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): September 9, 1999
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)
<PAGE>
Item 5. Other Events
Mallon Resources Corporation (the "Company") issued the following press
release, dated August 9, 1999, the text of which follows:
Mallon Resources Corporation (Nasdaq: "MLRC") today announced the
completion of a $60 million debt financing facility with Aquila Energy Capital
Corporation that will allow Mallon to begin an aggressive development drilling
program on its San Juan Basin natural gas properties in northwestern New
Mexico. The initial facility is $45.7 million.
At closing of the financing, Aquila advanced $28 million to retire
Mallon's previous revolving credit facility with Bank One, Texas, N.A.
Additional funds will be advanced as Mallon's development drilling program
proceeds. The interest rate on the four year loan is prime plus 2%. As part
of the transaction, Mallon issued to Aquila 420,000 shares of Mallon common
stock.
Mallon's Chairman, George O. Mallon, Jr., stated, "With the completion of
this important financing, we will launch a development drilling program on
our East Blanco and La Jara Canyon acreage in the San Juan Basin of New
Mexico. We have identified more than 300 billion cubic feet of natural gas
reserve potential on our acreage, equal to more than 3.3 times our 1998 year-
end proved reserves. This drilling program is the most exciting growth
opportunity in our history, with the potential to dramatically increase our
reserves, asset value, production and cash flow over the next several years."
"We are pleased to have the support of Aquila Energy," Mr. Mallon
continued. "Their financing provides us with the resources and flexibility
to develop our high potential natural gas properties on terms more favorable
and at a lower cost than was available elsewhere in the marketplace."
In a separate $5.5 million transaction, Mallon re-financed its East Blanco
Gas Processing Plant and associated compression facilities with Universal
Compression, Inc., of Houston. Mallon and Universal also entered into an
alliance agreement relating to the future expansion of the plant.
Aquila Energy Capital is a UtiliCorp United Company, an international
energy company with $6.8 billion in assets and more than 4.5 million customers
across the U.S. and in Canada, Great Britain, New Zealand and Australia.
Universal Compression, Inc. is a major international compression sales and
rental company, which owns and operates in excess of 650,000 horsepower of gas
compression equipment.
ABN AMRO Incorporated acted as Financial Advisor and Placement Agent to
Mallon in connection with the Aquila financing.
The foregoing information contains forward-looking statements and
forecasts, the realization of which cannot be assured. Actual results may
differ significantly from those forecast. Inaccurate geologic
interpretations, the volatility of commodity prices, unbudgeted cost
increases, unforeseen delays in operations, and operations that prove less
successful than anticipated are risks that can significantly effect Mallon's
operations. These and other risk factors that affect Mallon's business are
discussed in Mallon's Annual Report.
Mallon Resources Corporation is a Denver based oil and gas exploration and
production company operating primarily in the San Juan and Delaware Basins of
New Mexico. Mallon's Common Stock is quoted on Nasdaq under the symbol
"MLRC."
Item 7. Financial Statements and Exhibits.
The following Exhibits are hereby incorporated into and made a part of this
report:
1. Credit Agreement, dated as of September 9, 1999, between Mallon
Resources Corporation and Mallon Oil Company as "Borrower," and Aquila
Energy Capital Corporation as "Lender."
<PAGE>
2. Advancing Note, dated as of September 9, 1999, from Mallon Resources
Corporation and Mallon Oil Company, to Aquila Energy Capital Corporation.
3. Base Agreement for Natural Gas Purchase Transactions, dated as of
September 1, 1999, between Mallon Oil Company and Aquila Energy Marketing
Corporation.
4. Deed of Trust, Mortgage, Security Agreement, Financing Statement and
Assignment of Production, dated as of September 9, 1999, from Mallon Oil
Company for the Benefit of Aquila Energy Capital Corporation.
5. Agency Agreement, dated as of September 9, 1999, between Mallon
Resources Corporation and Mallon Oil Company, and Aquila Energy Capital
Corporation.
6. Master Rental Contract, dated as of September 9, 1999, between Mallon
Oil Company and Universal Compression, Inc.
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
September 17, 1999 By: __/s/ Roy K. Ross____________________
Roy K. Ross, Executive Vice President
CREDIT AGREEMENT
BETWEEN
MALLON RESOURCES CORPORATION
a Colorado corporation
and
MALLON OIL COMPANY,
a Colorado corporation
(collectively, "Borrower")
AND
AQUILA ENERGY CAPITAL CORPORATION,
a Delaware corporation
("Lender")
_________________________________
Dated as of September 9, 1999
TABLE OF CONTENTS
PAGE
ARTICLE I: Definitions and References 1
Section 1.1 Defined Terms 1
Section 1.2 Exhibits and Schedules 10
Section 1.3 Amendment of Defined Instruments 11
Section 1.4 References and Titles 11
Section 1.5 Calculations and Determinations 11
ARTICLE II: The Loans 11
Section 2.1 The Loans. 11
Section 2.2 Use of Proceeds 13
Section 2.3 Repayment of the Loans 14
Section 2.4 Prepayment of the Loans 14
Section 2.5 Application of Receipts 14
Section 2.6 Mandatory Prepayment of the Loans 15
Section 2.7 Initial Swap Agreement 15
ARTICLE III: Security 15
Section 3.1 Security 15
Section 3.2 Perfection and Protection of Security Interests and Liens 15
Section 3.3 Release of Collateral 16
ARTICLE IV: Representations and Warranties 16
Section 4.1 Representations and Warranties of Borrower 16
Section 4.2 Employees 20
ARTICLE V: Notice of Certain Events 20
Section 5.1 Notice of Unmatured Event of Default, Event of Default,
and Other Matters 20
Section 5.2 Other Information 21
ARTICLE VI: Special Provisions Relating to Equipment 21
Section 6.1 Location: Records 21
Section 6.2 Maintenance 21
Section 6.3 Dispositions 22
ARTICLE VII: Covenants of Borrower 22
Section 7.1 Affirmative Covenants 22
Section 7.2 Negative Covenants 28
ARTICLE VIII: Further Rights of Lender 31
Section 8.1 Maintenance of Security Interests 31
Section 8.2 Performance of Obligations 31
Section 8.3 Access to Collateral 32
Section 8.4 Issuance of Mallon Stock to Lender 32
Section 8.5 Overriding Royalty Interest 34
Section 8.6 ORRI Option 34
Section 8.7 Removal and Appointment of Operator 35
Section 8.8 Set-Off Rights 35
Section 8.9 Joint and Several Liability of Borrowers 36
ARTICLE IX: Closing; Conditions to Closing 36
Section 9.1 Closing 36
Section 9.2 Conditions to Closing 36
Section 9.3 Conditions Precedent to Funding of Development Loans 38
ARTICLE X: Events of Default and Remedies 39
Section 10.1 Events of Default 39
Section 10.2 Acceleration 41
Section 10.3 Remedies 42
Section 10.4 Indemnity 42
ARTICLE XI: Miscellaneous 43
Section 11.1 Waivers and Amendments; Acknowledgments and Admissions 43
Section 11.2 Survival of Agreements: Cumulative Nature 44
Section 11.3 Notices 45
Section 11.4 Parties in Interest; Transfers 46
Section 11.5 Governing Law; Submission to Process 46
Section 11.6 Limitation on Interest 46
Section 11.7 Termination; Limited Survival 47
Section 11.8 Severability 47
Section 11.9 Counterparts 48
Section 11.10 Further Assurances 48
Section 11.11 Waiver of Jury Trial, Punitive Damages, Etc. 48
Section 11.12 Controlling Provision Upon Conflict 48
ARTICLE XII: Arbitration 48
Section 12.1 Arbitration 48
EXHIBITS
Exhibit A Hydrocarbon Producing Property Descriptions and Related Assets
of Borrower
Exhibit B Advancing Note
Exhibit C Property Operating Statement
Exhibit D Development Notice
Exhibit E Cost Certificate
Exhibit F Overriding Royalty Interest Conveyance
SCHEDULES
Schedule 1.1(b) Gas Plant Assets
Schedule 2.1 Development Operations
Schedule 4.1(c) Shareholder obligations
Schedule 4.1(g) Parent Borrower's Financial Statements
Schedule 4.1(h) Other obligations and restrictions
Schedule 4.1(j) Claims and Litigation
Schedule 4.1(l) Borrower's Places of Business
Schedule 4.1(m) Unpaid bills
Schedule 4.1(n) Liens other than Permitted Encumbrances
Schedule 4.1(o) Purchasers of Hydrocarbons
Schedule 4.1(p) Existing Hydrocarbon Sales Agreements
Schedule 4.1(q) Existing Swap Agreements
Schedule 4.1(v) Compliance with environmental and other laws
Schedule 6.1 Equipment descriptions
Schedule 7.2(k)(i) Costa Rica Subsidiary
Schedule 7.2(k)(ii) Planned Equity Offering
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into this 9th day of September
1999, by and among MALLON RESOURCES CORPORATION, a Colorado corporation and
MALLON OIL COMPANY, a Colorado corporation (collectively, the "Borrower"), and
AQUILA ENERGY CAPITAL CORPORATION, a Delaware corporation (the "Lender").
WHEREAS, Borrower has requested that Lender make available, and Lender is
willing to make available to Borrower on the terms and conditions hereinafter
set forth, a loan for the development of certain oil and gas properties located
in various counties in the states of New Mexico, Alabama, Colorado, North
Dakota, Oklahoma, and Wyoming.
NOW, THEREFORE, the parties hereto in consideration of the foregoing and
the terms, covenants, provisions and conditions hereinafter set forth hereby
agree as follows:
ARTICLE I: Definitions and References
Section I.1 Defined Terms. As used in this Agreement, each of the following
terms has the meaning given it in this Section 1.1 or in the sections and
subsections referred to below
"Advancing Note" has the meaning assigned to such term in Section 2.1 of
this Agreement.
"AFE" means Authorization for Expenditures.
"Affiliate(s)" means, as to any Person (as hereinafter defined), any other
Person who directly or indirectly controls, is under common control with, or is
controlled by such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
means possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event (i) any Person who owns directly or indirectly 10% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a business entity or 10% or more of the partnership or
other ownership interests of any other Person will be deemed to control such
other Person, (ii) any subsidiary of Borrower shall be deemed to be an
Affiliate of Borrower, and (iii) the parent and any sister entity of Borrower
shall be deemed to be an Affiliate of Borrower.
"Agency Agreement" has the meaning given to such term in Section 7.1(b) of
this Agreement.
"Agreement" means this Credit Agreement, as the same may be amended,
supplemented, restated or otherwise modified from time to time in compliance
with applicable provisions hereof.
"Approved Overhead" shall mean Borrower's general and administrative costs
and expenses in the agreed amount of Two Hundred Eight Thousand Three Hundred
Thirty-Three and No/100 Dollars ($208,333.00) per month for each production
month from September 1999 through August 2001.
"Arbitration Notice" has the meaning given to such term in Section 12(c).
"Borrower" has the meaning given to such term in the preamble of this
Agreement.
"Borrower Stock" means common stock of Parent Borrower, free and clear of
any lien, claim or encumbrance.
"Borrower's Public Reports" shall mean the annual, quarterly and special
reports most recently filed by Parent Borrower prior to the Closing with the
Securities and Exchange Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, including Parent Borrower's proxy materials.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Houston, Texas.
"Closing" has the meaning given such term in Section 9.1.
"Closing Date" has the meaning given such term in Section 9.1.
"Collateral" means all property of any kind which, pursuant to any Loan
Document, is subject to a Lien in favor of Lender or is purported or intended
to be subject to such a Lien, including without limitation, the Equipment
(including Fixtures), the Properties and the Hydrocarbons produced therefrom or
attributable thereto, but excluding the Gas Plant Assets.
"Cost Certificate" has the meaning set forth in Section 2.1.
"Debt" means, as to the Borrower, all indebtedness, liabilities and
obligations of Borrower, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered debt pursuant to GAAP,
excluding, however, trade payables and accrued expenses incurred in the ordinary
course of business so long as the same are being paid prior to becoming
delinquent or are being diligently contested in good faith by appropriate
proceedings, and further excluding Borrower's deferred revenue and revenue
received and held by Borrower on behalf of third parties.
"Debt Service" means the principal and interest due pursuant to the
Advancing Note for any Interest Period.
"Dedication Rate" has the meaning given in Section 2.5(b).
"Defensible Title" means (i) with respect to the Properties, such title
that: (A) with respect to each well or Unit located on the Leases entitles
Subsidiary Borrower to receive, free and clear of all royalties, overriding
royalties and net profits interests (except the ORRI), or other burdens on or
measured by production of Hydrocarbons, not less than the Net Revenue Interests
of Subsidiary Borrower reflected in Exhibit A for such wells or Units for the
productive life of such well or Unit (subject only to the Permitted
Encumbrances); and (B) with respect to each well or Unit located on the Leases
obligates Subsidiary Borrower to bear costs and expenses relating to the
maintenance, development and operation of such well or Unit in an amount not
greater than the Working Interests of Subsidiary Borrower reflected in Exhibit
A for the productive life of such well or Unit (subject only to the Permitted
Encumbrances); free and clear of any security interest, lien, encumbrance,
mortgage, claim, security agreement or other charge, other than the Permitted
Encumbrances and any liens, mortgages, and security interests in favor of Lender
and its Affiliates or which are permitted hereunder.
"Development Loan(s)" means the loan or loans made or to be made from
Lender to Borrower to fund Borrower's share of the costs and expenses
attributable to the Development Operations.
"Development Notice" means a written request from Borrower to Lender for
an advance of funds under the Development Loan, in the form attached hereto
as Exhibit E.
"Development Operations" means those operations described on Schedule 2.1
attached hereto.
"Direct Taxes" means (a) Property Taxes, (b) Severance Taxes, (c) ad
valorem taxes, (d) conservation taxes, and (e) any other taxes of any kind,
excluding only income taxes and franchise taxes, imposed on Borrower or any
producer in connection with or as a result of its ownership of interests in
the Properties.
"Engineers" means, unless specifically provided otherwise, Ryder Scott Co.
or such other independent petroleum engineering firm as is mutually agreed upon
by Borrower and Lender.
"Environmental Laws" means any and all federal, state or local statutes,
laws (including common law), regulations, ordinances, rules, judgments, orders,
decrees, permits, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment including ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes. For purposes of this definition,
"chemicals" includes all substances referred to in the second sentence of the
definition herein of "Hazardous Materials".
"Equipment" means all equipment of Borrower of every kind and nature used
for or in the operation of the Properties, whether located on the Properties or
located elsewhere, including but not limited to, pipelines, well and lease
equipment and surface equipment, casing, tubing, connections, rods, pipe,
machines, compressors, gathering systems, meters, motors, pumps, tankage,
fixtures, storage and handling equipment and all other equipment or movable
property of any kind and nature and wherever situated now or hereafter owned by
Borrower or in which Borrower may now or hereafter have any interest (to the
extent of such interest), together with all additions and accessions thereto,
all replacements and all accessories and parts therefor, all logs and records in
connection therewith, all rights against suppliers, warrantors, manufacturers,
sellers or others in connection therewith, and together with all substitutes for
any of the foregoing, specifically including, but not limited to, the Equipment
described on Schedule 6.1, but specifically excluding the Gas Plant Assets.
"Equipment Lender" means the Person who makes the Equipment Loan to
Borrower.
"Equipment Loan" means a loan or a sale-leaseback transaction in an amount
not to exceed $5,500,000.00 entered into by Borrower with a third Person at or
prior to Closing, the proceeds of which shall be used to repay at or prior to
Closing certain Indebtedness owed by Borrower to Bank One, Texas, N.A. in order
to obtain a release of such bank's liens and security interests on the Gas Plant
Assets, and which transaction shall involve or be secured by solely the Gas
Plant Assets.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any employee pension benefit plan which is maintained
by any Person subject to Title IV of ERISA.
"Event of Default" has the meaning given such term in Section 10.1;
"Financial Statements" has the meaning given such term in Section 4.l(g).
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or
any generally recognized successor).
"Gas Plant Assets" means the East Blanco Gas Plant in Rio Arriba County,
New Mexico and the assets associated therewith, as more fully described on
Schedule 1.1(b).
"Gas Transportation Fees" means natural gas gathering and transportation
fees incurred by Subsidiary Borrower upstream of the point of sale of
Subsidiary Borrower's share of gas produced from the Leases, but only to the
extent that such fees are not first deducted in order to determine the price
payable to Subsidiary Borrower for the sale of such gas and excluding any such
fees that are otherwise included in Operating Expenses.
"Gross Receipts" means, in connection with the Loans or Advancing Note for
any Interest Period, Borrower's share (inclusive of royalty and overriding
royalty interests attributable thereto) of all sums received by Borrower during
such Interest Period in connection with the Properties, including, but not
limited to, Swap Settlement Proceeds and proceeds under gas purchase agreements,
oil purchase agreements, natural gas liquids purchase agreements, operating
agreements, and any other receipts relating to or arising from the Properties.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise. "Hazardous
Materials" also includes (a) any petroleum, any fraction of petroleum, natural
gas, natural gas liquids, liquefied natural gas and synthetic gas usable for
fuel (including any mixtures of the foregoing) that has been or may be emitted,
discharged or released into the environment, and (b) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal reserves.
"Hydrocarbons" means crude oil, condensate, natural gas, natural gas
liquids and other hydrocarbons.
"Hydrocarbon Purchase and Sale Agreement" means a base agreement for sales
of gas by Borrower and purchases of such gas by Lender or its Affiliate
(subject to individual transaction confirmations), in form mutually acceptable
to Borrower and Lender.
"Indebtedness" means and includes (i) all obligations for borrowed money
of any kind or nature, including funded and unfunded debt or guarantees thereof
and contingent obligations in respect of any of the foregoing including, without
limitation, reimbursement obligations in respect of letters of credit, and (ii)
all obligations for the acquisition or use of any fixed asset or improvements
thereto, including capitalized leases but excluding operating leases, which are
payable over a period longer than one year or guarantees thereof, regardless of
the term thereof or the Person or Persons (each as hereinafter defined) to whom
the same is payable; provided, however, that Indebtedness shall not include
trade payables and accrued expenses incurred in the ordinary course of business
so long as the same are being paid prior to becoming delinquent or being
diligently contested in good faith.
"Initial Loan" has the meaning set forth in Section 2.1.
"Initial Reserve Report" means that certain reserve report dated January 1,
1999 prepared by Ryder Scott Co. with respect to the Properties.
"Intercreditor Agreement" means that certain agreement in form and
substance satisfactory to Lender, in its discretion, by and among Borrower,
Lender and the Equipment Lender pursuant to which Borrower and the Equipment
Lender shall each be required to provide to Lender copies of each notice sent or
received by either such party pursuant to any and all agreements on other
documents relating to the Equipment Loan, and pursuant to which Lender shall
have the right, but not the obligation, to cure any default by Borrower with
respect to the Equipment Loan, and/or to obtain from the Equipment Lender an
assignment of the Equipment Loan, all liens and security interests securing
same, and all rights associated therewith by paying to the Equipment Lender the
outstanding unpaid obligations of Borrower then due on the Equipment Loan.
"Interest Period" means each monthly period beginning on (and including)
the Repayment Date in one calendar month and ending on (but not including) the
Repayment Date in the next following calendar month, provided that the first
Interest Period for the Advancing Note and Loans shall begin on the date such
Advancing Note and Loans are first funded and be for the duration specified in
such Advancing Note.
"Interest Rate" means that interest rate stated in the Advancing Note.
"Investment" in any Person means the amount paid or committed to be paid
or the value of property or wages contributed or committed to be contributed by
the Person making the Investment on its account for or in connection with its
acquisition of any stock, bonds, notes, debentures, partnership or other
ownership interest or any other security of the Person in whom such Investment
is made or any evidence of Indebtedness of such Person in whom the Investment is
made.
"Lease" or "Leases" means, whether one or more, (i) those certain oil and
gas leases set forth in the description of the Property attached hereto as
Exhibit A, and any other interests in the Leases, whether now owned or hereafter
acquired by Borrower, and any extension, renewals, corrections, modifications,
elections or amendments (such as those relating to unitization) of any such
Lease or Leases, or (ii) other oil, gas and/or mineral leases or other interests
pertaining to the Properties which may now and hereafter be made subject to the
lien of any of the Security Documents and any extension, renewals, corrections,
modifications, elections or amendments (such as those relating to unitization)
of any such lease or leases.
"Lender" has the meaning assigned to such term in the first paragraph of
this Agreement, and its successors and assigns as holders of the Advancing Note.
"Letters in Lieu" means those certain letters in lieu of transfer orders,
duly executed by Borrower, in the form satisfactory to Lender.
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Debt owed to it or any other arrangement
with such creditor which provides for the payment of such Debt out of such
property or assets or which allows it to have such Debt satisfied out of such
property or assets prior to the satisfaction of general creditors of the owner
of such property or assets, including any lien, mortgage, security interest,
pledge, deposit, production payment, rights of a vendor under any title
retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of unregistered
securities), or any other arrangement or action which would serve to perfect a
Lien described in the preceding sentence, regardless of whether such financing
statement is filed, such registration is made, or such arrangement or action is
undertaken before or after such Lien exists.
"Loans" means, collectively, the Initial Loan and the Development Loans
and "Loan" means, individually, the Initial Loan and/or any of the Development
Loans as described in Section 2.1.
"Loan Documents" means this Agreement, the Advancing Note, the Mortgage,
the Security Agreement, the Overriding Royalty Interest Conveyance, the Agency
Agreement, and all other security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements or instruments now, heretofore or
hereafter delivered by Borrower to Lender in connection with this Agreement or
any transaction contemplated hereby to secure or guarantee the payment of any
part of the Obligations.
"Loan Termination Date" means the earlier of (a) September 9, 2003, (b)
the date of payment and performance in full of all the Obligations of Borrower
under the Loan Documents (other than the Overriding Royalty Interest
Conveyance), and (c) the date on which Lender notifies Borrower of the
acceleration of payment of all Obligations because of the occurrence of an Event
of Default.
"Maximum Rate" means the maximum non-usurious rate of interest that Lender
is permitted under applicable law to contract for, take, charge, or receive
from Borrower.
"Mortgage" has the meaning given such term in Section 3.1.
"Net Revenue" means Gross Receipts minus Subsidiary Borrower's share of
Operating Expenses, Direct Taxes, royalties and overriding royalty interests
with respect to each Property, Gas Transportation Fees, Approved Overhead
payments, Swap Settlement Payables and marketing fees due under the Agency
Agreement.
"Net Revenue Interest" or "NRI" have the meaning given such terms in the
Mortgage.
"Obligations" means all Debt and performance obligations from time to time
owing from Borrower to Lender or any of Lender's Affiliates under or pursuant to
any of the Loan Documents in connection with this Agreement or any transaction
contemplated hereby, including without limitation, all principal, interest,
fees, expenses, costs, covenants and indemnities.
"Operating Agreements" means operating agreements relating to the Properties,
including, without limitation, all those certain operating agreements
which relate to or arise from the Properties, pursuant to which Borrower is or
hereafter becomes the operator.
"Operating Expenses" means (a) direct lease operating expenses and well
maintenance expenses (such well maintenance expenses shall be limited to those
expenditures authorized to be made without additional approval under the
applicable operating agreements, not to exceed $200,000.00 in the aggregate net
to Subsidiary Borrower's interest, during any rolling twelve-month period),
which arise from Subsidiary Borrower's Working Interests in the wells that are
subject to the Mortgage, that are billed to Subsidiary Borrower by the Operator
or incurred by the Subsidiary Borrower, as Operator, of the Properties, and (b)
Subsidiary Borrower's Working Interest share of expenses incurred in the repair,
maintenance and replacement of damaged or obsolete Equipment.
"Operating Report" has the meaning given such term in Section 7.1(v).
"Operator" means any operators, including contract operators, of the
Properties (as such terms are generally understood in the oil and gas industry)
and as approved by Lender pursuant to Section 8.7 hereof.
"ORRI" means, except as otherwise defined and used in the Mortgage, that
overriding royalty interest in Hydrocarbons in, under and produced from or
attributable to the Leases constituting the Properties, if required to be
conveyed by Borrower to Lender pursuant to the Overriding Royalty Interest
Conveyance.
"ORRI Option" means the option, at Borrower's sole discretion, to purchase
the ORRI from Lender after such interest has been valued by a mutually agreeable
independent engineering firm.
"ORRI Sale Date" has the meaning given such term in Section 8.6.
"Overriding Royalty Interest Conveyance" means an assignment, in the form
attached hereto as Exhibit F, pursuant to which Subsidiary Borrower grants to
Lender a cost-free overriding royalty interest equal to a percentage determined
pursuant to Section 8.5 of the Hydrocarbons and other minerals attributable to
Subsidiary Borrower's Working Interest in the Properties, such grant to be made
if and when required by Section 8.4.
"Parent Borrower" means Mallon Resources Corporation, a Colorado
corporation.
"Permitted Encumbrances" has the meaning given such term in the Mortgage.
"Person" means an individual, corporation, partnership, association, joint
stock company, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable entity.
"Properties" means those certain properties described in Exhibit A,
attached hereto and made a part hereof collectively.
"Property Operating Statement" means the monthly statement, in the form
attached hereto as Exhibit C, to be prepared and delivered by Borrower to
Lender, pursuant to Section 2.5 hereof.
"Property Taxes" means taxes imposed annually on Borrower which are based
on or measured by the estimated value (at the time such taxes are assessed) of
any oil and gas situated within the Properties.
"Proved Developed Producing Reserves" means Proved Reserves that are estimated
to be recoverable by existing wells that are then capable of producing
such reserves.
"Proved Reserves" means the current estimated quantity of Hydrocarbons
which analysis of geologic and engineering data demonstrate with reasonable
certainty to be recoverable in the future from known oil and gas reservoirs
under existing economic and operating conditions based on either actual
production or conclusive formation tests.
"Purchasers of Hydrocarbons" means the Persons listed on Schedule 4.1(o)
attached hereto, and all other Persons who, now or may in the future, purchase
Hydrocarbons attributable or allocable to Subsidiary Borrower's Working Interest
in the Properties.
"Put Option" has the meaning given such term in Section 8.4.
"Put Price" has the meaning given such term in Section 8.4.
"Repayment Date" means, prior to the satisfaction of all Obligations, the
thirtieth (30th) day of each month (except that February shall be on the 28th
day), commencing November 1999.
"Request for Commitment" means a written request from Borrower to Lender for
an advance of funds under the Development Loan to fund Subsidiary Borrower's
share of costs and expenses to be incurred in Substitute Development Operations,
which shall be substantially in the same form as the Development Notice attached
hereto as Exhibit E, except that the title shall be revised to read "Request for
Commitment" and it shall otherwise conform to the requirements set forth in
Section 2.1 hereof.
"Reserve Report" means, unless specifically denoted otherwise, the
petroleum engineering report defined in Section 7.1(f) hereof.
"Security Agreement" means a security agreement (Accounts, Equipment,
General Intangibles and Inventory) executed by Borrower as debtor in favor of
Lender as secured party dated as of the date hereof, in form and substance
satisfactory to Lender, as the same may be modified, amended or supplemented
pursuant to the terms of this Agreement.
"Security Documents" means the Mortgage and all other security agreements,
deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing
statements, continuation statements, extension agreements and other agreements
or instruments now, heretofore, or hereafter delivered by Borrower to Lender in
connection with this Agreement or any transaction contemplated hereby to secure
or guarantee the payment of any part of the Obligations.
"Severance Taxes" means taxes imposed on Hydrocarbons produced from a well
that are based on or measured by the amount or value of such production..
"Structuring Fee" means the fee owed by Borrower to Lender as
consideration, in part, for Lender's assistance to Borrower in structuring the
transactions contemplated under this Agreement and the other Loan Documents, in
an amount equal to one percent (1.0%) of the maximum aggregate Loans available
to be advanced to Borrower pursuant to Section 2.1.
"Subsidiary" means for any Person any corporation of which more than fifty
percent (50%) of the issued and outstanding securities having ordinary voting
power for the election of directors is owned directly or indirectly, by such
Person and/or one or more of its subsidiaries.
"Subsidiary Borrower" means Mallon Oil Company, a Colorado corporation,
the wholly owned subsidiary of Parent Borrower.
"Substitute Development Operations" means drilling, sidetracking,
deepening, completing, recompleting or reworking operations proposed to be
conducted by Borrower with respect to any of the Leases and that are not
included in the Development Operations described on Schedule 2.1 attached
hereto.
"Swap Agreement" means: (a) any (i) interest rate or currency swap, rate
cap, rate collar, forward agreement and other exchange or rate protection
agreements or any option with respect to any such transaction and (ii) any swap
agreement, cap, collar, floor, exchange transaction, forward agreement or
exchange or protection agreement related to Hydrocarbons or any option with
respect to such transaction, as more specifically provided in those certain
master swap agreements on International Swap Dealers Association forms and the
schedules thereto and any confirmations thereunder which Borrower enters into
with or through Lender of even date herewith and any other confirmations which
Borrower may hereafter enter into with or through Lender; and (b) all those
certain agreements listed on Schedule 4.1(q) attached hereto.
"Swap Settlement Payables" means any settlement amounts payable by
Borrower under the terms of any executed Swap Agreement.
"Swap Settlement Proceeds" means any settlement amounts paid to Borrower
under the terms of any executed Swap Agreement.
"Tax Claim" means any claim by a taxing authority that Borrower owes any
amount of taxes of any kind other than claims for Severance Taxes and Property
Taxes.
"Title Opinions" means those certain title opinions to be addressed and
delivered to Borrower and Lender on or prior to the Closing Date and certain
post-closing title opinions, reports or other evidences of title acceptable to
Lender delivered pursuant to Section 7.1(t), as the same may be or are required
to be updated under this Agreement, covering all of the Properties from
inception.
"Unit" means a pooled unit or proration unit as designated by an effective
designation of unit, proration unit plan, or other instrument of similar impact
properly filed with the appropriate governmental authority.
"Unmatured Event of Default" means any event or condition which would, with
the giving of any requisite notices and/or the passage of any requisite
periods of time, constitute an Event of Default.
"Working Interest" or "WI" have the meaning given such terms in the Mortgage.
Section I.2 Exhibits and Schedules. All exhibits and schedules attached to
this Agreement are incorporated herein by reference and made a part hereof
for all purposes.
Section I.3 Amendment of Defined Instruments . Unless the context otherwise
requires or unless otherwise provided herein, the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document; provided, that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section I.4 References and Titles. All references in this Agreement to exhibits,
schedules, articles, sections, subsections and other subdivisions refer to the
exhibits, schedules, articles, sections, subsections and other subdivisions of
this Agreement unless otherwise expressly provided. Section and subdivision
headings are for convenience only, do not constitute any part of such sections
or subdivisions and shall be disregarded in construing the language contained in
such sections or subdivisions. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular sections or subdivisions
unless expressly so limited. The phrases "this section" and "this subsection"
and similar phrases refer only to the sections or subsections hereof in which
such phrases occur.
The word "or" is not exclusive, and the word "including" (in its various forms)
means "including without limitation". Pronouns in masculine, feminine and
neuter genders shall be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
Section I.5 Calculations and Determinations. All calculations pursuant to the
Loan Documents of fees and of interest shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 365 days.
Unless otherwise expressly provided herein or Lender otherwise consents in
writing, all financial statements and reports to be furnished to Lender under
the Loan Documents shall be prepared and all financial computations and
determinations made pursuant to the Loan Documents, and with respect to the
financial statements, shall be made in accordance with GAAP.
ARTICLE II: The Loans
Section II.1 The Loans. Subject to satisfaction of all terms and conditions of
this Agreement and the other Loan Documents, including, without limitation,
Lender's receipt from Borrower of the Cost Certificate relating to each
Development Loan disbursement, and provided no Unmatured Event of Default or
Event of Default shall have occurred and be continuing, Borrower shall have the
right to request and receive advances from Lender of the Loan(s) up to an
aggregate of Forty-Five Million Seven Thousand Dollars ($45,700,000.00), to be
used exclusively for refinancing certain indebtedness and for those certain
development operations described in Schedule 2.1 attached hereto. At Closing,
subject to satisfaction of all terms and conditions of this Agreement and the
other Loan Documents, Lender shall advance to Borrower an initial Loan in the
amount of Thirty Million, Two Hundred Fifty Thousand Dollars ($30,250,000.00)
(the "Initial Loan") out of the aggregate Loans available hereunder, to be used
by Borrower exclusively for the purposes set forth in Section 2.2(a) hereof.
The Loan(s) shall be evidenced by the Advancing Note. The Interest Rate on such
Advancing Note shall be as specified therein and the final maturity date of such
Advancing Note shall be the Loan Termination Date. The Advancing Note shall be
secured by the Mortgages and the other Security Documents.
At least thirty (30) days prior to the commencement of any Development
Operation, Borrower shall send to Lender a Development Notice listing all
applicable expenditures that Borrower desires to make to conduct such
Development Operations; provided, however, that with respect to all Development
Operations that are shown on Schedule 2.1 as having an estimated commencement
date within thirty (30) days from the date of Closing, Borrower is hereby deemed
to have provided the requisite Development Notice to Lender.
If Borrower desires to conduct any Substitute Development Operation, it must
send a Request for Commitment to Lender at least thirty (30) days prior to
the proposed commencement date of such Substitute Development Operation. The
Request for Commitment shall be in substantially the same form as a Development
Notice, except that the title thereof shall be revised to read "Request for
Commitment," and such Request for Commitment shall not only include a detailed
description of the Substitute Development Operations desired to be conducted,
together with a detailed listing of all estimated expenditures relating thereto,
but it shall also identify the Development Operations listed on Schedule 2.1
that Borrower proposes to delete from Schedule 2.1 and for which the estimated
expenditures shown on Schedule 2.1 equal or exceed the estimated expenditures
relating to the proposed Substitute Development Operations. Within fifteen (15)
days after Lender has received from Borrower a Request for Commitment and any
additional information relating to the proposed Substitute Development
Operations as Lender may request, Lender shall notify Borrower whether Lender
approves of the proposed Substitute Development Operations, and if so approved
by Lender, Lender shall thereafter be committed to advance to Borrower, as part
of the Development Loan, the estimated expenditures attributable to such
Substitute Development Operations.
After Borrower has incurred any of the costs and expenses attributable to
the Development Operation identified in any such Development Notice or to an
approved Substitute Development Operation identified in any such Request for
Commitment, Borrower may submit to Lender a Cost Certificate, duly executed by
an officer of Borrower, certifying the amount of costs and expenses that have
been incurred by Borrower and are payable in connection with such proposed
Development Operations or Substitute Development Operations, together with the
supporting documentation referred to in the form of Cost Certificate attached
hereto as Exhibit E. All Cost Certificates to be submitted to Lender during any
Calendar month shall be submitted to Lender on or before the twentieth (20th)
day of such calendar month along with the Property Operating Statement to be
submitted to Lender during that month in accordance with Section 2.5 hereof.
Within five (5) business days after receipt from Borrower of a Cost Certificate
and supporting documentation, in compliance with the requirements of this
Section, Lender shall fund the advances so substantiated by such Cost
Certificate.
