Exhibit 10.1
CREDIT AGREEMENT
Dated as of July 15, 2005
Among
CRIMSON EXPLORATION INC.,
as Borrower,
▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION,
as Lead Arranger and Administrative Agent,
and
THE LENDERS SIGNATORY HERETO
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I Definitions and Accounting Matters.....................................................1
Section 1.01 Terms Defined Above....................................................................1
Section 1.02 Certain Defined Terms..................................................................1
Section 1.03 Accounting Terms and Determinations...................................................19
ARTICLE II Commitments...........................................................................19
Section 2.01 Loans and Letters of Credit...........................................................19
Section 2.02 Borrowings, Continuations and Conversions, Letters of Credit..........................20
Section 2.03 Changes of Commitments................................................................22
Section 2.04 Fees..................................................................................22
Section 2.05 Several Obligations...................................................................23
Section 2.06 Notes.................................................................................23
Section 2.07 Prepayments...........................................................................23
Section 2.08 Borrowing Base........................................................................24
Section 2.09 Assumption of Risks...................................................................26
Section 2.10 Obligation to Reimburse and to Prepay.................................................27
Section 2.11 Lending Offices.......................................................................28
ARTICLE III Payments of Principal and Interest....................................................29
Section 3.01 Repayment of Loans....................................................................29
Section 3.02 Interest..............................................................................29
ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc.......................................30
Section 4.01 Payments..............................................................................30
Section 4.02 Pro Rata Treatment....................................................................30
Section 4.03 Computations..........................................................................31
Section 4.04 Non-receipt of Funds by the Agent.....................................................31
Section 4.05 Set-off, Sharing of Payments, Etc.....................................................31
Section 4.06 Taxes.................................................................................32
Section 4.07 Disposition of Proceeds...............................................................35
ARTICLE V Capital Adequacy and Additional Costs.................................................35
Section 5.01 Capital Adequacy and Additional Costs.................................................35
Section 5.02 Limitation on LIBOR Loans.............................................................37
Section 5.03 Illegality............................................................................37
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03..............................37
Section 5.05 Compensation..........................................................................38
Section 5.06 Replacement Lenders...................................................................38
ARTICLE VI Conditions Precedent..................................................................39
Section 6.01 Initial Funding.......................................................................39
Section 6.02 Initial and Subsequent Loans and Letters of Credit....................................42
Section 6.03 Conditions Precedent for the Benefit of Lenders.......................................42
Section 6.04 No Waiver.............................................................................42
ARTICLE VII Representations and Warranties........................................................43
2
TABLE OF CONTENTS
-----------------
(Continued)
Page
----
Section 7.01 Corporate Existence...................................................................43
Section 7.02 Financial Condition...................................................................43
Section 7.03 Litigation and Judgments..............................................................44
Section 7.04 No Breach.............................................................................44
Section 7.05 Authority.............................................................................44
Section 7.06 Approvals.............................................................................44
Section 7.07 Use of Loans..........................................................................44
Section 7.08 ERISA.................................................................................45
Section 7.09 Taxes.................................................................................46
Section 7.10 Titles, Etc...........................................................................46
Section 7.11 No Material Misstatements.............................................................46
Section 7.12 Investment Company Act................................................................47
Section 7.13 Public Utility Holding Company Act....................................................47
Section 7.14 Subsidiaries..........................................................................47
Section 7.15 Location of Business and Offices......................................................47
Section 7.16 Defaults..............................................................................47
Section 7.17 Environmental Matters.................................................................47
Section 7.18 Compliance with the Law...............................................................48
Section 7.19 Insurance.............................................................................49
Section 7.20 Hedging Agreements....................................................................49
Section 7.21 Restriction on Liens..................................................................49
Section 7.22 Material Agreements...................................................................50
Section 7.23 Solvency..............................................................................50
Section 7.24 Gas Imbalances........................................................................50
Section 7.25 Madisonville and Elgin Holdings.......................................................50
Section 7.26 Intentionally Omitted.................................................................51
Section 7.27 Name Changes..........................................................................51
Section 7.28 Taxpayer Identification Number........................................................51
Section 7.29 State of Formation....................................................................51
ARTICLE VIII Affirmative Covenants.................................................................51
Section 8.01 Reporting Requirements................................................................51
Section 8.02 Litigation............................................................................53
Section 8.03 Maintenance, Etc......................................................................53
Section 8.04 Environmental Matters.................................................................55
Section 8.05 Further Assurances....................................................................56
Section 8.06 Performance of Obligations............................................................56
Section 8.07 Engineering Reports...................................................................56
Section 8.08 Title Information and Mortgage Coverage...............................................57
Section 8.09 Collateral............................................................................58
Section 8.10 Cash Collateral Account Agreement.....................................................59
Section 8.11 Mortgage Title Opinions...............................................................59
Section 8.12 ERISA Information and Compliance......................................................59
Section 8.13 Joinder and Guaranty Agreements.......................................................60
3
TABLE OF CONTENTS
-----------------
(Continued)
Page
----
Section 8.14 Hedging...............................................................................60
ARTICLE IX Negative Covenants....................................................................60
Section 9.01 Debt..................................................................................60
Section 9.02 Liens.................................................................................61
Section 9.03 Investments, Loans and Advances.......................................................62
Section 9.04 Dividends, Distributions and Redemptions..............................................62
Section 9.05 Sales and Leasebacks..................................................................63
Section 9.06 Nature of Business....................................................................63
Section 9.07 Limitation on Leases..................................................................63
Section 9.08 Mergers, Acquisitions, Etc............................................................63
Section 9.09 Proceeds of Notes; Letters of Credit..................................................63
Section 9.10 ERISA Compliance......................................................................64
Section 9.11 Sale or Discount of Receivables.......................................................65
Section 9.12 Capital Expenditures..................................................................65
Section 9.13 Current Ratio.........................................................................65
Section 9.14 Tangible Net Worth....................................................................65
Section 9.15 Interest Coverage Ratio...............................................................65
Section 9.16 Sale of Mortgaged Properties..........................................................66
Section 9.17 Sale of Oil and Gas Properties........................................................66
