<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
/x/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-9933
-----------------------------
AMERAC ENERGY CORPORATION
(Exact name of Registrant as specified in its charter)
State of Delaware 75-2181442
(State of incorporation) (I.R.S. Employer
Identification No.)
700 Louisiana
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 223-1833
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No
------ -----
The number of shares of Common Stock, $.05 par value, outstanding on July 31,
1995 was 20,470,998.
1
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets
------
December 31, June 30,
1994 1995
------------- -------------
<S> <C> <C>
(Unaudited)
Current assets
Cash and equivalents $ 3,437,000 $ 273,000
Accounts receivable 142,000 108,000
Other 356,000 301,000
------------- -------------
Total current assets 3,935,000 682,000
------------- -------------
Oil and gas properties, successful efforts method 16,797,000 20,511,000
Accumulated depreciation, depletion and amortization (11,738,000) (12,243,000)
------------- -------------
Net oil and gas properties 5,059,000 8,268,000
------------- -------------
Other assets 168,000 247,000
------------- -------------
$ 9,162,000 $ 9,197,000
============= =============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities
Accounts payable $ 47,000 $ 43,000
Accrued liabilities 139,000 152,000
Current portion of long term debt 1,923,000 -
Current obligations under gas contract 757,000 681,000
------------- -------------
Total current liabilities 2,866,000 876,000
------------- -------------
Long term liabilities
Revolving note - 2,347,000
Other 542,000 406,000
------------- -------------
Total long term liabilities 542,000 2,753,000
------------- -------------
Contingencies (Note 6)
Shareholders' equity
Preferred stock 10,000,000 shares authorized
$2.25 Convertible exchangeable preferred
$1.00 par, 1,822,592 shares issued 1,823,000
$4.00 Senior preferred, $1.00 par,
1,708,636 shares issued and outstanding - 1,709,000
Common stock $.05 par value;
50,000,000 shares authorized; 15,883,722 and 20,433,498
shares issued and outstanding at respectively 794,000 1,022,000
Additional paid-in capital 142,936,000 141,852,000
Accumulated deficit (139,799,000) (139,015,000)
------------- -------------
Total shareholders' equity 5,754,000 5,568,000
------------- -------------
$ 9,162,000 $ 9,197,000
============= =============
</TABLE>
See accompanying notes to these Statements
2
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended, Six Months Ended,
June 30, June 30,
---------------------------- ----------------------------
1994 1995 1994 1995
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues
Oil and gas sales $ 1,047,000 $1,004,000 $ 2,162,000 $1,827,000
Other income 114,000 67,000 154,000 131,000
----------- ---------- ----------- ----------
$ 1,161,000 $1,071,000 $ 2,316,000 $1,958,000
----------- ---------- ----------- ----------
Expenses
Lease operating 230,000 331,000 436,000 531,000
Exploration 239,000 208,000 384,000 215,000
Depreciation, depletion
and amortization 473,000 250,000 772,000 525,000
General and administrative 676,000 386,000 1,099,000 731,000
Interest 58,000 89,000 119,000 143,000
----------- ---------- ----------- ----------
$ 1,676,000 $1,264,000 $ 2,810,000 $2,145,000
----------- ---------- ----------- ----------
Income (Loss) before tax (515,000) (193,000) (494,000) (187,000)
Provision for income tax - - - -
----------- ---------- ----------- ----------
Net Income (loss) $ (515,000) $ (193,000) $ (494,000) $ (187,000)
----------- ---------- ----------- ----------
Preferred stock dividends $(1,025,000) $ (199,000) $(2,050,000) $ (393,000)
----------- ---------- ----------- ----------
Net loss applicable
to common stock $(1,540,000) $ (392,000) $(2,544,000) $ (580,000)
=========== ========== =========== ==========
Net Income (loss) per
common share $ (.10) $ (.02) $ (.16) $ (.03)
----------- ----------- ------------ ----------
Weighted average shares
outstanding 15,884,000 20,433,000 15,884,000 19,578,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to these Statements
3
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended,
June 30,
-----------------------------
1994 1995
---------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ (494,000) $ (187,000)
Adjustments needed to reconcile to net cash flows:
Depreciation, depletion and amortization 772,000 525,000
Amortization of discount 12,000 7,000
Exploration expenses 384,000 215,000
Gain on sale of assets - (41,000)
Recognition of deferred revenue (191,000) (76,000)
Changes in current items relating to operations:
Accounts receivables and other 123,000 89,000
Accounts payables 116,000 (4,000)
Other liabilities (12,000) (130,000)
---------- -----------
Net cash flow provided by operations 710,000 398,000
---------- -----------
Cash flow from investing activities:
Oil and gas expenditures (559,000) (3,942,000)
Proceeds from sale of assets - 41,000
---------- -----------
Net cash flow used for investing activities (559,000) (3,901,000)
---------- -----------
Cash flow from financing activities:
Debt repayments (591,000) (1,929,000)
Bank borrowings - 2,347,000
Other (7,000) (79,000)
---------- -----------
Net cash flow provided by (used for)
financing activities (598,000) 339,000
---------- -----------
Net increase (decrease) in cash and equivalents (447,000) (3,164,000)
Cash and equivalents at beginning of period 5,345,000 3,437,000
---------- -----------
Cash and equivalents, end of period $4,898,000 $ 273,000
========== ===========
Supplemental disclosure:
Cash paid for interest during the period $ 244,000 $ 95,000
========== ===========
</TABLE>
See accompanying notes to these Statements
4
<PAGE>
AMERAC ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
$2.25 Additional
Convertible $4.00 Common Stock
Exchangeable Senior ($.05 par Paid-in Accumulated
Preferred Shares Preferred value) Capital Deficit Total
-----------------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
December 31,
1994 1,822,592 $ 1,823,000 - $ - 15,883,772 $ 794,000 $142,936,000 $(139,799,000) $5,754,000
Exchange offer (1,822,592) (1,823,000) 1,634,305 1,634,000 4,549,726 228,000 (1,403,000) 1,364,000 -
Net income (187,000) (187,000)
$4.00 senior
preferred
stock dividend - - 74,331 75,000 - - 319,000 (393,000) 1,000
-----------------------------------------------------------------------------------------------------------
Balance -
June 30, 1995 - $ - 1,708,636 $1,709,000 20,433,498 $1,022,000 $141,852,000 $(139,015,000) $5,568,000
============================================================================================================
</TABLE>
See accompanying notes to these Statements
5
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1994 and 1995
1. ORGANIZATION AND NATURE OF BUSINESS
Amerac Energy Corporation (the "Company") is engaged in the acquisition,
development and enhancement of oil and gas properties in the United States. The
Company was formed in 1969. Through the mid-1980's, Amerac grew substantially.
Thereafter, a lack of exploratory success and declining energy prices, coupled
with a high degree of financial leverage, forced a restructuring of the Company.
By 1994, the Company's size and financial leverage had been substantially
reduced, a new management group was recruited, its exploration effort was
eliminated and a strategy of growth through acquisitions was adopted. In early
1995, the Company completed an exchange offer which sharply reduced its
obligations to its preferred stockholders, a new board of Directors was
recruited and the name of the Company was changed to Amerac Energy Corporation.
The Company, formerly known as Wolverine Exploration Company, is headquartered
in Houston, Texas. At June 30, 1995, Amerac had four employees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the year. In the opinion
of management, the accompanying unaudited financial statements contain all
adjustments necessary to present fairly the financial position as of June 30,
1995, and the results of operations and cash flow for the six months ended June
30, 1994 and 1995. These financial statements and the notes thereto should be
read in conjunction with the Company's annual report on Form 10-K for the year
ended December 31, 1994.
Net income (loss) per common share is computed by dividing the net income or
loss attributable to common shareholders by the weighted average number of
shares of Common Stock outstanding. In computing loss per share, dividends
declared for the period and accretion of the discount on the $4.00 Senior
Preferred Stock ("Senior Preferred"), (see Note 4) decreases the income or
increases the loss attributable to common shareholders. The stock options and
convertible debt are anti-dilutive and were not included in the average shares
outstanding during the periods presented.
3. INDEBTEDNESS
On May 12, 1995, the Company entered into a $15 million revolving line of
credit agreement, (the "Revolver"). The Revolver is a two year facility with
interest due monthly and principal due at May 31, 1997. The Revolver is secured
by all of the Company's properties, and contains various restrictive covenants
which may, if not met, cause the Company to be in default or reduce its access
to additional borrowing. The borrowing base, which will be redetermined semi-
annually, was initially set at $4.0 million. The Company entered into a $1.0
million bridge loan in April 1995 to finance an acquisition (See Note 5). The
bridge loan was retired with the Revolver. At June 30, 1995, $2,347,000 was
outstanding under the Revolver accruing interest at the Bank One Texas Base Rate
plus three-quarter of one percent equaling 9.75% at June 30, 1995.
4. SHAREHOLDERS EQUITY
On February 3, 1995, the Company exchanged one share of its Senior Preferred,
with a stated value of $4.00 per share, par value $1.00 per share and an initial
dividend rate of $.36 per share, and 2.5 shares of Common Stock (the "Exchange
Offer") for each outstanding share of $2.25 Convertible Exchangeable Preferred
Stock ("Old Preferred"), which carried a stated value of $25.00 per share and a
dividend rate of $2.25 per share. The Exchange Offer was approved by the
holders of a majority of the Common Stock and by approximately 90% of the Old
Preferred shareholders. As a result, 1,634,305 shares of Old Preferred were
exchanged for 1,634,305 shares of Senior Preferred and 4,085,763 shares of
Common Stock. Holders of Old Preferred that did not exchange received 2.5
shares of Common Stock for each share of Old Preferred not exchanged, resulting
in the issuance of 470,677 shares of Common Stock. This Exchange Offer
eliminated all Old Preferred and related dividend arrearages.
6
<PAGE>
AMERAC ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
June 30, 1994 and 1995
At the date of the Exchange Offer, the Company discounted the Senior Preferred
at an amount which would yield its perpetual dividend rate of 15% during the
initial years when the actual dividend rate is less than the perpetual dividend
rate. Accordingly, the Company credited retained earnings and debited
additional paid in capital for approximately $1,364,000 representing the
discount amount.
The Senior Preferred provides, among other things, that the Company has the
option to pay the quarterly dividends, which commenced January 1, 1995, for the
first two years in either cash or additional shares of Senior Preferred. The
Company currently plans to pay these dividends in shares of Senior Preferred.
The Company made its dividend payment on the Senior Preferred to holders of
record March 31, 1995, the dividend consisting of $.09 per share in shares of
Senior Preferred (36,755 shares) and its dividend payments to holders of record
as of June 30, 1995 (37,576 shares). Beginning January 1, 1997 the Company has,
under certain conditions, the option to pay the dividends in cash or Common
Stock. The annual dividend rate increases from $.36 per share to $.60 at
January 1, 2000. The Company has the option of redeeming the Senior Preferred
at face value anytime. If the Company fails to pay dividends on the Senior
Preferred, then the holders of the Senior Preferred have the right to elect 80%
of the Board of Directors.
5. ACQUISITIONS
In April, 1995, the Company acquired a 68% working interest in the Cosden
Field in Bee County, Texas for approximately $2.9 million. The transaction was
funded from working capital. The field is currently producing from three wells.
The Company estimates the net proved reserves at 5.2 billion cubic feet
equivalent with an estimated life of 29 years.
In May, 1995, the Company completed the acquisition of the Myrtle "B" field
located in Loving County, Texas for $725,000. This acquisition includes four
producing wells and four proved undeveloped locations with total net estimated
proved reserves of 359,600 barrels of oil equivalent. The Company acquired 100%
working interest and a 75% net revenue interest in these wells.
These acquisitions have been accounted for under the purchase method and
results of operations related to these properties have been consolidated
beginning on the date each acquisition was effected.
The pro forma affect of these acquisitions, assuming the properties had been
acquired at the beginning of the year would have been immaterial to the six
months ended June 30, 1995. Had the acquisition occurred at January 1, 1994,
revenue for the six months ended June 30, 1994, would have been $2,465,000, net
loss $574,000, and loss per share $.17.
6. CONTINGENCIES
In February 1995, Geodyne Resources, Inc. ("Geodyne") filed an Original Third-
Party Petition naming the Company as third-party defendant. The claim arose out
of the settlement of a 1986 accident by UPRC, operator of a property in Summit
County, Utah. UPRC subsequently sued Geodyne for a proportionate share of the
lawsuit involving the 1986 well accident. Geodyne purchased the property from
the Company in 1988 and is claiming that the Company is liable under the
indemnity provisions of the 1988 Purchase and Sale Agreement between the Company
and Geodyne. The amount of the claim against the Company is approximately
$176,000. The Company has filed a general denial and is reviewing this matter
with its insurance carriers and counsel. The Company has been indemnified for
any shortfall in the insurer's payment on the claim.
7
<PAGE>
The Company is subject to various contingencies which arise primarily from
interpretation of federal and state laws and regulations affecting the oil and
gas industry. Such contingencies include differing interpretations as to the
prices at which oil and gas sales may be made, the prices at which royalty
owners may be paid for production from their leases and other matters. Although
management believes it has complied with the various laws and regulations,
administrative rulings and interpretations thereof, adjustment could be required
as new interpretations and regulations are issued. In addition, production
rates, marketing and environmental matters are subject to regulation by various
federal and state agencies.
8
<PAGE>
AMERAC ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In early 1995, the Company completed the final major step in its
restructuring, eliminating more than 80% of its preferred shareholders' claims
via the Exchange Offer. Since adopting a focus on acquisitions in mid-1994, the
Company has concluded four acquisitions at a total cost of $ 5.3 million. These
transactions have added a total of 1,400,000 barrels of oil equivalents ("BOE")
to the Company's proved reserves at an average cost of $ 3.80 per BOE. The
successful pursuit of this strategy will require the identification of
appropriate acquisitions, the negotiation of an attractive purchase price and
the availability of additional capital under the Company's bank facility,
through the issuance of securities or otherwise.
The Company has also improved the reserve life index of the overall property
mix through its property acquisitions in the last half of 1994 and the first
half of 1995. At January 1, 1994, the Company's properties had an expected life
assuming current production rates of approximately four years. Today, as a
result of acquisitions, it has been extended to approximately eight years. One
of the immediate goals of the Company was to build a base of properties with
longer lives so that the Company has a base and time with which to continue its
acquisition strategies. The Company will continue its efforts to increase the
overall life of the property mix as its primary property, South Timbailer,
continues to decline.
Strategy
The Company believes it is now in a better position to raise capital to
support its acquisition strategy. The Company plans to concentrate initially on
acquisitions where most of the value is in proved developed producing reserves.
Management is relatively indifferent as to gas versus oil and prefers
operatorship.
Along with the acquisition of properties, the Company will continually review
ways to exploit existing and acquired reserves by increasing production rates,
accelerating recoveries and improving and extending the economic viability of
the properties. Exploitation activities may include workovers, recompletions,
development drilling, horizontal drilling, pressure maintenance projects, and
other methods of enhanced recovery.
While the Company is actively pursuing these avenues, there can be no
assurance that they will have successful results in an acquisition and
exploitation program. There is a tremendous amount of competition in the
industry and the prices paid for in-place reserves make it difficult to achieve
attractive rates of return. In addition, although the Company's projected cash
flow from its existing properties will cover overhead for a few years, without
successful results the Company's ability to replace its reserves and cash flow
therefrom will be limited.
Recent Developments
In July 1995, the Company filed a registration statement with the Securities
and Exchange Commission for the purpose of registering the 3,651,195 shares of
Common Stock held by Investment Limited Partnership ("ILP") who in turn sold the
shares to certain individuals. Three of these individuals are directors of the
Company. Messrs. Jeffrey B. Robinson, President and Chief Executive Officer,
Kenneth R. Peak and William P. Nicoletti are Directors of the Company and
acquired from ILP 800,000, 200,000 and 200,000 shares respectively.
9
<PAGE>
AMERAC ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Six Months Ended June 30, 1994 and June 30, 1995
Oil and gas revenues decreased from $2.2 million in the first six months of
1994 to $1.8 million during the comparable period in 1995 as a result of a
decline in gas production and gas prices partially offset by increased oil
production and oil prices. Oil production for the six months increased from
approximately 225 barrels per day in the first six months of 1994 to
approximately 312 barrels per day for the comparable period in 1995, primarily
as a result of the acquisition of properties. Gas production declined from
approximately 4.0 million cubic feet per day for the first six months of 1994 to
approximately 3.3 million cubic feet per day for the comparable period in 1995,
resulting from normal depletion of reserves. The average prices received for
production increased for oil from $14.10 per barrel during the first six months
of 1994 to $16.75 per barrel during the comparable period in 1995 while gas
prices decreased from an average of $2.20 per thousand cubic feet for the first
six months of 1994 to an average of $1.61 per thousand cubic feet for the first
six months of 1995.
Lease operating expenses increased from $436 thousand in the first six months
of 1994 to $531 thousand for the comparable period in 1995. As a result of the
acquisition of various properties operating expenses increased despite a general
decline in gas production, the depletion of certain wells and the sale of
producing properties. Depreciation, depletion and amortization expense decreased
from $772 thousand during the first six months of 1994 to $525 thousand for the
comparable period in 1995 as a result of a decline in the depreciation,
depletion and amortization rate.
Exploration expenses decreased from $384 thousand in the first six months of
1994 to $215 thousand for the comparable period in 1995. The 1994 expense was a
result of increased geological and geophysical activity and impairment expenses
associated with Lance Exploration Company ("Lance"), the company's wholly owned
exploration subsidiary, while the 1995 expense is development seismic on a
recently acquired property.
Administrative expenses declined from $1,099 thousand for the first six months
of 1994 to $731 thousand for the comparable period in 1995 primarily as a result
of the disposition of Lance.
Three Months Ended June 30, 1994 and June 30, 1995
Oil and gas revenues remained relative unchanged for the second quarter 1994
as compared to the same period in 1995. Oil production for the three months
increased, primarily due to acquisitions, from approximately 225 barrels per day
in the second quarter of 1994 to approximately 306 barrels per day for the
comparable period in 1995. The average prices received for oil production
increased from $15.45 per barrel during the second quarter of 1994 to $17.42 per
barrel during the comparable period in 1995 while gas prices decreased from an
average of $1.99 per thousand cubic feet for the second quarter of 1994
production to an average of $1.59 per thousand cubic feet for the second quarter
of 1995 production.
Lease operating expenses increased from $230 thousand in the second quarter of
1994 to $331 thousand for the comparable period in 1995, as a result of
producing properties acquisitions. Depreciation, depletion and amortization
expense also decreased from $473 thousand during the second quarter of 1994 to
$250 thousand for the comparable period in 1995 as a result of a decline in the
depreciation, depletion and amortization rate.
Exploration expenses decreased from $239 thousand in the second quarter of
1994 to $208 thousand for the comparable period in 1995. The 1994 expense was a
result of increased geological and geophysical activity and increased impairment
expenses associated with Lance, while the 1995 expense is development seismic on
a recently acquired property.
Administrative expenses declined from $676 thousand for the second quarter of
1994 to $386 thousand for the comparable period in 1995 primarily as a result of
the disposition Lance.
10
<PAGE>
Liquidity and Capital Resources
As discussed in Note 3, the Company entered into a Revolver in May 1995, which
provides a borrowing base based on the value of its properties. The initial
borrowing base will be reviewed and reset semi-annually and has been initially
set at $4.0 million.
While the Company funded the $2.9 million Cosden acquisition (see note 5) with
existing cash, it plans to fund future property acquisitions with the Revolver,
working capital, equity and other forms of financing. The Company has repaid
its subordinated debt due on May 15, 1995, with the proceeds drawn from the
Revolver and working capital.
During the third quarter, the Company plans to participate in the recompletion
in the Bul 1-A zone in the South Timbalier 198 block. The Company has 23.125%
interest in this property. The Company has considered this as a proved behind
pipe zone with approximately 2.6 billion cubic feet of reserves net to the
Company. This zone appears to be high to production in another well and should
be productive, if the recompletion is successful. If the recompletion is
unsuccessful, this could have a detrimental effect on the Company's oil and gas
reserves and cash flow. The company's proportionate share of the recompletion
is expected to cost approximately $340,000 and will be funded through working
capital and/or bank borrowing.
Management currently intends to pay quarterly dividends on the Senior
Preferred in shares of the Senior Preferred through December 31, 1996. (See
Note 4)
11
<PAGE>
Part II. Other Information
---------------------------
Item 1. Legal Proceedings
--------------------------
See Note 6 - The Consolidated Financial Statements.
Item 6. Reports on Form 8-K during the Second First Quarter of 1995
-------------------------------------------------------------
On May 5, 1995, the Company reported the acquisition of certain properties
in the Cosdon field in Bee County, Texas. Audited statement of revenues and
expenses for the properties and pro forma operating statements for the Company
were filed by Amendment of June 19, 1995.
EXHIBITS
19-(1) Closing Agreement among Amerac Energy Corporation and various sellers
for the purchase/sale of the Cosdon Properties, Bee County, Texas
effective February 1, 1995.
19-(2) Assignment, Bill of Sale and Conveyance to Amerac Energy Corporation
from Tag Energy Corporation for Myrtle B Properties, effective
March 1, 1995
19-(3) Amended and Restated Credit Agreement with Bank One, Texas, National
Association dated May 12, 1995.
19-(4) Promissory Note to Bank One, Texas, National Association for fifteen
million and no/100 dollars ($15,000,000) pursuant to line of credit.
12
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERAC ENERGY CORPORATION
(Registrant)
By: /Jeffrey L. Stevens/
---------------------------------
Jeffrey L. Stevens
Senior Vice President and Chief
Financial Officer
Date: August 21 , 1995
----
13
<PAGE>
EXHIBIT 19-(1)
--------------------------------------------------------------------------------
CLOSING AGREEMENT
AMONG
AMERAC ENERGY CORPORATION,
AS BUYER,
AND
C. J. WOFFORD, DIVERSE GP III, TRAVELERS
EXPLORATION COMPANY, GWEN DOHNER WILLIS, AND
GEORGE P. WILLIS, III, AS SELLERS
April 21, 1995
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I DEFINITIONS AND INTERPRETATION........................... 1
1.1 Defined Terms............................................ 1
1.2 References............................................... 4
1.3 Articles and Sections.................................... 4
1.4 "Number and Gender"...................................... 4
ARTICLE II PURCHASE AND SALE........................................ 4
2.1 Purchase and Sale........................................ 4
2.2 Reserved Assets.......................................... 4
2.3 Purchase Price........................................... 5
2.4 Concurrent Actions....................................... 6
2.5 Ownership of the Assets.................................. 8
2.6 Allocated Values......................................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES........................... 8
3.1 Representations and Warranties of Sellers................ 8
3.2 Representations and Warranties of Buyer.................. 12
3.3 Disclaimers.............................................. 13
ARTICLE IV MATTERS PRIOR TO EXECUTION............................... 13
4.1 Matters Relating to Title................................ 13
4.2 Environmental Matters.................................... 17
ARTICLE V POST EXECUTION MATTERS................................... 17
5.1 Settlement Statement..................................... 17
5.2 Further Cooperation...................................... 18
5.3 Imbalances............................................... 18
5.4 MMBtu Keep Whole......................................... 18
5.5 Records.................................................. 19
5.6 Successor Operator....................................... 19
5.7 Environmental Assessment and Purchase Price Adjustments.. 19
5.8 Suspense Accounts........................................ 21
5.9 Assumption of Obligations................................ 21
ARTICLE VI SURVIVAL; INDEMNIFICATION................................ 21
6.1 Survival................................................. 21
6.2 Indemnities of Seller.................................... 22
6.3 Indemnities of Buyer..................................... 23
6.4 Notice of Claims; Defense; Settlement.................... 23
6.5 Punitive, Incidental, and Consequential Damages.......... 24
- i -
<PAGE>
ARTICLE VII MISCELLANEOUS............................................ 24
7.1 Exhibits................................................. 24
7.2 Taxes and Expenses....................................... 24
7.3 Assignment............................................... 25
7.4 Preparation of Agreement................................. 25
7.5 Publicity................................................ 25
7.6 Notices.................................................. 25
7.7 ENTIRE AGREEMENT; CONFLICTS.............................. 27
7.8 Parties in Interest...................................... 27
7.9 Amendment................................................ 27
7.10 Waiver; Rights Cumulative................................ 27
7.11 GOVERNING LAW; JURISDICTION, VENUE....................... 27
7.12 Severability............................................. 28
7.13 Counterparts............................................. 28
EXHIBITS
--------
EXHIBIT I - Description of Assets
EXHIBIT II - Form of Assignment and Bill of Sale
SCHEDULES
---------
Schedule 3.1(j) Preferential Purchase Rights, Consents, Areas of Mutual Interest
Schedule 3.1(m) Suspense Accounts
Schedule 3.1(p) Current Insurance Policies
Schedule 4.1(a) Title Defects Notice - S. E. Young Lease
Schedule 4.1(b) Title Defects Notice - Gladys Page Gas Unit No. 1
Schedule 4.2 Environmental Assessment Report
- ii -
<PAGE>
CLOSING AGREEMENT
-----------------
THIS CLOSING AGREEMENT ("Agreement") is executed as of this 21st day of
April, 1995, and is between C. J. WOFFORD ("Wofford"), an individual whose
address is 10575 Katy Freeway, Suite 240, Houston, Texas 77224, DIVERSE GP III
("Diverse"), a Texas general partnership having as its address 16414 San Pedro,
Suite 340, San Antonio, Texas 78232-2245, TRAVELERS EXPLORATION COMPANY
("Travelers"), a Texas corporation having as its address 2401 Fountainview,
Suite 802, Houston, Texas 77057, and GWEN DOHNER WILLIS ("G. D. Willis") and
GEORGE P. WILLIS, III as ("G.P. Willis") both of whom are individuals having as
their addresses c/o C. J. Wofford, 10575 Katy Freeway, Suite 240, Houston, Texas
77224 (each individually a "Seller"; collectively, "Sellers"), and AMERAC ENERGY
CORPORATION, a Delaware corporation having as its address 700 Louisiana, Suite
3330, Houston, Texas 77002-2730 ("Buyer").
