ADVANCING TERM CREDIT AGREEMENT BETWEEN WESTSIDE ENERGY PRODUCTION COMPANY, LP, a Texas limited partnership and WESTSIDE ENERGY OPERATING COMPANY, LP, a Texas limited partnership As Borrowers WESTSIDE ENERGY CORPORATION, a Nevada corporation As a...
Execution
Version
921350_11
BETWEEN
WESTSIDE
ENERGY PRODUCTION COMPANY, LP,
a
Texas
limited partnership
and
WESTSIDE
ENERGY OPERATING COMPANY, LP,
a
Texas
limited partnership
As
Borrowers
WESTSIDE
ENERGY CORPORATION,
a
Nevada
corporation
As
a
Guarantor
AND
GASROCK
CAPITAL LLC,
a
Delaware limited liability company
As
Lender
Dated
Effective as of March 17, 2006
ADVANCING
TERM LOAN OF UP TO $45,000,000
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EXHIBITS
Exhibit
A
Exhibit B Exhibit C Exhibit D Exhibit E Exhibit F Exhibit G
SCHEDULES
Schedule
2.1 Schedule 2.1(a) Schedule
2.1(b)(i) Schedule
4.1(b) Schedule 4.1(c) Schedule 4.1(g) Schedule 4.1(h) Schedule 4.1(j) Schedule
4.1(m) Schedule 4.1(o) Schedule 4.1(s) Schedule 4.1(t) Schedule 4.1(u) Schedule
4.1(v) Schedule
4. 1 (w) Schedule
7. 1 (e) Schedule 7.2(k)
Property
Descriptions
Form
of
Note
Fomi
of
Property Operating Statement
Form
of
Request for Commitment
Form
of
Cost Certificate
Fowl
of
Overriding Royalty Interest Conveyance Form
of
Guaranty
List
of
CVR ▇▇▇▇▇ and Initial Development Operations Wire
Transfer Instructions
Committed
Development Operations
Shareholders
and Partners of Borrowers and Owners of Partners Borrowers
Equity Interest Obligations
Borrowers'
Pro Forma Financial Statements and Cash Flow Statement Other.
Obligations and Restrictions
Litigation
Unpaid
Bills
Subsidiaries
Compliance
with Environmental and Other Laws Equipment
Description
Purchasers
of Hydrocarbons and Pipeline Parties Existing
Hydrocarbon Sales Agreement
Existing
Swap Agreements
Additional
Reserve Report Parameters and Guidelines Existing
Liens
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ADVANCING
TERM CREDIT AGREEMENT
921350_11
THIS
ADVANCING TERM CREDIT AGREEMENT ("Credit
Agreement") is
made
and entered
into effective as of the 17th day of March, 2006 by and among WESTSIDE
ENERGY PRODUCTION
COMPANY, LP, a
Texas
limited pal tnership
f/k/a EBS Oil and Gas Partners
Production
Company, L.P., and WESTSIDE
ENERGY OPERATING COMPANY, LP, a
Texas
limited partnership f/k/a EBS
Oil
and
Gas Partners Operating Company, L.P. (each individually "Borrower"
and
collectively "Borrowers"),
WESTSIDE
ENERGY CORPORATION,
a
Nevada
corporation ("Parent"), as a Guarantor, and GASROCK
CAPITAL
LLC, a
Delaware limited liability company ("Lender").
WHEREAS,
Borrowers have requested that Lender make available, and Lender is willing
to
make available to Borrowers on the terms and conditions hereinafter set forth,
a
loan for the acquisition
and/or refinancing of the acquisition of oil and gas properties and/or equity
interests in
business entities owning oil and gas properties and, where specifically noted,
the development of certain oil and gas properties and the expansion of their
pipelines.
NOW,
THEREFORE, the parties hereto in consideration of the foregoing and the terms,
covenants, provisions and conditions hereinafter set forth hereby agree as
follows:
ARTICLE
I
DEFINITIONS
AND REFERENCES
Section
1.1 Defined
Terms. As
used
in this Agreement, each of the following terms has
the
meaning given it in this Section
1.1
or
in the
sections and subsections referred to below:
"AAA"
is
defined in Section
12.1(a).
"Accounting
Procedure" means
the
accounting procedure attached to and incorporated in any
Operating Agreement.
"Administration
Fee" is
defined in Section
7.1(hh). "AFE"
means
Authorization for Expenditures.
"Affiliate(s)"
means,
as
to any Person (as hereinafter defined), any other Person who directly
or indirectly controls, is under common control with, or is controlled by such
Person. As used
in
this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities, partnership,
membership or other ownership interests, by contract or otherwise), provided
that,
in
any
event
(i) any Person (other than Wellington Management Company, LLP) who owns directly
or indirectly 20% or more of the securities having ordinary voting power for
the
election of directors
or other governing body of a corporation or 20% or more of the partnership,
membership
or other ownership interests of any other Person will be deemed to control
such
other
Person, (ii) any subsidiary of any Borrower shall be deemed to be an Affiliate
of such Borrower,
(iii) the partners of any Borrower and any Persons they control will be deemed
Affiliates of such Borrower, and (iv) any direct or indirect stockholder or
other equity owner of
921350_11
the
Borrowers or the General Partner or any other partners of Borrower shall be
deemed to be an Affiliate
of such Borrower.
"Affiliate-Owned
▇▇▇▇▇▇▇ Interest" is
defined in Section
8.6(a).
"Agreement"
means
this Advancing Term Credit Agreement, as the same may be amended
restated, extended or otherwise modified from time to time.
"Arbitration
Notice" is
defined in Section
12(c).
"Borrower"
and
"Borrowers"
have
the
meanings assigned to those terms in the preamble of
this
Agreement.
"Borrower
Operating Account" means
that certain bank account maintained by Borrowers
with Plains Capital Bank, a Texas corporation, located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Account # ▇▇▇▇▇▇▇▇.
"Borrower
Sub-Account" is
defined in Section
2.7(a).
"Bridge
Credit Agreement" means
that certain Credit Agreement dated May 20, 2005, by and
among
EBS Production, as borrower, and EBS Operating and EBS GP, as guarantors, and
Petro
Capital II, LP, as agent and a lender, et al., as amended.
"Business
Day" means
for
all purposes, a day other than a Saturday, Sunday or legal holiday
for commercial banks under the laws of the State of Texas or the laws of the
United States
of
America and, if such day relates to the determination of the LIBOR Rate, means
any such
day
on which dealings in U.S. dollar deposits are conducted by and between banks
in
the London
interbank Eurodollar market.
"Change
of Control" means,
with respect to any Person, an event or series of events by which
the
holders of the capital ownership of such Person as of the date hereof cease
to
own and control,
directly and indirectly, at least fifty-one percent (51%) of such Person's
capital ownership.
"Closing"
is defined in Section
9.1.
"Closing
Costs" is
defined in Section
2.1(a). "Closing
Date" is
defined in Section
9.1.
"Collateral"
means
all
property of any kind which, pursuant to any Loan Document, is subject
to a Lien in favor of Lender or is purported or intended to be subject to such
a
Lien, including
without limitation, the Properties, Borrowers' interests in the Hydrocarbons
produced therefrom
or attributable thereto, the Equipment (including Fixtures), gathering systems,
Borrowers'
interests in the seismic, geological and geophysical data relating thereto,
Borrowers' books
and
records relating thereto, the pledge equity interests under the Pledge Agreement
and all
products and proceeds of any of the foregoing_
"Committed
Development Loan" is
defined in Section
2.1(b).
921350
"Corporate
Income Taxes" means
the
amount of United States federal and state income or
franchise taxes due and payable by Parent as the limited partner of Borrower,
with respect to income
of
each Borrower attributable to the limited partners of Borrower and derived
from
the Properties
and the other Collateral.
"Cost
Certificate" is
defined in Section
2.1(b). "CVR
Loans" is
defined in Section
2.1(a).
"CVR
▇▇▇▇▇" has
the
meaning given to the term as defined in the EBS Production PSA and
listed on Schedule
2.1
attached
hereto.
"Debt"
means
all
indebtedness, liabilities and obligations, whether matured or unmatured,
liquidated or unliquidated, primary or secondary, direct or indirect, absolute,
fixed or contingent,
and whether or not required to be considered debt pursuant to GAAP.
"Debt
Service" means
the
principal and interest due pursuant to the Note for any Interest
Period.
"Deed
of Trust" is
defined in Section
6.1.
"Default
Rate" means
the
lesser of (i) fifteen percent (15%) per annum and (ii) the Maximum
Rate.
"Defensible
Title" means
with respect to the Properties, such title that: (A) with respect to
each
well or Unit located on the Leases entitles Borrowers to receive, free and
clear
of all royalties,
overriding royalties and net profits interests (except the ORRI), or other
burdens on or measured
by production of Hydrocarbons, not less than the Net Revenue Interests of
Borrowers reflected
on Exhibit
"A" for
such
▇▇▇▇▇ or Units for the productive life of such well or Unit (subject
only to the Permitted Encumbrances); and (B) with respect to each well or Unit
located on the Leases obligates Borrowers to bear costs and expenses relating
to
the maintenance, development
and operation of such well or Unit in an amount not greater than the Working
Interests
reflected on Exhibit
"A"
for
the
productive life of such well or Unit (subject only to the Permitted
Encumbrances); free and clear of any Lien, other than the Permitted Encumbrances
and
any
Liens in favor of Lender and its Affiliates.
"Deposit
Account Control Agreement" means
that certain agreement dated of even date herewith
among Borrowers, Lender and Plains Capital Bank covering the Borrower Operating
Account.
"Development
Loan" means
the
loan or loans made or to be made from Lender to Borrowers,
as evidenced by the Note, to fund Borrowers' share of the costs and expenses
of
Development
Operations.
"Development
Operations" means
the
(i) drilling, sidetracking, deepening, completing, recompleting
or reworking activities or similar activities proposed by Borrowers from time
to
time
prior to the Drawdown Termination Date to be conducted on any of the Properties
and (ii) the
acquisition of any one or more additional oil or gas properties, the expansion
of the Pipeline
521356_11
and
other
oil and gas projects relating to the Properties (including
after-acquired-properties) proposed by Borrowers from time to time prior to
the
Drawdown Termination Date.
"Direct
Taxes" means,
without duplication (a) Property Taxes, (b) Severance Taxes, (c) ad
valorem taxes, (d) conservation taxes, and (e) any other taxes of any kind,
excluding only income taxes and franchise taxes imposed on Borrowers or any
producer in connection with or as a result of their ownership of interests
in
the Properties.
"Drawdown
Termination Date" means
March 1, 2009.
"EBITDA"
means
for
any period (a) net income in accordance with GAAP for such period plus
(b)
to
the
extent deducted in determining net income for such period, interest expense,
income taxes and non-cash charges and expenses, including depreciation,
depletion and amortization
expense for such period, minus
(c)
all
non-cash income added to net income for such
period. EBITDA shall be calculated without including non-▇▇▇▇ ▇▇▇▇-to-market
adjustments
arising from the application of FASB Statement 133 or FASB Statement 143 (or
any
successor
GAAP which serves to amend, supplement or replace FASB Statement 133 and
143).
"EBS
Credit Agreement" means
that certain Credit Agreement dated February 1, 2005, by
and
among EBS Production, as borrower, and EBS Operating and EBS GP, as guarantors,
and Petro
Capital II, LP, as agent and a lender, et al., as amended.
"EBS
GP" means
EBS
Oil
and
Gas Partners Production GP, LLC, a Texas limited liability
company and the general partner of EBS Production and EBS Operating, and the
predecessor to Westside GP.
"EBS
Loans" means
the
loans described in the Bridge Credit Agreement and the EBS Credit
Agreement.
"EBS
Operating" means
EBS
Oil and Gas Partners Operating Company, LP, a Texas limited
partnership, and the predecessor to WEO.
"EBS
Operating PSA" means
that certain Purchase and Sale Agreement dated effective as
of
March 15, 2006, between the partners of EBS Operating, as seller, and Parent,
as
purchaser, relating
to the equity interests in EBS Operating.
"EBS
Production" means
EBS
Oil and Gas Partners Production Company, LP, a Texas limited partnership, and
the predecessor to WU_
"EBS
Production PSA" means
that certain Amended and Restated Purchase and Sale Agreement
dated November 30, 2005, between the partners of EBS Production, et al., as
seller, and Parent, as purchaser, relating to the equity interests in EBS
Production.
"Engineers"
means,
unless specifically provided otherwise, an independent petroleum engineering
firm to be mutually acceptable to Borrowers and Lender; provided
that
any
prior acceptance
by a party of any independent petroleum engineering firm does not necessarily
denote
acceptance by such party of such firm at any future time or date.
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"Environmental
Laws" means
any
and all federal, state or local statutes, laws (including common law),
regulations, ordinances, rules, judgments, orders, decrees, permits, grants,
franchises, licenses, agreements or other governmental restrictions relating
to
the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment including ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes.
For purposes of this definition, "chemicals" includes all substances referred
to
in the second sentence of the definition herein of "Hazardous
Materials."
"Environmental
Report" means
that certain Phase I Environmental Site Assessments prepared by Haiff
Associates, Inc., and to be delivered to Borrower and Lender, which report
covers the ▇▇▇▇▇ described on Exhibit
"A"
as
of the
Closing Date.
"Equipment"
means
all
equipment of Borrowers more particularly described in Schedule
4.1(t), and
all
other equipment of Borrowers, used for or in the operation of the Properties
which may not be described in Schedule
4.1(t), of
every
kind and nature whether located on the Properties or located elsewhere,
including but not limited to, pipelines, well and lease equipment and surface
equipment, casing, tubing, connections, rods, pipe, machines, compressors,
gathering systems, meters, motors, pumps, tankage, fixtures, storage and
handling equipment
and all other equipment or movable property of any kind and nature and wherever
situated now or hereafter owned by Borrowers or in which Borrowers may now
or
hereafter have any
interest (to the extent of such interest), together with all additions and
accessions thereto, all replacements
and all accessories and parts therefor, all logs and records in connection
therewith, all
rights against suppliers, warrantors, manufacturers, sellers or others in
connection therewith, and
together with all substitutes and replacements for any of the
foregoing.
"ERISA"
means
the
Employee Retirement Income Security Act of 1974, as amended from
time
to time, together with all rules and regulations promulgated with respect
thereto.
"ERISA
Plan" means
any
employee pension benefit plan which is maintained by any Person
subject to Title IV of ERISA.
"Event
of Default" is
defined in Section
10.1.
"Expenses"
means,
in
connection with the Properties, Borrowers' share of costs and expenses
relating to, without duplication, Operating Expenses, Direct Taxes, royalties,
overriding
royalty interests and associated Swap Settlement Payables.
"Facility
Fees" means
the
fees owed by Borrowers to Lender as consideration, in part, for Lender's
assistance to Borrowers in structuring the transactions contemplated under
this
Agreement
and the other Loan Documents in an amount equal to 2.0% of the amount of the
Initial
Loan funded at Closing, and an additional 2.0% of any Loan (including any
Development Loan
and
CVR Loan, but not Overhead Advances) each time a Loan is funded after
Closing.
"Financial
Statements" means
the
financial statements of Borrowers, required to be delivered
pursuant to Section
7.1(c)
hereof.
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"Fiscal
Quarter" means
a
three-month period ending on March 31, June 30, September 30 or
December 31 of any year.
"Fiscal
Year" means
a
twelve-month period ending on December 31 of any year.
"GAAP"
means
those generally accepted accounting principles and practices which are
recognized
as such by the Financial Accounting Standards Board (or any generally
recognized
successor).
"General
Partner" means
Westside, GP LLC.
"Governmental
Authority" means
any
nation or government, any state or other political subdivision
thereof, any agency, authority, instrumentality, regulatory body, court,
administrative
tribunal, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Gross
Promotional Proceeds" means,
with respect to each Promoted Well, the aggregate cash proceeds received by
Borrowers in connection with the Sale of such Promoted Interest.
"Gross
Receipts" means,
in
relation to and arising from the Properties (including the Pipeline) and
Permitted Swap Agreements, all sums received by Borrowers, including, but not
limited
to, Net Promotional Proceeds (but excluding cash proceeds from the Sale of
any
Promoted
Interest in any CVR Well), Swap Settlement Proceeds and proceeds under gas
sales
agreements,
oil sales agreements, natural gas liquids sales agreements, gas processing
agreements, gas gathering agreements, transportation agreements, Operating
Agreements, including,
but not limited to receipts pursuant to Accounting Procedures, and any other
receipts relating
to or arising from the Collateral (other than the proceeds of Collateral
governed separately
by Section
2.4(b)).
"Guarantee"
shall
include any agreement, whether such agreement is on a contingency basis
or
otherwise, to purchase, repurchase or otherwise acquire any Debt or liability
of
any other Person,
or to purchase, sell or lease, as lessee or lessor, property or services in
any
such case primarily for the purpose of enabling another Person to make payment
of any such Debt or liability,
or to make any payment (whether as a capital contribution, purchase of any
equity interest
or otherwise) to assure a minimum equity, asset base, working capital or other
balance sheet
or
financial condition, in connection with Debt or liability of another Person,
or
to supply funds
to
or in any manner invest in another Person in connection with such Person's
Debt
or liability.
"Guarantor"
means
Parent together with any other Person who agrees to Guarantee the Lender against
loss with respect to the Obligations.
"Guaranty"
means
a
guaranty agreement substantially in the form of Exhibit
G to
this
Agreement.
"Hazardous
Materials" means
any
substances regulated under any Environmental Law, whether as pollutants,
contaminants or chemicals, or as industrial, toxic or hazardous substances
or
wastes, or otherwise. "Hazardous Materials" also includes (a) any petroleum,
any
fraction of
921356t1
petroleum,
natural gas, natural gas liquids, liquefied natural gas and synthetic gas usable
for fuel (including
any mixtures of the foregoing) that has been or may be emitted, discharged
or
released into the environment, and (b) any drilling fluids, produced waters
and
other wastes associated with
the
exploration, development or production of crude oil, natural gas or geothermal
reserves.
"Hydrocarbon
Interests" means
leasehold and other interests in or under oil, gas and other liquid
or
gaseous hydrocarbon leases with respect to Hydrocarbons wherever located,
mineral fee interests,
overriding royalty and royalty interests, net profit interests, production
payment interests
relating to Hydrocarbons wherever located, including any beneficial, reserved
or
residual
interest of whatever nature.
"Hydrocarbons"
means
crude oil, condensate, natural gas, natural gas liquids and other hydrocarbons.
"Industry
Agreement" means
any
farmout, farmin, joint operating, development, participation
or similar agreement commonly used in the oil and gas exploration and production
industry.
"Initial
Development Operations" is
defined in Section
2.1(a). "Initial
Loan" is
defined in SectiOn
2.1(a).
"Intercreditor
Agreement" means
that certain Intercreditor Agreement among Borrowers, Lender
and the counterp arty under the initial Peimitted Swap Agreement and executed
and delivered
pursuant to Section
9.3(i) below,
and any other mutually agreeable intercreditor agreement
among Lender, Borrowers and any other counterparty approved by Lender in
substantially the same form and content entered into in connection with a
Permitted Swap Agreement.
"Interest
Period" means
each monthly period beginning on (but not including) the Repayment
Date in one calendar month and ending on (and including) the Repayment Date
in
the
next
following calendar month, provided
that
the
first Interest Period for the Note and Loans shall
begin on the date a Loan is first funded hereunder and ending on the Repayment
Date in April,
2006.
"Interest
Rate" means
the
lesser of (a) the Maximum Rate and (b) the greater of (i) twelve percent
(12.0%) per annum and (ii) the LIBOR Rate, plus the LIBOR Margin; but in no
event greater than the Maximum Rate.
"Invest" Pent"
in
any
Person means the amount paid or committed to be paid or the value
of
property or wages contributed or committed to be contributed by the Person
making the Investment
on its account for or in connection with its acquisition of any stock, bonds,
notes, debentures,
partnership or other ownership interest or any other security of the Person
in
whom such
Investment is made or any evidence of Debt of such Person in whom the Investment
is made.
"JIBs"
is
defined in Section
7.1(c)(iii).
921350_11
"Lease"
or
"Leases"
means,
whether one or more, (i) those certain oil, gas and/or mineral leases
set forth in the description of the Property on Exhibit
"A"
and
any
other interests in such leases,
whether now owned or hereafter acquired by Borrowers, and any extension,
renewals, corrections,
modifications, elections or amendments of any such oil and gas leases, or (ii)
other oil,
gas
and/or mineral leases or other interests pertaining to the Properties which
may
now and hereafter
be made (or intended or purported to be made) subject to the lien of any of
the
Security Documents
and any extension, renewals, corrections, modifications, elections or amendments
of any
such
oil, gas and/or mineral leases.
