SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report
March 26, 1996
Rio Grande, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-8287 74-1973357
(Commission File Number) (I.R.S. Employer Identification Number)
10101 Reunion Place, Suite 210
San Antonio, Texas 78216-4156
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(210) 308-8000
<PAGE>
Item 2. Acquisition or Disposition of Assets
On March 11, 1996, Rio Grande Drilling Company ("Drilling"), a wholly
owned subsidiary of Rio Grande, Inc. (the "Company'), acquired a 3.125% working
interest in an existing producing federal oil and gas lease in South Timbalier
Area, Block 76, OCS-G-4460 ("Block 76") offshore Louisiana for an acquisition
price of $900,000. The acquisition includes an interest in the offshore platform
which is currently accommodating a gas well flowing at a rate of approximately
16,000 Mcf of gas and 1,100 barrels of condensate per day, net to Drilling's
interest. Funds for the acquisition were borrowed from Comerica Bank - Texas
("Comerica") pursuant to the new senior credit facility described in Item 5 of
this report. The summary description of the acquisition of Block 76 is qualified
in its entirety by reference to the Closing Agreement, which is attached as an
exhibit to this report.
Item 5. Other Events
On March 8, 1996, the Company and Drilling executed a loan agreement
with Comerica which provides a new senior credit facility in an aggregate
principal amount of up to $10,000,000. The maturity date for this credit
facility is February 1, 1998. The initial available credit under this credit
facility is $4,967,000. This credit facility was used to refinance the Company's
and Drilling's existing senior indebtedness of $1,575,000 on March 11, 1996 and
provide $900,000 to purchase Block 76 on the same date. The Company intends to
use the remaining available credit under this credit facility to fund two
additional acquisitions scheduled for closing at the end of March and the first
week of April 1996. The payment terms under the credit facility initially
require the Company to make eleven (11) monthly principal payments of $82,000
commencing April 1, 1996 and then eleven (11) monthly principal payments of
$108,833 commencing March 1, 1997. The remaining principal outstanding shall be
due and payable on February 1, 1998, the maturity date of the loan. The interest
rate to be charged on the outstanding principal balance is based on Comerica's
prime rate plus 1%. All of the Company's interests (direct or indirect) existing
oil and gas properties, miscellaneous assets, and future oil and gas property
acquisitions will serve as collateral for the credit facility. The preceding
summary of the terms of credit facility is qualified in its entirety by
reference to the Loan Agreement evidencing this credit facility which is
attached as an exhibit to this report.
Comerica's commitment to provide the Company and Drilling a new credit
facility required that the Company request certain modifications and amendments
from the holders of the Company's and Drilling's $2,000,000 in principal amount
of 11.50% Subordinated Notes due September 30, 2000 (the "Notes") before the
Comerica loan agreement could be executed. The Company submitted a request to
the holders of Notes and subsequently obtained unanimous consents to the
proposed amendments.
The following is a summary of certain amendments to the Note Purchase
Agreement, which summary is qualified in its entirety by reference to the
complete text of the amendments which appear as exhibits to this report:
1. Amendment of the repayment terms of the Notes to provide for a
final maturity on September 30, 2002 (instead of September 30,
2000) and the quarterly amortization of principal over four
years, commencing in December 1998, at annual rates of 12.5%,
12.5%, 37.5% and 37.5% of the original principal amount
(instead of amortization of principal over three years,
commencing in December 1997, at annual rates of 12.5%, 37.5%
and 50% of the original principal amount).
Page 2
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2. Amendment of the provisions pertaining to remedies upon
default to provide for a 120 day period within which the
holders of Notes would not be able to initiate, join in or
consent to a bankruptcy petition against the Company or
Drilling.
3. Amendment of certain definitions and related clauses to
clarify and confirm that (i) Comerica's loan would be the
senior bank indebtedness, and (ii) reserves owned by Rio
Grande Offshore, Ltd. (an affiliate of the Company and
Drilling) are eligible as being "Qualified Reserves" for
purposes of the Note Purchase Agreement. These clarifications
are consistent with the original intent of the Company,
Drilling and the holders of Notes.
4. Amendment to the definition of "Qualified Reserves" which
provides a mechanism for valuing newly acquired reserves for
the purpose of determining the "Qualified Reserves Value"
under the Note Purchase Agreement.
5. Amendment of provisions pertaining to permitted liens to allow
a temporary second lien in favor of Comerica on a portion of
certain reserves scheduled to be acquired by the Company in
the first week of April, 1996.
6. Amendment to add a consent by the holders of Notes to the loan
from Comerica.
7. Amendment to reflect the reduction in the exercise price of
the warrants granted on September 27, 1995 to the holders of
Notes in connection with the Note Purchase Agreement from $.40
per share to $.20 per share.
In addition to the amendments required by Comerica, certain additional
consents were required to change the partnership structure of Rio Grande
Offshore, Ltd. and to provide an alternate source of financing for the
acquisition of Block 76. The following is a summary of consents which summary is
qualified in its entirety by reference to the complete text of these consents,
which are attached as exhibits to this report.
1. Consent to a restructuring of Rio Grande Offshore, Ltd. by
distributing undivided interests in the onshore properties to
the existing limited partners and transferring existing
offshore properties to a new partnership, Rio Grande GulfMex,
Ltd.
2. Consent to a possible interim loan, guaranty or other
accommodation by Robert A. Buschman or another affiliate
should it become necessary to provide interim financing to
make the initial acquisition of Block 76.
Item 7. Financial Statements and Exhibits
(a) Financial Statements
Because the historical financial records for the
acquisition of Block 76 were not accessible from the
seller prior to the closing date, it is impracticable
to provide the required financial statements for the
acquisition at the time this Form 8-K is filed. The
Company anticipates that the financial information
relative to the Block 76 acquisition will be combined
with the financial information filed with the Form
10-KSB due on or before April 30, 1996.
Page 3
<PAGE>
(b) Exhibits
Number Document
4.3 Amendments to Note Purchase Agreement
4.4 Amendments to Notes
4.5 Consents to Proposed Transactions
4.6 Amendment to Warrant Agreement
10.1 Closing Agreement between Fortune Petroleum
Corporation, Pendragon Resources, L.L.C. and
Rio Grande Offshore, Ltd. dated March 6,
1996 for the acquisition of South Timbalier
Block 76.
10.2 Loan Agreement between Comerica Bank -
Texas, Rio Grande, Inc. and Rio Grande
Drilling Company dated March 8, 1996 for a
senior credit facility of $10,000,000.
Page 4
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registratnt has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIO GRANDE, INC.
By: /s/
Guy Bob Buschman, President
Dated: March 26, 1996
Page 5
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
4.3 Amendments to Note Purchase Agreement
4.4 Amendments to Notes
4.5 Consents to Proposed Transactions
4.6 Amendment to Warrant Agreement
10.1 Closing Agreement between Fortune Petroleum
Corporation, Pendragon Resources, L.L.C. and
Rio Grande Offshore, Ltd. dated March 6,
1996 for the acquisition of South Timbalier
Block 76.
10.2 Loan Agreement between Comerica Bank -
Texas, Rio Grande, Inc. and Rio Grande
Drilling Company dated March 8, 1996 for a
senior credit facility of $10,000,000.
Page 6
<PAGE>
Exhibit 4.3 Page 1
AMENDMENTS TO NOTE PURCHASE AGREEMENT
(1) The definition of "Bank Indebtedness" set forth in the Note
Purchase Agreement is amended to read as follows (changes indicated):
"Bank Indebtedness" means the indebtedness evidenced by and/or arising
under the Loan Agreement dated July 14, 1994 by and between the
Companies and International Bank of Commerce, and evidenced by and/or
arising under any promissory notes or other loan documents executed in
connection with and/or modifying or amending said Loan Agreement or
extending such promissory notes, if any. The term "Bank Indebtedness"
also includes any indebtedness under a loan from Comerica Bank - Texas
to the Companies and/or their Subsidiaries secured by a first priority
lien on all or part of the Property owned by the Companies and/or by
one or more of their Subsidiaries upon substantially the terms set
forth in the loan commitment letter from Comerica Bank-Texas to the
Companies dated March 1, 1996.
(2) The definitions of "Non-Recourse Indebtedness," "Recourse
Indebtedness" and "Qualified Reserves" set forth in the Note Purchase Agreement
are amended to read as follows (changes indicated):
"Non-Recourse Indebtedness" with respect to any Person means any
Indebtedness of such Person with respect to which the liability of such
Person is limited solely to the property, assets or contract rights
securing such Indebtedness.
"Qualified Reserves" means all proved developed producing reserves and
all proved developed nonproducing reserves owned by either of the
Companies or by any Subsidiary, either directly or indirectly through
the ownership of an interest in a partnership that owns such reserves,
as set forth in the most recent Reserve Report (which shall be no less
frequent than annual); provided, however, that any such reserves upon
which there is a lien securing Indebtedness of either of the Companies
or of any Subsidiary which is Non-Recourse Indebtedness as to all of
such Persons (i.e., the Companies or their Subsidiaries) who are liable
on, or whose property secures, such Indebtedness are not included
within the term "Qualified Reserves." The terms "proved developed
producing reserves" and "proved developed nonproducing reserves" shall
have the meaning given such terms from time to time and at the time in
question by the Society of Petroleum Engineers of the American
Institute of Mining Engineers. With respect to such reserves owned
indirectly by either of the Companies or by any Subsidiary through the
ownership of an interest in a partnership that owns such reserves, such
reserves considered to be owned by the Companies or the Subsidiary
shall be such reserves owned by such partnership multiplied by the
percentage ownership of such partnership owned by the Companies or
their Subsidiaries. In the event that the Companies or any Subsidiary
should acquire any additional proved developed producing reserves
and/or proved developed non-producing reserves in the future in a
single transaction or series of transactions within an annual period
following the preparation of a Reserve Report, the Companies may
designate such reserves as Qualified Reserves, having the Qualified
Reserves Value ascribed to them by the Companies in good faith, using
reasonable industry standards, up to a maximum additional Qualified
Reserves Value of one million dollars ($1,000,000.00), for the
<PAGE>
Exhibit 4.3 Page 2
purposes of determining the Qualified Reserves Value until the next
scheduled Reserve Report is delivered. If the Companies should
designate a Qualified Reserves Value in excess of one million dollars
($1,000,000.00) for proved developed producing reserves and/or proved
developed non-producing reserves acquired in any single future
transaction or series of transactions within an annual period following
the preparation of a Reserve Report, such reserves shall be deemed to
be Qualified Reserves, with the Qualified Reserves Value ascribed to
them by the Company until the next scheduled Reserve Report is
delivered for the purpose of determining the Qualified Reserves Value;
provided, however, that within thirty (30) days after Closing of the
transaction causing such additional Qualified Reserves to increase the
Qualified Reserves Value reported in the last prior Reserve Report by
at least one million dollars ($1,000,000.00), the Companies shall
deliver to the Holders compliance certificates in the form attached
hereto as Exhibit 10.7, executed by an officer of the Company,
certifying that the ratio of the Recourse Indebtedness to the Qualified
Reserves Value does not exceed 75% on the date of such certificate.
"Recourse Indebtedness" means any Indebtedness of either of the
Companies or any Wholly-Owned Subsidiary other than Non-Recourse
Indebtedness of such Persons, excluding, however, any Indebtedness of
either of the Companies owed to any Wholly-Owned Subsidiary or to
Offshore and any Indebtedness of any Wholly-Owned Subsidiary owed to
either of the Companies or to any other Wholly-Owned Subsidiary or to
Offshore.
