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SECOND AMENDED AND RESTATED LOAN AGREEMENT
This Second Amended and Restated Loan Agreement, dated as of
June 26, 2000, is made by and between TMBR/SHARP DRILLING, INC., a
Texas corporation (the "Borrower"), and WELLS FARGO BANK TEXAS,
N.A., a national banking association (formerly NORWEST BANK TEXAS,
N.A.) (the "Bank").
RECITALS
WHEREAS, the Borrower and the Bank are parties to that certain
Loan Agreement, dated as of January 16, 1996, as well as that
certain First Amended and Restated Loan Agreement dated May 26,
1998, providing for the loans and the other matters set forth
therein (the "Prior Loan Agreements").
WHEREAS, the Borrower has issued and delivered to the Bank (i)
that certain Revolving Line of Credit Promissory Note, dated
January 16, 1996, in the original principal amount of $3,000,000
and having a maturity date of January 16, 1998, (ii) that certain
Promissory Note, dated August 15, 1996, in the original principal
amount of $2,000,000 and having a maturity date, as extended, of
April 15, 1998; and (iii) that certain Revolving Line of Credit
Promissory Note dated May 26, 1998, in the original principal
amount of $5,000,000.00, and having a maturity date, as extended,
of July 15, 2000 (collectively, the "Prior Notes").
WHEREAS, the payment and performance of the Borrower's
obligations under the Prior Loan Agreements and the Prior Notes are
secured by that certain Security Agreement, dated as of January 16,
1996, and that certain Security Agreement dated May 26, 1998,
between the Borrower and the Bank and the related financing
statements filed with the Secretary of State of Texas and the
Secretary of State of New Mexico (the "Prior Security
Instruments").
WHEREAS, the Prior Notes have matured and the Bank requires
that they be renewed and extended.
WHEREAS, the Borrower has requested that the Bank (i) renew
and reinstate the lending commitments of the Bank under the Prior
Loan Agreements, and (ii) renew, extend and consolidate the Prior
Notes.
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WHEREAS, the Bank is agreeable to the Borrower's requests but
only upon and subject to the terms and provisions which are
hereinafter specified.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto hereby agree
as follows:
ARTICLE 1
DEFINITIONS
Section 1.01 Certain Definitions. As used in this
Agreement, terms defined in the preamble and recitals shall have
the meanings set forth therein and the following terms shall have
the following meanings:
"Affiliate" as to any Person, shall mean any other
Person (other than a Subsidiary) which, directly or
indirectly, is in control of, is controlled by, or is
under common control with, such Person. For purposes of
this definition, "control" of a Person means the power,
directly or indirectly, either to (i) vote 10% or more of
the securities having ordinary voting power for the
election of directors of such Person or (ii) direct or
cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Agreement" shall mean this Second Amended and
Restated Loan Agreement, as amended, supplemented or
otherwise modified from time to time.
"Base Rate" shall mean that variable rate of
interest per annum established by the Bank from time to
time as its "base rate." Such rate is set by the Bank as
a general reference rate of interest, taking into account
such factors as the Bank may deem appropriate, it being
understood that many of the Bank's commercial or other
loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate actually charged to
any customer and that the Bank may make various
commercial or other loans at rates of interest having no
relationship to such rate.
"Borrowing Base Amount" shall mean at any date, the
amount determined pursuant to Section 2.04 under this
Agreement at such date.
"Borrowing Base Assets" shall mean the Borrower's
accounts receivable (excluding accounts receivable in
excess of 90 days from date of invoice), drilling in
progress, inventory, equipment, drill pipe, drilling rigs
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and related equipment which is subject to the Liens,
privileges, priorities and security interests existing
and to exist under the terms of the Security Instruments
from the Borrower or any other Person to or in favor of
the Bank.
"Borrowing Base Report" shall have the meaning set
forth in Section 2.04(b).
"Borrowing Date" shall mean any Business Day
specified in a notice pursuant to Section 2.03 as a date
on which the Borrower requests the Bank to make Revolving
Credit Loans hereunder.
"Business Day" shall mean a day other than a
Saturday, Sunday or legal holiday for commercial banks
under the laws of the State of Texas.
"EBITDA" shall mean, with respect to any period of
calculation thereof, the sum of (i) the net income (or
loss) from continuing operations of Borrower during such
period (excluding extraordinary income but including
extraordinary expenses), plus (ii) interest expense,
income taxes, depreciation, depletion and amortization
expenses of Borrower during such period.
"Change in Control" shall mean the occurrence after
the date of this Agreement of any circumstance or event
in which (i) a Person shall cause or bring about (through
solicitation of proxies or otherwise) the removal or
resignation of a majority of the members of the Board of
Directors of the Borrower serving in such capacity on the
date of this Agreement or a Person causes or brings about
(through solicitation of proxies or otherwise) an
increase in the size of the existing Board of Directors
of the Borrower such that the existing members of the
Board of Directors thereafter represent a minority of the
total number of persons comprising the entire Board; or
(ii) a Person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes
the beneficial owner of shares of any class of stock of
the Borrower having twenty percent (20%) or more of the
total number of votes that may be cast for the election
of directors of the Borrower.
"Closing Date" shall mean the date on which the
conditions precedent set forth in Section 7.01 shall be
satisfied.
"Commitment" shall mean the obligation of the Bank
to make Revolving Credit Loans to the Borrower hereunder
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in an aggregate principal amount at any one time
outstanding not to exceed the amount provided for in
accordance with the provisions of this Agreement,
including, without limitation, Section 2.01 of this
Agreement.
"Commitment Period" shall mean the period from and
including the date hereof to but not including the
Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"Contractual Obligation" shall mean, as to any
Person, any provision of any security issued by such
Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which
it or any of its property is bound.
"Current Ratio" shall mean the ratio of (i) the sum
of the current assets of Borrower to (ii) the sum of the
current liabilities (excluding, however, current
liabilities attributable to the Note) of Borrower.
"Debt to Worth Ratio" shall mean the ratio of (i)
the sum of the total liabilities of the Borrower to (ii)
the sum of the Borrower's Net Worth.
"Environmental Laws" shall mean any and all foreign,
Federal, state, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees,
requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating,
relating to or imposing liability or standards of conduct
concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"Environmental Complaint" shall mean any written
complaint, order, citation, notice or other written
communication from any Person with respect to the
existence or alleged existence of a violation of any
Environmental Law in connection with or with respect to
any air emission, water discharge, noise emission,
asbestos, hazardous substance or any other environmental
matter regulated under Environmental Laws at, upon, under
or within any of the property owned, leased or used by
the Borrower.
"Event of Default" shall mean the occurrence of any
of the events specified in Section 6.01 hereof.
"Excepted Liens" shall mean (i) Liens for taxes,
assessments or other governmental charges or levies not
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yet due or which are being contested in good faith by
appropriate proceedings, provided that adequate reserves
with respect thereto are maintained on the books of
Borrower in conformity with GAAP; (ii) pledges or
deposits in connection with workers' compensation,
unemployment insurance or other social security
legislation, old age pension or public liability
obligations; (iii) vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's or
other like Liens arising in the ordinary course of
business which are not overdue for a period of more than
60 days or which are being contested in good faith by
appropriate proceedings; (iv) Liens arising under
customary oil and gas operating agreements entered into
in the ordinary course of business with respect to
obligations which are not overdue for a period of more
than 60 days or which are being contested in good faith
by appropriate proceedings; (v) restrictions, easements,
reservations, exceptions, encroachments, rights-of-way,
and other similar encumbrances incurred in the ordinary
course of business and other similar irregularities in
title which, in the aggregate, are not substantial in
amount and which do not in any case materially detract
from the value of the property subject thereto or
materially interfere with the conduct of the business of
Borrower; and (vi) deposits to secure the performance of
bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature
incurred in the ordinary course of business.
"GAAP" shall mean generally accepted accounting
principles in the United States of America in effect from
time to time.
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision
thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or
pertaining to government.
"Highest Lawful Rate" shall mean the maximum
nonusurious interest rate, if any, that at any time or
from time to time may be contracted for, taken, reserved,
charged or received on the Note or on other Indebtedness
owing to the Bank, as the case may be, under laws
applicable to the Note or other Indebtedness owing to the
Bank which are presently in effect or, to the extent
allowed by applicable law, under such applicable laws
which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws
now allow.
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"Indebtedness" of any Person at any date shall mean
(i) all obligations, liabilities and indebtedness of such
Person for borrowed money or for the deferred purchase
price of property or services (other than current trade
liabilities incurred in the ordinary course of business
and which are not in excess of 90 days past the invoice
or billing date) for which such Person is liable,
contingently or otherwise, as obligor, guarantor, surety
or otherwise, or in respect of which such Person
otherwise assures a creditor against loss; (ii) any other
indebtedness of such Person which is evidenced by a note,
bond, debenture or similar instrument; (iii) all
obligations of such Person under leases which shall have
been, or should have been, in accordance with GAAP,
recorded as capital leases for which such Person is
liable, contingently or otherwise, as obligor, guarantor
or otherwise, or in respect of which such Person
otherwise assures a creditor against loss; and (iv)
unfunded vested benefits under each employee benefit
plan.
