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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 15, 1998
UNITED STATES EXPLORATION, INC.
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(Exact name of Registrant as specified in its charter)
Colorado 1-13513 84-1120323
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1560 Broadway, Suite 1900
Denver, Colorado 80202
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (303) 863-3550
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(Former name or former address, if changed since last report): NA
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ITEM 2. ACQUISITION OF ASSETS
On May 15, 1998, United States Exploration, Inc. (the "Company")
acquired from Union Pacific Resources Company ("UPR"), a subsidiary of Union
Pacific Resources Group, Inc., effective January 1, 1998, all of UPR's working
interests in producing oil and gas wells in 34 oil and gas fields in the
Wattenberg area of the Denver-Julesburg Basin in northeastern Colorado for a
cash purchase price of $41 million, subject to adjustments. At the closing of
the acquisition, the Company also entered into an Exploration Agreement with UPR
giving the Company the right to explore and develop all of UPR's undeveloped
acreage in the Wattenberg area, excluding certain acreage already committed to
other agreements.
The producing properties acquired include 336 gross producing wells,
which, on the effective date of the acquisition, were producing 5.5 Mmcf. of gas
and 640 barrels of oil per day net to UPR's interest. Proved reserves are
estimated by the Company to be 140 billion cubic feet of gas equivalents net to
the Company's interest. UPR acted as operator of 81 of the producing properties
and the Company has taken over those operations.
The Exploration Agreement covers approximately 400,000 gross acres and
will also cover any undeveloped acreage currently committed to another agreement
that reverts to UPR during its term. In order to keep the Exploration Agreement
in effect, the Company must drill 15 commitment wells during the first 18 months
and 20 commitment wells during each succeeding 12-month period for up to five
12-month option periods. If the Company does not drill the required number of
commitment wells during any period, the Exploration Agreement will terminate at
the end of the period and the Company will be required to pay liquidated damages
of $125,000 for each commitment well that was not drilled during the period. In
addition, the Exploration Agreement requires UPR to transfer to the Company any
working interests in wells in the subject area that UPR acquires under existing
agreements during the term of the Exploration Agreement. That requirement covers
a number of existing wells in which UPR has the right to obtain a working
interest or convert an overriding royalty interest into a working interest after
payout has been reached and will cover other wells that may be drilled by
operators with whom UPR has existing farm-out or similar agreements. The Company
will also have the right to take over wells on the UPR lands that are required
to be offered to UPR prior to abandonment.
In the case of minerals owned in fee by UPR, the Company was and will
be granted oil and gas leases under the purchase agreement and the Exploration
Agreement. In the aggregate, the Company believes that there are over 600
separate drilling, deepening and reworking opportunities on the UPR properties.
In connection with the acquisition of the UPR properties, the Company
entered into a Credit Agreement with ING (U.S.) Capital Corporation establishing
a revolving credit facility (the "Credit Agreement"). The maximum available
borrowings under the Credit Agreement are $35 million, subject to periodic
redeterminations of the borrowing base. The Company borrowed $29 million
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under the Credit Agreement to pay a portion of the purchase price of the UPR
properties, and the balance was paid with the Company's existing funds.
Principal is repayable in 20 quarterly installments beginning March 31, 2000.
Interest is generally payable on a quarterly basis at a rate selected by the
Company which is determined by reference to LIBOR or the lender's reference rate
plus varying margins. At May 15, 1998, the interest rate was 7.625% per annum.
The Credit Agreement prohibits the payment of dividends on Common Stock and
prohibits the prepayment of dividends on the Company's Series C Preferred Stock
for periods ending after June 30, 1999. Prior to June 30, 1999, no dividend can
be paid on the Series C Preferred Stock if a default under the Credit Agreement
exists or would exist after the payment. The Company intends to use additional
borrowings under the Credit Agreement to finance development work on the
properties acquired and on the properties subject to the Exploration Agreement.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements concerning the Company's plans or expectations, production
or reserve levels, and all similar statements or implications are
forward-looking statements within the meaning of federal securities laws. Actual
results or events may differ materially from these forward-looking statements,
depending upon a variety of factors, including commodity prices, availability of
capital, results of exploration and other drilling, cash flow from operations,
costs of materials and labor, availability of equipment, regulatory actions,
Company objectives and business judgment and other factors, many of which are
outside of the Company's control. The Company's forward-looking statements are
qualified in their entirety by these and other factors more fully set forth in
the Company's public reports, including its reports on Form 8-K dated April 10,
1998, and Form 10-QSB for the period ended March 31, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The financial statements required by this item relating to the
acquisition described above are not included herewith but will
be filed by amendment within 60 days of the date of this
report.
(b) Pro Forma Financial Information.
The pro forma financial information required by this item
relating to the acquisition described above is not included
herewith but will be filed by amendment within 60 days of the
date of this report.
(c) Exhibits.
2.1 Asset Purchase and Sale Agreement between the Company
and Union Pacific Resources Company dated April 10,
1998.
2.2 Amendment to Asset Purchase and Sale Agreement, dated
May 14, 1998, between the Company and Union Pacific
Resources Company
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2.3 Exploration Agreement between the Company and Union
Pacific Resources Company dated April 9, 1998.
10.1 Credit Agreement dated as of May 15, 1998 among the
Company and ING (U.S.) Capital Corporation.
10.2 Mortgage, Assignment, Security Agreement, Fixture
Filing and Financing Statement from United States
Exploration, Inc. to ING (U.S.) Capital Corporation,
dated May 15, 1998.
10.3 Mortgage, Assignment, Security Agreement, Fixture
Filing and Financing Statement from Performance
Petroleum Co., United States Gas Gathering Co., Inc.
and Pacific Osage, Inc. to ING (U.S.) Capital
Corporation, dated May 15, 1998.
10.4 Pledge Agreement made as of May 15, 1998, by United
States Exploration, Inc., in favor of ING (U.S.)
Capital Corporation.
10.5 Guaranty made as of May 15, 1998, by Performance
Petroleum Co., United States Gas Gathering Co., Inc.,
Pacific Osage, Inc. and Producers Service
Incorporated, in favor of ING (U.S.) Capital
Corporation.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Current Report on Form
8-K to be signed on its behalf by the undersigned thereunto duly authorized.
UNITED STATES EXPLORATION, INC.
Date: May 28, 1998 By: /s/ F. Michael Murphy
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F. Michael Murphy, Vice President
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
2.1 Asset Purchase and Sale Agreement between the Company and
Union Pacific Resources Company dated April 10, 1998.
2.2 Amendment to Asset Purchase an Sale Agreement, dated May 14,
1998, between the Company and Union Pacific Resources Company
2.3 Exploration Agreement between the Company and Union Pacific
Resources Company dated April 9, 1998.
10.1 Credit Agreement dated as of May 15, 1998 among the Company
and ING (U.S.) Capital Corporation.
10.2 Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement from United States Exploration, Inc. to
ING (U.S.) Capital Corporation, dated May 15, 1998.
10.3 Mortgage, Assignment, Security Agreement, Fixture Filing and
Financing Statement from Performance Petroleum Co., United
States Gas Gathering Co., Inc. and Pacific Osage, Inc. to ING
(U.S.) Capital Corporation, dated May 15, 1998.
10.4 Pledge Agreement made as of May 15, 1998, by United States
Exploration, Inc., in favor of ING (U.S.) Capital Corporation.
10.5 Guaranty made as of May 15, 1998, by Performance Petroleum
Co., United States Gas Gathering Co., Inc., Pacific Osage,
Inc. and Producers Service Incorporated, in favor of ING
(U.S.) Capital Corporation.
</TABLE>
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EXHIBIT 2.1
ASSET PURCHASE AND SALE AGREEMENT
This Asset Purchase and Sale Agreement ("Agreement") is entered into
as of April 9 , 1998, by and between UNION PACIFIC RESOURCES COMPANY, a
Delaware corporation ( "Seller"), and UNITED STATES EXPLORATION, INC., a
Colorado corporation ("Buyer"). Buyer and Seller are referred to individually
herein as a "Party" and collectively herein as the "Parties."
WITNESSETH:
WHEREAS, Seller desires to sell to Buyer certain producing,
nonproducing and undeveloped oil and gas properties and other related assets
and Buyer desires to purchase such properties and assets upon and subject to
the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings
defined either in this Article 1 or elsewhere in this Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934.
"Agreed Rate" means a per annum interest rate equal to the lesser of
(I) the Prime Rate of interest as quoted daily (or at such other interval of
one week or less) in The Wall Street Journal or (ii) the maximum amount of
interest allowed by law. If The Wall Street Journal ceases to quote the Prime
Rate of interest at least weekly, the referenced rate of interest in (I) above
shall be the rate of interest from time to time announced as its prime
commercial lending rate by the bank which at the most recent point in time held
all or the largest portion of Buyer's bank debt.
"Arbitrator" means the individual selected pursuant to Article
6.02(I).
"Assets" means Seller's right, title and interest in and to the
following (except to the extent constituting Excluded Assets):
(i) All of the Wells listed in Exhibit "A" hereto;
ASSET PURCHASE AND SALE AGREEMENT PAGE 1
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(ii) All of the Leases;
(iii) All of the Upside Locations listed in Exhibit "B"
hereto;
(iv) All of the Units;
(v) All of the Equipment;
(vi) All of the licenses, permits, contracts, agreements
and other instruments owned by Seller (other than
bonds posted by Seller) which concern and relate to
any of the Wells, Leases, Units, Lands, Upside
Locations and/or Equipment, INSOFAR AND ONLY INSOFAR
as same concern or relate to the Wells, Leases,
Units, Lands, Upside Locations and/or Equipment, or
the operation thereof, including, without limitation,
oil, gas and condensate purchase and sale contracts;
permits; rights-of-way; easements; licenses;
servitudes; estates; surface leases; farmin and
farmout agreements; division orders and transfer
orders; bottomhole agreements; dry hole agree- ments;
area-of-mutual-interest agreements; salt water
disposal agreements; acreage contribution agreements;
operating agreements; balancing agreements; unit
agreements; pooling agreements; pooling orders;
communitization agreements; processing, gathering,
compression and transportation agreements; facilities
or equipment leases relating thereto or used or held
for use in connection with the ownership or operation
thereof or with the production, treatment, sale or
disposal of Hydrocarbons; and all other contracts and
agreements related to the Wells, Leases, Units,
Lands, Upside Locations and/or Equipment;
(vii) All Records and, to the extent transferable, all
other contract rights, intangible rights (excluding
Seller's trademarks and service marks), inchoate
rights, choses in action, rights under warranties
made by prior owners, manufacturers, vendors or other
third parties, and rights accruing under applicable
statutes of limitation or prescription, relating to
the Assets; and
(viii) All payments, and all rights to receive payments,
with respect to the ownership of the production of
Hydrocarbons from or the conduct of operations on the
Assets and the interest to be conveyed to Buyer
hereunder accruing after the Effective Date.
"Assumed Liabilities" means any Losses and any Environmental
Liabilities resulting from, arising out of or attributable to the ownership or
operation of the Assets, whether before or after the Effective Date (including,
without limitation, Offsite Environmental Liabilities that arise from, arise
out of, or are attributable to Materials of Environmental Concern that have
been transported for disposal, reclamation or recycling from the Assets) but,
in each case, only to the extent such Losses and Environmental Liabilities
relate to or are attributable to the Assets; provided, however, that Assumed
Liabilities shall not include any Losses or Environmental Liabilities (a) which
Seller has agreed to assume or pay pursuant to any
ASSET PURCHASE AND SALE AGREEMENT PAGE 2
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express terms of this Agreement or (b) as to which Buyer is entitled to
indemnification from Seller pursuant to any express terms of this Agreement.
"Available Deductible Amount" has the meaning set forth in Article
11.03.
"Buyer" has the meaning set forth in the preface to this Agreement.
"Buyer's Projected Costs" means the costs and expenses associated with
the operation and abandonment of a Well, assuming that the Well continues to
produce Hydrocarbons for the time period necessary for Buyer to realize the
value allocated to such Well in Exhibit "C" hereto based upon the costs,
pricing and production assumptions used by Buyer in calculating the amounts set
forth in Exhibit "C".
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, as amended.
"Closing" has the meaning set forth in Article 3.03.
"Closing Date" has the meaning set forth in Article 3.03.
"Closing Payment" means the payment to be made by Buyer to Seller at
the Closing pursuant to Article 3.04, which shall be in an amount equal to the
Preliminary Purchase Price, as may be adjusted pursuant to this Agreement and
reduced by the Earnest Money Deposit, including any interest earned thereon.
"Code" means the Internal Revenue Code of 1986, as amended.
"Conveyance Documents" means that certain Assignment, Bill of Sale and
Conveyance in the form attached hereto as Exhibit "D-1" and oil and gas leases,
in the form attached as Exhibit "D-2", together with those other forms of
assignments, bills of sale, deeds and other instruments as Buyer may
reasonably request to convey title to the Assets from Seller to Buyer.
"Cure Period" means that period of time from 5:00 p.m. Mountain Time,
on the date the last Title Defect Notice was given until 5:00 p.m. Mountain
Time, on the ninetieth (90th) day following the date such Title Defect Notice
was given.
"Defect Amount" means the amount attributable to each Title Defect.
"Delivered NRI" means, for any Well or Upside Location, the NRI shown
for such Well or Upside Location in Exhibit "A" or Exhibit "B", as
applicable.
"Delivered WI" means, for any Well or Upside Location, the WI shown
for such Well or Upside Location in Exhibit "A" or Exhibit "B", as
applicable.
"Earnest Money Deposit" has the meaning set forth in Article 3.02.
ASSET PURCHASE AND SALE AGREEMENT PAGE 3
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"Effective Date" means 7:00 a.m. Mountain Time, January 1, 1998.
"Environmental Laws" means all federal, state, and local laws,
regulations, ordinances, rules, orders and permits existing and in effect on
the Closing Date relating to the control of any pollutant or protection of the
environment, including, without limitation, laws, regulations, ordinances,
rules, orders, and permits relating to the emission, discharge, disposal,
treatment, recycling, reclamation, permitting, manufacture, processing,
distribution, generation, storage, transportation, release or threatened
release of, or exposure of persons or property to, Materials of Environment
Concern.
"Environmental Liabilities" means any and all costs (including
remedial, removal, response, abatement, cleanup, investigative, and/or
monitoring costs), damages, settlements, expenses (including charges and
assessments, and expenses and costs of investigating, preparing or defending
any action or proceeding), liens, penalties, fines, taxes, pre- judgment and
post-judgment interest, court costs and attorneys' fees incurred or imposed (i)
pursuant to any agreement, order, notice of responsibility, directive
(including requirements embodied in Environmental Laws), injunction, judgment
or similar documents (including settlements) attributable to or arising out of
or under Environmental Laws, (ii) pursuant to any claim by a government
authority or other entity or person for death or personal injury, property
damage, damage to natural resources, remediation or response costs arising out
of or associated with any Environmental Matter, or (iii) pursuant to
requirements as of the Closing Date embodied in Environmental Laws.
Environmental Liabilities do not include (i) liabilities imposed under statutes
enacted after the Closing Date (including the elimination of the exclusion of
petroleum from the definition of "hazardous substance" under CERCLA and/or the
elimination of the exclusion of oil and gas exploration, development and
production wastes from the definition of "hazardous wastes" under RCRA) or (ii)
liabilities imposed under regulations promulgated or amended after the Closing
Date which implement new requirements.
"Environmental Matters" means matters resulting from or attributable
to actual, threatened or alleged emissions, discharges or releases of Materials
of Environmental Concern into ambient air, surface water, groundwater, or land,
or otherwise resulting from or attributable to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
"Equipment" means all the tangible personal property, tools,
machinery, materials, pipelines, gathering systems, equipment, fixtures and
improvements, which are incident or attributable to the Wells, Leases, Lands
and/or Units, or with the production, treatment, sale or disposal of
Hydrocarbons or water produced therefrom or attributable thereto, on the
Effective Date, plus or minus any Equipment acquired or disposed of pursuant to
Article 4.01(g)(ii).
"Excluded Assets" has the meaning set forth in Article 2.01(b).
"Exploration Agreement" means that certain Exploration Agreement, by
and between Seller and Buyer.
ASSET PURCHASE AND SALE AGREEMENT PAGE 4
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"Final Settlement Date" has the meaning set forth in Article 14(h).
"Final Settlement Statement" has the meaning set forth in Article
14(h).
"Good and Defensible Title" means, with respect to ownership of Leases
attributable to a Well or Unit, record title that, except for Permitted
Encumbrances:
(i) entitles Seller to receive, throughout the life of a Well, at
least the NRI for such Well shown in Exhibit "A", except for
decreases in connection with operations conducted by Buyer,
or with Buyer's consent or non-consent, after Closing and
decreases resulting from those Wells where Seller is obligated
to allow others to make up past underproduction (to the extent
such underproduction is taken into account under Article 14(f)
and except for horizontal/vertical Pugh clauses and
continuous development clauses in the Leases or related
agreements;
(ii) obligates Seller to bear, throughout the life of a Well (and
the plugging, abandonment and salvage thereof), no greater WI
for such Well than the WI shown therefor in Exhibit "A",
except increases in such WI that result in at least a
proportionate increase in Seller's NRI for such Well
(including, without limitation, increases resulting from
co-owner non-consents) and increases that result from
contribution requirements with respect to defaulting
co-owners; and
(iii) is free and clear of all liens, security interests, collateral
assignments, encumbrances, irregularities and defects.
"Good and Defensible Title" means, with respect to any other Asset,
record title that:
(i) is free from reasonable doubt as to all matters of
law and fact such that a reasonably prudent person,
engaged in the ownership, development and operation
of oil and gas properties or assets, with knowledge
of all the facts and appreciation of their legal
significance, would be willing to accept title to
such property without a reduction in the portion of
the Purchase Price allocated to such property in
Exhibit "C"; and
(ii) is free and clear of all liens, security interests,
collateral assignments, encumbrances, clouds on
title, irregularities and defects.
"Hydrocarbons" means crude oil, natural gas, casinghead gas, coalbed
methane, condensate, helium, sulphur, S2, C02, natural gas liquids and other
gaseous and liquid hydrocarbons or any combination thereof.
"Indemnified Party" has the meaning set forth in Article 11.05.
"Indemnifying Party" has the meaning set forth in Article 11.05.
ASSET PURCHASE AND SALE AGREEMENT PAGE 5
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"Knowledge" means, with respect to a Party hereto, the actual
knowledge of any officer or manager of such Party in charge of a discrete
business area or function having responsibility for the referenced matter after
due inquiry by such officer or manager of the person or persons in charge of
such matter.
"Lands" means the lands covered by the Leases.
"Leases" means the oil and gas leases, oil, gas, and mineral leases
and fee mineral interests shown in Exhibit "A-1" and Exhibit "A-2".
"Litigation" has the meaning set forth in Article 4.01(e).
"Loss" or "Losses" means all damages, including, without limitation,
actual, punitive, exemplary and consequential damages, payments, penalties,
fines, assessments, costs, amounts paid in respect of judgements or
settlements, obligations, taxes, reductions in the value of Assets,
liabilities, expenses and fees incurred, including court costs and attorneys'
fees and expenses and costs of investigating, preparing or defending any claim,
action or proceeding.
"Materials of Environmental Concern" means any chemical pollutants,
contaminants, waste, petroleum waste, used oil, toxic substances, hazardous
substances and any other substances that are regulated by any governmental
entity under any Environmental Law.
"Nonrevenue Defect" means a Title Defect which does not result in a
decrease in Seller's NRI for a Well below the NRI for such Well shown in
Exhibit "A".
"NRI" means a fractional or percentage interest in and to all
Hydrocarbons produced from or allocated to a Well after deduction of all
lessor's royalties, overriding royalties, and other burdens and payments out of
production that burden such fractional or percentage interest in such Well.
"Offsite Environmental Liability" means an Environmental Liability
arising from or attributable to Materials of Environmental Concern that have
been transported for disposal, storage treatment, reclamation or recycling
from the Assets to properties owned by third parties.
"Party" or "Parties" have the meanings set forth in the preface to this
Agreement.
"Permitted Encumbrances" means, with respect to the Assets, the
following:
(i) liens for taxes not yet due or, if due, being challenged in
good faith by appropriate proceedings;
(ii) materialmen's, mechanics' and other similar liens or charges
arising in the ordinary course of business for obligations
that are not delinquent and that
ASSET PURCHASE AND SALE AGREEMENT PAGE 6
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will be paid or discharged in the ordinary course of business
or, if delinquent, that are being contested in good faith in
the ordinary course of business;
(iii) easements, rights-of-way, servitudes, permits, surface leases,
and other rights granted to or reserved for third parties in
respect of surface operations that do not materially interfere
with operation of the portion of the Assets burdened thereby;
(iv) rights reserved to or vested in any governmental authority to
control or regulate any of the Wells, Leases or Units and all
applicable laws, rules, regulations and orders of such
authorities so long as the same
(a) do not decrease Seller's NRI below the Delivered NRI
for the Well or Upside Location, or increase Seller's
WI above the Delivered WI for the Well or Upside
Location, without at least a proportionate increase
in Seller's NRI, or
(b) do not create any liens in respect of such Wells or
Units.
(v) any Title Defects that Buyer may have expressly waived in
writing or which are deemed to have been waived under Article
6.02(b);
(vi) liens arising under operating agreements, unitization and
pooling agreements, orders and statutes and production sales
contracts securing amounts not yet due or, if due, being
contested in good faith in the ordinary course of business;
(vii) the terms and conditions of all contracts and agreements
relating to the Wells, Leases and Units, including, without
limitation, exploration agreements, gas sales contracts,
processing agreements, farmins, farmouts, operating
agreements, and right-of-way agreements, to the extent such
terms and conditions
(a) do not decrease Seller's NRI below the Delivered NRI
shown for a Well or Upside Location, or increase
Seller's WI above the WI shown for such Well or
Upside Location, without at least a proportionate
increase in Seller's NRI:
(b) are normal and customary in the oil and gas industry,
and
(c) would not conflict with any other portion of this
definition of Permitted Encumbrances;
(viii) royalties, overriding royalties, net profits interests,
production payments, reversionary interests, and similar
interests that do not decrease Seller's NRI below the NRI
shown for a Well in Exhibit "A", or increase Seller's WI
above the WI shown for such Well in Exhibit "A", without at
least a proportionate increase in Seller's NRI;
ASSET PURCHASE AND SALE AGREEMENT PAGE 7
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(ix) rights of reassignment requiring notice to the holders of the
rights prior to surrendering or releasing a leasehold
interest;
(x) calls on production exercisable only at prices substantially
equivalent to then-current fair market value;
(xi) Transfer Requirements and Preference Rights other than any
such Transfer Requirements or Preference Rights which were
applicable to a previous transaction involving the transfer of
all or any portion of the Assets but were not complied with at
the time of the consummation of such transaction; and
(xii) those matters listed in Schedule 4.01.
"Phase I Environmental Audit" means an assessment of Seller's
compliance with Environmental Laws relative to the Assets consisting of
examination of Seller's files and public documents, interviews of personnel of
Seller and of other appropriate persons and visual inspection of the Assets.
The foregoing definition shall not include or authorize any soil borings or
laboratory analysis of soil or groundwater samples on or from the Assets.
"Preference Rights" means all rights or agreements that enable or may
enable any third party to purchase or acquire any Asset or any interest therein
or portion thereof as a result of or in connection with (i) the transactions
contemplated by this Agreement or (ii) the execution or delivery of this
Agreement or the consummation or performance of the terms and conditions
contemplated by this Agreement.
"Preliminary Purchase Price" has the meaning set forth in Article
3.01.
"Purchase Price" means the Preliminary Purchase Price, as may be
adjusted pursuant to Articles 6, 7, 14, 17, and 18 hereof.
"RCRA" means the Resource Conservation and Recovery Act, as amended.
"Records" means (except to the extent constituting Excluded Assets)
all originals, copies, computer tapes and discs, files, records, information or
data relating to the Assets in the possession of Seller, including, without
limitation, title records (including abstracts of title, title opinions,
certificates of title and title curative documents), accounting records and
files, contracts, correspondence, production records, electric logs, core data,
pressure data, decline curves, graphical production curves, drilling reports,
well completion reports, drill stem test charts and reports, engineering
reports, regulatory reports, and all related materials, INSOFAR AND ONLY
INSOFAR as the foregoing items constitute materials that may be lawfully
conveyed to Buyer (i.e. the materials are not subject to a proprietary
agreement precluding their transfer to Buyer) or do not constitute records
subject to legal privilege.
"Response Notice" has the meaning set forth in Article 6.02(c).
"Seller" has the meaning set forth in the preface to this Agreement.
ASSET PURCHASE AND SALE AGREEMENT PAGE 8
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"Survival Period" has the meaning set forth in Article 11.01.
"Third Party Claim" has the meaning set forth in Article 11.05.
"Title Defect" means any lien, security interest, collateral
assignment, charge, obligation, encumbrance, irregularity or imperfection of
title or other condition that causes Seller's title to one or more of the
Assets (or any portions thereof) to be less than Good and Defensible Title.
Notwithstanding the foregoing, no Title Defect will exist as to any Asset
unless the individual amount of such defect exceeds $10,000. If a Title Defect
exists pursuant to the preceding sentence, the Defect Amount for such Title
Defect shall include the entirety of such Defect Amount, whether below or above
such threshold amount.
"Title Defect Adjustment" means an amount of money equal to the sum of
the Defect Amounts for all Title Defects asserted by Buyer under this Agreement
as finally determined, whether by agreement or arbitration award, subject to
the credit and deductible provided in Article 6.02(k).
"Title Defect Notice" has the meaning set forth in Article 6.02(b).
"Title Examination Period" has the meaning set forth in Article
6.02(b).
"Transition Agreement" shall have the meaning given that term in
Article 3.04.
"Transfer Requirements" means all consents, approvals, authorizations
or permits of, or filings with or notifications to, any third party which must
be obtained, made or complied with for or in connection with the transactions
contemplated by this Agreement in order (a) for such transactions to be
effective, (b) to prevent any termination, cancellation, default, acceleration
or change in terms (or any right thereof from arising) under any terms,
conditions or provisions of any Asset (or of any agreement, instrument or
obligation relating to or burdening any Asset or any interest therein or
portion thereof) as a result of such transactions, or (c) to prevent the
creation or imposition of any lien, charge, penalty, restriction, security
interest or encumbrance on or with respect to any Asset or any interest therein
or portion thereof (or any right thereof from arising) as a result of such
transactions.
"Units" means all unitization, communitization, pooling agreements,
working interest units created by operating agreements, and orders covering the
Lands and/or lands pooled or unitized therewith or any portion thereof, and the
units and pooled or communitized areas created thereby.
"Upside Locations" means the tracts shown on Exhibit "B" attached
hereto.
"Wells" means the wells for the production of Hydrocarbons or disposal
wells which are listed in Exhibit "A" .
"WI" means a fraction or percentage of the costs and expenses
associated with the maintenance, exploration, development, operation and
abandonment of a Well
ASSET PURCHASE AND SALE AGREEMENT PAGE 9
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ARTICLE 2
SALE AND PURCHASE
2.01 SALE AND PURCHASE.
(a) INCLUDED ASSETS. Subject to the terms and conditions of this
Agreement and in consideration of Buyer's payment to Seller of
the Purchase Price as herein provided, Buyer agrees to
purchase from Seller, and Seller agrees to sell and convey to
Buyer, the Assets.
(b) EXCLUDED ASSETS. Notwithstanding anything herein provided to
the contrary, the term "Assets" as used in this Agreement
shall not include, and there is excepted, reserved and
excluded from the sale contemplated hereby (i) all cash,
deposits, checks, funds, accounts receivable, notes
receivable, or similar items attributable to the Assets with
respect to any period of time prior to the Effective Date,
except for those funds in suspense accounts to be delivered to
Buyer pursuant to Article 13.01(b) hereof; (ii) all
Hydrocarbon production from or attributable to the Assets with
respect to all periods prior to the Effective Date and all
proceeds attributable thereto, and all Hydrocarbons that, at
the Effective Date, are owned by Seller and are above pipeline
connection and in storage or otherwise held in inventory and
all proceeds attributable thereto; (iii) all fee mineral
interests and fee royalty interests owned by Seller, provided,
however, if all or any portion of Seller's NRI in a Well
listed in Exhibit "A" or an Upside Location listed in Exhibit
"B" is attributable to a fee mineral interest or fee royalty
interest, Seller shall convey to Buyer at the Closing an oil,
gas and mineral lease, in the form and containing the terms
and conditions set forth in Exhibit "D-2" hereto, covering
said fee mineral interest or fee royalty interest for such
Well shown in Exhibit "A"; (iv) Assets conveyed to third
parties pursuant to Preference Rights as provided in Article
18.01 or retained by Seller because of the failure to obtain,
comply with or otherwise satisfy a Transfer Requirement as
provided in Article 18.02; and (v) all geophysical, seismic
and other technical data and interpretations specifically
related to the Assets, provided, however, that Seller agrees
to provide Buyer with a seismic license of any such data that
Seller is lawfully permitted to license at Closing. Buyer
agrees to pay Seller's costs to reproduce the data covered
thereby.
(c) WELD COUNTY PARTNERSHIP. Seller agrees to assign to Buyer its
partnership interest in the Weld County Partnership Agreement
entered into December 31, 1982, between Champlin Petroleum
Company and True Oil Company (the "Weld County Partnership")
on and effective such date, if ever, that Seller's allocated
share of partnership income and costs is 91%. Upon such
assignment to Buyer, the Weld County Partnership shall be
deemed to be an Asset under this Agreement and Buyer shall be
subject to all leases, joint operating agreements and other
agreements with respect thereto. Seller's obligations under
this Article 2.01 (c) shall be subject to any Transfer
Requirements now in effect.
ASSET PURCHASE AND SALE AGREEMENT PAGE 10
<PAGE> 11
ARTICLE 3
PURCHASE PRICE
3.01 PRELIMINARY PURCHASE PRICE; CLOSING PAYMENT. In consideration for
the sale and conveyance to Buyer of the Assets, Buyer agrees to pay to
Seller $41,000,000.00 (the "Preliminary Purchase Price"), subject to
adjustment as provided in this Agreement. On a date not less than
five (5) business days prior to the Closing Date, based upon
information available to Seller at such time, Seller shall determine
the Closing Payment, notify Buyer of the amount thereof and provide
Buyer a copy of Seller's computation of such amount. Buyer may
recommend adjustments to Seller's computation and Seller shall make
such adjustments it does not disagree with in the a good faith
exercise of its discretion.
3.02 EARNEST MONEY DEPOSIT. At the time of its execution of this
Agreement, Buyer shall pay or cause to be paid to Seller, by wire
transfer or other immediately available funds, an amount equal to Ten
Percent (10.00%) of the Preliminary Purchase Price as an earnest money
deposit (the "Earnest Money Deposit"). Such Earnest Money Deposit
shall bear interest at the Agreed Rate from the date of its deposit
with Seller. Application of the Earnest Money Deposit shall be
governed by the following procedures:
(a) If Closing occurs in accordance with the Agreement, the
Earnest Money Deposit, together with the interest accrued
thereon to the Closing Date, shall be credited against the
Preliminary Purchase Price in calculating the Closing Payment.
(b) If (i) Closing does not occur, (ii) the Agreement is
terminated by Seller or Buyer pursuant to Article 12.01, and
(iii) the conditions to Buyer's obligation to consummate the
transaction set forth in Article 10.02 have not been met,
Seller shall remit the Earnest Money Deposit, together with
accrued interest to Buyer.
(c) If Closing does not occur for any reason except as provided in
(b), above, Seller shall retain the Earnest Money Deposit,
together with accrued interest, as liquidated damages in lieu
of all other damages and as Seller's sole remedy.
3.03 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Seller,
801 Cherry Street, Fort Worth, Texas, 76102, commencing at 9:00 a.m.
local time on April 30, 1998 ; or in the event all conditions to
Closing have not been satisfied as of such date and the Parties have
not terminated this Agreement pursuant to Article 12 hereof, on the
fifth business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than actions the respective
Parties will take at the Closing itself); or at such other place, date
and time as Buyer and Seller may mutually determine (the "Closing
Date").
ASSET PURCHASE AND SALE AGREEMENT PAGE 11
<PAGE> 12
3.04 DELIVERIES AT THE CLOSING. At the Closing, (i) Seller will deliver
the documents referred to in Article 16.01 below, (ii) Buyer will
deliver to Seller the documents referred to in Article 10.01(e),
(iii) Buyer will deliver to Seller the Closing Payment by wire
transfer or delivery of other immediately available funds; and Seller
and Buyer shall each execute and deliver to the other a Transition
Agreement substantially in the form attached hereto as Exhibit "E"
("Transition Agreement").
3.05 PURCHASE PRICE ALLOCATIONS. The Preliminary Purchase Price shall be
allocated among the Assets in accordance with the schedule of values
set forth in Exhibit "C". Buyer represents that this is a proper
allocation of the Preliminary Purchase Price and agrees that the
Purchase Price shall be reallocated to the Assets after accounting for
any adjustments pursuant to Articles 6, 7, 14, 17 and 18 hereof; and
Seller and Buyer each agree that for all income and franchise tax
purposes (and, where applicable, financial accounting purposes) they
will report consistently with such allocation.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.01 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Buyer that the statements contained in this Article 4.01
are true and correct as of the date of this Agreement:
(a) ORGANIZATION OF SELLER. Seller is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Delaware.
(b) AUTHORIZATION OF TRANSACTION. Seller has full power and
authority to execute and deliver this Agreement and to perform
its obligations hereunder, and this Agreement constitutes the
valid and legally binding obligation of Seller, enforceable
against Seller in accordance with its terms and conditions
except as such enforceability may be limited by or subject to
(a) any bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors' rights generally and
(b) general principles of equity (regardless of whether such
enforceability is considered in a pro- ceeding in equity or at
law). Except for (i) consents of or filings with the United
States Department of Interior or other governmental agency or
the applicable state or Indian agencies or authorities in
connection with the assignment of any federal, state, or
Indian leases or any interest therein, and (ii) other Transfer
Requirements and Preference Rights which are applicable to the
transactions contemplated by this Agreement, Seller need not
give any notice to, make any filing with, or obtain any
authorization, consent or approval of, any government or
governmental agency or any other person or entity in order to
consummate the transactions contemplated by this Agreement.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation by Seller of the
transactions contemplated hereby, will
ASSET PURCHASE AND SALE AGREEMENT PAGE 12
<PAGE> 13
violate any statute, regulation, rule, injunction, judgment,
order, decree, or ruling of any government, governmental
agency, or court to which Seller is subject, or any provision
of its charter or by-laws or any agreement or instrument to
which Seller is a party, other than such violations of
agreements or instruments as will not have a material adverse
effect .
(d) BROKER'S FEES. Seller has incurred no liability, contingent
or otherwise, for broker's or finder's fees with respect to
the transactions contemplated by this Agreement for which
Buyer shall have any responsibility whatsoever.
(e) LITIGATION AND CLAIMS. Except as shown on Schedule 4.01,
there are no pending, or, to the Seller's Knowledge,
threatened lawsuits, orders, decrees, injunctions or
administrative, arbitration or other proceedings against
Seller related to the Assets. The term "Litigation" shall
mean the matters shown on Schedule 4.01 under "Litigation and
Claims" and further shall include lawsuits, not shown in
Schedule 4.01, brought as class actions (but not certified as
such by final court order) which, if certified, could relate
to the Assets.
(f) ENVIRONMENTAL MATTERS. Except as shown on Schedule 4.01, (i)
Seller is in compliance with all applicable Environmental
Laws with respect to the Assets, except where noncompliance
would not have a material adverse effect , and (ii) Seller
has not received any notice, other than a notice that has
been fully and finally resolved, that alleges that Seller is
not now, or in the past has not been, in compliance with all
applicable Environmental Laws with respect to the Assets.
Except as listed on Schedule 4.01, to the Knowledge of Seller,
Seller has not released, as such term is defined in CERCLA,
Materials of Environmental Concern on, in, or about the Assets
other than as allowed by Environmental Laws and no conditions
exist on, in, or about the Assets as the result of
Environmental Matters that give rise to liabilities or Third
Party Claims under Environmental Laws. Except as shown on
Schedule 4.01, to the Knowledge of Seller, Seller has not
caused or allowed Materials of Environmental Concern to
migrate from the Assets upon or beneath other properties,
except as permitted by Environmental Laws. Except as shown on
Schedule 4.01, there are no underground storage tanks on the
Assets . Except as shown on Schedule 4.01, Seller has not
transported, disposed, or arranged for disposal, reclamation,
recycling, or sale of Materials of Environmental Concern from
the Assets to other properties, other than as allowed by
Environmental Laws, and to the Knowledge of Seller, Seller has
not transported, disposed, stored offsite, or arranged for
disposal, reclamation, recycling, or sale of Materials of
Environmental Concern from the Assets that give rise to
liabilities or Third Party Claims under Environmental Laws.
(g) NORMAL BUSINESS. Since the Effective Date and from the date
hereof to the Closing Date, Seller (i) has caused and will
cause the Assets to be maintained and operated in a good and
workmanlike manner, consistent with prior operations and (ii)
has not and will not transfer or sell any Assets other than
ASSET PURCHASE AND SALE AGREEMENT PAGE 13
<PAGE> 14
(1) Hydrocarbons produced, saved, and sold from the Assets in
the ordinary course of business, (2) personal property and
equipment which is replaced with personal property and
equipment of comparable or better value and utility in the
ordinary and routine maintenance and operation of the Assets,
and (3) transfers or disposal of items of personal property
having a value of less than $10,000 individually or $50,000
in the aggregate.
(h) TAXES. Seller has paid or caused to be paid all federal,
state, and local taxes, rates and like assessments for periods
prior to the Closing Date that have become due and payable
which, if not so paid, could result in a lien or encumbrance
upon the Assets, including excise, property, ad valorem,
franchise, severance and production taxes; but not including
(i) taxes, rates and like assessments which are being
contested in good faith, as shown on Schedule 4.01, (ii) taxes
not yet due and payable, and (iii) taxes, if any, which are
the responsibility of Buyer under the express terms of this
Agreement.
(i) NO VIOLATIONS. Except as shown on Schedule 4.01, Seller has
not violated or received notice of any alleged violation of
any regulations, rules or orders promulgated by any federal,
state or local regulatory agency or governmental authority
which, if adversely decided, would have a material adverse
effect
(j) MATERIAL CONTRACTS. Exhibit "G" lists all material
contracts relating to the Assets and, with respect to each
such contract, neither Seller nor, to Seller's Knowledge, any
other party thereto is in default thereunder or in breach
thereof, except where default or breach would not have a
material adverse effect .
(k) TAKE-OR-PAY. Seller has not made and will not make from the
date hereof to the Closing Date, any agreement relating to the
Assets which would require Buyer, following Closing, to (i)
deliver gas paid for, but not taken from production, prior to
Closing, or (ii) make a cash payment to a buyer of gas for
reimbursement or recoupment of prior take-or-pay payments.
(l) PERMITS AND LICENSES. Except for those items referred to in
Article 4.01(b) above, to the Knowledge of Seller, Seller has
obtained and currently holds all permits, licenses, approvals
and authorizations which are required under federal, state or
local law, rules and regulations in order to own and operate
the Assets and, except for those items referred to in Article
4.01(b), no such permit, license, approval or authorization
restricts Seller from selling or otherwise transferring to
Buyer Seller's interest in the Assets.
4.02 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller that the statements contained in this Article 4.02
are true and correct as of the date of this Agreement:
(a) ORGANIZATION OF BUYER. Buyer is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Colorado.
ASSET PURCHASE AND SALE AGREEMENT PAGE 14
<PAGE> 15
(b) AUTHORIZATION OF TRANSACTION. Buyer has full power and
authority to execute and deliver this Agreement and to perform
its obligations hereunder, and this Agreement constitutes the
valid and legally binding obligation of Buyer, enforceable
against Buyer in accordance with its terms and conditions
except as such enforceability may be limited by or subject to
(a) any bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to creditors' rights generally and
(b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law). Except for (i) consents of or filings with the United
States Department of Interior or other governmental agency or
the applicable state or Indian agencies or authorities in
connection with the assignment of any federal, state, or
Indian leases or any interest therein, and (ii) other Transfer
Requirements which are applicable to the transactions
contemplated by this Agreement, Buyer need not give any notice
to, make any filing with, or obtain any authorization, consent
or approval of, any government or governmental agency or any
other person or entity in order to consummate the transactions
contemplated by this Agreement.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation by Buyer of the
transactions contemplated hereby, will in any material respect
violate any statute, regulation, rule, injunction, judgment,
order, decree, or ruling of any government, governmental
agency, or court to which Buyer is subject, or any provision
of any agreement or instrument to which Buyer is a party.
(d) BUYER'S COMPLIANCE WITH LAWS AND AGREEMENTS. Prior to
Closing, Buyer will have met all of the requirements under
applicable local, state and federal law to accept assignment
of the Assets. These requirements include, but are not
limited to, the acquisition of bonds, letters of credit or
other evidence of financial security or any other requisite of
all appropriate regulatory agencies and any leases, operating
agreements or other contractual requirements.
(e) FURTHER DISTRIBUTION. Buyer is acquiring the Assets for its
own account and not with the intent to make a distribution
thereof within the meaning of the Securities Act of 1933, as
amended, and the rules and regulations pertaining to it or
distribution thereof in violation of any applicable securities
laws.
(f) BROKER'S FEES. Buyer has incurred no liability, contingent
or otherwise, for broker's or finder's fees with respect to
the transactions contemplated by this Agreement for which
Seller shall have any responsibility whatsoever.
(g) FINANCIAL ABILITY. Buyer will have at the Closing Date
sufficient funds and credit arrangements or other arrangements
to tender the Purchase Price at the Closing and to take such
other actions as may be required by it to consummate the
transactions contemplated hereby. There are no bankruptcy,
reorganization or arrangement proceedings pending against,
being contemplated by or, to the Knowledge of Buyer,
threatened against Buyer.
ASSET PURCHASE AND SALE AGREEMENT PAGE 15
<PAGE> 16
No lawsuit or other proceeding is pending or, to the Knowledge
of Buyer, is threatened, to which Buyer is a party and which
may hinder or impede the ability of Buyer to perform its
obligations hereunder. There is no judgment or outstanding
order, injunction, decree or award rendered by any court or
other governmental agency or arbitrator by which Buyer is
bound and which relates to the transactions contemplated in
this Agreement.
ARTICLE 5
PRE-CLOSING COVENANTS
The Parties respectively covenant and agree as follows with respect to
the period commencing on the date of this Agreement and ending on the Closing
Date:
5.01 ACCESS. Seller will permit representatives of Buyer, at such
representatives' own risk and expense, to have access at all
reasonable times, and in a manner so as not to unduly interfere with
the business operations of Seller, to the Assets and Seller's
premises, personnel, books, and Records, to the extent the same relate
to the Assets. Buyer agrees to release, indemnify and hold harmless
Seller from any claims for death, personal injury, damages to persons
or property or any other Loss caused by the activities of Buyer or
its representatives, agents, consultants, contractors or
subcontractors in respect of access to the Assets.
5.02 ACTIONS BY THE PARTIES. Each of the Parties agrees to use its
reasonable best efforts to satisfy the conditions to Closing set forth
in Article 10 hereof and to refrain from taking any action within its
control which would cause a breach of a representation or warranty set
forth herein; provided, however, that neither Seller nor Buyer shall
be required to expend any funds or incur any costs to prevent or cure
a breach of the representations and warranties set forth in Article 4.
ARTICLE 6
TITLE MATTERS
6.01 NO WARRANTY OR REPRESENTATION. At the Closing, Seller shall convey
to Buyer all the Assets. Such conveyance shall be subject to the
Permitted Encumbrances and WITHOUT ANY WARRANTY OF TITLE, EITHER
EXPRESS OR IMPLIED, AND WHETHER BY COMMON LAW, STATUTE OR OTHERWISE,
except for the warranty provided in Article 4.01(h) of this Agreement
and except for the warranty of title as to persons claiming by,
through and under Seller contained in the Conveyance Documents
delivered pursuant to Article 16.01. Without limiting Buyer's right
to reduce the Purchase Price in the manner provided in this Article 6,
Seller makes no warranty or representation, express or implied, with
respect to the accuracy or completeness of any information, Records or
data now, heretofore, or hereafter made available to Buyer in
connection with this Agreement, including, without limitation, pricing
assumptions, potential for production of Hydrocarbons from the Assets,
or any other matters contained in any material furnished by Seller to
Buyer or its officers, directors, employees, agents, advisors or
representatives. Nothing in this Article 6
ASSET PURCHASE AND SALE AGREEMENT PAGE 16
<PAGE> 17
shall operate to expand or increase or limit Seller's representations
and warranties contained in other parts of this Agreement or to limit
the provisions of Article 19.13.
6.02 TITLE DEFECT. The procedures to be followed with respect to Buyer's
assertion of Title Defects concerning the Assets and adjustment or
refund of the Purchase Price attributable to such Title Defects shall
be as follows:
(a) ACCESS TO RECORDS. Promptly after execution of this
Agreement, Seller will provide Buyer and its consultants and
advisors access at all reasonable times to Seller's
accounting, land, production, engineering, and other Records
regarding the Assets for the purpose of reviewing title to the
Assets and reasonable office space in Seller's offices for
such review. To the extent that Seller cannot provide such
information without violating legal constraints or any
obligation of confidence or other contractual commitment or to
the extent any such information is in possession of a
co-working interest owner, partner or third party and Seller
has the right of access thereto, Seller will use its
reasonable efforts (without being obligated to incur expense)
to provide Buyer access to such information or obtain copies
thereof for Buyer's review.
(b) NOTICE OF ASSERTED TITLE DEFECTS. Prior to the expiration of
the period commencing on the execution of this Agreement and
ending five (5) days prior to the Closing Date (the "Title
Examination Period"), Buyer shall furnish to Seller written
notice specifying in reasonable detail each matter which, in
Buyer's opinion, constitutes a Title Defect and which Buyer
wishes to assert as a Title Defect hereunder, together with
the Defect Amount estimated by Buyer for each such asserted
Title Defect (each such notice being called a "Title Defect
Notice"). The Title Defect Notice shall include all
documents in support of Buyer's assertion of a Title Defect.
Any Title Defects not asserted on or before the expiration of
the Title Examination Period with respect to the Assets, shall
be deemed conclusively to be Permitted Encumbrances.
Failure by Buyer to identify all Assets (or to identify all
portions of an Asset) which are subject to a particular Title
Defect in a Title Defect Notice shall not prevent Buyer from
asserting such Title Defect in separate or subsequent Title
Defect Notices, subject to otherwise timely asserting such
Title Defect prior to the expiration of the Title Examination
Period.
(c) NOTICE IN RESPONSE TO BUYER'S NOTICE. On or before 5:00 p.m.
on the 15th day following Seller's receipt of a Title Defect
Notice from Buyer, Seller shall give written notice to Buyer
for each Title Defect asserted in a Title Defect Notice
("Response Notice") as to whether it (a) admits the existence
of such Title Defect and accepts Buyer's estimate of the
Defect Amount, (b) intends to cure the asserted Title Defect,
(c) disagrees with Buyer's assertion that the Title Defect
exists, (d) disagrees with the Defect Amount estimated by
Buyer for such Title Defect, (e) takes any combination of the
foregoing positions, or (f) in the case of a Nonrevenue
Defect, elects to indemnify Buyer pursuant to Article 6.02(g)
or elects to retain the Asset pursuant to Article 6.02 (e).
If Seller
ASSET PURCHASE AND SALE AGREEMENT PAGE 17
<PAGE> 18
disagrees with Buyer's assertion of the existence of a Title
Defect or the Defect Amount with respect thereto, Seller's
Response Notice shall also specify in reasonable detail
Seller's grounds for such disagreement, the Defect Amount
estimated by Seller therefor, or both, as the case may be.
Seller's failure to include in its Response Notice a Title
Defect asserted in a Title Defect Notice shall be deemed to be
an admission of the existence of such Title Defect,
acceptance of Buyer's estimate of the Defect Amount with
respect thereto and a waiver of Seller's rights to cure such
Title Defect.
(d) METHOD OF DETERMINING TITLE DEFECT AMOUNTS. Without limiting
Seller's right to dispute the existence of a Title Defect,
Defect Amounts for each asserted Title Defect shall be
determined as follows:
(i) If the Title Defect relates to failure of title to
the entirety of Seller's title to an Asset, the
Defect Amount shall be the amount set forth as the
value for that Asset in Exhibit "C".
(ii) If the Title Defect results from a lien, security
interest, pledge or collateral assignment upon one or
more Assets (or a portion thereof) which is
liquidated in amount, then the Defect Amount shall be
the amount necessary to remove such lien, security
interest, pledge or collateral assignment from
Seller's title to such one or more Assets (or portion
thereof).
(iii) If the Title Defect results from Seller having a
lesser NRI in a Well than the Delivered NRI specified
for the Well, the Defect Amount shall be equal to
the product obtained by multiplying the value for
that Well in Exhibit "C" by a fraction, the numerator
of which is the reduction in the NRI and the
denominator of which is the Delivered NRI for such
Well.
(iv) If the Title Defect results from Seller having a
greater WI in a Well than the Delivered WI specified
for the Well, without at least a proportionate
increase in Seller's NRI for such Well, the Defect
Amount shall be equal to the present value
(discounted at 10% compounded annually) of the
increase in Buyer's Projected Costs with respect to
such Well for the period from and after the Effective
Date which is attributable to such increase in the
WI.
(v) If the Title Defect results from any matter not
described in paragraphs (i), (ii), (iii), or (iv)
above, then the Defect Amount shall be a portion of
the value set forth for that Asset in Exhibit "C",
said portion to be equal to the difference between
the value of Seller's title to such Asset without
such Title Defect and with such Title Defect
(assuming the value without such Title Defect to be
the value set forth in Exhibit "C").
ASSET PURCHASE AND SALE AGREEMENT PAGE 18
<PAGE> 19
(vi) If a Title Defect is not effective or does not affect
Seller's title to an Asset throughout the entire
productive life of such Asset, such fact shall be
taken into account in determining the Defect Amount.
(vii) If a Title Defect affects only a portion of an Asset
(as contrasted with an undivided interest in the
entirety of such Asset) and a portion of the Purchase
Price has not been allocated specifically to such
portion of that Asset in Exhibit "C", then for
purposes of computing the Defect Amount, the Purchase
Price allocated to such Asset shall be further
allocated among the portions of such Asset in a fair
and reasonable manner taking into account the value
set forth in Exhibit "C".
Notwithstanding anything herein to the contrary, the aggregate
Defect Amounts attributable to Title Defects relating to an
Asset for which Buyer receives an adjustment in the Purchase
Price shall never exceed the value of that Asset as set forth
in Exhibit "C".
(e) SELLER'S OPTION TO RETAIN ASSET. If Buyer asserts one or
more Title Defects with respect to an Asset and the aggregate
amount of Buyer's estimated Defect Amounts with respect to
such asserted Title Defects exceeds 25% of the value of such
Asset as set forth in Exhibit "C", and Seller has accepted
Buyer's estimate of such Defect Amounts with respect thereto ,
then Seller may, at its sole option, elect to retain such
Asset, provided that Seller must make such election prior to
Closing. Seller shall notify Buyer in its Response Notice
pursuant to Article 6.02(c) hereof of its election to retain
such Asset, and, if Seller gives such notice, the Purchase
Price shall be reduced by the value for such Asset as set
forth in Exhibit "C".
(f) PRE-CLOSING ADJUSTMENT FOR UNCURED TITLE DEFECTS. If, on or
before five (5) days prior to the Closing Date, any Title
Defect and the Defect Amount as asserted by Buyer are agreed
(or deemed agreed) to by Seller and Seller elects not to
attempt (or waives its right) to cure such Title Defect, then,
subject to Article 6.02(k) hereof, the sum of Defect Amounts
attributable to those Assets (or portions thereof) for which
Seller and Buyer are in agreement (or deemed to be in
agreement) as to both the existence of a Title Defect and the
Defect Amount, but excluding Assets retained by Seller
pursuant to Article 6.02 (e) hereof, shall be applied to
reduce the Preliminary Purchase Price.
(g) OPTION TO INDEMNIFY FOR NONREVENUE DEFECTS. Should Buyer
assert in a Title Defect Notice one or more Nonrevenue Defects
and should Seller agree that the Nonrevenue Defect asserted
constitutes a Title Defect and agrees with the Defect Amount,
then Seller, at its option and subject to the credit and
deductible provided in Article 6.02(k), may in its Response
Notice to such Title Defect Notice pursuant to Article
6.02(c), elect to (I) cure the Nonrevenue Defect, (ii) reduce
the Preliminary Purchase Price or the Purchase Price pursuant
to Article 6.02(f) or Article 6.02(j), as the case may be, by
the Defect
ASSET PURCHASE AND SALE AGREEMENT PAGE 19
<PAGE> 20
Amount, or (iii) indemnify Buyer and its Affiliates,
successors and assigns from and against Losses incurred as a
result of such Nonrevenue Defect up the Defect Amount.
(h) CURE OF TITLE DEFECTS. If Seller elects to cure a Title
Defect in accordance with Article 6.02(C) hereof, then Seller
shall use reasonable efforts to cure such defect during the
Cure Period. On or before expiration of the Cure Period,
Seller shall give Buyer written evidence of any curative
actions which in Seller's determination cure or reduce the
Defect Amount of a Title Defect asserted by Buyer, including
an explanation in reasonable detail of any claimed reduction
in the Defect Amount. On or before the expiration of thirty
(30) days after the end of the Cure Period, Buyer shall
provide to Seller in writing a list of those Title Defects
asserted by Buyer which Seller claims to have cured pursuant
to this Article 6.02(h), and which Buyer determines have not
been cured, together with the revisions, if any, in Buyer's
estimates to the Defect Amounts attributable to such Title
Defects after giving effect, if any, to Seller's curative
efforts. For a period of thirty (30) days after Seller's
receipt of Buyer's written list of such uncured Title Defects
and revised Defect Amounts, Seller and Buyer shall attempt to
resolve disputes as to such items. During the Cure Period
and thereafter until all disputes regarding such Title Defect
and the Defect Amount in respect thereof have been fully
resolved by agreement or arbitration, Buyer shall afford
Seller and its representatives and agents access at all
reasonable times to files, Records and documents formerly in
Seller's possession relating to title to the one or more
Assets that are the subject of such disputed Title Defect or
Defect Amount.
Such access shall be subject to confidentiality restrictions
reasonably imposed by Buyer.
(I) ARBITRATION.
(i) In the event the Parties are unable to resolve all
disputes as to the existence of Title Defects or
Defect Amounts within thirty (30) days after the
expiration of the Title Examination Period or, in the
case of a Title Defect that Seller has elected to
cure pursuant to Article 6.02(h), sixty (60) days
after expiration of the Cure Period, then all
remaining disputes regarding Title Defects and Defect
Amounts shall be submitted to binding arbitration.
Within a further fifteen (15) day period, Seller and
Buyer agree to jointly select an arbitrator
experienced in the U.S. oil and gas business, who
shall be the sole arbitrator (the "Arbitrator") to
hear and decide all remaining disputes regarding
asserted Title Defects and Defect Amounts. The
Arbitrator chosen shall be impartial and independent
of the Parties and shall be experienced and
knowledgeable about the subject matter (generally and
not as to the express facts concerning the Assets) of
the remaining disputes. If the Parties are unable
to agree upon the designation of a person as
Arbitrator, the Parties shall request the American
Arbitration Association to appoint
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<PAGE> 21
the Arbitrator and such Arbitrator shall hear all
matters submitted to arbitration under this Article
6.02(I).
(ii) Any arbitration hearing shall be held at a place
selected by the Arbitrator. The arbitration shall
be conducted in accordance with the United States
Arbitration Act (9 U.S.C.A. Sections 1-16) and the
Commercial Arbitration Rules of the American
Arbitration Association to the extent such rules do
not conflict with the terms of such Act and the terms
hereof, provided, however, nothing herein shall
require that the arbitration be submitted to the
American Arbitration Association except as to the
appointment of an Arbitrator. The decision of the
Arbitrator with respect to such remaining disputed
matters shall be reduced to writing and binding on
the parties. Judgment upon the award(s) rendered by
the Arbitrator may be entered and execution had in
any court of competent jurisdiction or application
may be made to such court for a judicial acceptance
of the award and an order of enforcement. Seller
and Buyer, respectively, shall bear their own legal
fees and other costs incurred in presenting their
respective cases. The charges and expenses of the
Arbitrator shall be shared equally by Seller and
Buyer.
(iii) The arbitration shall commence within thirty (30)
days after the Arbitrator is selected in accordance
with the provisions of this Article 6.02(I). In
fulfilling his or her duties with respect to
determining the amount of a Defect Amount, the
Arbitrator may consider such matters as, in the
opinion of the Arbitrator, are necessary or helpful
to make a proper valuation; however, the Arbitrator
shall be bound by those factors set forth in Article
6.02(d) above, including the last sentence thereof.
Furthermore, the Arbitrator may consult with and
engage disinterested third parties to advise the
Arbitrator including, without limitation, geologists,
geophysicists, petroleum engineers, title lawyers,
accountants and consultants, and the fees and
expenses of such third parties shall be considered to
be charges and expenses of the Arbitrator. The sole
remedy in any arbitration award shall be resolution
of alleged Title Defects and Defect Amounts which
shall then be applied as provided in Article 6.02(j)
and the Arbitrator shall not award any other remedy,
including, without limitation, equitable relief,
actual damages, consequential, exemplary or punitive
damages, attorneys' fees and interest reflecting the
time value of money. The Arbitrator shall not add
any interest factor reflecting the time value of
money to any Defect Amount.
(iv) If the Arbitrator selected hereunder should die,
resign or be unable to perform his or her duties
hereunder, the Parties or the American Arbitration
Association shall select a replacement Arbitrator.
The procedure set forth in this Article 6.02(I) for
selecting the Arbitrator shall be followed from time
to time as necessary.
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(v) As to any determination of amounts owing under the
terms of this Article, no lawsuit based on such
claimed amounts owing shall be instituted by any
party hereto, other than to compel arbitration
proceedings or enforce the award of the Arbitrator.
(vi) All privileges under Texas and federal law, including
attorney-client and work-product privileges, shall be
preserved and protected to the same extent that such
privileges would be protected in a federal court
proceeding applying Texas law.
(j) ADJUSTMENT FOR UNCURED TITLE DEFECTS. When the last of all
Title Defects asserted by Buyer pursuant to Article 6.02(b)
above and the Defect Amounts, if any, with respect thereto
have been finally resolved, whether by agreement or
arbitration award, subject to Seller's option to indemnify
Buyer for Nonrevenue Defects provided in Article 6.02(g) and
the credit and deductible provided in Article 6.02(k), the
Purchase Price shall be reduced by the amount, if any, of the
Title Defect Adjustment and by the value of any Assets
retained by Seller pursuant to Article 6.02(e) hereof. The
amount of any reduction in the Purchase Price pursuant to this
Article 6.02(j) shall bear interest at the Agreed Rate from
the Closing Date until paid. Any reduction in the Purchase
Price, together with any interest accruing thereon pursuant to
this Article 6.02(j), shall be due and payable by Seller to
Buyer in immediately available funds within ten (10) days
after the date of the final resolution of the last of all
Title Defects asserted by Buyer and the Defect Amounts, if
any, with respect thereto as aforesaid. Seller's sole
responsibility and Buyer's sole and exclusive remedy for the
reduction in value of Seller's title to an Asset resulting
from the existence of a Title Defect shall be as provided in
this Article 6 and Seller shall not be liable for any Losses
in respect of Title Defects and Defect Amounts, except to the
extent that Seller would have liability therefor under other
Articles of this Agreement.
(k) CREDIT AND DEDUCTIBLE FOR TITLE DEFECTS. The Preliminary
Purchase Price and the Purchase Price shall be reduced for
Title Defects if, and only to the extent that, the cumulative
aggregate of all Defect Amounts exceeds (i) an amount equal
to the aggregate increase in the value of Seller's title to
the Wells over the values set forth in Exhibit "C" as a result
of an increase in the NRI for any such Wells over the NRI
shown in Exhibit "A" plus (ii) the Available Deductible
Amount specified in Article 11.03(a).
ARTICLE 7
ENVIRONMENTAL
7.01 AVAILABILITY OF DATA TO BUYER; PHASE I ENVIRONMENTAL AUDIT. After
the execution of this Agreement, Seller shall make available to Buyer
information which is in the possession or control of Seller or to
which Seller has access (other than publicly available information to
which Buyer has equal access) and which relates to the
ASSET PURCHASE AND SALE AGREEMENT PAGE 22
<PAGE> 23
environmental condition of the Assets or the disposition of Materials
of Environmental Concern related to the Assets, which information may
include, but shall not be limited to, information regarding crude oil
and produced water that may have been spilled or disposed of on-site
and the locations thereof; on-site pits and pit closures; on-site
burial; land farming; land spreading; underground injection; on-site
solid waste disposal sites; and offsite storage, treatment or
disposal sites. Buyer also shall have the right, prior to the
Closing Date, at its own risk and expense, to conduct or have
conducted a Phase I Environmental Audit of the Assets. To enable
Buyer to conduct the Phase I Environmental Audit, Seller will provide
Buyer (and its representatives) with reasonable access to the Assets,
subject to any third party restrictions on Seller with respect to
access to the Assets, to Seller's books, records, and files relating
to the Assets, and to current employees of Seller. In conducting the
Phase I Environmental Audit, Buyer shall treat, and will cause all of
its representatives, agents, consultants, contractors, or
subcontractors to treat, all information obtained by Buyer pursuant to
the Audit as strictly confidential (except to the extent such
information is otherwise available to the general public) and will not
disclose the results without the prior written consent of Seller,
except to the extent that such results are legally required to be
disclosed by Buyer (in which case, Buyer shall provide Seller with
reasonable notice prior to making such disclosure). Seller shall
have the right to have a representative present during any inspection
of the Assets and during any interviews of Seller's employees,
conducted as a part of the Phase I Environmental Audit, and Buyer
shall coordinate these activities with Seller so as to allow Seller to
have a representative present if it so desires. Buyer shall provide
Seller with copies of any Phase I Environmental Audit report, whether
completed prior to or after the Closing Date, not less than five (5)
days after Buyer's receipt of same. Buyer agrees to release,
indemnify, defend, and hold Seller harmless from any claims for
death, personal injury, damage to persons or property or any other
Loss caused by the activities of Buyer or its representatives,
agents, consultants, contractors or subcontractors in conducting a
Phase I Environmental Audit.
7.02 ENVIRONMENTAL DEFECTS. If Buyer has Knowledge of the actual (as
opposed to the threatened or alleged) existence of an Environmental
Matter discovered in the course of the Phase I Environmental Audit or
Buyer's other environmental due diligence in connection with this
transaction and Buyer has concluded that such Environmental Matter
constitutes a breach by Seller of any of Seller's representations and
warranties set forth in Article 4.01(f) hereof (as though such
representations and warranties were not qualified by Seller's
Knowledge thereof), then Buyer, shall advise Seller in writing of such
Environmental Matter on or before five (5) days prior to the Closing
Date. Such written notification shall contain a reasonable
description of the facts used by Buyer in making its determination
that a breach exists and its good faith estimate of the cost to
remediate such Environmental Matter. The notice shall also include
all documents and reports relied upon by Buyer in providing such
notice. Buyer agrees that such written notification to Seller shall
be sent to Seller by telecopy or personal delivery as well as by
registered or certified mail, return receipt requested and postage
prepaid. Prior to Closing, Buyer and its employees, contractors and
consultants shall treat all information regarding any Environmental
Matter as confidential and shall not
ASSET PURCHASE AND SALE AGREEMENT PAGE 23
<PAGE> 24
disclose such information to any governmental authority or other third
party without Seller's written consent, unless disclosure is required
by applicable law (in which case, Buyer shall provide Seller with
reasonable notice prior to making such disclosure). Within three (3)
days after Seller's receipt of a notice with respect to each
Environmental Matter constituting a breach of Seller's representations
and warranties set forth in Article 4.01(f) hereof (as though such
representations and warranties were not qualified by Seller's
Knowledge thereof), Seller or Buyer (if Buyer reasonably believes that
the cost to remediate each such Environmental Matter will exceed
$100,000) may have the Asset affected thereby removed from the Assets
and adjust the Preliminary Purchase Price by the value of such Asset
set forth in Exhibit "C". Such adjustment shall be Buyer's sole and
exclusive remedy with respect to any Environmental Matter subject to
this Article 7.02 and Seller shall not be liable for any Losses with
respect thereto.
ARTICLE 8
PRE-CLOSING BREACHES
If, on or before five (5) days prior to the Closing Date, Buyer has Knowledge
of any matter which Buyer has concluded constitutes a breach by Seller of any
of Seller's representations and warranties set forth in Article 4.01 (other
than Article 4.01(g)) hereof, then Buyer shall notify Seller in writing of
such matter on or before five (5) days prior to the Closing Date. Buyer
agrees that such written notification to Seller shall be sent to Seller by
telecopy or personal delivery as well as by registered or certified mail,
return receipt requested and postage prepaid.
ARTICLE 9
INTERIM COVENANTS
9.01 OPERATION OF THE ASSETS PRIOR TO CLOSING. From the date hereof until
the Closing Date, except as otherwise consented to by Buyer in
writing, Seller shall (i) not mortgage, pledge or subject to any
security interest any of the Assets; (ii) not enter into any
termination or amendment of any material agreement affecting the
Assets except in the ordinary course of business; (iii) not enter into
any settlement of any Litigation in excess of $50,000 involving any of
the Assets or cause a surrender of the Assets; (iv) not consent to
the entry of any decree or order by a governmental body or pay any
fine having an adverse effect of more than $5,000 to the Assets; (v)
not enter into any agreement affecting the Assets with a term in
excess of thirty (30) days, unless such transaction is in the ordinary
course of business and is terminable without penalty on notice of
ninety (90) days or less; (vi) use its best efforts to take all action
necessary to comply with any Preference Right or Transfer Requirement
affecting the Assets; and (vii) use its best efforts not to subject to
any lien, claim or encumbrance any of the Assets.
9.02 OPERATION OF THE ASSETS AFTER CLOSING. At Closing, operation of
those Assets Seller now operates shall be
turned over to and become the responsibility of Buyer, unless
ASSET PURCHASE AND SALE AGREEMENT PAGE 24
<PAGE> 25
an applicable unit, pooling, communitization or operating agreement
requires otherwise. However, Seller shall have no liability for any
operations by Seller under this Article 9.02 for Losses incurred by
Buyer, except as may result directly from Seller's gross negligence or
willful misconduct. If, at Closing or thereafter, Buyer directs
Seller to turn over to Buyer operations of the Assets (or portions
thereof) prior to the time permitted by an applicable agreement, Buyer
agrees to indemnify Seller from and against any Losses incurred by
Seller as a result thereof.
9.03 ACCOUNTING RESPONSIBILITIES.
(a) PRE-CLOSING. From the Effective Date to the Closing Date,
Seller shall (i) process and pay all invoices relating to
operating expenses and capital expenditures, (ii) pay all
severance taxes assessed on production from the Wells, and
(iii) market the Hydrocarbons produced pursuant to existing
market contracts and arrangements for the sale of such
Hydrocarbons and in accordance with pipeline nomination
schedules. All data processing and revenue accounting
responsibilities associated with production operations, such
as gas allocations, gas and liquid revenue disbursement,
royalty disbursement, maintenance of gas balances, and
regulatory filings shall be the responsibility of Seller
through the Closing Date production month.
(b) TRANSITION AGREEMENT ELECTION. Unless Buyer elects
otherwise, Seller shall continue to perform accounting
services with respect to the Assets for a period of up to two
(2) months after the Closing Date production month pursuant to
the terms of the Transition Agreement. Buyer may elect to
not enter into the Transition Agreement provided it notifies
Seller of such election no later than five (5) days prior to
Closing Date.
9.04 FEES FOR SELLER'S SERVICES. Seller shall operate the Assets on
behalf of Buyer after the Effective Date until they are turned over to
Buyer at Closing or thereafter pursuant to Article 9.02. Seller
shall make appropriate charges to Buyer pursuant to any applicable
operating agreement for these services and for the accounting services
referred to in Article 9.03. In the absence of any applicable
operating agreement, for any such services performed from and after
the Effective Date, Buyer shall pay Seller all reasonable necessary
expenses (excluding Seller's internal overhead) incurred by Seller in
the operation of or the accounting for the Assets (or portions
thereof). Any such charges and expenses shall be recovered by Seller
as part of the Final Settlement Statement pursuant to Article 14(h).
ARTICLE 10
CONDITIONS TO OBLIGATION TO CLOSE
10.01 CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to
consummate the transactions to be performed by it in connection with
the Closing is subject, at the
ASSET PURCHASE AND SALE AGREEMENT PAGE 25
<PAGE> 26
option of Seller, to satisfaction on or prior to the Closing Date of
the following conditions:
(a) the representations and warranties set forth in Article 4.02
above shall be true and correct in all material respects at
and as of the Closing Date as though made as of such date and
Seller shall receive a certificate at Closing, executed by a
duly-authorized officer of Buyer, in his capacity as such, to
the effect that, to such officer's Knowledge, the conditions
set forth in this Article 10.01(a) have been satisfied;
provided, however, for the purposes of this Article 10.01(a),
in determining whether this condition has been satisfied, any
such representation or warranty which is qualified by
materiality shall be read and interpreted as if such
qualification was not included therein (it being the intent to
the parties not to apply a double materiality threshold in
determining the satisfaction of this condition);
(b) Buyer shall have performed or complied with all of its
covenants and agreements hereunder in all material respects
through Closing;
(c) there shall not be any injunction, judgment, order, decree,
ruling or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement;
(d) all actions to be taken by Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to Seller;
(e) Buyer shall have delivered to Seller a copy of Buyer's
existing blanket plugging or performance bond, or evidence of
Buyer's compliance with applicable state or federal rules and
regulations, if any, filed with the applicable conservation or
regulatory agency; and
(f) Buyer and Seller shall have executed the Exploration
Agreement.
10.02 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the transactions to be performed by it in connection with
the Closing is subject, at the option of Buyer, to satisfaction on or
prior to the Closing Date of the following conditions:
(a) the representations and warranties set forth in Article 4.01
shall be true and correct in all material respects at and as
of the Closing Date as though made as of such date. Buyer
shall receive a certificate at Closing, executed by a
duly-authorized officer of Seller, in his capacity as such, to
the effect that, to such officer's Knowledge, the conditions
set forth in this Article 10.02(a) have been satisfied;
provided, however, for the purposes of this Article 10.02(a),
in determining whether this condition has been satisfied, any
such
ASSET PURCHASE AND SALE AGREEMENT PAGE 26
<PAGE> 27
representation or warranty which is qualified by materiality
shall be read and interpreted as if such qualification was not
included therein (it being the intent to the parties not to
apply a double materiality threshold in determining the
satisfaction of this condition);
(b) Seller shall have performed or complied with all of its
covenants and agreements hereunder in all material respects
through the Closing;
(c) there shall not be any injunction, judgment, order, decree,
ruling, or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement;
(d) all actions to be taken by Seller in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to Buyer; and
(e) Buyer and Seller shall have executed the Exploration
Agreement.
ARTICLE 11
REMEDIES FOR BREACHES OF ARTICLE 4 AND ENVIRONMENTAL INDEMNIFICATION
11.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained in Article 4.01 (except for Article
4.01(f) and Article 4.01(g)(i), as limited by Article 7.02) hereof
and of Buyer contained in Article 4.02 hereof shall survive the
Closing for a period of one (1) year from the Closing Date (the
"Survival Period"). The representations and warranties of Seller
contained in the last sentence of Article 4.01(f) shall survive the
Closing for a period of one (1) year from the Closing Date (also the
" Survival Period"). The representations and warranties of Seller
contained in Article 4.01(g)(i), and all but the last sentence of
Article 4.01(f) shall not survive the Closing. Following Closing,
for purposes of indemnity hereunder, (i) Seller's certificate
delivered pursuant to Article 10.02(a) as to representations and
warranties in Article 4.01 shall be deemed to constitute a
confirmation that the representations and warranties under Article
4.01 are true and correct as of the Closing Date, and (ii) Buyer's
certificate delivered pursuant to Article 10.01(a) as to
representations and warranties in Article 4.02 shall be deemed to
constitute a confirmation that the representations and warranties
under Article 4.02 are true and correct.
11.02 INDEMNIFICATION PROVISIONS FOR THE BENEFIT OF BUYER. In the event of
a breach by Seller of any of its representations and warranties in
Article 4.01 which survive the Closing, then Seller agrees, subject to
Article 11.03 hereof, to indemnify and hold harmless Buyer and Buyer's
Affiliates, and each of their respective current, former, and future
directors, officers, employees and agents, and each of the successors,
heirs and executors of any of the foregoing, from and against the
entirety of any Losses
ASSET PURCHASE AND SALE AGREEMENT PAGE 27
<PAGE> 28
resulting from or attributable to the breach which Buyer (or any such
other indemnified person in such person's capacity set forth above)
shall suffer, provided that notice of any claim for indemnification is
given in accordance with the terms of this Agreement within the
Survival Period . Notwithstanding anything herein provided to the
contrary, with respect to any breach by Seller of the representations
and warranties contained in the last sentence of Article 4.01(f) and
except as limited by Article 11.03, Seller's sole responsibility for
any such breach shall be to indemnify Buyer for the Losses
attributable to such breach; provided, however, that "Losses", as used
in this sentence, shall not include, and Seller shall not be
responsible or liable for, any death, personal injury or
consequential, exemplary or punitive damages in respect of such
breach.
11.03 LIMITATION ON SELLER'S LIABILITY.
(a) With respect to a breach by Seller of any of its
representations and warranties in Article 4.01 (except the
last sentence of Article 4.01(f)) which survive the Closing
and adjustments to the Preliminary Purchase Price or
reductions to the Purchase Price for Defect Amounts, Seller
shall not be required to pay any
Losses pursuant to the indemnifications set forth in Article
11.02 and Article 11.05 hereof and Buyer shall not be entitled
to adjust the Preliminary Purchase Price or reduce the
Purchase Price on account of any Defect Amount pursuant to
Article 6.02 until the Available Deductible Amount has been
reduced to, but not below, zero. "Available Deductible
Amount" means $250,000, as reduced, but not below zero, by
Defect Amounts finally established under Article 6.02(j) and
such Losses otherwise payable under Article 11.02 and
Article 11.05.
(b) With respect to a breach by Seller of its representation and
warranty in the last sentence of Article 4.01(f), Seller shall
not be required to pay any Losses or any Environmental
Liabilities pursuant to the indemnifications set forth in
Article 11.02 and Article 11.06 hereof until the Available
Deductible Amount with respect to such Losses or
Environmental Liabilities has been reduced to, but not below,
zero. Buyer shall not be entitled to indemnity for any such
Losses or Environmental Liabilities to the extent the same are
actually applied to reduce the Available Deductible Amount.
"Available Deductible Amount" means $250,000 as reduced, but
not below zero, by the total amount of such Losses or
Environmental Liabilities incurred or paid by Buyer which are
subject to indemnification by Seller under Article 11.02 or
Article 11.06 hereof.