(3) Section 11.3 of the Note Purchase Agreement is amended to read as
follows (changes indicated):
11.3. Liens.
The Companies will not create, incur, or suffer to exist any Lien on
any of their properties, except the following which shall be "Permitted
Liens": (i) Liens for taxes, assessments, or governmental charges or
levies on their properties, provided the same shall not at any time be
delinquent or thereafter can be paid without penalty or are being
contested in good faith and by appropriate proceedings and with respect
to which reserves in conformity with GAAP have been adequately provided
for on the books of the Companies; (ii) Liens imposed by law, such as
carriers', warehouseman's and mechanic's liens and other similar Liens
arising in the ordinary course of their business which secure payment
of obligations not more than 60 days past due; (iii) Liens arising out
of pledges or deposits under workman's compensation laws, unemployment
insurance, old age pensions, or other Social Security or retirement
benefits, or similar legislation; (iv) Liens resulting from utility
easements, building restrictions, and such other encumbrances or
charges against real property as of are of a nature generally existing
with respect to properties of a similar character and which do not in
any material way affect the marketability of the same or interfere with
the use thereof in the ordinary course of business of the Companies;
(v) Liens resulting from a lessor's interest under financing leases;
(vi) Liens existing on the date hereof and disclosed on Exhibit "11.3";
(vii) first priority Liens given to secure any Senior Indebtedness;
(viii) Liens incurred by the Companies in connection with or relating
to the acquisition of personal property, provided (a) at the time of
such acquisition of property, no default exists; and (b) each such Lien
<PAGE>
Exhibit 4.3 Page 3
shall attach only to the personal property acquired in the transaction
by which such Lien was created or assumed; and (ix) until January 1,
1997, a second priority lien on the all or any portion of Belle
Properties (as defined below) given to secure Indebtedness of the
Companies to any holder of any Senior Indebtedness. The term "Belle
Properties" shall mean the reserves to be acquired in 1996 by the
Companies and/or any Subsidiary of the Companies from Belle
Exploration, Inc. et al. under a Purchase and Sale Agreement with Belle
Exploration, Inc. et al.
(4) Section 11.6 of the Note Purchase Agreement is amended to read as
follows (changes indicated):
11.6 Recourse Indebtedness.
The Companies will not allow the ratio of the Recourse
Indebtedness to the Qualified Reserves Value to exceed 75%. The
Companies will not permit any Subsidiary, other than Drilling, to
incur, assume or otherwise be liable for any Recourse Indebtedness of
the Companies or any of their Wholly-Owned Subsidiaries unless the
liability of such Subsidiary with respect to such Recourse Indebtedness
is limited solely to the property, assets or contract rights securing
such Recourse Indebtedness.
(5) Section 13.2 of the Note Purchase Agreement is amended to read as
follows (changes indicated):
13.2. Other Remedies.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have
been declared immediately due and payable under Section 13.1, the
Holder of any Note at the time outstanding may proceed to protect and
enforce the rights of such Holder by an action at law, suit in equity
or other appropriate proceeding, whether for the specific performance
of any agreement contained herein or in any Note, or for an injunction
against a violation of any of the terms hereof or thereof, or in aid of
the exercise of any power granted hereby or thereby or by law or
otherwise. Notwithstanding the foregoing, if a Default or an Event of
Default has occurred and a Holder of a Note is otherwise permitted to
or intends to file, or join in or consent to the filing of, a petition
against either of the Companies or any Subsidiary for relief seeking
the reorganization, arrangement or liquidation of either of the
Companies or any Subsidiary (a "Bankruptcy Enforcement Action"), such
Holder of a Note must give the holder of any outstanding Senior
Indebtedness written notice (a "Bankruptcy Enforcement Action Notice")
of the occurrence of such Default or Event of Default. If such Holder
of a Note receives on or before five (5) Business Days after giving a
Bankruptcy Enforcement Action Notice to such a holder of Senior
Indebtedness a written notice (a "Standstill Notice") from such holder
of Senior Indebtedness directing such Holder of a Note to refrain from
taking a Bankruptcy Enforcement Action for a stated period of time,
such Holder of a Note shall not take a Bankruptcy Enforcement Action
until the earlier to occur of (i) the period of time stated in such
Standstill Notice, and (ii) 120 days from the date such Standstill
Notice is given by such holder of Senior Indebtedness to such Holder of
a Note. A Holder of a Note shall not be required to give the holder of
any Senior Indebtedness more than one (1) Bankruptcy Enforcement Action
Notice during any period of 270 consecutive days.
<PAGE>
Exhibit 4.3 Page 4
(6) New Section 24 is added to the Note Purchase Agreement to read as
follows (changes indicated):
24. Consent to Loan from Comerica Bank-Texas.
Each Holder (i) consents to the Companies' incurring
Indebtedness upon substantially the terms set forth in the Commitment
Letter from Comerica Bank-Texas to the Companies dated March 1, 1996;
(ii) acknowledges that no Default or Event of Default under this Note
Purchase Agreement will exist as of the effective date of the Loan
Agreement contemplated by such Commitment Letter by reason of the
execution and delivery of said Loan Agreement, assuming that any
initial advance under the Loan Agreement does not exceed $5,000,000.00;
and (iii) acknowledges that such Indebtedness upon substantially the
terms set forth in such Commitment Letter shall be Senior Indebtedness.
(7) All references in the Note Purchase Agreement (including the
Exhibits thereto) to "Subordinated Notes due September 30, 2000" are amended to
read "Subordinated Notes due September 30, 2002" (change shown), and all
references in the Note Purchase Agreement (including the Exhibits thereto) to
"Subordinated Note due September 30, 2000" are amended to read "Subordinated
Note due September 30, 2002" (change shown), and all references in the Note
Purchase Agreement (including any Exhibits thereto) to "Subordinated Promissory
Note due September 30, 2000" are amended to read "Subordinated Promissory Note
due September 30, 2002" (change shown).
(8) Effective upon the giving of consent by all of the Holders to the
following amendments to the Notes and the Note Purchase Agreement:
(i) the amendment of the repayment schedule of all of the
Notes as described in paragraphs (1) and (2) of
Schedule 2 to this Request;
(ii) the amendment to the Note Purchase Agreement
described in paragraph (7) of this Schedule 1; and
(iii) the amendment of 13.2 of the Note Purchase Agreement
as described in paragraph (5) of this Schedule 1,
the Note Purchase Agreement is amended to change the purchase price per share
under the Warrants (as set forth in Section 1 of the Note Purchase Agreement)
from $.40 to $.20.
<PAGE>
Exhibit 4.4 Page 1
AMENDMENTS TO NOTES
(1) The payment provisions in the first two full grammatical paragraphs
(including the numbered subparagraphs) on page 2 of each of the Notes are
amended to read as follows (changes indicated):
Interest hereon shall be paid in quarterly installments on the
last day of December, March, June and September of each year,
commencing December 31, 1995, and continuing regularly and quarterly
thereafter until maturity.
The principal hereof shall be paid in quarterly principal
payments in amounts calculated in accordance with the quarterly
principal payment schedule set forth below, commencing December 31,
1998, and continuing regularly and quarterly thereafter on the last day
of each December, March, June and September until September 30, 2002,
at which time all unpaid principal, together with all accrued and
unpaid interest, shall be due and payable. The quarterly principal
payment schedule is as follows:
(1) Principal payments, each in an amount equal to 3.125% of the
Original Principal Balance, shall be due and payable on
December 31, 1998, March 31, 1999, June 30, 1999, September
30, 1999, December 31, 1999, March 31, 2000, June 30, 2000,
and September 30, 2000.
(2) Principal payments, each in an amount equal to 9.375% of the
Original Principal Balance, shall be due and payable on
December 31, 2000, March 31, 2001, June 30, 2001, September
30, 2001, December 31, 2001, March 31, 2002, June 30, 2002,
and September 30, 2002.
(2) The title of each of the Notes is hereby amended to read as
follows:
RIO GRANDE, INC.
SUBORDINATED PROMISSORY NOTE
DUE SEPTEMBER 30, 2002
<PAGE>
Exhibit 4.5 Page 1
CONSENTS TO PROPOSED TRANSACTIONS
(1) Consent for all purposes under the Note Purchase Agreement for the
Companies to enter into, and to permit the Companies' subsidiaries to enter into
and effectuate, the Proposed Restructuring of Offshore as described in the
Request for Consents, specifically including, without limitation, the ongoing
participation of Robert A. Buschman as a limited partner of GulfMex on
substantially the same terms and with the same percentage interest as he has had
in Offshore.
(2) Consent for all purposes under the Note Purchase Agreement for the
Companies to enter into, and to permit the Companies' subsidiaries to enter
into, the Possible Interim Financing Arrangements as described in the Request
for Consents.
<PAGE>
Exhibit 4.6 Page 1
RIO GRANDE, INC.
AMENDMENT TO WARRANT AGREEMENT
This Amendment to Warrant Agreement (the "Amendment") is made as of the
_____ day of ______________, 1996 by and between Rio Grande, Inc., a Delaware
corporation (the "Company"), and the undersigned holder of warrants to purchase
common stock, par value $.01 per share, of the Company, which warrants were
issued pursuant to the Common Stock Purchase Warrant dated September 27, 1995
(the "Warrant Agreement").
WHEREAS, in connection with the consent to certain amendments to the
11.50% Subordinated Notes due September 30, 2000 of the Company and Rio Grande
Drilling Company (the "Notes") and related Note Purchase Agreement ("Note
Purchase Agreement"), and approval of certain proposed transactions, all as
further set forth in the Request for (1) Consent to Proposed Amendments to Notes
and Note Purchase Agreements dated September 27, 1995 and (2) Consents to
Proposed Transactions of the Company dated March 2, 1996 (the "Request for
Consent"), the parties desire to modify the Warrant Agreement,
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree, subject to the conditions set forth
in this Amendment, that the Warrant Agreement is hereby amended as follows:
1. The last sentence in the second paragraph of the first page of the
Warrant Agreement is hereby amended to read, in its entirety, as follows:
The Holder is entitled to purchase the Warrant Stock for $.20 per
share, subject to adjustment as hereinafter provided (the "Exercise
Price"), and is entitled also to exercise the other appurtenant rights,
powers, and privileges hereinafter set forth.
<PAGE>
Exhibit 4.6 Page 2
2. Section 4.1 of the Warrant Agreement is hereby amended to read, in
its entirety, as follows:
4.1 Exercise Price. The initial Exercise Price for the Warrant Stock
shall be $.20 per share.
The parties further agree that the above described amendments to the Warrant
Agreement shall become effective only at such time as the Company has received
consents from all of the holders of the Notes to the following amendments to the
Notes and the Note Purchase Agreement:
(i) the amendment of the repayment schedule of all of the Notes,
as described in paragraphs (1) and (2) of Schedule 2 to the
Request for Consent;
(ii) the amendment to the Note Purchase Agreement described in
paragraph (7) of Schedule 1 of the Request for Consent; and
(iii) the amendment to Section 13.2 of the Note Purchase Agreement,
as described in paragraph (5) of Schedule 1 of the Request for
Consent.
Upon receiving such consents, the Company shall confirm to the undersigned in
writing that the Exercise Price, as that term is defined in the Warrant
Agreement, has been amended pursuant to this Amendment.
<PAGE>
Exhibit 4.6 Page 3
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of
the date first above written.
THE COMPANY:
RIO GRANDE, INC.
