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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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):
DECEMBER 16, 1998
TOREADOR ROYALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 0-2517 75-0991164
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
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4809 COLE AVENUE, SUITE 108
DALLAS, TEXAS 75205
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 369-0080
530 PRESTON COMMONS WEST
8117 PRESTON ROAD
DALLAS, TEXAS 75225
(FORMER NAME OR FORMER ADDRESS, IF CHANGE SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 16, 1998 Tormin, Inc. ("Tormin"), a wholly-owned subsidiary
of Toreador Royalty Corporation ("Toreador"), purchased certain oil, gas and
other mineral and royalty interests located in Alabama, Louisiana and
Mississippi (the "Assets") from Howell Petroleum Corporation ("Howell") pursuant
to a Purchase and Sale Agreement (the "Howell Agreement") dated October 28,
1998, by and between Howell and J.T. Philip Company ("JTP"). The purchase price
(the "Purchase Price") for the Assets was $13 million. The Assets are comprised
of approximately 1,775,000 gross mineral acres and 876,000 net mineral acres.
Producing interests, which make up approximately 2% of the total net acres, are
held in approximately 400 oil and gas wells. As a result of the acquisition,
which is effective November 1, 1998, Toreador estimates total proved reserves
acquired at approximately 7.95 billion cubic feet equivalents (BCFE). These
reserves are a mix of approximately 74% gas and 26% oil. The Purchase Price was
determined based on an arms-length negotiation between JTP and Howell. Tormin
acquired JTP's rights under the Howell Agreement through an assignment of JTP's
rights. Tormin paid JTP a transaction fee in respect to this transaction.
A portion of the Purchase Price was financed through the issuance and
sale of $4 million of Toreador's Series A Convertible Preferred Stock (the
"Preferred Stock") which was sold pursuant to a Securities Purchase Agreement
(the "SPA") effective December 16, 1998, by and between Toreador and the persons
party thereto. In conjunction with the SPA, the parties entered into a
Registration Rights Agreement (the "RRA") effective December 16, 1998, among
Toreador and the persons party thereto. The Purchase Price for the Assets was
funded with the Company's cash ($4.4 million) and loans from Compass Bank,
Dallas ($8.6 million).
SUMMARY OF THE HOWELL AGREEMENT. The following summary of the material
provisions of the Howell Agreement is not intended to be complete and is subject
to, and qualified in its entirety by reference to all of the provisions of such
agreement, a copy of which is filed as an exhibit to this Current Report on Form
8-K.
Purchase and Sale. Pursuant to the Howell Agreement, Tormin purchased
certain oil, gas and other mineral and royalty interests and assumed certain
obligations related to the Assets. Tormin paid $13 million for the Assets,
subject to certain adjustments.
Representations and Warranties. Howell made certain customary
representations and warranties related to corporate existence and authority.
Howell also represented that it was not aware of environmental obligations,
legal claims or threats thereof or third party claims to assets such as liens or
pledges. Howell also made certain additional representations and warranties as
well.
Tormin also made certain customary representations and warranties.
Title and Other Matters. Under the Howell Agreement, Howell provided a
special warranty of title to the Assets.
Net Profits Interest. After Tormin receives $13 million in net revenue
from the Assets, Howell will be entitled to 10% of the subsequent net profits
from the Assets. The net profits interest of Howell is not an interest in the
Assets, nor does it encumber the Assets, but is
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contractual in nature. After "payout," Howell will be entitled to quarterly
payments equal to 10% of Tormin's net profits from the Assets.
Assumption and Indemnity. Howell acquired the Assets from the Federal
Intermediate Credit Bank of Jackson in 1993. The Assets consist of royalty
interests and non-producing mineral interests, and even though the owners of
these type interests are not generally responsible for the remediation of
environmental conditions or the plugging and abandonment of oil and gas wells,
the Federal Intermediate Credit Bank of Jackson required Howell to assume any
environmental and plugging obligations that might be the responsibility of the
bank. Howell represented to Tormin that Howell was not aware of any such
environmental or plugging obligations, but like the bank, Howell insisted that
Tormin assume and indemnify against any such environmental or plugging
obligations that might be the responsibility of Howell. Tormin also agreed to
indemnify Howell for all obligations that arise from ownership or operation of
the Assets on or after November 1, 1998. Howell agreed to indemnify Tormin for
all claims arising out of the accounting or payment of proceeds of production
with respect to the Assets before November 1, 1998.
DESCRIPTION OF THE SPA. The following summary of the material
provisions of the SPA is not intended to be a complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of such
agreement, a copy of which is filed as an exhibit to this Current Report on Form
8-K.
Purchase and Sale of Preferred Shares. Pursuant to the SPA, Toreador
sold 160,000 shares of its Preferred Stock for $25.00 per share (aggregate
proceeds of $4 million). The shares were issued to certain accredited investors
(including four directors of Toreador) in a private placement conducted pursuant
to Section 4(2) under the Securities Act of 1933 (the "1933 Act") and Regulation
D promulgated under the 1933 Act. In addition to approval of the issuance of the
Preferred Stock by the full Board of Directors of Toreador, a Special Committee
of disinterested members of the Board of Directors unanimously approved the
terms of this sale. The Special Committee relied in part upon the opinion of an
investment banker as to the fairness of the terms to Toreador from a financial
point of view.
Representation and Warranties. Toreador and the purchasers each made
representations to the other customary for a transaction of this type.
Covenants of the Company. Under the SPA, Toreador covenants to (1)
maintain its corporate existence, (2) provide certain information, (3) file a
Form D and obtain necessary "blue sky" exemptions, (4) maintain its filing
status and timely file SEC reports, (5) reserve an appropriate amount of
Toreador Common Stock for conversion, (6) not use the sale proceeds for insider
distributions and (7) qualify for and maintain listing on NASDAQ for Toreador's
Common Stock.
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT. The following summary of
the RRA is not intended to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of such agreement, a copy of
which is filed as an exhibit to this Current Report on Form 8-K.
Demand Registration. Under the RRA, within 90 days of a demand by
holders of at least 26% of the outstanding Preferred Stock, Toreador must
register its Common Stock into
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which the Preferred Stock is convertible on Form S-3 on a "shelf" registration,
if available. The holders of Preferred Stock can demand registration only once.
Toreador must maintain the effectiveness of the registration until all shares of
Common Stock are sold or saleable without registration. Under the RRA, Toreador
agrees to bear the expenses of registration.
Piggyback Registration. Under the RRA, if Toreador proposes a public
offering for cash (other than for an employee stock plan, a business combination
or certain other exceptions), it must also register the Common Stock into which
the Preferred Stock is convertible upon request of the holders of Preferred
Stock and certain other conditions. Toreador can also register less than all of
the Common Stock underlying the Preferred Stock if the managing underwriter
insists on limiting the number of shares sold due to market conditions.
Obligations of the Company. Under the RRA, Toreador is obligated to (1)
prepare and file amendments and supplements to its registration statement where
necessary, (2) furnish each holder of Preferred Stock with copies of the
prospectus, (3) register or qualify under "blue sky" laws and (4) perform
various other acts to ensure compliance with state and federal securities laws
and provide the holders of Preferred Stock opportunity to sell their shares.
Obligations of each Holder. Under the RRA, each holder of Preferred
Stock registering Toreador stock pursuant to the RRA must furnish Toreador
information about itself, discontinue disposition if a stop order is in effect,
enter into a reasonable underwriting agreement, deliver a prospectus to each
purchaser, and notify Toreador when the holder has sold all their Registrable
Securities (as defined in the Certificate of Designation).
Indemnification. Under the RRA, Toreador promises to indemnify holders
of Preferred Stock for losses related to untrue or omitted facts in the
registration statement, provided the false information was not supplied by the
holder asserting a claim for indemnification and Toreador consented to the
settlement. Conversely, a holder of Preferred Stock who supplies false or
misleading information to Toreador that leads to liability under federal
securities laws will indemnify Toreador for such losses. The RRA also provides
for shared responsibility under certain circumstances for losses not remedied by
indemnification on the basis of relative fault. In no case, however, can a
person selling under the registration statement filed pursuant to the RRA be
found liable for an amount exceeding that person's net sales price received.
DESCRIPTION OF CERTIFICATE OF DESIGNATION. The following summary of the
Certificate of Designation of Series A Convertible Preferred Stock of Toreador
Royalty Corporation (the "COD") is not intended to be complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of such
agreement, a copy of which is filed as an exhibit to this Current Report on Form
8-K.
Designation and Amount. Under the COD, 160,000 shares of Preferred
Stock are designated as "Series A Convertible Preferred Stock" with a stated
value of $25.00 per share (the "Stated Value").
Dividends. Each share of Preferred Stock is entitled to annual
dividends of 9% of the Stated Value, which, at Toreador's option, may be paid
quarterly in cash, additional Preferred Stock or a combination of both. No
fractional shares of Preferred Stock may be issued by Toreador as dividends.
Instead, if a fractional share is owed, Toreador must choose, at its
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discretion, either to round up to the next whole number of shares or to pay cash
equal to the amount of fractional shares times the Stated Value.
Priority. In the event of liquidation, dissolution or similar event,
holders of Preferred Stock will have preference over the Common Stock and all
other capital stock to the extent of the Stated Value of each share of Preferred
Stock plus any accrued and unpaid dividends.
Conversion. Each holder of Preferred Stock may convert his shares into
shares of Common Stock at any time. To convert, the holder of Preferred Stock
must submit his request, his certificate and notice to the transfer agent. Each
share of Preferred Stock is convertible into shares of Common Stock at a rate
equal to the Stated Value divided by $4.00 (subject to certain adjustments
described below). Generally, Toreador must issue and deliver the Common Stock
within three business days.
Adjustments to Conversion Price. The rate of conversion of Preferred
Stock will be adjusted to account for stock splits, stock dividends, mergers or
assets distributions. In no event will fractional shares be issued, however,
because of such adjustment.
Optional Redemption by Company. At any time after December 1, 2001,
Toreador may elect to redeem for cash any or all shares of Preferred Stock upon
15 days notice to the extent permitted by law and its then available capital.
The optional redemption price per share is the sum of (1) the Stated Value of
the Preferred Stock plus (2) any accrued and unpaid dividends times a declining
multiplier (the "Multiplier"). The Multiplier is 103% until December 1, 2002,
102% until December 1, 2003, 101% until December 1, 2004, and 100% thereafter.
Mandatory Redemption by the Company. Toreador must redeem for cash any
Preferred Stock outstanding on December 1, 2008, at a price equal to the Stated
Value plus any accrued and unpaid dividends on each share of Preferred Stock.
Voting Rights. The holders of Preferred Stock generally have no voting
rights with respect to the management of Toreador. Toreador may not take an
action that adversely effects the Preferred Stock without prior approval of the
holders of a majority of the outstanding shares to Preferred Stock. If Toreador
(1) fails to pay four quarterly dividend payments or (2) fails to make a
mandatory redemption, the holders of Preferred Stock are entitled to separately,
as a class, elect one person to Toreador's Board of Directors, who shall serve
until the event of default is cured.
DESCRIPTION OF COMPASS LOANS. The following summary of the Compass
loans is not intended to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of such agreements, a copy of
which are filed as exhibits to this Current Report on Form 8-K.
A portion of the Purchase Price for the Assets was funded with loans
(the "Loans") totaling $8.6 million from Compass Bank, Dallas ("Compass"). The
borrowers were Toreador for $2.7 million from an existing credit facility and
Tormin, which holds title to the assets, for $5.9 million. The Toreador credit
facility is a revolving note which matures on October 1, 2000. The Toreador
credit facility bears interest equal to the prime rate published in The Wall
Street Journal's "Money Rates" table (the "Prime Rate") charged by the lender,
which is
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currently 7.75% per annum, payable quarterly. The current borrowing base under
the facility is $10 million, subject to decrease depending upon the underlying
collateral value. The Tormin loan is a single advance credit facility equal to
the commitment amount of $5.9 million that matures on June 1, 2000. The Tormin
loan bears interest equal to the Prime Rate charged by the lender plus
one-quarter percent, which is currently 8%. The unpaid principal balance of the
loan shall be payable in monthly installments of $60,000 plus accrued interest.
The agreements governing the Loans contain various representations, warranties
and covenants of the borrower customary for a loan of this type. The loan is
secured by a pledge of the 64 most valuable properties within the Assets. The
Tormin loan has also been guaranteed by Toreador and its wholly-owned
subsidiary, Toreador Exploration & Production Inc., whose guaranty is limited to
its "net value." Tormin executed a $7.1 million promissory note to Toreador and
Toreador pledged that note and the shares of Tormin issued to Toreador to
further secure Toreador's guarantee.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements
(a) It is impractical to provide the required financial statements of
the acquired properties at this time. The Company plans to file such information
by amendment to this Form 8-K within sixty days of December 31, 1998.
(b) It is impractical to provide the required pro forma financial
information at this time. The Company plans to file such information by
amendment to this Form 8-K within sixty days of December 31, 1998.
Exhibits
10.1 Securities Purchase Agreement, effective December 16, 1998, among
Toreador Royalty Corporation and the Purchasers party thereto.
10.2 Registration Rights Agreement, effective December 16, 1998, among
Toreador Royalty Corporation and persons party thereto.
10.3 Certificate of Designation of Series A Convertible Preferred Stock
of Toreador Royalty Corporation.
10.4 Purchase and Sale Agreement, effective November 1, 1998, between
Howell Petroleum Corporation and The J.T. Philip Company, as amended.
10.5 Credit Agreement effective December 15, 1998, between Compass Bank
and Tormin, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TOREADOR ROYALTY CORPORATION
Date: December 30, 1998 By: /s/ G. Thomas Graves, III
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Name: G. Thomas Graves, III
Title: President and
Chief Executive Officer
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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement") by and among Toreador
Royalty Corporation, a Delaware corporation (the "Company"), and each of the
persons listed on the Schedule of Purchasers attached hereto. Such entities or
persons (and any other persons who become a party to this Agreement subsequent
to the date of this Agreement pursuant to Section 1.1) are each referred to
herein as a "Purchaser" and, collectively, as the "Purchasers".
The Company wishes to sell to each Purchaser, and each Purchaser wishes
to buy, on the terms and subject to the conditions set forth in this Agreement,
shares (the "Preferred Shares") of the Company's Series A Convertible Preferred
Stock, par value $1.00 per share (the "Preferred Stock"). The Preferred Shares
are convertible pursuant to the terms of a Certificate of Designation relating
to the Preferred Stock, the form of which is attached hereto as Exhibit A (the
"Certificate of Designation") into shares (the "Conversion Shares") of the
Company's Common Stock, par value $0.15625 per share (the "Common Stock").
Dividends on the Preferred Shares are payable, subject to the terms and
conditions of the Certificate of Designation, in cash or, at the Company's
option, shares of Preferred Stock (the "Dividend Payment Shares"). The Preferred
Shares, the Conversion Shares, and the Dividend Payment Shares are collectively
referred to herein as the "Securities".
The Company has agreed to effect the registration of the Conversion
Shares under the Securities Act of 1933, as amended (the "Securities Act"), upon
the occurrence of certain events set out in and pursuant to a Registration
Rights Agreement of even date herewith by and among the Company and the
Purchasers (the "Registration Rights Agreement"). The sale of the Preferred
Shares by the Company to the Purchasers will be effected in reliance upon the
exemption from securities registration afforded by the provisions of Regulation
D ("Regulation D"), as promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities Act.
The Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
1.1 Agreement to Purchase and Sell. Upon the terms set forth herein,
the Company agrees to sell and each Purchaser agrees to purchase, the number of
Preferred Shares set forth below such Purchaser's name on the signature pages
hereof and at a purchase price equal to Twenty-Five Dollars ($25.00) times the
number of Preferred Shares purchased by such Purchaser (the "Purchase Price").
The Company may sell from time to time up to $4,000,000 of Preferred Shares,
provided, however, that at least $3,000,000 of Preferred Shares shall have been
purchased as of the date of the first sale of Preferred Shares pursuant to this
Agreement. Notwithstanding any provision of this Agreement to the contrary, the
Company may from time to time after the date of this Agreement sell, without any
consent or acknowledgment of the Purchasers signatory hereto, additional
Preferred Shares (not to exceed the $4,000,000 limitation set forth in the
preceding sentence) pursuant to the terms of this Agreement. Such additional
sales of Preferred Shares shall be accomplished through execution by such
Purchaser of a signature page to this Agreement and countersignature thereof by
the Company. Photocopies of such additional signature pages shall be delivered
to each other Purchaser. The closing of the purchase and sale of the
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Preferred Shares will be deemed to occur when this Agreement and the other
Transaction Documents (as defined below) have been executed and delivered by
the Company and each Purchaser (which delivery may be effected by facsimile
transmission), and full payment of the Purchase Price has been made by each
Purchaser by wire transfer or immediately available funds against physical
delivery by the Company of duly executed certificates representing the
Preferred Shares purchased by such Purchaser hereunder.
1.2 Certain Definitions. When used herein, (A) "business day" shall
mean any day on which the New York Stock Exchange and commercial banks in the
city of New York are open for business, (B) an "affiliate" of a party shall mean
any person or entity controlling, controlled by or under common control with
that party and (C) "control" shall mean, with respect to an entity, the ability
to direct the business, operations or management of such entity, whether through
an equity interest therein or otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser, solely with respect to him or it, hereby makes the
following representations and warranties to the Company and agrees with the
Company that, as of the date of this Agreement:
2.1 Authorization; Enforceability. If an entity, such Purchaser is
duly and validly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization with full power and
authority to purchase the Preferred Shares and to execute and deliver this
Agreement. This Agreement and the Registration Rights Agreement have been duly
and validly authorized, executed and delivered by or on behalf of such
Purchaser. This Agreement constitutes such Purchaser's valid and legally binding
obligation, enforceable in accordance with its terms.
2.2 Accredited Investor; Investment Intent. Such Purchaser is an
accredited investor as that term is defined in Rule 501(a) of Regulation D, and
is acquiring the Preferred Shares solely for his or its own account for
investment purposes as a principal and not with a present view to the public
resale or distribution of all or any part thereof, except pursuant to sales that
are exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act; provided, however that in making such
representation, such Purchaser does not agree to hold the Securities for any
minimum or specific term and reserves the right to sell, transfer or otherwise
dispose of the Securities at any time in accordance with the provisions of this
Agreement and with Federal and state securities laws applicable to such sale,
transfer or disposition.
2.3 Information. The Company has provided such Purchaser with
information regarding the business, operations and financial condition of the
Company, and has granted to such Purchaser the opportunity to ask questions of
and receive answers from representatives of the Company, its officers,
directors, employees and agents concerning the Company and materials relating to
the terms and conditions of the purchase and sale of the Preferred Shares
hereunder. Such Purchaser understands that his or its investment in the
Preferred Shares involves a high degree of risk. Such Purchaser has sought such
accounting, legal and tax advice as he or it has considered necessary to make an
informed investment decision with respect to his or its acquisition of the
Preferred Shares.
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2.4 Limitations on Disposition. Such Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the Securities Act and may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom.
2.5 Legend. Such Purchaser understands that the certificates
representing the Securities will bear at issuance a restrictive legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and may
not be offered or sold unless a registration statement under the
Securities Act and applicable state securities laws shall have
become effective with regard thereto, or an exemption from
registration under the Securities Act and applicable state
securities laws is available in connection with such offer or
sale. Such securities are issued subject to the provisions of (i)
the Certificate of Designation relating to the Series A
Convertible Preferred Stock of Toreador Royalty Corporation (the
"Company"), (ii) a Securities Purchase Agreement by and among the
Company and the Purchasers signatory thereto (collectively, the
"Purchasers") and (iii) a Registration Rights Agreement by and
among the Company and the Purchasers."
Notwithstanding the foregoing, it is agreed that, as long as
(A) the resale or transfer (including without limitation a pledge) of any of the
Securities is registered pursuant to an effective registration statement, (B)
such Securities can be sold pursuant to Rule 144 under the Securities Act ("Rule
144") and a registered broker dealer provides to the Company a customary
broker's Rule 144 letter and such Purchaser delivers to the Company a customary
seller's representation letter and a copy of any Form 144 which may have been
required to be filed by such Holder pursuant to Rule 144, or (C) such Securities
are eligible for resale under Rule 144(k), such Securities shall be issued
without any legend or other restrictive language and, with respect to Securities
upon which such legend is stamped, the Company shall issue new certificates
without such legend to the holder upon request.
2.6 No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
2.7 Residency. Such Purchaser is a resident of that state or
jurisdiction specified on the Purchaser's signature page to this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties
to each Purchaser and agrees with such Purchaser that, as of the date of this
Agreement:
3.1 Organization, Good Standing and Qualification. Each of the
Company and its subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate power and
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authority to carry on its business as now conducted. Each of the Company and its
subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole. The term "subsidiaries" shall
mean entities in which the Company has an equity interest of 50% or greater.
3.2 Authorization; Consents. The Company has the requisite corporate
power and authority to enter into and perform its obligations under (i) this
Agreement, (ii) the Registration Rights Agreement and (iii) all other
agreements, documents, certificates or other instruments delivered by the
Company contemporaneously herewith (the instruments described in (i), (ii) and
(iii) being collectively referred to herein as the "Transaction Documents"), to
execute and perform its obligations under the Certificate of Designation, to
issue and sell the Preferred Shares to such Purchaser in accordance with the
terms hereof, to issue the Conversion Shares upon conversion of the Preferred
Shares in accordance with the Certificate of Designation, and to issue the
Dividend Payment Shares in accordance with the Certificate of Designation. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for (A) the authorization, execution and delivery of, and
the performance by the Company of its obligations under, the Transaction
Documents and (B) the authorization, execution and filing of, and the
performance by the Company of its obligations under, the Certificate of
Designation has been taken, and no further consent or authorization of the
Company, its Board of Directors, its stockholders, any governmental agency or
organization (other than such approval as may be required under the Securities
Act and applicable state securities laws in respect of the Registration Rights
Agreement), or any other person or entity is required (pursuant to any rule of
the National Association of Securities Dealers, Inc., other than with respect to
the listing of the Conversion Shares on the Nasdaq National Market System, or
otherwise).
3.3 Enforcement. The Transaction Documents and the Certificate of
Designation constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally, (ii) general principles of equity
and (iii) as to indemnification under the Securities Act or Exchange Act,
principles of public policy.
3.4 Disclosure Documents; Agreements; Financial Statements; Other
Information. The Company has filed with the Commission: (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, (ii) Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September
30, 1998, (iii) all Current Reports on Form 8-K required to be filed with the
Commission since December 31, 1997 and (iv) the Company's definitive Proxy
Statement for its 1998 Annual Meeting of Stockholders (collectively, the
"Disclosure Documents"). Each Disclosure Document, as of the date of the filing
thereof with the Commission, conformed in all material respects to the
requirements of the Exchange Act, and the rules and regulations thereunder and,
as of the date of such filing, such Disclosure Document did not contain an
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements of the Company included in the Disclosure
Documents complied as to form in all material respects with applicable
accounting
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requirements and the published rules and regulations of the Commission with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied at the times and
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end adjustments).
3.5 Valid Issuance. The Preferred Shares are duly authorized and,
when issued, sold and delivered in accordance with the terms hereof, (i) will be
duly and validly issued, fully paid and nonassessable, free and clear of any
taxes, liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company, (ii) based in part upon the representations of such
Purchaser in this Agreement, will be issued, sold and delivered in compliance
with all applicable Federal and state securities laws and (iii) will be entitled
to all of the rights, preferences and privileges set forth in the Certificate of
Designation. The Conversion Shares are duly authorized and reserved for issuance
and, when issued upon conversion of the Preferred Shares in accordance with the
terms of the Certificate of Designation, will be duly and validly issued, fully
paid and nonassessable, free and clear of any taxes, liens, claims, preemptive
or similar rights or encumbrances imposed by or through the Company. The
Dividend Payment Shares are duly authorized and, upon the issuance thereof in
accordance with the terms of the Certificate of Designation, will be duly and
validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company.
3.6 No Conflict with Other Instruments. Neither the Company nor any
of its subsidiaries is in violation of any provisions of its charter, Bylaws or
any other governing document as amended and in effect on and as of the date
hereof or in default (and no event has occurred which, with notice or lapse of
time or both, would constitute a default) under any provision of any instrument
or contract to which it is a party or by which it is bound, or of any provision
of any Federal or state judgment, writ, decree, order, statute, rule or
governmental regulation applicable to the Company, which would have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole. The (i) execution, delivery and
performance of this Agreement and the other Transaction Documents, (ii)
execution and filing of the Certificate of Designation, and (iii) consummation
of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Preferred Shares, and the reservation for
issuance and issuance of the Conversion Shares, and the Dividend Payment Shares)
will not result in any such violation or be in conflict with or constitute, with
or without the passage of time and giving of notice, either a default under any
such provision, instrument or contract or an event which results in the creation
of any lien, charge or encumbrance upon any assets of the Company or of any of
its subsidiaries, which violation, conflict, default, lien, charge or
encumbrance would have a material adverse affect on the consolidated business or
financial condition of the Company and its subsidiaries taken as a whole, or the
triggering of any preemptive or anti-dilution rights or rights of first refusal
or first offer on the part of holders of the Company's securities.
5
<PAGE> 6
4. COVENANTS OF THE COMPANY.
4.1 Corporate Existence. The Company shall, so long as any Purchaser
or any affiliate of such Purchaser beneficially owns any Securities, maintain
its corporate existence in good standing and shall pay all taxes owed by it when
due except for taxes which the Company reasonably disputes or as to which the
failure to pay could not reasonably be expected to have a material adverse
effect on the consolidated business or financial condition of the Company and
its subsidiaries taken as a whole.
4.2 Provision of Information. Upon written request, the Company shall
provide each Purchaser with copies of its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and proxy statements and other
materials sent to stockholders, in each such case promptly after the filing
thereof with the Commission, until the conversion or redemption of all of the
Preferred Shares held by such Purchaser.