11.04 INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER. In the event of a
breach by Buyer of any of its representations and warranties
contained in Article 4.02 hereof, and subject to the provisions of
Article 3.02(c), then Buyer agrees to indemnify and hold harmless
Seller, Seller's Affiliates, and each of their respective current,
former, and future directors, officers, employees and agents, and each
of the successors, assigns, heirs, and executors of any of the
foregoing, from and against the entirety of any Losses resulting from
or related or attributable to the breach which Seller, or any such
ASSET PURCHASE AND SALE AGREEMENT PAGE 28
<PAGE> 29
Affiliate (or any such other indemnified person in such person's
capacity set forth above) shall suffer, provided such claim for
indemnification is brought within the Survival Period; and further
provided that "Losses", as used in this sentence, shall not include,
and Buyer shall not be responsible or liable for, any death, personal
injury, or consequential, exemplary or punitive damages in respect of
such breach.
11.05 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party, which shall include any person, entity,
governmental or regulatory authority, shall notify either
Party (the "Indemnified Party") with respect to any matter
which gives rise to a claim for indemnification against the
other Party (the "Indemnifying Party") under this Article 11;
then the Indemnified Party shall promptly (and in any event
within ten (10) business days after receiving service of
process in a lawsuit, administrative proceeding or arbitration
proceeding with respect to the Third Party Claim) notify the
Indemnifying Party thereof in writing. Each of the matters
described in this Article 11.05(a) shall be referred to in
this Agreement as a "Third Party Claim".
(b) Except as provided in Article 11.06(c) hereof, any
Indemnifying Party will have the right to assume and
thereafter conduct the defense of the Third Party Claim with
counsel of its choice reasonably satisfactory to the
Indemnified Party; provided, however, that the Indemnifying
Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnified Party
(not to be withheld unreasonably) unless the judgment or
proposed settlement involves only the payment of money damages
and does not impose an injunction or other equitable relief
upon (or constitute an admission of guilt, liability, fault or
responsibility for) the Indemnified Party. The Indemnified
Party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of
the Indemnified Party unless (i) the employment thereof has
been specifically authorized in writing by the Indemnifying
Party ,(ii) the Indemnifying Party failed to assume the
defense and employ counsel or (iii) the Indemnifying Party is
also a party to the litigation, counsel chosen by the
Indemnifying Party to represent the Indemnified Party also
represents the Indemnifying Party and the Indemnified Party is
advised by counsel to the Indemnifying Party that a conflict
of interest exists between the Indemnifying Party and the
Indemnified Party, but only to the extent necessary to remove
the conflict.
(c) Unless and until an Indemnifying Party assumes the defense of
the Third Party Claim as provided in Article 11.05(b) above,
however, the Indemnified Party may defend against the Third
Party Claim in any manner it reasonably may deem appropriate
and shall be entitled to be indemnified against the cost of
such defense.
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<PAGE> 30
(d) In no event will the Indemnified Party consent to the entry of
any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), unless
the Indemnified Party waives indemnification with respect to
the Third Party Claim so settled and adjudicated.
(e) The indemnification obligations of Seller under this Agreement
(including Articles 11 and 13) and the indemnification
obligations of Buyer under this Agreement (including Articles
11 and 13) shall include court costs and attorney's fees and
expenses and costs of investigating, preparing or defending
any action or proceeding with respect to any Third Party Claim
to the extent such Third Party Claim may give rise to a claim
for indemnification under such indemnification obligations of
Seller or Buyer, as the case may be.
11.06 SELLER'S ENVIRONMENTAL INDEMNIFICATION.
(a) Seller agrees, subject to the limitations set forth in Article
11.03 and this Article 11.06, to indemnify, defend, and hold
harmless Buyer and Buyer's Affiliates, and each of their
respective current, former and future directors, officers,
employees, and agents, and each of the successors, heirs and
executors of any of the foregoing, from and against and in
respect of any and all Offsite Environmental Liabilities that
may be imposed upon, asserted against, or incurred by Buyer
(or any such other indemnified person in such person's
capacity set forth above) after the Closing Date, arising out
of or in connection with any matters occurring on or prior to
the Closing Date relating to the Assets, including, without
limitation, those matters described in Schedule 4.01 under
"Environmental Liabilities"; provided, however, that in the
event that the acts or omissions of any person after the
Closing Date caused or contributed to a pre-existing
circumstance or condition, then Seller's obligation to
indemnify, defend and hold Buyer harmless shall be reduced by
the Offsite Environmental Liabilities attributable to such
Post-Closing Date acts or omissions to the extent resulting
from such acts or omissions.
(b) As a limitation on Seller's indemnification obligations under
this Article 11.06, Seller shall be responsible for
Environmental Liabilities only to the extent that Buyer,
within the Survival Period, provides Seller notice of (i) the
specific facts and circumstances giving rise to such
Environmental Liabilities as a result of actions or claims
that Buyer reasonably believes have a basis of assertion ; or
(ii) a Third Party Claim giving rise to such Environmental
Liabilities (however, notice of a lawsuit or administrative
proceeding filed against Buyer prior to the end of such
Survival Period shall always be timely if Buyer gives Seller
notice thereof within ten (10) business days after being
served therewith).
(c) With respect to any Environmental Liability for which Seller
may be responsible, whether or not the Available Deductible
Amount has been reduced to zero, and which requires
corrective, remedial, or other actions necessary
ASSET PURCHASE AND SALE AGREEMENT PAGE 30
<PAGE> 31
to respond to, remove, or otherwise address any conditions
that cause, contribute to, or are associated with such
Environmental Liability, Buyer will implement and complete or
cause to be implemented and completed all such corrective,
remedial, or other actions in a reasonable and professional
manner and will use its commercially reasonable efforts to
do so in a timely and cost-effective manner. Seller shall
have the right to participate in the planning and design of
any such corrective, remedial, or other actions by reviewing
and commenting on a draft of any study, plan or report
associated with such actions before the study, plan or report
is submitted to the governmental authority. Seller shall re-
view and comment on any draft study plan or report promptly.
In planning and designing any such study, plan or report and
in considering Seller's comments, suggestions and requests
with respect thereto, Buyer shall give due consideration to
the multiple goals of minimizing Environmental Liabilities
(including the selection of remedies which reflect customary
industry practices, are cost effective and consider all
related business and time requirements), avoiding
Environmental Liabilities and fully complying with all
Environmental Laws. Buyer shall in good faith carefully
consider each comment, suggestion or request made by Seller
with respect to the draft study, plan or report and will
cooperate with Seller by meeting periodically, at the request
of Seller, to discuss any such study, plan or report. Seller
shall maintain in confidence all information provided by Buyer
at any such meeting except to the extent such information is
otherwise available to the general public or is information
Seller is legally required to disclose, in which event Seller
shall give Buyer notice of such requirement and discuss same
with Buyer. In addition, Buyer shall provide Seller copies
of all reports, plans and correspondence submitted to any
governmental authority with respect to such actions. Further,
Buyer shall provide Seller three (3) days' notice (or shall
provide Seller notice as soon as practical if three (3) days
notice is not practical) of any formal meetings with, hearings
before, or other formal sessions with any governmental
authority which are expected to result in decisions regarding
actions to be required by the governmental authority that
concern Environmental Liabilities for which Seller may be
responsible and will not object to Seller's participation in
such meetings or hearings. Buyer shall have final authority
to make all decisions concerning any actions taken in
connection with an Environmental Liability and no action taken
by Buyer in the exercise of its good faith business judgement
shall limit the obligations of Seller under this Section
11.06.
(d) Buyer agrees that its sole remedy for Environmental
Liabilities that result from, arise out of, or are
attributable to the Assets will be pursuant to this Section
11.06, and Buyer hereby releases, waives, and disclaims any
and all rights of contribution, indemnification, or other
means of recovery from Seller under Environmental Laws,
including, without limitation, CERCLA.
11.07 DETERMINATION OF LOSSES. A claim for a loss or Environmental
Liability will be recoverable only to the extent of Losses and
Environmental Liabilities actually incurred
ASSET PURCHASE AND SALE AGREEMENT PAGE 31
<PAGE> 32
or paid by the Indemnified Party. Without limiting the foregoing,
the Parties shall make appropriate adjustments for insurance
recoveries actually received (net of all costs and expenses incurred
in connection with such recoveries) and tax benefits or obligations
realized from non-Affiliates in determining Losses and Environmental
Liabilities for purposes of this Article 11 or Article 13. All
indemnification payments under this Article 11 shall be deemed
adjustments to the Purchase Price; provided, however, such
indemnification payments shall not be limited to the amount of the
Purchase Price.
11.08 EFFECT OF INDEMNIFICATION PROVISIONS. The Parties acknowledge and
agree that the foregoing indemnification provisions in this Article 11
and in Article 13 shall, following the Closing hereof, be the
exclusive remedy of either Party for any breach of the representations
and warranties in Article 4 hereof; provided that, the foregoing shall
not limit the Parties' obligations for any breach of a covenant or
agreement contained in any Article other than Article 4. If a claim
for payment of a liquidated amount covered by a Party's
indemnification obligations under this Agreement is made in accordance
with the terms of this Agreement and is not paid within sixty (60)
days after such claim is received by the Party responsible for paying
the same, the liquidated amount of such claim shall bear interest at
the Agreed Rate from the date such claim was received until paid.
11.09 NEGLIGENCE, ETC. IT IS EXPRESSLY AGREED THAT SELLER'S AND BUYER'S
RESPECTIVE INDEMNIFICATION OBLIGATIONS UNDER THIS ARTICLE 11, ARTICLE
13, OR UNDER ANY OTHER ARTICLE OF THIS AGREEMENT INCLUDE, WITHOUT
LIMITATION, LOSSES AND ENVIRONMENTAL LIABILITIES, IF ANY, BASED ON
NEGLIGENCE, ALLEGED NEGLIGENCE, GROSS NEGLIGENCE OR ALLEGED GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLER OR BUYER, AND THEIR
RESPECTIVE AFFILIATES, AND EACH OF THE RESPECTIVE CURRENT OR FORMER
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, STOCKHOLDERS AND CONTROLLING
PERSONS OF ANY OF THE FOREGOING.
ARTICLE 12
TERMINATION
12.01 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
at any time prior to the Closing as provided below:
(a) by mutual written consent; or
(b) in the event the Closing shall not occur on or before May 31,
1998, either Buyer or Seller may terminate this Agreement by
giving written notice thereof to the other Party on or after
May 31, 1998, and prior to Closing (unless the failure to
close results primarily from the Party that elects to
terminate itself breaching any covenant, representation or
warranty).
ASSET PURCHASE AND SALE AGREEMENT PAGE 32
<PAGE> 33
12.02 EFFECT OF TERMINATION. If a Party terminates this Agreement
pursuant to Article 12.01 above, subject to Article 3.02, such
termination shall be the exclusive remedy for the breach by
the other Party of any representations or warranties hereunder
and all rights and obligations of the Parties hereunder shall
terminate without any liability or responsibility of a Party
to the other Party (except for application of the Earnest
Money Deposit pursuant to Article 3.02 and any liability of a
Seller for breach of its covenants or agreements hereunder);
provided, however, that the provisions of Article 15 shall
survive termination.
ARTICLE 13
POST CLOSING COVENANTS
The Parties agree as follows with respect to the period following the Closing:
13.01 SELLER'S OBLIGATIONS.
(a) RECORDS. As soon as practicable after Closing or, if
applicable, the termination of the Transition Agreement,
Seller shall deliver to Buyer, at Buyer's offices in Denver,
Colorado, all Records. Seller shall be entitled to retain,
or to obtain from Buyer at Seller's cost, one copy of all such
information for its records as may be reasonably necessary for
Seller to address matters relative to ownership and operation
of the Assets, including, without limitation, the preparation
of accounting and financial information, the filing of tax
returns and the pursuing or defending of litigation.
(b) SUSPENSE FUNDS. Also as soon as practicable after Closing,
Seller shall provide Buyer with a list showing all proceeds
from production attributable to the Assets which are currently
held in suspense and transfer to Buyer all such proceeds.
Buyer shall be responsible for distribution of such proceeds
to the parties lawfully entitled thereto, and agrees to
indemnify, defend and hold harmless Seller from and against
any and all claims, liabilities and Losses, arising out of or
relating to such proceeds.
(c) RESPONSIBILITY FOR LITIGATION. FROM AND AFTER THE EFFECTIVE
DATE, BUYER AGREES TO ASSUME AND TO INDEMNIFY AND HOLD
HARMLESS SELLER, SELLER'S AFFILIATES, EACH OF THE RESPECTIVE
CURRENT, FORMER, AND FUTURE DIRECTORS, OFFICERS, EMPLOYEES,
AND AGENTS OF ANY OF THE FOREGOING, AND EACH OF THE
SUCCESSORS, ASSIGNS, HEIRS, AND EXECUTORS OF ANY OF THE
FOREGOING FROM AND AGAINST THE ENTIRETY OF ANY LOSSES
RESULTING FROM, ARISING OUT OF, OR ATTRIBUTABLE TO THE
LITIGATION INSOFAR AS THE LITIGATION RELATES TO OR AFFECTS
THE ASSETS (OTHER THAN SELLER'S ATTORNEYS' FEES AND EXPENSES
AND COST OF INVESTIGATING, PREPARING OR DEFENDING THE
LITIGATION).
ASSET PURCHASE AND SALE AGREEMENT PAGE 33
<PAGE> 34
13.02 BUYER'S OBLIGATIONS.
(a) RECORDING. Within thirty (30) days following Closing, Buyer
shall record those Conveyance Documents necessary to evidence
on the public record that Buyer has acquired the Assets and
within a reasonable time thereafter, Buyer shall supply Seller
with a true and accurate photocopy of the recorded and filed
Conveyance Documents. In the event Buyer fails to record any
such Conveyance Document within such time period, Seller may,
but shall not be obligated to, record such Conveyance Document
on Buyer's behalf and at Buyer's cost (for which Buyer shall
immediately reimburse Seller upon demand).
(b) REMOVAL OF NAMES. As soon as reasonably practicable after the
Closing, Buyer shall cause to be removed the names and marks
of Seller and any variations and derivations thereof and logos
relating thereto from all of the Assets, and will not
thereafter make any use whatsoever of such names, marks, and
logos; provided, however, that Buyer shall have no obligation
to remove such names or marks from any lease site or well
until such time as such names or marks are removed in the
ordinary course of Buyer's business. Buyer shall indemnify
Seller for any Losses it suffers as a result of Buyer's
non-removal of such names or marks after the Closing.
(c) RIGHT TO USE RECORDS. Seller reserves the right to use any of
the Records transferred to Buyer hereunder and Buyer agrees to
cooperate with Seller in granting reasonable access to such
Records, subject to Seller entering into a reasonable
confidentiality agreement.
(d) RESPONSIBILITY FOR ASSUMED LIABILITIES. FROM AND AFTER THE
CLOSING DATE, BUYER AGREES TO ASSUME ALL RESPONSIBILITY AND
LIABILITY FOR AND TO INDEMNIFY AND HOLD HARMLESS SELLER,
SELLER'S AFFILIATES, EACH OF THE RESPECTIVE CURRENT, FORMER,
AND FUTURE DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS OF ANY
OF THE FOREGOING, AND EACH OF THE SUCCESSORS, ASSIGNS, HEIRS,
AND EXECUTORS OF ANY OF THE FOREGOING FROM AND AGAINST THE
ASSUMED LIABILITIES. WITHOUT LIMITING ARTICLE 13.01(c) OR
BUYER'S RESPONSIBILITY FOR THE ASSUMED LIABILITIES, NOTHING
HEREIN SHALL GIVE BUYER ANY RIGHTS OR OBLIGATIONS IN RESPECT
OF THE DEFENSE OF THE LITIGATION, IT BEING EXPRESSLY
UNDERSTOOD THAT SELLER SHALL BE RESPONSIBLE FOR SUCH DEFENSE
IN THE EXERCISE OF ITS SOLE DISCRETION.
(e) RIGHTS TO THIRD PARTY CLAIMS.
Effective as of the Closing Date, Seller hereby assigns to
Buyer all claims of Seller for any (i) overcharges or improper
charges by any third party prior to the Effective Date
relating to the Assets; (ii) misappropriation or conversion by
any third party prior to the Effective Date of any oil, gas or
other hydrocarbons produced from or equipment or other
personal property relating
ASSET PURCHASE AND SALE AGREEMENT PAGE 34
<PAGE> 35
to the Assets; (iii) underpayments by any third party prior to
the Effective Date of amounts due to Seller in respect of the
Assets; (iv) errors or omissions of any third party prior to
the Effective Date in respect of the Assets; and (v) gas
imbalances, being both over and under production relating to
the Wells, including, without limitation, the imbalances
reflected on Exhibit "F", attached hereto. Seller's
assignment of claims will not include (i) outstanding accounts
receivable which are not overdue by more than six (6) months
as of the Effective Date; (ii) any claims pertaining to
Seller's fee mineral title or royalty interests; (iii) claims
for amounts which offset amounts owed by Seller in respect of
the same matter; (iv) claims arising from or attributable to
the Litigation; and (v) claims relating to taxes. Buyer
agrees to indemnify and hold harmless Seller, Seller's
affiliates, each of the respective current, former, and future
directors, officers, employees, and agents of any of the
foregoing, and each of the successors, assigns, heirs, and
executors of the foregoing from any and all Losses resulting
from or attributable to Buyer's exercise of the assigned
rights. Seller shall execute such further documents as Buyer
may request and which are reasonably necessary to confirm
Seller's assignment of rights to Buyer.
ARTICLE 14
EFFECT OF CLOSING
The following terms, provisions and prorations shall be effective at the
Closing:
(a) REVENUES. All proceeds from production, accounts
receivables, notes receivables, income, revenues, monies and
other items attributable to the Assets with respect to any
period of time prior to the Effective Date shall belong to and
be retained by or paid over to Seller. Except as provided in
Article 13.02(e), all proceeds from production, accounts
receivables, notes receivables, income, revenues, monies and
other items attributable to the Assets with respect to any
period of time from and after the Effective Date shall belong
to and be retained by or paid over to Buyer, except for
Hydrocarbons that, at the Effective Date, are attributable to
the Assets and are in storage or are otherwise held in
inventory and all proceeds attributable thereto.
(b) EXPENSES. All costs, expenses, accounts payable and accrued
liabilities attributable to the Assets with respect to any
period of time prior to the Effective Date, shall be the
obligation of and paid by Seller, and all necessary reports
with respect to such costs and expenses shall be filed by
Seller. All costs, expenses, accounts payable and accrued
liabilities attributable to the Assets with respect to any
period of time from and after the Effective Date shall be the
obligation of and be paid by Buyer.
(c) AD VALOREM AND PROPERTY TAXES. All ad valorem taxes, real
property taxes, personal property taxes and similar
obligations shall be apportioned as of the
ASSET PURCHASE AND SALE AGREEMENT PAGE 35
<PAGE> 36
Effective Date between Buyer and Seller. All such taxes
allocable to the period prior to the Effective Date shall be
paid by Seller, and all such taxes allocable to the period
after the Effective Date and after shall be paid by Buyer.
Any refunds of taxes allocable to periods prior to the
Effective Date shall be the property of Seller. Seller shall
pay ad valorem taxes for 1998 based on 1997 production. Buyer
shall file or cause to be filed all required reports and
returns incident to such taxes which relate to any period
ending after the Effective Date, and shall pay or cause to be
paid to the taxing authorities all such taxes reflected on
such reports and returns, subject to Buyer's right to require
Seller to pay any portion thereof relating to a period prior
to the Effective Date under Article 14(g).
(d) SALES TAXES, FILING FEES, ETC. Buyer shall be liable for any
sales taxes or other transfer taxes, as well as any applicable
conveyance, transfer and recording fees, and real estate
transfer stamp or taxes imposed upon the sale of the Assets.
If Seller is required by applicable state law to report and
pay these taxes or fees, Buyer shall promptly deliver a check
to Seller in full payment thereof.
(e) OTHER TAXES. All production, severance or excise taxes,
conservation fees and other similar such taxes or fees (other
than income taxes) relating to production attributable to the
Assets prior to the Effective Date shall be paid by Seller and
all such taxes and fees relating to such production
attributable to the Assets on and after the Effective Date
shall be paid by Buyer.
(f) DELIBERATELY OMITTED.
(g) PAYMENTS; SHARED OBLIGATIONS. If amounts are received by
either Party hereto which, under the terms of this Article 14
belong to the other Party, such amount shall immediately be
paid over to the proper Party. If an invoice or other
evidence of an obligation is received which under the terms of
this Article 14 is partially the obligation of Seller and
partially the obligation of Buyer, then the Parties shall
consult each other and each shall promptly pay its portion of
such obligation to the obligee.
(h) POST-CLOSING ADJUSTMENTS. As soon as practicable after
Closing (and in no event more than ninety (90) days
thereafter), Seller shall prepare and deliver to Buyer, in
accordance with this Agreement and generally accepted
accounting principles, a statement (herein called the "Final
Settlement Statement"), setting forth each adjustment or
payment that was not finally determined as of the Closing or
in accordance with Article 14(g), above, and showing the
calculation of such adjustments. As soon as practicable
after receipt of the Final Settlement Statement, Buyer shall
deliver to Seller a written report containing any changes that
Buyer proposes be made to the Final Settlement Statement.
The Parties shall undertake to agree with respect to the
amounts due pursuant to such post-Closing adjustment no later
than ninety (90) days after Buyer's
ASSET PURCHASE AND SALE AGREEMENT PAGE 36
<PAGE> 37
receipt of the Final Settlement Statement. The date upon
which such agreement is reached or upon which the Purchase
Price is finally established, shall be herein called the
"Final Settlement Date." In the event that the Purchase Price
as finally established (i) is more than the Closing Payment,
Buyer shall pay Seller or to Seller's account (as designated
by Seller) in immediately available federal funds the amount
of such difference; or (ii) is less than the Closing Payment,
Seller shall pay Buyer or to Buyer's account (as designated by
Buyer) in immediately available federal funds the amount of
such difference. Payment by Buyer or Seller shall be made
within five days after the Final Settlement Date. In the
event that the Seller and Buyer are unable to agree upon the
Final Settlement Statement within ninety (90) days after
Buyer's receipt of same, Buyer shall select one of Coopers &
Lybrand, Deloitte and Touche or Price Waterhouse to audit the
Seller's Final Settlement Statement and determine the final
Purchase Price. If the accounting firm so selected is
unwilling or unable to serve for any reason, then Buyer shall
select one of the other above-listed accounting firms to
conduct such audit. The decision of the independent
accounting firm that conducts the audit shall be binding on
Buyer and Seller, and the fees and expenses of such
independent accounting firm shall be borne one-half each by
Buyer and Seller. Within five (5) days after the decision of
the independent accounting firm, Buyer or Seller, as the case
may be, shall promptly make a cash payment to the other equal
to the amount, if any, found due by the independent
accounting firm.
(i) PROCESS SAFETY MANAGEMENT. Buyer recognizes and acknowledges
that Process Safety Management of Highly Hazardous Chemicals;
Explosives and Blasting Agents (i.e., 29 CFR 1910)
(collectively "Process Safety Management") with respect to the
Assets is an ongoing process. Consistent herewith, Buyer
agrees to assume any and all obligations (including the
identification, evaluation and remediation) associated with
Process Safety Management as of the Closing Date and shall not
be entitled to claim the fact that Process Safety Management
is not complete or that additional cost will be required to
complete the Process Safety Management process as an Alleged
Title Defect, breach of Seller's representations and
warranties or breach of Seller's indemnity obligation under
this Agreement.
(j) PERMITTED ENCUMBRANCE. The fact that a debt or obligation is
secured by a Permitted Encumbrance shall not affect the
respective obligations of the Parties under this Agreement to
pay or perform such debt or obligation.
ARTICLE 15
CONFIDENTIALITY AGREEMENT
Each Party, its Affiliates and its and their directors, officers, employees,
agents, representatives, consultants, investors and lenders, agree to keep the
terms and conditions of this Agreement and all proprietary and confidential
information exchanged between Buyer and Seller in connection with this
Agreement, confidential, and to not disclose the existence
ASSET PURCHASE AND SALE AGREEMENT PAGE 37
<PAGE> 38
of this Agreement for a period not to exceed one year from the Closing Date,
without the prior written consent of the other Party, which consent may be
withheld at either Party's sole discretion. The foregoing restriction shall
not apply to disclosures and information which (i) are required to comply with
applicable statutes and regulations; (ii) are required to enforce this
Agreement; (iii) are required to satisfy Transfer Requirements or Preference
Rights; (iv) are required to obtain financing related to the transactions
contemplated hereby; (v) enter the public domain through a third party who does
not thereby breach an obligation of confidentiality; or (vi) are made in
association with press releases issued in accordance with Article 19.01 hereof.
ARTICLE 16
CLOSING
16.01 SELLER'S CLOSING OBLIGATIONS. At Closing, Seller shall deliver or
cause to be delivered to Buyer the Conveyance Documents.
16.02 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall tender to
Seller the Closing Payment by wire transfer in immediately available
funds.
ARTICLE 17
CASUALTY LOSS AND CONDEMNATION
If, prior to the Closing Date, all or any portion of the Assets are destroyed
by fire or other casualty or are taken in condemnation or under right of
eminent domain or proceedings for such purpose are pending or threatened in
writing, Buyer may elect (i) to treat such destruction, taking or pending or
threatened taking as a Title Defect pursuant to Article 6 hereof, in which case
Seller shall retain any amounts that have been or will be paid to it by third
parties (including insurers) by reason of such destruction or taking; or (ii)
to purchase such Assets or portions thereof notwithstanding any such
destruction, taking or pending or threatened taking (without reduction in the
Preliminary Pur- chase Price with respect thereto), in which case Seller shall,
at the Closing, pay to Buyer all sums paid to Seller by third parties
(including insurers) by reason of the destruction or taking of such Assets, and
shall assign, transfer and set over unto Buyer all of Seller's right, title and
interest in and to any unpaid awards or other amounts due from third parties
(including insurers) arising out of the destruction, taking or pending or
threatened taking of such Assets or portions thereof. Prior to Closing,
Seller shall not voluntarily compromise, settle or adjust any amounts payable
by reason of any destruction, taking or pending or threatened taking as to the
Assets or portions thereof without first obtaining the written consent of
Buyer.
ARTICLE 18
PURCHASE RIGHTS AND CONSENTS
18.01 PURCHASE RIGHTS. Following execution of this Agreement by the
Parties, Seller shall send to each third party holding a Preference
Right, a notice offering to sell to such holders, in accordance with
the provisions of the agreement applicable to such Preference Right,
the Asset covered by such Preference Right on substantially the
ASSET PURCHASE AND SALE AGREEMENT PAGE 38
<PAGE> 39
same terms hereof and for the value allocated by Buyer to such an
Asset on Exhibit "C". If a third party who has been offered an
interest in an Asset pursuant to a Preference Right makes a timely
election prior to Closing to purchase all or part of such Asset
pursuant to the aforesaid offer and Seller receives written notice of
such election at least two days prior to the Closing Date, the Asset
or part thereof so affected will be eliminated from the Assets and (i)
if all of such Asset is affected by the Preference Right, then the
Preliminary Purchase Price shall be reduced by the value of such Asset
set forth on Exhibit "C", or (ii) if only an interest in such Asset is
affected by the Preference Right, then the Preliminary Purchase Price
shall be reduced by the value of such interest determined in
accordance with the method set forth in Article 6.02(d) as if such
interest failed on account of a Title Defect. If such third party
has not made its election prior to Closing and the time to make such
election has not yet expired, the Asset or interest therein affected
shall be retained by Seller and the Preliminary Purchase Price shall
be reduced by (i) the value of such Asset set forth on Exhibit "C" if
all of such Asset is affected by such Preferential Right or, (ii) if
only an interest in the Asset is so affected, by the value of such
interest determined in accordance with the method set forth in Article
6.02(d). If the third party elects to purchase such Asset or
interest therein in accordance with its Preference Right following
Closing, Seller shall convey such Asset or interest therein to such
third party and shall retain the proceeds from such sale and
thereafter such Asset shall be deemed to be an Excluded Asset for
purposes of this Agreement; if the third party elects to waive its
right to purchase or the time to make such election expires, Seller
shall convey such Asset or portion thereof to Buyer and Buyer shall
pay Seller the amount of the reduction in the Preliminary Purchase
Price with respect thereto. Buyer agrees to indemnify and hold
Seller free and harmless from and against all Losses arising out of or
related to the value of an Asset or the Assets set forth in Exhibit
"C" with respect to a Preference Right.
18.02 CONSENTS. Seller will notify third parties that have Transfer
Requirements in order to comply with or attempt to obtain waivers of
such Transfer Requirements, except with respect to any Transfer
Requirements described in Article 18.03. If any Transfer Requirement
is not obtained, complied with or otherwise satisfied prior to the
Closing Date, any Asset or interest therein affected by such Transfer
Requirement shall, at the option of Buyer, be retained by Seller and
the Preliminary Purchase Price shall be reduced by (i) the value of
the Asset set forth on Exhibit "C" if all of such Asset is affected by
such Transfer Requirement or, (ii) if only an interest in the Asset is
so affected, by the value of such interest determined in accordance
with the method set forth in Article 6.02(d). If such Transfer
Requirement is obtained, complied with or otherwise satisfied
following Closing, Seller shall convey such Asset or portion thereof
to Buyer and Buyer shall pay Seller the amount of the reduction in the
Preliminary Purchase Price with respect thereto; otherwise, such Asset
shall be deemed to be an Excluded Asset for purposes of this
Agreement.
18.03 GOVERNMENTAL CONSENTS. At the Closing, Seller shall execute and
deliver to Buyer such assignment of federal, state and Indian leases
as require consent to assignment, on the forms required by the
governmental or tribal agency having jurisdiction thereof.
ASSET PURCHASE AND SALE AGREEMENT PAGE 39
<PAGE> 40
Buyer shall promptly file for and obtain the necessary approvals for
such assignments. Until such approvals are obtained, Seller shall
continue to hold governmental title to such leases as nominee for
Buyer.
ARTICLE 19
MISCELLANEOUS
19.01 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Neither Party shall issue
any press release or make any public an- nouncement relating to the
subject matter of this Agreement prior to the Closing without the
prior approval of the other Party, which approval shall not be
unreasonably withheld; provided, however, that either Party may make
any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly traded securities (in which case the disclosing Party will
use its reasonable best efforts to advise the other Party prior to
making the disclosure).
19.02 ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by
or between the Parties, written or oral, to the extent they have
related in any way to the subject matter hereof.
19.03 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors
and permitted assigns. Neither Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder,
prior to Closing, without the prior written approval of the other
Party. If either Party assigns all or part of its rights or
delegates all or part of its obligations under this Agreement to one
or more third parties, it shall nevertheless remain responsible for
the implementation and enforcement of the remedies provided herein and
for the discharge and performance of the obligations provided herein.
19.04 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
19.05 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
19.06 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Texas without giving
effect to any choice or conflict of law provision or rule (whether of
the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Texas.
ASSET PURCHASE AND SALE AGREEMENT PAGE 40
<PAGE> 41
19.07 LEGAL FEES. The prevailing party in any legal proceeding brought
under or to enforce this Agreement shall be additionally entitled to
recover court costs and reasonable attorney's fees from the
nonprevailing party.
19.08 EXHIBITS. All exhibits and schedules hereto which are referred to
herein are hereby made a part hereof and incorporated herein by such
reference.
19.09 WAIVER. Any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived only by written
instrument executed by the Party waiving the compliance. The failure
of either Party at any time or times to require performance of any
provisions hereof shall in no manner affect such Party's right to
enforce the same. No waiver by either Party of any condition or of
the breach of any term, provision, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be construed as a
further or continuing waiver of any such condition or breach, or a
waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.
19.10 FURTHER ASSURANCES. After the Closing, each of the Parties will
execute, acknowledge, and deliver to the other such further
instruments, and take such other actions, as may be reasonably
requested in order to more effectively assure to said Party all of the
respective properties, rights, titles, interests, estates, and
privileges intended to be assigned, delivered, or inuring to the
benefit of such Party in consummation of the transactions contemplated
hereby.
19.11 RESIGNATION AS OPERATOR, ETC. Within a reasonable period of time
following the Closing, Seller shall execute and deliver to Buyer
appropriate letters resigning as the Operator of any of the Assets
that Seller is operating and other appropriate documents concerning
transfer of operations. Buyer acknowledges and agrees that Seller
cannot and does not covenant or warrant that Buyer shall become
successor operator of all or any portion of the Assets, since the
Assets or portions thereof may be subject to unit, pooling,
communitization, operating or other agreements which control the
appointment of a successor operator; provided, however, that Seller
agrees to use its reasonable best efforts to assist Buyer in becoming
successor operator.
19.12 NOTICES. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice given by fax
transmittal shall be deemed given upon confirmation of transmission of
the fax, provided that any attachments referenced in the notice are
also sent via fax at the same time; however, a party giving notice by
fax transmittal shall also send a hard copy of the notice, and any
attachments referenced therein, promptly by regular mail unless a
different type of mailing is required by this Agreement. Any notice,
request, demand, claim or other communication hereunder shall be
deemed duly given if (and then two business days after) it is sent by
registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:
ASSET PURCHASE AND SALE AGREEMENT PAGE 41
<PAGE> 42
IF TO SELLER: IF TO BUYER:
Union Pacific Oil & Gas Company United States Exploration, Inc.
801 Cherry Street 1560 Broadway, Suite 1900
Fort Worth, Texas 76102 Denver, Colorado 80202
Attention: J. F. Carroll Attention: Bruce D. Benson
Manager, Divestitures Chairman, CEO, President
Telephone: (817) 877-7718 Telephone: (303) 863-3550
Fax: (817) 877-6093 Fax: (303) 863-1932
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery,
expedited courier, messenger service, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until
it actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other
Party notice in the manner herein set forth.
19.13 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. Except as expressly
set forth in this Agreement and in Conveyance Documents delivered
pursuant to Article 16.01, the Parties hereto make no, and disclaim
any, representation or warranty whatsoever, whether express or
implied. Each Party hereto disclaims all liability and
responsibility for any other representation, warranty, statement, or
communication (orally or in writing) to the other Party (including,
but not limited to, any information contained in any opinion,
information, or advice that may have been provided to any such Party
by any officer, stockholder, director, employee, agent, consultant,
representative, engineer, engineering firm or contractor of such
disclaiming Party or its Affiliates, wherever and however made).
Without limiting the generality of the foregoing, Seller makes no
representation or warranty as to (a) the amount, value, quality, or
deliverability of petroleum, natural gas, or other reserves
attributable to the Assets or any portion thereof, or (b) any
geological, engineering, or other interpretations or economic
evaluations. EXCEPT AS EXPRESSLY PROVIDED IN ARTICLE 4.01(g), ALL
TANGIBLE PERSONAL PROPERTY, EQUIPMENT, FIXTURES AND APPURTENANCES
CONSTITUTING A PART OF THE ASSETS ARE SOLD AS IS, WHERE IS, AND SELLER
MAKES NO, AND DISCLAIMS ANY, REPRESENTATION OR WARRANTY, WHETHER
EXPRESS OR IMPLIED, AND WHETHER BY COMMON LAW, STATUTE, OR OTHERWISE,
AS TO (i) MERCHANTABILITY, (ii) FITNESS FOR ANY PARTICULAR PUR- POSE,
(iii) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND/OR (iv)
CONDITION. The Parties agree that the preceding disclaimers of
warranty are "conspicuous" disclaimers for purposes of any applicable
law, rule, or order.
19.14 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation and in any jurisdiction
shall not affect the validity or enforceability of
ASSET PURCHASE AND SALE AGREEMENT PAGE 42
<PAGE> 43
the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
19.15 TEXAS DECEPTIVE TRADE PRACTICES ACT WAIVER. Buyer (a) represents and
warrants to Seller that it (i) is acquiring the Assets for commercial
or business use, (ii) has assets in excess of $500,000, (iii) has
knowledge and experience in financial and business matters such that
enable it to evaluate the merits and risks of the transactions
contemplated by this Agreement and is not in a significantly disparate
bargaining position with respect to Seller, and (iv) is represented by
legal counsel in this transaction; and (b) hereby unconditionally and
irrevocably waives any and all rights or remedies it may have under
the Deceptive Trade Practices - Consumer Protection Act of the State
of Texas, Tex. Bus. & Com. Code Section 17.41 et seq., other than
any of the provisions of Section 17.555 of such Act, if such Act
would for any reason be deemed applicable to the transactions
contemplated hereby.
19.16 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns, and other persons given
rights of indemnification hereunder.
19.17 CONSTRUCTION. The Parties have participated jointly in the
negotiating and drafting of this Agreement. In the event ambiguity
or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties and no presumption
or burden of proof shall arise favoring or disfavoring either Party by
virtue of the authorship of any of the provisions of this Agreement.
Any reference to any federal, state, local or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the contexts requires otherwise. The word
"including" shall mean including, without limitation. If the date
specified in this Agreement for giving any notice or taking any action
is not a business day (or if the period during which any notices
required to be given or any action taken expires on a date which is
not a business day) then the date for giving such notice or taking
such action (and the expiration date for such period during which
notice is required to be given or action taken) shall be the next day
which is a business day.
ARTICLE 20
LIKE KIND EXCHANGE
20. LIKE KIND EXCHANGE. The Parties shall each have the option to
complete all or a portion of the transactions contemplated by this
Agreement as part of a like kind deferred exchange under Section 1031
of the Internal Revue Code of 1986, as amended (like kind exchange).
The Parties agree to cooperate in documenting and completing such
exchange, including, without limitation, consenting to an assignment
of all or a portion of a Party's rights, title, interest, duties or
obligations under this Agreement to a third party accommodator or a
qualified intermediary; provided, however, that neither party shall
incur any additional costs, obligations, or liability of any kind by
reason of the other Party's exercise of this option.
ASSET PURCHASE AND SALE AGREEMENT PAGE 43
<PAGE> 44
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SELLER'S SELLER:
TAX ID NO. 73-0739973
UNION PACIFIC RESOURCES COMPANY
By: /s/ Joseph F. Carroll
---------------------------------
Joseph F. Carroll
Attorney-in-Fact
BUYER'S BUYER:
TAX ID NO. 84-1120323
UNITED STATES EXPLORATION, INC.
By: /s/ Bruce D. Benson
----------------------------
Bruce D. Benson
Chairman, CEO, President
ASSET PURCHASE AND SALE AGREEMENT PAGE 44
<PAGE> 45
EXHIBITS
"A" Schedule of Wells
"A-1" Leases to be Assigned
"A-2" Leases to be Issued
"B" Schedule of Upside Locations
"C" Purchase Price Allocation
"D-1" Assignment, Bill of Sale and Conveyance
"D-2" Oil and Gas Lease
"E" Transition Agreement
"F" Gas Imbalances
"G" Pertinent Contracts
<PAGE> 46
EXHIBIT "A"
Schedule of Wells
[List of wells to be acquired]
<PAGE> 47
EXHIBIT "A-1"
Leases to be Assigned
[List of existing leases in which Seller is lessee to be assigned to Buyer]
<PAGE> 48
EXHIBIT "A-2"
Leases to be Issued
[List of fee mineral interests owned by Seller on which leases are to be issued
to Buyer]
<PAGE> 49
EXHIBIT "B"
Schedule of Upside Locations
[List of upside locations to be acquired by Buyer]
<PAGE> 50
EXHIBIT "C"
Purchase Price Allocation
[Allocation of purchase price among wells acquired]
<PAGE> 51
EXHIBIT "D-1"
Attached to and made a part of Asset Purchase Agreement,
dated April 9, 1998, by and between
UNION PACIFIC RESOURCES COMPANY, as Seller, and
UNITED STATES EXPLORATION, INC., as Buyer.
ASSIGNMENT, BILL OF SALE AND CONVEYANCE
THIS ASSIGNMENT, BILL OF SALE AND CONVEYANCE (the "Assignment") is
executed by UNION PACIFIC RESOURCES COMPANY, a Delaware corporation, whose
address is P. O. Box 7, Fort Worth, Texas 76101-0007 (hereinafter called
"Assignor"), to UNITED STATES EXPLORATION, INC., a Colorado corporation, whose
address is 1560 Broadway, Suite 1960, Denver, Colorado 80202 (hereinafter called
"Assignee"), dated effective at 7:00 a.m., local time, on January 1, 1998
(hereinafter called the "Effective Date"). Assignor and Assignee are sometimes
referred to collectively as the "Parties" or each individually as a "Party".
Capitalized terms used but not otherwise defined herein shall have the meanings
set forth in that certain Asset Purchase and Sale Agreement, dated April 9,
1998, (the "Agreement"), by and between Assignor and Assignee.
ARTICLE I
CONVEYANCE OF PROPERTIES
Assignor, for Ten and No/00 Dollars ($10.00) and other good and
valuable consideration in hand paid by Assignee, the receipt and sufficiency of
which is hereby acknowledged and confessed, by these presents does hereby GRANT,
BARGAIN, SELL, CONVEY, ASSIGN, TRANSFER, SET OVER AND DELIVER unto Assignee all
of Assignor's right, title and interest in and to the following described
properties (except to the extent constituting Excluded Assets, as herein
defined):
(I) The wells for the production of crude oil, natural gas,
casinghead gas, coalbed methane, condensate, helium, sulphur,
SO2, CO2, natural gas liquids and other gaseous and liquid
hydrocarbons or any combination thereof (all such substances
are collectively referred to as"Hydrocarbons"), which are
listed in Exhibit "A" hereto (the "Wells");
(ii) The oil and gas leases or oil, gas and mineral leases
described on Exhibit "A-1" hereto (the "Leases") and all of
the lands covered by the Leases (the "Lands");
(iii) All unitization, communitization, pooling agreements, working
interest units created by operating agreements, and orders
covering the Lands, and/or lands pooled or unitized therewith,
or any portion thereof, and the units and pooled or
communitized areas created thereby (the "Units");
<PAGE> 52
(iv) all of the tangible personal property, tools, machinery,
materials, pipelines, gas plants, gathering systems,
equipment, fixtures and improvements, which are incident or
attributable to the Wells, Leases, Lands and/or Units, or with
the production, treatment, sale or disposal of Hydrocarbon or
water produced therefrom or attributable thereto, on the
Effective Date, less any Equipment sold in the ordinary course
of business since that date and replaced with equipment of
comparable or better value and utility, and plus such
replacement equipment (the "Equipment");
(v) All of the licenses, permits, contracts, agreements and other
instruments owned by Assignor (other than bonds posted by
Assignor) which concern and relate to any of the Wells,
Leases, Lands, and/or Equipment, INSOFAR AND ONLY INSOFAR as
same concern or relate to the Wells, Leases, Lands, and/or
Equipment, or the operation thereof; including, without
limitation, oil, gas and condensate purchase and sale
contracts; permits; rights of way; easements; licenses;
servitudes; estates; surface leases; farmin and farmout
agreements; division orders and transfer orders; bottomhole
agreements; dry hole agreements; area-of-mutual-interest
agreements; salt water disposal agreements; acreage
contribution agreements; operating agreements; balancing
agreements; unit agreements; pooling agreements; pooling
orders; communitization agreements; processing, gathering,
compression and transportation agreements; facilities or
equipment leases relating thereto or used or held for use in
connection with the ownership or operation thereof or with the
production, treatment, sale or disposal of Hydrocarbons; and
all other contracts and agreements related to the Wells,
Leases, Lands, and/or Equipment;
(vi) All Records, and to the extent transferable, all other
contract rights, intangible rights (excluding Assignor's
trademarks and service marks), inchoate rights, chooses in
action, rights under warranties made by prior owners,
manufacturers, vendors or other third parties, and rights
accruing under applicable statutes of limitation or
prescription, attributable to the Assets; and
(vii) All payments, and rights to receive payments, with respect to
the ownership of the production of Hydrocarbons from or the
conduct of operations on the Assets and the interest to be
conveyed to Assignee hereunder accruing after the Effective
Date.
Assignor hereby EXCEPTS and RESERVES from this Assignment in favor of
itself, its successors and assigns, forever, the following rights, titles and
interests (collectively, the "Excluded Assets"), unless otherwise provided for
in the Agreement:
(I) All cash, deposits, checks, funds, accounts receivable, notes
receivable, or similar items attributable to the Assets with
respect to any period of time prior
<PAGE> 53
to the Effective Date, except for those funds in suspense
accounts to be delivered to Assignee pursuant to the
Agreement;
(ii) All Hydrocarbon production from or attributable to the Assets
with respect to all periods prior to the Effective Date and
all proceeds attributable thereto, and all Hydrocarbons that,
at the Effective Date, are owned by Assignor and are above
pipeline connection and in storage or otherwise held in
inventory and all proceeds attributable thereto;
(iii) All fee mineral interests and fee royalty interests owned by
Assignor;
(iv) Assets conveyed to third parties pursuant to Preference Rights
or retained by Seller because of the failure to obtain, comply
with or otherwise satisfy a Transfer Requirement;
(v) For each Lease assigned hereunder, there is reserved to
Assignor an overriding royalty equal to the excess, if any, of
17.5% of 8/8ths of production from such Lease over the
aggregate burdens of record. In no event shall any overriding
royalty reserved by Assignor herein cause the net revenue
interest under a lease to be less than 82.5%. The overriding
royalty reserved hereby:
a. Shall be free and clear of all costs of production,
but shall bear its share of taxes applicable to said
interest and the production therefrom;
b. Shall be payable out of and only out of the oil and
gas produced, saved and marketed, pursuant to the
terms and provisions of the leases described in
Exhibit "A-1";
c. Shall not, in any event, be paid or accrued upon any
oil, gas, casinghead gas, and associated hydrocarbons
used for operating, development, or production
purposes benefitting the lands described on Exhibit
"A-1", or unavoidably lost; and no overriding royalty
shall be paid upon gas or casinghead gas used for
repressuring or recycling operations or pressure
maintenance operations benefitting said lands until
such gas or casinghead gas is sold;
d. Shall bear its proportionate share of actual incurred
arm's length transportation, separation, dehydration,
compression, gathering, treating, third party
marketing, processing costs and any other such costs
required to make the oil, gas, casinghead gas, and
associated hydrocarbons marketable; and
<PAGE> 54
e. Shall be reduced proportionately if any oil and gas
lease described on Exhibit "A-1" covers less than the
full mineral estate and if Assignor conveys less than
the entire leasehold interest therein; and
(vi) All geophysical, seismic and other technical data and
interpretations.
The rights, titles and interests granted, bargained, sold, conveyed,
assigned, transferred, set over and delivered pursuant to this Article I are
herein collectively called the "Assets".
TO HAVE AND TO HOLD the Assets unto Assignee, its successors and
assigns, forever.
ARTICLE II
DISCLAIMER OF REPRESENTATIONS AND WARRANTIES;
PERMITTED ENCUMBRANCES
EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT, THE ASSETS ARE ASSIGNED AND
CONVEYED TO ASSIGNEE WITHOUT ANY WARRANTY OF TITLE, EITHER EXPRESS OR IMPLIED,
AND WHETHER BY COMMON LAW, STATUTE OR OTHERWISE, EXCEPT THAT ASSIGNOR HEREBY
WARRANTS GOOD AND DEFENSIBLE TITLE (AS DEFINED IN THE AGREEMENT) TO THE ASSETS
AGAINST ANY PERSONS OR PARTIES CLAIMING TITLE BY, THROUGH OR UNDER ASSIGNOR;
PROVIDED, HOWEVER, THIS ASSIGNMENT IS MADE WITH FULL SUBSTITUTION AND
SUBROGATION OF THE ASSIGNEE, AND ALL PERSONS CLAIMING BY, THROUGH AND UNDER
ASSIGNEE, IN AND TO ALL COVENANTS AND WARRANTIES BY THE ASSIGNOR'S PREDECESSORS
IN TITLE, AND WITH FULL SUBROGATION OF ALL RIGHTS ACCRUING UNDER THE STATUTES OF
LIMITATION OR PRESCRIPTION UNDER THE LAWS OF THE STATE IN WHICH THE ASSETS ARE
LOCATED. EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT, ALL PERSONAL PROPERTY,
EQUIPMENT, FIXTURES, AND APPURTENANCES CONSTITUTING A PORTION OF THE ASSETS ARE
ASSIGNED TO ASSIGNEE "AS IS, WHERE IS". WITHOUT LIMITATION OF THE GENERALITY OF
THE IMMEDIATELY PRECEDING SENTENCE, ASSIGNOR EXPRESSLY DISCLAIMS AND NEGATES ANY
REPRESENTATION OR WARRANTY, WHETHER EXPRESS OR IMPLIED, AND WHETHER BY COMMON
LAW, STATUTE, OR OTHERWISE, AS TO (A) MERCHANTABILITY, (B) FITNESS FOR A
PARTICULAR PURPOSE, (C) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, AND/OR (D)
CONDITION, EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT.
ARTICLE II
MISCELLANEOUS
Section 3.01. Successors and Assigns. All of the provisions hereof
shall inure to the benefit of and be binding upon the respective successors and
assigns of Assignor
<PAGE> 55
and Assignee. All references herein to either Assignor or Assignee shall include
their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be executed to be effective as of the Effective Date.
Assignor:
UNION PACIFIC RESOURCES COMPANY
By:
------------------------------------
Joseph F. Carroll
Attorney-in-Fact
Assignee:
UNITED STATES EXPLORATION, INC.
By:
------------------------------------
Bruce D. Benson
Chairman, CEO, President
<PAGE> 56
STATE OF TEXAS )
)
COUNTY OF TARRANT )
The foregoing instrument was acknowledged before me this 15th day of
May, 1998, by Joseph F. Carroll, Attorney-in-Fact of UNION PACIFIC RESOURCES
COMPANY, a Delaware corporation, on behalf of the corporation.
Witness my hand and official seal.
---------------------------------
Signature
SEAL
---------------------------------
Name (Print)
My commission expires
------------
STATE OF )
----------- )
COUNTY OF )
-----------
The foregoing instrument was acknowledged before me this 15th day of
May, 1998, by Bruce D. Benson, Chairman, CEO and President of UNITED STATES
EXPLORATION, INC., a Colorado corporation, on behalf of the corporation.
Witness my hand and official seal.
---------------------------------
Signature
SEAL
---------------------------------
Name (Print)
My commission expires
------------
<PAGE> 57
EXHIBIT "D-2"
ATTACHED TO AND MADE A PART OF ASSET PURCHASE AND SALE AGREEMENT, DATED APRIL 9,
1998, BY AND BETWEEN UNION PACIFIC RESOURCES COMPANY, AS SELLER, AND UNITED
STATES EXPLORATION, INC., AS BUYER.
OIL AND GAS LEASE
THIS LEASE made as of April 30, 1998, between UNION PACIFIC LAND
RESOURCES CORPORATION, a corporation, whose address is P. O. Box 7, Fort Worth,
Texas 76101-0007, as Lessor, and UNITED STATES EXPLORATION, INC., a corporation,
whose address is 1560 Broadway, Suite 1900, Denver, Colorado 80202, as Lessee.
W I T N E S S E T H :
(1) Lessor, for good and valuable consideration, receipt of which is hereby
acknowledged, and in consideration of the royalties herein provided and of the
agreement of Lessee herein contained and subject to the limitations herein
provided, grants, leases and lets unto Lessee for the purposes of investigating,
exploring, prospecting, drilling and mining for and producing oil and gas
[including, without limitation, nitrogen, carbon dioxide, hydrogen sulphide,
helium, and other gaseous substances (except steam) and products associated
therewith] and associated liquid hydrocarbons, and laying pipelines, building
tanks, power stations, telephone lines and other structures thereon to produce,
save, take care of, treat, refine, process, store, transport, own, sell and
dispose of said oil, gas and associated liquid hydrocarbons, ONE HUNDRED PERCENT
(100%) of Lessor's right, title and interest in and to the oil and gas in and
under the leased premises described as follows:
INSERT LEGAL DESCRIPTION
For shut-in royalty payment purposes, the land included in this lease shall be
deemed to contain __________________ acres, whether it actually comprises more
or less.
(2) This is a paid-up lease and there shall be no requirement for Lessee to
pay delay rentals.
(3) Subject to the other provisions herein contained, this lease shall be
for a primary term which expires at twelve o'clock (12:00) noon, Central Time,
on April 30, 2001, which term shall hereinafter be referred to as "the primary
term", and as long thereafter as oil, gas, or associated liquid hydrocarbons or
any of them are produced from the leased premises in paying quantities
hereunder, or drilling or reworking operations are conducted thereon under the
terms hereof.
(4) Subject to the right of election reserved to Lessor below to take its
share of production in kind, the royalties to be paid by Lessee are SEVENTEEN
AND ONE-HALF PERCENT (17.50%) of eight-eighths (8/8ths) of: (a) the greater of
the market value at the well or the amount realized from the sale of oil and
liquid petroleum products recovered at the well and (b) the market value at the
well of gas sold, used off the leased premises or delivered to Lessee at the
tailgate of the plant to which the gas is delivered, plus the market value of
the products recovered when such gas is processed; provided that on gas sold at
the well by Lessee in an arm's length transaction, the royalty shall be the same
percentage of the amount realized from such sale. For avoidance of doubt,
royalty is to be paid on all payments received by Lessee under or as a result of
a gas purchase contract, including, but not limited to reservation charges and,
subject to credit to Lessee when gas for which payment has been made earlier is
eventually produced, take-or-pay or contract settlement proceeds and amounts
paid for gas not
- 1 -
<PAGE> 58
taken. Lessee shall have free use of oil and gas from said land for operations
on the leased premises, and the royalty on oil and gas shall be computed after
deducting any production so used.
The royalties payable under this lease shall be free and clear of costs
or deductions for exploration, drilling, development, and production, including
but not limited to, costs of marketing, dehydration, storage, compression,
separation by mechanical means and stabilization of the hydrocarbons, but shall
include gathering and transportation costs required to transport the gas to the
plant. If Lessee treats and/or processes its gas in a natural gas plant (either
on or off the leased premises), whether in Lessee's plant or in the plant of and
under contract with a third party, Lessee shall treat and/or process or cause
Lessor's gas to be treated and/or processed. In the event of any such treating
and/or processing, Lessee shall be entitled to deduct from the value of the
products recovered by the treating and/or processing of the gas, or if Lessor is
taking its production in kind to charge Lessor for, the actual costs incurred by
Lessee for such treating and/or processing, which costs shall include gathering
or transportation costs required to transport the gas to the plant.
If there is a gas well on the leased premises or on land pooled
therewith capable of produc ing in paying quantities, but from which gas is not
being sold, and in the absence of oil or other production from the leased
premises or on land pooled therewith sufficient to maintain this lease in full
force and effect, this lease shall be extended for a period of ninety (90) days
from the date such well is or was shut-in, whereupon this lease shall terminate
unless Lessee shall pay to Lessor as royalty, a sum equal to One Dollar ($1.00)
per net acre covered by this lease, which payment shall be made to Lessor at
P.O. Box 7, Fort Worth, Texas 76101-0007, ATTN: Manager, Land Administration, on
or before the ninetieth (90th) day from and after the date on which such well is
or was shut-in, and annually thereafter a similar payment may be made on or
before the anniversary date on which such well was shut-in. If such payment, or
payments, are timely made, it shall be considered that gas is being produced in
paying quantities from the leased premises under all the terms and provisions of
this lease (but only for so long as the well continues to be capable of
producing in paying quantities); however, this lease may not be maintained by
shut-in payments more than three (3) (cumulative) years during any five (5) year
period.
Lessee shall be obligated to use diligence to market gas capable of
being produced in paying quantities from a shut-in well, but shall be under no
obligation to market same under terms, conditions or circumstances which are
unreasonable.
(5) Lessee may at any time execute and place of record a release or releases
covering any portion or portions of the above described leased premises,
furnishing a copy thereof to Lessor, and thereby surrender this lease as to such
portion or portions and be relieved as to the acreage surrendered of all
obligations not arising from activities of Lessee prior to said release. Upon
the expiration of any portion of this lease, Lessee shall promptly record an
appropriate, legally effective release or releases of said expired portion and
provide Lessor a copy of the recorded instrument within ninety (90) days of said
expiration.
(6) If Lessee is drilling a new well or reworking an old well at the
expiration of the primary term, this lease shall continue in force as long as
such drilling or reworking operations are prosecuted with no cessation of more
than ninety (90) days, and if such drilling or reworking operations result in
production of oil or gas or associated liquid hydrocarbons in paying quantities,
then for so long thereafter as such production in paying quantities continues or
this lease is otherwise maintained in full force and effect under the provisions
hereof. If production on this lease ceases after the expiration of the primary
term, this lease shall continue in force if drilling or reworking operations are
commenced within sixty (60) days after such cessation of production; and if
production is restored or new production is discovered as a result of any such
drilling or reworking operations, conducted without cessation of more than
ninety (90) days, this lease shall continue so long thereafter as production in
paying quantities, or additional drilling
- 2 -
<PAGE> 59
or reworking operations are had without cessation of such production, drilling
or reworking operations for more than ninety (90) consecutive days.
(7) At the expiration of the primary term, this lease shall terminate as to
all land which is not located in a drillsite spacing unit (as hereinafter
defined) in which there is a well on the leased premises or on land pooled
therewith, producing oil or gas in paying quantities, or a shut-in gas well, and
in any such producing drillsite spacing unit or units, this lease shall
terminate as to those depths lying below the stratigraphic equivalent of the
deepest producing horizon in each drillsite spacing unit of land. For purposes
hereof, drillsite spacing unit is defined as the minimum amount of land included
in the drilling and production unit established under then-existing rules
established by the state or federal regulatory authority having jurisdiction for
the then-productive formation of the well; if no unit or spacing rule exists,
then drillsite spacing unit shall be defined as the eighty (80) acre tract
surrounding an oil well or three hundred twenty (320) acre tract surrounding a
gas well. If Lessee is engaged in actual drilling or reworking operations on the
leased premises or land pooled therewith at the expiration of the primary term,
this provision shall be suspended for so long as Lessee continues such drilling
or reworking operations on the leased premises or land pooled therewith with no
cessation of more than ninety (90) consecutive days between the completion or
abandonment of such drilling or reworking operations on one (1) well, and the
commencement of actual drilling or reworking operations on the next well;
provided, further, that irrespective of any such continuous drilling or
reworking operations, the termination of this lease as to non-producing land and
depths shall not be suspended for more than five (5) years from the expiration
of the primary term hereof. If the leased premises are included in a Federal
Unit then for the purposes of this provision the references to land pooled with
the leased premises shall include only that land which is included in an
approved participating area.
(8) Lessee, at its option, is hereby given the right and power to pool or
combine the leased premises or any portion thereof, as to oil and gas, or either
of them, with any other land, lease or leases, when in Lessee's judgment it is
necessary or advisable to do so in order to properly develop and operate the
leased premises. Any such pooling shall be into a well unit or units not
exceeding eighty (80) acres, plus an acreage tolerance of ten percent (10%), for
oil, and not exceeding three hundred twenty (320) acres, plus an acreage
tolerance of ten percent (10%), for gas, except that larger units may be created
to conform to any spacing or well unit pattern that may be prescribed by state
governmental authorities having jurisdiction. Lessee may pool or combine acreage
covered by this lease, or any portion thereof, as above provided, as to oil or
gas in any one or more strata, and oil units need not conform as to area with
gas units. The pooling in one (1) or more instances shall not exhaust the right
of the Lessee hereunder to pool this lease or portions thereof into other units.
Lessee shall execute in writing and place of record an instrument or instruments
identifying and describing the pooled acreage. In order to be effective, Lessee
shall promptly furnish to Lessor a copy of the document pooling the acreage. The
entire acreage so pooled into a unit shall be treated for all purposes, except
the payment of royalties, as if it were included in this lease, and drilling and
reworking operations thereon, and production of oil and gas therefrom, or the
completion thereon of a well as a shut-in gas well, shall be considered for all
purposes, except the payment of royalties, as if such operations were on, or
such production were from, or such completion were on the leased premises,
whether or not the well or wells be located on the leased premises. In lieu of
the royalties elsewhere herein provided, Lessor shall receive from a unit so
formed, only such portion of the royalty stipulated herein as the amount of its
net mineral acres placed in the unit bears to the total acreage so pooled in the
particular unit involved. Should any unit as originally created hereunder
contain less than the maximum number of acres hereinabove specified, then Lessee
may at any time thereafter, whether before or after production is obtained on
the unit, enlarge such unit by adding additional acreage thereto, but the
enlarged unit shall in no event exceed the acreage content hereinabove
specified. In the event an existing unit is so enlarged, Lessee shall execute
and place of record a supplemental declaration of pooling identifying and
describing the land added to the existing unit; provided, that if such
supplemental declaration of pooling is not filed until after
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production is obtained on the unit as originally created, then and in such event
the supplemental declaration of pooling shall not become effective until the
first day of the calendar month next following the filing thereof and the
furnishing to Lessor of a copy of such supplemental declaration. In the absence
of production, Lessee may terminate the unitized area by filing with Lessor and
of record a notice of termination.
(9) Insofar as Lessor may grant such right, Lessee shall have the right at
any time during the term of this lease or within six (6) months after the
expiration of this lease to remove all property and fixtures placed by Lessee on
the leased premises, including the right to draw and remove all casing.
(10) The rights of Lessor may be assigned in whole or in part. This lease may
not be assigned by Lessee in whole or in part, without the prior written consent
of Lessor, which consent shall not be unreasonably withheld, taking into account
such factors as the credit-worthiness and technical competence of the assignee
and/or the proposed number of assignees. Consent shall also be deemed reasonably
denied if Lessee refuses to accept responsibility for the performance of any of
its successors in interest. Notwithstanding the foregoing, Lessee may pledge
this Lease pursuant to a mortgage, credit agreement or other security document,
and any pledgee of this Lease may acquire this Lease upon foreclosure or by sale
or assignment in lieu of foreclosure, provided, however, that any assignment of
this Lease by the pledgee following such acquisition shall be subject to the
consent requirement set forth in this Section 10. Lessor shall have ten (10)
days from receipt of Lessee's request for consent to assign pursuant hereto to
respond. Lessor's failure to respond within such ten (10) days shall be deemed
consent to assign as requested by Lessee. Any attempted assignment by Lessee of
the rights arising under this lease without such consent shall be void and of no
effect. No change in the ownership of the land, or any interest therein, shall
be binding on Lessee or any purchaser of production hereunder, until Lessee
shall be furnished with a certified copy of all recorded instruments, all court
proceedings, and all other necessary evidence of any transfer, inheritance, or
sale of said rights. Unless provided otherwise in Lessor's approval of an
assignment to be made by Lessee, Lessee shall continue to be responsible to
Lessor for all unpaid sums then due to Lessor and obligations under Section 16
below with respect to the assigned portion or portions having to do with
activities conducted prior to the date of assignment. In addition, the
assignment of this lease, in whole or in part, shall not be valid as to Lessor
until Lessor shall have been furnished a true and correct certified copy of such
assignment. No change or division in ownership of the land, shut-in payments, or
royalties, however accomplished, shall operate to enlarge the obligations or
diminish the rights of Lessee.
(11) All express or implied covenants of this lease shall be subject to all
applicable laws, orders, rules or regulations, and this lease shall not
terminate, in whole or in part, nor shall Lessee be held liable in damages for
failure to comply therewith, if compliance is prevented by, or if failure is the
result of any applicable law, order, rule or regulation, or if prevented by an
act of God, of the public enemy, or labor strikes.
(12) Lessee at its option may discharge any tax, mortgage, or other lien upon
the leased premises, either in whole or in part, and in the event Lessee does
so, it shall be subrogated to any lawful and enforceable rights of the prior
creditor with the right to enforce same and apply shut-in payments and royalties
accruing hereunder towards satisfying same. Except as provided in the
immediately preceding sentence, Lessee shall not acquire or attempt to acquire,
directly or indirectly, from any person other than Lessor, any rights or
interests in the oil and gas estate in the leased premises or take any action
inconsistent with or adverse to the ownership and quiet enjoyment by Lessor of
its oil and gas estate in the leased premises. If Lessor owns an interest in the
leased premises less than the entire fee simple estate, or if this lease covers
less than Lessor's entire interest in the leased premises, then the shut-in
payments and royalties to be paid Lessor shall be reduced proportionately. If
any portion of the leased
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premises is included in a pooled unit, the amount of the shut-in royalty
applicable to the Lessor's interest therein shall be based upon the amount of
Lessor's net mineral acres included in any such pooled unit upon which such gas
well is situated.
(13) The rights granted under this lease are granted WITHOUT WARRANTY,
EXPRESS OR IMPLIED, and without covenants of title, including, without
limitation, covenants to give possession or for quiet enjoyment.
(14) Without the prior written consent of the owner thereof, Lessee shall not
make any entry upon or under any portion of any railroad right-of-way or station
grounds for any of the purposes of this lease, and shall not drill any well or
maintain any structures or facilities within two hundred feet (200') (by surface
or subsurface measurement) of: (a) any railroad tracks or buildings on such
right-of-way, or station grounds, or (b) any buildings upon the leased premises.
(15) Lessee shall be responsible for injury to or loss or destruction of
property, and for injury to or death or illness of any person, arising out of or
in connection with operations hereunder. Lessee expressly agrees to and shall
assume all obligations and responsibility with respect to being in,
establishing, achieving, documenting, or reporting full compliance with any and
all applicable laws, orders, rules, regulations, and standards with respect to
pollution, the continued operation and eventual plugging, replugging, and
abandonment obligations of any unplugged or improperly plugged wells on the
leased premises or land pooled therewith.
(16) Without limiting the generality of Section 15, Lessee shall pay either
the tenant or the surface owner (whichever is appropriate) for any and all
damages to land, structures, roads, fences, gates, cattleguards, trees, growing
crops, irrigation facilities, equipment, and livestock caused by con struction,
operations, or maintenance of facilities, shall bury all pipelines below plow
depth where they cross cultivated land, shall construct gates where necessary
for crossing fenced lands and keep the gates in repair and closed. Lessee shall
not permit any lien or other encumbrance to be filed or to remain against the
leased premises as a result of operations hereunder. Irrespective of whether
Lessor has consented to an assignment, farmout or other arrangement whereby
Lessee consents to drilling or other operations on the leased premises by a
third party, Lessee shall be responsible for any and all claims, demands,
actions and causes of action or liens arising out of such operations, whether
arising in law, at equity or administratively.
(17) In the event of Lessee's breach of this lease, Lessor shall notify
Lessee by certified mail of such breach, and Lessee shall have thirty (30)
working days from the receipt thereof to comply with this lease. If Lessee fails
to remedy a material breach within the period above provided, and provided such
notice patently mentioned the termination rights next described, Lessor may, at
its option, promptly following such period terminate this lease and be relieved
from any obligation hereunder. If the parties are unable to agree upon whether
or not a breach is material, such determination shall be made by arbi tration.
If either party invokes its right to arbitration, then the parties shall attempt
to arbitrate the matter by selecting one arbitrator who is acceptable to both
parties. However, if the parties are unable to select one arbitrator who is
acceptable to both of them, then each party shall select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator. If the arbitration
is handled by a single arbitrator, the parties shall each pay one-half (l/2) of
the fees of the arbitrator, as well as one-half (l/2) of the costs and expenses
of the arbitration, excluding the costs and expenses of either party's
representatives, witnesses and attorneys. If three arbitrators are selected,
each party shall bear the costs and expenses of the fees of the arbitrator it
selects, and the two parties shall each pay one-half (1/2) of the fees of the
third arbitrator, as well as one-half (1/2) of the costs and expenses of the
arbitration, excluding the costs and expenses of either party's representatives,
witnesses and attorneys. Unless otherwise specifically agreed by both parties in
writing, the rules and procedures set forth in the
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<PAGE> 62
arbitration laws of the state in which the leased premises are located shall
govern the arbitration proceeding as fully as if all of such laws were set forth
in full herein. Irrespective of whether Lessor elects to terminate this lease or
exercise any other right or remedy under this lease or at law, Lessor shall be
entitled to other available remedies, including specific performance to require
Lessee to (a) abandon any well and/or restore the surface of the leased premises
to its condition existing prior to entry thereon by Lessee, (b) furnish any
reports required hereunder or information required hereunder from operations on
the leased premises or land pooled therewith, and/or (C) make any payment due
hereunder. Except as otherwise expressly provided in this lease, any notices or
other communications required or permitted hereunder shall be in writing and
shall be deemed given only when received by the party to whom the same is
directed at the address shown at the top of page 1 of this lease or to such
other address as is provided to the other party with proper notice. As to any
breach of this lease by Lessee or, except to the extent caused by the negligence
of Lessor, any claim or suit of a third party resulting from Lessee's activities
hereunder, Lessee shall indemnify and hold Lessor harmless against any expense,
including attorneys' fees and costs of court, preparation and investigation,
that Lessor would incur in enforcing its rights under this lease or defending
said third party claims.
(18) Subject to Section 10, all the provisions of this lease shall inure to
the benefit of and be binding upon the parties hereto, their successors and
assigns.
(19) This lease is subject to the exceptions and reservations set forth in:
(a) Quitclaim Deed(s), as applicable, dated as of April 1, 1971, from
Union Pacific Railroad Company to Union Pacific Land Resources
Corporation, filed for record April _____, 1971, and appearing in
Book_____, at Page _____, in the office of the County Clerk and
Register of Deeds of ________ County, _______________ (REC. No.
_______________) and
(b) Mineral Deed dated ____________________. 19___, from Union Pacific
Land Resources Cor poration to Lessor.
Lessee recognizes that among the exceptions and reservations set forth
in the above deeds are the rights of Lessor's predecessors in interest to use
such portions of the leased premises as may not be required for the proper
conduct of oil and gas operations for all purposes not inconsistent with such
operations and without liability for compensation or damages. Lessee shall so
conduct its operations so as not to interfere unreasonably with such reserved
use; provided, nevertheless, that such other use of the leased premises shall
not unreasonably interfere with the operations of the Lessee. UNLESS THE
REQUIREMENT IS WAIVED IN WRITING BY LESSOR AT ITS DISCRETION, NO ENTRY SHALL BE
MADE FOR DRILLING OPERATIONS AND NO FACILITY SHALL BE INSTALLED UPON ANY OF THE
LEASED PREMISES IN WHICH LESSOR OWNS THE MINERAL RIGHTS ONLY, UNTIL A WRITTEN
AGREEMENT WITH THE SURFACE OWNER HAS BEEN SECURED BY LESSOR, OR AT LESSOR'S
REQUEST, BY LESSEE, IN A FORM SATISFACTORY TO LESSOR. LESSEE SHALL REQUEST
LESSOR TO OBTAIN SUCH AGREEMENT OR TO WAIVE THE REQUIREMENT THEREFOR AT LEAST
THIRTY (30) DAYS PRIOR TO THE DATE LESSEE INTENDS TO COMMENCE SUCH OPERATIONS.
Payments out of or measured by production which the Lessor elects to pay to the
surface owners shall be paid by Lessor out of its royalty.
(20) Production in Kind: Lessor expressly reserves the right, at any time and
from time to time, to take in kind or separately dispose of its proportionate
share of all oil, gas, and related hydrocarbons produced from the leased
premises, or lands and leases unitized therewith. If Lessor elects, Lessee shall
deliver to Lessor in kind Lessor's royalty share of oil and other liquid
hydrocarbons saved at the well, into storage tanks on the leased premises;
products recovered in a processing plant, into storage tanks or onto storage
sites at the plant; and gas, at the tailgate of the plant, if processed, or at
the well if the gas is sold at the well. In the event of such election, Lessor
shall give to Lessee not less than sixty (60) days notice of its election and
shall take said royalty share in kind for a period of not less than six (6)
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months following the termination of said sixty (60) day period. Any deliveries
of production are to be made from Lessee's facilities at times and amounts which
equitably adjust deliveries between the parties.
(21) Oil Production: In addition to the rights reserved by Lessor in the
immediately preceding paragraph, Lessor and Lessee agree that Lessor shall have
the right, at any time and from time to time, upon not less than 30 days'
advance written notice to Lessee, to purchase all or any part of the oil (which
term as herein used shall include crude oil, distillate, condensate, and other
liquid hydrocarbons) produced and saved from or attributable to the leased
premises, on Lessor's standard division order terms. The price payable for the
oil contained in a delivery pursuant hereto shall not be less than the market
price in the field at the time of delivery for oil of like grade and gravity
produced in the same field in which the well is located. In the event oil is
found on the leased premises or on lands pooled therewith, Lessee shall
immediately notify Lessor in writing at Union Pacific Resources Company, ATTN:
Crude Oil Sales, P. O. Box 7, Fort Worth, Texas 76101-0007.
(22) Gas Production: Lessor and Lessee further expressly agree that in the
event gas is produced from or attributable to the leased premises, Lessor shall
have a right of first refusal to purchase any or all of such gas which is
attributable to the leased premises which Lessee is not selling under contracts
of a month's duration or less. Under such right of first refusal, Lessee shall
notify Lessor in writing of any bona fide offer for the purchase of its gas for
a term greater than a month which it is willing to accept, furnishing the terms
thereof, and Lessor shall have the right within 30 days of the receipt of such
notice and information to elect to purchase the gas on the same terms and
conditions as those contained in the bona fide offer. In the event Lessor elects
not to exercise its right to purchase under its right of first refusal, then
Lessee may, within 60 days thereafter, enter into a contract to sell the gas to
such purchaser in accordance with said bona fide offer. If, however, Lessee does
not timely enter into such contract with such purchaser (or if, for any reason,
a sale of gas pursuant to such contract is discontinued) then this right of
first refusal to purchase gas shall be reinstated subject to the terms and
conditions set forth herein. For purposes hereof, an offer shall not be
considered as a bona fide offer when the offer is made by an affiliated company
of Lessee.
In the event that after a reasonable time (not exceeding 30 days)
following the completion of a well capable of producing gas there is no bona
fide offer to purchase the gas which is to be produced from or attributable to
the leased premises, then Lessee shall notify Lessor in writing of that fact,
and Lessor shall have the right, but not the obligation, to purchase such gas at
the Market Price. As used herein the term "Market Price" shall mean the
arithmetic average of the prices reported in the first issue of the month of
delivery for the price references included in the Market Price Index applicable
to a point of delivery, to be designated by Lessee, less the transportation,
compression, gathering and other costs, if applicable, to deliver gas from such
point of delivery to the mainline transmission point or points where such Market
Price Index is established. As used herein, the term "Market Price Index" for a
particular point of delivery shall mean the published price references, to be
designated by Lessee, which reflect the price paid for gas sold under spot
contracts between unaffiliated third parties into one or more mainline
transmission systems which represent a market for the gas purchased by Lessee at
such point of delivery. If the parties disagree on which price references should
be included in the Market Price Index for a particular point of delivery, then
the determination of the proper price references for the Market Price Index
shall be submitted to arbitration. If Lessor does not make an offer to purchase
the gas, or does not elect to purchase the gas at the Market Price, then
Lessor's right of first refusal shall be reinstated with respect to any bona
fide offer subsequently received by Lessee. In the event gas is found on the
leased premises or on lands pooled therewith, Lessee shall immediately notify
Lessor in writing at Union Pacific Resources Company, ATTN: Natural Gas Sales,
P. O. Box 7, Fort Worth, Texas 76101-0007.
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<PAGE> 64
If either party invokes its right to arbitration, then the parties shall
arbitrate the matter by selecting one arbitrator who is acceptable to both
parties. However, if the parties are unable to select one arbitrator who is
acceptable to both of them, then each party shall select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator. If the arbitration
is handled by a single arbitrator, the parties shall each pay one-half (l/2) of
the fees of the arbitrator, as well as one-half (l/2) of the costs and expenses
of the arbitration. If three arbitrators are selected, each party shall bear the
expense of the fees of the arbitrator it selects, and the two parties shall each
pay one-half (1/2) of the fees of the third arbitrator, as well as one-half
(1/2) of the costs and expenses of the arbitration. The jurisdiction of the
arbitrators will be limited to determining which published price references are
consistent with the parties intent that the Market Price Index will reflect the
prices paid for gas sold under spot contracts between unaffiliated third parties
into mainline transmission systems which represent a market for the gas
purchased by Lessor at the point of delivery. Unless otherwise specifically
agreed to by both parties in writing, the rules and procedures set forth in the
Arbitration Laws of the State of Colorado shall govern the arbitration
proceeding as fully as if all of such laws were set forth in full herein.
