunder shall be deemed to be an advance under the loan, subject to the
Borrowing Base, whether or not the letter of credit is drawn upon. Interest will
accrue on any funded portion of a letter of credit at the interest rate of the
Note commencing at such time as the letter of credit is funded. No letters of
credit may be issued hereunder which have an expiry date beyond the Maturity
Date. If, in Norwest's sole discretion, letters of credit are issued with an
expiry beyond the Maturity Date, the amount of the letter of credit shall be
fully cash secured. The issuance of any letter of credit hereunder shall be in
accordance with Norwest's then current policies and procedures and be subject to
Norwest's then current fees.
Maturity Date
-------------
The Maturity Date is the earlier of (1) December 31, 2001 or (ii) the date to
which the maturity of the Note is accelerated.
II. CONDITIONS PRECEDENT
------------------------
The provisions of this letter will serve as the terms of the borrowing
arrangements and will be referred to herein as the Agreement. The Borrower will
execute and deliver to Norwest, in form and substance satisfactory to Norwest,
the Note Modification/Extension Agreement, this Agreement, and any collateral
security documents required by Norwest as well as any other documentation
reasonably requested by Norwest.
III. COVENANTS
--------------
Unless Norwest shall otherwise consent in writing, and so long as any debt
remains outstanding, the Borrower will comply with the following:
1. Borrower will
(a) submit annual audited, consolidated financial statements
within 90 days after each fiscal year-end with Borrower's
budget projections for the following year,
(b) submit quarterly company-prepared, consolidated financial
statements with verification of Borrower's compliance with
this Agreement within 45 days after each quarter-end,
(c) maintain at all times, a minimum consolidated tangible net
worth (determined in accordance with generally accepted
accounting principles) of not less than $750,000,
<PAGE>
(d) maintain at all times, the ratio of consolidated current
assets (including any borrowing availability hereunder) to
consolidated current liabilities (excluding the current
portion of the debt described herein) of not less than
1.0:1.0,
(e) promptly pay any costs incurred by Norwest for the
preparation or enforcement of this Agreement, the Note and
any collateral security documents executed by Borrower,
(f) provide, within 45 days after each calendar quarter-end,
lease operating statements reflecting actual production
volumes, revenues, lease operating expenses, production
taxes and product prices of producing oil and gas properties
owned by the Borrower and included in the Borrowing Base
Amount in form and content acceptable to Norwest,
(g) provide, on or before each May 31, an independent
engineering reserve report covering the Borrower's Borrowing
Base oil and gas properties as of March 31, prepared by an
independent petroleum engineer acceptable to Norwest,
(h) promptly provide copies of any and all filings made with the
Securities Exchange Commission,
(i) provide such other information as may be reasonably
requested by Norwest in its sole discretion.
2. Borrower and its subsidiaries will not, without the prior written consent of
the Norwest:
(a) make loans or advances to any third party,
(b) reorganize or merge with any other entity,
(c) change their business,
(d) sell, lease, assign, transfer or otherwise dispose of, in
any fiscal year, any of their oil or gas properties having,
in the aggregate, a net present value of greater than
$50,000 as determined by Norwest in its discretion based on,
among other things, Borrower's most recent engineering
report received by Norwest. The Borrower shall pay all
proceeds from any such sale of properties with a value in
excess of $50,000 to Norwest for application to the Note,
(e) create, incur, assume or suffer to exist any mortgage, deed
of trust, pledge, lien, security interest, or other charge
or encumbrance of any nature on any of its oil and gas
properties excluding liens in favor of Norwest and oil, gas
and mineral leases, permits, gas sales and transportation
contracts or similar agreements entered into in the ordinary
course of business; provided that Borrower shall not be in
default under this section for so long as any such lien or
encumbrance is released of record within thirty days of the
recording thereof and by appropriate proceedings and
provides adequate security therefore to Norwest in the event
such lien or encumbrance is found to be valid,
(f) incur other debt, other than trade payables incurred during
the normal course of business.
<PAGE>
IV. EVENTS OF DEFAULT
---------------------
The occurrence of any of the following shall constitute an "Event of Default"
under this Agreement and the Borrower's Note:
1. Borrower shall fail to pay when due any principal, interest, or other
amount payable under this Agreement, or the Note, before the expiration of
10 days after such payment is due.
2. Any representation or warranty made by Borrower hereunder or in any related
collateral security or other documents entered into with Norwest shall
prove to be at any time incorrect in any significant respect.
3. Borrower shall fail to observe or perform any covenant, obligation,
agreement, or other provision contained herein or in any other contract or
instrument executed in connection herewith.
4. A change occurs in the senior management of Borrower.
5. Any default or defined Event of Default under any security agreement,
mortgage, deed of trust, promissory note, or other contract or instrument
executed by the Borrower pursuant to, or as required by, this Agreement.
