SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: December 30, 1999
Commission file number: 000-23701
SOUTHWEST ROYALTIES, INC. SOUTHWEST ROYALTIES
(Exact Name of Registrant as HOLDINGS, INC.
Specified in Its Charter) (Exact Name of Registrant as
Specified in Its Charter)
Delaware Delaware
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
75-1917432 75-2724264
(I.R.S. Employer Identification (I.R.S. Employer Identification
Number) Number)
407 North Big Spring, Suite 300
Midland, Texas 79701
(Address of Principal Executive (Zip Code)
Offices)
Registrants' Telephone Number, Including Area Code: (915) 686-
9927
None
(Former name or former address, if changed since last report.)
The total number of pages contained in this report is 5.
<PAGE>
Item 5. Other Events
Southwest Royalties Inc. ("Southwest"), has entered into a
$50 million revolving line of credit with BankOne Texas, N.A.
(the "Credit Facility") which will mature December 29, 2000. The
Credit Facility is secured by substantially all of Southwest's
proved oil and gas properties and is guaranteed, on an unsecured
basis, by Southwest Royalties Holdings, Inc., Southwest's parent
company, and Blue Heel Company, a wholly owned subsidiary of
Southwest. The Credit Facility contains covenants, which limit
loans, advances, investments, and dividends and set a minimum
interest coverage ratio for Southwest. In addition, as a credit
enhancement, El Paso Energy Corporation has agreed to purchase
BankOne Texas, N.A.'s note or a participation in the note in
certain circumstances. The funds from the Credit Facility may be
used for working capital and other general corporate purposes,
including the repurchase of a portion of Southwest's outstanding
10.5% Senior Notes due 2004 (the "Notes").
<PAGE>
SIGNATURES
SOUTHWEST ROYALTIES, INC.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOUTHWEST
ROYALTIES, INC.
By:
/s/ Bill E. Coggin
- -------------------------
Bill E. Coggin, Vice President
and
Chief Financial Officer
Date:
December 30, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
Date: December 30, 1999 /s/ Bill E. Coggin
----------------------------------
Bill E. Coggin, Vice President and
Chief Financial Officer
<PAGE>
SIGNATURES
SOUTHWEST ROYALTIES HOLDINGS, INC.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOUTHWEST
ROYALTIES HOLDINGS, INC.
By:
/s/ Bill E. Coggin
- -------------------------
Bill E. Coggin, Vice President
and
Chief Financial Officer
Date:
December 30, 1999
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
Date: December 30, 1999 /s/ Bill E. Coggin
----------------------------------
Bill E. Coggin, Vice President and
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Exhibit
- ------- -------
4.0 Credit Agreement
<PAGE>
-vi-
CREDIT AGREEMENT
AMONG
SOUTHWEST ROYALTIES, INC., AS BORROWER,
AND
BANK ONE, TEXAS, N.A.
AND THE INSTITUTIONS NAMED HEREIN
AS BANKS
AND
BANK ONE, TEXAS, N.A.,
AS ADMINISTRATIVE AGENT
DECEMBER 29, 1999
<PAGE>
TABLE OF CONTENTS
Page No.
1. Definitions 1
2. Commitment of the Lenders 12
(a) Terms of Commitment 12
(b) Procedure for Borrowing 12
(c) Letters of Credit 13
(d) Procedure for Obtaining Letters of Credit 14
(e) Voluntary Reduction of Commitment 14
(f) Mandatory Commitment Reductions 15
(g) Several Obligations 15
(h) Type and Number of Advances 15
(i) Requirements of Note Purchase Agreement15
3. Notes Evidencing Loans. 16
(a) Form of Notes 16
(b) Issuance of Additional Notes 16
(c) Interest Rate 16
(d) Payment of Interest 17
(e) Payment of Principal 17
(f) Payment to Lenders 17
(g) Sharing of Payments, Etc. 17
(h) Non-Receipt of Funds by the Agent 17
4. Interest Rates. 18
(a) Options 18
(b) Interest Rate Determination 19
(c) Conversion Option 19
(d) Recoupment 19
5. Special Provisions Relating to Loans 20
(a) Unavailability of Funds or Inadequacy
of Pricing 20
(b) Change in Laws 20
(c) Increased Cost or Reduced Return 20
(d) Discretion of Lender as to Manner of Funding 22
(e) Breakage Fees 22
6. Collateral Security 23
<PAGE>
7. Borrowing Base 24
(a) Initial Borrowing Base 24
(b) Subsequent Determinations of Borrowing Base 24
(c) Procedures for Determining Borrowing Base 25
8. Fees 26
(a) Unused Commitment Fee 26
(b) The Letter of Credit Fee 26
(c) Agency Fees 26
(d) Facility Fee 26
(e) Enhancement Fee. 26
(f) Arrangement Fee. 26
9. Prepayments 26
(a) Voluntary Prepayments 26
(b) Mandatory Prepayment For Borrowing Base
Deficiency 27
10. Representations and Warranties 27
(a) Creation and Existence. 27
(b) Power and Authority. 27
(c) Binding Obligations 27
(d) No Legal Bar or Resultant Lien 28
(e) No Consent 28
(f) Financial Condition 28
(g) Liabilities 28
(h) Litigation 28
(i) Taxes; Governmental Charges 28
(j) Titles, Etc 29
(k) Defaults 29
(l) Casualties; Taking of Properties 29
(m) Use of Proceeds; Margin Stock 29
(n) Location of Business and Offices 30
(o) Compliance with the Law 30
(p) No Material Misstatements 30
(q) Not A Utility 30
(r) ERISA 30
(s) Public Utility Holding Company Act 31
(t) Subsidiaries 31
<PAGE>
(u) Environmental Matters 31
(v) Liens 31
(w) Year 2000 Compliance 31
11. Conditions of Lending 32
12. Affirmative Covenants 35
(a) Financial Statements and Reports 35
(b) Certificates of Compliance 36
(c) Accountants' Certificate 36
(d) Taxes and Other Liens 37
(e) Compliance with Laws and Contracts 37
(f) Further Assurances 37
(g) Performance of Obligations 37
(h) Insurance 37
(i) Accounts and Records 38
(j) Right of Inspection 38
(k) Notice of Certain Events 39
(l) ERISA Information and Compliance 39
(m) Environmental Reports and Notices 39
(n) Compliance and Maintenance 39
(o) Operation of Properties 40
(p) Compliance with Leases and Other Instruments 40
(q) Certain Additional Assurances Regarding
Maintenance and Operations of Properties 41
(r) Sale of Certain Assets/Prepayment of Proceeds
41
(s) Title Matters 41
(t) Curative Matters 41
(u) Change of Principal Place of Business 42
(v) Cash Collateral Accounts 42
(w) Year 2000 Compatibility 42
(x) Engineering Report 43
13. Negative Covenants 43
(a) Negative Pledge 43
(b) Current Ratio 44
(c) Minimum Interest Coverage Ratio 44
(d) Consolidations and Mergers 44
(e) Debts, Guaranties and Other Obligations44
(f) Dividends 45
(g) Loans and Advances 45
<PAGE>
(h) Payables and Receivables 45
(i) Nature of Business 45
(j) Transactions with Affiliates 46
(k) Hedging Transactions 46
(l) Investments 46
(m) Amendment to Articles of Incorporation
or Bylaws 47
(n) Proceeds of Production 47
(o) Issuance of Preferred Stock 47
(p) Amendments to and Redemption of Preferred
Stock or Other Equity 47
(q) Payment or Pre-Payment of Other Indebtedness 47
(r) Purchase of Senior Notes 47
14. Events of Default 47
15. The Agent and the Lenders 49
(a) Appointment and Authorization 50
(b) Note Holders 50
(c) Consultation with Counsel 51
(d) Documents 51
(e) Resignation or Removal of Agent 51
(f) Responsibility of Agent 51
(g) Independent Investigation 53
(h) Indemnification 53
(i) Benefit of Section 15 54
(j) Pro Rata Treatment 54
(k) Assumption as to Payments 54
(l) Other Financings 55
(m) Interests of Lenders 55
(n) Investments 55
16. Exercise of Rights 55
17. Notices 56
18. Expenses 56
19. Indemnity 57
20. Governing Law 58
21. Invalid Provisions 58
<PAGE>
22. Maximum Interest Rate 58
23. Amendments 58
24. Multiple Counterparts 59
25. Conflict 59
26. Survival 59
27. Parties Bound 59
28. Assignments and Participations 59
29. Choice of Forum: Consent to Service of Process
and Jurisdiction 61
30. Waiver of Jury Trial 62
31. Other Agreements 62
32. Financial Terms 62
<PAGE>
Exhibits
Exhibit "A" - Notice of Borrowing
Exhibit "B" - Note
Exhibit "C" - Certificate of Compliance
Exhibit "D" - Form of Assignment and Acceptance
Agreement
Exhibit "E" Note Purchase Agreement
Exhibit "F-1" Unconditional Guaranty-Southwest Royalties
Holdings, Inc.
Exhibit "F-2" Unconditional Guaranty-Blue Heel Company
Schedules
Schedule 1 - Liens
Schedule 2 - Partnership Interests
Schedule 3 - Financial Condition
Schedule 4 - Liabilities
Schedule 5 - Litigation
Schedule 6 - Subsidiaries
Schedule 7 - Environmental Matters
Schedule 8 - Title Matters
Schedule 9 - Curative Matters
Schedule 10 - Required Floors
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 29th day of December, 1999,
by and between SOUTHWEST ROYALTIES, INC., a Delaware
corporation ("Borrower") and BANK ONE, TEXAS, N.A., a
national banking association ("Bank One") and each of the
financial institutions which is a party hereto (as evidenced
by the signature pages to this Agreement) or which may from
time to time become a party hereto pursuant to the
provisions of Section 28 hereof or any successor or assignee
thereof (hereinafter collectively referred to as "Lenders",
and individually, "Lender"), Bank One, as Administrative
Agent (the "Agent").
WITNESSETH:
WHEREAS, Borrower has requested the Lenders make
available to it a revolving loan facility in the amount of
up to $50,000,000; and
WHEREAS, to induce the Lenders to make such facility
available to Borrower, Borrower has requested El Paso Energy
Corporation ("El Paso") to agree, under certain
circumstances, to purchase certain of the obligations of
Borrower under such facility from the Lenders at par; and
WHEREAS, the Lenders have agreed to make such
facilities available to Borrower.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements herein contained, the parties
hereby agree as follows:
1. Definitions. When used herein the terms "Agent",
"Agreement", "Bank One", "Borrower", "El Paso", "Lender" and
"Lenders" shall have the meanings indicated above. When
used herein the following terms shall have the following
meanings:
Advance or Advances means a loan or loans
hereunder.
Affiliate means any Person which, directly or
indirectly, controls, is controlled by or is under
common control with the relevant Person. For the
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to
any Person, shall mean a member of the board of
directors, a partner or an officer of such Person, or
any other Person with possession, directly or
indirectly, of the power to direct or cause the
direction of the management and policies of such
Person, through the ownership (of record, as trustee,
or by proxy) of voting shares, partnership interests or
voting rights, through a management contract or
otherwise. Any Person owning or controlling directly
or indirectly ten percent or more of the voting shares,
partnership interests or voting rights, or other equity
interest of another Person shall be deemed to be an
Affiliate of such Person.
Alternate Prime Rate shall mean, as of any date, a
rate of interest per annum equal to the higher of
(i) the Prime Rate for such date, and (ii) the sum of
the Federal Funds Effective Rate for such date plus
one-half of one percent (.50%) per annum.
<PAGE>
Applicable Prime Rate means, as of any date, the
sum of the Alternate Prime Rate plus the Prime Rate
Margin.
Assignment and Acceptance means a document
substantially in the form of Exhibit "D" hereto.
Borrowing Base means the amount determined by the
Lenders from time to time pursuant to Section 7 hereof.
Borrowing Base Usage means, as of any date, all
amounts outstanding on the Loans plus all outstanding
Letters of Credit, divided by the Borrowing Base.
Borrowing Date means the date elected by Borrower
pursuant to Section 2(b) hereof for an Advance on the
Revolving Loan.
Business Day means (i) with respect to any
borrowing, payment or note selection of Eurodollar
Loans, a day (other than Saturdays or Sundays) on which
banks are legally open for business in Dallas, Texas
and New York, New York and on which dealings in United
States dollars are carried on in the London interbank
market, and (ii) for all other purposes a day (other
than Saturdays and Sundays) on which banks are legally
open for business in Dallas, Texas.
Cash Collateral Accounts is used herein as defined
in Section 12(v).
Change of Control shall occur if any Person (or
syndicate or group of Persons which is deemed a Person
for the purposes of Sections 13(d) or 14(d)(ii) of the
Securities Act of 1934, as amended) shall acquire,
directly or indirectly an amount of issued and
outstanding voting stock of Borrower (including the
acquisition of newly-issued stock) sufficient to change
the control of Borrower by causing the election or
change of a majority of the directors of Borrower.
Change of Management means a Change of Management
shall occur if H.H. Wommack, III, ever ceases to act as
Chief Executive Officer of Borrower, whether in the
capacity of President or Chairman, and a replacement
for such officer, acceptable to Agent, is not appointed
within thirty (30) days thereafter.
Commitment means (A) For all Lenders, the lesser
of (i) $50,000,000 or (ii) the Borrowing Base in each
case as reduced from time to time pursuant to
Sections 2 and 7 hereof, and (B) as to any Lender, its
obligation to make Advances hereunder on the Loan and
purchase participations in Letters of Credit issued
hereunder by the Agent in amounts not exceeding, in the
aggregate, an amount equal to such Lender's Commitment
Percentage times the total Commitment as of any date.
The Commitment of each Lender hereunder shall be
adjusted from time to time to reflect assignments made
by such Lender pursuant to Section 28 hereof. Each
reduction in the Commitment shall result in a Pro Rata
reduction in each Lender's Commitment.
<PAGE>
Commitment Percentage means for Lender the
percentage set forth in either (i) such Lender's
Assignment and Acceptance Agreement, or (ii) opposite
Lender's name on the signature page hereto. The
Commitment Percentage of each Lender hereunder shall be
adjusted from time to time to reflect assignments made
by such Lender pursuant to Section 28 hereof.
Current Assets means the total of the current
assets of Borrower as determined in accordance with
GAAP prior to any consolidation with Borrower's
Subsidiaries (except for Blue Heel Company).
Current Liabilities means the total of current
obligations of Borrower as determined in accordance
with GAAP prior to any consolidation with Borrower's
Subsidiaries (except for Blue Heel Company), excluding
therefrom current maturities of the Loans.
Default means all the events specified in
Section 14 hereof, regardless of whether there shall
have occurred any passage of time or giving of notice,
or both, that would be necessary in order to constitute
such event as an Event of Default.
Defaulting Lender is used herein as defined in
Section 3(f) hereof.
EBITDA means the earnings of Borrower for any
period before provision for interest expense, income
taxes, depreciation, depletion and amortization for
such period, as determined in accordance with GAAP
prior to any consolidation with Borrower's Subsidiaries
(except for Blue Heel Company), but including any
earnings of Borrower's subsidiaries to the extent
actually paid to Borrower in cash during such period.
Effective Date means the date of this Agreement.
Eligible Assignee means any of (i) a Lender, El
Paso, or any Affiliate of a Lender or of El Paso;
(ii) a commercial Lender organized under the laws of
the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000;
(iii) a commercial Lender organized under the laws of
any other country which is a member of the Organization
for Economic Cooperation and Development, or a
political subdivision of any such country, and having a
combined capital and surplus of at least
$100,000,000.00, provided that such Lender is acting
through a branch or agency located in the United
States; (iv) a Person that is primarily engaged in the
business of commercial
<PAGE>
lending and that (A) is a subsidiary of a Lender, (B) a
subsidiary of a Person of which a Lender is a
subsidiary, or (C) a Person of which a Lender is a
subsidiary; (v) any other entity (other than a natural
person) which is an "accredited investor" (as defined
in Regulation D under the Securities Act) which extends
credit or buys loans, bonds, or debt securities as one
of its businesses, including, but not limited to,
insurance companies, mutual funds, investments funds,
investment companies and lease financing companies; and
(vi) with respect to any Lender that is a fund that
invests in loans, any other fund that invests in loans
and is managed by the same investment advisor of such
Lender or by an Affiliate of such investment advisor
(and treating all such funds so managed as a single
Eligible Assignee); provided, however, that no
Affiliate of Borrower shall be an Eligible Assignee.
Environmental Laws means the Comprehensive
Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C.A. 9601, et
seq., the Resource Conservation and Recovery Act, as
amended by the Hazardous Solid Waste Amendment of 1984,
42 U.S.C.A. 6901, et seq., the Clean Water Act, 33
U.S.C.A. 1251, et seq., the Clean Air Act, 42 U.S.C.A.
1251, et seq., the Toxic Substances Control Act, 15
U.S.C.A. 2601, et seq., The Oil Pollution Act of 1990,
33 U.S.G. 2701, et seq., and all other laws, statutes,
codes, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, orders, permits and
restrictions of any federal, state, county, municipal
and other governments, departments, commissions,
boards, agencies, courts, authorities, officials and
officers, domestic or foreign, relating to oil
pollution, air pollution, water pollution, noise
control and/or the handling, discharge, disposal or
recovery of on-site or off-site asbestos, radioactive
materials, spilled or leaked petroleum products,
distillates or fractions and industrial solid waste or
"hazardous substances" as defined by 42 U.S.C. 9601,
et seq., as amended, as each of the foregoing may be
amended from time to time.
Environmental Liability means any claim, demand,
obligation, cause of action, order, violation, damage,
injury, judgment, penalty or fine, cost of enforcement,
cost of remedial action or any other costs or expense
whatsoever, including reasonable attorneys' fees and
disbursements, resulting from the violation or alleged
violation of any Environmental Law or the release of
any substance into the environment which is required to
be remediated by a regulatory agency or governmental
authority or the imposition of any Environmental Lien
(as hereinafter defined) which could reasonably be
expected to individually or in the aggregate have a
Material Adverse Effect.
Environmental Lien means a Lien in favor of any
court, governmental agency or instrumentality or any
other Person (i) for any Environmental Liability or
(ii) for damages arising from or cost incurred by such
court or governmental agency or instrumentality or
other person in response to a release or threatened
release of asbestos or "hazardous substance" into the
environment, the imposition of which Lien could
reasonably be expected to have a Material Adverse
Effect.
<PAGE>
ERISA means the Employee Retirement Income
Security Act of 1974, as amended.
Eurodollar Loan means any loan during any period
which bears interest at the Eurodollar Rate, or which
would bear interest at such rate if the Maximum Rate
ceiling was not in effect at a particular time.
Eurodollar Margin shall be:
(i) two and one-quarter percent (2.25%) per
annum whenever the Borrowing Base Usage is equal
to or greater than 80%;
(ii) two percent (2%) per annum whenever the
Borrowing Base Usage is equal to or greater than
60% but less than 80%; or
(iii) one and three-quarters percent
(1.75%) per annum whenever the Borrowing Base
Usage is less than 60%.
Eurodollar Base Rate means with respect to any
Interest Period, the offered rate for U.S. Dollar
deposits of not less than $1,000,000 as of 11:00 A.M.
City of London, England time two (2) Business Days
prior to the first date of each Interest Period as
shown on the display designated as "British Bankers
Assoc. Interest Settlement Rates" on the Telerate
system ("Telerate"), Page 3750 or Page 3740, or such
other page or pages as may replace such pages on
Telerate for the purpose of displaying such rate.
Provided, however, that if such rate is not available
on Telerate then such offered rate shall be otherwise
independently obtained by Agent from an alternate,
substantially similar independent source available to
Agent or shall be calculated by Agent by substantially
similar methodology as that theretofore used to
determine such offered rate in Telerate.
Eurodollar Rate means, with respect to a
Eurodollar Loan for the relevant Interest Period, the
sum of (i) the quotient of (A) the Eurodollar Base Rate
applicable to such Interest Period, divided by (B) one
minus the Reserve Requirement (expressed as a decimal)
applicable to such Interest Period, plus the
(iii) Eurodollar Margin. The Eurodollar Rate shall be
rounded to the next higher multiple of 1/16th of one
percent if the rate is not such a multiple.
Federal Funds Effective Rate shall mean, for any
day, an interest rate per annum equal to the weighted
average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as
published for such day (or, if such day is not a
Business Day, for the immediately preceding Business
Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a
Business Day, the average of the quotations at
approximately 10:00 a.m. (Dallas, Texas time) on such
day on such transactions received by the Agent from
three (3) Federal funds brokers of recognized standing
selected by the Agent in its sole discretion.
<PAGE>
Financial Statements means balance sheets, income
statements, statements of cash flow, and appropriate
footnotes and schedules, prepared in accordance with
GAAP.
GAAP means generally accepted accounting
principles, consistently applied.
Guarantors mean Southwest Royalties Holdings, Inc.
and Blue Heel Company.
Guaranties mean unconditional guaranties in the
form of Exhibits "F-1" and "F-2" hereto.
Indenture means that certain Indenture dated
October 15, 1997, as from time to time amended between
Borrower, Southwest Royalties Holdings, Inc. and State
Street Bank and Trust Company, as Trustee, pursuant to
which $200,000,00 of Borrower's 10.5% Senior Notes due
2004, Series A were issued.
Interest Payment Date means the last day of each
calendar month, and in addition, in the case of
Eurodollar Loans, the last day of the applicable
Interest Period.
Interest Period means with respect to any
Eurodollar Loan (i) initially, the period commencing on
the date such Eurodollar Loan is made and ending one
(1), two (2), three (3) or six (6) months thereafter as
selected by the Borrower pursuant to Section 4(a)(ii),
and (ii) thereafter, each period commencing on the day
following the last day of the next preceding Interest
Period applicable to such Eurodollar Loan and ending
one (1), two (2), three (3) or six (6) months
thereafter, as selected by the Borrower pursuant to
Section 4(a)(ii); provided, however, that (i) if any
Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day unless the
result of such extension would be to extend such
Interest Period into the next calendar month, in which
case such Interest Period shall end on the immediately
preceding Business Day, (ii) if any Interest Period
begins on the last Business Day of a calendar month (or
on a day for which there is no numerically
corresponding day in the calendar month at the end of
such Interest Period) such Interest Period shall end on
the last Business Day of a calendar month, and (iii) no
Interest Period may be elected which would expire after
the Maturity Date.
Letters of Credit is used herein as defined in
Section 2(c) hereof.
<PAGE>
Lien means any mortgage, deed of trust, pledge,
security interest, assignment, encumbrance or lien
(statutory or otherwise) of every kind and character.
Loans means loans made under the Commitment
pursuant to Section 2 hereof.
Loan Documents means this Agreement, the Notes,
the Note Purchase Agreement, the Security Instruments
and all other documents executed in connection with the
transaction described in this Agreement.
Lockbox Accounts is used herein as defined in
Section 12(v) hereof.
Material Adverse Effect shall mean a material
adverse effect on (i) the assets or properties,
liabilities, financial condition, business, operations,
affairs or circumstances of the Borrower, (ii) the
ability of the Borrower to carry out its businesses as
of the date of this Agreement or as proposed at the
date of this Agreement to be conducted, (iii) the
ability of Borrower to perform fully and on a timely
basis its obligations under any of the Loan Documents,
or (iv) the validity or enforceability of any of the
Loan Documents or the rights and remedies of the Agent
or the Lenders thereunder.
Maturity Date means December 29, 2000.
Maximum Rate means at any particular time in
question, the maximum non-usurious rate of interest
which under applicable law may then be charged on the
Note. If such Maximum Rate changes after the date
hereof, the Maximum Rate shall be automatically
increased or decreased, as the case may be, without
notice to Borrower from time to time as the effective
date of each change in such Maximum Rate.
Minimum Interest Coverage Ratio means the ratio of
Borrower's consolidated EBITDA for the period being
measured to the sum of Borrower's consolidated Total
Interest Expense for the period being measured.
Monthly Commitment Reduction is used herein, as
defined in Section 2(f) hereof.
Net Income means Borrower's net income after
income taxes calculated in accordance with GAAP prior
to any consolidation with Borrower's Subsidiaries
except for consolidation with Blue Heel Company.
Note Purchase Agreement means that certain
agreement between the Lenders and El Paso dated of even
date herewith pursuant to which El Paso agrees, under
certain conditions, to either purchase the Lender's
Notes at par or purchase a participation in such Notes.
<PAGE>
Notes means the Notes, substantially in the form
of Exhibit "B", hereto issued or to be issued hereunder
to each Lender, respectively, to evidence the
indebtedness to such Lender arising by reason of the
Advances on the Loans, together with all modifications,
renewals and extensions thereof or any part thereof.
Oil and Gas Properties means all oil, gas and
mineral properties and interests, related personal
properties, in which Borrower grants to the Lenders a
lien or security interest pursuant to Section 6 hereof.
Operating Accounts is used herein as defined in
Section 12(v) hereof.
Other Financing is used herein as defined in
Section 15(l) hereof.
Payor is used herein as defined in
Section 3(h)hereof.
Permitted Liens shall mean (i) royalties,
overriding royalties, reversionary interests,
production payments (but only to the extent existing on
the date hereof and specifically disclosed in the
Security Instruments), and similar burdens; (ii) sales
contracts or other arrangements for the sale of
production of oil, gas or associated liquid or gaseous
hydrocarbons which would not (when considered
cumulatively with the matters discussed in clause (i)
above) deprive Borrower of any material right in
respect of any such Borrower's assets or properties
(except for rights customarily granted with respect to
such contracts and arrangements); (iii) statutory Liens
for taxes or other assessments that are not yet
delinquent (or that, if delinquent, are being contested
in good faith by appropriate proceedings, levy and
execution thereon having been stayed and continue to be
stayed and for which such Borrower has set aside on its
books adequate reserves in accordance with GAAP); (iv)
easements, rights of way, servitudes, permits, surface
leases and other rights in respect to surface
operations, pipelines, grazing, logging, canals,
ditches, reservoirs or the like, conditions, covenants
and other restrictions, and easements of streets,
alleys, highways, pipelines, telephone lines, power
lines, railways and other easements and rights of way
on, over or in respect of Borrower's assets or
properties and that do not individually or in the
aggregate, cause a Material Adverse Effect; (v)
materialmen's, mechanic's, repairman's, employee's,
warehousemen's, landlord's, carrier's, pipeline's,
contractor's, sub-contractor's, operator's, non-
operator's (arising under operating or joint operating
agreements), and other Liens (including any financing
statements filed in respect thereof) incidental to
obligations incurred by Borrower in connection with the
construction, maintenance, development, transportation,
storage or operation of Borrower's assets or properties
to the extent not delinquent (or which, if delinquent,
are being contested in good faith by appropriate
proceedings and for which Borrower has set aside on its
books
<PAGE>
adequate reserves in accordance with GAAP); (vi) liens
in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or
public liability obligations; (vii) legal or equitable
encumbrances deemed to exist by reason of the existence
of any litigation or other legal proceeding or arising
out of a judgment or award with respect to which an
appeal is being prosecuted in good faith and levy and
execution thereon have been stayed and continue to be
stayed; (ix) rights reserved to or vested in any
municipality, governmental, statutory or other public
authority to control or regulate Borrower's assets and
properties in any manner, and all applicable laws,
rules and orders from any governmental authority;
(x) Liens incurred pursuant to the Security
Instruments; and (xii) Liens existing at the date of
this Agreement which have been identified in
Schedule "1" hereto.
Person means an individual, a corporation, a
partnership, a limited liability company, an
association, a trust or any other entity or
organization, including a government or political
subdivision or an agency or instrumentality thereof.
Plan means any plan subject to Title IV of ERISA
and maintained by Borrower, or any such plan to which
Borrower is required to contribute on behalf of its
employees.
Pre-Approved Contracts as used herein shall mean
any contracts or agreements entered into in connection
with any Rate Management Transaction designed to hedge,
provide a price floor for, or swap crude oil or natural
gas or otherwise sell up to (i) 100% of the Borrower's
anticipated production from proved, developed producing
reserves of crude oil through December 31, 1999, and,
thereafter, 90% of such monthly production forecast,
and/or (ii) 100% of the Borrower's anticipated
production from proved, developed producing reserves of
natural gas through December 31, 1999, and, thereafter,
90% of such monthly production forecast, during the
period from the immediately preceding settlement date
(or the commencement of the term of such hedge
transactions if there is no prior settlement date) to
such settlement date, (ii) with a maturity of
twenty-four (24) months or less, (iii) with "strike
prices" per barrel or Mmbtu greater than Agent's
forecasted price in the most recent engineering
evaluation of Borrower's Oil and Gas Properties,
adjusted for the difference between the forecasted
price and the Borrower's actual product price as
reasonably determined by the Agent, and (iv) with
counterparties to the hedging agreement which are
reasonably approved by Agent.
Prime Rate means a rate per annum equal to the
prime rate of interest announced from time to time by
Agent or its parent (which is not necessarily the
lowest rate charged any customer), changing when and as
said prime rate changes.
Prime Rate Loans means loans during any period
which bear interest based upon the Prime Rate or which
would bear interest based upon the Prime Rate if the
Maximum Rate ceiling was not in effect at that
particular time.
Prime Rate Margin means:
<PAGE>
(i) one-fourth of one percent (.25%)
whenever the Borrowing Base Usage is equal to or
greater than 80%;
(ii) zero percent (0%) whenever the Borrowing
Base Usage is less than 80%.
Pro Rata or Pro Rata Part means for each Lender,
(i) for all purposes where no Revolving Loan is
outstanding, such Lender's Commitment Percentage and
(ii) otherwise, the proportion which the portion of the
outstanding Revolving Loans owed to such Lender bears
to the aggregate outstanding Revolving Loans owed to
all Lenders at the time in question.
Rate Management Transaction means any transaction
(including an agreement with respect thereto) now
existing or hereafter entered into between Borrower and
any other Person which is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity
index option, bond option, interest rate option,
forward exchange transaction, cap transaction, floor
transaction, collar transaction, forward transaction,
currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar
transaction (including any option with respect to any
of these transactions) or any combination thereof,
whether linked to one or more interest rates, foreign
currencies, commodity prices, equity prices or other
financial measures.
Regulation D shall mean Regulation D of the Board
of Governors of the Federal Reserve System as from time
to time in effect and any successor thereto and other
regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable
to member banks of the Federal Reserve System.
Reimbursement Obligations means, at any time, the
obligations of the Borrower in respect of all Letters
of Credit then outstanding to reimburse amounts paid by
any Lender in respect of any drawing or drawings under
a Letter of Credit.
Release Price is used herein as defined in
Section 12(r) hereof.
Required Lenders means Lenders holding 100% of the
Commitment or if the Commitment has been terminated,
Lenders holding 100% of the outstanding Loans.
Required Payment is used herein as defined in
Section 3(h) hereof.
<PAGE>
Reserve Requirement means, with respect to any
Interest Period, the maximum aggregate reserve
requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under
Regulation D on Eurocurrency liabilities.
Security Instruments is used collectively herein
to mean this Agreement, the Guaranties, all Deeds of
Trust, Mortgages, Security Agreements, Assignments of
Production and Financing Statements and other
collateral documents covering the Oil and Gas
Properties and related personal property, equipment,
oil and gas inventory and proceeds of the foregoing,
all such documents to be in form and substance
satisfactory to Agent.
Senior Notes means notes issued pursuant to the
Indenture.
Subsidiary means any corporation or other entity
of which securities or other ownership interests having
ordinary voting power to elect a majority of the board
of directors or other persons performing similar
functions are at the time directly or indirectly owned
by Borrower or another subsidiary of Borrower.
Total Interest Expense means Borrower's total
interest expense for any period, as determined in
accordance with GAAP, excluding non-cash interest items
such as amortization of loan costs and excluding
interest expense of Borrower's Subsidiaries except to
the extent paid or guaranteed by Borrower.
Total Outstandings means, as of any date, the sum
of (i) the total principal balance outstanding on the
Notes, plus (ii) the total face amount of all
outstanding Letters of Credit, plus (iii) the total
amount of all unpaid Reimbursement Obligations.
Tranche A means that portion of the Commitment
available to Borrower from time to time to fund working
capital needs and letters of credit.
Tranche B means that portion of the Commitment
available to Borrower from time to time for other
general corporate purposes.
Unscheduled Redetermination means a
redetermination of the Borrowing Base made at any time
other than on the dates set for the regular semi-annual
redetermination of the Borrowing Base which are made
(A) at the reasonable request of Borrower one time
between each scheduled Borrowing Base redetermination
and (B) at the request of Agent or Required Lenders.
<PAGE>
Unused Commitment Fee Rate means:
(i) one-half of one percent (.50%) per annum
whenever the Borrowing Base Usage is equal to or
greater than 80%; or
(ii) three-eighths of one percent (.375%) per
annum whenever the Borrowing Base Usage is less
than 80%.
2. Commitment of the Lenders.
(a) Terms of Commitment. On the terms and conditions
hereinafter set forth, each Lender agrees, subject to the
provisions of this Section 2, severally to make Advances to
the Borrower from time to time during the period beginning
on the Effective Date and ending on the Maturity Date in
such amounts as the Borrower may request from time to time
up to an amount not to exceed, in the aggregate principal
amount outstanding at any time, the Commitment. Subject to
availability under the Borrowing Base, Advances hereunder
may be made under either Tranche A or Tranche B, but
Advances under Tranche B are only available to Borrower
prior to February 28, 2000. The obligation of the Borrower
hereunder shall be evidenced by this Agreement and the Notes
issued in connection herewith, said Notes to be as described
in Section 3 hereof. Notwithstanding any other provision of
this Agreement, no Advance shall be required to be made
hereunder unless Required Lenders have specifically approved
such Advance or if any Default or Event of Default has
occurred and is continuing. Notwithstanding any of the
foregoing, the Borrower hereby acknowledges and agrees that
no Advance may be made under the terms of this Agreement
unless El Paso has consented to such Advance pursuant to
Section 14 of the Note Purchase Agreement. Each Advance
under the Commitment shall be an aggregate amount of at
least $100,000 or a whole number multiple thereof.
Irrespective of the face amount of the Note or Notes, the
Lenders shall never have the obligation to Advance any
amount or amounts in excess of the Commitment or to increase
the Commitment.
(b) Procedure for Borrowing. Whenever the Borrower desires
an Advance hereunder, it shall give Agent telegraphic,
telex, facsimile or telephonic notice ("Notice of
Borrowing") of such requested Advance, which in the case of
telephonic notice, shall be promptly confirmed in writing.
Each Notice of Borrowing shall be in the form of Exhibit "A"
attached hereto and shall be received by Agent not later
than 11:00 a.m. Dallas, Texas time, (i) one Business Day
prior to the Borrowing Date in the case of the Prime Rate
Loan, or (ii) three Business Days prior to any proposed
Borrowing Date in the case of Eurodollar Loans. Each Notice
of Borrowing shall specify (i) the Borrowing Date, (ii) the
principal amount to be borrowed, (iii) the portion of the
Advance constituting Prime Rate Loans and/or Eurodollar
Loans, (iv) if any portion of the proposed Advance is to
constitute Eurodollar Loans, the initial Interest Period
selected by Borrower pursuant to Section 4
<PAGE>
hereof to be applicable thereto, (v) whether an Advance is
requested under Tranche A or Tranche B, (vi) the use to be
made of the proceeds of such Advance, and (vii) the date
upon which such Advance is required. Upon receipt of such
Notice, Agent shall advise each Lender thereof; and if
Required Lenders have approved such Advance and if the
Lenders have received at least one (1) day's notice of such
Advance prior to funding of a Prime Rate Loan, or at least
three (3) days' notice of each Advance prior to funding in
the case of a Eurodollar Loan, each Lender shall provide
Agent at its office at 1717 Main Street, Dallas, Texas
75201, not later than 1:00 p.m., Dallas, Texas time, on the
Borrowing Date, in immediately available funds, its pro rata
share of the requested Advance, but the aggregate of all
such fundings by each Lender shall never exceed such
Lender's Commitment. Not later than 2:00 p.m., Dallas,
Texas time, on the Borrowing Date, Agent shall make
available to the Borrower at the same office, in like funds,
the aggregate amount of such requested Advance. Neither
Agent nor any Lender shall incur any liability to the
Borrower in acting upon any Notice referred to above which
Agent or such Lender believes in good faith to have been
given by a duly authorized officer or other person
authorized to borrow on behalf of Borrower or for otherwise
acting in good faith under this Section 2(b). Upon funding
of Advances by Lenders in accordance with this Agreement,
pursuant to any such Notice, the Borrower shall have
effected Advances hereunder.
(c) Letters of Credit. On the terms and conditions
hereinafter set forth, the Agent shall from time to time
during the period beginning on the Effective Date and ending
on the Revolving Maturity Date upon request of Borrower
issue standby and/or commercial Letters of Credit for the
account of Borrower (the "Letters of Credit") in such face
amounts as Borrower may request, but not to exceed in the
aggregate face amount at any time outstanding the sum of One
Million Dollars ($1,000,000), provided that Letters of
Credit may only be issued under Tranche A and only to the
extent of any unused availability under Tranche A. The face
amount of all Letters of Credit issued and outstanding
hereunder shall be considered as Advances on the Commitment
for Borrowing Base purposes and all payments made by the
Agent on such Letters of Credit shall be considered as
Advances under the Notes. Each Letter of Credit issued for
the account of Borrower hereunder shall (i) be in favor of
such beneficiaries as specifically requested by Borrower,
(ii) have an expiration date not exceeding the Maturity
Date, and (iii) contain such other terms and provisions as
may be required by issuing Lender. Each Lender (other than
Agent) agrees that, upon issuance of any Letter of Credit
hereunder, it shall automatically acquire a participation in
the Agent's liability under such Letter of Credit in an
amount equal to such Lender's Commitment Percentage of such
liability, and each Lender (other than Agent) thereby shall
absolutely, unconditionally and irrevocably assume, as
primary obligor and not as surety, and shall be
unconditionally obligated to Agent to pay and discharge when
due, its Commitment Percentage of Agent's liability under
such Letter of Credit. The Borrower hereby unconditionally
agrees to
<PAGE>
pay and reimburse the Agent for the amount of each demand
for payment under any Letter of Credit that is in
substantial compliance with the provisions of any such
Letter of Credit at or prior to the date on which payment is
to be made by the Agent to the beneficiary thereunder,
without presentment, demand, protest or other formalities of
any kind. Upon receipt from any beneficiary of any Letter
of Credit of any demand for payment under such Letter of
Credit, the Agent shall promptly notify the Borrower of the
demand and the date upon which such payment is to be made by
the Agent to such beneficiary in respect of such demand.
Forthwith upon receipt of such notice from the Agent,
Borrower shall advise the Agent whether or not it intends to
borrow hereunder to finance its obligations to reimburse the
Agent, and if so, submit a Notice of Borrowing as provided
in Section 2(b) hereof. If Borrower fails to so advise
Agent and thereafter fail to reimburse Agent, the Agent
shall notify each Lender of the demand and the failure of
the Borrower to reimburse the Agent, and each Lender shall
reimburse the Agent for its Commitment Percentage of each
such draw paid by the Agent and unreimbursed by the
Borrower. All such amounts paid by Agent and/or reimbursed
by the Lenders shall be treated as an Advance or Advances
under the Commitment, which Advances shall be immediately
due and payable and shall bear interest at the Maximum Rate.
(d) Procedure for Obtaining Letters of Credit. The
amount and date of issuance, renewal, extension or
reissuance of a Letter of Credit pursuant to the Lenders'
commitments above in Section 2(c) shall be designated by
Borrower's written request delivered to Agent at least three
(3) Business Days prior to the date of such issuance,
renewal, extension or reissuance. Concurrently with or
promptly following the delivery of the request for a Letter
of Credit, Borrower shall execute and deliver to the Agent
an application and agreement with respect to the Letters of
Credit, said application and agreement to be in the form
used by the Agent. The Agent shall not be obligated to
issue, renew, extend or reissue such Letters of Credit if
(A) the amount thereon when added to the face amount of the
outstanding Letters of Credit plus any Reimbursement
Obligations exceeds One Million Dollars ($1,000,000 or (B)
the amount thereof when added to the Total Outstandings
would exceed the Commitment. Borrower agrees to pay the
Agent for the benefit of the Lenders commissions for issuing
the Letters of Credit (calculated separately for each Letter
of Credit) in an amount equal to the greater of (i) the then
effective Eurodollar Margin times the maximum face amount of
the Letter of Credit or (ii) $500. Borrower further agrees
to pay Agent an additional fronting fee equal to one-eighth
of one percent (.125%) per annum on the maximum face amount
of each Letter of Credit. Such commissions shall be payable
prior to the issuance of each Letter of Credit and
thereafter on each anniversary date of such issuance while
such Letter of Credit is outstanding.
(d) Voluntary Reduction of Commitment. The Borrower may at
any time, or from time to time, upon not less than three (3)
Business Days' prior written notice to Agent, reduce or
terminate the Commitment; provided, however, that (i) each
reduction in the Commitment must be in the amount of
$1,000,000 or more, in increments of $100,000 and (ii) each
reduction must be accompanied by a prepayment of the Notes
in the amount by which the outstanding principal balance of
the Notes exceeds the Commitment as reduced pursuant to this
Section 2. The Borrowing Base shall be automatically
reduced if and as needed to cause the Borrowing Base not to
exceed the Commitment.
<PAGE>
(f) Mandatory Commitment Reductions.
(i) Monthly Commitment Reduction. The Borrowing
Base and the Commitment shall be reduced as of the
first day of each month by an amount determined by the
Lenders pursuant to Sections 7(b) and 7(c) hereof (the
"Monthly Commitment Reduction"). The Monthly
Commitment Reduction shall be $0 until redetermined
pursuant to Sections 7(b) and 7(c) hereof. If as a
result of any such Monthly Commitment Reduction, the
Total Outstandings ever exceed the Commitment then in
effect, the Borrower shall make the mandatory
prepayment of principal required pursuant to
Section 9(b) hereof.
(ii) Other Reductions. The Borrowing Base shall
be reduced from time to time by the amount of any
prepayment required by Section 12(r) hereof upon the
sale of assets, provided, however, that such reduction
shall only remain in effect until the next
redetermination of the Borrowing Base is made pursuant
to Sections 7(b) and 7(c) hereof. Such temporary
reduction of the Borrowing Base shall not result in a
reduction of the Commitment unless the Borrower elects
to permanently reduce the Commitment pursuant to the
provisions of Section 2(e) hereof. If, as a result of
any such reduction in the Borrowing Base, the Total
Outstandings ever exceed the Borrowing Base then in
effect, the Borrower shall make the mandatory
prepayment of principal required pursuant to
Section 9(b) hereof.
(g) Several Obligations. The obligations of the
Lenders under the Commitment are several and not joint. The
failure of any Lender to make an Advance required to be made
by it shall not relieve any other Lender of its obligation
to make its Advance, and no Lender shall be responsible for
the failure of any other Lender to make the Advance to be
made by such other Lender. No Lender shall be required to
lend hereunder any amount in excess of its legal lending
limit.
(h) Type and Number of Advances. Any Advance under
the Commitment may be a Prime Rate Loan or a Eurodollar
Loan, or a combination thereof, as selected by the Borrower
pursuant to Section 4 hereof. The total number of
Eurodollar Loans that may be outstanding at any time shall
never exceed four (4).
(i) Requirements of Note Purchase Agreement. It is
expressly acknowledged, agreed to and understood by the
Borrower that pursuant to Section 14 of the Note Purchase
Agreement, the Agent and the Lenders may not, without the
prior written consent of Purchaser, take any action
requiring the consent, approval or joint activity of all
Lenders or of Required Lenders or designate any Borrowing
Base or Monthly Commitment Reduction, approve any Advance
hereunder, release any Collateral, amend, waive or release
any Loan Document, approve the form or substance of any
agreement, instrument, title opinion or information, legal
opinion, certificate or other document required to be
delivered to Agent under Section 6 or 11 hereof, foreclose
on any Collateral or accelerate the maturity of the Note.
In addition to the foregoing, it is expressly acknowledged
and agreed to that the Agent and the Lenders are required
pursuant to such Section 14 of the Note Purchase Agreement,
at the request of El Paso, to request that Borrower furnish
to El Paso copies of all information, documents and notices
required to be delivered to the Lenders under the provisions
of the Loan Documents to El Paso, request Unscheduled
Redeterminations whenever asked to do so by El Paso and
request additional Collateral, additional Security
Instruments and amendments to Security Instruments whenever
asked to by El Paso.
3. Notes Evidencing Loans. The loans described above
in Section 2 shall be evidenced by promissory notes of
Borrower as follows:
(a) Form of Notes. The Revolving Loan shall be
evidenced by a Note or Notes in the aggregate face
amount of $50,000,000, and shall be in the form
of Exhibit "B" hereto with appropriate insertions (each
a "Note"). Notwithstanding the face amount of the
Notes, the actual principal amount due from the
Borrower to Lenders on account of the Notes, as of any
date of computation, shall be the sum of Advances then
and theretofore made on account thereof, less all
principal payments actually received by Lenders in
collected funds with respect thereto. Although the
Notes may be dated as of the Effective Date, interest
in respect thereof shall be payable only for the period
during which the loans evidenced thereby are
outstanding and, although the stated amount of the
Notes may be higher, the Notes shall be enforceable,
with respect to Borrower's obligation to pay the
principal amount thereof, only to the extent of the
unpaid principal amount of the Loans. Irrespective of
the face amount of the Notes, no Lender shall ever be
obligated to advance on the Commitment any amount in
excess of its Commitment then in effect.
(b) Issuance of Additional Notes. At the
Effective Date there shall be outstanding Notes in the
aggregate face amount of $50,000,000. From time to
time new Notes may issued to other Lenders as such
Lenders become parties to this Agreement. Upon request
from Agent, the Borrower shall execute and deliver to
Agent any such new or additional Notes. From time to
time as new Notes are issued the Agent may require that
each Lender exchange its Note(s) for newly issued
Note(s) to better reflect the extent of each Lender's
Commitment hereunder.
(c) Interest Rates. The unpaid principal balance of the
Notes shall bear interest from time to time as set forth in
Section 4 hereof.
<PAGE>
(d) Payment of Interest. Interest on the Notes
shall be payable on each Interest Payment Date.
(e) Payment of Principal. Principal of the Note
or Notes shall be due and payable to the Agent for the
ratable benefit of the Lenders on the Maturity Date
unless earlier due in whole or in part as a result of
an acceleration of the amount due or pursuant to the
mandatory prepayment provisions of Section 9(b) hereof.
(f) Payment to Lenders. Each Lender's Pro Rata
Part of any payment or prepayment of the Loans shall be
directed by wire transfer to such Lender by the Agent
at the address provided to the Agent for such Lender
for payments no later than 2:00 p.m., Dallas, Texas,
time on the Business Day such payments or prepayments
are deemed hereunder to have been received by Agent;
provided, however, in the event that any Lender shall
have failed to make an Advance as contemplated under
Section 2 hereof (a "Defaulting Lender") and the Agent
or another Lender or Lenders shall have made such
Advance, payment received by Agent for the account of
such Defaulting Lender or Lenders shall not be
distributed to such Defaulting Lender or Lenders until
such Advance or Advances shall have been repaid in full
to the Lender or Lenders who funded such Advance or
Advances. Any payment or prepayment received by Agent
at any time after 12:00 noon, Dallas, Texas, time on a
Business Day shall be deemed to have been received on
the next Business Day. Interest shall cease to accrue
on any principal as of the end of the day preceding the
Business Day on which any such payment or prepayment is
deemed hereunder to have been received by Agent. If
Agent fails to transfer any principal amount to any
Lender as provided above, then Agent shall promptly
direct such principal amount by wire transfer to such
Lender.
(g) Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, or
otherwise) on account of the Loans, (including, without
limitation, any set-off) which is in excess of its Pro
Rata Part of payments on either of the Loans, as the
case may be, obtained by all Lenders, such Lender shall
purchase from the other Lenders such participation as
shall be necessary to cause such purchasing Lender to
share the excess payment pro rata with each of them;
provided that, if all or any portion of such excess
payment is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and the
purchase price restored to the extent of the recovery.
The Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this
Section may, to the fullest extent permitted by law,
exercise all of its rights of payment (including the
right of offset) with respect to such participation as
fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
(h) Non-Receipt of Funds by the Agent. Unless the Agent
shall have been notified by a Lender or the Borrower (the
"Payor") prior to the date on which such Lender is to make
payment to the
<PAGE>
Agent of the proceeds of a Loan to be made by it
hereunder or the Borrower is to make a payment to the
Agent for the account of one or more of the Lenders, as
the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective
upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume
that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be
required to), make the amount thereof available to the
intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the
recipient of such payment shall, on demand, pay to the
Agent the amount made available to it together with
interest thereon in respect of the period commencing on
the date such amount was made available by the Agent
until the date the Agent recovers such amount at the
rate applicable to such portion of the applicable Loan.
4. Interest Rates.
(a) Options.
(i) Prime Rate Loans. On all Prime
Rate Loans the Borrower agrees to pay
interest on the Notes calculated on the basis
of the actual days elapsed in a year
consisting of 360 days with respect to the
unpaid principal amount of each Prime Rate
Loan from and including the date the proceeds
thereof are made available to Borrower until
maturity (whether by acceleration or
otherwise), at a varying rate per annum equal
to the lesser of (i) the Maximum Rate
(defined herein), or (ii) the Applicable
Prime Rate. Subject to the provisions of
this Agreement as to prepayment, the
principal of the Notes representing Prime
Rate Loans shall be payable as specified in
Section 3(e) hereof and the interest in
respect of each Prime Rate Loan shall be
payable on each Interest Payment Date. Past
due principal and, to the extent permitted by
law, past due interest in respect to each
Prime Rate Loan, shall bear interest, payable
on demand, at a rate per annum equal to
seventeen percent (17%) per annum.
(ii) Eurodollar Loans. On all Eurodollar Loans the Borrower
agrees to pay interest calculated on the basis of a year
consisting of 360 days with respect to the unpaid principal
amount of each Eurodollar Loan from the date the proceeds
thereof are made available to Borrower until maturity
(whether by acceleration or otherwise), at a varying rate
per annum equal to the lesser of (i) the Maximum Rate, or
(ii) the Eurodollar Rate plus the Eurodollar Margin.
Subject to the provisions of this Agreement with respect to
prepayment, the principal of the Notes shall be payable as
specified in Section 3(f) hereof and the interest with
respect to each Eurodollar Loan shall be
<PAGE>
payable on each Interest Payment Date. Past
due principal and, to the extent permitted by
law, past due interest shall bear interest,
payable on demand, at a rate per annum equal
to seventeen percent (17%) per annum. Upon
three (3) Business Days' written notice prior
to the making by the Lenders of any
Eurodollar Loan (in the case of the initial
Interest Period therefor) or the expiration
date of each succeeding Interest Period (in
the case of subsequent Interest Periods
therefor), Borrower shall have the option,
subject to compliance by Borrower with all of
the provisions of this Agreement, as long as
no Event of Default exists, to specify
whether the Interest Period commencing on any
such date shall be a one (1), two (2) or
three (3) month period. If Agent shall not
have received timely notice of a designation
of such Interest Period as herein provided,
Borrower shall be deemed to have elected to
convert all maturing Eurodollar Loans to
Prime Rate Loans.
(b) Interest Rate Determination. The Agent shall
determine each interest rate applicable to the Loans
hereunder. The Agent shall give prompt notice to the
Borrower and the Lenders of each rate of interest so
determined and its determination thereof shall be
conclusive absent error.
(c) Conversion Option. Borrower may elect from
time to time (i) to convert all or any part of its
Eurodollar Loans to Prime Rate Loans by giving Agent
irrevocable notice of such election in writing prior to
10:00 a.m. (Dallas, Texas time) on the conversion date
and such conversion shall be made on the requested
conversion date, provided that any such conversion of
Eurodollar Loan shall only be made on the last day of
the Interest Period with respect thereof, (ii) to
convert all or any part of its Prime Rate Loans to
Eurodollar Loans by giving the Agent irrevocable
written notice of such election three (3) Business Days
prior to the proposed conversion and such conversion
shall be made on the requested conversion date or, if
such requested conversion date is not a Business Day or
a Business Day, as the case may be, on the next
succeeding Business Day or Business Day, as the case
may be. Any such conversion shall not be deemed to be
a prepayment of any of the loans for purposes of this
Agreement on the Notes.
(d) Recoupment. If at any time the applicable
rate of interest selected pursuant to Sections 4(a)(i)
or 4(a)(ii) above shall exceed the Maximum Rate,
thereby causing the interest on the Notes to be limited
to the Maximum Rate, then any subsequent reduction in
the interest rate so selected or subsequently selected
shall not reduce the rate of interest on the Notes
below the Maximum Rate until the total amount of
interest accrued on the Notes equals the amount of
interest which would have accrued on the Notes if the
rate or rates selected pursuant to Sections 4(a)(i) or
(ii), as the case may be, had at all times been in
effect.
<PAGE>
5. Special Provisions Relating to Loans.
(a) Unavailability of Funds or Inadequacy of Pricing. In
the event that, in connection with any proposed Eurodollar
Loan, the Agent determines, which determination shall,
absent manifest error, be final, conclusive and binding upon
all parties, due to changes in circumstances since the date
hereof, adequate and fair means do not exist for determining
the Eurodollar Rate or such rate will not accurately reflect
the costs to the Lenders of funding Eurodollar Loan for such
Interest Period, the Agent shall give notice of such
determination to the Borrower and the Lenders, whereupon,
until the Agent notifies the Borrower and the Lenders that
the circumstances giving rise to such suspension no longer
exist, the obligations of the Lenders to make, continue or
convert Loans into Eurodollar Loans shall be suspended, and
all loans to Borrower shall be Prime Rate Loans during the
period of suspension.
(b) Change in Laws. If at any time any new law or any
change in existing laws or in the interpretation of any new
or existing laws shall make it unlawful for any Lender to
make or continue to maintain or fund Eurodollar Loans
hereunder, then such Lender shall promptly notify Borrower
in writing and such Lender's obligation to make, continue or
convert Loans into Eurodollar Loans under this Agreement
shall be suspended until it is no longer unlawful for such
Lender to make or maintain Eurodollar Loans. Upon receipt
of such notice, Borrower shall either repay the outstanding
Eurodollar Loans owed to the Lenders, without penalty, on
the last day of the current Interest Periods (or, if any
Lender may not lawfully continue to maintain and fund such
Eurodollar Loans, immediately), or Borrower may convert such
Eurodollar Loans at such appropriate time to Prime Rate
Loans.
(c) Increased Cost or Reduced Return.
(i) If, after the date hereof, the adoption
of any applicable law, rule, or regulation, or any
change in any applicable law, rule, or regulation,
or any change in the interpretation or
administration thereof by any governmental
authority, central bank, or comparable agency
charged with the interpretation or administration
thereof, or compliance by any Lender with any
request or directive (whether or not having the
force of law) of any such governmental authority,
central bank, or comparable agency:
(A) shall subject such Lender to any
tax, duty, or other charge with respect to
any Eurodollar Loan, its Notes, or its
obligation to make Eurodollar Loan, or change
the basis of taxation of any amounts payable
to such Lender under this Agreement or its
Notes in respect of any Eurodollar Loan
(other than franchise taxes and taxes imposed
on the overall net income of such Lender);
<PAGE>
(B) shall impose, modify, or deem
applicable any reserve, special deposit,
assessment, or similar requirement (other
than reserve requirements, if any, taken into
account in the determination of the
Eurodollar Rate) relating to any extensions
of credit or other assets of, or any deposits
with or other liabilities or commitments of,
such Lender, including the Commitment of such
Lender hereunder; or
(C) shall impose on such Lender or on
the London interbank market any other
condition affecting this Agreement or its
Notes or any of such extensions of credit or
liabilities or commitments;
and the result of any of the foregoing is to
increase the cost to such Lender of making,
converting into, continuing, or maintaining any
Eurodollar Loan or to reduce any sum received or
receivable by such Lender under this Agreement or
its Notes with respect to any Eurodollar Loan,
then Borrower shall pay to such Lender on demand
such amount or amounts as will compensate such
Lender for such increased cost or reduction. If
any Lender requests compensation by Borrower under
this Section 5(c), Borrower may, by notice to such
Lender (with a copy to Agent), suspend the
obligation of such Lender to make or continue
Eurodollar Loan, or to convert all or part of the
Prime Rate Loan owing to such Lender to Eurodollar
Loan, until the event or condition giving rise to
such request ceases to be in effect (in which case
the provisions of Section 5(c) shall be
applicable); provided that such suspension shall
not affect the right of such Lender to receive the
compensation so requested.
(ii) If, after the date hereof, any Lender
shall have determined that the adoption of any
applicable law, rule, or regulation regarding
capital adequacy or any change therein or in the
interpretation or administration thereof by any
governmental authority, central bank, or
comparable agency charged with the interpretation
or administration thereof, or any request or
directive regarding capital adequacy (whether or
not having the force of law) of any such
governmental authority, central bank, or
comparable agency, has or would have the effect of
reducing the rate of return on the capital of such
Lender or any corporation controlling such Lender
as a consequence of such Lender's obligations
hereunder to a level below that which such Lender
or such corporation could have achieved but for
such adoption, change, request, or directive
(taking into consideration its policies with
respect to capital adequacy), then from time to
time upon demand Borrower shall pay to such Lender
such additional amount or amounts as will
compensate such Lender for such reduction.
<PAGE>
(iii) Each Lender shall promptly notify
Borrower and Agent of any event of which it has
knowledge, occurring after the date hereof, which
will entitle such Lender to compensation pursuant
to this Section 5(c) and will designate a separate
lending office, if applicable, if such designation
will avoid the need for, or reduce the amount of,
such compensation and will not, in the judgment of
such Lender, be otherwise disadvantageous to it.
Any Lender claiming compensation under this
Section 5(c) shall furnish to Borrower and Agent a
statement setting forth the additional amount or
amounts to be paid to it hereunder which shall be
conclusive in the absence of manifest error. In
determining such amount, such Lender may use any
reasonable averaging and attribution methods.
(iv) Any Lender giving notice to the Borrower
through the Agent, pursuant to Section 5(c) shall
give to the Borrower a statement signed by an
officer of such Lender setting forth in reasonable
detail the basis for, and the calculation of such
additional cost, reduced payments or capital
requirements, as the case may be, and the
additional amounts required to compensate such
Lender therefor.
(v) Within five (5) Business Days after
receipt by the Borrower of any notice referred to
in Section 5(c), the Borrower shall pay to the
Agent for the account of the Lender issuing such
notice such additional amounts as are required to
compensate such Lender for the increased cost,
reduce payments or increase capital requirements
identified therein, as the case may be.
(d) Discretion of Lender as to Manner of Funding.
Notwithstanding any provisions of this Agreement to the
contrary, each Lender shall be entitled to fund and
maintain its funding of all or any part of its Loan in
any manner it sees fit, it being understood, however,
that for the purposes of this Agreement all
determinations hereunder shall be made as if each
Lender had actually funded and maintained each
Eurodollar Loan through the purchase of deposits having
a maturity corresponding to the last day of the
Interest Period applicable to such Eurodollar Loan and
bearing an interest rate to the applicable interest
rate for such Eurodollar Period.
(e) Breakage Fees. Without duplication under any
other provision hereof, if any Lender incurs any loss,
cost or expense including, without limitation, any loss
of profit and loss, cost, expense or premium reasonably
incurred by reason of the liquidation or re-employment
of deposits or other funds acquired by such Lender to
fund or maintain any Eurodollar Loan or the relending
or reinvesting of such deposits or amounts paid or
prepaid to the Lenders as a result of any of the
following events other than any such occurrence as a
result in the change of circumstances described in
Sections 5(a) and (b):
<PAGE>
(i) any payment, prepayment or conversion of
a Eurodollar Loan on a date other than the last
day of its Interest Period (whether by
acceleration, prepayment or otherwise);
(ii) any failure to make a principal payment
of a Eurodollar Loan on the due date thereof; or
(iii) any failure by the Borrower to
borrow, continue, prepay or convert to a
Eurodollar Loan on the dates specified in a notice
given pursuant to Section 4(c) hereof;
then the Borrower shall pay to such Lender such amount
as will reimburse such Lender for such loss, cost or
expense. If any Lender makes such a claim for
compensation, it shall furnish to Borrower and Agent a
statement setting forth the amount of such loss, cost
or expense in reasonable detail (including an
explanation of the basis for and the computation of
such loss, cost or expense) and the amounts shown on
such statement shall be conclusive and binding absent
manifest error.
6. Collateral Security. To secure the performance by
Borrower of its obligations hereunder, and under the Notes
and Security Instruments, whether now or hereafter incurred,
matured or unmatured, direct or contingent, joint or
several, or joint and several, including extensions,
modifications, renewals and increases thereof, and
substitutions therefore, Borrower shall grant and assign to
Agent for the ratable benefit of the Lenders a Lien on
certain of its Oil and Gas Properties, certain related
equipment, oil and gas inventory, certain bank accounts,
partnership interests in the partnerships listed on
Schedule "2" hereto and proceeds of the foregoing, plus any
other Oil and Gas Properties or other assets and properties
of Borrower or any of its Subsidiaries hereafter specified
by Agent. The Oil and Gas Properties concurrently mortgaged
and those to be mortgaged by January 31, 2000 shall
represent not less than 85% of the value of Borrower's
proved producing Oil and Gas Properties listed in the Ryder
Scott engineering report to be dated as of January 1, 2000.
All Oil and Gas Properties and other collateral in which
Borrower herewith granted or hereafter grants to Agent for
the ratable benefit of the Lenders a Lien to the
satisfaction of the Agent in accordance with this Section 6,
as such properties and interests are from time to time
constituted, are hereinafter collectively called the
"Collateral".
<PAGE>
The granting and assigning of such security interests
and Liens by Borrower shall be pursuant to Security
Instruments in form and substance reasonably satisfactory to
the Agent. Concurrently with the delivery of each of the
Security Instruments or within a reasonable time thereafter
as specified in Section 12 hereof, Borrower shall furnish to
the Agent mortgage and title opinions and other title
information satisfactory to Agent with respect to the title
and Lien status of Borrower's interests in not less than 80%
of the Engineered Value of the Oil and Gas Properties
covered by the Security Instruments as Agent shall have
designated. "Engineered Value" for this purpose shall mean
future net revenues discounted at the discount rate being
used by the Agent as of the date of any such determination
utilizing the pricing parameters used in the engineering
report furnished to the Agent for the ratable benefit of the
Lenders, pursuant to Sections 7 and 12 hereof. Borrower
will cause to be executed and delivered to the Agent, in the
future, additional Security Instruments if the Agent
reasonably deems such are necessary to insure perfection or
maintenance of Lenders' security interests and Liens in the
Oil and Gas Properties, other Collateral, or any part
thereof.
7. Borrowing Base.
(a) Initial Borrowing Base. At the Effective
Date, the Borrowing Base shall be $50,000,000, of which
$50,000,000 is available on Tranche B and $0 of which
is available on Tranche A.
(b) Subsequent Determinations of Borrowing Base.
Subsequent determinations of the Borrowing Base shall
be made by the Lenders at least semi-annually on
April 1 and October 1 of each year beginning April 1,
2000, or as Unscheduled Redeterminations. In
connection with, and as of, each determination of the
Borrowing Base, the Lenders shall also redetermine the
Monthly Commitment Reduction and allocate the Borrowing
Base availability between Tranche A and Tranche B. The
Borrower shall furnish to the Lenders as soon as
possible but in any event no later than March 1 and
September 1 of each year, beginning March 1, 2000 (or
within thirty (30) days after either (i) receipt of
notice from Agent that Agent or the Lenders require an
Unscheduled Redetermination, or (ii) the Borrower gives
notice to Agent of its desire to have an Unscheduled
Redetermination performed), an engineering report in
form, substance and "as of" date satisfactory to Agent
prepared by Borrower's in-house engineering staff
valuing the Oil and Gas Properties utilizing economic
and pricing parameters used by the Agent as established
from time to time, together with such other
information, reports and data concerning the value of
the Oil and Gas Properties as Agent shall deem
reasonably necessary to determine the value of such Oil
and Gas Properties. Provided, however, that Required
Lenders shall have the right to request from time to
time an engineering report prepared by an independent
petroleum reserve engineering firm acceptable to Agent.
Agent shall by notice to the Borrower no later than
April 1 and October 1 of each year, or within a
reasonable time thereafter (herein called the
"Determination Date"), notify the Borrower of the
designation by the Lenders of the new Borrowing Base
and Monthly Commitment Reduction for the period
beginning on such Determination Date and continuing
until, but not including, the next Determination Date.
<PAGE>
If an Unscheduled Redetermination is made by the
Lenders, the Agent shall notify the Borrower within a
reasonable time after receipt of all requested
information of the new Borrowing Base and Monthly
Commitment Reduction, and such new Borrowing Base and
Monthly Commitment Reduction shall continue until the
next Determination Date. If the Borrower does not
furnish all such information, reports and data by any
date specified in this Section 7(b), the Lenders may
nonetheless designate the Borrowing Base and Monthly
Commitment Reduction at any amounts which the Lenders
in their discretion determine and may redesignate the
Borrowing Base and Monthly Commitment Reduction from
time to time thereafter until the Lenders receive all
such information, reports and data, whereupon the
Lenders shall designate a new Borrowing Base and
Monthly Commitment Reduction as described above. Each
Lender shall determine the amount of the Borrowing Base
and Monthly Commitment Reduction based upon the amount
which such Lender in its discretion (using such
methodology, assumptions and discount rates as such
Lender deems appropriate in assigning collateral value
to oil and gas properties, oil and gas gathering
systems, gas processing and plant operations) assigns
to such Oil and Gas Properties of the Borrower at the
time in question and based upon such other credit
factors (including, without limitation, the assets,
liabilities, cash flow, Rate Management Transactions,
business, properties, prospects, management and
ownership of the Borrower and its Affiliates) as such
Lender deems appropriate. All determinations or
Unscheduled Redeterminations of the Borrowing Base and
the Monthly Commitment Reduction require the approval
of Required Lenders; provided, however, that
notwithstanding anything to the contrary herein, the
amount of the Borrowing Base may not be increased, nor
may the Monthly Commitment Reduction be reduced,
without the approval of all Lenders. If at any time any
of the Oil and Gas Properties are sold, the Borrowing
Base then in effect shall automatically be reduced by a
sum equal to the amount of prepayment required to be
made pursuant to Section 12(r) hereof. The Borrowing
Base shall be additionally reduced from time to time
pursuant to the provisions of Sections 2(e) and 2(f)
hereof. It is expressly understood that the Lenders
have no obligation to designate the Borrowing Base or
the Monthly Commitment Reduction at any particular
amounts, except in the exercise of their discretion,
whether in relation to the Commitment or otherwise.
(c) Procedures for Determining Borrowing Base.
The procedure for determining the Borrowing Base,
allocating the Borrowing Base and determining the
Monthly Commitment Reduction at each redetermination
shall be that the Agent shall determine the Borrowing
Base, the Monthly Commitment Reduction, the allocation
of the Borrowing Base between Tranche A and Tranche B
and submit the same to the Lenders for approval. If
any redetermined Borrowing Base, Monthly Commitment
Reduction or allocation of the Borrowing Base is not
approved by Required Lenders within ten (10) days after
it is submitted to the Lenders by the Agent, the Agent
shall notify each of the Lenders that the proposed
Borrowing Base, Monthly Commitment Reduction and the
allocation of the Borrowing Base have not been approved
by Required Lenders, each Lender will submit within ten
(10) days thereafter its proposed Borrowing Base,
Monthly Commitment Reduction and allocation of
Borrowing
<PAGE>
Base. The redetermined Borrowing Base, Monthly
Commitment Reduction and the respective allocations of
the Borrowing Base shall be set on the basis of the
lowest Borrowing Base, the lowest Borrowing Base
allocation to each Tranche and the highest Monthly
Commitment Reduction proposed by any Lender.
8. Fees.
(a) Unused Commitment Fee. The Borrower shall
pay to Agent for the ratable benefit of the Lenders an
unused commitment fee (the "Unused Commitment Fee")
equivalent to the Unused Commitment Fee Rate times the
daily average of the unadvanced amount of the
Commitment. The Unused Commitment Fee shall be payable
in arrears on the last Business Day of each calendar
quarter beginning March 31, 2000 with the final fee
payment due on the Maturity Date for any period then
ending for which the Unused Commitment Fee shall not
have been theretofore paid. In the event the
Commitment terminates on any date prior to the end of
any such monthly period, the Borrower shall pay to the
Agent for the ratable benefit of the Lenders, on the
date of such termination, the total Unused Commitment
Fee due for the period in which such termination
occurs.
(b) The Letter of Credit Fee. Borrower shall pay
to the Agent the Letter of Credit fees required above
in Section 2(d).
(c) Agency Fees. The Borrower shall pay to the
Agent certain fees for acting as Agent hereunder in
amounts to be negotiated between the Borrower and the
Agent.
(d) Facility Fee. The Borrower shall pay to the
Agent a Facility Fee of 1/2 of 1% of the initial
availability at the Effective Date, and said fee to be
shared by the Lenders Pro Rata.
(e) Enhancement Fee. Borrower shall pay to El
Paso a Credit Enhancement Fee as set forth in a letter
agreement between such parties.
(f) Arrangement Fee. The Borrower shall pay to
the Agent an Arrangement Fee of 1/2 of 1% of the
initial availability at the Effective Date.
9. Prepayments.
(a) Voluntary Prepayments. Subject to the provisions of
Section 5(g) hereof, the Borrower may at any time and from
time to time, without penalty or premium, prepay the Notes,
in whole or in part. Each such prepayment shall be made on
at least three (3) Business Days' notice to Agent in the
case of Eurodollar Loan Tranches and without notice in the
case of Prime Rate Loans and shall be in a minimum amount of
(i) $500,000 or any whole multiple of $100,000 in excess
thereof (or the unpaid balance of the Notes, whichever is
less), for Prime Rate Loans, plus accrued interest thereon
and (ii) $1,000,000 or any whole multiple of $100,000 in
excess thereof (or the unpaid balance on the Notes,
whichever is less) for Eurodollar Loans, plus accrued
interest thereon to the date of prepayment.
<PAGE>
(b) Mandatory Prepayment For Borrowing Base
Deficiency. In the event the Total Outstandings ever
exceed the Borrowing Base as determined by Lenders
pursuant to Sections 7(b) and 7(c) hereof, the Borrower
shall, within thirty (30) days after notification from
the Agent, either (A) by instruments reasonably
satisfactory in form and substance to the Agent,
provide the Agent with collateral with value and
quality in amounts satisfactory to all of the Lenders
in their discretion in order to increase the Borrowing
Base by an amount at least equal to such excess, or
(B) prepay, without premium or penalty, the principal
amount of the Notes in an amount at least equal to such
excess plus accrued interest thereon to the date of
prepayment or (C) elect by written notice to Agent to
prepay, without premium or penalty, the principal
amount of the Notes in an amount at least equal to such
excess plus accrued interest thereon in four (4) equal
monthly installments, with the first such installment
to accompany such notice. If the Total Outstandings
ever exceed the Commitment as a result of a Monthly
Commitment Reduction or any other required reduction in
the Commitment, then in such event, Borrower shall
immediately prepay the principal amount of the Notes in
an amount at least equal to such excess plus accrued
interest to the date of prepayment.
10. Representations and Warranties. In order to
induce the Lenders to enter into this Agreement, the
Borrower represents and warrants to the Lenders (which
representations and warranties will survive the delivery of
the Notes) that:
(a) Creation and Existence. Borrower is a
corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in
which it was formed and is duly qualified in all
jurisdictions wherein failure to qualify may result in
a Material Adverse Effect. Borrower has all power and
authority to own its properties and assets and to
transact the business in which each is engaged.
(b) Power and Authority. Borrower is duly
authorized and empowered to create and issue the Notes;
and Borrower is duly authorized and empowered to
execute, deliver and perform the Loan Documents,
including this Agreement; and all corporate action on
Borrower's part requisite for the due creation and
issuance of the Notes and for the due execution,
delivery and performance of the Loan Documents,
including this Agreement, has been duly and effectively
taken.
(c) Binding Obligations. This Agreement does,
and the Notes and other Loan Documents upon their
creation, issuance, execution and delivery will,
constitute valid and binding obligations of Borrower,
enforceable in accordance with their respective terms
(except that enforcement may be subject to any
applicable bankruptcy, insolvency, or similar debtor
relief laws now or hereafter in effect and relating to
or affecting the enforcement of creditors' rights
generally).
<PAGE>
(d) No Legal Bar or Resultant Lien. The Notes
and the Loan Documents, including this Agreement, do
not and will not violate any provisions of any
contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which Borrower
is subject, including but not limited to the Indenture,
or result in the creation or imposition of any lien or
other encumbrance upon any assets or properties of
Borrower, other than those contemplated by this
Agreement. This Agreement is, and after assignment to
any Eligible Assignee will remain, a "Permitted Bank
Credit Facility" as defined in the Indenture.
(e) No Consent. The execution, delivery and
performance by Borrower of the Notes and the Loan
Documents, including this Agreement, does not require
the consent or approval of any other Person, including
without limitation any consent required under the
Indenture or any regulatory authority or governmental
body of the United States or any state thereof or any
political subdivision of the United States or any state
thereof, except for consents required for federal,
state and, in some instances, private leases, right of
ways and other conveyances or encumbrances of oil and
gas leases, all of which consents have been obtained by
the Borrower.
(f) Financial Condition. The unaudited Financial
Statements of Borrower dated October 31, 1999, which
have been delivered to Lenders are complete and correct
in all material respects, and fully and accurately
reflect in all material respects the financial
condition and results of the operations of the Borrower
as of the date or dates and for the period or periods
stated. No change has since occurred in the condition,
financial or otherwise, of the Borrower which is
reasonably expected to have a Material Adverse Effect,
except as disclosed to the Lenders in Schedule "3"
attached hereto.
(g) Liabilities. Borrower has no material
liability, direct or contingent, except as disclosed to
the Lenders in such October 31, 1999 Financial
Statements or on Schedule "4" attached hereto. No
unusual or unduly burdensome restrictions, restraint,
or hazard exists by contract, law or governmental
regulation or otherwise relative to the business,
assets or properties of Borrower which is reasonably
expected to have a Material Adverse Effect.
(h) Litigation. Except as described in the
Financial Statements, or as otherwise disclosed to the
Lenders in Schedule "5" attached hereto, there is no
litigation, legal or administrative proceeding,
investigation or other action of any nature pending or,
to the knowledge of the officers of Borrower threatened
against or affecting Borrower which involves the
possibility of any judgment or liability not fully
covered by insurance, or which presents a risk (other
than a remote risk) of having a Material Adverse
Effect.
(i) Taxes; Governmental Charges. Borrower has
filed all tax returns and reports required to be filed
and has paid all taxes, assessments, fees and other
governmental charges levied upon them or their assets,
properties or income which are due and
<PAGE>
payable, including interest and penalties, the failure
of which to pay presents a risk (other than a remote
risk) of having a Material Adverse Effect, except such
as are being contested in good faith by appropriate
proceedings and for which adequate reserves for the
payment thereof as required by GAAP has been provided
and levy and execution thereon have been stayed and
continue to be stayed.
