CREDIT AGREEMENT
BY AND AMONG
ENERGY CORPORATION OF AMERICA,
A WEST VIRGINIA CORPORATION
AS BORROWER,
THE LENDERS THAT ARE SIGNATORIES HERETO
AS THE LENDERS,
AND
FOOTHILL CAPITAL CORPORATION
AS THE ARRANGER AND ADMINISTRATIVE AGENT
DATED AS OF JULY 10, 2002
TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.3 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.4 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.5 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2. LOAN AND TERMS OF PAYMENT.. . . . . . . . . . . . . . . . . . . . . . . . . 28
2.1 Revolver Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.2 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.3 Borrowing Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.4 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.5 Overadvances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations 40
2.7 Cash Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.8 Crediting Payments; Float Charge. . . . . . . . . . . . . . . . . . . . . . 44
2.9 Designated Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.10 Maintenance of Loan Account; Statements of Obligations. . . . . . . . . . . 45
2.11 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
2.12 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2.13 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2.14 Capital Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2.15 Intentionally Deleted.. . . . . . . . . . . . . . . . . . . . . . . . . . . 50
2.16 Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
2.17 Noteless Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3. CONDITIONS; TERMS OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . 52
3.1 Conditions Precedent to the Initial Extension of Credit . . . . . . . . . . 52
3.2 Conditions Subsequent to the Initial Extension of Credit. . . . . . . . . . 56
3.3 Conditions Precedent to all Extensions of Credit. . . . . . . . . . . . . . 56
3.4 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.5 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.6 Early Termination by Borrower . . . . . . . . . . . . . . . . . . . . . . . 57
4. INTENTIONALLY DELETED.. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . 58
5.1 No Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.2 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.3 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
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5.4 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.5 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.6 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.7 Location of Chief Executive Office; FEIN. . . . . . . . . . . . . . . . . . 59
5.8 Due Organization and Qualification; Subsidiaries. . . . . . . . . . . . . . 59
5.9 Due Authorization; No Conflict. . . . . . . . . . . . . . . . . . . . . . . 60
5.10 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.11 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . . 61
5.12 Fraudulent Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.13 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.14 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.15 Brokerage Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.17 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.18 DDAs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.19 Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
5.20 Permitted Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.21 Investment and Holding Company Status . . . . . . . . . . . . . . . . . . . 63
5.22 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.24 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.25 Claims and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.26 Borrowing Base Properties . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.27 Operations of Borrowing Base Properties . . . . . . . . . . . . . . . . . . 65
5.28 Hedging Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.29 Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.30 Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.31 Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.32 Indenture-Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
5.33 Common Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
5.34 Gathering Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6. AFFIRMATIVE COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.1 Accounting System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.2 Collateral Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.3 Financial Statements, Reports, Certificates . . . . . . . . . . . . . . . . 68
6.4 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
6.5 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
6.6 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . 70
6.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
6.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
6.9 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
6.10 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
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6.11 Payment of Trade Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 72
6.12 Brokerage Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
6.13 Existence.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
6.14 Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
6.15 Disclosure Updates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
6.16 Notices of Material Events. . . . . . . . . . . . . . . . . . . . . . . . . 73
6.17 Information Regarding Collateral. . . . . . . . . . . . . . . . . . . . . . 74
6.18 Payment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 74
6.19 Books and Records; Inspection and Audit Rights. . . . . . . . . . . . . . . 74
6.20 Use of Proceeds and Letters of Credit . . . . . . . . . . . . . . . . . . . 75
6.21 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
6.22 Maintenance and Operation of Borrowing Base Properties. . . . . . . . . . . 76
6.23 Collateral Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
6.24 Obligation to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
6.25 Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
7.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
7.3 Restrictions on Fundamental Changes . . . . . . . . . . . . . . . . . . . . 80
7.4 Disposal of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
7.5 Change Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
7.6 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
7.7 Nature of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
7.8 Prepayments and Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 81
7.9 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
7.10 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
7.11 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
7.12 Accounting Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
7.13 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
7.14 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . 83
7.15 Suspension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
7.16 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
7.17 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees. . . . . . . . . . . . . . . . . . . . 83
7.19 Securities Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
7.20 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
7.21 Hedging Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
7.22 Amendments to Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8. EVENTS OF DEFAULT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
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9. THE LENDER GROUP'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . 86
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
9.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
10. TAXES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11. WAIVERS; INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.1 Demand; Protest.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.2 The Lender Group's Liability for Collateral . . . . . . . . . . . . . . . . 88
11.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
12. NOTICES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . . . 90
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. . . . . . . . . . . . . . . . . 92
14.1 Assignments and Participations. . . . . . . . . . . . . . . . . . . . . . . 92
14.2 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
15. AMENDMENTS; WAIVERS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
15.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 95
15.2 Replacement of Holdout Lender . . . . . . . . . . . . . . . . . . . . . . . 96
15.3 No Waivers; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . 96
16. AGENT; THE LENDER GROUP.. . . . . . . . . . . . . . . . . . . . . . . . . . 97
16.1 Appointment and Authorization of Agent. . . . . . . . . . . . . . . . . . . 97
16.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
16.3 Liability of Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
16.4 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
16.5 Notice of Default or Event of Default . . . . . . . . . . . . . . . . . . . 98
16.6 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
16.7 Costs and Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . 99
16.8 Agent in Individual Capacity. . . . . . . . . . . . . . . . . . . . . . . . 100
16.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
16.10 Lender in Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . 101
16.11 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
16.12 Collateral Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
16.13 Restrictions on Actions by Lenders; Sharing of Payments . . . . . . . . . . 104
16.14 Agency for Perfection . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
16.15 Payments by Agent to the Lenders. . . . . . . . . . . . . . . . . . . . . . 105
16.16 Concerning the Collateral and Related Loan Documents. . . . . . . . . . . . 105
16.17 Field Audits and Examination Reports; Confidentiality;
Disclaimers by Lenders; Other Reports and Information . . . . . . . . . . . 106
16.18 Several Obligations; No Liability . . . . . . . . . . . . . . . . . . . . . 107
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16.19 Legal Representation of Agent . . . . . . . . . . . . . . . . . . . . . . . 107
17. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
17.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
17.2 Section Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
17.3 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
17.4 Severability of Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 108
17.5 Amendments in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
17.6 Counterparts; Telefacsimile Execution . . . . . . . . . . . . . . . . . . . 108
17.7 Revival and Reinstatement of Obligations. . . . . . . . . . . . . . . . . . 108
17.8 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
17.9 License to Gathering Systems. . . . . . . . . . . . . . . . . . . . . . . . 109
17.10 Agency of the Borrower for Each Pledging Subsidiary . . . . . . . . . . . . 109
17.11 Development Projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
17.12 Reserve Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
EXHIBIT A-1 . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 1
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FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT . . . . . . . . . . . . . . . . 1
[Remainder of page left intentionally blank.] . . . . . . . . . . . . . 2
ANNEX FOR ASSIGNMENT AND ACCEPTANCE ANNEX I . . . . . . . . . . . . . 4
EXHIBIT P-1
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PARTNERSHIPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
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EXHIBITS AND SCHEDULES
Exhibit A-1 . . . . . . . . . Form of Assignment and Acceptance
Exhibit C-1 . . . . . . . . . Form of Compliance Certificate
Schedule C-1. . . . . . . . . Commitments
Schedule D-1. . . . . . . . . Designated Account
Schedule L-1. . . . . . . . . Agent's Account
Schedule P-1. . . . . . . . . Partnerships
Schedule 2.7(a) . . . . . . . Cash Management Banks
Schedule 5.1(a) . . . . . . . Borrowing Base Properties
Schedule 5.1(b) . . . . . . . Material Contracts
Schedule 5.7. . . . . . . . . Chief Executive Office; FEIN
Schedule 5.8(b) . . . . . . . Capitalization of Borrower
Schedule 5.8(c) . . . . . . . Capitalization of Borrower's Subsidiaries
Schedule 5.10 . . . . . . . . Litigation
Schedule 5.14 . . . . . . . . Environmental Matters
Schedule 5.16 . . . . . . . . Intellectual Property
Schedule 5.18 . . . . . . . . Demand Deposit Accounts
Schedule 5.20 . . . . . . . . Permitted Indebtedness
Schedule 5.22 . . . . . . . . Taxes
Schedule 5.23 . . . . . . . . Insurance
Schedule 5.25 . . . . . . . . Claims and Liabilities
Schedule 5.26(b). . . . . . . Cumulative Imbalances in Gas Production
and "Take or Pay" Payments
Schedule 5.27 . . . . . . . . Non-Pledging Subsidiary Operators
Schedule 5.28 . . . . . . . . Hedging Agreements
Schedule 5.32 . . . . . . . . Defaulted Indenture Documents
Schedule 6.2(c) . . . . . . . Total Value of Total Proved Developed
Producing Preserves
Schedule 7.2. . . . . . . . . Liens
Schedule 7.13 . . . . . . . . Existing Investments
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CREDIT AGREEMENT
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THIS CREDIT AGREEMENT (this "Agreement"), is entered into as of July 10,
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2002, between and among, on the one hand, the lenders identified on the
signature pages hereof (such lenders, together with their respective successors
and assigns, are referred to hereinafter each individually as a "Lender" and
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collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a California
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corporation, as the arranger and administrative agent for the Lenders ("Agent"),
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and, on the other hand, ENERGY CORPORATION OF AMERICA, a West Virginia
corporation ("Borrower").
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The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS.
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As used in this Agreement, the following terms shall have the following
definitions:
"A&W" means Allegheny & Western Energy Corporation, a West Virginia corporation.
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"Account Debtor" means any Person who is or who may become obligated under, with
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respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising accounts, contract
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rights, and all other forms of obligations owing to Borrower or any of its
Subsidiaries, arising from its partnership or other interest in any of the
Partnerships or out of the sale or lease of goods, Hydrocarbons, or Oil and Gas
Properties or the rendition of services by Borrower or any of its Subsidiaries,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"ACH Transactions" means any cash management or related services (including
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the Automated Clearing House processing of electronic funds transfers through
the direct Federal Reserve Fedline system) provided by ▇▇▇▇▇ Fargo or its
Affiliates for the account of Borrower or its Subsidiaries.
"Advances" has the meaning set forth in Section 2.1(a).
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"Affiliate" means, as applied to any Person, any other Person who, directly or
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indirectly, controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct the management and policies of a
Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, in any event, (a) any Person which owns directly or
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indirectly 11.5% or more of the securities having ordinary voting power for the
election of directors or other members of the governing body of a Person or
11.5% or more of the partnership or other ownership interests of a Person (other
than as a limited partner of such Person) shall be deemed to control such
Person; (b) each director (or comparable manager) of a Person shall be deemed to
be an Affiliate of such Person; and (c) each partnership or joint venture in
which a Person is a partner or joint venturer shall be deemed to be an Affiliate
of such Person.
"Agent" means Foothill, solely in its capacity as agent for the Lenders
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hereunder, and any successor thereto.
"Agent's Account" means an account at a bank designated by Agent from time to
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time as the account into which Borrower shall make all payments to Agent for the
benefit of the Lender Group and into which the Lender Group shall make all
payments to Agent under this Agreement and the other Loan Documents; unless and
until Agent notifies Borrower and the Lender Group to the contrary, Agent's
Account shall be that certain deposit account bearing account number 323-266193
and maintained by Agent with The Chase Manhattan Bank, 4 New York Plaza, 15th
Floor, New York, New York 10004, ABA #▇▇▇▇▇▇▇▇▇.
"Agent Advances" has the meaning set forth in Section 2.3(e)(i).
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"Agent's Liens" means the Liens granted by Borrower and its Subsidiaries to
--------------
Agent for the benefit of the Lender Group under the Loan Documents.
"Agent-Related Persons" means Agent together with its Affiliates, officers,
----------------------
directors, employees, and agents.
"Agreement" has the meaning set forth in the preamble hereto.
---------
"Applicable Margin" means, on any day, and with respect to any Advance, the
------------------
applicable per annum percentage set forth in the table shown below, based on the
average monthly Revolver Usage for the immediately preceding month:
Average Monthly Margin over
Revolver Usage Base Rate
---------------- -------------
$0 to $10,000,000.00 0.50%
$10,000,000.01 to $20,000,000.00 1.50%
$20,000,000.01 to $50,000,000.00 2.50%
It is understood and agreed that for the period from and after the date of
the first Advance until the date of the initial calculation of average monthly
Revolver Usage, the Applicable Margin shall be 1.50%.
-2-
"Applicable Prepayment Premium" means, as of any date of determination, an
------------------------------
amount equal to (a) during the period of time from and after the date of the
execution and delivery of this Agreement up to the date that is the first
anniversary of the Closing Date, 3% times the Maximum Revolver Amount, (b)
during the period of time from and including the date that is the first
anniversary of the Closing Date up to the date that is the second anniversary of
the Closing Date, 2% times the Maximum Revolver Amount, and (c) during the
period of time from and including the date that is the second anniversary of the
Closing Date up to the Maturity Date, 1% times the Maximum Revolver Amount.
"Approved Engineer" means ▇▇▇▇▇ ▇▇▇▇▇ Company Petroleum Consultants or any other
-----------------
independent petroleum engineer satisfactory to Lender.
"Assignee" has the meaning set forth in Section 14.1(a).
-------- ----------------
"Assignment and Acceptance" means an Assignment and Acceptance in the form of
---------------------------
Exhibit A-1.
------------
"Authorized Person" means any officer or other employee of Borrower.
------------------
"Availability" means, as of any date of determination, if such date is a
------------
Business Day, and determined at the close of business on the immediately
preceding Business Day, if such date of determination is not a Business Day, the
amount that Borrower is entitled to borrow as Advances under Section 2.1(after
-----------
giving effect to all then outstanding Obligations (other than Bank Products
Obligations) and all sublimits and reserves applicable hereunder).
"Bank Product Agreements" means those certain cash management service agreements
-----------------------
entered into from time to time by Borrower or its Subsidiaries in connection
with any of the Bank Products.
"Bank Product Obligations" means all obligations, liabilities, contingent
--------------------------
reimbursement obligations, fees, and expenses owing by Borrower or its
Subsidiaries to ▇▇▇▇▇ Fargo or its Affiliates pursuant to or evidenced by the
Bank Product Agreements and irrespective of whether for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all such amounts that Borrower or
any Subsidiary is obligated to reimburse to Agent or any member of the Lender
Group as a result of Agent or such member of the Lender Group purchasing
participations or executing indemnities or reimbursement obligations with
respect to the Bank Products provided to Borrower or its Subsidiaries pursuant
to the Bank Product Agreements.
"Bank Products" means any service or facility extended to Borrower or its
--------------
Subsidiaries by ▇▇▇▇▇ Fargo or any Affiliate of ▇▇▇▇▇ Fargo including: (a)
credit cards, (b) credit card processing services, (c) debit cards, (d) purchase
cards, (e) ACH Transactions, (f) cash management, including controlled
disbursement, accounts or services, or (g) Hedging Agreements.
-3-
"Bank Product Reserves" means, as of any date of determination, the amount of
-----------------------
reserves that Lender has established (based upon ▇▇▇▇▇ Fargo's or its
Affiliate's reasonable determination of the credit exposure in respect of then
extant Bank Products) for Bank Products then provided or outstanding.
"Bankruptcy Code" means the United States Bankruptcy Code, as in effect from
----------------
time to time.
"Base Rate" means, the rate of interest announced within ▇▇▇▇▇ Fargo at its
----------
principal office in San Francisco as its "prime rate", with the understanding
that the "prime rate" is one of ▇▇▇▇▇ Fargo's base rates (not necessarily the
lowest of such rates) and serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto and is
evidenced by the recording thereof after its announcement in such internal
publication or publications as ▇▇▇▇▇ Fargo may designate.
"Basis Differential" means, in the case of any Borrowing Base Properties, the
-------------------
difference between the NYMEX futures contract prices and the sales prices at the
delivery point where the oil and gas, as the case may be, produced by such
Borrowing Base Property is sold.
"Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of
------------- -------------
ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of Borrower has
been an "employer" (as defined in Section 3(5) of ERISA) within the past six
------------
years.
"Board of Directors" means the board of directors (or comparable managers) of
--------------------
Borrower or any committee thereof duly authorized to act on behalf thereof.
"Book Net Worth" means, as of any date of determination, all amounts which, in
----------------
conformity with GAAP, would be included as shareholder equity on a consolidated
balance sheet of Borrower and its Subsidiaries.
"Books" means all of Borrower's and its Subsidiaries' now owned or hereafter
-----
acquired books and records (including all of its Records indicating,
summarizing, or evidencing their assets (including the Collateral) or
liabilities, all of Borrower's and its Subsidiaries' Records relating to its or
their business operations or financial condition, and all of its and their goods
or general intangibles related to such information).
"Borrower" has the meaning set forth in the preamble to this Agreement.
--------
-4-
"Borrower's Security Agreement" means the Security Agreement executed by
-------------------------------
Borrower assigning to Agent, and granting Agent a security interest in, the
Intercompany Notes, in form, scope, and substance acceptable to Agent.
"Borrowing" means a borrowing hereunder of an Advance.
---------
"Borrowing Base" has the meaning set forth in Section 2.1(a).
--------------- ---------------
"Borrowing Base Properties" means the Mortgaged Properties and the Oil and Gas
---------------------------
Properties of the Partnerships, including, without limitation, the Oil and Gas
Properties set forth on Schedule 5.1(a).
----------------
"Business Day" means any day that is not a Saturday, Sunday, or other day on
-------------
which national banks are authorized or required to close.
"Capital Lease" means a lease that is required to be capitalized for
--------------
financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means any Indebtedness represented by obligations
----------------------------
under a Capital Lease.
"Cash Equivalents" means (a) marketable direct obligations issued or
-----------------
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or ▇▇▇▇▇'▇,
(c) commercial paper maturing no more than 1 year from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or ▇▇▇▇▇'▇, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or
▇▇▇▇▇'▇, or (ii) certificates of deposit less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation.
"Cash Management Account" has the meaning set forth in Section 2.7(a).
------------------------- ---------------
"Cash Management Agreements" means those certain cash management service
----------------------------
agreements, in form and substance satisfactory to Agent, each of which is among
Borrower, Agent, and one of the Cash Management Banks.
"Cash Management Bank" has the meaning set forth in Section 2.7(a).
---------------------- ---------------
-5-
"CERCLA" means the Comprehensive Environmental Response Corporation, and
------
Liability Act of 1980, 42 U.S.C. Section 9601, et. seq., as amended from time to
time.
"Change of Control" means (a) any "person" or "group" (within the meaning of
-------------------
Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 10%,
or more, of the Stock of Borrower having the right to vote for the election of
members of the Board of Directors, or (b) a majority of the members of the Board
of Directors do not constitute Continuing Directors, or (c) Borrower ceases to
own and control, directly or indirectly, 100% of the outstanding capital Stock
of each of the Pledging Subsidiaries.
"Closing Date" means the date of the making of the initial Advance (or other
-------------
extension of credit) hereunder or the date on which Agent sends Borrower a
written notice that each of the conditions precedent set forth in Section 3.1
either have been satisfied or have been waived.
"Closing Date Business Plan" means the set of Projections of Borrower and its
-----------------------------
Subsidiaries for the last fiscal quarter of fiscal year 2002, and for the fiscal
year end of 2003, in form and substance (including as to scope and underlying
assumptions) satisfactory to Lender.
"Code" means the Georgia Uniform Commercial Code, as in effect from time to
----
time.
"Collateral" means all assets and properties of Borrower and its Subsidiaries,
----------
now owned or hereafter acquired, upon which a Lien is purported to be created by
any of the Loan Documents.
"Collateral Access Agreement" means a landlord waiver, bailee letter, or
-----------------------------
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in the Equipment or Inventory, in each case, in form and substance satisfactory
to Agent.
"Collections" means all cash, checks, notes, instruments, and other items of
-----------
payment (including insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds) of Borrower and each of its Subsidiaries including, its rights
to distributions from the Partnerships.
"Commitment" means, with respect to each Lender, its Revolver Commitment or its
----------
Total Commitment, as the context requires, and, with respect to all Lenders,
their Revolver Commitments or their Total Commitments, as the context requires,
in each case as such Dollar amounts are set forth beside such Lender's name
under the applicable heading on Schedule C-1 or on the signature page of the
------------
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 14.1.
-------------
-6-
"Compliance Certificate" means a certificate substantially in the form of
-----------------------
Exhibit C-1 delivered by the president or chief financial officer of Borrower to
----------
Agent.
"Continuing Director" means (a) any member of the Board of Directors who was a
--------------------
director (or comparable manager) of Borrower on the Closing Date, and (b) any
individual who becomes a member of the Board of Directors after the Closing Date
if such individual was appointed or nominated for election to the Board of
Directors by a majority of the Continuing Directors, but excluding any such
individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Borrower (as such terms are used in Rule 14a-11 under the Exchange Act) and
whose initial assumption of office resulted from such contest or the settlement
thereof.
"Contribution Agreement" means the Contribution and Indemnification Agreement
-----------------------
among Borrower and the Pledging Subsidiaries.
"Control Agreement" means a control agreement, in form and substance
------------------
satisfactory to Agent, executed and delivered by the Borrower or any of its
Subsidiaries, Agent, and the applicable securities intermediary with respect to
a Securities Account or a bank with respect to a DDA.
"Daily Balance" means, with respect to each day during the term of this
--------------
Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking or other demand deposit account maintained by Borrower
or any Subsidiary.
"Default" means an event, condition, or default that, with the giving of notice,
-------
the passage of time, or both, would be an Event of Default.
"Defaulting Lender" means any Lender that fails to make any Advance (or other
------------------
extension of credit) that it is required to make hereunder on the date that it
is required to do so hereunder.
"Defaulting Lender Rate" means (a) the Base Rate for the first 3 days from and
------------------------
after the date the relevant payment is due, and (b) thereafter, at the interest
rate then applicable to Advances (inclusive of the Applicable Margin applicable
thereto).
"Designated Account" means that certain DDA of Borrower identified on Schedule
------------------- --------
D-1.
--
"Designated Account Bank" means ▇▇▇▇▇▇ Bank.
-------------------------
-7-
"Disbursement Letter" means an instructional letter executed and delivered by
--------------------
Borrower to Agent regarding the extensions of credit to be made on the Closing
Date, the form and substance of which is satisfactory to Agent.
"Dollars" or "$" means United States dollars.
------- -
"Due Diligence Letter" means the due diligence letter sent by Agent's counsel to
--------------------
Borrower, together with Borrower's completed responses to the inquiries set
forth therein, the form and substance of such responses to be satisfactory to
Agent.
"Eastern American" means Eastern American Energy Corporation, a West Virginia
-----------------
corporation.
"EBITDAX" means, with respect to any fiscal period, Borrower's and its
-------
Subsidiaries' consolidated net earnings (or loss), as determined in accordance
with GAAP, minus extraordinary gains, plus extraordinary losses, minus gain on
sale of Permitted Dispositions, plus loss on sale of Permitted Dispositions,
plus interest expense, income taxes, depletion, depreciation and amortization,
exploration and impairment expense, and valuation losses that recognize changes
in the value of derivatives minus valuation gains that recognize changes in the
value of derivatives to the extent that such changes in the value of derivatives
were included in consolidated net earnings (or loss) plus cash received from
Permitted Dispositions to the extent that such cash is paid to Agent for
application to the Obligations.
"Eligible Proved Developed Producing Reserves" means the Eligible Proved
------------------------------------------------
Developed Producing Reserves of the Partnerships and the Eligible Proved
Developed Producing Reserves of the Pledging Subsidiaries, the Hydrocarbons from
which are directly deliverable from the ▇▇▇▇▇ to the Gathering System or to a
transporter or buyer which is a non-Affiliate of Borrower or its Subsidiaries.
"Eligible Proved Developed Producing Reserves of the Partnerships"
--------------------------------------------------------------------
means the Proved Developed Producing Reserves of the Partnerships that (a) are
identified on Schedule 5.1(a), and (b) comply in all material respects with each
---------------
and all of the representations and warranties made by Borrower to Agent in the
Loan Documents. An item of Proved Developed Producing Reserves of the
Partnerships shall not be included in Eligible Proved Developed Producing
Reserves of the Partnerships if:
(i) the applicable Partnership is not Solvent or subject to an Insolvency
Proceeding;
(ii) it is not owned by the applicable Partnership, or the applicable
Partnership does not have good, valid, and indefeasible title thereto, or the
title information relating thereto is not satisfactory;
-8-
(iii) Borrower and its Subsidiaries have not assigned to Agent and granted
Agent a first priority perfected security interest in and to their interests in
the applicable Partnership and their share of monies, distributions, profits and
revenues from the Partnership;
(iv) any consents or approvals required for Borrower or any of its
Subsidiaries to assign or grant a security interest in accordance with (iii)
above have not been obtained and delivered to Agent; or
(v) it is subject to a Lien in favor of a Person (other than Agent) or any
order, judgment, writ, or decree which either restricts or purports to restrict
the ability of the applicable Partnership to grant Liens to Persons on or in
respect of its assets and properties; other than Permitted Liens.
"Eligible Proved Developed Producing Reserves of the Pledging Subsidiaries"
------------------------------------------------------------------------------
means the Proved Developed Producing Reserves of the Pledging Subsidiaries that
(a) are subject to a duly executed and recorded Mortgage that creates a valid
and enforceable first priority perfected lien on and security interest in the
Oil and Gas Properties attributable thereto; (b) are identified on Schedule
--------
5.1(a); and (c) comply in all material respects with each and all of the
-----
representations and warranties made by the Pledging Subsidiaries to Agent in the
Loan Documents. An item of Proved Developed Producing Reserves of the Pledging
Subsidiaries shall not be included in Eligible Proved Developed Producing
Reserves of the Pledging Subsidiaries if:
(i) the Pledging Subsidiary is not Solvent or subject to an Insolvency
Proceeding;
(ii) it is not owned by a Pledging Subsidiary or a Pledging Subsidiary does
not have good, valid, and indefeasible title thereto, or the title information
relating thereto is not satisfactory to Agent;
(iii) it is not subject to a valid, enforceable and perfected first priority
Lien and security interest in favor of Agent created by a duly executed and
recorded Mortgage;
(iv) any consents or approvals required for its valid transfer, assignment,
pledge or mortgage have not been obtained and delivered to Agent; or
(v) it is subject to a Lien in favor of any third Person or any order,
judgment, writ, or decree which either restricts or purports to restrict the
ability of Borrower or a Pledging Subsidiary to grant Liens to other Persons on
or in respect of its respective assets or properties, other than Permitted
Liens.
-9-
"Eligible Transferee" means (a) a commercial bank organized under the laws
--------------------
of the United States, or any state thereof, and having total assets in excess of
$250,000,000, (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country and which has total
assets in excess of $250,000,000, provided that such bank is acting through a
branch or agency located in the United States, (c) a finance company, insurance
company, or other financial institution or fund that is engaged in making,
purchasing, or otherwise investing in commercial loans in the ordinary course of
its business and having (together with its Affiliates) total assets in excess of
$250,000,000, (d) any Affiliate (other than individuals) of a Lender that was
party hereto as of the Closing Date, (e) so long as no Event of Default has
occurred and is continuing, any other Person approved by Agent and Borrower, and
(f) during the continuation of an Event of Default, any other Person approved by
Agent.
"Energy Business" means (a) the acquisition, exploration, exploitation,
----------------
development, operation and disposition of interests in Oil and Gas Properties;
(b) the gathering, marketing, treating, processing, storage, selling and
transporting of any production from such interests or properties including,
without limitation, the marketing of Hydrocarbons obtained from third Persons;
(c) any business relating to or arising from exploration for or development,
production, treatment, processing, storage, transportation or marketing of
Hydrocarbons, including without limitation (i) the production of electricity or
other sources of power using oil, gas or other hydrocarbon products, and (ii)
providing services in support of or incidental to any such business or activity;
and (d) any activity that is ancillary or necessary or desirable to facilitate
the activities described in clauses (a) through (c) of this definition.
"Environmental Actions" means any complaint, summons, citation, notice,
----------------------
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter, or other communication from any Governmental
Authority, or any third party involving violations of Environmental Laws or
releases of Hazardous Materials (a) from any assets, properties, or businesses
of Borrower or its Subsidiaries, or any predecessor in interest, (b) from
adjoining properties or businesses, or (c) from or onto any facilities which
received Hazardous Materials generated by Borrower or its Subsidiaries, or any
predecessor in interest.
"Environmental Law" means all laws, rules, regulations, codes, ordinances,
------------------
orders, decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release, or threatened release of any Hazardous Material or to
health and safety matters.
"Environmental Liabilities and Costs" means all liabilities, monetary
--------------------------------------
obligations, Remedial Actions, losses, damages, punitive damages, consequential
-10-
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.
"Environmental Lien" means any Lien in favor of any Governmental Authority for
-------------------
Environmental Liabilities and Costs.
"Equipment" means all of Borrower's and each Subsidiary's now owned or hereafter
---------
acquired right, title, and interest with respect to equipment, machinery,
machine tools, motors, furniture, furnishings, fixtures, vehicles (including
motor vehicles), tools, parts, and goods (other than consumer goods, farm
products, or Inventory), wherever located, including all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
-----
and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose employees are
----------------
treated as employed by the same employer as the employees of Borrower or its
Subsidiaries under IRC Section 414(b), (b) any trade or business subject to
ERISA whose employees are treated as employed by the same employer as the
employees of Borrower or its Subsidiaries under IRC Section 414(c), (c) solely
for purposes of Section 302 of ERISA and Section 412 of the IRC, any
organization subject to ERISA that is a member of an affiliated service group of
which Borrower or any of its Subsidiaries is a member under IRC Section 414(m),
or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC,
any Person subject to ERISA that is a party to an arrangement with Borrower or
any of its Subsidiaries and whose employees are aggregated with the employees of
Borrower or any of its Subsidiaries under IRC Section 414(o).
"Event of Default" has the meaning set forth in Section 8.
------------------ ----------
"Excess Availability" means the amount, as of the date any determination thereof
-------------------
is to be made, equal to Availability minus the aggregate amount, if any, of all
trade payables of Borrower and each of its Subsidiaries aged in excess of 60
days past invoice date unless disputed in good faith by appropriate proceedings
diligently conducted and for which reserves adequate under GAAP have been
established and all book overdrafts in excess of their historical practices with
respect thereto, in each case as determined by Agent in its Permitted
Discretion.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect from time
------------
to time.
-11-
"Fee Letter" means that certain fee letter, dated as of even date herewith,
-----------
between Borrower and Agent, in form and substance satisfactory to Agent.
"FEIN" means Federal Employer Identification Number.
----
"Foothill" means Foothill Capital Corporation, a California corporation.
--------
"Funding Date" means the date on which a Borrowing occurs.
-------------
"GAAP" means generally accepted accounting principles as in effect from time to
----
time in the United States, consistently applied.