(23) If Lessor fails to take its production in kind and Lessee sells such
production for the account of Lessor, Lessee shall use its best efforts to pay
Lessee within 45 days of its receipt of an executed division order. In the event
Lessee does not receive payment within 45 days after Lessee's receipt of the
executed division order, Lessor may elect to receive interest on the unpaid
proceeds in the amount provided under Colorado Revised Statutes Vol. 14, Sec.
34-60-118.5. Lessor reserves the right, but not the obligation, to collect from
the purchaser the proceeds from any sale of production from the leased premises
in order to insure the proper division thereof; after deducting the portion of
such proceeds to which Lessor and any other party may be entitled, Lessor shall
remit to Lessee its portion of the proceeds thus collected.
(24) Lessor reserves the right, but not the obligation, to collect from the
purchaser thereof the proceeds of production attributable to Lessor's interest
in the leased premises from any sale of production therefrom.
(25) Lessor shall be given fifteen (15) days notice prior to commencement of
all drilling operations. Lessor's representative (as appointed by Lessor) shall
have the right, at Lessor's risk, to have access to the derrick floor and to
observe all operations on all wells drilled on the leased premises or land
pooled therewith. Lessee shall promptly furnish Lessor's representative with not
less than one copy of all applications and reports pertaining to the leased
premises, of each daily drilling report, and of each well log, core analysis or
other data taken from wells located on the leased premises. Lessee agrees, at
Lessor's request, to furnish Lessor's representative true and correct
information pertaining to each well, the production therefrom [including true
and complete copies of all contracts or agreements (and all amendments and
modifications thereof) for sale, processing or other disposition of any product
produced from the leased premises] and such technical information as Lessee may
acquire with respect to sands and formations encountered. Lessor's
representative shall have the right to be present when wells are tested and/or
tanks are gauged and shall have the right to examine all run tickets and to have
full information as to production and runs, including copies of all run tickets
upon request. In the event Lessee notifies Lessor in writing that Lessee
considers any such information or data to be confidential, Lessor agrees, until
the termination of this lease or for a period not to exceed the period that a
particular matter is held confidential by the state agency, whichever is the
shorter period of time, not to disclose such information or data to any
third-party unless such information or data previously has been available to or
examined by the third-party or otherwise generally available to the public or
any governmental authority or agency other than the state agency. This shall not
be interpreted to require Lessee to furnish Lessor or Lessor's representative
with any interpretive information or data; or any information or data which
Lessee is obligated to keep confidential.
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<PAGE> 65
(26) All operations on the leased premises shall be conducted so as not to
damage any water supply. However, in the event Lessee's operations shall result
in damage or destruction of any water supply, Lessee promptly shall repair,
restore or replace any well, tank, surface pond or other water facility or any
water supply so damaged or destroyed as a result of Lessee's operations. Lessee
shall provide to Lessor and/or surface tenant emergency water and water
facilities for use in either's operations until
such damage or destruction is repaired, restored and replaced. The words
"damage" and "destroy" shall also be construed to include contamination.
Contamination is defined to mean the addition of substances to any water supply
used for human or animal consumption to a degree which renders the water supply
unfit for consumption by humans or animals, either during Lessee's operations or
after such operations have ceased. Without limitation of the general
requirements stated above, Lessee agrees, with reference to each well drilled on
the leased premises, either to (a) set and circulate cement around sufficient
surface casing to penetrate and adequately protect all fresh water sands; or (b)
set and circulate cement around surface casing in a manner and to a depth
acceptable to the state agency and, in the event a second string of casing
(either intermediate or production casing) is set in such well, circulate cement
around such second string of casing with cement circulated either to the surface
or into the surface casing previously set in such well; or (c) utilize such
other technique as may be acceptable to the state agency and in conformance with
accepted practices in the industry to assure the protection of the fresh water
sands by placing cement in the annulus between the fresh water sands and the
casing.
(27) In the event a well producing oil or gas in paying quantities is
completed on lands in which Lessor does not own all of the oil and gas mineral
estate within six hundred and sixty (660) feet of or draining the leased
premises, Lessee shall, unless Lessee has already drilled or is drilling a well
to the same zone or zones as are producing in the draining well and which a
prudent operator would consider to have previously satisfied or to soon satisfy
this offset obligation, within ninety (90) days after the commencement of
production from such draining well, commence the drilling or recompletion of an
offset well on the leased premises and shall make a good faith effort to
establish commercial production in the sands or formations from which the
draining well is producing. If at the time such offset obligation accrues,
Lessee shall be engaged in the drilling of another well on the leased premises,
then Lessee shall have not more than thirty (30) days after the date of
completion or abandonment of such other well drilled by Lessee within which to
commence the actual drilling of such offset well. If Lessee fails to timely
drill a required offset well, it shall promptly surrender this lease except as
to existing wellbores and reasonable use of the surface for ingress and egress,
operations in the immediate vicinity of the surface location of the wells, and
necessary telephone, pipeline, and utility easements.
(28) In the event that Lessee, during the term of this lease, should conduct
geophysical activities upon the leased premises, Lessee shall promptly furnish
Lessor for the entirety of each survey, shot point plats and elevations,
observer's notes, surveyor's notes, copies of all field tapes, reproducible copy
and one print of each final stacked section for each line and copies of any
other processed or unprocessed data made available to Lessee.
(29) Lessee shall carry the following insurance in the indicated amounts:
(a) Comprehensive General Liability Insurance, including contractual
liability, with a combined single limit per occurrence of not less
than $1,000,000.00 for bodily injury and property damage.
(b) Comprehensive Automobile Insurance, including hired and non-owned
vehicles, with a combined single limit per occurrence of not less
than $1,000,000.00 for bodily injury and property damage.
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<PAGE> 66
(c) Liability Umbrella (excess of underlying insurance coverage
mentioned above) with a combined limit per occurrence coverage of
not less than $10,000,000.
(d) Well Control Insurance including underground blowout, seepage and
pollution, with a minimum limit of $5,000,000.
Lessee shall require each independent contractor and subcontractor to
carry and maintain insurance at its own expense in amounts deemed necessary to
cover the risks inherent to the work or services to be performed by the
contractor or subcontractor. Every such insurance policy shall contain a waiver
on the part of the insurance carrier of all rights, by subrogation or otherwise,
against Lessor.
Lessor shall also be named as additional insured in each such policy.
(30) Lessor may, at any time, require Lessee to provide a bond(s) to ensure
timely and proper performance of Lessee's obligations hereunder and/or at law
for abandonment of well(s) and restoration of the leased premises and/or to
provide Lessor letter(s) of credit (which shall allow reduction as work is
performed) to ensure payment of contractors performing drilling or other
operations hereunder.
(31) If the leased premises are hereafter owned in severalty or in separate
tracts, the leased premises, nevertheless, shall be developed and operated as an
entirety, and royalties shall be paid to each separate owner in the proportion
that the acreage owned by said owner bears to the entire leased premises.
(32) Without the prior written consent of Lessor, Lessee shall not abandon
any well or (except when a replacement is made) remove from the wellbore any
well casing, tubing, piping, fittings, tanks, pipe lines or other material and
equipment which are necessary for the recovery and handling of production
capable of being recovered from said well upon the leased premises. If Lessor
takes over the well, Lessor shall promptly reimburse Lessee for the salvage
value of all material and equipment in the well or used or acquired in
connection with the well which Lessor elects to retain for its operations, less
the estimated costs of salvaging and less the estimated costs of plugging and
abandoning the well, and Lessee shall promptly deliver a bill of sale to Lessor
for such material and equipment. If Lessor takes over the well, then Lessee
shall be deemed to have relinquished and transferred back to Lessor, free of any
burdens created by Lessee, all of the right, title and interest of Lessee in the
wellbore, such material and equipment and the production therefrom. If the well
taken over by Lessor is the only well serving to perpetuate this lease, Lessee
shall release this lease to Lessor.
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<PAGE> 67
IN WITNESS WHEREOF, this lease is executed on the date of the respective
acknowledgments hereinbelow, but shall be effective from the date first
hereinabove written.
UNION PACIFIC RESOURCES COMPANY
By:
-------------------------------------
Joseph F. Carroll
Its: Attorney-in-Fact
UNITED STATES EXPLORATION, INC.
By:
-------------------------------------
Shirley R. Kovar
Its: Attorney-in-Fact
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<PAGE> 68
STATE OF TEXAS )
)
COUNTY OF TARRANT )
The foregoing instrument was acknowledged before me this 30th day of April,
1998, Joseph F. Carroll, Attorney-in-Fact of UNION PACIFIC RESOURCES COMPANY, a
Delaware corporation, on behalf of the corporation.
Witness my hand and official seal.
-------------------------------------
Signature
SEAL Name: TENA PRUITT
My commission expires: SEPTEMBER 21, 1998
STATE OF TEXAS )
)
COUNTY OF TARRANT )
The foregoing instrument was acknowledged before me this 30th day of April,
1998, by Shirley R. Kovar, Attorney-in-Fact of UNITED STATES EXPLORATION, INC.,
a Colorado corporation, on behalf of the corporation.
Witness my hand and official seal.
--------------------------------------
Notary Public
SEAL Name: TENA PRUITT
My commission expires: SEPTEMBER 21, 1998
- 12 -
<PAGE> 69
EXHIBIT "E"
Transition Agreement
[Ommitted]
<PAGE> 70
EXHIBIT "F"
Gas Imbalances
[Listed positive and negative gas imbalances for wells acquired]
<PAGE> 71
EXHIBIT "G"
Pertinent Contracts
[List of contracts relating to oil and gas interests acquired]
<PAGE> 1
EXHIBIT 2.2
AMENDMENT TO ASSET PURCHASE AND SALE AGREEMENT
This Amendment to Asset Purchase and Sale Agreement ("Amendment") is
entered into as of May 14, 1998, by and between UNION PACIFIC RESOURCES COMPANY,
a Delaware corporation ("Seller") and UNITED STATES EXPLORATION, INC., a
Colorado corporation ("Buyer").
WHEREAS, Seller and Buyer entered into and Asset Purchase and Sale
Agreement dated April 9, 1998 (the "Agreement") which the Parties desire to
amend as set forth below.
NOW, THEREFORE, the Parties agree to amend the Agreement as follows:
A. Capitalized terms used in this Amendment shall have the
meanings defined in the Agreement.
B. Exhibits "A", "A-1", "A-2", "C", "D-1" and "D-2" to the
Agreement are deleted in their entirety and Exhibits "A",
"A-1", "A-2", "C", "D-1" and "D-2" attached to this Amendment
and made a part hereof are substituted in their place.
C. Article 2.01 of the Agreement is deleted and the following
provision substituted in its place:
2.01 SALE AND PURCHASE.
(a) INCLUDED ASSETS. Subject to the terms and conditions
of this Agreement and in consideration of Buyer's
payment to Seller of the Purchase Price as herein
provided, Buyer agrees to purchase from Seller, and
Seller agrees to sell and convey to Buyer, the
Assets.
(b) EXCLUDED ASSETS. Notwithstanding anything herein
provided to the contrary, the term "Assets" as used
in this Agreement shall not include, and there is
excepted, reserved and excluded from the sale
contemplated hereby (i) all cash, deposits, checks,
funds, accounts receivable, notes receivable, or
similar items attributable to the Assets with respect
to any period of time prior to the Effective Date,
except for those funds in suspense accounts to be
delivered to Buyer pursuant to Article 13.01(b)
hereof and except as provided in Article 13.02(e)
hereof; (ii) all Hydrocarbon production from or
attributable to the Assets with respect to all
periods prior to the Effective Date and all proceeds
attributable thereto, and all Hydrocarbons that, at
the Effective Date, are owned by Seller and are above
pipeline connection and in storage or otherwise held
in inventory and all proceeds attributable thereto;
(iii) all fee mineral interests and fee royalty
interests owned by Seller, provided, however, if all
or any portion of Seller's NRI in a Well listed in
Exhibit "A" or an Upside Location listed in Exhibit
"B" is attributable to a fee mineral interest or
<PAGE> 2
fee royalty interest, Seller shall convey to Buyer at
the Closing an oil, gas and mineral lease, in the
form and containing the terms and conditions set
forth in Exhibit "D-2" hereto, covering said fee
mineral interest or fee royalty interest for such
Well shown in Exhibit "A" or such Upside Location in
Exhibit "B"; (iv) Assets conveyed to third parties
pursuant to Preference Rights as provided in Article
18.01 or retained by Seller because of the failure to
obtain, comply with or otherwise satisfy a Transfer
Requirement as provided in Article 18.02; (v) for
each Lease assigned to Buyer, there is reserved to
Seller an overriding royalty equal to the excess, if
any, of 17.5% of 8/8ths of production from such Lease
over the aggregate burdens of record as more fully
described in the Exhibit "D-1"; and (vi) all
geophysical, seismic and other technical data and
interpretations specifically related to the Assets,
provided, however, that Seller agrees to provide
Buyer with a seismic license of any such data that
Seller is lawfully permitted to license at Closing.
Buyer agrees to pay Seller's costs to reproduce the
data covered thereby.
(c) WELD COUNTY PARTNERSHIP. Seller agrees to assign to
Buyer its partnership interest in the Weld County
Partnership Agreement entered into December 31, 1982,
between Champlin Petroleum Company and True Oil
Company (the "Weld County Partnership") on and
effective such date, if ever, that Seller's allocated
share of partnership income and costs is 91%. Upon
such assignment to Buyer, the Weld County Partnership
shall be deemed to be an Asset under this Agreement
and Buyer shall be subject to all leases, joint
operating agreements and other agreements with
respect thereto. Seller's obligations under this
Article 2.01 (c) shall be subject to any
Transfer Requirements.
D. Article 14 (a)-(d) of the Agreement is deleted and the
following provisions substituted in their place:
(a) REVENUES. Except as provided in Article 13.02(e), all
proceeds from production, accounts receivables, notes
receivables, income, revenues, monies and other items
attributable to the Assets with respect to any period
of time prior to the Effective Date shall belong to
and be retained by or paid over to Seller. All
proceeds from production, accounts receivables, notes
receivables, income, revenues, monies and other items
attributable to the Assets with respect to any period
of time from and after the Effective Date shall
belong to and be retained by or paid over to Buyer,
except for Hydrocarbons that, at the Effective Date,
are attributable to the Assets and are in storage or
are otherwise held in inventory and all proceeds
attributable thereto.
<PAGE> 3
(b) EXPENSES. All costs, expenses, accounts payable and
accrued liabilities attributable to the Assets with
respect to any period of time prior to the Effective
Date, shall be the obligation of and paid by Seller,
and all necessary reports with respect to such costs
and expenses shall be filed by Seller. All costs,
expenses, accounts payable and accrued liabilities
attributable to the Assets with respect to any period
of time from and after the Effective Date shall be
the obligation of and be paid by Buyer.
(c) AD VALOREM AND PROPERTY TAXES. All ad valorem taxes,
real property taxes, personal property taxes and
similar obligations shall be apportioned as of the
Effective Date between Buyer and Seller. All such
taxes allocable to the period prior to the Effective
Date shall be paid by Seller, and all such taxes
allocable to the period after the Effective Date and
after shall be paid by Buyer. Any refunds of taxes
allocable to periods prior to the Effective Date
shall be the property of Seller. Seller shall pay ad
valorem taxes for 1998 based on 1997 production, and
Buyer shall reimburse Seller for the lesser of 50% of
the amount of such taxes or $150,000. Buyer shall
file or cause to be filed all required reports and
returns incident to such taxes which relate to any
period ending after the Effective Date, and shall pay
or cause to be paid to the taxing authorities all
such taxes reflected on such reports and returns,
subject to Buyer's right to require Seller to pay any
portion thereof relating to a period prior to the
Effective Date under Article 14(g).
(d) SALES TAXES, FILING FEES, ETC. Buyer shall be liable
for any sales taxes or other transfer taxes, as well
as any applicable conveyance, transfer and recording
fees, and real estate transfer stamp or taxes imposed
upon the sale of the Assets. If Seller is required by
applicable state law to report and pay these taxes or
fees, Buyer shall promptly deliver a check to Seller
in full payment thereof. If Buyer represents to
Seller that Seller is not required by applicable
state law to report and pay a particular tax or fee,
then Buyer shall indemnify Seller and hold it
harmless from any Losses resulting from such
representation.
E. Article 19.12 is amended by changing the name of Seller from
"Union Pacific Oil & Gas Company" to "Union Pacific Resources
Company".
<PAGE> 4
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as
of the date first above written.
SELLER'S SELLER:
TAX ID NO. 73-0739973
UNION PACIFIC RESOURCES COMPANY
By: /s/ JOSEPH F. CARROLL
-----------------------------------
Joseph F. Carroll
Attorney-in-Fact
BUYER'S BUYER:
TAX ID NO. 84-1120323
UNITED STATES EXPLORATION, INC.
By: /s/ BRUCE D. BENSON
-----------------------------------
Bruce D. Benson
Chairman, CEO, President
<PAGE> 1
EXHIBIT 2.3
EXPLORATION AGREEMENT
This Exploration Agreement ("Agreement") is made and entered into as of
April 9, 1998, by and between UNION PACIFIC RESOURCES COMPANY, a Delaware
corporation ("UPR"), and UNITED STATES EXPLORATION, INC., a Colorado
corporation, ("UXP").
WITNESSETH:
WHEREAS, UPR possesses certain unleased oil and gas fee mineral
interests and oil and gas leasehold rights; and
WHEREAS, UPR and UXP wish to enter into this Agreement for the
exploration and development of the oil and/or gas reserves in and under the
lands covered by such interests and rights, subject to the terms, covenants, and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, to be kept and performed by the parties hereto, UPR and
UXP agree as follows:
ARTICLE 1
SUBJECT LANDS
The lands subject to this Agreement (collectively, the "Subject Lands") consist
of all of UPR'S unleased, undeveloped oil and gas fee mineral interests (the
"Granted Lands"), and oil and gas undeveloped leasehold rights (the "Leased
Lands"), together with any lands pooled or unitized therewith, in the area shown
on the plat attached hereto as Exhibit "A" (the "Contract Area"), excluding the
following:
(a) all Assets, as the term is defined therein, included in the Purchase
and Sale Agreement, dated April 9, 1998, by and between UPR, as Seller,
and UXP, as Buyer (the "Purchase and Sale Agreement");
(b) the lands referred to in Article 8 hereof;
(c) lands constituting railroad right-of-way; and
(d) any minerals other than oil, gas and associated hydrocarbons.
EXPLORATION AGREEMENT PAGE 1 OF 16
<PAGE> 2
ARTICLE 2
TERM OF THE AGREEMENT AND MINIMUM DRILLING COMMITMENT
The term of the Agreement shall be eighteen (18) months (the "Initial Term"),
commencing the Effective Date (as defined in Article 11 hereof), and up to five
(5) Option Years thereafter.
During the Initial Term UXP shall drill a minimum of fifteen (15) Commitment
Wells on the Subject Lands. If UXP drills at least fifteen (15) Commitment Wells
on the Subject Lands within the Initial Term, it shall have the option to extend
the term of the Agreement for an additional twelve (12) months (an "Option
Year"), during which period it must drill a minimum of twenty (20) Commitment
Wells on the Subject Lands. If UXP drills a minimum number of twenty (20)
Commitment Wells within the Option Year, it shall have the option to extend the
term of the Agreement for a second Option Year, subject to an additional twenty
(20) Commitment Well minimum drilling commitment, and, in a like manner, if it
fulfills such commitment, it shall have the option to extend the term for a
third, fourth and fifth Option Year, subject to fulfilling a twenty (20)
Commitment Well minimum drilling commitment for each Option Year in order to
extend the term of the Agreement for the next Option Year, up to five (5) Option
Years.
To the extent UXP drills more than the minimum number of Commitment Wells
required to be drilled during the Initial Term or during a particular Option
Year, it shall receive credit of such excess amount against the minimum number
of Commitment Wells it must drill the next Option Year (unless it is during the
fifth and final Option Year), but not beyond such Option Year.
As used in this Agreement, a "Commitment Well" is a well drilled (I) on the
Subject Lands, (ii) diligently and in a workmanlike manner to a minimum depth of
4,000 feet, and (iii) where UXP has commenced the actual, physical drilling of
the well no later than 5:00 P.M., Mountain Time, on the last day of the term
then in effect and thereafter continuously drilled and completed the well if a
producer, plugged and abandoned it if a dry hole, or turned it over to UPR
pursuant to Article 5 of this Agreement, all in accordance with all applicable
laws, rules, and regulations.
During the Initial Term and any Option Term for which this Agreement is in
effect, UXP may drill wells on the Subject Lands at such locations and times as
it deems appropriate and without limitation as to the number, all subject to
applicable law. Any well on which UXP commences actual, physical drilling no
later than 5:00 P.M. Mountain Time on the last day of the applicable term of
this Agreement may be completed after the term of this Agreement, provided that
the drilling and completion thereof are pursued diligently.
If UXP wishes to exercise an option to extend the term for an Option Year, it
must provide UPR with written notice thereof not later than 5:00 P.M., Mountain
Time, on the last day of the term then in effect and supply UPR with a list of
the Commitment Wells drilled during the term then in effect and, within ten (10)
days after notice is given, provide all logs and
EXPLORATION AGREEMENT PAGE 2 OF 16
<PAGE> 3
geological information required under Article 12 to the extent same is then
available and has not been already provided.
ARTICLE 3
FAILURE TO MEET MINIMUM DRILLING COMMITMENT AND EXAMPLES
If UXP fails to meet its minimum drilling commitment during the Initial Term or
any Option Year, then UXP will not have the right to extend the term of the
Agreement for the next Option Year and, further, shall pay UPR, as liquidated
damages, $125,000.00 for each Commitment Well it failed to drill during such
term. UXP's loss of the right to extend the term of the Agreement and the
payment of liquidated damages shall be in lieu of all other damages and UPR's
sole remedy for UXP's failure to meet a minimum drilling commitment.
Example 1: During the Initial Term UXP drills a total of fifteen Commitment
Wells. UXP then has the right to extend this Agreement for the first Option Year
and during such year will have a twenty Commitment Well minimum drilling
commitment.
Example 2: UXP drills ten Commitment Wells during the Initial Term. UXP loses
the right to extend this Agreement and must pay UPR $625,000 in liquidated
damages for the five Commitment Wells which UXP failed to drill during the
Initial Term.
Example 3: During the first Option Year UXP drills twenty-five Commitment Wells
and during the second Option Year drills ten Commitment Wells. During the first
Option Year UXP earned the right to extend the Agreement to the second Option
Year and may credit five of the Commitment Wells drilled against its second
Option Year minimum drilling commitment. However, because UXP failed to meet its
minimum drilling commitment during the second Option Year, UXP loses the right
to extend this Agreement to the third Option Year and must pay UPR $625,000 in
liquidated damages for the five Commitment Wells which UXP failed to drill
during the second Option Year.
ARTICLE 4
DRILLING COST
UPR shall not be responsible for any costs, expenses and liabilities associated
with the drilling and completing of wells drilled under this Agreement, except
as provided in Article 5 and Article 9, including without limitation, title
examination and curative costs, surface damage payments, site preparation costs,
permitting fees, insurance, costs to physically drill the well (including all
testing, coring, and casing), logging, sidetracking, plugging back, setting
production casing, equipping the well, recompletions, reworks, storage, making
production ready for market and plugging and abandonment as a dry hole.
EXPLORATION AGREEMENT PAGE 3 OF 16
<PAGE> 4
ARTICLE 5
ELECTION TO TAKE OVER OPERATIONS
If UXP determines that a well drilled on the Subject Lands is not capable of
producing oil or gas in paying quantities and that it should be plugged and
abandoned, UXP shall promptly notify UPR by telephone or fax of such
determination, followed promptly by a hard copy of the notice, sent by regular
mail. The hard copy of the notice shall include (unless already provided to UPR)
all logs and other geological information required by Article 12 during the
drilling of a well. Should UPR agree with this determination (and a failure to
respond in the manner and time indicated below shall constitute agreement to
plug and abandon), UXP shall proceed at its cost and expense to plug and abandon
the well in accordance with applicable laws, rules, and regulations, in which
case it shall level the ground around the location and clear and clean the
premises to the reasonable satisfaction of the surface owners and surface
lessees.
Should UPR disagree with the determination to plug and abandon the well, it
shall have 24 hours (including non-working days in UPR's Fort Worth office)
following (1) the receipt of telephone or fax notice, or (2) the receipt by UPR
of all logs and other geological information required herein during the drilling
of the well, whichever last occurs, to advise UXP by telephone or fax (to be
confirmed immediately in writing) of its decision to continue operations on the
well. If UPR elects to continue operations, then all further operations on the
well, effective as of the time UPR advises UXP of its election, including, if
indicated, the plugging and abandonment of the well and restoration of the
surface, shall be conducted entirely by UPR, at its sole cost, risk, and
expense. If UPR takes over the well for further operations, UXP shall be deemed
to have relinquished and transferred back to UPR, free of any overriding
royalty, production payment, net profits interest, or other burden upon
production created by UXP, all of the right, title, and interest which UXP has
the right to acquire from UPR under this Agreement with respect to such well,
including the right, title, and interest in and to (i) the well, and (ii) the
material and equipment used or acquired in connection with the well which UPR
retains for conducting operations hereunder. If , after taking over operations,
UPR (i) plugs and abandons the well as a dry hole, then UXP shall earn the
interest provided under Article 7 in the Section on which such well was drilled;
(ii) completes the well as a producer and UXP has not earned an interest in the
Section on which such well was drilled, then UXP shall earn no interest or
rights in such Section for as long as production continues in the Section; or
(iii) completes the well as a producer and UXP has already earned an interest in
the Section on which the well was drilled, then UXP shall release and relinquish
to UPR all rights in and to such wellbore and in the formations determined to be
capable of producing by UPR. For purposes of determining UXP's rights and
obligations under this Agreement, the well shall be considered to have been a
Commitment Well which was plugged and abandoned as a dry hole by UXP on the date
UPR elects to continue operations on the well.
If UPR elects to continue operations on the well as above provided, it shall
reimburse UXP for the salvage value of all material and equipment in the well or
used or acquired in
EXPLORATION AGREEMENT PAGE 4 OF 16
<PAGE> 5
connection with the well which are retained by UPR hereunder, less estimated
costs of salvaging and less estimated cost of plugging and abandoning the well.
ARTICLE 6
TITLE
The rights granted UXP under this Agreement are granted without warranty and
without covenants of title, including, without limitation, covenants to give
possession or for quiet enjoyment. Upon request, UPR shall furnish to UXP such
abstracts or other evidence of title as it has in its files, but there shall be
no obligation on the part of UPR to purchase new or supplemental abstracts or to
do any curative work in connection with the title to the Subject Lands. UXP
shall furnish to UPR, without cost, copies of all title opinions and curative
material obtained by UXP covering the Subject Lands; provided, however, UXP
shall have no liability to UPR for the content of such materials.
ARTICLE 7
EARNING
For each well UXP drills on the Subject Lands during the Initial Term and any
Option Year and completes either as a well capable of producing oil and gas in
paying quantities or plugs and abandons as a dry hole, UPR shall grant to UXP:
(a) a lease, substantially in the form of lease attached hereto as
Exhibit "B,", attached hereto and made a part hereof, of 100%
of UPR's interest in the Granted Lands, if any, in the Section
on which said well is drilled, providing for a primary term of
one year and a Lessor's royalty of 17.5% of 8/8ths of
production from the well; and
(b) an assignment, substantially in the form of assignment
attached hereto as Exhibit "C" , of 100% of UPR's interest in
the Leased Lands, if any, in the Section on which said well is
drilled, reserving to UPR in each lease covered by the
assignment an overriding royalty equal to the excess, if any,
of 17.5% of 8/8ths of production from the well over the
aggregate burdens of record as more fully described in Exhibit
"C"; and
(c) an assignment of UPR's contractual rights and obligations, if
any, in the Section on which said well is drilled.
As used in this Agreement, the term "Section" shall mean the numbered
governmental survey section, consisting of approximately 640 acres, within a
Congressional Township.
If the mineral interest of UPR leased or if any lease, insofar as to lands
assigned to UXP, covers less that the entire mineral estate or if less than 100%
of the working interest in the
EXPLORATION AGREEMENT PAGE 5 OF 16
<PAGE> 6
lands assigned under a lease is assigned to UXP, the royalty or overriding
royalty reserved by UPR shall be proportionately reduced.
UXP may from time to time request from UPR a list of contracts applicable to all
or any portion of a prospect area of reasonable size on which UXP expects to
drill a well hereunder. Within 14 days following such request, UPR shall, to the
extent it is able to do so under confidentiality provisions, provide such list
to UXP, with copies of all contracts referred to in the list, subject to any
applicable confidentiality provisions. If any contract is subject to a
confidentiality provision, UPR shall provide UXP with such list a description of
the provisions thereof reasonably adequate to enable UXP to assess the rights
and obligations that it would have under that contract in respect of such well
and prospect area. UPR shall use reasonable commercial efforts to obtain a
waiver of any such confidentiality provision, which shall continue after the
list is provided if not previously obtained.
UXP shall request a lease or an assignment from UPR in writing within 45 days
from the date the well is completed as a producer or plugged and abandoned as a
dry hole, and such request shall include the prepared lease or assignment form;
copies of the completion report filed with the Colorado Oil and Gas Commission,
the drilling title opinion (if acquired), and surface damage release (or, in the
event no surface damage release is obtained, verification of bond coverage); and
final copies of all geological information. For wells completed as producers in
which the drillsite spacing unit, as defined in the reports filed with the
Colorado Oil and Gas Commission, includes Granted Lands, a division order ready
for execution by UPR shall be included.
ARTICLE 8
EXCLUDED LANDS
Lands included in the Contract Area which, as of the date of this Agreement, are
subject to Existing Agreements, insofar as to the formations covered by such
Existing Agreements, shall not be Subject Lands and shall be excluded from the
provisions of the Agreement ("Excluded Lands"). The Excluded Lands are described
in Exhibit "D-1", attached hereto and made a part hereof. As used in this
Agreement, "Existing Agreements" shall mean agreements described in Exhibit
"D-2", attached hereto and made a part hereof, under which UPR's interest in the
Excluded Lands is presently committed. Any failure to accurately or fully
describe the lands subject to Existing Agreements in Exhibit "D-1" or the
Existing Agreements in Exhibit "D-2" shall not affect the status of such lands
as Excluded Lands and UPR shall have no liability for such failure absent gross
negligence or willful misconduct on its part. UPR shall not amend or extend any
Existing Agreement without the written consent of UXP.
If, during the Initial Term or an Option Term of the Agreement, Excluded Lands
are no longer subject to an Existing Agreement, whether as a whole or as to one
or more formations, they shall become Subject Lands. UPR shall notify UXP within
45 days of the date any such Excluded Lands become Subject Lands.
EXPLORATION AGREEMENT PAGE 6 OF 16
<PAGE> 7
If, during the term of this Agreement, UPR has the right or option to receive or
acquire any working interest or other right useful in connection with the
operation of wells in the Contract Area (including the right to acquire or use
any wellbore or other existing operation, equipment or improvement), UPR, at the
request of UXP, shall exercise such right or option and transfer the interest or
assets so acquired to UXP. This provision shall include any right that UPR may
have to convert a royalty, overriding royalty or non-working interest to a
working interest. If a working interest is transferable hereunder, UPR shall be
entitled to reserve the royalty or overriding royalty contemplated by Article 7.
To carry out the terms of this provision, UPR shall notify the parties to the
Existing Agreements and any other agreements that UPR and UPX may identify as
providing such rights or options, that UXP is to be substituted for UPR (or
added where the agreement so provides) for the purposes of receiving any notices
under such agreements. UXP shall promptly forward to UPR copies of all notices
received by UXP. Upon UXP's receipt of a notice creating a right or option in
UPR as provided in the first sentence hereof, UXP may request UPR to exercise
such right or option. If UXP does not instruct UPR in writing to exercise a
right or option within fifteen (15) days (or such shorter period as required
under the agreement governing the right or option) after UXP receives notice,
UXP shall be deemed to have elected not to exercise its rights under this
paragraph with respect thereto. UXP shall pay all costs associated with such
exercise or transfer and shall be responsible and indemnify UPR against all
costs and liabilities associated with the transfer, including plugging and
abandonment. At UXP's expense, UPR shall provide UXP access to all information
in UPR's possession or control to verify the status of UPR's rights described in
this provision, during normal business hours and upon reasonable notice, subject
to applicable contract provisions and appropriate confidentiality agreements.
Before plugging and abandoning any well acquired under this paragraph, UXP shall
offer the well back to UPR. If UPR does not elect in writing to take the well
back within fifteen (15) days after it is offered by UXP, UPR shall be deemed to
have elected not to take the well back.
ARTICLE 9
RIGHT TO USE WELLBORES
UPR shall have the right to use UXP's wellbores for wells drilled pursuant to
this Agreement to recomplete, at UPR's sole cost, risk, and expense, into
formations in which UXP has no interest or no right to acquire an interest and,
thereafter, to commingle its production from such formation with that of UXP
using mutually agreed to allocation methods; provided, however, that UPR shall
indemnify and hold UXP harmless from and against any loss or damages UXP may
suffer as a result of such recompletion operations and that UXP shall operate
all producing zones in the subject well once UPR has concluded its recompletion
operations using such mutually agreed to allocation methods.
Notwithstanding the preceding paragraph, during the term of this Agreement and
for a period of five (5) years thereafter, UXP shall have the first right to
conduct an additional operation proposed by UPR. UPR shall provide UXP with a
written description of any additional operation proposed by UPR and UXP shall
have ten (10) days in which to elect to perform the additional operation at its
sole cost, risk and expense (a failure to respond
EXPLORATION AGREEMENT PAGE 7 OF 16
<PAGE> 8
shall be deemed an election to decline). UXP shall diligently and in a
workmanlike manner perform any additional operation it elects to conduct, and
its leased or assigned interest for the Subject Lands on which the additional
operation is performed shall thereafter include the formations subject to such
additional operation.
ARTICLE 10
RIGHT OF FIRST REFUSAL
During the term of this Agreement, UPR shall have a right of first refusal
covering the Subject Lands in the Contract Area that are included in a proposed
UXP farmout, where UXP is farmor, requiring the drilling of 10 or more wells,
and either party shall have a right of first refusal concerning lands, wells,
plants, or other facilities or properties located in the Contract Area for which
the other party has received a bona fide purchase offer it is willing to accept
for a price in excess of $5,000,000.00 (or its equivalent), subject to all third
party rights.
Before entering into a transaction subject to this Article 10 , the party
thereto shall provide written notice to the other party specifying the terms and
conditions of such transaction and including a copy of any letters of intent,
agreements or other writings between the parties to the transaction. The other
party shall have fifteen (15) days following its receipt of a notice to advise
whether it is willing to enter into the transaction under the same terms and
conditions (subject to necessary Board of Directors approval). Failure to
respond to such notice within the fifteen (15) day period shall be deemed an
election to decline.
If a transaction subject to this Article 10 involves consideration other than
cash or covers more lands, wells, plants, or other facilities or properties than
are subject to this right of refusal, then the party proposing the transaction
shall allocate a cash value to such lands, wells, plants, or other facilities or
properties as are subject hereto based on the reasonable market value thereof.
ARTICLE 11
EFFECTIVE DATE
The Effective Date of the Agreement shall be June 1, 1998.
ARTICLE 12
GEOLOGICAL REQUIREMENTS
The provisions of Exhibit "E, attached hereto, shall apply to the drilling of
the wells on the Subject Lands .
EXPLORATION AGREEMENT PAGE 8 OF 16
<PAGE> 9
ARTICLE 13
INSURANCE
As to all operations provided for under this Agreement, UXP shall secure and
maintain the following insurance in full force and effect:
(a) Workmen's Compensation Insurance: In compliance with the Workmen's
Compensation laws of the State of Colorado.
(b) Employer's Liability Insurance: Limits of not less than $100,000.00 per
person, covering all employees engaged in the performance of work in
the state having jurisdiction over each employee. This policy shall
contain a waiver of subrogation in favor of UPR with respect to
operations covered by this Agreement.
(C) Comprehensive General Liability Insurance: For operations under this
Agreement, a combined single limit per occurrence of not less than
$1,000,000.00 for bodily injury and property damage. Such policy shall
be endorsed to provide Blanket Contractual Liability covering
obligations assumed herein.
(d) Comprehensive Automobile Insurance: Including non-owned and hired
vehicles, coverage with a combined single limit per occurrence of not
less than $1,000,000.00 for bodily injury and property damage.
(e) Liability Umbrella Insurance: (excess of underlying insurance coverage
mentioned above) with a combined limit per occurrence coverage of not
less than $10,000,000.00.
(f) Well Control Insurance: Including underground blowout, seepage, and
pollution, with a combined single limit per occurrence coverage of not
less than$5,000,000.00.
The insurance policies provided for in (c), (d), (e), and (f) shall name UPR as
an additional insured, and all policies shall contain a provision stating that
insurance underwriters shall waive all rights of subrogation in favor of UPR.
Prior to the drilling of the initial Commitment Well on the Subject Lands, UXP
shall furnish certificates or copies of all policies of insurance evidencing
current insurance coverage by insurance carriers reasonably acceptable to UPR in
the amounts set forth above. Such insurance carriers shall be required, by the
terms of the policies of insurance provided, to notify UPR 30 days in advance of
any material change in or cancellations of such insurance.
EXPLORATION AGREEMENT PAGE 9 OF 16
<PAGE> 10
UXP shall require each independent contractor and subcontractor to carry and
maintain insurance at his own expense in amounts deemed necessary to cover the
risks inherent to the work or services being performed.
ARTICLE 14
LAWS AND REGULATIONS
UXP shall comply with and conduct its operations under this Agreement in
accordance with the lease and assignments granted hereunder and with all
applicable laws, ordinances, rules, regulations, and orders of all governmental
authorities having jurisdiction thereof. UXP shall indemnify and hold UPR
harmless from any and all costs, expenses and liability which may arise from
UXP's non-compliance therewith, including reasonable attorney fees.
ARTICLE 15
DELAY RENTALS
While this Agreement is in effect, UPR shall pay all delay rentals which become
due and payable on the Leased Lands after the date of this Agreement and until
UXP receives an assignment for Leased Lands on which such payments have been
made; provided, however, that if UPR through mistake, oversight, or inadvertence
fails to make any delay rental payment or other payments necessary to maintain
the Leased Lands in force and effect as required hereunder, there shall be no
liability provided UPR was not grossly negligent in such failure. UXP shall
reimburse UPR for 100% of all delay rental payments made by UPR covering the
Leased Lands while this Agreement is in effect. In the event UXP deems any such
payment unreasonable, it may elect not to reimburse UPR and, thereafter, such
Leased Lands shall no longer be Subject Lands. After UXP has earned an
assignment as to particular Leased Lands, it shall be responsible for making all
payments attributable to the interest assigned.
ARTICLE 16
ASSIGNMENT
UXP shall not assign its right or obligations under this Agreement (including
its right to drill and operate wells on the Subject Lands), in whole or in part,
without the prior written consent of UPR, which consent shall not be
unreasonably withheld, taking into account such factors as credit-worthiness and
technical competence of the assignee, whether UXP will remain as operator and/or
the proposed number of assignees. UPR shall have ten (10) days from receipt of
UXP's request for consent to assign pursuant hereto to respond. UPR's failure to
respond within such ten (10) days shall be deemed consent to assign as requested
by UXP.
EXPLORATION AGREEMENT PAGE 10 OF 16
<PAGE> 11
ARTICLE 17
ARBITRATION
Any disputes under this Agreement shall be resolved by binding arbitration.
Either party may invoke its right to arbitration by providing written notice to
the other, and the parties shall attempt to agree upon a single arbitrator.
However, if the parties are unable to agree upon a single arbitrator within
fifteen (15) days after the notice of arbitration, then each party shall select
one arbitrator, and the two arbitrators so selected shall promptly select a
third arbitrator. If the two arbitrators are unable to agree upon a third
arbitrator, then the third arbitrator shall be selected by the American
Arbitration Association. All arbitrators shall be impartial and independent of
the parties and shall be experienced and knowledgeable about the subject matter
(generally and not as to the express facts) of the dispute.
Any arbitration hearing shall be held at a place selected by the arbitrator(s).
The arbitration shall be conducted in accordance with the United States
Arbitration Act (9 U.S.C.A. ss.ss.1- 16) and the Commercial Arbitration Rules of
the American Arbitration Association to the extent such rules do not conflict
with the terms of such Act and the terms hereof, provided, however, nothing
herein shall require that the arbitration be submitted to the American
Arbitration Association except as to the appointment of an arbitrator. The
decision of the arbitrator(s) with respect to the dispute shall be reduced to
writing and binding on the parties. Judgment upon the award(s) rendered by the
arbitrator(s) may be entered and execution had in any court of competent
jurisdiction or application may be made to such court for a judicial acceptance
of the award and an order of enforcement. No lawsuit shall be instituted by any
party hereto, other than to compel arbitration proceedings or enforce the award
of the arbitrator(s). UPR and UXP, respectively, shall bear their own legal fees
and other costs incurred in presenting their respective cases; provided,
however, that the prevailing party in any lawsuit brought under or to enforce
this Agreement shall be additionally entitled to recover court costs and
reasonable attorney's fees from the non-prevailing party. The charges and
expenses of the arbitrator(s) shall be shared equally by UPR and UXP.
The arbitration shall commence within thirty (30) days after the single
arbitrator or third arbitrator is selected, as the case may be. The
arbitrator(s) may consult with and engage disinterested third party experts to
advise them, and the fees and expenses of such third parties shall be considered
to be charges and expenses of the arbitrator(s). The arbitrator(s) shall not
award consequential, exemplary or punitive damages, or attorneys' fees, but may
award interest reflecting the time value of money.
If an arbitrator selected hereunder should die, resign or be unable to perform
his or her duties hereunder, the parties or the American Arbitration Association
shall select a replacement Arbitrator. The procedure set forth in this Article
17 for selecting the arbitrator shall be followed from time to time as
necessary.
EXPLORATION AGREEMENT PAGE 11 OF 16
<PAGE> 12
All privileges under Colorado and federal law, including attorney-client and
work-product privileges, shall be preserved and protected to the same extent
that such privileges would be protected in a federal court proceeding applying
Colorado law.
ARTICLE 18
GRANTED LANDS PROVISION
The use of the surface of the Granted Lands hereunder is and shall at all times
be subject to the exceptions and reservations set forth in those certain Quit
Claim Deeds dated as of April 1, 1971, from Union Pacific Railroad Company to
Union Pacific Land Resources Corporation or its affiliates, and appearing in the
records of the County Clerk of the county in which the Granted Lands are
located.
Among the exceptions and reservations set forth in the above referenced
documents are the right of UPR's predecessors in title and their successors and
assigns to use such portions of the Granted Lands as may not be required for the
proper conduct of oil and gas operations hereunder and without liability for
compensations or damages. It is agreed that, without the prior written consent
of the owner thereof, no entry will be made upon or under any portion of any
railroad right-of-way or station grounds and that no oil or gas operations shall
be conducted within 200 feet (by surface or subsurface measurement) of:
(a) any railroad tracks or building upon such right-of -way or station
grounds; or
(b) any buildings upon Granted Lands.
Unless the requirement is waived in writing by UPR at its discretion, no entry
shall be made for drilling operations, and no facility shall be installed upon
any Granted Lands until a written agreement with the surface owner (a "Surface
Owner's Agreement") has been secured by UPR, or, at UPR's request, UXP, in a
form satisfactory to UPR. All Surface Owner's Agreements will be secured at the
sole cost, risk, and expense of UXP, but payments out of or measured by
production which UPR elects to pay to the surface owners shall be paid by UPR
out of its royalty.
ARTICLE 19
FORCE MAJEURE
In the event either party is rendered unable by force majeure to carry out its
obligations under this Agreement (except to make payments of amounts due), such
party shall furnish the other party with notice in writing by fax, mail,
telegram, telex, or by telephone and immediately followed by such written
communication, setting forth the full particulars of the force majeure claimed,
as soon as possible after the occurrence of the force majeure relied on, and the
obligations of that party, so far as they are affected by such force majeure,
shall be suspended during the continuance of any inability so caused, but for no
longer. The party relying upon such force majeure shall use due diligence and
all reasonable
EXPLORATION AGREEMENT PAGE 12 OF 16
<PAGE> 13
efforts (including reasonable expenditures of money) to overcome the cause of
force majeure relied upon. The term "force majeure," as employed in this
Agreement, shall mean landslides, earthquakes, storms, floods, weather related
disturbances, and other acts of God, strikes or other industrial disturbances,
wars, blockades, insurrections, riots, civil disturbances, and acts of the
public enemy, explosion, arrest, and governmental restraint, delay or inaction,
or any other reason beyond the control of the party claiming force majeure.
Force majeure shall not include (I) changes in the price or market for oil, gas
and associated hydrocarbons; (ii) general economic conditions; (iii) costs of
equipment (including rigs), supplies, labor or surface access; and (iv) the
obligation to pay liquidated damages for undrilled wells.
ARTICLE 20
MISCELLANEOUS
20.01 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Neither Party shall issue any
press release or make any public announcement relating to the subject
matter of this Agreement without the prior approval of the other Party,
which approval shall not be unreasonably withheld; provided, however,
that either Party may make any public disclosure it believes in good
faith is required by applicable law or any listing or trading agreement
concerning its publicly traded securities (in which case the disclosing
Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure).
20.02 ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein and attached hereto) constitutes the entire agreement between
the Parties and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral, to the
extent they are related in any way to the subject matter hereof.
20.03 SUCCESSION. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and permitted
assigns.
20.04 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
20.05 HEADINGS. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
20.06 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Colorado without
giving effect to any choice or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the
State of Colorado .
EXPLORATION AGREEMENT PAGE 13 OF 16
<PAGE> 14
20.07 EXHIBITS. All exhibits and schedules hereto which are referred to
herein are hereby made a part hereof and incorporated herein by such
reference.
20.08 WAIVER. Any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived only by written
instrument executed by the Party waiving the compliance. The failure of
either Party at any time or times to require performance of any
provisions hereof shall in no manner affect such Party's right to
enforce the same. No waiver by either Party of any condition or of the
breach of any term, provision, covenant, representation or warranty
contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be construed as a further or
continuing waiver of any such condition or breach, or a waiver of any
other condition or of the breach of any other term, provision,
covenant, representation or warranty.
20.09 FURTHER ASSURANCES. After the Closing, each of the Parties will
execute, acknowledge, and deliver to the other such further
instruments, and take such other actions, as may be reasonably
requested in order to more effectively assure to said Party all of the
respective properties, rights, titles, interests, estates, and
privileges intended to be assigned, delivered, or inuring to the
benefit of such Party in consummation of the transactions contemplated
hereby.
20.10 NOTICES.
All notices, requests, demands, claims and other communications
hereunder will be in writing. Any notice given by fax transmittal shall
be deemed given upon confirmation of transmission of the fax, provided
that any attachments referenced in the notice are also sent via fax at
the same time; however, a party giving notice by fax transmittal shall
also send a hard copy of the notice, and any attachments referenced
therein, promptly by regular mail unless a different type of mailing is
required by this Agreement. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
IF TO UPR: IF TO UXP:
Union Pacific Resources Company United States Exploration, Inc.
801 Cherry Street 1560 Broadway, Suite 1900
Fort Worth, Texas 76102 Denver, Colorado 80202
Attention: J. F. Carroll Attention: Bruce D. Benson
Manager, Divestitures Chairman, CEO,
President
Telephone: (817) 877-7718 Telephone: (303) 863-3550
Fax: (817) 877-6093 Fax: (303) 863-1932
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery,
expedited courier, messenger service, telex,
EXPLORATION AGREEMENT PAGE 14 OF 16
<PAGE> 15
ordinary mail, or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered
by giving the other Party notice in the manner herein set forth.
If the date specified in this Agreement for giving any notice or taking
any action , except for any notice required under Article 2, is not a
Business Day (or if the period during which any notices required to be
given or any action taken expires on a date which is not a Business
Day) then, except as expressly provided herein, the date for giving
such notice or taking such action (and the expiration date for such
period during which notice is required to be given or action taken)
shall be the next day which is a Business Day. As used in the
Agreement, the term "Business Day" shall mean a day on which the New
York Stock Exchange is not closed.
20.11 RELATION OF PARTIES. It is not the intention of the parties to create
any partnership, mining partnership, or association, and neither this
Agreement nor the operations contemplated hereunder shall be construed
or considered as creating any such legal relationship. The liabilities
of the parties shall be several, and not joint or collective, and the
provisions hereof and any exhibit attached hereto shall not in any way
change, alter, amend, or affect the substantive rights and obligations
of the parties otherwise contained in this Agreement. Furthermore,
nothing herein contained shall be construed as providing, directly or
indirectly, for any joint or cooperative refining or marketing or sale
of any party's interest in oil and gas or the products therefrom.
20.12 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation and in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
20.13 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns, and other persons given
rights of indemnification hereunder.
20.14 CONSTRUCTION. The Parties have participated jointly in the negotiating
and drafting of this Agreement. In the event ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as
if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring either Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to
any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The word "including" shall mean
including, without limitation.
EXPLORATION AGREEMENT PAGE 15 OF 16
<PAGE> 16
20.15 MERGER INTEGRATION. This writing is intended by the parties as a
complete and final statement of their agreement, and it supersedes and
replaces any prior oral or written statements or agreements. This
Agreement may only be modified or amended by a writing which is
executed by both parties.
This Agreement shall survive the delivery of leases and assignments
under Article 7 and shall not be merged into such leases and
assignments.
20.16 PRIOR AGREEMENT. This Agreement supersedes and replaces the Exploration
Agreement between the parties dated April 9, 1998.
IN WITNESS WHEREOF, the parties have executed this Agreement on May 15,
1998, but effective as of the day and year first above written.
UNION PACIFIC RESOURCES COMPANY
By: /s/ JOSEPH F. CARROLL
-----------------------------------
Joseph F. Carroll
Attorney-in-Fact
UNITED STATES EXPLORATION, INC.
By: /s/ BRUCE D. BENSON
-----------------------------------
Bruce D. Benson
Chairman, CEO, President
EXPLORATION AGREEMENT PAGE 16 OF 16
<PAGE> 17
EXHIBITS
"A" Contract Area
"B" Oil and Gas Lease
"C" Assignment of Oil and Gas Lease
"D-1" Excluded Lands
"D-2" Existing Agreements
"E" Geological Requirements
<PAGE> 18
EXHIBIT "A"
CONTRACT AREA
[Description of area covered by Exploration Agreement]
<PAGE> 19
EXHIBIT "B"
OIL AND GAS LEASE
[Form of oil and gas lease to be issued by UPR on owned acreage earned,
which is substantially identical to Exhibit D-2 to the Asset Purchase
and Sale Agreement filed as Exhibit 2.1 to this Report]
<PAGE> 20
EXHIBIT "C"
ASSIGNMENT OF OIL AND GAS LEASE
[Form of assignment of oil and gas lease to be issued by UPR on leased acreage
earned, which is substantially identical to Exhibit D-1 to the Asset
Purchase and Sale Agreement filed as Exhibit 2.1 to this Report]
<PAGE> 21
EXHIBIT "D-1"
EXCLUDED LANDS
[List of lands in Contract Area excluded
from Exploration Agreement]
<PAGE> 22
EXHIBIT "D-2"
EXISTING AGREEMENTS
[List of agreements to which lands in Contract Area
are subject]
<PAGE> 23
EXHIBIT "E"
Geological Requirements
[Requirements to be complied with by UXP
in drilling wells in Contract Area]
<PAGE> 1
EXHIBIT 10.1
================================================================================
CREDIT AGREEMENT
-----------------------------------
UNITED STATES EXPLORATION, INC.
and
ING (U.S.) CAPITAL CORPORATION
as Agent
and CERTAIN FINANCIAL INSTITUTIONS
as Lenders
-----------------------------------
$35,000,000
May 15, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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CREDIT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I - Definitions and References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Exhibits and Schedules; Additional Definitions . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1.3. Amendment of Defined Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.4. References and Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.5. Calculations and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II - The Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.1. Commitments to Lend; Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.2. Requests for New Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.3. Continuations and Conversions of Existing Loans . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.5. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.6. Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.7. Repayments and . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.8. Initial Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.9. Subsequent Determinations of Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.10. Borrower's Reduction of Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.11. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.12. Requesting Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.13. Reimbursement and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.14. Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.15. No Duty to Inquire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.16. LC Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE III - Payments to Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.1. General Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.2. Capital Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credits . . . . . . . . . . . . . . . . . . . 26
Section 3.4. Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.5. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.6. Reimbursable Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.7. Change of Applicable Lending Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IV - Conditions Precedent to Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.1. Documents to be Delivered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.2. Closing of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.3. Additional Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE V - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
i
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Section 5.1. No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.2. Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.3. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.4. No Conflicts or Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.5. Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.6. Initial Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.7. Other Obligations and Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 5.8. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.10. Labor Disputes and Acts of God . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.11. ERISA Plans and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.12. Environmental and Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 5.13. Names and Places of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.14. Borrower's Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.15. Title to Properties; Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.16. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.17. Officers, Directors and Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI - Affirmative Covenants of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.1. Payment and Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.2. Books, Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.3. Other Information and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.4. Notice of Material Events and Change of Address . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.5. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.6. Maintenance of Existence and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.7. Payment of Trade Liabilities, Taxes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.8. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.9. Performance on Borrower's Behalf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.10. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.11. Compliance with Agreements and Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.12. Environmental Matters; Environmental Reviews . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.13. Evidence of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.14. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.15. Agreement to Deliver Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.16. Perfection and Protection of Security Interests and Liens . . . . . . . . . . . . . . . . . . 44
Section 6.17. Bank Accounts; Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.18. Guaranties of Borrower's Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.19. Production Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VII - Negative Covenants of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.1. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.2. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.3. Hedging Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.4. Limitation on Mergers, Issuances of Securities, Diminution of Interests . . . . . . . . . . . 47
Section 7.5. Limitation on Sales of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 7.6. Limitation on Dividends and Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.7. Limitation on Investments and New Businesses . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.8. Limitation on Credit Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.9. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.10. Certain Contracts; Amendments; Multiemployer ERISA Plans . . . . . . . . . . . . . . . . . . 49
Section 7.11. Working Capital and Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.12. Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.13. EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE VIII - Events of Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE IX - Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.1. Appointment and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.2. Exculpation, Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 9.3. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 9.5. Rights as Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.6. Sharing of Set-Offs and Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.7. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.8. Benefit of Article IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.9. Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE X - Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.1. Waivers and Amendments; Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.2. Survival of Agreements; Cumulative Nature . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.4. Payment of Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 10.5. Joint and Several Liability; Parties in Interest; Assignments . . . . . . . . . . . . . . . . . 60
Section 10.6. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.7. Governing Law; Submission to Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.8. Limitation on Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.9. Termination; Limited Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 10.10. Partial Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.11. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.12. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.13. Waiver of Jury Trial, Punitive Damages, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
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<PAGE> 5
Schedules and Exhibits:
Lender Schedule
Schedule 1 - Disclosure Schedule
Schedule 2 - Security Schedule
Schedule 3 - Insurance Schedule
Exhibit A - Promissory Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E - (Intentionally Omitted)
Exhibit F - Environmental Compliance Certificate
Exhibit G-1 - Opinion of Counsel for Restricted Persons
Exhibit G-2 - Opinions of Special Counsel
Exhibit H - Assignment and Assumption Agreement
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of May 15, 1998, by and among UNITED
STATES EXPLORATION, INC., a Colorado corporation (herein called "Borrower"),
ING (U.S.) Capital Corporation, individually and as agent (herein called
"Agent") and the Lenders referred to below. In consideration of the mutual
covenants and agreements contained herein the parties hereto agree as follows:
ARTICLE I - Definitions and References
Section 1.1. 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:
"Acquisition Documents" mean (i) that certain Purchase and Sale
Agreement made as of April 9, 1998 between Union Pacific Resources Company and
Borrower, and (ii) all conveyances, bills of sale and other documents to be
executed and delivered in connection therewith.
"Affiliate" means, as to any Person, each other Person that directly
or indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 20% or more of the securities (on a fully
diluted basis) having ordinary voting power for the election of
directors or managing general partners; or
(b) to direct or cause the direction of the management
and policies of such Person whether by contract or otherwise.
"Agent" means ING (U.S.) Capital Corporation, as Agent hereunder, and
its successors in such capacity; provided, however, that until such time as a
Lender other than ING (U.S.) Capital Corporation becomes a party hereto,
"Agent" shall mean ING (U.S.) Capital Corporation, individually.
"Agreement" means this Credit Agreement.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of Base Rate Loans and such
Lender's Eurodollar Lending Office in the case of Eurodollar Loans.
"Bank Parties" means Agent, LC Issuer and all Lenders.
"Base Rate" means the Base Rate Margin plus the higher of (a) the
Reference Rate and (b) the Federal Funds Rate plus one-half percent (0.5%) per
annum. For purposes of this definition, "Reference Rate" means the arithmetic
average of the rates of interest publicly
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<PAGE> 7
announced by The Chase Manhattan Bank, Citibank, N.A. and Morgan Guaranty Trust
Company of New York (or their respective successors) as their respective prime
commercial lending rates (or, as to any such bank that does not announce such a
rate, such bank's 'base' or other rate determined by Agent to be the equivalent
rate announced by such bank), except that, if any such bank shall, for any
period, cease to announce publicly its prime commercial lending (or equivalent)
rate, Agent shall, during such period, determine the "Reference Rate" based
upon the prime commercial lending (or equivalent) rates announced publicly by
the other such banks. The Base Rate shall in no event, however, exceed the
Highest Lawful Rate.
"Base Rate Loan" means any Loan which bears interest at the Base Rate.
"Base Rate Margin" means on each day:
(a) three-eights of one percent (.375%) per annum when the Facility
Usage on such day is less than or equal to $30,000,000; and
(b) three-fourths of one percent (.75%) per annum when the Facility
Usage on such day is greater than $30,000,000.
"Borrower" means United States Exploration, Inc., a Colorado
corporation.
"Borrowing" means a borrowing of new Loans of a single Type pursuant
to Section 2.2 or a continuation or conversion of existing Loans into a single
Type (and, in the case of Eurodollar Loans, with the same Interest Period)
pursuant to Section 2.3.
"Borrowing Base" means, at the particular time in question, either the
amount provided for in Section 2.8 or the amount determined by Agent and
Majority Lenders in accordance with the provisions of Section 2.9, as reduced
by Borrower pursuant to Section 2.10; provided, however, that in no event shall
the Borrowing Base ever exceed the Maximum Loan Amount.
"Borrowing Base Deficiency" has the meaning given it in Section 2.7.
"Borrowing Notice" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Agent, significant transactions in dollars are carried out in the
interbank eurocurrency market.
"Cash Equivalents" means investments in:
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<PAGE> 8
(a) marketable obligations, maturing within 12 months after
acquisition thereof, issued or unconditionally guaranteed by the United States
of America or an instrumentality or agency thereof and entitled to the full
faith and credit of the United States of America;
(b) demand deposits, and time deposits (including certificates of
deposit) maturing within 12 months from the date of deposit thereof, with any
office of any Lender or with a domestic office of any national or state bank or
trust company which is organized under the Laws of the United States of America
or any state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose certificates of deposit have at least the third
highest credit rating given by either Rating Agency;
(c) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (a) above entered
into with any commercial bank meeting the specifications of clause (b) above;
(d) open market commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating
given by either Rating Agency; and
(e) investments in money market or other mutual funds substantially
all of whose assets comprise securities of the types described in clauses (a)
through (d) above.
"Change of Control" means the occurrence of any one or more of the
following events: (i) any Person or two or more Persons acting as a group
(other than Bruce D. Benson, any members of Borrower's Board of Directors on
the date of this Agreement or any of Borrower's officers) shall acquire
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Act of 1934, as amended, and including
holding proxies to vote for the election of directors other than proxies held
by Borrower's management or their designees to be voted in favor of Persons
nominated by Borrower's Board of Directors) of 30% or more of the outstanding
voting securities of Borrower, measured by voting power (including both common
stock and any preferred stock or other equity securities entitling the holders
thereof to vote with the holders of common stock in elections for directors of
Borrower) or (ii) one-third or more of the directors of Borrower shall consist
of Persons not nominated by Borrower's Board of Directors or (iii) Bruce D.
Benson shall cease to be the chief executive officer of Borrower.
"Collateral" means all property of any kind which is subject to a Lien
in favor of Lenders (or in favor of Agent for the benefit of Lenders) or which,
under the terms of any Security Document, is purported to be subject to such a
Lien.
"Commitment Period" means the period from and including the date
hereof until and including December 31, 1999 (or, if earlier, the day on which
the Notes first become due and payable in full).
"Consolidated" refers to the consolidation of any Person, in
accordance with GAAP, with its properly consolidated subsidiaries. References
herein to a Person's Consolidated financial
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<PAGE> 9
statements, financial position, financial condition, liabilities, etc. refer to
the consolidated financial statements, financial position, financial condition,
liabilities, etc. of such Person and its properly consolidated subsidiaries.
"Consolidated EBITDA" means, for each period of four consecutive
Fiscal Quarters, the sum of (1) the Consolidated Net Income of Borrower during
such period, plus (2) Consolidated Interest Expense during such period, plus
(3) all income taxes which were deducted in determining such Consolidated Net
Income, plus (4) all depreciation, amortization (including amortization of good
will and debt issue costs) and other non-cash charges (including any provision
for the reduction in the carrying value of assets recorded in accordance with
GAAP) which were deducted in determining such Consolidated Net Income, minus
(5) all non-cash items of income which were included in determining such
Consolidated Net Income.
"Consolidated Interest Expense" means, for any applicable period, all
interest paid or accrued during such period on Indebtedness (including
amortization of original issue discount and the interest component of any
deferred payment obligations and capital lease obligations) which was deducted
in determining Consolidated Net Income.
"Consolidated Net Income" means, for any applicable period on a
Consolidated basis for Borrower and its Consolidated Subsidiaries, the gross
revenues of such Persons for such period, plus any cash dividends or
distributions actually received by such Persons from any other business entity,
minus all expenses and other proper charges (including taxes on income, to the
extent imposed upon such Persons), determined on a Consolidated basis after
eliminating earnings or losses attributable to outstanding minority interests,
but excluding the net earnings of any other business entity in which such
Persons have an ownership interest.
"Consolidated Tangible Net Worth" means the remainder of all
Consolidated assets of Borrower and its Subsidiaries, other than intangible
assets (including without limitation as intangible assets such assets as
patents, copyrights, licenses, franchises, goodwill, trade names, trade secrets
and leases other than oil, gas or mineral leases or leases required to be
capitalized under GAAP), minus Consolidated liabilities of Borrower and its
Subsidiaries.
"Continuation/Conversion Notice" means a written or telephonic
request, or a written confirmation, made by Borrower which meets the
requirements of Section 2.3.
"Default" means any Event of Default and any default, event or
condition which would, with the giving of any requisite notices and the passage
of any requisite periods of time, constitute an Event of Default.
"Default Rate" means, at the time in question, two percent (2.0%) per
annum plus the Base Rate then in effect; provided that, with respect to any
Eurodollar Loan with an Interest Period extending beyond the date such
Eurodollar Loan becomes due and payable, "Default Rate" shall mean two percent
(2.0%) per annum plus the related Eurodollar Rate. The Default Rate shall
never exceed the Highest Lawful Rate.
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<PAGE> 10
"Determination Date" has the meaning given it in Section 2.9.
"Disclosure Report" means either a notice given by Borrower under
Section 6.4 or a certificate given by Borrower's chief financial officer under
Section 6.2(b).
"Disclosure Schedule" means Schedule 1 hereto.
"Distribution" means (a) any dividend or other distribution made by a
Restricted Person on or in respect of any stock, partnership interest, or other
equity interest in such Restricted Person (including any option or warrant to
buy such an equity interest), or (b) any payment made by a Restricted Person to
purchase, redeem, acquire or retire any stock, partnership interest, or other
equity interest in such Restricted Person (including any such option or
warrant).
"Domestic Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Domestic Lending Office" below its name
on the Lender Schedule attached hereto, or such other office as such Lender may
from time to time specify to Borrower and Agent.
"Eligible Transferee" means a Person which (a) is a Lender or (b) is
consented to as an Eligible Transferee by Agent and, so long as no Event of
Default is continuing by Borrower, which consents in each case will not be
unreasonably withheld (provided that no Person organized outside the United
States may be an Eligible Transferee if Borrower would be required to pay
withholding taxes on interest or principal owed to such Person).
"Engineering Report" means the Initial Engineering Report and each
engineering report delivered pursuant to Section 6.2(d).
"Environmental Complaint" means any written or oral complaint, order,
directive, claim, citation, notice of environmental report or investigation, or
other notice by any Tribunal or any other Person with respect to (a) air
emissions, (b) spills, releases, or discharges to soils, any improvements
located thereon, surface water, groundwater, or the sewer, septic, waste
treatment, storage, or disposal systems servicing any property of any
Restricted Person or any Collateral, (c) solid or liquid waste disposal, (d)
the use, generation, storage, transportation, or disposal of any Hazardous
Substance, or (e) other environmental, health or safety matters affecting any
property of any Restricted Person or any Collateral or the business conducted
thereon.
"Environmental Laws" means any and all Laws 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.
"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.
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<PAGE> 11
"ERISA Affiliate" means Borrower and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control that, together with Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code of 1986, as amended.
"ERISA Plan" means any employee pension benefit plan subject to Title
IV of ERISA maintained by any ERISA Affiliate with respect to which any
Restricted Person has a fixed or contingent liability.
"Eurodollar Loan" means a Loan which is properly designated as a
Eurodollar Loan pursuant to Section 2.2 or 2.3.
"Eurodollar Margin" means, on each day:
(a) One and seven-eights percent (1.875%) per annum when the Facility
Usage on such day is less than or equal to $30,000,000; and
(b) Two and one-fourth percent (2.25%) per annum when the Facility
Usage on such day is greater than $30,000,000.
"Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" below its
name on the Lender Schedule attached hereto (or, if no such office is
specified, its Domestic Lending Office), or such other office of such Lender as
such Lender may from time to time specify to Borrower and Agent.
"Eurodollar Rate" means, with respect to each particular Eurodollar
Loan and the associated LIBOR Rate and Reserve Percentage, the rate per annum
calculated by Agent (rounded upwards, if necessary, to the next higher 0.01%)
determined on a daily basis pursuant to the following formula:
Eurodollar Rate =
LIBOR Rate
--------------------------- + Eurodollar Margin
100.0% - Reserve Percentage
The Eurodollar Rate for any Eurodollar Loan shall change whenever the
Eurodollar Margin or the Reserve Percentage changes. No Eurodollar Rate shall
ever exceed the Highest Lawful Rate.
"Evaluation Date" means each of the following:
(a) January 1 and July 1 of each year, beginning with January 1, 1999;
(b) Each date which either Borrower or Required Lenders, at their
respective options, specifies as a date as of which the Borrowing Base is to be
redetermined, provided that each such date must be the first or last date of a
current calendar month and that Borrower shall not be
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<PAGE> 12
entitled to request any such redetermination more than once during any six (6)
month period and that Borrower shall not be entitled to request any such
redetermination after the end of the Commitment Period.
"Event of Default" has the meaning given it in Section 8.1.
"Exploration Agreement" means that certain Exploration Agreement dated
April 9, 1998 between Borrower and Union Pacific Resources Corporation.
"Facility Usage" means, at the time in question, the aggregate amount
of outstanding Loans and existing LC Obligations at such time.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate quoted to Agent on such day on such transactions as determined by
Agent.
"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) and which, in the case of
Borrower and its Consolidated subsidiaries, are applied for all periods after
the date hereof in a manner consistent with the manner in which such principles
and practices were applied to the audited Initial Financial Statements. If any
material change in any accounting principle or practice is required by the
Financial Accounting Standards Board (or any such successor) in order for such
principle or practice to continue as a generally accepted accounting principle
or practice, all reports and financial statements required hereunder with
respect to Borrower or with respect to Borrower and its Consolidated
subsidiaries may be prepared in accordance with such change, but all
calculations and determinations to be made hereunder may be made in accordance
with such change only after notice of such change is given to Agent, and
Majority Lenders agree to such change insofar as it affects the accounting of
Borrower or of Borrower and its Consolidated subsidiaries.
"Guarantor" means any Person who has guaranteed some or all of the
Obligations pursuant to a guaranty listed on the Security Schedule or any other
Person who has guaranteed some or all of the Obligations and who has been
accepted by Agent as a Guarantor.
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"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.
"Hedging Contract" means (a) any agreement providing for options,
swaps, floors, caps, collars, forward sales or forward purchases involving
interest rates, commodities or commodity prices, equities, currencies, bonds,
or indexes based on any of the foregoing, (b) any option, futures or forward
contract traded on an exchange, and (c) any other derivative agreement or other
similar agreement or arrangement.
"Highest Lawful Rate" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loan. All
determinations herein of the Highest Lawful Rate, or of any interest rate
determined by reference to the Highest Lawful Rate, shall be made separately
for each Lender as appropriate to assure that the Loan Documents are not
construed to obligate any Person to pay interest to any Lender at a rate in
excess of the Highest Lawful Rate applicable to such Lender.
"Indebtedness" of any Person means Liabilities in any of the following
categories:
(a) Liabilities for borrowed money,
(b) Liabilities constituting an obligation to pay the deferred
purchase price of property or services,
(c) Liabilities evidenced by a bond, debenture, note or similar
instrument,
(d) Liabilities which (i) would under GAAP be shown on such Person's
balance sheet as a liability, and (ii) are payable more than one year from the
date of creation thereof (other than reserves for taxes and reserves for
contingent obligations),
(e) Liabilities arising under operating leases or under Hedging
Contracts,
(f) Liabilities constituting principal under leases capitalized in
accordance with GAAP,
(g) Liabilities arising under conditional sales or other title
retention agreements,
(h) Liabilities owing under direct or indirect guaranties of
Liabilities of any other Person or constituting obligations to purchase or
acquire or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other Person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or services), but excluding endorsements
in the ordinary course of business of negotiable instruments in the course of
collection,
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(i) Liabilities (for example, repurchase agreements) consisting of an
obligation to purchase securities or other property, if such Liabilities arises
out of or in connection with the sale of the same or similar securities or
property,
(j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Liabilities with respect to payments received in consideration of
oil, gas, or other minerals yet to be acquired or produced at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment), or
(l) Liabilities with respect to other obligations to deliver goods or
services in consideration of advance payments therefor;
provided, however, that the "Indebtedness" of any Person shall not include
Liabilities that were incurred by such Person on ordinary trade terms to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business, unless and until such
Liabilities are outstanding more than 120 days after the incurrence thereof.
"Initial Engineering Report" means the engineering report concerning
oil and gas properties of Restricted Persons prepared by Reed W. Ferrill as
of January 1, 1998, and the engineering report concerning the oil and gas
properties subject to the Acquisition Documents prepared by Questa Engineering
Corporation as of January 1, 1998.
"Initial Financial Statements" means the audited annual Consolidated
financial statements of Borrower dated as of December 31, 1997.
"Insurance Schedule" means Schedule 3 attached hereto.
"Interest Period" means, with respect to each particular Eurodollar
Loan in a Borrowing, a period of 1, 2, 3 or 6 months, as specified in the
Borrowing Notice applicable thereto, beginning on and including the date
specified in such Borrowing Notice (which must be a Business Day), and ending
on but not including the same day of the month as the day on which it began
(e.g., a period beginning on the third day of one month shall end on but not
include the third day of another month), provided that each Interest Period
which would otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (unless such next succeeding Business Day is the
first Business Day of a calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day). No Interest Period may
be elected which would extend past the date on which the associated Note is due
and payable in full or would require the repayment of the related Eurodollar
Loan prior to the end of such Interest Period in order to make a scheduled
installment payment on the Notes.
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<PAGE> 15
"Investment" means any investment, in cash or by delivery of property
made, directly or indirectly in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or securities or by loan,
advance, capital contribution or otherwise.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LC Application" means any application for a Letter of Credit
hereafter made by Borrower to LC Issuer.
"LC Collateral" has the meaning given it in Section 2.16.
"LC Issuer" means ING (U.S.) Capital Corporation in its capacity as
the issuer of Letters of Credit hereunder, and its successors in such capacity.
Agent may, with the consent of Borrower and the Lender in question, appoint any
Lender hereunder as the LC Issuer in place of or in addition to ING (U.S.)
Capital Corporation.
"LC Obligations" means, at the time in question, the sum of all
Matured LC Obligations plus the Maximum Drawing Amount.
"Lenders" means each signatory hereto (other than Borrower and
Restricted Persons a party hereto), including ING Capital in its capacity as a
lender hereunder rather than as Agent or LC Issuer, and the successors of each
such party as holder of a Note.
"Lending Office" means, with respect to any Lender, the office,
branch, or agency through which it funds its Eurodollar Loans; with respect to
LC Issuer, the office, branch, or agency through which it issues Letters of
Credit; and with respect to Agent, the office, branch, or agency through which
it administers this Agreement.
"Letter of Credit" means any letter of credit issued by LC Issuer
hereunder at the application of Borrower.
"Liabilities" means, as to any Person, all indebtedness, liabilities
and obligations of such Person, 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 pursuant to GAAP.
"LIBOR Rate" means, with respect to each particular Eurodollar Loan
and the related Interest Period, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) reported, on the date two Business Days
prior to the first day of such Interest Period, on Telerate Access Service Page
3750 (British Bankers Association Settlement Rate) as the London Interbank
Offered Rate for dollar deposits having a term comparable to such Interest
Period and in an amount of $1,000,000 or more (or, if such Page shall cease to
be publicly available or if the
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<PAGE> 16
information contained on such Page, in Agent's sole judgment, shall cease to
accurately reflect such London Interbank Offered Rate, as reported by any
publicly available source of similar market data selected by Agent that, in
Agent's sole judgment, accurately reflects such London Interbank Offered Rate).
