CREDIT AGREEMENT
AMONG
SOUTHWEST ROYALTIES, INC., AS BORROWER,
AND
BANK ONE, TEXAS, N.A.
AND THE INSTITUTIONS NAMED HEREIN
AS BANKS
AND
BANK ONE, TEXAS, N.A.,
AS ADMINISTRATIVE AGENT
DECEMBER 29, 1999
TABLE OF CONTENTS
Page No.
1. Definitions 1
2. Commitment of the Lenders 12
(a) Terms of Commitment 12
(b) Procedure for Borrowing 12
(c) Letters of Credit 13
(d) Procedure for Obtaining Letters of Credit 14
(e) Voluntary Reduction of Commitment 14
(f) Mandatory Commitment Reductions 15
(g) Several Obligations 15
(h) Type and Number of Advances 15
(i) Requirements of Note Purchase Agreement15
3. Notes Evidencing Loans. 16
(a) Form of Notes 16
(b) Issuance of Additional Notes 16
(c) Interest Rate 16
(d) Payment of Interest 17
(e) Payment of Principal 17
(f) Payment to Lenders 17
(g) Sharing of Payments, Etc. 17
(h) Non-Receipt of Funds by the Agent 17
4. Interest Rates. 18
(a) Options 18
(b) Interest Rate Determination 19
(c) Conversion Option 19
(d) Recoupment 19
5. Special Provisions Relating to Loans 20
(a) Unavailability of Funds or Inadequacy
of Pricing 20
(b) Change in Laws 20
(c) Increased Cost or Reduced Return 20
(d) Discretion of Lender as to Manner of Funding 22
(e) Breakage Fees 22
6. Collateral Security 23
7. Borrowing Base 24
(a) Initial Borrowing Base 24
(b) Subsequent Determinations of Borrowing Base 24
(c) Procedures for Determining Borrowing Base 25
8. Fees 26
(a) Unused Commitment Fee 26
(b) The Letter of Credit Fee 26
(c) Agency Fees 26
(d) Facility Fee 26
(e) Enhancement Fee. 26
(f) Arrangement Fee. 26
9. Prepayments 26
(a) Voluntary Prepayments 26
(b) Mandatory Prepayment For Borrowing Base
Deficiency 27
10. Representations and Warranties 27
(a) Creation and Existence. 27
(b) Power and Authority. 27
(c) Binding Obligations 27
(d) No Legal Bar or Resultant Lien 28
(e) No Consent 28
(f) Financial Condition 28
(g) Liabilities 28
(h) Litigation 28
(i) Taxes; Governmental Charges 28
(j) Titles, Etc 29
(k) Defaults 29
(l) Casualties; Taking of Properties 29
(m) Use of Proceeds; Margin Stock 29
(n) Location of Business and Offices 30
(o) Compliance with the Law 30
(p) No Material Misstatements 30
(q) Not A Utility 30
(r) ERISA 30
(s) Public Utility Holding Company Act 31
(t) Subsidiaries 31
(u) Environmental Matters 31
(v) Liens 31
(w) Year 2000 Compliance 31
11. Conditions of Lending 32
12. Affirmative Covenants 35
(a) Financial Statements and Reports 35
(b) Certificates of Compliance 36
(c) Accountants' Certificate 36
(d) Taxes and Other Liens 37
(e) Compliance with Laws and Contracts 37
(f) Further Assurances 37
(g) Performance of Obligations 37
(h) Insurance 37
(i) Accounts and Records 38
(j) Right of Inspection 38
(k) Notice of Certain Events 39
(l) ERISA Information and Compliance 39
(m) Environmental Reports and Notices 39
(n) Compliance and Maintenance 39
(o) Operation of Properties 40
(p) Compliance with Leases and Other Instruments 40
(q) Certain Additional Assurances Regarding
Maintenance and Operations of Properties 41
(r) Sale of Certain Assets/Prepayment of Proceeds
41
(s) Title Matters 41
(t) Curative Matters 41
(u) Change of Principal Place of Business 42
(v) Cash Collateral Accounts 42
(w) Year 2000 Compatibility 42
(x) Engineering Report 43
13. Negative Covenants 43
(a) Negative Pledge 43
(b) Current Ratio 44
(c) Minimum Interest Coverage Ratio 44
(d) Consolidations and Mergers 44
(e) Debts, Guaranties and Other Obligations44
(f) Dividends 45
(g) Loans and Advances 45
(h) Payables and Receivables 45
(i) Nature of Business 45
(j) Transactions with Affiliates 46
(k) Hedging Transactions 46
(l) Investments 46
(m) Amendment to Articles of Incorporation
or Bylaws 47
(n) Proceeds of Production 47
(o) Issuance of Preferred Stock 47
(p) Amendments to and Redemption of Preferred
Stock or Other Equity 47
(q) Payment or Pre-Payment of Other Indebtedness 47
(r) Purchase of Senior Notes 47
14. Events of Default 47
15. The Agent and the Lenders 49
(a) Appointment and Authorization 50
(b) Note Holders 50
(c) Consultation with Counsel 51
(d) Documents 51
(e) Resignation or Removal of Agent 51
(f) Responsibility of Agent 51
(g) Independent Investigation 53
(h) Indemnification 53
(i) Benefit of Section 15 54
(j) Pro Rata Treatment 54
(k) Assumption as to Payments 54
(l) Other Financings 55
(m) Interests of Lenders 55
(n) Investments 55
16. Exercise of Rights 55
17. Notices 56
18. Expenses 56
19. Indemnity 57
20. Governing Law 58
21. Invalid Provisions 58
22. Maximum Interest Rate 58
23. Amendments 58
24. Multiple Counterparts 59
25. Conflict 59
26. Survival 59
27. Parties Bound 59
28. Assignments and Participations 59
29. Choice of Forum: Consent to Service of Process
and Jurisdiction 61
30. Waiver of Jury Trial 62
31. Other Agreements 62
32. Financial Terms 62
Exhibits
Exhibit "A" - Notice of Borrowing
Exhibit "B" - Note
Exhibit "C" - Certificate of Compliance
Exhibit "D" - Form of Assignment and Acceptance
Agreement
Exhibit "E" Note Purchase Agreement
Exhibit "F-1" Unconditional Guaranty-Southwest Royalties
Holdings, Inc.