RECITALS
--------
Sellers desire to sell and convey, and Buyer desires to purchase and pay
for, the "Assets" (as defined hereinafter) effective as of the "Effective Time"
(as defined hereinafter).
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein, the benefits to be derived by each party hereunder, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Sellers and Buyer agree as follows:
ARTICLE I.
----------
DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Defined Terms. In addition to the terms defined in the introductory
-------------
paragraph and the Recitals of this Agreement, for purposes hereof, the following
expressions and terms shall have the meanings set forth in this Article I,
unless the context otherwise requires:
"Adjusted Purchase Price" shall have the meaning set forth in Section 2.3.
-----------------------
"AFE" means authority for expenditure.
---
"Allocated Value," with respect to any Asset, means the amount set forth
---------------
on Exhibit I under the column "Allocated Value" for such Asset.
"Applicable Contract" means all of the instruments or agreements that
-------------------
pertain to the Assets and all contractually binding arrangements to which the
Assets may be subject and which will be binding on the Assets or Buyer after the
Closing, including, without limitation, production payment assignments; net
profits interest assignments; farmin and farmout
<PAGE>
agreements; bottomhole agreements; crude oil, condensate, and natural gas
purchase and sale, gathering, transportation, and marketing agreements;
hydrocarbon storage agreements; acreage contribution agreements; operating
agreements; balancing agreements; pooling declarations or agreements;
unitization agreements; processing agreements; saltwater disposal agreements;
options; facilities or equipment leases; and other similar contracts,
agreements, and rights owned by Sellers, but exclusive of the Leases.
"Assets" shall have the meaning set forth in Section I of the Assignment.
------
"Assignment" means the Assignment and Bill of Sale from Sellers to Buyer,
----------
pertaining to the Assets, substantially in the form attached to this Agreement
as Exhibit II.
"Defect Amount" shall be the dollar amounts identified as such in Schedules
-------------
4.1(a) and 4.1(b).
"Effective Time" means February 1, 1995, at 7:00 a.m., Central Standard
--------------
Time.
"Environmental Contaminants" means "hazardous substances," "pollutants or
--------------------------
contaminants," and "petroleum, including any fraction thereof, and natural gas,
liquid natural gas, or synthetic gas of pipeline quality" as those terms are
defined or used in Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act; the term includes naturally occurring
radioactive material ("NORM") concentrated or disposed of in association with
oil and gas activities.
"Environmental Claim" means (a) any event or condition with respect to air,
-------------------
land, soil, surface, subsurface strata, surface water, ground water, or
sediments which (i) causes an Asset to become subject to remediation under, or
not be in compliance with, any Environmental Law, Environmental Permit, Lease,
or Applicable Contract, or (ii) results in liability to any third party for
injury to or death of any person, persons, or other living thing, or damage,
loss, or destruction of property, and (b) any written or oral complaint, notice,
citation, claim, demand, action, suit, administrative proceeding, order,
judgment, liability, or obligation of any kind or character, whether putative,
threatened, or actual, asserted or assertable by, issued by, or running in favor
of any third party or governmental body caused by, arising out of, resulting
from, or related in any way to any event or condition described in the preceding
clause (a) of this definition.
"Environmental Laws" means all applicable federal, state, and local laws,
------------------
including statutes, regulations, orders, ordinances, and common law, relating to
the protection of the public health, welfare, and the environment, including,
without limitation, those laws relating to the storage, handling, and use of
chemicals and other hazardous materials, those relating to the generation,
processing, treatment, storage, transportation, disposal, or other management of
waste materials of any kind, and those relating to the protection of
environmentally sensitive areas.
"Environmental Permits" shall have the meaning set forth in Section 3.1(o).
---------------------
2
<PAGE>
"Final Settlement Statement" shall have the meaning set forth in Section
--------------------------
5.1.
"Imbalance" means (a) any imbalance at the wellhead between the amount of
---------
hydrocarbons produced from a Well and allocable to the interests of Sellers
therein and the shares of production from the relevant Well to which Sellers are
entitled, and (b) any marketing imbalance between the quantity of hydrocarbons
required to be delivered by Sellers under any Applicable Contract relating to
the purchase and sale, gathering, transportation, storage, processing, or
marketing of hydrocarbons and the quantity of hydrocarbons actually delivered by
Sellers pursuant to the relevant Applicable Contract, together with any
appurtenant rights and obligations concerning future in-kind and/or cash
balancing at the wellhead and production balancing at the delivery point into
the relevant sale, gathering, transportation, storage, or processing facility.
"Lands" shall have the meaning set forth in Section I(a) of the Assignment.
-----
"Leases" shall have the meaning set forth in Section I(a) of the
------
Assignment.
"MMBtu" means one million British thermal units.
-----
"Net Revenue Interest", as used on Exhibit I, means, with respect to any
--------------------
Asset, the interest in and to all production of oil, gas, and other hydrocarbons
produced, saved, and sold from or allocated to such Asset, after giving effect
to all valid royalties, overriding royalties, production payments, carried
interests, net profits interests, reversionary interests, and other burdens
upon, measured by, or payable out of production therefrom.
"Net Processed Gas Revenues" shall have the meaning set forth in Section
--------------------------
5.4.
"Net Wet Gas Revenues" shall have the meaning set forth in Section 5.4.
--------------------
"Personal Property" shall have the meaning set forth in Section I(e) of the
-----------------
Assignment.
"Preliminary Settlement Statement" shall have the meaning set forth in
--------------------------------
Section 2.4(b).
"Property" or "Properties" shall have the meaning set forth in Section I(b)
-------- ----------
of the Assignment.
"Purchase Price" shall have the meaning set forth in Section 2.3.
--------------
"Records" shall have the meaning set forth in Section I(f) of the
-------
Assignment.
"Release" means any spilling, leaking, pouring, emitting, emptying,
-------
discharging, injection, escaping, leaching, or dumping of any Environmental
Contaminant.
"Reserved Assets" shall have the meaning set forth in Section 2.2.
---------------
3
<PAGE>
"Retained Suspense Account" means the suspense account maintained by
-------------------------
Sellers and described on Schedule 3.1(m).
"Title Defects" shall have the meaning set forth in Section 4.1.
-------------
"Title Defect Notice" should have the meaning set forth in Section 4.1.
-------------------
"Wells" shall have the meaning set forth in Section I(b) of the Assignment.
-----
"Working Interest", as used in Exhibit I, means, with respect to any Asset,
----------------
the interest in and to such Asset that is burdened with the obligation to bear
and pay costs of operations on or in connection with such Asset, but without
regard to the effect of any valid royalties, overriding royalties, production
payments, carried interests, net profits interests, reversionary interests, and
other burdens upon, measured by, or payable out of production therefrom.
1.2 References. The words "hereby," "herein," "hereinabove,"
----------
"hereinafter," "hereinbelow," "hereof," "hereto," "hereunder," and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular article, section, or provision of this
Agreement. References in this Agreement to articles, sections, exhibits, or
schedules are to such articles, sections, exhibits, or schedules of this
Agreement unless otherwise specified.
1.3 Articles and Sections. This Agreement, for convenience only, has been
---------------------
divided into articles and sections. The rights and other legal relations of the
parties hereto shall be determined from this Agreement as an entirety and
without regard to the aforesaid division into articles and sections and without
regard to headings prefixed to such articles and sections.
1.4 "Number and Gender". Whenever the context requires, reference herein
-----------------
made to a single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular. Words denoting sex
shall be construed to include the masculine, feminine, and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative. Definitions of terms defined in
the singular or plural shall be equally applicable to the plural or singular, as
applicable, unless otherwise indicated.
ARTICLE II.
-----------
PURCHASE AND SALE
-----------------
2.1 Purchase and Sale. Concurrently with the execution of this Agreement,
-----------------
and subject to the terms and conditions hereof, Sellers have sold and conveyed,
and Buyer has purchased and paid for, the Assets, effective as of the Effective
Time.
2.2 Reserved Assets. Sellers reserve and retain: (i) all of Sellers'
---------------
corporate minute books, financial records, and other business records that do
not relate specifically to the Assets; (ii) all cash, bank accounts, travel
letter accounts, and prepaid insurance; (iii) the
4
<PAGE>
management information systems and other intellectual property rights of Sellers
used by Sellers in the management and administration of their business and the
Assets; (iv) all claims that Sellers may have under any policy of insurance
maintained by Sellers other than claims relating to property damage or casualty
loss affecting the Assets occurring between the Effective Time and the date of
this Agreement (which claims shall be included in the Assets); (v) all claims
that Sellers may have under any audit of joint interest accounts or otherwise
relating to the Assets for periods prior to the Effective Time, except to the
extent of any Imbalances deemed to be conveyed to Buyer as provided in Section
5.3 and any claim that is settled, compromised, or resolved in a manner that is
taken into account in an adjustment of the Purchase Price or results in an
obligation borne by Buyer or the Properties; (vi) all accounts receivable
accrued before the Effective Time; (vii) the Retained Suspense Account; (viii)
any files or records that Sellers are contractually obligated not to disclose to
Buyer; and (ix) all interests and rights not specifically included in the
definition of the Assets (collectively, the "Reserved Assets").
2.3 Purchase Price. The purchase price for the Assets is TWO MILLION NINE
--------------
HUNDRED THOUSAND AND NO/100 DOLLARS ($2,900,000.00) (the "Purchase Price"),
payable in currency of the United States, subject to adjustment as follows (the
resulting amount being hereinafter referred to as "Adjusted Purchase Price"):
(a) The Purchase Price shall be adjusted upward by the following:
(i) the amount of the value of all merchantable oil and liquid
hydrocarbons attributable to the Assets in storage or existing in stock
tanks above the pipeline connection on or before the Effective Time, the
value to be based upon the contract price in effect as of the Effective
Time (or the market value, if there is no contract price, in effect as of
the Effective Time), less amounts payable as royalties, overriding
royalties, and other burdens upon such production and severance taxes
deducted by the purchaser of such production;
(ii) the amount of all direct expenditures and costs and prepaid costs
and expenses attributable to the Assets (excluding Sellers' overhead or
administrative expenses) incurred and actually paid by or on behalf of
Sellers in the ordinary course of owning and operating the Assets and that
are, in accordance with generally accepted accounting principles,
attributable to the period after the Effective Time, including, without
limitation, (A) royalties, (B) rentals and other lease maintenance
payments, (C) ad valorem, property, excise, severance and production taxes
and any other taxes (exclusive of income taxes) based upon or measured by
the ownership of the Assets, the production of hydrocarbons, or the receipt
of proceeds therefrom, and (D) expenses paid by Sellers on behalf of third
parties and to which Sellers are entitled to reimbursement under applicable
joint operating agreements or otherwise in connection with the operation of
the Assets; and
(iii) any other amount provided for elsewhere in this Agreement or
otherwise agreed upon by Sellers and Buyer.
5
<PAGE>
(b) The Purchase Price shall be adjusted downward by the following:
(i) reductions provided for in Sections 4.1, 4.2, 5.3, 5.4, and 5.7;
(ii) the gross proceeds received by Sellers from the sale of
hydrocarbons produced from or allocable to the Assets or any Personal
Property between the Effective Time and the date of this Agreement, as
determined in accordance with generally accepted accounting principles;
(iii) an amount equal to all expenditures and costs relating to the
Assets, including, without limitation, unpaid ad valorem, property,
production, severance and similar taxes and assessments (but not including
income taxes) based upon or measured by the ownership of the Assets, the
production of hydrocarbons, or the receipt of proceeds therefrom, which
expenditures and costs become due and payable or accrue prior to the
Effective Time and that are unpaid as of the date of this Agreement; and
(iv) any other amount provided for elsewhere in this Agreement or
otherwise agreed upon by Sellers and Buyer.
2.4 Concurrent Actions. Concurrently with the execution of this
------------------
Agreement, Sellers and Buyer have taken the following actions:
(a) Sellers have delivered to Buyer (i) the Assignment covering the Assets
in sufficient numbers of fully executed and acknowledged counterparts to
facilitate recording, and (ii) such other instruments as are required to convey
the Assets to Buyer in accordance with this Agreement.
(b) Sellers and Buyer have executed and delivered to each other a
preliminary settlement statement (the "Preliminary Settlement Statement"), which
sets forth the Adjusted Purchase Price, reflecting each adjustment made in
accordance with this Agreement as of the date of preparation of such Preliminary
Settlement Statement and the calculation of the adjustments used to determine
such amount. Sellers have also provided to Buyer a written designation of the
accounts into which the wire transfers of funds provided for below in Section
2.4(c) are to be made.
(c) Buyer has delivered to Sellers, or to the third parties designated by
any Seller, into the accounts designated as provided above in Section 2.4(b) by
bank wire transfer of same-day funds, the Adjusted Purchase Price.
(d) Sellers have delivered on forms supplied by Buyer transfer orders or
letters in lieu thereof directing all purchasers of production to make payment
to Buyer of proceeds attributable to production from the Assets after the
Effective Time.
6
<PAGE>
(e) Each Seller has delivered to Buyer a certificate, dated and effective
as of the date of this Agreement, executed by, in the case of Travelers, a duly
authorized officer of Travelers, in the case of Diverse, a duly authorized
partner of Diverse, and in the case of the other Sellers, each such Seller
individually, certifying to Buyer that, on the date of this Agreement:
(i) the representations and warranties made by the relevant Seller
contained in this Agreement are true and correct in all material respects;
and
(ii) no suit, action, or other proceeding is pending or, to such
Seller's knowledge, threatened against such Seller before any court or
governmental agency which seeks to restrain, enjoin, or otherwise prohibit
the consummation of the transactions contemplated in this Agreement.
The certificates of Travelers and Diverse shall also certify to the incumbency
of the party or parties executing this Agreement and the Assignment on behalf
of, respectively, Travelers and Diverse. The certificate of Travelers shall be
accompanied by (i) a copy of each of the articles of incorporation and bylaws of
Travelers, certified by the Secretary or an Assistant Secretary of Travelers,
and (ii) a copy of the resolutions of the Board of Directors of Travelers,
attested by the Secretary or an Assistant Secretary of Travelers, authorizing
Travelers to enter into the transactions contemplated in this Agreement.
(f) Buyer has delivered to Sellers a certificate, dated and effective as of
the date of this Agreement, executed by the President of Buyer, certifying to
Sellers that, on the date of this Agreement:
(i) the representations and warranties of Buyer contained in this
Agreement are true and correct in all material respects; and
(ii) no suit, action, or other proceeding is pending or to Buyer's
knowledge threatened against Buyer before any court or governmental agency
that seeks to restrain, enjoin, or otherwise prohibit the consummation of
the transactions contemplated in this Agreement.
Buyer has also delivered to Sellers a certificate, executed by the Secretary and
an Assistant Secretary of Buyer, certifying to the incumbency of the party or
parties executing this Agreement and the Assignment on behalf of Buyer, to which
are attached copies certified by the Secretary or Assistant Secretary of Buyer
of (i) the certificate of incorporation and bylaws of Buyer, and (ii) the
Resolutions of the Board of Directors of Buyer authorizing Buyer to enter into
the transactions contemplated in this Agreement.
(g) Diverse shall have delivered to Buyer an opinion of its counsel,
Messrs. Akin, Gump, Strauss, Hauer & Feld, L.L.P., to the effect that the
warranties stated in Sections 3.1(a), (b), and (c) are true and correct with
respect to Diverse and that L. Todd Gremillion is authorized under the terms of
the partnership agreement of Diverse to execute this Agreement, the Assignment,
and all other documents, instruments, and certificates required to consummate
the transactions contemplated in this Agreement.
7
<PAGE>
2.5 Ownership of the Assets. Subject to the provisions hereof, Sellers
-----------------------
shall remain entitled to all of the rights of ownership (including, without
limitation, the right to all production, proceeds of production, and other
proceeds) and shall remain subject to the duties and obligations of such
ownership, in each case attributable to the Assets for the period of time prior
to the Effective Time. Subject to the provisions hereof, Buyer shall be
entitled to all of the rights of ownership (including, without limitation, the
right to all production, proceeds of production, and other proceeds), and shall
be subject to the duties and obligations of such ownership, in each case,
attributable to the Assets for the period of time from and after the Effective
Time. All expenses and costs attributable to the operation of the Assets, as
well as all amounts payable as royalty on production from or allocable to the
Assets and all other amounts payable in connection with lease maintenance or
otherwise under the terms of the Leases and attributable to the Assets, in each
case that are: (i) incurred with respect to operations conducted or production
prior to the Effective Time shall be paid by or allocated to Sellers; and (ii)
incurred with respect to operations conducted or production after the Effective
Time shall be paid by or allocated to Buyer. All hydrocarbons in storage
facilities above or upstream from the pipeline connection to each such storage
facility, or downstream of delivery point sales meters on gas pipelines, as of
the Effective Time, shall belong to Sellers, and all hydrocarbons placed in such
storage facilities after the Effective Time and production upstream of the
aforesaid meters on gas pipelines as of the Effective Time shall belong to Buyer
and shall become a part of the Assets.
2.6 Allocated Values. Sellers and Buyer agree and stipulate that the
----------------
Allocated Values set forth for the Assets in Exhibit I have been established
solely for use in calculating adjustments to the Purchase Price as provided
herein, such schedule of Allocated Values being solely for the convenience of
the parties. Sellers and Buyer do not intend that such schedule of Allocated
Values be treated or interpreted to constitute an allocation of the Purchase
Price among the Assets for federal or state income tax purposes.
ARTICLE III.
------------
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 Representations and Warranties of Sellers. Each Seller (or, when
-----------------------------------------
indicated, one or more individual Sellers) represents and warrants, severally
only and not jointly, with respect to itself, its own acts or omissions and its
ownership interest in the Assets, and not with respect to the acts or omissions,
or ownership interests of any other Seller, to Buyer as follows:
(a) Travelers warrants that it is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Texas. Diverse
warrants that it is a general partnership organized under the laws of the State
of Texas. Travelers and Diverse each warrants, severally with respect to itself
only and not jointly, that it has all requisite corporate or partnership (as
applicable) power and authority to own and operate its property (including,
without limitation, its interests in the Assets) and to carry on its business as
now conducted.
8
<PAGE>
(b) Each Seller has full capacity, power, and authority to enter into and
perform this Agreement and the transactions contemplated herein. Travelers and
Diverse each warrants, severally with respect to itself only and not jointly,
that the execution, delivery, and performance by Travelers and Diverse (as
applicable) of this Agreement have been duly and validly authorized and approved
by all necessary corporate or partnership (as applicable) action on the part of
such parties. This Agreement is, and upon its execution and delivery will be,
the valid and binding obligation of each Seller and enforceable against each
Seller in accordance with its terms, subject to the effects of bankruptcy,
insolvency, reorganization, moratorium, and similar laws, as well as to
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(c) Travelers and Diverse each warrants, severally with respect to itself
only and not jointly, that the execution, delivery, and performance by Travelers
and Diverse of this Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in a breach of any
provisions of the articles of incorporation and bylaws of Travelers or the
partnership agreement or other governing documents of Diverse. The execution,
delivery, and performance by each Seller and the consummation of the
transactions contemplated herein will not (i) violate, conflict with, constitute
a default under, or result in the creation or imposition of any security
interest, lien, or encumbrance against the Assets or give rise to any right of
termination, cancellation, or acceleration under any of the terms, conditions,
or provisions of any Lease, Applicable Contract, mortgage, indenture, or other
agreement to which any Seller is a party or by which the Assets are bound, which
violation, conflict, or default might adversely affect the ability of any Seller
to perform its obligations under this Agreement, or (ii) violate any order,
writ, injunction, judgment, decree, statute, rule, or regulation applicable to
any Seller or any of the Assets.
(d) To the best of each Seller's knowledge, there is no suit, action,
claim, investigation, or inquiry by any person or entity or by any
administrative agency or governmental body (including, without limitation,
expropriation or forfeiture proceedings), and no legal, administrative, or
arbitration proceedings pending, or to each Seller's knowledge, threatened
against such Seller or the Assets, or to which such Seller is a party, that
reasonably may be expected to result in the material impairment of such Seller's
title to its interest in the Assets, hinder or impede the operation of all or
any portion of the Assets, or have a materially adverse effect upon the Assets
or the ability of such Seller to consummate the transactions contemplated in
this Agreement.
(e) No authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any governmental authority or any other person or
entity is required to authorize, or is otherwise required in connection with,
the valid execution and delivery by such Seller of this Agreement or the
performance by such Seller of its obligations hereunder.
(f) Wofford warrants that, during the period of Sellers' ownership of the
Assets, all ad valorem, property, production, severance, excise, and similar
taxes and assessments (including penalties and interest) based on or measured by
the ownership of the Assets, the production of hydrocarbons, or the receipt of
proceeds therefrom that have become due and payable before the Effective Time
have been properly paid.
9
<PAGE>
(g) No Seller has incurred any liability, contingent or otherwise, for
brokers' or finders' fees relating to the transactions contemplated by this
Agreement for which Buyer shall have any responsibility whatsoever.
(h) Wofford warrants that all material Applicable Contracts are described
on Exhibit I. To the best of each Seller's knowledge: (i) all Applicable
Contracts are in full force and effect and are the valid and legally binding
obligations of the parties thereto and are enforceable in accordance with their
respective terms; (ii) such Seller is not in material breach or default with
respect to any of its obligations pursuant to any Applicable Contract or any
regulations incorporated therein or governing same; (iii) there has not occurred
any event, fact, or circumstance which, with the lapse of time or the giving of
notice, or both, would constitute such a breach or default by such Seller or by
any other party to any Applicable Contract; (iv) each Seller has made all
payments due thereunder; (v) neither such Seller nor any other party to any
Applicable Contract has given or threatened to give notice of any action to
terminate, cancel, rescind, or procure a judicial reformation an Applicable
Contract or any provision thereof. With respect to the unit or other joint
operating agreements relating to the Assets, Wofford warrants that (i) there are
no outstanding calls under AFE's for payments pertaining to the Assets that are
due or which any Seller has committed to make which have not made; and (ii)
there are no material operations on the Assets under the operating agreements or
any other Applicable Contracts with respect to which any Seller or any third
party has become, or expressed an indication or intention to become, a non-
consenting party.
(i) To the best of each Seller's knowledge, after due inquiry: (i) the
Leases have been maintained according to their terms, in compliance with all
agreements to which the Leases are subject, and are presently in full force and
effect; (ii) such Seller is not in material breach or default with respect to
any of its obligations pursuant to any Lease; (iii) such Seller has made, or
caused to be made, all payments, including royalties, delay rentals, shut-in
well payments, and other lease maintenance payments, due in respect of the
Leases thereunder; (iv) no other party owning an interest in any Lease is in
breach or default with respect to any of its obligations thereunder; (v) there
has not occurred any event, fact, or circumstance that, with the lapse of time
or the giving of notice, or both, would constitute such a breach or default on
behalf of such Seller or with respect to any other party owning an interest in
any Lease; and (vi) no lessor under any Lease has given or to such Seller's
knowledge threatened to give notice of any action to terminate, cancel, rescind,
or procure a judicial reformation of any Lease or any provisions thereof.
(j) Wofford warrants that, except as otherwise set forth on Schedule
3.1(j), none of the Assets are subject to a preferential purchase right, third
party consent to assignment requirement, area of mutual interest, or similar
right or restriction, the satisfaction of which may be required for Sellers to
consummate this Agreement or to execute and deliver this Agreement and the
Assignment.
(k) To the best of each Seller's knowledge, such Seller has complied in all
material respects with all laws, rules, regulations, ordinances, codes, orders,
licenses, and permits relating to the Assets, including, without limitation,
labor, civil rights, occupational safety and health, and anti-trust laws.
Wofford warrants that Wofford has all governmental licenses and
10
<PAGE>
permits, and has properly made all filings, necessary or appropriate to obtain
such licenses or permits and to own and operate the Assets as presently being
owned and operated. To the best of each Seller's knowledge: (i) such licenses,
permits, and filings are in full force and effect; (ii) no material violations
exist or have been recorded with respect to any such licenses, permits, or
filings; and (iii) no proceeding is pending or, to each Seller's knowledge,
threatened, which purports to challenge, revoke, or limit any of such licenses,
permits, or filings.