6. Borrower shall fail immediately to pay and discharge any judgment or levy
of any attachment, execution or other process against any of the assets of
any of the Borrower, or such judgment shall not be satisfied, within 10
days after the entry thereof.
7. Borrower shall: (a) become insolvent, or suffer or consent to or apply for
the appointment of a receiver, trustee, custodian or liquidator for itself
or any of its property, or generally fail to pay its debts as they become
due, or make a general assignment for the benefit of creditors; or (b) file
a voluntary petition in bankruptcy, or seeking reorganization, in order to
effect a plan or other arrangement with creditors or any other relief under
the Bankruptcy Reform Act, Title 11 of the United States Code, as
recodified from time to time ("Bankruptcy Code"), or as now or hereafter in
effect, or any involuntary petition or proceeding pursuant to said
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy or reorganization or other relief for debtors is filed or
commenced against either Borrower; or (c) file any answer admitting the
jurisdiction of the court and the material allegations of any such
involuntary petition; or (d) be adjudicated as bankrupt, under said
Bankruptcy Code or any other state or federal law relating to bankruptcy,
reorganization, or other relief for debtors.
8. Norwest, in good faith, considers Norwest's prospect of or right to payment
or performance under this Agreement or Note to be impaired.
<PAGE>
V. REMEDIES
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If any Event of Default shall occur, any indebtedness of the Borrower under this
Agreement, any other contract or instrument executed in conjunction herewith or
the Note, any term hereof or of the Note to the contrary notwithstanding, shall
at Norwest's option and without notice, become immediately due and payable
without presentment, demand, or protest or notice of dishonor, all of which are
hereby expressly waived by Borrower. In addition, Norwest shall have all rights,
powers and remedies available under this Agreement, the Note or other contracts
or instruments executed in connection herewith, or accorded by law, including
without limitation the right to resort to any or all of the collateral and to
exercise any or all of its rights, powers, or remedies at any time and from time
to time after the occurrence of any Event of Default.
All rights, powers, and remedies of Norwest in connection with this Agreement,
the Note or any other contract or instrument on which the Borrower may at any
time be obligated to Norwest (or any holder thereof) are cumulative and not
exclusive and shall be in addition to any other rights, powers, or remedies
provided by law or equity, including without limitation the right to set off any
liability owing by Norwest to the Borrower (including sums deposited in any
deposit account of Borrower with Norwest) against any liability of the Borrower
to Norwest.
VI. WAIVER
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No delay, failure, or discontinuance by Norwest, or any holder of the Note, in
exercising any right, power, or remedy under this Agreement, the Note or any
other contract or instrument on which the Borrower may at any time be obligated
to Norwest (or any holder thereof) shall affect or operate as a waiver of such
right, power or remedy. Any waiver, permit, consent, or approval of any kind by
Norwest (or any holder of the Note), or of any provisions or conditions of any
breach or default under this Agreement, the Note or any other contract or
instrument on which any of the Borrower may at any time be obligated, must be in
writing and shall be effective only to the extent set forth in such writing.
VII. NOTICES
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All notices, requests, and demands given to or made upon the respective parties
must be in writing and shall be deemed to have been given or made: (1) at the
time of personal delivery or telecopying thereof, (2) or two days after any of
the same are deposited in the U.S. Mail, first class and postage prepaid,
addressed as follows:
Borrower: Basic Earth Science Systems, Inc.
Attn.: Ray Singleton, President
8547 E. Arapahoe Road, #J464
Greenwood Village, CO 80112-1436
Norwest: Norwest Bank Colorado, National Association
Attn: Don McDonald, Vice President
Energy and Minerals, C7301-046
1740 Broadway
Denver, CO 80274-8699
or other such address as any party may designate by written notice to all other
parties.
<PAGE>
VIII. SUCCESSORS, ASSIGNMENTS
-----------------------------
This Agreement shall be binding on and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors, and assigns of the
parties, provided, however, that this Agreement may not be assigned by the
Borrower without the prior written consent of Norwest. Norwest reserves the
right to sell, assign, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Norwest's rights and benefits under this Agreement,
the Note or any contracts or instruments relating thereto. In connection
therewith, Norwest may disclose all documents and information which Norwest now
has or may hereafter acquire relating to the loan or the Note, the Borrower or
its business, or any collateral required hereunder.
IX. SEVERABILITY OF PROVISIONS
------------------------------
If any of the provisions of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or any remaining provisions of this Agreement.
X. ARBITRATION
--------------
1. Agreement to Arbitrate: Subject to the provisions of the next paragraph
below, Norwest and Borrower agree to submit to binding arbitration any and all
claims, disputes and controversies between or among them, whether in tort,
contract or otherwise (and their respective employees, officers, directors,
attorneys, and other agents) arising out of or relating in any way to the loan
and related loan documents including without limitation this Agreement and the
Note and their negotiation, execution, collateralization, administration,
repayment, modification, extension, substitution, formation, inducement,
collection, enforcement, default or termination.
