<PAGE> 1
As Filed with the Securities and Exchange Commission on February 19, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT
PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3 AND FINAL AMENDMENT)
ENEX RESOURCES CORPORATION
(Name of Subject Company)
MIDDLE BAY OIL COMPANY, INC.
(Purchaser)
COMMON STOCK, $.05 PAR VALUE
(Title of Class of Securities)
292744208
(CUSIP Number of Class of Securities)
JOHN J. BASSETT, PRESIDENT
MIDDLE BAY OIL COMPANY, INC.
1221 LAMAR, SUITE 1020
HOUSTON, TEXAS 77010
(713) 759-6808
(Name, Address and Telephone Number of Persons Authorized to
Receive Notices and Communications on Behalf of Purchaser)
Copies to:
H. Grady Thrasher, III, Esq.
Thrasher, Whitley, Hampton & Morgan
Five Concourse Parkway, Suite 2150
Atlanta, Georgia 30328
Telephone: (770) 804-8000
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CALCULATION OF FILING FEE
------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee**
--------------------- --------------------
$15,960,480 $3,192
------------------------------------------------------------------------
* For purposes of calculating the filing fee only. This calculation represents
the purchase of 1,064,032 shares of Common Stock, par value $.05 per share,
of Enex Resources Corporation for $15.00 net per share in cash.
** 1/50th of 1% of Transaction Valuation.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number or the form
or schedule and the date of its filing.
AMOUNT PREVIOUSLY PAID: Not applicable FILING PARTY: Not applicable
FORM OR REGISTRATION NO.: Not applicable DATE FILED: Not applicable
<PAGE> 2
1) Name of Reporting Person MIDDLE BAY OIL COMPANY, INC.
---------------------------------------------------
I.R.S. Identification No. of Above Person 63-1081013
----------------------------------
2) Check the Appropriate Box if a Member of a Group (see instructions)
[ ] (a)
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[ ] (b)
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3) SEC Use Only
---------------------------------------------------------------
4) Sources of Funds (see instructions) BK, WC
----------------------------------------
5) [ ] Check if Disclosure of Legal Proceedings is Required Pursuant to Items
2(e) or 2(f).
6) Citizenship or Place of Organization Alabama
---------------------------------------
7) Aggregate Amount Beneficially Owned by Each Reporting Person 1,064,032
---------------
8) [ ] Check if the Aggregate Amount in Row 7 Excludes Certain Shares (see
instructions).
9) Percent of Class Represented by Amount in Row 7 79.2
----------------------------
10) Type of Reporting Person (see instructions) CO
--------------------------------
<PAGE> 3
This Amendment No. 3, the final amendment (this "Final Amendment"),
amends and supplements the Tender Offer Statement on Schedule 14D-1 filed with
the Securities and Exchange Commission on February 19, 1998, as amended
("Schedule 14D-1"), by Middle Bay Oil Company, Inc., an Alabama corporation
("Purchaser"). Schedule 14D-1 and this Amendment relate to a tender offer by
Purchaser for all of the outstanding shares of common stock, $.05 par value (the
"Shares"), of Enex Resources Corporation, a Delaware corporation (the
"Company"), upon the terms and subject to the conditions set forth in the Offer
to Purchase dated February 19, 1998, as amended (the "Offer to Purchase"), and
the related Letter of Transmittal, as amended (which, together, constitute the
"Offer"), copies of which were filed as Exhibits (a)(1) and (a)(2),
respectively, to the Schedule 14D-1. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Offer to
Purchase.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Item 4 is hereby amended and supplemented as follows:
(a)-(b) Purchaser has secured a new $100 million revolving credit
facility with Compass Bank, a Texas state chartered banking
institute, as agent and a lender, and with the Bank of
Oklahoma, National Association, as a lender (the "Credit
Facility"). A copy of the Credit Agreement effectuating the
Credit Facility is attached hereto as Exhibit (b)2 and is
incorporated herein by reference. The Credit Facility closed
and was funded on March 27, 1998 contemporaneously with
Purchaser's tender of payment for the Shares tendered and not
withdrawn under the Offer. A copy of the press release
announcing the new Credit Facility is attached hereto as
Exhibit (a)(10) and incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
Item 6 is hereby amended and supplemented as follows:
(a)-(b) The Offer expired at 12 midnight, Houston, Texas time, on
Friday, March 20, 1998. Based on information provided by the
Depositary, there were validly tendered and not withdrawn
1,064,032 Shares of Enex's common stock (including Shares
tendered by means of guaranteed delivery), or approximately
79.2% of the total Shares issued and outstanding. On March 27,
1998, all validly tendered and not withdrawn Shares were
accepted for payment. Press releases issued by Purchaser on
March 23, 1998 and April 1, 1998 announcing the expiration of
the Offer and acceptance of validly-tendered Shares not
withdrawn are attached hereto as Exhibits (a)(9) and (a)(10)
and are incorporated herein by reference.
<PAGE> 4
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS
Item 11 is hereby amended by adding the following exhibits:
(a)(8) Press release issued by Purchaser on March 16, 1998
(a)(9) Press release issued by Purchaser on March 23, 1998
(a)(10) Press release issued by Purchaser on April 1, 1998
(b)(2) Credit Agreement between Middle Bay Oil Company, Inc. and Enex
Resources Corporation, as Borrower, and Compass Bank, as Agent
and a Lender, Bank of Oklahoma, National Association, as a
Lender, and the Other Lenders Signatory Hereto dated March 27,
1998
<PAGE> 5
SIGNATURES
After due inquiry and to the best of our knowledge and belief, we
certify that the information set forth in this statement is true, complete and
correct.
Dated: April 9, 1998
MIDDLE BAY OIL COMPANY, INC.
By: /s/ John J. Bassett
---------------------------------------
John J. Bassett, President
<PAGE> 1
[LOGO] MIDDLE BAY
OIL COMPANY, INC.
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PRESS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION CONTACT:
STEVE W. HEROD
713/759-6808, EXT. 104
MIDDLE BAY OIL COMPANY, INC. EXTENDS EXPIRATION DATE OF
OFFER FOR SHARES OF ENEX RESOURCES CORPORATION
COMMON STOCK AT $15.00 PER SHARE
HOUSTON, TEXAS, MARCH 16, 1998...Middle Bay Oil Company, Inc. ("Middle Bay")
(NASDAQ:MBOC) announced today that it has extended the expiration date of time
for its cash tender offer for common shares of Enex Resources Corporation
("Enex")(NASDAQ:ENEX) to 12:00 midnight, Houston, Texas time on March 20, 1998.
All other terms of the offer, including rights of withdrawal, remain unchanged.
The purpose of the tender offer is to acquire shares that will represent at
least a majority of the outstanding common stock of Enex. The tender offer is
intended to result in the acquisition of 100% of Enex's outstanding common
stock.
John J. Bassett, President and Chief Executive Officer of Middle Bay, stated,
"We are pleased at the response to the tender offer. To date, we believe that a
sufficient number of shares have been tendered or are in the process of being
tendered to constitute a majority of the Enex shares."
The tender offer is not subject to any financing condition. It is, however,
conditioned upon, among other things, (i) at least a majority of the Enex
common shares being validly tendered and not withdrawn prior to the extended
expiration date, and (ii) certain actions by the Board of Directors of Enex to
facilitate the tender offer and to provide, subject to successful completion of
the offer, for the ultimate replacement of the Enex Board by designees of
Middle Bay.
Enex Resources Corporation is an independent oil and gas production and
development company, headquartered in Kingwood, Texas, with operations
primarily in Texas.
Middle Bay Oil Company, Inc. is an independent oil and gas exploration and
production company, headquartered in Houston, Texas, with operations in the
Gulf Coast and Mid-Continent regions.
OFFICES IN HOUSTON, TEXAS AND WICHITA, KANSAS
1221 Lamar, Suite 1020 - Houston, Texas 77010 - Office: 713/759-6808 -
Fax: 713/650-0352
<PAGE> 1
[LOGO] MIDDLE BAY
OIL COMPANY, INC.
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PRESS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION CONTACT:
STEVE W. HEROD
713/759-6808, EXT. 104
MIDDLE BAY OIL COMPANY, INC. ANNOUNCES CLOSING OF
TENDER OFFER FOR SHARES OF ENEX RESOURCES CORPORATION
WITH 79% ACCEPTANCE OF OFFER
HOUSTON, TEXAS, MARCH 23, 1998...Middle Bay Oil Company, Inc. ("Middle Bay")
(NASDAQ:MBOC) announced today the closing of its $15.00 per share cash tender
offer for common shares of Enex Resources Corporation ("Enex") (NASDAQ:ENEX).
A total of 1,063,778 shares were tendered, representing 79.2% of the common
shares outstanding of Enex. The $15.96 million payment for the shares tendered
will be on March 27, 1998.
John J. Bassett, President and Chief Executive Officer of Middle Bay, stated,
"The acquisition of Enex is an important step in the growth of Middle Bay. Enex
has net proved reserves at January 1, 1998 of 15,706 MMCF of natural gas and
866 thousand barrels of oil with a SEC PV 10% value of $16.5 million. On an
equivalent barrel basis, the Company's proved reserves will now be
approximately 62% gas with 77% classified as proved producing. This
transaction will increase our proved reserves and SEC PV 10% value by
approximately 55% and will have a significant positive impact on cash flow and
earnings. In addition, we will assume operations on over 100 wells in South
Texas where we have already identified a number of operational and exploitation
projects that will increase cash flow. Enex also has approximately $5 million in
working capital and no debt, which will give Middle Bay additional financial
flexibility."
On a pro-forma basis including the Enex acquisition, using SEC parameters as of
January 1, 1998, MBOC has total proved reserves of 3,799 thousand barrels of
oil and 37,145 MMCF of natural gas or 9,990 thousand barrels of oil
equivalents (Mboe). Based on SEC pricing parameters, the pre-tax present value
discounted at 10% of those reserves is $46.7 million.
Enex Resources Corporation is an independent oil and gas production and
development company, headquartered in Kingwood, Texas, with operations
primarily in Texas.
Middle Bay Oil Company, Inc. is an independent oil and gas exploration and
production company, headquartered in Houston, Texas, with operations in the
Gulf Coast and Mid-Continent regions.
OFFICES IN HOUSTON, TEXAS AND WICHITA, KANSAS
1221 Lamar, Suite 1020 - Houston, Texas 77010 - Office: 713/759-6808 -
Fax: 713/650-0352
<PAGE> 1
[LOGO] MIDDLE BAY
OIL COMPANY, INC.
- --------------------------------------------------------------------------------
PRESS RELEASE
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE FOR FURTHER INFORMATION CONTACT:
STEVE W. HEROD
713/759-6808, EXT. 104
MIDDLE BAY OIL COMPANY, INC. ANNOUNCES
$100 MILLION CREDIT FACILITY WITH
COMPASS BANK AND BANK OF OKLAHOMA
HOUSTON, TEXAS, APRIL 1, 1998...Middle Bay Oil Company, Inc. (NASDAQ:MBOC)
today announced the closing of a new $100 million revolving credit facility with
Compass Bank (Houston, Texas) as agent and Bank of Oklahoma (Tulsa,Oklahoma) as
a participating lender.
The new financing facility closed and was funded on March 27, 1998 concurrently
with MBOC's final closing of the tender offer for and acquisition of Enex
resources Corporation (NASDAQ:ENEX). MBOC acquired a total of 1,064,032 shares
of Enex for $15,966,480 and also retired certain Enex stock options for
$826,250, bringing the total cash consideration paid to $16,792,730. The shares
tendered by the Enex stockholders represent 79.2% of the total shares
outstanding.
Under the new credit facility, MBOC's borrowing base was initially set at $29
million. Approximately $27 million is currently outstanding. The borrowing base
will be redetermined on a semi-annual basis.
John J. Bassett, President and Chief Executive Officer of Middle Bay, stated,
"We are very pleased to enter into the banking relationship with Compass Bank.
The new credit facility gives Middle Bay the financial flexibility needed as
we continue to grow the Company. The addition of Compass to our existing
relationship with Bank of Oklahoma further strengthens our ability to move
quickly as we pursue additional transactions."
Middle Bay Oil Company, Inc. is an independent oil and gas exploration and
production company, headquartered in Houston, Texas, with operations in the
Gulf Coast and Mid-Continent regions.
OFFICES IN HOUSTON, TEXAS AND WICHITA, KANSAS
1221 Lamar, Suite 1020 - Houston, Texas 77010 - Office: 713/759-6808 -
Fax: 713/650-0352
<PAGE> 1
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CREDIT AGREEMENT
BETWEEN
MIDDLE BAY OIL COMPANY, INC.
AND
ENEX RESOURCES CORPORATION
AS BORROWER
AND
COMPASS BANK, AS AGENT AND A LENDER
BANK OF OKLAHOMA, NATIONAL ASSOCIATION,
AS A LENDER
AND
THE OTHER LENDERS SIGNATORY HERETO
MARCH 27, 1998
------------------------------------
REDUCING REVOLVING LINE OF CREDIT OF UP TO $100,000,000
------------------------------------
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above.........................................................................1
1.2 Additional Defined Terms....................................................................1
1.3 Undefined Financial Accounting Terms.......................................................15
1.4 References.................................................................................15
1.5 Articles and Sections......................................................................15
1.6 Number and Gender..........................................................................15
1.7 Incorporation of Schedules and Exhibits....................................................15
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit...................................................................16
2.2 Letter of Credit Facility..................................................................17
2.3 Use of Loan Proceeds and Letters of Credit. ..............................................18
2.4 Interest...................................................................................19
2.5 Repayment of Loans and Interest............................................................19
2.6 Outstanding Amounts........................................................................19
2.7 Time, Place, and Method of Payments........................................................20
2.8 Pro Rata Treatment; Adjustments............................................................20
2.9 Borrowing Base Determinations..............................................................21
2.10 Mandatory Prepayments......................................................................22
2.11 Voluntary Prepayments and Conversions of Loans.............................................22
2.12 Commitment Fee.............................................................................22
2.13 Facility Fee...............................................................................23
2.14 Engineering Fee............................................................................23
2.15 Letter of Credit Fee.......................................................................23
2.16 Agency Fee.................................................................................24
2.17 Loans to Satisfy Obligations of Borrower...................................................24
2.18 Security Interest in Accounts; Right of Offset.............................................24
2.19 General Provisions Relating to Interest....................................................24
2.20 Yield Protection...........................................................................25
2.21 Limitation on Types of Loans...............................................................27
2.22 Illegality.................................................................................27
2.23 Regulatory Change..........................................................................28
2.24 Limitations on Interest Periods............................................................28
2.25 Letters in Lieu of Transfer Orders.........................................................28
2.26 Power of Attorney..........................................................................28
</TABLE>
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<TABLE>
<S> <C>
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items..................................................29
3.2 Each Loan..................................................................................32
3.3 Each Letter of Credit......................................................................33
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization..........................................................................33
4.2 Corporate Existence........................................................................34
4.3 Valid and Binding Obligations..............................................................34
4.4 Security Instruments.......................................................................34
4.5 Title to Assets............................................................................34
4.6 Scope and Accuracy of Financial Statements.................................................34
4.7 No Material Misstatements..................................................................34
4.8 Liabilities, Litigation, and Restrictions..................................................34
4.9 Compliance with Laws.......................................................................35
4.10 ERISA......................................................................................35
4.11 Environmental Laws.........................................................................35
4.12 Compliance with Federal Reserve Regulations................................................35
4.13 Investment Company Act Compliance..........................................................35
4.14 Public Utility Holding Company Act Compliance..............................................36
4.15 Proper Filing of Tax Returns; Payment of Taxes Due.........................................36
4.16 Refunds....................................................................................36
4.17 Gas Contracts..............................................................................36
4.18 Intellectual Property......................................................................36
4.19 Casualties or Taking of Property...........................................................36
4.20 Locations of Borrower......................................................................37
4.21 Subsidiaries...............................................................................37
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records..........................................................37
5.2 Quarterly Financial Statements; Compliance Certificates....................................37
5.3 Annual Financial Statements................................................................38
5.4 Oil and Gas Reserve Reports................................................................38
5.5 Title Opinions; Title Defects..............................................................38
5.6 Notices of Certain Events..................................................................39
5.7 Letters in Lieu of Transfer Orders; Division Orders........................................40
5.8 Additional Information.....................................................................40
5.9 Compliance with Laws.......................................................................40
5.10 Payment of Assessments and Charges.........................................................40
5.11 Maintenance of Corporate Existence and Good Standing.......................................40
5.12 Payment of Notes; Performance of Obligations...............................................40
5.13 Further Assurances.........................................................................41
5.14 Initial Fees and Expenses of Counsel to Agent..............................................41
5.15 Subsequent Fees and Expenses of Agent and Lenders..........................................41
</TABLE>
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<TABLE>
<S> <C> <C> <C>
5.16 Operation of Oil and Gas Properties........................................................41
5.17 Maintenance and Inspection of Properties...................................................42
5.18 Maintenance of Insurance...................................................................42
5.19 INDEMNIFICATION............................................................................42
5.20 Operating Accounts.........................................................................43
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness...............................................................................44
6.2 Contingent Obligations.....................................................................44
6.3 Liens......................................................................................44
6.4 Sales of Assets............................................................................44
6.5 Leasebacks.................................................................................45
6.6 Loans or Advances..........................................................................45
6.7 Investments................................................................................45
6.8 Dividends and Distributions................................................................46
6.9 Changes in Corporate Structure.............................................................46
6.10 Transactions with Affiliates...............................................................46
6.11 Lines of Business..........................................................................46
6.12 Plan Obligations...........................................................................46
6.13 New Subsidiaries...........................................................................46
6.14 Cash Flow Coverage.........................................................................46
6.15 Current Ratio..............................................................................46
6.16 Change of Fiscal Year......................................................................46
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default...........................................................46
7.2 Remedies...................................................................................48
ARTICLE VIII THE AGENT
8.1 Appointment................................................................................49
8.2 Waivers, Amendments........................................................................49
8.3 Delegation of Duties.......................................................................50
8.4 Exculpatory Provisions.....................................................................50
8.5 Reliance by Agent..........................................................................50
8.6 Notice of Default..........................................................................51
8.7 Non-Reliance on Agent and Other Lenders....................................................51
8.8 Indemnification............................................................................52
8.9 Restitution................................................................................52
8.10 Agent in Its Individual Capacity...........................................................53
8.11 Successor Agent............................................................................53
8.12 Applicable Parties.........................................................................53
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IX MISCELLANEOUS
9.1 Assignments; Participations................................................................54
9.2 Survival of Representations, Warranties, and Covenants.....................................55
9.3 Notices and Other Communications...........................................................55
9.4 Parties in Interest........................................................................56
9.5 Rights of Third Parties....................................................................56
9.6 Renewals; Extensions.......................................................................57
9.7 No Waiver; Rights Cumulative...............................................................57
9.8 Survival Upon Unenforceability.............................................................57
9.9 Amendments; Waivers........................................................................57
9.10 Controlling Agreement......................................................................57
9.11 Disposition of Collateral..................................................................57
9.12 GOVERNING LAW..............................................................................58
9.13 JURISDICTION AND VENUE.....................................................................58
9.14 ENTIRE AGREEMENT...........................................................................58
9.15 Counterparts...............................................................................58
</TABLE>
LIST OF SCHEDULES
Schedule 4.8 - Liabilities and Litigation
Schedule 4.12 - Environmental Matters
Schedule 4.16 - Refunds
Schedule 4.17 - Gas Contracts
Schedule 4.19 - Casualties
Schedule 4.21 - Subsidiaries
LIST OF EXHIBITS
Exhibit I - Form of Notes
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Compliance Certificate
Exhibit IV - Form of Borrowing Base Utilization Certificate
Exhibit V - Form of Opinion of Counsel
Exhibit VI - Form of Lender Assignment Agreement
-iv-
<PAGE> 6
CREDIT AGREEMENT
This CREDIT AGREEMENT is made and entered into this 27th day of
March, 1998, by and between MIDDLE BAY OIL COMPANY, INC., an Alabama corporation
("Middle Bay"), and ENEX RESOURCES CORPORATION, a Delaware corporation ("Enex")
(collectively, the "Borrower", but with such entities constituting the Borrower
being jointly and severally liable for the Obligations and each reference herein
to the Borrower being applicable to each of such entities) and COMPASS BANK, a
Texas state chartered banking institution ("Compass"), BANK OF OKLAHOMA,
NATIONAL ASSOCIATION, a national banking association ("BOK") and each other
lender that becomes a signatory hereto as provided in Section 9.1 (Compass and
each such other lender, together with its successors and assigns, individually a
"Lender" and collectively, the "Lenders"), and Compass, as agent for the Lenders
pursuant to the terms hereof (in such capacity, together with its successors in
such capacity pursuant to the terms hereof, (the "Agent").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the Lender or Lenders hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Credit Agreement, each of
the terms "Agent", "Agreement", "BOK", "Borrower", "Compass", "Lender" and
"Lenders" shall have the meaning assigned to such term hereinabove.
1.2 Additional Defined Terms. As used in this Agreement, each of
the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:
"Additional Costs" shall mean reasonable costs which the Agent
or any Lender determines are attributable to its obligation to make or
its making or maintaining any LIBO Rate Loan or issuing or participating
in Letters of Credit, or any reduction in any amount receivable by the
Agent or any Lender in respect of any such obligation or any LIBO Rate
Loan or Letter of Credit, resulting from any Regulatory Change which (a)
changes the basis of taxation of any amounts payable to the Agent or such
Lender under this Agreement or any Note in respect of any LIBO Rate Loan
or Letter of Credit (other than taxes imposed on the overall net income
of the Agent or such Lender or its Applicable Lending Office for any such
LIBO Rate Loan by the jurisdiction in which the Agent or such Lender has
its principal office or Applicable Lending Office), (b) imposes or
modifies any reserve,
<PAGE> 7
special deposit, minimum capital, capital ratio, or similar requirements
(other than the Reserve Requirement utilized in the determination of the
Adjusted LIBO Rate for such Loan) relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of, the Agent
or such Lender (including LIBO Rate Loans and Dollar deposits in the
London interbank market in connection with LIBO Rate Loans), or the
Commitment of the Agent or such Lender, or the London interbank market,
or (c) imposes any other condition affecting this Agreement or any Note
or any of such extensions of credit, liabilities, or Commitments.
"Adjusted LIBO Rate" shall mean, for any LIBO Rate Loan, an
interest rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the sum of the LIBO
Rate for such Loan plus the Applicable Margin, but in no event exceeding
the Highest Lawful Rate.
"Affiliate" shall mean any Person directly or indirectly
controlling, or under common control with, the Borrower and includes any
Subsidiary of the Borrower and any "affiliate" of the Borrower within the
meaning of Reg. ss.240.12b-2 of the Securities Exchange Act of 1934, as
amended, with "control," as used in this definition, meaning possession,
directly or indirectly, of the power to direct or cause the direction of
management, policies or action through ownership of voting securities,
contract, voting trust, or membership in management or in the group
appointing or electing management or otherwise through formal or informal
arrangements or business relationships.
"Agency Fee Letter" shall mean the letter agreement dated
March 27, 1998, between Compass and the Borrower concerning certain fees
in connection with the transactions contemplated hereby, and any
agreements or instruments executed in connection therewith, as amended,
restated, or supplemented from time to time.
"Agreement" shall mean this Credit Agreement, as it may be
amended, supplemented, restated or otherwise modified from time to time.
"Applicable Lending Office" shall mean, for each Lender and
type of Loan, the lending office of such Lender (or an affiliate of such
Lender) designated for such type of Loan on the signature pages hereof or
such other office of such Lender (or an affiliate of such Lender) as such
Lender may from time to time specify to the Agent and the Borrower as the
office by which Loans of such type are to be made and maintained.
2
<PAGE> 8
"Applicable Margin" shall mean as to each LIBO Rate Loan, the
following:
<TABLE>
<CAPTION>
Borrowing Base LIBO Rate Loan
Utilization Applicable Margin
---------------------------------------------------------
<S> <C>
equal to or greater than 75% two percent (2%)
of Borrowing Base
less than 75% but greater one and three-fourths
than 50% of Borrowing percent (1-3/4%)
Base
less than or equal to one and one-half
50% of Borrowing Base percent (1-1/2%),
</TABLE>
with the Borrowing Base Utilization and the corresponding LIBO Rate being
set at the close of each calendar quarter for the next calendar quarter.
The Borrower shall furnish to the Agent, within five (5) days of the end
of each calendar quarter, except for the quarter ending March 31, 1998, a
Borrowing Base Utilization Certificate, substantially in the form
attached as Exhibit IV to this Agreement, which shall stipulate the
Borrowing Base Utilization level at the end of such quarter.
"Available Commitment" shall mean, at any time, an amount
equal to the remainder, if any, of (a) the Borrowing Base in effect at
such time minus (b) the sum of the Loan Balance at such time and the L/C
Exposure at such time.
"Borrowing Base" shall mean, at any time, the amount
determined by the Lenders in accordance with Section 2.9 and then in
effect.
"Borrowing Base Utilization" shall mean, at any time, the Loan
Balance, plus any L/C Exposure hereunder, expressed as a percentage of
the Borrowing Base.
"Borrowing Request" shall mean each written request, in
substantially the form attached hereto as Exhibit II, by the Borrower to
the Agent for a borrowing or conversion pursuant to Sections 2.1 or 2.11,
each of which shall:
(a) be signed by a Responsible Officer of the
Borrower;
(b) specify the amount and type of Loan requested,
and, as applicable, the Loan to be converted and the date of
the borrowing or conversion (which shall be a Business Day);
3
<PAGE> 9
(c) when requesting a Floating Rate Loan, be delivered
to the Agent no later than 10:00 a.m., Central Standard or
Daylight Savings Time, as the case may be, on the Business Day
of the requested borrowing or conversion, and
(d) when requesting a LIBO Rate Loan, be delivered to
the Agent no later than 10:00 a.m., Central Standard or
Daylight Savings Time, as the case may be, two Business Days
preceding the requested borrowing or conversion and designate
the Interest Period requested with respect to such Loan.
"Business Day" shall mean (a) for all purposes other than as
covered by clause (b) of this definition, a day other than a Saturday,
Sunday, legal holiday for commercial banks under the laws of the State of
Texas, or any other day when banking is suspended in the State of Texas,
and (b) with respect to all requests, notices, and determinations in
connection with, and payments of principal and interest on, LIBO Rate
Loans, a day which is a Business Day described in clause (a) of this
definition and which is a day for trading by and between banks for Dollar
deposits in the London interbank market.
"Cash Flow" shall mean, for any relevant accounting period,
Net Income for such period plus, without duplication and to the extent
deducted from revenues in determining Net Income for the relevant period,
depreciation, amortization, depletion, other non-cash expenses,
exploration expenses, dry-hole expenses, and geological and geophysical
costs, less, without duplication and to the extent added to revenues in
determining Net Income for the relevant period, all non-cash revenue and
non-recurring gains of the Borrower for the relevant period.
"Closing Date" shall mean the date of this Agreement.
"Code" shall mean the United States Internal Revenue Code of
1986, as amended from time to time.
"Collateral" shall mean the Mortgaged Properties and any other
Property now or at any time used or intended as security for the payment
or performance of all or any portion of the Obligations of the Borrower
or any Subsidiary or other Affiliate of the Borrower owing to the Agent
or any Lender or any branch, Subsidiary or other Affiliate of the Agent
or any Lender which is subject to a Security Instrument.
"Commitments" shall mean the several obligations of the
Lenders, subject to applicable provisions of this Agreement, to make
Loans to or for the benefit of the Borrower pursuant to Section 2.1 or
participate in the issuance of Letters of Credit pursuant to Section 2.2.
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<PAGE> 10
"Commitment Amount" shall mean $18,850,000 as to Compass and
$10,150,000 as to BOK as of the Closing Date.
"Commitment Fee" shall mean each fee payable to the Agent for
the benefit of the Lenders by the Borrower pursuant to Section 2.12.
"Commitment Period" shall mean the period from and including
the Closing Date to but not including the Commitment Termination Date.
"Commitment Termination Date" shall mean April 1, 2001.
"Commonly Controlled Entity" shall mean any Person which is
under common control with the Borrower within the meaning of Section 4001
of ERISA.
"Compliance Certificate" shall mean each certificate,
substantially in the form attached hereto as Exhibit III, executed by a
Responsible Officer of the Borrower and furnished to the Agent from time
to time in accordance with Section 5.2.