"Lien" means, with respect to any property or assets, any right or
interest therein of a creditor to secure Liabilities owed to him or any other
arrangement with such creditor which provides for the payment of such
Liabilities out of such property or assets or which allows him to have such
Liabilities satisfied out of such property or assets prior to the general
creditors of any owner thereof, 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
uncertificated 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.
"Loan" has the meaning given it in Section 2.1.
"Loan Documents" means this Agreement, the Notes, the Security
Documents, the Letters of Credit, the LC Applications, and all other
agreements, certificates, or reports delivered pursuant to any requirement of
this Agreement..
"Majority Lenders" means Lenders whose aggregate Percentage Shares
equal or exceed sixty-six and two-thirds percent (66 2/3%).
"Material Adverse Change" means a material and adverse change, from
the state of affairs presented in the Initial Financial Statements, to (a)
Borrower's financial condition or the Consolidated financial condition of
Borrower and its Subsidiaries, (b) the business, operations or properties of
Borrower and its Subsidiaries, considered as a whole, (c) Borrower's ability to
timely pay the Obligations, or (d) the enforceability of the material terms of
any Loan Documents.
"Matured LC Obligations" means all amounts paid by LC Issuer on drafts
or demands for payment drawn or made under or purported to be under any Letter
of Credit and all other amounts due and owing to LC Issuer under any LC
Application for any Letter of Credit, to the extent the same have not been
repaid to LC Issuer (with the proceeds of Loans or otherwise).
"Maximum Drawing Amount" means at the time in question the sum of the
maximum amounts which Agent might then or thereafter be called upon to advance
under all Letters of Credit then outstanding.
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<PAGE> 17
"Maximum Loan Amount" means the amount of $35,000,000.
"Note" has the meaning given it in Section 2.1.
"Obligations" means all Liabilities from time to time owing by any
Restricted Person to any Bank Party under or pursuant to any of the Loan
Documents, including all LC Obligations. "Obligation" means any part of the
Obligations.
"Percentage Share" means, with respect to any Lender (a) when used in
Sections 2.1 or 2.5, in any Borrowing Notice or when no Loans are outstanding
hereunder, the percentage set forth opposite such Lender's name on Lender
Schedule attached hereto, and (b) when used otherwise, the percentage obtained
by dividing (i) the sum of the unpaid principal balance of such Lender's Loans
at the time in question plus the Matured LC Obligations which such Lender has
funded pursuant to Section 2.13(c) plus the portion of the Maximum Drawing
Amount which such Lender might be obligated to fund under Section 2.14(c), by
(ii) the sum of the aggregate unpaid principal balance of all Loans at such
time plus the aggregate amount of LC Obligations outstanding at such time.
"Permitted Investments" means (i) Cash Equivalents and (ii)
Investments in wholly-owned Subsidiaries of Borrower who are Guarantors.
"Permitted Lien" has the meaning given to such term in Section 7.2.
"Person" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture,
Tribunal, or any other legally recognizable entity.
"Rating Agency" means either Standard & Poor's Ratings Group (a
division of McGraw Hill, Inc.) or Moody's Investors Service, Inc., or their
respective successors.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect.
"Reserve Percentage" means, on any day with respect to each particular
Eurodollar Loan, the maximum reserve requirement, as determined by Agent
(including without limitation any basic, supplemental, marginal, emergency or
similar reserves), expressed as a percentage and rounded to the next higher
0.01%, which would then apply under Regulation D with respect to "Eurocurrency
liabilities", as such term is defined in Regulation D, of $1,000,000 or more.
If such reserve requirement shall change after the date hereof, the Reserve
Percentage shall be automatically increased or decreased, as the case may be,
from time to time as of the effective time of each such change in such reserve
requirement.
"Restricted Person" means any of Borrower, each Subsidiary of
Borrower, and each Guarantor.
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<PAGE> 18
"Security Documents" means the instruments listed in the Security
Schedule 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 any Restricted Person to Agent in connection with this
Agreement or any transaction contemplated hereby to secure or guarantee the
payment of any part of the Obligations or the performance of any Restricted
Person's other duties and obligations under the Loan Documents.
"Security Schedule" means Schedule 2 hereto.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person;
provided that the particular relationship (a) which is established pursuant to
a standard form operating agreement or similar agreement or which is a
partnership for purposes of federal income taxation only, (b) which is not a
corporation or partnership (or subject to the Uniform Partnership Act) under
applicable state Law, and (c) whose business is limited to the exploration,
development and operation of oil, gas or mineral properties and interests owned
directly by the parties in such relationship, shall not be deemed to be
"Subsidiaries" of such Person.
"Termination Event" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate
from an ERISA Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment
as a termination under Section 4041 of ERISA, or (d) the institution of
proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty
Corporation under Section 4042 of ERISA, or (e) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any ERISA Plan.
"Tribunal" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.
"Type" means, with respect to any Loans, the characterization of such
Loans as either Base Rate Loans or Eurodollar Loans.
Section 1.2. Exhibits and Schedules; Additional Definitions. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby made to the
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Security Schedule for the meaning of certain terms defined therein and used but
not defined herein, which definitions are incorporated herein by reference.
Section 1.3. 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 1.4. 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 expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such 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 subdivision 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 1.5. Calculations and Determinations. All calculations under
the Loan Documents of interest chargeable with respect to Eurodollar Loans and
of fees shall be made on the basis of actual days elapsed (including the first
day but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 365
or 366 days, as appropriate. Each determination by a Bank Party of amounts to
be paid under Sections 3.2 through 3.6 or any other matters which are to be
determined hereunder by a Bank Party (such as any Eurodollar Rate, LIBOR Rate,
Business Day, Interest Period, or Reserve Percentage) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Majority Lenders otherwise consent all financial statements
and reports furnished to any Bank Party hereunder shall be prepared and all
financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.
ARTICLE II - The Loans and Letters of Credit
Section 2.1. Commitments to Lend; Notes. Subject to the terms and
conditions hereof, each Lender agrees to make loans to Borrower (herein called
such Lender's "Loans") upon Borrower's request from time to time during the
Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all
Lenders are requested to make Loans of the same Type in accordance with their
respective Percentage Shares and as part of the same Borrowing, and (b) after
giving effect to such Loans, the Facility Usage does not exceed the Borrowing
Base
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<PAGE> 20
determined as of the date on which the requested Loans are to be made. The
aggregate amount of all Loans in any Borrowing must be greater than or equal to
$500,000 or must equal the remaining availability under the Borrowing Base.
Borrower may have no more than five Borrowings of Eurodollar Loans outstanding
at any time and the amount of each Eurodollar Loan must equal $500,000 or any
higher integral multiple of $100,000. The obligation of Borrower to repay to
each Lender the aggregate amount of all Loans made by such Lender, together
with interest accruing in connection therewith, shall be evidenced by a single
promissory note (herein called such Lender's "Note") made by Borrower payable
to the order of such Lender in the form of Exhibit A with appropriate
insertions. The amount of principal owing on any Lender's Note at any given
time shall be the aggregate amount of all Loans theretofore made by such Lender
minus all payments of principal theretofore received by such Lender on such
Note. Interest on each Note shall accrue and be due and payable as provided
herein and therein, with Eurodollar Loans bearing interest at the Eurodollar
Rate and Base Rate Loans bearing interest at the Base Rate (subject to the
applicability of the Default Rate and limited by the provisions of Section
10.8). Subject to the terms and conditions hereof, Borrower may borrow, repay,
and reborrow hereunder.
Section 2.2. Requests for New Loans. Borrower must give to Agent
written notice (or telephonic notice promptly confirmed in writing) of any
requested Borrowing of new Loans to be advanced by Lenders. Each such notice
constitutes a "Borrowing Notice" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of
new Base Rate Loans and the date on which such Base Rate Loans are to
be advanced, or (ii) the aggregate amount of any such Borrowing of new
Eurodollar Loans, the date on which such Eurodollar Loans are to be
advanced (which shall be the first day of the Interest Period which is
to apply thereto), and the length of the applicable Interest Period;
and
(b) be received by Agent not later than noon, New York, New
York time, on (i) the day on which any such Base Rate Loans are to be
made, or (ii) the third Business Day preceding the day on which any
such Eurodollar Loans are to be made.
Each such written request or confirmation must be made in the form and
substance of the "Borrowing Notice" attached hereto as Exhibit B, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Lender prompt notice of the terms
thereof. If all conditions precedent to such new Loans have been met, each
Lender will on the date requested promptly remit to Agent at Agent's office in
New York, New York the amount of such Lender's new Loan in immediately
available funds, and upon receipt of such funds, unless to its actual knowledge
any conditions precedent to such Loans have been neither met nor waived as
provided herein, Agent shall promptly make such Loans available to Borrower.
Unless Agent shall have received prompt notice from a Lender that such Lender
will not make available to Agent such Lender's new Loan, Agent may in its
discretion assume that such Lender has made such Loan available to Agent in
accordance with this section and Agent may if it chooses, in reliance upon such
assumption, make such Loan available to Borrower. If and to the extent such
Lender shall
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not so make its new Loan available to Agent, such Lender and Borrower severally
agree to pay or repay to Agent within three days after demand the amount of
such Loan together with interest thereon, for each day from the date such
amount was made available to Borrower until the date such amount is paid or
repaid to Agent, with interest at (i) the Federal Funds Rate, if such Lender is
making such payment and (ii) the interest rate applicable at the time to the
other new Loans made on such date, if Borrower is making such repayment. If
neither such Lender nor Borrower pay or repay to Agent such amount within such
three-day period, Agent shall in addition to such amount be entitled to recover
from such Lender and from Borrower, on demand, interest thereon at the Default
Rate, calculated from the date such amount was made available to Borrower. The
failure of any Lender to make any new Loan to be made by it hereunder shall not
relieve any other Lender of its obligation hereunder, if any, to make its new
Loan, but no Lender shall be responsible for the failure of any other Lender to
make any new Loan to be made by such other Lender.
Section 2.3. Continuations and Conversions of Existing Loans.
Borrower may make the following elections with respect to Loans already
outstanding: to convert Base Rate Loans to Eurodollar Loans, to convert
Eurodollar Loans to Base Rate Loans on the last day of the Interest Period
applicable thereto, or to continue Eurodollar Loans beyond the expiration of
such Interest Period by designating a new Interest Period to take effect at the
time of such expiration. In making such elections, Borrower may combine
existing Loans made pursuant to separate Borrowings into one new Borrowing or
divide existing Loans made pursuant to one Borrowing into separate new
Borrowings. To make any such election, Borrower must give to Agent written
notice (or telephonic notice promptly confirmed in writing) of any such
conversion or continuation of existing Loans, with a separate notice given for
each new Borrowing. Each such notice constitutes a "Continuation/Conversion
Notice" hereunder and must:
(a) specify the existing Loans which are to be continued or
converted;
(b) specify (i) the aggregate amount of any Borrowing of Base
Rate Loans into which such existing Loans are to be continued or
converted and the date on which such continuation or conversion is to
occur, or (ii) the aggregate amount of any Borrowing of Eurodollar
Loans into which such existing Loans are to be continued or converted,
the date on which such continuation or conversion is to occur (which
shall be the first day of the Interest Period which is to apply to
such Eurodollar Loans), and the length of the applicable Interest
Period; and
(c) be received by Agent not later than 10:00 a.m., New York,
New York time, on the third Business Day preceding the day on which
any such continuation or conversion to Eurodollar Loans is to occur.
Each such written request or confirmation must be made in the form and
substance of the "Continuation/Conversion Notice" attached hereto as Exhibit C,
duly completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Borrowing Notice, Agent shall give each Lender prompt notice of the
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<PAGE> 22
terms thereof. Each Borrowing Notice shall be irrevocable and binding on
Borrower. During the continuance of any Default, Borrower may not make any
election to convert existing Loans into Eurodollar Loans or continue existing
Loans as Eurodollar Loans. If (due to the existence of a Default or for any
other reason) Borrower fails to timely and properly give any notice of
continuation or conversion with respect to a Borrowing of existing Eurodollar
Loans at least three days prior to the end of the Interest Period applicable
thereto, such Eurodollar Loans shall automatically be converted into Base Rate
Loans at the end of such Interest Period. No new funds shall be repaid by
Borrower or advanced by any Lender in connection with any continuation or
conversion of existing Loans pursuant to this section, and no such continuation
or conversion shall be deemed to be a new advance of funds for any purpose;
such continuations and conversions merely constitute a change in the interest
rate applicable to already outstanding Loans.
Section 2.4. Use of Proceeds. Borrower shall (i) use the proceeds of
the initial Loan to finance the purchase price under the Acquisition Documents
and (ii) use the proceeds of Loans after the initial Loan to finance
development of proved oil and gas reserves and to acquire and develop
additional proved oil and gas reserves, to refinance Matured LC Obligations,
and provide working capital for its operations and for other general business
purposes. Borrower shall use all Letters of Credit for its general corporate
purposes. In no event shall the funds from any Loan or Letter of Credit be
used directly or indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" or any
"margin securities" (as such terms are defined respectively in Regulation U and
Regulation G promulgated by the Board of Governors of the Federal Reserve
System) or to extend credit to others directly or indirectly for the purpose of
purchasing or carrying any such margin stock or margin securities. Borrower
represents and warrants that Borrower is not engaged principally, or as one of
Borrower's important activities, in the business of extending credit to others
for the purpose of purchasing or carrying such margin stock or margin
securities.
Section 2.5. Fees.
(a) Commitment Fees. In consideration of each Lender's commitment to
make Loans, Borrower will pay to Agent for the account of each Lender a
commitment fee determined on a daily basis by applying a rate of one-half of
one percent (0.50%) per annum to such Lender's Percentage Share of the unused
portion of the Borrowing Base on each day during the period beginning with the
earlier of (i) May 15, 1998 or (ii) the date all of the conditions precedent
to the first Loan under Article IV have been satisfied and ending on the last
day of the Commitment Period, determined for each such day by deducting from
the amount of the Borrowing Base at the end of such day the Facility Usage.
This commitment fee shall be due and payable in arrears on the last day of each
Fiscal Quarter and at the end of the Commitment Period.
(b) Agent's Fees. In addition to all other amounts due to Agent
under the Loan Documents, Borrower will pay fees to Agent as described in a
letter agreement dated May 15, 1998 between Agent and Borrower.
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Section 2.6. Optional Prepayments. Borrower may, upon five Business
Days' notice to Agent, from time to time and without premium or penalty prepay
the Notes, in whole or in part, so long as the aggregate amounts of all partial
prepayments of principal on the Notes is an integral multiple of $100,000, and
so long as Borrower does not make any prepayments which would reduce the unpaid
principal balance of all Loan to less than $100,000 without first either (a)
terminating this Agreement or (b) providing assurance satisfactory to Agent in
its discretion that Lenders' legal rights under the Loan Documents are in no
way affected by such reduction. Each partial prepayment of principal made after
the end of the Commitment Period shall be applied to the regular installments
of principal due under the Notes in the inverse order of their maturities. Each
prepayment of principal under this section shall be accompanied by all interest
then accrued and unpaid on the principal so prepaid. Any principal or interest
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.
Section 2.7. Repayments and Prepayments.
(a) The principal amount of the Loans shall be due and payable in
twenty (20) quarterly installments, in the amounts set forth below, each of
which shall be due and payable on the last day of each Fiscal Quarter,
beginning March 31, 2000, and continuing regularly thereafter until December
31, 2004, at which time the unpaid principal balance of the Loans and all
interest accrued hereon shall be due and payable in full:
<TABLE>
<S> <C>
March 31, 2000 $2,000,000
June 30, 2000 $2,000,000
September 30, 2000 $2,000,000
December 31, 2000 $2,000,000
March 31, 2001 $1,875,000
June 30, 2001 $1,875,000
September 30, 2001 $1,875,000
December 31, 2001 $1,875,000
March 31, 2002 $1,750,000
June 30, 2002 $1,750,000
September 30, 2002 $1,750,000
December 31, 2002 $1,750,000
March 31, 2003 $1,750,000
June 30, 2003 $1,750,000
September 30, 2003 $1,750,000
December 31, 2003 $1,750,000
March 31, 2004 $1,375,000
June 30, 2004 $1,375,000
September 30, 2004 $1,375,000
December 31, 2004 $1,375,000
</TABLE>
(b) If at any time the Facility Usage is in excess of the Borrowing
Base (such excess being herein called a "Borrowing Base Deficiency"), Borrower
shall, within forty-five Business
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Days after Agent gives notice of such fact to Borrower, prepay the principal
amount of the Loans in an aggregate amount at least equal to such Borrowing
Base Deficiency (or, if the Loans have been paid in full, pay to LC Issuer LC
Collateral as required under Section 2.16(a)).
(c) Simultaneously with the sale, transfer or other disposition of
any assets or property of any Restricted Person (other than a sale, transfer or
other disposition of any assets or property of the type described in
subsections 7.5 (a), (b), (c), (d), (e) or (g)), Borrower shall prepay the
principal amount of the Loans in an aggregate amount equal to the proceeds
thereof, net of reasonable costs of such sale, transfer or other disposition.
(d) Simultaneously with the issuance of any equity securities of any
Restricted Person (other than issuance of equity securities to another
Restricted Person), Borrower shall prepay the principal amount of the Loans in
an aggregate amount equal to the proceeds thereof, net of reasonable costs of
such issuance.
(e) This section shall not be construed to permit any transaction
which is otherwise restricted by this Agreement. At the time of each
prepayment pursuant to subsection (c) or (d), Majority Lenders shall have the
option to redetermine the Borrowing Base after giving effect to such
prepayment. Each prepayment of principal under this section shall be
accompanied by all interest then accrued and unpaid on the principal so
prepaid. Any principal or interest prepaid pursuant to this section shall be
in addition to, and not in lieu of, all payments otherwise required to be paid
under the Note or the other Loan Documents at the time of such prepayment.
Section 2.8. Initial Borrowing Base. During the period from the date
hereof to the first Determination Date the Borrowing Base shall be $35,000,000.
Section 2.9. Subsequent Determinations of Borrowing Base.
By March 1 and September 1 of each year, or within 30 days after notice of an
Evaluation Date, Borrower shall furnish to Agent all information, reports and
data which Agent has then requested concerning Restricted Persons' businesses
and properties (including Borrower's oil and gas properties and interests and
the reserves and production relating thereto), together with the Engineering
Reports described in Section 6.2(d) or (e) as applicable. Within thirty days
after receiving such information, reports and data, or as promptly thereafter
as practicable, Majority Lenders shall agree upon an amount for the Borrowing
Base (provided that all Lenders must agree to any increase in the Borrowing
Base) and Agent shall by notice to Borrower designate such amount as the new
Borrowing Base available to Borrower hereunder, which designation shall take
effect immediately on the date such notice is sent (herein called a
"Determination Date") and shall remain in effect until but not including the
next date as of which the Borrowing Base is redetermined. If Borrower does not
furnish all such information, reports and data by the date specified in the
first sentence of this section, Agent may nonetheless designate the Borrowing
Base at any amount which Majority Lenders determine and may redesignate the
Borrowing Base from time to time thereafter until Agent receives all such
information, reports and data, whereupon Majority Lenders shall designate a new
Borrowing Base as described above. Majority Lenders shall determine the amount
of the Borrowing Base based upon the loan
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collateral value which they in their sole discretion assign to the various oil
and gas properties which constitute Collateral of Restricted Persons at the
time in question and based upon such other credit factors (including without
limitation the assets, liabilities, cash flow, hedged and unhedged exposure to
price, foreign exchange rate, and interest rate changes, business, properties,
prospects, management and ownership of Borrower and its Affiliates) as they in
their discretion deem significant. It is expressly understood that Lenders and
Agent have no obligation to agree upon or designate the Borrowing Base at any
particular amount, whether in relation to the face amount of the Notes, the
Maximum Loan Amount or otherwise, and that Lenders' commitments to advance
funds hereunder is determined by reference to the Borrowing Base from time to
time in effect, which Borrowing Base shall be used for calculating commitment
fees under Section 2.5 and, to the extent permitted by Law and regulatory
authorities, for the purposes of capital adequacy determination and
reimbursements under Section 3.2.
Section 2.10. Borrower's Reduction of Borrowing Base.
Until the termination of the Commitment Period Borrower may, during the
fifteen-day period beginning on each Determination Date (each such period being
called in this section an "Option Period"), reduce the Borrowing Base from the
amount designated by Agent to any lesser amount. To exercise such option
Borrower must within an Option Period send notice to Agent of the amount of the
Borrowing Base chosen by Borrower. If Borrower does not affirmatively exercise
this option during an Option Period the Borrowing Base shall be the amount
designated by Agent. Any choice by Borrower of a Borrowing Base shall be
effective as of the first day of the Option Period during which such choice was
made and shall continue in effect until the next date as of which the Borrowing
Base is redetermined.
Section 2.11. Letters of Credit. Subject to the terms and conditions
hereof, Borrower may during the Commitment Period request LC Issuer to issue
one or more Letters of Credit, provided that, after taking such Letter of
Credit into account:
(a) the Facility Usage does not exceed the Borrowing Base at
such time; and
(b) the aggregate amount of LC Obligations at such time does
not exceed $3,000,000; and
(c) the expiration date of such Letter of Credit is prior to
the end of the Commitment Period; provided, however, up to $1,000,000
in face amount of Letters of Credit may be outstanding at any one time
with expiration dates of up to one year after the end of the
Commitment Period;
and further provided that:
(d) such Letter of Credit is to be used for Borrower's
general corporate purposes in the ordinary course of its business;
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(e) such Letter of Credit is not directly or indirectly used
to assure payment of or otherwise support any Indebtedness of any
Person (other than Letters of Credit in an aggregate face amount of up
to $1,000,000 in respect of Hedging Contracts of a Restricted Person);
(f) the issuance of such Letter of Credit will be in
compliance with all applicable governmental restrictions, policies,
and guidelines and will not subject LC Issuer to any cost which is not
reimbursable under Article III;
(g) the form and terms of such Letter of Credit are
acceptable to LC Issuer in its sole and absolute discretion; and
(h) all other conditions in this Agreement to the issuance of
such Letter of Credit have been satisfied.
LC Issuer will honor any such request if the foregoing conditions (a) through
(h) (in the following Section 2.12 called the "LC Conditions") have been met as
of the date of issuance of such Letter of Credit. LC Issuer may choose to
honor any such request for any other Letter of Credit but has no obligation to
do so and may refuse to issue any other requested Letter of Credit for any
reason which LC Issuer in its sole discretion deems relevant.
Section 2.12. Requesting Letters of Credit. Borrower must make
written application for any Letter of Credit at least five Business Days before
the date specified by Borrower as the date on which Borrower desires for LC
Issuer to issue such Letter of Credit. By making any such written application
Borrower shall be deemed to have represented and warranted that the LC
Conditions described in Section 2.11 will be met as of the date of issuance of
such Letter of Credit. Each such written application for a Letter of Credit
must be made in writing in the form and substance of Exhibit G, the terms and
provisions of which are hereby incorporated herein by reference (or in such
other form as may mutually be agreed upon by LC Issuer and Borrower). On the
day specified by Borrower in the application for such Letter of Credit or, if
later, on the Business Day on which all of the LC Conditions for a Letter of
Credit have been met as described in Section 2.11, if such conditions are
satisfied prior to 11:00 a.m. New York, New York time or the next Business Day
if such conditions are satisfied after 11:00 a.m. New York, New York time, LC
Issuer will issue such Letter of Credit at LC Issuer's office in New York, New
York. If any provisions of any LC Application conflict with any provisions of
this Agreement, the provisions of this Agreement shall govern and control.
Section 2.13. Reimbursement and Participations.
(a) Reimbursement by Borrower. Each Matured LC Obligation shall
constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC
Issuer, or to LC Issuer's order, on demand, the full amount of each Matured LC
Obligation, together with interest thereon at the Default Rate.
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(b) Letter of Credit Advances. If the beneficiary of any Letter of
Credit makes a draft or other demand for payment thereunder then Borrower may,
during the interval between the making thereof and the honoring thereof by LC
Issuer, request Lenders to make Loans to Borrower in the amount of such draft
or demand, which Loans shall be made concurrently with LC Issuer's payment of
such draft or demand and shall be immediately used by LC Issuer to repay the
amount of the resulting Matured LC Obligation. Such a request by Borrower
shall be made in compliance with all of the provisions hereof, provided that
for the purposes of the first sentence of Section 2.1 the amount of such Loans
shall be considered but the amount of the Matured LC Obligation to be
concurrently paid by such Loans shall not be considered.
(c) Participation by Lenders. LC Issuer irrevocably agrees to grant
and hereby grants to each Lender, and -- to induce LC Issuer to issue Letters
of Credit hereunder -- each Lender irrevocably agrees to accept and purchase
and hereby accepts and purchases from LC Issuer, on the terms and conditions
hereinafter stated and for such Lender's own account and risk an undivided
interest equal to such Lender's Percentage Share of LC Issuer's obligations and
rights under each Letter of Credit issued hereunder and the amount of each
Matured LC Obligation paid by LC Issuer thereunder. Each Lender
unconditionally and irrevocably agrees with LC Issuer that, if a Matured LC
Obligation is paid under any Letter of Credit for which LC Issuer is not
reimbursed in full by Borrower in accordance with the terms of this Agreement
and the related LC Application (including any reimbursement by means of
concurrent Loans or by the application of LC Collateral), such Lender shall (in
all circumstances and without set-off or counterclaim) pay to LC Issuer on
demand, in immediately available funds at LC Issuer's address for notices
hereunder, such Lender's Percentage Share of such Matured LC Obligation (or any
portion thereof which has not been reimbursed by Borrower). Each Lender's
obligation to pay LC Issuer pursuant to the terms of this subsection is
irrevocable and unconditional. If any amount required to be paid by any Lender
to LC Issuer pursuant to this subsection is paid by such Lender to LC Issuer
within three Business Days after the date such payment is due, LC Issuer shall
in addition to such amount be entitled to recover from such Lender, on demand,
interest thereon calculated from such due date at the Federal Funds Rate. If
any amount required to be paid by any Lender to LC Issuer pursuant to this
subsection is not paid by such Lender to LC Issuer within three Business Days
after the date such payment is due, LC Issuer shall in addition to such amount
be entitled to recover from such Lender, on demand, interest thereon calculated
from such due date at the Default Rate.
(d) Distributions to Participants. Whenever LC Issuer has in
accordance with this section received from any Lender payment of such Lender's
Percentage Share of any Matured LC Obligation, if LC Issuer thereafter receives
any payment of such Matured LC Obligation or any payment of interest thereon
(whether directly from Borrower or by application of LC Collateral or
otherwise, and excluding only interest for any period prior to LC Issuer's
demand that such Lender make such payment of its Percentage Share), LC Issuer
will distribute to such Lender its Percentage Share of the amounts so received
by LC Issuer; provided, however, that if any such payment received by LC Issuer
must thereafter be returned by LC Issuer, such Lender shall return to LC Issuer
the portion thereof which LC Issuer has previously distributed to it.
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(e) Calculations. A written advice setting forth in reasonable
detail the amounts owing under this section, submitted by LC Issuer to Borrower
or any Lender from time to time, shall be prima facie evidence of the amounts
thereof.
Section 2.14. Letter of Credit Fees. In consideration of LC Issuer's
issuance of any Letter of Credit, Borrower agrees to pay to Agent, for the
account of all Lenders in accordance with their respective Percentage Shares, a
letter of credit fee at a rate equal to one and three-fourths percent (1.75%)
per annum; but in no event will the letter of credit fee for any single Letter
of Credit be less than $500. Each such fee will be calculated on a daily basis
on the face amount of such Letter of Credit and will be payable in arrears on
the last day of each March, June, September and December. In addition,
Borrower will pay to LC Issuer an issuance fee at the time of issuance of each
Letter of Credit equal to the greater of (i) one-eight percent (.125%) of the
face amount of the Letter of Credit or (ii) $100, and an administrative drawing
fee of $250 upon any drawing under a Letter of Credit.
Section 2.15. No Duty to Inquire.
(a) Drafts and Demands. LC Issuer is authorized and instructed to
accept and pay drafts and demands for payment under any Letter of Credit
without requiring, and without responsibility for, any determination as to the
existence of any event giving rise to said draft, either at the time of
acceptance of payment or thereafter. LC Issuer is under no duty to determine
the proper identity of anyone presenting such a draft or making such a demand
(whether by tested telex or otherwise) as the officer, representative or agent
of any beneficiary under any Letter of Credit, and payment by LC Issuer to any
such beneficiary when requested by any such purported officer, representative
or agent is hereby authorized and approved. Borrower agrees to hold LC Issuer
and each other Bank Party harmless and indemnified against any liability or
claim in connection with or arising out of the subject matter of this section,
WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN
ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR
OMISSION OF ANY KIND BY ANY BANK PARTY, provided only that no Bank Party shall
be entitled to indemnification for that portion, if any, of any liability or
claim which is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment.
(b) Extension of Maturity. If the maturity of any Letter of Credit
is extended by its terms or by Law or governmental action, or if any extension
of the maturity or time for presentation of drafts or any other modification of
the terms of any Letter of Credit is made at the request of any Restricted
Person, or if the amount of any Letter of Credit is increased at the request of
any Restricted Person, this Agreement shall be binding upon all Restricted
Persons with respect to such Letter of Credit as so extended, increased or
otherwise modified, with respect to drafts and property covered thereby, and
with respect to any action taken by LC Issuer, LC Issuer's correspondents, or
any Bank Party in accordance with such extension, increase or other
modification.
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(c) Transferees of Letters of Credit. If any Letter of Credit
provides that it is transferable, LC Issuer shall have no duty to determine the
proper identity of anyone appearing as transferee of such Letter of Credit, nor
shall LC Issuer be charged with responsibility of any nature or character for
the validity or correctness of any transfer or successive transfers, and
payment by LC Issuer to any purported transferee or transferees as determined
by LC Issuer is hereby authorized and approved, and Borrower further agrees to
hold LC Issuer and each other Bank Party harmless and indemnified against any
liability or claim in connection with or arising out of the foregoing, WHICH
INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY
OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ANY BANK PARTY, provided only that no Bank Party shall be
entitled to indemnification for that portion, if any, of any liability or claim
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment.
Section 2.16. LC Collateral.
(a) LC Obligations in Excess of Borrowing Base. If, after the making
of all mandatory prepayments required under Section 2.7, the outstanding LC
Obligations will exceed the Borrowing Base, then in addition to such prepayment
Borrower will immediately pay to LC Issuer an amount equal to such excess. LC
Issuer will hold such amount as security for the remaining LC Obligations (all
such amounts held as security for LC Obligations being herein collectively
called "LC Collateral") until such LC Obligations become Matured LC
Obligations, at which time such LC Collateral may be applied to such Matured LC
Obligations. Neither this subsection nor the following subsection shall,
however, limit or impair any rights which LC Issuer may have under any other
document or agreement relating to any Letter of Credit or LC Obligation,
including any LC Application, or any rights which any Bank Party may have to
otherwise apply any payments by Borrower and any LC Collateral under Section
3.1.
(b) Acceleration of LC Obligations. If the Obligations or any part
thereof become immediately due and payable pursuant to Section 8.1 then, unless
Majority Lenders otherwise specifically elect to the contrary (which election
may thereafter be retracted by Majority Lenders at any time), all LC
Obligations shall become immediately due and payable without regard to whether
or not actual drawings or payments on the Letters of Credit have occurred, and
Borrower shall be obligated to pay to LC Issuer immediately an amount equal to
the aggregate LC Obligations which are then outstanding. All amounts so paid
shall first be applied to Matured LC Obligations and then held by LC Issuer as
LC Collateral until such LC Obligations become Matured LC Obligations, at which
time such LC Collateral shall be applied to such Matured LC Obligations.
(c) Investment of LC Collateral. Pending application thereof, all LC
Collateral shall be invested by LC Issuer in such investments as LC Issuer may
choose in its sole discretion. All interest on such investments shall be
reinvested and constitute additional LC Collateral. To the extent all other
Obligations have been satisfied in full, including all Matured LC Obligations
and all of Borrower's reimbursement obligations in connection therewith, as
Letters of Credit expire or are terminated, LC Issuer shall release the amount
of any LC Collateral in excess of the
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remaining outstanding LC Obligations. Borrower hereby assigns and grants to LC
Issuer a continuing security interest in all LC Collateral paid by it to LC
Issuer, all investments purchased with such LC Collateral, and all proceeds
thereof to secure its Matured LC Obligations and its Obligations under this
Agreement, the Note, and the other Loan Documents, and Borrower agrees that
such LC Collateral and investments shall be subject to all of the terms and
conditions of the Security Documents. Borrower further agrees that LC Issuer
shall have all of the rights and remedies of a secured party under the Uniform
Commercial Code as adopted in the State of New York with respect to such
security interest and that an Event of Default under this Agreement shall
constitute a default for purposes of such security interest.
(d) Payment of LC Collateral. When Borrower is required to provide
LC Collateral for any reason and fails to do so on the day when required, LC
Issuer may without notice to Borrower or any other Restricted Person provide
such LC Collateral (whether by application of proceeds of other Collateral, by
transfers from other accounts maintained with LC Issuer, or otherwise) using
any available funds of Borrower or any other Person also liable to make such
payments. Any such amounts which are required to be provided as LC Collateral
and which are not provided on the date required shall, for purposes of each
Security Document, be considered past due Obligations owing hereunder, and LC
Issuer is hereby authorized to exercise its respective rights under each
Security Document to obtain such amounts.
ARTICLE III - Payments to Lenders
Section 3.1. General Procedures. Borrower will make each payment
which it owes under the Loan Documents to Agent for the account of the Bank
Party to whom such payment is owed. Each such payment must be received by
Agent not later than 1:00 p.m., New York, New York time, on the date such
payment becomes due and payable, in lawful money of the United States of
America, without set-off, deduction or counterclaim, and in immediately
available funds. Any payment received by Agent after such time will be deemed
to have been made on the next following Business Day. Should any such payment
become due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day, and, in the case
of a payment of principal or past due interest, interest shall accrue and be
payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due. Each payment under a Loan Document
shall be due and payable at the place provided therein and, if no specific
place of payment is provided, shall be due and payable at the place of payment
of Agent's Note. When Agent collects or receives money on account of the
Obligations, Agent shall distribute all money so collected or received, and
each Bank Party shall apply all such money so distributed, as follows:
(a) first, for the payment of all Obligations which are then
due (and if such money is insufficient to pay all such Obligations,
first to any reimbursements due Agent under Section 6.9 or 10.4 and
then to the partial payment of all other Obligations then due in
proportion to the amounts thereof, or as Bank Parties shall otherwise
agree);
(b) then for the prepayment of amounts owing under the Loan
Documents (other than principal on the Notes) if so specified by
Borrower;
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(c) then for the prepayment of principal on the Notes,
together with accrued and unpaid interest on the principal so prepaid;
and
(d) last, for the payment or prepayment of any other
Obligations.
All payments applied to principal or interest on any Note shall be applied
first to any interest then due and payable, then to principal then due and
payable, and last to any prepayment of principal and interest in compliance
with Sections 2.6 and 2.7. All distributions of amounts described in any of
subsections (b), (c) or (d) above shall be made by Agent pro rata to each Bank
Party then owed Obligations described in such subsection in proportion to all
amounts owed to all Bank Parties which are described in such subsection;
provided that if any Lender then owes payments to LC Issuer for the purchase of
a participation under Section 2.13 hereof, any amounts otherwise distributable
under this section to such Lender shall be deemed to belong to LC Issuer, to
the extent of such unpaid payments, and Agent shall apply such amounts to make
such unpaid payments rather than distribute such amounts to such Lender.
Section 3.2. Capital Reimbursement. If either (a) the introduction
or implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects
or would affect the amount of capital required or expected to be maintained by
any Bank Party or any corporation controlling any Bank Party, then, upon demand
by such Bank Party, Borrower will pay to Agent for the benefit of such Bank
Party, from time to time as specified by such Bank Party, such additional
amount or amounts which such Bank Party shall determine to be appropriate to
compensate such Bank Party or any corporation controlling such Bank Party in
light of such circumstances, to the extent that such Bank Party reasonably
determines that the amount of any such capital would be increased or the rate
of return on any such capital would be reduced by or in whole or in part based
on the existence of the face amount of such Bank Party's Loans, Letters of
Credit, participations in Letters of Credit, or commitments under this
Agreement.
Section 3.3. Increased Cost of Eurodollar Loans or Letters of
Credits. If any applicable Law (whether now in effect or hereinafter enacted
or promulgated, including Regulation D) or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof (whether or not having the force of Law):
(a) shall change the basis of taxation of payments to any
Bank Party of any principal, interest, or other amounts attributable
to any Eurodollar Loan or Letter of Credit or otherwise due under this
Agreement in respect of any Eurodollar Loan or Letter of Credit (other
than taxes imposed on the overall net income of such Bank Party or any
lending office of such Bank Party by any jurisdiction in which such
Bank Party or any such lending office is located); or
(b) shall change, impose, modify, apply or deem applicable
any reserve, special deposit or similar requirements in respect of any
Eurodollar Loan or any Letter of Credit
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(excluding those for which such Bank Party is fully compensated
pursuant to adjustments made in the definition of Eurodollar Rate) or
against assets of, deposits with or for the account of, or credit
extended by, such Bank Party; or
(c) shall impose on any Bank Party or the interbank
eurocurrency deposit market any other condition affecting any
Eurodollar Loan or Letter of Credit, the result of which is to
increase the cost to any Bank Party of funding or maintaining any
Eurodollar Loan or of issuing any Letter of Credit or to reduce the
amount of any sum receivable by any Bank Party in respect of any
Eurodollar Loan or Letter of Credit by an amount deemed by such Bank
Party to be material,
then such Bank Party shall promptly notify Agent and Borrower in writing of the
happening of such event and of the amount required to compensate such Bank
Party for such event (on an after-tax basis, taking into account any taxes on
such compensation), whereupon (i) Borrower shall pay such amount to Agent for
the account of such Bank Party and (ii) Borrower may elect, by giving to Agent
and such Bank Party not less than three Business Days' notice, to convert all
(but not less than all) of any such Eurodollar Loans into Base Rate Loans.
Section 3.4. Availability. If (a) any change in applicable Laws, or
in the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for
any Bank Party to fund or maintain Eurodollar Loans or to issue or participate
in Letters of Credit, or shall materially restrict the authority of any Bank
Party to purchase or take offshore deposits of dollars (i.e., "eurodollars"),
or (b) any Bank Party determines that matching deposits appropriate to fund or
maintain any Eurodollar Loan are not available to it, or (c) any Bank Party
determines that the formula for calculating the Eurodollar Rate does not fairly
reflect the cost to such Bank Party of making or maintaining loans based on
such rate, then, upon notice by such Bank Party to Borrower and Agent,
Borrower's right to elect Eurodollar Loans from such Bank Party (or, if
applicable, to obtain Letters of Credit) shall be suspended to the extent and
for the duration of such illegality, impracticability or restriction and all
Eurodollar Loans of such Bank Party which are then outstanding or are then the
subject of any Borrowing Notice and which cannot lawfully or practicably be
maintained or funded shall immediately become or remain, or shall be funded as,
Base Rate Loans of such Bank Party. Borrower agrees to indemnify each Bank
Party and hold it harmless against all costs, expenses, claims, penalties,
liabilities and damages which may result from any such change in Law,
interpretation or administration. Such indemnification shall be on an
after-tax basis, taking into account any taxes imposed on the amounts paid as
indemnity.
Section 3.5. Funding Losses. In addition to its other obligations
hereunder, Borrower will indemnify each Bank Party against, and reimburse each
Bank Party on demand for, any loss or expense incurred or sustained by such
Bank Party (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by a Bank Party to fund or
maintain Eurodollar Loans), as a result of (a) any payment or prepayment
(whether authorized or required hereunder or otherwise) of all or a portion of
a Eurodollar Loan on a day other than the day on which the applicable Interest
Period ends, (b) any payment or prepayment, whether required hereunder or
otherwise, of a Loan made after the delivery, but before the
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effective date, of a Continuation/Conversion Notice, if such payment
or prepayment prevents such Continuation/Conversion Notice from
becoming fully effective, (c) the failure of any Loan to be made or of
any Continuation/Conversion Notice to become effective due to any
condition precedent not being satisfied or due to any other action or
inaction of any Restricted Person, or (d) any conversion (whether
authorized or required hereunder or otherwise) of all or any portion
of any Eurodollar Loan into a Base Rate Loan or into a different
Eurodollar Loan on a day other than the day on which the applicable
Interest Period ends. Such indemnification shall be on an after-tax
basis, taking into account any taxes imposed on the amounts paid as
indemnity.
Section 3.6. Reimbursable Taxes. Borrower covenants and agrees that:
(a) Borrower will indemnify each Bank Party against and
reimburse each Bank Party for all present and future income, stamp and
other taxes, levies, costs and charges whatsoever imposed, assessed,
levied or collected on or in respect of this Agreement or any
Eurodollar Loans or Letters of Credit (whether or not legally or
correctly imposed, assessed, levied or collected), excluding, however,
any taxes imposed on or measured by the overall net income of Agent or
such Bank Party or any lending office of such Bank Party by any
jurisdiction in which such Bank Party or any such lending office is
located (all such non-excluded taxes, levies, costs and charges being
collectively called "Reimbursable Taxes" in this section). Such
indemnification shall be on an after-tax basis, taking into account
any taxes imposed on the amounts paid as indemnity.
(b) All payments on account of the principal of, and interest
on, each Bank Party's Loans and Note, and all other amounts payable by
Borrower to any Bank Party hereunder, shall be made in full without
set-off or counterclaim and shall be made free and clear of and
without deductions or withholdings of any nature by reason of any
Reimbursable Taxes, all of which will be for the account of Borrower.
In the event of Borrower being compelled by Law to make any such
deduction or withholding from any payment to any Bank Party, Borrower
shall pay on the due date of such payment, by way of additional
interest, such additional amounts as are needed to cause the amount
receivable by such Bank Party after such deduction or withholding to
equal the amount which would have been receivable in the absence of
such deduction or withholding. If Borrower should make any deduction
or withholding as aforesaid, Borrower shall within 60 days thereafter
forward to such Bank Party an official receipt or other official
document evidencing payment of such deduction or withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax
with respect to any Eurodollar Loan, Borrower may elect, by giving to
Agent and such Bank Party not less than three Business Days' notice,
to convert all (but not less than all) of any such Eurodollar Loan
into a Base Rate Loan, but such election shall not diminish Borrower's
obligation to pay all Reimbursable Taxes.
(d) Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by
Law, to deduct or withhold (and not to make any indemnification or
reimbursement for) income or other similar taxes imposed
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by the United States of America (other than any portion thereof
attributable to a change in federal income tax Laws effected after the
date hereof) from interest, fees or other amounts payable hereunder
for the account of any Bank Party, other than a Bank Party (i) who is
a U.S. person for Federal income tax purposes or (ii) who has the
Prescribed Forms on file with Agent (with copies provided to Borrower)
for the applicable year to the extent deduction or withholding of such
taxes is not required as a result of the filing of such Prescribed
Forms, provided that if Borrower shall so deduct or withhold any such
taxes, it shall provide a statement to Agent and such Bank Party,
setting forth the amount of such taxes so deducted or withheld, the
applicable rate and any other information or documentation which such
Bank Party may reasonably request for assisting such Bank Party to
obtain any allowable credits or deductions for the taxes so deducted
or withheld in the jurisdiction or jurisdictions in which such Bank
Party is subject to tax. As used in this section, "Prescribed Forms"
means such duly executed forms or statements, and in such number of
copies, which may, from time to time, be prescribed by Law and which,
pursuant to applicable provisions of (x) an income tax treaty between
the United States and the country of residence of the Bank Party
providing the forms or statements, (y) the Internal Revenue Code of
1986, as amended from time to time, or (z) any applicable rules or
regulations thereunder, permit Borrower to make payments hereunder for
the account of such Bank Party free of such deduction or withholding
of income or similar taxes.
Section 3.7. Change of Applicable Lending Office. Each Bank Party
agrees that, upon the occurrence of any event giving rise to the operation of
Sections 3.2 through 3.6 with respect to such Bank Party, it will, if requested
by Borrower, use reasonable efforts (subject to overall policy considerations
of such Bank Party) to designate another Lending Office, provided that such
designation is made on such terms that such Bank Party and its Lending Office
suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
section. Nothing in this section shall affect or postpone any of the
obligations of Borrower or the rights of any Bank Party provided in Sections
3.2 through 3.6.
ARTICLE IV - Conditions Precedent to Lending
Section 4.1. Documents to be Delivered. No Lender has any obligation
to make its first Loan, and LC Issuer has no obligation to issue the first
Letter of Credit unless Agent shall have received all of the following, at
Agent's office in New York, New York, duly executed and delivered and in form,
substance and date satisfactory to Agent:
(a) This Agreement and any other documents that Lenders are
to execute in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
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(d) Certain certificates of Borrower including:
(i) An "Omnibus Certificate" of the Secretary and of
the Chairman of the Board or President of Borrower, which
shall contain the names and signatures of the officers of
Borrower authorized to execute Loan Documents and which shall
certify to the truth, correctness and completeness of the
following exhibits attached thereto: (1) a copy of
resolutions duly adopted by the Board of Directors of Borrower
and in full force and effect at the time this Agreement is
entered into, authorizing the execution of this Agreement and
the other Loan Documents delivered or to be delivered in
connection herewith and the consummation of the transactions
contemplated herein and therein, (2) a copy of the charter
documents of Borrower and all amendments thereto, certified by
the appropriate official of Borrower's state of organization,
and (3) a copy of any bylaws of Borrower; and
(ii) A "Compliance Certificate" of the Chairman of
the Board or President and of the chief financial officer of
Borrower, of even date with such Loan or such Letter of
Credit, in which such officers certify to the satisfaction of
the conditions set out in subsections (a), (b), (c) and (d) of
Section 4.3.
(e) A certificate (or certificates) of the due formation,
valid existence and good standing of Borrower in its state of
organization, issued by the appropriate authorities of such
jurisdiction, and certificates of Borrower's good standing and due
qualification to do business, issued by appropriate officials in any
states in which Borrower owns (or will own) property subject to
Security Documents.
(f) Documents similar to those specified in subsections
(d)(i) and (e) of this section with respect to each Guarantor and the
execution by it of its guaranty of Borrower's Obligations.
(g) A favorable opinion of Sherman & Howard L.L.C., Counsel
for Restricted Persons, substantially in the form set forth in Exhibit
G-1, and Mahaffey & Gore, A Professional Corporation, special Oklahoma
counsel for Agent, substantially in the form set forth in Exhibit G-2.
(h) The Initial Engineering Report and the Initial Financial
Statements.
(i) Certificates or binders evidencing Restricted Persons'
insurance in effect on the date hereof.
(j) A favorable report of Pilko & Associates, Inc. regarding
their environmental assessment of (i) the material properties of
Restricted Persons, (ii) the properties subject to the Acquisition
Documents and (iii) the properties related to the former refining
operations of Borrower, each in scope and results acceptable to Agent.
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(k) Title review in form, substance and authorship
satisfactory to Agent of (i) the material properties of Restricted
Persons, and (ii) the properties subject to the Acquisition Documents.
(l) A favorable report of Agent's professional insurance
consultants regarding their assessment of the insurance maintained by
Restricted Persons, in scope and results acceptable to Agent. A
certificate signed by the chief executive officer of Borrower in form
and detail acceptable to Agent confirming the insurance that is in
effect as of the date hereof and certifying that such insurance is
customary for the businesses conducted by Restricted Persons and is in
compliance with the requirements of this Agreement.
(m) A copy of each Acquisition Document, duly executed and
delivered by each party thereto.
(n) Payment of all commitment, facility, agency and other
fees required to be paid to any Bank Party pursuant to any Loan
Documents or any commitment agreement heretofore entered into.
Section 4.2. Closing of Acquisition. Contemporaneously with the
initial Loan hereunder, Borrower shall have consummated the transactions
contemplated under the Acquisition Documents, in form and substance
satisfactory to Agent. Borrower, for itself and on behalf of each Restricted
Person, hereby acknowledges and agrees that (1) the consummation of the
transactions contemplated under this Agreement and the Acquisition Documents,
including without limitation the making of the Loans, are intended to be
simultaneous for all intents and purposes, and (2) each Restricted Person shall
be deemed to have executed and delivered each Loan Document as set forth in
Section 4.1 above, including without limitation each Security Document,
immediately prior to or simultaneously with the making of the Loans hereunder.
Section 4.3. Additional Conditions Precedent. No Lender has any
obligation to make any Loan (including its first), and LC Issuer has no
obligation to issue any Letter of Credit (including its first), unless the
following conditions precedent have been satisfied:
(a) All representations and warranties made by any Restricted
Person in any Loan Document shall be true on and as of the date of
such Loan or the date of issuance of such Letter of Credit (except to
the extent that the facts upon which such representations are based
have been changed by the extension of credit hereunder) as if such
representations and warranties had been made as of the date of such
Loan or the date of issuance of such Letter of Credit.
(b) No Default shall exist at the date of such Loan or the
date of issuance of such Letter of Credit.
(c) No Material Adverse Change shall have occurred to, and no
event or circumstance shall have occurred that could reasonably be
expected to cause a Material
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Adverse Change to, Borrower's Consolidated financial condition or
businesses since the date of the consummation of the Acquisition.
(d) Each Restricted Person shall have performed and complied
with all agreements and conditions required in the Loan Documents to
be performed or complied with by it on or prior to the date of such
Loan or the date of issuance of such Letter of Credit.
(e) The making of such Loan or the issuance of such Letter of
Credit shall not be prohibited by any Law and shall not subject any
Lender or any LC Issuer to any to any penalty or other onerous
condition under or pursuant to any such Law.
(f) Agent shall have received all documents and instruments
which Agent has then reasonably requested, in addition to those
described in Section 4.1 (including opinions of legal counsel for
Restricted Persons and Agent; corporate documents and records;
documents evidencing governmental authorizations, consents, approvals,
licenses and exemptions; and certificates of public officials and of
officers and representatives of Borrower and other Persons), as to (i)
the accuracy and validity of or compliance with all representations,
warranties and covenants made by any Restricted Person in this
Agreement and the other Loan Documents, (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 Agent in form, substance and
date.
ARTICLE V - Representations and Warranties
To confirm each Bank Party's understanding concerning Restricted
Persons and Restricted Persons' businesses, properties and obligations and to
induce each Bank Party to enter into this Agreement and to extend credit
hereunder, Borrower represents and warrants to each Bank Party that:
Section 5.1. No Default. No Restricted Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section 5.2. Organization and Good Standing. Each Restricted Person
is duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Restricted Person is duly qualified, in good standing, and authorized to
do business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary.
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Section 5.3. Authorization. Each Restricted Person has duly taken
all action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party 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.
Section 5.4. No Conflicts or Consents. The execution and delivery by
the various Restricted Persons of the Loan Documents to which each is a party,
the performance by each of its obligations under such Loan Documents, and the
consummation of the transactions contemplated by the various Loan Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Restricted Person, or (3) any agreement,
judgment, license, order or permit applicable to or binding upon any Restricted
Person, (ii) result in the acceleration of any Indebtedness owed by any
Restricted Person, or (iii) result in or require the creation of any Lien upon
any assets or properties of any Restricted Person 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 Tribunal or third party is required in connection with
the execution, delivery or performance by any Restricted Person of any Loan
Document or to consummate any transactions contemplated by the Loan Documents.
Section 5.5. Enforceable Obligations. This Agreement is, and the
other Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of each Restricted Person which is a party hereto or
thereto, 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.
Section 5.6. Initial Financial Statements. Borrower has heretofore
delivered to Agent true, correct and complete copies of the Initial Financial
Statements. The Initial Financial Statements fairly present Borrower's
Consolidated financial position at the respective dates thereof and the
Consolidated results of Borrower's operations and Borrower's Consolidated cash
flows for the respective periods thereof. Since the date of the annual Initial
Financial Statements no Material Adverse Change has occurred, except as
reflected in the quarterly Initial Financial Statements or in the Disclosure
Schedule. All Initial Financial Statements were prepared in accordance with
GAAP.
Section 5.7. Other Obligations and Restrictions. No Restricted
Person has any outstanding Liabilities of any kind (including contingent
obligations, tax assessments, and unusual forward or long-term commitments)
which is, in the aggregate, material to Borrower or material with respect to
Borrower's Consolidated financial condition and not shown in the Initial
Financial Statements or disclosed in the Disclosure Schedule or a Disclosure
Report. Except as shown in the Initial Financial Statements or disclosed in
the Disclosure Schedule or a Disclosure Report, no Restricted Person is subject
to or restricted by any franchise, contract, deed, charter restriction, or
other instrument or restriction which could be reasonably expected to cause a
Material Adverse Change.
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Section 5.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Bank Party in connection with the negotiation of this Agreement or in
connection with any transaction contemplated hereby, taken together with all
other certificates, statements or other information so provided, contains any
untrue statement of a material fact or omits to state any material fact known
to any Restricted Person (other than industry-wide risks normally associated
with the types of businesses conducted by Restricted Persons) necessary to make
the statements contained herein or therein not misleading as of the date made
or deemed made. There is no fact known to any Restricted Person (other than
industry-wide risks normally associated with the types of businesses conducted
by Restricted Persons) that has not been disclosed to Agent in writing which
could reasonably be expected to cause a Material Adverse Change. There are no
statements or conclusions in any Engineering Report, business plan or other
forward looking statement which are based upon or include misleading
information or fail to take into account material information regarding the
matters reported therein, it being understood that each Engineering Report,
business plan or other forward looking statement is necessarily based upon
professional opinions, estimates and projections and that Borrower does not
warrant that such opinions, estimates and projections will ultimately prove to
have been accurate. Borrower has heretofore delivered to Agent true, correct
and complete copies of the Initial Engineering Report.
Section 5.9. Litigation. Except as disclosed in the Initial
Financial Statements or in the Disclosure Schedule: (i) there are no actions,
suits or legal, equitable, arbitrative or administrative proceedings pending,
or to the knowledge of any Restricted Person threatened, against any Restricted
Person before any Tribunal which could reasonably be expected to cause a
Material Adverse Change, and (ii) there are no outstanding judgments,
injunctions, writs, rulings or orders by any such Tribunal against any
Restricted Person or any Restricted Person's partners, directors or officers
which could reasonably be expected to cause a Material Adverse Change.
Section 5.10. Labor Disputes and Acts of God. Except as disclosed in
the Disclosure Schedule or a Disclosure Report, neither the business nor the
properties of any Restricted Person has been affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), which could reasonably be expected to
cause a Material Adverse Change.
Section 5.11. ERISA Plans and Liabilities. All currently existing
ERISA Plans are listed in the Disclosure Schedule or a Disclosure Report.
Except as disclosed in the Initial Financial Statements or in the Disclosure
Schedule or a Disclosure Report, no Termination Event has occurred with respect
to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all
material respects. No ERISA Affiliate is required to contribute to, or has any
other absolute or contingent liability in respect of, any "multiemployer plan"
as defined in Section 4001 of ERISA. Except as set forth in the Disclosure
Schedule or a Disclosure Report: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Internal Revenue Code of 1986, as amended)
exists with respect to any ERISA Plan, whether or not waived by the Secretary
of the Treasury or his delegate, and (ii) the current value of each ERISA
Plan's benefits
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does not exceed the current value of such ERISA Plan's assets available for the
payment of such benefits by more than $500,000.
Section 5.12. Environmental and Other Laws.
As used in this section: "CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, "CERCLIS" means
the Comprehensive Environmental Response, Compensation and Liability
Information System List of the Environmental Protection Agency, and "Release"
has the meaning given such term in 42 U.S.C. Section 9601(22). Except as set
forth in the Disclosure Schedule or a Disclosure Report:
(a) Restricted Persons are conducting their businesses in compliance
in all material respects with all applicable Laws, including Environmental
Laws, and have all permits, licenses and authorizations required in connection
with the conduct of their businesses, except to the extent failure to have any
such permit, license or authorization could not cause a Material Adverse
Change. Each Restricted Person is in compliance with the terms and conditions
of all such permits, licenses and authorizations, and is also in compliance
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply could not cause a Material
Adverse Change.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed, and no investigation or review is pending or
threatened by any Tribunal or any other Person with respect to (i) any alleged
generation, treatment, storage, recycling, transportation, disposal, or Release
of any Hazardous Materials, either by any Restricted Person or on any property
owned by any Restricted Person, (ii) any material remedial action which might
be needed to respond to any such alleged generation, treatment, storage,
recycling, transportation, disposal, or Release, or (iii) any alleged failure
by any Restricted Person to have any permit, license or authorization required
in connection with the conduct of its business or with respect to any such
generation, treatment, storage, recycling, transportation, disposal, or
Release.
(c) No Restricted Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
(d) No Restricted Person has handled any Hazardous Materials, other
than as a generator, on any properties now or previously owned or leased by any
Restricted Person to an extent that such handling has caused, or could
reasonably be expected to cause, a Material Adverse Change; and further, except
to an extent that the following has not caused, and could not reasonably be
expected to have caused, a Material Adverse Change:
(i) no PCBs are or have been present at any properties now or
previously owned or leased by any Restricted Person;
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(ii) no asbestos is or has been present at any properties now or
previously owned or leased by any Restricted Person;
(iii) there are no underground storage tanks for Hazardous
Materials, active or abandoned, at any properties now or
previously owned or leased by any Restricted Person;
(iv) no Hazardous Materials have been Released, in a reportable
quantity, where such a quantity has been established by
statute, ordinance, rule, regulation or order, at, on or under
any properties now or previously owned or leased by any
Restricted Person;
(v) no Hazardous Materials have been otherwise Released at, on or
under any properties now or previously owned or leased by any
Restricted Person to an extent that such release has caused,
or could reasonably be expected to cause, a Material Adverse
Change.
(e) No Restricted Person has transported or arranged for the
transportation of any Hazardous Material to any location which is listed on the
National Priorities List under CERCLA, listed for possible inclusion on the
National Priorities List by the Environmental Protection Agency in CERCLIS, or
listed on any similar state list or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
against any Restricted Person for clean-up costs, remedial work, damages to
natural resources or for personal injury claims, including, but not limited to,
claims under CERCLA.
(f) No material amount of Hazardous Material generated by any
Restricted Person has been recycled, treated, stored, disposed of or released
by any Restricted Person at any location other than those listed in Disclosure
Schedule.
(g) No oral or written notification of a Release of a Hazardous
Material has been filed by or on behalf of any Restricted Person (and to the
best knowledge of Borrower, no such notification has been filed with respect to
any Restricted Person by any other Person), and no property now or previously
owned or leased by any Restricted Person is listed or proposed for listing on
the National Priority list promulgated pursuant to CERCLA, in CERCLIS, or on
any similar state list of sites requiring investigation or clean-up.
(h) There are no Liens arising under or pursuant to any Environmental
Laws on any of the real properties or properties owned or leased by any
Restricted Person, and no government actions have been taken or are in process
which could subject any of such properties to such Liens; nor would any
Restricted Person be required to place any notice or restriction relating to
the presence of Hazardous Materials at any properties owned by it in any deed
to such properties.
(i) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
any Restricted Person in relation to
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any properties or facility now or previously owned or leased by any Restricted
Person which have not been made available to Agent.
Section 5.13. Names and Places of Business. No Restricted Person has,
during the preceding five years (i) changed its proper corporate name, or (ii)
maintained an office in any state, in either case, except as disclosed in the
Disclosure Schedule. To the knowledge of Borrower's current management, no
Restricted Person has, during the preceding five years (a) had, been known by,
or used any other trade or fictitious name or (b) maintained its chief
executive office and principal place of business of at any address other than
the address of Borrower set out in Section 10.3, except as disclosed in the
Disclosure Schedule. Except as indicated in the Disclosure Schedule or a
Disclosure Report, no Restricted Person has any other office or place of
business.
Section 5.14. Borrower's Subsidiaries. Borrower does not presently
have any Subsidiary or own any stock in any other corporation or association
except those listed in the Disclosure Schedule or a Disclosure Report. Neither
Borrower nor any Restricted Person is a member of any general or limited
partnership, joint venture or association of any type whatsoever except those
listed in the Disclosure Schedule or a Disclosure Report and associations,
joint ventures or other relationships (i) which are established pursuant to a
standard form operating agreement or similar agreement or which are
partnerships for purposes of federal income taxation only, (ii) which are not
corporations or partnerships (or subject to the Uniform Partnership Act) under
applicable state Law, and (iii) whose businesses are limited to the
exploration, development and operation of oil, gas or mineral properties and
interests owned directly by the parties in such associations, joint ventures or
relationships. Except as otherwise revealed in a Disclosure Report, Borrower
owns, directly or indirectly, the equity interest in each of its Subsidiaries
which is indicated in the Disclosure Schedule.
Section 5.15. Title to Properties; Licenses. Each Restricted Person
has good and defensible title to all of its material properties and assets,
free and clear of all Liens other than Permitted Liens and of all impediments
to the use of such properties and assets in such Restricted Person's business,
except that no representation or warranty is made with respect to any oil, gas
or mineral property or interest to which no proved oil or gas reserves are
properly attributed. Each Restricted Person possesses all licenses, permits,
franchises, patents, copyrights, trademarks and trade names, and other
intellectual property (or otherwise possesses the right to use such
intellectual property without violation of the rights of any other Person)
which are necessary to carry out its business as presently conducted and as
presently proposed to be conducted hereafter, and no Restricted Person is in
violation in any material respect of the terms under which it possesses such
intellectual property or the right to use such intellectual property.
Section 5.16. Government Regulation. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940 (as any of the preceding acts have been amended) or any
other Law which regulates the incurring by such Person of Indebtedness,
including Laws relating to common contract carriers or the sale of electricity,
gas, steam, water or other public utility services.
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Section 5.17. Officers, Directors and Shareholders. The officers and
directors of Borrower are those persons disclosed in the definitive proxy
statement prepared by Borrower and filed with the Securities and Exchange
Commission in connection with Borrower's most recent annual meeting, copies of
which proxy statement have been previously furnished in connection with the
negotiation hereof.
ARTICLE VI - Affirmative Covenants of Borrower
To conform with the terms and conditions under which each Bank Party
is willing to have credit outstanding to Borrower, and to induce each Bank
Party to enter into this Agreement and extend credit hereunder, Borrower
warrants, covenants and agrees that until the full and final payment of the
Obligations and the termination of this Agreement, unless Majority Lenders have
previously agreed otherwise:
Section 6.1. Payment and Performance. Borrower will pay all amounts
due 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. Borrower will cause each other Restricted
Person to observe, perform and comply with every such term, covenant and
condition.
Section 6.2. Books, Financial Statements and Reports. Each
Restricted Person will at all times maintain full and accurate books of account
and records. Borrower will maintain and will cause its Subsidiaries to
maintain a standard system of accounting, will maintain its Fiscal Year, and
will furnish the following statements and reports to Agent at Borrower's
expense:
(a) As soon as available, and in any event within one hundred
and five (105) days after the end of each Fiscal Year, complete
Consolidated financial statements of Borrower together with all notes
thereto, prepared in reasonable detail in accordance with GAAP,
together with an unqualified opinion, based on an audit using
generally accepted auditing standards, by Ernest & Young or other
independent certified public accountants selected by Borrower and
acceptable to Majority Lenders, stating that such Consolidated
financial statements have been so prepared. These financial
statements shall contain a Consolidated balance sheet as of the end of
such Fiscal Year and Consolidated statements of earnings, of cash
flows, and of changes in owners' equity for such Fiscal Year, each
setting forth in comparative form the corresponding figures for the
preceding Fiscal Year.
(b) As soon as available, and in any event within fifty (50)
days after the end of each Fiscal Quarter, Borrower's Consolidated
balance sheet as of the end of such Fiscal Quarter and Consolidated
statements of Borrower's earnings 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. In addition Borrower will, together with each such set
of financial statements and each set of financial statements furnished
under subsection (a) of this section, furnish a certificate in the
form of Exhibit D signed by the chief financial officer of Borrower
stating that such financial statements are accurate and
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complete (subject to normal year-end adjustments), stating that he has
reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with
the requirements of Sections 7.11, 7.12 and 7.13 and stating that no
Default exists at the end of such Fiscal Quarter or at the time of
such certificate or specifying the nature and period of existence of
any such Default.
(c) Promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent by
any Restricted Person to its stockholders and all registration
statements, periodic reports and other statements and schedules filed
by any Restricted Person with any securities exchange, the Securities
and Exchange Commission or any similar governmental authority.
(d) By March 1 of each year, an engineering report (as of the
January 1 Evaluation Date) prepared by Questa Engineering Corporation,
or other independent petroleum engineers chosen by Borrower and
acceptable to Majority Lenders, concerning all oil and gas properties
and interests owned by any Restricted Person which are located in or
offshore of the United States and which have attributable to them
proved oil or gas reserves. This report shall be satisfactory to
Agent, shall contain sufficient information to enable Borrower to meet
the reporting requirements concerning oil and gas reserves contained
in Regulations S-K and S-X promulgated by the Securities and Exchange
Commission, shall take into account any "over-produced" status under
gas balancing arrangements, and shall contain information and analysis
comparable in scope to that contained in the Initial Engineering
Report. This report shall distinguish (or shall be delivered together
with a certificate from an appropriate officer of Borrower which
distinguishes) those properties treated in the report which are
Collateral from those properties treated in the report which are not
Collateral.
(e) By September 1 of each year, an engineering report (as of
the July 1 Evaluation Date) prepared by petroleum engineers employed
by Borrower, concerning all oil and gas properties and interests owned
by any Restricted Person which are located in or offshore of the
United States and which have attributable to them proved oil and gas
reserves. This report shall be in form and substance as the report
delivered under Section 6.2(d) and otherwise satisfactory to Majority
Lenders.
(f) As soon as available, and in any event within forty-five
(45) days after the end of each month, beginning with the month of
July, 1998, a report describing by lease or unit the gross volume of
production and sales attributable to production during such month from
the properties described in subsection (d) above and describing the
related severance taxes, other taxes, leasehold operating expenses and
capital costs attributable thereto and incurred during such month.
(g) Promptly, and in any event within 30 days following a
request by Agent but in no event more often than once during any
fiscal year (and in no event prior to July 1, 1998) a list, by name
and address, of those Persons who have purchased production during
such Fiscal Year from the Mortgaged Properties, giving each such
purchaser's
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owner number for Borrower and each other grantor of a Lien on
Mortgaged Properties and each such purchaser's property number for
each such Mortgaged Property.
(h) As soon as available, and in any event within thirty (30)
days after the end of each Fiscal Year, Borrower shall deliver to
Agent an environmental compliance certificate signed by the president
or chief executive officer of Borrower in the form attached hereto as
Exhibit F. Further, if requested by Agent, Borrower shall permit and
cooperate with an environmental and safety review made in connection
with the operations of Restricted Persons' oil and gas properties one
time during each Fiscal Year beginning with the Fiscal Year 1998, by
Pilko & Associates, Inc. or other consultants selected by Agent which
review shall, if requested by Agent, be arranged and supervised by
environmental legal counsel for Agent, all at Borrower's cost and
expense.
(i) Concurrently with the annual renewal of the Borrower's
insurance policies, Borrower shall, if requested by Agent in writing,
cause a certificate or report to be issued by Agent's professional
insurance consultants or other insurance consultants satisfactory to
Agent certifying that Borrower's insurance for the next succeeding
year after such renewal (or for such longer period for which such
insurance is in effect) complies with the provisions of this Agreement
and the Security Documents.
(j) By March 1 and September 1 of each year, detailed
operating and capital expenditure budgets and financial plans and
reports of projected financial condition for the each of the next
succeeding 12 months, in form and detail satisfactory to Majority
Lenders.
(k) No later than October 1 of each year, a report on
Borrower's business plan regarding the satisfaction of Borrower's
obligations under the Exploration Agreement for the 12 month period
beginning on the next November 1, in form, substance and detail
satisfactory to Majority Lenders, setting forth detail on at least a
quarterly basis. As soon as available, and in any event within fifty
(50) days after the end of each Fiscal Quarter (beginning with the
Fiscal Quarter ending on December 31, 1998), a report on Borrower's
status of drilling, or contracting with third parties by farm-out or
otherwise for the drilling, of wells required to be drilled under the
Exploration Agreement for the then current Option Year (as defined in
the Exploration Agreement), in form and detail satisfactory to
Majority Lenders.
Section 6.3. Other Information and Inspections. Each Restricted
Person will furnish to Agent any information which Agent may from time to time
request in writing concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with Restricted Persons' businesses and
operations. Each Restricted Person will permit representatives appointed by
Agent (including independent accountants, auditors, agents, attorneys,
appraisers and any other Persons) to visit and inspect during normal business
hours any of such Restricted Person'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,
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and each Restricted Person shall permit Agent or its representatives to
investigate and verify the accuracy of the information furnished to Agent or
any Lender in connection with the Loan Documents and to discuss all such
matters with its officers, employees and representatives.
Section 6.4. Notice of Material Events and Change of Address.
Borrower will promptly notify Agent in writing, stating that such notice is
being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any Indebtedness owed
by any Restricted Person or of any default by any Restricted Person
under any indenture, mortgage, agreement, contract or other instrument
to which any of them is a party or by which any of them or any of
their properties is bound, if such acceleration or default could cause
a Material Adverse Change,
(d) the occurrence of any Termination Event,
(e) any claim of $100,000 or more, any notice of potential
liability under any Environmental Laws which might exceed such amount,
or any other material adverse claim asserted against any Restricted
Person or with respect to any Restricted Person's properties, and
(f) the filing of any suit or proceeding against any
Restricted Person in which the amount involved is $100,000 or more or
in which an adverse decision could cause a Material Adverse Change.
Upon the occurrence of any of the foregoing Restricted Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Borrower will also
notify Agent and Agent's counsel in writing at least twenty Business Days prior
to the date that any Restricted Person changes its name or the location of its
chief executive office or principal place of business or the place where it
keeps its books and records concerning the Collateral, furnishing with such
notice any necessary financing statement amendments or requesting Agent and its
counsel to prepare the same.
Section 6.5. Maintenance of Properties. Each Restricted Person will
maintain, preserve, protect, and keep all Collateral and all other material
property used or useful in the conduct of its business in good condition and in
compliance with all applicable Laws, and will from time to time make all
repairs, renewals and replacements needed to enable the business and operations
carried on in connection therewith to be promptly and advantageously conducted
at all times.
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Section 6.6. Maintenance of Existence and Qualifications. Each
Restricted Person will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable Law, except where the
failure so to qualify will not cause a Material Adverse Change.
Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each
Restricted Person will (a) timely file all required tax returns; (b) timely pay
all taxes, assessments, and other governmental charges or levies imposed upon
it or upon its income, profits or property; (c) within one hundred twenty (120)
days after the occurrence thereof, pay all Liabilities owed by it on ordinary
trade terms to vendors, suppliers and other Persons providing goods and
services used by it in the ordinary course of its business; (d) pay and
discharge when due all other Liabilities now or hereafter owed by it; and (e)
maintain appropriate accruals and reserves for all of the foregoing in
accordance with GAAP. Each Restricted Person may, however, delay paying or
discharging any of the foregoing so long as it is in good faith contesting the
validity thereof by appropriate proceedings and has set aside on its books
adequate reserves therefor.
Section 6.8. Insurance. Each Restricted Person will keep or cause to
be kept insured by financially sound and reputable insurers its property in
accordance with the Insurance Schedule. Borrower will maintain the additional
insurance coverage as described in the respective Security Documents. Upon
demand by Agent any insurance policies covering Collateral shall be endorsed
(a) to provide for payment of losses to Agent as its interests may appear, (b)
to provide that such policies may not be canceled or reduced or affected in any
material manner for any reason without fifteen days prior notice to Agent, (c)
to provide for any other matters specified in any applicable Security Document
or which Agent may reasonably require; and (d) to provide for insurance on
assets (other than normal production equipment at the well site) against fire,
casualty and any other hazards normally insured against, in the amount of the
full value (less a reasonable deductible not to exceed amounts customary in the
industry for similarly situated businesses and properties) of the property
insured. Each Restricted Person shall at all times maintain insurance against
its liability for injury to persons or property in accordance with the
Insurance Schedule, which insurance shall be by financially sound and reputable
insurers. Without limiting the foregoing, each Restricted Person shall at all
time maintain liability insurance in the amounts set out on the Insurance
Schedule.
Section 6.9. Performance on Borrower's Behalf. If any Restricted
Person fails to pay any taxes, insurance premiums, expenses, attorneys' fees or
other amounts it is required to pay under any Loan Document, Agent may pay the
same. Borrower shall immediately reimburse Agent for any such payments and
each amount paid by Agent shall constitute an Obligation owed hereunder which
is due and payable on the date such amount is paid by Agent.
Section 6.10. Interest. Borrower hereby promises to each Bank Party
to pay interest at the Default Rate on all Obligations (including Obligations
to pay fees or to reimburse or indemnify any Bank Party) which Borrower has in
this Agreement promised to pay to such Bank Party and which are not paid when
due. Such interest shall accrue from the date such Obligations become due
until they are paid.
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Section 6.11. Compliance with Agreements and Law. Each Restricted
Person will perform all material obligations it is required to perform under
the terms of each indenture, mortgage, deed of trust, security agreement,
lease, franchise, agreement, contract or other instrument or obligation to
which it is a party or by which it or any of its properties is bound. Each
Restricted Person will conduct its business and affairs in compliance with all
Laws applicable thereto.
Section 6.12. Environmental Matters; Environmental Reviews.
(a) Each Restricted Person will comply in all material respects with
all Environmental Laws now or hereafter applicable to such Restricted Person
and shall obtain, at or prior to the time required by applicable Environmental
Laws, all environmental, health and safety permits, licenses and other
authorizations necessary for its operations and will maintain such
authorizations in full force and effect.
(b) Borrower will promptly furnish to Agent all written notices of
violation, orders, claims, citations, complaints, penalty assessments, suits or
other proceedings received by Borrower, or of which it has notice, pending or
threatened against Borrower, by any governmental authority with respect to any
alleged violation of or non-compliance with any Environmental Laws or any
permits, licenses or authorizations in connection with its ownership or use of
its properties or the operation of its business.
(c) Borrower will promptly furnish to Agent all requests for
information, notices of claim, demand letters, and other notifications,
received by Borrower in connection with its ownership or use of its properties
or the conduct of its business, relating to potential responsibility with
respect to any investigation or clean-up of Hazardous Material at any location.
Section 6.13. Evidence of Compliance. Each Restricted Person will
furnish to Agent at such Restricted Person's or Borrower's expense all evidence
which Agent from time to time reasonably requests in writing as to the accuracy
and validity of or compliance with all representations, warranties and
covenants made by any Restricted Person in the Loan Documents, the satisfaction
of all conditions contained therein, and all other matters pertaining thereto.
Section 6.14. Solvency. Upon giving effect to the issuance of the
Notes, the execution of the Loan Documents by Borrower and the consummation of
the transactions contemplated hereby, Borrower will be solvent (as such term is
used in applicable bankruptcy, liquidation, receivership, insolvency or similar
laws).