(l) All hydrocarbons produced from the Assets and attributable to the
interests of Sellers therein are currently being marketed on behalf of Sellers
by Wofford as operator under the applicable joint operating agreement. Wofford
warrants that the Assets are not subject to any contract for the sale of
hydrocarbons, except those contracts for the sale of hydrocarbons which are
terminable within thirty one (31) days or less. To the best of each Seller's
knowledge, after due inquiry, there exist no claims that have been asserted
against any Seller by oil or gas purchasers for any refund with respect to
proceeds from the sale of hydrocarbons produced from the Assets, and each Seller
is currently receiving, with respect to hydrocarbons produced from all of the
Assets, the prices provided for under the contracts governing the purchase of
the hydrocarbons. Wofford warrants that no person has any call upon, option to
purchase, or other right with respect to any Seller's share of production from
the Assets, whether upon the transfer of any of the Assets or otherwise, and
that no Seller is obligated, by virtue of (i) any prepayment, take-or-pay, or
similar arrangement, (ii) a production payment, or (iii) any other arrangement,
to deliver hydrocarbons, or proceeds from the sale thereof, attributable to the
Assets at some future time without receiving full payment therefor.
(m) Wofford warrants that Schedule 3.1(m) is a complete listing of all
amounts held in suspense by Sellers with respect to any production of
hydrocarbons from any of the Assets, including the name of the relevant Lease or
Well, the amount held in suspense, the payee or potential payee with respect
thereto, and the reason such amounts are being held in suspense.
(n) Wofford warrants that each Seller is current with respect to all
payments owed to vendors, contractors, or sub-contractors and in its
disbursements to royalty owners and other parties to whom each Seller has a duty
to pay or disburse.
(o) Wofford warrants that Wofford has all permits, licenses, certificates,
approvals, registrations, and applications ("Environmental Permits") necessary
under applicable Environmental Laws for the ownership and operation of the
Assets, and that all such Environmental Permits are currently in full force and
effect. To the best of each Seller's knowledge, after due inquiry, such Seller
and the Assets and the ownership and operation thereof are in compliance with
all applicable Environmental Laws and with all terms and conditions of all
Environmental Permits. No Seller has received a notice of a claim, and no
Seller is otherwise aware of any facts, conditions, or circumstances in
connection with, related to, or associated with such Seller's use, ownership, or
operation of the Assets that may give rise to any claim, that: (i) such Seller
has violated, or is about to violate, any Environmental Law; (ii) there has been
a Release, or there is a threat of a Release, of Environmental Contaminants from
the Assets for which such Seller is or may be liable to any third party for
injury to or death of any person, persons, or other living things, or damage to
or loss or destruction of property; (iii) such Seller may be or is liable, in
whole or in part, for the costs of cleaning up, remediating,
11
<PAGE>
removing, or responding to a Release or a threat of a Release of Environmental
Contaminants; or (iv) the Assets are subject to a lien in favor of any
governmental entity for any liability, costs, or damages under any Environmental
Laws arising from, or costs incurred by such governmental entity in response to,
a release of Environmental Contaminants.
(p) Wofford warrants that Schedule 3.1(p) sets forth a list of all
insurance policies maintained by or on behalf of Sellers with respect to the
Assets. Wofford has maintained such insurance policies in full force and effect
through the date of this Agreement. Wofford has made available to Buyer true
and correct copies of such insurance policies.
(q) No representation or warranty by any Sellers in this Agreement, or in
any schedule or exhibit to this Agreement, or any certificate or document
furnished or to be furnished by any Sellers on the Closing Date, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained therein not
misleading; provided, however, that this warranty is limited solely to matters
of fact and specifically excludes any statement or forecast of existing or
future reserves, geologic and engineering interpretations, forecasts, estimates,
and economic assumptions, including, without limitation, (i) future prices of
production, (ii) future operating costs, (iii) future capital expenditures, (iv)
projections and estimates of future production and reserves, and (v) prospects
for drilling additional wells.
3.2 Representations and Warranties of Buyer. Buyer represents and
---------------------------------------
warrants to Sellers the following:
(a) Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own and operate its property and to carry on its business
as now conducted.
(b) Buyer has full capacity, power, and authority to enter into and perform
this Agreement and the transactions contemplated herein. The execution,
delivery, and performance by Buyer of this Agreement have been duly and validly
authorized and approved by all necessary corporate action on the part of Buyer,
and this Agreement is, and upon its execution and delivery will be, the valid
and binding obligation of Buyer and enforceable against Buyer in accordance with
its terms, subject to the effects of bankruptcy, insolvency, reorganization,
moratorium, and similar laws, as well as to principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(c) The execution, delivery, and performance by Buyer of this Agreement and
the consummation of the transactions contemplated herein will not (i) conflict
with or result in a breach of any provisions of the articles or certificate of
incorporation and bylaws of Buyer, (ii) result in a material default or the
creation of any lien or encumbrance or give rise to any right of termination,
cancellation, or acceleration under any of the terms, conditions, or provisions
of any note, bond, mortgage, indenture, license, or other agreement to which
Buyer is a party or by which Buyer or any of its property may be bound, or (iii)
violate any order, writ, injunction, judgment, decree, statute, rule, or
regulation applicable to Buyer or any of its property.
12
<PAGE>
(d) To the best of Buyer's knowledge, there is no suit, action, claim,
investigation, or inquiry by any person or entity or by any administrative
agency or governmental body (including, without limitation, expropriation or
forfeiture proceedings), and no legal, administrative, or arbitration
proceedings pending, or to Buyer's knowledge, threatened against Buyer, or to
which Buyer is a party, that reasonably may be expected to have a materially
adverse effect upon the ability of Buyer to consummate the transactions
contemplated in this Agreement.
(e) No authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any governmental authority or any other person or
entity is required to authorize, or is otherwise required in connection with,
the valid execution and delivery by Buyer of this Agreement or the performance
by Buyer of its obligations hereunder.
(f) Buyer has incurred no liability, contingent or otherwise, for brokers'
or finders' fees relating to the transactions contemplated by this Agreement for
which Sellers shall have any responsibility whatsoever.
3.3 Disclaimers. To the extent required by applicable law to be
-----------
operative, the disclaimers of certain warranties contained in this Section 4.3
are "conspicuous disclaimers" for purposes of any applicable law, rule, or
order. EXCEPT AS OTHERWISE PROVIDED HEREIN, BUYER AGREES THAT SELLERS ARE
CONVEYING THE PERSONAL PROPERTY WITHOUT REPRESENTATION OR WARRANTY, EITHER
EXPRESSED, IMPLIED AT COMMON LAW, BY STATUTE, OR OTHERWISE (ALL OF WHICH SELLERS
HEREBY DISCLAIM), RELATING TO (i) MERCHANTABILITY, DESIGN, OR QUALITY, (ii)
FITNESS FOR ANY PARTICULAR PURPOSE, (iii) COMPLIANCE WITH SPECIFICATIONS OR
CONDITIONS REGARDING OPERATION, (iv) ABSENCE OF LATENT DEFECTS, OR (v) ANY OTHER
MATTER WHATSOEVER.
ARTICLE IV.
-----------
MATTERS PRIOR TO EXECUTION
--------------------------
4.1 Matters Relating to Title. Prior to the date of execution of this
-------------------------
Agreement, Buyer has conducted such examinations of Sellers' title to the Assets
and performed such other due diligence relating to Sellers' title to the Assets
as Buyer deems appropriate. In addition, prior to the date of execution of this
Agreement, Buyer has delivered to Sellers written notices of all defects in or
objections to the title of Sellers, or any of them, to the Assets identified by
Buyer pursuant to the performance of such title examinations and other title due
diligence ("Title Defect Notices"). A copy of the Title Defect Notice for the
S. E. Young Lease is attached hereto as Schedule 4.1(a), and a copy of the Title
Defect Notice for the Gladys Page Gas Unit No. 1 is attached hereto as Schedule
4.1(b). Terms defined in Schedules 4.1(a) and 4.1(b) will have the same
meanings when used in this Agreement unless expressly stated otherwise. The
defects in and objections to Sellers' title to the Assets identified by Buyer in
Schedules 4.1(a) and 4.1(b) ("Title Defects") and the disposition of such Title
Defects agreed upon by Sellers and Buyer are as follows:
13
<PAGE>
(a) With respect to the Title Defects identified on Schedule 4.1(a) for the
S. E. Young Lease:
(i) With respect to item d under Title Defect 1 on Schedule 4.1(a) and item
b under Title Defect 2 on Schedule 4.1(a), relating to the release of a lien and
security interest created under the "Gulf South Exploration Deed of Trust", as
defined in Title Defect 1, Travelers has provided to Buyer a full release of
such lien and security interest, thereby satisfying in full Title Defects 1 and
2 with respect to the Gulf South Exploration Deed of Trust. Buyer agrees that
neither Travelers nor Wofford shall have any further obligation, responsibility,
or liability with respect thereto.
(ii) With respect to items a, b, and c of Title Defect 1 on Schedule
4.1(a), relating to the unreleased liens and security interests created under
the "AFI First Lien Deeds of Trust", the "AFI Second Lien Deed of Trust", and
the "Woolf & Magee Deed of Trust", as defined in Title Defect 1, no curative has
been provided. Travelers agrees to use all reasonable commercial efforts to
obtain releases of these liens and security interests. Travelers shall
indemnify and hold harmless Buyer and its affiliates, partners, officers,
directors, shareholders, employees, agents, and representatives from and against
any and all claims, demands, actions, causes of action, suits, controversies,
losses, judgments, damages, liabilities, costs, expenses, obligations, and
deficiencies (including, without limitation, reasonable attorneys' fees and
other costs and expenses of Buyer incident to the defense of any claim that
results in litigation, or the settlement of any claim, or the enforcement by
Buyer of the provisions of this Section 4.1(a)(ii)) caused by, arising out of,
resulting from, or relating to the attempted enforcement by the
mortgagee/secured party thereunder of the unreleased deed of trust liens and
security interests identified as items a, b, and c in Title Defect 1 against the
interest of Travelers in the S. E. Young Lease; provided, however, that in no
event shall Travelers' liability to Buyer under this indemnity exceed the Defect
Amount set forth for Title Defect 1 on Schedule 4.1(a). If Travelers obtains
and provides to Buyer full and complete releases of the liens and security
interests identified as items a, b, and c in Title Defect 1, Buyer shall
promptly release Travelers from the indemnity given by Travelers under this
Section 4.1(a)(ii), and Travelers shall have no further obligation,
responsibility, or liability to Buyer with respect thereto.
(iii) With respect to item a under Title Defect 2 on Schedule 4.1(a),
relating to the unreleased lien and security interest created under the Woolf &
Magee Deed of Trust, no curative has been provided. Wofford agrees to assist
Travelers in Travelers' efforts to obtain a release of this lien and security
interest. Wofford shall indemnify and hold harmless Buyer and its affiliates,
partners, officers, directors, shareholders, employees, agents, and
representatives from and against any and all claims, demands, actions, causes of
action, suits, controversies, losses, judgments, damages, liabilities, costs,
expenses, obligations, and deficiencies (including, without limitation,
reasonable attorneys' fees and other costs and expenses of Buyer incident to the
defense of any claim that results in litigation, or the settlement of any claim,
or the enforcement by Buyer of the provisions of this Section 4.1(a)(iii))
caused by, arising out of, resulting from, or relating to the attempted
enforcement by the mortgagee/secured party thereunder of the unreleased deed of
trust lien and security interest identified as item a in Title Defect 2 against
the interest of Wofford in the S. E. Young Lease; provided, however, that in no
event shall Wofford's liability to Buyer under this indemnity
14
<PAGE>
exceed the Defect Amount set forth for Title Defect 2 on Schedule 4.1(a). If
either Travelers or Wofford obtains and provides to Buyer a full and complete
release of the lien and security interest identified as item a under Title
Defect 2, Buyer shall promptly release Wofford from the indemnity given by
Wofford under this Section 4.1(a)(iii), and Wofford shall have no further
obligation, responsibility, or liability to Buyer with respect thereto.
(iv) With respect to Title Defect 3 on Schedule 4.1(a), relating to the
liens and security interests created under the deeds of trust identified in
items a and b thereof, G. P. Willis has provided to Buyer full and complete
releases of such liens and security interests, thereby satisfying in full Title
Defect 3. Buyer agrees that G. P. Willis shall have no further obligation,
responsibility, or liability to Buyer with respect to Title Defect 3.
(v) With respect to Title Defect 4 on Schedule 4.1(a), relating to an over-
conveyance of interests in the S. E. Young Lease by Wofford to R. J. Kucel,
Wofford has provided to Buyer a Partial Assignment of Interest in Oil, Gas, and
Mineral Lease dated April 20, 1995, from R. J. Kucel to Wofford, which satisfies
in full Title Defect 4. Buyer agrees that Wofford shall have no further
obligation, responsibility, or liability to Buyer with respect to Title Defect
4.
(vi) With respect to Title Defect 5 on Schedule 4.1(a), relating to the
manner of calculating certain overriding royalty interests conveyed to J. W.
Roach and Randy Garnett, no curative has been provided. Wofford shall indemnify
and hold harmless Buyer and its affiliates, partners, officers, directors,
shareholders, employees, agents, and representatives from and against any and
all claims, demands, actions, causes of action, suits, controversies, losses,
judgments, damages, liabilities, costs, expenses, obligations, and deficiencies
(including, without limitation, reasonable attorneys' fees and other costs and
expenses of Buyer incident to the defense of any claim that results in
litigation, or the settlement of any claim, or the enforcement by Buyer of the
provisions of this Section 4.1(a)(vi)) caused by, arising out of, resulting
from, or relating in any way to the subject matter of Title Defect 5; provided,
however, that in no event shall Wofford's liability to Buyer under this
indemnity exceed the Defect Amount set forth for Title Defect 5 on Schedule
4.1(a). If Wofford obtains and provides to Buyer the curative material
described in Title Defect 5, Buyer shall promptly release Wofford from the
indemnity given by Wofford under this Section 4.1(a)(vi), and Wofford shall have
no further obligation, responsibility, or liability to Buyer with respect
thereto.
(b) With respect to the Title Defects identified on Schedule 4.1(b) for the
Gladys Page Gas Unit No. 1:
(i) With respect to the unreleased lien and security interest identified as
item c under Title Defect 1 on Schedule 4.1(b), Travelers has provided to Buyer
a full and complete release of such lien and security interest, thereby
satisfying in full Title Defect 1 with respect to such lien and security
interest. Buyer agrees that neither Travelers nor Wofford shall have any
further obligation, responsibility, or liability to Buyer with respect thereto.
15
<PAGE>
(ii) With respect to the production payment identified as item a in Title
Defect 1 on Schedule 4.1(b) and the unreleased liens and security interests
identified as item b under such Title Defect 1 and in Title Defect 2 on Schedule
4.1(b), no curative has been provided. Travelers agrees to use all reasonable
commercial efforts to obtain releases of such production payment and unreleased
liens and security interests. Travelers and Wofford agree, severally as to
their individual interests in the Gladys Page Gas Unit No. 1 only and not
jointly, to indemnify and hold harmless Buyer and its affiliates, partners,
officers, directors, shareholders, employees, agents, and representatives from
and against any and all claims, demands, actions, causes of action, suits,
controversies, losses, judgments, damages, liabilities, costs, expenses,
obligations, and deficiencies (including, without limitation, reasonable
attorneys' fees and other costs and expenses of Buyer incident to the defense of
any claim that results in litigation, or the settlement of any claim, or the
enforcement by Buyer of the provisions of this Section 4.1(b)(ii)) caused by,
arising out of, resulting from, or relating to the attempted enforcement by the
payee or the mortgagee/secured party, as applicable, of such production payment
and/or unreleased liens and security interests identified as items a and b in
Title Defect 1 and in Title Defect 2 against the interests in the Gladys Page
Unit No. 1 of, respectively, Travelers and/or Wofford; provided, however, that
in no event shall the liability of either Travelers or Wofford to Buyer under
this indemnity exceed the Defect Amount set forth for such party in Title Defect
1 on Schedule 4.1(b) or the Defect Amount set forth for such party in Title
Defect 2 on Schedule 4.1(b), as applicable. If either Travelers or Wofford
obtains and provides to Buyer full and complete releases of the production
payment and the liens and security interests identified as items a and b under
Title Defect 1 and in Title Defect 2, Buyer shall promptly release Travelers
and/or Wofford, as applicable, from the indemnity given by such party under this
Section 4.1(b)(ii), and neither Travelers nor Wofford, as applicable, shall have
any further obligation, responsibility, or liability to Buyer with respect
thereto.
(iii) With respect to Title Defect 3 on Schedule 4.1(b), relating to an
over-conveyance by John V. Melcher to F&W Royalty of interests in the
"Page/Roach Lease", as defined in Title Defect 3, covering Tract 2 of the Gladys
Page Gas Unit No. 1, Sellers have provided to Buyer a counterpart of a
Stipulation of Interest and Cross Conveyance relating to the Gladys Page Gas
Unit No. 1 executed by Sellers and F&W Royalty that satisfies Title Defect 3 in
full. Buyer agrees that no Seller shall have any further obligation,
responsibility, or liability to Buyer with respect to Title Defect 3.
(iv) With respect to Title Defect 4 on Schedule 4.1(b), relating to certain
over-conveyances by Thunderbay Corporation of interests in those Leases
comprising the Gladys Page Gas Unit No. 1, Travelers has provided to Buyer
counterparts of a Stipulation of Interest and Cross Conveyance relating to the
Gladys Page Gas Unit No. 1 executed by Sellers, Paladin Resources Corporation,
and Paladin Resources Corporation, as Trustee under the Thunderbay 1981
Exploration Program Operating Agreement, but not by Petrox Corporation or Marker
& Associates. Travelers agrees to use all reasonable commercial efforts to
obtain the execution of such Stipulation of Interest and Cross Conveyance by
such parties. Travelers shall indemnify and hold harmless Buyer and its
affiliates, partners, officers, directors, shareholders, employees, agents, and
representatives from and against any and all claims, demands, actions, causes of
action, suits, controversies, losses, judgments, damages, liabilities, costs,
expenses, obligations and deficiencies (including, without limitation,
reasonable attorneys' fees and other costs and
16
<PAGE>
expenses of Buyer incident to the defense of any claim that results in
litigation, or the settlement of any claim, or the enforcement by Buyer of the
provisions of this Section 4.1(b)(iv)), caused by, arising out of, resulting
from, or relating in any way to the failure of Travelers to obtain the execution
of such Stipulation of Interest and Cross Conveyance by Petrox Corporation and
Marker & Associates; provided, however, that in no event shall Travelers'
liability to Buyer under this indemnity exceed the Defect Amount set forth for
Title Defect 4 in Schedule 4.1(b). If Travelers obtains and provides to Buyer
counterparts of such Stipulation of Interest and Cross Conveyance executed by
Marker & Associates and Petrox Corporation, Buyer shall promptly release
Travelers from the indemnity given by Travelers under this Section 4.1(b)(iv),
and Travelers shall have no further obligation, responsibility, or liability to
Buyer with respect to Title Defect 4.
(v) With respect to Title Defect 5 on Schedule 4.1(b), relating to the need
for an assignment from the Tara Dawn Henson Trust into Wofford and G. D. Willis
of an undivided 2.14167% leasehold interest in those Leases comprising the
Gladys Page Gas Unit No. 1, Wofford has provided to Buyer a counterpart of the
Stipulation of Interest and Cross Conveyance pertaining to the Gladys Page Gas
Unit No. 1 executed by Sellers and R. J. Kucel, as Trustee of the Tara Dawn
Henson Trust, that satisfies in full Title Defect 5. Buyer agrees that neither
Wofford nor G. D. Willis shall have any further obligation, responsibility, or
liability to Buyer with respect to Title Defect 5.
(c) Except to the extent otherwise provided in this Section 4.1, and except
to the extent of any liability that any Seller may have under its special
warranty of title contained in the Assignment, Buyer accepts title to the Assets
"AS IS, WHERE IS", and no Seller shall have any further obligation,
responsibility, or liability to Buyer with respect thereto.
4.2 Environmental Matters. Prior to the date of execution of this
---------------------
Agreement, Buyer has caused ENTRIX to perform the limited environmental
assessment of the Assets described in the report from Richard M. Myers, Senior
Management Consultant for ENTRIX, to Mr. Jeffrey B. Robinson of Buyer attached
to this Agreement as Schedule 4.2. Based upon Buyer's review of Schedule 4.2,
Buyer hereby waives all Environmental Claims (if any) identified in Schedule 4.2
and agrees that no Seller shall have any obligation, responsibility, or
liability to Buyer with respect thereto.
ARTICLE V.
----------
POST EXECUTION MATTERS
----------------------
5.1 Settlement Statement. On or before ninety (90) days after the date of
--------------------
execution of this Agreement, a final accounting statement will be prepared by
Buyer, subject to verification by Sellers, which takes into account all final
adjustments made to the Purchase Price (the "Final Settlement Statement"). The
Final Settlement Statement shall set forth the actual proration of the amounts
required by this Agreement. On or before thirty (30) days after receipt of the
Final Settlement Statement, Buyer or Sellers shall agree on the Final Settlement
Statement and, as the case may be, shall pay to the other such sums as may be
found to be due in the final accounting. All amounts paid pursuant to this
Section 5.1 shall be delivered by wire transfer
17
<PAGE>
of immediately available funds to the account specified in writing by the
relevant party. If Buyer and Sellers are unable to agree on the Final
Settlement Statement on or before thirty (30) days after receipt by Sellers of
the Final Settlement Statement from Buyer, then Buyer and Sellers shall submit
all unresolved claims and amounts to arbitration in accordance with Section the
following procedure. Any dispute, claim, or controversy arising under this
Section 5.1 shall be finally settled under and in accordance with the rules of
the American Arbitration Association by three (3) arbitrators each with ten (10)
years or more experience in the oil and gas industry. The place of arbitration
shall be Houston, Texas. The law governing all such disputes shall be the laws
of the State of Texas without regard to conflict of law principles. Prior to
initiating arbitration proceedings, the party seeking to initiate arbitration
shall give the other parties hereto thirty (30) days prior notice of its
intention to initiate arbitration proceedings.
5.2 Further Cooperation. After the date of execution of this Agreement,
-------------------
Buyer and Sellers shall execute and deliver, or shall cause to be executed and
delivered from time to time, such further instruments of conveyance and
transfer, and shall take such other actions as any party may reasonably request,
to convey and deliver the Assets to Buyer, to perfect Buyer's title thereto, and
to accomplish the orderly transfer of the Assets to Buyer in the manner
contemplated by this Agreement. If any party hereto receives monies belonging
to the other, such amount shall be accounted for in the Final Settlement
Statement. If an invoice or other evidence of an obligation is received by a
party, which is partially an obligation of both Sellers and Buyer, then the
parties shall consult with each other, and an adjustment for such amount will be
made on the Final Settlement Statement.
5.3 Imbalances. Sellers' understand that Buyer has not included in its
----------
engineering pertaining to the Assets the effect of any Imbalances with respect
to production taken or marketed from or attributable to the Assets. If either
Sellers or Buyer determines, within forty-five (45) days after the date of
execution of this Agreement that Imbalances exist that have not previously been
disclosed with respect to the Assets, then, subject to the verification by the
other party, the Purchase Price shall be adjusted (a) upward by an amount equal
to (i) the current market value of any hydrocarbons that any Seller, as an
underproduced party, may be entitled to take in excess of its undivided
interests in the Assets as the result of the existence of an Imbalance at the
wellhead or (ii) the amount of any payments received by any Seller for any
hydrocarbons that have not been delivered to the relevant purchaser or
transporter as a result of the existence of a marketing Imbalance, and (b)
downward by an amount equal to the current market value of any hydrocarbons that
other parties may be entitled to recover from the Assets in excess of such other
parties' undivided interests therein as the result of the existence of an
Imbalance at the wellhead as to which any Seller is an overproduced party. Each
affected Seller shall thereupon be deemed to have assigned to Buyer all of such
Seller's rights, titles, interests, obligations, and liabilities in and with
respect to any such Imbalances, and such Imbalances shall be deemed to be part
of the Assets. Upon the payment of the Imbalance amount by the appropriate
party, Sellers and Buyer agree to waive any and all claims or rights relating to
the relevant Imbalance under this Agreement against the other party.
5.4 MMBtu Keep Whole. If the net revenues received by Sellers from the
----------------
sale of gas produced from the Assets during the period beginning at the
Effective Time and ending
18
<PAGE>
on June 1, 1995, at 7:00 a.m., Central Daylight Time, calculated based upon the
sum of the proceeds received by Sellers for the sale of natural gas liquids
---
removed from such gas production by processing pursuant to existing, gas
processing agreements plus the proceeds received by Sellers from the sale of
----
residue gas after processing, less amounts payable as royalty, overriding
----
royalty, and other burdens on such production and applicable severance taxes
("Net Processed Gas Revenues"), are less than, on a cumulative basis, the amount
determined by (a) multiplying the price per MMBtu received by Sellers for the
-----------
sale of residue gas after processing by the number of MMBtu of unprocessed gas
--
produced from the Assets during the indicated period, and then (b) deducting
---------
from the product of such multiplication amounts that would be payable as
royalty, overriding royalty, and other burdens on such production and applicable
severance taxes ("Net Wet Gas Revenues"), the Purchase Price shall be reduced by
an amount equal to the difference obtained by subtracting the Net Processed Gas
Revenues from the Net Wet Gas Revenues, provided, however, that the aggregate
adjustment made in accordance with this Section 5.4 shall not exceed THIRTY
THOUSAND AND NO/100 DOLLARS ($30,000.00). Such determination shall not be made
until after June 1, 1995, and any adjustment to the Purchase Price pursuant to
this Section 5.4 shall be taken into account in the preparation of the Final
Settlement Statement.