"Contingent Obligation" shall mean, as to any Person, any
obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends, or other obligations of any other Person
(for purposes of this definition, a "primary obligation") in any manner,
whether directly or indirectly, including, without limitation, any
obligation of such Person, regardless of whether such obligation is
contingent, (a) to purchase any primary obligation or any Property
constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any primary obligation,
or (ii) to maintain working or equity capital of any other Person in
respect of any primary obligation, or otherwise to maintain the net worth
or solvency of any other Person, (c) to purchase Property, securities or
services primarily for the purpose of assuring the owner of any primary
obligation of the ability of the Person primarily liable for such primary
obligation to make payment thereof, or (d) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof, with the amount of any Contingent Obligation being deemed to be
equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith.
"Current Ratio" means the ratio of (a) consolidated current
assets of the Borrower and it Subsidiaries to (b) consolidated current
liabilities (excluding the current portion of Loans hereunder).
"Debt Service" shall mean, for each relevant accounting
period, an amount equal to (i) actual principal amounts paid on debt
other than the Obligations during
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<PAGE> 11
each quarter, plus (ii) required principal payments under the Obligations
during such quarter.
"Default" shall mean any event or occurrence which with the
lapse of time or the giving of notice or both would become an Event of
Default.
"Default Rate" shall mean a per annum interest rate equal to
the Index Rate plus five percent (5%), but in no event exceeding the
Highest Lawful Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the
United States of America.
"Environmental Complaint" shall mean any written complaint,
order, directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority with respect
to (a) air emissions, (b) spills, releases, or discharges to soils, any
improvements located thereon, surface water, groundwater, or the sewer,
septic, waste treatment, storage, or disposal systems servicing any
Property of the Borrower, (c) solid or liquid waste disposal, (d) the
use, generation, storage, transportation, or disposal of any Hazardous
Substance, or (e) other environmental, health, or safety matters
affecting any Property of the Borrower or the business conducted thereon.
"Environmental Laws" shall mean (a) the following federal laws
as they may be cited, referenced, and amended from time to time: the
Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Endangered Species Act, the Resource Conservation and Recovery Act, the
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 equivalent
environmental statutes of any state in which Property of the Borrower is
situated, as they may be cited, referenced and amended from time to time;
(c) any rules or regulations promulgated under or adopted pursuant to the
above federal and state laws; and (d) any other equivalent foreign,
federal, state, or local statute or any requirement, rule, regulation,
code, ordinance, or order adopted pursuant thereto, including, without
limitation, those relating to the generation, transportation, treatment,
storage, recycling, disposal, handling, or release of Hazardous
Substances.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations thereunder and
interpretations thereof.
"Existing Liens" shall mean the liens held by BOK.
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"Event of Default" shall mean any of the events specified in
Section 7.1.
"Facility Fee" shall mean the fee payable to the Agent for the
benefit of the Lenders by the Borrower pursuant to Section 2.13.
"Final Maturity" shall mean April 1, 2001.
"Financial Statements" shall mean statements of the financial
condition of the Borrower and its consolidated Subsidiaries on a
consolidated and consolidating basis as at the point in time and for the
period indicated and consisting of at least a balance sheet and related
statements of operations, common stock and other stockholders' equity,
and cash flows, and when such statements prepared on a consolidated basis
are required by applicable provisions of this Agreement to be audited,
accompanied by the unqualified certification of a nationally-recognized
firm of independent certified public accountants or other independent
certified public accountants acceptable to the Agent and footnotes to any
of the foregoing, all of which shall be prepared in accordance with GAAP
consistently applied and in comparative form with respect to the
corresponding period of the preceding fiscal period.
"Fixed Rate Loan" shall mean any LIBO Rate Loan.
"Floating Rate" shall mean an interest rate per annum equal to
the Index Rate from time to time in effect, but in no event exceeding the
Highest Lawful Rate.
"Floating Rate Loan" shall mean any Loan and any portion of
the Loan Balance which the Borrower has requested, in the initial
Borrowing Request for such Loan or a subsequent Borrowing Request for
such portion of the Loan Balance, bear interest at the Floating Rate, or
which pursuant to the terms hereof is otherwise required to bear interest
at the Floating Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants and in effect in the United
States from time to time.
"Governmental Authority" shall mean any nation, country,
commonwealth, territory, government, state, county, parish, municipality,
or other political subdivision and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"Hazardous Substances" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos, or any material
containing asbestos, polychlorinated biphenyls (PCBs), toxic substances
or related materials, petroleum, petroleum products, associated oil or
natural gas exploration, production, and
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<PAGE> 13
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 law or regulation now or hereafter enacted
or promulgated by any Governmental Authority.
"Highest Lawful Rate" shall mean the maximum non-usurious
interest rate, if any (or, if the context so requires, an amount
calculated at such rate), that at any time or from time to time may be
contracted for, taken, reserved, charged, or received under applicable
laws of the State of Texas or the United States of America, whichever
authorizes the greater rate, as such laws are presently in effect or, to
the extent allowed by applicable law, as such laws may hereafter be in
effect and which allow a higher maximum non-usurious interest rate than
such laws now allow.
"Indebtedness" shall mean, as to any Person, without
duplication, (a) all liabilities (excluding reserves for deferred income
taxes, deferred compensation liabilities, and other deferred liabilities
and credits) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance
sheet, (b) all obligations of such Person evidenced by bonds, debentures,
promissory notes, or similar evidences of indebtedness, (c) all other
indebtedness of such Person for borrowed money, (d) all obligations
issued, undertaken or assumed as the deferred purchase price of property
or services (other than trade payables, which include amounts owed to
drilling contractors, entered into in the ordinary course of business on
ordinary terms); (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of
such property) including, without limitation, production payments, net
profit interests and other hydrocarbon interests subject to repayment out
of future oil and gas production; (f) all obligations with respect to
capital leases; (g) all net obligations with respect to derivative
contracts; and (h) all obligations, including Contingent Obligations of
others, to the extent any such obligation is secured by a Lien on the
assets of such Person (whether or not such Person has assumed or become
liable for the obligation secured by such Lien).
"Index Rate" shall mean the prime rate established in The Wall
Street Journal's "Money Rates" or similar table. If multiple prime rates
are quoted in the table, then the highest prime rate will be the Index
Rate. In the event that the prime rate is no longer published by The Wall
Street Journal in the "Money Rates" or similar table, then Agent may
select an alternative published index based upon
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<PAGE> 14
comparable information as a substitute Index Rate. Upon the selection of
a substitute Index Rate, the applicable interest rate shall thereafter
vary in relation to the substitute index. Such substitute index shall be
the same index that is generally used as a substitute by Agent on all
Index Rate loans.
"Insolvency Proceeding" shall mean application (whether
voluntary or instituted by another Person) for or the consent to the
appointment of a receiver, trustee, conservator, custodian, or liquidator
of any Person or of all or a substantial part of the Property of such
Person, or the filing of a petition (whether voluntary or instituted by
another Person) commencing a case under Title 11 of the United States
Code, seeking liquidation, reorganization, or rearrangement or taking
advantage of any bankruptcy, insolvency, debtor's relief, or other
similar law of the United States, the State of Texas, or any other
jurisdiction.
"Intellectual Property" shall mean patents, patent
applications, trademarks, tradenames, copyrights, technology, know-how,
and processes.
"Interest Period" shall mean, subject to the limitations set
forth in Section 2.24, and with respect to any LIBO Rate Loan, a period
commencing on the date such Loan is made or converted from a Loan of
another type pursuant to this Agreement or the last day of the next
preceding Interest Period with respect to such Loan and ending on the
numerically corresponding day in the calendar month that is one, two,
three, or, subject to availability, six months thereafter, as the
Borrower may request in the Borrowing Request for such Loan.
"Investment" in any Person shall mean any stock, bond, note,
or other evidence of Indebtedness, or any other security (other than
current trade and customer accounts) of, investment or partnership
interest in or loan to, such Person.
"L/C Exposure" shall mean, at any time, the aggregate maximum
amount available to be drawn under outstanding Letters of Credit at such
time.
"Letter of Credit" shall mean any standby letter of credit
issued by the Agent for the account of the Borrower pursuant to Section
2.2.
"Letter of Credit Application" shall mean the standard letter
of credit application employed by the Agent as the issuer of the Letters
of Credit, from time to time, in connection with Letters of Credit.
"Letter of Credit Fee" shall mean each fee payable by the
Borrower to the Agent for the account of the Lenders pursuant to Section
2.15 upon or in connection with the issuance or renewal of each Letter of
Credit.
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<PAGE> 15
"Letter of Credit Payment" shall mean any payment made by the
Agent on behalf of the Lenders under a Letter of Credit, to the extent
that such payment has not been repaid by the Borrower.
"LIBO Rate" shall mean, with respect to any Interest Period
for any LIBO Rate Loan, the lesser of (a) the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the average
of the offered quotations appearing on Telerate Page 3750 (or if such
Telerate Page shall not be available, any successor or similar service
selected by the Agent and the Borrower) as of approximately 11:00 a.m.,
Central Standard or Daylight Savings Time, as the case may be, on the day
two Business Days prior to the first day of such Interest Period for
Dollar deposits in an amount comparable to the principal amount of such
LIBO Rate Loan and having a term comparable to the Interest Period for
such LIBO Rate Loan, or (b) the Highest Lawful Rate. If neither such
Telerate Page 3750 nor any successor or similar service is available, the
term "LIBO Rate" shall mean, with respect to any Interest Period for any
LIBO Rate Loan, the lesser of (a) the rate per annum (rounded upwards if
necessary, to the nearest 1/100 of 1%) quoted by the Agent at
approximately 11:00 a.m., London time (or as soon thereafter as
practicable) two Business Days prior to the first day of the Interest
Period for such LIBO Rate Loan for the offering by the Agent to leading
banks in the London interbank market of Dollar deposits in an amount
comparable to the principal amount of such LIBO Rate Loan and having a
term comparable to the Interest Period for such LIBO Rate Loan, or (b)
the Highest Lawful Rate.
"LIBO Rate Loan" shall mean any Loan and any portion of the
Loan Balance which the Borrower has requested, in the initial Borrowing
Request for such Loan or a subsequent Borrowing Request for such portion
of the Loan Balance, bear interest at the Adjusted LIBO Rate and which is
permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.
"Lien" shall mean any interest in Property securing an
obligation owed to, or a claim by, a Person other than the owner of such
Property, whether such interest is based on common law, statute, or
contract, and including, but not limited to, the lien or security
interest arising from a mortgage, ship mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt, or a lease,
consignment, or bailment for security purposes (other than true leases or
true consignments), liens of mechanics, materialmen, and artisans,
maritime liens and reservations, exceptions, encroachments, easements,
rights of way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Property which secure an
obligation owed to, or a claim by, a Person other than the owner of such
Property (for the purpose of this Agreement, the Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to
a conditional sale agreement, financing lease, or other arrangement
pursuant to which title to the Property has been
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retained by or vested in some other Person for security purposes), and
the filing or recording of any financing statement or other security
instrument in any public office.
"Limitation Period" shall mean any period while any amount
remains owing on the Notes and interest on such amount, calculated at the
applicable interest rate, plus any fees or other sums payable under any
Loan Document and deemed to be interest under applicable law, would
exceed the amount of interest which would accrue at the Highest Lawful
Rate.
"Loan" shall mean any loan made by any Lender to or for the
benefit of the Borrower pursuant to this Agreement and any payment made
by the Agent or any Lender under a Letter of Credit.
"Loan Balance" shall mean, at any time, the outstanding
principal balance of the Notes at such time.
"Loan Documents" shall mean the Assignment, this Agreement,
the Notes, any Letter of Credit Applications, any Letters of Credit, the
Security Instruments, and all other documents and instruments now or
hereafter delivered pursuant to the terms of or in connection with the
Assignment, this Agreement, the Notes, any Letter of Credit Applications,
any Letters of Credit, or the Security Instruments, and all renewals and
extensions of, amendments and supplements to, and restatements of, any or
all of the foregoing from time to time in effect.
"Material Adverse Effect" shall mean (a) any material adverse
effect on the business, operations, properties, condition (financial or
otherwise), or prospects of the Borrower taken as a whole, or (b) any
adverse effect upon the Collateral taken as a whole.
"Maximum Commitment Amount" shall mean the sum of the
Commitment Amounts of all Lenders.
"Mortgaged Properties" shall mean all Oil and Gas Properties
of the Borrower subject to a perfected first-priority Lien in favor of
the Agent for the benefit of the Lenders, subject only to Permitted
Liens, as security for the Obligations owing to the Agent or any Lender.
"Net Income" shall mean, for any relevant accounting period,
the net income of the Borrower and its consolidated Subsidiaries on a
consolidated basis for such period, determined in accordance with GAAP.
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"Notes" shall mean, collectively, each of the promissory notes
of the Borrower, in the form attached hereto as Exhibit I, together with
all renewals, extensions for any period, increases, and rearrangements
thereof.
"Obligations" shall mean, without duplication, (a) all
Indebtedness evidenced by the Notes, (b) the undrawn, unexpired amount of
all outstanding Letters of Credit, (c) the obligation of the Borrower for
the payment of Commitment Fees, Facility Fees and Letter of Credit Fees,
and (e) all other obligations and liabilities of the Borrower to the
Agent and/or the Lenders, now existing or hereafter incurred, under,
arising out of or in connection with any Loan Document, and to the extent
that any of the foregoing includes or refers to the payment of amounts
deemed or constituting interest, only so much thereof as shall have
accrued, been earned and which remains unpaid at each relevant time of
determination.
"Oil and Gas Properties" shall mean fee, leasehold, or other
interests in or under mineral estates or oil, gas, and other liquid or
gaseous hydrocarbon leases with respect to Properties situated in the
United States or offshore from any State of the United States, including,
without limitation, overriding royalty and royalty interests, leasehold
estate interests, net profits interests, production payment interests,
and mineral fee interests, together with contracts executed in connection
therewith and all tenements, hereditaments, appurtenances and Properties
appertaining, belonging, affixed, or incidental thereto.
"Percentage Share" shall mean, as to each Lender, the
percentage such Lender's Commitment Amount constitutes of the Maximum
Commitment Amount.
"Permitted Indebtedness" shall mean (a) the Obligations, (b)
Indebtedness arising from endorsing negotiable instruments for deposit or
collection in the ordinary course of business, (c) current liabilities
incurred in the ordinary course of business, (d) other Indebtedness which
does not exceed an aggregate principal amount of $250,000 during any
fiscal year, and (e) Indebtedness existing by virtue of the requirements
of GAAP or any changes in the requirements of GAAP.
"Permitted Liens" shall mean (a) Liens for taxes, assessments,
or other governmental charges or levies not yet due or which (if
foreclosure, distraint, sale, or other similar proceedings shall not have
been initiated) are being contested in good faith by appropriate
proceedings, and such reserve as may be required by GAAP shall have been
made therefor, (b) Liens in connection with workers' compensation,
unemployment insurance or other social security (other than Liens created
by Section 4068 of ERISA), old-age pension, or public liability
obligations which are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (c) Liens in favor of vendors,
carriers, warehousemen, repairmen, mechanics, workmen,
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materialmen, construction, or similar Liens arising by operation of law
in the ordinary course of business in respect of obligations which are
not yet due or which are being contested in good faith by appropriate
proceedings, if such reserve as may be required by GAAP shall have been
made therefor, (d) Liens in favor of operators and non-operators under
joint operating agreements or similar contractual arrangements arising in
the ordinary course of the business of the Borrower to secure amounts
owing, which amounts are not yet due or are being contested in good faith
by appropriate proceedings, if such reserve as may be required by GAAP
shall have been made therefor, (e) Liens under production sales
agreements, division orders, operating agreements, and other agreements
customary in the oil and gas business for processing, producing, and
selling hydrocarbons securing obligations not constituting Indebtedness
and provided that such Liens do not secure obligations to deliver
hydrocarbons at some future date without receiving full payment therefor
within 90 days of delivery, (f) easements, rights of way, restrictions,
and other similar encumbrances, and minor defects in the chain of title
which are customarily accepted in the oil and gas financing industry,
none of which interfere with the ordinary conduct of the business of the
Borrower or materially detract from the value or use of the Property to
which they apply, and (g) Liens in favor of the Agent for the benefit of
the Lenders and other Liens expressly permitted under the Security
Instruments.
"Person" shall mean an individual, corporation, limited
liability company, partnership, trust, unincorporated organization,
government, any agency or political subdivision of any government, or any
other form of entity.
"Plan" shall mean, at any time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or any
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Principal Office" shall mean the principal office of the
Agent in Houston, Texas, presently located at 24 Greenway Plaza, 14th
Floor, Houston, Texas 77046.
"Property" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System, as the same may be amended or
supplemented from time to time.
"Regulatory Change" shall mean the passage, adoption,
institution, or amendment of any federal, state, local, or foreign
Requirement of Law (including, without limitation, Regulation D), or any
interpretation, directive, or request of any
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Governmental Authority or monetary authority charged with the
enforcement, interpretation, or administration thereof, occurring after
the Closing Date and applying to a class of banks including any Lender or
its Applicable Lending Office.
"Release of Hazardous Substances" shall mean any emission,
spill, release, disposal, or discharge, except in accordance with the
Requirement of Law, a valid permit, license, certificate, or approval of
the relevant Governmental Authority, of any Hazardous Substance into or
upon (a) the air, (b) soils or any improvements located thereon, (c)
surface water or groundwater, or (d) the sewer or septic system, or the
waste treatment, storage, or disposal system servicing any Property of
the Borrower.
"Required Lenders" shall mean, Lenders (including the Agent)
holding at least 75% of the then Loan Balance, or, if there is no Loan
Balance, Lenders (including the Agent) having at least 75% of the
aggregate amount of the Commitments.
"Requirement of Law" shall mean, as to any Person, the
certificate or articles of incorporation and by-laws or other
organizational or governing documents of such Person, and any applicable
law, treaty, ordinance, order, judgment, rule, decree, regulation, or
determination of an arbitrator, court, or other Governmental Authority,
including, without limitation, rules, regulations, orders, and
requirements for permits, licenses, registrations, approvals, or
authorizations, in each case as such now exist or may be hereafter
amended and are applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.
"Reserve Report" shall mean each report delivered to the Agent
and each Lender pursuant to Section 5.4.
"Responsible Officer" shall mean, as to any Person, its
President, Chief Executive Officer, Chief Financial Officer or any Vice
President.
"Scheduled Reduction Amount" shall mean the amount by which
the Borrowing Base shall be reduced each calendar month as determined by
the Lenders under Section 2.9(b) from time to time.
"Security Instruments" shall mean the security instruments
executed and delivered in satisfaction of the condition set forth in
Section 3.1(f), and all other documents and instruments at any time
executed as security for all or any portion of the Obligations of the
Borrower or any Subsidiary or other Affiliate of the Borrower owing to
the Agent or any Lender or any branch, Subsidiary or other Affiliate of
the Agent or any Lender, as such instruments may be amended, restated, or
supplemented from time to time.
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"Subsidiary" shall mean, as to any Person, a corporation of
which shares of stock having ordinary voting power (other than stock
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.
"Superfund Site" shall mean those sites listed on the
Environmental Protection Agency National Priority List and eligible for
remedial action or any comparable state registries or list in any state
of the United States.
"UCC" shall mean the Uniform Commercial Code as from time to
time in effect in the State of Texas.
1.3 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP at
the time in effect.
1.4 References. References in this Agreement to Schedule,
Exhibit, Article, or Section numbers shall be to Schedules, Exhibits, Articles,
or Sections of this Agreement, unless expressly stated to the contrary.
References in this Agreement to "hereby," "herein," "hereinafter,"
"hereinabove," "hereinbelow," "hereof," "hereunder" and words of similar import
shall be to this Agreement in its entirety and not only to the particular
Schedule, Exhibit, Article, or Section in which such reference appears.
1.5 Articles and Sections. This Agreement, for convenience
only, has been divided into Articles and Sections; and it is understood that the
rights and other legal relations of the parties hereto shall be determined from
this instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural; and likewise, the plural shall be understood to include the singular.
Definitions of terms defined in the singular or plural shall be equally
applicable to the plural or singular, as the case may be, unless otherwise
indicated. Words denoting sex shall be construed to include the masculine,
feminine and neuter, when such construction is appropriate; and specific
enumeration shall not exclude the general but shall be construed as cumulative.
1.7 Incorporation of Schedules and Exhibits. The Exhibits
attached to this Agreement are incorporated herein and shall be considered a
part of this Agreement for all purposes.
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ARTICLE II
TERMS OF FACILITY
2.1 Revolving Line of Credit. (a) Upon the terms and
conditions (including, without limitation, the right of the Lenders to decline
to make any Loan so long as any Default or Event of Default exists) and relying
on the representations and warranties contained in this Agreement, the Lenders
severally agree, during the Commitment Period, to make Loans, in immediately
available funds at the Applicable Lending Office or the Principal Office, to or
for the benefit of the Borrower, from time to time on any Business Day
designated by the Borrower following receipt by the Agent of a Borrowing
Request; provided, however, no Loan at the time it is made shall exceed the then
existing Available Commitment.
(b) Subject to the terms of this Agreement, during the
Commitment Period, the Borrower may borrow, repay, and reborrow and convert
Loans of one type or with one Interest Period into Loans of another type or with
a different Interest Period. Except for prepayments made pursuant to Section
2.10, each borrowing, conversion, and prepayment of principal of Loans shall be
in an aggregate amount at least equal to $100,000. Each borrowing, prepayment,
or conversion of or into a Loan of a different type or, in the case of a Fixed
Rate Loan, having a different Interest Period, shall be deemed a separate
borrowing, conversion, or prepayment for purposes of the foregoing, one for each
type of Loan or Interest Period. Anything in this Agreement to the contrary
notwithstanding, the aggregate principal amount of LIBO Rate Loans having the
same Interest Period shall be at least equal to $1,000,000; and if any LIBO Rate
Loan would otherwise be in a lesser aggregate principal amount for any period,
such Loan shall be a Floating Rate Loan during such period.
(c) The Loans shall be made and maintained at the Applicable
Lending Office or the Principal Office and shall be evidenced by the Notes.
(d) Not later than 3:00 p.m., Central Standard or Daylight
Savings Time, as the case may be, on the date specified for each borrowing, each
Lender shall make available an amount equal to its Percentage Share of the
borrowing to be made on such date to the Agent, at an account designated by the
Agent, in immediately available funds, for the account of the Borrower. The
amount so received by the Agent shall, subject to the terms and conditions
hereof, be made available to the Borrower in immediately available funds at the
Principal Office. All Loans by each Lender shall be maintained at the Applicable
Lending Office of such Lender and shall be evidenced by the Note of such Lender.
(e) The failure of any Lender to make any Loan required to be
made by it hereunder shall not relieve any other Lender of its obligation to
make any Loan required to be made by it, and no Lender shall be responsible for
the failure of any other Lender to make any Loan.
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<PAGE> 22
(f) The face amounts of the Notes have been established as an
administrative convenience and do not commit any Lender to advance funds
hereunder in excess of the then current Borrowing Base.
2.2 Letter of Credit Facility. (a) Upon the terms and
conditions and relying on the representations and warranties contained in this
Agreement, the Agent, as issuing bank for the Lenders, agrees from the date of
this Agreement until the date which is thirty days prior to the Commitment
Termination Date, to issue on behalf of the Lenders in their respective
Percentage Shares Letters of Credit for the account of the Borrower and to renew
and extend such Letters of Credit. Letters of Credit shall be issued, renewed,
or extended from time to time on any Business Day designated by the Borrower
following the receipt in accordance with the terms hereof by the Agent of the
written (or oral, confirmed promptly in writing) request by a Responsible
Officer of the Borrower therefor and a Letter of Credit Application. Letters of
Credit shall be issued in such amounts as the Borrower may request; provided,
however, that (i) no Letter of Credit shall have an expiration date which is
more than 365 days after the issuance thereof or subsequent to the Final
Maturity, (ii) each automatically renewable Letter of Credit shall provide that
it may be terminated by the Agent at its then current expiry date by not less
than 30 days' written notice by the Agent to the beneficiary of such Letter of
Credit, and (iii) the Agent shall not be obligated to issue any Letter of Credit
if (A) the face amount thereof would exceed the Available Commitment, or (B)
after giving effect to the issuance thereof, (I) the L/C Exposure, when added to
the Loan Balance then outstanding, would exceed the lesser of the Maximum
Commitment Amount or the Borrowing Base, or (II) the L/C Exposure would exceed
$2,000,000.
(b) Prior to any Letter of Credit Payment in respect of any
Letter of Credit, each Lender shall be deemed to be a participant through the
Agent with respect to the relevant Letter of Credit in the obligation of the
Agent, as the issuer of such Letter of Credit, in an amount equal to the
Percentage Share of such Lender of the maximum amount which is or at any time
may become available to be drawn thereunder. Upon delivery by such Lender of
funds requested pursuant to Section 2.2(c), such Lender shall be treated as
having purchased a participating interest in an amount equal to such funds
delivered by such Lender to the Agent in the obligation of the Borrower to
reimburse the Agent, as the issuer of such Letter of Credit, for any amounts
payable, paid, or incurred by the Agent, as the issuer of such Letter of Credit,
with respect to such Letter of Credit.
(c) Each Lender shall be unconditionally and irrevocably
liable, without regard to the occurrence of any Default or Event of Default, to
the extent of the Percentage Share of such Lender at the time of issuance of
each Letter of Credit, to reimburse, on demand, the Agent, as the issuer of such
Letter of Credit, for the amount of each Letter of Credit Payment under such
Letter of Credit. Each Letter of Credit Payment shall be deemed to be a Floating
Rate Loan by each Lender to the extent of funds delivered by such Lender to the
Agent with respect to such Letter of Credit Payment and shall to such extent be
deemed a Floating Rate Loan under and shall be evidenced by the Note of such
Lender and shall be payable by the Borrower upon demand by the Agent.
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<PAGE> 23
(d) EACH LENDER AGREES TO SEVERALLY INDEMNIFY THE AGENT, AS
THE ISSUER OF EACH LETTER OF CREDIT, AND THE OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS-IN-FACT AND AFFILIATES OF THE AGENT (TO THE EXTENT NOT
REIMBURSED BY THE BORROWER AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWER
TO DO SO), RATABLY ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER AT THE TIME
OF ISSUANCE OF SUCH LETTER OF CREDIT, FROM AND AGAINST ANY AND ALL LIABILITIES,
CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER WHICH MAY AT ANY TIME
(INCLUDING, WITHOUT LIMITATION, ANY TIME FOLLOWING THE PAYMENT AND PERFORMANCE
OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT) BE IMPOSED ON,
INCURRED BY OR ASSERTED AGAINST THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT
OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR SUCH
LETTER OF CREDIT OR ANY ACTION TAKEN OR OMITTED BY THE AGENT AS THE ISSUER OF
SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR IN CONNECTION WITH ANY OF THE
FOREGOING, INCLUDING, WITHOUT LIMITATION, ANY LIABILITIES, CLAIMS, OBLIGATIONS,
LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND
DISBURSEMENTS IMPOSED, INCURRED OR ASSERTED AS A RESULT OF THE NEGLIGENCE,
WHETHER SOLE OR CONCURRENT, OF THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT
OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES; PROVIDED THAT NO LENDER (OTHER THAN THE AGENT AS THE ISSUER OF A
LETTER OF CREDIT) SHALL BE LIABLE FOR THE PAYMENT OF ANY PORTION OF SUCH
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS NEGLIGENCE WHETHER
SOLE OR CONCURRENT OR WILLFUL MISCONDUCT OF THE AGENT AS THE ISSUER OF A LETTER
OF CREDIT. THE AGREEMENTS IN THIS SECTION 2.2(D) SHALL SURVIVE THE PAYMENT AND
PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
2.3 Use of Loan Proceeds and Letters of Credit. (a) Proceeds
of all Loans shall be used to refinance the existing debt with Bank of Oklahoma,
for general corporate purposes of the Borrower, including, without limitation,
costs of acquiring, exploring on and developing Oil and Gas Properties and
general working capital needs; and
(b) Letters of Credit shall be used solely for general
corporate purposes of the Borrower; provided, however, no Letter of Credit may
be used in lieu or in support of stay or appeal bonds.
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2.4 Interest. Subject to the terms of this Agreement
(including, without limitation, Section 2.19), interest on the Loans shall
accrue and be payable at a rate per annum equal to the Floating Rate for each
Floating Rate Loan and the Adjusted LIBO Rate for each LIBO Rate Loan. Interest
on all Floating Rate Loans shall be computed on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed (including the first day
but excluding the last day) during the period for which payable. Interest on all
LIBO Rate Loans shall be computed on the basis of a year of 360 days, and actual
days elapsed (including the first day but excluding the last day) during the
period for which payable. Notwithstanding the foregoing, interest on past-due
principal and, to the extent permitted by applicable law, past-due interest,
shall accrue at the Default Rate, computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day but
excluding the last day) during the period for which payable, and shall be
payable upon demand by the Lenders at any time as to all or any portion of such
interest. In the event that the Borrower fails to select the duration of any
Interest Period for any Fixed Rate Loan within the time period and otherwise as
provided herein, such Loan (if outstanding as a Fixed Rate Loan) will be
automatically converted into a Floating Rate Loan on the last day of the then
current Interest Period for such Loan or (if outstanding as a Floating Rate
Loan) will remain as, or (if not then outstanding) will be made as, a Floating
Rate Loan. Interest provided for herein shall be calculated on unpaid sums
actually advanced and outstanding pursuant to the terms of this Agreement and
only for the period from the date or dates of such advances until repayment.