4.3 Form D; Blue-Sky Qualification. The Company agrees to file a
Form D with respect to the Securities as required under Regulation D. The
Company shall, on or before the Closing, take such action as is necessary to
qualify the Preferred Shares for sale under applicable state or "blue-sky" laws
or obtain an exemption therefrom.
4.4 Reporting Status. As long as any Purchaser or any affiliate of
such Purchaser beneficially owns any Securities and until the date on which any
of the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall timely file with the
Commission all reports required to be so filed pursuant to the Exchange Act and
(ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination.
4.5 Reservation of Common Stock. The Company shall at all times have
authorized and reserved for issuance, free from any preemptive rights, solely
for the purpose of effecting conversions of the Preferred Shares hereunder, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the Preferred Shares in full.
4.6 Use of Proceeds. The Company shall use the proceeds from the sale
of the Preferred Shares for general corporate purposes only, in the ordinary
course of its business and consistent with past practice and shall not use such
proceeds to make a loan to any employee, officer or director of the Company or
to repurchase or pay a dividend on shares of Common Stock.
4.7 Quotation on Nasdaq. The Company shall (i) promptly following the
Closing, take such action as may be necessary to include the Conversion Shares
on the Nasdaq National Market System, and (ii) use its best efforts to maintain
the designation and quotation, or listing, of the Common Stock on the Nasdaq
National Market System, the Nasdaq Small Cap Market, the New York Stock Exchange
or the American Stock Exchange.
5. MISCELLANEOUS.
5.1 Survival; Severability. The representations, warranties,
covenants and indemnities made by the parties herein shall survive the closing
of this Agreement
6
<PAGE> 7
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon, provided that the representations and warranties
contained herein shall survive for two (2) years following the date of this
Agreement. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that in such case the parties shall negotiate in good faith
to replace such provision with a new provision which is not illegal,
unenforceable or void, as long as such new provision does not materially change
the economic benefits of this Agreement to the parties.
5.2 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The Purchaser may assign its
rights and obligations hereunder, in connection with any private sale or
transfer of the Preferred Shares in accordance with the terms hereof, as long
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term "Purchaser" shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto. The
Company may not assign it rights or obligations under this Agreement.
5.3 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder are several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered herewith, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of the Certificate of Designation,
this Agreement or the other Transaction Documents, and it shall not be necessary
for any other Purchaser to be joined as an additional party in any proceeding
for such purpose.
5.4 No Reliance; Representations by Purchasers. Each party
acknowledges that (i) it has such knowledge in business and financial matters as
to be fully capable of evaluating this Agreement, the other Transaction
Documents and the transactions contemplated hereby and thereby, (ii) it is not
relying on any advice or representation of the other party in connection with
entering into this Agreement, the other Transaction Documents or such
transactions (other than the representations made in this Agreement or the other
Transaction Documents), (iii) it has not received from such party any assurance
or guarantee as to the merits (whether legal, regulatory, tax, financial or
otherwise) of entering into this Agreement or the other Transaction Documents or
the performance of its obligations hereunder and thereunder, and (iv) it has
consulted with its own legal, regulatory, tax, business, investment, financial
and accounting advisors to the extent that it has deemed necessary, and has
entered into this Agreement and the other Transaction Documents based
7
<PAGE> 8
on its own independent judgment and on the advice of its advisors as it has
deemed necessary, and not on any view (whether written or oral) expressed by
such party.
5.5 Injunctive Relief. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to each Purchaser
and that the remedy or remedies at law for any such breach will be inadequate
and agrees, in the event of any such breach, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate and
specific performance of such obligations without the necessity of showing
economic loss.
5.6 Governing Law; Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of Texas without regard to
the conflict of laws provisions thereof. Each party hereby irrevocably submits
to the non-exclusive jurisdiction of the state and federal courts sitting in the
City of Dallas, Dallas County, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.
5.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
5.8 Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
5.9 Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., central time, on a business day or, if such day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely delivery to a nationally-recognized overnight courier and (iii) on
the third business day after deposit in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed to the parties as
follows:
If to the Company:
Toreador Royalty Corporation
4809 Cole Avenue
Suite 108
Dallas, Texas 75205
Attn.: Chief Executive Officer
Fax: (214) 369-3183
8
<PAGE> 9
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn: Janice V. Sharry
Tel: 214-651-5562
Fax: 214-651-5940
and if to any Purchaser, to such address for such Purchaser as shall appear on
the signature page hereof executed by such Purchaser, or as shall be designated
by such Purchaser in writing to the Company.
5.10 Expenses. The Company and each Purchaser shall pay all
costs and expenses that it incurs in connection with the negotiation, execution,
delivery and performance of this Agreement.
5.11 Entire Agreement; Amendments. This Agreement and the
other Transaction Documents constitute the entire agreement between the parties
with regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, and no provision hereof may be waived other than by a written
instrument signed by the party against whom enforcement of any such waiver is
sought.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
IN WITNESS WHEREOF, the undersigned have executed this Agreement.
PURCHASER NAME:
By: /s/ WILLIAM I. LEE
--------------------------------------- Dated December 7, 1998
Name: William I. Lee
Title:
ADDRESS:
4909 Cole Avenue
--------------------------------------
Dallas, Texas 75205
--------------------------------------
Tel: 214-521-3222
---------------------------------
Fax: 214-521-8884
---------------------------------
Dollar Amount of Series A Preferred Stock to be Purchased: $ 1,000,000
----------------
Accepted this 16th day of December 1998.
TOREADOR ROYALTY CORPORATION
By: /s/ G. THOMAS GRAVES III
---------------------------------------------------
Name: G. Thomas Graves III
Title: President and Chief Executive Officer
10
<PAGE> 11
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
PURCHASE PRICE OF
PURCHASER NAME ADDRESS SERIES A PREFERRED STOCK
<S> <C> <C>
</TABLE>
11
<PAGE> 1
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") by and among Toreador
Royalty Corporation, a Delaware corporation (the "Company"), and each of the
persons listed on the Schedule of Purchasers attached hereto (each referred to
herein as a "Purchaser" and, collectively, as the "Purchasers").
The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement"), to issue and sell to each Purchaser shares
(the "Preferred Shares") of the Company's Series A Convertible Preferred Stock,
par value $1.00 per share (the "Preferred Stock"). The Preferred Shares are
convertible pursuant to the Company's Certificate of Designation (the
"Certificate of Designation") into shares (the "Conversion Shares") of the
Company's Common Stock, par value $0.15625 per share (the "Common Stock"). In
order to induce the Purchasers to enter into the Securities Purchase Agreement,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended (the "Securities Act"), and under applicable
state securities laws. Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Securities Purchase
Agreement.
In consideration of each Purchaser entering into the Securities
Purchase Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings specified:
(a) "Closing" shall mean the date hereof;
(b) "Demand" means written request to the Company signed by
holders of 26% of the Preferred Shares outstanding for the
registration of the Conversion Shares;
(c) "Registration Deadline" means the one hundred and
twentieth (120th) day following a Demand;
(d) "Holder" means any person owning or having the right to
acquire, through conversion of Preferred Shares, Registrable
Securities, including initially each Purchaser and thereafter
any permitted assignee thereof;
(e) "Register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement or statements in compliance with the Securities Act
and pursuant to Rule 415 under the Securities Act ("Rule 415")
or any successor rule providing for the offering of securities
on a continuous or delayed basis ("Registration Statement"),
and the declaration or ordering of effectiveness of the
Registration Statement by the Securities and Exchange
Commission (the "Commission"); and
<PAGE> 2
(f) "Registrable Securities" means the Conversion Shares, and
any other shares of Common Stock issuable pursuant to the
terms of the Preferred Stock, whether as a dividend, payment
of a redemption price or otherwise, and any shares of capital
stock issued or issuable from time to time (with any
adjustments) in replacement of, in exchange for or otherwise
in respect of the Conversion Shares, including without
limitation any securities received by a Holder in connection
with an Exchange Transaction (as defined in the Certificate of
Designation).
2. DEMAND REGISTRATION.
(a) On or before the ninetieth (90th) day following a Demand,
the Company shall prepare and file with the Commission a Registration Statement
on Form S-3 (or if the Company is not then eligible to utilize Form S-3 for a
registration of this type, such other form as may be available to the Company)
as a "shelf" registration statement under Rule 415 covering the resale of the
number of shares of Registrable Securities then issuable on conversion of the
Preferred Shares. In addition, the Company may elect to register for resale
shares of Common Stock held by other holders. The Registration Statement shall
state, to the extent permitted by Rule 416 under the Securities Act, that it
also covers such indeterminate number of shares of Common Stock as may be
required to effect conversion of the Preferred Shares to prevent dilution
resulting from stock splits, stock dividends or similar events, or by reason of
changes in the Conversion Price in accordance with the terms of the Certificate
of Designation.
(b) The Company shall use its best efforts to cause the
Registration Statement to become effective as soon as practicable following the
filing thereof, but in no event later than the Registration Deadline and shall
maintain the effectiveness of the Registration Statement until the earlier to
occur of (i) the date on which all of the Registrable Securities have been sold
pursuant to the Registration Statement and (ii) the date on which all of the
remaining Registrable Securities (in the reasonable opinion of counsel to the
Company) may be immediately sold to the public without registration and without
regard to the amount of Registrable Securities which may be sold by a Holder
thereof at a given time (the "Registration Period").
(c) Upon the declaration by the Commission of the
effectiveness of a Registration Statement with respect to a Demand, the right of
the Holders to make a Demand pursuant to this Section 2 shall terminate and the
Company shall have no further obligation under this Section 2 to file any
additional Registration Statements on Demand. The Company's obligations under
Section 3 shall continue unaffected hereby.
3. PIGGYBACK REGISTRATION.
If at any time prior to the expiration of the Registration
Period, (i) the Company proposes to register shares of Common Stock under the
Securities Act in connection with the public offering of such shares for cash
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan or employee stock award or a registration
on Form S-4 under the Securities Act or any successor or similar form
registering stock issuable upon a reclassification, a business combination
involving an exchange of securities or an exchange offer for securities of the
issuer or another entity) (a "Proposed Registration") and (ii) a registration
statement covering the sale of all of the Registrable
- 2 -
<PAGE> 3
Securities is not then effective and available for sales thereof by the Holders,
the Company shall, at such time, promptly give each Holder written notice of
such Proposed Registration. Each Holder shall have thirty (30) days from its
receipt of such notice to deliver to the Company a written request specifying
the amount of Registrable Securities that such Holder intends to sell and such
Holder's intended method of distribution. Upon receipt of such request, the
Company shall use its best efforts to cause all Registrable Securities which the
Company has been requested to register to be registered under the Securities Act
to the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
Holder; provided, however, that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 3 without obligation
to the Holder. If, in connection with any underwritten public offering for the
account of the Company, the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distributions, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which each Holder has requested inclusion hereunder as such
underwriter(s) shall permit. Any exclusion of Registrable Securities shall be
made pro rata among the Holders seeking to include Registrable Securities in the
Registration Statement, in proportion to the number of Registrable Securities
sought to be included by such Holders; and provided, however, that any exclusion
of Registrable Securities shall be made pro rata with holders of other
securities having the right to include such securities in the Registration
Statement.
4. OBLIGATIONS OF THE COMPANY.
In addition to performing its obligations hereunder, including those
pursuant to Sections 2(a) and 2(b) above, the Company shall:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act or to maintain the effectiveness of the
Registration Statement during the Registration Period, or as may be reasonably
requested by a Holder in order to incorporate information concerning such Holder
or such Holder's intended method of distribution;
(b) furnish to each Holder such number of copies of the
prospectus included in such Registration Statement, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Holder may reasonably request in order to facilitate the
disposition of such Holder's Registrable Securities;
(c) use all commercially reasonable efforts to register or
qualify the Registrable Securities under the securities or "blue sky" laws of
such jurisdictions within the United States as shall be reasonably requested
from time to time by a Holder, and do any and all other acts or things which may
be necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction;
- 3 -
<PAGE> 4
(d) in the event of an underwritten public offering of the
Registrable Securities, enter into and perform its obligations under an
underwriting agreement, in usual and customary form reasonably acceptable to the
Company, with the managing underwriter of such offering;
(e) notify each Holder immediately upon the occurrence of any
event as a result of which the prospectus included in such Registration
Statement, as then in effect, contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and (except during a Blackout Period) as promptly as practicable,
prepare, file and furnish to each Holder a reasonable number of copies of a
supplement or an amendment to such prospectus as may be necessary so that such
prospectus does not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
For purposes hereof, "Blackout Period" means such day or days, not to exceed an
aggregate of thirty (30) days during any period of twelve (12) consecutive
months, with respect to which the Board of Directors of the Company determines
in good faith (A) that an amendment or supplement to the Registration Statement
or prospectus contained therein is necessary, in light of subsequent events, in
order to correct a material misstatement made therein or to include information
the absence of which would render the Registration Statement or such prospectus
materially misleading and (B) that the filing of such amendment or supplement
would result in the disclosure of information which the Company has a bona fide
business purpose for preserving as confidential; provided that the Company shall
be entitled to impose no more than three (3) Blackout Periods during any period
of twelve (12) consecutive months;
(f) use all commercially reasonable efforts to prevent the
issuance of any stop order or other order suspending the effectiveness of such
Registration Statement and, if such an order is issued, to obtain the withdrawal
thereof at the earliest possible time and to notify each Holder of the issuance
of such order and the resolution thereof;
(g) furnish to each Holder, on the date that such Registration
Statement becomes effective, a letter, dated such date, of outside counsel
representing the Company (and reasonably acceptable to such Holder) addressed to
such Holder, confirming the effectiveness of the Registration Statement and, to
the knowledge of such counsel, the absence of any stop order;
(h) provide each Holder and its representatives the
opportunity to conduct a reasonable inquiry of the Company's financial and other
records during normal business hours and make available its officers, directors
and employees for questions regarding information which such Holder may
reasonably request in order to fulfill any due diligence obligation on its part;
and
(i) permit counsel for each Holder (at such Holder's expense)
to review such Registration Statement and all amendments and supplements thereto
a reasonable period of time prior to the filing thereof with the Commission.
- 4 -
<PAGE> 5
5. OBLIGATIONS OF EACH HOLDER.
In connection with the registration of the Registrable Securities
pursuant to the Registration Statement, each Holder shall:
(a) furnish to the Company such information regarding itself
and the intended method of disposition of Registrable Securities as the Company
shall reasonably request in order to effect the registration thereof;
(b) upon receipt of any notice from the Company of the
happening of any event of the kind described in Sections 4(e) or 4(f),
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement until the filing of an amendment or supplement as
described in Section 4(g) or withdrawal of the stop order referred to in Section
4(f);
(c) in the event of an underwritten offering of the
Registrable Securities, enter into a customary and reasonable underwriting
agreement and execute such other documents as the managing underwriter for such
offering may reasonably request;
(d) to the extent required by applicable law, deliver a
prospectus to each purchaser of Registrable Securities; and
(e) notify the Company when it has sold all of the Registrable
Securities theretofore held by it.
6. INDEMNIFICATION.
In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company shall
indemnify and hold harmless each Holder, the officers, directors, employees,
agents and representatives of such Holder, and each person, if any, who controls
such Holder within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "1934 Act"), against any losses, claims, damages,
liabilities or reasonable out-of-pocket expenses (whether joint or several)
(collectively, including legal or other expenses reasonably incurred in
connection with investigating or defending same, "Losses"), insofar as any such
Losses arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company will reimburse such Holder, and each such
officer, director, employee, agent, representative or controlling person for any
legal or other expenses as reasonably incurred by any such entity or person in
connection with investigating or defending any Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any Loss if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be obligated to
indemnify any person for any Loss to the extent that such Loss arises out of or
is based upon and in conformity with written information furnished by such
person expressly
- 5 -
<PAGE> 6
for use in such Registration Statement; and provided, further, that the Company
shall not be required to indemnify any person to the extent that any Loss
results from such person selling Registrable Securities (i) to a person to whom
there was not sent or given, at or prior to the written confirmation of the sale
of such shares, a copy of the prospectus, as most recently amended or
supplemented, if the Company has previously furnished or made available copies
thereof or (ii) during any period following written notice by the Company to
such Holder of an event described in Section 4(e) or 4(f).
(b) To the extent permitted by law, each Holder, acting
severally and not jointly, shall indemnify and hold harmless the Company, the
officers, directors, employees, agents and representatives of the Company, and
each person, if any, who controls the Company within the meaning of the
Securities Act or the 1934 Act, against any Losses to the extent (and only to
the extent) that any such Losses arise out of or are based upon and in
conformity with written information furnished by such Holder expressly for use
in such Registration Statement; and such Holder will reimburse any legal or
other expenses as reasonably incurred by the Company and any such officer,
director, employee, agent, representative, or controlling person, in connection
with investigating or defending any such Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any such
Loss if such settlement is effected without the consent of such Holder, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this Section 6(b) exceed the net purchase price of
securities sold by such Holder under the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate under
applicable standards of professional conduct due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, to the extent prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 6 with respect to such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 6 or
with respect to any other action.
(d) In the event that the indemnity provided in subsection (a)
or (b) of this Section 6 is unavailable or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree, severally
and not jointly, to contribute to the aggregate Losses to which the Company or
such Holder may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and such Holder in connection with the statements
or omissions which resulted in such Losses; provided, however, that in no case
shall such Holder be responsible for any amount in excess of the net purchase
price of securities sold by it under the Registration Statement. Relative fault
shall be determined by
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<PAGE> 7
reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by such Holder. The Company and each
Holder agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person who controls a Holder within the meaning of either the Securities
Act or the Exchange Act and each officer, director, employee, agent or
representative of such Holder shall have the same rights to contribution as such
Holder, and each person who controls the Company within the meaning of either
the Securities Act or the Exchange Act and each officer, director, employee,
agent or representative of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this subsection (d).
(e) The obligations of the Company and each Holder under this
Section 6 shall survive the conversion or redemption, if any, of the Preferred
Shares, the exercise of the Warrant, the completion of any offering of
Registrable Securities pursuant to a Registration Statement under this
Agreement, or otherwise.
7. REPORTS.
With a view to making available to each Holder the benefits of
Rule 144 under the Securities Act ("Rule 144") and any other similar rule or
regulation of the Commission that may at any time permit such Holder to sell
securities of the Company to the public without registration, the Company agrees
to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
1934 Act; and
(c) furnish to such Holder, so long as such Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the Securities Act and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing such Holder of any rule or regulation of the Commission which
permits the selling of any such securities without registration.
8. MISCELLANEOUS.
(a) Expenses of Registration. All expenses, other than
underwriting discounts and commissions and fees and expenses of counsel to each
Holder, incurred in connection with the registrations, filings or qualifications
described herein, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees and the fees and disbursements
of counsel for the Company shall be borne by the Company.
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<PAGE> 8
(b) Amendment; Waiver. Any provision of this Agreement may be
amended only pursuant to a written instrument executed by the Company and
Holders of at least two thirds (2/3) of the Registrable Securities then issued
or issuable. Any waiver of the provisions of this Agreement may be made only
pursuant to a written instrument executed by the party against whom enforcement
is sought. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder, and the Company. The
failure of any party to exercise any right or remedy under this Agreement or
otherwise, or the delay by any party in exercising such right or remedy, shall
not operate as a waiver thereof. Provided, however, that upon the issuance of
additional shares of Series A Preferred Stock subsequent to the date hereof and
in accordance with the Securities Purchase Agreement, without any further
consent or acknowledgment of the Holders party hereto, the Company may add
additional holders of Series A Preferred Stock to this Agreement from time to
time. Any such additional holders joining this Agreement shall execute a
signature page to this Agreement, which signature page shall be countersigned by
the Company and the original appended to this Agreement. A photocopy of such
appended signature page shall be sent to each prior Holder party to this
Agreement.
(c) Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., central time, on a business day or, if such day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely delivery to a nationally-recognized overnight courier and (iii) on
the third business day after deposit in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed to the parties as
follows:
If to the Company:
Toreador Royalty Corporation
4809 Cole Avenue
Suite 108
Dallas, Texas 75205
Attn.: Chief Executive Officer
Fax: 214-369-3183
with a copy to:
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attn.: Janice V. Sharry
Tel: 214-651-5562
Fax: 214-651-5940
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(d) Termination. This Agreement shall terminate on the earlier
to occur of (a) the end of the Registration Period and (b) the date on which all
of the Registrable Securities have been publicly distributed; but any such
termination shall be without prejudice
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<PAGE> 9
to (i) the parties' rights and obligations arising from breaches of this
Agreement occurring prior to such termination and (ii) the indemnification and
contribution obligations under this Agreement.
(e) Assignment. The rights of a Holder hereunder shall be
assigned automatically to any transferee of the Preferred Shares or Registrable
Securities from such Holder as long as: (i) the Company is, within a reasonable
period of time following such transfer, furnished with written notice of the
name and address of such transferee, (ii) the transferee agrees in writing with
the Company to be bound by all of the provisions hereof and (iii) such transfer
is made in accordance with the applicable requirements of the Securities
Purchase Agreement.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument. This Agreement, once
executed by a party, may be delivered to any other party hereto by facsimile
transmission.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas without regard to
the conflict of laws provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 10
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date indicated by their signature.
PURCHASER NAME: William I. Lee Dated: December 7, 1998
----------------------------------
By: /s/ WILLIAM I. LEE
----------------------------------------------------
Name: William I. Lee
Title:
Address: 4809 Cole Avenue
Dallas, Texas 75205
Facsimile: 214-521-8884
Accepted this 16th day of December 1998.
TOREADOR ROYALTY CORPORATION
By: /s/ G. THOMAS GRAVES III
----------------------------------------------------
Name: G. Thomas Graves III
Title: President and Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.3
CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
TOREADOR ROYALTY CORPORATION
Pursuant to Section 151 of the
Delaware General Corporation Law
Toreador Royalty Corporation, a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
that the following resolutions were adopted by the Board of Directors of the
Corporation pursuant to authority of the Board of Directors as required by
Section 151 of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to the Board of
Directors in accordance with the provisions of the Corporation's Restated
Certificate of Incorporation, the Board of Directors hereby authorizes a series
of the Corporation's previously authorized Preferred Stock, par value $1.00 per
share (the "Preferred Stock"), and hereby states the designation and number of
shares, and fixes the relative rights, preferences, privileges and restrictions
thereof as follows:
1. DESIGNATION AND AMOUNT.
The designation of this series, which consists of 160,000 shares (each
such share being referred to herein as a "Preferred Share" and all such shares
being collectively referred to as the "Preferred Shares") of Preferred Stock, is
the Series A Convertible Preferred Stock (the "Series A Preferred Stock") and
the face amount shall be Twenty-Five Dollars ($25.00) per share (the "Stated
Value"). The Preferred Shares will be issued pursuant to the provisions of a
Securities Purchase Agreement by and among the Corporation and the purchasers
named therein (the "Securities Purchase Agreement").
2. DIVIDENDS.
(a) Dividend Rate; Payments. The holders (each, a "Holder" and
collectively, the "Holders") of Preferred Shares shall be entitled to receive,
to the extent permitted by applicable law, in preference to the payment of any
dividend on any class or series of Junior Securities (as defined below),
cumulative dividends ("Dividends") on each Preferred Share in an amount equal
to, on an annualized basis, the Stated Value of such Preferred Share times nine
percent (9%). Dividends shall accrue and cumulate on each Preferred Share from
the date of the original issuance thereof (the "Purchase Date") through the
earlier to occur of (A) the payment thereof in accordance with the terms of this
Section 2(a) and (B) the redemption or conversion of such Preferred Share in
accordance with the terms hereof. At the option of the Corporation, Dividends
may be paid in cash or may be paid, in whole or in part, by issuing additional
fully paid and nonassessable shares (the "Dividend Payment Shares") of Preferred
Stock. Accrued Dividends on each outstanding Preferred Share shall be payable
<PAGE> 2
in four quarterly installments on the last day of March, June, September and
December of each year commencing March 31, 1999 unless earlier due and payable
on a Conversion Date (as defined below) or a Redemption Date (as defined below)
(each, a "Dividend Payment Date"). If, on any date, Dividends on any outstanding
Preferred Shares have not been paid or declared by the Board of Directors in
accordance with applicable law and set aside for payment with respect to all
Dividend Payment Dates preceding such date, the aggregate amount of such
Dividends shall be fully paid or declared and set aside for payment before any
distribution, whether by way of dividend or otherwise, shall be declared, paid
or set apart with respect to any Junior Securities on or after such date.
(b) Delivery of Dividends. The Corporation shall mail any cash
dividends declared by check to the Holder or its nominee postmarked no later
than three (3) Business Days (as defined below) following the applicable
Dividend Payment Date. If the Corporation declares any dividends payable in
Preferred Stock, the Corporation shall deliver to each Holder, on or before the
third (3rd) Business Day following the applicable Dividend Payment Date (the
"Dividend Payment Share Delivery Date"), the aggregate number of whole Dividend
Payment Shares that is determined by dividing (x) the amount of the Dividend to
which such Holder is entitled as of such Dividend Payment Date with respect to
all of such Holder's Preferred Shares by (y) the Stated Value. The Corporation
shall effect delivery of Dividend Payment Shares by delivering to the Holder or
its nominee physical certificates representing such Dividend Payment Shares, no
later than the close of business on such Dividend Payment Share Delivery Date.
No fractional Dividend Payment Shares shall be issued; the Corporation shall, in
lieu thereof, at its sole discretion, either issue a number of Dividend Payment
Shares which reflects a rounding up to the next whole number of shares or pay
cash in an amount calculated by multiplying the amount of the fractional share
times the Stated Value. Dividend Payment Shares shall be fully paid and
non-assessable, free and clear of any liens, claims, preemptive rights or
encumbrances imposed by or through the Corporation (other than restrictions on
transfer required under applicable securities laws).
3. PRIORITY.
(a) Payment upon Dissolution.