Section 6.15. Agreement to Deliver Security Documents. Borrower
agrees to deliver and to cause each other Restricted Person to deliver, to
further secure the Obligations whenever requested by Agent in its sole and
absolute discretion, deeds of trust, mortgages, chattel mortgages, security
agreements, financing statements and other Security Documents in form and
substance satisfactory to Agent for the purpose of granting, confirming, and
perfecting first and prior liens or security interests in any real or personal
property now owned or hereafter acquired
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by any Restricted Person and first and prior liens or security interests in any
real or personal property which is at such time Collateral or which was
intended to be Collateral pursuant to any Security Document previously executed
and not then released by Agent. Borrower also agrees to deliver, whenever
requested by Agent in its sole and absolute discretion, favorable title
opinions from legal counsel acceptable to Agent with respect to any Restricted
Person's properties and interests designated by Agent (but specifically
excluding properties or interests for which Agent has previously received
favorable title opinions acceptable to Agent) based upon abstract or record
examinations to dates acceptable to Agent and (a) stating that such Restricted
Person has good and defensible title to such properties and interests, free and
clear of all Liens other than Permitted Liens, (b) confirming that such
properties and interests are subject to Security Documents securing the
Obligations that constitute and create legal, valid and duly perfected first
deed of trust or mortgage liens in such properties and interests and first
priority assignments of and security interests in the oil and gas attributable
to such properties and interests and the proceeds thereof, and (c) covering
such other matters as Agent may request.
Section 6.16. Perfection and Protection of Security Interests and
Liens. Borrower will from time to time deliver, and will cause each other
Restricted Person from time to time to deliver, to Agent any financing
statements, continuation statements, extension agreements and other documents,
properly completed and executed (and acknowledged when required) by Restricted
Persons in form and substance satisfactory to Agent, which Agent requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing any Obligations.
Section 6.17. Bank Accounts; Offset. To secure the repayment of the
Obligations, Borrower hereby grants to each Bank Party a security interest, a
lien, and a right of offset, each of which shall be in addition to all other
interests, liens, and rights of any Bank Party at common law, under the Loan
Documents, or otherwise, and each of which shall be upon and against (a) any
and all moneys, securities or other property (and the proceeds therefrom) of
Borrower now or hereafter held or received by or in transit to any Bank Party
from or for the account of Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, (b) any and all deposits (general or
special, time or demand, provisional or final) of Borrower with any Bank Party,
and (c) any other credits and claims of Borrower at any time existing against
any Bank Party, including claims under certificates of deposit. At any time
and from time to time after the occurrence of any Default, each Bank Party is
hereby authorized to foreclose upon, or to offset against the Obligations then
due and payable (in either case without notice to Borrower), any and all items
hereinabove referred to. The remedies of foreclosure and offset are separate
and cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
Section 6.18. Guaranties of Borrower's Subsidiaries. Each Subsidiary
of Borrower now existing or created, acquired or coming into existence after
the date hereof shall, promptly upon request by Agent, execute and deliver to
Agent an absolute and unconditional guaranty of the timely repayment of the
Obligations and the due and punctual performance of the obligations of Borrower
hereunder, which guaranty shall be satisfactory to Agent in form and substance.
Each Subsidiary of Borrower existing on the date hereof shall duly execute and
deliver such a guaranty
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prior to the making of any Loan hereunder. Borrower will cause each of such
Subsidiaries to deliver to Agent, simultaneously with its delivery of such a
guaranty, written evidence satisfactory to Agent and its counsel that such
Subsidiary has taken all corporate or partnership action necessary to duly
approve and authorize its execution, delivery and performance of such guaranty
and any other documents which it is required to execute.
Section 6.19. Production Proceeds. Notwithstanding that, by the
terms of the various Security Documents, Restricted Persons are and will be
assigning to Agent and Lenders all of the "Production Proceeds" (as defined
therein) accruing to the property covered thereby, so long as no Default has
occurred Restricted Persons may continue to receive from the purchasers of
production all such Production Proceeds, subject, however, to the Liens created
under the Security Documents, which Liens are hereby affirmed and ratified.
Upon the occurrence of a Default, Agent and Lenders may exercise all rights and
remedies granted under the Security Documents, including the right to obtain
possession of all Production Proceeds then held by Restricted Persons or to
receive directly from the purchasers of production all other Production
Proceeds. In no case shall any failure, whether purposed or inadvertent, by
Agent or Lenders to collect directly any such Production Proceeds constitute in
any way a waiver, remission or release of any of their rights under the
Security Documents, nor shall any release of any Production Proceeds by Agent
or Lenders to Restricted Persons constitute a waiver, remission, or release of
any other Production Proceeds or of any rights of Agent or Lenders to collect
other Production Proceeds thereafter.
ARTICLE VII - Negative Covenants of Borrower
To conform with the terms and conditions under which each Bank Party
is willing to have credit outstanding to Borrower, and to induce each Bank
Party to enter into this Agreement and make the Loans, Borrower warrants,
covenants and agrees that until the full and final payment of the Obligations
and the termination of this Agreement, unless Majority Lenders have previously
agreed otherwise:
Section 7.1. Indebtedness. No Restricted Person will in any manner
owe or be liable for Indebtedness except:
(a) the Obligations;
(b) obligations under operating leases entered into in the ordinary
course of such Restricted Person's business in arm's length transactions at
competitive market rates under competitive terms and conditions in all
respects, provided that the obligations required to be paid in any Fiscal Year
under any such operating leases do not in the aggregate exceed $500,000;
(c) unsecured Indebtedness among Borrower and the Guarantors arising
in the ordinary course of business;
(d) Indebtedness outstanding under the instruments and agreements
described on the Disclosure Schedule, excluding any renewals or extensions of
such Liabilities;
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(e) Indebtedness arising under Hedging Contracts permitted under
Section 7.3; and
(f) miscellaneous items of Indebtedness not described in subsections
(a) through (e) which do not in the aggregate (taking into account all such
Indebtedness of all Restricted Persons) exceed $250,000 at any one time
outstanding.
Section 7.2. Limitation on Liens. No Restricted Person will create,
assume or permit to exist any Lien upon any of the properties or assets which
it now owns or hereafter acquires, except, to the extent not otherwise
forbidden by the Security Documents the following ("Permitted Liens"):
(a) Liens which secure Obligations only;
(b) statutory Liens for taxes, statutory or contractual mechanics'
and materialmen's Liens incurred in the ordinary course of business, and other
similar Liens incurred in the ordinary course of business, provided such Liens
do not secure Indebtedness and secure only obligations which are not delinquent
or which are being contested as provided in Section 6.7;
(c) Liens securing Indebtedness described in Section 7.1(b);
(d) Liens permitted under Section 7.3(a)(3); and
(e) as to property which is Collateral, any Liens expressly permitted
to encumber such Collateral under any Security Document covering such
Collateral.
Section 7.3. Hedging Contracts. No Restricted Person will be a party
to or in any manner be liable on any Hedging Contract, except:
(a) contracts entered into with the purpose and effect of fixing
prices on oil or gas expected to be produced by Restricted Persons, provided
that at all times: (1) no such contract fixes a price for a term of more than
twenty- four (24) months; (2) the aggregate monthly production covered by all
such contracts (determined, in the case of contracts that are not settled on a
monthly basis, by a monthly proration acceptable to Agent) for any single month
does not in the aggregate exceed eighty-five percent (85%) of Restricted
Persons' aggregate Projected Oil and Gas Production anticipated to be sold in
the ordinary course of Restricted Persons' businesses for such month, (3) no
such contract requires any Restricted Person to put up money, assets, letters
of credit or other security against the event of the nonperformance of its
obligations thereunder; provided that Borrower may put up cash margin or
Letters of Credit in favor of a counterparty which is not a Lender provided
that the aggregate amount of all such cash margin or Letters of Credit so
required under all Hedging Contracts shall not exceed $1,000,000, and (4) each
such contract is with a counterparty or has a guarantor of the obligation of
the counterparty who (unless such counterparty is a Bank Party or one of its
Affiliates) at the time the contract is made has long-term obligations rated A
or A2 or better, respectively, by either Rating Agency or is an investment
grade-rated industry participant. As used in this subsection, the term
"Projected Oil and Gas Production" means the projected production of oil or gas
(measured by volume unit
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or BTU equivalent, not sales price) for the term of the contracts or a
particular month, as applicable, from properties and interests owned by any
Restricted Person which are located in or offshore of the United States and
which have attributable to them proved oil or gas reserves, as such production
is projected in the most recent report delivered pursuant to Section 6.2(d) or
(e), after deducting projected production from any properties or interests sold
or under contract for sale that had been included in such report and after
adding projected production from any properties or interests that had not been
reflected in such report but that are reflected in separate or supplemental
reports meeting the requirements of such Section 6.2(d) or (e) above and
otherwise are satisfactory to Agent.
(b) contracts entered into by a Restricted Person with the purpose
and effect of fixing interest rates on a principal amount of indebtedness of
such Restricted Person that is accruing interest at a variable rate, provided
that (1) the aggregate notional amount of such contracts never exceeds
seventy-five percent (75%) of the anticipated outstanding principal balance of
the indebtedness to be hedged by such contracts or an average of such principal
balances calculated using a generally accepted method of matching interest swap
contracts to declining principal balances, (2) the floating rate index of each
such contract generally matches the index used to determine the floating rates
of interest on the corresponding indebtedness to be hedged by such contract and
(3) each such contract is with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Bank Party or
one of its Affiliates) at the time the contract is made has long-term
obligations rated A or A2 or better, respectively, by either Rating Agency or
is an investment grade-rated industry participant.
Section 7.4. Limitation on Mergers, Issuances of Securities,
Diminution of Interests. Except as expressly provided in this subsection no
Restricted Person will merge or consolidate with or into any other business
entity. Any Subsidiary of Borrower may, however, be merged into or
consolidated with (i) another Subsidiary of Borrower, so long as no diminution
of Borrower's interest (direct or indirect) therein shall occur, and if one
such entity is a Guarantor, a Guarantor is the surviving business entity, or
(ii) Borrower, so long as Borrower is the surviving business entity. Borrower
will not issue any securities other than shares of its common stock and any
options or warrants giving the holders thereof only the right to acquire such
shares. No Subsidiary of Borrower will issue any additional shares of its
capital stock or other securities or any options, warrants or other rights to
acquire such additional shares or other securities except to Borrower and only
to the extent not otherwise forbidden under the terms hereof. No Subsidiary of
Borrower which is a partnership will allow any diminution of Borrower's
interest (direct or indirect) therein.
Section 7.5. Limitation on Sales of Property. No Restricted Person
will sell, transfer, lease, exchange, alienate or dispose of any Collateral or
any of its material assets or properties or any material interest therein
except, to the extent not otherwise forbidden under the Security Documents:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;
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(b) inventory (including oil and gas sold as produced and seismic
data) which is sold in the ordinary course of business on ordinary trade terms;
(c) Borrower's interests in oil and gas leases subject to the
Exploration Agreement, and other interests in oil and gas properties, or
portions thereof, to which no proved reserves of oil, gas or other liquid or
gaseous hydrocarbons are properly attributed;
(d) Sale of Borrower's approximately 100 acres of land located near
Ingleside, Texas;
(e) Non-cash exchanges of interests in oil and gas properties for
other interests in oil and gas properties, not in excess of $500,000.00 in the
case of any single transaction (or group of related transactions) and not in
excess of $2,000,000.00 in the aggregate in any Fiscal Year, such value
determined using (i) the discounted present value of projected future net
revenue assigned to the properties transferred in the engineering report most
recently delivered pursuant to Section 6.2(d), using a 10% discount rate and
unescalated prices meeting the reporting requirements of Regulations S-K and
S-X promulgated by the Securities and Exchange Commission or, (ii) if no such
value was assigned to such properties in such report, the value determined in
good faith by the Board of Directors of Borrower as being the fair market value
of such properties.
(f) other property (excluding Collateral) which is sold for fair
consideration not in the aggregate in excess of $500,000 in any Fiscal Year,
the sale of which will not materially impair or diminish the value of the
Collateral or Borrower's Consolidated financial condition, business or
operations; and
(g) Cash Equivalents.
No Restricted Person will sell, transfer or otherwise dispose of capital stock
of or interest in any of the Restricted Persons except as permitted by Section
7.4 hereof. No Restricted Person will discount, sell, pledge or assign any
notes payable to it, accounts receivable or future income.
Section 7.6. Limitation on Dividends and Redemptions. No Restricted
Person will declare or pay any dividends on, or make any other distribution in
respect of, any class of its capital stock or any partnership or other interest
in it, nor will any Restricted Person directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any shares of the
capital stock of or partnership interests in any Restricted Person (whether
such interests are now or hereafter issued, outstanding or created), or cause
or permit any reduction or retirement of the capital stock of any Restricted
Person, except (i) Borrower may make normal quarterly dividends for any quarter
prior to and including the Fiscal Quarter ending June 30, 1999 on Borrower's
Class C Preferred Stock to the extent outstanding on the date of this Agreement
not to exceed $0.12 per share per quarter, so long as both before and after
giving effect to such dividend, no Default shall have occurred and be
continuing and no proceed of the Loan are used to pay such dividends, (ii)
Borrower may declare dividends payable only in its common stock, (iii) Borrower
may redeem Borrower's Class C Preferred Stock for consideration consisting only
of common stock; and (iv) dividends, distributions, contributions, purchases,
redemptions,
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acquisitions, retirements or reductions may be made by Borrower and it
Subsidiaries to Borrower or to Subsidiaries of Borrower which are Guarantors.
Section 7.7. Limitation on Investments and New Businesses. No
Restricted Person will (i) make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of business, (ii) engage directly or indirectly in any business or
conduct any operations except the purchase, sale, exploration and development
of oil and natural gas properties, production transportation and marketing of
oil and natural gas from its properties, gathering, treating and processing of
natural gas and business and operations incidental to such businesses and
operations, (iii) make any acquisitions of or capital contributions to or other
investments in any Person, other than Permitted Investments or other
Investments in the aggregate not in excess of $300,000, or (iv) make any
significant acquisitions or investments in any properties other than oil and
gas properties or gas pipelines.
Section 7.8. Limitation on Credit Extensions. Except for Permitted
Investments, no Restricted Person will extend credit, make advances or make
loans other than (i) normal and prudent extensions of credit to customers
buying goods and services in the ordinary course of business, which extensions
shall not be for longer periods than those extended by similar businesses
operated in a normal and prudent manner, (ii) extensions of credit customary in
the industry in the ordinary course of business to non-operators under joint
operating agreements, and (iii) advances to employees for reimbursable expenses
of such employees in the ordinary course of business.
Section 7.9. Transactions with Affiliates and Partnerships. Except
as disclosed in the Disclosure Schedule, no Restricted Person will engage in
any material transaction with any of its Affiliates on terms which are less
favorable to it than those which would have been obtainable at the time in
arm's-length dealing with Persons other than such Affiliates, provided that
such restriction shall not apply to transactions among Borrower and its wholly
owned Subsidiaries.
Section 7.10. Certain Contracts; Amendments; Multiemployer ERISA
Plans. Except as expressly provided for in the Loan Documents, no Restricted
Person will, directly or indirectly, enter into, create, or otherwise allow to
exist any contract or other consensual restriction on the ability of any
Subsidiary of Borrower to: (i) pay dividends or make other distributions to
Borrower, (ii) to redeem equity interests held in it by Borrower, (iii) to
repay loans and other indebtedness owing by it to Borrower, or (iv) to transfer
any of its assets to Borrower. No Restricted Person will 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 Agent
or any Lender under or acquired pursuant to any Security Documents. No ERISA
Affiliate will incur any obligation to contribute to any "multiemployer plan"
as defined in Section 4001 of ERISA.
Section 7.11. Working Capital and Current Ratio. The ratio of
Borrower's Consolidated current assets to Borrower's Consolidated current
liabilities will never be less than 1.0 to 1.0. For purposes of this section,
Borrower's Consolidated current assets will include any unused portion of the
Borrowing Base which is then available for borrowing.
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Section 7.12. Tangible Net Worth. Borrower will not, at any time,
permit Consolidated Net Worth to be less than the sum of (a) $20,000,000 plus
(b) an aggregate amount equal to fifty percent (50%) of its Consolidated Net
Income for each Fiscal Quarter (but, in each case, only including such Fiscal
Quarters for which Consolidated Net Income is a positive number) from and after
December 31, 1997 to and including the date of determination thereof, computed
on a cumulative basis for such period plus (c) one hundred percent (100%) of
the net proceeds (after costs of sale) of any stock hereafter issued by
Borrower. For purposes of this section, the net proceeds of that portion of any
stock which is issued for assets other than cash shall be equal to the increase
in Borrower's Consolidated tangible assets derived from such assets.
Section 7.13. EBITDA. The ratio of (a) Borrower's Consolidated
EBITDA to (b) Consolidated Interest Expense will not be less than 2.75 to 1.0,
(i) for the one-Fiscal Quarter period ending September 30, 1998, (ii) for the
two- Fiscal Quarter period ending December 31, 1998, (iii) for the three-Fiscal
Quarter period ending March 31, 1999 or (iv) for the four-Fiscal Quarter period
ending with each Fiscal Quarter thereafter.
ARTICLE VIII - Events of Default and Remedies
Section 8.1. Events of Default. Each of the following events
constitutes an Event of Default under this Agreement:
(a) Any Restricted Person fails to pay the principal component of any
Obligation when 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) Any Restricted Person fails to pay any Obligation (other than the
Obligations in clause (a) above) when 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, within three
Business Days after the same becomes due;
(c) Any "default" or "event of default" occurs under any Loan
Document which defines either such term, and the same is not remedied within
the applicable period of grace (if any) provided in such Loan Document;
(d) Any Restricted Person fails to duly observe, perform or comply
with any covenant, agreement or provision of Section 6.4 or Article VII;
(e) Any Restricted Person fails (other than as referred to in
subsections (a), (b), (c) or (d) above) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Loan Document, and such
failure remains unremedied for a period of thirty (30) days after notice of
such failure is given by Agent to Borrower;
(f) Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of any Restricted Person in connection with any
Loan Document shall prove to have
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been false or incorrect in any material respect on any date on or as of which
made, or any Loan Document at any time ceases to be valid, binding and
enforceable as warranted in Section 5.5 for any reason other than its release
or subordination by Agent;
(g) Any Restricted Person fails to duly observe, perform or comply
with any agreement with any Person or any term or condition of any other
instrument, if such agreement or instrument is materially significant to
Borrower or to Borrower and its subsidiaries on a Consolidated basis or
materially significant to any Guarantor, and such failure is not remedied
within the applicable period of grace (if any) provided in such agreement or
instrument;
(h) Any Restricted Person (i) fails to pay any portion, when such
portion is due, of any of its Indebtedness in excess of $50,000 (other than
Indebtedness contested in good faith by appropriate proceedings and for which
such Restricted Person has set aside on its books adequate reserves, or (ii)
breaches or defaults in the performance of any agreement or instrument by which
any such Indebtedness is issued, evidenced, governed, or secured, and any such
failure, breach or default continues beyond any applicable period of grace
provided therefor;
(i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess of
$100,000 exists with respect to any ERISA Plan, whether or not waived by the
Secretary of the Treasury or his delegate, or (ii) any Termination Event occurs
with respect to any ERISA Plan and the then current value of such ERISA Plan's
benefit liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $100,000 (or
in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer's proportionate share of such excess exceeds
such amount); and
(j) Any Restricted Person:
(i) suffers the entry against it of a judgment, decree or
order for relief by a Tribunal 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 thirty 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) its 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
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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 thirty 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 final judgment for the
payment of money in excess of $50,000 (not covered by insurance
satisfactory to Agent in its discretion), unless the same is
discharged within thirty days after the date of entry thereof or an
appeal or appropriate proceeding for review thereof is taken within
such period and a stay of execution pending such appeal is obtained;
or
(v) suffers a writ or warrant of attachment or any similar
process to be issued by any Tribunal 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 thirty days after the entry or levy thereof or after any stay
is vacated or set aside;
(k) Borrower fails to duly observe, perform or comply with the
Exploration Agreement, and such failure is not remedied within the applicable
period of grace (if any) provided in such agreement, and as a result of one or
more such failures Borrower incurs damages or liabilities thereunder
(including, but not limited to, liquidated damages under Article 3 thereof) in
excess of $250,000; or
(l) Any Change in Control occurs.
Upon the occurrence of an Event of Default described in subsection (j)(i),
(j)(ii) or (j)(iii) of this section with respect to Borrower, 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 Restricted Person who at any time
ratifies or approves this Agreement. Upon any such acceleration, any
obligation of any Lender to make any further Loans shall be permanently
terminated. During the continuance of any other Event of Default, Agent at any
time and from time to time may (and upon written instructions from Majority
Lenders, Agent shall), without notice to Borrower or any other Restricted
Person, do either or both of the following: (1) terminate any obligation of
Lenders to make Loans hereunder, and (2) 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
and each Restricted Person who at any time ratifies or approves this Agreement.
Section 8.2. Remedies. If any Default shall occur and be continuing,
each Bank Party 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
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Loan Document, and each Bank Party may enforce the payment of any Obligations
due it or enforce any other legal or equitable right which it may have. All
rights, remedies and powers conferred upon Bank Parties 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.
ARTICLE IX - Agent
Section 9.1. Appointment and Authority. Each Bank Party hereby
irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments
of principal, interest and other amounts due hereunder as specified herein and
to take all other actions and to exercise such powers under the Loan Documents
as are specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto. The relationship of Agent
to the other Bank Parties is only that of one commercial lender acting as
administrative agent for others, and nothing in the Loan Documents shall be
construed to constitute Agent a trustee or other fiduciary for any holder of
any of the Notes or of any participation therein nor to impose on Agent duties
and obligations other than those expressly provided for in the Loan Documents.
With respect to any matters not expressly provided for in the Loan Documents
and any matters which the Loan Documents place within the discretion of Agent,
Agent shall not be required to exercise any discretion or take any action, and
it may request instructions from Lenders with respect to any such matter, in
which case it shall be required to act or to refrain from acting (and shall be
fully protected and free from liability to all Lenders in so acting or
refraining from acting) upon the instructions of Majority Lenders (including
itself), provided, however, that Agent shall not be required to take any action
which exposes it to a risk of personal liability that it considers unreasonable
or which is contrary to the Loan Documents or to applicable Law. Upon receipt
by Agent from Borrower of any communication calling for action on the part of
Lenders or upon notice from any other Bank Party to Agent of any Default or
Event of Default, Agent shall promptly notify each other Bank Party thereof.
Section 9.2. Exculpation, Agent's Reliance, Etc. Neither Agent nor
any of its directors, officers, agents, attorneys, or employees shall be liable
for any action taken or omitted to be taken by any of them under or in
connection with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND,
except that each shall be liable for its own gross negligence or willful
misconduct. Without limiting the generality of the foregoing, Agent (a) may
treat the payee of any Note as the holder thereof until Agent receives written
notice of the assignment or transfer thereof in accordance with this Agreement,
signed by such payee and in form satisfactory to Agent; (b) may consult with
legal counsel (including counsel for Borrower), independent public accountants
and other experts selected by it and shall not be liable for any action taken
or omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts; (c) makes no warranty or representation
to any other Bank Party and shall not be responsible to any other Bank Party
for any statements, warranties or representations made in or in connection with
the Loan Documents; (d) shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions
of the Loan
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Documents on the part of any Restricted Person or to inspect the property
(including the books and records) of any Restricted Person; (e) shall not be
responsible to any other Bank Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document or any
instrument or document furnished in connection therewith; (f) may rely upon the
representations and warranties of each Restricted Person and the Lenders in
exercising its powers hereunder; and (g) shall incur no liability under or in
respect of the Loan Documents by acting upon any notice, consent, certificate
or other instrument or writing (including any telecopy, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper Person or
Persons.
Section 9.3. Credit Decisions. Each Bank Party acknowledges that it
has, independently and without reliance upon any other Bank Party, made its own
analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Bank Party also acknowledges that it will, independently and without
reliance upon any other Bank Party and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents.
Section 9.4. Indemnification. Each Lender agrees to indemnify Agent
(to the extent not reimbursed by Borrower within ten (10) days after demand)
from and against such Lender's Percentage Share of any and all liabilities,
obligations, claims, losses, damages, penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable fees
of attorneys, accountants, 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 Agent growing out of, resulting from or in any other way associated
with any of the Collateral, the Loan Documents and the transactions and events
(including the enforcement 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 OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY AGENT,
provided only that no Lender shall be obligated under this section to indemnify
Agent for that portion, if any, of any liabilities and costs which is
proximately caused by Agent's own individual gross negligence or willful
misconduct, as determined in a final judgment. Cumulative of the foregoing,
each Lender agrees to reimburse Agent promptly upon demand for such Lender's
Percentage Share of any costs and expenses to be paid to Agent by Borrower
under Section 10.4(a) to the extent that Agent is not timely reimbursed for
such expenses by Borrower as provided in such section. As used in this section
the term "Agent" shall refer not only to the
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Person designated as such in Section 1.1 but also to each director, officer,
agent, attorney, employee, representative and Affiliate of such Person.
Section 9.5. Rights as Lender. In its capacity as a Lender, Agent
shall have the same rights and obligations as any Lender and may exercise such
rights as though it were not Agent. Agent may accept deposits from, lend money
to, act as Trustee under indentures of, and generally engage in any kind of
business with any Restricted Person or their Affiliates, all as if it were not
Agent hereunder and without any duty to account therefor to any other Lender.
Section 9.6. Sharing of Set-Offs and Other Payments. Each Bank Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Agent under Section
3.1, causes such Bank Party to have received more than it would have received
had such payment been received by Agent and distributed pursuant to Section
3.1, then (a) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Bank Parties to share all payments as provided for in Section 3.1, and (b) such
other adjustments shall be made from time to time as shall be equitable to
ensure that Agent and all Lenders share all payments of Obligations as provided
in Section 3.1; provided, however, that nothing herein contained shall in any
way affect the right of any Bank Party to obtain payment (whether by exercise
of rights of banker's lien, set-off or counterclaim or otherwise) of
indebtedness other than the Obligations. Borrower expressly consents to the
foregoing arrangements and agrees that any holder of any such interest or other
participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law exercise any
and all rights of banker's lien, set-off, or counterclaim as fully as if such
holder were a holder of the Obligations in the amount of such interest or other
participation. If all or any part of any funds transferred pursuant to this
section is thereafter recovered from the seller under this section which
received the same, the purchase provided for in this section shall be deemed to
have been rescinded to the extent of such recovery, together with interest, if
any, if interest is required pursuant to Tribunal order to be paid on account
of the possession of such funds prior to such recovery.
Section 9.7. Investments. Whenever Agent in good faith determines
that it is uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any dispute
among Lenders about how such funds should be distributed, Agent may choose to
defer distribution of the funds which are the subject of such uncertainty or
dispute. If Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Agent is otherwise required to invest funds
pending distribution to Lenders, Agent shall invest such funds pending
distribution; all interest on any such investment shall be distributed upon the
distribution of such investment and in the same proportion and to the same
Persons as such investment. All moneys received by Agent for distribution to
Lenders (other than to the Person who is Agent in its separate capacity as a
Lender) shall be held by Agent pending such distribution solely as Agent for
such Lenders, and Agent shall have no equitable title to any portion thereof.
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Section 9.8. Benefit of Article IX. The provisions of this Article
(other than the following Section 9.9) are intended solely for the benefit of
Bank Parties, and no Restricted Person shall be entitled to rely on any such
provision or assert any such provision in a claim or defense against any Bank
Party. Bank Parties may waive or amend such provisions as they desire without
any notice to or consent of Borrower or any Restricted Person.
Section 9.9. Resignation. Agent may resign at any time by giving
written notice thereof to Lenders and Borrower. Each such notice shall set
forth the date of such resignation. Upon any such resignation Borrower may,
with the written concurrence of Majority Lenders designate a successor Agent.
If within fifteen days after the date of such resignation Borrower makes no
such designation or such written concurrence is not given, Majority Lenders
shall have the right to appoint a successor Agent. A successor must be
appointed for any retiring Agent, and such Agent's resignation shall become
effective when such successor accepts such appointment. If, within thirty days
after the date of the retiring Agent's resignation, no successor Agent has been
appointed and has accepted such appointment, then the retiring Agent may
appoint a successor Agent, which shall be a commercial bank organized or
licensed to conduct a banking or trust business under the Laws of the United
States of America or of any state thereof. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, the retiring Agent shall
be discharged from its duties and obligations under this Agreement and the
other Loan Documents. After any retiring Agent's resignation hereunder the
provisions of this Article IX shall continue to inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under the Loan
Documents.
ARTICLE X - Miscellaneous
Section 10.1. Waivers and Amendments; Acknowledgments.
(a) Waivers and Amendments. No failure or delay (whether by course
of conduct or otherwise) by any Bank Party in exercising any right, power or
remedy which such Bank Party 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 any Bank Party 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 as provided below in this section, 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 any Restricted Person shall in any case of itself entitle any
Restricted Person 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 between the parties hereto 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 waiver, consent, release, modification or amendment of or
supplement to this Agreement or the other Loan Documents shall be valid or
effective against any party hereto unless the same is in writing and signed by
(i) if such party is Borrower, by Borrower, (ii) if such party is Agent or LC
Issuer, by
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such party, and (iii) if such party is a Lender, by such Lender or by Agent on
behalf of Lenders with the written consent of Majority Lenders (which consent
has already been given as to the termination of the Loan Documents as provided
in Section 10.9). Notwithstanding the foregoing or anything to the contrary
herein, Agent shall not, without the prior consent of each individual Lender,
execute and deliver on behalf of such Lender any waiver or amendment which
would: (1) waive any of the conditions specified in Article IV (provided that
Agent may in its discretion withdraw any request it has made under Section
4.3(f)), (2) increase the Maximum Loan Amount of such Lender or subject such
Lender to any additional obligations, (3) reduce any fees payable to such
lender hereunder, or the principal of, or interest on, such Lender's Note, (4)
postpone any date fixed for any payment of any such fees, principal or
interest, (5) amend the definition herein of "Majority Lenders" or otherwise
change the aggregate amount of Percentage Shares which is required for Agent,
Lenders or any of them to take any particular action under the Loan Documents,
or (6) release Borrower from its obligation to pay such Lender's Note or any
Guarantor from its guaranty of such payment.
(b) Acknowledgments and Admissions. Borrower hereby represents,
warrants, acknowledges and admits 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 an independent decision 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 Agent or any 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 any Bank Party 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) no Bank Party has any fiduciary obligation toward Borrower
with respect to any Loan Document or the transactions contemplated thereby, (v)
the relationship pursuant to the Loan Documents between Borrower and the other
Restricted Persons, on one hand, and each Bank Party, 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 any
Restricted Person and any Bank Party, (vii) Agent is not Borrower's Agent, but
Agent for Lenders, (viii) should an Event of Default or Default occur or exist,
each Bank Party 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,
(ix) without limiting any of the foregoing, Borrower is not relying upon any
representation or covenant by any Bank Party, or any representative thereof,
and no such representation or covenant has been made, that any Bank Party will,
at the time of an Event of Default or 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 Default or any
other provision of the Loan Documents, and (x) all Bank Parties have relied
upon the truthfulness of the acknowledgments in this section in deciding to
execute and deliver this Agreement and to become obligated hereunder.
(c) Representation by Lenders. Each Lender hereby represents that it
will acquire its Note for its own account in the ordinary course of its
commercial lending business; however, the disposition of such Lender's property
shall at all times be and remain within its control and, in particular and
without limitation, such Lender may sell or otherwise transfer its Note, any
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participation interest or other interest in its Note, or any of its other
rights and obligations under the Loan Documents.
(d) Joint Acknowledgment. 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 10.2. Survival of Agreements; Cumulative Nature. All of
Restricted Persons' various representations, warranties, covenants and
agreements 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 Notes and the other Loan Documents, and shall further survive until all of
the Obligations are paid in full to each Bank Party and all of Bank Parties'
obligations to Borrower are terminated. All statements and agreements
contained in any certificate or other instrument delivered by any Restricted
Person to any Bank Party under any Loan Document shall be deemed
representations and warranties by Borrower or agreements and covenants of
Borrower under this Agreement. The representations, warranties, indemnities,
and covenants made by Restricted Persons in the Loan Documents, and the rights,
powers, and privileges granted to Bank Parties 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 any Bank Party of any such representation,
warranty, indemnity, covenant, right, power or privilege. In particular and
without limitation, no exception set out in this Agreement to any
representation, warranty, indemnity, or covenant herein contained shall apply
to any similar representation, warranty, indemnity, or covenant contained in
any other Loan Document, and each such similar representation, warranty,
indemnity, 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 10.3. 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 (provided
that Agent may give telephonic notices to the other Bank Parties), and shall be
deemed sufficiently given or furnished if delivered by personal delivery, by
telecopy or telex, by delivery service with proof of delivery, or by registered
or certified United States mail, postage prepaid, to Borrower and Restricted
Persons at the address of Borrower specified on the signature pages hereto and
to each Bank Party at its address specified on the signature pages hereto
(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 first attempted delivery during normal business
hours at the address provided herein, (b) in the case of telecopy or telex,
upon receipt, or (c) in the case of
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registered or certified United States mail, three days after deposit in the
mail; provided, however, that no Borrowing Notice shall become effective until
actually received by Agent.
Section 10.4. Payment of Expenses; Indemnity.
(a) Payment of Expenses. Whether or not the transactions
contemplated by this Agreement are consummated, Borrower will promptly (and in
any event, within 30 days after any invoice or other statement or notice) pay:
(i) all transfer, stamp, mortgage, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect of this Agreement or any of the other Loan Documents or any other
document referred to herein or therein, (ii) all reasonable costs and expenses
incurred by or on behalf of Agent (including attorneys' fees, consultants' fees
and engineering fees, travel costs and miscellaneous expenses) in connection
with (1) the negotiation, preparation, execution and delivery of the Loan
Documents, and any and all consents, waivers or other documents or instruments
relating thereto, (2) the filing, recording, refiling and re-recording of any
Loan Documents and any other documents or instruments or further assurances
required to be filed or recorded or refiled or re-recorded by the terms of any
Loan Document, (3) the borrowings hereunder and other action reasonably
required in the course of administration hereof, (4) monitoring or confirming
(or preparation or negotiation of any document related to) Borrower's
compliance with any covenants or conditions contained in this Agreement or in
any Loan Document, and (iii) all reasonable costs and expenses incurred by or
on behalf of any Bank Party (including attorneys' fees, consultants' fees and
accounting fees) in connection with the defense or enforcement of any of the
Loan Documents (including this section) or the defense of any Bank Party's
exercise of its rights thereunder. In addition to the foregoing, until all
Obligations have been paid in full, Borrower will also pay or reimburse Agent
for all reasonable out-of-pocket costs and expenses of Agent or its agents or
employees in connection with the continuing administration of the Loans and the
related due diligence of Agent, including travel and miscellaneous expenses and
fees and expenses of Agent's outside counsel, reserve engineers and consultants
engaged in connection with the Loan Documents.
(b) Indemnity. Borrower agrees to indemnify each Bank Party, 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, accountants,
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 such Bank Party
growing out of, resulting from or in any other way associated with any of the
Collateral, the Loan Documents and 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 Restricted Person or any liabilities or duties of any
Restricted Person or any Bank Party 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 OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR ARE
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CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY
ANY BANK PARTY,
provided only that no Bank Party shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment. If any Person (including
Borrower or any of its Affiliates) ever alleges such gross negligence or
willful misconduct by any Bank Party, the indemnification provided for in this
section shall nonetheless be paid upon demand, subject to later adjustment or
reimbursement, until such time as a court of competent jurisdiction enters a
final judgment as to the extent and effect of the alleged gross negligence or
willful misconduct. As used in this section the term "Bank Parties" shall
refer not only to the Persons designated as such in Section 1.1 but also to
each director, officer, agent, attorney, employee, representative and Affiliate
of such Persons.
Section 10.5. Joint and Several Liability; Parties in Interest;
Assignments.
(a) All Obligations which are incurred by two or more Restricted
Persons shall be their joint and several obligations and liabilities. 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 no Restricted Person may assign or transfer
any of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of Majority Lenders. Neither Borrower nor
any Affiliates of Borrower shall directly or indirectly purchase or otherwise
retire any Obligations owed to any Lender nor will any Lender accept any offer
to do so, unless each Lender shall have received substantially the same offer
with respect to the same Percentage Share of the Obligations owed to it. If
Borrower or any Affiliate of Borrower at any time purchases some but less than
all of the Obligations owed to all Bank Parties, such purchaser shall not be
entitled to any rights of any Bank Party under the Loan Documents unless and
until Borrower or its Affiliates have purchased all of the Obligations.
(b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person other than an Eligible Transferee, and then only if the agreement
between such Lender and such participant at all times provides: (i) that such
participation exists only as a result of the agreement between such participant
and such Lender and that such transfer does not give such participant any right
to vote as a Lender or any other direct claims or rights against any Person
other than such Lender, (ii) that such participant is not entitled to payment
from any Restricted Person under Sections 3.2 through 3.6 of amounts in excess
of those payable to such Lender under such sections (determined without regard
to the sale of such participation), and (iii) unless such participant is an
Affiliate of such Lender, that such participant shall not be entitled to
require such Lender to take any action under any Loan Document or to obtain the
consent of such participant prior to taking any action under any Loan Document,
except for actions which would require the consent of all Lenders under the
last sentence of subsection (a) of Section 10.1. No Lender selling such a
participation shall, as between the other parties hereto and such Lender, be
relieved of any of its obligations hereunder as a result of the sale of such
participation. Each Lender which sells any
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such participation to any Person (other than an Affiliate of such Lender) shall
give prompt notice thereof to Agent and Borrower.
(c) Except for sales of participations under the immediately
preceding subsection (b), no Lender shall make any assignment or transfer of
any kind of its commitments or any of its rights under its Loans or under the
Loan Documents, except for assignments to an Eligible Transferee, and then only
if such assignment is made in accordance with the following requirements:
(i) Each such assignment shall apply to all Obligations owing
to the assignor Lender hereunder and to the unused portion of the
assignor Lender's commitments, so that after such assignment is made
the assignor Lender shall have a fixed (and not a varying) Percentage
Share in its Loans and Note and be committed to make that Percentage
Share of all future Loans, the assignee shall have a fixed Percentage
Share in such Loans and Note and be committed to make that Percentage
Share of all future Loans, and the Percentage Share of the Maximum
Loan Amount of both the assignor and assignee shall equal or exceed
$5,000,000.
(ii) The parties to each such assignment shall execute and
deliver to Agent, for its acceptance and recording in the "Register"
(as defined below in this section), an Assignment and Assumption
Agreement in the form of Exhibit H, appropriately completed, together
with the Note subject to such assignment and a processing fee payable
to Agent of $3,500. Upon such execution, delivery, and payment and
upon the satisfaction of the conditions set out in such Assignment and
Assumption Agreement, then (i) Borrower shall issue new Notes to such
assignor and assignee upon return of the old Notes to Borrower, and
(ii) as of the "Settlement Date" specified in such Assignment and
Acceptance the assignee thereunder shall be a party hereto and a
Lender hereunder and Agent shall thereupon deliver to Borrower and
each Lender a schedule showing the revised Percentage Shares of such
assignor Lender and such assignee Lender and the Percentage Shares of
all other Lenders.
(iii) Each assignee Lender which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended) for Federal income tax purposes,
shall (to the extent it has not already done so) provide Agent and
Borrower with the "Prescribed Forms" referred to in Section 3.6(d).
(d) Nothing contained in this section shall prevent or prohibit any
Lender from assigning or pledging all or any portion of its Loans and Note to
any Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that no such assignment or pledge
shall relieve such Lender from its obligations hereunder.
(e) By executing and delivering an Assignment and Acceptance, each
assignee Lender thereunder will be confirming to and agreeing with Borrower,
Agents and each other Lender
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hereunder that such assignee understands and agrees to the terms hereof,
including Article IX hereof.
(f) Agent shall maintain a copy of each Assignment and Acceptance and
a register for the recordation of the names and addresses of Lenders and the
Percentage Shares of, and principal amount of the Loans owing to, each Lender
from time to time (in this section called the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and Borrower
and each Bank Party may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes. The Register shall be
available for inspection by Borrower or any Bank Party at any reasonable time
and from time to time upon reasonable prior notice.
Section 10.6. Confidentiality. Each Bank Party agrees that it will
take all reasonable steps to keep confidential any proprietary information
given to it by any Restricted Person, provided, however, that this restriction
shall not apply to information which (i) has at the time in question entered
the public domain, (ii) is required to be disclosed by Law (whether valid or
invalid) of any Tribunal, (iii) is disclosed to any Bank Party's Affiliates,
auditors, attorneys, or agents (provided such Persons are obligated to hold
such information in confidence on the terms provided in this section), (iv) is
furnished to any other Bank Party or to any purchaser or prospective purchaser
of participations or other interests in any Loan or Loan Document (provided
each such purchaser or prospective purchaser first agrees to hold such
information in confidence on the terms provided in this section), or (v) is
disclosed in the course of enforcing its rights and remedies during the
existence of an Event of Default.
Section 10.7. 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 NEW YORK AND SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK AND THE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. BORROWER HEREBY AGREES THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST BORROWER WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OF
THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS BANK
PARTIES MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, BORROWER ACCEPTS AND
CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS, AND FURTHER AGREES
TO A TRANSFER OF ANY SUCH PROCEEDING TO A FEDERAL COURT SITTING IN THE STATE OF
NEW YORK TO THE EXTENT THAT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE
TO A STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SUCH JURISDICTION
SHALL BE EXCLUSIVE, UNLESS WAIVED BY BANK PARTIES IN WRITING, WITH RESPECT TO
ANY ACTION OR PROCEEDING BROUGHT BY IT AGAINST BANK PARTIES AND ANY QUESTIONS
RELATING TO USURY. BORROWER AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN
DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING
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BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. IN
FURTHERANCE OF THE FOREGOING, BORROWER HEREBY IRREVOCABLY DESIGNATES AND
APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK, AS AGENT OF
BORROWER TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST BORROWER WITH
RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED
BY LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS SET FORTH BELOW
AND BY REGULAR MAIL, REGISTERED MAIL COURIER OR MESSENGER TO BORROWER AT ITS
ADDRESS SET FORTH BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE SUCH COPIES
SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. BORROWER
SHALL FURNISH TO BANK PARTIES A CONSENT OF CT CORPORATION SYSTEM AGREEING TO
ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF BANK PARTIES TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF BANK PARTIES TO BRING PROCEEDINGS
AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON CT
CORPORATION SHALL RESIGN OR OTHERWISE CEASE TO ACT AS BORROWER'S AGENT,
BORROWER HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY DESIGNATE AND APPOINT A
NEW AGENT ACCEPTABLE TO AGENT TO SERVE IN SUCH CAPACITY AND, IN SUCH EVENT,
SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CT CORPORATION SYSTEM FOR
ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO BANK PARTIES THE WRITTEN
CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO AGENT) OF SUCH NEW AGENT
AGREEING TO SERVE IN SUCH CAPACITY.
Section 10.8. Limitation on Interest. Bank Parties, Restricted
Persons and the other parties to the Loan Documents intend to contract in
strict compliance with applicable usury Law from time to time in effect. In
furtherance thereof such persons stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to provide
for interest in excess of the maximum amount of interest permitted to be
charged by applicable Law from time to time in effect. Neither any Restricted
Person 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.
Section 10.9. Termination; Limited Survival. In its sole and
absolute discretion Borrower may at any time that no Obligations are owing
elect in a written notice delivered to Agent to terminate this Agreement. Upon
receipt by Agent 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 all prospective obligations thereunder.
Notwithstanding the foregoing or anything herein to the contrary, any waivers
or admissions made by any Restricted Person in any Loan Document, any
Obligations under Sections 3.2 through 3.6, and any obligations which any
Person may have to indemnify or compensate any Bank Party shall survive any
termination of this Agreement or any other Loan Document. At the request and
expense of
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Borrower, Agent shall prepare and execute all necessary instruments to reflect
and effect such termination of the Loan Documents. Agent is hereby authorized
to execute all such instruments on behalf of all Lenders, without the joinder
of or further action by any Lender.
Section 10.10. Partial Release. So long as no Event of Default will
exist after giving effect thereto and, if requested by Agent, Agent has
contemporaneously received a Lien upon any asset, properties or interests
received by Borrower in exchange therefor, upon any transfer of property
permitted under Section 7.5, Agent will release from the Liens under the
Security Documents the property so transferred.
Section 10.11. 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 10.12. 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 10.13. Waiver of Jury Trial, Punitive Damages, etc.
TO THE EXTENT PERMITTED BY LAW, BANK PARTIES AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF SUCH PERSONS OR BORROWER. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR BANK PARTIES' ENTERING INTO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS. BORROWER AND EACH BANK PARTY HEREBY FURTHER (A)
IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES", AS
DEFINED BELOW, (B) CERTIFIES 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, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (C) 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. AS USED IN THIS SECTION, "SPECIAL
DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES
(REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY
PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY
HERETO.
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IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
UNITED STATES EXPLORATION, INC.
Borrower
By:/s/ Bruce D. Benson
------------------------------------
Bruce D. Benson, President and Chief
Executive Officer
Address:
1560 Broadway, Suite 1900
Denver, Colorado 80202
Attention: Bruce D. Benson
Telephone: (303) 863-3550
Telecopy: (303) 863-1932
ING (U.S.) CAPITAL CORPORATION
Agent and Lender
By:/s/ Frank P. Ferraro
------------------------------------
Name: Frank P. Ferraro
Title:Senior Associate
Address:
135 East 57th Street
New York, New York 10022-2101
Attention: Frank Ferrara
Telephone: (212) 409-1733
Telecopy: (212) 832-3616
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SCHEDULE 1
DISCLOSURE SCHEDULE
[Describes exemptions to Borrower's representations and warranties.]
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SCHEDULE 2
SECURITY SCHEDULE
1. Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement from Borrower to Agent to be recorded in Colorado and
Kansas.
2. Mortgage, Assignment, Security Agreement, Fixture Filing and Financing
Statement from Performance Petroleum Co., United States Gas Gathering
Co., Inc. and Pacific Osage, Inc. to Agent to be recorded in
Oklahoma.
3. Financing Statements executed by Borrower in connection with the
Mortgages.
4. Pledge Agreement executed by Borrower in favor of Agent (the "Pledge
Agreement").
5. Financing Statement executed by Borrower in connection with the Pledge
Agreement.
6. Guaranty by Performance Petroleum Co., United States Gas Gathering Co.,
Inc., Pacific Osage, Inc. and Producers Service, Inc
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SCHEDULE 3
INSURANCE SCHEDULE
[Lists Borrower's insurance policies.]
1
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EXHIBIT A
PROMISSORY NOTE
$35,000,000 New York, New York May 15, 1998
FOR VALUE RECEIVED, the undersigned, United States Exploration, Inc.,
a Colorado corporation (herein called "Borrower"), hereby promises to pay to
the order of ING (U.S.) Capital Corporation, (herein called "Lender"), the
principal sum of Thirty-five Million and No/100 Dollars ($35,000,000), or, if
greater or less, the aggregate unpaid principal amount of the Loan made under
this Note by Lender to Borrower pursuant to the terms of the Credit Agreement
(as hereinafter defined), together with interest on the unpaid principal
balance thereof as hereinafter set forth, both principal and interest payable
as herein provided in lawful money of the United States of America at the
offices of the Agent under the Credit Agreement, as from time to time may be
designated by the holder of this Note.
This Note (a) is issued and delivered under that certain Credit
Agreement of even date herewith among Borrower, Lender, as Agent, and the
lenders (including Lender) referred to therein (herein, as from time to time
supplemented, amended or restated, called the "Credit Agreement"), and is a
"Note" as defined therein, (b) is subject to the terms and provisions of the
Credit Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of certain
Security Documents (as identified and defined in the Credit Agreement).
Payments on this Note shall be made and applied as provided herein and in the
Credit Agreement. Reference is hereby made to the Credit Agreement for a
description of certain rights, limitations of rights, obligations and duties of
the parties hereto and for the meanings assigned to terms used and not defined
herein and to the Security Documents for a description of the nature and extent
of the security thereby provided and the rights of the parties thereto.
For the purposes of this Note, the following terms have the meanings
assigned to them below:
"Base Rate Payment Date" means (i) the last day of each Fiscal
Quarter, beginning June 30, 1998, and (ii) any day on which past due interest
or principal is owed hereunder and is unpaid. If the terms hereof or of the
Credit Agreement provide that payments of interest or principal hereon shall be
deferred from one Base Rate Payment Date to another day, such other day shall
also be a Base Rate Payment Date.
"Eurodollar Rate Payment Date" means, with respect to any Eurodollar
Loan: (i) the day on which the related Interest Period ends (and, if such
Interest Period is three months or longer, the three-month anniversary of the
first day of such Interest Period), and (ii) any day on which past due interest
or past due principal is owed hereunder with respect to such Eurodollar Loan
and is unpaid. If the terms hereof or of the Credit Agreement provide that
payments of interest or
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principal with respect to such Eurodollar Loan shall be deferred from one
Eurodollar Rate Payment Date to another day, such other day shall also be a
Eurodollar Rate Payment Date.
The principal amount of this Note shall be due and payable in twenty
(20) quarterly installments, in the amounts set forth below, each of which
shall be due and payable on the last day of each Fiscal Quarter, beginning
March 31, 2000, and continuing regularly thereafter until December 31, 2004, at
which time the unpaid principal balance of this Note and all interest accrued
hereon shall be due and payable in full:
<TABLE>
<S> <C>
March 31, 2000 $2,000,000
June 30, 2000 $2,000,000
September 30, 2000 $2,000,000
December 31, 2000 $2,000,000
March 31, 2001 $1,875,000
June 30, 2001 $1,875,000
September 30, 2001 $1,875,000
December 31, 2001 $1,875,000
March 31, 2002 $1,750,000
June 30, 2002 $1,750,000
September 30, 2002 $1,750,000
December 31, 2002 $1,750,000
March 31, 2003 $1,750,000
June 30, 2003 $1,750,000
September 30, 2003 $1,750,000
December 31, 2003 $1,750,000
March 31, 2004 $1,375,000
June 30, 2004 $1,375,000
September 30, 2004 $1,375,000
December 31, 2004 $1,375,000
</TABLE>
Base Rate Loans from time to time outstanding shall bear interest on
each day outstanding at the Base Rate in effect on such day; unless the Default
Rate shall apply as provided below. On each Base Rate Payment Date Borrower
shall pay to the holder hereof all unpaid interest which has accrued on the
Base Rate Loans to but not including such Base Rate Payment Date. Each
Eurodollar Loan shall bear interest on each day during the related Interest
Period at the related Eurodollar Rate in effect on such day; unless the Default
Rate shall apply as provided below. On each Eurodollar Rate Payment Date
relating to such Eurodollar Loan, Borrower shall pay to the holder hereof all
unpaid interest which has accrued on such Eurodollar Loan to but not including
such Eurodollar Rate Payment Date. All past due principal of and past due
interest on the Loan shall bear interest on each day outstanding at the Default
Rate in effect on such day. Notwithstanding the foregoing provisions of this
paragraph, following the occurrence of an Event of Default and during the
continuance thereof, upon notice to Borrower by Agent, each Loan shall bear
interest at the Default Rate. All interest at the Default Rate shall be due and
payable daily as it accrues. Notwithstanding the foregoing provisions of this
paragraph: (a) this Note shall never bear interest in excess of the Highest
Lawful Rate, and (b) if
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at any time the rate at which interest is payable on this Note is limited by
the Highest Lawful Rate (by the foregoing clause (a) or by reference to the
Highest Lawful Rate in the definitions of Base Rate, Eurodollar Rate, and Late
Payment Rate), this Note shall bear interest at the Highest Lawful Rate and
shall continue to bear interest at the Highest Lawful Rate until such time as
the total amount of interest accrued hereon equals (but does not exceed) the
total amount of interest which would have accrued hereon had there been no
Highest Lawful Rate applicable hereto.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum interest which, under applicable Law, may be
charged on this Note, and this Note is expressly made subject to the provisions
of the Credit Agreement which more fully set out the limitations on how
interest accrues hereon.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, Borrower and
all endorsers, sureties and guarantors of this Note jointly and severally agree
to pay reasonable attorneys' fees and collection costs to the holder hereof in
addition to the principal and interest payable hereunder.
Borrower and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in
any of its terms, provisions and covenants, or any releases or substitutions of
any security, or any delay, indulgence or other act of any trustee or any
holder hereof, whether before or after maturity.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW), EXCEPT TO THE EXTENT THE SAME ARE GOVERNED BY APPLICABLE
FEDERAL LAW.
UNITED STATES EXPLORATION, INC.
By:
--------------------------------
Bruce D. Benson, President and
Chief Executive Officer
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<PAGE> 77
EXHIBIT B
Borrowing Notice
Reference is made to that certain Credit Agreement dated as of May 15,
1998 (as from time to time amended, the "Agreement"), by and among United
States Exploration, Inc. ("Borrower"), ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions ("Lenders"). Terms which are defined
in the Agreement are used herein with the meanings given them in the Agreement.
Pursuant to the terms of the Agreement Borrower hereby requests Lenders to make
Loans to Borrower in the aggregate principal amount of $ __________ and
specifies ____________, 19__, as the date Borrower desires for Lenders to make
such Loans and for Agent to deliver to Borrower the proceeds thereof.
Type of Loans in new Borrowing: __________________
Length of Interest Period for Eurodollar
Loans (1, 2, 3 or 6 months): ___________ months
To induce Lenders to make such Advances, Borrower hereby represents,
warrants, acknowledges, and agrees to and with Agent and each Lender that:
(a) The officer of Borrower signing this instrument is the
duly elected, qualified and acting officer of Borrower as indicated
below such officer's signature hereto having all necessary authority
to act for Borrower in making the request herein contained.
(b) The representations and warranties of Borrower set forth
in the Agreement and the other Loan Documents are true and correct on
and as of the date hereof (except to the extent that the facts on
which such representations and warranties are based have been changed
by the extension of credit under the Agreement), with the same effect
as though such representations and warranties had been made on and as
of the date hereof.
(c) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 10.1(a) of the Agreement; nor will any such
Default exist upon Borrower's receipt and application of the Advances
requested hereby. Borrower will use the Advances hereby requested in
compliance with Section 2.4 of the Agreement.
(d) Except to the extent waived in writing as provided in
Section 10.1(a) of the Agreement, Borrower has performed and complied
with all agreements and conditions in the Agreement required to be
performed or complied with by Borrower on or prior to the date hereof,
and each of the conditions precedent to Advances contained in the
Agreement remains satisfied.
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(e) The Facility Usage, after the making of the Advances
requested hereby, will not be in excess of the Borrowing Base on the
date requested for the making of such Advances.
(f) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any
course of dealing, or by any other means not provided for in Section
10.1(a) of the Agreement. The Agreement and the other Loan Documents
are hereby ratified, approved, and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19__.
UNITED STATES EXPLORATION, INC.
By:
-------------------------------
Name:
Title:
2
<PAGE> 79
EXHIBIT C
CONTINUATION/CONVERSION NOTICE
Reference is made to that certain Credit Agreement dated as of May 15,
1998 (as from time to time amended, the "Agreement"), by and among United
States Exploration, Inc., as Borrower, ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions, as Lenders. Terms which are defined
in the Agreement are used herein with the meanings given them in the Agreement.
Borrower hereby requests a conversion or continuation of existing
Loans into a new Borrowing pursuant to Section 2.3 of the Agreement as follows:
Existing Borrowing(s) to be continued or converted:
$______________ of Eurodollar Loans with Interest Period
ending ________________
$______________ of Base Rate Loans
Aggregate amount of new Borrowing: $_________________
Type of Loans in new Borrowing: __________________
Date of continuation or conversion: __________________
Length of Interest Period for Eurodollar
Loans (1, 2, 3 or 6 months): ___________ months
Borrower hereby represents, warrants, acknowledges, and agrees to and
with each Bank Party that:
(a) The officer of Borrower signing this instrument is the
duly elected, qualified and acting officer of Borrower as indicated
below such officer's signature hereto having all necessary authority
to act for Borrower in making the request herein contained.
(b) There does not exist on the date hereof any condition or
event which constitutes a Default which has not been waived in writing
as provided in Section 10.1(a) of the Agreement; nor will any such
Default exist upon Borrower's receipt and application of the Loans
requested hereby.
(c) The Loan Documents have not been modified, amended or
supplemented by any unwritten representations or promises, by any
course of dealing, or by any other
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means not provided for in Section 10.1(a) of the Agreement. The
Agreement and the other Loan Documents are hereby ratified, approved,
and confirmed in all respects.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
199__.
UNITED STATES EXPLORATION, INC.
By:
----------------------------------
Name:
Title:
2
<PAGE> 81
EXHIBIT D
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
Reference is made to that certain Credit Agreement dated as of May
15, 1998 (as from time to time amended, the "Agreement"), by and among United
States Exploration, Inc. ("Borrower"), ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions ("Lenders"), which Agreement is in
full force and effect on the date hereof. Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement.
This Certificate is furnished pursuant to Section 6.2 the Agreement.
Together herewith Borrower is furnishing to Agent and each Lender Borrower's
audited financial statements (the "Financial Statements") as at ____________
(the "Reporting Date"). Borrower hereby represents, warrants, and acknowledges
to Agent and each Lender that:
(a) the officer of Borrower signing this instrument is the
duly elected, qualified and acting ____________ of Borrower and as
such is Borrower's chief financial officer;
(b) the Financial Statements are accurate and complete and
satisfy the requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing
Borrower's compliance as of the Reporting Date with the requirements
of Sections ____________ of the Agreement;
(d) on the Reporting Date Borrower was, and on the date
hereof Borrower is, in full compliance with the disclosure
requirements of the Agreement, and no Default otherwise existed on the
Reporting Date or otherwise exists on the date of this.
(e) The representations and warranties of Borrower set forth
in the Agreement and the other Loan Documents are true and correct on
and as of the date hereof (except to the extent that the facts on
which such representations and warranties are based have been changed
by the extension of credit under the Agreement), with the same effect
as though such representations and warranties had been made on and as
of the date hereof.
The officer of Borrower signing this instrument hereby certifies that he
has reviewed the Loan Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above representations, warranties and
acknowledgments of Borrower and, to the best of his knowledge, such
representations, warranties, and acknowledgments are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19__.
1
<PAGE> 82
UNITED STATES EXPLORATION, INC.
By:
------------------------------------
Name:
Title:
2
<PAGE> 83
EXHIBIT E
[INTENTIONALLY OMITTED]
1
<PAGE> 84
EXHIBIT F
ENVIRONMENTAL COMPLIANCE CERTIFICATE
Reference is made to that certain Credit Agreement dated as of May 15,
1998 (as from time to time amended, the "Agreement"), by and among United
States Exploration, Inc. ("Borrower"), ING (U.S.) Capital Corporation as Agent,
and certain financial institutions. Terms which are defined in the Agreement
are used herein with the meanings given them in the Agreement. The
undersigned, being the President of Borrower, hereby certifies to Agent and
Lenders as follows:
1. For the Fiscal Year ending immediately prior to the
date hereof, Borrower has complied and is complying with Section 5.1
of the Credit Agreement;
2. To the best knowledge of the undersigned after due
inquiry, Borrower is on the date hereof in compliance with all
applicable Environmental Laws, noncompliance with which could
reasonably be expected to cause a Material Adverse Change;
3. Borrower has taken (and continues to take) steps to
minimize the generation of potentially harmful effluents;
4. Borrower has established an ongoing program of
conducting an internal audit of each operating facility of Borrower to
identify actual or potential environmental liabilities which could
reasonably be expected to cause a Material Adverse Change; and
5. Borrower has established an ongoing program of
training its employees in issues of environmental, health and safety
compliance, and Borrower presently has one or more individuals in
charge of implementing such training program.
The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry and consultation with the
operating officers of Borrower, the above representations, warranties,
acknowledgments, and agreements of Borrower are true, correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________,
19__.
UNITED STATES EXPLORATION, INC.
By:
-------------------------------------
Bruce D. Benson, President and Chief
Executive Officer
1
<PAGE> 85
EXHIBIT G-1
[Form of opinion of Borrower's counsel.]
1
<PAGE> 86
EXHIBIT H
ASSIGNMENT AND ASSUMPTION AGREEMENT
Date _______________, 199__
Reference is made to that certain Credit Agreement dated as of May 15,
1998 (as from time to time amended, the "Agreement"), by and among United
States Exploration, Inc., as Borrower, ING (U.S.) Capital Corporation, as
Agent, and certain financial institutions, as Lenders, which Agreement is in
full force and effect on the date hereof. Terms which are defined in the
Agreement are used herein with the meanings given them in the Agreement.
____________________ ("Assignor") and ____________________
("Assignee") hereby agree as follows:
1. Assignor hereby sells and assigns to Assignee without recourse
and without representation or warranty (other than as expressly provided
herein), and Assignee hereby purchases and assumes from Assignor, that interest
in and to all of Assignor's rights and duties under the Agreement as of the
date hereof which represents the percentage interest specified in Item 3 of
Annex I hereto (the "Assigned Share") of all of the outstanding rights and
obligations of all Lenders under the Agreement, including, without limitation,
all rights and obligations with respect to the Assigned Share in Assignor's
Loans and Note. After giving effect to such sale and assignment, Assignee's
Percentage Share (and Assignor's remaining Percentage Share) will be as set
forth in Item 3 of Annex I hereto.
2. Assignor: (i) represents and warrants that it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the
Agreement, the other Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Agreement, the other
Loan Documents or any other instrument or document furnished pursuant thereto;
and (iii) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of Borrower, any other Related Person
or the performance or observance by any of them of any of their respective
obligations under the Agreement, the other Loan Documents, or any other
instrument or document furnished pursuant thereto.
3. Assignee: (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements most recently
delivered thereunder and such other Loan Documents and other documents and
information as it has deemed appropriate to make its own analysis of Borrower
and the transactions contemplated by the Agreement and its own independent
decision to enter into this Assignment and Assumption Agreement; (ii) agrees
that it will, independently and without reliance upon Assignor or any other
Bank Party and based on
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<PAGE> 87
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Agreement; (iii) confirms that it is a an Eligible Transferee under the
Agreement; (iv) appoints and authorizes Agent and Collateral Agent to take such
action as agent on its behalf and to exercise such powers under the Agreement
and the other Loan Documents as are specifically delegated to them, together
with all other powers reasonably incidental thereto; and (v) agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of the Agreement are required to be performed by it as a Lender
(including the obligation to make future Loans). [; and (vi) attaches the
"Prescribed Forms" described in Section 3.6(d) of the Agreement.]
4. Following the execution of this Assignment and Assumption
Agreement by Assignor and Assignee, an executed original hereof (together with
all attachments) will be delivered to Agent. The effective date of this
Assignment and Assumption Agreement (the "Settlement Date") shall be the date
specified in Item 4 of Annex I hereto; provided that this Assignment and
Assumption Agreement shall not be deemed to have taken effect unless (i) the
consent hereto of Agent and Borrower has been obtained (to the extent required
in the Agreement), (ii) Agent has received a fully executed original hereof,
and (iii) Agent has received the processing fee referred to in Section
10.5(c)(ii) of the Agreement.
5. Upon the satisfaction of the foregoing conditions, then as of
the Settlement Date: (i) Assignee shall be a party to the Agreement and, to
the extent provided in this Assignment and Assumption Agreement, have the
rights and obligations of a Lender thereunder and under the other Loan
Documents and (ii) Assignor shall, to the extent provided in this Assignment
and Assumption Agreement, relinquish its rights and be released from its duties
under the Agreement and the other Loan Documents.
6. All interest, fees and other amounts that would otherwise
accrue pursuant to the Agreement and Assignor's Note for the account of
Assignor from and after the Settlement Date shall, instead accrue for the
account of, and be payable to, Assignor and Assignee, as the case may be, in
accordance with their respective interests as reflected in Item 3 to Annex I
hereto. All payments of principal that would otherwise be payable from and
after the Settlement Date to or for the account of Assignor pursuant to the
Agreement and Assignor's Note shall, instead, be payable to or for the account
of Assignor and Assignee, as the case may be, in accordance with their
respective interests as reflected in Item 3 to Annex I hereto. On the
Settlement Date, Assignee shall pay to Assignor an amount specified by Assignor
in writing which represents the portion of Assignor's Loans which is being
assigned and which is outstanding on the Settlement Date, net of any closing
costs. Assignor and Assignee shall make all appropriate adjustments in
payments under the Agreement for periods prior to the Settlement Date directly
between themselves on the Settlement Date.
7. Each of the parties to this Assignment and Assumption
Agreement agrees that at any time and from time to time upon the written
request of any other party, it will execute and deliver such further documents
and do such further acts and things as such other party may reasonably request
in order to effect the purposes of this Assignment and Assumption Agreement.
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<PAGE> 88
8. This Assignment and Assumption Agreement shall be governed by,
and construed in accordance with, the Laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Assignment and Assumption
Agreement, as of the date first above written, such execution also being made
on Annex I hereto.
[NAME OF ASSIGNOR]
as Assignor
By:
---------------------------
Title:
[NAME OF ASSIGNEE]
By:
----------------------------
Title:
CONSENTED TO AND ACKNOWLEDGED:
ING (U.S.) CAPITAL CORPORATION
as Agent
By:
---------------------------
Title:
3
<PAGE> 1
EXHIBIT 10.2
MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
FROM
UNITED STATES EXPLORATION, INC.
(Taxpayer I.D. No. 84-1120323)
TO
ING (U.S.) CAPITAL CORPORATION, Agent
(Taxpayer I.D. No. 13-3713587)
Dated May 15, 1998
A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF
FUTURE ADVANCES, AND COVERS PROCEEDS OF COLLATERAL.
THIS INSTRUMENT COVERS MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE
EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND GAS), AND THE
ACCOUNTS RELATED THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS OR MINEHEADS
OF THE WELLS OR MINES LOCATED ON THE PROPERTIES DESCRIBED IN SECTION 1.1 OF
THIS INSTRUMENT. THIS INSTRUMENT COVERS GOODS WHICH ARE OR ARE TO BECOME
FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN. THIS INSTRUMENT IS TO BE FILED
FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE
COUNTIES AND/OR PARISHES REFERENCED IN EXHIBIT A HERETO AND SUCH FILING SHALL
SERVE, AMONG OTHER PURPOSES, AS A FIXTURE FILING. THE MORTGAGOR HAS AN
INTEREST OF RECORD IN THE REAL ESTATE AND IMMOVABLE PROPERTY CONCERNED, WHICH
INTEREST IS DESCRIBED IN SECTION 1.1 OF THIS INSTRUMENT.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
MORTGAGEE (AS HEREINAFTER DEFINED) TO TAKE THE MORTGAGED PROPERTIES AND SELL
THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
MORTGAGOR (AS HEREINAFTER DEFINED) UNDER THIS MORTGAGE.
WHEN RECORDED OR FILED RETURN TO: THIS DOCUMENT PREPARED BY:
Thompson & Knight, P.C. Arthur J. Wright
1700 Pacific Avenue Thompson & Knight, P.C.
Suite 3300 1700 Pacific Avenue
Dallas, Texas 75201 Suite 3300
Attention: Patricia B. Sone Dallas, Texas 75201
<PAGE> 2
MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT,
FIXTURE FILING AND FINANCING STATEMENT (this "Mortgage"),
ARTICLE I.
Granting Clauses; Secured Indebtedness
Section 1.1. Lien of Mortgage. United States Exploration, Inc.
(herein called "Mortgagor"), in order to secure the payment of the secured
indebtedness hereinafter referred to and the performance of the obligations,
covenants, agreements, warranties and undertakings of Mortgagor hereinafter
described, does hereby MORTGAGE to ING U.S. Capital Corporation, Agent
(herein called "Mortgagee"), and grant to Mortgagee a POWER OF SALE (pursuant
to this Mortgage and applicable law) with respect to, the following (the
"Mortgaged Properties"):
A. The oil, gas and/or other mineral leases or
properties which are described in Exhibit A-1 attached hereto and made
a part hereof;
B. The entire interest in those certain Oil and Gas
leases from Union Pacific Resources Company and/or Union Pacific Land
Resources Corporation to Mortgagor dated as of May 15, 1998, covering
the lands described in Exhibit A-2 attached hereto and made a part
hereof.
C. Without limitation of the foregoing, all other right,
title and interest of Mortgagor of whatever kind or character (whether
now owned or hereafter acquired by operation of law or otherwise) in
and to (i) the oil, gas and/or mineral leases or other agreements
described in Exhibit A-1 hereto and (ii) the lands described or
referred to in Exhibit A-1 or A-2 (or described in any of the
instruments described or referred to in Exhibit A-1 or A-2), without
regard to any limitations as to specific lands or depths that may be
set forth in Exhibit A-1 or A-2 hereto or in any of the leases or
other agreements described in Exhibit A-1 or A-2 hereto.
D. All of Mortgagor's interest (whether now owned or
hereafter acquired by operation of law or otherwise) in and to all
presently existing and hereafter created oil, gas and/or mineral
unitization, pooling and/or communitization agreements, declarations
and/or orders, and in and to the properties, rights and interests
covered and the units created thereby (including, without limitation,
units formed under orders, rules, regulations or other official acts
of any federal, state or other authority having jurisdiction), which
cover, affect or otherwise relate to the properties, rights and
interests described in clause A or B above;
E. All of Mortgagor's interest in and rights under
(whether now owned or hereafter acquired by operation of law or
otherwise) all presently existing and hereafter created operating
agreements, equipment leases, production sales contracts, processing
agreements, transportation agreements, gas balancing agreements,
farmout and/or farm-in agreements, salt water disposal agreements,
area of mutual interest agreements, and other contracts and/or
agreements which cover, affect, or otherwise relate to the properties,
rights and interests described in clause A, B or C above or to the
operation of such properties, rights and interests or to the treating,
handling, storing, processing, transporting or marketing of oil, gas,
other hydrocarbons, or other minerals produced from (or allocated to)
such properties, rights and interests including, but not limited to,
those contracts listed in Exhibit A hereto, as same may be amended or
supplemented from time to time;
F. All of Mortgagor's interest (whether now owned or
hereafter acquired by operation of law or otherwise) in and to all
improvements, fixtures, movable or immovable property and other real
and/or personal property (including, without limitation, all wells,
pumping units, wellhead equipment, tanks, pipelines, flow lines,
gathering lines, compressors, dehydration units, separators, meters,
buildings, injection facilities, salt water disposal facilities, and
power, telephone and telegraph lines) and all easements, servitudes,
rights-of-way, surface leases, licenses, permits and other surface
rights, which
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<PAGE> 3
are now or hereafter used, or held for use, in connection with the
properties, rights and interests described in clause A, B or C above,
or in connection with the operation of such properties, rights and
interests, or in connection with the treating, handling, storing,
processing, transporting or marketing of oil, gas, other hydrocarbons,
or other minerals produced from (or allocated to) such properties,
rights and interests; and
G. All rights, estates, powers and privileges
appurtenant to the foregoing rights, interests and properties.
TO HAVE AND TO HOLD the Mortgaged Properties unto Mortgagee, and
Mortgagee's heirs, devisees, representatives, successors and assigns, upon the
terms, provisions and conditions herein set forth.
Section 1.2. Grant of Security Interest. In order to further secure
the payment of the secured indebtedness hereinafter referred to and the
performance of the obligations, covenants, agreements, warranties, and
undertakings of Mortgagor hereinafter described, Mortgagor hereby grants to
Mortgagee a security interest in the entire interest of Mortgagor (whether now
owned or hereafter acquired by operation of law or otherwise) in and to:
(a) all oil, gas, other hydrocarbons, and other minerals
produced from or allocated to the Mortgaged Properties on or after
January 1, 1998, and any products processed or obtained therefrom
(herein collectively called the "Production"), together with all
proceeds of such Production (regardless of whether such Production to
which such proceeds relate occurred on or before or after the date
hereof ), and together with all liens and security interests securing
payment of the proceeds of such Production, including, but not limited
to, those liens and security interests provided for under (i) statutes
enacted in the jurisdictions in which the Mortgaged Properties are
located, or (ii) statutes made applicable to the Mortgaged Properties
under federal law (or some combination of federal and state law);
(b) without limitation of any other provisions of this
Section 1.2, all payments received in lieu of such Production from the
Mortgaged Properties (regardless of whether such payments accrued,
and/or the events which gave rise to such payments occurred, on or
before or after the date hereof), including, without limitation, "take
or pay" payments and similar payments, payments received in settlement
of or pursuant to a judgment rendered with respect to take or pay or
similar obligations or other obligations under a production sales
contract, payments received in buyout or buydown or other settlement
of a production sales contract, and payments received under a gas
balancing or similar agreement as a result of (or received otherwise
in settlement of or pursuant to judgment rendered with respect to)
rights held by Mortgagor as a result of Mortgagor (and/or its
predecessors in title) taking or having taken less gas from lands
covered by a Mortgaged Property (or lands pooled or unitized
therewith) than their ownership of such Mortgaged Property would
entitle them to receive (the payments described in this subsection (b)
being herein called "Payments in Lieu of Production");
(c) all equipment, inventory, improvements, fixtures,
accessions, goods and other personal property or movable property of
whatever nature now or hereafter located on or used or held for use in
connection with the Mortgaged Properties (or in connection with the
operation thereof or the treating, handling, storing, processing,
transporting, or marketing of Production), and all licenses and
permits of whatever nature now or hereafter used or held for use in
connection with the Mortgaged Properties (or in connection with the
operation thereof, or the treating, handling, storing, processing,
transporting or marketing of Production), and all renewals or
replacements of the foregoing or substitutions for the foregoing;
(d) all contract rights, choses in action (i.e., rights
to enforce contracts or to bring claims thereunder) and other general
intangibles (regardless of whether the same arose, and/or the events
which gave rise to the same occurred, on or before or after the date
hereof) related to the Mortgaged Properties, the operation thereof
(whether Mortgagor is operator or non-operator), or the treating,
handling, storing, processing, transporting,
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<PAGE> 4
or marketing of Production (including, without limitation, any of the
same relating to payment of proceeds of Production or to payment of
amounts which could constitute Payments in Lieu of Production);
(e) without limitation of the generality of the
foregoing, any rights and interests of the Mortgagor under any present
or future hedge or swap agreements, cap, floor, collar, exchange,
forward or other hedge or protection agreements or transactions
relating to crude oil, natural gas or other hydrocarbons, or any
option with respect to any such agreement or transaction now existing
or hereafter entered into by or on behalf of Mortgagor;
(f) all geological, geophysical, engineering, accounting,
title, legal, and other technical or business data concerning the
Mortgaged Properties, the Production, or any other item of Property
(as hereinafter defined) which are now or hereafter in the possession
of Mortgagor or in which Mortgagor can otherwise grant a security
interest, and all books, files, records, magnetic media, and other
forms of recording or obtaining access to such data;
(g) all money, documents, instruments, chattel paper,
securities, accounts or general intangibles arising from or by virtue
of any transaction (regardless of whether such transaction occurred on
or before or after the date hereof ) including without implied
limitation those transactions related to the Mortgaged Properties, the
Production or any other item of Property (all of the properties,
rights and interests described in subsections (a), (b), (c), (d), (e)
and (f) above and this subsection (g) being herein sometimes
collectively called the "Collateral"); and
(h) all proceeds of the Collateral, whether such proceeds
or payments are goods, money, documents, instruments, chattel paper,
securities, accounts, general intangibles, fixtures, real/immovable
property, personal/movable property or other assets (the Mortgaged
Properties, the Collateral and the proceeds of the Collateral being
herein sometimes collectively called the "Property").