By:
HOLDER:
<PAGE>
Exhibit 10.1 Page 1
CLOSING AGREEMENT
THIS AGREEMENT, dated March 6, 1996, is entered into by and between
Fortune Petroleum Corporation ("Fortune") a Delaware corporation, as Assignor,
and PENDRAGON RESOURCES, L.L.C. ("Pendragon"), a Texas limited liability
company, wholly owned by Donald L. Walker, and RIO GRANDE OFFSHORE, LTD. ("Rio
Grande"), a Texas limited partnership, as Assignees; and BANK ONE, TEXAS, a
National Association, ("Bank One") as lienholder; and
WHEREAS, Pendragon and Fortune are parties to an Acquisition Agreement
dated December 6, 1995, from Northport Production Company, concerning the
acquisition of an undivided 16.66667% working interest and 12.50000% net revenue
interest in certain oil, gas and mineral rights previously owned by PetroFina in
South Timbalier Area, Block 76, United States Waters Offshore Louisiana, MMS
Lease No. OCS-G-4460 ("Lease OCS-G-4460"), including a producing well, a
platform, a transmission line and approximately 5,000 acres of federal mineral
leasehold interest; and
WHEREAS, Fortune has acquired those interests pursuant to the terms of
the Acquisition Agreement; and
WHEREAS, pursuant to the Acquisition Agreement, Pendragon acquired an
option to purchase from Fortune 25% of the interest that might be acquired by
Fortune pursuant to the Acquisition Agreement (representing a 4.16667% working
interest and a 3.12500% net revenue interest) for $790,000.00; and
<PAGE>
Exhibit 10.1 Page 2
WHEREAS, Rio Grande, Pendragon and Fortune wish to provide a mechanism
to provide for payment of the option price set forth in the Acquisition
Agreement and for delivery of the Assignments conveying the interests in Lease
OCS-G-4460 required to be conveyed upon exercise of such option;
WHEREAS, Fortune, Rio Grande and Pendragon have mutually agreed to
adjust the distribution of amounts to be paid to Fortune and Pendragon and the
assignment of interests to Pendragon and Rio Grande upon the exercise of the
option, as set forth below; and
WHEREAS, Fortune, Rio Grande, Pendragon have entered into an Agreement
whereby Rio Grande shall pay Pendragon the sum of $85,000, shall pay Fortune an
additional $25,000 and shall also advance the additional $790,000 in funding
required for Pendragon to exercise the option given to Pendragon in the
Acquisition Agreement, and for Fortune to convey to Rio Grande 75% of the
interests in Lease OCS-G-4460 acquired through Pendragon's exercise of such
option, and for Fortune to convey to Pendragon the other 25% of the interests in
Lease OCS-G- 4460 acquired through Pendragon's exercise of such option;
<PAGE>
Exhibit 10.1 Page 3
WHEREAS, Bank One, and/or its affiliates and participants hold certain
liens on Fortune's interests in Lease OCS-G-4460, and Bank One is willing to
release such liens upon the interests to be assigned to Pendragon as set forth
in the Acquisition Agreement, upon the payment of the sums set forth in set
forth in the Acquisition Agreement, and Bank One, Texas, N. A. (the "Escrow
Agent") is willing to serve as Escrow Agent to facilitate the closing of the
transactions set forth herein;
NOW, THEREFORE, for valuable consideration received and for purposes of
implementing the existing agreements among the parties, Fortune, Pendragon, Rio
Grande and Bank One covenant and agree as follows:
1. Pursuant to an Escrow Agreement (the "Escrow Agreement") the Escrow
Agent will receive funds payable upon the exercise of the option pursuant to the
parties' agreements and delivering the Assignments and Release of Lien set forth
herein;
2. On or before March 11, 1996, at 5:00 p.m. Central Standard Time, Rio
Grande shall deliver to Escrow Agent immediately available funds in the amount
of $900,000;
3. On or before March 11, 1996, at 5:00 p.m. Central Standard Time,
Fortune shall deliver to Escrow Agent originals, fully executed by Fortune, of
the the Assignment of Operating Rights attached hereto as Exhibit "A-1", and the
Assignment of Record Title in Oil and Gas Lease and Bill of Sale and Conveyance
attached hereto as Exhibit "A-2", assigning to Pendragon an undivided 1.0416667%
working interest, with an attendant 0.78125% net revenue interest, in Lease
OCS-G-4460, free and clear of all liens and encumbrances, except for
encumbrances such as operating agreements, transportation contracts, production
purchase contracts and similaragreements customary in the ownership and
operation of offshore oil and gas leases;
<PAGE>
Exhibit 10.1 Page 4
4. On or before March 11, 1996, at 5:00 p.m. Central Standard Time
Fortune shall deliver to Escrow Agent originals, fully executed by Fortune, of
the Assignment of Operating Rights attached hereto as Exhibit "B-1", and the
Assignment of Record Title in Oil and Gas Lease and Bill of Sale and Conveyance
attached hereto as Exhibit "B-2", thereby assigning to Rio Grande Drilling
Company an undivided 3.125% working interest, with an attendant 2.34375% net
revenue interest, in Lease OCS-G-4460, free and clear of all liens and
encumbrances, except for encumbrances such as operating agreements,
transportation contracts, production purchase contracts and similar agreements
customary in the ownership and operation of offshore oil and gas leases;
5. Fortune shall secure the release of the lien held by Bank One,
and/or its affiliates and participants, encumbering Fortune's interest of
4.16667% in Lease OCS-G-4460, contingent upon the deposit of at least the sum of
$815,000 into the Escrow Account created under the Escrow Agreement on or before
March 11, 1996, at 5:00 p.m. Central Standard Time.
6. Immediately upon the delivery to the Escrow Agent of the sum of at
least $815,000, the Escrow Agent, pursuant to the Escrow Agreement shall deliver
to Rio Grande and Pendragon the fully executed original of a Release of Lien,
releasing in full the lien held by Bank One, and/or its affiliates and
participants, encumbering Fortune's interest in Lease OCS-G-4460, insofar as and
only insofar as such lien encumbers the aggregate undivided 4.16667% working
interest, with an attendant 3.125% net revenue interest, assigned to Pendragon
and Rio Grande. Rio Grande may act as Pendragon's agent for purposes of
accepting such delivery.
<PAGE>
Exhibit 10.1 Page 5
7. Immediately upon the delivery to Escrow Agent of the sum of at least
$815,000, Escrow Agent shall deliver pursuant to the Escrow Agreement to Fortune
as Agent for Pendragon the fully executed originals of the Assignment of
Operating Rights attached hereto as Exhibit "A- 1" and the Assignment of Record
Title in Oil and Gas Lease and Bill of Sale and Conveyance attached hereto as
Exhibit "A-2", from Fortune to Pendragon.
8. Immediately upon the delivery to the Escrow Agent of the total sum
of at least $900,000, the Escrow Agent shall deliver pursuant to the Escrow
Agreement to Rio Grande the fully executed originals of the Assignment of
Operating Rights attached hereto as Exhibit "B-1" and the Assignment of Record
Title in Oil and Gas Lease and Bill of Sale and Conveyance attached hereto as
Exhibit "B-2", from Fortune to Rio Grande Drilling Company.
9. The Escrow Agent pursuant to the Escrow Agreement shall immediately
pay to Fortune or credit to Fortune's account the first $815,000 in funds
delivered to Escrow Agent pursuant to this Agreement. Fortune's account for
crediting is: Bank One, Texas, N. A., Att'n. Karen Smith; ABA # 111 000 614;
Beneficiary: Fortune Petroleum Corporation; Acc't. # 188 386 4181.
10. The Escrow Agent pursuant to the Escrow Agreement shall immediately
pay to Pendragon or credit to Pendragon's account $85,000 in funds delivered to
the Escrow Agent pursuant to this Agreement. Pendragon's account for crediting
is Citizen's Bank & Trust Co., Van Buren, Arkansas, ABA #082 901 017;
Beneficiary: Pendragon Resources, LLC, Acc't. #802 410 306.
11. This Agreement may be executed in any one or more counterparts, any
<PAGE>
Exhibit 10.1 Page 6
one of which, if originally executed, shall be binding upon each of the parties
signing thereon, and all of which taken together shall constitute one and the
same instrument.
12. Fortune, Pendragon and Rio Grande each agrees and covenants to act
in good faith and cooperate with the other parties to the extent required to
allow the exercise of the option and assignment of the interests pursuant to the
terms hereof. Each party further agrees and covenants that it will at any time
and from time to time, upon the reasonable request of another party, execute,
acknowledge, deliver or perform all such further acts, deeds, assignments,
transfers, conveyances and assurances as may be required to carry out the terms
and provisions of this Agreement.
13. No person shall have any rights whatsoever under this Agreement,
unless such person is a party to this Agreement, and only in such capacity as
such person is a party hereto.
14. Neither this Agreement nor the relationship created hereunder shall
form or constitute any joint venture, partnership or other relationship creating
any fiduciary obligations among the parties, and such relationship shall be
solely one of co-owners.
15. No provisions of this Agreement or any of the documents referred to
herein may be amended, modified, supplemented, changed, waived, discharged or
terminated, except by a writing signed by or on behalf of each party hereto.
16. The terms and conditions applicable to Bank One acting as Escrow
Agent hereunder are those set forth in the form of Escrow Agreement attached
hereto as Exhibit "C" and incorporated by reference herein. For the purposes of
such Escrow Agreement, the executed
<PAGE>
Exhibit 10.1 Page 7
Assignments on the forms attached hereto as Exhibits "A-1", "A-2", "B-1" and
"B-2" and the funds to be paid by Rio Grande shall be considered as the
"Property"; the "Release Date" shall be March 11, 1996; the "Depositors" shall
mean Pendragon and Fortune, as to the Assignments and Rio Grande as to the
funds; the "Other Party" shall mean the party(s) entitled to receive the
Property pursuant to the terms hereof, the Courts shall be in Bexar County,
Western District of Texas, the fees shall be as set forth in contemporaneous
letters among the parties, and the persons authorized to direct the Escrow Agent
as to any Depositor or Other Party shall be those signing this Agreement. This
Agreement may serve as Exhibit "A" of such form of Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PENDRAGON RESOURCES, L.L.C.
By:
DONALD L. WALKER, Owner
<PAGE>
Exhibit 10.1 Page 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RIO GRANDE OFFSHORE, LTD., by
RIO GRANDE DRILLING CO., General Partner
By:
GUY BOB BUSCHMAN,
President
<PAGE>
Exhibit 10.1 Page 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FORTUNE PETROLEUM CORPORATION
By:
TYRONE J. FAIRBANKS
President and CEO
<PAGE>
Exhibit 10.1 Page 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BANK ONE TEXAS, N.A., as Lienholder
By:
<PAGE>
Exhibit 10.2 Page 1
Loan Agreement
March 8, 1996
Between
BORROWERS BANK
RIO GRANDE, INC. COMERICA BANK - TEXAS
RIO GRANDE DRILLING COMPANY 2nd Floor, Thanksgiving Tower
Union Square, Suite 210 1601 Elm Street
10101 Reunion Place Dallas, Texas 75201
San Antonio, Texas 78216-4156
- -------------------------------------------------------------------------------
In consideration of the creation of the reducing revolving facility
described below and the mutual covenants and agreements contained herein, and
intending to be legally bound hereby, Bank and Borrowers agree as follows:
1.0 Certain Definitions. In addition to any other terms defined herein,
the following terms shall have the meaning set forth with respect thereto:
"Acquisition Properties" means those Mortgaged Properties
which are listed on Schedule II attached hereto.
"Contested in Good Faith" means, as to any payment, tax,
assessment, charge, levy, lien, encumbrance or claim, contesting the
amount, applicability or validity thereof in good faith by appropriate
proceedings or other appropriate actions promptly initiated and
diligently conducted in a manner satisfactory to Bank, provided (a) a
deposit of funds or other security satisfactory to Bank in the full
amount of such contested payment, tax, assessment, charge, levy, lien,
encumbrance or claim has been provided for in a manner satisfactory to
Bank, and (b) the enforcement of the contested payment, tax,
assessment, charge, levy, lien, encumbrance or claim is stayed in a
manner satisfactory to Bank pending the resolution of such contest.
"Grantors" mean collectively Rio Grande, Inc., Rio Grande
Drilling Company, Rio Grande Desert Oil Company, Rio Grande Offshore,
Ltd., Rio Grande GulfMex, Ltd., and any other person or entity which
grants Bank a mortgage or a lien to secure the Loan.
"Loan(s)" means collectively any and all loans heretofore or
hereafter made by Bank to the Borrowers.
"Loan Documents" means this Agreement, the Note, the Oil and
Gas Mortgages, the UCC-1 financing statements, the Property
Certificate(s), the Transfer Order Letters, the Affidavit of Payment of
Trade Bills, the Deposit Assignment Agreements, the Officer's
Certificates, the Section 26.02 Notice, and all other documents,
instruments, guarantees, security agreements, mortgages, deeds of
trust, pledge agreements, certificates and agreements executed and/or
delivered
<PAGE>
Exhibit 10.2 Page 2
by Borrowers, Grantors or any third party in connection with any Loan.
