SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d)
of The Securities Act of 1934
Date of Report (date of earliest event reported): March 20, 1996
Mallon Resources Corporation
(exact name of registrant as specified in its charter)
Colorado 0-17267 84-1095959
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
999 18th Street, Suite 1700, Denver, Colorado 80202
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (303) 293-2333
not applicable
(former name or former address, if changed since last report)
Item 5. Other Events
On March 20, 1996, Mallon Oil Company ("MOC"), a wholly owned
subsidiary of Mallon Resources Corporation (the "Company"),
established a $35,000,000 Revolving Line of Credit with Bank One,
Texas, with an initial borrowing base of $10.5 million. Funds drawn
under the line are available for general corporate purposes, and the
first $10.2 million drawn went to retire a credit line from Midland
Bank, PLC, a unit of Hong Kong Shanghai Banking Corporation. In
addition to the Revolving Line, in order to finance the continuation
of MOC's development drilling program in southeast New Mexico, MOC and
Bank One also put in place a $2,000,000 Advance Line of Credit.
The credit lines are collateralized by substantially all of MOC's oil
and gas properties, and the Company has guaranteed MOC's performance
thereunder.
All of the terms of the credit lines are set forth in the documents
included as Exhibits to this Periodic Report on Form 8-K, which are
hereby incorporated by reference as a part of this Report.
Item 7. Financial Statements and Exhibits
(c) Exhibits.
10.58 Bank One -- Loan Agreement dated March 20, 1996
10.59 Bank One -- $35,000,000 Promissory Note dated March 20, 1996
10.60 Bank One -- $2,000,000 Advance Promissory Note dated March 20,
1996
10.61 Bank One -- Mortgage dated March 20, 1996
10.62 Bank One -- Guaranty dated March 20, 1996
Signatures
Pursuant to the requirements of the Securities Exchange act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Mallon Resources Corporation
March 20, 1996 /s/ Roy K. Ross
Roy K. Ross, Executive Vice President
LOAN AGREEMENT
BETWEEN
MALLON OIL COMPANY
("Borrower")
AND
BANK ONE, TEXAS, N.A.
("Bank")
March 20, 1996
LOAN AGREEMENT
TABLE OF CONTENTS
Page
1. Definitions 1
2. Commitments of the Bank 9
(a) Revolving Commitment 9
(b) Advance Line of Credit 9
(c) Procedure for Borrowing 9
(d) Monthly Reduction of Revolving Commitment 10
(e) Voluntary Reduction of Revolving Commitment
and the Advance Line of Credit 10
3. Notes Evidencing Loans 10
(a) Form of Revolving Note 10
(b) Form of Advance Note 11
(c) Interest Rate on the Notes 11
(d) Payment of Interest on the Revolving Note 11
(e) Payment of the Principal of the Revolving Note 11
(f) Payment on Principal and Interest on the Advance Note 11
(g) General 11
4. Interest Rates 12
(a) Options For Revolving Loan 12
(b) Interest Rate Determination 13
(c) Conversion Option 13
(d) Advance Loan 13
(e) Recoupment 13
5. Special Provisions Relating to Eurodollar Loans 14
(a) Unavailability of Funds or Inadequacy of Pricing 14
(b) Reserve Requirements 14
(c) Taxes 14
(d) Change in Laws 15
(e) Option to Fund 15
(f) Indemnity 16
(g) Payments Not at End of Interest Period 16
6. Collateral Security 16
7. Borrowing Base 17
(a) Initial Borrowing Base 17
(b) Subsequent Determinations of Borrowing Base 17
8. Fees 18
(a) Unused Portion Fee 18
(b) Commitment Fee 19
(c) Facility Fee 19
(d) Borrowing Base Increase Fee 19
9. Prepayments 19
(a) Voluntary Prepayments of Notes 19
(b) Mandatory Prepayment of Revolving Note 19
(c) Mandatory Prepayment of Advance Line of Credit 20
10. Representations and Warranties 20
(a) Corporate Existence 20
(b) Corporate Power and Authorization 20
(c) Guarantor 20
(d) Binding Obligations 21
(e) No Legal Bar or Resultant Lien 21
(f) No Consent 21
(g) Financial Condition 21
(h) Liabilities 21
(i) Litigation 22
(j) Taxes; Governmental Charges 22
(k) Titles, Etc. 22
(l) Defaults 22
(m) Casualties; Taking of Properties 22
(n) Use of Proceeds; Margin Stock 22
(o) Location of Business and Offices 23
(p) Compliance with the Law 23
(q) No Material Misstatements 23
(r) Not A Utility 23
(s) ERISA 24
(t) Public Utility Holding Company Act 24
(u) Subsidiaries 24
(v) Environmental Matters 24
(w) Liens 24
11. Conditions of Lending 24
12. Affirmative Covenants 26
(a) Financial Statements and Reports 27
(b) Certificates of Compliance 28
(c) Accountants' Certificate 28
(d) Taxes and Other Liens 28
(e) Compliance with Laws 29
(f) Further Assurances 29
(g) Performance of Obligations 29
(h) Insurance 29
(i) Accounts and Records 30
(j) Right of Inspection 30
(k) Notice of Certain Events 31
(l) ERISA Information and Compliance 31
(m) Environmental Reports and Notices 31
(n) Maintenance 31
(o) Operation of Properties 32
(p) Compliance with Leases and Other Instruments 32
(q) Certain Additional Assurances Regarding Main-
tenance and Operations of Properties 33
(r) Title Matters 33
(s) Curative Matters 33
(t) Change of Principal Place of Business 33
13. Negative Covenants 33
(a) Liens 34
(b) Consolidations, Mergers and Sales of Assets 34
(c) Current Ratio 34
(d) Debt Service Ratio 34
(e) Minimum Tangible Net Worth 34
(f) Total Bank Debt 34
(g) Debts, Guaranties and Other Obligations 34
(h) Dividends 35
(i) Loans and Advances 35
(j) Investments 36
(k) Sale or Discount of Receivables 36
(l) Nature of Business 36
(m) Hedging Transactions 36
(n) Amendment of Articles of Incorporation or Bylaws 37
(o) Sale of Assets 37
(p) Transactions with Affiliates 37
14. Events of Default 37
15. Exercise of Rights 39
16. Notices 40
17. Expenses 40
18. Indemnity 40
19. Invalid Provisions 41
20. Maximum Interest Rate 41
21. Amendments 42
22. Multiple Counterparts 42
23. Conflict 42
24. Survival 42
25. Parties Bound 42
26. Participations 42
27. Financial Terms 43
28. Governing Law 43
29. Choice of Forum: Consent to Service of Process and
Jurisdiction 43
30. Other Agreements 44
EXHIBITS
Exhibit "A" - Notice of Borrowing
Exhibit "B" - Revolving Note
Exhibit "C" - Advance Note
Exhibit "D" - Compliance Certificate
SCHEDULES
Schedule 1 - Permitted Liens
Schedule 2 - Financial Condition
Schedule 3 - Liabilities
Schedule 4 - Litigation
Schedule 5 - Subsidiaries
Schedule 6 - Environmental Matters
Schedule 7 - Title Matters
Schedule 8 - Curative Matters
Schedule 9 - Debts, Guarantees and other Obligations
Schedule 10 - Loans and Advances
LOAN AGREEMENT
THIS LOAN AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 20th day of March, 1996, between
MALLON OIL COMPANY, a Colorado corporation (hereinafter referred to
as the "Borrower"), MALLON RESOURCES CORPORATION, a Colorado
corporation (hereinafter referred to as the "Guarantor") and BANK
ONE, TEXAS, N.A., a national banking association (hereinafter
sometimes referred to as "Bank").
W I T N E S S E T H:
WHEREAS, Borrower has requested that the Bank provide Borrower
with a reducing revolving line of credit facility and an advance
line of credit and Bank is willing to make such facilities
available to Borrower.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Definitions. When used herein the terms "Agreement,"
"Bank," "Borrower" and "Guarantor" shall have the meanings
indicated above. When used herein the following terms shall have
the following meanings (all terms defined in this Section 1 or
other provisions of this Agreement in the singular shall have the
same meanings when used in the plural or vice versa):
"Advance or Advances" shall mean a loan or loans hereunder.
"Advance Line of Credit" shall mean the commitment
contained in Section 2(b) hereof.
"Advance Loan" shall mean loan or loans made under the
Advance Line of Credit pursuant to Section 2(b) hereof.
"Advance Loan Maturity Date" shall mean September 30, 1997.
"Advance Note" shall mean the $2,000,000 Advance Note
described in Section 3(b) hereof.
"Affiliate" shall mean any Person which, directly or
indirectly, controls, is controlled by or is under common control
with the relevant Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with
respect to any Person, shall mean a member of the board of
directors, a partner or an officer of such Person, or any other
Person with possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
such Person, through the ownership (of record, as trustee, or by
proxy) of voting shares, partnership interests or voting rights,
through a management contract or otherwise. Any Person owning or
controlling directly or indirectly ten percent or more of the
voting shares, partnership interests or voting rights, or other
equity interest of another Person shall be deemed to be an
Affiliate of such Person.
"Approved AFE" shall mean the AFE's for each well in the
Drilling Program (as herein defined) which are approved by Bank
prior to the Effective Date.
"Base Rate" shall mean the fluctuating rate of interest per
annum established from time to time by Bank as its Base Rate (which
rate of interest may not be the lowest, best or most favorable rate
of interest which Bank may charge on loans to its customers). Each
change in the Base Rate shall become effective without prior notice
to Borrower automatically as of the opening of business on the date
of such change in the Base Rate.
"Base Rate Interest Period" shall mean with respect to any
Base Rate Loan, the period ending on the last day of each month,
provided, however, that (i) if any Base Rate Interest Period would
end on a day which is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day, and(ii) if
any Base Rate Interest Period would otherwise end after the
Maturity Date or the Advance Loan Maturity Date, as the case may
be, such Interest Period shall end on the Maturity Date or the
Advance Loan Maturity Date, as the case may be.
"Base Rate Loan" shall mean any loan during any period
which bears interest at the Base Rate plus the Base Rate Margin, or
which would bear interest at such rate if the Maximum Rate ceiling
was not in effect at a particular time.
"Base Rate Margin" shall mean for the Revolving Commitment,
three-fourths of one percent (.75%).
"Borrowing Base" shall mean the value assigned by the Bank
from time to time to the Oil and Gas Properties and other
collateral in accordance with Section 7(b) hereof. Until the next
determination of the Borrowing Base pursuant to Section 7(b) hereof
the Borrowing Base for the Revolving Commitment shall be
$10,500,000.00.
"Borrowing Date" shall mean the date elected by the
Borrower pursuant to Section 2 hereof for an Advance on the
Revolving Commitment or the Advance Line of Credit.
"Business Day" shall mean the normal banking hours during
any day (other than Saturdays or Sundays) that banks are legally
open for business in Dallas, Texas.
"Cash Flow" shall mean Borrower's Net Income or loss less
preferred dividends plus non-cash charges, all as calculated in
accordance with GAAP.
"Change of Management" shall occur if George O. Mallon, Jr.
or both Duane C. Knight, Jr. and Kevin M. Fitzgerald should cease
to act as senior officers of Borrower.
"Collateral" is used herein as defined in Section 6 hereof.
"Contract Rate" shall mean the rate of interest per annum
which Bank shall charge Borrower on the Advance Line of Credit,
which rate shall be equal to the greater of (i) twelve and one-half
percent (12.5%) per annum or (ii) the Base Rate plus four percent
(4%) per annum.
"Current Assets" shall mean the total of Borrower's current
assets, determined in accordance with GAAP, plus current
availability under the Revolving Commitment and the Advance Line of
Credit.
"Current Liabilities" shall mean the total of Borrower's
current liabilities as determined in accordance with GAAP,
excluding therefrom current maturities of the principal and
interest due on the Revolving Commitment and the Advance Line of
Credit.
"Debt Service" shall mean Total Bank Debt divided by a
number equal to the economic half life of the Oil and Gas
Properties as determined by the Bank from time to time pursuant to
Section 7(b).
"Determination Date" is used herein as defined in Section 7
hereof.
"Drilling Program" shall mean the development drilling
program proposed by Borrower and approved by Bank prior to the
Effective Date.
"Effective Date" shall mean the date of this Agreement.
"Environmental Laws" shall mean the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended by the Super Fund Amendments and Reauthorization Act of
1986, 42 U.S.C.A. Section 9601, et seq., the Resource Conservation and
Recovery Act, as amended by the Hazardous Solid Waste Amendment of
1984, 42 U.S.C.A. Section 6901, et seq., the Clean Air Act, 42 U.S.C.A.
Section 1251, et seq., the Toxic Substances Control Act, 15 U.S.C.A.
Section 2601, et seq., The Oil Pollution Act of 1990, 33 U.S.G. Section 2701,
et seq., and all other laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, order
and restrictions of any federal, state, county, municipal and other
governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign, relating
to air pollution, water pollution, noise control and/or the
handling, discharge, disposal or recovery of on-site or off-site
asbestos or "hazardous substances" as defined by 42 U.S.C. Section 9601,
et seq., as amended, as each of the foregoing may be amended from
time to time.
"Environmental Liability" shall mean any claim, demand,
obligation, cause of action, accusation, allegation, order,
violation, damage, injury, judgment, penalty or fine, cost of
enforcement, cost of remedial action or any other costs or expense
whatsoever, including reasonable attorneys' fees and disbursements,
resulting from the violation or alleged violation of any
Environmental Law or the imposition of any Environmental Lien (as
hereinafter defined).
"Environmental Lien" shall mean a Lien in favor of any
court, governmental agency or instrumentality or any other Person
(i) for any Environmental Liability or (ii) for damages arising
from or cost incurred by such court or governmental agency or
instrumentality or other person in response to a release or
threatened release of hazardous or toxic waste, substance or
constituent into the environment.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
"Eurodollar Business Day" shall mean a Business Day on
which dealings in U.S. Dollar deposits are carried on in the London
interbank market.
"Eurodollar Interest Period" shall mean with respect to any
Eurodollar Loan (i) initially, the period commencing on the date
such Eurodollar Loan is made and ending one (1), two (2) or three
(3) months thereafter and (ii) thereafter, each period commencing
on the day following the last day of the next preceding Interest
Period applicable to such Eurodollar Loan and ending one (1), two
(2) or three (3) months thereafter; provided, however, that (i) if
any Eurodollar Interest Period would otherwise expire on a day
which is not a Eurodollar Business Day, such Interest Period shall
expire on the next succeeding Eurodollar Business Day unless the
result of such extension would be to extend such Interest Period
into the next calendar month, in which case such Interest Period
shall end on the immediately preceding Eurodollar Business Day,
(ii) if any Eurodollar Interest Period begins on the last
Eurodollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at
the end of such Interest Period) such Interest Period shall end on
the last Eurodollar Business Day of a calendar month, and (iii) any
Eurodollar Interest Period which would otherwise expire after the
Revolving Maturity Date shall end on such Revolving Maturity Date.
Borrower shall not be permitted to have outstanding at any time
more than three (3) Eurodollar Tranches.
"Eurodollar Loan" shall mean any loan during any period
which bears interest at the Eurodollar Rate, or which would bear
interest at such rate if the Maximum Rate ceiling was not in effect
at a particular time.
"Eurodollar Margin" shall mean two and one-half percent
(2.50%).
"Eurodollar Rate" shall mean with respect to each
Eurodollar Interest Period, the rate of interest per annum at which
deposits in immediately available and freely transferable funds in
U.S. Dollars are offered to the Bank (at approximately 10:00 a.m.,
Dallas, Texas time three Eurodollar Business Days prior to the
first day of each Eurodollar Interest Period) in the London
interbank market for delivery on the first day of such Eurodollar
Interest Period such deposits being for a period of time equal to
or comparable to such Eurodollar Interest Period and in an amount
equal to or comparable to the principal amount of the Eurodollar
Loan to which such Eurodollar Interest Period relates. Each
determination of the Eurodollar Rate by the Bank shall, in the
absence of error, be conclusive and binding
"Eurodollar Tranche" shall mean a Eurodollar Loan.
"Financial Statements" shall mean balance sheets, income
statements, statements of cash flow, and, on an annual basis,
appropriate footnotes and schedules, prepared in accordance with
GAAP.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Guaranty" shall mean the unconditional guaranty of
Guarantor.
"Interest Payment Date" shall mean the earlier of (i) the
last day of each Interest Period or (ii) the first day of each
calendar month.
"Interest Period" shall mean any Base Rate Interest Period,
or Eurodollar Interest Period.
"Lien" shall mean any lien, mortgage, security interest,
tax lien, pledge, encumbrance, Environmental Lien, consolidated
sale or title retention arrangement or other interest in property
designed to secure repayment of a liability whether arising by
agreement or under law, or otherwise.
"Loan Documents" shall mean this Agreement, the Notes, the
Guaranty, the Security Instruments and all other documents executed
in connection with the transaction described in this Agreement.
"Material Adverse Effect" shall mean any circumstances or
events which could have a material adverse effect (i) on the assets
or properties, liabilities, financial condition, business,
operations, affairs or circumstances of Borrower or from the facts
represented or warranted in this Agreement or any other Security
Instrument (other than any representation or warranty related
solely to a different point in time), or (ii) the ability of
Borrower to carry out its business as it exists on the date of this
Agreement or as proposed at the date of this Agreement to be
conducted or to meet its obligations under the Notes, this
Agreement or the other Security Instruments on a timely basis.
"Maximum Rate" shall mean, at any particular time in
question, the maximum rate of interest which under applicable law
may then be charged on the Note. If such maximum rate changes
after the date hereof, the Maximum Rate shall be automatically
increased or decreased, as the case may be, without notice to
Borrower from time to time as the effective date of each change in
such maximum rate. If the applicable law ceases to provide for a
maximum rate of interest, the Maximum Rate shall be equal to
eighteen percent (18%) per annum.
"Midland" shall mean Midland Bank, P.L.C.
"Monthly Commitment Reduction" is used herein as defined in
Section 2 hereof.
"Net Income" shall mean the Borrower's net income as
determined in accordance with GAAP.
"Net Operating Revenue" shall mean gross revenues from the
oil and gas properties in the Drilling Program less production
taxes, operating expenses and interest paid on the Advance Note.
"Notes" shall mean the Revolving Note and the Advance Note.
"Oil and Gas Properties" shall mean all oil, gas and
mineral properties and interests, and related personal properties,
in which Borrower have granted and hereinafter grants to Bank a
first and prior lien and security interest.
"Permitted Liens" shall mean (i) royalties, overriding
royalties, reversionary interests, production payments and similar
burdens on any of the Oil and Gas Properties that existed as of the
Effective Date or otherwise may be consented to by the Banks; (ii)
sales contracts or other arrangements for the sale of production of
oil, gas or associated liquid or gaseous hydrocarbons which would
not (when considered cumulatively with the matters discussed in
clause (i) above) deprive the Borrower of any material right in
respect of any of Borrower's assets or properties (except for
rights customarily granted with respect to such contracts and
arrangements); (iii) statutory Liens for taxes or other assessments
that are not yet delinquent (or that, if delinquent, are being
contested in good faith by appropriate proceedings, levy and
execution having been stayed and continue to be stayed, and for
which the Borrower have set aside on their books adequate reserves
in accordance with GAAP); (iv) easements, rights of way,
servitudes, permits, surface leases and other rights in respect to
surface operations, pipelines, grazing, logging, canals, ditches,
reservoirs or the like, conditions, covenants and other
restrictions, and easements of streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other
easements and rights of way on, over or in respect of any of
Borrower's assets or properties and that do not, individually or in
the aggregate, cause a Material Adverse Effect; (v) materialmen's,
mechanic's, repairman's, employee's, warehousemen's, landlord's,
carrier's, pipeline's, contractor's, sub-contractor's, operator's,
non-operators (arising under operating or joint operating
agreements), and other Liens (including any financing statements
filed in respect thereof) incidental to the construction,
maintenance, development, transportation, storage or operation of
Borrower's assets or properties to the extent not delinquent (or
which, if delinquent, are being contested in good faith by
appropriate proceedings and for which the Borrower have set aside
on its books adequate reserves in accordance with GAAP); (vi) all
contracts, agreements and instruments, and all defects and
irregularities and other matters affecting the Borrower's assets
and properties which are in existence at the Effective Date and
all routine operational agreements entered into in the ordinary
course of business, which contracts, agreements, instruments,
defects, irregularities and other matters and routine operational
agreements are not such as to, individually or in the aggregate,
interfere materially with the operation, value or use of Borrower's
assets and properties, considered in the aggregate; (vii) liens in
connection with workmen's compensation, unemployment insurance or
other social security, old age pension or public liability
obligations; (viii) legal or equitable encumbrances deemed to exist
by reason of the existence of any litigation or other legal
proceeding or arising out of a judgment or award with respect to
which an appeal is being prosecuted in good faith and levy and
execution thereon have been stayed and continue to be stayed; (ix)
rights reserved to or vested in any municipality, governmental,
statutory or other public authority to control or regulate any
Borrower's assets and properties in any manner, and all applicable
laws, rules and orders from any governmental authority; (x) Liens
created by or pursuant to this Agreement or the Security
Instruments; (xi) Liens existing at the date of this Agreement
which have been disclosed to Bank on Schedule "1" hereto; (xii)
Liens previous granted to Midland which are either being assigned
to Bank on the Effective Date or released; or (xiii) any and all
renewals and extensions of all or any of the foregoing.
"Person" shall mean an individual, a corporation, a
partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an
agency or instrumentality thereof.
"Plan" shall mean any plan subject to Title IV of ERISA and
maintained by Borrower, or any such plan to which Borrower are
required to contribute on behalf of their employees.
"Revolving Commitment" shall mean the commitment contained
in Section 2(a) of this Agreement.
"Revolving Loan" shall mean loan or loans made under the
Revolving Commitment pursuant to Section 2(a) hereof.
"Revolving Maturity Date" shall mean March 31, 1999.
"Revolving Note" shall mean the $35,000,000.00 Revolving
Note described in Section 3(a) hereof.
"Security Instruments" shall mean this Agreement, all Deeds
of Trust, Mortgages, Security Agreements, Assignments of Production
and Financing Statements, all Mortgages, Security Agreements,
Assignments of Production and Financing Statements, and other
collateral documents covering certain of Borrower's Oil and Gas
Properties, and related personal property, equipment, oil and gas
inventory and proceeds of the foregoing, all such documents to be
in form and substance reasonably satisfactory to Bank.
"Subsidiary" shall mean any corporation or other entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other
persons performing similar functions are at the time directly or
indirectly owned by the Borrower.
"Tangible Net Worth" shall mean an amount equal to
Guarantor's consolidated stockholder's equity, as determined in
accordance with GAAP.
"Total Bank Debt" shall mean as of any date, the aggregate
principal amount outstanding on the Revolving Note and the Advance
Note.