Section 1.3. Note, Loan Documents, Other Obligations. This Mortgage
is made to secure and enforce the payment and performance of the following
promissory notes, obligations, indebtedness and liabilities:
(a) All indebtedness and other obligations now or
hereafter incurred or arising pursuant to the provisions of that
certain Credit Agreement dated of even date herewith between Mortgagor
and Mortgagee and all supplements thereto and amendments or
modifications thereof, and all agreements given in substitution
therefor or in restatement, renewal or extension thereof, in whole or
in part (such Credit Agreement as the same may from time to time be
supplemented, amended or modified, and all other agreements given in
substitution therefor or in restatement, renewal or extension thereof,
in whole or in part, being herein called the "Credit Agreement");
(b) One certain promissory note dated of even date
herewith, in the principal amount of Thirty-five Million Dollars
($35,000,000) made by Mortgagor and payable to the order of ING
Capital, on or before December 31, 2004, bearing interest as therein
provided, and containing a provision for the payment of a reasonable
additional amount as attorneys' fees, as the same may from time to
time be supplemented, amended or modified, and all other notes given
in substitution therefor or in modification, renewal or extension
thereof, in whole or in part (such note, as from time to time
supplemented, amended, or modified and all other notes given in
substitution therefor, or in modification, renewal or extension
thereof, in whole or in part, being herein called the "Note");
(c) All indebtedness and other obligations now or
hereafter incurred or arising pursuant to or permitted by the
provisions of the Note, the Credit Agreement, this Mortgage or any
other instrument now or hereafter evidencing, governing, guaranteeing
or securing the "secured indebtedness" (as hereinafter defined) or any
part thereof or otherwise executed in connection with any advance or
loan evidenced or governed by the
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<PAGE> 5
Note or the Credit Agreement (the Note, the Credit Agreement, this
Mortgage and such other instruments being herein sometimes
collectively called the "Loan Documents");
(d) All present or future "Hedging Obligations" incurred
or owing by Mortgagor to any one or more members of the "Credit
Group," as hereinafter defined; as used in this paragraph and the
following paragraph (e): (i) "Credit Group" means ING (U.S.) Capital
Corporation, any other party from time to time constituting a lender
under the Credit Agreement, and/or any affiliate of any such party,
including without limitation Internationale Nederlanden (U.S.) Capital
Markets, Inc., being an affiliate of ING (U.S.) Capital Corporation,
and (ii) "Hedging Obligations" means any indebtedness or obligations,
however arising, to make payments or take actions under or pursuant to
any present or future agreement (including any individual agreement or
any master agreement and the various transactions and confirmations
made thereunder) governing any swap, put, call, cap, floor or collar
transaction, or other type of agreement or transaction relating to
interest rates, currency exchange rates, or the price or delivery (at
any one or more locations or in any one or more markets) of crude oil,
natural gas, natural gas liquids, petroleum products, other
hydrocarbons, agricultural products, precious metals, stocks or bonds
or indices thereof, or any other commodity, contract or other item of
property traded in any market, and all interest thereon and expenses
and other amounts payable in connection therewith (any agreement or
document, however entitled or described, evidencing or governing and
Hedging Obligations owing by Mortgagor to any one or more members of
the Credit Group being herein called a "Hedging Agreement");
(e) All present or future indebtedness or obligations
incurred or owing to any one or more members of the Credit Group by
Mortgagor, however arising, to make reimbursements or similar payments
to any one or more members of the Credit Group as a result of or
relating to any payments made by any one or more members of the Credit
Group to any third person on account of or for the benefit of
Mortgagor, including without limitation any obligation to reimburse
any one or more members of the Credit Group for payments it makes
under or pursuant to any letter of credit, bond, guaranty, or
indemnity agreement issued or made for the account of or for the
benefit of Mortgagor (such as a letter of credit, guaranty or
indemnity by any one or more members of the Credit Group of any
Hedging Obligations owed by Mortgagor to a third person) and all
interest thereon and expenses and other amounts payable in connection
therewith (any agreement or document, however entitled or described,
evidencing or governing any such indebtedness or obligation owing to
any one or more members of the Credit Group by Mortgagor being herein
called a "Reimbursement Agreement");
(f) All other loans and future advances made by Mortgagee
to Mortgagor and all other debts, obligations and liabilities of
Mortgagor of every kind and character now or hereafter existing in
favor of Mortgagee, whether direct or indirect, primary or secondary,
joint or several, fixed or contingent, and whether originally payable
to Mortgagee or to a third party and subsequently acquired by
Mortgagee, it being contemplated that Mortgagor may hereafter become
indebted to Mortgagee for such further debts, obligations and
liabilities; and
(g) Without limiting the generality of the foregoing, all
post-petition interest, expenses, and other duties and liabilities
with respect to indebtedness or other obligations described above in
this Section 1.3, which would be owed but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization, or similar proceeding.
Section 1.4. Secured Indebtedness. The indebtedness referred to in
Section 1.3, and all renewals, extensions and modifications thereof, and all
substitutions therefor, in whole or in part, are herein sometimes referred to
as the "secured indebtedness" or the "indebtedness secured hereby".
4
<PAGE> 6
ARTICLE II.
Representations, Warranties and Covenants
Section 2.1. Mortgagor represents, warrants, and covenants as
follows:
(a) Title and Permitted Encumbrances. Mortgagor has, and
Mortgagor covenants to maintain, good and defensible title to the
Property, free and clear of all liens, security interests, and
encumbrances except for (i) the contracts, agreements, burdens,
encumbrances and other matters set forth in the descriptions of
certain of the Mortgaged Properties on Exhibit A hereto, (ii) the
liens and security interests evidenced by this Mortgage, (iii)
statutory liens for taxes which are not yet delinquent, (iv) liens
under operating agreements, pooling orders and unitization agreements,
and mechanics' and materialmen's liens, with respect to obligations
which are not more than 90 days past due, and (v) other liens and
security interests (if any) in favor of Mortgagee (the matters
described in the foregoing clauses (i), (ii), (iii), (iv), and (v)
being herein called the "Permitted Encumbrances"); Mortgagor will
warrant and defend title to the Property, subject as aforesaid,
against the claims and demands of all persons claiming or to claim the
same or any part thereof. The ownership by Mortgagor of the Mortgaged
Properties does and will, with respect to each well or unit or upside
location identified on Schedule I, attached hereto and made a part
hereof, entitle Mortgagor to receive (subject to the terms and
provisions of this Mortgage) a decimal or percentage share of the oil,
gas and other hydrocarbons produced from, or allocated to, such well
or unit (or, in the case of each upside location, the zone identified
in the column headed "Primary Zone" on Schedule I underlying the lands
described in the columns headed "Location" on Schedule I) equal to not
less than the decimal or percentage share set forth, for such well or
unit, in the column headed "NRI%" on Schedule I, and cause Mortgagor
to be obligated to bear a decimal or percentage share of the cost of
operation of such well or unit (or in the case of an upside location,
such lands or depths) equal to not more than the decimal or percentage
share set forth, for such well or unit, in the column headed "WI%" on
Schedule I. The above-described shares of production which Mortgagor
is entitled to receive, and shares of expenses which Mortgagor is
obligated to bear, are not and will not be subject to change except,
and only to the extent that, such changes are reflected in Schedule I.
There is not and will not be any unexpired financing statement
covering any part of the Property on file in any public office naming
any party other than Mortgagee as secured party. Upon request by
Mortgagee, Mortgagor will deliver to Mortgagee schedules of all
internal and third party information identifying the Mortgaged
Properties (such as, for example, lease names and numbers assigned by
Mortgagor or the operator of any Mortgaged Property, well and/or unit
and/or property names and numbers assigned by purchasers of
Production, and internal identification names and numbers used by
Mortgagor in accounting for revenues, costs, and joint interest
transactions attributable to the Mortgaged Properties).
(b) Leases and Contracts; Performance of Obligations.
The oil, gas and/or mineral leases, contracts, servitudes and other
agreements forming a part of the Property, to the extent the same
cover or otherwise relate to the Property, are in full force and
effect, and Mortgagor agrees to so maintain them in full force and
effect. All rents, royalties and other payments due and payable under
such leases, contracts, servitudes and other agreements, or under the
Permitted
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Encumbrances, or otherwise attendant to the ownership or operation of
the Property, have been, and will continue to be, properly and timely
paid. Mortgagor is not in default with respect to Mortgagor's
obligations (and Mortgagor is not aware of any default by any third
party with respect to such third party's obligations) under such
leases, contracts, servitudes and other agreements, or under the
Permitted Encumbrances, or otherwise attendant to the ownership or
operation of any part of the Property, where such default could
adversely affect the ownership or operation of the Property; Mortgagor
will fulfill all such obligations coming due in the future.
(c) Sale of Production. No Mortgaged Property is or will
become subject to any contractual or other arrangement (i) whereby
payment for production is or can be deferred for a substantial period
after the month in which such production is delivered (i.e., in the
case of oil, not in excess of 60 days, and in the case of gas, not in
excess of 90 days) or (ii) whereby payments are made to Mortgagor
other than by checks, drafts, wire transfer advises or other similar
writings, instruments or communications for the immediate payment of
money. Except for production sales contracts, processing agreements
or transportation agreements (or other agreements relating to the
marketing of Production) listed on Exhibit A (in connection with the
Mortgaged Properties to which they relate), (i) no Mortgaged Property
is or will become subject to any contractual or other arrangement for
the sale, processing or transportation of Production (or otherwise
related to the marketing of Production) for a term longer than one
year and (ii) all contractual or other arrangements for the sale,
processing or transportation of Production (or otherwise related to
the marketing of Production) shall be bona fide arm's length
transactions with third parties not affiliated with Mortgagor and
shall be at the best price (and on the best terms) then available
(such price shall, in the case of Production sales which are subject
to price controls, be determined giving consideration to such fact).
Neither Mortgagor, nor, to the best of Mortgagor's knowledge, any of
its predecessors in title, has received prepayments (including, but
not limited to, payments for gas not taken pursuant to "take or pay"
or other similar arrangements) for any oil, gas or other hydrocarbons
produced or to be produced from the Mortgaged Properties after the
date hereof, and Mortgagor hereby covenants not to enter into any such
advance or prepayment arrangements whereby it accepts consideration
for oil, gas or other hydrocarbons not yet produced. No Mortgaged
Property is or will become subject to any "take or pay" or other
similar arrangement (i) which can be satisfied in whole or in part by
the production or transportation of gas from other properties or (ii)
as a result of which production from the Mortgaged Properties may be
required to be delivered to one or more third parties without payment
(or without full payment) therefor as a result of payments made, or
other actions taken, with respect to other properties. The amount by
which the volume of gas taken by Mortgagor and its predecessors in
title prior to the date hereof exceeds the amount that its ownership
interest in the Mortgage Properties would entitle it to take
("overproduced") is not greater than 250,000 MCF. Mortgagor will not,
after the date hereof, become "overproduced" (as above defined) with
respect to any well on the Mortgaged Properties (or on any unit in
which the Mortgaged Properties participate), in an amount in excess of
Mortgagor's share of gas produced from such well during the preceding
four calendar months plus ten percent (10%) of such actual production
from any such well. No Mortgaged Property is, or will become, subject
to a gas balancing arrangement under which one or more third parties
may take a portion of the production attributable to such Mortgaged
Property without
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payment (or without full payment) therefor as a result of production
having been taken from, or as a result of other actions or inactions
with respect to, other properties. No Mortgaged Property is subject,
at the present time, to any regulatory refund obligation and, to the
best of Mortgagor's knowledge, no facts exist which might cause the
same to be imposed.
(d) Condition of Personal or Movable Property. Subject
to ordinary wear and tear and any sales permitted by Paragraph 7.5 of
the Credit Agreement or Paragraph (f) hereof, (i) the equipment,
inventory, improvements, fixtures, goods and other tangible
personal/movable property forming a part of the Property are and will
remain in good repair and condition and are and will be adequate for
the normal operation of the Property in accordance with prudent
industry standards and (ii) all of such Property is, and will remain,
located on the Mortgaged Properties, except for that portion thereof
which is or shall be located elsewhere (including that usually located
on the Mortgaged Properties but temporarily located elsewhere) in the
course of the normal operation of the Property.
(e) Operation of Mortgaged Properties. The Mortgaged
Properties (and properties unitized therewith) are being (and, to the
extent the same could adversely affect the ownership or operation of
the Mortgaged Properties after the date hereof, have in the past
been), and hereafter will be, maintained, operated and developed in a
good and workmanlike manner, in accordance with prudent industry
standards and in conformity with all applicable laws and all rules,
regulations and orders of all duly constituted authorities having
jurisdiction and in conformity with all oil, gas and/or other mineral
leases and other contracts and agreements forming a part of the
Property and in conformity with the Permitted Encumbrances;
specifically in this connection none of the wells located on the
Mortgaged Properties (or properties unitized therewith) are, or will
be, deviated from the vertical more than the maximum permitted by
applicable laws, regulations, rules and orders, and such wells are,
and will remain, bottomed under and producing from, with the well
bores wholly within, the Mortgaged Properties (or, in the case of
wells located on properties unitized therewith, such unitized
properties). The representation, warranties and covenants in the
preceding sentence are made in the case of existing wells only as to
Mortgagor's knowledge and in regard to future wells only where
Mortgagor is the operator of such well. Mortgagor has, and will have
in the future, all governmental licenses and permits necessary or
appropriate to own and operate the Property; and Mortgagor has not
received notice of any violations in respect of any such licenses or
permits.
(f) Sale or Disposal. Except for sales permitted by
Paragraph 7.5 of the Credit Agreement, Mortgagor will not, without the
prior written consent of Mortgagee, sell, exchange, lease, transfer,
or otherwise dispose of any part of, or interest in, the Property
other than (i) sales, transfers and other dispositions of machinery,
equipment and other personal/movable property and fixtures made in
connection with a release, surrender or abandonment (to which
Mortgagee has given its prior written consent) of a lease, (ii) sales,
transfers and other dispositions of machinery, equipment and other
personal/movable property and fixtures in connection with the
abandonment (to which Mortgagee has given its prior written consent)
of a well, (iii) sales, transfers and other dispositions of machinery,
equipment and other personal/movable property and fixtures which are
(A) obsolete for their intended purpose and disposed of in the
ordinary course of business or (B) replaced by articles of at least
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equal suitability and value owned by Mortgagor free and clear of all
liens except this Mortgage and the Permitted Encumbrances, and (iv)
sales of Production which are made in the ordinary course of business
and in compliance with Section 2.1(c) hereof; provided that nothing in
clause (iv) shall be construed as limiting Mortgagee's rights under
Article III of this Mortgage. Mortgagor shall account fully and
faithfully for and, if Mortgagee so elects, shall promptly pay or turn
over to Mortgagee the proceeds in whatever form received from
disposition in any manner of any of the Property. Mortgagor shall
keep accurate and complete records of the Property and its proceeds.
(g) Ad Valorem and Severance Taxes. In regard to the
Mortgaged Property which Mortgagor operates, Mortgagor, or the prior
owner from whom it acquired the Mortgaged Property, has paid and
discharged, and will continue to pay and discharge, all ad valorem
taxes assessed against the Property or any part thereof and all
production, severance and other taxes assessed against, or measured
by, the Production or the value, or proceeds, of the Production.
(h) Suits and Claims. Except as scheduled or disclosed
in the Credit Agreement, there are no suits, actions, claims,
investigations, inquiries, proceedings or demands pending (or, to
Mortgagor's knowledge, threatened) which affect the Property
(including, without limitation, any which challenge or otherwise
pertain to Mortgagor's title to the Property) and no judicial or
administrative actions, suits or proceedings pending (or, to
Mortgagor's knowledge, threatened) against Mortgagor.
(i) Environmental. Mortgagor will not cause or permit
the Property or the Associated Property or Mortgagor to be in
violation of, or do anything or permit anything to be done which will
subject the Property or the Associated Property to any remedial
obligations under, or result in noncompliance with applicable permits
and licenses under, any Applicable Environmental Laws, assuming
disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the
Property or the Associated Property and Mortgagor will promptly notify
Mortgagee in writing of any existing, pending or, to the best
knowledge of Mortgagor, threatened investigation, claim, suit or
inquiry by any governmental authority or any person in connection with
any Applicable Environmental Laws. Mortgagor will not cause or permit
the disposal or other release of any hazardous substance or solid
waste at, into, upon or under the Property or the Associated Property
and covenants and agrees to keep or cause the Property and/or the
Associated Property to be kept free of any hazardous substance or
solid waste (except such use, and temporary storage in anticipation of
use, as is required in the ordinary course of business, all while in
compliance with Applicable Environmental Laws), and to remove the same
(or if removal is prohibited by law, to take whatever action is
required by law) promptly upon discovery at its sole expense. Upon
Mortgagee's reasonable request, at any time and from time to time
during the existence of this Mortgage, Mortgagor will provide at
Mortgagor's sole expense an inspection or audit of the Property and
the Associated Property from an engineering or consulting firm
approved by Mortgagee, indicating the presence or absence of hazardous
substances and solid waste on the Property and/or the Associated
Property and compliance with Applicable Environmental Laws.
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(j) Defense of Mortgage. If the validity or priority of
this Mortgage or of any rights, titles, liens or security interests
created or evidenced hereby with respect to the Property or any part
thereof or the title of Mortgagor to the Property shall be endangered
or questioned or shall be attacked directly or indirectly or if any
legal proceedings are instituted against Mortgagor with respect
thereto, Mortgagor will give prompt written notice thereof to Lender
and at Mortgagor's own cost and expense will diligently endeavor to
cure any defect that may be developed or claimed, and will take all
necessary and proper steps for the defense of such legal proceedings,
including, but not limited to, the employment of counsel, the
prosecution or defense of litigation and the release or discharge of
all adverse claims, Lender, whether or not named as a party to legal
proceedings with respect thereto, is hereby authorized and empowered
to take such additional steps as in its judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or
the protection of the validity or priority of this Mortgage and the
rights, titles, liens and security interests created or evidenced
hereby, including but not limited to the employment of independent
counsel, the prosecution or defense of litigation, the compromise or
discharge of any adverse claims made with respect to the Property, the
purchase of any tax title and the removal of prior liens or security
interests, and all expenditures so made of every kind and character
shall be a demand obligation (which obligation Mortgagor hereby
expressly promises to pay) owing by Mortgagor to Lender and shall bear
interest from the date expended until paid at the rate described in
Section 2.3 hereof, and the party incurring such expenses shall be
subrogated to all rights of the person receiving such payment.
(k) Fees and Expenses; Indemnity. Mortgagor will
reimburse Mortgagee (for purposes of this paragraph, the term
"Mortgagee" shall include the directors, officers, partners, employees
and agents of Mortgagee and any persons or entities owned or
controlled by or affiliated with Mortgagee) for all expenditures,
including reasonable attorneys' fees and expenses, incurred or
expended in connection with (i) the breach by Mortgagor of any
covenant, agreement or condition contained herein or in any other Loan
Document, (ii) the exercise of any rights and remedies hereunder or
under any other Loan Document, and (iii) the protection of the
Property and/or liens and security interests therein. Mortgagor will
indemnify and hold harmless Mortgagee from and against (and will
reimburse Mortgagee for) all claims, demands, liabilities, losses,
damages (including without limitation consequential damages), causes
of action, judgments, penalties, costs and expenses (including without
limitation reasonable attorneys' fees and expenses) which may be
imposed upon, asserted against or incurred or paid by Mortgagee on
account of, in connection with, or arising out of (A) any bodily
injury or death or natural resource, human health or property damage
occurring in, at, into, under or upon or in the vicinity of the
Property through any cause whatsoever, (B) any act performed or
omitted to be performed hereunder or the breach of any representation
or warranty herein, (C) the exercise of any rights and remedies
hereunder or under any other Loan Document, (D) any transaction, act,
omission, event or circumstance arising out of or in any way connected
with the Property or with this Mortgage or any other Loan Document,
(E) any violation on or prior to the Release Date (as hereinafter
defined) of any Applicable Environmental Law, (F) any act, omission,
event or circumstance existing or occurring on or prior to the Release
Date (including without limitation the presence on or under the
Property or the Associated Property or release at, into, upon, under
or from the Property or the Associated Property of hazardous
substances or solid wastes disposed of or otherwise released)
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resulting from or in connection with the ownership, construction,
occupancy, operation, use and/or maintenance of the Property or the
Associated Property, regardless of whether the act, omission, event or
circumstance constituted a violation of any Applicable Environmental
Law at the time of its existence or occurrence, and (G) any and all
claims or proceedings (whether brought by private party or
governmental agencies) for human health, bodily injury, property
damage, abatement or remediation, environmental damage, cleanup,
mitigation, removal, natural resource damage or impairment or any
other injury or damage resulting from or relating to any hazardous or
toxic substance, solid waste or contaminated material located upon or
migrating into, from or through the Property or the Associated
Property (whether or not the release of such materials was caused by
Mortgagor, a tenant or subtenant or a prior owner or tenant or
subtenant on the Property or the Associated Property and whether or
not the alleged liability is attributable to the use, treatment,
handling, storage, generation, transportation, removal or disposal of
such substance, waste or material or the mere presence of such
substance, waste or material on or under the Property or the
Associated Property), which the Mortgagee may have liability with
respect to due to the making of the loan or loans evidenced by the
Note, the granting of this Mortgage, the exercise of any rights under
the Loan Documents, or otherwise. Mortgagee shall have the right to
compromise and adjust any such claims, actions and judgments, and in
addition to the rights to be indemnified as herein provided, all
amounts paid in compromise, satisfaction or discharge of any such
claim, action or judgment, and all court costs, attorneys' fees and
other expenses of every character expended by Mortgagee pursuant to
the provisions of this section shall be a demand obligation (which
obligation Mortgagor hereby expressly promises to pay) owing by
Mortgagor to Mortgagee. The "Release Date" as used herein shall mean
the earlier of the following two dates: (i) the date on which the
indebtedness and obligations secured hereby have been paid and
performed in full and this Mortgage has been released of record, or
(ii) the date on which the lien of this Mortgage is foreclosed or a
deed in lieu of such foreclosure is fully effective and recorded.
WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR
AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED
PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES,
CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING
WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES) WHICH IN WHOLE OR IN
PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY
OTHER) INDEMNIFIED PARTY. However, such indemnities shall not apply
to any particular indemnified party (but shall apply to the other
indemnified parties) to the extent the subject of the indemnification
is caused by or arises out of the gross negligence or willful
misconduct of such particular indemnified party. The foregoing
indemnities shall not terminate upon the Release Date or upon the
release, foreclosure or other termination of this Mortgage but will
survive the Release Date, foreclosure of this Mortgage or conveyance
in lieu of foreclosure, and the repayment of the secured indebtedness
and the discharge and release of this Mortgage and the other documents
evidencing and/or securing the secured indebtedness. Any amount to be
paid hereunder by Mortgagor to Mortgagee shall be a demand obligation
owing by Mortgagor to Mortgagee and shall be subject to and covered by
the provisions of Section 2.3 hereof.
(l) Insurance. Mortgagor will carry insurance as
provided in the Credit Agreement. In the event of any loss under any
insurance policies so carried by Mortgagor,
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Mortgagee shall have the right (but not the obligation) to make proof
of loss and collect the same, and all amounts so received shall be
applied toward costs, charges and expenses (including reasonable
attorneys' fees), if any, incurred in the collection thereof, then to
the payment, in the order determined by Mortgagee in its own
discretion, of the secured indebtedness, and any balance remaining
shall be subject to the order of Mortgagor. Mortgagee is hereby
authorized but not obligated to enforce in its name or in the name of
Mortgagor payment of any or all of said policies or settle or
compromise any claim in respect thereof, and to collect and make
receipts for the proceeds thereof and Mortgagee is hereby appointed
Mortgagor's agent and attorney-in-fact to endorse any check or draft
payable to Mortgagor in order to collect the proceeds of insurance.
In the event of foreclosure of this Mortgage, or other transfer of
title to the Property in extinguishment in whole or in part of the
secured indebtedness, all right, title and interest of Mortgagor in
and to such policies then in force concerning the Property and all
proceeds payable thereunder shall thereupon vest in the purchaser at
such foreclosure or other transferee in the event of such other
transfer of title.
(m) Further Assurances. Mortgagor will, on request of
Mortgagee, (i) promptly correct any defect, error or omission which
may be discovered in the contents of this Mortgage, or in any other
Loan Document, or in the execution or acknowledgment of this Mortgage
or any other Loan Document; (ii) execute, acknowledge, deliver and
record and/or file such further instruments (including, without
limitation, further mortgages, deeds of trust, security agreements,
financing statements, continuation statements, and assignments of
production, accounts, funds, contract rights, general intangibles, and
proceeds) and do such further acts as may be necessary, desirable or
proper to carry out more effectively the purposes of this Mortgage and
the other Loan Documents and to more fully identify and subject to the
liens and security interests hereof any property intended to be
covered hereby, including specifically, but without limitation, any
renewals, additions, substitutions, replacements, or appurtenances to
the Property; and (iii) execute, acknowledge, deliver, and file and/or
record any document or instrument (including specifically any
financing statement) desired by Mortgagee to protect the lien or the
security interest hereunder against the rights or interests of third
persons. Mortgagor shall pay all costs connected with any of the
foregoing.
(n) Name and Place of Business. Mortgagor will not cause
or permit any change to be made in its name, identity, or corporate or
partnership structure, or its federal employer identification number
unless Mortgagor shall have notified Mortgagee of such change at least
thirty (30) days prior to the effective date of such change, and shall
have first taken all action required by Mortgagee for the purpose of
further perfecting or protecting the liens and security interests in
the Property created hereby. Mortgagor's principal place of business
and chief executive office, and the place where Mortgagor keeps its
books and records concerning the Property (including, particularly,
the records with respect to "Production Proceeds", as defined in
Section 3.1 hereof, from the Mortgaged Properties) has for the
preceding four months, been, and will continue to be (unless Mortgagor
notifies Mortgagee of any change in writing at least thirty (30) days
prior to the date of such change), the address set forth opposite the
signature of Mortgagor to this Mortgage.
(o) Not a Foreign Person. Mortgagor is not a "foreign
person" within the meaning of the Internal Revenue Code of
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1986, as amended, (hereinafter called the "Code"), Sections 1445 and
7701 (i.e. Mortgagor is not a non-resident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate as those terms
are defined in the Code and any regulations promulgated thereunder).
Section 2.2. Compliance by Operator. As to any part of the Mortgaged
Properties which is not a working interest, Mortgagor agrees to take all such
action and to exercise all rights and remedies as are available to Mortgagor to
cause the owner or owners of the working interest in such properties to comply
with the covenants and agreements contained herein; and as to any part of the
Mortgaged Properties which is a working interest but which is operated by a
party other than Mortgagor, Mortgagor agrees to take all such action and to
exercise all rights and remedies as are available to Mortgagor (including, but
not limited to, all rights under any operating agreement) to cause the party
who is the operator of such property to comply with the covenants and
agreements contained herein.
Section 2.3. Performance on Mortgagor's Behalf. Mortgagor agrees
that, if Mortgagor fails to perform any act or to take any action which
hereunder Mortgagor is required to perform or take, or to pay any money which
hereunder Mortgagor is required to pay, Mortgagee, in Mortgagor's name or its
own name, may, but shall not be obligated to, perform or cause to be performed
such act or take such action or pay such money, and any expenses so incurred by
Mortgagee and any money so paid by Mortgagee shall be a demand obligation owing
by Mortgagor to Mortgagee (which obligation Mortgagor hereby expressly promises
to pay) and Mortgagee, upon making such payment, shall be subrogated to all of
the rights of the person, corporation or body politic receiving such payment.
Each amount due and owing by Mortgagor to Mortgagee pursuant to this Mortgage
shall bear interest each day, from the date of such expenditure or payment
until paid, at a rate equal to the rate as provided for past due principal
under the Note (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); all such amounts, together with such
interest thereon, shall be a part of the secured indebtedness and shall be
secured by this Mortgage.
ARTICLE III.
Assignment of Production, Accounts, and Proceeds
Section 3.1. Assignment of Production. Mortgagor does hereby
absolutely and unconditionally assign, transfer and set over to Mortgagee all
Production which accrues to Mortgagor's interest in the Mortgaged Properties,
all proceeds of such Production and all Payments in Lieu of Production (herein
collectively referred to as the "Production Proceeds"), together with the
immediate and continuing right to collect and receive such Production Proceeds.
Mortgagor directs and instructs any and all purchasers of any Production to pay
to Mortgagee all of the Production Proceeds accruing to Mortgagor's interest
until such time as such purchasers have been furnished with evidence that all
secured indebtedness has been paid and that this Mortgage has been released.
Mortgagor agrees that no purchasers of the Production shall have any
responsibility for the application of any funds paid to Mortgagee.
Section 3.2. Effectuating Payment of Production Proceeds to
Mortgagee. Independent of the foregoing provisions and authorities herein
granted, Mortgagor agrees to execute and deliver any and all transfer orders,
division orders and other instruments that may be requested by Mortgagee or
that may be required by any purchaser of any Production for the purpose of
effectuating payment of the Production Proceeds to Mortgagee. If under any
existing sales
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agreements, other than division orders or transfer orders, any Production
Proceeds are required to be paid by the purchaser to Mortgagor so that under
such existing agreements payment cannot be made of such Production Proceeds to
Mortgagee, Mortgagor's interest in all Production Proceeds under such sales
agreements and in all other Production Proceeds which for any reason may be
paid to Mortgagor shall, when received by Mortgagor, constitute trust funds in
Mortgagor's hands and shall be immediately paid over to Mortgagee. Without
limitation upon any of the foregoing, Mortgagor hereby constitutes and appoints
Mortgagee as Mortgagor's special attorney-in-fact (with full power of
substitution, either generally or for such periods or purposes as Mortgagee may
from time to time prescribe) in the name, place and stead of Mortgagor to do
any and every act and exercise any and every power that Mortgagor might or
could do or exercise personally with respect to all Production and Production
Proceeds (the same having been assigned by Mortgagor to Mortgagee pursuant to
Section 3.1 hereof), expressly inclusive, but not limited to, the right, power
and authority to:
(a) Execute and deliver in the name of Mortgagor any and
all transfer orders, division orders, letters in lieu of transfer
orders, indemnifications, certificates and other instruments of every
nature that may be requested or required by any purchaser of
Production from any of the Mortgaged Properties for the purposes of
effectuating payment of the Production Proceeds to Mortgagee or which
Mortgagee may otherwise deem necessary or appropriate to effect the
intent and purposes of the assignment contained in Section 3.1; and
(b) If under any product sales agreements other than
division orders or transfer orders, any Production Proceeds are
required to be paid by the purchaser to Mortgagor so that under such
existing agreements payment cannot be made of such Production Proceeds
to Mortgagee, to make, execute and enter into such sales agreements or
other agreements as are necessary to direct Production Proceeds to be
payable to Mortgagee;
giving and granting unto said attorney-in-fact full power and authority to do
and perform any and every act and thing whatsoever necessary and requisite to
be done as fully and to all intents and purposes, as Mortgagor might or could
do if personally present; and Mortgagor shall be bound thereby as fully and
effectively as if Mortgagor had personally executed, acknowledged and delivered
any of the foregoing certificates or documents. The powers and authorities
herein conferred upon Mortgagee may be exercised by Mortgagee through any
person who, at the time of the execution of the particular instrument, is an
officer of Mortgagee. The power of attorney herein conferred is granted for
valuable consideration and hence is coupled with an interest and is irrevocable
so long as the secured indebtedness, or any part thereof, shall remain unpaid.
All persons dealing with Mortgagee or any substitute shall be fully protected
in treating the powers and authorities conferred by this paragraph as
continuing in full force and effect until advised by Mortgagee that all the
secured indebtedness is fully and finally paid. Mortgagee may, but shall not
be obligated to, take such action as it deems appropriate in an effort to
collect the Production Proceeds and any reasonable expenses (including
reasonable attorney's fees) so incurred by Mortgagee shall be a demand
obligation of Mortgagor and shall be part of the secured indebtedness, and
shall bear interest each day, from the date of such expenditure or payment
until paid, at the rate described in Section 2.3 hereof.
Section 3.3. Change of Purchaser. To the extent a default has
occurred hereunder and is continuing, should any person now or hereafter
purchasing or taking Production fail to make payment promptly to Mortgagee of
the Production Proceeds, Mortgagee shall,
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subject to then-existing contractual prohibitions, have the right to make, or
to require Mortgagor to make, a change of purchaser, and the right to designate
or approve the new purchaser, and Mortgagee shall have no liability or
responsibility in connection therewith so long as ordinary care is used in
making such designation.
Section 3.4. Application of Production Proceeds. So long as no
default has occurred hereunder, the Production Proceeds received by Mortgagee
during each calendar month shall on the first business day of the next
succeeding calendar month (or, at the option of Mortgagee, on any earlier date)
be applied by Mortgagee as follows:
FIRST, to the payment of all secured indebtedness then due and
payable, in such manner and order as Mortgagee deems advisable;
SECOND, to the prepayment of the remainder of the secured
indebtedness in such manner and order and to such extent as Mortgagee
deems advisable; and
THIRD, the remainder, if any, of the Production Proceeds shall
be paid over to Mortgagor or to Mortgagor's order or to such other
parties as may be entitled thereto by law.
After a default hereunder has occurred, all Production Proceeds from
time to time in the hands of Mortgagee shall be applied by it toward the
payment of all secured indebtedness (principal, interest, attorneys' fees and
other fees and expenses) at such times and in such manner and order and to such
extent as Mortgagee deems advisable.
Section 3.5. Release From Liability; Indemnification. Mortgagee and
its successors and assigns are hereby released and absolved from all liability
for failure to enforce collection of the Production Proceeds and from all other
responsibility in connection therewith, except the responsibility of each to
account to Mortgagor for funds actually received by each. Mortgagor agrees to
indemnify and hold harmless Mortgagee (for purposes of this paragraph, the term
"Mortgagee" shall include the directors, officers, partners, employees and
agents of Mortgagee and any persons or entities owned or controlled by or
affiliated with Mortgagee) from and against any and all claims, demands,
liabilities, losses, damages (including without limitation consequential
damages), causes of action, judgments, penalties, costs and expenses (including
without limitation reasonable attorneys' fees and expenses) imposed upon,
asserted against or incurred or paid by Mortgagee by reason of the assertion
that Mortgagee received, either before or after payment in full of the secured
indebtedness, funds from the production of oil, gas, other hydrocarbons or
other minerals claimed by third persons (and/or funds attributable to sales of
production which (i) were made at prices in excess of the maximum price
permitted by applicable law or (ii) were otherwise made in violation of laws,
rules, regulations and/or orders governing such sales), and Mortgagee shall
have the right to defend against any such claims or actions, employing
attorneys of its own selection, and if not furnished with indemnity
satisfactory to it, Mortgagee shall have the right to compromise and adjust any
such claims, actions and judgments, and in addition to the rights to be
indemnified as herein provided, all amounts paid by Mortgagee in compromise,
satisfaction or discharge of any such claim, action or judgment, and all court
costs, attorneys' fees and other expenses of every character expended by
Mortgagee pursuant to the provisions of this section shall be a demand
obligation (which obligation Mortgagor hereby expressly promises to pay) owing
by Mortgagor to Mortgagee and shall bear interest, from the date expended until
paid, at the rate described in Section 2.3 hereof. The foregoing indemnities
shall not
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terminate upon the Release Date or upon the release, foreclosure or other
termination of this Mortgage but will survive the Release Date, foreclosure of
this Mortgage or conveyance in lieu of foreclosure, and the repayment of the
secured indebtedness and the discharge and release of this Mortgage and the
other documents evidencing and/or securing the secured indebtedness. WITHOUT
LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND MORTGAGOR AGREES THAT THE
FOREGOING RELEASES AND INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH
RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES (INCLUDING WITHOUT
LIMITATION CONSEQUENTIAL DAMAGES), CAUSES OF ACTION, JUDGMENTS, PENALTIES,
COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES AND
EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE
NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such
indemnities shall not apply to any particular indemnified party (but shall
apply to the other indemnified parties) to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of such particular indemnified party.
Section 3.6. Mortgagor's Absolute Obligation to Pay Note. Nothing
herein contained shall detract from or limit the obligations of Mortgagor to
make prompt payment of the Note, and any and all other secured indebtedness, at
the time and in the manner provided herein and in the Loan Documents,
regardless of whether the Production and Production Proceeds herein assigned
are sufficient to pay same, and the rights under this Article III shall be
cumulative of all other rights under the Loan Documents.
ARTICLE IV.
Remedies Upon Default
Section 4.1. Default. The term "default" as used in this Mortgage
shall mean the occurrence of an "Event of Default" as defined in the Credit
Agreement.
Section 4.2. Acceleration of Secured Indebtedness. Upon the
occurrence of a default, Mortgagee at any time and from time to time may
without notice to Mortgagor or any other person declare any or all of the
secured indebtedness immediately due and payable and all such secured
indebtedness shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, declaration or notice of
acceleration or intention to accelerate, putting the Mortgagor in default,
dishonor, notice of dishonor or any other notice or declaration of any kind,
all of which are hereby expressly waived by Mortgagor, and the liens evidenced
hereby shall be subject to foreclosure in any manner provided for herein or
provided for by law as Mortgagee may elect. The secured indebtedness may be
(and in certain circumstances shall automatically be) accelerated as provided
in the Credit Agreement.
Section 4.3. Pre-Foreclosure Remedies. Upon the occurrence of a
default, or any event or circumstance which, with the lapse of time or the
giving of notice, or both, would constitute a default hereunder, Mortgagee is
authorized, prior or subsequent to the institution of any foreclosure
proceedings, to enter upon the Property, or any part thereof, and to take
possession of the Property and all books and records relating thereto, and to
exercise without interference from Mortgagor any and all rights which Mortgagor
has with respect to the management, possession, operation, protection or
preservation of the Property. If necessary to obtain the possession provided
for above, Mortgagee may invoke any and all remedies to dispossess Mortgagor.
All costs, expenses and liabilities of every character incurred by Mortgagee in
managing, operating, maintaining, protecting or preserving the Property shall
constitute a demand obligation (which
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obligation Mortgagor hereby expressly promises to pay) owing by Mortgagor to
Mortgagee and shall bear interest from date of expenditure until paid at the
rate described in Section 2.3 hereof, all of which shall constitute a portion
of the secured indebtedness and shall be secured by this Mortgage and by any
other instrument securing the secured indebtedness. In connection with any
action taken by Mortgagee pursuant to this Section 4.3, MORTGAGEE SHALL NOT BE
LIABLE FOR ANY LOSS SUSTAINED BY MORTGAGOR RESULTING FROM ANY ACT OR OMISSION
OF MORTGAGEE (INCLUDING MORTGAGEE'S OWN NEGLIGENCE) IN MANAGING THE PROPERTY
UNLESS SUCH LOSS IS CAUSED BY THE WILLFUL MISCONDUCT AND BAD FAITH OF
MORTGAGEE, nor shall Mortgagee be obligated to perform or discharge any
obligation, duty or liability of Mortgagor arising under any agreement forming
a part of the Property or arising under any Permitted Encumbrance or otherwise
arising. Mortgagor hereby assents to, ratifies and confirms any and all
actions of Mortgagee with respect to the Property taken under this Section 4.3.
Section 4.4. Foreclosure.
(a) Upon the occurrence of a default, this Mortgage may be
foreclosed as to the Mortgaged Properties, or any part thereof, in any manner
permitted by applicable law. Cumulative of the foregoing and the other
provisions of this Section 4.4:
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE
MAY ALLOW MORTGAGEE TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS
MORTGAGE.
(b) Upon the occurrence of a default, Mortgagee may exercise its
rights of enforcement with respect to the Collateral under the Uniform
Commercial Code or any other statute in force in any state to the extent the
same is applicable law. Cumulative of the foregoing and the other provisions
of this Section 4.4:
(i) Mortgagee may enter upon the Mortgaged Properties or
otherwise upon Mortgagor's premises to take possession of, assemble
and collect the Collateral or to render it unusable; and
(ii) Mortgagee may require Mortgagor to assemble the
Collateral and make it available at a place Mortgagee designates which
is mutually convenient to allow Mortgagee to take possession or
dispose of the Collateral; and
(iii) written notice mailed to Mortgagor as provided herein
at least ten (10) days prior to the date of public sale of the
Collateral or prior to the date after which private sale of the
Collateral will be made shall constitute reasonable notice; and
(iv) in the event of a foreclosure of the liens and/or
security interests evidenced hereby, the Collateral, or any part
thereof, and the Mortgaged Properties, or any part thereof, may, at
the option of Mortgagee, be sold, as a whole or in parts, together or
separately (including, without limitation, where a portion of the
Mortgaged Properties is sold, the Collateral related thereto may be
sold in connection therewith); and
(v) the expenses of sale provided for in clause FIRST of
Section 4.6 shall include the reasonable expenses of retaking the
Collateral, or any part thereof, holding the same and preparing the
same for sale or other disposition; and
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(vi) should, under this subsection, the Collateral be
disposed of other than by sale, any proceeds of such disposition shall
be treated under Section 4.6 as if the same were sales proceeds;
(c) To the extent permitted by applicable law, the sale hereunder
of less than the whole of the Property shall not exhaust the powers of sale
herein granted or the right to judicial foreclosure, and successive sale or
sales may be made until the whole of the Property shall be sold and, if the
proceeds of such sale of less than the whole of the Property shall be less than
the aggregate of the indebtedness secured hereby and the expense of conducting
such sale, this Mortgage and the liens and security interests hereof shall
remain in full force and effect as to the unsold portion of the Property just
as though no sale had been made; provided, however, that Mortgagor shall never
have any right to require the sale of less than the whole of the Property. In
the event any sale hereunder is not completed or is defective in the opinion of
Mortgagee, such sale shall not exhaust the powers of sale hereunder or the
right to judicial foreclosure, and Mortgagee shall have the right to cause a
subsequent sale or sales to be made. Any sale may be adjourned by announcement
at the time and place appointed for such sale without further notice except as
may be required by law. Mortgagee acting under power of sale may appoint or
delegate any one or more persons as agent to perform any act or acts necessary
or incident to any sale held by it (including, without limitation, the posting
of notices and the conduct of sale), and such appointment need not be in
writing or recorded. Any and all statements of fact or other recitals made in
any deed or deeds, or other instruments of transfer, given in connection with a
sale as to nonpayment of the secured indebtedness or as to the occurrence of
any default, or as to all of the secured indebtedness having been declared to
be due and payable, or as to the request to sell, or as to notice of time,
place and terms of sale and the properties to be sold having been duly given,
or as to any other act or thing having been duly done, shall be taken as prima
facie evidence of the truth of the facts so stated and recited. With respect
to any sale held in foreclosure of the liens and/or security interests covered
hereby, it shall not be necessary for the Mortgagee, any public officer acting
under execution or order of the court or any other party to have physically
present or constructively in his/her or its possession, either at the time of
or prior to such sale, the Property or any part thereof.
Section 4.5. Receiver. In addition to all other remedies herein
provided for, Mortgagor agrees that, upon the occurrence of a default or any
event or circumstance which, with the lapse of time or the giving of notice, or
both, would constitute a default hereunder, Mortgagee shall as a matter of
right be entitled to the appointment of a receiver or receivers for all or any
part of the Property, whether such receivership be incident to a proposed sale
(or sales) of such property or otherwise, and without regard to the value of
the Property or the solvency of any person or persons liable for the payment of
the indebtedness secured hereby, and Mortgagor does hereby consent to the
appointment of such receiver or receivers, waives any and all defenses to such
appointment, and agrees not to oppose any application therefor by Mortgagee,
and agrees that such appointment shall in no manner impair, prejudice or
otherwise affect the rights of Mortgagee under Article III hereof. Mortgagor
expressly waives notice of a hearing for appointment of a receiver and the
necessity for bond or an accounting by the receiver. Nothing herein is to be
construed to deprive Mortgagee of any other right, remedy or privilege it may
now or hereafter have under the law to have a receiver appointed. Any money
advanced by Mortgagee in connection with any such receivership shall be a
demand obligation (which obligation Mortgagor hereby expressly promises to pay)
owing by Mortgagor to Mortgagee and shall bear interest, from the date of
making such advancement by Mortgagee until paid, at the rate described in
Section 2.3 hereof.
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Section 4.6. Proceeds of Foreclosure. The proceeds of any sale held
in foreclosure of the liens and/or security interests evidenced hereby shall be
applied:
FIRST, to the payment of all necessary costs and expenses
incident to such foreclosure sale, including but not limited to all
court costs and charges of every character in the event foreclosed by
suit;
SECOND, to the payment of the secured indebtedness (including
specifically without limitation the principal, interest and attorneys'
fees due and unpaid on the Note and the amounts due and unpaid and
owed under this Mortgage) in such manner and order as Mortgagee may
elect; and
THIRD, the remainder, if any there shall be, shall be paid to
Mortgagor, or to Mortgagor's heirs, devisees, representatives,
successors or assigns, or such other persons as may be entitled
thereto by law.
Section 4.7. Mortgagee as Purchaser. Any party constituting
Mortgagee shall have the right to become the purchaser at any sale held in
foreclosure of the liens and/or security interests evidenced hereby, and any
party constituting Mortgagee which is purchasing at any such sale shall have
the right to credit upon the amount of the bid made therefor, to the extent
necessary to satisfy such bid, the secured indebtedness owing to such party, or
if such party holds less than all of such indebtedness, the pro rata part
thereof owing to such party, accounting to all other parties constituting
Mortgagee who are not joining in such bid in cash for the portion of such bid
or bids apportionable to such non-bidding parties.
Section 4.8. Foreclosure as to Matured Debt. Upon the occurrence of
a default, Mortgagee shall have the right to proceed with foreclosure of the
liens and/or security interests evidenced hereby without declaring the entire
secured indebtedness due, and in such event, any such foreclosure sale may be
made subject to the unmatured part of the secured indebtedness and shall not in
any manner affect the unmatured part of the secured indebtedness, but as to
such unmatured part, this Mortgage shall remain in full force and effect just
as though no sale had been made. The proceeds of such sale shall be applied as
provided in Section 4.6 except that the amount paid under clause SECOND thereof
shall be only the matured portion of the secured indebtedness and any proceeds
of such sale in excess of those provided for in clauses FIRST and SECOND
(modified as provided above) shall be applied as provided in clause SECOND and
THIRD of Section 3.4 hereof. Several sales may be made hereunder without
exhausting the right of sale for any unmatured part of the secured
indebtedness.
Section 4.9. Remedies Cumulative. All remedies herein provided for
are cumulative of each other and of all other remedies existing at law or in
equity and are cumulative of any and all other remedies provided for in any
other Loan Document, and, in addition to the remedies herein provided, there
shall continue to be available all such other remedies as may now or hereafter
exist at law or in equity for the collection of the secured indebtedness and
the enforcement of the covenants herein and the foreclosure of the liens and/or
security interests evidenced hereby, and the resort to any remedy provided for
hereunder or under any such other Loan Document or provided for by law shall
not prevent the concurrent or subsequent employment of any other appropriate
remedy or remedies.
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Section 4.10. Discretion as to Security. Mortgagee may resort to any
security given by this Mortgage or to any other security now existing or
hereafter given to secure the payment of the secured indebtedness, in whole or
in part, and in such portions and in such order as may seem best to Mortgagee
in its sole and uncontrolled discretion, and any such action shall not in any
way be considered as a waiver of any of the rights, benefits, liens or security
interests evidenced by this Mortgage.
Section 4.11. Mortgagor's Waiver of Certain Rights. To the full
extent Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any
time insist upon, plead, claim or take the benefit or advantage of any law now
or hereafter in force providing for any appraisement, valuation, stay,
extension or redemption, and Mortgagor, for Mortgagor, Mortgagor's heirs,
devisees, representatives, successors and assigns, and for any and all persons
ever claiming any interest in the Property, to the extent permitted by
applicable law, hereby waives and releases all rights of appraisement,
valuation, stay of execution, redemption, notice of intention to mature or
declare due the whole of the secured indebtedness, notice of election to mature
or declare due the whole of the secured indebtedness and all rights to a
marshaling of assets of Mortgagor, including the Property, or to a sale in
inverse order of alienation in the event of foreclosure of the liens and/or
security interests hereby created. Mortgagor shall not have or assert any
right under any statute or rule of law pertaining to the marshaling of assets,
sale in inverse order of alienation, the exemption of homestead, the
administration of estates of decedents, or other matters whatever to defeat,
reduce or affect the right under the terms of this Mortgage to a sale of the
Property for the collection of the secured indebtedness without any prior or
different resort for collection, or the right under the terms of this Mortgage
to the payment of the secured indebtedness out of the proceeds of sale of the
Property in preference to every other claimant whatever. If any law referred
to in this section and now in force, of which Mortgagor or Mortgagor's heirs,
devisees, representatives, successors or assigns or any other persons claiming
any interest in the Mortgaged Properties or the Collateral might take advantage
despite this section, shall hereafter be repealed or cease to be in force, such
law shall not thereafter be deemed to preclude the application of this section.
Section 4.12. Mortgagor as Tenant Post-Foreclosure. In the event
there is a foreclosure sale hereunder and at the time of such sale Mortgagor or
Mortgagor's heirs, devisees, representatives, successors or assigns or any
other persons claiming any interest in the Property by, through or under
Mortgagor are occupying or using the Property, or any part thereof, each and
all shall immediately become the tenant of the purchaser at such sale, which
tenancy shall be a tenancy from day to day, terminable at the will of either
landlord or tenant, at a reasonable rental per day based upon the value of the
property occupied, such rental to be due daily to the purchaser. To the extent
permitted by applicable law, the purchaser at such sale shall, notwithstanding
any language herein apparently to the contrary, have the sole option to demand
immediate possession following the sale or to permit the occupants to remain as
tenants at will. In the event the tenant fails to surrender possession of said
property upon demand, the purchaser shall be entitled to institute and maintain
a summary action for possession of the property (such as an action for forcible
entry and detainer) in any court having jurisdiction.
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ARTICLE V.
Miscellaneous
Section 5.1. Scope of Mortgage. This Mortgage is a mortgage of both
real/immovable and personal/movable property, a security agreement, a financing
statement and an assignment, and also covers proceeds and fixtures.
Section 5.2. Effective as a Financing Statement. This Mortgage
covers goods which are or are to become fixtures on the real property described
herein, and this Mortgage shall be effective as a financing statement filed as
a fixture filing with respect to all fixtures included within the Property.
This Mortgage shall also be effective as a financing statement, filed as a
fixture filing, covering minerals and other substances of value which may be
extracted from the earth (including without limitation oil and gas), and
accounts related thereto, which will be financed at the wellhead or minehead of
the wells or mines located on the Mortgaged Properties. This Mortgage is to be
filed for record in the real/immovable property records of each county where
any part of the Mortgaged Properties is situated or which lies shoreward of any
Mortgaged Property (i.e., to the extent a Mortgaged Property lies offshore
within the projected seaward extension of the relevant county boundaries), and
may also be filed in the offices of the Bureau of Land Management or the
Minerals Management Service or any relevant state agency (or any successor
agencies). This Mortgage shall also be effective as a financing statement
covering any other Property and may be filed in any other appropriate filing or
recording office. The mailing address of Mortgagor is the address of Mortgagor
set forth at the end of this Mortgage and the address of Mortgagee from which
information concerning the security interests hereunder may be obtained is the
address of Mortgagee set forth at the end of this Mortgage.
Section 5.3. Reproduction of Mortgage as Financing Statement. A
carbon, photographic, facsimile or other reproduction of this Mortgage or of
any financing statement relating to this Mortgage shall be sufficient as a
financing statement for any of the purposes referred to in Section 5.2.
Section 5.4. Notice to Account Debtors. In addition to, but without
limitation of, the rights granted in Article III hereof, Mortgagee may, at any
time after a default has occurred that is continuing, notify the account
debtors or obligors of any accounts, chattel paper, negotiable instruments or
other evidences of indebtedness included in the Collateral to pay Mortgagee
directly.
Section 5.5. Waivers. Mortgagee may at any time and from time to
time in writing waive compliance by Mortgagor with any covenant herein made by
Mortgagor to the extent and in the manner specified in such writing, or consent
to Mortgagor's doing any act which hereunder Mortgagor is prohibited from
doing, or to Mortgagor's failing to do any act which hereunder Mortgagor is
required to do, to the extent and in the manner specified in such writing, or
release any part of the Property or any interest therein or any Production
Proceeds from the lien and security interest of this Mortgage. Any party
liable, either directly or indirectly, for the secured indebtedness or for any
covenant herein or in any other Loan Document may be released from all or any
part of such obligations without impairing or releasing the liability of any
other party. No such act shall in any way impair any rights or powers
hereunder except to the extent specifically agreed to in such writing.
Section 5.6. No Impairment of Security. The lien, security interest
and other security rights hereunder shall not be impaired by any indulgence,
moratorium or release which may be granted
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including, but not limited to, any renewal, extension or modification which may
be granted with respect to any secured indebtedness, or any surrender,
compromise, release, renewal, extension, exchange or substitution which may be
granted in respect of the Property (including without limitation Production
Proceeds), or any part thereof or any interest therein, or any release or
indulgence granted to any endorser, guarantor or surety of any secured
indebtedness.
Section 5.7. Acts Not Constituting Waiver. Any default may be waived
without waiving any other prior or subsequent default. Any default may be
remedied without waiving the default remedied. Neither failure to exercise,
nor delay in exercising, any right, power or remedy upon any default shall be
construed as a waiver of such default or as a waiver of the right to exercise
any such right, power or remedy at a later date. No single or partial exercise
of any right, power or remedy hereunder shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right, power or
remedy hereunder may be exercised at any time and from time to time. No
modification or waiver of any provision hereof nor consent to any departure by
Mortgagor therefrom shall in any event be effective unless the same shall be in
writing and signed by Mortgagee and then such waiver or consent shall be
effective only in the specific instances, for the purpose for which given and
to the extent therein specified. No notice to nor demand on Mortgagor in any
case shall of itself entitle Mortgagor to any other or further notice or demand
in similar or other circumstances. Acceptance of any payment in an amount less
than the amount then due on any secured indebtedness shall be deemed an
acceptance on account only and shall not in any way excuse the existence of a
default hereunder.
Section 5.8. Mortgagor's Successors. In the event the ownership of
the Property or any part thereof becomes vested in a person other than
Mortgagor, then, without notice to Mortgagor, such successor or successors in
interest may be dealt with, with reference to this Mortgage and to the
indebtedness secured hereby, in the same manner as with Mortgagor, without in
any way vitiating or discharging Mortgagor's liability hereunder or for the
payment of the indebtedness or performance of the obligations secured hereby.
No transfer of the Property, no forbearance, and no extension of the time for
the payment of the indebtedness secured hereby, shall operate to release,
discharge, modify, change or affect, in whole or in part, the liability of
Mortgagor hereunder or for the payment of the indebtedness or performance of
the obligations secured hereby or the liability of any other person hereunder
or for the payment of the indebtedness secured hereby.
Section 5.9. Place of Payment. All secured indebtedness which may be
owing hereunder at any time by Mortgagor shall be payable at the place
designated in the Credit Agreement (or if no such designation is made, at the
address of Mortgagee indicated at the end of this Mortgage), or at such other
place as Mortgagee may designate in writing.
Section 5.10. Subrogation to Existing Liens. To the extent that
proceeds of the Note are used to pay indebtedness secured by any outstanding
lien, security interest, charge or prior encumbrance against the Property, such
proceeds have been advanced at Mortgagor's request, and the party or parties
advancing the same shall be subrogated to any and all rights, security
interests and liens owned by any owner or holder of such outstanding liens,
security interests, charges or encumbrances, irrespective of whether said
liens, security interests, charges or encumbrances are released, and it is
expressly understood that, in consideration of the payment of such
indebtedness, Mortgagor hereby waives and releases all demands and causes of
action for offsets and payments to, upon and in connection with the said
indebtedness.
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Section 5.11. Application of Payments to Certain Indebtedness. If
any part of the secured indebtedness cannot be lawfully secured by this
Mortgage or if any part of the Property cannot be lawfully subject to the lien
and security interest hereof to the full extent of such indebtedness, then all
payments made shall be applied on said indebtedness first in discharge of that
portion thereof which is not secured by this Mortgage.
Section 5.12. Compliance With Usury Laws. It is the intent of
Mortgagor, Mortgagee and all other parties to the Loan Documents to contract in
strict compliance with applicable usury law from time to time in effect. In
furtherance thereof, it is stipulated and agreed that none of the terms and
provisions contained herein 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.
Section 5.13. Release of Mortgage. If all of the secured
indebtedness be paid as the same becomes due and payable and all of the
covenants, warranties, undertakings and agreements made in this Mortgage are
kept and performed and no further obligation shall exist to provide credit or
advance funds to Mortgagor or the maker of any promissory note (or other
obligor with respect to other indebtedness) secured hereby, then, at
Mortgagor's request, this Mortgage shall be released, in due form and at
Mortgagor's cost; provided, however, that, notwithstanding such release,
certain indemnifications, and other rights, which are provided herein to
continue following the release hereof shall continue in effect unaffected by
such release; and provided further that if any payment to Mortgagee is held to
constitute a preference or a voidable transfer under applicable state or
federal laws or if for any other reason Mortgagee is required to refund such
payment to the payor thereof or to pay the amount thereof to any third party,
this Mortgage shall be reinstated to the extent of such payment or payments.
Section 5.14. Notices. All notices, requests, consents, demands and
other communications required or permitted hereunder shall be in writing 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, at the addresses
specified at the end of this Mortgage (unless changed by similar notice in
writing given by the particular party 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 first attempted
delivery at the address and in the manner provided herein, (b) in the case of
telecopy, upon receipt, and (c) in the case of registered or certified United
States mail, three days after deposit in the mail. Notwithstanding the
foregoing, or anything else in the Loan Documents which may appear to the
contrary, any notice given in connection with a foreclosure of the liens and/or
security interests created hereunder, or otherwise in connection with the
exercise by Mortgagee of its rights hereunder or under any other Loan Document,
which is given in a manner permitted by applicable law shall constitute proper
notice; without limitation of the foregoing, notice given in a form required or
permitted by statute shall (as to the portion of the Property to which such
statute is applicable) constitute proper notice.
Section 5.15. Invalidity of Certain Provisions. A determination that
any provision of this Mortgage is unenforceable or invalid shall not affect the
enforceability or validity of any other provision and the determination that
the application of any provision of this Mortgage to any person or circumstance
is illegal
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<PAGE> 24
or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
Section 5.16. Gender; Titles. Within this Mortgage, words of any
gender shall be held and construed to include any other gender, and words in
the singular number shall be held and construed to include the plural, unless
the context otherwise requires. Titles appearing at the beginning of any
subdivisions hereof are for convenience only, do not constitute any part of
such subdivisions, and shall be disregarded in construing the language
contained in such subdivisions.
Section 5.17. Recording. Mortgagor will cause this Mortgage and all
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation statements relating thereto to be recorded, filed,
re-recorded and refiled in such manner and in such places as Mortgagee shall
reasonably request and will pay all such recording, filing, re-recording and
refiling taxes, fees and other charges.
Section 5.18. Reporting Compliance. Mortgagor agrees to comply with
any and all reporting requirements applicable to the transaction evidenced by
the Note and secured by this Mortgage which are set forth in any law, statute,
ordinance, rule, regulation, order or determination of any governmental
authority, and further agrees upon request of Mortgagee to furnish Mortgagee
with evidence of such compliance.
Section 5.19. Certain Consents. Except where otherwise expressly
provided herein, in any instance hereunder where the approval, consent or the
exercise of judgment of Mortgagee is required, the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of Mortgagee, and Mortgagee shall not, for any reason or to any
extent, be required to grant such approval or consent or exercise such judgment
in any particular manner, regardless of the reasonableness of either the
request or Mortgagee's judgment.
Section 5.20. Certain Obligations of Mortgagor. Without limiting
Mortgagor's obligations hereunder, Mortgagor's liability hereunder shall extend
to and include all post petition interest, expenses, and other duties and
liabilities with respect to Mortgagor's obligations hereunder which would be
owed but for the fact that the same may be unenforceable due to the existence
of a bankruptcy, reorganization or similar proceeding.
Section 5.21. Agent and Lenders. On the date hereof, ING is both the
"Agent" under the Credit Agreement and the only Lender thereunder. It is
hereby contemplated that additional persons shall or may hereafter become
Lenders under the Credit Agreement, and in such event: (a) all references
herein to indebtedness, obligations, or promissory notes owing to Mortgagee
shall refer to indebtedness, obligations, or promissory notes owing to any
person included within the definition of Lenders, as used in the Credit
Agreement, and (b) in its capacity as Agent under the Credit Agreement, ING
together with its successors in such capacity, shall have all authority,
without the need to secure the consent or joinder of any other parties
constituting Lenders under the Credit Agreement, to perform any acts and/or
enforce any remedies afforded Mortgagee hereunder, including without limitation
any remedies afforded Mortgagee under Article IV hereof, and to receive any
notices or payments (including without limitation payment of Production
Proceeds pursuant to Article III hereof), on behalf of the parties constituting
Lenders under the Credit Agreement, and (c) any rights, titles, liens and
security interests in or relating to the Property shall be automatically held,
upon and subject to the terms of the Credit Agreement, by ING, as Agent, for
the benefit of all parties constituting Lenders under the Credit
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Agreement, and any rights and remedies afforded Mortgagee hereunder (including
without limitation any of same relating to indemnities) shall be automatically
held and exercised, upon and subject to the terms of the Credit Agreement, by
ING as Agent for all parties constituting Lenders under the Credit Agreement.
Section 5.22. Counterparts. This Mortgage may be executed in
several counterparts, all of which are identical, except that, to facilitate
recordation, certain counterparts hereof may include only that portion of
Exhibits A-1 and A-2 which contains descriptions of the properties located in
(or otherwise subject to the recording or filing requirements and/or
protections of the recording or filing acts or regulations of) the recording
jurisdiction in which the particular counterpart is to be recorded, and other
portions of Exhibits A-1 and A-2 shall be included in such counterparts by
reference only. All of such counterparts together shall constitute one and the
same instrument. Complete copies of this Mortgage containing the entire
Exhibits A-1 and A-2 have been retained by Mortgagor and Mortgagee.
Section 5.23. Successors and Assigns. The terms, provisions,
covenants, representations, indemnifications and conditions hereof shall be
binding upon Mortgagor, and the successors and assigns of Mortgagor, and shall
inure to the benefit of Mortgagee and the successors and assigns of Mortgagee,
and shall constitute covenants running with the Mortgaged Properties. All
references in this Mortgage to Mortgagor or Mortgagee shall be deemed to
include all such successors and assigns.
SECTION 5.24. FINAL AGREEMENT OF THE PARTIES. THE WRITTEN 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 5.25. CHOICE OF LAW. WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW, THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED
STATES OF AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A
PORTION OF THE PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A
PORTION OF THE PROPERTY) NECESSARILY OR, IN THE SOLE DISCRETION OF MORTGAGEE,
APPROPRIATELY GOVERNS WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS
RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY
INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE MORTGAGEE GRANTED HEREIN, THE
LAW OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE PROPERTY LOCATED IN (OR
WHICH IS OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.
IN WITNESS WHEREOF, this instrument is executed by Mortgagor this 15th
day of May, 1998.
MORTGAGOR:
UNITED STATES EXPLORATION, INC.
By: /s/ BRUCE D. BENSON
-------------------------------------
Bruce D. Benson
President and Chief Executive Officer
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The address of Mortgagee is: The address of Mortgagor is:
135 E. 57th Street 1560 Broadway, Suite 1900
New York, New York 10022 Denver, Colorado 80202
ACKNOWLEDGMENT
STATE OF TEXAS )
)
COUNTY OF TARRANT )
The foregoing instrument was acknowledged before me on this 15th day
of May, 1998, by Bruce D. Benson, President and Chief Executive Officer of
United States Exploration, Inc., a Colorado corporation, on behalf of such
corporation.
/s/
-------------------------------------
NOTARY PUBLIC, State of Texas
[SEAL]
25
<PAGE> 1
EXHIBIT 10.3
MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT, FIXTURE FILING
AND FINANCING STATEMENT
FROM
PERFORMANCE PETROLEUM CO.,
UNITED STATES GAS GATHERING CO., INC.
AND
PACIFIC OSAGE, INC.
TO
ING (U.S.) CAPITAL CORPORATION, Agent
Dated May 15, 1998
A CARBON, PHOTOGRAPHIC, FACSIMILE, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS
SUFFICIENT AS A FINANCING STATEMENT.
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS, SECURES PAYMENT OF
FUTURE ADVANCES, AND COVERS PROCEEDS OF COLLATERAL.
THIS INSTRUMENT COVERS MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE
EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND GAS), AND THE
ACCOUNTS RELATED THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS OR MINEHEADS
OF THE WELLS OR MINES LOCATED ON THE PROPERTIES DESCRIBED IN SECTION 1.1 OF
THIS INSTRUMENT. THIS INSTRUMENT COVERS GOODS WHICH ARE OR ARE TO BECOME
FIXTURES ON THE REAL PROPERTY DESCRIBED HEREIN. THIS INSTRUMENT IS TO BE FILED
FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE OR COMPARABLE RECORDS OF THE
COUNTIES AND/OR PARISHES REFERENCED IN EXHIBIT A HERETO AND SUCH FILING SHALL
SERVE, AMONG OTHER PURPOSES, AS A FIXTURE FILING. THE MORTGAGOR HAS AN
INTEREST OF RECORD IN THE REAL ESTATE AND IMMOVABLE PROPERTY CONCERNED, WHICH
INTEREST IS DESCRIBED IN SECTION 1.1 OF THIS INSTRUMENT.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
MORTGAGEE (AS HEREINAFTER DEFINED) TO TAKE THE MORTGAGED PROPERTIES AND SELL
THEM WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE
MORTGAGOR (AS HEREINAFTER DEFINED) UNDER THIS MORTGAGE.
WHEN RECORDED OR FILED RETURN TO: THIS DOCUMENT PREPARED BY:
Thompson & Knight, P.C. Arthur J. Wright
1700 Pacific Avenue Thompson & Knight, P.C.
Suite 3300 1700 Pacific Avenue
Dallas, Texas 75201 Suite 3300
Attention: Arthur J. Wright Dallas, Texas 75201
<PAGE> 2
MORTGAGE, ASSIGNMENT, SECURITY AGREEMENT,
FIXTURE FILING AND FINANCING STATEMENT (this "Mortgage"),
ARTICLE I.
Granting Clauses; Secured Indebtedness
Section 1.1. Lien of Mortgage. Performance Petroleum Co., United
States Gas Gathering Co., Inc. and Pacific Osage, Inc. (herein collectively
called "Mortgagor"), in order to secure the payment of the secured indebtedness
hereinafter referred to and the performance of the obligations, covenants,
agreements, warranties and undertakings of Mortgagor hereinafter described,
does hereby MORTGAGE to ING U.S. Capital Corporation, Agent (herein called
"Mortgagee"), and grant to Mortgagee a POWER OF SALE (pursuant to this Mortgage
and applicable law) with respect to, the following (the "Mortgaged
Properties"):
A. The oil, gas and/or other mineral leases or
properties which are described in Exhibit A attached hereto and made a
part hereof;
B. Without limitation of the foregoing, all other right,
title and interest of Mortgagor of whatever kind or character (whether
now owned or hereafter acquired by operation of law or otherwise) in
and to (i) the oil, gas and/or mineral leases or other agreements
described in Exhibit A hereto and (ii) the lands described or referred
to in Exhibit A (or described in any of the instruments described or
referred to in Exhibit A), without regard to any limitations as to
specific lands or depths that may be set forth in Exhibit A hereto or
in any of the leases or other agreements described in Exhibit A
hereto.
C. All of Mortgagor's interest (whether now owned or
hereafter acquired by operation of law or otherwise) in and to all
presently existing and hereafter created oil, gas and/or mineral
unitization, pooling and/or communitization agreements, declarations
and/or orders, and in and to the properties, rights and interests
covered and the units created thereby (including, without limitation,
units formed under orders, rules, regulations or other official acts
of any federal, state or other authority having jurisdiction), which
cover, affect or otherwise relate to the properties, rights and
interests described in clause A or B above;
D. The rights, interests and estates created under those
certain servitudes, easements, rights of way, privileges, franchises,
prescriptions, licenses, leases, permits and/or other rights described
in Exhibit A, attached hereto and made a part hereof, together with
any amendments, renewals, extensions, supplements, modifications or
other agreements related thereto and further together with any other
servitudes, easements, rights of way, privileges, prescriptions,
franchises, licenses, permits and/or other rights used, held for use
in connection with, or in any way related to the "Gathering Systems"
(as hereinafter defined);
E. All gathering systems located on the properties
described in clauses A or D above, all gathering systems depicted on
the maps attached as Exhibit B hereto and made a part hereof and all
rights of Mortgagor in other gathering systems located in Sections,
Townships and Ranges described on Exhibit C attached hereto and made a
part hereof; (such systems including all pipes, valves, gauges, meters
and other measuring equipment, regulators, extractors, tubing,
pipelines, fuel lines, facilities, improvements, fittings, materials
and other improvements, fixtures and/or personal property) (the
properties, rights and interests described in this item E, are herein
collectively called the "Gathering Systems");
F. All of Mortgagor's interest in and rights under
(whether now owned or hereafter acquired by operation of law or
otherwise) all presently existing and hereafter created operating
agreements, equipment leases, production sales contracts, processing
agreements, transportation agreements, gas balancing agreements,
farmout and/or farm-in agreements, salt water disposal agreements,
area of mutual interest agreements, and other
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<PAGE> 3
contracts and/or agreements which cover, affect, or otherwise relate
to the properties, rights and interests described in clause A, B, C, D
or E above or to the operation of such properties, rights and
interests or to the treating, handling, storing, processing,
transporting or marketing of oil, gas, other hydrocarbons, or other
minerals produced from (or allocated to) such properties, rights and
interests including, but not limited to, those contracts listed in
Exhibit A hereto, as same may be amended or supplemented from time to
time;
G. All of Mortgagor's interest (whether now owned or
hereafter acquired by operation of law or otherwise) in and to all
improvements, fixtures, movable or immovable property and other real
and/or personal property (including, without limitation, all wells,
pumping units, wellhead equipment, tanks, pipelines, flow lines,
gathering lines, compressors, dehydration units, separators, meters,
buildings, injection facilities, salt water disposal facilities, and
power, telephone and telegraph lines) and all easements, servitudes,
rights-of-way, surface leases, licenses, permits and other surface
rights, which are now or hereafter used, or held for use, in
connection with the properties, rights and interests described in
clause A, B, C, D or E above, or in connection with the operation of
such properties, rights and interests, or in connection with the
treating, handling, storing, processing, transporting or marketing of
oil, gas, other hydrocarbons, or other minerals produced from (or
allocated to) such properties, rights and interests; and
H. All rights, estates, powers and privileges
appurtenant to the foregoing rights, interests and properties.
TO HAVE AND TO HOLD the Mortgaged Properties unto Mortgagee, and
Mortgagee's heirs, devisees, representatives, successors and assigns, upon the
terms, provisions and conditions herein set forth.
Section 1.2. Grant of Security Interest. In order to further secure
the payment of the secured indebtedness hereinafter referred to and the
performance of the obligations, covenants, agreements, warranties, and
undertakings of Mortgagor hereinafter described, Mortgagor hereby grants to
Mortgagee a security interest in the entire interest of Mortgagor (whether now
owned or hereafter acquired by operation of law or otherwise) in and to:
(a) all oil, gas, other hydrocarbons, and other minerals
produced from or allocated to the Mortgaged Properties, and any
products processed or obtained therefrom (herein collectively called
the "Production"), together with all proceeds of such Production
(regardless of whether such Production to which such proceeds relate
occurred on or before or after the date hereof ), and together with
all liens and security interests securing payment of the proceeds of
such Production, including, but not limited to, those liens and
security interests provided for under (i) statutes enacted in the
jurisdictions in which the Mortgaged Properties are located, or (ii)
statutes made applicable to the Mortgaged Properties under federal law
(or some combination of federal and state law);
(b) without limitation of any other provisions of this
Section 1.2, all payments received in lieu of such Production from the
Mortgaged Properties (regardless of whether such payments accrued,
and/or the events which gave rise to such payments occurred, on or
before or after the date hereof), including, without limitation, "take
or pay" payments and similar payments, payments received in settlement
of or pursuant to a judgment rendered with respect to take or pay or
similar obligations or other obligations under a production sales
contract, payments received in buyout or buydown or other settlement
of a production sales contract, and payments received under a gas
balancing or similar agreement as a result of (or received otherwise
in settlement of or pursuant to judgment rendered with respect to)
rights held by Mortgagor as a result of Mortgagor (and/or its
predecessors in title) taking or having taken less gas from lands
covered by a Mortgaged Property (or lands pooled or unitized
therewith) than their ownership of such Mortgaged Property would
entitle them to receive (the payments described in this subsection (b)
being herein called "Payments in Lieu of Production");
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<PAGE> 4
(c) all equipment, inventory, improvements, fixtures,
accessions, goods and other personal property or movable property of
whatever nature now or hereafter located on or used or held for use in
connection with the Mortgaged Properties (or in connection with the
operation thereof or the treating, handling, storing, processing,
transporting, or marketing of Production), and all licenses and
permits of whatever nature now or hereafter used or held for use in
connection with the Mortgaged Properties (or in connection with the
operation thereof, or the treating, handling, storing, processing,
transporting or marketing of Production), and all renewals or
replacements of the foregoing or substitutions for the foregoing;
(d) all contract rights, choses in action (i.e., rights
to enforce contracts or to bring claims thereunder) and other general
intangibles (regardless of whether the same arose, and/or the events
which gave rise to the same occurred, on or before or after the date
hereof) related to the Mortgaged Properties, the operation thereof
(whether Mortgagor is operator or non-operator), or the treating,
handling, storing, processing, transporting, or marketing of
Production (including, without limitation, any of the same relating to
payment of proceeds of Production or to payment of amounts which could
constitute Payments in Lieu of Production);
(e) without limitation of the generality of the
foregoing, any rights and interests of the Mortgagor under any present
or future hedge or swap agreements, cap, floor, collar, exchange,
forward or other hedge or protection agreements or transactions
relating to crude oil, natural gas or other hydrocarbons, or any
option with respect to any such agreement or transaction now existing
or hereafter entered into by or on behalf of Mortgagor;
(f) all geological, geophysical, engineering, accounting,
title, legal, and other technical or business data concerning the
Mortgaged Properties, the Production, or any other item of Property
(as hereinafter defined) which are now or hereafter in the possession
of Mortgagor or in which Mortgagor can otherwise grant a security
interest, and all books, files, records, magnetic media, and other
forms of recording or obtaining access to such data;
(g) all money, documents, instruments, chattel paper,
securities, accounts or general intangibles arising from or by virtue
of any transaction (regardless of whether such transaction occurred on
or before or after the date hereof ) including without implied
limitation those transactions related to the Mortgaged Properties, the
Production or any other item of Property (all of the properties,
rights and interests described in subsections (a), (b), (c), (d), (e)
and (f) above and this subsection (g) being herein sometimes
collectively called the "Collateral"); and
(h) all proceeds of the Collateral, whether such proceeds
or payments are goods, money, documents, instruments, chattel paper,
securities, accounts, general intangibles, fixtures, real/immovable
property, personal/movable property or other assets (the Mortgaged
Properties, the Collateral and the proceeds of the Collateral being
herein sometimes collectively called the "Property").