Any Development Notice shall relate solely to Development Operations that are
described in Schedule 2.1 and any Request for Commitment shall relate solely
to Substitute Development Operations, in each case subject, without limitation,
to the following:
(a) All statements of costs and estimates provided to Lender shall, subject
to satisfaction of all terms and conditions hereof and of the
other Loan Documents, and provided no Unmatured Event of Default or Event
of Default shall have occurred and be continuing, be rendered in
sufficient detail to give Lender complete and accurate information as to
the purpose for and amount of all items included therein, and Lender shall
be entitled to such additional information regarding such expenditures as
Lender may reasonably request. All such data shall be subject to audit by
Lender's representatives at any time mutually agreeable to the parties.
(b) The parties acknowledge that the amounts and scope of the
Development Loan(s) identified in this Section 2.1 are based upon
estimated costs of the planned development activities described on
Schedule 2.1 and may not precisely reflect the ultimate cost of the
contemplated activities. Notwithstanding the foregoing or anything herein
to the contrary, in no event shall Lender make any Development Loans
pursuant to this Section 2.1 in excess of $14,100,000.00 or aggregate
Loans in excess of $45,700,000.00; provided, however, that within thirty
days after Lender's receipt of each Reserve Report that is due to be
provided by Borrower on or before April 1 of each year prior to the Loan
Termination Date, Lender shall redetermine the maximum, aggregate amount
of outstanding Loans that it is willing to advance hereunder and shall
notify Borrower thereof; and if Borrower and Lender and agree, the maximum
amount of Loans available to be advanced pursuant to this Agreement may be
increased.
All advances of Loans made by Lender to Borrower may be made to the account
of Parent Borrower or to such other account designated by Parent Borrower
on which Lender may agree, and each such Loan shall conclusively be deemed to
have been advanced jointly to Parent Borrower and Subsidiary Borrower.
Section II.2 Use of Proceeds.
(a) Initial Loan. Proceeds from the Initial Loan may be used by
Borrower exclusively for the purposes of: (i) repaying the revolving loan
portion of the current senior secured indebtedness of Borrower as
described on Schedule 4.1(h) attached hereto, (ii) paying the trade
payables required to be paid pursuant to Section 7.1(l)(iii) hereof (which
may be paid subsequent to Closing but which must be paid within thirty
(30) days after Closing), (iii) paying expenses incurred by Borrower after
July 1, 1999 associated with land and title work, and environmental
assessment and review in connection with the Loans and related documents,
(iv) paying legal fees and expenses incurred by Lender in connection with
the Loans, (v) paying filing fees which may be required to properly file
any and all Security Documents, and (vi) paying the Structuring Fee
pursuant to Section 7.1(u) hereof, provided, however, that Lender will
advance not more than $75,000.00 of the Initial Loan proceeds to enable
Borrower to pay the items listed in clauses (iii) through (v) of this
Section 2.2(a).
(b) Development Loans. Proceeds advanced by Lender to Borrower for
subsequent Development Loans may be used by Borrower exclusively for the
purposes of funding Borrower's share of costs and expenses relating to the
conduct of the Development Operations described in Schedule 2.1 hereof, or
such Substitute Development Operations as may be subsequently approved by
Lender.
(c) Prohibited Uses. In no event shall funds from the Loans be used
directly or indirectly by Borrower, for any purpose not expressly
permitted by the terms of this Agreement, including, but not limited to,
for personal, family, household or agricultural purposes, or any other
purpose not specifically described in this Section 2.2.
Section II.3 Repayment of the Loans. Borrower shall repay the Loans plus
all interest accrued thereon by the Loan Termination Date.
Section II.4 Prepayment of the Loans. Borrower may prepay the Advancing Note in
whole or in part at any time, without premium or penalty. Any principal prepaid
pursuant to this section shall be in addition to, and not in lieu of, all
payments otherwise required to be paid under the Loan Documents at the time of
such prepayment; provided, however, that Borrower will bear responsibility for
the resulting Swap Settlement Payables associated with any Swap Agreements that
must be terminated as a result of such prepayment. With respect to any Swap
Agreements that need not be terminated as the result of such prepayment and
which Borrower elects to maintain in effect, notwithstanding the prepayment of
the Advancing Note, so long as any Swap Agreements remain outstanding, the
Security Documents shall remain in force and effect (and shall be promptly
amended by Borrower and Lender to the extent necessary) to secure Borrower's
obligation to pay any Swap Settlement Payables associated with such Swap
Agreements.
Section II.5 Application of Receipts. Net Revenue shall be calculated by Lender
based on the Property Operating Statement. Borrower shall prepare and deliver
the Property Operating Statement to Lender no later than the 20th day of each
month. Such Property Operating Statement shall detail Borrower's Gross Receipts,
Operating Expenses, Direct Taxes, royalties and overriding royalty interests
with respect to each Property relating to production and operations for the
months prior to the immediately preceding month, and the Approved Overhead for
such month. The first Property Operating Statement shall be delivered on
November 20, 1999, which will detail Gross Receipts and Expenses for the month
of September 1999. On the Repayment Date at the end of each Interest Period,
Gross Receipts for such Interest Period shall be applied as follows:
(a) First, to the amount necessary to pay the Operating Expenses,
Direct Taxes, royalties and overriding royalties, if any, associated with
the Properties, Gas Transportation Fees, Approved Overhead, Swap
Settlement Payables and the marketing fees due under the Agency Agreement.
(b) Second, Borrower shall pay to Lender one hundred percent (100%)
of the Net Revenue to be applied by Lender to payment of amounts which are
included within Debt Service and other Obligations to Lender for such
Interest Period. The percentage stated in this section shall be known as
the "Dedication Rate". The amount paid to Lender pursuant to this subpart
(b) shall be applied first to any interest due on the Advancing Note until
all accrued interest is paid in full, and any remaining amounts paid
pursuant to this subpart (b) shall be applied to remaining unpaid
principal of the Advancing Note.
At any Repayment Date, Borrower shall have the right to net out from the
payments owed to Lender pursuant to Section 2.5 (b) the amount of any
Development Loans then due to be made from Lender to Borrower on such Repayment
Date. If on such Repayment Date, such Development Loans are less than the sums
payable to Lender pursuant to Section 2.5(b), then Borrower shall pay such
difference to Lender. If such Development Loans are more than the sums payable
to Lender pursuant to Section 2.5(b), then Lender shall advance such difference
to Borrower. The right of Borrower to offset from amounts owed to Lender
pursuant to Section 2.5(b) any Development Loans then owed by Lender to Borrower
shall be suspended upon written notice from Lender to Borrower that any
conditions required for the advances of Development Loans from Lender to
Borrower, as set forth in this Agreement, have not been satisfied.
Section II.6 Mandatory Prepayment of the Loans. Borrower shall promptly pay to
Lender 100% of all proceeds from the sale of any assets of Borrower that
comprise any part of the Collateral (provided, however, that this provision is
subject to Section 7.2 (a) and shall not be deemed to be a consent by Lender to
any such sale); except that Borrower shall not be obligated to pay to Lender any
such proceeds that are expended, within one hundred twenty (120) days after the
sale from which the proceeds arose, to acquire additional assets acceptable to
Lender that are added to the Collateral if the discounted present value of the
Proved Reserves attributable to such assets, determined in accordance with
Section 7.1(f), is at least equal to the proceeds paid to acquire such assets.
All proceeds of any such sale, less those excepted pursuant to the preceding
sentence, shall be immediately applied to repayment of the Loans and accrued
interest thereon in accordance with Section 2.5(b) hereof.
Section II.7 Initial Swap Agreement. At Closing, Borrower and Lender shall
enter into a Swap Agreement in the form and substance satisfactory to Lender,
subject to the provisions of Section 7.1(s).
ARTICLE III: Security
Section III.1 Security. The Obligations will be secured by the Collateral as
set forth in the various Security Documents concurrently or hereafter delivered
by Borrower, including a separate Act of Mortgage, Assignment of Production,
Security Agreement and Financing Statement and/or Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement
(individually and collectively, the "Mortgage") executed by Borrower in favor
of Lender for each Property in the form satisfactory to Lender. Pursuant to
the Loan Documents, Borrower will grant to Lender a first mortgage lien on and
a first priority security interest in the Collateral, subject to Permitted
Encumbrances.
Section III.2 Perfection and Protection of Security Interests and Liens.
Borrower will from time to time deliver to Lender any security agreements,
financing statements, continuation statements, extension agreements, amendments,
confirmations and other documents, properly completed and executed (and
acknowledged when required) by Borrower in form and substance satisfactory to
Lender, which Lender requests for the purpose of perfecting, confirming,
protecting or establishing the priority of any Liens or other rights in the
Collateral securing any Obligations.
Section III.3 Release of Collateral. Upon the payment in full by Borrower of
the entire outstanding principle balance of the Loans and all accrued, unpaid
interest due thereon, and the performance by Borrower of all other Obligations
under the Loan Documents that were to have been performed as of the date of such
payment, Lender shall deliver or cause to be delivered to Borrower, at
Borrower's expense, releases and satisfactions of all financing statements,
mortgages and other registrations of security with respect to the Collateral and
Borrower shall deliver to Lender a general release of all of Lender's
liabilities and obligations under the Loan Documents and an acknowledgment
that the same have been terminated.
ARTICLE IV: Representations and Warranties
Section IV.1 Representations and Warranties of Borrower. To confirm Lender's
understanding concerning Borrower and Borrower's businesses, properties and
obligations, and to induce Lender to enter into this Agreement and to make the
Loans, each Borrower represents and warrants to Lender that:
(a) No Default. No event has occurred and is continuing which would
constitute a an Event of Default or an Unmatured Event of Default.
(b) Organization and Good Standing. Each Borrower is a corporation
duly organized, validly existing and in good standing under the laws of
Colorado, having all powers necessary to carry on its businesses and to
enter into and consummate the transactions contemplated by the Loan
Documents. Each Borrower is duly qualified, in good standing, and
authorized to do business in all other jurisdictions wherein the character
of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary or desirable.
Subsidiary Borrower is qualified under applicable Bureau of Land
Management and Bureau of Indian Affairs regulations to act as Operator of
the Leases, where required.
(c) Capitalization: Compliance with Security Laws. Except as
disclosed on Schedule 4.1(c) and in Borrower's Public Reports: (i)
Borrower is not subject to any agreement under which there may become
outstanding, nor are there currently outstanding, any rights to purchase,
or securities convertible into or exchangeable for, any stock in Borrower
including, but not limited to, options, warrants or rights; (ii) Borrower
is under no obligation (contingent or otherwise) to purchase or otherwise
acquire or retire any of its shares of stock; and (iii) except as
contemplated by this Agreement, there are no agreements, understandings,
plans or arrangements in existence which pertain to the distribution
rights, voting, sale or transfer of any shares of stock of Borrower.
(d) Authorization. Borrower has taken all actions necessary to
authorize the execution and delivery of the Loan Documents and to
authorize the consummation of the transactions contemplated thereby and
the performance of its obligations thereunder. Borrower is duly
authorized to borrow funds hereunder.
(e) No Conflicts or Consents. The execution and delivery by Borrower
of the Loan Documents, the performance of its obligations under the Loan
Documents, and the consummation of the transactions contemplated by the
various Loan Documents does not and will not (i) conflict with any
provision of (A) any domestic or foreign law, statute, rule or regulation,
(B) the Articles of Incorporation or Bylaws of either Borrower, or (C) any
agreement, judgment, license, order or permit applicable to or binding
upon Borrower, (ii) result in the acceleration of any Debt owed by
Borrower, or (iii) result in or require the creation of any Lien upon any
assets or properties of Borrower, except as expressly contemplated in the
Loan Documents. Except as expressly contemplated in the Loan Documents,
no consent, approval, authorization or order of, and no notice to or
filing with, any court or governmental authority or third party is
required in connection with the execution, delivery or performance by
Borrower of any Loan Document or to consummate any transactions
contemplated by the Loan Documents.
(f) Enforceable Obligations. This Agreement is, and the other Loan
Documents when executed and delivered by each Borrower will be, legal,
valid and binding obligations of such Borrower, enforceable in accordance
with their terms except as such enforcement may be limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights or by principles of equity applicable to
the enforcement of creditors' rights generally.
(g) Financial Statements. Attached hereto as Schedule 4.l(g) are,
with respect to Parent Borrower, Parent Borrower's unaudited financial
statements as of June 30, 1999 (the "Financial Statements"). The
Financial Statements present fairly the financial condition of the
Borrower as of the dates thereof and the results of operations for the
period then ended, and are in accordance with the books and records of
Borrower. There have been no material transactions other than in the
ordinary course of business since the date of the Financial Statements.
As of the date of the Financial Statements, (i) Borrower has not had any
material liabilities of any nature (matured or unmatured, fixed or
contingent) required to be provided for therein or described in the notes
thereto which were not provided for therein or described in the notes
thereto, (ii) all reserves established by Borrower and set forth therein
are adequate for the purposes for which they were established, and (iii)
there is no Indebtedness of Borrower to any shareholders or Affiliates of
Borrower.
(h) Other Obligations and Restrictions. Except for: (i) the secured
Debt owed by Borrower to Bank One, Texas, N.A., which is described on
Schedule 4.1(h) and which shall be repaid in full at Closing, (ii) an
unsecured loan in the amount of One Hundred Forty Two Thousand Dollars
($142,000.00) owed to Bank One, Colorado, N.A., and (iii) the Equipment
Loan, Borrower has no outstanding Debt of any kind (including contingent
obligations, tax assessments, and forward or long-term commitments), other
than Debt under the Loan Documents, which is material to such Borrower and
not disclosed in the Financial Statements. No Tax Claim or other claim
for past due Property Taxes or Severance Taxes exists. Borrower is not
subject to or restricted by any franchise, contract, deed, charter
restriction or other instrument or restriction which could materially and
adversely affect Borrower's financial condition, or Borrower's ability to
timely pay the Advancing Note and the other Obligations and to perform its
obligations under the Loan Documents.
(i) Full Disclosure. No certificate, statement or other information
delivered herewith or heretofore by Borrower to Lender in connection with
the negotiation of this Agreement or in connection with any transaction
contemplated hereby contains any untrue statement of a material fact or
omits to state any material fact known to Borrower necessary to make the
statements contained herein or therein not misleading as of the date made
or deemed made. No facts are known to Borrower that have not been
disclosed to Lender in writing which could materially and adversely affect
Borrower's financial condition, or Borrower's ability to timely pay or
perform its obligations.
(j) Litigation. Except as disclosed on Schedule 4.1(j), there are
no actions, suits or legal, equitable, arbitrative or administrative
proceedings pending, or to the knowledge of Borrower threatened, against
Borrower before any federal, state, municipal or other court, department,
commission, body, board, bureau, agency or instrumentality, domestic or
foreign, and there are no outstanding judgments, injunctions, writs,
rulings or orders by any such governmental entity against Borrower.
(k) ERISA Liabilities. There are no ERISA Plans with respect to
which Borrower has any fixed or contingent liability, and Borrower is in
compliance with ERISA in all material respects.
(l) Names and Places of Business. Borrower has not during the
preceding three (3) years had, been known by or used any other company,
trade or fictitious name. The principal office and principal place of
business of Borrower is set forth in Section 11.3 hereof. Borrower does
not now have and has not previously had any other office or place of
business, except as listed on Schedule 4.1(l). Borrower is not and has not
engaged in any business or activity other than the acquisition, ownership,
operation and development of the Properties, except that until 1997,
Borrower owned a majority of the stock of Laguna Gold Company, and
Borrower continues to own a substantial percentage of that company's
stock.
(m) Unpaid Bills. Except as disclosed to Lender in Schedule 4.1(m)
and except as incurred in the ordinary course of business and which are
not yet due, Borrower has no knowledge of any unpaid bills with respect to
improvements to any of the Collateral which may give rise to mechanic's,
materialman's or other similar liens arising by ieeration of applicable
law should such bills remain unpaid.
(n) Title. Subject to Permitted Encumbrances, (i) except as set
forth in the Title Opinions, Subsidiary Borrower will have all beneficial
rights, title and interest in and to all production from or allocable to
Subsidiary Borrower's interest in the Properties and have the exclusive
right to sell the same subject to any right in the owners of royalty
interest to take their royalty interest in kind, and (ii) Subsidiary
Borrower will have Defensible Title to the Properties, the Equipment and
to its other material properties and assets. The Collateral will be owned
by Subsidiary Borrower free and clear of any and all Liens, other than
Permitted Encumbrances and Liens listed on Schedule 4.1(n).
(o) Purchasers of Hydrocarbons. All of the Persons who purchase
Hydrocarbons produced from or allocated to the Properties, and the most
recent address of each such Persons as shown in Borrower's records, is set
forth on Schedule 4.1(o) attached hereto.
(p) Hydrocarbon Sales and Related Agreements. All existing
agreements that are binding on Borrower or the Properties and that are not
terminable upon thirty (30) days or less notice for the sale, purchase,
gathering, transportation, handling, processing, treating and/or storage
of Hydrocarbons are described on Schedule 4.1(p) attached hereto.
(q) Swap Agreements. All existing Swap Agreements to which Borrower
is a party or by which Borrower is bound are described on Schedule 4.1(q)
attached hereto.
(r) Affiliates. Except for subsidiaries identified in Borrower's
Public Reports, Borrower does not have any other Affiliate or own any
stock in any other corporation or association. Borrower is not a member
of any joint venture or association of any type whatsoever.
(s) Omissions and Misstatements. To Borrower's knowledge after due
inquiry, all written data, reports and information which Borrower has
supplied to Lender or caused to be supplied by a e ird party on its behalf
in connection with the obtaining of the credit facility provided for in
this Agreement or in connection with the business transactions giving rise
to Borrower's seeking such credit are, taken as a whole, complete and
accurate in all material respects and contain no material omission or
misstatement. The Initial Reserve Report furnished to Lender prior to the
execution of this Agreement, to the best of Borrower's knowledge, was
prepared in accordance with customary oil and gas engineering practices
and in accordance with the standards promulgated by the Securities and
Exchange Commission. The Initial Reserve Report is based on historical
information which, to the best of Borrower's knowledge, is complete and
accurate in all material respects and contains no material omission or
misstatement.
(t) Holding Company. The Borrower is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(u) Investment Company. The Borrower is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(v) Environmental and Other Laws. Except as disclosed in Schedule
4.1(v), (i) Borrower is conducting its business in material compliance
with all applicable federal, state or local laws, including Environmental
Laws, and has been and is in compliance with any licenses and permits
required under any such laws which affect or relate to the Collateral;
(ii) none of the operations or properties of Borrower is the subject of
federal, state or local investigation evaluating whether any material
remedial action is needed to respond to a release of any Hazardous
Materials into the environment or to the improper storage or disposal
(including storage or disposal at offsite locations) of any Hazardous
Materials; (iii) Borrower has not filed or received any notice under any
federal, state or local law indicating that Borrower is or may be
responsible for the improper release into the environment, or the improper
storage or disposal, of any material amount of any Hazardous Materials or
that any Hazardous Materials have been improperly released, or are
improperly stored or disposed of, upon the Properties; and (iv) Borrower
is not aware of contingent liability under any Environmental Laws or in
connection with the release into the environment, or the storage or
disposal, of any Hazardous Materials, upon the Properties.
Section IV.2 Employees. Except as disclosed in Borrower's Public Reports,
Borrower is not a party to any existing employment agreements, deferred
compensation, stock option, bonus, consulting or retirement agreements or plans,
or other employee benefit plans of any kind, including without limitation any
pension or welfare benefit plans with any employee of Borrower not terminable
at-will. Except as disclosed in Borrower's Public Reports, Borrower does not
maintain nor has it ever maintained an Employee Pension Benefit Plan as defined
in Section 3(a) of ERISA, or a multi employer plan as defined in Section 3(37)
of ERISA. To Borrower's knowledge, no employees of Borrower are represented by
any labor union or collective bargaining agreement, nor is any union
organization effort pending or threatened against Borrower.
ARTICLE V: Notice of Certain Events
So long as any Obligations are owing to Lender under this Agreement or any
other Loan Documents, Borrower shall deliver to Lender or notify Lender, as the
case may be, of the following items:
Section V.1 Notice of Unmatured Event of Default, Event of Default, and
Other Matters. Borrower shall notify Lender within five (5) Business
Days after becoming aware of the existence of any Unmatured Event of
Default or Event of Default under this Agreement or after becoming aware of any
developments or other information which may materially and adversely affect the
properties, business, prospects, profits or condition (financial or otherwise)
of Borrower or its ability to perform its Obligations, including, without
limitation, the following:
(a) any dispute (including tax liability disputes) that may arise
between Borrower and any governmental regulatory body or law enforcement
authority;
(b) the commencement of any litigation or proceeding affecting
Borrower (whether by the filing of a complaint, service of process or by
attachment or arrest of any asset);
(c) any labor dispute or controversy resulting in or threatening to
result in a strike or work stoppage against Borrower;
(d) any proposal by any public authority to acquire any assets or
business of Borrower;
(e) the location of any Collateral other than at the places
indicated in or as permitted under the Loan Documents;
(f) any proposed or actual change of the name, identity or structure
of Borrower;
(g) any material loss or damage to any of Borrower's property,
business or operations;
(h) any environmental situation, circumstance or condition that
causes or may cause Section 7.l(s) to be false; or
(i) any other matter which has resulted or may result in a material
adverse change in the financial condition, operations or assets of
Borrower.
Borrower shall provide Lender with telephonic and written notice
specifying and describing the nature of such Unmatured Event of Default, Event
of Default, development or information, and anticipated effect thereof, which
notice shall be given as soon as reasonably possible.
Section V.2 Other Information. Borrower shall provide such other information
respecting the respective financial condition of Borrower or any property of
Borrower as Lender reasonably may request from time to time.
ARTICLE VI: Special Provisions Relating to Equipment
Section VI.1 Location: Records. Except in the ordinary course of business, all
Equipment owned by or on behalf of Borrower will be kept at its current
location, except as permitted by this Agreement or by the prior written consent
of Lender, and except that, so long as no Unmatured Event of Default or Event or
Default shall have occurred and be continuing, Borrower may dispose of Equipment
in accordance with the terms of the applicable operating agreements and may
dispose of obsolete, broken or worn Equipment, in either case without Lender's
consent, but upon prior written notice to Lender with respect to any such
disposition in a single transaction or series of related transactions that
involves Equipment that has a value in excess of $25,000.00; provided that
the proceeds of any such disposition shall either (i) be used to purchase
substantially similar Equipment to be used on the same Lease(s) from which
the sold Equipment was removed, or (ii) be delivered to Lender to be applied
to the Obligations in accordance with Section 2.5 on the next Repayment Date.
Borrower will at all times hereafter keep correct and accurate records
itemizing and describing the location, kind, type and condition of each
item of Equipment that has a book value of $10,000.00 or more and is
currently owned or hereafter acquired by Borrower, all of which records shall be
available during Borrower's usual business hours upon demand of any officer,
employee, agent or representative of Lender. Schedule 6.1 attached hereto sets
forth the information described in the preceding sentence for all Equipment
owned by Borrower as of the Closing Date or to be acquired by Borrower using
proceeds of the Loans.
Section VI.2 Maintenance. Borrower will keep all of its Equipment in a good
state of repair and good operating condition, will make all repairs and
replacements when and where necessary, will not waste or destroy it or any part
thereof, and will not be negligent in the care or use thereof. Borrower shall
repair and maintain all of its Equipment in a manner sufficient to continue the
operation of Borrower's business. Borrower shall use its Equipment in accordance
with law and the manufacturer's instructions.
Section VI.3 Dispositions. Where Borrower is permitted to dispose of any
Equipment under this Agreement or by consent thereto hereafter given by Lender,
Borrower shall do so in an arm's length transaction, in good faith and by
obtaining the maximum amount of recovery practicable therefor and without
impairing the operating integrity of its remaining Equipment or the Properties.
ARTICLE VII: Covenants of Borrower
Section VII.1 Affirmative Covenants. Borrower warrants, covenants and agrees
that until full and final repayment of the Obligations and the termination of
each of the Loan Documents, it will comply with the following covenants:
(a) Payment and Performance. Borrower will pay all amounts due to
Lender under the Loan Documents in accordance with the terms thereof and
will observe, perform and comply with every covenant, term and condition
expressed or implied in the Loan Documents.
(b) Preferential Right To Purchase and/or Market Hydrocarbons. At
Closing, Borrower shall execute an irrevocable agency agreement in form
satisfactory to Lender which authorizes Lender or its designated Affiliate
to act exclusively in Borrower's place and stead to market Borrower's oil
and gas (the "Agency Agreement"). The Agency Agreement shall remain in
force and effect for the term set forth therein. The rights granted to
Lender in this Section 7.1(b) may be assigned, in whole or in part, to one
or more Affiliates of Lender and shall continue in full force and effect
until the earlier of the full and final payment and performance of all of
Borrower's Obligations or the fourth (4th) anniversary of the Closing
Date. The Agency Agreement shall provide that Lender will receive a one
percent (1%) fee on all of Borrower's Hydrocarbons that are produced and
sold or used, whether marketed by Lender or its Affiliates or sold
directly by Borrower to third parties, and that Lender will have the right
to net this fee out of payments owed to Borrower for the marketing of such
Hydrocarbons.
(c) Compliance with Tax Laws. Borrower shall comply with all
federal, state or local laws and regulations regarding the collection,
payment and deposit of employee' income, employment, and social security
and sales and use taxes and taxes related to royalty payments.
(d) Books, Financial Statements and Reports. Borrower will at all
times maintain full and accurate books of account and records and a
standard system of accounting and will furnish the following statements
and reports to Lender at Borrower's expense:
(i) Annual Financial Statements. As soon as available, and in
any event within one hundred (100) days after the end of each Fiscal
Year, complete audited financial statements of Parent Borrower,
prepared in reasonable detail in accordance with GAAP. These
financial statements shall contain a balance sheet as of the end of
such Fiscal Year and statements of operations, of cash flows, and of
changes in shareholders' equity for such Fiscal Year, each setting
forth in comparative form the corresponding figures for the
preceding Fiscal Year.
(ii) Quarterly Financial Statements. As soon as available,
and in any event within sixty (60) days after the end of each Fiscal
Quarter, Parent Borrower's balance sheet as of the end of such
Fiscal Quarter and statements of Parent Borrower's operations and
cash flows for the period from the beginning of the then current
Fiscal Year to the end of such Fiscal Quarter, all in reasonable
detail and prepared in accordance with GAAP, subject to changes
resulting from normal year-end adjustments.
(iii) Third Party Reports. As and when furnished, copies of
all reports and other information provided by any other Person to
Borrower in connection with the Loan Documents. Borrower may
arrange for such reports and information to be provided directly to
Lender by the Person providing the same to Borrower.
(iv) Daily Field Activity Reports. Borrower shall provide
Lender by telecopy or e-mail, a daily report detailing all drilling,
completions and workovers from the preceding day with respect to the
Properties in form and substance satisfactory to Lender.
(v) Weekly Reports. Borrower shall provide Lender with
weekly reports by telecopy or e-mail setting forth the quantities,
types and specifications of Hydrocarbons produced from or allocable
to each of the Properties, in form and substance satisfactory to
Lender and a report detailing all costs and expenses associated with
the activities specified in the reports delivered pursuant to
subsection (iv) for the preceding week.
(vi) Operating Reports. Within thirty (30) days of the
Closing, and semi-annually thereafter, Borrower shall provide Lender
with a rolling revenue, lease operating expense and capital
expenditure forecast by month covering Borrower's interest in the
Properties for the succeeding 12 month period ("Operating Report").
Such Operating Reports shall include a brief discussion by Borrower
of operating and financial variances from the prior Operating Report
delivered to Lender.
(vii) AFE's. Borrower shall provide Lender with
authorizations for all material expenditures, representing an
estimate of work to be done, each of which shall be supported by
appropriate invoices, bids, estimates, contracts or other support
(such authorization, together with such support, an "AFE"), prior to
commencing the activity contemplated by such AFE.
(viii) Nominations. For Hydrocarbons not purchased by Lender
or its Affiliate, Borrower shall provide to Lender by the first day
of each month, reports by telecopy setting forth the nominations of
quantities of Hydrocarbons for that month, and for Hydrocarbons
purchased by Lender or its Affiliate, nominations shall be provided
pursuant to the applicable gas purchase agreement.
(e) Other Information and Inspections. Borrower will furnish to
Lender any information which Lender may from time to time request
concerning any covenant, provision or condition of the Loan Documents or
any matter in connection with the Borrower's assets, business and/or
operations. Borrower will permit representatives appointed by Lender
(including independent accountants, agents, attorneys, appraisers and any
other Persons) to visit and inspect, during reasonable business hours and
upon prior written notice, any of Borrower's property, including its books
of account, other books and records, and any facilities or other business
assets, and to make extra copies therefrom and photocopies and photographs
thereof, and to write down and record any information such representatives
obtain, and Borrower shall permit Lender or its representatives to
investigate and verify the accuracy of the information furnished to Lender
in connection with the Loan Documents and to discuss all such matters with
its officers, employees and representatives. In addition, Borrower will
permit any such representatives appointed by Lender, at the risk and
expense of Lender or such representatives, to visit and inspect, during
reasonable hours and upon advance written notice, the Properties and other
Collateral. Lender agrees that it shall keep confidential any proprietary
information given to it by Borrower; provided, however, that this
restriction shall not apply to information which (i) is at the time in
question publicly available, (ii) is required to be disclosed by law or by
any order, rule or regulation (whether valid or invalid) of any court or
governmental agency, or authority, (iii) is disclosed to Lender's
Affiliates, auditors, attorneys, lenders or agents, or (iv) is disclosed
in the course of the defense or enforcement of the Loan Documents or the
defense or enforcement of Lender's exercise of its rights thereunder,
provided that with respect to information furnished to Persons identified
in clause (iii) (except when furnished pursuant to clause (iv)) such
Person shall be subject to the foregoing confidentiality obligations
applicable to Lender; and provided, further, that with respect to any such
information of which a third party seeks disclosure pursuant to clause
(ii), Lender shall give Borrower written notice of such third party
attempt to require disclosure in order to afford Borrower the opportunity
to pursue any remedies that it may have to prevent or limit such
disclosure.
(f) Reserve Reports. On or before each April 1 after the Closing
Date until the Loan Termination Date, Borrower shall cause the preparation
and delivery to Lender of petroleum engineering reports relating to the
Properties in a form satisfactory to Lender, and effective as of the
preceding December 31 (collectively, the "Reserve Reports" and
individually, a "Reserve Report"). Each Reserve Report required hereby
shall be prepared by mutually agreeable third-party engineers and shall be
prepared at Borrower's sole expense. Each Reserve Report shall set forth
updated estimates of proved developed producing reserves, proved developed
non-producing reserves, proved undeveloped reserves, projected production
profiles and overall economics of the Properties. Each Reserve Report
will be based on the following assumptions:
(i) The oil and gas price assumptions utilized in the
preparation of each Reserve Report will be the New York Mercantile
Exchange futures contract market prices (until the last month for
which there exists a futures contract and held flat thereafter at
the price for the last such month) at the effective date of the
Reserve Report adjusted for (a) the then current (as of the
effective date of the Reserve Report) basis differential (between
delivery point for the futures contract and the point of sales
delivery for the Property location) generally employed by Lender and
independent third parties making over-the-counter markets for oil
and gas commodities financial derivatives, (b) gathering,
transportation and processing fees applicable to the Hydrocarbons
production (to the extent not included as deductions in the Reserve
Report for purposes of calculating net operating revenues), and (c)
MMBTU adjustments or other quality adjustments to account for
differences in the specifications for the futures contracts and the
quality of actual production from the Properties.
(ii) Average lease operating expenses and production taxes
will be based upon the Operator's best estimate and historical
operating expenses, subject to Lender's approval.
(g) Notice of Investigations or Proceedings. Borrower shall give
Lender immediate written notice of any proceeding at law or in equity
against Borrower, or any investigation or proceeding before or by any
administrative or governmental agency.
(h) Notice of Damage to Collateral. Borrower shall give Lender
prompt written notice of any destruction or substantial damage to any of
the Collateral and of the occurrence of any condition or event which has
caused, or may cause, material loss or depreciation in the value of any
property subject to Lender's Liens or the Mortgage.
(i) Maintenance of Licenses. Borrower shall maintain all licenses,
permits, charters and registrations which are required for the conduct of
its business.
(j) Maintenance of Rights. Borrower will maintain, preserve,
protect and keep all of its contractual and property rights, and will not
waive, amend or release any such rights, other than as expressly permitted
by the Loan Documents, and specifically, without limitation, Borrower
shall use its best efforts to perform, or cause to be performed, all of
the terms, conditions and covenants of the lessee in the Leases comprising
the Properties.
(k) Maintenance of Existence and Qualifications. Borrower will
maintain and preserve its corporate existence and its rights and
franchises in full force and effect and will qualify and/or remain
qualified to do business as a foreign corporation in all states or
jurisdictions where required by applicable law.
(l) Payment of Trade Debt. Borrower will (i) timely pay all taxes,
assessments and other governmental charges or levies imposed upon it or
upon its income, profits or property; (ii) in the ordinary course of
business, and in any event within not more than ninety (90) days after the
same becomes due, pay all Debt (other than the Obligations) owed by it;
(iii) within thirty (30) days after Closing pay all trade debt listed on
Schedule 4.1(m) that is more than ninety (90) days overdue as of the date
of Closing, and provide to Lender within thirty-five (35) days after
closing a certificate of the President or Chief Financial Officer of
Parent Borrower listing all trade debt that was paid by Borrower during
the thirty (30) day period following the Closing; and (iv) maintain
appropriate accruals and reserves for all of the foregoing Debt in
accordance with GAAP.
(m) Creditors. On or before the twentieth (20th) day of each month,
along with the delivery of the Property Operating Statement due on such
day, Borrower shall provide Lender with a statement showing the identity
of Borrower's creditors, the amount due to each and the date each payment
is due thereunder. Borrower shall notify Lender immediately if Borrower
fails to make any payment to lessors, suppliers, vendors, owners of
royalty interest, tax authorities or other Persons, where such nonpayment
could result in any Lien against any item of Collateral or otherwise
interfere with or jeopardize performance by Borrower of its obligations
under the Loan Documents.
(n) Interest. Borrower hereby promises to pay interest to Lender
pursuant to the terms and at the rate stated in the Advancing Note on all
Obligations (including Obligations to pay fees or to reimburse or
indemnify Lender) after such Obligations become due. Borrower further
agrees that any interest which has accrued and is not paid when due shall
be added to and become part of the Loans.
(o) Compliance with Agreements and Law. Borrower will perform all
material obligations it is required to perform under the terms of the Loan
Documents. Borrower will conduct its business and affairs in compliance
with all laws, regulations and orders applicable thereto, including
Environmental Laws.