5.5 Records. At any time after the date of execution of this Agreement
-------
pursuant to Buyer's reasonable instructions, Sellers shall deliver to Buyer
possession and control of the Assets and the Records. Buyer shall be entitled
to all original Records affecting all of the Assets.
5.6 Successor Operator. While Buyer represents that it desires to succeed
------------------
Wofford as operator of the Assets, Buyer acknowledges and agrees that Sellers
cannot and do not covenant or warrant that Buyer shall become successor operator
of the Assets. Sellers agree, however, that they shall support, designate,
and/or appoint by assignment, to the extent legally possible, Buyer as successor
operator. When it will facilitate the appointment of Buyer as successor
operator, Wofford will resign as operator and shall support Buyer as successor
operator.
5.7 Environmental Assessment and Purchase Price Adjustments.
-------------------------------------------------------
(a) If, during the period beginning on the date of execution of this
Agreement and ending forty-five (45) days thereafter, Buyer identifies the
existence of an Environmental Claim which originated prior to the date of
execution hereof, was not the subject of an adjustment to the Purchase Price
pursuant to Section 4.2, and was not identified in Schedule 4.2, Buyer shall
provide to Sellers written notice of such Environmental Claim, together with
associated supporting reports, data, analysis, and conclusions (which Sellers
shall keep strictly confidential unless otherwise required by law or
regulation), no later than 5:00 p.m., Central Daylight Time, on the forty-fifth
(45th) day after the date of execution hereof. All such Environmental Claims
not asserted in a timely manner as provided in this Section 5.7(a) shall be
deemed to have been waived by Buyer. In addition, each Seller agrees promptly
to notify Buyer of any Environmental Claims discovered by such Seller prior to
the date of execution of this Agreement or by third parties or governmental
bodies prior to the expiration of such forty-five (45) day period that such
Seller becomes aware of and that originated prior to the date of execution
19
<PAGE>
hereof. Sellers and Buyer shall attempt, in good faith, to agree upon the
methods of remediating all such Environmental Claims asserted by Buyer as
provided in this Section 5.7(a) and the estimates of the costs of such
remediations.
(b) If Sellers and Buyer agree upon the method of remediating the relevant
Environmental Claim and the estimate of the cost of such remediation, Sellers
may elect: (i) to remedy such Environmental Claim at their sole cost, risk, and
expense in accordance with applicable laws and regulations; or (ii) to accept a
reduction in the Purchase Price in an amount equal to the lesser of (A) the
------
agreed upon estimate of the cost of remediating such Environmental Claim, or (B)
ten percent (10%) of the Allocated Value of the Asset to which such
Environmental Claim relates; provided, however, that if the agreed upon estimate
of the cost to remediate the relevant Environmental Claim is, in the aggregate,
greater than ten percent (10%) of the Allocated Value of the Assets to which
such Environmental Claim relates, Buyer shall have the additional option to
decline to purchase all of the Assets and to terminate this Agreement.
(c) (i) If Sellers and Buyer agree upon the method of remediating the
relevant Environmental Claim, but are unable to agree, after meeting in good
faith, on the estimate of the cost of such remediation, and Sellers' estimate of
the cost to remediate the relevant Environmental Claim is, in the aggregate, an
amount less than ten percent (10%) of the Allocated Value of the Asset to which
such Environmental Claim relates, Sellers may elect: (A) to remedy such
Environmental Claim at their sole cost, risk, and expense in accordance with
applicable laws and regulations; or (B) to accept a reduction in the Purchase
Price in an amount equal to Sellers' estimate of the cost of remediating such
Environmental Claim.
(ii) If Sellers and Buyer are unable to agree, after meeting in good faith,
on either the method of remediating the relevant Environmental Claim or an
estimate of the cost of such remediation, and Sellers' estimate of the cost of
remediation is, in the aggregate, an amount less than ten percent (10%) of the
Allocated Value of the Asset to which such Environmental Claim relates, Buyer
shall accept all of the Assets and shall be entitled to receive a reduction in
the Purchase Price in an amount equal to Sellers' estimate of the cost of
remediating such Environmental Claim.
(iii) If Sellers and Buyer are unable to agree, after meeting in good
faith, on either the method of remediating the relevant Environmental Claim or
an estimate of the cost of such remediation, and Sellers' estimate of the cost
of such remediation is, in the aggregate, an amount greater than or equal to ten
percent (10%) of the Allocated Value of the Asset to which the relevant
Environmental Claim relates, Buyer may elect: (A) to accept all of the Assets
subject to the unremediated Environmental Claim and receive a reduction in the
Purchase Price in an amount equal to ten percent (10%) of the Allocated Value of
the Asset to which such Environmental Claim relates; or (B) to decline to
purchase all of the Assets and to terminate this Agreement.
(d) If Buyer accepts the Assets subject to an unremediated Environmental
Claim and receives a reduction in the Purchase Price under either Section 5.7(b)
or (c), no Seller shall have any further obligation to attempt to cure the
relevant Environmental Claim. Any reductions in
20
<PAGE>
the Purchase Price resulting from this Section 5.7 shall be accomplished
pursuant to the final accounting provided for in Section 5.1. If Buyer declines
to purchase the Assets pursuant to either Section 5.7(b) or 5.7(c) after the
date of execution of this Agreement, Buyer shall reconvey the Assets to Sellers
at the time of the final settlement of accounts of Sellers and Buyer under
Section 5.1 pursuant to a form of assignment substantially similar to the
Assignment. Further, if Buyer declines to purchase the Assets pursuant to
either Section 5.7(b) or 5.7(c), Buyer shall execute any instruments necessary
to release any insurance proceeds with respect to the Assets to Sellers, and
Sellers shall retain all insurance proceeds received by them with respect to any
such Environmental Claim. The final adjustments made to the Purchase Price
pursuant to Section 5.1 shall include adjustments to reflect revenues received
and expenses paid by Buyer after the Effective Time with respect to any such
reconveyed Asset.
5.8 Suspense Accounts. Concurrently with the execution of this Agreement,
-----------------
Sellers have paid to Buyer all monies held in suspense by Sellers (other than
amounts held in the Retained Suspense Account, amounts held in suspense solely
as offsets to sums owed to Sellers for the period prior to the Effective Time,
and amounts attributable to the interests of Sellers in the Assets for periods
prior to the Effective Time) that relate to the Assets, together with a written
explanation (as contained in Sellers' files) concerning why such monies are held
in suspense. Buyer agrees to take and apply such funds in a manner consistent
with prudent oil and gas business practices. Wofford shall retain all monies
held in the Retained Suspense Account and all obligations and liabilities
associated with the disbursement of such monies and the resolution of the
dispute or disputes that gave rise to the suspension of such monies. Buyer
shall have no obligation or liability with respect to the disbursement of such
monies or such underlying disputes. Wofford shall indemnify and hold harmless
Buyer and its affiliates, partners, officers, directors, shareholders,
employees, agents, and representatives from and against any and all claims,
demands, actions, causes of action, suits, controversies, losses, judgments,
damages, liabilities, costs, expenses, obligations, and deficiencies (including,
without limitation, reasonable attorneys' fees and other costs and expenses of
Buyer incident to the defense of any claim that results in litigation or the
settlement of any claim, or the enforcement by Buyer of the provisions of this
indemnity) caused by, arising out of, resulting from, or relating in any way to,
and to pay Buyer any sum that Buyer pays or becomes obligated to pay on account
of, the disbursement of monies held in the Retained Suspense Account and the
disputes that gave rise to the suspension of such monies.
5.9 Assumption of Obligations. Buyer agrees to assume and shall pay,
--------------------------
perform, and discharge all obligations of Sellers relating to the Assets to the
extent that such obligations (a) are attributable to the Assets and (b) relate
to operations occurring on or after the Effective Time, except those obligations
accruing or arising from a breach by Sellers of any representation, warranty,
covenant, or agreement contained herein.
ARTICLE VI.
-----------
SURVIVAL; INDEMNIFICATION
-------------------------
6.1 Survival. All representations and warranties of Sellers and Buyer
--------
under this Agreement shall survive the delivery of the Assignment, to the extent
such representations
21
<PAGE>
and warranties are made on the date of this Agreement and provided that such
survival does not obligate any Seller to make any further representations and
warranties after the date of this Agreement, regardless of any investigation at
any time made by or on behalf of Sellers or Buyer or of any information Sellers
or Buyer may have with respect thereto. After the date of execution of this
Agreement, any assertion by Buyer that any Seller is liable for the inaccuracy
or breach of any representation or warranty, other than the warranties contained
in Section 3.1(o), must be made by Buyer in writing and must be given to the
relevant Seller no later than 5:00 p.m., Central Daylight Time, on the ninetieth
(90th) day after the date of execution of this Agreement. If Buyer fails to
provide such notice to the relevant Seller on or before the expiration of such
90-day period, such Seller's liability for such inaccuracy or breach shall
terminate. After the date of execution of this Agreement, any assertion by
Buyer that any Seller is liable for the inaccuracy or breach of the warranties
contained in Section 3.1(o) must be made by Buyer in accordance with the
provisions of Section 5.7(a). Buyer's sole and exclusive remedy for any
inaccuracy in or breach of the warranties contained in Section 3.1(o) shall be
limited to the provisions of Section 5.7. After the date of execution of this
Agreement, any assertion by any Seller that Buyer is liable for the inaccuracy
or breach of any representation or warranty must be made by the relevant Seller
in writing and must be given to Buyer no later than 5:00 p.m., Central Daylight
Time, on the ninetieth (90th) day after the date of execution hereof. If the
Seller asserting such inaccuracy or breach fails to deliver such written notice
thereof to Buyer on or before the expiration of such 90-day period, Buyer's
liability for such inaccuracy or breach shall terminate. All notices given
pursuant to this Section 6.1 shall state the facts known to the party asserting
the relevant inaccuracy or breach that give rise to such notice in sufficient
detail to allow the party against whom such inaccuracy or breach is asserted to
evaluate the claim. All covenants, indemnities (but only to the extent provided
in Sections 4.1, 5.8, 6.2, and 6.3), and agreements shall survive the delivery
of the Assignment and shall remain effective regardless of any investigation at
any time made by or on behalf of Sellers or Buyer or of any information Sellers
or Buyer may have with respect thereto.
6.2 Indemnities of Seller. Notwithstanding the Closing, and regardless of
---------------------
any investigation made at any time by or on behalf of Buyer or any information
Buyer may have, and in addition to the indemnities of certain individual Sellers
under Section 4.1 and the indemnity of Wofford under Section 5.8, each Seller,
severally in accordance with its interests in the Assets and not jointly, shall
indemnify and hold harmless Buyer and its affiliates, partners, officers,
directors, shareholders, employees, agents, and representatives, from and
against any and all claims, demands, actions, causes of action, suits,
controversies, losses, judgments, damages, liabilities, costs, expenses,
obligations, and deficiencies (including, without limitation, reasonable
attorneys' fees and other costs and expenses of Buyer incident to the defense of
any claim that results in litigation, or the settlement of any claim, or the
enforcement by Buyer of the provisions of this Section 6.2), caused by, arising
out of, resulting from, or relating in any way to, and to pay Buyer any sum that
Buyer pays or becomes obligated to pay on account of: (a) injury to or death of
any person, persons, or other living things, or loss or destruction of property,
resulting directly or indirectly from Sellers' remediation of an Environmental
Claim pursuant to Section 5.4(b), to the extent, but only to the extent, that
Buyer gives notice to Sellers as provided below in Section 6.4 of any claim for
which indemnification is sought no later than 5:00 p.m., Central Daylight Time,
on the ninetieth (90th) day after the date on which the remediation of the
relevant Environmental Claim is completed; (b) any liability or obligation to
22
<PAGE>
third parties (excluding Environmental Claims) arising out of the ownership or
operation of the Assets by Sellers prior to the Effective Time, to the extent,
but only to the extent, that Buyer gives notice to Sellers as provided below in
Section 6.4 of any claim for which indemnification is sought no later than 5:00
pm., Central Daylight Time, on the ninetieth (90th) day after the date of
execution of this Agreement; (c) any breach or default in the performance by any
Seller of any material covenant or material agreement of Sellers contained in
this Agreement, to the extent, but only to the extent, that Buyer gives notice
to Sellers as provided below in Section 6.4 of any claim for which
indemnification is sought no later than 5:00 p.m., Central Daylight Time, on the
one hundred twentieth (120th) day after the date of execution of this Agreement;
or (d) any breach of a material warranty (other than the warranty contained in
Section 3.1(o), the remedy for which is set forth in Section 5.7) or an
inaccurate or erroneous material representation made by any Seller in this
Agreement, to the extent, but only to the extent, that Buyer gives notice to
Sellers as provided below in Section 6.4 of any claim for which indemnification
is sought no later than 5:00 p.m., Central Daylight Time, on the ninetieth
(90th) day after the date of execution of this Agreement.
6.3 Indemnities of Buyer. Notwithstanding the Closing, and regardless of
--------------------
any investigation made at any time by or on behalf of Sellers or any information
Sellers may have, Buyer shall indemnify and hold harmless Sellers and their
affiliates, partners, officers, directors, shareholders, employees, agents, and
representatives from and against any and all claims, demands, actions, causes of
action, suits, controversies, losses, judgments, damages, liabilities, costs,
expenses, obligations, and deficiencies (including, without limitation,
reasonable attorneys' fees and other costs and expenses of Sellers incident to
the defense of any claim that results in litigation, or the settlement of any
claim, or the enforcement by Sellers of the provisions of this Section 6.3)
caused by, arising out of, resulting from, or relating in any way to, and to pay
Sellers any sum that Sellers pay or become obligated to pay on account of: (a)
injury to or death of any person, persons, or other living things, or loss or
destruction of property, resulting directly or indirectly from Buyer's
performance of environmental assessments and inspections on the Assets pursuant
to Section 4.2; (b) except to the extent of any amounts by which the Purchase
Price is reduced pursuant to Section 4.2 or Section 5.7, and any amounts as to
which any Seller becomes obligated to indemnify Buyer under Section 6.2(b), any
liability or obligation relating to Environmental Claims pertaining to the
Assets, regardless of whether such Environmental Claims originated prior to or
after the Effective Time; (c) any liability or obligation to third parties
arising out of the ownership or operation of the Assets by Buyer after the
Effective Time; (d) any breach or default in the performance by Buyer of any
material covenant or material agreement of Buyer contained in the this
Agreement, to the extent, but only to the extent, that Sellers give notice to
Buyer as provided below in Section 6.4 of any claim for which indemnification is
sought on or before 5:00 p.m., Central Daylight Time, on the one hundred
twentieth (120th) day after the date of execution of this Agreement; or (e) any
breach of a material warranty or an inaccurate or erroneous material
representation made by Buyer in this Agreement, to the extent, but only to the
extent, that Sellers give notice to Buyer as provided below in Section 6.4 of
any claim for which indemnification is sought on or before 5:00 p.m., Central
Daylight Time, on the ninetieth (90th) day after the date of execution of this
Agreement.
23
<PAGE>
6.4 Notice of Claims; Defense; Settlement. Upon the discovery by any
-------------------------------------
party entitled to indemnification under any provision of this Agreement of facts
giving rise to a claim for indemnification hereunder, including the receipt by
any such party of notice of any claim, demand, action, cause of action, suit, or
controversy, judicial or otherwise, by any third party, the party entitled to
indemnification shall give prompt written notice of any such claim to Sellers or
Buyer, as appropriate depending upon which of such parties is obligated to
provide the requested indemnification. For purposes of this Section 6.4, the
party giving notice of a claim and requesting indemnification shall be referred
to as the "indemnified party," and Sellers or Buyer, as applicable in its
capacity as the party receiving notice of a claim and from which indemnification
is sought, shall be referred to as the "indemnifying party." Each such notice
shall set forth the facts known to the indemnified party pertaining to the claim
and shall specify the manner in which the indemnified party proposes to respond
to the claim. Within ten (10) days of the receipt by the indemnifying party of
such notice, the indemnifying party shall state in writing to the indemnified
party: (a) whether the indemnified party may proceed to respond to the claim in
the manner set forth in its notice, or (b) whether the indemnifying party shall
assume responsibility for and conduct the negotiation, defense, or settlement of
the claim, and if so, the specific manner in which the indemnifying party
proposes to proceed. If the indemnifying party assumes control of the claim,
the indemnified party shall at all times have the right to participate in the
defense thereof and to be represented, at its sole expense, by counsel selected
by it. No such claim shall be compromised or settled by either the indemnifying
party or the indemnified party, as applicable, in any manner that might
adversely affect the interest of the other party without the prior written
consent of such other party. As a condition precedent to indemnification under
this Agreement, up to the amount of indemnification, the indemnified party shall
assign to the indemnifying party, and the indemnifying party shall become
subrogated to, all rights, claims, and causes of action of the indemnified party
against third persons arising out of or pertaining to the matters for which the
indemnifying party shall provide indemnification. The amount of the indemnified
party's claim for indemnification shall be reduced by the amount of any
insurance reimbursement paid to the indemnified party pertaining to the claim.
6.5 Punitive, Incidental, and Consequential Damages. The parties
-----------------------------------------------
waive any rights to punitive, incidental or consequential damages resulting from
a breach of this Agreement, including without limitation, loss of profits.
ARTICLE VII.
------------
MISCELLANEOUS
-------------
7.1 Exhibits. All of the Exhibits referred to in this Agreement
--------
are hereby incorporated to this Agreement by reference and constitute a part of
this Agreement. Each party to this Agreement and its counsel has received a
complete set of Exhibits prior to and as of the execution of this Agreement.
7.2 Taxes and Expenses. Except as otherwise specifically provided,
------------------
all fees, costs and expenses incurred by Buyer or Sellers in negotiating this
Agreement or in consummating the transactions contemplated by this Agreement
shall be paid by the party
24
<PAGE>
incurring the same, including, without limitation, legal and accounting fees,
costs and expenses. All required documentary, filing and recording fees and
expenses in connection with the filing and recording of the assignments,
conveyances or other instruments required to convey title to the Assets to Buyer
shall be borne by Buyer. Sellers shall assume responsibility for, and shall
bear and pay, all federal income taxes, state income taxes, and other similar
taxes (including any applicable interest or penalties) incurred or imposed with
respect to the transactions described in this Agreement. Buyer shall assume
responsibility for, and shall bear and pay, all state sales and use taxes
(including any applicable interest or penalties) incurred or imposed with
respect to the transactions described in this Agreement. Sellers shall assume
responsibility for, and shall bear and pay, all ad valorem, property, severance,
production, excise, and similar taxes and assessments based upon or measured by
the ownership of the Assets, the production of hydrocarbons, or the receipt of
proceeds therefrom, but exclusive of income taxes (including any applicable
penalties and interest) and assessed against the Assets by any taxing authority
for any period prior to the Effective Time, and Buyer shall be responsible for,
and shall bear and pay, all such taxes and assessments assessed against the
Assets by any taxing authority for any period that begins on or after the
Effective Time. For purposes of this Agreement, the foregoing proration of ad
valorem and other property taxes shall be accomplished at the Closing and shall
be based upon the ad valorem and other property taxes actually assessed against
the Assets for 1994.
7.3 Assignment. This Agreement may not be assigned by Buyer
----------
without prior written consent of Sellers. Unless otherwise expressly consented
to by Sellers, any assignment of any rights hereunder by Buyer shall not relieve
Buyer of any obligations and responsibilities hereunder. Any Seller may assign
its rights and obligations under this Agreement to a qualified intermediary for
purposes of effecting a like-kind exchange of properties under Section 1031 of
the Internal Revenue Code of 1986, as amended.
7.4 Preparation of Agreement. Both Sellers and Buyer and their
------------------------
respective counsel participated in the preparation of this Agreement. In the
event of any ambiguity in this Agreement, no presumption shall arise based on
the identity of the draftsman of this Agreement.
7.5 Publicity. Sellers and Buyer shall consult with each other
---------
with regard to all press releases or other public or private announcements
issued or made at or after the date of execution hereof concerning this
Agreement or the transactions contemplated herein, and, except as may be
required by applicable laws or the applicable rules and regulations of any
governmental agency or stock exchange, neither Buyer nor Sellers shall issue any
such press release or other publicity without the prior written consent of the
other party, which shall not be unreasonably withheld.
7.6 Notices. All notices and communications required or permitted
-------
to be given hereunder shall be in writing and shall be delivered personally, or
sent by bonded overnight courier, or mailed by U.S. Express Mail or by certified
or registered United States Mail with all postage fully prepaid, or sent by
prepaid telegram, or by telex or facsimile transmission (provided any such
telegram, telex, or facsimile transmission is confirmed either orally or by
written confirmation), addressed to the appropriate party at the address for
such party shown
25
<PAGE>
below or at such other address as such party shall have theretofore designated
by written notice delivered to the party giving such notice:
(a) If to Sellers:
-------------
(i) As to Wofford, G. D. Willis, and G. P. Willis:
c/o C. J. Wofford
10575 Katy Freeway, Suite 240
Houston, Texas 77224
Telephone No.: (713) 932-0419
Facsimile No.: (713) 932-0760
(ii) As to Diverse:
Diverse GP III
1111 Fannin, Suite 680
Houston, TX 77002-6922
Attention: Mr. Thomas R. Fuller
Telephone No.: (713) 650-8716
Facsimile No.: (713) 655-7102
(iii) As to Travelers:
Travelers Exploration Company
2401 Fountainview, Suite 802
Houston, Texas 77057
Attention: Mr. Mario Garcia
Telephone No.: (713) 266-4131
Facsimile No.: (713) 784-8935
(b) If to Buyer:
-----------
Amerac Energy Corporation
700 Louisiana, Suite 3330
Houston, Texas 77002-2730
Attention: Mr. Jeffrey B. Robinson
Telephone No.: (713) 223-1833
Facsimile No.: (713) 223-5110
Any notice given in accordance herewith shall be deemed to have been
given when delivered to the addressee in person, or delivered to the telegraph
company or transmitted by telex or facsimile transmission, or five (5) days
after such notice has either been delivered to a bonded overnight courier or
deposited in the United States Mail, as the case may be. The parties hereto may
change the address, telephone numbers, and facsimile numbers to which such
26
<PAGE>
communications are to be addressed by giving written notice to the other parties
in the manner provided in this Section 7.6.
7.7 ENTIRE AGREEMENT; CONFLICTS. THIS AGREEMENT AND THE EXHIBITS
---------------------------
HERETO COLLECTIVELY CONSTITUTE THE ENTIRE AGREEMENT AMONG SELLERS AND BUYER
PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL PRIOR AGREEMENTS,
UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE
PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF. THERE ARE NO WARRANTIES,
REPRESENTATIONS, OR OTHER AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT
MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NEITHER
SELLERS NOR BUYER SHALL BE BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION,
PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT SO SET FORTH. IN THE EVENT
OF A CONFLICT BETWEEN THE TERMS AND PROVISIONS OF THIS AGREEMENT AND THE TERMS
AND PROVISIONS OF ANY EXHIBIT HERETO, THE TERMS AND PROVISIONS OF THIS AGREEMENT
SHALL GOVERN AND CONTROL; PROVIDED, HOWEVER, THAT THE INCLUSION IN ANY OF THE
EXHIBITS HERETO OF TERMS AND PROVISIONS NOT ADDRESSED IN THIS AGREEMENT SHALL
NOT BE DEEMED A CONFLICT, AND ALL SUCH ADDITIONAL PROVISIONS SHALL BE GIVEN FULL
FORCE AND EFFECT, SUBJECT TO THE PROVISIONS OF THIS SECTION 7.7.
7.8. Parties in Interest. The terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of Sellers and Buyer and their
respective legal representatives, successors, and assigns. No other person shall
have any right, benefit, priority, or interest hereunder or as a result hereof
or have standing to require satisfaction of the provisions hereof in accordance
with their terms.
7.9 Amendment. This Agreement may be amended only by an instrument
---------
in writing executed by the parties hereto against whom enforcement is sought.
7.10 Waiver; Rights Cumulative. Any of the terms, covenants,
-------------------------
representations, warranties, or conditions hereof may be waived only by a
written instrument executed by or on behalf of the party hereto waiving
compliance. No course of dealing on the part of Sellers or Buyer, or their
respective officers, employees, agents, or representatives, nor any failure by
Sellers or Buyer to exercise any of its rights under this Agreement shall
operate as a waiver thereof or affect in any way the right of such party at a
later time to enforce the performance of such provision. No waiver by any party
of any condition, or any breach of any term, covenant, representation, or
warranty contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of any breach of any
other term, covenant, representation, or warranty. The rights of Sellers and
Buyer under this Agreement shall be cumulative, and the exercise or partial
exercise of any such right shall not preclude the exercise of any other right.
27
<PAGE>
7.11 GOVERNING LAW; JURISDICTION, VENUE. THIS AGREEMENT AND THE
----------------------------------
LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR
PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF
ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF
JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY ACTION
ARISING OUT OF THIS AGREEMENT OR THE OTHER SETTLEMENT DOCUMENTS. ALL ACTIONS OR
PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH,
OUT OF, RELATED TO, OR FROM THIS AGREEMENT OR THE OTHER SETTLEMENT DOCUMENTS
SHALL BE LITIGATED IN COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS.
7.12 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal, or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any adverse manner to
any party. Upon such determination that any term or other provision is invalid,
illegal, or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
7.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all of such counterparts shall constitute for all purposes one
agreement.
IN WITNESS WHEREOF, Sellers and Buyer have executed this Agreement on
the date first above written.
