AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
-----------------------------------------------
This
Amended and Restated Revolving Credit
Agreement (this "Amended RCA")
is made effective as of ________________ , 2005 ("Effective Date"), by
and
between PETROSEARCH ENERGY CORPORATION, A NEVADA CORPORATION [SUCCESSOR BY
MERGER TO PETROSEARCH CORPORATION, A
TEXAS CORPORATION] ("Borrower"), ANADARKO
PETROSEARCH, L.L.C., A TEXAS LIMITED
LIABILITY COMPANY ("Anadarko Petrosearch"),
GUIDANCE PETROSEARCH, L.L.C., A TEXAS LIMITED LIABILITY COMPANY
("Guidance
Petrosearch") and FORTUNA ENERGY, L.P., A CALIFORNIA LIMITED PARTNERSHIP
("Lender").
RECITALS:
A. Effective October 1, 2004, Lender, Borrower,
Anadarko Petrosearch,
TK Petrosearch, and Guidance Petrosearch
entered into a certain Revolving Credit
Agreement (the "Original Credit Agreement") creating an
$18,000,000.00 credit
facility available to Borrower and its subsidiaries to fund
acquisitions and
development of its oil and gas leases in several states,
including, Texas,
Oklahoma, North Dakota, Montana and Mississippi.
B. Borrower,
with the consent of Lender, sold the assets of its
TK
Petrosearch subsidiary to a third party effective July 1, 2005.
C. Borrower has
proposed to acquire and/or participate in ownership and
development of eight (8) new prospects (the "Eight
Prospect Package") with an
initial capital budget of $10,000,000.00 (the
"Eight Prospect Capital Budget")
which has been submitted to Lender for review and consideration.
Lender,
Borrower, Anadarko Petrosearch and Guidance Petrosearch desire to amend
and
restate the Original Credit Agreement to address the repayment
terms for the
current outstanding indebtedness, the proposed funding of the Eight
Prospect
Capital Budget, and the future advances, if any,
under the credit facility for
other future prospects made available to Borrower.
TERMS OF AMENDMENT:
NOW,
THEREFORE,
FOR VALUE RECEIVED, the sufficiency of which is
acknowledged by the parties, the parties hereby
amend and restate the Original
Credit Agreement as follows:
ARTICLE I
COMMITMENT USE OF PROCEEDS AND COLLATERAL
-----------------------------------------
Section
1.1.
COMMITMENT/ADVANCES.
Subject to the terms and conditions
-------------------
of this Amended RCA and beginning on the Effective
Date, until the earlier of
the maturity of the revolving loan, as amended, Lender will make a
loan to
Borrower by making advances of good funds by wire transfer to Borrower's
designated bank or such designated third party recipient as the
parties may
mutually agree upon (the "Advances"), from time to
time as limited by Section
<PAGE>
1.5 hereinbelow, in such amounts as the Borrower
may request up to the funding
limits described in this Amended RCA, up to the maximum aggregate
principal
amount outstanding at any time during the term of the
loan of TEN MILLION AND
NO/100 DOLLARS ($10,000,000.00)[the "Amended and Restated Credit Line"].
Attached hereto as Schedule 1 is the schedule of anticipated
Advances (the
"Schedule of Advances") pursuant to the Eight Prospect Capital Budget.
Section
1.2 USE OF PROCEEDS. Proceeds of the Amended and Restated
-----------------
Credit Line shall be used only to finance:
(a)
Past, present,
or future acquisitions of oil and gas
leases
(collectively,
if acquired in whole or in part with Lender funds, the
"Leases"),
including all title and land work in
Anadarko Petrosearch, all
title
and land work related
to the Eight Prospect Package (irrespective of
the entity holding title) all fees paid to governmental entities
(i.e.
filing
fees and/or tax stamps), bonus consideration, surface damage
payments,
prospect acquisition costs such as Barbee costs which accrue
under
the Prospect Generation Agreement between Borrower and William
Barbee,
associated
title, geological, and engineering review, fees and
payments
to maintain such leases such as delay rentals;
(b)
oil and gas drilling, reworking,
production, transportation,
marketing
and plugging activities under the Leases, and
(c)
All Lender
charges and fees, including fees and
expenses of
legal
counsel to Lender.