Exhibit "F-2" Unconditional Guaranty-Blue Heel Company
Schedules
Schedule 1 - Liens
Schedule 2 - Partnership Interests
Schedule 3 - Financial Condition
Schedule 4 - Liabilities
Schedule 5 - Litigation
Schedule 6 - Subsidiaries
Schedule 7 - Environmental Matters
Schedule 8 - Title Matters
Schedule 9 - Curative Matters
Schedule 10 - Required Floors
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 29th day of December, 1999,
by and between SOUTHWEST ROYALTIES, INC., a Delaware
corporation ("Borrower") and BANK ONE, TEXAS, N.A., a
national banking association ("Bank One") and each of the
financial institutions which is a party hereto (as evidenced
by the signature pages to this Agreement) or which may from
time to time become a party hereto pursuant to the
provisions of Section 28 hereof or any successor or assignee
thereof (hereinafter collectively referred to as "Lenders",
and individually, "Lender"), Bank One, as Administrative
Agent (the "Agent").
WITNESSETH:
WHEREAS, Borrower has requested the Lenders make
available to it a revolving loan facility in the amount of
up to $50,000,000; and
WHEREAS, to induce the Lenders to make such facility
available to Borrower, Borrower has requested El Paso Energy
Corporation ("El Paso") to agree, under certain
circumstances, to purchase certain of the obligations of
Borrower under such facility from the Lenders at par; and
WHEREAS, the Lenders have agreed to make such
facilities available to Borrower.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements herein contained, the parties
hereby agree as follows:
1. Definitions. When used herein the terms "Agent",
"Agreement", "Bank One", "Borrower", "El Paso", "Lender" and
"Lenders" shall have the meanings indicated above. When
used herein the following terms shall have the following
meanings:
Advance or Advances means a loan or loans
hereunder.
Affiliate means any Person which, directly or
indirectly, controls, is controlled by or is under
common control with the relevant Person. For the
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to
any Person, shall mean a member of the board of
directors, a partner or an officer of such Person, or
any other Person with possession, directly or
indirectly, of the power to direct or cause the
direction of the management and policies of such
Person, through the ownership (of record, as trustee,
or by proxy) of voting shares, partnership interests or
voting rights, through a management contract or
otherwise. Any Person owning or controlling directly
or indirectly ten percent or more of the voting shares,
partnership interests or voting rights, or other equity
interest of another Person shall be deemed to be an
Affiliate of such Person.
Alternate Prime Rate shall mean, as of any date, a
rate of interest per annum equal to the higher of
(i) the Prime Rate for such date, and (ii) the sum of
the Federal Funds Effective Rate for such date plus
one-half of one percent (.50%) per annum.
Applicable Prime Rate means, as of any date, the
sum of the Alternate Prime Rate plus the Prime Rate
Margin.
Assignment and Acceptance means a document
substantially in the form of Exhibit "D" hereto.
Borrowing Base means the amount determined by the
Lenders from time to time pursuant to Section 7 hereof.
Borrowing Base Usage means, as of any date, all
amounts outstanding on the Loans plus all outstanding
Letters of Credit, divided by the Borrowing Base.
Borrowing Date means the date elected by Borrower
pursuant to Section 2(b) hereof for an Advance on the
Revolving Loan.
Business Day means (i) with respect to any
borrowing, payment or note selection of Eurodollar
Loans, a day (other than Saturdays or Sundays) on which
banks are legally open for business in Dallas, Texas
and New York, New York and on which dealings in United
States dollars are carried on in the London interbank
market, and (ii) for all other purposes a day (other
than Saturdays and Sundays) on which banks are legally
open for business in Dallas, Texas.
Cash Collateral Accounts is used herein as defined
in Section 12(v).
Change of Control shall occur if any Person (or
syndicate or group of Persons which is deemed a Person
for the purposes of Sections 13(d) or 14(d)(ii) of the
Securities Act of 1934, as amended) shall acquire,
directly or indirectly an amount of issued and
outstanding voting stock of Borrower (including the
acquisition of newly-issued stock) sufficient to change
the control of Borrower by causing the election or
change of a majority of the directors of Borrower.
Change of Management means a Change of Management
shall occur if H.H. Wommack, III, ever ceases to act as
Chief Executive Officer of Borrower, whether in the
capacity of President or Chairman, and a replacement
for such officer, acceptable to Agent, is not appointed
within thirty (30) days thereafter.
Commitment means (A) For all Lenders, the lesser
of (i) $50,000,000 or (ii) the Borrowing Base in each
case as reduced from time to time pursuant to
Sections 2 and 7 hereof, and (B) as to any Lender, its
obligation to make Advances hereunder on the Loan and
purchase participations in Letters of Credit issued
hereunder by the Agent in amounts not exceeding, in the
aggregate, an amount equal to such Lender's Commitment
Percentage times the total Commitment as of any date.
The Commitment of each Lender hereunder shall be
adjusted from time to time to reflect assignments made
by such Lender pursuant to Section 28 hereof. Each
reduction in the Commitment shall result in a Pro Rata
reduction in each Lender's Commitment.
Commitment Percentage means for Lender the
percentage set forth in either (i) such Lender's
Assignment and Acceptance Agreement, or (ii) opposite
Lender's name on the signature page hereto. The
Commitment Percentage of each Lender hereunder shall be
adjusted from time to time to reflect assignments made
by such Lender pursuant to Section 28 hereof.
Current Assets means the total of the current
assets of Borrower as determined in accordance with
GAAP prior to any consolidation with Borrower's
Subsidiaries (except for Blue Heel Company).