"Unscheduled Redeterminations" shall mean a redetermination
of the Borrowing Base made at any time other than on the dates set
for the regular semi-annual redetermination of the Borrowing Base
which are made (A) at the reasonable request of Borrower, (B) at
any time it appears to the Bank, in the exercise of its discretion,
that either (i) there has been a material decrease in the value of
the Oil and Gas Properties, or (ii) an event has occurred which is
reasonably expected to have a Material Adverse Effect.
2. Commitments of the Bank
(a) Revolving Commitment. On the terms and conditions
hereinafter set forth, the Bank agrees to make Advances to the
Borrower from time to time during the period beginning on the
Effective Date and ending on the Revolving Maturity Date in such
amounts as Borrower may request up to an amount not to exceed, in
the aggregate principal amount outstanding at any time, the lesser
of (i) the Borrowing Base or (ii) $35,000,000.00 (the "Revolving
Commitment"). Within the limit of this Section 2, the Borrower may
borrow, repay without premium or penalty, and reborrow.
Notwithstanding any other provision of this Agreement, no Advance
shall be required to be made hereunder if any Event of Default (as
hereinafter defined) has occurred and is continuing or if any event
or condition has occurred that may, with notice, be an Event of
Default. Each Advance under the revolving line of credit shall be
an aggregate amount of at least $100,000.
(b) Advance Line of Credit. On the terms and conditions
hereinafter set forth, the Bank agrees to make Advances to Borrower
from time to time during the period beginning on the Effective Date
and ending on the Advance Loan Maturity Date in such amounts as
Borrower may request up to the aggregate amount of $2,000,000.00
(the "Advance Line of Credit"). Advances under the Advance Line of
Credit shall be used solely for the Drilling Program. The maximum
amount that may be advanced for any well in the Drilling Program
shall be limited to the lesser of 80% of (i) the Approved AFE for
such well, or (ii) the actual cost to Borrower of such well. Once
repaid, amounts may not be reborrowed hereunder. Notwithstanding
any other provision of this Agreement, no Advance shall be required
to be made hereunder if any Event of Default (as hereinafter
defined) has occurred and is continuing or if any event or
condition has occurred that may, with notice, be an Event of
Default. Each Advance under the Advance Line of Credit shall be an
aggregate amount of at least $25,000.00.
(c) Procedure for Borrowing. Whenever Borrower desires
an Advance on either the Revolving Loan or the Advance Loan, it
shall give Bank telegraphic, telex, facsimile or telephonic notice
("Notice of Borrowing") of such requested Advance, which in the
case of telephonic notice, shall be promptly confirmed in writing.
Each Notice of Borrowing shall be in the form of Exhibit "A"
attached hereto and shall be received by Bank not later than 11:00
a.m. Dallas, Texas time, (i) one Business Day prior to the
Borrowing Date in the case of Base Rate Loans; and (ii) three (3)
Business Days prior to any proposed Borrowing Date in the case of
Eurodollar Loans. Each Notice of Borrowing shall specify (i)
whether the Advance is a Revolving Loan or Advance Loan, (ii) if an
Advance Loan, the Approved AFE amount for each well for which
payment is to be made and the amount paid to date on each such
Approved AFE, (iii) the Borrowing Date (which, if a Base Rate Loan
shall be a Business Day, and if a Eurodollar Loan, a Eurodollar
Business Day), (iv) the principal amount to be borrowed, (v) the
portion of the borrowing constituting Base Rate Loans and/or
Eurodollar Loans, (vi) if any portion of the proposed borrowing is
to constitute Eurodollar Loans, the initial Interest Period
selected by Borrower pursuant to Section 4 hereof to be applicable
thereto, and (vii) the date upon which disbursement is required.
Not later than 2:00 p.m., Dallas, Texas time, on the date for which
the Advance was requested, Bank shall make available to Borrower at
the same office, in immediately available funds, the aggregate
amount of such requested Advance. Bank shall not incur any
liability to Borrower in acting upon any notice referred to above
which Bank believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf
of Borrower or for otherwise acting in good faith under this
Section 2(c).
(d) Monthly Reduction of Revolving Commitment. The
Revolving Commitment shall be reduced as of the last day of each
month beginning June 30, 1996, by an amount determined by the Bank
pursuant to Section 7(b) hereof (the "Monthly Commitment
Reduction"). The Monthly Commitment Reduction shall be $130,000.00
per month until redetermined pursuant to Section 7(b) hereof.
(e) Voluntary Reduction of Revolving Commitment and the
Advance Line of Credit. Borrower may at any time, or from time to
time, upon not less than three (3) Business Days prior written
notice to Bank, reduce or terminate either the Revolving Commitment
or the Advance Line of Credit or both, provided, however, that (i)
each reduction must be in a minimum amount of at least $100,000 and
(ii) each reduction must be accompanied by a prepayment of the
Revolving Note or the Advance Note, as the case may be, in the
amount by which the principal balance of the Revolving Note or the
Advance Note, as the case may be, exceeds the Revolving Commitment
or the Advance Line of Credit, as the case may be, as reduced
pursuant to this Section 2(e).
3. Notes Evidencing Loans. The loans described above in
Section 2 shall be evidenced by a promissory note of Borrower as
follows:
(a) Form of Revolving Note - The Revolving Loan shall be
evidenced by a Revolving Note in the face amount of $35,000,000.00,
and shall be in the form of Exhibit "B" hereto with appropriate
insertion. Notwithstanding the principal amount of the Revolving
Note, as stated on the face thereof, the actual principal amount
due from Borrower to Bank on account of the Revolving Note, as of
any date of computation, shall be the sum of Advances then and
theretofore made on account thereof, less all principal payments or
prepayments actually received by Bank in collected funds with
respect thereto. Although the Revolving Note shall be dated as of
the Effective Date, interest in respect thereof shall be payable
only for the period during which the loans evidenced thereby are
outstanding and, although the stated amount of the Revolving Note
may be higher, the Revolving Note shall be enforceable, with
respect to Borrower's obligation to pay the principal amount
thereof, only to the extent of the unpaid principal amount of the
applicable Advances.
(b) Form of Advance Note. The Advance Loan shall be
evidenced by a Advance Note in the face amount of $2,000,000.00,
and shall be in the form of Exhibit "C" attached hereto with
appropriate insertions. Notwithstanding the principal amount of
the Advance Note, as stated on the face thereof, the actual
principal amount due from Borrower to Bank on account of the
Advance Note, as of any date of computation, shall be the sum of
Advances then and theretofore made on account thereof, less all
principal payments actually or prepayments received by Bank in
collected funds with respect thereto. Although the Advance Note
shall be dated as of the Effective Date, interest in respect
thereof shall be payable only for the period during which the loans
evidenced thereby are outstanding and, although the stated amount
of the Advance Note may be higher, the Advance Note shall be
enforceable, with respect to Borrower's obligation to pay the
principal amount thereof, only to the extent of the unpaid
principal amount of the applicable Advances.
(c) Interest Rate on the Notes - The unpaid principal
balance of the Revolving Note and the Advance Note shall bear
interest from time to time as set forth in Section 4(a) and 4(d)
hereof.
(d) Payment of Interest on the Revolving Note - Interest
on the Revolving Note shall be payable on the last day of each
Interest Period.
(e) Payment of the Principal of the Revolving Note -
Principal of the Revolving Note shall be due on the Revolving
Maturity Date, unless earlier due in whole or in part pursuant to
the mandatory prepayment requirements of Section 9(b) hereof.
(f) Payment on Principal and Interest on the Advance Note
- - Interest of the Advance Note shall be due and payable on the last
day of each month. Principal on the Advance Note shall be due and
payable monthly on the last day of each month in an amount equal to
100% of the Net Operating Revenue from the Project. The unpaid
principal and interest due on the Advance Note shall be due and
payable on the Advance Loan Maturity Date unless earlier due in
whole or in part pursuant to the mandatory prepayment provisions of
Section 9(c) hereof.
(g) General - Borrower shall pay the outstanding principal
amount of each Eurodollar Loan on the last day of the Interest
Period applicable thereto, which may be done by reborrowing
hereunder so long as (i) the aggregate unpaid principal balance
outstanding after any such reborrowing does not exceed the
Revolving Commitment in effect at such time, as the same may be
reduced from time to time hereunder, and (ii) no Event of Default
has occurred and is continuing.
4. Interest Rates
(a) Options For Revolving Loan.
(i) Base Rate Loans. Borrower agrees to pay interest
on the Revolving Note calculated on the basis of the actual days
elapsed in a year consisting of 365 or, if appropriate, 366 days
with respect to the unpaid principal amount of each Base Rate Loan
from the date the proceeds thereof are made available to Borrower
until maturity (whether by acceleration or otherwise), at a varying
rate per annum equal to the lesser of (i) the Maximum Rate (defined
herein), or (ii) the Base Rate plus the Base Rate Margin. Subject
to the provisions of this Agreement as to prepayment, the principal
of the Revolving Note representing Base Rate Loans shall be payable
as specified in Section 3(e) hereof and the interest in respect of
each Base Rate Loan shall be payable on each Interest Payment Date.
Past due principal and, to the extent permitted by law, past due
interest in respect to each Base Rate Loan, shall bear interest,
payable on demand, at a rate per annum equal to the Maximum Rate.
(ii) Eurodollar Loans. Borrower agrees to pay
interest calculated on the basis of a year consisting of 360 days
with respect to the unpaid principal amount of each Eurodollar Loan
from the date the proceeds thereof are made available to Borrower
until maturity (whether by acceleration or otherwise), at a varying
rate per annum equal to the lesser of (i) the Maximum Rate, or (ii)
the Eurodollar Rate plus the Eurodollar Margin. Subject to the
provisions of this Agreement with respect to prepayment, the
principal of the Revolving Note shall be payable as specified in
Section 3(e) hereof and the interest with respect to each
Eurodollar Loan shall be payable on each Interest Payment Date.
Past due principal and, to the extent permitted by law, past due
interest shall bear interest, payable on demand, at a rate per
annum equal to the Maximum Rate. Upon three (3) Eurodollar
Business Days written notice prior to the making by the Bank of any
Eurodollar Loan (in the case of the initial Interest Period
therefor) or the expiration date of each succeeding Interest Period
(in the case of subsequent Interest Periods), Borrower shall have
the option, subject to compliance by Borrower with all of the
provisions of this Agreement, as long as no Event of Default
exists, to specify whether the Interest Period commencing on any
date shall be a one (1), two (2) or three (3) month period. If
Bank shall not have received timely notice of a designation of such
Interest Period as herein provided, Borrower shall be deemed to
have elected to convert all maturing Eurodollar Loans to Base Rate
Loans. Borrower shall not be permitted to have outstanding at any
time more than three (3) Eurodollar Tranches.
(b) Interest Rate Determination. The Bank shall determine
each interest rate applicable to the Revolving Note hereunder. The
Bank shall give prompt notice to the Borrower of each rate of
interest so determined and its determination thereof shall be
conclusive absent error.
(c) Conversion Option. Borrower may elect from time to
time (i) to convert all of any part of their Eurodollar Loans to
Base Rate Loans by giving Bank irrevocable notice of such election
in writing prior to 10:00 a.m. (Dallas, Texas time) on the
conversion date and such conversion shall be made on the requested
conversion date, provided that any such conversion of Eurodollar
Loan shall only be made on the last day of the Eurodollar Interest
Period with respect thereof, (ii) to convert all or any part of
their Base Rate Loans to Eurodollar Loans by giving the Bank
irrevocable written notice of such election three (3) Eurodollar
Business Days prior to the proposed conversion and such conversion
shall be made on the requested conversion date or, if such
requested conversion date is not a Eurodollar Business Day or a
Business Day, as the case may be, on the next succeeding Eurodollar
Business Day or Business Day, as the case may be. Any such
conversion shall not be deemed to be a prepayment of any of the
loans for purposes of this Agreement or the Revolving Note.
(d) Advance Loan. The unpaid principal balance of the
Advance Note shall bear interest (calculated on the basis of actual
days in a year consisting of 365 or, if appropriate, 366 days) at a
fluctuating rate per annum from day to day equal to the lesser of
(i) the Maximum Rate, or (ii) the Contract Rate. Subject to the
provisions of this Agreement as to prepayment, the principal and
interest on the Advance Note shall be payable as specified in
Section 3(f) hereof. Past due principal and, to the extent
permitted by law, past due interest in respect of the Advance Loan,
shall bear interest, payable on demand, at a rate per annum equal
to the Maximum Rate.
(e) Recoupment. If at any time the applicable rate of
interest selected pursuant to Sections 4(a)(i), 4(a)(ii) or 4(d)
above shall exceed the Maximum Rate, thereby causing the interest
on the Note to be limited to the Maximum Rate, then any subsequent
reduction in the interest rate so selected or subsequently selected
shall not reduce the rate of interest on the Note below the Maximum
Rate until the total amount of interest accrued on the Note equals
the amount of interest which would have accrued on the Note if the
rate or rates selected pursuant to Sections 4(a)(i), 4(a)(ii) or
4(d), as the case may be, had at all times been in effect.
5. Special Provisions Relating to Eurodollar Loans
(a) Unavailability of Funds or Inadequacy of Pricing. In
the event that, in connection with any proposed Eurodollar Loan,
Bank (i) shall have determined that U.S. Dollar deposits of the
relevant amount and for the relevant Eurodollar Interest Period for
Eurodollar Loans are not available to Bank in the London interbank
market; or (ii) in good faith determines that the Eurodollar
Interest Rate will not adequately reflect the cost to the Bank of
maintaining or funding the Eurodollar Loans for such Interest
Period, the obligations of the Bank to make the Eurodollar Loans,
as the case may be, shall be suspended until such time as Bank in
its sole discretion reasonably exercised determines that the event
resulting in such suspension has ceased to exist. If Bank shall
make such determination it shall promptly notify Borrower in
writing and Borrower, at its option, shall either repay the
outstanding Eurodollar Loans, as the case may be, owed to Bank,
without penalty, on the last day of the current Interest Period or
convert the same to Base Rate Loans in the case of Eurodollar Loans
on the last day of the then current Interest Period for such
Eurodollar Loan.
(b) Reserve Requirements. In the event of any change in
any applicable law, treaty or regulation or in the interpretation
or administration thereof, or in the event any central bank or
other fiscal monetary or other authority having jurisdiction over
the Bank or the loans contemplated by this Agreement shall impose,
modify or deem applicable any reserve requirement of the Board of
Governors of the Federal Reserve System on any Eurodollar Loan or
loans, or any other reserve, special deposit, or similar
requirements against assets or deposits with or for the account of,
or credit extended by, the Bank or shall impose on the Bank or the
London interbank market, as the case may be, any other condition
affecting this Agreement or the Eurodollar Loans and the result of
any of the foregoing is to increase the cost to the Bank in making
or maintaining its Eurodollar Loans or to reduce any amount (or the
effective return on any amount) received by the Bank hereunder,
then Borrower, at its option, shall either (i) pay to the Bank upon
demand of the Bank as additional interest on the Revolving Note
evidencing the Eurodollar Loans such additional amount or amounts
as will reimburse the Bank for such additional cost or such
reduction or (ii) convert such Eurodollar Loans to Base Rate Loans.
The Bank shall give notice to Borrower upon becoming aware of any
such change or imposition which may result in any such increase or
reduction. A certificate of the Bank setting forth the basis for
the determination of such amount necessary to compensate the Bank
as aforesaid shall be delivered to Borrower and shall be conclusive
as to such determination and such amount, absent error.
(c) Taxes. Both principal and interest on the Revolving
Note evidencing any Eurodollar Loan are payable without withholding
or deduction for or on account of any taxes. If any taxes are
levied or imposed on or with respect to the Revolving Note
evidencing the Eurodollar Loan or on any payment on the Revolving
Note evidencing the Eurodollar Loans made to the Bank, then, and in
any such event, Borrower shall pay to the Bank upon demand of the
Bank such additional amounts as may be necessary so that every net
payment of principal and interest on the Revolving Note evidencing
the Eurodollar Loan, after withholding or deduction for or on
account of any such taxes, will not be less than any amount
provided for herein. In addition, if at any time when the
Eurodollar Loan are outstanding any laws enacted or promulgated, or
any court of law or governmental agency interprets or administers
any law, which, in any such case, materially changes the basis of
taxation of payments to the Bank of principal of or interest on the
Revolving Note evidencing the Eurodollar Loan by reason of
subjecting such payments to double taxation or otherwise (except
through an increase in the rate of tax on the overall net income of
Bank) then Borrower will pay upon demand by Bank the amount of loss
to the extent that such loss is caused by such a change. The Bank
shall give notice to Borrower upon becoming aware of the amount of
any loss incurred by the Bank through enactment or promulgation of
any such law which materially changes the basis of taxation of
payments to the Bank. The Bank shall also give notice on becoming
aware of any such enactment or promulgation which may result in
such payments becoming subject to double taxation or otherwise. A
certificate of the Bank setting forth the basis for the
determination of such loss and the computation of such amounts
shall be delivered to Borrower and shall be conclusive of such
determination and such amount, absent error.
(d) Change in Laws. If at any time any new law or any
change in existing laws or in the interpretation of any new or
existing laws shall make it unlawful for the Bank to maintain or
fund its Eurodollar Loan hereunder, then the Bank shall promptly
notify Borrower in writing and Borrower, at its option, shall
either (i) repay the outstanding Eurodollar Loan owed to the Bank,
without penalty, on the last day of the current Interest Periods
(or, if the Bank may not lawfully continue to maintain and fund
such Eurodollar Loan, immediately), or (ii) Borrower may convert
such Eurodollar Loan at such appropriate time to Base Rate loans.
(e) Option to Fund. The Bank shall have the option if
Borrower elect a Eurodollar Loan, to purchase one or more deposits
in order to fund or maintain its funding of the principal balance
of the Revolving Note to which such Eurodollar Loan is applicable
during the Interest Period in question; it being understood that
the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest
to be paid under such Eurodollar Loan and any amounts owing
hereunder and under the applicable Revolving Note. The Bank shall
be entitled to fund and maintain its funding of all or any part of
that portion of the principal balance of the Revolving Note in any
manner it sees fit, but all such determinations hereunder shall be
made as if the Bank have actually funded and maintained that
portion of the principal balance of the Revolving Note to which a
Eurodollar Loan is applicable during the applicable Interest Period
through the purchase of deposits in an amount equal to the
principal balance of the Revolving Note to which such Eurodollar
Loan is applicable and having a maturity corresponding to such
Interest Period. The Bank may fund the outstanding principal
balance of the Revolving Note which is to be subject to any
Eurodollar Loan from any branch or office of the Bank as the Bank
may designate from time to time.
(f) Indemnity. Borrower shall indemnify and hold harmless
the Bank against all reasonable and necessary out-of-pocket costs
and expenses which the Bank may sustain (i) if (other than as a
result of a default by the Bank hereunder) the making of any loan
or loans as a Eurodollar Loan does not occur on the date, if any,
specified therefor in the notice given by Borrower pursuant to
Section 2(c)(ii), (ii) as a consequence of any default by Borrower
under this Agreement, or (iii) any other loss suffered by the Bank
as a result of the making of any loan or loans as a Eurodollar
Loan.
(g) Payments Not at End of Interest Period. If the
Borrower make any payment of principal with respect to any
Eurodollar Loan on any day other than the last day of the Interest
Period applicable to such Eurodollar Loan, then Borrower shall
reimburse the Bank on demand for any loss, cost or expense incurred
by the Bank as a result of the timing of such payment or in
redepositing such principal amount, including the sum of (i) the
cost of funds to the Bank in respect of such principal amount so
paid, for the remainder of the Interest Period applicable to such
sum, reduced, if the Bank is able to redeposit such principal
amount so paid for the balance of the Interest Period, by the
interest earned by Bank as a result of so redepositing such
principal amount, plus (ii) any expense or penalty incurred by the
Bank in redepositing such principal amount. A certificate of Bank
setting forth the basis for the determination of the amount owed by
Borrower pursuant to this Section 5(g) shall be delivered to the
Borrower and shall be conclusive in the absence of manifest error.
6. Collateral Security. To secure the performance by
Borrower of their obligations hereunder, and under the Note and
Security Instruments, whether now or hereafter incurred, matured or
unmatured, direct or contingent, joint or several, or joint and
several, including extensions, modifications, renewals and
increases thereof, and substitutions therefore, Borrower shall
contemporaneously with or prior to the execution of this Agreement
and the Note, grant and assign to the Bank a first and prior
security interest and Lien on certain of its Oil and Gas
Properties, and on certain related equipment, oil and gas inventory
and proceeds of the foregoing. To further secure the foregoing,
Bank shall have the right to acquire the note and liens previously
granted to the Midland or any holders thereof by Borrower. All Oil
and Gas Properties and other collateral in which Borrower have
herewith granted or hereafter grants to the Bank a first and prior
Lien (to the satisfaction of the Bank) in accordance with this
Section 6 or Oil and Gas Properties covered by the Liens which are
acquired by Bank from the Midland or any holders thereof, as such
properties and interests are from time to time constituted, are
hereinafter collectively called the "Collateral."
The granting and assigning of such security interests and
Liens by Borrower shall be pursuant to Security Instruments in form
and substance reasonably satisfactory to the Bank. Concurrently
with the delivery of each of the Security Instruments, Borrower
shall furnish to the Bank mortgage and title opinions and other
documents reasonably satisfactory to Bank with respect to the title
and Lien status of Borrower's interests in such of the Oil and Gas
Properties covered by the Security Instruments as Bank shall have
designated. Borrower will cause to be executed and delivered to
the Bank, in the future, additional Security Instruments if the
Bank reasonably deems such are necessary to insure perfection or
maintenance of Bank's security interests and Liens in the Oil and
Gas Properties or any part thereof.
7. Borrowing Base.
(a) Initial Borrowing Base. During the period from
the date hereof to the next Determination Date (as hereinafter
defined), (i) the Borrowing Base shall be $10,500,000.00, and
(ii) the Monthly Commitment Reduction shall be $130,000.00 per
month.
(b) Subsequent Determinations of Borrowing Base
Subsequent determinations of the Borrowing Base shall be made by
the Bank at least semi-annually on June 30 and December 31 of each
year, beginning June 30, 1996, or as Unscheduled Redeterminations.
In connection with each such redetermination of the Borrowing Base,
the Bank shall also redetermine the Monthly Commitment Reduction
and the economic half life of the Oil and Gas Properties (the "Half
Life"). Borrower shall furnish to the Bank as soon as possible but
in any event no later than March 31 of each year, beginning
March 31, 1996, with an engineering report in form and substance
satisfactory to Bank prepared by Schlumberger GeoQuest or other
independent petroleum engineer acceptable to Bank covering the Oil
and Gas Properties utilizing pricing parameters used by Bank as
established from time to time, together with such other information
concerning the value of the Collateral as the Bank may deem
necessary to determine the value of such Collateral. By October 31
of each year, beginning October 31, 1996, or within thirty (30)
days after either (i) receipt of notice from Bank that it requires
an Unscheduled Redetermination, or (ii) Borrower give notice to
Bank of their desire to have an Unscheduled Redetermination
performed, Borrower shall furnish to Bank an engineering report in
form and substance satisfactory to Bank prepared by Borrower's in-
house engineering staff valuing the Oil and Gas Properties using
substantially the same methodology utilized by the independent
petroleum engineer who prepared the most recent independent
engineering report, together with such other information, reports
and data concerning the value of the Collateral as the Bank shall
deem reasonably necessary to determine the value of such
Collateral. Bank shall notify Borrower of the new Borrowing Base,
Monthly Commitment Reduction and Half Life for the period beginning
on the date of such notice (herein called the "Determination Date")
and continuing until, but not including, the next Determination
Date. If an Unscheduled Redetermination is made by the Bank, the
Bank shall notify Borrower within a reasonable time after receipt
of all requested information of the new Borrowing Base, Monthly
Commitment Reduction and Half Life, if any, and such new Borrowing
Base, Monthly Commitment Reduction and Half Life shall continue
until the next Determination Date. If Borrower do not furnish all
such information, reports and data by the date specified in this
Section 7(b), unless such failure is of no fault of Borrower, the
Bank may nonetheless designate the Borrowing Base, Monthly
Commitment Reduction and Half Life at any amounts which the Bank
determines in its discretion and may redesignate the Borrowing
Base, Monthly Commitment Reduction and Half Life from time to time
thereafter until the Bank receives all such information, reports
and data, whereupon the Bank shall designate a new Borrowing Base,
Monthly Commitment Reduction and Half Life as described above. The
Bank shall determine the amount of the Borrowing Base based upon
the loan collateral value which it in its discretion (using such
methodology, assumptions and discounts rates as Bank customarily
uses in assigning collateral value to oil and gas properties)
assigns to such Oil and Gas Properties of Borrower at the time in
question and based upon such other credit factors consistently
applied (including, without limitation, the assets, liabilities,
cash flow, business, properties, prospects, management and
ownership of Borrower and its affiliates) as the Bank customarily
considers in evaluating similar oil and gas credits. If at any
time any of the Collateral is sold by Borrower, the Borrowing Base
then in effect shall automatically be reduced by a sum equal to the
value attributable to such Collateral for Borrowing Base purposes.
It is expressly understood that the Bank has no obligation to
designate the Borrowing Base or the Monthly Commitment Reduction or
the Half Life at any particular amount, except in the exercise of
its discretion, whether in relation to the Revolving Commitment or
otherwise, and that the Bank's commitment to advance funds
hereunder is determined by reference to the Borrowing Base from
time to time in effect. Provided, however, that the Bank shall
never have the obligation to designate a Borrowing Base in excess
of its legal or internal lending limits.
8. Fees.
(a) Unused Portion Fee. For and in consideration of the
Revolving Commitment, Borrower shall pay to Bank an Unused Portion
Fee (hereinafter referred to as the "Unused Portion Fee")
equivalent to three-eighths of one percent (3/8%) per annum on the
daily average of the unadvanced amount of the Borrowing Base. The
Unused Portion Fee shall be payable in arrears on the first
Business Day of each calendar quarter beginning July 1, 1996 (with
the payment due on July 1, 1996 to cover the period from the
Effective Date until July 1, 1996), with the final fee payment due
on the Revolving Maturity Date for any period then ending for which
the Unused Portion Fee shall not have been theretofore paid. In
the event the Revolving Commitment terminates on any date prior to
the end of any such quarterly period, Borrower shall pay to Bank,
on the date of such termination, the pro rated portion of the total
Unused Portion Fee due for the period in which such termination
occurs.
(b) Commitment Fee. For and in consideration of the
Advance Line of Credit, Borrower shall pay to Bank an Commitment
Fee (hereinafter referred to as the "Commitment Fee") equivalent to
three-fourths of one percent (3/4%) per annum on the daily average
of the unadvanced amount of the Advance Line of Credit. The
Commitment Fee shall be payable in arrears on the first Business
Day of each calendar quarter beginning July 1, 1996 (with the
payment due on July 1, 1996 to cover the period from the Effective
Date until July 1, 1996), with the final fee payment due on the
Advance Loan Maturity Date for any period then ending for which the
Commitment Fee shall not have been theretofore paid. In the event
the Advance Line of Credit terminates on any date prior to the end
of any such quarterly period, Borrower shall pay to Bank, on the
date of such termination, the pro rated portion of the total
Commitment Fee due for the period in which such termination occurs.
(c) Facility Fee. For and in consideration of the Advance
Line of Credit, Borrower shall pay to Bank on the Effective Date a
Facility Fee (hereinafter referred to as the "Facility Fee") in the
amount of $50,000.00.
(d) Borrowing Base Increase Fee. Borrower agrees to pay
to Bank from time to time a Borrowing Base Increase Fee
(hereinafter referred to as the "Borrowing Base Increase Fee")
equal to one-half of one percent (1/2%) per annum of the amount of
any increase in the Borrowing Base from the amount of the Borrowing
Base set as of the preceding Determination Date, said Borrowing
Base Increase Fee to be payable upon notice to Borrower of such
increase.
9. Prepayments.
(a) Voluntary Prepayments of Notes. The Borrower may at
any time and from time to time, without penalty or premium, prepay
the Notes, in whole or in part. Each such prepayment shall be made
on at least one (1) Business Day's notice to Bank and shall be in a
minimum amount of $100,000 or the unpaid balance on the Notes or
Notes being prepaid, whichever is less. Provided, however, that if
Borrower shall prepay the principal of any Eurodollar Loan on any
date other than the last day of the Interest Period applicable
thereto, Borrower shall make the additional payments, if any,
required by Section 5(g) hereof.
(b) Mandatory Prepayment of Revolving Note. In the event
the aggregate principal amount outstanding on the Revolving Note
ever exceeds the Borrowing Base as determined by Bank pursuant to
Section 7(b) hereof, Borrower shall, within thirty (30) days after
notification from the Bank, either (A) by instruments reasonably
satisfactory in form and substance to the Bank, provide the Bank
with additional collateral with value and quality in amounts
satisfactory to the Bank in its sole discretion in order to
increase the Borrowing Base by an amount at least equal to such
excess, or (B) prepay, without premium or penalty, the principal
amount of the Revolving Note in an amount at least equal to such
excess plus interest thereon to the date of such prepayment.
(c) Mandatory Prepayment of Advance Line of Credit. In
the event the Borrowing Base as determined by Bank pursuant to
Section 7(b) hereof increases, Borrower shall within ten (10) days
of receipt of notice of such increase, either (i) give Bank written
notice of its intent to use all or any part thereof of such
increased availability to acquire proven oil and gas reserves, and
complete any such acquisition within sixty (60) days or (ii) use
the increased capacity, or any portion thereof not used in
accordance with Section 9(c)(i) hereof, to prepay, without premium
or penalty, the principal amount of the Advance Note in an amount
equal to such increased availability or such portion thereof.
10. Representations and Warranties. In order to induce
the Bank to enter into this Agreement, Borrower and Guarantor
hereby represent and warrant to the Bank (which representations and
warranties will survive the delivery of the Note) that:
(a) Corporate Existence. Borrower and Guarantor are each
a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it was incorporated and
is duly qualified as a foreign corporation in all jurisdictions
wherein the failure to qualify could result in Material Adverse
Effect.
(b) Corporate Power and Authorization. Borrower is duly
authorized and empowered to create and issue the Notes; and
Borrower is duly authorized and empowered to execute, deliver and
perform the Security Instruments, including this Agreement; and all
corporate and other action on Borrower's part requisite for the due
creation and issuance of the Notes and on the Borrower's part
requisite for the due execution, delivery and performance of the
Security Instruments, including this Agreement has been duly and
effectively taken.
(c) Guarantor. The Guarantor is duly authorized and
empowered to execute and deliver its Guaranty, and all corporate
actions on Guarantor's part requisite for the due execution,
delivery and performance of its Guaranty have been duly and
effectively taken. The Guaranty constitutes the valid and binding
obligation of Guarantor enforceable in accordance with its terms
(except that enforcement may be subject to any applicable
bankruptcy, insolvency, or similar debtor relief laws now or
hereafter in effect and relating to or affecting the enforcement of
creditors' rights generally). The execution and delivery of the
Guaranty by the Guarantor does not require the consent or approval
of any other person or entity nor does such execution and delivery
violate the provisions of any contract, agreement, law, regulation,
order, injunction, decree or writ to which Guarantor is subject.
(d) Binding Obligations. This Agreement does, and the
Notes and other Security Instruments upon their creation, issuance,
execution and delivery will, constitute valid and binding
obligations of Borrower enforceable in accordance with their
respective terms (except that enforcement may be subject to any
applicable bankruptcy, insolvency, or similar debtor relief laws
now or hereafter in effect and relating to or affecting the
enforcement of creditors rights generally).
(e) No Legal Bar or Resultant Lien. The Notes, the
Security Instruments, including this Agreement, do not and will
not, to the best of Borrower's knowledge, violate any provisions of
any contract, agreement, law, regulation, order, injunction,
judgment, decree or writ to which Borrower is subject, or result in
the creation or imposition of any lien or other encumbrance upon
any assets or properties of Borrower, other than those contemplated
by this Agreement.
(f) No Consent. The execution, delivery and performance
by Borrower of the Notes and the Security Instruments, including
this Agreement does not require the consent or approval of any
other person or entity, including without limitation any regulatory
authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any
state thereof except for consents required for federal, state and,
in some instances, private leases, right of ways and other
conveyances or encumbrances of oil and gas leases (all of which
consents have been obtained by Borrower) and other than those the
failure to obtain could cause a Material Adverse Effect.
(g) Financial Condition. The Financial Statements of
Borrower dated September 30, 1995 and the Financial Statements of
Guarantor dated September 30, 1995 which have been delivered to
Bank are complete and correct in all material respects, and fully
and accurately reflect in all material respects the financial
condition and results of the operations of the Borrower and
Guarantor as of the date or dates and for the period or periods
stated, and such Financial Statements have been prepared in
accordance with GAAP. No change has since occurred in the
condition, financial or otherwise, of Borrower or Guarantor which
could have a Material Adverse Effect, except as disclosed to the
Bank in Schedule "2" attached hereto.
(h) Liabilities. Neither Borrower nor Guarantor have any
material (individually or in the aggregate) liability, direct or
contingent, except as disclosed to the Bank in the Financial
Statements or on Schedule "3" attached hereto. No unusual or
unduly burdensome restrictions, restraint, or hazard exists by
contract, law or governmental regulation or otherwise relative to
the business, assets or properties of Borrower which could have a
Material Adverse Effect.
(i) Litigation. Except as described in the Financial
Statements, or as otherwise disclosed to the Bank in Schedule "4"
attached hereto, there is no litigation, legal or administrative
proceeding, investigation or other action of any nature pending or,
to the knowledge of the officers of Borrower or Guarantor,
threatened against or affecting Borrower or Guarantor which
involves the possibility of any judgment or liability not fully
covered by insurance, and which could have a Material Adverse
Effect.
(j) Taxes; Governmental Charges. Borrower and Guarantor
have each filed all tax returns and reports required to be filed
and has paid all taxes, assessments, fees and other governmental
charges levied upon it or its assets, properties or income which
are due and payable, including interest and penalties, the failure
of which to pay could have a Material Adverse Effect, or has
provided adequate reserves, if required, in accordance with GAAP
for the payment thereof, except such as are being contested in good
faith by appropriate proceedings and for which adequate reserves
for the payment thereof as required by GAAP has been provided and
levy and execution thereon have been stayed and continue to be
stayed.
(k) Titles, Etc. Borrower and Guarantor each have good
and defensible title to all of its assets, including without
limitation, the Oil and Gas Properties, free and clear of all liens
or other encumbrances except Permitted Liens.
(l) Defaults. Neither Borrower nor Guarantor is in
default and no event or circumstance has occurred which, but for
the passage of time or the giving of notice, or both, would
constitute a default under any loan or credit agreement, indenture,
mortgage, deed of trust, security agreement or other agreement or
instrument to which Borrower or Guarantor is a party in any respect
that could have a Material Adverse Effect. No Event of Default
hereunder has occurred and is continuing.
(m) Casualties; Taking of Properties. Since the dates of
the latest Financial Statements of Borrower and Guarantor delivered
to Bank, neither the business nor the assets or properties of
Borrower or Guarantor have been affected (to the extent it could
have a Material Adverse Effect), as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike
or other labor disturbance, embargo, requisition or taking of
property or cancellation of contracts, permits or concessions by
any domestic or foreign government or any agency thereof, riot,
activities of armed forces or acts of God or of any public enemy.
(n) Use of Proceeds; Margin Stock. The proceeds of the
Revolving Loan will be used by Borrower for the purposes of
refinancing of existing debt, for development drilling, for
acquisitions of oil and gas properties and payment of approved
payables. The proceeds of the Advance Loan will only be used by
Borrower for the Drilling Program. Borrower is not engaged
principally or as one of its important activities in the business
of extending credit for the purpose of purchasing or carrying any
"margin stock" as defined in Regulation U of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 221), or for the
purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry a margin stock or for any
other purpose which might constitute this transaction a "purpose
credit" within the meaning of said Regulation U.
Neither Borrower, Guarantor nor any person or entity acting on
behalf of Borrower or Guarantor have taken or will take any action
which might cause the loans hereunder or any of the Security
Instruments, including this Agreement, to violate Regulation U or
any other regulation of the Board of Governors of the Federal
Reserve System or to violate the Securities Exchange Act of 1934 or
any rule or regulation thereunder, in each case as now in effect or
as the same may hereafter be in effect.
(o) Location of Business and Offices. The principal
places of business of Borrower and Guarantor are located at 999
18th Street, Suite 1700, Denver, Colorado 80202.
(p) Compliance with the Law. To the best of Borrower's
and Guarantor's knowledge, neither Borrower nor Guarantor:
(i) is in violation of any law, judgment, decree,
order, ordinance, or governmental rule or regulation to which
Borrower, or any of its assets or properties are subject; and
(ii) has failed to obtain any license, permit,
franchise or other governmental authorization necessary to the
ownership of any of its assets or properties or the conduct of
their business;
which violation or failure is reasonably expected to have a
Material Adverse Effect.
(q) No Material Misstatements. No information, exhibit
or report furnished by Borrower or Guarantor to the Bank in
connection with the negotiation of this Agreement contained any
material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statement contained therein not
materially misleading.
(r) Not A Utility. Neither Borrower nor Guarantor is an
entity engaged in the State of Texas in the (i) generation,
transmission, or distribution and sale of electric power; (ii)
transportation, distribution and sale through a local distribution
system of natural or other gas for domestic, commercial,
industrial, or other use; (iii) ownership or operation of a
pipeline for the transmission or sale of natural or other gas,
crude oil or petroleum products to other pipeline companies,
refineries, local distribution systems, municipalities, or
industrial consumers; (iv) provision of telephone or telegraph
service to others; (v) production, transmission, or distribution
and sale of steam or water; (vi) operation of a railroad; or (vii)
provision of sewer service to others.
(s) ERISA. Borrower and Guarantor are each in compliance
in all material respects with the applicable provisions of ERISA,
and no "reportable event", as such term is defined in Section 4043
of ERISA, has occurred with respect to any Plan of Borrower which
is reasonably likely to cause a Material Adverse Effect.
(t) Public Utility Holding Company Act. Neither Borrower
nor Guarantor is a "holding company", or "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", or a "public utility"
within the meaning of the Public Utility Holding Company Act of
1935, as amended.
(u) Subsidiaries. All of Borrower's subsidiaries are
listed on Schedule "5" hereto.
(v) Environmental Matters. Except as disclosed on
Schedule "6", neither Borrower nor Guarantor (i) has received
notice or otherwise learned of any Environmental Liability which
could individually or in the aggregate have a Material Adverse
Effect arising in connection with (A) any non-compliance with or
violation of the requirements of any Environmental Law or (B) the
release or threatened release of any toxic or hazardous waste into
the environment, (ii) has threatened or actual liability in
connection with the release or threatened release of any toxic or
hazardous waste into the environment which could individually or in
the aggregate have a Material Adverse Effect or (iii) has received
notice or otherwise learned of any federal or state investigation
evaluating whether any remedial action is needed to respond to a
release or threatened release of any toxic or hazardous waste into
the environment for which Borrower or Guarantor is or may be liable
which could result in a Material Adverse Effect.
(w) Liens. Except for Permitted Liens, the assets and
properties of Borrower and Guarantor are free and clear of all
liens and encumbrances.
11. Conditions of Lending.
(a) The obligation of the Bank to make the initial Advance
under the Revolving Commitment and the initial Advance under the
Advance Line of Credit shall be subject to the following conditions
precedent:
(i) Execution and Delivery. (A) Borrower shall have
executed and delivered to the Bank the Notes, the Security
Instruments and other required documents, and (B) Guarantor shall
have executed and delivered its Guaranty in the form of Exhibit "D"
hereto, all in form and substance satisfactory to the Bank;
(ii) Legal Opinion. The Bank shall have received from
Borrower's and Guarantor's legal counsel a favorable legal opinion
in form and substance satisfactory to Bank (i) as to the matters
set forth in Subsections 10(a), (b), (c), (d), (e), (f) and (i)
hereof, and (ii) as to such other matters as Bank or its counsel
may reasonably request;
(iii) Corporate Resolutions. The Bank shall have
received appropriate certified corporate resolutions of Borrower
and Guarantor;
(iv) Good Standing and Existence. The Bank shall have
received evidence of existence and good standing for the Borrower
and Guarantor;
(v) Incumbency. The Bank shall have received a
separate signed certificate of the officers of Borrower and
Guarantor, certifying the names of each of the officers of Borrower
or Guarantor authorized to sign loan documents on behalf of the
Borrower and Guarantor, together with the true signatures of each
such officer. The Bank may conclusively rely on such certificate
until the Bank receives a further certificate of the authorized
officers of Borrower and Guarantor canceling or amending the prior
certificate and submitting signatures of the officers named in such
further certificate;
(vi) Articles of Incorporation and Bylaws. The Bank
shall have received copies of the Articles of Incorporation of
Borrower and Guarantor and all amendments thereto, certified by the
Secretary of State of the state of the Borrower's and Guarantor's
incorporation and a copy of the bylaws of the Borrower and
Guarantor and all amendments thereto, certified by one or more
officers of Borrower and Guarantor as being true, correct and
complete;
(vii) Title. The Bank shall have received
satisfactory evidence as to the state of the title to the Oil and
Gas Properties;
(viii) Release. The Bank shall have received one or
more executed copies of a Release executed by Midland releasing all
liens held by Midland on the Borrower's Oil and Gas Properties and
other assets;
(ix) Drilling Program. The Bank shall have approved
Borrower's Drilling Program.
(x) Other Documents. The Bank shall have received
such other instruments and documents incidental and appropriate to
the transaction provided for herein as the Bank or its counsel may
reasonably request, and all such documents shall be in form and
substance reasonably satisfactory to the Bank; and
(xi) Legal Matters Satisfactory. All legal matters
incident to the consummation of the transactions contemplated
hereby shall be reasonably satisfactory to special counsel for the
Bank retained at the expense of Borrower.
(b) The obligation of the Bank to make any Advance
(including the initial Advance) on the Revolving Commitment or
Advance Line of Credit shall be subject to the following additional
conditions precedent that, at the date of making each such Advance
and after giving effect thereto:
(i) Representation and Warranties. With respect to
any Advance, the representations and warranties of Borrower and
Guarantor under this Agreement are true and correct in all material
respects as of such date, as if then made (except to the extent
that such representations and warranties related solely to an
earlier date);
(ii) No Event of Default. No Event of Default shall
have occurred and be continuing nor shall any event have occurred
or failed to occur which, with the passage of time or service of
notice, or both, would constitute an Event of Default;
(iii) Other Documents. The Bank shall have received
such other instruments and documents incidental and appropriate to
the transaction provided for herein as the Bank or its counsel may
reasonably request, and all such documents shall be in form and
substance reasonably satisfactory to the Bank; and
(iv) Legal Matters Satisfactory. All legal matters
incident to the consummation of the transactions contemplated
hereby shall be reasonably satisfactory to special counsel for the
Bank retained at the expense of Borrower.
12. Affirmative Covenants. A deviation from the provisions of
this Section 12 shall not constitute an Event of Default under this
Agreement if such deviation is consented to in writing by the Bank.
Without the prior written consent of the Bank, Borrower and
Guarantor will at all times comply with the covenants contained in
this Section 12 from the date hereof and for so long as any part of
the Revolving Commitment or Advance Line of Credit is in existence.
(a) Financial Statements and Reports. Borrower shall
promptly furnish to the Bank from time to time upon request such
information regarding the business and affairs and financial
condition of the Borrower, as the Bank may reasonably request, and
will furnish to the Bank:
(i) Annual Audited Financial Statements - as soon as
available, and in any event within ninety (90) days after the close
of each fiscal year, the annual audited consolidated and
consolidating Financial Statements of the Borrower and the
Guarantor, prepared in accordance with GAAP and accompanied by an
unqualified opinion rendered by an independent accounting firm
reasonably acceptable to the Bank;
(ii) Quarterly Financial Statements - as soon as
available, and in any event within forty-five (45) days after the
end of each calendar quarter of each year (except the last calendar
quarter in any fiscal year), the quarterly consolidated and
consolidating unaudited Financial Statements of the Borrower and
Guarantor prepared in accordance with GAAP;
(iii) Monthly Lease Operating Reports - within thirty
(30) days after the end of each month, a monthly report, in form
and substance reasonably satisfactory to Bank, indicating sales
volumes, sales revenues, production taxes, operating expenses, net
operating income and capital expenditures and other production
information from the Oil and Gas Properties, with detailed
calculations and worksheets, all in form and substance reasonably
satisfactory to Bank;
(iv) Report on Properties - as soon as available and
in any event on or before March 31, 1996, and thereafter on March
31, and October 31 of each calendar year, and at such other times
as the Bank, in accordance will Section 7 hereof, may request, the
engineering reports required to be furnished to the Bank under such
Section 7 on the Oil and Gas Properties;
(v) Budget - contemporaneously with the delivery of
the engineering information required above in Subsection 12(a)(iv),
provide a budget setting forth all anticipated sources and uses of
funds for the succeeding twelve (12) months; and
(vi) Additional Information - promptly upon request of
the Bank from time to time any additional financial information or
other information that the Bank may reasonably request.
All such information, reports, balance sheets and Financial
Statements referred to in Subsection 12(a) above shall be in such
detail as the Bank may reasonably request and shall be prepared in
a manner consistent with the Financial Statements.