"Intangible Assets" shall mean all assets of the
Borrower that would be classified as intangible assets,
but in any event including, without limitation, (i)
deferred assets, other than prepaid insurance and prepaid
taxes; (ii) patents, copyrights, trademarks, tradenames,
franchises, goodwill, experimental expenses and other
similar assets which would be classified as intangible
assets on a balance sheet of such Person; (iii)
unamortized debt discount and expense; and (iv) assets
located, and notes and receivables due from obligors
domiciled, outside of the United States.
"Lien" shall mean any mortgage, encumbrance, pledge,
hypothecation, assignment, charge, security agreement,
lien (statutory or other), deposit agreement, conditional
sale or trust receipt or a lease, consignment or bailment
for security purposes, and reservations, exceptions,
encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title
exceptions and encumbrances affecting property. For
purposes of this Agreement, Borrower shall be deemed to
be the owner of any property which it has acquired or
holds subject to a conditional sale agreement, financing
lease or other arrangement pursuant to which title to the
property has been retained by or vested in some other
Person for security purposes.
"Loan Documents" shall mean, collectively, this
Agreement, the Note, the Security Instruments, and all
other agreements, documents, certificates, letters and
instruments of whatever nature ever delivered or executed
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pursuant to, or in connection with, this Agreement,
whether existing on the date hereof or thereafter
created, as any of the same may hereafter be amended,
supplemented, extended or restated.
"Material Adverse Effect" shall mean a material
adverse effect on (i) the business, operations, property,
condition (financial or otherwise), results of
operations, assets, liabilities or prospects of the
Borrower, (ii) the ability of the Borrower to perform any
of its obligations under the Loan Documents or (iii) the
validity or enforceability of this or any of the other
Loan Documents or the rights or remedies of the Bank
hereunder or thereunder.
"Material Environmental Amount" shall mean an amount
not otherwise covered by insurance payable by the
Borrower in excess of $75,000.00 for remedial costs,
compliance costs, compensatory damages, punitive damages,
fines, penalties or any combination thereof.
"Materials of Environmental Concern" shall mean any
hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any
Environmental Law, including, without limitation,
petroleum and its derivatives and polychlorinated
biphenyls.
"Net Worth" shall mean as of the date of
determination all amounts included under stockholders'
equity on a balance sheet of the Borrower at such date.
"Note" shall have the meaning set forth in Section
2.02.
"Person" shall mean any individual, corporation,
partnership, joint venture, joint stock company, business
trust, trust, unincorporated association, Governmental
Authority, or any other form of entity of whatever
nature.
"Properties" shall have the meaning set forth in
Section 3.11(a).
"Requirement of Law" shall mean, as to any Person,
the certificate or articles of incorporation and bylaws
or other organizational or governing documents of such
Person, and any law, statute, code, ordinance, order,
treaty, rule, regulation or determination of an
arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its
property is subject.
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"Revolving Credit Loan" or "Revolving Credit Loans"
shall have the meaning set forth in Section 2.01.
"Security Instruments" shall mean, without
limitation, the agreements or instruments described or
referenced in Section 7.01(a) hereof and any and all
other instruments heretofore, now or hereafter executed
and delivered by the Borrower or any other Person to
secure or guarantee the payment or performance of the
Note or this Agreement, as any such agreement or
instrument may be amended or supplemented from time to
time.
"Subsidiary" shall mean, as to any Person, a
corporation, partnership or other entity of which shares
of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership
interests having such power only by reason of the
happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or
indirectly, through one or more intermediaries, or both,
by such Person. Unless otherwise qualified, all
references to "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of
Borrower.
"Tangible Net Worth" shall mean at a particular date
(i) the sum of the stockholders' equity of Borrower, less
(ii) the sum of the aggregate book value of the
Intangible Assets of Borrower.
"Termination Date" shall mean August 31, 2002.
Section 1.02 Other Definitional Provisions. (a) Unless
otherwise specified therein, all terms defined in this Agreement
shall have the defined meanings when used in the Note or the
Security Instruments or any certificate or other Loan Document made
or delivered pursuant hereto.
(b) As used herein and in the Note, and any certificate
or other document made or delivered pursuant hereto, accounting
terms relating to the Borrower not defined in Section 1.01 and
accounting terms partly defined in Section 1.01, to the extent not
defined, shall have the respective meanings given to them under
GAAP.
(c) The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to
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this Agreement as a whole and not to any particular provision of
this Agreement, and Section, subsection, Schedule and Exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such
terms.
Section 1.03 Accounting Principles. Where the character or
amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting
computation is required to be made for the purposes of this
Agreement, such determination, consolidation or computation shall
be made in accordance with GAAP consistently applied, except where
such principles are inconsistent with the requirements of this
Agreement.
ARTICLE 2
AMOUNT AND TERMS OF COMMITMENTS
Section 2.01 Revolving Credit Loans. Subject to the terms
and conditions hereof, the Bank agrees to make revolving credit
loans (individually, a "Revolving Credit Loan"; collectively, the
"Revolving Credit Loans") to the Borrower from time to time during
the Commitment Period in an aggregate principal amount at any one
time outstanding not to exceed the lesser of (i) $5,000,000.00 or
(ii) one-third (1/3) of the Borrowing Base Amount. During the
Commitment Period, the Borrower may use the Commitment by
borrowing, prepaying the Revolving Credit Loans in whole or in
part, and reborrowing, all in accordance with the terms and
conditions hereof.
Section 2.02 Revolving Credit Note. The Revolving Credit
Loans made by the Bank shall be evidenced by a promissory note of
the Borrower, substantially in the form of Exhibit A (the "Note").
The Bank shall maintain in accordance with its usual practice an
account or other record evidencing the Indebtedness of the Borrower
to the Bank resulting from each Revolving Credit Loan made by the
Bank from time to time, including the amounts of principal and
interest payable and paid to the Bank from time to time under this
Agreement and the Note. The entries made in such account or record
of the Bank shall be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded;
provided, however, that the failure of the Bank to maintain any
such account or record, or any error therein, shall not in any
manner affect the absolute and unconditional obligation of the
Borrower to repay (with applicable interest) the Revolving Credit
Loans made to the Borrower in accordance with the terms of this
Agreement. The Note shall (x) be dated the Closing Date, (y) be
stated to mature on August 31, 2002, and (z) bear interest on the
unpaid principal amount thereof from time to time outstanding at
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the applicable interest rate per annum as provided in the Note.
Interest on the Note shall be payable on the dates specified in the
Note.
Section 2.03 Procedure for Revolving Credit Borrowing. The
Borrower may borrow under the Commitment during the Commitment
Period on any Business Day, provided that the Borrower shall give
the Bank irrevocable notice specifying (A) the amount to be
borrowed and (B) the requested Borrowing Date; provided, that such
notice shall be waived by the Bank in the case of, and only in the
case of, the initial Revolving Credit Loan made on the Closing
Date. Each borrowing pursuant to the Commitment shall be in an
aggregate principal amount of the lesser of (i) $50,000.00 or a
whole multiple thereof, or (ii) the then remaining unadvanced
portion of the available Commitment.
Section 2.04 Borrowing Base Amount. The Borrowing Base
Amount shall be determined as follows:
(a) Initial Borrowing Base Amount. The Borrowing Base
Amount shall be $25,833,000.00 during the period from the date
hereof to the date on which the Borrower receives notice of the
first determination of the Borrowing Base Amount by the Bank
pursuant to Section 2.04(b) and thereafter the Borrowing Base
Amount shall be the Borrowing Base Amount most recently determined
pursuant to Section 2.04(b).
(b) Determinations of the Borrowing Base Amount. (i) No
later than 45 days after the end of each fiscal quarter of the
Borrower throughout the Commitment Period, the Borrower shall, at
its own expense, furnish to the Bank a borrowing base report
("Borrowing Base Report"), in the form attached hereto as Exhibit
B, which Borrowing Base Report shall be dated as of the end of each
such quarter and shall set forth, by category, the Borrowing Base
Assets and the Borrowing Base Amount as therein provided.
(ii) Within 15 days after it receives each Borrowing
Base Report, the Bank shall make a determination of the Borrowing
Base Amount, and shall notify the Borrower of the new Borrowing
Base Amount, if any; provided, that if the Bank does not so notify
the Borrower of a new Borrowing Base Amount, then the Borrowing
Base Amount set forth in the Borrowing Base Report furnished to the
Bank by the Borrower pursuant to Section 2.04(b)(i) shall be deemed
to be the Borrowing Base Amount until a new Borrowing Base Amount
is determined by the Bank and notice of such new Borrowing Base
Amount is given to the Borrower. Each determination of the
Borrowing Base Amount shall be made by the Bank in the exercise of
its sole discretion in accordance with the then current standards
and practices of the Bank for similar oil and gas/contract drilling
equipment loans, taking into account such factors as the Bank may
deem appropriate, including, without limitation, the nature and
extent of the Borrower's interest in the Borrowing Base Assets and
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the anticipated timing and extent of net operating income
therefrom. The Bank may in its sole discretion discount the value
of any Borrowing Base Asset set forth in a Borrowing Base Report by
the same factors utilized by it in discounting the value of
comparable borrowing base assets in comparable transactions for
comparable borrowers.