"Mineral Interests" means for all Grantors other than Rio
Grande GulfMex, Ltd., 100% of, and for Rio Grande GulfMex, Ltd., 80%
of, (a) all present and future interests and estates existing under an
oil and gas lease including without limitation working interests,
royalties, overriding royalties, production payments and net profits
interests, (b) all present and future rights in mineral fee interests
and rights therein, including without limitation, any reversionary or
carried interests relating thereto, (c) all rights, titles and
interests created by or arising under the terms of all present and
future unitization, communitization, and pooling arrangements (and all
properties covered and units created thereby) whether arising by
contract or operation of law which now or hereafter include all or any
part of the foregoing, and (d) all rights, remedies, powers and
privileges with respect to all of the foregoing.
"Monthly Reduction Amount" means the following amounts during
the period set forth opposite each such amount:
Amount Period
------ ------
$82,000 April 1, 1996 thru February 1, 1997
$108,833 March 1, 1997 thru January 1, 1998
$2,710,004 February 1, 1998
"Mortgaged Properties" means all present and future Mineral
Interests of Grantors in the oil and gas properties described on
Schedule I and in all other properties in which Grantors hereafter
grant to Bank a mortgage or lien.
"Note Purchase Agreement" means that certain Note Purchase
Agreement dated as of September 27, 1995, pursuant to which Borrowers
have issued $2,000,000 in principal amount of their 11.5% subordinated
notes due September 30, 2000 (the "Subordinated Notes"), as well as
warrants to acquire shares of common stock, together with all
modifications and amendments of, and any consents of noteholders given
pursuant to, such Note Purchase Agreement as well as the Subordinated
Notes issued pursuant to such Note Purchase Agreement.
"Reserve Report" means a report in form and substance
satisfactory to Bank prepared by Paul R. Clevenger or Ryder Scott
Company or another independent petroleum consulting firm acceptable to
Bank evaluating the oil and gas reserves attributable to the Mineral
Interests of Grantors in all of their oil and gas properties as of each
January 1 and which shall, among other things, (a) identify the wells
covered thereby, (b) specify such engineers' opinions with respect to
the total volume of reserves (the "available reserves") of hydrocarbons
(using the terms or categories "proved developed producing reserves,"
"proved developed nonproducing reserves" and "proved undeveloped
reserves") which Grantors have advised such engineers that the Grantors
have the right to produce for their own accounts, (c) set forth such
engineers' opinions with respect to the projected future cash proceeds
from the available reserves, discounted for present value at a rate
acceptable to Bank, for each calendar year or portion thereof after the
date of such findings
<PAGE>
Exhibit 10.2 Page 3
and data, (d) set forth such engineers' opinions with respect to the
projected future rate of production of the available reserves, (e)
contain such other information as requested by Bank with respect to the
projected rate of production, gross revenues, operating expenses,
taxes, capital costs, net revenues and present value of future net
revenues attributable to such reserves and production therefrom, and
(f) contain a statement of the price and escalation parameters,
procedures and assumptions upon which such determinations were based.
"Subsidiaries" mean (a) Rio Grande Desert Oil Company, a
Nevada corporation, (b) Rio Grande Offshore, Ltd., a Texas Limited
Partnership, and (c) Rio Grande GulfMex, Ltd., a Texas Limited
Partnership.
2.0 Loan.
2.1 The Loan. Bank agrees, subject to the terms and conditions
hereof, to lend Borrowers at any time and from time to time on or
before February 1, 1998, sums (each herein called a "Loan" and
collectively the "Loans") which may be repaid and reborrowed pursuant
to the terms hereof and which shall not exceed at any one time
outstanding the lesser of $10,000,000 or the Borrowing Base (defined in
Section 3.0 below). Whenever Borrowers desire to borrow hereunder, they
shall give Bank at least one (1) business day's written notice
specifying (a) the date of the proposed borrowing, (b) the amount to be
borrowed, and (c) a description of the purpose for which the proceeds
of the Loan will be used. The request shall be made by means of a
Borrowing Request in the form of Exhibit A attached hereto with blanks
completed in conformity herewith.
2.2 Use of Proceeds. The proceeds of Loans may be used solely
(a) to refinance the existing indebtedness of Borrowers with
International Bank of Commerce, (b) to provide a portion of the
acquisition price for the purchase by the Grantors of oil and gas
properties from Exxon Properties, Belle Exploration, Inc., et al
("Belle Exploration"), Fortune Petroleum Corporation, and Pendragon
Resources, L.L.C., which are more particularly described on Schedule II
attached hereto (the "Acquisition Properties"), and (c) to acquire and
develop Mineral Interests in proved developed producing, proved
developed nonproducing, and proved undeveloped oil and gas properties.
2.3 Promissory Note. The obligation of Borrowers to repay the
aggregate principal balance of all Loans hereunder outstanding at any
one time (the "Principal Debt") shall be evidenced by a promissory note
(the "Note") which (a) shall be dated March 8, 1996, (b) be payable on
or before February 1, 1998 for the amount of $10,000,000, or the
Principal Debt then outstanding, whichever is less, (c) bear interest
from the date thereof until paid in the manner provided in the Note,
(d) be entitled to the benefits of this Agreement in the security
provided for herein, and (e) be in such form as is acceptable to Bank.
2.4 Amortization. Interest under the Note shall be due and
payable monthly as it accrues on the first day of each month commencing
April 1, 1996, and continuing through and including the first day of
January 1998. The Principal Debt then outstanding, plus accrued but
unpaid interest to the date of payment, shall be due and payable on
February 1, 1998. In addition, principal payments may be required from
to time in accordance with the Borrowing Base reduction schedule set
forth in Section 3.5 hereof.
<PAGE>
Exhibit 10.2 Page 4
2.5 Collateral. The payment and performance of the Note and
all of Borrowers' other obligations to Bank hereunder and under the
Loan Documents shall be secured by (a) a first and superior lien
against the Mineral Interests (including the Mineral Interest being
acquired and the Mineral Interest already owned) of Grantors in the
Mortgaged Properties pursuant to the terms of one or more deeds of
trust (each an "Oil and Gas Mortgage"), which shall be in form and
substance satisfactory to Bank; and (b) a first and superior lien
against one-half (1/2) of the Mineral Interests of Grantors in the
Acquisition Properties being acquired from Belle Exploration, and a
lien which is first and superior against the remaining one-half (1/2)
mineral interest of Grantors in the Acquisition Properties being
acquired from Bell Exploration, subject to a prior lien in such
one-half (1/2) interest in favor of Belle Exploration, in each instance
pursuant to one or more Oil and Gas Mortgages; and (c) the assignment
of and a first and superior lien against and security interest in all
amounts that may be owing from time to time by Bank to Borrowers and
all Subsidiaries including without limitation all deposit or other
accounts of Borrower and Subsidiaries with Bank, which lien and
security interest shall be independent of any right of setoff which
Bank may have, all pursuant to the terms of one or more deposit
assignment agreements (each a "Deposit Assignment Agreement") which
shall be in a form and substance satisfactory to Bank;
2.6 Unused Commitment Fee. Borrowers agree to pay Bank an
unused commitment fee for the period commencing with the date of this
Agreement to February 1, 1998, computed at the rate of 1/2 of one
percent (.50%) per annum on the average daily unused portion of the
Commitment. The phrase "unused portion of the Commitment" as used in
the preceding sentence means the difference between (a) the lesser of
$10,000,000 or the Borrowing Base, and (b) the Principal Debt. The
unused commitment fee shall be billed on a quarterly basis by Bank
commencing with the period ending August 1, 1996, and continuing
quarterly thereafter.
3.0 Borrowing Base. The term "Borrowing Base" means, as of the date of
determination thereof, an amount as determined by Bank in its sole discretion in
accordance with then-current practices, customary procedures and standards used
by Bank for its petroleum industry customers, consistently applied with respect
to petroleum industry customers similarly situated, including an analysis of
such reserve and production data with respect to the Mineral Interests of
Grantors in all of their oil and gas properties, including the Mortgaged
Properties, as is provided to Bank in accordance herewith. The Borrowing Base
shall initially be $4,967,000.
3.1 Periodic Determinations of Borrowing Base. The Borrowing
Base shall be redetermined by Bank as of February 1 of each year
commencing February 1, 1997 (each a "Determination Date"), until
maturity. The Borrowing Base, as redetermined, shall remain in effect
until the next Determination Date, provided the Borrowing Base may be
redetermined between Determination Dates in accordance with Section 3.3
hereof.
3.2 Engineering Data to be Provided Prior to Scheduled
Determination Dates. On or before January 1 of each year for the
Determination Date of February 1, Borrowers shall deliver to Bank
production and other engineering data for the oil and gas reserves
attributable to the Mineral Interests of Grantors in all of their oil
and gas properties, updated and supplemented from that contained in the
most recent Reserve Report furnished to Bank. Bank shall then determine
the Borrowing Base for the one (1) year period commencing February 1.
3.3 Special Determinations of Borrowing Base. Special
determinations of the Borrowing Base may be requested by Borrowers or
Bank at any time during the term hereof. If any special determination
is requested by Borrowers, it shall be accompanied by engineering data
<PAGE>
Exhibit 10.2 Page 5
similar to that contained in a Reserve Report. If any special
determination is requested by Bank, Borrowers will provide Bank with
the information similar to that contained in a Reserve Report as soon
as is reasonably possible following the request. The determination
whether to increase or decrease the Borrowing Base shall then be made
by Bank in its sole discretion in accordance with the standards set
forth in Section 3.0 hereof. In the event of any special determination
of the Borrowing Base pursuant to this Section, Bank in the exercise of
its discretion may suspend or reschedule the next regularly scheduled
determination of the Borrowing Base.
3.4 Borrowing Base Deficiency. If by reason of any adjustment
to the Borrowing Base, the principal balance of the Note then
outstanding exceeds the amount of the Borrowing Base, then Bank shall
notify Borrowers of the same, and Borrowers shall within thirty (30)
days following receipt of such notice elect whether to (i) prepay an
amount which will reduce the principal amount of the Note to the amount
of the Borrowing Base, or (ii) execute and deliver, or cause to be
executed and delivered, to Bank instruments mortgaging such other
collateral as is acceptable to Bank, pursuant to security documents
acceptable to Bank having present values which, in the opinion of Bank,
taken in the aggregate are sufficient to increase the Borrowing Base to
an amount at least equal to the then-outstanding principal balance of
the Note, or (iii) do any combination of the foregoing as is acceptable
to Bank. If Borrowers so elect to mortgage additional oil and gas
properties, then clause (ii) above shall be accomplished within
forty-five (45) days from Bank's date of notification. If Borrowers
fail to make an election among clauses (i) through (iii) above within
thirty (30) days from Bank's notification, then Borrowers shall be
deemed to have selected the payment option specified in clause (i)
thereof.
3.5 Monthly Borrowing Base Reduction. The Borrowing Base in
effect from time to time shall reduce automatically on the first day of
each month commencing April 1, 1996, and continuing through and
including January 1, 1998, in the amount of the Monthly Reduction
Amount. Upon any determination of the Borrowing Base, Bank reserves the
right to revise the Monthly Reduction Amount as it deems appropriate in
accordance with then current practices, customary procedures and
standards used by Bank for its petroleum customers generally,
consistently applied with respect to petroleum industry customers
similarly situated. If by reason of the reduction of the Borrowing Base
pursuant to this Section 3.5 the Principal Debt then outstanding
exceeds the Borrowing Base as reduced, then Borrowers shall promptly
pay an amount which will reduce the Principal Debt then outstanding to
an amount equal to or less than the Borrowing Base as so reduced.
4.0 Conditions Precedent to Closing. The obligations of Bank as set
forth herein are subject to the satisfaction (in the opinion of Bank), unless
waived in writing by Bank, of each of the following conditions:
4.1 Loan Origination Fee. Borrowers shall have paid Bank a
loan origination fee of $33,760.
4.2 Effectiveness of Loan Documents. Each of the Loan
Documents shall be in full force and effect.