Section 9.18 Environmental Matters.................................................................66
Section 9.19 Transactions with Affiliates..........................................................66
Section 9.20 Subsidiaries..........................................................................66
Section 9.21 Negative Pledge Agreements............................................................67
Section 9.22 Take-or-Pay or Other Prepayments......................................................67
Section 9.23 Ownership of Subsidiaries.............................................................67
Section 9.24 Change in Borrower's, any of its Subsidiaries' or any Guarantor's Name or
State of Formation....................................................................67
Section 9.25 Intentionally Omitted.................................................................67
Section 9.26 Intentionally Omitted.................................................................67
Section 9.27 Deposit Account.......................................................................67
Section 9.28 Limitation on Hedging.................................................................67
ARTICLE X Events of Default; Remedies..........................................................68
Section 10.01 Events of Default.....................................................................68
Section 10.02 Remedies..............................................................................70
ARTICLE XI The Agent.............................................................................71
Section 11.01 Appointment, Powers and Immunities....................................................71
Section 11.02 Reliance by Agent.....................................................................71
Section 11.03 Defaults..............................................................................72
Section 11.04 Rights as a Lender....................................................................72
Section 11.05 Indemnification.......................................................................72
Section 11.06 Non-Reliance on Agent and other Lenders...............................................72
4
TABLE OF CONTENTS
-----------------
(Continued)
Page
----
Section 11.07 Action by Agent.......................................................................73
Section 11.08 Resignation or Removal of Agent.......................................................73
ARTICLE XII Miscellaneous.........................................................................73
Section 12.01 Waiver................................................................................73
Section 12.02 Notices...............................................................................74
Section 12.03 Payment of Expenses, Indemnities, Etc.................................................74
Section 12.04 Amendments, Etc.......................................................................76
Section 12.05 Successors and Assigns................................................................76
Section 12.06 Assignments and Participations........................................................76
Section 12.07 Invalidity............................................................................78
Section 12.08 Counterparts..........................................................................78
Section 12.09 References; Use of Word "Including"...................................................78
Section 12.10 Survival..............................................................................79
Section 12.11 Captions..............................................................................79
Section 12.12 No Oral Agreements....................................................................79
Section 12.13 Governing Law; Submission to Jurisdiction.............................................79
Section 12.14 Interest..............................................................................80
Section 12.15 Confidentiality.......................................................................81
Section 12.16 Effectiveness.........................................................................82
Section 12.17 Exculpation Provisions................................................................82
Section 12.18 Arbitration...........................................................................82
5
ANNEXES, EXHIBITS AND SCHEDULES
Annex I - List of Percentage Shares and Maximum Credit Amounts
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - List of Security Instruments
Exhibit E - Form of Assignment Agreement
Exhibit F - Intentionally Deleted
Exhibit G - Joinder Agreement
Exhibit H - Guaranty Agreement
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation and Judgments
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries, Partnerships, Locations, Jurisdictions, Taxpayer
I.D. Numbers
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.20 - Hedging Agreements
Schedule 7.22 - Material Agreements
Schedule 7.24 - Gas Imbalances
Schedule 7.27 - Name Changes
Schedule 7.28 - Guarantors Tax I.D. Numbers and State of Formation
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of July 15, 2005 is among CRIMSON
EXPLORATION INC., a Delaware corporation formed under the laws of the State of
Delaware (the "Borrower"); each of the lenders that is a signatory hereto or
which becomes a signatory hereto as provided in Section 12.06 (individually,
together with its successors and assigns, a "Lender" and, collectively, the
"Lenders"); and ▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION, a national banking
association (in its individual capacity, "▇▇▇▇▇ Fargo"), as Agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"Agent").
R E C I T A L S
---------------
A. The Borrower has requested that the Lenders provide certain loans to
and extensions of credit on behalf of the Borrower; and
B. The Lenders have agreed to make such loans and extensions of credit
subject to the terms and conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans, extensions of credit and commitments hereinafter
referred to, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement, the terms
defined in the opening paragraph and the Recitals above shall have the meanings
indicated therein.
Section 1.02 Certain Defined Terms. As used herein, the following terms
shall have the following meanings (all terms defined in this Article I or in
other provisions of this Agreement in the singular to have equivalent meanings
when used in the plural and vice versa):
"Active Subsidiary" shall mean a Subsidiary of the Borrower that is not an
Inactive Subsidiary.
"Additional Costs" shall have the meaning assigned such term in Section
5.01(c).
"Affected Loans" shall have the meaning assigned such term in Section 5.04.
"Affiliate" of any Person shall mean (i) any Person directly or indirectly
controlled by, controlling or under common control with such first Person, (ii)
any director or officer of such first Person or of any Person referred to in
clause (i) above and (iii) if any Person in clause (i) above is an individual,
any member of the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such individual or
one or more members of such immediate family and any Person who is controlled by
7
any such member or trust. For purposes of this definition, any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the election of directors or other governing body of a corporation or
10% or more of the partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be deemed to
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") such corporation or other Person.
"Agreement" shall mean this Credit Agreement, as the same may from time to
time be amended or supplemented.
"Aggregate Maximum Revolving Credit Amounts" at any time shall equal the
sum of the Maximum Revolving Credit Amounts of the Lenders ($100,000,000.00), as
the same may be reduced pursuant to Section 2.03(b). As of the Closing Date, the
Aggregate Maximum Revolving Credit Amounts equal $100,000,000.00.
"Aggregate Revolving Credit Commitments" at any time shall equal the amount
calculated in accordance with Section 2.03.
"Applicable Lending Office" shall mean, for each Lender and for each Type
of Loan, the lending office of such Lender (or an Affiliate of such Lender)
designated for such Type of Loan on the signature pages hereof or such other
offices of such Lender (or of an Affiliate of such Lender) as such Lender may
from time to time specify to the Agent and the Borrower as the office by which
its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean the applicable per annum percentage set
forth at the appropriate intersection in the table shown below, based on the
Borrowing Base Utilization as in effect from time to time:
-----------------------------------------------------------------------------------------------------------------
Borrowing Base Utilization Applicable Margin
----------------------------------------- ----------------------- ---------------------- ------------------------
LIBOR Loans Base Rate Loans Revolving Credit
Commitment Fee
----------------------------------------- ----------------------- ---------------------- ------------------------
Less than 50% 1.25% 0% .375%
----------------------------------------- ----------------------- ---------------------- ------------------------
Greater than or equal to 50%, but less 1.50% .125% .375%
than 75%
----------------------------------------- ----------------------- ---------------------- ------------------------
Greater than or equal to 75%, but less 1.75% .25% .375%
than 90%
----------------------------------------- ----------------------- ---------------------- ------------------------
Greater than or equal to 90% 2.00% .50% .375%
----------------------------------------- ----------------------- ---------------------- ------------------------
Each change in the Applicable Margin resulting from a change in the Borrowing
Base Utilization shall take effect on the day such change in the Borrowing Base
Utilization occurs.
"Assignment" shall have the meaning assigned such term in Section 12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan, for any day,
the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% or (ii)
the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
8
take effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at rates based upon
the Base Rate.
"Beneficiaries" shall mean the Agent, the Lenders, each Issuing Bank and
each Affiliate of a Lender that is a party to a Hedge Agreement with the
Borrower.