(p) Insurance. Borrower shall keep or cause to be kept all of the
Mortgaged Properties (as that term is defined in the Mortgage) that are
fixtures or personal property insured for their replacement value by
insurance companies licensed to do business in the States in which the
Mortgaged Properties are located against loss or damage by fire or other
risk usually insured against by owners or users of similar properties in
similar businesses under extended coverage endorsement and against theft,
burglary and pilferage, together with other insurance covering such other
hazards as Lender may from time to time reasonably request, in amounts in
accordance with industry standards and from companies satisfactory to
Lender. Borrower shall deliver the policy or policies of such insurance
or certificates of insurance to Lender at Closing, and such policies and
all proceeds thereof shall be security for all Obligations. All such
insurance shall contain endorsements in form satisfactory to Lender
showing Lender as a loss payee and additional party insured as its
interest may appear; provided that Lender shall not be named as an
additional insured on the policies described in subpart (v) of this
Section to the extent such policies apply to vehicles. The following
types of insurance covering the Collateral and the interest and
liabilities incident to the ownership, possession and operation thereof
shall be secured by Borrower:
(i) Worker's compensation insurance and employer's liability
insurance covering the employees of Borrower engaged in operations
contemplated hereunder in compliance with all applicable state and
federal law and endorsed to provide all states coverage and
occupational disease coverage, as follows:
Workers Compensation Statutory
Employers Liability $500,000 Each Accident
$500,000 Disease Each Employee
(ii) Comprehensive general liability insurance with combined
single limit of not less than $1,000,000 per occurrence and endorsed
to provide coverage for explosion, collapse and underground damage
hazards to property of others, contractual liability, products and
completed operations, and for damage to underground resources, and
accidental pollution, bodily injury and property damage coverage in
sufficient amounts to meet umbrella underlying requirements;
(iii) Comprehensive automobile liability insurance covering
all owned, hired or non-owned vehicles with a combined single limit
of not less than $500,000 per occurrence;
(iv) Excess umbrella liability insurance with a combined
single limit of not less than $20,000,000 per occurrence and policy
aggregate;
(v) Property insurance on a replacement value basis fully
covering the personal property and fixtures constituting the Gas
Plant Assets.
During the period of the drilling of wells and the construction of any
other improvements comprising a part of the Collateral (as defined in the
Security Agreement), Borrower shall cause its contractors or
subcontractors to obtain and maintain worker's compensation insurance
covering all persons employed by Borrower's agents or subcontractors of
any tier in connection with any construction affecting the Collateral,
including, without limitation, all agents and employees of Borrower's
subcontractors with respect to whom death or bodily injury claims could be
asserted against Borrower.
(q) Policy Counterparts or Certificates of Insurance. Borrower
shall deliver to Lender valid counterparts of all insurance policies and
all endorsements thereto (or, at its option, valid certificates of such
insurance) which are required hereunder to be obtained and maintained by
Borrower.
(r) Prudent Operations. Borrower shall prudently develop, and cause
the Properties to be continuously operated and maintained to produce the
output from or allocable to such property in a good and workmanlike manner
consistent with prudent operator practices to maximize production from or
allocable over the productive life thereof.
(s) Hydrocarbon Production Swap Agreements. In addition to the Swap
Agreement as provided in Section 2.7 and those described on Schedule
4.1(q), Borrower will from time to time, upon thirty (30) days' notice by
Lender, enter into one or more Hydrocarbon price swaps pursuant to an
approved Swap Agreement in form and substance mutually satisfactory to
Borrowers and Lender, such that up to 65% of the volume of Proved
Developed Producing Reserves scheduled to be produced during the remaining
term of the Loans (based upon the most recent Reserve Report) are
dedicated to the Swap Agreements or such other price risk management
program as approved by Lender. Borrower and Lender shall endeavor to
agree upon a swap strategy that will most accurately reflect the make-up
and pricing of the Hydrocarbons produced and sold by Borrower. The price
component of any such price swaps shall be determined following
discussions between Borrower and Lender regarding the appropriate index
and basis differential for each point of delivery, and following such
discussions, Lender and Borrower shall implement the price swaps(s)
required by this section on terms determined by Lender in a commercially
reasonable manner.
(t) Legal Fees. Borrower will pay to Lender's counsel, on or before
the Closing Date, all legal fees and expenses incurred by Lender in
connection with the Credit Agreement and the Loan Documents, plus a
deposit for estimated costs and expenses, including recording fees, of
$5,000.00, not to exceed, in the aggregate, $75,000.00. Thereafter,
Borrower shall reimburse Lender for all reasonable legal fees and expenses
incurred in connection with any subsequent amendment, mortgage, extension
or renewal of any Loan Document and all reasonable legal fees and expenses
attributable to the enforcement and administration of this Agreement and
any of the Loan Documents.
(u) Structuring Fee. The Structuring Fee in the amount of
$475,000.00 shall be payable by Borrower to Lender out of the advances
evidenced by the Advancing Note. A Loan in the amount of the Structuring
Fee will be deemed to have been advanced by Lender to Borrower on the
Closing Date, with such Structuring Fee having been contemporaneously paid
by Borrower to Lender.
(v) Obligation to Cure Liens. Borrower shall cure any existing lien
against the Properties prior to the Closing Date.
(w) Changes to Purchasers of Hydrocarbons. Borrower shall notify
Lender in writing on the twentieth (20th) day of each month of the
identity and address of each Person who purchased Hydrocarbons produced
from or allocable to the Properties during the prior calendar month.
Section VII.2 Negative Covenants. Borrower warrants, covenants and agrees that
until the full and final repayment of the Obligations and the termination of
each of the Loan Documents:
(a) Limitation on Sales of Collateral. Borrower will not sell,
transfer, lease, exchange, alienate or dispose of any Collateral or any
interest therein, except for the sale of Hydrocarbons in the ordinary
course of business and/or other sales to the extent pursuant to or as
expressly allowed under this Agreement and the Security Documents
encumbering such Collateral.
(b) Compensation. The Borrower shall not, directly or indirectly,
enter into any employment agreement or other arrangement with or for the
benefit of an officer, director or employee of the Borrower other than for
reasonable compensation for services as an officer, director or employee.
(c) Limitation on Credit Extensions. Except for loans made pursuant
to Borrower's Stock Ownership Encouragement Program, Borrower will not
extend credit, make advances or make loans to any Person other than in the
ordinary course of business, whether or not as Affiliate of Borrower.
(d) Certain Contracts; Amendments; ERISA Plans. Borrower will not
amend or permit any amendment to any contract or lease which releases,
qualifies, limits, makes contingent or otherwise detrimentally affects the
rights and benefits of Lender under or acquired pursuant to any Loan
Documents. Borrower will not incur any fixed or contingent obligation to
contribute to any ERISA Plan.
(e) Indebtedness. Except for Permitted Encumbrances, Borrower shall
not create, incur, assume or suffer to exist any Debt, except Obligations
to Lender hereunder, or sell, discount or factor their accounts,
instruments, intangibles, leases or chattel paper; provided, however,
Borrower may incur Debt not to exceed $100,000 per transaction and an
aggregate amount not to exceed $1,000,000 at any time outstanding with
regard to direct costs and expenses incurred in the operation of the
Properties.
(f) Liabilities. Except as expressly provided herein, Borrower
shall not assume, guaranty, or endorse or otherwise become directly or
contingently liable in connection with any other liability of any other
Person except for the indemnification contained herein; provided, however,
that the foregoing shall not prohibit the endorsement of negotiable
instruments for deposit or collection or incurrence of obligations under
operating agreements and similar transactions in the ordinary course of
business. For the purposes hereof, "guaranty" shall include any
agreement, whether such agreement is on a contingency basis or otherwise,
to purchase, repurchase or otherwise acquire any obligation or liability
of any other Person, or to purchase, sell or lease, as lessee or lessor,
property or services in any such case primarily for the purpose of
enabling another Person to make payment of any such debt or liability, or
to make any payment (whether as a capital contribution, purchase of any
equity interest or otherwise) to assure a minimum equity, asset base,
working capital or other balance sheet or financial condition, in
connection with Debt or liability of another Person, or to supply funds to
or in any manner invest in another Person in connection with such Person's
Debt or liability.
(g) Acquisition. Borrower shall not acquire or commit or agree to
acquire any of the stock, securities or other equity ownership of any
other Person without written consent of Lender, provided that such an
acquisition may be made without Lender's consent if such stock, securities
and/or other equity ownership becomes part of the Collateral and
contemporaneously with its acquisition it is subjected to Security
Documents acceptable to Lender.
(h) Cancellation of Claims. Without Lender's written consent,
Borrower shall not cancel any claim or debt in excess of a total of fifty
thousand dollars ($50,000) during the term of the Loans, except for
reasonable consideration and in the ordinary course of its business.
(i) Defaults. Borrower shall not cause a default under any lease,
mortgage, deed of trust or lien on real estate owned or leased by Borrower
including an Unmatured Event of Default or an Event of Default.
(j) Security Interests and Liens. Subject to Borrower's right to
contest in good faith or cure within 30 days of the filing of any lien,
Borrower shall not suffer to exist any valid lien, encumbrance, mortgage
or security interest or consent to the filing of any financing statements
on any of its Property other than the Liens created by the Loan Documents
granted herein and Permitted Encumbrances.
(k) Creation of Subsidiary. Borrower shall not (i) create any
direct or indirect subsidiary except the entity to be created to pursue
oil and gas opportunities in Costa Rica, as described on Schedule
7.2(k)(i) hereof, or divest itself of any material assets by transferring
them to any future subsidiary or by entering into a partnership, joint
venture or similar arrangement, or (ii) make any material change in its
capital structure, except any such change resulting from the planned
equity offering described on Schedule 7.2(k)(ii) hereof.
(l) Certain Changes. Borrower shall not transfer its principal
office or its registered offices outside of the State of Colorado or
change its name or keep Collateral at any location(s) other than those at
which the same are presently kept or without written consent of Lender.
Borrower shall not change its fiscal year.
(m) Loan Documents. Borrower shall not alter, amend or cause the
alteration or amendment of any of the Loan Documents without the prior
written consent of Lender.
(n) Amendments to Formation Documents. Borrower shall not adopt any
amendment, modification or waiver of any provision of its Articles of
Incorporation or Bylaws.
(o) Disposition. Borrower shall not dedicate, sell, encumber or
dispose of, or suffer to exist any agreement for the sale, disposition or
encumbrance of, Subsidiary Borrower's Working Interest and/or Net Revenue
Interest in the Properties or of any Hydrocarbon production attributable
to Subsidiary Borrower's Working Interest and/or Net Revenue Interest in
the Properties except in the ordinary course of business.
(p) Investments. Without Lender's prior written consent, Borrower
will not make, or suffer to exist, any Investment except Investments in
certificates of deposit or other obligations of a bank or trust company
having capital, surplus and undivided profits of at least $100,000,000,
obligations of the United States government or any agency thereof, or
investment grade commercial paper.
(q) Change of Management. No change shall be permitted to occur
with regard to the individuals who currently hold the positions of
Chairman and President of Parent Borrower, being Mr. George Mallon, or
Executive Vice President of Parent Borrower, being Mr. Kevin Fitzgerald,
nor shall the powers or duties of such officers of Parent Borrower be
diminished by any amendment of the Articles or Bylaws of Parent Borrower.
ARTICLE VIII: Further Rights of Lender
Section VIII.1 Maintenance of Security Interests. Until the Obligations are
repaid in full, Borrower, at its own expense, shall do all things and shall
deliver all instruments reasonably requested by Lender to protect or perfect
any security interest, mortgage or lien given hereunder or under any Security
Documents, including, without limitation, financing statements under the
Uniform Commercial Code. Lender may examine, inspect and copy or make extracts
from all books and records of Borrower at any time during regular business hours
upon prior notice to Borrower. Borrower authorizes Lender to execute alone any
financing statement or other documents or instruments that Lender may require to
perfect, protect or establish any lien or security interest hereunder or under
any Security Documents and further authorizes Lender to sign Borrower's name on
the same. Borrower hereby authorizes Lender, during the continuance of any
Event of Default, to appoint such Person or Persons as Lender may designate
as its agent and attorney-in-fact to endorse the name of Borrower on any checks,
notes, drafts or other forms of payment or security that may come into the
possession of either Lender or any Affiliate of Lender, to sign Borrower's
name on invoices or bills of lading, drafts against customers, notices of
assignment, verifications and schedules and, generally, to do all things
necessary to carry out this Agreement and the Security Documents. The powers
granted herein, being coupled with an interest, are irrevocable. Neither Lender
nor the agent and attorney-in-fact shall be liable for any act or omission,
error in judgment or mistake of law so long as the same is not malicious or
grossly negligent. Upon payment and performance of all Obligations of Borrower
to Lender, such power of attorney will become null and void.
Section VIII.2 Performance of Obligations. In the event that Borrower fails to
purchase or maintain insurance in accordance with the requirements of this
Agreement, or to pay any tax, assessment, government charge or levy, except as
the same may be otherwise permitted hereunder, or in the event that any lien,
encumbrance or security interest prohibited hereby shall not be paid in full or
discharged, or in the event that Borrower shall fail to perform or comply with
any other covenant, promise or Obligation to Lender hereunder or under any Loan
Document, Lender may, but shall not be required to, perform, pay, satisfy,
discharge or bond the same for the account of Borrower, and all monies so paid
by Lender, including, without limitation, reasonable attorneys' fees and
disbursements, shall be treated as an additional Obligation of Borrower to
Lender hereunder and under the Loan Documents.
Section VIII.3 Access to Collateral. Lender may examine and inspect the
Collateral and may examine, inspect and copy all books and records with respect
thereto or relevant to the Obligations during Borrower's normal business hours
upon prior written notice to Borrower. Upon prior written notice to Borrower,
Lender may discuss with Borrower's officers, independent accountants and other
Persons, and such Persons are hereby authorized to discuss with Lender
Borrower's business, assets, liabilities, financial condition, results of
operations and business prospects, and Borrower hereby irrevocably authorizes
Lender to obtain from such Persons maintaining any such records, any service
records relating to Borrower or any of the Collateral subject to Lender's
security interest or Lien. Upon the occurrence and during the continuance of an
Event of Default, Lender may (i) enter Borrower's premises at any time; and (ii)
until it completes the enforcement of its rights in the Equipment or other
Collateral subject to its security interest or lien hereunder and the sale or
other disposition of any property subject thereto, take possession of such
premises without charge, rent or payment therefor, or place custodians in
control thereof, remain on such premises and use the same and any of
Borrower's Equipment and other Collateral for the purpose of completing any
work in process, preparing any Collateral for disposing of or collecting any
Collateral.
Section VIII.4 Issuance of Mallon Stock to Lender. (a) At Closing Parent
Borrower shall issue to Lender 420,000 shares of Borrower Stock, free and clear
of any lien, claim or encumbrance.
(b) Within 30 days after the Closing, Borrower shall prepare and caused
to be filed with the United States Securities and Exchange Commission and any
necessary state securities authorities, a shelf registration statement on Form
S-3 (or such other form for which the Borrower is then eligible) covering the
resale of the Borrower Stock (the "Registration Statement"). Thereafter,
Borrower shall use its best efforts to cause the Registration Statement to
become effective as soon as practicable, but in any event within 120 days after
Closing, and to continuously maintain the effectiveness of the Registration
Statement for a period of two years or until the Borrower Stock is sold,
whichever first occurs. Promptly after effectiveness of the Registration
Statement, Borrower shall provide Lender with such number of prospectuses, as
from time to time supplemented, as Lender may reasonably request and shall cause
the Borrower Stock to be listed for trading on the Nasdaq National Market System
("Nasdaq"). All expenses of registration, including filing fees, printing costs
and the fees and expenses of the respective legal counsel of Borrower and
Lender, shall be borne by the Borrower.
(c) Borrower shall indemnify Lender and its officers, directors, employees,
attorneys and agents and each person controlling any of them, against
all claims losses, damages and liabilities, including legal and other expenses
reasonably incurred, arising out of any untrue or allegedly untrue statement of
a material fact contained in the Registration Statement, or any omission or
alleged omission to state a material fact required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading, or arising out of any violation or alleged violation by the Company
of the Securities Act of 1933, the Securities Exchange Act of 1934, any state
securities or "bluesky laws," or any applicable rule or regulation, each as
amended from time to time. Such indemnification shall not apply to claims,
losses, damages and liabilities caused by an untrue statement of material fact
or omission of material fact base on written material provided by Lender to
Borrower for inclusion in the Registration Statement.
(d) Lender shall have the right to put up to 420,000 shares of Borrower Stock
to the Borrower at a price of Twelve and 50/100 Dollars ($12.50) per share
(the "Per Share Option Exercise Price") within thirty (30) days after the fourth
anniversary of the Closing (the "Put Option"). If Borrower fails or refuses to
consummate Lender's exercise of the Put Option within thirty (30) days after
receipt of Lender's written notice of such exercise, including, but not limited
to, the payment to Lender of a cash sum determined by multiplying the Per Share
Option Exercise Price times the number of shares of Borrower Stock as to which
Lender has exercised the Put Option (the result being hereinafter called "Put
Price"), then Lender shall have the right to either: (1) increase on its books
and records the aggregate amount of the Loans advanced to Borrower by an amount
equal to the Put Price, which shall then be deemed to have been advanced from
Lender to Borrower and used by Borrower to pay the Put Price, provided the
Advancing Note is then in effect and Lender has not released the Collateral
pursuant to Section 3.3, or (2) require Borrower to transfer to Lender
additional shares of Borrower Stock, pursuant to Subsection (e) of this Section,
or (3) require the conveyance of the ORRI described in Section 8.5 and retain
the ORRI and all revenues and other benefits derived therefrom or attributable
thereto while pursuing: (x) specific performance of Borrower's obligation to
honor the Put Option and/or (y) any and all other remedies available to Lender
as a result of Borrower's failure to honor the Put Option. If the ORRI is
conveyed to Lender as provided in the preceding sentence, then at such time as
either: (i) specific performance of Borrower's obligation has been ordered
through arbitration or by a court of competent jurisdiction and consummated,
(ii) Lender has been awarded damages or other relief through arbitration or by a
court of competent jurisdiction to compensate Lender for Borrower's breach of
its obligation to consummate the Put Option and such damages or other relief
have been paid, delivered and/or performed, as applicable, or (iii) Borrower has
performed its obligations under any settlement agreement entered into by
Borrower and Lender as a result of such breach, then unless the applicable
arbitration award, court judgement and/or settlement agreement provides to the
contrary, Lender shall quitclaim, release and reconvey the ORRI to Borrower,
without warranty of title, express or implied, effective as of the date that all
of the damages and/or other relief awarded to Lender therein have been paid,
delivered and/or performed, as applicable, and Lender shall retain all proceeds
and other benefits accruing to such ORRI prior to such effective date.
(e) If Lender has exercised the Put Option in accordance with Subsection
8.4(d) and Parent Borrower has failed or refused to consummate the Put Option
within the time and in the manner thereby required, then Lender may, but shall
not be obligated to, exercise the rights set forth in this Subsection 8.4(e).
If Lender elects to exercise the rights set forth in this Subsection, then
within sixty (60) days after Borrower was required to have consummated Lender's
exercise of the Put Option, Lender may sell on Nasdaq the number of shares of
Borrower Stock as to which it had elected to exercise the Put Option. If the
proceeds received by Lender from such sale are less than the Put Price for the
number of shares of Borrower Stock as to which Lender exercised its Put Option,
calculated in accordance with Subsection 8.4(d), then one hundred fifteen
percent (115%) of the difference between the Put Price minus the proceeds
received by Lender for the sale of such Borrower Stock shall constitute the
"Shortfall."
Promptly after receipt of written demand from Lender, and in any event not later
than sixty (60) days after the date of such written demand, Parent Borrower
shall then authorize, if necessary, register in accordance with Subsection
8.4(b) and issue to Lender a number of additional shares of Borrower Stock
determined by dividing the Shortfall by the per-share market value of such
Borrower Stock, as traded on Nasdaq as of the close of the trading day preceding
the date on which such additional stock is issued and delivered to Lender. For
example, if the number of shares of Borrower Stock as to which Lender had
exercised the Put Option was three hundred thousand (300,000), then the Put
Price would be Three Million Seven Hundred Fifty Thousand Dollars ($3,750,000).
If Borrower failed or refused to consummate the Put Option within the time
prescribed herein for doing so, and if Lender then were to sell such three
hundred thousand (300,000) shares of Borrower Stock within sixty (60) days after
Borrower was required to have consummated the Put Option and the aggregate
proceeds received by Lender for the sale of such Borrower Stock were Three
Million Dollars ($3,000,000), and if at the time that such additional Borrower
Stock were transferred to Lender, the per-share trading price on Nasdaq as of
the close of the preceding trading day were Nine Dollars ($9.00), then the
number of additional shares of registered Borrower Stock required to be
transferred to Lender would be calculated as follows:
[115% X ($3,750,000 - $3,000,000)] / $9.00 = 95,834 shares
Section VIII.5 Overriding Royalty Interest. If and when required pursuant to
Section 8.4, Borrower shall assign to Lender the ORRI by executing and
delivering to Lender the Overriding Royalty Interest Conveyance in the form
satisfactory to Lender, and Borrower shall also exercise good faith and the
utmost due diligence to obtain any and all approvals of such Overriding Royalty
Interest Conveyance as are necessary to give full effect thereto, including, but
not limited to, any required approvals of the lessors of the oil and gas leases
burdened by such ORRI. The percentage ORRI to be conveyed shall be calculated
to result in the percentage necessary such that the discounted present value of
such ORRI as of the fourth anniversary of the date of this Agreement, calculated
pursuant to the specifications set forth in Section 7.1(f)(i) hereof, is Five
Million, Two Hundred Fifty Thousand Dollars ($5,250,000.00).
Section VIII.6 ORRI Option. Pursuant to the terms of the Overriding Royalty
Interest Conveyance, Borrower shall have an option to repurchase the ORRI at a
price (the "Purchase Price") to be determined by a Reserve Report that
incorporates, without limitation, pricing assumptions that conform to the
specifications set forth in Section 7.1(f)(i) hereof, verified operating
expenses, and proven reserves that is prepared by a mutually agreeable third
party such as Ryder Scott or the engineering firm that prepared the Reserve
Report most recently delivered hereunder, using a ten percent (10%) discount
rate, not to exceed, however, a Purchase Price of Five Million, Nine Hundred
Thirty Thousand Dollars ($5,930,000.00). The ORRI Option is a non-assignable
option granted by Lender solely to Borrower and, notwithstanding any right that
may be granted to Borrower in the Overriding Royalty Interest Conveyance to
assign, sell, transfer or otherwise convey any of the Properties, the exercise
of the ORRI Option shall be solely by Borrower and shall be with relation to the
entire ORRI as granted in the Overriding Royalty Interest Conveyance.
Furthermore, any notice from Lender to Borrower hereunder shall be deemed as
actual notice to its assignees of the Properties ("Assignees"), if any.
Borrower may exercise its option by first obtaining a Reserve Report that
satisfies the parameters set forth in this Section, and then sending written
notice of such exercise to Lender, along with a copy of such Reserve Report,
specifying an effective date for the purchase of the ORRI that is the effective
date of the Reserve Report, which date shall not be earlier than the first day
of the month preceding the month in which the notice is delivered to Lender
("ORRI Sale Date"), accompanied by the Reserve Report that established the
Purchase Price, and stating that Borrower is ready, willing and able to close
such purchase and pay the Purchase Price within thirty (30) days from the date
of the notice, without any conditions with respect to obtaining financing, or
otherwise. If the Purchase Price established in the Reserve Report was
appropriately determined based on the parameters set forth in Section 7.1(f)(i)
hereof, then the parties shall proceed to close such purchase and sale
transaction within thirty (30) days from Lender's receipt of Borrower's option
exercise notice. At the closing, Borrower shall pay the Purchase Price to
Lender in cash or by wire transfer to an account designated by Lender, and
Lender shall assign the ORRI to Borrower by recordable form of assignment with
special warranty of title by, through and under Lender, but not otherwise. The
Purchase Price shall be adjusted, downward, by the amount of any net revenues
received by Lender prior to the closing for production attributable to the ORRI
subsequent to the ORRI Sale Date, and shall be adjusted upward for any revenues
that have accrued with respect to the ORRI for production prior to the ORRI Sale
Date, that have not yet been paid to Lender. After the closing, any revenues
received by Lender that are attributable to the ORRI shall be promptly remitted
to Borrower.
If Lender does not agree with the Purchase Price proposed by Borrower in the
option exercise notice, it shall promptly notify Borrower within ten (10) days
after the receipt of such notice, and the parties shall endeavor to reach
agreement on the Purchase Price within thirty (30) days thereafter. If they
are able to do so, closing, as provided above, shall occur within ten (10) days
after they have reached agreement on the Purchase Price. If they are unable to
reach agreement on the Purchase Price, either party may elect to have the
Purchase Price determined through arbitration in accordance with Article XII
hereof, and the closing shall then occur within ten (10) days after the
arbitrator(s) have notified Lender and Borrower of the Purchase Price that has
been so determined. After Borrower has notified Lender of Borrower's election to
exercise its option to purchase the ORRI, such election shall not be revocable,
and Lender shall have the right to enforce specific performance of Borrower's
resulting obligation to purchase.
Section VIII.7 Removal and Appointment of Operator. Lender shall, in its
reasonable discretion, have the right to approve or disapprove any action taken
by Borrower to resign as Operator of any of the Properties, or to appoint,
remove or replace the Operator of any of the Properties.
Section VIII.8 Set-Off Rights. Upon the occurrence and during the continuance of
an Event of Default, Lender shall have the right to set-off and apply against
the Obligations in such manner as Lender may determine, at any time to Borrower,
any and all deposits (general or special, time or demand, provisional or final)
or other sums at any time credited by or owing from Lender or any depositary to
Borrower whether or not the Obligations are then due, except for any amounts
owing to third-party Working Interest and Royalty Interest holders of which the
Lender shall have been notified. Lender shall provide notice to Borrower not
later than five (5) days following any application of such funds. As further
security for the Obligations, Borrower hereby grants to Lender a security
interest in all money, instruments, and other property of Borrower now or
hereafter held by Lender, including, without limitation, property held in
safekeeping. In addition to Lender's right of set-off and as further security
for the Obligations, Borrower hereby grants to Lender a security interest and
lien in all deposits (general or special, time or demand, provisional or final)
and other accounts of Borrower now or hereafter on deposit with or held by
Lender or any depositary and all other sums at any time credited by or owing
from Lender or any depositary to Borrower. The rights and remedies of Lender
hereunder are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which Lender may have.
Section VIII.9 Joint and Several Liability of Borrowers. Each Borrower shall be
jointly, severally and primarily liable for the payment and performance of all
Obligations of Borrower hereunder. When and if Lender exercises any of its
rights or remedies under this Agreement or any other Loan Document, it may do so
against both Borrowers jointly, against both Borrowers pursuing different rights
or remedies with respect to each, and/or against either Borrower, without
pursuing any rights or remedies against the other. Should either Borrower
become insolvent or seek protection under the federal Bankruptcy Code or other
similar law of any jurisdiction or have an involuntary proceeding filed against
it pursuant to the federal Bankruptcy Code or other similar law of any
jurisdiction while the other Borrower is not insolvent and not subject to any
such bankruptcy proceeding, the parties hereby agree that the pendency of the
insolvency or bankruptcy proceedings relating to one such Borrower shall not
stay or otherwise impede the right of Lender to pursue its rights and remedies
against the other Borrower, and should any legal proceeding involving Lender and
both Borrowers be initiated by any such party at a time when one of the
Borrowers, but not the other, is insolvent or subject to a bankruptcy
proceeding, each Borrower hereby stipulates, agrees and hereby confesses a
judgment that Lender shall have the absolute right to have the action(s)
involving Lender and the Borrower that is not insolvent or subject to a
bankruptcy proceeding severed from the action(s) involving Lender and the
Borrower that is insolvent or subject to such bankruptcy proceeding.
ARTICLE IX: Closing; Conditions to Closing
Section IX.1 Closing. Subject to the conditions set forth in this Agreement,
the Closing shall occur at a mutually agreeable time on or before September 15,
1999. The date the Closing actually occurs is hereby called the "Closing Date."
The Closing shall be held at the offices of Lender's counsel in Houston, Texas,
or at such other place as Borrower and Lender may agree in writing.
Section IX.2 Conditions to Closing. As conditions precedent to the making of
the Initial Loan hereunder and to the making of any Development Loans, Borrower
shall have delivered to Lender the following documents duly executed and in
form and substance satisfactory to Lender:
(a) the Advancing Note and multiple counterparts of this Agreement;
(b) a certificate of the secretary or assistant secretary of each
Borrower dated the Closing Date, certifying the incumbency of its officers
executing this Agreement and any other documents required hereby and
certifying resolutions adopted by the board of directors of each Borrower
authorizing each Borrower's execution and delivery of this Agreement, the
Advancing Note, the Mortgage and all other documents and instruments
contemplated by this Agreement;
(c) a certificate of the president, chief executive officer or a
vice president of each Borrower dated the Closing Date, certifying the
truth and accuracy of the representations and warranties of such Borrower
set forth in this Agreement and such Borrower's performance and compliance
with all agreements and covenants required by this Agreement to be
performed or complied with prior to the making of the Loans;
(d) a copy of the Articles of Incorporation of each Borrower
certified by the Secretary of State of the State of Colorado and a copy of
its bylaws certified by the secretary or an assistant secretary of such
Borrower;
(e) a certificate of the president, chief executive officer or a
vice president of each Borrower dated the Closing Date, certifying the
truth and accuracy of all Schedules attached to this Agreement;
(f) certificates, as of the most recent dates practicable, of the
Secretary of State of Colorado attesting to each Borrower's existence and
good standing, and of each applicable department or agency of each state
in which such Borrower is qualified to do business as a foreign
corporation attesting to such qualification and good standing of such
Borrower;
(g) each Mortgage dated as of the Closing Date and in as many
counterparts as Lender may require;
(h) Letters in Lieu of Transfer Order in as many counterparts as
Lender may require;
(i) U.C.C.-1 financing statements to be filed under the Uniform
Commercial Code;
(j) the written opinions of Borrower's counsel dated the Closing
Date and addressed to Lender in the form satisfactory to Lender;
(k) evidence that Borrower has obtained insurance in accordance with
Sections 7.1(p) and (q) hereof;
(l) a Reserve Report satisfactory to Lender's staff petroleum
engineer from an engineer attesting to the quantity of reserves underlying
the Properties and their classification (e.g., Proved Developed Producing
Reserves), as calculated in accordance with the standards of the
Securities and Exchange Commission;
(m) Title Opinions satisfactory to Lender establishing that
Subsidiary Borrower has Defensible Title to the Properties, subject only
to Permitted Encumbrances;
(n) a Swap Agreement;
(o) the results of a Uniform Commercial Code search showing all
financing statements and other documents or instruments on file against
Borrower, in the Offices of the Secretary of State of the States of
Colorado and New Mexico, and in the counties in which Properties are
located, such search to be as of a date no more than ten (10) days prior
to the date of the advance of the Loans;
(p) any and all fees required under this Agreement are paid in full;
(q) the Security Agreement;
(r) the Hydrocarbon Purchase and Sale Agreement;
(s) the Agency Agreement;
(t) the Intercreditor Agreement, duly executed by Borrower and the
Equipment Lender;
(u) a duly authorized and issued certificate evidencing Lender's
ownership of 420,000 shares of Borrower Stock;
(v) evidence that any existing Liens affecting title to the
Properties, including, but not limited to, the Liens securing the Debt
described on Schedule 4.1(h) attached hereto, have been unconditionally
released;
(w) evidence satisfactory to Lender that the "Employee Participation
Agreement, Burns Ranch Prospect, Rio Arriba County, New Mexico" dated
September 12, 1986 between Mallon Oil Company and George O. Mallon, Jr.
has been terminated;
(x) evidence that Borrower and Equipment Lender have entered into
the Equipment Loan on terms satisfactory to Lender; and
(y) such other documents and instruments as Lender may reasonably
request; and
(z) Lender shall have received satisfactory due diligence analysis
including, but not limited to, financial and operational data, title and
environmental review, all such data to be provided by Borrower; and
(aa) Lender shall have received satisfactory information regarding
existing gas sales and oil sales which will include, for gas sales on a
well-by-well basis, where applicable, transportation costs, gathering
costs, processing costs, gas stream heating content, then-current market
prices for gas of similar quality and copies of existing sales contracts
and for oil sales, individual well specific gravity of produced oil,
transportation costs, sulfur content, purchase bonuses, then-current
market prices for oil of similar quality, and copies of existing sales
contracts.
Section IX.3 Conditions Precedent to Funding of Development Loans. Lender
shall not make any Development Loan available unless the following conditions
precedent have been satisfied.
(a) There is no Event of Default, Unmatured Event of Default or Tax
Claim under this Agreement, the Mortgage or any other Loan Document;
(b) All of Borrower's representations and warranties made in any
Loan Document shall be true and correct as if made on the date of such
loan (except to the extent that the facts upon which such representation
are based have been changed by the extension of credit hereunder);
(c) Borrower shall have performed and complied with all agreements
and conditions in the Loan Documents which are required to be performed or
complied with by it on or prior to the date of such Loans;
(d) No law, regulation, order, judgment or decree of any
governmental authority is in effect or pending which shall enjoin,
prohibit or restrain such loan or impose, or result in the imposition of,
any adverse condition upon Lender; and
(e) Lender shall have received all documents and instruments which
Lender has then reasonably requested as to, (i) the accuracy and validity
of or compliance with all representations, warranties and covenants made
by any Person in any Loan Document, (ii) the satisfaction of all
conditions contained herein or therein, and (iii) all other matters
pertaining hereto and thereto. All such additional documents and
instruments shall be satisfactory to Lender (in reasonable exercise of its
discretion) in form, substance, and date.