"Lease
Bank Agreement" means
the
agreement entitled "▇▇▇▇▇▇▇ Shale Project" (more commonly
known as the "EBS-Westside Lease Agreement"), dated April 13, 2005, as amended
by letter agreement dated April 22, 2005 between Parent and EBS
Production.
"Lender"
shall
have the meaning assigned to such term in the preamble of this Agreement,
and its successors and assigns.
"Lender
Account" is
defined in Section
2.7(a).
"Letters
in Lieu" means
those certain letters in lieu of transfer orders, duly executed by Borrowers,
in
the form satisfactory to Lender.
"LIBOR
Margin" means
six
and one-half percent (6.50%).
"LIBOR
Rate" means
the
fluctuating rate of interest equal to the one-month London interbank
offered rate as published in the "Money Rates" section of The
Wall Street Journal as
stated
on the first Business Day of each calendar month. Interest, when calculated
based on the LIBOR Rate, will accrue on any non-Business Day at the rate in
effect on the immediately preceding
Business Day. In the event The
Wall Street Journal is
no
longer published or no longer
publishes the LIBOR Rate in its "Money Rates" table, Lender shall choose a
substitute LIBOR Rate that is based upon comparable information subject,
however, to Section
3.2
hereof.
"Lien"
means,
with respect to any property or assets, any right or interest therein of a
creditor
to secure Debt owed to it or any other arrangement with such creditor which
provides for the
payment of such Debt out of such property or assets or which allows it to have
such Debt satisfied
out of such property or assets prior to the satisfaction of general creditors
of
the owner of
such
property or assets, including, without limitation, any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale
agreement or lease substantially equivalent thereto, tax lien, mechanic's or
materialman's lien,
or
any other charge or encumbrance for security purposes, whether arising by law
or
agreement
or otherwise, but excluding any right of offset which arises without agreement
in the ordinary
course of business. "Lien" also means any filed financing statement, any
registration of a
pledge
(such as with an issuer of unregistered securities), or any other arrangement
or
action which
would serve to perfect a Lien described in the preceding sentence, regardless
of
whether such
financing statement is filed, such registration is made, or such arrangement
or
action is undertaken before or after such Lien exists.
"Loan
Documents" means
this Agreement, the Note, the Overriding Royalty Interest Conveyance,
ORRI Letters in Lieu, the Deed of Trust, the Security Agreement, the
Pledge
921350_
Agreement,
the Letters in Lieu, Notices of Assignment of Proceeds, the Deposit Account
Control Agreement,
the Subordination Agreement, the Intercreditor Agreement and all other security
agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties,
financing statements,
continuation statements, extension agreements and other agreements or
instruments, in
as
many counterparts as Lender may require, now, heretofore or hereafter delivered
by Borrowers
to Lender in connection with this Agreement or any transaction contemplated
hereby to secure or guarantee the payment of any part of the
Obligations.
"Loan
Termination Date" means
with respect to Loans advanced hereunder, the earlier of (a)
▇▇▇▇▇
▇▇, ▇▇▇▇, (▇) the date on which all Obligations of Borrowers under the Loan
Documents
(other than the Overriding Royalty Interest Conveyance) have been paid and
performed
in full and Lender's obligation (if any) to advance any Loans has terminated,
and (c) the
date
on which Lender notifies Borrowers of the acceleration of payment of any portion
or all of the Obligations because of the occurrence of an Event of
Default.
"Loan
to Value Ratio" means,
when determined, the ratio derived by dividing (a) the aggregate
principal amount of the Loans outstanding at that time, divided by (b) an amount
equal to
the
sum of (i)
the
PW10
of Borrowers' Proved Developed Producing Reserves in the Properties, net to
Borrowers' interests, and calculated by Lender in connection with the most
recent
Reserve Report delivered hereunder (after being adjusted from time to time
to
incorporate Lender's
then-current assumptions with respect to pricing, Expenses and ▇▇▇▇▇▇ under
Permitted Swap
Agreements), plus
(ii)
an
amount equal to six times the trailing 12-month EBITDA of the Pipeline
less any Debt burdening the Pipeline or its operation (proportionately reduced
to Borrowers'
interest in the Pipeline).
"Loans"
means,
collectively, the Initial Loan, the Development Loans, the Overhead Advances
and
the Facility Fees advanced hereunder and "Loan" means, individually, the Initial
Loan, any Development Loan and any Overhead Advance as described in Section
2.1
and
any
Facility Fee advanced hereunder.
"Lockbox"
means
Lender's lockbox established with the lending institution where the Lender
Account is maintained to which Gross Receipts of Borrowers that are not
wire-transferred
into the Lender Account will be directed for subsequent transfer into the Lender
Account.
"Maximum
Loan Amount" means,
subject to the terms and conditions of this Agreement, $45,000,000.
"Maximum
Rate" means
the
maximum non-usurious rate of interest that Lender is permitted
under applicable law to contract for, take, charge, or receive from
Borrowers.
"Net
Promotional Proceeds" means,
with respect to each Promoted Well, the excess, if any,
of
(1)
the
Gross
Promotional Proceeds minus
(ii) the
Promoted Well Drilling Costs.
"Net
Revenue" means,
unless specified otherwise, the aggregate amount calculated as Gross
Receipts minus
the
aggregate amount calculated as Expenses, for any specified period.
921350_11
"Net
Revenue Interest" and
"NRI"
means (i) with respect to a Unit for which a net revenue
interest is stated, that interest in the applicable Hydrocarbons produced,
saved
and sold from
such
unitized area which is afforded to Borrowers by virtue of their ownership of
the
Leases included in whole or in part in such area after deducting all burdens
against the production
therefrom, and (ii) with respect to a Well for which a net revenue interest
is
stated, that interest in the applicable Hydrocarbons produced, saved and sold
from the Well which is afforded
to Borrowers by virtue of their ownership of the Lease on which such Well is
located after
deducting all burdens against the production therefrom; provided,
however, that,
except with
regard to the representation set forth in the last sentence in Section
4.1(n), any
representation,
warranty or covenant in relation to Borrowers' Net Revenue Interest shall be
deemed
to
refer to such interest net of the ORRI granted to Lender.
"Net
Revenue Reimbursement Amount" is
defined in Section
2.7(b). "Note"
is
defined in Section
2.1(d).
"Notice
of Assignment of Proceeds" is
defined in Section
6.4.
"Obligations"
means
all
Debt and all obligations from time to time owing from Borrowers
to Lender or any of Lender's Affiliates under or pursuant to any of the Loan
Documents
in connection with this Agreement or any transaction contemplated hereby,
including without
limitation, all principal, interest, fees, expenses, costs and
indemnities.
"Oil
and Gas Properties" means
Hydrocarbon Interests now owned or hereafter acquired by
Borrowers or any of their Subsidiaries and contracts executed in connection
therewith and all tenements, hereditaments, appurtenances, and properties
belonging, affixed or incidental to such Hydrocarbon
Interests, including, without limitation, any and all property, real or
personal, now owned
or
hereafter acquired by Borrowers or any of their Subsidiaries and situated upon
or to be situated
upon, and used, built for use, or useful in connection with the operating,
working or developing of such hydrocarbon interests, including, without
limitation, any and all petroleum and/or
natural gas ▇▇▇▇▇, buildings, structures, field separators, processing plants,
liquid extractors,
plant compressors, pumps, pumping units, field gathering systems, tank and
tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
liters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, taping, tubing and rods, surface leases,
rights-of-way, easements and servitudes, and all additions, substitutions,
replacements for,
fixtures and attachments to any and all of the foregoing owned directly or
indirectly by any Borrower
or any of its Subsidiaries.
"Operating
Agreements" means
operating agreements to which Borrowers are parties or by
which
any Borrower is bound (including any and all operating agreements among WEO
and
WEP), now or hereafter relating to the Properties, each of which shall be
reasonably satisfactory in form and substance to Lender.
"Operating
Expenses" means
(a)
direct lease operating expenses and well maintenance expenses (such well
maintenance expenses shall be limited to $50,000.00 per event, net to
Borrowers'
interests, without Lender's prior consent), which arise from Borrowers' Working
Interests
in the ▇▇▇▇▇ that are subject to the Deed of Trust, that are billed to Borrower
by the Operator
or incurred by Borrowers, as Operator, of the Properties, and (b) Borrowers'
Working
▇▇▇▇▇▇_11
Interest
share of expenses incurred in the repair, maintenance and replacement of damaged
or obsolete Equipment (such equipment repair, maintenance and replacement
expenses shall be limited to $50,000,00 per event, net to Borrowers' interest,
without Lender's prior consent).
"Operating
Report" is
defined in Section
7.1(v).
"Operator"
means
any
operators, including contract operators, of the Properties (as such terms are
generally understood in the oil and gas industry) and, includes, in any event,
WEO.
"ORRI"
means,
with respect to the Properties, a cost-free overriding royalty interest from
Borrowers'
proportionately reduced Working Interest in Hydrocarbons in, under and to be
produced
from or attributable to the Leases constituting the Properties (including
after-acquired Properties)
conveyed to Lender pursuant to the Overriding Royalty Interest Conveyance,
including,
but not limited to, the ORRI to be conveyed pursuant to Section
8.4.
"ORRI
Letters in Lieu" means
those certain letters in lieu of transfer orders in relation to the ORRI, duly
executed by Borrowers, in the form satisfactory to Lender.
"Other
Taxes" is
defined in Section
3.1(b).
"Overhead
Advances" has
the
meaning given to such term in Section
2.1(c)
hereof.
"Overriding
Royalty Interest Conveyance" means
an
assignment in the form of Exhibit
"F" pursuant
to
which
Borrower conveys to Lender an ORRI from time to time.
"Parent"
means
Westside Energy Corp., a Nevada corporation, the limited partner of each
of
the
Borrowers and the sole member of Westside GP.
"Parties"
is
defined in Section
12.1(a). "Permitted
Encumbrances" means:
(a) Liens
pursuant to any Loan Document;
(b) Liens
existing on the date hereof and listed on Schedule
7.2(k)
hereto;
(c) Liens
for
taxes, assessments, or other governmental charges or levies not yet
due
or which are being contested in good faith and by appropriate proceedings
diligently
conducted, if adequate reserves with respect thereto are maintained on the
books
of
the applicable Person in accordance with GAAP;
(d) operators,'
non-operators,' vendors,' carriers,' warehousemen's, mechanics,'
materialmen's, repairmen's or other like Liens arising in the ordinary course
of
business or which are incident to the exploration, development, operation,
and
maintenance
of the Properties, not overdue for a period of more than thirty days or which
are
being
contested in good faith and by appropriate proceedings diligently conducted,
if
adequate
reserves with respect thereto are maintained on the books of the applicable
Person
in
accordance with GAAP;
921350_11
(e) pledges
or deposits in the ordinary course of business or Liens in connection
with workers' compensation, unemployment insurance and other social security
legislation, other than any Lien imposed by ERISA;
deposits
to secure the performance of bids, trade contracts and leases (other
than Debt), statutory obligations, surety bonds (other than bonds related to
judgments
or litigation), performance bonds and other obligations of a like nature
incurred
in the ordinary course of business; and
(g) easements,
rights-of-way, restrictions, servitudes, permits, conditions, covenants,
exceptions, or reservations and other similar encumbrances, defects,
irregularities,
minor imperfections and deficiencies in title affecting real property which,
in
the
aggregate, are not substantial in amount, and which do not in any case
materially detract
from the value of the property subject thereto or materially interfere with
the
ordinary
conduct of the business of the applicable Person; and
(h) Liens
permitted under Section
6.1 that
are
granted by Borrowers to counterparties
under Permitted Swap Agreements.
"Permitted
Swap Agreement" means
a
Swap Agreement (i) provided in those certain master swap agreements on
International Swap Dealers Association forms and the schedules thereto
and any confirmations thereunder which Borrowers enter into with counterparties
acceptable
to Lender, as evidenced by Lender's prior written approval (which will not
be
unreasonably withheld or delayed) and (ii) on terms reasonably satisfactory
to
Lender.
"Person"
means
an
individual, corporation, partnership, association, joint stock company,
trust
or
trustee thereof, estate or executor thereof, unincorporated organization or
joint venture, court
or
governmental unit or any agency or subdivision thereof, or any other legally
recognizable
entity.
"▇▇▇▇▇
▇▇▇▇ Releases" means
documents in form and content satisfactory to Lender, whereby Petro Capital
II,
LP releases the Petro Liens.
"Petro
Liens" means
any
and all liens and security interest conveyed or granted by EBS Production,
EBS Operating and EBS GP to Petro Capital II, LP under the EBS Credit Agreement
or
the
Bridge Credit Agreement_
"Pipeline"
means
Borrowers' interests in that certain Pipeline and all related assets as
more
particularly described on Exhibit
"A"
attached
hereto.
"feline
Parties" means
the
Persons listed on Schedule
4.1(u) and
all
other Persons who,
now
or in the future, are parties to contracts or agreements with either Borrower
in
any way related
to the Pipeline from which Gross Receipts are derived.
"Pledge
Agreement" means
the
pledge agreement executed by all the owners of the partnership
interests in the Westside Subsidiaries and the membership interests in Westside
GP, executed
in favor of Lender as of the date hereof, in form and substance satisfactory
to
Lender, as
the
same may be modified, amended or supplemented from time to time.
921350_11
"Pro
Forma Financial Statements" is
defined in Section
4.1(g).
"Project
Area" includes
the area within the Fort Worth Basin and located within Bosque, Clay,
Comanche, Cooke, Coryell, Denton, Ellis, Erath, Hamilton, Hill, Hood, Jack,
Johnson, Lampasas,
Mills, Montague, Palo Pinto, Parker, Sommerville, Tarrant or Wise Counties,
Texas.
"Promoted
Interest" is
defined in Section
11.13.
"Promoted
Well" means
a
Well drilled or to be drilled on a Promoted Interest. "Promoted
Well Cost Certificate" is
defined in Section
11.13(b).
"Promoted
Well Drilling Costs" means,
with respect to each Promoted Well, an amount equal to the aggregate, direct
costs incurred by Borrowers in connection with the drilling and completion
(or abandonment) of such Well multiplied
by the
percentage of such costs to be borne by
the
purchaser(s) of the Promoted Interest. For the avoidance of doubt, the "Promoted
Well Drilling
Costs" will not include any amounts attributable to Borrowers' interest in
such
Well and to be paid from the proceeds of a Loan advance made by
Lender.
"Properties"
means
(i)
all
Oil
and Gas properties of Borrowers, now owned or hereafter acquired,
including, without limitation, the interests in those certain Leases, properties
and the other
oil
and gas assets described in Exhibit
"A," as
Exhibit
"A" may
be
modified, amended or supplemented
from time to time and (ii)
the
Pipeline.
"Property
Operating Statement" means
the
monthly statement, in the form of Exhibit
"C,"
or
another form mutually acceptable to Borrowers and Lender (but containing at
a
minimum
the same requested information) to be prepared and delivered by Borrowers to
Lender pursuant
to Section
2.6.
"Property
Taxes" means
taxes imposed annually on Borrowers which are based on or measured
by the estimated value (at the time such taxes are assessed) of any Hydrocarbons
or other assets situated within the Properties.
"Proved
Developed Non-Producing Reserves" means
Proved Reserves that are estimated to
be
recoverable by existing ▇▇▇▇▇ that are not yet capable of producing such
reserves without completions
or recompletions being conducted within the existing wellbores
thereof.
"Proved
Developed Producing Reserves" means
Proved Reserves that are estimated to be recoverable
by existing ▇▇▇▇▇ that are then capable of producing such reserves.
"Proved
Reserves" means
the
current estimated quantity of Hydrocarbons which analysis of
geologic and engineering data demonstrate with reasonable certainty to be
recoverable in the future
from known oil and gas reservoirs under existing economic and operating
conditions based
on
either actual production or conclusive formation tests, and includes all Proved
Developed
Producing Reserves, all Proved Developed Non-Producing Reserves and all Proved
Undeveloped
Reserves.
"Proved
Undeveloped Reserves" means
Proved Reserves that are estimated to be recoverable
from ▇▇▇▇▇ to be drilled in the future.
921350_11
"PSAs"
means
collectively, EBS Production PSA and the EBS Operating PSA.
"Purchasers
of Hydrocarbons" means
the
Persons listed on Schedule
4.1(u) and
all
other Persons
who, now or may in the future, purchase Hydrocarbons attributable or allocable
to Borrowers'
Net Revenue Interests in the Properties and are reasonably approved by Lender
and Borrowers
in writing.
"PW
10" means
the
present worth of future net cash flow calculated based on the then current
Reserve Report, discounted to present value at the simple interest rate of
ten
percent (10%)
per
year.
"Reimbursed
Costs" is
defined in Section
2.1(a).
"Repayment
Date" means,
prior to the satisfaction of all Obligations, the last Business Day
of
each month, commencing with the month of April 2006 and ending on the Loan
Termination Date.
"Request
for Commitment" means
a
written request, in the form of Exhibit
"13," to
Lender
from Borrowers, signed by an authorized representative of Borrowers as specified
in the resolutions
and incumbency certificate to be delivered pursuant to Section
9.2(b) hereof,
for an advance of funds under the Development Loan.
"Reserve
Report" is
defined in Section
7.1(e).
"Reserve
Report Delivery Date" has
the
meaning given to such tern in the EBS Production
PSA.
"Rules"
is
defined in Section
12.1(c).
"Sale"
is
defined in Section
11.13(a).
"Security
Agreement" means
a
security agreement (covering, without limitation Accounts,
Equipment, General Intangibles and Inventory of Borrowers as those terms are
defined
in the Uniform Commercial Code adopted by the State of Texas) executed by
Borrowers as
debtors in favor of Lender as secured party dated as of the date hereof, in
form
and substance satisfactory
to Lender, as the same may be modified, amended or supplemented pursuant to
the
terms of this Agreement.
"Security
Documents" means
the
Deed of Trust, the Security Agreement, the Pledge Agreement, the Deposit Account
Control Agreement and all other security agreements, deeds of trust,
mortgages, chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements or
instruments now, heretofore, or hereafter
delivered to Lender in connection with this Agreement or any transaction
contemplated hereby
to
secure or guarantee the payment of any part of the Obligations, as the same
may
be modified,
amended or supplemented from time to time pursuant to this
Agreement.
"Sell"
is
defined in Section
11.13(a).
921350_11
"Severance
Taxes" means
taxes imposed at the time oil or gas is produced from a well which
are
based on or measured by the amount or value of such production.
"Subordination
Agreement" means
an
agreement, in form and substance satisfactory to Lender, executed by General
Partner and Parent subordinating any amounts owed or that may become
owing to either of them by either of the Borrowers to the Obligations owed
by
Borrowers
to Lender under this Agreement and the other Loan Documents.
"Subsidiary"
means
for
any Person any entity of which more than fifty percent (50%) of the
issued and outstanding securities having ordinary voting power for the election
of directors or managers
is owned, directly or indirectly, by such Person and/or one or more of its
subsidiaries.
"Swap
Agreement" means
any
(a) interest rate or currency swap, rate cap, rate collar, forward
agreement and other exchange or rate protection agreements or any option with
respect to
any
such transaction and any swap agreement, cap, collar, floor, exchange
transaction, forward agreement
or exchange or protection agreement related to Hydrocarbons or any option with
respect
to such transaction.
"Swap
Settlement Payables" means
any
settlement amounts payable by Borrowers under the terms of any executed
Permitted Swap Agreement_
"Swap
Settlement Proceeds" means
any
settlement amounts paid to Borrowers under the terms
of
any executed Permitted Swap Agreement.
"Tax
Claim" means
any
claim by a taxing authority that Borrowers owe or that any Borrowers'
interests in any of the Properties is subject to a Lien securing any amount
of
taxes of any
kind.
"Taxes"
is
defined in Section
3.1(a).
"Title
Opinions" means
those certain title opinions to be delivered by Borrowers to Lender
from time to time, including, but not limited to, following Closing as required
under this Agreement
in relation to the Properties; provided
that,
in
all circumstances except the post-Closing
Title Opinions to be delivered pursuant to Section
7.l
(y) below,
"Title Opinions" may also
include, with the prior written consent of Lender, other evidence of title
satisfactory to Lender
in
its sole and absolute discretion.