SELLERS:
-------
-------------------------------------------
C. J. WOFFORD
DIVERSE GP III, a Texas general
partnership
By:
----------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
28
<PAGE>
TRAVELERS EXPLORATION COMPANY
By:
----------------------------------------
Mario Garcia
President
-------------------------------------------
GWEN DOHNER WILLIS
-------------------------------------------
GEORGE P. WILLIS, III
BUYER:
-----
AMERAC ENERGY CORPORATION
By:
----------------------------------------
Jeffrey B. Robinson
President
29
<PAGE>
EXHIBIT 19-(2)
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
STATE OF TEXAS (S)
(S)
COUNTY OF LOVING (S)
For a valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, TAG OPERATING COMPANY, INC., a Texas corporation whose
address is 11000 Richmond Ave, Suite 360, Houston, Texas 77042 ("Assignor"),
hereby GRANTS, SELLS, ASSIGNS and CONVEYS to AMERAC ENERGY CORPORATION, a
Delaware corporation, whose address is 700 Louisiana, Suite 3330, Houston, Texas
77002-2730 ("Assignee"), effective as of the "Effective Date" defined
hereinafter, all of the following:
A. The undivided leasehold interests specified on Exhibit "A" attached
hereto in and to the oil, gas and mineral leases also more particularly
described in Exhibit "A" attached hereto and made a part hereof for all purposes
(collectively the "Leases'), together with any and all other rights, titles, and
interests of Assignor in and to the Leases and any and all other leases now or
hereafter unitized, pooled or otherwise combined, whether by statute, order,
agreement, declaration or otherwise, with the Leases (collectively, the "Subject
Interests"); and
B. The undivided interests specified on Exhibit "B" attached hereto,
together with all other rights, titles and interests of Assignor, in and to all
oil and gas wells located on the Subject Interests, together with all oil, gas,
and other hydrocarbons produced therefrom or allocated thereto, as well as all
of Assignor's rights, titles and interests in and to all other lease and well
equipment, gathering and delivery pipelines, machinery, fixtures and other items
of personal property and improvements of every character situated on each of the
Subject Interests and used or held for use in connection with operations on the
Subject Interests or with the production, treatment, sale or disposal of
hydrocarbons or water produced therefrom or attributable thereto (including
without limitation, the gathering and delivery pipelines and associated
compressors and equipment from those wells described on Exhibit "B" attached
hereto and made a part hereof for all purposes to the point of delivery to the
system of the first purchaser of the production from such wells) (collectively
the "Equipment"); and
C. All of Assignor's rights, titles and interests in and to any and all
surface leases, easements, rights-of-way, permits, licenses, franchises and any
other agreements or contract rights of whatsoever character relating to the
operation of each of the Subject Interests and to the processing and marketing
of production therefrom, including, without limitation, all rights, titles,
interests and benefits in any and all (1) operating agreements, unitization
agreements,
<PAGE>
pooling agreements, orders and rulings of applicable regulatory agencies, and
(2) oil and/or gas sales, processing, marketing and transportation contracts
(collectively "Contracts"); all of the foregoing, together with all
appurtenances and additions thereto, and any and all reversionary and carried
interests therein, being herein collectively called the "Subject Properties".
This Assignment and Conveyance is made by Assignors and accepted by
Assignees subject to the following terms and provisions:
1. This Assignment and Conveyance is made subject to the terms,
conditions, representations, warranties, covenants and other provisions of, and
Assignors and Assignee agree to be bound by: (i) all valid and subsisting Leases
identified on Exhibit "A", and (ii) those contracts affecting the Leases as
identified on Exhibit "A".
2. Assignee shall be entitled to receive all oil, gas and other minerals
which may be produced and saved from the Subject Properties (or which may be
allocable to the Subject Properties by virtue of any applicable pooling and
unitization agreements or orders) from and after the Effective Date (as
hereinafter defined) and which are attributable to the interests herein assigned
and conveyed to Assignee. Assignee shall be responsible for all costs incurred
on the Subject Properties after the Effective Date hereof.
3. Assignor hereby covenants with Assignee, and its successors and
assigns, that Assignor will warrant and forever defend title to the Subject
Properties against the lawful claims and demands of every person claiming or to
claim the same or any part thereof, by, through, or under Assignor, but not
otherwise; provided however, this instrument is made with full substitution and
subrogation of Assignee in and to all covenants and warranties heretofore given
or made with respect to the rights, properties and assets conveyed and
transferred hereby, or any part thereof.
4. Assignor further warrants that Assignor is current with respect to all
payments and disbursements owed to vendors, contractors, subcontractors, royalty
owners, and other parties to whom Assignor has a duty to pay or disburse in
connection with operations conducted on or related to, and production occurring
from or attributable to, the Subject Properties prior to the Effective Date.
Assignor agrees to indemnify and hold harmless Assignee from and against any and
all claims, demands, actions, losses, damages, liabilities, costs, and
obligations caused by, arising out of, or resulting from Assignor's failure to
make any payment or disbursement owed to any vendor, contractor, subcontractor,
royalty owner, or other party to whom Assignor has a duty to pay or disburse
with respect to operations conducted on or related to, or production occurring
from or attributable to, the Subject Properties prior to the Effective Date.
This Assignment and Conveyance is executed this 8th day of May 1995, but
shall be effective for all purposes (including ownership of all production
attributable to the interests in the Subject Properties conveyed hereby) as of
7:00 a.m., Central Standard Time, on March 1, 1995 (the "Effective Date").
-2-
<PAGE>
ASSIGNOR:
TAG OPERATING COMPANY, INC.
By:___________________________
Theodore N. Snyder
President
ASSIGNEE:
AMERAC ENERGY CORPORATION
By:___________________________
Jeffrey B. Robinson
President
-3-
<PAGE>
STATE OF TEXAS (S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me this _____ day of May, 1995, by
Theodore N. Snyder, President of TAG Operating Company, Inc., a Texas
corporation, on behalf of said corporation.
-------------------------------------------
Notary Public in and for the State of Texas
STATE OF TEXAS (S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me this ____ day of May, 1995, by
Jeffrey B. Robinson, President of Amerac Energy Corporation, a Delaware
corporation, on behalf of said corporation.
-------------------------------------------
Notary Public in and for the State of Texas
-4-
<PAGE>
EXHIBIT "A"
Attached to and made a part of Assignment, Bill of Sale and Conveyance effective
March 1, 1995, from TAG Operating Company, Inc. to Amerac Energy Corporation
<TABLE>
<CAPTION>
Recorded
Lessor Date Volume Page
------------------ ------ ------ --------
<S> <C> <C> <C>
June Leland 7/2/81 61 786
June Leland 7/2/81 61 790
Myrtle B. Ahearn 7/2/81 61 794
Myrtle B. Ahearn 7/2/81 61 798
</TABLE>
Insofar and only insofar as said leases cover rights from the surface to the
stratigraphic equivalent of the base of the Cherry Canyon Formation.
Working Interest: 100%
Net Revenue Interest: 75%
Related Contracts
-----------------
Saltwater Disposal Agreement dated effective March 1, 1995, by and between June
Leland, and TAG Operating Company, Inc.
-5-
<PAGE>
EXHIBIT "B"
Attached to and made a part of Assignment, Bill of Sale and Conveyance effective
March 1, 1995, from TAG Operating Company, Inc. to Amerac Energy Corporation
<TABLE>
<CAPTION>
Working Net Revenue
Well Name Interest Interest
--------------- --------- ------------
<S> <C> <C>
Ahearn #1 100% 75%
Ahearn "B" #2 100% 75%
Leland #1 100% 75%
Leland "B" #3 100% 75%
Leland "B" #2 (SWD) 100%
</TABLE>
-6-
<PAGE>
EXHIBIT 19-(3)
AMENDED AND RESTATED CREDIT AGREEMENT
by and between
AMERAC ENERGY CORPORATION
and
BANK ONE, TEXAS, NATIONAL ASSOCIATION
Dated as of May 12, 1995
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
This Amended and Restated Credit Agreement, dated as of May 12, 1995,
is by and between AMERAC ENERGY CORPORATION, a Delaware corporation (the
"Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
---------
association (the "Lender").
------
W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
The Borrower and the Lender entered into that Credit Agreement dated
as of April 28, 1995 (the "Prior Agreement") providing for a revolving line of
credit facility in favor of the Borrower. The Borrower has requested the Lender
to increase and extend its revolving line of credit facility in order to enable
the Borrower to borrow from time to time on or before May 31, 1997 sums not in
excess of the aggregate principal amount of $15,000,000.00 to be used for the
acquisition of oil and gas producing properties and for general corporate
purposes. The Lender agrees to extend such credit to the Borrower upon the terms
and subject to the conditions hereinafter set forth.
Now, therefore, in consideration of the mutual covenants and
agreements herein contained and of the loans and commitment hereinafter referred
to, the Borrower and the Lender agree to amend and restate the Prior Agreement
as follows:
ARTICLE 1
---------
DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
have the following meanings:
"Advance" means a direct advance of immediately available funds by the
-------
Lender to the Borrower pursuant to Section 2.1 of this Agreement.
"Affiliate" means any Person controlling, controlled by, or under
---------
common control with, any other Person. For purposes of this definition,
"control" (including "controlled by" and "under common control with") means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities or otherwise.
"Agreement" means this Amended and Restated Credit Agreement and all
---------
exhibits and schedules hereto, as the same may be amended, supplemented,
restated or otherwise modified from time to time according to the terms
hereof.
<PAGE>
"Bank One Texas Base Rate" means at any time the rate of interest per
------------------------
annum then most recently established by the Lender as its Bank One Texas
Base Rate.
"Base Rate" means, for any day, a rate per annum (rounded upwards to
---------
the nearest one-eighth of one percent (1/8%)) equal to the greater of (a)
the Bank One Texas Base Rate in effect on such day or (b) the sum of (i)
the Federal Funds Rate in effect for such day plus (ii) one-fourth of one
percent (1/4%). If for any reason the Lender shall have determined (which
determination shall be conclusive and binding, absent manifest error) that
it is unable to ascertain the Federal Funds Rate for any reason, including,
without limitation, the inability or failure of the Lender to obtain
sufficient bids or publications in accordance with the terms hereof, the
Base Rate shall be the Bank One Texas Base Rate until the circumstances
giving rise to such inability no longer exist. For purposes of this
Agreement, any change in the Base Rate due to a change in the Bank One
Texas Base Rate shall be effective on the effective date of such change in
the Bank One Texas Base Rate and any change in the Base Rate due to a
change in the Federal Funds Rate shall be effective on the effective date
of such change in the Federal Funds Rate, all without notice to the
Borrower.
"Borrower" has the meaning indicated in the opening paragraph hereof.
--------
"Borrowing Base" means the maximum value, for loan purposes, of the
--------------
Borrowing Base Properties, as determined, at the sole good faith discretion
of the Lender in accordance with its customary lending practices, from time
to time in accordance with Section 2.4 of this Agreement; provided,
however, at any time that any Oil and Gas Property that is a Borrowing Base
Property ceases, for any reason, to be a Borrowing Base Property, the
Lender, at its sole good faith discretion in accordance with its customary
lending practices, may redetermine the Borrowing Base by excluding the
value, for loan purposes, of such Oil and Gas Property, which determination
shall be made by the Lender at its sole good faith discretion in accordance
with its customary lending practices, and which redetermined Borrowing Base
shall become effective upon notice to the Borrower by the Lender.
"Borrowing Base Properties" means the undivided interest the Borrower
-------------------------
owns in each of those certain Oil and Gas Properties identified by their
commonly known names as set forth on Exhibit C attached hereto.
2
<PAGE>
"Borrowing Request" means a written application by the Borrower for an
-----------------
Advance. Each such Borrowing Request shall specify the requested amount of
such Advance and the requested date of such Advance.
"Business Day" means a day other than a Saturday, Sunday or legal
------------
holiday for commercial banks in the State of Texas.
"Closing Date" means the date when all the conditions precedent set
------------
forth in Section 3.1 of this Agreement have been fulfilled.
"Collateral" means the Property now or at any time hereafter securing
----------
the Obligations.
"Commitment" means the obligation of the Lender, through the
----------
Termination Date, to extend credit to the Borrower by means of Advances,
with the sum of all outstanding Advances not to exceed at any time the
Commitment Limit.
"Commitment Limit" means the lesser of (a) $15,000,000.00 or (b) the
----------------
Borrowing Base.
"Compliance Certificates" means the certificates of the president,
-----------------------
chief executive officer or chief financial or accounting officer of the
Borrower submitted to the Lender from time to time pursuant to this
Agreement, which certificates shall be substantially in the form attached
hereto as Exhibit B.
"Contested in Good Faith" means contested in good faith by appropriate
-----------------------
and lawful proceedings diligently conducted, reasonably satisfactory to the
Lender, (a) in which foreclosure, distraint, sale, forfeiture, levy,
execution or other similar proceedings have not been initiated or have been
stayed and continue to be stayed, (b) in which a good faith contest will
not materially detract from the value of the Collateral, jeopardize the
Rights of the Lender with respect to the Collateral, interfere in any
material respect with the operation by the Borrower of its business, or
otherwise have a Material Adverse Effect, and (c) for which matter a
reserve or other appropriate provision has been established to the extent
required in accordance with GAAP.
"Debt" of any Person means, to the extent of such Person's liability,
----
(a) all items of indebtedness for borrowed money, obligations, and
liabilities (whether matured or unmatured, liquidated or unliquidated,
direct
3
<PAGE>
or indirect, joint or several, contingent or otherwise), which in
accordance with GAAP should be classified upon such Person's balance sheet
as liabilities, but in any event including liabilities secured by any Lien
existing on Property of such Person or a Subsidiary of such Person, (b) the
deferred purchase price of Property or services and direct and contingent
obligations incurred in connection with letters of credit and similar
agreements and obligations as a lessee under leases which have been, or
which in accordance with GAAP should be, capitalized for financial
reporting purposes, (c) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business), and other
contingent obligations of such Person with respect to obligations of other
Persons of the types described in clauses (a) and/or (b) of this
definition, (d) liabilities for unfunded vested benefits under any Plan,
and (e) all obligations to supply funds to, invest in or maintain working
capital or equity capital of any other Person, or otherwise to maintain the
net worth or solvency or any balance sheet condition of any other Person.
"Debtor Relief Laws" means the Bankruptcy Code of the United States of
------------------
America, as amended from time to time, and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, or similar debtor relief Laws or
general equitable principles from time to time in effect affecting the
Rights of creditors generally.
"Default Rate" means a per annum rate of interest equal to the Base
------------
Rate plus five percent (5%), but in no event to exceed the Highest Lawful
Rate.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) which together with the Borrower would be treated as a single
employer under Section 4001 of ERISA.
"Event of Default" means any of the events specified in Section 7.1,
----------------
provided that the requirements, if any, for the giving of notice, the lapse
of time, or both, or any other condition specified in Section 7.1 have been
satisfied.
4
<PAGE>
"Federal Funds Rate" means at any time a fluctuating interest rate per
------------------
annum equal for each day to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Lender from three Federal funds
brokers of recognized standing selected by it.
"Financial Statements" means statements of financial condition, as at
--------------------
the point in time and for the period indicated, and consisting of at least
a balance sheet and related statements of operations, stockholders' equity
and cash flows, and, when audited, accompanied by the certification of
independent certified public accountants, and footnotes to any of the
foregoing.
"GAAP" means generally accepted accounting principles established by
----
the Financial Accounting Standards Board and in effect in the United States
from time to time during the term of this Agreement and applied on a basis
consistent with that adopted in the Financial Statements.
"Highest Lawful Rate" means the maximum rate (or, if the context so
-------------------
permits or requires, an amount calculated at such rate) of interest (if
any) that, at the time in question, would not cause the interest charged on
the Obligations owed to the Lender to exceed the maximum amount that the
Lender would be allowed to contract for, charge, take, reserve or receive
under applicable Law after taking into account, to the extent required by
applicable Law, all relevant payments and charges under the Loan Documents.
"Investment" in any Person means any stock, bond, note or other
----------
evidence of Debt or any other security (other than current trade and
customer accounts) of, investment or partnership interest in or loan to,
such Person.
"Laws" means all applicable statutes, laws, ordinances, rules,
----
rulings, interpretations, regulations, judgments, requirements,
governmental authorizations (including licenses, permits, franchises and
other governmental consents necessary for the ownership or operation of
Property), orders, writs, injunctions or decrees (or interpretations of any
of the foregoing) of
5
<PAGE>
any political subdivision, state, commonwealth, nation, country, territory,
possession, county, parish, municipality or Tribunal.
"Lender" has the meaning indicated in the opening paragraph hereof.
------
"Lien" means any lien, charge, claim, restriction, mortgage,
----
mechanic's lien, materialmen's lien, pledge, hypothecation, inchoate lien,
assignment, deposit arrangement, conditional sale or other title retention
agreement, financing lease, security interest, security agreement or other
encumbrance, whether arising by contract or under Law, and includes
reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, leases and other title exceptions and the filing of
any financing statement under the Uniform Commercial Code of the State of
Texas or comparable Law of any jurisdiction.
"Limitation Period" means any period during which the calculation of
-----------------
interest as provided in any of the Loan Documents would result in interest
exceeding the Highest Lawful Rate.
"Liquid Investments" means Investments in (a) United States government
------------------
issued securities, obligations of the United States government or any
agency thereof and any obligations guaranteed by the United States
government with maturities of no more than one year, (b) certificates of
deposit or repurchase agreements issued by the Lender, (c) certificates of
deposit, in an aggregate amount not to exceed $100,000.00 at any one time
as to any one issuer, issued by other banks or financial institutions
organized under the Laws of the United States or any state thereof, having
capital surplus and undivided profits aggregating at least $100,000,000.00
and with deposits insured by the Federal Deposit Insurance Corporation, and
(d) commercial paper with a rating by Moody's Investor Service, Inc. of no
less than A and with maturities of no more than nine months from the date
of acquisition thereof.
"Litigation" means any proceeding, claim, lawsuit, and/or
----------
investigation conducted, or threatened and known to the Person in question,
by or before any Tribunal.
"Loan Documents" means this Agreement, the Note, the Security
--------------
Documents and all other notes, deeds of trust, restatements, ratifications
and amendments of deeds of trust, financing statements, guaranties,
security agreements, pledge agreements, documents, instruments and
6
<PAGE>
other agreements now or hereafter delivered pursuant to the terms of, or in
connection with, this Agreement, the Obligations and/or the Collateral, and
all renewals, extensions and restatements of, and amendments and
supplements to any or all of the foregoing.
"Loans" means the loans and extensions of credit by the Lender to or
-----
for the account of the Borrower pursuant to this Agreement.
"Material Adverse Effect" means any material and adverse effect on (a)
-----------------------
the assets, liabilities, financial condition, business or operations of the
Borrower that are material to the business or financial condition of the
Borrower, or (b) the ability of the Borrower to meet its Obligations under
any of the Loan Documents on a timely basis as provided herein or therein.
"Mortgaged Properties" means those Oil and Gas Properties of the
--------------------
Borrower identified by their commonly known names as set forth on Exhibit D
attached hereto.
"Multi-employer Plan" means a Plan described in Section 4001(9)(3) of
-------------------
ERISA which covers employees of the Borrower or any ERISA Affiliate.
"Note" means that certain promissory note in the face amount of
----
$15,000,000.00 dated of even date herewith made by the Borrower to the
order of the Lender, in the form attached hereto as Exhibit A, together
with all deferrals, renewals or extensions thereof, which promissory note
shall evidence the Advances made to the Borrower by the Lender pursuant to
Section 2.1 and funds advanced and applied pursuant to Section 2.10.
"Obligations" means all present and future loans, advances,
-----------
indebtedness, obligations, covenants and liabilities, and all renewals for
any period, increases and extensions thereof, or any part thereof, now or
hereafter owing to the Lender by the Borrower arising from or pursuant to
any of the Loan Documents, together with all interest accruing thereon, and
costs, expenses, and attorneys' fees incurred in the enforcement or
collection thereof, whether such indebtedness, obligations, and liabilities
are direct, indirect, fixed, contingent, liquidated, unliquidated, joint,
several, or joint and several, and all other indebtedness or obligations of
any type whatsoever now or hereafter owing to the Lender by the Borrower,
whether or not in connection with any of the Loan Documents.
7
<PAGE>
"Oil and Gas Properties" means fee, leasehold or other interests in or
----------------------
under mineral estates or oil, gas and other liquid or gaseous hydrocarbon
leases with respect to properties situated in the United States, including,
without limitation, overriding royalty and royalty interests, leasehold
estate interests, net profits interests, production payment interests and
mineral fee interests, together with contracts executed in connection
therewith and all tenements, hereditaments, appurtenances and properties,
real or personal, appertaining, belonging, affixed or incidental thereto.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereof, established pursuant to Subtitle A of Title IV of ERISA.
"Permitted Liens" means: (a) Liens for Taxes, not yet due or which are
---------------
being Contested in Good Faith; (b) Liens in connection with workers'
compensation, unemployment insurance or other social security (other than
Liens created by Section 4068 of ERISA), old age pension or public
liability obligations which are not yet due or which are being Contested in
Good Faith; (c) vendors', carriers', warehousemen's, repairmen's,
mechanics', workmen's, materialmen's, construction or other similar Liens
arising by operation of Law in the ordinary course of business or incident
to the construction or improvement of any Property in respect of
obligations which are not yet due or which are being Contested in Good
Faith; (d) Liens to operators and non-operators under joint operating
agreements arising in the ordinary course of business to secure amounts
owing, which amounts are not yet due or are being Contested in Good Faith;
(e) Liens under production sales agreements, division orders, operating
agreements and other agreements customary in the oil and gas business for
processing, producing and selling hydrocarbons; (f) Liens created in favor
of the Lender securing Obligations hereunder and other Liens expressly
permitted under the Security Documents; (g) easements, rights-of-way,
restrictions and other similar encumbrances, and minor defects in the chain
of title which are customarily accepted in the oil and gas financing
industry, none of which interfere with the ordinary conduct of the business
of the owner of the Property or materially detract from the value or use of
the Property to which they apply; (h) Liens of record under terms and
provisions of the leases, unit agreements, assignments and other transfer
of title documents in the chain of title under which the owner of the
relevant Property acquired such Property; and (i) Liens securing the
purchase price or existing under conditional sale contracts, title
retention contracts or
8
<PAGE>
lease agreements for equipment purchased or leased in the normal course of
business of the Borrower, provided that such Lien shall not extend to or
cover any other Property of the Borrower.
"Person" means any individual, sole proprietorship, firm, corporation,
------
trust, association, institution, partnership, joint venture, limited
liability company, Tribunal or other entity.
"Plan" means any pension plan that is covered by Title IV of ERISA and
----
maintained by the Borrower or any such plan to which the Borrower is
required to contribute.
"Preferred Stock" means shares of the Borrower's $4.00 Senior
---------------
Preferred Stock more particularly described in and offered pursuant to that
certain Offering Circular and Consent Solicitation of the Borrower dated
February 3, 1995.
"Prior Agreement" has the meaning set forth in the recitals of this
---------------
Agreement.
"Property" means any interest in any kind of property or asset,
--------
whether real, personal or mixed, tangible or intangible.
"Proved Reserves" means the estimated quantities of crude oil,
---------------
condensate, natural gas liquids and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable by
primary producing mechanisms in future years from known reservoirs
underlying lands or interests therein constituting Oil and Gas Properties,
under existing economic and operating conditions. Reserves which can be
produced economically through application of improved recovery techniques
(i.e., fluid injection) will be included in Proved Reserves when successful
testing by a pilot project or the operation of an installed program in the
reservoir provides support for the engineering analysis on which the pilot
project or installed program was based. In general, the economic
productability of the estimated Proved Reserves is supported by actual
production or a conclusive formation test; however, in certain instances
Proved Reserves are assigned to reservoirs on the basis of a combination of
electrical and other type logs and core analyses which indicate these
reservoirs are analogous to similar reservoirs in the same field which are
producing or have demonstrated the ability to produce on a formation test.
9
<PAGE>
"Reportable Event" and "Prohibited Transaction" have the meanings
---------------- ----------------------
given to those terms under ERISA.
"Revolving Rate" means a varying rate of interest per annum equal to
--------------
the Base Rate, from time to time in effect, plus three-quarters of one
percent (3/4%).
"Rights" means rights, remedies, powers and privileges.
------
"Section" or "Subsection" means a section or subsection in this
------- ----------
Agreement unless specified otherwise.
"Security Documents" means the documents described in Subsection
------------------
3.1(a)(7) of this Agreement and all other documents now or hereafter
existing which provide the Lender with Collateral, as the same may be
amended or restated from time to time.
"Subordinated Debt" means those certain 12% Convertible Senior
-----------------
Subordinated Notes due May 15, 1995 with a principal amount outstanding as
of the date hereof of $1,448,000.00 and those certain 4-1/2% Senior
Subordinated Notes due May 15, 1995 with a principal amount outstanding as
of the date hereof of $431,000.00.
"Subsidiary" of any Person means any corporation of which an aggregate
----------
of fifty percent (50%) or more of the stock of any class or classes is
owned of record or beneficially, directly or indirectly, by such Person, if
the holders of the stock of such class or classes are ordinarily entitled
to vote for the election of a majority of the directors (or individuals
performing similar functions) of such corporation (irrespective of whether,
at the time in question, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the
happening of any contingency).