"Gathering Systems" means all right, title and interest of Borrower and each of
------------------
its Subsidiaries and Affiliates in and to all (i) Hydrocarbon pipelines through
which any Hydrocarbons produced from any of the ▇▇▇▇▇ flows to, or has flowed at
any time during the preceding twelve (12) month period immediately preceding the
date of this Agreement, to a master/sales meter from which such Hydrocarbons can
be sold to, or delivered for further transport to, a non-Affiliate of Borrower
or any of its Subsidiaries ("Subject Pipelines"); (ii) meters, compressors,
-----------------
drips, stripping or other treatment plants or facilities, drips and other
facilities located on or used in connection with or related to the Subject
Pipelines; (iii) easements, rights of way, permits, licenses, road boring
agreements and similar contracts and grants pursuant to which the Subject
Pipelines were constructed or exist (whether such rights are contained in a
separate instrument or in an oil and gas lease or other instrument); and (iv)
all accounts, contract rights and general intangibles related to the
Hydrocarbons produced from the ▇▇▇▇▇.
"Governing Documents" means, with respect to any Person, the certificate or
--------------------
articles of incorporation, by-laws, or other organizational documents of such
Person.
"Governmental Approval" means (a) any authorization, consent, approval, license,
---------------------
ruling, permit, tariff, rate, certification, waiver, exemption, filing,
variance, claim, order, judgment or decree of or with, (b) any required notice
to, (c) any declaration of or with, or (d) any registration by or with, any
Governmental Authority.
"Governmental Authority" means any federal, state, local, or other governmental
-----------------------
or administrative body, instrumentality, department, or agency or any court,
tribunal, administrative hearing body, arbitration panel, commission, or other
similar dispute-resolving panel or body.
"Governmental Rule" means any statute, law, regulation, ordinance, rule,
------------------
judgment, order, decree, permit, concession, grant, franchise, license,
agreement, directive, requirement of, or other governmental restriction or any
similar binding form of decision of or determination by, or any binding
interpretation or administration of any of the foregoing by, any Governmental
Authority, whether now or hereafter in effect.
-12-
"Hazardous Materials" means (a) substances that are defined or listed in, or
--------------------
otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Hedging Agreement" means (a) any agreement providing for options, swaps,
------------------
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds or indexes
based on any of the foregoing, (b) any option futures or forward contract traded
on an exchange, and (c) any other derivative agreement or other similar
agreement or arrangement.
"Hedging Obligations" means, with respect to any Person, all liabilities
--------------------
(including but not limited to obligations and liabilities arising in connection
with or as a result of early or premature termination of a Hedging Agreement,
whether or not occurring as a result of a default thereunder) of such Person
under a Hedging Agreement.
"Highest Lawful Rate" means on any day, the maximum nonusurious rate of interest
-------------------
permitted for that day by whichever of applicable federal or Georgia law permits
the higher interest rate, stated as a rate per annum.
"Hydrocarbon Interests" means all rights, titles and interests in and to oil and
---------------------
gas leases, oil, gas and mineral leases, other Hydrocarbon leases, mineral
interests, mineral servitudes, overriding royalty interests, royalty interests,
net profits interests, production payment interests, and other similar
interests.
"Hydrocarbons" means, collectively, oil, gas, casinghead gas, drip gasoline,
------------
natural gasoline, condensate, distillate and all other liquid or gaseous
hydrocarbons and related minerals and all products therefrom, in each case
whether in a natural or a processed state.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
Property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of Property or services (excluding current
accounts payable incurred in the ordinary course of business), (f) all
-13-
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
Property owned or acquired by such Person, whether or not the Indebtedness
secured thereby has been assumed, (g) all guarantees by such Person of
Indebtedness of others, (h) all Capitalized Lease Obligations of such Person,
(i) all obligations, contingent or otherwise, of such Person as an account party
in respect of letters of credit and letters of guaranty, (j) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances, (k)
all obligations of such Person with respect to any arrangement, directly or
indirectly, whereby such Person shall sell or transfer any material asset, and
whereby such Person shall then or immediately thereafter rent or lease as lessee
such asset or any part thereof, (l) all recourse and support obligations of such
Person with respect to the sale or discount of any of its accounts receivable,
(m) all obligations of such Person with respect to any arrangement for the
purchase of materials, supplies, other Property or services if such arrangement
by its express terms requires that payment be made by such Person regardless of
whether such materials, supplies, other Property or services are delivered or
furnished to it, (n) all obligations of such Person with respect to Production
Payments, (o) net liabilities of such Person under all Hedging Obligations, (p)
all obligations of such Person under any prepayment for oil and gas production
or other similar agreement, and (q) all obligations of such Person under
operating leases which require such Person to make payments over the term of
such lease based on the purchase price or appraised value of the Property
subject to such lease plus a marginal interest rate, and used primarily as a
financing vehicle for, or to monetize, such Property. The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person's ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.
"Indemnified Liabilities" has the meaning set forth in Section 11.3.
------------------------ -------------
"Indemnified Person" has the meaning set forth in Section 11.3.
------------------- -------------
"Indenture" means that certain Indenture dated May 23, 1997, between Energy
---------
Corporation of America and Bank of New York, as trustee.
"Indenture Documents" means the Indenture, the Subordinated Notes, and all other
-------------------
documents and agreements executed in connection with the Indenture.
"Initial Reserve Report" means the report delivered to Agent dated as of July 1,
----------------------
2001, prepared by ▇▇▇▇▇ ▇▇▇▇▇ Company Petroleum Consultants with respect to the
Oil and Gas Properties of Borrower, its Subsidiaries, and the Partnerships, a
true and correct copy of which has been delivered to Agent and the Lenders.
"Insolvency Proceeding" means any proceeding commenced by or against any Person
----------------------
under any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
-14-
"Intangible Assets" means, with respect to any Person, that portion of the book
------------------
value of all of such Person's assets that would be treated as intangibles under
GAAP.
"Intercompany Notes" has the meaning assigned that term in Section 7.13.
------------------- ------------
"Inventory" means all Borrower's and each Subsidiaries' now owned or hereafter
---------
acquired right, title, and interest with respect to inventory, including goods
held for sale or lease or to be furnished under a contract of service, goods
that are leased by Borrower or any of its Subsidiaries as lessor, goods that are
furnished by Borrower or any of its Subsidiaries under a contract of service,
and raw materials, work in process, or materials used or consumed in Borrower's
or any Subsidiaries' business.
"Investment" means, with respect to any Person, any investment by such Person in
----------
any other Person (including Affiliates) in the form of loans, guarantees,
advances, or capital contributions (excluding (a) commission, travel, and
similar advances to officers and employees of such Person made in the ordinary
course of business, and (b) bona fide Accounts arising in the ordinary course of
business consistent with past practices), purchases or other acquisitions for
consideration of Indebtedness or Stock, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"IRC" means the Internal Revenue Code of 1986, as in effect from time to time.
---
"Issuing Lender" means Foothill or any other Lender that, at the request of
---------------
Administrative Borrower and with the consent of Agent agrees, in such Lender's
sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or
L/C Undertakings pursuant to Section 2.12.
-------------
"L/C" has the meaning set forth in Section 2.12(a).
--- ----------------
"L/C Disbursement" means a payment made by Lender pursuant to a Letter of
-----------------
Credit.
"L/C Undertaking" has the meaning set forth in Section 2.12(a).
---------------- ----------------
"Lender" and "Lenders" have the respective meanings set forth in the preamble to
------ -------
this Agreement, and shall include any other Person made a party to this
Agreement in accordance with the provisions of Section 14.1.
-------------
"Lender Group" means, individually and collectively, each of the Lenders
-------------
(including the Issuing Lender) and Agent.
-15-
"Lender Group Expenses" means all (a) costs or expenses (including taxes, and
-----------------------
insurance premiums) required to be paid by Borrower or any of its Subsidiaries
under any of the Loan Documents that are paid or incurred by the Lender Group,
(b) fees or charges paid or incurred by Agent in connection with the Lender
Group's transactions with Borrower or any of its Subsidiaries, including, fees
or charges for photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien, litigation, and
UCC searches and including searches with the patent and trademark office, the
copyright office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic Collateral appraisals or business
valuations to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement), real estate surveys, real estate title
policies and endorsements, and environmental audits, (c) costs and expenses
incurred by Agent in the disbursement of funds to or for the account of Borrower
(by wire transfer or otherwise), (d) charges paid or incurred by Agent resulting
from the dishonor of checks, (e) reasonable costs and expenses paid or incurred
by the Lender Group to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (f) audit fees and expenses of Agent related to audit examinations
of the Books to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement, (g) reasonable costs and expenses of
third party claims or any other suit paid or incurred by the Lender Group in
enforcing or defending the Loan Documents or in connection with the transactions
contemplated by the Loan Documents or the Lender Group's relationship with
Borrower or any of its Subsidiaries, (h) Agent's and each Lender's reasonable
fees and expenses (including attorneys fees) incurred in advising, structuring,
drafting, reviewing, administering, or amending the Loan Documents, and (i)
Lender's reasonable fees and expenses (including attorneys' fees) incurred in
terminating, enforcing (including attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or any Subsidiary or in exercising rights or remedies under
the Loan Documents), or defending the Loan Documents, irrespective of whether
suit is brought, or in taking any Remedial Action concerning the Collateral.
"Lender-Related Person" means, with respect to any Lender, such Lender together
----------------------
with such Lender's Affiliates, and the officers, directors, employees, and
agents of such Lender.
"Letter of Credit" means an L/C or an L/C Undertaking, as the context requires.
-----------------
"Letter of Credit Usage" means, as of any date of determination, the aggregate
------------------------
undrawn amount of all outstanding Letters of Credit plus 100% of the amount of
outstanding time drafts accepted by an Underlying Issuer as a result of drawings
under Underlying Letters of Credit.
-16-
"Lien" means any interest in an asset securing an obligation owed to, or a claim
----
by, any Person other than the owner of the asset, whether such interest shall be
based on the common law, statute, or contract, whether such interest shall be
recorded or perfected, and whether such interest shall be contingent upon the
occurrence of some future event or events or the existence of some future
circumstance or circumstances, including the lien or security interest arising
from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, security agreement, conditional sale or trust receipt, or
from a lease, consignment, or bailment for security purposes and also including
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases, and other title exceptions and encumbrances
affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10.
------------- -------------
"Loan Documents" means this Agreement, the Bank Product Agreements, the Cash
---------------
Management Agreements, the Control Agreements, the Disbursement Letter, the Due
Diligence Letter, the Fee Letter, the Intercompany Notes, the Letters of Credit,
the Officers' Certificate, the Security Documents, the Subordination Agreements,
any note or notes executed by Borrower in connection with this Agreement and
payable to a Lender, and any other agreement entered into, now or in the future,
by Borrower and Agent in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change in the business,
-------------------------
prospects, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of Borrower and its Subsidiaries taken as a whole, (b)
a material impairment of Borrower's or any of its Subsidiaries' ability to
perform its obligations under the Loan Documents to which it is a party or of
Agent's ability to enforce the Obligations or realize upon the Collateral, or
(c) a material impairment of the enforceability or priority of the Agent's Liens
with respect to the Collateral as a result of an action or failure to act on the
part of Borrower or any of its Subsidiaries.
"Material Contracts" means any supply, purchase, service, employment, tax,
-------------------
indemnity, gas marketing, farm-in agreement, farm-out agreement, gas imbalance,
operating, unitization, communitization, partnership, joint venture, or other
agreement of Borrower, its Subsidiaries or any Partnership or by which Borrower,
its Subsidiaries or any Partnership or any of their respective properties are
otherwise bound, if such agreement (i) requires the expenditure of over
$5,000,000.00 by the Borrower or any of its Subsidiaries during any calendar
year, or (ii) involves the sale of more than $5,000,000.00 in Hydrocarbons by
the Borrower, any of its Subsidiaries, or any Partnership, or (iii) involves a
liability of Borrower, any of its Subsidiaries, or any Partnership, in excess of
$5,000,000.00, or (iv) is otherwise determined by Agent, in its reasonable
judgment, to be material to the business, operations, or properties of Borrower
or any of its Subsidiaries, as the same shall be amended, modified and
supplemented and in effect from time to time.
"Maturity Date" has the meaning set forth in Section 3.4.
-------------- ------------
-17-
"Maximum Revolver Amount" means the lesser of (a) the amount permitted by the
-------------------------
terms of the Indenture or (b) $50,000,000.00, as such amount may be reduced from
time to time in accordance with Section 6.23.
-------------
"Mortgage" means a Mortgage, Deed of Trust, Assignment, Security Agreement,
--------
Financing Statement and Fixture Filing, dated as of the Closing Date or
otherwise delivered pursuant to the Loan Documents, in form, scope and substance
acceptable to the Agent, executed and delivered by a Pledging Subsidiary or any
other Subsidiary of Borrower, as amended, supplemented, restated or otherwise
modified from time to time in accordance with the terms of this Agreement and
the other Loan Documents. The term "Mortgage" shall include each Mortgage
--------
Supplement after execution and delivery of such Mortgage Supplement. The term
"Mortgages" shall include each and every Mortgage executed and delivered by any
---------
of the Pledging Subsidiaries hereunder.
"Mortgage Supplement" means a supplement to any Mortgage, in form and substance
--------------------
satisfactory to the Agent, pursuant to which any Pledging Subsidiary will ▇▇▇▇▇
▇ ▇▇▇▇ on additional Property subject to the terms of such Mortgage, as amended,
supplemented, restated or otherwise modified from time to time in accordance
with the terms of this Agreement and the other Loan Documents.
"Mortgaged Properties" means all of the Oil and Gas Properties and other
---------------------
collateral purported to be subject to the Lien of the Mortgages.
"Net Operating Income" means the projected revenue attributable to the general
----------------------
partner interests of the Pledging Subsidiaries in the Partnerships' interests in
the Eligible Proved Developed Producing Reserves of the Partnerships and the
interests of the Pledging Subsidiaries in the Eligible Proved Developed
Producing Reserves of the Pledging Subsidiaries which the Partnerships and the
Pledging Subsidiaries can reasonably expect to receive from the sale of
Hydrocarbons therefrom, as shown on the most current Reserve Report net of
royalties, minus production and severance taxes (including, without limitation,
any "windfall profits" or similar tax but excluding income taxes), and
production expenses, and minus the amount of all production revenue therefrom
from the dates of such reports to the determination date.
"Non-Prepayment Premium Event" means either (a) that a material dispute
------------------------------
exists between Agent and Borrower as to the Availability due to (i) a
redetermination of the Borrowing Base by the Agent or (ii) the establishment of
a reserve by Agent under Section 2.1(b) (other than due to an event described in
--------------
Section 2.1(b), clauses (i) through (vi) inclusive, except that a material
--------------- ---------------------------
dispute as to the amount of a reserve established under Section 2.1(b) clauses
(i) through (vi) inclusive shall be resolved by binding arbitration under
Section 17.12) and (x) at the time of such dispute there exists no Default,
Event of Default or Material Adverse Change and (y) the Obligations are prepaid
within 60 days from the date Borrower notifies Agent in writing of such dispute,
or (b) Borrower requests and fails to receive within 30 days the consent of the
Agent and/or Lenders, as applicable, to a waiver of the prohibition of Section
-------
-18-
7.1 to allow Borrower to incur additional Indebtedness which as of the date of
--
this Agreement could be incurred by Borrower without a breach of the prohibition
or the incurrence of additional Indebtedness under the Indenture, except a
credit extension of a type described in the definition of "Credit Facilities" as
drafted in the Indenture as of the date of the Agreement; provided, however,
that such Indebtedness to be incurred or utilized to prepay the Obligations must
be funded within 60 days of the Borrower's receipt of written notice of the
Agent's and/or Lenders', as appropriate, nonconsent to the incurrence of such
Indebtedness.
"Non-Recourse Debt" means Indebtedness as to which (a) neither Borrower nor any
------------------
Subsidiary (other than an Unrestricted Subsidiary) is directly or indirectly
liable pursuant to the terms of such Indebtedness, and (b) no default with
respect to such Indebtedness would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of Borrower or any Subsidiary to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"NYMEX" means the New York Mercantile Exchange or its successor.
-----
"NYMEX Price" means, as of the date of the determination thereof, the average of
-----------
the 24 succeeding monthly futures contract prices, commencing with the month
during which the determination is to be made, for the category of Proved
Developed Producing Reserves included in the most recent Reserve Report provided
by Borrower to Agent pursuant to Section 6.2 as quoted on the NYMEX, or, if the
-----------
NYMEX no longer provides futures contract price quotes for 24 month periods, the
longest period of quotes of less than 24 months shall be used, and, if the NYMEX
no longer provides such futures contract quotes or has ceased to operate, the
Agent shall designate another nationally recognized commodities exchange to
replace the NYMEX.
"Obligations" means (a) all loans, Advances, debts, principal, interest
-----------
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations with respect to
outstanding Letters of Credit, premiums, liabilities (including all amounts
charged to Borrower's Loan Account pursuant hereto), obligations, fees
(including the fees provided for in the Fee Letter), charges, costs, Lender
Group Expenses (including any fees or expenses that, but for the provisions of
the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,
and duties of any kind and description owing by Borrower or any of the
Subsidiaries to the Lender Group pursuant to or evidenced by the Loan Documents
(including, without limitation, all claims for indemnity under the Loan
Documents including claims under Section 11.3 of this Agreement) and
-------------
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including all interest not paid when due and all Lender Group Expenses that
Borrower or any of its Subsidiaries are required to pay or reimburse by the Loan
Documents, by law, or otherwise, and (b) all Bank Product Obligations. Any
reference in this Agreement or in the Loan Documents to the Obligations shall
include all amendments, changes, extensions, modifications, renewals
replacements, substitutions, and supplements, thereto and thereof, as
applicable, both prior and subsequent to any Insolvency Proceeding.
-19-
"Officers' Certificate" means the representations and warranties of officers
----------------------
form submitted by Agent to Borrower, together with Borrower's completed
responses to the inquiries set forth therein, the form and substance of such
responses to be satisfactory to Agent.
"Oil and Gas Properties" means the Hydrocarbon Interests; the Properties now or
-----------------------
hereafter pooled or unitized with Hydrocarbon Interests; all presently existing
or future unitization, pooling agreements and declarations of pooled units and
the units created thereby (including without limitation all units created under
orders, regulations and rules of any Governmental Authority having jurisdiction)
which may affect all or any portion of the Hydrocarbon Interests; all operating
agreements, joint venture agreements, contracts and other agreements which
relate to any of the Hydrocarbon Interests or the production, sale, purchase,
exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, the lands covered thereby and all oil
in tanks and all rents, issues, profits, proceeds, products, revenues and other
incomes from or attributable to the Hydrocarbon Interests; all tenements,
profits a prendre, hereditaments, appurtenances and Properties in anywise
appertaining, belonging, affixed or incidental to the Hydrocarbon Interests,
Properties, rights, titles, interests and estates described or referred to
above, including any and all Property, real or personal, now owned or
hereinafter acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of such Hydrocarbon
Interests or Property (excluding drilling rigs, automotive equipment or other
personal Property which may be on such premises for the purpose of drilling a
well or for other similar temporary uses) and including any and all oil ▇▇▇▇▇,
gas ▇▇▇▇▇, water ▇▇▇▇▇, injection ▇▇▇▇▇ or other ▇▇▇▇▇, buildings, structures,
fuel separators, liquid extraction plants, plant compressors, pumps, pumping
units, field gathering systems, tanks and tank batteries, fixtures, valves,
fittings, machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and rods,
surface leases, rights-of-way, easements and servitudes together with all
additions, substitutions, replacements, accessions and attachments to any and
all of the foregoing.
"Originating Lender" has the meaning set forth in Section 14.1(e).
------------------- ----------------
"Overadvance" has the meaning set forth in Section 2.5.
----------- ------------
"Participant" has the meaning set forth in Section 14.1(e).
----------- ----------------
"Partnership Pledge Agreements" means the Partnership Pledge and Security
-------------------------------
Agreements dated as of the Closing Date or otherwise delivered pursuant to the
Loan Documents, in form, scope, and substance acceptable to the Agent, executed
by the Pledging Subsidiaries in favor of the Agent.
-20-
"Partnerships" means those partnerships and joint ventures listed on Schedule
------------ --------
P-1.
--
"Permitted Discretion" means a determination made in good faith and in the
---------------------
exercise of reasonable business judgment.
"Permitted Dispositions" means (a) sales or other dispositions by Borrower or
-----------------------
its Subsidiaries of Equipment that is substantially worn, damaged, or obsolete
in the ordinary course of business, (b) sales by Borrower or its Subsidiaries of
Inventory and Hydrocarbons to buyers in the ordinary course of business, (c) the
use or transfer of money or Cash Equivalents by Borrower or its Subsidiaries in
a manner that is not prohibited by the terms of this Agreement or the other Loan
Documents, (d) the licensing by Borrower or its Subsidiaries, on a non-exclusive
basis, of patents, trademarks, copyrights, and other intellectual property
rights in the ordinary course of business, (e) sales or other dispositions by
Borrower or any of its Subsidiaries of assets other than (i) Borrowing Base
Properties, (ii) the Gathering Systems, and (iii) assets or interests subject to
the Liens of the Partnership Pledge Agreements and Mortgages, (f) the
abandonment, farm-out, lease, or sublease of undeveloped Oil and Gas Properties
of Borrower or any of its Subsidiaries in the ordinary course of business, and
(g) the trade or exchange by Borrower or any of its Subsidiaries of any of its
Oil and Gas Properties (other than the Borrowing Base Properties and the
Gathering Systems) for Oil and Gas Properties owned by another Person which the
Board of Directors of Borrower determines in good faith to be of approximately
equivalent value.
"Permitted Investments" means (a) investments in Cash Equivalents, (b)
----------------------
investments in negotiable instruments for collection, (c) advances made in
connection with purchases of goods or services in the ordinary course of
business, (d) investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of and other disputes with, customers and suppliers arising in the
ordinary course of business, (e) investments made as a result of non-cash
consideration of an asset sale that was made pursuant to a Permitted
Disposition, (f) acceptance by Borrower of notes payable from employees,
officers, or directors of Borrower or any of its Subsidiaries as payment for the
purchase of common or Class A stock by such employees; provided that (i) the
aggregate principal amount owing to Borrower under such notes shall not exceed
$1,600,000.00 at any one time outstanding, and (ii) any such note shall be
secured by a pledge of the shares of stock purchased therewith, and (g) loans by
Borrower to officers, directors and employees in connection with Borrower's
annual drilling programs consistent with past practices up to but not exceeding
$2,000,000.00 in the aggregate at any one time outstanding.
-21-
"Permitted Liens" means (a) Liens held by Agent, (b) Liens for unpaid taxes that
---------------
either (i) are not yet delinquent, or (ii) do not constitute an Event of Default
hereunder and are the subject of Permitted Protests, (c) the interests of
lessors under operating leases, (d) Liens arising by operation of law in favor
of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of Borrower or any of its
Subsidiaries and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted
Protests, (e) Liens arising from deposits made in connection with obtaining
worker's compensation or other unemployment insurance, (f) Liens or deposits to
secure performance of bids, tenders, or leases incurred in the ordinary course
of business of Borrower or any of its Subsidiaries and not in connection with
the borrowing of money, (g) Liens granted as security for surety or appeal bonds
in connection with obtaining such bonds in the ordinary course of business of
Borrower or any of its Subsidiaries, (h) with respect to any Property (other
than the Borrowing Base Properties) from which Hydrocarbons may be severed or
extracted in commercial quantities, Liens for farmout, farmin, joint operating,
and area of mutual interest agreements and/or similar arrangements that Borrower
determines in good faith to be necessary for the economic development of such
Property (other than the Borrowing Base Properties) and are customary and usual
for the area in which such Property (other than the Borrowing Base Properties)
is located, (i) with respect to any Borrowing Base Properties from which
Hydrocarbons may be severed or extracted in commercial quantities, Liens for
farm-out, farm-in, operating, joint operating, and area of mutual interest
agreements and/or similar arrangements that the Borrower determines in good
faith to be necessary for the economic development of such Borrowing Base
Properties and are customary and usual for the area in which such Borrowing Base
Properties are located; provided, however, that such Liens held by Borrower or
-------- -------
any of its Subsidiaries or Affiliates shall be expressly made subordinate to the
Liens created by the Security Documents pursuant to terms of a Subordination
Agreement, (j) Liens associated with Production Payments now existing or
hereafter created on oil, gas or mineral leases or interests (other than
Borrowing Base Properties) now owned or hereafter acquired by the Borrower or
any Subsidiary; provided (i) such Liens are limited to the interest in the
Properties subject to the Production Payment and do not apply to any other
Property or assets of Borrower or any Subsidiary and (ii) such Liens only secure
the Indebtedness incurred pursuant to the Production Payments, and (k)
royalties, overriding royalties, revenue interests, net revenue interest and
other similar burdens now existing or hereafter acquired on oil, gas or mineral
leases or interests now owned or hereafter acquired by Borrower or any
Subsidiary and, with respect to any Borrowing Base Properties, are reflected in
the most recent Reserve Report.
"Permitted Protest" means the right of Borrower or any of its Subsidiaries, as
------------------
applicable, to protest any Lien (other than any such Lien that secures the
Obligations), taxes (other than payroll taxes or taxes that are the subject of a
United States federal tax lien), or rental payment, provided that (a) a reserve
with respect to such obligation is established on the Books in such amount as is
required under GAAP, (b) any such protest is instituted promptly and prosecuted
diligently by Borrower or any of its Subsidiaries, as applicable, in good faith,
and (c) Agent is satisfied that, while any such protest is pending, there will
be no impairment of the enforceability, validity, or priority of any of the
Agent's Liens.
-22-
"Person" means natural persons, corporations, limited liability companies,
------
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than Hydrocarbon
------------------------------
Interests and Real Property.
"Pledging Subsidiaries" means Eastern American, A&W and any other Subsidiary of
----------------------
Borrower that executes a Mortgage and/or a Partnership Pledge Agreement.
"Projections" means Borrower's forecasted (a) balance sheets, (b) profit and
-----------
loss statements, and (c) cash flow statements, all prepared on a consistent
basis with Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
"Production Payments" means a production payment (whether volumetric or dollar
--------------------
denominated) or similar royalty, overriding royalty, net profits interest or
other similar interest in Oil and Gas Properties, or the right to receive all or
a portion of the production or the proceeds from the sale of production
attributable to such Oil and Gas Properties where the holder of such interest
has recourse solely to such interest and the grantor or transferor thereof has
an express contractual obligation to produce and sell Hydrocarbons from such Oil
and Gas Properties, or to cause such Oil and Gas Properties to be so operated
and maintained, in each case in a reasonably prudent manner.
"Property" means any interest in any kind of Property or asset, whether real,
--------
personal or mixed, or tangible or intangible.
"Pro Rata Share" means:
----------------
(a) with respect to a Lender's obligation to make Advances and receive
payments of principal, interest, fees, costs, and expenses with respect thereto,
the percentage obtained by dividing (i) such Lender's Revolver Commitment, by
(ii) the aggregate Revolver Commitments of all Lenders,
(b) with respect to a Lender's obligation to participate in Letters of
Credit, to reimburse the Issuing Lender, and to receive payments of fees with
respect thereto, the percentage obtained by dividing (i) such Lender's Revolver
Commitment, by (ii) the aggregate Revolver Commitments of all Lenders, and
(c) with respect to all other matters (including the indemnification
obligations arising under Section 16.7), the percentage obtained by dividing (i)
------------
such Lender's Total Commitment, by (ii) the aggregate amount of Total
Commitments of all Lenders; provided, however, that, in each case, in the event
-------- -------
all Commitments have been terminated, the Pro Rata Share shall be determined
according to the Commitments in effect immediately prior to such termination.
-23-
"Proved Developed Non-Producing Reserves" means those Oil and Gas
------------------------------------------
Properties of the Borrower, the Pledging Subsidiaries and the Partnerships
designated as "proved developed non-producing" (in accordance with the
Definitions for Oil and Gas Reserves approved by the Board of Directors of the
Society for Petroleum Engineers, Inc. from time to time) in the Reserve Report.
"Proved Developed Producing Reserves" means those Oil and Gas Properties
--------------------------------------
designated as "proved developed producing" (in accordance with the Definitions
for Oil and Gas Reserves approved by the Board of Directors of the Society for
Petroleum Engineers, Inc.), from time to time in the Reserve Report.
"Proved Developed Producing Reserves of the Partnerships" means those Oil and
----------------------------------------------------------
Gas Properties of the Partnerships designated as "proved developed producing"
(in accordance with the Definitions for Oil and Gas Reserves approved by the
Board of Directors of the Society for Petroleum Engineers, Inc. from time to
time) in the Reserve Report and used in establishing the Borrowing Base.
"Proved Developed Producing Reserves of the Pledging Subsidiaries" means those
------------------------------------------------------------------
Oil and Gas Properties of the Pledging Subsidiaries designated as "proved
developed producing" (in accordance with the Definitions for Oil and Gas
Reserves approved by the Board of Directors of the Society for Petroleum
Engineers, Inc., from time to time) in the Reserve Report and used in
establishing the Borrowing Base.
"Proved Undeveloped Reserves" means those Oil and Gas Properties of the Pledging
---------------------------
Subsidiaries and the Partnerships designated as "proved undeveloped" (in
accordance with the Definitions for Oil and Gas Reserves approved by the Board
of Directors of the Society for Petroleum Engineers, Inc. from time to time) in
the Reserve Report.
"PV-10 Value" means, as of the date of determination, the sum of the
------------
present values of the Net Operating Income expected to be received in each of
the months following the date of determination, determined as follows:
(a) the Net Operating Income shall be determined (x) on the basis of the
contract price to the extent contracts exist or (y) in the event that contracts
do not exist, on the basis of the applicable NYMEX Price for the category of
Proved Developed Producing Reserves as of such date of determination, adjusting
such price to reflect the appropriate Basis Differential with respect to
Hydrocarbons produced from the Eligible Proved Producing Reserves of the
Pledging Subsidiaries and the Proved Developed Producing Reserves of the
Partnerships as determined by the Approved Engineer and approved by Agent; and
-24-
(b) the present value of each such Net Operating Income amount shall be
determined by discounting such Monthly Net Operating Income from the month in
which it is expected to be received, on a monthly basis, to such date of
determination at a rate of 10% per annum.
"Real Property" means any estates or interests in real property now owned
--------------
or hereafter acquired by Borrower or any of its Subsidiaries and the
improvements thereto.
"Record" means information that is inscribed on a tangible medium or which is
------
stored in an electronic or other medium and is retrievable in perceivable form.
"Release" means a "release", as such term is defined in CERCLA.