(i) Upon the occurrence of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, commenced by the Corporation or by its
creditors, as such, or relating to its assets or (y) the dissolution or other
winding up of the Corporation whether total or partial, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Corporation (each, a "Liquidation
Event"), no distribution shall be made to the holders of any shares of Junior
Securities (as defined below) unless each Holder shall have received the
Liquidation Preference (as defined below) with respect to each Preferred Share
then held by such Holder. In the event that upon the occurrence of a Liquidation
Event the assets available for distribution to the Holders are insufficient to
pay the Liquidation Preference (as defined below) with respect to all of the
outstanding Preferred Shares and the preferential amounts payable to such
holders, the entire assets of the Corporation shall be distributed ratably among
the outstanding Preferred Shares in proportion to the ratio that the
preferential amount payable on each such share (which shall be the Liquidation
Preference in the case of a Preferred Share) bears to the aggregate preferential
amount payable on all such shares.
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<PAGE> 3
(ii) The "Liquidation Preference" with respect to a Preferred
Share shall mean an amount equal to the Stated Value of such Preferred Share
(subject to ratable adjustment in the event of any stock split or combination of
the Series A Preferred Stock and to equitable adjustment in the event of a
reclassification of the Series A Preferred Stock or other similar event) plus
any accrued and unpaid Dividends thereon. "Junior Securities" shall mean the
Common Stock and all other capital stock of the Corporation.
4. CONVERSION.
(a) Right to Convert. Each Holder shall have the right to convert, at
any time and from time to time from and after the Purchase Date, all or any part
of the Preferred Shares held by such Holder, unless previously redeemed, into
such number of fully paid and non-assessable shares of Common Stock ("Conversion
Shares") as is computed in accordance with the terms hereof (a "Conversion").
(b) Conversion Notice. In order to convert Preferred Shares, a Holder
shall send by facsimile transmission, at any time prior to 5:00 p.m., central
time, on the date on which such Holder wishes to effect such Conversion (the
"Conversion Date"), (i) a notice of conversion (a "Conversion Notice"), in
substantially the form of Exhibit A hereto, to the Corporation and to its
designated transfer agent for the Common Stock (the "Transfer Agent") stating
the number of Preferred Shares to be converted, the applicable Conversion Price
(as defined below) and a calculation of the number of shares of Common Stock
issuable upon such Conversion and (ii) a copy of the certificate or certificates
representing the Preferred Shares being converted. The Holder shall thereafter
send the original of the Conversion Notice and of such certificate or
certificates to the Transfer Agent. The Corporation shall issue a new
certificate for Preferred Shares in the event that less than all of the
Preferred Shares represented by a certificate delivered to the Corporation in
connection with a Conversion are converted. Except as otherwise provided herein,
upon delivery of a Conversion Notice by a Holder in accordance with the terms
hereof, such Holder shall, as of the applicable Conversion Date, be deemed for
all purposes to be record owner of the Common Stock to which such Conversion
Notice relates. In the case of a dispute between the Corporation and a Holder as
to the calculation of the Conversion Price or the number of Conversion Shares or
Dividend Payment Shares issuable upon a Conversion, the Corporation shall
promptly issue to such Holder the number of Conversion Shares and Dividend
Payment Shares that are not disputed and shall submit the disputed calculations
to the Corporation's independent accountant within three (3) Business Days of
receipt of such Holder's Conversion Notice. The Corporation shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Corporation and such Holder of the results in writing no later than three
(3) Business Days following the day on which it received the disputed
calculations. The Corporation shall deliver the Conversion Shares and Dividend
Payment Shares, if any, owed to a Holder pursuant to such accountant's
calculations on or before the close of business on the third (3rd) Business Day
following the Corporation's receipt of notice from such accountant of the
results of its calculations. Such accountant's calculation shall be deemed
conclusive absent manifest error. The fees of any such accountant shall be borne
by the party whose calculations were most at variance with those of such
accountant.
(c) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined by dividing the aggregate Stated Value of the Preferred
Shares to be converted by the Conversion Price (as defined herein) in effect on
the applicable Conversion Date. Subject to
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<PAGE> 4
adjustment as provided in Section 5 below, "Conversion Price" shall mean Four
Dollars ($4.00).
(d) Certain Definitions. "Trading Day" shall mean any day on which the
Common Stock is traded on the Nasdaq National Market System or on the principal
securities exchange or market located in the United States on which the Common
Stock is then traded. "Business Day" means any day on which the New York Stock
Exchange and commercial banks located in the City of New York are open for
business.
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice from a Holder pursuant to paragraph 4(b) above, the
Corporation shall, no later than the close of business on (A) the later to occur
of (i) the third (3rd) Business Day following the Conversion Date set forth in
such Conversion Notice and (ii) the first Business Day following delivery of the
original certificates, duly endorsed, representing the Preferred Shares being
converted pursuant thereto and (B) with respect to Conversion Shares which are
disputed as described in paragraph 4(b) above, and required to be delivered by
the Corporation pursuant to the accountant's calculations described therein, the
date for delivery thereof specified in such paragraph 4(b) (the "Delivery
Date"), issue and deliver or cause to be delivered to such Holder the number of
Conversion Shares as shall be determined as provided herein. The Corporation
shall effect delivery of Conversion Shares by delivering to the Holder or its
nominee physical certificates representing such Conversion Shares, no later than
the close of business on such Delivery Date. If any Conversion would create a
fractional Conversion Share, such fractional Conversion Share shall be
disregarded and, at the Corporation's sole discretion, either the number of
Conversion Shares issuable upon such Conversion, in the aggregate, shall be the
next higher number of Conversion Shares or the Corporation shall pay cash in an
amount calculated by multiplying the amount of the fractional share times the
Conversion Price for such Conversion.
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Conversion Price Due to Stock Split, Stock Dividend,
Etc. If, prior to the Conversion of all of the Preferred Shares, (A) the number
of outstanding shares of Common Stock is increased by a stock split, a stock
dividend on the Common Stock, a reclassification of the Common Stock, the
distribution to holders of Common Stock as a class of rights or warrants
entitling them to subscribe for or purchase Common Stock at less than the then
current market price thereof (based upon the subscription or exercise price of
such rights or warrants at the time of the issuance thereof) or other similar
event, the Conversion Price shall be proportionately reduced, or (B) the number
of outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares or other similar event, the Conversion
Price shall be proportionately increased. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the effective date
thereof.
(b) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the Preferred Shares, there shall be any merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock shall be exchanged for or changed into the same
or a different number of shares of the same or another class or classes of stock
or securities of the Corporation or another entity (an "Exchange Transaction"),
then such Holder shall (A) upon the consummation of such Exchange Transaction,
have the right to receive,
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<PAGE> 5
with respect to any shares of Common Stock then held by such Holder, or which
such Holder is then entitled to receive pursuant to a Conversion Notice
previously delivered by such Holder, (and without regard to whether such shares
contain a restrictive legend or are freely-tradeable) the same amount and type
of consideration (including without limitation, stock, securities and/or other
assets) and on the same terms as a holder of shares of Common Stock would be
entitled to receive in connection with the consummation of such Exchange
Transaction (the "Exchange Consideration"), and (B) upon the Conversion of
Preferred Shares occurring subsequent to the consummation of such Exchange
Transaction, the Exchange Consideration which such Holder would have been
entitled to receive in connection with such Exchange Transaction had such shares
been converted immediately prior to such Exchange Transaction, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of such Holder to the end that the provisions hereof (including,
without limitation, provisions for the adjustment of the Conversion Price and of
the number of shares issuable upon a Conversion) shall thereafter be applicable
as nearly as may be practicable in relation to any securities thereafter
deliverable upon the Conversion of such Preferred Shares. The Corporation shall
not effect any Exchange Transaction unless (i) it first gives to each Holder
twenty (20) days prior written notice of such Exchange Transaction (an "Exchange
Notice"), and makes a public announcement of such event at the same time that it
gives such notice and (ii) the resulting successor or acquiring entity (if not
the Corporation) assumes by written instrument the obligations of the
Corporation hereunder, including the terms of this subparagraph 6(b), and under
the Securities Purchase Agreement and the Registration Rights Agreement
described in the Securities Purchase Agreement (the "Registration Rights
Agreement").
(c) Distribution of Assets. If the Corporation shall declare or make
any distribution of cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned surplus
or net profits for the current or the immediately preceding year), or any rights
to acquire any of the foregoing, to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise, including any
dividend or distribution in shares of capital stock of a subsidiary of the
Corporation (collectively, a "Distribution"), then, upon a Conversion by a
Holder occurring after the record date for determining stockholders entitled to
such Distribution, the Conversion Price for Preferred Shares not converted prior
to the record date of a Distribution shall be reduced to a price determined by
decreasing the Conversion Price in effect immediately prior to the record date
of the Distribution by an amount equal to the fair market value of the assets so
distributed with respect to each share of Common Stock, such fair market value
to be determined by an investment banking firm selected by the Corporation.
(d) No Fractional Shares. If any adjustment under this Section would
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and, at the
Corporation's sole discretion, either the number of shares of Common Stock
issuable upon Conversion shall be the next higher number of shares or the
Corporation shall pay in cash an amount calculated by multiplying the amount of
the fractional share times the Conversion Price for such Conversion.
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<PAGE> 6
6. OPTIONAL REDEMPTION BY CORPORATION.
(a) Optional Redemption. Any time on or after December 1, 2001, the
Corporation shall have the right to redeem, in while or in part, Preferred
Shares outstanding at the Optional Redemption Price (as defined below) (an
"Optional Redemption"), to the extent permitted by applicable law and so long as
(A) the Corporation shall have sufficient cash available on the Optional
Redemption Date to effect such Optional Redemption and (B) the Corporation shall
have delivered to each Holder at least fifteen (15) Trading Days' prior written
notice (an "Optional Redemption Notice") specifying the date on which such
Optional Redemption is to be effected (the "Optional Redemption Date") and the
amount of the Optional Redemption Price payable to such Holder. If the
Corporation should elect to redeem less than all of the Preferred Shares
outstanding, the Corporation shall select those Preferred Shares to be redeemed
by lot. Nothing contained herein shall limit a Holder's right to convert its
Preferred Shares at any time prior to the Optional Redemption Date.
(b) Optional Redemption Price. The "Optional Redemption Price" to be
paid by the Corporation to a Holder in the event of an Optional Redemption shall
be equal to the Liquidation Preference of the Preferred Shares then held by such
Holder multiplied by (i) 1.03 if the Optional Redemption Date is on or after
December 1, 2001 but before December 1, 2002, (ii) 1.02 if the Optional
Redemption Date is on or after December 1, 2002 and before December 1, 2003,
(iii) 1.01 if the Optional Redemption Date is on or after December 1, 2003 and
before December 1, 2004, or (iv) 1.00 if the Optional Redemption Date is on or
after December 1, 2004, plus in all cases, accrued and unpaid Dividends through
and including the Optional Redemption Date.
(c) Payment of Optional Redemption Price. Upon the redemption of a
Preferred Share, payment of the Optional Redemption Price, which shall be in the
form of a Corporation check, to the Holder thereof will be effected
simultaneously with the return of such share by such Holder to the Corporation.
To the extent the Corporation shall redeem less than all of the Preferred Shares
outstanding, the Corporation shall also deliver certificates evidencing the
unredeemed Preferred Shares in addition to the Optional Redemption Price.
7. MANDATORY REDEMPTION BY THE CORPORATION.
(a) Mandatory Redemption. On December 1, 2008, the Corporation shall
redeem, in whole or in part, Preferred Shares outstanding in same day funds at
the Mandatory Redemption Price (as defined below) (a "Mandatory Redemption"), to
the extent permitted by applicable law and so long as the Corporation shall have
delivered to each Holder at least fifteen (15) Trading Days' prior written
notice (a "Mandatory Redemption Notice") specifying the date on which such
Mandatory Redemption is to be effected (the "Mandatory Redemption Date") and the
amount of the Mandatory Redemption Price payable to such Holder. Nothing
contained herein shall limit a Holder's right to convert its Preferred Shares at
any time prior to the Mandatory Redemption Date.
(b) Mandatory Redemption Price. The "Mandatory Redemption Price" shall
be equal to the Liquidation Preference of the Preferred Shares being redeemed.
-6-
<PAGE> 7
(c) Payment of Mandatory Redemption Price. Upon the redemption of a
Preferred Share, payment of the Mandatory Redemption Price, which shall be in
the form of a Corporation check, to the Holder thereof will be effected
simultaneously with the return of such share by such Holder to the Corporation.
8. MISCELLANEOUS.
(a) Transfer of Preferred Shares. A Holder may sell or transfer all or
any portion of the Preferred Shares to any person or entity as long as such sale
or transfer is the subject of an effective registration statement under the
Securities Act or is exempt from registration thereunder and otherwise is made
in accordance with the terms of the Securities Purchase Agreement. From and
after the date of such sale or transfer, the transferee thereof shall be deemed
to be a Holder. Upon any such sale or transfer, the Corporation shall, promptly
following the return of the certificate or certificates representing the
Preferred Shares that are the subject of such sale or transfer, issue and
deliver to such transferee a new certificate in the name of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand or
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission on or before 5:00 p.m.,
central time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the third Business Day after
deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Corporation:
Toreador Royalty Corporation
4809 Cole Avenue
Suite 108
Dallas, Texas 75205
Attn.: Chief Executive Officer
Fax: 214-369-3183
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of a certificate
representing Preferred Shares, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Corporation, and upon
surrender and cancellation of such certificate if mutilated, the Corporation
shall execute and deliver to the Holder a new certificate identical in all
respects to the original certificate.
(d) No Voting Rights. Except as provided by applicable law and
paragraph 8(e) below, the Holders of the Preferred Shares shall have no voting
rights with respect to the business, management or affairs of the Corporation.
The Corporation shall provide each
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<PAGE> 8
Holder with prior notification of each meeting of stockholders (and copies of
proxy statements and other information sent to such stockholders).
(e) Protective Provisions.
(A) So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval of
the Holders of at a majority of the then outstanding shares of Series A
Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the Series A Preferred Stock or any other capital stock of the
Corporation so as to affect adversely the Series A Preferred Stock;
(ii) create any new class or series of capital stock
having a preference over or ranking pari passu with the Series A Preferred Stock
as to redemption, the payment of dividends or distribution of assets upon a
Liquidation Event or any other liquidation, dissolution or winding up of the
Corporation;
(iii) increase the authorized number of shares of
Preferred Stock;
(iv) re-issue any shares of Series A Preferred Stock
which have been converted in accordance with the terms hereof; or
(v) declare, pay or make any provision for any cash
dividend or distribution with respect to the Common Stock of the Corporation.
(B) If the Corporation (i) fails to pay dividends in respect
of four quarterly dividend periods, or (ii) fails to make a Mandatory
Redemption, holders of a majority of the outstanding shares of the Preferred
Stock would be entitled acting separately as a class, to elect one person to the
Board of Directors of the Corporation. Upon the taking of such action, the
maximum authorized number of members of the Board of Directors shall
automatically increase by one person so elected, and the vacancy so created
shall be filled by the person elected pursuant to this subparagraph (B). A
director elected by the holders of Series A Preferred Stock pursuant to this
subparagraph (B) shall serve until his successor is duly elected and qualified,
until his removal or until his term terminates as provided below. Such a
director may be removed without cause at any time by action, and only by such
action, of the holders of shares of Series A Preferred Stock. If the office of a
director elected pursuant to this subparagraph (B) becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office or
otherwise, such vacancy may be filled by the action, and only by such action, of
the holders of shares of Series A Preferred Stock. At such time as the event of
default giving rise to this right to elect a director has been cured, such right
shall terminate, the term of any director elected pursuant to this subparagraph
(B) shall terminate and the maximum number of authorized members of the Board of
Directors shall decrease automatically to the maximum number of authorized
members of the Board of Directors in effect immediately before any action was
taken pursuant hereto.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the Corporation has executed this Certificate of
Designation as of the 14th day of December, 1998.
TOREADOR ROYALTY CORPORATION
By: /s/ G.T. GRAVES III
-------------------------------------
Name: G. Thomas Graves III
Title: President and Chief Executive Officer
-9-
<PAGE> 10
EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series A Convertible
Preferred Stock (the "Preferred Stock"), represented by stock certificate No(s).
(the "Preferred Stock Certificates"), into shares of common stock ("Common
Stock") of Toreador Royalty Corporation (the "Company") according to the terms
and conditions of the Certificate of Designation relating to the Preferred Stock
(the "Certificate of Designation"), as of the date written below. Capitalized
terms used herein and not otherwise defined shall have the respective meanings
set forth in the Certificate of Designation.
[ ] (check box if shares of Common Stock have been resold) The undersigned
represents that the shares of Common Stock to be issued by the Company hereby
have been resold or transferred by the undersigned in accordance with the
provisions of the prospectus included in the Registration Statement.
Date of Conversion:
------------------
Number of Shares of
Preferred Stock to be Converted:
------------------
Applicable Conversion Price:
------------------
Number of Shares of
Common Stock to be Issued:
------------------
Amount of Dividend
Accrued through the
Conversion Date:
------------------
Name of Holder:
---------------------------------
Address:
---------------------------------
---------------------------------
Signature:
---------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
PURCHASE AND SALE AGREEMENT
BETWEEN
HOWELL PETROLEUM CORPORATION
("SELLER")
AND
THE J. T. PHILP COMPANY
("BUYER")
- --------------------------------------------------------------------------------
MINERAL AND ROYALTY PROPERTIES IN VARIOUS COUNTIES
AND PARISHES IN ALABAMA, LOUISIANA AND MISSISSIPPI
EFFECTIVE NOVEMBER 1, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
<S> <C> <C> <C>
1.0 DEFINITIONS
1.1 Agreement
1.2 Assets
1.3 Assumed Obligations
1.4 Closing
1.5 Closing Date
1.6 Effective Time
1.7 Environmental Obligations or Liabilities
1.8 Excluded Assets
1.9 Hydrocarbons
1.10 Inventory Hydrocarbons
1.11 Personal Property and Incidental Rights
1.12 Purchase Price
2.0 PURCHASE AND SALE
2.1 Purchase and Sale
2.2 Performance Deposit
3.0 PURCHASE PRICE AND PAYMENT
3.1. Purchase Price
3.2 Final Settlement
3.3 Plugging, Replugging, Abandonment, Removal,
Disposal, and Restoration
4.0 SELLER'S REPRESENTATIONS AND WARRANTIES
4.1 Seller's Representations and Warranties
5.0 BUYER'S REPRESENTATIONS AND WARRANTIES
5.1 Buyer's Representations and Warranties
6.0 ACCESS TO INFORMATION, INSPECTIONS AND
TITLE/ENVIRONMENTAL DEFECTS
6.1 Title Files
6.2 Other Files
6.3 Confidentiality Agreement
6.4 Inspections
6.5 Title and Environmental Defects - Notice,
Adjustments and Termination
7.0 TITLE AND OTHER MATTERS
7.1 No Warranty or Representation
7.2 Buyer's Title Review
8.0 COVENANTS OF SELLER
8.1 Covenants of Seller Pending Closing
8.2 Limitations on Seller's Covenants
Pending Sale
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
9.0 CLOSING CONDITIONS
9.1 Seller's Closing Conditions
9.2 Buyer's Closing Conditions
9.3 Notice on Closing Conditions
10.0 CLOSING
10.1 Closing
10.2 Seller's Closing Obligations
10.3 Buyer's Closing Obligations
10.4 Joint Closing Obligations
11.0 EFFECT OF CLOSING
11.1 Assumed Obligations; Pre-Closing Liabilities
11.2 After Final Settlement
11.3 Back-In After Payout
12.0 LIMITATIONS ON WARRANTIES AND REMEDIES
12.1 Limitations
12.2 Survival
13.0 CASUALTY LOSS AND CONDEMNATION
13.1 Casualty Loss
14.0 DEFAULT AND REMEDIES
14.1 Seller's Remedies
14.2 Buyer's Remedies
14.3 Other Remedies
14.4 Effect of Termination
15.0 ASSUMPTION AND INDEMNITY
15.1 Buyer's Indemnity
15.2 Seller's Indemnity
15.3 Broker or Finder's Fee
15.4 Securities Laws
15.5 Miscellaneous
16.0 MISCELLANEOUS
16.1 Public Announcements
16.2 Filing and Recording of Assignments, etc.
16.3 Further Assurances and Records
16.4 Notices
16.5 Incidental Expenses
16.6 Antitrust Laws
16.7 Waiver
16.8 Binding Effect; Assignment
16.9 Taxes
16.10 Audits
16.11 Governing Law
</TABLE>
2
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
16.12 Entire Agreement
16.13 Exhibits
16.14 Delivery of Files After Closing
16.15 Survival
16.16 Counterparts
16.17 Agreement as Offer
EXHIBITS
A. Description of Fee Land
B. Assignment
C. Minerals Sold
D. Non-Producing Acreage
E. Substantial Producing Acreage
F. Actual Revenues
G. Leasing Revenues
</TABLE>
3
<PAGE> 5
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT dated as of the 28th day of October, 1998, is made by
and between HOWELL PETROLEUM CORPORATION, a Delaware corporation, its successors
or assigns (herein referred to as "Seller"), and THE J. T. PHILP COMPANY, a
Texas corporation, its successors or assigns (herein referred to as "Buyer").
Seller and Buyer are sometimes together referred to herein as "Parties".
W I T N E S S E T H:
WHEREAS, Seller owns certain oil and gas, mineral and royalty interests
situated in Alabama, Louisiana and Mississippi; and
WHEREAS, Seller desires to sell and Buyer desires to acquire these
interests and related assets on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, Seller and Buyer hereby agree as follows:
ARTICLE 1 - DEFINITIONS
The following terms, as used herein, shall have the following meanings:
1.1 "AGREEMENT" shall mean this Purchase and Sale Agreement between
Seller and Buyer.
1.2 "ASSETS" shall mean the following described assets and properties
associated with the properties more particularly described on Exhibit "A"
attached hereto (except to the extent constituting Excluded Assets):
(a) all oil, gas, mineral and royalty interests owned by Seller which
are severed from the surface rights;
(b) all coal, lignite, bauxite and any other mineral rights of any kind
and character owned by Seller and which are severed from the surface
rights;
(c) the Personal Property and Incidental Rights;
(d) the Inventory Hydrocarbons;
(e) except to the extent constituting Excluded Assets, any and all
interests owned by Seller which relate to the Assets, or which Seller
is entitled to receive by reason of any participation, joint venture,
farm-in, farm-out, joint operating agreement or other agreement, oil,
gas and other
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<PAGE> 6
mineral leases, permits, licenses, concessions, leasehold estates, net
revenue interests, executory interests, net profit interests, working
interests, reversionary interests, fee and term mineral interests,
royalty and overriding royalty interests, and any other interests of
Seller in Hydrocarbons;
(f) all claims and causes of action of Seller arising from acts,
omissions, or events or damage to or destruction of the Assets, except
as specifically reserved by Seller in this Agreement, occurring prior
to the Effective Time; and
(g) fee lands described on Exhibit B attached hereto.
1.3 "ASSUMED OBLIGATIONS" shall mean except as otherwise provided in
Section 15 below:
(a) all Environmental Obligations or Liabilities, and (b) all
liabilities, duties, and obligations that arise on or after the
Effective Time from ownership or operation of the Assets including, but
not limited to:
(i) all liabilities and obligations of Seller from and after
the Effective Time until Closing and of Buyer on or after Closing, with
respect to compliance with all applicable rules, regulations, statutes,
permits and orders, including, but not limited to, plugging and
abandoning any wells, the restoration of any well sites, tank battery
sites and gas plant sites, the proper removal, disposal and abandonment
of any wastes or fixtures, and the proper capping and burying of all
flow lines, which are included in the Assets;
(ii) all duties, liabilities and obligations arising on or
after the Effective Time under any contracts or agreements affecting
the Assets in existence at the Effective Time, and all obligations with
respect to gas production, sales or processing imbalances with third
parties;
(iii) all duties, liabilities, and obligations that arise
under the Assets and burdens on production; and
(iv) all other duties, liabilities, and obligations assumed by
Buyer under this Agreement.
1.4 "CLOSING" shall be as defined in Article 10.1.
1.5 "CLOSING DATE" shall be as defined in Article 10.1.
1.6 "EFFECTIVE TIME" shall mean 7:00 a.m., Central Daylight Time on
November 1, 1998.
2
<PAGE> 7
1.7 "ENVIRONMENTAL OBLIGATIONS OR LIABILITIES" shall mean all
liabilities, obligations, expenses (including without limitation, all attorney
fees), fines, penalties, costs, claims, suits or damages (including natural
resource damages) of any nature, including personal injury or wrongful death,
associated with the assets, including: (i) pollution or contamination of soil,
groundwater or air, and any other contamination of or adverse effect upon the
environment, (ii) underground injection activities and waste disposal (iii)
clean-up responses, remedial control or compliance costs including the required
cleanup or remediation of spills, pits, ponds, or lagoons including any
subsurface or surface pollution caused by such spills, pits, ponds, or lagoons,
(iv) noncompliance with applicable land use, permitting, surface disturbance,
licensing or notification requirements and (v) violation of any federal, state
or local environmental or land use law.
1.8 "EXCLUDED ASSETS" shall mean the following:
(a)(i) all trade credits, accounts receivable, notes receivable and
other receivables attributable to Seller's interest in the Assets with
respect to any period of time prior to the Effective Time; (ii) all
deposits, cash, checks or drafts in process of collection, cash
equivalents and funds attributable to Seller's interest in the Assets
with respect to any period of time prior to the Effective Time;
and (iii) all proceeds, benefits, income or revenues accruing (and any
security or other deposits made) with respect to the Assets prior to
the Effective Time;
(b) all corporate, financial, and tax records of Seller; however, Buyer
shall be entitled to receive copies of any records which directly
relate to any Assumed Obligations, or which are necessary for Buyer's
ownership, administration, or operation of the Assets;
(c) except as otherwise provided in Section 13.1, all rights, titles,
claims and interests of Seller (i) under any policy or agreement of
insurance or indemnity; (ii) under any bond; or (iii) to any insurance
or condemnation proceeds or awards;
(d) all Hydrocarbons produced from or attributable to the Assets with
respect to all periods prior to the Effective Time, together with all
proceeds from or of such Hydrocarbons;
(e) claims of Seller for refund of or loss carry forwards with respect
to production, windfall profit, severance, ad valorem or any other
taxes attributable to any period prior to the Effective Time, or income
or franchise taxes;
3
<PAGE> 8
(f) all amounts due or payable to Seller as adjustments or refunds
under any contracts or agreements (including take-or-pay claims)
affecting the Assets, respecting periods prior to the Effective Time;
(g) all amounts due or payable to Seller as adjustments to insurance
premiums related to the Assets with respect to any period prior to the
Effective Time; and
(8) any working interest owned by Seller in the Assets.