2.5 Repayment of Loans and Interest. Accrued and unpaid
interest on each outstanding Floating Rate Loan shall be due and payable monthly
commencing on the first day of May, 1998, and continuing on the first day of
each calendar month thereafter while any Floating Rate Loan remains outstanding,
the payment in each instance to be the amount of interest which has accrued and
remains unpaid in respect of the relevant Loan. Accrued and unpaid interest on
each outstanding Fixed Rate Loan shall be due and payable on the last day of the
Interest Period for such Fixed Rate Loan and, in the case of any Interest Period
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each
payment hereunder or under the Notes, the Borrower shall specify to the Agent
the Loans or other amounts payable by the Borrower hereunder to which such
payment is to be applied. In the event the Borrower fails to so specify, or if
an Event of Default has occurred and is continuing, the Agent may apply such
payment as it may elect in its sole discretion.
2.6 Outstanding Amounts. The Loan Balance reflected by the
notations by the Lenders on their records shall be deemed rebuttably presumptive
evidence of the Loan Balance. The liability for payment of principal and
interest evidenced by the Notes shall be limited to principal amounts actually
advanced and outstanding pursuant to this Agreement and interest on such amounts
calculated in accordance with this Agreement.
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2.7 Time, Place, and Method of Payments. All payments required
pursuant to this Agreement or the Notes shall be made in lawful money of the
United States of America and in immediately available funds, shall be deemed
received by the Lenders on the next Business Day following receipt if such
receipt is after 2:00 p.m., Central Standard or Daylight Savings Time, as the
case may be, on any Business Day, and shall be made to the Agent at the
Principal Office. Except as provided to the contrary herein, if the due date of
any payment hereunder or under the Notes would otherwise fall on a day which is
not a Business Day, such date shall be extended to the next succeeding Business
Day, and interest shall be payable for any principal so extended for the period
of such extension.
2.8 Pro Rata Treatment; Adjustments. (a) Except to the extent
otherwise expressly provided herein, (i) each borrowing made pursuant to this
Agreement shall be from the Lenders pro rata in accordance with their Percentage
Shares, (ii) each payment by the Borrower of Commitment Fees shall be made for
the account of the Lenders pro rata in accordance with their respective
Percentage Shares, (iii) Facility Fees and Letter of Credit Fees shall be made
for the account of the Lenders in accordance with each Lender's Percentage Share
of any increase in the Commitment Amount or any Letter of Credit issued, (iv)
each payment of principal of Loans shall be made for the account of the Lenders
pro rata in accordance with their respective Percentage Shares of the Loan
Balance, and (v) each payment of interest on Loans shall be made for the account
of the Lenders pro rata in accordance with their Percentage Shares of the
aggregate amount of interest due and payable to the Lenders.
(b) The Agent shall distribute all payments with respect to
the Obligations to the Lenders promptly upon receipt in like funds as received.
In the event that any payments made hereunder by the Borrower at any particular
time are insufficient to satisfy in full the Obligations due and payable at such
time, such payments shall be applied (a) first, to fees and expenses due
pursuant to the terms of this Agreement or any other Loan Document, (b) second,
to accrued interest, (c) third, to the Loan Balance, and (d) last, to any other
Obligations.
(c) If any Lender (for purposes of this Section, a "benefitted
Lender") shall at any time receive any payment of all or part of its portion of
the Obligations, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Sections 7.1(f) or 7.1(g), or otherwise) in an amount
greater than such Lender was entitled to receive pursuant to the terms hereof,
such benefitted Lender shall purchase for cash from the other Lenders such
portion of the Obligations of such other Lenders or shall provide such other
Lenders with the benefits of any such Collateral or the proceeds thereof as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such Collateral or proceeds with each of the Lenders according to
the terms hereof. If all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded and the purchase price and benefits returned by such Lender, to the
extent of such recovery, but without interest. The Borrower agrees that each
such Lender so purchasing a portion of the Obligations of another Lender may
exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Lender
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<PAGE> 26
were the direct holder of such portion. If any Lender ever receives, by
voluntary payment, exercise of rights of set-off or banker's lien, counterclaim,
cross-action or otherwise, any funds of the Borrower to be applied to the
Obligations, or receives any proceeds by realization on or with respect to any
Collateral, all such funds and proceeds shall be immediately forwarded to the
Agent for distribution in accordance with the terms of this Agreement.
2.9 Borrowing Base Determinations. (a) The Borrowing Base as
of the Closing Date is acknowledged by the Borrower and the Lenders to be
$29,000,000 and shall reduce to a level of $27,500,000 within ten days of the
Closing Date. Commencing on May 1, 1998, and continuing thereafter on the first
day of each calendar month until the earlier of the date such amount is
redetermined or the Commitment Termination Date, the Scheduled Reduction Amount
shall be $275,000.
(b) The Borrowing Base and the Scheduled Reduction Amount
shall be redetermined semi-annually by unanimous consent of the Lenders
beginning October 1, 1998, on the basis of information supplied by the Borrower
in compliance with the provisions of this Agreement, including, without
limitation, Reserve Reports, and all other information available to the Lenders.
In addition, the Lenders shall, in the normal course of business following a
request of the Borrower, redetermine the Borrowing Base; provided, however, the
Lenders shall not be obligated to respond to more than four such requests during
any calendar year, and in no event shall the Lenders be required to redetermine
the Borrowing Base more than twice in any three-month period, including, without
limitation, each scheduled semi-annual redetermination provided for above.
Notwithstanding the foregoing, the Lenders may at their discretion and by
unanimous consent redetermine the Borrowing Base and the Scheduled Reduction
Amount at any time and from time to time.
(c) Upon each determination of the Borrowing Base and the
Scheduled Reduction Amount by the Lenders, the Agent shall notify the Borrower
orally (confirming such notice promptly in writing) of such determination, and
the Borrowing Base and the Scheduled Reduction Amount shall become effective
upon such written notification and shall remain in effect until the next
subsequent determination of the Borrowing Base. Upon request, Agent will furnish
detailed information as to the determination of the Borrowing Base.
(d) The Borrowing Base shall represent the determination by
the Lenders, in accordance with the applicable definitions and provisions herein
contained and their customary lending practices for loans of this nature, of the
value, for loan purposes, of the Mortgaged Properties, plus certain other Oil
and Gas Properties to be determined in sole discretion of the Lenders subject,
in the case of any increase in the Borrowing Base, to the credit approval
process of the Lenders. Furthermore, the Borrower acknowledges that the
determination of the Borrowing Base contains an equity cushion (market value in
excess of loan value), which is acknowledged by the Borrower to be essential for
the adequate protection of the Lenders. The Borrowing Base shall be determined
in the sole discretion of the Lenders by using the Lenders' then current
engineering and credit standards.
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2.10 Mandatory Prepayments. If at any time the sum of the Loan
Balance and the L/C Exposure exceeds the Borrowing Base then in effect, the
Borrower shall, within 60 days of notice from the Agent of such occurrence, (a)
prepay, or make arrangements acceptable to the Lenders for the prepayment of,
the amount of such excess for application on the Loan Balance, (b) provide
additional Collateral, of character and value satisfactory to the Lenders in
their sole discretion, to secure the amount of such excess by the execution and
delivery to the Agent for the benefit of the Lenders of Security Instruments in
form and substance satisfactory to the Agent, or (c) effect any combination of
the alternatives described in clauses (a) and (b) of this Section and acceptable
to the Lenders in their sole discretion. In the event that a mandatory
prepayment is required under this Section and the Loan Balance is less than the
amount required to be prepaid, the Borrower shall repay the entire Loan Balance
and, in accordance with the provisions of the relevant Letter of Credit
Applications executed by the Borrower or otherwise to the satisfaction of the
Lenders, deposit with the Agent for the benefit of the Lenders, as additional
collateral securing the Obligations, an amount of cash, in immediately available
funds, equal to the L/C Exposure minus the lesser of the aggregate Commitment
Amounts or the Borrowing Base. The cash deposited with the Agent for the benefit
of the Lenders in satisfaction of the requirement provided in this Section may
be invested, at the sole discretion of the Lenders and then only at the express
direction of the Borrower as to investment vehicle and maturity (which shall be
no later than the latest expiry date of any then outstanding Letter of Credit),
for the account of the Borrower in cash or cash equivalent investments offered
by or through the Agent.
2.11 Voluntary Prepayments and Conversions of Loans. Subject
to applicable provisions of this Agreement, the Borrower shall have the right at
any time or from time to time to prepay Loans without penalty and to convert
Loans of one type or with one Interest Period into Loans of another type or with
a different Interest Period; provided, however, that (a) the Borrower shall give
the Agent notice of each such prepayment or conversion of all or any portion of
a Fixed Rate Loan no less than two Business Days prior to prepayment or
conversion, (b) any Fixed Rate Loan may be prepaid or converted only on the last
day of an Interest Period for such Loan, (c) the Borrower shall pay all accrued
and unpaid interest on the amounts prepaid or converted, and (d) no such
prepayment or conversion shall serve to postpone the repayment when due of any
Obligation.
2.12 Commitment Fee. In addition to interest on the Notes as
provided herein and other fees payable hereunder and to compensate the Lenders
for maintaining funds available, the Borrower shall pay to the Agent, for the
account of the Lenders, in immediately available funds, on the first day of
April, 1998, and on the first day of each third calendar month thereafter during
the Commitment Period and on the Commitment Termination Date, a fee in the
amount per annum as set forth below, calculated on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed (including the first day
but excluding the last day), on the average daily amount of the Available
Commitment during the preceding quarterly period as follows:
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<TABLE>
<CAPTION>
Borrowing Base LIBO Rate Loan
Utilization Applicable Margin
---------------------------------------------------
<S> <C>
greater than 50% one-half percent (1/2%)
of Borrowing Base
less than or equal to 50% three-eighths percent (3/8%)
of Borrowing Base
</TABLE>
The Borrowing Base Utilization and the corresponding
Commitment Fee shall be set at the close of each calendar quarter for the next
such quarter.
2.13 Facility Fee. In addition to interest on the Notes as
provided herein and other fees payable hereunder and to compensate the Lenders
for the costs of the extension of credit hereunder, the Borrower shall pay to
the Agent for the account of the Lenders, in immediately available funds, an
initial facility fee in the amount of $108,750. Such fee shall be paid on the
Closing Date to the Agent for the benefit of the Lenders as of the Closing Date.
In addition, the Borrower shall pay to the Agent for the account of the Lenders
three-eighths percent (3/8%) on any future increase in the Borrowing Base within
five days of written notice.
2.14 Engineering Fee. In addition to the interest on the Notes
as provided herein and other fees payable hereunder and to compensate the Agent
for costs of evaluating the Mortgaged Properties and reviewing the Reserve
Reports, the Borrower shall pay to the Agent, in immediately available funds, an
engineering fee of $5,000 per each semi-annual Borrowing Base review and to the
Agent for the benefit of the Lenders other than the Agent, an engineering fee of
$2,500 per each semi-annual Borrowing Base review. The Borrower shall pay to the
Agent an engineering fee of $2,500 per each interim Borrowing Base review and to
the Agent for the benefit of the Lenders other than the Agent, an engineering
fee of $1,250 per each interim Borrowing Base review.
2.15 Letter of Credit Fee. In addition to interest on the
Notes as provided herein and Commitment Fees and Facility Fees payable
hereunder, the Borrower agrees to pay to the Agent, for the account of the
Lenders, on the date of issuance or renewal of each Letter of Credit, a fee
equal to the greater of (a) $500 or (b) one and one-half percent (1 1/2%) per
annum calculated on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day), on
the face amount of such Letter of Credit and for the period for which such
Letter of Credit is issued or renewed; provided, however, in the event such
Letter of Credit is canceled prior to its original expiry date or a payment is
made by the Agent for the account of the Lenders with respect to such Letter of
Credit, the Agent and the Lenders shall, within 30 days after such cancellation
or the making of such payment, rebate to the Borrower the unearned portion of
any such fee. The Borrower also agrees to pay on demand to the Agent, for its
own account as the issuer of the Letters of Credit, its reasonable customary
letter of credit transactional fees, including, without limitation, amendment
fees, payable with respect to each Letter of Credit.
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<PAGE> 29
2.16 Agency Fee. The Borrower shall pay to the Agent, for its
own account, all fees owing or which may become owing under the Agency Fee
Letter as provided therein.
2.17 Loans to Satisfy Obligations of Borrower. The Lenders
may, by unanimous consent, but shall not be obligated to, make Loans for the
benefit of the Borrower and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrower contained in
this Agreement or any other Loan Document. Any such Loan shall be evidenced by
the Notes and shall be made as a Floating Rate Loan.
2.18 Security Interest in Accounts; Right of Offset. As
security for the payment and performance of the Obligations, the Borrower hereby
transfers, assigns, and pledges to the Agent, for the benefit of the Lenders,
and grants to the Agent, for the benefit of the Lenders, a security interest in
all funds of the Borrower now or hereafter or from time to time on deposit with
the Agent or any Lender, with such interest of the Lenders to be retransferred,
reassigned, and/or released by the Agent and each Lender, as the case may be, at
the expense of the Borrower upon payment in full and complete performance by the
Borrower of all Obligations. All remedies as secured party or assignee of such
funds shall be exercisable by the Agent and each Lender upon the occurrence of
any Event of Default, regardless of whether the exercise of any such remedy
would result in any penalty or loss of interest or profit with respect to any
withdrawal of funds deposited in a time deposit account prior to the maturity
thereof. Furthermore, the Borrower hereby grants to the Agent and each Lender
the right, exercisable at such time as any Obligation shall mature, whether by
acceleration of maturity or otherwise, of offset or banker's lien against all
funds of the Borrower now or hereafter or from time to time on deposit with the
Agent and each Lender, regardless of whether the exercise of any such remedy
would result in any penalty or loss of interest or profit with respect to any
withdrawal of funds deposited in a time deposit account prior to the maturity
thereof.
2.19 General Provisions Relating to Interest. (a) It is the
intention of the parties hereto to comply strictly with the usury laws of the
State of Texas to the extent applicable to each Lender and the United States of
America. In this connection, there shall never be collected, charged, or
received on the sums advanced hereunder interest in excess of that which would
accrue at the Highest Lawful Rate. For purposes of Tex. Fin. Code Ann. ss.
303.301 (Vernon 1998), the Borrower agrees that the Highest Lawful Rate shall be
the "indicated (weekly) rate ceiling" as defined in such Article, provided that
the Agent and the Lenders may also rely, to the extent permitted by applicable
laws of the State of Texas or the United States of America, on alternative
maximum rates of interest under other laws of the State of Texas or other states
or the United States of America applicable to the Agent and/or such Lender, if
greater.
(b) Notwithstanding anything herein or in the Notes to the
contrary, during any Limitation Period, the interest rate to be charged on
amounts evidenced by the Notes shall be the Highest Lawful Rate, and the
obligation, if any, of the Borrower for the payment of fees or other charges
deemed to be interest under applicable law shall be suspended. During any period
or periods of time following a Limitation Period, to the extent permitted by
applicable laws of the State of Texas or other states or the United States of
America, the interest rate to be charged hereunder shall
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<PAGE> 30
remain at the Highest Lawful Rate until such time as there has been paid to the
Agent for the account of each Lender (i) the amount of interest in excess of
that accruing at the Highest Lawful Rate that the Agent and the Lenders would
have received during the Limitation Period had the interest rate remained at the
otherwise applicable rate, and (ii) all interest and fees otherwise payable to
the Agent and the Lenders but for the effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on
the Notes or under this Agreement or any other Loan Document include amounts
which by law are deemed interest and which would exceed the amount permitted if
the Highest Lawful Rate were in effect, the Borrower stipulates that such
payment and collection will have been and will be deemed to have been, to the
greatest extent permitted by applicable laws of the State of Texas any other
applicable states' laws or the United States of America, the result of
mathematical error on the part of the Borrower and the Agent and the Lenders;
and the Agent and the Lenders shall promptly refund the amount of such excess
(to the extent only of such interest payments in excess of that which would have
accrued and been payable on the basis of the Highest Lawful Rate) upon discovery
of such error by the Agent and the Lenders or notice thereof from the Borrower.
In the event that the maturity of any Obligation is accelerated, by reason of an
election by the Agent and the Lenders or otherwise, or in the event of any
required or permitted prepayment, then the consideration constituting interest
under applicable laws may never exceed the Highest Lawful Rate; and excess
amounts paid which by law are deemed interest, if any, shall be credited by the
Lenders on the principal amount of the Obligations, or if the principal amount
of the Obligations shall have been paid in full, refunded to the Borrower.
(d) All sums paid, or agreed to be paid, to the Agent and the
Lenders for the use, forbearance and detention of the proceeds of any advance
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term hereof until paid in
full so that the actual rate of interest is uniform but does not exceed the
Highest Lawful Rate throughout the full term hereof.
2.20 Yield Protection. (a) Without limiting the effect of the
other provisions of this Section (but without duplication), the Borrower shall
pay to the Agent and each Lender from time to time upon written request such
amounts as the Agent and such Lender may determine are necessary to compensate
it for any Additional Costs incurred by the Agent and such Lender.
(b) Without limiting the effect of the other provisions of
this Section (but without duplication), the Borrower shall pay to each Lender
from time to time upon written request such amounts as each Lender may determine
are necessary to compensate each Lender for any reasonable costs attributable to
the maintenance by each Lender (or any Applicable Lending Office), pursuant to
any Regulatory Change, of capital in respect of the Commitment, such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of each Lender (or any Applicable Lending
Office) to a level below that which each Lender (or any Applicable Lending
Office) could have achieved but for such Regulatory Change.
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(c) Without limiting the effect of the other provisions of
this Section (but without duplication), the Borrower shall pay to each Lender
the reasonable administrative and re-employment costs customarily charged by
Lenders as a result of:
(i) any payment, prepayment, or conversion by the
Borrower of a Fixed Rate Loan on a date other than the last
day of an Interest Period for such Loan; or
(ii) any failure by the Borrower to borrow a Fixed Rate
Loan from the Lenders on the date for such borrowing specified
in the relevant Borrowing Request;
such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any and only to the extent actually
incurred by such Lender, of (A) the amount of interest which would have accrued
on the principal amount so paid, prepaid, converted, or not borrowed for the
period from the date of such payment, prepayment, conversion, or failure to
borrow to the last day of the then current Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date of such failure to borrow) at the applicable rate of
interest for such Loan provided for herein over (B) the interest component (as
reasonably determined by the Lenders) of the amount (as reasonably determined by
the Agent and such Lender) the Agent and such Lender would have bid in the
London interbank market for Dollar deposits of amounts comparable to such
principal amount and maturities comparable to such period.
(d) Determinations by the Agent and any Lender for purposes of
this Section of the effect of any Regulatory Change on capital maintained, their
costs or rate of return, maintaining Loans, their obligation to make Loans or on
amounts receivable by it in respect of Loans or such obligations, and the
additional amounts required to compensate the Agent and the Lenders under this
Section shall be conclusive, absent manifest error, provided that such
determinations are made on a reasonable basis. The Agent or such Lender shall
furnish the Borrower with a certificate setting forth in reasonable detail the
basis and amount of increased costs incurred or reduced amounts receivable as a
result of any such event, and the statements set forth therein shall be
conclusive, absent manifest error. The Agent or such Lender shall (i) notify the
Borrower, as promptly as practicable after any Lender obtains knowledge of any
Additional Costs or other sums payable pursuant to this Section and determine to
request compensation therefor, of any event occurring after the Closing Date
which will entitle the Agent and such Lender to compensation pursuant to this
Section; provided that the Borrower shall not be obligated for the payment of
any Additional Costs or other sums payable pursuant to this Section to the
extent such Additional Costs or other sums accrued more than 30 days prior to
the date upon which the Borrower was given such notice; and (ii) designate a
different Applicable Lending Office for the Loans of the Lenders affected by
such event if such designation will avoid the need for or reduce the amount of
such compensation. If the Agent or any Lender requests compensation from the
Borrower under this Section, the Borrower may, by notice to the Agent and any
Lender, require that the Loans by the Lenders of the type with respect
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to which such compensation is requested be converted into Floating Rate Loans in
accordance with Section 2.11. Any compensation requested by the Lenders pursuant
to this Section shall be due and payable to the Lenders within five days of
delivery of any such notice by the Lenders to the Borrower.
(e) Each Lender agrees that it shall not request, and the
Borrower shall not be obligated to pay, any Additional Costs or other sums
payable pursuant to this Section unless similar additional costs and other sums
payable are also generally assessed by the Lenders against other customers of
such Lenders similarly situated where such customers are subject to documents
providing for such assessment.
2.21 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, no more than six separate Loans shall be outstanding
at any one time, with, for purposes of this Section, all Floating Rate Loans
constituting one Loan and all LIBO Rate Loans for the same Interest Period
constituting one Loan. Anything herein to the contrary notwithstanding, if, on
or prior to the determination of any interest rate for any LIBO Rate Loan for
any Interest Period therefor:
(a) the Agent determines (which determination shall be
conclusive) that quotations of interest rates for the deposits referred
to in the definition of "LIBO Rate" in Section 1.2 are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for such Loan as provided
in this Agreement; or
(b) the Agent determines (which determination shall be
conclusive) that the rates of interest referred to in the definition of
"LIBO Rate" in Section 1.2 upon the basis of which the rate of interest
for such Loan for such Interest Period is to be determined does not
accurately reflect the cost to the Lenders of making or maintaining
such Loan for such Interest Period,
then the Agent shall give the Borrower prompt notice thereof; and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate Loans,
and the Borrower shall, on the last day of the then current Interest Period for
each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert
such Loan into another type of Loan in accordance with Section 2.11. Before
giving such notice pursuant to this Section, the Agent will designate a
different available Applicable Lending Office for LIBO Rate Loans or take such
other action as the Borrower may request if such designation or action will
avoid the need to suspend the obligation of the Lenders to make LIBO Rate Loans
hereunder and will not, in the opinion of any Lender, be disadvantageous to the
Lenders.
2.22 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make any type of Fixed
Rate Loans hereunder, or (b) maintain any type of Fixed Rate
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Loans hereunder, then such Lender shall promptly notify the Agent and the
Borrower thereof; and the obligation of such Lender hereunder to make such type
of Fixed Rate Loans and to convert other types of Loans into Fixed Rate Loans of
such type shall be suspended until such time as such Lender may again make and
maintain Fixed Rate Loans of such type, and the outstanding Fixed Rate Loans of
such type shall be converted into Floating Rate Loans in accordance with Section
2.11. Before giving such notice pursuant to this Section, such Lender will
designate a different available Applicable Lending Office for Fixed Rate Loans
or take such other action as the Borrower may request if such designation or
action will avoid the need to suspend the obligation of the Lenders to make
Fixed Rate Loans and will not, in the opinion of any Lender, be disadvantageous
to the Lenders.
2.23 Regulatory Change. In the event that by reason of any
Regulatory Change, any Lender (a) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of such Lender which includes deposits by reference to which
the interest rate on any Fixed Rate Loan is determined as provided in this
Agreement or a category of extensions of credit or other assets of such Lender
which includes any Fixed Rate Loan, or (b) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may hold, then,
at the election of such Lender with notice to the Agent and the Borrower, the
obligation of the Lenders to make such Fixed Rate Loans and to convert Floating
Rate Loans into such Fixed Rate Loans shall be suspended until such time as such
Regulatory Change ceases to be in effect, and all such outstanding Fixed Rate
Loans shall be converted into Floating Rate Loans in accordance with Section
2.11.
2.24 Limitations on Interest Periods. Each Interest Period
selected by the Borrower (a) which commences on the last Business Day of a
calendar month (or, with respect to any LIBO Rate Loan, any day for which there
is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month, (b) which would otherwise end on a day which is not a Business Day shall
end on the next succeeding Business Day (or, if such next succeeding Business
Day falls in the next succeeding calendar month, on the next preceding Business
Day), (c) which would otherwise commence before and end after Final Maturity
shall end on Final Maturity, and (d) shall have a duration of not less than one
month, as to any LIBO Rate Loan, and, if any Interest Period would otherwise be
a shorter period, the relevant Loan shall be a Floating Rate Loan during such
period.
2.25 Letters in Lieu of Transfer Orders. The Agent agrees that
none of the letters in lieu of transfer or division orders provided by the
Borrower pursuant to Section 3.1(f)(v) or Section 5.7 will be sent to the
addressees thereof prior to the occurrence of an Event of Default, at which time
the Agent may, at its option and in addition to the exercise of any of its other
rights and remedies, send any or all of such letters.
2.26 Power of Attorney. The Borrower hereby designates the
Agent as its agent and attorney-in-fact, to act in its name, place, and stead
for the purpose of completing and, upon the occurrence of an Event of Default,
delivering any and all of the letters in lieu of transfer orders
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delivered by the Borrower to the Agent pursuant to Section 3.1(f)(v) or Section
5.7, including, without limitation, completing any blanks contained in such
letters and attaching exhibits thereto describing the relevant Collateral. The
Borrower hereby ratifies and confirms all that the Agent shall lawfully do or
cause to be done by virtue of this power of attorney and the rights granted with
respect to such power of attorney. This power of attorney is coupled with the
interests of the Agent in the Collateral, shall commence and be in full force
and effect as of the Closing Date and shall remain in full force and effect and
shall be irrevocable so long as any Obligation remains outstanding or unpaid or
any Commitment exists. The powers conferred on the Agent by this appointment are
solely to protect the interests of the Agent and the Lenders under the Loan
Documents and shall not impose any duty upon the Agent to exercise any such
powers. The Agent shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and shall not be responsible
to the Borrower or any other Person for any act or failure to act with respect
to such powers, except for gross negligence or willful misconduct.
ARTICLE III
CONDITIONS
The obligations of the Lenders to enter into this Agreement
and to make Loans or participate in the issuance of Letters of Credit are
subject to the satisfaction of the following conditions precedent:
3.1 Receipt of Loan Documents and Other Items. The Lenders
shall have no obligation under this Agreement unless and until all matters
incident to the consummation of the transactions contemplated herein, including,
without limitation, the review by the Agent or its counsel of the title of the
Borrower shall be satisfactory to the Agent, and the Agent shall have received,
reviewed, and approved the following documents and other items, appropriately
executed when necessary and, where applicable, acknowledged by one or more
authorized officers of the Borrower all in form and substance satisfactory to
the Agent and dated, where applicable, of even date herewith or a date prior
thereto and acceptable to the Agent:
(a) multiple counterparts of this Agreement as requested by
the Lenders;
(b) the Note or Notes;
(c) copies of the Certificate of Incorporation and all
amendments thereto and the bylaws and all amendments thereto of the
Borrower accompanied by a certificate issued by the secretary or an
assistant secretary of the Borrower as the case may be, to the effect
that each such copy is correct and complete;
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(d) a certificate of incumbency and signatures of all officers
of the Borrower who are authorized to execute Loan Documents on behalf
of the Borrower, each such certificate being executed by the secretary
or an assistant secretary of the Borrower;
(e) copies of corporate resolutions approving the Loan
Documents and authorizing the transactions contemplated herein and
therein, duly adopted by the boards of directors of the Borrower
accompanied by a certificate of the secretary or an assistant secretary
of the Borrower to the effect that such copies are true and correct
copies of resolutions duly adopted at a meeting or by unanimous consent
of the board of directors of the Borrower and that such resolutions
constitute all the resolutions adopted with respect to such
transactions, have not been amended, modified, or revoked in any
respect, and are in full force and effect as of the date of such
certificate;
(f) multiple counterparts, as requested by the Lenders, of the
following Security Instruments creating, evidencing, perfecting, and
otherwise establishing Liens in favor of the Agent for the benefit of
the Lenders in and to the Collateral as security for the Obligations of
the Borrower or any Subsidiary or other Affiliate of the Borrower owing
to the Agent or any Lender or any branch, Subsidiary or other Affiliate
of the Agent or any Lender:
(i) Assignment of Note and Liens from Bank of
Oklahoma, National Association covering Oil and Gas Properties of
Middle Bay;
(ii) Ratification of and Amendment to Mortgage, Deed of
Trust, Indenture, Security Agreement, Assignment of Production, and
Financing Statement from Middle Bay to or for the benefit of the Agent
covering the Oil and Gas Properties of Middle Bay and all improvements,
personal property, and fixtures related thereto;
(iii) Mortgage, Deed of Trust, Indenture, Security
Agreement, Assignment of Production, and Financing Statement from the
Borrower to or for the benefit of the Agent covering certain Oil and
Gas Properties of Middle Bay and Enex designated by the Agent and all
improvements, personal property, and fixtures related thereto;
(iv) Financing Statements from Middle Bay and Enex, as
debtors, in favor of the Agent, as secured party, constituent to the
instruments described in clause (ii) or clause (iii) above;
(v) undated letters, in form and substance
satisfactory to the Agent, from Middle Bay and Enex to each purchaser
of
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production and disburser of the proceeds of production from or
attributable to the Mortgaged Properties, together with additional
letters with the addressees left blank, authorizing and directing the
addressees to make future payments attributable to production from the
Mortgaged Properties directly to the Agent;
(vi) Security Agreement (Stock Pledge) by Middle Bay in
favor of the Agent and covering 1,064,432 shares, equal to
approximately 79% of the shares of the common stock of Enex;
(g) unaudited Financial Statements of the Borrower as of September 30,
1997;
(h) certificates dated as of a recent date from the Secretary of State
or other appropriate Governmental Authority evidencing the existence or
qualification and good standing of the Borrower in its jurisdiction of
incorporation and in any other jurisdiction in which it conducts business;
(i) results of searches of the UCC Records of the Secretary of State of
the States of Alabama, Arkansas, Kansas, Louisiana, Michigan, Mississippi, New
Mexico, Oklahoma, Texas, and Wyoming from a source acceptable to the Agent and
reflecting no Liens, other than Permitted Liens, against any of the Collateral
as to which perfection of a Lien is accomplished by the filing of a financing
statement;
(j) confirmation, acceptable to the Agent, of the title of the Borrower
to the Mortgaged Properties, free and clear of Liens other than Permitted Liens;
(k) copies of all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and other
agreements relating to the Mortgaged Properties requested by the Agent;
(l) engineering reports covering the Mortgaged Properties;
(m) the opinion of Thrasher, Whitley, Hampton & Morgan, counsel to the
Borrower, substantially in the form attached hereto as Exhibit V, with such
changes thereto as may be approved by the Agent;
(n) certificates evidencing the insurance coverage required pursuant to
Section 5.18, 5.19; and
(o) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent or any Lender may
reasonably request.