Section
1.3 OUTSTANDING LOAN
BALANCE/REVOLVING CREDIT NOTE AMENDMENTS.
---------------------------------------------------------
All Advances to date under the Original Credit
Agreement have been made under
the original Revolving Credit Note of the
Borrower dated as of October 15, 2004,
payable to the order of Lender, and providing for
interest on the outstanding
principal balance as advanced, from time to time, at the rate of
six percent
(6%) per annum. The parties stipulate and agree that as of and through
the
Effective Date above, the outstanding and unpaid principal
balance under the
original Revolving Credit Note is as
follows: $825,000.00,
and that the accrued
interest through said Effective Date which has accrued under the original
Revolving Credit Note will be paid upon execution of this
Amended RCA.
The
parties hereby amend and restate the Note terms
as follows and as set forth in
Sections 1.4, 1.5, 1.6, 1.7, 1.8 and 1.9
below, which shall be evidenced by the
form of Amended and Restated Note attached hereto and made a
part hereof as
Exhibit "A" (the "Amended and Restated Note") and the current
principal and
------------
interest balance under the original Revolving Credit Note described in
this
Section shall be hereafter deemed to be
principal and interest outstanding under
the Amended and Restated Note:
(a) INTEREST
RATE. The Note interest rate is amended as of the
--------------
Effective
Date above to Wall
Street Journal Prime Rate, as same may change
from
time to time, plus three percent (3%) per annum.
(b) MATURITY.
The Note maturity is hereby extended to
April 1, 2008.
--------
For purposes
2
<PAGE>
hereof, the term
"Maturity" shall likewise refer to the date, if ever, upon
which Lender,
after any applicable cure period, accelerates the Amended and
Restated Note as
a result of a Borrower Event of Default as defined in this
Amended
RCA and in the Amended and Restated Note.
(c) ADVANCE
CUTOFF DATE. Subject to the provisions of Section 1.5
---------------------
below, Borrower
shall not request an Advance under the Amended and Restated
Note
after October 1, 2007.
(d) AMORTIZATION/PAYMENT OF INTEREST
AND PRINCIPAL. From
and after the
----------------------------------------------
Effective Date,
each respective Advance shall be treated as a separate loan
for repayment
purposes and each such Advance together with accrued interest
thereon
at the rate stated in the Amended and
Restated Note shall be paid
by Borrower to Lender as follows:
(1) As to each
specific principal Advance drawn by Borrower hereunder,
Borrower
shall pay
interest-only installments monthly to Lender commencing
on the first day of the calendar month
following the date of the specific
Advance
and continuing on the same calendar day of each
succeeding month
thereafter for a
total of six (6) monthly interest payments if the specific
Advance
by Lender is made between the first (1st) and
fifteenth (15th)
calendar
day of a month, and for a total of seven (7)
monthly interest
payments
if the specific Advance is made after the fifteenth (15th)
calendar
day of a month and prior to the first
(1st) calendar day of the
following
month.
(2) As to each
specific principal Advance drawn by Borrower, commencing
on the first day of the calendar month following the last scheduled
interest-only
payment (whether the interest only period
is six (6) months
or seven (7) months as set forth above and unless
Maturity occurs on or
prior
to such date) and continuing on the same calendar day of each
succeeding
month thereafter until Maturity (as defined above),
Borrower
shall
pay monthly installments of principal based upon a 30-month
amortization
of that specific Advance (i.e. 1/30th of the specific
principal
Advance shall be paid monthly), together with the monthly
accrued
interest
on that specific Advance as of the
installment due date for that
specific
Advance for
twenty-four (24) months or until Maturity (as defined
above),
whichever shall be the earlier to occur, at
which time the entire
balance
of the specific Advance shall become due and payable.
(3) At Maturity (as defined above), all outstanding and unpaid
principal
and accrued interest shall be paid by Borrower to Lender.
A scheduled
payment date which falls on a Saturday, Sunday or holiday shall
be due on the next business day. [EXAMPLE: A
principal Advance eight (8)
months
prior to Maturity would be repayable as
interest only for six (6)
months, then one
month of principal based upon a 30-month amortization plus
interest,
and then on the 8-month anniversary the entire Advance
plus
accrued
interest (plus all other outstanding
Advances) would be repayable
due to Maturity of the Amended and Restated Note].
3
<PAGE>
(a) BALLOON AT
MATURITY. On April 1,
2008, the Amended and Restated
-------------------
Note
shall mature and Borrower shall pay to
Lender the entire outstanding
and unpaid principal balance of the Note and
all accrued, unpaid interest
thereon.
(b) PAYMENTS
AND PREPAYMENTS. Borrower may prepay the Loan in
--------------------------
increments of
not less than $100,000.00 or more each. Any prepayments shall
be applied first to those fees and expenses incurred by Lender in
enforcement
of the Amended and Restated Note, the Deed(s) of
Trust, the
Pledge
Agreement(s),
the ORRI assignment(s) or any other document
evidencing
or securing the
obligations of Borrower and/or its subsidiaries
under
this Amended RCA or under such documents, then
to accrued interest
and then to the principal balance outstanding.
All principal prepayments
shall be applied
to the last ensuing installment due under the Note without
reamortization
of the Note.
(c) PUT AND CALL
PROVISIONS. The
Amended and Restated Note shall have
-----------------------
NO put or call rights vested in either Lender or Borrower.
Section
1.4 COLLATERAL
FOR AMENDED AND RESTATED CREDIT LINE. The
----------------------------------------------------
collateral for the Amended and Restated Credit Line
evidenced by this Amended
RCA shall be (a) subject to Sections 6.1 and 6.2 herein, first and prior
lien(s) on the oil and gas leases, wells, downhole
and surface equipment and
storage tanks and stored equipment on such leases as to
which Lender's funds
have been utilized for acquisition and/or drilling costs
referenced above in
Sections 1.2(a) and (b), including all
existing lease interests in the State of
Oklahoma and existing lease interests in North Dakota
(regardless of whether
Lender funds are used for acquisition and/or
drilling in North Dakota), which
lien(s) are and shall be evidenced by the form(s) of Master Deed of
Trust,
Assignment of Production, Security Agreement,
and Financing Statement attached
hereto and made a part hereof as EXHIBIT "B"
or, as to Texas, North Dakota and
-----------
Oklahoma where existing Master Deed(s) of Trust and applicable
supplements
thereto are of record, evidenced by the form of
Modification and Extension of
Master Deed of Trust, Assignment of Production, Security Agreement, and
Financing Statement attached hereto and made
a part hereof as EXHIBIT "B-1" and
-------------
(b) first and prior lien(s) on
Borrower's one hundred percent (100%) membership
interest (subject to the after-payout back-in interests of the subsidiary
directors of project development (formerly presidents), where
applicable) in
Anadarko Petrosearch and any other subsidiary holding legal
title to a Lease
acquired with Lender's funds, which lien(s) shall be
evidenced by the form of
Pledge Agreement attached hereto and made a part hereof as EXHIBIT "C"
(the
-----------
"Pledge Agreement"). To the extent that the
jurisdiction where future acquired
properties are situated requires a document which is
different than the forms
attached hereto as EXHIBITS "B" or "B-1" to create a
first and prior lien and
------------ -----
security interest in favor of Lender, then Borrower
shall execute and deliver
the form of document prescribed by Lender as
necessary to conform to the lien
laws of the applicable jurisdiction where the newly acquired
properties are
situated. The Borrower anticipates that a new or existing
subsidiary shall be
created or dedicated to hold legal title to
acquired Leases funded in whole or
in part with Lender funds. Borrower further covenants
and agrees to execute
and deliver and/or cause the applicable subsidiary to execute and deliver
documentation sufficient to create and perfect
first and prior lien(s) over and
upon any
4
<PAGE>
additional oil and gas lease(s) now existing or hereafter acquired and/or
drilled using Lender funds. In the event that the title review and/or
examination for newly acquired oil and gas lease(s) or interests therein