"Unit"
means,
in
respect of each Well or group of related ▇▇▇▇▇, Borrowers' Oil and Gas
Properties
covering the lands attributed to each such respective Well or group of related
▇▇▇▇▇ for
pooling, unitization and/or proration purposes, from time to time, whether
so
attributed to such
Well
or group of related ▇▇▇▇▇ in order to comply with the terms of the applicable
oil and gas
leases, pooling or unitization agreements, unit operating agreements or the
like
or in order to comply
with the applicable rules and regulations of applicable governmental authorities
related to
pooling, unitization, well spacing or the like and, including without limitation
any pooled (compulsory
or voluntary) unit, proration unit, production unit, regulatory unit, field-wide
unit, or
other
similar designation or allocation of lands to such Well or group of related
▇▇▇▇▇; provided,
however, to
the
extent lands have not been attributed to any such Well or group of related
▇▇▇▇▇ either by any such contractual or regulatory authority, the applicable
Unit will
921350_11
consist
of all of Borrower's Oil and Gas Properties supporting Borrower's right to
receive production or proceeds of production from such Well or ▇▇▇▇▇ without
geographic limitations; and
provided
further that,
for
purposes of Section
8.4 below,
the lands comprising each Unit shall be limited to the larger
of (i) the
minimum unit established under the rules and regulations of
the
Texas Railroad Commission for the relevant Well, considering the type (i.e.,
horizontal or non-horizontal),
geographical location and other relevant characteristics of such Well, or
(ii)
the
unit
established for the relevant ▇▇▇▇▇ pursuant to the applicable Industry
Agreement.
"Unmatured
Event of Default" means
any
event or condition which would, with the giving
of
any requisite notices and/or the passage of any requisite periods of time,
constitute an Event
of
Default.
"WEO"
means
Westside Energy Operating Company, LP. "WEP"
means
Westside Energy Production Company, LP.
"Well"
means
a
well producing or capable of producing Hydrocarbons that is described
or
referred to in Exhibit
"A," as
Exhibit
"A"
may
be
modified, amended or supplemented from time
to
time.
"Westside
GP" means
Westside Energy GP, L.L.C., a Texas limited liability company and
the
general partner of the Westside Subsidiaries.
"Westside
Subsidiaries" means
WEO
and WEP.
"Wire
Transfer Instructions" means
the
instructions described on Schedule
2.1(a) relating
to the disbursements by Lender of the amounts constituting the Initial Loan
(other than the Facility Fee and the initial Administration Fee).
"Working
Interest" and
"WI"
means (i) with respect to a Unit for which a working interest
is stated, Borrowers' share of the costs of operations conducted thereon, and
(ii) with respect
to a Well for which a working interest is stated, Borrowers' share of costs
of
the operation
thereof.
Section
1.2 Exhibits
and Schedules. All
exhibits and schedules attached to this Agreement are incorporated herein by
reference and made a part hereof for all purposes.
Section
1.3 Amendment
of Defined Instruments. Unless
the context otherwise requires
or unless otherwise provided herein, the ▇▇▇▇▇▇ defined in this Agreement which
refer to a
particular agreement, instrument or document also refer to and include all
renewals, extensions, modifications,
amendments and restatements of such agreement, instrument or document;
provided
that
nothing contained in this Section shall be construed to authorize any such
renewal, extension,
modification, amendment or restatement.
Section
1.4 References
and Titles. All
references in this Agreement to exhibits, schedules,
articles, sections, subsections and other subdivisions refer to the exhibits,
schedules, articles,
sections, subsections and other subdivisions of this Agreement unless otherwise
expressly
provided. Section and subdivision headings are for convenience only, do
not
921350_11
constitute
any part of such sections or subdivisions and shall be disregarded in construing
the language contained in such sections or subdivisions. The words "this
Agreement", "this instrument",
"herein", "hereof', "hereby", "hereunder" and words of similar import refer
to
this Agreement
as a whole and not to any particular sections or subdivisions unless expressly
so limited. The phrases "this section" and "this subsection" and similar phrases
refer only to the sections or subsections hereof in which such phrases occur.
The word "or" is not exclusive, and the
word
"including" (in its various forms) means "including without limitation".
Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender,
and
words
in
the singular form shall be construed to include the plural and vice versa,
unless the context otherwise requires.
Section
1.5 Calculations
and Determinations. All
calculations pursuant to the Loan Documents
of fees and of interest shall be made on the basis of actual days elapsed
(including the
first
day but excluding the last) and a year of 360 days. Unless otherwise expressly
provided herein
or
Lender otherwise consents in writing, all Financial Statements and reports
to be
furnished
to Lender under the Loan Documents shall be prepared and all financial
computations and
determinations made pursuant to the Loan Documents, and with respect to the
Financial Statements, shall be made in accordance with GAAP.
ARTICLE
II THE LOANS
Section
2.1 The
Loans.The
Initial Loan and CVR Loans. Borrowers
desire to borrow funds
to
(i) fund certain initial drilling operations described on Schedule
2.1
(the
"Initial
Development
Operations") and
(ii)
to reimburse Parent for certain drilling costs and other capital projects
related to the Properties described on Schedule
2.1
(the
"Reimbursed
Costs"). Borrowers
also desire to borrow funds to be reimbursed for certain expenses incurred
(including accounting,
legal and other similar fees) or obtain advances to pay certain (i) expenses
incurred by
Borrowers in connection with preparation, execution, due diligence and the
closing of the PSAs
and
relating to land and title work, and environmental assessment and review in
connection
with the Properties, (ii) expenses incurred by Borrowers and by Lender under
Section
7.1(z)
and
(iii)
relating to filing fees which may be required to properly file any and all
Security Documents
(collectively, the "Closing
Costs"). In
addition to the Closing Costs, Borrowers have agreed
to
pay Lender an initial Facility Fee pursuant to Section
71(bb). The
aggregate amount of
the
advances under this Section
2.1(a) shall
be
equal to $5,355,000 and shall consist of (1) the advance
to fund the Initial Development Operations and the Reimbursed Cots in an amount
of $5,100,000,
(2) the payment of expenses to Lender in an amount of $85,000 (3) the payment
for additional
Closing Costs in an amount of $60,000, (4) the payment .for the Facility Fee
in
the aggregate
amount of $105,000 and (5) the payment of the Administration Fee in the Amount
of $5,000
(collectively, the "Initial
Loan"). Subject
to the terms and conditions hereunder, Lender agrees to advance the Initial
Loan
to Borrowers and agrees to wire transfer the amount of the Initial Loan, less
the initial Facility Fee, to the designated payees noted in the Wire Transfer
Instructions on the Closing Date. Borrowers irrevocably authorize Lender to
transfer the initial Facility Fee to Lender's account and the initial Facility
Fee shall be deemed advanced by Lender to Borrowers and paid by Borrowers to
Lender contemporaneously with Closing.
On
or
before the 10th
day
following the last Reserve Report Delivery Date and so long
as
no Unmatured Event of Default or Event of Default shall have occurred and
be
921350_11
continuing,
Borrowers may request additional advances up to an aggregate amount of
$7,500,000
in connection with the "Additional Consideration," as described in Section
3.2
of
the
EBS
Production
PSA (after applying any amounts described in item (a) (i.e.,
adjustments for title defects) of the definition of "Additional Consideration
Offsets" in
the
EBS Production PSA, but without regard to the application of any other
Additional Consideration
Offsets), for the CVR ▇▇▇▇▇ ("CVR
Loans"). To
request a CVR Loan, Borrowers
shall provide Lender a Request for Commitment at least five (5) Business
Days
prior to the date of the requested CVR Loan specifying therein the CVR Well(s)
for which
CVR
Loan(s) are being requested by Borrowers, and Borrowers shall certify
therein
that all conditions and terms set forth in the EBS Production PSA in relation
to
such
CVR
▇▇▇▇▇ have been satisfied. Each Request for Commitment in relation to CVR
Loans
shall also include the applicable request for an advance of the additional
Facility Fee
pursuant to Section
7.1(bb). Subject
to the foregoing, Lender shall advance the CVR Loans to Borrowers on the
requested date.
(a)Development
Loans.
(i) Prior
to
the Drawdown Termination Date, Lender may, but shall not
be
obligated to, make additional advances to Borrowers of the Development Loan(s)
to be used exclusively for certain Development Operations such that the
total
of
such additional Development Loan advances under this Section
2.1(b) plus
the
aggregate advances otherwise made pursuant to this Agreement (including
but limited to Overhead Advances and advances to pay the Facility Fee
and,
to
the extent permitted under this Agreement, advances to pay Corporate Income
Taxes) will not exceed the Maximum Loan Amount. Any Request for Commitment
for a Development Loan in relation to a Development Operation shall
be
for a minimum of $1,000,000 (except in relation to the Committed Development
Loan described below) and will be subject to Lender's approval in its
sole
and absolute discretion. Each Request for Commitment shall also include
(1)
the
applicable request for an advance of the additional Facility Fee payable
pursuant to Section
7.1(bb) and
(2) a
variance allowance not to exceed ten percent (10%)
of
the estimated expenses set forth in the Request for Commitment and supporting
materials for each Development Operation (such allowance will be available
only to the extent the actual costs of any Development Operation exceeds
100% of the estimated costs). Notwithstanding the foregoing, Borrowers are
hereby deemed to have provided the requisite Request for Commitment to
Lender
for $5,000,000 of the Development Loans (the "Committed
Development Loan")
for
certain Development Operations as more particularly described on Schedule
2.1(b)(i) plus
the
applicable Facility Fee. Lender is hereby deemed to have
committed to make such Committed Development Loan no later than March
15,
2007,
subject, however, to the satisfaction of all of the conditions set forth
herein.
The Development Operations described on Schedule
2.1(b)(i) that
are
ultimately
conducted with proceeds of the Committed Development Loan shall be subject
to mutual agreement between Lender and Borrowers.
(ii) Within
ten (10) days after the receipt from Borrowers prior to the Drawdown
Tetntination Date of a Request for Commitment listing all
applicable
921350_11
expenditures
that Borrowers desire to make to conduct a Development Operation, Lender
shall notify Borrowers in writing whether in its sole and absolute discretion
Lender will make an advance equal to the total estimated expenditures shown
on
such Request for Commitment. If Lender does not agree to make an advance as
requested in any such Request for Commitment covering any Development
Operation, Borrowers' participation in the proposed Development Operation
identified in the applicable Request for Commitment cannot, by itself,
be
urged
as the basis of an Unmatured Event of Default or Event of Default; provided
that
Borrowers' compliance with the terms and conditions of this Agreement
will at all times be evaluated in the context of its ownership and operation
of all of the Properties, without regard to whether Lender has made an
advance
with respect to a Development Operation on a particular Property. If
Lender
agrees to make any such advance for a Development Operation, then Borrowers
may participate in the Development Operation proposed in their Request
for Commitment, and Lender shall advance the funds necessary to pay Borrowers'
share of the costs and expenses attributable to such proposed operations
(not to exceed the amount requested in the Request for Commitment). Any
advances to be made by Lender under this Section
2.1(b), if
at
all, shall be made
within five (5) Business Days after receipt from Borrowers of a cost certificate
in the form attached hereto as Exhibit
"E" (the
"Cost
Certificate"), duly
executed by an authorized officer of Borrowers, certifying the amount of
costs
and
expenses incurred and to be incurred by Borrowers in connection with
such
approved Development Operation, together with the supporting documentation
referred in the form of Cost Certificate, including, without limitation,
the applicable AFE(s).
(iii)
Any
Request for Commitment shall be made by Borrowers for business
opportunities, projects, and/or uses that are described as Development
Operations subject, without limitation, to the following:
(1) All
statements of costs and estimates provided to Lender shall
be
rendered in sufficient detail to give Lender complete and accurate information
as to the purpose for and amount of all items included therein, and
Lender shall be entitled to such additional information regarding such
expenditures
as Lender may reasonably request. All such data shall be subject
to audit by Lender's representatives at any time mutually agreeable to the
parties.
(2) Borrowers
agree that, subject to any other conditions expressly
set forth in this Agreement, with respect to any Development Operation
consisting of a new-well drill or any other operation requiring Borrowers
to expend more than $100,000, Lender's funding of such operation is further
subject to the requirement that prior to or contemporaneously
with the submission of a Request for Commitment covering
each such operation Borrowers shall submit to Lender a then-current
Title Opinion relating to the Leases covering the lands relating to such
operations, unless a current Title Opinion covering such lands has
921350_11
already
been provided hereunder following Closing, which confirms that Borrowers
own Defensible Title thereto subject only to a first priority lien under the
Deed of Trust in favor of Lender and Permitted Encumbrances.
(3)
Notwithstanding the foregoing or anything herein to the contrary,
in no event shall Lender be obligated to make any Development Loans, including
the Committed Development Loan, pursuant to this Section
2.1(b) such
that
the aggregate advances made under this Agreement
exceed the Maximum Loan Amount (less the aggregate amount
of
Facility Fees) for all combined Development Operations approved
by Lender.
(iv) No
Unmatured Event of Default or Event of Default shall have occurred
and be continuing and no Loan shall be advanced following the Drawdown
Temiination Date.
(v) Notwithstanding
the thin's
of this
Section
2.1(b) and
the
definition of
"Development Loans," to the extent no Event of Default has occurred and is
continuing
and the distributions to Parent pursuant to Section
2.6(c) plus
available Overhead
Advances are insufficient to pay the current Corporate Income Taxes, Borrowers
may, from time to time, submit a Request for Commitment for a Development
Loan to be used by Parent for payment of the Corporate Income Taxes.
Such Request for Commitment shall provide Lender all inforniation regarding
the amount of Corporate Income Taxes due and payable and the date of
the
requested Development Loan which may not be earlier than 20 days after
receipt
of Request for Commitment by Lender; provided that Development Loans
for
payment of Corporate Income Taxes, plus the applicable Facility Fee, shall
be
the
lesser of (i) the amount of tax payments generated on any amount paid in
principal
(to be calculated by multiplying the aggregate amount of principal paid
by
the
current tax rate less any prior advances made to pay Corporate Income
Taxes),
or (ii) an aggregate amount of $2,000,000 during any calendar year, but in
no
event
an amount that would increase the total aggregate amount advanced above
the
$45,000,000 facility size.
(b)
Overhead
Advances. Prior
to
the Drawdown Termination Date and if no Unmatured
Event of Default or Event of Default exists, Lender will, from time to time,
make
certain advances to the Borrowers that constitute Loan proceeds hereunder
("Overhead
Advances"), which
may
not, in the aggregate exceed $1,500,000. Each Overhead
Advance shall be advanced by Lender contemporaneously with the distribution
of
Net
Revenue pursuant to Section
2.6(c); provided,
however, that
the
application of the amount
described in Section
2.6(b) to
be
applied to Debt Service must be sufficient to pay
all
interest that is due and payable for all the outstanding Loans for an
Overhead
Advance
to be available. The Overhead Advances will be in amounts required in
addition
to the amount of Net Revenue paid to Borrowers under Section
2.6(c), such
that
the
Net
Revenue disbursed to Borrowers under Section
2.6(c) together
with such Overhead
Advance will equal (but will not exceed) $250,000 per month. In lieu of using
such
amounts to pay Overhead Expenses, however, Borrowers may request that the
aggregate amount available for Overhead Advances (and not otherwise advanced
for
921350_11
Overhead
Advances) be used for purposes of funding Development Operations approved
by
Lender
in its sole discretion. In each such case, Borrowers shall provide Lender
sufficient
information, acceptable to Lender, detailing the use of Overhead Advances.
No
Facility Fee will be payable in connection with the making of any Overhead
Advance used to pay Overhead Expenses.
(c)
Promissory
Note. The
Loans
described in Section
2.1 and
all
other amounts
due under this Agreement shall be evidenced by a promissory note (the
"Note")
issued
by
Borrowers to Lender in the face amount of $45,000,000, in the form of
Exhibit
"B," appropriately
completed. The final maturity date of such Note shall be the Loan Termination
Date and all amounts evidenced by the Note shall be secured by the Security
Documents.
Section
2.2Interest.
(a) Subject
to the provisions of subsection (b) below, each Loan shall bear interest
on the outstanding principal amount thereof at a rate per annum equal to the
Interest
Rate and shall be payable as set forth in Section
2.6 hereof.
(b) If
any
amount payable by Borrowers (other than interest) under any Loan Document
is not paid when due (without regard to any applicable grace periods), whether
at
stated
maturity by acceleration or otherwise, such amount shall thereafter bear
interest at the Default Rate to the fullest extent permitted by applicable
laws.
Furthermore, while any
Event
of Default exists (either before or after acceleration), Borrowers shall pay
interest
on the principal amount of all outstanding Obligations at the Default Rate
to
the fullest extent permitted by applicable laws.
(c) Interest
on each Loan shall be due and payable in arrears on each Repayment
Date applicable thereto and at such other times as may be specified herein.
Interest
hereunder shall be due and payable in accordance with the terms hereof before
and
after
judgment, and before and after the commencement of any proceeding under any
applicable
bankruptcy, insolvency or other similar law of any jurisdiction now or
hereafter
in effect, including the federal Bankruptcy Code, as amended from time to time.
Interest
which has accrued and is not paid when due shall be added to and become part
of
the
principal under the Note; provided,
however, the
capitalization of such accrued and unpaid interest pursuant to this sentence
will not preclude Lender from declaring or maintaining
an Event of Default based on Borrowers' failure to pay such amount to the
extent
Lender has such right under any other provision of this Agreement or under
any
of the other Loan Documents.
(d) All
computations of interest and all fees shall be made on the basis of a
year
of
360 days and the actual number of days elapsed. Interest shall accrue on the
day
on
which
the Loan is made, but shall not accrue on the day on which the Loan or such
portion
thereof is paid, provided that any Loan that is repaid on the same day on which
it is
made
shall bear interest for one day.
(e) To
the
extent the percent of Net Revenue swept and applied by Lender
pursuant
to Section
2.6(b) below
to
pay Debt Service and other Obligations for a
921350_11
particular
Interest Period is insufficient to pay the Debt Service and other Obligations
due for
that
Interest Period (including any such amounts remaining unpaid from any prior
Interest Period), the percent of Net Revenue swept and applied by Lender shall
automatically
be increased to a percentage (up to 100% if necessary) necessary to sweep
a
sufficient portion of the Net Revenue to pay (i) all Debt Service and other
Obligations due
for
that Interest Period plus
(ii) all
Debt
Service and other Obligations remaining unpaid
from any prior Interest Period.
Section
2.3
Repayment
of the Loans. Borrowers
shall repay the outstanding principal
amount of the Loans evidenced by the Note plus all interest accrued thereon
by
the Loan
Termination Date.
Section
2.4 Prepayment
of the Loans.Voluntary
Prepayments. Borrowers
may prepay
the Note, in whole or in part, without premium or penalty at any time after
the
Closing Date;
provided
that
Borrowers shall provide Lender at least three (3) Business Days' prior
written
notice thereof, except in connection with Section
2.4(b).
(a) Mandatory
Prepayment. Except
as
expressly provided otherwise in Sections
2.6, 6.5 and
11.13,
Borrowers
shall deliver to Lender for application against the amounts
outstanding under the Note one hundred percent (100%) of the net proceeds of
any
disposition of Collateral, any insurance proceeds or the net proceeds from
the
issuance
of any equity of any Borrower on the Business Day following such Borrower's
receipt of such proceeds, unless such proceeds are used with the prior written
consent of Lender
to
promptly acquire replacement assets which are contemporaneously subjected to
a
first
priority Lien in favor of Lender and otherwise on terms satisfactory to
Lender.
(b) Prepayments
Generally. Any
principal prepaid pursuant to this Section
2.4 shall
be
in addition to, and not in lieu of, all payments otherwise required to
be
paid
under the Loan Documents at the time of such prepayment.
.
[Reserved]
Section
2.6 Application
of Receipts.
Net
Revenue
shall be calculated by Lender based
on
the Property Operating Statement. Borrowers shall prepare and deliver the
Property Operating
Statement to Lender no later than the last Business Day of each month. Such
Property Operating
Statement shall detail Borrowers' Gross Receipts and Expenses with respect
to
the month
in
which such Property Operating Statement is scheduled to be delivered and for
any
other
such amounts relating to any preceding months that were not previously accounted
for in a Property
Operating Statement. The first Property Operating Statement shall be delivered
on April
30,
2006; provided,
however, that
this
first Property Operating Statement shall cover the period
from Closing through and including such date. On the Repayment Date at the
end
of each Interest
Period, Gross Receipts for such Interest Period shall be applied as
follows:
(a) First,
to
the amount necessary to pay the Expenses.
(b) Second,
eighty-five percent (85.0%) of the Net Revenue to Lender for payment
of amounts which are included within Debt Service and other Obligations to
Lender for such Interest Period (including but not limited to the Administration
Fee to the
921350_11
extent
the same becomes due during such Interest Period); provided
that,
upon the occurrence and continuation of an Event of Default and to the extent
required by Section
2.2(e)
above,
the percentage of the Net Revenue to be applied for Debt Service and other
Obligations
to Lender shall be increased to one hundred percent (100%) or such other amount
specified in Section
2.2(e)
above.