Nothing in the preceding paragraph, nor the exercise of any right to arbitrate
thereunder, shall limit the right of any party hereto (1) to foreclose against
any real or personal property collateral by the exercise of the power of sale
under a deed of trust, mortgage, or other security agreement, or instrument, or
applicable able law, (2) to exercise self-help remedies such as setoff or
repossession; or (3) to obtain provisional or ancillary remedies such as
replevin, injunctive relief, attachment, or appointment of a receiver from a
court having jurisdiction, before, during or after the pendency of any
arbitration proceeding. The institution and maintenance of any action for such
judicial relief, or pursuit of provisional or ancillary remedies, or exercise of
self-help remedies shall not constitute a waiver of the right or obligation of
any party to submit any claim or dispute to arbitration, including those claims
or disputes arising from exercise of any such judicial relief, or pursuit of
provisional or ancillary remedies, or exercise of self-help remedies.
2. Selection of Arbitrator(s): If the amount in dispute is $500,000 or more,
arbitration hereunder shall be before a three-person panel of neutral
arbitrators, consisting of one (1) person from each of the following categories:
(1) an attorney who has practiced in the area of commercial law in the State of
Colorado for at least eight (8) years or a retired judge at the district court
or appellate court level from the State of Colorado; (2) a person with at least
eight (8) years experience in commercial lending; and (3) a person with at least
eight (8) years experience in the oil and gas industry. The parties to the
dispute or their representatives shall obtain from the American Arbitration
Association ("AAA") a list of persons meeting the criteria outlined above and
the parties shall select the person in the manner established by the AAA.
If the amount in dispute is less that $500,000, the arbitration shall be
conducted before one arbitrator who shall be an attorney who has practiced in
the area of Commercial law for at least eight (8) years or a retired judge at
the District Court or appellate court level. The parties to the dispute or their
representatives shall obtain from AAA a list of persons meeting the criteria
outlined above and the parties shall select the person in the manner established
by the AAA.
<PAGE>
3. Governing Laws and Rules: Such arbitration shall proceed in the State of
Colorado in the City and County of Denver, shall be governed by Colorado law,
including all applicable statutes of limitation, and shall be conducted in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction.
4. Discovery: In any arbitration hereunder: (1) the arbitrator(s) shall decide
(by documents only or with a hearing, at the arbitrators' discretion) any
prehearing motions which are substantially similar to prehearing motions to
dismiss for failure to state a claim or motions for summary adjudication; (2)
discovery shall be permitted, but shall be limited as provided in Rule 26.1 (c)
of the Colorado Rules of Civil Procedure, and shall be subject to the scheduling
by the arbitrator(s), and any discovery disputes shall be subject to final
determination by the arbitrator(s); and (3) the arbitrator(s) shall award costs
and expenses of the arbitration proceeding in accordance with provisions of this
Agreement, the Note and/or other collateral security documents.
<PAGE>
XI. COLORADO LAW APPLICABLE
This Agreement, the Note, and any contracts or instruments relating thereto,
shall be governed by and construed in accordance with the laws of the state of
Colorado, except to the extent that Norwest has greater rights or remedies under
federal law or the law of any jurisdiction in which the collateral properties
are located, in which case such choice of Colorado law shall not be deemed to
deprive Norwest of such rights and remedies as may be available under such law.
This Agreement, the Note and any contracts or instruments relating thereto,
represent the entire agreement between the parties, and it is expressly
understood that all prior conversations or memoranda between the parties
regarding the terms of this Agreement shall be superseded by this Agreement. Any
amendment, approval, or waiver by Norwest of the terms of this Agreement, the
Note and any contracts or instruments relating thereto, must be in writing or
confirmed in writing, and shall be effective only to the extent specifically set
forth in such writing. This Agreement, in conjunction with the Note and any
contracts or instruments relating thereto, is in lieu of a formal credit
agreement and shall serve to evidence the terms of the entire agreement between
the parties.
The Borrower hereby ratifies and confirms all of the provisions of all mortgages
and collateral security documents executed and delivered to Norwest by Borrower.
Please acknowledge your acceptance of and agreement to the terms of this
agreement by dating and executing where indicated.
Sincerely,
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: /s/ Don McDonald
---------------------------------------------
Don McDonald, Vice President
AGREED TO AND ACCEPTED EFFECTIVE FEBRUARY 16, 2000
BASIC EARTH SCIENCE SYSTEMS, INC.
By: /s/ Ray Singleton
---------------------------------------------
Ray Singleton, President
STATE OF COLORADO )
)
COUNTY OF )
The foregoing instrument was acknowledged before me this ___ day of , 2000
by Ray Singleton, President of Basic Earth Science Systems, Inc.
Witness my hand and official seal.
SEAL
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Notary Public
My Commission Expires:
