<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
SEPTEMBER 30, 1996
Commission File Number 1-12322
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SABA PETROLEUM COMPANY
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(Exact name of small business issuer as specified in its charter)
Colorado 47-0617589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 North Salsipuedes Street, Suite 104
Santa Barbara, California 93103
(Address of principal executive offices)
Issuer's telephone number, including area code: (805) 884-0661
17512 Von Karman Avenue
Irvine, California 92714
(714) 724-1112
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Former name, former address and former fiscal year,
if changed since last report
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
At November 11, 1996, 4,563,721 shares of common stock, no par value, were
outstanding.
Transitional Small Business Disclosure Format. YES [ ] NO [X]
<PAGE> 2
SABA PETROLEUM COMPANY
CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
PART I. - FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 1996 3
Condensed Consolidated Statements of Income for the nine and
three month periods ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
PART II. - OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
- ----------
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 180,016
Restricted certificate of deposit 883,178
Accounts receivable, net of allowance for doubtful
accounts of $63,400 6,266,089
Other current assets 2,408,742
------------
Total current assets 9,738,025
------------
Property and equipment (Note 4):
Oil and gas properties (full cost method) 37,515,106
Land, plant and equipment 5,586,304
------------
43,101,410
Less accumulated depletion and depreciation (13,503,008)
------------
Total property and equipment 29,598,402
------------
Other assets 2,813,336
------------
$ 42,149,763
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,447,983
Current portion of long-term debt 2,585,399
------------
Total current liabilities 9,033,382
Long-term debt, net of current portion 19,971,589
Other liabilities and deferred taxes 465,654
Minority interest in consolidated subsidiary 669,788
------------
Total liabilities 30,140,413
------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock - no par value, authorized
50,000,000 shares; none issued -
Common stock - no par value, authorized
150,000,000 shares; issued and outstanding
4,514,010 shares 8,724,089
Retained earnings 3,258,528
Cumulative translation adjustment 26,733
------------
Total stockholders' equity 12,009,350
------------
$ 42,149,763
============
</TABLE>
3
<PAGE> 4
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30 Ended September 30
1996 1995 1996 1995
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 22,075,612 $10,976,571 $ 7,471,924 $ 3,959,082
Other 1,077,428 349,813 290,998 201,843
------------ ----------- ------------ -----------
Total revenues 23,153,040 11,326,384 7,762,922 4,160,925
------------ ----------- ------------ -----------
Expenses:
Production costs 10,955,455 6,923,330 3,774,679 2,555,744
General and administrative 2,659,998 1,406,004 992,037 420,579
Depletion, depreciation and
amortization 3,615,631 1,931,031 1,247,226 712,023
------------ ----------- ------------ -----------
Total expenses 17,231,084 10,260,365 6,013,942 3,688,346
------------ ----------- ------------ -----------
Operating income 5,921,956 1,066,019 1,748,980 472,579
------------ ----------- ------------ -----------
Other income (expense):
Other income (net) 234,810 117,123 318,036 101,761
Interest expense, net of interest
capitalized of $27,369 (1995) (1,795,113) (778,461) (597,373) (341,141)
------------ ----------- ------------ -----------
Total other
income (expense) (1,560,303) (661,338) (279,337) (239,380)
------------ ----------- ------------ -----------
Income before income taxes 4,361,653 404,681 1,469,643 233,199
Provision for taxes on income 1,962,900 174,800 661,400 113,623
Minority interest in earnings of
consolidated subsidiary 178,021 - 77,374 -
------------ ----------- ------------ -----------
Net income $ 2,220,732 $ 229,881 $ 730,869 $ 119,576
============ =========== ============ ===========
Net earnings per common share:
Primary $ 0.48 $ 0.05 $ 0.15 $ 0.03
============ =========== ============ ===========
Fully-diluted $ 0.48 $ 0.05 $ 0.15 $ 0.03
============ =========== ============ ===========
Weighted average common and common
equivalent shares outstanding:
Primary 4,611,997 4,354,647 4,727,484 4,405,627
============ =========== ============ ===========
Fully-diluted 5,985,901 4,354,647 6,037,500 4,405,627
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
SABA PETROLEUM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $2,220,732 $ 229,881
Adjustments to reconcile net income to net cash
provided by operations:
Depletion, depreciation and amortization 3,615,631 1,931,031
Deferred taxes 116,070
Amortization of unearned compensation 8,500 12,750
Compensation expense attributable to non-employee option 91,600 -
Minority interest in earnings of consolidated subsidiary 178,021 -
Gain on issuance of shares of subsidiary (6,336) -
Changes in:
Accounts receivable (1,821,046) (1,271,781)
Other assets 371,576 (167,260)
Accounts payable and accrued liabilities (457,682) 1,284,321
---------- -----------
Net cash provided by operating activities 4,200,996 2,135,012
---------- -----------
Cash flows from investing activities:
Refund on restricted certificate of deposit 875,000 -
Sale of property and equipment - 77,062
Expenditures for property and equipment (5,388,088) (15,145,098)
Expenditures for property deposits (242,609) (100,000)
---------- -----------
Net cash used in investing activities (4,755,697) (15,168,036)
---------- -----------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 9,700,712 20,564,900
Principal payments on notes payable and long-term debt (9,589,794) (8,819,345)
(Increase) decrease in notes receivable (272,040) 274,528
Increase in deferred loan costs (165,777) (407,553)
Net change in accounts with affiliated companies (12,250) 387,251
Net proceeds from issuance of common stock 422,375 189,583
Increase in contributed surplus - 204,100
Capital subscription of minority interest 10,963 -
---------- -----------
Net cash provided by financing activities 94,189 12,393,464
---------- -----------
Effect of exchange rate changes on cash and cash equivalents 241 -
---------- -----------
Net decrease in cash (460,271) (639,560)
Cash at beginning of period 640,287 798,984
---------- -----------
Cash at end of period $ 180,016 $ 159,424
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited condensed consolidated financial statements
have been prepared on a basis consistent with the accounting
principles and policies reflected in the financial statements for the
year ended December 31, 1995 and should be read in conjunction with
the consolidated financial statements and notes thereto included in
the Company's 1995 Form 10-KSB. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements
contain all adjustments (consisting of normal recurring accruals only)
necessary to present fairly the Company's consolidated financial
position as of September 30, 1996, and the consolidated results of
operations for the nine and three month periods ended September 30,
1996 and 1995 and the consolidated cash flows for the nine months
ended September 30, 1996 and 1995.
2. RECLASSIFICATION
Certain previously reported financial information has been
reclassified to conform to the current periods' presentation.
3. STATEMENTS OF CASH FLOWS
Following is certain supplemental information regarding cash flows for
the nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
Interest paid $ 1,517,532 $ 754,421
============== ===============
Income taxes paid $ 998,978 $ 57,418
============== ===============
</TABLE>
Non-cash investing and financing transactions:
In February 1996 the Company issued 7,000 shares of Common Stock to a
director of the Company in settlement of an obligation in the amount of
$42,000.
Debentures in the principal amount of $1,605,000 were converted into
183,420 shares of Common Stock during the nine months ended September 30,
1996.
The Company incurred a charge to operations, and a credit to
Stockholders' Equity, in the amount of $91,600 resulting from the
issuance of stock options to a consultant during the nine months ended
September 30, 1996.
Cumulative foreign currency translation gains in the amount of $4,253
were recorded during the nine months ended September 30, 1996.
In January 1995 the Company awarded 12,000 shares of Common Stock with a
fair market value of $25,500 to an employee.
The acquisition cost of oil and gas properties which were acquired in
September 1995 included an oil imbalance obligation in the amount of
$932,700 which was assumed by the Company.
Accrued interest in the amount of $27,369 was capitalized in connection
with the refurbishment of the refinery facility during the nine months
ended September 30, 1995.
6
<PAGE> 7
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cumulative foreign currency translation gains in the amount of $50,257 were
recorded during the nine months ended September 30, 1995.
4. LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1996:
<TABLE>
<S> <C>
9% convertible senior subordinated debentures - due 2005 $ 11,045,000
Revolving loan agreement with a bank 8,100,000
Demand loan agreement with a bank 1,340,088
Promissory note 450,000
Promissory notes - Capco 1,621,900
------------
22,556,988
Less current portion 2,585,399
------------
$ 19,971,589
============
</TABLE>
On December 26, 1995, the Company issued $11,000,000 of 9% convertible
senior subordinated debentures ("Debentures") due December 15, 2005. On
February 7, 1996, the Company issued an additional $1,650,000 of Debentures
pursuant to the exercise of an over-allotment option by the underwriting
group. The Debentures are convertible into Common Stock of the Company, at
the option of the holders of the Debentures, at any time prior to maturity
at a conversion price of $8.75 per share, subject to adjustment in certain
events. Net proceeds to the Company were utilized to reduce the outstanding
balance under the Company's revolving loan agreement and for other purposes.
The Company has reserved 1,500,000 shares of its Common Stock for the
conversion of the Debentures. Debentures in the amount of $1,605,000 were
converted into 183,420 shares of Common Stock during the nine month period
ended September 30, 1996. For the period October 1, 1996 to November 11,
1996, Debentures in the amount of $435,000 were converted into 49,711 shares
of Common Stock.
The revolving loan ("Agreement") is subject to semi-annual redeterminations
and will be converted to a three year term loan on July 1, 1998. Effective
November 1, 1996, the borrowing base was increased from $9,200,000 to
$14,000,000, subject to a monthly reduction of $250,000. In accordance with
the terms of the Agreement, $1,860,000 of the loan balance is classified as
currently payable at September 30, 1996. The Agreement requires, among
other things, that the Company maintain at least a 1 to 1 working capital
ratio, stockholders' equity of $6,250,000, a ratio of cash flow to debt
service of not less than 1.25 to 1.0 and general and administrative expenses
at a level not greater than 20% of revenue, all as defined in the Agreement.
Additionally, the Company is restricted from paying dividends and advancing
funds in excess of specified limits to affiliates.
Prior to March 5, 1996, the Company's Canadian subsidiary had a demand
non-revolving bank loan with principal repayments of $53,500 on the first
day of every month. Effective March 5, 1996, the company renegotiated its
bank loan and now has available a demand revolving reducing loan of
$1,830,000. The maximum principal amount available under the loan reduces
by $36,650 per month commencing April 1, 1996. Effective October 1, 1996,
the bank agreed to defer the monthly reduction adjustment to April 1, 1997.
Interest is payable at a variable rate equal to the Canadian prime rate plus
1% per annum (6.75% at September 30, 1996). Although the bank can demand
payment in full of the loan at any time, it has provided a written
commitment not to do so except in the event of a default.
7
<PAGE> 8
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The promissory note is due to the seller of an oil refining facility which
was acquired by the Company in June 1994. Payment of the note balance,
which bears interest at the prime rate in effect on the note anniversary
date, plus two percent (10.25% at September 30, 1996), is due on June 24,
1997.
The promissory notes - Capco are due to the Company's parent company, Capco
Resources Ltd. and to Capco Resources, Inc., formerly wholly-owned by Capco
Resources Ltd. and now majority-owned by Capco Resources Ltd. Payment of
the notes, which bear interest at the rate of 9% per annum, is due April 1,
2006. The notes are subordinated to the same extent the Debentures are
subordinated.
5. COMMON STOCK AND STOCK OPTIONS
As of September 30, 1996, the Company had outstanding options to certain
employees of the Company for the purchase of 371,000 shares of Common Stock.
These options become exercisable over a period of five years from the date
of issue. The exercise price of the options is the fair market value of the
Common Stock at the date of grant. Options to acquire 9,000 shares of
Common Stock were exercised during the nine month period ended September 30,
1996. Options to acquire 143,000 shares of Common Stock were exercisable at
September 30, 1996.
During the nine month period ended September 30, 1996, the Company issued
options to acquire 50,000 shares of the Company's Common Stock to a
consultant. The option had an exercise price of $8.00 and were exercisable
over a period of 180 days, beginning May 21, 1996. As a result, the Company
incurred a charge to operations, and a credit to Stockholders' Equity, in
the amount of $91,600. The options were fully exercised during the nine
month period ended September 30, 1996.
In April 1996 and June 1996, the Company's Board of Directors and
shareholders, respectively, approved the Company's 1996 Incentive Equity
Plan ("Plan"). The purpose of the Plan is to enable the Company to provide
officers, other key employees and consultants with appropriate incentives
and rewards for superior performance. Subject to certain adjustments, the
maximum aggregate number of shares of the Company's Common Stock that may be
issued pursuant to the Plan, and the maximum number of shares of Common
Stock granted to any individual in any calendar year, shall not in the
aggregate exceed 500,000 and 100,000, respectively. At September 30, 1996,
no awards had been made under the Plan.
In January 1995, the Company awarded 12,000 shares of Common Stock to an
employee pursuant to the terms of an employment agreement. The cost of the
stock award, based on the stock's fair market value at the award date, was
charged to stockholders' equity and was amortized against earnings over the
contract term.
6. CONTINGENCIES
The Company is subject to extensive Federal, state, local and foreign
environmental laws and regulations. These requirements, which change
frequently, regulate the discharge of materials into the environment. The
Company believes that it is in compliance with existing laws and
regulations.
The Colombian Ministry of the Environment issued a resolution dated June 7,
1995 that set forth a number of measures aimed at correcting certain
deficiencies that the Ministry has allegedly found in environmental aspects
of the Teca and Nare oil fields. Among such measures, the Ministry ordered
8
<PAGE> 9
SABA PETROLEUM COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. CONTINGENCIES (CONTINUED)
the temporary closing of one of five production modules until Texas
Petroleum Company, the former owner and operator of the properties, provided
a document detailing the timetable to correct the deficiencies. The
requested timetable was presented to the Ministry of the Environment on July
6, 1995. On August 8, 1995 the Ministry of the Environment requested
certain revisions to the timetable. This temporary closing of the module has
not had a substantial effect on total production because substantially all
of the crude oil which would otherwise have been processed in the closed
module has been directed to other production modules. The resolution also
ordered the opening of an environmental investigation of Texas Petroleum
Company's operation of the Teca and Nare oil fields.
Texas Petroleum Company formally appealed the resolution and the Ministry of
Environment, Texas Petroleum Company and Omimex, the current operator of the
Teca and Nare oil fields, have negotiated an agreement pursuant to which
Omimex and the Company agreed to implement certain corrective actions over a
four to six month period, at which time the closed production module will be
allowed to recommence operations. Texas Petroleum Company had previously
estimated that the costs of compliance with the resolution attributable to
the Company's interest in the Teca and Nare oil fields would not exceed
$250,000. Additionally, the Company engaged an independent consultant to
perform an environmental compliance survey of the Teca and Nare oil fields.
That survey estimated that the costs of environmental compliance
attributable to the Company's interest in the Teca and Nare oil fields would
not exceed $375,000. Under the terms of the Company's agreement with Texas
Petroleum Company, however, the Company took Texas Petroleum Company's
interests in the fields "as is" and could be subject to liability materially
greater than the estimated costs. Omimex also estimates that as much as
$250,000 may be expended to upgrade waste water disposal capabilities.
The Company has a significant contingent liability in connection with the
plugging and abandonment ("P&A") of approximately 225 wells on certain
California property acquired by the Company during 1993. The Company
acquired the mineral rights and fee title to the property. The Company
intends to operate the producing wells on the property as long as
economically feasible and will decide in the future regarding the ultimate
disposition of the land. If the Company chooses to sell the property, it
may decide to sell the land "as is" or incur the P&A costs, thus enhancing
the property's value. The Company estimates that the P&A costs will
approximate $15,000 per well, for a total of $3,375,000. Management
believes that the fair market value of this land, after restoration, will
exceed the estimated P&A costs.
The Company is a defendant in various legal proceedings which arise in the
normal course of business. Based on discussions with legal counsel,
management does not believe that the ultimate resolution of such actions
will have a significant effect on the Company's financial statements or
operations.
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements of the Company and notes thereto, included
elsewhere herein.
OVERVIEW
The Company's long-term business strategy is to acquire oil and gas reserves
for current and future production and the enhancement and development of
such reserves. Capital utilized to acquire such reserves has been provided
primarily by secured bank financing, the creation of joint interest
operations and production payment obligations, sale of debentures, and sales
of the Company's equity securities. In pursuit of its business strategy, the
Company has made significant acquisitions of oil and gas producing
properties in recent years. The extent and timing of these acquisitions
complicates period to period comparisons.
The Company's oil and gas producing activities are accounted for using the
full cost method of accounting. Accordingly, the Company capitalizes all
costs, in separate cost centers for each country, incurred in connection
with the acquisition of oil and gas properties and with the exploration for
and development of oil and gas reserves. Such costs include lease
acquisition costs, geological and geophysical expenditures, costs of
drilling both productive and non-productive wells, and overhead expenses
directly related to land acquisition and exploration and development
activities. Proceeds from the disposition of oil and gas properties are
accounted for as a reduction in capitalized costs, with no gain or loss
recognized unless such disposition involves a significant change in
reserves, in which case the gain or loss is recognized.
Depletion of the capitalized costs of oil and gas properties, including
estimated future development costs, is provided using the equivalent
unit-of-production method based upon estimates of proved oil and gas
reserves and production which are converted to a common unit of measure
based upon their relative energy (BTU) content. Unproved oil and gas
properties are not amortized but are individually assessed for impairment.
The cost of any impaired property is transferred to the balance of oil and
gas properties being depleted.
The Company's operating performance is influenced by several factors, the
most significant of which are the price received for its oil and gas and the
Company's production volumes. The world price for crude oil has an overall
influence on the prices that the Company receives for the oil that it
produces. The prices received for different grades of oil are based upon
the world price for crude oil, which is then adjusted based upon the
particular grade, such that, typically, light oil is sold at a premium while
heavy grades of crude are discounted. Additional factors influencing
operating performance include production expenses, overhead requirements,
the Company's method of depleting reserves, and cost of capital.
In 1995, the Company completed the re-permitting and environmental impact
review process of its Santa Maria refinery with the County of Santa Barbara
and in June 1995 re-commenced refinery operations. The Company entered into
a processing agreement with Petro Source Refining Corporation ("Petro
Source"), under which Petro Source purchases crude oil (including crude oil
purchased from the Company), delivers it to the refinery, reimburses the
Company's out-of-pocket costs for refining, markets the asphalt and other
products and generally shares any profits equally with the Company.
10
<PAGE> 11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
Processing operations at the Company's asphalt refinery during the three
months ended September 30, 1996 resulted in a decrease of asphalt inventory.
Crude oil throughput amounted to 299,743 barrels, an average of 3,258
barrels per day with an additional 26,484 barrels, or 288 barrels per day,
of additional feedstock. Processing the crude oil produced 35,897 tons of
asphalt and 130,984 barrels of related products. Quantities sold during the
quarter consisted of 47,562 tons (132% of production) of asphalt and 137,082
barrels of other products.
ACQUISITION, EXPLORATION AND DEVELOPMENT
Drilling activity during the quarter ended September 30, 1996 included the
completion of one gross (0.23 net) gas well in Washita County, Oklahoma,
the drilling and completion of one gross (0.51 net) horizontal oil well at
the Company's Richfield East Dome Unit property in Orange County,
California, the drilling and completion of two gross (0.81 net) gas wells
in Solano County, California; a third well was drilled but determined to
be noncommerical and was plugged and abandoned, the drilling and completion
of three gross (1.50 net) oil wells in Kern County, California, the
drilling and completion of one gross (1.0 net) well in Alberta, Canada, the
drilling of one gross (0.15 net) oil well in Fort Bend County, Texas which
is currently being completed for production, and the drilling of one gross
(1.0 net) oil well in Alberta, Canada which is currently undergoing
testing.
Subsequent to September 30, 1996, the Company participated in the drilling
and completion of two gross (2.0 net) horizontal oil wells at the Company's
Cat Canyon property in Santa Barbara County, California and the drilling of
one gross (0.69 net) gas well in the Black Warrior Basin in Alabama, which
is currently being completed for production.
Development drilling activities will continue in some of these areas
throughout the remainder of the year 1996.
RESULTS OF OPERATIONS
Results of the Company's oil and gas producing activities for the nine and
three month periods ended September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
United
Nine Months Ended September 30, 1996 Total States Canada Colombia
------------------------------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $22,075,612 $10,579,762 $2,148,973 $9,346,877
Production costs $10,955,455 $ 5,924,608 $ 814,068 $4,216,779
Depletion $ 3,207,500 $ 1,502,160 $ 214,240 $1,491,100
General and administrative expenses $ 2,528,391 $ 2,002,117 $ 408,834 $ 117,440
Oil volume (BBL) 1,454,821 570,963 101,392 782,466
Gas volume (MCF) 1,183,609 743,410 440,199 -
Barrels of oil equivalent (BOE) 1,652,089 694,864 174,759 782,466
</TABLE>
11
<PAGE> 12
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
United
Nine Months Ended September 30, 1996 Total States Canada Colombia
------------------------------------ ------ ------ ------ --------
<S> <C> <C> <C> <C>
Average per BOE:
Sales price $13.36 $15.23 $12.30 $11.95
Production costs $ 6.63 $ 8.53 $ 4.66 $ 5.39
Depletion $ 1.94 $ 2.16 $ 1.23 $ 1.91
</TABLE>
<TABLE>
<CAPTION>
United
Nine Months Ended September 30, 1995 Total States Canada Colombia
------------------------------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $10,976,571 $8,354,434 $1,156,852 $1,465,285
Production costs $ 6,923,330 $5,520,635 $ 544,178 $ 858,517
Depletion $ 1,811,839 $1,274,660 $ 322,419 $ 214,760
General and administrative expenses $ 1,249,818 $1,123,522 $ 118,090 $ 8,206
Oil volume (BBL) 745,581 513,019 56,359 176,203
Gas volume (MCF) 1,051,917 686,937 364,980 -
Barrels of oil equivalent (BOE) 920,901 627,509 117,189 176,203
Average per BOE:
Sales price $ 11.92 $ 13.31 $ 9.87 $ 8.31
Production costs $ 7.51 $ 8.79 $ 4.64 $ 4.87
Depletion $ 1.96 $ 2.03 $ 2.75 $ 1.21
</TABLE>
<TABLE>
<CAPTION>
United
Three Months Ended September 30, 1996 Total States Canada Colombia
------------------------------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Oil and gas sales $7,471,924 $3,720,555 $815,328 $2,936,041
Production costs $3,774,679 $1,997,120 $337,307 $1,440,252
Depletion $1,108,275 $ 510,855 $ 81,400 $ 516,020
General and administrative expenses $ 964,861 $ 817,236 $119,623 $ 28,002
Oil volume (BBL) 483,454 193,889 38,795 250,770
Gas volume (MCF) 377,574 248,106 129,468 -
Barrels of oil equivalent (BOE) 546,382 235,239 60,373 250,770
Average per BOE:
Sales price $ 13.68 $ 15.81 $ 13.50 $ 11.70
Production costs $ 6.91 $ 8.48 $ 5.58 $ 5.74
Depletion $ 2.03 $ 2.17 $ 1.34 $ 2.05
</TABLE>
12
<PAGE> 13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1995 United
------------------------------------- Total States Canada Colombia
---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Oil and gas sales $3,959,082 $2,770,649 $316,215 $872,218
Production costs $2,555,744 $1,832,206 $183,072 $540,466
Depletion $ 661,223 $ 403,980 $ 81,348 $175,895
General and administrative expenses $ 409,447 $ 380,387 $ 20,854 $ 8,206
Oil volume (BBL) 286,620 173,441 18,781 94,398
Gas volume (MCF) 273,741 236,171 37,570 -
Barrels of oil equivalent (BOE) 332,243 212,803 25,042 94,398
Average per BOE:
Sales price $ 11.91 $ 13.01 $ 12.62 $ 9.23
Production costs $ 7.69 $ 8.60 $ 7.31 $ 5.72
Depletion $ 1.99 $ 1.89 $ 3.24 $ 1.86
</TABLE>
1996 COMPARED TO 1995
The Company reported net income of $2,221,000 and $731,000 for the nine and
three month periods ended September 30, 1996, respectively, as compared with
net income of $230,000 and $120,000 for the same periods in 1995.
Oil and gas sales increased $11,099,000 and $3,513,000 for the nine and
three month periods ended September 30, 1996, respectively, from
$10,977,000 and $3,959,000 for the same periods of 1995. Exclusive of the
Colombia properties, which were principally acquired in September 1995,
average sales price per BOE increases of $1.87 and $2.97 for the nine and
three month periods ended September 30, 1996, respectively, from $12.77 and
$12.37 for the same periods of 1995, resulted in increased oil and gas sales
of $1,622,000 and $879,000, respectively. Production increases of 125,000
BOE (16.8%) and 46,000 BOE (18.4 %), respectively, from 745,000 BOE and
250,000 BOE for the same periods of 1995 resulted in increases in oil and
gas sales of $1,596,000 and $570,000, respectively. The production
increases were due to production attributable to acquisitions in the second
half of 1995 and drilling and rework activities in the first nine months of
1996, reduced by property divestitures and normal production declines during
the same periods. The Teca, Nare and Cocorna oil fields in Colombia, which
were acquired in September and December 1995, generated oil sales of
$8,401,000 and $2,618,000, production quantities of 662,000 BOE and 212,000
BOE and average sales price per BOE of $12.69 and $12.35, respectively, for
the nine and three month periods ended September 30, 1996.
13
<PAGE> 14
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Production costs increased $4,032,000 (58.2%) and $1,219,000 (47.7%) for the
nine and three month periods ended September 30, 1996, respectively, from
$6,923,000 and $2,556,000 for the same periods of 1995. Exclusive of the
Colombia properties, which were principally acquired in September 1995,
average production costs per BOE decreases of $0.40 (4.9%) and $0.58 (6.8%)
for the nine and three month periods ended September 30, 1996, respectively,
from $8.14 and $8.47 for the same periods of 1995, resulted in decreased
production costs of $344,000 and $170,000, respectively, whereas production
increases resulted in increased production costs of $1,017,000 and $489,000,
respectively. The Teca, Nare and Cocorna oil fields in Colombia which were
acquired in September and December 1995 incurred production costs of
$3,270,000 and $1,091,000, production quantities of 662,000 BOE and 212,000
BOE and average production costs per BOE of $4.94 and $5.15, respectively,
for the nine and three month periods ended September 30, 1996.
Depletion, depreciation and amortization expenses increased $1,685,000
(87.3%) and $535,000 (75.1%) for the nine and three month periods ended
September 30, 1996, respectively, from $1,931,000 and $712,000 for the same
periods of 1995. Exclusive of the Colombia properties, which were
principally acquired in September 1995, depletion expense increased $119,000
(7.5%) for the nine months ended September 30, 1996 and $107,000 (22.1%) for
the three months ended September 30, 1996, from $1,597,000 and $485,000 for
the same periods of 1995. Production increases of 67,000 BOE and 22,000 BOE
for the United States cost center for the nine and three month periods ended
September 30, 1996, respectively, from the same periods of 1995 resulted in
depletion increases of $137,000 and $43,000 for the nine and three month
periods ended September 30, 1996, respectively, from the same periods of
1995. Production increases of 58,000 BOE and 35,000 BOE for the Canada cost
center for the nine and three month periods ended September 30, 1996,
respectively, from the same periods of 1995 resulted in depletion increases
of $158,000 and $115,000 for the nine and three month periods ended
September 30, 1996, respectively, from the same periods of 1995. An
increase in the estimated proved reserves at the beginning of the respective
periods in 1996 caused a reduction in the depletion rate per BOE for the
Canada cost center. Rate per BOE decreases of $1.53 and $1.90 for the nine
and three month periods ended September 30, 1996, respectively, from the
same periods of 1995 resulted in depletion decreases of $267,000 and
$115,000 for the nine and three month periods ended September 30, 1996,
respectively, from the same periods of 1995. Due principally to the
acquisition of the Teca, Nare and Cocorna oil fields in Colombia in
September and December 1995, depletion expense for the Colombia cost center
increased $1,276,000 and $340,000 for the nine and three month periods ended
September 30, 1996, respectively, from the same periods of 1995.
Depreciation and amortization expense increased $289,000 (242.9%) and
$88,000 (172.5%) for the nine and three month periods ended September 30,
1996, respectively, from $119,000 and $51,000 for the same periods of 1995.
The increases were due principally to the Colombia property acquisition in
September 1995, which included oil pipeline facilities and the costs
incurred by the Company in connection with the debenture offering, which
closed in December 1995.
Other revenues increased $727,000 (207.7%) and $89,000 (44.1%) for the nine
and three month periods ended September 30, 1996, respectively, from
$350,000 and $202,000 for the same periods in 1995, due principally to net
pipeline tariffs of $587,000 and $65,000 for the nine and three month
periods ended September 30, 1996, respectively, reported by the Company's
Colombia subsidiary, which began operations in September 1995.
Additionally, the Company's asphalt refining operation reported processing
fee income of $148,000 and $104,000 for the nine and thee month periods
ended September 30, 1996, respectively.
14
<PAGE> 15
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses increased $1,254,000 (89.2%) and
$571,000 (135.6%) for the nine and three month periods ended September 30,
1996, respectively, from $1,406,000 and $421,000 for the same periods of
1995, due principally to general and administrative expenses incurred as a
result of expanded international operations in Canada and Colombia in the
third and fourth quarters of 1995, and as a result of an increase in
employment levels in the Company's domestic regional offices.
Other income (expense) increased $118,000 (100.9%) and $216,000 (211.8%) for
the nine and three month periods ended September 30, 1996, respectively,
from income of $117,000 and $ 102,000 for the same periods of 1995. The
changes were primarily due to non-operational gains of $112,000 and $275,000
for the nine and three month periods ended September 30, 1996, respectively,
incurred at the Company's Colombia operations, plus additional interest
income of $60,000 and $28,000, in the two periods, respectively.
Interest expense increased $1,017,000 (130.7%) and $256,000 (75.1%) for the
nine and three month periods ended September 30, 1996, respectively, from
$778,000 and $341,000 for the same periods of 1995. Interest expense of
$807,000 and $259,000 for the nine and three month periods ended September
30, 1996, respectively, was attributable to the Company's debenture offering
which closed in December 1995. Interest expense attributable to the
Company's revolving line of credit increased $9,000 (1.5%) and decreased
$53,000 (21.5%) for the nine and three month periods ended September 30,
1996, respectively, from $596,000 and $246,000 for the same periods in 1995.
The average debt balance outstanding under the Company's revolving line of
credit for the nine and three month periods ended September 30, 1996
increased $625,000 (7.7%) and decreased $1,826,000 (18.2%), respectively,
from $8,086,000 and $10,043,000 for the same periods of 1995, due
principally to the use of loan proceeds to fund property acquisitions which
closed during the first six months of 1995. The weighted average interest
rate for the Company's revolving line of credit decreased 58 basis points
(5.9%) and 52 basis points (5.3%) for the nine and three month periods ended
September 30, 1996, respectively, from 9.86% and 9.77% for the same periods
of 1995. Interest expense incurred by the Company attributable to
subordinated indebtedness to affiliated companies which was borrowed in the
third quarter of 1995 was $110,000 and $37,000 for the nine and three month
periods ended September 30, 1996, respectively. Other interest expense
incurred principally by the Company's Canada, Colombia and refining
subsidiaries increased $101,000 (58.7%) and $24,000 (28.2%) for the nine and
three month periods ended September 30, 1996, respectively, from $172,000
and $85,000 for the same periods in 1995.
The Company's oil and gas producing business is not seasonal in nature.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's total current assets were $9.7 million
and its total current liabilities were $9.0 million. Included in current
liabilities was $2.6 million attributable to the current portion of
long-term debt.
15
<PAGE> 16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Summary cash flow information for the nine month periods ended September 30,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ----------------
<S> <C> <C>
Net cash provided by operating activities $ 4,200,996 $ 2,135,012
Net cash used in investing activities $(4,755,697) $(15,168,036)
Net cash provided by financing activities $ 94,189 $ 12,393,464
</TABLE>
The Company's operating activities during the nine months ended September
30, 1996 provided net cash flow of $4.2 million. Net income of $2.2
million, adjusted for non-cash charges (primarily depletion, depreciation
and amortization) in the amount of $3.9 million, was the primary source of
cash inflows from operations. Working capital requirements attributable
principally to operations at the Company's Colombia oil properties were
responsible for cash outflows of $1.9 million. Cash flows from operating
activities provided net cash flow of $2.1 million in the nine months ended
September 30, 1995. Net income of $230,000, adjusted for non-cash charges
(primarily depletion, depreciation and amortization) in the amount of $2.1
million, was the principal source of cash inflows from operations. Working
capital requirements resulted in a cash outflow of $155,000 during the nine
months ended September 30, 1995.
Investing activities during the nine months ended September 30, 1996
resulted in a net cash outflow of $4.8 million. Of this amount, oil and gas
property acquisition, development and exploration expenditures totaled $5.4
million. An additional $240,000 was expended for other assets.
Reimbursement of a portion of a restricted certificate of deposit provided
proceeds of $875,000. Investing activities during the nine months ended
September 30, 1995 resulted in a utilization of cash amounting to $15.2
million. Expenditures for oil and gas property acquisitions and exploration
and development activities during the nine months ended September 30, 1995,
totaled $15.1 million.
Financing activities during the nine months ended September 30, 1996, which
provided net cash flow of $94,000, consisted principally of activity on the
Company's revolving loan agreement, and proceeds from the issuance of
debentures, net of related financing costs, in the amount of $1.4 million.
Proceeds from the exercise of options to acquire Common Stock provided cash
inflows of $422,000 during the nine months ended September 30, 1996.
Financing activities during the nine months ended September 30, 1995, which
provided net cash flow of $12.4 million, consisted principally of activity
on the Company's revolving loan agreement, a bank term loan of $4.7 million,
a loan from the Company's parent company of $2.2 million and retirement of a
$606,000 note payable that was outstanding at December 31, 1994. Advances
from affiliated companies in the amount of $387,000 were used principally to
partially fund the note payment.
16
<PAGE> 17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company has expanded its operations through acquisitions of oil and gas
producing properties, and intends to do so in the future by means of
additional financing.
The Company has a reducing, revolving line of credit with Bank One, Texas,
N.A. At September 30, 1996, the borrowing base under the credit agreement
was $9.4 million, subject to a monthly reduction of $200,000. Outstanding
debt at September 30, 1996 under this credit facility was $8.1 million.
Effective November 1, 1996, the borrowing base was increased to $14,000,000,
subject to a monthly reduction of $250,000. The redetermined borrowing base
included credit which was utilized by the Company to fund an acquisition in
the amount of $3.2 million which closed on November 5, 1996. On February 7,
1996, underwriters for the Company's debenture offering exercised their
over-allotment option, resulting in net proceeds to the Company of $1.5
million, a portion of which was utilized to reduce the outstanding balance
under the Company's revolving line of credit. Effective March 6, 1996, the
Company's Canada subsidiary renegotiated its term loan and now has available
a demand revolving reducing loan. At September 30, 1996, the borrowing base
under the loan agreement was $1.6 million, subject to a monthly reduction of
$37,000. Outstanding debt at September 30, 1996 under this credit facility
was $1.3 million. Effective October 1, 1996, the bank agreed to defer the
monthly reduction adjustment to April 1, 1997. The Company believes that
the borrowing capacity available under its credit facilities, plus
anticipated cash flows from operations, will be sufficient to fund its
current working capital requirements.
In June 1996 the Company's Board of Directors declared a property dividend
representing 15% of the shares of common stock of its wholly owned
subsidiary, Saba Petroleum of Michigan, Inc. ("SPM"), subject to the
completion of a private placement of common stock of SPM of $2,000,000 and
the assumption of approximately $3,150,000 of the Company's bank debt by
SPM. Not all of the foregoing conditions have been met and the Company has
suspended proceeding with the transaction at this time.
Should the Company be unable to obtain equity and/or debt financing in
amounts sufficient to fund projected activities, it may be constrained in
its ability to acquire and/or develop additional oil and gas properties.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the statements in this
report are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. These risks and uncertainties include,
among other things, volatility of oil prices, product demand, market
competition, risks inherent in the Company's international operations,
including future prices paid for oil produced at the Colombian oil
properties, imprecision of reserve estimates, and the Company's ability to
replace and expand oil and gas reserves. These and other risks are
described elsewhere herein and in the Company's other filings with the
Securities and Exchange Commission.
17
<PAGE> 18
SABA PETROLEUM COMPANY
PART II - OTHER INFORMATION
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
- - Exhibits filed for the quarter ended September 30, 1996 are as follows:
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.1 First Amended and Restated Loan Agreement from
Bank One, Texas, NA, to Saba Petroleum Company
dated September 23, 1996.
11.1 Computation of Earnings per Common Share
- - No reports were filed under Form 8-K during the quarter ended September 30,
1996.
18
<PAGE> 19
SABA PETROLEUM COMPANY
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SABA PETROLEUM COMPANY
Date: November 13, 1996 By: /s/ Ilyas Chaudhary
---------------------- ----------------------------------
Ilyas Chaudhary
President (Principal Executive
Officer)
Date: November 13, 1996 /s/ Walton C. Vance
---------------------- ----------------------------------
Walton C. Vance
Chief Financial Officer
(Principal Financial and
Accounting Officer)
19
<PAGE> 20
SABA PETROLEUM COMPANY Exhibit 11.1
Computation of Earnings Per Common Share
For the Nine and Three Month Periods Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS
Net income before minority interest in earnings of
consolidated subsidiary $2,398,753 $ 229,881 $ 808,243 $ 119,576
Minority interest in earnings of consolidated subsidiary (178,021) 0 (77,374) 0
----------- ----------- ----------- ------------
Net income available to Common $2,220,732 $ 229,881 $ 730,869 $ 119,576
=========== =========== =========== ============
PRIMARY SHARES
Weighted average number of Common Shares outstanding 4,316,965 4,131,169 4,400,288 4,131,257
Additional shares assuming issuance of shares underlying
options 295,032 223,478 327,196 274,370
----------- ----------- ----------- ------------
Primary Shares 4,611,997 4,354,647 4,727,484 4,405,627
=========== =========== =========== ============
PRIMARY EARNINGS PER COMMON SHARE
Net income available to Common $ 0.48 $ 0.05 $ 0.16 $ 0.03
=========== =========== =========== ============
FULLY DILUTED EARNINGS
Net income before minority interest in earnings of
consolidated subsidiary $2,398,753 $ 229,881 $ 808,243 $ 119,576
Minority interest in earnings of consolidated subsidiary (178,021) 0 (77,374) 0
Plus interest expense attributable to Debentures, net of
related income taxes 658,832 0 211,710 0
----------- ----------- ----------- ------------
Net income available to Common $2,879,564 $ 229,881 $ 942,579 $ 119,576
=========== =========== =========== ============
</TABLE>
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDED AND RESTATED
LOAN AGREEMENT
REVOLVING LINE OF CREDIT
OF UP TO $25,000,000.00
FROM
BANK ONE, TEXAS, NA
TO
SABA PETROLEUM COMPANY
September 23, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE II. THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.01 Revolving Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.02 Advances and Payments Under the Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
2.03 Borrowing Base Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
2.04 Mandatory Prepayment of the Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
2.05 Prepayment and Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
2.06 Interest Rate and Payments of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
2.07 Increased Cost of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
2.08 Substitute Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
2.09 Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
2.10 Advances to Satisfy Obligations of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
2.11 Assignment of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
2.12 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
2.13 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
2.14 Amendment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
2.15 Addition/Deletion of Borrowing Base Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
2.16 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
2.17 Repayment of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
2.18 Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
2.19 Adjustment to Revolving Commitment Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
2.20 Conversion of the Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
2.21 The Amended Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
2.22 Payments of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
ARTICLE III. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
3.01 Receipt of Note, Agreement and Certificate of Compliance . . . . . . . . . . . . . . . . . . . . . . -23-
3.02 Receipt of Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
3.03 Receipt of Certified Copy of Corporate Proceedings and Certificate of Incumbency . . . . . . . . . . -23-
3.04 Receipt of Ratification of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
3.05 Accuracy of Representations and Warranties and No Event of Default . . . . . . . . . . . . . . . . . -23-
3.06 Legal Matters Satisfactory to Special Counsel to the Bank . . . . . . . . . . . . . . . . . . . . . -24-
3.07 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
3.08 Status of Record Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
3.09 Collateral Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
3.10 UCC Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
3.11 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
3.12 Request for Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
ARTICLE IV. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
4.01 Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
4.02 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
4.03 Valid and Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4.04 Scope and Accuracy of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.05 Liabilities, Litigation and Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.06 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.07 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.08 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.09 Authorizations and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
4.10 Compliance with Laws, Rules, Regulations and Orders . . . . . . . . . . . . . . . . . . . . . . . . -27-
4.11 Proper Filing of Tax Returns and Payment of Taxes Due . . . . . . . . . . . . . . . . . . . . . . . -27-
4.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
4.13 Investment Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
4.14 Public Utility Holding Company Act Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
4.15 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
4.16 Interest in the Borrowing Base Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
4.17 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
4.18 Producing Wells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
4.19 Ownership of Colombian Oil Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
ARTICLE V. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
5.01 Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
5.02 Maintenance and Access to Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
5.03 Quarterly Unaudited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
5.04 Annual Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
5.05 Information to Accompany Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
5.06 Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
5.07 Statement of Material Adverse Change in Condition . . . . . . . . . . . . . . . . . . . . . . . . . -31-
5.08 Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
5.09 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
5.10 Compliance with Laws and Payment of Assessments and Charges . . . . . . . . . . . . . . . . . . . . -31-
5.11 Maintenance of Corporate Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . -32-
5.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
5.13 Initial Expenses of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
5.14 Subsequent Expenses of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
5.15 Maintenance of Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
5.16 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
5.17 Inspection of Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
5.18 Payment of Note and Performance of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
5.19 ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
5.20 Tangible Net Worth Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
5.21 Other Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
5.22 General and Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
5.23 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
5.24 Hazardous Substances Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
5.25 Properties Not Operated by Borrower or Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.26 Maintenance of Lockbox Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.27 Advances Among Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.28 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.29 Operation of Borrowing Base Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
5.30 Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
5.31 Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
5.32 Advances to Santa Maria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
5.33 Operation of Colombian Oil Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
ARTICLE VI. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
6.01 Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
6.02 Guarantee of Payment or Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.03 Loans or Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.04 Mortgages or Pledges of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.05 Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.06 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.07 Payment of Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.08 Cancellation of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.09 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
6.10 Changes in Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
6.11 Intercompany Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
6.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
6.13 Certain Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
6.14 Limitation on Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
6.15 Limitation on Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
6.16 Pooling or Unitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
6.17 Limitation on Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
ARTICLE VII. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
7.01 Enumeration of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -40-
7.02 Rights Upon Unmatured Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
7.03 Rights Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
8.01 Security Interests in Deposits and Right of Offset or Banker's Lien . . . . . . . . . . . . . . . . -42-
8.02 Survival of Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . -42-
8.03 Waiver of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
8.04 Notices and Other Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
8.05 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
8.06 Renewals and Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
8.07 No Waiver by Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
8.08 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
8.09 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
8.10 Incorporation of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
8.11 Survival Upon Unenforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
8.12 Rights of Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
8.13 Amendments or Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
8.14 Agreement Construed as an Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
8.15 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
8.16 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
8.17 Controlling Provision Upon Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
8.18 Time, Place and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
8.19 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
</TABLE>
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<PAGE> 5
SCHEDULES
Schedule 1 Existing Mortgages and Security Agreements and Prior Notes
Schedule 4.05 Litigation
Schedule 5.01 Use of Proceeds
EXHIBITS
Exhibit "A" Compliance Certificate
Exhibit "B-1" Revolving Note
Exhibit "B-2" Amended Note
Exhibit "C" Ratification of Guaranty
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<PAGE> 6
FIRST AMENDED AND RESTATED LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of the 23rd day of September
1996, made and entered into by and among SABA PETROLEUM COMPANY, a Colorado
corporation (the "Borrower"), each of the Guarantors defined herein, and BANK
ONE, TEXAS, NA, a national banking association (the "Bank"), evidences the
arrangements concerning certain loans to the Borrower by the Bank.
W I T N E S S E T H
WHEREAS, Borrower and Bank entered into a Loan Agreement
dated September 20, 1993, and subsequently entered into a First Amendment to
said Loan Agreement on July 22, 1994, effective as of March 31, 1994, a letter
amendment thereto dated January 20, 1995, a Second Amendment thereto dated
effective as of March 31, 1995, a Third Amendment thereto dated September 7,
1995, effective as of June 30, 1995 as to certain Sections, followed by a
Fourth Amendment thereto dated November 29, 1995, effective as of October 31,
1995, a Fifth Amendment thereto dated May 31, 1996, and a Sixth Amendment
thereto dated August 30, 1996 (collectively the "Prior Loan Agreement").
WHEREAS, Borrower desires to extend, rearrange, and renew
the Indebtedness arising under the Prior Loan Agreement, and to entirely amend
and restate such Prior Loan Agreement; and
WHEREAS, Bank is willing to extend, rearrange, and renew the
Indebtedness arising under the Prior Loan Agreement, and to amend and restate
such Prior Loan Agreement, in accordance with the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the Bank and the Borrower agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms shall have
the meanings indicated:
"Affiliate" means, as applied to any Person, any other
Person, directly or indirectly, controlling, controlled by, or under common
control with, that Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled
by", and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the
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<PAGE> 7
management and policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Loan Agreement, as the same may be
amended, modified, renewed, extended, supplemented, or restated from time to
time.
"Amended Note" means the promissory note in an original face
amount of the unpaid principal balance of the Loans as of the Conversion Date,
dated as of the Conversion Date and made by Borrower payable to the order of
Bank in the form attached hereto as Exhibit "B- 2", together with all
deferrals, renewals, extensions, amendments, modifications or rearrangements
thereof.
"Available Investment Funds" means Qualified Liquid Assets
plus Available Unrestricted Loans; provided that, during any period when
Qualified Liquid Assets is not a positive amount, "Available Investment Funds"
shall be zero Dollars ($0.00).
"Available Unrestricted Loans" means the unborrowed portion
of the Revolving Commitment, minus the greater of: (a) fifteen percent (15%) of
the Revolving Commitment, or (b) fifty percent (50%) of the unborrowed portion
of the Revolving Commitment.
"Base Rate" means, at any time, the rate of interest per
annum then most recently established by the Bank as its BANK ONE Base Rate,
which is eight and one-quarter percent (8.25%) as of the date hereof.
"Base Rate Loan" means any loan from time to time for which
interest thereon is to be computed at the Floating Rate.
"Borrowing Base" means the sum of Borrowing Base I and
Borrowing Base II.
"Borrowing Base I" means the maximum value, for loan
purposes, of the Borrowing Base Properties, as determined at the discretion of
the Bank from time to time in accordance with Section 2.03 of this Agreement.
"Borrowing Base II" means the maximum amount that will be
made available to Borrower for the development of Oil and Gas Properties of
Guarantors existing on the date of this Agreement, which is initially
$2,000,000.00 as of the date of this Agreement, and as redetermined at the
discretion of the Bank from time to time in accordance with Section 2.03 of
this Agreement.
"Borrowing Base II Loans" means Tranche 1 Loans and Tranche
2 Loans.
"Borrowing Base Properties" means those Oil and Gas
Properties of each Guarantor which are now owned or hereafter acquired, subject
to the liens created by the Collateral Documents to secure the indebtedness
evidenced by the Note and the obligations of Borrower and Guarantors as
evidenced by the Loan Documents, which Oil and Gas Properties
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<PAGE> 8
include: (a) those described or referred to in the Existing Mortgages and
Security Agreements, excluding any Oil and Gas Properties that have heretofore
been expressly released therefrom by releases duly executed by the Bank and
filed for record, and (b) those hereafter subjected to the liens created by the
Collateral Documents pursuant to any supplement or amendment to such Collateral
Documents executed by any Borrower or Guarantor.
"Business Day" shall mean: (a) for all purposes, a day other
than a Saturday, Sunday or legal holiday for commercial banks under the laws of
the State of Texas or the laws of the United States of America, and (b) in
addition, for purposes of any LIBOR Loan, a day that satisfies the requirements
of clause (a) and is a day on which commercial banks in London, England are
open for domestic or international business.
"Collateral Documents" means the Existing Mortgages and
Security Agreements, and any and all other instruments or documents hereafter
executed in connection with or as security for the payment of the Note.
"Colombian Oil Properties" means the interests, properties,
licenses and rights described on Exhibit "A" attached to the Third Amendment.
"Conversion Date" means July 1, 1998.
"Compliance Certificates" means the certificates of the
president or chief financial officer of the Borrower submitted to the Bank from
time to time pursuant to this Agreement and attesting to and providing
calculation of the financial covenants and stating, to such officer's
knowledge, whether or not an Event of Default has occurred and is continuing
and, if such an event has occurred, the actions being taken by the Borrower, to
remedy such situation, which certificates shall be in the form attached hereto
as Exhibit "A".
"Consolidated Current Assets" and "Consolidated Current
Liabilities" means, at any time, all assets or liabilities, respectively, that
should, in accordance with GAAP, be classified as current assets or current
liabilities, respectively, on a consolidated balance sheet of the Borrower.
"Consolidated Liabilities" means all Indebtedness that, in
accordance with GAAP, should be classified as liabilities on a consolidated
balance sheet of the Borrower.
"Dollar(s)" and "$" means dollars in the currency of the
United States of America.
"Environmental Laws" means (a) the following federal laws as
they may be cited, referenced and amended from time to time: the Clean Air Act,
the Clean Water Act, the Safe Drinking Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Endangered Species
Act, the Resource Conservation and Recovery Act, the Occupational Safety and
Health Act, the Hazardous Materials Transportation Act, the Superfund
Amendments and Reauthorization Act, and the Toxic Substances Control Act; (b)
any and all
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<PAGE> 9
environmental statutes of the republic of Colombia or of any state in which
property of the Borrower or any of its Subsidiaries is situated, as they may be
cited, referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state laws or
laws of the republic of Colombia; and (d) any other federal, state, local, or
republic of Colombia statute or any requirement, rule, regulation, code,
ordinance or order adopted pursuant thereto, including, without limitation,
those relating to the generation, transportation, treatment, storage,
recycling, disposal, handling or release of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.
"ERISA Affiliate" means any trade or business (whether or
not incorporated) which together with the Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Event of Default" means any of the events specified in
Section 7.01 of this Agreement.
"Existing Mortgages and Security Agreements" means,
collectively, each of the instruments (other than promissory notes) described
on Schedule 1 hereto.
"Financial Statements" means the statements of the financial
condition of the indicated Person, as at the point in time and for the period
indicated and consisting of at least a consolidated balance sheet, income
statement and statement of cash flows, and, when the foregoing are audited,
accompanied by the certification of such Person's independent certified public
accountants and footnotes to any of the foregoing, all of which shall be
prepared in accordance with GAAP applied on a basis consistent with that of the
preceding year.
"Floating Rate" means: (a) with respect to a Loan to which
Borrowing Base I applies, the Bank's Base Rate in effect from time to time plus
three-quarters of one percent (0.75%), and (b) with respect to a Loan to which
Borrowing Base II applies, the Bank's Base Rate in effect from time to time
plus four percent (4.0%).
"GAAP" means generally accepted accounting principles,
applied on a consistent basis, as set forth in Opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants
and/or in statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as of the
date in question. Accounting principles are applied on a "consistent basis"
when the accounting principles observed in a current period are comparable in
all material respects to those accounting principles applied in a preceding
period.
"Guarantor(s)" means, individually and collectively, Saba
Energy of Texas, Incorporated, a Texas corporation, Saba Petroleum, Inc., a
California corporation, and Saba Petroleum of Michigan, Inc., a Michigan
corporation.
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<PAGE> 10
"Guaranty" means, with respect to each Guarantor, the
guaranty of such Guarantor of all of Borrower's Obligations to the Bank,
executed pursuant to the Prior Loan Agreement, as ratified pursuant to this
Agreement.
"Hazardous Substances" means flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material containing
asbestos, polychlorinated biphenyls (PCBs), toxic substances or related
materials, petroleum and petroleum products and associated oil or natural gas
exploration, production and development wastes or any substances defined as
"hazardous substances", "hazardous materials", "hazardous wastes" or "toxic
substances" under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, the Superfund Amendments and Reauthorization Act, as
amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as
amended, or any other Environmental Laws now or hereafter enacted or
promulgated by any regulatory authority or governmental body.
"Increased Costs" has the meaning attributed to that term in
Section 2.07.
"Indebtedness" means, as to any Person, (a) all items of
indebtedness or liability (other than capital, surplus, deferred credits and
reserves, as such) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
as at the date as of which Indebtedness is to be determined, (b) indebtedness
secured by any mortgage, pledge or lien existing on or encumbering property
owned by the Person whose Indebtedness is being determined, whether or not the
indebtedness secured thereby shall have been assumed, and (c) all indebtedness
of others which such Person has directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business),
discounted with recourse, agreed (contingently or otherwise) to purchase or
repurchase or otherwise acquire, or in respect of which such Person has agreed
to supply or advance funds (whether by way of loan, purchase of securities or
capital contribution, through a commitment to pay for property or services
regardless of the nondelivery of such property or the nonfurnishing of such
services or otherwise), or in respect of which such Person has otherwise become
directly or indirectly liable, contingently or otherwise, whether now existing
or hereafter arising.
"Interest Rate(s)" means the Floating Rate or the LIBOR
Rate, as applicable.
"Interest Period" means as to any LIBOR Loan the period
commencing on and including the date of such Loan (or on the effective date of
the election pursuant to Section 2.06(B) by which such Loan became a LIBOR
Loan) and ending on and including the day preceding the same day (or if there
is no such same day, the day preceding the last day) in the 1st, 2nd, 3rd, or
6th calendar month thereafter, as selected by the Borrower in accordance with
Section 2.06(B), and thereafter such period commencing on and including the day
immediately following the last day of the then ending Interest Period for such
Loan and ending on and including the day preceding the day corresponding to the
first day of such Interest Period (or if there is no such corresponding day,
the day preceding the last day), in the 1st, 2nd, 3rd, or 6th calendar month
thereafter, as so selected by the Borrower; provided, however, that if any such
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<PAGE> 11
Interest Period would otherwise end on a day prior to a day that is not a
Business Day it shall be extended so as to end on the day prior to the next
succeeding Business Day unless the same would fall in a different calendar
month, in which case such Interest Period shall end on the day preceding the
first Business Day preceding such next succeeding Business Day.
"Investment" in any Person means any stock, bond, note or
other evidence of Indebtedness or any other security (other than current trade
and customer accounts) of, or loan to, such Person.
"Leases" means oil and gas leases and oil, gas and mineral
leases constituting any part of the Borrowing Base Properties.
"Letters of Credit" means letters of credit to be issued by
the Bank for the account of the Borrower pursuant to Section 2.16, in the form
acceptable to the Bank, and all extensions, renewals and modifications thereof.
"LIBOR" means, in respect to any Interest Period, the rate
per annum determined by the Bank to be the quotient of (a) the rate quoted, on
an immediately available funds basis, to the Bank, at approximately 10:00 a.m.
local time in Houston, Texas on the date two (2) Business Days prior to the
first day of such Interest Period, for the offering by leading banks in the
London interbank market of Dollars for deposit with the Bank for a period
comparable to such Interest Period and in an amount comparable to the amount of
the Loan determined by the Bank to be outstanding during such Interest Period
and as to which the LIBOR Rate is to be determined, divided by (b) 1.0, minus
the Reserve Percentage expressed as a decimal, for such Interest Period.
"LIBOR Loan" means any Loan from time to time for which
interest thereon is to be computed on the basis of the LIBOR Rate.
"LIBOR Rate" means a rate per annum equal to the sum of
LIBOR for the Interest Period for which interest is to be determined at the
LIBOR Rate, plus two and three-quarters percent (2.75%) per annum.
"Limitation Period" means any period while any amount
remains owing on the Note and interest on such amount calculated at the
applicable Interest Rate, plus any fees payable hereunder and deemed to be
interest under applicable law, would exceed the Maximum Rate.
"Loan" means, singly, any advance by the Bank to the
Borrower pursuant to this Agreement and "Loans" means, cumulatively, the
aggregate sum of all money advanced by the Bank to the Borrower pursuant to
this Agreement.
"Loan Documents" means this Agreement and all promissory
notes, security agreements, guaranties, and other instruments, documents, and
agreements executed and delivered pursuant to or in connection with the Prior
Loan Agreement and this Agreement, as
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<PAGE> 12
such instruments, documents, and agreements have been or may hereafter be
amended, modified, renewed, extended, supplemented, or restated from time to
time.
"Loan Excess" means, at any point in time, the amount, if
any, by which the outstanding balance on the Loans evidenced by the Note
exceeds the Revolving Commitment then in effect.
"Marketable Title" means good and indefeasible title, free
and clear of all mortgages, liens and encumbrances, except for Permitted
Encumbrances.
"Maximum Rate" means the maximum non-usurious interest rate
permissible under applicable laws of the State of Texas or those of the United
States of America applicable to the Bank.
"Multi-employer Plan" means a plan described in Section
4001(a)(3) of ERISA which covers employees of the Borrower or any ERISA
Affiliate.
"Note" means that certain promissory note in the original
face amount of $25,000,000.00 dated of even date herewith made by the Borrower
payable to the order of the Bank in the form attached hereto as Exhibit "B-1",
together with all deferrals, renewals, extensions, amendments, modifications or
rearrangements thereof, which promissory note shall evidence certain advances
to the Borrower by the Bank pursuant to Section 2.01 hereof.
"Obligations" means all obligations, indebtedness, and
liabilities of the Borrower to the Bank, now existing or hereafter arising,
whether direct, indirect, related, unrelated, fixed, contingent, specified,
unspecified, joint, several, or joint and several under this Agreement and the
Loan Documents, and all interest and fees accruing thereon and all attorneys'
fees and other expenses incurred in the enforcement or collection thereof.
"Oil and Gas Properties" means fee, leasehold or other
interests in or under mineral estates or oil, gas and other liquid or gaseous
hydrocarbon leases with respect to properties situated in the United States,
including, without limitation, overriding royalty and royalty interests,
leasehold estate interests, net profits interests, production payment interests
and mineral fee interests, together with contracts executed in connection
therewith and all tenements, hereditaments, appurtenances and properties, real
or personal, appertaining, belonging, affixed or incidental thereto.
"Permitted Encumbrances" means (a) liens of operators under
joint operating agreements or similar contractual arrangements with respect to
Borrower's proportionate share of the expense of exploration, development and
operation of oil, gas and mineral leasehold or fee interests owned jointly with
others, to the extent same relate to sums of not more than thirty (30) days
past due or sums which are being contested in good faith by appropriate
proceedings and as to which
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<PAGE> 13
adequate alternate security has been provided such that the liens are not
subject to foreclosure, (b) liens for taxes, assessments or other governmental
charges or levies not yet due or which are being contested in good faith by
appropriate proceedings and as to which adequate alternate security has been
provided such that the liens are not subject to foreclosure, (c) vendors,
carriers, warehousemen, repairmen, mechanics, workmen's, materialman's,
construction or other similar liens arising by operation of laws in the
ordinary course of business which are not yet due or which are being contested
in good faith by appropriate proceedings and as to which adequate alternate
security has been provided such that the liens are not subject to foreclosure,
(d) liens created in favor of the Bank and other liens expressly permitted
under the Collateral Documents, and (e) liens, encumbrances or other burdens
described in the Financial Statements or on Exhibit A attached hereto.
"Person" means an individual, company, corporation,
partnership, joint venture, trust, association, unincorporated organization or
a government or any agency or political subdivision thereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Prior Loan Agreement" shall have the meaning assigned to
that term in the first Recital to this Agreement.
"Prior Notes" shall mean those certain promissory notes
described on Schedule 1 hereto.
"Prohibited Transaction" means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as
amended from time to time.
"Proved Reserves" means the estimated quantities of crude
oil, condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable by
primary producing mechanisms in future years from known reservoirs underlying
lands or interests therein constituting Oil and Gas Properties, under existing
economic and operating conditions. Reserves which can be produced economically
through application of improved recovery techniques (i.e., fluid injection)
will be included in Proved Reserves when successful testing by a pilot project
or the operation of an installed program in the reservoir provides support for
the engineering analysis on which the pilot project or installed program was
based. In general, the economic producability of the estimated proved reserves
is supported by actual production or a conclusive formation test; however, in
certain instances proved reserves are assigned to reservoirs on the basis of a
combination of electrical and other type logs and core analyses which indicate
these reservoirs are analogous to similar reservoirs in the same field which
are producing or have demonstrated the ability to produce on a formation test.
"Qualified Liquid Assets" means the sum of: (a) the net
amount of Borrower's cash-on-hand that is unencumbered by liens, claims, or
security interests in favor of the Bank or third parties; plus (b) Borrower's
accounts receivable as operator of its Oil and Gas Properties resulting from
its joint interest billings to non-operators owning an interest in such Oil and
Gas Properties, net of any such accounts receivable that are doubtful,
uncollectible, or more than
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<PAGE> 14
ninety (90) days overdue; plus (c) Sabacol's accounts receivable that are
payable in Dollars, net of any such accounts receivable that are doubtful,
uncollectible, or more than ninety (90) days overdue; minus (d) Consolidated
Liabilities, exclusive of (i) current maturities of Borrower's Indebtedness to
the Bank, (ii) liabilities of Santa Maria and Beaver Lake Resources
Corporation, and (iii) Borrower's accounts payable that relate directly to its
domestic Oil and Gas Properties and would constitute "Direct Charges," as
defined in the form of Accounting Procedure Joint Operations (1984 Onshore
edition), promulgated by the Counsel of Petroleum Accountants Societies.
"Ratification of Guaranty" means the ratification agreement
in the form attached hereto as Exhibit "D," duly executed by each Guarantor,
pursuant to which such Guarantor ratifies its obligations to Bank arising under
the Guaranty heretofore executed by such Guarantor.
"Registration Statement" means the Securities and Exchange
Commission Form SB-2, File No. 33-94678, filed by Borrower with the Securities
and Exchange Commission relating to the registration of $12,650,000 of
Convertible Senior Subordinated Debentures (inclusive of debentures which the
underwriters have the option to purchase to cover over-allotments) offered by
Borrower.
"Reportable Event" means any of the events set forth in
Section 4043 of ERISA.
"Request for Advance" means the written or verbal (confirmed
in writing within three (3) Business Days) request by the Borrower for a Loan
by the Bank pursuant to this Agreement, which Request for Advance shall include
a statement of the amount requested to be advanced, the date of the requested
advance and such other information as the Bank in its sole, but reasonable
discretion deems necessary; provided that a Request for Advance applicable to a
Borrowing Base II Loan must be in writing and shall include Borrower's
applicable authorization for expenditures ("AFE") for the operation to be
funded with such Loan, a detailed description of the proposed operation,
Borrower's prognosis for the proposed operation, and any applicable invoices
relating thereto.
"Required Number" means: in the case of notices hereunder
(i) relative to borrowings, prepayments, elections of the LIBOR Rate,
selections of Interest Periods for, or other transactions in respect of, LIBOR
Loans: three (3) Business Days; or (ii) relative to all transactions in
respect of Base Rate Loans; one (1) Business Day; it being understood, however,
that in the case of notices involving transactions in respect of more than one
type of Loan (such as a change in type of Loan in accordance with Section
2.06(B)), "Required Number" means that number of days, as indicated above in
respect of the Loans involved, which would constitute the longest applicable
period of time.
"Reserve Percentage" means for any Interest Period, the
average (for such Interest Period) maximum rate at which reserves (including
any marginal, supplemental, or emergency reserves) are required to be
maintained during such Interest Period under Regulation D of the Federal
Reserve Board by member banks of the Federal Reserve System as it applies
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<PAGE> 15
to the Bank against "Eurocurrency liabilities" (as such term is used in
Regulation D). Without limiting the effect of the foregoing, the Reserve
Percentage shall reflect any other reserves required to be maintained by member
banks by reason of any regulatory change against (i) any category of
liabilities that includes deposits by reference to which the interest rate for
LIBOR Loans is to be determined as provided in this Agreement or (ii) any
category of extensions of credit or other assets that include LIBOR Loans. As
of the date of this Agreement the Reserve Percentage is zero.
"Revolving Commitment" means the obligation of the Bank,
subject to the provisions of this Agreement and existing only through the
Conversion Date or any extension thereof, to advance to the Borrower funds in
an amount not to exceed at any one time outstanding the lesser of: (a) the
Borrowing Base then in effect, or (b) the Revolving Commitment Limit.
"Revolving Commitment Limit" means $13,400,000 as of the
date of this Agreement, and such different amounts as are subsequently
established, from time to time, pursuant to Section 2.19 hereof.
"Revolving Loan" means the Loans made pursuant to Section
2.01 hereof.
"Sabacol" means Sabacol, Inc., a Delaware corporation, which
is a wholly owned Subsidiary of Borrower.
"Santa Maria" means Santa Maria Refining Company, a
California corporation, and a wholly-owned Subsidiary of Borrower created to
purchase, hold, and operate certain land and equipment.
"Subsidiary" means, with respect to Borrower and each
Guarantor, respectively, (a) any corporation in which Borrower or such
Guarantor, directly or indirectly through its Subsidiaries, owns more than
fifty percent (50%) of the stock of any class or classes having by the terms
thereof the ordinary voting power to elect a majority of the directors of such
corporation; and (b) any partnership, association, joint venture, or other
entity in which Borrower or such Guarantor, respectively, directly or
indirectly through its Subsidiaries, has more than a fifty percent (50%) equity
interest at the time.
"Termination Date" means July 1, 2001; provided that solely
with respect to Tranche 1 Loans and Tranche 2 Loans, "Termination Date" means
April 1, 1998.
"Third Amendment" means that certain Third Amendment dated
September 7, 1995, which is a part of the Prior Loan Agreement.
"Tranche 1 Loan(s)" means the first $2,000,000.00 of funding
advanced to Borrower that is designated by Bank as a Loan made under Borrowing
Base II.
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<PAGE> 16
"Tranche 2 Loan(s)" means all funding advanced to Borrower
that is designated by Bank as Loans made under Borrowing Base II, in excess of
the Tranche 1 Loan(s), not to exceed, however, $2,000,000.00 in the aggregate.
"Unmatured Event of Default" means any event or occurrence
which solely with the lapse of time or the giving of notice or both will ripen
into an Event of Default.
Undefined financial accounting terms used in this Agreement
shall be defined according to GAAP.
ARTICLE II.
THE LOAN
2.01 Revolving Line. Upon the terms and conditions
(including, without limitation, the right of the Bank to terminate the
Revolving Commitment hereunder upon an Event of Default or to suspend the
Bank's obligation to make additional Loans if there exists an Unmatured Event
of Default) and relying on the representations and warranties contained in this
Agreement, the Bank agrees, for a period from and after the date hereof through
the last Business Day prior to the Conversion Date, to make advances to the
Borrower from time to time following receipt of a Request for Advance, at least
one (1) Business Day prior to the requested date of advance, in such amounts as
the Borrower may request; provided, however, each such Loan shall be in an
amount of not less than $100,000.00 and in an integral multiple of $10,000.00
and the aggregate principal amount of all Loans made pursuant to this Section
2.01 and at any one time outstanding shall not exceed the Revolving Commitment.
Advances of Borrowing Base II Loans shall not be made more often than once each
calendar month, and not sooner than twenty (20) days after the most recent
prior advance of any Borrowing Base II Loan.
The Borrower may use this revolving credit by borrowing,
prepaying and reborrowing through the last Business Day prior to the Conversion
Date, all in accordance with the terms and conditions of this Agreement;
provided that the availability of funding under Borrowing Base II Loans shall
be used only once by Borrower, and funds may not be borrowed, repaid, and
reborrowed by Borrower under Borrowing Base II. The borrowings made by the
Borrower pursuant to the Revolving Commitment shall be made at the principal
office of the Bank and shall be evidenced by the Note.
2.02 Advances and Payments Under the Note. Each time an
advance is made against or payment is made on the Note, the Bank is hereby
irrevocably authorized by the Borrower to make appropriate entries of such in
its records in accordance with its customary practices of accounting for
advances and payments on notes.
The aggregate unpaid amount of advances reflected by the Bank
on its records shall be deemed rebuttably presumptive evidence of the principal
amount owing on the Note. Interest provided for in the Note and herein shall
be calculated on unpaid sums actually advanced and outstanding under the Note
pursuant to the terms of this Agreement and only for the period
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<PAGE> 17
from the date or dates of such advances until repayment. The liability for
payment of principal and interest evidenced by the Note shall be limited to
principal amounts actually advanced to the Borrower and outstanding under this
Agreement and interest on such amounts calculated in accordance with this
Agreement.
2.03 Borrowing Base Determination. The initial Borrowing
Base is established at Eleven Million Four Hundred Thousand and No/100 Dollars
($11,400,000.00), effective as of September 1, 1996, consisting of Borrowing
Base I in the amount of $9,400,000.00 and Borrowing Base II in the amount of
$2,000,000.00. Borrowing Base I shall initially decline in the amount of
$200,000.00, monthly, beginning on October 1, 1996, and at the beginning of
each successive month thereafter until the effective date of the next
redetermination of the Borrowing Base as set forth in this Section. Borrowing
Base II shall initially decline at the rate of $111,000.00, monthly, beginning
on the sixtieth (60th) day after the execution and delivery of this Agreement
by Bank and Borrower, and on the same day of each successive month thereafter
until the effective date of the next redetermination of Borrowing Base II, as
set forth in this Section. If and when Borrower believes that the value of the
Proved Reserves attributable to the Borrowing Base Properties existing on the
date of this Agreement has been increased as the result of its expenditure of
funds from Tranche 1 Loans in connection with the development of such Borrowing
Base Properties, and if Borrower then desires to increase Borrowing Base I and
to borrow additional funds under Tranche 2, it shall deliver to Bank a reserve
report, in form and substance satisfactory to the Bank, certified by an
independent petroleum engineer or firm of engineers satisfactory to the Bank in
its sole judgment, supporting the inclusion into Borrowing Base I of the
incremental Proved Reserves resulting from Borrower's expenditure of funds
obtained under the Tranche 1 Loans. If and when Borrowing Base I is increased
as the result of the inclusion of the incremental Proved Reserves resulting
from Borrower's expenditure of funds obtained under Tranche 1 Loans, then the
outstanding balance of the Tranche 1 Loans shall become part of the Revolving
Commitment under Borrowing Base I, the provisions hereof relating to Borrowing
Base II shall no longer be applicable to such loans, and Borrowing Base II
shall be reduced by the amount of such loans. If Borrower requests and the
Bank approves of additional borrowings as Tranche 2 Loans, then the Bank shall
thereupon redetermine Borrowing Base II and thereafter, Borrowing Base II will
decrease by five and 55/100 percent (5.55%) per month of the aggregate amount
funded under Tranche 2 Loans, beginning on the first day of the calendar month
that begins on or after the sixtieth day of any funding of a Tranche 2 Loan,
and on the first day of each successive month thereafter.
Commencing on April 1, 1997, and on or before each October 1
and April 1 thereafter until the Termination Date, the Borrower shall furnish
to the Bank a report, in form and substance satisfactory to the Bank, which
report shall set forth, as of each preceding January 1 or July 1, respectively,
as applicable, the Proved Reserves attributable to the Borrowing Base
Properties. Each report to be provided on or before each April 1 shall be
prepared by an independent petroleum engineer or firm of engineers reasonably
satisfactory to the Bank in its reasonable judgment, and each report to be
provided on or before each October 1 may be prepared by Borrower's own
engineers. Upon receipt of each such report, the Bank shall diligently
endeavor to make a redetermination of the Borrowing Base and of the monthly
reduction amount thereof within thirty (30) days after receipt of such report,
in accordance with its customary lending practices and then-current standards,
both of which shall become effective
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<PAGE> 18
upon verbal notification from the Bank to the Borrower, subsequently confirmed
in writing, and which, subject to the other provisions of this Agreement, shall
be the amount of the Borrowing Base and the monthly reduction thereof until the
effective date of the next redetermination of the Borrowing Base and monthly
reduction amounts as set forth in this Section.
Beginning with the first report to be delivered to the Bank on
or before April 1, 1997, and continuing with each successive semi-annual report
thereafter, the Borrower shall contemporaneously pay a fee of $7,000.00 to the
Bank for its analysis of such report and reevaluation of the Borrowing Base.
The Borrower may, at any time and from time to time, request that a
redetermination of the Borrowing Base and the monthly reduction thereof be made
by the Bank. At any time engineering reviews are requested by the Borrower in
connection with a Borrowing Base redetermination, other than the semi-annual
reviews required by the Bank as provided above, an additional fee in an amount
of $7,000.00 for the Bank's analysis of such report and reevaluation of the
Borrowing Base shall contemporaneously be paid to the Bank by the Borrower.
At any time, and from time to time, Bank may, without charge
to the Borrower, redetermine the Borrowing Base, which redetermination shall
become effective upon written notification from Bank to Borrower and which,
subject to the other provisions of this Agreement, shall be the amount of the
Borrowing Base until the effective date of the next redetermination of the
Borrowing Base as set forth in this Section. The determination of the
Borrowing Base shall be made, at the sole good faith discretion of the Bank in
accordance with its customary lending practices and then-current standards, by
reviewing the independent engineer's estimates of the projected rate of
production and projected revenues from the Borrowing Base Properties and such
additional information as the Bank deems relevant. The Bank may make
adjustments, at its sole good faith discretion and in accordance with its
customary lending practices and then-current standards, to such estimates.
The Borrowing Base shall represent the Bank's determination,
in accordance with its customary lending practices and then- current standards,
of the value, for loan purposes, of the Borrowing Base Properties and the
Borrower acknowledges, for purposes of this Agreement, such determination by
the Bank as being the value, for loan purposes, of the Borrowing Base
Properties. The Borrower and the Bank acknowledge that (a) due to the
uncertainties of the oil and gas extraction process, the Borrowing Base
Properties are not subject to evaluation with a high degree of accuracy and are
subject to potential rapid deterioration in value and (b) for this reason and
the difficulties and expenses involved in liquidating and collecting against
the Borrowing Base Properties, the Bank's determination of the value, for loan
purposes, of the Borrowing Base Properties contains an equity cushion, which
equity cushion is acknowledged by the Borrower as essential for the adequate
protection of the Bank.
2.04 Mandatory Prepayment of the Note. In the event that
the Bank determines that a Loan Excess exists, the Borrower shall immediately,
but in no event later than forty-five (45) days following any such
determination, (a) prepay the principal of the Note in an aggregate amount at
least equal to such Loan Excess or (b) add to the Borrowing Base Properties
additional Oil and Gas Properties sufficient in value to increase the Borrowing
Base
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<PAGE> 19
to equal the unpaid principal amount of the Note, which determination shall be
made by the Bank, at its sole good faith discretion in accordance with its
customary lending practices and then-current standards of valuation, for loan
purposes of the Borrowing Base Properties so added. If the Borrower elects
under (b) hereof to add to the Borrowing Base Properties additional Oil and Gas
Properties sufficient in value to eliminate all or a portion of such Loan
Excess, the Borrower must, within such forty-five (45) day period, provide to
the Bank evidence of Borrower's Marketable Title to such Oil and Gas Properties
and an engineering report applicable thereto that conforms to the requirements
of Section 2.03, and upon the timely delivery of such information, Bank, in its
sole, good faith discretion may provide the Borrower additional time beyond
such forty-five (45) day period to allow the Bank to evaluate such engineering
report and title information to determine whether it will accept such
additional Oil and Gas Properties as Borrowing Base Properties, and if so, the
amount (if any) by which the Borrowing Base would be increased as a result of
including such Oil and Gas Properties in the Borrowing Base Properties, which
determination shall be made by the Bank in accordance with its customary
lending practices and then current standards of valuation. After the Bank has
notified the Borrower of either: (x) the amount (if any) by which the Borrowing
Base would be increased as the result of the addition of such Oil and Gas
Properties to the Borrowing Base Properties, or (y) the Bank's rejection of
such additional Oil and Gas Properties, the Borrower shall have a period of ten
(10) days thereafter to prepay the outstanding principal of the Note in an
aggregate amount that is at least equal to the Loan Excess (if any) that
remains after Bank's acceptance or rejection of the additional Oil and Gas
Properties that Borrower proposed to add to the Borrowing Base Properties.
2.05 Prepayment and Conversion. Upon the Required Number
of days notice to the Bank, the Borrower may: (a) without the payment of
penalty or premium, prepay the principal of the Loans, or (b) voluntarily
convert the applicable Interest Rate of any Loan (other than Borrowing Base II
Loans) prior to the termination of the applicable Interest Period in whole or
in part, from time to time; any partial payment or conversion to be made in the
sum of not less than $500,000 or any $100,000 increment in addition thereto;
provided that with respect to any such prepayment or conversion of any Loan
upon which interest is being calculated at the LIBOR Rate the Borrower shall
reimburse the Bank on demand for any costs, including administrative costs,
incurred by the Bank as a result of such prepayment or conversion and any loss
incurred or to be incurred by the Bank in the redeployment of the funds
released by any such prepayment. Such loss shall be the difference, as
reasonably determined by Bank, between (i) Bank's gross return hereunder with
respect to that portion of the Loans which is prepaid, based on the applicable
Interest Rate for such portion of the Loans and (ii) any lesser amount realized
by Bank in deploying the funds received in repayment, or otherwise realized
from that portion of the Loans so prepaid, during the period from the date of
the prepayment until the end of the Interest Period for that portion of the
Loans prepaid; provided that Bank shall use its best efforts to redeploy such
funds in a commercially reasonable manner.
2.06 Interest Rate and Payments of Interest.
(A) Interest on Base Rate Loans shall be calculated on
the basis of a year of 365 or 366 days, as appropriate.
Interest on LIBOR Loans shall be calculated on
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<PAGE> 20
the basis of a 360-day year, counting the actual number of
days elapsed. Interest on the outstanding principal balance
of the Loans shall accrue for each day at either the Floating
Rate for such day or the LIBOR Rate for the Interest Period
which includes such day, all as elected and specified
(including specification as to length of Interest Period, as
permitted by the definition of that term, with respect to any
election of the LIBOR Rate) by the Borrower in accordance with
Section 2.06(B); provided that:
(i) In the absence of an election by the Borrower
of the LIBOR Rate, or, having made such election but
upon the Required Number of days prior to the end of
the then current Interest Period the Borrower fails
or is not entitled under the terms of this Agreement
to elect to continue such Interest Rate and specify
the applicable Interest Period therefor, then upon
the expiration of such then current Interest Period,
interest on the Loans shall accrue for each day at
the Floating Rate for such day, until the Borrower,
pursuant to Section 2.06(B), elects a different
Interest Rate and specifies the Interest Period for
the Loans.
(ii) Interest accruing on any LIBOR Loan during any
Interest Period shall be payable on the last
Business Day of such then current Interest Period;
provided, however, that with respect to LIBOR Loans
for which the Interest Period selected by the
Borrower pursuant to Section 2.06(B) is greater than
three (3) months, interest shall be payable
quarterly on the last Business Day of such quarterly
period with the first such quarterly period
commencing on the first day of the applicable
Interest Period with any remaining unpaid interest
being due and payable on the last day of such
Interest Period; provided further that all accrued
interest on any LIBOR Loan converted or prepaid
pursuant to Section 2.05 shall be paid immediately
upon such prepayment or conversion.
(B) By at least the Required Number of days prior to
Closing, the Borrower shall select the initial Interest Rate
to be charged on the Loans disbursed at the Closing and from
time to time thereafter the Borrower may elect, on at least
the Required Number of days' irrevocable prior written (or
telephoned, promptly confirmed by written) notice to the Bank,
an initial Interest Rate for any additional Loan, or to change
the Interest Rate on any Loan to any other Interest Rate
(including, when applicable, the selection of the Interest
Period); provided that; (i) the Borrower shall not select an
Interest Period that extends beyond the Termination Date; (ii)
except as otherwise provided in Section 2.05 no such change
from the LIBOR Rate to another Interest Rate shall become
effective on a day other than the day, which must be a
Business Day, next following the last day of the Interest
Period last effective for such LIBOR Loan; (iii) any elections
made by the Borrower pursuant to this Section 2.06(B) shall be
in the amount of $100,000, plus any additional increment of
$100,000; (iv) notwithstanding anything herein to the
contrary, the Borrower may not make any election under
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<PAGE> 21
this Section 2.06(B) that would result in Loans outstanding at
more than three (3) different LIBOR Rates without the written
agreement of the Bank to do so; and (v) the first day of each
Interest Period as to a LIBOR Loan shall be a Business Day.
(C) Interest on Base Rate Loans shall be paid monthly in
arrears on the last day of each calendar month commencing with
any month during which interest begins to accrue at the
Floating Rate, as elected by Borrower pursuant to Section
2.06(B), and on the date the principal of such Loans shall be
due (at stated maturity, on acceleration, or otherwise).
(D) All Borrowing Base II Loans shall be Base Rate Loans
and may not be LIBOR Loans.
(E) Interest on past-due principal shall accrue at the
greater of the applicable Floating Rate plus three percent
(3.00%) or LIBOR plus five and three-quarters percent (5.75%)
until such principal is paid in full, and shall be payable
upon demand by the Bank.
(F) The Bank shall notify the Borrower of the current
Base Rate and of the current LIBOR Rate from time to time upon
request by the Borrower.
(G) It is the intention of the parties hereto to conform
strictly to applicable usury laws as in effect from time to
time. Accordingly, if any transactions contemplated hereby
would be usurious under applicable Law (including the laws of
the United States of America, or of any other jurisdiction
whose laws may be mandatorily applicable), then, in that
event, notwithstanding anything to the contrary in this
Agreement, or any other agreement entered into in connection
with this Agreement, it is agreed the aggregate of all
consideration that constitutes interest under applicable law
that is contracted for, charged, or received under this
Agreement, or under any of the other aforesaid agreements or
otherwise in connection with this Agreement shall under no
circumstances exceed the Maximum Rate, and any excess shall be
credited to the Borrower by Bank (or, if such consideration
shall have been paid in full, such excess refunded to the
Borrower by Bank). All sums paid, or agreed to be paid, to
the Bank for use, forbearance, and detention of the
indebtedness of the Borrower by the Bank shall, to the extent
permitted by applicable laws, be amortized, pro rated,
allocated, and spread throughout the full term of such
indebtedness until such indebtedness is paid in full so that
the actual rate of interest is uniform, but does not exceed
the Maximum Rate, throughout the full term thereof. If at any
time the applicable Interest Rate, which shall be deemed for
purposes of this Section 2.06(G), only, to include any other
fees, charges, or other forms of consideration which
constitute interest under applicable law that is contracted
for, charged, or received under this Agreement or any other
agreement entered into in connection with this Agreement,
exceeds the Maximum Rate, the rate of interest to accrue
pursuant
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<PAGE> 22
to this Agreement shall be limited, notwithstanding anything
to the contrary in this Agreement, to the Maximum Rate, but
any subsequent reductions in the Interest Rate otherwise
provided for herein shall not reduce the interest to accrue
pursuant to this Agreement below the Maximum Rate until the
total amount of interest accrued pursuant to this Agreement
equals the amount of interest that would have accrued if a
varying rate per annum equal to the otherwise applicable
Interest Rate had at all times been in effect. If the total
amount of interest paid or accrued pursuant to this Agreement
under the foregoing provisions is less than the total amount
of interest that would have accrued if a varying rate per
annum equal to the otherwise applicable Interest Rate had at
all times been in effect, then the Borrower agrees to pay upon
final maturity of the Loans an amount equal to the difference
between (a) the lesser of (i) the amount of interest that
would have accrued if the Maximum Rate had at all times been
in effect or (ii) the amount of interest that would have
accrued if a varying rate per annum equal to the otherwise
applicable Interest Rate had at all times been in effect, and
(b) the amount of interest accrued in accordance with the
other provisions of this Agreement.
2.07 Increased Cost of Loans.
(A) Notwithstanding any other provisions herein, if as a
result of any regulatory change
(i) the basis of taxation of payments to Bank of
the principal of, or interest on, any LIBOR Loan or
any other amounts due under this Agreement in
respect of any such LIBOR Loan (except for taxes
imposed on the overall net income or receipts of
Bank, and franchise or other taxes imposed generally
on Bank), by the jurisdiction (or any political
subdivision therein) in which Bank has its principal
office (if such other taxes do not specifically
affect the cost to Bank of making the Loans) is
changed;
(ii) any reserve, special deposit, or similar
requirement (including without limitation any
reserve requirement under regulations of the Board
of Governors of the Federal Reserve System) against
assets of, deposits with, or for the account of, or
credit extended by Bank, is imposed, increased,
modified, or deemed applicable; or
(iii) any other condition affecting this Agreement
or any LIBOR Loan is imposed on Bank or (in the case
of LIBOR Loans) the London interbank market;
and the result of any of the foregoing is to increase the
actual direct cost to Bank of making or maintaining any such
LIBOR Loan or to reduce the amount of any sum received by Bank
hereunder in respect thereof (and such increase or
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<PAGE> 23
reduction shall not have been compensated by a corresponding
increase in the interest rate applicable to the respective
Loans), by an amount deemed by Bank to be material (such
increases in cost and reductions in amounts receivable being
herein called "Increased Costs"), then the Borrower shall pay
to Bank, within thirty (30) days after its demand, such
additional amount or amounts as will compensate Bank for those
Increased Costs. The Bank will not demand to be compensated
by Borrower for such Increased Costs unless the Bank generally
makes such demands to its other LIBOR Loan customers who are
similarly situated. A certificate of Bank setting forth the
basis for the determination of such amount necessary to
compensate the Bank as aforesaid, accompanied by documentation
showing reasonable support for such increased costs or reduced
sums received by Bank, shall be delivered to the Borrower and
shall be conclusive, save for manifest error, as to such
determination and such amount.
(B) Notwithstanding the foregoing provisions of this
Section 2.07, in the event that by reason of any regulatory
change the Bank either (i) incurs Increased Costs based on, or
measured by, the excess above a specified level of the amount
of a category of deposits or other liabilities of Bank that
includes deposits by reference to which the interest rate on
LIBOR Loans is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Bank
that includes LIBOR Loans or (ii) becomes subject to
restrictions on the amount of such a category of liabilities
or assets that it may hold, then, if Bank so elects by notice
to the Borrower, the obligation of Bank to make or convert
Loans of any other type into LIBOR Loans hereunder shall be
suspended until the earlier of the date such regulatory change
ceases to be in effect or the date the Borrower and Bank agree
upon an alternative method of determining the interest rate
payable by the Borrower on LIBOR Loans, and all LIBOR Loans of
Bank then outstanding shall be converted into a Base Rate Loan
(if not otherwise prohibited under the terms of this
Agreement) at the Borrower's option.
(C) Bank agrees that upon the occurrence of any
regulatory change giving rise to the operation of the first
paragraph of this Section 2.07, it will, if requested by the
Borrower and to the extent permitted by law or by the relevant
government authority, for a period of thirty (30) days
endeavor in good faith to avoid or minimize the increase in
cost or reduction in amount receivable resulting from such
regulatory change; provided, however, that such change can be
made in such a manner that Bank, in its sole determination,
suffers no economic, legal, regulatory, or other disadvantage.
Any expense incurred by Bank in so doing shall be paid by the
Borrower on delivery to the Borrower of a certificate as to
the amount of such expense, which certificate shall be
conclusive in the absence of manifest error. Nothing in this
paragraph shall affect or postpone the obligations of the
Borrower set forth in any other paragraph of this Section
2.07.
2.08 Substitute Rate. Anything herein to the contrary
notwithstanding, if within two (2) Business Days prior to the first day of any
Interest Period for a LIBOR Loan the
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<PAGE> 24
Bank is not, for any reason whatsoever, quoted rates for the offering of
Dollars for deposit with it in the London interbank market for a period and
amount relevant to the computation of the rate of interest on LIBOR Loans for
such Interest Period, the Bank shall give the Borrower prompt notice thereof
and on what would otherwise be the first day of such Interest Period such Loans
shall be made as Base Rate Loans (if not otherwise prohibited under the terms
of this Agreement), at the Borrower's option in accordance with the election
procedures set forth in Section 2.06(B); provided, however, that prior to the
effective date of such election, interest shall be calculated at the Floating
Rate.
2.09 Change of Law. Notwithstanding any other provision
herein, in the event that any change in any applicable law, rule or regulation
or in the interpretation or administration thereof shall make it unlawful for
the Bank to (i) honor any commitment it may have hereunder to make any LIBOR
Loan, then such commitment shall terminate, or (ii) maintain any LIBOR Loan,
then all LIBOR Loans of the Bank then outstanding shall be repaid and converted
to Base Rate Loans (if not otherwise prohibited under the terms of this
Agreement) at the Borrower's option in accordance with the election procedures
set forth in Section 2.06(B); provided, however, that prior to the effective
date of such election, interest shall be calculated at the Floating Rate. Any
remaining commitment of Bank hereunder to make LIBOR Loans (but not other
Loans) shall terminate forthwith. Upon the occurrence of any such change, the
Bank shall promptly notify the Borrower thereof, and shall furnish to the
Borrower in writing evidence thereof certified by the Bank.
Any repayment or conversion of any LIBOR Loan which is
required under this Section 2.09 or under 2.07(B) shall be effected by payment
thereof, together with accrued interest thereon, on demand, and concurrently
there shall occur the borrowing of the corresponding Base Rate Loan as provided
herein.
If any repayment to Bank of any LIBOR Loan (including
conversions thereof) is made under this Section 2.09 on a day other than a day
otherwise scheduled for a payment of principal of or interest on such Loan, the
Borrower shall pay to Bank upon its request such amount or amounts as will
compensate it for the amount by which the rate of interest on such Loan
immediately prior to such repayment exceeds the stated rate of interest on
relending or reinvesting the funds received in connection with such prepayment,
in each case for the period from the date of such prepayment to the Business
Day next succeeding the last day of such then current Interest Period, all as
determined by Bank in its good faith discretion.
2.10 Advances to Satisfy Obligations of Borrower. The
Bank may, but shall not be obligated to, make advances hereunder and apply same
to the satisfaction of any condition, warranty, representation or covenant of
the Borrower contained in this Agreement, and the funds so advanced and applied
shall be part of the Loan proceeds advanced under this Agreement and evidenced
by the Note; provided, however, that the Bank shall not make advances hereunder
until ten (10) days after so advising the Borrower in writing of the Bank's
intention to make such advance, unless the Bank determines in its sole, good
faith discretion that it is necessary to make any such advance prior to giving
the Borrower notice thereof in order
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<PAGE> 25
to prevent any material, adverse effect from occurring with respect to any of
Bank's rights hereunder or under any of the Collateral Documents.
2.11 Assignment of Production. Certain of the Collateral
Documents covering the Borrowing Base Properties contain an assignment unto and
in favor of the Bank of all oil, gas and other minerals produced and to be
produced from or attributable to the Borrowing Base Properties together with
all of the revenues and proceeds attributable to such production, and such
Collateral Documents further provide that all such revenues and proceeds which
may be so collected by the Bank pursuant to the assignment shall be applied to
the payment of the Note and the satisfaction of all other Indebtedness to be
secured by such Collateral Documents. Bank, Borrower and the Guarantors
expressly acknowledge and agree that notwithstanding anything contained in the
Collateral Documents to the contrary until the occurrence of an Event of
Default, such assignment and any provisions related to the enforcement of the
assignment shall be waived by the Bank and the undated letter transfer orders
delivered to the Bank pursuant to Section 3.10(f) shall be held by the Bank and
not transmitted to the purchasers of production. Borrower and Guarantors
hereby appoint the Bank their agent and attorney-in-fact for purposes of
completing such letter transfer orders which power is coupled with an interest
and is not nrevocable. Further Bank, Borrower and Guarantors expressly
acknowledge and agree that until the occurrence of an Event of Default, if such
assignment contained in the Collateral Documents causes any disruption in the
payment to Borrower or the Guarantors of revenues and proceeds attributable to
production, the Bank will use its good faith effort to direct such payments to
the Borrower or Guarantor, as applicable.
2.12 Commitment Fee. As consideration for the commitment
of the Bank to make Loans to the Borrower pursuant to this Agreement, the
Borrower agrees to pay to the Bank within ten (10) days of receipt of the
Bank's statement as to quarterly periods ending March 31, June 30, September 30
and December 31 of each year, except the first period shall be for a period of
time from the date of this Agreement to September 30, 1996, during the period
commencing on the date of this Agreement to and including the Conversion Date
and at the Conversion Date, a fee equal to 1/2 of 1% per annum (computed on the
basis of 365 or 366 days, as the case may be) multiplied by an amount equal to
the daily average excess, if any, of the Revolving Commitment over the
aggregate principal amount outstanding on the Note during the period from the
date of this Agreement or previous calculation date provided above, whichever
is later, to the relevant calculation date or the Conversion Date, as the case
may be.
2.13 Facility Fee. As consideration for the commitment
of the Bank to make Loans to the Borrower pursuant to this Agreement, the
Borrower shall pay to the Bank $60,000.00 simultaneously with the execution of
this Agreement by the Bank and the Borrower, plus three percent (3%) of the
amount of all Tranche 2 Loans advanced by Bank to Borrower at the time such
advances are made (up to $2,000,000 of Tranche 2 Loans), and contemporaneously
with advances under Borrowing Base II in excess of an aggregate of
$4,000,000.00, an additional fee equal to one percent (1.0%) of such advances
above the greater of either: (a) $4,000,000.00; or (b) the aggregate of all
Borrowing Base II Loans theretofore made under this Agreement.
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<PAGE> 26
2.14 Amendment Fee As partial consideration for each
amendment to the agreement or each waiver by the Banks of any of Borrower's
representations, warranties, or covenants set forth herein or in any of the
Collateral Documents, the Borrower shall pay to the Bank a fee of $2000.00, in
addition to any other fees or expenses payable by the Borrower hereunder in
connection therewith.
2.15 Addition/Deletion of Borrowing Base Properties. The
Borrower may, from time to time upon fifteen days prior written notice to the
Bank, propose to add Oil and Gas Properties to or delete Oil and Gas Properties
from the Borrowing Base Properties. Provided that no Event of Default or
Unmatured Event of Default hereunder or under any Collateral Documents would
exist upon the deletion of such Oil and Gas Properties from the Borrowing Base
Properties, any proposal by Borrower to delete Borrowing Base Properties shall
become effective upon the later of: (a) fifteen (15) days after Bank's receipt
of written notice thereof, or (b) Bank's determination (which it shall exercise
reasonable diligence to complete within 30 days of receipt of Borrower's notice
electing to delete Oil and Gas Properties from the Borrowing Base Properties)
of the resulting Borrowing Base, based on the valuation of the Borrowing Base
Properties that remain after such deletion, which determination shall be made
by the Bank in accordance with its customary lending practices and then current
standards of valuation. Upon Borrower's request, Bank shall execute a release
of any liens and/or security interests held by Bank in any Oil and Gas
Properties deleted from the Borrowing Base Properties. Any such proposal to
add Oil and Gas Properties to the Borrowing Base Properties shall be
accompanied by an engineering report applicable to such properties that
conforms to the requirements of Section 2.03 and evidence sufficient to
establish that Borrower has Marketable Title to such Oil and Gas Properties,
and any such addition shall become effective at such time as: (a) Bank has made
its determination (which it will exercise reasonable diligence to complete) of
the amount by which the Borrowing Base would be increased as the result of such
addition, and (b) the conditions set forth in Article III hereof, to the extent
they are applicable to such additional Oil and Gas Properties, have been
satisfied.
2.16 Letters of Credit. Subject to the terms and
conditions of this Agreement, the Bank agrees to issue standby Letters of
Credit for the account of the Borrower from time to time following receipt of a
Request for Advance three (3) Business Days prior to the requested date of
issuance in such amount as the Borrower may request in an aggregate amount of
up to (i) twenty percent (20%) of the Revolving Commitment, but (ii) not to
exceed at any time the unborrowed portion of the Revolving Commitment. The
amount of any such Letters of Credit issued under the Revolving Commitment
shall be deemed to be a Loan and to reduce the amount available under the
Revolving Commitment and shall be governed by the terms of this Agreement. The
Bank may require in connection with the issuance of any Letter of Credit that
Borrower execute the Bank's then-current form of application for a Letter of
Credit, but if there is any conflict between the terms of any such application
and the terms of this Agreement, the terms of this Agreement shall control. No
Letter of Credit shall have an expiration date that is later than the
Conversion Date.
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<PAGE> 27
2.17 Repayment of Letters of Credit. If drawn upon by
the beneficiary of a Letter of Credit, all amounts so drawn shall be due and
payable by the Borrower immediately upon receipt of Bank's statement.
2.18 Letter of Credit Fee. As consideration for the
issuance by the Bank of Letters of Credit for the account of the Borrower, the
Borrower agrees to pay to the Bank a fee of one and one-half percent (1.5%) per
annum pro rata, based on the number of days outstanding, of the amount of each
such Letter of Credit (subject to a $500.00 minimum fee per year on each Letter
of Credit), the first such per annum fee for each Letter of Credit to be
payable in advance of the issuance of such Letter of Credit, with successive
per annum fees to be paid in advance of the anniversary date of the issuance of
such Letter of Credit if it is to remain in effect beyond such anniversary
date.
2.19 Adjustment to Revolving Commitment Limit. At any
time that Borrower proposes to increase the Borrowing Base pursuant to Section
2.15 to an amount that would exceed the Revolving Commitment Limit then in
effect, Borrower may also request that Bank increase the amount of the
Revolving Commitment Limit. At any time that Borrower makes such a request it
shall promptly provide Bank with such financial information as Bank may request
to assist the Bank in evaluating such proposed increase in the Revolving
Commitment Limit. Following the receipt of such information from Borrower, the
Bank shall, in the normal course of its business, make a redetermination of the
Revolving Commitment Limit, which shall become effective upon written
notification from the Bank to Borrower of the new Revolving Commitment Limit.
2.20 Conversion of the Revolving Loan. On the Conversion
Date the then entire outstanding principal balance of the Loans will be placed
on a term loan basis (the "Conversion").
2.21 The Amended Note. At the time of the Conversion,
the Borrower shall execute and deliver to Bank: (a) an Amended Note in the
principal amount of the then entire outstanding principal balance of the Loans
at the time of the Conversion, and (b) a Compliance Certificate. The Amended
Note shall be deemed to amend, restate, renew and rearrange, but not to repay,
the indebtedness evidenced by the Note.
2.22 Payments of Principal. Subsequent to the
Conversion, the principal of the Loan evidenced by the Amended Note will be
repaid in thirty-six (36) consecutive monthly installments of principal payable
on the first day of each month beginning on August 1, 1998, and continuing on
the first day of each calendar month thereafter until the Termination Date,
when the entire unpaid principal amount of the Amended Note shall be due and
payable. The amount of each such monthly payment will be established by the
Bank in accordance with its customary lending practices
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<PAGE> 28
and then-current standards of determining such payments at the time of the
Borrowing Base redetermination immediately preceding July 31, 1998, and the
amount of each monthly payment remaining after the effective date of each
subsequent Borrowing Base redetermination may be adjusted by the Bank in
accordance with its customary lending practices and then-current standards of
determining such payments, based on the results of each Borrowing Base
redetermination.
ARTICLE III.
CONDITIONS
The obligation of the Bank to make the initial Loans or
advances referred to in Article II of this Agreement and, with the exception of
the conditions set forth in Sections 3.02 through 3.04, 3.06, 3.10 and 3.11
below, any subsequent loan or advance hereunder, is subject to satisfaction of
the following conditions precedent:
3.01 Receipt of Note, Agreement and Certificate of
Compliance. The Bank shall have received the Note, multiple counterparts of
this Agreement, as requested by the Bank, and the Certificate of Compliance
duly executed by an authorized officer for the Borrower and, as to the
Agreement, by each Guarantor.
3.02 Receipt of Articles of Incorporation and Bylaws.
The Bank shall have received from the Borrower and from each Guarantor its
Articles of Incorporation certified by the Secretary of State of the state of
its incorporation and bylaws certified by the Secretary or an Assistant
Secretary of such entity.
3.03 Receipt of Certified Copy of Corporate Proceedings
and Certificate of Incumbency. The Bank shall have received from the Borrower
and from each Guarantor copies of all resolutions of its board of directors
with respect to the transactions set forth in this Agreement and the execution
of this Agreement, the Note (as to the Borrower only) and those of the
Collateral Documents to which it is a party, such copy or copies to be
certified by the secretary or an assistant secretary as being true and correct
and in full force and effect as of the date hereof. In addition, the Bank
shall have received from the Borrower and from each Guarantor a certificate of
incumbency signed by the secretary or an assistant secretary setting forth (a)
the names of the officers executing this Agreement, the Note (as to the
Borrower only) and those of the Collateral Documents to which it is a party,
(b) the office(s) to which such Persons have been elected and in which they
presently serve and (c) an original specimen signature of each such person.
3.04 Receipt of Ratification of Guaranty. The Bank shall
have received from each Guarantor the Ratification of Guaranty, duly executed
by such Guarantor.
3.05 Accuracy of Representations and Warranties and No
Event of Default. The representations and warranties contained in Article IV
of this Agreement shall be true and correct in all material respects on the
date of the making of such Loans or advances with the same effect as though
such representations and warranties had been made on such date; and no Event of
Default shall have occurred and be continuing or will have occurred at the
completion
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<PAGE> 29
of the making of such Loans or advances, and the Bank shall have received
satisfactory certificates signed by the President of the Borrower as to all
questions of fact involved in this condition, including, without limitation, a
Compliance Certificate.
3.06 Legal Matters Satisfactory to Special Counsel to the
Bank. All legal matters incident to the consummation of the transactions
hereby contemplated shall be satisfactory to the firm of Hutcheson & Grundy,
L.L.P., special counsel for the Bank.
3.07 No Material Adverse Change. No material adverse
change shall have occurred since the date of this Agreement in the condition,
financial or otherwise, of the Borrower, except for changes in the amount of
the Borrowing Base determined pursuant to Section 2.06 of this Agreement
(provided such changes in the Borrowing Base do not result in an Event of
Default).
3.08 Status of Record Title. The Bank shall have been
satisfied that the title of each Guarantor to its Borrowing Base Properties is
Marketable, and that such Guarantor owns record title to an undivided net
revenue interest in the production from each such Borrowing Base Property that
is not less than the net revenue interest therein attributed to such Guarantor
in any of the Collateral Documents executed by such Guarantor relating to such
Borrowing Base Property, as well as an undivided working interest in each
Borrowing Base Property that is not greater than the working interest therein
attributed to such party in such applicable Collateral Documents (unless there
is a corresponding increase in the net revenue interest attributed to such
party therein).
3.09 Collateral Documents. In connection with any
advances to Borrower subsequent to the initial Loans made pursuant to Section
2.01, the Bank shall have received duly executed and acknowledged Collateral
Documents in form and substance satisfactory to Bank covering all Oil and Gas
Properties to be added to the Borrowing Base Properties pursuant to Section
2.15.
3.10 UCC Search. The results of a Uniform Commercial
Code search showing all financing statements and other documents or instruments
on file against Borrower and Guarantors, in the Offices of the Secretaries of
State of the States of California, Michigan, New Mexico and Texas and in the
respective county in which Borrower and each Guarantor maintains its principal
place of business, such search to be as of a date no more than ten (10) days
prior to the date of the advance of the Loan.
3.11 Financial Statements. The Bank shall have received
consolidated financial Statements of the Borrower as of March 31, 1996, showing
financial information consistent with that previously provided to the Bank.
3.12 Request for Advance. With respect to each Borrowing
Base II Loan, the operation to be funded with such loan and the costs and
expenses therefor, as described in the applicable Request for Advance, shall be
satisfactory to Bank, in its sole discretion.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and to make
the Loans hereunder, the Borrower and each Guarantor represent and warrant to
the Bank (which representations and warranties will survive the delivery of the
Note) that:
4.01 Existence and Good Standing. The Borrower and each
Guarantor is a corporation, duly organized, legally existing and in good
standing under the laws of its jurisdiction of incorporation and is duly
qualified and in good standing as a foreign corporation in all jurisdictions
wherein the property owned or the business transacted by it makes such
qualification necessary, other than those jurisdictions wherein the failure to
so qualify does not have a material adverse effect on the Borrower or such
Guarantor, respectively.
4.02 Due Authorization. As to the Borrower, the
execution and delivery by the Borrower of this Agreement and the borrowings
hereunder; the execution and delivery by the Borrower of the Note and those of
the Collateral Documents to which it is a party; and the repayment by the
Borrower of Indebtedness evidenced by the Note and interest and fees provided
in the Note and this Agreement are (a) within the corporate power of the
Borrower; (b) have been duly authorized by all necessary corporate action, and
(c) do not and will not (i) require the consent of any regulatory authority or
governmental body, (ii) violate any provision of law or of the charter or
bylaws of the Borrower, (iii) cause a default to occur under the terms and
provisions of any indenture, instrument or other agreement to which the
Borrower is a party or by which its property may be presently bound or
encumbered, or (iv) result in or require the creation or imposition of any
mortgage, lien, pledge, security interest, charge or other encumbrance in, upon
or of any of the properties or assets of the Borrower under any such indenture,
instrument or other agreement, other than under any of the Collateral
Documents. As to each Guarantor, the execution and delivery of this Agreement
by such Guarantor and the execution and delivery by each such Guarantor of
those Collateral Documents and the Guaranty to which it is a party are (a)
within the corporate power of such Guarantor; (b) have been duly authorized by
all necessary corporate action, and (c) do not and will not (i) require the
consent of any regulatory authority or governmental body, (ii) violate any
provision of law or of the charter or bylaws of such Guarantor, (iii) cause a
default to occur under the terms and provisions of any indenture, instrument or
other agreement to which such Guarantor is a party or by which such Guarantor
may be presently bound or encumbered, or (iv) result in or require the creation
or imposition of any mortgage, lien, pledge, security interest, charge or any
other encumbrance in, upon or of any of the properties or assets of such
Guarantor under such indenture, instrument or other agreement, other than under
any of the Collateral Documents or the Guaranty.
4.03 Valid and Binding Obligations. This Agreement, the
Note and the Collateral Documents when duly executed and delivered, will be, as
to each such instrument executed by Borrower and each Guarantor, respectively,
the legal, valid and binding obligations of and enforceable against the
Borrower and each such Guarantor, as applicable, in accordance with their
respective terms (subject to any applicable bankruptcy, insolvency or other
laws of
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<PAGE> 31
general application affecting creditors' rights and judicial decisions
interpreting any of the foregoing).
4.04 Scope and Accuracy of Financial Statements. All
Financial Statements submitted and to be submitted to the Bank hereunder,
including, without limitation, the Financial Statements of the Borrower and
each Guarantor, are and will be complete and correct in all material respects,
are and will be prepared in accordance with GAAP and practices consistently
applied, and do and will fairly reflect the financial condition and the results
of the operations of the Borrower and each Guarantor in all material respects
as of the dates and for the period stated therein (subject only to normal
year-end audit adjustments with respect to such unaudited interim statements of
the Borrower and each Guarantor) and no material adverse change has since
occurred in the condition, financial or otherwise, of the Borrower and its
Subsidiaries (taken as a whole).
4.05 Liabilities, Litigation and Restrictions. Except as
disclosed in the Financial Statements and on Schedule 4.05 attached hereto, the
Borrower and its Subsidiaries (including each Guarantor) do not have any
liabilities, direct or contingent, which may materially and adversely affect
the consolidated business or assets of the Borrower and its Subsidiaries (taken
as a whole). Except as described on Schedule 4.05, there is no litigation or
other action of any nature pending before any court, governmental
instrumentality, regulatory authority or arbitral body or, to the knowledge of
the Borrower or any Guarantor threatened against or affecting the Borrower or
any Guarantor, or any of their Subsidiaries, which might reasonably be expected
to result in any material, adverse change in the business or assets of the
Borrower and Guarantors (taken as a whole). No unusual or unduly burdensome
restriction, restraint or hazard exists by contract, law, governmental
regulation or otherwise relative to the business or material properties of the
Borrower or any Guarantor other than such as relate generally to Persons
engaged in the business activities conducted by the Borrower or any Guarantor,
as the case may be.
4.06 Title to Assets. The Borrower and each Guarantor
has Marketable Title to its Borrowing Base Properties.
4.07 Margin Stock. None of the proceeds of the Loans
will be used for the purpose of buying or carrying margin stock.
4.08 Leases. The Leases are in full force and effect,
are valid, subsisting leases covering the entire estates to which they pertain
and all rentals, royalties and other amounts due and payable in accordance with
the terms of the Leases, overriding royalty, net profits or other production
burdens have been duly paid or provided for; the obligations to be performed
under the Leases have been duly performed; and neither Borrower nor any
Guarantor is aware of any default by any third party under any of the Leases
with respect to such third party's obligations.
4.09 Authorizations and Consents. No authorization,
consent, approval, exemption, franchise, permit or license of, or filing with,
any governmental or public authority
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<PAGE> 32
or any third party is required to authorize, or is otherwise required in
connection with the valid execution and delivery by the Borrower or each
Guarantor, as applicable, of this Agreement, the Note, and those of the
Collateral Documents to which it is a party or any instrument contemplated
hereby, the repayment by the Borrower of advances against the Note and interest
and fees provided in the Note and this Agreement, or the performance by the
Borrower or any Guarantor of its obligations under any of the foregoing.
4.10 Compliance with Laws, Rules, Regulations and Orders.
To the best of the knowledge and belief of the Borrower and each Guarantor,
neither the business nor any of the activities of the Borrower or any
Guarantor, as presently conducted, violates any law or any rule, regulation or
directive of any applicable judicial, administrative or other governmental
instrumentality (including, but not by way of limitation, any law or any rule,
regulation or directive of any judicial, administrative or other governmental
instrumentality relating to zoning, to any Environmental Law, to the
stabilization of wages or prices or to the development, production,
transportation or purchase or sale of oil, gas or other hydrocarbons) the
result of which violation would have a material adverse effect on the Borrower
and its Subsidiaries (taken as a whole), and the Borrower and each Guarantor
each possess all licenses, approvals, registrations, permits and other
authorizations necessary to enable it to carry on its business in all material
respects as now conducted, and all such licenses, approvals, registrations,
permits and other authorizations are in full force and effect; and neither the
Borrower nor any Guarantor, has reason to believe that the Borrower or any
Guarantor will be unable to obtain the renewal of any such licenses, approvals,
registrations, permits and other authorizations.
4.11 Proper Filing of Tax Returns and Payment of Taxes
Due. The Borrower and each Guarantor have duly and properly filed all United
States Income Tax returns (including Colombian tax returns) and all other tax
returns which are required to be filed, and has paid all taxes due pursuant to
said returns or pursuant to any assessment received, except such taxes, if any,
as are being contested in good faith and as to which adequate provisions and
disclosures have been made; and the respective charges and reserves on the
books of the Borrower and each Guarantor with respect to any taxes or other
governmental charges are adequate.
4.12 ERISA. The Borrower and each Guarantor is in
compliance in all material respects with all applicable provisions of ERISA.
Neither a Reportable Event nor a Prohibited Transaction has occurred and is
continuing with respect to any plan; no notice of intent to terminate a plan
has been filed, nor has any plan been terminated; no circumstances exist which
constitute grounds under Section 4042 of ERISA entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administrate a plan, nor has
the PBGC instituted any such proceedings; neither the Borrower nor any
Guarantor, nor any ERISA Affiliate has completely or partially withdrawn under
Sections 4201 or 4204 of ERISA from a Multi-employer plan; the Borrower and
each Guarantor, and each ERISA Affiliate has met its minimum funding
requirements under ERISA with respect to all of its plans and the present value
of all vested benefits under each plan exceeds the fair market value of all
plan assets allocable to such benefits, as determined on the most recent
valuation date of the plan and in accordance with the provisions of ERISA and
the regulations thereunder for calculating the potential liability of the
Borrower or any Guarantor, or any ERISA Affiliate to the PBGC or the plan under
Title IV of
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ERISA; and neither the Borrower nor any Guarantor, nor any ERISA Affiliate has
incurred any liability to the PBGC under ERISA.
4.13 Investment Company Act Compliance. The Borrower and
each Guarantor is not, nor is it directly or indirectly controlled by or acting
on behalf of any person or entity which is, an investment company or an
"affiliated person" of an investment company within the meaning of the
Investment Company Act of 1940.
4.14 Public Utility Holding Company Act Compliance. The
Borrower and each Guarantor is not a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
4.15 Environmental Laws. To the best of the knowledge
and belief of the Borrower and each Guarantor:
(a) no property of the Borrower or any Guarantor is
currently on, or has ever been on, any federal or state list of
superfund sites as listed on the Environmental Protection Agency
National Priority List or any comparable state registries or list in
any state of the United States or the Republic of Colombia
(collectively "Superfund Sites");
(b) no Hazardous Substances have in the past been
generated, transported, and or disposed of, by the Borrower or any
Guarantor at any Superfund Site;
(c) except in accordance with a valid permit, license,
certificate or approval of the relevant regulatory authority or
governmental body, there has been no emission, spill, release,
disposal or discharge of any Hazardous Substance into or upon (i) the
air, (ii) soils or any improvements located thereon, (iii) surface
water or groundwater, or (iv) the sewer, septic system or waste
treatment, storage or disposal system servicing any property of the
Borrower or any Guarantor; and
(d) except for the resolution dated June 7, 1995, issued
by the Colombian Ministry of the Environment which sets forth a number
of measures aimed at correcting certain deficiencies that the Ministry
has allegedly found in environmental aspects of the Colombian Oil
Properties, no complaint, order, directive, claim, citation, notice of
environmental report, notice of investigation or other notice by any
regulatory authority or governmental body or any other Person with
respect to (i) air emissions, (ii) spills, releases or discharges to
soils or any improvements located thereon, surface water, groundwater
or the sewer, septic system or waste treatment, storage or disposal
systems servicing any property of the Borrower or any Guarantor, (iii)
solid or liquid waste disposal, (iv) the use, generation, storage,
transportation or disposal of any Hazardous Substance, or (v) other
environmental, health or safety matters affecting any property of the
Borrower or any Guarantor, any improvements located thereon, or the
business thereon conducted, has been received by the Borrower or any
Guarantor, nor has the Borrower or any Guarantor been given oral or
written notice thereof;
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provided, however, that the representations and warranties set forth in
subparagraphs (c) and (d) above shall apply only to events and conditions which
either resulted in (i) a continuing lien or encumbrance on the property of
Borrower or any Guarantor or (ii) otherwise materially affect the Borrower's or
any Guarantor's use or operation of its property or the Borrower's ability to
repay the Indebtedness evidenced by the Note, or any Guarantor's ability to
perform its Guaranty.
4.16 Interest in the Borrowing Base Properties. With
respect to each of the Borrowing Base Properties, the ownership of Borrower or
Guarantor in such property will, with respect to the wells, units and/or tracts
of land described in Exhibit A hereto in connection with such property, (i)
entitle Borrower or Guarantor, as applicable, to receive (subject to the terms
and provisions of this Loan Agreement) a decimal share of the oil and gas
produced from, or allocated to, such wells, units and/or tracts equal to not
less than the decimal share set forth in Exhibit A in connection with such
wells, units and/or tracts, and (ii) cause Borrower or Guarantor, as applicable
to be obligated to bear a decimal share of the cost of exploration, development
and operation of such wells, units and/or tracts of land not greater than the
decimal share set forth in Exhibit A in connection with such wells, units
and/or tracts, unless any increase in Borrower's or Guarantor's share of costs
is accompanied by a pro-rata increase in Borrower's or Guarantor's share of
revenue. Except as set forth in the instrument and agreements, if any, more
particularly described in Exhibit A, all such shares of production which
Borrower or Guarantor is entitled to receive, and shares of expenses which
Borrower or Guarantor is obligated to bear, are not subject to change, except
for changes attributable to future elections by Borrower or Guarantor not to
participate in operations proposed pursuant to customary forms of applicable
joint operating agreements.
4.17 Contracts. Neither the Borrower nor any Guarantor
is obligated, by virtue of any prepayment under any contract providing for the
sale by Borrower or any Guarantor of hydrocarbons which contains a
"take-or-pay" clause or under any similar prepayment agreement or arrangement,
including, without limitation, "gas balancing agreements", to deliver
hydrocarbons produced from the Borrowing Base Properties at some future time
without then or thereafter receiving full payment therefor (i.e., in the case
of oil, not in excess of sixty (60) days, and in the case of gas, not in excess
of ninety (90) days). The Borrowing Base Properties are not subject to any
contractual, or other arrangement for the sale of crude oil which cannot be
cancelled on ninety (90) days' (or less) notice, unless the price provided for
therein is equal to or greater than the prevailing market price in the
vicinity. The Borrowing Base Properties are not subject to any gas sales
contract that contains any material terms which are not customary in the
industry within the region in which the Borrowing Base Properties affected
thereby are located. The Borrowing Base Properties are not subject to any
regulatory refund obligation and no facts exist which might cause the same to
be imposed.
4.18 Producing Wells. All producing wells located on the
Borrowing Base Properties have been drilled, operated and produced in
conformity with all applicable laws, rules, regulations and orders of all
regulatory authorities having jurisdiction, are subject to no penalties on
account of past production, and are bottomed under and are producing from, and
the well bores are wholly within, the Borrowing Base Properties.
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4.19 Ownership of Colombian Oil Properties. Sabacol has
good and indefeasible ownership of the Colombian Oil Properties, free and clear
of any and all liens, claims or encumbrances; and all amounts due and payable
by Sabacol and its predecessors in title to such Colombian Oil Properties have
been duly paid; the obligations relating to such Colombian Oil Properties have
been duly performed; and neither the Borrower nor Sabacol is aware of any
default by any party with respect to such Colombian Oil Properties.
ARTICLE V.
AFFIRMATIVE COVENANTS
The Borrower and each Guarantor covenants, so long as any
Indebtedness of the Borrower to the Bank remains unpaid under this Agreement or
the Bank remains obligated to make advances hereunder, to:
5.01 Use of Funds. Use the proceeds advanced under the
Revolving Loan relating to Borrowing Base I solely for the purposes set forth
on Schedule 5.01(a), and use the proceeds advanced under the Revolving Loan
relating to Borrowing Base II solely for the purposes set forth on Schedule
5.01(b), and furnish the Bank such evidence as it may reasonably require with
respect to such uses.
5.02 Maintenance and Access to Records. Keep adequate
records in accordance with good accounting practices, of all of its
transactions so that at any time, and from time to time, its true and complete
financial condition may be readily determined and, at the Bank's reasonable
request, make all financial records and records relating to the Borrowing Base
Properties and the Colombian Oil Properties available for the Bank's inspection
and permit the Bank to make and take away copies thereof for the Bank's
internal use only and subject to such confidentiality agreements as the
Borrower may reasonably require.
5.03 Quarterly Unaudited Financial Statements. Deliver
to the Bank, on or before the sixtieth (60th) day after the end of each of the
first three fiscal quarters of the Borrower, unaudited Financial Statements of
Borrower and all of its Subsidiaries on a consolidated basis as at the end of
such period and from the beginning of such fiscal year to the end of the
respective period, as applicable, which Financial Statements shall be certified
by the president or chief financial officer of Borrower as being true and
correct, subject to changes resulting from year-end audit adjustments.
5.04 Annual Audited Financial Statements. Deliver to the
Bank, on or before the one hundred and twentieth (120th) day after the close of
each fiscal year of the Borrower, a copy of annual audited Financial Statements
of the Borrower and all of its Subsidiaries on a consolidated basis, together
with the report and unqualified opinion thereon of a firm of independent
certified public accountants acceptable to the Bank at its sole discretion.
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5.05 Information to Accompany Financial Statements. All
Financial Statements delivered in accordance with Sections 5.03 and 5.04 shall
be accompanied by: (a) a quarterly consolidating balance sheet and income
statement of Borrower and its Subsidiaries, (b) quarterly accounts payable and
accounts receivable agings for Borrower and its Subsidiaries, and (c) all
reports filed by Borrower or any Subsidiary with the Securities and Exchange
Commission.
5.06 Compliance Certificate. Deliver to the Bank a
Compliance Certificate: (a) at the time of Borrower's execution of this
Agreement, (b) at the time of delivery of the unaudited Financial Statements
pursuant to Section 5.03 above, (c) at the time of delivery of the annual
audited Financial Statements pursuant to Section 5.04 above, (d) with each
Request for Advance, and (e) on the Conversion Date.
5.07 Statement of Material Adverse Change in Condition.
Deliver to the Bank, promptly upon any officer of the Borrower, or any
Guarantor, having knowledge of any material adverse change in the condition,
financial or otherwise, of the Borrower or any of its Subsidiaries (or any
event or circumstance that would result in any such material adverse change in
condition including, but not limited to, litigation and changes in business), a
statement of the President of the Borrower (or the applicable Subsidiary),
setting forth the change in condition or event or circumstance likely to result
in any such change and the steps being taken by the Borrower or the applicable
Subsidiary with respect to such change in condition or event or circumstance.
5.08 Title Defects. Cure any title defects to the
Borrowing Base Properties material in value, in the sole, but reasonable
opinion of the Bank, and, in the event any title defects are not cured in a
timely manner, pay all related costs and fees incurred by the Bank to do so,
unless the Borrower excludes such Oil and Gas Properties from the Borrowing
Base and reduces the Revolving Commitment (if required) pursuant to Section
2.15.
5.09 Additional Information. Furnish to the Bank,
promptly upon the Bank's reasonable request, such additional financial or other
information concerning the assets, liabilities, operations, and transactions of
the Borrower and of each Guarantor in Borrower's possession or to which
Borrower has access, including, without limitation, information concerning
title to any of the Borrowing Base Properties and the Colombian Oil Properties.
5.10 Compliance with Laws and Payment of Assessments and
Charges. Comply with all applicable statutes and government regulations,
including, without limitation, ERISA, and pay all taxes, assessments,
governmental charges, claims for labor, supplies, rent, its share of all costs
and expenses incurred under any joint operating agreement, and other
obligations which, if unpaid, might become a lien against its property, except
any of the foregoing being contested in good faith and as to which satisfactory
accruals have been provided and unless failure to comply or pay would not have
a material adverse effect on the assets of the Borrower and Guarantors (taken
as a whole).
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5.11 Maintenance of Corporate Existence and Good
Standing. Maintain Borrower's and each Guarantor's corporate existence or
qualification and good standing in its jurisdiction of incorporation and in all
jurisdictions wherein the property now owned or hereafter acquired or business
now or hereafter conducted necessitates same, other than those jurisdictions
wherein the failure to so qualify will not have a material adverse effect on
the Borrower or on such Guarantor.
5.12 Further Assurances. Promptly cure any defects in
the execution and delivery of this Agreement, the Note, the Collateral
Documents or any other instrument referred to herein or executed in connection
with the Note, and upon notice, immediately execute and deliver to the Bank,
all such other and further instruments as may be reasonably required or desired
by the Bank from time to time in compliance with the covenants and agreements
made in this Agreement.
5.13 Initial Expenses of the Bank. Pay all fees and
expenses of Hutcheson & Grundy, L.L.P., the special legal counsel for the Bank
incurred in connection with the negotiation and preparation of this Agreement,
the Note, the Collateral Documents or any other instrument referred to herein
or executed in connection with the Note, the satisfaction of the conditions
precedent set forth in Article III of this Agreement and the consummation of
the transactions contemplated in this Agreement.
5.14 Subsequent Expenses of the Bank. Upon request,
promptly reimburse the Bank for all reasonable amounts expended, advanced or
incurred by the Bank to collect the Note or to enforce the rights of the Bank
under this Agreement, the Note, the Collateral Documents or any other
instrument referred to herein or executed in connection with the Note, which
amounts shall be deemed compensatory in nature and liquidated as to amount upon
notice to the Borrower by the Bank and which amounts will include, but not be
limited to, (a) all court costs, (b) attorneys' fees, (c) fees of auditors and
accountants, (d) investigation expenses, (e) internal fees of the Bank's
in-house legal counsel, (f) fees and expenses incurred in connection with the
Bank's participation as a member of the creditors committee in a case commenced
under Title 11 of the United States Code or other similar law of the United
States, the State of Texas or any other jurisdiction, (g) fees and expenses
incurred in connection with lifting the automatic stay prescribed in Section
Section 362 Title 11 of the United States Code, and (h) fees and expenses
incurred in connection with any action pursuant to Section Section 1129 Title
11 of the United States Code, incurred by the Bank in connection with the
collection of any sums due under this Agreement, together with interest at the
Floating Rate per annum, calculated on a basis of a year of three hundred
sixty-five (365) days, on each such amount from the date of notification to the
Borrower that the same was expended, advanced or incurred by the Bank until the
date it is repaid to the Bank, with the obligations under this Section 5.14,
surviving the non-assumption of this Agreement in a case commenced under Title
11 of the United States Code or other similar law of the United States, the
State of Texas or any other jurisdiction and being binding upon the Borrower or
a trustee, receiver or liquidator of any such party appointed in any such case.
5.15 Maintenance of Tangible Property. Maintain all of
its tangible property in good repair and condition and make all necessary
replacements thereof and operate such
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property in a good and workmanlike manner in accordance with standard industry
practices, unless the failure to do so would not have a material adverse effect
on the Borrower and its Subsidiaries (taken as a whole) or the value of the
Borrowing Base Properties or the Colombian Oil Properties.
5.16 Maintenance of Insurance. Continue to maintain, or
cause to be maintained, insurance with respect to the properties and business
of the Borrower and each Guarantor against such liabilities, casualties, risks
and contingencies and in such amounts as is customary in the industry, and in
addition, maintain, or cause to be maintained, business interruption insurance
on the business activities of Sabacol in an amount and form, and underwritten
by an insurer or insurers, as are acceptable to the Bank in its sole
discretion, and furnish to the Bank, at the execution of this Agreement and
annually thereafter, certificates evidencing such insurance.
5.17 Inspection of Tangible Assets. Permit any
authorized representative of the Bank, at its own risk, to visit and inspect
any tangible asset of the Borrower and each Guarantor.
5.18 Payment of Note and Performance of Obligations. As
to Borrower, pay the Note according to the reading, tenor and effect thereof,
as modified hereby, and do and perform every act and discharge all of the
obligations provided to be performed and discharged hereunder.
5.19 ERISA Reports. Promptly after the filing or
receiving thereof, copies of all reports, including annual reports, and notices
which the Borrower or any Guarantor files with or receives from the PBGC or the
U.S. Department of Labor under ERISA; and promptly after the Borrower or any
Guarantor knows or has reason to know that any Reportable Event or Prohibited
Transaction has occurred with respect to any plan or that the PBGC or the
Borrower or any Guarantor has instituted or will institute proceedings under
Title IV of ERISA to terminate any plan, the Borrower will deliver to the Bank
a certificate of the chief financial officer of the Borrower setting forth
details as to such Reportable Event or Prohibited Transaction or plan
termination and the action the Borrower or the applicable Guarantor proposes to
take with respect thereto.
5.20 Tangible Net Worth Requirement. Maintain a total
tangible net worth (being total assets of the Borrower and its Subsidiaries,
exclusive of (a) those assets classified as intangible, including, without
limitation, goodwill, patents, trademarks, trade names, copyrights, franchises
and deferred charges, (b) treasury stock and minority interests in any Person,
(c) cash set apart and held in a sinking or other analogous fund established
for the purpose of redemption or other retirement of capital stock, (d) to the
extent not already deducted from total assets, allowances for depreciation,
depletion, obsolescence and/or amortization of properties, uncollectible
accounts, and contingent but probable liabilities as to which an amount can be
established, (e) deferred taxes and (f) all assets arising from advances to
officers, former officers or sales representatives of the Borrower and its
Subsidiaries made outside of the ordinary course of business less total
liabilities of Borrower and its Subsidiaries; all of the above being
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determined in accordance with GAAP, of not less than $6,250,000.00 as of June
30, 1995, plus (a) seventy percent (70%) of net income (excluding losses) of
the Borrower and its Subsidiaries after June 30, 1995, and (b) seventy percent
(70%) of any increases in shareholder's equity of the Borrower and its
Subsidiaries resulting from the sale or issuance of any equity subsequent to
June 30, 1995.
5.21 Other Financial Ratios. The Borrower will maintain
the following financial covenants (calculated in accordance with GAAP):
(a) A ratio of Cash Flow to Debt Service of not
less than 1.25. Compliance with this covenant shall
be calculated on a rolling four quarter basis,
beginning with the four quarter period ending
September 30, 1996. For purposes of calculating
this ratio:
(i) "Cash Flow" shall be defined as, for
each calendar quarter, the sum of (1) net
income, plus (2) interest expense, plus (3)
non-cash expenses, less (4) non-cash revenues
of the Borrower calculated on a consolidated
basis, and
(ii) "Debt Service" shall be defined as, for
each calendar quarter, the sum of (1)
interest expense, plus (2) scheduled
principal payments on all recourse debt (not
including debt relating to the Loans), plus
(3) the outstanding principal balance of the
Loans at the end of each fiscal quarter,
divided by 20 prior to the Conversion Date,
and thereafter divided by the actual number
of calendar quarters remaining from the
effective date of such calculation until the
Termination Date; calculated on a
consolidated basis.
(b) A ratio of Consolidated Current Assets
(inclusive of available, unborrowed amounts of the
Revolving Commitment) to Consolidated Current
Liabilities (current ratio) (other than current
maturities of the Loans) of not less than 1.0 to
1.0.
5.22 General and Administrative Expenses. Maintain
consolidated general and administrative expenses at a level that is not greater
than twenty percent (20%) of consolidated revenue for the period. Compliance
with this covenant shall be calculated on a rolling four quarter basis,
beginning with the four quarter period ending September 30, 1996.
5.23 Compliance with Environmental Laws. Comply in all
material respects with any and all requirements of law, including, without
limitation, Environmental Laws, (a) related to any natural or environmental
resource or media located on, above, within, in the vicinity of, related to or
affected by any Borrowing Base Properties or any other property of the Borrower
or Guarantors including, but not limited to, the Colombian Oil Properties, or
(b) required for the performance or conduct of its operations, including,
without limitation, all
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permits, licenses, registrations, approvals and authorizations, and, in this
regard, comply fully and in a timely manner with, and cause all employees, crew
members, agents, contractors, subcontractors and future lessees (pursuant to
appropriate lease provisions) of the Borrower and Guarantors while such Persons
are acting within the scope of their relationship with the Borrower or any such
Guarantors, to so comply with, all requirements of law, including, without
limitation, Environmental Laws, and other requirements with respect to the
property of the Borrower or any Guarantor and the operation thereof necessary
or appropriate to enable the Borrower and Guarantors to fulfill their
respective obligations under all requirements of law, including, without
limitation, Environmental Laws, applicable to the use, generation, handling,
storage, treatment, transport and disposal of any Hazardous Substances now or
hereafter located or present on or under any such property.
5.24 Hazardous Substances Indemnification. Indemnify and
hold the Bank harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial actions, requirements and enforcement actions
of any kind, and all costs and expenses incurred in connection therewith
(including, without limitation, attorneys' fees and expenses), arising directly
or indirectly, in whole or in part, out of (a) the presence of any Hazardous
Substances on, under or from its property, whether prior to or during the term
hereof, or (b) any activity carried on or undertaken on or off its property,
whether prior to or during the term hereof, and whether by the Borrower or any
Guarantor, or any predecessor in title or any employees, agents, contractors or
subcontractors of the Borrower or any Guarantor, or any predecessor in title,
or any third Persons at any time occupying or present on such property, in
connection with the handling, treatment, removal, storage, decontamination,
cleanup, transportation or disposal of any Hazardous Substances at any time
located or present on or under such property; with the foregoing indemnity
further applying to any residual contamination on or under the property of the
Borrower or any Guarantor, or any property of any other Person, or affecting
any natural resources, and to any contamination of any property or natural
resources arising in connection with the generation, use, handling, storage,
transportation or disposal of any Hazardous Substances, irrespective of whether
any of such activities were or will be undertaken in accordance with applicable
requirements of law, including, without limitation, Environmental Laws, and
surviving satisfaction of all Indebtedness of the Borrower to the Bank and the
termination of this Agreement, unless all such Indebtedness has been satisfied
wholly in cash from the Borrower and not by way of realization against any
property or the conveyance of any property of the Borrower or any Guarantor in
lieu thereof, provided, further, that the claims and other actions of any kind
against the Bank which give rise to such indemnity are not barred by the
applicable statute of limitations at the time such claims or actions are
instituted and such indemnity shall not extend to any act or omission by the
Bank or any Affiliate of the Bank or any of the Bank's employees or agents with
respect to the relevant property subsequent to the Bank becoming the owner of,
taking possession of to the exclusion of the Borrower or any Guarantor or
assuming operations of any property previously owned by the Borrower or any
Guarantor and with respect to which property such claim, loss, damage,
liability, fine, penalty, charge, proceeding, order, judgment, action or
requirement arises subsequent to the acquisition of title thereto, taking
possession thereof or assumption of operations thereon by the Bank or any
Affiliate of the Bank or any of the Bank's employees or agents.
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5.25 Properties Not Operated by Borrower or Guarantors.
With regard to all of the Borrower's or each Guarantor's covenants in this
Article V that relate to Oil and Gas Properties for which the Borrower or such
Guarantor is not the operator, to the extent that the performance of such
covenants can only be carried out through the operator, the Borrower or such
Guarantor shall exercise reasonable diligence under the terms of the applicable
operating agreements to cause the operators to satisfy such covenants, but
shall not be directly responsible for doing so.
5.26 Maintenance of Lockbox Accounts. Cause all payments
due them for the sale of oil and gas to be remitted to lockbox accounts
maintained with Bank, provided that Borrower may maintain one or more accounts
with its local banks in California, in an aggregate amount of up to $100,000.00
and additional petty cash accounts of not more than $7,500.00, each, and
$45,000.00 in the aggregate. Bank shall have a security interest in all funds
maintained in such lockbox accounts pursuant to Section 8.01.
5.27 Advances Among Subsidiaries. Concurrent with the
closing of the initial advance of funds from Bank to Borrower hereunder,
Borrower shall cause all inter-company advances among itself and its
Subsidiaries to be repaid from equity contributions by the Borrower or to be
forgiven such that such forgiveness causes a corresponding increase in equity
as to the Borrower.
5.28 Leases. Keep and continue all Leases and contracts
and agreements relating thereto in full force and effect in accordance with the
terms thereof and not permit the same to lapse or otherwise become impaired for
failure to comply with the obligations thereof, whether express or implied.
5.29 Operation of Borrowing Base Properties. Operate or,
to the extent that the right of operation is vested in others, exercise its
best efforts to require the operator to operate the Borrowing Base Properties
and all wells drilled thereon and that may hereafter be drilled thereon,
continuously and in a good and workmanlike manner in accordance with the best
usage of the field and in accordance with all laws of the State in which the
Borrowing Base Properties are situated and the United States of America, as
well as all rules, regulations,and laws of any governmental agency having
jurisdiction to regulate the manner in which the operation of the Borrowing
Base Properties shall be carried on, and comply with all terms and conditions
of the Leases it now holds, and any assignment or contract obligating the
Borrower or Guarantor in any way with respect to the Borrowing Base Properties;
but nothing herein shall be construed to empower the Borrower or Guarantor to
bind the Bank to any contract obligation, or render the Bank in any way
responsible or liable for bills or obligations incurred by the Borrower or
Guarantor.
5.30 Assignments. Upon request of Bank, execute and
deliver written notices of assignments to any persons, corporations or other
entities owing or which may in the future owe to Borrower or Guarantor monies
or accounts arising in connection with any of the following matters: (a) any
oil, gas or mineral production from the Borrowing Base Properties; (b) any gas
contracts, processing contracts or other contracts relating to the Borrowing
Base Properties; or (c) the operation of or production from any part of the
Borrowing Base Properties.
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5.31 Payment Terms. Santa Maria shall pay to Borrower or
any Guarantor, as applicable, within thirty (30) days of the month following
the sale and delivery of any product to Santa Maria, for any and all sales of
crude oil or other products sold by Borrower or any Guarantor to Santa Maria.
5.32 Advances to Santa Maria. Borrower may advance to,
loan to or invest in Santa Maria in an amount up to the amount of proceeds
received from the sale of common equity or the exercise of any options that
Borrower has sold to third-party investors, provided that at the time such
advance, loan or investment is made, no Event of Default or Unmatured Event of
Default exists.
5.33 Operation of Colombian Oil Properties. Operate or,
to the extent that the right of operation is vested in others, exercise its
best efforts to require the Operator to operate the Colombian Oil Properties
and all wells drilled thereon and that may hereafter be drilled thereon,
continuously and in a good and workmanlike manner in accordance with the best
usage of the field and in accordance with all laws of the republic of Colombia,
as well as all rules, regulations,and laws of any governmental agency having
jurisdiction to regulate the manner in which the operation of the Colombian Oil
Properties shall be carried on, and comply with any assignment or contract
obligating the Borrower or Sabacol in any way with respect to the Colombian Oil
Properties; but nothing herein shall be construed to empower the Borrower or
Sabacol to bind the Bank to any contract obligation, or render the Bank in any
way responsible or liable for bills or obligations incurred by the Borrower or
Sabacol.
ARTICLE VI.
NEGATIVE COVENANTS
Without the prior written consent of the Bank and so long as
any part of the principal or interest on the Note shall remain unpaid or the
Bank remains obligated to make advances hereunder, the Borrower and its
Subsidiaries (including Guarantors) will not:
6.01 Other Indebtedness. Incur, create, assume or suffer
to exist any Indebtedness, whether by way of loan or the issuance or sale of
securities except (a) Loans hereunder, (b) loans by the Bank under other credit
arrangements, (c) Indebtedness owed to the Bank by any Affiliates of the
Borrower, (d) unsecured accounts payable incurred in the ordinary course of
business which are not more than sixty (60) days overdue or are being contested
in good faith by appropriate proceedings, (e) non-recourse, unsecured loans not
to exceed $50,000.00 for the purchase by Borrower of property or assets to be
owned by the Borrower, (f) letters of credit or performance bonds required to
be obtained by Borrower in the normal course of its business to assure the
proper plugging and abandonment of oil or gas drilling or production locations,
(g) existing Indebtedness of Santa Maria to the Borrower, (h) subordinated
indebtedness of the Borrower to Capco Resources, Ltd. and Capco Resources, Inc.
for money loaned to the Borrower for a portion of the purchase price of the
Colombian Oil Properties, and (i) the Convertible Senior Subordinated
Debentures issued pursuant to the Registration Statement.
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<PAGE> 43
6.02 Guarantee of Payment or Performance. Guarantee any
contract or obligation of any Person, except for any Indebtedness owed to the
Bank by any Affiliates of the Borrower, and except that the foregoing
restriction shall not apply to endorsements of instruments for collection in
the ordinary course of business.
6.03 Loans or Advances. Except as provided in Section
6.11, make or agree to make or allow to remain outstanding any loans or
advances to any Person, except advances or extensions of credit in the form of
accounts receivable incurred in the ordinary course of business.
6.04 Mortgages or Pledges of Assets. Create, incur,
assume or permit to exist, any mortgage, pledge, security interest, lien or
encumbrance on any of its properties or assets (now owned or hereafter
acquired), except that the foregoing restrictions shall not apply to Permitted
Encumbrances and (a) pledges or deposits in connection with or to secure
workmen's compensation, unemployment insurance, pensions or other employee
benefits, (b) liens securing surety or other bonds required in the normal
course of business not to exceed $100,000.00 in the aggregate at any time in
effect, and (c) liens existing under conditional sale or title retention
contracts for items purchased in the normal course of business.
6.05 Sales of Assets. Sell, lease, assign, transfer or
otherwise dispose of, in one or any series of related transactions, all or any
part of their respective assets if such transfer is material to Borrower's or
any Guarantor's operations, nor all or any portion of its Borrowing Base
Properties or the Colombian Oil Properties, whether now owned or hereafter
acquired, nor enter into any arrangement directly or indirectly, with any
Person to sell and rent or lease back by lessee such property any part thereof
which is intended to be used for substantially the same purpose or purposes as
the property sold or transferred.
6.06 Dividends. Declare or pay any dividend from
Borrower (other than in the form of additional common stock of Borrower) or
make any distribution on, or purchase, redeem (except in an aggregate amount of
not more than $500,000.00) or otherwise acquire for value any share of any
class of the capital stock of Borrower or its Subsidiaries.
6.07 Payment of Accounts Payable. Allow any account
payable to remain unpaid more than sixty (60) days after due date, except such
as are being contested in good faith and as to which adequate provision or
accrual has been made.
6.08 Cancellation of Insurance. Allow any insurance
policy required to be carried hereunder to be terminated or lapse or expire
without provision for adequate renewal thereof.
6.09 Investments. Make Investments in or purchase or
otherwise acquire all or substantially all of the assets of any Person other
than Borrower and its Subsidiaries, or any shares of stock of, or similar
interest in, any Person; except that Borrower is permitted to make the
following Investments: (a) Investments permitted pursuant to Section 6.11, and
(b) Investments made with Available Investment Funds.
-38-
<PAGE> 44
6.10 Changes in Corporate Structure. Consolidate or
merge with or, except as otherwise provided in Section 6.13, purchase (for cash
or securities) all or any part of the assets or capital stock of any
corporation, firm, association or enterprise, or allow any such entity to be
merged into the Borrower or any of its Subsidiaries, nor shall the Borrower or
any of its Subsidiaries cause or permit any change to occur in the ownership of
the capital stock of the Subsidiaries or the basic business operations of the
Borrower or any of its Subsidiaries. Provided, however, the Borrower may
permit any of the foregoing to occur among itself and/or any of its
Subsidiaries.
6.11 Intercompany Investments. Except as otherwise
provided in Section 5.32, make any loans, advances or investments to any
Subsidiary or Affiliate of Borrower who is not a Guarantor exceeding
$500,000.00 in the aggregate.
6.12 Transactions with Affiliates. Enter into any
transaction between or among Borrower and/or any Subsidiaries with any
Affiliate on terms that are less favorable than could be obtained in an
arms-length transaction with a Person that is not an Affiliate.
6.13 Certain Capital Expenditures. Make any capital
expenditures for items other than for the exploration, development or purchase
of Oil and Gas Properties located in the United States or for the purchase of
equipment to facilitate the production of oil or gas owned by Borrower or any
of its Subsidiaries exceeding $300,000.00 annually, on a consolidated basis.
6.14 Limitation on Leases. Incur or otherwise become
obligated to make payments on operating leases in excess of $200,000.00
annually, on a consolidated basis.
6.15 Limitation on Hedging. Sell any of its oil and gas
production forward or otherwise use any third party to hedge the future price
that it may receive for the sale of its oil or gas production.
6.16 Pooling or Unitization. Voluntarily pool or unitize
all or any part of the Borrowing Base Properties where the pooling or
unitization would result in the diminution of Borrower's or the Guarantor's net
revenue interest in production from the pooled or unitized lands, without
Bank's prior consent, which will not be unreasonably withheld. Any
unitization, pooling or communitization or other action or instrument in
violation of this Section 6.16 shall be of no force or effect against the Bank.
6.17 Limitation on Liabilities. Neither Borrower nor any
of the Guarantors will become either directly, indirectly or contingently for
any debts, or liabilities of Santa Maria. This restriction applies not only to
any indebtedness incurred by Santa Maria in connection with the purchase of
assets hereinabove referred from certain Sellers ("Sellers") of the assets but
also includes a prohibition as to any guaranty of performance or indemnities
provided by Santa Maria to the Sellers.
-39-
<PAGE> 45
ARTICLE VII.
EVENTS OF DEFAULT
7.01 Enumeration of Events of Default. Any of the
following events shall be considered an Event of Default as that term is used
herein:
(a) Default shall be made by the Borrower in the payment
of any installment of principal or interest (including, without
limitation, any mandatory prepayment payable pursuant to Section 2.04
and Section 2.05 of this Agreement) on the Note, or any fees or other
monetary obligation payable hereunder, and such default shall remain
unremedied in excess of three (3) days after notice given by the Bank,
(b) Default shall be made by the Borrower or any
Guarantor in the due observance or performance of any affirmative
covenant required in this Agreement, the Note or the Collateral
Documents and such default shall remain unremedied for in excess of
thirty (30) days after the earlier of: (i) such default becoming known
to the Borrower, or (ii) notice given by the Bank. Provided, however,
that if the Borrower has timely commenced and is diligently pursuing a
course of action to cure such default, the Bank shall allow additional
time for the Borrower to cure such default if the Bank in its sole,
reasonable discretion determines that such a cure is likely to result
within a period that will protect the Bank from any material adverse
effect on its rights hereunder or under any Collateral Document;
(c) Default shall be made by the Borrower or any
Guarantor in the due observance or performance of any negative
covenant required in this Agreement, the Note or the Collateral
Documents and such default shall remain unremedied for in excess of
ten (10) days after the earlier of: (i) such default becoming known
to the Borrower, or (ii) notice given by Bank. Provided, however,
that if the Borrower has timely commenced and is diligently pursuing a
course of action to cure such default, the Bank shall allow additional
time for the Borrower to cure such default if the Bank in its sole
reasonable discretion determines such a cure is likely to result
within a period that will protect the Bank from any material adverse
effect on its rights hereunder or under any Collateral Document;
(d) Any representation or warranty herein made by the
Borrower or any Guarantor proves to have been untrue in any respect
material to the Borrower or any Guarantor, or any representation,
statement (including Financial Statements), certificate or data
furnished or made by the Borrower or any Guarantor to the Bank in
connection herewith proves to have been untrue in any respect material
to the Borrower or any Guarantor as of the date the facts therein set
forth were stated or certified;
(e) Default shall be made by the Borrower or any
Subsidiary (as principal or guarantor or other surety) in payment or
performance of any bond, debenture, the Note or any other note or
other evidence of Indebtedness for borrowed money, or under any of the
Collateral Documents, or any other credit agreement, loan agreement,
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<PAGE> 46
indenture, promissory note or similar agreement or instrument executed
in connection with any of the foregoing; and such default shall remain
unremedied for in excess of the period of grace, if any, with respect
thereto, entitling any payee or obligee thereunder to accelerate the
maturity of any such Indebtedness;
(f) The Borrower or any Guarantor applies for or
consents to the appointment of a receiver, trustee or liquidator of it
or all or a substantial part of its assets, or (ii) files a voluntary
petition commencing a case under Title 11 of the United States Code,
seeking liquidation, reorganization or rearrangement or taking
advantage of any bankruptcy, insolvency, debtor's relief or other
similar law of the United States the State of Texas or any other
jurisdiction, or (iii) makes a general assignment for the benefit of
creditors, or (iv) is unable, or admits in writing its inability to
pay its debts generally as they become due, or (v) files an answer
admitting the material allegations of a petition filed against it in
any case commenced under Title 11 of the United States Code or any
reorganization, insolvency, conservatorship or similar proceeding
under any bankruptcy, insolvency, debtor's relief or other similar law
of the United States, the State of Texas or any other jurisdiction;
(g) An order, judgment or decree shall be entered
against the Borrower or any Guarantor by any court of competent
jurisdiction or by any other duly authorized authority, on the
petition of a creditor or otherwise, granting relief under Title 11 of
the United States Code or under any bankruptcy, insolvency, debtor's
relief or other similar law of the United States, the State of Texas
or any other jurisdiction, approving a petition seeking reorganization
or an arrangement of its debts or appointing a receiver, trustee,
conservator, custodian or liquidator of it or all or any substantial
part of its assets, and the failure to have such order, judgment or
decree dismissed within ten (10) days of its entry; or
(h) The Borrower or any Guarantor has concealed,
removed, or permitted to be concealed or removed, any part of its
property, with intent to hinder, delay or defraud its creditors or any
of them; or has made or suffered a transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; or has made any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly
situated have not been paid; or has suffered or permitted, while
insolvent, any creditor to obtain a lien upon any of its property
through legal proceedings or distraint which is not vacated within
thirty (30) days from the date thereof.
7.02 Rights Upon Unmatured Event of Default. At any time
that there exists an Unmatured Event of Default, any obligation of the Bank
hereunder to make advances to or for the benefit of the Borrower shall be
suspended unless and until the Bank shall reinstate the same in writing, the
Unmatured Event of Default shall have been waived by the Bank or the relevant
Unmatured Event of Default shall have been remedied prior to the ripening into
an Event of Default.
7.03 Rights Upon Default. Upon the happening of an Event
of Default specified in Subsections 7.01 (f) or (g), the entire aggregate
principal amount of all Indebtedness
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<PAGE> 47
then outstanding hereunder and the interest accrued thereon shall automatically
become immediately due and payable, and upon the happening and continuation of
any other Event of Default, the Bank may declare the entire aggregate principal
amount of all Indebtedness then outstanding hereunder and the interest accrued
thereon immediately due and payable. In either case, the entire principal and
interest shall thereupon become immediately due and payable, without notice
(including, without limitation, notice of intent to accelerate maturity or
notice of acceleration of maturity) and without presentment, demand, protest,
notice of protest or other notice of default or dishonor of any kind, except as
provided to the contrary elsewhere herein, all of which are hereby expressly
waived by the Borrower and each Guarantor.
Upon the happening and continuation of any Event of Default,
all obligations (if any) of the Bank hereunder, including specifically, but
without limitation, any obligation to make Loans hereunder, shall immediately
cease and terminate unless and until the Bank shall reinstate the same in
writing.
ARTICLE VIII.
MISCELLANEOUS
8.01 Security Interests in Deposits and Right of Offset
or Banker's Lien. The Borrower and each Guarantor hereby transfers, assigns
and pledges to the Bank and/or grants to the Bank a security interest (as
security for the payment and/or performance of the obligations of the Borrower
and each Guarantor under this Agreement and the Note (as to Borrower) and under
each Guaranty (as to each respective Guarantor), with such interest of the Bank
to be retransferred, reassigned and/or released by the Bank at the expense of
the Borrower and each Guarantor upon payment in full and/or complete
performance by the Borrower of all such obligations) and the right, exercisable
at such time as any obligation hereunder shall mature, whether by acceleration
of maturity or otherwise of offset or banker's lien against all funds or other
property of the Borrower and each Guarantor now or hereafter or from time to
time on deposit with or in the possession of the Bank, including, without
limitation, all certificates of deposit and other depository accounts.
8.02 Survival of Representations, Warranties and
Covenants. All representations and warranties of the Borrower and each
Guarantor and all covenants and agreements herein made shall survive the
execution and delivery of the Note and this Agreement and shall remain in force
and effect so long as any debt is outstanding under the Note, or any renewal or
extension of this Agreement or the Note, or the Bank remains obligated to make
advances hereunder.
8.03 Waiver of Rights. Borrower and each Guarantor
hereby expressly waive any and all rights or privileges of marshalling of
assets, sale in inverse order of alienation, notices, appraisements, redemption
and any prerequisite to the full extent permitted by applicable law, in the
event of foreclosure of the lien or liens and/or security interests created by
the Collateral Documents. Bank at all times shall have the right to release
any part of the Borrowing Base Properties now or hereafter subject to the lien
or security interest of any of the Collateral Documents, any part of the
proceeds of production or other income assigned or
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<PAGE> 48
pledged, or any other security it now has or may hereafter have securing the
Obligations, without releasing any other part of the Borrowing Base Properties,
proceeds or income, and without affecting the liens or security interests
described in the Collateral Documents as to the part or parts thereof not so
released, or the right to receive future proceeds and income.
8.04 Notices and Other Communications. Notices, requests
and communications hereunder shall be in writing and shall be sufficient in all
respects if delivered to the relevant address indicated below (including
delivery by registered or certified United States mail, telex, telegram or
hand):
(a) If to the Bank:
BANK ONE, TEXAS, N.A.
910 Travis
Houston, Texas 77002
Attention: Energy Group
Fax: (713) 751-3544
(b) If to the Borrower or any Guarantor:
c/o Saba Petroleum Company
17512 Von Karman Avenue
Irvine, California 92614
Attention: Walton C. Vance
Fax: (714) 724-1555
Any party may, by proper written notice hereunder to the
other, change the individuals or addresses to which such notices to it shall
thereafter be sent.
8.05 Parties in Interest. All covenants and agreements
herein contained by or on behalf of the Borrower and each Guarantor shall be
binding upon the Borrower and each Guarantor and their respective successors
and assigns and inure to the benefit of the Bank and its successors and
assigns.
8.06 Renewals and Extensions. All provisions of this
Agreement relating to the Note shall apply with equal force and effect to each
and all promissory notes hereafter executed which in whole or in part represent
a renewal, extension, amendment, modification or rearrangement of any part of
the Indebtedness originally represented by the Note.
8.07 No Waiver by Bank. No course of dealing on the part
of the Bank, its officers or employees, nor any failure or delay by the Bank
with respect to exercising any of its rights, powers or privileges under this
Agreement, the Note, the Collateral Documents or any other instrument referred
to herein or executed in connection with the Note shall operate as a waiver
thereof. The rights and remedies of the Bank under this Agreement, the Note,
the Collateral Documents or any other instrument referred to herein or executed
in connection with the Note shall be cumulative and the exercise or partial
exercise of any such right or remedy shall not preclude the exercise of any
other right or remedy.
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<PAGE> 49
No advance of Loan proceeds hereunder shall constitute a
waiver of any of the covenants or warranties of the Borrower or any Guarantor
contained herein or of any of the conditions to the Bank's obligation to make
further advances hereunder. In the event that the Borrower or any Guarantor is
unable to satisfy any such covenant, warranty or condition, no such advance of
loan proceeds shall have the effect of precluding the Bank from thereafter
declaring such inability to be an Event of Default as hereinabove provided.
8.08 Indemnification. Borrower and each Guarantor hereby
releases and agrees to indemnify and hold Bank and its officers, employees,
directors and agents (collectively the "Bank Parties") harmless, from and
against all claims, damages, liabilities and expenses, known or unknown,
accrued and unaccrued, unless attributable to the Bank Parties' own negligence
or wilful misconduct, that may now or hereafter be asserted against any of the
Bank Parties in connection with or arising out of any investigation, litigation
or proceeding directly or indirectly relating to or arising out of any of the
transactions contemplated by this Agreement.
8.09 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
8.10 Incorporation of Exhibits. The Exhibits attached to
this Agreement are incorporated herein for all purposes and shall be considered
a part of this Agreement.
8.11 Survival Upon Unenforceability. In the event any
one or more of the provisions contained in this Agreement, the Note, the
Collateral Documents or in any other instrument referred to herein or executed
in connection with the Note shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof or of any other
instrument referred to herein or executed in connection herewith.
8.12 Rights of Third Parties. All provisions herein are
imposed solely and exclusively for the benefit of the Bank, the Borrower and
the Guarantors and no other Person shall have standing to require satisfaction
of such provisions in accordance with their terms or be entitled to assume that
the Bank will refuse to make advances in the absence of strict compliance with
any or all thereof and any or all of such provisions may be freely waived in
whole or in part by the Bank at any time if in its sole discretion it deems it
advisable to do so.
8.13 Amendments or Modifications. Neither this Agreement
nor any provision hereof may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against whom
enforcement of the change, waiver, discharge or termination is sought.
8.14 Agreement Construed as an Entirety. This Agreement,
for convenience only, has been divided into Articles and Sections and it is
understood that the rights, powers, privileges, duties and other legal
relations of the parties hereto shall be determined from this Agreement as an
entirety and without regard to the aforesaid division into Articles and
Sections and without regard to headings prefixed to said Articles or Sections.
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<PAGE> 50
8.15 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural and likewise the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine, and
neuter, when such construction is appropriate, and specific enumeration shall
not exclude the general, but shall be construed as cumulative.
8.16 AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS. THIS
AGREEMENT, TOGETHER WITH THE NOTE, THE COLLATERAL DOCUMENTS, AND THE OTHER LOAN
DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT BETWEEN THE PARTIES
HERETO WITH RESPECT TO THE SUBJECT HEREOF AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO,
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. This Agreement amends and
restates in its entirety the Prior Loan Agreement. The Indebtedness evidenced
by and arising under this Agreement rearranges, renews, and extends, but does
not extinguish, the outstanding Indebtedness existing under the Prior Loan
Agreement. The Existing Mortgages and Security Agreements shall continue to
secure all indebtedness described or referred to therein including, but not
limited to, the obligations of Borrower and Guarantors arising under this
Agreement and all extensions, renewals and increases thereof, and all other
future Indebtedness of Borrower to Bank.
8.17 Controlling Provision Upon Conflict. In the event
of a conflict between the provisions of this Agreement and those of the Note,
the Collateral Documents or any other instrument referred to herein or executed
in connection with the Note, the provisions of this Agreement shall control.
8.18 Time, Place and Method of Payments. All payments
required pursuant to this Agreement or the Note shall be made in immediately
available funds; shall be deemed received by the Bank on the next Business Day
following receipt if such receipt is after 5:00 p.m., on any Business Day, and
shall be made at the principal banking quarters of the Bank.
8.19 Counterpart Execution. This Agreement may be
executed as one instrument signed by all parties or in separate counterparts
hereof, each of which counterparts shall be considered an original and all of
which shall be deemed to be one instrument, and any signed counterpart shall be
deemed delivered by the party signing it if sent to any other party hereto by
electronic facsimile transmission.
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<PAGE> 51
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
BORROWER:
SABA PETROLEUM COMPANY
By: ILYAS CHAUDHARY
---------------------------
Ilyas Chaudhary
Chairman
BANK:
BANK ONE, TEXAS, NA
By: LINDA F. MASERA
---------------------------
Linda F. Masera
Vice-President
GUARANTORS:
SABA ENERGY OF TEXAS, INCORPORATED
By: ILYAS CHAUDHARY
------------------------------
Ilyas Chaudhary
Chairman
SABA PETROLEUM, INC.
By: ILYAS CHAUDHARY
------------------------------
Ilyas Chaudhary
Chairman
SABA PETROLEUM OF MICHIGAN, INC.
By: ILYAS CHAUDHARY
------------------------------
Ilyas Chaudhary
Chairman
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<PAGE> 52
SCHEDULE 1
Existing Mortgages, Financing Statements, Security Agreements and Prior Notes
I. MORTGAGES AND FINANCING STATEMENTS
CALIFORNIA
RECORDING SCHEDULE
<TABLE>
<CAPTION>
INSTRUMENT COUNTY & STATE RECORDING DATE RECORDING INFORMATION
<S> <C> <C> <C>
Deed of Trust, Security Kern, CA 10/26/93 Book 6929/Pg. 2055-2088
Agreement, Financing Statement Orange, CA 11/30/93 #930829482
and Fixture Filing Santa Barbara, CA 10/06/93 #93078431
Financing Statement CA Secretary of State 09/27/93 #93196947
Financing Statement CA Secretary of State 09/__/95 #
-------------
</TABLE>
PAGE 1
<PAGE> 53
MICHIGAN
RECORDING SCHEDULE
<TABLE>
<CAPTION>
INSTRUMENT COUNTY & STATE RECORDING DATE RECORDING INFORMATION
<S> <C> <C> <C>
Mortgage, Assignment of Benzie, MI 09/27/93 Liber 275/Pg. 789-808
Production, Security Agreement, Calhoun, MI 09/24/93 Liber 1704/Pg. 880-931
Assignment of Rents and Leases Eaton, MI 09/24/93 Liber 970/Pg. 796-823
and Financing Statement Grand Traverse, MI 10/04/93 Liber 970/Pg. 33-102
Ingham, MI 09/27/93 Liber 2101/Pg. 410-493
Kalkaska, MI 09/28/93 Liber 318/Pg. 555-586
Manistee, MI 09/28/93 Liber 579/Pg. 896-1101
Mason, MI 09/24/93 Liber 432/Pg. 1012-1082
Mecosta, MI 09/27/93 Liber 524/Pg. 144-165
Muskegon, MI 10/04/93 Liber 1723/Pg. 872-894
Newaygo, MI 09/27/93 Liber 357/Pg. 2129-2149
Oceana, MI 09/24/93 #938981-939020
Ogemaw, MI 09/27/93 Liber 400/Pg. 63
Ostego, MI 09/28/93 Liber 543/Pg. 596
Financing Statement MI Secretary of State 09/24/93 #C761419
Benzie, MI 09/27/93 Liber 275/Pg. 809
Calhoun, MI 09/24/93 Liber 1704/Pg. 932
Eaton, MI 09/24/93 Liber 970/Pg. 824
Grand Traverse, MI 10/04/93 Liber 970/Pg. 103-155
Ingham, MI 09/27/93 Liber 2101/Pg. 494
Kalkaska, MI 09/28/93 Liber 318/Pg. 540-554
Manistee, MI 09/28/93 Liber 580/Pg. 1-189
Mason, MI 09/24/93 #373-93
Mecosta, MI 09/27/93 Liber 524/Pg. 166
Muskegon, MI 10/04/93 Liber 1723/Pg. 866-871
Newaygo, MI 09/27/93 Liber 357/Pg. 2150-2153
Oceana, MI 09/24/93 #938958-938980
Ogemaw, MI 09/27/93 Liber 400/Pg. 85-89
Ostego, MI 09/28/93 Liber 543/Pg. 616-618
</TABLE>
PAGE 2
<PAGE> 54
NEW MEXICO
RECORDING SCHEDULE
<TABLE>
<CAPTION>
INSTRUMENT COUNTY & STATE RECORDING DATE RECORDING INFORMATION
<S> <C> <C> <C>
Mortgage, Assignment of Chaves, NM 09/27/93 Liber 175/Pg. 348-375
Production, Security Agreement Eddy, NM 09/28/93 Book 168/Pg. 428-455
and Financing Statement Lea, NM 09/27/93 Mtg. 601/Pg. 443-472
Financing Statement NM Secretary of State 09/27/93 #1500(2)(1)
#930927047
</TABLE>
PAGE 3
<PAGE> 55
TEXAS
RECORDING SCHEDULE
<TABLE>
<CAPTION>
INSTRUMENT COUNTY & STATE RECORDING DATE RECORDING INFORMATION
<S> <C> <C> <C>
Deed of Trust, Mortgage, Security Crane, TX 09/24/93 Vol. 352/Pg. 747 #58117
Agreement, Financing Statement Hockley, TX 09/28/93 Vol. 215/Pg. 107-129
and Assignment of Production Kent, TX 09/24/93 Vol. 53/Pg. 409
Pecos, TX 09/25/93 Vol. 270/Pg. 135-155
First Amendment to Deed of Trust, La Salle County 05/26/95 Vol. 142/Pg. 477
Mortgage, Security Agreement, Madison County 05/24/95 Vol. 426/Pg. 193
Financing Statement and Matagorda County 05/24/95 Vol. 410/Pg. 837
Assignment of Production
Financing Statement TX Secretary of State 09/24/93 Entry #93-00185913
UCC-3 Financing Statement TX Secretary of State 06/09/95 Entry #95-670474
</TABLE>
II. SECURITY AGREEMENTS
1. Stock Pledge Agreement dated September 20, 1993, between Borrower and
Bank.
2. Pledge of Deposit Account dated September 20, 1993, among Borrower,
Saba Petroleum, Inc. and Saba Energy of Texas, Incorporated, as
Debtor, and Bank, as Secured Party.
3. Stock Pledge Agreement dated September 7, 1995, from Borrower, as
Debtor, to Bank, as Secured Party.
III. PROMISSORY NOTES
1. Promissory Note dated September 20, 1993, in the original principal
sum of $25,000,000.00, executed by Borrower, as Maker, payable to the
order of Bank.
2. Promissory Note dated September 7, 1995, in the original principal sum
of $4,700,000.00, executed by Borrower, as Maker, payable to the order
of Bank.
PAGE 4
<PAGE> 56
SCHEDULE 4.05
Litigation
None
1
<PAGE> 57
SCHEDULE 5.01
Use of Proceeds
(a) Use of Proceeds Advanced Under Borrowing Base I
Loan proceeds advanced under Borrowing Base I will be used for general
corporate purposes to the extent otherwise permitted by this Agreement.
(b) Use of Proceeds Advanced Under Borrowing Base II
Loan proceeds advanced under Borrowing Base II will be used solely to develop
Oil and Gas Properties that are owned by the Guarantors as of the date of this
Agreement, to the extent otherwise permitted by this Agreement.
1
<PAGE> 58
EXHIBIT "A"
COMPLIANCE CERTIFICATE
I, the _______________________ of SABA PETROLEUM COMPANY
(the "Company"), pursuant to Section 5.06 of the First Amended and Restated
Loan Agreement dated as of September 23, 1996, by and between BANK ONE, TEXAS,
NA and the Company, as amended, modified, supplemented or restated from time to
time (the "Agreement"), do hereby certify, as of the date hereof, that to my
knowledge:
1. No Event of Default (as defined in the Agreement) has
occurred and is continuing, and no event has occurred and is
continuing that, with the giving of notice or passage of
time or both, would be an Event of Default except for the
following events (include actions taken to cure such
situations):
______________________________________________________
_____________________________________________________;
2. No material adverse change has occurred in the business
prospects, financial condition, or results of operations of
the Company since the date of the previous Financial
Statements (as defined in the Agreement) provided to Bank
One, Texas, NA except for the following changes (include
actions taken to cure such situations):
______________________________________________________
_____________________________________________________;
3. Each of the representations and warranties of the Company
contained in Article IV of the Agreement is true and correct
in all respects except for the following matters (include
actions taken to cure such situations):
______________________________________________________
_____________________________________________________; and
4. The Company's financial condition for the quarter ending
__________ is as follows:
-1-
<PAGE> 59
<TABLE>
<CAPTION>
Required Actual
Ratio or Ratio or
Financial Covenant Amount Amount
------------------ -------- --------
<S> <C> <C> <C>
(a) Tangible Net Worth at least $6,250,000 __________
plus 70% of (a) net
income (excluding
losses), and
(b) increases in
shareholders' equity
from sale or issuance
of any equity after
June 30, 1995.
(b) Cash Flow to Debt 125% __________
Service Ratio
(c) Current Ratio 1.0 to 1.0 __________
(d) Borrowing Base greater than the __________
unpaid principal
balance of the
Loans
</TABLE>
This certificate is executed this ____ day of ____________,
199__.
BORROWER:
SABA PETROLEUM COMPANY
By:_____________________________________
Ilyas Chaudhary, Chairman
-2-
<PAGE> 60
THE STATE OF ___________ Section
Section
COUNTY OF ______________ Section
SWORN TO AND SUBSCRIBED BEFORE ME, the undersigned Notary
Public, on this ____ day of _______________, 1996, to certify which witness my
hand and official seal.
________________________________________
Notary Public in and for
The State of __________
My Commission Expires: Printed Name of Notary:
_______________________________ ______________________________________
-3-
<PAGE> 61
EXHIBIT "B-1"
PROMISSORY NOTE
$25,000,000.00 Houston, Texas September 23, 1996
FOR VALUE RECEIVED, SABA PETROLEUM COMPANY, a Colorado
corporation, whose address is 17512 Von Karman Avenue, Irvine, California
92614 (herein called "Maker"), promises to pay to the order of BANK ONE, TEXAS,
NA, a national banking association (herein called "Payee," which term shall
also refer to any subsequent owner or holder of this Note), the sum of
TWENTY-FIVE MILLION DOLLARS ($25,000,000.00), or so much thereof as may be
advanced to Maker by Payee (which amount Maker is permitted to borrow pursuant
to that certain First Amended and Restated Loan Agreement, as may be amended,
supplemented, extended, rearranged, renewed, or restated from time to time by
and between Maker and Payee dated of even date herewith (the "Loan
Agreement")), together with interest accruing from the date of advance on the
principal amount from time to time remaining unpaid, at the varying per annum
rate from day to day equal to the lesser of (a) the Maximum Rate (as
hereinafter defined), or (b) the applicable Interest Rate (as defined in the
Loan Agreement), calculated on a year of three hundred sixty-five (365) or
three hundred sixty-six (366) days, as applicable. All payments of both
principal and interest shall be payable to Payee at 910 Travis Street, Houston,
Harris County, Texas 77002, or such other place as Payee may from time to time
designate to Maker in writing.
"Maximum Rate" means the maximum rate of nonusurious interest
from time to time permitted by applicable usury laws, as more fully defined in
the Loan Agreement.
All past due principal hereof and accrued unpaid interest
thereon shall bear interest from the maturity of such principal and interest at
the lesser of (i) the Maximum Rate or (ii) the rate prescribed in Section
2.06(E) of the Loan Agreement, calculated on the basis of a year of three
hundred sixty-five (365) or three hundred sixty-six (366) days, as applicable.
The principal of the indebtedness evidenced hereby and the
interest due thereon shall be repaid in accordance with the terms of the Loan
Agreement.
Each advance by Payee to Maker and each payment of principal
hereunder by Maker shall be reflected by a notation made by Payee on its
records or on a ledger appended to this Note and the aggregate unpaid amount of
advances reflected by said notations shall be deemed rebuttably presumptive
evidence of the principal amount owing under this Note.
______________
Initialled for
-1- Identification
<PAGE> 62
Maker may prepay at any time in whole, or from time to time in
part, and without any premium or penalty therefor, the principal amount hereof
then remaining unpaid together with all accrued interest payable on said
principal so prepaid, all as more fully set forth in the Loan Agreement. Any
such prepayment hereunder shall be applied first to accrued but unpaid interest
on the principal so prepaid, and the balance to principal installments in the
inverse order of maturity, but no part prepayment shall, until this Note is
fully paid and satisfied, affect the obligations to continue to pay the regular
installments required hereunder until the entire indebtedness has been paid.
If any payment hereunder falls due on a Saturday, Sunday or
public holiday on which commercial banks in Houston, Texas are permitted or
required by law to be closed, the time for such payment shall be extended to
the next day on which the Payee is open for business, and such extension of
time shall be included in the calculation of interest accruing and payable
hereunder.
Payment of this Note is secured by the security interests,
mortgages and liens granted by Maker to Payee pursuant to the Loan Agreement,
the terms and conditions of which, together with all amendments and supplements
thereto, are incorporated herein by reference.
Upon happening of an Event of Default (as defined in the Loan
Agreement) specified in Subsections 7.01(f) or (g) of the Loan Agreement, the
entire aggregate principal amount of the indebtedness evidenced hereby and the
interest accrued thereon shall automatically become immediately due and
payable, and during the continuation of any other Event of Default, Payee may
declare the entire aggregate principal amount of all indebtedness then
outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other notice of default or dishonor of any kind, except as provided to the
contrary elsewhere in the Loan Agreement, all of which are hereby expressly
waived by the Maker.
If this Note or any installment hereof is not paid when due
(whether the same becomes due by demand, acceleration or otherwise) and it is
placed in the hands of an attorney for collection, or if collected through any
legal proceedings including but not limited to suit, probate, insolvency or
bankruptcy proceedings, Maker agrees to pay reasonable attorneys' fees and
costs of collection.
______________
Initialled for
-2- Identification
<PAGE> 63
It is the intention of the parties hereto to comply with
applicable usury laws; accordingly, notwithstanding any provision to the
contrary in this Note, or in any of the documents securing payment hereof or
otherwise relating hereto including without limitation the Loan Agreement, in
no event shall this Note or such documents require the payment or permit the
collection of interest in excess of the maximum amount permitted by such law.
If any such excess of interest is contracted for, charged or received under
this Note or under the terms of any of the documents securing payment hereof or
otherwise relating hereto, or in the event the maturity of the indebtedness
evidenced by this Note is accelerated in whole or in part, or in the event that
all or part of the principal or interest of this Note shall be prepaid, so that
under any of such circumstances the amount of interest contracted for, charged
or received under this Note or under any of the instruments securing payment
hereof or otherwise relating hereto, on the amount of principal actually
outstanding from time to time under this Note shall exceed the maximum amount
of interest permitted by applicable usury law, then in any such event (a) the
provisions of this paragraph shall govern and control, (b) neither Maker nor
any other person or entity now or hereafter liable for the payment hereof,
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum amount of interest permitted by applicable usury law,
(c) any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount hereof or refunded to Maker, at
Payee's option, and (d) the effective rate of interest shall be automatically
reduced to the maximum lawful contract rate allowed under applicable usury law
as now or hereafter construed by the courts having jurisdiction thereof.
Without limiting the foregoing, all calculations of the rate of interest
contracted for, charged or received under this Note or under such other
documents which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by law, by amortizing, prorating, allocating and spreading in equal
parts during the period of the full stated term of the indebtedness evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise by Payee in connection with such indebtedness.
Except as otherwise expressly provided to the contrary in the
Loan Agreement, Maker and any and all sureties, guarantors and endorsers of
this Note and all other parties now or hereafter liable hereon, severally waive
grace, demand, presentment for payment, notice of dishonor, notice of intent to
accelerate, notice of acceleration, protest and notice of protest, any other
notice and diligence in collecting and bringing suit against any party hereto
and agree (i) to all extensions and partial payments, with or without notice,
before or after maturity, (ii) to any substitution, exchange or release of any
security now or hereafter given for this Note, (iii) to the release of any
party primarily or
______________
Initialled for
-3- Identification
<PAGE> 64
secondarily liable hereon, and (iv) that it will not be necessary for Payee, in
order to enforce payment of this Note, to first institute or exhaust Payee's
remedies against Maker or any other party liable therefor or against any
security for this Note.
Any check, draft, money order or other instrument given in
payment of all or any portion hereof may be accepted by Payee and handled in
collection in the customary manner, but the same shall not constitute payment
hereunder or diminish any rights of Payee except to the extent that actual cash
proceeds of such instrument are unconditionally received by Payee.
This Note is subject to the terms of the Loan Agreement. The
proceeds of this Note will be advanced to Maker at Maker's special instance and
request for the purposes stated in the Loan Agreement.
This Note is issued in substitution for, and in replacement,
modification, rearrangement, renewal and extension of, but not in
extinguishment of, the outstanding principal indebtedness evidenced by that
certain note of Saba Petroleum Company dated September 20, 1993, payable to the
order of Bank One, Texas, N.A. in the original principal sum of $25,000,000.00,
(the "Prior Note"); it being acknowledged and agreed by Maker that the
indebtedness evidenced by this Note constitutes an extension and renewal of the
outstanding principal indebtedness evidenced by the Prior Note, and that all
security interests and other liens which secure the repayment of the Prior Note
shall continue to secure the indebtedness evidenced by this Note.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE APPLICABLE
INTERNAL LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA; PROVIDED,
HOWEVER, THAT VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH
REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY TO THIS NOTE.
SABA PETROLEUM COMPANY
By:_____________________________
Ilyas Chaudhary, Chairman
-4-
<PAGE> 65
EXHIBIT "B-2"
TERM NOTE
$__________.__ Houston, Texas July 1, 1998
FOR VALUE RECEIVED, SABA PETROLEUM COMPANY, a Colorado
corporation, whose address is 17512 Von Karman Avenue, Irvine, California
92614 (herein called "Maker"), promises to pay to the order of BANK ONE, TEXAS,
NA, a national banking association (herein called "Payee," which term shall
also refer to any subsequent owner or holder of this Note), the sum of
____________ ___________________________________ DOLLARS ($__________.__), in
lawful money of the United States of America, together with interest accruing
from the date of advance on the principal amount from time to time remaining
unpaid, at the varying per annum rate from day to day equal to the lesser of
(a) the Maximum Rate (as hereinafter defined), or (b) the applicable Interest
Rate (as prescribed in the Loan Agreement, hereafter defined), calculated on a
year of three hundred sixty-five (365) or three hundred sixty-six (366) days,
as applicable. All payments of both principal and interest shall be payable to
Payee at 910 Travis Street, Houston, Harris County, Texas 77002, or such other
place as Payee may from time to time designate to Maker in writing.
"Maximum Rate" means the maximum rate of nonusurious interest
from time to time permitted by applicable usury laws, as more fully defined in
the Loan Agreement.
All past due principal hereof and accrued unpaid interest
thereon shall bear interest from the maturity of such principal and interest at
the lesser of (i) the Maximum Rate or (ii) the rate prescribed in Section
2.06(E) of the Loan Agreement, calculated on the basis of a year of three
hundred sixty-five (365) or three hundred sixty-six (366) days, as applicable.
The principal of the indebtedness evidenced hereby shall be
repaid in thirty-six (36) consecutive monthly installments of principal payable
on the first day of each month beginning on August 1, 1998, and continuing
regularly on the first day of each calendar month thereafter until July 1,
2001, when the entire unpaid principal amount hereof shall be due and payable.
The amount of each such monthly payment will be established by the Bank in
accordance with the terms of the Loan Agreement.
Interest shall be paid monthly in arrears on the first day of
each calendar month commencing August 1, 1998, and
-1- ______________
Initialled for
Identification
<PAGE> 66
continuing regularly on the first day of each calendar month thereafter until
July 1, 2001, when the entire amount of accrued, unpaid interest, shall be due
and payable.
Maker may prepay at any time in whole, or from time to time in
part, and without any premium or penalty therefor, the principal amount hereof
then remaining unpaid together with all accrued interest payable on said
principal so prepaid, all as more fully set forth in the Loan Agreement. Any
such prepayment hereunder shall be applied first to accrued but unpaid interest
on the principal so prepaid, and the balance to principal installments in the
inverse order of maturity, but no part prepayment shall, until this Note is
fully paid and satisfied, affect the obligations to continue to pay the regular
installments required hereunder until the entire indebtedness has been paid.
If any payment hereunder falls due on a Saturday, Sunday or
public holiday on which commercial banks in Houston, Texas are permitted or
required by law to be closed, the time for such payment shall be extended to
the next day on which the Payee is open for business, and such extension of
time shall be included in the calculation of interest accruing and payable
hereunder.
Payment of this Note is secured by the security interests,
mortgages and liens granted by Maker to Payee pursuant to the Loan Agreement,
the terms and conditions of which, together with all amendments and supplements
thereto, are incorporated herein by reference.
Upon happening of an Event of Default (as defined in the Loan
Agreement) specified in Subsections 7.01(f) or (g) of the Loan Agreement, the
entire aggregate principal amount of the indebtedness evidenced hereby and the
interest accrued thereon shall automatically become immediately due and
payable, and during the continuation of any other Event of Default, Payee may
declare the entire aggregate principal amount of all indebtedness then
outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other notice of default or dishonor of any kind, except as provided to the
contrary elsewhere in the Loan Agreement, all of which are hereby expressly
waived by the Maker.
If this Note or any installment hereof is not paid when due
(whether the same becomes due by demand, acceleration or otherwise) and it is
placed in the hands of an attorney for collection, or if collected through any
legal proceedings including
-2- ______________
Initialled for
Identification
<PAGE> 67
but not limited to suit, probate, insolvency or bankruptcy proceedings, Maker
agrees to pay reasonable attorneys' fees and costs of collection.
It is the intention of the parties hereto to comply with
applicable usury laws; accordingly, notwithstanding any provision to the
contrary in this Note, or in any of the documents securing payment hereof or
otherwise relating hereto including without limitation the Loan Agreement, in
no event shall this Note or such documents require the payment or permit the
collection of interest in excess of the maximum amount permitted by such law.
If any such excess of interest is contracted for, charged or received under
this Note or under the terms of any of the documents securing payment hereof or
otherwise relating hereto, or in the event the maturity of the indebtedness
evidenced by this Note is accelerated in whole or in part, or in the event that
all or part of the principal or interest of this Note shall be prepaid, so that
under any of such circumstances the amount of interest contracted for, charged
or received under this Note or under any of the instruments securing payment
hereof or otherwise relating hereto, on the amount of principal actually
outstanding from time to time under this Note shall exceed the maximum amount
of interest permitted by applicable usury law, then in any such event (a) the
provisions of this paragraph shall govern and control, (b) neither Maker nor
any other person or entity now or hereafter liable for the payment hereof,
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum amount of interest permitted by applicable usury law,
(c) any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount hereof or refunded to Maker, at
Payee's option, and (d) the effective rate of interest shall be automatically
reduced to the maximum lawful contract rate allowed under applicable usury law
as now or hereafter construed by the courts having jurisdiction thereof.
Without limiting the foregoing, all calculations of the rate of interest
contracted for, charged or received under this Note or under such other
documents which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by law, by amortizing, prorating, allocating and spreading in equal
parts during the period of the full stated term of the indebtedness evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise by Payee in connection with such indebtedness.
Except as otherwise expressly provided to the contrary in the
Loan Agreement, Maker and any and all sureties, guarantors and endorsers of
this Note and all other parties now or hereafter liable hereon, severally waive
grace, demand, presentment for payment, notice of dishonor, notice of intent to
accelerate, notice of acceleration, protest and notice of protest, any other
notice
-3- ______________
Initialled for
Identification
<PAGE> 68
and diligence in collecting and bringing suit against any party hereto and
agree (i) to all extensions and partial payments, with or without notice,
before or after maturity, (ii) to any substitution, exchange or release of any
security now or hereafter given for this Note, (iii) to the release of any
party primarily or secondarily liable hereon, and (iv) that it will not be
necessary for Payee, in order to enforce payment of this Note, to first
institute or exhaust Payee's remedies against Maker or any other party liable
therefor or against any security for this Note.
Any check, draft, money order or other instrument given in
payment of all or any portion hereof may be accepted by Payee and handled in
collection in the customary manner, but the same shall not constitute payment
hereunder or diminish any rights of Payee except to the extent that actual cash
proceeds of such instrument are unconditionally received by Payee.
This Note is issued in substitution for, and in replacement,
modification, rearrangement, renewal and extension of, but not in
extinguishment of, the unpaid balance of a promissory note in the original
principal sum of $25,000,000.00, dated September 23, 1996, executed by Maker
and payable to the order of Payee, as more fully described in the First Amended
and Restated Loan Agreement dated September 23, 1996, between Maker and Payee
(as from time to time amended, renewed, extended, and restated, the "Loan
Agreement") and represents sums in cash advanced to Maker at Maker's special
instance and request in accordance with the Loan Agreement.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE APPLICABLE
INTERNAL LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA; PROVIDED,
HOWEVER, THAT VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH
REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY TO THIS NOTE.
SABA PETROLEUM COMPANY
By:_____________________________
Ilyas Chaudhary, Chairman
-4-
<PAGE> 69
EXHIBIT "C"
RATIFICATION OF GUARANTY AGREEMENT
This Ratification of Guaranty Agreement ("Ratification") is
made and entered into as of the 23rd day of September, 1996, by and between
_________________________, a _________________ corporation which has an address
of 17512 Von Karman Avenue, Irvine, California 92614 (hereinafter called
"Guarantor") in connection with that certain First Amended and Restated Loan
Agreement dated effective September 23, 1996 (as restated, amended, modified,
renewed and rearranged from time to time, the "Loan Agreement").
Reference is hereby made to that certain Guaranty Agreement
(the "Guaranty Agreement") by Guarantor dated the 20th day of September, 1993,
with respect to the indebtedness of SABA PETROLEUM COMPANY, a Texas corporation
(hereinafter called "Borrower") to BANK ONE, TEXAS, N.A., a national banking
association, with offices and banking quarters at 910 Travis, Houston, Texas
77002 (hereinafter called "Lender"), including, without limitation, the
indebtedness described in that certain Loan Agreement dated September 20, 1993,
as amended, which has been replaced by the Loan Agreement defined above.
The Guarantor expressly ratifies and confirms its liability
under the Guaranty Agreement and confirms that the same continues in full force
and effect with respect to the indebtedness covered by the Loan Agreement, as
same may be restated, amended, modified, renewed, or rearranged from time to
time.
The Guaranty Agreement shall remain unchanged and the terms,
conditions, representations, warranties, and covenants of said Guaranty
Agreement are true as of the date hereof, are ratified and confirmed in all
respects and shall be continuing and binding upon the parties. [Guarantor
specifically acknowledges and agrees that Saba Petroleum of Michigan, Inc.,
another guarantor of the indebtedness evidenced by the Loan Agreement, may soon
be released by Lender from its guarantee obligations to Lender, and that such
release shall in no way limit or otherwise modify Guarantor's obligations
hereunder.]1
This Ratification is executed and delivered to the Lender for
the purpose of inducing the Lender to continue to provide credit to the
Borrower. Furthermore, the Guarantor is fully aware that, but for the
representations and agreements contained herein, the Lender would not extend
such additional credit to the Borrower.
This Ratification shall be deemed to be a contract under and
subject to, and shall be construed for all purposes in accordance with, the
laws of the State of Texas.
____________________
1 Bracketed language will not be included in the
Ratification by Saba Petroleum of Michigan, Inc.
<PAGE> 70
IN WITNESS WHEREOF, the Guarantor has caused this Ratification
to be executed by its duly authorized officer on September 23, 1996.
SABA PETROLEUM, INC.
By:_________________________________
Ilyas Chaudhary, Chairman
-2-
<PAGE> 71
EXHIBIT _____
PROMISSORY NOTE
$25,000,000.00 Houston, Texas September 23, 1996
FOR VALUE RECEIVED, SABA PETROLEUM COMPANY, a Colorado
corporation, whose address is 17512 Von Karman Avenue, Irvine, California
92614 (herein called "Maker"), promises to pay to the order of BANK ONE, TEXAS,
NA, a national banking association (herein called "Payee," which term shall
also refer to any subsequent owner or holder of this Note), the sum of
TWENTY-FIVE MILLION DOLLARS ($25,000,000.00), or so much thereof as may be
advanced to Maker by Payee (which amount Maker is permitted to borrow pursuant
to that certain First Amended and Restated Loan Agreement, as may be amended,
supplemented, extended, rearranged, renewed, or restated from time to time by
and between Maker and Payee dated of even date herewith (the "Loan
Agreement")), together with interest accruing from the date of advance on the
principal amount from time to time remaining unpaid, at the varying per annum
rate from day to day equal to the lesser of (a) the Maximum Rate (as
hereinafter defined), or (b) the applicable Interest Rate (as defined in the
Loan Agreement), calculated on a year of three hundred sixty-five (365) or
three hundred sixty-six (366) days, as applicable. All payments of both
principal and interest shall be payable to Payee at 910 Travis Street, Houston,
Harris County, Texas 77002, or such other place as Payee may from time to time
designate to Maker in writing.
"Maximum Rate" means the maximum rate of nonusurious interest
from time to time permitted by applicable usury laws, as more fully defined in
the Loan Agreement.
All past due principal hereof and accrued unpaid interest
thereon shall bear interest from the maturity of such principal and interest at
the lesser of (i) the Maximum Rate or (ii) the rate prescribed in Section
2.06(E) of the Loan Agreement, calculated on the basis of a year of three
hundred sixty-five (365) or three hundred sixty-six (366) days, as applicable.
The principal of the indebtedness evidenced hereby and the
interest due thereon shall be repaid in accordance with the terms of the Loan
Agreement.
Each advance by Payee to Maker and each payment of principal
hereunder by Maker shall be reflected by a notation made by Payee on its
records or on a ledger appended to this Note and the aggregate unpaid amount of
advances reflected by said notations shall be deemed rebuttably presumptive
evidence of the principal amount owing under this Note.
______________
Initialled for
-1- Identification
<PAGE> 72
Maker may prepay at any time in whole, or from time to time in
part, and without any premium or penalty therefor, the principal amount hereof
then remaining unpaid together with all accrued interest payable on said
principal so prepaid, all as more fully set forth in the Loan Agreement. Any
such prepayment hereunder shall be applied first to accrued but unpaid interest
on the principal so prepaid, and the balance to principal installments in the
inverse order of maturity, but no part prepayment shall, until this Note is
fully paid and satisfied, affect the obligations to continue to pay the regular
installments required hereunder until the entire indebtedness has been paid.
If any payment hereunder falls due on a Saturday, Sunday or
public holiday on which commercial banks in Houston, Texas are permitted or
required by law to be closed, the time for such payment shall be extended to
the next day on which the Payee is open for business, and such extension of
time shall be included in the calculation of interest accruing and payable
hereunder.
Payment of this Note is secured by the security interests,
mortgages and liens granted by Maker to Payee pursuant to the Loan Agreement,
the terms and conditions of which, together with all amendments and supplements
thereto, are incorporated herein by reference.
Upon happening of an Event of Default (as defined in the Loan
Agreement) specified in Subsections 7.01(f) or (g) of the Loan Agreement, the
entire aggregate principal amount of the indebtedness evidenced hereby and the
interest accrued thereon shall automatically become immediately due and
payable, and during the continuation of any other Event of Default, Payee may
declare the entire aggregate principal amount of all indebtedness then
outstanding hereunder and the interest accrued thereon immediately due and
payable. In either case, the entire principal and interest shall thereupon
become immediately due and payable, without notice (including, without
limitation, notice of intent to accelerate maturity or notice of acceleration
of maturity) and without presentment, demand, protest, notice of protest or
other notice of default or dishonor of any kind, except as provided to the
contrary elsewhere in the Loan Agreement, all of which are hereby expressly
waived by the Maker.
If this Note or any installment hereof is not paid when due
(whether the same becomes due by demand, acceleration or otherwise) and it is
placed in the hands of an attorney for collection, or if collected through any
legal proceedings including but not limited to suit, probate, insolvency or
bankruptcy proceedings, Maker agrees to pay reasonable attorneys' fees and
costs of collection.
______________
Initialled for
-2- Identification
<PAGE> 73
It is the intention of the parties hereto to comply with
applicable usury laws; accordingly, notwithstanding any provision to the
contrary in this Note, or in any of the documents securing payment hereof or
otherwise relating hereto including without limitation the Loan Agreement, in
no event shall this Note or such documents require the payment or permit the
collection of interest in excess of the maximum amount permitted by such law.
If any such excess of interest is contracted for, charged or received under
this Note or under the terms of any of the documents securing payment hereof or
otherwise relating hereto, or in the event the maturity of the indebtedness
evidenced by this Note is accelerated in whole or in part, or in the event that
all or part of the principal or interest of this Note shall be prepaid, so that
under any of such circumstances the amount of interest contracted for, charged
or received under this Note or under any of the instruments securing payment
hereof or otherwise relating hereto, on the amount of principal actually
outstanding from time to time under this Note shall exceed the maximum amount
of interest permitted by applicable usury law, then in any such event (a) the
provisions of this paragraph shall govern and control, (b) neither Maker nor
any other person or entity now or hereafter liable for the payment hereof,
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum amount of interest permitted by applicable usury law,
(c) any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount hereof or refunded to Maker, at
Payee's option, and (d) the effective rate of interest shall be automatically
reduced to the maximum lawful contract rate allowed under applicable usury law
as now or hereafter construed by the courts having jurisdiction thereof.
Without limiting the foregoing, all calculations of the rate of interest
contracted for, charged or received under this Note or under such other
documents which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by law, by amortizing, prorating, allocating and spreading in equal
parts during the period of the full stated term of the indebtedness evidenced
hereby, all interest at any time contracted for, charged or received from Maker
or otherwise by Payee in connection with such indebtedness.
Except as otherwise expressly provided to the contrary in the
Loan Agreement, Maker and any and all sureties, guarantors and endorsers of
this Note and all other parties now or hereafter liable hereon, severally waive
grace, demand, presentment for payment, notice of dishonor, notice of intent to
accelerate, notice of acceleration, protest and notice of protest, any other
notice and diligence in collecting and bringing suit against any party hereto
and agree (i) to all extensions and partial payments, with or without notice,
before or after maturity, (ii) to any substitution, exchange or release of any
security now or hereafter given for this Note, (iii) to the release of any
party primarily or
______________
Initialled for
-3- Identification
<PAGE> 74
secondarily liable hereon, and (iv) that it will not be necessary for Payee, in
order to enforce payment of this Note, to first institute or exhaust Payee's
remedies against Maker or any other party liable therefor or against any
security for this Note.
Any check, draft, money order or other instrument given in
payment of all or any portion hereof may be accepted by Payee and handled in
collection in the customary manner, but the same shall not constitute payment
hereunder or diminish any rights of Payee except to the extent that actual cash
proceeds of such instrument are unconditionally received by Payee.
This Note is subject to the terms of the Loan Agreement. The
proceeds of this Note will be advanced to Maker at Maker's special instance and
request for the purposes stated in the Loan Agreement.
This Note is issued in substitution for, and in replacement,
modification, rearrangement, renewal and extension of, but not in
extinguishment of, the outstanding principal indebtedness evidenced by that
certain note of Saba Petroleum Company dated September 20, 1993, payable to the
order of Bank One, Texas, N.A. in the original principal sum of $25,000,000.00,
(the "Prior Note"); it being acknowledged and agreed by Maker that the
indebtedness evidenced by this Note constitutes an extension and renewal of the
outstanding principal indebtedness evidenced by the Prior Note, and that all
security interests and other liens which secure the repayment of the Prior Note
shall continue to secure the indebtedness evidenced by this Note.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE APPLICABLE
INTERNAL LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA; PROVIDED,
HOWEVER, THAT VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH
REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY TO THIS NOTE.
SABA PETROLEUM COMPANY
By: ILYAS CHAUDHARY
-----------------------------
Ilyas Chaudhary, Chairman
-4-
<PAGE> 75
EXHIBIT ______________
COMPLIANCE CERTIFICATE
I, Ilyas Chaudhary, the Chairman of SABA PETROLEUM COMPANY
(the "Company"), pursuant to Section 5.06 of the First Amended and Restated
Loan Agreement dated as of September 23, 1996, by and between BANK ONE, TEXAS,
NA and the Company, as amended, modified, supplemented or restated from time to
time (the "Agreement"), do hereby certify, as of the date hereof, that to my
knowledge:
1. No Event of Default (as defined in the Agreement) has occurred
and is continuing, and no event has occurred and is continuing
that, with the giving of notice or passage of time or both,
would be an Event of Default;
2. No material adverse change has occurred in the business
prospects, financial condition, or results of operations of
the Company since the date of the previous Financial
Statements (as defined in the Agreement) provided to Bank One,
Texas, NA;
3. Each of the representations and warranties of the Company
contained in Article IV of the Agreement is true and correct
in all respects.
This certificate is executed this 23rd day of September, 1996.
BORROWER:
SABA PETROLEUM COMPANY
By: ILYAS CHAUDHARY
---------------------------------
Ilyas Chaudhary, Chairman
-1-
<PAGE> 76
THE STATE OF TEXAS Section
Section
COUNTY OF HARRIS Section
SWORN TO AND SUBSCRIBED BEFORE ME, the undersigned Notary
Public, on this 23rd day of September, 1996, to certify which witness my hand
and official seal.
KAREN L. SMITH
----------------------------------------
Notary Public in and for
The State of Texas
My Commission Expires: Printed Name of Notary:
12-16-98 KAREN L. SMITH
- -------------------------- ----------------------------------------
[SEAL]
-2-
<PAGE> 77
EXHIBIT __________
Saba Petroleum of Michigan, Inc.
RATIFICATION OF GUARANTY AGREEMENT
This Ratification of Guaranty Agreement ("Ratification") is
made and entered into as of the 23rd day of September, 1996, by and between
Saba Petroleum of Michigan, Inc., a Michigan corporation which has an address
of 17512 Von Karman Avenue, Irvine, California 92614 (hereinafter called
"Guarantor") in connection with that certain First Amended and Restated Loan
Agreement dated effective September 23, 1996 (as restated, amended, modified,
renewed and rearranged from time to time, the "Loan Agreement").
Reference is hereby made to that certain Guaranty Agreement
(the "Guaranty Agreement") by Guarantor dated the 20th day of September, 1993,
with respect to the indebtedness of SABA PETROLEUM COMPANY, a Texas corporation
(hereinafter called "Borrower") to BANK ONE, TEXAS, N.A., a national banking
association, with offices and banking quarters at 910 Travis, Houston, Texas
77002 (hereinafter called "Lender"), including, without limitation, the
indebtedness described in that certain Loan Agreement dated September 20, 1993,
as amended, which has been replaced by the Loan Agreement defined above.
The Guarantor expressly ratifies and confirms its liability
under the Guaranty Agreement and confirms that the same continues in full force
and effect with respect to the indebtedness covered by the Loan Agreement, as
same may be restated, amended, modified, renewed, or rearranged from time to
time.
The Guaranty Agreement shall remain unchanged and the terms,
conditions, representations, warranties, and covenants of said Guaranty
Agreement are true as of the date hereof, are ratified and confirmed in all
respects and shall be continuing and binding upon the parties.
This Ratification is executed and delivered to the Lender for
the purpose of inducing the Lender to continue to provide credit to the
Borrower. Furthermore, the Guarantor is fully aware that, but for the
representations and agreements contained herein, the Lender would not extend
such additional credit to the Borrower.
This Ratification shall be deemed to be a contract under and
subject to, and shall be construed for all purposes in accordance with, the
laws of the State of Texas.
<PAGE> 78
IN WITNESS WHEREOF, the Guarantor has caused this Ratification
to be executed by its duly authorized officer on September 23, 1996.
SABA PETROLEUM OF MICHIGAN, INC.
By: ILYAS CHAUDHARY
-----------------------------------
Ilyas Chaudhary, Chairman
2
<PAGE> 79
EXHIBIT __________
Saba Petroleum, Inc.
RATIFICATION OF GUARANTY AGREEMENT
This Ratification of Guaranty Agreement ("Ratification") is
made and entered into as of the 23rd day of September, 1996, by and between
Saba Petroleum, Inc., a California corporation which has an address of 17512
Von Karman Avenue, Irvine, California 92614 (hereinafter called "Guarantor") in
connection with that certain First Amended and Restated Loan Agreement dated
effective September 23, 1996 (as restated, amended, modified, renewed and
rearranged from time to time, the "Loan Agreement").
Reference is hereby made to that certain Guaranty Agreement
(the "Guaranty Agreement") by Guarantor dated the 20th day of September, 1993,
with respect to the indebtedness of SABA PETROLEUM COMPANY, a Texas corporation
(hereinafter called "Borrower") to BANK ONE, TEXAS, N.A., a national banking
association, with offices and banking quarters at 910 Travis, Houston, Texas
77002 (hereinafter called "Lender"), including, without limitation, the
indebtedness described in that certain Loan Agreement dated September 20, 1993,
as amended, which has been replaced by the Loan Agreement defined above.
The Guarantor expressly ratifies and confirms its liability
under the Guaranty Agreement and confirms that the same continues in full force
and effect with respect to the indebtedness covered by the Loan Agreement, as
same may be restated, amended, modified, renewed, or rearranged from time to
time.
The Guaranty Agreement shall remain unchanged and the terms,
conditions, representations, warranties, and covenants of said Guaranty
Agreement are true as of the date hereof, are ratified and confirmed in all
respects and shall be continuing and binding upon the parties. Guarantor
specifically acknowledges and agrees that Saba Petroleum of Michigan, Inc.,
another guarantor of the indebtedness evidenced by the Loan Agreement, may soon
be released by Lender from its guarantee obligations to Lender, and that such
release shall in no way limit or otherwise modify Guarantor's obligations
hereunder.
This Ratification is executed and delivered to the Lender for
the purpose of inducing the Lender to continue to provide credit to the
Borrower. Furthermore, the Guarantor is fully aware that, but for the
representations and agreements contained herein, the Lender would not extend
such additional credit to the Borrower.
This Ratification shall be deemed to be a contract under and
subject to, and shall be construed for all purposes in accordance with, the
laws of the State of Texas.
<PAGE> 80
IN WITNESS WHEREOF, the Guarantor has caused this Ratification
to be executed by its duly authorized officer on September 23, 1996.
SABA PETROLEUM, INC.
By: ILYAS CHAUDHARY
---------------------------------
Ilyas Chaudhary, Chairman
2
<PAGE> 81
EXHIBIT __________
Saba Energy of Texas,
Incorporated
RATIFICATION OF GUARANTY AGREEMENT
This Ratification of Guaranty Agreement ("Ratification") is
made and entered into as of the 23rd day of September, 1996, by and between
Saba Energy of Texas, Incorporated, a Texas corporation which has an address of
17512 Von Karman Avenue, Irvine, California 92614 (hereinafter called
"Guarantor") in connection with that certain First Amended and Restated Loan
Agreement dated effective September 23, 1996 (as restated, amended, modified,
renewed and rearranged from time to time, the "Loan Agreement").
Reference is hereby made to that certain Guaranty Agreement
(the "Guaranty Agreement") by Guarantor dated the 20th day of September, 1993,
with respect to the indebtedness of SABA PETROLEUM COMPANY, a Texas corporation
(hereinafter called "Borrower") to BANK ONE, TEXAS, N.A., a national banking
association, with offices and banking quarters at 910 Travis, Houston, Texas
77002 (hereinafter called "Lender"), including, without limitation, the
indebtedness described in that certain Loan Agreement dated September 20, 1993,
as amended, which has been replaced by the Loan Agreement defined above.
The Guarantor expressly ratifies and confirms its liability
under the Guaranty Agreement and confirms that the same continues in full force
and effect with respect to the indebtedness covered by the Loan Agreement, as
same may be restated, amended, modified, renewed, or rearranged from time to
time.
The Guaranty Agreement shall remain unchanged and the terms,
conditions, representations, warranties, and covenants of said Guaranty
Agreement are true as of the date hereof, are ratified and confirmed in all
respects and shall be continuing and binding upon the parties. Guarantor
specifically acknowledges and agrees that Saba Petroleum of Michigan, Inc.,
another guarantor of the indebtedness evidenced by the Loan Agreement, may soon
be released by Lender from its guarantee obligations to Lender, and that such
release shall in no way limit or otherwise modify Guarantor's obligations
hereunder.
This Ratification is executed and delivered to the Lender for
the purpose of inducing the Lender to continue to provide credit to the
Borrower. Furthermore, the Guarantor is fully aware that, but for the
representations and agreements contained herein, the Lender would not extend
such additional credit to the Borrower.
This Ratification shall be deemed to be a contract under and
subject to, and shall be construed for all purposes in accordance with, the
laws of the State of Texas.
<PAGE> 82
IN WITNESS WHEREOF, the Guarantor has caused this Ratification
to be executed by its duly authorized officer on September 23, 1996.
SABA ENERGY OF TEXAS, INCORPORATED
By: ILYAS CHAUDHARY
---------------------------------
Ilyas Chaudhary, Chairman
2
<PAGE> 83
EXHIBIT __________
NOTICE OF FINAL AGREEMENT
TO: SABA PETROLEUM COMPANY
17512 Von Karman Avenue
Irvine, California 92714
(collectively, whether one or more, "Borrower")
As of the effective date of this Notice, Borrower and BANK ONE, TEXAS, NATIONAL
ASSOCIATION ("Bank") have consummated a transaction pursuant to which Bank has
agreed to make a loan or loans to Borrower, or to renew and amend an existing
loan or loans to Borrower, in an aggregate amount up to Eleven Million Four
Hundred Thousand Dollars ($11,400,000.00), which is comprised of a revolving
loan in that amount (the "Loan").
In connection with the Loan, Borrower and Bank and the guarantors and other
obligors, if any (collectively, whether one or more, "Other Obligors") have
executed and delivered certain agreements, instruments and documents
(collectively hereinafter referred to as the "Written Loan Agreement").
It is the intention of Borrower, Bank and Other Obligors that this Notice be
incorporated by reference into each of the written agreements, instruments and
documents comprising the Written Loan Agreement. Borrower, Bank and Other
Obligors each warrants and represents that the entire agreement made and
existing by or among Borrower, Bank and Other Obligors with respect to the Loan
is contained within the Written Loan Agreement, as amended and supplemented
hereby, and that no agreements or promises have been made by, or exist by or
among, Borrower, Bank and Other Obligors that are not reflected in the Written
Loan Agreement.
THE 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.
Effective Date: September 23, 1996.
ACKNOWLEDGED AND AGREED BANK ONE, TEXAS, NA
Borrower:
By: LINDA F. MASERA
-------------------------------------
SABA PETROLEUM COMPANY Linda F. Masera
Vice President
By: ILYAS CHAUDHARY
---------------------------
ILYAS CHAUDHARY,
Chairman
Guarantors:
SABA ENERGY OF TEXAS, INCORPORATED SABA PETROLEUM OF MICHIGAN, INC.
By: ILYAS CHAUDHARY By: ILYAS CHAUDHARY
--------------------------- -------------------------------------
ILYAS CHAUDHARY, ILYAS CHAUDHARY,
Chairman Chairman
SABA PETROLEUM, INC.
By: ILYAS CHAUDHARY
--------------------------
ILYAS CHAUDHARY,
Chairman
<PAGE> 1
SABA PETROLEUM COMPANY Exhibit 11.1
Computation of Earnings Per Common Share
For the Nine and Three Month Periods Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
FULLY DILUTED SHARES
Weighted average number of Common Shares outstanding 4,316,965 4,131,169 4,400,288 4,131,257
Additional shares assuming issuance:
Of shares underlying options 295,032 223,478 327,196 274,370
Of convertible common shares @ $8.75 per share underlying:
$11,000,000 from 1/1/96 1,257,143 0 1,257,143 0
$1,650,000 from 2/7/96 163,107 0 188,571 0
Less shares actually issued upon conversions (46,346) 0 (135,698) 0
----------- ----------- ----------- ------------
Fully Diluted Shares 5,985,901 4,354,647 6,037,500 4,405,627
=========== =========== =========== ============
FULLY DILUTED EARNINGS PER COMMON SHARE
Net income $ 0.48 $ 0.05 $ 0.16 $ 0.03
=========== =========== =========== ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 AND
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS PRESENTED IN QUARTERLY REPORT FORM 10-QSB FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 180
<SECURITIES> 883
<RECEIVABLES> 6,329
<ALLOWANCES> 63
<INVENTORY> 0
<CURRENT-ASSETS> 9,738
<PP&E> 43,101
<DEPRECIATION> 13,503
<TOTAL-ASSETS> 42,150
<CURRENT-LIABILITIES> 9,033
<BONDS> 19,972
0
0
<COMMON> 8,724
<OTHER-SE> 3,285
<TOTAL-LIABILITY-AND-EQUITY> 42,150
<SALES> 0
<TOTAL-REVENUES> 23,153
<CGS> 0
<TOTAL-COSTS> 17,231
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,795
<INCOME-PRETAX> 4,362
<INCOME-TAX> 1,963
<INCOME-CONTINUING> 2,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,221
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
