Amended and Restated Loan Agreement between Tengasco, Inc. and Prosperity Bank, effective March 16, 2017

(viii)    Hedge Transactions that are not effective at concurrent or overlapping periods of time on the same volumes of production on both a physical and financial basis, unless the combined volumes are in compliance with the volume limitations set forth above; and

(ix)       Hedge Transactions with respect to which no margin account is established or maintained and which provide for no collateral security or posted collateral to be due from Borrower under any circumstances, other than the security provided to Hedge Providers under the Security Documents; and

(x)        Hedge Transactions that are otherwise in form, content, and substance acceptable to Lender.

At its sole option and discretion, Borrower may also enter into swaps, collars, floors, caps, options, corridors, or other contracts, as such terms are commonly known within the capital markets, which are intended to reduce or eliminate the risk of fluctuation in interest rates for the purpose and effect of fixing and capping interest rates on a principal amount of indebtedness of Borrower; provided that (A) the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness of Borrower to be hedged by such contract and the interest rate exposure would not cause the notional amount of all such Hedge Transactions then in effect for the purpose of hedging interest rate exposure to exceed seventy-five percent (75%) of the total consolidated funded indebtedness of Borrower projected to be outstanding for any period covered by such Hedge Transaction, and (B) Borrower shall not establish or maintain any margin accounts with respect to such contracts.

(f)        Speculation.  Borrower shall not invest for speculative purposes in any

Hedge Transactions or in any other options, futures, or derivatives.

(g)       Third Party Hedge Transactions.  If a Hedge Transaction is entered into with an outside counter-party, (i) notwithstanding Subsection (d) of Section 1 of this Loan Agreement, Lender shall not be required to provide any Letter of Credit with respect to any margin call on the Hedge Transactions, unless Lender, in its sole discretion, agrees to do so; and (ii) Borrower shall collaterally assign and pledge in favor of Lender a first-priority continuing security interest in the applicable trading account and the Hedge Transactions, including the Hedge Transactions listed in Schedule 1 attached, as additional security for the Secured Obligations. In connection therewith, Borrower shall execute and deliver to Lender such security agreements, control agreements, and financing statements as deemed appropriate by Lender to create and perfect the continuing security interest therein.

(1)        Lender’s receipt and satisfactory review by Lender of the 2017 year-to-date financial statements of Borrower, including a balance sheet, an income statement, and a cash flow statement, prepared in conformity with generally accepted accounting principles, consistently applied (“GAAP”).

(2)        Borrower shall be in compliance in all material respects with all existing obligations, there shall be no default at closing, and all representations and warranties in connection with existing obligations must be true in all material respects.

(3)        the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:

(i)           this Loan Agreement;

(ii)          the Revolving Note;

(iii)         the Security Documents;

(iv)         the Guaranties; and

(v)          Borrowing Resolution.

(4)        satisfactory evidence that Lender holds perfected liens and security interests in all collateral for the Secured Obligations, subject to no other liens or security interests other than the Permitted Liens (as defined below).

(5)        receipt and satisfactory review by Lender of a Reserve Report for the Borrowing Base properties.

(6)        there shall not have occurred any result, occurrence, condition, change, fact, event, circumstance, or effect that, individually or in the aggregate, has caused or would reasonably be expected to cause a material adverse change in (i) the financial condition, business, assets, properties, liabilities (actual and contingent), operations or results of operations of Borrower or Guarantor or any subsidiaries, (ii) the ability of Borrower or Guarantor or any subsidiaries to own their assets and conduct business in the ordinary course as presently owned and conducted, or (iii) the ability of Borrower or Guarantor or any subsidiaries to perform their obligations under or consummate the transactions contemplated by the Loan Documents (collectively “Material Adverse Change”).

(8)        Lender shall have completed and approved a review of title to Borrower’s oil and gas properties, including the Borrowing Base properties, and the results of such review shall be acceptable to Lender in its sole discretion.

(9)        Lender’s receipt and review, with results satisfactory to Lender and its counsel, of information regarding litigation, tax, accounting, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership, and contingent liabilities of Borrower.

 

(10)      Borrower’s establishment of an operating account with Lender.

 

(11)      Borrower shall deliver legal opinions in Proper Form, from Borrower’s counsel, regarding Borrower’s authority, and other matters reasonably required by Lender.

(12)      Borrower shall deliver certificates of the appropriate government officials of the state of incorporation of Borrower as to the existence and good standing of Borrower, dated within ten (10) days prior to the date of this Loan Agreement.

(b)       Lender will not be obligated to make the Loans or any subsequent advance on the Loans or issue any Letter of Credit, if, prior to the time that a loan or advance is made or a Letter of Credit is issued, (i) there has been any Material Adverse Change, (ii) any representation or warranty made by Borrower in this Loan Agreement or the other Loan Documents is untrue or incorrect in any material respect as of the date of the advance or loan,  (iii) Lender has not received all Loan Documents appropriately executed by Borrower, each Guarantor, and all other proper parties, (iv) Lender has requested that Borrower or any Guarantor execute additional loan or security documents and those documents have not yet been properly executed, delivered, and recorded, (v) Borrower is not in compliance with the Borrowing Base and all reporting requirements, or (vi) an Event of Default (as defined below) has occurred and is continuing.