(iii) The Borrower agrees to pay or reimburse
the Bank for all reasonable out-of-pocket costs and expenses
incurred by the Bank in connection with (a) the examination of each
Borrowing Base Report furnished to the Bank by the Borrower, (b)
any redetermination by the Bank of the Borrowing Base Amount
pursuant to such Borrowing Base Report (including independent
appraisals of the Borrowing Base Assets which the Bank may, but
shall not be required to, obtain in connection with any
redetermination of the Borrowing Base Amount by the Bank), and (c)
the notification of the Borrower of such redetermined Borrowing
Base Amount.
(iv) Each delivery by the Borrower to the Bank of a
Borrowing Base Report shall be deemed to constitute a
representation and warranty by the Borrower to the Bank that the
Borrower has good and marketable title to the Borrowing Base Assets
and any other property rights or interests described in such
report, and that none of such Borrowing Base Assets or other
property rights or interests is subject to any Lien other than as
permitted by Section 5.02.
Section 2.05 Optional and Mandatory Prepayments. (a) The
Borrower may at any time, and from time to time, prepay the
Revolving Credit Loans, in whole or in part, without premium or
penalty, upon at least four Business Days' irrevocable notice to
the Bank, specifying the date and amount of prepayment. If any
such notice is given, the amount specified in such notice shall be
due and payable on the date specified therein. Partial prepayments
shall be in an aggregate principal amount of $50,000.00 or a whole
multiple thereof.
(b) If the aggregate unpaid principal amount of the
Revolving Credit Loans shall at any time exceed one-third (1/3) of
the Borrowing Base Amount at such time, the Bank shall so notify
the Borrower, and the Borrower shall, within 30 days after such
notification, prepay the principal of the Revolving Credit Loans in
an aggregate amount at least equal to such excess, together with
accrued interest on the amount prepaid to the date of such
prepayment.
Section 2.06 Payment Procedure. All payments and
prepayments made by the Borrower under the Note or this Agreement
shall be made without setoff or counterclaim to the Bank at its
office at 500 West Texas Avenue, Midland, Texas 79701, and shall
be made in immediately available funds, prior to 1:00 p.m.,
Midland, Texas time, on the date that such payment is required or
permitted to be made. Any payment received by the Bank after 1:00
p.m. on any date shall be considered for all purposes (including
the calculation of interest, to the extent permitted by applicable
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law) as having been made on the next following Business Day. If
the date of any payment or prepayment of the Note falls on a day
which is not a Business Day, then for all purposes of the Note and
this Agreement such date shall be deemed to have fallen on the next
following Business Day, and such extension of time shall in such
case be included in the computation of payment of interest.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and to make
the Revolving Credit Loans, the Borrower hereby represents and
warrants to the Bank (which representations and warranties will
survive the delivery of the Note and the making of the Revolving
Credit Loans hereunder) that:
Section 3.01 Corporate Existence; Compliance with Law.
Borrower (i) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization,
(ii) has the corporate power and authority, and the legal right, to
own and operate its property (including, without limitation, the
Borrowing Base Assets), to lease the property it operates as lessee
and to conduct the business in which it is currently engaged, (iii)
is duly qualified as a foreign corporation and in good standing
under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification and (iv) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 3.02 Corporate Power; Authorization; Enforceable
Obligations. Borrower has the corporate power and authority, and
the legal right, to make, deliver and perform the Loan Documents to
which it is a party and to borrow hereunder and has taken all
necessary corporate action to authorize the borrowings on the terms
and conditions of this Agreement and the Note and to authorize the
execution, delivery and performance of the Loan Documents to which
it is a party. No consent or authorization of, filing with, notice
to or other act by or in respect of, any Governmental Authority or
any other Person is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of the Loan Documents to which the Borrower is a
party. This Agreement has been, and each other Loan Document to
which it is a party will be, duly executed and delivered on behalf
of the Borrower. This Agreement constitutes, and each other Loan
Document to which it is a party when executed and delivered will
constitute, a legal, valid and binding obligation of Borrower
enforceable against Borrower in accordance with its terms, subject
to the effects of bankruptcy, insolvency, fraudulent conveyance,
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reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles
(whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
Section 3.03 No Legal Bar. The execution, delivery and
performance of the Loan Documents to which the Borrower is a party,
the borrowings hereunder and the use of the proceeds thereof will
not violate any Requirement of Law or Contractual Obligation of the
Borrower and will not result in, or require, the creation or
imposition of any Lien (other than as permitted hereby) on any of
Borrower's properties or revenues pursuant to any such Requirement
of Law or Contractual Obligation.
Section 3.04 No Default. Borrower is not in default under
or with respect to any of its Contractual Obligations in any
respect which could have a Material Adverse Effect. No Event of
Default has occurred and is continuing.
Section 3.05 Ownership of Property; Liens. Borrower has
good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property and good title to, or
a valid leasehold interest in, all its other property (including,
without limitation, the Borrowing Base Assets), and none of such
property is subject to any Lien except as permitted by Section
5.02.
Section 3.06 No Burdensome Restrictions. No Requirement of
Law or Contractual Obligation of Borrower could reasonably be
expected to have a Material Adverse Effect.
Section 3.07 Taxes. Borrower has filed or caused to be
filed all tax returns which, to the knowledge of the Borrower, are
required to be filed and has paid all taxes shown to be due and
payable on said returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges
imposed on it or any of its property by any Governmental Authority
(other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect
to which reserves in conformity with GAAP have been provided on the
books of the Borrower); no tax Lien has been filed, and, to the
knowledge of the Borrower, no claim is being asserted, with respect
to any such tax, fee or other charge.
Section 3.08 Federal Regulations. No part of the proceeds
of any Revolving Credit Loan will be used for "purchasing" or
"carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulation G or Regulation U of the
Board of Governors of the Federal Reserve System as now and from
time to time hereafter in effect. If requested by the Bank, the
Borrower will furnish to the Bank a statement to the foregoing
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<PAGE> 14
effect in conformity with the requirements of FR Form G-1 or FR
Form U-1 referred to in said Regulation G or Regulation U, as the
case may be.
Section 3.09 Investment Company Act; Public Utility Holding
Company Act; Other Regulations. Borrower is not (a) an "investment
company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as
amended or (b) a "holding company" as defined in, or otherwise
subject to regulation under, the Public Utility Holding Company Act
of 1935. Borrower has not made an election to be treated as a
utility (as defined in subdivision (2) of subsection (a) of Section
35.01 of the Texas Business and Commerce Code. Borrower is not
primarily engaged in the transmission of goods or gas by pipeline,
and does not hold itself out to the public as having facilities for
the transmission of goods or gas by pipeline which are available
for hire by the general public.
Section 3.10 Purpose of Loan. The proceeds of the Revolving
Credit Loans shall be used by the Borrower to purchase drill pipe
and related equipment necessary for the drilling of oil and gas
wells, for purchases of undeveloped and developed oil and gas
properties, and for general corporate purposes.
Section 3.11 Environmental Matters. Except for
environmental matters which, in the aggregate, could not reasonably
be expected to either (i) result in the existence of an unsatisfied
liability in excess of a Material Environmental Amount or (ii) have
a Material Adverse Effect:
(a) to the best of the Borrower's knowledge, the
facilities and properties (real or personal) owned, leased or
operated by the Borrower (the "Properties") do not contain,
and have not previously contained, any Materials of
Environmental Concern in amounts or concentrations which (i)
constitute or constituted a violation of, or (ii) could give
rise to liability under, any Environmental Law;
(b) to the best of the Borrower's knowledge, the
Properties and all operations at the Properties are in
compliance, and have in the last five years been in
compliance, with all applicable Environmental Laws, and there
is no contamination at, under or about the Properties or
violation of any Environmental Law with respect to the
Properties or the business operated by Borrower;
(c) Borrower has not received any notice of violation,
alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the
business of the Borrower, nor does the Borrower have knowledge
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<PAGE> 15
or reason to believe that any such notice will be received or
is being threatened;
(d) to the best of the Borrower's knowledge, Materials
of Environmental Concern have not been transported or disposed
of from the Properties in violation of, or in a manner or to
a location which could reasonably be expected to give rise to
liability under, any Environmental Law, nor have any Materials
of Environmental Concern been generated, treated, stored or
disposed of at, on or under any of the Properties in violation
of, or in a manner that could give rise to liability under,
any applicable Environmental Law;
(e) no judicial proceeding or governmental or
administrative action is pending or, to the knowledge of the
Borrower, threatened, under any Environmental Law to which
Borrower is or will be named as a party with respect to the
Properties or the business of Borrower, nor are there any
consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental
Law with respect to the Properties or the business of
Borrower; and
(f) to the best of the Borrower's knowledge, there has
been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising
from or related to the operations of the Borrower in
connection with the Properties or otherwise in connection with
the business of the Borrower, in violation of or in amounts or
in a manner that could give rise to liability under
Environmental Laws.
Section 3.12 Insurance. The Borrower maintains with
financially sound and reputable insurance companies insurance in at
least such amounts and against at least such risks (but including
in any event public liability) as are usually insured against in
the same general area by companies engaged in the same or a similar
business, and such insurance is otherwise in compliance with the
Loan Documents.