The amount paid to Lender pursuant to this subpart
(b) shall be applied first to any interest due on the Note, until all accrued
interest is
paid
in full, and any remaining amounts paid pursuant to this subpart (b) shall
be
applied
to remaining outstanding principal under the Note.
(c)
Third, so long as no Event of Default shall have occurred and be continuing,
any remaining amounts shall be paid to Borrowers by remitting such sums to
the
Borrower Operating Account in accordance with Section
2.7(b)
Section
2.7 Borrower
Sub-Account.Until all
of
Borrowers' Obligations have been fully
satisfied, Borrowers shall direct and cause all Purchasers of Hydrocarbons,
Pipeline Parties, the
Operator, all account debtors of Borrowers, and any other customers of Borrowers
to deposit all
payments of any nature whatsoever due and owing by such Persons to Borrowers
directly into an
account maintained by Lender (the "Lender
Account"); provided,
however, that
Purchasers of Hydrocarbons
may make distributions to royalty interest owners and third-party working
interest owners
and may withhold Severance Taxes. Lender shall establish a sub-account (the
"Borrower
Sub-Account")
on
its
internal books and records and shall credit to such Borrower Sub-Account all
collected funds which constitute payments referred to in the preceding sentence.
Borrowers authorize
Lender to debit the Borrower Sub-Account for the payment of all Obligations
hereunder
when due and payable.
(a)
On
each Repayment Date, provided
that
no
Unmatured Event of Default or
Event
of Default has occurred and is continuing, and after satisfying all
distributions to Lender
pursuant to Section
2.6(b), Lender
will release to Borrowers the funds credited to the
Borrower Sub-Account, by remitting such amounts to the Borrower Operating
Account,
in order to pay (i) the Expenses which have been incurred and are due and
payable
and which are referenced in the most recent Property Operating Statement
delivered
to Lender and (ii) the amount payable to Borrowers pursuant to Section
2.6(c), (iii)
together with any Overhead Advances, if applicable (the "Net
Revenue Reimbursement Amount"). Borrowers
will have one hundred eighty (180) days after the receipt of such funds to
contest the amounts of funds released, after which time the amounts released
will be deemed conclusively correct absent manifest error, provided Borrowers
may not contest any such amounts released for any reason after two hundred
seventy (270) days after the receipt of such funds or after the Loan Termination
Date. Borrowers
shall be permitted, with prior reasonable notice and during Lender's normal
business
hours, to review at Lender's offices any documents in which specific references
to
and
the calculation of the Net Revenue Reimbursement Amount distributed during
the
ninety
(90) day period preceding such review are made.
Any
amounts deposited into the Lender Account owing to third-party working interest,
overriding
royalty interest and royalty interest holders whose interests in the Properties
were created
prior to the time such Properties became subject to any of the Security
Documents or to taxing
authorities for production taxes shall be released by Lender to Borrowers within
two (2) Business
Days after receipt of a certificate from Borrowers detailing such amounts and
the party
921350_11
to
be
paid so that Borrowers may return such amounts to such third-party working
interest, overriding royalty interest and royalty interest holders and taxing
authorities. Lender shall have the right to undertake audit procedures during
normal business hours and upon reasonable prior notice
to
periodically confirm that such payments have been made by Borrowers. Lender
shall have
the
right at its option, but not the obligation, to make such payments directly
to
the third-party
working interest, overriding royalty interest and royalty interest holders
and
taxing authorities
upon the occurrence of and during the continuance of an Event of Default or
an
Unmatured
Event of Default hereunder. Except as provided in this paragraph, upon the
occurrence
of and during the continuance of an Event of Default, any funds in the Borrower
Sub-Account
may be applied, at Lender's option, against all unpaid Obligations. Lender
agrees to
maintain accounting records with respect
to
the
Borrower Sub-Account and make such records available
to Borrowers upon reasonable request.
Section
2.8 Use
of Proceeds. Initial
Loan and CVR Loan proceeds may be used by Borrowers
for the purposes described in Section
2.1(a). Development
Loan proceeds may be used
by
Borrowers for the purposes of funding Borrowers' share of costs and expenses
relating to
the
conduct of the Development Operations pursuant to Section
2.1(b) and
approved by Lender
in
writing. Overhead Advances may be used only for purposes and only for the period
specified
in Section
2.1(c). In
no
event shall funds from the Loans be used by Borrowers, directly or indirectly,
for personal, family, household or agricultural purposes, or any other
purpose
not specifically described in this Section
2.8.
Section
2.9 Initial
Swap Agreement. At
or
following Closing, Borrowers shall enter into
a
Permitted Swap Agreement together with one or more transaction confirmations
thereunder
that in the aggregate subject not more than ninety percent (90%) of the notional
volume
of
Borrowers' Net Revenue Interest share of Proved Developed Producing Reserves
scheduled
to be produced for the period commencing on the date of such initial Permitted
Swap Agreement
through and including December 31, 2007 (based on the Reserve Report(s)
evaluated by
Lender
prior to Closing).
ARTICLE
III
TAXES,
YIELD PROTECTION AND ILLEGALITY
Section
3.1Taxes.
(a)
Any
and all payments by Borrowers to or for the account of Lender under any
Loan
Document shall be made free and clear of and without deduction for any and
all
taxes,
duties, levies, imposts, deductions, assessments, fees, withholdings or similar
charges,
and all liabilities with respect thereto, but excluding, in the case of Lender,
taxes imposed
on or measured by its net income, and franchise taxes imposed on it (in lieu
of
net
income taxes), by the jurisdiction (or any political subdivision thereof) under
the applicable
laws of which Lender is organized or maintains a lending office (all such
non-excluded
taxes, duties, levies, imposts, deductions, assessments, fees, withholdings
or
similar
charges, and liabilities being hereinafter referred to as "Taxes").
If
Borrowers shall
be
required by any applicable laws to deduct any Taxes from or in respect of any
sum payable under any Loan Document to Lender, (i) the sum payable shall be
increased as
necessary so that, after making all required deductions (including deductions
applicable
to additional sums payable under this Section), Lender- receives an amount
of
921350_11
principal
and interest it would have received had no such deductions been made, (ii)
Borrowers shall make such deductions, (iii) Borrowers shall pay the full amount
deducted to
the
relevant taxation authority or other authority in accordance with applicable
laws, and
(iv)
within thirty days after the date of such payment, Borrowers shall furnish
to
Lender
the original or a certified copy of a receipt evidencing payment thereof. To
the
extent Borrowers pay any such Taxes on behalf of Lender to a taxing authority
and any such
taxing authority refunds any such Taxes during the term of this Agreement to
Lender,
Lender shall return any such amounts to Borrowers.
(b)
In
addition, Borrower agrees to pay any and all present or future stamp,
court
or
documentary taxes and any other excise or property taxes or charges or similar
levies
which arise from any payment made under any Loan Document or from the execution,
delivery, performance, enforcement or registration of, or otherwise with
respect
to, any Loan Document (hereinafter referred to as "Other
Taxes").
Section
3.2 Inability
to Determine LIBOR Rate. If
Lender
determines in connection
with any request for a Loan or continuation thereof for any reason that adequate
and reasonable means do not exist for determining the LIBOR Rate, Lender will
promptly so notify Borrowers
if Lender reasonably determines that such event or events have any impact on
the
application
of the Interest Rate. In such event, Lender shall use, as the LIBOR Rate, the
average LIBOR
Rate for the two immediately preceding months (for one-month teiins) until
Lender notifies Borrowers that the circumstances giving rise to such
determination no longer exist.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES
Section
4.1 Representations
and Warranties of Borrowers. To
confilln Lender's understanding
concerning Borrowers and Borrowers' businesses, properties and obligations,
and
to
induce
Lender to enter into this Agreement and to make the Loans, Borrowers represent
and warrant to Lender that:
(a) No
Default. No
event
has occurred and is continuing which would
constitute
an Event of Default or an Unmatured Event of Default.
(b) Organization
and Good Standing. Each
of
WEO and WEP is a limited partnership
duly organized, validly existing and in good standing under the laws of
Texas,
having all powers necessary to carry on its businesses and to enter into and
consummate
the transactions contemplated by the Loan Documents. The General Partner
is
a
limited liability company duly organized, validly existing and in good standing
under the laws of Texas, having all powers necessary to carry on its businesses
and to enter into and
consummate the transactions contemplated by the Loan Documents. Parent is a
corporation
duly organized, validly existing and in good standing under the laws of
Nevada,
having all powers necessary to carry on its businesses and to enter into and
consummate the transactions contemplated by the Loan Documents. Borrowers and
the General Pal titer
are
authorized to do business in all other jurisdictions wherein the
character
of the properties owned or held by them or the nature of the business transacted
by them makes such qualification necessary or desirable. The record holders
of
the
921350_11
shareholders
and the partners of Borrower, as applicable, and the members of the General
Partner
consist exclusively of those Persons listed on Schedule
4.1(b).
(c) Capitalization:
Compliance with Security Laws. Except
as
disclosed on Schedule
4.1(c), no
Borrower is subject to any agreement under which there may become outstanding,
nor are there currently outstanding, any rights to purchase, or securities
convertible
into or exchangeable for, any equity interests of any Borrower including, but
not
limited to, options, warrants or rights. Except as disclosed on Schedule
4.1(c), no
Borrower
is under obligation (contingent or otherwise) to purchase or otherwise acquire
or
retire
any of its equity interests. Except as contemplated by this Agreement or as
disclosed
on Schedule
4.1(c), there
are
no agreements, understandings, plans or arrangements in existence which require
any Borrower to elect any person as its general partner
or otherwise pertain to the distribution rights, voting, sale or transfer of
any
equity interests
of any Borrower. Each Borrower has complied with all applicable federal and
state
limited partnership and corporate laws. No Person has any federal or state
securities law
claims against any Borrower.
(d) Authorization.
Borrowers
and General Partner have taken all actions necessary
to authorize the execution and delivery of the Loan Documents and to authorize
the consummation of the transactions contemplated thereby and the perfoiiiiance
of their obligations thereunder. Borrowers are duly authorized to borrow thuds
hereunder.
(e) No
Conflicts or Consents. Except
with regard to Borrowers' obligations that
will
be satisfied prior to or contemporaneously with Closing, the execution and
delivery
by Borrowers of the Loan Documents, the performance of their obligations
under
the
Loan Documents, and the consummation of the transactions contemplated by
the
various Loan Documents does not and will not (i) conflict with any provision
of
(A) any
domestic or, to Borrowers' knowledge, any foreign law, statute, rule or
regulation, (B) the Certificate of Incorporation or Bylaws, Certificate of
Limited Partnership or Limited
Partnership Agreement of Borrowers, as applicable, or the Articles of
Organization
or Limited Liability Company Agreement of General Partner, or (C) any
agreement,
judgment, license, order or permit applicable to or binding upon Borrowers
or
General Partner, (ii) result in the acceleration of any Debt owed by Borrowers
or General Partner,
or (iii) result in or require the creation of any Lien upon any assets or
properties of
Borrowers, except as expressly contemplated in the Loan Documents. Except as
expressly
contemplated in the Loan Documents and to Borrowers' knowledge, no consent,
approval, authorization or order of, and no notice to or filing with, any court
or governmental
authority or third party is required in connection with the execution,
delivery
or performance by Borrowers or General Pai tuer
of
any Loan Document or to
consummate
any transactions contemplated by the Loan Documents.
(f) Enforceable
Obligations. This
Agreement is, and the other Loan Documents when executed and delivered by
Borrowers and General Partner will be, legal,
valid and binding obligations of Borrowers and General Partner enforceable
in
accordance with their terms except as such enforcement may be limited by
bankruptcy, insolvency or similar laws of general application relating to the
enforcement of creditors' rights
or
by principles of equity applicable to the enforcement of creditors'
rights
921350_11
generally_
The Deed of Trust, the UCC-1 Financing Statements relating to the Security
Documents and the Overriding Royalty Interest Conveyance to be filed or recorded
in the various
jurisdictions are in proper form under the laws of such
jurisdictions.
(g) Financial
Statements. Attached
hereto (at Closing or such later date as may
be
permitted by Section
9.3(k) below)
as
Schedule
4.l(g)(i) and
(ii),
respectively, are,
with
respect to Borrowers, (i) Borrowers' audited financial statements for the year
ending
December 31, 2005 and (ii) Borrowers' unaudited, management-prepared pro
forma
balance sheet as of the Closing Date (the "Pro
Forma Financial Statements"). The
Pro
Forma
Financial Statements present fairly the pro forma financial condition of
Borrowers
as of the dates thereof and the results (pro forma or actual, as the case may
be) of
operations for the period then ended, and are in accordance with the projected
or actual (as
the
case may be) performance and books and records of Borrowers.
(h) Other
Obligations and Restrictions. Except
as
previously disclosed on Schedule
4.1(h), Borrowers
have no outstanding Debt of any kind (including contingent obligations,
tax assessments, and forward or long-term commitments), other than Debt
under
the
Loan Documents, which is material to Borrowers and not disclosed in the Pro
Forma
Financial Statements. No Tax Claim or other claim for past due Property Taxes
or
Severance
Taxes exists. No Borrower is subject to or restricted by any franchise,
contract,
deed, charter restriction or other instrument or restriction which could
materially and adversely affect either Borrower's financial condition, or either
Borrower's ability to timely
pay the Note and the other Obligations and to perfonn its obligations under
the
Loan
Documents.
(i)
Full
Disclosure. No
certificate, statement or other information delivered herewith
or heretofore by Borrowers or General Partner to Lender in connection with
the
negotiation
of this Agreement or in connection with any transaction contemplated hereby
contains
any untrue statement of a material fact or omits to state any material fact
known to
Borrowers or General Partner necessary to make the statements contained herein
or therein not misleading as of the date made or deemed made. No facts are
known
to Borrowers or General Partner that have not been disclosed to Lender in
writing which could
materially and adversely affect Borrowers' financial condition, or Borrowers'
ability
to timely pay or perfollu their obligations.
Litigation.
Except
as
disclosed on Schedule
4.1(j), there
are
no actions, suits
or
legal, equitable, arbitrative or administrative proceedings pending, or to
the
knowledge
of Borrowers threatened, against Borrowers or General Partner before any
federal,
state, municipal or other court, department, commission, body, board, bureau,
agency
or
instrumentality, domestic or foreign, and there are no outstanding judgments,
injunctions,
writs, rulings or orders by any such governmental entity against Borrowers
or
any
of
the Properties.
(k)
ERISA
Liabilities. There
are
no ERISA Plans with respect to which Borrower
has any fixed or contingent liability, and Borrower is in compliance with
ERISA
in
all material respects, if applicable.
921350_11
(1)
Names
and Places of Business. To
the
best of Borrowers' knowledge, except
for the names changes of each Borrower that become effective immediately prior
to Borrowers' execution and delivery of this Agreement and the other Loan
Documents, no
Borrower has, during the preceding five (5) years, been known by or used any
other name.
The
principal office and principal places of business of Borrowers is set forth
in
Section
11.3. No
Borrower does now have and has previously had any other office or place
of
business. No Borrower is or has engaged in any business or activity other than
the
acquisition, ownership, operation and development of the
Properties.
(m) Unpaid
Bills. Except
as
disclosed on Schedule
4.1(m) and
except as incurred
in the ordinary course of business and which are not yet due, Borrowers have
no
unpaid
bills with respect to improvements to any of the Collateral which may give
rise
to mechanic's,
materialman's or other similar liens arising by operation of applicable law
should
such bills remain unpaid.
(n) Title.
Subject
to Permitted Encumbrances, (i) Borrowers will have all legal
and
beneficial rights, title and interest in and to all production from or allocable
to their Net Revenue Interests in the Properties and have the exclusive right
to
sell the same subject
to the ORRI and any right of the owners of royalty interests to take their
royalty interest
in kind, and (ii) Borrowers will have good and Defensible Title to the
Properties, the Equipment and to their other properties and assets. The
Collateral will be owned by Borrowers free and clear of any Lien (other than
Permitted Encumbrances). Borrowers' Working
Interests are not greater than, and Borrowers' Net Revenue Interests are not
less than,
those stated on Exhibit
"A"
attached
hereto.
(o) No
Subsidiaries or Other Owners. Except
as
disclosed on Schedule
4.1(o), Borrowers
do not have any Affiliate or own any equity interest in any other Person.
No Borrower is a member of any joint venture or association of any type
whatsoever
except pursuant to an Industry Agreement. No Borrower is a party to any
transaction of any kind with any Affiliate of Borrowers other than on fair
and
reasonable terms
substantially as favorable to such Borrower as would be obtainable .by
any
Borrower
at the time in a comparable arm's length transaction with a Person other than
an
Affiliate.
(p) Omissions
and Misstatements. To
Borrowers' and General Partner's knowledge
after due inquiry, all written data, reports and information which Borrowers
and
General Partner have supplied to Lender or caused to be supplied by a third
party on their
behalf in connection with the obtaining of the credit facility provided for
in
this Agreement
or in connection with the business transactions giving rise to Borrowers'
seeking such credit are, taken as a whole, complete and accurate in all material
respects and contain no material omission or misstatement.
(q)
Holding Company.
No
Borrower nor General Partner is a "holding company"
or a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company
Act of 1935, as amended.
921350_11
(r) Investment
Company. No
Borrower nor General Partner is an "investment
company"
within the meaning of the Investment Company Act of 1940, as
amended.
Environmental
and Other Laws. Except
as
disclosed on Schedule
4.1(s), (i)
Borrowers are conducting their business in material compliance with all
applicable federal, state or local laws, including Environmental Laws, and
have
been and are in compliance with any licenses and permits required under any
such
laws which affect or relate
to
the Collateral; (ii) none of the operations or properties of Borrowers is the
subject
of federal, state or local investigation evaluating whether any material
remedial action
is
needed to respond to a release of any Hazardous Materials into the environment
or
to the
improper storage or disposal (including storage or disposal at offsite
locations) of
any
Hazardous Materials; (iii) no Borrower has filed or received any notice under
any federal,
state or local law indicating that it is or may be responsible for the improper
release
into the environment, or the improper storage or disposal, of any material
amount of
any
Hazardous Materials or that any Hazardous Materials have been improperly
released, or are improperly stored or disposed of, upon the Properties; and
(iv)
no Borrower
is aware of any material contingent liability under any Environmental Laws
or
in
connection with the release into the environment, or the storage or disposal,
of
any Hazardous
Materials, upon the Properties.
(t) Equipment.
Schedule
4.1(t) sets
forth all of the information described in Section
6.1 for
all
Equipment owned by Borrowers as of the Closing Date.
(u) Purchasers
of Hydrocarbons, etc. All
of
the Purchasers of Hydrocarbons produced
from or allocated to the Properties and all Pipeline Parties, and the most
recent address
of each such Persons as shown in Borrowers' records, are set forth on
Schedule
4.1(u).
(v) Hydrocarbon
Sales and Related Agreements. All
existing agreements that are binding on Borrowers or the Properties and that
are
not terminable upon thirty (30) days
or
less notice for the sale, purchase, (including, but not limited to, calls on
production
and preferential rights to purchase production) gathering, transportation,
handling,
processing, treating and/or storage of Hydrocarbons are described on
Schedule
4.1(v).
(w) Swap
Agreements. All
existing Swap Agreements or other hedge agreements
to which any Borrower is a party or by which any Borrower is bound are
described
on Schedule
4.1(w).
(x)
Employees.
Except
as
set forth on Schedule
4.1(x), no
Borrower is a party
to
any existing employment agreements, deferred compensation, stock option,
bonus,
consulting or retirement agreements or plans, or other employee benefit plans
of
any
kind,
including without limitation any pension or welfare benefit plans with any
employee of any Borrower not terminable at-will. No Borrower maintains nor
has
ever maintained
an Employee Pension Benefit Plan as defined in Section
3(a) of
ERISA,
or a multi
employer plan as defined in Section
3(37) of
ERISA.
No employees of any Borrower
are represented by any labor union or collective bargaining agreement, nor
is
any union organization effort pending or threatened against any
Borrower.
921350
II
(y) Operations.
WEO
(i)
has obtained all operating rights previously held by EBS
Operating and covering the Properties in connection with the PSAs and serves
as
the Operator
therefor and (ii) has obtained all necessary qualifications under the laws
of
Texas
to
serve as Operator.
(z) Ownership
In Properties. Except
through their respective ownership interests
in Borrowers, no partners or shareholders of Borrower or any Affiliates of
partners
or shareholders of Borrowers own any interests in the Properties.
(aa)
Lease
Bank Agreement. As
of the
date of this Agreement, the Lease Bank Agreement has been terminated and no
Borrower is owed, and no Borrower owes, any liability or obligation under the
Lease Bank Agreement.