1.9 "HYDROCARBONS" SHALL MEAN CRUDE OIL, NATURAL GAS, CASINGHEAD GAS,
CONDENSATE, SULPHUR, NATURAL GAS LIQUIDS AND OTHER LIQUID OR GASEOUS
HYDROCARBONS (INCLUDING CO2), and shall also refer to all other minerals of
every kind and character, including, but not limited to any coal, bauxite, and
lignite rights which may be covered by or included in the Assets.
1.10 "INVENTORY HYDROCARBONS" shall mean all merchantable minerals
produced from or attributable to the Assets prior to the Effective Time which
have not been sold by Seller or the operator of the Assets involved therein and
are in storage at the Effective Time.
1.11 "PERSONAL PROPERTY AND INCIDENTAL RIGHTS" shall mean all right,
title and interest of Seller, if any, in and to or derived from the following
insofar as the same do not constitute Excluded Assets and are assignable and
attributable to, appurtenant to, incidental to, or used for the operation of the
Assets:
(a) all easements, rights-of-way, permits, licenses, servitudes or
other interests;
(b) all equipment and other personal property, inventory, spare parts,
tools, fixtures, pipelines, platforms, tank batteries, appurtenances,
and improvements situated upon the Assets and used or held for use in
connection with the development or operation of the Assets or the
production, treatment, storage, compression, processing or
transportation of Hydrocarbons from or in the Assets;
(c) all contracts, agreements, and title instruments to the extent
attributable to and affecting the Assets in existence at Closing,
including all Hydrocarbon sales, purchase, gathering, transportation,
treating, marketing, exchange, processing, fractionating contracts,
oil, gas and other mineral leases, and joint operating agreements; and
(d) copies of all files, land files, well files, gas and oil sales
contract files, gas processing files, division order
4
<PAGE> 9
files, abstracts, title opinions, and all other books, files and
records, information and data including computer software programs used
for land records and accounting, and all rights thereto of Seller
insofar as the same are directly related to and necessary to the
realization of value by Buyer of the Assets and to the extent the
transfer thereof is not prohibited by existing contractual obligations.
1.12 "PURCHASE PRICE" shall be as defined in Article 3.1.
1.13 "NET REVENUE" shall mean all income attributable to the Assets and
the Hydrocarbons to be derived therefrom, net of Buyer's expenses directly
associated with the ownership of the Assets and the Hydrocarbons, including
property taxes, transfer taxes, operating expenses (associated with any working
interest) and costs associated with ASSUMED OBLIGATIONS.
ARTICLE 2 - PURCHASE AND SALE
2.1 PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, and the elections of Seller under Section 2.2 hereof, Seller agrees
to sell and convey to Buyer, and Buyer agrees to purchase and pay for the Assets
and to assume the Assumed Obligations as provided for in Section 3.3.
2.2 PERFORMANCE DEPOSIT. On or before two (2) business days from the
date a fully executed copy of this agreement is actually delivered to Buyer's
office, Buyer will pay by wire transfer to Bank of Montreal Trust Company,
subject to the terms of a mutually acceptable escrow agreement, U.S.
$1,300,000.00 in good and immediately available funds, as a performance deposit
("Performance Deposit") on the Assets to be transferred to Buyer hereunder. This
Performance Deposit is solely to assure the performance of Buyer pursuant to the
terms and conditions of this Agreement. If Buyer, through no fault of Seller,
fails, refuses or is unable for any reason (including failure to obtain
financing) to close the transaction in accordance with the terms hereof, Seller
may, at its sole option, retain the Performance Deposit as agreed liquidated
damages and not as a penalty. In the event, however, either Buyer or Seller
refuses to close pursuant to the provisions of Section 6.5 hereof, the
Performance Deposit shall be returned as provided herein. If Closing occurs,
Seller shall credit Buyer with the amount of the Performance Deposit toward the
total Purchase Price at Closing.
ARTICLE 3 - PURCHASE PRICE AND PAYMENT
3.1 PURCHASE PRICE. Subject to adjustment as set forth in 3.1, the
Purchase Price for the Assets shall be thirteen million dollars
($13,000,000.00), and the back-in after payout described in Section 11.3 below.
The Purchase Price includes consideration for
5
<PAGE> 10
Buyer assuming all plugging, replugging, abandonment, removal, disposal, and
restoration obligations, if any, as provided in Section 3.3, and acquiring the
Inventory Hydrocarbons.
At Closing, the Purchase Price shall be reduced by lease bonus income
from leases granted after October 15, 1998, through the Closing, and by the
Performance Deposit. The adjusted purchase price, together with purchase price
adjustments, shall be paid by wire transfer in immediately available funds to
Seller or its Trust Account. Buyer shall be responsible for state sales tax, if
any.
3.2 FINAL SETTLEMENT. Within 120 days after Closing, Seller shall
provide to Buyer, for Buyer's concurrence, an accounting (the "Final Settlement
Statement") of the actual amounts of Seller's and Buyer's credits for the
adjustments set out in this Section 3.2. Buyer shall have the right for 30 days
after receipt of the Final Settlement Statement to audit and take exceptions to
such adjustments. Any disagreements shall be resolved on a best efforts basis by
Seller and Buyer. Those credits agreed upon by Buyer and Seller shall be netted
and the final settlement shall be paid as directed in writing by the receiving
party, on final adjustment by the party owing it (the "Final Settlement").
The Purchase Price shall be adjusted as follows:
(a) The Purchase Price shall be adjusted upward by the following
("Seller's Credits"):
(i) an amount equal to the sum of any upward adjustments
provided elsewhere in this Agreement; and
(ii) any other amount agreed upon by any Seller and Buyer in
writing prior to Closing.
(b) The Purchase Price shall be adjusted downward by the following
("Buyer's Credits"):
(i) the total sales value of all Hydrocarbons sold from the
Assets after the Effective Time and for which Seller is actually paid
by any third party after the Effective Time, all of which are
attributable to the Assets, any other monies collected by the Seller
with respect to the ownership or operation of the Assets after the
Effective Time for activities which occur after the Effective Time;
(ii) the amount of all unpaid ad valorem, property,
production, excise, severance and similar taxes and assessments (but
not including income taxes), which taxes and assessments become due and
payable or accrue to the Assets prior to the Effective Time, which
amount shall, where possible, be computed based upon the tax rate and
values
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<PAGE> 11
applicable to the tax period in question; otherwise, the amount of the
adjustment under this paragraph shall be computed based upon such taxes
assessed against the applicable portion of the Assets for the
immediately preceding tax period just ended;
(iii) an amount equal to the sum of any downward adjustments
provided elsewhere in this Agreement;
(iv) any other amount agreed upon by any Seller and Buyer in
writing prior to Closing.
3.3 PLUGGING, REPLUGGING, ABANDONMENT, REMOVAL, DISPOSAL, AND
RESTORATION. Upon Closing, Buyer shall assume all of Seller's plugging,
replugging, abandonment, removal, disposal and restoration obligations, if any,
associated with the Assets, and the necessary and proper capping and burying of
all associated flow lines. Buyer shall be responsible for the plugging and
abandonment of any wells drilled and the removal of any structures placed on the
Assets, to the extent Seller has any such obligations. All plugging, replugging,
abandonment, removal, disposal, and restoration operations, if any, shall be
conducted in a good and workmanlike manner.
ARTICLE 4 - SELLER'S REPRESENTATIONS AND WARRANTIES
4.1. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants to Buyer as of the date hereof and the Closing Date that:
(a) Seller is a Delaware corporation, duly organized, validly existing,
and in good standing and is duly authorized to carry on its business in
the states of Alabama, Louisiana and Mississippi;
(b) Seller has all requisite power and authority to carry on its
business as presently conducted, to enter into this Agreement and the
other documents and agreements contemplated hereby, and to perform its
obligations under this Agreement and the other documents and agreements
contemplated hereby. The consummation of the transactions contemplated
by this Agreement will not violate, nor be in conflict with, any
provision of its governing documents or any agreement or instrument to
which it is a party or by which it is bound or any judgment, decree,
order, statute, rule, or regulation applicable to Seller (except any
provision contained in agreements customary in the oil and gas industry
relating to (1) the preferential right to purchase all or any portion
of the Assets; (2) required consents to transfer and related
provisions; (3) maintenance of uniform interest provisions;
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<PAGE> 12
and (4) any other third-party approvals or consents contemplated
herein);
(c) this Agreement, and all documents and instruments required
hereunder to be executed and delivered by Seller at Closing, constitute
legal, valid and binding obligations of Seller in accordance with its
respective terms;
(d) there are no bankruptcy or receivership proceedings pending, being
contemplated by, or, to the actual knowledge of Seller, threatened
against Seller;
(e) there are no Environmental Obligations or Liabilities of which the
Seller is aware;
(f) there are no claims, demands, losses, damages, costs expenses,
causes of action, pending lawsuits or judgments of any kind or
character with respect to any liabilities and obligations or alleged or
threatened liabilities and obligations, including claims for personal
injury, illness, disease, wrongful death, damage to property, liability
based on strict liability or condition of the Assets attributable to or
arising out of the Assumed Obligations of which the Seller is aware;
(g) there are no challenges to the Seller's ownership of the Assets of
which the Seller is aware;
(h) Except as reflected on Exhibit "C", Seller has not sold any of the
Assets since acquiring the Assets from the Federal Intermediate Credit
Bank of Jackson;
(i) Except as will be released immediately prior to Closing, Seller is
not aware of any liens on the Assets nor has the Seller mortgaged,
pledged or hypothecated any of the Assets since acquiring the Assets
from the Federal Intermediate Credit Bank of Jackson;
(j) Seller's corporate resolutions have been fully executed and
delivered to Buyer verifying the execution, delivery and performance of
this Agreement and the transactions contemplated hereunder have been
duly and validly authorized by all requisite authorizing action,
corporate, partnership or otherwise on the part of Seller; and,
(k) Seller will execute any transfer orders, division orders, or
letters in lieu thereof, necessary to transfer production proceeds from
Seller to Buyer after Closing and any instruments necessary to correct
any inaccurate descriptions of the Assets.
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<PAGE> 13
ARTICLE 5 - BUYER'S REPRESENTATIONS AND WARRANTIES
5.1 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
warrants to Seller as of the date hereof and the Closing Date that:
(a) THE J. T. PHILP COMPANY is a Texas corporation duly organized,
validly existing, and in good standing and is duly organized to carry
on business in the state of Texas;
(b) it has all requisite power and authority to carry on its business
as presently conducted, to enter into this Agreement and the other
documents and agreements contemplated hereby, to purchase the Assets on
the terms described in this Agreement, and to perform its other
obligations under this Agreement and the other documents and agreements
contemplated hereby. The consummation of the transactions contemplated
by this Agreement will not violate, nor be in conflict with, any
provision of Buyer's articles of incorporation, partnership
agreement(s), by-laws or governing documents, or any material agreement
or instrument to which Buyer is a party or by which it is bound, or any
judgment, decree, order, statute, rule or regulation applicable to
Buyer;
(c) the execution, delivery and performance of this Agreement and the
transactions contemplated hereunder have been duly and validly
authorized by all requisite authorizing action, corporate, partnership
or otherwise on the part of the Buyer;
(d) this Agreement, and all documents and instruments required
hereunder to be executed and delivered by Buyer at Closing, will
constitute legal, valid and binding obligations of Buyer in accordance
with their respective terms;
(e) there are no bankruptcy, reorganization or receivership proceedings
pending, being contemplated by, or to the actual knowledge of Buyer,
threatened against Buyer;
(f) Buyer is an experienced and knowledgeable investor in the oil and
gas business. Prior to entering into this Agreement, Buyer was advised
by and has relied solely on its own expertise and legal, tax and other
professional counsel concerning this Agreement, the Assets and the
value thereof;
(g) Buyer is acquiring the Assets for its own account, not with a view
toward, and for the sale in connection with, any distribution thereof,
nor with any intention of distributing or selling any interests in the
Assets in violation of the Securities Act of 1933 or any other
applicable federal or state securities laws and regulations. In
entering into this transaction, Buyer has complied with securities laws
and
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<PAGE> 14
regulations which may be applicable. The foregoing notwithstanding,
Buyer shall have the right to assign all or part of its rights
hereunder at Closing, to no more than five additional parties;
(h) Buyer has arranged, or will arrange, to have available by the
Closing Date sufficient funds to enable the Buyer to pay in full the
Purchase Price as herein provided in 3.1 and otherwise to perform its
obligations under this Agreement; and
(i) Buyer has arranged to comply with all applicable laws, ordinances,
rules and regulations in connection with the Assets purchased.
ARTICLE 6 - ACCESS TO INFORMATION AND INSPECTIONS, AND
TITLE/ENVIRONMENTAL DEFECTS
6.1 TITLE FILES. Promptly after the execution of this Agreement and
until the Closing Date, Seller shall permit Buyer and its representatives at
reasonable times during normal business hours to examine, in Seller's offices at
their actual location, to inspect all Seller's files including but not limited
to abstracts of title, title opinions, title files, ownership maps, lease files,
assignments, division orders, payout statements and agreements pertaining to the
Assets insofar as the same may now be in existence and in the possession of
Seller. No warranty of any kind is made by Seller as to the information so
supplied, and Buyer agrees that any conclusions drawn therefrom are the result
of its own independent review and judgment.
6.2 OTHER FILES. Prior to the execution of this Agreement, Seller has
made available to Buyer, for its inspection, certain records and data in
possession of Seller, or its agents, which are directly related to or constitute
a portion of the Assets, and certain other files, records, and data pertaining
to the Assets. The Data furnished by Seller is believed by Seller to be accurate
and representative. No warranty of any kind is made by Seller as to the
information so supplied, and Buyer agrees that any conclusions drawn therefrom
are the result of its own independent review and judgment.
6.3 CONFIDENTIALITY AGREEMENT. All such information made available to
Buyer shall be maintained confidential by Buyer until Closing. Any
confidentiality agreement Buyer has previously executed with Seller with respect
to the Assets shall continue in force until Closing, at which time such
agreement shall terminate. Buyer shall further take whatever reasonable steps
which may be necessary to ensure that Buyer's employees, consultants and agents
comply with the provisions of this Section 6.3.
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6.4 INSPECTIONS. By the execution of this Agreement, Seller grants its
permission to Buyer and its representatives, at reasonable times and at their
sole risk, cost and expense, to conduct reasonable inspections of the Assets;
provided, however, Buyer shall repair any damage to the Assets resulting from
such inspections and Buyer does hereby indemnify and hold harmless Seller from
and against any and all losses, costs, damages, obligations, claims,
liabilities, expenses (including court costs and attorney's fees), or causes of
action arising from Buyer's inspection and observation of the Assets, including,
without limitation, claims for personal injuries or death of employees of the
Buyer, its contractors, agents, consultants and representatives, and property
damages.
6.5 TITLE AND ENVIRONMENTAL DEFECTS - NOTICE, ADJUSTMENTS AND
TERMINATION. Upon execution of and pursuant to the terms of this Agreement,
Buyer shall have the right to conduct its investigation into the status of the
title of the Assets and the physical and environmental condition of the Assets.
Such investigation or inspection shall be reasonable and shall be conducted at
such time and in such manner as is mutually agreed to by the Parties. If, in the
course of conducting such investigation, Buyer discovers significant
environmental matters or title defects materially affecting the value of Assets,
in Buyer's sole discretion, Buyer may, no later than ten days prior to the
Closing Date, notify Seller in writing specifying such defects, the Assets
affected thereby and Buyer's estimate of (i) in the case of non-producing net
acreage, as described on the schedule of non-producing net acreage attached
hereto as Exhibit "D", the net reduction in acreage covered by such defects,
and/or (ii) in the case of producing acreage, as described on the schedule of
substantial producing acreage attached hereto as Exhibit "E", the net reduction
in value of the producing acreage covered by such defects. Material defects are
defined as those which collectively exceed (i) 10% of the net non-producing
acreage, or (ii) 5% of the allocated value of the substantial producing acreage.
Buyer acknowledges that Seller produced Exhibit "E" as a matter of convenience
for Buyer, and Buyer shall satisfy itself as to the accuracy of the information
contained therein.
If Buyer fails to notify Seller no later than ten days prior to Closing
of the defects, the defects will be deemed waived, the Parties shall proceed
with Closing, Seller shall be under no obligation to correct the defects and
Buyer shall assume the risks related to the Assets. If Buyer notifies Seller of
the defects no later than ten days before Closing and if such defects are, in
the opinion of Seller, capable of being corrected prior to the Closing Date,
Seller may, but shall be under no obligation to, correct at its own costs and
expense, such defects on or before the Closing Date.
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If Seller, in Buyer's sole discretion, fails to correct the defects
prior to Closing, and Buyer's estimate of such defects collectively exceed ten
percent (10%) of the net non-producing acreage, or 5 percent (5%) of the value
of the substantial producing acreage, which calculation Buyer shall supply to
Seller at the time of notification of any such defects, Buyer shall have the
right to terminate this Agreement by so notifying Seller in writing. Upon such
termination, Seller shall return the Performance Deposit to Buyer within ten
(10) days of receipt of the notice of termination and neither Party shall have
any further obligations hereunder. Otherwise, Closing shall occur and Seller
shall make a reasonable effort to correct the defects within ninety (90) days of
Closing. If Seller, in Buyer's sole discretion, fails to correct the defects
within such ninety (90) day period, Seller shall refund to Buyer a defect value
amount that is mutually agreed to by the Parties and Buyer shall transfer that
part of the Assets affected thereby to Seller. In the event that the Parties
cannot mutually agree upon the defect value amount, the decision shall be
submitted to binding arbitration under the rules of the American Arbitration
Association.
ARTICLE 7 - TITLE AND OTHER MATTERS
7.1 NO WARRANTY OR REPRESENTATION. SELLER SHALL CONVEY SELLER'S
INTERESTS IN AND TO THE ASSETS TO BUYER SUBJECT TO ALL ROYALTIES, OVERRIDING
ROYALTIES, BURDENS, AND ENCUMBRANCES, AND WITHOUT ANY WARRANTY OF TITLE, EXPRESS
OR IMPLIED, AS PROVIDED IN THE FORM OF ASSIGNMENT, BILL OF SALE AND CONVEYANCE
ATTACHED AS EXHIBIT "B" HERETO. SELLER MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, WITH RESPECT TO THE ACCURACY, COMPLETENESS, OR MATERIALITY
OF THE INFORMATION, RECORDS, AND DATA NOW, HERETOFORE, OR HEREAFTER MADE
AVAILABLE TO BUYER IN CONNECTION WITH THE ASSETS OR THIS AGREEMENT (INCLUDING,
WITHOUT LIMITATION, ANY DESCRIPTION OF THE ASSETS, QUALITY OR QUANTITY OR
HYDROCARBON RESERVES, IF ANY, PRODUCTION RATES, RECOMPLETION OPPORTUNITIES,
DECLINE RATES, GAS BALANCING INFORMATION, POTENTIAL FOR PRODUCTION OF
HYDROCARBONS FROM THE ASSETS, OR ANY OTHER MATTERS CONTAINED IN ANY OTHER
MATERIAL FURNISHED TO BUYER BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES).
ANY AND ALL SUCH DATA, INFORMATION AND MATERIAL FURNISHED BY SELLER IS PROVIDED
AS A CONVENIENCE ONLY AND ANY RELIANCE ON OR USE OF SAME IS AT BUYER'S SOLE
RISK.
7.2 BUYER'S TITLE REVIEW. Buyer specifically assumes the risk of
description and title to the Assets. In addition, Buyer acknowledges that prior
to Closing it will have reviewed the title material in Seller's possession and
made available to Buyer and examined the status of title of the Assets to be
assigned. Buyer acknowledges that it will have conducted all necessary due
diligence with respect to title matters; and will have satisfied itself with the
status of Seller's title and agrees if this
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transaction closes, to accept same AS IS, WHERE IS and without any
title warranties, express or implied.
ARTICLE 8 - COVENANTS OF SELLER
8.1 COVENANTS OF SELLER PENDING CLOSING.
(a) From and after the date of execution of this Agreement and until
the Closing and subject to Article 8.2 below and the constraints of
applicable operating and other agreements, Seller shall operate,
manage, and administer the Assets in a good and workmanlike manner
consistent with its past principles and shall carry on its business
with respect to the Assets in substantially the same manner as before
execution of this Agreement. Seller shall: (1) from and after the date
of execution of this Agreement until Closing, not be entitled to
continue to grant, extend, ratify, or amend, as it deems necessary, oil
and gas leases on the Assets in the normal course of its business
without the express written consent of Buyer; (2) consult with, inform,
and advise Buyer regarding all material matters concerning the
operations, management, and administration of the Assets; (3) obtain
Buyer's written approval prior to voting under any operating unit,
joint venture, partnership, or similar agreement; and (4) not approve
or elect to go non-consent as to any proposed well or plug and abandon
or agree to plug and abandon any well without Buyer's prior written
approval. On any matter requiring Buyer's approval under this Section
8.1(a), Buyer shall respond in writing within five (5) days to Seller's
request for approval and failure of Buyer to respond to Seller's
request for approval within such time shall release Seller from the
obligation to obtain Buyer's approval before proceeding on such matter.
(b) Seller shall promptly notify Buyer of any suit, demand, action, or
other proceeding received by Seller after this Agreement is executed
before any court, arbitrator, or governmental agency and any cause of
action filed after the Effective Time which relates to the Assets or
which might result in impairment or loss of Seller's interest in any
portion of the Assets or which might hinder or impede the operation of
the Assets.
8.2 LIMITATIONS ON SELLER'S COVENANTS PENDING CLOSING. To the extent
Seller is not the operator of any of the Assets, the obligations of Seller in
Section 8.1 above, which have reference to operations or activities which
normally or pursuant to existing contracts are carried out or performed by the
operator, shall be construed to require only that Seller use all reasonable
efforts (without being obligated to incur any expense or institute any cause of
action) to cause the operator of such Assets to take such actions or render such
performance within the constraints of the applicable operating agreements and
other applicable agreements.
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ARTICLE 9 - CLOSING CONDITIONS
9.1 SELLER'S CLOSING CONDITIONS. The obligations of the Seller under
this Agreement are subject, at the option of Seller, to the satisfaction, at or
prior to the Closing, of the following conditions:
(a) all representations and warranties of Buyer contained in this
Agreement shall be true in all material respects at and as of the
Closing as if such representations and warranties were made at and as
of the Closing, and Buyer shall have performed and satisfied all
agreements required by this Agreement to be performed and satisfied by
Buyer at or prior to the Closing;
(b) the execution, delivery, and performance of this Agreement and the
transactions contemplated thereby have been duly and validly authorized
by all necessary action, corporate, partnership or otherwise, on the
part of Buyer;
(c) all necessary consents of and filings with any state or federal
governmental authority or agency relating to the consummation of the
transactions contemplated by this Agreement shall have been obtained,
accomplished or waived, except to the extent that such consents and
filings are normally obtained, accomplished or waived after Closing;
(d) as of the Closing Date, no suit, action or other proceedings
(excluding any such matter initiated by Seller) shall be pending or
threatened before any court or governmental agency seeking to restrain
Seller or prohibit the Closing or seeking damages against Seller as a
result of the consummation of this Agreement.
9.2 BUYER'S CLOSING CONDITIONS. The obligations of Buyer under this
Agreement are subject, at the option of Buyer, to the satisfaction at or prior
to the Closing, of the following conditions:
(a) all representations and warranties of Seller contained in this
Agreement shall be true in all material respects at and as of the
Closing as if such representations and warranties were made at and as
of the Closing, and Seller shall have performed and satisfied all
agreements required by this Agreement to be performed and satisfied by
Seller at or prior to the Closing;
(b) the execution, delivery, and performance of this Agreement and the
transactions contemplated thereby have been duly and validly authorized
by all necessary action, corporate or otherwise, on the part of Seller;
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(c) all necessary consents and filings with any state or federal
governmental authority or agency relating to the consummation of the
transactions contemplated by this Agreement shall have been obtained,
accomplished or waived, except to the extent that such consents and
filings are normally obtained, accomplished or waived after Closing;
(d) as of the Closing Date, no suit, action, or other proceedings
(excluding any such matter initiated by Buyer) shall be pending or
threatened before any court or governmental agency seeking to restrain
Buyer or prohibit the Closing or seeking damages against Buyer as a
result of the consummation of this Agreement;
(e) as of five (5) days preceding the Closing Date, (i) Buyer shall
have confirmed the information relating to actual income, as more
particularly set forth on Exhibit "F", is true and correct for the time
period covered thereby, plus or minus a tolerance of five percent (5%);
and (ii) Buyer, to its sole satisfaction, shall have confirmed gross
cash receipts attributable to leasing activities related to the Assets,
total at least $326,876.76, in accord with the schedule of lease
revenues attached hereto as Exhibit "G", for the time period covered
thereby, plus or minus a tolerance of five percent (5%); and
9.3 NOTICE ON CLOSING CONDITIONS. In the event either party shall
determine that any of the Closing Conditions required of the other party have
not been satisfied, such party shall give written notice to the other party,
with five (5) days' opportunity to cure, setting forth the specific Closing
Condition which has not been satisfied. In the event the other party is then
unable to satisfy such Closing Condition, either party may waive its objections
and proceed to Closing or otherwise, the parties' rights and obligations shall
be governed by the terms and provisions of Article 14.