6.             Representations and Warranties.  (a)  Borrower hereby represents and warrants to Lender as follows:

(1)       The execution, delivery, and performance of this Loan Agreement, the Notes, the Security Documents, and all of the other Loan Documents by Borrower have been duly authorized by Borrower’s board of directors, and this Loan Agreement, the Notes, the Security Documents, and all of the other Loan Documents executed by Borrower constitute legal, valid, and binding obligations of Borrower, enforceable in accordance with their respective terms;

(2)       The execution, delivery, and performance of this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents by Borrower, and the consummation of the transaction contemplated, do not require the consent, approval, or authorization of any third party and do not and will not conflict with, result in a violation of, or constitute a default under (i) any provision of Borrower’s certificate of incorporation or bylaws or any other agreement or instrument binding upon Borrower, or (ii) any law, governmental regulation, court decree, or order applicable to Borrower;

(3)        Each financial statement of Borrower, now or hereafter supplied to Lender, was (or will be) prepared in accordance with GAAP, in Proper Form, and truly discloses and fairly presents in all material respects Borrower’s financial condition as of the date of each such statement, and there has been no Material Adverse Change subsequent to the date of the most recent financial statement supplied to Lender;

(4)        There are no actions, suits, or proceedings pending or, to Borrower’s knowledge, threatened against or affecting Borrower or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would reasonably be expected to cause a Material Adverse Change;

(5)        Borrower has filed all federal, state, and local tax reports and returns required by any law or regulation to be filed and has either duly paid all taxes, duties, and charges indicated due on the basis of such returns and reports, or made adequate provision for

the payment thereof, and the assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected;

(6)        Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time (“ERISA”); Borrower has not violated any provision of any “defined benefit plan” (as defined in ERISA) maintained or contributed to by Borrower (each a “Plan”); no “Reportable Event” as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower, unless the reporting requirements have been waived by the Pension Benefit Guaranty Corporation; and Borrower has met its minimum funding requirements under ERISA with respect to each Plan;

(7)        Borrower has disclosed to Lender all of the terms of all material agreements affecting Borrower’s oil and gas properties or its operations, including all gas balancing agreements and advance payment contracts;

(8)        Borrower certifies that Borrower has no existing subsidiaries or other entities owned by Borrower except those disclosed on Schedule 2 attached;

(9)        As of the date of this Loan Agreement, Borrower has entered into no  existing ISDA Agreements or Hedge Transactions with any parties except those disclosed on Schedule 1 attached;

(10)      (i)          Borrower is not in violation of any laws relating to terrorism or money laundering, including Executive Order No. 13224 and the USA Patriot Act (collectively “Anti-Terrorism Laws”) or knowingly engaging in or conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

(ii)          Borrower is not any of the following (each a “Blocked Person”):  (A)  a person or entity that is listed in the annex, to, or is otherwise subject to the provisions of, Executive Order No. 13224; (B) a person or entity owned or controlled by, or acting for or on behalf of, any person or entity that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224; (C) a person or entity with which any bank or other financial institution is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law; (D) a person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224; or (E) a person or entity who is affiliated with any person or entity covered by this Subsection.

(iii)         Borrower does not (i) conduct any business or engage in making or receiving any contribution of funds, goods, or services to or for the benefit of any Blocked Person, or (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224.

(iv)         Borrower is not in violation of any rules or regulations promulgated by the Office of Foreign Asset Controls (“OFAC”) or of any economic or trade sanctions or administered and enforced by OFAC, or is not conspiring to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any rules or regulations promulgated by OFAC.

(b)       Each Guarantor hereby represents and warrants as follows:

(1)        This Loan Agreement and the Guaranty executed by each Guarantor constitute legal, valid, and binding obligations of each Guarantor, enforceable in accordance with their respective terms;

(2)        There are no actions, suits, or proceedings pending or threatened against or affecting any Guarantor, before any court or governmental department, commission, or board, which, if determined adversely, would reasonably be expected to cause a Material Adverse Change with respect to any Guarantor; and

7.             Covenants. (a)  Until the Loans, the Hedge Liabilities, and all other Secured Obligations are fully paid and satisfied, no Letters of Credit are outstanding, and any commitment of Lender under this Loan Agreement is terminated, each of Borrower and Guarantors shall, unless Lender otherwise consents in writing:

(1)        (i) Maintain its existence in good standing in the state of its formation, maintain its authority to do business in all other states in which either is required to qualify, and maintain full legal capacity to perform all its obligations under this Loan Agreement and the Loan Documents, (ii) continue to operate its business as presently conducted and preserve and maintain the rights, licenses, permits, privileges, and franchises material to the conduct of its business, (iii) not permit Peter Salas (individually and collectively with his other entities) to hold less than 30% of the outstanding and issued shares of Borrower at any time, (iv) not permit its dissolution, liquidation, or other termination of existence or forfeiture of right to do business, (v) not form any subsidiary without notifying Lender in writing at least thirty (30) days in advance, (vi) not permit a merger or consolidation (unless Borrower is the surviving entity), and (vii) not acquire all or substantially all of the assets of any other entity without first notifying Lender in writing at least thirty (30) days in advance.