"Taxes" means all taxes, assessments, filing or other fees, levies,
-----
imposts, duties, deductions, withholdings, stamp taxes, interest
equalization taxes, capital transaction taxes, foreign exchange taxes or
charges, or other charges of any nature whatsoever from time to time or at
any time imposed by any Law or Tribunal.
"Termination Date" means May 31, 1997.
----------------
"Tribunal" means any court, governmental department or authority,
--------
commission, board, bureau, agency, arbitrator or instrumentality of any
state, political
10
<PAGE>
subdivision, commonwealth, nation, territory, county, parish or
municipality, whether now or hereafter existing, having jurisdiction over
the Lender, the Borrower or any of their respective Property.
"Unmatured Event of Default" means any event or occurrence which
--------------------------
solely with the lapse of time or the giving of notice or both will ripen
into an Event of Default.
"Unused Amount of the Commitment" means an amount calculated for each
-------------------------------
day the Commitment is in existence and which equals the difference between
(a) the Commitment Limit and (b) all outstanding Advances evidenced by the
Note.
1.2 Accounting Terms. All accounting and financial terms used in any
----------------
of the Loan Documents and the compliance with each covenant contained in the
Loan Documents that relates to financial matters shall be determined in
accordance with GAAP, except to the extent that a deviation therefrom is
expressly stated in such Loan Documents.
1.3 Number and Gender of Words. Whenever the singular number is used
--------------------------
in any Loan Document, the same shall include the plural where appropriate, and
vice versa; words of any gender in any Loan Document shall include each other
---- -----
gender where appropriate; and the words "herein," "hereof," "hereunder" and
other words of similar import refer to the relevant Loan Document as a whole and
not to any particular part, section or subdivision thereof.
ARTICLE 2
---------
TERMS OF FACILITY
-----------------
2.1 Revolving Commitment. Subject to the terms and conditions
--------------------
(including, without limitation, the right of the Lender to terminate the
Commitment hereunder upon an Event of Default or Unmatured Event of Default) and
relying on the representations and warranties contained in this Agreement and
the other Loan Documents, from time to time until the Termination Date, the
Lender agrees to make Advances to the Borrower following receipt by the Lender
of a Borrowing Request on or before 10:00 a.m. Central Standard or Daylight
Savings Time, as the case may be, one (1) Business Day prior to the date of the
requested Advance, in such amounts as the Borrower may request, provided,
however, that each Advance shall be in an amount not less than $50,000.00 and no
Advance shall be made which will cause the sum of all outstanding Advances to
exceed the Commitment Limit, and further provided, however, the initial Advance
shall be as of the date of execution of this Agreement and in the amount of
$699,457.48, which amount
11
<PAGE>
represents a renewal, rearrangement and extension of the outstanding principal
Debt evidenced by that certain Promissory Note dated April 28, 1995 in the face
amount of $1,000,000.00 executed by the Borrower and payable to the order of the
Lender. The Borrower may transmit Borrowing Requests to the Lender by mail,
personal delivery, telefacsimile, telex or other method; but the Lender shall
not be obligated to make Advances on the requested date unless the Lender has
received, on or before 10:00 a.m. Central Standard or Daylight Savings Time, as
the case may be, one (1) Business Day prior to such date a Borrowing Request.
Subject to the conditions and limitations set forth in this Agreement,
the Borrower may borrow, repay without penalty or premium, and reborrow
hereunder, from the date of this Agreement until the Termination Date, either
the entire Commitment Limit or any lesser sum.
The Advances made by the Lender to the Borrower pursuant to the
Commitment shall be made at the office of the Lender at 910 Travis, Houston,
Texas 77002 and shall be evidenced by the Note.
2.2 Advances and Payments Under the Note. The Lender is authorized
------------------------------------
by the Borrower to attach to and to make a part of the Note a ledger (and
continuations thereto, if necessary) reflecting the amount of all Advances made
by the Lender and each payment made by the Borrower. Each time such an Advance
is made against or payment (including a prepayment) is made on the Note, the
Lender is authorized but not required to make a notation on the ledger forming a
part thereof reflecting the amount advanced or paid and the date thereof;
provided, however, that the failure of the Lender to do so shall not relieve the
Borrower of its liability hereunder or under the Note.
The aggregate unpaid amount of such Advances reflected by the
notations by the Lender on its records or the ledger sheets affixed to the Note
shall be deemed rebuttably presumptive evidence of the principal amounts owing
on the Note. The liability for payment of principal and interest evidenced by
the Note shall be limited to principal amounts actually advanced and outstanding
pursuant to this Agreement and the other Loan Documents and interest accrued on
such amounts calculated in accordance with this Agreement.
2.3 Repayment Provisions. All outstanding principal Debt for all
--------------------
Advances evidenced by the Note and made by the Lender prior to or on the
Termination Date shall be paid on or before the Termination Date.
Interest as it accrues on principal amounts evidenced by the Note and
calculated as provided herein and in the Note shall be due and payable monthly
commencing on the last day of May, 1995, and continuing thereafter on the last
day of each succeeding
12
<PAGE>
calendar month while any amount remains owing on the Note and upon the
Termination Date, the interest payment in each instance to be that which has
been earned and remains unpaid.
Notwithstanding the foregoing, in the event all outstanding Advances
evidenced by the Note shall exceed the Commitment Limit, the Borrower shall
within thirty (30) days after receipt of notice thereof from the Lender (a) make
a principal payment on the Note in an amount of immediately available funds such
that there shall no longer exist such an excess, (b) add to the Borrowing Base
additional Oil and Gas Properties sufficient to increase the Borrowing Base to
equal the unpaid principal amount of the Note, the determination of the value of
the Oil and Gas Properties so added shall be made by the Lender, at its sole
good faith discretion, or (c) any combination of the actions described in (a)
and (b) above.
All payments required pursuant to this Agreement or the Note shall be
made in immediately available funds; shall be deemed received by the Lender on
the next Business Day following receipt if such receipt is after 2:00 p.m. on
any Business Day; and shall be made at the offices of the Lender at 910 Travis,
Houston, Texas 77002, provided, however, the Lender may, upon notice to the
Borrower, designate a different place of payment.
Certain of the Security Documents contain an assignment unto and in
favor of the Lender of all oil, gas and other minerals produced and to be
produced from or attributable to the Borrowing Base Properties such Security
Documents encumber together with all of the revenues and proceeds attributable
to such production, and such Security Documents further provide that all such
revenues and proceeds which may be so collected by the Lender pursuant to such
assignment shall be applied to the payment of the Note and the satisfaction of
all other Debt to be secured by such Security Documents. The Lender and the
Borrower expressly acknowledge and agree that so long as no Event of Default
shall have occurred and be continuing, the Lender shall be entitled only to
payment on the Note as set forth in the preceding paragraphs of this Section
2.3, and the Borrower, to the extent of its rights apart from this Agreement,
shall be entitled to receive all proceeds of production directly from the
relevant purchasers or parties accounting for proceeds from the sale of
production. In connection with the rights of the Lender to all proceeds of
production upon the occurrence and continuation of an Event of Default, the
Borrower hereby grants the Lender a power of attorney, which power is coupled
with an interest and is irrevocable, to complete in all respects and deliver to
the addressee the letter transfer orders executed in connection with the
Security Documents upon the occurrence and continuance of an Event of Default.
2.4 Borrowing Base Determinations. The initial Borrowing Base is
-----------------------------
hereby established at $4,000,000.00.
13
<PAGE>
The Borrower has furnished the Lender a report prepared internally by
the Borrower and reviewed and audited by Ryder Scott Company which sets forth
the Proved Reserves attributable to the Borrowing Base Properties as of December
31, 1994. Promptly after January 1 of each year, commencing January 1, 1996,
and in any event prior to March 1 of each such year, the Borrower shall furnish
to the Lender (a) a report, in form satisfactory to the Lender and prepared
internally by the Borrower and reviewed and audited by an independent petroleum
engineer or firm of engineers satisfactory to the Lender, which report shall set
forth, as of December 31 of the previous year, the Proved Reserves attributable
to the Borrowing Base Properties, and (b) such other information concerning the
Borrowing Base Properties as the Lender may reasonably request, including,
without limitation, engineering, geological and performance data. Such other
information concerning the Borrowing Base Properties shall be certified by the
president, chief executive officer or chief engineering officer of the Borrower
as being true, correct and complete in all material respects. Upon receipt of
such report and other information, the Lender shall, in the normal course of
business, make a determination of the Borrowing Base, which Borrowing Base shall
become effective upon written notification from the Lender to the Borrower.
In addition, promptly after July 1 of each year, commencing July 1,
1996, and in any event prior to September 1 of each such year, the Borrower
shall furnish to the Lender a report, in form satisfactory to the Lender,
prepared internally by the Borrower (and certified by the president, chief
executive officer or chief engineering officer of the Borrower as being true,
correct and complete in all material respects), which report shall set forth, as
of June 30 of the appropriate year, any material additions to, deletions from,
or any other material changes in the Proved Reserves attributable to Borrowing
Base Properties reflected in the report most recently furnished to the Lender
pursuant to the preceding paragraph of this Section 2.4. Upon receipt of such
report, the Lender shall, in the normal course of business, make a determination
of the Borrowing Base, which Borrowing Base shall become effective upon written
notification from the Lender to the Borrower.
Notwithstanding anything in this Section 2.4 to the contrary, the
Lender shall have the right at any time to request additional reports with
respect to the Borrowing Base Properties, which additional reports shall be
limited to one additional report per year in absence of an Event of Default and
shall be in form satisfactory to the Lender, prepared internally by the Borrower
(and certified by the president, chief executive officer or chief engineering
officer of the Borrower as being true, correct and complete in all material
respects), which shall set forth, as of the date the Lender indicates, any
material additions to, deletions from or any other material changes in the
Proved Reserves
14
<PAGE>
attributable to the Borrowing Base Properties reflected in the report most
recently furnished to the Lender as provided hereinabove. Upon receipt of any
such additional report the Lender shall, in the normal course of business, make
a determination of the Borrowing Base, which Borrowing Base shall become
effective upon written notification from the Lender to the Borrower.
The determination of the Borrowing Base shall be made, at the sole
discretion of the Lender, by reviewing the estimates of the projected rate of
production and projected revenues from the Borrowing Base Properties and the
financial condition of the Borrower. The Lender may make adjustments, in good
faith and at its sole discretion and in accordance with its customary practices,
to such estimates.
The Borrowing Base shall represent the Lender's determination, in
accordance with its customary lending practices, of the value, for loan
purposes, of the Borrowing Base Properties, and the Borrower acknowledges, for
purposes of this Agreement, such determination by the Lender as being the value,
for loan purposes, of the Borrowing Base Properties.
The Borrower and the Lender acknowledge that (a) due to the
uncertainties of the oil and gas extraction process, oil and gas properties are
not subject to evaluation with a high degree of accuracy and are subject to
potential rapid deterioration in value and (b) for this reason and the
difficulties and expenses involved in liquidating and collecting against oil and
gas properties, the Lender's determination of the value, for loan purposes, of
the Borrowing Base Properties contains an equity cushion (meaning market value
in excess of the Borrowing Base), which equity cushion is acknowledged by the
Borrower as essential for the adequate protection of the Lender.
2.5 Interest Rates. Principal amounts outstanding under the Note
--------------
shall bear interest at the Revolving Rate (but in no event greater than the
Highest Lawful Rate) per annum, calculated on a year of three hundred sixty-five
(365) or three hundred sixty-six (366) days, as the case may be, and counting
the actual number of days elapsed. Should default occur in the payment of the
Note and collection proceedings be instituted, all past due interest and
principal under the Note shall bear interest at the lesser of the Highest Lawful
Rate or the Default Rate per annum, calculated on a year of three hundred sixty-
five (365) or three hundred sixty-six (366) days, as the case may be, and
counting the actual number of days elapsed; and if no Highest Lawful Rate
exists, all past due interest and principal under the Note shall bear interest
at the Default Rate, calculated on a year of three hundred sixty-five (365) or
three hundred sixty-six (366) days, as the case may be, and counting the actual
number of days elapsed.
15
<PAGE>
2.6 Commitment Fee. As consideration for the Commitment, the
--------------
Borrower shall pay to the Lender a commitment fee equal to one-half of one
percent (1/2%) per annum (computed on the basis of a year of three hundred
sixty-five (365) or three hundred sixty-six (366) days, as the case may be, and
counting the actual number of days elapsed) of the average daily Unused Amount
of the Commitment during the period of determination. This commitment fee shall
commence to accrue as of the date of this Agreement and shall cease to accrue on
the earlier of the Termination Date or the day the Commitment is otherwise
terminated hereunder. Accrued commitment fees under this Section 2.6 shall be
payable on each September 1, December 1, March 1 and June 1, commencing
September 1, 1995, and on the first day after the earlier of the Termination
Date or the day the Commitment is otherwise terminated hereunder and shall be
determined for each period from and inclusive of the date on which this
Agreement was executed or the previous payment date, as the case may be, but
exclusive of the date of payment.
2.7 Facility Fee. As consideration for the Commitment, the Borrower
------------
shall pay to the Lender (a) on the date on which this Agreement is executed by
the Borrower and the Lender a facility fee equal to the difference between (i)
one percent (1%) of the amount of the Borrowing Base on such date and (ii) the
amount paid by the Borrower to the Lender as a facility fee in connection with
the Prior Agreement and (b) on the date of any increase in the Borrowing Base to
an amount in excess of the highest Borrowing Base previously in effect during
the term of this Agreement, a facility fee equal to one percent (1%) of the
amount by which the Borrowing Base was increased from the amount of the
previously established highest Borrowing Base.
2.8 Engineering Fee. The Borrower has reimbursed the Lender the
---------------
amount of $5,000.00 related to engineering costs incurred by the Lender in
connection with the Prior Agreement and for the initial determination of the
Borrowing Base. Commencing with the reserve report due prior to March 1, 1996
pursuant to Section 2.4, the Borrower shall reimburse the Lender on the earlier
of (a) the actual date of delivery of each engineering report required to be
delivered to the Lender pursuant to the second and third paragraphs of Section
2.4 of this Agreement or (b) the required date of delivery of each such
engineering report, the amount of $5,000.00 related to engineering costs
incurred by the Lender.
2.9 General Provisions Relating to Interest. It is the intention of
---------------------------------------
the parties hereto to comply strictly with the applicable usury Laws as in
effect from time to time; and in this connection, there shall never be taken,
reserved, contracted for, collected, charged or received on any Loan or any
other Obligation interest in excess of that which would accrue at the Highest
Lawful Rate. For purposes of Article 5069-1.04, Vernon's Texas Civil Statutes,
--------------------
as amended, the Borrower agrees that the Highest Lawful
16
<PAGE>
Rate shall be the "indicated rate ceiling" as defined in such article, provided
that the Lender may also rely, to the extent permitted by applicable Laws, on
alternative maximum rates of interest under such other applicable Laws, if
greater.
Notwithstanding anything herein or in the Note or the other Loan
Documents to the contrary, if during any Limitation Period the calculation of
interest at the rate otherwise due to the Lender would result in interest in
excess of that which would accrue at the Highest Lawful Rate, then during such
Limitation Period, the interest rate to be charged on the Obligations shall be
the Highest Lawful Rate, and the requirement of the Borrower for the payment of
other amounts, if any, constituting interest, shall be suspended only to the
extent that such fees are, when added to interest accruing on the Note and other
Obligations, if any, in excess of the Highest Lawful Rate. During any period of
time following a Limitation Period, to the extent permitted by Laws applicable
to the Lender, the interest rate to be charged on the Obligations shall remain
at the Highest Lawful Rate until such time as there has been paid to the Lender:
(a) the amount of interest in excess of the amount accruing at the Highest
Lawful Rate that the Lender would have received during the Limitation Period if
the otherwise applicable rate had been in effect at all times and (b) all
interest and fees otherwise payable to the Lender hereunder as if the otherwise
applicable rate had been in effect at all times during such Limitation Period.
If under any circumstances the aggregate amount paid on the
Obligations includes amounts that are by Law deemed to be interest which exceed
the Highest Lawful Rate (the "excess interest"), the Borrower stipulates that
---------------
such payment and collection will have been and will be deemed to have been, to
the fullest extent permitted by applicable Laws, the result of mathematical
error on the part of the Borrower and the Lender, and the Lender shall promptly
credit the amount of such excess interest on the principal amount of the
outstanding Obligations, or if the principal amount of the Obligations shall
have been paid in full, refund the excess interest to the Borrower. In the
event that the maturity of the Note is accelerated by reason of an election of
the Lender resulting from any Event of Default or by reason of operation of
Subsection 7.3(a), or in the event of any prepayment, then such consideration
that constitutes interest under Laws applicable to the Lender may never exceed
the Highest Lawful Rate, and excess interest, if any, provided for in the Note,
this Agreement or otherwise shall be cancelled automatically by the Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Lender on the principal amount of the Obligations, or if the
principal amount of the Obligations shall have been paid in full, refunded by
the Lender to the Borrower.
17
<PAGE>
All sums paid, or agreed to be paid, to the Lender for the use,
forbearance, and detention of the proceeds of the Loans shall, to the extent
permitted by applicable Law, be amortized, prorated, allocated, and spread
throughout the full term of the Obligations until paid in full so that the
actual rate of interest is uniform, but does not exceed the Highest Lawful Rate,
throughout the full term hereof.
2.10 Loans to Satisfy Obligations. The Lender may, but shall not be
----------------------------
obligated to, make Loans and apply proceeds thereof to the satisfaction of any
warranty, representation, covenant or other Obligation of the Borrower contained
in this Agreement or the other Loan Documents and which are necessary, in the
good faith opinion of the Lender, to enforce its Rights, protect or preserve the
Collateral or the Liens thereon in favor of the Lender and the priorities
thereof, or avoid a Material Adverse Effect, and contemporaneously with so
doing, the Lender shall furnish the Borrower written notice as to the amount and
date of any such Loan. The Lender shall not advance funds pursuant to this
Section without notifying the Borrower of the warranty, representation, covenant
or other Obligation to be satisfied by such proposed advance of funds and shall
give the Borrower fifteen (15) days from the date of such notice to satisfy such
warranty, representation, covenant or other Obligation. Any funds so advanced
and applied shall be evidenced by the Note, shall be payable on demand and shall
bear interest at the Default Rate from the time of the making of such Loan until
the time of repayment.
2.11 Voluntary Prepayment. The Borrower shall have the right and
--------------------
option to prepay, at any time without premium or penalty, all or any part of the
balance outstanding on the Note. Any such prepayments of Debt evidenced by the
Note shall be applied to the payment of accrued and unpaid interest and to the
reduction of principal as elected by the Borrower.
2.12 Yield Protection. If at any time after the date hereof, and from
----------------
time to time, the Lender determines that the adoption or modification of any
Laws regarding the required levels of reserves of the Lender, deposit insurance
or capital (including any allocation of capital requirements or conditions), or
similar requirements, or any interpretation or administration thereof by any
Tribunal, central bank or comparable agency charged with the interpretation,
administration or compliance of the Lender with any of such requirements, has or
would have the effect of (a) increasing the costs of the Lender relating to the
Obligations of the Borrower or (b) reducing the yield or rate of return of the
Lender on the Obligations of the Borrower to a level below that which the Lender
could have achieved but for the adoption or modification of any such
requirements, the Borrower shall, within fifteen (15) days of any request by the
Lender, pay to the Lender such additional amounts as (in the good faith judgment
of the Lender based on reasonable computation) will compensate the Lender
18
<PAGE>
for such increase in costs or reduction in yield or rate of return of the
Lender. The request by the Lender to the Borrower for such additional amounts
shall also set forth the computation by the Lender of such requested additional
amounts. No failure by the Lender to demand immediate payment of any additional
amounts payable under this Section 2.12 shall constitute a waiver of the right
of the Lender to demand payment of such amounts at any subsequent time. Nothing
contained in this Section 2.12 shall be construed or so operate as to require
the Borrower to pay any interest, fees, costs or charges greater than permitted
by applicable Laws.
2.13 Automatic Debit Authority. The Borrower hereby grants to the
-------------------------
Lender the authority, without any obligation or liability to any Person,
including, without limitation, the Borrower, to debit automatically from the
operating accounts of the Borrower maintained at the Lender any and all
repayments of Debt due and payable hereunder or under the Note, fees due and
payable hereunder and costs and expenses of the Lender the Borrower is obligated
to reimburse hereunder.
2.14 Security Interests in Deposits. To secure the Debt of the
------------------------------
Borrower evidenced by the Note, the Borrower hereby grants to the Lender a
security interest against all funds or other Property of the Borrower now or
hereafter or from time to time on deposit with or in the possession of the
Lender, including, without limitation, all certificates of deposit and other
depository accounts whether such have matured or the exercise of such right of
the Lender results in loss of interest or other penalty on such deposits. Upon
any Event of Default the Borrower may exercise any and all remedies against such
funds or Property as a secured party under the Uniform Commercial Code as
adopted in the State of Texas. Nothing in this Section shall be construed to
limit any right of offset afforded the Lender.
ARTICLE 3
---------
CONDITIONS PRECEDENT
--------------------
3.1 Conditions to Initial Advance. The obligation of the Lender to
-----------------------------
make the initial Advance referred to in Section 2.1 is subject to the
fulfillment of the following conditions precedent, with all documents to be
delivered to the Lender to be in form and substance satisfactory to the Lender:
(a) The Lender shall have received the following documents,
appropriately executed and acknowledged and in multiple counterparts as
requested by the Lender, except as to the Note :
(1) This Agreement and the Note executed by the Borrower;
19
<PAGE>
(2) Certificates from the appropriate Tribunals of the State of
Delaware, dated reasonably near the Closing Date, to the effect that
attached thereto are the articles of incorporation of the Borrower and
all amendments thereto, and that the Borrower is duly incorporated and
in good standing with respect to the payment of all franchise taxes;
(3) Certificates of the appropriate Tribunals of the States of
Colorado, Louisiana and Texas, dated reasonably near the Closing Date,
to the effect that the Borrower is duly qualified as a foreign
corporation and in good standing with respect to the payment of all
franchise or similar Taxes;
(4) A copy of the bylaws of the Borrower and all amendments thereto,
accompanied by a certificate issued by its secretary or assistant
secretary that such copies are correct and complete;
(5) Certificate of incumbency and signatures of all officers of the
Borrower who will be authorized to execute the Loan Documents on its
behalf, executed by the president or vice president and the secretary
or an assistant secretary of the Borrower;
(6) A copy of the corporate resolutions of the Borrower approving the
Loan Documents and authorizing the transactions contemplated therein,
duly adopted by its board of directors and accompanied by a
certificate of the secretary or an assistant secretary of the Borrower
to the effect that such copy is a true and correct copy of resolutions
duly adopted by written consent or at a meeting of the board of
directors, that such resolutions constitute all the resolutions
adopted with respect to such transactions, and that such resolutions
have not been amended, modified or revoked in any respect, and are in
full force and effect as of the Closing Date;
(7) The following documents creating, evidencing and perfecting Liens
in favor or for the benefit of the Lender to secure the Obligations:
20
<PAGE>
(i) as to the Mortgaged Properties located in Texas and not
previously encumbered by the Lender in favor of the Borrower in
connection with the Prior Agreement;
(A) A Deed of Trust, Security Agreement, Financing Statement
and Assignment of Production from the Borrower in favor of the
trustee named therein for the benefit of the Lender;
(B) A Non-Standard Financing Statement from the Borrower
covering accounts from the sale of oil and gas produced from such
Mortgaged Properties and equipment and other personal property
associated therewith;
(ii) as to the Mortgaged Properties located in Texas and previously
encumbered by the Lender in favor of the Borrower in connection with
the Prior Agreement;
(A) Ratification of and Amendment to Deed of Trust, Security
Agreement, Financing Statement and Assignment of Production
between the Borrower and the Lender;
(iii) as to the Mortgaged Properties located in Louisiana and
previously encumbered by the Lender in favor of the Borrower in
connection with the Prior Agreement;
(A) First Amendment to Collateral Mortgage of Mineral
Interests;
(B) First Amendment to Act of Pledge of the Collateral
Mortgage Note;
(C) First Amendment to Security Agreement encumbering; and
(D) UCC-3 Financing Statement;
21
<PAGE>
(iv) as to the Mortgaged Properties located in Colorado and
previously encumbered by the Lender in favor of the Borrower in
connection with the Prior Agreement;
(A) Ratification of and Amendment to Mortgage, Deed of
Trust, Security Agreement, Financing Statement and Assignment of
Production between the Borrower and the Lender; and
(v) transfer orders directed to the party remitting to the
Borrower proceeds from the sale of production from the Mortgaged
Properties and instructing that such proceeds be remitted to the
Lender for the account of the Borrower;
(8) The written opinion, substantially in the form attached hereto as
Exhibit E, dated the Closing Date, of legal counsel to the Borrower;
and
(9) Such other agreements, documents, instruments, certificates,
waivers, consents and evidence as the Lender may reasonably request in
compliance with or to accomplish the terms and provisions of any of
the Loan Documents;
(b) The representations and warranties contained in Article 4 shall be
true and correct in all material respects on the date of execution of this
Agreement;
(c) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing;
(d) The Lender shall have approved in all respects, at its discretion
in accordance with its customary lending practices, the Borrowing Base
Properties, including, without limitation, title to and the environmental
status of the Borrowing Base Properties;
(e) All legal matters incident to the execution of this Agreement
shall be satisfactory to the firm of Babcock Henderson Hammon & Carp,
L.L.P., special counsel for the Lender.