ARTICLE X: Events of Default and Remedies
Section X.1 Events of Default. Each of the following events constitutes an
Event of Default under this Agreement:
(a) Borrower fails to pay any Obligation for principal or interest
owing under the Advancing Note when the same is due and payable, whether
at a date for the payment of a fixed installment or as a contingent or
other payment becomes due and payable or as a result of acceleration or
otherwise;
(b) Projected Net Revenue attributable to Proved Reserves, based on
any of the Reserve Reports to be delivered to Lender after the Closing
Date (after being adjusted to incorporate the parameters set forth in
Section 7.1(f) hereof) is insufficient to fully amortize the Loans by
their stated maturity;
(c) Any Loan Document at any time ceases to be valid, binding and
enforceable against Borrower for any reason other than its release or
subordination made with the consent of Lender, and such cessation is not
remedied in full within thirty (30) days after Borrower receives notice
thereof;
(d) Any "Event of Default" (as defined in the Mortgage) (other than
an event which is referred to in subsection (a) through (b) above) occurs
under the Mortgage, and the same is not remedied within the applicable
period of grace (if any) provided in such Mortgage;
(e) Borrower fails (other than as referred to in subsections (a)
through (c) above) to duly observe, perform or comply with any covenant,
agreement, condition or provision of any Loan Document, and such failure
is not remedied within thirty (30) days of the time at which Borrower
receives notice from Lender or otherwise knows or should have known of
such failure;
(f) Any representation or warranty previously, presently or
hereafter made in writing by or on behalf of Borrower in connection with
any Loan Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made;
(g) Any lien against the Mortgaged Property resulting from a Tax
Claim or any other Lien against the Mortgaged Property for $250,000 or
more is asserted and such Lien is not withdrawn, stayed, vacated, bonded,
paid or otherwise disposed of within thirty (30) days thereafter;
(h) Subject to Permitted Encumbrances, Lender shall at any time not
have a perfected first priority security interest and/or Lien on all or
any part of the Collateral;
(i) Subsidiary Borrower's Working Interest and/or Net Revenue
Interest on the Properties is decreased, other than by virtue of the
Overriding Royalty Interest Conveyance, from those set forth in Exhibit A
to the Mortgage without the prior written consent of Lender;
(j) Borrower:
(i) has entered against it a judgment, decree or order for
relief by a court of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or
other similar law of any jurisdiction now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended,
or has any such proceeding commenced against it which remains
undismissed for a period of sixty (60) days; or
(ii) commences a voluntary case under any applicable
bankruptcy, insolvency or similar law now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended;
or applies for or consents to the entry of an order for relief in an
involuntary case under any such law; or makes a general assignment
for the benefit of creditors; or fails generally to pay (or admits
in writing its inability to pay) debts as such debts become due; or
takes corporate or other action to authorize any of the foregoing;
or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of
any part of the Collateral in a proceeding brought against or
initiated by it, and such appointment or taking possession is
neither made ineffective nor discharged within sixty (60) days after
the making thereof, or such appointment or taking possession is at
any time consented to, requested by or acquiesced to by it; or
(iv) suffers the entry against it of a judgment for the
payment of money in excess of $500,000, unless: (i) the same is
discharged within thirty (30) days after the date of entry thereof,
(b) an appeal or appropriate proceeding for review thereof is taken
within such period and a stay of execution pending such appeal is
obtained, or (c) the judgment is covered by insurance and the
insurance company has accepted liability therefor; or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any court against all or any substantial
part of its assets or any part of the Collateral, and such writ or
warrant of attachment or any similar process is not stayed or
released within sixty (60) days after the entry or levy thereof or
after any stay is vacated or set aside; or
(vi) fails to pay any Indebtedness in excess of $150,000
(other than Indebtedness hereunder) or any interest or premium
thereon, when due (whether at scheduled maturity or by acceleration,
demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to any such Indebtedness or any other event
shall occur and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of
such default or event is to accelerate or to permit the acceleration
of, the maturity of such Indebtedness (in excess of $150,000), or
if, as the result of such a default, any such Indebtedness (in
excess of $150,000) shall be declared to be due and payable, or is
required to be prepaid, prior to the stated maturity thereof; or
(vii) fails to perform its obligations under the Overriding
Royalty Interest Conveyance or any Swap Agreement and such failure
continues beyond any applicable grace period set forth therein; or
(k) Borrower defaults in the payment or performance of its
obligations under the Equipment Loan or with respect to any
representation, warranty or covenant in any agreement or other document
made or entered into by Borrower in connection with the Equipment Loan.
Section X.2 Acceleration.
(a) Automatic Acceleration. Upon the occurrence of an Event of
Default described in subsection (j)(i), (j)(ii) or (j)(iii) of Section
10.1, all of the Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration
of any kind, all of which are hereby expressly waived by Borrower and each
obligor who at any time ratifies or approves this Agreement. After any
acceleration under this subsection, any obligation of Lender to make any
further Loans or advances of any kind under any Loan Document shall at the
option of Lender be permanently terminated.
(b) Partial Acceleration. Upon the occurrence and during the
continuance of any Event of Default described in subsection (a), (c), (d),
(e) or (g) of Section 10.1 with respect to any Obligation owing or Loan
Document executed in connection thereto, Lender at any time and from time
to time may, without notice to Borrower, except as may otherwise be
required hereunder, declare any and all such Obligations immediately due
and payable, without demand, presentment, notice of demand or of dishonor
and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by
Borrower.
(c) Tax Claims. Upon the occurrence and during the continuance of
an Event of Default described in subsection (g) of Section 10.1 with
respect to any Tax Claim of $250,000.00 or more, Lender may at any time
and from time to time and without notice to Borrower, except as may
otherwise be required hereunder, declare any or all of the Obligations
associated with such Tax Claim (or which Lender in its reasonable
discretion believes will be likely to become associated with such Tax
Claim or any similar future Tax Claim) immediately due and payable, and
all such Obligations shall thereupon be immediately due and payable,
without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration
of any kind, all of which are hereby expressly waived by Borrower.
(d) Other Acceleration. Upon the occurrence and during the
continuance of any Event of Default not described in the preceding
subsections (a), (b) or (c) of this Section 10.2, Lender may at any time
and from time to time and without notice to Borrower, except as may
otherwise be required hereunder, declare any or all of the Obligations
immediately due and payable, and all such Obligations shall thereupon be
immediately due and payable, without demand, presentment, notice of demand
or of dishonor and nonpayment, protest, notice of protest, notice of
intention to accelerate, declaration or notice of acceleration, or any
other notice or declaration of any kind, all of which are hereby expressly
waived by Borrower.
Section X.3 Remedies. If any Event of Default shall occur and be continuing,
Lender's obligation to make any Development Loan(s) shall be suspended, and
Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and Lender may enforce the
payment of any Obligations due or enforce any other legal or equitable right.
All rights, remedies and powers conferred upon Lender under the Loan Documents
shall be deemed cumulative and not exclusive of any other rights, remedies or
powers available under the Loan Documents or at law or in equity. If any
Unmatured Event of Default shall occur and be continuing, Lender's obligation
to make any Development Loans shall be suspended, except as expressly provided
to the contrary herein, so long as any such Unmatured Events of Default or
resulting Event of Default is continuing.
Section X.4 Indemnity. Except to the extent expressly provided otherwise in
another Loan Document, Borrower agrees to indemnify Lender, upon demand, from
and against any and all liabilities, obligations, claims, losses, damages,
penalties, fines, actions, judgments, suits, settlements, costs, expenses or
disbursements (including reasonable fees of attorneys, experts and advisors) of
any kind or nature whatsoever (in this section collectively called "liabilities
and costs") which to any extent (in whole or in part) may be imposed on,
incurred by or asserted against Lender growing out of, resulting from or in any
other way associated with any of the Collateral, the Loan Documents or the
transactions and events including the enforcement or defense thereof at any time
associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Person or any liabilities or
duties of any Person with respect to Hazardous Materials found in or released
into the environment). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT
SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR
IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY LENDER PROVIDED ONLY
THAT NO PERSON SHALL BE ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION
FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS CAUSED BY SUCH
PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. As used in this section the
term "Lender" shall refer not only to the Person designated as such in Section
1.1, but also to its lender(s) and members and, with respect to each of the
foregoing, each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.
ARTICLE XI: Miscellaneous
Section XI.1 Waivers and Amendments; Acknowledgments and Admissions.
(a) Waivers and Amendments. No failure or delay (whether by course
of conduct or otherwise) by Lender in exercising any right, power or
remedy which Lender may have under any of the Loan Documents shall operate
as a waiver thereof or of any other right, power or remedy, nor shall any
single or partial exercise by Lender of any such right, power or remedy
preclude any other or further exercise thereof or of any other right,
power or remedy. No waiver of any provision of any Loan Document and no
consent to any departure therefrom shall ever be effective unless it is in
writing and signed by Lender, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which
given and to the extent specified in such writing. No notice to or demand
on Borrower shall in any case of itself entitle Borrower to any other or
further notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire understanding
and agreement of the parties hereto and thereto with respect to the
transactions contemplated herein and therein and supersede all prior
discussions and understandings with respect to the subject matter hereof
and thereof, and no modification or amendment of or supplement to this
Agreement or the other Loan Documents shall be valid or effective unless
the same is in writing and signed by the party against whom it is sought
to be enforced.
(b) Acknowledgments and Admissions. Borrower hereby represents,
warrants and acknowledges that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is
a party, (ii) it has made independent decisions to enter into this
Agreement and the other Loan Documents to which it is a party, without
reliance on any representation, warranty, covenant or undertaking by
Lender, whether written, oral or implicit, other than as expressly set out
in this Agreement or in another Loan Document delivered on or after the
date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by Lender to Borrower as to the Loan Documents
except as expressly set out in this Agreement or in another Loan Document
delivered on or after the date hereof, (iv) Lender owes no fiduciary duty
to Borrower with respect to any Loan Document or the transactions
contemplated thereby, (v) the relationship pursuant to the Loan Documents
between Borrower, on one hand, and Lender, on the other hand, is and shall
be solely that of debtor and creditor, respectively, (vi) no partnership
or joint venture exists with respect to the Loan Documents between
Borrower and Lender, (vii) should an Event of Default or Unmatured Event
of Default occur or exist Lender will determine in its sole discretion and
for its own reasons what remedies and actions it will or will not exercise
or take at that time, (viii) without limiting any of the foregoing,
Borrower is not relying upon any representation or covenant by Lender, or
any representative thereof, and no such representation or covenant has
been made, that Lender will, at the time of an Event of Default or
Unmatured Event of Default, or at any other time, waive, negotiate,
discuss or take or refrain from taking any action permitted under the Loan
Documents with respect to any such Event of Default or Unmatured Event of
Default or any other provision of the Loan Documents, and (ix) Lender has
relied upon the truthfulness of the acknowledgments in this section in
deciding to execute and deliver this Agreement and to make the Loans.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section XI.2 Survival of Agreements: Cumulative Nature. Lender may assign and/
or transfer its rights and privileges under the Loan Documents at any time and
from time to time, including, but not limited to, any collateral assignment to
secure any Indebtedness of Lender to any other Person. Any assignee of any of
Lender's rights under any of the Loan Documents shall be subrogated to any
related rights and remedies that Lender may exercise against Borrower. All of
the various representations, warranties, covenants and agreements of Borrower in
the Loan Documents shall survive the execution and delivery of this Agreement
and the other Loan Documents and the performance hereof and thereof, including
the making or granting of the Loans and the delivery of the Advancing Note and
the other Loan Documents, and shall further survive until all of the Obligations
are paid in full to Lender and all of Lender's obligations to Borrower are
terminated. The representations, warranties and covenants made by Borrower in
the Loan Documents, and the rights, powers and privileges granted to Lender in
the Loan Documents, are cumulative, and, except for expressly specified waivers
and consents, no Loan Document shall be construed in the context of another to
diminish, nullify or otherwise reduce the benefit to Lender of any such
representation, warranty, covenant, right, power or privilege. In particular
and without limitation, no exception set out in this Agreement to any
representation, warranty or covenant herein contained shall apply to any similar
representation, warranty or covenant contained in any other Loan Document, and
each such similar representation, warranty or covenant shall be subject only to
those exceptions which are expressly made applicable to it by the terms of the
various Loan Documents.
Section XI.3 Notices. All notices, requests, consents, demands and other
communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document, and shall
be deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy, by delivery service with proof of delivery or by registered or
certified United States mail, postage prepaid, (unless changed by similar notice
in writing given by the particular Person whose address is to be changed). Any
such notice or communication shall be deemed to have been given (a) in the case
of personal delivery or delivery service, as of the date of delivery at the
address and in the manner provided herein, (b) in the case of telecopy, upon
receipt, or (c) in the case of registered or certified United States mail three
(3) business days after deposit in the mail.
For mail delivery to:
Mallon Resources Corporation
Attention: Mr. George O. Mallon, Jr.
999 18th Street, Suite 1700
Denver, Colorado 80202
Phone No.: (303) 293-2333
Telecopy No.: (303) 293-3601
with copies to:
Holme Roberts & Owen, L.L.P.
Attention: Mr. Thomas A. Richardson
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203-4541
Phone No.: (303) 866-0413
Telecopy No.: (303) 866-0200
For mail delivery to:
Aquila Energy Capital Corporation
Attention: Mr. Lee-Ken Choo
909 Fannin, Suite 1850
Two Houston Center
Houston, Texas 77010-1007
Phone No.: (713) 336-7441
Telecopy No.: (713) 336-7404
with copies to:
Porter & Hedges, L.L.P.
Attention: Mr. Michael L. Grove
700 Louisiana, Suite 3500
Houston, Texas 77002
Phone No.: (713) 226-0657
Telecopy No.: (713) 226-0257
All notices and other communications from Lender to Borrower hereunder shall be
deemed effectively given or made to each Borrower if given to the Parent
Borrower. All notices and other communications from Borrower to Lender
hereunder shall be give or made by Parent Borrower on behalf of each Borrower,
and Lender shall have no obligation to respond to, or otherwise be bound by any
notice or communication received by it solely from the Subsidiary Borrower.
Section XI.4 Parties in Interest; Transfers. All grants, covenants and
agreements contained in the Loan Documents shall bind and inure to the benefit
of the parties thereto and their respective successors and assigns; provided,
however, that Borrower shall not assign or transfer any of its rights or
delegate any of its duties or obligations under any Loan Document without the
prior written consent of Lender which shall not unreasonably be withheld. Lender
may assign or transfer any of its rights or delegate any of its duties or
obligations under any Loan Document to any third party (including Affiliates of
Lender) that has a credit rating by Standard & Poors that is as good as or
better than Standard & Poors' credit rating of Lender's parent company, Aquila
Energy Corporation. Nothing expressed or referred to in this Agreement shall be
construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy, or claim under or with respect to this Agreement or
any provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns.
Section XI.5 Governing Law; Submission to Process. Except to the extent that
the law of another jurisdiction is expressly elected in a Loan Document, the
Loan Documents shall be deemed contracts and instruments made under the laws of
the State of Texas and shall be construed and enforced in accordance with and
governed by the laws of the State of Texas, without regard to principles of
conflicts of law. This Agreement has been entered into in Houston, Texas and
shall be performable for all purposes in Harris County, Texas. Subject to the
provisions of Article XII, courts within the State of Texas shall have
jurisdiction over any and all disputes between Borrower and Lender, whether in
law or equity, including, but not limited to, any and all disputes arising out
of or relating to this Agreement or any other Loan Document; and venue in any
such dispute whether in federal or state court shall be laid in Harris County,
Texas.
Section XI.6 Limitation on Interest. Lender, Borrower and any other parties to
any Loan Documents intend to contract in strict compliance with applicable usury
law from time to time in effect. In furtherance thereof, the parties stipulate
and agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract to pay, for the use, forbearance or
detention of money, interest in excess of the maximum amount of interest
permitted to be charged by applicable law from time to time in effect. Neither
Borrower nor any present or future guarantors, endorsers or other Persons
hereafter becoming liable for payment of any Obligation shall ever be liable for
unearned interest thereon or shall ever be required to pay interest thereon in
excess of the maximum amount that may be lawfully charged under applicable law
from time to time in effect, and the provisions of this section shall control
over all other provisions of the Loan Documents which may be in conflict or
apparent conflict herewith. Lender expressly disavows any intention to charge
or collect excessive unearned interest or finance charges in the event the
maturity of any Obligation is accelerated. If (a) the maturity of any
Obligation is accelerated for any reason, (b) any Obligation is prepaid and as a
result any amounts held to constitute interest are determined to be in excess of
the legal maximum, or (c) Lender or any other holder of any or all of the
Obligations shall otherwise collect moneys which are determined to constitute
interest which would otherwise increase the interest on any or all of the
Obligations to an amount in excess of that permitted to be charged by applicable
law then in effect, then all such sums determined to constitute interest in
excess of such legal limit shall, without penalty, be promptly applied to reduce
the then outstanding principal of the related Obligations or, at Lender's or
such holder's option, promptly returned to Borrower or the other payor thereof
upon such determination. In determining whether or not the interest paid or
payable under any specific circumstance exceeds the maximum amount permitted
under applicable law, Lender and Borrower (and any other payors thereof) shall
to the greatest extent permitted under applicable law, (x) characterize any non-
principal payment as an expense, fee or premium rather than as interest, (y)
exclude voluntary prepayments and the effects thereof, and (z) amortize,
prorate, allocate and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable law.
Section XI.7 Termination; Limited Survival. In their sole and absolute
discretion, Borrower and Lender may each, at any time that no Obligations are
owing, elect in a notice delivered to the other to terminate this Agreement.
Upon receipt of such a notice, if no Obligations are then owing, this Agreement
and all other Loan Documents shall thereupon be terminated and the parties
thereto released from any prospective obligations thereunder. Notwithstanding
the foregoing or anything herein to the contrary, any waivers or admissions made
by Borrower or Lender in any Loan Documents, and any obligations which any
Person may have to indemnify or compensate Lender shall survive any termination
of this Agreement or any other Loan Document. At the request and expense of
Borrower, Lender shall prepare and execute all necessary instruments to reflect
and effect such termination of the Loan Documents; provided however, that
nothing in this Section 11.7 shall affect any and all continuing rights,
validity and enforceability of the ORRI if it has been or is required to have
been conveyed.
Section XI.8 Severability. If any term or provision of any Loan Document shall
be determined to be illegal or unenforceable, all other terms and provisions of
the Loan Documents shall nevertheless remain effective and shall be enforced to
the fullest extent permitted by applicable law.
Section XI.9 Counterparts. This Agreement may be separately executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Agreement.
Section XI.10 Further Assurances. The parties agree (a) to furnish upon request
to each other such information, (b) to execute and deliver to each other such
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the Loan Documents.
Section XI.11 Waiver of Jury Trial, Punitive Damages, Etc . BORROWER AND
LENDER HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE,
TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY
TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY; (b) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW ANY
RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION OR ARBITRATION
ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFY THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION OR ARBITRATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (d)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
Section XI.12 Controlling Provision Upon Conflict. Except as may be expressly
provided otherwise herein, in the event of a conflict between the provisions of
this Agreement and those of any other Loan Document or any other instrument
referred to herein or executed in connection with this Agreement, the provisions
of this Agreement shall control.
ARTICLE XII: Arbitration
Section XII.1 Arbitration.
(a) Borrower and Lender and any other obligor party (the "parties") will
attempt in good faith to resolve any controversy or dispute arising out of or
relating to this Agreement promptly by negotiations between themselves. The
negotiation process may be started by the giving of written notice by any party
to the other parties in accordance with the terms of Section 11.3 hereof, and
the parties agree to negotiate in good faith, and select an independent mediator
to facilitate the negotiations and conduct up to eight consecutive hours of
mediated negotiations in Houston, Texas within 30 days after the notice is first
sent. If, within 10 days after the initial notice, the parties are not able to
agree upon a mediator, the party originally giving the notice shall promptly
notify American Arbitration Association ("AAA"), 1001 Fannin, Houston, Texas
77002, (713) 739-1302. AAA will promptly designate a mediator who is
independent and impartial, and AAA's decision about the identity of the mediator
will be final and binding.
(b) No arbitration may be commenced by any party unless and until a
negotiation complying with the foregoing paragraph has been completed, and no
litigation or other proceeding may ever be instituted at any time in any court
for the purpose of adjudicating, interpreting or, except as may be set forth in
Section 12.1(h) hereof, enforcing any rights or obligations of the parties
hereto or any rights or obligations relating to the subject matter hereof,
whether or not covered by the express terms of this Agreement, or for the
purpose of adjudicating a breach or determination of the validity of this
Agreement, or for the purpose of appealing any decision of an arbitrator.
(c) If a controversy or dispute is not resolved after completion of the
negotiation process described above, then, upon notice by any party to the other
parties (an "Arbitration Notice") and to AAA, the controversy or dispute shall
be submitted to an arbitration panel for binding arbitration in Houston, Texas,
in accordance with AAA's Commercial Arbitration Rules (the "Rules"). The
parties agree that they will faithfully observe this Agreement and the Rules and
that they will abide by and perform any award rendered by the arbitration panel.
The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
Section 1-16 (or by the same principles enunciated by such Act in the event it
may not be technically applicable). The award or judgment of the arbitration
panel shall be final and binding on all parties and judgment upon the award or
judgment of the arbitration panel may be entered and enforced by any court
having jurisdiction. If any party becomes the subject of a bankruptcy,
receivership or other similar proceeding under the laws of the United States of
America, any state or commonwealth or any other nation or political subdivision
thereof, then, to the extent permitted or not prohibited by applicable law, any
factual or substantive legal issues arising in or during the pendency of any
such proceeding shall be subject to all of the foregoing mandatory mediation and
arbitration provisions and shall be resolved in accordance therewith. The
agreements contained herein have been given for valuable consideration, are
coupled with an interest and are not intended to be executory contracts. The
fees and expenses of the arbitration panel will be shared by all parties engaged
in the dispute or controversy on a basis determined to be fair and equitable by
the arbitrator, taking into account the relative fault of each party, the
relative credibility and merit of all claims and defenses made by each party and
the cooperation, speed and efficiency of each party in conducting the
arbitration proceedings and complying with the Rules and with orders and
requests of the arbitrator.
(d) Promptly after the Arbitration Notice is given, each party will select
an arbitrator who will in turn select an independent and impartial third
arbitrator. If the arbitrators selected by the parties are unable to agree on
a third arbitrator, then one of the parties shall notify AAA and AAA shall
select the third arbitrator. The decision of AAA with respect to the selection
of the arbitrator will be final and binding in such case. Such three
arbitrators will constitute the arbitration panel. Any arbitration regarding
the Purchase Price for the ORRI shall be conducted by arbitrators who are
petroleum engineers employed by one or more of the firms designated in Section
7.1(f) hereof.
(e) Within 10 days after the selection of the arbitration panel, the
parties and their counsel will appear before the arbitration panel at a place
and time in Houston, Texas, as may be designated by the arbitration panel for
the purpose of each party making a one hour or less presentation and summary of
the case. Thereafter, the arbitration panel will set dates and times for
additional hearings until the proceeding is concluded. The desire and goal of
the parties is, and the arbitration panel will be advised that its goal should
be, to conduct and conclude the arbitration proceeding as expeditiously as
possible. If any party or his counsel fails to appear at any hearing, the
arbitration panel shall be entitled to reach a decision based on the evidence
which has been presented to it by the parties who did appear. Any arbitral
award may be confirmed by a Texas state court.
(f) Any arbitral award may be enforced in the courts of the state of Texas
or of the United States of America for the Southern District of Texas, and, by
execution and delivery of this Agreement, the parties hereby accept for
themselves and in respect of their property, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts for said purpose and the
parties hereby irrevocably waive to the fullest extent permitted by law any
objection, including without limitation, any objection to the laying of venue or
based on the grounds of forum non conveniens, which they may now or hereafter
have to the bringing of any such action or proceeding in such respective
jurisdictions.
(g) The arbitration panel will have no authority to award punitive or
other damages not measured by the prevailing party's actual damages and may not,
in any event, make any ruling, finding, or award that does not conform to the
terms and conditions of this Agreement.
(h) The provisions of this Section 12.1 relating to arbitration of
disputes shall not apply to litigation that is instituted for the sole purpose
of either: (i) compelling a party to submit to arbitration in accordance with
the provisions of this Section 12.1, (ii) obtaining enforcement of any award or
judgment of the arbitrator(s) issued pursuant to this Section 12.1, or (iii)
Lender's enforcement of any rights or remedies arising out of an Event of
Default pursuant to Section 10.1(b) of this Agreement..
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
BORROWER:
MALLON RESOURCES CORPORATION,
a Colorado corporation
By:
Kevin M. Fitzgerald
Executive Vice President
MALLON OIL COMPANY,
a Colorado corporation
By:
Kevin M. Fitzgerald
President
LENDER:
AQUILA ENERGY CAPITAL CORPORATION
By:
Kenneth F. Wyatt
Vice President
NOTICE TO BORROWER
THIS WRITTEN CREDIT AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT
BETWEEN BORROWER AND LENDER. THIS WRITTEN CREDIT AGREEMENT MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL CREDIT AGREEMENT OR IF A
CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND LENDER.
Affirmation of No Unwritten Oral Credit Agreements. Borrower and Lender
affirm by the initials below of their authorized officers or representatives
that no unwritten, oral credit agreement exists between them.
Mallon Resources Mallon Oil Lender's
Corporation's Company's Representative's
Representative's Representative's Initials
Initials Initials
ADVANCING NOTE
(this "Note")
$60,000,000.00 Houston, Texas September 9, 1999
On the dates hereinafter prescribed, for value received, MALLON RESOURCES
CORPORATION and MALLON OIL COMPANY, both corporations organized and existing
under the laws of the State of Colorado (collectively, hereinafter called
"Borrower"), unconditionally promise to pay to the order of AQUILA ENERGY
CAPITAL CORPORATION, a corporation organized and existing under the laws of the
State of Delaware (hereinafter called "Lender"), as provided for in that certain
Credit Agreement, by and between Borrower and Lender dated of even date herewith
(the "Credit Agreement"): (i) the principal amount of SIXTY MILLION AND NO/100
DOLLARS ($60,000,000.00) or the principal amount advanced pursuant to the terms
of the Credit Agreement (including, but not limited to, amounts advanced under
Sections 2.1 and 8.4 thereof) and remaining unpaid as of the date of maturity
hereof, whether by acceleration or otherwise, whichever may be the lesser, and
(ii) interest on the principal balance from time to time advanced and remaining
unpaid from the date of the advance until maturity at a rate of interest equal
to the lesser of (a) the Interest Rate (as hereinafter defined), or (b) the
Maximum Rate (as hereinafter defined). Any increase or decrease in interest
rate resulting from a change in the Maximum Rate shall be effective immediately
when such change becomes effective, without notice to Borrower, unless
Applicable Law (as hereinafter defined) requires that such increase or decrease
not be effective until a later time, in which event such increase or decrease
shall be effective at the earliest time permitted under the provisions of such
law.
Notwithstanding the foregoing, if during any period the Interest Rate
exceeds the Maximum Rate, the rate of interest in effect on this Note shall be
limited to the Maximum Rate during each such period, but at all times thereafter
the rate of interest in effect on this Note shall be the Maximum Rate until the
total amount of interest accrued on this Note equals the total amount of
interest which would have accrued hereon if the Interest Rate had at all times
been in effect.
All payments on this Note shall be applied as provided in Section 2.5 of
the Credit Agreement.
This Note is an advancing credit note and it is contemplated that by
reason of prepayments hereon there may be times when no indebtedness is owing
hereunder; but notwithstanding such occurrence, this Note shall remain valid and
in full force and effect as to each principal advance made hereunder subsequent
to each such occurrence.
To the extent federal law of the United States of America permits Lender
to contract for, charge or receive a greater amount of interest, Lender will
rely on such federal law instead of the Texas Finance Code for the purpose of
determining the Maximum Rate. Additionally, to the maximum extent permitted by
Applicable Law now or hereafter in effect, Lender may, at its option and from
time to time, implement any other method of computing the Maximum Rate under the
Texas Finance Code or under other Applicable Law, by giving notice, if required,
to Borrower as provided by Applicable Law now or hereafter in effect.
Notwithstanding anything to the contrary contained herein or in any of the other
Loan Documents (as defined in the Credit Agreement), it is not the intention of
Lender to accelerate the maturity of any interest that has not accrued at the
time of such acceleration or to collect unearned interest at the time of such
acceleration.
In no event shall Chapter 346 of the Texas Finance Code (which regulates
certain revolving loan accounts and revolving tri-party accounts) apply to this
Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to
this Note, the "weekly ceiling" specified in such Chapter 303 is the applicable
ceiling; provided that, if any applicable law permits greater interest, the law
permitting the greatest interest shall apply.
The first Repayment Date (as defined in the Credit Agreement) for this
Note shall be the 30th day of November 1999. On or before such Repayment Date
and on or before each Repayment Date thereafter, a regular monthly installment
on this Note shall be due and payable in accordance with Section 2.5 of the
Credit Agreement. These monthly installments shall continue regularly until the
Loan Termination Date (as defined in the Credit Agreement), on which such date
the unpaid principal balance of this Note shall be due and payable in full.
On or before each Repayment Date, Borrower may make a prepayment of
principal on this Note. Such prepayment shall be without premium or penalty and
shall be applied in accordance with Section 2.3 of the Credit Agreement.
In no event shall the aggregate of the interest on this Note, plus any
other amounts paid in connection with the loan evidenced by this Note which
would under Applicable Law be deemed "interest," ever exceed the maximum amount
of interest which, under Applicable Law, could be lawfully charged on this Note.
Lender and Borrower specifically intend and agree to limit contractually the
interest payable on this Note to not more than an amount determined at the
Maximum Rate. Therefore, none of the terms of this Note or any other instruments
pertaining to or securing this Note shall ever be construed to create a contract
to pay interest at a rate in excess of the Maximum Rate, and neither Borrower
nor any other party liable herefor shall ever be liable for interest in excess
of that determined at the Maximum Rate, and the provisions of this paragraph
shall control over all provisions of this Note or of any other instruments
pertaining to or securing this Note. If any amount of interest taken or
received by Lender shall be in excess of the maximum amount of interest which,
under Applicable Law, could lawfully have been collected on this Note, then the
excess shall be deemed to have been the result of a mathematical error by the
parties hereto and shall be refunded promptly to Borrower. All amounts paid or
agreed to be paid in connection with the indebtedness evidenced by this Note
which would under Applicable Law be deemed "interest" shall, to the extent
permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of this Note.
This Note is secured by the Security Documents (as defined in the Credit
Agreement), including those executed simultaneously herewith, those executed
heretofore and those hereafter executed.
This Note is the Advancing Note issued pursuant to the Credit Agreement.
Reference is hereby made to the Credit Agreement for a statement of the rights
and obligations of the holder of this Note and the duties and obligations of
Borrower in relation thereto. Each advance and each payment made pursuant to
this Note shall be reflected by notations made by Lender on its records and the
aggregate unpaid amounts reflected by the notations on the records of Lender
shall be deemed rebuttably presumptive evidence of the principal amount and
accrued, unpaid interest owing under this Note.
In the event of default in the payment when due of any of the principal of
or any interest on this Note, or in the event of default under the terms of the
Credit Agreement or any of the Security Documents, or if any event occurs or
condition exists which authorizes the acceleration of the maturity of this Note
under any agreement made by Borrower, Lender (or other holder of this Note) may,
at its option, without presentment or demand or any notice to Borrower or any
other person liable herefor, declare the unpaid principal balance of and accrued
interest on this Note to be immediately due and payable.
If this Note is collected by suit or through the Bankruptcy Court, or any
judicial proceeding, or if this Note is not paid at maturity, however such
maturity may be brought about, and is placed in the hands of an attorney for
collection, then Borrower agrees to pay Lender's expenses, including, without
limitation, reasonable attorneys' fees.
Borrower and all sureties, endorsers and guarantors of this Note waive
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate maturity, notice of acceleration of
maturity, and all other notices, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, and agree to any substitution,
exchange or release of any such security or the release of any party primarily
or secondarily liable hereon and further agrees that it will not be necessary
for Lender, in order to enforce payment of this Note by them, to first institute
suit or exhaust its remedies against any Borrower or others liable herefor, or
to enforce its rights against any security herefor, and consent to any one or
more extensions or postponements of time of payment of this Note on any terms or
any other indulgences with respect hereto, without notice thereof to any of
them. Lender may transfer this Note in compliance with applicable provisions of
the Credit Agreement, and the rights and privileges of Lender under this Note
shall, following any such transfer, inure to the benefit of Lender's successors
or assigns.
For purposes of this Note, each of the following terms shall have the
meaning given to such term below in this paragraph:
"Applicable Law" means that law in effect from time to time and applicable
to this Note which lawfully permits the charging and collection of the highest
permissible lawful, non-usurious rate of interest on this Note.
"Business Day" shall mean any day on which banks are open for general
banking business in the State of Texas, other than a Saturday, a Sunday, a legal
holiday or any other day on which banks in the State of Texas are required or
authorized by law or executive order to close.
"Index Rate" means, at any time, the prime rate published in The Wall Street
Journal's "Money Rates" or similar table; provided that if multiple prime
rates are quoted in such table, then the highest such prime rate will be the
Index Rate and, in the event that the prime rate is no longer published by The
Wall Street Journal's "Money Rates" or similar table, then Lender may select an
alternative published index based upon comparable information as a substitute
Index Rate and upon the selection of such a substitute Index Rate, the
applicable interest rate shall thereafter vary in relation to the substitute
index; provided further that such substitute Index Rate shall be the same Index
Rate that is generally used as a substitute by Lender on all loans made by
Lender and bearing interest on the basis of an Index Rate.
"Interest Rate" means, for each calendar month through the Loan
Termination Date an annual rate of the Index Rate plus percent (2.0%) determined
on the first Business Day of such calendar month and otherwise calculated in
accordance with applicable provisions of the Credit Agreement.
"Maximum Rate" means the maximum rate of non-usurious interest permitted
from day to day by Applicable Law.
Executed and effective as of this 9th day of September 1999.
MALLON RESOURCES CORPORATION
By:
Kevin M. Fitzgerald
Executive Vice President
MALLON OIL COMPANY
By:
Kevin M. Fitzgerald
President
BASE AGREEMENT for Natural Gas Purchase Transactions Between AQUILA ENERGY
MARKETING CORPORATION a Delaware corporation with offices at 2533 North 117th
Avenue Omaha, Nebraska 68164-8618 Telephone: (402) 498-4490 Fax: (402) 498-
4543 and MALLON OIL COMPANY a Colorado corporation with offices at 999 18TH St.,
Suite 1700 Denver, CO 80202 Telephone: (303) 293-2333 Fax: (303) 293-3601
Dated: September 1, 1999
Agreement No: 5908-01
BASE AGREEMENT
PART I
(Agreement No. 5908-01)
This Agreement is made and entered into as of the 1st day of September,
1999, (the "Effective Date") by and between AQUILA ENERGY MARKETING CORPORATION
("Aquila") and MALLON OIL COMPANY ("Counterparty") (Aquila and Counterparty
sometimes individually referred to as "Party" and collectively as "Parties").
ARTICLE 1. SCOPE OF AGREEMENT
1.1 This Agreement applies to and governs all Transactions entered into between
the Parties prior to and after the Effective Date, except those Transactions
that have been performed in full prior to the Effective Date.
1.2 The Parties acknowledge and agree that every Transaction incorporates Part
II of this Agreement attached hereto.
1.3 All Transactions are entered into in reliance on the fact that this Base
Agreement and all such Transactions form a single agreement between the Parties,
and the Parties would not otherwise enter into any Transactions.
ARTICLE 2. TRANSACTION DETAILS
2.1 The Parties acknowledge and agree that Transactions will be formed and
effectuated in a recorded telephone conversation between the Parties ("Oral
Transaction"). The oral offer and acceptance between the Parties forms a binding
agreement between the Parties, enforceable from the moment that the
Parties have orally agreed upon all of the essential provisions. A tape of the
Oral Transaction (the "Transaction Tape") is agreed by the Parties to be a
document under which the Transaction is evidenced in tangible form. Each Party
consents to the recording of conversations by its employees which occur while
discussing or entering into Transactions under this Agreement. Each Party may
maintain recording equipment and facilities at its offices, and will retain any
Transaction Tapes in confidence, secured from improper access. The Transaction
Tape, and the terms and conditions described therein, shall be the controlling
evidence of the Parties' agreement with respect to a particular Transaction in
the event a Confirmation Letter is not fully executed by both Parties. Upon
full execution of a Confirmation Letter, such executed Confirmation Letter shall
be the controlling evidence of the Parties' agreement with respect to
the particular Transaction referenced in such Confirmation Letter.
2.2 For each specifically agreed to purchase or sale of Gas for delivery or
receipt to be performed under this Agreement, including Oral Transactions
("Transaction"), Buyer and Seller must agree upon at least the following
essential provisions:
(a) the Period of Delivery;
(b) the Transaction type (i.e., whether Firm Service, EFP Service,
Interruptible Service, or Base Load Service);
(c) the Delivery Point(s);
(d) the Contract Price;
(e) the Contract Quantity; and
(f) Transporter(s).
The foregoing provisions, and any related details of the Transaction, will be
included in all Confirmation Letters.