-------
"Remedial Action" means any action under Environmental Laws required to (a)
----------------
clean up, remove, treat, dispose of, ▇▇▇▇▇, or in any other way address
pollutants (including Hazardous Materials) in the environment, (b) prevent the
Release or threat of a Release or minimize the further Release of pollutants, or
(c) investigate and determine if a remedial response is needed and to design
such a response and any post-remedial investigation, monitoring, operation, and
maintenance and care.
"Report" has the meaning set forth in Section 16.17.
------ --------------
"Required Availability" means Excess Availability in an amount of not less than
----------------------
$10,000,000.00.
"Required Lenders" means, at any time, (a) Agent, and (b) Lenders whose Pro Rata
----------------
Shares aggregate 66.67% of the Total Commitments, or if the Commitments have
been terminated irrevocably, 66.67% of the Obligations then outstanding.
"Reserve Report" means the Initial Reserve Report and any other report delivered
--------------
pursuant to Section 6.2, in form and substance satisfactory to the Agent,
------------
prepared at the sole cost and expense of the Borrower by an Approved Engineer,
which shall evaluate the oil and gas reserves attributable to the Hydrocarbon
Interests owned directly by Borrower, its Subsidiaries and the Partnerships, as
of the immediately preceding January 1 or July 1. Each Reserve Report shall set
forth volumes, projections of the future rate of production, Hydrocarbon prices,
escalation rates, discount rate assumptions, and net proceeds of production,
present value of the net proceeds of production, estimated costs of Remedial
Action, operating expenses and capital expenditures, in each case based upon
updated economic assumptions reasonably acceptable to the Agent.
"Revolver Commitment" means, with respect to each Lender, its Revolver
--------------------
Commitment, and, with respect to all Lenders, their Revolver Commitments, in
each case as such Dollar amounts are set forth beside such Lender's name under
the applicable heading on Schedule C-1 or on the signature page of the
-------------
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 14.1.
-------------
-25-
"Revolver Usage" means, as of any date of determination, the sum of (a) the then
--------------
extant amount of outstanding Advances, plus (b) the then extant amount of the
Letter of Credit Usage.
"Risk Participation Liability" means, as to each Letter of Credit, all
------------------------------
reimbursement obligations of Borrower to the Issuing Lender with respect to an
L/C Undertaking, consisting of (a) the amount available to be drawn or which may
become available to be drawn, (b) all amounts that have been paid by the Issuing
Lender to the Underlying Issuer to the extent not reimbursed by Borrower,
whether by the making of an Advance or otherwise, and (c) all accrued and unpaid
interest, fees, and expenses payable with respect thereto.
"SEC" means the United States Securities and Exchange Commission and any
successor thereto.
"Securities Account" means a "securities account" as that term is defined in the
------------------
Code.
"Security Documents" means the Mortgages, the Partnership Pledge Agreements, the
------------------
Borrower's Security Agreement, and all other security documents hereafter
delivered to Agent granting a Lien on any asset of any Person to secure the
Obligations.
"Solvent" means, with respect to any Person on a particular date, that such
-------
Person is not insolvent (as such term is defined in the Uniform Fraudulent
Transfer Act).
"Stock" means all shares, options, warrants, interests, participations, or other
-----
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).
"Subsidiary" of a Person means a corporation, limited liability company, or
----------
other entity (other than Partnerships) in which that Person directly or
indirectly owns or controls the shares of Stock having ordinary voting power to
elect a majority of the board of directors (or appoint other comparable
managers) of such corporation, limited liability company, or other entity.
"Subordinated Notes" means the 9.50% Senior Subordinated Notes due 2007 issued
-------------------
by Energy Corporation of America in the amount of $200,000,000.
-26-
"Subordination Agreement" means an agreement executed by a Person holding or
------------------------
having the right to a Lien on any Collateral subordinating such Lien to the
Agent's Liens, all in form, scope, and substance satisfactory to Agent.
"Swing Lender" means Foothill.
-------------
"Swing Loan" has the meaning set forth in Section 2.3(d)(i).
----------- ------------------
"Taxes" means any and all present or future taxes, levies, imposts, duties,
-----
deductions, charges or withholdings imposed by any Governmental Authority.
"Total Commitment" means, with respect to each Lender, its Total Commitment,
-----------------
and, with respect to all Lenders, their Total Commitments, in each case as such
Dollar amounts are set forth beside such Lender's name under the applicable
heading on Schedule C-1 attached hereto or on the signature page of the
-------------
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 14.1.
-------------
"Total Proved Developed Producing Reserves" means the Proved Developed Producing
-----------------------------------------
Reserves of the Partnerships and the Proved Developed Producing Reserves of the
Pledging Subsidiaries.
"Total Value" means an amount equal to the sum of (a) with respect to each
------------
Partnership, the PV-10 Value of the Eligible Proved Developed Producing Reserves
of the Partnership multiplied by the general partnership interest of the
applicable Pledging Subsidiary in such Partnership, plus (b) the Eligible Proved
Developed Producing Reserves of the Pledging Subsidiaries.
"Underlying Issuer" means a third Person which is the beneficiary of an L/C
-----------------
Undertaking and which has issued a letter of credit at the request of Lender for
the benefit of Borrower.
"Underlying Letter of Credit" means a letter of credit that has been issued by
-----------------------------
an Underlying Issuer.
"Unrestricted Subsidiary" has the meaning assigned that term in the Indenture as
-----------------------
in effect on the date of this Agreement.
"Voidable Transfer" has the meaning set forth in Section 17.7.
------------------ -------------
"▇▇▇▇▇" means any existing oil or gas well which is producing Hydrocarbons from
-----
the Mortgaged Properties.
"▇▇▇▇▇ Fargo" means ▇▇▇▇▇ Fargo Bank, National Association, a national banking
------------
association.
-27-
1.2 ACCOUNTING TERMS.
-----------------
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP. When used herein, the term "financial statements"
shall include the notes and schedules thereto. Whenever the term "Borrower" is
used in respect of a financial covenant or a related definition, it shall be
understood to mean Borrower and its Subsidiaries on a consolidated basis unless
the context clearly requires otherwise.
1.3 CODE.
----
Any terms used in this Agreement that are defined in the Code shall be
construed and defined as set forth in the Code unless otherwise defined herein.
1.4 CONSTRUCTION.
------------
Unless the context of this Agreement or any other Loan Document clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement or any other Loan Document
refer to this Agreement or such other Loan Document, as the case may be, as a
whole and not to any particular provision of this Agreement or such other Loan
Document, as the case may be. Section, subsection, clause, schedule, and
exhibit references herein are to this Agreement unless otherwise specified. Any
reference in this Agreement or in the other Loan Documents to any agreement,
instrument, or document shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on
such alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein to any Person shall be construed to include such Person's
successors and assigns. Any requirement of a writing contained herein or in the
other Loan Documents shall be satisfied by the transmission of a Record and any
Record transmitted shall constitute a representation and warranty as to the
accuracy and completeness of the information contained therein.
1.5 SCHEDULES AND EXHIBITS.
------------------------
All of the schedules and exhibits attached to this Agreement shall be
deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVER ADVANCES
------------------
(a) Subject to the terms and conditions of this Agreement, and during the term
of this Agreement, each Lender with a Revolver Commitment agrees (severally, not
jointly or jointly and severally) to make advances ("Advances") to Borrower in
--------
an amount at any one time outstanding not to exceed such Lender's Pro Rata Share
of an amount equal to (i) the lesser of the Maximum Revolver Amount less the
Letter of Credit Usage, or (ii) the Borrowing Base then in effect less the
Letter of Credit Usage. For purposes of this Agreement and subject to the
provisions of Section 2.16 of this Agreement, "Borrowing Base," as of any date
------------
of determination, shall mean the result of:
-28-
(x) an amount equal to 40% of the PV-10 Value of the Eligible Proved
Developed Producing Reserves of the Pledging Subsidiaries directly owned by the
Pledging Subsidiaries, as reflected in the most recent report delivered in
accordance with Section 6.2, plus
------------
(y) an amount with respect to each Partnership equal to 40% of the PV-10
Value of the Eligible Proved Developed Producing Reserves directly owned by such
Partnership multiplied by the general partnership interest of the Pledging
Subsidiary in such partnership, minus
(z) the sum of (i) the Bank Products Reserves, and (ii) the aggregate amount
of reserves, if any, established by Lender under Section 2.1(b).
---------------
(b) Anything to the contrary in this Section 2.1 notwithstanding, the Agent
-----------
shall have the right to establish reserves in such amounts, and with respect to
such matters, as Agent, in its Permitted Discretion, shall deem necessary or
appropriate against the Borrowing Base including, but not limited to, reserves
based upon (i) past due or accrued taxes or other governmental charges including
ad valorem, personal property, production, severance, and other taxes which may
have priority over the Liens or security interests of Agent in the Collateral;
(ii) Liens relating to the Collateral in favor of third Persons; (iii) deposits
which are due or scheduled to become due during the immediately following 180
day period under deposit, escrow or other arrangements concerning costs,
expenses and liabilities relating to the plugging and abandonment of the
Borrowing Base Properties; (iv) estimates of present or future operating costs
and expenses, royalty and overriding payments and other costs and expenses
associated with the maintenance and operation of the Borrowing Base Properties;
(v) estimates of present and future costs, expenses, deposits and liabilities
related to the plugging and abandonment of the Borrowing Base Properties (net of
the amount thereof which has been taken into account in the most recent Reserve
Report), and (vi) without duplication of the foregoing, amounts owing by
Borrower, any of its Subsidiaries, or the Partnerships to any Person to the
extent secured by a Lien on, or trust (constructive or otherwise) over, any of
the Collateral (including proceeds thereof or collections from the sale of
Hydrocarbons or Hydrocarbon Interests which may from time to time come into the
possession of Agent or the Lender Group or its agents), which Lien or trust, in
the determination of Agent, has a reasonable possibility of having a priority
superior to the Agent's Liens (such as landlord liens, ad valorem taxes,
production taxes, severance taxes, sales taxes, collections attributable to the
sale of Hydrocarbons or Hydrocarbon Interests of Persons other than Borrower or
any of its Subsidiaries) in and to such item of Collateral, proceeds or
collection.
-29-
(c) The Lenders with Revolver Commitments shall have no obligation to make
additional Advances hereunder to the extent such additional Advances would cause
the Revolver Usage to exceed the Maximum Revolver Amount.
(d) Amounts borrowed pursuant to this Section may be repaid and, subject to the
terms and conditions of this Agreement, reborrowed at any time during the term
of this Agreement.
2.2 INTENTIONALLY DELETED.
----------------------
2.3 BORROWING PROCEDURES.
---------------------
(a) PROCEDURE FOR BORROWING. Each Borrowing shall be made by an irrevocable
written request by an Authorized Person delivered to Agent (which notice
must be received by Agent no later than 10:00 a.m. (California time) on the
Business Day prior to the date that is the requested Funding Date in the case of
a request for an Advance specifying (i) the amount of such Borrowing, and (ii)
the requested Funding Date, which shall be a Business Day; provided, however,
-------- -------
that in the case of a request for Swing Loan in an amount of $5,000,000.00, or
less, such notice will be timely received if it is received by Agent no later
than 10:00 a.m. (California time) on the Business Day that is the requested
Funding Date) specifying (i) the amount of such Borrowing, and (ii) the
requested Funding Date, which shall be a Business Day. At Agent's election, in
lieu of delivering the above-described written request, any Authorized Person
may give Agent telephonic notice of such request by the required time, with such
telephonic notice to be confirmed in writing within 24 hours of the giving of
such notice.
(b) AGENT'S ELECTION. Promptly after receipt of a request for a Borrowing
pursuant to Section 2.3(a), Agent shall elect, in its discretion, (i) to have
---------------
the terms of Section 2.3(c) apply to such requested Borrowing, or (ii) if the
--------------
Borrowing is for an Advance, to request Swing Lender to make a Swing Loan
pursuant to the terms of Section 2.3(d) in the amount of the requested
---------------
Borrowing; provided, however, that if Swing Lender declines in its sole
-------- -------
discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall elect to
--------------
have the terms of Section 2.3(c) apply to such requested Borrowing.
---------------
(c) MAKING OF ADVANCES.
(i) In the event that Agent shall elect to have the terms of this Section
-------
2.3(c) apply to a requested Borrowing as described in Section 2.3(b), then
---- --------------
promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a),
--- --------------
Agent shall notify the Lenders, not later than 1:00 p.m. (California time) on
the Business Day immediately preceding the Funding Date applicable thereto, by
telecopy, telephone, or other similar form of transmission, of the requested
Borrowing. Each Lender shall make the amount of such Lender's Pro Rata Share of
-30-
the requested Borrowing available to Agent in immediately available funds,
to Agent's Account, not later than 10:00 a.m. (California time) on the Funding
Date applicable thereto. After Agent's receipt of the proceeds of such
Advances, upon satisfaction of the applicable conditions precedent set forth in
Section 3 hereof, Agent shall make the proceeds thereof available to Borrower on
---------
the applicable Funding Date by transferring immediately available funds equal to
such proceeds received by Agent to Borrower's Designated Account; provided,
--------
however, that, subject to the provisions of Section 2.3(i), Agent shall not
------- --------------
request any Lender to make, and no Lender shall have the obligation to make, any
Advance if Agent shall have actual knowledge that (1) one or more of the
applicable conditions precedent set forth in Section 3 will not be satisfied on
---------
the requested Funding Date for the applicable Borrowing unless such condition
has been waived, or (2) the requested Borrowing would exceed the Availability on
such Funding Date.
(ii) Unless Agent receives notice from a Lender on or prior to the Closing
Date or, with respect to any Borrowing after the Closing Date, at least 1
Business Day prior to the date of such Borrowing, that such Lender will not make
available as and when required hereunder to Agent for the account of Borrower
the amount of that Lender's Pro Rata Share of the Borrowing, Agent may assume
that each Lender has made or will make such amount available to Agent in
immediately available funds on the Funding Date and Agent may (but shall not be
so required), in reliance upon such assumption, make available to Borrower on
such date a corresponding amount. If and to the extent any Lender shall not
have made its full amount available to Agent in immediately available funds and
Agent in such circumstances has made available to Borrower such amount, that
Lender shall on the Business Day following such Funding Date make such amount
available to Agent, together with interest at the Defaulting Lender Rate for
each day during such period. A notice submitted by Agent to any Lender with
respect to amounts owing under this subsection shall be conclusive, absent
manifest error. If such amount is so made available, such payment to Agent
shall constitute such Lender's Advance on the date of Borrowing for all purposes
of this Agreement. If such amount is not made available to Agent on the
Business Day following the Funding Date, Agent will notify Borrower of such
failure to fund and, upon demand by Agent, Borrower shall pay such amount to
Agent for Agent's account, together with interest thereon for each day elapsed
since the date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Advances composing such Borrowing. The failure of
any Lender to make any Advance on any Funding Date shall not relieve any other
Lender of any obligation hereunder to make an Advance on such Funding Date, but
no Lender shall be responsible for the failure of any other Lender to make the
Advance to be made by such other Lender on any Funding Date.
-31-
(iii) Agent shall not be obligated to transfer to a Defaulting Lender any
payments made by Borrower to Agent for the Defaulting Lender's benefit, and, in
the absence of such transfer to the Defaulting Lender, Agent shall transfer any
such payments to each other non-Defaulting Lender member of the Lender Group
ratably in accordance with their Commitments (but only to the extent that such
Defaulting Lender's Advance was funded by the other members of the Lender Group)
or, if so directed by Borrower and if no Default or Event of Default has
occurred and is continuing (and to the extent such Defaulting Lender's Advance
was not funded by the Lender Group), retain same to be re-advanced to Borrower
as if such Defaulting Lender had made Advances to Borrower. Subject to the
foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrower
for the account of such Defaulting Lender the amount of all such payments
received and retained by it for the account of such Defaulting Lender. Solely
for the purposes of voting or consenting to matters with respect to the Loan
Documents, such Defaulting Lender shall be deemed not to be a "Lender" and such
Lender's Commitment shall be deemed to be zero. This Section shall remain
effective with respect to such Lender until (x) the Obligations under this
Agreement shall have been declared or shall have become immediately due and
payable, (y) the non-Defaulting Lenders, Agent, and Borrower shall have waived
such Defaulting Lender's default in writing, or (z) the Defaulting Lender makes
its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing
by Defaulting Lender in respect thereof. The operation of this Section shall
not be construed to increase or otherwise affect the Commitment of any Lender,
to relieve or excuse the performance by such Defaulting Lender or any other
Lender of its duties and obligations hereunder, or to relieve or excuse the
performance by Borrower of its duties and obligations hereunder to Agent or to
the Lenders other than such Defaulting Lender. Any such failure to fund by any
Defaulting Lender shall constitute a material breach by such Defaulting Lender
of this Agreement and shall entitle Borrower at its option, upon written notice
to Agent, to arrange for a substitute Lender to assume the Commitment of such
Defaulting Lender, such substitute Lender to be acceptable to Agent. In
connection with the arrangement of such a substitute Lender, the Defaulting
Lender shall have no right to refuse to be replaced hereunder, and agrees to
execute and deliver a completed form of Assignment and Acceptance Agreement in
favor of the substitute Lender (and agrees that it shall be deemed to have
executed and delivered such document if it fails to do so) subject only to being
repaid its share of the outstanding Obligations (including an assumption of its
Pro Rata Share of the Risk Participation Liability) without any premium or
penalty of any kind whatsoever; provided further, however, that any such
-------- ------- -------
assumption of the Commitment of such Defaulting Lender shall not be deemed to
constitute a waiver of any of the Lender Group's or Borrower's rights or
remedies against any such Defaulting Lender arising out of or in relation to
such failure to fund.
-32-
(d) MAKING OF SWING LOANS.
(i) In the event Agent shall elect, with the consent of Swing Lender, as a
Lender, to have the terms of this Section 2.3(d) apply to a requested Borrowing
--------------
as described in Section 2.3(b), Swing Lender as a Lender shall make such Advance
--------------
in the amount of such Borrowing (any such Advance made solely by Swing
Lender as a Lender pursuant to this Section 2.3(d) being referred to as a "Swing
-------------- -----
Loan" and such Advances being referred to collectively as "Swing Loans")
---- -----------
available to Borrower on the Funding Date applicable thereto by transferring
immediately available funds to Borrower's Designated Account. Each Swing Loan
is an Advance hereunder and shall be subject to all the terms and conditions
applicable to other Advances, except that all payments on any Swing Loan shall
be payable to Swing Lender as a Lender solely for its own account (and for the
account of the holder of any participation interest with respect to such Swing
Loan). Subject to the provisions of Section 2.3(i), Agent shall not request
--------------
Swing Lender as a Lender to make, and Swing Lender as a Lender shall not make,
any Swing Loan if Agent has actual knowledge that (i) one or more of the
applicable conditions precedent set forth in Section 3 will not be satisfied on
---------
the requested Funding Date for the applicable Borrowing unless such condition
has been waived, or (ii) the requested Borrowing would exceed the Availability
on such Funding Date. Swing Lender as a Lender shall not otherwise be required
to determine whether the applicable conditions precedent set forth in Section 3
---------
have been satisfied on the Funding Date applicable thereto prior to making, in
its sole discretion, any Swing Loan.
(ii) The Swing Loans shall be secured by the Agent's Liens, shall constitute
Advances and Obligations hereunder, and shall bear interest at the rate
applicable from time to time to Advances under this Agreement.
(e) AGENT ADVANCES.
(i) Agent hereby is authorized by Borrower and the Lenders, from time to
time in Agent's sole discretion, (1) after the occurrence and during the
continuance of a Default or an Event of Default, or (2) at any time that any of
the other applicable conditions precedent set forth in Section 3 have not been
---------
satisfied, to make Advances to Borrower on behalf of the Lenders that Agent, in
its Permitted Discretion deems necessary or desirable (A) to preserve or protect
the Collateral, or any portion thereof, (B) to enhance the likelihood of
repayment of the Obligations, or (C) to pay any other amount chargeable to
Borrower pursuant to the terms of this Agreement, including Lender Group
Expenses and the costs, fees, and expenses described in Section 10 (any of the
----------
-33-
Advances described in this Section 2.3(e) shall be referred to as "Agent
--------------- -----
Advances"). Each Agent Advance is an Advance hereunder and shall be subject to
--------
all the terms and conditions applicable to other Advances, except that payments
thereon shall be payable to Agent solely for its own account (and for the
account of the holder of any participation interest with respect to such Agent
Advance).
(ii) The Agent Advances shall be repayable on demand and secured by the
Agent's Liens granted to Agent under the Loan Documents, shall constitute
Advances and Obligations hereunder, and shall bear interest at the rate
applicable from time to time to Advances under this Agreement.
(f) SETTLEMENT. It is agreed that each Lender's funded portion of the
Advances is intended by the Lenders to equal, at all times, such Lender's Pro
Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent,
Swing Lender, and the other Lenders agree (which agreement shall not be for the
benefit of or enforceable by Borrower) that in order to facilitate the
administration of this Agreement and the other Loan Documents, settlement among
them as to the Advances, the Swing Loans, and the Agent Advances shall take
place on a periodic basis in accordance with the following provisions:
(i) Agent shall request settlement ("Settlement") with the Lenders on a
----------
weekly basis, or on a more frequent basis if so determined by Agent, (1) on
behalf of Swing Lender, with respect to each outstanding Swing Loan, (2) for
itself, with respect to each Agent Advance, and (3) with respect to Collections
received, as to each by notifying the Lenders by telecopy, telephone, or other
similar form of transmission, of such requested Settlement, no later than 2:00
p.m. (California time) on the Business Day immediately prior to the date of such
requested Settlement (the date of such requested Settlement being the
"Settlement Date"). Such notice of a Settlement Date shall include a summary
-----------------
statement of the amount of outstanding Advances, Swing Loans, and Agent
Advances for the period since the prior Settlement Date. Subject to the terms
and conditions contained herein (including Section 2.3(c)(iii)): (y) if a
--------------------
Lender's balance of the Advances, Swing Loans, and Agent Advances exceeds such
Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a
Settlement Date, then Agent shall, by no later than 12:00 p.m. (California time)
on the Settlement Date, transfer in immediately available funds to the account
of such Lender as such Lender may designate, an amount such that each such
Lender shall, upon receipt of such amount, have as of the Settlement Date, its
Pro Rata Share of the Advances, Swing Loans, and Agent Advances, and (z) if a
Lender's balance of the Advances, Swing Loans, and Agent Advances is less than
-34
such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as
of a Settlement Date, such Lender shall no later than 12:00 p.m. (California
time) on the Settlement Date transfer in immediately available funds to the
Agent's Account, an amount such that each such Lender shall, upon transfer of
such amount, have as of the Settlement Date, its Pro Rata Share of the Advances,
Swing Loans, and Agent Advances. Such amounts made available to Agent under
clause (z) of the immediately preceding sentence shall be applied against the
amounts of the applicable Swing Loan or Agent Advance and, together with the
portion of such Swing Loan or Agent Advance representing Swing Lender's Pro Rata
Share thereof, shall constitute Advances of such Lenders. If any such amount is
not made available to Agent by any Lender on the Settlement Date applicable
thereto to the extent required by the terms hereof, Agent shall be entitled to
recover for its account such amount on demand from such Lender together with
interest thereon at the Defaulting Lender Rate.
(ii) In determining whether a Lender's balance of the Advances, Swing Loans,
and Agent Advances is less than, equal to, or greater than such Lender's Pro
Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement
Date, Agent shall, as part of the relevant Settlement, apply to such balance the
portion of payments actually received in good funds by Agent with respect to
principal, interest, fees payable by Borrower and allocable to the Lenders
hereunder, and proceeds of Collateral. To the extent that a net amount is owed
to any such Lender after such application, such net amount shall be distributed
by Agent to that Lender as part of such next Settlement.
(iii) Between Settlement Dates, Agent, to the extent no Agent Advances or
Swing Loans are outstanding, may pay over to Swing Lender any payments received
by Agent, that in accordance with the terms of this Agreement would be applied
to the reduction of the Advances, for application to Swing Lender's Pro Rata
Share of the Advances. If, as of any Settlement Date, Collections received
since the then immediately preceding Settlement Date have been applied to Swing
Lender's Pro Rata Share of the Advances other than to Swing Loans, as provided
for in the previous sentence, Swing Lender shall pay to Agent for the accounts
of the Lenders, and Agent shall pay to the Lenders, to be applied to the
outstanding Advances of such Lenders, an amount such that each Lender shall,
upon receipt of such amount, have, as of such Settlement Date, its Pro Rata
Share of the Advances. During the period between Settlement Dates, Swing Lender
with respect to Swing Loans, Agent with respect to Agent Advances, and each
Lender (subject to the effect of letter agreements between Agent and individual
Lenders) with respect to the Advances other than Swing Loans and Agent Advances,
shall be entitled to interest at the applicable rate or rates payable under this
Agreement on the daily amount of funds employed by Swing Lender, Agent, or the
Lenders, as applicable.
-35-
(g) NOTATION. Agent shall record on its books the principal amount of the
Advances owing to each Lender, including the Swing Loans owing to Swing Lender,
and Agent Advances owing to Agent, and the interests therein of each Lender,
from time to time. In addition, each Lender is authorized, at such Lender's
option, to note the date and amount of each payment or prepayment of principal
of such Lender's Advances in its books and records, including computer records,
such books and records constituting conclusive evidence, absent manifest error,
of the accuracy of the information contained therein. There shall be no
promissory notes evidencing the payment obligations of Borrower to Lenders.
(h) LENDERS' FAILURE TO PERFORM. All Advances (other than Swing Loans and
Agent Advances) shall be made by the Lenders contemporaneously and in accordance
with their Pro Rata Shares. It is understood that (i) no Lender shall be
responsible for any failure by any other Lender to perform its obligation to
make any Advance (or other extension of credit) hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligations hereunder, and (ii) no failure by
any Lender to perform its obligations hereunder shall excuse any other Lender
from its obligations hereunder.
(i) OPTIONAL OVERADVANCES. Any contrary provision of this Agreement
notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as
applicable, and Agent or Swing Lender, as applicable, may, but is not obligated
to, knowingly and intentionally, continue to make Advances (including Swing
Loans) to Borrower notwithstanding that an Overadvance exists or thereby would
be created, so long as (i) after giving effect to such Advances (including a
Swing Loan), the Revolver Usage does not exceed the Borrowing Base by more than
$5,000,000.00, (ii) after giving effect to such Advances (including a Swing
Loan) the outstanding Revolver Usage (except for and excluding amounts charged
to the Loan Account for interest, fees, or Lender Group Expenses) does not
exceed the Maximum Revolver Amount, and (iii) at the time of the making of any
such Advance (including a Swing Loan), Agent does not believe, in good faith,
that the Overadvance created by such Advance will be outstanding for more than
90 days. The foregoing provisions are for the exclusive benefit of Agent, Swing
Lender, and the Lenders and are not intended to benefit Borrower in any way.
The Advances and Swing Loans, as applicable, that are made pursuant to this
Section 2.3(i) shall be subject to the same terms and conditions as any other
---------------
Advance or Swing Loan, as applicable and the rate of interest applicable thereto
shall be the rate applicable to Advances under this Agreement without regard to
the presence or absence of a Default or Event of Default.
(i) In the event Agent obtains actual knowledge that the Revolver Usage
exceeds the amounts permitted by the preceding paragraph, regardless of the
amount of, or reason for, such excess, Agent shall notify Lenders as soon as
-36-
practicable (and prior to making any (or any additional) intentional
Overadvances (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses) unless Agent determines that prior
notice would result in imminent harm to the Collateral or its value), and the
Lenders with Revolver Commitments thereupon shall, together with Agent, jointly
determine the terms of arrangements that shall be implemented with Borrower and
intended to reduce, within a reasonable time, the outstanding principal amount
of the Advances to Borrower to an amount permitted by the preceding paragraph.
In the event Agent or any Lender disagrees over the terms of reduction or
repayment of any Overadvance, the terms of reduction or repayment thereof shall
be implemented according to the determination of the Required Lenders.
(ii) Each Lender with a Revolver Commitment shall be obligated to settle
with Agent as provided in Section 2.3(f) for the amount of such Lender's Pro
--------------
Rata Share of any unintentional Overadvances by Agent reported to such Lender,
any intentional Overadvances made as permitted under this Section 2.3(i), and
--------------
any Overadvances resulting from the charging to the Loan Account of interest,
fees, or Lender Group Expenses.
2.4 PAYMENTS.
--------
(a) PAYMENTS BY BORROWER.
(i) Except as otherwise expressly provided herein, all payments by Borrower
shall be made to Agent's Account for the account of the Lender Group and shall
be made in immediately available funds, no later than 11:00 a.m. (California
time) on the date specified herein. Any payment received by Agent later than
11:00 a.m. (California time), shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue until such following Business Day.
(ii) Unless Agent receives notice from Borrower prior to the date on which
any payment is due to the Lenders that Borrower will not make such payment in
full as and when required, Agent may assume that Borrower has made (or will
make) such payment in full to Agent on such date in immediately available funds
and Agent may (but shall not be so required), in reliance upon such assumption,
distribute to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent Borrower does not make such payment in
full to Agent on the date when due, each Lender severally shall repay to Agent
on demand such amount distributed to such Lender, together with interest thereon
at the Defaulting Lender Rate for each day from the date such amount is
distributed to such Lender until the date repaid.
-37-
(b) APPORTIONMENT AND APPLICATION.
(i) Except as otherwise provided with respect to Defaulting Lenders and
except as otherwise provided in the Loan Documents (including letter agreements
between Agent and individual Lenders), aggregate principal and interest payments
shall be apportioned ratably among the Lenders (according to the unpaid
principal balance of the Obligations to which such payments relate held by each
Lender) and payments of fees and expenses (other than fees or expenses that are
for Agent's separate account, after giving effect to any letter agreements
between Agent and individual Lenders) shall be apportioned ratably among the
Lenders having a Pro Rata Share of the type of Commitment or Obligation to which
a particular fee relates. All payments shall be remitted to Agent and all such
payments (other than payments received while no Default or Event of Default has
occurred and is continuing and which relate to the payment of principal or
interest of specific Obligations or which relate to the payment of specific
fees), and all proceeds of Accounts or other Collateral received by Agent, shall
be applied as follows:
A. first, to pay any Lender Group Expenses then due to Agent under the Loan
-----
Documents, until paid in full,
B. second, to pay any Lender Group Expenses then due to the Lenders under
------
the Loan Documents, on a ratable basis, until paid in full,
C. third, to pay any fees then due to Agent (for its separate accounts,
-----
after giving effect to any letter agreements between Agent and the individual
Lenders) under the Loan Documents until paid in full,
D. fourth, to pay any fees then due to any or all of the Lenders (after
------
giving effect to any letter agreements between Agent and individual Lenders)
under the Loan Documents, on a ratable basis, until paid in full,
E. fifth, to pay interest due in respect of all Agent Advances, until paid
-----
in full,
F. sixth, ratably to pay interest due in respect of the Advances (other than
-----
Agent Advances), and the Swing Loans until paid in full,
G. seventh, to pay the principal of all Agent Advances until paid in full,
-------
-38-
H. eighth, to pay the principal of all Swing Loans until paid in full,
------
I. ninth, to pay the principal of all Advances until paid in full,
-----
J. tenth, if an Event of Default has occurred and is continuing, to Agent,
-----
to be held by Agent, for the ratable benefit of Issuing Lender and those Lenders
having a Revolver Commitment, as cash collateral in an amount up to 105% of the
then extant Letter of Credit Usage until paid in full,
K. eleventh, to pay any other Obligations until paid in full, and
--------
L. twelfth, to Borrower (to be wired to the Designated Account) or such
-------
other Person entitled thereto under applicable law.