(2)        Manage the Properties in an orderly and efficient manner consistent with good business practices, and perform and comply in all material respects with all statutes, rules, regulations, and ordinances imposed by any governmental unit upon the Properties, Borrower, or its operations, except where the failure to do so could not reasonably be expected to result in a Material Adverse Change, including, without limitation, (i) the Natural Gas Policy Act of 1978, (ii) all environmental laws, and (iii) all permits, licenses, registrations, approvals, and authorizations (x) related to any natural or environmental resource or media located on, above, within, related to or affected by any Properties, (y) required for the performance of the operations of Borrower, or (z) applicable to the use, generation, handling, storage, treatment, transport, or disposal of any hazardous substances; use its best efforts to cause all employees, agents, contractors, subcontractors, while such are acting within the scope of their relationship with Borrower, to comply with all such laws as may be necessary or appropriate to enable Borrower to so comply; and not do anything or permit anything to be done that would subject any of the Properties to any remedial obligations under any environmental law, assuming disclosure to applicable governmental authorities of all relevant facts, conditions, and circumstances.

(3)        Maintain insurance as customary in the industry or as reasonably required by Lender, including but not limited to, casualty, comprehensive property damage, commercial general liability, and other insurance, including worker’s compensation (if necessary to comply with law), naming Lender as an additional insured and a loss payee, as applicable, and containing provisions prohibiting their cancellation without prior written notice to Lender, and provide Lender with evidence of the continual coverage of those policies prior to the lapse of any policy.

(4)        Not sell, assign, transfer, or otherwise dispose of all or any interest in the Properties, any oil and gas properties included in the Borrowing Base, or any other material assets, except for (i) the sale of hydrocarbons in the ordinary course of business, (ii) the sale or transfer of equipment that is no longer necessary for the business of Borrower or that is replaced by equipment of at least comparable value and use, (iii) the sale of oil and gas properties having an aggregate present value according to the Reserve Report used for the most- recent Borrowing Base redetermination less than five percent (5%) of the most-recent Borrowing Base per fiscal year, and (iv) the sale of oil and gas properties having an aggregate present value according to the Reserve Report used for the most-recent Borrowing Base redetermination in excess of five percent (5%) of the most-recent Borrowing Base per fiscal year, with the prior written consent of Lender, provided that Lender shall not unreasonably withhold its consent for any sale, farmout, farmin, or other disposition of any oil and gas properties or any interest therein, so long as: (x) the net sales proceeds received by Borrower are equal to or greater than the net present value of the proved developed producing oil and gas reserves attributable to such properties or interest, as of the most recent redetermination date (scheduled or otherwise) discounted at nine percent (9%); (y) any resulting Borrowing Base deficiency after exclusion of the sale properties from the Borrowing Base is immediately eliminated by a single lump sum payment; and (z) there is no existing Event of Default.

(5)        Promptly inform Lender of (i) any Material Adverse Change, (ii) all litigation and claims which would reasonably be expected to cause a Material Adverse Change, (iii) all actual or contingent material liabilities of Borrower, (iv) any change in name, identity, or structure of Borrower, and (v) any uninsured or partially insured loss of any collateral through fire, theft, liability, or property damage.

(6)        Maintain Borrower’s books and records in accordance with GAAP, and permit Lender to examine, audit, and make and take away copies or reproductions of Borrower’s books and records, reasonably required by Lender, at all reasonable times; and permit such persons as Lender may designate at reasonable times to visit and inspect the Properties and examine all records with respect to the Properties; and pay for the reasonable cost of such examinations, audits, and inspections required by Lender.

(7)        Pay and discharge when due all indebtedness and obligations, including without limitation, all assessments, taxes, governmental charges, levies, and liens, of every kind and nature, imposed upon Borrower or the Properties, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon the Properties, income, or profits, and pay all trade payables and other current liabilities incurred in the ordinary course of business within ninety (90) days of their due date; provided, however, Borrower will not be required to pay and discharge any such indebtedness, obligation, payable, assessment, tax, charge, levy, lien, or claim, so long as (i) the same shall be contested in good faith by appropriate judicial, administrative, or other legal proceedings, and (ii) Borrower has established adequate reserves with respect to such contested indebtedness, obligation, payable, assessment, tax, charge, levy, lien, or claim in accordance with GAAP.

(8)        Not directly or indirectly create, incur, assume, or permit to exist any indebtedness (including guaranties), secured or unsecured, absolute or contingent, except for the following (the “Permitted Indebtedness”):  (i) the indebtedness to Lender, (ii) any trade payables, taxes, and current liabilities incurred in the ordinary course of business, not to exceed $500,000.00 in the aggregate, (iii) the existing indebtedness disclosed in Schedule 3 attached, (iv) obligations related to Hedge Transactions permitted by this Loan Agreement, and (v) additional indebtedness secured by purchase money security interests that attach solely to the asset acquired, not to exceed $300,000.00 in the aggregate.