(b) Certificates of Compliance. Concurrently with the
furnishing of the annual audited Financial Statements pursuant to
Subsection 12(a)(i) hereof and each of the quarterly unaudited
Financial Statements pursuant to Subsection 12(a)(ii) hereof,
Borrower and Guarantor will furnish or cause to be furnished to the
Bank a certificate in the form of Exhibit "D" attached hereto,
signed by the President, or chief financial officer of the Borrower
and the Guarantor (i) stating that the Borrower and the Guarantor
have fulfilled in all material respects their respective
obligations under the Note, the Guaranty and the Security
Instruments, including this Agreement, and that all representations
and warranties made herein and therein continue (except to the
extent they relate solely to an earlier date) to be true and
correct in all material respects (or specifying the nature of any
change), or if an Event of Default has occurred, specifying the
Event of Default and the nature and status thereof; (ii) to the
extent requested from time to time by the Bank, specifically
affirming compliance of the Borrower and the Guarantor in all
material respects with any of their respective representations
(except to the extent they relate solely to an earlier date) or
obligations under said instruments; (iii) setting forth the
computation, in reasonable detail as of the end of each period
covered by such certificate, of compliance with Sections 13(c),
(d), (e) and (f); and (iv) containing or accompanied by such
financial or other details, information and material as the Bank
may reasonably request to evidence such compliance.
(c) Accountants' Certificate. Concurrently with the
furnishing of the annual audited Financial Statement pursuant to
Section 12(a)(i) hereof, Borrower and Guarantor shall furnish a
statement from the firm of independent public accountants which
prepared the consolidated Financial Statements to the effect that,
in conducting the aforementioned audit, nothing came to their
attention that caused them to believe that Mallon Resources was
not in compliance with the provisions of Section 13 subsections
(c), (d) and (e) of this Agreement, insofar as they relate to
accounting matters, or, if an instance of non-compliance was noted,
specifying its nature and period of existence.
(d) Taxes and Other Liens. The Borrower and Guarantor
will pay and discharge promptly all taxes, assessments and
governmental charges or levies imposed upon Borrower or Guarantor
or upon the income or any assets or property of the Borrower or
Guarantor as well as all claims of any kind (including claims for
labor, materials, supplies and rent) which, if unpaid, might become
a Lien or other encumbrance upon any or all of the assets or
property of Borrower or Guarantor and which could reasonably be
expected to result in a Material Adverse Effect; provided, however,
that Borrower and the Guarantor shall not be required to pay any
such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings diligently conducted, levy
and execution thereon have been stayed and continue to be stayed,
and Borrower or the Guarantor, as the case may be, shall have set
up adequate reserves therefor, if required, under GAAP.
(e) Compliance with Laws. Borrower and Guarantor will
observe and comply, in all material respects, with all applicable
laws, statutes, codes, acts, ordinances, orders, judgments,
decrees, injunctions, rules, regulations, orders and restrictions
relating to environmental standards or controls or to energy
regulations of all federal, state, county, municipal and other
governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign.
(f) Further Assurances. Borrower will cure promptly any
defects in the creation and issuance of the Note and the execution
and delivery of the Note and the Security Instrument, including
this Agreement. Borrower at its sole expense will promptly execute
and deliver to Bank upon its reasonable request all such other and
further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements in this Agreement,
or to correct any omissions in the Note or more fully to state the
obligations set out herein. Guarantor, at its sole expense, will
cure, or cause to be cured promptly any defect in the execution and
delivery of the Guaranty.
(g) Performance of Obligations. Borrower will pay the
Notes and other obligations incurred by it hereunder according to
the reading, tenor and effect thereof and hereof; and Borrower will
do and perform every act and discharge all of the obligations
provided to be performed and discharged by Borrower under the
Security Instruments, including this Agreement, at the time or
times and in the manner specified. The Guarantor will do and
perform every act and discharge all other obligations provided to
be performed and discharged by Guarantor under the Guaranty and
this Agreement.
(h) Insurance. Borrower and Guarantor now maintain and
will continue to maintain insurance with financially sound and
reputable insurers with respect to their assets against such
liabilities, fires, 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. Upon
request of the Bank, Borrower and Guarantor will furnish or cause
to be furnished to the Bank from time to time a summary of the
respective insurance coverage of Borrower and Guarantor in form and
substance satisfactory to the Bank, and, if requested, will furnish
the Bank copies of the applicable policies. Upon demand by Bank
any insurance policies covering any such property shall be endorsed
(i) to provide that such policies may not be canceled, reduced or
affected in any manner for any reason without fifteen (15) days
prior notice to Bank, (ii) to provide for insurance against fire,
casualty and other hazards normally insured against, in the amount
of the full value (less a reasonable deductible not to exceed
amounts customary in the industry for similarly situated business
and properties) of the property insured, and (iii) to provide for
such other matters as the Bank may reasonably require. Borrower
and Guarantor shall at all times maintain adequate insurance with
respect to the Collateral and other oil and gas properties against
their liability for injury to persons or property, which insurance
shall be by financially sound and reputable insurers and shall
without limitation provide the following coverages: comprehensive
general liability (including coverage for damage to underground
resources and equipment, damage caused by blowouts or cratering,
damage caused by explosion, damage to underground minerals or
resources caused by saline substances, broad form property damage
coverage, broad form coverage for contractually assumed liabilities
and broad form coverage for acts of independent contractors),
worker's compensation and automobile liability. Borrower and
Guarantor shall at all times maintain cost of control of well
insurance with respect to the Collateral which shall insure
Borrower against seepage and pollution expense if deemed economical
in the reasonable discretion of Borrower; redrilling expense; and
cost of control of well; fires, blowouts, etc. Additionally,
Borrower and Guarantor shall at all times maintain adequate
insurance with respect to all of their other assets and wells in
accordance with prudent business practices.
(i) Accounts and Records. Borrower and Guarantor will
keep books, records and accounts in which full, true and correct
entries will be made of all dealings or transactions in relation to
its business and activities, prepared in a manner consistent with
prior years, subject to changes required by GAAP or suggested by
Borrower's or Guarantor's auditors.
(j) Right of Inspection. Borrower and Guarantor will
permit any officer, employee or agent of the Bank to examine
Borrower's and Guarantor's books, records and accounts, and take
copies and extracts therefrom, all at such reasonable times and as
often as the Bank may reasonably request. The Bank will keep all
such information confidential and will not without prior written
consent disclose or reveal the information or any part thereof to
any person other than the Bank's officers, employees, legal
counsel, regulatory authorities or advisors to whom it is necessary
to reveal such information for the purpose of effectuating the
agreements and undertakings specified herein or as otherwise
required by law or in connection with the enforcement of the Bank's
rights and remedies and this Agreement, the Notes and the Security
Instruments.
(k) Notice of Certain Events. Borrower and Guarantor
shall promptly notify the Bank if Borrower or Guarantor learns of
the occurrence of (i) any event which constitutes an Event of
Default, together with a detailed statement by Borrower of the
steps being taken to cure the Event of Default; or (ii) any legal,
judicial or regulatory proceedings affecting the Borrower or
Guarantor, or any of the assets or properties of the Borrower
which, if adversely determined, could have a Material Adverse
Effect; or (iii) any dispute between the Borrower or Guarantor and
any governmental or regulatory body or any other person or entity
which, if adversely determined, could cause a Material Adverse
Effect; or (iv) any other matter which in Borrower's or Guarantor's
opinion could have a Material Adverse Effect.
(l) ERISA Information and Compliance. Borrower and
Guarantor will promptly furnish to the Bank immediately upon
becoming aware of the occurrence of any "reportable event", as such
term is defined in Section 4043 of ERISA, or of any "prohibited
transaction", as such term is defined in Section 4975 of the
Internal Revenue Code of 1954, as amended, in connection with any
Plan or any trust created thereunder, a written notice signed by
the President or the chief financial officer of the Borrower or
Guarantor, as the case may be, specifying the nature thereof, what
action Borrower or Guarantor is taking or proposes to take with
respect thereto, and, when known, any action taken by the Internal
Revenue Service with respect thereto.
(m) Environmental Reports and Notices. Borrower and
Guarantor will deliver to the Bank (i) promptly upon its becoming
available, one copy of each report sent by the Borrower or
Guarantor to any court, governmental agency or instrumentality
pursuant to any Environmental Law, (ii) notice, in writing,
promptly upon Borrower's or Guarantor's learning that they have
received notice or otherwise learned of any claim, demand, action,
event, condition, report or investigation indicating any potential
or actual liability arising in connection with (x) the non-
compliance with or violation of the requirements of any
Environmental Law which could have a Material Adverse Effect; (y)
the release or threatened release of any toxic or hazardous waste
into the environment which could have a Material Adverse Effect or
which release Borrower or Guarantor would have a duty to report to
any court or government agency or instrumentality, or (iii) the
existence of any Environmental Lien on any properties or assets of
the Borrower or Guarantor, and Borrower or Guarantor shall
immediately deliver a copy of any such notice to Bank.
(n) Maintenance. Borrower and Guarantor will (i) observe
and comply in all material respects with all Environmental Laws;
(ii) except as provided in Subsections 12(o) and 12(p) below,
maintain the Oil and Gas Properties and other assets and properties
in good and workable condition at all times and make all repairs,
replacements, additions, betterments and improvements to the Oil
and Gas Properties and other assets and properties as are needed
and proper so that the business carried on in connection therewith
may be conducted properly and efficiently at all times in the
opinion of the Borrower or Guarantor exercised in good faith; (iii)
take or cause to be taken whatever actions are necessary or
desirable to prevent an event or condition of default by Borrower
or Guarantor under the provisions of any gas purchase or sales
contract or any other contract, agreement or lease comprising a
part of the Oil and Gas Properties or other collateral security
hereunder which default could result in a Material Adverse Effect;
and (iv) furnish Bank upon request evidence satisfactory to Bank
that there are no Liens, claims or encumbrances superior to the
Lien of Bank on the Oil and Gas Properties, except laborers',
vendors', repairmen's, mechanics', worker's, or materialmen's liens
arising by operation of law or incident to the construction or
improvement of property if the obligations secured thereby are not
yet due or are being contested in good faith by appropriate legal
proceedings or Permitted Liens.
(o) Operation of Properties. Except as provided in
Subsection 12(p) and (q) below, Borrower and Guarantor will
operate, or use reasonable efforts to cause to be operated, all Oil
and Gas Properties in a careful and efficient manner in accordance
with the practice of the industry and in compliance in all material
respects with all applicable laws, rules, and regulations, and in
compliance in all material respects with all applicable proration
and conservation laws of the jurisdiction in which the properties
are situated, and all applicable laws, rules, and regulations, of
every other agency and authority from time to time constituted to
regulate the development and operation of the properties and the
production and sale of hydrocarbons and other minerals therefrom;
provided, however, that Borrower and Guarantor shall have the right
to contest in good faith by appropriate proceedings, the
applicability or lawfulness of any such law, rule or regulation and
pending such contest may defer compliance therewith, as long as
such deferment shall not subject the properties or any part thereof
to foreclosure or loss.
(p) Compliance with Leases and Other Instruments.
Borrower and Guarantor will pay or cause to be paid and discharge
all rentals, delay rentals, royalties, production payments and
indebtedness required to be paid by the Borrower or Guarantor (or
required to keep unimpaired in all material respects the rights of
Borrower or Guarantor in the Oil and Gas Properties) accruing
under, and perform or cause to be performed in all material
respects each and every act, matter, or thing required of the
Borrower or Guarantor by each and all of the assignments, deeds,
leases, subleases, contracts, and agreements in any way relating to
the Borrower or Guarantor or any of the Oil and Gas Properties and
do all other things necessary of the Borrower or Guarantor to keep
unimpaired in all material respects the rights of the Borrower or
Guarantor thereunder and to prevent the forfeiture thereof or
default thereunder; provided, however, that nothing in this
Agreement shall be deemed to require the Borrower or Guarantor to
perpetuate or renew any oil and gas lease or other lease by payment
of rental or delay rental or by commencement or continuation of
operations nor to prevent the Borrower or Guarantor from abandoning
or releasing any oil and gas lease or other lease or well thereon
when, in any of such events, in the opinion of Borrower or
Guarantor exercised in good faith, it is not in the best interest
of the Borrower or Guarantor to perpetuate the same.
(q) Certain Additional Assurances Regarding Maintenance
and Operations of Properties. With respect to those Oil and Gas
Properties which are being operated by operators other than
Borrower or Guarantor, Borrower and Guarantor shall not be
obligated to perform any undertakings contemplated by the covenants
and agreement contained in Subsections 12(o) or 12(p) hereof which
are performable only by such operators and are beyond the control
of Borrower or Guarantor; however, Borrower and Guarantor agree to
promptly take all actions available under any operating agreements
or otherwise to bring about the performance of any such
undertakings required to be performed thereunder.
(r) Title Matters. Within ninety (90) days after the date
of this Agreement, Borrower shall provide additional title opinions
and/or acceptable title information on the Oil and Gas Properties
listed on Schedule "7" hereto. As to any Oil and Gas Properties
hereafter mortgaged to Bank, Borrower will promptly (but in no
event more than sixty (60) days following such mortgaging), furnish
Bank with title opinions and/or title information reasonably
satisfactory to Bank showing good and defensible title of Borrower
to such Oil and Gas Properties subject only to Permitted Liens.
(s) Curative Matters. Within ninety (90) days after the
date hereof with respect to matters listed on Schedule "8" and,
thereafter, within ninety (90) days after receipt by Borrower from
Bank or its counsel of written notice of title defects the Bank
reasonably requires to be cured, Borrower shall either (i) provide
such curative information, in form and substance satisfactory to
Bank, or (ii) substitute Oil and Gas Properties of value and
quality satisfactory to the Bank for all of Oil and Gas Properties
for which such title curative was requested but upon which Borrower
elected not to provide such title curative information, and, within
ninety (90) days of such substitution, provide title opinions or
title information satisfactory to the Bank covering the Oil and Gas
Properties so substituted.
(t) Change of Principal Place of Business. Borrower shall
give Bank at least thirty (30) days prior written notice of its
intention to move its principal place of business from the address
set forth in Section 10(n) hereof.
13. Negative Covenants. A deviation from the provisions of
this Section 13 shall not constitute an Event of Default under this
Agreement if such deviation is consented to in writing by the Bank.
Without the prior written consent of the Bank, Borrower and
Guarantor will at all times comply with the covenants contained in
this Section 13 from the date hereof and for so long as any part of
the Revolving Commitment or Advance of Line of Credit is in
existence.
(a) Liens. Neither Borrower nor Guarantor will create,
incur, assume or permit to exist any lien, security interest or
other encumbrance on any of its assets or properties except
Permitted Liens.
(b) Consolidations, Mergers and Sales of Assets. Neither
Borrower nor Guarantor will consolidate or merge with or into any
other Person, except that the Borrower or Guarantor may merge with
another Person if (i) the Borrower or Guarantor is the corporation
surviving such merger, or (ii) Bank has consented to such mergers
or consolidations, and (iii) if, after giving effect thereto, no
Event of Default shall have occurred and be continuing.
(c) Current Ratio. Borrower and Guarantor will not suffer
or permit their ratio of consolidated Current Assets to
consolidated Current Liabilities to ever be less than 1.0 to 1.0.
(d) Debt Service Ratio. Borrower and Guarantor will not
suffer or permit their ratio of consolidated Cash Flow to
consolidated Debt Service to ever be less than 1.10 to 1.00 after
January 1, 1996, said ratio to be tested quarterly for the
preceding twelve (12) months ( or the appropriate portion thereof
during calendar year 1996).
(e) Minimum Tangible Net Worth. Borrower and Guarantor
will not suffer or permit their consolidated Tangible Net Worth to
ever be less than $15,000,000.00.
(f) Total Bank Debt. Borrower will not permit the amount
of its Total Bank Debt to exceed an amount equal to (i) seventy-
five percent (75%) of the present value (discounted at 10%) of the
Oil and Gas Properties as determined by the Bank (the "Present
Value") during the six month period from the Effective Date to
September 30, 1996; (ii) seventy percent (70%) of Present Value
during the six month period from October 1, 1996 to March 31, 1997;
and (ii) sixty five percent (65%) of Present Value during the six
month period from April 1, 1997 to the Advance Loan Maturity Date.
(g) Debts, Guaranties and Other Obligations. Neither
Borrower, Guarantor or any of their Subsidiaries will incur,
create, assume or in any manner become or be liable in respect of
any indebtedness, liabilities or other obligations, nor will the
Borrower or Guarantor or any of their Subsidiaries guarantee or
otherwise in any manner become or be liable in respect of any
indebtedness, liabilities or other obligations of any other person
or entity, whether by agreement to purchase the indebtedness of any
other person or entity or agreement for the furnishing of funds to
any other person or entity through the purchase or lease of goods,
supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or
discharging the indebtedness of any other person or entity, or
otherwise, except that the foregoing restrictions shall not apply
to:
(i) the Notes, or other indebtedness of Borrower and
Guarantor heretofore disclosed to Bank in Borrower's or Guarantor's
Financial Statements or on Schedule "9" hereto;
(ii) taxes, assessments or other government charges
which are not yet due or are being contested in good faith by
appropriate action promptly initiated and diligently conducted, if
such reserve as shall be required by GAAP shall have been made
therefor and levy and execution thereon have been stayed and
continue to be stayed;
(iii) indebtedness incurred in the ordinary course of
business as such business is being conducted on the Effective Date;
or
(iv) renewals and extensions of any or all of the
foregoing.
(h) Dividends. Neither Borrower nor Guarantor will
declare or pay any cash dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding,
return any capital to stockholders, or make any distribution or its
assets to its stockholders as such; provided, however, that the
foregoing restriction shall not apply to (i) cash dividends paid by
Guarantor on preferred stock outstanding on the Effective Date, or
(ii) reimbursements to Guarantor by Borrower of amounts incurred by
Guarantor to pay Borrower's general and administrative expenses in
connection with Borrower's oil and gas operations, or (iii)
dividends by Guarantor of Laguna Gold Company stock to its
shareholders so long as no Event of Default has occurred and is
continuing or would occur as the result of payment of any such cash
dividends or reimbursement of general and administrative expenses.
(i) Loans and Advances. Neither Borrower nor Guarantor
shall make or permit to remain outstanding any loans or advances to
any person or entity, except that the foregoing restriction shall
not apply to:
(i) loans, advances or investments the material
details of which have been set forth in the Financial Statements of
Borrower and Guarantor heretofore furnished to Bank or have
otherwise heretofore been disclosed to Bank on Schedule "10"
hereto;
(ii) advances made or accounts receivable created in
the ordinary course of Borrower's oil and gas business; or
(iii) advances made by Guarantor to its wholly-owned
Subsidiaries to cover general and administrative expenses of such
Subsidiaries.
(j) Investments. Neither Borrower nor Guarantor shall
make any investments in any Person or entity, except such
restriction shall not apply to:
(i) investments and direct obligations of the United
States of America or any agency thereof;
(ii) investments in certificates of deposit issued by
Bank or certificates of deposit with maturities of less than one
year, issued by other commercial banks in the United States having
capital and surplus in excess of $500,000,000 and which have a
rating of (A) 50 or above by Sheshunoff and (B) "B" or above by
Keef-Bruett; or
(iii) investments in insured money market funds and
other similar accounts at Bank or such investment with maturities
of less than ninety (90) days at other commercial banks having
capital and surplus in excess of $500,000,000 and which have a
rating of (A) 50 or above by Sheshunoff and (B) "B" or above by
Keef-Bruett.
(k) Sale or Discount of Receivables. Neither Borrower nor
Guarantor will discount or sell with recourse, or sell for less
than the greater of the face or market value thereof, any of their
notes receivable or accounts receivable.
(l) Nature of Business. Neither Borrower nor Guarantor
will permit any material change to be made in the character of
their business as carried on at the date hereof.
(m) Hedging Transactions. Neither Borrower Nor Guarantor
will enter into any transaction providing (i) for the hedging,
forward sale or swap of crude oil, natural gas or any other
commodity, or (ii) for a swap, collar, floor, cap, option,
corridor, or other contract which is intended to reduce or
eliminate the risk of fluctuations in interest rates, as such terms
are referred to in the capital markets, except the foregoing
prohibitions shall not apply to (i) transactions consented to in
writing in advance by the Bank which are on terms acceptable to the
Bank and (ii) Pre-Approved Contracts. "Pre-Approved Contracts"
means any contract or agreement to hedge, forward sell or swap
crude oil or natural gas or otherwise sell up to 75% of expected
future production volumes from proven developed producing reserves
for a period of not longer than twenty-four (24) months and at an
effective price not less than the then-current base pricing policy
used by the Bank in determining borrowing base calculations for its
petroleum industry customers.
(n) Amendment of Articles of Incorporation or Bylaws.
Neither Borrower nor Guarantor will permit any amendment to, or
other alteration of, their Articles of Incorporation or Bylaws.
(o) Sale of Assets. Neither Borrower nor Guarantor shall
sell, transfer or otherwise dispose of any of its assets except
(i) for production from oil, gas and mineral property and other
assets sold in the ordinary course of Borrower's or Guarantor's
business and (ii) for the sale of the stock of Laguna Gold Company
by Guarantor. In the event any Oil and Gas Properties (other than
production sold in the ordinary course of business) are sold with
the prior written consent of the Bank, Borrower shall pay over to
Bank an amount equal to the value attributable of such Oil and Gas
Properties for Borrowing Base purposes.
(p) Transactions with Affiliates. Neither Borrower nor
Guarantor will enter into any transaction with any of its
Affiliates, except transactions upon terms no less favorable to it
than would be obtained in a transaction negotiated at arm's length
with a unrelated third party.
14. Events of Default. Any one or more of the following
events shall be considered an "Event of Default" as that term is
used herein:
(a) Borrower shall fail to pay when due or declared due
the principal of, and the interest on, either of the Notes or any
fee or any other indebtedness of Borrower incurred pursuant to this
Agreement or any other Security Instrument; or
(b) Any representation or warranty made by Borrower or
Guarantor under this Agreement or any other Loan Document, or in
any certificate or statement furnished or made to Bank pursuant
hereto, or in connection herewith, or in connection with any
document furnished hereunder, shall prove to be untrue in any
material respect as of the date on which such representation or
warranty is made (or deemed made), or any representation, statement
(including Financial Statements), certificate, report or other data
furnished or to be furnished or made by Borrower or Guarantor under
any Loan Document, including this Agreement, proves to have been
untrue in any material respect, as of the date as of which the
facts therein set forth were stated or certified; or
(c) Default shall be made in the due observance or
performance of any of the covenants or agreements of the Borrower
or Guarantor contained in the Loan Documents, including this
Agreement (excluding covenants contained in Section 13 of the
Agreement for which there is no cure period), and such default
shall continue for more than thirty (30) days after notice thereof
from Bank to Borrower; or
(d) Default shall be made in the due observance or
performance of any of the covenants of the Borrower or Guarantor
contained in Section 13 of this Agreement; or
(e) Default shall be made in respect of any obligation for
borrowed money, other than the Notes, for which the Borrower or
Guarantor is liable (directly, by assumption, as guarantor or
otherwise), or any obligations secured by any mortgage, pledge or
other security interest, lien, charge or encumbrance with respect
thereto, on any asset or property of the Borrower or Guarantor or
in respect of any agreement relating to any such obligations, and
such default shall continue beyond the applicable grace period, if
any; or
(f) The Borrower or Guarantor shall commence a voluntary
case or other proceedings seeking liquidation, reorganization or
other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking an 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 pay its debts as they become
due, or shall take any corporate action or authorizing the
foregoing; or
(g) An involuntary case or other proceeding, shall be
commenced against the Borrower or Guarantor seeking liquidation,
reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or 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 and unstayed for a period
of sixty (60) days; or an order for relief shall be entered against
the Borrower or Guarantor under the federal bankruptcy laws as now
or hereinafter in effect; or
(h) A final judgment or order for the payment of money in
excess of $100,000.00 (or judgments or orders aggregating in excess
of $100,000.00) shall be rendered against the Borrower or Guarantor
and such judgments or orders shall continue unsatisfied and
unstayed for a period of thirty (30) days; or
(i) The aggregate principal amount outstanding under the
Revolving Note shall exceed the Borrowing Base established for the
Revolving Note and Borrower shall fail to either provide additional
Collateral or prepay a portion of the principal of the Revolving
Note, in compliance with the provisions of Section 9(b) hereof; or
(j) A Change of Management shall occur.
Upon occurrence of any Event of Default specified in
Subsections 14(f) and (g) hereof, the Revolving Commitment shall
terminate and the entire principal amount due under the Note and
all interest then accrued thereon, and any other liabilities of
Borrower hereunder, shall become immediately due and payable all
without notice and without presentment, demand, protest, notice of
protest or dishonor or any other notice of default of any kind, all
of which are hereby expressly waived by Borrower. In any other
Event of Default, the Bank may by notice to Borrower terminate the
Revolving Commitment and the Advance Line of Credit and declare
the principal of, and all interest then accrued on, the Notes and
any other liabilities hereunder to be forthwith due and payable,
whereupon the same shall forthwith become due and payable without
presentment, demand, protest or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein
or in the Notes to the contrary notwithstanding. Nothing contained
in this Section shall be construed to limit or amend in any way the
Events of Default enumerated in the Notes, or any other document
executed in connection with the transaction contemplated herein.
Upon the occurrence and during the continuance of any Event of
Default, the Bank is hereby authorized at any time and from time to
time, without notice to Borrower (any such notice being expressly
waived by Borrower and Guarantor), to set-off 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 the Borrower against
any and all of the indebtedness of the Borrower or Guarantor under
the Note and the Loan Documents, including this Agreement and the
Guaranty, irrespective of whether or not the Bank shall have made
any demand under the Loan Documents, including this Agreement or
the Note and although such indebtedness may be unmatured. Any
amount set-off by the Bank shall be applied against the
indebtedness owed the Bank by Borrower pursuant to this Agreement
and the Note. The Bank agrees promptly to notify Borrower after
any such setoff and application, provided that the failure to give
such notice shall not affect the validity of such set-off and
application. The rights of the Bank under this Section are in
addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Bank may have.
15. Exercise of Rights. No failure to exercise, and no delay
in exercising, on the part of the Bank, any right hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or
the exercise of any other right. The rights of the Bank hereunder
shall be in addition to all other rights provided by law. No
modification or waiver of any provision of the Security Agreement,
including this Agreement, or the Note nor consent to departure
therefrom, shall be effective unless in writing, and no such
consent or waiver shall extend beyond the particular case and
purpose involved. No notice or demand given in any case shall
constitute a waiver of the right to take other action in the same,
similar or other circumstances without such notice or demand.
16. Notices. Any notices or other communications required or
permitted to be given by this Agreement or any other documents and
instruments referred to herein must be given in writing (which may
be by facsimile transmission) and must be personally delivered,
faxed and confirmed by telephone call, or mailed by prepaid
certified or registered mail to the party to whom such notice or
communication is directed at the address of such party as follows:
(a) BORROWER AND GUARANTOR: c/o MALLON RESOURCES CORPORATION, 999
18TH STREET, SUITE 1700, DENVER, COLORADO 80202, Facsimile No.
(303) 293-3601, Attention: George O. Mallon, Jr., President; and
(b) BANK: BANK ONE, TEXAS, N.A., 1717 Main Street, Dallas, Texas
75201, Facsimile No. 214-290-2627, Attention: Reed V. Thompson,
Vice President. Any such notice or other communication shall be
deemed to have been given on the day it is personally delivered as
aforesaid or, if mailed, on the fifth day after it is mailed as
aforesaid. Any party may change its address for purposes of this
Agreement by giving notice of such change to the other party
pursuant to this Section.
17. Expenses. The Borrower shall pay (i) all reasonable and
necessary out-of-pocket expenses of the Bank, including reasonable
fees and disbursements of special counsel for the Bank, in
connection with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any default or Event
of Default or alleged default or Event of Default hereunder, (ii)
all reasonable and necessary out-of-pocket expenses of the Bank,
including reasonable fees and disbursements of special counsel for
the Bank in connection with the preparation of any participation
agreement for a participant or participants requested by Borrower
or any amendment thereof and (iii) if a default or an Event of
Default occurs, all reasonable and necessary out-of-pocket expenses
incurred by the Bank, including fees and disbursements of counsel,
in connection with such default and Event of Default and collection
and other enforcement proceedings resulting therefrom. The
Borrower shall indemnify the Bank against any transfer taxes,
document taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement
or the Note.
18. Indemnity. The Borrower and Guarantor agree to indemnify
and hold harmless the Bank and its respective officers, employees,
agents, attorneys and representatives (singularly, an "Indemnified
Party", and collectively, the "Indemnified Parties") from and
against any loss, cost, liability, damage or expense (including the
reasonable fees and out-of-pocket expenses of counsel to the Bank,
including all local counsel hired by such counsel) ("Claim")
incurred by the Bank in investigating or preparing for, defending
against, or providing evidence, producing documents or taking any
other action in respect of any commenced or threatened litigation,
administrative proceeding or investigation under any federal
securities law, federal or state environmental law, or any other
statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon any
acts, practices or omissions or alleged acts, practices or
omissions of the Borrower, Guarantor or their agents or arises in
connection with the duties, obligations or performance of the
Indemnified Parties in negotiating, preparing, executing,
accepting, keeping, completing, countersigning, issuing, selling,
delivering, releasing, assigning, handling, certifying, processing
or receiving or taking any other action with respect to the Loan
Documents and all documents, items and materials contemplated
thereby even if any of the foregoing arises out of an Indemnified
Party's ordinary negligence. The indemnity set forth herein shall
be in addition to any other obligations or liabilities of the
Borrower and Guarantor to the Bank hereunder or at common law or
otherwise, and shall survive any termination of this Agreement, the
expiration of the Loan and the payment of all indebtedness of the
Borrower and Guarantor to the Bank hereunder and under the Note,
provided that the Borrower and Guarantor shall have no obligation
under this Section to the Bank with respect to any of the foregoing
arising out of the gross negligence or willful misconduct of the
Bank. If any Claim is asserted against any Indemnified Party, the
Indemnified Party shall endeavor to notify the Borrower of such
Claim (but failure to do so shall not affect the indemnification
herein made except to the extent of the actual harm caused by such
failure). The Indemnified Party shall have the right to employ, at
the Borrower's and Guarantor's expense, counsel of the Indemnified
Parties' choosing and to control the defense of the Claim. The
Borrower and Guarantor may at their own expense also participate in
the defense of any Claim. Each Indemnified Party may employ
separate counsel in connection with any Claim to the extent such
Indemnified Party believes it reasonably prudent to protect such
Indemnified Party. The parties intend for the provisions of this
Section to apply to and protect each Indemnified Party from the
consequences of its own negligence, whether or not that negligence
is the sole, contributing, or concurring cause of any Claim.
19. Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Agreement, such
provisions shall be fully severable and this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
20. Maximum Interest Rate. Regardless of any provisions
contained in this Agreement or in any other documents and
instruments referred to herein, the Bank shall never be deemed to
have contracted for or be entitled to receive, collect or apply as
interest on the Notes any amount in excess of the maximum rate of
interest permitted to be charged by applicable law, and in the
event the Bank ever receives, collects or applies as interest any
such excess, or if acceleration of the maturities of the Notes or
if any prepayment by Borrower results in Borrower having paid any
interest in excess of the maximum rate, such amount which would be
excessive interest shall be applied to the reduction of the unpaid
principal balance of the Notes for which such excess was received,
collected or applied, and, if the principal balance of the Notes
are paid in full, any remaining excess shall forthwith be paid to
Borrower. All sums paid or agreed to be paid to the Bank for the
use, forbearance or detention of the indebtedness evidenced by the
Notes and/or this Agreement shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full
so that the rate or amount of interest on account of such
indebtedness does not exceed the maximum lawful rate permitted
under applicable law. In determining whether or not the interest
paid or payable under any specific contingency exceeds the maximum
rate of interest permitted by law, Borrower and the Bank shall, to
the maximum extent permitted under applicable law, (i) characterize
any non-principal payment as an expense, fee or premium, rather
than as interest; and (ii) exclude voluntary prepayments and the
effect thereof; and (iii) compare the total amount of interest
contracted for, charged or received with the total amount of
interest which could be contracted for, charged or received
throughout the entire contemplated term of the Notes at the maximum
lawful rate under applicable law.
21. Amendments. This Agreement may be amended only by an
instrument in writing executed by an authorized officer of the
party against whom such amendment is sought to be enforced.
22. Multiple Counterparts. This Agreement may be executed in a
number of identical separate counterparts, each of which for all
purposes is to be deemed an original, but all of which shall
constitute, collectively, one agreement. No party to this
Agreement shall be bound hereby until a counterpart of this
Agreement has been executed by all parties hereto.
23. Conflict. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the Security
Instruments, the terms or provisions contained in this Agreement
shall be controlling.
24. Survival. All covenants, agreements, undertakings,
representations and warranties made in the Security Instruments,
including this Agreement, the Note or other documents and
instruments referred to herein shall survive all closings hereunder
and shall not be affected by any investigation made by any party.
25. Parties Bound. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
successors, assigns, heirs, legal representatives and estates,
provided, however, that Borrower or Guarantor may not, without the
prior written consent of the Bank, assign any rights, powers,
duties or obligations hereunder.
26. Participations. The Bank shall have the right at any time
and from time to time to sell one or more participations in the
Notes or any Advance thereunder. To the extent of any such
participation the provisions of this Agreement shall inure to the
benefit of, and be binding on, each participant, including, but not
limited to, any indemnity from Borrower or the Guarantor to the
Bank. The Borrower and the Guarantor shall have no obligation or
liability to and no obligation to negotiate or confer with, any
participant, and Borrower shall be entitled to treat the Bank as
the sole owner of the Notes without regard to notice or actual
knowledge of any such participation. Upon the occurrence of a
default or an Event of Default, each participant will have and is
hereby granted the right to setoff against and to appropriate and
apply from time to time, without prior notice to the Borrower or
the Guarantor or any other party, any such notice being hereby
expressly waived, any and all deposits (general or special or other
indebtedness or claims, direct or indirect, contingent or
otherwise), at any time held or owing by the participant to or for
the credit or account of Borrower or the Guarantor against the
payment of the Notes and any other obligations of the Borrower or
the Guarantor hereunder, provided, however, none of the rights
granted in this Section shall apply to any deposits held by any
participant constituting trust funds and so identified to such
participant at the time the applicable deposit account is created.
Within five (5) Business Days after such setoff or appropriation by
a participant, that participant shall give Borrower and Bank
written notice thereof. However, a failure to give such notice
will not affect the validity of this setoff or appropriation.
27. Financial Terms. All accounting terms used in the
Agreement which are not specifically defined herein shall be
construed in accordance with GAAP.
28. Governing Law. THIS AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND
THE SUBSTANTIVE LAWS OF TEXAS SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND
ALL OTHER DOCUMENTS AND INSTRUMENTS REFERRED TO HEREIN, UNLESS
OTHERWISE SPECIFIED THEREIN.
29. Choice of Forum: Consent to Service of Process and
Jurisdiction. THE OBLIGATIONS OF BORROWER AND GUARANTOR UNDER THE
LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY, TEXAS. ANY SUIT,
ACTION OR PROCEEDING AGAINST BORROWER OR GUARANTOR WITH RESPECT TO
THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT
THEREOF, MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY
OF DALLAS, OR IN THE UNITED STATES COURTS LOCATED IN DALLAS, TEXAS
AND BORROWER AND GUARANTOR HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY SUCH SUIT,
ACTION OR PROCEEDING. BORROWER AND GUARANTOR HEREBY IRREVOCABLY
CONSENT TO SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN
SAID COURT BY THE MAILING THEREOF BY BANK BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER OR GUARANTOR, AS
APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN SECTION 16.
BORROWER AND GUARANTOR HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH
THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS,
COUNTY OF DALLAS, AND HEREBY FURTHER IRREVOCABLY WAIVE ANY CLAIM
THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
30. Other Agreements. THIS WRITTEN LOAN AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
BORROWER:
MALLON OIL COMPANY
a Colorado corporation
By: /s/ Kevin M. Fitzgerald
Kevin M. Fitzgerald,
President
GUARANTOR:
MALLON RESOURCES CORPORATION,
a Colorado corporation
By: /s/ Roy K. Ross
Roy K. Ross,
Executive Vice President
BANK:
BANK ONE, TEXAS, N.A.,
a national banking association
By: /s/ Reed V. Thompson
Reed V. Thompson, Vice President
REVOLVING NOTE
$35,000,000.00 Dallas, Texas March 20, 1996
FOR VALUE RECEIVED, the undersigned MALLON OIL COMPANY, a Colorado
corporation (referred to herein as "Borrower") hereby unconditionally
promises to pay to the order of BANK ONE, TEXAS, N.A., a national
banking association (referred to herein as "Bank"), at its banking
offices in Dallas County, Texas, the principal sum of THIRTY-FIVE
MILLION AND No/100 DOLLARS ($35,000,000.00), or so much thereof as may
be advanced to or for the benefit of Borrower by Bank pursuant to the
Loan Agreement (as hereinafter defined), in lawful money of the United
States of America together with interest from the date hereof until paid
at the rates specified in the Loan Agreement. All payments of principal
and interest due hereunder are payable at the offices of Bank at 1717
Main Street, 4th Floor, Bank One Center, P.O. Box 655415, Dallas, Texas
75265-5415, attention: Energy Department, or at such other address as
Bank shall designate in writing to Borrower.
The principal and all accrued interest on this Note shall be due
and payable in accordance with the terms and provisions of the Loan
Agreement.
This Note is executed pursuant to that certain Loan Agreement dated
of even date herewith between Borrower and Bank (the "Loan Agreement"),
and is the Revolving Note referred to therein. This Note is secured by
certain Security Instruments (as such term is defined in the Loan
Agreement) of even date herewith between Borrower and Bank. Reference
is made to the Loan Agreement and the Security Instruments for a
statement of prepayment, rights and obligations of Borrower, description
of the properties mortgaged and assigned, the nature and extent of such
security and the rights of the parties under the Security Instruments in
respect to such security and for a statement of the terms and conditions
under which the due date of this Note may be accelerated. Upon the
occurrence of an Event of Default, as that term is defined in the Loan
Agreement and Security Instruments, the holder hereof (i) may declare
forthwith to be entirely and immediately due and payable the principal
balance hereof and the interest accrued hereon, and (ii) shall have all
rights and remedies of the Bank under the Loan Agreement and Security
Instruments. This Note may be prepaid in accordance with the terms and
provisions of the Loan Agreement.
Regardless of any provision contained in this Note, the holder
hereof shall never be entitled to receive, collect or apply, as interest
on this Note, any amount in excess of the Maximum Rate (as such term is
defined in the Loan Agreement), and, if the holder hereof ever receives,
collects, or applies as interest, any such amount which would be
excessive interest, it shall be deemed a partial prepayment of principal
and treated hereunder as such; and, if the indebtedness evidenced hereby
is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the Maximum Rate, Borrower and
the holder hereof shall, to the maximum extent permitted under
applicable law (i) characterize any non-principal payment as an expense,
fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) spread the total amount
of interest throughout the entire contemplated term of the obligations
evidenced by this Note and/or referred to in the Loan Agreement so that
the interest rate is uniform throughout the entire term of this Note;
provided that, if this Note is paid and performed in full prior to the
end of the full contemplated term thereof and if the interest received
for the actual period of existence thereof exceeds the Maximum Rate, the
holder hereof shall refund to Borrower the amount of such excess or
credit the amount of such excess against the indebtedness evidenced
hereby, and, in such event, the holder hereof shall not be subject to
any penalties provided by any laws for contracting for, charging,
taking, reserving or receiving interest in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become
due on a Saturday, Sunday or public holiday or while the Bank is not
open for business, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included
in computing interest in connection with such payment.
If this Note is placed in the hands of an attorney for collection,
or if it is collected through any legal proceeding at law or in equity
or in bankruptcy, receivership or other court proceedings, Borrower
agrees to pay all costs of collection, including, but not limited to,
court costs and reasonable attorneys' fees.
Borrower and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable on this Note, jointly
and severally waive presentment and demand for payment, notice of
intention to accelerate the maturity, notice of acceleration of the
maturity, protest, notice of protest and nonpayment, as to this Note and
as to each and all installments hereof, and agree that their liability
under this Note shall not be affected by any renewal or extension in the
time of payment hereof, or in any indulgences, or by any release or
change in any security for the payment of this Note, and hereby consent
to any and all renewals, extensions, indulgences, releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the
State of Texas, except that Tex. Rev. Civ. Stat. Ann. art. 5069, Chapter
15 (which regulates certain revolving credit loan accounts and revolving
tri-party accounts) shall not apply to this Note.
THIS WRITTEN NOTE, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
EXECUTED as of the 20th day of March, 1996.
BORROWER:
MALLON OIL COMPANY
a Colorado corporation
By: /s/ Kevin M. Fitzgerald
Kevin M. Fitzgerald,
President
ADVANCE NOTE
$2,000,000.00 Dallas, Texas March 20, 1996
FOR VALUE RECEIVED, the undersigned MALLON OIL COMPANY, a Colorado
corporation (referred to herein as "Borrower") hereby unconditionally
promises to pay to the order of BANK ONE, TEXAS, N.A., a national
banking association (referred to herein as "Bank"), at its banking
offices in Dallas County, Texas, the principal sum of TWO MILLION AND
No/100 DOLLARS ($2,000,000.00), or so much thereof as may be advanced to
or for the benefit of Borrower by Bank pursuant to the Loan Agreement
(as hereinafter defined) in lawful money of the United States of America
together with interest from the date hereof until paid at the rates
specified in the Loan Agreement. All payments of principal and interest
due hereunder are payable at the offices of Bank at 1717 Main Street,
4th Floor, Bank One Center, P.O. Box 655415, Dallas, Texas 75265-5415,
attention: Energy Department, or at such other address as Bank shall
designate in writing to Borrower.
The principal and all accrued interest on this Note shall be due
and payable in accordance with the terms and provisions of the Loan
Agreement.
This Note is executed pursuant to that certain Loan Agreement dated
of even date herewith between Borrower and Bank (the "Loan Agreement"),
and is the Advance Note referred to therein. This Note is secured by
certain Security Instruments (as such term is defined in the Loan
Agreement) of even date herewith between Borrower and Bank. Reference
is made to the Loan Agreement and the Security Instruments for a
statement of prepayment, rights and obligations of Borrower, description
of the properties mortgaged and assigned, the nature and extent of such
security and the rights of the parties under the Security Instruments in
respect to such security and for a statement of the terms and conditions
under which the due date of this Note may be accelerated. Upon the
occurrence of an Event of Default, as that term is defined in the Loan
Agreement and Security Instruments, the holder hereof (i) may declare
forthwith to be entirely and immediately due and payable the principal
balance hereof and the interest accrued hereon, and (ii) shall have all
rights and remedies of the Bank under the Loan Agreement and Security
Instruments. This Note may be prepaid in accordance with the terms and
provisions of the Loan Agreement.
Regardless of any provision contained in this Note, the holder
hereof shall never be entitled to receive, collect or apply, as interest
on this Note, any amount in excess of the Maximum Rate (as such term is
defined in the Loan Agreement), and, if the holder hereof ever receives,
collects, or applies as interest, any such amount which would be
excessive interest, it shall be deemed a partial prepayment of principal
and treated hereunder as such; and, if the indebtedness evidenced hereby
is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable,
under any specific contingency, exceeds the Maximum Rate, Borrower and
the holder hereof shall, to the maximum extent permitted under
applicable law (i) characterize any non-principal payment as an expense,
fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effects thereof, and (iii) spread the total amount
of interest throughout the entire contemplated term of the obligations
evidenced by this Note and/or referred to in the Loan Agreement so that
the interest rate is uniform throughout the entire term of this Note;
provided that, if this Note is paid and performed in full prior to the
end of the full contemplated term thereof; and if the interest received
for the actual period of existence thereof exceeds the Maximum Rate, the
holder hereof shall refund to Borrower the amount of such excess or
credit the amount of such excess against the indebtedness evidenced
hereby, and, in such event, the holder hereof shall not be subject to
any penalties provided by any laws for contracting for, charging,
taking, reserving or receiving interest in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become
due on a Saturday, Sunday or public holiday or while the Bank is not
open for business, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included
in computing interest in connection with such payment.
If this Note is placed in the hands of an attorney for collection,
or if it is collected through any legal proceeding at law or in equity
or in bankruptcy, receivership or other court proceedings, Borrower
agrees to pay all costs of collection, including, but not limited to,
court costs and reasonable attorneys' fees.
Borrower and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable on this Note, jointly
and severally waive presentment and demand for payment, notice of
intention to accelerate the maturity, notice of acceleration of the
maturity, protest, notice of protest and nonpayment, as to this Note and
as to each and all installments hereof, and agree that their liability
under this Note shall not be affected by any renewal or extension in the
time of payment hereof, or in any indulgences, or by any release or
change in any security for the payment of this Note, and hereby consent
to any and all renewals, extensions, indulgences, releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the
State of Texas, except that Tex. Rev. Civ. Stat. Ann. art. 5069, Chapter
15 (which regulates certain revolving credit loan accounts and revolving
tri-party accounts) shall not apply to this Note.
THIS WRITTEN NOTE, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
EXECUTED as of the 20th day of March, 1996.
BORROWER:
MALLON OIL COMPANY
a Colorado corporation
By: /s/ Kevin M. Fitzgerald
Kevin M. Fitzgerald,
President
ATTENTION ____________________ COUNTY CLERK:
Recording requested by and when recorded mail to:
BANK ONE, TEXAS, N.A.
c/o Robert N. Rule, Jr., Esq.
Locke Purnell Rain Harrell, P.C.