ARTICLE 3. TERM
3.1 Unless terminated earlier pursuant to any other provision of this Agreement,
the term of this Agreement shall be for a period commencing on the Effective
Date, through the later of September 9, 2000, or the termination of that Credit
Agreement dated September 9, 1999 between Aquila Energy Capital Corporation and
Mallon Oil Company, and continuing month-to-month thereafter until terminated by
either Party upon thirty (30) Days prior written notice to the other; provided,
however, that if one or more Transactions are in effect, termination under this
Article 3 shall not be effective for such Transaction(s) until the expiration of
the Period of Delivery of such Transaction(s).
ARTICLE 4. NOTICES AND COMMUNICATIONS
4.1 Any notice required or permitted to be given by one Party to the other
pursuant to this Agreement shall be in writing (unless otherwise provided) and
may be delivered by hand, transmitted by telecopy or sent by U.S. mail addressed
in accordance with the particulars for notices set forth in Section 4.2 below.
A Party shall have the right to change any of the particulars of its address by
giving a notice in accordance with this Article 4. Any payment required to be
made pursuant to this Agreement shall be made at the address and in the manner
provided herein.
4.2
(i) TO BUYER PAYMENT BY WIRE
Aquila Energy Marketing Corporation The Northern Trust Company
2533 North 117th Avenue, Suite 200 ABA # 071-000-152
Omaha Nebraska 68164-8618 For the Account of Aquila
Energy Marketing Corporation
Account #: 80330
Reason for Notice Attention Telephone No. Facsimile No.
___________________ ______________________ _____________ _____________
Statements/Payments Accounting Department 402-498-4490 402-498-4276
Contractual Contract Administration 402-498-4535 402-498-4543
Operation/Nominations Volume Administration 402-498-4490 402-498-4586
(ii) TO <SELLER> PAYMENT BY WIRE
Mallon Oil Company Bank One, Colorado, N.A.
999 18th St., Suite 1700 ABA# 102001017
Denver, CO 80202 for credit to: Mallon Oil Company
Acct# 1190795730
Reason for Notice Attention Telephone No. Facsimile No.
___________________ ________________ _____________ _____________
Statements/Payments Al Lopez (303) 293-2333 (303) 293-3601
Contractual Kevin Fitzgerald (303) 293-2333 (303) 293-3601
Operation/Nominations Kevin Fitzgerald (303) 293-2333 (303) 293-3601
ARTICLE 5. MISCELLANEOUS
5.1 The interpretation and performance of this Agreement and all Transactions
shall be governed by and construed in accordance with the laws of the State of
Nebraska without regard to principles of conflict of laws.
ARTICLE 6. SPECIAL PROVISIONS
Section 15.2 is hereby amended in the following manner: ", agents," is hereby
added in the third and seventh lines of this Section immediately following the
word "employees".
Section 16.1 is hereby amended in the following manner: The phrase "tenth
(10th)" in the first line thereof is hereby deleted and replaced with "fifteenth
(15th)".
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.
AQUILA ENERGY MARKETING CORPORATION MALLON OIL COMPANY
By: ___________________________________ By: ______________________
Title: ________________________________ Title: ___________________
BASE AGREEMENT
PART II
The terms and conditions of this Part II are incorporated into and made a
part of that certain Base Agreement for Natural Gas Purchase and Sale
Transactions between the Parties dated September 1, 1999
General Terms and Conditions
Table of Contents
ARTICLE 7 DEFINITIONS 2
ARTICLE 8 PURPOSE AND PROCEDURES 5
ARTICLE 9 OBLIGATIONS AND DELIVERIES 5
ARTICLE 10 TRANSPORTATION AND DELIVERY POINTS 7
ARTICLE 11 QUALITY AND MEASUREMENT 8
ARTICLE 12 PROCESSING 8
ARTICLE 13 DEFAULTS AND REMEDIES 8
ARTICLE 14 TAXES 10
ARTICLE 15 TITLE 11
ARTICLE 16 BILLING AND PAYMENT 11
ARTICLE 17 REPRESENTATIONS AND WARRANTIES 12
ARTICLE 18 LIABILITY AND INDEMNIFICATION 12
ARTICLE 19 ASSIGNMENTS 13
ARTICLE 20 SERVICES 13
ARTICLE 21 MISCELLANEOUS 13
EXHIBIT A FIRM SERVICE CONFIRMATION i
EXHIBIT B BASELOAD SERVICE CONFIRMATION iii
EXHIBIT C INTERRUPTIBLE SERVICE CONFIRMATION v
EXHIBIT D EFP SERVICE CONFIRMATION vi
ARTICLE 7. DEFINITIONS
7.1 "Actual Quantity" means the quantity of Gas which actually flowed under a
transportation service agreement as designated by Buyer's or Buyer's Customer's
Transporter in the Transporter's statement to its shipper under such agreement.
7.2 "Affiliate" means, with respect to any person, any other person (other than
an individual) that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such person.
For purposes of the foregoing definition, "control" means the direct
or indirect ownership of more than fifty percent (50%) of the outstanding
capital stock or other equity interests having ordinary voting power.
7.3 "Alternate Reference Price" means the alternative index or methodology for
determining the Reference Price determined in accordance with Section 9.9.
7.4 "Balancing Penalty" or "Penalties" means scheduling and imbalance charges,
penalties, fees, or cash-outs contained in a Transporter's tariff, or in the
tariff of any applicable local distribution company, which may be assessed
against a shipper for failure to satisfy the Transporter's balance and
nomination requirements, or both.
7.5 "Base Load Service" ("BLS") means that the Parties have agreed to make and
accept deliveries of Gas on a non-interruptible basis, subject only to
applicable Force Majeure and to interruption of transportation by either Buyer's
or Seller's Transporter(s).
7.6 "Btu" means British Thermal Unit. "MMBtu" means one million British
Thermal Units.
7.7 "Business Day" means any Day on which Federal Reserve member banks in New
York City are open for business; and a Business Day shall open at 8:00 a.m. and
close at 5:00 p.m. Central Prevailing Time("CPT").
7.8 "Buyer" means the Party to a Transaction hereunder who is obligated to
purchase and receive from Seller, or cause to be received, Gas during a Period
of Delivery.
7.9 "Buyer's Transporter(s)" means the gathering system(s) and transportation
system(s) and companies owning those systems that move the Gas from the Delivery
Point(s) to Buyer or to Buyer's customer(s).
7.10 "Claims" means all claims or actions, threatened or filed and whether
groundless, false or fraudulent, that directly or indirectly relate to the
subject matter of an indemnity, and the resulting losses, damages, expenses,
attorneys fees and court costs, whether incurred by settlement or otherwise, and
whether such claims or actions are threatened or filed prior to or after the
termination of this Agreement.
7.11 "Confirmation Letter" means a written notice confirming the essential
provisions of a Transaction and substantially in the forms set forth as Exhibits
"A," "B," "C," or "D", as applicable.
7.12 "Confirmed Quantity" means the quantity of Gas (expressed as MMBtu's per
day) which has been Nominated for transportation and confirmed by the
Transporter(s).
7.13 "Contract Price" means the price in $U.S. per MMBtu (unless otherwise
provided for) to be paid by Buyer to Seller for the purchase of Gas pursuant to
the terms of a Transaction.
7.14 "Contract Quantity" means the Daily Contract Quantity multiplied by the
number of Days in the Period of Delivery.
7.15 "Daily Contract Quantity" means that quantity of Gas on a daily basis that
Seller agrees to sell and deliver, or cause to be delivered to Buyer, and that
Buyer agrees to purchase and receive, or cause to be received, from Seller
pursuant to the terms of a Transaction.
7.16 "Day" or "Gas Day" means a period of twenty-four (24) hours, beginning at
7:00 a.m. CPT on any calendar Day, or at such other beginning and ending times
as are required in order to correspond to Transporter(s)' tariffs.
7.17 "Delivery Point" means the agreed point of delivery and receipt of Gas
pursuant to a Transaction.
7.18 "EFP Service" ("EFP") means the Parties have agreed to make and accept
deliveries of Gas on a non-interruptible basis subject only to applicable Force
Majeure; and the Parties have also assumed equal and opposite positions in
Natural Gas Future Contracts.
7.19 "FERC" means the Federal Energy Regulatory Commission or any successor
thereto.
7.20 "Firm Service" ("FS") means that the Parties have agreed to make and
accept deliveries of Gas on a non-interruptible basis subject only to applicable
Force Majeure.
7.21 "Force Majeure" means an event not anticipated as of the Effective Date,
which is not within the reasonable control of the Party affected by such event
(the "Affected Party"), which partially or entirely prevents the Affected
Party's performance and which by the exercise of due diligence the Affected
Party is unable to overcome. Force Majeure may include, but is not restricted
to: acts of God; fire; civil disturbance; sabotage; action or restraint by court
order or public or governmental authority (so long as the Affected Party has not
applied for or assisted in the application for, and has opposed where and to the
extent reasonable, such government action); provided, that (i) the loss of
Buyer's markets or Buyer's inability economically to use or resell Gas purchased
hereunder; (ii) the loss of Seller's supply or Seller's ability to sell Gas to a
market at a more advantageous price; (iii) regulatory or contractual
disallowance of the pass-through of the costs of Gas or other related costs;
(iv) increases or decreases in Gas supply due to allocation or reallocation of
production by well operators, pipelines, or other parties; (v) planned
maintenance of a pipeline or appurtenant facilities; and (vi) unless the Parties
specifically agree that Gas is to be sourced from a specific individual well,
lack of pressure or failure of specific, individual wells or appurtenant
facilities in the absence of a Force Majeure event broadly affecting other wells
in the same geographic area, shall not constitute events of Force Majeure.
Interruption by a Transporter shall not be deemed to be Force Majeure unless (a)
the Party contracting with such Transporter shall have made arrangement with
such Transporter for the firm transportation, as defined under the Transporter's
tariff, of the Gas to be delivered or received hereunder and (b) such
interruption is due to a force majeure event as defined under the
Transporter's tariff.
7.22 "Gas" or "Natural Gas" means any mixture of Hydrocarbons or of Hydrocarbons
and non-combustible gases in a gaseous state consisting essentially of methane.
7.23 "Gas Daily" means the publication Gas Daily* published by FT Energy or any
successor thereto.
7.24 "Gas Daily Price" means, for the purpose of determining the payment owed
by a Party to the other Party for failure to deliver or receive Gas, as set
forth in Article 9, the daily Midpoint price listed in Gas Daily under the table
"Daily Price Survey" for production from the same region and pipeline as the
Delivery Point(s) specified in the relevant Transaction(s).
7.25 "Hydrocarbons" means liquid and liquefiable components other than methane
contained in the Gas, including but not limited to ethane, propane, normal
butane, iso-butane and natural gasoline.
7.26 "Incremental Costs" means additional Transportation Costs and reservation
charges for unutilized firm transportation.
7.27 "Initial Nomination Quantity" means the first of the month Nomination as
communicated to Seller by Buyer pursuant to Section 9.2.
7.28 "Interruptible Service" ("IS") means that the Parties have agreed to make
and accept deliveries of Gas on an interruptible basis, and that deliveries of
Gas may be interrupted by either Party upon giving the notice required by
Section 9.2 of this Agreement.
7.29 "Natural Gas Futures Contract" means a standardized contract for the
purchase or sale of Natural Gas which is traded for future delivery under the
provisions of NYMEX rules and regulations.
7.30 "Nomination(s)" means a request(s) sent to the Transporter(s) for the
quantity of Gas which the Seller/Buyer wants transported.
7.31 "NYMEX" means the New York Mercantile Exchange or any successor thereto.
7.32 "Period of Delivery" means the period of time measured from the date
physical delivery of Gas is to commence to the date physical delivery is to
terminate under a Transaction.
7.33 "Process" or "Processing" means the extraction of Hydrocarbons from the
Gas.
7.34 "Reference Price" means, for any Transaction, the price of Gas agreed to by
the Parties in the Transaction. If the Reference Price is based upon a
published index, and if there is no single price published for a particular Day,
but there is published a range of prices under the table and listing which
includes the Delivery Point, then the Reference Price shall be the arithmetic
average of the high and low prices so set forth. In the event that no price or
range of prices is published for that particular Day, then the Reference Price
shall be the arithmetic average of the following:
(a) the prices (determined as stated above) for the first Day immediately
preceding the Day in which the default occurred for which a Reference Price can
be determined; and
(b) the price (determined as stated above) for the Day immediately following
the Day in which such default occurred for which a Reference Price can be
determined.
7.35 "Regulatory Approval" means all current and future valid and applicable
state and federal regulatory authorizations, consents, or approvals required for
the Transaction to occur.
7.36 "Seller" means the Party to a Transaction hereunder who is obligated to
sell and deliver to Buyer, or cause to be delivered, Gas during a Period of
Delivery.
7.37 "Seller's Transporter(s)" means the gathering system(s), transportation
system(s) and companies owning those systems that move the Gas from its source
of supply to the Delivery Point(s).
7.38 "Taxes" means any or all ad valorem, property, occupation, severance,
generation, first use, conservation, Btu or energy, transmission, utility, gross
receipts, privilege, sales, use, excise and other taxes, governmental charges,
licenses, fees, permits and assessments, other than taxes based on net
income or net worth. "New Taxes" means (i) any Taxes enacted and effective
after the Effective Date, including without limitation, that portion of any
Taxes or New Taxes that constitutes an increase, or (ii) any law, rule, order or
regulation, or interpretation thereof, enacted and effective after the Effective
Date resulting in the application of any Taxes to a new or different class of
parties.
7.39 "Transportation Costs" means gathering rates and fuel, transportation and
applicable surcharges, or each of them, as charged by either Seller's
Transporter(s) or Buyer's Transporter(s) at the time Gas flows under any
Transaction.
7.40 "Transporter(s)" means Buyer's Transporter(s) or Seller's Transporter(s)
or both.
ARTICLE 8. PURPOSE AND PROCEDURES
8.1 Service Classifications. The terms of this Agreement shall, unless
specifically agreed otherwise, apply to and be incorporated in the following
Transactions: (i) Interruptible Service ("IS"), (ii) Base Load Service ("BLS"),
(iii) Firm Service ("FS"), or (iv) EFP Service ("EFP"). Some provisions of
this Agreement will apply only to certain types of Transactions. Those
provisions will be indicated at the beginning of the relevant paragraph by use
of initials to designate the Transaction type, e.g. (IS), (BLS), (FS), or (EFP).
8.2 Confirmation Procedure. During the term of this Agreement, Aquila and
Counterparty may notify each other that Gas is available for purchase or sale.
If the Parties agree to the terms of a Transaction, Aquila will prepare and send
to the Counterparty, by facsimile or other mutually acceptable means, a
Confirmation Letter containing the terms agreed upon by the Parties. The
Confirmation Letter for each Transaction shall be substantially in the forms
attached hereto as Exhibits "A" through "D," as applicable. No Confirmation
Letter shall be necessary for Transactions having a Period of Delivery of less
than one (1) calendar month, unless requested by either Party, in which case
Aquila will prepare and send to the Counterparty, by facsimile or other mutually
acceptable means, a Confirmation Letter containing the terms agreed upon by the
Parties. The failure of Aquila to issue, or of the Parties to execute or the
Counterparty to object to, a Confirmation Letter shall not invalidate the
terms of any Oral Transactions entered into between the Parties under this
Agreement. The failure of the Counterparty to notify Aquila of any disagreement
with the Confirmation Letter by 5:00 p.m. CPT on the second Business Day after
transmittal of the Confirmation Letter shall be deemed to be acceptance
by such Party of the terms of such Confirmation Letter and such Confirmation
Letter shall be deemed to be fully executed.
8.3 Notice of Curtailment or Interruption. Each Party shall immediately
contact the other Party in the event of curtailment or interruption of the
purchase or sale of Gas hereunder. Each Party shall contact the other Party
with as much advance notice as possible regarding any such impending
curtailment or interruption.
8.4 No Obligation to Enter into Transactions. Nothing contained in this
Agreement shall be construed as requiring either Party to enter into any
Transactions hereunder. Neither Party shall be obligated hereunder unless
and until the essential provisions of a Transaction referred to in Section 2.2
have been agreed upon pursuant to the procedures in Article 8.
ARTICLE 9. OBLIGATIONS AND DELIVERIES
9.1 Seller's and Buyer's Obligations. With respect to each Transaction and
subject to the terms of this Agreement, Seller shall sell and deliver, or cause
to be delivered, and Buyer shall purchase and receive, or cause to be received,
at the Delivery Point the Contract Quantity, and Buyer shall pay Seller
the Contract Price. Seller shall be responsible for any costs or charges
imposed on or associated with the delivery of the Contract Quantity up to the
Delivery Point. Buyer shall be responsible for any costs or charges imposed on
or associated with the Contract Quantity at and from the Delivery Point.
9.2 Nominations. At least two (2) Business Days prior to the earlier of
Seller's or Buyer's Transporter(s') first of the month Nomination deadline each
month during a Period of Delivery, Buyer shall notify Seller orally and in
writing of the Initial Nomination Quantity for the upcoming month. To the
extent allowed by any Transaction, any changes to the Initial Nomination
Quantity during the month shall be communicated as herein provided one (1)
full Business Day prior to the earlier of Buyer's or Seller's Transporter(s')
daily Nomination deadline. Any Nomination quantity which deviates from the
Contract Quantity shall not relieve Seller of its obligation to make delivery
of the Contract Quantity, unless otherwise agreed to by Buyer. The Parties
shall cooperate to ensure that Nominations are timely made to Seller's
Transporter(s) and Buyer's Transporter(s) and that such Nominations reflect the
actual expected deliveries that will be made and accepted. Seller shall be
responsible for Nominations and confirmations upstream of the Delivery Point
(s) and Buyer shall be responsible for Nominations and confirmations downstream
of the Delivery Point(s).
9.3 Delivery Information. At the time Buyer notifies Seller of the Initial
Nomination Quantity pursuant to Section 9.2, and as necessary during a Period
of Delivery, Seller shall provide Buyer with the following information (if
relevant to the Transaction): (i) meter location(s) and number(s) and valid
transportation agreement number(s); (ii) the priority status or ranking of the
Gas pursuant to an operators' balancing agreement, a pre-determined allocation
or other allocation determinant; (iii) identification of an operator contact;
(iv) location of wells by county and state; and (v) all data required by Buyer's
Transporter(s) to flow Gas.
9.4 Imbalances and Penalties. If either Party becomes aware of any reason why
delivery of the Confirmed Quantity may not be made or accepted, that Party shall
notify the other Party as soon as practicable in order to meet any Nomination
deadlines imposed by the Transporter(s). The Parties will cooperate to ensure
that corrected Nominations are provided to Seller's Transporter(s) and Buyer's
Transporter(s) in a form acceptable to such Transporter(s) in order to meet any
Nomination deadlines. Transporter imbalances and any Balancing Penalties
resulting from failure to timely communicate Nominations or to make delivery or
accept delivery of the Confirmed Quantity shall be the responsibility of the
Party whose failure caused the imbalance or Balancing Penalty. Without limiting
the responsibility and liability imposed by this Section 9.4, however, both
Parties shall cooperate to avoid imbalances and to correct any imbalances which
may occur. Payment for any Balancing Penalties shall be in accordance with the
procedures set forth in Article 16. If a Transporter imbalance is caused by
either Party and such imbalance is not subject to a cash-out mechanism, the
Party causing such imbalance shall nonetheless be liable for all direct actual
damages incurred by the other Party as a result thereof.
9.5 Title, Risk of Loss and Indemnity. As between the Parties, Seller shall
be deemed to be in exclusive control (and responsible for any damages or injury
caused thereby) of the Gas prior to the Delivery Point and Buyer shall be deemed
to be in exclusive control (and responsible for any damages or injury caused
thereby) of the Gas at and from the Delivery Point. Seller warrants that it
will deliver to Buyer the Confirmed Quantity free and clear of all liens, Claims
and encumbrances arising prior to the Delivery Point. Title to and risk of loss
related to the Contract Quantity shall transfer from Seller to Buyer at the
Delivery Point. Seller and Buyer shall each indemnify, defend and hold harmless
the other Party from any Claims arising from any act or incident occurring when
title to the Gas is vested in the indemnifying Party.
9.6 Force Majeure. (FS)(EFP)(BLS) If either Party is rendered unable by Force
Majeure to carry out, in whole or in part, its obligations under a Transaction
and such Party gives written notice and full details of the event to the other
Party as soon as practicable after the occurrence of the event, then during the
pendency of such Force Majeure but for no longer period, the obligations of the
Party affected by the event (other than the obligation to make payments then due
or becoming due with respect to performance prior to the event and except for
Balancing Penalties assessed by a Transporter during the continuance of the
Force Majeure event) shall be excused to the extent required. The Party
affected by the Force Majeure shall remedy the Force Majeure with all reasonable
dispatch; provided, however, that nothing herein shall require Seller to
deliver, or Buyer to receive, Gas at points other than the Delivery Point.
9.7 (FS)(BLS)(EFP) Failure to Deliver/Receive.
(a) Unless excused by Force Majeure or Buyer's failure to perform, if Seller
fails to deliver all or part of the Confirmed Quantity pursuant to a
Transaction, Seller shall pay Buyer, on the date payment would otherwise be due
to Seller, an amount for each MMBtu of such deficiency equal to the positive
difference, if any, obtained by subtracting the Contract Price from the Gas
Daily Price.
(b) Unless excused by Force Majeure or Seller's failure to perform, if Buyer
fails to receive all or part of the Confirmed Quantity pursuant to a
Transaction, Buyer shall pay Seller, on the date payment would otherwise be due
to Seller, an amount for each MMBtu of such deficiency equal to the positive
difference, if any, obtained by subtracting the Gas Daily Price from the
Contract Price.
(c) In addition to the remedies set forth in Section 9.7(a) and (b) above, the
non-performing Party shall also be responsible for Incremental Costs and
Balancing Penalties, if any; provided, Incremental Costs and Balancing Penalties
shall not be recovered twice.
9.8 (IS) Failure to Deliver/Receive. A Party may be excused from delivering or
receiving the Contract Quantity, in whole or in part, for any reason without
liability unless otherwise provided in the Transaction, provided notice is
provided to the other Party in time for the other Party to comply with
nomination deadlines of Transporter(s).
9.9 Alternate Reference Price. If any or all of the indices used to determine
the Reference Price are not available in the future for the determination of the
Reference Price, and if the publication reporting the Reference Price prior to
its unavailability has suggested an alternate index or methodology for
determining the Reference Price, then the Alternate Reference Price shall be
that suggested by such publication. If none is suggested, then the Parties
agree to promptly and in good faith negotiate an Alternate Reference Price.
If the Parties do not agree on a substitute methodology or index by the end of
the first month for which the Reference Price could not be determined, then each
Party shall in good faith prepare a list of up to five alternate published
reference postings or prices representative of spot prices for Gas delivered in
the same geographic area. Each list shall be set forth in that Party's priority
order with the highest priority index listed first. Each Party shall submit
its list to the other within ten (10) days after the end of the first month for
which the price could not be determined as set forth above. The first listed
index appearing in Aquila's list that also appears in Counterparty's list shall
constitute the Alternate Reference Price. If either Party fails to provide a
list of that Party's alternative published references within such ten-day
period, such Party's list shall not be considered, and the first listed index
appearing in the other Party's submitted list shall constitute the Alternate
Reference Price. From and after the date the indices used to determine the
Reference Price are no longer available ("Renegotiation Date"), until the
Alternate Reference Price is determined, the Reference Price shall be deemed
to be the average of the Reference Price(s) in effect during the twelve
(12) months preceding the month in which the Renegotiation Date occurred, which
price shall be effective until the effective date of the Alternate Reference
Price determined as set forth above. Upon determination of a new Alternate
Reference Price, the Reference Price accordingly will be adjusted retroactively
to the Renegotiation Date.
ARTICLE 10. TRANSPORTATION AND DELIVERY POINTS
10.1 Responsibility and Delivery Points. Seller is responsible for arranging
and paying for all transportation of Gas prior to the Delivery Point(s). Buyer
is responsible for arranging and paying for all transportation of Gas after the
Delivery Point(s). The Delivery Point(s) shall be as agreed by the Parties in
the applicable Transaction.
ARTICLE 11. QUALITY AND MEASUREMENT
11.1 Compliance with Quality Specifications. Gas delivered by Seller at the
Delivery Points shall comply with the Gas quality specifications required by
Buyer's Transporter(s) at the Delivery Point(s). Buyer's Transporter(s')
measurements at the Delivery Point(s) shall be considered definitive, as will
the heating value determined by the instruments used for such purposes by such
Transporter(s).
11.2 Analysis of Gas. Seller shall provide, when available and requested, an
analysis of the Gas delivered to Buyer which shall show the components of the
Gas (and the percentages thereof each component bears to the whole stream), the
Btu content of the Gas, and any information necessary to determine whether
Buyer's Transporter's standards have been met. Such analysis shall be at no
cost to Buyer.
ARTICLE 12. PROCESSING
12.1 Processing. As between the Parties to this Agreement, Seller shall have
the sole and exclusive right, but not the obligation, to Process the Gas to
remove any Hydrocarbons prior to making delivery at the Delivery Point(s). Any
Hydrocarbons removed by Seller shall be Seller's sole responsibility and any
Transportation Costs and plant thermal reduction shall be borne by Seller and
Seller shall indemnify, defend and hold Buyer harmless therefrom. If Seller
waives its right to Process the Gas prior to making delivery, then Buyer may so
Process and any Transportation Costs and plant thermal reduction shall be borne
by Buyer and Buyer shall indemnify, defend and hold Seller harmless therefrom.
Any waiver by Seller pursuant to this Section 12.1 shall be in writing, shall
be effective only for the period of time as stated in the waiver and shall be
irrevocable by Seller for the stated period. After accepting delivery of Gas,
Buyer shall have the same Processing rights and responsibilities that were
accorded to Seller prior to the Delivery Point(s).
ARTICLE 13. DEFAULTS AND REMEDIES
13.1 Events of Default. In the event either Party ("Defaulting Party") or any
Party guaranteeing its obligations hereunder ("Guarantor"):
(a) fails to make, when due, any payment to the other Party ("Non-Defaulting
Party") under this Agreement (which shall not include a delay in payment that is
cured within two (2) Business Days of a demand for corrective action); or
(b) fails to perform its obligations to the Non-Defaulting Party under this
Agreement (which shall not include any failure of performance that is cured
within ten (10) Business Days of a demand for corrective action); or
(c) fails to deliver any collateral or comply with or perform its obligations
under any security agreement or other credit support document, provided to the
other Party, including but not limited to any Events of Default or Termination
Events under the Credit Agreement between Aquila Energy Capital Corporation and
Mallon Oil Company dated September 9, 1999 ("Related Agreement") (after giving
effect to any applicable notice or grace period); or
(d) defaults under any derivative transaction undertaken in connection with this
Agreement including but not limited to any Events of Default or Termination
Events of the ISDA Master Agreement between Aquila Risk Management Corporation
and Mallon Oil Company dated September 1, 1999 ("Derivative Agreement") (after
giving effect to any applicable notice or grace period); or
(e) files a petition or otherwise commences, authorizes, or acquiesces in the
commencement of a proceeding or cause under any bankruptcy or similar law for
the protection of creditors or have such petition filed or proceeding commenced
against it; or
(f) otherwise becomes bankrupt or insolvent (however evidenced); or
(g) makes an assignment or any general arrangement for the benefit of creditors;
or
(h) is dissolved or has a resolution passed for its winding up or liquidation
(other than pursuant to a consolidation, acquisition, amalgamation or merger);
or
(i) is unable to pay its debts as they fall due; or
(j) transfers all or substantially all of its assets or merges into or
consolidates with any entity (i) where the creditworthiness of the resulting
entity is materially weaker than that of such party immediately before such
transfer, merger or consolidation or (ii) where the merging party's obligations
are not assumed by operation of law or written instrument; or
(k) is proved to have made a materially incorrect or misleading representation
or warranty under the Agreement; or
(l) fails to provide adequate security for or assurance of its ability to
perform its obligations under any Transaction within one (1) Business Day of a
reasonable request by the other Party;
then, upon the occurrence and continuance of any such event (each an "Event of
Default"), the Non-Defaulting Party shall have the right to withhold or suspend
its performance under all or any Transactions and establish a date (which date
shall be between three (3) and ten (10) Business Days after the Non-Defaulting
Party provides written notice thereof to the Defaulting Party and in any event,
no later than ten (10) Business Days after the discovery of the Event of
Default) ("Early Termination Date") (provided, however, in the case of an Event
of Default under clauses (e) through (i) above, an Early Termination Date shall
be deemed to have occurred immediately prior to such event and no prior notice
shall be required) upon which the Non-Defaulting Party may terminate and
liquidate any and all outstanding Transactions under this Agreement. Upon the
designation or occurrence of an Early Termination Date, the Parties' obligations
under the Transactions and this Agreement shall terminate, except that the
Parties shall be liable for the obligations contained in Sections 13.2, 13.3 and
18.3 below.
13.2 Net Settlement Amount. In the event of termination and liquidation
pursuant to Section 13.1, the Non-Defaulting Party shall compute the Net
Settlement Amount (as defined in this Section 13.2) calculated as set forth
below and shall notify the Defaulting Party of the Net Settlement Amount. For
each such Transaction, if the Contract Price for such Transaction exceeds the
market price per unit for comparable transactions as determined by the Non-
Defaulting Party in a commercially reasonable manner ("Market Price") on the
date of default, an amount equal to the difference between the two prices
multiplied by the quantity of undelivered Gas, which the Parties committed to
deliver or take under such Transaction, discounted to present value in a
commercially reasonable manner by the Non-Defaulting Party ("Transaction
Settlement Amount") shall be credited to the Seller. If the Market Price
exceeds the Contract Price, the Transaction Settlement Amount for such
Transaction shall be credited to the Buyer and calculated in the same manner.
The Non-Defaulting Party shall set off or aggregate, as appropriate, all
Transaction Settlement Amounts, as so discounted, and any or all other amounts
owing between the Parties under any Transaction hereunder or under any Related
Agreement or Derivative Agreement so that all such amounts are aggregated and/or
netted to a single liquidated amount payable by one Party to the other (the "Net
Settlement Amount"). The Non-Defaulting Party may include in its calculation of
the Net Settlement Amount any other damages, losses and expenses incurred by it
as a result of such close-out and liquidation, including without limitation any
damages, losses and expenses incurred in obtaining, liquidating or employing
commercially reasonable hedges related to the Transactions that are being
liquidated, all as determined in good faith in a commercially reasonable manner
by the Non-Defaulting Party. Payment of the Net Settlement Amount shall be due
within five (5) Business Days of the Early Termination Date. The remedy under
this Section 13.2 is in addition to any other rights or remedies available to
the Non-Defaulting Party under this Agreement or under law. The Parties agree
that Transactions under this Article 13 constitute "forward contracts"
within the meaning of the United States Bankruptcy Code.
13.3 Other Events. In the event Buyer is regulated by a federal, state or local
regulatory body or authority, and such body or authority shall disallow all or
any portion of any costs incurred or yet to be incurred by Buyer under any
provision of this Agreement, such action shall not operate to excuse Buyer from
performance of any obligation nor shall such action give rise to any right of
Buyer to any refund or retroactive adjustment of the Contract Price provided in
any Transaction. Notwithstanding the foregoing, if a Party's activities
hereunder become subject to regulation of any kind whatsoever under any law
to a greater or different extent than that existing on the Effective Date (the
"Regulated Party") and such regulation either (i) renders this Agreement illegal
or unenforceable or (ii) materially adversely affects the business of the
Regulated Party, with respect to its financial position or otherwise, then in
the case of (i) above, either Party, and in the case of (ii) above, only the
Regulated Party, shall at such time have the right to establish an Early
Termination Date in the manner provided in Section 13.1 upon which any and all
outstanding Transactions under this Agreement will terminate and be
liquidated; provided, notwithstanding the rights of the Parties to establish an
Early Termination Date as above stated, the Regulated Party shall be treated
like a Defaulting Party and shall be liable for payment of the Net Settlement
Amount which shall be calculated by the other Party as provided in Section 13.2
as if the other Party were the Non-Defaulting Party.
13.4 Reservation of Rights. To the extent not prohibited by applicable law, in
the event of termination and liquidation pursuant to Section 13.1, the Non-
Defaulting Party shall have a general right of set-off with respect to all
amounts owed by each Party to the other Party (whether under this Agreement, or
a Related Agreement, Derivative Agreement or otherwise, and whether or not then
due and payable), provided that any amount not then due and payable, which is
included in such setoff, shall, if appropriate, be discounted to present value
in a commercially reasonable manner by the Non-Defaulting Party. Each Party
reserves to itself all other rights, counterclaims and other defenses which it
is or may be entitled to arising with respect to the other Party under this
Agreement or any contract or under law.
ARTICLE 14. TAXES
14.1 Taxes. The Contract Price shall include full reimbursement for, and
Seller is liable for and shall pay, or cause to be paid, or reimburse Buyer if
Buyer has paid, all Taxes applicable to a Transaction arising prior to the
Delivery Point, including any Taxes imposed or collected by a taxing authority
with jurisdiction over Seller. If Buyer is required to remit such Tax, the
amount shall be deducted from any sums due to Seller. Seller shall indemnify,
defend and hold harmless Buyer from any Claims for such Taxes. The Contract
Price does not include reimbursement for, and Buyer is liable for and shall
pay, cause to be paid, or reimburse Seller if Seller has paid, all Taxes
applicable to a Transaction arising at and from the Delivery Point, including
any Taxes imposed or collected by a taxing authority with jurisdiction over
Buyer. Buyer shall indemnify, defend and hold harmless Seller from any Claims
for such Taxes. Either Party, upon written request of the other, shall provide
a certificate of exemption or other reasonably satisfactory evidence of
exemption if either Party is exempt from Taxes, and shall use reasonable efforts
to obtain and cooperate with obtaining any exemption from or reduction of any
Tax. Each Party shall use reasonable efforts to administer this Agreement and
implement the provisions in accordance with the intent to minimize Taxes.
14.2 New Taxes. If a New Tax is imposed for which Buyer or Seller is
responsible, (i) if such New Tax can be passed by Buyer to another person or
entity, Buyer shall pay, cause to be paid or reimburse the Seller for such New
Tax; (ii) if (i) does not apply, the Party affected by the New Tax ("New Tax
Affected Party") may require the other Party to enter into good faith
negotiations to apportion liability for the New Tax equitably between the
Parties. If, after fifteen (15) Business Days the Parties are not able to
resolve the issue, the New Tax Affected Party may terminate such "New Tax
Affected Transaction," upon thirty days written notice. Unless otherwise
agreed the New Tax Affected Transaction shall be liquidated as though the New
Tax Affected Party has defaulted on the New Tax Affected Transaction without
taking into effect the impact of the New Tax.
ARTICLE 15. TITLE
15.1 Warranty. Seller warrants title to all Gas delivered by it, that it has
the right to sell and/or deliver such Gas to Buyer, and that at the Delivery
Point(s) such Gas shall be free and clear of all liens, encumbrances and claims
whatsoever. Seller shall defend, indemnify and hold Buyer harmless from any
adverse Claim, expense, cost, interest, penalty, fine, court cost, reasonable
attorney fees or other damage relating to any of the warranties expressed
herein.