(9)        Not mortgage, collaterally assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Properties (or any interest in the Properties), any oil and gas properties included in the calculation of the Borrowing Base, or any of Borrower’s property or assets, except the following (collectively the “Permitted Liens”):  (i) those in favor of Lender, (ii) those existing and disclosed to Lender in writing, (iii) liens for taxes not delinquent or being contested in good faith, (iv) landlord’s liens, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’, workers’, materialmen’s, construction, or other like liens with respect to obligations not overdue or being contested in good faith, (v) liens resulting from deposits to secure the payments of workers’ compensation or social security, (vi) purchase money security interests, capital leases, or construction liens that attach solely to the asset acquired, leased, or constructed, that secure indebtedness in an amount less than the cost and the fair market value of the asset acquired or constructed, and that are in an aggregate amount not to exceed $300,000.00, (vii) contractual liens that arise in the ordinary course of business under or in connection with operating agreements, oil and gas leases, farm-out agreements, contracts for the sale, transportation, or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, marketing agreements, processing agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring, and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith, (viii) rights of set-off or similar rights and remedies and burdening only accounts or other funds maintained with a depository institution, and (ix) easements, restrictions, servitudes, permits, conditions, covenants, exceptions, or reservations for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines, and other like purposes, or for the joint or common use of real estate, rights of way, facilities, and equipment, that do not secure any monetary obligations and which in the aggregate do not materially impair the use of such Properties for the purposes of which such Properties are held by the Borrower or materially impair the value of such Properties subject thereto.

(10)      Not make any loans, advances, dividends, or other distributions to any party, including without limitation, shareholders, officers, directors, partners, joint venturers, members, managers, relatives, or affiliates, or any profit sharing or retirement plan.

(11)      Not purchase, acquire, redeem, or retire any stock or other ownership interest in Borrower; and not permit any transaction or contract with any affiliates or related parties, except at arms length and on market terms.

(12)      Maintain its primary depository accounts and principal banking relationship at Lender.

(13)      INDEMNIFY LENDER AGAINST ALL LOSSES, LIABILITIES, WITHHOLDING AND OTHER  TAXES, CLAIMS, DAMAGES, OR EXPENSES RELATING TO THE LOANS, THE LOAN DOCUMENTS, OR BORROWER’S USE OF THE LOAN PROCEEDS, INCLUDING BUT NOT LIMITED TO ATTORNEYS AND OTHER PROFESSIONAL FEES AND SETTLEMENT COSTS, BUT EXCLUDING, HOWEVER, THOSE CAUSED SOLELY BY OR RESULTING SOLELY FROM ANY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY LENDER; AND THIS INDEMNITY SHALL SURVIVE THE TERMINATION OF THIS LOAN AGREEMENT.

(14)      Comply in all material respects with all applicable provisions of ERISA, not violate any provision of any Plan, meet its minimum funding requirements under ERISA with respect to each Plan, and notify Lender in writing of the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan.

(15)      Not (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including the making or receiving of any contribution of funds, goods, or services to or for the benefit of any Blocked Person; (ii) deal in, or otherwise engage in any transaction relating to, any properties or assets or interests in properties or assets blocked pursuant to Executive Order No. 13224; or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, (x) any of the prohibitions set forth in Executive Order No. 13224 or the USA Patriot Act, or (y) any prohibitions set forth in the rules or regulations issued by OFAC.

(16)      If Borrower now or hereafter acquires any wholly-owned subsidiary or owns any issued and outstanding capital stock or partnership interests of any companies or partnerships, Borrower shall sign and deliver to Lender within fifteen (15) days a pledge agreement in Proper Form, creating a first-priority security interest covering the issued and outstanding capital stock or partnership interests of all existing and hereafter acquired companies, subsidiaries, or partnerships of Borrower, and Borrower shall cause the wholly- owned subsidiary to sign and deliver to Lender within fifteen (15) days a guaranty in Proper Form, guaranteeing payment of the Secured Obligations.

(17)      Limit all investments to the following (the “Permitted Investments”):  (i) direct investments in oil and gas properties or the methane gas or electricity generation business and related equipment of Borrower, (ii) investments in wholly-owned subsidiaries engaged in the oil and gas business or the methane gas or electricity generation business, (iii) deposits, money-market accounts, and certificates of deposit maintained with Lender, (iv) readily-marketable direct obligations of the United States of America, or (v) commercial paper of a domestic issuer if at the time of purchase such paper is rated in one of the two highest ratings categories of Standard and Poor’s Corporation or Moody’s Investors Service.

(18)      Execute and deliver, or cause to be executed and delivered, within ten (10) days of Lender’s written request, any and all other agreements, instruments, or documents which Lender may reasonably request in order to give effect to the transactions contemplated under this Loan Agreement and the Loan Documents, and to grant, perfect, and maintain liens and security interests on or in the Properties and related collateral, and promptly cure any defects in the execution and delivery of any Loan Documents.

(b)       Until the Loans, the Hedge Liabilities, and all other Secured Obligations are fully paid and satisfied, no Letters of Credit are outstanding, any commitment of Lender under this Loan Agreement is terminated, and all other obligations and liabilities of Guarantor under this Loan Agreement, the Guaranties, and the other Loan Documents are fully paid and satisfied, each Guarantor shall, unless Lender otherwise consents in writing:

(1)        Not make any loans, advances, dividends, or other distributions to any party other than  Borrower;

(2)        Promptly inform Lender of (i) any Material Adverse Change with respect to any Guarantor, (ii) all litigation and claims which could reasonably be expected to cause a Material Adverse Change with respect to any Guarantor, and (iii) all actual or contingent material liabilities of any Guarantor; and

(3)        Execute and deliver, or cause to be executed and delivered, any and all other agreements, instruments, or documents which Lender may reasonably request in order to give effect to the transactions contemplated under this Loan Agreement and the Loan Documents, and promptly cure any defects in the execution and delivery of any Loan Documents.