4.3 Property Certificates. Borrowers shall have delivered to
Bank certificates (whether one or more, the "Property Certificates")
for each producing oil and gas lease, well or unit as appropriate
relating to the oil and gas properties described in an Oil and Gas
<PAGE>
Exhibit 10.2 Page 6
Mortgage, which Property Certificates shall be in the form of Exhibit C
attached hereto containing the information as provided therein, which
shall be satisfactory to Bank. Property Certificates for the
Acquisition Properties shall be delivered at the closing. Property
Certificates for the balance of the Mortgaged Properties shall be
delivered within thirty (30) days from the date hereof.
4.4 Transfer Order Letters. Borrowers shall have delivered to
Bank transfer order letters in the form of Exhibit D attached hereto
(the "Transfer Order Letters") for each producing well which is part of
the Mortgaged Properties, which Transfer Order Letters shall be
satisfactory in form and substance to Bank.
4.5 Title Opinions. Borrower shall have caused to be delivered
to Bank current favorable title opinions prepared by oil and gas
counsel to Borrowers with respect to Acquisition Properties to be
acquired with the proceeds of the initial Loan. Each title opinion
shall opine as to such matters incident to such properties as Bank may
reasonably request including the following:
(a) Grantors have good and defensible title to all
such oil and gas properties to the extent of their Mineral
Interests as specified therein, free and clear of all liens
and encumbrances.
(b) Grantors are entitled to receive, after giving
effect to all royalties, overriding royalties and other
burdens payable out of production, a decimal share of all
hydrocarbons produced and sold from such oil and gas
properties, before and after payout, as set forth in the
opinion.
(c) Grantors' operating interest in such oil and gas
properties is not obligated to bear a decimal share of all
costs and expenses from the operation thereof in excess of
that set forth in the opinion, before and after payout.
4.6 Title Reliance Letters. There shall have been delivered to
Bank a reliance letter from the oil and gas attorneys preparing the
title opinions for those Mortgaged Properties listed on Schedule III
which entitles Bank to rely on such opinions as if they were addressed
to Bank, and which are otherwise acceptable to Bank.
4.7 Affidavit of Payment of Trade Bills. Borrowers shall have
delivered to Bank an affidavit (the "Affidavit of Payment of Trade
Bills") certifying as to the payment of Borrowers' trade creditors and
otherwise being in form and substance satisfactory to Bank.
4.8 Credit Opinion. There shall have been delivered a
favorable opinion of Borrowers' counsel covering such matters incident
to the Loan as Bank may reasonably request, including without
limitation an opinion to the substantive effect that the closing of the
transactions contemplated by the Loan Documents will not constitute an
event of default under the Note Purchase Agreement.
4.9 Amendments to Note Purchase Agreement. Borrowers shall
have delivered to Bank true and correct copies of one or more
amendments to the Note Purchase Agreement executed by all of the
holders of the $2,000,000 in principal amount of Subordinated Notes
issued pursuant to the Note Purchase Agreement which are satisfactory
to Bank and its counsel and which provide for the matters set forth on
Schedule IV attached hereto.
<PAGE>
Exhibit 10.2 Page 7
4.10 Belle Exploration Purchase and Sale Agreement. Deliver to
Bank a fully executed counterpart of the Purchase and Sale Agreement
between Borrowers and Belle Exploration, Inc., which document shall be
satisfactory to Bank.
4.11 Documentation and Proceedings. Borrowers and the other
Grantors shall have delivered resolutions of its board of directors
authorizing its execution, delivery and performance of the Loan
Documents.
4.12 Section 26.02 Notice. Borrowers and the other Grantors
shall have executed a notice in compliance with the provisions of
Section 26.02 of the Texas Business and Commerce Code (the "Section
26.02 Notice").
4.13 Assignment Documents Relating to Refinancing of IBOC
Indebtedness. International Bank of Commerce shall have executed and
delivered to Bank such assignment documents as are necessary, in the
opinion of the Bank, to transfer and assign to Bank the promissory
notes of Borrowers made payable to International Bank of Commerce and
the collateral therefor, all in connection with the refinancing of the
indebtedness of Borrowers owed to International Bank of Commerce.
4.14 IBOC Mortgage Amendments. The collateral documents
assigned by International Bank of Commerce to Bank shall be modified to
secure expressly the Note pursuant to one or more modification
agreements as are satisfactory in form and substance to Bank.
4.15 Representations and Warranties. All representations and
warranties contained herein or in the documents referred to herein or
otherwise made in writing in connection herewith or therewith shall be
true and correct with the same force and effect as though such
representations and warranties have been made on and as of this date.
4.16 Expenses. Borrowers shall have paid all reasonable
expenses of Bank in connection with the preparation of the Loan
Documents and the making of the Loan, including but not limited to, the
fees and expenses of counsel for Bank.
5.0 Conditions Precedent to Subsequent Loans. The obligation of Bank to
make subsequent Loans to Borrowers is subject, at the time of the funding of
each such Loan (the "Funding Date"), to the satisfaction (in the opinion of
Bank), unless waived in writing by Bank, of each of the following conditions:
5.1 Borrowing Request. Borrowers shall have given Bank at
least one business day's written notice by means of a Borrowing Request
appropriately completed in compliance herewith.
5.2 Availability of Commitment. The then Principal Debt plus
the amount of the requested Loan shall be equal to or less than the
Borrowing Base then in effect.
<PAGE>
Exhibit 10.2 Page 8
5.3 Facility Fee. Borrowers shall have paid Bank a facility
fee of 1% of the amount of each Loan made pursuant to this Agreement
for any purpose other than acquiring Mineral Interests in the
Acquisition Properties and refinancing the existing indebtedness of
Borrowers with International Bank of Commerce.
5.4 Acquisition Properties. If the purpose of the Loan is to
fund the purchase of Mineral Interests in one or more Acquisition
Properties, then Borrowers shall have delivered to Bank one or more Oil
and Gas Mortgages, financing statements, Property Certificates,
Transfer Order Letters, title opinions meeting the requirements of
Section 4.5 hereof, an Affidavit of Payment of Trade Bills and a
Section 26.02 Notice with respect to same as Bank and its counsel may
require.
5.5 Expenses. Borrowers shall have paid all reasonable
expenses of Bank in connection with the making of the Loan.
5.6 Representations and Warranties. All representations and
warranties contained herein in the Loan Documents shall be true and
correct in all material respects as though such representations and
warranties have been made on and as of the Funding Date.
5.7 No Default. There shall exist no event or default
hereunder, and there shall further exist no condition, event or act
which, the giving of notice or lapse of time, or both, would constitute
an event of default hereunder.
5.8 Change in Condition. No adverse change in condition
(financial or otherwise) of Borrowers or the other Grantors or any
other event shall have occurred which creates a possibility of
materially adversely affecting (a) the condition (financial or
otherwise) of such Borrower or other Grantor (b) the validity or
enforceability of any of the Loan Documents, or (c) the ability of such
Borrower or Grantor to meet and carry out its obligations under the
Loan Documents or perform the transactions contemplated hereby or
thereby.
6.0 Affirmative Covenants. Until full payment and performance of all
obligations of Borrowers under the Loan Documents, Borrowers will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
6.1 Financial Statements and Other Information. Deliver to
Bank (a) annual audited consolidated financial statements of Borrowers
on or before May 15 of each year and monthly consolidated and
consolidating financial statements of Borrowers within forty-five (45)
days after the end of each month, in each instance to include a balance
sheet, an income statement, a cash flow statement prepared in
accordance with generally accepted accounting principles consistently
applied and presented in a format acceptable to Bank, and (b) such
additional information, reports and statements with respect to the
business operations and financial condition of Borrowers as Bank may
reasonably request from time to time , and (c) within forty-five (45)
days after the end of the first three fiscal quarters and within ninety
(90) days after the end of its fiscal year, a compliance certificate in
the form of Exhibit B attached hereto.
6.2 Adverse Conditions or Events. Promptly advise Bank in
writing of (i) any condition, event or act which comes to Borrowers'
attention that would or might materially adversely affect Borrowers'
financial condition or operations, the collateral from time to time
<PAGE>
Exhibit 10.2 Page 9
securing the Loan, or Bank's rights under the Loan Documents, (ii) any
litigation filed by or against Borrowers, (iii) any event that has
occurred that is or would constitute an event of default under any Loan
Documents, and (iv) any uninsured or partially uninsured loss through
fire, theft, liability or property damage in excess of an aggregate of
$50,000.
6.3 Monthly Production Reports. As soon as available and in
any event not later than the seventy-fifth (75th) day following the end
of each month, internally prepared production reports showing for each
of the Mortgaged Properties all production of oil, gas and other
hydrocarbons, all proceeds received during the month from the sale of
production from such Mortgaged Properties, all expenses incurred during
the month attributable to such Mortgaged Properties, a description of
all material operations conducted on such Mortgaged Properties since
the last monthly report and such other information as Bank may
reasonably request.
6.4 Reserve Report. Deliver to Bank on or before April 1 of
each year (i) a Reserve Report, and (ii) a schedule comparing the net
revenue interests of each well or lease of the Mortgaged Properties as
reflected in each Oil and Gas Mortgage after giving effect to all
encumbrances listed thereon, to net revenues reflected in the Reserve
Report along with an explanation as to any material discrepancies
between the two net revenue interest disclosures.
6.5 Taxes and Other Obligations. Pay, and cause the other
Grantors to pay, all taxes, assessments and other obligations,
including, but not limited to taxes and assessments and lawful claims
which, if unpaid, might by law become a lien against the assets of
Grantors, as the same become due and payable, except to the extent the
same are being Contested in Good Faith.
6.6 Engineering Expenses. Pay, and cause the other Grantors to
pay, all engineering expenses up to $5,000 per redetermination incurred
by Bank after the date hereof in connection with the administration of
the credit facility evidenced by this Agreement.
6.7 Insurance. Keep their properties and those of the other
Grantors of an insurable nature insured at all times against such risks
and to the extent that like properties are customarily insured by other
companies engaged in the same or similar businesses similarly situated.
6.8 Compliance with Laws. Comply, and cause the other Grantors
to comply, with all applicable laws (including environmental laws),
rules, regulations and orders of any governmental authority.
6.9 Inspection of Books and Records. Allow any representative
of Bank to visit and inspect the Mortgaged Properties, to examine their
books of record and account and to discuss their affairs, finances and
accounts with any of their officers, directors, employees, accountants
and agents, all at such reasonable times and as often as Bank may
request.
6.10 Further Assurances. Take, and cause each Grantor to take,
any and all such other action as Bank may from time to time deem
necessary or appropriate in connection with this Agreement or any of
the other Loan Documents (a) to cure any defects in the creation of the
Loan Documents, or (ii) to evidence further or more fully describe the
collateral intended as security, or (iii) to correct any omissions in
the Loan Documents, or (iv) to state more fully the security
obligations set forth in this Agreement or in any of the Loan
Documents, or (v) to perfect, protect
<PAGE>
Exhibit 10.2 Page 10
or preserve any liens pursuant to any of the Loan Documents, or (vi)
for better assuring and confirming unto Bank all or any part of the
security for such obligations.
7.0 Negative Covenants. Until full payment and performance of all
obligations of Borrowers under the Loan Documents, Borrowers will not, without
the prior written consent of Bank (and without limiting any requirement of any
other Loan Documents):
7.1 Sale of Mineral Interests. Directly or indirectly sell,
lease or otherwise dispose of (by farmout or otherwise), or permit any
other Grantor to sell, lease or otherwise dispose of (by farmout or
otherwise), any of their present or future Mineral Interests in the
Mortgaged Properties other than (a) sales of hydrocarbons in the
ordinary course of business, (b) any compulsory pooling or unitization
ordered by a governmental body with jurisdiction over the Mineral
Interests.
7.2 Abandonment, Etc. (a) Permit, or allow any other Grantor
to permit, the surrender, abandonment, release or termination, in whole
or in part, of any present or future Mineral Interests in any oil and
gas property now owned or hereafter acquired by Grants (1) which
constitutes a part of the Mortgaged Properties at such time, unless in
the opinion of Bank the same has become unprofitable, or (2) which is
producing hydrocarbons in commercially profitable quantities, or (b)
enter into, or permit any other Grantor to enter into (and use their
best efforts to cause any operator with respect thereto, as the case
may be, not to enter into) any agreement related to, or any amendment
or modification of, any present or future Mineral Interest in any oil
and gas property now owned or hereafter acquired by Grantors, or any
operating agreement, unit agreement, gas purchase or sale contract,
other hydrocarbon sales contract, easement, license, franchise, permit
or other contract or agreement of any character in respect of title to
or operation of such property of the production therefrom or the sale
or transportation thereof, except in those circumstances where a
reasonably prudent operator under similar circumstances and in
accordance with customary industry practice would deem it prudent to do
so and such actions individually or in the aggregate are not such as to
materially interfere with the development, operation or value of the
Mortgaged Properties.