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3.2 Each Loan. In addition to the conditions precedent stated
elsewhere herein, the Lenders shall not be obligated to make any Loan unless:
(a) the Borrower shall have delivered to the Agent a Borrowing Request
at least the requisite time prior to the requested date for the relevant Loan,
and each statement or certification made in such Borrowing Request shall be true
and correct in all material respects on the requested date for such Loan;
(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan;
(c) if requested by the Agent or any Lender, the Borrower shall have
delivered evidence satisfactory to the Agent or such Lender substantiating any
of the matters contained in this Agreement which are necessary to enable the
Borrower to qualify for such Loan;
(d) the Agent shall have received, reviewed, and approved such
additional documents and items as described in Section 3.1 as may be requested
by any Lender with respect to such Loan;
(e) no event shall have occurred which, in the reasonable opinion of
the Lenders, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in this
Agreement shall be true and correct and shall be deemed to be repeated by the
Borrower as if made on the requested date for such Loan;
(g) the Security Instruments shall be in full force and effect and
provide to the Lenders the security intended thereby;
(h) neither the consummation of the transactions contemplated hereby
nor the making of such Loan shall contravene, violate, or conflict with any
Requirement of Law;
(i) the Borrower shall hold full legal title to the Collateral pledged
by such entities and be the sole beneficial owners thereof;
(j) the Agent and/or each Lender shall have received payment of all
Facility Fees, Letter of Credit Fees, and other fees payable to the Agent and/or
each Lender hereunder and reimbursement from the Borrower, or special legal
counsel for the Agent shall have received payment from the Borrower, for (i) all
reasonable fees and expenses of counsel to the Agent for which the Borrower is
responsible pursuant to applicable provisions of this Agreement and for which
invoices have been presented as of or prior to the date of the relevant Loan,
and (ii) estimated fees charged by filing officers and other public officials
incurred or to be incurred in connection with the filing and recordation of any
Security Instruments, for which invoices have been presented as of or prior to
the date of the requested Loan; and
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(k) all matters incident to the consummation of the transactions hereby
contemplated shall be satisfactory to the Agent and each Lender.
3.3 Each Letter of Credit. The obligation of the Agent, as the
issuer of the Letters of Credit, to issue, renew, or extend any Letter of Credit
is subject to the satisfaction of the following additional conditions precedent:
(a) the Borrower shall have delivered to the Agent a written
(or oral, confirmed promptly in writing) request for the issuance,
renewal, or extension of a Letter of Credit at least two Business Days
prior to the requested issuance, renewal, or extension date and a
completed Letter of Credit Application at least two Business Days prior
to the requested issuance date; and each statement or certification
made in such Letter of Credit Application shall be true and correct in
all material respects on the requested date for the issuance of such
Letter of Credit;
(b) no Default or Event of Default shall exist or will occur
as a result of the issuance, renewal, or extension of such Letter of
Credit; and
(c) the terms, provisions, and beneficiary of the Letter of
Credit or such renewal or extension shall be satisfactory to the Agent,
as the issuer of the Letters of Credit, in its sole discretion.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this
Agreement and to make the Loans and issue, or participate in the issuance of,
Letters of Credit, the Borrower represents and warrants to the Agent and the
Lenders (which representations and warranties shall survive the delivery of the
Notes) that:
4.1 Due Authorization. The execution and delivery by the
Borrower of this Agreement and the borrowings hereunder, the execution and
delivery by the Borrower of the Notes, the repayment of the Notes and interest
and fees provided for in the Notes and this Agreement, the execution and
delivery of the Security Instruments by the Borrower and the performance of all
obligations of the Borrower under the Loan Documents are within the power of the
Borrower, have been duly authorized by all necessary corporate action by the
Borrower, and do not and will not to our knowledge, (a) require the consent of
any Governmental Authority, (b) contravene or conflict with any Requirement of
Law, (c) contravene or conflict with any indenture, instrument, or other
agreement to which the Borrower is a party or by which any Property of the
Borrower may be presently bound or encumbered, or (d) result in or require the
creation or imposition of any Lien in,
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upon or of any Property of the Borrower under any such indenture, instrument, or
other agreement, other than the Loan Documents.
4.2 Corporate Existence. The Borrower is a corporation duly
organized, legally existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and are in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
4.3 Valid and Binding Obligations. All Loan Documents, when
duly executed and delivered by the Borrower, will be the legal, valid, and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
4.4 Security Instruments. The provisions of each Security
Instrument are effective to create in favor of the Agent for the benefit of the
Lenders, a legal, valid, and enforceable Lien in all right, title, and interest
of the Borrower in the Collateral described therein, which Liens, assuming the
accomplishment of recording and filing in accordance with applicable laws prior
to the intervention of rights of other Persons, shall constitute fully perfected
first-priority Liens on all right, title, and interest of the Borrower in the
Collateral described therein. The Existing Liens, as assigned by BOK to the
Agent for the benefit of the Lenders, continue to constitute good and valid
first- priority Liens as of the original date of recordation thereof.
4.5 Title to Assets. The Borrower has good and defensible
title to all of its Properties, free and clear of all Liens except Permitted
Liens.
4.6 Scope and Accuracy of Financial Statements. The Financial
Statements of the Borrower as of September 30, 1997, present fairly the
financial position and results of operations and cash flows of the Borrower and
its consolidated Subsidiaries in accordance with GAAP as at the relevant point
in time or for the period indicated, as applicable. No event or circumstance has
occurred since September 30, 1997, which could reasonably be expected to have a
Material Adverse Effect.
4.7 No Material Misstatements. To the knowledge of the
Borrower, no information, exhibit, statement, or report furnished to the Lenders
by or at the direction of the Borrower in connection with this Agreement
contains any material misstatement of fact or omits to state a material fact or
any fact necessary to make the statements contained therein not misleading as of
the date made or deemed made.
4.8 Liabilities, Litigation, and Restrictions. Other than as
reflected in the Financial Statements referred to in Section 4.6 or as listed on
Schedule 4.8 attached hereto, the Borrower has no liabilities, direct, or
contingent, which may materially and adversely affect its business or operations
or its ownership of the Collateral and no litigation or other action of any
nature affecting the Borrower is pending before any Governmental Authority or,
to the best
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knowledge of the Borrower, threatened against or affecting the Borrower which
might reasonably be expected to result in any impairment of its ownership of any
Collateral or have a Material Adverse Effect. No unusual or unduly burdensome
restriction, restraint or hazard exists by contract, Requirement of Law, or
otherwise relative to the business or operations of the Borrower or the
ownership and operation of the Collateral other than such as relate generally to
Persons engaged in business activities similar to those conducted by the
Borrower.
4.9 Compliance with Laws. The Borrower and its Property,
including, without limitation, the Mortgaged Property, are in compliance with
all applicable Requirements of Law, including, without limitation, Environmental
Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, except to the
extent non-compliance with any such Requirements of Law could not reasonably be
expected to have a Material Adverse Effect.
4.10 ERISA. The Borrower does not maintain nor has it
maintained any Plan. The Borrower does not currently contribute to or have any
obligation to contribute to or otherwise have any liability with respect to any
Plan.
4.11 Environmental Laws. To the best knowledge and belief of
the Borrower, except as would not have a Material Adverse Effect or as described
on Schedule 4.11 attached hereto:
(a) no Property of the Borrower is currently on or has ever
been on, or is adjacent to any Property which is on or has ever been
on, any federal or state list of Superfund Sites;
(b) no Hazardous Substances have been generated, transported,
and/or disposed of by the Borrower at a site which was, at the time of
such generation, transportation, and/or disposal, or has since become,
a Superfund Site;
(c) except in accordance with applicable Requirements of Law
or the terms of a valid permit, license, certificate, or approval of
the relevant Governmental Authority, no Release of Hazardous Substances
by the Borrower or from, affecting, or related to any Property of the
Borrower or adjacent to any Property of the Borrower has occurred; and
(d) no Environmental Complaint has been received by the
Borrower.
4.12 Compliance with Federal Reserve Regulations. No
transaction contemplated by the Loan Documents is in violation of any
regulations promulgated by the Board of Governors of the Federal Reserve System,
including, without limitation, Regulations G, T, U, or X.
4.13 Investment Company Act Compliance. The Borrower is not,
nor is the Borrower directly or indirectly controlled by or acting on behalf of
any Person which is, an
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"investment company" or an "affiliated person" of an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
4.14 Public Utility Holding Company Act Compliance. The
Borrower is not a "holding company," or an "affiliate" of a "holding company" or
of a "subsidiary company" of a "holding company," within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
4.15 Proper Filing of Tax Returns; Payment of Taxes Due. The
Borrower has duly and properly filed a United States income tax return and all
other tax returns which are required to be filed and has paid all taxes due
except such as are being contested in good faith and as to which adequate
provisions and disclosures have been made. The respective charges and reserves
on the books of the Borrower with respect to taxes and other governmental
charges are adequate.
4.16 Refunds. Except as described on Schedule 4.16 attached
hereto, no orders of, proceedings pending before, or other requirements of the
Minerals Management Service, Bureau of Land Management, the Federal Energy
Regulatory Commission, the Texas Railroad Commission, or any Governmental
Authority exist which could result in the Borrower being required to refund any
material portion of the proceeds received or to be received from the sale of
hydrocarbons constituting part of the Mortgaged Property.
4.17 Gas Contracts. Except as described on Schedule 4.17
attached hereto, the Borrower (a) is not obligated in any material respect by
virtue of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Mortgaged Property at some future date
without receiving full payment therefor within 90 days of delivery, and (b) has
not produced gas, in any material amount, subject to, and neither the Borrower
nor any of the Mortgaged Properties is subject to, balancing rights of third
parties or subject to balancing duties under governmental requirements or joint
operating agreements, except as to such matters for which the Borrower has
established monetary reserves adequate in amount to satisfy such obligations and
have segregated such reserves from other accounts.
4.18 Intellectual Property. The Borrower owns or is licensed
to use all Intellectual Property necessary to conduct all business material to
its condition (financial or otherwise), business, or operations as such business
is currently conducted. No claim has been asserted or is pending by any Person
with respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
the Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by the Borrower does not infringe on the rights of any
Person, except for such claims and infringements as do not, in the aggregate,
give rise to any material liability on the part of the Borrower.
4.19 Casualties or Taking of Property. Except as disclosed on
Schedule 4.19 attached hereto, since September 30, 1997, neither the business
nor any Property of the Borrower
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has been materially adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property, or cancellation of
contracts, permits, or concessions by any Governmental Authority, riot,
activities of armed forces, or acts of God.
4.20 Locations of Borrower. The principal place of business
and chief executive office of the Borrower is located at the address of the
Borrower set forth in Section 9.3 or at such other location as the Borrower may
have, by proper written notice hereunder, advised the Agent and the Lenders,
provided that such other location is within a state in which appropriate
financing statements from the Borrower in favor of the Agent have been filed.
4.21 Subsidiaries. The Borrower has no Subsidiaries other than
as listed on Schedule 4.21 attached hereto.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower shall:
5.1 Maintenance and Access to Records. Keep adequate records,
in accordance with GAAP, of all its transactions so that at any time, and from
time to time, its true and complete financial condition may be readily
determined, and within two Business Days following the reasonable request of the
Agent or any Lender, make such records available for inspection by the Agent or
any Lender and, at the expense of the Borrower, allow the Agent or any Lender to
make and take away copies thereof.
5.2 Quarterly Financial Statements; Compliance Certificates.
Deliver to the Agent and each Lender, (a) on or before the 45th day after the
close of each of the first three quarterly periods of each fiscal year of the
Borrower, a copy of the unaudited consolidated and consolidating Financial
Statements of the Borrower and its consolidated Subsidiaries as at the close of
such quarterly period and from the beginning of such fiscal year to the end of
such period, such Financial Statements to be certified by a Responsible Officer
of the Borrower as having been prepared in accordance with GAAP consistently
applied and as a fair presentation of the condition of the Borrower, subject to
changes resulting from normal year-end audit adjustments, and (b) on or before
the 45th day after the close of each fiscal quarter and on or before the 120th
day after the close of each fiscal year, a Compliance Certificate and
calculations of compliance with the financial covenants included therein.
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5.3 Annual Financial Statements. Deliver to the Agent and each
Lender, on or before the 120th day after the close of each fiscal year of the
Borrower, a copy of the annual audited consolidated and unaudited consolidating
Financial Statements of the Borrower.
5.4 Oil and Gas Reserve Reports. (a) Deliver to the Agent and
each Lender, no later than April 1 of each year during the term of this
Agreement, engineering reports in form and substance satisfactory to the Agent
and the Lenders, certified by any nationally- or regionally- recognized
independent consulting petroleum engineers acceptable to the Agent and the
Lenders as fairly and accurately setting forth (i) the proven and producing,
shut-in, behind-pipe, and undeveloped oil and gas reserves (separately
classified as such) attributable to the Oil and Gas Properties as of January 1
of the year for which such reserve reports are furnished, (ii) the aggregate
present value of the future net income with respect to such Oil and Gas
Properties, discounted at a stated per annum discount rate of proven and
producing reserves, (iii) projections of the annual rate of production, gross
income, and net income with respect to such proven and producing reserves, and
(iv) information with respect to the "take-or-pay," "prepayment," and
gas-balancing liabilities of the Borrower.
(b) Deliver to the Agent and each Lender no later than October
1 of each year during the term of this Agreement, engineering reports in form
and substance satisfactory to the Agent and the Lenders prepared by or under the
supervision of the chief petroleum engineer of the Borrower evaluating the Oil
and Gas Properties as of July 1 of the year for which such reserve reports are
furnished and updating the information provided in the reports pursuant to
Section 5.4(a).
(c) Each of the reports provided pursuant to this Section
shall be submitted to the Agent and each Lender together with additional data
concerning pricing, quantities of production from the Oil and Gas Properties to
be determined in sole discretion of the Agent and the Lenders, volumes of
production sold, purchasers of production, gross revenues, expenses, and such
other information and engineering and geological data with respect thereto as
the Agent and the Lenders may reasonably request.
5.5 Title Opinions; Title Defects. For additions of Oil and
Gas Properties after the Closing Date, promptly upon the request of the Agent or
any Lender, furnish to the Agent title opinions, in form and substance and by
counsel satisfactory to the Agent, or other confirmation of title acceptable to
the Agent, covering a percentage of the present value, acceptable by the Agent
in its sole discretion, of the Oil and Gas Properties of the Borrower, and
promptly, but in any event within 60 days after notice by the Agent of any
defect, material in the reasonable opinion of the Agent and the Lenders in
value, in the title of the Borrower to any of its Oil and Gas Properties, cure
such title defects, and, in the event any such title defects are not cured in a
timely manner, pay all reasonable related costs and fees incurred by the Agent
to do so. Provided, however, to the extent it is determined by the Lenders that
such title defects cannot be cured or the Borrower so notifies the Lenders, the
Lenders may reduce the Borrowing Base by the amount equal to the value of the
Oil and Gas Property affected by such title defect.
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5.6 Notices of Certain Events. Deliver to the Agent and each
Lender, immediately upon having knowledge of the occurrence of any of the
following events or circumstances, a written statement with respect thereto,
signed by a Responsible Officer of the Borrower and setting forth the relevant
event or circumstance and the steps being taken by the Borrower with respect to
such event or circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual
obligation of the Borrower, or any litigation, investigation, or
proceeding between the Borrower and any Governmental Authority which,
in either case, if not cured or if adversely determined, as the case
may be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding involving the Borrower as a
defendant or in which any Property of the Borrower is subject to a
claim and in which the amount involved is $500,000 or more and which is
not covered by insurance or in which injunctive or similar relief is
sought;
(d) the receipt by the Borrower of any material Environmental
Complaint;
(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person concerning
the environmental condition of, or relating to, any Property of the
Borrower or adjacent to any Property of the Borrower following any
allegation of a violation of any Requirement of Law;
(f) any Release of Hazardous Substances by the Borrower or
from, affecting, or related to any Property of the Borrower or adjacent
to any Property of the Borrower except in accordance with applicable
Requirements of Law or the terms of a valid permit, license,
certificate, or approval of the relevant Governmental Authority, or the
violation of any Environmental Law, or the revocation, suspension, or
forfeiture of or failure to renew, any permit, license, registration,
approval, or authorization which could reasonably be expected to have a
Material Adverse Effect;
(g) upon request from the Agent, the change in identity or
address of any Person remitting to the Borrower proceeds from the sale
of hydrocarbon production from or attributable to any Mortgaged
Property;
(h) within two days of any change in the senior management of
the Borrower;
and
(i) any other event or condition which could reasonably be
expected to have a Material Adverse Effect.
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5.7 Letters in Lieu of Transfer Orders; Division Orders.
Promptly upon request by the Agent at any time and from time to time, execute
such letters in lieu of transfer orders, in addition to the letters signed by
the Borrower and delivered to the Agent in satisfaction of the condition set
forth in Section 3.1 (f)(v) and/or division and/or transfer orders as are
necessary or appropriate to transfer and deliver to the Agent proceeds from or
attributable to any Mortgaged Property.
5.8 Additional Information. Furnish to the Agent and each
Lender, promptly upon the request of the Agent or any Lender, such additional
financial or other information concerning the assets, liabilities, operations,
and transactions of the Borrower as the Agent or any Lender may from time to
time reasonably request; and notify the Agent and each Lender not less than ten
Business Days prior to the occurrence of any condition or event that may change
the proper location for the filing of any financing statement or other public
notice or recording for the purpose of perfecting a Lien in any Collateral,
including, without limitation, any change in its name or the location of its
principal place of business or chief executive office; and upon the request of
the Agent or any Lender, execute such additional Security Instruments as may be
necessary or appropriate in connection therewith.
5.9 Compliance with Laws. Comply with all applicable
Requirements of Law, including, without limitation, (a) the Natural Gas Policy
Act of 1978, as amended, (b) ERISA, (c) Environmental Laws, and (d) all permits,
licenses, registrations, approvals, and authorizations issued to it or of which
it has knowledge (i) related to any natural or environmental resource or media
located on, above, within, in the vicinity of, related to or affected by any
Property of the Borrower, (ii) required for the performance of the operations of
the Borrower, or (iii) applicable to the use, generation, handling, storage,
treatment, transport, or disposal of any Hazardous Substances; and instruct all
employees, crew members, agents, contractors, subcontractors, and future lessees
(pursuant to appropriate lease provisions) of the Borrower, while such Persons
are acting within the scope of their relationship with the Borrower, to comply
with all such Requirements of Law as may be necessary or appropriate to enable
the Borrower to so comply.
5.10 Payment of Assessments and Charges. Pay all taxes,
assessments, governmental charges, rent, and other Indebtedness which, if
unpaid, might become a Lien against the Property of the Borrower, except any of
the foregoing being contested in good faith and as to which adequate reserve in
accordance with GAAP has been established or unless failure to pay would not
have a Material Adverse Effect.
5.11 Maintenance of Corporate Existence and Good Standing.
Maintain its 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, unless the failure to do so would not have a Material Adverse Effect.
5.12 Payment of Notes; Performance of Obligations. Pay the
Notes according to the reading, tenor, and effect thereof, as modified hereby,
and do and perform every act and
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discharge all of its other Obligations. Each Borrower is jointly and severally
liable for all Obligations.
5.13 Further Assurances. Upon the Agent's written request,
promptly cure any defects in the execution and delivery of any of the Loan
Documents and all agreements contemplated thereby, and execute, acknowledge, and
deliver such other assurances and instruments as shall, in the opinion of the
Agent, be necessary to fulfill the terms of the Loan Documents.
5.14 Initial Fees and Expenses of Counsel to Agent. Upon
request by the Agent, promptly reimburse the Agent for all reasonable fees and
expenses of Jackson Walker L.L.P., special counsel to the Agent, for which an
invoice in reasonable detail has been provided, in connection with the
preparation of this Agreement and all documentation contemplated hereby, the
satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Instruments, and the consummation of the transactions
contemplated in this Agreement.
5.15 Subsequent Fees and Expenses of Agent and Lenders. Upon
request by the Agent, promptly reimburse the Agent (to the fullest extent
permitted by law) for all amounts reasonably expended, advanced, or incurred by
or on behalf of the Agent to ratify, amend, restate, or prepare additional Loan
Documents, as the case may be and for the filing and recordation of Security
Instruments. Promptly reimburse the Agent and each Lender for all amounts
reasonably expended, advanced, or incurred to satisfy any obligation of the
Borrower under any of the Loan Documents; to collect the Obligations; to enforce
the rights of the Agent and each Lender under any of the Loan Documents; and to
protect the Properties or business of the Borrower, including, without
limitation, the Collateral, which amounts shall be deemed compensatory in nature
and liquidated as to amount upon notice to the Borrower by the Agent and each
Lender and which amounts shall include, but not be limited to (a) all court
costs, (b) reasonable attorneys' fees, (c) reasonable fees and expenses of
auditors and accountants incurred to protect the interests of the Agent and each
Lender, (d) fees and expenses incurred in connection with the participation by
the Agent and each Lender as a member of the creditors' committee in a case
commenced under any Insolvency Proceeding, (e) fees and expenses incurred in
connection with lifting the automatic stay prescribed in ss.362 Title 11 of the
United States Code, and (f) fees and expenses incurred in connection with any
action pursuant to ss.1129 Title 11 of the United States Code all reasonably
incurred by the Agent and each Lender in connection with the collection of any
sums due under the Loan Documents, together with interest at the per annum
interest rate equal to the Floating Rate, calculated on a basis of a calendar
year of 365 or 366 days, as the case may be, counting the actual number of days
elapsed, on each such amount from the date of notification that the same was
expended, advanced, or incurred by the Agent and each Lender until the date it
is repaid to the Agent and each Lender, with the obligations under this Section
surviving the non-assumption of this Agreement in a case commenced under any
Insolvency Proceeding and being binding upon the Borrower and/or a trustee,
receiver, custodian, or liquidator of the Borrower appointed in any such case.
5.16 Operation of Oil and Gas Properties. Develop, maintain,
and operate its Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards.
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5.17 Maintenance and Inspection of Properties. Maintain all of
its tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all necessary replacements thereof and operate such Properties in
a good and workmanlike manner; and permit on two Business Days prior notice any
authorized representative of the Agent or any Lender to visit and inspect any
tangible Property of the Borrower which is operated by the Borrower.
5.18 Maintenance of Insurance. Maintain insurance with respect
to its Properties and businesses against such liabilities, casualties, risks,
and contingencies as is customary in the relevant industry and sufficient to
prevent a Material Adverse Effect, all such insurance to be in amounts and from
insurers acceptable to the Lenders and, within 60 days of the Closing Date for
property damage insurance covering Collateral and business interruption
insurance, if any, maintained by Borrower, naming the Agent as loss payee, and,
upon any renewal of any such insurance and at other times upon request by the
Agent or any Lender, furnish to the Agent or any Lender evidence, satisfactory
to the Agent and each Lender of the maintenance of such insurance. The Agent
shall have the right to collect, and the Borrower hereby assigns to the Agent
for the benefit of the Lenders, any and all monies that may become payable under
any policies of insurance relating to business interruption or by reason of
damage, loss, or destruction of any of the Collateral. In the event of any
damage, loss, or destruction for which insurance proceeds relating to business
interruption or Collateral exceed $100,000, the Agent for the benefit of the
Lenders may, at its option, apply all such sums or any part thereof received by
it toward the payment of the Obligations, whether matured or unmatured,
application to be made first to interest and then to principal, and shall
deliver to the Borrower the balance, if any, after such application has been
made. In the event of any such damage, loss, or destruction for which insurance
proceeds are $100,000 or less, provided that no Default or Event of Default has
occurred and is continuing, the Agent shall deliver any such proceeds received
by it to the Borrower. In the event the Agent receives insurance proceeds not
attributable to Collateral or business interruption, the Agent shall deliver any
such proceeds to the Borrower.
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE AGENT AND EACH
LENDER AND THEIR SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE AGENT
AND EACH LENDER UNDER ANY SECURITY INSTRUMENT HARMLESS FROM AND AGAINST ANY AND
ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES,
ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS,
REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES
INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES
AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE
BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED
ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR
DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE,
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EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER
PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE
HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION,
OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR
UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF
THE BORROWER, (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING
IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER OR ANY EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS ARE ACTING
WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER, IRRESPECTIVE OF
WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH
APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE OF ANY LOAN DOCUMENT, ANY
ALLEGATION BY ANY BENEFICIARY OF A LETTER OF CREDIT OF A WRONGFUL DISHONOR BY
THE AGENT OR ANY LENDER OF A CLAIM OR DRAFT PRESENTED THEREUNDER, OR ANY OTHER
ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE
FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE, OTHER THAN GROSS NEGLIGENCE,
WHETHER SOLE OR CONCURRENT, ON THE PART OF THE AGENT OR ANY LENDER OR ANY OF
THEIR SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS- IN-FACT,
OR AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE AGENT OR ANY LENDER UNDER
ANY SECURITY INSTRUMENT; WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF
ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT, UNLESS ALL SUCH
OBLIGATIONS HAVE BEEN SATISFIED WHOLLY IN CASH FROM THE BORROWER AND NOT BY WAY
OF REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY PROPERTY IN LIEU
THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL NOT EXTEND TO ANY ACT OR OMISSION BY
THE AGENT OR ANY LENDER WITH RESPECT TO ANY PROPERTY SUBSEQUENT TO THE AGENT OR
ANY LENDER BECOMING THE OWNER OF SUCH PROPERTY 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 BY THE AGENT OR ANY LENDER.
5.20 Operating Accounts. The Borrower shall maintain their
principal operating accounts with the Agent.
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ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower will not and will not allow any of its
Subsidiaries or other Affiliates to:
6.1 Indebtedness. Create, incur, assume, or suffer to exist
any Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) Permitted
Indebtedness, and (c) unsecured accounts payable incurred in the ordinary course
of business, which are not unpaid in excess of 60 days beyond receipt date or
are being contested in good faith, and (d) crude oil, natural gas, or other
hydrocarbon floor, collar, cap, price protection, or swap agreements, in form
and substance and with a Person acceptable to the Lenders, provided that (i)
such agreements shall not be entered into with respect to Mortgaged Properties
constituting more than 75% of the monthly production of proven producing
reserves as forecast in Lenders' most recent engineering evaluation, (ii) that
the strike prices in connection with option and swap agreements are not less
than the prices used by the Lenders in their most recent Borrowing Base
determination, (iii) the counterparty shall be approved by Lenders, (iv)
Borrowers and/or Co-Borrowers shall notify Lenders within five days of executing
a hedge transaction of the strike price and the volume of production, as well as
the duration of the transaction, (v) Borrowers and/or Co-Borrowers shall only
enter into hedge transactions with durations of eighteen months or less, (vi)
Borrower and/or Co-Borrowers shall pay any liabilities created under the hedge
transactions as they become due and in any event no later than 60 days from the
date such liability was incurred; and (vii) the Lenders shall receive a security
interest in the hedging contracts.