"Board of Directors" means the Board of Directors of the Borrower, or any
authorized committee of the Board of Directors.
"Borrowing Base" shall mean at any time an amount equal to the amount
determined in accordance with Section 2.08.
"Borrowing Base Utilization" shall mean the sum of (i)(a) the aggregate
outstanding principal amount of the Loans plus (b) the aggregate face amount of
all undrawn and uncancelled Letters of Credit, plus (c) the aggregate of all
amounts drawn under all Letters of Credit and not yet reimbursed, divided by
(ii) the Borrowing Base.
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in Houston Texas, and, where such term
is used in the definition of "Quarterly Date" or if such day relates to a
borrowing or continuation of, a payment or prepayment of principal of or
interest on, or a conversion of or into, or the Interest Period for, a LIBOR
Loan or a notice by the Borrower with respect to any such borrowing or
continuation, payment, prepayment, conversion or Interest Period, any day which
is also a day on which dealings in Dollar deposits are carried out in the London
interbank market.
"Cash Collateral Account Agreement" shall mean that certain Cash Collateral
Account Agreement, if any, between the Borrower, its Subsidiaries and the Agent,
in form and substance satisfactory to the Agent covering and granting a
perfected, first priority security interest to the Agent in the cash collateral,
and subject only to Liens or any other encumbrances satisfactory to Agent.
"Closing Date" shall mean July 15, 2005.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time and any successor statute.
"Commitment" shall mean, for any Lender, its obligation to make Loans and
to participate in the Letters of Credit as provided in Section 2.01 up to the
lesser of (i) such Lender's Maximum Revolving Credit Amount and (ii) the
Lender's Percentage Share of the amount equal to the then effective Borrowing
Base.
"Consolidated Net Income" shall mean with respect to the Borrower and its
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and its Consolidated Subsidiaries after allowances for
taxes for such period, determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (i) the net income of any Person in
which the Borrower or any Consolidated Subsidiary has an interest (which
9
interest does not cause the net income of such other Person to be consolidated
with the net income of the Borrower and its Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in such period by such other Person to the Borrower
or to a Consolidated Subsidiary, as the case may be; (ii) the net income (but
not loss) of any Consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions or transfers or loans by that
Consolidated Subsidiary is not at the time permitted by operation of the terms
of its charter or any agreement, instrument or Governmental Requirement
applicable to such Consolidated Subsidiary, or is otherwise restricted or
prohibited in each case determined in accordance with GAAP; (iii) the net income
(or loss) of any Person acquired in a pooling-of-interests transaction for any
period prior to the date of such transaction; (iv) any extraordinary gains or
losses, including gains or losses attributable to Property sales not in the
ordinary course of business; and (v) the cumulative effect of a change in
accounting principles and any gains or losses attributable to writeups or write
downs of assets.
"Consolidated Subsidiaries" shall mean each Subsidiary of a Person (whether
now existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of
such Person in accordance with GAAP. Unless otherwise indicated, each reference
to the term "Consolidated Subsidiary" shall mean a Subsidiary consolidated with
the Borrower.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of the Borrower: (a) who was a member of the Board of
Directors on the Closing Date, (b) whose nomination for election to the Board of
Directors was made with the approval of, or whose election to the Board of
Directors was ratified by, at least two-thirds of the directors who were members
of the Board of Directors on the Closing Date or who were so elected to the
Board of Directors thereafter, or (c) whose membership on the Board of Directors
was consented to by the Majority Lenders.
"Current Assets" shall have the meaning assigned such term in Section 9.13.
"Current Liabilities" shall have the meaning assigned such term in Section
9.13.
"Debt" shall mean, for any Person the sum of the following (without
duplication): (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (ii) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, letters of credit,
surety or other bonds and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property or services (other than
for borrowed money); (iv) all obligations under leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases in respect
of which such Person is liable (whether contingent or otherwise); (vi) all Debt
(as described in the other clauses of this definition) and other obligations of
others secured by a Lien on any asset of such Person, whether or not such Debt
is assumed by such Person; (vii) all Debt (as described in the other clauses of
this definition) and other obligations of others guaranteed by such Person or in
which such Person otherwise assures a creditor against loss of the debtor or
obligations of others; (viii) all obligations or undertakings of such Person to
maintain or cause to be maintained the financial position or covenants of others
or to purchase the Debt or Property of others; (ix) obligations to deliver goods
10
or services including Hydrocarbons in consideration of advance payments, except
as permitted by Section 9.22 and disclosed by Section 8.07(c); (x) obligations
to pay for goods or services whether or not such goods or services are actually
received or utilized by such Person; (xi) any capital stock of such Person in
which such Person has a mandatory obligation to redeem such stock; and (xii) any
Debt of a Special Entity for which such Person is liable either by agreement or
because of a Governmental Requirement; and (xiii) the undischarged balance of
any production payment created by such Person or for the creation of which such
Person directly or indirectly received payment; and (xiv) all obligations of
such Person under Hedging Agreements excluding Hedging Agreements with Agent or
any other Lender.
"Default" shall mean an Event of Default or an event which with notice or
lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of America.
"EBITDAX" shall mean, for any period, the sum of Consolidated Net Income
for such period plus the following expenses or charges to the extent deducted
from Consolidated Net Income in such period: interest, income taxes,
depreciation, depletion and amortization and exploration expense; and all other
non-cash items (including hedging gains and losses under FAS 133, non-cash asset
writedowns or FAS 143 charges and/or any non-cash share based payment charges
under FAS 123R).
"Effective Date" shall have the meaning assigned such term in Section
12.16.
"Elgin Holdings" shall mean Elgin Holdings, LLC, a Texas limited liability
company and its successors and assigns.
"Engineering Reports" shall have the meaning assigned such term in Section
2.08.
"Environmental Laws" shall mean any and all Governmental Requirements
pertaining to health, safety or the environment in effect in any and all
jurisdictions, including nations (and states), and international waters, in
which the Borrower or any Subsidiary is conducting or at any time has conducted
business, or where any Property of the Borrower or any Subsidiary is located,
including without limitation, the Oil Pollution Act of 1990, 33 U.S.C.A. ss.
2701 et seq. ("OPA"), as amended, the Clean Air Act, 42 U.S.C.A. ss. 7401 et
seq., as amended, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 {Superfund Amendments and Reauthorization Act of 1986
("▇▇▇▇")}, 42 U.S.C.A. ss. 9601 et seq. ("CERCLA"), as amended, the Coastal Zone
Management Act of 1972, 16 U.S.C.A. ss. 1451 et seq. ("CZMA"), as amended, the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.A. ss.