(bb)
Project
Area. Except
for the Properties owned by the Borrowers, no Affiliate
of either Borrower (including but not limited to Parent) owns or has the right
to acquire
an interest in any Lease, Unit or Well within the Project Area.
(cc)
No
Unusual Agreements. All
agreements (including but not limited to any Industry
Agreements) applicable to Borrower's Working Interest and Net Revenue Interest
in the Properties are of the type generally found in the oil and gas industry
and the
gathering and transmission industry, as applicable, and do not (individually
or
in the aggregate) contain any unusual provisions which may operate in a material
and adverse manner with respect to Borrower's Working Interest or Net Revenue
Interest in the Properties.
ARTICLE
V
NOTICE
OF CERTAIN EVENTS
So
long
as any Obligations are owing to Lender under this Agreement or any other Loan
Documents,
Borrowers shall deliver to Lender or notify Lender of, as the case may be,
the
following items:
Section
5.1 Notice
of Unmatured Event of Default, Event of Default and Other
Matters.
Borrowers
shall notify Lender within five (5) Business Days after becoming aware of
the
existence of any Unmatured Event of Default or Event of Default or after
becoming aware of any
developments or other information which may materially and adversely affect
the
properties, business,
prospects, profits or condition (financial or otherwise) of Borrowers or their
ability to perform
their Obligations, including, without limitation, the following:
(a) any
material dispute (including tax liability disputes) that may arise between
any Borrower and any governmental regulatory body or law enforcement
authority;
(b) the
commencement of any material litigation or proceeding affecting any Borrower
(whether by the filing of a complaint, service of process or by attachment
or
arrest
of
any asset);
921350_11
(c) any
material labor dispute or controversy resulting in or threatening to
result
in
a strike or work stoppage against any Borrower;
(d) any
proposal by any public authority to acquire any assets or business of any
Borrower;
(e) the
location of any Collateral other than at the places indicated in or
as
permitted
under the Loan Documents;
(1) any
proposed or actual change of the name, identity or structure of any
Borrower;
any
material loss or damage to any of any Borrower's property, business
or
operations;
(h) any
environmental situation, circumstance or condition that causes or may
cause
Section
4.1(s) to
be
false; or
(i) any
other
matter which has resulted or may result in a material adverse change
in
the financial condition, operations or assets of any Borrower.
Section
5.2
Other
Information. Borrowers
shall provide such other information regarding the financial condition of
Borrowers or any property of Borrowers as Lender reasonably
may request from time to time.
ARTICLE
VI
SECURITY;
GUARANTY; ETC.
Section
6.1 Security.
The
Obligations will be secured by first priority Liens on the Collateral as set
forth in the various Security Documents concurrently or hereafter delivered,
including,
without limitation, a separate Deed of Trust, Mortgage, Security Agreement,
Financing
Statement and Assignment of Production, covering the Properties (whether one
or
more,
the
"Deed
of Trust"), the
Security Agreement and the Pledge Agreement, each in form and substance
satisfactory to Lender. Lender may in its sole discretion permit the
counterparty under a
Permitted Swap Agreement to obtain Liens from Borrowers covering, all or a
portion of, the Properties that are pari
passu with
Lender's first prior liens; provided,
however,
Borrowers, Lender
and such counterparty shall enter into an Intercreditor Agreement. Any time
any
Borrower
obtains any new Property following Closing using any Loan proceeds hereunder,
Borrower
agrees to promptly execute and deliver to Lender a Deed of Trust and any other
Security
Documents described in this Section
6.1 to
grant
Lender a first priority lien in such Property,
and further agrees to promptly execute and deliver an Overriding Royalty
Interest Conveyance as required under Section
8.4.
Section
6.2 Perfection'
and Protection of Security Interests and Liens. Borrowers
will
from
time to time deliver to Lender any security agreements, financing statements,
continuation
statements, extension agreements, amendments, confirmations and other
documents,
properly completed and executed (and acknowledged when required) in form and
substance
satisfactory to Lender, which Lender reasonably requests for the purpose of
perfecting,
921350_11
confirming,
protecting or establishing the priority of any Liens or other rights in the
Collateral securing any Obligations. Lender agrees not to submit the Letters
in
Lieu to any Purchaser of Production
prior to the occurrence of an Event of Default.
Section
6.3 Release
of Collateral. Upon
the
payment and performance in full by Borrowers
of all Obligations (other than those arising under the Overriding Royalty
Interest Conveyance),
Lender shall deliver or cause to be delivered to Borrowers, at Borrowers'
expense, releases
and satisfactions of all Security Documents with respect to the Collateral
and
Borrowers shall
deliver to Lender a general release of all of Lender's liabilities and
obligations under the Loan Documents and an acknowledgment that the same have
been terminated.
Section
6.4 Account
Debtors. All
account debtors (including any Operator, Purchasers
of Hydrocarbons, Pipeline Parties and counterparties under Permitted Swap
Agreements)
relating to the Working Interests and/or Net Revenue Interests in the Properties
and relating
to Permitted Swap Agreements will receive notification from Lender (as assignee)
and Borrowers, in form and substance satisfactory to Lender, of the assignment
into the Lockbox or directly
into the Lender Account of all proceeds (the "Notice
of Assignment of Proceeds") from
sales
of
all production from or allocable to Borrowers' Net Revenue Interests in the
Properties and
all
other Gross Receipts into the Lockbox or directly into the Lender Account
Borrowers shall
use
commercially reasonable efforts to obtain and deliver, within thirty (30) days
after the Closing Date, from all Purchasers of Hydrocarbons, Pipeline Parties
and counterparties under Permitted Swap Agreements, an executed Notice of
Assignment of Proceeds which will instruct the
Purchasers of Hydrocarbons, Pipeline Parties and counterparties under Permitted
Swap Agreements
to remit all proceeds from sales of all production from or allocable to the
Net
Revenue
Interest of Borrowers in the Properties and all other Gross Receipts into the
Lockbox or directly into the Lender Account. Lender may prohibit Borrowers
from
selling any Hydrocarbon production
to a Purchaser that refuses to execute and deliver to Lender a Notice of
Assignment of
Proceeds. If Borrower receives any Gross Receipts, Borrowers shall promptly
notify Lender and
follow Lender's instructions regarding submitting such proceeds to the Lockbox
or the Lender
Account, and, until received by Lender, Borrowers shall hold such proceeds
in
trust for Lender.
Section
6.5 Location;
Records. Except
in
the ordinary course of business, all Equipment
owned by or on behalf of Borrowers will be kept at its current location, except
as permitted
by this Agreement or by the prior written consent of Lender, and except that,
so
long as
no
Unmatured Event of Default or Event of Default shall have occurred and be
continuing, Borrowers
may dispose of Equipment in accordance with the terms of the applicable
Operating Agreements
and may dispose of obsolete, broken or worn Equipment, in either case without
Lender's
consent but upon prior written notice to Lender if such disposition is not
immaterial; provided
that
the
proceeds of any such disposition shall either (i) be used to purchase
substantially
similar replacement Equipment or (ii) be delivered to Lender to be applied
pursuant to
Section
2.6(b). Borrowers
will at all times hereafter keep correct and accurate records itemizing
and describing the location, kind, type, age and condition of all Equipment
currently owned or hereafter acquired by Borrowers, Borrowers' cost therefor
and
the accumulated depreciation thereon, all of which records shall be available
during Borrowers' usual business hours upon reasonable notice of any officer,
employee, agent or representative of Lender.
921350_11
Section
6.6 Maintenance.
Borrowers
will keep all of their Equipment in a good state of
repair
and good operating condition, will make all repairs and replacements when and
where necessary,
will not waste or destroy it or any part thereof, and will not be negligent
in
the care or use
thereof. Borrowers shall repair and maintain all of their Equipment in a manner
sufficient to continue
the operation of Borrowers' business. Borrowers shall use their Equipment in
accordance
with law and the manufacturer's instructions.
Section
6.7 Dispositions.
Where
Borrowers are permitted to dispose of any Equipment
under this Agreement or by consent thereto hereafter given by Lender, Borrowers
shall
do
so in an arm's length transaction, in good faith and by obtaining the maximum
amount of
recovery practicable therefor and without impairing the operating integrity
of
their remaining Equipment
or the Properties.
Section
6.8 Parent
Guaranty. To
further secure the full payment and perfounance of
the
Obligations, Borrowers shall cause Parent to execute and deliver a Guaranty
to
Lender.
ARTICLE
VII
COVENANTS
OF BORROWER
Section
7.1 Affirmative
Covenants. Borrowers
warrant, covenant and agree that until
full and final repayment and perfoiiiiance of the Obligations and the
termination of this Agreement,
they will comply with the following covenants, or where such compliance is
dependant
on the Operator of any Properties for which no Borrower is the Operator, they
will use commercially
reasonable efforts to cause the Operator to comply with the following
covenants:
(a) Payment
and Performance. Borrowers
will pay all amounts due to Lender under
the
Loan Documents in accordance with the terms thereof and will observe,
perform
and comply with every covenant, teim and condition expressed or implied in
the
Loan Documents.
(b) Compliance
with Tax Laws. Borrowers
shall comply with all federal, state
or
local laws and regulations regarding the collection, payment and deposit of
employee income, employment, and social security and sales and use taxes and
royalty payments.
(c)
Books,
Financial Statements and Reports. Borrowers
will at all times maintain
full and accurate books of account and records and a standard system of
accounting and will furnish the following statements and reports to Lender
at
Borrowers' expense:
(i)
As soon
as available, and in any event within ninety (90) days after the
end
of each Fiscal Year, complete audited financial statements of Borrowers,
prepared
in reasonable detail in accordance with GAAP by a mutually agreeable
independent
accounting firm. These financial statements shall contain a balance sheet
as
of the end of such Fiscal Year and statements of earnings, and cash flows,
and
changes in partner's capital accounts for such Fiscal Year, each setting forth
in
comparative form the corresponding figures for the preceding Fiscal Year.
The
921350_11
initial
audited financial statements due under this Section
7.1(c)(i) are
due
on or before
March 31, 2006 and will be for the Fiscal Year ending December 31,
2005.
(ii) As
soon
as available, and in any event within sixty (60) days after the
end
of each Fiscal Quarter, Borrowers' balance sheet as of the end of such
Fiscal
Quarter and statements of Borrowers' earnings and cash flows for the
period
from the beginning of the then current Fiscal Year to the end of such Fiscal
Quarter,
all in reasonable detail and prepared in accordance with GAAP, subject
to
changes resulting from normal year-end adjustments.
(iii) Within
ninety (90) days after the end of each Fiscal Year, a comfort
letter prepared by Parent's auditor or a mutually agreeable independent
accounting
firm confirming that such firm has, on behalf of Borrowers, reviewed the joint
interests ▇▇▇▇▇▇▇▇ ("J113s")
charged
to Borrowers by the Operator during the prior Fiscal Year and confirmed that
the
JIBs presented to Borrowers by Operator
accurately account for the amounts owed by and to Borrowers under the
applicable
Operating Agreements during that period.
(iv) As
and
when furnished, copies of all reports and other information provided
by any other Person to Borrowers in connection with the Loan Documents.
Borrowers may arrange for such reports and information to be provided
directly to Lender by the Person providing the same to Borrowers.
(v) Within
three (3) Business Days after the end of each Fiscal Quarter, a report setting
forth any change in the list of Purchasers of Hydrocarbons
and Pipeline Parties listed on Schedule
4.1(u).
(d) Other
Information and Inspections. Borrowers
will furnish to Lender any information
which Lender may from time to time request concerning any covenant, provision
or condition of the Loan Documents or any matter in connection with Borrowers'
assets, business and/or operations. Borrowers will permit representatives
appointed
by Lender (including independent accountants, agents, attorneys, appraisers
and
any
other Persons) to visit and inspect, during reasonable business hours and upon
two (2) Business Days written notice, any of Borrowers' property, including
their books of
account, other books and records, and any facilities or other business assets,
and to make
extra copies therefrom and photocopies and photographs thereof, and to write
down and
record any information such representatives obtain, and Borrowers shall permit
Lender
or
its representatives to investigate and verify the accuracy of the information
furnished
to Lender in connection with the Loan Documents and to discuss all such
matters
with its officers, employees and representatives.
(e) Reserve
Reports. On
or
before March 31 of each year (but effective as of the preceding December 31)
and
on or before September 30 of each year (but effective as of
the
preceding June 30), Borrowers shall cause the preparation and delivery to Lender
of
petroleum engineering reports in a form satisfactory to Lender (collectively,
the "Reserve
Reports" and
individually, a "Reserve
Report"). Lender
shall also have the right
to
request and receive from Borrowers, within 90 days of such request, one
additional
Reserve Report during the course of each calendar year, which shall update
the
921350_11
last
Reserve Report previously delivered by Borrowers with an effective date of
no
earlier
than 90 days prior to the date of delivery of such additional Reserve Report.
Each Reserve
Report to .be delivered hereunder shall be prepared by an Engineer; provided
that,
with regard to the Reserve Report effective January 1, 2006 and thereafter,
Lender approves ▇▇▇▇▇▇▇ Petroleum Consultants, Ltd., as the Engineer unless,
for
periods following January 1, 2006, Lender provides Borrowers 60-day prior
written notice that Lender
does not consider such Person a satisfactory Engineer. All Reserve Reports
required
by this paragraph shall be prepared at Borrowers' sole expense. Each Reserve
Report
shall set forth updated estimates of Proved Reserves which are further
categorized as
Proved
Developed Producing Reserves, Proved Developed Non-Producing Reserves,
Proved
Undeveloped Reserves, and shall also set forth projected production profiles
and
overall
economics of the Properties. Furthermore, the additional parameters and
guidelines set forth on Schedule
7.1(e) shall
also be applied in the preparation of each Reserve
Report. Each Reserve Report will be based on the following
assumptions:
(i) Oil
and
gas pricing used will be determined by Lender based on eighty-five percent
(85%)
of futures market prices reduced
by, in
Lender's sole discretion,
(A) the historical average basis differential between the pricing employed
by independent third-party over-the-counter counterparties compared to
the
prevailing wellhead prices at the production location and (B) any other
adjustments as may be necessary including but not limited to gathering,
transportation, and processing fees, and further adjusted to reflect the
economic effect of transactions under any Permitted Swap Agreement.
(ii) Average
lease operating expenses and production taxes will be derived by the Engineer(s)
who prepare such report from the Operator's best estimate
and, in any event, not less than the historical operating expenses, subject
to
Lender's approval (which shall not be unreasonably withheld).
(f) Notice
of Investigations or Proceedings. Borrowers
shall give Lender immediate
written notice of any proceeding at law or in equity against Borrowers, or
any
investigation
or proceeding before or by any administrative or governmental
agency.
(g) Notice
of Damage to Collateral. Borrowers
shall give Lender prompt written
notice of any destruction or substantial damage to any of the Collateral and
of
the occurrence
of any condition or event which has caused, or may cause, material loss or
depreciation in the value of any Collateral.
(h) Maintenance
of Licenses. Borrowers
shall maintain all licenses, permits, charters and registrations which are
required for the conduct of their businesses.
(i) Maintenance
of Rights. Borrowers
will maintain, preserve, protect and keep
all
of their contractual and property rights, other than in connection with the
Loan
Documents
and will not waive, amend or release any such rights without the prior written
consent
of Lender.
(j) Maintenance
of Existence and Qualifications. Borrowers
will maintain
and
preserve their corporate and limited partnership existence, as applicable,
and
their
921350_11
rights
and franchises in full force and effect and will qualify and/or remain qualified
to do business
as a foreign corporation and limited partnership, as applicable, in all states
or jurisdictions where required by applicable law.
(k)
Payment
of Trade Debt. Borrowers
will (i) timely pay all taxes, assessments
and other governmental charges or levies imposed upon them or upon their income,
profits or property; (ii) within 30 days after the same becomes due pay all
Debt
(other
than the Obligations) owed by them, in connection with the preceding clauses
(i)
and
(ii)
except to the extent Borrowers are disputing such items in good faith; and
(iii)
maintain
appropriate accruals and reserves for all of the foregoing Debt in accordance
with
GAAP_
(1)
Creditors.
Promptly
upon Lender's request, Borrowers shall provide Lender
with a statement showing the identity of Borrowers' creditors, the amount due
to
each
and
the date each payment is due thereunder. Borrowers shall notify Lender
immediately
if any Borrower fails to make any payment to lessors, suppliers, vendors,
owners
of
royalty interest, tax authorities or other Persons, where such nonpayment could
result
in
any Lien against any item of Collateral or otherwise interfere with or
jeopardize performance
by any Borrower of its obligations under the Loan Documents.
(m) Interest.
Borrowers
hereby promise to pay interest to Lender on all Obligations
(including Obligations to pay fees or to reimburse or indemnify Lender) at
the
Interest Rate with respect to the principal amount of the Loans as set forth
in
Section
2.2
and
otherwise as stated in Section
7.1(fj)
after
such Obligations become due. Borrower
further agrees that any interest, which has accrued and is not paid when due,
shall
be
added to and become part of the principal under the Note.
(n) Compliance
with Regulations, Orders and Law. Borrowers
will conduct their
business and affairs in compliance with all laws, regulations and orders
applicable thereto,
including without limitation, Environmental Laws and the regulations of any
state
or
federal agency which has jurisdiction over the exploration and production
activities
to be conducted on any Property.
(o) Insurance.
Borrowers
shall keep or cause to be kept all of the Collateral that
are
fixtures or personal property insured in an amount as lender may require from
time
to
time and subject to coverage that is commercially reasonable and customary
within
the oil and gas industry and issued by companies satisfactory to Lender.
Borrowers shall deliver the policy or policies of such insurance or certificates
of insurance
to Lender and such policies and all proceeds thereof shall be security for
all
Obligations.
All such insurance shall contain endorsements in form reasonably satisfactory
to Lender showing Lender as a loss payee and additional party insured as its
interest may appear.
(p) Policy
Counterparts or Certificates of Insurance. Borrowers
shall deliver to
Lender
valid counterparts of all insurance policies and all endorsements thereto (or,
at its
option, valid certificates of such insurance) which are required hereunder
to be
obtained
and maintained by Borrowers.
921350_11
(q) Prudent
Operations. Borrowers
shall prudently develop, and cause the Properties to be continuously operated
and maintained to produce the output from or allocable
to such Property over the productive life thereof in a good and workmanlike
manner
consistent with prudent operator practices.
(r) Maintenance
of Leases. Borrowers
shall use commercially reasonable efforts as a prudent operator to keep and
perform all of the tellus, conditions and covenants
of the Leases constituting Properties which are to be kept and performed by
the
lessee
for the benefit of the Lender and the holder of the ORR1.
(s) Weekly/Daily
Field Activity Reports. Beginning
60 days after Closing, Borrowers shall provide Lender, to the extent possible,
by telecopy or e-mail, a weekly report
on
Tuesday of each week detailing all drilling, completions and workovers for
the
preceding
week with respect to the Properties in form and substance reasonably
satisfactory
to Lender. At Lender's request, Borrowers will provide such reports on a
daily
basis for activities associated with major expenditures or other extraordinary
circumstances.
(t) Weekly
Production Reports. Beginning
60 days after Closing, Borrowers shall
provide Lender with weekly reports by telecopy or e-mail setting forth the
quantities,
types and specifications of Hydrocarbons produced from or allocable to each
of
the
Properties, in form and substance reasonably satisfactory to Lender and a report
detailing
all costs and expenses associated with the activities specified in the reports
delivered pursuant to this Section
7.1(t)
for
the
preceding week.
(u) Monthly
Review Conference. At
Lender's request, within fourteen (14) days after Borrowers have submitted
to
Lender each monthly Property Operating Statement
pursuant to Section
2.6, representatives
of Lender and Borrowers shall meet at a
mutually acceptable time and place to conduct a monthly review conference that
will focus
on,
among other things, the data contained in the most recently submitted Property
Operating
Statement and such other operational and financial data and information as
Lender may reasonably request.
(v) Operating
Reports. Within
thirty (30) days of the Closing, and on a calendar quarterly basis thereafter,
Borrowers shall provide Lender with a rolling revenue,
lease operating expense and capital expenditure forecast by month covering
Borrowers'
interest in the Properties for the succeeding 12 month period ("Operating
Report").
Such
Operating Reports shall include a brief discussion by Borrowers of operating
and financial variances from the prior Operating Report delivered to
Lender.
(w) AFEs.
Borrowers
shall provide Lender with all AFEs, representing an estimate
of work to be done, each of which shall be supported by appropriate invoices,
bids,
estimates, contracts or other support, prior to commencing the activity
contemplated by
such
AFE.