6.2 Contingent Obligations. Create, incur, assume, or suffer
to exist any Contingent Obligation not otherwise prohibited by Section 6.1;
provided, however, the foregoing restriction shall not apply to (a) performance
guarantees and performance surety or other bonds provided in the ordinary course
of business, or (b) trade credit incurred or operating leases entered into in
the ordinary course of business.
6.3 Liens. Create, incur, assume, or suffer to exist any Lien
on any of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to Permitted Liens.
6.4 Sales of Assets. Without the prior written consent of the
Agent and the Lenders, Borrower shall sell, transfer, or otherwise dispose of
any assets, if such assets are material to the operations of Borrower, other
than (a) sales of inventory in the ordinary course of business, (b) occasional
sales, leases or other dispositions of immaterial assets for consideration not
less than fair market value, (c) sales, leases or other dispositions of assets
that are obsolete or have negligible fair market value, and (d) sales of
equipment for fair and adequate consideration. The Agent and the Lenders will
consent to sales of assets representing up to 10% in the aggregate of the net
present
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value of the Oil and Gas Properties which comprise the Borrowing Base, as
calculated by the Agent and the Lenders pursuant to the terms of this Agreement,
provided that the Borrowing Base shall be reduced, and if necessary, proceeds
from such sale shall be applied to Loan Balance in an amount equal to the loan
value attributable to such assets sold.
6.5 Leasebacks. Enter into any agreement to sell or transfer
any Property and thereafter rent or lease as lessee such Property or other
Property intended for the same use or purpose as the Property sold or
transferred.
6.6 Loans or Advances. Make or agree to make or allow to
remain outstanding any loans or advances to any Person, other than to the other
entity also constituting a Borrower in excess of $100,000 in the aggregate;
provided, however, the foregoing restrictions shall not apply to (a) advances or
extensions of credit in the form of accounts receivable incurred in the ordinary
course of business and upon terms common in the industry for such accounts
receivable, or (b) advances to employees of the Borrower for the payment of
expenses in the ordinary course of business.
6.7 Investments. Acquire Investments in, or purchase or
otherwise acquire all or substantially all of the assets of, any Person which
exceeds $250,000 in the aggregate during any calendar year, without the prior
consent of the Lenders provided, however, such restriction shall not apply to
the following Investments:
(a) marketable obligations issued or unconditionally
guaranteed by the United States Government or issued
by any of its agencies and backed by the full faith
and credit of the United States of America;
(b) short-term investment grade domestic or Eurodollar
certificates of deposit or time deposits that are
fully insured by the Federal Deposit Insurance
Corporation;
(c) commercial paper and similar obligations rated "P-1"
or better by Moody's Investors Services, Inc. or
"A-1" or better by Standard & Poors Corporation;
(d) intercompany loans to, advances to or investments
in, wholly owned Subsidiaries;
(e) readily marketable tax-free municipal bonds of a
domestic issuer or rated "aaa" or better by Moody's
Investors Services, Inc. or "AAA" by Standard & Poors
Corporation; and
(f) demand deposit accounts maintained in the ordinary
course of business.
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6.8 Dividends and Distributions. Declare, pay, or make, any
cash dividend or distribution on, or purchase, redeem, or otherwise acquire for
value, any share of any class of its capital stock.
6.9 Changes in Corporate Structure. Enter into any transaction
of consolidation, merger, or amalgamation; or liquidate, wind up, or dissolve
(or suffer any liquidation or dissolution).
6.10 Transactions with Affiliates. Directly or indirectly,
enter into any transaction (including the sale, lease, or exchange of Property
or the rendering of service) with any of its Affiliates, other than upon fair
and reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person which was not an Affiliate.
6.11 Lines of Business. Expand, on their own or through any
Subsidiary, into any line of business other than those in which the Borrower is
engaged as of the date hereof.
6.12 Plan Obligations. Assume or otherwise become subject to
an obligation to contribute to or maintain any Plan not set forth in Schedule
6.12 or acquire any Person which has at any time had an obligation to contribute
to or maintain any Plan.
6.13 New Subsidiaries. Form any new Subsidiaries without the
prior written consent of the Lenders.
6.14 Cash Flow Coverage. Permit, as of the close of any
fiscal quarter of Borrower, the ratio of Cash Flow to Debt Service to be less
than 1.25 to 1.00.
6.15 Current Ratio. Permit, as of the close of any fiscal
quarter of Borrower, the Current Ratio to be less than .90 to 1.00. Receivables
from Bay City Energy Group and the current portion of the Loan Balance shall be
excluded from calculation of Current Ratio.
6.16 Change of Fiscal Year. The Borrower will not change its
fiscal year.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Enumeration of Events of Default. Any of the following
events shall constitute an Event of Default:
(a) default shall be made in the payment when due of any
installment of principal or interest under this Agreement or the Notes
or in the payment when due of any fee or other sum payable under any
Loan Document.
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(b) default shall be made by the Borrower in the due
observance or performance of any obligation of the Borrower under the
Loan Documents, and such default shall continue for 30 days after the
earlier of written notice thereof to the Borrower by the Agent or
actual knowledge thereof by the Borrower;
(c) any representation or warranty made by the Borrower in any
of the Loan Documents proves to have been untrue in any material
respect or any representation, statement (including Financial
Statements), certificate, or data furnished or made to the Agent and/or
the Lenders in connection herewith proves to have been untrue in any
material respect as of the date the facts therein set forth were stated
or certified;
(d) default shall be made by the Borrower (as principal or
guarantor or other surety) in the payment or performance of any
Indebtedness in excess of $100,000 and such default shall remain
unremedied for in excess of the period of grace, if any, with respect
thereto;
(e) the Borrower shall be unable to satisfy any condition or
cure any circumstance specified in Article III, the satisfaction or
curing of which is a condition precedent to the right of the Borrower
to obtain a Loan or for the issuance of a Letter of Credit, and such
inability shall continue for a period in excess of 30 days;
(f) the Borrower shall (i) apply for or consent to the
appointment of a receiver, trustee, or liquidator of their or all or a
substantial part of its assets, (ii) file a voluntary petition
commencing an Insolvency Proceeding, (iii) make a general assignment
for the benefit of creditors, (iv) be unable, or admit in writing its
inability, to pay its debts generally as they become due, or (v) file
an answer admitting the material allegations of a petition filed
against it in any Insolvency Proceeding;
(g) an order, judgment, or decree shall be entered against the
Borrower by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise,
granting relief in any Insolvency Proceeding or approving a petition
seeking reorganization or an arrangement of its debts or appointing a
receiver, trustee, conservator, custodian, or liquidator of their or
all or any substantial part of its assets, and such order, judgment, or
decree shall not be dismissed or stayed within 90 days;
(h) the levy against any significant portion of the Property
of the Borrower or any execution, garnishment, attachment,
sequestration, or other writ or similar proceeding which is not
permanently dismissed or discharged within 30 days after the levy;
(i) a final and non-appealable order, judgment, or decree
shall be entered against the Borrower for money damages and/or
Indebtedness due in an amount in
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excess of $100,000, and such order, judgment, or decree shall not be
dismissed or stayed within 30 days;
(j) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against the Borrower under the
Racketeering Influence and Corrupt Organizations Statute (18 U.S.C.
ss.1961 et seq.), the result of which could be the forfeiture or
transfer of any material Property of the Borrower subject to a Lien in
favor of the Agent for the benefit of the Lenders without (i)
satisfaction or provision for satisfaction of such Lien, or (ii) such
forfeiture or transfer of such Property being expressly made subject to
such Lien;
(k) the Borrower shall have (i) concealed, removed, or
diverted, or permitted to be concealed, removed, or diverted, any part
of their Property, with intent to hinder, delay, or defraud its
creditors or any of them, (ii) made or suffered a transfer of any of
its Property which may be fraudulent under any bankruptcy, fraudulent
conveyance, or similar law, or (iii) shall have 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 30
days from the date thereof;
(l) any Security Instrument shall for any reason (other than
the Agent's or the Lender's fault or negligence) not, or cease to,
create valid and perfected first-priority Liens against the Collateral
purportedly covered thereby and not cured within 30 days; and
(m) the occurrence of a Material Adverse Effect and the same
shall remain unremedied for in excess of 30 days after notice given by
the Agent.
7.2 Remedies. (a) Upon the occurrence of an Event of Default
specified in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or 'other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitments
shall immediately cease and terminate unless and until reinstated by the Agent
and the Lenders in writing; and (iii) to the extent permitted by and in
compliance with applicable law, the Agent and the Lenders may set-off and apply
any and all deposits (general or special, time or demand, provisional or final)
held by the Agent and the Lenders and any and all other indebtedness at any time
owing by the Agent and the Lenders to or for the credit or account of the
Borrower against any and all of the Obligations although such Obligations may be
unmatured.
(b) Upon the occurrence of any Event of Default other than
those specified in Sections 7.1(f) or 7.1(g), (i) the Agent and the Lenders may,
by notice to the Borrower, declare all Obligations immediately due and payable,
without presentment, demand, protest, notice of protest, default, or
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dishonor, notice of intent to accelerate maturity, notice of acceleration of
maturity, or other notice of any kind, except as may be provided to the contrary
elsewhere herein, all of which are hereby expressly waived by the Borrower; (ii)
the Commitments shall immediately cease and terminate unless and until
reinstated by the Agent and the Lenders in writing; and (iii) to the extent
permitted by and in compliance with applicable law, the Agent and the Lenders
may set-off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Agent and the Lenders and any and all other
indebtedness at any time owing by the Agent and the Lenders to or for the credit
or account of the Borrower against any and all of the Obligations although such
Obligations may be unmatured.
(c) Upon the occurrence of any Event of Default, the Agent and
the Lenders may, in addition to the foregoing in this Section, exercise any or
all of their rights and remedies provided by law or pursuant to the Loan
Documents.
ARTICLE VIII
THE AGENT
8.1 Appointment. Each Lender hereby designates and appoints the
Agent as the agent of such Lender under this Agreement and the other Loan
Documents. Each Lender authorizes the Agent, as the agent for such Lender, to
take such action on behalf of such Lender under the provisions of this Agreement
and the other Loan Documents and to exercise such powers and perform such duties
as are expressly delegated to the Agent by the terms of this Agreement and the
other Loan Documents, together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement or in any other Loan Document, the Agent shall not have any
duties or responsibilities except those expressly set forth herein or in any
other Loan Document or any fiduciary relationship with any Lender; and no
implied covenants, functions, responsibilities, duties, obligations, or
liabilities on the part of the Agent shall be read into this Agreement or any
other Loan Document or otherwise exist against the Agent.
8.2 Waivers, Amendments. The provisions of this Agreement and
of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification, or waiver is in writing and consented
to by the Borrower and the Required Lenders; provided, however, that no such
amendment, modification or waiver would: (a) modify any requirement hereunder
that any particular action be taken by all of the Lenders or by the Required
Lenders unless consented to by each Lender; (b) modify this Section 8.2, change
the definition of "Required Lenders", or change the Commitment Amount or
Percentage Share of any Lender, reduce the fees described in Article II, extend
the Commitment Termination Date or Final Maturity, release any Security
Instrument or Lien, or initiate any foreclosure, enforcement or collection
procedure without the consent of each Lender; (c) extend the due date for, (or
reduce the amount of any scheduled repayment or prepayment of principal of or
interest on any Loan) without the consent of the holder of that Note evidencing
such Loan; (d) affect, adversely the interests, rights, or obligations
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of the Agent without the consent of the Agent; or (e) modify the Borrowing Base
or modify the Scheduled Reduction Amount.
8.3 Delegation of Duties. The Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
8.4 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(a) required to initiate or conduct any litigation or collection proceedings
hereunder, except with the concurrence of the Lenders and contribution by each
Lender of its Percentage Share of costs reasonably expected by the Agent to be
incurred in connection therewith, (b) liable for any action lawfully taken or
omitted to be taken by it or such Person under or in connection with this
Agreement or any other Loan Document (except for gross negligence or willful
misconduct of the Agent or such Person), or (c) responsible in any manner to any
Lender for any recitals, statements, representations or warranties made by the
Borrower or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document, or for the sufficiency, accuracy, or
completeness of any materials provided by the Agent, or the failure of the Agent
to provide any materials or disclose any matter to any Lender except as may be
expressly required herein, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
8.5 Reliance by Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless and until an executed Lender
Assignment Agreement shall have been received by the Agent. The Agent shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Loan Document unless it shall first receive such advice or
concurrence of the Lenders as it deems appropriate and contribution by each
Lender of its Percentage Share of costs reasonably expected by the Agent to be
incurred in connection therewith. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Loan Documents in accordance with a request of the Lenders. Such request
and any action taken or failure to act
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pursuant thereto shall be binding upon the Lenders and all future holders of the
Notes. In no event shall the Agent be required to take any action that exposes
the Agent to personal liability or that is contrary to any Loan Document or
applicable Requirement of Law.
8.6 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless
the Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Agent receives such a
notice, the Agent shall promptly give written notice thereof to the Lenders. The
Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Lenders; provided that unless and until the
Agent shall have received such directions, subject to the provisions of Section
7.2, the Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Lenders. In the event that the
officer of the Agent primarily responsible for the lending relationship with the
Borrower or the officer of any Lender primarily responsible for the lending
relationship with the Borrower becomes aware that a Default or Event of Default
has occurred and is continuing, the Agent or such Lender, as the case may be,
shall use its good faith efforts to inform the other Lenders and/or the Agent,
as the case may be, promptly of such occurrence. Notwithstanding the preceding
sentence, failure to comply with the preceding sentence shall not result in any
liability to the Agent or any Lender.
8.7 Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Agent nor any other Lender nor any of
their respective officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representation or warranty to such Lender and that no
act by the Agent or any other Lender hereafter taken, including any review of
the affairs of the Borrower, shall be deemed to constitute any representation or
warranty by the Agent or any Lender to any other Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, condition (financial and otherwise) and creditworthiness
of the Borrower and the value of the Collateral and other Properties of the
Borrower and has made its own decision to enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon the Agent
or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, condition (financial and
otherwise) and creditworthiness of the Borrower and the value of the Collateral
and other Properties of the Borrower. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial and otherwise), or creditworthiness of the
Borrower or the value of the Collateral or other Properties of the Borrower
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which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.
8.8 Indemnification. EACH LENDER AGREES TO SEVERALLY INDEMNIFY
THE AGENT AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT AND
AFFILIATES (TO THE EXTENT NOT REIMBURSED BY THE BORROWER AND WITHOUT LIMITING
THE OBLIGATION OF THE BORROWER TO DO SO), RATABLY AND ACCORDING TO THE
PERCENTAGE SHARE OF SUCH LENDER, FROM AND AGAINST ANY AND ALL LIABILITIES,
CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS,
COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER WHICH MAY AT ANY TIME
(INCLUDING, WITHOUT LIMITATION, ANY TIME FOLLOWING THE PAYMENT AND PERFORMANCE
OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT) BE IMPOSED ON,
INCURRED BY OR ASSERTED AGAINST THE AGENT OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY WAY RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OTHER DOCUMENT
CONTEMPLATED OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
ANY ACTION TAKEN OR OMITTED BY THE AGENT OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR IN CONNECTION WITH
ANY OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, ANY LIABILITIES, CLAIMS,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED OR ASSERTED AS A RESULT OF THE
NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES; PROVIDED THAT NO
LENDER SHALL BE LIABLE FOR THE PAYMENT OF ANY PORTION OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS NEGLIGENCE, SOLE OR
CONCURRENT OR WILLFUL MISCONDUCT OF THE AGENT OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES. THE AGREEMENTS IN THIS
SECTION SHALL SURVIVE THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE
TERMINATION OF THIS AGREEMENT.
8.9 Restitution. Should the right of the Agent or any Lender to
realize funds with respect to the Obligations be challenged and any application
of such funds to the Obligations be reversed, whether by Governmental Authority
or otherwise, or should the Borrower otherwise be entitled to a refund or return
of funds distributed to the Lenders in connection with the Obligations, the
Agent or such Lender, as the case may be, shall promptly notify the Lenders of
such fact. Not later than Noon, Central Standard or Daylight Savings Time, as
the case may be, of the Business Day
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following such notice, each Lender shall pay to the Agent an amount equal to the
ratable share of such Lender of the funds required to be returned to the
Borrower. The ratable share of each Lender shall be determined on the basis of
the percentage of the payment all or a portion of which is required to be
refunded originally distributed to such Lender, if such percentage can be
determined, or, if such percentage cannot be determined, on the basis of the
Percentage Share of such Lender. The Agent shall forward such funds to the
Borrower or to the Lender required to return such funds. If any such amount due
to the Agent is made available by any Lender after Noon, Central Standard or
Daylight Savings Time, as the case may be, of the Business Day following such
notice, such Lender shall pay to the Agent (or the Lender required to return
funds to the Borrower, as the case may be) for its own account interest on such
amount at a rate equal to the Federal Funds Rate for the period from and
including the date on which restitution to the Borrower is made by the Agent (or
the Lender required to return funds to the Borrower, as the case may be) to but
not including the date on which such Lender failing to timely forward its share
of funds required to be returned to the Borrower shall have made its ratable
share of such funds available.
8.10 Agent in Its Individual Capacity. The Agent and its
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though the Agent were not the agent
hereunder. With respect to any Note issued to the Lender serving as the Agent,
the Agent shall have the same rights and powers under this Agreement as a Lender
and may exercise such rights and powers as though it were not the Agent. The
terms "Lender" and "Lenders" shall include the Agent in its individual capacity.
8.11 Successor Agent. The Agent may resign as Agent upon thirty
days' notice to the Lenders and the Borrower. If the Agent shall resign as Agent
under this Agreement and the other Loan Documents, or if the Agent shall assign
all of its obligations, then the Lenders shall appoint from among the Lenders a
successor agent for the Lenders, whereupon such successor agent shall succeed to
the rights, powers and duties of the Agent. The term "Agent" shall mean such
successor agent effective upon its appointment. The rights, powers, and duties
of the former Agent as Agent shall be terminated, without any other or further
act or deed on the part of such former Agent or any of the parties to this
Agreement or any holders of the Notes. After the removal or resignation of any
Agent hereunder as Agent, the provisions of this Article VIII and Sections 5.16
and 5.19, shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement and the other Loan
Documents.
8.12 Applicable Parties. The provisions of this Article are
solely for the benefit of the Agent and the Lenders, and the Borrower shall not
have any rights as a third party beneficiary or otherwise under any of the
provisions of this Article. In performing functions and duties hereunder and
under the other Loan Documents, the Agent shall act solely as the agent of the
Lenders and does not assume, nor shall it be deemed to have assumed, any
obligation or relationship of trust or agency with or for the Borrower or any
legal representative, successor, and assign of the Borrower.
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ARTICLE IX
MISCELLANEOUS
9.1 Assignments; Participations. Each Lender may assign or
sell participations in its Loans and Commitments to one or more other Persons in
accordance with this Section 9.1.
(a) Assignments. Any Lender:
(i) with the written consent of the Borrower (in their sole
discretion) and the Agent (which consent shall not be
unreasonably delayed or withheld), may at any time, assign and
delegate to one or more commercial banks or other financial
institutions, and
(ii) with notice to the Borrower and the Agent, but without
the consent of the Borrower or the Agent, may assign and
delegate to any of its Affiliates or to any other Lender
(each Person described in (i) or (ii) above as being the Person to whom such
assignment and delegation is to be made, being hereinafter referred to as an
"Assignee Lender"), all or any fraction of such Lender's total Loans and
Commitments (which assignment and delegation shall be of a constant, and not a
varying percentage, of all the assigning Lender's Loans and Commitments), in a
minimum aggregate amount of $3,000,000 or such Lender's Percentage Share of the
Maximum Commitment Amount, if less; provided, however, that such Assignee Lender
will comply with all the provisions of this Agreement, and further, provided,
however, that the Borrower and the Agent shall be entitled to continue to deal
solely and directly with such assigning Lender in connection with the interests
so assigned and delegated to an Assignee Lender until:
(iii) written notice of such assignment and delegation
together with payment instructions, addresses and related
information with respect to such Assignee Lender, shall have
been given to the Borrower and the Agent by such Lender and
such Assignee Lender,
(iv) such Assignee Lender shall have executed and delivered to
the Borrower and the Agent a Lender Assignment Agreement,
accepted by the Borrower and the Agent, and substantially in
the form attached hereto as Exhibit VI, and
(v) the processing fees described below shall have been paid.
From and after the date that the Borrower and the Agent accept
such Lender Assignment Agreement, (a) the Assignee Lender thereunder shall be
deemed automatically to have become a party hereto and to the extent that rights
and obligations hereunder have been assigned and
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delegated to such Assignee Lender in connection with such Lender Assignment
Agreement, shall have the rights and obligations of a Lender hereunder and under
the other Loan Documents, and (b) the Assignor Lender, to the extent that rights
and obligations hereunder have been assigned and delegated by it in connection
with such Lender Assignment Agreement, shall be released from its obligations
hereunder and under the other Loan Documents. Within five Business Days after
its receipt of notice that the Agent has received an executed Lender Assignment
Agreement, the Borrower shall execute and deliver to the Agent (for delivery to
the relevant Assignee Lender) new Notes evidencing such Assignee Lender's
assigned Loans and Commitments and, if the assignor Lender has retained Loans
and Commitments hereunder, replacement Notes in the principal amount of the
Loans and Commitments retained by the assignor Lender hereunder (such Notes to
be in exchange for, but not in payment of, those Notes then held by such
assignor Lender). Each such Note shall be dated the date of the predecessor
Notes. The assignor Lender shall mark the predecessor Notes "exchanged" and
deliver them to the Borrower. Accrued interest on that part of the predecessor
Notes evidenced by the new Notes, and accrued fees, shall be paid as provided in
the Lender Assignment Agreement. Accrued interest on that part of the
predecessor Notes evidenced by the replacement Notes shall be paid to the
assignor Lender. Accrued interest and accrued fees shall be paid at the same
time or times provided in the predecessor Notes and in this Agreement. Such
Assignor Lender or such Assignee Lender must also pay a processing fee in the
amount of $3,000 to the Agent upon delivery of any Lender Assignment Agreement.
Any attempted assignment and delegation not made in accordance with this Section
9.1 shall be null and void.
(b) Participations. Any Lender may, at any time and without
necessity for the consent of the Agent or the Borrower, sell to one or more
commercial banks (each of such commercial banks being herein called a
"Participant") participating interests in any of the Loans, Commitments, or
other interests of such Lender hereunder; provided, however, that (a) no
participation contemplated in this Section 9.1 shall relieve such Lender from
its Commitments or its other obligations hereunder or under any other Loan
Document, (b) such Lender shall remain solely responsible for the performance of
its Commitments and such other obligations, (c) the Borrower and the Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and each of the other Loan
Documents, (d) no Participant shall be entitled to require such Lender to take
or refrain from taking any action hereunder or under any other Loan Document,
and (e) any participating interest sold shall be at no cost to the Borrower.
9.2 Survival of Representations, Warranties, and Covenants.
All representations and warranties of the Borrower and all covenants and
agreements herein made shall survive the execution and delivery of the Notes and
the Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.
9.3 Notices and Other Communications. Except as to oral
notices expressly authorized herein, which oral notices shall be confirmed in
writing, all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
when deposited
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in the mail if concurrent telecopy notice is also given, or, if no concurrent
telecopy notice is given, three Business Days after deposited in the mail,
certified mail, return receipt requested, postage prepaid, or, in the case of
telecopy notice, when receipt thereof is acknowledged orally or by written
confirmation report, addressed as follows:
(a) if to the Agent or Compass in its capacity as a Lender:
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Telecopy: (713) 968-8292
(b) if to BOK:
Bank of Oklahoma, National Association
One Williams Center
Tulsa, Oklahoma 74172
Attention: Michael M. Coats
(918) 588-6880
(c) if to the Borrower:
Middle Bay Oil Company, Inc.
Enex Resources Corporation
1221 Lamar, Suite 1020
Houston, Texas 77010
Attention: John J. Basset and
Stephen W. Herod
Telecopy: (713) 650-0352
Any party may, by proper written notice hereunder to the
others, change the individuals or addresses to which such notices to it shall
thereafter be sent.
9.4 Parties in Interest. Subject to the restrictions on
changes in corporate structure set forth in Section 6.9 and other applicable
restrictions contained herein, all covenants and agreements herein contained by
or on behalf of the Borrower or the Agent and each Lender shall be binding upon
and inure to the benefit of the Borrower or the Agent and each Lender, as the
case may be, and their respective legal representatives, successors, and
assigns.
9.5 Rights of Third Parties. All provisions herein are imposed
solely and exclusively for the benefit of the Agent and each Lender and the
Borrower. No other Person shall have any right, benefit, priority, or interest
hereunder or as a result hereof or have standing to require
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satisfaction of provisions hereof in accordance with their terms, and any or all
of such provisions may be freely waived in whole or in part by the Agent or the
Lenders at any time if in their sole discretion they deem it advisable to do so.
9.6 Renewals; Extensions. All provisions of this Agreement
relating to the Notes shall apply with equal force and effect to each promissory
note hereafter executed which in whole or in part represents a renewal or
extension of any part of the Indebtedness of the Borrower under this Agreement,
the Notes, or any other Loan Document.
9.7 No Waiver; Rights Cumulative. No course of dealing on the
part of the Agent or the Lenders, their officers or employees, nor any failure
or delay by the Agent or the Lenders with respect to exercising any of their
rights under any Loan Document shall operate as a waiver thereof. The rights of
the Agent and each Lender under the Loan Documents shall be cumulative and the
exercise or partial exercise of any such right shall not preclude the exercise
of any other right. The making of any Loan shall not constitute a waiver of any
of the covenants, warranties, or conditions of the Borrower contained herein. In
the event the Borrower is unable to satisfy any such covenant, warranty, or
condition, the making of any Loan shall not have the effect of precluding the
Agent and each Lender from thereafter declaring such inability to be an Event of
Default as hereinabove provided.
9.8 Survival Upon Unenforceability. In the event any one or
more of the provisions contained in any of the Loan Documents or in any other
instrument referred to herein or executed in connection with the Obligations
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision of any Loan Document or of any other instrument referred to
herein or executed in connection with such Obligations.
9.9 Amendments; Waivers. Neither this Agreement nor any
provision hereof may be amended, waived, discharged, or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the amendment, waiver, discharge, or termination is sought.
9.10 Controlling Agreement. In the event of a conflict between
the provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.
9.11 Disposition of Collateral. Notwithstanding any term or
provision, express or implied, in any of the Security Instruments, the
realization, liquidation, foreclosure, or any other disposition on or of any or
all of the Collateral shall be in the order and manner and determined in the
sole discretion of the Agent and the Lenders; provided, however, that in no
event shall the Agent or any Lender violate applicable law or exercise rights
and remedies other than those provided in such Security Instruments or otherwise
existing at law or in equity.
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9.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT VERNON'S TEXAS
CIVIL STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING
CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
9.13 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO, OR FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE
SOLE DISCRETION AND ELECTION OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON,
HARRIS COUNTY, TEXAS. THE BORROWER HEREBY SUBMIT TO THE JURISDICTION OF ANY
LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND
HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR
VENUE OF ANY LITIGATION BROUGHT AGAINST THEM BY THE LENDERS IN ACCORDANCE WITH
THIS SECTION.
9.14 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER WRITTEN
LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN
THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF.
FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
9.15 Counterparts. For the convenience of the parties, this
Agreement may be executed in multiple counterparts, each of which for all
purposes shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same Agreement.
IN WITNESS WHEREOF, this Agreement is deemed executed
effective as of the date first above written.
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BORROWER:
MIDDLE BAY OIL COMPANY, INC.
By: /s/ Stephen W. Herod
------------------------------
Stephen W. Herod
Vice President
ENEX RESOURCES CORPORATION
By: /s/ Stephen W. Herod
------------------------------
Stephen W. Herod
Vice President
LENDER AND AGENT:
COMPASS BANK
By: /s/ Dorothy Marchand Wilson
------------------------------
Dorothy Marchand Wilson
Senior Vice President
59
<PAGE> 65
LENDER:
By: /s/ Michael M. Coats
--------------------------------------
Michael M. Coats
Senior Vice President
60
<PAGE> 66
SCHEDULE 4.8
LIABILITIES AND LITIGATION
1. Case No. 05-94-00641-CV; Enex Resources Corporation and Enex Program I
Partners, L.P. v. Texas Crude, Inc.; In the Court of Appeals for the
Fifth District of Texas at Dallas.