Section 1.3. Note, Loan Documents, Other Obligations. This Mortgage
is made to secure and enforce the payment and performance of the following
promissory notes, obligations, indebtedness and liabilities:
(a) All indebtedness and other obligations now or
hereafter incurred or arising pursuant to the provisions of that
certain Credit Agreement dated of even date herewith between United
States Exploration, Inc. ("Borrower") and Mortgagee and all
supplements thereto and amendments or modifications thereof, and all
agreements given in substitution therefor or in restatement, renewal
or extension thereof, in whole or in part (such Credit Agreement as
the same may from time to time be supplemented, amended or modified,
and all other agreements given in substitution therefor or in
restatement, renewal or extension thereof, in whole or in part, being
herein called the "Credit Agreement");
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<PAGE> 5
(b) One certain promissory note dated of even date
herewith, in the principal amount of Thirty-five Million Dollars
($35,000,000) made by Borrower and payable to the order of ING
Capital, on or before December 31, 2004, bearing interest as therein
provided, and containing a provision for the payment of a reasonable
additional amount as attorneys' fees, as the same may from time to
time be supplemented, amended or modified, and all other notes given
in substitution therefor or in modification, renewal or extension
thereof, in whole or in part (such note, as from time to time
supplemented, amended, or modified and all other notes given in
substitution therefor, or in modification, renewal or extension
thereof, in whole or in part, being herein called the "Note");
(c) That certain Guaranty, dated of even date herewith,
executed by Performance Petroleum Co., as the same may from time to
time be supplemented, amended or modified, and all other instruments
given in substitution therefor or in modification, renewal or
extension thereof, in whole or in part.
(d) That certain Guaranty, dated of even date herewith,
executed by United States Gas Gathering Co., as the same may from time
to time be supplemented, amended or modified, and all other
instruments given in substitution therefor or in modification, renewal
or extension thereof, in whole or in part.
(e) That certain Guaranty, dated of even date herewith,
executed by Pacific Osage, Inc., as the same may from time to time be
supplemented, amended or modified, and all other instruments given in
substitution therefor or in modification, renewal or extension
thereof, in whole or in part.
(f) All indebtedness and other obligations now or
hereafter incurred or arising pursuant to or permitted by the
provisions of the Note, the above described guarantees, the Credit
Agreement, this Mortgage or any other instrument now or hereafter
evidencing, governing, guaranteeing or securing the "secured
indebtedness" (as hereinafter defined) or any part thereof or
otherwise executed in connection with any advance or loan evidenced or
governed by the Note, such guarantees or the Credit Agreement (the
Note, such guarantees, the Credit Agreement, this Mortgage and such
other instruments being herein sometimes collectively called the "Loan
Documents");
(g) All present or future "Hedging Obligations" incurred
or owing by Borrower or any Mortgagor to any one or more members of
the "Credit Group," as hereinafter defined; as used in this paragraph
and the following paragraph (e): (i) "Credit Group" means ING (U.S.)
Capital Corporation, any other party from time to time constituting a
lender under the Credit Agreement, and/or any affiliate of any such
party, including without limitation Internationale Nederlanden (U.S.)
Capital Markets, Inc., being an affiliate of ING (U.S.) Capital
Corporation, and (ii) "Hedging Obligations" means any indebtedness or
obligations, however arising, to make payments or take actions under
or pursuant to any present or future agreement (including any
individual agreement or any master agreement and the various
transactions and confirmations made thereunder) governing any swap,
put, call, cap, floor or collar transaction, or other type of
agreement or transaction relating to interest rates, currency exchange
rates, or the price or delivery (at any one or more locations or in
any one or more markets) of crude oil, natural gas, natural gas
liquids, petroleum products, other hydrocarbons, agricultural
products, precious metals, stocks or bonds or indices thereof, or any
other commodity, contract or other item of property traded in any
market, and all interest thereon and expenses and other amounts
payable in connection therewith (any agreement or document, however
entitled or described, evidencing or governing and Hedging Obligations
owing by Borrower or any Mortgagor to any one or more members of the
Credit Group being herein called a "Hedging Agreement");
(h) All present or future indebtedness or obligations
incurred or owing to any one or more members of the Credit Group by
Borrower or any Mortgagor, however arising, to make reimbursements or
similar payments to any one or more members of the Credit Group as a
result of or relating to any payments made by any one or more members
of the Credit Group to any third person on account of or for the
benefit of Borrower or any Mortgagor, including without limitation any
obligation to reimburse any one or more members of the Credit Group
for payments it makes under or pursuant to any letter of credit, bond,
guaranty,
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<PAGE> 6
or indemnity agreement issued or made for the account of or for the
benefit of Borrower or any Mortgagor (such as a letter of credit,
guaranty or indemnity by any one or more members of the Credit Group
of any Hedging Obligations owed by Borrower or any Mortgagor to a
third person) and all interest thereon and expenses and other amounts
payable in connection therewith (any agreement or document, however
entitled or described, evidencing or governing any such indebtedness
or obligation owing to any one or more members of the Credit Group by
Borrower or any Mortgagor being herein called a "Reimbursement
Agreement");
(i) All other loans and future advances made by Mortgagee
to Borrower or any Mortgagor and all other debts, obligations and
liabilities of Borrower or any Mortgagor of every kind and character
now or hereafter existing in favor of Mortgagee, whether direct or
indirect, primary or secondary, joint or several, fixed or contingent,
and whether originally payable to Mortgagee or to a third party and
subsequently acquired by Mortgagee, it being contemplated that
Borrower and/or any Mortgagor may hereafter become indebted to
Mortgagee for such further debts, obligations and liabilities; and
(j) Without limiting the generality of the foregoing, all
post-petition interest, expenses, and other duties and liabilities
with respect to indebtedness or other obligations described above in
this Section 1.3, which would be owed but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization, or similar proceeding.
Section 1.4. Secured Indebtedness. The indebtedness referred to in
Section 1.3, and all renewals, extensions and modifications thereof, and all
substitutions therefor, in whole or in part, are herein sometimes referred to
as the "secured indebtedness" or the "indebtedness secured hereby".
Section 1.5. Limit on Secured Indebtedness. It is the intention of
Mortgagor and Mortgagee that this Mortgage not constitute a fraudulent transfer
or fraudulent conveyance under any state or federal law that may be applied
hereto. Mortgagor and, by its acceptance hereof, Mortgagee hereby acknowledges
and agrees that, notwithstanding any other provision of this Mortgage, the
amount of indebtedness secured hereby shall be limited to the maximum amount of
indebtedness that can be secured by Mortgagor hereunder without rendering this
Mortgage voidable under applicable law relating to fraudulent conveyances or
fraudulent transfers.
ARTICLE II.
Representations, Warranties and Covenants
Section 2.1. Mortgagor represents, warrants, and covenants as
follows:
(a) Title and Permitted Encumbrances. Mortgagor has, and
Mortgagor covenants to maintain, good and defensible title to the
Property, free and clear of all liens, security interests, and
encumbrances except for (i) the contracts, agreements, burdens,
encumbrances and other matters set forth in the descriptions of
certain of the Mortgaged Properties on Exhibit A hereto, (ii) the
liens and security interests evidenced by this Mortgage, (iii)
statutory liens for taxes which are not yet delinquent, (iv) liens
under operating agreements, pooling orders and unitization agreements,
and mechanics' and materialmen's liens, with respect to obligations
which are not more than 90 days past due, and (v) other liens and
security interests (if any) in favor of
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Mortgagee (the matters described in the foregoing clauses (i), (ii),
(iii), (iv), and (v) being herein called the "Permitted
Encumbrances"); Mortgagor will warrant and defend title to the
Property, subject as aforesaid, against the claims and demands of all
persons claiming or to claim the same or any part thereof. The
ownership by Mortgagor of the Mortgaged Properties does and will, with
respect to each well or unit identified on Exhibit A, attached hereto
and made a part hereof, entitle Mortgagor to receive (subject to the
terms and provisions of this Mortgage) a decimal or percentage share
of the oil, gas and other hydrocarbons produced from, or allocated to,
such well or unit equal to not less than the decimal or percentage
share set forth, for such well or unit, opposite the designation "NRI"
on Exhibit A, and cause Mortgagor to be obligated to bear a decimal or
percentage share of the cost of operation of such well or unit equal
to not more than the decimal or percentage share set forth, for such
well or unit, opposite the designation "WI" on Exhibit A. The
above-described shares of production which Mortgagor is entitled to
receive, and shares of expenses which Mortgagor is obligated to bear,
are not and will not be subject to change except, and only to the
extent that, such changes are reflected in Exhibit A. There is not
and will not be any unexpired financing statement covering any part of
the Property on file in any public office naming any party other than
Mortgagee as secured party. Upon request by Mortgagee, Mortgagor will
deliver to Mortgagee schedules of all internal and third party
information identifying the Mortgaged Properties (such as, for
example, lease names and numbers assigned by Mortgagor or the operator
of any Mortgaged Property, well and/or unit and/or property names and
numbers assigned by purchasers of Production, and internal
identification names and numbers used by Mortgagor in accounting for
revenues, costs, and joint interest transactions attributable to the
Mortgaged Properties).
(b) Leases and Contracts; Performance of Obligations.
The oil, gas and/or mineral leases, contracts, servitudes and other
agreements forming a part of the Property, to the extent the same
cover or otherwise relate to the Property, are in full force and
effect, and Mortgagor agrees to so maintain them in full force and
effect. All rents, royalties and other payments due and payable under
such leases, contracts, servitudes and other agreements, or under the
Permitted Encumbrances, or otherwise attendant to the ownership or
operation of the Property, have been, and will continue to be,
properly and timely paid. Mortgagor is not in default with respect to
Mortgagor's obligations (and Mortgagor is not aware of any default by
any third party with respect to such third party's obligations) under
such leases, contracts, servitudes and other agreements, or under the
Permitted Encumbrances, or otherwise attendant to the ownership or
operation of any part of the Property, where such default could
adversely affect the ownership or operation of the Property; Mortgagor
will fulfill all such obligations coming due in the future.
(c) Sale of Production. No Mortgaged Property is or will
become subject to any contractual or other arrangement (i) whereby
payment for production is or can be deferred for a substantial period
after the month in which such production is delivered (i.e., in the
case of oil, not in excess of 60 days, and in the case of gas, not in
excess of 90 days) or (ii) whereby payments are made to Mortgagor
other than by checks, drafts, wire transfer advises or other similar
writings, instruments or communications for the immediate payment of
money. Except for production sales contracts, processing agreements
or transportation agreements (or other agreements relating to the
marketing of Production) listed on
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<PAGE> 8
Exhibit A (in connection with the Mortgaged Properties to which they
relate), (i) no Mortgaged Property is or will become subject to any
contractual or other arrangement for the sale, processing or
transportation of Production (or otherwise related to the marketing of
Production) for a term longer than one year and (ii) all contractual
or other arrangements for the sale, processing or transportation of
Production (or otherwise related to the marketing of Production) shall
be bona fide arm's length transactions with third parties not
affiliated with Mortgagor and shall be at the best price (and on the
best terms) then available (such price shall, in the case of
Production sales which are subject to price controls, be determined
giving consideration to such fact). Neither Mortgagor, nor to the
best of Mortgagor's knowledge any of its predecessors in title, has
received prepayments (including, but not limited to, payments for gas
not taken pursuant to "take or pay" or other similar arrangements) for
any oil, gas or other hydrocarbons produced or to be produced from the
Mortgaged Properties after the date hereof, and Mortgagor hereby
covenants not to enter into any such advance or prepayment
arrangements whereby it accepts consideration for oil, gas or other
hydrocarbons not yet produced. No Mortgaged Property is or will
become subject to any "take or pay" or other similar arrangement (i)
which can be satisfied in whole or in part by the production or
transportation of gas from other properties or (ii) as a result of
which production from the Mortgaged Properties may be required to be
delivered to one or more third parties without payment (or without
full payment) therefor as a result of payments made, or other actions
taken, with respect to other properties. The amount by which the
volume of gas taken by Mortgagor and its predecessors in title prior
to the date hereof exceeds the amount that its ownership interest in
the Mortgage Properties would entitle it to take ("overproduced") is
not greater than 250,000 MCF. Mortgagor will not, after the date
hereof, become "overproduced" (as above defined) with respect to any
well on the Mortgaged Properties (or on any unit in which the
Mortgaged Properties participate), in an amount in excess of
Mortgagor's share of gas produced from such well during the preceding
four calendar months plus ten percent (10%) of such actual production
from any such well. No Mortgaged Property is, or will become, subject
to a gas balancing arrangement under which one or more third parties
may take a portion of the production attributable to such Mortgaged
Property without payment (or without full payment) therefor as a
result of production having been taken from, or as a result of other
actions or inactions with respect to, other properties. No Mortgaged
Property is subject, at the present time, to any regulatory refund
obligation and, to the best of Mortgagor's knowledge, no facts exist
which might cause the same to be imposed.
(d) Condition of Personal or Movable Property. Subject
to ordinary wear and tear and any sales permitted by Paragraph 7.5 of
the Credit Agreement or Paragraph (f) hereof, (i) the equipment,
inventory, improvements, fixtures, goods and other tangible
personal/movable property forming a part of the Property are and will
remain in good repair and condition and are and will be adequate for
the normal operation of the Property in accordance with prudent
industry standards and (ii) all of such Property is, and will remain,
located on the Mortgaged Properties, except for that portion thereof
which is or shall be located elsewhere (including that usually located
on the Mortgaged Properties but temporarily located elsewhere) in the
course of the normal operation of the Property.
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<PAGE> 9
(e) Operation of Mortgaged Properties. The Mortgaged
Properties (and properties unitized therewith) are being (and, to the
extent the same could adversely affect the ownership or operation of
the Mortgaged Properties after the date hereof, have in the past
been), and hereafter will be, maintained, operated and developed in a
good and workmanlike manner, in accordance with prudent industry
standards and in conformity with all applicable laws and all rules,
regulations and orders of all duly constituted authorities having
jurisdiction and in conformity with all oil, gas and/or other mineral
leases and other contracts and agreements forming a part of the
Property and in conformity with the Permitted Encumbrances;
specifically in this connection none of the wells located on the
Mortgaged Properties (or properties unitized therewith) are, or will
be, deviated from the vertical more than the maximum permitted by
applicable laws, regulations, rules and orders, and such wells are,
and will remain, bottomed under and producing from, with the well
bores wholly within, the Mortgaged Properties (or, in the case of
wells located on properties unitized therewith, such unitized
properties). The representation, warranties and covenants in the
preceding sentence are made in the case of existing wells only as to
Mortgagor's knowledge and in regard to future wells only where
Mortgagor is the operator of such well. Mortgagor has, and will have
in the future, all governmental licenses and permits necessary or
appropriate to own and operate the Property; and Mortgagor has not
received notice of any violations in respect of any such licenses or
permits.
(f) Sale or Disposal. Except for sales permitted by
Paragraph 7.5 of the Credit Agreement, Mortgagor will not, without the
prior written consent of Mortgagee, sell, exchange, lease, transfer,
or otherwise dispose of any part of, or interest in, the Property
other than (i) sales, transfers and other dispositions of machinery,
equipment and other personal/movable property and fixtures made in
connection with a release, surrender or abandonment (to which
Mortgagee has given its prior written consent) of a lease, (ii) sales,
transfers and other dispositions of machinery, equipment and other
personal/movable property and fixtures in connection with the
abandonment (to which Mortgagee has given its prior written consent)
of a well, (iii) sales, transfers and other dispositions of machinery,
equipment and other personal/movable property and fixtures which are
(A) obsolete for their intended purpose and disposed of in the
ordinary course of business or (B) replaced by articles of at least
equal suitability and value owned by Mortgagor free and clear of all
liens except this Mortgage and the Permitted Encumbrances, and (iv)
sales of Production which are made in the ordinary course of business
and in compliance with Section 2.1(c) hereof; provided that nothing in
clause (iv) shall be construed as limiting Mortgagee's rights under
Article III of this Mortgage. Mortgagor shall account fully and
faithfully for and, if Mortgagee so elects, shall promptly pay or turn
over to Mortgagee the proceeds in whatever form received from
disposition in any manner of any of the Property. Mortgagor shall
keep accurate and complete records of the Property and its proceeds.
(g) Ad Valorem and Severance Taxes. In regard to the
Mortgaged Property which Mortgagor operates, Mortgagor, or the prior
owner from whom it acquired the Mortgaged Property, has paid and
discharged, and will continue to pay and discharge, all ad valorem
taxes assessed against the Property or any part thereof and all
production, severance and other taxes assessed against, or measured
by, the Production or the value, or proceeds, of the Production.
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<PAGE> 10
(h) Suits and Claims. Except as scheduled or disclosed
in the Credit Agreement, there are no suits, actions, claims,
investigations, inquiries, proceedings or demands pending (or, to
Mortgagor's knowledge, threatened) which affect the Property
(including, without limitation, any which challenge or otherwise
pertain to Mortgagor's title to the Property) and no judicial or
administrative actions, suits or proceedings pending (or, to
Mortgagor's knowledge, threatened) against Mortgagor.
(i) Environmental. Mortgagor will not cause or permit
the Property or the Associated Property or Mortgagor to be in
violation of, or do anything or permit anything to be done which will
subject the Property or the Associated Property to any remedial
obligations under, or result in noncompliance with applicable permits
and licenses under, any Applicable Environmental Laws, assuming
disclosure to the applicable governmental authorities of all relevant
facts, conditions and circumstances, if any, pertaining to the
Property or the Associated Property and Mortgagor will promptly notify
Mortgagee in writing of any existing, pending or, to the best
knowledge of Mortgagor, threatened investigation, claim, suit or
inquiry by any governmental authority or any person in connection with
any Applicable Environmental Laws. Mortgagor will not cause or permit
the disposal or other release of any hazardous substance or solid
waste at, into, upon or under the Property or the Associated Property
and covenants and agrees to keep or cause the Property and/or the
Associated Property to be kept free of any hazardous substance or
solid waste (except such use, and temporary storage in anticipation of
use, as is required in the ordinary course of business, all while in
compliance with Applicable Environmental Laws), and to remove the same
(or if removal is prohibited by law, to take whatever action is
required by law) promptly upon discovery at its sole expense. Upon
Mortgagee's reasonable request, at any time and from time to time
during the existence of this Mortgage, Mortgagor will provide at
Mortgagor's sole expense an inspection or audit of the Property and
the Associated Property from an engineering or consulting firm
approved by Mortgagee, indicating the presence or absence of hazardous
substances and solid waste on the Property and/or the Associated
Property and compliance with Applicable Environmental Laws.
(j) Defense of Mortgage. If the validity or priority of
this Mortgage or of any rights, titles, liens or security interests
created or evidenced hereby with respect to the Property or any part
thereof or the title of Mortgagor to the Property shall be endangered
or questioned or shall be attacked directly or indirectly or if any
legal proceedings are instituted against Mortgagor with respect
thereto, Mortgagor will give prompt written notice thereof to Lender
and at Mortgagor's own cost and expense will diligently endeavor to
cure any defect that may be developed or claimed, and will take all
necessary and proper steps for the defense of such legal proceedings,
including, but not limited to, the employment of counsel, the
prosecution or defense of litigation and the release or discharge of
all adverse claims, Lender, whether or not named as a party to legal
proceedings with respect thereto), is hereby authorized and empowered
to take such additional steps as in its judgment and discretion may be
necessary or proper for the defense of any such legal proceedings or
the protection of the validity or priority of this Mortgage and the
rights, titles, liens and security interests created or evidenced
hereby, including but not limited to the employment of independent
counsel, the prosecution or defense of litigation, the compromise or
discharge of any adverse claims made with respect to the
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<PAGE> 11
Property, the purchase of any tax title and the removal of prior liens
or security interests, and all expenditures so made of every kind and
character shall be a demand obligation (which obligation Mortgagor
hereby expressly promises to pay) owing by Mortgagor to Lender (as the
case may be) and shall bear interest from the date expended until paid
at the rate described in Section 2.3 hereof, and the party incurring
such expenses shall be subrogated to all rights of the person
receiving such payment.
(k) Fees and Expenses; Indemnity. Mortgagor will
reimburse Mortgagee (for purposes of this paragraph, the term
"Mortgagee" shall include the directors, officers, partners, employees
and agents of Mortgagee and any persons or entities owned or
controlled by or affiliated with Mortgagee) for all expenditures,
including reasonable attorneys' fees and expenses, incurred or
expended in connection with (i) the breach by Mortgagor of any
covenant, agreement or condition contained herein or in any other Loan
Document, (ii) the exercise of any rights and remedies hereunder or
under any other Loan Document, and (iii) the protection of the
Property and/or liens and security interests therein. Mortgagor will
indemnify and hold harmless Mortgagee from and against (and will
reimburse Mortgagee for) all claims, demands, liabilities, losses,
damages (including without limitation consequential damages), causes
of action, judgments, penalties, costs and expenses (including without
limitation reasonable attorneys' fees and expenses) which may be
imposed upon, asserted against or incurred or paid by Mortgagee on
account of, in connection with, or arising out of (A) any bodily
injury or death or natural resource, human health or property damage
occurring in, at, into, under or upon or in the vicinity of the
Property through any cause whatsoever, (B) any act performed or
omitted to be performed hereunder or the breach of any representation
or warranty herein, (C) the exercise of any rights and remedies
hereunder or under any other Loan Document, (D) any transaction, act,
omission, event or circumstance arising out of or in any way connected
with the Property or with this Mortgage or any other Loan Document,
(E) any violation on or prior to the Release Date (as hereinafter
defined) of any Applicable Environmental Law, (F) any act, omission,
event or circumstance existing or occurring on or prior to the Release
Date (including without limitation the presence on or under the
Property or the Associated Property or release at, into, upon, under
or from the Property or the Associated Property of hazardous
substances or solid wastes disposed of or otherwise released)
resulting from or in connection with the ownership, construction,
occupancy, operation, use and/or maintenance of the Property or the
Associated Property, regardless of whether the act, omission, event or
circumstance constituted a violation of any Applicable Environmental
Law at the time of its existence or occurrence, and (G) any and all
claims or proceedings (whether brought by private party or
governmental agencies) for human health, bodily injury, property
damage, abatement or remediation, environmental damage, cleanup,
mitigation, removal, natural resource damage or impairment or any
other injury or damage resulting from or relating to any hazardous or
toxic substance, solid waste or contaminated material located upon or
migrating into, from or through the Property or the Associated
Property (whether or not the release of such materials was caused by
Mortgagor, a tenant or subtenant or a prior owner or tenant or
subtenant on the Property or the Associated Property and whether or
not the alleged liability is attributable to the use, treatment,
handling, storage, generation, transportation, removal or disposal of
such substance, waste or material or the mere presence of such
substance, waste or material on or under the
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<PAGE> 12
Property or the Associated Property), which the Mortgagee may have
liability with respect to due to the making of the loan or loans
evidenced by the Note, the granting of this Mortgage, the exercise of
any rights under the Loan Documents, or otherwise. Mortgagee shall
have the right to compromise and adjust any such claims, actions and
judgments, and in addition to the rights to be indemnified as herein
provided, all amounts paid in compromise, satisfaction or discharge of
any such claim, action or judgment, and all court costs, attorneys'
fees and other expenses of every character expended by Mortgagee
pursuant to the provisions of this section shall be a demand
obligation (which obligation Mortgagor hereby expressly promises to
pay) owing by Mortgagor to Mortgagee. The "Release Date" as used
herein shall mean the earlier of the following two dates: (i) the
date on which the indebtedness and obligations secured hereby have
been paid and performed in full and this Mortgage has been released of
record, or (ii) the date on which the lien of this Mortgage is
foreclosed or a deed in lieu of such foreclosure is fully effective
and recorded. WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR
AND MORTGAGOR AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO
EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES,
LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS AND
EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES)
WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE
OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such
indemnities shall not apply to any particular indemnified party (but
shall apply to the other indemnified parties) to the extent the
subject of the indemnification is caused by or arises out of the gross
negligence or willful misconduct of such particular indemnified party.
The foregoing indemnities shall not terminate upon the Release Date or
upon the release, foreclosure or other termination of this Mortgage
but will survive the Release Date, foreclosure of this Mortgage or
conveyance in lieu of foreclosure, and the repayment of the secured
indebtedness and the discharge and release of this Mortgage and the
other documents evidencing and/or securing the secured indebtedness.
Any amount to be paid hereunder by Mortgagor to Mortgagee shall be a
demand obligation owing by Mortgagor to Mortgagee and shall be subject
to and covered by the provisions of Section 2.3 hereof.
(l) Insurance. Mortgagor will carry insurance as
provided in the Credit Agreement. In the event of any loss under any
insurance policies so carried by Mortgagor, Mortgagee shall have the
right (but not the obligation) to make proof of loss and collect the
same, and all amounts so received shall be applied toward costs,
charges and expenses (including reasonable attorneys' fees), if any,
incurred in the collection thereof, then to the payment, in the order
determined by Mortgagee in its own discretion, of the secured
indebtedness, and any balance remaining shall be subject to the order
of Mortgagor. Mortgagee is hereby authorized but not obligated to
enforce in its name or in the name of Mortgagor payment of any or all
of said policies or settle or compromise any claim in respect thereof,
and to collect and make receipts for the proceeds thereof and
Mortgagee is hereby appointed Mortgagor's agent and attorney-in-fact
to endorse any check or draft payable to Mortgagor in order to collect
the proceeds of insurance. In the event of foreclosure of this
Mortgage, or other transfer of title to the Property in extinguishment
in whole or in part of the secured indebtedness, all right, title and
interest of Mortgagor in and to such policies then in force concerning
the Property and all proceeds payable thereunder shall thereupon vest
in the purchaser at such foreclosure or other transferee in the event
of such other transfer of title.
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(m) Further Assurances. Mortgagor will, on request of
Mortgagee, (i) promptly correct any defect, error or omission which
may be discovered in the contents of this Mortgage, or in any other
Loan Document, or in the execution or acknowledgment of this Mortgage
or any other Loan Document; (ii) execute, acknowledge, deliver and
record and/or file such further instruments (including, without
limitation, further mortgages, deeds of trust, security agreements,
financing statements, continuation statements, and assignments of
production, accounts, funds, contract rights, general intangibles, and
proceeds) and do such further acts as may be necessary, desirable or
proper to carry out more effectively the purposes of this Mortgage and
the other Loan Documents and to more fully identify and subject to the
liens and security interests hereof any property intended to be
covered hereby, including specifically, but without limitation, any
renewals, additions, substitutions, replacements, or appurtenances to
the Property; and (iii) execute, acknowledge, deliver, and file and/or
record any document or instrument (including specifically any
financing statement) desired by Mortgagee to protect the lien or the
security interest hereunder against the rights or interests of third
persons. Mortgagor shall pay all costs connected with any of the
foregoing.
(n) Name and Place of Business. Mortgagor will not cause
or permit any change to be made in its name, identity, or corporate or
partnership structure, or its federal employer identification number
unless Mortgagor shall have notified Mortgagee of such change at least
thirty (30) days prior to the effective date of such change, and shall
have first taken all action required by Mortgagee for the purpose of
further perfecting or protecting the liens and security interests in
the Property created hereby. Mortgagor's principal place of business
and chief executive office, and the place where Mortgagor keeps its
books and records concerning the Property (including, particularly,
the records with respect to "Production Proceeds", as defined in
Section 3.1 hereof, from the Mortgaged Properties) has for the
preceding four months, been, and will continue to be (unless Mortgagor
notifies Mortgagee of any change in writing at least thirty (30) days
prior to the date of such change), the address set forth opposite the
signature of Mortgagor to this Mortgage.
(o) Not a Foreign Person. Mortgagor is not a "foreign
person" within the meaning of the Internal Revenue Code of 1986, as
amended, (hereinafter called the "Code"), Sections 1445 and 7701 (i.e.
Mortgagor is not a non-resident alien, foreign corporation, foreign
partnership, foreign trust or foreign estate as those terms are
defined in the Code and any regulations promulgated thereunder).
Section 2.2. Compliance by Operator. As to any part of the Mortgaged
Properties which is not a working interest, Mortgagor agrees to take all such
action and to exercise all rights and remedies as are available to Mortgagor to
cause the owner or owners of the working interest in such properties to comply
with the covenants and agreements contained herein; and as to any part of the
Mortgaged Properties which is a working interest but which is operated by a
party other than Mortgagor, Mortgagor agrees to take all such action and to
exercise all rights and remedies as are available to Mortgagor (including, but
not limited to, all rights under any operating agreement) to cause the party
who is the operator of such property to comply with the covenants and
agreements contained herein.
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Section 2.3. Performance on Mortgagor's Behalf. Mortgagor agrees
that, if Mortgagor fails to perform any act or to take any action which
hereunder Mortgagor is required to perform or take, or to pay any money which
hereunder Mortgagor is required to pay, Mortgagee, in Mortgagor's name or its
own name, may, but shall not be obligated to, perform or cause to be performed
such act or take such action or pay such money, and any expenses so incurred by
Mortgagee and any money so paid by Mortgagee shall be a demand obligation owing
by Mortgagor to Mortgagee (which obligation Mortgagor hereby expressly promises
to pay) and Mortgagee, upon making such payment, shall be subrogated to all of
the rights of the person, corporation or body politic receiving such payment.
Each amount due and owing by Mortgagor to Mortgagee pursuant to this Mortgage
shall bear interest each day, from the date of such expenditure or payment
until paid, at a rate equal to the rate as provided for past due principal
under the Note (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); all such amounts, together with such
interest thereon, shall be a part of the secured indebtedness and shall be
secured by this Mortgage.
ARTICLE III.
Assignment of Production, Accounts, and Proceeds
Section 3.1. Assignment of Production. Mortgagor does hereby
absolutely and unconditionally assign, transfer and set over to Mortgagee all
Production which accrues to Mortgagor's interest in the Mortgaged Properties,
all proceeds of such Production and all Payments in Lieu of Production (herein
collectively referred to as the "Production Proceeds"), together with the
immediate and continuing right to collect and receive such Production Proceeds.
Mortgagor directs and instructs any and all purchasers of any Production to pay
to Mortgagee all of the Production Proceeds accruing to Mortgagor's interest
until such time as such purchasers have been furnished with evidence that all
secured indebtedness has been paid and that this Mortgage has been released.
Mortgagor agrees that no purchasers of the Production shall have any
responsibility for the application of any funds paid to Mortgagee.
Section 3.2. Effectuating Payment of Production Proceeds to
Mortgagee. Independent of the foregoing provisions and authorities herein
granted, Mortgagor agrees to execute and deliver any and all transfer orders,
division orders and other instruments that may be requested by Mortgagee or
that may be required by any purchaser of any Production for the purpose of
effectuating payment of the Production Proceeds to Mortgagee. If under any
existing sales agreements, other than division orders or transfer orders, any
Production Proceeds are required to be paid by the purchaser to Mortgagor so
that under such existing agreements payment cannot be made of such Production
Proceeds to Mortgagee, Mortgagor's interest in all Production Proceeds under
such sales agreements and in all other Production Proceeds which for any reason
may be paid to Mortgagor shall, when received by Mortgagor, constitute trust
funds in Mortgagor's hands and shall be immediately paid over to Mortgagee.
Without limitation upon any of the foregoing, Mortgagor hereby constitutes and
appoints Mortgagee as Mortgagor's special attorney-in-fact (with full power of
substitution, either generally or for such periods or purposes as Mortgagee may
from time to time prescribe) in the name, place and stead of Mortgagor to do
any and every act and exercise any and every power that Mortgagor might or
could do or exercise personally with respect to all Production and Production
Proceeds (the same having been assigned by Mortgagor to Mortgagee pursuant to
Section 3.1 hereof), expressly inclusive, but not limited to, the right, power
and authority to:
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(a) Execute and deliver in the name of Mortgagor any and
all transfer orders, division orders, letters in lieu of transfer
orders, indemnifications, certificates and other instruments of every
nature that may be requested or required by any purchaser of
Production from any of the Mortgaged Properties for the purposes of
effectuating payment of the Production Proceeds to Mortgagee or which
Mortgagee may otherwise deem necessary or appropriate to effect the
intent and purposes of the assignment contained in Section 3.1; and
(b) If under any product sales agreements other than
division orders or transfer orders, any Production Proceeds are
required to be paid by the purchaser to Mortgagor so that under such
existing agreements payment cannot be made of such Production Proceeds
to Mortgagee, to make, execute and enter into such sales agreements or
other agreements as are necessary to direct Production Proceeds to be
payable to Mortgagee;
giving and granting unto said attorney-in-fact full power and authority to do
and perform any and every act and thing whatsoever necessary and requisite to
be done as fully and to all intents and purposes, as Mortgagor might or could
do if personally present; and Mortgagor shall be bound thereby as fully and
effectively as if Mortgagor had personally executed, acknowledged and delivered
any of the foregoing certificates or documents. The powers and authorities
herein conferred upon Mortgagee may be exercised by Mortgagee through any
person who, at the time of the execution of the particular instrument, is an
officer of Mortgagee. The power of attorney herein conferred is granted for
valuable consideration and hence is coupled with an interest and is irrevocable
so long as the secured indebtedness, or any part thereof, shall remain unpaid.
All persons dealing with Mortgagee or any substitute shall be fully protected
in treating the powers and authorities conferred by this paragraph as
continuing in full force and effect until advised by Mortgagee that all the
secured indebtedness is fully and finally paid. Mortgagee may, but shall not
be obligated to, take such action as it deems appropriate in an effort to
collect the Production Proceeds and any reasonable expenses (including
reasonable attorney's fees) so incurred by Mortgagee shall be a demand
obligation of Mortgagor and shall be part of the secured indebtedness, and
shall bear interest each day, from the date of such expenditure or payment
until paid, at the rate described in Section 2.3 hereof.
Section 3.3. Change of Purchaser. To the extent a default has
occurred hereunder and is continuing, should any person now or hereafter
purchasing or taking Production fail to make payment promptly to Mortgagee of
the Production Proceeds, Mortgagee shall, subject to then-existing contractual
prohibitions, have the right to make, or to require Mortgagor to make, a change
of purchaser, and the right to designate or approve the new purchaser, and
Mortgagee shall have no liability or responsibility in connection therewith so
long as ordinary care is used in making such designation.
Section 3.4. Application of Production Proceeds. So long as no
default has occurred hereunder, the Production Proceeds received by Mortgagee
during each calendar month shall on the first business day of the next
succeeding calendar month (or, at the option of Mortgagee, on any earlier date)
be applied by Mortgagee as follows:
FIRST, to the payment of all secured indebtedness then due and
payable, in such manner and order as Mortgagee deems advisable;
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<PAGE> 16
SECOND, to the prepayment of the remainder of the secured
indebtedness in such manner and order and to such extent as Mortgagee
deems advisable; and
THIRD, the remainder, if any, of the Production Proceeds shall
be paid over to Mortgagor or to Mortgagor's order or to such other
parties as may be entitled thereto by law.
After a default hereunder has occurred, all Production Proceeds from
time to time in the hands of Mortgagee shall be applied by it toward the
payment of all secured indebtedness (principal, interest, attorneys' fees and
other fees and expenses) at such times and in such manner and order and to such
extent as Mortgagee deems advisable.
Section 3.5. Release From Liability; Indemnification. Mortgagee and
its successors and assigns are hereby released and absolved from all liability
for failure to enforce collection of the Production Proceeds and from all other
responsibility in connection therewith, except the responsibility of each to
account to Mortgagor for funds actually received by each. Mortgagor agrees to
indemnify and hold harmless Mortgagee (for purposes of this paragraph, the term
"Mortgagee" shall include the directors, officers, partners, employees and
agents of Mortgagee and any persons or entities owned or controlled by or
affiliated with Mortgagee) from and against any and all claims, demands,
liabilities, losses, damages (including without limitation consequential
damages), causes of action, judgments, penalties, costs and expenses (including
without limitation reasonable attorneys' fees and expenses) imposed upon,
asserted against or incurred or paid by Mortgagee by reason of the assertion
that Mortgagee received, either before or after payment in full of the secured
indebtedness, funds from the production of oil, gas, other hydrocarbons or
other minerals claimed by third persons (and/or funds attributable to sales of
production which (i) were made at prices in excess of the maximum price
permitted by applicable law or (ii) were otherwise made in violation of laws,
rules, regulations and/or orders governing such sales), and Mortgagee shall
have the right to defend against any such claims or actions, employing
attorneys of its own selection, and if not furnished with indemnity
satisfactory to it, Mortgagee shall have the right to compromise and adjust any
such claims, actions and judgments, and in addition to the rights to be
indemnified as herein provided, all amounts paid by Mortgagee in compromise,
satisfaction or discharge of any such claim, action or judgment, and all court
costs, attorneys' fees and other expenses of every character expended by
Mortgagee pursuant to the provisions of this section shall be a demand
obligation (which obligation Mortgagor hereby expressly promises to pay) owing
by Mortgagor to Mortgagee and shall bear interest, from the date expended until
paid, at the rate described in Section 2.3 hereof. The foregoing indemnities
shall not terminate upon the Release Date or upon the release, foreclosure or
other termination of this Mortgage but will survive the Release Date,
foreclosure of this Mortgage or conveyance in lieu of foreclosure, and the
repayment of the secured indebtedness and the discharge and release of this
Mortgage and the other documents evidencing and/or securing the secured
indebtedness. WITHOUT LIMITATION, IT IS THE INTENTION OF MORTGAGOR AND
MORTGAGOR AGREES THAT THE FOREGOING RELEASES AND INDEMNITIES SHALL APPLY TO
EACH INDEMNIFIED PARTY WITH RESPECT TO ALL CLAIMS, DEMANDS, LIABILITIES,
LOSSES, DAMAGES (INCLUDING WITHOUT LIMITATION CONSEQUENTIAL DAMAGES), CAUSES OF
ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS' FEES AND EXPENSES) WHICH IN WHOLE OR IN PART ARE CAUSED
BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED
PARTY.However, such indemnities shall not apply to any particular indemnified
party (but shall apply to the other indemnified
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parties) to the extent the subject of the indemnification is caused by or
arises out of the gross negligence or willful misconduct of such particular
indemnified party.
Section 3.6. Absolute Obligation to Pay Note. Nothing herein
contained shall detract from or limit the obligation to make prompt payment of
the Note, and any and all other secured indebtedness, at the time and in the
manner provided herein and in the Loan Documents, regardless of whether the
Production and Production Proceeds herein assigned are sufficient to pay same,
and the rights under this Article III shall be cumulative of all other rights
under the Loan Documents.
Section 3.7 Rights Under Oklahoma Oil and Gas Owners' Lien Act.
Mortgagor hereby grants, sells, assigns and sets over unto Lender during the
term hereof, all of Mortgagor's rights and interests pursuant to the provisions
of the Oil and Gas Owners' Lien Act (OKLA. STAT. tit. 52, Sections 548.1-548.6
(the "Oklahoma Act"), hereby vesting in Lender all of Mortgagor's rights as an
interest owner to the continuing security interest in and lien upon the oil or
gas severed or the proceeds of sale. Lender may, at its option, file the
verified notice of lien in order to perfect such lien, but shall not be
obligated to make such filing and shall not be held liable to Mortgagor for any
act or omission pursuant to the Oklahoma Act.
ARTICLE IV.
Remedies Upon Default
Section 4.1. Default. The term "default" as used in this Mortgage
shall mean the occurrence of an "Event of Default" as defined in the Credit
Agreement.
Section 4.2. Acceleration of Secured Indebtedness. Upon the
occurrence of a default, Mortgagee at any time and from time to time may
without notice to Mortgagor or any other person declare any or all of the
secured indebtedness immediately due and payable and all such secured
indebtedness shall thereupon be immediately due and payable, without
presentment, demand, protest, notice of protest, declaration or notice of
acceleration or intention to accelerate, putting the Mortgagor in default,
dishonor, notice of dishonor or any other notice or declaration of any kind,
all of which are hereby expressly waived by Mortgagor, and the liens evidenced
hereby shall be subject to foreclosure in any manner provided for herein or
provided for by law as Mortgagee may elect. The secured indebtedness may be
(and in certain circumstances shall automatically be) accelerated as provided
in the Credit Agreement.
Section 4.3. Pre-Foreclosure Remedies. Upon the occurrence of a
default, or any event or circumstance which, with the lapse of time or the
giving of notice, or both, would constitute a default hereunder, Mortgagee is
authorized, prior or subsequent to the institution of any foreclosure
proceedings, to enter upon the Property, or any part thereof, and to take
possession of the Property and all books and records relating thereto, and to
exercise without interference from Mortgagor any and all rights which Mortgagor
has with respect to the management, possession, operation, protection or
preservation of the Property. If necessary to obtain the possession provided
for above, Mortgagee may invoke any and all remedies to dispossess Mortgagor.
All costs, expenses and liabilities of every character incurred by Mortgagee in
managing, operating, maintaining, protecting or preserving the Property shall
constitute a demand obligation (which obligation Mortgagor hereby expressly
promises to pay) owing by Mortgagor to Mortgagee and shall bear interest from
date of expenditure until paid at the rate described in Section 2.3 hereof,
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all of which shall constitute a portion of the secured indebtedness and shall
be secured by this Mortgage and by any other instrument securing the secured
indebtedness. In connection with any action taken by Mortgagee pursuant to
this Section 4.3, MORTGAGEE SHALL NOT BE LIABLE FOR ANY LOSS SUSTAINED BY
MORTGAGOR RESULTING FROM ANY ACT OR OMISSION OF MORTGAGEE (INCLUDING
MORTGAGEE'S OWN NEGLIGENCE) IN MANAGING THE PROPERTY UNLESS SUCH LOSS IS CAUSED
BY THE WILLFUL MISCONDUCT AND BAD FAITH OF MORTGAGEE, nor shall Mortgagee be
obligated to perform or discharge any obligation, duty or liability of
Mortgagor arising under any agreement forming a part of the Property or arising
under any Permitted Encumbrance or otherwise arising. Mortgagor hereby assents
to, ratifies and confirms any and all actions of Mortgagee with respect to the
Property taken under this Section 4.3.
Section 4.4. Foreclosure.
(a) Upon the occurrence of a default, this Mortgage may be
foreclosed as to the Mortgaged Properties, or any part thereof, in any manner
permitted by applicable law. Cumulative of the foregoing and the other
provisions of this Section 4.4:
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE
MAY ALLOW MORTGAGEE TO TAKE THE MORTGAGED PROPERTIES AND SELL THEM WITHOUT
GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY MORTGAGOR UNDER THIS
MORTGAGE.
(b) Upon the occurrence of a default, Mortgagee may exercise its
rights of enforcement with respect to the Collateral under the Uniform
Commercial Code or any other statute in force in any state to the extent the
same is applicable law. Cumulative of the foregoing and the other provisions
of this Section 4.4:
(i) Mortgagee may enter upon the Mortgaged Properties or
otherwise upon Mortgagor's premises to take possession of, assemble
and collect the Collateral or to render it unusable; and
(ii) Mortgagee may require Mortgagor to assemble the
Collateral and make it available at a place Mortgagee designates which
is mutually convenient to allow Mortgagee to take possession or
dispose of the Collateral; and
(iii) written notice mailed to Mortgagor as provided herein
at least ten (10) days prior to the date of public sale of the
Collateral or prior to the date after which private sale of the
Collateral will be made shall constitute reasonable notice; and
(iv) in the event of a foreclosure of the liens and/or
security interests evidenced hereby, the Collateral, or any part
thereof, and the Mortgaged Properties, or any part thereof, may, at
the option of Mortgagee, be sold, as a whole or in parts, together or
separately (including, without limitation, where a portion of the
Mortgaged Properties is sold, the Collateral related thereto may be
sold in connection therewith); and
(v) the expenses of sale provided for in clause FIRST of
Section 4.6 shall include the reasonable expenses of retaking the
Collateral, or any part thereof, holding the same and preparing the
same for sale or other disposition; and
(vi) should, under this subsection, the Collateral be
disposed of other than by sale, any proceeds of such disposition shall
be treated under Section 4.6 as if the same were sales proceeds;
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(c) To the extent permitted by applicable law, the sale hereunder
of less than the whole of the Property shall not exhaust the powers of sale
herein granted or the right to judicial foreclosure, and successive sale or
sales may be made until the whole of the Property shall be sold and, if the
proceeds of such sale of less than the whole of the Property shall be less than
the aggregate of the indebtedness secured hereby and the expense of conducting
such sale, this Mortgage and the liens and security interests hereof shall
remain in full force and effect as to the unsold portion of the Property just
as though no sale had been made; provided, however, that Mortgagor shall never
have any right to require the sale of less than the whole of the Property. In
the event any sale hereunder is not completed or is defective in the opinion of
Mortgagee, such sale shall not exhaust the powers of sale hereunder or the
right to judicial foreclosure, and Mortgagee shall have the right to cause a
subsequent sale or sales to be made. Any sale may be adjourned by announcement
at the time and place appointed for such sale without further notice except as
may be required by law. Mortgagee acting under power of sale may appoint or
delegate any one or more persons as agent to perform any act or acts necessary
or incident to any sale held by it (including, without limitation, the posting
of notices and the conduct of sale), and such appointment need not be in
writing or recorded. Any and all statements of fact or other recitals made in
any deed or deeds, or other instruments of transfer, given in connection with a
sale as to nonpayment of the secured indebtedness or as to the occurrence of
any default, or as to all of the secured indebtedness having been declared to
be due and payable, or as to the request to sell, or as to notice of time,
place and terms of sale and the properties to be sold having been duly given,
or as to any other act or thing having been duly done, shall be taken as prima
facie evidence of the truth of the facts so stated and recited. With respect
to any sale held in foreclosure of the liens and/or security interests covered
hereby, it shall not be necessary for the Mortgagee, any public officer acting
under execution or order of the court or any other party to have physically
present or constructively in his/her or its possession, either at the time of
or prior to such sale, the Property or any part thereof.
Section 4.5. As to Other Mortgaged Properties located in the State
of Oklahoma, Mortgagor hereby confers on Lender the power to sell the Mortgaged
Properties in accordance with the Oklahoma Power of Sale Mortgage Foreclosure
Act (OKLA. STAT. tit. 46, Sections 41-49), as the same may be amended from time
to time. Mortgagor hereby represents and warrants that this Mortgage
transaction does not involve a consumer loan as said term is defined in Section
3-104 of Title 14A of the Oklahoma Statutes, that this Mortgage does not secure
an extension of credit made primarily for agricultural purposes as defined in
paragraph 4 of Section 1-301 of Title 14A of the Oklahoma Statutes, and that
this Mortgage is not a mortgage on the Mortgagor's homestead.
Section 4.6. Receiver. In addition to all other remedies herein
provided for, Mortgagor agrees that, upon the occurrence of a default or any
event or circumstance which, with the lapse of time or the giving of notice, or
both, would constitute a default hereunder, Mortgagee shall as a matter of
right be entitled to the appointment of a receiver or receivers for all or any
part of the Property, whether such receivership be incident to a proposed sale
(or sales) of such property or otherwise, and without regard to the value of
the Property or the solvency of any person or persons liable for the payment of
the indebtedness secured hereby, and Mortgagor does hereby consent to the
appointment of such receiver or receivers, waives any and all defenses to such
appointment, and agrees not to oppose any application therefor by Mortgagee,
and agrees that such appointment shall in no manner impair, prejudice or
otherwise affect the rights of Mortgagee under Article III hereof. Mortgagor
expressly waives notice of a hearing for
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appointment of a receiver and the necessity for bond or an accounting by the
receiver. Nothing herein is to be construed to deprive Mortgagee of any other
right, remedy or privilege it may now or hereafter have under the law to have a
receiver appointed. Any money advanced by Mortgagee in connection with any
such receivership shall be a demand obligation (which obligation Mortgagor
hereby expressly promises to pay) owing by Mortgagor to Mortgagee and shall
bear interest, from the date of making such advancement by Mortgagee until
paid, at the rate described in Section 2.3 hereof.
Section 4.7. Proceeds of Foreclosure. The proceeds of any sale held
in foreclosure of the liens and/or security interests evidenced hereby shall be
applied:
FIRST, to the payment of all necessary costs and expenses
incident to such foreclosure sale, including but not limited to all
court costs and charges of every character in the event foreclosed by
suit;
SECOND, to the payment of the secured indebtedness in such
manner and order as Mortgagee may elect; and
THIRD, the remainder, if any there shall be, shall be paid to
Mortgagor, or to Mortgagor's heirs, devisees, representatives,
successors or assigns, or such other persons as may be entitled
thereto by law.
Section 4.8. Mortgagee as Purchaser. Any party constituting
Mortgagee shall have the right to become the purchaser at any sale held in
foreclosure of the liens and/or security interests evidenced hereby, and any
party constituting Mortgagee which is purchasing at any such sale shall have
the right to credit upon the amount of the bid made therefor, to the extent
necessary to satisfy such bid, the secured indebtedness owing to such party, or
if such party holds less than all of such indebtedness, the pro rata part
thereof owing to such party, accounting to all other parties constituting
Mortgagee who are not joining in such bid in cash for the portion of such bid
or bids apportionable to such non-bidding parties.
Section 4.9. Foreclosure as to Matured Debt. Upon the occurrence of
a default, Mortgagee shall have the right to proceed with foreclosure of the
liens and/or security interests evidenced hereby without declaring the entire
secured indebtedness due, and in such event, any such foreclosure sale may be
made subject to the unmatured part of the secured indebtedness and shall not in
any manner affect the unmatured part of the secured indebtedness, but as to
such unmatured part, this Mortgage shall remain in full force and effect just
as though no sale had been made. The proceeds of such sale shall be applied as
provided in Section 4.6 except that the amount paid under clause SECOND thereof
shall be only the matured portion of the secured indebtedness and any proceeds
of such sale in excess of those provided for in clauses FIRST and SECOND
(modified as provided above) shall be applied as provided in clause SECOND and
THIRD of Section 3.4 hereof. Several sales may be made hereunder without
exhausting the right of sale for any unmatured part of the secured
indebtedness.
Section 4.10. Remedies Cumulative. All remedies herein provided for
are cumulative of each other and of all other remedies existing at law or in
equity and are cumulative of any and all other remedies provided for in any
other Loan Document, and, in addition to the remedies herein provided, there
shall continue to be available all such other remedies as may now or hereafter
exist at law or in equity for the collection of the secured indebtedness and
the enforcement of the covenants herein and the foreclosure of the liens and/or
security interests evidenced hereby, and the
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resort to any remedy provided for hereunder or under any such other Loan
Document or provided for by law shall not prevent the concurrent or subsequent
employment of any other appropriate remedy or remedies.
Section 4.11. Discretion as to Security. Mortgagee may resort to any
security given by this Mortgage or to any other security now existing or
hereafter given to secure the payment of the secured indebtedness, in whole or
in part, and in such portions and in such order as may seem best to Mortgagee
in its sole and uncontrolled discretion, and any such action shall not in any
way be considered as a waiver of any of the rights, benefits, liens or security
interests evidenced by this Mortgage.
Section 4.12. Mortgagor's Waiver of Certain Rights. To the full
extent Mortgagor may do so, Mortgagor agrees that Mortgagor will not at any
time insist upon, plead, claim or take the benefit or advantage of any law now
or hereafter in force providing for any appraisement, valuation, stay,
extension or redemption, and Mortgagor, for Mortgagor, Mortgagor's heirs,
devisees, representatives, successors and assigns, and for any and all persons
ever claiming any interest in the Property, to the extent permitted by
applicable law, hereby waives and releases all rights of appraisement,
valuation, stay of execution, redemption, notice of intention to mature or
declare due the whole of the secured indebtedness, notice of election to mature
or declare due the whole of the secured indebtedness and all rights to a
marshaling of assets of Mortgagor, including the Property, or to a sale in
inverse order of alienation in the event of foreclosure of the liens and/or
security interests hereby created. Mortgagor shall not have or assert any
right under any statute or rule of law pertaining to the marshaling of assets,
sale in inverse order of alienation, the exemption of homestead, the
administration of estates of decedents, or other matters whatever to defeat,
reduce or affect the right under the terms of this Mortgage to a sale of the
Property for the collection of the secured indebtedness without any prior or
different resort for collection, or the right under the terms of this Mortgage
to the payment of the secured indebtedness out of the proceeds of sale of the
Property in preference to every other claimant whatever. If any law referred
to in this section and now in force, of which Mortgagor or Mortgagor's heirs,
devisees, representatives, successors or assigns or any other persons claiming
any interest in the Mortgaged Properties or the Collateral might take advantage
despite this section, shall hereafter be repealed or cease to be in force, such
law shall not thereafter be deemed to preclude the application of this section.
Section 4.13. Mortgagor as Tenant Post-Foreclosure. In the event
there is a foreclosure sale hereunder and at the time of such sale Mortgagor or
Mortgagor's heirs, devisees, representatives, successors or assigns or any
other persons claiming any interest in the Property by, through or under
Mortgagor are occupying or using the Property, or any part thereof, each and
all shall immediately become the tenant of the purchaser at such sale, which
tenancy shall be a tenancy from day to day, terminable at the will of either
landlord or tenant, at a reasonable rental per day based upon the value of the
property occupied, such rental to be due daily to the purchaser. To the extent
permitted by applicable law, the purchaser at such sale shall, notwithstanding
any language herein apparently to the contrary, have the sole option to demand
immediate possession following the sale or to permit the occupants to remain as
tenants at will. In the event the tenant fails to surrender possession of said
property upon demand, the purchaser shall be entitled to institute and maintain
a summary action for possession of the property (such as an action for forcible
entry and detainer) in any court having jurisdiction.
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Section 4.14. Waiver of Oklahoma Appraisement. As to Property
situated in or otherwise subject to the laws of the State of Oklahoma,
appraisement of the Property is hereby waived (or not) at the option of Lender,
such option to be exercised at the time judgment is rendered in any foreclosure
hereof or at any time prior thereto.
ARTICLE V.
Miscellaneous
Section 5.1. Scope of Mortgage. This Mortgage is a mortgage of both
real/immovable and personal/movable property, a security agreement, a financing
statement and an assignment, and also covers proceeds and fixtures.
Section 5.2. Effective as a Financing Statement. This Mortgage
covers goods which are or are to become fixtures on the real property described
herein, and this Mortgage shall be effective as a financing statement filed as
a fixture filing with respect to all fixtures included within the Property.
This Mortgage shall also be effective as a financing statement, filed as a
fixture filing, covering minerals and other substances of value which may be
extracted from the earth (including without limitation oil and gas), and
accounts related thereto, which will be financed at the wellhead or minehead of
the wells or mines located on the Mortgaged Properties. This Mortgage is to be
filed for record in the real/immovable property records of each county where
any part of the Mortgaged Properties is situated or which lies shoreward of any
Mortgaged Property (i.e., to the extent a Mortgaged Property lies offshore
within the projected seaward extension of the relevant county boundaries), and
may also be filed in the offices of the Bureau of Land Management or the
Minerals Management Service or any relevant state agency (or any successor
agencies). This Mortgage shall also be effective as a financing statement
covering any other Property and may be filed in any other appropriate filing or
recording office. The mailing address of Mortgagor is the address of Mortgagor
set forth at the end of this Mortgage and the address of Mortgagee from which
information concerning the security interests hereunder may be obtained is the
address of Mortgagee set forth at the end of this Mortgage.
Section 5.3. Reproduction of Mortgage as Financing Statement. A
carbon, photographic, facsimile or other reproduction of this Mortgage or of
any financing statement relating to this Mortgage shall be sufficient as a
financing statement for any of the purposes referred to in Section 5.2.
Section 5.4. Notice to Account Debtors. In addition to, but without
limitation of, the rights granted in Article III hereof, Mortgagee may, at any
time after a default has occurred that is continuing, notify the account
debtors or obligors of any accounts, chattel paper, negotiable instruments or
other evidences of indebtedness included in the Collateral to pay Mortgagee
directly.
Section 5.5. Waivers. Mortgagee may at any time and from time to
time in writing waive compliance by Mortgagor with any covenant herein made by
Mortgagor to the extent and in the manner specified in such writing, or consent
to Mortgagor's doing any act which hereunder Mortgagor is prohibited from
doing, or to Mortgagor's failing to do any act which hereunder Mortgagor is
required to do, to the extent and in the manner specified in such writing, or
release any part of the Property or any interest therein or any Production
Proceeds from the lien and security interest of this Mortgage. Any party
liable, either directly or indirectly, for the secured indebtedness or for any
covenant herein or in any other Loan Document may be released from all or any
part
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of such obligations without impairing or releasing the liability of any other
party. No such act shall in any way impair any rights or powers hereunder
except to the extent specifically agreed to in such writing.
Section 5.6. No Impairment of Security. The lien, security interest
and other security rights hereunder shall not be impaired by any indulgence,
moratorium or release which may be granted including, but not limited to, any
renewal, extension or modification which may be granted with respect to any
secured indebtedness, or any surrender, compromise, release, renewal,
extension, exchange or substitution which may be granted in respect of the
Property (including without limitation Production Proceeds), or any part
thereof or any interest therein, or any release or indulgence granted to any
endorser, guarantor or surety of any secured indebtedness.
Section 5.7. Acts Not Constituting Waiver. Any default may be waived
without waiving any other prior or subsequent default. Any default may be
remedied without waiving the default remedied. Neither failure to exercise,
nor delay in exercising, any right, power or remedy upon any default shall be
construed as a waiver of such default or as a waiver of the right to exercise
any such right, power or remedy at a later date. No single or partial exercise
of any right, power or remedy hereunder shall exhaust the same or shall
preclude any other or further exercise thereof, and every such right, power or
remedy hereunder may be exercised at any time and from time to time. No
modification or waiver of any provision hereof nor consent to any departure by
Mortgagor therefrom shall in any event be effective unless the same shall be in
writing and signed by Mortgagee and then such waiver or consent shall be
effective only in the specific instances, for the purpose for which given and
to the extent therein specified. No notice to nor demand on Mortgagor in any
case shall of itself entitle Mortgagor to any other or further notice or demand
in similar or other circumstances. Acceptance of any payment in an amount less
than the amount then due on any secured indebtedness shall be deemed an
acceptance on account only and shall not in any way excuse the existence of a
default hereunder.
Section 5.8. Mortgagor's Successors. In the event the ownership of
the Property or any part thereof becomes vested in a person other than
Mortgagor, then, without notice to Mortgagor, such successor or successors in
interest may be dealt with, with reference to this Mortgage and to the
indebtedness secured hereby, in the same manner as with Mortgagor, without in
any way vitiating or discharging Mortgagor's liability hereunder or for the
payment of the indebtedness or performance of the obligations secured hereby.
No transfer of the Property, no forbearance, and no extension of the time for
the payment of the indebtedness secured hereby, shall operate to release,
discharge, modify, change or affect, in whole or in part, the liability of
Mortgagor hereunder or for the payment of the indebtedness or performance of
the obligations secured hereby or the liability of any other person hereunder
or for the payment of the indebtedness secured hereby.
Section 5.9. Place of Payment. All secured indebtedness which may be
owing hereunder at any time by Mortgagor shall be payable at the place
designated in the Credit Agreement (or if no such designation is made, at the
address of Mortgagee indicated at the end of this Mortgage), or at such other
place as Mortgagee may designate in writing.
Section 5.10. Subrogation to Existing Liens. To the extent that
proceeds of the secured indebtedness are used to pay indebtedness secured by
any outstanding lien, security interest, charge or prior encumbrance against
the Property, such proceeds have been advanced at Mortgagor's request, and the
party or parties
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advancing the same shall be subrogated to any and all rights, security
interests and liens owned by any owner or holder of such outstanding liens,
security interests, charges or encumbrances, irrespective of whether said
liens, security interests, charges or encumbrances are released, and it is
expressly understood that, in consideration of the payment of such
indebtedness, Mortgagor hereby waives and releases all demands and causes of
action for offsets and payments to, upon and in connection with the said
indebtedness.
Section 5.11. Application of Payments to Certain Indebtedness. If
any part of the secured indebtedness cannot be lawfully secured by this
Mortgage or if any part of the Property cannot be lawfully subject to the lien
and security interest hereof to the full extent of such indebtedness, then all
payments made shall be applied on said indebtedness first in discharge of that
portion thereof which is not secured by this Mortgage.
Section 5.12. Compliance With Usury Laws. It is the intent of
Mortgagor, Mortgagee and all other parties to the Loan Documents to contract in
strict compliance with applicable usury law from time to time in effect. In
furtherance thereof, it is stipulated and agreed that none of the terms and
provisions contained herein 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.
Section 5.13. Release of Mortgage. If all of the secured
indebtedness be paid as the same becomes due and payable and all of the
covenants, warranties, undertakings and agreements made in this Mortgage are
kept and performed and no further obligation shall exist to provide credit or
advance funds to Mortgagor or the maker of any promissory note (or other
obligor with respect to other indebtedness) secured hereby, then, at
Mortgagor's request, this Mortgage shall be released, in due form and at
Mortgagor's cost; provided, however, that, notwithstanding such release,
certain indemnifications, and other rights, which are provided herein to
continue following the release hereof shall continue in effect unaffected by
such release; and provided further that if any payment to Mortgagee is held to
constitute a preference or a voidable transfer under applicable state or
federal laws or if for any other reason Mortgagee is required to refund such
payment to the payor thereof or to pay the amount thereof to any third party,
this Mortgage shall be reinstated to the extent of such payment or payments.
Section 5.14. Notices. All notices, requests, consents, demands and
other communications required or permitted hereunder shall be in writing 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, at the addresses
specified at the end of this Mortgage (unless changed by similar notice in
writing given by the particular party 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 first attempted
delivery at the address and in the manner provided herein, (b) in the case of
telecopy, upon receipt, and (c) in the case of registered or certified United
States mail, three days after deposit in the mail. Notwithstanding the
foregoing, or anything else in the Loan Documents which may appear to the
contrary, any notice given in connection with a foreclosure of the liens and/or
security interests created hereunder, or otherwise in connection with the
exercise by Mortgagee of its rights hereunder or under any other Loan Document,
which is given in a manner permitted by applicable law shall constitute proper
notice; without limitation of the foregoing, notice given in a form required or
permitted by statute shall (as to the portion of the Property to which such
statute is applicable) constitute proper notice.
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Section 5.15. Invalidity of Certain Provisions. A determination that
any provision of this Mortgage is unenforceable or invalid shall not affect the
enforceability or validity of any other provision and the determination that
the application of any provision of this Mortgage to any person or circumstance
is illegal or unenforceable shall not affect the enforceability or validity of
such provision as it may apply to other persons or circumstances.
Section 5.16. Gender; Titles. Within this Mortgage, words of any
gender shall be held and construed to include any other gender, and words in
the singular number shall be held and construed to include the plural, unless
the context otherwise requires. Titles appearing at the beginning of any
subdivisions hereof are for convenience only, do not constitute any part of
such subdivisions, and shall be disregarded in construing the language
contained in such subdivisions.
Section 5.17. Recording. Mortgagor will cause this Mortgage and all
amendments and supplements thereto and substitutions therefor and all financing
statements and continuation statements relating thereto to be recorded, filed,
re-recorded and refiled in such manner and in such places as Mortgagee shall
reasonably request and will pay all such recording, filing, re-recording and
refiling taxes, fees and other charges.
Section 5.18. Reporting Compliance. Mortgagor agrees to comply with
any and all reporting requirements applicable to the transaction evidenced by
the Note and secured by this Mortgage which are set forth in any law, statute,
ordinance, rule, regulation, order or determination of any governmental
authority, and further agrees upon request of Mortgagee to furnish Mortgagee
with evidence of such compliance.
Section 5.19. Certain Consents. Except where otherwise expressly
provided herein, in any instance hereunder where the approval, consent or the
exercise of judgment of Mortgagee is required, the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of Mortgagee, and Mortgagee shall not, for any reason or to any
extent, be required to grant such approval or consent or exercise such judgment
in any particular manner, regardless of the reasonableness of either the
request or Mortgagee's judgment.
Section 5.20. Certain Obligations of Mortgagor. Without limiting
Mortgagor's obligations hereunder, Mortgagor's liability hereunder shall extend
to and include all post petition interest, expenses, and other duties and
liabilities with respect to Mortgagor's obligations hereunder which would be
owed but for the fact that the same may be unenforceable due to the existence
of a bankruptcy, reorganization or similar proceeding.
Section 5.21. Agent and Lenders. On the date hereof, ING is both the
"Agent" under the Credit Agreement and the only Lender thereunder. It is
hereby contemplated that additional persons shall or may hereafter become
Lenders under the Credit Agreement, and in such event: (a) all references
herein to indebtedness, obligations, or promissory notes owing to Mortgagee
shall refer to indebtedness, obligations, or promissory notes owing to any
person included within the definition of Lenders, as used in the Credit
Agreement, and (b) in its capacity as Agent under the Credit Agreement, ING
together with its successors in such capacity, shall have all authority,
without the need to secure the consent or joinder of any other parties
constituting Lenders under the Credit Agreement, to perform any acts and/or
enforce any remedies afforded Mortgagee hereunder, including without limitation
any remedies
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<PAGE> 26
afforded Mortgagee under Article IV hereof, and to receive any notices or
payments (including without limitation payment of Production Proceeds pursuant
to Article III hereof), on behalf of the parties constituting Lenders under the
Credit Agreement, and (c) any rights, titles, liens and security interests in
or relating to the Property shall be automatically held, upon and subject to
the terms of the Credit Agreement, by ING, as Agent, for the benefit of all
parties constituting Lenders under the Credit Agreement, and any rights and
remedies afforded Mortgagee hereunder (including without limitation any of same
relating to indemnities) shall be automatically held and exercised, upon and
subject to the terms of the Credit Agreement, by ING as Agent for all parties
constituting Lenders under the Credit Agreement.
Section 5.22. Counterparts. This Mortgage may be executed in several
counterparts, all of which are identical, except that, to facilitate
recordation, certain counterparts hereof may include only those portions of the
Exhibits hereto which contain descriptions of the properties located in (or
otherwise subject to the recording or filing requirements and/or protections of
the recording or filing acts or regulations of) the recording jurisdiction in
which the particular counterpart is to be recorded, and other portions of such
Exhibits shall be included in such counterparts by reference only. All of such
counterparts together shall constitute one and the same instrument. Complete
copies of this Mortgage containing the entirety of the Exhibits hereto have
been retained by Mortgagor and Mortgagee.
Section 5.23. Successors and Assigns. The terms, provisions,
covenants, representations, indemnifications and conditions hereof shall be
binding upon Mortgagor, and the successors and assigns of Mortgagor, and shall
inure to the benefit of Mortgagee and the successors and assigns of Mortgagee,
and shall constitute covenants running with the Mortgaged Properties. All
references in this Mortgage to Mortgagor or Mortgagee shall be deemed to
include all such successors and assigns.
SECTION 5.24. FINAL AGREEMENT OF THE PARTIES. THE WRITTEN 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 5.25. CHOICE OF LAW. WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW, THIS MORTGAGE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE AND THE LAWS OF THE UNITED
STATES OF AMERICA, EXCEPT THAT TO THE EXTENT THAT THE LAW OF A STATE IN WHICH A
PORTION OF THE PROPERTY IS LOCATED (OR WHICH IS OTHERWISE APPLICABLE TO A
PORTION OF THE PROPERTY) NECESSARILY OR, IN THE SOLE DISCRETION OF MORTGAGEE,
APPROPRIATELY GOVERNS WITH RESPECT TO PROCEDURAL AND SUBSTANTIVE MATTERS
RELATING TO THE CREATION, PERFECTION AND ENFORCEMENT OF THE LIENS, SECURITY
INTERESTS AND OTHER RIGHTS AND REMEDIES OF THE MORTGAGEE GRANTED HEREIN, THE
LAW OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF THE PROPERTY LOCATED IN (OR
WHICH IS OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.
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<PAGE> 27
IN WITNESS WHEREOF, this instrument is executed by Mortgagor this 15th
day of May, 1998.
MORTGAGOR:
PERFORMANCE PETROLEUM CO.
By: /s/ BRUCE D. BENSON
---------------------------------------
Bruce D. Benson
President and Chief Executive Officer
UNITED STATES GAS GATHERING CO., INC.
By: /s/ BRUCE D. BENSON
---------------------------------------
Bruce D. Benson
President and Chief Executive Officer
PACIFIC OSAGE, INC.
By: /s/ BRUCE D. BENSON
---------------------------------------
Bruce D. Benson
President and Chief Executive Officer
The address of Mortgagee is: The address of Mortgagor is:
135 E. 57th Street 1560 Broadway, Suite 1900
New York, New York 10022 Denver, Colorado 80202
26
<PAGE> 28
ACKNOWLEDGMENTS
STATE OF TEXAS )
)
COUNTY OF TARRANT )
The foregoing instrument was acknowledged before me on this 15th day
of May, 1998, by Bruce D. Benson, President and Chief Executive Officer of
Performance Petroleum Co., a Colorado corporation, on behalf of such
corporation.
/s/
-------------------------------------
NOTARY PUBLIC, State of Texas
[SEAL]
STATE OF TEXAS )
)
COUNTY OF TARRANT )
The foregoing instrument was acknowledged before me on this 15th day
of May, 1998, by Bruce D. Benson, President and Chief Executive Officer of
United States Gas Gathering Co., Inc., a Delaware corporation, on behalf of
such corporation.
/s/
-------------------------------------
NOTARY PUBLIC, State of Texas
[SEAL]
STATE OF TEXAS )
)
COUNTY OF TARRANT )
The foregoing instrument was acknowledged before me on this 15th day
of May, 1998, by Bruce D. Benson, President and Chief Executive Officer of
Pacific Osage, Inc., an Oklahoma corporation, on behalf of such corporation.
/s/
-------------------------------------
NOTARY PUBLIC, State of Texas
[SEAL]
27
<PAGE> 1
EXHIBIT 10.4
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made as of May 15, 1998,
by UNITED STATES EXPLORATION, INC., a Colorado corporation (herein called
"Debtor"), in favor of ING (U.S.) CAPITAL CORPORATION, in its capacity as Agent
for itself and certain other lenders from time to time parties to the Credit
Agreement described herein (together with its successors and assignees herein
called "Secured Party").
RECITALS:
1. Debtor, Secured Party, and the other financial institutions named
therein as Lenders ("Lenders") are parties to a Credit Agreement of even date
herewith (herein, as from time to time amended, supplemented or restated,
called the "Credit Agreement"), pursuant to which Secured Party has agreed to
advance funds to Debtor under the Note (described below).
2. Pursuant to the Credit Agreement, Debtor has executed in favor of
the initial Lender a certain promissory note payable to the order of the
initial Lender in the aggregate principal amount of $35,000,000 (such
promissory note, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively called the "Note").
3. It is a condition precedent to Secured Party's obligation to
advance funds pursuant to the Credit Agreement that Debtor, among other things,
shall execute and deliver this Agreement to Secured Party for the benefit of
Lenders.
NOW, THEREFORE, in consideration of the premises, of the benefits
which will inure to Debtor from Secured Party's extension of credit under the
Credit Agreement, and of Ten Dollars and other good and valuable consideration,
the receipt and sufficiency of all of which are hereby acknowledged, and in
order to induce Secured Party to extend credit under the Credit Agreement,
Debtor hereby agrees with Secured Party as follows:
AGREEMENTS
ARTICLE I -- Definitions and References
Section 1.1. General Definitions. As used herein, the terms
"Agreement", "Debtor", "Secured Party", "Note", "Lenders", and "Credit
Agreement" shall have the meanings indicated above, and the following terms
shall have the following meanings:
"Collateral" means all property, of whatever type, which is described
in Section 2.1 as being at any time subject to a security interest granted
hereunder to Secured Party.
<PAGE> 2
"Commitment" means the agreement or commitment by the Lenders to make
loans or otherwise extend credit to Debtor under the Credit Agreement, and any
other agreement, commitment, statement of terms or other document contemplating
the making of loans or advances or other extension of credit by the Lenders to
or for the account of Debtor which is now or at any time hereafter intended to
be secured by the Collateral under this Agreement.
"Issuer" means any issuer of Pledged Shares, the Partnership, and any
successor of such Issuer.
"Obligation Documents" means the Credit Agreement, all other Loan
Documents, and all other documents and instruments under, by reason of which,
or pursuant to which any or all of the Secured Obligations are evidenced,
governed, secured, guarantied, or otherwise dealt with, and all other
agreements, certificates, and other documents, instruments and writings
heretofore or hereafter delivered in connection herewith or therewith.
"Other Liable Party" means any Person, other than Debtor, who may now
or may at any time hereafter be primarily or secondarily liable for any of the
Secured Obligations or who may now or may at any time hereafter have granted to
Secured Party a Lien upon any property as security for the Secured Obligations.
"Other Partnership Rights" has the meaning given it in Section 2.1(b).
"Partnership" means the Weld County Partnership, a Colorado general
partnership formed under and governed by the Weld County Partnership Agreement
dated December 31, 1982 by and between Champlin Petroleum Company and True Oil
Company, and any successors of any such partnerships.
"Partnership Agreements", "Partnership Rights", and "Partnership
Rights to Payments" have the meanings given them in Section 2.1(b).
"Person" means an individual, corporation, partnership, association,
joint stock company, trust, unincorporated organization or joint venture, or a
court or governmental unit or any agency or subdivision thereof, or any other
legally recognizable entity.
"Pledged Shares" has the meaning given it in Section 2.1(a).
"Purchase and Sale Agreement" means that Asset Purchase and Sale
Agreement dated April 9, 1998 between Debtor and Union Pacific.
"Related Person" means Debtor, each Subsidiary of Debtor, and each
Other Liable Party.
"Secured Obligations" shall have the meaning given it in Section 2.2.
"UCC" means the Uniform Commercial Code in effect in the State of New
York on the date hereof.
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<PAGE> 3
"Union Pacific " means Union Pacific Resources Corporation.
Section 1.2. Incorporation of Other Definitions. Reference is hereby
made to the Credit Agreement for a statement of the terms thereof. All
capitalized terms used in this Agreement which are defined in the Credit
Agreement and not otherwise defined herein shall have the same meanings herein
as set forth therein. All terms used in this Agreement which are defined in
the UCC and not otherwise defined herein or in the Credit Agreement shall have
the same meanings herein as set forth therein, except where the context
otherwise requires.
Section 1.3. Attachments. All exhibits or schedules which may be
attached to this Agreement are a part hereof for all purposes.
Section 1.4. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein, references in this
Agreement to a particular agreement, instrument or document (including, but not
limited to, references in Section 2.1) also refer to and include all renewals,
extensions, amendments, modifications, supplements or restatements of any such
agreement, instrument or document, provided that nothing contained in this
Section shall be construed to authorize any Person to execute or enter into any
such renewal, extension, amendment, modification, supplement or restatement.