(x) Hydrocarbon
Production Swap Agreements. In
addition to the initial Permitted
Swap Agreement described in Section
2.9, Borrowers
will from time to time, upon
thirty (30) days' notice by Lender, enter into one or more Hydrocarbon price
swaps
921350_11
pursuant
to a Permitted Swap Agreement in form and substance reasonably satisfactory
to
Lender,
such that up to but not more than ninety percent (90%) of the volume of
Borrowers'
Net Revenue Interest share of the Proved Developed Producing Reserves scheduled
to be produced during the term of this Agreement, but not beyond the Loan
Termination
Date (based upon the most recent Reserve Report) and in an amount not to
exceed
the sum of (i) the outstanding Obligations plus
(ii) any
undrawn availability under this
Agreement plus
(iii) the
total
availability under the Permitted Swap Agreement, are dedicated
to the Permitted Swap Agreements or such other price risk management
program
as approved by Lender; provided,
however, if
projected Net Revenue is insufficient to fully amortize the Loans by their
stated maturity, as more particularly described
in Section
10.1(h)(i), Lender
may require that Borrowers enter into one or more
such
swaps for a term or terms that extend beyond the Loan Termination Date.
Borrowers and Lender shall endeavor to agree upon a swap strategy that will
most
accurately
reflect the make-up and pricing of the Hydrocarbons produced and sold by
Borrowers,
but if the parties are unable to agree on the swap strategy, Borrowers shall
not
be
released from their obligation to implement the Permitted Swap Agreement(s)
required
by this Section
7.1(x).
(y) Post-Closing
Title Opinions. Borrowers
will deliver to Lender, within sixty
(60) days following the Closing Date, Title Opinions covering Leases comprising
85%
of
the PWIO of Borrowers' Proved Developed Producing Reserves in the Properties
as
of
Closing showing Defensible Title to the Properties in Borrowers subject only
to:
(i)
a
first
priority lien created by the Deed of Trust and the ORRI, each in favor of
Lender, and
(II)
the Permitted Encumbrances, and otherwise satisfactory in form and substance
to
Lender.
(z) Legal
Fees; etc. Borrowers
will pay, on or before the Closing Date, all third-party
and out-of-pocket costs, fees and expenses incurred by Lender in connection
with
this
Agreement, including, without limitation, all title, due diligence,
environmental, engineering,
technical, travel, legal and related expenses incurred by Lender in connection
with the Credit Agreement and the Loan Documents and the transactions
contemplated
thereunder (to be financed by Lender as a portion of the Initial Loan) up to
a
maximum
of $85,000, and, thereafter, reimburse Lender for all such expenses incurred
in
connection therewith, including, without limitation, any subsequent amendment,
mortgage,
extension, release or renewal of any Loan Document or the legal expenses
attributable
to the enforcement of the same or continuing or additional due
diligence.
(aa)
Environmental
Compiia_nce. Within
sixty (60) days of Closing, Borrowers shall
(i)
remedy all material matters set forth in the Environmental Report and any
environmental
compliance issues listed on Schedule
4.1(s) so
as to
be in compliance in all
material respects with all applicable Environmental Laws and (ii) provide all
relevant information
to Lender in relation thereto.
(bb)
Facility
Fee. The
Facility Fee in relation to the Initial Fee shall be earned and
payable by Borrowers to Lender out of the Initial Loan advances evidenced by
the
Note.
A
Loan in the amount of the Facility Fee will be deemed to have been advanced
by
Lender
to
Borrowers on the Closing Date, with such Facility Fee having been deemed
contemporaneously paid by Borrowers to Lender. Each time Lender advances a
Loan
921350_11
(other
than the Initial Loan), a Loan in the amount of an additional Facility Fee
will
be earned
and Borrowers shall be deemed to have requested that Lender advance to
Borrowers
such additional Facility Fee on such date, with such additional Facility Fee
having been contemporaneously paid by Borrowers to Lender.
(cc)
Development
Operations. Borrowers
shall submit a Request for Commitment
to Lender for each of proposed Development Operation for which Borrowers
seek funding hereunder. With respect to all Development Operations that are
approved by Lender as set forth in Section
2.1(b), Borrowers
shall conduct all such Development Operations in accordance with and within
the
cost and time parameters specified in the Request for Commitment specific to
those Development Operations; provided
that
Lender is not obligated to commit funds for Development Operations except
as
specifically described in
Section
2.1(b) for
any
specific Development Operations,
including any associated cost overruns; and provided
further that
if
Borrowers
are unable to conduct all such Development Operations within the amounts funded
as the Development Loans described in the specified Request for Commitment,
Borrowers shall use their own capital to conduct and complete all such
Development
Operations.
Borrowers' intent, willingness and ability to conduct each of the Development
Operations and the actual implementation of such Development Operations
is
a
material inducement to Lender's entry into this Agreement, in the absence of
which Lender
would not have done so. Time is of the essence in the proposal and conduct
by
Borrowers of each of the Development Operations approved by Lender.
(dd)
Protection
Against Drainage. Until
the
Obligations have been fully and finally
paid and performed, (i) to the extent that Properties are operated by Borrowers,
Borrowers
shall act as a prudent operator in an effort to identify and prevent the
occurrence
of any drainage of Hydrocarbons from the Properties and (ii) to the extent
that
Properties
are not operated by Borrowers, Borrowers shall utilize their property and
contractual
rights as a prudent owner in an effort to identify and prevent the occurrence
of
any
drainage of Hydrocarbons from the Properties.
(ee)
Expenditures
Related to Initial Loan. On
or
before thirty (30) days following
the Closing Date, Borrowers will deliver to Lender a report which provides
an
itemized
and detailed description of the expenditures paid with the Initial Loan
proceeds, together
with all relevant documentation evidencing such expenditures.
(ff)
Interest
on Lender's Third Party Costs, Expenses and Fees. All
third-party costs,
fees and expenses incurred by Lender for which Borrowers are obligated to pay
or
reimburse
Lender pursuant to the provisions of this Agreement which are not paid on or
before
the Closing Date in accordance with Section
7.1(z)
shall be payable within fifteen (15) days after Borrowers' receipt of an invoice
therefor from either Lender or its third-party
consultants or vendors and Borrowers shall pay interest at the Default Rate
from
the date
payable until paid on all such amounts.
(gg)
Further
Assurances. Borrowers
agree, upon request of Lender and at Borrowers'
expense, to furnish to Lender such information, to execute and deliver to
Lender
such documents, and to do such other acts and things, all as Lender may
reasonably
request.
921350_11
(hh)
Administration
Fee. At
Closing, and on the last day of each Fiscal Quarter,
Borrower shall pay to Lender an administration fee in the amount of $5,000
("Administration
Fee").
The initial Administration Fee shall be deemed advanced by Lender
to
Borrower on the Closing Date as part of the Initial Loan and paid by Borrower
to
Lender
contemporaneously therewith, and each subsequent Administration Fee shall
be
paid
by Borrower to Lender as part of the Obligations pursuant to Section
2.6.
Section
7.2 Negative
Covenants. Borrowers
warrant, covenant and agree that until the
full
and final repayment and performance of the Obligations and the termination
of
each of the
Loan
Documents (other than the Overriding Royalty Conveyance):
(a) Limitation
on Sales of Collateral. Borrowers
will not sell, transfer, lease, exchange,
alienate or otherwise dispose of any Collateral or any interest therein except
for:
(i)
sales
of
Hydrocarbon production in the ordinary course of business, (II)
dispositions expressly permitted by other provisions of this Agreement,
including the Sale
of a
Promoted Interest pursuant to Section
11.13,
and
(iii)
dispositions
to which Lender
has granted its express written consent.
(b) Limitation
on Distributions. Without
Lender's prior written approval, Borrowers
shall not, either directly or indirectly, make any distribution, pay any
compensation,
or make any advances to any of its partners; provided
that
nothing in this subpart (b) shall prevent or prohibit Borrowers from (i) making
payments permitted by Section
7.2(e)
to
officers, directors and employees who are also partners, (ii) distributing
(as
long
as no Unmatured Event of Default or Event of Default then exists or would result
from
such
distributions) to their partners (A) those receipts identified in Section
2.6(c), (B)
the
proceeds of any Overhead Advance, or (C) a portion of the Initial Loan up to
an
amount
equal to the Reimbursed Costs, or (iii) to the extent no Event of Default has
occurred and is continuing, distributions for the payment of Corporate Income
Taxes.
(c) Limitation
on Credit Extensions. Without
Lender's prior written approval, Borrowers
will not extend credit, make advances or make loans to any Person, whether
or
not
an
Affiliate of any Borrower.
(d) Certain
Contracts; Amendments; ERISA Plans. Without
Lender's-prior
written
approval, Borrowers will not amend or permit any amendment to any contract
or
lease
which releases, qualifies, limits, makes contingent or otherwise detrimentally
affects
the rights and benefits of Lender under or acquired pursuant to any Loan
Documents.
Borrowers will not incur any fixed or contingent obligation to contribute to
any
ERISA
Plan.
(e)
Compensation.
Borrowers
shall not, directly or indirectly, enter into any employment
agreement or other arrangement with or for the benefit of an officer, director
or
employee of Borrowers other than reasonable compensation for services as an
officer, director,
employee or third-party provider of services. No fee shall be paid to any
Person
for
serving as the General Pastiler,
except any commercially reasonable and necessary
expenses
incurred by the General Partner on behalf of Borrowers shall be reimbursed
by
Borrower_
Notwithstanding the foregoing, any such expenses or compensation
permitted
9213501
I
under
this Section
7.2(e), shall
be
payable only out of Net Revenue distributed to Borrowers
pursuant to Section
2.6(d).
(f) Debt.
Except
(i)
for
Debt
(A) arising in connection with Permitted Encumbrances
or (B) related to the Pipeline and included on Schedule
4.1(h) or
(ii)
as
otherwise
expressly provided in this Section
7.2(f), Borrowers
shall not (x) create, incur, assume or suffer to exist any Debt, except
Obligations to Lender hereunder and trade payables incurred in the ordinary
course of Borrowers' business, or (y) sell, discount or factor
their accounts, instruments, intangibles, leases or chattel paper; provided,
however, Borrowers
may incur Debt not to exceed $150,000 in the aggregate at any time outstanding
with regard to direct costs and expenses incurred in the operation of the
Properties.
(g) Guarantees.
Except
as
expressly provided herein, Borrowers shall not assume, Guarantee, or endorse
or
otherwise become directly or contingently liable in connection
with any other liability of any other Person except for the indemnification
contained
herein.
(h) Acquisition.
Borrowers
shall not acquire or commit or agree to acquire any
of
the stock, securities or assets of any other Person other than as disclosed
in
writing to,
and
approved by, Lender in connection with Borrowers' acquisition of any of the
Properties.
(i) Cancellation
of Claims. Borrowers
shall not cancel any claim or Debt in excess
of
a total of $15,000 in the aggregate during the term of this Agreement, except
for
reasonable consideration and in the ordinary course of their
businesses.
Defaults.
Except
as
previously disclosed to Lender, Borrowers shall not cause
a
default under any lease, mortgage, deed of trust or lien on real estate owned
or
leased by Borrowers including an Unmatured Event of Default or an Event of
Default.
(k)
Security
Interests and Liens. Borrowers
shall not suffer to exist any valid lien,
encumbrance, mortgage or security interest or consent to the filing of any
financing statements
on any of the Collateral other than the Liens created by the Loan Documents
granted
herein and Permitted Encumbrances.
(1)
Creation
of Subsidiary. Borrowers
shall not (i) create any direct or indirect
subsidiary or divest themselyes of any material assets by transferring them
to
any future
subsidiary or by entering into a partnership, joint venture or similar
arrangement, (ii)
make, or permit the General Partner to make, any material change in its capital
structures,
or (iii) enter into any management contract permitting a third party any
management rights with respect to Borrowers' business.
(m)
Certain
Changes. Borrowers
shall not transfer their principal office or their
registered offices from their current locations or change their name or keep
Collateral at any location(s) other than those at which the same are presently
kept or without
written consent of Lender. Borrowers shall not change their Fiscal
Year.
921350_11
(n) Loan
Documents. Borrowers
shall not alter, amend or cause the alteration or
amendment of any of the Loan Documents without the prior written consent of
Lender.
(o) Amendments
to Formation Documents. Without
Lender's prior written approval, Borrowers shall not (i) adopt any amendment,
modification or waiver of any provision
of their Certificates of Incorporation, Bylaws, Certificates of Limited
Partnership
or Agreements of Limited Partnership, as applicable, nor shall Borrowers permit
General Partner to adopt any amendment, modification or waiver of any provision
of
its
Certificate of Organization or its Limited Liability Agreement or (ii) opt
into
Chapter
8
of the Texas Uniform Commercial Code for purposes of determining whether
the
partnership interests issued by Borrowers are "securities" as defined under
that
Chapter.
(p) Investments.
Without
Lender's prior written consent, Borrowers will not make,
or
suffer to exist, any Investment except Investments in certificates of deposit
or
other obligations of a bank or trust company having capital, surplus and
undivided profits of at least $100,000,000, or obligations of the United States
government or any agency thereof.
(q) Partners;
General Partner. Without
Lender's prior written consent, Borrowers
will not permit General Partner to withdraw or be removed as General Partner,
nor
shall
Borrowers permit the membership interests or voting rights with respect to
the
membership
interests of the General Partner be sold or transferred by the current owners
thereof.
(r)
Change
of Operator. Borrowers
shall not take any action to remove any Operator of any of the Properties and
shall not take any action to appoint, remove or replace
any other Operator without Lender's prior written consent.
Affiliate
Transactions. Borrowers
shall not enter into one or more transactions
with any Affiliate of any Borrower, except with Lender's prior written
approval
and then only to the extent the terms of any such transaction are fair and
reasonable
(at least as favorable as would be obtainable by such Borrower at the time
in a
comparable
arm's length transaction with a Person other than an Affiliate).
(t)
Ratios.
Borrowers
shall not permit at any time (i) the market value of their
combined current liabilities (excluding from the calculation of current
liabilities the Loans
and
any required ▇▇▇▇-to-market of unliquidated commodity-hedge contracts
required
under FASB 133) to exceed the market value of their combined current assets
(excluding from the calculation of current assets any required ▇▇▇▇-to-market
of
unliquidated commodity-hedge contracts required under FASB 133) (calculated
in
accordance
with GAAP) and (ii) their Loan to Value Ratio to be greater than (A) 1.0 to
1.0
for
the period commencing on the date Lender receives the Reserve Report dated
effective
as of June 30, 2007 or (B) 0.7 to 1.0 for the period commencing on the date
Lender
receives the Reserve Report dated effective as of June 30, 2008 and at any
time
thereafter.
921350_11
(u)PSAs.
Without
Lender's prior written consent, Borrowers will not amend
or
otherwise modify, or agree to amend or modify either PSA.
ARTICLE
VIII
FURTHER
RIGHTS OF LENDER
Section
8.1 Maintenance
of Security Interests. Borrowers
authorize Lender to execute alone any financing statement or other documents
or
instruments that Lender may require
under Section
6.2 to
perfect, protect or establish any Lien hereunder or under any Security
Documents and further authorizes Lender, upon notice to Borrowers, to sign
Borrowers' names
on
the same. Borrowers hereby authorize Lender, during the continuance of any
Event
of Default,
to appoint such Person or Persons as Lender may designate as its agent and
attorney-in-fact
to endorse the name of any Borrower on any checks, notes, drafts or other forms
of
payment or security that may come into the possession of either Lender or any
Affiliate of Lender,
to sign any Borrower's name on invoices or bills of lading, drafts against
customers, notices of assignment, verifications and schedules and, generally,
to
do all things necessary to carry
out
this Agreement and the Security Documents. The powers granted herein, being
coupled
with an interest, are irrevocable. Neither Lender nor the agent and
attorney-in-fact shall be liable for any act or omission, error in judgment
or
mistake of law so long as the same is not malicious
or grossly negligent. Upon payment and performance of all Obligations of
Borrowers to
Lender, such power of attorney will become null and void.
Section
8.2 Performance
of Obligations. In
the
event that Borrowers fail to purchase or
maintain insurance in accordance with the requirements of this Agreement, or
to
pay any tax, assessment,
government charge or levy, except as the same may be otherwise permitted
hereunder,
or in the event that any Lien prohibited hereby shall not be paid in full or
discharged, or
in the
event that Borrowers shall fail to perform or comply with any other covenant,
promise or
Obligation to Lender hereunder or under any Loan Document, Lender may, but
shall
not be required
to, perform, pay, satisfy, discharge or bond the same for the account of
Borrowers, and all
monies so paid by Lender, including, without limitation, reasonable attorneys'
fees and disbursements,
shall be treated as an additional Obligation of Borrowers to Lender hereunder
and under
the
Loan Documents.
Section
8.3 Access
to Collateral. In
addition to Lender's rights under Section
7.1(d), upon
the
occurrence and during the continuance of an Event of Default, Lender may (i)
enter Borrowers'
premises at any time on reasonable notice; and (II) until it completes the
enforcement of
its
rights in the Equipment or other Collateral subject to its Lien and the sale
or
other disposition
of any property subject thereto, take possession of such premises without
charge, rent or
payment therefor, or place custodians in control thereof, remain on such
premises and use the same
and
any of Borrowers' Equipment and other Collateral for the purpose of completing
any work
in
process, preparing any Collateral for disposing of or collecting any
Collateral.
Section
8.4 Overriding
Royalty Interest. ▇▇▇▇▇
Conveyed
at Closing. At
Closing, Borrowers shall assign to Lender an ORRI (i) equal to one percent
(1.0%) of 8/8ths proportionately
reduced to Borrowers' Working Interest in the Properties, including the Leases
described
on Exhibit
"A" and
▇▇▇▇▇
described on Exhibit
"A"
and
related Units, and (ii) an additional
one and one-half percent (1.50%) of 8/8ths proportionately reduced to Borrowers'
Working
Interest in each Well described on Exhibit
"A"
and
related Unit, in each case by
921350_11
executing
and delivering to Lender the Overriding Royalty Interest Conveyance. The
effective date of the ORRI conveyed to Lender at Closing will be March 1,
2006.
(a)
Additional
▇▇▇▇▇ Conveyed After Closing. In
addition to the ORRI assigned
to Lender at Closing pursuant to Section
8.4(a) above,
Borrowers shall, contemporaneous with each advance by Lender under a Development
Loan and to the extent not previously assigned to Lender, assign to Lender
an
ORRI (i)
equal
to
an additional
one percent (1.00%) of 8/8ths proportionately reduced to Borrowers' Working
Interests
in any Leases and ▇▇▇▇▇ (and related Units) acquired after the Closing Date
which
are
paid for in whole or in part with Development Loans, and (ii)
an
additional one and one-half percent (1.50%) of 8/8ths proportionately reduced
to
Borrowers' Working Interest
in each new Well (i.e., other than the ▇▇▇▇▇ described on Schedule
2.1(b) or
Exhibit
"A"
but
including any
Well
acquired in a transaction pursuant to Section
8.6 below)
and related Unit for which Lender advances a Development Loan, in each case
by
executing
and delivering to Lender the Overriding Royalty Interest
Conveyance.
Section
8.5 Set-Off
Rights. Upon
the
occurrence and during the continuance of an Event
of
Default, Lender shall have the right to set-off and apply against the
Obligations in such manner as Lender may determine, any and all deposits
(general or special, time or demand, provisional
or final) or other sums at any time credited by or owing from Lender or any
depositary
to any Borrower whether or not the Obligations are then due, except for any
amounts owing
to
third-party Working Interest and royalty interest holders of which Lender shall
have been
notified. Lender shall provide reasonable notice to. Borrowers following any
application of such
funds. As further security for the Obligations, Borrowers hereby grant to Lender
a security interest
in all money, instruments, and other property of Borrowers now or hereafter
held
by Lender,
including, without limitation, property held in safekeeping. In addition to
Lender's right of
set-off and as further security for the Obligations, Borrowers hereby grant
to
Lender a security interest
and lien in all deposits (general or special, time or demand, provisional or
final) and other
accounts of Borrowers now or hereafter on deposit with or held by Lender or
any
depositary
and all other sums at any time credited by or owing from Lender or any
depositary to any
Borrower. The rights and remedies of Lender hereunder are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which Lender may have.
Section
8.6Right
of Lender to Finance Affiliate Prospects in Project Area.
(a)
Right
to Finance Acquisitions. If,
at
any time after the date of this Agreement,
any Affiliate of either Borrower acquires an interest in any Lease, Unit or
Well
within the Project Area (an "Affiliate-Owned
▇▇▇▇▇▇▇ Interest"), Borrowers
shall promptly
prepare and submit to Lender a Request for Commitment requesting a Development.