ARTICLE 10 - CLOSING
10.1 CLOSING. The closing of this transaction (the "Closing") shall be
held at the offices of Seller at 1500 Howell Building, 1111 Fannin Street,
Houston, Texas 77002 at 10:00 a.m., Central Standard Time, thirty (30) days from
the date a fully executed copy of this agreement is delivered to Buyer's office,
in accord with Section 16.17 hereof; or at such earlier date or place as the
Parties may agree in writing (herein called "Closing Date"). On or before five
(5) business days prior to Closing, Buyer agrees to provide Seller a copy of all
documents prepared by Buyer which Buyer may request Seller to execute at
Closing.
10.2 SELLER'S CLOSING OBLIGATIONS. At Closing, except to the extent
comprising the Excluded Assets, Seller shall deliver to Buyer the Assignment,
Bill of Sale, and Conveyance substantially in
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the form attached hereto as Exhibit "B" and such other documents as may
be reasonably necessary to convey all of Seller's interest in the
Assets to Buyer in accordance with the provisions hereof.
10.3 BUYER'S CLOSING OBLIGATIONS. At Closing, Buyer shall deliver to
Seller:
(a) by wire transfer in immediately available funds to the bank account
designated by Seller the Purchase Price of $13,000,000.00 with all
adjustments as set forth in 3.1 above;
(b) a certified resolution of Buyer's Board of Directors evidencing the
authority of Buyer to enter into this Agreement and close the
transaction contemplated thereby.
10.4 JOINT CLOSING OBLIGATIONS. All events of Closing shall each be
deemed to have occurred simultaneously with the other, regardless of when
actually occurring, and each shall be a condition precedent to the other.
ARTICLE 11 - EFFECT OF CLOSING
11.1 ASSUMED OBLIGATIONS; PRE-CLOSING LIABILITIES. Buyer shall assume
all risk and loss with respect to and any change in the condition of the Assets
from the Effective Time until Closing for production of Hydrocarbons through
normal depletion (including the watering-out of any well) and the depreciation
of personal property through ordinary wear and tear. Upon and after Closing,
Buyer shall own the Assets, together with all the rights, duties, obligations,
and liabilities accruing after the Effective date, including the Assumed
Obligations and Buyer's indemnity obligations hereunder. Buyer agrees to assume
and pay, perform, fulfill and discharge all Assumed Obligations. To the extent
not included in Assumed Obligations or otherwise agreed within this Agreement,
or those matters for which Seller is indemnified, Seller agrees to pay, perform,
fulfill and discharge all costs, expenses and liabilities incurred by Seller
with respect to the ownership or operation of the Assets and accruing prior to
Closing.
11.2 AFTER FINAL SETTLEMENT. After Final Settlement, those proceeds
received by or expenses paid by either Seller or Buyer for or on behalf of the
other party with respect to the Assets which were not already included in the
Final Settlement, shall be settled as follows:
(a) Proceeds received by Buyer with respect to sales of Hydrocarbons
produced and sold prior to the Effective Time shall be remitted to
Seller. Proceeds received by Seller with respect to sales of
Hydrocarbons or Inventory Hydrocarbons produced after the Effective
Time shall be paid by Seller to Buyer.
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(b) Proceeds received which cover periods of time both before and after
the Effective Time, shall be allocated on days before versus days after
the Effective Time, unless some more appropriate way of splitting the
proceeds is available.
(c) In the event Seller is audited by Federal Intermediate Credit Bank
of Jackson pursuant to the Purchase and Sale Agreement made effective
as of August 1, 1993 between Seller and such entity, Buyer will
cooperate with Seller in remitting any proceeds to Seller which should
be thereafter remitted to Federal Intermediate Credit Bank of Jackson,
pursuant to the terms of such contract.
11.3 BACK-IN AFTER PAYOUT. On the first day of the first calendar month
following the calendar month in which Buyer has received Net Revenue equal to
$13,000,000.00, Buyer will assign an undivided ten percent (10.0%) interest in
and to the Assets to Seller. Such assignment shall be substantially similar to
the form assignment attached hereto as Exhibit "B". Buyer shall provide an
annual statement to Seller indicating Net Revenue which shall detail actual
receipts and expenses attributable to the Assets from all sources for the
calendar year. Seller shall have the right to audit the annual statement and
Buyer's records relating thereto, at Seller's sole cost and expense.
ARTICLE 12 - LIMITATIONS ON WARRANTIES AND REMEDIES
12.1 LIMITATIONS. THE EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER
CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT
LIMITATIONS ANY REPRESENTATION OR WARRANTY WITH RESPECT TO, TITLE TO THE ASSETS,
THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS OR OTHER
HYDROCARBONS IN OR UNDER THE ASSETS, OR THE ENVIRONMENTAL CONDITION OF THE
ASSETS. THE APPURTENANCES CONVEYED AS PART OF THE ASSETS ARE SOLD HEREUNDER "AS
IS, WHERE IS, AND WITH ALL FAULTS" AND NO WARRANTIES OR REPRESENTATIONS OF ANY
KIND OR CHARACTER, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, ARE GIVEN BY OR
ON BEHALF OF THE SELLER. IT IS UNDERSTOOD AND AGREED THAT PRIOR TO CLOSING BUYER
SHALL HAVE INSPECTED THE ASSETS FOR ALL PURPOSES AND HAS SATISFIED ITSELF AS TO
THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE AND SUBSURFACE, AND
THAT BUYER ACCEPTS SAME IN ITS "AS IS, WHERE IS, AND WITH ALL FAULTS" CONDITION.
THE WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU
OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, AND BUYER HEREBY WAIVES ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR CONDITION, OR
CONFORMITY TO SAMPLES.
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12.2 SURVIVAL. All representations, warranties, covenants, indemnities,
and agreements made herein shall survive the Closing.
ARTICLE 13 - CASUALTY LOSS AND CONDEMNATION
13.1 CASUALTY LOSS. If, prior to the Closing, all or any portion of the
Assets are destroyed by fire or other casualty or if any portion of the Assets
shall be taken by condemnation or under the right of eminent domain (all of
which are herein called "Casualty Loss" and limited to property damage or taking
only), Buyer and Seller must agree prior to Closing either (ii) to delete that
portion of the Assets that is subject to the Casualty loss from the Assets, and
the Purchase Price shall be reduced according to a value mutually agreed upon,
or (ii) for Buyer to proceed with the purchase of such Assets, notwithstanding
any such destruction or taking (without reduction of the Purchase Price) in
which case Seller shall pay, at the Closing, to Buyer all sums paid to Seller by
third parties by reason of the destruction or taking of such Assets and shall
assign, transfer and set over unto Buyer all of the right, title and interest of
Seller in and to any claims, causes of action, unpaid proceeds or other payments
from third parties arising out of such destruction or taking. Prior to Closing,
Seller shall not voluntarily compromise, settle or adjust any amounts payable by
reason of any Casualty Loss without first obtaining the written consent of
Buyer.
ARTICLE 14 - DEFAULT AND REMEDIES
14.1 SELLERS' REMEDIES. Upon failure of Buyer to comply herewith by the
Closing Date, as it may be extended in accordance herewith, or if Seller's
Closing Conditions set forth in Section 9.1 are not satisfied prior to Closing
Date, Seller, at its sole option, may terminate this Agreement and retain the
Performance Deposit, as Seller's sole and exclusive remedies for such default,
all other remedies (except as expressly retained in Section 14.3) being
expressly waived by Seller.
14.2 BUYER'S REMEDIES. Upon failure of Seller to comply herewith by the
Closing Date, as it may be extended in accordance herewith, or if Buyer's
Closing Conditions set forth in Section 9.2 are not satisfied prior to Closing
Date, Buyer, at its sole option, may (i) enforce specific performance or (ii)
terminate this Agreement and receive back the Performance Deposit from Seller,
as Buyer's sole and exclusive remedies for such default, all other remedies
(except as expressly retained in Section 14.3) being expressly waived by Buyer.
14.3 OTHER REMEDIES. Notwithstanding the foregoing, termination of this
Agreement shall not prejudice or impair Buyer's obligations under Sections 6.3
(and the Confidentiality Agreements referenced therein) and 6.4, and such other
portions of this
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Agreement as are necessary to the enforcement and construction of Sections 6.3
and 6.4. 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 non-prevailing party.
14.4 EFFECT OF TERMINATION. In the event of termination of this
Agreement, it and each and every provision thereof shall become void and have no
further effect whatsoever and neither Buyer nor Seller shall have any further
right or duty to the other hereunder, except as provided in this Section.
ARTICLE 15 - ASSUMPTION AND INDEMNITY
15.1 BUYER'S INDEMNITY. With the exception of those items for which
Seller expressly indemnifies Buyer under this Agreement, Buyer agrees to
indemnify, defend and hold Seller harmless from and against any and all claims,
demands, losses, damages, costs, expenses, causes of action or judgments of any
kind or character with respect to all liabilities and obligations or alleged or
threatened liabilities and obligations, including claims for personal injury,
illness, disease, wrongful death, damage to property, liability based on strict
liability or condition of the Assets attributable to or arising out of the
Assumed Obligations (including Buyer's plugging, replugging, abandonment,
removal, disposal, and restoration obligations described in Sections 1.3 and
3.3), Buyer's acts or omissions, the operation of the Assets by Buyer after the
Effective Time, the ownership of the Assets by Buyer after the Effective Time,
or which arise or are asserted after Closing and are attributable to the
ownership or operation of the Assets by Buyer after the Effective Time,
including, without limitation, any interest, penalty, reasonable attorney's fees
and other costs and expenses incurred in connection therewith or the defense
thereof, even if caused in whole or in part by the negligence or strict
liability of Seller, or the condition of the Assets.
15.2 SELLER'S INDEMNITY. Seller shall be responsible for any and all
liabilities, claims, causes of action, overpayment on production, and damages
arising out of the accounting or payment of proceeds of production or other
payments with respect to the Assets, insofar as such liabilities, claims, causes
of action, overpayment on production and damages (collectively "Claims") relate
to or arise out of events prior to the Effective Time and shall defend,
indemnify, and hold Buyer harmless from and against all such Claims. Likewise,
Seller shall retain any benefits arising from underpayments and additional
payments due on production sold prior to the Effective Time. Buyer shall be
responsible for all of said types of Claims insofar as they relate to periods of
time from and after the Effective Time and shall defend, indemnify, and hold
Seller harmless therefrom.
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15.3 BROKER OR FINDER'S FEE. Each party hereby agrees to indemnify and
hold the other harmless from and against any claim for a brokerage or finder's
fee or commission in connection with this Agreement or the transactions
contemplated by this Agreement to the extent such claim arises from or is
attributable to the actions of such indemnifying party, including, without
limitation, any and all losses, damages, attorney's fees, costs and expenses of
any kind or character arising out of or incurred in connection with any such
claim or defending against the same.
15.4 SECURITIES LAWS. Buyer shall protect, indemnify and hold harmless
Seller from and against any and all claims, costs, damages and liabilities
arising under applicable state or federal securities laws in connection with the
sale of the Assets or any portion thereof by Seller to Buyer or its assignees as
provided herein or the subsequent sale or other disposition of the Assets or any
portion thereof by Buyer, its affiliates or assignees.
15.5 MISCELLANEOUS. The indemnities of Seller herein shall not cover or
include any amounts which Buyer may legally recoup from other third party owners
without judicial process, or which Buyer is reimbursed by any third party. With
respect to any claim for which an indemnifying party may be required to provide
partial or full indemnity, or for which a party may be obligated to defend in
warranty, such party shall have the right, but not the obligation, to
participate fully in the defense of any such claim. Reasonable attorneys' fees,
court costs, interest, penalties, and other expenses incurred in connection with
the defense of such claims shall be included in Seller's and Buyer's indemnities
herein. All indemnities of Buyer and Seller herein shall extend to and cover the
parent, subsidiary and affiliated companies and the officers, directors,
employees, and agents of the indemnified party and its parent, subsidiary and
affiliated companies.
ARTICLE 16 - MISCELLANEOUS
16.1 PUBLIC ANNOUNCEMENTS. The Parties hereto agree that prior to
Closing, prior to making any public announcement or statement with respect to
the transaction contemplated by this Agreement, the party desiring to make such
public announcement or statement shall consult with the other party hereto and
exercise its best efforts to (i) agree upon the text of a joint public
announcement or statement to be made by both of such Parties; or (ii) obtain
written approval of the other party hereto to the text of a public announcement
or statement to be made solely by Seller or Buyer, as the case may be. Nothing
contained in this paragraph shall be construed to require either party to obtain
approval of the other party hereto to disclose information with respect to the
transaction contemplated by this Agreement to any state or federal governmental
authority or agency to the extent (i) required by applicable law or by any
applicable rules, regulations or orders of
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any governmental authority or agency having jurisdiction; or (ii) necessary to
comply with disclosure requirements of the New York Stock Exchange or other
recognized exchange or over the counter, and applicable securities laws.
16.2 FILING AND RECORDING OF ASSIGNMENTS, ETC. Buyer shall be solely
responsible for all filings and recording of assignments and other documents
related to the Assets and for all fees connected therewith, and upon request
Buyer shall advise Seller of the pertinent recording data. Seller shall not be
responsible for any loss to Buyer because of Buyer's failure to file or record
documents correctly or promptly.
16.3 FURTHER ASSURANCES AND RECORDS.
(a) After the Closing each of the Parties will execute, acknowledge and
deliver to the other such further instruments, and take such other
action, 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.
(b) Buyer agrees to maintain the files and records of Seller that are
acquired pursuant to this Agreement until August 1, 2000. In addition
to any other audit rights granted hereunder, Buyer shall provide Seller
and its representatives reasonable access to and the right to copy such
files and records, at the Seller's cost, for the purposes of (i)
preparing and delivering any accounting provided for under this
Agreement and adjusting, prorating and settling the charges and credits
provided for in this Agreement; (ii) complying with any law, rule or
regulations affecting Seller's interest in the Assets prior to the
Closing Date; (iii) preparing any audit of the books and records of any
third party relating to Seller's interest in the Assets prior to the
Closing Date, or responding to any audit prepared by such third
parties; (iv) preparing tax returns; (v) responding to or disputing any
tax audit; or (vi) asserting, defending or otherwise dealing with any
claim or dispute under this Agreement.
(c) To the extent not obtained or satisfied as of Closing, Seller
agrees to continue to use all reasonable efforts, but without any
obligation to incur any cost or expense in connection therewith, and to
cooperate with Buyer's efforts to
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obtain for Buyer (i) access to files, records and data relating to the
Assets in the possession of third parties; and (ii) access to wells
constituting a part of the Assets operated by third parties for
purposes of inspecting same.
(d) Buyer shall comply with all current and subsequently amended
applicable laws, ordinances, rules, and regulations applicable to the
Assets.
16.4 NOTICES. Except as otherwise expressly provided herein, all
communications required or permitted under this Agreement shall be in writing
and any communication or delivery hereunder shall be deemed to have been duly
given and received when actually delivered to the address of the party to be
notified as set forth below and addressed as follows:
If to Buyer:
The J. T. PHILP Company
Attn: John P. Thompson, Jr.
6517 Hillcrest, #304
Dallas, Texas 75205
Fax No.: (214) 369-4369
Telephone No.: (214) 369-5257
with copy to:
Holman Robertson Eldridge, P.C.
Attn: John Crow Miller
5949 Sherry Lane
Suite 1700
Dallas, Texas 75225
Fax No.: (214) 691-2109
Telephone No.: (214) 361-9494
If to Seller: Howell Petroleum Corporation
1111 Fannin, Suite 1500
Houston, TX 77002-6923
Attention: Richard K. Hebert
President & COO
Fax No.: (713) 658-4007
Telephone No.: (713) 658-4001
Provided, however, that any notice required or permitted under this
Agreement will be effective if given orally within the time provided, so long as
such oral notice is followed by written notice thereof in the manner provided
herein within twenty-four (24) hours thereafter. Any party may, by written
notice so delivered to the other, change the address to which delivery shall
thereafter be made.
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16.5 INCIDENTAL EXPENSES. Buyer shall bear and pay (i) all State or
local government sales, transfer, gross proceeds, or similar taxes incident to
or caused by the transfer of the Assets to Buyer; (ii) all documentary, transfer
and other State and local government taxes incident to the transfer of the
Assets to Buyer; and (iii) all filing, recording or registration fees for any
assignment or conveyance delivered hereunder. Each party shall bear its own
respective expenses incurred in connection with the Closing of this transaction,
including its own consultants' fees, attorneys' fees, accountants' fees, and
other similar costs and expenses.
16.6 ANTITRUST LAWS. If the Hart-Scott-Rodino Antitrust Improvement Act
of 1976 (the "HSR Act") is applicable to this transaction, then each party shall
have the responsibility for filing with the Federal Trade Commission and the
Department of Justice their respective notifications and reports and any
supplemental information which may be reasonably requested in connection with
the HSR Act, which reports and notifications and supplemental information will
comply in all material respects with the requirements of the HSR Act.
16.7 WAIVER. Any of the terms, provisions, covenants, representations,
warranties or conditions hereof may be waived only by a written instrument
executed by the party waiving compliance. Except as otherwise expressly provided
in this Agreement, the failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect such party's right
to enforce the same. No waiver by any 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 or 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, provisions, covenant, representation or warranty.
16.8 BINDING EFFECT; ASSIGNMENT. All the terms, provisions, covenants,
obligations, indemnities, representations, warranties and conditions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the Parties hereto and their respective successors and assigns. The rights of
each party under this Agreement are personal to that party and may not be
assigned or transferred to any other party, firm, corporation or other entity,
without the prior, express and written consent of the other party.
16.9 TAXES.
(a) Seller and Buyer agree that this transaction may be subject to the
reporting requirement of Section 1060 of the
23
<PAGE> 28
Internal Revenue Code of 1986, as amended, and that, therefore, IRS
Form 8594, Asset Acquisition Statement, may be required to be filed for
this transaction. In the event the Parties mutually agree that a filing
of Form 8594 is required by Buyer, the Parties will confer and
cooperate in the preparation and filing of necessary forms on behalf of
Buyer.
(b) Subject to Seller's rights as provided in Section 11.3 and any tax
consequences to Seller associated therewith, Seller shall be
responsible for and shall pay all taxes attributable to or arising from
the ownership or operation of the Assets prior to the Effective Time.
Buyer shall be responsible for and shall pay all taxes attributable to
or arising from the ownership or operation of the Assets after the
Effective Time. Each party shall be responsible for its own federal
income taxes, if any, as may result from this transaction.
16.10 AUDITS. It is expressly understood and agreed that Seller retains
its right to receive its proportionate share of the proceeds from any audits
relating to activities prior to the Effective Time. Buyer is under no obligation
to conduct any such audits.
16.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MISSISSIPPI, WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH DETERMINATIONS.
16.12 ENTIRE AGREEMENT. Except for the Confidentiality Agreements
referenced in Section 6.3, this Agreement embodies the entire agreement between
the Parties (superseding all prior agreements, arrangements and understandings
related to the subject matter hereof), and may be supplemented, altered,
amended, modified or revoked by writing only, signed by the Parties hereto. The
headings herein are for convenience only and shall have no significance in the
interpretation hereof.
16.13 EXHIBITS. All Exhibits and Schedules attached to this Agreement,
and the terms of those Exhibits and Schedules which are referred to in this
Agreement, are made a part hereof and incorporated herein by reference.
16.14 DELIVERY OF FILES AFTER CLOSING. The Assets set out in Section
1.12(iii) and (iv) shall be provided by Seller to Buyer as soon as possible
after the Closing Date at a location to be specified by Seller. Any
transportation, postage, or delivery costs from Seller's offices shall be at
Buyer's sole cost, risk and expense.
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<PAGE> 29
16.15 SURVIVAL. All of the representations, warranties, indemnities,
covenants and agreements of or by the Parties hereto shall survive the execution
and delivery of the Assignment, Bill of Sale and Conveyance.
16.16 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each and every counterpart shall be deemed for all purposes
one (1) agreement.
16.17 AGREEMENT AS OFFER. The offer contained in this Agreement shall
expire if not accepted by Seller by 5:00 P.M. on Friday, November 6, 1998. In
the event a fully executed copy of this Agreement has not been actually
delivered to Buyer by Federal Express by such date and time, the offer contained
herein will expire without further notice.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
SELLER:
HOWELL PETROLEUM CORPORATION
By: /s/ RICHARD K. HEBERT
---------------------------------------
Richard K. Hebert, President
BUYER:
THE J.T. PHILP COMPANY
By: /s/ JOHN P. THOMPSON, JR.
---------------------------------------
John P. Thompson, Jr., President
<PAGE> 30
J. T. PHILIP COMPANY
6517 HILLCREST #304
DALLAS, TEXAS 75205
November 12, 1998
Howell Petroleum Corporation
1111 Fannin, Suite 1500
Houston, Texas 77002-6923
Attention: Richard K. Hebert, President and COO
Re: Amendment to Purchase and Sale Agreement between Howell Petroleum
Corporation ("Seller") and the J.T. Philip Company ("Buyer"), effective
November 1, 1998 ("Agreement")
Gentlemen:
Buyer and Seller do hereby amend the Agreement in the manner set forth below.
All terms defined in the Agreement shall have the same meaning when used herein:
Section 11.3 of the Agreement is hereby deleted and the following provision
substituted therefor:
11.3 Net Profits Interest. From and after the date at which aggregate
Net Revenue equals $13,000,000 (hereinafter called "Payout"), Buyer
shall pay, within 30 days following the end of each calendar quarter,
to Seller 10% of all Net Profits (defined below) received by Buyer
after Payout. The term "Net Profits" as used in this Agreement shall
mean the Net Revenue received by Buyer after Payout during the subject
calendar quarter. The definition of Net Revenue as defined in Section
1.13 shall not include (i) general and administrative expenses incurred
by Buyer (excluding bona fide third party expenses) directly associated
with the ownership of the Assets, or (ii) costs or revenue associated
with participation in a working interest. Buyer also agrees that leases
to affiliates, if made will be at then current competitive lease rates.
The net profits interest created hereby does not encumber the Assets or
"run with the land," and Buyer shall have the authority and ability to
transfer (via arm's-length transaction with a bona fide third party)
all or any portion of the Assets free of this net profits interest;
however, any proceeds received by Buyer from any such disposition
(including any retained interest) shall be treated as income
attributable to the Assets for the purpose of computing Net Revenue.
Prior to Payout, Buyer shall provide an annual statement to Seller
indicating Net Revenue which shall detail actual receipts and expenses
attributable to Assets from all sources for the calendar year. After
Payout, Buyer shall provide quarterly statements which shall detail
receipts and expenses. Seller shall have
<PAGE> 31
the rights to audit all such statements and Buyer's records relating
thereto, with advance notice, during regular business hours and at
Seller's sole cost and expense.
The first sentence of Section 3.1 of the Agreement is hereby amended by
inserting the words net profits interest therein, so that this sentence now
reads as follows:
Subject to adjustments as set forth in 3.1, the Purchase Price for the
Assets shall be thirteen million dollars ($13,000,000.00), and the Net
Profits Interest described in Section 11.3 below. [remainder unchanged]
The third sentence of Section 6.5 of this Agreement is hereby amended by
inserting the words gas imbalances therein, so that this sentence now reads as
follows:
If, in the course of conducting such investigation, Buyer discovers
significant environmental matters, title defects, or gas imbalances
materially affecting the value of Assets.... [remainder unchanged]
Buyer shall have until 10:00 a.m. Dallas, Texas time on Monday, November 16,
1998, to initiate the wire transfer of funds required by Section 2.2 of the
Agreement.
Except as amended hereby, the Agreement remains in full force and effect in
accordance with its terms.
THE J.T. PHILIP COMPANY
By: /s/ John P. Thompson, Jr.
------------------------------------
John P. Thompson, Jr., President
Dated: November 13, 1998 Director and Sole Shareholder
HOWELL PETROLEUM CORPORATION
By: /s/ Richard K. Hebert
------------------------------------
Name: Richard K. Hebert
----------------------------------
Dated: November 13, 1998 Title: President
---------------------------------
<PAGE> 1
EXHIBIT 10.5
================================================================================
CREDIT AGREEMENT
BETWEEN
COMPASS BANK
AND
TORMIN, INC.