Current Liabilities means the total of current
obligations of Borrower as determined in accordance
with GAAP prior to any consolidation with Borrower's
Subsidiaries (except for Blue Heel Company), excluding
therefrom current maturities of the Loans.
Default means all the events specified in
Section 14 hereof, regardless of whether there shall
have occurred any passage of time or giving of notice,
or both, that would be necessary in order to constitute
such event as an Event of Default.
Defaulting Lender is used herein as defined in
Section 3(f) hereof.
EBITDA means the earnings of Borrower for any
period before provision for interest expense, income
taxes, depreciation, depletion and amortization for
such period, as determined in accordance with GAAP
prior to any consolidation with Borrower's Subsidiaries
(except for Blue Heel Company), but including any
earnings of Borrower's subsidiaries to the extent
actually paid to Borrower in cash during such period.
Effective Date means the date of this Agreement.
Eligible Assignee means any of (i) a Lender, El
Paso, or any Affiliate of a Lender or of El Paso;
(ii) a commercial Lender organized under the laws of
the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000;
(iii) a commercial Lender organized under the laws of
any other country which is a member of the Organization
for Economic Cooperation and Development, or a
political subdivision of any such country, and having a
combined capital and surplus of at least
$100,000,000.00, provided that such Lender is acting
through a branch or agency located in the United
States; (iv) a Person that is primarily engaged in the
business of commercial
lending and that (A) is a subsidiary of a Lender, (B) a
subsidiary of a Person of which a Lender is a
subsidiary, or (C) a Person of which a Lender is a
subsidiary; (v) any other entity (other than a natural
person) which is an "accredited investor" (as defined
in Regulation D under the Securities Act) which extends
credit or buys loans, bonds, or debt securities as one
of its businesses, including, but not limited to,
insurance companies, mutual funds, investments funds,
investment companies and lease financing companies; and
(vi) with respect to any Lender that is a fund that
invests in loans, any other fund that invests in loans
and is managed by the same investment advisor of such
Lender or by an Affiliate of such investment advisor
(and treating all such funds so managed as a single
Eligible Assignee); provided, however, that no
Affiliate of Borrower shall be an Eligible Assignee.
Environmental Laws means the Comprehensive
Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C.A. 9601, et
seq., the Resource Conservation and Recovery Act, as
amended by the Hazardous Solid Waste Amendment of 1984,
42 U.S.C.A. 6901, et seq., the Clean Water Act, 33
U.S.C.A. 1251, et seq., the Clean Air Act, 42 U.S.C.A.
1251, et seq., the Toxic Substances Control Act, 15
U.S.C.A. 2601, et seq., The Oil Pollution Act of 1990,
33 U.S.G. 2701, et seq., and all other laws, statutes,
codes, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, orders, permits and
restrictions of any federal, state, county, municipal
and other governments, departments, commissions,
boards, agencies, courts, authorities, officials and
officers, domestic or foreign, relating to oil
pollution, air pollution, water pollution, noise
control and/or the handling, discharge, disposal or
recovery of on-site or off-site asbestos, radioactive
materials, spilled or leaked petroleum products,
distillates or fractions and industrial solid waste or
"hazardous substances" as defined by 42 U.S.C. 9601,
et seq., as amended, as each of the foregoing may be
amended from time to time.
Environmental Liability means any claim, demand,
obligation, cause of action, order, violation, damage,
injury, judgment, penalty or fine, cost of enforcement,
cost of remedial action or any other costs or expense
whatsoever, including reasonable attorneys' fees and
disbursements, resulting from the violation or alleged
violation of any Environmental Law or the release of
any substance into the environment which is required to
be remediated by a regulatory agency or governmental
authority or the imposition of any Environmental Lien
(as hereinafter defined) which could reasonably be
expected to individually or in the aggregate have a
Material Adverse Effect.
Environmental Lien means a Lien in favor of any
court, governmental agency or instrumentality or any
other Person (i) for any Environmental Liability or
(ii) for damages arising from or cost incurred by such
court or governmental agency or instrumentality or
other person in response to a release or threatened
release of asbestos or "hazardous substance" into the
environment, the imposition of which Lien could
reasonably be expected to have a Material Adverse
Effect.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended.
Eurodollar Loan means any loan during any period
which bears interest at the Eurodollar Rate, or which
would bear interest at such rate if the Maximum Rate
ceiling was not in effect at a particular time.
Eurodollar Margin shall be:
(i) two and one-quarter percent (2.25%) per
annum whenever the Borrowing Base Usage is equal
to or greater than 80%;
(ii) two percent (2%) per annum whenever the
Borrowing Base Usage is equal to or greater than
60% but less than 80%; or
(iii) one and three-quarters percent
(1.75%) per annum whenever the Borrowing Base
Usage is less than 60%.
Eurodollar Base Rate means with respect to any
Interest Period, the offered rate for U.S. Dollar
deposits of not less than $1,000,000 as of 11:00 A.M.
City of London, England time two (2) Business Days
prior to the first date of each Interest Period as
shown on the display designated as "British Bankers
Assoc. Interest Settlement Rates" on the Telerate
system ("Telerate"), Page 3750 or Page 3740, or such
other page or pages as may replace such pages on
Telerate for the purpose of displaying such rate.
Provided, however, that if such rate is not available
on Telerate then such offered rate shall be otherwise
independently obtained by Agent from an alternate,
substantially similar independent source available to
Agent or shall be calculated by Agent by substantially
similar methodology as that theretofore used to
determine such offered rate in Telerate.
Eurodollar Rate means, with respect to a
Eurodollar Loan for the relevant Interest Period, the
sum of (i) the quotient of (A) the Eurodollar Base Rate
applicable to such Interest Period, divided by (B) one
minus the Reserve Requirement (expressed as a decimal)
applicable to such Interest Period, plus the
(iii) Eurodollar Margin. The Eurodollar Rate shall be
rounded to the next higher multiple of 1/16th of one
percent if the rate is not such a multiple.