Section 3.13 Financial Condition. The balance sheet of the
Borrower as of March 31, 2000, and the related statements of income
and of cash flows for the year then ended, as well as any updated
financial reports, copies of which have been delivered to the Bank,
are true and correct in all material respects and present fairly
the financial condition of Borrower as at such date and the results
of its operations and cash flows for the periods stated (subject to
normal year-end audit adjustments). Borrower did not have, at the
date of the most recent balance sheet referred to above, any
guaranty obligation, contingent liability or liability for taxes,
or any long-term lease or unusual forward or long-term commitment,
which is not reflected in the foregoing financial statements or in
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<PAGE> 16
the notes thereto. During the period from March 31, 2000 to and
including the date hereof there has been no sale, transfer or other
disposition by Borrower of any material part of its business or
property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) material
in relation to the financial condition of Borrower at March 31,
2000. Since March 31, 2000, no change, either in any case or in
the aggregate, has occurred in the condition, financial or
otherwise, of Borrower which would have a Material Adverse Effect.
Section 3.14 Investments and Guaranties. At the date of
this Agreement, Borrower has not made any material investments in,
advances to or guaranties of the obligations of any Person.
Section 3.15 No Litigation. There is no litigation, legal,
administrative or arbitral proceeding, investigation or other
action of any nature pending or, to the knowledge of the Borrower,
threatened against or affecting Borrower which involves the
possibility of any judgment or liability not fully covered by
insurance, and which would have a Material Adverse Effect; and, to
the best of Borrower's knowledge, since December 31, 1999, Borrower
has not committed any act, or failed to take any action, in
connection with the conduct of its business or with respect to any
Contractual Obligation which is likely to result in the assertion
of any adverse claim of any nature whatsoever by any Person against
Borrower or its properties, revenues or assets.
Section 3.16 Licenses and Permits. Borrower has not failed
to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of any of its properties
or the conduct of its business, which violation or failure would
have (in the event that such violation or failure were asserted by
any Person through appropriate action) a Material Adverse Effect.
Section 3.17 ERISA. Each employee benefit plan which
Borrower has sponsored, maintained or contributed to has complied
in all material respects with the applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, and
the Internal Revenue Code of 1986, as amended.
Section 3.18 No Material Misstatements. No information,
exhibit, schedule or report furnished to the Bank by the Borrower
in connection with this Agreement contains any untrue statement of
a material fact or omits to state any material fact necessary to
make the statements contained therein not misleading.
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<PAGE> 17
ARTICLE 4
AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitment
remains in effect, or any Indebtedness is owing to the Bank
hereunder or under the Note or any other Loan Document, the
Borrower shall:
Section 4.01 Financial Statements and Reports. Furnish or
cause to be furnished to the Bank from time to time (i) such
information regarding the business and affairs and financial
condition of the Borrower as the Bank may reasonably request, and
(ii) without request, the following:
(a) Annual Financial Statements - promptly after
becoming available, but in any event within 90 days after
March 31 of each year, a copy of the audited balance
sheet of the Borrower as at the end of such year, and the
related statements of income and retained earnings and of
cash flows of the Borrower for such year, setting forth
in each case in comparative form the corresponding
figures for the preceding year, accompanied by the report
of the Borrower's independent certified public
accountants;
(b) Quarterly Financial Statements - promptly after
becoming available, but in any event within 45 days after
the end of each of the first three fiscal quarters of the
Borrower, the unaudited balance sheet of the Borrower as
at the end of such quarter, and the related unaudited
statements of income and retained earnings and of cash
flows of the Borrower for such quarter and for the period
from the beginning of the most recent fiscal year to the
end of such quarter, setting forth in each case, in
comparative form, the corresponding figures for the
corresponding period of the preceding year, accompanied
by the report of the principal financial officer of the
Borrower, which report shall be to the effect that such
statements are true and correct in all material respects
necessary for a fair presentation (subject to normal
year-end adjustments);
(c) Accounts Receivable Reports - promptly after
becoming available, but in any event within 45 days after
the end of each fiscal quarter of the Borrower, a list of
accounts receivable of Borrower, and an aging of all such
receivables on the basis of 30-60-90 and over 90 days
from date of invoice;
(d) Calculation of Ratios - promptly after becoming
available, but in any event within 45 days after the end
of each fiscal quarter of the Borrower, the calculations
of Current Ratio, Tangible Net Worth, Interest Expense
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<PAGE> 18
Coverage and Debt to Worth Ratio pursuant to Sections
5.16, 5.17, 5.18 and 5.19, respectively, hereof; and
(e) Shareholder Communications; Regulatory Filings
- promptly after their availability, but in any event
within five Business Days after the same are sent, copies
of all financial statements, reports and other
communications furnished by Borrower to its shareholders,
and within five Business Days after the same are filed,
copies of all forms, reports and other filings made by
the Borrower with the Securities and Exchange Commission.
Section 4.02 Certificates of Compliance. Concurrently with
the furnishing of the annual financial statements pursuant to
Section 4.01(a) hereof and the calculation of the ratios pursuant
to Section 4.01(d) hereof, furnish or cause to be furnished to the
Bank certificates in the form attached hereto as Exhibit C and
Exhibit D, respectively, signed by the principal financial officer
of the Borrower to the effect (i) that a review of the activities
of the Borrower has been made under such officer's supervision with
a view to determining whether the Borrower has fulfilled all of its
obligations under this Agreement, the Note and the Security
Instruments; (ii) that the Borrower has fulfilled its obligations
under such instruments and that all representations made herein or
therein continue to be true and correct in all material respects
except as otherwise stated therein, or if there is then in
existence an Event of Default, specifying such Event of Default and
the nature and status thereof; and (iii) to the extent requested
from time to time by the Bank, specifically affirming compliance by
the Borrower with any covenants under this Agreement or any
Security Instrument and accompanied by such financial or other
details, information and material as the Bank may reasonably
request to evidence such compliance.
Section 4.03 Payment of Taxes and Other Charges. Pay and
discharge or cause to be paid and discharged promptly all taxes,
assessments and governmental charges or levies, other than any the
amount or validity of which are currently being contested in good
faith by appropriate proceedings and with respect to which reserves
in conformity with GAAP have been provided on the books of the
Borrower.
Section 4.04 Maintenance of Existence; Conduct of Business.
(i) Maintain its separate corporate existence, rights and
franchises; (ii) observe and comply (to the extent necessary so
that any failure would not have a Material Adverse Effect) with all
Contractual Obligations and Requirements of Law; (iii) maintain its
properties in good and workable condition at all times and make all
repairs, replacements, additions, betterments and improvements to
its properties as are needful and proper so that the business
carried on in connection therewith may be conducted properly and
efficiently at all times; and (iv) take all reasonable action to
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<PAGE> 19
maintain all rights, privileges and franchises necessary or
desirable in the normal course of its business.
Section 4.05 Further Assurances. Cure promptly any defects
in the creation and issuance of the Note and the execution and
delivery of this Agreement, any Security Instrument or other Loan
Document to which the Borrower is a party, and promptly execute and
deliver to the Bank upon request all such other and further
documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower in
this Agreement and the Security Instruments or to further evidence
and more fully describe the collateral intended as security for the
Note, or to correct any omissions in any Security Instrument, or
more fully to state the security obligations set out herein or in
any Security Instrument, or to perfect, protect or preserve any
Liens created pursuant to any Security Instrument, or to make any
recordings, to file any notices, or obtain any consents, all as may
be necessary or appropriate in connection therewith as determined
by the Bank.
Section 4.06 Performance of Obligations. Perform every act
and discharge all of its obligations provided to be performed and
discharged by it under this Agreement and under the Security
Instruments and other Loan Documents at the time or times and in
the manner specified.
Section 4.07 Reimbursement of Expenses. Pay all reasonable
legal fees and out-of-pocket expenses incurred by the Bank in
connection with the negotiation, preparation and administration of
this Agreement, the Note, the Security Instruments and any and all
other Loan Documents (including any amendments hereto or thereto or
consents or waivers hereunder or thereunder) and all reasonable
fees, charges or taxes for the recording or filing of the Security
Instruments, and promptly reimburse the Bank for all amounts
expended, advanced or incurred by the Bank to satisfy any
obligation of the Borrower under this Agreement or any other Person
under any Security Instrument, or to collect the Note, or to
enforce the rights of the Bank under this Agreement or any Security
Instrument, which amounts will include all court costs, reasonable
attorneys' fees (including, without limitation, for trial, appeal
or other proceedings), reasonable fees of auditors and accountants,
and investigation expenses reasonably incurred in connection with
any such matters.
Section 4.08 Insurance. Maintain with financially sound and
reputable insurance companies insurance against such liabilities,
casualties, risks and contingencies and in such types and amounts
as is customary in the case of Persons engaged in the same or
similar businesses and similarly situated; and furnish or cause to
be furnished to the Bank, upon request, full information as to the
insurance carried, including copies of the applicable policies; and
apply the proceeds of such policies, if any, to the prepayment of
the Indebtedness then owing to the Bank. Notwithstanding anything
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<PAGE> 20
in this Section 4.08 to the contrary, Borrower shall not be
required to maintain insurance on its drilling rigs.
Section 4.09 Accounts and Records. Keep proper books of
record and account in which full, true and correct entries will be
made of all dealings or transactions in relation to its business
and activities.
Section 4.10 Right of Inspection. Permit any officer,
employee, agent or representative of the Bank to visit and inspect
any of the properties of the Borrower, examine its books of record
and accounts, take copies and extracts therefrom, and to discuss
the business, operations, properties, finances and accounts of the
Borrower with the Borrower's officers, employees, engineers,
accountants and auditors, all at such reasonable times and as often
as the Bank may reasonably desire.