reflects any mortgage, deeds of trust, tax lien or other
apparent encumbrance
("encumbrance") which, if valid and existing, could
impair the first and prior
status of Lender's lien(s) and security
interest(s) therein, then Borrower shall
cause such encumbrance, whether valid or
otherwise, to be released of record or
shall lawfully bond around in accordance with applicable state
or local law
requirements the apparent encumbrance
within sixty (60) days of the request date
for any Lender advance which will be used
to either acquire the encumbered oil
and gas lease(s) or reimburse Borrower
or its subsidiaries for the costs of its
acquisition. In the event Borrower fails to cure
such title encumbrance within
the time period provided above, Lender
may, but shall not be obligated to, cure
such title encumbrance and to charge the cost and expense incurred in
such
curative action to Borrower as an increase in the
principal balance under the
Note in addition to all other rights of
Lender herein and under any of the other
Loan Documents. Such curative expenses so advanced shall thereafter bear
interest at the rate of eighteen (18%) per annum
from the date incurred until
paid.
Section
1.5. DRAW
PERIOD AND AVAILABILITY OF LENDER FUNDS.
--------------------------------------------------
(a)
DRAW REQUEST
PROCEDURE.
The principal of the Amended and
------------------------
Restated
Credit Line may be drawn by Borrower in accordance with
the
Schedule of
Advances over a twenty-four (24) month period which shall begin
on the Effective Date and end on October
1, 2007 (the "Draw Period") in a
lump
sum or partial sums pursuant to the Schedule of Advances, in
Borrower's
discretion,
subject to the Minimum Collateral Coverage
Requirements
described in Section 1.6 below. Principal
repaid during any
Draw
Period may be redrawn subject to the Minimum Collateral
Coverage
limitations.
Each draw by Borrower other than the initial draw
request
shall
be preceded by a 20-day written
request (accompanied by a statement
of the proposed
use of proceeds) to Lender and shall be funded by Lender on
the twenty-first (21st) day following the request. In the
event that the
twenty-first
(21st) day falls on a Saturday, Sunday or public holiday, then
the funding date
shall be the next business day of Lender. Unless otherwise
agreed
in writing by Lender, draw requests
shall be funded utilizing this
notice
procedure and no more frequently than monthly in amounts which
conform
to the Schedule of
Advances, unless otherwise reasonably requested
by Borrower (e.g. a request for expedited funding due to an
impending
---
deadline
or strong competition
for a Lease) and unless otherwise agreed by
Lender
and Borrower.
(b)
FUNDS AVAILABILITY
DISCLOSURE.
Borrower acknowledges,
-------------------------------
understands
and agrees that Lender is a private, non-public,
entity. As
such,
Lender obtains its funds from the private capital markets
and/or
individuals
who desire to participate in Lenders investment banking
activities, thus
Lender does not have a guaranteed source of money in which
to fund this transaction with Borrower. Borrower acknowledges
that the
volatility
of the capital markets, the nature of Borrower's business
activities
and/or other events which may come into existence may
impact
Lender's
ability to raise and procure sufficient
capital in order to fund
all or substantially all of the Loan
described in this Amended RCA. While
Lender
will use its best efforts to raise all necessary capital to
5
<PAGE>
complete
the funding obligations described in this
Amended RCA, the Note
and as Amended and Restated Credit Line, Lender cannot and will not
guaranty
to Borrow that all proposed funding required herein, will
be
available
as, if and when Borrower elects to
make draw requests under the
terms of this
Amended RCA and/or the Note. Borrower acknowledges and agrees
that
the inability of Lender to obtain funds to complete
the funding of
this
Amended and Restated Credit Line will not constitute a breach
or
violation
of this Amended RCA and/or the
Amended and Restated Note and/or
any other Loan document as defined
herein on the part of Lender; provided,
however,
that in the event of Lender's failure
to fully fund the entirety
of the Amended and Restated Credit
Line in accordance with the Schedule of
Advances
for reasons other than a Borrower default or a Collateral
deficiency
relative to the Minimum Collateral Coverage Requirements
described
in Section 1.6 below, the provisions
of Section 1.5 below shall
be applicable.