2. Civil Action No. 97-40-A-M2; J.B. Hanks Co., Inc. v. Shore Oil
Company; In the United States District Court for the Middle District
of Louisiana.
<PAGE> 67
SCHEDULE 4.11
ENVIRONMENTAL MATTERS
None
<PAGE> 68
SCHEDULE 4.16
REFUNDS
None
<PAGE> 69
SCHEDULE 4.17
GAS CONTRACTS
None
<PAGE> 70
SCHEDULE 4.19
CASUALTIES
None
<PAGE> 71
SCHEDULE 4.21
SUBSIDIARIES
Enex Resources Corporation
Enex Securities Corporation
Middle Bay Production Company, Inc. (formerly Bison Production Company)
<PAGE> 72
SCHEDULE 6.12
PLAN OBLIGATIONS
1. 1995 Stock Option and Stock Appreciation Rights Plan
2. SEP/IRA Retirement Plan
3. Employee Incentive Compensation Plan (1% Net Profits Interest Plan)
4. Middle Bay Oil Company 401-K Plan
I - iv
<PAGE> 73
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$65,000,000 Houston, Texas March 27, 1998
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned
("Maker", whether one or more, and if more than one, with the obligation of such
parties hereunder being joint and several in all respects) promises to pay to
the order of COMPASS BANK ("Payee"), at the banking quarters of Compass Bank in
Houston, Harris County, Texas, the sum of SIXTY-FIVE MILLION DOLLARS
($65,000,000), or so much thereof as may be advanced against this Note pursuant
to the Credit Agreement dated March 27, 1998 by and between Maker and Payee and
others (as amended, supplemented, restated or otherwise modified from time to
time, the "Credit Agreement"), together with interest at the rates and
calculated as provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder. Capitalized terms used but not defined in this Note shall have the
respective meanings assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is a "Note" under, and is
payable as provided in the Credit Agreement. Subject to compliance with
applicable provisions of the Credit Agreement, Maker may at any time pay the
full amount or any part of this Note without the payment of any premium or fee,
but such payment shall not, until this Note is fully paid and satisfied, excuse
the payment as it becomes due of any payment on this Note provided for in the
Credit Agreement.
Without being limited thereto or thereby, this Note is secured
by the Security Instruments.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE
STATE OF TEXAS, WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO
CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT 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.
I - i
<PAGE> 74
MAKER:
MIDDLE BAY OIL COMPANY, INC.
By:
----------------------------------------
Stephen W. Herod
Vice President
ENEX RESOURCES CORPORATION
By:
----------------------------------------
Stephen W. Herod
Vice President
I - ii
<PAGE> 75
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$35,000,000 Houston, Texas March 27, 1998
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned
("Maker", whether one or more, and if more than one, with the obligation of such
parties hereunder being joint and several in all respects) promises to pay to
the order of BANK OF OKLAHOMA, NATIONAL ASSOCIATION ("Payee"), at the banking
quarters of Bank of Oklahoma, National Association, in Tulsa, Tulsa County,
Oklahoma, the sum of THIRTY-FIVE MILLION DOLLARS ($35,000,000), or so much
thereof as may be advanced against this Note pursuant to the Credit Agreement
dated March 27, 1998 by and between Maker and Payee and others (as amended,
supplemented, restated or otherwise modified from time to time, the "Credit
Agreement"), together with interest at the rates and calculated as provided in
the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder. Capitalized terms used but not defined in this Note shall have the
respective meanings assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is a "Note" under, and is
payable as provided in the Credit Agreement. Subject to compliance with
applicable provisions of the Credit Agreement, Maker may at any time pay the
full amount or any part of this Note without the payment of any premium or fee,
but such payment shall not, until this Note is fully paid and satisfied, excuse
the payment as it becomes due of any payment on this Note provided for in the
Credit Agreement.
Without being limited thereto or thereby, this Note is
secured by the Security Instruments.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE
STATE OF TEXAS, WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO
CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT 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.
I - iii
<PAGE> 76
MAKER:
MIDDLE BAY OIL COMPANY, INC.
By:
-------------------------
Stephen W. Herod
Vice President
ENEX RESOURCES CORPORATION
By:
-------------------------
Stephen W. Herod
Vice President
I - iv
<PAGE> 77
EXHIBIT II
[FORM OF BORROWING REQUEST]
-----------------, -------
Compass Bank, Agent
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Credit Agreement dated as of March 27, 1998, by and among
Middle Bay Oil Company, Inc. and Enex Resources Corporation,
as Borrower, Compass Bank, as Agent and a Lender, Bank of
Oklahoma, National Association, as a Lender, and the
additional Lenders party thereto from time to time (as
amended, supplemented, restated or otherwise modified from
time to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower hereby makes
the requests indicated below:
[ ] 1. Loans
(a) Amount of new Loan: $
(b) Requested funding date:____________,19__
(c) $ of such Loan is to be a Floating Rate Loan;
________________
$________________ of such Loan is to be a LIBO Rate Loan.
(d) Requested Interest Period for LIBO Rate Loan: ____ months.
[ ] 2. Continuation or conversion of LIBO Rate Loan maturing on :
(a) Amount to be continued as a LIBO Rate Loan is $___________,
with an Interest Period of ___ months;
II- i
<PAGE> 78
(b) Amount to be converted to a Floating Rate Loan is $__________;
and
[ ] 3. Conversion of Floating Rate Loan:
(a) Requested conversion date: __________, 19____.
(b) Amount to be converted to a LIBO Rate Loan is $________, with
an Interest Period of _____ months.
The undersigned certifies that [s]he is the [_____] of the
Borrower, has obtained all consents necessary, and as such [s]he is authorized
to execute this request on behalf of the Borrower. The undersigned further
certifies, represents, and warrants on behalf of the Borrower that the Borrower
is entitled to receive the requested borrowing, continuation, or conversion
under the terms and conditions of the Credit Agreement.
Each capitalized term used but not defined herein shall have
the meaning assigned to such term in the Credit Agreement.
Very truly yours,
MIDDLE BAY OIL COMPANY, INC.
By:
--------------------------------------
Stephen W. Herod
Vice President
ENEX RESOURCES CORPORATION
By:
--------------------------------------
Stephen W. Herod
Vice President
II- ii
<PAGE> 79
EXHIBIT III
[FORM OF COMPLIANCE CERTIFICATE]
____________, 19__
Compass Bank, Agent
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Credit Agreement dated as of March 27, 1998, by and among
Middle Bay Oil Company, Inc. and Enex Resources Corporation,
as Borrower, Compass Bank, as Agent and a Lender, Bank of
Oklahoma, National Association, as a Lender, and the
additional Lenders party thereto from time to time (as
amended, supplemented, restated or otherwise modified from
time to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement,
the undersigned, as a Responsible Officer of the Borrower hereby certify to you
the following information as true and correct as of the date hereof or for the
period indicated, as the case may be:
[1. To the best of the knowledge of the undersigned, no Default
or Event of Default exists as of the date hereof or has occurred
since the date of our previous certification to you, if any.]
[1. To the best of the knowledge of the undersigned, the following
Defaults or Events of Default exist as of the date hereof or have
occurred since the date of our previous certification to you, if any,
and the actions set forth below are being taken to remedy such
circumstances:]
2. The compliance of the Borrower with the financial covenants
of the Credit Agreement, as of the close of business on ________, is
evidenced by the following:
(a) Section 6.14 Cash Flow Coverage. Permit, as of the close of
any fiscal quarter of Borrower, the ratio of Cash Flow to Debt Service
to be less than 1.25 to 1.00.
III - i
<PAGE> 80
Actual:
(a) Section 6.15: Current Ratio: Permit, as of the close of any
fiscal quarter of Borrower, the Current Ratio to be less than .90 to
1.00. Receivables from Bay City Minerals, Inc. and the current portion
of this facility shall be excluded from calculation of Current Ratio.
Required Actual
-------- ------
3. No Material Adverse Effect has occurred since the date of the
Financial Statements dated as of ______________.
Each capitalized term used but not defined herein shall have
the meaning assigned to such term in the Credit Agreement.
Very truly yours,
MIDDLE BAY OIL COMPANY, INC.
By:
--------------------------------------
Stephen W. Herod
Vice President
ENEX RESOURCES CORPORATION
By:
--------------------------------------
Stephen W. Herod
Vice President
III - ii
<PAGE> 81
EXHIBIT IV
[FORM OF BORROWING BASE UTILIZATION CERTIFICATE]
__________________________,____________
Compass Bank, Agent
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending
Re: Credit Agreement dated as of March 27, 1998, by and among
Middle Bay Oil Company, Inc. and Enex Resources Corporation,
as Borrower, Compass Bank, as Agent and a Lender, Bank of
Oklahoma, National Association, as a Lender, and the
additional Lenders party thereto from time to time (as
amended, supplemented, restated or otherwise modified from
time to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower, hereby certify to you the
following information as true and correct as of the date hereof or for the
period indicated, as the case may be:
To the best knowledge of the undersigned, the Borrowing Base
Utilization, as described in the definition of Applicable Margin, for the
quarter ending __________, 19__, was as follows, and the LIBO Rate Loan
Applicable Margin for the following quarter is as follows:
Borrowing Base LIBO Rate Loan
Utilization Applicable Margin
-----------------------------------------------------------------------
equal to or greater than 75% two percent (2%)
of Borrowing Base
less than 75% one and three-fourths
and greater than 50% percent (1-3/4%)
of Borrowing Base
less than or equal to one and one-half
50% of Borrowing Base percent (1-1/2%)
[ONLY ONE OF THE ABOVE CATEGORIES TO BE SHOWN]
IV - i
<PAGE> 82
To the best knowledge of the undersigned, the Borrowing Base
Utilization for the quarter ending __________, 19__, was as follows and the
Commitment Fee, as described in Section 2.10 of the Credit Agreement for the
following quarter is as follows:
<TABLE>
<CAPTION>
Borrowing Base
Utilization Commitment Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
greater than 50% one-half percent (1/2%)
of Borrowing Base
less than or equal to 50% three-eighths percent (3/8%)
of Borrowing Base
</TABLE>
[ONLY ONE OF THE ABOVE CATEGORIES TO BE SHOWN]
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
MIDDLE BAY OIL COMPANY, INC.
By:
--------------------------
Stephen W. Herod
Vice President
ENEX RESOURCES CORPORATION
By:
--------------------------
Stephen W. Herod
Vice President
IV - ii
<PAGE> 83
EXHIBIT V
[FORM OF OPINION OF COUNSEL]
[Closing Date]
Compass Bank, Agent
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Credit Agreement dated as of March 27, 1998, by and among
Middle Bay Oil Company, Inc. and Enex Resources Corporation,
as Borrower, Compass Bank, as Agent and a Lender, Bank of
Oklahoma, National Association, as a Lender, and the
additional Lenders party thereto from time to time (as
amended, supplemented, restated or otherwise modified from
time to time, the "Credit Agreement")
Ladies and Gentlemen:
We have acted as counsel to Middle Bay Oil Company, Inc., an
Alabama corporation ("Middle Bay"), and Enex Resources Corporation, a Delaware
corporation ("Enex") and Middle Bay and Enex being, collectively, the
"Borrowers"), in connection with the transactions contemplated in the Credit
Agreement. This Opinion is delivered pursuant to Section 3.1(m) of the Credit
Agreement, and the Agent and each Lender is hereby authorized to rely upon this
Opinion in connection with the transactions contemplated in the Credit
Agreement. Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement, unless expressly provided
to the contrary herein.
In our representation of the Borrowers, we have examined an
executed counterpart of each of the following (the "Loan Documents"):
(a) the Credit Agreement;
(b) the Notes;
[Add listing of Security Instruments executed on the Closing
Date]
We have also examined the originals, or copies certified to
our satisfaction, of such other records of the Borrowers and, certificates of
public officials and officers of the Borrowers, and
V - i
<PAGE> 84
agreements, instruments, and documents as we have deemed necessary as a basis
for the opinions hereinafter expressed.
In making such examinations, we have, with your permission,
assumed:
(a) the genuineness of all signatures to the Loan Documents
other than those of the Borrowers;
(b) the authenticity of all documents submitted to us as
originals and the conformity with the originals of all documents
submitted to us as copies;
(c) that the Agent and the Lenders are authorized and have the
power to enter into and perform their obligations under the Credit
Agreement;
(d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrowers; and
(e) that the Borrowers have title to all Property covered or
affected by the Security Instruments.
Based upon the foregoing and subject to the qualifications set
forth herein, we are of the opinion that:
1. Each of the Borrowers is a corporation duly organized,
legally existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in
good standing in all jurisdictions wherein the ownership of its
Property or the operation of its businesses necessitates same.
2. The execution and delivery by the Borrowers of the Credit
Agreement and the borrowings thereunder, the execution and delivery by
the Borrowers of the other Loan Documents to which either is a party,
and the payment and performance of all Obligations of the Borrowers
thereunder are within the power of the Borrowers, have been duly
authorized by all necessary corporate action, and do not (a) require
the consent of any Governmental Authority, (b) contravene or conflict
with any Requirement of Law, (c) to our knowledge after due inquiry,
contravene or conflict with any indenture, instrument, or other
agreement to which either of the Borrowers is a party or by which any
Property of either of the Borrowers may be presently bound or
encumbered, or (d) result in or require the creation or imposition of
any Lien upon any Property of either of the Borrowers other than as
contemplated by the Loan Documents.
3. The Loan Documents to which either of the Borrowers is a
party constitute legal, valid, and binding obligations of such
Borrowers, enforceable
V - ii
<PAGE> 85
against such Borrower in accordance with their respective terms.
__. To our knowledge after due inquiry, except as disclosed in
Financial Statements of the Borrowers provided to the Agent and the
Lenders or in Schedule 4.8 to the Credit Agreement, no litigation or
other action of any nature affecting either of the Borrowers is pending
before any Governmental Authority or is threatened against either of
the Borrowers. To our knowledge after due inquiry, no unusual or unduly
burdensome restriction, restraint, or hazard exists by contract,
Requirement of Law, or otherwise relative to the business or operations
of either of the Borrowers or ownership and operation of any Property
of either of the Borrowers other than such as relate generally to
Persons engaged in business activities similar to those conducted by
the relevant Borrowers.
__. No authorization, consent, approval, exemption, franchise,
permit or license of, or filing (other than filing of Security
Instruments in appropriate filing offices) with, any Governmental
Authority or any other Person is required to authorize or is otherwise
required in connection with the valid execution and delivery by the
Borrowers of the Loan Documents or any instrument contemplated thereby,
or the payment and performance by the Borrowers of the Obligations.
__. No transaction contemplated by the Loan Documents is in
violation of any regulations promulgated by the Board of Governors of
the Federal Reserve System, including, without limitation, Regulations
G, T, U, or X.
__. Neither of the Borrowers is, nor is it directly or
indirectly controlled by or acting on behalf of any Person which is, an
"investment company" or an "affiliated person" of an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
__. Neither of the Borrowers is 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.
The opinions expressed herein are subject to the following
qualifications and limitations:
A. We are licensed to practice law only in the State of
Alabama; accordingly, the foregoing opinions are limited solely to the
laws of the State of Alabama, applicable United States federal law, and
the General Corporation Law of the State of Delaware.
B. The validity, binding effect, and enforceability of the
Loan Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization,
V - iii
<PAGE> 86
or other similar laws affecting rights of creditors generally,
including, without limitation, statutes or rules of law which limit the
effect of waivers of rights by a debtor or grantor; provided, however,
that the limitations and other effects of such statutes or rules of law
upon the validity and binding effect of the Loan Documents should not
differ materially from the limitations and other effects of such
statutes or rules of law upon the validity and binding effect of credit
agreements, promissory notes and security instruments generally.
C. The enforceability of the respective obligations of the
Borrowers under the Loan Documents is subject to general principles of
equity (whether such enforceability is considered in a suit in equity
or at law).
This Opinion is furnished by us solely for the benefit of the
Agent and the Lenders in connection with the transactions contemplated by the
Loan Documents and is not to be quoted in whole or in part or otherwise referred
to or disclosed in any other transaction.
Very truly yours,
V - iv
<PAGE> 87
EXHIBIT VI
[FORM OF LENDER ASSIGNMENT AGREEMENT]
______________, 19__
To: Middle Bay Oil Company, Inc.
Enex Resources Corporation
and Compass Bank, as the Agent
Ladies and Gentlemen:
We refer to clause (iv) of Section 9.1 of the Credit Agreement, dated
as of March __, 1998, (together with all amendments and other modifications, if
any, from time to time thereafter made thereto, the "Credit Agreement"), among
Middle Bay Oil Company, Inc. and Enex Resources Corporation (collectively, the
"Borrower"), the various financial institutions (the "Lenders") as are, or shall
from time to time become, parties thereto, and Compass Bank, as agent (the
"Agent") for the Lenders. Unless otherwise defined herein or the context
otherwise requires, terms used herein have the meanings provided in the Credit
Agreement.
This Agreement is delivered to you pursuant to clause (iv) of Section
9.1 of the Credit Agreement and also constitutes notice to each of you, pursuant
to clause (iv) of Section 9.1 of the Credit Agreement, of the assignment and
delegation to _____________ (the "Assignee") of ___% of the Loans, liability
under outstanding Letters of Credit, and the Commitment of _____________ (the
"Assignor") outstanding under the Credit Agreement on the date hereof. After
giving effect to the foregoing assignment and delegation, the Assignor's and the
Assignee's Percentage Shares for the purposes of the Credit Agreement are set
forth opposite such Person's name on the signature pages hereof.
[Add paragraph dealing with accrued interest and fees with respect to
Loans assigned.]
The Assignee hereby acknowledges and confirms that it has received a
copy of the Credit Agreement and the exhibits related thereto, together with
copies of the documents which were required to be delivered under the Credit
Agreement as a condition to the making of the Loans and the issuance of Letters
of Credit thereunder. The Assignee further confirms and agrees that in becoming
a Lender and in making its Commitment and Loans and participating in Letters of
Credit under the Credit Agreement, such actions have and will be made without
recourse to, or representation or warranty by the Agent.
Except as otherwise provided in the Credit Agreement, effective as of
the date of acceptance hereof by the Agent
VI - i
<PAGE> 88
(a) the Assignee
(i) shall be deemed automatically to have become a party to
the Credit Agreement, have all the rights and obligations of a "Lender"
under the Credit Agreement and the other Loan Documents as if it were
an original signatory thereto to the extent specified in the second
paragraph hereof; and
(ii) agrees to be bound by the terms and conditions set forth
in the Credit Agreement and the other Loan Documents as if it were an
original signatory thereto; and
(b) the Assignor shall be released from its obligations under the
Credit Agreement, the other Loan Documents and the Collateral Sharing Agreement
to the extent specified in the second paragraph hereof.
The Assignor and the Assignee hereby agree that the (Assignor)
(Assignee) will pay to the Agent the processing fee referred to in Section 9.1
of the Credit Agreement upon the delivery hereof.
The Assignee hereby advises each of you of the following administrative
details with respect to the assigned Loans, liability under outstanding Letters
of Credit and Commitment and requests the Agent to acknowledge receipt of this
document:
(A) Address for Notices:
Institution Name:
Attention:
Address:
Telephone:
Facsimile:
(B) Payment Instructions:
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
VI - ii
<PAGE> 89
Assignor Adjusted Percentage Share ASSIGNOR:
____% By:
--------------------
Printed Name:
Title:
Assignee Percentage Shares ASSIGNEE:
____% By:
--------------------
Printed Name:
Title:
Accepted and Acknowledged this _____ day of _________, ______.
COMPASS BANK, as Agent
By:
Title:
VI - iii
<PAGE> 90
- --------------------------------------------------------------------------------
SECURITY AGREEMENT
BETWEEN
MIDDLE BAY OIL COMPANY, INC.
AND
ENEX RESOURCES CORPORATION
(DEBTOR)
AND
COMPASS BANK, AS AGENT
(SECURED PARTY)
March 27, 1998
- --------------------------------------------------------------------------------
<PAGE> 91
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS AND INTERPRETATION........................................................... 1
1.1 Terms Defined Above...................................................................... 1
1.2 Terms Defined in Credit Agreement........................................................ 1
1.3 Additional Defined Terms................................................................. 1
1.4 Undefined Financial Accounting Terms..................................................... 3
1.5 References............................................................................... 3
1.6 Articles and Sections.................................................................... 3
1.7 Number and Gender........................................................................ 3
ARTICLE II GRANT OF SECURITY INTEREST............................................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES........................................................... 4
3.1 Validity, Perfection and Priority........................................................ 4
3.2 No Liens; Other Financing Statements..................................................... 4
3.3 Location of Debtor and Collateral........................................................ 5
3.4 Accounts................................................................................. 5
3.5 Tradenames; Prior Names.................................................................. 5
ARTICLE IV COVENANTS................................................................................ 5
4.1 Further Assurances....................................................................... 5
4.2 Change of Chief Executive Office......................................................... 6
4.3 Change of Name or Corporate Structure.................................................... 6
4.4 Maintain Records and Accounts............................................................ 6
4.5 Right of Inspection...................................................................... 6
4.6 Possession of Collateral................................................................. 7
4.7 Financing Statement Filings; Notifications............................................... 7
ARTICLE V ACCOUNTS................................................................................. 7
5.1 Debtor Remains Liable under Accounts..................................................... 7
5.2 Collections on Accounts.................................................................. 8
ARTICLE VI POWER OF ATTORNEY........................................................................ 8
6.1 Appointment as Attorney-in-Fact.......................................................... 8
6.2 No Duty on the Part of Secured Party..................................................... 9
ARTICLE VII REMEDIES; RIGHTS UPON DEFAULT............................................................ 10
7.1 Rights and Remedies Generally............................................................ 10
7.2 Proceeds................................................................................. 10
7.3 Collection of Accounts................................................................... 10
</TABLE>
i
<PAGE> 92
<TABLE>
<S> <C> <C>
7.4 Disposition of Collateral................................................................ 10
7.5 Debtor's Accounts........................................................................ 11
7.6 Possession of Collateral................................................................. 11
7.7 Disposition of the Collateral............................................................ 11
7.8 Recourse................................................................................. 12
7.9 Expenses; Attorneys' Fees................................................................ 12
7.10 Application of Proceeds.................................................................. 12
7.11 Limitation on Duties Regarding Preservation of Collateral................................ 13
7.12 Waiver of Claims......................................................................... 13
7.13 Discontinuance of Proceedings............................................................ 14
ARTICLE VIII INDEMNITY................................................................................ 14
8.1 INDEMNITY................................................................................ 14
8.2 Indemnity Obligations Secured by Collateral; Survival.................................... 15
ARTICLE IX MISCELLANEOUS............................................................................ 15
9.1 No Waiver; Remedies Cumulative........................................................... 15
9.2 Termination; Release..................................................................... 15
9.3 Counterparts............................................................................. 16
9.4 Marshalling.............................................................................. 16
9.5 Severability............................................................................. 16
9.6 Financing Statement Filing............................................................... 16
9.7 Notices and Other Communications......................................................... 16
9.8 Parties in Interest...................................................................... 16
9.9 Amendments............................................................................... 16
9.10 ENTIRE AGREEMENT......................................................................... 16
9.11 GOVERNING LAW............................................................................ 17
9.12 JURISDICTION AND VENUE................................................................... 17
</TABLE>
ii
<PAGE> 93
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of March
27, 1998, is by and between MIDDLE BAY OIL COMPANY, INC., an Alabama corporation
and ENEX RESOURCES CORPORATION, a Delaware corporation (collectively, the
"Debtor"), and COMPASS BANK, as Agent, for Bank of Oklahoma, National
Association and other Lenders signatory to the Credit Agreement ("Secured
Party").
W I T N E S S E T H:
WHEREAS, pursuant to the terms and conditions of the Credit
Agreement dated March 27, 1998, by and among Debtor, et al., and the Secured
Party (as amended, restated, or supplemented from time to time, the "Credit
Agreement"), the Secured Party has agreed to extend credit to or for the benefit
of Debtor; and
WHEREAS, pursuant to the Credit Agreement and as an inducement
to the Secured Party to extend credit to or for the benefit of the Debtor
pursuant to the Credit Agreement, Debtor has agreed to execute this Agreement in
favor of the Secured Party;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used herein, each of the terms
"Agreement," "Credit Agreement," "Debtor," and "Secured Party" shall have the
meaning assigned to such term hereinabove.
1.2 Terms Defined in Credit Agreement. Each capitalized term
used but not defined herein shall have the meaning assigned to such term in the
Credit Agreement.
1.3 Additional Defined Terms. As used herein, each of the
following terms shall have the following meanings:
"Accounts" shall mean all accounts receivable, book debts,
notes, drafts, instruments, documents, acceptances, and other forms of
obligations now owned or hereafter received or acquired by or belonging
or owing to Debtor (including, without limitation, under any trade
names, styles, or divisions thereto), whether arising from the sale or
lease of goods or the rendition of services or any other transaction
(including, without limitation, any such obligation which might be
characterized as an account, general intangible, other than contract
rights under
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contracts containing prohibitions against assignment of or the granting
of a security interest in the rights of a party thereunder, or chattel
paper under the Uniform Commercial Code in effect in any jurisdiction),
and all rights of Debtor in, to, and under all purchase orders now
owned or hereafter received or acquired by it for goods or services,
and all rights of Debtor to any goods the sale or lease of which gave
rise to any of the foregoing (including, without limitation, returned
or repossessed goods and rights of unpaid sellers), and all moneys due
or to become due to Debtor under all contracts for the sale or lease of
goods or the performance of services (whether or not earned by
performance) or in connection with any other transaction, now in
existence or hereafter arising, including, without limitation, all
collateral security and guarantees of any kind given by any Person with
respect to any of the foregoing.
"Account Debtor" shall mean each Person obligated on an
Account, Chattel Paper, or General Intangible.
"Account Records" shall mean (a) all original copies of all
documents, instruments, or other writings evidencing the Accounts, (b)
all books, correspondence, credit or other files, records, ledger
sheets or cards, invoices, and other papers relating to the Accounts,
including, without limitation, all tapes, cards, computer tapes,
computer discs, computer runs, record keeping systems, and other papers
and documents relating to the Accounts, whether in the possession or
under the control of Debtor or any computer bureau or agent from time
to time acting for or on behalf of Debtor or otherwise, (c) all
evidences of the filing of financing statements and the registration of
other instruments in connection therewith and amendments, supplements,
or other modifications thereto, notices to other creditors or secured
parties, and certificates, acknowledgements, or other writings,
including, without limitation, lien search reports, from filing or
other registration offices, (d) all credit information, reports, and
memoranda relating thereto, and (e) all other written or non-written
forms of information related in any way to the foregoing or any
Account.
"Chattel Paper" shall mean all chattel paper (as such term is
defined in Section 9-105(a)(2) of the UCC) of the Debtor.
"Collateral" shall have the meaning assigned to it in Article
II.
"Commodity Hedge Agreement" shall mean any agreement, device
or arrangement entered into by one Person with another Person providing
for payments which are related to fluctuations in the price of
petroleum (or any fraction thereof), natural gas, or natural gas
liquids (including, but not limited to, swaps, caps, collars, options,
puts, calls, futures and forward contracts).
"General Intangibles" shall mean all general intangibles (as
such term is defined in Section 9-106 of the UCC) of Debtor, including,
without limitation,
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rights to the payment of money (other than Accounts), net profit
interests, contracts, licenses, and franchises (excluding licenses and
franchises which prohibit the assignment or grant of a security
interest by Debtor), federal income tax refunds, trade names,
distributions on certificated securities (as defined in ss.8-102(a)(1)
of the UCC) and uncertificated securities (as defined in ss.8-102(a)(2)
of the UCC), computer programs and other computer software, inventions,
designs, trade secrets, goodwill, proprietary rights, customer lists,
supplier contracts, sale orders, correspondence, advertising materials,
payments due in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any property, reversionary
interests in pension and profit-sharing plans and reversionary,
beneficial and residual interests in trusts, credits with and other
claims against any Person, together with any collateral for any of the
foregoing and the rights under any security agreement granting a
security interest in such collateral.
"Indemnitees" shall mean the Secured Party and its
shareholders, officers, directors, employees, agents,
attorneys-in-fact, and affiliates.
"Proceeds" shall mean proceeds (as such term is defined in
Section 9-306(a) of the UCC).
"Secured Obligations" shall mean the Obligations.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the State of Texas.
1.4 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Agreement shall have the meanings assigned to such
terms according to GAAP.
1.5 References. The words "hereby," "herein," "hereinabove,"
"hereinafter," "hereinbelow," "hereof," "hereunder," and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular Article, Section, or provision of this Agreement. References in
this Agreement to Articles, Sections, or Exhibits are to such Articles,
Sections, or Exhibits of this Agreement unless otherwise specified.