Federal Funds Effective Rate shall mean, for any
day, an interest rate per annum equal to the weighted
average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as
published for such day (or, if such day is not a
Business Day, for the immediately preceding Business
Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a
Business Day, the average of the quotations at
approximately 10:00 a.m. (Dallas, Texas time) on such
day on such transactions received by the Agent from
three (3) Federal funds brokers of recognized standing
selected by the Agent in its sole discretion.
Financial Statements means balance sheets, income
statements, statements of cash flow, and appropriate
footnotes and schedules, prepared in accordance with
GAAP.
GAAP means generally accepted accounting
principles, consistently applied.
Guarantors mean Southwest Royalties Holdings, Inc.
and Blue Heel Company.
Guaranties mean unconditional guaranties in the
form of Exhibits "F-1" and "F-2" hereto.
Indenture means that certain Indenture dated
October 15, 1997, as from time to time amended between
Borrower, Southwest Royalties Holdings, Inc. and State
Street Bank and Trust Company, as Trustee, pursuant to
which $200,000,00 of Borrower's 10.5% Senior Notes due
2004, Series A were issued.
Interest Payment Date means the last day of each
calendar month, and in addition, in the case of
Eurodollar Loans, the last day of the applicable
Interest Period.
Interest Period means with respect to any
Eurodollar Loan (i) initially, the period commencing on
the date such Eurodollar Loan is made and ending one
(1), two (2), three (3) or six (6) months thereafter as
selected by the Borrower pursuant to Section 4(a)(ii),
and (ii) thereafter, each period commencing on the day
following the last day of the next preceding Interest
Period applicable to such Eurodollar Loan and ending
one (1), two (2), three (3) or six (6) months
thereafter, as selected by the Borrower pursuant to
Section 4(a)(ii); provided, however, that (i) if any
Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall
expire on the next succeeding Business Day unless the
result of such extension would be to extend such
Interest Period into the next calendar month, in which
case such Interest Period shall end on the immediately
preceding Business Day, (ii) if any Interest Period
begins on the last Business Day of a calendar month (or
on a day for which there is no numerically
corresponding day in the calendar month at the end of
such Interest Period) such Interest Period shall end on
the last Business Day of a calendar month, and (iii) no
Interest Period may be elected which would expire after
the Maturity Date.
Letters of Credit is used herein as defined in
Section 2(c) hereof.
Lien means any mortgage, deed of trust, pledge,
security interest, assignment, encumbrance or lien
(statutory or otherwise) of every kind and character.
Loans means loans made under the Commitment
pursuant to Section 2 hereof.
Loan Documents means this Agreement, the Notes,
the Note Purchase Agreement, the Security Instruments
and all other documents executed in connection with the
transaction described in this Agreement.
Lockbox Accounts is used herein as defined in
Section 12(v) hereof.
Material Adverse Effect shall mean a material
adverse effect on (i) the assets or properties,
liabilities, financial condition, business, operations,
affairs or circumstances of the Borrower, (ii) the
ability of the Borrower to carry out its businesses as
of the date of this Agreement or as proposed at the
date of this Agreement to be conducted, (iii) the
ability of Borrower to perform fully and on a timely
basis its obligations under any of the Loan Documents,
or (iv) the validity or enforceability of any of the
Loan Documents or the rights and remedies of the Agent
or the Lenders thereunder.
Maturity Date means December 29, 2000.
Maximum Rate means at any particular time in
question, the maximum non-usurious rate of interest
which under applicable law may then be charged on the
Note. If such Maximum Rate changes after the date
hereof, the Maximum Rate shall be automatically
increased or decreased, as the case may be, without
notice to Borrower from time to time as the effective
date of each change in such Maximum Rate.
Minimum Interest Coverage Ratio means the ratio of
Borrower's consolidated EBITDA for the period being
measured to the sum of Borrower's consolidated Total
Interest Expense for the period being measured.
Monthly Commitment Reduction is used herein, as
defined in Section 2(f) hereof.
Net Income means Borrower's net income after
income taxes calculated in accordance with GAAP prior
to any consolidation with Borrower's Subsidiaries
except for consolidation with Blue Heel Company.
Note Purchase Agreement means that certain
agreement between the Lenders and El Paso dated of even
date herewith pursuant to which El Paso agrees, under
certain conditions, to either purchase the Lender's
Notes at par or purchase a participation in such Notes.
Notes means the Notes, substantially in the form
of Exhibit "B", hereto issued or to be issued hereunder
to each Lender, respectively, to evidence the
indebtedness to such Lender arising by reason of the
Advances on the Loans, together with all modifications,
renewals and extensions thereof or any part thereof.
Oil and Gas Properties means all oil, gas and
mineral properties and interests, related personal
properties, in which Borrower grants to the Lenders a
lien or security interest pursuant to Section 6 hereof.
Operating Accounts is used herein as defined in
Section 12(v) hereof.
Other Financing is used herein as defined in
Section 15(l) hereof.
Payor is used herein as defined in
Section 3(h)hereof.