(ii) Agent promptly shall distribute to each Lender, pursuant to the
applicable wire instructions received from each Lender in writing, such funds as
it may be entitled to receive, subject to a Settlement delay as provided in
Section 2.3(f).
---------------
(iii) In each instance, so long as no Default or Event of Default has
occurred and is continuing, Section 2.4(b) shall not be deemed to apply to any
--------------
payment by Borrower specified by Borrower to be for the payment of specific
Obligations then due and payable (or prepayable) under any provision of this
Agreement.
(iv) For purposes of the foregoing, "paid in full" means payment of all
amounts owing under the Loan Documents according to the terms thereof, including
loan fees, service fees, professional fees, interest (and specifically including
interest accrued after the commencement of any Insolvency Proceeding), default
interest, interest on interest, and expense reimbursements, whether or not the
same would be or is allowed or disallowed in whole or in part in any Insolvency
Proceeding.
(v) In the event of a direct conflict between the priority provisions of
this Section 2.4 and other provisions contained in any other Loan Document, it
------------
is the intention of the parties hereto that such priority provisions in such
documents shall be read together and construed, to the fullest extent possible,
to be in concert with each other. In the event of any actual, irreconcilable
conflict that cannot be resolved as aforesaid, the terms and provisions of this
Section 2.4 shall control and govern.
------------
-39-
2.5 OVERADVANCES.
------------
If at any time or for any reason, the amount of Obligations (other than
Bank Product Obligations) owed by Borrower to the Agent and the Lender Group
pursuant to Sections 2.1 and 2.12 is greater than an amount equal to the lower
---------------------
of (a) the Dollar or percentage limitations set forth in Sections 2.1 or 2.12,
--------------------
or (b) the then current Borrowing Base (an "Overadvance"), Borrower, within five
-----------
(5) Business Days from the date of each such occurrence, shall notify the Agent
that Borrower shall take one of the following actions:
(a) execute and deliver, and/or cause the Pledging Subsidiaries or any other
Subsidiary to execute and deliver to the Agent within sixty (60) days from
and after the date of the occurrence of such Overadvance, supplemental or
additional Mortgages, in form and substance satisfactory to the Agent and its
counsel, securing payment of the Obligations and covering Oil and Gas Properties
directly owned by Borrower, the Pledging Subsidiaries or such other Subsidiary
which are not then covered by any Loan Document and which are of a type and
nature satisfactory to the Agent, and having a value (as determined by the Agent
in its sole discretion), in addition to other Oil and Gas Properties already
subject to a Mortgage, sufficient to eliminate the Overadvance, all as more
particularly described in Sections 6.21(c) and d); or
--------------------------
(b) make a payment with respect to the Obligations, in an aggregate
principal amount sufficient to eliminate such Overadvance within ten (10) days
after the date of the occurrence of such Overadvance (and the Borrower shall
make such payment within such ten-day period).
If the Borrower shall elect to execute and deliver, and/or to cause the Pledging
Subsidiaries or any other Subsidiary to execute and deliver supplemental or
additional Security Documents to the Agent pursuant to clause (a), it shall
----------
provide the Agent with descriptions of the additional assets to be mortgaged
(together with current valuations, engineering reports, Security Documents
described in clause (a) and title evidence applicable thereto and other
-----------
documents including opinions of counsel, each of which shall be in form and
substance reasonably satisfactory to the Agent) within sixty (60) days after the
date of the occurrence of such Overadvance. Such supplemental or additional
Security Documents shall be subject to the terms of Section 6.21. If the
------------
Borrower fails to give the required notice that it shall take any of the actions
described in this Section 2.5 within such five (5) Business Day period or take
-----------
the applicable action in subclauses (a) or (b) above within such sixty (60) or
-------------- ---
ten (10) day (as applicable) period, in each case from and after the date of the
occurrence of the Overadvance, then without any necessity for notice to the
Borrower or any other person, the Borrower shall become obligated immediately to
pay Obligations in an aggregate principal amount equal to the applicable
Overadvance.
2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS, AND
----------------------------------------------------------------------
CALCULATIONS.
------------
(a) INTEREST RATES. Except as provided in clause (c) below, all Obligations
(except for undrawn Letters of Credit and except for Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof at a rate per annum at
all times equal to the Base Rate plus the Applicable Margin.
-40-
(b) LETTER OF CREDIT FEE. Borrower shall pay Agent (for the ratable benefit
of the Lenders with a Revolver Commitment, subject to any letter agreement
between Agent and individual Lenders), a Letter of Credit fee (in addition to
the charges, commissions, fees, and costs set forth in Section 2.12(e)) which
---------------
shall accrue at a rate equal to 2.25% per annum times the Daily Balance of the
undrawn amount of all outstanding Letters of Credit.
(c) DEFAULT RATE. Upon the occurrence and during the continuation of an
Event of Default (and at the election of Agent or the Required Lenders),
(i) all Obligations (except for undrawn Letters of Credit and Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof at a per annum rate
equal to 4 percentage points above the per annum rate otherwise applicable
hereunder, and
(ii) the Letter of Credit fee provided for above shall be increased to 4
percentage points above the per annum rate otherwise applicable hereunder.
(d) PAYMENT. Interest, Letter of Credit fees, and all other fees payable
hereunder shall be due and payable, in arrears, on the first day of each month
at any time that Obligations or Commitments are outstanding. Borrower hereby
authorizes Agent, from time to time, without prior notice to Borrower, to charge
such interest and fees, all Lender Group Expenses (as and when incurred),
the charges, commissions, fees, and costs provided for in Section 2.12(e) (as
---------------
and when accrued or incurred), the fees and costs provided for in Section 2.11
------------
(as and when accrued or incurred), and all other payments as and when due and
payable under any Loan Document (including any amounts due and payable to ▇▇▇▇▇
Fargo or its Affiliates in respect of Bank Products up to the amount of the then
extant Bank Products Reserve) to Borrower's Loan Account, which amounts
thereafter constitute Advances hereunder and shall accrue interest at the rate
then applicable to Advances hereunder. Any interest not paid when due shall be
charged to Borrower's Loan Account and shall thereafter constitute Advances
hereunder and shall accrue interest at the rate then applicable to Advances
under this Agreement.
(e) COMPUTATION. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed. In the event the Base Rate is changed from time to time hereafter, the
rates of interest hereunder based upon the Base Rate automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.
-41-
(f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. Borrower and the Lender
Group hereby agree and stipulate that the only charges imposed upon Borrower for
the use of money in connection with this Agreement are and shall be the specific
interest and fees described in this Article 2 and in any other Loan Document.
Notwithstanding the foregoing, Borrower and the Lender Group further agree and
stipulate that all agency fees, syndication fees, facility fees, underwriting
fees, default charges, late charges, funding or "breakage" charges, increased
cost charges, the Applicable Prepayment Premium, "float" or "clearance" charges,
attorneys' fees and reimbursement for costs and expenses paid by the Agent or
the Lender Group to third parties or for damages incurred by the Agent or the
Lender Group are charges to compensate the Agent and the Lender Group for
underwriting and administrative services and costs or losses performed or
incurred, and to be performed and incurred, by the Agent and the Lender Group in
connection with this Agreement and the other Loan Documents. In no event shall
the amount of interest and other charges for the use of money payable under this
Agreement exceed the maximum amounts permissible under any law that a court of
competent jurisdiction shall, in a final determination, deem applicable.
Borrower and the Lender Group, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and other charges for
the use of money and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if the amount
of such interest and other charges for the use of money or manner of payment
exceeds the maximum amount allowable under applicable law, then, ipso facto as
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.7 CASH MANAGEMENT.
----------------
(a) Borrower shall (i) establish and maintain cash management services of a
type and on terms satisfactory to Agent at one or more of the banks set forth on
Schedule 2.7(a) (each a "Cash Management Bank"), and shall request in
---------------- ----------------------
writing and otherwise take such reasonable steps, if necessary, to ensure that
all Account Debtors of Borrower and the Pledging Subsidiaries, forward payment
of the amounts owed by them directly to such Cash Management Bank, and (ii)
deposit or cause to be deposited promptly, and in any event no later than the
first Business Day after the date of receipt thereof, all Collections (including
those sent directly by Account Debtors to a Cash Management Bank) into a bank
account subject to a Control Agreement (a "Cash Management Account") at one of
-----------------------
the Cash Management Banks.
(b) Each Cash Management Bank shall establish and maintain Cash Management
Agreements with Agent and Borrower, in form and substance acceptable to Agent.
Each such Cash Management Agreement shall provide, among other things, that (i)
all items of payment deposited in such Cash Management Account and proceeds
thereof are held by such Cash Management Bank as agent or bailee-in-possession
for Agent, (ii) the Cash Management Bank has no rights of setoff or recoupment
-42-
or any other claim against the applicable Cash Management Account, other than
for payment of its service fees and other charges directly related to the
administration of such Cash Management Account and for returned checks or other
items of payment, and (iii) upon notice from Agent under such Cash Management
Agreement, the Cash Management Bank will immediately thereafter, until notified
to the contrary in writing by the Agent, forward by daily sweep (aa) an amount
equal to seventeen and one-half percent (17.5%) (the "Borrower's Estimated
--------------------
Percentage") of all amounts deposited in the applicable Cash Management Account
----------
to the Agent's Account and (bb) an amount equal to the remaining eighty-two and
one-half percent (82.5%) of all other amounts deposited in the applicable Cash
Management Account to Eastern American's account no. ▇▇▇-▇▇▇-▇ at ▇▇▇▇▇▇ Bank.
(c) So long as no Default or Event of Default has occurred and is continuing,
Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Bank or
---------------
Cash Management Account; provided, however, that (i) such prospective Cash
-------- -------
Management Bank shall be satisfactory to Agent and Agent shall have consented in
writing in advance to the opening of such Cash Management Account with the
prospective Cash Management Bank, and (ii) prior to the time of the opening of
such Cash Management Account, Borrower and such prospective Cash Management Bank
shall have executed and delivered to Agent a Cash Management Agreement.
Borrower shall close any of their Cash Management Accounts (and establish
replacement cash management accounts in accordance with the foregoing sentence)
promptly and in any event within 30 days of notice from Agent that the
creditworthiness of any Cash Management Bank is no longer acceptable in Agent's
reasonable judgment, or as promptly as practicable and in any event within 60
days of notice from Agent that the operating performance, funds transfer, or
availability procedures or performance of the Cash Management Bank with respect
to Cash Management Accounts or Agent's liability under any Cash Management
Agreement with such Cash Management Bank is no longer acceptable in Agent's
reasonable judgment.
(d) The Cash Management Accounts shall be cash collateral accounts, with
Borrower's ownership interest in all cash, checks and similar items of payment
in such accounts securing payment of the Obligations, and in which Borrower is
hereby deemed to have granted a Lien to Agent.
(e) Agent shall be entitled to deliver and maintain the notice of cash transfer
("Cash Transfer Notice") provided for in clause (iii) of Section 2.7(b) at any
------------------------ --------------
time, in the Agent's sole and absolute discretion, that either (i) an Event of
Default has occurred and is continuing, or (ii) the Excess Availability is Two
Million Dollars ($2,000,000) or less (each such time period a "Cash Sweep
----------
Period"). Once a Cash Sweep Period has been established by Agent it shall
remain in effect until the conditions giving rise to such Cash Sweep Period no
longer exist and Borrower has delivered to Agent a certificate to such effect
requesting a termination of such Cash Sweep Period.
-43-
(f) During any Cash Sweep Period, Borrower shall on a monthly basis deliver to
Agent a report (each a "Monthly Funds Ownership Report") reflecting (i) the
------------------------------
actual percentage of ownership by Borrower, the Pledging Subsidiaries, and the
Partnerships of all funds derived from the Borrowing Base Properties deposited
to all Cash Management Banks during the preceding monthly time period and (ii)
the aggregate amount of such deposits (i.e., the ownership percentage of
Borrower, the Pledging Subsidiaries and the Pledging Subsidiaries in the
Partnerships for such month expressed as a decimal multiplied by the aggregate
amount of all deposits to all Cash Management Banks during such month [the
"Borrower's Monthly Deposit"]) in the Cash Management Account.
-----------------------------
(g) In the event a Monthly Funds Ownership Report reflects that during a Cash
Sweep Period Borrower's Estimated Percentage has resulted in deposits to the
Agent's Account during the preceding month in excess of the Borrower's Monthly
Deposit for such month, Agent shall, upon request of Borrower, within five (5)
Business Days, return to Borrower's control by wire transfer to the Designated
Account an amount equal to the positive difference between the Borrower's
Monthly Deposit for such month and the aggregate deposits to the Agent's Account
during such monthly time period.
(h) In the event a Monthly Funds Ownership Report reflects that during a
Cash Sweep Period Borrower's Estimated Percentage has resulted in deposits to
the Agent's Account during the preceding month of less than the Borrower's
Monthly Deposit for such month, Agent shall promptly, in accordance with Section
2.3(e) of this Agreement, make an Advance for the account of Borrower to be
credited to the Agent's Account in an amount equal to the positive excess of the
Borrower's Monthly Deposit for such month over the amount deposited to Agent's
Account for such month as a result of the Borrower's Estimated Percentage.
2.8 CREDITING PAYMENTS; FLOAT CHARGE.
-----------------------------------
The receipt of any payment item by Agent (whether from transfers to
Agent by the Cash Management Banks pursuant to the Cash Management Agreements or
otherwise) shall not be considered a payment on account unless such payment item
is a wire transfer of immediately available federal funds made to the Agent's
Account or unless and until such payment item is honored when presented for
payment. Should any payment item not be honored when presented for payment,
then Borrower shall be deemed not to have made such payment and interest shall
be calculated accordingly. Anything to the contrary contained herein
notwithstanding, any payment item shall be deemed received by Agent only if it
is received into the Agent's Account on a Business Day on or before 11:00 a.m.
(California time). If any payment item is received into the Agent's Account on
a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it
shall be deemed to have been received by Agent as of the opening of business on
the immediately following Business Day. From and after the Closing Date, Agent
shall be entitled to charge Borrower for one (1) Business Day of `clearance' or
`float' at the rate applicable to Advances under this Agreement on all
Collections that are received by Borrower and its Subsidiaries (regardless of
whether forwarded by the Cash Management Banks to Agent). This across-the-board
-44-
one (1) Business Day clearance or float charge on all Collections is
acknowledged by the parties to constitute an integral aspect of the pricing of
the financing of Borrower and shall apply irrespective of whether or not there
are any outstanding monetary Obligations; the effect of such clearance or float
charge being the equivalent of charging one (1) Business Day of interest on such
Collections. The parties acknowledge and agree that the economic benefit of the
foregoing provisions of this Section 2.8 shall be for the exclusive benefit of
-----------
Agent.
2.9 DESIGNATED ACCOUNT.
-------------------
Agent is authorized to make the Advances, and Issuing Lender is
authorized to issue the Letters of Credit, under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Person, or without instructions if pursuant to Section 2.6(d).
--------------
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Agent or the Lenders hereunder.
Unless otherwise agreed by Agent and Borrower, any Advance, Agent Advance, or
Swing Loan requested by Borrower and made by Agent or the Lenders hereunder
shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
------------------------------------------------------------
Agent shall maintain an account on its books in the name of Borrower
(the "Loan Account") on which Borrower will be charged with all Advances
-------------
(including Agent Advances and Swing Loans) made by Agent, Swing Lender, or the
Lenders to Borrower or for Borrower's account, the Letters of Credit issued by
Issuing Lender for Borrower's account, and with all other payment Obligations
hereunder or under the other Loan Documents (except for Bank Product
Obligations), including, accrued interest, fees and expenses, and Lender Group
Expenses. In accordance with Section 2.8, the Loan Account will be credited
------------
with all payments received by Agent from Borrower or for Borrower's account,
including all amounts received in the Agent's Account from any Cash Management
Bank. Agent shall render statements regarding the Loan Account to Borrower,
including principal, interest, fees, and including an itemization of all charges
and expenses constituting Lender Group Expenses owing, and such statements shall
be conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and the Lender Group unless, within 30 days after
receipt thereof by Borrower, Borrower shall deliver to Agent written objection
thereto describing the error or errors contained in any such statements.
2.11 FEES.
----
Borrower shall pay to Agent the following fees and charges, which fees
and charges shall be non-refundable when paid (irrespective of whether this
Agreement is terminated thereafter) and shall be apportioned among the Lenders
in accordance with the terms of letter agreements between Agent and individual
Lenders:
(a) UNUSED LINE FEE. On the first day of each month during the term of this
Agreement, an unused line fee in the amount equal to one-half of one percent
(0.50%) per annum times the result of (a) the Maximum Revolver Amount, less (b)
the sum of (i) the average Daily Balance of Advances that were outstanding
during the immediately preceding month, plus (ii) the average Daily Balance of
the Letter of Credit Usage during the immediately preceding month,
-45-
(b) FEE LETTER FEES. As and when due and payable under the terms of the Fee
Letter, Borrower shall pay to Agent the fees set forth in the Fee Letter, and
(c) AUDIT, APPRAISAL, AND VALUATION CHARGES. For the separate account of
Agent, audit, appraisal, and valuation fees and charges as follows, (i) a fee of
$850 per day, per auditor, plus out-of-pocket expenses for each financial audit
of Borrower performed by personnel employed by Agent, (ii) a fee of $1,500 per
day per appraiser, plus out-of-pocket expenses, for each appraisal of the
Collateral performed by personnel employed by Agent, and (iii) the actual
charges paid or incurred by Agent if it elects to employ the services of one or
more third Persons to perform financial audits of Borrower, to appraise the
Collateral, or any portion thereof, or to assess Borrower's business valuation.
2.12 LETTERS OF CREDIT.
-------------------
(a) Subject to the terms and conditions of this Agreement, the Issuing
Lender agrees to issue letters of credit for the account of Borrower (each, an
"L/C") or to purchase participations or execute indemnities or reimbursement
---
obligations (each such undertaking, an "L/C Undertaking") with respect to
----------------
letters of credit issued by an Underlying Issuer (as of the Closing Date, the
prospective Underlying Issuer is to be ▇▇▇▇▇ Fargo) for the account of Borrower.
To request the issuance of an L/C or an L/C Undertaking (or the amendment,
renewal, or extension of an outstanding L/C or L/C Undertaking), Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Lender) to the
Issuing Lender and Agent (reasonably in advance of the requested date of
issuance, amendment, renewal, or extension) a notice requesting the issuance of
an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking to be
amended, renewed, or extended, the date of issuance, amendment, renewal, or
extension, the date on which such L/C or L/C Undertaking is to expire, the
amount of such L/C or L/C Undertaking, the name and address of the beneficiary
thereof (or of the Underlying Letter of Credit, as applicable), and such other
information as shall be necessary to prepare, amend, renew, or extend such L/C
or L/C Undertaking. If requested by the Issuing Lender, Borrower also shall be
an applicant under the application with respect to any Underlying Letter of
Credit that is to be the subject of an L/C Undertaking. The Issuing Lender
shall have no obligation to issue a Letter of Credit if any of the following
would result after giving effect to the requested Letter of Credit:
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(i) the Letter of Credit Usage would exceed the Borrowing Base less the
amount of outstanding Advances, or
(ii) the Letter of Credit Usage would exceed $5,000,000.00 or
(iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount
less the then extant amount of outstanding Advances.
Borrower and the Lender Group acknowledge and agree that certain Underlying
Letters of Credit may be issued to support letters of credit that already are
outstanding as of the Closing Date. Each Letter of Credit (and corresponding
Underlying Letter of Credit) shall have an expiry date no later than 30 days
prior to the Maturity Date and all such Letters of Credit (and corresponding
Underlying Letter of Credit) shall be in form and substance acceptable to the
Issuing Lender (in the exercise of its Permitted Discretion), including the
requirement that the amounts payable thereunder must be payable in Dollars. If
Issuing Lender is obligated to advance funds under a Letter of Credit, Borrower
immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to
Agent an amount equal to such L/C Disbursement not later than 11:00 a.m.,
California time, on the date that such L/C Disbursement is made, if Borrower
shall have received written or telephonic notice of such L/C Disbursement prior
to 10:00 a.m., California time, on such date, or, if such notice has not been
received by Borrower prior to such time on such date, then not later than 11:00
a.m., California time, on the following Business Day and, in the absence of such
reimbursement, the L/C Disbursement immediately and automatically shall be
deemed to be an Advance hereunder and, thereafter, shall bear interest at the
rate then applicable to Advances under this Agreement. To the extent an L/C
Disbursement is deemed to be an Advance hereunder, Borrower's obligation to
reimburse such L/C Disbursement shall be discharged and replaced by the
resulting Advance. Promptly following receipt by Agent of any payment from
Borrower pursuant to this paragraph, Agent shall distribute such payment to the
Issuing Lender or, to the extent that Lenders have made payments pursuant to
Section 2.12(c) to reimburse the Issuing Lender, then to such Lenders and the
----------------
Issuing Lender as their interest may appear.
(b) Promptly following receipt of a notice of L/C Disbursement pursuant to
Section 2.12(a), each Lender with a Revolver Commitment agrees to fund its Pro
----------------
Rata Share of any Advance deemed made pursuant to the foregoing subsection on
the same terms and conditions as if Borrower had requested such Advance and
Agent shall promptly pay to Issuing Lender the amounts so received by it from
the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter
of Credit increasing the amount thereof) and without any further action on
the part of the Issuing Lender or the Lenders with Revolver Commitment, the
Issuing Lender shall be deemed to have granted to each Lender with a Revolver
Commitment, and each Lender with a Revolver Commitment shall be deemed to have
purchased, a participation in each Letter of Credit, in an amount equal to its
Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and
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each such Lender agrees to pay to Agent, for the account of the Issuing Lender,
such Lender's Pro Rata Share of any payments made by the Issuing Lender under
such Letter of Credit. In consideration and in furtherance of the foregoing,
each Lender with a Revolver Commitment hereby absolutely and unconditionally
agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro
Rata Share of each L/C Disbursement made by the Issuing Lender and not
reimbursed by Borrower on the date due as provided in clause (a) of this
Section, or of any reimbursement payment required to be refunded to Borrower for
any reason. Each Lender with a Revolver Commitment acknowledges and agrees that
its obligation to deliver to Agent, for the account of the Issuing Lender, an
amount equal to its respective Pro Rata Share pursuant to this Section 2.12(b)
---------------
shall be absolute and unconditional and such remittance shall be made
notwithstanding the occurrence or continuation of an Event of Default or Default
or the failure to satisfy any condition set forth in Section 3 hereof. If any
---------
such Lender fails to make available to Agent the amount of such Lender's Pro
Rata Share of any payments made by the Issuing Lender in respect of such Letter
of Credit as provided in this Section, Agent (for the account of the Issuing
Lender) shall be entitled to recover such amount on demand from such Lender
together with interest thereon at the Defaulting Lender Rate until paid in full.
(c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender
Group harmless from any loss, cost, expense, or liability, and reasonable
attorneys fees incurred by the Lender Group arising out of or in connection with
any Letter of Credit; provided, however, that Borrower shall not be obligated
-------- -------
hereunder to indemnify for any loss, cost, expense, or liability that is caused
by the gross negligence or willful misconduct of the Issuing Lender or any other
member of the Lender Group. Borrower agrees to be bound by the Underlying
Issuer's regulations and interpretations of any Underlying Letter of Credit or
by Issuing Lender's interpretations of any L/C issued by Issuing Lender to or
for Borrower's account, even though this interpretation may be different from
Borrower's own, and Borrower understands and agrees that the Lender Group shall
not be liable for any error, negligence, or mistake, whether of omission or
commission, in following Borrower's instructions or those contained in the
Letter of Credit or any modifications, amendments, or supplements thereto.
Borrower understands that the L/C Undertakings may require Issuing Lender to
indemnify the Underlying Issuer for certain costs or liabilities arising out of
claims by Borrower against such Underlying Issuer. Borrower hereby agrees to
indemnify, save, defend, and hold the Lender Group harmless with respect to any
loss, cost, expense (including reasonable attorneys fees), or liability incurred
by the Lender Group under any L/C Undertaking as a result of the Lender Group's
indemnification of any Underlying Issuer; provided, however, that Borrower shall
-------- -------
not be obligated hereunder to indemnify for any loss, cost, expense, or
liability that is caused by the gross negligence or willful misconduct of the
Issuing Lender or any other member of the Lender Group.
(d) Borrower hereby authorizes and directs any Underlying Issuer to deliver
to the Issuing Lender all instruments, documents, and other writings and
property received by such Underlying Issuer pursuant to such Underlying Letter
of Credit and to accept and rely upon the Issuing Lender's instructions with
respect to all matters arising in connection with such Underlying Letter of
Credit and the related application.
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(e) Any and all charges, commissions, fees, and costs incurred by the
Issuing Lender relating to Underlying Letters of Credit shall be Lender Group
Expenses for purposes of this Agreement and immediately shall be reimbursable by
Borrower to Agent for the account of the Issuing Lender; it being acknowledged
and agreed by Borrower that, as of the Closing Date, the issuance charge imposed
by the prospective Underlying Issuer is .825% per annum times the face amount of
each Underlying Letter of Credit, that such issuance charge may be changed from
time to time, and that the Underlying Issuer also imposes a schedule of charges
for amendments, extensions, drawings, and renewals.
(f) If by reason of (i) any change in any applicable law, treaty, rule, or
regulation or any change in the interpretation or application thereof by any
Governmental Authority, or (ii) compliance by the Underlying Issuer or the
Lender Group with any direction, request, or requirement (irrespective of
whether having the force of law) of any Governmental Authority or monetary
authority including, Regulation D of the Federal Reserve Board as from time to
time in effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement is or shall be imposed or
modified in respect of any Letter of Credit issued hereunder, or
(ii) there shall be imposed on the Underlying Issuer or the Lender Group any
other condition regarding any Underlying Letter of Credit or any Letter of
Credit issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the cost
to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter
of Credit or to reduce the amount receivable in respect thereof by the Lender
Group, then, and in any such case, Agent may, at any time within a reasonable
period after the additional cost is incurred or the amount received is reduced,
notify Borrower, and Borrower shall pay on demand such amounts as Agent may
specify to be necessary to compensate the Lender Group for such additional cost
or reduced receipt, together with interest on such amount from the date of such
demand until payment in full thereof at the rate then applicable to Advances
under this Agreement. The determination by Agent of any amount due pursuant to
this Section, as set forth in a certificate setting forth the calculation
thereof in reasonable detail, shall, in the absence of manifest or demonstrable
error, be final and conclusive and binding on all of the parties hereto.
2.13 INTENTIONALLY DELETED.
----------------------
2.14 CAPITAL REQUIREMENTS.
---------------------
If, after the date hereof, any Lender determines that (i) the adoption
of or change in any law, rule, regulation or guideline regarding capital
requirements for banks or bank holding companies, or any change in the
interpretation or application thereof by any Governmental Authority charged with
-49-
the administration thereof, or (ii) compliance by such Lender or its parent bank
holding company with any guideline, request or directive of any such entity
regarding capital adequacy (whether or not having the force of law), has the
effect of reducing the return on such Lender's or such holding company's capital
as a consequence of such Lender's Commitments hereunder to a level below that
which such Lender or such holding company could have achieved but for such
adoption, change, or compliance (taking into consideration such Lender's or such
holding company's then existing policies with respect to capital adequacy and
assuming the full utilization of such entity's capital) by any amount deemed by
such Lender to be material, then such Lender may notify Borrower and Agent
thereof. Following receipt of such notice, Borrower agrees to pay such Lender
on demand the amount of such reduction of return of capital as and when such
reduction is determined, payable within 90 days after presentation by such
Lender of a statement in the amount and setting forth in reasonable detail such
Lender's calculation thereof and the assumptions upon which such calculation was
based (which statement shall be deemed true and correct absent manifest error).
In determining such amount, such Lender may use any reasonable averaging and
attribution methods.
2.15 INTENTIONALLY DELETED.
-----------------------
2.16 BORROWING BASE.
---------------
(a) Determination of the Borrowing Base. During the period from the date
--------------------------------------
hereof to the date of the first determination of the Borrowing Base pursuant to
the further provisions of this Section 2.16, the initial amount of the Borrowing
------------
Base will be an amount set by the Agent on the Closing Date and
acknowledged by the Borrower (the "Initial Borrowing Base").
------------------------
(b) Annual Scheduled Determinations of the Borrowing Base. Promptly after
-------------------------------------------------------
July 1 of each calendar year (commencing July 1, 2002), and in any event prior
to September 1 of each calendar year, the Borrower shall furnish to the Agent a
report in form and substance satisfactory to the Agent, prepared by an Approved
Engineer, which report shall be dated as of July 1 of such calendar year and
shall set forth the oil and gas reserves attributable to the Borrowing Base
Properties, and a projection of the rate of production and net operating income
with respect thereto, as of such date, together with additional data concerning
pricing, hedging, operating costs, quantities and purchasers of production, and
other information and engineering and geological data as the Agent may
reasonably request. Within forty-five (45) days after receipt of such report
and information and its review and approval by Agent, the Agent shall, by
written notice to the Borrower, designate the new Borrowing Base available to
the Borrower.
(c) Semi-Annual Scheduled Determination of the Borrowing Base. In addition,
---------------------------------------------------------
promptly after January 1 of each calendar year (commencing January 1, 2003), and
in any event prior to March 1st of each calendar year, the Borrower shall
furnish to Agent a report in form and substance satisfactory to the Agent,
prepared (i) prior to the occurrence of an Event of Default or in the event
-50-
Excess Availability is greater than $25,000,000.00, by the Borrower's petroleum
engineers and (ii) after the occurrence of an Event of Default or in the event
Excess Availability is less than $25,000,000.00 by an Approved Engineer, and, in
either case, reviewed and approved by Agent, which report shall be dated as of
January 1 of such calendar year and shall set forth the oil and gas reserves
attributable to the Borrowing Base Properties, and a projection of the rate of
production and net operating income with respect thereto, as of such date,
together with additional data concerning pricing, hedging, operating costs,
quantities and purchasers of production, and other information and engineering
and geological data as the Agent may reasonably request. Within forty-five (45)
days after receipt of such report and information by Agent and its review and
approval by Agent, the Agent shall, by written notice to the Borrower, designate
the new Borrowing Base available to the Borrower.