22
<PAGE>
3.2 Further Conditions to Each Additional Advance. The obligation of
---------------------------------------------
the Lender to make each additional Advance pursuant to Section 2.1 is subject to
the fulfillment of the following further conditions precedent:
(a) The representations and warranties contained in Article 4 shall be
true and correct in all material respects as of the date of Advance;
(b) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will have occurred at the completion of
making the Advance;
(c) No Material Adverse Effect shall have occurred since the Closing
Date;
(d) The Lender shall have received a Borrowing Request and Compliance
Certificate;
(e) The Lender shall have approved in all respects, at its discretion
in accordance with its customary lending practices, any Oil and Gas
Properties of the Borrower being or having been added as Borrowing Base
Properties since the last Advance, including, without limitation, title to
and the environmental status of such additional Borrowing Base Properties;
and
(f) All legal matters incident to the consummation of such Loan shall
be satisfactory to the then special counsel for the Lender.
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender to enter into this Agreement and to make the
Loans hereunder, the Borrower represents and warrants to the Lender (which
representations and warranties shall survive the delivery of the Note and the
making of the Loans) that:
4.1 Existence and Good Standing. The Borrower is a corporation, duly
---------------------------
organized, legally existing and in good standing under the Laws of the State of
Delaware and is duly qualified and in good standing as a foreign corporation in
all jurisdictions wherein the Borrowing Base Properties owned or the business
transacted by the Borrower makes such qualification necessary and where the
failure to so qualify would have a Material Adverse Effect.
4.2 Due Authorization. The execution and delivery by the Borrower of
-----------------
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrower of the Note and the other
23
<PAGE>
Loan Documents, the repayment of the Loans and interest and fees provided in the
Note and this Agreement and the performance of all Obligations of the Borrower
under this Agreement and the other Loan Documents, are within the corporate
power of the Borrower, have been duly authorized by all necessary corporate
action on behalf of the Borrower and do not (a) require the consent of any
Tribunal or other Person which has not been obtained, (b) contravene or conflict
with any provision of applicable Law or the charter or bylaws of the Borrower,
(c) contravene, conflict with or result in a default under any indenture,
instrument, contract or other agreement to which the Borrower is a party or by
which its Properties may be presently bound or encumbered, or (d) result in or
require the creation or imposition of any Lien upon any Property of the
Borrower, other than Permitted Liens.
4.3 Valid and Binding Obligations. This Agreement and the other Loan
-----------------------------
Documents constitute valid and binding obligations of the Borrower, enforceable
in accordance with their respective terms, except as limited by Debtor Relief
Laws.
4.4 Scope and Accuracy of Financial Statements. The Financial
------------------------------------------
Statements of the Borrower as of December 31, 1994, including any schedules and
notes pertaining thereto, which have been delivered to the Lender have been
prepared in accordance with GAAP and fairly and accurately present the financial
condition and the results of the operations of the Borrower in all material
respects, as of the dates and for the periods stated therein.
4.5 Liabilities and Litigation. Except for (a) liabilities shown in
--------------------------
the Financial Statements of the Borrower as of December 31, 1994 and furnished
to the Lender and (b) liabilities incurred in the ordinary course of business
since the date of such Financial Statements, the Borrower does not have any
material liabilities of any nature, direct or contingent; and the Borrower is
not in default with respect to any such material liabilities or any material
agreements by which it is bound.
There is no judgment against the Borrower, nor is there any Litigation
or other action of any nature pending before any Tribunal or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or its Property
which, if determined adversely to the Borrower could reasonably be expected to
have a Material Adverse Effect.
4.6 Title to Assets. The Borrower has indefeasible title to all of
---------------
its Property, free and clear of all Liens, except for Permitted Liens and other
matters that could not reasonably be expected to have a Material Adverse Effect.
4.7 Authorizations and Consents. No authorization, consent,
---------------------------
approval, exemption, franchise, permit or license of, or filing (except for
filings required to perfect and maintain
24
<PAGE>
perfection of the Liens created by the Security Documents) with, any Tribunal or
any third Person is required to authorize, or is otherwise required in
connection with, the valid execution, delivery and performance by the Borrower
of this Agreement, the other Loan Documents or any other agreement contemplated
hereby or the repayment by the Borrower of the Obligations.
4.8 Compliance with Laws. Neither the business nor any of the
--------------------
activities of the Borrower as presently conducted violates any applicable Law,
the result of which violation would have a Material Adverse Effect. The
Borrower possesses all licenses, approvals, registrations, permits and other
authorizations necessary to enable it to carry on its businesses in all material
respects as now conducted. All such licenses, approvals, registrations, permits
and other authorizations are in full force and effect. Furthermore, the
Borrower does not have any reason to believe that it will be unable to obtain
the renewal of any such licenses, approvals, registrations, permits and other
authorizations in due course. No transaction contemplated by this Agreement or
the other Loan Documents is in violation of any regulation promulgated by the
Board of Governors of the Federal Reserve System, including, without limitation,
Regulations G, U or X.
4.9 Proper Filing of Tax Returns and Payment of Taxes Due. The
------------------------------------------------------
Borrower has duly and properly filed or extended the date for filing all Tax
returns which are required to be filed by it and has paid all Taxes due pursuant
to such returns or pursuant to any assessment received, except such Taxes, if
any, as are being Contested in Good Faith. The charges and reserves on the
Borrower's books with respect to any Taxes are adequate, and the Borrower does
not owe any deficiency or additional assessment in a material amount in
connection with Taxes.
4.10 ERISA Compliance. The Borrower does not currently contribute to,
----------------
or have any obligation to contribute to, and has not at any time contributed to,
or had an obligation to contribute to, any Multi-employer Plan. Since the
effective date of ERISA, no Reportable Event or Prohibited Transaction has
occurred with respect to any Plan of the Borrower. Each Plan established or
maintained by the Borrower meets the minimum funding standards of Section 302 of
ERISA and otherwise is in compliance with all applicable provisions of ERISA.
The Borrower has filed all reports required by ERISA and required to be filed by
it with respect to each Plan. The Borrower does not have any knowledge of any
event that could result in any material liability of the Borrower to the PBGC.
The Borrower has met all requirements with respect to funding the Plans imposed
on the Borrower by ERISA or the PBGC. Since the effective date of Title IV of
ERISA, there have not been any, nor are there now existing any, events or
conditions that would permit any Plan to be terminated under circumstances that
would cause the lien provided under Section 4068 of ERISA to attach
25
<PAGE>
to the assets of the Borrower. The value of the Plans' benefits guaranteed under
Title IV of ERISA on the date hereof does not exceed the value of such Plans'
assets allocable to such benefits as of the date of this Agreement and shall not
be permitted to do so hereafter.
4.11 Investment Company Act Compliance. The Borrower is not an
---------------------------------
"investment company" or directly or indirectly controlled by or acting on behalf
of any Person which is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.12 Public Utility Holding Company Act Compliance. The Borrower is
---------------------------------------------
not subject to the provisions of the Public Utility Holding Company Act of 1935,
as amended.
4.13 Lien Priority. The Liens created in favor of the Lender under
-------------
the Security Documents constitute and shall remain first priority Liens to
secure the Obligations, subject only to Permitted Liens.
4.14 Use of Proceeds. All proceeds of Advances made pursuant to this
---------------
Agreement have been used to purchase producing Oil and Gas Properties or for
other general corporate purposes.
4.15 Full Disclosure. All of the Loan Documents and all written
---------------
statements furnished by the Borrower in connection with the consummation of the
transactions contemplated by this Agreement, when taken together, do not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein not misleading as
of the date made or deemed made.
4.16 Places of Business. The chief executive office and principal
------------------
place of business of the Borrower is at 700 Louisiana, Suite 3330, Houston,
Texas 77002. All records of the Borrower are maintained at such offices, 306
West 7th Street, Suite 1025, Fort Worth, Texas 76102, or such other address of
which the Borrower has provided advance written notice and with respect to which
the Borrower has executed all documents reasonably requested by the Lender.
4.17 Subsidiaries. The Borrower has no Subsidiaries as of the date of
------------
this Agreement.
ARTICLE 5
---------
AFFIRMATIVE COVENANTS
---------------------
So long as any Obligations remain unpaid or unsatisfied or the Lender
remains obligated to make Advances, and in absence of written consent of the
Lender to the contrary:
26
<PAGE>
5.1 Maintenance and Access to Records. The Borrower will keep
---------------------------------
adequate records, in accordance with GAAP or other established industry
practices, of all of its material transactions so that at any time, and from
time to time, its true and complete financial condition may be readily
determined and, at the Lender's reasonable request, make all such records
available for the Lender's inspection and permit the Lender to make and take
away copies thereof.
5.2 Financial Statements. The Borrower will deliver to the Lender,
--------------------
as soon as available but in no event later than sixty (60) days after the end of
each of the first three fiscal quarters of the Borrower, the unaudited Financial
Statements of the Borrower reflecting the financial condition and results of
operations of the Borrower as at the end of such period and from the beginning
of such fiscal year to the end of such period, as applicable. Such Financial
Statements shall be certified by the president or the chief financial or
accounting officer of the Borrower as having been prepared in accordance with
GAAP and presenting fairly the financial condition and the results of the
operations of the Borrower subject to changes resulting from year-end audit
adjustments. The Borrower will deliver to the Lender as soon as available but
in no event later than sixty (60) days after the end of each fiscal quarter of
the Borrower, a detailed calculation of the financial covenants set forth in
Sections 5.21, 5.22, 5.23 and 6.16 together with a certificate of the president
or the chief financial or accounting officer of the Borrower as to the accuracy
of such calculations.
5.3 Annual Financial Statements. The Borrower will deliver to the
---------------------------
Lender, as soon as available but in no event later than one hundred twenty (120)
days after the close of each fiscal year of the Borrower, annual audited
Financial Statements of the Borrower reflecting the financial condition of the
Borrower, together with a report and opinion on such Financial Statements issued
by a nationally recognized firm of independent certified public accountants or
another firm of independent certified public accountants satisfactory to the
Lender.
5.4 Compliance Certificates. The Borrower will deliver to the Lender
-----------------------
with the Financial Statements delivered pursuant to Sections 5.2 and 5.3 and
with each Borrowing Request a duly executed Compliance Certificate.
5.5 Sales and Production Reports. The Borrower will deliver to the
----------------------------
Lender, as soon as available and in any event within sixty (60) days after the
end of each calendar month, a report summarizing, as requested by the Lender,
(a) the gross volume of sales and actual production during such month from all
of the Borrowing Base Properties and current prices being received for such
production, (b) the related severance, gross production, occupation, excise,
sales, recording, ad valorem, gathering and
27
<PAGE>
other similar taxes, if any, deducted from gross proceeds during such month and
(c) leasehold operating expenses and drilling expenditures attributable thereto
and incurred during such month.
5.6 Statement of Material Adverse Effect. The Borrower will deliver
------------------------------------
to the Lender, promptly upon any officer of the Borrower having knowledge of any
Event of Default or event or condition (except for events or conditions as to
the economy of the United States as a whole or the oil and gas industry as a
whole) causing or likely to cause a Material Adverse Effect, a statement of the
president, chief executive officer or chief financial officer of the Borrower
setting forth the Event of Default or event or condition causing or likely to
cause a Material Adverse Effect and the steps being taken with respect thereto.
5.7 Title Defects. Other than Permitted Liens, the Borrower will
-------------
clear any title defects to the Borrowing Base Properties material in value, in
the sole reasonable opinion of the Lender, and, in the event any such title
defects are not cured in a timely manner, pay all related costs and fees
incurred by the Lender to do so.
5.8 Additional Information. The Borrower will furnish to the Lender,
----------------------
promptly upon the Lender's request from time to time, such additional financial
or other information concerning the assets, liabilities, operations and
transactions of the Borrower, as the Lender may reasonably request.
5.9 Compliance with Laws and Payment of Taxes. The Borrower will
-----------------------------------------
comply in all material respects with all Laws and pay all Taxes, claims for
labor, supplies, rent and other obligations which, if unpaid, might become a
Lien against any of the Borrowing Base Properties, except any of the foregoing
being Contested in Good Faith.
5.10 Maintenance of Existence and Good Standing. The Borrower will
------------------------------------------
maintain its corporate existence or qualification and good standing in its
jurisdiction of incorporation and in all jurisdictions wherein the Borrowing
Base Properties now owned or hereafter acquired or business now or hereafter
conducted necessitates same and where the failure to so qualify would have a
Material Adverse Effect.
5.11 Further Assurances. The Borrower will promptly cure any defects,
------------------
errors or omissions in the execution and delivery of the Loan Documents and,
upon notice, take such other action and immediately execute and deliver to the
Lender all such other and further instruments as may be reasonably required or
desired by the Lender from time to time in compliance with the covenants and
agreements made in this Agreement and the other Loan Documents, including,
without limitation, taking such action as may be reasonably required to create,
perfect and maintain Liens on the
28
<PAGE>
Collateral and all other Property intended as security for the Obligations.
5.12 Initial Expenses of the Lender. The Borrower will pay all
------------------------------
reasonable third party fees and expenses of the Lender incurred in connection
with the preparation and negotiation of the Loan Documents, the satisfaction of
the conditions precedent set forth in Article 3 and the consummation for the
transactions contemplated herein, including attorneys' fees.
5.13 Subsequent Expenses of the Lender. Upon request, the Borrower
---------------------------------
will promptly reimburse the Lender for all amounts reasonably expended, advanced
or incurred by the Lender in connection with the preparation of any additional
Security Documents and any assignments of, renewals of and amendments to any of
the Loan Documents. Upon request, the Borrower will promptly reimburse the
Lender for all amounts reasonably expended, advanced or incurred by the Lender
to collect the Note or to enforce the Rights of the Lender under this Agreement
or any of the other Loan Documents, all of which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to the Borrower
by the Lender and which amounts will include, but not be limited to, (i) all
court costs, (ii) attorneys' fees, (iii) fees of auditors and accountants, (iv)
investigation expenses, (v) fees and expenses incurred in connection with the
Lender's participation as a member of the creditors' committee in a case
commenced under any Debtor Relief Laws, (vi) fees and expenses incurred in
connection with lifting the automatic stay prescribed in 11 U.S.C. (S)362, and
(vii) fees and expenses incurred in connection with any action pursuant to 11
U.S.C. (S)1129 incurred by the Lender in connection with the collection of any
sums due under this Agreement or the other Loan Documents, together with
interest at the Default Rate, calculated on the basis of a year of three hundred
sixty-five (365) or three hundred sixty-six (366) days, as the case may be, on
each such amount from the date of notification to the Borrower that the same was
expended, advanced or incurred by the Lender to, but not including, the date it
is repaid to the Lender, with the Obligations under this Section surviving the
non-assumption of this Agreement in a case commenced under any Debtor Relief
Laws and being binding upon the Borrower, any guarantor or a trustee, receiver
or liquidator of any such party appointed in any such case.
5.14 Maintenance of Tangible Property. The Borrower will maintain all
--------------------------------
equipment situated on or used in the operation of the Borrowing Base Properties
in good repair and working order and make all necessary replacements thereof and
will operate the Borrowing Base Properties in a good and workmanlike manner and
in accordance with standard industry practices, unless the failure to do so
would not have a Material Adverse Effect.
29
<PAGE>
5.15 Maintenance of Insurance. The Borrower will maintain insurance
------------------------
with respect to its Property and business against such liabilities, casualties,
risks and contingencies and in such amounts as are customarily maintained in the
industry, and furnish to the Lender, on the Closing Date and annually
thereafter, certificates evidencing such insurance.
5.16 Right of Inspection. The Borrower will permit any authorized
-------------------
representative of the Lender to visit and inspect, at the sole risk and expense
of the Lender, any Collateral and any other Property of the Borrower at such
reasonable times and as often as the Lender may request.
5.17 Compliance with ERISA. The Borrower will furnish to the Lender
---------------------
(a) promptly after the filing thereof with the United States Secretary of Labor
or the PBGC, copies of each annual and other report with respect to each Plan or
any trust created thereunder and (b) immediately upon becoming aware of the
occurrence of any Reportable Event or Prohibited Transaction in connection with
any Plan or any trust created thereunder, a written notice specifying the nature
thereof, what action is being taken or is proposed to be taken with respect
thereto, and, when known, any action taken by the Internal Revenue Service or
any other Tribunal with respect thereto. The Borrower will fund all current
service pension liabilities as they are incurred under the provisions of all
Plans from time to time in effect and timely file all reports required by ERISA
and required to be filed by the Borrower with respect to each Plan.
5.18 Notice. The Borrower will immediately notify the Lender of (a)
------
the receipt of any notice from, or the taking of any action by, the holder of
any promissory note or other evidence of Debt of the Borrower with respect to a
claimed default, together with a statement specifying the notice given or other
action taken by such holder and what action the Borrower is taking or proposes
to take with respect thereto; (b) any legal, judicial or regulatory proceedings
affecting the Borrower in which the amount involved is material and is not
covered by insurance or that would, if adversely determined, have a Material
Adverse Effect; (c) any dispute between the Borrower and any Tribunal or any
Person that would, if adversely determined, have a Material Adverse Effect; (d)
information that in any way relates to or affects the filing of any financing
statement or other security instrument for the purpose of perfecting or
continuing a Lien on the Collateral; (e) any event that materially and adversely
affects the Collateral or the Rights of the Lender with respect to such
Collateral; (f) the occurrence of any Event of Default; and (g) any event or
condition (except for events or conditions to the economy of the United States
as a whole or the oil and gas industry as a whole) which could reasonably be
expected to cause a Material Adverse Effect.
30
<PAGE>
5.19 Mortgage of Borrowing Base Properties. Upon the request of the
-------------------------------------
Lender, the Borrower shall promptly execute and deliver to the Lender to secure
the Debt evidenced by the Note first priority mortgage or deed of trust liens
and security interests on any of the Borrowing Base Properties that have not
been previously encumbered in favor of the Lender, all of such documentation to
be in the form and substance acceptable to the Lender at its reasonable
discretion.
5.20 Proceeds of Production. Direct all purchasers of production or
----------------------
disbursers of proceeds of production from the Borrowing Base Properties not
encumbered by a Lien in favor of the Lender to pay such proceeds directly to a
lock-box maintained by the Borrower and the Lender.
5.21 Tangible Net Worth Requirement. The Borrower will maintain total
------------------------------
tangible net worth (being total assets exclusive of (a) those assets classified
as intangible, including, without limitation, goodwill, patents, trademarks,
trade names, copyrights, franchises and deferred charges, (b) treasury stock and
minority interests in any Person, (c) cash set apart and held in a sinking or
other analogous fund established for the purpose of redemption or other
retirement of capital stock, (d) to the extent not already deducted from total
assets, allowances for depreciation, depletion, obsolescence and/or amortization
of properties, uncollectible accounts, and contingent but probable liabilities
as to which an amount can be established, and (e) all assets arising from
advances to officers, former officers or sales representatives made outside of
the ordinary course of business less total liabilities), of not less than
$5,675,000.00 at any time on or after the last day of the fiscal quarter of the
Borrower ending December 31, 1994; provided, however, such minimum amount shall
increase at the end of each successive fiscal quarter of the Borrower by an
amount equal to seventy percent (70%) of the net income for such fiscal quarter,
but never less than zero (0).
5.22 Current Ratio. The Borrower will maintain a ratio of (a) the sum
-------------
of current assets plus the Unused Amount of the Commitment to (b) current
liabilities (excluding, however, the Subordinated Debt and any of the Debt of
the Borrower evidenced by the Note that is classified as current) of not less
than 1.0 to 1.0.
5.23 Fixed Charge Coverage Ratio. The Borrower will maintain for each
---------------------------
four (4) fiscal quarter period beginning with the four (4) fiscal quarter period
ending March 31, 1995, a ratio of (a) net cash flow from operations exclusive of
working capital changes to (b) an amount equal to the quotient of (i) the
Borrowing Base as of the last day of the relevant fiscal quarter divided by (ii)
four, of no less than 1.15 to 1.0 for each calculation period ending in 1995 and
no less than 1.2 to 1.0 thereafter.
31
<PAGE>
ARTICLE 6
---------
NEGATIVE COVENANTS
------------------
So long as any Obligations remain unpaid or the Lender remains
obligated to make Advances, and in the absence of written consent of the Lender
to the contrary:
6.1 Other Debt of Borrower. The Borrower will not incur, create,
----------------------
assume or suffer to exist any Debt except: (a) Loans hereunder, (b) unsecured
current accounts payable incurred in the ordinary course of business, provided
such accounts are paid within sixty (60) days of the invoice date or are being
Contested in Good Faith, (c) the Subordinated Debt (provided, however, the
Subordinated Debt shall be paid in full on or before May 15, 1995) and (d) other
Debt not in excess of $100,000.00 at any one time.
6.2 Guaranty of Payment or Performance. The Borrower will not
----------------------------------
guarantee any contract or otherwise be or become liable in connection with any
obligation of any Person, except that the foregoing restriction shall not apply
to endorsements of instruments for collection in the ordinary course of
business.
6.3 Investments. The Borrower will not make or agree to make or
-----------
allow to remain outstanding any Investment, except (a) advances or extensions of
credit in the form of accounts receivable incurred in the ordinary course of
business and upon terms common in the industry for such accounts receivable, (b)
Liquid Investments, and (c) loans and advances made to employees in the normal
course of business.
6.4 Mortgages or Pledges of Assets. The Borrower will not create,
------------------------------
incur, assume or permit to exist any Lien on any of its Property (now owned or
hereafter acquired), except Permitted Liens.
6.5 Cancellation of Insurance. The Borrower will not allow any
-------------------------
insurance policy required to be carried hereunder to be terminated or lapse or
expire without provision for adequate renewal or replacement thereof.
6.6 Sales of Borrowing Base Properties. The Borrower will not sell,
----------------------------------
transfer or otherwise dispose of any of the Borrowing Base Properties; provided,
however, the foregoing restriction shall not apply to sales of oil, gas and
other minerals produced from or attributable to the Borrowing Base Properties.
6.7 Sale and Leaseback. The Borrower will not enter into any
------------------
arrangement with any Person providing for the leasing by the Borrower of
Property which has been or is to be sold or transferred by the Borrower to such
Person or to any other Person to whom funds have been or are to be advanced by
such Person on the security of such Property or rental obligations of the
Borrower.
32
<PAGE>
6.8 Dividends and Distributions. Except for dividends payable in
---------------------------
Preferred Stock on the Preferred Stock, the Borrower will not declare, pay or
make, whether in cash or other Property, any dividend or distribution on, or
purchase, redeem or otherwise acquire for value, any share of any class of its
capital stock.
6.9 Changes in Corporate Structure. The Borrower will not issue or
------------------------------
agree to issue additional shares of capital stock (provided, however, the
foregoing restriction shall not apply to the issuance or exchange, as
consideration for Oil and Gas Properties, of shares of its common stock which do
not aggregate in excess of 3,000,000 shares from the date of this Agreement);
enter into any transaction of consolidation, merger or amalgamation; liquidate,
wind up or dissolve (or suffer any liquidation or dissolution); or convey, sell,
lease, assign, transfer or otherwise dispose of all or substantially all of its
Property or business.
6.10 Payment of Accounts Payable. The Borrower will not allow any
---------------------------
account payable to be in excess of sixty (60) days past due, except such as are
being Contested in Good Faith.
6.11 Transactions with Affiliates. The Borrower will not directly or
----------------------------
indirectly, enter into any transaction (including the sale, lease or exchange of
Property or the rendering of service) with any of its Affiliates, other than
upon fair and reasonable terms no less favorable than could be obtained in an
arm's length transaction with a Person which was not an Affiliate.
6.12 Limitation on Negative Pledge Clauses. The Borrower will not
-------------------------------------
enter into any agreement with any Person other than the Lender which prohibits
or limits the ability of the Borrower create, incur, assume or suffer to exist
any Lien upon any of its Property, whether now owned or hereafter acquired.
6.13 Nature of Business. The Borrower will not make any material
------------------
change in the character of its business as carried on at the date hereof.
6.14 No Subsidiaries. The Borrower will not own any Subsidiary.
---------------
6.15 Hedge Agreements. The Borrower will not enter into any commodity
----------------
swap or hedge agreement.
6.16 Overhead Expense. For the 1995 fiscal year of the Borrower, the
----------------
Borrower will not incur general and administrative expenses in excess of
$1,500,000.00. For each fiscal quarter of the Borrower after the 1995 fiscal
year of the Borrower, the Borrower will not incur general and administrative
expenses in excess of thirty-six percent (36%) of gross revenues attributable to
its oil and gas operations for any such fiscal quarter.