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT
(Line of Credit Mortgage)
THE STATE OF NEW MEXICO -
- KNOW ALL MEN BY THESE PRESENTS:
COUNTIES OF EDDY, LEA -
and RIO ARRIBA -
WHEREAS, MALLON OIL COMPANY, a Colorado corporation, the
address of which is 999 18th Street, Suite 1700, Denver, Colorado
80202 (hereinafter referred to as "Grantor"), does hereby execute
and deliver this Mortgage, Security Agreement, Assignment of
Production and Financing Statement (hereinafter referred to as the
"Mortgage"), for the use and benefit of BANK ONE, TEXAS, N. A., a
national banking association (hereinafter referred to as "Bank"),
with its address at P. 0. Box 655415, Dallas, Texas 75265-5415;
covering oil and gas properties and interests, and related personal
properties, therein described located on land situated in the State
of New Mexico;
NOW, THEREFORE, for and in consideration of the sum of $10.00
and other good and valuable consideration, in hand paid by Bank to
Grantor, the receipt and sufficiency of which is hereby
acknowledged and confessed, Grantor does hereby GRANT, MORTGAGE,
BARGAIN, SELL, TRANSFER, ASSIGN and CONVEY unto Bank, all right,
title and interest now or at any time hereafter vested in Grantor
in and to the following described properties and interests, to wit:
(a) All oil, gas and mineral interests and other
interests and property of every kind and character described and
referred to in Exhibit "A" attached hereto and made a part hereof
by reference for all purposes as if copied herein in full;
(b) Any and all operating agreements (including so-
called "working interest units" created under operating agreements
or otherwise), communitization agreements, unitization agreements,
pooling agreements, declarations of pooled units, all units created
under orders, regulations, rules or other official acts of any
federal, state or other governmental body or regulatory agencies
providing for pooling and unitization, spacing orders or other well
permits and other instruments, whether now or hereafter made, and
the units created thereby, which relate to any of the properties
and interests described or referred to in Exhibit "A", whether or
not such agreements, orders or instruments are described in Exhibit
"A";
(c) All real property covered by any and all of the
oil, gas and mineral leases described or referred to in Exhibit "A"
and the real property described or referred to in Exhibit "A"
(hereinafter collectively referred to as the "Lands"), even though
such rights, titles and interests be incorrectly or insufficiently
described or referred to therein, or a description of a part or all
of such rights, titles and interests be omitted from Exhibit "A";
(d) Any and all oil, gas and mineral leases described
or referred to in Exhibit "A" and any and all oil, gas and mineral
leases covering all or any part of the Lands (herein collectively
referred to as the "Leases"), together with all right, title and
interest now or at any time hereafter vested in Grantor in and to
any and all overriding royalty interests, mineral interests,
royalty interests, net profit interests, oil payments, production
payments and all other interests and properties of every kind and
character which relate to any of the Lands or the Leases, even
though such rights, titles and interests be incorrectly or
insufficiently described or referred to therein, or a description
of a part or all of such rights, titles and interests be omitted
from Exhibit "A", together with any and all renewals, extensions,
substitutions, ratifications, supplements, amendments and
replacements of and for any of the Leases or other interests
described or referred to herein;
(e) All personal property, fixtures, hereditaments,
improvements, easements, permits, licenses, servitudes, surface
leases and rights-of-way situated upon or used or useful or held
for use in connection with the exploration, development or
operation of the foregoing properties and interests, or the
production, treating, storing or transportation of oil, gas and
other hydrocarbons therefrom, including, without limitation, liquid
extraction plants, plant compressors, field gathering systems,
valves, fittings, engines, boilers, meters, cables, wires, towers
tubing and rods, casing, connections, tanks and tank batteries,
separators, lines, pumps, pipes, pipelines, structures, buildings,
sheds, oil wells, gas wells, injection wells, other wells,
fixtures, tools, machinery and other equipment, power lines,
telephone and telegraph lines, and other appurtenances, apparatus,
appliances and property of every kind and character, movable or
immovable now or at any time hereafter located on the Lands, or
which may now or hereafter be used or obtained in connection
therewith, whether or not the same are described or referred to in
Exhibit "A", together with all additions, substitutions,
replacements, accession 5 and attachments to any and all of the
foregoing properties;
(f) All oil, casinghead gas and gas sales, purchase,
exchange and processing contracts and agreements, and all other
contracts, agreements and instruments, whether now in existence or
hereafter made, which relate to any of the properties and interests
described or referred to in Exhibit "A", whether or not such
contracts and agreements are described or referred to in Exhibit
"A", together with any and all renewals, extensions, substitutions,
ratifications, supplements, amendments and replacements of or for
any such contracts, agreements and instruments;
(g) All oil, gas and other hydrocarbons, including,
without limitation, casinghead gas, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons, and all products separated,
settled and dehydrated therefrom, and all products refined
therefrom, including, without limitation, kerosene, liquified
petroleum gas, refined lubricating oils, diesel fuel, drip gasoline
and natural gasoline, and all other minerals, and the proceeds
thereof, produced and to be produced from and which accrue or are
attributable to any of the above described or referenced properties
and interests, by virtue of the above described or referenced
contracts, agreements and instruments; and
(h) Any and all proceeds, rents, issues, profits,
products, revenues and other income a rising from or by virtue of
the sale, lease or other disposition or, or from any insurance
payable with respect to damage, loss or destruction of, the
collateral described in Subparagraphs (a) through (g) above.
It is expressly understood and agreed by the parties hereto
that any and all decimal fractional interests and/or well names set
out in Exhibit "A" pertaining to any of the properties and
interests described or referred to in Exhibit "A" have been
appended for informational purposes only and shall not limit in any
way whatsoever the interest of Grantor in such properties and
interests, or interests derived thereunder, which are subject to
this Mortgage. It is also expressly understood and agreed by the
parties hereto that any and all references to township and range
included in the descriptions set out in Exhibit "A" attached hereto
are based upon reference to the New Mexico Prime Meridian.
Grantor's interests in the properties and interests described
in Subparagraphs (a) through (h) above are all hereinafter
sometimes collectively referred to as the "Mortgaged Properties
TO HAVE AND TO HOLD the Mortgaged Properties, together with
all the rights, hereditaments and appurtenances in anywise
appertaining or belonging thereto, unto Bank and its successors or
substitutes in this trust, and its and their assigns, in trust and
for the uses and purposes hereinafter set forth, forever.
The term "Grantor's Successors", as used herein, shall mean
Grantor's heirs, executors, legal representatives, successors and
assigns. Grantor hereby binds Grantor and Grantor's Successors to
warrant and forever defend, all and singular, the Mortgaged
Properties, unto Bank and its successors or substitutes in this
trust, and its and their assigns, forever, against every person
whomsoever lawfully claiming or to claim the same or any part
thereof.
As used herein, the term "Loan Agreement" shall mean that
certain Loan Agreement of even date herewith between Grantor and
Bank.
ARTICLE 1
REPRESENTATIONS AND WARRANTIES
1.1 Grantor hereby expressly represents and warrants to
Bank that (a) the Leases are in full force and effect; (b)
Grantor's interests in the Leases are valid and subsisting on the
Lands and entitle Grantor to receive that proportion of the total
production from the Mortgaged Properties indicated in connection
with the descriptions thereof in Exhibit "A"; (c) Grantor has good,
valid and indefeasible title to Grantor's interest in the Leases
and to Grantor's interest in the personal property and fixtures
comprising a part of the Mortgaged Properties or used or obtained
in connection therewith, except for Permitted Liens (as defined in
the Loan Agreement) and except as expressly provided in Exhibit "A"
and the right, power and authority to execute and deliver this
Mortgage and convey the Mortgaged Properties; (d) the Mortgaged
Properties are free and clear of all claims, liens, encumbrances,
security interests, contracts, agreements, options, preferential
purchase rights or other restrictions or limitations of any nature
or kind, except as expressly provided herein; (e) all rentals,
royalties and other amounts due and payable under the Leases have
been duly paid, and obligations to be performed under the Leases as
to the Lands have been duly performed; (f) the holder shall quietly
enjoy and possess the Mortgaged Properties; (g) Grantor is not a
party to, and none of the hydrocarbons produced from any of the
wells located on the Leases are the subject of, any Advance Payment
Contract affecting or relating to any of the Mortgaged Properties.
As used herein, the term "Advance Payment Contract" means any
contract whereby Grantor either (1) receives or becomes entitled to
receive (either directly or indirectly to a third party for
Grantor's account or benefit) any payment (an "Advance Payment") to
be applied toward payment of the purchase price of hydrocarbons
produced or to be produced from any of the Mortgaged Properties and
which Advance Payment is paid in advance of actual delivery of such
production to or for the account of the purchaser regardless of
such production, or (2) grants an option or right of refusal to the
purchaser to take delivery of such production in lieu of payment,
and, in either of the foregoing instances, the Advance Payment is,
or is to be, applied as payment in full for such production when
sold and delivered or is, or is to be, applied as payment for a
portion only of the purchase price thereof or of a percentage or
share of such production; provided that inclusion of the standard
"take or pay" provision in any gas sales or purchase contract shall
not, in and of itself, constitute such contract as an Advance
Payment Contract for the purposes hereof; (h) Grantor and any
guarantor of the Secured Indebtedness (hereinafter defined) are now
in a solvent condition; (i) all financial statements, schedules,
certificates, reports and other documents furnished by Grantor and
any guarantor of the Secured Indebtedness to the holder in
connection with the Secured Indebtedness are true and correct in
all respects and do not omit to state any fact or circumstance
necessary to make the statements contained therein not misleading;
(j) no bankruptcy or insolvency proceedings are pending
contemplated or threatened by or against Grantor and any guarantor
of the Secured Indebtedness; and (k) no other judicial or
administrative actions, suits or proceedings are pending,
contemplated or threatened by or against Grantor and any guarantor
of the Secured Indebtedness.
ARTICLE 2
SECURED INDEBTEDNESS
2.1 This Mortgage is given to secure payment and
performance of the following indebtedness, obligations and
liabilities, to wit:
(a) That certain Revolving Note, dated March 20,
1996, in the original principal amount of THIRTY-FIVE MILLION AND
NO/100 Dollars ($35,000,000.00), executed by Grantor, as maker,
payable to the order of Bank, bearing interest as provided therein
and containing usual and customary provisions for collection and
attorneys' fees (hereinafter referred to as the "Revolving Note"),
and any and all renewals, increases, refundings, substitutions,
replacements, consolidations and/or extensions of or for the Note,
or any part thereof;
(b) That certain Advance Note, dated March 20, 1996,
in the original principal amount of TWO MILLION AND NO/100 Dollars
($2,000,000.00), executed by Grantor, as maker, payable to the
order of Bank, bearing interest as provided therein and containing
usual and customary provisions for collection and attorneys' fees
(hereinafter referred to as the "Advance Note"), and any and all
renewals, increases, refundings, substitutions, replacements,
consolidations and/or extensions of or for the Note, or any part
thereof (the Revolving Note and the Advance Note shall hereinafter
be collectively referred to as the "Note");
(c) All indebtedness, obligations and liabilities of
Grantor arising pursuant to the provisions of any loan agreement,
whether now existing or hereafter arising, executed or to be
executed by and between Grantor and Bank, including, without
limitation, the Loan Agreement, and all supplements, amendments,
restatements, modifications and replacements thereof or therefor,
together with any and all renewals, increases, refundings,
substitutions, replacements, consolidations and/or extensions of or
for any such indebtedness, obligations and liabilities, or any part
thereof;
(d) All indebtedness, obligations and liabilities
arising pursuant to the provisions of this Mortgage, and any and
all other mortgages, indentures, security agreements, pledge
agreements, collateral mortgages, collateral chattel mortgages,
assignments, or other conveyances, whether now existing or
hereafter arising, and all supplements, amendments, restatements,
modifications and replacements thereof or therefor, executed or to
be executed by Grantor or any guarantor of the Secured Indebtedness
to or for the use and benefit of Bank, together with any and all
renewals, increases, refundings, substitutions, replacements,
consolidations and/or extensions of or for any such indebtedness,
obligations and liabilities, or any part thereof (hereinafter
collectively referred to as the "Security Instruments");
(e) All loans and advances which Bank may hereafter
make to Grantor, and any and all renewals, increases, refundings,
substitutions, replacements, consolidations and/or extensions of
any and all such loans and advances, or any part thereof; and
(f) All other and additional debts, obligations and
liabilities of every kind and character of Grantor, now existing or
hereafter arising in favor of Bank, regardless of whether such
debts, obligations and liabilities are direct or indirect, primary
or secondary, joint, several or joint and several, fixed or
contingent, and regardless of whether such present or future debts,
obligations and liabilities may, prior to their acquisition by
Bank, be or have been payable to, or be or have been in favor of,
some other persons or have been acquired by Bank in a transaction
with one other than Grantor, together with any and all renewals,
increases, refundings, substitutions, replacements, consolidations
and/or extensions of or for any and all such debts, obligations,
and liabilities, or any part thereof (it being contemplated that
Bank may lend additional sums of money to Grantor from time to
time, but shall not be obligated to do so, and that all such
additional sums and loans shall be part of the "Secured
Indebtedness" as hereinafter defined).
The term "Secured Indebtedness", as used herein, shall mean
all of the indebtedness, obligations and liabilities described or
referred to above in Subsections (a) through (f), inclusive, of
this Section 2.1. The term "holder", as used herein, shall mean
the holder or holders of the Secured Indebtedness or any part
thereof.
2.2 The Secured Indebtedness shall not exceed
$37,000,000.00, which shall be the maximum amount secured at any
one time hereby.
ARTICLE 3
COVENANTS
3.1 The covenants, agreements and undertakings of Grantor
contained in this Mortgage, whether in this Article 3 or elsewhere,
are made by Grantor for Grantor and Grantor's Successors.
3.2 Grantor hereby covenants, agrees and specifically
undertakes hereby:
(a) To maintain, preserve and keep or cause to be
maintained, preserved and kept Grantor's interests in the Mortgaged
Properties and all appurtenances thereto, including, without
limitation, all buildings, improvements, machinery, equipment,
pipelines, fixtures and other personal property of every kind and
character, in respect of the Leases, in thorough repair, working
order and condition, and from time to time, at Grantor's own
expense, do or cause to be done all necessary and proper repairs,
renewals, replacements and substitutions of the Mortgaged
Properties and all appurtenances thereto, so that at all times the
state and condition of the Mortgaged Properties and all
appurtenances thereto will be fully preserved and maintained;
(b) To permit or cause to be permitted the holder,
its agents, employees and representatives, at their own risk, to go
upon, examine, inspect and remain on the Mortgaged Properties, and
to go upon the derrick floor of any well or wells at any time
drilled or being drilled thereon, and to strap, gauge, measure and
inspect any and all tanks at any time on the Mortgaged Properties
or holding oil, gasoline or casinghead gasoline therefrom; and
Grantor shall do or cause to be done all things necessary and/or
proper to enable the holder to exercise said rights whenever it so
desires;
(c) To promptly notify the holder in writing if the
validity or priority of this Mortgage or any of the rights, titles,
liens or security interests created or evidenced hereby with
respect to the Mortgaged Properties, or any part thereof, shall be
questioned attacked or endangered, directly or indirectly, and do
or cause to be done all things necessary and/or proper to protect,
warrant and defend title to the Mortgaged Properties unto the
holder and its successors and assigns at Grantor's sole expense
against all persons whomsoever claiming an interest therein or a
lien or security interest thereon, but the holder shall have the
right, at any time, to intervene in any suit affecting such title
and to employ independent counsel in connection with any such suit
to which it may be a party by intervention or otherwise; and upon
demand Grantor agrees to pay the holder all reasonable expenses
paid or incurred by it in respect of any such suit affecting title
to any such property or affecting the holder's rights, titles,
liens or security interests hereunder, including, without
limitation, reasonable fees to the holder's attorneys, and Grantor
will indemnify and hold the holder harmless from and against any
and all costs and expenses, including, without limitation, any and
all costs, loss, damage or liability which the holder may suffer or
incur by reason of the failure of the title to all or any part of
the Mortgaged Properties, or by reason of the failure or inability
of Grantor, for any reason, to convey the rights, titles, liens and
security interests which this Mortgage purports to mortgage, create
or assign, and all amounts at any time so payable by Grantor shall
be secured by the lien and security interest hereof and by the
assignment of production herein contained;
(d) At any time and from time to time, upon request
by the holder and at Grantor's sole expense, forthwith to execute
and deliver or cause to be executed and delivered to the holder and
to record, file or register, any and all additional instruments and
further assurances as may be necessary or proper, in the holder's
opinion, to effect the intent of these presents;
(e) To promptly furnish the holder with the financial
information, statements, and reports required to be furnished under
the Loan Agreement;
(f) To pay all Secured Indebtedness in accordance
with the terms thereof or hereof, or when the maturity thereof be
accelerated in accordance with the terms thereof or hereof;
(g) To promptly pay and discharge or cause to
promptly paid and discharged all rentals, delay rentals, royalties
and indebtedness accruing under, and to perform or cause to be
performed each and every act, matter or thing required by each and
all of the assignments, deeds, Leases, subleases, contracts and
agreements comprising a part of or affecting Grantor's interests in
the Mortgaged Properties, and to do or cause to be done all other
things necessary to keep unimpaired Grantor's rights with respect
thereto and to prevent any forfeiture thereof or default
thereunder;
(h) To do or cause to be done such development work
as may be reasonably necessary to the prudent and economical
operation of the Mortgaged Properties in accordance with the
generally accepted practices of prudent operators in the industry,
including all actions that may be appropriate to protect from
diminution the productive capacity of the Mortgaged Properties and
each producing well thereon, including, without limitation,
cleaning out and a reconditioning each well from time to time,
plugging and completing at a different level or formation each such
well, drilling a substitute or replacement well to conform to
changed spacing regulations or to remedy any mechanical,
engineering or operational difficulty encountered during the life
of each such well, and to protect the Mortgaged Properties against
drainage whenever, and as often as, is necessary;
(i) To promptly correct and cure any defect, error or
omission which may be discovered in the contents of this Mortgage
or in any other Security Instrument or in the execution or
acknowledgement hereof or thereof and in connection therewith,
promptly execute, acknowledge and deliver to the holder any and all
such corrective or curative instruments as the holder may in its
sole and absolute discretion deem necessary or appropriate, and pay
all costs and expenses, including, without limitation, the
reasonable attorneys' fees of the holder, in connection with any of
the foregoing; and
(j) To comply in all respects with the affirmative
and negative covenants set forth in the Loan Agreement.
3.3 Any and all covenants contained in this Mortgage may
from time to time, by instrument in writing signed by the holder
and delivered to Grantor, be waived to such extent and in such
manner as the holder may consider appropriate; but no such waiver
shall at any time affect or impair the holder's rights or liens
hereunder, except to the extent so specifically stated in such
written instrument.
3.4 As to any part of the Mortgaged Properties which may
be comprised of interests in the Leases which are other than
working interests or which may be operated by a party or parties
other than Grantor, Grantor's covenants as expressed in this
Article 3 are modified to require that Grantor use its best efforts
to obtain compliance with such covenants by the working interest
owners or the operator or operators of such Leases or properties,
including, without limitation, the exercise by Grantor of all
rights under any operating agreements to which Grantor is a party.
ARTICLE 4
DEFAULTS AND REMEDIES
4.1 The term "Event of Default", as used herein, shall
mean the occurrence of any one or more of the following events:
(a) The occurrence of any Event of Default, as that
term is defined in the Loan Agreement;
(b) The failure or refusal of Mortgagor to pay all or
any part of the Note as and when due in accordance with its terms;
(c) The failure or refusal of Mortgagor punctually
and properly to observe, keep and perform any covenant, agreement
or undertaking contained in this Mortgage or any of the Security
Instruments;
(d) The title of Mortgagor or Bank to the Mortgaged
Properties, or a substantial part thereof, becomes in any manner
affected or impaired or becomes the subject matter of litigation
which, in the good faith opinion of Bank, would likely result in
substantial impairment or loss of the lien and security interest
intended to be created by this Mortgage; or
(e) Any representation or warranty set forth in this
Mortgage or in any of the Security Instruments shall be determined
to be false or misleading in any respect.
then upon the occurrence of any such Event of Default, Mortgagor
shall be in default hereunder and the Bank may declare all of the
Secured Indebtedness to be forthwith due and payable whereupon the
same shall forthwith become due without presentment, demand,
protest, notice of intent to accelerate and notice of acceleration
or other notice of any kind, all of which mortgagor hereby
expressly waives. The Bank may thereupon avail itself of any of
its legal and equitable rights and remedies, either by the
institution of a suit or suits, in equity or at law, or in
bankruptcy, in any court or courts of competent jurisdiction,
whether for the specific performance of any covenant, undertaking
or agreement contained herein or in the aid of any execution of any
powers granted herein, or for any foreclosure hereof or hereunder,
or for any sale of the Mortgaged Properties, or any part thereof,
so far as may be authorized by law, or for the enforcement of such
other or additional appropriate legal or equitable remedies as the
Bank may deem most effectual to protect and enforce the aforesaid
rights.
4.2 If Grantor should fail, refuse or be unable to pay any
sum of money herein covenanted to be paid by Grantor, or fail,
refuse or be unable to observe, keep or perform any additional
covenant, agreement or undertaking whatsoever contained in this
Mortgage, the holder may, but shall not be obligated to, pay said
sums of money, or perform or attempt to perform any such covenant,
agreement or undertaking and any such payment so made or expense
reasonably incurred in the performance or attempted performance of
any such covenant, agreement or undertaking shall be, and is hereby
declared by Grantor to be, a part of the Secured Indebtedness, and
Grantor promises, upon demand, to pay to the holder at the office
of Bank set forth hereinabove all sums so advanced or paid by the
holder, with interest at the highest lawful rate per annum from the
date paid or incurred by the holder. No such payment by the holder
shall in any way be considered or constitute a waiver of any such
default or of the holder's right to declare the Secured
Indebtedness at once due and payable. In addition to the lien and
security interest hereof, the holder shall be subrogated to all
rights and liens securing the payment of any debt, claim, tax or
assessment for the payment of which it shall have made such
advance.
4.3 Upon the occurrence of an Event of Default, (i)
Grantor shall be in default hereunder and the entire principal
amount of and all interest then accrued on the Note, and any other
obligations, indebtedness and liabilities hereunder, shall become
immediately due and payable, all without notice and without
presentment, demand, protest, notice of protest or dishonor, notice
of intent to accelerate and notice of acceleration, or any other
notice of default of any kind, all of which are hereby expressly
waived by Grantor, and (ii) in any other such event, Grantor shall
be in default hereunder, and Bank may, at its option, declare the
principal of and all interest then accrued on the Note, and any
other obligations, indebtedness and liabilities hereunder to be
forthwith due and payable whereupon the same shall forthwith become
due without presentment, demand, protest, notice of intent to
accelerate and notice of acceleration or other notice of any kind,
all of which Grantor hereby expressly waives, anything contained
herein or in the Note to the contrary notwithstanding. Nothing
contained in this Article 4 shall be construed to limit or amend in
any way the Events of Default enumerated in any other document
executed in connection with the transaction contemplated herein or
hereby. Bank may thereupon avail itself of any of its legal and
equitable rights and remedies, either by the institution of a suit
or suits, in equity or at law, or in bankruptcy, in any court or
courts of competent jurisdiction, whether for the specific
performance of any covenant, undertaking or agreement contained
herein or in the aid of any execution of any powers granted herein,
or for any foreclosure hereof or hereunder, or for any sale of the
Mortgaged Properties, or any part thereof, so far as may be
authorized by law, or for the enforcement of such other or
additional appropriate legal or equitable remedies as Bank may deem
most effectual to protect and enforce the aforesaid rights.