(d) Discretionary Determination of the Borrowing Base. The Agent shall have
-------------------------------------------------
the right to redetermine the Borrowing Base at any time that the Agent, in its
sole discretion, believes that there has been an adverse change in the market
condition of the Energy Business or in the condition (financial or otherwise) or
operations of the Borrower and its Subsidiaries. If the Agent shall elect to
make a discretionary redetermination of the Borrowing Base pursuant to the
provisions of this Section 2.16(d), the Borrower shall within thirty (30) days
---------------
of receipt of a request therefor from the Agent, deliver to the Agent such
updated engineering, production, operating, and other data as the Agent or any
Lender may reasonably request. The Agent shall approve and designate the new
Borrowing Base in accordance with the procedures and standards described in
Section 2.16(b) and (g).
----------------------
(e) Exclusions. The Agent may exclude any oil and gas reserves or portion
----------
of production therefrom or any income from any other Property from the Borrowing
Base, at any time, because title information is not reasonably satisfactory or
such oil and gas reserves are not Mortgaged Properties.
(f) Quarterly Adjustments. In addition to the re-determination of the
----------------------
Borrowing Base as provided above, the valuation of the oil and gas reserves set
forth in the most recent Reserve Report shall be adjusted quarterly by the
Agent, based upon the quarterly pricing report provided by the Borrower to the
Agent pursuant to Section 6.2, such revaluation to be made by the Agent within
-----------
five (5) Business Days of its receipt of each such report, and the Agent shall
promptly notify in writing the Borrower of the revalued Borrowing Base.
(g) General Provisions With Respect to the Borrowing Base. The
------------------------------------------------------------
determination of the Borrowing Base shall be made by the Agent taking into
consideration the PV-10 Value of the Eligible Proved Developed Producing
Reserves of the Pledging Subsidiaries and the Eligible Proved Developed
Producing Reserves of the Partnerships as reflected in the most recent Reserve
Report or other report or information provided under this Agreement, and any
other relevant information obtained by or delivered to the Agent and the Lender
Group, all in accordance with the provisions of this Section 2.16, together with
------------
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such other credit factors (including, without limitation, the assets,
liabilities, cash flow, hedged and unhedged exposure to price, and interest rate
changes, business, properties, prospects, management, and ownership of Borrower,
its Subsidiaries or the Partnerships) as Agent in its discretion deem
significant.
2.17 NOTELESS AGREEMENT.
-------------------
No promissory notes shall evidence the payment obligations of any Advances to
Borrower. Agent shall maintain in accordance with its usual practice an account
or accounts on its books evidencing the obligations of Borrower resulting from
each Advance made by Agent from time to time, including the amounts of principal
and interest payable and paid to Lender hereunder. The entries maintained in
said accounts shall be prima facie evidence of the existence and amounts of the
Advances made by Agent and the payment obligations of Borrower; provided,
however, that the failure of Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of Borrower to repay the
Advances.
3. CONDITIONS; TERMS OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT.
--------------------------------------------------------------
The obligation of the Lender Group (or any member thereof) to make the
initial Advance (or otherwise to extend any credit provided for hereunder), is
subject to the fulfillment, to the satisfaction of Agent, of each of the
conditions precedent set forth below:
(a) the Closing Date shall occur on or before a date ninety (90) days from the
date of this Agreement, unless extended by Agent at its sole discretion, for an
additional period of time not to exceed ninety (90) days;
(b) Agent shall have received all financing statements and fixture filings
required by Agent, duly executed by the applicable parties, and Agent shall have
received searches reflecting the filing of all such financing statements and
fixture filings;
(c) Agent shall have received each of the following documents, in form and
substance satisfactory to Agent, duly executed, and each such document shall be
in full force and effect:
(i) the Contribution Agreement,
(ii) the Disbursement Letter,
(iii) the Due Diligence Letter,
(iv) the Fee Letter,
(v) the Cash Management Agreements,
-52-
(vi) the Control Agreements,
(vii) the Officers' Certificate,
(viii) the Partnership Pledge Agreement,
(ix) the Borrower's Security Agreement,
(x) the Intercompany Notes; and
(xi) Subordination Agreements, as may be required by Agent;
(d) Agent shall have received (i) counterparts of duly executed Mortgages
encumbering Oil and Gas Properties of the Pledging Subsidiaries constituting at
least 80% of the Total Proved Developed Producing Reserves of the Pledging
Subsidiaries to which value is given in the determination of the Initial
Borrowing Base duly executed on behalf of each record owner of such Oil and Gas
Properties and evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of such Mortgage(s) as may be
necessary or, in the reasonable opinion of the Agent, desirable effectively to
create a valid, perfected first priority Lien against the Oil and Gas Properties
purported to be covered thereby, except as a result of a Permitted Lien;
and (ii) duly executed Partnership Pledge Agreements assigning to Agent, and
granting to Agent a first perfected priority security interest in, partnership
interests in Partnerships having Oil and Gas Properties constituting at least
80% the Total Proved Developed Producing Reserves of the Partnerships to which
value is given in the determination of the Initial Borrowing Base and evidence
of the completion of all recordings and filings of such create valid, perfected
first priority Liens in such partnership interests;
(e) Agent shall have received counterparts of duly executed Mortgages
encumbering the Gathering Systems duly executed and delivered by each Subsidiary
and/or Affiliate of Borrower owning the Gathering Systems or any part thereof
and evidence of the completion (or satisfactory arrangement for the completion)
of all recordings and filings of such Mortgage(s) as may be necessary or in the
reasonable opinion of the Agent, desirable effectively to create a valid,
perfected first priority Lien on the Gathering Systems;
(f) The Borrowing Base Properties, the Gathering Systems, and the other
Collateral shall be free and clear of all Liens, except Permitted Liens. All
filings, notices, recordings and other action necessary to perfect the Liens in
the Collateral shall have been made, given or accomplished or arrangements for
the completion thereof satisfactory to the Agent and its counsel shall have been
made;
(g) Agent shall have received copies of all Governmental Approvals and third
party consents and approvals necessary or, in the sole discretion of the Agent,
advisable in connection with (i) the mortgaging and pledging of the Mortgaged
-53-
Properties, and the other Collateral, (ii) the pledging of the partnership
interests in the Partnerships, and (iii) the operations of the Borrower, its
Subsidiaries and the Partnerships. All such Governmental Approvals and third
party consents and approvals shall be in full force and effect;
(h) Agent and Lenders shall have received certificates, dated the Closing Date,
from the Borrower's insurers certifying (i) compliance with all of the insurance
required by Section 6.8 hereof and by the Security Documents and (ii) that such
-----------
insurance is in full force and effect;
(i) Agent and Lenders shall have received and shall be satisfied with the
contents, results and scope of the Initial Reserve Report;
(j) Agent shall have completed and be satisfied with the results of a review of
the Borrowing Base Properties and the other Collateral and the status of the
title and the environmental condition of the Borrowing Base Properties;
(k) Borrower shall have delivered to the Agent copies of all Hedging Agreements
currently in existence to which Borrower or any of its Subsidiaries is a party;
(l) Agent shall have received a certificate from the Secretary of Borrower and
each of its Subsidiaries attesting to the resolutions of its Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which it is a party and authorizing specific officers of
such party to execute the same;
(m) Agent shall have received copies of the Governing Documents of Borrower,
each of its Subsidiaries, and the Partnerships, as amended, modified, or
supplemented to the Closing Date, certified by an appropriate officer of each
such entity;
(n) Agent shall have received a certificate of status with respect to Borrower,
each of its Subsidiaries, and the Partnerships, dated within 10 days of the
Closing Date, such certificate to be issued by the appropriate officer of the
jurisdiction of organization of such entity, which certificate shall indicate
that such entity is in good standing in such jurisdiction;
(o) Agent shall have received certificates of status with respect to Borrower,
each of its Subsidiaries, and the Partnerships, each dated within 30 days of the
Closing Date, such certificates to be issued by the appropriate officer of the
jurisdictions (other than the jurisdiction of organization of such entity) in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that such entity is in good
standing in such jurisdictions;
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(p) Agent shall have received a certificate of insurance, together with the
endorsements thereto, as are required by Section 6.8, the form and substance of
-----------
which shall be satisfactory to Agent;
(q) Agent shall have received Collateral Access Agreements with respect to
Borrower's corporate headquarters located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and Eastern American's headquarters located at ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇;
(r) Agent shall have received opinions of Borrower's counsel in form and
substance satisfactory to Lender;
(s) Agent shall have received satisfactory evidence (including a certificate of
the chief financial officer of Borrower) that all tax returns required to be
filed by Borrower, each of its Subsidiaries, and the Partnerships have been
timely filed and all taxes upon Borrower, its Subsidiaries, and the Partnerships
or their respective properties, assets, income, and franchises (including Real
Property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest;
(t) Borrower shall have the Required Availability after giving effect to the
initial extensions of credit hereunder;
(u) Agent shall have completed its business, legal, and collateral due
diligence, including a collateral audit and review of the Books and Records of
Borrower, its Subsidiaries and the Partnership, and verification of Borrower's
representations and warranties to the Lender Group, the results of which shall
be satisfactory to Agent;
(v) Agent shall have received completed reference checks with respect to
Borrower's senior management, the results of which are satisfactory to Agent in
its sole discretion;
(w) Lender shall have received Borrower's Closing Date Business Plan;
(x) Borrower shall pay all Lender Group Expenses incurred in connection with
the transactions evidenced by this Agreement;
(y) Borrower shall have received all licenses, approvals or evidence of other
actions required by any Person or Governmental Authority in connection with the
execution and delivery by Borrower and its Subsidiaries of this Agreement or any
other Loan Document or with the consummation of the transactions contemplated
hereby and thereby; and
-55-
(z) all other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been delivered, executed, or recorded
and shall be in form and substance satisfactory to Agent and its counsel.
3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT.
---------------------------------------------------------------
The obligation of the Lender Group or any member thereof to continue to
make Advances (or otherwise extend credit hereunder) is subject to the
fulfillment, on or before the date applicable thereto, of each of the conditions
subsequent set forth below (the failure by Borrower to so perform or cause to be
performed constituting an Event of Default):
(a) Within 90 days from the date of this Agreement, the consolidating balance
sheet of the Borrower and its Subsidiaries most recently presented to Agent
prior to the date hereof and each such balance sheet hereafter presented to
Agent shall be corrected so that all amounts appearing or which otherwise would
have appeared under the heading "Distro" on such balance sheets shall be
properly allocated to the Borrower or the appropriate Subsidiary; and
(b) Within 150 days from the date of this Agreement, the subledger of Eastern
American for the aging report relating to the accounts receivable balance on the
consolidating balance sheet of the Borrower and its Subsidiaries most recently
presented to Agent prior to the date hereof shall be corrected so that the
account balance for payments received from Eastern Marketing Corporation which
have not been applied to or offset by the related revenue distribution batches
(invoices) shall be properly so applied or offset.
3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT.
------------------------------------------------------
The obligation of the Lender Group (or any member thereof) to make any
Advances (or to extend any other credit hereunder) shall be subject to the
following conditions precedent:
(a) the representations and warranties contained in this Agreement and the
other Loan Documents shall be true and correct in all material respects on and
as of the date of such extension of credit, as though made on and as of such
date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be continuing on the
date of such extension of credit, nor shall either result from the making
thereof;
(c) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any Governmental Authority against Borrower,
Lender, or any of their Affiliates; and
(d) no Material Adverse Change shall have occurred.
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3.4 TERM.
----
This Agreement shall become effective upon the execution and delivery
hereof by Borrower, Agent and Lenders and shall continue in full force and
effect for a term ending on July 10, 2005 (the "Maturity Date"). The foregoing
-------------
notwithstanding, the Lender Group, upon the election of the Required Lenders,
shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.5 EFFECT OF TERMINATION.
-----------------------
On the date of termination of this Agreement, all Obligations (including
contingent reimbursement obligations of Borrower with respect to any outstanding
Letters of Credit and including all Bank Products Obligations) immediately shall
become due and payable without notice or demand (including (a) either (i)
providing cash collateral to be held by Agent in an amount equal to 105% of the
then extant Letter of Credit Usage, or (ii) causing the original Letters of
Credit to be returned to Issuing Lender, and (b) providing cash collateral to be
held by Agent for the benefit of ▇▇▇▇▇ Fargo or its Affiliates with respect to
the then extant Bank Products Obligations). No termination of this Agreement,
however, shall relieve or discharge Borrower of its duties, Obligations, or
covenants hereunder and the Agent's Liens in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and the
Lender Group's obligations to provide additional credit hereunder have been
terminated. When this Agreement has been terminated and all of the Obligations
have been fully and finally discharged and the Lender Group's obligations to
provide additional credit under the Loan Documents have been terminated
irrevocably, Agent will, at Borrower's sole expense, execute and deliver any UCC
termination statements, lien releases, mortgage releases, re-assignments of
trademarks, discharges of security interests, and other similar discharge or
release documents (and, if applicable, in recordable form) as are reasonably
necessary to release, as of record, the Agent's Liens and all notices of
security interests and liens previously filed by Agent with respect to the
Obligations.
3.6 EARLY TERMINATION BY BORROWER.
--------------------------------
Borrower has the option, at any time upon 90 days prior written notice
by Borrower to Agent, to terminate this Agreement by paying to Agent, for the
benefit of the Lender Group, in cash, the Obligations (including (a) either (i)
providing cash collateral to be held by Agent for the benefit of those Lenders
with a Revolver Commitment in an amount equal to 105% of the then extant Letter
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of Credit Usage, or (ii) causing the original Letters of Credit to be returned
to Issuing Lender in full, and (b) providing cash collateral to be held by Agent
for the benefit of ▇▇▇▇▇ Fargo or its Affiliates with respect to the then extant
Bank Products Obligations), in full, together with, in the absence of a
Non-Prepayment Premium Event, the Applicable Prepayment Premium (to be allocated
based upon letter agreements between Agent and individual Lenders). If Borrower
has sent a notice of termination pursuant to the provisions of this Section,
then the Commitments shall terminate and Borrower shall be obligated to repay
the Obligations (including (a) either (i) providing cash collateral to be held
by Agent for the benefit of those Lenders with a Revolver Commitment in an
amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing
the original Letters of Credit to be returned to the Issuing Lender, in full,
and (b) providing cash collateral to be held by Agent for the benefit of ▇▇▇▇▇
Fargo or its Affiliates with respect to the then extant Bank Products
Obligations), in full, together with, in the absence of a Non-Prepayment Premium
Event, the Applicable Prepayment Premium, on the date set forth as the date of
termination of this Agreement in such notice. In the event of the termination
of this Agreement and repayment of the Obligations at any time prior to the
Maturity Date, for any other reason, including (a) termination upon the election
of the Required Lenders to terminate after the occurrence of an Event of
Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral in
any Insolvency Proceeding, or (d) restructure, reorganization or compromise of
the Obligations by the confirmation of a plan of reorganization, or any other
plan of compromise, restructure, or arrangement in any Insolvency Proceeding,
then, in view of the impracticability and extreme difficulty of ascertaining the
actual amount of damages to the Lender Group or profits lost by the Lender Group
as a result of such early termination, and by mutual agreement of the parties as
to a reasonable estimation and calculation of the lost profits or damages of the
Lender Group, Borrower shall pay the Applicable Prepayment Premium to Agent (to
be allocated based upon letter agreements between Agent and individual Lenders),
measured as of the date of such termination; provided, however, the Lender Group
waives the Applicable Prepayment Premium in the event such early termination
results from a financing provided by ▇▇▇▇▇ Fargo Bank, N.A., or any of its
affiliates.
4. INTENTIONALLY DELETED.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this Agreement, Borrower
makes the following representations and warranties to the Lender Group which
shall be true, correct, and complete, in all material respects, as of the date
hereof, and shall be true, correct, and complete, in all material respects, as
of the Closing Date, and at and as of the date of the making of each Advance (or
other extension of credit) made thereafter, as though made on and as of the date
of such Advance (or other extension of credit) (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:
5.1 NO ENCUMBRANCES.
----------------
Borrower, Pledging Subsidiaries and the Partnerships have good, valid
and indefeasible title to its Collateral, free and clear of Liens except for
Permitted Liens, including but not limited to:
(a) the Borrowing Base Properties and the working interests and the net
revenue interests with respect thereto listed on Schedule 5.1(a); and
----------------
(b) all rights under the Material Contracts listed on Schedule 5.1(b).
---------------
5.2 INTENTIONALLY DELETED.
----------------------
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5.3 INTENTIONALLY DELETED.
----------------------
5.4 INTENTIONALLY DELETED.
----------------------
5.5 INTENTIONALLY DELETED.
----------------------
5.6 INTENTIONALLY DELETED.
----------------------
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN.
---------------------------------------------
The chief executive office of Borrower and its Subsidiaries is located
at the address indicated in Schedule 5.7, and the FEIN for Borrower and each of
------------
its Subsidiaries is identified in Schedule 5.7.
-------------
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
----------------------------------------------------
(a) Borrower and each of its Subsidiaries is duly organized and existing and
in good standing under the laws of the jurisdiction of its organization and
qualified to do business in each state where the failure to be so qualified
reasonably could be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8(b), is a complete and accurate description of
---------------
the authorized capital Stock of Borrower, by class, and, as of the Closing Date,
a description of the number of shares of each such class that are issued and
outstanding. Other than as described on Schedule 5.8(b), there are no
----------------
subscriptions, options, warrants, or calls relating to any shares of Borrower's
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock.
(c) Set forth on Schedule 5.8(c), is a complete and accurate list of
----------------
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their organization; (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries; and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(d) Except as set forth on Schedule 5.8(c), there are no subscriptions,
---------------
options, warrants, or calls relating to any shares of Borrower's Subsidiaries'
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. Neither Borrower nor any of its
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of any capital Stock or
any security convertible into or exchangeable for any such capital Stock.
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5.9 DUE AUTHORIZATION; NO CONFLICT.
---------------------------------
(a) The execution, delivery, and performance by Borrower of this Agreement
and by Borrower and each of its Subsidiaries of the other Loan Documents to
which it is a party have been duly authorized by all necessary action on the
part of Borrower and its Subsidiaries.
(b) The execution, delivery, and performance by Borrower and each of its
Subsidiaries of this Agreement and the Loan Documents to which it is a party do
not and will not (i) violate any provision of federal, state, or local law or
regulation applicable to Borrower or any of its Subsidiaries, the Governing
Documents of Borrower or any of its Subsidiaries, or any order, judgment, or
decree of any court or other Governmental Authority binding on Borrower or any
of its Subsidiaries, (ii) conflict with, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under any material
contractual obligation of Borrower or any of its Subsidiaries, (iii) result in
or require the creation or imposition of any Lien of any nature whatsoever upon
any properties or assets of Borrower or any of its Subsidiaries, other than
Permitted Liens, or (iv) require any approval of interestholders of Borrower or
any of its Subsidiaries or any approval or consent of any Person under any
material contractual obligation of Borrower or any of its Subsidiaries.
(c) Other than the filing of financing statements, fixture filings, and
Mortgages, the execution, delivery, and performance by Borrower and each of its
Subsidiaries of this Agreement and the Loan Documents to which it is a party do
not and will not require any registration with, consent, or approval of, or
notice to, or other action with or by, any Governmental Authority or other
Person.
(d) This Agreement and the other Loan Documents to which Borrower and each
of its Subsidiaries is a party, and all other documents contemplated hereby and
thereby, when executed and delivered by Borrower and each of its Subsidiaries
will be the legally valid and binding obligations of Borrower and its
Subsidiaries, enforceable against Borrower and each such Subsidiary in
accordance with their respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors' rights generally.
(e) The Agent's Liens are validly created, perfected, and first priority
Liens, subject only to Permitted Liens.
5.10 LITIGATION.
----------
Other than those matters disclosed on Schedule 5.10, there are no
--------------
actions, suits, or proceedings pending or, to the best knowledge of Borrower,
threatened against Borrower, any of its Subsidiaries, or any Partnership except
for (a) matters that are fully covered by insurance (subject to customary
deductibles), and (b) matters arising after the Closing Date that, if decided
adversely to Borrower, any of its Subsidiaries, or any Partnership, as
applicable, reasonably could not be expected to result in a Material Adverse
Change.
-60-
5.11 NO MATERIAL ADVERSE CHANGE.
-----------------------------
All financial statements relating to Borrower and its Subsidiaries that
have been delivered by Borrower to Agent and the Lenders have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and schedules and being subject to year-end audit
adjustments) and present fairly in all material respects, the financial
condition of Borrower and its Subsidiaries as of the date thereof and results of
operations for the period then ended. There has not been a Material Adverse
Change with respect to Borrower and its Subsidiaries taken as a whole since the
date of the latest financial statements submitted to the Lender Group on or
before the Closing Date.
5.12 FRAUDULENT TRANSFER.
--------------------
(a) Borrower and each of the Pledging Subsidiaries is Solvent.
(b) The value of all properties of each of Borrower and the Pledging
Subsidiaries at their present fair saleable value on a going concern basis
(i.e., the amount that may be realized within a reasonable time, considered to
be six months to one year, either through collection or sale at the regular
market value, conceiving the latter as the amount that could be obtained for
such properties within such period by a capable and diligent businessman from an
interested buyer who is willing to purchase under ordinary selling conditions),
exceeds the amount of all its debts and liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities);
(c) Neither Borrower nor any of the Pledging Subsidiaries has unreasonably
small capital with which to conduct its business operations as heretofore
conducted;
(d) Each of Borrower and the Pledging Subsidiaries has sufficient cash flow
to enable it to pay its debts as they mature; and
(e) No transfer of property is being made by Borrower or any of the Pledging
Subsidiaries and no obligation is being incurred by Borrower or any of the
Pledging Subsidiaries in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Borrower or any of the Pledging
Subsidiaries.
5.13 EMPLOYEE BENEFITS.
------------------
Neither Borrower, nor any of its Subsidiaries, or any of their ERISA
Affiliates maintains or contributes to any Benefit Plan.
5.14 ENVIRONMENTAL CONDITION.
------------------------
Except as set forth on Schedule 5.14, (a) to Borrower's knowledge, none
-------------
of the properties or assets of Borrower or any of its Subsidiaries has ever been
used by Borrower or any of its Subsidiaries or by previous owners or operators
in the disposal of, or to produce, store, handle, treat, release, or transport,
any Hazardous Materials, where such production, storage, handling, treatment,
-61-
release or transport was in violation, in any material respect, of applicable
Environmental Law, (b) to Borrower's knowledge, none of the properties or assets
of Borrower or any of its Subsidiaries has ever been designated or identified in
any manner pursuant to any environmental protection statute as a Hazardous
Materials disposal site, (c) neither Borrower nor any of its Subsidiaries has
received notice that a Lien arising under any Environmental Law has attached to
any revenues or to any Real Property or Oil and Gas Properties owned or operated
by Borrower or any of its Subsidiaries, and (d) neither Borrower nor any of its
Subsidiaries has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by Borrower or any of its Subsidiaries
resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.15 BROKERAGE FEES.
---------------
Neither Borrower nor any of its Subsidiaries has utilized the services
of any broker or finder in connection with Borrower's obtaining financing from
Lender under this Agreement and no brokerage commission or finders fee is
payable by Borrower or any of its Subsidiaries in connection herewith.
5.16 INTELLECTUAL PROPERTY.
----------------------
Borrower and each of its Subsidiaries owns, or holds licenses in, all
trademarks, trade names, copyrights, patents, patent rights, and licenses that
are necessary to the conduct of its business as currently conductedAttached
hereto as Schedule 5.16 is a true, correct, and complete listing of all material
-------------
patents, patent applications, trademarks, trademark applications, copyrights,
and copyright registrations as to which Borrower or any of its Subsidiaries is
the owner or is an exclusive licensee.
5.17 LEASES.
------
Borrower and its Subsidiaries enjoy peaceful and undisturbed possession
under all leases material to the business of Borrower and its Subsidiaries and
to which Borrower or any of its Subsidiaries is a party or under which Borrower
and its Subsidiaries are operating. All of such leases are valid and subsisting
and no material default by Borrower or any of its Subsidiaries exists under any
of them.
5.18 DDAS.
----
Set forth on Schedule 5.18 are all of the DDAs of Borrower and its
--------------
Subsidiaries, including, with respect to each depository (i) the name and
address of such depository, and (ii) the account numbers of the accounts
maintained with such depository.
5.19 COMPLETE DISCLOSURE.
--------------------
All factual information (taken as a whole) furnished by or on behalf of
Borrower and its Subsidiaries in writing to Agent or any Lender (including all
information contained in the Schedules hereto or in the other Loan Documents)
for purposes of or in connection with this Agreement, the other Loan Documents
or any transaction contemplated herein or therein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of Borrower
and its Subsidiaries in writing to the Agent or any Lender will be, true and
accurate, in all material respects, on the date as of which such information is
dated or certified and not incomplete by omitting to state any fact necessary to
make such information (taken as a whole) not misleading in any material respect
at such time in light of the circumstances under which such information was
-62-
provided. On the Closing Date, the Closing Date Projections represent, and as
of the date on which any other Projections are delivered to Agent, such
additional Projections represent Borrower's good faith best estimate of the
future performance of Borrower and its Subsidiaries for the periods covered
thereby.
5.20 PERMITTED INDEBTEDNESS.
-----------------------
Set forth on Schedule 5.20 is a true and complete list of all
--------------
Indebtedness of Borrower and its Subsidiaries outstanding immediately prior to
the Closing Date that is to remain outstanding after the Closing Date and such
Schedule accurately reflects the aggregate principal amount of such Indebtedness
and the principal terms thereof.
5.21 INVESTMENT AND HOLDING COMPANY STATUS.
-----------------------------------------
Neither Borrower nor any of its Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940, as amended, or (b) a "holding company", or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" as defined in, or subject to
regulation under, the Public Utility Holding Company Act of 1935, as amended.
5.22 TAXES.
-----
Except as set forth in Schedule 5.22, Borrower and each of its
--------------
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes required
to have been paid by it, except (a) Taxes that are being contested in good faith
by appropriate proceedings and for which Borrower has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Change.
5.23 INSURANCE.
---------
Schedule 5.23 sets forth a description of all insurance maintained by or
-------------
on behalf of Borrower and its Subsidiaries as of the Closing Date. As of the
Closing Date, all premiums in respect of such insurance have been paid.
5.24 LABOR MATTERS.
--------------
As of the Closing Date, there are no strikes, lockouts or slowdowns
against Borrower and its Subsidiaries pending or, to the knowledge of Borrower
and its Subsidiaries, threatened. The hours worked by and payments made to
employees of Borrower and its Subsidiaries have not been in material violation
of the Fair Labor Standards Act or any other applicable Federal, state, local or
foreign law dealing with such matters. All payments due from Borrower and its
Subsidiaries, or for which any claim may be made against Borrower or any of its
Subsidiaries, on account of wages and employee health and welfare insurance and
other benefits, have been paid or accrued as a liability on the books of
Borrower and its Subsidiaries.
5.25 CLAIMS AND LIABILITIES.
------------------------
Except as disclosed in Schedule 5.25, neither Borrower nor any of its
--------------
Subsidiaries nor any of the Partnerships has accrued any liabilities under gas
purchase contracts for gas not taken, but for which it is liable to pay if not
made up and which, if not paid, would result in a Material Adverse Change.
Except as disclosed in Schedule 5.25, no claims exist against Borrower, any of
-------------
-63-
its Subsidiaries or any of the Partnerships for gas imbalances which claims if
adversely determined could result in a Material Adverse Change. No purchaser of
product supplied by Borrower, any of its Subsidiaries or any of the Partnerships
has any claim against Borrower, any of its Subsidiaries or any of the
Partnerships for product paid for, but for which delivery was not taken as and
when paid for, which claim if adversely determined could result in a Material
Adverse Change.
5.26 BORROWING BASE PROPERTIES.
---------------------------
(a) Each of the Pledging Subsidiaries, and each of the Partnerships has good
and indefeasible title to all its Borrowing Base Properties which are
Hydrocarbon Interests and good title to all its Borrowing Base Properties which
are personal property, free and clear of Liens (other than Permitted Liens).
With respect to the Borrowing Base Properties set forth on Schedule 5.1(a),
----------------
after giving full effect to the Permitted Liens, the net revenue interest is no
less than that designated for the Pledging Subsidiaries, and the Partnerships in
and to such Borrowing Base Properties and the working interest is no greater
than as set forth for the Pledging Subsidiaries, and the Partnerships in and to
such Borrowing Base Properties, and there are no "back-in" or "reversionary"
interests held by third parties which could reduce the net revenue interest or
increase the working interest of the Pledging Subsidiaries, or the Partnerships
in such Borrowing Base Properties except as expressly set forth in Schedule
--------
5.1(a). All ▇▇▇▇▇ drilled and Hydrocarbons produced with respect to the
------
Borrowing Base Properties were drilled and produced in compliance in all
material respects with all applicable Governmental Rules. All of the Borrowing
Base Properties described in Schedule 5.1(a), are covered by the Initial Reserve
---------------
Report and other reports which Borrower has previously delivered to and which
have been relied upon by Agent and Lenders in connection with this Agreement and
are covered by Mortgages or are owned by Partnerships in which the Pledging
Subsidiaries have granted security interests to Agent pursuant to a Partnership
Pledge Agreement. No bills are past due and do not give rise to a Lien (other
than Liens arising in the ordinary course of business for sums which are not yet
due and payable under customary agreements or arising by operation of law) and
taxes have been paid with respect to the Borrowing Base Properties other than
those which are the subject of a bona fide dispute which is being contested in
good faith by the Pledging Subsidiaries or the Partnerships by appropriate
proceedings as to which a reserve is established in an amount that is
satisfactory to Agent (and if a Lien secures the same or may secure the same,
such Lien is subject to a Permitted Protest).
(b) All of the marketing arrangements of the Pledging Subsidiaries and the
Partnerships with respect to the Borrowing Base Properties are valid,
enforceable and in full force and effect. As of the date of this Agreement and
thereafter through the Closing Date there do not exist any cumulative imbalances
in gas production or receipt of "take or pay" payments except as disclosed as to
both existence and extent on Schedule 5.26(b)attached hereto.
-----------------
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(c) There has not been any Material Adverse Change in any of the Borrowing
Base Properties since the date of the most recent Reserve Report.
5.27 OPERATIONS OF BORROWING BASE PROPERTIES.
-------------------------------------------
A Pledging Subsidiary is the operator of each of the Borrowing Base
Properties except as set forth in Schedule 5.27.