(j) Titles, Etc. Borrower has good and
defensible title to substantially all of its assets,
including without limitation, the Oil and Gas
Properties, free and clear of all Liens or other
encumbrances except Permitted Liens and contracts,
agreements and instruments, and all defects and
irregularities and other matters affecting Borrower's
assets and properties which were in existence at the
time Borrower's assets and properties were originally
acquired by Borrower, and all routine operational
agreements entered into in the ordinary course of
business, which contracts, agreements, instruments,
defects, irregularities and other matters and routine
operational agreements are not such as to, individually
or in the aggregate, interfere materially with the
operation, value or use of Borrower's assets and
properties, considered in the aggregate.
(k) Defaults. Borrower is not in default and no
event or circumstance has occurred which, but for the
passage of time or the giving of notice, or both, would
constitute a default under any loan or credit
agreement, indenture, mortgage, deed of trust, security
agreement or other agreement or instrument to which
Borrower is a party in any respect that presents a
risk (other than a remote risk) of having a Material
Adverse Effect. No Default or Event of Default
hereunder has occurred and is continuing.
(l) Casualties; Taking of Properties. Since the
dates of the latest Financial Statements of the
Borrower delivered to Lenders, neither the business nor
the assets or properties of Borrower has been affected
(to the extent it is reasonably likely to cause a
Material Adverse Effect), 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 domestic or
foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any
public enemy.
(m) Use of Proceeds; Margin Stock. The proceeds
of the Commitment may be used by the Borrower for the
purposes of working capital and other general corporate
purposes. Borrower is not engaged principally or as
one of its important activities in the business of
extending credit for the purpose of purchasing or
carrying any "margin stock" as defined in Regulation U
of the Board of Governors of the Federal Reserve System
(12 C.F.R. Part 221), or for the purpose of reducing or
retiring any indebtedness which was originally incurred
to purchase or carry a margin stock or for any other
purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulation
G or U.
<PAGE>
Neither Borrower nor any Person acting on behalf
of Borrower has taken or will take any action which
might cause the loans hereunder or any of the Loan
Documents, including this Agreement, to violate
Regulation G or U or any other regulation of the Board
of Governors of the Federal Reserve System or to
violate the Securities Exchange Act of 1934 or any rule
or regulation thereunder, in each case as now in effect
or as the same may hereafter be in effect.
(n) Location of Business and Offices. The
principal place of business and chief executive offices
of the Borrower is located at the address stated in
Section 17 hereof.
(o) Compliance with the Law. Borrower:
(i) is not in violation of any law,
judgment, decree, order, ordinance, or
governmental rule or regulation to which Borrower,
or any of its assets or properties are subject; or
(ii) has not failed to obtain any license,
permit, franchise or other governmental
authorization necessary to the ownership of any of
its assets or properties or the conduct of its
business;
which violation or failure presents a risk (other than
a remote risk) of having a Material Adverse Effect.
(p) No Material Misstatements. No information,
exhibit or report furnished by Borrower to the Lenders or El
Paso in connection with the negotiation of this Agreement or
in the preparation of the offering memo contained any
material misstatement of fact or omitted to state a material
fact or any fact necessary to make the statement contained
therein not materially misleading.
(q) Not A Utility. Borrower is not an entity engaged
in the State of Texas in the (i) generation, transmission,
or distribution and sale of electric power; (ii)
transportation, distribution and sale through a local
distribution system of natural or other gas for domestic,
commercial, industrial, or other use; (iii) provision of
telephone or telegraph service to others; (iv) production,
transmission, or distribution and sale of steam or water;
(v) operation of a railroad; or (vii) provision of sewer
service to others.
(r) ERISA. Borrower is in compliance in all material
respects with the applicable provisions of ERISA, and no
"reportable event", as such term is defined in Section 403
of ERISA, has occurred with respect to any Plan of Borrower.
<PAGE>
(s) Public Utility Holding Company Act. Borrower is
not a "holding company", or "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company"
or of a"subsidiary company" of a "holding company", or a
"public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(t) Subsidiaries. All of the Borrower's Subsidiaries
are listed on Schedule "6" hereto.
(u) Environmental Matters. Except as disclosed on
Schedule "7", Borrower (i) has not received notice or
otherwise learned of any Environmental Liability which
presents a risk (other than a remote risk) of having a
Material Adverse Effect arising in connection with (A) any
non-compliance with or violation of the requirements of any
Environmental Law or (B) the release or threatened release
of any toxic or hazardous waste into the environment, (ii)
has not received notice of any threatened or actual
liability in connection with the release or notice of any
threatened release of any toxic or hazardous waste into the
environment which would present a risk (other than a remote
risk) of having a Material Adverse Effect or (iii) has not
received notice or otherwise learned of any federal or state
investigation evaluating whether any remedial action is
needed to respond to a release or threatened release of any
toxic or hazardous waste into the environment for which
Borrower is or may be liable which may reasonably be
expected to result in a Material Adverse Effect.
(v) Liens. Except (i) as disclosed on Schedule "1"
hereto and (ii) for Permitted Liens, the assets and
properties of the Borrower is free and clear of all Liens
and encumbrances.
(w) Year 2000 Compliance. Borrower represents and
warrants to Lenders that:
(i) It will use its best efforts to cause all
devices, systems, machinery, information technology,
computer software and hardware, and other date
sensitive technology (jointly and severally the
"Systems") necessary for Borrower carry on its business
as presently conducted and as contemplated to be
conducted in the future to be Year 2000 Compliant
within a period of time calculated to result in no
material disruption of any of Borrower's business
operations. For purposes of these provisions, "Year
2000 Compliant" means that such Systems are designed to
be used prior to, during and after the Gregorian
calendar year 2000 A.D. and will operate during each
such time period without error relating to date data,
specifically including any error relating to, or the
product of, date data which represents or references
different centuries or more than one century.
<PAGE>
(ii) Borrower has: (A) undertaken, or will
undertake, an inventory, review, and assessment of all
areas within its business and operations that could be
adversely affected by the failure of Borrower to be
Year 2000 Compliant on a timely basis; (B) developed,
or will develop, a plan and time line for becoming Year
2000 Compliant on a timely basis; (C) to date,
implemented, or will implement, that plan in accordance
with that timetable in all material respects on a
best-efforts basis.
(iii) Borrower has either made, or will make,
written inquiry of each of its vendors, and have
obtained, or will obtain, in writing confirmations from
all such persons, as to whether such persons have
initiated programs to become Year 2000 Compliant and on
the basis of such confirmations. Borrower reasonably
believes that all such persons will be or become so
compliant. For purposes hereof, "vendors" refers to
those vendors of Borrower whose business failure would,
with reasonable probability, result in a material
adverse change in the business, properties, condition
(financial or otherwise), or prospects of Borrower.
For purposes of this paragraph, each Lender, as a
lender of funds under the terms of this Agreement,
confirms to Borrower that each Lender has initiated its
own corporate-wide Year 2000 program with respect to
its lending activities.
(iv) The fair market value of all Collateral
pledged to Lenders to secure the Loan and the Notes and
all of Borrower's obligations hereunder are not and
shall not be less than currently anticipated or subject
to deterioration in value because of the failure of
such Collateral to be Year 2000 Compliant.
11. Conditions of Lending.
(a) The effectiveness of this Agreement, and the obligation
to make the initial Advance or issue any initial Letter of
Credit under the Commitment shall be subject to satisfaction
of the following conditions precedent:
(i) Execution and Delivery. The (i) Borrower
shall have executed and delivered the Agreement, the
Notes and other required Loan Documents, all in form
and substance satisfactory to the Agent and (ii) the
Guarantors shall have executed and delivered their
respective Guaranties in the form of Exhibits "F-1" and
"F-2" hereto;
(ii) Legal Opinion. The Agent shall have received
from Borrower's legal counsel, a favorable legal
opinion in form and substance satisfactory to it (i) as
to the matters set forth in Subsections 10(a), (b),
(c), (d), (e) and (h) hereof and (ii) as to such other
matters as Agent or its counsel may reasonably request;
<PAGE>
(iii) Corporate Resolutions. The Agent shall
have received appropriate certified corporate
resolutions of Borrower and each Guarantor;
(iv) Good Standing. The Agent shall have received
evidence of existence, due qualification, and good
standing for Borrower and each Guarantor from
appropriate state officials, in the case of Borrower,
from in Delaware, Texas and New Mexico;
(v) Incumbency. The Agent shall have received a
signed certificate of Borrower and each Guarantor
certifying the names of the officers of Borrower and
each Guarantor authorized to sign loan documents on
behalf of Borrower and each Guarantor, together with
the true signatures of each such officer. The Agent
may conclusively rely on such certificate until the
Agent receives a further certificate of Borrower or
either Guarantor canceling or amending the prior
certificate and submitting signatures of the officers
named in such further certificate;
(vi) Articles of Incorporation and Bylaws. The
Agent shall have received copies of the Articles of
Incorporation of Borrower and each Guarantor and all
amendments thereto, certified by the Secretary of State
of the State of its incorporation, and a copy of the
bylaws of Borrower and each Guarantor and all
amendments thereto, certified by Borrower as being
true, correct and complete;
(vii) Required Floors. Borrower shall have
purchased one or more floor contracts, from
counterparties approved by Agent as described on
Schedule "10" attached hereto.
(viii)Note Purchase Agreement. The Agent shall
have received an executed copy of the Note Purchase
Agreement in the form of Exhibit "E" hereto accompanied
by appropriate corporate resolutions of El Paso and a
certificate of a secretary or assistant secretary of El
Paso that the person signing the Note Purchase
Agreement is duly authorized to do so;
(ix) Sinking Account Fund. The Borrower shall
have established the Sinking Fund Account (as
hereinafter defined) and shall have deposited in such
account at or prior to closing the sum of $3,500,000;
(x) Mortgaging and Title. The Agent shall have
received Security Instruments covering a percentage of
the Oil and Gas Properties mortgaged pursuant to
Section 6 hereof which is satisfactory to the Agent and
El Paso. The Agent shall have also received title
opinions or other title information satisfactory to the
Agent and El Paso covering a percentage of such Oil and
Gas Properties which is satisfactory to the Agent and
El Paso;
<PAGE>
(xi) Phase I Environmental Report. The Agent
shall have received a Phase I Environmental Report
covering the Oil and Gas Properties, said report to be
in form and substance satisfactory to Agent;
(xii) Security Agreements. The Agent shall
have received Security Instruments covering the
Borrower's right to distributions from all of the
partnerships listed on Schedule "2" hereto;
(xiii)Representation and Warranties. The
representations and warranties of Borrower under this
Agreement are true and correct in all material respects
as of such date, as if then made (except to the extent
that such representations and warranties related solely
to an earlier date);
(xiv) No Event of Default. No Event of
Default shall have occurred and be continuing nor shall
any event have occurred or failed to occur which, with
the passage of time or service of notice, or both,
would constitute an Event of Default;
(xv) Other Documents. Agent shall have received
such other instruments, documents and local counsel
opinions incidental and appropriate to the transaction
provided for herein as Agent or its counsel may
reasonably request, and all such documents shall be in
form and substance reasonably satisfactory to the
Agent; and
(xvi) Legal Matters Satisfactory. All legal
matters incident to the consummation of the
transactions contemplated hereby shall be reasonably
satisfactory to special counsel for Agent retained at
the expense of the Borrower.
(b) The obligation of the Lenders to make any Advance
or issue any Letter of Credit under the Commitment
(including the initial Advance) shall be subject to the
following additional conditions precedent that, at the date
of making each such Advance and after giving effect thereto:
(i) Representation and Warranties. The
representations and warranties of Borrower under this
Agreement are true and correct in all material respects
as of such date, as if then made (except to the extent
that such representations and warranties related solely
to an earlier date);
<PAGE>
(ii) No Event of Default. No Event
of Default shall have occurred and be
continuing nor shall any event have occurred
or failed to occur which, with the passage of
time or service of notice, or both, would
constitute an Event of Default;
(iii) Other Documents. Agent
shall have received such other instruments
and documents incidental and appropriate to
the transaction provided for herein as Agent
or its counsel may reasonably request, and
all such documents shall be in form and
substance reasonably satisfactory to the
Agent; and
(iv) Legal Matters Satisfactory.
All legal matters incident to the
consummation of the transactions contemplated
hereby shall be reasonably satisfactory to
special counsel for Agent retained at the
expense of Borrower.
12. Affirmative Covenants. A deviation from the
provisions of this Section 12 shall not constitute an Event
of Default under this Agreement if such deviation is
consented to in writing by the Required Lenders prior to the
date of deviation. The Borrower will at all times comply
with the covenants contained in this Section 12 from the
date hereof and for so long as the Commitment are in
existence or any amount is owed to the Agent or the Lenders
under this Agreement or the other Loan Documents.
(a) Financial Statements and Reports.
Borrower shall promptly furnish to each Lender from
time to time upon request such information regarding
the business and affairs and financial condition of
Borrower, as the Agent may reasonably request, and will
also furnish to each Lender:
(i) Annual Audited Financial
Statements. As soon as available, and in any
event within ninety (90) days after the close
of each fiscal year, the annual audited
consolidated and consolidating Financial
Statements of Borrower (including a statement
of shareholders' equity), prepared in
accordance with GAAP accompanied by an
opinion rendered by an independent accounting
firm reasonably acceptable to the Agent as to
such consolidated Financial Statements;
(ii) Monthly Financial Statements. As
soon as available, and in any event within
forty-five (45) days after the end of each
calendar month of each year, the monthly
unaudited consolidated and consolidating
Financial Statements of Borrower prepared in
accordance with GAAP;
(iii) Report on Properties. As soon as available and in
any event on or before March 1 and September 1 of each
calendar year, and at such other times as any Lender, in
accordance with Section 7 hereof, may request, the
engineering
<PAGE>
reports required to be furnished to the Agent
under such Section 7 on the Oil and Gas
Properties;
(iv) Monthly Production Reports. Within
forty-five (45) days after the end of each
month, a monthly report, in form and
substance satisfactory to the Agent,
indicating the next preceding month's sales
volume, sales revenues, production taxes,
operating expense and net operating income
from the Oil and Gas Properties, with
detailed calculations and worksheets, all in
form and substance satisfactory to Agent;
(v) Additional Information. Promptly
upon request of the Agent from time to time
any additional financial information or other
information that the Agent may reasonably
request.
All such reports, information, balance sheets and
Financial Statements referred to in Subsection 12(a)
above shall be in such detail as the Agent may
reasonably request and shall be prepared in a manner
consistent with the Financial Statements.
(b) Certificates of Compliance. Concurrently
with the furnishing of the annual audited Financial
Statements pursuant to Subsection 12(a)(i) hereof and
the monthly unaudited Financial Statements pursuant to
Subsection 12(a)(ii) hereof, Borrower will furnish or
cause to be furnished to the Agent a certificate in the
form of Exhibit "C" attached hereto, signed by the
President or Chief Financial Officer of Borrower,
(i) stating that Borrower has fulfilled in all material
respects its obligations under the Notes and the Loan
Documents, including this Agreement, and that all
representations and warranties made herein and therein
continue as of the date of such certificate (except to
the extent they relate solely to an earlier date) to be
true and correct in all material respects (or
specifying the nature of any change), or if a Default
has occurred, specifying the Default and the nature and
status thereof; (ii) to the extent requested from time
to time by the Agent, specifically affirming compliance
of Borrower in all material respects with any of its
representations (except to the extent they relate
solely to an earlier date) or obligations under said
instruments; (iii) summarizing any property sales
during such period and setting forth the computation,
in reasonable detail as of the end of each period
covered by such certificate, of compliance with
Sections 12(r), 13(b) and (c); and (iv) containing or
accompanied by such financial or other details,
information and material as the Agent may reasonably
request to evidence such compliance.
(c) Accountants' Certificate. Concurrently with the
furnishing of the annual audited Financial Statement
pursuant to Section 12(a)(i) hereof, Borrower will furnish a
statement from the firm of independent public accountants
which prepared such Financial Statement to the effect that
nothing has come to their attention to cause them to believe
that there existed on the date of such statements any Event
of Default and specifically calculating Borrower's
compliance with Sections 13(b), (c) and (d) of this
Agreement.
<PAGE>
(d) Taxes and Other Liens. The Borrower will pay
and discharge promptly all taxes, assessments and
governmental charges or levies imposed upon the
Borrower or upon the income or any assets or property
of Borrower, as well as all claims of any kind
(including claims for labor, materials, supplies and
rent) which, if unpaid, might become a Lien or other
encumbrance upon any or all of the assets or property
of Borrower; provided, however, that Borrower shall not
be required to pay any such tax, assessment, charge,
levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by
appropriate proceedings diligently conducted, levy and
execution thereon have been stayed and continue to be
stayed and if Borrower shall have set up adequate
reserves therefor, if required, under GAAP.
(e) Compliance with Laws and Contracts. Borrower
will observe and comply, in all material respects, with
all applicable laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules,
regulations, orders and restrictions of all federal,
state, county, municipal and other governments,
departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or
foreign, and with all indentures, oil and gas leases
and other material leases, contracts and agreements
binding upon Borrower or its properties.
(f) Further Assurances. The Borrower will cure
promptly any defects in the creation and issuance of
the Notes and the execution and delivery of the Notes
and the Loan Documents, including this Agreement. The
Borrower at its sole expense will promptly execute and
deliver to Agent upon reasonable request by Agent all
such other and further documents, agreements and
instruments in compliance with or accomplishment of the
covenants and agreements in this Agreement, or to
correct any omissions in the Notes or more fully to
state the obligations set out herein.
(g) Performance of Obligations. The Borrower
will pay the Notes and other obligations incurred by it
hereunder according to the reading, tenor and effect
thereof and hereof; and Borrower will do and perform
every act and discharge all of the obligations provided
to be performed and discharged by the Borrower under
the Loan Documents, including this Agreement, at the
time or times and in the manner specified.
(h) Insurance. The Borrower now maintains and will
continue to maintain insurance with financially sound and
reputable insurers with respect to its assets against such
liabilities, fires, casualties, risks and contingencies and
in such types and amounts as is customary in the case of
persons engaged in the same or similar businesses and
similarly situated. Upon request of the Agent, the Borrower
will furnish or cause to be furnished to the Agent from time
to time a summary of the
<PAGE>
respective insurance coverage of Borrower in form and
substance satisfactory to the Agent, and, if requested,
will furnish the Agent copies of the applicable
policies. Upon demand by Agent any insurance policies
covering any such property shall be endorsed (i) to
provide that such policies may not be canceled, reduced
or affected in any manner for any reason without
fifteen (15) days prior notice to Agent, (ii) to
provide for insurance against fire, casualty and other
hazards normally insured against, in the amount of the
full value (less a reasonable deductible not to exceed
amounts customary in the industry for similarly
situated business and properties) of the property
insured, and (iii) to provide for such other matters as
the Agent may reasonably require. The Borrower shall
at all times maintain adequate insurance with respect
to all of its assets, including but not limited to, the
Oil and Gas Properties or any Collateral, against its
liability for injury to persons or property, which
insurance shall be by financially sound and reputable
insurers and shall without limitation provide the
following coverages: comprehensive general liability
(including coverage for damage to underground resources
and equipment, damage caused by blowouts or cratering,
damage caused by explosion, damage to underground
minerals or resources caused by saline substances,
broad form property damage coverage, broad form
coverage for contractually assumed liabilities and
broad form coverage for acts of independent
contractors), worker's compensation and automobile
liability. The Borrower shall at all times maintain
cost of control of well insurance with respect to the
Oil and Gas Properties which shall insure the Borrower
against seepage and pollution expense; redrilling
expense; and cost of control of well; fires, blowouts,
etc., if deemed economical in the reasonable discretion
of the Borrower. Additionally, the Borrower shall at
all times maintain adequate insurance with respect to
all of its other assets and wells in accordance with
prudent business practices.