December 15, 1998
------------------------------------
$5,900,000 TERM LOAN
-------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS ................................................................ 1
SECTION 1.1 Definitions .......................................... 1
ARTICLE II
COMMITMENT TO LEND ......................................................... 11
SECTION 2.1 Commitment ........................................... 11
SECTION 2.2 The Loan ............................................. 11
SECTION 2.3 Note ................................................. 11
SECTION 2.4 Certain Payments and Prepayments of Principal ........ 11
SECTION 2.5 Interest ............................................. 12
SECTION 2.6 Engineering and Facility Fees; Authorized
Payments by Lender .............................. 12
SECTION 2.7 Determination of Borrowing Base; Borrowing
Base Deficiency ...................................... 12
ARTICLE III
GENERAL PROVISIONS ......................................................... 13
SECTION 3.1 General Provisions as to Payments and Loan ........... 13
SECTION 3.2 Computation of Interest .............................. 14
SECTION 3.3 Overdue Principal and Interest ....................... 14
ARTICLE IV
COLLATERAL ................................................................. 14
SECTION 4.1 Security ............................................. 14
ARTICLE V
CONDITIONS PRECEDENT TO LOAN ............................................... 15
SECTION 5.1 The Loan. In the case of the Loan ................... 15
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER ............................. 16
SECTION 6.1 Existence and Power .................................. 17
SECTION 6.2 Corporate and Governmental Authorization;
Contravention ................................... 17
SECTION 6.3 Binding Effect ....................................... 17
SECTION 6.4 Subsidiaries; Ownership .............................. 17
SECTION 6.5 Disclosure ........................................... 18
SECTION 6.6 Financial Information ................................ 18
SECTION 6.7 Litigation ........................................... 18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 6.8 Plans ................................................. 18
SECTION 6.9 Taxes and Filing of Tax Returns ....................... 18
SECTION 6.10 Title to Properties; Liens; Environmental
Liability; Type of Interests .................... 18
SECTION 6.11 Business; Compliance .................................. 19
SECTION 6.12 Licenses, Permits, Etc ................................ 19
SECTION 6.13 Compliance with Law.................................... 19
SECTION 6.14 Governmental Consent .................................. 19
SECTION 6.15 Investment Company Act ................................ 19
SECTION 6.16 Public Utility Holding Company Act; State
Utility ......................................... 19
SECTION 6.17 Year 2000 Preparedness ................................ 20
SECTION 6.18 Refunds; Certain Contracts ............................ 20
SECTION 6.19 No Default ............................................ 20
ARTICLE VII
COVENANTS .................................................................... 20
SECTION 7.1 Use of Proceeds ....................................... 20
SECTION 7.2 Financial Statements; Reserve Reports;
Compliance Certificates; Certain Notices ........ 21
SECTION 7.3 Inspection of Properties and Books .................... 23
SECTION 7.4 Maintenance of Security; Insurance; Operating
Accounts; Transfer Orders ....................... 23
SECTION 7.5 Payment of Taxes and Claims ........................... 24
SECTION 7.6 Payment of Debt; Additional Debt ...................... 24
SECTION 7.7 Liens ................................................. 24
SECTION 7.8 Loans and Advances to Others; Investments;
Restricted Payments ............................. 25
SECTION 7.9 Consolidation, Merger, Maintenance, Change of
Control; Disposition of Property; Restrictive
Agreements; Hedging Agreements; Issuance of
Securities ...................................... 25
SECTION 7.10 Primary Business; Location of Borrower's Office;
Ownership of Assets ............................. 26
SECTION 7.11 Changes to Certain Contracts .......................... 26
SECTION 7.12 Transactions with Affiliates .......................... 26
SECTION 7.13 Plans ................................................. 26
SECTION 7.14 Compliance with Laws and Documents .................... 27
SECTION 7.15 Certain Financial Covenants ........................... 27
SECTION 7.16 Additional Documents; Quantity of Documents;
Title Data; Additional Information .............. 27
SECTION 7.17 ENVIRONMENTAL INDEMNIFICATION ......................... 28
SECTION 7.18 Year 2000 ............................................ 29
SECTION 7.19 Exceptions to Covenants ............................... 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII
DEFAULTS; REMEDIES ......................................................... 29
SECTION 8.1 Events of Default; Acceleration of Maturity .......... 29
SECTION 8.2 Suits for Enforcement ................................ 31
SECTION 8.3 Remedies Cumulative .................................. 31
SECTION 8.4 Remedies Not Waived .................................. 31
ARTICLE IX
MISCELLANEOUS .............................................................. 32
SECTION 9.1 Amendments and Waivers ............................... 32
SECTION 9.2 Highest Lawful Interest Rate ......................... 32
SECTION 9.3 INDEMNITY ............................................ 32
SECTION 9.4 Expenses ............................................. 33
SECTION 9.5 Taxes ................................................ 34
SECTION 9.6 Notices .............................................. 34
SECTION 9.7 Right of Set-Offs .................................... 34
SECTION 9.8 Survival ............................................. 35
SECTION 9.9 Successors and Assigns: Rights of Other Holders ...... 35
SECTION 9.10 Applicable Law; Venue; Waiver of Jury Trial ......... 35
SECTION 9.11 Headings ............................................ 36
SECTION 9.12 Counterparts ........................................ 36
SECTION 9.13 Invalid Provisions, Severability .................... 36
SECTION 9.14 Preclusion of Oral Agreements ....................... 37
FORM OF PROMISSORY NOTE
FORM OF COMPLIANCE CERTIFICATE
OFFICERS' CORPORATE CERTIFICATE
(Tormin, Inc.)
OFFICERS'CORPORATE CERTIFICATE
(Toreador Exploration & Production, Inc.)
OFFICERS' CORPORATE CERTIFICATE
(Toreador Royalty Corporation)
FORM OF CERTIFICATE OF OWNERSHIP INTERESTS
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of December 15, 1998, by and
between Tormin, Inc., a Delaware corporation, and COMPASS BANK, an Alabama state
bank.
RECITALS:
A. Tormin, Inc. ("Tormin") desires to borrow funds from Compass
Bank.
B. Tormin desires to acquire certain mineral acreage from Howell
Petroleum Corp.
C. This is not a revolving credit facility.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Acceptable Hedging Agreements" means Hedging Agreements meeting all
the following criteria:
(a) The quantity of hydrocarbons owned by the Borrower subject to
Hedging Agreements shall not be greater than 75% of the monthly production of
the Collateral forecast in the Lender's most recent engineering evaluation
delivered to the Borrower, without the prior written approval of the Lender;
(b) The "strike prices" under any Hedging Agreements shall not be less
than the lowest prices utilized in the Lender's most recent base case evaluation
of the Collateral reported to the Borrower, except that under certain downside
conditions such lower strike price as the Lender may approve in writing
following a written request by the Borrower;
(c) The Lender must have given its written consent to the
counter-parties under the Hedging Agreements; and
(d) The Lender shall have received first and prior perfected security
interests pursuant to security agreements in form and substance reasonably
satisfactory to the Lender in and to the Hedging Agreements.
1
<PAGE> 6
"Affiliate" means any Person directly or indirectly controlling, or
under common control with, the Borrower and includes any Subsidiary of the
Borrower and any "affiliate" of the Borrower within the meaning of Reg. Section
240.12b-2 of the Securities Exchange Act of 1934, as amended, with "control," as
used in this definition, meaning possession, directly or indirectly, of the
power to direct or cause the direction of management, policies or action through
ownership of voting securities, contract, voting trust, or membership in
management or in the group appointing or electing management or otherwise
through formal or informal arrangements or business relationships. The term
"Affiliate" shall include Affiliates of Affiliates (and so on). The term
"Affiliate" shall also include each Guarantor and their Subsidiaries.
"Agreement" means this Credit Agreement, as the same may hereafter be
modified or amended from time to time.
"Borrower" means Tormin, Inc., a Delaware corporation.
"Borrowing Base" means the amount most recently determined and
designated by the Lender as the Borrowing Base in accordance with Section
2.8(a), but in no event in excess of the Commitment Amount. The Borrowing Base
under Section 2.8(a) is agreed to be $5,900,000 as of the Closing Date.
"Borrowing Base Deficiency" means, as of the date of determination of a
new Borrowing Base under Section 2.8(a), the amount, if any, by which the
outstanding principal balance of the Loan exceeds the Borrowing Base.
"Business Day" means any day (other than Saturdays and Sundays) on
which the Lender is open for general banking business in Dallas, Texas.
"CBIR Rate" means, on any day, the prime rate as published in The Wall
Street Journal's "Money Rates" table for such day. If multiple prime rates are
quoted in such table, then the highest prime rate quoted therein shall be the
CBIR Rate. In the event that a prime rate is not published in The Wall Street
Journal's "Money Rates" table, the Lender will choose a substitute CBIR Rate,
for purposes of calculating the interest rate applicable hereunder, which is
based on comparable information, until such time as a prime rate is published in
The Wall Street Journal's "Money Rates" table. Each change in the CBIR Rate
shall become effective without notice to the Borrower on the effective date of
each such change.
"Change of Control Event" means the failure of the Parent to own and
control at least 100% of every class of equity interests of the Borrower.
"Closing" means the consummation of the transactions contemplated
herein.
"Closing Date" means the date of this Agreement.
"Collateral" means the Property pledged to the Lender as security for
the Note.
2
<PAGE> 7
"Collateral Value" means, with respect to any Property, the positive
dollar amount which such Property contributed to the most recently determined
Borrowing Base.
"Commitment Amount" means the amount of $5,900,000.
"Commonly Controlled Entity" means any Person which is under common
control with the Borrower within the meaning of Section 4001 of ERISA.
"Compliance Certificate" means a certificate, substantially in the form
attached hereto entitled "Form of Compliance Certificate", executed by a
Responsible Officer of the Borrower and furnished to the Lender from time to
time in accordance with Section 7.2(a).
"Debt" of any Person means at any date, without duplication:
(a) all obligations of such Person for money borrowed, including,
without limitation, (i) the obligations of such Person for money borrowed by a
partnership of which such Person is a general partner, (ii) obligations which
are secured in whole or in part by the Property of such Person, and (iii) any
obligations of such Person in respect of letters of credit and repurchase
agreements;
(b) all obligations of such Person evidenced by notes, debentures,
bonds or similar instruments;
(c) all obligations of such Person to pay the deferred purchase price
of property or services (except trade accounts arising in the ordinary course of
business if interest is not paid or accrued thereon);
(d) all obligations of such Person as lessee under capital leases,
other than usual and customary oil and gas leases; and
(e) all Guarantees by such Person of Debt of another Person.
"Default" means the occurrence of an Event of Default or any event
which with notice, lapse of time or both would, unless cured or waived, become
an Event of Default.
"Default Rate" means a per annum interest rate equal to the CBIR Rate
plus five percent (plus 5.0%), but in no event exceeding the Highest Lawful
Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Environmental Laws" means: any law, statute, regulation, order or rule
promulgated by any Governmental Authority, whether local, state or federal
relating to air pollution, water pollution, noise control and/or transporting,
storing, handling, discharge, disposal or recovery of on-site or off-site
hazardous substances or materials, as each of the foregoing may be amended from
time to time.
3
<PAGE> 8
"Environmental Liability" means any claim, demand, obligation, cause of
action, accusation, allegation, order, violation, damage, injury, judgment,
penalty or fine, cost of enforcement, cost of remedial action or any other cost
or expense whatsoever, including reasonable attorneys, fees and disbursements,
resulting from the violation or alleged violation of any Environmental Law or
the imposition of any Environmental Lien.
"Environmental Lien" means a Lien in favor of a Tribunal or other
Person (i) for any liability under an Environmental Law or (ii) for damages
arising from or costs incurred by such Tribunal or other Person in response to a
release or threatened release of hazardous or toxic waste, substance or
constituent into the environment.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, together with all presently effective and future regulations issued
pursuant thereto.
"Event of Default" has the meaning stated in Section 8.1 hereof.
"Final Maturity" means June 1, 2000.
"Floating Rate" means a per annum interest rate equal to the sum of the
CBIR Rate from time to time in effect plus one fourth of one percent (plus 1/4
of 1.0%), but in no event exceeding the Highest Lawful Rate.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof. Any accounting principle or practice required to be changed
by the Accounting Principles Board or Financial Accounting Standards Board (or
other appropriate board or committee of such Boards) in order to continue as a
generally accepted accounting principle or practice may be so changed. In the
event of a change in GAAP, the Loan Papers shall continue to be construed in
accordance with GAAP as in existence on the date hereof.
"Governmental Authority" means any nation, country, commonwealth,
territory, government, state, county, parish, municipality, or other political
subdivision and any entity exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining to government.
"Gross Proceeds" means for any period all cash proceeds received by the
Borrower or on the Borrower's behalf or for the Borrower's benefit from all
sources, including without limitation, cash proceeds from the sale of oil and
gas or oil and gas mineral interests.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to
4
<PAGE> 9
purchase assets, goods, securities or services, to take-or-pay, to make
reimbursement in connection with any letter-of-credit or to maintain financial
statement conditions, by "comfort letter" or other similar undertaking of
support or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part). The term "Guarantee" includes the pledging or other encumbrance of assets
by a Person to secure the obligations of another Person and restrictions or
limitations on a Person or its assets agreed to in connection with the
obligations of another Person, but does not include endorsements for collection
or deposit in the ordinary course of business; and "Guaranteed" by a Person
shall mean the act or condition of providing a Guarantee by such Person or
permitting a Guarantee of such Person to exist.
"Guarantors" means the Parent and Toreador Exploration & Production,
Inc., a Texas corporation.
"Guaranty" means the guaranty of each Guarantor in favor of the Lender
guarantying the Obligations of the Borrower to the Lender, in form and substance
satisfactory to the Lender and each such Guarantor.
"Hedging Agreement" means (i) any interest rate or currency swap, rate
cap, rate floor, rate collar, forward agreement, or other exchange or rate
protection agreement or any option with respect to any such transaction and (ii)
any swap agreement, cap, floor, collar, exchange transaction, forward agreement,
or other exchange or protection agreement relating to hydrocarbons or any option
with respect to any such transaction.
"Highest Lawful Rate" means the maximum non-usurious interest rate, if
any (or, if the context so requires, an amount calculated at such rate), that at
any time or from time to time may be contracted for, taken, reserved, charged,
or received under applicable laws of the State of Texas or the United States of
America, whichever authorizes the greater rate, as such laws are presently in
effect or, to the extent allowed by applicable law, as such laws may hereafter
be in effect and which allow a higher maximum non-usurious interest rate than
such laws now allow. To the extent the laws of the State of Texas are applicable
for the purpose of determining the "Highest Lawful Rate", such term shall mean
the "weekly ceiling" from time to time in effect as referred to and defined in
Chapter 303 of the Finance Code of Texas, as amended. The determination of the
Highest Lawful Rate shall, to the extent required by applicable law, take into
account as interest paid or contracted for any and all relevant payments or
charges under the Loan Documents.
"Insolvency Proceeding" of any Person means application (whether
voluntary or instituted by another Person) for or the consent to the appointment
of a receiver, trustee, conservator, custodian, or liquidator of such Person or
of all or a substantial part of the Property of such Person, or the filing of a
petition (whether voluntary or instituted by another Person) commencing a case
under Title 11 of the United States Code, seeking liquidation, reorganization,
or rearrangement or taking advantage of any bankruptcy, insolvency, debtor's
relief, or other similar law of the United States, the State of Texas, or any
other jurisdiction.
5
<PAGE> 10
"Intangible Assets" of any Person means those assets of such Person
which are (i) deferred assets, other than prepaid insurance and prepaid taxes,
(ii) Intellectual Property, (iii) goodwill, experimental expenses and other
assets which would be classified as intangible assets on a balance sheet of such
Person, prepared in accordance with GAAP, (iv) unamortized debt discount and
expenses, and (v) costs in excess of fair value of the net assets acquired.
"Intellectual Property" means all patents, patent applications,
trademarks, trade names, franchise agreements, license agreements, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos, formulae, recipes, trade secrets, other source and
business identifiers, copyrights and the like.
"Investment" in any Person shall mean any stock, bond, note, or other
evidence of Debt, or any other security (other than current trade and customer
accounts) of, investment or partnership interest in or loan or advance to, such
Person.
"Lender" means Compass Bank, an Alabama state bank, and its successors
and assigns.
"Lien" means, as to any Person, any mortgage, lien, pledge, adverse
claim, charge, security interest, negative pledge or other encumbrance in or on,
or any interest or title of any vendor, lessor, lender or other secured party to
or of the Person under any conditional sale or other title retention agreement
or capital lease with respect to, any property or asset of the Person, or the
signing or filing of a financing statement which names the Person as debtor, or
the signing of any security agreement authorizing any other Person as the
secured party thereunder to file any financing statement.
" Loan" means the loan made or to be made by the Lender to the Borrower
pursuant to this Agreement or the aggregate outstanding amount of such loan, as
the context may require.
"Loan Documents" or "Loan Papers" shall mean this Agreement, the Note,
the Security Instruments, and all other documents and instruments now or
hereafter delivered pursuant to the terms of or in connection with this
Agreement, the Note, or the Security Instruments, and all renewals and
extensions of, amendments and supplements to, and restatements of, any or all of
the foregoing from time to time in effect.
"Loan Papers". See Loan Documents.
"Material Adverse Effect" shall mean (i) any material adverse effect on
the business, operations, properties, or condition (financial or otherwise), of
the Borrower, or (ii) any material adverse effect upon the Collateral or the
priority or enforceability of the Liens securing the Note.
"Material Agreement" means, with respect to any Person, any material
written or oral agreement, contract, commitment, or understanding to which such
Person is a party, by which such Person is directly or indirectly bound, or to
which any Property of such Person may be subject, which is not cancellable by
such Person upon notice of 90 days or less without (i) liability for further
payment other than nominal penalty or (ii) forfeiture of valuable Property.
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"Margin Regulations" means Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
"Mortgages" mean deeds of trust, mortgages, assignments of production,
security agreements, collateral mortgages, and acts of pledge in form and
substance acceptable to the Lender to be executed by the appropriate Person
pursuant to which the Lender is granted a first and prior Lien on the
Collateral, subject only to Permitted Liens.
"Net Proceeds" means for any period, an amount equal to 95% of the
difference of (i) Gross Proceeds for such period less (ii) general and
administration actually incurred for such period.
"Note" means the promissory note of the Borrower (and any renewal or
extension thereof) evidencing the obligation of the Borrower to repay the Loan,
substantially in the form attached hereto entitled "Form of Promissory Note",
with appropriate insertions.
"Obligations" shall mean, without duplication, (i) all Debt evidenced
by the Note, (ii) the obligation of the Borrower for the payment of the fees
payable hereunder or under the other Loan Documents, and (iii) all other
obligations and liabilities of the Borrower to the Lender, now existing or
hereafter incurred, under, arising out of or in connection with any Loan
Document, and to the extent that any of the foregoing includes or refers to the
payment of amounts deemed or constituting interest, only so much thereof as
shall have accrued, been earned and which remains unpaid at each relevant time
of determination.
"Officer's Certificate" means as to the Borrower a certificate signed
by a Responsible Officer.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Parent" means Toreador Royalty Corporation, a Delaware corporation.
"Permitted Indebtedness" means (i) the Obligations, (ii) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 120 days beyond the date above or are being contested in
good faith and as to which such reserve as is required by GAAP has been made and
on which interest charges are not paid or accrued, (iii) accrued taxes and
unsecured accounts payable owed to insurance companies for insurance contracts
maintained by Borrower in its ordinary course of business, (iv) endorsements of
negotiable instruments in the ordinary course of business or (v) Debt owed to
the Parent described in Section 4.1(a)(iii).
"Permitted Investments" means investments in (i) indebtedness,
evidenced by notes maturing not more than 180 days after the date of issue,
issued or guaranteed by the government of the United States of America, (ii)
certificates of deposit maturing not more than 180 days after the date of issue,
issued by commercial banking institution each of which is a member of the
Federal Reserve System and which has combined capital and surplus and undivided
profits of not less than $50,000,000, (iii)
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commercial paper, maturing not more than 90 days after the date of issue, issued
by (a) the Lender (or any parent corporation of the Lender) or (b) a corporation
(other than an Affiliate of the Borrower) with a rating of "P1" (or its then
equivalent) according to Moody's Investors Service, Inc., "A-1" (or its then
equivalent) according to Standard & Poor's Corporation or "F-1" (or its then
equivalent) according to Fitch's Investors Services, Inc. or (iv) such other
instruments, evidences of indebtedness or investment securities as the Lender
may approve.
"Permitted Liens" means, with respect to any Property,
(a) Liens in favor of the Lender;
(b) the following, if the validity and amount thereof are being
contested in good faith and by appropriate legal proceedings and so long as (i)
levy and execution thereon have been stayed and continue to be stayed, (ii) they
do not in the aggregate materially detract from or threaten the value of the
asset, or materially impair the use thereof in the operation of the Borrower's
business, and (iii) a reserve therefor, if appropriate, has been established:
claims and Liens for Taxes due and payable; claims and Liens upon and defects of
title to real and personal property, including any attachment of personal or
real property or other legal process prior to adjudication of a dispute on the
merits; claims and Liens of mechanics, materialmen, warehousemen, or carriers,
or similar Liens; and adverse judgments on appeal;
(c) Liens for Taxes not past due;
(d) mechanics' and materialmen's Liens for services or materials
for which payment is not past due;
(e) operators' Liens incurred pursuant to operating agreements
entered into by the Borrower in the ordinary course of business which secure
obligations not past due; and
(f) Liens in favor of the lessor on the Property being leased
under any capital lease permitted hereunder.
(g) the net profits interest of Howell Petroleum Corporation
reserved in the Purchase and Sale Agreement dated November 12, 1998, as amended
on or prior to the date hereof.
"Permitted Loans and Investments" means (i) loans by the Borrower to or
the acquisition of Investments by the Borrower in any Person not exceeding in
the aggregate outstanding at any time the amount of $25,000 and not otherwise
permitted under this Agreement and (ii) Permitted Investments.
"Person" means a corporation, an association, a joint venture, an
organization, a business, an individual or a government or political subdivision
thereof or any governmental agency.
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"Plan" means, at any time, any employee benefit plan which is covered
by ERISA and in respect of which the Borrower or any Commonly Controlled Entity
is (or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
"Requirement of Law" means, as to any Person, the certificate or
articles of incorporation and by-laws or other organizational or governing
documents of such Person, and any applicable law, treaty, ordinance, order,
judgment, rule, decree, regulation, or determination of an arbitrator, court, or
other Governmental Authority, including, without limitation, rules, regulations,
orders, and requirements for permits, licenses, registrations, approvals, or
authorizations, in each case as such now exist or may be hereafter amended and
are applicable to or binding upon such Person or any of its Property or to which
such Person or any of its Property is subject. Unless otherwise specified, the
"Person" referred to in this definition shall be deemed to be the Borrower.
"Responsible Officer" means as to the Borrower, the President or any
Vice President of the Borrower.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Restricted Payment" means:
(a) the declaration or payment of any dividend on, or the
incurrence of any liability to make any other payment or distribution in respect
of, any shares of or other ownership interests in the Borrower;
(b) any payment or distribution on account of the purchase,
redemption or other retirement of any shares of or other ownership interests in
the Borrower, or of any warrant, option or other right to acquire such shares or
such other ownership interests, or any other payment or distribution made in
respect thereof, either directly or indirectly;
(c) the repayment by the Borrower of any Debt owed to an
Affiliate; or
(d) any loan or extension of credit by the Borrower to any
Affiliate.
The amount of any Restricted Payment in Property shall be deemed to be the
greater of its fair market value or its net book value ("fair market value" will
be determined by an appraisal in form, and prepared by an appraiser, selected by
the Borrower and acceptable to the Lender).
"Security Document". See Security Instruments.
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"Subsidiary" means for any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned, collectively, by such
Person and any Subsidiaries of such Person. The term Subsidiary shall include
Subsidiaries of Subsidiaries (and so on).
"Taxes" means all taxes, assessments, filing or other fees, levies,
imposts, duties, deductions, withholdings, stamp taxes, interest equalization
taxes, capital transaction taxes, foreign exchange taxes or charges, or other
charges of any nature whatsoever from time to time or at any time imposed by any
law or Tribunal.
"Transferee" means any Person to which the Lender has sold, assigned,
transferred, or granted a participation in any of the Obligations, as authorized
hereunder, and any Person acquiring, by purchase, assignment, transfer, or
participation, from any such purchaser, assignee, transferee, or participant,
any part of such Obligations.
"Tribunal" means any court, tribunal, governmental body, agency,
arbitration panel, or instrumentality.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
SECTION 1.2 Accounting Terms and Determinations; Changes in
Accounting.
(a) Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP, applied on a basis consistent (except for changes
concurred in by the independent public accountants and with respect to which the
Borrower shall have promptly notified the Lender on becoming aware thereof) with
the most recent financial statements of the Borrower delivered to the Lender.
(b) The Borrower will not change its method of accounting, other than
immaterial changes in methods, changes permitted by GAAP in which the Borrower's
independent public accountants concur and changes required by a change in GAAP,
without the prior written consent of the Lender.
SECTION 1.3 References. References in this Agreement to Exhibits,
Schedules, Annexes, Appendixes, Attachments, Articles, Sections or clauses shall
be to Exhibits, Schedules, Annexes, Appendixes, Attachments, Articles, Sections
or clauses of this Agreement, unless expressly stated to the contrary.
References in this Agreement to "hereby," "herein," "hereinafter,"
"hereinabove," "hereinbelow," "hereof," "hereunder" and words of similar import
shall be to this Agreement in its entirety and not only to the particular
Exhibit, Schedule, Annex, Appendix, Attachment, Article, or Section in which
such reference appears. This Agreement, for convenience only, has been divided
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into Articles and Sections; and it is understood that the rights and other legal
relations of the parties hereto shall be determined from this instrument as an
entirety and without regard to the aforesaid division into Articles and Sections
and without regard to headings prefixed to such Articles or Sections. Whenever
the context requires, reference herein made to the single number shall be
understood to include the plural; and likewise, the plural shall be understood
to include the singular. Definitions of terms defined in the singular or plural
shall be equally applicable to the plural or singular, as the case may be,
unless otherwise indicated. Words denoting sex shall be construed to include the
masculine, feminine and neuter, when such construction is appropriate; and
specific enumeration shall not exclude the general but shall be construed as
cumulative. The Exhibits, Schedules, Annexes, Appendixes and Attachments
attached to this Agreement and items referenced as being attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
ARTICLE II
COMMITMENT TO LEND
SECTION 2.1 Commitment.
(a) The Lender agrees, subject to the other terms and conditions of
this Agreement, to lend to the Borrower in a single advance, the amount of the
Commitment Amount.
(b) This is not a revolving credit facility and amounts repaid or
prepaid on the Note may not be reborrowed.
SECTION 2.2. The Loan. The amount to be advanced to the Borrower
pursuant to Section 2.1 shall be advanced to the Borrower on the Closing Date or
as soon thereafter as all conditions thereto have been satisfied.
SECTION 2.3. Note. The Loan shall be evidenced by the Note issued by
the Borrower, payable to the order of the Lender in the Commitment Amount.
SECTION 2.4. Certain Payments and Prepayments of Principal. (a) The
Borrower shall pay to the Lender for application to the Loan an amount equal to
Net Proceeds received by the Borrower or for its benefit during each calendar
month, such amount to be paid on or before five (5) days following the end of
each such calendar month. The amounts so paid to the Lender shall be (i) first
applied to interest accrued on the Loan during the immediately preceding
calendar month (or portion thereof) under Section 2.5, (ii) next applied to
principal of the Loan then payable under clause (b) below and (iii) finally
applied as a prepayment of principal under clause (c) below until the Loan and
all accrued interest thereon is paid in full.