--------------
5.28 HEDGING AGREEMENT.
------------------
Schedule 5.28 sets forth as of the Closing Date, a true and complete list of
--------------
all Hedging Agreements (including commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment for deferred
shipment or delivery of oil, gas or other commodities) of Borrower and its
Subsidiaries, the material terms thereof (including the type, term, effective
date, termination date, and notional amounts or volumes), the net ▇▇▇▇ to market
value thereof, all credit support agreements relating thereto (including any
margin required or supplied), and the counterpart to each such agreement.
Borrower has delivered true and correct copies of each of the Hedging Agreements
to Agent prior to the date of this Agreement.
5.29 OPERATING COSTS.
----------------
As of the date of this Agreement and as of the Closing Date, all costs and
expenses incurred in connection with the operation of the Borrowing Base
Properties have been fully paid and discharged by the Pledging Subsidiaries and
the Partnerships, except (a) normal costs and expenses incurred in operating
such Borrowing Base Properties for which the Pledging Subsidiaries and the
Partnerships have not yet been billed, (b) costs and expenses which are the
subject of a bona fide dispute which is being contested in good faith by the
Pledging Subsidiaries or Partnerships by appropriate proceedings as to which a
reserve is established on the books of such Pledging Subsidiary or such
Partnerships in an amount that is satisfactory to Agent (and if a Lien secures
or may secure such obligation, such Lien is subject to a Permitted Protest).
5.30 LEASES.
------
The oil and gas leases, farm-out agreements, and other agreements associated
with the Borrowing Base Properties are in full force and effect in accordance
with their respective terms and there exist no material violations or defaults
in the performance of any obligation thereunder. Additionally, Borrower is not
aware of any event that with notice or lapse of time or both would constitute a
material violation or default under any such oil and gas leases, farm-out
agreements, or other agreements.
5.31 MATERIAL CONTRACTS.
-------------------
Set forth on Schedule 5.1(b) is a complete and correct list of all Material
---------------
Contracts in effect or to be in effect as of the Closing Date. Borrower has
delivered to the Agent true and complete copies of each Material Contract, as
each may have been amended, that have been requested by the Agent. Each of the
Material Contracts is in full force and effect and no default exists under the
terms of any of the Material Contracts.
5.32 INDENTURE-SENIOR DEBT.
----------------------
The Indenture Documents, true and complete copies of which have been
furnished to Agent, have not been amended or otherwise modified, and are in full
force and effect. Except as disclosed in Schedule 5.32, there exists no event
-------------
of default under any of the Indenture Documents. The Obligations constitute
-65-
"Senior Debt" under the Indenture and Borrower has advised Trustee under the
Indenture that the Obligations constitute "Senior Debt".
5.33 COMMON ENTERPRISE.
------------------
The successful operation and condition of each of the Borrower and the
Pledging Subsidiaries (the "Obligors") is dependent on the continued successful
performance of the functions of the group of Obligors as a whole and the
successful operation of each of the Obligors is dependent on the successful
performance and operation of each other Obligor. Each Obligor expects to derive
benefit (and its board of directors or other governing body has determined that
it may reasonably be expected to derive benefit), directly and indirectly, from
successful operations of each of the other Obligors. Each Obligor expects to
derive benefit (and the boards of directors or other governing body of each
Obligor has determined that it may reasonably be expected to derive benefit),
directly and indirectly, from the credit extended by the Lender Group to
Borrower hereunder, both in their separate capacities and as members of the
group of companies. Each Obligor has determined that execution, delivery, and
performance of this Agreement and any other Loan Documents to be executed by
such Obligor is within its purpose, will be of direct and indirect benefit to
such Obligor, and is in its best interest.
5.34 GATHERING SYSTEMS.
------------------
The Gathering Systems covered by the Mortgages grant to Agent, for the
benefit of Lenders, a perfected lien upon all transportation facilities
necessary to transport Hydrocarbons produced from the ▇▇▇▇▇ included within the
Mortgaged Properties to a transit point for sale or transportation by a Person
who is not an affiliate of Borrower or any of its Subsidiaries.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower shall
do, and shall cause each of its Subsidiaries to do, all of the following:
6.1 ACCOUNTING SYSTEM.
------------------
Maintain a system of accounting that enables Borrower to produce
financial statements in accordance with GAAP and maintain records pertaining to
the Collateral that contain information as from time to time reasonably may be
requested by Agent. Borrower also shall maintain a joint interest billing and
remittance system with respect to the Oil and Gas Properties of Borrower, its
Subsidiaries and the Partnerships on which Borrower or any of its Subsidiaries
is the operator and other systems that enable Borrower to show, among other
things, the value, revenues and profits/losses of the Oil and Gas Properties of
Borrower and its Subsidiaries, volume of production, and value of sales of
Hydrocarbon production, and positions and liability exposure of Borrower and its
Subsidiaries under the Hedging Agreements on a separate company-by-company
basis, as well as on a consolidated basis.
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6.2 COLLATERAL REPORTING.
---------------------
Provide Agent (and if so requested by Agent, with copies for each
Lender) with the following documents at the following times in form satisfactory
to Agent:
(a) by September 1st of each year, a Reserve Report prepared by an Approved
Engineer and reviewed and approved by Agent; and by March 1st of each year, a
Reserve Report prepared by Borrower or an Approved Engineer, as applicable, and
reviewed and approved by Agent, all in accordance with the terms of Section
-------
2.16;
----
(b) with the delivery of each Reserve Report, Borrower shall provide to
Agent, a certificate from the president or chief financial officer of Borrower
certifying that, to the best of his knowledge: (i) the information contained in
such Reserve Report and any other information delivered in connection therewith
is true and correct; (ii) each of the Pledging Subsidiaries and the Partnerships
own good and defensible title to its Borrowing Base Properties evaluated in such
Reserve Report and are free of all Liens except for Permitted Liens; (iii)
except as set forth on an exhibit to the certificate, on a net basis there are
no gas imbalances, take or pay or other prepayments with respect to the
Borrowing Base Properties evaluated in such Reserve Report which would require
the Pledging Subsidiaries or the Partnerships to deliver Hydrocarbons produced
from such Borrowing Base Properties at some future time without then or
thereafter receiving full payment therefor; (iv) none of the Borrowing Base
Properties has been sold since the date of the last Borrowing Base
determination; (v) attached to the certificate is a list of all Persons
disbursing proceeds to Borrower, the Pledging Subsidiaries or the Partnerships
from the Borrowing Base Properties; and (vi) set forth on a schedule attached to
the certificate is the PV-10 Value of all Borrowing Base Properties together
with a list of the ▇▇▇▇▇ that are owned by the Partnerships;
(c) as soon as available and in any event within 10 Business Days after the
end of each quarter-annual period commencing with the quarter ending September
30, 2002, a report setting forth, in form substantially similar to the form set
forth on Schedule 6.2(c), the calculation as of the last Business Day of the
----------------
quarter-annual period preceding the date of the delivery by the Borrower of such
report, of the Total Value as determined by the Reserve Report most recently
delivered by the Borrower under Section 6.2(a), each such report shall be
---------------
accompanied by a certificate of the president or chief financial officer of
Borrower certifying to the completeness and accuracy of the report, including
the calculation of the Total Value comprising the Borrowing Base Properties;
(d) as soon as available and in any event within 30 days after the end of
each month, a report setting forth the amount of "funds held for future
distribution" as of the close of the month reported on as reflected in the
monthly financial statements of Borrower, together with a certificate from the
president or chief financial officer of Borrower certifying that Borrower and
the Pledging Subsidiaries have paid and are current with respect to all
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royalties, overriding royalties and operating expenses relating to the Borrowing
Base Properties except for those which are subject to a Permitted Protest;
(e) upon request by Agent from time to time, copies of lease files, well
files and contract files (including production reports on each Well, marketing
contracts, and information regarding locations of and equipment located on each
Well) of each of the Pledging Subsidiaries and the Partnerships with respect to
the Borrowing Base Properties;
(f) such other information reports, statements, materials and data as to the
▇▇▇▇▇ operated by the Pledging Subsidiaries or Partnerships or in which the
Pledging Subsidiaries or Partnerships otherwise have an interest and the
accounting and billing procedures utilized by the Pledging Subsidiaries in
connection with such ▇▇▇▇▇ as shall be reasonably requested by Agent including,
without limitation, relevant computer programs, disks and tapes; and
(g) such other reports as to the Collateral or the business or financial
condition of Borrower, each of its Subsidiaries, and the Partnerships as Agent
may reasonably request from time to time.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
----------------------------------------------
Deliver to Agent, with copies to each Lender:
(a) as soon as available, but in any event (i) prior to the occurrence of an
Event of Default, within 45 days after the end of each fiscal quarter of
each fiscal year of Borrower and (ii) after the occurrence of an Event of
Default within 30 days after the end of each calendar month,
(i) a company prepared consolidated balance sheet, income statement, and
statement of cash flow covering Borrower and its Subsidiaries' operations during
such period,
(ii) a certificate signed by the chief financial officer of Borrower to the
effect that:
A. the financial statements delivered hereunder have been prepared in
accordance with GAAP (except for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present in all material respects the
financial condition of Borrower and its Subsidiaries,
B. the representations and warranties of Borrower and its Subsidiaries
contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date), and
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C. there does not exist any condition or event that constitutes a Default or
Event of Default (or, to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto), and
(iii) a Compliance Certificate demonstrating, in reasonable detail,
compliance at the end of such period with the applicable financial covenants
contained in Section 7.20,
-------------
(b) as soon as available, but in any event within 90 days after the end of
each of Borrower's fiscal years,
(i) financial statements of Borrower and its Subsidiaries for each such
fiscal year, audited by independent certified public accountants reasonably
acceptable to Agent and certified, without any qualifications, by such
accountants to have been prepared in accordance with GAAP (such audited
financial statements to include a balance sheet, income statement, and statement
of cash flow and, if prepared, such accountants' letter to management),
(ii) a certificate of such accountants addressed to Agent and Lenders
stating that such accountants do not have knowledge of the existence of any
Default or Event of Default under Section 7.20,
-------------
(c) as soon as available, but in any event within 30 days prior to the start
of each of Borrower's fiscal years,
(i) copies of Borrower's Projections, in form and substance (including as to
scope and underlying assumptions) satisfactory to Agent, in its sole
discretion, for the forthcoming fiscal year, quarter by quarter, certified by
the chief financial officer of Borrower as being such officer's good faith best
estimate of the financial performance of Borrower and its Subsidiaries during
the period covered thereby,
(d) if and when filed by Borrower,
(i) 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current
reports,
(ii) any other filings made by Borrower with the SEC,
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(iii) copies of Borrower's federal income tax returns, and any amendments
thereto, filed with the Internal Revenue Service, and
(iv) any other information that is provided by Borrower to its shareholders
generally,
(e) if and when filed by Borrower and as requested by Agent, satisfactory
evidence of payment of applicable excise taxes in each jurisdictions in which
(i) Borrower or any of its Subsidiaries conducts business or is required to pay
any such excise tax, (ii) where the failure by Borrower or any of its
Subsidiaries to pay any such applicable excise tax would result in a Lien on the
properties or assets of Borrower, or (iii) where Borrower's failure to pay
any such applicable excise tax reasonably could be expected to result in a
Material Adverse Change,
(f) as soon as Borrower has knowledge of any event or condition that
constitutes a Default or an Event of Default, notice thereof and a statement of
the curative action that Borrower proposes to take with respect thereto, and
(g) upon the request of Agent, any other report reasonably requested
relating to the financial condition of Borrower and its Subsidiaries.
In addition to the financial statements referred to above, Borrower agrees
to deliver financial statements prepared on both a consolidated and
consolidating basis and that no Subsidiary of Borrower (other than Eastern
Capital Corporation), will have a fiscal year different from that of Borrower.
Borrower agrees that its independent certified public accountants are authorized
to communicate with Agent and to release to Agent whatever financial information
concerning Borrower and its Subsidiaries that Agent reasonably may request.
Borrower waives the right to assert a confidential relationship, if any, it may
have with any accounting firm or service bureau in connection with any
information requested by Agent pursuant to or in accordance with this Agreement,
and agrees that Agent may contact directly any such accounting firm or service
bureau in order to obtain such information.
6.4 INTENTIONALLY DELETED.
----------------------
6.5 INTENTIONALLY DELETED.
----------------------
6.6 MAINTENANCE OF PROPERTIES.
---------------------------
Maintain and preserve all of its properties which are necessary or
useful in the proper conduct to its business in good working order and
condition, ordinary wear and tear excepted, and comply at all times with the
provisions of all leases to which it is a party as lessee, so as to prevent any
loss or forfeiture thereof or thereunder.
6.7 TAXES.
-----
Cause all assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against Borrower or any of
its Subsidiaries or any of their assets to be paid in full, before delinquency
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or before the expiration of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of a Permitted Protest.
Borrower will make, and will cause its Subsidiaries to make, timely payment or
deposit of all tax payments and withholding taxes required of it by applicable
laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and
local, state, and federal income taxes, and will, upon request, furnish Agent
with proof satisfactory to Agent indicating that Borrower and each of its
Subsidiaries has made such payments or deposits. Borrower shall deliver
satisfactory evidence of payment of applicable excise taxes in each jurisdiction
in which Borrower or any Subsidiary is required to pay any such excise tax.
6.8 INSURANCE
---------
(a) At Borrower's expense, maintain insurance respecting its property and
assets wherever located, covering loss or damage by fire, theft, explosion, and
all other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. Borrower also shall maintain, and
shall cause each of its Subsidiaries to maintain, business interruption, public
liability, and product liability insurance, as well as insurance against
larceny, embezzlement, and criminal misappropriation. All such policies of
insurance shall be in such amounts and with such insurance companies as are
reasonably satisfactory to Agent. Borrower shall deliver copies of all such
policies to Agent with a satisfactory lender's loss payable endorsement naming
Agent as sole loss payee or additional insured, as appropriate. Each policy of
insurance or endorsement shall contain a clause requiring the insurer to give
not less than 30 days prior written notice to Agent in the event of cancellation
of the policy for any reason whatsoever.
(b) Borrower shall give Agent prompt notice of any loss covered by such
insurance. With respect to the Mortgaged Properties, Agent shall have the
exclusive right to adjust any losses payable under any such insurance policies
in excess of $50,000, without any liability to Borrower or any of its
Subsidiaries whatsoever in respect of such adjustments. Any monies received as
payment for any loss under any insurance policy mentioned above (other than
liability insurance policies) or as payment of any award or compensation for
condemnation or taking by eminent domain, shall be paid over to Agent to be
applied at the option of the Required Lenders either to the prepayment of the
Obligations or shall be disbursed to Borrower under staged payment terms
reasonably satisfactory to the Required Lenders for application to the cost of
repairs, replacements, or restorations. Any such repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction.
(c) Neither Borrower nor any Subsidiary shall take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained under this Section 6.8, unless Agent is included thereon as named
------------
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insured with the loss payable to Agent under a lender's loss payable endorsement
or its equivalent. Borrower immediately shall notify Agent whenever such
separate insurance is taken out, specifying the insurer thereunder and full
particulars as to the policies evidencing the same, and copies of such policies
promptly shall be provided to Agent.
6.9 INTENTIONALLY DELETED.
----------------------
6.10 COMPLIANCE WITH LAWS.
----------------------
Comply with all Governmental Rules applicable to Borrower, each of its
Subsidiaries, and their respective Properties.
6.11 PAYMENT OF TRADE LIABILITIES.
-------------------------------
Within sixty (60) days after the same become due pay all liabilities and
debt owed by Borrower and each of its Subsidiaries on ordinary trade terms to
vendors, suppliers and other Persons providing goods and services used by
Borrower and each Subsidiary in the ordinary course of its business.
6.12 BROKERAGE COMMISSIONS.
----------------------
Pay any and all brokerage commission or finder's fees incurred in
connection with or as a result of Borrower's obtaining financing from the Lender
Group under this Agreement. Borrower agrees and acknowledges that payment of
all such brokerage commissions or finders fees shall be the sole responsibility
of Borrower, and Borrower agrees to indemnify, defend, and hold Agent and the
Lender Group harmless from and against any claim of any broker or finder arising
out of Borrower's obtaining financing from the Lender Group under this
Agreement.
6.13 EXISTENCE.
---------
At all times preserve and keep in full force and effect the valid
existence and good standing of Borrower and each of its Subsidiaries and any
rights and franchises material to the business of Borrower and its Subsidiaries.
6.14 ENVIRONMENTAL.
-------------
(a) Keep any property either owned or operated by Borrower or any of its
Subsidiaries free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens, (b) comply, in all material respects, with Environmental
Laws and provide to Agent documentation of such compliance which Agent
reasonably requests, (c) promptly notify Agent of any release of a Hazardous
Material of any reportable quantity from or onto property owned or operated by
Borrower or any of its Subsidiaries and take any Remedial Actions required to
▇▇▇▇▇ said release or otherwise to come into compliance with applicable
Environmental Law, and (d) promptly provide Agent with written notice within 10
days of the receipt of any of the following: (i) notice that an Environmental
Lien has been filed against any of the real or personal property of Borrower or
any of its Subsidiaries, (ii) commencement of any Environmental Action or notice
that an Environmental Action will be filed against Borrower or any of its
Subsidiaries, and (iii) notice of a violation, citation, or other administrative
order which reasonably could be expected to result in a Material Adverse Change.
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6.15 DISCLOSURE UPDATES.
-------------------
Promptly and in no event later than 5 Business Days after obtaining
knowledge thereof, (a) notify Agent if any written information, exhibit, or
report furnished to Agent or the Lender Group contained any untrue statement of
a material fact or omitted to state any material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which made, and (b) correct any defect or error that may be discovered therein
or in any Loan Document or in the execution, acknowledgement, filing, or
recordation thereof.
6.16 NOTICES OF MATERIAL EVENTS.
-----------------------------
Promptly, and in any event within three (3) Business Days upon
Borrower's becoming aware of the following events, furnish to Agent and each
Lender written notice of the following:
(a) the occurrence of any Default;
(b) (i) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting Borrower,
any of its Subsidiaries or any of the Partnerships or (ii) the occurrence of any
adverse development with respect to any action, suit or proceeding previously
disclosed to the Agent or the Lenders pursuant to this Agreement, in each case
if such action, suit or proceeding could reasonably be expected to result in a
Material Adverse Change;
(c) (i) any claim by any Person against Borrower or any of its Subsidiaries
of nonpayment of, or (ii) any attempt by any Person to collect upon or enforce,
any accounts payable of Borrower or any of its Subsidiaries, in the case of any
single account payable in excess of $500,000.00, or in the case of all accounts
payable in the aggregate in excess of $3,000,000.00;
(d) (i) any and all enforcement, cleanup, removal or other governmental or
regulatory actions instituted, completed or threatened or other environmental
claims against Borrower or any of its Subsidiaries or any of their respective
Properties pursuant to any applicable Environmental Laws which could result in a
Material Adverse Change, and (ii) any environmental or similar condition on any
real property adjoining or in the vicinity of the property of Borrower or any of
its Subsidiaries that could reasonably be anticipated to cause such property or
any part thereof to be subject to any material restrictions on the ownership,
occupancy, transferability or use of such property under any Environmental Laws;
and
(e) any other development that results in, or could reasonably be expected
to result in, a Material Adverse Change. Each notice delivered under this
Section 6.16 shall be accompanied by a statement of the president or chief
-------------
financial officer of Borrower setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
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6.17 INFORMATION REGARDING COLLATERAL.
----------------------------------
Promptly, and in any event within five (5) Business Days upon becoming
aware of the following changes, furnish to the Agent written notice of any
change (i) in the corporate name of Borrower or any of its Subsidiaries or in
any trade name used by Borrower or any of its Subsidiaries to identify it in the
conduct of its business or in the ownership of its properties, (ii) in the
location of Borrower's or any of its Subsidiaries' chief executive office, its
principal place of business, any office in which it maintains books or records
relating to Collateral or any office or facility at which Collateral is located
(including the establishment of any such new office or facility), (iii) in
Borrower's, any of its Subsidiaries' or any of the Partnership's identity,
corporate structure, or jurisdiction of incorporation or formation, or (iv) in
Borrower's, any of its Subsidiaries' or any Partnership's Federal Taxpayer
Identification Number. Borrower agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Agent to continue at all times following such change to have a valid, legal and
perfected liens and security interest in all the Collateral. Borrower also
agrees promptly to notify the Agent if any material portion of the Collateral is
damaged or destroyed.
6.18 PAYMENT OF INDEBTEDNESS.
-------------------------
Pay the Indebtedness of Borrower and its Subsidiaries and other
obligations, including Tax liabilities of Borrower and its Subsidiaries, before
the same shall become delinquent or in default, except where (a) the validity or
amount thereof is being contested in good faith by appropriate proceedings, (b)
Borrower has set aside on its books adequate reserves with respect thereto in
accordance with GAAP, (c) such contest effectively suspends collection of the
contested obligation and the enforcement of any Lien securing such obligation
and (d) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Change.
6.19 BOOKS AND RECORDS; INSPECTION AND AUDIT RIGHTS.
----------------------------------------------------
(a) Keep proper books of record and account in which full, true and correct
entries are made of all dealings and transactions in relation to the business
and activities of Borrower and its Subsidiaries. Borrower will permit, and will
cause each of its Subsidiaries to permit, any representatives designated by
the Agent or any Lender to visit and inspect the properties of Borrower and its
Subsidiaries, to examine and make extracts from their books and records, and to
discuss their affairs, finances and condition with their officers and
independent accountants, all at such reasonable times and as often as reasonably
requested. Borrower shall pay any reasonable fees of such independent public
accountant incurred in connection with the Agent's or such Lender's exercise of
its rights pursuant to this Section. Furthermore, Borrower will permit the
Agent or any Lender, or its agents, at the cost and expense of the Borrower, to
enter upon the Mortgaged Properties and all parts thereof, for the purpose of
investigating and inspecting the condition and operation thereof, and shall
permit reasonable access to the field offices and other offices, including the
principal place of business, of Borrower and its Subsidiaries to inspect and
examine the Mortgaged Properties and the records of Borrower and its
Subsidiaries with respect thereto.
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(b) Without limiting the generality of Section 6.19(a), permit any
----------------
representatives designated by the Agent (including any consultants, accountants,
engineers, lawyers and appraisers retained by the Agent) to conduct evaluations,
inspections of the Borrowing Base Properties or of the Borrower's or any
Approved Engineer's assessment of the condition or value thereof, all at such
reasonable times and as often as reasonably requested. Borrower shall pay the
reasonable fees and expenses of any representatives retained by the Agent to
conduct any such evaluation or inspection.
6.20 USE OF PROCEEDS AND LETTERS OF CREDIT.
-------------------------------------------
The proceeds of the Advances will be used by Borrower, subject to the
terms of Section 7.20 only for the advancing of loans to the Pledging
-------------
Subsidiaries in each instance in aggregate amounts at any one time outstanding
not to exceed such Pledging Subsidiary's portion of the Borrowing Base. The
Pledging Subsidiaries may use the proceeds of such loans from the Borrower for
lawful corporate purposes of each Pledging Subsidiary. No part of the proceeds
of any Advance will be used, whether directly or indirectly, for any purpose
that entails a violation of any of the regulations of the Board, including
Regulations G, U and X. Letters of Credit will be issued only to support normal
and customary oil and gas operations undertaken by the Pledging Subsidiaries in
the ordinary course of business.
6.21 FURTHER ASSURANCES.
-------------------
(a) Execute, and cause the appropriate Subsidiaries to execute, any and all
further documents, financing statements, agreements and instruments, and take
all such further actions (including the filing and recording of financing
statements, fixture filings, mortgages, deeds of trust and other documents),
which may be required under any applicable law, or which the Agent may request,
to effectuate the transactions contemplated by the Loan Documents or to grant,
preserve, protect or perfect the Liens created or intended to be created by the
Loan Documents or the validity or priority of any such Lien, all at the expense
of the Borrower. Borrower also agrees to provide to the Agent, from time to time
upon request of the Agent, information which is in the possession of the
Borrower or otherwise reasonably obtainable by it, satisfactory to the Agent as
to the ownership of the Collateral, and the perfection and priority of the Liens
created or intended to be created by the Loan Documents.
(b) Borrower hereby authorizes the Agent to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of Borrower or any of its Subsidiaries
where permitted by law. A carbon, photographic or other reproduction of the
Loan Documents or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) Without limiting any other provision of this Section 6.21, take such
------------
actions and execute and deliver such documents and instruments as the Agent
shall require to ensure that the Agent shall, at all times, have received
currently effective, duly executed Loan Documents encumbering (i) the Gathering
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Systems and (ii) Oil and Gas Properties of Borrower and its Subsidiaries
constituting 80% of the value of the Total Proved Developed Producing Reserves
as reflected in the Initial Reserve Report (with accompanying letters in lieu of
transfer orders) and satisfactory title evidence in form and substance
reasonably acceptable to the Agent in its business judgment as to ownership of
such Gathering Systems and Oil and Gas Properties.
(d) If the Agent shall determine that, as of the date of any Borrowing Base
redetermination, Borrower shall have failed to comply with the preceding Section
-------
6.21(c), the Agent may notify the Borrower in writing of such failure and,
-------
within thirty (30) days from and after receipt of such written notice by the
Borrower, the Borrower shall cause the Pledging Subsidiaries or any other
Subsidiary of Borrower to, execute and deliver to the Agent for the benefit of
the Lender Group supplemental or additional Mortgages, in form and substance
satisfactory to the Agent and its counsel, securing payment of the Obligations
and covering additional Oil and Gas Properties of the Pledging Subsidiaries or
such other Subsidiary not then encumbered by any Mortgage (together with current
valuations, engineering reports, and title evidence (which title evidence shall
be consistent with customarily accepted title information in the geographical
region in which such additional Oil and Gas Properties are situated) applicable
to the additional Oil and Gas Properties to be mortgaged and such other
documents as the Agent may require, including opinions of counsel, each of which
shall be in form and substance reasonably satisfactory to the Agent) such that
the Agent shall have received currently effective duly executed Mortgages
encumbering Oil and Gas Properties of Borrower or any of its Subsidiaries
constituting at least 80% of the Total Proved Developed Producing Reserves (with
accompanying letters in lieu of transfer orders) and satisfactory title evidence
(which title evidence shall be consistent with customarily accepted title
information in the geographical region in which such additional Oil and Gas
Properties are situated) as to ownership of such additional Oil and Gas
Properties.
6.22 MAINTENANCE AND OPERATION OF BORROWING BASE PROPERTIES.
------------------------------------------------------------
Consistent with the standards of a reasonably prudent operator:
(a) maintain, develop, and operate the Borrowing Base Properties and the oil
and gas gathering assets of Borrower and its Subsidiaries in a good and
workmanlike manner, and observe and comply with all of the terms and provisions,
express or implied, of all Hydrocarbon Interests relating to the Borrowing Base
Properties so long as the Hydrocarbon Interests are capable of producing
Hydrocarbons and accompanying elements in quantities and at prices providing for
continued efficient and profitable operation of business;
(b) comply in all material respects with the Material Contracts and all
other contracts and agreements applicable to or relating to the Borrowing Base
Properties or the production and sale of Hydrocarbons and accompanying elements
therefrom;
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(c) at all times, maintain, preserve, and keep all operating Equipment used
with respect to the Borrowing Base Properties, and oil and gas gathering assets
of Borrower and its Subsidiaries in proper repair, working order and condition,
and make all necessary or appropriate repairs, renewals, replacements, additions
and improvements thereto so that the efficiency of the operating Equipment shall
at all times be properly preserved and maintained; and
(d) with respect to the Borrowing Base Properties, and oil and gas gathering
assets of Borrower and its Subsidiaries which are operated by operators other
than Borrower or its Subsidiaries, seek to enforce the operators' contractual
obligations to maintain, develop, and operate such properties subject to the
applicable operating agreements.
6.23 COLLATERAL VALUE.
-----------------
Within sixty (60)days after a Reserve Report or other report or information
is delivered pursuant to Section 6.2 that shows the Total Value is less than
-----------
$125,000,000.00, either (a) execute, and/or cause to be executed and delivered
to the Agent supplemental or additional Mortgages, in form and substance
satisfactory to the Agent and its counsel, securing payment of the Obligations
and covering other Oil and Gas Properties directly owned by Borrower, one or
more of the Pledging Subsidiaries or any other Subsidiary of Borrower which are
not then covered by any Mortgage and having a value (as determined by Agent in
its sole discretion), in addition to the other Oil and Gas Properties already
subject to a Mortgage, sufficient to cause the Total Value to exceed
$125,000,000.00, or (b) reduce the Maximum Revolver Amount to an amount equal to
40% of the newly established Total Value.
6.24 OBLIGATION TO PAY.
-------------------
Borrower hereby unconditionally promises to pay Agent for the benefit of the
Lenders, in accordance with the terms and conditions of this Loan Agreement
including, without limitation, Section 2.6(d) hereof, the Obligations, and to
--------------
pay the Obligations in full on the Maturity Date.