Loan advance to purchase such Affiliate-Owned ▇▇▇▇▇▇▇ Interest on the same
terms
and at the same price as such Affiliate acquired the interest. The approval
of
each such Request for Commitment will be at the sole and absolute discretion
of
Lender. If
Lender
approves the Request for Commitment, Borrowers shall promptly (i)
cause
such
Affiliate to assign such Affiliate-Owned ▇▇▇▇▇▇▇ Interest to Borrowers,
(ii)
execute
and
deliver to ,Lenders
a
supplement to the Deed of Trust covering such Affiliate-Owned ▇▇▇▇▇▇▇
Interest and (iii)
assign
to
Lenders the ORRI in accordance with Section
8.4 above.
921350_11
(b)
Right
to Finance Development. If,
at
any time after the date of this Agreement,
any Affiliate of either Borrower proposes to drill any new Well(s) on an
Affiliate-Owned
▇▇▇▇▇▇▇ Interest—and without regard to whether Lenders have previously
declined to approve a Request for Commitment from Borrowers to acquire
such
Affiliate-Owned ▇▇▇▇▇▇▇ Interest—Borrowers shall promptly prepare and submit to
Lender a Request for Commitment requesting a Development Loan advance to
purchase such Affiliate-Owned ▇▇▇▇▇▇▇ Interest (on the same terms and at the
same price as such Affiliate acquired the interest) and drill the proposed
Well(s). The approval of each such Request for Commitment will be at the sole
and absolute discretion of Lender. If Lender approves
the Request for Commitment, Borrowers shall promptly (i) cause such Affiliate
to
assign
such Affiliate-Owned ▇▇▇▇▇▇▇ Interest to Borrowers, (ii) execute and deliver
to
Lenders
a
supplement to the Deed of Trust covering such Affiliate-Owned ▇▇▇▇▇▇▇
Interest
and (iii) assign to Lenders the ORRI in accordance with Section
8.4 above.
ARTICLE
IX
CLOSING;
CONDITIONS TO CLOSING
Section
9.1Closing.
Subject
to the conditions set forth in this Agreement, the closing
shall
occur at a mutually agreeable time on or before March,
2006
(the "Closing").
The
date
the
Closing actually occurs is hereby called the "Closing
Date." The
Closing shall be held at the offices of Lender's counsel in Houston, Texas,
or
at such other place as Borrowers and Lender may agree in writing.
Section
9.2 Conditions
to Closing. As
conditions precedent to the making of the Initial
Loan hereunder and to the making of any other Loans, Lender shall have obtained
approval
of its management and Borrowers shall deliver to Lender the following items
duly
executed (where required) and in form and substance satisfactory to Lender
and
its counsel:
(a) the
Note
and multiple counterparts of this Agreement and satisfactory evidence
in Lender's sole discretion that the PSAs have irrevocably closed and in
relation thereto,
Borrowers own all the interests in the Properties;
(b) a
Permitted Swap Agreement covering matters addressed in Section
2.9,
together
with the Intercreditor Agreement executed by the counterparty
thereunder;
(c)
the
Overriding Royalty Interest Conveyance, the Deed of Trust, the Security
Agreement, the Pledge Agreement and the other Loan Documents and in as
many
counterparts as Lender may require;
(d) duly
executed copies of the assignment instruments contemplated as
closing
conditions under the PSAs, as Lender may request;
(e) a
certificate of an authorized officer of Parent and General Paltimer
on
behalf
of
each Borrower dated the Closing Date, certifying the incumbency of their
officers
executing this Agreement and any other documents required hereby and
certifying
resolutions adopted by the board of director, board or managers or similar
governing
body Borrowers, Parent and General Partner authorizing their respective
execution
and delivery of this Agreement, the Note, the Deed of Trust, the other
Loan
921350_11
Documents
and all other documents and instruments contemplated by this Agreement to which
each of them is a party;
a
certificate of an authorized officer of Parent and General Partner on
behalf
o
each Borrower dated the Closing Date, certifying the truth and accuracy of
the
representations and warranties of Borrowers set forth in this Agreement and
Borrowers' performance
and compliance with all agreements and covenants required by this Agreement
to
be performed or complied with prior to the making of the Loans;
(g) a
certificate of an authorized officer of General Partner on behalf of each
Borrower
dated the Closing Date, certifying the truth and accuracy of the following
lists
to
be
provided by Borrowers: (i) a list dated the Closing Date of all existing sales
contracts
and all Purchasers of Production and Pipeline Parties; (ii) a list of all
mechanics'
and materialmen's liens (and other similar liens), and liens under operating
and
similar agreements, to the extent the same relate to expenses incurred in the
ordinary course
of
business; (iii) a list of statutory liens for taxes which are not yet
delinquent; and (iv)
a
list of all outstanding Debts of Borrowers;
(h) Certificates
of Limited Partnership of each of the Borrowers certified by the
Secretary of State of the state of their formation and their Agreement of
Limited Partnership
certified by an authorized officer of General Partner, together with the
Articles
of Organization and the Limited Liability Company Agreement of the General
Partner
certified by the Secretary of State of the state of its formation and certified
by an authorized
officer of the General Partner;
certificates,
as of the most recent dates practicable, of the Secretary of State
of
Texas attesting to Borrowers' and General Partner's existence, as applicable,
and of each state in which Borrower and General Partner are qualified to do
business as a limited partnership and a limited liability company, respectively,
attesting to such qualification,
and from the comptroller or department of revenue or taxation of each of
the
foregoing states, as to the good standing of Borrowers and General
Partner;
the
written opinion of Borrowers' counsel dated the Closing Date and addressed
to Lender;
(k) evidence
that Borrowers have obtained insurance in accordance with
Sections
7.1(o) and
(p);
(1)
title
materials satisfactory to Lender establishing that Borrowers have acquired
and/or own Defensible Title to the Properties, subject only to Permitted
Encumbrances;
(m) the
Pro
Forma Financial Statements of Borrowers as of the Closing Date;
(n) the
results of a Uniform Commercial Code search showing all financing statements
and other documents or instruments on file against Borrowers and General
Partner
from the Offices of the Secretary of State of the States in which Borrowers
and
General
Partner are formed;
921350_11
(o) fully
executed Petro Releases satisfactory to Lender covering all the liens
and
security interests granted in connection with the EBS Loans and evidence
satisfactory to
Lender
of the payment in full of the EBS Loans;
(p) evidence
satisfactory to Lender that it is obtaining first priority security interests
and liens on the Collateral;
(q) any
and
all fees required under this Agreement are paid in full; and
(r) such
other documents and instruments as ▇
.▇▇▇▇▇
may reasonably request.
Section
9.3 Additional
Conditions to Loans. In
addition to the conditions set forth in
Section
9.2 above,
each Loan (including the Initial Loan) to be made by Lender shall be
subject
to Borrowers' satisfaction or Lender's written waiver of each of the following
conditions:
(a) There
is
no Event of Default, Unmatured Event of Default or Tax Claim;
(b) All
of
Borrowers' representations and warranties made in any Loan Document
shall be true and correct as if made on the date of such Loan (except to the
extent
that the facts upon which such representation are based have been changed by
the
extension
of credit hereunder);
(c) Borrowers
shall have performed and complied with all agreements and conditions in the
Loan
Documents which are required to be performed or complied with by them on or
prior to the date of such Loans;
(d) No
law,
regulation, order, judgment or decree of any governmental authority is in effect
or pending which shall enjoin, prohibit or restrain such Loan or impose, or
result in the imposition of, any adverse condition upon Lender;
(e) Lender
shall have received all documents and instruments which Lender has
then
reasonably requested as to, (i) the accuracy and validity of or compliance
with
all
representations, warranties and covenants made by any Person in any Loan
Document, (ii)
the
satisfaction of all conditions contained herein or therein, and (iii) all other
matters pertaining
hereto and thereto. All such additional documents and instruments shall be
satisfactory
to Lender (in reasonable exercise of its discretion) in form, substance, and
date;
(f) Lender
shall have received satisfactory due diligence analysis including, but
not
limited to, financial and operational data, title and environmental review,
all
such data to be provided by Borrowers;
(g)
Lender shall have received satisfactory information regarding existing
operating
agreements and also all existing gas sales and oil sales which will include,
for
gas
sales
on a well-by-well basis, where applicable, transportation costs, gathering
costs, processing
costs; gas stream heating content, then-current market prices for gas of similar
quality
and copies of existing sales contracts and for oil sales, individual well
specific
921350_11
gravity
of produced oil, transportation costs, sulfur content, purchase bonuses,
then-current market prices for oil of similar quality, and copies of existing
sales contracts;
(h) To
the
extent Borrowers have not previously delivered them to Lender in connection
with a prior Loan, Borrowers shall have (i)
executed
and delivered to Lender any
agreement, document, instrument or other Loan Document required of Borrowers
in
connection
with the Loan requested and (ii)
to
the
extent any agreement, instrument, report
or
other documents to be prepared or executed by any other Person and delivered
to
Lender
in accordance with the terms and conditions of this Agreement (including but
not
limited to the Environmental Report), Borrowers shall have caused such other
Person to
do
so;
(i) Borrowers
have implemented a hedging and commodity pricing risk
management program satisfactory to Lender in its sole and absolute discretion
pursuant to the Permitted Swap Agreement;
at
all
times after the implementation of the initial hedging and commodity pricing
risk management program pursuant to Section
9.3(i) above,
Lenders shall be satisfied
in its sole discretion with Borrowers' hedging and commodity pricing risk
management
program and its implementation pursuant to the Permitted Swap Agreement;
and
(k)
Borrowers shall have delivered to Lender the financial statements described
in Section
4.1(g)
and
such
financial statements are acceptable to Lender; provided
that,
upon the delivery of such financial statements to Lender, (i)
such
financial statements
will be deemed to have been delivered to Lender and made part of this
Agreement
as of the Closing Date and (it) the representation set forth in Section
4.1(g)
will
be
deemed to have been made by Borrowers as of the Closing Date.
ARTICLE
X
EVENTS
OF DEFAULT AND REMEDIES
Section
10.1Events
of Default. Each
of
the following events constitutes an
Unmatured
Event of Default under this Agreement:
(a) Borrowers
fail to pay any Obligation for principal or interest owing under the
Note
when the same is due and payable, whether at a date for the payment of an
installment
or as a contingent or other payment becomes due and payable or as a result
of
acceleration
or otherwise;
(b) Projected
Net Revenue attributable to Proved Reserves, based on any of the
Reserve Reports to be delivered to Lender after the Closing Date (after being
adjusted to
incorporate Lender's then-current assumptions with respect to pricing, Expenses,
discount rates and ▇▇▇▇▇▇ under Permitted Swap Agreements) is insufficient
to
fully amortize the Loans by their stated maturity;
(c)Any
Loan
Document at any time ceases to be valid, binding and
enforceable
against any Borrower for any reason other than its release or
subordination
921350_11
made
with
the consent of Lender; or any Borrower or General Partner assert that any
Loan
Document to which it is a Party is not valid, binding and enforceable against
any Borrower or General Partner;
(d) Borrowers
fail to duly observe, perform or comply with any covenant set forth in
Section
7.2;
(e) Any
"Event of Default" (as defined in the Security Document) (other than
an
event
which is referred to in. subsections
(a) through
(d)
above)
occurs under the Security
Document, and the same is not remedied within the applicable period of grace
(if
any)
provided in such Security Document;
(f) Borrowers
fail (other than as referred to in subsections
(a) through
(e)
above)
to
duly observe, perform or comply with any covenant, agreement, condition or
provision
of any Loan Document, and such failure is not remedied within thirty (30) days
of
the
time at which Borrowers receive notice from Lender or otherwise knows or should
have
known of such failure;
(g) Any
representation or warranty previously, presently or hereafter made in
writing
by or on behalf of Borrowers in connection with any Loan Document shall prove
to
have
been false or incorrect in any material respect on any date on or as of which
made;
(h)
Any
Lien against the Property, resulting from a Tax Claim or otherwise, for
$50,000 or more is asserted against any Borrower and such claim is not
withdrawn, formally disputed in good faith, or otherwise disposed of within
ninety days (90) thereafter;
Subject
to Permitted Encumbrances, Lender shall at any time not have a perfected first
priority Lien on all or any part of the Collateral;
Except
in
connection with Borrowers' sale of a Promoted Interest in accordance
with Section
11.13
below,
Borrowers' Working Interest in the Properties increases
or its Net Revenue Interest in the Properties decreases from the interests
set
forth
in
Exhibit
"A" without
the prior written consent of Lender;
(k)Any
Borrower:
(i) has
entered against it a judgment, decree or order for relief by a court
of
competent jurisdiction in an involuntary proceeding commenced under any
applicable bankruptcy, insolvency or other similar law of any jurisdiction
now
or
hereafter in effect, including the federal Bankruptcy Code, as from time to
time
amended, or has any such proceeding commenced against it; or
(ii) commences
a voluntary case under any applicable bankruptcy, insolvency or similar law
now
or hereafter in effect, including the federal Bankruptcy Code, as from time
to
time amended; or applies for or consents to the entry of an order for relief
in
an involuntary case under any such law; or makes a
921350_11
general
assignment for the benefit of creditors; or fails generally to pay (or admits
in
writing its inability to pay) Debts as such Debts become due; or takes action
to
authorize
any of the foregoing; or
(iii) suffers
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of all or a substantial
part of its assets or of any part of the Collateral in a proceeding brought
against or initiated by it, or such appointment or taking possession is at
any
time
consented to, requested by or acquiesced to by it; or
(iv) suffers
the entry against it of a final judgment for the payment of money
in
excess of $100,000, unless the same is discharged within thirty (30)
days
after the date of entry thereof or an appeal or appropriate proceeding for
review
thereof is taken within such period and a stay of execution pending such
appeal
is
obtained; or
(v) suffers
a
writ or warrant of attachment or any similar process to be issued
by
any court against all or any substantial part of its assets or any part of
the
Collateral, and such writ or warrant of attachment or any similar process is
not
stayed
or
released within thirty (30) days after the entry or levy thereof or after
any
stay
is vacated or set aside; or
(vi) fails
to
pay any Debt in excess of $150,000 (other than the Obligations) or any interest
or premium thereon, when due (whether at scheduled maturity or by acceleration,
demand or otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating
to any such Debt or any other event shall occur and shall continue after
the
applicable grace period, if any, specified in such agreement or instrument,
if
the
effect of such default or event is to accelerate or to permit the acceleration
of, the
maturity of such Debt, or if, as the result of such a default, any such Debt
shall
be
declared to be due and payable, or is required to be prepaid, prior to the
stated maturity thereof; or
(vii)
fails to perform its obligations under the Overriding Royalty Interest
Conveyance or any Permitted Swap Agreement and such failure continues
beyond
any applicable grace period set forth therein; or
(1)a
Change
of Control occurs with regard to any Borrower General Partner;
(m) any
Borrower that is or becomes the Operator of any of the Properties ceases
to
be the Operator of such Properties without the prior written consent of
Lender;
(n) Borrower
fails to deliver the Environmental Report on or before the 90th day
following Closing;
(o)
Borrower fails to implement pursuant to the Permitted Swap Agreement a
hedging
and commodity pricing risk management program satisfactory to Lender on or
before
the 10th
day
following Closing; or
921350_11
(p)
the
counterparty under any Permitted Swap Agreement fails to consent to the
making of any Loan advance to the extent the consent of such counterparty is
required
pursuant to the Intercreditor Agreement; and
upon
the
delivery of written notice to Borrowers by Lender and the continuation of such
Unmatured
Event of Default after the expiration of any applicable cure period, such
Unmatured Event
of
Default shall constitute an Event of Default; provided,
however, the
occurrence of any of
the
events described in Section
10.1(k)(i), (k)(ii) or
(k)(iii)
above
will constitute an Event of Default
without regard to whether Lender provides written notice to
Borrowers.
Section
10.2 AccelerationAutomatic
Acceleration.
Upon
the
occurrence of an Event of Default
described in Section
10.1(k)(0,
(k)(ii) or
(k)(iii), all of the Obligations shall thereupon
be immediately due and payable, without demand, presentment, notice of
demand
or
of dishonor and nonpayment, protest, notice of protest, notice of intention
to
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by Borrowers
and each obligor who at any time
ratifies or approves this Agreement. After any acceleration under this
subsection, any
obligation of Lender to make any further Loans or advances of any kind under
any
Loan Document shall at the option of Lender be permanently
temfinated.
(b)
Other
Acceleration. Upon
the
occurrence and during the continuance of any
Event
of Default not described in the preceding. Section
10.2(a), Lender
may at any time and from time to time and without notice to Borrowers, except
as
may otherwise be required
hereunder, declare any or all of the Obligations immediately due and payable,
and all such Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other
notice or declaration of any kind, all of which are hereby expressly waived
by
Borrowers.
Section
10.3 Remedies.
If
any
Event of Default shall occur and be continuing, Lender's
obligation to make any Loan(s) shall be suspended, and Lender may protect and
enforce its rights under the Loan Documents by any appropriate proceedings,
including proceedings
for specific performance of any covenant or agreement contained in any Loan
Document,
and Lender may enforce the payment of any Obligations due or enforce any other
legal
or
equitable right. All rights, remedies and powers conferred upon Lender under
the
Loan Documents
shall be deemed cumulative and not exclusive of any other rights, remedies
or
powers
available under the Loan Documents or at law or in equity. If any Unmatured
Event of Default
shall occur and be continuing, Lender's obligation to make any Loans shall
be
suspended,
so long as any such Unmatured Events of Default or resulting Events of Default
is continuing.
Section
10.4 Indemnity_
Borrowers
agree to indemnify Lender, upon demand, from and
against any and all liabilities, obligations, claims, losses, damages,
penalties, fines, actions, judgments,
suits, settlements, costs, expenses or disbursements (including reasonable
fees
of attorneys,
experts and advisors) of any kind or nature whatsoever (in this Section
10.4 collectively
called "liabilities and costs") which to any extent (in whole or in part) may
be
imposed
on, incurred by or asserted against Lender growing out of, resulting from or
in
any other
921350_11
way
associated with any of the Collateral, the Loan Documents or the transactions
and events including,
without limitation, the enforcement or defense thereof at any time associated
therewith or
contemplated therein (including any violation or noncompliance with any
Environmental Laws
by
any Person or any liabilities or duties of any Person with respect to Hazardous
Materials found
in
or released into the environment). THE FOREGOING INDEMNIFICATION SHALL
APPLY
WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT
CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY LENDER PROVIDED ONLY THAT NO PERSON SHALL BE
ENTITLED
UNDER THIS SECTION
10.4 TO
RECEIVE INDEMNIFICATION FOR THAT
PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS CAUSED BY LENDER'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. As used in this Section
10.4,
the
term
"Lender" shall refer not only to the Person designated as such in Section
1.1, but
also
to
its lender(s) and members and, with respect to each of the foregoing, each
director, officer,
agent, attorney, employee, representative and Affiliate of such
Person.
ARTICLE
XI
MISCELLANEOUS
Section
11.1 Waivers
and Amendments; Acknowledgments and Admissions.Waivers
and Amendments. No
failure or delay (whether by course of conduct or otherwise)
by Lender in exercising any right, power or remedy which Lender may have under
any
of
the Loan Documents shall operate as a waiver thereof or of any other right,
power or remedy,
nor shall any single or partial exercise by Lender of any such right, power
or
remedy preclude
any other or further exercise thereof or of any other right, power or remedy.
No
waiver of
any
provision of any Loan Document and no consent to any departure therefrom shall
ever be effective
unless it is in writing and signed by Lender, and then such waiver or consent
shall be effective only in the specific instances and for the purposes for
which
given and to the extent specified in such writing. No notice to or demand on
Borrowers shall in any case of itself entitle
Borrowers
to any other or further notice or demand in similar or other circumstances.
This
Agreement
and the other Loan Documents set forth the entire understanding and agreement
of
the
parties hereto and thereto with respect to the transactions contemplated herein
and therein and
supersede all prior discussions and understandings with respect to the subject
matter hereof and
thereof, and no modification or amendment of or supplement to this Agreement
or
the other Loan Documents shall be valid or effective unless the same is in
writing and signed by the party against
whom it is sought to be enforced.