Section 4.11 Notice of Certain Events. Promptly notify the
Bank of the occurrence of (i) any event which constitutes an Event
of Default, together with a detailed statement by the Chief
Executive Officer of the Borrower of the steps being taken to cure
such Event of Default; (ii) the receipt of any notice from, or the
taking of any other action by, the holder of any promissory note,
debenture or other evidence of indebtedness with respect to a
claimed default, together with a detailed statement specifying the
notice given or other action taken by such holder and the nature of
the claimed default and what action the Borrower is taking or
proposes to take with respect thereto; (iii) any legal, judicial or
regulatory proceedings affecting Borrower or any of its properties
in which the amount involved is material and is not covered by
insurance or which, if adversely determined, would have a Material
Adverse Effect; (iv) any dispute between the Borrower and any
Governmental Authority or any other Person which, if adversely
determined, would have a Material Adverse Effect; (v) any event or
condition having a Material Adverse Effect; and (vi) each
Environmental Complaint.
Section 4.12 Borrowing Base Reports. Provide the Bank with
Borrowing Base Reports required by and in accordance with Section
2.04(b)(i) of this Agreement.
Section 4.13. Pledge of Additional Collateral. If Revolving
Credit Loans in excess of $500,000.00 are used by the Borrower for
the purpose of acquiring oil and gas properties, and interests
therein, whether developed or undeveloped, and whether in one
transaction or a series of transactions, the Borrower shall, upon
written request by the Bank, promptly execute and deliver to the
Bank such deeds of trust, mortgages, assignments, security
agreements, financing statements and other security documents and
instruments as may be requested by the Bank, in form and substance
satisfactory to the Bank, granting and conveying to the Bank first
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<PAGE> 21
and prior security interests and Liens in and to all oil and gas
properties purchased by the Borrower with proceeds of Revolving
Credit Loans.
ARTICLE 5
NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitment
remains in effect or any Indebtedness is owing to the Bank
hereunder or under the Note or any other Loan Document, the
Borrower shall not, directly or indirectly:
Section 5.01 Limitation on Indebtedness. Incur, create,
assume or suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower to the Bank;
(b) Indebtedness existing on the date of this
Agreement which is set forth in the financial statements
referred to in Section 3.13 of this Agreement, but not
any increases thereof;
(c) obligations for the payment of rent or hire of
property under leases or lease agreements which would not
cause the aggregate amount of all payments made by the
Borrower pursuant to such leases or lease agreements to
exceed $250,000.00 during the terms thereof; and
(d) additional Indebtedness of the Borrower not to
exceed $250,000.00 in aggregate principal amount at any
one time outstanding.
Section 5.02 Limitation on Liens. Create, incur, assume or
permit to exist any Lien on any of its property, assets or
revenues, whether now owned or hereafter acquired, except for:
(a) Liens securing the payment of any Indebtedness
of the Borrower to the Bank; and
(b) Excepted Liens.
Section 5.03 Limitation on Investments, Acquisitions, Loans
and Advances. Make any loan, advance, extension of credit or
capital contribution to, or purchase any stock, bonds, notes,
debentures or other securities of or any assets constituting a
business unit of, or make any other investments in, any Person,
except:
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<PAGE> 22
(a) the outstanding investments, loans or advances
set forth in the financial statements referred to in
Section 3.13 of this Agreement, but not any increases
thereof;
(b) investments in (i) direct obligations of the
United States of America or any agency thereof; (ii)
certificates of deposit of the Bank of maturities less
than one year, or issued by other commercial banks in
the United States of America having capital and surplus
in excess of $50,000,000; or (iii) commercial paper of
maturities less than six months if at the time of
purchase such paper is rated in either of the two highest
rating categories of Standard & Poors Corporation,
Moody's Investors Service, Inc. or any other rating
agency satisfactory to the Bank;
(c) extensions of trade credit in the ordinary
course of business;
(d) investments in and acquisitions of oil and gas
properties and related assets, provided that such
investments or acquisitions are made in the ordinary
course of Borrower's business and not otherwise
prohibited by this Agreement;
(e) other investments, capital contributions, loans
or advances not to exceed the aggregate amount of
$250,000.00 at any one time outstanding; and
(f) loans and advances to employees of the Borrower
for travel, entertainment and similar expenses in the
ordinary course of business.
Section 5.04 Limitation on Dividends, Distributions and
Redemptions. Declare or pay any dividend (other than dividends
payable solely in common stock of the Borrower) on, or purchase,
redeem, retire or otherwise acquire for value, any shares of any
class of Borrower's capital stock now or hereafter outstanding, or
return any capital to its shareholders, or make any other
distribution in respect thereof, whether in cash or property on in
obligations of the Borrower or any Subsidiary.
Section 5.05 Limitation on Sales and Leasebacks. Enter into
any arrangement with any Person whereby it shall sell or transfer
any property, whether now owned or hereafter acquired, and whereby
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<PAGE> 23
it shall then or thereafter rent or lease as lessee such property
or any part thereof or other property which it intends to use for
substantially the same purpose or purposes as the property sold or
transferred.
Section 5.06 Limitation on Fundamental Changes. Enter into
any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, assign, transfer or otherwise dispose of
(whether in one transaction or in a series of related
transactions), all or substantially all of its property, business
or assets (whether now owned or hereafter acquired), or make any
material change in its present method of conducting business.
Section 5.07 Limitation on Leases. Create, incur, assume or
suffer to exist any obligation for the payment of rent or hire of
property of any kind whatsoever (real or personal), under leases or
lease agreements (other than leases or lease agreements which
constitute Indebtedness and which are permitted by Section 5.01(c)
of this Agreement, or oil and gas leases) which would cause the
aggregate amount of all payments made by the Borrower pursuant to
such leases or lease agreements to exceed $75,000 in any period of
twelve consecutive calendar months.
Section 5.08 Limitation on Negative Pledge Clauses. Enter
into with any Person any agreement, other than (a) this Agreement
and (b) the Loan Documents, which prohibits or limits the ability
of the Borrower to create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now
owned or hereafter acquired.
Section 5.09 Limitation on Use of Proceeds. Permit the
proceeds of the Note to be used for any purpose other than as
permitted by Section 3.10 hereof.
Section 5.10 Limitation on Lines of Business. Enter into
any business, either directly or through any Subsidiary, except for
those businesses in which the Borrower is engaged on the date of
this Agreement or which are directly related thereto.
Section 5.11 Limitation on Sale of Assets. Convey, sell,
lease, assign, transfer or otherwise dispose of any of its
property, business or assets (including, without limitation,
receivables and leasehold interests), whether now owned or
hereafter acquired, except:
(a) obsolete, worn out, depleted or "uneconomic"
property disposed of in the ordinary course of business;
(b) the sale of petroleum produced by the Borrower
in the ordinary course of Borrower's business;
(c) undeveloped, undrilled leasehold acreage held
in inventory, provided that in any fiscal year of the
Borrower the gross proceeds of such property so disposed
of shall not exceed $250,000.00; and
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<PAGE> 24
(d) the sale of any other assets or properties of
the Borrower, provided that in any fiscal year of the
Borrower the gross proceeds of such property so disposed
of shall not exceed $250,000.00.
Section 5.12 Limitation on Changes in Fiscal Year. Permit
its fiscal year to end on a day other than March 31.
Section 5.13 Limitation on Transactions with Affiliates.
Enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of
any service, with any Affiliate unless such transaction is (a) not
otherwise prohibited under this Agreement, (b) in the ordinary
course of business and (c) upon fair and reasonable terms no less
favorable to the Borrower than it could obtain in a comparable
arm's length transaction with a Person which is not an Affiliate.
Section 5.14 No Change in Control. Permit any Change in
Control of Borrower.
Section 5.15 Limitation on Issuance of Stock. Issue or sell
any shares of capital stock or other equity security (or any
options, warrants, rights or other convertible securities entitling
the holder thereof to acquire any such capital stock or equity
security) of any kind or class, except:
(a) the issuance and sale of capital stock or other
equity security, the proceeds of which will be used to
repay the Note in its entirety, and
(b) the issuance and sale of capital stock pursuant
to the Borrower's stock option plans and stock options in
existence on the date of this Agreement.
Section 5.16 Current Ratio. Permit the Current Ratio, as
defined herein and calculated pursuant to Exhibit E hereto, to be
less than .80 to 1.0 at the end of any fiscal quarter of the
Borrower.
Section 5.17 Tangible Net Worth. Permit the Tangible Net
Worth, as defined herein and calculated pursuant to Exhibit F
hereto, to be less than $9,000,000.00 as of the end of each fiscal
quarter of the Borrower.
Section 5.18 Interest Expense Coverage. Permit for any
fiscal quarter the ratio of (i) EBITDA (as calculated pursuant to
Exhibit G hereto) to (ii) total interest expense paid or accrued on
all Indebtedness to be less than 3.00 to 1.00.