(i) Accounts and Records. Borrower will keep
books, records and accounts in which full, true and
correct entries will be made of all dealings or
transactions in relation to its business and
activities, prepared in a manner consistent with prior
years, subject to changes suggested by such Borrower's
auditors.
(i) Right of Inspection. Borrower will permit any officer,
employee or agent of the Lenders to examine Borrower's
books, records and accounts, and take copies and extracts
therefrom, all at such reasonable times during normal
business hours and as often as the Lenders may reasonably
request. The Lenders will use reasonable efforts to keep
all Confidential Information (as herein defined)
confidential and not to disclose or reveal the Confidential
Information or any part thereof other than (i) as required
by law or judicial order, and (ii) to the Lenders, El Paso
and their subsidiaries, Affiliates, officers, employees,
legal counsel, regulatory authorities, accountants or
advisors, or (iii) as may be advisable or required in
connection with the enforcement of the Lenders' and the
Agent's rights and remedies under the Notes, this Agreement
and the other Loan Documents. As used herein, "Confidential
Information" means information about the Borrower furnished
by the Borrower to the Lenders, but does not include
information (i) which was publicly known, or otherwise known
to the Lenders, at the time of the
<PAGE>
disclosure, (ii) which subsequently becomes publicly
known through no act or omission by the Lenders, or
(iii) which otherwise becomes known to the Lenders,
other than through disclosure by the Borrower.
(k) Notice of Certain Events. The Borrower shall
promptly notify the Agent if Borrower learns of the
occurrence of (i) any event which constitutes a Default
or an Event of Default together with a detailed
statement by Borrower of the steps being taken to cure
such Event of Default; (ii) any legal, judicial or
regulatory proceedings affecting Borrower or any of the
Affiliates', assets or properties of Borrower which, if
adversely determined, would present a risk (other than
a remote risk) of having a Material Adverse Effect;
(iii) any dispute between Borrower and any governmental
or regulatory body or any other Person which, if
adversely determined, would present a risk (other than
a remote risk) of having a Material Adverse Effect;
(iv) any other matter which in Borrower's reasonable
opinion could have a Material Adverse Effect.
(l) ERISA Information and Compliance. The
Borrower will promptly furnish to the Agent immediately
upon becoming aware of the occurrence of any
"reportable event", as such term is defined in Section
4043 of ERISA, or of any "prohibited transaction", as
such term is defined in Section 4975 of the Internal
Revenue Code of 1954, as amended, in connection with
any Plan or any trust created thereunder, a written
notice signed by the chief financial officer of
Borrower specifying the nature thereof, what action
Borrower is taking or proposes to take with respect
thereto, and, when known, any action taken by the
Internal Revenue Service with respect thereto.
(m) Environmental Reports and Notices. The
Borrower will, deliver to the Agent (i) promptly upon
its becoming available, one copy of each report sent by
Borrower to any court, governmental agency or
instrumentality pursuant to any Environmental Law, (ii)
notice, in writing, promptly upon Borrower's receipt of
notice or otherwise learning of any claim, demand,
action, event, condition, report or investigation
indicating any potential or actual liability arising in
connection with (x) the non-compliance with or
violation of the requirements of any Environmental Law
would present a risk (other than a remote risk) of
having a Material Adverse Effect; (y) the release or
threatened release of any toxic or hazardous waste into
the environment which would present a risk (other than
a remote risk) of having a Material Adverse Effect or
which release Borrower would have a duty to report to
any court or government agency or instrumentality, or
(iii) the existence of any Environmental Lien on any
properties or assets of Borrower, and Borrower shall
immediately deliver a copy of any such notice to Agent.
(n) Compliance and Maintenance. The Borrower
will (i) observe and comply in all material respects
with all Environmental Laws; (ii) except as provided in
Subsections 12(o) and 12(p) below, maintain the Oil and
Gas Properties and other assets and properties in good
and workable condition at all times and make all
repairs, replacements, additions, betterments and
improvements to the Oil and Gas Properties and other
assets and
<PAGE>
properties as are needed and proper so that the
business carried on in connection therewith may be
conducted properly and efficiently at all times in the
opinion of the Borrower exercised in good faith; (iii)
take or cause to be taken whatever actions are
necessary or desirable to prevent an event or condition
of default by Borrower under the provisions of any gas
purchase or sales contract or any other contract,
agreement or lease comprising a part of the Oil and Gas
Properties or other collateral security hereunder; and
(iv) furnish Agent upon request evidence satisfactory
to Agent that there are no Liens, claims or
encumbrances on the Oil and Gas Properties, except
Permitted Liens.
(o) Operation of Properties. Except as provided
in Subsection 12(p) and (q) below, the Borrower will
operate, or use reasonable efforts to cause to be
operated, all Oil and Gas Properties in a careful and
efficient manner in accordance with the practice of the
industry and in compliance in all material respects
with all applicable laws, rules, and regulations, and
in compliance in all material respects with all
applicable proration and conservation laws of the
jurisdiction in which the properties are situated, and
all applicable laws, rules, and regulations, of every
other agency and authority from time to time
constituted to regulate the development and operation
of the properties and the production and sale of
hydrocarbons and other minerals therefrom; provided,
however, that the Borrower shall have the right to
contest in good faith by appropriate proceedings, the
applicability or lawfulness of any such law, rule or
regulation and pending such contest may defer
compliance therewith, as long as such deferment shall
not subject the properties or any part thereof to
foreclosure or loss.
(p) Compliance with Leases and Other Instruments. The
Borrower will pay or cause to be paid and discharge all
rentals, delay rentals, royalties, production payment, and
indebtedness required to be paid by Borrower (or required to
keep unimpaired in all material respects the rights of
Borrower in Oil and Gas Properties) accruing under, and
perform or cause to be performed in all material respects
each and every act, matter, or thing required of Borrower by
each and all of the assignments, deeds, leases, subleases,
contracts, and agreements in any way relating to Borrower or
any of the Oil and Gas Properties and do all other things
necessary of Borrower to keep unimpaired in all material
respects the rights of Borrower thereunder and to prevent
the forfeiture thereof or default thereunder; provided,
however, that nothing in this Agreement shall be deemed to
require Borrower to perpetuate or renew any oil and gas
lease or other lease by payment of rental or delay rental or
by commencement or continuation of operations nor to prevent
Borrower from abandoning or releasing any oil and gas lease
or other lease or well thereon when, in any of such events,
when (i) in the opinion of Borrower
<PAGE>
exercised in good faith, it is not in the best interest
of the Borrower to perpetuate the same and (ii) there
are no proved oil or gas reserves attributable to the
acreage released.
(q) Certain Additional Assurances Regarding
Maintenance and Operations of Properties. With respect
to those Oil and Gas Properties which are being
operated by operators other than the Borrower, the
Borrower shall not be obligated to perform any
undertakings contemplated by the covenants and
agreement contained in Subsections 12(o) or 12(p)
hereof which are performable only by such operators and
are beyond the control of the Borrower; however, the
Borrower agrees to promptly take all reasonable actions
available under any operating agreements or otherwise
to bring about the performance of any such material
undertakings.
(r) Sale of Certain Assets/Prepayment of
Proceeds. The Borrower will immediately pay over to
the Agent for the ratable benefit of the Lenders as a
prepayment of principal on the Notes, an amount equal
to 100% of the Release Price received by Borrower from
the sale of the Oil and Gas Properties, which sale has
been approved in advance by the Required Lenders. The
term "Release Price" as used herein shall mean a price
determined by the Required Lenders in their discretion
for such Oil and Gas Properties at the time in
question. Any such prepayment of principal on the
Notes required by this Section 12(r), shall not be in
lieu of, but shall be in addition to, any Monthly
Commitment Reduction or any mandatory prepayment of
principal required to be paid pursuant to Section 9(b)
hereof.
(s) Title Matters. Within the periods specified
in Schedule "8" hereto with respect to the Oil and Gas
Properties listed on Schedule "8" hereto, furnish Agent
with title opinions and/or title information reasonably
satisfactory to Agent showing good and defensible title
of Borrower to such Oil and Gas Properties subject only
to the Permitted Liens. As to any Oil and Gas
Properties now or hereafter mortgaged to Agent,
Borrower will promptly (but in no event more than
thirty (30) days after Agent's request therefor),
furnish Agent with title opinions and/or title
information reasonably satisfactory to Agent showing
good and defensible title of Borrower to such Oil and
Gas Properties subject only to Permitted Liens.
(t) Curative Matters. Within ninety (90) days after the
Effective Date with respect to matters listed on Schedule
"9" and, thereafter, within sixty (60) days after receipt by
Borrower from Agent or its counsel of written notice of
title defects the Agent reasonably requires to be cured,
Borrower shall either (i) provide such curative information,
in form and substance satisfactory to Agent, or
(ii) substitute Oil and Gas Properties of value and quality
satisfactory to the Agent for all of Oil and Gas Properties
for which such title curative was requested but upon which
Borrower elected not to provide such title curative
information, and, within sixty (60) days of such
substitution, provide title opinions or title information
satisfactory the Agent covering the Oil and Gas Properties
so substituted. If the
<PAGE>
Borrower fails to satisfy (i) or (ii) above within the
time specified, the loan collateral value assigned by
the Lenders to the Oil and Gas Properties for which
such curative information was requested shall be
deducted from the Borrowing Base resulting in a
reduction thereof.
(u) Change of Principal Place of Business.
Borrower shall give Agent at least thirty (30) days
prior written notice of its intention to move its
principal place of business from the address set forth
in Section 17 hereof.
(v) Cash Collateral Accounts. Borrower shall
establish and maintain with Agent one or more operating
accounts for Borrower (the "Operating Accounts") and
lockbox accounts for Borrower ("Lockbox Accounts"), the
maintenance of each of which shall be subject to such
rules and regulations as the Agent shall from time to
time specify. Such accounts shall be maintained with
the Agent until all amounts due hereunder and under the
Notes have been paid in full. To the extent not
already so instructed, Borrower shall within ten (10)
days of the Effective Date instruct and cause all
monetary proceeds of production from the Oil and Gas
Properties to be remitted to their respective Lockbox
Accounts. Such proceeds of production shall not be
redirected without the prior written consent of the
Required Lenders until such time as all indebtedness
due Lenders by Borrower has been paid in full and the
Commitment has been terminated. If no Event of Default
(and no event which, with notice or lapse of time or
both, would become an Event of Default) has occurred
and is continuing, the full balance of the Lockbox
Accounts each day will be deposited into the Operating
Accounts. The Borrower hereby grants a security
interest to Agent and the Lenders in and to the Lockbox
Accounts and the Operating Accounts (collectively, the
"Cash Collateral Accounts") and all checks, drafts and
other items ever received for deposit therein. If any
Event of Default shall occur and be continuing, Agent
shall have the immediate right, without prior notice or
demand, to take and apply against the Borrower's
obligations hereunder any and all funds legally and
beneficially owned by the Borrower then or thereafter
on deposit in the Cash Collateral Accounts for the
ratable benefit of the Lenders. One of the Operating
Accounts required herein shall be a special purpose
sinking fund account (the "Sinking Fund Account") for
the accumulation of the interest payments to be made on
the Senior Notes, and each month Borrower shall deposit
into such Sinking Fund Account one-twelfth (1/12th) of
the annual aggregate interest payments due on the
Senior Notes beginning December 31, 1999. Borrower
shall withdraw the funds deposited in such Operating
Account only for the purpose of paying interest
payments due on the Senior Notes. Borrower shall have
deposited $3,500,000 in such Sinking Fund Account on or
before the Effective Date.
(w) Year 2000 Compatibility. Borrower covenants and agrees
with Lenders that it will:
<PAGE>
(i) Furnish such additional
information, statements and other reports
with respect to Borrower's activities, course
of action and progress towards becoming Year
2000 Compliant as Lenders may reasonably
request from time to time;
(ii) In the event of any change in
circumstances that causes or will likely
cause any of Borrower's representations and
warranties with respect to its being or
becoming Year 2000 Compliant to no longer be
true (hereinafter, referred to as a "Change
in Circumstances") then Borrower shall
promptly, and in any event within ten (10)
days of receipt of information regarding a
Change in Circumstances, provide Lenders with
written notice (the "Notice") that describes
in reasonable detail the Change in
Circumstances and how such Change in
Circumstances caused or will likely cause
Borrower's representations and warranties
with respect to being or becoming Year 2000
Compliant no longer to be true. Borrower
shall, within ten (10) days of a request,
also provide Lenders with any additional
information Lenders reasonably request of
Borrower in connection with the Notice and/or
a Change in Circumstances.
(x) Engineering Report. The Borrower shall
deliver to the Agent no later than January 31, 2000, an
engineering report prepared by Ryder Scott covering all
of Borrower's oil and gas properties, said report to be
in form and substance satisfactory to Agent and El
Paso.
13. Negative Covenants. A deviation from the
provisions of this Section 13 shall not constitute an Event
of Default under this Agreement if such deviation is
consented to in writing by the Required Lenders prior to the
date of deviation. The Borrower will at all times comply
with the covenants contained in this Section 13 from the
date hereof and for so long as the Commitment is in
existence or any amount is owed to the Agent or the Lenders
under this Agreement or the other Loan Documents.
(a) Negative Pledge. Borrower shall not:
(i) create, incur, assume or permit to exist any Lien,
security interest or other encumbrance on any of its
assets or properties except Permitted Liens; or
(ii) sell, lease, transfer or otherwise dispose of, in any
fiscal year, any of its assets except for (A) sales, leases,
transfers or other dispositions made in the ordinary course
of Borrower's oil and gas businesses, (B) sales made with
the consent of Required Lenders which are made pursuant to,
and in full compliance with, Section 12(r) hereof; and
(C) sales, leases or transfers or other dispositions made by
Borrower between Borrowing Base Determination Dates which do
not exceed $250,000 in the aggregate, the proceeds from
which are paid over to Agent
<PAGE>
pursuant to the provisions of Section 12(r)
hereof;
(b) Current Ratio. Borrower shall not allow its
ratio of Current Assets to Current Liabilities to be
less than 1.0 to 1.0 as of the end of any month
beginning with the month ending January 31, 2000.
(c) Minimum Interest Coverage Ratio. The Borrower
will not allow its Minimum Interest Coverage Ratio to
be less than 1.0 to 1.0 as of the end of any month
beginning with the month ending January 31, 2000.
(d) Consolidations and Mergers. Borrower will
not consolidate or merge with or into any other Person,
except that Borrower may merge with another Person if
Borrower is the surviving entity in such merger and if,
after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing.
(e) Debts, Guaranties and Other Obligations.
Borrower will not incur, create, assume or in any
manner become or be liable in respect of any
indebtedness, nor will Borrower guarantee or otherwise
in any manner become or be liable in respect of any
indebtedness, liabilities or other obligations of any
other Person, whether by agreement to purchase the
indebtedness of any other Person or agreement for the
furnishing of funds to any other Person through the
purchase or lease of goods, supplies or services (or by
way of stock purchase, capital contribution, advance or
loan) for the purpose of paying or discharging the
indebtedness of any other Person, or otherwise, except
that the foregoing restrictions shall not apply to:
(i) the Notes and any renewal or increase
thereof, or other indebtedness of the Borrower
heretofore disclosed to Lenders in the Borrower's
Financial Statements or on Schedule "4" hereto; or
(ii) taxes, assessments or other government
charges which are not yet due or are being
contested in good faith by appropriate action
promptly initiated and diligently conducted, if
such reserve as shall be required by GAAP shall
have been made therefor and levy and execution
thereon have been stayed and continue to be
stayed; or
(iii) other indebtedness of any nature not in excess of
$500,000 in the aggregate; or
<PAGE>
(iv) lease or rental agreements not
requiring annual rental payments in excess of
$100,000 in the aggregate; or
(v) indebtedness under the Senior Notes
presently outstanding; or
(vi) any renewals or extensions of (but not
increases in) any of the foregoing.
(f) Dividends. Borrower will not declare or pay
any cash dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter
outstanding, return any capital to its stockholders, or
make any distribution of its assets to its stockholders
as such; provided, however, that Borrower may pay cash
dividends on any preferred stock outstanding as of the
Effective Date so long as no Default or Event of
Default has occurred and is continuing or would occur
as a result of the payment of any such cash dividends.
(g) Loans and Advances. Borrower shall not make
or permit to remain outstanding any loans or advances
to or in any Person, except that the foregoing
restriction shall not apply to:
(i) loans or advances to any Person, the
material details of which have been set forth in
the Financial Statements of the Borrower
heretofore furnished to Lenders; or
(ii) advances made in the ordinary course of
Borrower's oil and gas business to Persons who are
not its Affiliates; or
(iii) investments permitted under
Section 13(l); or
(iv) other loans or advances not exceeding
$2,500,000 outstanding at any time.
(h) Payables and Receivables. Borrower will not
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. Borrower
will diligently attempt to collect all of its
receivables, including those owing by Affiliates.
Borrower will not permit any account payable to remain
outstanding for more than ninety (90) days unless such
account payable is being contested by Borrower in good
faith.
(i) Nature of Business. Borrower will not permit
any material change to be made in the character of its
business as carried on at the date hereof.
<PAGE>
(j) Transactions with Affiliates. Borrower will
not enter into any transaction with any Affiliate,
except transactions upon terms that are no less
favorable to Borrower than would be obtained in a
transaction negotiated at arm's length with an
unrelated third party.
(k) Hedging Transactions. Borrower will not enter
into any Rate Management Transaction, except the
foregoing prohibitions shall not apply to
(x) transactions consented to in writing by the
Required Lenders which are on terms acceptable to the
Required Lenders, or (y) Pre-Approved Contracts.