Permitted Liens shall mean (i) royalties,
overriding royalties, reversionary interests,
production payments (but only to the extent existing on
the date hereof and specifically disclosed in the
Security Instruments), and similar burdens; (ii) sales
contracts or other arrangements for the sale of
production of oil, gas or associated liquid or gaseous
hydrocarbons which would not (when considered
cumulatively with the matters discussed in clause (i)
above) deprive Borrower of any material right in
respect of any such Borrower's assets or properties
(except for rights customarily granted with respect to
such contracts and arrangements); (iii) statutory Liens
for taxes or other assessments that are not yet
delinquent (or that, if delinquent, are being contested
in good faith by appropriate proceedings, levy and
execution thereon having been stayed and continue to be
stayed and for which such Borrower has set aside on its
books adequate reserves in accordance with GAAP); (iv)
easements, rights of way, servitudes, permits, surface
leases and other rights in respect to surface
operations, pipelines, grazing, logging, canals,
ditches, reservoirs or the like, conditions, covenants
and other restrictions, and easements of streets,
alleys, highways, pipelines, telephone lines, power
lines, railways and other easements and rights of way
on, over or in respect of Borrower's assets or
properties and that do not individually or in the
aggregate, cause a Material Adverse Effect; (v)
materialmen's, mechanic's, repairman's, employee's,
warehousemen's, landlord's, carrier's, pipeline's,
contractor's, sub-contractor's, operator's, non-
operator's (arising under operating or joint operating
agreements), and other Liens (including any financing
statements filed in respect thereof) incidental to
obligations incurred by Borrower in connection with the
construction, maintenance, development, transportation,
storage or operation of Borrower's assets or properties
to the extent not delinquent (or which, if delinquent,
are being contested in good faith by appropriate
proceedings and for which Borrower has set aside on its
books
adequate reserves in accordance with GAAP); (vi) liens
in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or
public liability obligations; (vii) legal or equitable
encumbrances deemed to exist by reason of the existence
of any litigation or other legal proceeding or arising
out of a judgment or award with respect to which an
appeal is being prosecuted in good faith and levy and
execution thereon have been stayed and continue to be
stayed; (ix) rights reserved to or vested in any
municipality, governmental, statutory or other public
authority to control or regulate Borrower's assets and
properties in any manner, and all applicable laws,
rules and orders from any governmental authority;
(x) Liens incurred pursuant to the Security
Instruments; and (xii) Liens existing at the date of
this Agreement which have been identified in
Schedule "1" hereto.
Person means an individual, a corporation, a
partnership, a limited liability company, an
association, a trust or any other entity or
organization, including a government or political
subdivision or an agency or instrumentality thereof.
Plan means any plan subject to Title IV of ERISA
and maintained by Borrower, or any such plan to which
Borrower is required to contribute on behalf of its
employees.
Pre-Approved Contracts as used herein shall mean
any contracts or agreements entered into in connection
with any Rate Management Transaction designed to hedge,
provide a price floor for, or swap crude oil or natural
gas or otherwise sell up to (i) 100% of the Borrower's
anticipated production from proved, developed producing
reserves of crude oil through December 31, 1999, and,
thereafter, 90% of such monthly production forecast,
and/or (ii) 100% of the Borrower's anticipated
production from proved, developed producing reserves of
natural gas through December 31, 1999, and, thereafter,
90% of such monthly production forecast, during the
period from the immediately preceding settlement date
(or the commencement of the term of such hedge
transactions if there is no prior settlement date) to
such settlement date, (ii) with a maturity of
twenty-four (24) months or less, (iii) with "strike
prices" per barrel or Mmbtu greater than Agent's
forecasted price in the most recent engineering
evaluation of Borrower's Oil and Gas Properties,
adjusted for the difference between the forecasted
price and the Borrower's actual product price as
reasonably determined by the Agent, and (iv) with
counterparties to the hedging agreement which are
reasonably approved by Agent.
Prime Rate means a rate per annum equal to the
prime rate of interest announced from time to time by
Agent or its parent (which is not necessarily the
lowest rate charged any customer), changing when and as
said prime rate changes.
Prime Rate Loans means loans during any period
which bear interest based upon the Prime Rate or which
would bear interest based upon the Prime Rate if the
Maximum Rate ceiling was not in effect at that
particular time.
Prime Rate Margin means:
(i) one-fourth of one percent (.25%)
whenever the Borrowing Base Usage is equal to or
greater than 80%;
(ii) zero percent (0%) whenever the Borrowing
Base Usage is less than 80%.
Pro Rata or Pro Rata Part means for each Lender,
(i) for all purposes where no Revolving Loan is
outstanding, such Lender's Commitment Percentage and
(ii) otherwise, the proportion which the portion of the
outstanding Revolving Loans owed to such Lender bears
to the aggregate outstanding Revolving Loans owed to
all Lenders at the time in question.
Rate Management Transaction means any transaction
(including an agreement with respect thereto) now
existing or hereafter entered into between Borrower and
any other Person which is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity
index option, bond option, interest rate option,
forward exchange transaction, cap transaction, floor
transaction, collar transaction, forward transaction,
currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar
transaction (including any option with respect to any
of these transactions) or any combination thereof,
whether linked to one or more interest rates, foreign
currencies, commodity prices, equity prices or other
financial measures.
Regulation D shall mean Regulation D of the Board
of Governors of the Federal Reserve System as from time
to time in effect and any successor thereto and other
regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable
to member banks of the Federal Reserve System.
Reimbursement Obligations means, at any time, the
obligations of the Borrower in respect of all Letters
of Credit then outstanding to reimburse amounts paid by
any Lender in respect of any drawing or drawings under
a Letter of Credit.
Release Price is used herein as defined in
Section 12(r) hereof.
Required Lenders means Lenders holding 100% of the
Commitment or if the Commitment has been terminated,
Lenders holding 100% of the outstanding Loans.
Required Payment is used herein as defined in
Section 3(h) hereof.
Reserve Requirement means, with respect to any
Interest Period, the maximum aggregate reserve
requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under
Regulation D on Eurocurrency liabilities.
Security Instruments is used collectively herein
to mean this Agreement, the Guaranties, all Deeds of
Trust, Mortgages, Security Agreements, Assignments of
Production and Financing Statements and other
collateral documents covering the Oil and Gas
Properties and related personal property, equipment,
oil and gas inventory and proceeds of the foregoing,
all such documents to be in form and substance
satisfactory to Agent.
Senior Notes means notes issued pursuant to the
Indenture.
Subsidiary means any corporation or other entity
of which securities or other ownership interests having
ordinary voting power to elect a majority of the board
of directors or other persons performing similar
functions are at the time directly or indirectly owned
by Borrower or another subsidiary of Borrower.
Total Interest Expense means Borrower's total
interest expense for any period, as determined in
accordance with GAAP, excluding non-cash interest items
such as amortization of loan costs and excluding
interest expense of Borrower's Subsidiaries except to
the extent paid or guaranteed by Borrower.