8.             Financial Covenants.  Until the Loans, the Hedge Liabilities, and all other Secured Obligations are fully paid and satisfied, no Letters of Credit are outstanding, and any commitment of Lender under this Loan Agreement is terminated, Borrower shall, unless Lender otherwise consents in writing, maintain the following financial covenants:

(a)       Maintain at the end of each fiscal quarter a Funded Debt to EBITDA Ratio less than or equal to 3.5 to 1.0.  “Funded Debt to EBITDA Ratio” is defined as the ratio of (i) the total amount outstanding on the Loans, divided by (ii) the sum of Borrower’s net income for the prior four fiscal quarters on a rolling basis, plus, without duplication and to the extent deducted in the calculation of net income for such period, (1) cash interest expense on all indebtedness, including the Loans, for the same period, (2) depletion, depreciation, amortization, accretion related to asset retirement obligations, and other non-cash charges for the same period, (3) costs associated with intangible drilling costs for the same period, and minus gains from the sale of assets (or plus losses from the sale of assets) for the same period; provided, however, that (i) the mark-to-market values for hedging positions in accordance with FASB 133 shall be excluded from this calculation until such time as the gains or losses from the Hedge Transactions are actually realized or the Hedge Transactions expire; and (ii) EBITDA from acquisitions may only be included in this covenant after Lender has reviewed and approved pro-forma financial statements demonstrating the effect of the acquisition.

(b)       Maintain at the end of each fiscal quarter an Interest Coverage Ratio greater than or equal to 3.0 to 1.0.  “Interest Coverage Ratio” is defined as the ratio of (i) the sum of Borrower’s most recent quarter’s net income, plus, without duplication and to the extent deducted in the calculation of net income for such period, (1) interest expense related to the Revolving Loan for the same period, (2) income taxes for the same period, (3) depreciation, depletion, amortization, accretion related to asset retirement obligations, and other non-cash charges for the same period, (4) Exploration Expense for the same period,  divided by (ii) interest expense related to the Revolving Loan for the same period; provided, however, that the mark-to-market values for hedging positions in accordance with FASB 133 shall be excluded from this calculation until such time as the gains or losses from the Hedge Transactions are actually realized or the Hedge Transactions expire.  “Exploration Expense” is defined as the sum of the costs shown on Borrower’s financial statements, prepared consistently with past statements, under the following categories: (i) drilling costs, (ii) leasehold costs, (iii) dry hole costs, (iv) geological costs, (v) geophysical costs, and (vi) delay rentals.

(c)       Maintain at the end of each fiscal quarter a Current Ratio greater than or equal to 1.0 to 1.0.  “Current Ratio” is defined as the ratio of (x) Borrower’s current assets to (y) Borrower’s current liabilities. This ratio excludes current maturity of long-term debt, and the mark-to-market values for hedging positions in accordance with FASB 133 shall be excluded from this calculation until such time as the gains or losses from the Hedge Transactions are actually realized or the Hedge Transactions expire.

Unless otherwise specified, all accounting and financial terms and covenants set forth above are to be determined according to GAAP, consistently applied.

9.             Reporting Requirements.  (a)  Until the Loans, the Hedge Liabilities, and all other Secured Obligations are fully paid and satisfied, no Letters of Credit are outstanding, and any commitment of Lender under this Loan Agreement is terminated, Borrower shall, unless Lender otherwise consents in writing, furnish to Lender in Proper Form:

(1)        As soon as available, and in any event within one hundred twenty (120) days of the end of Borrower’s fiscal year, annual financial statements for Borrower, consisting of at least a balance sheet, an income statement, a statement of cash flows, a statement of changes in owners’ equity, and a statement of contingent liabilities, audited and certified by an independent certified public accounting firm acceptable to Lender and certified by an authorized officer of Borrower (i) as being true and correct in all material aspects to the best of his knowledge, (ii) as fairly reporting in all material respects the financial condition of Borrower as of the close of the fiscal year and the results of its operations for the year, and (iii) as having been prepared in accordance with GAAP;

(2)        As soon as available, and in any event within sixty (60) days of the end of each fiscal quarter, quarterly financial statements for Borrower, consisting of at least a balance sheet, an income statement, a statement of cash flows, a statement of changes in owners’ equity, and a statement of contingent liabilities, for the quarter and for the period from the beginning of the fiscal year to the close of the quarter, certified by an authorized officer of Borrower (i) as being true and correct in all material aspects to the best of his knowledge, (ii) as fairly reporting in all material respects the financial condition of Borrower as of the close of the fiscal quarter and the results of its operations for the quarter, and (iii) as having been prepared in accordance with GAAP, subject to normal year-end adjustments and the absence of footnotes;

(3)        With the quarterly and annual financial statements required above, a quarterly compliance and borrowing base certificate in the form of Exhibit C attached, signed by an authorized officer of Borrower and certifying compliance with the financial covenants, and other matters in this Loan Agreement;