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<PAGE> 25
Section 5.19 Debt to Worth Ratio. Permit the Debt to Worth
Ratio, as defined herein and calculated pursuant to Exhibit H
hereto, to be greater than 1.0 to 1.0 at the end of any fiscal
quarter of the Borrower.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 Events. Any of the following events shall
constitute and be considered an "Event of Default" as that term is
used herein:
(a) Payments - default shall be made in the payment
when due of any installment of principal or interest on
the Note or any other Indebtedness owing by the Borrower
to the Bank; or
(b) Representations and Warranties - any
representation or warranty made by the Borrower herein,
or by the Borrower or any other Person in any Security
Instrument, or in any other Loan Document furnished to
the Bank pursuant to or under this Agreement, any
Security Instrument or any other Loan Document, proves to
have been incorrect in any material respect as of the
date when made or deemed made and shall continue
unremedied for a period of 30 days after the earlier of
(i) the Borrower becoming aware of such default, or (ii)
the Bank giving notice thereof to the Borrower; or
(c) Loan Agreement Covenants - default shall be
made by the Borrower in the due observance or performance
of any of the covenants or agreements contained in
Articles 4 and 5 of this Agreement, and in the case of
default under Article 4 such default continues unremedied
for a period of 30 days after the earlier of (i) the
Borrower becoming aware of such default, or (ii) the Bank
giving notice thereof to the Borrower; or
(d) Security Instrument Covenants - default is made
in the due observance or performance by Borrower of any
covenant, condition or agreement contained in any
Security Instrument, and such default continues
unremedied beyond the expiration of any applicable grace
period which may be expressly allowed under such Security
Instrument; or
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<PAGE> 26
(e) Involuntary Bankruptcy or Other Proceedings -
an involuntary case or other proceeding shall be
commenced against Borrower which seeks liquidation,
reorganization or other relief with respect to it or its
debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or
any substantial part of its property, and such
involuntary case or other proceeding shall remain
undismissed or unstayed for a period of 60 days; or an
order for relief against Borrower shall be entered in any
such case under the Federal Bankruptcy Code; or
(f) Voluntary Petitions, Etc. - Borrower shall
commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect
to itself or its debts or other liabilities under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property,
or shall consent to any such relief or to the appointment
of or taking possession by any such official in an
involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to, or shall admit in
writing its inability to pay its debts generally as they
become due, or shall take any corporate action to
authorize or effect any of the foregoing; or
(g) Discontinuance of Business - Borrower
discontinues its usual business; or
(h) Default on Other Indebtedness - Borrower shall
default in any payment of principal of or interest on any
Indebtedness (other than to the Bank) in excess of
$250,000.00 in outstanding principal amount beyond any
period of grace provided with respect thereto, or in the
performance of any other agreement, term or condition
contained in any agreement or instrument under or by
which any such Indebtedness is created, evidenced or
secured if the effect of such default is to cause such
obligation to become due before its stated maturity or to
permit the holder(s) of such obligation or the trustee(s)
under any such agreement or instrument to cause such
obligation to become due prior to its stated maturity,
whether or not such default or failure to perform should
be waived by the holder(s) of such obligation or such
trustee(s); or
(i) Undischarged Judgments - Borrower shall fail
within 30 days after date of entry to pay, bond or
otherwise discharge any judgment or order for the payment
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<PAGE> 27
of money in excess of $250,000.00 that is not otherwise
being satisfied in accordance with its terms and is not
stayed on appeal or otherwise being appropriately
contested in good faith; or
(j) Security Instruments - any Security Instrument
after delivery thereof shall for any reason cease to be
in full force and effect and valid, binding and
enforceable in accordance with its terms, or cease to
create a valid and perfected Lien of the priority
required thereby on any of the collateral purported to be
covered thereby, or Borrower or any other Person who may
have granted or purported to grant such Lien shall so
state in writing; or
(k) Material Adverse Effect - the occurrence of any
change or event which has a Material Adverse Effect.
Section 6.02 Remedies. (a) Upon the occurrence of any
Event of Default described in Subsection 6.01(e) or (f) hereof, the
lending obligations of the Bank hereunder shall immediately
terminate, and the entire principal amount of all Indebtedness then
outstanding and owing to the Bank together with interest then
accrued and unpaid thereon shall become immediately due and
payable, all without demand and presentment for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor, notice
of intention to accelerate maturity or notice of acceleration of
maturity, or any other notice of default of any kind, all of which
are hereby expressly waived by the Borrower.
(b) Upon the occurrence and at any time during the
continuance of any other Event of Default specified in Section 6.01
hereof, the Bank may, by written notice to the Borrower, (i)
declare the entire principal amount of all Indebtedness then
outstanding and owing to the Bank together with interest then
accrued and unpaid thereon to be immediately due and payable
without demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of intention
to accelerate maturity or notice of acceleration of maturity, or
any other notice of default of any kind, all of which are hereby
expressly waived by the Borrower, and/or (ii) terminate the lending
obligations of the Bank hereunder unless and until the Bank shall
reinstate same in writing.
Section 6.03 Right of Setoff. Upon the occurrence and
during the continuance of any Event of Default, or if Borrower
becomes insolvent, however evidenced, the Bank is hereby authorized
at any time and from time to time, without prior notice to the
Borrower (any such notice being expressly waived by the Borrower),
to setoff and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other
Indebtedness at any time owing by the Bank to or for the credit or
the account of Borrower against any and all of the Indebtedness
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<PAGE> 28
owing to the Bank, irrespective of whether or not the Bank shall
have made any demand under this Agreement or the Note and although
such obligations may be unmatured. The Bank agrees promptly to
notify the Borrower after any such setoff and application, provided
that the failure to give such notice shall not affect the validity
of such setoff and application. The rights of the Bank under this
Section 6.03 are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the
Bank may have.
ARTICLE 7
CONDITIONS PRECEDENT
Section 7.01 Conditions to Initial Revolving Credit Loan.
The obligation of the Bank to make the initial Revolving Credit
Loan is subject to the satisfaction, prior to or concurrently with
the making of such Revolving Credit Loan on the Closing Date, of
the following conditions precedent.
(a) Loan Documents - the Bank shall have received
this Agreement, the Note and the Security Instruments
described in Schedule 7.01, in each case duly executed
and delivered by a duly authorized officer of the
Borrower.
(b) Closing Certificate - the Bank shall have
received a certificate of the Chairman of the Board of
Directors of Borrower, dated the Closing Date,
substantially in the form of Exhibit I, with appropriate
insertions and attachments.
(c) Corporate Proceedings of the Borrower - the
Bank shall have received a copy of the resolutions, in
form and substance satisfactory to the Bank, of the Board
of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement and
the other Loan Documents to which it is a party and (ii)
the borrowings contemplated hereunder, certified by the
Chairman of the Board of Directors of Borrower as of the
Closing Date, which certificate shall be in form and
substance satisfactory to the Bank and shall state that
the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(d) Borrower Incumbency Certificate - the Bank
shall have received a certificate of the Borrower, dated
the Closing Date, as to the incumbency and signature of
the officers of the Borrower executing any Loan Document
in substantially the form of Exhibit J, executed by the
Chairman of the Board of Directors and the Secretary or
any Assistant Secretary of the Borrower.
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<PAGE> 29
(e) Corporate Documents - the Bank shall have
received true and complete copies of the articles of
incorporation and bylaws of the Borrower, certified as of
the Closing Date as complete and correct copies thereof
by the Chairman of the Board of Directors of the
Borrower.
(f) Consents, Licenses and Approvals - the Bank
shall have received a certificate of the Chairman of the
Board of Directors of the Borrower (i) attaching copies
of all consents, authorizations and filings referred to
in Section 3.02, and (ii) stating that such consents,
licenses and filings are in full force and effect, and
such certificate and each such consent, authorization and
filing shall be in form and substance satisfactory to the
Bank.
(g) Other - the Bank shall have received such other
documents as it may reasonably have requested at any time
at or prior to the Closing Date, including, without
limitation, a schedule of all insurance presently
maintained by the Borrower and an appraisal of the
Borrower's drilling rigs and related equipment prepared
by an independent appraiser acceptable to the Bank and
being in form and substance satisfactory to the Bank.
Section 7.02 Conditions to Each Revolving Credit Loan. The
obligation of the Bank to make any Revolving Credit Loan requested
to be made by Borrower on any date (including, without limitation,
its initial Revolving Credit Loan) is subject to the satisfaction
of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower in or
pursuant to the Loan Documents shall be true and correct
in all material respects on and as of such date as if
made on and as of such date.
(b) No Event of Default. No Event of Default shall
have occurred and be continuing on such date or after
giving effect to the Revolving Credit Loans requested to
be made on such date.
(c) Maintenance of Borrowing Base. Notwithstanding
Section 2.05(b), after giving effect to the Revolving
Credit Loans requested to be made on any date, the
aggregate principal amount of the Revolving Credit Loans
then outstanding shall not exceed the lesser of (i)
$5,000,000.00 or (ii) one-third (1/3) of the Borrowing
Base Amount then in effect.
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<PAGE> 30
(d) No Material Litigation. No litigation,
investigation or proceeding of or before any arbitrator
or Governmental Authority shall be pending or, to the
knowledge of the Borrower, threatened by or against the
Borrower or the Bank with respect to any of the Loan
Documents or any of the transactions contemplated hereby
or thereby.
(e) Borrowing Base Reports. The Bank shall have
received all Borrowing Base Reports required to be
delivered by Borrower pursuant to Section 2.04(b).