(a)
Acknowledgments
and Admissions. Each
Borrower hereby represent, warrant
and acknowledge that (i) it has been advised by counsel in the negotiation,
execution
and delivery of the Loan Documents to which it is a party, (ii) it has made
independent
decisions to enter into this Agreement and the other Loan Documents to
which
it
is a party, without reliance on any representation, warranty, covenant or
undertaking
by Lender, whether written, oral or implicit, other than as expressly set out
in
this
Agreement or in another Loan Document delivered on or after the date hereof,
(iii) there
are
no representations, warranties, covenants, undertakings or agreements by
Lender
to
Borrowers as to the Loan Documents except as expressly set out in this
Agreement
or in another Loan Document delivered on or after the date hereof, (iv)
Lender
owes no fiduciary duty to Borrowers with respect to any Loan Document or
the
921350_11
transactions
contemplated thereby, (v) the relationship pursuant to the Loan Documents
between
Borrowers, on one hand, and Lender, on the other hand, is and shall be solely
that
of
debtor and creditor, respectively; (vi) no partnership or joint venture exists
with respect
to the Loan Documents between. Borrowers and Lender, (vii) should an Event
of
Default
or Unmatured Event of Default occur or exist Lender will determine in its sole
discretion
and for its own reasons what remedies and actions it will or will not exercise
or take
at
that time, (viii) without limiting any of the foregoing, no Borrower is relying
upon any
representation or covenant by Lender, or any representative thereof, and no
such
representation
or covenant has been made, that Lender will, at the time of an Event of Default
or Unmatured Event of Default, or at any other time, waive, negotiate, discuss
or take
or
refrain from taking any action permitted under the Loan Documents with respect
to
any
such Event of Default or Unmatured Event of Default or any other provision
of
the Loan
Documents, and (ix) Lender has relied upon the truthfulness of the acknowledgments
in this Section
11.1(b)
in
deciding to execute and deliver this Agreement
and to make the Loans.
THIS
WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
THERE
ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
THIS
WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS SUPERCEDE
THAT CERTAIN TERM SHEET DATED ON OR ABOUT FEBRUARY
6, 2006, EXECUTED BY PARENT AND LENDER.
Section
11.2 Assignments;
Survival of Agreements; Cumulative Nature. Lender
may
assign and/or transfer a portion or all of its rights and privileges under
the
Loan Documents at
any
time and from time to time, including, but not limited to, any collateral
assignment to secure
any indebtedness of Lender to any other Person and shall provide written notice
thereof to Borrowers_
Any assignee of any of Lender's rights under any of the Loan Documents shall
be
subrogated
to any related rights and remedies that Lender may exercise against Borrowers.
All of
the
various representations, warranties, covenants and agreements of Borrowers
in
the Loan Documents
shall survive the execution and delivery of this Ageement and the other Loan
Documents
and the performance hereof and thereof, including the making or granting of
the
Loans
and
the delivery of the Note and the other Loan Documents, and shall further survive
until all
of
the Obligations are paid in full to Lender and all of Lender's obligations
to
Borrowers are terminated.
The representations, warranties and covenants made by Borrowers in the Loan
Documents,
and the rights, powers and privileges granted to Lender in the Loan Documents,
are cumulative,
and, except for expressly specified waivers and consents, no Loan Document
shall
be
construed in the context of another to diminish, nullify or otherwise reduce
the
benefit to Lender
of
any such representation, warranty, covenant, right, power or privilege. In
particular and
without limitation, no exception set out in this Agreement to any
representation, warranty or covenant
herein contained shall apply to any similar representation, warranty or covenant
contained in any other Loan Document, and each such similar representation,
warranty or
921350_11
covenant
shall be subject only to those exceptions which are expressly made applicable
to
it by the terms of the various Loan Documents.
Section
113 Notices.
All
notices, requests, consents, demands and other communications
required or permitted under any Loan Document shall be in writing, unless
otherwise
specifically provided in such Loan Document, and shall be deemed sufficiently
given or furnished if delivered by personal delivery, by telecopy, by delivery
service with proof of delivery
or by registered or certified United States mail, postage prepaid, (unless
changed by similar
notice in writing given by the particular Person whose address is to be
changed). Any such
notice or communication shall be deemed to have been given (a) in the case
of
personal delivery
or delivery service, as of the date of delivery at the address and in the manner
provided herein,
(b) in the case of telecopy, upon receipt, or (c) in the case of registered
or
certified United States
mail three (3) Business Days after deposit in the mail.
For
delivery to Borrowers:
Westside
Energy Production Company, LP Attn:
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇
Telecopy:
(▇▇▇) ▇▇▇-▇▇▇▇
with
copies to:
▇▇▇▇▇▇▇▇▇
Traurig, LLP Attn: ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇ Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇ Telecopy:
(▇▇▇) ▇▇▇-▇▇▇▇
For
delivery to:Lender:
GasRock
Capital LLC
Attn:
▇▇▇▇▇▇▇▇ ▇▇▇▇ Bass
1
Houston
Center
▇▇▇▇
▇▇▇▇▇▇▇▇
▇▇., ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇,
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Telephone:
(▇▇▇)
▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with
copies to:
▇▇▇▇▇▇
& ▇▇▇▇▇▇, L.L.P. Attn:
Ephraim del Pozo ▇▇▇▇
▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
921350_11
Telephone:
(▇▇▇) ▇▇▇-▇▇▇▇ Telecopy:
(▇▇▇) ▇▇▇-▇▇▇▇
Section
11.4 Parties
in Interest; Transfers. All
grants, covenants and agreements contained
in the Loan Documents shall bind and inure to the benefit of the parties thereto
and their
respective successors and assigns; provided,
however, that
no
Borrower shall assign or transfer
any of its rights or delegate any of its duties or obligations under any Loan
Document without the prior written consent of Lender. Nothing expressed or
referred to in this Agreement shall
be
construed to give any Person other than the parties to this Agreement any legal
or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement.
This Agreement and all of its provisions and conditions are for the sole and
exclusive
benefit of the parties to this Agreement and their successors and permitted
assigns.
Section
11.5 Governing
Law; Submission to Process. Except
to
the extent that the law
of
another jurisdiction is expressly elected in a Loan Document, the Loan Documents
shall be
deemed
contracts and instruments made under the laws of the State of Texas and shall
be
construed
and enforced in accordance with and governed by the laws of the State of Texas,
without
regard to principles of conflicts of law. This Agreement has been entered into
in Houston,
Texas and shall be performable for all purposes in ▇▇▇▇▇▇ County, Texas. Subject
to the provisions of Article
XII, courts
within the State of Texas shall have jurisdiction over any and all disputes
between any Borrower and Lender, whether in law or equity, including, but not
limited to,
any
and all disputes arising out of or relating to this Agreement or any other
Loan
Document; and
venue
in any such dispute whether in federal or state court shall be laid in ▇▇▇▇▇▇
County, Texas.
Section
11.6 Limitation
on Interest. Lender,
Borrowers and any other parties to any Loan
Documents intend to contract in strict compliance with applicable usury law
from
time to time in effect. In furtherance thereof, the parties stipulate and agree
that none of the terms and provisions contained in the Loan Documents shall
ever
be construed to create a contract to pay, for
the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest
permitted to be charged by applicable law from time to time in effect. No
Borrower nor any
present or future guarantors, endorsers or other Persons hereafter becoming
liable for payment
of any Obligation shall ever be liable for unearned interest thereon or shall
ever be required
to pay interest thereon in excess of the maximum amount that may be lawfully
charged under applicable law from time to time in effect, and the provisions
of
this Section
11.6 shall
control
over all other provisions of the Loan Documents which may be in conflict or
apparent conflict
herewith. Lender expressly disavows any intention to charge or collect excessive
unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as
a
result any amounts held to constitute interest are determined to be in excess
of
the legal maximum,
or (c) Lender or any other holder of any or all of the Obligations shall
otherwise collect
moneys which are determined to constitute interest which would otherwise
increase the interest
on any or all of the Obligations to an amount in excess of that permitted to
be
charged by applicable
law then in effect, then all such sums determined to constitute interest in
excess of such
legal limit shall, without penalty, be promptly applied to reduce the then
outstanding principal
of the related Obligations or, at Lender's or such holder's option, promptly
returned to Borrowers
or the other payor thereof upon such determination. In determining whether
or
not
921350_11
the
interest paid or payable under any specific circumstance exceeds the maximum
amount permitted
under applicable law, Lender and Borrowers (and any other payors thereof) shall
to the greatest
extent pemiitted under applicable law, (x) characterize any non-principal
payment as an expense,
fee or premium rather than as interest, (y) exclude voluntary prepayments and
the effects
thereof, and (z) amortize, prorate, allocate and spread the total amount of
interest throughout
the entire contemplated term of the instruments evidencing the Obligations
in
accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable law in order
to
lawfully charge the maximum amount of interest permitted under applicable
law.
Section
11.7 Termination;
Limited Survival. In
their
sole and absolute discretion, Borrowers and Lender may each, at any time that
no
Obligations are owing, elect in a notice delivered
to the other to terminate this Agreement. Upon receipt of such a notice, if
no
Obligations
are then owing, this Agreement and all other Loan Documents shall thereupon
be
terminated and the parties thereto released from any prospective obligations
thereunder. Notwithstanding
the foregoing or anything herein to the contrary, any waivers or admissions
made
by
Borrowers or Lender in any Loan Documents, and any obligations which any Person
may
have
to indemnify or compensate Lender shall survive any termination of this
Agreement or any other Loan Document. At the request and expense of Borrowers,
Lender shall prepare and execute
all necessary instruments to reflect and effect such teiiiiination of the Loan
Documents; provided,
however, that
nothing in this Section
11.7
shall
affect any and all continuing rights, validity
and enforceability of the ORRI.
Section
11.8 Severability.
If
any
teiin or provision of any Loan Document shall be deteimined to be illegal or
unenforceable, all other terms and provisions of the Loan Documents shall
nevertheless remain effective and shall be enforced to the fullest extent
permitted by applicable law.
Section
11.9 Counterparts.
This
Agreement may be separately executed in any number
of
counterparts and by different parties hereto in separate counterparts, each
of
which when
so
executed shall be deemed to constitute one and the same Agreement.
SCction
11.10 Further
Assurances. The
parties agree (a) to furnish upon request to each
other such information, (b) to execute and deliver to each other such documents,
and (c) to do
such
other acts and things, all as the other party may reasonably request for the
purpose of carrying
out the intent of this Agreement and the Loan Documents.
Section
11.11 Waiver
of Jury Trial, Punitive Damages, Etc. EACH
BORROWER AND
LENDER HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVE,
TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT THEY MAY HAVE TO A TRIAL
BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT
ANY
TIME ARISING OUT OF, UNDER
OR
IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY TRANSACTION
CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR
AFTER
MATURITY; (b) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED
BY LAW ANY RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY
SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES OR DAMAGES OTHER THAN, OR IN ADDITION TO,
921350
ACTUAL
DAMAGES; (c) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR
COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE OR IMPLIED
THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(d)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY
AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED
IN THIS SECTION
11.11.
Section
11.12 Controlling
Provision Upon Conflict. Except
as
may be expressly provided
otherwise herein, in the event of a conflict between the provisions of this
Agreement and
those
of any other Loan Document or any other instrument referred to herein or
executed in connection
with this Agreement, the provisions of this Agreement shall
control.
Section
11.13 Promotional
Sale of Leases; ▇▇▇.▇▇▇▇ of
Promoted Interest. Subject
to the
other
terms and conditions of this Section
11.13
and
if no
Event of Default exists, Borrowers may,
from
time to time and prior to the spudding of a well on an undeveloped Lease or
Unit, sell, convey,
or otherwise transfer ("Sell") for cash or other valuable consideration (each
transaction being
a
"Sale") pursuant to an Industry Agreement one or more interests in such
undeveloped Lease
or
Unit (each a "Promoted
Interest") to
any
Person other than Parent or an Affiliate of Parent or either Borrower;
provided,
however, that
Borrowers shall not be authorized to Sell a Promoted Interest under this
Section
11.13
if,
after
giving effect to the contemplated Sale, (i)
Borrowers'
remaining Net Revenue Interest in the applicable Lease or Unit would be less
than 50%
of
its Net Revenue Interest in such Lease or Unit immediately prior to such Sale
or
(ii)
Borrowers'
remaining Working Interest in such Lease or Unit would be less than
25%.
(a) Proceeds
from Sale of Promoted Interests. Notwithstanding
Section
11.13(a) above,
Borrower shall promptly (and in any event within one Business Day following
its
receipt thereof) deposit all Gross Promotional Proceeds in the Lockbox.
Borrowers
authorize Lenders to retain such Gross Proceeds in the Lockbox until
disbursed
pursuant to Section
11.13(c) below.
Promptly following the completion or abandonment
of a Promoted Well, Borrowers shall deliver to Lenders a certificate (the
"Promoted
Well Cost Certificate"), signed
by
an authorized officer of each Borrower, setting
forth in reasonable detail (and supported by documentation acceptable to Lender)
Borrowers'
calculation of the Promoted Well Drilling Costs and the Net Promotional
Proceeds,
if any, for such Promoted Well.
(b) Return
of Drilling Costs. Following
Lender's approval of the Promoted Well
Cost
Certificate, Lender will return to Borrower the lesser of (i)
the
Gross
Promotional
Proceeds on deposit in the Lockbox with respect to such Promoted Well or
(ii)
the
Promoted Well Drilling Costs related to such Promoted Well.
(c)
Disbursement
of Net Promotional Proceeds. Following
the disbursement of
the
amount described in Section
11.13(c) above,
Borrowers irrevocably authorize and direct Lender to disburse the Net
Promotional Proceeds, if any, as follows:
(i) eighty-five
percent (85%) to Lender to be applied as a prepayment
of
the
Obligations; and
92135011
(ii) fifteen
percent (15%) to Borrowers to be used in accordance with
this
Agreement.
(d) Lender's
ORRI on Promoted Interests. Notwithstanding
Borrowers' Sale of
a
Promoted Interest pursuant to this Section
11.13,
Lender
will be entitled to receive and
Borrowers shall convey to Lenders the ORRI in accordance with Section
8.4 above,
proportionately
reduced to the highest Working Interest to which Borrower is or may become
entitled pursuant to the terms and conditions of the Industry Agreement pursuant
to
which
such Promoted Interest was Sold.
(e) Partial
Release of Lien on Promoted Interests. To
the
extent Borrowers Sell
a
Promoted Interest in accordance with the terms and conditions of this
Section
11.13,
Lender
agrees, upon the written request of Borrowers, to promptly execute and
deliver
to Borrowers a mutually acceptable release of Lender's Lien on such Promoted
Interest.
ARTICLE
XII
ARBITRATION
Section
12.1 Arbitration.Borrowers and
Lender and any other obligor party (the "parties")
will
attempt in good faith to resolve any controversy or dispute arising out of
or
relating
to this Agreement, the Loan Documents or Collateral promptly by negotiations
between themselves.
The negotiation process may be started by the giving of written notice by any
party to
the
other parties in accordance with the terms of Section
11.3,
and
the
parties agree to negotiate
in good faith, and select an independent mediator to facilitate the negotiations
and conduct up to eight consecutive hours of mediated negotiations in Houston,
Texas within 30 days after the notice is first sent. If, within 10 days after
the initial notice, the parties are not able to agree
upon a mediator, the party originally giving the notice shall promptly notify
American Arbitration
Association ("AAA"), ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, (▇▇▇)
▇▇▇-▇▇▇▇.
AAA
will promptly designate a mediator who is independent and impartial, and AAA's
decision
about the identity of the mediator will be final and binding.
(a) No
arbitration may be commenced by any party unless and until a negotiation
complying with the foregoing paragraph has been completed, and no litigation
or
other proceeding may ever be instituted at any time in any court for the
purpose
of adjudicating, interpreting or, except as may be set forth in Section
12.1(h), enforcing
any rights or obligations of the parties hereto or any rights or obligations
relating
to the subject matter hereof, whether or not covered by the express terms of
this Agreement,
or for the purpose of adjudicating a breach or determination of the validity
of
this
Agreement, or for the purpose of appealing any decision of an
arbitrator.
(b) If
a
controversy or dispute is not resolved after completion of the negotiation
process described above, then, upon notice by any party to the other parties
(an
"Arbitration
Notice") and
to
AAA, the controversy or dispute shall be submitted to an arbitration
panel for binding arbitration in Houston, Texas, in accordance with AAA's
Commercial
Arbitration Rules (the "Rules").
The
parties agree that they will faithfully observe
this Agreement and the Rules and that they will abide by and perform any
award
92135011
rendered
by the arbitration panel. The arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. Section 1-16 (or by the same principles enunciated
by
such Act in
the
event it may not be technically applicable). The award or judgment of the
arbitration
panel shall be final and binding on all parties and judgment upon the award
or
judgment
of the arbitration panel may be entered and enforced by any court having
jurisdiction.
If any party becomes the subject of a bankruptcy, receivership or other
similar
proceeding under the laws of the United States of America, any state or
commonwealth or any other nation or political subdivision thereof, then, to
the
extent permitted
or not prohibited by applicable law, any factual or substantive legal issues
arising
in or during the pendency of any such proceeding shall be subject to all of
the
foregoing mandatory mediation and arbitration provisions and shall be resolved
in accordance
therewith. The agreements contained herein have been given for valuable
consideration,
are coupled with an interest and are not intended to be executory contracts.
The
fees
and expenses of the arbitration panel will be shared by all parties engaged
in
the dispute
or controversy on a basis determined to be fair and equitable by the arbitrator,
taking
into account the relative fault of each party, the relative credibility and
merit of all claims
and defenses made by each party and the cooperation, speed and efficiency of
each
party in conducting the arbitration proceedings and complying with the Rules
and
with
orders and requests of the arbitrator.
(c) Promptly
after the Arbitration Notice is given, each party will select an independent
and
impartial arbitrator who will in turn select an independent and impartial
third
arbitrator (each such arbitrator must be experienced or have extensive
familiarity with
the
oil and gas industry). If the arbitrators selected by the parties are unable
to
agree on
a
third arbitrator, then one of the parties shall notify AAA and AAA shall select
the third
arbitrator with oil and gas industry experience or familiarity. The decision
of
AAA with respect to the selection of the arbitrator will be final and binding
in
such case. Such three
arbitrators will constitute the arbitration panel.
(d) Within
10
days after the selection of the arbitration panel, the parties and their
counsel will appear before the arbitration panel at a place and time in Houston,
Texas,
as
may be designated by the arbitration panel for the purpose of each party making
a
one
hour or less presentation and summary of the case. Thereafter, the arbitration
panel will
set
dates and times for additional hearings until the proceeding is concluded.
The
desire and goal of the parties is, and the arbitration panel will be advised
that its goal should
be, to conduct and conclude the arbitration proceeding as expeditiously as
possible. If any party or his counsel fails to appear at any scheduled hearing,
the arbitration
panel shall be entitled to reach a decision based on the evidence which has
been
presented to it by the parties who did appear. Any arbitral award may be
confirmed by a Texas state court.
(e)
Any
arbitral award may be enforced in the courts of the state of Texas or
of
the
United States of America for the Southern District of Texas, and, by execution
and delivery
of this Agreement, the parties hereby accept for themselves and in respect
of
their
property, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts for said purpose and the parties hereby irrevocably waive
to
the fullest extent
permitted by law any objection, including without limitation, any objection
to
the
921356_11
laying
of
venue or based on the grounds of forum non conveniens, which they may now
or
hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions_
(0
The
arbitration panel will have no authority to award punitive or other damages
not measured by the prevailing party's actual damages and may not, in any
event,
make any ruling, finding, or award that does not conform to the terms and
conditions
of this Agreement.
(g)
The
provisions of this Section
12.1
relating
to arbitration of disputes shall not
apply
to litigation that is instituted for the sole purpose of either: (i) compelling
a party
to
submit to arbitration in accordance with the provisions of this Section
12.1, (ii)
obtaining
enforcement of any award or judgment of the arbitrator(s) issued pursuant to
this
Section
12.1,
or
(iii)
Lender's enforcement of any rights or remedies under this Agreement
or any Security Documents arising out of an Event of Default.
ARTICLE
XIII
NOTICE
TO BORROWERS
THIS
WRITTEN CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS BETWEEN THE PARTIES
REPRESENT THE FINAL EXPRESSION OF THE AGREEMENTS BETWEEN THE PARTIES. THIS
WRITTEN CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS BETWEEN , THE PARTIES
MAY
NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.
THERE
ARE
NO UNWRITTEN, ORAL AGREEMENTS BETWEEN THE PARTIES.
[signature
page follows]
921350_11
IN
WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
921350_11.DOC
[Missing
Graphic Reference]
B
BORROWERS:Westside
Energy Production Company, LP, a
Texas
limited partnership
By:
Westside
Energy GP, L.L.C.
By:
By:
Westside
Energy GP, L.L.C.
a
Texas
limited liability company,
its
general partner
[Missing
Graphic Reference]
By:
GUARANTOR:[Missing
Graphic Reference]
By:
LENDER:GasRock
Capital LLC,
a
Delaware limited liability company