33
<PAGE>
ARTICLE 7
---------
EVENTS OF DEFAULT
-----------------
7.1 Events of Default. The occurrence of any of the following
-----------------
events shall constitute an Event of Default:
(a) The Borrower shall fail to pay when due any installment of
principal or interest on the Note or any fee payable under this Agreement
and, as to interest only, such failure to pay shall remain unremedied for
in excess of five (5) days;
(b) Default shall occur in the due observance or performance of any
affirmative covenant required in this Agreement, the Note, any of the
Security Documents or any of the other Loan Documents and such default
shall remain unremedied for in excess of ten (10) days after the earlier of
(i) written notice given by the Lender, or (ii) actual knowledge thereof by
the Borrower;
(c) Default shall occur in the due observance or performance of any
negative covenant required in this Agreement, the Note, any of the Security
Documents or any of the other Loan Documents;
(d) Any Financial Statement, representation, warranty or certificate
made or furnished by or on behalf of the Borrower to the Lender in
connection with this Agreement or any other Loan Document, or as an
inducement to the Lender to enter into this Agreement, or in any instrument
furnished in compliance with or in reference to this Agreement or any other
Loan Document, shall be materially false, incorrect, or incomplete at or as
of the time made with the result of a Material Adverse Effect;
(e) Default shall be made by the Borrower (as principal or guarantor
or other surety) in payment or performance of any bond, debenture, note or
other evidence of Debt for borrowed money having an outstanding principal
amount in excess of $50,000.00, or under any credit agreement, loan
agreement, indenture, promissory note or similar agreement or instrument
executed in connection with any of the foregoing, and such default shall
remain unremedied for in excess of the period of grace, if any, with
respect thereto, with the effect of accelerating the maturity of any such
Debt or establishing a right to accelerate the maturity of such Debt;
34
<PAGE>
(f) The Borrower shall file a petition seeking relief for itself under
Debtor Relief Laws, or file an answer consenting to, admitting the material
allegations of or otherwise not controverting, or fail timely to controvert
a petition filed against it seeking relief under Debtor Relief Laws;
(g) An order for relief shall be entered against the Borrower under
any Debtor Relief Laws, which order is not stayed, or upon the entry of an
order, judgment or decree by operation of Law or by a court of competent
jurisdiction which is not stayed, ordering relief against the Borrower
under, or approving as properly filed, a petition seeking relief against
any such Person under the provisions of any Debtor Relief Laws, or
appointing a receiver, liquidator, assignee, sequestrator, trustee or
custodian of the Borrower or of any substantial part of its Property, or
ordering the reorganization, winding up or liquidation of any the
Borrower's affairs, or upon the expiration of ninety (90) days after the
filing of any involuntary petition against the Borrower seeking any of the
relief specified in the preceding Subsection or this Subsection without the
petition being dismissed prior to that time;
(h) The Borrower shall (i) make a general assignment for the benefit
of its creditors, (ii) consent to the appointment of or taking possession
by a receiver, liquidator, assignee, sequestrator, trustee or custodian of
the Borrower or any substantial part of its Property, (iii) admit
insolvency or inability to pay its debts generally as such debts become
due, (iv) fail generally to pay its debts as such debts become due, or (v)
take any action (or an action shall be taken by its directors or majority
stockholders) looking to the dissolution or liquidation of the Borrower;
(i) Final judgment for the payment of money in excess of $50,000.00
shall be rendered against the Borrower and such judgment shall remain
undischarged for a period of 30 days during which execution shall not be
effectively stayed;
(j) The Security Documents shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and
valid, binding and enforceable in accordance with their terms, cease to
create a valid Lien of the priority required thereby on any of the
Collateral purported to be covered thereby, or, upon perfection, cease to
be a perfected Lien on any of the Collateral purported to be covered
thereby, or the Borrower or any other Person who may have granted or
35
<PAGE>
purported to grant such Lien shall so state in writing and such default
shall remain unremedied for in excess of ten (10) days after the earlier of
(i) written notice given by the Lender, or (ii) actual knowledge thereof by
the Borrower;
(k) A judgment creditor of the Borrower shall obtain possession of any
of the Collateral by any means, including, without limitation, levy,
attachment or self help;
(l) The validity or enforceability of any of the Loan Documents shall
be contested by the Borrower or the Borrower shall deny that it has any or
further liability or Obligation under any of the Loan Documents or allege
that any of the Loan Documents shall be construed or enforced other than in
accordance with their terms; or
(m) The Borrower shall have concealed, removed, or permitted to be
concealed or removed, any part of its Property with the intent to hinder,
delay or defraud its creditors or any of them, or made or suffered a
transfer of any of its Property which is fraudulent under any Debtor Relief
Laws (except for such transfers in favor of the Lender); or shall have made
any transfer (other than in the ordinary course of business) of its
Property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid.
7.2 Rights Upon Occurrence of Unmatured Event of Default. At any time
----------------------------------------------------
that there exists an Unmatured Event of Default, any obligation of the Lender
hereunder to make Advances to or for the benefit of the Borrower shall be
suspended unless and until the Lender shall reinstate the same in writing, the
Unmatured Event of Default shall have been waived by the Lender or the relevant
Unmatured Event of Default shall have been remedied prior to ripening into an
Event of Default.
7.3 Rights Upon Occurrence of an Event of Default.
---------------------------------------------
(a) Upon the occurrence of any Event of Default specified in
Subsections (f), (g), (h) or (i) of Section 7.1, immediately and without
notice, (i) all Obligations shall immediately become due and payable
without presentment, demand, protest, notice of protest or dishonor, notice
of intent to accelerate, notice of acceleration or other notice of any
kind, all of which are expressly waived by the Borrower and (ii) all
obligations of the Lender, if any, under this Agreement shall immediately
and automatically cease and terminate unless and until the Lender shall
reinstate any such obligation in writing.
36
<PAGE>
(b) Upon the occurrence and at any time during the continuance of any
other Event of Default, (i) all obligations of the Lender, if any, under
this Agreement shall immediately and automatically cease and terminate
unless and until the Lender shall reinstate any such obligation in writing
and (ii) the Lender may by written notice to the Borrower declare all
Obligations to be immediately due and payable without presentment, demand,
protest, notice of protest or dishonor, notice of intention to accelerate,
notice of acceleration or other notice of any kind, all of which are
expressly waived by the Borrower. The Borrower acknowledges and
understands that under the Laws of the State of Texas, unless waived, the
Borrower has the right to notice of the Lender's intent to accelerate the
Obligations evidenced by the Note, the right to notice of the actual
acceleration of the Obligations evidenced by the Note, and the right to
presentment of the Note by the Lender's demand for payment. The Borrower
acknowledges that it understands that it can waive these rights and by the
Borrower's execution of this Agreement it agrees to waive its right to
notice of intent to accelerate, its right to notice of acceleration, and
its right to presentment or other demand for payment.
(c) In addition to the foregoing, upon the occurrence of any Event of
Default, the Lender may exercise any or all of the Rights provided in any
or all of the Loan Documents.
ARTICLE 8
---------
MISCELLANEOUS
-------------
8.1 Notices. Any notice required or permitted to be given under or
-------
in connection with this Agreement or any of the other Loan Documents (except as
may otherwise be expressly required therein) shall be in writing and shall be
mailed by certified mail, return receipt requested, postage prepaid, or sent by
telex, telegram, telecopy or other similar form of rapid transmission confirmed
by mailing (by certified mail, return receipt requested, postage prepaid)
written confirmation at substantially the same time as such rapid transmission,
or personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered,
(a) if to the Borrower, to Amerac Energy Corporation, 700 Louisiana,
Suite 3330, Houston, Texas 77002, Attn: Jeffrey B. Robinson, or to such
other address or to such individual's or department's attention as the
Borrower may have furnished the Lender in writing; or
37
<PAGE>
(b) if to the Lender, to Bank One, Texas, National Association, 910
Travis, Houston, Texas 77002 (if personally delivered), or P.O. Box 2629,
Houston, Texas 77252 (if mailed), Attn: Ms. Melanie M. Ottens, or to such
other address or to such individual's or department's attention as the
Lender may have furnished the Borrower in writing.
Any communication so addressed and mailed shall be deemed to be given when so
mailed, and any notice so sent by rapid transmission is acknowledged, and any
communication so delivered in person shall be deemed to be given when receipted
for or actually received by an authorized officer of the Borrower or the Lender,
as the case may be.
8.2 Amendments and Waivers. Any provision of this Agreement or any
----------------------
of the other Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and the Lender
(and/or any other Person which is a party to any Loan Document being amended or
with respect to which a waiver is being obtained).
8.3 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or any of the other Loan Documents shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or any other Loan Document.
8.4 Survival of Agreements. All representations and warranties of
----------------------
the Borrower herein or in the other Loan Documents and all covenants and
agreements not fully performed before the effective date or dates of this
Agreement or the other Loan Documents shall survive such date or dates.
8.5 Successors and Assigns. All covenants and agreements by or on
----------------------
behalf of the Borrower in this Agreement and all of the other Loan Documents
shall bind its legal representatives, successors and assigns and shall inure to
the benefit of the Lender and its legal representatives, successors and assigns.
The Borrower may not assign its respective Rights or Obligations hereunder or
under the Note without the prior consent of the Lender.
8.6 Renewal, Extension or Rearrangement. All provisions of this
-----------------------------------
Agreement and of any other Loan Documents, as presently existing or as they may
hereafter be amended, relating to the Note or other Obligations shall apply with
equal force and effect to each and all promissory notes hereinafter executed
which in whole or in part represent a renewal, extension for any period,
increase or rearrangement of any part of the Obligations originally evidenced by
the Note or of any part of such other Obligations.
38
<PAGE>
8.7 Waivers. No waiver by the Lender of any of its Rights under this
-------
Agreement, the other Loan Documents or otherwise shall be considered a waiver of
any other or subsequent Right. No course of dealing on the part of the Lender,
its officers, employees, consultants or agents, nor any failure or delay by the
Lender with respect to exercising any Right under any of the Loan Documents
shall operate as a waiver thereof.
8.8 Cumulative Rights. The Rights of the Lender under the Note, this
-----------------
Agreement and each other Loan Document shall be cumulative, and the exercise or
enforcement of any such Right shall not preclude the exercise or enforcement of
any other Right.
8.9 Taxes, Etc. Any assessments, filing fees, mortgage registration
-----------
tax, stamp tax or other charge in connection with the filing or recordation of
any of the Security Documents with any governmental authority shall be paid by
the Borrower.
8.10 Exhibits; Conflicts. The exhibits attached to this Agreement are
-------------------
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein. In the event of any direct conflict between any of the
provisions of such exhibits or any of the other Loan Documents and the
provisions of this Agreement, the provisions of this Agreement shall prevail.
8.11 Titles of Articles, Sections and Subsections. All titles or
--------------------------------------------
heading to articles, Sections, Subsections or other divisions of this Agreement
or the exhibits hereto are only for the convenience of the parties and shall not
be construed to have any effect or meaning with respect to the other content of
such articles, Sections, Subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
8.12 Jurisdiction. All actions or proceedings with respect to the
------------
Note, this Agreement or any of the other Loan Documents may be instituted in the
courts of the State of Texas, the United States District Court for the Southern
District of Texas, or elsewhere to the extent that jurisdiction shall exist
apart from the provisions of this Section, as the Lender may elect. By
execution and delivery of this Agreement, the Borrower irrevocably and
unconditionally submits to the jurisdiction (both subject matter and personal)
of each such court, and irrevocably and unconditionally waives (a) any objection
it may now or hereafter have to the laying of venue in any of such courts and
(b) any claim that any action or proceeding brought in any of such courts has
been brought in an inconvenient forum. The Borrower hereby designates and
appoints C T Corporation System as its authorized agent in the State of Texas to
accept and acknowledge service of process in the State of Texas and agrees that
any service of process upon such agent shall be deemed in every respect
effective service. The Borrower agrees that so long as it shall be
39
<PAGE>
obligated to the Lender under any of the Loan Documents, it shall maintain a
duly appointed agent satisfactory to the Lender for the service of process in
the State of Texas and shall keep the Lender advised in writing of the identity
and location of such agent. The failure of such agent to give notice to the
Borrower of any such service shall not impair or affect the validity of such
service or of any judgment rendered in any action or proceeding based thereon.
8.13 Counterparts. This Agreement may be executed in two or more
------------
counterparts and multiple originals of such counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained on any one
counterpart hereof. Any executed Agreement or any counterpart thereof shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
8.14 Effectiveness. This Agreement shall not be effective until
-------------
delivered to, accepted and executed by the Lender and the Borrower.
8.15 Documents. All Loan Documents and any other certificate,
---------
agreement or other document provided or to be provided under the terms hereof
shall be in form and substance satisfactory to the Lender.
8.16 Rights of Third Person. All provisions of this Agreement are
----------------------
imposed solely and exclusively for the benefit of the Lender and the Borrower.
No other Person shall have standing to require satisfaction for such provisions
in accordance with their terms or be entitled to assume that the Lender will
refuse to perform its obligations hereunder in the absence of strict compliance
with any or all thereof, and any or all of such provisions may be freely waived
in whole or in part by the Lender at any time if in its sole discretion its
deems it advisable to do so.
8.17 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
-------------
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF
AMERICA AND THE STATE OF TEXAS (EXCEPT TO THE EXTENT THE LOCATION OR NATURE OF
THE COLLATERAL REQUIRES THE APPLICATION OF THE LAWS OF OTHER JURISDICTIONS TO BE
APPLIED AS TO MATTERS OF CREATION, PERFECTION AND PRIORITY OF LIENS AND THE
RIGHTS OF THE LENDERS OR THE AGENT UPON DEFAULT), PROVIDED, HOWEVER, THAT THE
PROVISIONS OF CHAPTER 15, TITLE 79 OF THE REVISED CIVIL STATUTES OF TEXAS
(ARTICLE 5069-15.01, ET SEQ., TEX. REV. CIV. STAT. ANN.) SHALL NOT APPLY TO ANY
-- ---
OF THE LOAN DOCUMENTS.
8.18 Review of Financial Covenants. The Lender, acting at its
-----------------------------
discretion and in accordance with its customary lending practices, will from
time to time review changes to the financial condition of the Borrower caused by
the Borrower's growth or acquisition of Oil and Gas Properties and consider
amending the
40
<PAGE>
covenants set forth in Sections 5.21, 5.22, 5.23 and 6.16 to accommodate such
changed financial condition.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed effective as of the date first above written.
AMERAC ENERGY CORPORATION
By: ___________________________
Jeffrey B. Robinson
President and
Chief Executive Officer
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: ___________________________
Melanie M. Ottens
Vice President
41
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - DEFINITIONS AND ACCOUNTING TERMS................... 1
1.1 Defined Terms.................................. 1
1.2 Accounting Terms............................... 11
1.3 Number and Gender of Words..................... 11
ARTICLE 2 - TERMS OF FACILITY.................................. 11
2.1 Revolving Commitment........................... 11
2.2 Advances and Payments Under the Note........... 12
2.3 Repayment Provisions........................... 12
2.4 Borrowing Base Determinations.................. 13
2.5 Interest Rates................................. 15
2.6 Commitment Fee................................. 16
2.7 Facility Fee................................... 16
2.8 Engineering Fee................................ 16
2.9 General Provisions Relating to Interest........ 16
2.10 Loans to Satisfy Obligations................... 18
2.11 Voluntary Prepayment........................... 18
2.12 Yield Protection............................... 18
2.13 Automatic Debit Authority...................... 19
2.14 Security Interests in Deposits................. 19
ARTICLE 3 - CONDITIONS PRECEDENT............................... 19
3.1 Conditions to Initial Advance.................. 19
3.2 Further Conditions to Each Additional Advance.. 23
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES..................... 23
4.1 Existence and Good Standing.................... 23
4.2 Due Authorization.............................. 23
4.3 Valid and Binding Obligations.................. 24
4.4 Scope and Accuracy of Financial Statements..... 24
4.5 Liabilities and Litigation..................... 24
4.6 Title to Assets................................ 24
4.7 Authorizations and Consents.................... 24
4.8 Compliance with Laws........................... 25
4.9 Proper Filing of Tax Returns and Payment of
Taxes Due...................................... 25
4.10 ERISA Compliance............................... 25
4.11 Investment Company Act Compliance.............. 26
4.12 Public Utility Holding Company Act Compliance.. 26
4.13 Lien Priority.................................. 26
4.14 Use of Proceeds................................ 26
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.15 Full Disclosure................................ 26
4.16 Places of Business............................. 26
4.17 Subsidiaries................................... 26
ARTICLE 5 - AFFIRMATIVE COVENANTS.............................. 26
5.1 Maintenance and Access to Records.............. 27
5.2 Financial Statements........................... 27
5.3 Annual Financial Statements.................... 27
5.4 Compliance Certificates........................ 27
5.5 Sales and Production Reports................... 27
5.6 Statement of Material Adverse Effect........... 28
5.7 Title Defects.................................. 28
5.8 Additional Information......................... 28
5.9 Compliance with Laws and Payment of Taxes...... 28
5.10 Maintenance of Existence and Good Standing..... 28
5.11 Further Assurances............................. 28
5.12 Initial Expenses of the Lender................. 29
5.13 Subsequent Expenses of the Lender.............. 29
5.14 Maintenance of Tangible Property............... 29
5.15 Maintenance of Insurance....................... 30
5.16 Right of Inspection............................ 30
5.17 Compliance with ERISA.......................... 30
5.18 Notice 30
5.19 Mortgage of Borrowing Base Properties.......... 31
5.20 Proceeds of Production......................... 31
5.21 Tangible Net Worth Requirement................. 31
5.22 Current Ratio.................................. 31
5.23 Fixed Charge Coverage Ratio.................... 31
ARTICLE 6 - NEGATIVE COVENANTS................................. 32
6.1 Other Debt of Borrower......................... 32
6.2 Guaranty of Payment or Performance............. 32
6.3 Investments.................................... 32
6.4 Mortgages or Pledges of Assets................. 32
6.5 Cancellation of Insurance...................... 32
6.6 Sales of Borrowing Base Properties............. 32
6.7 Sale and Leaseback............................. 32
6.8 Dividends and Distributions.................... 33
6.9 Changes in Corporate Structure................. 33
6.10 Payment of Accounts Payable.................... 33
6.11 Transactions with Affiliates................... 33
6.12 Limitation on Negative Pledge Clauses.......... 33
6.13 Nature of Business............................. 33
6.14 No Subsidiaries................................ 33
6.15 Hedge Agreements............................... 33
6.16 Overhead Expense............................... 33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7 - EVENTS OF DEFAULT.................................. 34
7.1 Events of Default.............................. 34
7.2 Rights Upon Occurrence of Unmatured Event of
Default........................................ 36
7.3 Rights Upon Occurrence of an Event of Default.. 36
ARTICLE 8 - MISCELLANEOUS...................................... 37
8.1 Notices........................................ 37
8.2 Amendments and Waivers......................... 38
8.3 Invalidity..................................... 38
8.4 Survival of Agreements......................... 38
8.5 Successors and Assigns......................... 38
8.6 Renewal, Extension or Rearrangement............ 38
8.7 Waivers........................................ 39
8.8 Cumulative Rights.............................. 39
8.9 Taxes, Etc..................................... 39
8.10 Exhibits; Conflicts............................ 39
8.11 Titles of Articles, Sections and Subsections... 39
8.12 Jurisdiction................................... 39
8.13 Counterparts................................... 40
8.14 Effectiveness.................................. 40
8.15 Documents...................................... 40
8.16 Rights of Third Person......................... 40
8.17 GOVERNING LAW.................................. 40
8.18 Review of Financial Covenants.................. 40
</TABLE>
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Compliance Certificate
Exhibit C Borrowing Base Properties
Exhibit D Mortgaged Properties
Exhibit E Form of Opinion of Counsel
iii
<PAGE>
EXHIBIT 19-(4)
PROMISSORY NOTE
---------------
$15,000,000.00 Houston, Texas May 12, 1995
FOR VALUE RECEIVED and WITHOUT GRACE, on or before May 31, 1997, the
undersigned ("Maker") promises to pay to the order of BANK ONE, TEXAS, NATIONAL
-----
ASSOCIATION ("Payee") the sum of FIFTEEN MILLION AND NO/100 DOLLARS
-----
($15,000,000.00), or so much thereof as may be advanced to or for the benefit of
Maker by Payee and remains unpaid, which amounts Maker is permitted to borrow,
repay and reborrow pursuant to that certain Amended and Restated Credit
Agreement dated of even date herewith between Maker and Payee (as may be amended
from time to time, the "Credit Agreement"), together with interest as set forth
----------------
in the Credit Agreement; provided, however, that it is the intention of Maker
and Payee to comply strictly with all applicable usury laws as in effect from
time to time; and there is no intention to contract for, nor shall there ever be
collected, charged or received on this Note, interest in excess of that which
would accrue and be payable on the basis of the Highest Lawful Rate. For
purposes of Article 5069-1.04, Vernon's Texas Civil Statutes, as amended, Maker
--------------------
agrees that the maximum rate to be charged shall be the "indicated rate ceiling"
as defined in said Article, provided that Payee may also rely on alternative
maximum rates of interest under other applicable laws, if greater.
All payments of principal and interest are payable in lawful money of
the United States of America to Payee at its offices at 910 Travis, Houston,
Harris County, Texas as set forth in the Credit Agreement.
Each advance by Payee to Maker and each payment of principal hereunder
by Maker shall be reflected by a notation made by Payee on its records or on a
ledger appended to this Note and the aggregate unpaid amount of advances
reflected by said notations shall be deemed rebuttably presumptive evidence of
the principal amount owing under this Note.
This Note is issued pursuant to the Credit Agreement, and reference is
made to the Credit Agreement for matters governed thereby, including, without
limitation, certain events which will entitle the holder hereof to accelerate
the maturity of all amounts due hereon. Capitalized terms used but not defined
herein shall have the same meanings as in the Credit Agreement.
--------------
Initialled for
Identification
(Page 1 of a 3 Page Note)
<PAGE>
If under any circumstances the aggregate amounts paid on this Note
include amounts which by Law are deemed interest and which would exceed the
maximum non-usurious amount of interest which could lawfully have been collected
on this Note, Maker stipulates that such payment and collection will have been
and will be deemed to have been the result of mathematical error on the part of
both Maker and Payee or the holder of this Note, and the party receiving such
excess payments shall promptly refund the amount of such excess (to the extent
only of such interest payments above the maximum non-usurious amount which could
lawfully have been collected and retained) upon discovery of such error by the
party receiving such payment or notice thereof from the party making such
payment.
The principal indebtedness evidenced by this Note and all interest
accrued thereon shall be payable pursuant to the terms of the Credit Agreement,
which provides in part that all outstanding indebtedness evidenced by this Note
on the Termination Date shall be paid on the Termination Date. If any
installment provided for in the Credit Agreement, either of principal or
interest, is not paid when due, then Payee or the owner or holder hereof may, at
its option, without notice (including, without limitation, notice of intention
to accelerate maturity and/or notice of acceleration of maturity) or demand,
declare this Note at once matured, due and payable in full, and in such case the
entire amount of unpaid principal hereunder and accrued interest thereon shall
immediately become due and payable.
If default is made in the payment of this Note and it is placed in the
hands of an attorney for collection, or collected through probate or bankruptcy
proceedings, or if suit is brought on the same, Maker agrees to pay reasonable
attorneys' fees and other costs of collection.
Maker and any and all endorsers, guarantors and sureties severally
waive notice (including, without limitation, notice of intention to accelerate
maturity and/or notice of acceleration of maturity), demand, presentment for
payment, protest and the filing of suit hereon for the purpose of fixing
liability and consent that the time of payment hereof may be extended and
reextended from time to time without notice to them or any of them. Maker
acknowledges and understands that under the Laws of the State of Texas, unless
waived, Maker has the right to notice of Payee's intent to accelerate the
indebtedness evidenced by this Note, the right to notice of the actual
acceleration of the indebtedness evidenced by this Note, and the right to
presentment of this Note by Payee's demand for payment. Maker acknowledges that
it understands that it can waive these rights and by Maker's execution of this
Note it
--------------
Initialled for
Identification
(Page 2 of a 3 Page Note)
<PAGE>
agrees to waive its right to notice of intent to accelerate, its right to notice
of acceleration, and its right to presentment or other demand for payment.
Maker may at any time pay the full amount or any part of this Note
without the payment of any premium or fee.
This Note is issued, in whole or in part, in renewal or extension, but
not in novation or discharge, of that certain Promissory Note dated April 28,
1995 in the principal face amount of $1,000,000.00 executed by Maker to the
order of Payee.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE
STATE OF TEXAS, PROVIDED, HOWEVER, THAT THE PROVISIONS OF CHAPTER 15, TITLE 79
OF THE REVISED CIVIL STATUTES OF TEXAS (ARTICLE 5069-15.01, ET. SEQ., TEX. REV.
-- ---
CIV. STAT. ANN.) SHALL NOT APPLY TO ANY OF THE LOAN DOCUMENTS.
Without being limited thereto or thereby, this Note is secured by the
Security Documents more particularly described in the Credit Agreement.
AMERAC ENERGY CORPORATION
By: _______________________________
Jeffrey B. Robinson
President and
Chief Executive Officer
(Page 3 of a 3 Page Note)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q
06/30/95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 273,000
<SECURITIES> 0
<RECEIVABLES> 409,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 682,000
<PP&E> 20,758,000
<DEPRECIATION> (12,243,000)
<TOTAL-ASSETS> 9,197,000
<CURRENT-LIABILITIES> 876,000
<BONDS> 2,753,000
<COMMON> 1,022,000
0
1,709,000
<OTHER-SE> 2,837,000
<TOTAL-LIABILITY-AND-EQUITY> 9,197,000
<SALES> 1,827,000
<TOTAL-REVENUES> 1,958,000
<CGS> 1,271,000
<TOTAL-COSTS> 1,271,000
<OTHER-EXPENSES> 731,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143,000
<INCOME-PRETAX> (187,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (187,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (187,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