(l) Investments. Borrower shall not make any
investments in any Person, except such restriction
shall not apply to:
(i) investments in direct obligations
of the United States of America or any agency
thereof;
(ii) investments in certificates of
deposit issued by the Lenders or certificates
of deposit with maturities of less than one
year, issued by other commercial banks in the
United States having capital and surplus in
excess of $500,000,000 and which have a
rating of (A) 50 or above by Sheshunoff and
(B) "B" or above by Keef-Bruett; or
(iii) investments in insured money
market funds, Eurodollar investment accounts
and other similar accounts at Agent or such
investment with maturities of less than
ninety (90) days at other commercial banks
having capital and surplus in excess of
$500,000,000 and which have a rating of (A)
50 or above by Sheshunoff and (B) "B" or
above by Keef-Bruett; or
(iv) investments in partnerships listed
on Schedule "2" hereof, provided that (A) no
equity investment may be made after the
Effective Date in any such partnership except
to the extent that Borrower is contractually
obligated on the Effective Date to make such
investment, (B) no debt investment may be
made in any such partnership after the
Effective Date with a term of more than one
year, and (C) the aggregate outstanding
amount of all such debt and equity
investments made after the Effective Date
shall not exceed $2,000,000; or
(v) debt investments in Midland
Southwest Software, inc. provided that the
aggregate outstanding amount of all such debt
investments made after the Effective Date
shall not exceed $500,000.
<PAGE>
(m) Amendment to Articles of Incorporation or
Bylaws. Borrower will not permit any amendment to, or
any alteration of, its Articles of Incorporation or
Bylaws.
(n) Proceeds of Production. Borrower shall not
redirect the payment of the proceeds of production from
the Oil and Gas Properties to anyone or any place other
than to the Lockbox Account at the Agent.
(o) Issuance of Preferred Stock. Borrower shall
not issue any preferred stock after the Effective Date.
(p) Amendments to and Redemption of Preferred
Stock or Other Equity. Borrower shall not (i) amend
any outstanding equity issue after the Effective Date
without the consent of Required Lenders, or (ii) redeem
any preferred stock without the consent of all Lenders.
(q) Payment or Pre-Payment of Other Indebtedness.
Except as otherwise provided for in this Agreement is
outstanding, Borrower shall not make any unscheduled
principal payments on or redeem any of its indebtedness
(other than indebtedness owed the Lenders hereunder) or
purchase or redeem any of its equity.
(r) Purchase of Senior Notes. Borrower shall not
purchase any of its Senior Notes except that the
foregoing shall not apply to purchases of such Senior
Notes at a price not in excess of $650 per $1,000 face
amount. Borrower shall comply with all state and
federal securities laws in connection with any purchase
of Senior Notes, including without limitation, the
Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder.
14. Events of Default. Any one or more of the
following events shall be considered an "Event of Default"
as that term is used herein:
(a) The Borrower shall fail to pay when due or
declared due the principal of, and the interest on, the
Notes, or any fee or any other indebtedness of the
Borrower incurred pursuant to this Agreement or any
other Loan Document; or
(b) Any representation or warranty made by
Borrower under this Agreement, or in any certificate or
statement furnished or made to the Lenders pursuant
hereto, or in connection herewith, or in connection
with any document furnished hereunder, shall prove to
be untrue in any material respect as of the date on
which such representation or warranty is made (or
deemed made), or any representation, statement
(including financial statements), certificate, report
or other data furnished or to be furnished or made by
Borrower under any Loan Document, including this
<PAGE>
Agreement, proves to have been untrue in any material
respect, as of the date as of which the facts therein
set forth were stated or certified; or
(c) Default shall be made in the due observance
or performance of any of the covenants or agreements of
the Borrower contained in the Loan Documents, including
this Agreement (excluding covenants contained in
Section 13 of the Agreement for which there is no cure
period), and such default shall continue for more than
thirty (30) days; or
(d) Default shall be made in the due observance
or performance of the covenants of Borrower contained
in Section 13 of this Agreement; or
(e) Default shall be made in respect of any
obligation for borrowed money, other than the Notes,
including but not limited to any default under the
Indenture, for which Borrower is liable (directly, by
assumption, as guarantor or otherwise), or any
obligations secured by any mortgage, pledge or other
security interest, lien, charge or encumbrance with
respect thereto, on any asset or property of Borrower
or in respect of any agreement relating to any such
obligations unless such Borrower is not liable for same
(i.e., unless remedies or recourse for failure to pay
such obligations is limited to foreclosure of the
collateral security therefor), and if such default
shall continue beyond the applicable grace period, if
any; or
(f) Borrower shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking an appointment of a
trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its
property, or shall consent to any such relief or to the
appointment of or taking possession by any such
official in an involuntary case or other proceeding
commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall
take any corporate action authorizing the foregoing; or
(g) An involuntary case or other proceeding,
shall be commenced against Borrower seeking
liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy,
insolvency or similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it
or any substantial part of its property, and such
involuntary case or other proceeding shall remain
undismissed and unstayed for a period of sixty (60)
days; or an order for relief shall be entered against
Borrower under the federal bankruptcy laws as now or
hereinafter in effect; or
(h) A final judgment or order for the payment of
money in excess of $500,000 (or judgments or orders
aggregating in excess of $500,000) shall be rendered
against Borrower and such judgments or orders shall
continue unsatisfied and unstayed for a period of
thirty (30) days; or
<PAGE>
(i) In the event the Total Outstandings shall at
any time exceed the Borrowing Base, and the Borrower
shall fail to comply with the provisions of Section
9(b) hereof; or
(j) A Change of Control shall occur; or
(k) A Change of Management shall occur.
Upon occurrence of any Event of Default specified in
Subsections 14(f) or (g) hereof, the entire principal amount
due under the Notes and all interest then accrued thereon,
and any other liabilities of the Borrower hereunder, shall
become immediately due and payable all without notice and
without presentment, demand, protest, notice of protest or
dishonor or any other notice of default of any kind, all of
which are hereby expressly waived by the Borrower. Upon the
occurrence of any other Event of Default, the Agent, upon
request of Required Lenders, shall by notice to the Borrower
declare the principal of, and all interest then accrued on,
the Notes and any other liabilities hereunder to be
forthwith due and payable, whereupon the same shall
forthwith become due and payable without presentment,
demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which the
Borrower hereby expressly waives, anything contained herein
or in the Notes to the contrary notwithstanding. Nothing
contained in this Section 14 shall be construed to limit or
amend in any way the Events of Default enumerated in the
Notes, or any other document executed in connection with the
transaction contemplated herein.
Upon the occurrence and during the continuance of any
Event of Default, the Lenders are 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) at any time held and
other indebtedness at any time owing by any of the Lenders
to or for the credit or the account of the Borrower against
any and all of the indebtedness of the Borrower under the
Notes and the Loan Documents, including this Agreement,
irrespective of whether or not the Agent or the Lenders
shall have made any demand under the Loan Documents,
including this Agreement or the Notes and although such
indebtedness may be unmatured. Any amount set-off by any of
the Lenders shall be applied against the indebtedness owed
the Lenders by the Borrower pursuant to this Agreement and
the Notes. The Lenders agree promptly to notify the
Borrower after any such setoff and application, provided
that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the
Lenders under this Section are in addition to other rights
and remedies (including, without limitation, other rights of
set-off) which the Lenders may have.
15. The Agent and the Lenders.
<PAGE>
(a) Appointment and Authorization. Each Lender hereby
appoints Agent as its nominee and agent, in its name and on
its behalf: (i) to act as nominee for and on behalf of such
Lender in and under all Loan Documents; (ii) to arrange the
means whereby the funds of Lenders are to be made available
to the Borrower under the Loan Documents; (iii) to take such
action as may be requested by any Lender under the Loan
Documents (when such Lender is entitled to make such request
under the Loan Documents); (iv) to receive all documents and
items to be furnished to Lenders under the Loan Documents;
(v) to be the secured party, mortgagee, beneficiary, and
similar party in respect of, and to receive, as the case may
be, any collateral for the benefit of Lenders; (vi) to
promptly distribute to each Lender all material information,
requests, documents and items received from the Borrower
under the Loan Documents; (vii) to promptly distribute to
each Lender such Lender's Pro Rata Part of each payment or
prepayment (whether voluntary, as proceeds of insurance
thereon, or otherwise) in accordance with the terms of the
Loan Documents and (viii) to deliver to the appropriate
Persons requests, demands, approvals and consents received
from Lenders. Each Lender hereby authorizes Agent to take
all actions and to exercise such powers under the Loan
Documents as are specifically delegated to Agent by the
terms hereof or thereof, together with all other powers
reasonably incidental thereto. With respect to its
Commitment hereunder and the Notes issued to it, Agent and
any successor Agent shall have the same rights under the
Loan Documents as any other Lender and may exercise the same
as though it were not the Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated,
include Agent and any successor Agent in its capacity as a
Lender. Agent and any successor Agent and its Affiliates
may accept deposits from, lend money to, act as trustee
under indentures of and generally engage in any kind of
business with the Borrower, and any person which may do
business with the Borrower, all as if Agent and any
successor Agent was not Agent hereunder and without any duty
to account therefor to the Lenders; provided that, if any
payments in respect of any property (or the proceeds
thereof) now or hereafter in the possession or control of
Agent which may be or become security for the obligations of
the Borrower arising under the Loan Documents by reason of
the general description of indebtedness secured or of
property contained in any other agreements, documents or
instruments related to any such other business shall be
applied to reduction of the obligations of the Borrower
arising under the Loan Documents, then each Lender shall be
entitled to share in such application according to its pro
rata part thereof. Each Lender, upon request of any other
Lender, shall disclose to all other Lenders all indebtedness
and liabilities, direct and contingent, of the Borrower to
such Lender as of the time of such request.
(b) Note Holders. From time to time as other Lenders
become a party to this Agreement, Agent shall obtain
execution by the Borrower of additional Notes in amounts
representing the Commitment of each such new Lender, up to
an aggregate face amount of all Notes not exceeding
$100,000,000. The obligation of such Lender shall be
governed by the provisions of this Agreement, including but
not limited to, the obligations specified in Section 2
hereof. From time to time, Agent may require that the
Lenders exchange their Notes for newly issued Notes to
better reflect the Commitment of the Lenders. Agent may
treat the payee of any Note as the holder thereof until
written notice of transfer has been filed with it, signed by
such payee and in form satisfactory to Agent.
<PAGE>
(c) Consultation with Counsel. Lenders agree that
Agent may consult with legal counsel selected by Agent and
shall not be liable for any action taken or suffered in good
faith by it in accordance with the advice of such counsel.
Lenders acknowledge that Gardere & Wynne, L.L.P. is counsel
for Bank One, both as Agent and as a Lender, and that such
firm does not represent any of the other Lenders in
connection with this transaction.
(d) Documents. Agent shall not be under a duty to
examine or pass upon the validity, effectiveness,
enforceability, genuineness or value of any of the Loan
Documents or any other instrument or document furnished
pursuant thereto or in connection therewith, and Agent shall
be entitled to assume that the same are valid, effective,
enforceable and genuine and what they purport to be.
(e) Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided
below, Agent may resign at any time by giving written notice
thereof to Lenders and the Borrower, and Agent may be
removed at any time with or without cause by all Lenders.
If no successor Agent has been so appointed by Required
Lenders (and approved by the Borrower) and has accepted such
appointment within 30 days after the retiring Agent's giving
of notice of resignation or removal of the retiring Agent,
then the retiring Agent may, on behalf of Lenders, appoint a
successor Agent. Any successor Agent must be approved by
Borrower, which approval will not be unreasonably withheld
provided that Borrower's consent shall not be required
whenever an Event of Default exists. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Agent,
and the retiring Agent, as the case may be, shall be
discharged from its duties and obligations hereunder. After
any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Section 15 shall continue in
effect for its benefit in respect to any actions taken or
omitted to be taken by it while it was acting as Agent. To
be eligible to be an Agent hereunder the party serving, or
to serve, in such capacity must be an Eligible Assignee.
(f) Responsibility of Agent. It is expressly
understood and agreed that the obligations of Agent under
the Loan Documents are only those expressly set forth in the
Loan Documents as to each and that Agent, shall be entitled
to assume that no Default or Event of Default has occurred
and is continuing, unless Agent has actual knowledge of such
fact or has received notice from a Lender or the Borrower
that such Lender or the Borrower considers that a Default or
an Event of Default has occurred and is continuing and
specifying the nature thereof. Neither Agent nor any of its
directors, officers, attorneys or employees shall be liable
for any action taken or omitted to be taken by them under or
in connection with the Loan Documents, except for its or
their own gross negligence or willful misconduct. Agent
shall not incur liability under or in respect of any of the
Loan Documents by acting upon any notice, consent,
certificate, warranty or other paper or instrument believed
by it to be genuine or authentic or to be signed by the
proper party or parties, or with respect to anything which
it may do or refrain from doing in the reasonable exercise
of its judgment, or which may seem to it to be necessary or
desirable.
<PAGE>
Agent shall not be responsible to Lenders for any of
the Borrower's recitals, statements, representations or
warranties contained in any of the Loan Documents, or in any
certificate or other document referred to or provided for
in, or received by any Lender under, the Loan Documents, or
for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of or any of the Loan
Documents or for any failure by the Borrower to perform any
of its obligations hereunder or thereunder. Agent may
employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it
or its authorized agents, for the negligence or misconduct
of any such agents or attorneys-in-fact selected by it with
reasonable care.
The relationship between Agent and each Lender is only
that of agent and principal and has no fiduciary aspects.
Nothing in the Loan Documents or elsewhere shall be
construed to impose on Agent any duties or responsibilities
other than those for which express provision is therein
made. In performing its duties and functions hereunder,
Agent does not assume and shall not be deemed to have
assumed, and hereby expressly disclaims, any obligation or
responsibility toward or any relationship of agency or trust
with or for the Borrower or any of its beneficiaries or
other creditors. As to any matters not expressly provided
for by the Loan Documents, Agent shall not be required to
exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon
the instructions of Required Lenders and such instructions
shall be binding upon all Lenders and all holders of the
Notes; provided, however, that Agent shall not be required
to take any action which is contrary to the Loan Documents
or applicable law.
Agent shall have the right to exercise or refrain from
exercising, without notice or liability to the Lenders, any
and all rights afforded to Agent by the Loan Documents or
which Agent may have as a matter of law; provided, however,
Agent shall not (i) except as provided in Sections 7(b) and
7(c) hereof, without the consent of Required Lenders
designate the amount of the Borrowing Base or the Monthly
Commitment Reduction or (ii) without the consent of Required
Lenders, take any other action with regard to amending the
Loan Documents, waiving any default under the Loan Documents
or taking any other action with respect to the Loan
Documents which requires consent of Required Lenders.
Provided further, however, that no amendment, waiver, or
other action shall be effected pursuant to the preceding
clause (ii) without the consent of all Lenders which:
(i) would increase the Borrowing Base or decrease the
Monthly Commitment Reduction, (ii) would reduce any fees
hereunder, or the principal of, or the interest on, any
Lender's Note or Notes, (iii) would postpone any date fixed
for any payment of any fees hereunder, or any principal or
interest of any Lender's Note or Notes, (iv) would
materially increase any Lender's obligations hereunder or
would materially alter Agent's obligations to any Lender
hereunder, (v) would release Borrower from its obligation to
pay any Lender's Note or Notes, (vi) release any of the
Collateral, (vii) would change the definition of Required
Lenders, (viii) would amend, modify or change any provision
of this Agreement requiring the consent of all the Lenders,
(ix) would waive any of the conditions precedent to the
Effective Date or the making of any Loan or issuance of any
Letter of Credit or (x) would extend the Maturity Date or
(xi) would amend this sentence or the previous sentence.
Agent shall not have liability to Lenders for failure or
delay in exercising any right or power possessed by Agent
<PAGE>
pursuant to the Loan Documents or otherwise unless such
failure or delay is caused by the gross negligence or
willful misconduct of the Agent. Pursuant to the provisions
of Section 14 of the Note Purchase Agreement, neither the
Agent nor the Lenders may take any action requiring the
consent, approval or joint activity of all Lenders or of
Required Lenders, designate the Borrowing Base or Monthly
Commitment Reduction, approve any Advance, release any
Collateral, amend, waiver or release any of the Loan
Documents, foreclose on any Collateral, accelerate the
maturity of any Note or take any other like action under the
Loan Documents without the prior written consent of El Paso.
(g) Independent Investigation. Each Lender
severally represents and warrants to Agent that it has
made its own independent investigation and assessment
of the financial condition and affairs of the Borrower
in connection with the making and continuation of its
participation hereunder and has not relied exclusively
on any information provided to such Lender by Agent in
connection herewith, and each Lender represents,
warrants and undertakes to Agent that it shall continue
to make its own independent appraisal of the credit
worthiness of the Borrower while the Notes are
outstanding or its Commitment hereunder are in force.
Agent shall not be required to keep itself informed as
to the performance or observance by the Borrower of
this Agreement or any other document referred to or
provided for herein or to inspect the properties or
books of the Borrower. Other than as provided in this
Agreement, Agent shall not have any duty,
responsibility or liability to provide any Lender with
any credit or other information concerning the affairs,
financial condition or business of the Borrower which
may come into the possession of Agent.
(h) Indemnification. Lenders agree to indemnify
Agent, ratably according to their respective
Commitments on a Pro Rata basis, from and against any
and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses
or disbursements of any proper and reasonable kind or
nature whatsoever which may be imposed on, incurred by
or asserted against Agent in any way relating to or
arising out of the Loan Documents or any action taken
or omitted by Agent under the Loan Documents, provided
that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or
disbursements resulting from Agent's gross negligence
or willful misconduct. Each Lender shall be entitled
to be reimbursed by the Agent for any amount such
Lender paid to Agent under this Section 15(h) to the
extent the Agent has been reimbursed for such payments
by the Borrower or any other Person. The parties
intend for the provisions of this Section to apply to
and protect the Agent from the consequences of any
liability including strict liability imposed or
threatened to be imposed on Agent as well as from the
consequences of its own negligence, whether or not that
negligence is the sole, contributing or concurring
cause of any such liability.
<PAGE>
(i) Benefit of Section 15. The agreements
contained in this Section 15 are solely for the benefit
of Agent and the Lenders and are not for the benefit
of, or to be relied upon by, the Borrower, any
affiliate of the Borrower or any other person.
(j) Pro Rata Treatment. Subject to the
provisions of this Agreement, each payment (including
each prepayment) by the Borrower and collection by
Lenders (including offsets) on account of the principal
of and interest on the Notes and fees provided for in
this Agreement, payable by the Borrower shall be made
Pro Rata; provided, however, in the event that any
Defaulting Lender shall have failed to make an Advance
as contemplated under Section 3 hereof and Agent or
another Lender or Lenders shall have made such Advance,
payment received by Agent for the account of such
Defaulting Lender or Lenders shall not be distributed
to such Defaulting Lender or Lenders until such Advance
or Advances shall have been repaid in full to the
Lender or Lenders who funded such Advance or Advances.
(k) Assumption as to Payments. Except as
specifically provided herein, unless Agent shall have
received notice from the Borrower prior to the date on
which any payment is due to Lenders hereunder that the
Borrower will not make such payment in full, Agent may,
but shall not be required to, assume that the Borrower
has made such payment in full to Agent on such date and
Agent may, in reliance upon such assumption, cause to
be distributed to each Lender on such due date an
amount equal to the amount then due such Lender. If
and to the extent the Borrower shall not have so made
such payment in full to Agent, each Lender shall repay
to Agent forthwith on demand such amount distributed to
such Lender together with interest thereon, for each
day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to
Agent, at the interest rate applicable to such portion
of the Revolving Loan.