7.3 Merger, Etc. Enter into any merger or consolidation, or
transfer control or ownership of the Borrowers or form or acquire any
subsidiary, or permit any other Grantor to do any of the foregoing.
7.4 Liens. Grant, suffer or permit, or permit any other
Grantor to grant, suffer or permit, any contractual or noncontractual
lien on or security interest in their assets, except (a) liens in favor
of Bank; (b) a lien in favor of Belle Exploration against one-half
(1/2), of the Mineral Interests of Grantor in the Acquisition
Properties acquired from Belle Exploration; (c) liens for taxes,
assessments or similar charges, incurred in the ordinary course of
business that are not yet due and payable; (d) liens of mechanics,
materialmen, warehousemen, carriers, operators and other like liens
securing obligations incurred in the ordinary course of business that
are not yet due and payable; (e) landlord's liens for rentals not yet
due and payable; (f) purchase-money liens and security interest on any
personal property hereafter acquired or a lien or security interest
incurred in connection with any capital lease involving personal
property; (g) existing liens in vehicles owned by Borrowers; and (h)
the following if the validity or amount thereof is being Contested in
Good Faith:
<PAGE>
Exhibit 10.2 Page 11
(1) Claims or liens for taxes, assessments or similar
charges due and payable and subject to interest or penalty;
and
(2) Claims or liens of mechanics, materialmen,
warehousemen, carriers, operators or other like liens.
7.5 Extensions of Credit. Make, or permit any other Grantor to
make, any loan or advance to any individual, partnership, corporation
or other entity, except (a) loans or advances of Borrowers to any
Subsidiary or of any Subsidiary to Borrowers or another Subsidiary, and
(b) advances made to employees of Borrowers for the payment by them of
items for which an expense report or voucher will be filed and which
items will constitute ordinary and necessary business expenses of
Borrowers.
7.6 Borrowings. Create, incur, assume or become liable, or
permit any other Grantor to create, incur, assume or become liable, in
any manner for any indebtedness (for borrowed money, deferred payment
for the purchase of assets, lease payments, as surety or guarantor for
the debt for another, or otherwise) other than to Bank, except for (a)
normal trade debts incurred in the ordinary course of business, (b) the
indebtedness evidenced by the Subordinated Notes, (c) indebtedness owed
to Belle Exploration arising out of the Grantor's acquisition of the
Mineral Interests in the Acquisition Properties from Belle Exploration,
(d) existing indebtedness disclosed to Bank in writing and acknowledged
by Bank prior to the date of this Agreement, (e) indebtedness of any
Grantor secured by purchase-money liens and security interests, and (f)
indebtedness of Borrowers to each other or to any Subsidiary or of any
Subsidiary to Borrowers or another Subsidiary.
7.7 Dividends and Distributions. (a) Make any distribution
(other than dividends payable in capital stock of Borrowers) on any
shares of any class of their capital stock or apply any of their
property or assets to the purchase, redemption or other retirement of
any shares of any class of capital stock of Borrowers; provided
however, unless an event of default has occurred and is continuing,
Borrowers may make payments to the holders of Subordinated Notes issued
pursuant to the Note Purchase Agreement, and (b) permit Rio Grande
GulfMex, Ltd. to make any distribution (other than a distribution to
its partners in the ordinary course of business and in accordance with
the respective partnership interests of such partners) on any
partnership interest or apply any of its property or assets to the
purchase, redemption or other retirement of any partnership interest.
7.8 Working Capital. Permit at any time the excess of
consolidated current assets over consolidated current liabilities of
Borrowers to be less than $1. Current maturities of long term debt
shall be excluded from the determination of consolidated current
liabilities.
7.9 No Amendment of Note Purchase Agreement. Modify or amend
the terms and provisions of the Note Purchase Agreement or any of the
Subordinated Notes.
7.10 Principal Debt not to Exceed Commitment. Permit at any
time the Principal Debt to exceed the lesser of $10,000,000 or the
Borrowing Base then in effect.
7.11 Investments. Invest in (by capital contribution or
otherwise), or acquire or purchase or make any commitment to purchase
the obligations or stock of, any entity, or permit any other Grantor to
<PAGE>
Exhibit 10.2 Page 12
do any of the foregoing, except (i) temporary investments in securities
of the United States having maturities not in excess of one (1) year,
(ii) certificates of deposit issued by Bank, and (iii) such other
investments as approved by Bank.
7.12 Change of Control of Rio Grande, Inc. Permit the change
of control of Rio Grande, Inc. "Change of control" as used in the
preceding sentence means (i) the acquisition of more than fifty percent
(50%) of the outstanding voting stock of Rio Grande, Inc. by any person
or entity or group of persons or entities acting in concert, or (b) the
acquisition of more than ten percent (10%) of the outstanding voting
stock of Rio Grande, Inc. by any person or entity or group of persons
or entities acting in concert if at any time following such acquisition
of ten percent (10%) or more of such outstanding voting stock more than
fifty percent (50%) of the persons serving on the board of directors of
Rio Grande, Inc. are persons proposed directly or indirectly by the
persons or entities or group of persons or entities acting in concert
who have acquired such ten percent (10%) or more of Rio Grande, Inc.'s
outstanding voting stock.
7.13 Change in Management. Permit Guy R. Buschman to cease
being the President and Chief Executive Officer of Borrowers; provided
that if Guy R. Buschman is disabled and thus unable to perform his
duties as President of Borrowers, then Borrowers shall have sixty (60)
days within which to appoint a president acceptable to Bank. "Disabled"
as used in the preceding sentence means if, for physical or mental
reasons, Guy R. Buschman is unable to perform his duties as President
of Borrowers for 60 consecutive days or one hundred twenty (120)
consecutive days during any 12-month period.
7.14 Change of General Partner. Permit Rio Grande Drilling
Company to cease to be the general partner of Rio Grande Offshore,
Ltd., and/or permit Rio Grande Offshore, Ltd. to cease to be the
general partner of Rio Grande GulfMex, Ltd.
7.15 Change of Control of Rio Grande Drilling Company. Permit
Rio Grande, Inc., to own less than 100% of the outstanding voting stock
of Rio Grande Drilling Company.
7.16 Change of Control of Rio Grande Desert Oil Company.
Permit Rio Grande Drilling Company to own less than 100% of the
outstanding voting stock of Rio Grande Desert Oil Company.
7.17 Change in Nature of Business. Conduct any business other
than, or make any material change in the nature of, their business, and
those of the other Grantors, as carried on as of the date hereof.
7.18 Arm's Length Transactions. Enter into, or permit any
other Grantor to enter into, any transaction with any affiliate, except
a transaction upon terms that are not less favorable to them than would
be obtained in a transaction negotiated at arm's length with an
unrelated third party, or a transaction otherwise expressly permitted
by the terms of this Agreement.
<PAGE>
Exhibit 10.2 Page 13
8.0 Representations and Warranties. Borrowers hereby represent and
warrant to Bank as follows:
8.1 No Liens. Grantors have good and defensible title to all
of Grantors' Mineral Interests in and to the oil and gas leases which
constitute the Mortgaged Properties, and none of such Mineral Interests
are subject to any security interest, mortgage, deed of trust, pledge,
lien, title retention document or encumbrance of any character, except
for liens permitted by Section 7.4 hereof.
8.2 Mortgaged Properties Same as Properties Engineered. All of
the oil and gas leases described in and covered by the engineering
reports which have previously been delivered to and relied upon by Bank
in connection with this Agreement are part of the Mortgaged Properties
described in the Oil and Gas Mortgage.
8.3 Good Standing. Rio Grande, Inc. is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware and has the power and authority to own its property and to
carry on its business in each jurisdiction in which it does business.
Rio Grande Drilling Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and
has the power and authority to own its property and to carry on its
business in each jurisdiction in which it does business. Rio Grande
Offshore, Ltd., and Rio Grande GulfMex, Ltd., are limited partnerships,
duly organized, validly existing and in good standing under the laws of
the State of Texas, and each has the power and authority to own its
property and to carry on its business in each jurisdiction in which it
does business.
8.4 Authority and Compliance. Borrowers have full power and
authority to execute, deliver and perform the Loan Documents to which
they are parties and to incur and perform the obligations provided for
therein. The other Grantors have full power and authority to execute,
deliver and perform the Loan Documents to which they are parties and to
incur and perform the obligations provided for therein. No consent or
approval of any public authority or other third party is required as a
condition to the validity or performance of any Loan Document, and
Grantors are in compliance with all laws and regulatory requirements to
which Grantors are subject except for those laws and regulations the
non-compliance with which does not create a possibility of adversely
affecting either the financial condition of the Grantors or any of
their Mineral Interests in the Mortgaged Properties.
8.5 Binding Agreement. This Agreement and the other Loan
Documents executed by Grantors constitute valid and legally binding
obligations of Grantors, enforceable in accordance with their terms
except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency, or other similar laws affecting creditors'
rights generally.
8.6 Litigation. There is no proceeding involving Grantors
pending or, to the knowledge of Borrowers, threatened before any court
or governmental authority, agency or arbitration authority, except as
disclosed to Bank in writing and acknowledged by Bank prior to the date
of this Agreement.
8.7 No Conflicting Agreements. There is no charter, bylaw,
stock provision, partnership agreement or other document pertaining to
<PAGE>
Exhibit 10.2 Page 14
the power or authority of Grantors and no provision of any existing
agreement, mortgage, indenture or contract binding on Grantors or
affecting Grantors' property, which would conflict with or in any way
prevent the execution, delivery or carrying out of the terms of this
Agreement and the other Loan Documents.
8.8 Taxes. All taxes and assessments due and payable by
Grantors have been paid or are being Contested in Good Faith, and
Grantors have filed all tax returns which Borrowers are required to
file.
8.9 Accuracy of Information. To the best of Borrowers'
knowledge, all factual information furnished by Borrowers and the other
Grantors to Bank in connection with this Agreement and the other Loan
Documents is and will be accurate and complete in all material respects
on the date as of which such information is delivered to Bank and is
not and will not be incomplete by the omission of any material fact
necessary to make such information not misleading.
9.0 Default. Any of the following shall constitute events of default:
9.1 Nonpayment. Borrowers shall default in the due and
punctual payment of any principal or interest of the Note or any other
obligation of Borrowers to Bank when due and payable, whether at
maturity or otherwise.
9.2 Representations and Warranties. Any representation,
warranty or statement made by Borrowers and the other Grantors herein
or otherwise in writing in connection herewith or in connection with
any of the other Loan Documents and the agreements referred to herein
or therein or in any financial statement, certificate or statement
signed by any officer or employee of Borrowers or other Grantors and
furnished pursuant to any provision of the Loan Documents shall be
breached, or shall be materially false, incorrect or incomplete when
made.
9.3 Default in Covenants Under Agreement. Borrowers shall
default in the due performance or observance by Borrowers of any term,
covenant or agreement contained in this Agreement other than a default
described in Sections 9.1 and 9.2 hereof, and the covenants described
in Sections 6.2, 6.5, 6.6 and 7.1 through 7.18 hereof, and such failure
shall continue for thirty days after (a) notice of such default from
Bank, or (b) Bank is notified of such default or should have been so
notified pursuant to the provisions of Section 6.2 hereof, whichever is
earlier.
9.4 Default in Other Loan Documents. Borrowers or any other
Grantor shall default in the due performance of or observance by
Borrowers or other Grantors of any term, covenant or agreement on
Borrowers' or Grantor's part to be performed pursuant to the terms of
any of the other Loan Documents and the default shall continue
unremedied beyond any grace or cure period therein provided.