1.6 Articles and Sections. This Agreement, for convenience
only, has been divided into Articles and Sections; and it is understood that the
rights and other legal relations of the parties hereto shall be determined from
this instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.7 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
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shall not exclude the general but shall be construed as cumulative. Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated.
ARTICLE II
GRANT OF SECURITY INTEREST
As security for the prompt and complete payment and
performance in full of all Secured Obligations, Debtor hereby assigns and
transfers for the purpose of security and pledges to the Secured Party and
grants to the Secured Party a security interest in and continuing lien on all
right, title, and interest of Debtor in, to, and under the following, in each
case, whether now owned or existing or hereafter acquired or arising, and
wherever located (all of which is herein collectively called the "Collateral"):
(a) all Accounts;
(b) all Account Records;
(c) all Chattel Paper;
(d) all General Intangibles;
(e) all Commodity Hedge Agreements; and
(f) all accessions and additions to any or all of the
foregoing, all substitutions and replacements for any
or all of the foregoing, and all Proceeds and
products of any or all of the foregoing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Debtor hereby represents and warrants to the Secured Party,
which representations and warranties shall survive execution and delivery of
this Agreement, as follows:
3.1 Validity, Perfection and Priority. The security interests
in the Collateral granted to the Secured Party hereunder constitute valid and
continuing security interests in the Collateral. Upon the filing of financing
statements, naming Debtor as "debtor" and the Secured Party as "secured party"
and describing the Collateral, in the filing offices set forth on Exhibit A, the
security interests granted to the Secured Party hereunder will constitute valid
first-priority perfected security interests in all Collateral with respect to
which a security interest can be perfected by the filing of a financing
statement, subject only to Permitted Liens.
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3.2 No Liens; Other Financing Statements. (a) Except for the
Lien granted to the Secured Party hereunder and Permitted Liens, Debtor owns
each item of the Collateral free and clear of any and all Liens, rights, or
claims of all other Persons, and Debtor shall defend the Collateral against all
claims and demands of all Persons at any time claiming the same or any interest
therein adverse to the Secured Party.
(b) No financing statement or other evidence of Lien covering
or purporting to cover any of the Collateral is on file in any public office
other than (i) financing statements in favor of the Secured Party, (ii)
financing statements for which proper termination statements have been delivered
to the Secured Party for filing, and (iii) financing statements filed in
connection with Permitted Liens.
3.3 Location of Debtor and Collateral. The chief executive
office of Debtor is located at 1221 Lamar, Suite 1020, Houston, Texas 77010. The
primary copies of the Account Records are located at, and all Accounts and
General Intangibles are maintained at, and controlled and directed (including,
without limitation, for general accounting purposes) from, such chief executive
office.
3.4 Accounts. (a) Each Account (i) is and will be, in all
material respects, the genuine, legal, valid, and binding obligation of the
Account Debtor in respect thereof, representing an unsatisfied obligation of
such Account Debtor, (ii) is and will be, in all material respects, enforceable
in accordance with its terms, (iii) is not and will not be subject to any
setoffs, defenses, taxes, counterclaims (except (A) with respect to refunds,
returns, and allowances in the ordinary course of business, and (B) to the
extent that such Account may not yet have been earned by performance), and (iv)
is and will be, in all material respects, in compliance with all applicable
laws, whether federal, state, local, or foreign.
(b) No Accounts which are evidenced by Chattel Paper require
the consent of the Account Debtor in respect thereof in connection with their
assignment hereunder.
3.5 Tradenames; Prior Names. Debtor has not conducted business
under any name other than its current name during the last five years.
ARTICLE IV
COVENANTS
Debtor covenants and agrees with the Secured Party that from
and after the date of this Agreement:
4.1 Further Assurances. At any time and from time to time, upon
the request of the Secured Party, and at the sole expense of Debtor, Debtor will
promptly and duly execute and deliver any and all such further instruments,
endorsements, powers of attorney, and other documents, make such filings, give
such notices, and take such further action as the Secured Party
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may reasonably deem desirable in obtaining the full benefits of this Agreement
and the rights, remedies, and powers herein granted, including, without
limitation, the following:
(a) the filing of financing statements, in form acceptable to
the Secured Party under the Uniform Commercial Code in effect in any
jurisdiction with respect to the liens and security interests granted
hereby;
(b) the performance of all searches of public records deemed
necessary by the Secured Party to establish and determine the priority
of the security interests of the Secured Party or to determine the
presence or priority of other secured parties; and
(c) the furnishing to the Secured Party from time to time of
reports and schedules in connection with the Collateral as required
pursuant to the Credit Agreement, all in reasonable detail and in form
reasonably satisfactory to the Secured Party.
4.2 Change of Chief Executive Office. Debtor will not move its
chief executive office except to such new location as Debtor may establish in
accordance with the last sentence of this Section. The originals of all Account
Records and General Intangibles will be kept at such chief executive office or
at the locations referred to in Section 3.3, or at such new locations as Debtor
may establish in accordance with the last sentence of this Section. All
Accounts, Account Records, and General Intangibles of Debtor will be maintained
at and controlled and directed (including, without limitation, for general
accounting purposes) from the locations referred to in Section 3.3 or such new
locations as the Debtor may establish in accordance with the last sentence of
this Section. With respect to any new location, promptly upon the request of the
Secured Party, Debtor shall take all such action as the Secured Party may
request to maintain the security interest of the Secured Party in the Collateral
granted hereby at all times fully perfected with the same or better priority and
in full force and effect. Debtor shall not establish a new location for its
chief executive office or such activities (or move any such activities from the
locations referred to in Section 3.3) until it shall have given to the Secured
Party not less than ten days' prior written notice of its intention to do so,
clearly describing such new location and providing such other information in
connection therewith as the Secured Party may reasonably request.
4.3 Change of Name or Corporate Structure. Debtor shall not
change its name or corporate structure or conduct business under any name other
than its current name without giving notice thereof to the Secured Party within
ten days thereafter, clearly describing such new name, or corporate structure or
such new tradename and providing such other information in connection therewith
as the Secured Party may reasonably request. With respect to such new name,
corporate structure, or tradename, promptly upon the request of the Secured
Party, Debtor shall take all such action as the Secured Party may reasonably
request to maintain the security interest of the Secured Party in the Collateral
granted hereby at all times fully perfected with the same or better priority and
in full force and effect.
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4.4 Maintain Records and Accounts. Debtor will keep and
maintain, or cause to be kept and maintained, at its own cost and expense
satisfactory and complete records of the Collateral, including, but not limited
to, the originals of all documentation with respect to all Accounts and General
Intangibles and records of all payments received and all credits granted on the
Accounts, all merchandise returned, and all other dealings therewith.
4.5 Right of Inspection. The Secured Party shall upon
reasonable notice to Debtor have full and free access during normal business
hours of Debtor to all the books, correspondence, and records of Debtor; and the
Secured Party and its representatives may examine the same, take extracts
therefrom, and make photocopies thereof.
4.6 Possession of Collateral. The Secured Party shall be deemed
to have possession of any of the Collateral in transit to it or set apart for
it. Otherwise the Collateral shall remain in Debtor's constructive possession
and control at all times, at Debtor's risk of loss, and shall (except for sales
permitted by Section 6.4 of the Credit Agreement) be kept at the locations
represented in Section 3.3.
4.7 Financing Statement Filings; Notifications. Debtor
recognizes that financing statements pertaining to the Collateral have been or
will be filed with the offices of the Secretary of State for the States listed
in Exhibit A hereto. Debtor will immediately notify the Secured Party of any
condition or event that may change the proper location for the filing of any
financing statement or other public notice or recording for the purpose of
perfecting a security interest in the Collateral. Without limiting the
generality of the foregoing, Debtor will (a) notify the Secured Party within a
reasonable period of time in advance of any change to a jurisdiction other than
as represented in Section 3.3 hereof, (i) in the location of Debtor's chief
place of business, (ii) in the location of the office where Debtor keeps its
records concerning the Accounts and the General Intangibles and the original of
all the Accounts Records, or (iii) in the "location" of Debtor within the
meaning of Section 9-103(c) of the UCC, and (b) immediately notify Secured Party
of any change in Debtor's name. In any notice furnished pursuant to this
Section, Debtor will expressly state that the notice is required by this
Agreement and contains facts that will or may require additional filings of
financing statements or other notices for the purpose of continuing perfection
of the Secured Party's security interest in the Collateral.
ARTICLE V
ACCOUNTS
5.1 Debtor Remains Liable under Accounts. Anything herein to
the contrary notwithstanding (including, without limitation, the grant of any
rights to the Secured Party), Debtor shall remain liable under each of the
Accounts to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account. The Secured Party shall have no
obligation or liability under any Account (or any agreement giving rise thereto)
by reason of or arising out of this Agreement or the receipt by the Secured
Party of any payment relating to such Account
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pursuant hereto, nor shall the Secured Party be obligated in any manner to
perform any of the obligations of Debtor under or pursuant to any Account (or
any agreement giving rise thereto), to make any payment, to make any inquiry as
to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account (or any agreement
giving rise thereto), to present or file any claim, to take any action to
enforce any performance, or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
5.2 Collections on Accounts. Prior to the occurrence of an
Event of Default, the Secured Party hereby authorizes Debtor to collect the
Accounts. At any time following and during the continuance of any Event of
Default, the Secured Party may curtail or terminate said authority at any time
and itself, or by its agents, collect all Accounts, and any payments of Accounts
collected by Debtor shall be held by Debtor in trust for the Secured Party,
segregated from other funds of Debtor. All Proceeds, while held by the Secured
Party (or by Debtor in trust for the Secured Party) shall continue to be
Collateral securing all of the Secured Obligations and shall not constitute
payment thereof until applied as hereinafter provided.
ARTICLE VI
POWER OF ATTORNEY
6.1 Appointment as Attorney-in-Fact. Debtor hereby irrevocably
constitutes and appoints the Secured Party and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact, with
full irrevocable power and authority in the place and stead of Debtor and in the
name of Debtor or in its own name, from time to time in the discretion of the
Secured Party, for the purpose of carrying out the terms of this Agreement, to
take any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, Debtor
hereby gives the Secured Party the power and right, on behalf of Debtor, without
notice to or assent by the Debtor, to do the following:
(a) in the case of any Account, at any time when the authority
of Debtor to collect the Accounts has been curtailed or terminated
pursuant hereto, or in the case of any other Collateral, at any time
when any Event of Default shall have occurred and be continuing, in the
name of Debtor or its own name, or otherwise, to take possession of and
indorse and collect any checks, drafts, notes, acceptances, or other
instruments for the payment of moneys due under, or with respect to,
any Collateral; in the name of Debtor or otherwise to direct any party
liable for any payment under any of the Collateral to make payment of
any and all moneys due or to become due thereunder directly to the
Secured Party or as the Secured Party shall direct; to ask or demand
for, collect, receive payment of, and receipt for, any and all moneys,
claims, and other amounts due or to become due at any time in respect
of or arising out of any Collateral;
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(b) at any time when an Event of Default shall have occurred
and be continuing, to prepare, sign, and file financing statements and
amendments thereto in the name of Debtor;
(c) at any time when an Event of Default shall have occurred
and be continuing, to take or cause to be taken all actions necessary
to perform or comply or cause performance or compliance with the terms
of this Agreement, including, without limitation, actions to pay or
discharge taxes and Liens levied or placed on or threatened against the
Collateral, to effect any repairs or obtain any insurance called for by
the terms of this Agreement, and to pay all or any part of the premiums
therefor and the costs thereof;
(d) upon the occurrence and during the continuance of any
Event of Default, (i) to sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts
against debtor, assignments, verifications, notices, and other
documents in connection with any of the Collateral, (ii) to commence
and prosecute any suits, actions, or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any
portion thereof and to enforce any other right in respect of any
Collateral, (iii) to defend any suit, action, or proceeding brought
against Debtor with respect to any Collateral, (iv) to settle,
compromise, or adjust any suit, action, or proceeding described in the
preceding clause and, in connection therewith, to give such discharges
or releases as the Secured Party may deem appropriate, and (v) gen
erally, to sell or transfer and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Secured Party were the absolute owner thereof for all
purposes, and to do, at the option of the Secured Party and the expense
of Debtor, at any time, or from time to time, all acts and things which
the Secured Party deems necessary to protect, preserve, or realize upon
the Collateral and the Liens of the Secured Party thereon and to effect
the intent of this Agreement, all as fully and effectively as Debtor
might do; and
(e) at any time when an Event of Default shall have occurred
and be continuing, to execute, in connection with any foreclosure, any
endorsements, assignments, or other instruments of conveyance or
transfer with respect to the Collateral.
Debtor hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue hereof. This power of attorney is a power
coupled with an interest and shall be irre vocable so long as any Obligation
remains outstanding or any Commitment exists. Debtor hereby acknowledges and
agrees that in acting pursuant to this power-of-attorney the Secured Party shall
be acting in its own interest and shall have no fiduciary duties to the Debtor,
and Debtor hereby waives any claims to the rights of a beneficiary of a
fiduciary relationship hereunder.
6.2 No Duty on the Part of Secured Party. The powers conferred
on the Secured Party hereunder are solely to protect the interests of the
Secured Party in the Collateral
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and shall not impose any duty upon the Secured Party to exercise any such
powers. The Secured Party shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers, and, except for its own
gross negligence, neither it nor any of its officers, directors, employees, or
agents shall be responsible to the Debtor for any act or failure to act
hereunder.
ARTICLE VII
REMEDIES; RIGHTS UPON DEFAULT
7.1 Rights and Remedies Generally. If an Event of Default shall
occur and be continuing, then and in every such case, the Secured Party shall
have all the rights of a secured party under the UCC, all rights now or
hereafter existing under all other applicable laws, and, subject to any
mandatory requirements of applicable law then in effect, all rights set forth in
this Agreement and the other Loan Documents. No enumeration of rights in this
Section or elsewhere in this Agreement or in any other Loan Document or other
agreement shall be deemed to in any way limit the rights of the Secured Party as
described in this Section.
7.2 Proceeds. If an Event of Default shall occur and be
continuing, in addition to the rights of the Secured Party specified with
respect to the payment of Accounts, (a) all Proceeds received by Debtor
consisting of cash, checks, and other near-cash items shall be held by Debtor in
trust for the Secured Party, segregated from other funds of Debtor, and shall
forthwith upon receipt by Debtor, be turned over to the Secured Party, in the
same form received by Debtor (appropriately indorsed or assigned by the Debtor
to the order of the Secured Party or in such other manner as shall be
satisfactory to the Secured Party), and (b) any and all such Proceeds received
by the Secured Party (whether from Debtor or otherwise), or any part thereof,
shall be applied by the Secured Party as provided in Section 7.10 hereof.
7.3 Collection of Accounts. If an Event of Default shall occur
and be continuing:
(a) the Secured Party may instruct the obligor or obligors on
any obligation owing or purporting to be owed to Debtor constituting
the Collateral (including, without limitation, the Accounts) to make
any payment required by the terms of such obligation directly to the
Secured Party;
(b) the Secured Party shall have the right from time to time
to modify (including, without limitation, to extend the time for
payment or arrange for payment in installments) or waive rights under
any such obligation and to compromise or settle counterclaims or
setoffs with the obligor under any such obligation; and
(c) any and all of such proceeds of such collections paid to
the Secured Party, or any part thereof, (after deduction of the Secured
Party's expenses of collection, including, without limitation,
reasonable attorneys' fees and
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disbursements), shall be applied by the Secured Party as provided in
Section 7.10 hereof.
7.4 Disposition of Collateral. If an Event of Default shall
occur and be continuing:
(a) the Secured Party may direct Debtor to sell, assign, or
otherwise liquidate or dispose of all or from time to time any portion
of the Collateral, and Debtor shall do so, and the Secured Party may
take possession of the Proceeds of such Collateral. The Secured Party
may direct Debtor to direct that all Proceeds of such Collateral be
paid directly to the Secured Party or may permit the Proceeds of such
Collateral to be paid to Debtor and all such Proceeds consisting of
cash, checks, or near-cash items shall be held by Debtor in trust for
the Secured Party, segregated from other funds of Debtor in a separate
deposit account containing only Proceeds and shall forthwith upon
receipt by Debtor, be turned over to the Secured Party, in the same
form received by Debtor (appropriately indorsed or assigned by Debtor
to the order of the Secured Party or in such other manner as shall be
satisfactory to the Secured Party); and
(b) any and all such Proceeds received by the Secured Party
(whether from Debtor or otherwise), shall be applied by the Secured
Party as provided in Section 7.10 hereof.
7.5 Debtor's Accounts. If an Event of Default shall occur and
be continuing, the Secured Party may liquidate any securities held in any
accounts of Debtor and apply the pro ceeds thereof and any other amounts held in
any accounts of Debtor as provided in Section 7.10 hereof.
7.6 Possession of Collateral. If an Event of Default shall occur
and be continuing, (a) the Secured Party may, personally or by agents or
attorneys, immediately retake possession of the Collateral (including the
originals of all or any Accounts and Account Records) or any part thereof, from
Debtor or any other Person which then has possession of any part thereof with or
without notice or judicial process, and for that purpose may enter upon Debtor's
premises where any of the Collateral is located and remove the same and may make
reasonable use in connection with such removal of any and all services,
supplies, aids, and other facilities of Debtor, and (b) upon three days' notice
to Debtor, Debtor shall, at its own expense, assemble the Collateral, including,
without limitation, the originals of all Account Records (or from time to time
any portion thereof) and make it available to the Secured Party by delivery to
the Secured Party at any location designated by the Secured Party which is
reasonably convenient to both parties, whether at the premises of Debtor or the
Secured Party or elsewhere. Debtor shall, at its sole expense, store and keep
any Collateral so assembled at such place or places pending further action by
the Secured Party and while the Collateral shall be so stored and kept, provide
such guards and maintenance services as shall be reasonably necessary to protect
the same and to preserve and maintain the Collateral in good condition. Debtor's
obligation to so assemble and deliver the Collateral is of the essence of this
Agreement and, accordingly, upon application to a
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court of equity having jurisdiction, the Secured Party shall be entitled to a
decree requiring specific performance by the Debtor of such obligation.
7.7 Disposition of the Collateral. If an Event of Default shall
occur and be continuing, the Secured Party may sell, assign, lease, give an
option or options to purchase, or otherwise dispose of the Collateral (or
contract to do any of the foregoing) under one or more contracts or as an
entirety, and, to the extent permitted by applicable law, without the necessity
of gathering at the place of sale the property to be sold, at public or private
sale or sales, conducted by any officer, nominee or agent of, or auctioneer or
attorney for the Secured Party at any location of any third party conducting or
otherwise involved in such sale or any office of the Secured Party or elsewhere
and in general in such manner, at such time or times and upon such terms and
conditions and at such price as may be commercially reasonable, for cash or on
credit or for future delivery without assumption of any credit risk. Any of the
Collateral may be sold, leased, assigned, or options or contracts entered to do
so, or otherwise disposed of, in the condition in which the same existed when
taken by the Secured Party or after any overhaul or repair which may be
commercially reasonable. Any such disposition which shall be a private sale or
other private proceeding shall be made upon not less than ten days' written
notice to Debtor specifying the time after which such disposition is to be made
and the intended sale price or other consideration therefor. Any such
disposition which shall be a public sale shall be made upon not less than ten
days' written notice to Debtor (which Debtor agrees to be commercially
reasonable) specifying the time and place of such sale and, in the absence of
applicable requirements of law to the contrary, shall be by public auction
(which may, at the option or the Secured Party, be subject to reserve), after
publication of commercially reasonable notice of such auction. To the extent
permitted by applicable law, the Secured Party may bid for and become the
purchaser of the Collateral or any item thereof, offered for sale in accordance
with this Section without accountability to Debtor (except to the extent of
surplus money received) as provided below. In the payment of the purchase price
of the Collateral, the purchaser shall be entitled to have credit on account of
the purchase price thereof of amounts owing to such purchaser on account of any
of the Secured Obligations and any such purchaser may deliver notes, claims for
interest, or claims for other payment with respect to such Secured Obligations
in lieu of cash up to the amount which would, upon distribution of the net
proceeds of such sale, be payable thereon. Such notes, if the amount payable
hereunder shall be less than the amount due thereon, shall be returned to the
holder thereof after being appropriately stamped to show partial payment.
Notwithstanding the foregoing, if the Collateral or any portion thereof is
perishable or threatens to decline speedily in value or is of a type customarily
sold in a recognized market only such notice as shall be reasonably practicable
shall be required.
7.8 Recourse. Debtor shall remain liable for any deficiency if
the proceeds of any sale or other disposition of the Collateral are insufficient
to satisfy the Secured Obligations. Debtor shall also be liable for all
reasonable expenses of the Secured Party incurred in connection with collecting
such deficiency, including, without limitation, the reasonable fees and
disbursements of any attorneys employed by the Secured Party to collect such
deficiency.
7.9 Expenses; Attorneys' Fees. Debtor shall reimburse the
Secured Party for all its reasonable expenses in connection with the exercise of
its rights and remedies hereunder,
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including, without limitation, reasonable attorneys' fees and legal expenses
incurred by the Secured Party.
7.10 Application of Proceeds. The proceeds of any disposition
of Collateral shall be applied as follows:
(a) to the payment of any and all reasonable expenses and fees
(including attorneys' fees and disbursements) incurred by the Secured
Party in connection with the exercise of its rights and remedies
hereunder, including, without limitation, reasonable expenses and fees
in connection with obtaining, taking possession of, removing, holding,
insuring, repairing, preparing for sale or lease, storing and disposing
of Collateral;
(b) to the satisfaction of the Secured Obligations in such
order as the Secured Party may elect; and
(c) after the indefeasible payment in full in cash of all
Secured Obligations, to Debtor or to whomever may lawfully be entitled
to receive the same or as a court of competent jurisdiction may direct.
7.11 Limitation on Duties Regarding Preservation of Collateral.
The Secured Party's sole duty with respect to the custody, safekeeping, and
physical preservation of the Collateral in its possession, under Section 9.207
of the UCC or otherwise, shall be to deal with it in the same manner as the
Secured Party deals with similar property for its own account. The Secured Party
shall have no obligation to take any steps to preserve rights against prior
parties to any Collateral. Except for matters constituting gross negligence,
neither the Secured Party nor any of its directors, officers, employees, or
agents shall be liable for failure to demand, collect, or realize upon all or
any part of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
the Debtor or otherwise.
7.12 Waiver of Claims. Except as otherwise provided in this
Agreement, Debtor hereby waives, to the extent permitted by applicable law,
notice of and judicial hearing in connection with the Secured Party's taking
possession or the Secured Party's disposition of any of the Collateral in
accordance herewith, including, without limitation, any and all prior notice and
hearing for any prejudgment remedy or remedies and any such right which the
Debtor would otherwise have under the constitution or any statute of the United
States or any state, and Debtor hereby further waives, to the extent permitted
by law:
(a) all damages occasioned by such taking of possession except
any damages which are the direct result of the gross negligence of the
Secured Party;
(b) all other requirements as to the time, place, and terms of
sale or other requirements with respect to the enforcement of the
rights of the Secured Party hereunder;
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(c) demand of performance or other demand, notice of intent to
demand or accelerate, notice of acceleration, presentment, protest,
advertisement, or notice of any kind to or upon Debtor or any other
Person, except as may be required by the Credit Agreement; and
(d) all rights of redemption, appraisement, valuation,
diligence, stay, extension, or moratorium now or hereafter in force
under any applicable law in order to stay or delay the enforcement of
this Agreement, including the absolute sale of the Collateral or any
portion thereof, and Debtor, for itself and all who may claim under it,
insofar as it or they now or hereafter lawfully may, hereby waives the
benefit of all such laws.
7.13 Discontinuance of Proceedings. In case the Secured Party
shall have instituted any proceeding to enforce any right, power, or remedy
under this Agreement by foreclosure, sale, entry, or otherwise, and such
proceeding shall have been discontinued or abandoned for any reason, then and in
every such case, Debtor and the Secured Party shall be returned to their former
positions and rights hereunder with respect to the Collateral subject to the
security interest created under this Agreement, and all rights, remedies, and
powers of the Secured Party shall continue as if no such proceeding had been
instituted.
ARTICLE VIII
INDEMNITY
8.1 INDEMNITY. (A) DEBTOR AGREES TO INDEMNIFY, REIMBURSE, AND
HOLD THE INDEMNITEES HARMLESS FROM ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, CLAIMS, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR
DISBURSEMENTS (INCLUDING REASONABLE ATTORNEYS' FEES AND EXPENSES) (FOR THE
PURPOSES OF THIS SECTION ALL OF THE FOREGOING ARE COLLECTIVELY CALLED
"EXPENSES") OF WHATSOEVER KIND OR NATURE WHICH MAY BE IMPOSED ON, ASSERTED
AGAINST, OR INCURRED BY ANY OF SUCH INDEMNITEES IN ANY WAY RELATING TO OR
ARISING OUT OF THIS AGREEMENT OR THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH
OR IN ANY OTHER WAY CONNECTED WITH THE ADMINISTRATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THE ENFORCEMENT OF ANY OF THE TERMS OF OR THE
PRESERVATION OF ANY RIGHTS HEREUNDER, INCLUDING, WITHOUT LIMITATION, THOSE
ARISING FROM THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF ANY INDEMNITEE;
PROVIDED THAT NO SUCH INDEMNITEE SHALL BE INDEMNIFIED PURSUANT TO THIS SECTION
FOR EXPENSES TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OF SUCH INDEMNITEE.
(b) Debtor agrees that upon written notice by any such
Indemnitee of any assertion that could give rise to an Expense, Debtor shall
assume full responsibility for the defense
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thereof. Without limiting the application of part (a) of this Section, Debtor
agrees to pay or reimburse such Indemnitee on demand for any and all reasonable
fees, costs, and expenses of whatever kind or nature incurred in connection with
the creation, preservation, or protection of the Secured Party's Liens on, and
security interests in, the Collateral, including, without limita tion, all
reasonable fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment, or discharge of any taxes
or Liens or security interests upon or in respect of the Collateral, premiums
for insurance with respect to the Collateral, all reason able expenses incurred
in the custody, preservation, use, or operation of the Collateral when
Collateral is in the Secured Party's possession, and all other reasonable fees,
costs, and expenses in connection with protecting, maintaining, or preserving
the Collateral and the Secured Party's interest therein, whether through
judicial proceedings or otherwise, or in defending or prosecuting any actions,
suits, or proceedings arising out of or relating to the Collateral.
(c) Without limiting the application of parts (a) or (b) of
this Section, Debtor agrees to pay, indemnify, and hold each Indemnitee harmless
from and against any Expenses which such Indemnitee may suffer, expend, or incur
in consequence of or growing out of any misrepresentation by any Debtor in this
Agreement or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement.
(d) If and to the extent that the obligations of Debtor under
this Section are unenforceable for any reason, Debtor hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.
8.2 Indemnity Obligations Secured by Collateral; Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Secured Obligations secured by the Collateral.
The indemnity obligations of the Debtor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment and
performance of the Secured Obligations and the termination of this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Secured Party in exercising any right, power, or privilege hereunder
and no course of dealing between any Debtor and the Secured Party shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power, or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power, or privilege. A waiver by the Secured
Party of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Secured Party would
otherwise have on any future occasion. The rights and remedies herein expressly
provided are cumulative, may be exercised singly or concurrently and as often
and in such order as the Secured Party deems expedient, and are not exclusive of
any rights or remedies which the Secured Party would otherwise have whether by
agreement or now or hereafter existing under applicable law. No notice to or
demand on Debtor in any case shall
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entitle Debtor to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Secured Party to any
other or further action in any circum stances without notice or demand.
9.2 Termination; Release. When the Secured Obligations have
been indefeasibly paid and performed in full and the Commitment has terminated,
this Agreement shall terminate, and the Secured Party, at the request and sole
expense of Debtor, will execute and deliver to Debtor the proper instruments
(including Uniform Commercial Code termination statements) acknowledging the
termination of this Agreement, and will duly assign, transfer, and deliver to
Debtor, without recourse, representation, or warranty of any kind whatsoever,
such of the Collateral as may be in possession of the Secured Party and has not
theretofore been disposed of, applied, or released.
9.3 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
9.4 Marshalling. The Secured Party shall not be under any
obligation to marshall any assets in favor of Debtor or any other Person or
against or in payment of any or all of the Secured Obligations.
9.5 Severability. In case any provision in or obligation under
this Agreement or the Secured Obligations shall be invalid, illegal, or
unenforceable in any jurisdiction, the validity, legality, and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
9.6 Financing Statement Filing. A photocopy or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in lieu of the original to the extent permitted by applicable law.