(f) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other
legal matters in connection with the transactions
contemplated by this Agreement and the other Loan
Documents shall be satisfactory in form and substance to
the Bank, and the Bank shall have received such other
documents and legal opinions in respect of any aspect or
consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date thereof
that the conditions contained in this subsection have been
satisfied.
ARTICLE 8
MISCELLANEOUS
Section 8.01 Notices. Any notice required or permitted to
be given under or in connection with this Agreement, the Note or
the Security Instruments (except as may otherwise be expressly
required herein or therein) shall be in writing and shall be mailed
by first class or express mail, postage prepaid, or sent by telex,
telegram, telecopy or other similar form of rapid transmission
confirmed by mailing (by first class or express mail, postage
prepaid) written confirmation at substantially the same time as
such rapid transmission, or personally delivered to any officer of
the receiving party. All such communications shall be mailed, sent
or delivered,
(a) if to the Borrower: TMBR/Sharp Drilling, Inc.
4607 West Industrial Blvd.
Midland, Texas 79703
(b) if to the Bank: Wells Fargo Bank Texas, N.A.
500 W. Texas, Suite 400
Midland, Texas 79701
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<PAGE> 31
or to such other address or individual's or department's attention
as a party may furnish to the other party in writing. Any
communication so addressed and mailed shall be deemed to be given
when so mailed. Any notice so sent by rapid transmission shall be
deemed to be given when receipt of such transmission is
acknowledged. Any communication so delivered in person shall be
deemed to be given when receipted for by, or actually received by,
an authorized officer of the Borrower or the Bank, as the case may
be.
Section 8.02 Amendments and Waivers. Any provision of this
Agreement, the Note, the Security Instruments or the other Loan
Documents may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by each Person which is a
party to the Loan Document being amended (or with respect to which
a waiver is being obtained) and the Bank.
Section 8.03 Indemnity by Borrower. The Borrower agrees to
indemnify, save and hold harmless the Bank and its Affiliates,
directors, officers, agents, attorneys and employees (collectively,
the "Indemnitees") from and against: (a) any and all claims,
demands, actions or causes of action that are asserted against any
Indemnitee by any Person (other than the Borrower) if the claim,
demand, action or cause of action directly or indirectly relates to
a claim, demand, action or cause of action that such Person asserts
or may assert against the Borrower, any Affiliate of the Borrower
or any officer, director or shareholder of the Borrower; (b) any
and all claims, demands, actions or causes of action that are
asserted against any Indemnitee by any Person (other than the
Borrower) if the claim, demand, action or cause of action arises
out of or relates to the Revolving Credit Loans, the use or
contemplated use of proceeds of the Revolving Credit Loans or the
relationship of the Borrower and the Bank under this Agreement; (c)
any administrative or investigative proceeding by any Governmental
Authority arising out of or related to a claim, demand, action or
cause of action described in clauses (a) or (b) above; and (d) any
and all liabilities, losses, costs or expenses (including
reasonable attorneys' fees and disbursements) that any Indemnitee
suffers or incurs as a result of any of the foregoing; provided,
that no Indemnitee shall be entitled to indemnification for any
liability, loss, cost or expense caused by its own gross negligence
or willful misconduct. If any claim, demand, action or cause of
action is asserted against any Indemnitee and such Indemnitee
intends to claim indemnification from the Borrower under this
Section 8.03, such Indemnitee shall promptly notify the Borrower,
but the failure to so promptly notify the Borrower shall not affect
the obligations of the Borrower under this Section 8.03 unless such
failure materially prejudices the Borrower's right to participate,
or the Borrower's rights, if any, in the contest of such claim,
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<PAGE> 32
demand, action or cause of action, as hereinafter provided. Each
Indemnitee may, and if requested by the Borrower in writing shall,
in good faith contest the validity, applicability and amount of
such claim, demand, action or cause of action with counsel selected
by such Indemnitee and reasonably acceptable to the Borrower, and
shall permit the Borrower to participate in such contest. Any
Indemnitee that proposes to settle or compromise any claim or
proceeding for which the Borrower may be liable for payment of
indemnity hereunder shall give the Borrower written notice of the
terms of such proposed settlement or compromise reasonably in
advance of settling or compromising such claim or proceeding and
shall obtain the Borrower's prior written consent, which consent
shall not be unreasonably withheld. In connection with any claim,
demand, action or cause of action covered by this Section 8.03
against more than one Indemnitee, all such Indemnitees shall be
represented by the same legal counsel selected by the Indemnitees
and reasonably acceptable to the Borrower; provided, that if such
legal counsel determines in good faith and advises the Borrower in
writing that representing all such Indemnitees would or could
result in a conflict of interest under legal requirements or
ethical principles applicable to such legal counsel or that a
defense or counterclaim is available to an Indemnitee that is not
available to all such Indemnitees, then to the extent reasonably
necessary to avoid such a conflict of interest or to permit
unqualified assertion of such a defense or counterclaim, each
Indemnitee shall be entitled to separate representation by legal
counsel selected by that Indemnitee and reasonably acceptable to
the Borrower. Any obligation or liability of the Borrower to any
Indemnitee under this Section 8.03 shall survive the expiration or
termination of this Agreement and the repayment of the Revolving
Credit Loans and the payment of all other Indebtedness owing to the
Bank for the statute of limitations period applicable to such claim
or contest.
Section 8.04 Invalidity. In the event that any one or more
of the provisions contained in this Agreement, the Note, any
Security Instrument or any other Loan Document shall, for any
reason, be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement, the Note or such Security
Instrument or other Loan Document.
Section 8.05 Survival of Agreements. All representations
and warranties of the Borrower herein or in the Security
Instruments, and all covenants and agreements herein or therein not
fully performed before the effective date or dates of this
Agreement and of the Security Instruments, shall survive such date
or dates.
Section 8.06 Successors and Assigns. All covenants and
agreements contained by or on behalf of the Borrower in this
Agreement, the Note and the Security Instruments and other Loan
Documents shall bind its successors and assigns and shall inure to
the benefit of the Bank and its successors and assigns. Borrower
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<PAGE> 33
shall not, however, have the right to assign its rights hereunder
or any interest herein, without the prior written consent of the
Bank. In the event that the Bank sells participations in or
assigns the Note or other Indebtedness owing to the Bank to other
lenders (which the Bank may undertake to do in its sole
discretion), each of such other lenders shall have the rights to
setoff against such Indebtedness and similar rights or Liens to the
same extent as may be available to the Bank.
Section 8.07 Renewal, Extension or Rearrangement. All
provisions of this Agreement and of any Security Instrument or
other Loan Document relating to the Note or other Indebtedness
owing to the Bank 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 Indebtedness originally
represented by the Note or of any part of such other Indebtedness.
Section 8.08 Waivers. No course of dealing on the part of
the Bank, its officers, employees, consultants or agents, nor any
failure or delay by the Bank with respect to exercising any right,
power or privilege of the Bank under this Agreement, the Note or
any Security Instrument or other Loan Document shall operate as a
waiver thereof, except as otherwise provided in Section 8.02
hereof.
Section 8.09 Cumulative Rights. Rights and remedies of the
Bank under this Agreement, the Note and the Security Instruments
and the other Loan Documents shall be cumulative, and the exercise
or partial exercise of any such right or remedy shall not preclude
the exercise of any other right or remedy.
Section 8.10 Construction. THIS AGREEMENT IS, AND THE NOTE
WILL BE, A CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE UNITED STATES OF AMERICA AND
THE STATE OF TEXAS, AS SUCH LAWS ARE NOW IN EFFECT AND, WITH
RESPECT TO USURY LAWS, IF ANY, APPLICABLE TO THE BANK AND TO THE
EXTENT ALLOWED THEREBY, AS SUCH LAWS MAY HEREAFTER BE IN EFFECT
WHICH ALLOW A HIGHER MAXIMUM NONUSURIOUS INTEREST RATE THAN SUCH
LAWS NOW ALLOW.
Section 8.11 Taxes, Etc. Any taxes (excluding income taxes)
payable or ruled payable by any Governmental Authority in respect
of this Agreement, the Note, any Security Instrument or any other
Loan Document shall be paid by the Borrower, together with interest
and penalties, if any.
Section 8.12 Governmental Regulation. Anything contained
herein to the contrary notwithstanding, the Bank shall not be
obligated to extend credit to the Borrower in an amount in
violation of any limitation or prohibition provided by any
applicable statute or regulation.
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<PAGE> 34
Section 8.13 Counterparts. This Agreement may be executed
in one or more counterparts, and it shall not be necessary that the
signatures of all parties hereto be contained on any one
counterpart hereof. Each counterpart shall be deemed an original,
but all counterparts together shall constitute one and the same
instrument.
Section 8.14 Conflicts. If there is ever a conflict between
the terms, conditions, representations, warranties and covenants
contained in this Agreement and the terms, conditions,
representations, warranties or covenants in any of the other Loan
Documents executed by the Borrower, the provisions of this
Agreement shall control; provided, however, the fact that any term,
condition, representation, warranty or covenant contained in such
other Loan Document is not contained herein shall not be, or be
deemed to be, a conflict.
Section 8.15 Exhibits. The exhibits, annexes and schedules
attached to this Agreement are incorporated herein and shall be
considered a part of this Agreement for the purposes stated herein,
except that in the event of any conflict between any of the
provisions of such exhibits, annexes and schedules and the
provisions of this Agreement, the provisions of this Agreement
shall prevail.