4.4 Upon the occurrence of an Event of Default, the holder
may, at its option, and is hereby authorized, prior or subsequent
to the exercise of any remedies under Section 4.3 hereof, to enter
upon the Mortgaged Properties, or any part thereof, and to take
possession of the Mortgaged Properties in the possession of Grantor
or Grantor's Successors, and may exclude Grantor or Grantor's
Successors, and all persons claiming under Grantor, wholly or
partly therefrom; and, holding the same, the holder may exercise
without interference from Grantor or Grantor's Successors, any and
all rights which Grantor has with respect to the management,
possession, operation, protection or preservation of the Mortgaged
Properties, and the holder may use, administer, manage, operate and
control the Mortgaged Properties and conduct the business thereof
to the same extent as Grantor or Grantor's Successors might at the
time do and may exercise all rights and powers of Grantor, in the
name, place and stead of Grantor, or otherwise as the holder shall
deem best. All costs, expenses and liabilities of every character
incurred by the holder shall be a demand obligation owed by Grantor
to holder and shall bear interest at the highest lawful rate per
annum and shall constitute a portion of the Secured Indebtedness
and shall be secured by this Mortgage and all of the Security
Instruments. If necessary to obtain the possession provided for
hereinabove, the holder, as the case may be, may invoke any one or
more actions for forcible entry and detainer, trespass to try title
and restitution. In connection with any action taken by the holder
pursuant to this Section 4.4, the holder shall not be liable for
any loss sustained by Grantor resulting from any act or omission of
the holder in managing the Mortgaged Properties, unless such loss
is caused by the willful misconduct or bad faith of the holder.
Grantor hereby agrees to indemnify and hold harmless the holder
from and against any and all liability, loss or damage which may be
incurred by reason of the exercise of rights or remedies hereunder.
Should the holder incur any such liability by reason of this
Mortgage or the exercise of rights or remedies hereunder or in
defense of any such claims or demands, the amount thereof,
including without limitation, costs, expenses and reasonable
attorneys' fees, shall be a demand obligation owing by Grantor to
the holder and shall bear interest each day from the date incurred
until paid at the highest lawful rate per annum and shall be a part
of the Secured Indebtedness and shall be secured by this Mortgage
and all of the Security Instruments. Grantor hereby consents to,
ratifies and conforms any and all actions of the holder with
respect to the Mortgaged Properties taken under this Section 4.4.
4.5 The Bank may institute suit to foreclose this Mortgage
in any court having jurisdiction. In any such suit the Bank may,
at its option, apply for and be entitled to, as a matter or right
and without proof of insolvency, fraud, insecurity, or
mismanagement on the part of the Grantor, the appointment of a
receiver to take possession of, operate, and preserve the Mortgaged
Properties. Grantor agrees that such receiver may be appointed to
take possession of, hold, maintain, operate and preserve said
property, including the production and sale of all oil, gas and
other minerals therefrom, and apply the proceeds of the sale
thereof to the payment of the Secured Indebtedness due the Bank
until such Secured Indebtedness and costs are fully paid; and said
receiver may be authorized to sell and dispose of said property
under orders of the court appointing him such receiver.
4.6 Bank is authorized to receive the proceeds of said
sale or sales made pursuant to Section 4.3 or Section 4.5 hereof
and apply the same as follows: First, to the payment of all
necessary costs and expenses incident to the execution of said
trust, including but not limited to all court costs and changes of
every character in the event foreclosure is by suit; Second, to the
payment of the Secured Indebtedness in such order as the holder
shall elect; and Third, the balance, if any, remaining after the
full and final payment of the Secured Indebtedness, to Grantor or
Grantor's Successors.
4.7 It is agreed that in any deed or deeds given pursuant
to the exercise of a power of sale, any and all statements of fact
or other recitals therein made as to the identity of the holder or
as to the occurrence or existence of any default, or as to the
acceleration of the maturity of the Secured Indebtedness, or as to
the request to sell, notice of sale, time, place, terms and manner
of sale, and receipt, distribution and application of the money
realized therefrom, and, without being limited by the foregoing, as
to any act or thing having been duly done by the holder, or any of
them if there be more than one, shall be taken by all courts of law
and equity as prima facie evidence that the said statements of
recitals state facts and are without further question to be so
accepted, and Grantor does hereby ratify and confirm any and all
acts that Bank may lawfully do in the premises by virtue hereof.
4.8 In case the lien and security interest hereof shall be
foreclosed by judicial action, the purchaser at any sale shall
receive, as an incident to its ownership, immediate possession of
the property purchased, and Grantor agrees for Grantor and for all
persons claiming under Grantor, that if Grantor or any such person
shall hold possession of said property, or any part thereof,
subsequent to foreclosure, Grantor or the parties so holding
possession shall be considered as tenants at sufferance of the
purchaser at foreclosure sale, and anyone occupying the property
after demand for possession thereof shall be guilty of forcible
detainer and shall be subject to eviction and removal, forcible or
otherwise, with or without process of law, and all damages by
reason thereof are hereby expressly waived.
4.9 Upon the occurrence of an Event of Default, the holder
may, at its election, proceed by suit or suits, at law or in
equity, to enforce the payment of the Secured Indebtedness in
accordance with the terms hereof and of the notes or other
instruments evidencing it, to foreclose the lien and security
interest of this Mortgage as against all or any portion of the
Mortgaged Properties, and to have said properties sold under the
judgment or decree of a court of competent jurisdiction Pursuant to
Section 39-5-19 N.M. S.A. 1978 Comp., Grantor agrees that the
redemption period shall be limited to one (1) month. To the full
extent Grantor may do so, Grantor agrees that Grantor will not at
any time insist upon, plead, claim or take the benefit or advantage
of any law now or hereafter in force providing for any
appraisement, valuation, stay, extension or redemption, and
Grantor, for Grantor and Grantor's Successors, and for any and all
persons ever claiming any interest in the Mortgaged Properties, or
any part thereof, to the extent permitted by law, hereby waives and
releases all rights or redemption, valuation, appraisement, stay of
execution, notice of intention to mature or declare due the whole
of the Secured Indebtedness, and all rights to a marshalling of the
assets of Grantor, including the Mortgaged Properties, or to a sale
in inverse order of alienation in the event of foreclosure of the
liens and security interests hereby created. On or at any time
after the filing of judicial proceedings to protect or enforce the
rights of the holder, the holder, as a matter of right and without
regard to the sufficiency of the security, and without any showing
of insolvency, fraud or mismanagement on the part of Grantor, shall
be entitled to the appointment of a receiver or receivers of the
Mortgaged Properties, and of the income, rents, issues, products,
profits and proceeds thereof.
4.10 It is agreed that Bank or any other holder may be the
purchaser of the Mortgaged Properties, or of any part thereof, at
any sale thereof, whether such sale be under the power of sale or
upon any other foreclosure of the lien and security interest hereof
or otherwise, and Bank or other holder so purchasing shall, upon
any such purchase, acquire good title to the Mortgaged Properties
so purchased, free of the lien and security interest of these
presents.
4.11 To the full extent permitted by applicable law,
Grantor agrees that it will not at any time insist upon, plead,
claim or take the benefit or advantage of any law now or hereafter
in force providing for any appraisement, valuation, stay, extension
or redemption, and Grantor, for Grantor and Grantor's Successors,
and for any and all persons claiming any interest in the Mortgaged
Properties, hereby waives and releases, except as expressly
provided herein, all rights of redemption, valuation, stay of
execution, notice of intention or the election to accelerate the
Secured Indebtedness and all rights to a marshalling of assets of
Grantor, including the Mortgaged Properties, or to a sale in the
inverse order of alienation in the event of foreclosure of the
liens and/or security interests hereby created.
4.12 The rights and remedies hereinabove expressly
conferred are cumulative of all other rights and remedies herein,
or by law or in equity provided, and shall not be deemed to deprive
the holder of any such other legal or equitable rights or remedies,
by judicial proceedings or otherwise, appropriate to enforce the
conditions, covenants and terms of this Mortgage and of the notes
or other instruments evidencing the Secured Indebtedness, and the
employment of any remedy hereunder, or otherwise, shall not prevent
the concurrent or subsequent employment of any other appropriate
remedy or remedies.
4.13 The procedures for foreclosure and all other
provisions of this Article 4 relating to remedies upon default and
related matters shall be modified to the extent necessary to comply
with the laws of the state where the Mortgaged Properties are
located. It is the intent of Grantor that this Mortgage shall be
legal and enforceable in any state where the Mortgaged Properties,
or any part thereof, are located and that the provisions hereof
shall be modified only to the extent necessary to comply with the
laws of such state, and that all other provisions contained herein
shall be in no way affected or impaired by the necessity to so
modify some or all of the provisions of this Article 4.
ARTICLE 5
ASSIGNMENT OF PRODUCTION
5.1 In order further to secure the payment of the Secured
Indebtedness, Grantor does hereby TRANSFER, ASSIGN and CONVEY unto
and in favor of the holder all of the interest of Grantor in the
oil, gas, casinghead gas, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and other minerals (herein
collectively referred to as the "Hydrocarbons"), in and under, or
which may be produced from, the Mortgaged Properties, or allocated
thereto pursuant to pooling or unitization of the Leases or
otherwise, together with all accounts, contract rights, general
intangibles, products and proceeds arising from or derived from the
sale, transfer or other disposition of such Hydrocarbons on and
after the date of the execution of this Mortgage.
5.2 The foregoing assignment is made upon, and subject to,
the following terms:
(a) The holder may give written or telegraphic notice
to all of the parties producing, purchasing, taking, possessing or
receiving any such Hydrocarbons, or having in their possession any
such Hydrocarbons belonging to Grantor or such proceeds for which
they or others are accountable to the holder by virtue of the
provisions of this Section 5.2, to hold and dispose of such
Hydrocarbons for the account of the holder and to make payment of
such proceeds direct to the holder at its principal office, and the
holder shall thereafter receive, collect and retain, subject to the
provisions of Section 5.5, as part of the Mortgaged Properties, all
such Hydrocarbons, all for the benefit and further security of the
Secured Indebtedness.
(b) All parties producing, purchasing, taking,
possessing, processing or receiving any such Hydrocarbons, or
having in their possession any such Hydrocarbons or such proceeds
for which they or others are accountable to the holder by virtue of
the provisions of this Section 5.2, are authorized and directed by
Grantor, upon receipt of notice by the holder given pursuant to
Subsection 5. 2(a) above, to treat and regard the holder as the
assignee and transferee of Grantor and entitled in its place and
stead to receive such Hydrocarbons and proceeds; and such parties
and each of them shall be fully protected in so treating and
regarding the holder and shall be under an obligation to see to the
application by the holder of any such proceeds received by it.
Until such notice is received by such parties, payment of all
proceeds attributable to such Hydrocarbons shall be payable
directly to Grantor. Without in any way limiting the effectiveness
of the authorization and direction in the next preceding sentence,
if Grantor shall hold such proceeds which under this Section 5.2
are receivable by the holder, Grantor will hold the same in trust
and will remit such proceeds, or cause such proceeds to be
remitted, immediately, to the holder.
(c) Without limiting the foregoing provisions of this
Article 5, Grantor stipulates that this Article 5 is intended to
grant to the holder a security interest in Grantor's interest in
the Hydrocarbons to be extracted from or attributable to the
Mortgaged Properties, and in and to the proceeds resulting from the
sale thereof at the well head.
5.3 Grantor covenants, agrees and specifically undertakes
hereby, to cause, after Bank shall have so requested, all pipeline
companies or other purchasers of the Hydrocarbons to pay promptly
to the holder at its principal office, Grantor's interest in the
proceeds derived from the sale thereof, in accordance with the
terms of this assignment, and forthwith to execute, acknowledge and
deliver to such pipeline companies and other purchasers such
further and proper division orders, transfer orders, certificates
and other documents as may be necessary or proper to effect the
intent of these presents; and the holder shall not be required at
any time, as a condition to its right to obtain the proceeds of the
Hydrocarbons, to warrant its title thereto or to make any guaranty
whatsoever. In addition, and without limitation, Grantor
covenants, agrees and specifically undertakes hereby, to provide to
the holder the name and address of every pipeline company or other
purchaser of the oil, gas and other minerals produced from or
allocated to the Mortgaged Properties when determined, together
with a copy of the applicable purchase and sales contracts. All
expenses incurred by the holder in the collection of such proceeds
shall be repaid promptly by Grantor; and prior to such repayment,
such expenses shall be a part of the Secured Indebtedness.
5.4 Without limitation upon any of the foregoing, Grantor
hereby designates and appoints the holder as Grantor's true and
lawful agent and attorney-in-fact (with full power of substitution,
either generally or for such periods or purposes as the holder may
from time to time prescribe), with full power and authority, for
and on behalf of and in the name of Grantor and only upon an Event
of Default, to execute, acknowledge and deliver all such division
orders, transfer orders, certificates and other documents of every
nature, with such provisions as may from time to time, in the
opinion of the holder, be necessary or proper to effect the intent
and purpose of the assignment contained in this Article 5; and to
demand, collect, receive and sue for, in the holder's own name or
in the name of Grantor, all cash, other distributions or proceeds
due or which may become due to Grantor by virtue of the Mortgaged
Properties or any part thereof or interest therein, with the
absolute right in the holder to rehypothecate, pledge, compromise,
settle or discharge the same and to do all acts and things
necessary or convenient for any such purpose, including, without
limitation, the right to give good and sufficient receipts and
releases; to endorse the name of Grantor upon any and all checks,
drafts, money orders and other instruments for the payment of
monies which are payable to Grantor and constitute collections on
the Mortgaged Properties; and to perform such other and further
acts and deeds in the name of Grantor which the holder may deem
necessary and appropriate; and Grantor shall be bound thereby as
fully and effectively as if Grantor had personally executed,
acknowledged and delivered any of the foregoing certificates or
documents; as if Grantor had personally demanded, collected,
received and/or sued for any and all cash, other distributions or
proceeds; as if Grantor had personally done any and all acts and
things necessary or convenient for any such purpose; as if Grantor
had personally endorsed Grantor's own name upon any and all checks,
drafts, money orders and other instruments; and as if Grantor
personally performed such other and further acts and deeds in
Grantor's own name which the holder deemed necessary and
appropriate; PROVIDED, HOWEVER, notwithstanding anything contained
herein to the contrary, the Assignment of Production contained in
Section 5.1 hereof, and the holders rights thereunder, shall be
absolute and shall not be conditioned upon the occurrence of an
Event of Default. The powers and authorities herein conferred on
the holder may be exercised by the holder through any person who,
at the time of exercise, is an officer of the holder. The power of
attorney conferred by this Section 5.4 is granted for valuable
consideration and coupled with an interest and is irrevocable so
long as the Secured Indebtedness, or any part thereof, shall remain
unpaid. All persons dealing with the holder, or any substitute,
shall be fully protected in treating the powers and authorities
conferred by this Section 5.4 as continuing in full force and
effect until advised by the holder that the Secured Indebtedness is
fully and finally paid.
5.5 All proceeds received by the holder in collected funds
pursuant to this Article 5 shall be placed in a collateral
collection account at Bank, and the holder is hereby authorized to
apply all such proceeds as follows: First, to the payment of all
necessary costs and expenses incident to the receipt and collection
of such proceeds; Second, to the payment of the Secured
Indebtedness in such order as the holder shall elect; and Third,
the balance, if any, remaining after the full and final payment of
the Secured Indebtedness, to Grantor or Grantor's Successors.
5.6 Should any person or entity now or hereafter
purchasing or taking any part of the Hydrocarbons fail to make
payment promptly to the holder for the purchase price of such
Hydrocarbons, after notice pursuant to this Article 5, the holder
shall have the right to make or to require Grantor to make, a
change of connection and the right to designate or approve the
purchaser with whose facilities a new connection shall be made, and
the holder shall be without liability or responsibility in
connection therewith so long as ordinary care is used in making
such designation.
5.7 The holder shall never be under any obligation to
enforce the collection of the funds assigned to it hereunder, nor
shall it ever be liable for failure to exercise diligence in the
collection of such funds, but it shall only be accountable for the
sums that it shall actually receive.
ARTICLE 6
SECURITY AGREEMENT
6.1 With respect to all personal property and fixtures
comprising a part of the Mortgaged Properties, together with all
proceeds and products thereof (hereinafter collectively referred to
as the "Collateral"), this Mortgage shall likewise be a security
agreement, and for a valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and for the purpose
of further securing payment and performance of the Secured
Indebtedness, Grantor hereby grants to Bank a security interest in
the Collateral including, without limitation, all rights now owned
and at any time hereafter acquired by Grantor in all (a) oil, gas
and other minerals produced from or allocated to the Mortgaged
Properties, (b) accounts, chattel paper and general intangibles
arising in connection with the sale or other disposition of such
production, or otherwise associated with the Mortgaged Properties,
(c) equipment, materials, other personal property, and fixtures at
any time used on or in connection with the Mortgaged Properties or
in connection with such production, and (d) geological,
geophysical, engineering, accounting, title, legal and other
technical or business data concerning the Mortgaged Properties, and
the Hydrocarbons which are in the possession of Grantor or in which
Grantor can otherwise grant a security interest, and all books,
files, records, seismic, magnetic media and other forms of
recording or obtaining access to such data, together with all
access ions, additions, proceeds, products, replacements,
substitutions, and modifications to or for any of the foregoing.
6.2 Grantor hereby assigns to Bank Grantor's security
interests and liens and all other interests of Grantor arising
pursuant to or perfected by any instrument to which Grantor is a
party affecting real property in which Grantor is an interest
owner, as provided in the New Mexico Products Lien Act, Sections
48-9-1 et seq. N.M.S.A. 1978 Comp., by virtue of the first sale of
Hydrocarbons produced from the Mortgaged Properties.
6.3 Grantor represents and warrants that, except for any
financing statement now in force filed by Bank, or as shown on
Exhibit "A", no financing statement covering the Collateral, or any
part thereof, has been filed with any filing officer, and no other
security interest now in force has attached or been perfected in
the Collateral, or any part thereof.
6.4 This Mortgage shall be effective as a financing
statement filed as a fixture filing with respect to all of the
Collateral which is or will become fixtures related to the Lands
and Leases and is to be filed for record as a financing statement
in the real estate records of each county where any part of the
Mortgaged Properties (including such fixtures) is situated. Such
of the Mortgaged Properties which constitute minerals or the like
(including oil and gas) or accounts subject to subsection (5) of
Section 55-9-103 of the New Mexico Uniform Commercial Code are or
will be financed at the wellhead or minehead of the well or mine
located on the Lands described in Exhibit "A". This Mortgage shall
also be effective as a financing statement covering such minerals
or the like (including oil and gas) and such accounts, and, where
so permitted or required, is to be filed for record as such a
financing statement in the real estate records for each county
where a mortgage on the Mortgaged Properties would be filed or
recorded. The above goods are or are to become fixtures on the
Lands. The record owner of the real estate interest covered by
this Mortgage is Grantor.
ARTICLE 7
MISCELLANEOUS
7.1 Upon the full and final payment of the Secured
Indebtedness, this Mortgage shall be extinguished and be of no
further force and effect; and the Mortgaged Properties shall become
wholly free and clear hereof and all of the property as assigned
hereby shall be automatically reassigned to Grantor without any
further act being required; and the holder, upon the request and at
the expense of Grantor, shall promptly deliver to Grantor such
instruments evidencing the Secured Indebtedness, marked "Paid", and
execute and deliver to Grantor and others a release of this
Mortgage and such other instruments of satisfaction as may be
appropriate.
7.2 The rights, titles, interests, liens and powers
hereunder are cumulative of each other and of all other rights,
titles, interests, liens and powers which may now or hereafter
exist to secure the payment of the Secured Indebtedness to the
holder, or any part thereof. The security herein and hereby
provided shall not affect or be affected by any other Security
Instrument or by any other or further security heretofore or
hereafter taken for the Secured Indebtedness or any part thereof.
Grantor, for Grantor and Grantor's Successors, and for any and all
persons ever claiming any interest in the Mortgaged Properties,
hereby waives all rights of marshalling in event of foreclosure of
the lien hereby created. No failure to exercise and no delay in
exercising on the part of the holder any - right, power or
privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege
preclude any other or further exercise thereof, or the exercise of
any other right, power or privilege.
7.3 For all purposes of this instrument, the post office
address of Bank shall be: P.O. Box 665415, Dallas, Texas 75265-
5415, Attention: Reed V. Thompson, Vice President, and the post
office address of Grantor shall be: 999 18th Street, Suite 1700,
Denver, Colorado, 80202, Attention: George O. Mallon, Jr.,
President.
7.4 No provision herein or in any promissory note,
instrument, or any other loan document executed by Grantor
evidencing the Secured Indebtedness shall require the payment or
permit the collection of interest in excess of the maximum
permitted by law. If any excess of interest in such respect is
provided for herein or in any such promissory note, instrument, or
any other loan document, the provisions of this Section 7.4 shall
govern, and Grantor shall not be obligated to pay the amount of
such interest to the extent that it is in excess of the amount
permitted by law. The intention of the parties being to conform
strictly to the usury laws now in force, all promissory notes,
instruments and other loan documents executed by Grantor evidencing
the Secured Indebtedness shall be held subject to reduction to the
amount allowed under said usury laws as now or hereafter construed
by the courts having jurisdiction.
7.5 Grantor hereby grants, assigns and conveys unto Bank
all of Grantor's rights to payments and liens and security
interests in the Mortgaged Properties provided for in the New
Mexico Oil and Gas Proceeds Payment Act, Sections 70-10-1 et seq.
N.M.S.A. 1978 Comp.
7.6 These presents shall be binding upon the Grantor and
Grantor's Successors, and shall inure to the benefit of the holder,
its successors and assigns, and shall be covenants running with the
Lands.
7.7 In the event that any one or more of the provisions
contained in this Mortgage shall be invalid, illegal or
unenforceable in any respect under any law, the validity, legality
and enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby.
7.8 THIS MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW MEXICO.
7.9 This Mortgage has simultaneously been executed in a
number of identical counterparts, each of which, for all purposes,
shall be deemed an original, and all of which are identical except
that, to facilitate recordation, in any particular counterpart,
portions of Exhibit "A" which describe properties and interests
situated in counties other than the county in which such particular
counterpart is to be recorded may have been omitted.
7.10 The use of any particular pronoun herein shall mean
and be construed to include the plural and singular number of such
pronoun, whenever and wherever appropriate and applicable, and
shall mean and be construed to include the masculine, feminine or
neuter gender of such pronoun, whenever and wherever appropriate
and applicable.
7.11 The effective date of the assignment contained in
Article 5 is the date of execution of this Mortgage at 7:00 o'clock
am.
THE PARTIES HAVE EXECUTED this Mortgage in multiple
counterparts on the date of their respective acknowledgments set
out below, the Mortgage to be effective as of the 20th day of
March, 1996.