11001 et seq. ("EPCRTKA"), as amended, the Endangered Species Act of 1973, 16
U.S.C.A. ss. 1531 et seq. ("ESA"), as amended, the Federal Water Pollution
Control Act ("FWPCA"), as amended, the Clean Water Act, 33 U.S.C.A. ss. 1251 et
seq. ("CWA"), as amended, the Low-Level Radioactive Waste Policy Act, 42
U.S.C.A. ss. 2014 et seq. ("LLRWPA"), as amended, the Marine Mammal Protection
Act of 1972, 16 U.S.C.A. ▇▇.▇▇. 1361-62, 1371-89, 1401-07, 1411-18, 1421-21h, et
seq. ("MMPA"), as amended, the Marine Protection, Research, and Sanctuaries Act
of 1972 (Ocean Dumping), 33 U.S.C.A. ss. 1401 et seq. ("MPRSA"), as amended, the
Act to Prevent Pollution from Ships, 33 U.S.C.A. ss. 1901 et seq. ("APPS"), as
amended, the National Environmental Policy Act of 1969, 42 U.S.C.A. ss. 4321 et
seq. ("NEPA"), as amended, the Noise Control Act of 1972, 42 U.S.C.A. ss. 4901
et seq. ("NCA"), as amended, the Nonindigenous Aquatic Nuisance Prevention and
11
Control Act of 1990, 16 U.S.C.A. ss. 4701 et seq. ("NANPCA"), as amended, the
Occupational Safety and Health Act of 1970 ("OSHA"), as amended, the Pollution
Prevention Act of 1990, 42 U.S.C.A. ss. 13101 et seq. ("PPA"), as amended, the
Public Health Service Act ("PHSA") {Safe Drinking Water Act ("SDWA")}, 42
U.S.C.A. ss. 300f et seq., as amended, the Shore Protection Act of 1988, 33
U.S.C.A. ss. 2601 et seq. ("SPA"), as amended, the Soil and Water Resources
Conservation Act of 1977, 16 U.S.C.A. ss. 2001 et seq. ("SWRCA"), as amended,
the Solid Waste Disposal Act ("SWDA") Resource Conservation and Recovery Act of
1976 ("RCRA"), 42 U.S.C.A. ss. 6901 et seq., as amended, the Toxic Substances
Control Act, 15 U.S.C.A. ss. 2601 et seq. ("TSCA"), as amended, the Hazardous
Materials Transportation Act, Pub.L. 93-633, 88 Stat. 2156 ("HMTA"), as amended,
the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss. 136, et
seq. ("FIFRA"), as amended, the United States Public Vessel Medical Waste
Anti-Dumping Act of 1988, 33 U.S.C.A. ss. 2501 et seq. ("USPVMWADA"), as
amended, and any corresponding international, national, state or local laws or
ordinances and regulations, rules, guidelines, or standards promulgated pursuant
to such laws, statutes and regulations, including specifically those relating to
hazardous wastes, hazardous substances, toxic substances, asbestos, lead paint,
lead in water supply, mold and biological hazards, radon or radioactive
materials, insecticide, herbicide, rodenticide, and fungicide, as such laws,
treaties, statutes, regulations, rules, guidelines, and standards are amended
from time to time, and other environmental, health, safety, conservation or
protection laws. The term "oil" shall have the meaning specified in OPA, the
terms "hazardous substance" and "release" (or "threatened release") have the
meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") have the meanings specified in RCRA; provided, however, that (i) in
the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of
any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (ii) to the extent the laws of the state or
jurisdiction in which any Property of the Borrower or any Subsidiary is located
establish a meaning for "oil," "hazardous substance," "release," "solid waste"
or "disposal" which is broader than that specified in either OPA, CERCLA or
RCRA, such broader meaning shall apply. The term "hazardous substance" shall
also include any substance, product, waste, or other material that any person,
their employees and agents, and their equipment and property may come into
contact with or be exposed to, which is or becomes listed, regulated, or
addressed as being polluting, flammable, toxic, corrosive or hazardous,
including toxic or hazardous wastes or substances, carcinogens, pollutants
(including, but not limited to, any solid, liquid, gaseous or thermal irritant
or contaminant), smoke, vapor, soot, fumes or smells, mold, fungus, noises,
vibrations, electromagnetic and ionizing radiation, changes in temperature, any
other sensory phenomena, or other materials of any and all kinds and character,
whether at the Property, from a neighboring site, or along and/or across a route
to or from the Property, which material(s) or substance(s), due to quantity,
concentration, or physical, chemical, or infectious characteristic, may cause or
significantly contribute to an increase in mortality or an increase in serious,
irreversible, or incapacitatingly irreversible illness or pose a substantial
present or potential harm to human health or the environment when improperly
used, treated, stored, transported, disposed of, or otherwise managed, has the
ability to cause injury to biologic tissue, or otherwise has the ability to
cause a health threat or similarly harmful substance under any Environmental
Law, including without limitation: (i) polychlorinated biphenyls; (ii) petroleum
products; (iii) underground storage tanks, whether empty, filled or partially
filled with any substance; (iv) any radioactive materials, urea formaldehyde
foam insulation, radon; and (v) any other chemical, material or substance the
exposure to which is prohibited, limited or regulated by any Governmental
Authority on the basis that such chemical, material or substance is toxic,
hazardous or harmful to human health or the environment. The presence of any one
12
of the following criteria establishes a substance as a hazardous substance: 1)
ignitability (posing fire hazard); 2) corrosivity (ability to corrode standard
containers); 3) reactivity (instability with a tendency to explode or react
violently); or 4) EP toxicity (presence of certain toxic chemicals at levels
greater than specified in RCRA regulations). Said definition of the terms
defined herein also includes all applicable definitions in the regulations of
the U.S. Environmental Protection Agency and those of any state or nation
(including common law, whether state, national, or international) in the
broadest sense, including several hundred processed wastes and chemicals listed
in the US-EPA regulations, or which exhibit the characteristics of toxicity,
corrosivity, ignitability, and/or reactivity, as referred to above. In case of
conflict in any of the Environmental Laws, the most stringent definition shall
apply.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Borrower or any Subsidiary would be deemed
to be a "single employer" within the meaning of Section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of Section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described in Section 4043
of ERISA and the regulations issued thereunder, (ii) the withdrawal of the
Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, (iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv)
the institution of proceedings to terminate a Plan by the PBGC or (v) any other
event or condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Event of Default" shall have the meaning assigned such term in Section
10.01.