Section 8.16 Acknowledgment by Borrower. As a material
inducement to the Bank to execute and deliver this Agreement and to
make the Revolving Credit Loans, the Borrower hereby acknowledges,
agrees and represents that (i) the Prior Notes are renewed,
extended and consolidated, but not extinguished, by the Note; (ii)
the Liens, security interests and assignments created and evidenced
by the Prior Security Instruments are, respectively, valid and
subsisting Liens, security interests and assignments of the
respective dignity and priority recited in the Prior Security
Instruments; (iii) there are no claims or offsets against, or
defenses or counterclaims to, the terms or provisions of the Prior
Security Instruments, and the other obligations created or
evidenced by the Prior Security Instruments; (iv) Borrower has no
claims, offsets, defenses or counterclaims arising from any of the
Bank's acts or omissions with respect to any collateral, the Prior
Security Instruments or the Bank's performance under the Prior
Security Instruments; and (v) the Bank is not in default and no
event has occurred which, with the passage of time, giving of
notice, or both, would constitute a default by the Bank of its
obligations under the terms and provisions of the Prior Security
Instruments.
Section 8.17 Titles of Articles, Sections and Subsections.
All titles or headings to articles, sections, subsections or other
divisions of this Agreement or the exhibits and schedules hereto
are only for the convenience of the parties and shall not be
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<PAGE> 35
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.
Section 8.18 Entire Agreement. THIS AGREEMENT, THE NOTE,
THE SECURITY INSTRUMENTS AND THE OTHER LOAN DOCUMENTS CONSTITUTE A
"LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS
BUSINESS AND COMMERCE CODE AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN OR ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed as of the date first above written.
TMBR/SHARP DRILLING, INC.
By: /s/ Thomas C. Brown
--------------------------------
Thomas C. Brown, Chairman of the
Board of Directors and Chief
Executive Officer
WELLS FARGO BANK TEXAS, N.A.
By: /s/ Dale S. Gravelle
--------------------------------
Dale S. Gravelle, Vice President
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<PAGE> 36
REVOLVING LINE OF CREDIT PROMISSORY NOTE
$5,000,000.00 June 26, 2000
FOR VALUE RECEIVED, in the manner, on the dates and in the amounts herein
stipulated, TMBR/SHARP DRILLING, INC., a Texas corporation (the "Borrower"),
promises and agrees to pay to the order of Wells Fargo Bank Texas, N.A., a
national banking association (the "Bank"), in Midland, Midland County, Texas,
the principal sum of Five Million and No/100 Dollars ($5,000,000.00) or, if
less, the aggregate unpaid balance of all advances hereunder, in lawful money
of the United States of America, which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, and to pay interest
thereon from the date of advance until maturity at a rate per annum which shall
from day to day be equal to the lesser of (a) the Base Rate in effect from day
to day (calculated on the basis of actual days elapsed, but computed as if each
calendar year consisted of 360 days) or (b) the Highest Lawful Rate. Each
change in the rate of interest charged under this Revolving Line of Credit
Promissory Note (this "Note") shall, subject to the terms hereof, become
effective, without notice to the Borrower, upon the effective date of each
change in the Base Rate or the Highest Lawful Rate, as the case may be.
Notwithstanding the foregoing, if at any time the Base Rate exceeds the Highest
Lawful Rate, the rate of interest on this Note shall be limited to the Highest
Lawful Rate, but any subsequent reductions in the Base Rate shall not reduce
the rate of interest hereon below the Highest Lawful Rate until the total
amount of interest accrued hereon approximately equals the amount of interest
which would have accrued hereon if the Base Rate had at all times been in
effect. In the event that at maturity (stated or by acceleration), or at final
payment of this Note, the total amount of interest paid or accrued hereon is
less than the amount of interest which would have accrued if the Base Rate had
at all times been in effect, then, at such time and to the extent permitted by
applicable laws, Borrower shall pay to the Bank an amount equal to the
difference between (a) the lesser of the amount of interest which would have
accrued if the Base Rate had at all times been in effect or the amount of
interest which would have accrued if the Highest Lawful Rate had at all times
been in effect, and (b) the amount of interest actually paid or accrued on this
Note. All of the past due principal and accrued interest hereunder shall, at
the option of the Bank, bear interest from maturity (stated or by acceleration)
until paid at a rate per annum equal to the Highest Lawful Rate. Interest
calculations may be made ten days prior to any interest installment due date
under this Note, in which event, if there is an adjustment in the interest rate
in accordance with the terms hereof during such ten-day period, then the
Borrower shall subsequently, on demand, pay to the Bank any underpayment, or
the Bank shall pay to the Borrower, any overpayment, as the case may be, as a
result of any adjustment during such ten-day period.
<PAGE> 37
This Note (a) is the Revolving Line of Credit Note referred to in the
Second Amended and Restated Loan Agreement, dated as of the date hereof (as the
same may be amended, supplemented or otherwise modified from time to time, the
"Loan Agreement"), between the Borrower and the Bank, (b) is subject to the
terms and conditions thereof, and (c) is subject to optional and mandatory
prepayments in whole or in part as provided in the Loan Agreement. Reference
is made to the Loan Agreement for a further statement of the rights, remedies,
powers, privileges, benefits, duties and obligations of the Borrower and the
Bank under the Loan Agreement and this Note. Capitalized terms used herein
which are defined in the Loan Agreement shall have such defined meanings
unless otherwise defined herein.
This Note represents the renewal, extension, and consolidation, but not
the extinguishment, of the Prior Notes.
This Note is secured as provided in the Loan Agreement and in the other
Loan Documents, to which reference is hereby made for a description of the
properties and assets in which a Lien and security interest has been granted,
the nature and extent of the security, the terms and conditions upon which the
Liens and security interests were granted and the rights of the holder of this
Note with respect thereto.
Each borrowing under this Note shall be in the minimum amount of $50,000.00
(or the unadvanced portion hereof, whichever is less) and shall be made only in
accordance with the provisions of the Loan Agreement. Subject to the terms
hereof and of the Loan Agreement, Borrower may borrow, repay and reborrow at any
time and from time to time under this Note.
Interest on the outstanding principal balance of this Note shall be due
and payable monthly on the fifteenth day of each month, commencing August 15,
2000. The outstanding principal balance of this Note and all accrued and
unpaid interest shall be due and payable on August 31, 2002, when this Note
matures.
Time is of the essence of this Note. Upon the occurrence of any one or
more of the Events of Default specified in the Loan Agreement, all amounts then
remaining unpaid on this Note shall become, or may be declared to be,
immediately due and payable, all as provided therein.
It is the intention of the Borrower and the Bank that the Bank shall
conform strictly to usury laws applicable to it. Accordingly, if the
transactions contemplated by the Loan Agreement and this Note would be usurious
as to the Bank under laws applicable to it (including the laws of the United
States of America and the State of Texas or any other jurisdiction whose laws
may be mandatorily applicable to the Bank notwithstanding the other provisions
of the Loan Agreement and this Note), then, in that event, notwithstanding
anything to the contrary in this Note, the Loan Agreement or any other Loan
Document or other agreement entered into in connection with or as security for
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<PAGE> 38
this Note, (i) the aggregate of all consideration which is contracted for,
taken, reserved, charged or received by the Bank under this Note, the Loan
Agreement or any other Loan Document or agreement entered into in connection
with or as security for this Note shall under no circumstances exceed the
maximum amount allowed by such applicable law, and any excess shall be
credited by the Bank on the principal amount of the Indebtedness to the Bank
(or, to the extent that the principal amount of the Indebtedness shall have
been or would thereby be paid in full, refunded by the Bank to the Borrower);
and (ii) in the event that the maturity of this Note is accelerated by reason
of an Event of Default under the Loan Agreement or otherwise, or in the event
of any prepayment, then such consideration that constitutes interest under law
applicable to the Bank may never include more than the maximum amount allowed
by such applicable law, and excess interest, if any, provided for in this Note,
the Loan Agreement or otherwise shall be canceled automatically by the Bank as
of the date of such acceleration of prepayment and, if theretofore paid, shall
be credited by the Bank on the principal amount of the Indebtedness (or, to
the extent that the principal amount of such Indebtedness shall have been or
would thereby be paid in full, refunded by the Bank to the Borrower).
To the extent that Texas Finance Code Section 303.002, as supplemented by
Article 5069-ID.002 of the Texas Revised Civil Statutes (Texas Credit Title),
is relevant to the Bank for the purposes of determining the Highest Lawful
Rate, the applicable rate ceiling under such provisions shall be determined by
the indicated (weekly) rate ceiling from time to time in effect, subject to
the Bank's right subsequently to change such method in accordance with
applicable law.
All parties now or hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
THIS NOTE IS PERFORMABLE AND PAYABLE IN THE COUNTY OF MIDLAND, STATE OF
TEXAS, AND SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF
THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT THE LAWS PERTAINING TO ALLOWABLE
RATES OF INTEREST MAY, FROM TIME TO TIME, BE GOVERNED BY THE LAWS OF THE
UNITED STATES OF AMERICA.
TMBR/SHARP DRILLING, INC.
By: /s/ Thomas C. Brown
--------------------------------
Thomas C. Brown, Chairman of the
Board of Directors and Chief
Executive Officer
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