15.2 Title Transfer. Title to, possession and risk of loss of all Gas shall
pass at the Delivery Point(s). Seller shall indemnify, release, defend and hold
Buyer, its partners, and its and their officers, directors, employees,
affiliates and assigns harmless from and against all suits, liabilities,
actions, debts, accounts, damages, costs, losses and expenses which attach or
occur prior to delivery, including Claims by any third party or parties for any
royalties, license fees, or charges applicable to such Gas or to the delivery
thereof. Buyer shall indemnify, release, defend and hold Seller, its partners,
and its and their officers, directors, employees, affiliates and assigns
harmless from and against all suits, liabilities, actions, debts, accounts,
damages, costs, losses and expenses which attach or occur upon or after
delivery, including Claims by any third party or parties for any royalties,
license fees or charges applicable to such Gas or to the delivery thereof.
15.3 Claims Against Title. If at any time any Claims are made relating to
Seller's ability to transfer good title to Buyer, Buyer may withhold payment,
without interest, of sums reasonably related to such Claim, until such Claim is
finally determined or until Seller furnishes Buyer a bond, in form and with
sureties acceptable to Buyer conditioned to hold Buyer harmless from any such
Claim(s).
ARTICLE 16. BILLING AND PAYMENT
16.1 Billing and Payment. On or before the tenth (10th) day following a month
in which Gas was delivered by Seller to Buyer, Seller shall deliver to Buyer an
invoice for the preceding month specifying the Delivery Point(s), showing the
total quantity of Gas delivered and the amount due. If an Actual Quantity that
is necessary to derive the invoice amount is not available by the contractual
billing date, Seller shall prepare the statement based on Seller's best estimate
of that quantity. The estimated quantity, if any, will then be corrected to the
Actual Quantity on the following month's invoice or as soon thereafter as the
necessary information is available. On or before the later of the tenth (10th)
day following receipt by Buyer of Seller's invoice or the first Business Day
following the twenty-fourth (24th) Day of the month, Buyer will pay to Seller
the undisputed amount of Seller's invoice. If Buyer disputes, in good faith,
any portion of Seller's invoice, Buyer shall notify Seller in writing of the
reasons therefor and the Parties shall negotiate to resolve such dispute. If it
is determined that any disputed amount is owing to Seller, then Buyer shall pay
such amount, plus interest at the rate specified in Section 16.2 from the date
the payment was originally due.
16.2 Interest. If Buyer fails to pay all of the amount of any invoice when
that amount becomes due, Buyer shall pay Seller a late charge on the unpaid
balance that shall accrue on each calendar day from the due date at a rate equal
to the then-effective monthly prime commercial lending rate per annum
announced by the Chase Manhattan Bank from time to time plus two percent (2%),
provided that for any period that such late charge exceeds any applicable
maximum rate permitted by law, the late charge shall equal said applicable
maximum rate. The late charge provided for by this Section 16.2 shall be
compounded monthly. If either principal or late charges are due, any payments
thereafter received shall first be applied to the late charges due, then the
previously outstanding principal due and lastly, to the most current principal
due. Seller shall have the right to suspend provision of Gas hereunder without
notice if any bill remains unpaid for two (2) Business Days after the due date
thereof. Suspension of provision of Gas under this Section 16.2 shall be in
addition to any and all other remedies available in this Agreement.
16.3 Inspection of Records. Each Party will have the right at reasonable hours
and upon reasonable notice to examine the books, records and charts of the other
Party to the extent reasonably necessary to verify the accuracy of any invoice,
payment, measurement, calculation, or determination made pursuant to the
provisions of this Agreement. If any such examination reveals, or if either
Party discovers, any error or inaccuracy in its own or the other Party's
invoice, payment, calculation, measurement or determination, then proper
adjustment and correction thereof will be made as promptly as practicable
thereafter; provided, however, that no adjustments or corrections will be made
with respect to errors or inaccuracies unless reasonably specific written notice
of such error or inaccuracy is given to the other Party within two (2) years of
the date of such erroneous or inaccurate invoice, payment, calculation,
measurement or determination; provided further that no interest shall accrue
on the payment of any such errors or inaccuracies from the date of the original
error to the date the corrected amount is due.
16.4 Payment Netting. If Buyer and Seller are each required to pay an amount to
the other under this Agreement in the same month, such amounts with respect to
each Party may be aggregated and the Parties may discharge their obligations to
pay through netting, in which case the Party, if any, owing the greater
aggregate amount shall pay to the other Party the difference between the amounts
owed. If either Party elects to net amounts due, then such Party must notify
the other Party of such election at least three (3) days prior to effecting the
netting.
ARTICLE 17. REPRESENTATIONS AND WARRANTIES
17.1 Necessary Authorizations. Each Party represents that it has all necessary
corporate, legal and other authority, including Regulatory Approval, to enter
into this Agreement and any Transaction made in accordance with the terms of
this Agreement, and to perform each and every duty and obligation imposed
herein, and that this Agreement, and any Transaction made in accordance with the
terms of this Agreement, when executed by the duly authorized representatives of
each Party, represents a valid, binding and enforceable legal obligation of each
Party. Neither Party to this Agreement or any Transaction entered into
hereunder shall be required to investigate the authority of the person executing
this Agreement or any Transaction entered into hereunder as a condition to
enforcing the terms of this Agreement or any Transaction. No future assignment
will in any way operate to enlarge, alter or change any obligation of the non-
assigning Party under this Agreement.
ARTICLE 18. LIABILITY AND INDEMNIFICATION
18.1 Limitation of Remedies. For breach of any provision of this Agreement for
which an express remedy or measure of damages is provided herein, the breaching
Party's liability shall be limited as set forth in such provision, as the sole
and exclusive remedy, and all other remedies or damages at law or in equity are
waived. If no remedy or measure of damages is expressly provided, the breaching
Party's liability shall be limited to direct, actual damages only, as the sole
and exclusive remedy, and all other remedies or damages are waived. Unless
expressly provided in this Agreement, neither Party shall be liable to the other
for consequential, incidental, punitive or indirect damages, or lost profits, in
tort, contract or otherwise. To the extent any payment required to be made
pursuant to this Agreement constitutes liquidated damages, the Parties
acknowledge that the damages are difficult or impossible to determine and that
such payment constitutes a reasonable estimate of the amount of damages.
18.2 Limitation of Liability. Neither Party shall be liable to the other Party
for losses or damages which result from (i) an event of Force Majeure preventing
performance under this Agreement; or (ii) Claims made against such other Party
by third parties due to the performance or non-performance of this Agreement,
whether such Claims arise in contract, tort or otherwise; or (iii) the death of
or bodily injury to such other Party's employees, contractors or agents or
damage to such other Party's property due to the performance or non-performance
of this Agreement.
18.3 Indemnification. Each Party shall indemnify and hold the other Party
and its directors, officers, agents, employees and contractors harmless from and
against any and all Claims, damages, costs (including attorneys' fees), fines,
penalties, liabilities, actions or proceedings in tort, contract or otherwise
which the indemnified Party may be required to pay to, or which are asserted
or brought by, the indemnifying Party's employees, contractors or agents or
third parties providing services to or receiving services from the indemnifying
Party, arising from or claimed to have arisen from the performance or non-
performance of this Agreement by the indemnifying Party.
ARTICLE 19. ASSIGNMENTS
19.1 Assignment. This Agreement shall be binding upon and shall inure to the
benefit of, and may be performed by, the successors and assigns of the Parties;
provided, however, neither Party may assign, pledge or otherwise transfer its
rights under this Agreement to any other entity without the written consent of
the other Party, which consent shall not be unreasonably withheld except that
either Party may assign its rights under this Agreement to an Affiliate.
Furthermore, no assignment, pledge, or other transfer of this Agreement by
either Party shall operate to release the assignor, pledgor, or transferor from
any of its obligations under this Agreement unless: (i) the other Party consents
in writing to such assignment, pledge, or transfer and releases, in writing, the
assignor, pledgor, or transferor from any of its obligations hereunder; (ii) the
assignment, pledge, or other transfer is to an Affiliate of the assignor,
pledgor, or transferor and the assignee, pledgee, or transferee assumes, in
writing, all of the obligations of the assignor, pledgor, or transferor under
this Agreement, provided that such assignee, pledgee, or transferee demonstrates
to the satisfaction of the other Party financial capacity at least equal to that
of the assignor, pledgor, or transferor; or (iii) such transfer is incident to a
merger or consolidation with, or transfer of all, or substantially all, of the
assets of the transferor to another person, business, joint venture, trust,
corporation, company, governmental body or entity which shall as a part of such
succession, assume all of the obligations of the assignor, pledgor, or
transferor under this Agreement. Either Party may assign its rights to receive
payment under this Agreement without having to first obtain the consent of the
other Party.
ARTICLE 20. SERVICES
20.1 Services. If indicated on a rider to any Confirmation Letter or to this
Agreement, Aquila may provide certain services incidental to the underlying
sale/purchase of Gas on behalf of Counterparty. Such services may include those
related to transportation and gathering of the Gas, disbursements of payment to
interest owners, tax filing and payment, storage, resale services and imbalance
trading. Provisions of such services may include designation of Aquila as agent
to perform Nominations, balancing, payment, storage, resale services and other
operational functions pursuant to any gathering, transportation or storage
agreements, or any of them, of Counterparty. If so elected, an agency
agreement or other appropriate document shall be attached to and made a part
of the Confirmation Letter. In the event any of the provisions of the agency
agreement or such other document are inconsistent with or in addition to the
provisions of a Transaction, the provisions of the agency agreement shall
prevail.
20.2 Obligations of Counterparty. Aquila shall be provided with all necessary
information to enable it to act on behalf of Counterparty in performing any
services as agreed by the Parties. Necessary information may include but not
be limited to the following: accurate and timely information relating to Gas
quantities; timely notification of any changes to expected deliveries of Gas;
notification of any operational changes of which Counterparty is made aware
which would affect the delivery of Gas hereunder; any information necessary to
remit payment to the gatherer and transporting pipeline; and any information
necessary to remit tax payments, fees or assessments to a taxing authority or
royalty payments to royalty interest owners.
ARTICLE 21. MISCELLANEOUS
21.1 Confidentiality. Neither Party shall disclose the terms of any
Transaction to any third party (other than such Party's employees, lenders,
counsel, accountants or other advisors) except in order to comply with any
applicable law, order, regulatory or exchange rule. Each Party shall notify the
other Party of any proceeding of which it is aware that may result in disclosure
and shall use reasonable efforts to prevent or limit such disclosure.
21.2 Entire Agreement. This Agreement, the Credit Agreement dated September 9,
1999 between Aquila Energy Capital Corporation and Mallon Oil Company, the ISDA
Master Agreement dated September 1, 1999 between Aquila Risk Management
Corporation and Mallon Oil Company, all Confirmation Letters, the Exhibits
hereto and all Transactions, constitute the entire agreement between the Parties
relating to the subject matter hereof and supersedes any other agreements,
written or oral, between the Parties concerning such subject matter.
21.3 No Waiver. No waiver by either Seller or Buyer of any default by the
other under this Agreement shall operate as a waiver of any future default,
whether of a like or different character or nature. Either Party's payment of
money, waiver of any breach, or failure to enforce any of the terms, covenants,
conditions or other provisions of this Agreement at any time shall not in any
way affect, limit, modify or waive that Party's right thereafter to enforce or
compel strict compliance with every term, covenant, condition or other provision
hereof, any course of dealing or custom of the trade notwithstanding.
21.4 Amendments. No amendment of the terms and provisions of this Agreement
shall be or become effective except by written amendment executed by the
Parties.
21.5 Severability. Should any provision of this Agreement for any reason be
declared invalid or unenforceable by final and applicable order of any court or
regulatory body having jurisdiction, such decision shall not affect the validity
of the remaining portions, and the remaining portions shall remain in effect as
if this Agreement had been executed without the invalid portion. In the event
any provision of this Agreement is declared invalid, the Parties shall promptly
renegotiate to restore this Agreement as near as possible to its original intent
and effect.
21.6 Survival. The provisions of this Agreement shall survive the termination
of this Agreement for so long as is necessary to complete all business
transactions, payment obligations or indemnification obligations outstanding
between the Parties related to this Agreement. Confidentiality provisions shall
survive the termination of this Agreement for a period of one (1) year after the
date of termination.
21.7 Counterparts. This Agreement may be executed in several counterparts, and
all such counterparts shall constitute one Agreement binding on both Parties
hereto and shall have the same force and effect as an original instrument.
21.8 Construction. The language used in this Agreement is the product of both
Parties' efforts and each Party hereby irrevocably waives the benefit of any
rule of contract construction which disfavors the drafter of a contract or the
drafter of specific language in a contract.
21.9 Imaged Agreement. Any original executed Agreement, Confirmation Letter or
other related document may be photocopied and stored on computer tapes and disks
(the "Imaged Agreement"). The Imaged Agreement, if introduced as evidence on
paper, the Confirmation Letter, if introduced as evidence in automated facsimile
form, the Transaction Tape, if introduced as evidence in its original form and
as transcribed onto paper, and all computer records of the foregoing, if
introduced as evidence in printed format, in any judicial, arbitration,
mediation or administrative proceedings, will be admissible as between the
Parties to the same extent and under the same conditions as other business
records originated and maintained in documentary form. Neither Party shall
object to the admissibility of the Transaction Tape, the Confirmation Letter or
the Imaged Agreement (or photocopies of the transcription of the Transaction
Tape, the Confirmation Letter or the Imaged Agreement) on the basis
that such were not originated or maintained in documentary form under either
the hearsay rule, the best evidence rule or other rule of evidence.
General Terms and Conditions
County Clerk, Affected Counties, NM
Secretary of State - FS (State of New Mexico)
DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION
FROM
MALLON OIL COMPANY
(Mortgagor and Debtor)
TO
Lee-Ken Choo, Trustee
for the benefit of
AQUILA ENERGY CAPITAL CORPORATION
(Mortgagee and Secured Party)
For purposes of filing this instrument as a financing statement, the mailing
address of Mortgagor/Debtor is 999 18th Street, Suite 1700, Denver, Colorado
80202; the mailing address of Mortgagee/Secured Party is Two Houston Center,
909 Fannin Street, Suite 1850, Houston, Texas 77010.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, AND COVERS FUTURE
ADVANCES AND PROCEEDS.
THIS IS A "LINE OF CREDIT MORTGAGE" FOR PURPOSES OF Section 48-7-4(B) NMSA 1978.
INTERESTS IN OIL, GAS AND OTHER MINERALS OR IN ACCOUNTS RESULTING FROM THE SALE
THEREOF WHICH ARE INCLUDED IN THE MORTGAGED PROPERTY WILL BE FINANCED AT
WELLHEADS LOCATED ON THE LANDS DESCRIBED IN EXHIBIT A HERETO.
THIS IS A FIXTURE FILING. PERSONAL PROPERTY CONSTITUTING A PORTION OF THE
MORTGAGED PROPERTY MAY BE, OR MAY IN THE FUTURE BE, AFFIXED TO THE LANDS
DESCRIBED IN EXHIBIT A HERETO.
THIS FINANCING STATEMENT IS TO BE FILED, AMONG OTHER PLACES, IN THE REAL ESTATE
RECORDS.
*********************************
This instrument was prepared by Michael L. Grove, PORTER & HEDGES, L.L.P.,
700 Louisiana, Houston, Texas 77002-2764.
ATTENTION OF RECORDING OFFICER: This instrument is a mortgage of both real and
personal property and is, among other things, a Security Agreement and Financing
Statement under the Uniform Commercial Code. This instrument creates a lien on
rights in or relating to lands of Mortgagor which are described in Exhibit A
hereto.
RECORDED DOCUMENT SHOULD BE RETURNED TO:
PORTER & HEDGES, L.L.P.
700 Louisiana
Houston, Texas 77002-2764
Attn: Rhonda Muschalik
DEED OF TRUST, MORTGAGE, SECURITY AGREEMENT,
FINANCING STATEMENT AND ASSIGNMENT OF PRODUCTION
(THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS)
KNOW ALL MEN BY THESE PRESENTS: That the undersigned MALLON OIL COMPANY,
a Colorado corporation ("Mortgagor"), whose mailing address is 999 18th
Street, Suite 1700, Denver, Colorado 80202 for valuable consideration, the
receipt of which is hereby acknowledged, and in consideration of the debt and
trust hereinafter mentioned, has granted, bargained, sold, conveyed, transferred
and assigned, and by these presents does grant, bargain, sell, convey, transfer
and assign to Lee-Ken Choo, Trustee, whose address is Two Houston Center, 909
Fannin Street, Suite 1850, Houston, Texas 77010, and his successors and
substitutes in trust, as hereinafter provided (the "Trustee"), for the benefit
of AQUILA ENERGY CAPITAL CORPORATION, the mailing address for which is Two
Houston Center 909 Fannin Street Suite 1850, Houston, Texas 77010 ("Mortgagee"),
the following described property:
Certain interests in oil, gas and/or mineral estates in the
property more particularly described in the schedule attached
hereto, marked Exhibit A for identification, incorporated
herein and made a part hereof for all purposes (the "Land").
For the same consideration, Mortgagor hereby grants to Mortgagee a
continuing security interest in all improvements and all personal property of
any kind or character defined in and subject to the provisions of the Uniform
Commercial Code, including the proceeds and products from any and all of such
improvements and personal property, whether now owned and existing or hereafter
acquired or arising, and situated on any of the Land, including, but not limited
to, pipe, casing, tubing, rods, storage tanks, boilers, loading racks, pumps,
foundations, warehouses, and all other personal property and equipment of every
kind and character upon, incident, appurtenant or belonging to and used in
connection with Mortgagor's interest in the Land, including all oil, gas and
other minerals produced or to be produced to the account of Mortgagor from the
Land and all accounts receivable, general intangibles and contract rights of
Mortgagor in connection with the Land or the Leases (as hereinafter defined)
including, but not limited to, any rights under agreements and contracts,
including, but not limited to, those agreements and contracts set forth in
Exhibit A hereof, and all proceeds, products, substitutions and exchanges
thereof (the Land, the Leases and real and personal property interests
hereinabove described being the "Mortgaged Property").
For the same consideration, Mortgagor hereby grants to Mortgagee any and all
rights of Mortgagor to liens and security interests in the Mortgaged Property
securing payment of proceeds from the sale of production from the Mortgaged
Property, including, but not limited to, those liens and security interests
provided for in the New Mexico Oil and Gas Products Lien Act (N.M. STAT. ANN.
Sections 48-9-1 to -8).
TO HAVE AND TO HOLD all and singular the Mortgaged Property and all
other property which, by the terms hereof, has or may hereafter become subject
to the lien and/or security interest of this Deed of Trust, Mortgage, Security
Agreement, Financing Statement and Assignment of Production (referred to here-
inafter as the "Deed of Trust" or the "Mortgage"), together with all rights,
hereditaments and appurtenances in anywise belonging to the Trustee or assigns
forever, with mortgage covenants and upon the statutory mortgage conditions,
except as otherwise modified by the specific terms of this Mortgage. Any
additional rights, titles or interests which Mortgagor may hereafter acquire or
become entitled to in the interests, properties, Lands and premises aforesaid,
or in the oil, gas or other minerals in and under or produced from the Land and
Leases shall inure to the benefit of and be covered by this Deed of Trust and
constitute "Mortgaged Property", the same as if expressly described and conveyed
herein.
With respect to any portions of the Mortgaged Property located in any state
or other jurisdiction the laws of which do not provide for the use or enforce-
ment of a deed of trust or the office, rights and authority of the Trustee
as herein provided, the general language of conveyance hereof to the Trustee is
intended and the same shall be construed as words of mortgage unto and in favor
of the Mortgagee, and the rights and authority granted to the Trustee may be
enforced and asserted by Mortgagee in accordance with the laws of the
jurisdiction in which such portions of the Mortgaged Property are located and
the same may be foreclosed at the option of the Mortgagee as to any or all such
portions of the Mortgaged Property in any manner permitted by the law of the
jurisdiction in which such portions of the Mortgaged Property are situated.
ARTICLE I.
WARRANTIES
Mortgagor hereby binds itself, its successors and assigns, to warrant
and forever defend all and singular the above described property, rights
and interests constituting the Mortgaged Property to the Trustee and to his
assigns forever, against every person whomsoever lawfully claiming or to claim
the same or any part thereof. For the same consideration Mortgagor, for
itself, its successors and assigns, covenants, represents and warrants that:
(a) the incurring by Mortgagor of the indebtedness secured by this
Deed of Trust and the execution and delivery by Mortgagor of
the evidences of such indebtedness and this Deed of Trust and
the performance and observance by Mortgagor of the terms and
provisions of such evidences of indebtedness and this Deed of
Trust have been duly authorized by any necessary proceedings
and will not contravene any requirement of law or any
provision of the articles of incorporation or bylaws of
Mortgagor, or result in the breach or termination of, or
constitute a default under, any indenture or other agreement
or instrument to which Mortgagor is a party or by which it or
any of its property may be bound or affected;
(b) Mortgagor is the lawful owner of the Mortgaged Property and
has good right and authority to pledge, mortgage, assign, sell
and convey the same;
(c) Mortgagor's interests in the Mortgaged Property, as set forth
in Exhibit A hereto, are true and correct;
(d) all of the oil, gas and/or mineral leases constituting all or
part of the Mortgaged Property (the "Leases") are in full
force and effect;
(e) Mortgagor's interest in the Leases is free and clear of all
liens, mortgages, oil payments, or other burdens or
encumbrances except for Permitted Encumbrances (as defined in
Exhibit A hereto);
(f) all covenants, express or implied, in respect thereof, or of
any assignment thereof which may affect the validity of any of
the Leases, have been performed insofar as the Leases pertain
to the Land;
(g) all gross production taxes have been likewise paid;
(h) Mortgagor (a) is and has in the past been in compliance with
all Environmental Laws (as defined in the Credit Agreement)
and all permits, requests and notifications relating to
health, safety or the environment applicable to the Mortgagor
or any of its properties, assets, operations and businesses;
(b) has obtained and adhered to and currently possesses all
necessary permits and other approvals necessary to store,
dispose of and otherwise handle Hazardous Materials (as
defined in the Credit Agreement) and to operate its
properties, assets and businesses; (c) has reported, to the
extent required by all federal, state and local statutes,
laws, ordinances, regulations, rules, permits, judgments,
orders and decrees, all past and present sites owned and/or
operated by the Mortgagor where any Hazardous Materials has
been released, treated, stored or disposed of and (d) has not
used, stored, or released any Hazardous Materials in excess of
amounts allowed by Environmental Law; and
(i) there is (a) no location on any property currently or
previously owned or operated by the Mortgagor where Hazardous
Materials have entered or are likely to enter into the soil or
groundwater or such property, other than immaterial releases
of oil or natural gas in the ordinary course of business none
of which releases (i) either individually, or in the
aggregate, has had or may be expected to have material adverse
effect on the Mortgagor's business or (ii) has violated or may
be expected to violate any Environmental Laws, and (b) no on-
site or off-site location to which the Mortgagor has released
or transported Hazardous Materials or arranged for the
transportation or disposal of Hazardous Materials, which is or
is likely to be the subject of any federal, state, local or
foreign enforcement action or any investigation which could
lead to any claims against any such entity for any clean-up
cost, remedial work, damage to natural resources, common law
or legal liability, including, but not limited to, claims
under CERCLA. For the purposes of this Section, references to
"the Mortgagor" shall include all predecessors, successors-in-
interest of Affiliates (as defined in the Credit Agreement) of
the Mortgagor; provided, that with respect to the Mortgagor's
properties or assets, the foregoing representations as to
predecessors and successors-in-interest are limited to the
knowledge of the Mortgagor.
ARTICLE II.
INDEBTEDNESS SECURED
This conveyance is made, IN TRUST, HOWEVER, to secure and enforce
the payment of the following indebtedness, obligations and liabilities:
(a) That certain Advancing Note (the "Note"), dated of even date
herewith, executed by Mortgagor and Mallon Resources
Corporation ("Mallon Resources") to the order of Mortgagee in
the principal sum of $60,000,000.00, bearing interest, payable
and with final payment thereof due as therein provided, with
final payment thereof due on or before the Loan Termination
Date (as defined in the Credit Agreement) and containing the
usual provisions in notes of this character, and all renewals,
rearrangements, amendments, modifications and extensions
thereof.
(b) All obligations of Mortgagor and/or Mallon Resources owed
Mortgagee arising pursuant to the terms of that certain credit
agreement of even date herewith (the "Credit Agreement") and
all future modifications, amendments and restatements thereof.
(c) All other present and future Obligations of Mortgagor and/or
Mallon Resources to Mortgagee, whether or not arising under
the Credit Agreement.
(d) The term "Obligations" wherever used in this Deed of Trust,
shall refer to all present and future debts, obligations and
liabilities described or referred to in this Article II, the
Credit Agreement or otherwise in this Deed of Trust.
(e) The maximum lien of this Mortgage shall be ONE HUNDRED MILLION
DOLLARS ($100,000,000) plus interest, cost, expenses and
attorneys' fees.
ARTICLE III.
COVENANTS OF MORTGAGOR
In consideration of the Obligations herein above described,
Mortgagor, for itself and its successors and assigns, covenants and agrees as
follows:
A. Subject to the terms of the Credit Agreement, Mortgagor will
proceed with reasonable diligence to correct any defect in the title to any
portion of the Mortgaged Property material in value in the sole opinion of the
Mortgagee, should any such defect be found to exist after the execution and
delivery of this Deed of Trust; and in this connection, should it be found,
after the execution and delivery of this Deed of Trust, that there exists upon
the Mortgaged Property any lien or encumbrance equal or superior in rank to the
lien or liens created by this Mortgage (except for Permitted Encumbrances), or
should any such lien or encumbrance hereafter arise, Mortgagor will promptly
discharge and remove same from said Mortgaged Property.
B. Upon request of Mortgagee, Mortgagor will promptly correct any defect
which may be discovered after the execution and delivery of this Deed of Trust,
the Note, the Loan Documents (as defined in the Credit Agreement) or other
documents executed in connection herewith, in the execution or acknowledgment
hereof or thereof or in the description of the Mortgaged Property, and will
execute, acknowledge, and deliver such division orders, transfer orders and
other assurances and instruments as shall, in the opinion of Mortgagee, be
necessary or proper to convey and assign to the Trustee all of the Mortgaged
Property herein conveyed or assigned, or intended to be so.
C. Mortgagor will keep and continue all Leases, estates and interests
herein described and contracts and agreements relating thereto in full
force and effect in accordance with the terms thereof and will not permit the
same to lapse or otherwise become impaired for failure to comply with the
obligations thereof, whether express or implied.
D. Mortgagor will keep and maintain all improvements and all
personal property and equipment now or hereafter situated on the Land and
constituting a portion of the Mortgaged Property and used or obtained in
connection therewith in good state of repair and condition in accordance with
industry practices, ordinary wear and tear excepted, and will not tear down or
remove the same or permit the same to be torn down or removed without the prior
consent of Mortgagee, except in the usual course of operations as might be
required for replacement when otherwise in compliance with this Deed of Trust.
E. Mortgagor will notify Mortgagee of the destruction, loss,
termination or acquisition of any Mortgaged Property (except as occurs in the
ordinary course of business) within ten (10) business days thereof.
F. Mortgagor will not, without the prior written consent of
Mortgagee, which consent will not be unreasonably withheld, pool or unitize all
or any part of the Mortgaged Property where the pooling or unitization would
result in the diminution of Mortgagor's net revenue interest in production from
the pooled or unitized lands. Immediately after the formation of any pool or
unit in accordance herewith Mortgagor will furnish to Mortgagee a conformed copy
of the pooling agreement, declaration of pooling, or other instrument creating
the pool or unit. The interest of Mortgagor included in any pool or unit
attributable to the Mortgaged Property or any part thereof shall become a part
of the Mortgaged Property and shall be subject to liens and security interests
hereof in the same manner and with the same effect as though the pool or unit
and the interest of Mortgagor therein were specifically described in Exhibit A
hereto. In the event any proceedings of any governmental body which could
result in pooling or unitizing all or any part of the Mortgaged Property are
commenced, Mortgagor shall give immediate written notice thereof to Mortgagee.
G. Mortgagor will pay all taxes now or hereafter to accrue against
any of the Mortgaged Property and all other taxes or assessments, general
or special, lawfully levied against it on such Mortgaged Property which might
become a lien thereon before such taxes become delinquent; and it will during
the life of this Deed of Trust keep the Mortgaged Property, and each and every
part thereof, free, clear and discharged from all liens, charges, encumbrances,
or assessments that might become superior, coordinate or subordinate to the
liens or security interests of this Deed of Trust.
H. Mortgagor will at all times maintain workmen's compensation
insurance with a responsible insurance company where required by, and in
accordance with, the laws of the state (i) in which the Mortgaged Property is
located or (ii) which requires workmen's compensation to be maintained on such
employees.
I. In the event Mortgagor shall fail or neglect to pay any taxes,
general or special, or shall fail or neglect to relieve the Mortgaged Property
from any lien which might become superior or equal to the lien of this Deed of
Trust, or fail to carry such workmen's compensation or other insurance, the
Trustee, at his option, or Mortgagee, at its option, may pay such taxes, liens,
charges or encumbrances, or any part thereof, or effect such workmen's
compensation insurance, and Mortgagor will promptly reimburse Trustee or
Mortgagee, as the case may be, therefor; and any and all such sums so paid
hereunder shall be paid by Mortgagor upon demand at Mortgagee's principal
offices, and shall constitute a part of the Obligations.
J. Mortgagor will operate or, to the extent that the right of operation
is vested in others, will exercise its best efforts to require the operator
to operate the Mortgaged Property and all wells drilled thereon and that
may hereafter be drilled thereon, continuously and in good workmanlike, prudent
and efficient manner in accordance with the best usage of the field and in
accordance with all laws of the state in which the Mortgaged Property is
situated and the United States of America, as well as all rules, regulations,
and laws of any governmental agency having jurisdiction to regulate the manner
in which the operation of the Mortgaged Property shall be carried on, and will
comply with all terms and conditions of the Leases it now holds, or any
assignment or contract obligating the Mortgagor in any way with respect to the
Mortgaged Property; but nothing herein shall be construed to empower the
Mortgagor to bind the Trustee or Mortgagee to any contract obligation, or render
the Trustee or Mortgagee in any way responsible or liable for bills or
obligations incurred by the Mortgagor.
K. Mortgagor will carry with standard insurance companies
satisfactory to the Mortgagee or holder of the Obligations, insurance with
respect to the Mortgaged Property against such liabilities, casualties, risks
and contingencies and in amounts as is customary in the industry; and acceptable
certificates evidencing the same thereof shall be delivered to Mortgagee
annually after the execution of this Deed of Trust.
L. Mortgagor agrees to promptly pay all bills for labor and
materials incurred in the operation of the Mortgaged Property, except any that
is being contested in good faith and as to which satisfactory accruals have been
provided; will promptly pay its share of all costs and expenses incurred under
any joint operating agreement affecting the Mortgaged Property or any portion
thereof; will furnish Mortgagee, as and when requested, full information as to
the status of any joint account maintained with others under any such operating
agreement; will not take any action to incur any liability or lien thereunder;
and will not enter into any new operating agreement or amendment of existing
operating agreement affecting the Mortgaged Property that would diminish or
alter Mortgagor's net revenue interest therein without prior written consent of
the Mortgagee.
M. Mortgagor will permit Mortgagee and its accredited agents,
representatives, attorneys and employees at all times to go upon, examine,
inspect and remain on the Mortgaged Property, and to go upon the derrick floor
of any well at any time drilled or being drilled thereon, and will furnish
Mortgagee, upon request, all pertinent information regarding the development
and operation of the Mortgaged Property. Provided, however, Mortgagee or its
accredited agents, representatives, attorneys or employees who enter upon any
of the Mortgaged Property shall do so at its own risk.
N. Promptly upon receipt of a request from Mortgagee, Mortgagor
will furnish and deliver such title assurance as Mortgagee, in its good faith
discretion, requests. Should Mortgagor fail to furnish such title assurance
upon such request, Mortgagee may obtain such title assurance, and any and all
costs incurred thereby shall be payable by Mortgagor to Mortgagee upon demand at
Mortgagee's principal offices. Mortgagor will promptly notify Mortgagee or
other holder or holders of the Obligations, in writing, of the commencement of
any legal proceedings affecting the Mortgaged Property or any part thereof, and
will take such action as may be necessary to preserve its and Mortgagee's rights
affected thereby; and should Mortgagor fail or refuse to take any such action,
Mortgagee may at its election take such action on behalf and in the name of
Mortgagor and at Mortgagor's cost and expense.
O. Mortgagor shall maintain its legal existence and will maintain and
procure all necessary franchises and permits to the end that Mortgagor shall
be and continue to be in good standing in the State of Colorado and in the state
wherein the Mortgaged Property is located, with full power and authority to own
and operate all of the Mortgaged Property as contemplated herein until this Deed
of Trust shall have been fully satisfied.
P. Mortgagor hereby expressly waives any and all rights or privileges
of marshaling of assets, sale in inverse order of alienation, notices,
appraisements, redemption and any prerequisite to the full extent permitted by
applicable law, in the event of foreclosure of the lien or liens and/or security
interests created herein. Mortgagee at all times shall have the right to
release any part of the Mortgaged Property now or hereafter subject to the lien
or security interest of this Deed of Trust, any part of the proceeds of
production or other income herein or hereafter assigned or pledged, or any other
security it now has or may hereafter have securing the Obligations, without
releasing any other part of the Mortgaged Property, proceeds or income, and
without affecting the liens or security interests hereof as to the part or parts
thereof not so released, or the right to receive future proceeds and income.
Q. Upon demand of Mortgagee, Mortgagor will promptly pay all
reasonable and customary costs and expenses heretofore or hereafter incurred by
Mortgagee for legal, accounting, engineering or geological services rendered to
it in connection with the making of the initial or any future loan to Mortgagor
secured in whole or in part by the liens and security interests hereof or in the
enforcement of any of Mortgagee's rights hereunder. The obligations of Mortgagor
hereunder shall survive the non-assumption of this Deed of Trust in a case
commenced under Title 11 of the United States Code or other similar law of the
United States of America, the State of Colorado or any other jurisdiction and be
binding upon the Mortgagor, or a trustee, receiver, custodian or liquidator of
Mortgagor appointed in any such case.
R. Without prior approval and written consent of Mortgagee,
Mortgagor will not sell, assign, lease, transfer or otherwise dispose of all or
any portion of the Mortgaged Property, nor shall Mortgagor mortgage except for
Permitted Encumbrances, pledge or otherwise encumber the Mortgaged Property or
any part thereof, regardless of whether the lien or encumbrance is senior,
coordinate, junior, inferior or subordinate to the lien and security interest
created hereby.
S. Upon request of Mortgagee and subject to the terms of the Credit
Agreement, Mortgagor will execute and deliver written notices of assignments
to any persons, corporations or other entities owing or which may in the
future owe to Mortgagor monies or accounts arising in connection with any of the
following matters: (a) any oil, gas or mineral production from the Mortgaged
Property; (b) any gas contracts, processing contracts or other contracts
relating to the Mortgaged Property; or (c) the operation of or production from
any part of the Mortgaged Property. The notices of assignments shall advise the
third parties that all of the monies or accounts described above have been
assigned to Mortgagee, and if required by Mortgagee, shall also require and
direct that future payments thereof, including amounts then owing and unpaid, be
paid directly to Mortgagee.