6.25 INDENTURE.
---------
Borrower shall perform and observe all the terms and provisions of each of
the Indenture Documents to be performed or observed by it, at the times and in
the manner provided therein.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not, and will not permit any of its Subsidiaries to do any of the following:
7.1 INDEBTEDNESS.
------------
Create, incur, assume, permit, guarantee, or otherwise become or remain,
directly or indirectly, liable with respect to any Indebtedness, except:
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(a) Indebtedness evidenced by this Agreement and the other Loan Documents,
together with Indebtedness owed to Underlying Issuers with respect to Underlying
Letters of Credit;
(b) Indebtedness of Borrower and its Subsidiaries set forth on Schedule
--------
5.20;
----
(c) refinancings, renewals, or extensions of Indebtedness permitted under
clause (b) of this Section 7.1 (and continuance or renewal of any Permitted
------------
Liens associated therewith) so long as: (i) the terms and conditions of such
refinancings, renewals, or extensions do not, in Agent's reasonable judgment,
materially impair the prospects of repayment of the Obligations by Borrower or
materially impair Borrower's creditworthiness, (ii) such refinancings, renewals,
or extensions do not result in an increase in the principal amount of the
Indebtedness so refinanced, renewed, or extended or add one or more of the
Borrower's Subsidiaries or Affiliates as liable with respect thereto if such
additional Subsidiary or Affiliate were not liable with respect to the original
Indebtedness, (iii) such refinancings, renewals, or extensions do not result in
a shortening of the average weighted maturity of the Indebtedness so refinanced,
renewed, or extended, nor are they on terms or conditions, that, taken as a
whole, are materially more burdensome or restrictive to the Borrower, and (iv)
if the Indebtedness that is refinanced, renewed, or extended was subordinated in
right of payment to the Obligations, then the terms and conditions of the
refinancing, renewal, or extension Indebtedness must be include subordination
terms and conditions that are at least as favorable to Agent and the Lender
Group as those that were applicable to the refinanced, renewed, or extended
Indebtedness;
(d) Indebtedness of Borrower not secured by or subject to a Lien in respect
of performance, completion, guarantee, surety, or similar bonds, banker's
acceptances, bills of exchange, or letters of credit provided by Borrower in the
ordinary course of its Energy Business provided that such Indebtedness does not
exceed $2,000,000.00 in the aggregate at any one time outstanding;
(e) accounts payable or other obligations of Borrower and its Subsidiaries
to trade creditors created in the ordinary course of its Energy Business in
connection with the obtaining of goods and services provided that all such
obligations and liabilities are paid within 60 days when due;
(f) Indebtedness of Borrower consisting of obligations in respect of
purchase price adjustments, guaranties or indemnities in connection with the
acquisition of assets or Permitted Dispositions;
(g) Nonrecourse Debt of any Unrestricted Subsidiary provided such
Nonrecourse Debt is incurred in connection with an acquisition of assets by an
Unrestricted Subsidiary permitted under Section 7.13;
-------------
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(h) Unsecured Indebtedness of the Subsidiaries to Borrower;
(i) Hedging Obligations of the Borrower and its Subsidiaries provided that
such contracts were entered into in the ordinary course of business for the
purpose of limiting risks that arise in the ordinary course of business of
Borrower and its Subsidiaries and not for the purpose of speculation;
(j) additional Indebtedness of Borrower not to exceed $5,000,000.00 in the
aggregate during the term of this Agreement provided that the terms and
conditions of such Indebtedness are reasonably satisfactory to Agent; and
(k) liabilities of Borrower resulting from the sale of Production
Payments with respect to oil, gas, or mineral leases or interests (other than
Borrowing Base Properties) to the extent Borrower does not transfer control of
the interest sold to the buyer, and such liabilities are recorded in accordance
with GAAP.
7.2 LIENS.
-----
Create, incur, assume, or permit to exist, directly or indirectly, any
Lien on or with respect to any of its assets, of any kind, whether now owned or
hereafter acquired, or any income or profits therefrom, except for:
(a) Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under Section 7.1(e) and so long as the replacement Liens only encumber
--------------
those assets that secured the refinanced, renewed, or extended
Indebtedness);
(b) any Lien on Borrowing Base Properties existing on the date of this
Agreement and set forth on Schedule 7.2; provided that (i) such Lien shall not
------------
apply to any other Property or asset of Borrower or any Subsidiary, and (ii)
such Lien shall secure only those obligations which it secures on the date of
this Agreement; and
(c) any Lien existing on any Property or asset prior to the acquisition
thereof by the Borrower or any Subsidiary (other than Pledging Subsidiaries) or
existing on any Property or asset of any Person that becomes a Subsidiary after
the date of this Agreement prior to the time such Person becomes a Subsidiary;
provided that (i) such Lien is not created in contemplation of or in connection
with such acquisition or such Person becoming a Subsidiary, as the case may be,
(ii) such Lien shall not apply to any other Property or assets of Borrower or
any Subsidiary, and (iii) such Lien shall secure only those obligations which it
secures on the date of such acquisition or the date such Person becomes a
Subsidiary;
(d) Liens on fixed or capital assets acquired, constructed or improved by
Borrower or any Subsidiary which do not constitute Collateral; provided that (i)
such security interests secure Indebtedness permitted by clause (j) of Section
-------
7.1, (ii) such security interests and the Indebtedness secured thereby are
--
incurred prior to or within 90 days after such acquisition or the completion of
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such asset, (iii) the Indebtedness secured thereby does not exceed 75% of the
cost of acquiring or improving such Oil and Gas Property or fixed or capital
asset, and (iv) such Lien does not apply to any other Property or assets of the
Borrower or any of its Subsidiaries.
(e) Liens securing Non-Recourse Debt permitted by Section 7.1 provided the
-----------
Lien is limited to the assets acquired by the Unrestricted Subsidiary with the
proceeds of the Non-Recourse Debt.
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES.
--------------------------------------
(a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Stock, except to the extent permitted by the
terms of Section 7.11.
-------------
(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution).
(c) Convey, sell, lease, license, assign, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its assets.
7.4 DISPOSAL OF ASSETS.
--------------------
Other than Permitted Dispositions, convey, sell, lease, license, assign,
transfer, or otherwise dispose of any of the assets of Borrower or any of its
Subsidiaries.
7.5 CHANGE NAME.
------------
Change Borrower's or any Subsidiaries' name, FEIN, corporate structure
or identity, or add any new fictitious name; provided, however, that Borrower or
-------- -------
any of its Subsidiaries may change its name upon at least 30 days prior written
notice by Borrower to Agent of such change and so long as, at the time of such
written notification, Borrower or any such Subsidiary provides any financing
statements or fixture filings necessary to perfect and continue perfected
Agent's Liens.
7.6 GUARANTEE.
---------
Guarantee or otherwise become in any way liable with respect to the
obligations of any third Person except by endorsement of instruments or items of
payment for deposit to the account of Borrower or which are transmitted or
turned over to Agent; provided, however, that Borrower may execute guarantees of
-------- -------
Indebtedness of its Subsidiaries to the extent the Indebtedness of such
Subsidiary is permitted by the terms of this Agreement.
7.7 NATURE OF BUSINESS.
--------------------
Make any change in the principal nature of Borrower's or any
Subsidiaries' business.
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7.8 PREPAYMENTS AND AMENDMENTS.
----------------------------
(a) Except in connection with a refinancing permitted by Section 7.1(c),
--------------
prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of
Borrower or any of its Subsidiaries, other than the Obligations in accordance
with this Agreement.
(b) Except in connection with a refinancing permitted by Section 7.1(c),
--------------
directly or indirectly, amend, modify, alter, increase, or change any of the
terms or conditions of any agreement, instrument, document, indenture, or other
writing evidencing or concerning Indebtedness permitted under Sections 7.1(b);
---------------
provided, however, so long as no Default or Event of Default exists, Borrower
may redeem or repurchase the Subordinated Notes.
7.9 CHANGE OF CONTROL.
-------------------
Cause, permit, or suffer, directly or indirectly, any Change of Control.
7.10 INTENTIONALLY DELETED.
----------------------
7.11 DISTRIBUTIONS.
-------------
Other than distributions or declaration and payment of dividends by a
Subsidiary to Borrower, make any distribution or declare or pay any dividends
(in cash or other property, other than common Stock) on, or purchase, acquire,
redeem, or retire any of Borrower's Stock, of any class, whether now or
hereafter outstanding; provided, however, so long as no Default or Event of
Default has occurred and is continuing, the foregoing restrictions shall not
apply to:
(a) Borrower's paying cash dividends in an aggregate not exceeding
$6,000,000.00 during the term of this Agreement;
(b) any Subsidiary paying cash dividends to the Borrower or any other
Subsidiary at such times and in such amounts during any fiscal year, as shall be
necessary to permit Borrower to discharge its permitted liabilities;
(c) Borrower's repurchasing common and Class A stock of Borrower owned by
employees who terminate their employment or whose employment is terminated by
Borrower consistent with the existing programs between the Borrower and its
employees in an amount which when added to the amounts expended by Borrower
pursuant to Section 7.11(d) does not exceed $2,000,000.00 in any twelve (12)
----------------
month period; and
(d) Borrower's repurchasing common and Class A stock of Borrower owned by
officers, employees and directors of Borrower consistent with existing programs
and practices of Borrower in an amount which when added to the amounts expended
by Borrower pursuant to Section 7.11(c) does not exceed $2,000,000.00 in any
---------------
twelve (12) month period.
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7.12 ACCOUNTING METHODS.
-------------------
Modify or change its method of accounting (other than as may be required
to conform to GAAP) or enter into, modify, or terminate any agreement currently
existing, or at any time hereafter entered into with any third party accounting
firm or service bureau for the preparation or storage of the accounting records
of Borrower and its Subsidiaries without said accounting firm or service bureau
agreeing to provide Agent information regarding the Collateral or the financial
condition of the Borrower and its Subsidiaries.
7.13 INVESTMENTS.
-----------
Directly or indirectly, make or acquire any Investment, or incur any
liabilities (including contingent obligations) for or in connection with any
Investment, except:
(a) Permitted Investments;
(b) unsecured loans and advances (including loans and advances made by
Borrower to Pledging Subsidiaries with the proceeds of Advances) from Borrower
to the Pledging Subsidiaries provided that (i) each Pledging Subsidiary executes
and delivers to Borrower a promissory note (the "Intercompany Notes") evidencing
------------------
such loans and advances payable to the order of Borrower, all in form, scope,
and content acceptable to Agent, and (ii) Borrower pledges and assigns the
Intercompany Notes to Agent as security for the payment of the Obligations
pursuant to the Borrower's Security Agreement and endorses the Intercompany
Notes to the order of Agent, all in a form and manner satisfactory to Agent;
(c) Investments by Borrower and/or any Subsidiary made or entered into in
the ordinary course of the Energy Business; provided:
(i) immediately before and immediately after giving effect to the
Investment, Excess Availability exceeds $10,000,000.00; and
(ii) immediately before and immediately after giving effect to the
Investment, no Default or Event of Default exists;
(d) capital expenditures by Borrower and the Subsidiaries with respect to
the assets used or useful in the Energy Business conducted by Borrower and the
Subsidiaries, to the extent permitted by Section 7.20(b);
----------------
(e) Investments by Borrower in its Subsidiaries;
(f) Investments by an Unrestricted Subsidiary with the proceeds of
Non-Recourse Debt; and
(g) Investments of Borrower and the Subsidiaries existing as of the date of
this Agreement and reflected on Schedule 7.13.
--------------
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7.14 TRANSACTIONS WITH AFFILIATES.
------------------------------
Directly or indirectly enter into or permit to exist any transaction
with any Affiliate of Borrower except for transactions that are in the ordinary
course of Borrower's business, upon fair and reasonable terms, that are fully
disclosed to Lender, and that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-Affiliate; provided, however,
that Borrower and its Subsidiaries may engage in drilling program transactions
with Borrower's officers, employees and directors consistent with past practices
of Borrower.
7.15 SUSPENSION.
----------
Suspend or go out of a substantial portion of its business.
7.16 INTENTIONALLY DELETED.
----------------------
7.17 USE OF PROCEEDS.
-----------------
Use the proceeds of the Advances for any purpose other than (a) on the
Closing Date, to pay transactional fees, costs, and expenses incurred in
connection with this Agreement, the other Loan Documents, and the transactions
contemplated hereby and thereby, and (b) thereafter, only for the purposes set
forth in Section 6.20.
-------------
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT WITH
---------------------------------------------------------------------------
BAILEES.
-------
Relocate its chief executive office to a new location without Borrower
providing 30 days prior written notification thereof to Agent and so long as, at
the time of such written notification, the Borrower or applicable Subsidiary
provides any financing statements or fixture filings necessary to perfect and
continue perfected the Agent's Liens and also provides to Agent a Collateral
Access Agreement with respect to such new location.
7.19 SECURITIES ACCOUNTS.
--------------------
Establish or maintain any Securities Account unless Agent shall have
received a Control Agreement in respect of such Securities Account. Borrower
will not transfer, and will not permit any of its Subsidiaries to transfer,
assets out of any Securities Account; provided, however, that, so long as no
-------- -------
Event of Default has occurred and is continuing or would result therefrom,
Borrower may use such assets (and the proceeds thereof) to the extent not
prohibited by this Agreement.
7.20 FINANCIAL COVENANTS.
--------------------
(a) Fail to maintain:
(i) MINIMUM EBITDAX. EBITDAX in an amount equal to or greater than
$20,000,000.00 with compliance tested quarterly on a rolling four quarter basis
with testing commencing with the quarter ending on September 30, 2002.
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(ii) BOOK NET WORTH. Book Net Worth of at least the required amount set forth in
the following table as of the applicable date set forth opposite thereto with
compliance tested quarterly:
Applicable Amount Applicable Date
$25,000,000,.00 At the close of each fiscal quarter of Borrower
commencing with the fiscal quarter ending
September 30, 2002
(b) Make:
(i) CAPITAL EXPENDITURES. Upon Excess Availability falling below
$10,000,000.00, capital expenditures in any fiscal year of Borrower in an amount
in excess of 120% of the Projections for such fiscal year delivered to
Agent in accordance with the terms of this Agreement and approved by Agent.
7.21 HEDGING AGREEMENTS.
-------------------
Enter into any Hedging Agreement, other than Hedging Agreements entered
into in the ordinary course of business to hedge or mitigate risks to which the
Borrower is exposed in the conduct of its business or the management of its
liabilities.
7.22 AMENDMENTS TO INDENTURE.
-------------------------
Amend or otherwise modify the Subordinated Notes or the Indenture in any
respect or permit any such amendment or modification which would (a) change any
provision relating to guaranties of the Subordinated Notes, (b provide for any
collateral to secure the Subordinated Notes, or (c) change any provision
relating to the subordination of the Subordinated Notes or any guaranties
thereof.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
------------------
8.1 If Borrower or any of its Subsidiaries fails to pay when due and payable
or when declared due and payable, all or any portion of the Obligations
(whether of principal, interest (including any interest which, but for the
provisions of the Bankruptcy Code, would have accrued on such amounts), fees and
charges due Agent or any member of the Lender Group, reimbursement of Lender
Expenses, or other amounts constituting Obligations);
8.2 If Borrower or any of its Subsidiaries fails to perform, keep, or
observe (a) any term, provision, condition, covenant, or agreement contained in
Sections 6.1, 6.2, 6.3, 6.6, 6.7, 6.10, 6.11, 6.12, 6.14, 6.15, 6.16, 6.17,
--------------------------------------------------------------------------------
6.19, 6.21, or 6.22 of this Agreement and such failure continues for a period of
-------------------
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fifteen (15) days after the date of failure; or (b) any other term, provision,
condition, covenant, or agreement in this Agreement or any of the other Loan
Documents;
8.3 If any material portion of Borrower's or any of its Subsidiaries' assets
is attached, seized, subjected to a writ or distress warrant, levied upon, or
comes into the possession of any third Person;
8.4 If an Insolvency Proceeding is commenced by Borrower or any of its
Subsidiaries;
8.5 If an Insolvency Proceeding is commenced against Borrower or any of its
Subsidiaries, and any of the following events occur: (a) the Borrower or any
Subsidiary consents to the institution of the Insolvency Proceeding against it,
(b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof; provided,
however, that, during the pendency of such period, Agent (including any
successor agent) and each other member of the Lender Group shall be relieved of
its obligation to extend credit hereunder, (d) an interim trustee is appointed
to take possession of all or any substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of, Borrower or
any of its Subsidiaries, or (e) an order for relief shall have been entered
therein;
8.6 If Borrower or any of its Subsidiaries is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs;
8.7 If a notice of Lien, levy, or assessment is filed of record with respect
to any Borrower's or any of its Subsidiaries' assets by the United States, or
any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a Lien, whether ▇▇▇▇▇▇ or
otherwise, upon Borrower's or any of its Subsidiaries' assets and the same is
not paid before such payment is delinquent;
8.8 If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of Borrower's or any of its Subsidiaries' assets;
8.9 If there is a default in any material agreement to which Borrower or any
of its Subsidiaries is a party and such default (a) occurs at the final maturity
of the obligations thereunder, or (b) results in a right by the other party
thereto, irrespective of whether exercised, to accelerate the maturity of the
Borrower's or its Subsidiaries' obligations thereunder, to terminate such
agreement, or to refuse to renew such agreement pursuant to an automatic renewal
right therein;
-85-
8.10 If Borrower or any of its Subsidiaries makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;
8.11 If any misstatement or misrepresentation exists now or hereafter in any
warranty, representation, statement, or Record made to the Lender Group by
Borrower, its Subsidiaries, or any officer, employee, agent, or director of
Borrower or any of its Subsidiaries;
8.12 Intentionally Deleted;
8.13 If this Agreement or any other Loan Document that purports to create a
Lien, shall, for any reason, fail or cease to create a valid and perfected and,
except to the extent permitted by the terms hereof or thereof, first priority
Lien on or security interest in the Collateral covered hereby or thereby;
8.14 Any provision of any Loan Document shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by Borrower or any of its Subsidiaries, or a proceeding shall be
commenced by Borrower or any of its Subsidiaries, or by any Governmental
Authority having jurisdiction over Borrower or any of its Subsidiaries, seeking
to establish the invalidity or unenforceability thereof, or Borrower or any of
its Subsidiaries shall deny that Borrower or such Subsidiary has any liability
or obligation purported to be created under any Loan Document; or
8.15 Any event, circumstance, or condition occurs which constitutes an event
of default under any of the Indenture Documents.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES.
---------------------
Upon the occurrence, and during the continuation, of an Event of
Default, the Required Lenders (at their election but without notice of their
election and without demand) may authorize and instruct Agent to do any one or
more of the following on behalf of the Lender Group (and Agent, acting upon the
instructions of the Required Lenders, shall do the same on behalf of the Lender
Group), all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of
the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents, or under any
other agreement between any Obligor and the Lender Group;
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(c) Terminate this Agreement and any of the other Loan Documents as to any
future liability or obligation of the Lender Group, but without affecting any of
the Agent's Liens in the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which Agent considers advisable, and in such cases, Agent
will credit the Loan Account with only the net amounts received by Agent in
payment of such disputed Accounts after deducting all Lender Group Expenses
incurred or expended in connection therewith;
(e) Without notice to or demand upon Borrower or Guarantor, make such
payments and do such acts as Agent considers necessary or reasonable to protect
its liens and security interests in the Collateral;
(f) Without notice to Borrower (such notice being expressly waived), and
without constituting a retention of any collateral in satisfaction of an
obligation (within the meaning of the Code), set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by the Lender
Group (including any amounts received in the Cash Management Accounts), or (ii)
Indebtedness at any time owing to or for the credit or the account of Borrower
held by the Lender Group;
(g) Hold, as cash collateral, any and all balances and deposits of Borrower
held by the Lender Group, and any amounts received in the Cash Management
Accounts, to secure the full and final repayment of all of the Obligations;
(h) Pursue any and all remedies afforded Agent and/or the Lender Group under
the Loan Documents; and
(i) The Lender Group shall have all other rights and remedies available to
it at law or in equity pursuant to any other Loan Documents.
9.2 REMEDIES CUMULATIVE.
--------------------
The rights and remedies of the Lender Group under this Agreement, the
other Loan Documents, and all other agreements shall be cumulative. The Lender
Group shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by the Lender Group
of one right or remedy shall be deemed an election, and no waiver by the Lender
Group of any Event of Default shall be deemed a continuing waiver. No delay by
the Lender Group shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, royalties, overriding
royalties, operating costs or expenses, assessments, insurance premiums, or, in
the case of leased properties or assets, rents or other amounts payable under
-87-
such leases) due to third Persons, or fails to make any deposits or furnish any
required proof of payment or deposit, all as required under the terms of this
Agreement, then, Agent, in its sole discretion and without prior notice to
Borrower, may do any or all of the following: (a) make payment of the same or
any part thereof, (b) set up such reserves in Borrower's Loan Account as Agent
deems necessary to protect the Lender Group from the exposure created by such
failure, or (c) in the case of the failure to comply with Section 6.8 hereof,
-----------
obtain and maintain insurance policies of the type described in Section 6.8 and
-----------
take any action with respect to such policies as Agent deems prudent. Any such
amounts paid by Agent shall constitute Lender Group Expenses and any such
payments shall not constitute an agreement by the Lender Group to make similar
payments in the future or a waiver by the Lender Group of any Event of Default
under this Agreement. Agent need not inquire as to, or contest the validity of,
any such expense, tax, or Lien and the receipt of the usual official notice for
the payment thereof shall be conclusive evidence that the same was validly due
and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST.
----------------
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of documents, instruments, chattel
paper, and guarantees at any time held by the Lender Group on which Borrower may
in any way be liable.
11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL.
------------------------------------------------
Borrower hereby agrees that: (a) so long as the Lender Group complies
with its obligations, if any, under the Code, Agent shall not in any way or
manner be liable or responsible for: (i) the safekeeping of the Collateral,
(ii) any loss or damage thereto occurring or arising in any manner or fashion
from any cause, (iii) any diminution in the value thereof, or (iv) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other
Person, and (b) all risk of loss, damage, or destruction of the Collateral shall
be borne by Borrower.
11.3 INDEMNIFICATION.
---------------
Borrower shall pay, indemnify, defend, and hold the Agent-Related
Persons, the Lender-Related Persons with respect to each Lender, each
Participant, and each of their respective officers, directors, employees,
agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the
------------------
fullest extent permitted by law) from and against any and all claims, demands,
suits, actions, investigations, proceedings, and damages, and all reasonable
attorneys fees and disbursements and other costs and expenses actually incurred
in connection therewith (as and when they are incurred and irrespective of
whether suit is brought), at any time asserted against, imposed upon, or
incurred by any of them (a) in connection with or as a result of or related to
the execution, delivery, enforcement, performance, or administration of this
Agreement, any of the other Loan Documents, or the transactions contemplated
hereby or thereby, and (b) with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Loan Document, or the use of the
proceeds of the credit provided hereunder (irrespective of whether any
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Indemnified Person is a party thereto), or any act, omission, event, or
circumstance in any manner related thereto (all the foregoing, collectively, the
"Indemnified Liabilities"). The foregoing to the contrary notwithstanding,
------------------------
Borrower shall have no obligation to any Indemnified Person under this Section
-------
11.3 with respect to any Indemnified Liability that a court of competent
----
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations. If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which Borrower was required to
indemnify the Indemnified Person receiving such payment, the Indemnified Person
making such payment is entitled to be indemnified and reimbursed by Borrower
with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY
TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN
WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH
INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
Borrower or Agent to the other relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, electronic mail (at such
email addresses as Borrower or Agent, as applicable, may designate to each other
in accordance herewith), or telefacsimile to Borrower in care of Borrower or to
Agent, as the case may be, at its address set forth below:
If to Borrower: Energy Corporation of America
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn:
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
with copies to: ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
-89-
If to Agent: FOOTHILL CAPITAL CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Business Finance Division Manager
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
with copies to: Foothill Capital Corporation
400 Northpark Town Center
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Business Division Manager
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
with copies to: ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
Agent and Borrower may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other party. All notices or demands sent in accordance with this Section 12,
----------
other than notices by Agent in connection with enforcement rights against the
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 3 Business Days after the deposit
thereof in the mail. Borrower acknowledges and agrees that notices sent by the
Lender Group in connection with the exercise of enforcement rights against
Collateral under the provisions of the Code shall be deemed sent when deposited
in the mail or personally delivered, or, where permitted by law, transmitted by
telefacsimile or any other method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF GEORGIA.
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(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF ▇▇▇▇▇▇,
STATE OF GEORGIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST
-------- -------
ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND THE LENDER GROUP WAIVE,
TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
----- --- ----------
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(B).
--------------
BORROWER AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND THE LENDER GROUP REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
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14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
14.1 ASSIGNMENTS AND PARTICIPATIONS
--------------------------------
Except as provided in Section 14.1(h), any Lender may, with the
----------------
written consent of Agent (provided that no written consent of Agent shall be
required in connection with any assignment and delegation by a Lender to an
Eligible Transferee), assign and delegate to one or more assignees (each an
"Assignee") all, or any ratable part of all, of the Obligations, the Commitments
---------
and the other rights and obligations of such Lender hereunder and under the
other Loan Documents, in a minimum amount of $5,000,000; provided, however, that
-------- -------
Borrower and Agent may continue to deal solely and directly with such Lender in
connection with the interest so assigned to an Assignee until (i) written notice
of such assignment, together with payment instructions, addresses, and related
information with respect to the Assignee, have been given to Borrower and Agent
by such Lender and the Assignee, (ii) such Lender and its Assignee have
delivered to Borrower and Agent an Assignment and Acceptance in form and
substance satisfactory to Agent, and (iii) the assignor Lender or Assignee has
paid to Agent for Agent's separate account a processing fee in the amount of
$5,000. Anything contained herein to the contrary notwithstanding, the consent
of Agent shall not be required (and payment of any fees shall not be required)
if such assignment is in connection with any merger, consolidation, sale,
transfer, or other disposition of all or any substantial portion of the business
or loan portfolio of such Lender.
(b) From and after the date that Agent notifies the assignor Lender (with a
copy to Borrower) that it has received an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (except with respect to Section
-------
11.3 hereof) and be released from its obligations under this Agreement (and in
----
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this Agreement and the
other Loan Documents, such Lender shall cease to be a party hereto and thereto),
and such assignment shall affect a novation between Borrower and the Assignee.
(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (1) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document furnished pursuant hereto,
(2) such assigning Lender makes no representation or warranty and assumes no
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responsibility with respect to the financial condition of Borrower or the
performance or observance by Borrower of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto, (3) such
Assignee confirms that it has received a copy of this Agreement, together with
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance,
(4) such Assignee will, independently and without reliance upon Agent, such
assigning Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement, (5) such
Assignee appoints and authorizes Agent to take such actions and to exercise such
powers under this Agreement as are delegated to Agent, by the terms hereof,
together with such powers as are reasonably incidental thereto, and (6) such
Assignee agrees that it will perform all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
(d) Immediately upon each Assignee's making its processing fee payment under
the Assignment and Acceptance and receipt and acknowledgment by Agent of such
fully executed Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written consent of Agent, sell to
one or more commercial banks, financial institutions, or other Persons not
Affiliates of such Lender (a "Participant") participating interests in its
-----------
Obligations, the Commitment, and the other rights and interests of that Lender
(the "Originating Lender") hereunder and under the other Loan Documents
-------------------
(provided that no written consent of Agent shall be required in connection with
any sale of any such participating interests by a Lender to an Eligible
Transferee); provided, however, that (i) the Originating Lender shall remain a
-------- -------
"Lender" for all purposes of this Agreement and the other Loan Documents and the
Participant receiving the participating interest in the Obligations, the
Commitments, and the other rights and interests of the Originating Lender
hereunder shall not constitute a "Lender" hereunder or under the other Loan
Documents and the Originating Lender's obligations under this Agreement shall
remain unchanged, (ii) the Originating Lender shall remain solely responsible
for the performance of such obligations, (iii) Borrower, Agent, and the Lenders
shall continue to deal solely and directly with the Originating Lender in
connection with the Originating Lender's rights and obligations under this
Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant
any participating interest under which the Participant has the right to approve
any amendment to, or any consent or waiver with respect to, this Agreement or
any other Loan Document, except to the extent such amendment to, or consent or
waiver with respect to this Agreement or of any other Loan Document would (A)
extend the final maturity date of the Obligations hereunder in which such
Participant is participating, (B) reduce the interest rate applicable to the
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Obligations hereunder in which such Participant is participating, (C) release
all or a material portion of the Collateral or guaranties (except to the extent
expressly provided herein or in any of the Loan Documents) supporting the
Obligations hereunder in which such Participant is participating, (D) postpone
the payment of, or reduce the amount of, the interest or fees payable to such
Participant through such Lender, or (E) change the amount or due dates of
scheduled principal repayments or prepayments or premiums; and (v) all amounts
payable by Borrower hereunder shall be determined as if such Lender had not sold
such participation; except that, if amounts outstanding under this Agreement are
due and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement. The rights of any Participant only shall be derivative through the
Originating Lender with whom such Participant participates and no Participant
shall have any rights under this Agreement or the other Loan Documents or any
direct rights as to the other Lenders, Agent, Borrower, the Collections, the
Collateral, or otherwise in respect of the Obligations. No Participant shall
have the right to participate directly in the making of decisions by the Lenders
among themselves.
(f) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may disclose all documents and information
which it now or hereafter may have relating to Borrower or Borrower's business.
(g) Any other provision in this Agreement notwithstanding, any Lender may at
any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement in favor of any Federal Reserve Bank
in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR 203.14, and such Federal Reserve Bank may enforce such pledge
or security interest in any manner permitted under applicable law.
(h) Prior to the occurrence of an Event of Default, Foothill in its capacity
as Lender, shall at all times maintain at least 66 2/3 of the outstanding
Obligations.
14.2 SUCCESSORS.
----------
This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that Borrower
-------- -------
may not assign this Agreement or any rights or duties hereunder without the
Lenders' prior written consent and any prohibited assignment shall be absolutely
void ab initio. No consent to assignment by the Lenders shall release Borrower
from its Obligations. A Lender may assign this Agreement and the other Loan
Documents and its rights and duties hereunder and thereunder pursuant to Section
-------
14.1 hereof and, except as expressly required pursuant to Section 14.1 hereof,
---- ------------
no consent or approval by Borrower is required in connection with any such
assignment.
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15. AMENDMENTS; WAIVERS.
15.1 AMENDMENTS AND WAIVERS
------------------------
No amendment or waiver of any provision of this Agreement or any other
Loan Document, and no consent with respect to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
the Required Lenders (or by Agent at the written request of the Required
Lenders) and Borrower and then any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided, however, that no such waiver, amendment, or consent shall, unless in
-------- -------
writing and signed by all of the Lenders affected thereby and Borrower and
acknowledged by Agent, do any of the following:
(a) increase or extend any Commitment of any Lender,
(b) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees, or other amounts due
hereunder or under any other Loan Document,
(c) reduce the principal of, or the rate of interest on, any loan or other
extension of credit hereunder, or reduce any fees or other amounts payable
hereunder or under any other Loan Document,
(d) change the percentage of the Commitments that is required to take any
action hereunder,
(e) amend this Section or any provision of the Agreement providing for
consent or other action by all Lenders,
(f) release Collateral other than as permitted by Section 16.12,
--------------
(g) change the definition of "Required Lenders",
(h) contractually subordinate any of the Agent's Liens,
(i) release Borrower from any obligation for the payment of money,
(j) change the definition of Borrowing Base or change Section 2.1(b), or
--------------
(k) amend any of the provisions of Section 16.
-----------
and, provided further, however, that no amendment, waiver or consent shall,
----------------- -------
unless in writing and signed by Agent, Issuing Lender, or Swing Lender, affect
the rights or duties of Agent, Issuing Lender, or Swing Lender, as applicable,
under this Agreement or any other Loan Document. The foregoing notwithstanding,
any amendment, modification, waiver, consent, termination, or release of, or
with respect to, any provision of this Agreement or any other Loan Document that
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relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of Borrower, shall not require consent
by or the agreement of Borrower.
15.2 REPLACEMENT OF HOLDOUT LENDER.
--------------------------------
If any action to be taken by the Lender Group or Agent hereunder requires
the unanimous consent, authorization, or agreement of all Lenders, and a Lender
("Holdout Lender") fails to give its consent, authorization, or agreement, then
---------------
Agent, upon at least 5 Business Days prior irrevocable notice to the Holdout
Lender, may permanently replace the Holdout Lender with one or more substitute
Lenders (each, a "Replacement Lender"), and the Holdout Lender shall not have
------------------
the right to refuse to be replaced hereunder. Such notice to replace the
Holdout Lender shall specify an effective date for such replacement, which date
shall not be later than 15 Business Days after the date such notice is given.