<PAGE>
(l) Other Financings. Without limiting the
rights to which any Lender otherwise is or may become
entitled, such Lender shall have no interest, by virtue
of this Agreement or the Loan Documents, in (a) any
present or future loans from, letters of credit issued
by, or leasing or other financial transactions by, any
other Lender to, on behalf of, or with the Borrower
(collectively referred to herein as "Other Financings")
other than the obligations hereunder; (b) any present
or future guarantees by or for the account of the
Borrower which are not contemplated by the Loan
Documents; (c) any present or future property taken as
security for any such Other Financings; or (d) any
property now or hereafter in the possession or control
of any other Lender which may be or become security for
the obligations of the Borrower arising under any loan
document by reason of the general description of
indebtedness secured or property contained in any other
agreements, documents or instruments relating to any
such Other Financings.
(m) Interests of Lenders. Nothing in this
Agreement shall be construed to create a partnership or
joint venture between Lenders for any purpose. Agent,
Lenders and the Borrower recognize that the respective
obligations of Lenders under the Commitment shall be
several and not joint and that neither Agent nor any of
Lenders shall be responsible or liable to perform any
of the obligations of the other under this Agreement.
Each Lender is deemed to be the owner of an undivided
interest in and to all rights, titles, benefits and
interests belonging and accruing to Agent under the
Security Instruments, including, without limitation,
liens and security interests in any collateral, fees
and payments of principal and interest by the Borrower
under the Commitment on a Pro Rata basis. Each Lender
shall perform all duties and obligations of Lenders
under this Agreement in the same proportion as its
ownership interest in the Loans outstanding at the date
of determination thereof.
(n) Investments. Whenever Agent in good faith
determines that it is uncertain about how to distribute
to Lenders any funds which it has received, or whenever
Agent in good faith determines that there is any
dispute among the Lenders about how such funds should
be distributed, Agent may choose to defer distribution
of the funds which are the subject of such uncertainty
or dispute. If Agent in good faith believes that the
uncertainty or dispute will not be promptly resolved,
or if Agent is otherwise required to invest funds
pending distribution to the Lenders, Agent may invest
such funds pending distribution (at the risk of the
Borrower). All interest on any such investment shall
be distributed upon the distribution of such investment
and in the same proportions and to the same Persons as
such investment. All monies received by Agent for
distribution to the Lenders (other than to the Person
who is Agent in its separate capacity as a Lender)
shall be held by the Agent pending such distribution
solely as Agent for such Lenders, and Agent shall have
no equitable title to any portion thereof.
16. Exercise of Rights. No failure to exercise, and no
delay in exercising, on the part of the Agent or the
Lenders, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise
<PAGE>
thereof or the exercise of any other right. The rights of
the Agent and the Lenders hereunder shall be in addition
to all other rights provided by law. No modification or
waiver of any provision of the Loan Documents, including
this Agreement, or the Note nor consent to departure
therefrom, shall be effective unless in writing, and no
such consent or waiver shall extend beyond the particular
case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take
other action in the same, similar or other circumstances
without such notice or demand.
17. Notices. Any notices or other communications
required or permitted to be given by this Agreement or any
other documents and instruments referred to herein must be
given in writing (which may be by facsimile transmission)
and must be personally delivered or mailed by prepaid
certified or registered mail to the party to whom such
notice or communication is directed at the address of such
party as follows: (a) BORROWER: SOUTHWEST ROYALTIES, INC.,
407 N. Big Spring Road, Midland, Texas 79701-4786, Facsimile
No. (915) 688-0191, Attention: H.H. Wommack, III, President;
(b) AGENT: BANK ONE, TEXAS, N.A., 1717 Main Street, Dallas,
Texas 75201, Facsimile No. 214-290-2332, Attention: Wm. Mark
Cranmer. Any such notice or other communication shall be
deemed to have been given (whether actually received or not)
on the day it is personally delivered or delivered by
facsimile as aforesaid or, if mailed, on the third day after
it is mailed as aforesaid. Any party may change its address
for purposes of this Agreement by giving notice of such
change to the other party pursuant to this Section 17. Any
notice required to be given to the Lenders shall be given to
the Agent and distributed to all Lenders by the Agent.
18. Expenses. The Borrower shall pay (i) all
reasonable and necessary out-of-pocket expenses of the Agent
and the Lenders, including reasonable fees and disbursements
of special counsel for the Agent, in connection with the
preparation of this Agreement, any waiver or consent
hereunder or any amendment hereof or any Default or Event of
Default or alleged default or Event of Default hereunder,
(ii) all reasonable and necessary out-of-pocket expenses of
the Agent, including reasonable fees and disbursements of
special counsel for the Agent in connection with the
preparation of any participation agreement for a participant
or participants requested by the Borrower or any amendment
thereof and (iii) if a Default or an Event of Default
occurs, all reasonable and necessary out-of-pocket expenses
incurred by the Agent and the Lenders, including fees and
disbursements of counsel, in connection with such default
and Event of Default and collection and other enforcement
proceedings resulting therefrom. THE BORROWER HEREBY
ACKNOWLEDGES THAT GARDERE & WYNNE, L.L.P. IS SPECIAL COUNSEL
TO BANK ONE, AS AGENT AND AS A LENDER, UNDER THIS AGREEMENT
AND THAT IT IS NOT COUNSEL TO, NOR DOES IT REPRESENT THE
BORROWER IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN
THIS AGREEMENT. The Borrower is relying on separate counsel
in the transaction described herein. The Borrower shall
indemnify the Agent and the Lenders against any transfer
taxes, document taxes, assessments or charges made by any
governmental authority by reason of the execution, delivery
and filing of the Loan Documents. The obligations of this
Section 18 shall survive any termination of this Agreement,
the expiration of the Loans and the payment of all
indebtedness of the Borrower to the Lenders hereunder and
under the Notes.
<PAGE>
19. Indemnity. The Borrower agrees to indemnify and hold
harmless the Agent, the Lenders, El Paso and their
respective Affiliates, officers, employees, agents,
attorneys, successors, assigns and representatives
(singularly, an "Indemnified Party", and collectively, the
"Indemnified Parties") from and against any loss, cost,
liability, damage or expense (including the reasonable fees
and out-of-pocket expenses of counsel to the Lenders,
including all local counsel hired by such counsel)
(collectively, "Claims") incurred by the any Indemnified
Party in investigating or preparing for, defending against,
or providing evidence, producing documents or taking any
other action in respect of any commenced or threatened
litigation, administrative proceeding or investigation under
any federal securities law, federal or state environmental
law, or any other statute of any jurisdiction, or any
regulation, or at common law or otherwise, which is alleged
to arise out of or is based upon any acts, practices or
omissions or alleged acts, practices or omissions of the
Borrower or its agents or arises in connection with the
duties, obligations or performance of the Indemnified
Parties in negotiating, preparing, executing, accepting,
keeping, completing, countersigning, issuing, selling,
delivering, releasing, assigning, handling, certifying,
processing or receiving or taking any other action with
respect to the Loan Documents and all documents, items and
materials contemplated thereby EVEN IF ANY OF THE FOREGOING
ARISES OUT OF AN INDEMNIFIED PARTY'S ORDINARY NEGLIGENCE.
The indemnity set forth herein shall include, without
limitation, all losses, costs, liabilities, damages and
expenses for which El Paso has provided indemnities to Agent
and Lenders pursuant to Section 15 of the Note Purchase
Agreement. The indemnity set forth herein shall be in
addition to any other obligations or liabilities of the
Borrower to the Lenders hereunder or at common law or
otherwise, and shall survive any termination of this
Agreement, the expiration of the Loans and the payment of
all indebtedness of the Borrower to the Lenders hereunder
and under the Notes, provided that the Borrower shall have
no obligation under this Section to that Indemnified Party
with respect to any of the foregoing arising out of the
gross negligence or willful misconduct of the that
Indemnified Party. If any Claim is asserted against any
Indemnified Party, the Indemnified Party shall endeavor to
notify the Borrower of such Claim (but failure to do so
shall not affect the indemnification herein made except to
the extent of the actual harm caused by such failure). Each
Indemnified Party shall have the right to employ, at the
Borrower's expense, counsel of the Indemnified Party's
choosing and to control the defense of the Claim. The
Borrower may at its own expense also participate in the
defense of any Claim. Each Indemnified Party may employ
separate counsel in connection with any Claim to the extent
such Indemnified Party believes it reasonably prudent to
protect such Indemnified Party. THE PARTIES INTEND FOR THE
PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT EACH
INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ANY LIABILITY
INCLUDING STRICT LIABILITY IMPOSED OR THREATENED TO BE
IMPOSED ON AGENT AS WELL AS FROM THE CONSEQUENCES OF ITS OWN
NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE,
CONTRIBUTING, OR CONCURRING CAUSE OF ANY CLAIM, EXCEPT FOR
ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
<PAGE>
20. Governing Law. THIS AGREEMENT IS BEING EXECUTED
AND DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS,
DALLAS COUNTY, TEXAS, AND THE SUBSTANTIVE LAWS OF TEXAS
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT AND ALL OTHER DOCUMENTS AND
INSTRUMENTS REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED
THEREIN.
21. Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable
under present or future laws effective during the term of
this Agreement, such provisions shall be fully severable and
this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never
comprised a part of this Agreement, and the remaining
provisions of the Agreement shall remain in full force and
effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this
Agreement.
22. Maximum Interest Rate. Regardless of any
provisions contained in this Agreement or in any other
documents and instruments referred to herein, the Lenders
shall never be deemed to have contracted for or be entitled
to receive, collect or apply as interest on the Notes any
amount in excess of the Maximum Rate or the maximum amount
of interest permitted under applicable law, and in the event
any Lender ever receives, collects or applies as interest
any such excess, or if an acceleration of the maturities of
any Notes or if any prepayment by the Borrower results in
the Borrower having paid any interest in excess of the
Maximum Rate or the maximum amount of interest permitted
under applicable law, such amount which would be excessive
interest shall be applied to the reduction of the unpaid
principal balance of the Notes for which such excess was
received, collected or applied, and, if the principal
balance of such Note is paid in full, any remaining excess
shall forthwith be paid to the Borrower. All sums paid or
agreed to be paid to the Lenders for the use, forbearance or
detention of the indebtedness evidenced by the Notes and/or
this Agreement shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout
the full term of such indebtedness until payment in full so
that the rate or amount of interest on account of such
indebtedness does not exceed the Maximum Rate. In
determining whether or not the interest paid or payable
under any specific contingency exceeds the Maximum Rate of
interest permitted by law, the Borrower and the Lenders
shall, to the maximum extent permitted under applicable law,
(i) characterize any non-principal payment as an expense,
fee or premium, rather than as interest; and (ii) exclude
voluntary prepayments and the effect thereof; and (iii)
compare the total amount of interest contracted for, charged
or received with the total amount of interest which could be
contracted for, charged or received throughout the entire
contemplated term of the Note at the Maximum Rate.
23. Amendments. This Agreement may be amended only by
an instrument in writing executed by an authorized officer
of the party against whom such amendment is sought to be
enforced. Borrower hereby acknowledges that it understands
that pursuant to the terms of the Note Purchase Agreement, a
copy of which is attached hereto as Exhibit "E", the Agent
and the Lenders may not consent to any amendment of any of
the Loan Documents or waive any Default or Event of Default
hereunder without the written consent of El Paso.
<PAGE>
24. Multiple Counterparts. This Agreement may be
executed in a number of identical separate counterparts,
each of which for all purposes is to be deemed an original,
but all of which shall constitute, collectively, one
agreement. No party to this Agreement shall be bound hereby
until a counterpart of this Agreement has been executed by
all parties hereto.
25. Conflict. In the event any term or provision
hereof is inconsistent with or conflicts with any provision
of the Loan Documents, the terms or provisions contained in
this Agreement shall be controlling.
26. Survival. All covenants, agreements,
undertakings, representations and warranties made in the
Loan Documents, including this Agreement, the Notes or other
documents and instruments referred to herein shall survive
all closings hereunder and shall not be affected by any
investigation made by any party.
27. Parties Bound. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs, legal representatives
and estates, provided, however, that the Borrower may not,
without the prior written consent of all of the Lenders,
assign any rights, powers, duties or obligations hereunder.
El Paso is a third party beneficiary of the duties of
Borrower hereunder to the Agent and the Lenders.
28. Assignments and Participations.
(a) Each Lender shall have the right to sell, assign or
transfer all or any part of its Note or Notes, its
Commitment and its rights and obligations hereunder to one
or more Affiliates, Lenders, financial institutions, pension
plans, insurance companies, investment funds, or similar
Persons who are Eligible Assignees or to a Federal Reserve
Bank; provided, that in connection with each sale,
assignment or transfer (other than to an Affiliate, a Lender
or a Federal Reserve Bank), shall require the consent of
Agent and the Borrower, which consents will not be
unreasonably withheld; provided, however, that (i) no
consent of the Agent or the Borrower shall be required for
any sale, assignment or transfer made by Lenders to El Paso
pursuant to the Note Purchase Agreement and (ii) no consent
of the Borrower shall be required if an Event of Default has
occurred and is continuing. It is further provided, that
notwithstanding the foregoing and except in the event of the
occurrence of an Immediate Default, pursuant to Section 3 of
the Note Purchase Agreement, a commercial banking
institution must always hold some portion of the Notes and
the Commitment. Any such assignee, transferee or
recipient shall have, to the extent of such sale,
assignment, or transfer, the same rights, benefits and
obligations as it would if it were such
<PAGE>
Lender and a holder of such Note, Commitment and
rights and obligations, including, without limitation,
the right to vote on decisions requiring consent or
approval of all Lenders or Required Lenders and the
obligation to fund its Commitment; provided, that (1)
each such sale, assignment, or transfer (other than to
an Affiliate, a Lender or a Federal Reserve Bank) shall
be in an aggregate principal amount not less than
$5,000,000, (2) each remaining Lender shall at all
times maintain Commitment then outstanding in an
aggregate principal amount at least equal to
$5,000,000; (3) each such sale, assignment or transfer
shall be of a Pro Rata portion of such Lender's
Commitment, (4) no Lender may offer to sell its Note or
Notes, Commitment, rights and obligations or interests
therein in violation of any securities laws; and (5) no
such assignments (other than to a Federal Reserve Bank)
shall become effective until the assigning Lender and
its assignee delivers to Agent and Borrower an
Assignment and Acceptance and the Note or Notes subject
to such assignment and other documents evidencing any
such assignment. An assignment fee in the amount of
$3,500 for each such assignment (other than to an
Affiliate, El Paso, a Lender or the Federal Reserve
Bank) will be payable to Agent by assignor or assignee.
Within five (5) Business Days after its receipt of
copies of the Assignment and Acceptance and the other
documents relating thereto and the Note or Notes, the
Borrower shall execute and deliver to Agent (for
delivery to the relevant assignee) a new Note or Notes
evidencing such assignee's assigned Commitment and if
the assignor Lender has retained a portion of its
Commitment, a replacement Note in the principal amount
of the Commitment retained by the assignor (except as
provided in the last sentence of this paragraph (a)
such Note or Notes to be in exchange for, but not in
payment of, the Note or Notes held by such Lender). On
and after the effective date of an assignment
hereunder, the assignee shall for all purposes be a
Lender, party to this Agreement and any other Loan
Document executed by the Lenders and shall have all the
rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original
party thereto, and no further consent or action by
Borrower, Lenders or the Agent shall be required to
release the transferor Lender with respect to its
Commitment assigned to such assignee and the transferor
Lender shall henceforth be so released.
(b) Each Lender shall have the right to grant
participations in all or any part of such Lender's
Notes and Commitment hereunder to one or more pension
plans, investment funds, insurance companies, financial
institutions or other Persons, provided, that, except
with respect to participations sold to El Paso under
the Note Purchase Agreement:
(i) each Lender granting a
participation shall retain the right to vote
hereunder, and no participant shall be
entitled to vote hereunder on decisions
requiring consent or approval of any Lender
or Required Lenders (except as set forth in
(iii) below);
(ii) in the event any Lender grants a participation
hereunder, such Lender's obligations under the Loan
Documents shall remain unchanged, such
<PAGE>
Lender shall remain solely responsible to the
other parties hereto for the performance of
such obligations, such Lender shall remain
the holder of any such Note or Notes for all
purposes under the Loan Documents, and Agent,
each Lender and Borrower shall be entitled to
deal with the Lender granting a participation
in the same manner as if no participation had
been granted; and
(iii) no participant shall ever have
any right by reason of its participation to
exercise any of the rights of Lenders
hereunder, except that any Lender may agree
with any participant that such Lender will
not, without the consent of such participant
(which consent may not be unreasonably
withheld) consent to any amendment or waiver
requiring approval of all Lenders.
(c) It is understood and agreed that any Lender
may provide to assignees and participants and
prospective assignees and participants financial
information and reports and data concerning Borrower's
properties and operations which has been provided to
such Lender pursuant to or in connection with this
Agreement.
(d) Upon the reasonable request of either Agent
or Borrower, each Lender will identify those to whom it
has assigned or participated any part of its Notes and
Commitment, and provide the amounts so assigned or
participated.
29. Choice of Forum: Consent to Service of Process and
Jurisdiction. THE OBLIGATIONS OF BORROWER UNDER THE LOAN
DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ANY
SUIT, ACTION OR PROCEEDING AGAINST THE BORROWER WITH RESPECT
TO THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT
IN RESPECT THEREOF, MAY BE BROUGHT IN THE COURTS OF THE
STATE OF TEXAS, COUNTY OF DALLAS, OR IN THE UNITED STATES
COURTS LOCATED IN DALLAS COUNTY, TEXAS AND THE BORROWER
HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH
COURTS FOR THE PURPOSE OF ANY SUCH SUIT, ACTION OR
PROCEEDING. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID
COURT BY THE MAILING THEREOF BY LENDER BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER, AS
APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN
SECTION 17. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED
IN THE STATE OF TEXAS, COUNTY OF DALLAS, AND HEREBY FURTHER
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
<PAGE>
30. Waiver of Jury Trial. THE BORROWER HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
31. Other Agreements. THIS WRITTEN LOAN AGREEMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
32. Financial Terms. All accounting terms used in
this Agreement which are not specifically defined herein
shall be construed in accordance with GAAP.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first
above written.
BORROWER:
SOUTHWEST ROYALTIES, INC.
a Delaware corporation
By: /s/ Bill E. Coggin
------------------
Name: Bill E. Coggin
Title: Vice President
LENDERS:
100% Commitment BANK ONE, TEXAS, N.A.,
a national banking association
By: /s/ Wm. Mark Cranmer
--------------------
Name: Wm. Mark Cranmer
Title: Vice President
<PAGE>
ADMINISTRATIVE AGENT:
BANK ONE, TEXAS, N.A.,
a national banking association
By: /s/ Wm. Mark Cranmer
--------------------
Name: Wm. Mark Cranmer
Title: Vice President
<PAGE>