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(b) The unpaid principal balance of the Loan shall be payable in
monthly installments of $60,000 each. Such principal payment for any calendar
month (or portion thereof) shall be due on the fifth (5th) day following the
last day of such month.
(c) If at any time the aggregate principal of the Loan outstanding
exceeds the Borrowing Base then in effect, the provisions of Section 2.7(b)
shall apply.
(d) The Borrower may prepay the principal of the Loan in whole or in
part at any time without premium or penalty.
(e) Prepayments under clauses (c) or (d) above shall not reduce the
amounts payable under clause (a) above, and all prepayments shall be applied to
installments of principal in the inverse order of their maturity.
(f) All unpaid principal and accrued, unpaid interest shall be due and
payable at Final Maturity.
SECTION 2.5 Interest. (a) The unpaid principal balance of the Loan
shall bear interest, at a rate per annum equal to the lesser of the (i) Highest
Lawful Rate or (ii) the Floating Rate. Accrued interest for any calendar month
(or portion thereof) shall be due on the fifth (5th) day following the last day
of such month.
(b) Each change in the rate of interest charged hereunder shall become
effective automatically and without notice to the Borrower upon the effective
date of each change in the Floating Rate or the Highest Lawful Rate, as the case
may be.
SECTION 2.6 Engineering and Facility Fees; Authorized Payments by
Lender. (a) The Borrower shall pay to the Lender an engineering fee in the
amount of $5,000 on the Closing Date and thereafter shall pay an engineering fee
in the amount of $5,000 if the Lender's internal engineers perform the
engineering review of the Collateral or the actual fees and expenses of any
third-party engineers retained by the Lender to prepare an engineering report,
payable at the time of the scheduled or Borrower requested determination of the
Borrowing Base referred to in Section 2.8(a).
(b) To compensate the Lender for the costs of the extension of credit
hereunder, the Borrower shall pay to the Lender on the Closing Date, a facility
fee in the amount of $59,000.
SECTION 2.7. Determination of Borrowing Base; Borrowing Base
Deficiency. (a) On the basis of the information furnished to the Lender
hereunder and such other reports, appraisals and information as the Lender may
deem appropriate, the Lender shall have the right to determine a new Borrowing
Base as of each January 1 and July 1 during the term of the Note (the "scheduled
determinations") commencing July 1, 1999, or at such other or additional times
during the term of the Note as the Lender in its reasonable discretion and at
its sole cost may elect (the "discretionary determinations"). Such
determinations, if made, shall be in accordance with the Lender's customary
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practices and standards for loans of a similar nature as in effect at the time
such determinations are made and shall be conclusive, and any increases in the
Borrowing Base shall be subject to the Lender's complete credit approval
process. Any new Borrowing Base determined under this Section shall be effective
immediately upon its communication to the Borrower.
(b) Upon the occurrence of a Borrowing Base Deficiency, the Borrower
shall, within thirty (30) days following notice by the Lender of the existence
of such Borrowing Base Deficiency, do any one or more of the following in an
aggregate amount at least equal to such Borrowing Base Deficiency: (i) prepay
the principal of the outstanding Loan or (ii) cause to be created first and
prior perfected Liens (subject only to Permitted Liens) in favor of the Lender,
by instruments satisfactory to the Lender, on producing oil and gas properties
which in the opinion of the Lender would increase the Borrowing Base by an
amount sufficient, in combination with clause (i) preceding, to eliminate such
Borrowing Base Deficiency.
(c) Upon each redetermination of the Borrowing Base, the Lender may
notify an officer of the Borrower orally (confirming such notice promptly in
writing) of such determination, and the Borrowing Base so communicated to the
Borrower shall become effective upon such oral notification and shall remain in
effect until the next redetermination of the Borrowing Base.
ARTICLE III
GENERAL PROVISIONS
SECTION 3.1 General Provisions as to Payments and Loan.
(a) All payments of principal and interest on the Loan and of fees
hereunder shall be made by 12:00 noon (Dallas, Texas time) on the date such
payments are due in federal or other funds immediately available at the
principal office of the Lender referred to in Section 9.6, and, if not made by
such time or in immediately available funds, then such payment shall be deemed
made when such funds are available to the Lender for its full and unrestricted
use. Whenever any payment of principal of or interest on the Loan or of fees
hereunder shall be due on a day which is not a Business Day, the date for
payment thereof shall be extended to the next succeeding Business Day. If the
date for any payment is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) All payments made by the Borrower on the Loan shall be made free
and clear of, and without reduction by reason of, any Taxes.
(c) The Loan shall be made available to the Borrower on a Business Day
at the Lender's address referred to in Section 9.6.
(d) All payments and fundings shall be denominated in United States of
America dollars.
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SECTION 3.2. Computation of Interest. Each determination of interest
and fees hereunder shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding the
last day), subject to the limitations of the Highest Lawful Rate.
SECTION 3.3. Overdue Principal and Interest. Unless waived by the
Lender, any overdue principal and, to the extent permitted by law, overdue
interest on the Loan shall bear interest at the Default Rate.
ARTICLE IV
COLLATERAL
SECTION 4.1 Security.
(a) To secure full and complete payment and performance of the
obligations of the Borrower to the Lender, the Borrower will cause the
appropriate Person to execute and deliver to the Lender the following documents
and instruments:
(i) the Mortgages from the Borrower granting the Lender a
first and prior Lien on the certain oil and gas and minerals Properties
of the Borrower as designated by the Lender, together with financing
statements relating thereto, subject only to Permitted Liens;
(ii) the Guaranties of the Guarantors; and
(iii) a pledge agreement in form and substance satisfactory to
the Lender and the Parent granting a first and prior Lien on 100% of
the equity in the Borrower, together with the stock certificates
related thereto and stock powers executed in blank and a first and
prior lien on the promissory note of the Borrower to the Parent in the
approximate amount of $7,100,000, endorsed (with recourse) by the
Parent to the Lender.
(b) All documents delivered or to be delivered hereunder shall be in
form and substance reasonably satisfactory to the Lender and its counsel and
shall be supported by such legal opinions as the Lender or its counsel may
reasonably request.
(c) All Liens to be created by delivery of the documents referred to in
this Section shall be first and prior perfected Liens in favor of the Lender,
subject only to Permitted Liens.
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ARTICLE V
CONDITIONS PRECEDENT TO LOAN
The obligation of the Lender to make the Loan shall be subject to the
satisfaction of each of the following conditions:
SECTION 5.1 The Loan. In the case of the Loan:
(a) Receipt by the Lender of the following:
(i) copies of the Articles or Certificates of Incorporation
(or Articles of Organization or similar documents), and all amendments thereto,
of the Borrower and each Guarantor, accompanied by certificates that such copies
are correct and complete, one issued by the Secretary of State of the state of
incorporation or formation of the Borrower and each Guarantor, dated a current
date, and one executed by the President or a Vice President and the Secretary or
an Assistant Secretary (or other authorized representatives) of the Borrower and
each Guarantor, dated the Closing Date;
(ii) copies of the Bylaws (or Regulations or similar
documents) , and all amendments thereto, of the Borrower and each Guarantor,
accompanied by certificates that such copies are correct and complete of the
President or a Vice President and the Secretary or an Assistant Secretary (or
other authorized representatives) of the Borrower and each Guarantor, dated the
Closing Date;
(iii) certificates of the appropriate Tribunals of each
jurisdiction in which the Borrower has an executive office or principal place of
business, the Borrower or each Guarantor was formed or in which any Collateral
is located (if the Borrower or such Guarantor is required to qualify to do
business in such state), each dated a current date, to the effect that the
Borrower or such Guarantor, as applicable, is in good standing with respect to
the payment of franchise and/or other Taxes and, if required by law, are duly
qualified to transact business in such jurisdictions, accompanied by the
certificate of the President or a Vice President and the Secretary or an
Assistant Secretary (or other authorized representatives) of the Borrower or
such Guarantor, as applicable, that such Tribunal certificates are true and
correct as of the Closing Date;
(iv) certificates of incumbencies and signatures of all
officers of the Borrower and each Guarantor who will be authorized to execute or
attest any of the Loan Papers on behalf of the Borrower and such Guarantor,
executed by the President or a Vice President and the Secretary or an Assistant
Secretary (or other authorized representatives) of the Borrower or such
Guarantor, as applicable, dated the Closing Date;
(v) copies of resolutions approving the Loan Papers and
authorizing the transactions contemplated therein, duly adopted by the Board of
Directors (or authorized body
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serving a similar function) of the Borrower, and each Guarantor, accompanied by
certificates of the Secretary or an Assistant Secretary (or other authorized
representative) of the Borrower or each Guarantor, as applicable, that such
copies are true and correct copies of resolutions duly adopted at the meeting
of, or by the unanimous written consent of, the Board of Directors (or
authorized body serving a similar function) of the Borrower or each Guarantor,
as applicable, and that such resolutions constitute all the resolutions adopted
with respect to such transactions, have not been amended, modified or revoked in
any respect, and are in full force and effect as of the Closing Date;
(b) receipt by the Lender of the duly executed Note in the Commitment
Amount, dated the Closing Date;
(c) receipt by the Lender of the documents described in Section 4.1(a),
each duly executed and delivered by the appropriate Person;
(d) receipt by the Lender of such documentation, opinions and
information as may be required by the Lender to satisfy the Lender of the status
of the title of the Collateral;
(e) receipt by the Lender of a Certificate of Ownership Interests in
the form attached hereto, certifying as to the Borrower's ownership interest in
its oil and gas Properties;
(f) receipt by the Lender of a certificate from the President or a Vice
President and the Secretary or an Assistant Secretary (or other authorized
representatives) of the Borrower certifying as to the truth and correctness of
each representation and warranty contained in Article VI hereof as of the
Closing Date;
(g) receipt by the Lender of satisfactory evidence that prior Liens, if
any, on the Collateral are being released concurrently with the Closing;
(h) receipt by the Lender of the opinions of counsel to the Borrower in
form and substance satisfactory to the Lender and its counsel; and
(i) receipt by the Lender of such additional information and
documentation as the Lender may reasonably require relating to the Loan Papers
(and all renewals, extensions, amendments, restatements and modifications of the
same) and the transactions contemplated hereby and thereby.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Lender as follows:
SECTION 6.1 Existence and Power. Each of the Borrower and each
Guarantor:
(a) is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware (or with respect to Toreador
Exploration & Production, Inc., the laws of the State of Texas);
(b) has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted;
(c) is duly qualified to transact business as a foreign entity in each
jurisdiction where the nature of its business requires the same, except where
the failure to so qualify could not reasonably be expected to have a Material
Adverse Effect on its business or financial condition; and
(d) owns, both beneficially and of record, all of its assets reflected
in its financial statements delivered to the Lender.
SECTION 6.2 Corporate and Governmental Authorization; Contravention.
The execution, delivery and performance by each Person (other than the Lender)
purporting to execute the same of this Agreement or the other Loan Papers are
within such Person's power, have been duly authorized by all necessary action,
require no action by or in respect of, or filing with, any governmental body,
agency or official (except that the perfection of Liens created by certain of
the Security Documents may require the filing of financing statements, mortgages
or similar instruments in the appropriate recordation offices), and do not
contravene, or constitute a default under, any provision of applicable law or
regulation (including, without limitation, the Margin Regulations) or any
agreement creating or governing such Person or any agreement, judgment,
injunction, order, decree or other instrument binding upon such Person or result
in the creation or imposition of any Lien on any Property of the Borrower,
except Liens securing the Obligations.
SECTION 6.3 Binding Effect. (a) This Agreement constitutes a valid and
binding agreement of the Borrower; the Note, when executed and delivered in
accordance with this Agreement, will constitute the valid and binding obligation
of the Borrower; the Security Documents, when executed and delivered in
accordance with this Agreement, will constitute valid and binding obligations of
each Person purporting to execute the same;
(b) Each Loan Paper is enforceable in accordance with its terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors, rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
SECTION 6.4 Subsidiaries; Ownership. (a) The Borrower has no
Subsidiaries.
(b) At least 100% of all equity interests in the Borrower are owned
legally and beneficially by the Parent.
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(c) Toreador Exploration & Production, Inc. is a wholly-owned
Subsidiary of Parent.
SECTION 6.5 Disclosure. No document, certificate or statement delivered
to the Lender by or on behalf of the Borrower in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact. All information heretofore furnished by the Borrower to the Lender for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all such information hereafter furnished by the Borrower to the
Lender will be, true and accurate in every material respect or based on
reasonable estimates on the date as of which such information is stated or
certified. The Borrower has disclosed to the Lender in writing any and all facts
(except facts of general public knowledge) which may have a Material Adverse
Effect (to the extent the Borrower can now reasonably foresee) or affect the
ability of the Borrower to perform its obligations under this Agreement.
SECTION 6.6 Financial Information.
(a) The Borrower is a newly formed Delaware corporation and has no
material liabilities, direct or contingent.
SECTION 6.7 Litigation. There is no action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting the
Borrower before any Tribunal or arbitrator in which there is a reasonable
possibility of an adverse decision which could materially and adversely affect
the business, financial position or results of operations of the Borrower, or
which could in any manner draw into question the validity of this Agreement or
any other Loan Papers.
SECTION 6.8 Plans. The Borrower has no Plans.
SECTION 6.9 Taxes and Filing of Tax Returns. The Borrower has filed or
properly extended all returns required to have been filed or extended with
respect to Taxes and has paid all Taxes shown to be due and payable by it on
such returns, including interest and penalties, and all other Taxes which are
payable by it, to the extent the same have become due and payable (unless, with
respect to such other Taxes, the criteria set forth in Section 7.5 are being
met). The Borrower does not know of any proposed assessment of Taxes of a
material amount against it and all liabilities for Taxes of the Borrower are
adequately provided for.
SECTION 6.10 Title to Properties; Liens; Environmental Liability; Type
of Interests. (a) The Borrower has good and indefeasible title to all Collateral
(except for Permitted Liens, minor defects in title and minor encumbrances not
in any case materially detracting from the value of the assets affected
thereby). All Property of the Borrower is free and clear of all Liens other than
Permitted Liens and Liens in favor of the Lender. Upon the recordation of the
Security Documents in the appropriate recordation offices, the Liens covering
the Collateral will be valid, enforceable, first and prior, perfected Liens in
favor of the Lender, except for Permitted Liens.
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(b) The Borrower has not (i) received notice or otherwise learned of
any Environmental Liability which could individually or in the aggregate have a
Material Adverse Effect arising in connection with (A) any non-compliance with
or violation of the requirements of any Environmental Law or (B) the release or
threatened release of any toxic or hazardous waste, substance or constituent, or
other substance into the environment, or (ii) received notice or otherwise
learned of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release or threatened release of any toxic or
hazardous waste, substance or constituent into the environment for which the
Borrower is or may be liable which would individually or in the aggregate have a
Material Adverse Effect.
(c) The Borrower is not acquiring and does not own any "working
interests" in oil and gas properties and, thus, is not and will not be obligated
to pay drilling expenses for wells drilled on its Property or to bear any costs
of operations of any wells now or hereafter on its Property.
SECTION 6.11 Business; Compliance. The Borrower has performed and
abided by all obligations required to be performed by it to the extent it could
be materially and adversely affected under any license, permit, order,
authorization, grant, contract, agreement, or regulation to which it is a party
or by which it or any of its Property is bound.
SECTION 6.12 Licenses, Permits, Etc. The Borrower possesses such valid
franchises, certificates of convenience and necessity, operating rights,
licenses, permits, consents, authorizations, exemptions and orders of Tribunals
as are necessary to carry on its business as now being conducted and to own its
properties.
SECTION 6.13 Compliance with Law. The business and operations of the
Borrower have been and are being conducted in material compliance with all
applicable laws, rules and regulations of all Tribunals, other than violations
which could not (either individually or collectively) have a Material Adverse
Effect.
SECTION 6.14 Governmental Consent. No consent, approval or
authorization of, or declaration or filing with, any governmental authority is
required for the valid execution, delivery and performance of this Agreement or
any other Loan Papers.
SECTION 6.15 Investment Company Act. The Borrower is not an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 6.16 Public Utility Holding Company Act; State Utility. (a) The
Borrower is not a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company," or of a "subsidiary company"
of a "holding company," as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
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(b) The Borrower is not defined as a "utility" under the laws of the
State of Texas or any other jurisdiction wherein the Borrower is required to
qualify to do business.
SECTION 6.17. Year 2000 Preparedness. The Borrower has (i) initiated a
review and assessment of all areas within its business and operations (including
those affected by suppliers, vendors and customers) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower (or its suppliers, vendors and customers) may
be unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999), (ii) developed a
plan and timeline for addressing the Year 2000 Problem on a timely basis, and
(iii) to date, implemented that plan in accordance with that timetable. Based on
the foregoing, the Borrower believes that all computer applications (including
those of its suppliers, vendors and customers) that are material to its business
and operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
(that is, be "Year 2000 compliant"), except to the extent that a failure to do
so could not reasonably be expected to have Material Adverse Effect.
SECTION 6.18 Refunds; Certain Contracts. (a) No orders of, proceedings
pending before, or other requirements of, the Federal Energy Regulatory
Commission, the Texas Railroad Commission, or any Governmental Authority exist
which could result in the Borrower being required to refund any material portion
of the proceeds received or to be received from the sale of hydrocarbons
constituting part of the Collateral.
(b) The Borrower (i) is not obligated in any material respect by virtue
of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery, and (ii) has not
produced gas, in any material amount, subject to, and neither the Borrower nor
any of the Collateral is subject to, balancing rights of third parties or
subject to balancing duties under governmental requirements.
SECTION 6.19 No Default. No Default has occurred which is continuing as
of the Closing Date.
ARTICLE VII
COVENANTS
So long as any principal of or interest on the Note shall remain
unpaid, the Borrower will duly perform and observe each and all of the covenants
and agreements hereinafter set forth:
SECTION 7.1 Use of Proceeds. (a) The Borrower will use the proceeds of
the Loan solely to finance the acquisition of mineral and royalty interests.
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(b) The Borrower will not, directly or indirectly, use any of the
proceeds of the Loan for the purpose of purchasing or carrying any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 C.F.R. 221, as amended), or any "security that is
publicly-held" within the meaning of Regulation T of such Board of Governors (12
C.F.R. 220, as amended), or otherwise take or permit any action which would
involve a violation of such Regulation U, Regulation T or Regulation X (12
C.F.R. 224, as amended) or any other regulation of such Board of Governors. The
Loan is not secured, directly or indirectly, in whole or in part, by collateral
that includes any "margin stock" within the meaning of Regulation U. The
Borrower will not engage principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
"margin stock" within the meaning of such Regulation U.
SECTION 7.2 Financial Statements; Reserve Reports; Compliance
Certificates; Certain Notices. The Borrower will furnish to the Lender:
(a) (i) as soon as available and in any event within 90 days after
the end of each fiscal year of the Borrower, copies of the consolidated balance
sheet of the Parent and its Subsidiaries as of the end of such fiscal year, and
copies of the related statements of operations, changes in stockholders' equity
and cash flow for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP and reported on (in an unqualified manner) by a
recognized firm of independent certified public accountants acceptable to the
Lender;
(ii) as soon as available and in any event within 90 days
after the end of each fiscal year of the Borrower, copies of the consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal
year, and copies of the related statements of operations, changes in
stockholders' equity and cash flow for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP;
(iii) on or before the 60th day after the last day of each
fiscal quarter, a copy of (A) the unaudited balance sheet of the Borrower as at
the close of such quarter and from the beginning of such fiscal year to the end
of such quarter and (B) the related statements of operations, changes in
stockholders' equity and cash flows for the quarter just ended and for that
portion of the year ending on such date, all in reasonable detail and prepared
on a basis consistent with the financial statements previously delivered under
this clause (ii) preceding;
(iv) simultaneously with the delivery of each set of financial
statements pursuant to the preceding clauses (ii) and (iii) of this Section, a
Compliance Certificate of the Borrower stating that such financial statements
fairly and accurately reflect the financial condition and results of operation
of the Borrower for the periods and as of the dates set forth therein, and that
the signers have reviewed the terms of this Agreement and the other Loan Papers,
and have made, or caused to be made under their supervision, a review of the
transactions and financial condition of the Borrower during the fiscal period
covered by such financial statements, and that such review has not disclosed
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the existence during such period, and that the signers do not have knowledge of
the existence as of the date of such certificate, of any condition or event
which constitutes a Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Borrower has taken or is taking or proposes to take with respect thereto;
and
(v) within 60 days after each filing thereof by the Borrower
with any Governmental Authority, complete copies of the federal and state tax
returns so filed.
(b) (i) within 60 days following each January 1 and July 1,
production reports in form and substance satisfactory to the Lender in its
reasonable judgment, prepared by the Borrower containing data concerning
pricing, quantities of production from the oil and gas Properties of the
Borrower, volumes of production sold, purchasers of production, gross revenues,
expenses, production taxes, and such other information with respect thereto as
the Lender may reasonably request for use by the Lender to prepare for its own
exclusive use, internally generated engineering reports;
(ii) simultaneously with the delivery of such engineering and
production reports, an Officer's Certificate from the Borrower stating that such
engineering and production report fairly and accurately reflects the production
and the operating cash flow for the oil and gas Properties of the Borrower for
the periods covered in such report;
(iii) within 60 days following each month end, monthly reports
of oil, gas and liquids production volumes by major field and by total of all
fields, prepared by the Borrower; and
(iv) simultaneously with the delivery of the production report
referred to in clause (iii) an Officer's Certificate from the Borrower stating
that such production report fairly and accurately reflects the production of the
Borrower from the fields reflected in the report for the periods covered in such
report.
(c) (i) immediately after any Responsible Officer of the Borrower
becomes aware of the occurrence of any condition or event which constitutes a
Default, an Officer's Certificate of the Borrower specifying the nature of such
condition or event, the period of existence thereof, what action the Borrower
has taken or is taking and proposes to take with respect thereto and the date,
if any, on which it is estimated the same will be remedied;
(ii) if and when the Borrower (A) gives or is required to give
notice to the PBGC of any "reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC; (B) receives notice of complete or partial withdrawal liability under
Title IV of ERISA, a copy of such notice;
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or (C) receives notice from the PBGC under Title IV of ERISA of an intent to
terminate or appoint a trustee to administer any Plan, a copy of such notice;
(iii) promptly after the delivery of the same to any lender of
any report required to be delivered pursuant to any debt instrument to which the
Borrower is a party and not otherwise required to be delivered hereunder, a copy
of such report;
(iv) promptly upon the Borrower's learning that it has
received notice or otherwise learned of any claim, demand, action, event,
condition, report or investigation indicating any potential or actual liability
which could reasonably be expected to have a Material Adverse Effect arising in
connection with (i) the non-compliance with or violation of the requirements of
any Environmental Law, (ii) the release or threatened release of any toxic or
hazardous waste, substance or constituent into the environment, or (iii) the
existence of any Environmental Lien on any Properties of the Borrower, notice
thereof;
(v) promptly upon the Borrower's learning of any litigation or
other event or circumstance which could have a Material Adverse Effect on the
Borrower, notice thereof;
(vi) within 60 days after the end of each fiscal quarter, the
change in identity or address of any Person remitting to the Borrower proceeds
from the sale of hydrocarbon production from or attributable to any Collateral
during such quarter; and
(vii) any Change of Control Event.
(d) with reasonable promptness, such other information relating
directly or indirectly to the financial condition, business or Properties of the
Borrower as from time to time may reasonably be requested by the Lender.
SECTION 7.3 Inspection of Properties and Books. The Borrower will
permit any officer, employee or agent of the Lender to visit and inspect any of
the Properties of the Borrower, to examine its books of account (and to make
copies thereof and take extracts therefrom) and to discuss its affairs, finances
and accounts (including transactions, agreements and other relations with any
shareholders) with, and to be advised as to the same by, its officers and
independent public accountants, all at such reasonable times and intervals as
the Lender may desire and, if a Default has occurred and is continuing, at the
expense of the Borrower.
SECTION 7.4 Maintenance of Security; Insurance; Operating Accounts;
Transfer Orders. (a) The Borrower shall execute and deliver, or cause the
appropriate Person to execute and deliver, to the Lender all mortgages, deeds of
trust, security agreements, financing statements, assignments and such other
documents and instruments (including division and transfer orders), and
supplements and amendments thereto, and take such other actions as the Lender
deems necessary or desirable in order to (i) maintain as valid, enforceable,
first-priority, perfected Liens (subject only to the
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Permitted Liens), all Liens granted to the Lender to secure the Note or (ii)
monitor or control the proceeds therefrom.
(b) The Borrower will at all times maintain or cause to be maintained
insurance covering such risks as are customarily carried by businesses similarly
situated.
(c) The Borrower will maintain its primary operating accounts with the
Lender, although such requirement shall not be construed a requiring the
Borrower to maintain deposit balances with the Lender.
(d) Upon request of the Lender, the Borrower shall execute such
transfer orders, letters-in-lieu of transfer orders or division orders as the
Lender may from time to time request in respect of the Collateral to effect a
transfer and delivery to the Lender of the proceeds of production attributable
to the Collateral.
SECTION 7.5 Payment of Taxes and Claims. The Borrower will pay (a) all
Taxes imposed upon it or any of its assets or with respect to any of its
franchises, business, income or profits before any material penalty or interest
accrues thereon and (b) all material claims (including, without limitation,
claims for labor, services, materials and supplies) for sums which have become
due and payable and which have or might become a Lien (other than a Permitted
Lien) on any of its assets; provided, however, that no payment of such Taxes or
claims shall be required if (i) the amount, applicability or validity thereof is
currently being contested in good faith by appropriate action promptly initiated
and diligently conducted, (ii) the Borrower shall have set aside on its books
reserves (segregated to the extent required by GAAP) reasonably deemed by it to
be adequate with respect thereto, and (iii) the Borrower has notified the Lender
of such circumstances, in detail satisfactory to the Lender.