(c)
EFFECT OF FAILURE TO
FUND EIGHT PROSPECT PACKAGE. Lender and
-------------------------------------------------
Borrower
stipulate and agree that the credit facility as
amended by the
Amended and
Restated Note is intended to cover the initial capital needs of
Borrower
for the Eight Prospect Package as
depicted in the Eight Prospect
Capital
Budget. It is further anticipated that Borrower will pursue
additional
prospect acquisition opportunities in the future for which
Lender funding
participation may be desirable. Other than a refusal to fund
due to Borrower's inability to conform to
the Minimum Collateral Coverage
Requirements
described in Section 1.6, in the event that
Lender is unable
or refuses to fund the Amended and
Restated Credit Line in accordance with
the Schedule of Advances, then (i) Borrower shall not be obligated
to
afford
Lender the participation rights in future prospects
described in
Section 2.2
herein (except to the extent such future prospects have already
been
funded by Lender), and (ii) Lender's overriding royalty
interests
described
in Section 2.1(b) herein shall apply
only to Lease acquisitions
in the Eight Prospect Package funded by Lender. As an additional
consequence of
Lender's failure or refusal to fund the Amended and Restated
Credit
Line (except in the
case of Borrower default or failure to meet the
Minimum
Collateral
Coverage
Requirements), Borrower shall have the option
to terminate this Amended RCA without affecting the
payment schedule for
the Amended and
Restated Note Balance and without affecting Lender's ORRI's
earned
through the date of termination.
Section 1.6.
COLLATERAL COVERAGE REQUIREMENTS. Unless otherwise agreed
--------------------------------
in writing by Lender, unused available funds under the Amended
and Restated
Credit Line, shall only be available for draw by Borrower if at all
times
Borrower's Proved Developed Reserves (as defined herein) equal or exceed
twenty-five percent (25%) of the
outstanding principal and interest indebtedness
under the Amended and Restated Note, and if the
principal balance of the Note
outstanding after the requested draw will be less than the following sum,
to-wit: a) the actual costs of the oil and gas lease(s) purchased
and/or
reimbursed through the date of the
requested draw with funds advanced under this
Amended RCA, and b) the sum of 75% of
Borrower's Proved Developed Reserves (as
defined herein) and 50% of Borrower's Proved
Undeveloped Reserves (as defined
herein) from all sources pledged as collateral by the Borrower, including
6
<PAGE>
subsidiaries of Borrower, as such Proved Reserves are reflected
in a reserve
report prepared by an independent petroleum engineer engaged by Borrower,
acceptable to Lender and otherwise qualified to calculate Proved Reserves
acceptable under Securities and Exchange
Commission ("SEC") standards, and which
reserve report is a "Current Reserve Report" as
required by Lender under this
Section 1.6. The foregoing requirements
shall be collectively referred to as the
"Minimum Collateral Coverage Requirements". Borrower shall be obligated to
update reserve reports on the earlier to
occur of the passage of six (6) months
from the date of the previous report or upon a
15% decline in the hydrocarbon
pricing model utilized in preparation of the current report under which
the
parties are operating. All reserve reports must be
updated in a timely fashion
to conform to these two (2)
conditions in order to be deemed a "Current Reserve
Report". Lender reserves the right to engage its own
engineer for preparation
of a reserve report and if a separate
engineer is so engaged by Lender, Borrower
shall in all respects cooperate with Lender's engineer and provide all
information requested by said engineer to assist in
preparation and generation
of a report. Said engineer engaged by Lender
must be qualified in all respects
to deliver a reserve report which meets SEC
standards. If
for any reason the
Minimum Collateral Coverage Requirements
fall below the minimum threshold amount