Total Outstandings means, as of any date, the sum
of (i) the total principal balance outstanding on the
Notes, plus (ii) the total face amount of all
outstanding Letters of Credit, plus (iii) the total
amount of all unpaid Reimbursement Obligations.
Tranche A means that portion of the Commitment
available to Borrower from time to time to fund working
capital needs and letters of credit.
Tranche B means that portion of the Commitment
available to Borrower from time to time for other
general corporate purposes.
Unscheduled Redetermination means a
redetermination of the Borrowing Base made at any time
other than on the dates set for the regular semi-annual
redetermination of the Borrowing Base which are made
(A) at the reasonable request of Borrower one time
between each scheduled Borrowing Base redetermination
and (B) at the request of Agent or Required Lenders.
Unused Commitment Fee Rate means:
(i) one-half of one percent (.50%) per annum
whenever the Borrowing Base Usage is equal to or
greater than 80%; or
(ii) three-eighths of one percent (.375%) per
annum whenever the Borrowing Base Usage is less
than 80%.
2. Commitment of the Lenders.
(a) Terms of Commitment. On the terms and conditions
hereinafter set forth, each Lender agrees, subject to the
provisions of this Section 2, severally to make Advances to
the Borrower from time to time during the period beginning
on the Effective Date and ending on the Maturity Date in
such amounts as the Borrower may request from time to time
up to an amount not to exceed, in the aggregate principal
amount outstanding at any time, the Commitment. Subject to
availability under the Borrowing Base, Advances hereunder
may be made under either Tranche A or Tranche B, but
Advances under Tranche B are only available to Borrower
prior to February 28, 2000. The obligation of the Borrower
hereunder shall be evidenced by this Agreement and the Notes
issued in connection herewith, said Notes to be as described
in Section 3 hereof. Notwithstanding any other provision of
this Agreement, no Advance shall be required to be made
hereunder unless Required Lenders have specifically approved
such Advance or if any Default or Event of Default has
occurred and is continuing. Notwithstanding any of the
foregoing, the Borrower hereby acknowledges and agrees that
no Advance may be made under the terms of this Agreement
unless El Paso has consented to such Advance pursuant to
Section 14 of the Note Purchase Agreement. Each Advance
under the Commitment shall be an aggregate amount of at
least $100,000 or a whole number multiple thereof.
Irrespective of the face amount of the Note or Notes, the
Lenders shall never have the obligation to Advance any
amount or amounts in excess of the Commitment or to increase
the Commitment.
(b) Procedure for Borrowing. Whenever the Borrower desires
an Advance hereunder, it shall give Agent telegraphic,
telex, facsimile or telephonic notice ("Notice of
Borrowing") of such requested Advance, which in the case of
telephonic notice, shall be promptly confirmed in writing.
Each Notice of Borrowing shall be in the form of Exhibit "A"
attached hereto and shall be received by Agent not later
than 11:00 a.m. Dallas, Texas time, (i) one Business Day
prior to the Borrowing Date in the case of the Prime Rate
Loan, or (ii) three Business Days prior to any proposed
Borrowing Date in the case of Eurodollar Loans. Each Notice
of Borrowing shall specify (i) the Borrowing Date, (ii) the
principal amount to be borrowed, (iii) the portion of the
Advance constituting Prime Rate Loans and/or Eurodollar
Loans, (iv) if any portion of the proposed Advance is to
constitute Eurodollar Loans, the initial Interest Period
selected by Borrower pursuant to Section 4
hereof to be applicable thereto, (v) whether an Advance is
requested under Tranche A or Tranche B, (vi) the use to be
made of the proceeds of such Advance, and (vii) the date
upon which such Advance is required. Upon receipt of such
Notice, Agent shall advise each Lender thereof; and if
Required Lenders have approved such Advance and if the
Lenders have received at least one (1) day's notice of such
Advance prior to funding of a Prime Rate Loan, or at least
three (3) days' notice of each Advance prior to funding in
the case of a Eurodollar Loan, each Lender shall provide
Agent at its office at 1717 Main Street, Dallas, Texas
75201, not later than 1:00 p.m., Dallas, Texas time, on the
Borrowing Date, in immediately available funds, its pro rata
share of the requested Advance, but the aggregate of all
such fundings by each Lender shall never exceed such
Lender's Commitment. Not later than 2:00 p.m., Dallas,
Texas time, on the Borrowing Date, Agent shall make
available to the Borrower at the same office, in like funds,
the aggregate amount of such requested Advance. Neither
Agent nor any Lender shall incur any liability to the
Borrower in acting upon any Notice referred to above which
Agent or such Lender believes in good faith to have been
given by a duly authorized officer or other person
authorized to borrow on behalf of Borrower or for otherwise
acting in good faith under this Section 2(b). Upon funding
of Advances by Lenders in accordance with this Agreement,
pursuant to any such Notice, the Borrower shall have
effected Advances hereunder.
(c) Letters of Credit. On the terms and conditions
hereinafter set forth, the Agent shall from time to time
during the period beginning on the Effective Date and ending
on the Revolving Maturity Date upon request of Borrower
issue standby and/or commercial Letters of Credit for the
account of Borrower (the "Letters of Credit") in such face
amounts as Borrower may request, but not to exceed in the
aggregate face amount at any time outstanding the sum of One
Million Dollars ($1,000,000), provided that Letters of
Credit may only be issued under Tranche A and only to the
extent of any unused availability under Tranche A. The face
amount of all Letters of Credit issued and outstanding
hereunder shall be considered as Advances on the Commitment
for Borrowing Base purposes and all payments made by the
Agent on such Letters of Credit shall be considered as
Advances under the Notes. Each Letter of Credit issued for
the account of Borrower hereunder shall (i) be in favor of
such beneficiaries as specifically requested by Borrower,
(ii) have an expiration date not exceeding the Maturity
Date, and (iii) contain such other terms and provisions as
may be required by issuing Lender. Each Lender (other than
Agent) agrees that, upon issuance of any Letter of Credit
hereunder, it shall automatically acquire a participation in
the Agent's liability under such Letter of Credit in an
amount equal to such Lender's Commitment Percentage of such
liability, and each Lender (other than Agent) thereby shall
absolutely, unconditionally and irrevocably assume, as
primary obligor and not as surety, and shall be
unconditionally obligated to Agent to pay and discharge when
due, its Commitment Percentage of Agent's liability under
such Letter of Credit. The Borrower hereby unconditionally
agrees to
pay and reimburse the Agent for the amount of each demand
for payment under any Letter of Credit that is in
substantial compliance with the provisions of any such
Letter of Credit at or prior to the date on which payment is
to be made by the Agent to the beneficiary thereunder,
without presentment, demand, protest or other formalities of
any kind. Upon receipt from any beneficiary of any Letter
of Credit of any demand for payment under such Letter of
Credit, the Agent shall promptly notify the Borrower of the
demand and the date upon which such payment is to be made by
the Agent to such beneficiary in respect of such demand.