(4)        On or before February 1st and August 1st of each year (and within thirty (30) days of Lender’s request in connection with a special redetermination of the Borrowing Base), a current reserve report prepared by an independent petroleum engineering firm acceptable to Lender, all reports to be  prepared on a consistent basis in accordance with the customary standards and procedures of the petroleum industry, estimating the quantity of oil, gas, and associated hydrocarbons recoverable from the Properties and all of Borrower’s oil and gas properties, and the projected income and expense attributable to the Properties and all of Borrower’s oil and gas properties, including, without limitation, a description of reserves, net revenue interests and working interests attributable to the reserves, rates of production, gross revenues, operating expenses, ad valorem taxes, capital expenditures necessary to cause the Properties and all of Borrower’s oil and gas properties to achieve the rate of production set forth in the report, net revenues and present value of future net revenues attributable to the reserves and production therefrom, a statement of the assumptions upon which the determinations were made and any other matters related to the operations of the Properties and all of Borrower’s oil and gas properties and the estimated income therefrom;

(5)        Within fifteen (15) days of filing, copies of Borrower’s federal, state, and local income tax filings or returns, with all schedules, attachments, forms, and exhibits;

(6)        As soon as available, and in any event within thirty (30) days after the end of each calendar quarter, a hedging report setting forth as of the last business day of such prior fiscal quarter end, a summary of Borrower’s existing hedging positions under all Hedge Transactions (including physical and financial hedges, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas, and other commodities), including the counterparties, type, term, effective date, termination date, and notional volumes and prices for such volumes, the hedged prices, interest rates, or exchange rates, as applicable, the current mark-to-market on each Hedge Transaction, and any new credit support agreements relating thereto not previously disclosed to Lender;

(7)        Within five (5) days of Lender’s request, Borrower shall provide to Lender full and complete copies of all agreements, documents, and instruments evidencing all existing Hedge Transactions and such other information regarding Hedge Transactions as Lender may reasonably request;

(8)        As soon as available, and in any event within sixty (60) days of the end of each fiscal quarter, a quarterly production report for the trailing three-month period, on a company basis, showing the net proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, net sales volumes, occupation, or gathering taxes deducted from or paid out of the proceeds, the lease operating expenses, and such other information as Lender may reasonably request;

(9)        With the semi-annual Reserve Report required above and within thirty (30) days of Lender’s request, a gas balancing report, in Proper Form and duly certified by an authorized representative of Borrower as being true and correct in all material aspects to the best of his or her knowledge;

(10)      As soon as available, and in any event within ninety (90) days of the end of each fiscal year or upon Lender’s request, copies of all of Borrower’s current insurance, including but not limited to, casualty, comprehensive property damage, business interruption, and commercial general liability, and other insurance, including worker’s compensation (if necessary to comply with law);

(11)      At any time upon request by Lender and within thirty (30) days of any change thereafter, a list showing the name and address of each purchaser of oil, gas, and associated hydrocarbons produced from or attributable to the Properties;

(12)      Within five (5) days after Borrower learns of any such occurrence, a written report of any pending or threatened litigation which would reasonably be expected to cause a Material Adverse Change in an amount in excess of $100,000;

(13)      Within five (5) days after Borrower learns of any default under one or more Hedge Transactions that results in an obligation of Borrower to make one or more material payments, written notice of the default and copies of all documentation relating to the default;

(14)      As soon as possible and in any event within five (5) days after the occurrence of any Event of Default, or any event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, the written statement of Borrower setting forth the details of such Event of Default and the action which Borrower proposes to take with respect thereto; and

(15)      Within ten (10) days of Lender’s written request, such other information respecting the condition and the operations, financial or otherwise, of Borrower and the Properties as Lender may from time to time reasonably request.

(b)       Until the Loans, the Hedge Liabilities, and all other Secured Obligations are fully paid and satisfied, no Letters of Credit are outstanding, any commitment of Lender under this Loan Agreement is terminated, and all other obligations and liabilities of Guarantors under this Loan Agreement, the Guaranties, and the other Loan Documents are fully paid and satisfied, each Guarantor shall, unless Lender otherwise consents in writing, furnish to Lender in Proper Form within ten (10) days of Lender’s written request, such other information respecting the condition and the operations, financial or otherwise, of each Guarantor as Lender may from time to time reasonably request.

10.           Events of Default.  (a)  The occurrence at any time of any of the following events or the existence of any of the following conditions shall be called an “Event of Default”:

(1)        Failure to make punctual payment when due of any sums owing on any of the Notes or any other Secured Obligations; or

(2)        Failure of any of the Obligated Parties (as defined below) to properly perform in all material respects any of the obligations, covenants, or agreements, contained in this Loan Agreement or any of the other Loan Documents; or any representation or warranty made by Borrower or Guarantor proves to have been false, misleading, or erroneous in any material respect; or

(3)        A material default by Borrower under any ISDA Agreement or with respect to any Hedge Liabilities; or non-payment when due or the material breach by Borrower or any Obligated Parties of any term, provision, or condition contained in any Hedge Transaction or any confirmation or other transaction consummated thereunder, whether or not Lender is a party thereto; or

(4)        If production payments for oil and gas produced from or attributable to Borrower’s oil and gas properties are directed to any party other than the lockbox maintained by Lender following the establishment of the lockbox under Subsection (d) of Section 2 of this Loan Agreement; or

(5)        A failure by Borrower to resolve a Borrowing Base deficiency in accordance with Subsection (b) of Section 3 of this Loan Agreement; or