9.7 Notices and Other Communications. Except as to oral notices
expressly authorized herein, all notices, requests, and communications under
this Agreement shall be in writing (including by telecopy). Unless otherwise
expressly provided herein, any such notice, request, or communication shall be
deemed to have been duly given or made when provided in accordance with the
terms of the Credit Agreement.
9.8 Parties in Interest. This Agreement shall be binding upon
and inure to the benefit of Debtor, the Secured Party, and their respective
legal representatives, successors, and assigns. No other Person shall have any
right, benefit, priority, or interest hereunder or as a result hereof or have
standing to require satisfaction of provisions hereof in accordance with their
terms, and any or all of such provisions may be freely waived in whole or in
part by the Secured Party at any time if the Secured Party in its sole
discretion deems it advisable to do so.
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9.9 Amendments. Neither this Agreement nor any provision
hereof may be amended, supplemented, modified, discharged, or terminated orally,
but only by an instrument in writing signed by the party against whom
enforcement of the amendment, supplement, modification, discharge, or
termination is sought.
9.10 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SHALL SUPERSEDE ANY PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, BETWEEN THE
PARTIES HERETO RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
9.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING
EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAWS).
9.12 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO OR FROM THIS AGREEMENT OR ANY OTHER LOAN DOCU MENT TO WHICH ANY DEBTOR IS A
PARTY MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE SECURED
PARTY, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. DEBTOR HEREBY
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN
HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE SECURED PARTY IN ACCORDANCE WITH THIS SECTION.
IN WITNESS WHEREOF, this Agreement is executed as of the date
first above written.
DEBTOR:
MIDDLE BAY OIL COMPANY, INC.
By: /s/ Stephen W. Herod
---------------------------------------
Stephen W. Herod
Vice President
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ENEX RESOURCES CORPORATION
By: /s/ Stephen W. Herod
---------------------------------------
Stephen W. Herod
Vice President
SECURED PARTY:
COMPASS BANK, AS AGENT
By: /s/ Dorothy Marchand Wilson
---------------------------------------
Dorothy Marchand Wilson
Senior Vice President
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EXHIBIT A
Section 3.1: FILING LOCATIONS
Secretary of State of Texas.
A-i
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- --------------------------------------------------------------------------------
SECURITY AGREEMENT
(Stock Pledge)
BY
MIDDLE BAY OIL COMPANY, INC.
IN FAVOR OF
COMPASS BANK, AS AGENT
March 27, 1998
- --------------------------------------------------------------------------------
CREDIT FACILITY TO MIDDLE BAY OIL COMPANY, INC.
AND ENEX RESOURCES CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 113
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above............................................................................... 1
1.2 Terms Defined in Credit Agreement................................................................. 1
1.3 Additional Defined Terms.......................................................................... 2
1.4 Undefined Financial Accounting Terms.............................................................. 2
1.5 Terms Defined in Texas Business and Commerce Code................................................. 2
1.6 References........................................................................................ 2
1.7 Articles and Sections............................................................................. 2
1.8 Number and Gender................................................................................. 2
ARTICLE 2 SECURITY INTEREST
2.1 Grant of Security Interest in Collateral.......................................................... 3
2.2 Delivery of Collateral............................................................................ 3
2.3 Power of Attorney................................................................................. 3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
3.1 Status of Collateral.............................................................................. 4
3.2 No Material Misstatements......................................................................... 4
3.3 Ownership and Liens............................................................................... 5
ARTICLE 4 COVENANTS AND AGREEMENTS
4.1 Payment of Assessments and Charges................................................................ 5
4.2 Delivery of Collateral............................................................................ 5
4.3 Further Assurances................................................................................ 5
4.4 Prohibited Liens and Filings...................................................................... 5
ARTICLE 5 RIGHTS AND REMEDIES
5.1 Remedies Upon Default............................................................................. 6
5.2 Voting Rights, Dividends, Etc. Prior to Default................................................... 6
5.3 Voting Rights, Dividends, Etc. After Default...................................................... 7
5.4 Proceeds.......................................................................................... 8
5.5 Lender Duties..................................................................................... 8
5.6 The Lender's Actions.............................................................................. 8
ARTICLE 6 MISCELLANEOUS
6.1 Transfer of Obligations and Collateral............................................................ 8
6.2 Cumulative Security............................................................................... 9
</TABLE>
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<TABLE>
<S> <C>
6.3 Continuing Agreement.............................................................................. 9
6.4 Cumulative Rights................................................................................. 9
6.5 Exercise of Rights................................................................................ 9
6.6 Remedy and Waiver................................................................................. 9
6.7 Non-Judicial Remedies............................................................................. 9
6.8 Preservation of Liability......................................................................... 10
6.9 Notices and Other Communications.................................................................. 10
6.10 Parties in Interest............................................................................... 10
6.11 Amendment and Waiver.............................................................................. 11
6.12 Invalidity........................................................................................ 11
6.13 Governing Law..................................................................................... 11
6.14 Jurisdiction and Venue............................................................................ 11
6.15 Waiver of Rights to Jury Trial.................................................................... 11
6.16 Entire Agreement.................................................................................. 11
6.17 Counterparts...................................................................................... 12
</TABLE>
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SECURITY AGREEMENT
(Stock Pledge)
THIS SECURITY AGREEMENT (Stock Pledge) (this "Security
Agreement") dated as of March 27, 1998, is entered into by and between MIDDLE
BAY OIL COMPANY, INC. (the "Pledgor"), and COMPASS BANK, a Texas state chartered
banking institution (the "Agent"), as Agent for itself and Bank of Oklahoma,
National Association and the Lenders signatory to the Credit Agreement (the
"Lenders").
W I T N E S S E T H :
WHEREAS, pursuant to the terms and conditions of the Credit
Agreement dated March 27, 1998, executed in connection with a revolving loan
extended to Middle Bay Oil Company, Inc. and Enex Resources Corporation by Agent
and the Lenders, (as such agreement may be amended, restated, or supplemented
from time to time, the "Credit Agreement"), the Lenders have agreed to extend
credit to or for the benefit of the Pledgor;
WHEREAS, the Pledgor is the owner of the shares of issued and
outstanding common stock described in Schedule I hereof (the "Securities"); and
WHEREAS, pursuant to the terms of the Credit Agreement, and as
an inducement to the Lenders to extend credit to or for the benefit of the
Pledgor pursuant to the Credit Agreement the Pledgor has agreed to execute this
Security Agreement in favor of the Agent for the benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Security Agreement, the
terms "Agent", "Lenders," "Credit Agreement," "Pledgor," "Security Agreement,"
and "Securities" will have the meanings indicated above.
1.2 Terms Defined in Credit Agreement. Each capitalized term
used but not defined herein shall have the meaning assigned to such term in the
Credit Agreement.
1.3 Additional Defined Terms. As used in this Security
Agreement, the following terms will have the meanings indicated:
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<PAGE> 116
(a) "Collateral" will mean the Securities and all
certificates or agreements representing or granting
rights in the Securities; all dividends, cash,
instruments and other Property from time to time
received, receivable or otherwise distributed in respect
of or in exchange for any or all of the Securities,
including, without limitation, all additional shares of
stock of the entities listed on Schedule I from time to
time acquired by the Pledgor by way of stock dividend or
stock split; the certificates representing such
additional shares; all dividends, cash, instruments or
other Property from time to time received, receivable or
otherwise distributed in respect of or in exchange for
any or all of such additional shares; and all proceeds
of any of the foregoing in this definition.
(b) "Event of Default" shall mean any Event of Default, as
defined in the Credit Agreement, or the failure of the
Pledgor to comply with Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System, as
amended.
1.4 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Security Agreement shall have the meanings
assigned to such terms according to GAAP.
1.5 Terms Defined in Texas Business and Commerce Code. Any term
used herein that is defined in the Texas Business and Commerce Code shall have
the meaning assigned to such term therein, unless the context otherwise requires
or such term is otherwise defined herein.
1.6 References. The words "hereby," "herein," "hereinabove,"
"hereinafter," "hereinbelow," "hereof," "hereunder," and words of similar import
when used in this Security Agreement shall refer to this Security Agreement as a
whole and not to any particular Article, Section, or provision of this Security
Agreement. References in this Security Agreement to Article or Section numbers
are to such Articles or Sections of this Security Agreement unless otherwise
specified.
1.7 Articles and Sections. This Security Agreement, for
convenience only, has been divided into Articles and Sections; and it is
understood that the rights and other legal relations of the parties hereto shall
be determined from this instrument as an entirety and without regard to the
aforesaid division into Articles and Sections and without regard to headings
prefixed to such Articles or Sections.
1.8 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. Definitions of terms defined in
the singular or plural shall be equally applicable to the plural or singular, as
the case may be, unless otherwise indicated.
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ARTICLE 2.
SECURITY INTEREST
2.1 Grant of Security Interest in Collateral. The Pledgor, for
value received, the receipt and sufficiency of which are hereby acknowledged,
and to induce the Lender to extend credit to or for the benefit of the Pledgor,
hereby pledges to the Lender, and its successors and assigns, and hereby grants
to the Lender, and its successors and assigns, a first lien on and a security
interest in the stock described on Schedule I ("Collateral") to secure the
Obligations.
2.2 Delivery of Collateral. All certificates or instruments
representing or evidencing the Securities shall be delivered to and held by the
Lender for the sole purpose of possession of the Collateral or any portion
thereof pursuant to this Security Agreement, and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Lender. The Lender shall at all times have actual possession of the Securities
and shall be deemed to have possession of any of the Collateral in transit to it
or set apart for it.
2.3 Power of Attorney. The Pledgor hereby irrevocably
constitutes and appoints the Lender and any authorized officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of the Pledgor and
in the name of the Pledgor or in its own name, from time to time in the
discretion of the Lender, for the purpose of carrying out the terms of this
Security Agreement, and without notice to the Pledgor, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Security
Agreement, including, without limitation, the following:
(a) to transfer to or register any or all of the Collateral
in the name of the Lender or any of its nominees;
(b) to exchange the certificates or instruments representing
or evidencing the Collateral for certificates or
instruments of smaller or larger denominations;
(c) upon the occurrence and during the continuance of any
Event of Default, (i) to receive payment of and receipt
for any and all moneys, claims and other amounts due and
to become due at any time in respect of or arising out
of any Collateral, (ii) to commence and prosecute any
suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collat
eral or any part thereof and to enforce any other right
in respect of any Collateral, (iii) to defend any suit,
action or proceeding brought against the Pledgor with
respect to any Collateral, (iv) to settle, compromise or
adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or
releases as the Lender may deem appropriate, and
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(v) to complete any blanks contained in any instruments
of transfer or assignment appended to or delivered with
the certificates representing the Securities; and
(d) to exchange any of the Collateral for other Property
upon reorganization, recapitalization or other
readjustment of any of the issuers of the Securities and
in connection therewith to deposit any of the Collateral
with any committee or depository upon such terms as the
Lender may determine; and, subsequent to any Event of
Default, to exercise, at the option of the Lender,
voting rights as to any of the Collateral;
all without notice and without liability except to account for Property actually
received by the Lender.
The Pledgor hereby ratifies all that said attorney shall
lawfully do or cause to be done within the scope of the power of attorney
granted hereunder. This power of attorney is a power coupled with an interest
and shall be irrevocable so long as any Obligation remains outstanding or any
Commitment exists. The powers conferred on the Lender hereunder are solely to
protect the interests of the Lender in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Lender shall be accountable only
for amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees, or agents
shall be responsible to the Pledgor for any act or failure to act, except for
gross negligence.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into the Credit Agreement and to
make Loans to or for the benefit of the Pledgor, the Pledgor represents and
warrants to the Lender (which representations and warranties shall survive the
delivery of this Security Agreement and the other Loan Documents) that:
3.1 Status of Collateral. All signatures on the certificates
evidencing the Securities are genuine or authorized; the transfer of the
Securities by the Pledgor to the Lender are effective; and the Pledgor knows of
no fact that might impair the validity of the Securities. The Securities (a)
have been duly authorized, validly issued, drawn, made, and/or accepted, (b) are
genuine, validly outstanding, fully paid, and nonassessable, (c) were not issued
in violation of the preemptive rights of any Person or any agreement by which
the Pledgor or any issuer of such Collateral is bound, and (d) have not been
materially altered.
3.2 No Material Misstatements. No information, exhibit, or
report furnished by the Pledgor to the Lender in connection with the negotiation
of this Security Agreement contained or contains any material misstatement of
fact or omitted to state a material fact or any fact necessary
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to make the statements contained therein, in light of the circumstances in which
they were made, not misleading.
3.3 Ownership and Liens. Except for the security interest in
favor of the Lender, the Pledgor owns (and at the time of transfer or delivery
of the Collateral to the Lender owned or will own) good and indefeasible title
to the Collateral free and clear of any other security interests, liens, adverse
claims, or options; the Pledgor has (and at the time of transfer or delivery of
the Collateral to the Lender had or will have) full right, power, and authority
to convey, assign, transfer, and deliver the Collateral to the Lender and to
grant a security interest in the Collateral to the Lender in the manner provided
herein.
ARTICLE 4.
COVENANTS AND AGREEMENTS
Unless agreed in writing by the Lender to the contrary, the
Pledgor agrees, so long as any Obligation remains outstanding or unpaid or any
Commitment exists:
4.1 Payment of Assessments and Charges. To pay all taxes,
charges, liens and assessments against the Collateral; and upon the failure of
the Pledgor to do so, the Lender at its option may, but will not be obligated
to, pay any of them.
4.2 Delivery of Collateral. That any and all (a) dividends paid
or payable other than in cash and all instruments and other property received,
receivable or otherwise distributed in respect of or in exchange for any
Collateral, (b) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and (c) cash paid, payable or otherwise distributed in respect
of principal of, in redemption of or in exchange for any Collateral, shall be
forthwith delivered to the Lender to hold as Collateral for the benefit of the
Lender and shall, if received by the Pledgor, be received in trust for the
benefit of the Lender, be segregated from the other property or funds of the
Pledgor, and be forthwith delivered to the Lender as Collateral in the same form
as so received (with any necessary endorsement).
4.3 Further Assurances. To promptly cure any defects in the
execution and delivery of this Security Agreement and execute, acknowledge, and
deliver such other assurances and instruments and take such other action as
shall, in the opinion of the Lender, be necessary to fulfill the terms of this
Security Agreement and to confirm, perfect, and preserve the security interest
created and intended to be created hereby and to vest more completely in and
assure to the Lender its rights under this Security Agreement.
4.4 Prohibited Liens and Filings. That it will not pledge,
mortgage, or otherwise encumber, create, or suffer a security interest to exist
in any of the Collateral (other than in favor of the Lender) or sell, assign, or
otherwise transfer any of the Collateral to anyone other than the
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Lender or file or permit to be filed any financing statement or other security
instrument with respect to the Collateral other than in favor of the Lender.
ARTICLE 5.
RIGHTS AND REMEDIES
5.1 Remedies Upon Default. Upon the occurrence and during the
continuance of an Event of Default, the Lender may, at its option, declare all
Obligations immediately due and payable, without presentment, demand, protest,
notice of protest, default or dishonor, notice of intent to accelerate maturity,
notice of acceleration of maturity or other notice of any kind, all of which are
hereby expressly waived by the Pledgor, and may exercise any and all other
remedies provided by law or pursuant to the Loan Documents.
(a) If all or any part of the Obligations shall become due
and payable, the Lender may then, or at any time
thereafter, apply, set-off, collect, sell in one or more
sales, or otherwise dispose of, any or all of the
Collateral, in its then condition or following any
commercially reasonable preparation or processing, in
such order as the Lender may elect. Any such sale may be
made either at public or private sale at the place of
business of the Lender, any brokers' board or securities
exchange or elsewhere, either for cash or upon credit or
for future delivery, at such price as the Lender may
deem fair. The Lender may be the purchaser of any or all
Collateral so sold and may hold the same thereafter in
its own right free from any claim of the Pledgor or
right of redemption. No such purchase or holding by the
Lender shall be deemed a retention by the Lender in
satisfaction of the Obligations. All demands, notices,
and advertisements, and the presentment of property at
sale are hereby waived. If, notwithstanding the
foregoing provisions, any applicable provision of the
Uniform Commercial Code or other law requires the Lender
to give reasonable notice of any such sale or
disposition or other action, ten days' prior written
notice shall constitute reasonable notice. The Lender
may require the Pledgor to assemble the Collateral and
make it available to the Lender at a place designated by
the Lender that is reasonably convenient to the Lender
and the Pledgor. Any sale hereunder may be conducted by
an auctioneer or any officer or agent of the Lender.
(b) In connection with the sale of Collateral which is stock
or other investment securities, the Lender must limit
prospective purchasers to the extent deemed necessary or
advisable by the Lender to render such sale exempt from
the registration requirements of the Securities Act of
1933, as amended (the "Act"), and any applicable state
securities laws. No sale so made in good faith by the
Lender shall be deemed not to be "commercially
reasonable" because so made; provided, however, that
nothing in this Security Agreement shall be deemed to
impose any obligation whatsoever to file a registration
statement
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<PAGE> 121
under the Act or any state securities law with respect
to any sale of Collateral by the Lender.
5.2 Voting Rights, Dividends, Etc. Prior to Default. So long as
no Event of Default shall have occurred and be continuing:
(a) the Pledgor will be entitled to exercise any and all
voting and other consensual rights pertaining to the
Collateral or any part thereof for any purpose not
inconsistent with the terms of this Security Agreement;
(b) subject to the further provisions of this Security
Agreement, the Pledgor shall be entitled to receive and
retain any and all dividends paid in respect of the
Collateral; provided, however, that any and all
(1) dividends paid or payable other than in cash and
all instruments and other Property received,
receivable, or otherwise distributed in respect
of or in exchange for any Collateral,
(2) dividends and other distributions paid or
payable in cash in respect of any Collateral in
connection with a partial or total liquidation
or dissolution or in connection with a reduction
of capital, capital surplus or paid-in surplus,
and
(3) cash paid, payable or otherwise distributed in
respect of principal of, in redemption of or in
exchange for any Collateral,
shall be forthwith delivered to the Lender to hold as Collateral and shall, if
received by the Pledgor, be received in trust for the benefit of the Lender, be
segregated from the other property or funds of the Pledgor, and be forthwith
delivered to the Lender as Collateral in the same form as so received (with any
necessary endorsement); and
(c) the Lender shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies
and other instruments as the Pledgor may rea sonably
request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is
entitled to exercise pursuant to Section 5.2(a) above
and to receive the dividends which it is authorized to
receive and retain.
5.3 Voting Rights, Dividends, Etc. After Default. Upon the
occurrence and during the continuance of an Event of Default:
(a) at the option of the Lender with notice to the Pledgor,
all rights of the Pledgor to exercise the voting and
other consensual rights which it would otherwise be
entitled to exercise pursuant to Section 5.2(a) above
and to receive the dividends which it would otherwise be
authorized to receive and retain pursuant to Section
5.2(b) above shall cease and shall thereupon become
vested
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<PAGE> 122
in the Lender, who shall thereupon have the sole right
to exercise such voting and other consensual rights and
to receive and hold as Collateral such dividends; and
(b) all dividends which are received by the Pledgor contrary
to the provisions of Section 5.3(a) above shall be
received in trust for the benefit of the Lender, shall
be segregated from other funds of the Pledgor and shall
be forthwith paid over to the Lender as Collateral in
the same form as so received (with any necessary
endorsement).
5.4 Proceeds. Prior to all or any part of the Obligations
becoming due and payable as specified in Section 5.1, all cash sums or other
property received by the Lender on account of the Collateral shall be held as
Collateral. After all or any part of the Obligations shall become due and
payable as specified in Section 5.1, the proceeds of any sale or other
disposition of the Collateral and all sums received or collected by the Lender
from or on account of the Collateral shall be applied by the Lender in the
manner set forth in ss.9.504 of the UCC.
5.5 Lender Duties. The Lender shall be under no duty whatsoever
to make or give any presentment, demand for performance, notice of
nonperformance, protest, notice of protest, notice of dishonor, or other notice
or demand in connection with any Collateral or the Obligations, or to take any
steps necessary to preserve any rights against prior parties. The Lender shall
not be liable for failure to collect or realize upon any or all of the
Obligations or Collateral, or for any delay in so doing, nor shall the Lender be
under any duty to take any action whatsoever with regard thereto. The Lender
shall use reasonable care in the custody and preservation of any Collateral in
its possession. The Lender shall have no duty to comply with any recording,
filing, or other legal requirements necessary to establish or maintain the
validity, priority, or enforceability of, or the rights of the Lender in or to,
any of the Collateral.
5.6 The Lender's Actions. The Pledgor waives any right to
require the Lender to proceed against any Person, exhaust any collateral or
pursue any other remedy in the power of the Lender; waives any and all notice of
acceptance of this Security Agreement or of creation, modification, renewal, or
extension for any period of any Obligations; and waives any defense arising by
reason of any disability or other defense of any guarantor or other Person
primarily or secondarily liable with respect to all or any portion of the
Obligations ("Other Liable Party"), or by reason of the cessation from any cause
whatsoever of the liability of any Other Liable Party. All dealings between the
Pledgor and the Lender shall conclusively be presumed to have been had or
consummated in reliance upon this Security Agreement. Until all Obligations
shall have been paid and/or performed in full and the Commitment shall have
terminated, the Pledgor (a) shall have no right to subrogation, (b) waives any
right to enforce any remedy that the Lender now has or may hereafter have
against any Other Liable Party, and (c) except as otherwise expressly provided
in this Security Agreement, waives any benefit of and right to participate in
any collateral or security whatsoever now or hereafter held by the Lender.
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<PAGE> 123
ARTICLE 6.
MISCELLANEOUS
6.1 Transfer of Obligations and Collateral. Subject to the terms
of the Credit Agreement, the Pledgor hereby agrees that the Lender may transfer
any or all of the Obligations. Upon any such transfer, the Lender may transfer
its rights in the Collateral and shall be fully discharged thereafter from all
liability with respect to the Collateral so transferred, and the transferee
shall be vested with all rights, powers, and remedies of the Lender hereunder
with respect to Collateral so transferred. With respect to any Collateral not so
transferred, the Lender shall retain all rights, powers, and remedies hereby
given. The Lender may at any time deliver any or all of the Collateral to the
Pledgor, whose receipt shall be a complete and full acquittance for the
Collateral so delivered, and the Lender shall thereafter be discharged from any
liability therefor.
6.2 Cumulative Security. The execution and delivery of this
Security Agreement in no manner shall impair or affect any other security (by
endorsement or otherwise) for the payment of the Obligations. No security taken
hereafter as security for payment of all or any portion of the Obligations shall
impair in any manner or affect this Security Agreement. All such present and
future additional security is to be considered as cumulative security.
6.3 Continuing Agreement. This is a continuing agreement and the
conveyance hereunder shall remain in full force and effect and all the rights,
powers, and remedies of the Lender hereunder shall continue to exist until the
Obligations shall be paid in full as the same become due and payable, the
Commitment has terminated, and the Lender, upon request of the Pledgor, has
executed a written termination statement, reassigned to the Pledgor, without
recourse, the Collateral and all rights and liens conveyed hereby and returned
possession of the Collateral to the Pledgor. Furthermore, it is contemplated by
the parties hereto that there may be times when no Obligations shall be owing.
Notwithstanding such occurrences, this Security Agreement shall remain valid and
shall be in full force and effect as to subsequent Obligations provided that the
Lender has not executed a written termination statement and returned possession
of the Collateral to the Pledgor. Otherwise, this Security Agreement shall
continue irrespective of the fact that the liability of the Pledgor or any Other
Liable Party may have ceased and notwithstanding the death or incapacity of the
Pledgor or any Other Liable Party or any other event or proceeding affecting the
Pledgor and/or any Other Liable Party.
6.4 Cumulative Rights. The rights, powers, and remedies of the
Lender hereunder shall be in addition to all rights, powers, and remedies given
by statute or rule of law and are cumulative. The exercise of any one or more of
the rights, powers, and remedies provided herein shall not be construed as a
waiver of any other rights, powers, and remedies. The Lender shall have the
rights, powers, and remedies of a secured party under the Texas Business and
Commerce Code, as amended.
6.5 Exercise of Rights. Time shall be of the essence for the
performance of any act under this Security Agreement by the Pledgor, but neither
the Lender's acceptance of partial or delinquent payments nor any forbearance,
failure, or delay by the Lender in exercising any right,
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<PAGE> 124
power or remedy shall be deemed a waiver of any obligation of the Pledgor or any
Other Liable Party or of any right, power, or remedy of the Lender or preclude
any other or further exercise thereof; and no single or partial exercise of any
right, power, or remedy shall preclude any other or further exercise thereof or
the exercise of any other right, power, or remedy.
6.6 Remedy and Waiver. The Lender may remedy or waive any
default hereunder without waiving the default remedied or waiving any prior or
subsequent default.
6.7 Non-Judicial Remedies. The Lender may enforce its rights
hereunder without prior judicial process or judicial hearing. The Pledgor
expressly waives, renounces, and knowingly relinquishes any and all legal rights
which might otherwise require the Lender to enforce its rights by judicial
process. In so providing for non-judicial remedies, the Pledgor recognizes and
concedes that such remedies are consistent with the usage of the trade, are
responsive to commercial necessity and are the result of bargain at arm's
length. Nothing herein is intended to prevent the Lender or the Pledgor from
resorting to judicial process at such party's option.
6.8 Preservation of Liability. Neither this Security Agreement
nor the exercise by the Lender of (or the failure to so exercise) any right,
power, or remedy conferred herein or by law shall be construed as relieving the
Pledgor or any Other Liable Party from full liability thereon and for any
deficiency thereon.
6.9 Notices and Other Communications. Except as to verbal
notices expressly authorized herein, which verbal notices shall be confirmed in
writing, all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
when deposited in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:
(a) if to the Lender, to:
Compass Bank, Agent
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Telecopy: (713) 968-8292
(b) if to the Pledgor, to:
Middle Bay Oil Company, Inc.
1221 Lamar, Suite 1020
Houston, Texas 77010
Attention: Stephen W. Herod
Telecopy: (713) 650-0352
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<PAGE> 125
Any party may, by proper written notice hereunder to the others,
change the individuals or addresses to which such notices to it shall thereafter
be sent.
6.10 Parties in Interest. All covenants and agreements herein
contained by or on behalf of the Pledgor or the Lender shall be binding upon and
inure to the benefit of the Pledgor or the Lender, as the case may be, and their
respective legal representatives, successors, and assigns.
6.11 Amendment and Waiver. This Security Agreement may not be
amended nor may any of its terms be waived except in writing duly signed by the
party against whom enforcement of the amendment or waiver is sought.
6.12 Invalidity. If any provision of this Security Agreement is
rendered or declared illegal, invalid, or unenforceable by reason of any
existing or subsequently enacted legislation or by a judicial decision that has
become final, the Pledgor and the Lender shall promptly meet and negotiate
substitute provisions for those rendered illegal, invalid, or unenforceable, but
all of the remaining provisions shall remain in full force and effect.
6.13 Governing Law. THIS SECURITY AGREEMENT SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW, PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL
STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT
LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY.
6.14 Jurisdiction and Venue. ALL ACTIONS OR PROCEEDINGS WITH
RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
TO, OR FROM THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH THE
PLEDGOR IS A PARTY MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE
LENDER, IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE PLEDGOR
HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED
IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.
6.15 Waiver of Rights to Jury Trial. THE PLEDGOR AND THE LENDER
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM,
OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS SECURITY
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN
THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS SECURITY AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF
THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THE CREDIT
AGREEMENT.
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6.16 Entire Agreement. THIS SECURITY AGREEMENT CONSTITUTES THE
ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF
AND SHALL SUPERSEDE ANY PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, BETWEEN THE
PARTIES HERETO RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
SECURITY AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY,
THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
6.17 Counterparts. For the convenience of the parties, this
Security Agreement may be executed in multiple counterparts and by different
parties hereto in separate counterparts, each of which for all purposes shall be
deemed to be an original and all of which together shall constitute one and the
same Security Agreement.
IN WITNESS WHEREOF, this Security Agreement is executed as of
the date first above written.
PLEDGOR:
MIDDLE BAY OIL COMPANY, INC.
By: /s/ Stephen W. Herod
----------------------------------------
Stephen W. Herod
Vice President
AGENT:
COMPASS BANK
By: /s/ Dorothy Marchand Wilson
----------------------------------------
Dorothy Marchand Wilson
Senior Vice President
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<PAGE> 127
SCHEDULE I
<TABLE>
<CAPTION>
Stock Number
Class of Certificate Par of
Issuer Stock No. Value Shares
- ------ -------- ----------- ----- ------
<S> <C> <C> <C> <C>
Enex Resources Common $ .05 1,064,432
Corporation
</TABLE>
I-i