T. Any mortgage, pledge, encumbrance, unitization, pooling, communitization
or other action or instrument in violation of the prohibitions
contained in subsections F or R above shall be of no force or effect against
Mortgagee.
U. Mortgagor will comply at all times with all federal, state and
local laws, regulations, and ordinances applicable to the Mortgaged Property,
including, without limitation, all environmental protection and hazardous waste
requirements, and in this regard:
(1) Mortgagor will comply with any and all applicable local,
state and federal laws, ordinances, rules, regulations and orders
(a) related to any natural or environmental resource or media
located on, above, within, in the vicinity of, related to or
affected by the Mortgaged Property, any property in which Mortgagee
has a mortgage, security or other interest or any other property of
Mortgagor, or (b) required for the performance or conduct of its
operations.
(2) Mortgagor will forthwith notify Mortgagee in writing of
any request from any governmental agency or other entity for
information on releases of Hazardous Materials from, affecting or
related to the Mortgaged Property, any property in which Mortgagee
has a mortgage, security or other interest or any other property of
Mortgagor; notify Mortgagee of any actual, proposed or threatened
testing or other investigation by any governmental agency or other
entity concerning the environmental condition of or related to such
property; provide to Mortgagee such information as Mortgagee shall
request concerning the generation, storage, disposal, transportation
or other management, if any, of any Hazardous Materials.
(3) Mortgagor will neither conduct nor permit the conduct
(and Mortgagor represents and warrants that, to the best of its
knowledge, information and belief, there has not been conducted) on
the Mortgaged Property (or on any other lands or properties in the
vicinity thereof) of any activity or operation which is in violation
of any statute, rule, regulation, ordinance or other lawful
enactment of any governmental body or agency relative to the
maintenance of environmental quality, including but not limited to,
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C.A. Section 9601, et seq.) and the Clean
Water Act (33 U.S.C.A. Section 1251, et seq.). Mortgagor agrees that
it will not permit any hazardous substance, as defined in Section
101(14) of the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (42 U.S.C.A. Section 9601(14), as amended) to
be deposited, stored, disposed of, placed or otherwise come to be
located on the lands covered and affected by the Mortgaged Property
(or on any other lands or properties in the vicinity thereof). To
the full extent permitted by applicable law, Mortgagor agrees to
defend, indemnify and hold harmless Mortgagee and its directors,
officers, employees, attorneys and agents ("Indemnified Parties")
from and against any and all loss, cost, expense or liability
(including attorneys' fees and court costs) incurred by any
Indemnified Party in connection with or otherwise arising out of any
and all claims or proceedings (whether brought by a private party,
governmental agency or otherwise) for bodily injury, property
damage, abatement, remediation, environmental damage or impairment
or any other injury or damage resulting from or relating to any
hazardous or toxic substance or contaminated material located upon,
migrating into, from or through or otherwise relating to the
Mortgaged Property (whether or not the release of such materials was
caused by Mortgagor, a tenant or subtenant of Mortgagor, a prior
owner, a tenant or subtenant of any prior owner or any other party
and whether or not the alleged liability is attributable to the
handling, storage, generation, transportation or disposal of such
substance or the mere presence of the substance on the Mortgaged
Property), which any Indemnified Party may incur due to the making
of the loan evidenced by the Note, the exercise of any of its rights
under this Deed of Trust, or otherwise (the indemnification by
Mortgagor to Mortgagee hereunder, the "Indemnity"). For the
purposes of the indemnity contained in this paragraph, hazardous or
toxic substances or contaminated material include but are not
limited to asbestos and those substances within the scope of all
federal, state and local environmental laws and ordinances,
including the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act
and the Superfund Amendment and Reauthorization Act of 1986. The
provisions of this paragraph shall survive any foreclosure of the
liens created by this Deed of Trust conveyance in lieu of
foreclosure and the repayment of the indebtedness and the discharge
and release of this Deed of Trust. The obligations and liability of
Mortgagor under this paragraph shall be joint and several; and
(4) the Indemnity described in Paragraph (3) above shall
survive repayment and performance of the Obligations, provided that
the claims and other actions of any kind against Mortgagee which
give rise to the Indemnity are not barred by the applicable statute
of limitations at the time such claims or actions are instituted.
(5) Notwithstanding the foregoing, to the extent, if at all
Section 56-7-1 of the New Mexico Statutes Annotated is applicable to
this Indemnity or any other Loan Documents or any indemnification
agreement herein or therein, any agreement to indemnify any
indemnitee given in this Indemnity or in any of the Loan Documents,
regardless of whether such agreement to indemnify makes reference to
this or any other limitation provision, will not extend to
liability, claims, damages, losses, or expenses, including attorney
fees, arising out of:
(a) the preparation or approval of maps, drawings, opinions,
reports, surveys, change orders, designs or specifications by the
indemnitee, or the agents or employees of the indemnitee; or
(b) the giving of or the failure to give directions or
instructions by the indemnitee, or the agents or employees of the
indemnitee, where such giving or failure to give directions or
instructions is the primary cause of bodily injury to persons or
damage to property.
The word "indemnify" as used herein, includes, without limitation,
an agreement to remedy damage or loss caused in whole or in part by the
negligence, act or omission of the indemnitee, the agents or employees of
the indemnitee, or any legal entity for whose negligence, acts or
omissions any of the foregoing may be liable.
V. With regard to all of the Mortgagor's covenants in this Article
III that relate to Mortgaged Property for which the Mortgagor is not the
operator, to the extent that the performance of such covenants can only be
carried out through the operator, the Mortgagor shall exercise reasonable
diligence under the terms of the applicable operating agreements to cause the
operators to satisfy such covenants, but shall not be directly responsible for
doing so.
ARTICLE IV.
DEFEASANCE, RESPECTING FORECLOSURE
AND OTHER REMEDIES
A. Should Mortgagor make due and punctual payment of the
Obligations, as the same becomes due and payable, and duly observe and perform
all of the covenants, conditions and agreements herein and in all other
agreements with Mortgagee provided to be observed and performed by it, then the
conveyance of the Mortgaged Property shall become of no further force and
effect, and the lien and security interest hereof shall be released; otherwise,
it shall remain in full force and effect.
B. The term "Event of Default," as used in this herein, shall
have the same meaning assigned to such term in the Credit Agreement.
C. To the extent the properties comprising the Mortgaged Property are
located in NEW MEXICO, the provisions of this subsection C shall specify the
effects of an Event of Default, the remedies available to Mortgagee following an
Event of Default under this Mortgage, and any limitations on the exercise of
such remedies:
(1) Implications of Default. Upon the occurrence and during the
continuance of an Event of Default, Mortgagee may do, or may direct
Trustee to do, at its option and to the extent permitted by
applicable law, any one or more of the following:
(a) Performance on Behalf of Mortgagor. If Mortgagor has
failed to keep or perform any covenant whatsoever contained in
this instrument or the Loan Documents (as defined in the
Credit Agreement), Mortgagee may, but shall not be obligated
to any Person to do so, perform or attempt to perform such
covenant. Any payment made or expense incurred in the
performance or attempted performance of any such covenant
shall be a part of the Obligations, and Mortgagor promises,
upon demand, to pay to Mortgagee, at the place where the Note
is payable, or at such other place as Mortgagee may direct by
written notice, all sums so advanced or paid by Mortgagee,
with interest at the rate specified in the Note, to be paid on
past-due principal (the "Default Rate") from the date when
paid or incurred by Mortgagee; provided that, should
applicable law provide for a maximum permissible rate of
interest on such amounts, such rate shall not be greater than
such maximum permissible rate. No such payment by Mortgagee
shall constitute a waiver of any Event of Default. In
addition to the liens hereof, Mortgagee shall be subrogated to
all rights and liens securing the payment of any debt, claim,
tax or assessment for the payment of which Mortgagee may make
an advance, or which Mortgagee may pay.
(b) Repossession. The Mortgagee may take possession of the
Mortgaged Property or any part thereof (the Mortgagor hereby
agreeing to give immediate peaceable possession) and collect
and maintain, operate or control the same to the full extent
of the Mortgagor's rights to collect or maintain, operate or
control the same, and may apply all or any part of the income
and proceeds to the payment of any development, operation or
maintenance expense incident thereto in any order of
application as the Mortgagee may elect; provided that in the
event of any dispute or question whatsoever concerning such
income and proceeds or the application thereof, the Mortgagee
may hold the same in a special account until such dispute or
question is finally settled to the Mortgagee's satisfaction.
Should the Mortgagee elect to collect such income and
proceeds, this indenture shall constitute full and complete
authority to any purchaser of oil, gas, casinghead gas or
other hydrocarbons form the Mortgaged Property or allocated
thereto, or any part thereof, to deliver directly to the
Mortgagee all proceeds from the sale of such products, and
notice hereof without the requirement of anything more shall
constitute an unqualified order on such purchaser to make such
delivery. Every such purchaser is hereby authorized and
directed to accept as sufficient the Mortgagee's written
statement to the effect that an Event of Default has occurred
hereunder and that it is entitled to such proceeds; and every
such purchaser is hereby relieved from all responsibility with
respect to the delivery of said proceeds or the Mortgagee's
application thereof.
(c) Acceleration. Mortgagee may, without notice, demand,
presentment, notice of intent to accelerate or protest, or
notice of protest, all of which are hereby expressly waived by
Mortgagor and all other parties obligated in any manner
whatsoever on the Obligations, declare the entire unpaid
balance of the Obligations immediately due and payable, and
upon such declaration, the entire unpaid balance of the
Obligations shall be immediately due and payable, and the
liens hereof shall then be subject to foreclosure in
accordance with applicable law.
(d) Power of Sale; Etc. Mortgagee may proceed with judicial
foreclosure of this Mortgage in accordance with law or may
request Trustee to proceed with foreclosure, judicially or, if
enforceable, under the power of sale granted by this Mortgage.
To the extent permitted by applicable law, all or any part of
the Mortgaged Property may be sold at one or more foreclosure
sales, as an entity or in parcels as Mortgagee, or Trustee,
may determine whether or not such portions or parcels are
contiguous, with or without Mortgagee or Trustee having first
taken possession of same, at such place or places and
otherwise in such manner and upon such notice as may be
required by applicable law. Such sale or sales shall be to
the highest bidder or bidders for cash (except that the
Mortgagee may make a credit bid).
Nothing contained in this subsection IV(C)(1)(d) shall
be construed to limit in any way the Mortgagee's or Trustee's
rights to sell the Mortgaged Property by private sale if, and
to the extent that, such private sale is permitted under the
laws of the State of New Mexico or by public or private sale
after entry of a judgment by any court of competent
jurisdiction ordering same.
At any sale pursuant to this subsection IV(C)(1)(d) (i)
each and every recital contained in any instrument of
conveyance made by Trustee, or Special Master in the event of
judicial foreclosure, shall conclusively establish the truth
and accuracy of the matters recited therein including, without
limitation, nonpayment of the Obligations, advertisement and
conduct of such sale in the manner provided herein and
otherwise by law and appointment of any successor Trustee
hereunder; (ii) any and all prerequisites to the validity
thereof shall be conclusively presumed to have been performed;
(iii) the receipt of Trustee or of such other party or officer
making the sale shall be sufficient to discharge to the
purchaser or purchasers for his or their purchase money, and
no such purchaser or purchasers, or his or their assigns or
personal representatives, shall thereafter be obligated to see
to the application of such purchase money or be in any way
answerable for any loss, misapplication, or non-application
thereof; (iv) to the fullest extent permitted by applicable
law, Mortgagor shall be completely and irrevocably divested of
all of its right, title, interest, claim, and demand
whatsoever, either at law or in equity, in and to the property
sold, and such sale shall be a perpetual bar both at law and
in equity against Mortgagor and against all other persons
claiming or to claim the property sold or any part thereof by,
through or under Mortgagor; and (v) to the extent and under
such circumstances as are permitted by applicable law,
Mortgagee may be a purchaser at any such sale and may credit
the bid against the Obligations. After such sale, Trustee
shall make to the purchaser or purchasers thereunder good and
sufficient deeds, assignments, or bills of sale in the name of
Mortgagor, conveying or transferring the Mortgaged Property,
or any part thereof, so sold to the purchaser or purchasers
containing such warranties of title as are customarily given,
which warranties shall be binding upon Mortgagor. Sale of a
part of the Mortgaged Property shall not exhaust the power of
sale, or the right to foreclose judicially, but sales may be
made from time to time until the Obligations is paid and
performed in full. It shall not be necessary to have present
or to exhibit at any such sale any of the personal property.
In addition to the rights and other powers of sale
granted under the preceding provisions of this subsection
IV(C)(1)(d), if an Event of Default occurs as to the payment
of any installment of the Obligations, Mortgagee may, at its
option, at once or at any time thereafter while any matured
installment remains unpaid, without declaring the entire
Obligations to be due and payable, orally or in writing direct
Trustee to enforce the trust created by this instrument and
sell the Mortgaged Property subject to such matured
Obligations and the liens securing its payment, in the same
manner, on the same terms, at the same place and time and
after having given notice in the same manner, all as provided
in the preceding provisions of this subsection IV(C)(1)(d).
After such sale, Trustee shall make due conveyance to the
purchaser or purchasers. Sales made without maturing the
Obligations may be made hereunder whenever there is an Event
of Default in the payment of any installment of the
Obligations without exhausting the power of sale granted
hereby and without affecting in any way the power of sale
granted under this subsection IV(C)(1)(d), the unmatured
balance of the Obligations (except as to any proceeds of any
sale which Mortgagee may apply as prepayment of the
Obligations), or the liens securing payment of the
Obligations. The sale or sales by Trustee of less than the
whole of the Mortgaged Property shall not exhaust the power of
sale herein granted, and Trustee is specifically empowered to
make successive sale or sales under such power until the whole
of the Mortgaged Property shall be sold.
It is intended by each of the foregoing provisions of
this subsection IV(C)(1)(d) that Trustee may, after any
request or direction by Mortgagee, sell not only the Leases
but also all items constituting part of the Mortgaged Property
along with the Leases or any part thereof, all as a unit and
as a part of a single sale, or may sell any part of the
Mortgaged Property separately from the remainder of the
Mortgaged Property. If the proceeds of such sale or sales of
less than the whole of such Mortgaged Property shall be less
than the aggregate of the Obligations and the expense of
enforcing the trust created by this instrument, the liens of
this instrument shall remain in full force and effect as to
the unsold portion of the Mortgaged Property just as though no
sale or sales of less than the whole of the Mortgaged Property
had occurred, but Mortgagee shall have the right, at its sole
election, to request Trustee to sell less than the whole of
the Mortgaged Property.
In the event any questions should be raised as to the
regularity or validity of any sale hereunder, Trustee shall
have the right and is hereby authorized to make resale of said
property so as to remove any questions or doubt as to the
regularity or validity of the previous sale, and as many
resales may be made as may be appropriate. It is agreed that,
in any deed or deeds given by Trustee, any and all statements
of fact or other recitals therein made as to the identity of
Mortgagee, or as to the occurrence or existence of any Event
of Default, 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,
or as to the due and proper appointment of a substitute
trustee, and, without being limited by the foregoing, as to
any other act or thing having been duly done by Mortgagee or
by Trustee, shall be taken by all tribunals as prima facie
evidence that the said statements or recitals are true and
correct and are without further question to be so accepted,
and Mortgagor does hereby ratify and confirm any and all acts
that Trustee may lawfully do in the premises by virtue hereof.
In the event of the resignation or death of Trustee, or
his failure, refusal or inability, for any reason, to make any
such sale or to perform any of the trusts herein declared, or,
at the option of Mortgagee, without cause, Mortgagee may
appoint, in writing, a substitute trustee, who shall thereupon
succeed to all the estates, titles, rights, powers, and trusts
herein granted to and vested in Trustee. Such substitution
shall be made by recording notice of the substitution,
acknowledged by Mortgagee, in the office of the county clerk
of each county in which all or any part to the Mortgaged
Property is situated at the time of the substitution.
Additionally, Mortgagee shall give written notice to
Mortgagor, Trustee, and the substitute trustee. If Mortgagee
is a banking association or a corporation, such appointment
may be made on behalf of such Mortgagee by any person who is
then the president, or any vice-president, or the cashier or
secretary, or any other authorized officer or agent of
Mortgagee. In the event of the resignation or death of any
such substitute trustee, or his failure, refusal, or inability
to make such sale or perform such trusts, or, at the option of
Mortgagee, without cause, Mortgagee may appoint successive
substitute trustees from time to time in the same manner.
Wherever herein the word "Trustee" is used, the same shall
mean the person who is the duly appointed trustee or
substitute trustee hereunder at the time in question.
(e) Judicial Foreclosure. Mortgagee may, or Trustee may
upon written request of Mortgagee, in lieu of or in addition
to exercising the power of sale provided for in subsection
IV(C)(1)(d) hereof, proceed by suit or suits, at law or in
equity, to enforce the payment and performance of the
Obligations in accordance with the terms hereof, of the Note
and of the Loan Documents evidencing it, to foreclose the
liens and this instrument as against all or any part of the
Mortgaged Property, and to have all or any part of the
Mortgaged Property sold under the judgment or decree of a
court of competent jurisdiction.
(f) Appointment of a Receiver. To the extent permitted by
applicable law, Mortgagee, as a matter of right and without
regard to the sufficiency of the Mortgaged Property, and
without any showing of insolvency, fraud or mismanagement on
the part of Mortgagor, and without the necessity of filing any
judicial or other proceeding other than the proceeding for
appointment of a receiver, shall be entitled to the
appointment of a receiver or receivers of the Mortgaged
Property, or any part thereof, and of the income, royalties,
revenues, bonuses, production payments, delay rentals,
benefits, rents, issues and profits thereof. Mortgagor hereby
agrees that notice of any hearing on the appointment of a
receiver shall be adequate if (i) mailed three (3) days prior
to the hearing or (ii) hand delivered one (1) day prior to the
hearing, to the Mortgagor's address set forth next to the
Mortgagor's signature block hereof, whether or not Mortgagor
has yet been served with the summons and/or complaint, if any,
in the action on which the receiver is sought. Furthermore,
the foregoing does not preclude a finding of adequate notice
by telephone or facsimile transmission or by a shorter time
than consented to in this subsection. Mortgagor hereby
consents to the appointment of such receiver or receivers,
agrees not to oppose any application therefor by Trustee or
Mortgagee and agrees that such appointment shall in no manner
affect the rights of Mortgagee under Article V hereof.
Mortgagor further hereby consents and agrees that there is
good cause to waive, and hereby waives, the furnishing of any
security for the appointment of a receiver.
(g) Entry Upon Mortgaged Property; Personal Property.
(i) Mortgagee may (without notification, if permitted
by applicable law) enter upon the Mortgaged
Property, take possession of the Mortgaged
Property, and remove the personal property, or
any part thereof, with or without judicial
process, and, in connection therewith, without
any responsibility or liability on the part of
Mortgagee, take possession of any property
located on or in the Mortgaged Property which is
not a part of the Mortgaged Property, and hold or
store such property at Mortgagor's expense. If
necessary to obtain the possession provided for
in this subsection IV(C)(1)(g), Mortgagee or
Trustee may undertake any and all remedies to
dispossess Mortgagor, including specifically one
or more actions for forcible entry and detainer
and restitution.
(ii) Mortgagee may require Mortgagor to assemble the
personal property and any other items of the
Mortgaged Property, or any part thereof, and make
it available to Mortgagee at a place to be
designated by Mortgagee which is reasonably
convenient to Mortgagor and Mortgagee.
(iii) Mortgagee may retain the personal property and any
other items of the Mortgaged Property, or any
part thereof, in satisfaction of the Obligations
whenever the circumstances are such that
Mortgagee is entitled to do so under the New
Mexico Uniform Commercial Code (the "New Mexico
UCC").
(iv) Mortgagee may buy any items of the Mortgaged
Property, or any part thereof, at any private
disposition if the Mortgaged Property, or the
part thereof, being disposed of, is a type
customarily sold in a recognized market or a type
which is the subject of widely distributed
standard price quotations.
(2) Mortgagee as Purchaser of Mortgaged Property. If Mortgagee is
the purchaser of the Mortgaged Property, or any part thereof, at any
sale thereof, whether such sale be under the power of sale
hereinabove vested in Trustee, or upon any other foreclosure of the
liens hereof, or otherwise, Mortgagee shall, upon any such purchase,
acquire good and marketable title to the Mortgaged Property so
purchased, free of the liens of these presents.
(3) Possession by Purchaser of Mortgaged Property. Subject only
to any period of redemption which the Mortgagor is unable to waive
or relinquish as more fully set forth in subsection IV(C)(7), in
case the liens hereof shall be foreclosed by Trustee's sale, or by
other judicial or non-judicial action, the purchaser at any such
sale shall receive, as an incident to such purchaser's ownership,
immediate possession of the Mortgaged Property, or any part thereof
sold to such purchaser, and, subsequent to foreclosure, Mortgagor
shall be divested of any and all interest and claim thereto,
including any interest or claim to all insurance policies, bonds,
loan commitments, contracts, and other intangible property covered
by this instrument, Mortgagor shall be considered a tenant at
sufferance of the purchaser at the foreclosure sale, and any person
occupying the Mortgaged Property, or portion thereof so sold, after
demand has been made 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. This remedy
is cumulative of any and all remedies the purchaser may have
hereunder or otherwise.
(4) Partial Release; Other Security. Any part of the Mortgaged
Property may be released by Mortgagee without affecting,
subordinating, or releasing the lien, security interest, and
assignment hereof against the remainder of the Mortgaged Property.
The lien, security interest, and other rights granted hereby shall
not affect or be affected by any other security taken for the
Obligations or any part thereof. The taking of additional security
or the rearrangement, extension, or renewal of the Obligations, or
any part thereof, shall not release or impair the lien, security
interest, and other rights granted hereby or affect the liability of
any endorser, guarantor, or surety or improve the right of any
permitted junior lienholder; and this instrument, as well as any
instrument given to secure any rearrangement, renewal, or extension
of the Obligations secured hereby, or any part thereof, shall be and
remain a first and prior lien, except as otherwise provided herein,
on all of the Mortgaged Property not expressly released until the
Obligations is completely paid.
(5) Application of Proceeds. To the extent permitted by
applicable law, the proceeds of any sale of, and the proceeds and
other income generated by the holding, leasing, operating, or other
use of the Mortgaged Property shall be applied by Mortgagee (or the
receiver, if one is appointed) to the extent that funds are so
available therefrom in the following orders of priority: (i) first,
to the payment of the reasonable costs and expenses of taking
possession of the Mortgaged Property and of holding, using, leasing,
maintaining, repairing, improving, and selling the same, including,
without limitation, (A) Trustee's fees and receiver's fees, (B)
costs of advertisement, (C) attorneys' and accountants' fees, (D)
court costs, and (E) at Mortgagee's option, payment of any and all
impositions and prior liens, security interests, or other rights,
titles, or interests on the Mortgaged Property (without in any way
implying Mortgagee's prior consent to the creation thereof or any
obligation on the part of Mortgagee to discharge the same); (ii)
second, to the payment of all amounts, other than the principal
amount and accrued but unpaid interest, which may be due to
Mortgagee under the Credit Agreement, the Note or the Loan
Documents, together with interest thereon as provided in any such
document; (iii) third, to the payment of all accrued but unpaid
interest due on the Note; (iv) fourth, to the payment of the
principal amount outstanding on the Note in inverse order of
maturity; (v) fifth, to the payment of all other Obligations of
Mortgagor to Mortgagee; (vi) sixth, to the payment of any
Obligations secured by a subordinate agreement or security interest
on the Mortgaged Property; and (vii) seventh, to Mortgagor.
Mortgagor and any other party liable on the Obligations and shall be
liable for any deficiency remaining in the Obligations subsequent to
the sale referenced in this subsection IV(C)(5).
(6) Suit to Collect or Foreclose. In the event a foreclosure
hereunder should be commenced by Trustee in accordance with
subsection IV(C)(1)(d), Mortgagee may at any time before the sale
direct Trustee to abandon the sale, and may then institute suit for
the collection of the Obligations, or for the foreclosure of the
liens hereof. If Mortgagee should institute a suit for the
collection of the Obligations, or for a foreclosure of the liens
hereof, it may at any time before the entry of a final judgment in
said suit dismiss the same, and require Trustee to sell the
Mortgaged Property, or any part thereof, in accordance with the
provisions of this instrument.
(7) Waiver of Appraisement; Redemption Period. To the full extent
Mortgagor may lawfully do so, Mortgagor agrees that Mortgagor will
not at any time insist upon, plead, claim or take the benefit or
advantage of any appraisement, valuation, stay, extension or
redemption laws, now or hereafter in force, in order to prevent or
hinder the enforcement of this instrument or the absolute sale of
the Mortgaged Property, or any part thereof, or the possession
thereof by any purchaser at any such sale, but Mortgagor, insofar as
Mortgagor now or hereafter may lawfully do so, hereby waives the
benefit of all such laws; provided that the appraisement of any of
the Mortgaged Property is hereby expressly waived or not waived at
the option of Trustee or Mortgagee, such option to be exercised
prior to or at the time judgment is rendered in any foreclosure of
this instrument.
Furthermore, to the extent permitted by applicable law, the
Mortgagor expressly waives and relinquishes all laws now existing
and hereafter enacted providing for any creation or extension of a
period of redemption from any sale hereunder or any extension of
time for the enforcement of the collection of the Obligations.
Mortgagor and Mortgagee agree that there shall be no period of
redemption for any sale of Mortgaged Property pursuant to the power
of sale granted in subsection IV(C)(1)(d). To the extent applicable
law prescribes, and Mortgagor is unable pursuant to such law to
waive and relinquish, a right of redemption, Mortgagor and Mortgagee
agree that any such prescribed period of redemption will be the
shortest period allowed by such law. Specifically, Mortgagor and
Mortgagee, pursuant to Section 39-5-19 of the New Mexico Statutes
Annotated 1978, agree that the period of redemption after any
judicial foreclosure sale shall be one (1) month in lieu of nine (9)
months.
(8) Other Rights of Mortgagee; Rights Cumulative. Mortgagee shall
have and may exercise any and all other rights which Mortgagee may
have under the New Mexico UCC, by virtue of the Loan Documents, at
law, in equity or otherwise. All rights available to Mortgagee and
Trustee hereunder are cumulative of and in addition to all of the
rights granted to Mortgagee at law or in equity, or under the Loan
Documents.
(9) Easements or Contracts Violative of Mortgage. The purchaser
at any Trustee's or foreclosure sale hereunder may disaffirm any
easement granted or rental, lease, or other contract made in
violation of any provision of this instrument and may take immediate
possession of the Mortgaged Property free from, and despite the
terms of, such grant of easement or rental, lease, or other
contract.
ARTICLE V.
ASSIGNMENT OF PRODUCTION
(this "Assignment")
A. In addition to the conveyance to the Trustee herein made,
Mortgagor does hereby transfer, assign, deliver and convey unto Mortgagee, its
successors and assigns, all of the oil, gas and other minerals produced, saved
or sold from the Mortgaged Property and attributable to the interest of
Mortgagor therein subsequent to 7:00 A.M. on the 1st day of the month in which
this Deed of Trust is executed, together with the proceeds of any sale thereof;
Mortgagor hereby directs any purchaser now or hereafter taking any production
from the Mortgaged Property to pay to Mortgagee such proceeds derived from the
sale thereof, and to continue to make payments directly to Mortgagee until
notified in writing by Mortgagee to discontinue the same; and the purchaser of
any such production shall not be required to see to the application of the
proceeds thereof by Mortgagee and payment made to Mortgagee shall be binding and
conclusive as between such purchaser and Mortgagor. Mortgagor further agrees to
perform all such acts, and to execute all such further assignments, transfer and
division orders, and other instruments as may be required or desired by
Mortgagee or any other party to have such proceeds and revenues so paid to
Mortgagee. Unless and until an Event of Default shall occur, Mortgagee grants
to Mortgagor a license to receive and collect the revenues and proceeds
attributable to such production, but upon the occurrence of an Event of Default,
the Mortgagee, acting in its sole discretion, shall have the right to terminate
Mortgagor's license to collect such revenues and proceeds by sending to the
purchasers of such production the letters in lieu of transfer orders executed by
Mortgagor contemporaneously herewith.
B. Should any purchaser taking the production from the Mortgaged
Property fail to make prompt payment to Mortgagee in accordance with this
Assignment, Mortgagee shall have the right at Mortgagor's expense to demand a
change of connection and to designate another purchaser with whom a new
connection may be made, without any liability on the part of Mortgagee in
making such selection, so long as ordinary care is used in the making thereof;
and failure of Mortgagor to consent to and promptly effect such change of
connection shall constitute an Event of Default here-under, and the whole
Obligations may be immediately declared due and payable, at the option of
Mortgagee, and the Mortgaged Property shall become subject to the foreclosure
proceedings hereunder.
C. Mortgagor authorizes and empowers Mortgagee to receive, hold
and collect all sums of money paid to Mortgagee in accordance with this
Assignment, and to apply the same as hereinafter provided, all without any
liability or responsibility on the part of Mortgagee, save and except as to good
faith in so receiving and applying such sums. All payments provided for in this
Assignment shall be paid promptly to Mortgagee, and any provisions contained in
any note or notes evidencing the Obligations or any part thereof to the contrary
notwithstanding, Mortgagee may apply the same or so much thereof as it elects to
the payment of the Obligations, application to be made in such manner as it may
elect, regardless of whether the application so made shall exceed the payments
of principal and interest then due as provided in the note or notes evidencing
the Obligations. After such application has been so made by Mortgagee, the
balance of any such payment or payments remaining shall be paid to Mortgagor.
D. It is understood and agreed that should such payments provided for
by this Assignment be less than the sum or sums then due on the Obligations,
such sum or sums then due shall nevertheless be paid by Mortgagor in accordance
with the provisions of the note, notes, guaranty agreements or other instrument
or instruments evidencing the Obligations, and neither this Assignment nor any
provisions hereof shall in any manner be construed to affect the terms and
provisions of such note, notes, guaranty agreements or other instrument or
instruments evidencing the Obligations. Likewise, neither this Assignment nor
any provisions hereof shall in any manner be construed to affect the liens,
rights, title and remedies herein granted securing the Obligations or
Mortgagor's liability therefor. The rights under this Assignment are cumulative
of all other rights, remedies, and powers granted under this Deed of Trust, and
are cumulative of any other security which Mortgagee now holds or may hereafter
hold to secure the payment of the Obligations.
E. Should Mortgagor receive any of the proceeds of any sale of
oil, gas or other minerals produced, saved or sold from the Mortgaged Property,
which under the terms hereof should have been remitted to Mortgagee, Mortgagor
will immediately remit same in full to Mortgagee.
F. Upon payment and performance in full of all Obligations, the remainder
of such proceeds held by Mortgagee, if any, shall be paid over to
Mortgagor upon demand, and a release of the interest hereby assigned will be
made by Mortgagee to Mortgagor at its request.
G. Mortgagee shall not be liable for any failure to collect, or
for any failure to exercise diligence in collecting, any funds assigned
hereunder. Mortgagee shall be accountable only for funds actually received.
ARTICLE VI.
ADDITIONAL REMEDIES
A. If Mortgagor should fail to comply with any of the covenants or
obligations of Mortgagor hereunder, then Mortgagee or the Trustee may perform
the same for the account and at the expense of Mortgagor but shall not be
obligated so to do, and any and all expenses incurred or paid in so doing shall
be payable by Mortgagor to Mortgagee, with interest at the Default Rate, from
the date when same was so incurred or paid, and the amount thereof shall be
payable on demand and shall be secured by and under this Deed of Trust, and the
amount and nature of such expense and the time when paid shall be presumptively
established by the affidavit of Mortgagee or any officer or agent thereof, or by
the affidavit of any Trustee acting hereunder; provided, however, that the
exercise of the privileges granted in this paragraph shall in no way be
considered or constitute a waiver of the right of Mortgagee upon the happening
of an Event of Default hereunder to declare the Obligations at once due and
payable but shall be cumulative of such right and all other rights herein given.
B. Mortgagor does hereby designate Mortgagee as Mortgagor's agent
to exercise each and every remedy set forth in this Mortgage and to conduct any
and all operations and take any and all action reasonably necessary to do so.
ARTICLE VII.
MISCELLANEOUS
A. Any provision in any document that may be executed in
connection herewith to the contrary notwithstanding, the holder of the
Obligations shall in no event be entitled to receive or collect, nor shall any
amounts received hereunder be credited so that the holder of the Obligations
shall be paid as interest, a sum greater than that authorized by law. If any
possible construction of this Deed of Trust or any instrument evidencing the
Obligations, or any or all other notes, guaranties or papers relating to the
Obligations, seems to indicate any possibility of a different power given to the
holder of the Obligations, or any authority to ask for, demand, or receive any
larger rate of interest, such as a mistake in calculation or wording, this
clause shall override and control, and proper adjustments shall be made
accordingly.
B. This Deed of Trust, for convenience only, has been divided
into Articles and paragraphs, and it is understood that the rights, powers,
privileges, duties and other legal relations of the Mortgagor, the Trustee, and
the Mortgagee or any holder of the Obligations, shall be determined from this
Deed of Trust as an entirety and without regard to the aforesaid division into
Articles and paragraphs and without regard to headings prefixed to such
Articles.
C. The terms used to designate any of the parties herein shall be
deemed to include the heirs, successors and assigns of such parties; the term
"successors" shall include the heirs, trustees and legal representatives; and
the term "Mortgagee" shall also include any lawful owner, holder or pledgee of
any Obligations. Whenever the context requires, reference herein made to the
single number shall be understood to include the plural and the plural shall
likewise be understood to include the singular. Words denoting sex shall be
construed to include the masculine, feminine, and neuter when such construction
is appropriate, and specific enumeration shall not exclude the general, but
shall be construed as cumulative.
D. Every right and remedy provided for herein shall be cumulative of
each and every other right or remedy of Mortgagee, whether herein or otherwise
conferred, and may be enforced concurrently therewith, and the unenforceability
or invalidity of any one or more provisions, clauses, sentences or paragraphs of
this Deed of Trust shall not render any other provision, clause, sentence or
paragraph unenforceable or invalid. No security theretofore, herewith or sub-
sequently taken by Mortgagee shall in any manner impair or affect the security
given by this Deed of Trust or any security by endorsement or otherwise
presently or previously given, and all security shall be taken, considered and
held as cumulative.
E. This Deed of Trust shall be binding upon the parties, their
respective successors and assigns, and shall inure to the benefit of the holder
of the Obligations, and the covenants and agreements herein contained shall
constitute covenants running with the Land.
F. It is contemplated by the parties hereto that from time to
time additional interests and properties may or will be added to the interests
and properties in Exhibit A attached hereto by means of supplemental indentures
identifying this Deed of Trust and describing such interests and properties to
be so added and included, and upon the execution of any such supplemental
indenture, the lien, rights, titles and interests created herein shall
immediately attach to and be effective in respect to any such interests and
properties so described, the same as if same had been included originally in
Exhibit A attached hereto, and the same being included in the term "Mortgaged
Property", as used herein.