9.5 Default in Other Debt. An event of default shall occur
under the provisions of any instrument (other than the Loan Documents)
evidencing indebtedness of Borrowers or the other Grantors for the
payment of borrowed money or of any agreement relating thereto,
including without limitation, indebtedness owed to Belle Exploration
for the Acquisition Properties purchased from Belle Exploration and the
indebtedness evidenced by the Subordinated Notes (the effect of which
is to permit the holder or holders of such instrument to cause the
indebtedness evidenced
<PAGE>
Exhibit 10.2 Page 15
by such instrument to become due prior to its stated maturity) provided
Borrowers may default in indebtedness secured by purchase-money
security interests so long as the total amount of such indebtedness in
default does not exceed $50,000 in the aggregate.
9.6 Validity of Loan Documents. Any of the Loan Documents
shall cease to be a legal, valid and binding agreement enforceable
against any party executing the same in accordance with the respective
terms thereof, or shall in any way be terminated, or become or be
declared ineffective or inoperative, or shall in any way whatsoever
cease to give or provide the respective rights, remedies, powers and
privileges intended to be created thereby.
9.7 Bankruptcy. Borrowers or any other Grantor shall suspend
or discontinue their business operations, or shall generally fail to
pay their debts as they mature, or shall file a petition commencing a
voluntary case concerning Borrowers or any other Grantor under any
chapter of the United States Bankruptcy Code; or any involuntary case
shall be commenced against Borrowers or any other Grantor under the
United States Bankruptcy Code which remains undismissed for a period of
sixty (60) days or more; or Borrowers or other Grantors shall become
insolvent (howsoever such insolvency may be evidenced).
9.8 Judgments and Decrees. Borrowers or any other Grantor
shall suffer a final judgment for the payment of money and shall not
discharge the same within a period of thirty (30) days unless, pending
further proceedings, execution has not been commenced, or, if
commenced, has been effectively stayed. Any order, judgment or decree
shall be entered in any proceeding against Borrowers or the other
Grantors decreeing their dissolution or split up and such order shall
remain undischarged or unstayed for a period in excess of thirty (30)
days.
9.9 Bank Accounts of Rio Grande Desert Oil Company. Rio Grande
Desert Oil Company shall maintain a deposit or other bank account with
any financial institution other than Bank.
10.0 Remedies. Upon the occurrence of an event of default described in
Section 9.7 hereof, the entire principal of and accrued interest on the Note
shall forthwith be due and payable without demand, presentment for payment,
notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices and further actions of
any kind, all of which are hereby expressly waived by Borrowers. In the event
that any other event of default occur and be continuing, Bank may, without
demand or notice of its election terminate its obligation to make further Loans
hereunder and/or declare the entire unpaid balance of the Note and all other
indebtedness of Borrowers to Bank, or any part thereof, immediately due and
payable, whereupon the principal of and accrued interest on such Note and other
indebtedness shall be forthwith due and payable without demand, presentment for
payment, notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices and further actions of
any kind, all of which are hereby expressly waived by Borrowers. Upon the
occurrence and during the continuance of any event of default, Bank may (a)
exercise any and all rights under or pursuant to any of the Loan Documents, and
(b) exercise any and all rights afforded to Bank by the laws of the State of
Texas or any other applicable jurisdiction or in equity or otherwise, as Bank
may deem appropriate. Bank agrees that it will not exercise its right to the
assignment of the proceeds of sales of production set forth in the Oil and Gas
Mortgages until an event of default hereunder or thereunder has occurred.
<PAGE>
Exhibit 10.2 Page 16
11.0 Notices. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the addresses set
forth on the first page of this Agreement or to such other address as any party
may designate by written notice to the other party. Each such notice, request
and demand shall be deemed given or made (a) if sent by hand delivery or private
courier, upon delivery; and (b) if sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. Mail, first class postage
prepaid.
12.0 Costs, Expenses and Attorneys' Fees. Borrowers shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in connection with (a) negotiation
and preparation of this Agreement and each of the Loan Documents, and (b) any
modifications of or consents or waivers under or amendments to or
interpretations of or enforcement of this Agreement, the Note, the other Loan
Documents and the agreements described therein. Borrowers further agree to
indemnify Bank from and hold it harmless against any and all losses,
liabilities, claims, damages or expenses which Bank suffers or incurs as a
result of its entering into this Agreement, or the consummation of the
transactions contemplated by this Agreement and the Loan Documents, or the use
or contemplated use of the proceeds of the Loan, including, without limitation,
the fees and disbursements of counsel incurred in connection with any
litigation, arbitration or other proceeding arising out of or by reason of any
of the aftersaid.
13.0 Miscellaneous. Borrowers and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
13.1 Cumulative Rights and No Waiver. Each and every right
granted to Bank under any Loan Document, or allowed it by law or equity
shall be cumulative of each other and may be exercised in addition to
any and all other rights of Bank, and no delay in exercising any right
shall operate as a waiver thereof, nor shall any single or partial
exercise by Bank of any right preclude any other or future exercise
thereof or the exercise of any other right. Borrowers expressly waive
any presentment, demand, protest or other notice of any kind, including
but not limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrowers in any case shall, of
itself, entitle Borrowers to any other or future notice or demand in
similar or other circumstances.
13.2 Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and
interpreted in accordance with the laws of Texas and applicable United
States federal law.
13.3 Amendment. No modification, consent, amendment or waiver
of any provision of this Agreement, nor consent to any departure by
Borrowers therefrom, shall be effective unless the same shall be in
writing and signed by an officer of Bank, and then shall be effective
only in the specified instance and for the purpose for which given.
This Agreement is binding upon Borrowers, their successors and assigns,
and inures to the benefit of Bank, its successors and assigns; however,
no assignment or other transfer of Borrowers' rights or obligations
hereunder shall be made or be effective without Bank's prior written
consent, nor shall it relieve Borrowers of any obligations hereunder.
There is no third party beneficiary of this Agreement.
13.4 Documents. All documents, certificates and other items
required under this Agreement to be executed and/or delivered to Bank
shall be in form and content satisfactory to Bank and its counsel.
<PAGE>
Exhibit 10.2 Page 17
13.5 Partial Invalidity. The unenforceability or invalidity of
any provision of this Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
13.6 Survivability. All covenants, agreements, representations
and warranties made herein or in the other Loan Documents shall survive
the making of the Loan and shall continue in full force and effect so
long as the Loan is outstanding or the obligation of Bank to make any
advances hereunder shall not have expired.
14.0 Joint and Several Liability of Borrowers. The liability of
Borrowers hereunder shall be joint and several in all respects.
15.0 Limitation on Liability of Subsidiaries. Notwithstanding anything
to the contrary contained in any of the Loan Documents, and except as expressly
hereinafter provided, but without in any manner releasing, impairing or
otherwise affecting the Note or any of the other Loan Documents, or the validity
thereof or hereof, or the liens created thereby, or the liability of Borrowers,
in the event of any default under the terms of the Note or any of the other Loan
Documents, the liability of the Subsidiaries for the repayment of the
indebtedness evidenced by the Note or for any other sums due as the result of
any defaults under the Note or of any of the other Loan Documents, shall be
limited to the Mineral Interests of the Subsidiaries in the Mortgaged
Properties. The limitations of liabilities specified in the preceding sentence
shall not apply in the following circumstances (provided nothing contained
herein shall be construed to impose upon any Subsidiary liability for the
repayment of borrowed money without such liability being limited to the property
securing the repayment of such borrowed money):
A. Fraud or Misrepresentation. The Subsidiaries shall be fully
liable for fraud or misrepresentation made by any Grantor in connection
with the Loan Documents to which they are parties.
B. Failure to Pay Taxes and Assessments. The Subsidiaries
shall be fully liable for taxes, assessments or other charges which can
create liens on any portion of the Mortgaged Properties that are
payable or applicable to a period prior to any foreclosure under any
Oil and Gas Mortgage (but only to the full extent of any such taxes,
assessments or other charges not so paid).
16.0 Agreement Controlling. In the event of a conflict between the
terms and provisions of this Agreement and the terms and provisions of any of
the other Loan Documents, the terms and provisions of this Agreement shall
control. The parties understand and agree that the commitment letter between
them dated as of March 1, 1996 (executed by the Borrowers as of March 2, 1996),
has been replaced and superseded by this Agreement.
17.0 Notice of Final Agreement. THIS WRITTEN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
Exhibit 10.2 Page 18
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
RIO GRANDE, INC.
By
Guy R. Buschman
President
RIO GRANDE DRILLING COMPANY
By
Guy R. Buschman
President
COMERICA BANK - TEXAS
By
Terry O. McCarter
Vice President
<PAGE>
Exhibit 10.2 Page 19
SCHEDULES TO LOAN AGREEMENT
I Mortgaged Properties 1.0
II Acquisition Properties 2.2
III Title Reliance Letters 4.6
IV Amendments to Note Purchase Agreements 4.9
EXHIBITS TO LOAN AGREEMENT
A Borrowing Request 2.1
B Quarterly Compliance Certificate 6.1
C Form of Property Certificate 4.3
D Form of Transfer Order Letter 4.4
<PAGE>
Exhibit 10.2 Page 20
<PAGE>
Exhibit 10.2 Page 21
<PAGE>
Exhibit 10.2 Page 22
<PAGE>
Exhibit 10.2 Page 23
LEASE NAME FIELD COUNTY STATE
Wiederkehr #3 East 76 (Wilcox 9300) Duval TX
Holstein #1 Comite East Baton Rouge LA
Scan-King G Stovall (McLester) Young TX
Granbury Copeland Creek (Jackson County Polk TX
Regular)
Jacobs Livestock heluma (Devonian) Upton TX
Richards "A" Berrypatch (Congl.) Jack TX
Sanders Jack County Regular Jack TX
Zonne -B- K W S (Strawn) Tom Green TX
Killen Merff (Congl) Jack TX
Morgan, Rand Rand Morgan (5250) Jim Wells TX
Crumpton-Williams Scan (Congl.) Young TX
<PAGE>
Exhibit 10.2 Page 24
SCHEDULE II
LIST OF ACQUISITION PROPERTIES
A. BELLE EXPLORATION ACQUISITION
Lease Name County State
Riceland Lumber Co. #1 Beauregard Louisiana
Riceland Lumber Co. A #2 Beauregard Louisiana
Holstein #1 East Baton Rouge Louisiana
Rosenblatt #4 Wilkinson Mississippi
Rosenblatt #6 Wilkinson Mississippi
Pettis A #1 Wilkinson Mississippi
USA 32 #2A Franklin Mississippi
USA 32 #2 Franklin Mississippi
Butler Franklin Mississippi
MacNeil #2 Adams Mississippi
MacNeil #4 Adams Mississippi
Palatine Hills #4 Adams Mississippi
USA 19 #3 Franklin Mississippi
Armstrong Oakland #2 Adams Mississippi
Richmond #4 Adams Mississippi
B. FORTUNE PETROLEUM CORPORATION/DONALD L. WALKER
PENDRAGON RESOURCES, L.L.C.