(6)        Levy, execution, attachment, sequestration, or other writ against any real or personal property, representing the security for the Secured Obligations; or

(7)        Any “Event of Default” under the Notes or any of the other Loan Documents, the Events of Default defined in the Notes and Loan Documents being cumulative to those contained in this Loan Agreement; or

(8)        Except as expressly permitted by this Loan Agreement, the transfer, whether voluntarily or by operation of law, of all or any portion of the Properties without obtaining Lender's consent; or

(9)        The failure of any of the Obligated Parties to pay any money judgment in excess of $100,000.00, against that party before the expiration of thirty (30) days after the judgment becomes final, or the failure of any of the Obligated Parties to obtain dismissal within ninety (90) days of any involuntary proceeding filed against that party under any Debtor Relief Laws (as defined below); or

(10)      Borrower’s liquidation, termination of existence, merger or consolidation with another (unless Borrower is the surviving entity), forfeiture of right to do business, or appointment of a trustee or receiver for any part of its property or the filing of an action seeking to appoint a trustee or receiver; or

(11)      A filing by any of the Obligated Parties of a voluntary petition in bankruptcy, or taking advantage of any Debtor Relief Laws; or an answer admitting the material allegations of a petition filed against any of the Obligated Parties, under any Debtor Relief Laws; or an admission by any of the Obligated Parties in writing of an inability to pay its or their debts as they become due; or the calling of any meeting of creditors of any of the Obligated Parties for the purpose of considering an arrangement or composition; or

(12)      Any of the Obligated Parties revokes, or disputes the validity of or liability under, any of the Loan Documents, including any guaranty or security document.

(b)       The term “Obligated Parties” means Borrower, Guarantors, or any other party liable, in whole or in part, for the payment of any of the Secured Obligations, whether as maker, endorser, guarantor, surety, or otherwise, and any party executing any deed of trust, mortgage, security agreement, pledge agreement, assignment, or other contract of any kind executed as security in connection with or pertaining to the Secured Obligations, the Notes, or the Loans.  The term “Debtor Relief Laws” means any applicable liquidation, conservatorship, receivership, bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar laws affecting the rights or remedies of creditors generally, as in effect from time to time.

11.           Remedies.  (a)  Upon the occurrence and during the continuance of any one or more of the foregoing Events of Default and the expiration of any notice, cure, or grace period required by Subsection (b) below, the entire unpaid principal balances of the Notes, together with all accrued but unpaid interest thereon, and all other Secured Obligations then owing by Borrower to Lender, shall, at the option of Lender, become immediately due and payable without further presentation, demand for payment, notice of intent to accelerate, notice of acceleration or dishonor, protest or notice of protest of any kind, all of which are expressly waived by Borrower. Any and all rights and remedies of Lender pursuant to this Loan Agreement or any of the other Loan Documents may be exercised by Lender, at its option, upon the occurrence and during the continuance of an Event of Default and the expiration of any notice, cure, or grace period required by Subsection (b) below.  All remedies of Lender may be exercised singularly, concurrently, or consecutively, without waiver or election.

(b)       Upon any Event of Default described in Subsection 10 (a)(1) above regarding payment of sums owing to Lender, Borrower shall have five (5) days grace after the due date in the invoice provided by Lender in order to cure the default prior to acceleration of the Notes and exercise of any remedies.  Upon any other Event of Default described in Subsection 10 (a) above, Lender shall provide Borrower with written notice of the Event of Default and Borrower shall have ten (10) days after notice in order to cure the Event of Default prior to acceleration of the Notes and exercise of any remedies; except Borrower shall have no cure period for any voluntary filing by Borrower under any Debtor Relief Laws, for any voluntary transfer of any portion of the Properties, without obtaining Lender’s partial release, for any liquidation or termination of existence of Borrower, or for any Event of Default that is not capable of cure during that period, including, without limitation, breaches of any negative covenants, and provided that Lender is not obligated to provide written notice of any Event of Default which Borrower reports to Lender, but Borrower shall have the benefit of any applicable grace or cure period required herein.

(c)       All rights of Lender under the terms of this Loan Agreement shall be cumulative of, and in addition to, the rights of Lender under any and all other agreements between Borrower and Lender (including, but not limited to, the other Loan Documents), and not any other agreement.

12.           Waiver and Amendment.  Neither the failure nor any delay on the part of Lender to exercise any right, power, or privilege herein or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power, or privilege preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.  No waiver of any provision in this Loan Agreement or in any of the other Loan Documents and no departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by Lender, and then shall be effective only in the specific instance and for the purpose for which given and to the extent specified in such writing.  No modification or amendment to this Loan Agreement or to any of the other Loan Documents shall be valid or effective unless the same is signed by the party against whom it is sought to be enforced.

13.           Savings Clause.  Regardless of any provision contained in this Loan Agreement, the Notes, or any of the Loan Documents, it is the express intent of the parties that at no time shall Borrower or any of the Obligated Parties pay interest in excess of the Maximum Rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on any of the Notes or the other Secured Obligations, any amount in excess of the Maximum Rate (or any other interest amount which might in any way be deemed usurious).  In the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balances of the Notes or the Secured Obligations, and, if the principal balances of the Notes and the Secured Obligations are paid in full, any remaining excess shall forthwith be paid to Borrower.  In determining whether the interest paid or payable exceeds the Maximum Rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law:  (i) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense or fee rather than as interest; (ii) exclude voluntary prepayments and the effect thereof; and (iii) amortize, pro rate, or spread the total amount of interest throughout the entire contemplated term of the Notes so that the interest rate is uniform throughout the term.  The term “Maximum Rate” means the maximum interest rate which may be lawfully charged under applicable law.