described in this Section 1.6, then, within
fifteen (15) days of Lender's notice
to Borrower of the deficiency, Borrower and its subsidiaries shall cause
additional collateral which strictly conforms to the collateral coverage
requirements of this Section 1.6 to be secured, pledged and encumbered
by
Lender's first and prior lien(s) and security interest(s),
all at Borrower's
expense, or the Borrower may prepay a portion of the
outstanding loan in an
amount sufficient to bring the balance into
compliance with the requirements set
forth above. For purposes of this Section 1.6,
the terms "Proved Developed" and
"Proved Undeveloped" Reserves shall have the meanings set forth
in Regulation
S-X ("Accounting Rules Form and Content of Financial
Statements"), Rule 4-10
("Financial Accounting and Reporting for Oil and Gas Producing Activities
Pursuant to the Federal Securities Laws and
the Energy Policy and Conservation
Act of 1975") as follows:
PROVED DEVELOPED
OIL AND GAS RESERVES.
Proved developed oil and
gas reserves
are reserves that can be expected to
be recovered
through existing
wells with existing equipment and operating
methods. Additional
oil and gas expected
to be obtained through
the application
of fluid injection or other improved
recovery
techniques for supplementing the natural forces and mechanisms
of
primary recovery
should be included as proved developed reserves
only after
testing by a pilot
project or after the operation of
an installed
program has confirmed through production
response
that increased
recovery will be achieved.
PROVED UNDEVELOPED
RESERVES. Proved undeveloped oil and gas
reserves are reserves
that are expected to be recovered from new
wells on undrilled acreage, or from existing wells where a
relatively major
expenditure
is required for recompletion.
Reserves on undrilled
acreage shall be limited to those drilling
units offsetting
productive units that are reasonably certain of
production when
drilled. Proved reserves for other undrilled
units can be claimed only where it can be demonstrated with
certainty that
there is continuity of production from the
existing productive
formation.
Under no circumstances should
estimates for
7
<PAGE>
proved undeveloped
reserves be attributable to any acreage
for
which an application of fluid injection or other improved
recovery technique
is contemplated,
unless such techniques have
been proved effective by actual tests in the area and in the
same
reservoir.
Section
1.7. LENDER
STANDBY FEES FOR
UNDRAWN PRINCIPAL.
Lender shall
------------------------------------------
charge quarter-annually to Borrower and Borrower shall pay to Lender, as
invoiced, a standby fee equal to one quarter of one
percent (0.25%) [i.e. 1%
annually] of the funds available to be drawn
under the Schedule of Advances in
effect at the time which are not drawn by Borrower. Funds which are not
available to be drawn either because of (i)
limitations imposed by Lender due to
deficiency in the Minimum Collateral Coverage Requirements,
or (ii) Lender's
inability to fund pursuant to timely request
for funding by Borrower, shall not
be included in the calculation of the standby fee.
The standby fee shall
be
calculated using the average daily balance
of the unused available funds for the
quarter. Attached hereto as Schedule 2 are the
anticipated scheduled payments
and commitments under the Amended and Restated Credit Line.
Section 1.8
EVENTS UPON REPAYMENT OF LOAN. Upon the full repayment and
-----------------------------
discharge by Borrower of all of the obligations
under this Amended RCA and the
corresponding loan documents, Lender shall, promptly after such
repayment and
termination have occurred, release all of
its liens and security interests under
the Deed(s) of Trust and the Pledge Agreement(s) and any amendments or
supplements thereto, if applicable, or other document(s)
executed by Borrower
and/or its subsidiaries to evidence or secure the indebtedness of
Borrower
and/or its subsidiaries under this Amended and Restated Credit Line.