Forthwith upon receipt of such notice from the Agent,
Borrower shall advise the Agent whether or not it intends to
borrow hereunder to finance its obligations to reimburse the
Agent, and if so, submit a Notice of Borrowing as provided
in Section 2(b) hereof. If Borrower fails to so advise
Agent and thereafter fail to reimburse Agent, the Agent
shall notify each Lender of the demand and the failure of
the Borrower to reimburse the Agent, and each Lender shall
reimburse the Agent for its Commitment Percentage of each
such draw paid by the Agent and unreimbursed by the
Borrower. All such amounts paid by Agent and/or reimbursed
by the Lenders shall be treated as an Advance or Advances
under the Commitment, which Advances shall be immediately
due and payable and shall bear interest at the Maximum Rate.
(d) Procedure for Obtaining Letters of Credit. The
amount and date of issuance, renewal, extension or
reissuance of a Letter of Credit pursuant to the Lenders'
commitments above in Section 2(c) shall be designated by
Borrower's written request delivered to Agent at least three
(3) Business Days prior to the date of such issuance,
renewal, extension or reissuance. Concurrently with or
promptly following the delivery of the request for a Letter
of Credit, Borrower shall execute and deliver to the Agent
an application and agreement with respect to the Letters of
Credit, said application and agreement to be in the form
used by the Agent. The Agent shall not be obligated to
issue, renew, extend or reissue such Letters of Credit if
(A) the amount thereon when added to the face amount of the
outstanding Letters of Credit plus any Reimbursement
Obligations exceeds One Million Dollars ($1,000,000 or (B)
the amount thereof when added to the Total Outstandings
would exceed the Commitment. Borrower agrees to pay the
Agent for the benefit of the Lenders commissions for issuing
the Letters of Credit (calculated separately for each Letter
of Credit) in an amount equal to the greater of (i) the then
effective Eurodollar Margin times the maximum face amount of
the Letter of Credit or (ii) $500. Borrower further agrees
to pay Agent an additional fronting fee equal to one-eighth
of one percent (.125%) per annum on the maximum face amount
of each Letter of Credit. Such commissions shall be payable
prior to the issuance of each Letter of Credit and
thereafter on each anniversary date of such issuance while
such Letter of Credit is outstanding.
(d) Voluntary Reduction of Commitment. The Borrower may at
any time, or from time to time, upon not less than three (3)
Business Days' prior written notice to Agent, reduce or
terminate the Commitment; provided, however, that (i) each
reduction in the Commitment must be in the amount of
$1,000,000 or more, in increments of $100,000 and (ii) each
reduction must be accompanied by a prepayment of the Notes
in the amount by which the outstanding principal balance of
the Notes exceeds the Commitment as reduced pursuant to this
Section 2. The Borrowing Base shall be automatically
reduced if and as needed to cause the Borrowing Base not to
exceed the Commitment.
(f) Mandatory Commitment Reductions.
(i) Monthly Commitment Reduction. The Borrowing
Base and the Commitment shall be reduced as of the
first day of each month by an amount determined by the
Lenders pursuant to Sections 7(b) and 7(c) hereof (the
"Monthly Commitment Reduction"). The Monthly
Commitment Reduction shall be $0 until redetermined
pursuant to Sections 7(b) and 7(c) hereof. If as a
result of any such Monthly Commitment Reduction, the
Total Outstandings ever exceed the Commitment then in
effect, the Borrower shall make the mandatory
prepayment of principal required pursuant to
Section 9(b) hereof.
(ii) Other Reductions. The Borrowing Base shall
be reduced from time to time by the amount of any
prepayment required by Section 12(r) hereof upon the
sale of assets, provided, however, that such reduction
shall only remain in effect until the next
redetermination of the Borrowing Base is made pursuant
to Sections 7(b) and 7(c) hereof. Such temporary
reduction of the Borrowing Base shall not result in a
reduction of the Commitment unless the Borrower elects
to permanently reduce the Commitment pursuant to the
provisions of Section 2(e) hereof. If, as a result of
any such reduction in the Borrowing Base, the Total
Outstandings ever exceed the Borrowing Base then in
effect, the Borrower shall make the mandatory
prepayment of principal required pursuant to
Section 9(b) hereof.
(g) Several Obligations. The obligations of the
Lenders under the Commitment are several and not joint. The
failure of any Lender to make an Advance required to be made
by it shall not relieve any other Lender of its obligation
to make its Advance, and no Lender shall be responsible for
the failure of any other Lender to make the Advance to be
made by such other Lender. No Lender shall be required to
lend hereunder any amount in excess of its legal lending
limit.
(h) Type and Number of Advances. Any Advance under
the Commitment may be a Prime Rate Loan or a Eurodollar
Loan, or a combination thereof, as selected by the Borrower
pursuant to Section 4 hereof. The total number of
Eurodollar Loans that may be outstanding at any time shall
never exceed four (4).