SECTION 7.6 Payment of Debt; Additional Debt. (a) The Borrower will (i)
pay, renew or extend or cause to be paid, renewed or extended the principal of,
and the prepayment charge, if any, and interest on all Debt heretofore or
hereafter incurred or assumed by it when and as the same shall become due and
payable; (ii) faithfully perform, observe and discharge all unwaived covenants,
conditions and obligations imposed on it by any instrument evidencing such Debt
or by any indenture or other agreement securing such Debt or pursuant to which
such Debt is issued; and (iii) not permit the occurrence of any act or omission
which would constitute a default under any such instrument, indenture or
agreement.
(b) The Borrower will not create, incur or suffer to exist any Debt,
except without duplication (a) Debt to the Lender and (b) Permitted
Indebtedness.
SECTION 7.7 Liens. The Borrower will not create, suffer to exist or
otherwise allow any Liens to be on or otherwise to affect any of its oil and gas
and mineral Properties whether now owned or hereafter acquired, except Permitted
Liens.
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SECTION 7.8 Loans and Advances to Others; Investments; Restricted
Payments. (a) The Borrower will not make or suffer to exist any loan, advance or
extension of credit to any Person except (i) current trade and customer accounts
receivable which are for goods furnished or services rendered in the ordinary
course of business and which are payable in accordance with customary trade
terms and (ii) Permitted Loans and Investments.
(b) the Borrower will not make any capital contribution to or to
acquire any Investment in, or to purchase or make a commitment to purchase any
interest in, any Person except as set forth in clause (a) above.
(c) The Borrower will not, directly or indirectly, make any Restricted
Payment without the prior written consent of the Lender.
(d) The Borrower shall not form or acquire any Subsidiaries without the
prior written consent of the Lender and the amendment of this Agreement.
SECTION 7.9 Consolidation, Merger, Maintenance, Change of Control;
Disposition of Property; Restrictive Agreements; Hedging Agreements; Issuance of
Securities. (a) The Borrower will not: (i) consolidate or merge with or into any
other Person (unless the Borrower is the surviving entity and no Default has
occurred and is continuing or will result from such merger or consolidation)
without the prior written consent of the Lender, (ii) sell, lease or otherwise
transfer all or substantially all of its Property to any other Person, (iii)
terminate, or fail to maintain, its existence as a corporation in its state of
incorporation represented in Section 6.1(a) or (iv) terminate, or fail to
maintain, its good standing and qualification to transact business in all
jurisdictions where the nature of its business requires the same (except where
the failure to maintain its good standing or qualification could not reasonably
be expected to have a Material Adverse Effect) or (v) permit a Change of Control
Event to occur.
(b) The Borrower will not sell, encumber, or otherwise transfer all or
any portion of the Collateral or any of its other oil and gas or mineral
Properties without the prior written consent of the Lender, except for (i) sales
of oil and gas after severance in the ordinary course of business provided that
no contract for the sale of hydrocarbons shall obligate the Borrower to deliver
hydrocarbons produced from any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery or (ii) the sale or
other disposition of its personal Property destroyed, worn out, damaged, or
having only salvage value. Any consent by the Lender to the sale of Collateral
or other Property of the Borrower may include a requirement that a new Borrowing
Base be determined under Section 2.7(a) and that the proceeds of such sale plus
such additional amounts as the Lender deems necessary to avoid the occurrence of
a Borrowing Base Deficiency be applied to the Obligations. In this connection,
the Lender will not unreasonably withhold its consent to sales during any
12-month period of Property of the Borrower, in the aggregate, having Collateral
Value of up to 20% of all Property of the Borrower having Collateral Value.
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(c) The Borrower will not be or become party to or bound by any
agreement (including, without limitation, any undertaking in connection with the
incurrence of Debt or issuance of securities) which imposes any limitation on
the disposition of the Collateral more restrictive than those set forth above or
which in any way would be contravened by the Borrower's performance of its
obligations hereunder or under the other Loan Papers or which contains any
negative pledge on all or any portion of the Borrower's Property (except in
favor of the Lender).
(d) The Borrower will not enter into any Hedging Agreement, other than
Acceptable Hedging Agreements.
(e) The Borrower will not issue any common stock or other equity
securities to any Person without the prior written consent of the Lender.
SECTION 7.10 Primary Business; Location of Borrower's Office; Ownership
of Assets. (a) The primary business of the Borrower shall be and remain the
ownership of mineral and royalty interests. The Borrower shall not be or become
a working interest owner obligated to pay the drilling, completion, reworking or
operational expenses with respect to any oil and gas or mineral Property without
the prior written consent of the Lender.
(b) The location of the Borrower's principal place of business and
executive office shall remain at the address for the Borrower set forth on the
signature page hereof, unless at least 10 days prior to any change in such
address the Borrower provides the Lender with written notice of such pending
change.
(c) The Borrower will at all time own, both beneficially and of record,
all assets reflected in its financial statements delivered to the Lender from
time to time.
SECTION 7.11 Changes to Certain Contracts. (a) The Borrower will not
amend, alter or change in any material respect which could reasonably be
expected to be adverse to the interests of the Borrower or the Lender any
agreements relating to the Borrower's operations or business arrangements or the
sale or transportation of oil and gas without the prior written consent of the
Lender, which consent shall not be unreasonably withheld.
SECTION 7.12 Transactions with Affiliates. The Borrower will not engage
in any transaction with an Affiliate unless (i) such transaction is at least as
favorable to the Borrower as could be obtained in an arm's length transaction
with an unaffiliated third party, (ii) such transaction is not disadvantageous
to the Lender as holder of the Note and (iii) the Lender is advised in writing
of the terms of such transaction prior to the consummation thereof.
SECTION 7.13 Plans. The Borrower will not assume or otherwise become
subject to an obligation to contribute to or maintain any Plan or acquire any
Person which has at any time had an obligation to contribute to or maintain any
Plan.
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SECTION 7.14 Compliance with Laws and Documents. The Borrower will not,
directly or indirectly, violate the provisions of any laws, its certificate of
incorporation (or similar organizational documents) or bylaws (or similar
regulatory documents) or any Material Agreement, if such violation, alone or
when combined with all other such violations, could have a Material Adverse
Effect.
SECTION 7.15 Certain Financial Covenants.
(a) Current Ratio. The Borrower will not permit its ratio of Current
Assets to its Current Liabilities to be less than 1.25 to 1.00, determined as of
the end of each fiscal quarter of the Borrower ending on or after March 31,
1999.
"Current Assets" means the current assets of the Borrower, but
excluding the current portion of Intangible Assets and amounts due from
officers, directors and shareholders of the Borrower.
"Current Liabilities" means the current liabilities of the Borrower,
exclusive of the current portion of the Note.
(b) Limitation of General and Administrative Expense. The Borrower will
not permit its general and administrative expense as determined under GAAP for
any fiscal quarter to exceed $50,000.
SECTION 7.16 Additional Documents; Quantity of Documents; Title Data;
Additional Information. (a) The Borrower shall execute and deliver or cause to
be executed and delivered such other and further instruments or documents as in
the reasonable judgment of the Lender may be required to better effectuate the
transactions contemplated herein and in the other Loan Papers.
(b) The Borrower will deliver all certificates, opinions, reports and
documents hereunder in such number of counterparts as the Lender may reasonably
request.
(c) The Borrower shall cause to be delivered to the Lender such title
opinions as the Lender may from time to time reasonably request, in form and
substance and from attorneys acceptable to the Lender, covering such portions of
the Collateral as the Lender may from time to time specify.
(d) The Borrower shall furnish to the Lender, promptly upon the request
of the Lender, such additional financial or other information concerning the
assets, liabilities, operations, and transactions of the Borrower as the Lender
may from time to time reasonably request; and notify the Lender not less than
ten Business Days prior to the occurrence of any condition or event that may
change the proper location for the filing of any financing statement or other
public notice or recording for the purpose of perfecting a Lien in any
Collateral, including, without limitation, any change in its name or the
location of its principal place of business or chief executive office; and
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upon the request of the Lender, execute such additional Security Instruments as
may be necessary or appropriate in connection therewith.
SECTION 7.17 ENVIRONMENTAL INDEMNIFICATION. THE BORROWER SHALL
INDEMNIFY, DEFEND AND HOLD THE LENDER AND ITS SHAREHOLDERS, OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE
BENEFIT OF THE LENDER UNDER ANY SECURITY INSTRUMENT (COLLECTIVELY, THE
"INDEMNIFIED PARTIES") HARMLESS ON A CURRENT BASIS FROM AND AGAINST ANY AND ALL
CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE
AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS
AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES
AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE
BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED
ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR
DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE,
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER
PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE
HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION,
OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR
UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF
THE BORROWER, OR (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES
ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE,
TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER OR ANY
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS
ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER,
IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN
ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, INCLUDING ANY OF THE FOREGOING
IN THIS SECTION ARISING FROM THE SOLE NEGLIGENCE, COMPARATIVE NEGLIGENCE OR
CONCURRENT NEGLIGENCE OF THE INDEMNIFIED PARTIES, BUT NOT ANY OF THE FOREGOING
IN THIS SECTION ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE
PART OF THE INDEMNIFIED PARTY SEEKING INDEMNIFICATION UNDER THIS SECTION; WITH
THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL OBLIGATIONS AND THE
TERMINATION OF THIS AGREEMENT.
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SECTION 7.18. Year 2000. The Borrower will promptly notify the Lender
in the event the Borrower discovers or determines that any computer application
(including those of its suppliers, vendors and customers) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
compliant, except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect.
SECTION 7.19 Exceptions to Covenants. The Borrower shall not be
permitted to take any action which is permitted by any of the covenants
contained in this Agreement if such action is in breach of any other covenant
contained in this Agreement.
ARTICLE VIII
DEFAULTS; REMEDIES
SECTION 8.1 Events of Default; Acceleration of Maturity. If any one or
more of the following events (each an "Event of Default") shall have occurred
and be continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body or otherwise):
(a) the Borrower shall fail to pay, when due, any principal of, or
interest on, the Note or any fees or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant or
agreement contained in Sections 7.1, 7.6(b), 7.7, 7.8 or 7.9;
(c) the Borrower or any other Person (other than the Lender) shall fail
to observe or perform any covenant or agreement contained in this Agreement or
the other Loan Papers (other than those covered by Sections 8.1(a) or (b)), for
a period of fifteen (15) days after the earlier of (i) any Responsible Officer
of the Borrower shall become aware or reasonably should have become aware
(regardless of the source of such awareness) of such default or (ii) written
notice specifying such default has been given to the Borrower by the Lender;
(d) the Borrower or either Guarantor shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate or other action to authorize any of the
foregoing;
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(e) an involuntary case or other proceeding shall be commenced against
the Borrower or either Guarantor seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed or unstayed for a period of 30 days; or an order for
relief shall be entered against the Borrower or either Guarantor under the
federal bankruptcy laws as now or hereafter in effect;
(f) the Borrower shall fail to pay, when due, any amount which it shall
have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any Plan or a proceeding shall be
instituted by a fiduciary of any Plan against the Borrower to enforce Section
515 of ERISA; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan must be terminated;
(g) the Borrower or either Guarantor (i) shall default in the payment
of any of their respective Debts (other than the Note) and such default shall
continue beyond any applicable cure period, (ii) shall default in the
performance or observance of any other provision contained in any agreements or
instruments evidencing or governing such Debt and such default is not waived and
continues beyond any applicable cure period, or (iii) any other event or
condition occurs which results in the acceleration of such Debt;
(h) one or more judgments or orders for the payment of money
aggregating in excess of $50,000 shall be rendered against the Borrower or
either Guarantor and such judgment or order (i) shall continue unsatisfied or
unstayed (unless bonded with a supersedeas bond at least equal to such judgment
or order) for a period of 30 days, or (ii) is not fully paid and satisfied at
least ten (10) days prior to the date on which any of its Property may be
lawfully sold to satisfy such judgment or order;
(i) any representation, warranty, certification or statement made or
deemed to have been made by or on behalf of the Borrower in this Agreement or by
the Borrower or any other Person in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any respect when made if such incorrect representation, warranty,
certification or statement (i) could reasonably be expected to have any material
adverse effect whatsoever upon the validity, performance or enforceability of
any Loan Paper, (ii) is or might reasonably be expected to be material and
adverse to the financial condition or business operations of any Person or to
the prospects of any Person, (iii) could reasonably be expected to impair the
Borrower's ability to fulfill its obligations under the terms and conditions of
the Loan Papers, or (iv) could reasonably be expected to impair the Lender's
ability to receive full and timely payment of the Note;
(j) if any default shall have occurred and be continuing under any
Security Document;
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(k) any material license, franchise, permit, or authorization issued to
the Borrower by any Tribunal is forfeited, revoked, or not renewed; or any
proceeding with respect to such forfeiture or revocation is instituted and is
not resolved or dismissed within one year of the date of the publication of the
order instituting such proceeding; or
(l) a default shall occur which shall not be cured or waived within ten
(10) Business Days under any Material Agreement, other than this Agreement, to
which the Borrower is a party or by which any of its Property is bound; or
(m) a Change of Control Event shall occur;
then, and in every such event, the Lender may, at its option, (i) declare the
outstanding principal balance of and accrued interest on the Note to be, and the
same shall thereupon forthwith become, due and payable without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration or other
notice of any kind, all of which are hereby waived by the Borrower, (ii) proceed
to foreclose the Liens securing the Note, and (iii) take such other actions as
are permitted by law; provided that in the case of any of the Events of Default
specified in clauses (d) or (e) above with respect to the Borrower, without any
notice to the Borrower or any other act by the Lender, the Note (together with
accrued interest thereon) shall become immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby waived by the
Borrower.
SECTION 8.2 Suits for Enforcement. In case any one or more of the
Events of Default specified in Section 8.1 shall have occurred and be
continuing, the Lender may, at its option, proceed to protect and enforce its
rights either by suit in equity or by action of law, or both, whether for the
specific performance of any covenant or agreement contained in this Agreement or
in aid of the exercise of any power granted in this Agreement.
SECTION 8.3 Remedies Cumulative. No remedy herein conferred upon the
Lender is intended to be exclusive of any other remedy and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
SECTION 8.4 Remedies Not Waived. No course of dealing and no delay in
exercising any rights under this Agreement or under the other Loan Papers shall
operate as a waiver of any rights hereunder or thereunder of the Lender.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Amendments and Waivers. (a) Any term, covenant, agreement
or condition of this Agreement or any other Loan Paper may be amended, or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively) by a written instrument signed by the
Borrower and the Lender.
(b) No failure or delay by the Lender in exercising any right, power or
privilege under this Agreement or any other Loan Paper shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law or in equity or in any of the other Loan
Papers.
SECTION 9.2 Highest Lawful Interest Rate. Regardless of any provision
contained in any of the Loan Papers, the Lender shall never be entitled to
receive, collect, or apply as interest on all or any part of the Loan, any
amount in excess of the Highest Lawful Rate in effect from day to day, and, in
the event the Lender ever receives, collects, or applies as interest any such
excess, such amount which would be deemed excessive interest shall be deemed a
partial prepayment of the principal of the Loan and treated hereunder as such;
and, if the entire principal amount of the Loan owed to the Lender is paid in
full, any remaining excess shall be repaid to the Borrower. In determining
whether the interest paid or payable, under any specific contingency, exceeds
the Highest Lawful Rate in effect from day to day, the Borrower and the Lender
shall, to the maximum extent permitted under applicable law, (i) characterize
any nonprincipal payment as an expense, fee, or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the Loan so that the interest rate is uniform throughout
the entire term of the Loan; provided that, if the interest received by the
Lender for the actual period of existence thereof exceeds the Highest Lawful
Rate in effect from day to day, the Lender shall apply or refund to the Borrower
the amount of such excess as provided in this Section, and, in such event, the
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, taking, reserving, or receiving interest in excess of
the Highest Lawful Rate in effect from day to day.
SECTION 9.3 INDEMNITY. (A) WHETHER OR NOT ANY LOAN IS EVER FUNDED, THE
BORROWER AGREES TO INDEMNIFY AND DEFEND AND HOLD HARMLESS ON A CURRENT BASIS THE
LENDER AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND ATTORNEYS, AND EACH OF
THEM (THE "INDEMNIFIED PARTIES"), FROM AND AGAINST ANY AND ALL LIABILITIES,
LOSSES, DAMAGES, COSTS, INTEREST, CHARGES, COUNSEL FEES AND OTHER EXPENSES AND
PENALTIES OF ANY KIND WHICH ANY OF THE INDEMNIFIED PARTIES MAY SUSTAIN OR INCUR
IN CONNECTION WITH ANY INVESTIGATIVE,
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ADMINISTRATIVE OR JUDICIAL PROCEEDING (WHETHER OR NOT THE LENDER SHALL BE
DESIGNATED A PARTY THERETO) OR OTHERWISE BY REASON OF OR ARISING OUT OF THE
EXECUTION AND DELIVERY OF THIS AGREEMENT OR ANY OF THE OTHER LOAN PAPERS AND/OR
THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH
INDEMNIFIED PARTY SHALL BE INDEMNIFIED UNDER THIS SECTION WITHOUT REGARD TO THE
CAUSE OR THE NEGLIGENCE OF ANY INDEMNIFIED PARTY, WHETHER SUCH NEGLIGENCE BE THE
SOLE NEGLIGENCE, COMPARATIVE NEGLIGENCE OR CONCURRENT NEGLIGENCE OF ANY
INDEMNIFIED PARTY.
(b) Any amount to be paid under this Section to the Lender shall be a
demand obligation owing by the Borrower and if not-paid within ten days of
demand shall bear interest from the date of expenditure by the Lender until paid
at a per annum rate equal to the lesser of (i) the Default Rate or (ii) the
Highest Lawful Rate. The obligations of the Borrower under this Section shall
survive payment of the Note and the assignment of any right hereunder.
SECTION 9.4 Expenses. (a) Whether or not the Loan is ever funded, the
Borrower shall pay (i) all out-of-pocket expenses of the Lender, including,
without limitation, fees and disbursements of counsel for the Lender in
connection with the preparation of this Agreement and the other Loan Papers
(including, without limitation, the furnishing of any written or oral opinions
or advice incident to this transaction) and, if appropriate, the recordation of
the Loan Papers, any waiver or consent hereunder or any amendment hereof or any
Default or alleged Default hereunder, and (ii) if an Event of Default occurs,
all out-of-pocket expenses incurred by the Lender, including, without
limitation, fees and disbursements of counsel in connection with such Event of
Default and collection and other enforcement proceedings resulting therefrom,
fees of auditors, consultants, engineers and other Persons incurred in
connection therewith (including, without limitation, the supervision,
maintenance or disposition of the Collateral) and investigative expenses
incurred by the Lender in connection therewith, which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to the Borrower
by the Lender and which amounts shall include, but not be limited to (A) all
court costs, (B) reasonable attorneys' fees, (C) reasonable fees and expenses of
auditors and accountants incurred to protect the interests of the Lender, (D)
fees and expenses incurred in connection with the participation by the Lender as
a member of the creditors' committee in a case commenced under any Insolvency
Proceeding, (E) fees and expenses incurred in connection with lifting the
automatic stay prescribed in Section 362 Title 11 of the United States Code, and
(F) fees and expenses incurred in connection with any action pursuant to Section
1129 Title 11 of the United States Code all reasonably incurred by the Lender in
connection with the collection of any sums due under the Loan Papers, together
with interest at the per annum interest rate equal to the Default Rate,
calculated on a basis of a calendar year of 365 or 366 days, as the case may be,
counting the actual number of days elapsed, on each such amount from the date of
notification that the same was expended, advanced, or incurred by the Lender
until the date it is repaid to the Lender, with the obligations under this
Section surviving the non-assumption of this Agreement in a case commenced under
any Insolvency Proceeding and being binding upon the Borrower and/or a trustee,
receiver, custodian, or liquidator of the Borrower appointed in any such case.
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(b) THE BORROWER SHALL INDEMNIFY THE LENDER AGAINST ANY TRANSFER TAXES,
DOCUMENTARY TAXES, ASSESSMENTS OR CHARGES MADE BY ANY GOVERNMENTAL AUTHORITY BY
REASON OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE OTHER LOAN PAPERS.
(c) Any amount to be paid under this Section to the Lender shall be a
demand obligation owing by the Borrower and if not paid within ten days of
demand shall bear interest from the date of expenditure by the Lender until paid
at a per annum rate equal to the lessor of the Default Rate or the Highest
Lawful Rate. The obligations of the Borrower under this Section shall survive
payment of the Note and the assignment of any right hereunder.
SECTION 9.5 Taxes. The Borrower will, to the extent they may lawfully
do so, pay all Taxes (including interest and penalties but expressly excluding
federal or state income taxes) which may be payable in respect of the execution
and delivery of this Agreement or the other Loan Papers, or in respect of any
amendment of or waiver under or with respect to the foregoing, and will save the
Lender harmless against any loss or liability resulting from nonpayment or delay
in payment of any such Taxes (as limited above). The obligations of the Borrower
under this Section shall survive the payment of the Note and the assignment of
any right hereunder.
SECTION 9.6 Notices. Except as specifically provided otherwise herein,
all notices, requests and other communications to any party hereunder shall be
in writing (including by telecopy or similar writing) and shall be given to such
party at its address and to the attention of the Person set forth on the
signature pages hereof (or in the case of notices to the Borrower, to the
attention of any officer, or other Person holding a similar position, of the
Borrower) or such other address or telecopy number or Person as such party may
hereafter specify for such purpose by notice to the other party. Each such
notice, request or other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopier number specified
in this Section and the receipt thereof is acknowledged, (ii) if given by mail,
72 hours after such communication is deposited in the mails (certified, return
receipt requested) addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in this Section or otherwise delivered
to the Borrower, provided that notice to the Lender under Section 2.2 shall not
be effective until received, and provided further that, oral notices to the
Borrower of decreases in the Borrowing Base shall be effective when communicated
to the Borrower.
SECTION 9.7 Right of Set-Offs. (a) Upon the occurrence and during the
continuance of any Event of Default, the Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Lender
to or for the credit or the account of the Borrower against the obligations of
the Borrower to the Lender, irrespective of whether or not the Lender shall have
made any demand under this Agreement or any other Loan Paper and although such
obligations may be unmatured. The Lender agrees promptly to notify the Borrower
after any such set-off and application made by the Lender, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of
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the Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Lender may
have.
(b) The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in the Loan may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.8 Survival. All representations, warranties and covenants
made by or on behalf of the Borrower in this Agreement or the other Loan Papers
herein or in any certificate or other instrument delivered by it or in its
behalf under the Loan Papers shall be considered to have been relied upon by the
Lender and shall survive the delivery to the Lender of such Loan Papers or the
extension of the Loan (or any part thereof), regardless of any investigation
made by or on behalf of the Lender.
SECTION 9.9 Successors and Assigns: Rights of Other Holders. (a) This
Agreement shall be binding on the parties hereto and their respective successors
and inure to the benefit of and be enforceable by the Lender, its legal
representatives, successors and assigns. With respect to the Borrower, this
Agreement and the other Loan Papers and the rights of the Borrower hereunder and
thereunder shall not be assignable in any respect.
(b) The Lender may at any time sell, transfer, assign, or grant
participations in the Obligations or any portion thereof; and the Lender may
forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable. The
Borrower agrees that each Transferee, regardless of the nature of any transfer
to it, may exercise all rights (including, without limitation, rights of
set-off) with respect to the portion of the Obligations held by it as fully as
if such Transferee were the direct holder thereof, subject to any agreements
between such Transferee and the transferor to such Transferee.
SECTION 9.10 APPLICABLE LAW; VENUE; WAIVER OF JURY TRIAL. (a) THIS
AGREEMENT HAS BEEN NEGOTIATED, IS BEING EXECUTED AND DELIVERED, AND WILL BE
PERFORMED IN WHOLE OR IN PART, IN THE STATE OF TEXAS, AND THE SUBSTANTIVE LAWS
OF SUCH STATE AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA
SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THE
LOAN PAPERS, EXCEPT TO THE EXTENT THE LAWS OF ANY JURISDICTION WHERE COLLATERAL
IS LOCATED REQUIRE APPLICATION OF SUCH LAWS WITH RESPECT TO SUCH COLLATERAL.
(b) ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR
INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE
LENDER, IN COURTS HAVING
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SITUS IN DALLAS, DALLAS COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN DALLAS, DALLAS
COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN
ACCORDANCE WITH THIS SECTION.
(c) THE BORROWER AND THE LENDER HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT
RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR
PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH
RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR
THE LENDER ENTERING INTO THIS AGREEMENT.
SECTION 9.11 Headings. The headings in this Agreement are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof and
words such as "hereunder" or " herein" shall refer to the entirety of this
Agreement unless specifically indicated otherwise.
SECTION 9.12 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original and all of which together
shall constitute one and the same instrument. This Agreement shall become
effective at such time as the counterparts hereof which, when taken together,
bear the signature of the Borrower and the Lender, shall be delivered to the
Lender.
SECTION 9.13 Invalid Provisions, Severability. If any provision of this
Agreement or the other Loan Papers is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term hereof or
thereof, such provision shall be fully severable, this Agreement and the other
Loan Papers shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions hereof and thereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by its
severance therefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as a part of this
Agreement or the other Loan Papers a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid and enforceable.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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SECTION 9.14 PRECLUSION OF ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT
REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER:
TORMIN, INC.
4809 Cole Avenue
Suite 108
Dallas, Texas 75205 By: /s/ G. THOMAS GRAVES, III
Telecopy: 214/521-3774 ----------------------------------------
Name: G. Thomas Graves, III
Title: President
LENDER:
COMPASS BANK
8080 N. Central Expressway
Suite 370
Dallas, Texas 75206 By: /s/ CHRIS D. COWAN
Attention: Energy Group ----------------------------------------
Telecopy: 214/706-8054 Name: Chris D. Cowan
Title: Assistant Vice President
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