"Excepted Liens" shall mean: (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which adequate reserves have been
maintained; (ii) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or incident
to the exploration, development, operation and maintenance of Oil and Gas
Properties or statutory landlord's liens, each of which is in respect of
obligations that have not been outstanding more than ninety (90) days or which
are being contested in good faith by appropriate proceedings and for which
adequate reserves have been maintained in accordance with GAAP; (iv) any Liens
reserved in leases or farmout agreements for rent or royalties and for
compliance with the terms of the farmout agreements or leases in the case of
leasehold estates, to the extent that any such Lien referred to in this clause
does not materially impair the use of the Property covered by such Lien for the
purposes for which such Property is held by the Borrower or any Subsidiary or
materially impair the value of such Property subject thereto; (v) encumbrances
13
(other than to secure the payment of borrowed money or the deferred purchase
price of Property or services), easements, restrictions, servitudes, permits,
conditions, covenants, exceptions or reservations in any rights of way or other
Property of the Borrower or any Subsidiary for the purpose of roads, pipelines,
transmission lines, transportation lines, distribution lines for the removal of
gas, oil, coal or other minerals or timber, and other like purposes, or for the
joint or common use of real estate, rights of way, facilities and equipment, and
defects, irregularities, zoning restrictions and deficiencies in title of any
rights of way or other Property which in the aggregate do not materially impair
the use of such rights of way or other Property for the purposes of which such
rights of way and other Property are held by the Borrower or any Subsidiary or
materially impair the value of such Property subject thereto; (vi) deposits of
cash or securities to secure the performance of bids, trade contracts, leases,
statutory obligations and other obligations of a like nature incurred in the
ordinary course of business; (vii) Liens permitted by the Security Instruments;
(viii) preferential rights to purchase and similar contractual provisions
affecting an Oil and Gas Property; (ix) all lessors' royalties, overriding
royalties, net profits interests, carried interests, production payments,
reversionary interests and other burdens on or deductions from the proceeds of
production with respect to each Oil and Gas Property (in each case) that do not
operate to reduce the net revenue interest for such Oil and Gas Property (if
any) as reflected in any Reserve Report or increase the working interest for
such Oil and Gas Property (if any) as reflected in any Mortgage or Reserve
Report without a corresponding increase in the corresponding net revenue
interest; (x) production sales contracts; division orders; contracts for sale,
purchase, or exchange of oil or gas; operating agreements; area of mutual
interest agreements; and production handling agreements; in each case to the
extent the same: (a) are ordinary and customary to the oil, gas and other
mineral exploration, development, processing or extraction business, (b) do not
otherwise cause any other express representation or warranty of the Borrower in
any of the Loan Documents to be untrue, and (c) do not operate to reduce the net
revenue interest for such Oil and Gas Property (if any) as reflected in any
Reserve Report, or increase the working interest for such Oil and Gas Property
(if any) as reflected in any Reserve Report without a corresponding increase in
the corresponding net revenue interest; (xi) all defects and irregularities
affecting an Oil and Gas Property that do not operate to reduce the net revenue
interest for such Oil and Gas Property (if any) as reflected in any Reserve
Report, or increase the working interest for such Oil and Gas Property (if any)
as reflected in any Reserve Report without a corresponding increase in the
corresponding net revenue interest or otherwise interfere materially with the
operation, value or use of such Oil and Gas Property; and (xii) judgment Liens
arising by operation of law or as the result of the abstracting of a judgment or
similar action under the laws of any jurisdiction and not giving rise to an
Event of Default, in respect of judgments that are not final and non-appealable
judgments so long as any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally terminated
or the period within which such proceedings may be initiated shall not have
expired.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with a member of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if the date for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
14
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Agent on such day on such transactions as determined by the
Agent.
"Final Maturity Date" shall mean the earlier to occur of (i) June 30, 2008,
and (ii) the date that the Notes are prepaid in full pursuant to Section 2.07
and neither the Agent nor any Lender is obligated to make Revolving Credit Loans
or advance other funds to Borrower hereunder, and (iii) termination of this
Agreement.
"Financial Statements" shall mean the financial statement or statements of
the Borrower and its Consolidated Subsidiaries described or referred to in
Section 7.02.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Authority" shall include the country, the state, county, city
and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department, commission, board, bureau
or instrumentality of any of them including monetary authorities which exercises
valid jurisdiction over any such Person or such Person's Property. Unless
otherwise specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable, the
Borrower, its Subsidiaries or any of their Property or the Agent, any Lender or
any Applicable Lending Office, including jurisdiction over the Environmental
Laws.
"Governmental Requirement" shall mean any law, treaty, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization, standard, guideline, or
other directive or requirement, including those found in common law (whether
international, national, state, or local), whether now existing or hereafter in
effect (whether or not having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety, health, and
industrial hygiene standards or controls, and personnel licensing and
certifications, or environmental conditions on, under, above, around, within,
for, or about any Person or such Person's Property, of any Governmental
Authority.
"Guarantor" shall mean, individually and collectively, each and every
Subsidiary of Borrower and all of their Subsidiaries (and so on and so forth)
existing as of the date hereof; and (iii) each and every Subsidiary and all of
their Subsidiaries (and so on and so forth) hereafter created, acquired or
otherwise owned by Borrower, and shall include, without limitation, SETEX Oil
and Gas Company, a Texas corporation; RigWest Well Service, Inc., a Texas
corporation; Southeast Texas Oil & Gas Co., LLC, a Texas limited liability
company; GulfWest Development Company, a Texas corporation; DutchWest Oil
Company, a Texas corporation; GulfWest Oil & Gas Company, a Texas corporation;
LTW Pipeline Co., a Texas corporation; GulfWest Oil & Gas Company (Louisiana)
LLC, a Louisiana limited liability company; GulfWest Texas Company, a Texas
corporation; and S.G.C. Transmission, LLC, a Texas limited liability company.
"Guaranty Agreement" shall mean any agreement executed by any Guarantor in
form and substance satisfactory to the Agent guarantying, unconditionally,
payment of the Obligations, as the same may be amended, modified or supplemented
from time to time.
15
"Hedging Agreements" shall mean any commodity, interest rate or currency
swap, cap, floor, collar, forward agreement or other exchange or protection
agreements or any option with respect to any such transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on any
other Obligations under laws applicable to such Lender which are presently in
effect or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow.
"Hydrocarbon Interests" shall mean all rights, titles, interests and
estates now or hereafter acquired in and to oil and gas leases, oil, gas and
mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee
interests, overriding royalty and royalty interests, net profit interests and
production payment interests, including any reserved or residual interests of
whatever nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined or separated therefrom.
"Inactive Subsidiary" shall mean GulfWest Texas Company, a Texas
corporation, LTW Pipeline Co., a Texas corporation, Southeast Texas Oil & Gas
Co., LLC, a Texas limited liability company, and S.G.C. Transmission, LLC, a
Texas limited liability company, and any other Subsidiary of the Borrower: (i)
that has assets of less than $1,000,000.00; (ii) that no longer actively does
business; and (iii) that has been designated in writing to the Agent by the
Borrower as an Inactive Subsidiary and approved in writing by the Agent as an
Inactive Subsidiary.