MORTGAGOR-DEBTOR:
MALLON OIL COMPANY,
a Colorado corporation
By: /s/ Kevin M. Fitzgerald
Kevin M. Fitzgerald,
President
MORTGAGEE-SECURED PARTY:
BANK ONE, TEXAS, N A.,
a national banking association
By: /s/ Reed V. Thompson
Reed V. Thompson,
Vice President
THE STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 19th day of
March, 1996, by Kevin M. Fitzgerald, President of Mallon Oil
Company, a Colorado corporation, on behalf of said corporation.
__/s/ Julia A. Tillman___________
Notary Public, State of Texas
My Commission Expires: 6/14/97
________________________ __________________________________
(Printed or Typed Name of Notary)
THE STATE OF TEXAS
COUNTY OF DALLAS
THIS INSTRUMENT was acknowledged before me on the 19th day of
March, 1996, by Reed V. Thompson, Vice President of BANK ONE,
TEXAS, N.A., a national banking association, on behalf of said
association.
__/s/ Julia A. Tillman_______________
Notary Public, State of Texas
My Commission Expires: 6/14/97
________________________ ___________________________________
(Printed or Typed Name of Notary)
UNLIMITED GUARANTY
THIS UNLIMITED GUARANTY ("Guaranty") is made as of the 20th day of
March, 1996, by Guarantor (as hereinafter defined) for the benefit of
Bank (as hereinafter defined).
1. Definitions. As used in this Guaranty, the following terms
shall have the meanings indicated below:
(a) The term "Bank" shall mean BANK ONE, TEXAS, NATIONAL
ASSOCIATION, whose address for notice purposes is the following:
1717 Main Street
Dallas, Dallas County, Texas 75201
Attn: Reed V. Thompson
(b) The term "Borrower" (whether one or more shall mean
the following:
Mallon Oil Company
(c) The term "Guarantor" shall mean Mallon Resources
Corporation, whose address for notice purposes is the following:
999 18th Street, Suite 1700
Denver, Colorado 80202
(d) The term "Guaranteed Indebtedness" shall mean (i) all
indebtedness, obligations and liabilities of Borrower to Bank of any
kind or character now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several, and regardless of
whether such indebtedness, obligations and liabilities may, prior to
their acquisition by Bank, be or have been payable to or in favor of a
third party and subsequently acquired by Bank (it being contemplated
that Bank may make such acquisitions from third parties), including
without limitation all indebtedness, obligations and liabilities of
Borrower to Bank now existing or hereafter arising by note, draft,
acceptance, guaranty, endorsement, letter of credit, assignment,
purchase, overdraft, discount, indemnity agreement or otherwise, (ii)
all accrued but unpaid interest on any of the indebtedness described in
(i) above, (iii) all obligations of Borrower to Bank under any documents
evidencing, securing, governing and/or pertaining to all or any part of
the indebtedness described in (i) and (ii) above, (iv) all costs and
expenses incurred by Bank in connection with the collection and
administration of all or any part of the indebtedness and obligations
described in (i), (ii) and (iii) above or the protection or preservation
of, or realization upon, the collateral securing all or any part of such
indebtedness and obligations, including without limitation all
reasonable attorneys' fees, and (v) all renewals, extensions,
modifications and rearrangements of the indebtedness and obligations
described in (i), (ii), (iii) and (iv) above.
2. Obligations. As an inducement to Bank to extend or continue
to extend credit and other financial accommodations to Borrower,
Guarantor, for value received, does hereby unconditionally and
absolutely guarantee the prompt and full payment and performance of the
Guaranteed Indebtedness when due or declared to be due and at all times
thereafter.
3. Character of Obligations. This is an absolute, continuing
and unconditional Guaranty of payment and not of collection and if at
any time or from time to time there is no outstanding Guaranteed
Indebtedness, the obligations of the Guarantor with respect to any and
all Guaranteed Indebtedness of Borrower to Bank incurred thereafter
shall not be affected. All Guaranteed Indebtedness heretofore,
concurrently herewith or hereafter made by Bank to Borrower shall be
conclusively presumed to have been made or acquired in acceptance
hereof. Guarantor shall be primarily liable, jointly and severally,
with Borrower and any other guarantor of all or any part of the
Guaranteed Indebtedness.
4. Right of Revocation. Guarantor understands and agrees that
Guarantor may revoke Guarantor's future obligations under this Guaranty
at any time by giving Bank written notice that Guarantor will not be
liable hereunder for any indebtedness or obligations of Borrower
incurred on or after the effective date of such revocation. Such
revocation shall be deemed to be effective on the day following the day
the Bank receives such notice delivered either by (a) personal delivery
to the address and designed department of Bank identified in
subparagraph 1(a) above, or (b) United States mail, registered or
certified, return receipt requested, postage prepaid, addressed to Bank
at the address shown in subparagraph 1(a) above. Notwithstanding such
revocation, Guarantor shall remain liable on Guarantor's obligations
hereunder until payment in full to Bank of (x) all of the Guaranteed
Indebtedness that is outstanding on the effective date of such
revocation, and any renewals and extensions thereof, and (y) all loans,
advances and other extensions of credit made to or for the account of
Borrower on or after the effective date of such revocation pursuant to
the obligation of Bank under a commitment or agreement made to or with
Borrower prior to the effective date of such revocation. The terms and
conditions of this Guaranty, including without limitation the consents
and waivers set forth in paragraph 7 hereof, shall remain in effect with
respect to the Guaranteed Indebtedness described in the preceding
sentence in the same manner as if such revocation had not been made by
Guarantor.
5. Representations and Warranties. Guarantor hereby represents
and warrants the following to Bank:
(a) This Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor, and (i) if Guarantor is a
corporation, the Board of Directors of Guarantor has determined that
this Guaranty may reasonably be expected to benefit, directly or
indirectly, Guarantor, or (ii) if Guarantor is a partnership, the
requisite number of Guarantor's partners have determined that this
Guaranty may reasonably be expected to benefit, directly or indirectly,
Guarantor;
(b) Guarantor is familiar with, and has independently
reviewed the books and records regarding, the financial condition of
Borrower and is familiar with the value of any and all collateral
intended to be security for the payment of all or any part of the
Guaranteed Indebtedness; provided, however, Guarantor is not relying on
such financial condition or collateral as an inducement to enter into
this Guaranty;
(c) Guarantor has adequate means to obtain from Borrower
on a continuing basis information concerning the financial condition of
Borrower and Guarantor is not relying on Bank to provide such
information to Guarantor either now or in the future;
(d) Guarantor has the power and authority to execute,
deliver and perform this Guaranty and any other agreements executed by
Guarantor contemporaneously herewith, and the execution, delivery and
performance of this Guaranty and any other agreements executed by
Guarantor contemporaneously herewith does not and will not violate (i)
any agreement or instrument to which Guarantor is a party, (ii) any law,
rule, regulation or order of any governmental authority to which
Guarantor is subject, or (iii) Guarantor's Articles of Incorporation or
Bylaws if Guarantor is a corporation, or Guarantor's Partnership
Agreement if Guarantor is a partnership;
(e) Neither Bank nor any other party has made any
representation, warranty or statement to Guarantor in order to induce
Guarantor to execute this Guaranty;
(f) The financial statements and other financial
information regarding Guarantor heretofore and hereafter delivered to
Bank are and shall be true and correct in all material respects and
fairly present the financial position of Guarantor as of the dates
thereof, and no material adverse change has occurred in the financial
condition of Guarantor reflected in the financial statements and other
financial information regarding Guarantor heretofore delivered to Bank
since the date of the last statement thereof; and
(g) As of the date hereof, and after giving effect to this
Guaranty and the obligations evidenced hereby, (i) Guarantor is and will
be solvent, (ii) the fair saleable value of Guarantor's assets exceeds
and will continue to exceed Guarantor's liabilities (both fixed and
contingent), (iii) Guarantor is and will continue to be able to pay
Guarantor's debts as they mature, and (iv) if Guarantor is not an
individual, Guarantor has and will continue to have sufficient capital
to carry on its business and all businesses in which it is about to
engage.
6. Covenants. Guarantor hereby covenants and agrees with Bank
as follows:
(a) Guarantor shall not, so long as Guarantor's
obligations under this Guaranty continue, transfer or pledge any
material portion of Guarantor's assets for less than full and adequate
consideration;
(b) Guarantor shall promptly furnish to Bank at any time
and from time to time such financial statements and other financial
information of Guarantor as the Bank may require, in form and substance
satisfactory to Bank;
(c) Guarantor shall comply with all terms and provisions
of the instruments and agreements evidencing, governing and securing all
or any part of the Guaranteed Indebtedness that apply to Guarantor; and
(d) Guarantor shall promptly inform Bank of (i) any
litigation or governmental investigation against Guarantor or affecting
any security for all or any part of the Guaranteed Indebtedness or this
Guaranty which, if determined adversely, might have a material adverse
effect upon the financial condition of Guarantor or upon such security
or might cause a default under any of the instruments or agreements
evidencing, governing or securing all or any part of the Guaranteed
Indebtedness, (ii) any claim or controversy which might become the
subject of such litigation or governmental investigation, and (iii) any
material adverse change in the financial condition of Guarantor.
7. Consent and Waiver.
(a) Guarantor waives (i) promptness, diligence and notice
of acceptance of this Guaranty and notice of the incurring of any
obligation, indebtedness or liability to which this Guaranty applies or
may apply and waives presentment for payment, notice of nonpayment,
protest, demand, notice of protest, notice of intent to accelerate,
notice of acceleration, notice of dishonor, diligence in enforcement and
indulgences of every kind, and (ii) the taking of any other action of
Bank, including without limitation giving any notice of default or any
other notice to, or making any demand on, Borrower, any other guarantor
of all or any part of the Guaranteed Indebtedness or any other party.
(b) Guarantor waives any rights Guarantor has under, or
any requirements imposed by, Chapter 34 of the Texas Business and
Commerce Code, as in effect on the date of this Guaranty or as it may be
amended from time to time.
(c) Bank may at any time, without the consent of or notice
to Guarantor, without incurring responsibility to Guarantor and without
impairing, releasing, reducing or affecting the obligations of Guarantor
hereunder: (i) change the manner, place or terms of payment of all or
any part of the Guaranteed Indebtedness, or renew, extend, modify,
rearrange or alter all or any part of the Guaranteed Indebtedness; (ii)
sell, exchange, release, surrender, subordinate, realize upon or
otherwise deal with in any manner and in any order any collateral for
all or any part of the Guaranteed Indebtedness or this Guaranty or
setoff against all or any part of the Guaranteed Indebtedness; (iii)
neglect, delay, omit, fail or refuse to take or prosecute any action for
the collection of all or any part of the Guaranteed Indebtedness or this
Guaranty or to take or prosecute any action in connection with any
instrument or agreement evidencing, governing or securing all or any
part of the Guaranteed Indebtedness or this Guaranty; (iv) exercise or
refrain from exercising any rights against Borrower or others, or
otherwise act or refrain from acting; (v) settle or compromise all or
any part of the Guaranteed Indebtedness and subordinate the payment of
all or any part of the Guaranteed Indebtedness to the payment of any
obligations, indebtedness or liabilities which may be due or become due
to Bank or others; (vi) apply any deposit balance, fund, payment,
collections through process of law or otherwise or other collateral of
Borrower to the satisfaction and liquidation of the indebtedness or
obligations of Borrower to Bank not guaranteed under this Guaranty
pursuant to paragraph 4 herein; and (vii) apply any sums paid to Bank by
Guarantor, Borrower or others to the Guaranteed Indebtedness in such
order and manner as Bank, in its sole discretion, may determine.
(d) Notwithstanding any provision in this Guaranty to the
contrary, Guarantor hereby waives and releases (i) any and all rights of
subrogation, reimbursement, indemnification or contribution which
Guarantor may have, after payment in full or in part of the Guaranteed
Indebtedness, against others liable on all or any part of the Guaranteed
Indebtedness, (ii) any and all rights to be subrogated to the rights of
Bank in any collateral or security for all or any part of the Guaranteed
Indebtedness after payment in full or in part of the Guaranteed
Indebtedness, and (iii) any and all other rights and claims of such
Guarantor against Borrower or any third party as a result of such
Guarantor's payment of all or any part of the Guaranteed Indebtedness.
(e) Should Bank seek to enforce the obligations of
Guarantor hereunder by action in any court or otherwise, Guarantor
waives any requirement, substantive or procedural, that (i) Bank first
enforce any rights or remedies against Borrower or any other person or
entity liable to Bank for all or any part of the Guaranteed
Indebtedness, including without limitation that a judgment first be
rendered against Borrower or any other person or entity, or that
Borrower or any other person or entity should be joined in such cause,
or (ii) Bank shall first enforce rights against any collateral which
shall ever have been given to secure all or any part of the Guaranteed
Indebtedness or this Guaranty. Such waiver shall be without prejudice
to Bank's right, at its option, to proceed against Borrower or any other
person or entity, whether by separate action or by joinder.
(f) In addition to any other waivers, agreements and
covenants of Guarantor set forth herein, Guarantor hereby further waives
and releases all claims, causes of action, defenses and offsets for any
act or omission of Bank, its directors, officers, employees,
representatives or agents in connection with Bank's administration of
the Guaranteed Indebtedness, except for Bank's willful misconduct and
gross negligence.
8. Obligations Not Impaired.
(a) Guarantor agrees that Guarantor's obligations
hereunder shall not be released, diminished, impaired, reduced or
affected by the occurrence of any one or more of the following events:
(i) the death, disability or lack of corporate power of Borrower,
Guarantor (except as provided in paragraph 11 herein) or any other
guarantor of all or any part of the Guaranteed Indebtedness, (ii) any
receivership, insolvency, bankruptcy or other proceedings affecting
Borrower, Guarantor or any other guarantor of all or any part of the
Guaranteed Indebtedness, or any of their respective property; (iii) the
partial or total release or discharge of Borrower or any other guarantor
of all or any part of the Guaranteed Indebtedness, or any other person
or entity from the performance of any obligation contained in any
instrument or agreement evidencing, governing or securing all or any
part of the Guaranteed Indebtedness, whether occurring by reason of law
or otherwise; (iv) the taking or accepting of any collateral for all or
any part of the Guaranteed Indebtedness or this Guaranty; (v) the taking
or accepting of any other guaranty for all or any part of the Guaranteed
Indebtedness; (vi) any failure by Bank to acquire, perfect or continue
any lien or security interest on collateral securing all or any part of
the Guaranteed Indebtedness or this Guaranty; (vii) the impairment of
any collateral securing all or any part of the Guaranteed Indebtedness
or this Guaranty; (viii) any failure by Bank to sell any collateral
securing all or any part of the Guaranteed Indebtedness or this Guaranty
in a commercially reasonable manner or as otherwise required by law;
(ix) any invalidity or unenforceability of or defect or deficiency in
any instrument or agreement evidencing, governing or securing all or any
part of the Guaranteed Indebtedness or this Guaranty; or (x) any other
circumstances which might otherwise constitute a defense available to,
or discharge of, Borrower or any other guarantor of all or any part of
the Guaranteed Indebtedness.
(b) This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of all or any
part of the Guaranteed Indebtedness is rescinded or must otherwise be
returned by Bank upon the insolvency, bankruptcy or reorganization of
Borrower, Guarantor, any other guarantor of all or any part of the
Guaranteed Indebtedness, or otherwise, all as though such payment had
not been made.
(c) In the event Borrower is a corporation, joint stock
association or partnership, or is hereafter incorporated, none of the
following shall affect Guarantor's liability hereunder: (i) the
unenforceability of all or any part of the Guaranteed Indebtedness
against Borrower by reason of the fact that the Guaranteed Indebtedness
exceeds the amount permitted by law; (ii) the act of creating all or any
part of the Guaranteed Indebtedness is ultra vires; or (iii) the
officers or partners creating all or any part of the Guaranteed
Indebtedness acted in excess of their authority. Guarantor hereby
acknowledges that withdrawal from, or termination of, any ownership
interest in Borrower now or hereafter owned or held by Guarantor shall
not alter, affect or in any way limit the obligations of Guarantor
hereunder.
9. Actions against Guarantor. In the event of a default in the
payment or performance of all or any part of the Guaranteed Indebtedness
when such Guaranteed Indebtedness becomes due, whether by its terms, by
acceleration or otherwise, Guarantor shall, without notice or demand,
promptly pay the amount due thereon to Bank, in lawful money of the
United States, at Bank's address set forth hereinabove. One or more
successive or concurrent actions may be brought against Guarantor,
either in the same action in which Borrower is sued or in separate
actions, as often as Bank deems advisable. The exercise by Bank of any
right or remedy under this Guaranty or under any other agreement or
instrument, at law, in equity or otherwise, shall not preclude
concurrent or subsequent exercise of any other right or remedy. The
books and records of Bank shall be admissible in evidence in any action
or proceeding involving this Guaranty and shall be prima facie evidence
of the payments made on, and the outstanding balance of, the Guaranteed
Indebtedness.
10. Payment by Guarantor. Whenever Guarantor pays any sum
which is or may become due under this Guaranty, written notice must be
delivered to Bank contemporaneously with such payment. Such notice
shall be effective for purposes of this paragraph when contemporaneously
with such payment Bank receives such notice either by: (a) personal
delivery to the address and designated department of Bank identified in
subparagraph 1(a) above, or (b) United States mail, certified or
registered, return receipt requested, postage prepaid, addressed to Bank
at the address shown in subparagraph 1(a) above. In the absence of such
notice to Bank by Guarantor in compliance with the provisions hereof,
any sum received by Bank on account of the Guaranteed Indebtedness shall
be conclusively deemed paid by Borrower.
11. Death of Guarantor. In the event of the death of
Guarantor, any duly authorized representative of the estate of Guarantor
may revoke Guarantor's future obligations under this Guaranty by giving
Bank written notice of Guarantor's of death and that the estate of
Guarantor shall not be liable hereunder for any indebtedness or
obligations of Borrower incurred on or after the effective date of such
revocation. Such revocation shall be deemed to be effective on the day
following the day Bank receives such notice delivered by: (a) personal
delivery to the address and designated department of Bank identified in
subparagraph 1(a) above, or (b) United States mail, registered or
certified, return receipt requested, postage prepaid, addressed to Bank
at the address shown in subparagraph 1(a) above. Notwithstanding such
revocation, the obligations of the deceased Guarantor shall continue as
an obligation against his estate as to (a) all of the Guaranteed
Indebtedness that is outstanding on the effective date of such
revocation, and any renewals or extensions thereof, and (b) all loans,
advances and other extensions of credit made to or for the account of
Borrower on or after the effective date of such revocation pursuant to
an obligation of Bank under a commitment or agreement made to or with
Borrower prior to the effective date of such revocation. The terms and
conditions of this Guaranty, including without limitation the consents
and waivers set forth in paragraph 7 hereof, shall remain in effect with
respect to the Guaranteed Indebtedness described in the preceding
sentence in the same manner as if such revocation had not been made.
12. Notice of Sale. In the event that Guarantor is entitled to
receive any notice under the Uniform Commercial Code, as it exists in
the state governing any such notice, of the sale or other disposition of
any collateral securing all or any part of the Guaranteed Indebtedness
or this Guaranty, reasonable notice shall be deemed given when such
notice is deposited in the United States mail, postage prepaid, at the
address for Guarantor set forth in subparagraph 1(c) above, five (5)
days prior to the date any public sale, or after which any private sale,
of any such collateral is to be held; provided, however, that notice
given in any other reasonable manner or at any other reasonable time
shall be sufficient.
13. Waiver of Bank. No delay on the part of Bank in exercising
any right hereunder or failure to exercise the same shall operate as a
waiver of such right. In no event shall any waiver of the provisions of
this Guaranty be effective unless the same be in writing and signed by
an officer of Bank, and then only in the specific instance and for the
purpose given.
14. Successors and Assigns. This Guaranty is for the benefit
of Bank, its successors and assigns. This Guaranty is binding upon
Guarantor's heirs, executors, administrators, personal representatives
and successors, including without limitation any person or entity
obligated by operation of law upon the reorganization, merger,
consolidation or other change in the organizational structure of
Guarantor.
15. Costs and Expenses. Guarantor shall pay on demand by Bank
all costs and expenses (including without limitation all reasonable
attorneys' fees) incurred by Bank in connection with the preparation,
administration, enforcement and/or collection of this Guaranty. This
covenant shall survive the payment of the Guaranteed Indebtedness.
16. Severability. If any provision of this Guaranty is held by
a court of competent jurisdiction to be illegal, invalid or enforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Guaranty and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
17. No Obligation. Nothing contained herein shall be construed
as an obligation on the part of Bank to extend or continue to extend
credit to Borrower.
18. Amendment. No modification or amendment of any provision
of this Guaranty, nor consent to any departure by Guarantor therefrom,
shall be effective unless the same shall be in writing and signed by an
officer of Bank, and then shall be effective only in the specific
instance and for the purpose for which given.
19. Cumulative Rights. All rights and remedies of Bank
hereunder are cumulative of each other and of every other right or
remedy which Bank may otherwise have at law or in equity or under any
instrument or agreement, and the exercise of one or more of such rights
or remedies shall not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
20. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
APPLICABLE FEDERAL LAWS.
21. Venue. This Guaranty has been entered into in the county
in Texas where Bank's address for notice purposes is located, and it
shall be performable for all purposes in such county. Courts within the
State of Texas shall have jurisdiction over any and all disputes arising
under or pertaining to this Guaranty and venue for any such disputes
shall be in the county or judicial district where the Bank's address for
notice purposes is located.
22. Compliance with Applicable Usury Laws. Notwithstanding any
other provision of this Guaranty or of any instrument or agreement
evidencing, governing or securing all or any part of the Guaranteed
Indebtedness, Guarantor and Bank by its acceptance hereof agree that
Guarantor shall never be required or obligated to pay interest in excess
of the maximum nonusurious interest rate as may be authorized by
applicable law for the written contracts which constitute the Guaranteed
Indebtedness. It is the intention of Guarantor and Bank to conform
strictly to the applicable laws which limit interest rates, and any of
the aforesaid contracts for interest, if and to the extent payable by
Guarantor, shall be held to be subject to reduction to the maximum
nonusurious interest rate allowed under said law.
23. Descriptive Headings. The captions in this Guaranty are
for convenience only and shall not define or limit the provisions
hereof.
24. Gender. Within this Guaranty, words of any gender shall be
held and construed to include the other gender.
25. Entire Agreement. This Guaranty contains the entire
agreement between Guarantor and Bank regarding the subject matter hereof
and supersedes all prior written and oral agreements and understandings,
if any, regarding same; provided, however, this Guaranty is in addition
to and does not replace, cancel, modify or affect any other guaranty of
Guarantor now or hereafter held by Bank that relates to Borrower or any
other person or entity.
EXECUTED as of the date first above written.
GUARANTOR:
MALLON RESOURCES CORPORATION,
a Colorado corporation
By: /s/ Roy K. Ross
Roy K. Ross,
Executive Vice President