Prior to the effective date of such replacement, the Holdout Lender and each
Replacement Lender shall execute and deliver an Assignment and Acceptance
Agreement, subject only to the Holdout Lender being repaid its share of the
outstanding Obligations (including an assumption of its Pro Rata Share of the
Risk Participation Liability) without any premium or penalty of any kind
whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver
any such Assignment and Acceptance Agreement prior to the effective date of such
replacement, the Holdout Lender shall be deemed to have executed and delivered
such Assignment and Acceptance Agreement. The replacement of any Holdout Lender
shall be made in accordance with the terms of Section 14.1. Until such time as
------------
the Replacement Lenders shall have acquired all of the Obligations, the
Commitments, and the other rights and obligations of the Holdout Lender
hereunder and under the other Loan Documents, the Holdout Lender shall remain
obligated to make the Holdout Lender's Pro Rata Share of Advances and to
purchase a participation in each Letter of Credit, in an amount equal to its Pro
Rata Share of the Risk Participation Liability of such Letter of Credit.
15.3 NO WAIVERS; CUMULATIVE REMEDIES.
----------------------------------
No failure by Agent or any Lender to exercise any right, remedy, or
option under this Agreement or, any other Loan Document, or delay by Agent or
any Lender in exercising the same, will operate as a waiver thereof. No waiver
by Agent or any Lender will be effective unless it is in writing, and then only
to the extent specifically stated. No waiver by Agent or any Lender on any
occasion shall affect or diminish Agent's and each Lender's rights thereafter to
require strict performance by Borrower of any provision of this Agreement.
Agent's and each Lender's rights under this Agreement and the other Loan
Documents will be cumulative and not exclusive of any other right or remedy that
Agent or any Lender may have.
16. AGENT; THE LENDER GROUP.
16.1 APPOINTMENT AND AUTHORIZATION OF AGENT.
------------------------------------------
Each Lender hereby designates and appoints Foothill as its
representative under this Agreement and the other Loan Documents and each Lender
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hereby irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to Agent by the terms
of this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Agent agrees to act as such on the express
conditions contained in this Section 16. The provisions of this Section 16 are
---------- ----------
solely for the benefit of Agent, and the Lenders, and Borrower shall have no
rights as a third party beneficiary of any of the provisions contained herein.
Any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document notwithstanding, Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Agent have
or be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against Agent; it being expressly understood and agreed that the use of the word
"Agent" is for convenience only, that Foothill is merely the representative of
the Lenders, and only has the contractual duties set forth herein. Except as
expressly otherwise provided in this Agreement, Agent shall have and may use its
sole discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions that Agent
expressly is entitled to take or assert under or pursuant to this Agreement and
the other Loan Documents. Without limiting the generality of the foregoing, or
of any other provision of the Loan Documents that provides rights or powers to
Agent, Lenders agree that Agent shall have the right to exercise the following
powers as long as this Agreement remains in effect: (a) maintain, in accordance
with its customary business practices, ledgers and records reflecting the status
of the Obligations, the Collateral, the Collections, and related matters, (b)
execute or file any and all financing or similar statements or notices,
amendments, renewals, supplements, documents, instruments, proofs of claim,
notices and other written agreements with respect to the Loan Documents, (c)
make Advances, for itself or on behalf of Lenders as provided in the Loan
Documents, (d) exclusively receive, apply, and distribute the Collections as
provided in the Loan Documents, (e) open and maintain such bank accounts and
cash management accounts as Agent deems necessary and appropriate in accordance
with the Loan Documents for the foregoing purposes with respect to the
Collateral and the Collections, (f) perform, exercise, and enforce any and all
other rights and remedies of the Lender Group with respect to Borrower, the
Obligations, the Collateral, the Collections, or otherwise related to any of
same as provided in the Loan Documents, and (g) incur and pay such Lender Group
Expenses as Agent may deem necessary or appropriate for the performance and
fulfillment of its functions and powers pursuant to the Loan Documents.
16.2 DELEGATION OF DUTIES.
----------------------
Agent may execute any of its duties under this Agreement or any other
Loan Document by or through agents, employees or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects as long as such selection was made without
gross negligence or willful misconduct.
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16.3 LIABILITY OF AGENT.
--------------------
None of the Agent-Related Persons shall (i) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement or any other Loan Document or the transactions contemplated hereby
(except for its own gross negligence or willful misconduct), or (ii) be
responsible in any manner to any of the Lenders for any recital, statement,
representation or warranty made by Borrower or any Subsidiary or Affiliate of
Borrower, or any officer or director thereof, contained in this Agreement or in
any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of Borrower or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the Books or properties of Borrower or the books or records or
properties of Borrower's Subsidiaries or Affiliates.
16.4 RELIANCE BY AGENT.
-------------------
Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, telegram, facsimile, telex or telephone message, statement or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent, or made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to Borrower or counsel to any
Lender), independent accountants and other experts selected by Agent. Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless Agent shall first receive such
advice or concurrence of the Lenders as it deems appropriate and until such
instructions are received, Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its
reasonable satisfaction by Lenders against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action. Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement or any other Loan Document in accordance with
a request or consent of the Lenders and such request and any action taken or
failure to act pursuant thereto shall be binding upon all of the Lenders.
16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT.
-------------------------------------------
Agent shall not be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default, except with respect to defaults in the
payment of principal, interest, fees, and expenses required to be paid to Agent
for the account of the Lenders, except with respect to Events of Default of
which Agent has actual knowledge, unless Agent shall have received written
notice from a Lender or Borrower referring to this Agreement, describing such
Default or Event of Default, and stating that such notice is a "notice of
default." Agent promptly will notify the Lenders of its receipt of any such
notice or of any Event of Default of which Agent has actual knowledge. If any
Lender obtains actual knowledge of any Event of Default, such Lender promptly
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shall notify the other Lenders and Agent of such Event of Default. Each Lender
shall be solely responsible for giving any notices to its Participants, if any.
Subject to Section 16.4, Agent shall take such action with respect to such
-------------
Default or Event of Default as may be requested by the Required Lenders in
accordance with Section 9; provided, however, that unless and until Agent has
---------- -------- -------
received any such request, Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable.
16.6 CREDIT DECISION.
----------------
Each Lender acknowledges that none of the Agent-Related Persons has made
any representation or warranty to it, and that no act by Agent hereinafter
taken, including any review of the affairs of Borrower and its Subsidiaries or
Affiliates, shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Lender. Each Lender represents to Agent that it
has, independently and without reliance upon any Agent-Related Person and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower and any
other Person (other than the Lender Group) party to a Loan Document, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to Borrower. Each Lender also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower and any
other Person (other than the Lender Group) party to a Loan Document. Except for
notices, reports, and other documents expressly herein required to be furnished
to the Lenders by Agent, Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of Borrower and any other Person party to a Loan Document that
may come into the possession of any of the Agent-Related Persons.
16.7 COSTS AND EXPENSES; INDEMNIFICATION.
--------------------------------------
Agent may incur and pay Lender Group Expenses to the extent Agent reasonably
deems necessary or appropriate for the performance and fulfillment of its
functions, powers, and obligations pursuant to the Loan Documents, including
court costs, reasonable attorneys fees and expenses, costs of collection by
outside collection agencies and auctioneer fees and costs of security guards or
insurance premiums paid to maintain the Collateral, whether or not Borrower is
obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan
Agreement or otherwise. Agent is authorized and directed to deduct and retain
sufficient amounts from Collections received by Agent to reimburse Agent for
such out-of-pocket costs and expenses prior to the distribution of any amounts
to Lenders. In the event Agent is not reimbursed for such costs and expenses
from Collections received by Agent, each Lender hereby agrees that it is and
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shall be obligated to pay to or reimburse Agent for the amount of such Lender's
Pro Rata Share thereof. Whether or not the transactions contemplated hereby are
consummated, the Lenders shall indemnify upon demand the Agent-Related Persons
(to the extent not reimbursed by or on behalf of Borrower and without limiting
the obligation of Borrower to do so), according to their Pro Rata Shares, from
and against any and all Indemnified Liabilities; provided, however, that no
-------- -------
Lender shall be liable for the payment to any Agent-Related Person of any
portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct nor shall any Lender be liable for the
obligations of any Defaulting Lender in failing to make an Advance or other
extension of credit hereunder. Without limitation of the foregoing, each Lender
shall reimburse Agent upon demand for such Lender's ratable share of any costs
or out-of-pocket expenses (including attorneys fees and expenses) incurred by
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment, or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that Agent is not
reimbursed for such expenses by or on behalf of Borrower. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of Agent.
16.8 AGENT IN INDIVIDUAL CAPACITY.
-------------------------------
Foothill and its Affiliates may make loans to, issue letters of credit
for the account of, accept deposits from, acquire equity interests in, and
generally engage in any kind of banking, trust, financial advisory,
underwriting, or other business with Borrower and its Subsidiaries and
Affiliates and any other Person (other than the Lender Group) party to any Loan
Documents as though Foothill were not Agent hereunder, and, in each case,
without notice to or consent of the other members of the Lender Group. The
other members of the Lender Group acknowledge that, pursuant to such activities,
Foothill or its Affiliates may receive information regarding Borrower or its
Affiliates and any other Person (other than the Lender Group) party to any Loan
Documents that is subject to confidentiality obligations in favor of Borrower or
such other Person and that prohibit the disclosure of such information to the
Lenders, and the Lenders acknowledge that, in such circumstances (and in the
absence of a waiver of such confidentiality obligations, which waiver Agent will
use its reasonable best efforts to obtain), Agent shall not be under any
obligation to provide such information to them. The terms "Lender" and
"Lenders" include Foothill in its individual capacity.
16.9 SUCCESSOR AGENT.
----------------
Agent may resign as Agent upon 45 days notice to the Lenders. If Agent
resigns under this Agreement, the Required Lenders shall appoint a successor
Agent for the Lenders. If no successor Agent is appointed prior to the
effective date of the resignation of Agent, Agent may appoint, after consulting
with the Lenders, a successor Agent. If Agent has materially breached or failed
to perform any material provision of this Agreement or of applicable law, the
Required Lenders may agree in writing to remove and replace Agent with a
successor Agent from among the Lenders. In any such event, upon the acceptance
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of its appointment as successor Agent hereunder, such successor Agent shall
succeed to all the rights, powers, and duties of the retiring Agent and the term
"Agent" shall mean such successor Agent and the retiring Agent's appointment,
powers, and duties as Agent shall be terminated. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Section 16 shall inure to
----------
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement. If no successor Agent has accepted appointment as
Agent by the date which is 45 days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective and the Lenders shall perform all of the duties of Agent
hereunder until such time, if any, as the Lenders appoint a successor Agent as
provided for above.
16.10 LENDER IN INDIVIDUAL CAPACITY.
--------------------------------
Any Lender and its respective Affiliates may make loans to, issue
letters of credit for the account of, accept deposits from, acquire equity
interests in and generally engage in any kind of banking, trust, financial
advisory, underwriting or other business with Borrower and its Subsidiaries and
Affiliates and any other Person (other than the Lender Group) party to any Loan
Documents as though such Lender were not a Lender hereunder without notice to or
consent of the other members of the Lender Group. The other members of the
Lender Group acknowledge that, pursuant to such activities, such Lender and its
respective Affiliates may receive information regarding Borrower or its
Affiliates and any other Person (other than the Lender Group) party to any Loan
Documents that is subject to confidentiality obligations in favor of Borrower or
such other Person and that prohibit the disclosure of such information to the
Lenders, and the Lenders acknowledge that, in such circumstances (and in the
absence of a waiver of such confidentiality obligations, which waiver such
Lender will use its reasonable best efforts to obtain), such Lender shall not be
under any obligation to provide such information to them. With respect to the
Swing Loans and Agent Advances, Swing Lender shall have the same rights and
powers under this Agreement as any other Lender and may exercise the same as
though it were not the sub-agent of the Agent.
16.11 WITHHOLDING TAXES.
------------------
(a) If any Lender is a "foreign corporation, partnership or trust" within
the meaning of the IRC and such Lender claims exemption from, or a reduction of,
U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Lender
agrees with and in favor of Agent and Borrower, to deliver to Agent and
Borrower:
(i) if such Lender claims an exemption from withholding tax pursuant to its
portfolio interest exception, (a) a statement of the Lender, signed under
penalty of perjury, that it is not a (I) "bank" as described in Section
881(c)(3)(A) of the IRC, (II) 10% shareholder (within the meaning of Section
881(c)(3)(B) of the IRC), or (III) controlled foreign corporation described in
Section 881(c)(3)(C) of the IRC, and (B) a properly completed IRS Form W-8BEN,
before the first payment of any interest under this Agreement and at any other
time reasonably requested by Agent or Borrower;
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(ii) if such Lender claims an exemption from, or a reduction of, withholding
tax under a United States tax treaty, properly completed IRS Form W-8BEN before
the first payment of any interest under this Agreement and at any other time
reasonably requested by Agent or Borrower;
(iii) if such Lender claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively connected
with a United States trade or business of such Lender, two properly completed
and executed copies of IRS Form W-8ECI before the first payment of any interest
is due under this Agreement and at any other time reasonably requested by Agent
or Borrower;
(iv) such other form or forms as may be required under the IRC or other laws
of the United States as a condition to exemption from, or reduction of, United
States withholding tax.
Such Lender agrees promptly to notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of, withholding tax
under a United States tax treaty by providing IRS Form W-8BEN and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of Borrower to such Lender, such Lender agrees to notify
Agent of the percentage amount in which it is no longer the beneficial owner of
Obligations of Borrower to such Lender. To the extent of such percentage
amount, Agent will treat such Lender's IRS Form W-8BEN as no longer valid.
(c) If any Lender is entitled to a reduction in the applicable withholding
tax, Agent may withhold from any interest payment to such Lender an amount
equivalent to the applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by subsection (a) of
this Section are not delivered to Agent, then Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax.
(d) If the IRS or any other Governmental Authority of the United States or
other jurisdiction asserts a claim that Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered, was not properly executed, or because such Lender failed to
notify Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason) such Lender
shall indemnify and hold Agent harmless for all amounts paid, directly or
indirectly, by Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to Agent
under this Section, together with all costs and expenses (including attorneys
fees and expenses). The obligation of the Lenders under this subsection shall
survive the payment of all Obligations and the resignation or replacement of
Agent.
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(e) All payments made by Borrower hereunder or under any note or other Loan
Document will be made without setoff, counterclaim, or other defense, except as
required by applicable law other than for Taxes (as defined below). All such
payments will be made free and clear of, and without deduction or withholding
for, any present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction
(other than the United States) or by any political subdivision or taxing
authority thereof or therein (other than of the United States) with respect to
such payments (but excluding, any tax imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein (i) measured by or
based on the net income or net profits of a Lender, or (ii) to the extent that
such tax results from a change in the circumstances of the Lender, including a
change in the residence, place of organization, or principal place of business
of the Lender, or a change in the branch or lending office of the Lender
participating in the transactions set forth herein) and all interest, penalties
or similar liabilities with respect thereto (all such non-excluded taxes,
levies, imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, Borrower
-----
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement or
under any note, including any amount paid pursuant to this Section 16.11(e)
----------------
after withholding or deduction for or on account of any Taxes, will not be less
than the amount provided for herein; provided, however, that Borrower shall not
-------- -------
be required to increase any such amounts payable to Agent or any Lender (i) that
is not organized under the laws of the United States, if such Person fails to
comply with the other requirements of this Section 16.11, or (ii) if the
--------------
increase in such amount payable results from Agent's or such Lender's own
willful misconduct or gross negligence. Borrower will furnish to Agent as
promptly as possible after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by
Borrower.
16.12 COLLATERAL MATTERS.
-------------------
(a) The Lenders hereby irrevocably authorize Agent, at its option and in its
sole discretion, to release any Lien on any Collateral (i) upon the
termination of the Commitments and payment and satisfaction in full by Borrower
of all Obligations, (ii) constituting property being sold or disposed of if a
release is required or desirable in connection therewith and if Borrower
certifies to Agent that the sale or disposition is permitted under Section 7.4
-----------
of this Agreement or the other Loan Documents (and Agent may rely conclusively
on any such certificate, without further inquiry), (iii) constituting property
in which Borrower does not own any interest at the time the security interest
was granted or at any time thereafter, or (iv) constituting property leased to
Borrower under a lease that has expired or is terminated in a transaction
permitted under this Agreement. Except as provided above, Agent will not
execute and deliver a release of any Lien on any Collateral without the prior
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written authorization of (y) if the release is of all or substantially all of
the Collateral, all of the Lenders, or (z) otherwise, the Required Lenders.
Upon request by Agent or Borrower at any time, the Lenders will confirm in
writing Agent's authority to release any such Liens on particular types or items
of Collateral pursuant to this Section 16.12; provided, however, that (1) Agent
------------- -------- -------
shall not be required to execute any document necessary to evidence such release
on terms that, in Agent's opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of Borrower in respect of)
all interests retained by Borrower, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
(b) Agent shall have no obligation whatsoever to any of the Lenders to
assure that the Collateral exists or is owned by Borrower or any of its
Subsidiaries or is cared for, protected, or insured or has been encumbered, or
that the Agent's Liens have been properly or sufficiently or lawfully created,
perfected, protected, or enforced or are entitled to any particular priority, or
to exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent pursuant to any of the Loan
Documents, it being understood and agreed that in respect of the Collateral, or
any act, omission, or event related thereto, subject to the terms and conditions
contained herein, Agent may act in any manner it may deem appropriate, in its
sole discretion given Agent's own interest in the Collateral in its capacity as
one of the Lenders and that Agent shall have no other duty or liability
whatsoever to any Lender as to any of the foregoing, except as otherwise
provided herein.
16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS.
--------------------------------------------------------------
(a) Each of the Lenders agrees that it shall not, without the express
consent of Agent, and that it shall, to the extent it is lawfully entitled to do
so, upon the request of Agent, set off against the Obligations, any amounts
owing by such Lender to any Borrower or any deposit accounts of Borrower now or
hereafter maintained with such Lender. Each of the Lenders further agrees that
it shall not, unless specifically requested to do so by Agent, take or cause to
be taken any action, including, the commencement of any legal or equitable
proceedings, to foreclose any Lien on, or otherwise enforce any security
interest in, any of the Collateral the purpose of which is, or could be, to give
such Lender any preference or priority against the other Lenders with respect to
the Collateral.
(b) If, at any time or times any Lender shall receive (i) by payment,
foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments
with respect to the Obligations arising under, or relating to, this Agreement or
the other Loan Documents, except for any such proceeds or payments received by
such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments
from Agent in excess of such Lender's ratable portion of all such distributions
by Agent, such Lender promptly shall (1) turn the same over to Agent, in kind,
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and with such endorsements as may be required to negotiate the same to Agent, or
in immediately available funds, as applicable, for the account of all of the
Lenders and for application to the Obligations in accordance with the applicable
provisions of this Agreement, or (2) purchase, without recourse or warranty, an
undivided interest and participation in the Obligations owed to the other
Lenders so that such excess payment received shall be applied ratably as among
the Lenders in accordance with their Pro Rata Shares; provided, however, that if
all or part of such excess payment received by the purchasing party is
thereafter recovered from it, those purchases of participations shall be
rescinded in whole or in part, as applicable, and the applicable portion of the
purchase price paid therefor shall be returned to such purchasing party, but
without interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.
16.14 AGENCY FOR PERFECTION.
-----------------------
Agent hereby appoints each other Lender as its agent (and each Lender
hereby accepts such appointment) for the purpose of perfecting the Agent's Liens
in assets which, in accordance with Article 9 of the Code can be perfected only
by possession. Should any Lender obtain possession of any such Collateral, such
Lender shall notify Agent thereof, and, promptly upon Agent's request therefor
shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
16.15 PAYMENTS BY AGENT TO THE LENDERS.
-------------------------------------
All payments to be made by Agent to the Lenders shall be made by bank
wire transfer or internal transfer of immediately available funds pursuant to
such wire transfer instructions as each party may designate for itself by
written notice to Agent. Concurrently with each such payment, Agent shall
identify whether such payment (or any portion thereof) represents principal,
premium, or interest of the Obligations.
16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS.
----------------------------------------------------------
Each member of the Lender Group authorizes and directs Agent to enter
into this Agreement and the other Loan Documents relating to the Collateral, for
the benefit of the Lender Group. Each member of the Lender Group agrees that
any action taken by Agent in accordance with the terms of this Agreement or the
other Loan Documents relating to the Collateral and the exercise by Agent of its
powers set forth therein or herein, together with such other powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.
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16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY; DISCLAIMERS BY
------------------------------------------------------------------------
LENDERS; OTHER REPORTS AND INFORMATION.
------------------------------------------
By becoming a party to this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such Lender, promptly
after it becomes available, a copy of each field audit or examination report
(each a "Report" and collectively, "Reports") prepared by Agent, and Agent shall
------ -------
so furnish each Lender with such Reports,
(b) expressly agrees and acknowledges that Agent does not (i) make any
representation or warranty as to the accuracy of any Report, and (ii) shall not
be liable for any information contained in any Report,
(c) expressly agrees and acknowledges that the Reports are not comprehensive
audits or examinations, that Agent or other party performing any audit or
examination will inspect only specific information regarding Borrower and will
rely significantly upon the Books, as well as on representations of Borrower's
personnel,
(d) agrees to keep all Reports and other material, non-public information
regarding Borrower and its Subsidiaries and their operations, assets, and
existing and contemplated business plans in a confidential manner; it being
understood and agreed by Borrower that in any event such Lender may make
disclosures (a) to counsel for and other advisors, accountants, and auditors to
such Lender, (b) reasonably required by any bona fide potential or actual
Assignee or Participant in connection with any contemplated or actual assignment
or transfer by such Lender of an interest herein or any participation interest
in such Lender's rights hereunder, (c) of information that has become public by
disclosures made by Persons other than such Lender, its Affiliates, assignees,
transferees, or Participants, or (d) as required or requested by any court,
governmental or administrative agency, pursuant to any subpoena or other legal
process, or by any law, statute, regulation, or court order; provided, however,
-------- -------
that, unless prohibited by applicable law, statute, regulation, or court order,
such Lender shall notify Borrower of any request by any court, governmental or
administrative agency, or pursuant to any subpoena or other legal process for
disclosure of any such non-public material information concurrent with, or where
practicable, prior to the disclosure thereof, and
(e) without limiting the generality of any other indemnification provision
contained in this Agreement, agrees: (i) to hold Agent and any such other
Lender preparing a Report harmless from any action the indemnifying Lender may
take or conclusion the indemnifying Lender may reach or draw from any Report in
connection with any loans or other credit accommodations that the indemnifying
Lender has made or may make to Borrower, or the indemnifying Lender's
participation in, or the indemnifying Lender's purchase of, a loan or loans of
Borrower; and (ii) to pay and protect, and indemnify, defend and hold Agent, and
any such other Lender preparing a Report harmless from and against, the claims,
actions, proceedings, damages, costs, expenses, and other amounts (including,
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attorneys fees and costs) incurred by Agent and any such other Lender preparing
a Report as the direct or indirect result of any third parties who might obtain
all or part of any Report through the indemnifying Lender.
In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent that has not been contemporaneously
provided by Borrower to such Lender, and, upon receipt of such request, Agent
shall provide a copy of same to such Lender, (y) to the extent that Agent is
entitled, under any provision of the Loan Documents, to request additional
reports or information from Borrower, any Lender may, from time to time,
reasonably request Agent to exercise such right as specified in such Lender's
notice to Agent, whereupon Agent promptly shall request of Borrower the
additional reports or information reasonably specified by such Lender, and, upon
receipt thereof from Borrower, Agent promptly shall provide a copy of same to
such Lender, and (z) any time that Agent renders to Borrower a statement
regarding the Loan Account, Agent shall send a copy of such statement to each
Lender.
16.18 SEVERAL OBLIGATIONS; NO LIABILITY.
------------------------------------
Notwithstanding that certain of the Loan Documents now or hereafter may
have been or will be executed only by or in favor of Agent in its capacity as
such, and not by or in favor of the Lenders, any and all obligations on the part
of Agent (if any) to make any credit available hereunder shall constitute the
several (and not joint) obligations of the respective Lenders on a ratable
basis, according to their respective Commitments, to make an amount of such
credit not to exceed, in principal amount, at any one time outstanding, the
amount of their respective Commitments. Nothing contained herein shall confer
upon any Lender any interest in, or subject any Lender to any liability for, or
in respect of, the business, assets, profits, losses, or liabilities of any
other Lender. Each Lender shall be solely responsible for notifying its
Participants of any matters relating to the Loan Documents to the extent any
such notice may be required, and no Lender shall have any obligation, duty, or
liability to any Participant of any other Lender. Except as provided in Section
-------
16.7, no member of the Lender Group shall have any liability for the acts of any
----
other member of the Lender Group. No Lender shall be responsible to Borrower or
any other Person for any failure by any other Lender to fulfill its obligations
to make credit available hereunder, nor to advance for it or on its behalf in
connection with its Commitment, nor to take any other action on its behalf
hereunder or in connection with the financing contemplated herein.
16.19 LEGAL REPRESENTATION OF AGENT.
--------------------------------
In connection with the negotiation, drafting, and execution of this
Agreement and the other Loan Documents, or in connection with future legal
representation relating to loan administration, amendments, modifications,
waivers, or enforcement of remedies, ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇, P.C. ("▇▇▇▇▇▇
------
▇▇▇▇▇") only has represented and only shall represent Foothill in its capacity
-----
as Agent and as a Lender. Each other Lender hereby acknowledges that ▇▇▇▇▇▇
▇▇▇▇▇ does not represent it in connection with any such matters.
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17. GENERAL PROVISIONS.
17.1 EFFECTIVENESS.
-------------
This Agreement shall be binding and deemed effective when executed by
Borrower, Agent, and each Lender whose signature is provided for on the
signature pages hereof.
17.2 SECTION HEADINGS.
-----------------
Headings and numbers have been set forth herein for convenience only.
Unless the contrary is compelled by the context, everything contained in each
Section applies equally to this entire Agreement.
17.3 INTERPRETATION.
--------------
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against the Lender Group or Borrower, whether under any
rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.
17.4 SEVERABILITY OF PROVISIONS.
----------------------------
Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
17.5 AMENDMENTS IN WRITING.
-----------------------
This Agreement only can be amended by a writing in accordance with
Section 15.1.
--------
17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION.
---------------------------------------
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of an original executed counterpart of this Agreement.
Any party delivering an executed counterpart of this Agreement by telefacsimile
also shall deliver an original executed counterpart of this Agreement but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement. The foregoing
shall apply to each other Loan Document mutatis mutandis.
17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS.
--------------------------------------------
If the incurrence or payment of the Obligations by Borrower or the
transfer to the Lender Group of any property should for any reason subsequently
be declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, or other voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable Transfer"), and if
-----------------
the Lender Group is required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to do so upon the reasonable advice of its counsel,
then, as to any such Voidable Transfer, or the amount thereof that the Lender
Group is required or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of the Lender Group related thereto, the liability
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of Borrower automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
17.8 INTEGRATION.
-----------
This Agreement, together with the other Loan Documents, reflects the
entire understanding of the parties with respect to the transactions
contemplated hereby and shall not be contradicted or qualified by any other
agreement, oral or written, before the date hereof.
17.9 LICENSE TO GATHERING SYSTEMS.
-------------------------------
In the event that the Gathering Systems are foreclosed upon pursuant to the
Mortgages, Agent, on behalf of Lenders, hereby grants to each Pledging
Subsidiary a non-royalty bearing license to transport Hydrocarbons produced from
▇▇▇▇▇ not included within the Mortgaged Properties under any then existing
agreement regarding transport and for the life of such transportation agreement
or in the absence of a written agreement consistent with the past practices and
customs of the parties in the industry.
17.10 AGENCY OF THE BORROWER FOR EACH PLEDGING SUBSIDIARY.
----------------------------------------------------------
Each of the Pledging Subsidiaries irrevocably appoints the Borrower as its
agent for all purposes relevant to this Agreement, including the giving and
receipt of notices and execution and delivery of all documents, instruments, and
certificates contemplated herein (including, without limitation, execution and
delivery to the Agent of Reserve Reports and all modifications hereto). Any
acknowledgment, consent, direction, certification, or other action which might
otherwise be valid or effective only if given or taken by all or any of the
Borrower and the Pledging Subsidiaries or acting singly, shall be valid and
effective if given or taken only by the Borrower, whether or not any of the
Pledging Subsidiaries joins therein, and the Agent and the Lenders shall have no
duty or obligation to make further inquiry with respect to the authority of the
Borrower under this Section 17.10, provided that nothing in this Section 17.10
------------- -------- -------------
shall limit the effectiveness of, or the right of the Agent and the Lenders to
rely upon, any notice, document, instrument, certificate, acknowledgment,
consent, direction, certification, or other action delivered by any Pledging
Subsidiary pursuant to this Agreement.
17.11 DEVELOPMENT PROJECTS.
---------------------
Nothing contained in the Loan Documents shall prohibit any Pledging
Subsidiary from developing any Oil and Gas Properties that do not constitute
Collateral.
17.12. RESERVE ARBITRATION. In the event of any dispute as to the
--------------------
amount of a reserve established by Agent under Section 2.1(b) clauses (i)
through (vi) inclusive, Agent and Borrower shall use good faith efforts to
resolve any such dispute through full and meaningful discussions, which shall
include one face-to-face meeting and a written exchange of positions. In the
event this written exchange indicates that the dispute cannot be resolved, the
dispute shall be referred to arbitration in the city of Atlanta, Georgia by one
arbitrator (selected by the American Arbitration Association but having
extensive work experience in establishing such type of reserves under oil and
gas secured credit facilities), in accordance with the provisions set forth
-109-
herein and the Commercial Arbitration Rules of the American Arbitration
Association then in effect. The decision of the arbitrator shall establish the
amount of such reserve.
[Signature page to follow.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
ENERGY CORPORATION OF AMERICA,
a West Virginia corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Title: Senior Vice President
FOOTHILL CAPITAL CORPORATION,
a California corporation,
as Agent and as a Lender
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------
Title: Vice President
For purposes of acknowledging agreement to the terms, provisions, and
conditions of this Agreement (including, without limitation, the terms of
Section 17.10, Eastern American and A&W are executing this Agreement.
--------
EASTERN AMERICAN ENERGY CORPORATION,
a West Virginia corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Title: Senior Vice President
ALLEGHENY & WESTERN ENERGY
CORPORATION,
a West Virginia corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Title: Senior Vice President
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