"Indemnified Parties" shall have the meaning assigned such term in Section
12.03(a)(ii).
"Indemnity Matters" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands and
causes of action made or threatened against a Person and, in connection
therewith, all losses, liabilities, damages (including, without limitation,
consequential damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or concurrent
negligence of such Person seeking indemnification.
"Initial Funding" shall mean the funding of the initial Loans or issuance
of the initial Letters of Credit upon satisfaction of the conditions set forth
in Sections 6.01 and 6.02.
"Initial Reserve Report" shall mean the report of PGH Engineers, Inc. with
respect to the Oil and Gas Properties of the Borrower as of January 1, 2005, a
copy of which has been delivered to the Agent.
"Interest Coverage Ratio" shall have the meaning ascribed to such term in
Section 9.15.
16
"Interest Period" shall mean, with respect to any LIBOR Loan, the period
commencing on the date such LIBOR Loan is made and ending on the numerically
corresponding day in the first, second, third or sixth calendar month
thereafter, as the Borrower may select as provided in Section 2.02 (or such
longer period as may be requested by the Borrower and agreed to by the Majority
Lenders), except that each Interest Period which commences on the last Business
Day of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may end after the
Final Maturity Date; (ii) no Interest Period for any LIBOR Loan may end after
the due date of any installment, if any, provided for in Section 2.07(b) to the
extent that such LIBOR Loan would need to be prepaid prior to the end of such
Interest Period in order for such installment to be paid when due; (iii) each
Interest Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (iv) no Interest Period shall have a duration of less than
one month and, if the Interest Period for any LIBOR Loans would otherwise be for
a shorter period, such Loans shall not be available hereunder.
"Issuing Bank" shall mean ▇▇▇▇▇ Fargo.
"LC Commitment" at any time shall mean $3,000,000.00.
"LC Exposure" at any time shall mean the difference between (i) the
aggregate face amount of all undrawn and uncancelled Letters of Credit plus the
aggregate of all amounts drawn under all Letters of Credit and not yet
reimbursed, minus (ii) the aggregate amount of all cash securing outstanding
Letters of Credit pursuant to Section 2.10(b).
"Lender Affiliate" means, (a) with respect to any Lender, (i) an Affiliate
of such Lender or (ii) any Person that is engaged in making, purchasing, holding
or otherwise investing in bank loans and similar extensions of credit in the
ordinary course of its business and is administered or managed by a Lender or an
Affiliate of such Lender and (b) with respect to any Lender that is a fund which
invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor.
"Lender Termination Date" shall have the meaning assigned to such term in
Section 5.06(c).
"Letter of Credit Agreements" shall mean the written agreements of the
Borrower or any of its Subsidiaries with the Issuing Bank, as issuing lender for
any Letter of Credit, executed in connection with the issuance by the Issuing
Bank of the Letters of Credit, such agreements to be on the Issuing Bank's
customary form for letters of credit of comparable amount and purpose as from
time to time in effect or as otherwise agreed to by the Borrower and the Issuing
Bank.
"Letters in Lieu" shall mean each and every letter in lieu in form and
substance reasonably satisfactory to Agent executed by the Borrower or any
Subsidiary, as applicable, to each of the purchasers of the Hydrocarbons of the
Borrower or any Subsidiary produced from the Borrower's and any of its
Subsidiaries' Oil and Gas Properties.
17
"Letters of Credit" shall mean the letters of credit issued pursuant to
Section 2.01(b) and all reimbursement obligations pertaining to any such letters
of credit, and "Letter of Credit" shall mean any one of the Letters of Credit
and the reimbursement obligations pertaining thereto.
"Letter of Credit Application" shall mean a letter of credit application,
in form and substance satisfactory to the Issuing Bank, delivered to the Agent
requesting the issuance, reissuance, extension or renewal of any Letter of
Credit and containing the information set forth in Section 2.02.
"LIBOR" shall mean, for each Interest Period for any LIBOR borrowing, the
rate per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%)
equal to the average of the offered quotations appearing on Telerate Page 3750
(or if such Telerate Page shall not be available, any successor or similar
service as may be selected by Agent and Borrower) as of 11:00 a.m., Houston,
Texas time (or, as soon thereafter as practicable) two (2) LIBOR Business Days
prior to the first day of such Interest Period for deposits in Dollars having a
term comparable to such Interest Period and in an amount comparable to the
principal amount of the LIBOR borrowing to which such Interest Period relates.
If none of such Telerate Page 3750 nor any successor or similar service is
available, then "LIBOR" shall mean, with respect to any Interest Period for any
applicable LIBOR borrowing, the rate of interest per annum, rounded upwards, if
necessary, to the nearest 1/16th of 1%, quoted by Agent at or before 11:00 a.m.,
Houston, Texas time (or, as soon thereafter as practicable), two (2) LIBOR
Business Days before the first day of such Interest Period, to be the arithmetic
average of the prevailing rates per annum at the time of determination and in
accordance with the then existing practice in the applicable market, for the
offering to Agent by one or more prime banks selected by Agent in its sole
discretion, in the London interbank market, of deposits in Dollars for delivery
on the first day of such Interest Period and having a maturity equal (or as
nearly equal as may be) to the length of such Interest Period and in an amount
equal (or as nearly equal as may be) to the LIBOR borrowing to which such
Interest Period relates. Each determination by Agent of LIBOR shall be
conclusive and binding, absent manifest error, and may be computed using any
reasonable averaging and attribution method.
"LIBOR Loans" shall mean Loans the interest rates on which are determined
on the basis of rates referred to in the definition of "LIBOR Rate".
"LIBOR Rate" shall mean, with respect to any LIBOR Loan, a rate per annum
(rounded upwards, if necessary, to the nearest 1/16 of 1%) determined by the
Agent to be equal to the quotient of (i) LIBOR for such Loan for the Interest
Period for such Loan divided by (ii) 1 minus the Reserve Requirement for such
Loan for such Interest Period.
"Lien" shall mean any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to (i)
the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes or (ii) production payments and the like payable
out of Oil and Gas Properties. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
18
Property. For the purposes of this Agreement, the Borrower or any Subsidiary
shall be deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement, or leases under a financing lease or
other arrangement pursuant to which title to the Property has been retained by
or vested in some other Person in a transaction intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes, all Letters of
Credit, all Letter of Credit Agreements, all Letter of Credit Applications, and
the Security Instruments.
"Loans" shall mean the loans as provided for by Section 2.01.
"Lockbox "shall mean the lockbox, if any, established pursuant to the Cash
Collateral Account Agreement and subject to the Lockbox Agreement.