14.           Notices.  Any notice or other communications provided for in this Loan Agreement shall be in writing and shall be given to the party at the address shown below:

	Lender:	PROSPERITY BANK
		Attention: Alan Greenfield
		1330 S. Harvard
		Tulsa, Oklahoma 74112
	With a copy
	to counsel
	for Lender:	Merrill E. Jones
		HARRIS, FINLEY & BOGLE, P.C.
		777 Main Street, Suite 1800
		Fort Worth, Texas  76102-5341
	Borrower and
	Guarantors:	TENGASCO, INC.
		Attention: Michael J. Rugen
		8000 E. Maplewood Ave, Suite 130
		Greenwood Village, Colorado 80111

 

Any such notice or other communication shall be deemed to have been given on the day it is personally delivered or, if mailed, on the third day after it is deposited in an official receptacle for the United States mail, or, if e-mailed or faxed, on the date it is received by the party.  Any party may change its address for the purposes of this Loan Agreement by giving notice of such change in accordance with this paragraph.

15.           Miscellaneous.  (a)  This Loan Agreement shall be binding upon and inure to the benefit of Lender, Borrower, and Guarantors, and their respective heirs, personal representatives, successors, and assigns; provided, however, that Borrower and Guarantors may not, without the prior written consent of Lender, assign any rights, powers, duties, or obligations under this Loan Agreement or any of the other Loan Documents.

(b)       THIS LOAN AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS.  BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS LOAN AGREEMENT, THE NOTES, THE LOANS, THE SECURED OBLIGATIONS, THE GUARANTIES, OR THE PROPERTIES SHALL BE IN COURT IN DALLAS COUNTY, TEXAS.

(c)       If any provision of this Loan Agreement or any other Loan Documents is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Loan Agreement or any of the other Loan Documents shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance.

(d)       All covenants, agreements, undertakings, representations, and warranties made in this Loan Agreement and the other Loan Documents shall survive any closing hereunder.

 

(f)        Without limiting the effect of any provision of any Loan Document which provides for the payment of expenses and attorneys fees upon the occurrence of certain events, Borrower shall pay all costs and expenses of Lender (including, without limitation, the reasonable attorneys fees of Lender’s inside or independent legal counsel) in connection with (i) the preparation of this Loan Agreement and the other Loan Documents, and any and all extensions, renewals, amendments, supplements, extensions, or modifications thereof, (ii) any action reasonably required in the course of administration of the Loans or the Secured Obligations, (iii) resolution of any disputes with Borrower or Guarantors related to the Loans, the Secured Obligations, or this Loan Agreement, (iv) any action in any state or federal court, including, without limitation, in any bankruptcy court, in connection with Borrower, the Loans, or any of the collateral for the Loans, (v) the appointment of a receiver or a petition seeking the same, including, without limitation, the costs and expenses of the receiver, insofar as it relates to Borrower, the Loans, or any of the collateral for the Loans, and (v) any other action in the enforcement of Lender’s rights upon the occurrence of an Event of Default.

(g)       If there is a conflict between the terms of this Loan Agreement and the terms of any of the other Loan Documents, the terms of this Loan Agreement will control.

(h)       Lender shall have the right, with the consent of Borrower (unless an Event of Default has occurred and is continuing, in which case no consent is needed), which will not be unreasonably withheld, (i) to assign the Loans or commitment and be released from liability thereunder, and (ii) to transfer or sell participations in the Loans or commitment with the transferability of voting rights limited to principal, rate, fees, and term.

(i)        This Loan Agreement may be separately executed in any number of counterparts, each of which will be an original, but all of which, taken together, shall be deemed to constitute one agreement, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower.  At Lender’s option, this Loan Agreement and the Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed or scanned and e-mailed to Lender.  Borrower and Guarantors agree that the faxed or scanned signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to deliver the original signatures for this Loan Agreement and all Loan Documents by overnight mail or expedited delivery.  It will be an Event of Default if they fail to promptly deliver all required original signatures to Lender and Lender does not receive all required original signatures within five (5) business days.

(b)       It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents.  Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.

(c)       THE 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 AGREEMENTS BETWEEN THE PARTIES.

[Signatures on following pages.]

If the foregoing correctly sets forth our agreement, please so acknowledge by signing and returning the additional copy of this Loan Agreement enclosed to me.

Accepted and agreed to

this 16th day of March, 2017:

 

BORROWER:

 

TENGASCO, INC.,

a Delaware corporation

GUARANTORS:

TENNESSEE LAND & MINERAL CORPORATION,

a Tennessee corporation

 

TENGASCO PIPELINE CORPORATION,

a Tennessee corporation

MANUFACTURED METHANE CORPORATION,

a Tennessee corporation

 

Exhibit A - Revolving Note

Exhibit B - Request for Borrowing

Exhibit C - Compliance Certificate

Schedule 1 - Hedge Transactions

Schedule 2 - Subsidiaries

Schedule 3 - Existing Debt