Lease Name County State
OCS 04460D 1 BLK 76 South Timbalier Louisiana
C. EXXON ACQUISITION
Lease Name County State
Conwell - GU- #1 Wheeler Texas
<PAGE>
Exhibit 10.2 Page 25
Miles Gas Unit Wheeler Texas
Simmons Gas Unit Wheeler Texas
<PAGE>
Exhibit 10.2 Page 26
SCHEDULE III
LIST OF OIL AND GAS PROPERTIES FOR WHICH
TITLE RELIANCE LETTERS WILL BE PROVIDED
Lease County State
Damron A Upton Texas
OCS 05392A 1 BLK 317 East Cameron Area Louisiana
OCS 05393A 2 BLK 318 East Cameron Area Louisiana
Federal #1-13 Sheridan Montana
McKinley Unit Young Texas
Kiker-Amoco #206 Hemphill Texas
Burrell #1 Wheeler Texas
Jacobs Livestock C Upton Texas
Damron B Upton Texas
Barnsley, T.C. #3 Crane Texas
Herrell #1 McClain Oklahoma
<PAGE>
Exhibit 10.2 Page 27
SCHEDULE IV
o Identify the indebtedness owed to Bank as Senior Indebtedness
o Prohibit the holders of the Subordinated Notes from directly or
indirectly joining in or consenting to the commencement of any
bankruptcy proceeding against either Borrower until after 120 days have
elapsed from the date the noteholders have given notice to the Bank of
the occurrence of a default under the Note Purchase Agreement and of
the intention of the noteholders so to join in or consent to such a
proceeding
o Permit financing by Belle Exploration, Inc., of not more than 50% of
the purchase price payable in connection with the Purchase and Sale
Agreement between the Borrowers and Belle Exploration, Inc.
o Amend the Note Purchase Agreement and each note issued thereunder to
provide that the subordinated notes will mature September 30, 2002,
that interest only shall be payable until December 31, 1998, that
principal shall be payable quarterly commencing December 31, 1998, that
the principal payments due December 31, 1998, March 31, 1999, June 30,
1999, September 30, 1999, December 31, 1999, March 31, 2000, June 30,
2000, and September 30, 2000, shall be in an amount equal to 3.125% of
the original principal balance, and that principal payments due
thereafter shall be in an amount equal to 9.375% of the original
principal balance thereof.
<PAGE>
Exhibit 10.2 Page 28
EXHIBIT A
BORROWING REQUEST
Reference is made to that certain Loan Agreement among RIO GRANDE,
INC., RIO GRANDE DRILLING COMPANY and COMERICA BANK - TEXAS dated as of March 8,
1996 (the "Loan Agreement"). The terms used herein shall have the same meanings
as provided therefor in the Loan Agreement unless the context hereof otherwise
requires or provides.
A. GENERAL.
1. Date of proposed Loan.
2. Amount Requested.
3. Description of use of proceeds of Loan:
4. The Borrowers hereby certifies that all conditions precedent
specified by the Loan Agreement for this Loan have been complied
with in all respects.
B. BORROWING BASE.
1. Enter: lesser of $10,000,000
or Borrowing Base currently in
effect.
2. Enter: Principal Debt outstanding
as of this date. -
3. Excess (deficit) available for
Loans (subtract line B2 from
line B1).
<PAGE>
Exhibit 10.2 Page 29
The Borrowers hereby certify that on the date hereof the
representations and warranties contained theLoan Agreement are true in all
material respects as if made on the date hereof, and no event of default or no
event which, with the lapse of time or the giving of notice, or both, would
constitute an event of default under the Loan Agreement, exists.
Dated ____________, 199__.
RIO GRANDE, INC. RIO GRANDE DRILLING COMPANY
By By
Title Title
<PAGE>
Exhibit 10.2 Page 30
EXHIBIT B
COMPLIANCE CERTIFICATE
TO: COMERICA BANK - TEXAS
Reference is made to that certain Loan Agreement among RIO GRANDE,
INC., RIO GRANDE DRILLING COMPANY and COMERICA BANK - TEXAS dated as of March 8
1996(the "Loan Agreement"). The terms used herein shall have the same meanings
as provided therefor in the Loan Agreement, unless the context hereof otherwise
requires or provides.
The undersigned HEREBY CERTIFIES that he is the duly elected and
qualified officer of __________________________ holding the office set forth
opposite his signature below, AND DOES FURTHER CERTIFY, individually and on
behalf of the Borrowers, that:
1. A review of the activities of the Borrowers during the
preceding fiscal quarter has been made under his supervision with a
view to determining whether, during such fiscal quarter Borrowers have
kept, observed, performed and fulfilled all of their obligations under
the Loan Documents, and that to the best of his knowledge Borrowers
have kept, observed, performed and fulfilled all of such obligations,
except as set forth in Schedule I attached hereto. (If no Schedule I is
attached, then such exception does not apply and no such failures
exist.)
2. Attached hereto as Exhibit "A" is the calculation of the
financial covenant of Sections 7.8 of the Loan Agreement determined as
of the last day of the immediately preceding fiscal quarter of the
Borrowers, which calculation has been made in accordance with the
requirements of the Loan Agreement and which is true and correct in all
respects.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
________________, 199__.
Office Signature
Printed Name
<PAGE>
Exhibit 10.2 Page 31
EXHIBIT "A" FOR THE FISCAL QUARTER
ENDING __________________, 199__
Section 7.8 - Working Capital. The excess of the consolidated current
assets over consolidated current liabilities of Borrowers must not be less than
$1. Current maturities of long term debt are excluded from the determination of
consolidated current liabilities. As of the date above:
The consolidated current assets of Rio Grande, Inc., and
subsidiaries exceed the consolidated current liabilities of Rio Grande,
Inc., and subsidiaries by $______________.
<PAGE>
Exhibit 10.2 Page 32
EXHIBIT C
PROPERTY CERTIFICATE
TO: COMERICA BANK - TEXAS
Reference is made to that certain Loan Agreement dated as of March
8,1996 (the "Loan Agreement"), among RIO GRANDE, INC., RIO GRANDE DRILLING
COMPANY and COMERICA BANK - TEXAS. The defined terms used in this Certificate
shall have the same meanings as provided therefor in the Loan Agreement, unless
the context hereof otherwise requires or provides. This is the Property
Certificate referred to in the Loan Agreement.
The Grantors have mortgaged to the Bank their Mineral Interests in the
Mortgaged Properties. The Grantors HEREBY CERTIFY to the Bank that true,
complete and correct responses for items A through H below for each of the
Mortgaged Properties are described on the ___ page exhibit to this Property
Certificate:
A. Well, lease or unit name, as appropriate.
B. Operator's name and address.
C. First purchaser's name and address.
D. Lease number or other designation used by payor to identify
lease or leases in accounting for revenues, costs and joint interest
transactions.
E. Identity of Grantor which owns record title to the Mineral
Interest in such well, lease or unit.
F. Identity of Grantor which beneficially owns the Mineral
Interest in such well, lease or unit.
G. The ownership interest of each Grantor, as appropriate,
with respect to the well, lease or unit. Such ownership interest does
and will entitle such Grantor to receive a decimal share of all oil,
gas or other hydrocarbons produced from, or allocated to, such well or
unit equal to not less than the decimal share set forth in the column
headed "Net Revenue Interest." Such ownership interest shall cause such
Grantor to be obligated to bear a decimal share of the cost of the
operation of such well, lease or unit equal to not more than the
decimal share set forth in the column headed "Working Interest."
H. Attached is a description of the underlying lease or leases
or units including the names of the lessor and lessee, the date of the
lease or unit, the recording information of such lease or unit, a
complete description of assignments and farmouts of such lease or unit
and a complete legal description of the property covered thereby.
<PAGE>
Exhibit 10.2 Page 33
All of the information listed on the attachments to this Property
Certificate is true, complete and correct in all material respects. This
Property Certificate is given for the purpose of inducing the Bank to enter into
the Loan Agreement, and the undersigned recognize that the Bank is relying upon
this Property Certificate in connection with the transactions contemplated by
the Loan Agreement and that but for the statements made herein, the Bank would
not enter into the Loan Agreement.
EXECUTED on the date of the notary certification below to be effective
as of March ____, 1996.
RIO GRANDE, INC.
By
Title
RIO GRANDE DRILLING COMPANY
By
Title
RIO GRANDE OFFSHORE, LTD., by Rio
Grande Drilling Company, its
general partner
By
Title
<PAGE>
Exhibit 10.2 Page 34
RIO GRANDE GULFMEX, LTD., by Rio
Offshore, Ltd., its general partner,
by Rio Grande Drilling Company,
its general partner
By
Title
STATE OF TEXAS ss.
ss.
COUNTY OF BEXAR ss.
SWORN TO AND SUBSCRIBED before me this ______ day of March, 1996, by
_________________________, the ____________________ of Rio Grande, Inc., a
Delaware corporation, on behalf of said corporation.
SWORN TO AND SUBSCRIBED before me this ______ day of March, 1996, by
_________________________, the ____________________ of Rio Grande Drilling
Company, a Texas
corporation, on behalf of said corporation.
SWORN TO AND SUBSCRIBED before me this ______ day of March, 1996, by
_________________________, the ___________________ of Rio Grande Drilling
Company, a Texas corporation, acting in its capacity as the general partner of
Rio Grande Offshore, Ltd., a Texas limited
partnership, on behalf of said limited partnership.
SWORN TO AND SUBSCRIBED before me this ______ day of March, 1996, by
_________________________, the ___________________ of Rio Grande Drilling
Company, a Texas corporation, acting in its capacity as the general partner of
Rio Grande Offshore, Ltd., a Texas limited partnership, acting in its capacity
as the general partner of Rio Grande GulfMex, Ltd., a Texas limited
partnership, on behalf of said limited partnership.
[ S E A L ]
Notary Public, State of Texas
<PAGE>
Exhibit 10.2 Page 35
EXHIBIT D
FORM OF TRANSFER ORDER LETTER
---------------, ----
Attn: Division Order Department
Re: Letter-in-Lieu of Transfer and Division Order
Gentlemen:
You are currently purchasing the oil and/or gas production from each of
the properties identified (by well name and your lease identification and/or
division order number) in Exhibit A attached hereto (collectively, the "Subject
Properties"). In connection therewith, you are currently making monthly
settlement to Rio Grande Drilling Company, Rio Grande Offshore, Ltd., and/or Rio
Grande GulfMex, Ltd. (collectively, the "Grantor").
This will constitute formal notice to you that Grantor has executed in
favor of Comerica Bank - Texas (the "Lender") previous mortgages and related
security agreements which create liens and security interests against the
ownership interests of Grantor in each of the Subject Properties. Each of such
mortgages also contains an express assignment from Grantor to the Lender of all
proceeds attributable to the sale of production attributable to Grantor's
ownership interests in each of the Subject Properties. At your request, copies
of each of such mortgages (with applicable recordation data) will be furnished
for your files.
Grantor and Lender request that you change your records to begin making
payment to the Lender (for the account of Grantor) for the interest, as shown on
Exhibit A, for the properties for which you are purchasing production and which
you have previously credited to Grantor, effective as of 7:00 a.m., March 1,
1996, at the address set forth below:
COMERICA BANK - TEXAS
1601 Elm Street, 2nd Floor
Dallas, Texas 75201
Attention: Energy Lending
Because the payments to be made by you to the Lender as requested above are for
the account of Grantor, please continue to use Grantor's tax identification
number in making such payments.
<PAGE>
Exhibit 10.2 Page 36
You are not authorized to mail checks or make payments for Grantor's
interests in the Subject Properties to any address other than that specified
above unless and until expressly instructed to do so by prior written notice
executed by the Lender.
In consideration for your reliance upon this Letter-in-Lieu of Transfer
Order and Division Order, Grantor and the Lender will indemnify you against and
hold you harmless from any character of claim, damage or loss which may be
asserted against or sustained by you as a result of your reliance hereon.
Although the effectiveness of this letter and your obligations
hereunder are not dependent upon your acceptance of this letter, Grantor and the
Lender request that you acknowledge receipt of this letter by executing the
enclosed duplicate counterpart in the space below and returning such enclosed
duplicate counterpart to the Lender in the self-addressed envelope included
herewith.
Should you have any questions relative to these instructions, please
telephone Mr. Terry O. McCarter, Vice President of the Lender at 214/965-8984.
Very truly yours,
RIO GRANDE DRILLING COMPANY
By
Title
RIO GRANDE OFFSHORE, LTD., by Rio Grande
Drilling Company, its general partner
By
Title
RIO GRANDE GULFMEX, LTD., by Rio
Grande Offshore, Ltd., its general
partner, by Rio Grande Drilling
Company, its general partner
By
Title
<PAGE>
Exhibit 10.2 Page 37
COMERICA BANK - TEXAS
By
Title
Receipt and acceptance of a signed copy of this letter is hereby
acknowledged on the _____ day of _____________________, 1996.
By
Title
<PAGE>
Exhibit 10.2 Page 38
EXHIBIT A TO TRANSFER ORDER LETTER
Your Property No. Property Name Revenue Interest %
- ------------------------- ----------------------- ---------------------------
<PAGE>