"Lockbox Agreement" shall mean that certain Lockbox Agreement, if any,
between the Borrower, its Subsidiaries, and the Agent in form and substance
satisfactory to Agent which shall grant a security interest in the contents
therein and shall include a financing statement in form and substance
satisfactory to Agent covering the contents therein.
"Madisonville "shall mean The Madisonville Project, Ltd., a Texas limited
partnership and its successors and assigns.
"Majority Lenders" shall mean, at any time while no Loans are outstanding,
Lenders having at least sixty-six and two-thirds percent (66-2/3%) of the
Aggregate Revolving Credit Commitments and, at any time while Loans are
outstanding, Lenders holding at least sixty-six and two-thirds percent (66-2/3%)
of the outstanding aggregate principal amount of the Loans (without regard to
any sale by a Lender of a participation in any Loan under Section 12.06(c));
provided, however, Agent alone, shall constitute the Majority Lenders at any
time that Agent is the sole Lender hereunder and if there are two or more
Lenders, it shall take at least two Lenders including the Agent to constitute
the "Majority Lenders."
"Material Adverse Effect" shall mean any set of circumstances or events
that (i) has or could reasonably be expected to have any material and adverse
effect whatsoever upon, or result in or reasonably be expected to result in a
material adverse change in, (a) the assets, liabilities, financial condition,
business, operations or affairs of the Borrower and its Subsidiaries taken as a
whole different from those reflected in the Financial Statements or from the
facts represented or warranted in any Loan Document, or (b) the ability of the
Borrower and its Subsidiaries taken as a whole to carry out their business as at
the Closing Date or as proposed as of the Closing Date to be conducted or meet
their obligations under the Loan Documents on a timely basis, (ii) impairs
materially or could be reasonably expected to impair materially the ability of
the Borrower and its Subsidiaries to duly and punctually pay and perform their
obligations under the Loan Documents or (iii) impairs materially or could
reasonably be expected to impair materially the ability of the Agent or any of
the Lenders, to the extent permitted, to enforce its legal remedies pursuant to
the Loan Documents.
"Material Agreements" shall mean all agreements listed on Schedule 7.22.
"Maximum Revolving Credit Amount" shall mean, as to each Lender, the amount
set forth opposite such Lender's name on Annex I under the caption "Maximum
19
Revolving Credit Amounts" (as the same may be reduced pursuant to Section
2.03(b) pro rata to each Lender based on its Percentage Share), as modified from
time to time to reflect any assignments permitted by Section 12.06(b).
"Mortgage" shall mean, whether one or more, each Mortgage, Deed of Trust,
Assignment of Production, Security Agreement, Fixture Filing and Financing
Statement executed by the Borrower and each Guarantor, dated effective as of the
date of this Agreement, and granting a Lien in favor of the Agent to secure the
Obligations in the Oil and Gas Properties, now owned or hereafter existing, of
the Borrower and the Guarantors, as from time to time may be amended,
supplemented, restated or otherwise modified.
"Mortgaged Property" shall mean the Property owned by the Borrower and/or
the Guarantors and which is subject to the Liens existing and to exist under the
terms of the Security Instruments and/or Mortgages.
"Multiemployer Plan" shall mean a Plan defined as such in Section 3(37) or
4001(a)(3) of ERISA.
"Notes" shall mean the Notes provided for by Section 2.06, together with
any and all renewals, extensions for any period, increases, rearrangements,
modifications, consolidations, substitutions, amendments, and/or modifications
thereof.
"Notice of Termination" shall have the meaning assigned such term in
Section 5.06(a).
"Obligations" shall mean all indebtedness, obligations and liabilities of
the Borrower or any Subsidiary to any of the Lenders, any of the Lenders'
Affiliates, the Agent, or the Issuing Bank, individually or collectively,
existing on the date of this Agreement or arising thereafter, direct or
indirect, joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising or incurred under any
Hedging Agreement, under this Agreement or any of the other Loan Documents or in
respect of any of the Loans made or reimbursement obligations incurred or any of
the Notes, Letters of Credit or other instruments at any time evidencing any
thereof, including interest accruing subsequent to the filing of a petition or
other action concerning bankruptcy or other similar proceedings, overdrafts to
the Agent or ACH obligations to the Agent, or any other obligations incurred
under this Agreement or any of the Security Instruments and all renewals,
extensions, refinancings and replacements for the foregoing.
"Oil and Gas Properties" shall mean 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) which
may affect all or any portion of the Hydrocarbon Interests; all operating
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, including all oil in tanks, the lands covered thereby
and all rents, issues, profits, proceeds, products, revenues and other incomes
from or attributable to the Hydrocarbon Interests; all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
20
incidental to the Hydrocarbon Interests; and all 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 ▇▇▇▇▇, injection ▇▇▇▇▇ or other ▇▇▇▇▇
(including those used for either environmental sampling or remedial purposes),
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.
"OPA" shall mean the Oil Pollution Act which can be found at 33 U.S.C. ss.
27.01 et seq.
"Other Taxes" shall have the meaning assigned such term in Section 4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions.
"Percentage Share" shall mean (with respect to any Lender) the percentage
of the Aggregate Revolving Credit Commitments to be provided by such Lender
under this Agreement as indicated on Annex I hereto, as modified from time to
time to reflect any assignments permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government or any agency, instrumentality or political subdivision thereof, or
any other form of entity.
"Plan" shall mean any employee pension benefit plan, as defined in Section
3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or
contributed to by the Borrower, any Subsidiary or an ERISA Affiliate or (ii) was
at any time during the preceding six calendar years sponsored, maintained or
contributed to, by the Borrower, any Subsidiary or an ERISA Affiliate.
"Post-Default Rate" shall mean, in respect of any principal of any Loan or
any other amount payable by the Borrower under this Agreement or any other Loan
Document, a rate per annum during the period commencing on the date of
occurrence of an Event of Default until such amount is paid in full or all
Events of Default are cured or waived equal to two percent (2%) per annum above
the Base Rate as in effect from time to time plus the Applicable Margin (if
any), but in no event to exceed the Highest Lawful Rate; provided, however, for
a LIBOR Loan, the "Post-Default Rate" for such principal shall be, for the
period commencing on the date of occurrence of an Event of Default and ending on
the earlier to occur of the last day of the Interest Period therefor or the date
all Events of Default are cured or waived, two percent (2%) per annum above the
interest rate for such Loan as provided in Section 3.02(a)(ii), but in no event
to exceed the Highest Lawful Rate.
21
"Prime Rate" shall mean the variable per annum rate of interest then most
recently announced within ▇▇▇▇▇ Fargo at its principal office in San Francisco,
California, as its "prime rate", with the understanding that ▇▇▇▇▇ Fargo's
"prime rate" is one of its base 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. Each
change in any interest rate provided for herein based upon the Prime Rate
resulting from a change in the Prime Rate shall take effect on the day the
change is announced within ▇▇▇▇▇ Fargo for all Prime Rate-based loans without
notice to the Borrower at the time of such change in the Prime Rate.