Section
1.9. PARTIAL
RELEASES OF DEED(S) OF TRUST AND/OR PLEDGE
---------------------------------------------------------
AGREEMENT(S). With regard to the lien(s)
and security agreement(s) created and
evidenced by the Deed(s) of Trust, any amendments or
supplements thereto, if
applicable, and any other document executed
by Borrower and/or its subsidiaries,
Borrower and its subsidiaries who are parties
to the Deed(s) of Trust shall be
entitled to obtain from Lender, upon
written request to Lender from time to time
and for any business reason, so long
as Borrower and/or its subsidiaries is/are
not then in default under this Amended RCA
or any other document evidencing or
securing the obligations of Borrower and/or
its subsidiaries under this Amended
RCA or under such documents, a partial
release of the specific Deed of Trust so
long as the written request is signed by
the chief financial officer of Borrower
and contains a certification by said chief
financial officer that the Minimum
Collateral Coverage Requirements set forth in Section
1.6 above shall continue
to be satisfied after such partial
release is executed and delivered by Lender.
The request must be supported by a Current Reserve Report as that
term is
defined in Section 1.6 above which reflects a
level of Proved Developed and/or
Proved Undeveloped Reserves which, after the requested partial
release, will
continue to provide the Minimum Collateral Coverage
described in Section 1.6.
In like fashion, Borrower shall be
entitled to obtain from Lender upon written
request to Lender from time to time, so
long as Borrower and/or its subsidiaries
is/are not then in default under this Amended RCA or any other document
evidencing or securing the obligations of
Borrower and/or its subsidiaries under
this Amended RCA or under such documents, a release of the Pledge
8
<PAGE>
Agreement(s) as to any specified subsidiary
which no longer holds a Lease which
is subject to Lender's Deed of Trust
lien(s), either due to sale of the Lease(s)
or due to expiration or termination of the Lease(s) by their terms.
ARTICLE II
LENDER'S OVERRIDING ROYALTY INTEREST AND
RIGHT TO PARTICIPATE IN FUTURE PROSPECT
--------------------------------------------------------------------------------
ACQUISITIONS
------------
Section
2.1 LENDER'S
OVERRIDING
ROYALTY INTERESTS.
----------------------------------------
(a)
EXISTING OVERRIDE
IN ANADARKO AND FORT BEND LEASES. As
---------------------------------------------------------
additional
consideration from Borrower to Lender to make the original
loan,
Borrower
caused Anadarko Petrosearch and TK Petrosearch to deliver to
Lender a one
percent (1% of 8/8ths) overriding royalty interest ("ORRI") in
all existing Oklahoma Leases (the
"Existing Oklahoma ORRI") and in certain
Fort
Bend County, Texas Leases (the "Existing Fort Bend County
ORRI"),
which
Existing Oklahoma ORRI and Fort Bend County ORRI shall remain
in
effect
as to the Leases acquired prior to
the Effective Date unchanged by
this
Amended RCA. Since Borrower has divested the Fort Bend Leases,
Borrower
shall have no
liability or responsibility with regard to the Fort
Bend
County ORRIs held by Lender except for
warranties of title contained
in the assignment conveying such Fort Bend County ORRIs.
(b)
EIGHT PROSPECT
PACKAGE LENDER ORRI.
As to each Lease in
the
------------------------------------
Eight
Prospect Package funded with Lender funds in accordance with
the
Eight
Prospect Capital Budget submitted by Borrower to Lender
(assuming
100%
funding of Borrower's acquired interest by direct payment or
reimbursement),
Borrower shall cause the acquiring subsidiary or
subsidiaries
(if more than one
subsidiary holds legal title) to deliver to
Lender
an ORRI equal to two percent (2%) of the net revenue
interest
actually
acquired by Borrower's subsidiary. [EXAMPLE: Should
Borrower's
subsidiary
acquire a 50% net revenue interest in a p