(i) Requirements of Note Purchase Agreement. It is
expressly acknowledged, agreed to and understood by the
Borrower that pursuant to Section 14 of the Note Purchase
Agreement, the Agent and the Lenders may not, without the
prior written consent of Purchaser, take any action
requiring the consent, approval or joint activity of all
Lenders or of Required Lenders or designate any Borrowing
Base or Monthly Commitment Reduction, approve any Advance
hereunder, release any Collateral, amend, waive or release
any Loan Document, approve the form or substance of any
agreement, instrument, title opinion or information, legal
opinion, certificate or other document required to be
delivered to Agent under Section 6 or 11 hereof, foreclose
on any Collateral or accelerate the maturity of the Note.
In addition to the foregoing, it is expressly acknowledged
and agreed to that the Agent and the Lenders are required
pursuant to such Section 14 of the Note Purchase Agreement,
at the request of El Paso, to request that Borrower furnish
to El Paso copies of all information, documents and notices
required to be delivered to the Lenders under the provisions
of the Loan Documents to El Paso, request Unscheduled
Redeterminations whenever asked to do so by El Paso and
request additional Collateral, additional Security
Instruments and amendments to Security Instruments whenever
asked to by El Paso.
3. Notes Evidencing Loans. The loans described above
in Section 2 shall be evidenced by promissory notes of
Borrower as follows:
(a) Form of Notes. The Revolving Loan shall be
evidenced by a Note or Notes in the aggregate face
amount of $50,000,000, and shall be in the form
of Exhibit "B" hereto with appropriate insertions (each
a "Note"). Notwithstanding the face amount of the
Notes, the actual principal amount due from the
Borrower to Lenders on account of the Notes, as of any
date of computation, shall be the sum of Advances then
and theretofore made on account thereof, less all
principal payments actually received by Lenders in
collected funds with respect thereto. Although the
Notes may be dated as of the Effective Date, interest
in respect thereof shall be payable only for the period
during which the loans evidenced thereby are
outstanding and, although the stated amount of the
Notes may be higher, the Notes shall be enforceable,
with respect to Borrower's obligation to pay the
principal amount thereof, only to the extent of the
unpaid principal amount of the Loans. Irrespective of
the face amount of the Notes, no Lender shall ever be
obligated to advance on the Commitment any amount in
excess of its Commitment then in effect.
(b) Issuance of Additional Notes. At the
Effective Date there shall be outstanding Notes in the
aggregate face amount of $50,000,000. From time to
time new Notes may issued to other Lenders as such
Lenders become parties to this Agreement. Upon request
from Agent, the Borrower shall execute and deliver to
Agent any such new or additional Notes. From time to
time as new Notes are issued the Agent may require that
each Lender exchange its Note(s) for newly issued
Note(s) to better reflect the extent of each Lender's
Commitment hereunder.
(c) Interest Rates. The unpaid principal balance of the
Notes shall bear interest from time to time as set forth in
Section 4 hereof.
(d) Payment of Interest. Interest on the Notes
shall be payable on each Interest Payment Date.
(e) Payment of Principal. Principal of the Note
or Notes shall be due and payable to the Agent for the
ratable benefit of the Lenders on the Maturity Date
unless earlier due in whole or in part as a result of
an acceleration of the amount due or pursuant to the
mandatory prepayment provisions of Section 9(b) hereof.
(f) Payment to Lenders. Each Lender's Pro Rata
Part of any payment or prepayment of the Loans shall be
directed by wire transfer to such Lender by the Agent
at the address provided to the Agent for such Lender
for payments no later than 2:00 p.m., Dallas, Texas,
time on the Business Day such payments or prepayments
are deemed hereunder to have been received by Agent;
provided, however, in the event that any Lender shall
have failed to make an Advance as contemplated under
Section 2 hereof (a "Defaulting Lender") and the Agent
or another Lender or Lenders shall have made such
Advance, payment received by Agent for the account of
such Defaulting Lender or Lenders shall not be
distributed to such Defaulting Lender or Lenders until
such Advance or Advances shall have been repaid in full
to the Lender or Lenders who funded such Advance or
Advances. Any payment or prepayment received by Agent
at any time after 12:00 noon, Dallas, Texas, time on a
Business Day shall be deemed to have been received on
the next Business Day. Interest shall cease to accrue
on any principal as of the end of the day preceding the
Business Day on which any such payment or prepayment is
deemed hereunder to have been received by Agent. If
Agent fails to transfer any principal amount to any
Lender as provided above, then Agent shall promptly
direct such principal amount by wire transfer to such
Lender.
(g) Sharing of Payments, Etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, or
otherwise) on account of the Loans, (including, without
limitation, any set-off) which is in excess of its Pro
Rata Part of payments on either of the Loans, as the
case may be, obtained by all Lenders, such Lender shall
purchase from the other Lenders such participation as
shall be necessary to cause such purchasing Lender to
share the excess payment pro rata with each of them;
provided that, if all or any portion of such excess
payment is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and the
purchase price restored to the extent of the recovery.
The Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this
Section may, to the fullest extent permitted by law,
exercise all of its rights of payment (including the
right of offset) with respect to such participation as
fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
(h) Non-Receipt of Funds by the Agent. Unless the Agent
shall have been notified by a Lender or the Borrower (the
"Payor") prior to the date on which such Lender is to make
payment to the
Agent of the proceeds of a Loan to be made by it
hereunder or the Borrower is to make a payment to the
Agent for the account of one or more of the Lenders, as
the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective
upon receipt, that the Payor does not intend to make
the Required Payment to the Agent, the Agent may assume
that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be
required to), make the amount thereof available to the
intended recipient on such date and, if the Payor has
not in fact made the Required Payment to the Agent, the
recipient of such payment shall, on demand, pay to the
Agent the amount made available to it together with
interest thereon in respect of the period commencing on
the date such amount was made available by the Agent
until the date the Agent recovers such amount at the
rate applicable to such portion of the applicable Loan.
4. Interest Rates.
(a) Options.
(i) Prime Rate Loans. On all Prime
Rate Loans the Borrower agrees to pay
interest on the Notes calculated on the basis
of the actual days elapsed in a year
consisting of 360 days with r