Section 1.5. References and Titles. All references in this Agreement
to Exhibits, Articles, Sections, subsections, and other subdivisions refer to
the Exhibits, Articles, Sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any subdivision are for convenience only and do not constitute any
part of any such subdivision and shall be disregarded in construing the
language contained in this Agreement. The words "this Agreement", "herein",
"hereof", "hereby", "hereunder" and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. The phrases "this Section" and "this subsection" and similar phrases
refer only to the Sections or subsections hereof in which the phrase occurs.
The word "or" is not exclusive, and the word "including" (in all of its forms)
means "including without limitation". Pronouns in masculine, feminine and
neuter gender 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.
ARTICLE II -- Security Interest
Section 2.1. Grant of Security Interest. As collateral security for
all of the Secured Obligations, Debtor hereby pledges and assigns to Secured
Party and grants to Secured Party, for the benefit of Lenders, a continuing
security interest in and to the following, whether now or hereafter existing,
which are owned by Debtor or in which Debtor otherwise has any rights:
(a) Pledged Shares. All of the following, whether now or hereafter
existing, which are owned by Debtor or in which Debtor otherwise has any
rights: (i) the shares of stock described in Exhibit A hereto, (ii) all other
shares of stock or other equity interests now owned or hereafter acquired by
Debtor, whether of the Issuers listed on Exhibit A or any other Person, (iii)
all certificates representing any such shares, all options and other rights,
contractual or otherwise, at
3
<PAGE> 4
any time existing with respect to such shares, and (iv) all dividends, cash,
instruments and other property now or hereafter received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares (any and all such shares, certificates, options, rights, dividends,
cash, instruments and other property, collectively, the "Pledged Shares").
(b) Partnership Rights. All of the following (collectively, the
"Partnership Rights"), whether now or hereafter existing, which are owned by
Debtor or in which Debtor otherwise has any rights:
(i) all interests and rights of Debtor arising under or
pursuant to the Purchase and Sale Agreement in respect of the
Partnership, including without limitation any right to receive an
assignment from Union Pacific of Union Pacific's interest in the
Partnership and all interests and rights of Debtor in and to the
Partnership if and when such an assignment is made;
(ii) all proceeds, interest, profits, and other payments or
rights to payment attributable to Debtor's interests in the
Partnership, and all distributions, cash, instruments and other
property now or hereafter received, receivable or otherwise made with
respect to or in exchange for any interest of Debtor in the
Partnership, including interim distributions, returns of capital, loan
repayments, and payments made in liquidation of the Partnership, and
whether or not the same arise or are payable under any partnership
agreement or certificate forming the Partnership or any other
agreement governing the Partnership or the relations among the
partners in the Partnership (any and all such proceeds, interest,
profits, payments, rights to payment, distributions, cash,
instruments, other property, interim distributions, returns of
capital, loan repayments, and payments made in liquidation,
collectively, the "Partnership Rights to Payments", and any and all
such partnership agreements, certificates, and other agreements,
collectively, the "Partnership Agreements"); and
(iii) all other interests and rights of Debtor in the
Partnership, whether under the Partnership Agreements or otherwise,
including without limitation any right to cause the dissolution of the
Partnership or to appoint or nominate a successor to Debtor as a
partner in the Partnership (all such other interests and rights,
collectively, the "Other Partnership Rights").
(c) Other Collateral. All indebtedness, notes, bonds, convertible
securities or other obligations of any Issuer, the Partnership or any other
Person and all other general intangibles and accounts.
(d) Proceeds. All proceeds of any and all of the foregoing
Collateral and, to the extent not otherwise included, all payments under
insurance (whether or not Secured Party is the loss payee thereof) or under any
indemnity, warranty or guaranty by reason of loss to or otherwise with respect
to any of the foregoing Collateral.
4
<PAGE> 5
In each case, the foregoing shall be covered by this Agreement, whether
Debtor's ownership or other rights therein are presently held or hereafter
acquired and however Debtor's interests therein may arise or appear (whether by
ownership, security interest, claim or otherwise).
The granting of the foregoing security interest does not make Secured
Party a successor to Debtor as a partner in the Partnership, and neither
Secured Party nor any of its successors or assigns hereunder shall be deemed to
have become a partner in the Partnership by accepting this Agreement or
exercising any right granted herein unless and until such time, if any, when
Secured Party or any such successor or assign expressly becomes a partner in
the Partnership after a foreclosure upon Other Partnership Rights.
Notwithstanding anything herein to the contrary (except to the extent, if any,
that Secured Party or any of its successors or assigns hereafter expressly
becomes a partner in the Partnership), neither Secured Party nor any of its
successors or assigns shall be deemed to have assumed or otherwise become
liable for any debts or obligations of the Partnership or of Debtor to or under
the Partnership, and the above definition of "Other Partnership Rights" shall
be deemed modified, if necessary, to prevent any such assumption or other
liability.
Section 2.2. Secured Obligations. The security interest created
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, indebtedness and liabilities, whether now existing
or hereafter incurred or arising:
(a) The payment by Debtor, as and when due and payable, of the
"Obligations", as defined in the Credit Agreement, and of all amounts from time
to time owing by Debtor under or in respect of the Credit Agreement, the Note,
or any of the other Obligation Documents, and the due performance by Debtor of
all of its other obligations under or in respect of the various Obligation
Documents.
(b) All indebtedness and other obligations now or hereafter
incurred or arising pursuant to or permitted by the provisions of the Note, the
Credit Agreement, or any other instrument now or hereafter evidencing,
governing, guaranteeing or securing the Obligations or any part thereof or
otherwise executed in connection with any advance or loan evidenced or governed
by the Note or the Credit Agreement;
(c) All present or future "Hedging Obligations" incurred or owing
by Debtor to any one or more members of the "Credit Group," as hereinafter
defined; as used in this paragraph and the following paragraph (e): (i) "Credit
Group" means ING (U.S.) Capital Corporation, any other party from time to time
constituting a lender under the Credit Agreement, and/or any affiliate of any
such party, and (ii) "Hedging Obligations" means any indebtedness or
obligations, however arising, to make payments or take actions under or
pursuant to any present or future agreement (including any individual agreement
or any master agreement and the various transactions and confirmations made
thereunder) governing any swap, put, call, cap, floor or collar transaction, or
other type of agreement or transaction relating to interest rates, currency
exchange rates, or the
5
<PAGE> 6
price or delivery (at any one or more locations or in any one or more markets)
of crude oil, natural gas, natural gas liquids, petroleum products, other
hydrocarbons, agricultural products, precious metals, stocks or bonds or
indices thereof, or any other commodity, contract or other item of property
traded in any market, and all interest thereon and expenses and other amounts
payable in connection therewith (any agreement or document, however entitled or
described, evidencing or governing any Hedging Obligations owing by Debtor to
any one or more members of the Credit Group being herein called a "Hedging
Agreement");
(d) All present or future indebtedness or obligations incurred or
owing to any one or more members of the Credit Group by Debtor, however
arising, to make reimbursements or similar payments to any one or more members
of the Credit Group as a result of or relating to any payments made by any one
or more members of the Credit Group to any third person on account of or for
the benefit of Debtor, including without limitation any obligation to reimburse
any one or more members of the Credit Group for payments it makes under or
pursuant to any letter of credit, bond, guaranty, or indemnity agreement issued
or made for the account of or for the benefit of Debtor (such as a letter of
credit, guaranty or indemnity by any one or more members of the Credit Group of
any Hedging Obligations owed by Debtor to a third person) and all interest
thereon and expenses and other amounts payable in connection therewith (any
agreement or document, however entitled or described, evidencing or governing
any such indebtedness or obligation owing to any one or more members of the
Credit Group by Debtor being herein called a "Reimbursement Agreement");
(e) All other loans and future advances made by one or more
members of the Credit Group to Debtor and all other debts, obligations and
liabilities of Debtor of every kind and character now or hereafter existing in
favor of one or more members of the Credit Group, whether direct or indirect,
primary or secondary, joint or several, fixed or contingent, and whether such
debts, obligations or liabilities are evidenced by notes, open account,
overdraft, endorsement, security agreement, guaranty or otherwise (it being
contemplated that Debtor may hereafter become indebted to the Credit Group in
further sum or sums but the Credit Group shall have no obligation to extend
further indebtedness by reason of this Agreement); and
(f) All renewals, extensions, amendments, modifications,
supplements, or restatements of or substitutions for any of the foregoing.
As used herein, the term "Secured Obligations" refers to all present
and future indebtedness, obligations, and liabilities of whatever type which
are described above in this section, including any interest which accrues after
the commencement of any case, proceeding, or other action relating to the
bankruptcy, insolvency, or reorganization of the Debtor. Debtor hereby
acknowledges that the Secured Obligations are owed to the various Lenders who
are parties to the Credit Agreement from time to time and that each such Lender
is entitled to the benefit of the Liens given under this Agreement.
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<PAGE> 7
ARTICLE III -- Representations, Warranties and Covenants
Section 3.1. Representations and Warranties. Debtor represents and
warrants to Secured Party and Lenders as follows:
(a) Ownership Free of Liens. Debtor has good and marketable title to
the Collateral free and clear of all Liens, encumbrances or adverse claims,
except for the security interest created by this Agreement. No dispute, right
of setoff, counterclaim or defense exists with respect to all or any part of
the Collateral, except such matters which may exist from time to time with
respect to the Partnership Rights which will not, in the aggregate have a
material adverse effect on the value of such Partnership Rights. No effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording office except any which have
been filed in favor of Secured Party relating to this Agreement.
(b) No Conflicts or Consents. Neither the ownership or the intended
use of the Collateral by Debtor, nor the grant of the security interest by
Debtor to Secured Party herein, nor the exercise by Secured Party of its rights
or remedies hereunder, will (i) conflict with any provision of (a) any domestic
or foreign law, statute, rule or regulation, (b) the articles or certificate of
incorporation, charter or bylaws of Debtor or any Issuer, or the Partnership
Agreement, subject to the consent requirements contained in the Partnership
Agreements, or (c) any agreement, judgment, license, order or permit applicable
to or binding upon Debtor or any Issuer, or (ii) result in or require the
creation of any Lien, charge or encumbrance upon any assets or properties of
Debtor or of any Issuer or Related Person except as expressly contemplated in
the Obligation Documents. Except as expressly contemplated in the Obligation
Documents and subject to the consent requirements contained in the Partnership
Agreements, no consent, approval, authorization or order of, and no notice to
or filing with, any court, governmental authority, Issuer or third party is
required in connection with the grant by Debtor of the security interest
herein, or the exercise by Secured Party of its rights and remedies hereunder.
(c) Security Interest. Debtor has and will have at all times full
right, power and authority to grant a security interest in the Collateral to
Secured Party as provided herein, free and clear of any Lien, adverse claim, or
encumbrance. This Agreement creates a valid and binding first priority
security interest in favor of Secured Party in the Collateral, which security
interest secures all of the Secured Obligations. The taking possession by
Secured Party of all certificates, instruments and cash constituting Collateral
from time to time and the filing of the financing statements delivered
concurrently herewith by Debtor to Secured Party will perfect, and establish
the first priority of, Secured Party's security interest hereunder in the
Collateral securing the Secured Obligations. No further or subsequent filing,
recording, registration, other public notice or other action is necessary or
desirable to perfect or otherwise continue, preserve or protect such security
interest except for continuation statements and for filings described in
Section 3.3(d).
(d) Location of Debtor and Records. Debtor's chief executive office
and principal place of business and the office where the records concerning the
Collateral are kept is located at its address set forth in the Credit
Agreement.
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<PAGE> 8
(e) Pledged Shares. Debtor has delivered to Secured Party all
certificates evidencing Pledged Shares. All such certificates are valid and
genuine and have not been altered. All shares and other securities
constituting the Pledged Shares have been duly authorized and validly issued,
are fully paid and non-assessable, and were not issued in violation of the
preemptive rights of any Person or of any agreement by which Debtor or the
Issuer thereof is bound. All documentary, stamp or other taxes or fees owing
in connection with the issuance, transfer or pledge of Pledged Shares (or
rights in respect thereof) have been paid. No restrictions or conditions
exist with respect to the transfer, voting or capital of any Pledged Shares.
The Pledged Shares constitute the percentage of the class of issued shares of
capital stock which is indicated on Exhibit A. No Issuer of any Pledged Shares
has any outstanding stock rights, rights to subscribe, options, warrants or
convertible securities outstanding or any other rights outstanding whereby any
Person would be entitled to have issued to him capital stock of such Issuer.
(f) Partnership Rights. Neither the making of this Agreement nor
the exercise of any rights or remedies of Secured Party hereunder will cause a
default under any of the Partnership Agreements or otherwise adversely affect
or diminish any of the Partnership Rights, subject to the consent requirements
contained in the Partnership Agreements. From and after the conveyance to
Debtor by Union Pacific of its interest in the Partnership pursuant to the
Purchase and Sale Agreement, (i) Debtor will own the interests in the
Partnership which are described on Exhibit A, (ii) Debtor will not be in
default under the Partnership Agreements, and (iii) Debtor's rights under the
Partnership Agreements will be 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.
Section 3.2. Affirmative Covenants. Unless Secured Party shall
otherwise consent in writing, Debtor will at all times comply with the
covenants contained in this Section 3.2 from the date hereof and so long as any
part of the Secured Obligations or the Commitment is outstanding.
(a) Ownership and Liens. Debtor will maintain good and marketable
title to all Collateral free and clear of all Liens, encumbrances or adverse
claims, except for the security interest created by this Agreement. Debtor
will not permit any dispute, right of setoff, counterclaim or defense to exist
with respect to all or any part of the Collateral. Debtor will cause to be
terminated any financing statement or other registration or instrument similar
in effect covering all or any part of the Collateral, except any which have
been filed in favor of Secured Party relating to this Agreement. Debtor will
defend Secured Party's right, title and special property and security interest
in and to the Collateral against the claims of any Person.
(b) Further Assurances. Debtor will, at its expense and at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable or
that Secured Party may request in order (i) to perfect and protect the security
interest created or purported to be created hereby and the first priority of
such security interest; (ii) to enable Secured Party to exercise and enforce
its rights and remedies hereunder in respect of the Collateral; or (iii) to
otherwise effect the purposes of this Agreement, including but not limited to:
(A) executing and filing such financing or continuation statements, or
amendments thereto, as may be necessary or desirable or that Secured Party may
request in order to perfect and preserve the security interest created or
purported to be created hereby; (B)
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delivering to Secured Party (upon request, to the extent not otherwise required
hereunder to be delivered without request) all originals of chattel paper,
documents or instruments which are from time to time included in the
Collateral; and (C) furnishing to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
(c) Inspection and Information. Debtor will keep adequate records
concerning the Collateral and will permit Secured Party and all representatives
appointed by Secured Party, including independent accountants, agents,
attorneys, appraisers and any other persons, to inspect any of the Collateral
and the books and records of or relating to the Collateral at any time during
normal business hours, and to make photocopies and photographs thereof, and to
write down and record any information as such representatives shall obtain.
Debtor will furnish to Secured Party any information which Secured Party may
from time to time request concerning any covenant, provision or representation
contained herein or any other matter in connection with the Collateral or
Debtor's business, properties, or financial condition.
(d) Partnership Rights. From and after the assignment to Debtor by
Union Pacific of its rights in the Partnership pursuant to the Purchase and
Sale Agreement: (i) Debtor will maintain its ownership of the interests in the
Partnership, (ii) Debtor will timely honor all calls under any Partnership
Agreement to provide capital to the Partnership, and (iii) Debtor will not
otherwise default in performing any of its obligations under any Partnership
Agreement or allow any Partnership Rights to be adversely affected or
diminished. Debtor will promptly inform Secured Party of any such failure to
honor a capital call, default, adverse effect, or diminution. Debtor will
promptly inform Secured Party of any such failure to honor a capital call or
default by another partner in the Partnership. The Partnership Rights shall at
all times be duly authorized and validly issued and will not violate any
agreement by which Debtor or the Partnership is bound.
(e) Delivery of Pledged Shares. All instruments and writings
evidencing the Pledged Shares and any certificates or instruments evidencing
the Partnership Rights shall be delivered to Secured Party on or prior to the
execution and delivery of this Agreement, together with a true copy of the
Partnership Agreements and all amendments and supplements thereto. All other
instruments and writings hereafter evidencing or constituting Pledged Shares or
evidencing Partnership Rights, and all amendments and supplements to the
Partnership Agreements (whether or not authorized hereunder) shall be delivered
to Secured Party promptly upon the receipt thereof by or on behalf of Debtor.
All such Pledged Shares, certificates and instruments shall be held by or on
behalf of Secured Party pursuant hereto and shall be delivered in suitable form
for transfer by delivery with any necessary endorsement or shall be accompanied
by fully executed instruments of transfer or assignment in blank, all in form
and substance satisfactory to Secured Party.
(f) Proceeds of Pledged Shares and Partnership Rights. If Debtor
shall receive, by virtue of its being or having been an owner of any Pledged
Shares or Partnership Rights, any (i) stock certificate, certificate,
instrument, deed, bill of sale, promissory note, or other instrument or writing
(including any certificate representing a stock dividend or distribution or any
given in
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connection with any increase or reduction of capital, reorganization,
reclassification, merger, consolidation, sale of assets, liquidation, or
partial liquidation, combination of shares, stock split, spinoff or split-off),
promissory note or other instrument or writing; (ii) option or right, whether
as an addition to, substitution for, or in exchange for, any Pledged Shares or
Partnership Rights, or otherwise; (iii) dividends or distributions payable in
cash (except such dividends or distributions permitted to be retained by Debtor
pursuant to Section 4.8 hereof) or in securities or other property, or (iv)
dividends or other distributions in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in surplus, Debtor shall receive the same in trust for
the benefit of Secured Party, shall segregate it from Debtor's other property,
and shall promptly deliver it to Secured Party in the exact form received, with
any necessary endorsement or appropriate stock powers or instruments of
transfer duly executed in blank, to be held by Secured Party as Collateral.
(g) Status of Pledged Shares and Partnership Rights. The
certificates evidencing the Pledged Shares and the Partnership Rights shall at
all times be valid and genuine and shall not be altered. The Pledged Shares at
all times shall be duly authorized, validly issued, fully paid, and
non-assessable, and shall not be issued in violation of the preemptive rights
of any Person or of any agreement by which Debtor or the Issuer thereof is
bound and shall not be subject to any restrictions with respect to transfer,
voting or capital of such Pledged Shares or Partnership Rights, other than
restrictions on the transfer of Partnership Rights contained in the Partnership
Agreements.
(h) Notices from Issuer. Debtor will promptly deliver to Secured
Party a copy of each notice or other communication received by Debtor from any
Issuer in respect of any Pledged Shares or Partnership Rights.
Section 3.3. Negative Covenants. Unless Secured Party shall
otherwise consent in writing, Debtor will at all times comply with the
covenants contained in this Section 3.3 from the date hereof and so long as any
part of the Secured Obligations or the Commitment is outstanding.
(a) Transfer or Encumbrance. Debtor will not sell, assign (by
operation of law or otherwise), transfer, exchange, lease or otherwise dispose
of any of the Collateral, nor will Debtor grant a Lien upon or execute, file or
record any financing statement or other registration with respect to the
Collateral, nor will Debtor allow any such Lien, financing statement, or other
registration to exist or deliver actual or constructive possession of the
Collateral to any other Person, other than Liens in favor of Secured Party.
(b) Impairment of Security Interest. Debtor will not take or fail to
take any action which would in any manner impair the value or enforceability of
Secured Party's first priority security interest in any Collateral.
(c) Compromise of Collateral. Debtor will not adjust, settle,
compromise, amend or modify any of its rights in the Collateral.
(d) Financing Statement Filings. Debtor recognizes that financing
statements pertaining to the Collateral have been or may be filed where Debtor
maintains any Collateral, has its records
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concerning any Collateral or has its chief executive office or chief place of
business. Without limitation of any other covenant herein, Debtor will not
cause or permit any change to be made in its name, identity or corporate
structure, or any change to be made to a jurisdiction other than as represented
in Section 3.1 hereof in (i) the location of any records concerning any
Collateral or (ii) in the location of its chief executive office or chief place
of business, unless Debtor shall have notified Secured Party of such change at
least thirty (30) days prior to the effective date of such change, and shall
have first taken all action required by Secured Party for the purpose of
further perfecting or protecting the security interest in favor of Secured
Party in the Collateral. In any notice furnished pursuant to this subsection,
Debtor will expressly state that the notice is required by this Agreement and
contains facts that may require additional filings of financing statements or
other notices for the purposes of continuing perfection of Secured Party's
security interest in the Collateral.
(e) Dilution of Shareholdings; Diminution of Partnership Rights.
Debtor will not adjust, settle, compromise, amend or modify any of the
Partnership Rights or any Partnership Agreement. Debtor will not permit the
issuance or creation of (i) any additional shares of any class of capital stock
of, or any additional interests in, any Issuer (unless immediately upon
issuance or creation the same are pledged and delivered to Secured Party
pursuant to the terms hereof to the extent necessary to give Secured Party a
first priority security interest after such issue in, or a security interest in
Partnership Rights after such creation which are in the aggregate, at least the
same percentage of such Issuer's outstanding shares as Debtor had, or the
outstanding rights of the same kind in Issuer as were subject hereto, before
such issue), whether such additional interests are presently vested or will
vest upon the payment of money or the occurrence or nonoccurrence of any other
condition (ii) any securities convertible voluntarily by the holder thereof or
automatically upon the occurrence or non-occurrence of any event or condition
into, or exchangeable for, any such shares of capital stock or interests, or
(iii) any warrants, options, contracts or other commitments entitling any
Person to purchase or otherwise acquire any such shares of capital stock or
interests not outstanding as of the date of this Agreement.
(f) Restrictions on Pledged Shares and Partnership Rights. Debtor
will not enter into any agreement (other than the Obligation Documents)
creating, or otherwise permit to exist, any restriction or condition upon the
transfer, voting or control of any Pledged Shares or Partnership Rights.
ARTICLE IV -- Remedies, Powers and Authorizations
Section 4.1. Provisions Concerning the Collateral.
(a) Additional Filings. Debtor hereby authorizes Secured Party to
file, without the signature of Debtor where permitted by law, one or more
financing or continuation statements, and amendments thereto, relating to the
Collateral. Debtor further agrees that a carbon, photographic or other
reproduction of this Security Agreement or of any financing statement
describing any Collateral is sufficient as a financing statement and may be
filed in any jurisdiction by Secured Party that Secured Party may deem
appropriate.
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(b) Power of Attorney. Debtor hereby irrevocably appoints Secured
Party as Debtor's attorney-in-fact and proxy, with full authority in the place
and stead of Debtor and in the name of Debtor or otherwise, from time to time
in Secured Party's discretion, to take any action, and to execute or indorse
any instrument, certificate or notice, which Secured Party may deem necessary
or advisable to accomplish the purposes of this Agreement including any action
or instrument: (i) to request or instruct each Issuer (and each registrar,
transfer agent, or similar Person acting on behalf of each Issuer) to register
the pledge or transfer of the Collateral to Secured Party; (ii) to otherwise
give notification to any Issuer, registrar, transfer agent, financial
intermediary, or other Person of Secured Party's security interests hereunder;
(iii) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect
of any of the Collateral; (iv) to receive, indorse and collect any drafts or
other instruments or documents; (v) to enforce any obligations included among
the Collateral; and (vi) to file any claims or take any action or institute any
proceedings which Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce, perfect, or
establish the priority of the rights of Secured Party with respect to any of
the Collateral. Debtor hereby acknowledges that such power of attorney and
proxy are coupled with an interest, and are irrevocable.
(c) Performance by Secured Party. If Debtor fails to perform any
agreement or obligation contained herein, Secured Party may itself perform, or
cause performance of, such agreement or obligation, and the expenses of Secured
Party incurred in connection therewith shall be payable by Debtor under Section
4.5.
(d) Collection Rights. Secured Party shall have the right at any
time, after the occurrence of an Event of Default, to notify (or require Debtor
to notify) any or all Persons (including any Issuer) obligated to make payments
which are included among the Collateral (whether accounts, general intangibles,
dividends, distributions, Partnership Rights to Payment, or otherwise) of the
assignment thereof to Secured Party under this Agreement and to direct such
obligors to make payment of all amounts due or to become due to Debtor
thereunder directly to Secured Party and, upon such notification and at the
expense of Debtor and to the extent permitted by law, to enforce collection
thereof and to adjust, settle or compromise the amount or payment thereof, in
the same manner and to the same extent as Debtor could have done. After Debtor
receives notice that Secured Party has given (and after Secured Party has
required Debtor to give) any notice referred to above in this subsection:
(i) all amounts and proceeds (including instruments and writings)
received by Debtor in respect of such distributions, accounts, or
general intangibles or Partnership Rights to Payments shall be
received in trust for the benefit of Secured Party hereunder, shall be
segregated from other funds of Debtor and shall be forthwith paid over
to Secured Party in the same form as so received (with any necessary
indorsement) to be applied as specified in Section 4.3, and
(ii) Debtor will not adjust, settle or compromise the amount or
payment of any such account or general intangible or Partnership Right
to Payments or release wholly or partly any account debtor or obligor
thereof (including any Issuer) or allow any credit or discount
thereon.
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Section 4.2. Event of Default Remedies. If an Event of Default shall
have occurred and be continuing, Secured Party may from time to time in its
discretion, without limitation and without notice except as expressly provided
below:
(a) exercise in respect of the Collateral, in addition to any other
rights and remedies provided for herein, under the other Obligation Documents
or otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral);
(b) require Debtor to, and Debtor hereby agrees that it will at its
expense and upon request of Secured Party, promptly assemble all or part of the
Collateral as directed by Secured Party and make it (together with all books,
records and information of Debtor relating thereto) available to Secured Party
at a place to be designated by Secured Party which is reasonably convenient to
both parties;
(c) reduce its claim to judgment or foreclose or otherwise enforce,
in whole or in part, the security interest created hereby by any available
judicial procedure;
(d) dispose of, at its office, on the premises of Debtor or
elsewhere, all or any part of the Collateral, as a unit or in parcels, by
public or private proceedings, and by way of one or more contracts (it being
agreed that the sale of any part of the Collateral shall not exhaust Secured
Party's power of sale, but sales may be made from time to time, and at any
time, until all of the Collateral has been sold or until the Secured
Obligations have been paid and performed in full), and at any such sale it
shall not be necessary to exhibit any of the Collateral;
(e) buy the Collateral, or any part thereof, at any public sale;
(f) buy the Collateral, or any part thereof, at any private sale if
the Collateral is of a type customarily sold in a recognized market or is of a
type which is the subject of widely distributed standard price quotations;
(g) apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Debtor hereby consents to
any such appointment; and
(h) at its discretion, retain the Collateral in satisfaction of the
Secured Obligations whenever the circumstances are such that Secured Party is
entitled to do so under the UCC or otherwise (provided that Secured Party shall
in no circumstances be deemed to have retained the Collateral in satisfaction
of the Secured Obligations in the absence of an express notice by Secured Party
to Debtor that Secured Party has either done so or intends to do so).
Debtor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' notice to Debtor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Secured Party shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given. Secured Party
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
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Section 4.3. Application of Proceeds. If any Event of Default shall
have occurred and be continuing, Secured Party may in its discretion apply any
cash held by Secured Party as Collateral, and any cash proceeds received by
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral, to any or all of the following in such
order as Secured Party may elect:
(a) To the repayment of all costs and expenses, including reasonable
attorneys' fees and legal expenses, incurred by Secured Party in connection
with (i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from, or other realization
upon, any Collateral, (iii) the exercise or enforcement of any of the rights of
Secured Party hereunder, or (iv) the failure of Debtor to perform or observe
any of the provisions hereof;
(b) To the payment or other satisfaction of any Liens, encumbrances,
or adverse claims upon or against any of the Collateral;
(c) To the reimbursement of Secured Party for the amount of any
obligations of Debtor or any Other Liable Party paid or discharged by Secured
Party pursuant to the provisions of this Agreement or the other Obligation
Documents, and of any expenses of Secured Party payable by Debtor hereunder or
under the other Obligation Documents;
(d) To the satisfaction of any other Secured Obligations;
(e) By holding the same as Collateral;
(f) To the payment of any other amounts required by applicable law
(including any provision of the UCC); and
(g) By delivery to Debtor or to whomever shall be lawfully entitled
to receive the same or as a court of competent jurisdiction shall direct.
Section 4.4. Deficiency. In the event that the proceeds of any sale,
collection or realization of or upon Collateral by Secured Party are
insufficient to pay all Secured Obligations and any other amounts to which
Secured Party is legally entitled, Debtor shall be liable for the deficiency,
together with interest thereon as provided in the governing Obligation
Documents or (if no interest is so provided) at such other rate as shall be
fixed by applicable law, together with the costs of collection and the
reasonable fees of any attorneys employed by Secured Party to collect such
deficiency.
Section 4.5. Indemnity and Expenses. In addition to, but not in
qualification or limitation of, any similar obligations under other Obligation
Documents:
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(a) Debtor will indemnify Secured Party and each Lender from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including enforcement of this Agreement), WHETHER OR NOT
SUCH CLAIMS, LOSSES AND LIABILITIES ARE IN ANY WAY OR TO ANY EXTENT OWED, IN
WHOLE OR PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED BY
OR ARISING OUT OF SUCH INDEMNIFIED PARTY'S OWN NEGLIGENCE, except to the extent
such claims, losses or liabilities are proximately caused by such indemnified
party's individual gross negligence or willful misconduct.
(b) Debtor will upon demand pay to Secured Party the amount of any
and all costs and expenses, including the reasonable fees and disbursements of
Secured Party's counsel and of any experts and agents, which Secured Party may
incur in connection with (i) the perfection and preservation of this security
interest created under this Agreement, (ii) the preparation of this Agreement
and the perfection and preservation of the security interest created under this
Agreement, (iii) the administration of this Agreement; (iv) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral; (v) the exercise or enforcement of any of the
rights of Secured Party hereunder; or (vi) the failure by Debtor to perform or
observe any of the provisions hereof, except expenses resulting from Secured
Party's gross negligence or willful misconduct.
Section 4.6. Non-Judicial Remedies. In granting to Secured Party the
power to enforce its rights hereunder without prior judicial process or
judicial hearing, Debtor expressly waives, renounces and knowingly relinquishes
any legal right which might otherwise require Secured Party to enforce its
rights by judicial process. In so providing for non-judicial remedies, Debtor
recognizes and concedes that such remedies are consistent with the usage of
trade, are responsive to commercial necessity, and are the result of a bargain
at arm's length. Nothing herein is intended, however, to prevent Secured Party
or Debtor from resorting to judicial process at its option.
Section 4.7. Other Recourse. Debtor waives any right to require
Secured Party to proceed against any other Person, to exhaust any Collateral or
other security for the Secured Obligations, or to have any Other Liable Party
joined with Debtor in any suit arising out of the Secured Obligations or this
Agreement, or pursue any other remedy in Secured Party's power. Debtor further
waives any and all notice of acceptance of this Agreement and of the creation,
modification, rearrangement, renewal or extension for any period of any of the
Secured Obligations of any Other Liable Party from time to time. Debtor
further waives any defense arising by reason of any disability or other defense
of any Other Liable Party or by reason of the cessation from any cause
whatsoever of the liability of any Other Liable Party. This Agreement shall
continue irrespective of the fact that the liability of any Other Liable Party
may have ceased and irrespective of the validity or enforceability of any other
Obligation Document to which Debtor or any Other Liable Party may be a party,
and notwithstanding any death, incapacity, reorganization, or bankruptcy of any
Other Liable Party or any other event or proceeding affecting any Other Liable
Party. Until all of the Secured Obligations shall have been paid in full,
Debtor shall have no right to subrogation and Debtor waives the right to
enforce any remedy which Secured Party or any Lender has or may hereafter have
against any Other Liable Party, and waives any benefit of and any right to
participate in any other security whatsoever now or
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hereafter held by Secured Party. Debtor authorizes Secured Party and each
Lender, without notice or demand, without any reservation of rights against
Debtor, and without in any way affecting Debtor's liability hereunder or on the
Secured Obligations, from time to time to (a) take or hold any other property
of any type from any other Person as security for the Secured Obligations, and
exchange, enforce, waive and release any or all of such other property, (b)
apply the Collateral or such other property and direct the order or manner of
sale thereof as Secured Party may in its discretion determine, (c) renew,
extend for any period, accelerate, modify, compromise, settle or release any of
the obligations of any Other Liable Party in respect to any or all of the
Secured Obligations or other security for the Secured Obligations, (d) waive,
enforce, modify, amend, restate or supplement any of the provisions of any
Obligation Document with any Person other than Debtor, and (e) release or
substitute any Other Liable Party.
Section 4.8. Voting Rights, Dividends, Etc. in Respect of Pledged
Shares; Exercise of Partnership Rights.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Debtor may exercise any and all voting and other
consensual rights pertaining to the Pledged Shares, Partnership
Rights, or any part thereof for any purpose not inconsistent with the
terms of this Agreement or any other Obligation Document; provided,
however, that Debtor will not exercise or refrain from exercising any
such right, as the case may be, if Secured Party gives it notice that,
in Secured Party's judgment, such action would have a material adverse
effect on the value of the Pledged Shares, the Partnership Rights, or
the benefits to Secured Party of its security interest hereunder;
(ii) Debtor may receive and retain any and all dividends or
interest or distributions paid in cash in respect of the Pledged
Shares and Partnership Rights to Payments; provided, however, that any
and all dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of or in exchange for, any Pledged
Shares or Partnership Rights shall be, and shall forthwith be
delivered to Secured Party to hold as, Pledged Shares or Collateral
and shall, if received by Debtor, be received in trust for the benefit
of Secured Party, be segregated from the other property or funds of
Debtor, and be forthwith delivered to Secured Party in the exact form
received with any necessary indorsement or appropriate stock powers
duly executed in blank, to be held by Secured Party as Collateral; and
(iii) Secured Party will execute and deliver (or cause to be
executed and delivered) to Debtor all such proxies and other
instruments as Debtor may reasonably request for the purpose of
enabling Debtor to exercise the voting and other rights which it is
entitled to exercise pursuant to subsection (a)(i) of this section and
to receive the dividends which it is authorized to receive and retain
pursuant to subsection (a)(ii) of this section.
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(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) all rights of Debtor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to subsection (a)(i) of this section shall, at the election
of Secured Party, cease, and all such rights shall thereupon become
vested in Secured Party which shall thereupon have the sole right to
exercise such voting and consensual rights;
(ii) all rights of Debtor to receive and retain the dividends
and interest payments or any distributions of profits or other
payments of any kind in respect of Partnership Rights to Payment which
such Pledgor would otherwise be authorized to receive and retain
pursuant to subsection (a)(ii) of this section shall, at the election
of Secured Party, cease, and all such rights shall thereupon become
vested in Secured Party which shall thereupon have the sole right to
receive and hold as Pledged Shares or Collateral such dividends and
interest payments and all such distributions and payments;
(iii) without limiting the generality of the foregoing,
Secured Party may at its option exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or
options pertaining to any of the Pledged Shares or Partnership Rights,
other than voting rights pertaining to the Pledged Shares, Partnership
Rights, or any part thereof, as if it were the absolute owner thereof,
including, without limitation, the right to exchange, in its
discretion, any and all of the Pledged Shares or Partnership Rights
upon the merger, consolidation, reorganization, recapitalization or
other adjustment of any Issuer, or upon the exercise by any Issuer of
any right, privilege or option pertaining to any Pledged Shares or
Partnership Rights, and, in connection therewith, to deposit and
deliver any and all of the Pledged Shares and Partnership Rights with
any committee, depository, transfer agent, registrar or other
designated agent upon such terms and conditions as it may determine
and any and all rights to dissolve any Issuer or to compel
distribution of any Issuer's assets; and
(iv) all dividends and interest payments and distributions of
profits and other payments of any kind in respect of Partnership
Rights to Payments which are received by Debtor contrary to the
provisions of subsection (b)(ii) of this section shall be received in
trust for the benefit of Secured Party, shall be segregated from other
funds of Debtor, and shall be forthwith paid over to Secured Party as
Pledged Shares in the exact form received, to be held by Secured Party
as Collateral.
Section 4.9. Private Sale of Pledged Shares and Partnership Rights.
Debtor recognizes that Secured Party may deem it impracticable to effect a
public sale of all or any part of the Pledged Shares or Partnership Rights and
that Secured Party may, therefore, determine to make one or more private sales
of any such securities or Partnership Rights to a restricted group of
purchasers who will be obligated to agree, among other things, to acquire such
securities or Partnership Rights for their own account, for investment and not
with a view to the distribution or resale thereof. Debtor acknowledges that
any such private sale may be at prices and on terms less favorable to the
seller than the prices and other terms which might have been obtained at a
public sale and, notwithstanding the foregoing, agrees that such private sales
shall be deemed to have been made in a commercially reasonable manner and that
Secured Party shall have no obligation to delay sale of any such securities or
Partnership Rights for the period of time
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necessary to permit the Issuer of such securities to register such securities
for, or their registration for, public sale under the Securities Act, which as
to the Partnership Rights shall be to the extent, if any, that it is applicable
thereto. Debtor further acknowledges and agrees that any offer to sell such
securities or Partnership Rights which has been (i) publicly advertised on a
bona fide basis in a newspaper or other publication of general circulation in
the financial community of New York, New York (to the extent that such an offer
may be so advertised without prior registration under the Securities Act), or
(ii) made privately in the manner described above to not less than fifteen (15)
bona fide offerees shall be deemed to involve a "public sale" for the purposes
of Section 9.504(c) of the UCC (or any successor or similar, applicable
statutory provision) as then in effect in the State of New York,
notwithstanding that such sale may not constitute a "public offering" under the
Securities Act, and that Secured Party or one or more Lenders may, in such
event, bid for the purchase of such securities or Partnership Rights.
ARTICLE V. -- Miscellaneous
Section 5.1. Notices. Any notice or communication required or
permitted hereunder shall be given as provided in the Credit Agreement.
Section 5.2. Amendments. No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed by Debtor and
Secured Party, and no waiver of any provision of this Agreement, and no consent
to any departure by Debtor therefrom, shall be effective unless it is in
writing and signed by Secured Party, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given and to the extent specified in such writing.
Section 5.3. Preservation of Rights. No failure on the part of
Secured Party or any Lender to exercise, and no delay in exercising, any right
hereunder or under any other Obligation Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude
any other or further exercise thereof or the exercise of any other right.
Neither the execution nor the delivery of this Agreement shall in any manner
impair or affect any other security for the Secured Obligations. The rights
and remedies of Secured Party provided herein and in the other Obligation
Documents are cumulative and are in addition to, and not exclusive of, any
rights or remedies provided by law. The rights of Secured Party under any
Obligation Document against any party thereto are not conditional or contingent
on any attempt by Secured Party to exercise any of its rights under any other
Obligation Document against such party or against any other Person.
Section 5.4. Unenforceability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or invalidity
without invalidating the remaining portions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
Section 5.5. Survival of Agreements. All representations and
warranties of Debtor herein, and all covenants and agreements herein shall
survive the execution and delivery of this Agreement, the execution and
delivery of any other Obligation Documents and the creation of the Secured
Obligations.
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Section 5.6. Other Liable Party. Neither this Agreement nor the
exercise by Secured Party or the failure of Secured Party to exercise any
right, power or remedy conferred herein or by law shall be construed as
relieving any Other Liable Party from liability on the Secured Obligations or
any deficiency thereon. This Agreement shall continue irrespective of the fact
that the liability of any Other Liable Party may have ceased or irrespective of
the validity or enforceability of any other Obligation Document to which Debtor
or any Other Liable Party may be a party, and notwithstanding the
reorganization, death, incapacity, bankruptcy or other event or proceeding
affecting any Other Liable Party.
Section 5.7. Binding Effect and Assignment. This Agreement creates a
continuing security interest in the Collateral and (a) shall be binding on
Debtor and its successors and permitted assigns and (b) shall inure, together
with all rights and remedies of Secured Party hereunder, to the benefit of
Secured Party and its successors, transferees and assigns. Without limiting
the generality of the foregoing, Secured Party or any Lender may (except as
otherwise provided in the Credit Agreement) pledge, assign or otherwise
transfer any or all of its rights under any or all of the Obligation Documents
to any other Person, and such other Person shall thereupon become vested with
all of the benefits in respect thereof granted to Secured Party, herein or
otherwise. None of the rights or duties of Debtor hereunder may be assigned or
otherwise transferred without the prior written consent of Secured Party.
Section 5.8. Termination. It is contemplated by the parties hereto
that there may be times when no Secured Obligations are outstanding, but
notwithstanding such occurrences, this Agreement shall remain valid and shall
be in full force and effect as to subsequent outstanding Secured Obligations.
Upon the satisfaction in full of the Secured Obligations, upon the termination
or expiration of the Credit Agreement and any other commitment of Lenders to
extend credit to Debtor, and upon written request for the termination hereof
delivered by Debtor to Secured Party, this Agreement and the security interest
created hereby shall terminate and all rights to the Collateral shall revert to
Debtor. Secured Party will, upon Debtor's request and at Debtor's expense, (a)
return to Debtor such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof; and (b) execute
and deliver to Debtor such documents as Debtor shall reasonably request to
evidence such termination.
Section 5.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State, except as
required by mandatory provisions of law and except to the extent that the
perfection and the effect of perfection or non-perfection of the security
interest created hereunder, in respect of any particular collateral, are
governed by the laws of a jurisdiction other than such State.
Section 5.10. Counterparts. This Agreement may be separately
executed in any number of counterparts, all of which when so executed shall be
deemed to constitute one and the same Agreement.
Section 5.11. "Loan Document". This Agreement is a "Loan Document",
as defined in the Credit Agreement, and, except as expressly provided herein to
the contrary, this Agreement is subject to all provisions of the Credit
Agreement governing such Loan Documents.
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<PAGE> 20
THIS WRITTEN PLEDGE 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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 21
IN WITNESS WHEREOF, Debtor has caused this Agreement to be executed
and delivered this Agreement by its officer thereunto duly authorized, as of
the date first above written.
UNITED STATES EXPLORATION, INC.
By: /s/ BRUCE D. BENSON
-------------------------------------
Bruce D. Benson, President and Chief
Executive Officer
21
<PAGE> 22
EXHIBIT A
DESCRIPTION OF INITIAL PLEDGED STOCK
<TABLE>
<CAPTION>
Pledgor Issuer Cert. No. No. of Shares
- ------- ------ --------- -------------
<S> <C> <C> <C>
United States Exploration, Inc., Performance Petroleum Co., 6 50 common
a Colorado corporation a Colorado corporation 7 50 common
United States Exploration, Inc., United States Gas Gathering 42 1000 common
a Colorado corporation Co., Inc., an Oklahoma corporation
United States Exploration, Inc., Pacific Osage, Inc., 5 10,000 common
a Colorado corporation an Oklahoma corporation
United States Exploration, Inc., Producers Service Incorporated, 8 100 common
a Colorado corporation a Kansas corporation
</TABLE>
DESCRIPTION OF PARTNERSHIP INTERESTS TO BE ASSIGNED
PURSUANT TO THE PURCHASE AND SALE AGREEMENT
<TABLE>
<CAPTION>
Pledgor Issuer Interest
- ------- ------ --------
<S> <C> <C>
United States Exploration, Inc. Weld County Partnership 91% partnership interest
</TABLE>
22
<PAGE> 23
FINANCING STATEMENT
This instrument is prepared and is intended to be a Financing
Statement complying with the formal requisites therefor as set forth in the
Uniform Commercial Code.
1. The name and address of the debtor ("Debtor") is:
United States Exploration, Inc.
1560 Broadway, Suite 1900
Denver, Colorado 80202
2. The name and address of the secured party ("Secured Party") is:
ING (U.S.) Capital Corporation, as Agent for itself
and the parties who are Lenders from time to time
under the Credit Agreement described on Exhibit B
135 East 57th Street
New York, New York 10022-2101
3. This Financing Statement covers the following types or items of
property (collectively, the "Collateral"):
All of the following, whether now or hereafter existing, which are
owned by Debtor or in which Debtor otherwise has any rights:
(a) Pledged Shares. All of the following, whether now or hereafter
existing, which are owned by Debtor or in which Debtor otherwise has any
rights: (i) the shares of stock described in Exhibit A hereto, (ii) all other
shares of stock or other equity interests now owned or hereafter acquired by
Debtor whether of the Issuers listed on Exhibit A or any other Person, (iii)
all certificates representing any such shares, all options and other rights,
contractual or otherwise, at any time existing with respect to such shares, and
(iv) all dividends, cash, instruments and other property now or hereafter
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such shares (any and all such shares, certificates, options,
rights, dividends, cash, instruments and other property, collectively, the
"Pledged Shares").
(b) Partnership Rights. All of the following (collectively, the
"Partnership Rights"), whether now or hereafter existing, which are owned by
Debtor or in which Debtor otherwise has any rights:
(i) all interests and rights of Debtor arising under or
pursuant to the Purchase and Sale Agreement dated April 9, 1998
between Debtor and Union Pacific Resources Company ("Union Pacific")
in respect of the Partnership, including without limitation any right
to receive an assignment from Union Pacific of Union Pacific's
interest in the Partnership, including without limitation any right to
receive an assignment from Union Pacific of Union Pacific's interest
in the Partnership and all interests and rights of Debtor in and to
the Partnership if and when such an assignment is made;
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<PAGE> 24
(ii) all proceeds, interest, profits, and other payments or
rights to payment attributable to Debtor's interests in the
Partnership, and all distributions, cash, instruments and other
property now or hereafter received, receivable or otherwise made with
respect to or in exchange for any interest of Debtor in the
Partnership, including interim distributions, returns of capital, loan
repayments, and payments made in liquidation of the Partnership, and
whether or not the same arise or are payable under any partnership
agreement or certificate forming the Partnership or any other
agreement governing the Partnership or the relations among the
partners in the Partnership (any and all such proceeds, interest,
profits, payments, rights to payment, distributions, cash,
instruments, other property, interim distributions, returns of
capital, loan repayments, and payments made in liquidation,
collectively, the "Partnership Rights to Payments", and any and all
such partnership agreements, certificates, and other agreements,
collectively, the "Partnership Agreements"); and
(iii) all other interests and rights of Debtor in the
Partnership, whether under the Partnership Agreements or otherwise,
including without limitation any right to cause the dissolution of the
Partnership or to appoint or nominate a successor to Debtor as a
partner in the Partnership (all such other interests and rights,
collectively, the "Other Partnership Rights").
(c) Other Collateral. All indebtedness, notes, bonds, convertible
securities or other obligations of any Issuer or any other Person and all other
general intangibles and accounts.
(d) Proceeds. All proceeds of any and all of the foregoing
Collateral and, to the extent not otherwise included, all payments under
insurance (whether or not Secured Party is the loss payee thereof) or under any
indemnity, warranty or guaranty by reason of loss to or otherwise with respect
to any of the foregoing Collateral.
In each case, the foregoing shall be covered by this Financing Statement,
whether Debtor's ownership or other rights therein are presently held or
hereafter acquired and however Debtor's interests therein may arise or appear
(whether by ownership, security interest, claim or otherwise).
As used above, the following definitions have the following meanings:
"Issuer" means any issuer of Pledged Shares and any successor of such
Issuer.
"Partnership" means the Weld County Partnership, a Colorado general
partnership formed under and governed by the Weld County Partnership
Agreement dated December 31, 1982 by and between Champlin Petroleum
Company and True Oil Company, and any successors of any such
partnerships.
"Person" means an individual, corporation, partnership, association,
joint stock company, trust, unincorporated organization or joint
venture, or a court or governmental unit or any agency or subdivision
thereof, or any other legally recognizable entity.
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<PAGE> 25
4. This Financing Statement is presented for filing to the Secretary
of State of Colorado.
UNITED STATES EXPLORATION, INC.
By:
-------------------------------------
Bruce D. Benson, President and Chief
Executive Officer
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<PAGE> 26
EXHIBIT B
LENDERS
Credit Agreement dated May 15, 1998 among United States Exploration, Inc.,
jointly and severally as Borrower, ING (U.S.) Capital Corporation, as Agent and
Certain Financial Institutions as Lenders.
ING (U.S.) Capital Corporation
135 East 57th Street
New York, New York 10022-2101
<PAGE> 1
EXHIBIT 10.5
GUARANTY
THIS GUARANTY is made as of May 15, 1998, by each of the undersigned
(each individually a "Guarantor" and collectively, "Guarantors"), in favor of
ING (U.S.) CAPITAL CORPORATION, in its capacity as agent for itself and certain
other Lenders, as such term is defined in the Credit Agreement described below
(in such capacity, "Agent").
RECITALS:
1. UNITED STATES EXPLORATION, INC., a Colorado corporation
("Borrower"), Agent, and the other financial institutions named therein as
Lenders ("Lenders") are parties to a Credit Agreement of even date herewith
(the "Credit Agreement").
2. Pursuant to the Credit Agreement, Borrower has executed in favor
of the initial Lender a certain promissory note payable to the order of the
initial Lender in the aggregate principal amount of $35,000,000 (such
promissory notes, as from time to time amended, and all promissory notes given
in substitution, renewal or extension therefor or thereof, in whole or in part,
being herein collectively called the "Note").
3. It is a condition precedent to Lenders' obligations to advance
funds pursuant to the Credit Agreement that each Guarantor shall execute and
deliver to Agent a satisfactory guaranty of Borrower's obligations under the
Note and the Credit Agreement.
4. Borrower, owns directly, or indirectly through one or more
subsidiaries, one hundred percent (100%) of the outstanding capital stock or
other ownership interests of each Guarantor.
NOW, THEREFORE, in consideration of the premises, of the benefits
which will inure to Guarantors from Lenders' advances of funds to Borrower
under the Credit Agreement, and of Ten Dollars and other good and valuable
consideration, the receipt and sufficiency of all of which are hereby
acknowledged, and in order to induce Lenders to advance funds under the Credit
Agreement, each Guarantor hereby agrees with Agent, for the benefit of Agent
and Lenders as follows:
AGREEMENTS
Section 1. Definitions. Reference is hereby made to the Credit
Agreement for all purposes. All terms used in this Guaranty which are defined
in the Credit Agreement and not otherwise defined herein shall have the same
meanings when used herein. All references herein to any Obligation Document,
Loan Document, or other document or instrument refer to
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<PAGE> 2
the same as from time to time amended, supplemented or restated. As used
herein the following terms shall have the following meanings:
"Agent" means the Person who, at the time in question, is the "Agent"
under the Credit Agreement. Whenever there is only one Lender under the Credit
Agreement, "Agent" shall also refer to such Lender in such capacity as the only
Lender.
"Lenders" means ING (U.S.) Capital Corporation and all other Persons
who at any time are "Lenders" under the Credit Agreement.
"Obligations" means collectively all of the indebtedness, obligations,
and undertakings which are guaranteed by Guarantor and described in subsections
(a) and (b) of Section 2.
"Obligation Documents" means this Guaranty, the Note, the Credit
Agreement, the Loan Documents, all other documents and instruments under, by
reason of which, or pursuant to which any or all of the Obligations are
evidenced, governed, secured, or otherwise dealt with, and all other documents,
instruments, agreements, certificates, legal opinions and other writings
heretofore or hereafter delivered in connection herewith or therewith.
"Obligors" means Borrower, Guarantor and any other endorsers,
guarantors or obligors, primary or secondary, of any or all of the Obligations.
"Security" means any rights, properties, or interests of Agent or
Lenders, under the Obligation Documents or otherwise, which provide recourse or
other benefits to Agent or Lenders in connection with the Obligations or the
non-payment or non-performance thereof, including without limitation collateral
(whether real or personal, tangible or intangible) in which Agent or Lenders
have rights under or pursuant to any Obligation Documents, guaranties of the
payment or performance of any Obligation, bonds, surety agreements, keep-well
agreements, letters of credit, rights of subrogation, rights of offset, and
rights pursuant to which other claims are subordinated to the Obligations.
Section 2. Guaranty.
(a) Each Guarantor hereby irrevocably, absolutely, and
unconditionally jointly and severally guarantees to Agent and each Lender the
prompt, complete, and full payment when due, and no matter how the same shall
become due, of:
(i) All indebtedness and other obligations now or
hereafter incurred or arising pursuant to or permitted by the
provisions of the Note, the Credit Agreement, or any other instrument
now or hereafter evidencing, governing, guaranteeing or securing the
Obligations or any part thereof or otherwise executed in connection
with any advance or loan evidenced or governed by the Note or the
Credit Agreement;
(ii) All present or future "Hedging Obligations" incurred
or owing by Borrower to any one or more members of the "Credit Group,"
as hereinafter defined; as
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<PAGE> 3
used in this paragraph and the following paragraph (iii): "Credit
Group" means ING (U.S.) Capital Corporation, any other party from time
to time constituting a Lender under the Credit Agreement, and/or any
affiliate of any such party, and "Hedging Obligations" means any
indebtedness or obligations, however arising, to make payments or take
actions under or pursuant to any present or future agreement
(including any individual agreement or any master agreement and the
various transactions and confirmations made thereunder) governing any
swap, put, call, cap, floor or collar transaction, or other type of
agreement or transaction relating to interest rates, currency exchange
rates, or the price or delivery (at any one or more locations or in
any one or more markets) of crude oil, natural gas, natural gas
liquids, petroleum products, other hydrocarbons, agricultural
products, precious metals, stocks or bonds or indices thereof, or any
other commodity, contract or other item of property traded in any
market, and all interest thereon and expenses and other amounts
payable in connection therewith (any agreement or document, however
entitled or described, evidencing or governing and Hedging Obligations
owing by Borrower to any one or more members of the Credit Group being
herein called a "Hedging Agreement");
(iii) All present or future indebtedness or obligations
incurred or owing to any one or more members of the Credit Group by
Borrower, however arising, to make reimbursements or similar payments
to any one or more members of the Credit Group as a result of or
relating to any payments made by any one or more members of the Credit
Group to any third person on account of or for the benefit of
Borrower, including without limitation any obligation to reimburse any
one or more members of the Credit Group for payments it makes under or
pursuant to any letter of credit, bond, guaranty, or indemnity
agreement issued or made for the account of or for the benefit of
Borrower (such as a letter of credit, guaranty or indemnity by any one
or more members of the Credit Group of any Hedging Obligations owed by
Borrower to a third person) and all interest thereon and expenses and
other amounts payable in connection therewith;
(iv) Any and all other indebtedness or liabilities which
Borrower may at any time owe to Agent or any Lender, whether incurred
heretofore or hereafter or concurrently herewith, voluntarily or
involuntarily, whether owed alone or with others, whether fixed,
contingent, absolute, inchoate, liquidated or unliquidated, whether
such indebtedness or liability arises by notes, discounts, overdrafts,
open account indebtedness or in any other manner whatsoever, and
including interest, attorneys' fees and collection costs as may be
provided by law or in any instrument evidencing any such indebtedness
or liability; and
(v) All renewals, extensions, amendments, modifications,
supplements, or restatements of or substitutions for any of the
foregoing.
Without limiting the generality of the foregoing, each Guarantor's liability
hereunder shall extend to and include all post-petition interest, expenses, and
other duties and liabilities of Borrower described above in this subsection
(a), or below in the following subsection (b), which would be owed by Borrower
but for the fact that they are unenforceable or not allowable
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<PAGE> 4
due to the existence of a bankruptcy, reorganization, or similar proceeding
involving Borrower.
(b) Each Guarantor hereby irrevocably, absolutely, and
unconditionally jointly and severally guarantees to Agent and each Lender the
prompt, complete and full performance, when due, and no matter how the same
shall become due, of all obligations and undertakings of Borrower to Agent or
such Lender under, by reason of, or pursuant to any of the Obligation
Documents.
(c) If Borrower shall for any reason fail to pay any Obligation, as
and when such Obligation shall become due and payable, whether at its stated
maturity, as a result of the exercise of any power to accelerate, or otherwise,
Guarantors will, forthwith upon demand by Agent, pay such Obligation in full to
Agent for the benefit of Agent or the Lender to whom such Obligation is owed.
If Borrower shall for any reason fail to perform promptly any Obligation,
Guarantors will, forthwith upon demand by Agent, cause such Obligation to be
performed or, if specified by Agent, provide sufficient funds, in such amount
and manner as Agent shall in good faith determine, for the prompt, full and
faithful performance of such Obligation by Agent or such other Person as Agent
shall designate.
(d) If either Borrower or any Guarantor fails to pay or perform any
Obligation as described in the immediately preceding subsections (a), (b), or
(c) Guarantors will incur the additional obligation to pay to Agent, and
Guarantors will forthwith upon demand by Agent pay to Agent, the amount of any
and all expenses, including fees and disbursements of Agent's counsel and of
any experts or Agents retained by Agent, which Agent may incur as a result of
such failure.
(e) As between each Guarantor and Agent or Lenders, this Guaranty
shall be considered a primary and liquidated liability of each Guarantor.
(f) The liability of each Guarantor hereunder shall be limited to the
maximum amount of liability that can be incurred without rendering this
Guaranty, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount.
Section 3. Unconditional Guaranty.
(a) No action which Agent or any Lender may take or omit to take in
connection with any of the Obligation Documents, any of the Obligations (or any
other indebtedness owing by Borrower to Agent or any Lender), or any Security,
and no course of dealing of Agent or any Lender with any Obligor or any other
Person, shall release or diminish any Guarantor's obligations, liabilities,
agreements or duties hereunder, affect this Guaranty in any way, or afford any
Guarantor any recourse against Agent or any Lender, regardless of whether any
such action or inaction may increase any risks to or liabilities of Agent or
any Lender or any Obligor or increase any risk to or diminish any safeguard of
any Security. Without limiting
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<PAGE> 5
the foregoing, each Guarantor hereby expressly agrees that Agent and Lenders
may, from time to time, without notice to or the consent of such Guarantor, do
any or all of the following:
(i) Amend, change or modify, in whole or in part, any one or
more of the Obligation Documents and give or refuse to give any
waivers or other indulgences with respect thereto.
(ii) Neglect, delay, fail, or refuse to take or prosecute any
action for the collection or enforcement of any of the Obligations, to
foreclose or take or prosecute any action in connection with any
Security or Obligation Document, to bring suit against any Obligor or
any other Person, or to take any other action concerning the
Obligations or the Obligation Documents.
(iii) Accelerate, change, rearrange, extend, or renew the
time, rate, terms, or manner for payment or performance of any one or
more of the Obligations (whether for principal, interest, fees,
expenses, indemnifications, affirmative or negative covenants, or
otherwise).
(iv) Compromise or settle any unpaid or unperformed
Obligation or any other obligation or amount due or owing, or claimed
to be due or owing, under any one or more of the Obligation Documents.
(v) Take, exchange, amend, eliminate, surrender, release, or
subordinate any or all Security for any or all of the Obligations,
accept additional or substituted Security therefor, and perfect or
fail to perfect Agent's or Lenders' rights in any or all Security.
(vi) Discharge, release, substitute or add Obligors.
(vii) Apply all monies received from Obligors or others, or
from any Security for any of the Obligations, as Agent or Lenders may
determine to be in their best interest, without in any way being
required to marshall Security or assets or to apply all or any part of
such monies upon any particular Obligations.
(b) No action or inaction of any Obligor or any other Person, and no
change of law or circumstances, shall release or diminish any Guarantor's
obligations, liabilities, agreements, or duties hereunder, affect this Guaranty
in any way, or afford any Guarantor any recourse against Agent or any Lender.
Without limiting the foregoing, the obligations, liabilities, agreements, and
duties of Guarantors under this Guaranty shall not be released, diminished,
impaired, reduced, or affected by the occurrence of any or all of the following
from time to time, even if occurring without notice to or without the consent
of Guarantors:
(i) Any voluntary or involuntary liquidation, dissolution,
sale of all or substantially all assets, marshalling of assets or
liabilities, receivership, conservatorship, assignment for the benefit
of creditors, insolvency, bankruptcy, reorganization, arrangement, or
composition of any Obligor or any other proceedings
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<PAGE> 6
involving any Obligor or any of the assets of any Obligor under laws
for the protection of debtors, or any discharge, impairment,
modification, release, or limitation of the liability of, or stay of
actions or lien enforcement proceedings against, any Obligor, any
properties of any Obligor, or the estate in bankruptcy of any Obligor
in the course of or resulting from any such proceedings.
(ii) The failure by Agent or any Lender to file or enforce a
claim in any proceeding described in the immediately preceding
subsection (i) or to take any other action in any proceeding to which
any Obligor is a party.
(iii) The release by operation of law of any Obligor from any
of the Obligations or any other obligations to Agent or any Lender.
(iv) The invalidity, deficiency, illegality, or
unenforceability of any of the Obligations or the Obligation
Documents, in whole or in part, any bar by any statute of limitations
or other law of recovery on any of the Obligations, or any defense or
excuse for failure to perform on account of force majeure, act of God,
casualty, impossibility, impracticability, or other defense or excuse
whatsoever.
(v) The failure of any Obligor or any other Person to sign
any guaranty or other instrument or agreement within the contemplation
of any Obligor, Agent or any Lender.
(vi) The fact that any Guarantor may have incurred directly
part of the Obligations or is otherwise primarily liable therefor.
(vii) Without limiting any of the foregoing, any fact or
event (whether or not similar to any of the foregoing) which in the
absence of this provision would or might constitute or afford a legal
or equitable discharge or release of or defense to a guarantor or
surety other than the actual payment and performance by Guarantors
under this Guaranty.
(c) Agent and Lenders may invoke the benefits of this Guaranty before
pursuing any remedies against any Obligor or any other Person and before
proceeding against any Security now or hereafter existing for the payment or
performance of any of the Obligations. Agent and Lenders may maintain an
action against any Guarantor on this Guaranty without joining any other Obligor
therein and without bringing a separate action against any other Obligor.
(d) If any payment to Agent or any Lender by any Obligor is held to
constitute a preference or a voidable transfer under applicable state or
federal laws, or if for any other reason Agent or any Lender is required to
refund such payment to the payor thereof or to pay the amount thereof to any
other Person, such payment to Agent or such Lender shall not constitute a
release of any Guarantor from any liability hereunder, and each Guarantor
agrees to pay such amount to Agent or such Lender on demand and agrees and
acknowledges that this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent
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<PAGE> 7
of any such payment or payments. Any transfer by subrogation which is made as
contemplated in Section 6 prior to any such payment or payments shall
(regardless of the terms of such transfer) be automatically voided upon the
making of any such payment or payments, and all rights so transferred shall
thereupon revert to and be vested in Agent and Lenders.
(e) This is a continuing guaranty and shall apply to and cover all
Obligations and renewals and extensions thereof and substitutions therefor from
time to time.
Section 4. Waiver. Each Guarantor hereby waives, with respect to the
Obligations, this Guaranty, and the other Obligation Documents:
(a) notice of the incurrence of any Obligation by Borrower, and
notice of any kind concerning the assets, liabilities, financial condition,
creditworthiness, businesses, prospects, or other affairs of Borrower (it being
understood and agreed that: (i) each Guarantor shall take full responsibility
for informing itself of such matters, (ii) neither Agent nor any Lender shall
have any responsibility of any kind to inform any Guarantor of such matters,
and (iii) Agent and Lenders are hereby authorized to assume that each
Guarantor, by virtue of its relationships with Borrower which are independent
of this Guaranty, has full and complete knowledge of such matters whenever
Lenders extend credit to Borrower or take any other action which may change or
increase such Guarantor's liabilities or losses hereunder).
(b) notice that Agent, any Lender, any Obligor, or any other Person
has taken or omitted to take any action under any Obligation Document or any
other agreement or instrument relating thereto or relating to any Obligation.
(c) notice of acceptance of this Guaranty.
(d) demand, presentment for payment, and notice of demand, dishonor,
nonpayment, or nonperformance.
(e) notice of intention to accelerate, notice of acceleration,
protest, notice of protest, notice of any exercise of remedies (as described in
the following Section 5 or otherwise), and all other notices of any kind
whatsoever.
Section 5. Exercise of Remedies. Agent, at the direction of Majority
Lenders, shall have the right to enforce, from time to time, in any order and
at Majority Lender's sole discretion, any rights, powers and remedies which
Agent may have under the Obligation Documents or otherwise, including judicial
foreclosure, the exercise of rights of power of sale, the taking of a deed or
assignment in lieu of foreclosure, the appointment of a receiver to collect
rents, issues and profits, the exercise of remedies against personal property,
or the enforcement of any assignment of leases, rentals, oil or gas production,
or other properties or rights, whether real or personal, tangible or
intangible; and each Guarantor shall be liable to Agent and each Lender
hereunder for any deficiency resulting from the exercise by Agent of any such
right or remedy even though any rights which Guarantors may have against
Borrower or others may be destroyed or diminished by exercise of any such right
or remedy. No failure
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<PAGE> 8
on the part of Agent or any Majority Lenders to exercise, and no delay in
exercising, any right hereunder or under any other Obligation Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right preclude any other or further exercise thereof or the exercise of any
other right. The rights, powers and remedies of Agent provided herein and in
the other Obligation Documents are cumulative and are in addition to, and not
exclusive of, any other rights, powers or remedies provided by law or in
equity. The rights of Agent hereunder are not conditional or contingent on any
attempt by Agent to exercise any of its rights under any other Obligation
Document against any Obligor or any other Person.
Section 6. Limited Subrogation. Until all of the Obligations have
been paid and performed in full, no Guarantor shall have any right to exercise
any right of subrogation, reimbursement, indemnity, exoneration, contribution
or any other claim which it may now or hereafter have against or to any Obligor
or any Security in connection with this Guaranty, and each Guarantor hereby
waives any rights to enforce any remedy which such Guarantor may have against
Borrower and any right to participate in any Security until such time. If any
amount shall be paid to any Guarantor on account of any such subrogation or
other rights, any such other remedy, or any Security at any time when all of
the Obligations and all other expenses guaranteed pursuant hereto shall not
have been paid in full, such amount shall be held in trust for the benefit of
Lenders, shall be segregated from the other funds of such Guarantor and shall
forthwith be paid over to Agent to be held by Agent as collateral for, or then
or at any time thereafter applied in whole or in part by Agent against, all or
any portion of the Obligations, whether matured or unmatured, in such order as
Agent shall elect. If any Guarantor shall make payment to Agent of all or any
portion of the Obligations and if all of the Obligations shall be finally paid
in full, Agent will, at such Guarantor's request and expense, execute and
deliver to such Guarantor (without recourse, representation or warranty)
appropriate documents necessary to evidence the transfer by subrogation to such
Guarantor of an interest in the Obligations resulting from such payment by such
Guarantor; provided that such transfer shall be subject to Section 3(d) above
and that without the consent of Agent (which Agent may withhold in its
discretion) such Guarantor shall not have the right to be subrogated to any
claim or right against any Obligor which has become owned by Agent or any
Lender, whose ownership has otherwise changed in the course of enforcement of
the Obligation Documents, or which Agent otherwise has released or wishes to
release from its Obligations.
Section 7. Successors and Assigns. No Guarantor's rights or
obligations hereunder may be assigned or delegated, but this Guaranty and such
obligations shall pass to and be fully binding upon the successors of each
Guarantor, as well as each Guarantor. This Guaranty shall apply to and inure
to the benefit of Agent and Lenders and their successors or assigns. Without
limiting the generality of the immediately preceding sentence, Agent and each
Lender may, if in accordance with the terms and conditions set forth in the
Credit Agreement, assign, grant a participation in, or otherwise transfer any
Obligation held by it or any portion thereof, and Agent and each Lender may
assign or otherwise transfer its rights or any portion thereof under any
Obligation Document, to any other Person, and such other Person shall thereupon
become vested with all of the benefits in respect thereof granted to Agent or
such Lender
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hereunder unless otherwise expressly provided by Agent or such Lender in
connection with such assignment or transfer.
Section 8. Subordination. Each Guarantor hereby subordinates and
makes inferior to the Obligations any and all indebtedness now or at any time
hereafter owed by Borrower to any Guarantor. Each Guarantor agrees that after
the occurrence of any Default or Event of Default it will neither permit
Borrower to repay such indebtedness or any part thereof nor accept payment from
Borrower of such indebtedness or any part thereof without the prior written
consent of Agent and Lenders. If any Guarantor receives any such payment
without the prior written consent of Agent and Lenders, the amount so paid
shall be held in trust for the benefit of Lenders, shall be segregated from the
other funds of such Guarantor, and shall forthwith be paid over to Agent to be
held by Agent as collateral for, or then or at any time thereafter applied in
whole or in part by Agent against, all or any portion of the Obligations,
whether matured or unmatured, in such order as Agent shall elect.
Section 9. Representations and Warranties. Each Guarantor hereby
represents and warrants to Lender as follows:
(a) The Recitals at the beginning of this Guaranty are true and
correct in all respects.
(b) Each Guarantor is a corporation duly organized, validly existing
and in good standing under the laws of the state of its or incorporation as set
forth opposite its name on the signature page to this Guaranty; and each
Guarantor has all requisite corporate power and authority to execute, deliver
and perform this Guaranty.
(c) The execution, delivery and performance by each Guarantor of this
Guaranty have been duly authorized by all necessary corporate action and do not
and will not contravene its certificate or articles of incorporation or bylaws.
(d) The execution, delivery and performance by each Guarantor of this
Guaranty do not and will not contravene any law or governmental regulation or
any contractual restriction binding on or affecting such Guarantor or any of
its Affiliates or properties, and do not and will not result in or require the
creation of any lien, security interest or other charge or encumbrance upon or
with respect to any of its properties.
(e) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or other regulatory body or third
party is required for the due execution, delivery and performance by any
Guarantor of this Guaranty.
(f) This Guaranty is a legal, valid and binding obligation of each
Guarantor, enforceable against such Guarantor in accordance with its terms
except as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights.
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(g) Except as disclosed in the Credit Agreement, there is no action,
suit or proceeding pending or, to the knowledge of any Guarantor, threatened
against or otherwise affecting any Guarantor before any court, arbitrator or
governmental department, commission, board, bureau, agency or instrumentality
which may materially and adversely affect any Guarantor's financial condition
or its ability to perform its obligations hereunder.
Section 10. No Oral Change. No amendment of any provision of this
Guaranty shall be effective unless it is in writing and signed by Guarantors
and Lenders, and no waiver of any provision of this Guaranty, and no consent to
any departure by any Guarantor therefrom, shall be effective unless it is in
writing and signed by Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 11. Invalidity of Particular Provisions. If any term or
provision of this Guaranty shall be determined to be illegal or unenforceable
all other terms and provisions hereof shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable law.
Section 12. Headings and References. The headings used herein are
for purposes of convenience only and shall not be used in construing the
provisions hereof. The words "this Guaranty," "this instrument," "herein,"
"hereof," "hereby" and words of similar import refer to this Guaranty as a
whole and not to any particular subdivision unless expressly so limited. The
phrases "this section" and "this subsection" and similar phrases refer only to
the subdivisions 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 13. Term. This Guaranty shall be irrevocable until all of
the Obligations have been completely and finally paid and performed, no Lender
has any obligation to make any loans or other advances to Borrower, and all
obligations and undertakings of Borrower under, by reason of, or pursuant to
the Obligation Documents have been completely performed, and this Guaranty is
thereafter subject to reinstatement as provided in Section 3(d). All extensions
of credit and financial accommodations heretofore or hereafter made by Agent or
Lenders to Borrower shall be conclusively presumed to have been made in
acceptance hereof and in reliance hereon.
Section 14. Notices. Any notice or communication required or
permitted hereunder shall be given as provided in the Credit Agreement
Section 15. Limitation on Interest. Agent, Lenders and Guarantors
intend to contract in strict compliance with applicable usury law from time to
time in effect, and the provisions of the Credit Agreement limiting the
interest for which any Guarantor is obligated are expressly incorporated herein
by reference.
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Section 16. Loan Document. This Guaranty is a Loan Document, as
defined in the Credit Agreement, and is subject to the provisions of the Credit
Agreement governing Loan Documents. Each Guarantor hereby ratifies, confirms
and approves the Credit Agreement and the other Loan Documents and, in
particular, any provisions thereof which relate to such Guarantor.
Section 17. Counterparts. This Guaranty may be executed in any
number of counterparts, each of which when so executed shall be deemed to
constitute one and the same Guaranty.
SECTION 18. GOVERNING LAW. THIS GUARANTY IS TO BE PERFORMED IN THE
STATE OF NEW YORK AND SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS ITSELF TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF SUCH STATE. EACH
GUARANTOR AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW
OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT
TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON
THE BASIS OF FORUM NON CONVENIENS. IN FURTHERANCE OF THE FOREGOING, EACH
GUARANTOR HEREBY IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM,
1633 BROADWAY, NEW YORK, NEW YORK, AS AGENT OF EACH GUARANTOR TO RECEIVE
SERVICE OF ALL PROCESS BROUGHT AGAINST EACH GUARANTOR WITH RESPECT TO ANY SUCH
PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY EACH GUARANTOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED BY LAW,
BE SENT BY REGISTERED MAIL TO EACH GUARANTOR AT ITS ADDRESS SET FORTH BELOW AND
BY REGULAR MAIL, REGISTERED MAIL COURIER OR MESSENGER TO EACH GUARANTOR AT ITS
ADDRESS SET FORTH BELOW, BUT THE FAILURE OF EACH GUARANTOR TO RECEIVE SUCH
COPIES SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID.
EACH GUARANTOR SHALL FURNISH TO AGENT A CONSENT OF CT CORPORATION SYSTEM
AGREEING TO ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF AGENT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF AGENT TO BRING PROCEEDINGS
AGAINST EACH GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY
REASON CT CORPORATION SHALL RESIGN OR OTHERWISE CEASE TO ACT AS EACH
GUARANTOR'S AGENT, EACH GUARANTOR HEREBY IRREVOCABLY AGREES TO (a) IMMEDIATELY
DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO AGENT TO SERVE IN SUCH CAPACITY
AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CT
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CORPORATION SYSTEM FOR ALL PURPOSES HEREOF AND (b) PROMPTLY DELIVER TO AGENT
THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO AGENT) OF SUCH NEW
AGENT AGREEING TO SERVE IN SUCH CAPACITY.
THIS WRITTEN GUARANTY 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.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each Guarantor has executed and delivered this
Guaranty as of the date first written above.
PERFORMANCE PETROLEUM CO., A
COLORADO CORPORATION
By: /s/ Bruce D. Benson
----------------------------------------
Name: Bruce D. Benson
Title: President
UNITED STATES GAS GATHERING CO., INC., A
DELAWARE CORPORATION
By: /s/ Bruce D. Benson
----------------------------------------
Name: Bruce D. Benson
Title: President
PACIFIC OSAGE, INC., AN OKLAHOMA CORPORATION
By: /s/ Bruce D. Benson
----------------------------------------
Name: Bruce D. Benson
Title: President
PRODUCERS SERVICE INCORPORATED, A
KANSAS CORPORATION
By: /s/ Bruce D. Benson
----------------------------------------
Name: Bruce D. Benson
Title: President
Address for Notices:
1560 Broadway, Suite 1900
Denver, Colorado 80202
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