G. This Deed of Trust shall be deemed, and may be enforced from
time to time, as a chattel mortgage, real estate mortgage, deed of trust,
security agreement, assignment or contract, or as one or more thereof.
H. Without in any manner limiting the generality of any of the foregoing
hereof, some portions of the personal property described hereinabove are
or are to become fixtures on the Land described herein or to which reference
is made herein. In addition, the security interest created hereby under
applicable provisions of the Uniform Commercial Code attaches to minerals,
including oil and gas, or accounts resulting from the sale thereof, at the
wellhead or minehead located on the Land described or to which reference is
made herein.
I. This Deed of Trust may be filed as provided for under New
Mexico law relating to the granting of security interests. In this connection,
this instrument will be presented to a filing officer under the Uniform
Commercial Code to be filed in the real estate records as a Financing Statement
covering minerals and fixtures.
J. For purposes of filing this Deed of Trust as a financing
statement, the addresses for Mortgagor, as the debtor, and Mortgagee, as the
secured party, are as set forth hereinabove.
K. For the convenience of the parties, this Deed of Trust may be executed
in multiple counterparts. For recording purposes, various counterparts have
been executed and there may be attached to each such counterpart an Exhibit A
containing only the description of the Mortgaged Property, or portions thereof,
which relates to the county or state in which the particular counterpart is to
be recorded. A complete, original counterpart of this Deed of Trust with a
complete Exhibit A may be obtained from the Mortgagee. Each of the counterparts
hereof so executed shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same Deed of Trust.
L. The failure or delay of Mortgagee to file or give any notice
as to this Deed of Trust, or to exercise any right, remedy or option to declare
the maturity of the principal debt, or any other sums hereby secured, or the
payment by Mortgagee of any taxes, liens, charges or assessments, shall not be
taken or deemed a waiver of any rights to exercise such right or option or to
declare any such maturity as to any past or subsequent violations of any of
such covenants or stipulations, and shall not waive or prejudice any right or
lien hereunder. Any election or failure by Mortgagee to exercise any rights,
remedies or options hereunder shall not constitute a waiver or prejudice the
exercise of other rights or remedies existing hereunder. All rights, powers,
immunities, remedies and liens of Mortgagee existing and to exist hereunder or
under any other instruments, and all other or additional security, and
Mortgagee's rights at law and in equity, shall be cumulative and not exclusive,
each of the other; and Mortgagee shall, in addition to the remedies herein
expressly provided, be entitled to such other remedies as may now or here after
exist at law or in equity for securing and collecting the Obligations, for
enforcing the covenants herein, and for foreclosing the liens hereof. Resort by
Mortgagee to any remedy provided for hereunder or at law or in equity shall not
prevent concurrent or subsequent resort to the same or any other remedy or
remedies.
M. In the event of a conflict between the terms and provisions of
this Deed of Trust and those of the Credit Agreement, the terms and provisions
of the Credit Agreement shall govern and control.
[Signature page follows]
IN WITNESS WHEREOF, this instrument is executed effective as of this
9th day of September, 1999.
MORTGAGOR:
MORTGAGOR'S ADDRESS: MALLON OIL COMPANY
999 18TH Street, Suite 1700
Denver, Colorado 80202 By: ____________________________
Kevin M. Fitzgerald
President
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
This instrument was acknowledged before me on September 9, 1999 by Kevin
M. Fitzgerald, President of Mallon Oil Company.
Notary Public, State of Texas
Printed Name:
Commission Expires:
EXHIBIT A
TO DEED OF TRUST
This Exhibit A sets forth the description of the property interests covered by
the Deed of Trust to which this Exhibit A is attached. All defined terms not
otherwise defined in this Exhibit A shall have the meaning ascribed to such term
in the Deed of Trust to which this Exhibit A is attached. This Exhibit A and
the Deed of Trust cover and include the following rights, titles and interests:
(a) All of Mortgagor's present and future rights, titles and interests
in and to the oil, gas and/or mineral leases, leasehold interests, overriding
royalty interests, fee interests, non-participating royalty interests, mineral
interests, production payments, net profits interests, any interest measured by
or payable out of production of oil, gas or other minerals from the oil, gas
and/or mineral leases or lands described herein; and
(b) All present and future wells, rigs, machinery and other equipment,
materials, fixtures, improvements, inventory and articles of personal property,
now owned or hereafter acquired by Mortgagor, appurtenant to the Leases or used
or obtained in connection with the Leases or with the production, treatment,
sale or disposal of hydrocarbons, other minerals or waste produced therefrom or
attributable thereto, and other appurtenances thereunto belonging (the
"Equipment"); and
(c) All of the foregoing interests of the Mortgagor, now owned or
hereafter acquired, as such interests may be enlarged by the discharge of any
payments out of production or by the removal of any charges or encumbrances
together with the Mortgagor's interests in, to and under or derived from all
renewals and extensions of any oil, gas and/or mineral leases described herein,
it being specifically intended hereby that any new oil, gas and/or mineral
lease (i) in which an interest is acquired by the Mortgagor after the
termination or expiration of any oil, gas and/or mineral lease, the interests of
the Mortgagor in, to and under or derived from which are subject to the lien and
security interest hereof, and (ii) that covers all or any part of the property
described in and covered by such terminated or expired leases, shall, to the
extent, and only to the extent such new oil, gas and/or mineral lease may
cover such property, be considered a renewal or extension of such terminated
or expired lease; and
(d) All present and future rights, titles and interests of Mortgagor in,
to and under or derived from any operating, farmout, and bidding agreements,
assignments and subleases, whether or not described in this Exhibit A including,
without limitation, any future operating, farmout and bidding agreements,
assignments, subleases and pooling, unitization and communitization agreements
and the units created thereby (including, without limitation all units formed
under orders, regulations, rules or other official acts of any governmental
body or agency having jurisdiction); and
(e) All present and future rights, titles, and interests of the
Mortgagor in, to and under or derived from all presently existing and future
advance payment agreements, oil, casinghead gas and gas sales, exchange, and
processing contracts and agreements (including, without limitation, rights to
take-or-pay payments or buy-outs of take-or-pay obligations under any gas sales
contract), including, without limitation, those contracts and agreements that
are described in Exhibit A; and
(f) All present and future rights, titles and interests of the Mortgagor
in, to and under or derived from all existing and future permits, licenses,
easements, rights-of-way and similar rights and privileges that relate to or are
appurtenant to any of the described Leases and/or lands.
Notwithstanding the intention of this Agreement to cover all of the
right, title and interest of Mortgagor in and to the described Leases and/or
Lands, Mortgagor hereby specifically warrants and represents that the interests
covered by this Exhibit A are not greater than the working interest nor less
than the net revenue interest, overriding royalty interest, net profit interest,
production payment interest or other interest payable out of or measured by
production set forth in Exhibit A. In the event the Mortgagor owns any other or
greater interest, such additional interest shall also be covered by and included
in this Deed of Trust. The designation "Working Interest" or "WI%" means an
interest owned in an oil, gas and mineral lease that determines the cost bearing
percentage of the owner of such interest. The designation "Net Revenue Interest"
or "NRI%" means net revenue interest, or that portion of the production
attributable to the owner of a working interest after deduction for all royalty
burdens, overriding royalty burdens, or other burdens on production, except
severance, production, windfall profits and other similar taxes. The designation
"Overriding Royalty Interest" or "ORRI%" means an interest in production which
is free of any obligation for the expense of exploration, development and
production, bearing only its pro rata share of severance, production, windfall
profits and other similar taxes.
"Permitted Encumbrances" as used in the Deed of Trust shall mean (i) minor
irregularities in title which do not (a) materially interfere with the
occupation, use and enjoyment by Mortgagor of any of the Mortgaged Property in
the normal course of business as presently conducted, or (b) materially impair
the value thereof for such Mortgaged Property, (ii) all interests in the
Mortgaged Property securing obligations owed to, or claimed by, any Person
other than the holder of the Obligations, whether such interest is based on the
common law, statute or contract, and whether such interest includes liens or
security interests arising by virtue of mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or lease, consignment or bailment
for security purposes, so long as each said interest has been expressly
consented to by the holder of the Obligations in writing, (iii) liens of
landlords, vendors, carriers, warehousemen, mechanics, laborers, operators,
joint interest owners, taxing and other governmental authorities, materialmen
and other similar liens arising by law, or otherwise arising in the ordinary
course of business, in each case, for sums not yet due or being contested in
good faith by appropriate action promptly initiated and diligently conducted, if
such reserve as shall be required by generally accepted accounting principles
shall have been made therefor, and (iv) specific exceptions and encumbrances
affecting each of the Mortgaged Property as described in this Exhibit INSOFAR
ONLY as said exceptions and encumbrances are valid and subsisting and are
enforceable against the particular Lease which is made subject to said
exceptions and encumbrances are valid and subsisting and are enforceable against
the particular Lease which is made subject to said exception and encumbrance.
[The remainder of this page is intentionally left blank.]
PROPERTY DESCRIPTION
AGENCY AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this 9th day of
September, 1999, by and between MALLON RESOURCES CORPORATION and MALLON OIL
COMPANY, both Colorado corporations, with offices at 999 18th Street, Suite
1700, Denver, Colorado 80202 (hereinafter, collectively, called "Company") and
AQUILA ENERGY CAPITAL CORPORATION, a Delaware corporation, with offices at Two
Houston Center, 909 Fannin, Suite 1850, Houston, Texas 77010-1007 (hereinafter
called "Aquila").
W I T N E S S E T H :
WHEREAS, Company is the owner of interests in oil, gas and other minerals
which may include, but are not necessarily limited to, leasehold, mineral, fee,
royalty, overriding royalty, production payment and/or net profits interests
(collectively the "Oil and Gas Interests") and in the oil, gas, and other
gaseous and liquid hydrocarbons on, in, under and to be produced from the Oil
and Gas Interests (herein called the "Oil and Gas Production").
WHEREAS, Company has heretofore requested that Aquila manage the marketing
of Company's Oil and Gas Production.
NOW, THEREFORE, for and in consideration of the premises and for Ten
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each party, the parties hereto
agree as follows:
1. Designation of Agent. Company hereby designates and appoints Aquila as
its true and lawful agent and attorney-in-fact, with full power and authority
in the name, place and stead of Company, to market Company's Oil and Gas
Production on behalf of and for the account of Company, hereby ratifying,
adopting and confirming all that Aquila may do in the name or on behalf of the
Company for the purpose of marketing the Oil and Gas Production of the Company,
and Aquila hereby accepts said appointment. This Agreement is to be interpreted
as broadly as possible to facilitate Aquila's exercise of the power and
authority granted herein, including, but not limited to, the power to execute in
the name and on behalf of the Company contracts for the gathering,
transportation, sale, processing, treatment, storage, exchange, and/or other
disposition of any type with respect to the Company's Oil and Gas Production, to
sign division orders and transfer orders, to designate accounts for payments, to
endorse payment checks, to receive and collect payment proceeds, and to take any
and all manner of other actions as may be deemed by Aquila to be necessary or
convenient for the fullest possible exercise of the power and authority granted
herein
2. Marketing Fee. Company agrees that it shall pay to Aquila, and/or Aquila
shall have the right to withhold from the Company's proceeds that come into
Aquila's possession, a marketing fee equal to one percent (1.0%) of the net
proceeds derived from the sale of the Company's Oil and Gas Production that are:
(a) received by the Company or by Aquila for the account of the Company for oil
and gas production that is either sold directly by the Company or marketed and
sold by Aquila on behalf of the Company, or (b) payable by Aquila to the Company
for sale by the Company to Aquila of any of the Company's Oil and Gas
Production. For purposes of this paragraph, the term "net proceeds," means the
gross proceeds payable to the Company for the sale or other disposition of its
Oil and Gas Production, net of direct production and severance taxes, royalty
interests payable out of such proceeds, and gathering, transportation,
compression, dehydration and treatment fees incurred in making such Oil and Gas
Production marketable and moving it from the wellhead to the point of sale.
3. Term. This Agreement shall remain in force until the sooner of: (a) four
(4) years from the date hereof, or (b) the date on which all indebtedness and
obligations owed by Company to Aquila under the Credit Agreement of even date
herewith have been fully repaid and performed.
4. Standard of Performance. Aquila shall exercise its authority and
perform its duties hereunder with diligence, in a good and workmanlike manner,
consistent with the standards of other entities that routinely engage in
marketing natural gas, crude oil and condensate in the United States, but in
doing so, Aquila shall not be liable to the Company for any losses or damages
incurred by the Company as the result of the manner in which Aquila exercises
its authority or performs its duties hereunder, unless any such loss or damage
results from the gross negligence or willful misconduct of Aquila. In no event
shall either party be liable to the other for any consequential or incidental
damages arising directly or indirectly in connection with this Agreement,
including any consequential or incidental damages resulting from the negligence
of either party hereto. Notwithstanding any provisions of law or of this
Agreement that would otherwise require an agent to act as a fiduciary with
respect to its principal, Aquila shall have no fiduciary duties hereunder, and
the Company hereby releases and discharges Aquila from any fiduciary duties that
may otherwise be implied, either in fact or in law.
5. Governing Law. The validity of this Agreement and of any of its
terms or provisions, as well as of the rights and duties of the parties
hereunder, shall be governed by the laws of the State of Texas.
6. Applicable Area. The terms of this Agreement are applicable to all
of the Company's Oil and Gas Production attributable to or produced under or by
virtue of its Oil and Gas Interests now or hereafter owned by the Company
located in any and all of the states of Alabama, Colorado, New Mexico, North
Dakota, Oklahoma and Wyoming.
7. Power Coupled With an Interest and Covenant Running with the Land.
Any third party dealing with Aquila in its capacity as agent under the terms of
this Agreement is conclusive entitled to rely on the terms of this Agreement,
and no third party shall ever be bound to make further inquiry into the rights
or authority of Aquila hereunder. This power of attorney is coupled with an
interest, and shall be irrevocable during the term hereof, unless and until a
written instrument terminating this Agreement and mutually executed and
acknowledged by both the Company and Aquila is filed for record in Rio Arriba
County, New Mexico. This Agreement also constitutes a covenant running with the
land as to all of the Company's Oil and Gas Interests, and Aquila shall be
entitled to exercise the powers and authority granted herein on behalf of any
successor, assignee or transferee of any of the Company's rights, titles or
interests in and to its Oil and Gas Interests with respect to the Oil and Gas
Production from or attributable to such Oil and Gas Interests during the term
hereof.
EXECUTED effective as of the date and year first set forth above.
MALLON RESOURCES CORPORATION
By:
Kevin M. Fitzgerald
Executive Vice President
MALLON OIL COMPANY
By:
Kevin M. Fitzgerald
President
AQUILA ENERGY CAPITAL CORPORATION
By:
Kenneth F. Wyatt
Vice President
MASTER RENTAL CONTRACT
MALLON OIL COMPANY September 9, 1999
THIS CONTRACT IS MADE AND ENTERED INTO BY AND BETWEEN UNIVERSAL COMPRESSION,
INC. ("UCI") and MALLON OIL COMPANY ("Customer"). For and in consideration
of the mutual covenants and agreements set forth herein, the adequacy and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
I. RESPONSIBILITIES OF THE PARTIES
UCI and Customer shall furnish the equipment, supplies, and services
respectively as indicated below:
Furnished By
UCI Customer
Treatment Facility............................. X
Gas Compressors including oil and antifreeze.................. X
Existing Gas-liquid and solid separation equipment ............. X
All fees, assessments and taxes (including sales, use and ad valorem taxes)
relating to Equipment or Treatment Facility X
Property damage insurance on UCI equipment and public liability insurance. X
Compressor foundation(s) (concrete in skid only)........... .....X
Site preparation, including suitable sand or gravel pad X
All existing equipment currently in place relating to suction, discharge,
fuel bypass and pressure control X
Initial installation supervision and start-up time X
Competent and prudent equipment operators to operate compressors and Treatment
Facility, perform inspections, and submit monthly reports to UCI........X
Preventive maintenance, inspections and repairs to all compressor engines,
compressors and accessory parts X
All maintenance, inspections and repairs to all Treatment Facility equipment
and accessory parts (including without limitation all liquids,
parts, etc.)........... X
All repairs caused by Customer's negligence or failure of Customer's equipment X
Fuel gas with 950 to 1200 BTU/cu. ft. and no more than 4 ppm H2S for compressors
and plant facility X
Air/gas pressure of 250 PSIG with sufficient volume for engine starting X
Removal of all free liquids and solids from gas before compression X
Collection and disposal of all liquids from skid drains and liquids incidental
to compressor operations X
Equipment site with ingress and egress X
Site fencing (if required) X
Disconnection of equipment and site restoration expenses X
Any and all necessary equipment, supplies, and services not specifically
indicated above
Third-party services or materials not listed above as UCI responsibilities
which are furnished by UCI at Customer's written request or approval will be
charged to Customer at actual cost, plus 20%. UCI services or materials not
listed above as UCI responsibilities, which are furnished by UCI at Customer's
request, will be charged to Customer at UCI's prevailing standard rates.
II. MONTHLY RENTAL AND TERM
This Agreement shall be in effect for a period of five (5) years from and after
the date hereof ("Primary Term"). At the end of the Primary Term, Mallon shall
have the option to renew this Agreement for one additional five (5) year period
on substantially similar terms but at then current market rates, upon the
delivery of written notice to UCI at least 120 days prior to the expiration of
the Primary Term. In the event that Mallon does not exercise its renewal
option as set forth herein, Mallon shall be deemed to have exercised the
purchase option described in Article IV below with respect to the Treatment
Facility and the Compression Equipment, and shall pay to UCI the applicable
Purchase Price payable by wire transfer before 11:00 a.m. Central Time to an
account or accounts specified by UCI on the last day of the Primary Term.
All rentals shall be payable monthly in advance by wire transfer to account or
accounts designated by UCI, unless otherwise notified in writing by UCI.
III. MONTHLY EQUIPMENT AVAILABILITY
1. UCI will endeavor to provide a monthly availability of the Compressor
Equipment furnished in this lease of 97% ("Proposed Monthly Availability")
subject to the provisions below.
2. Any month when the actual monthly availability is less than the proposed
monthly availability, the rental rate shall be adjusted by an availability
factor in accordance with the following:
(a) To determine actual monthly availability, the following formula
shall be used:
- Hours Compressor Equipment available during month
24 x number of days in month x 100 = %
(b) To determine the availability factor, the following formula shall be used:
Actual monthly availability
Proposed monthly availability
(c) In the event the actual monthly availability for any calendar
month is less than 97%, the rental rate shall be adjusted in accordance with
the following:
Monthly Rental Rate x Availability Factor = Adjusted Rental Rate
- - Eight hours per month allowed for scheduled preventive maintenance.
3. There shall be no reduction in the rental rate if the compression
equipment was not available due to force majeure or to the fault of
CUSTOMER or CUSTOMER'S operation.
4. Paragraphs 1 and 2 above shall not be effective during the first thirty
(30) days after commencement of the term or during the first thirty (30)
days after which UCI replaces or substitutes equipment.
5. In the event of breakdown or non-availability of Compressor equipment for
any cause, UCI's liability to CUSTOMER shall be limited to a reduction of
the rental rate as provided above and in no event shall UCI be liable to
CUSTOMER for any consequential loss, damage or expense as a result
thereof.
6. Downtime begins when UCI is notified the unit is down.
7. Request for downtime credit must be received by UCI, Houston, Texas in
writing thirty (30) days from the end of the month in which the downtime
occurred.
8. NOTWITHSTANDING ANY PROVISION CONTAINED HEREIN, UCI MAKES NO WARRANTIES,
EXPRESSED OR IMPLIED WITH RESPECT TO ANY EQUIPMENT, PARTS OR OTHER
PERSONAL PROPERTY COMPRISING A PART OR ALL OF THE TREATMENT FACILITY,
INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR USE, ALL SUCH WARRANTIES BEING HEREBY EXPRESSLY DISCLAIMED.
ADDITIONALLY UCI MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO, IS
NOT RESPONSIBLE FOR, THE DESIGN OF THE TREATMENT FACILITY OR ITS FAILURE
TO MEET OR MAINTAIN ANY PERFORMANCE SPECIFICATIONS. CUSTOMER UNDERSTANDS
AND AGREES THAT THE OPERATION AND MAINTENANCE OF THE FACILITY IS THE SOLE
RESPONSIBILITY OF CUSTOMER AND UCI SHALL HAVE NO LIABILITY OR OBLIGATION
WITH RESPECT THERETO.
IV. PURCHASE OPTION
Customer shall have the right and option, on September 9th of each year
during the Primary Term hereof, (the "Purchase Date") commencing September 9,
2000, to purchase all of the Treatment Facility, and if the Treatment
Facility is purchased prior to or simultaneous with the Compressor Equipment,
the Compressor Equipment described in Exhibit 1.1 to the General Conveyance,
Assignment and Bill of Sale between Customer and UCI dated as of the date
hereof, for the specified purchase price ("Purchase Price") as follows:
<TABLE>
<CAPTION>
Treatment Facility Compression Equipment
Purchase Date Purchase Price Purchase Price
<S> <C> <C>
September 9, 2000 $1,504,000 $3,662,000
September 9, 2001 $1,299,000 $3,450,000
September 9, 2002 $1,095,000 $3,211,000
September 9, 2003 $ 788,000 $2,914,000
September 9, 2004 $ 487,000 $2,574,000
</TABLE>
Customer and UCI acknowledge and agree that the Purchase Price represents a
fair and reasonable estimate of the fair market value of the applicable
equipment as of the respective date. Notwithstanding any provision contained
herein, Customer shall not be entitled to purchase the Compression Equipment
unless the Treatment Facility is purchased simultaneously with or prior to
the date of purchase of the Compression Equipment. Customer shall exercise
such right and option by the delivery of written notice to UCI at least 120
days prior to any Purchase Date, notifying UCI of its intent to purchase the
Treatment Facility and/or the Compression Equipment (if such purchase is
allowed hereunder). Such notice shall be irrevocable, and upon delivery of
such notice, Customer shall purchase the applicable equipment for the
applicable Purchase Price which shall be tendered by wire transfer before
11:00 a.m. Central Time on the Purchase Date to an account or accounts
specified by UCI.
Upon receipt of such Purchase Price, UCI shall convey title to the purchased
Equipment. All Equipment transferred to Customer by UCI shall be conveyed
"AS IS, WHERE IS AND WITH ALL FAULTS", and UCI will make no representation or
warranty of any kind express or implied, including without limitation any
warranty of merchantability or fitness for a particular purpose, and Customer
shall unconditionally execute an indemnity in form and substance satisfactory
to UCI pursuant to which Customer will indemnify UCI for all liabilities of
any kind arising out of or in connection with the Treatment Facility for all
periods prior to, during and subsequent to UCI's ownership thereof. Any and
all taxes of any kind incurred or imposed in connection with or as a result
of the exercise by Customer of its purchase option or the purchase by
Customer of all or a part of the Equipment pursuant hereto shall be the
responsibility of Customer .
V. TERMINATION
Should Customer default in payment of any sum to be paid hereunder, or breach
any other term or covenant in this Agreement or in any Schedule(s), and such
default or breach continues for ten (10) days after receipt by Customer of
written notice of default, or should Customer commit an act of bankruptcy or
be the subject of any proceeding under the Bankruptcy Act (unless the same is
an involuntary proceeding which is stayed or removed within sixty (60) days
from the date of commencement) or become insolvent, or should any substantial
part of Customer's property be subject to any levy, seizure, assignment,
application or sale for or by any creditor or governmental agency, UCI, at
its option, may (i) proceed by appropriate court action or actions to enforce
performance of the applicable covenants and terms of this Agreement or to
recover any and all damages or expenses, including reasonable legal costs,
which UCI shall have sustained by reason of default in any covenant of this
Agreement or on account of UCI's enforcement of its remedies hereunder; (ii)
terminate Customer's rights under this Agreement; or (iii) take possession of
all of the Equipment supplied hereunder (damages occasioned by such taking
possession are hereby expressly waived by the Customer) and thereupon
Customer's right to the possession thereof shall terminate. Damages to which
UCI shall be entitled shall include but not be limited to the following: (i)
any and all sums owed to UCI hereunder, whether existing on the date of
default or arising thereafter; (ii) the balance due for the remainder of the
primary term of each Schedule, as set forth in the Schedule(s); (iii) any and
all costs and expenses incurred by UCI in taking repossession of the
Equipment including, without limitation, reasonable legal costs; (iv)
interest at the maximum rate allowed by law on any and all damages,
commencing on the date the same are incurred. UCI shall have no obligation
to rent or otherwise dispose of any Equipment provided hereunder that may be
repossessed. No right or remedy conferred upon or reserved to UCI by this
Agreement shall be exclusive of any right or remedy herein or by law
provided; all rights and remedies conferred upon UCI by this Agreement or by
law shall be cumulative and in addition to every other right and remedy
available to UCI.
Upon termination of this Agreement prior to the expiration of the Primary
Term, for any reason other than the exercise by Customer of the Purchase
Option, Customer shall be deemed to have exercised the Purchase Option set
forth in Article IV hereof with respect to the Treatment Facility and, at
UCI's option, the Compression Equipment and Customer shall purchase the
Treatment Facility (and the Compression Equipment if so specified by UCI) and
pay the specified Purchase Price set forth in Article IV hereof (for the
September 9 immediately preceding the date of termination) on the Termination
Date, which shall be tendered by wire transfer before 11:00 a.m. Central Time
on the Purchase Date to an account or accounts specified by UCI; provided
however, that in the event this Agreement is terminated by UCI, for
Customer's default, the purchase price shall be equal to 110% of such
applicable Purchase Price
VI. ALL RENTAL QUOTATIONS AND RENTALS OF EQUIPMENT ARE SUBJECT TO
THE FOLLOWING TERMS AND CONDITIONS:
1. Quotations shall remain in effect for a period of thirty (30) days from
the date quoted unless sooner revoked by UCI, by written notice to
Customer. Such notice of revocation shall be deemed given when placed in
the U. S. Mail, postage prepaid, and addressed to Customer at the address
shown on page one (1) of the quotation.
2. Upon acceptance of a quotation, Customer agrees to accept delivery of the
equipment upon the terms and conditions stated herein and to execute
UCI's standard Rental Contract, if not previously executed by Customer,
applicable to the type of equipment or services described in the
quotation. Any order for equipment and services by Customer which varies
from the terms of this Master Rental Contract is subject to acceptance by
UCI and shall not constitute an agreement until so accepted by UCI.
3. The rental rates or fees stated in a quotation are as of the date of the
quotation. The quotation is conditioned upon the specifications requested
by Customer as of the date of the quotation, and no increase in the
"Manufacturer's" or "Seller's" price or prices which have been quoted to
UCI, whether due to variations in design, manufacture, classification or
any other reason. In the event of such an increase, either before or
after Customer's acceptance of the quotation, Customer will be notified
of any resultant increase in the said rental rates or fees and will have
a reasonable time, not to exceed ten (10) days, to either accept or
reject the same. In the event of rejection neither party shall be deemed
to be bound by any acceptance of the quotation.
4. The quotation assumes the existence of the field, production, operation
and product conditions that may be specified. Accordingly, the quotation
is conditioned upon said conditions actually existing as so specified.
In the event of any variations between the specifications and conditions
quoted herein and actual conditions, then, at its option, UCI shall not
be bound by the quotation nor any agreement executed pursuant thereto.
Such option shall be exercised by the giving of written notice to
Customer of UCI's intention not to be so bound. Such notice shall be
deemed given under the same conditions as specified in Paragraph 1 above.
Moreover, acceptance of the quotation shall constitute Customer's
agreement to indemnify and hold UCI free and harmless from any and all
loss or damage suffered by UCI in reliance on the conditions specified on
page one hereof.
5. CUSTOMER AGREES TO PROTECT, INDEMNIFY AND HOLD HARMLESS UCI FROM ALL
CLAIMS, DEMANDS, ACTIONS, FINES, PENALTIES, DAMAGES (INCLUDING WITHOUT
LIMITATION PUNITIVE DAMAGES AND DAMAGES ARISING OUT OF ANY BREACH OF ANY
APPLICABLE LAWS, RULES, REGULATIONS, STATUTES, ORDINANCES OR GOVERNMENTAL
ORDERS RELATING TO THE PROTECTION OF THE ENVIRONMENT) AND COSTS OF EVERY
KIND INCLUDING WITHOUT LIMITATION LEGAL COSTS, RESULTING FROM, DIRECTLY
OR INDIRECTLY, THE RENTAL, INSTALLATION, USE, MAINTENANCE AND OPERATION
OF THE EQUIPMENT AND/OR THE TREATMENT FACILITY, FOR BODILY INJURY, DEATH
OR PROPERTY DAMAGE RESULTING THEREFROM, INCLUDING, WITHOUT LIMITATION,
CUSTOMER'S EMPLOYEES AND PROPERTY, THIRD PARTIES AND UCI, WHETHER SUCH
CLAIMS, DEMANDS, ACTIONS OR COSTS SHALL ARISE IN CONTRACT OR TORT, EXCEPT
WITH RESPECT TO THE COMPRESSOR EQUIPMENT SOLELY TO THE EXTENT OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF UCI. IN ADDITION TO ANY
PROPERTY DAMAGE INSURANCE AS MAY BE REQUIRED ELSEWHERE IN THIS QUOTATION,
CUSTOMER ALSO AGREES TO MAINTAIN PUBLIC LIABILITY INSURANCE IN AMOUNTS
SATISFACTORY TO UCI. UCI MAKES NO WARRANTIES, EXPRESS, IMPLIED OR
OTHERWISE, REGARDING THE EQUIPMENT AND TREATMENT FACILITY SUPPLIED
HEREUNDER, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. UCI SHALL NOT BE
LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES SPECIFICALLY
INCLUDING BUT NOT LIMITED TO WELL DAMAGE, LOSS OF USE OF FACILITIES, LOSS
OF PRODUCTION, LOSS OF OPERATING SUPPLIES OR LOSS OF REVENUES, PROFITS OR
INCOME.
6. Customer, at its sole expense, shall: (i) comply with all applicable
rules and regulations of any Federal, State, County, City, local,
municipal or regulatory agency (hereinafter referred to as "Governing
Bodies") relating to the construction, use or operation of the Equipment
and the construction, maintenance and operation of the Treatment Facility
and/or all applicable federal, state and local environmental laws, rules
and regulations requirements associated therewith; and (ii) obtain and
maintain throughout the rental term, or any extension thereof, any and
all licenses and/or permits of any kind required or in connection with
the lease or operation of the Equipment, including without limitation
any applicable air quality and other environmental permits. Customer
further agrees to defend, protect, indemnify and hold harmless UCI from
any and all liability associated with its failure to comply with the
foregoing provisions.
7. The delivery date specified is based on that given UCI by the
"Manufacturer" or "Seller" of the equipment. UCI shall use its best
efforts to obtain delivery to Customer on or before such date.
Accordingly, the delivery date is subject to being extended for an
additional period or periods of time. In the event that the
"Manufacturer" or "Seller" of the equipment cannot deliver the equipment
within said time, as may be extended, the Customer's acceptance of the
quotation and any agreement executed pursuant thereto, shall be
automatically canceled without liability to either party, except that
Customer agrees to reimburse UCI for any and all direct costs or
penalties incurred by UCI in reliance upon Customer's acceptance of the
quotation. In any event, it is understood and agreed that UCI shall have
no liability to Customer for loss or damage arising out of or connected
with such late delivery or cancellation.
8. The equipment specified herein shall be ordered for Customer by UCI from
the "Manufacturer" or "Seller" of the equipment upon Customer's
acceptance of the quotation. In the event Customer cancels such order
with UCI, Customer shall be liable to UCI for such penalties and costs as
may be incurred by UCI as a result of such cancellation.
9. In the event UCI is required to provide property damage insurance on the
equipment rented hereunder, as set out on page one (1) of the quotation,
Customer shall be liable to UCI for the deductible required by the policy
of insurance in the event of a loss of the equipment. The current
deductible amount shall be supplied to Customer upon request.
10. All quotations are subject to the terms of credit being approved as to
this transaction by Universal Compression, Inc.'s Credit Department,
Houston, Texas.
11. This Agreement may be assigned in whole or in part by UCI. Customer
shall not assign this Agreement in whole or in part to any other party
whatsoever without the prior written consent of UCI, which shall not be
unreasonably withheld.
12. Customer agrees to cooperate with UCI in connection with any proposed
financing relating to the Equipment leased, and/or rental payments due,
hereunder, and agrees to execute any and all documents and agreements,
including without limitation any assignment reasonably requested by UCI
and/or any lender in connection therewith.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
MALLON OIL COMPANY UNIVERSAL COMPRESSION, INC.
By: _______________________________ By: _________________________
Name: _____________________________ Name: Kirk E. Townsend
Title: ____________________________ Title: Vice President
EXHIBIT "A"
TO
MASTER RENTAL CONTRACT
RENTAL QUOTATION AND CONTRACT
(Compressors Only)
EQUIPMENT DESCRIPTION
(See Attached)
DESIGN CONDITIONS AND EQUIPMENT PERFORMANCE
The Equipment is presently on location. [Design conditions to be specified.]
RENTAL AND TERMS
(Compressors)
Monthly Rental Rate: $94,000 Term: Five (5) years
To Be Furnished By
Universal Customer
Maintenance (parts & labor) Per attached Agreement
Lubricants (oil & antifreeze) X
Operation X
Transportation (N/A) X
Transportation (return to Farmington, New Mexico) X
This quotation as a result of acceptance by Customer is subject to approval by
Universal Compression's general office as set forth below, at which point it
becomes a contract between the parties hereto and subject to the terms and
conditions of the Master Rental Contract between Universal Compression, Inc. and
Mallon Oil Company.
Submitted by: _______________________________
Name: Kirk E. Townsend
Title: Vice President
Accepted this ___ day of September, 1999. Accepted this __ day of September,
1999.
MALLON OIL COMPANY UNIVERSAL COMPRESSION, INC.
By: _________________________________ By: ___________________________________
Name: _______________________________ Name: _________________________________
Title: _____________________________ Title: _______________________________
EXHIBIT "B"
TO
MASTER RENTAL CONTRACT
RENTAL QUOTATION AND CONTRACT
(Plant Only)
EQUIPMENT DESCRIPTION
(See Attached)
DESIGN CONDITIONS AND EQUIPMENT PERFORMANCE
The Equipment is presently on location. [Design conditions to be specified.]
RENTAL AND TERMS
(Treatment Facility)
Monthly Rental Rate: $31,750 Term: Five (5) years
To Be Furnished By
Universal Customer
Maintenance (parts & labor) X
Lubricants (all) X
Operation X
Transportation (N/A)
Transportation (return to Farmington, New Mexico) X
This quotation as a result of acceptance by Customer is subject to approval by
Universal Compression's general office as set forth below, at which point it
becomes a contract between the parties hereto and subject to the terms and
conditions of the Master Rental Contract between Universal Compression, Inc.
and Mallon Oil Company.
Submitted by: _______________________________
Name: Kirk E. Townsend
Title: Vice President
Accepted this __ day of September, 1999. Accepted this __ day of September,
1999.
MALLON OIL COMPANY UNIVERSAL COMPRESSION, INC.
By: _________________________________ By: ___________________________________
Name: _______________________________ Name: _________________________________
Title: _____________________________ Title: _______________________________