"Principal Office" shall mean the principal office of the Agent, presently
located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇.
"Property" or "Properties" shall mean any interest in any kind of property
or asset, whether real, personal or mixed, or tangible or intangible.
"Quarterly Dates" shall mean the last day of each June, September,
December, and March, in each year, the first of which shall be September 30,
2005; provided, however, that if any such day is not a Business Day, such
Quarterly Date shall be the next succeeding Business Day.
"Redetermination Date" shall mean the date that the redetermined Borrowing
Base becomes effective subject to the notice requirements specified in Section
2.08(e) both for scheduled redeterminations and unscheduled redeterminations.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
after the Closing Date in any Governmental Requirement (including Regulation D)
or the adoption or making after such date of any interpretations, directives or
requests applying to a class of lenders (including such Lender or its Applicable
Lending Office) of or under any Governmental Requirement (whether or not having
the force of law) by any Governmental Authority charged with the interpretation
or administration thereof.
"Reliance Letters" shall mean letters satisfactory to the Agent and
addressed to the Agent from the title attorneys who are not providing
supplemental title opinions which allow the Agent to rely on their prior
opinions in extending credit to the Borrower and/or its Subsidiaries.
"Replacement Lenders" shall have the meaning assigned to such term in
Section 5.06(b).
"Required Payment" shall have the meaning assigned such term in Section
4.04.
"Reserve Report" shall mean a report, in form and substance satisfactory to
the Agent, setting forth, as of each January 1 and September 1 (or such other
date in the event of an unscheduled redetermination); (i) the oil and gas
reserves attributable to the Borrower's and its Active Subsidiaries' Oil and Gas
Properties together with a projection of the rate of production and future net
income, taxes, operating expenses and capital expenditures with respect thereto
22
as of such date, based upon the pricing assumptions determined by Agent at the
time and (ii) such other information as the Agent may reasonably request. The
term "Reserve Report" shall also include the information to be provided by the
Borrower pursuant to Section 8.07(a).
"Reserve Requirement" shall mean, for any Interest Period for any LIBOR
Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
in New York City with deposits exceeding one billion Dollars against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which includes
deposits by reference to which LIBOR is to be determined as provided in the
definition of "LIBOR" or (ii) any category of extensions of credit or other
assets which include a LIBOR Loan.
"Responsible Officer" shall mean, as to any Person, the Chief Executive
Officer, the President or any Vice President of such Person and, with respect to
financial matters, the term "Responsible Officer" shall include the Chief
Financial Officer of such Person. Unless otherwise specified, all references to
a Responsible Officer herein shall mean a Responsible Officer of the Borrower.
"Revolving Credit Commitment" shall mean, for any Lender, its obligation to
make Loans and participate in the issuance of Letters of Credit as provided in
Section 2.01 up to the lesser of (i) such Lender's Maximum Revolving Credit
Amount and (ii) such Lender's Percentage Share of the then effective Borrowing
Base.
"Revolving Credit Loans" shall mean Loans made pursuant to Section 2.01(a).
"Revolving Credit Notes" shall mean the promissory note or notes (whether
one or more) of the Borrower described in Section 2.06 and being in the form of
Exhibit A.
"Revolving Credit Period" shall mean the period from the Closing Date to
and ending on the Revolving Credit Termination Date.
"Revolving Credit Termination Date" shall mean the earlier to occur of (i)
June 30, 2008 or (ii) the date that the Commitments are sooner terminated
pursuant to Sections 2.03(b) or 10.02.
"Scheduled Redetermination Date" shall have the meaning assigned such term
in Section 2.08(d).
"SEC" shall mean the Securities and Exchange Commission or any successor
Governmental Authority.
"Security Instruments" shall mean the Letters of Credit, the Letter of
Credit Agreements, the agreements or instruments described or referred to in
Exhibit D, and any and all other agreements or instruments now or hereafter
executed and delivered by the Borrower or any other Person (other than
participation or similar agreements between any Lender and any other lender or
creditor with respect to any Obligations pursuant to this Agreement) in
23
connection with, or as security for the payment or performance of, the Notes, or
this Agreement, or reimbursement obligations under the Letters of Credit, as
such agreements may be amended, supplemented or restated from time to time.
"Special Entity" shall mean any joint venture, limited liability company or
partnership, general or limited partnership or any other type of partnership or
company other than a corporation in which a Person or one or more of its other
Subsidiaries is a member, owner, partner or joint venturer and owns, directly or
indirectly, at least a majority of the equity of such entity or controls such
entity, but excluding any tax partnerships that are not classified as
partnerships under state law. For purposes of this definition, any Person which
owns directly or indirectly an equity investment in another Person which allows
the first Person to manage or elect managers who manage the normal activities of
such second Person will be deemed to "control" such second Person (e.g., a sole
general partner controls a limited partnership).
"Subsidiary" shall mean (i) any corporation or other legally formed entity
of which at least a majority of the outstanding shares of stock or other
ownership interest having by the terms thereof ordinary voting power to elect a
majority of the board of directors or other governing body of such entity
(irrespective of whether or not at the time stock or any other ownership
interest of any other class or classes of such entity shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by another Person or one or more of
such Person's Subsidiaries or by such Person and one or more of its Subsidiaries
and (ii) any Special Entity. Unless otherwise indicated herein, each reference
to the term "Subsidiary" shall mean a Subsidiary of the Borrower.
"Tangible Net Worth" shall mean, as at any date, the sum of the following
for the Borrower and its Consolidated Subsidiaries determined (without
duplication) in accordance with GAAP:
(i) the amount of preferred stock and common stock at par plus the amount
of additional paid in capital of the Borrower, plus
(ii) the retained earnings (or, in the case of retained earnings deficit,
minus the amount of such deficit), minus
(iii) the sum of the following: cost of treasury shares and the book value
of all assets of the Borrower and its Consolidated Subsidiaries which should be
classified as intangibles (without duplication of deductions in respect of items
already deducted in arriving at additional paid in capital and retained
earnings) but in any event including as such intangibles the following:
goodwill, research and development costs, trademarks, trade names, copyrights,
patents and franchises, unamortized debt discount and expense, all reserves and
any writeup in the book value of assets resulting from a revaluation thereof or
resulting from any changes in GAAP subsequent to December 31, 2004, minus
(iv) any obligations due from owners, employees, and/or Affiliates of
Borrower, any Subsidiary, or any Guarantor.
"Taxes" shall have the meaning assigned such term in Section 4.06(a).
"Terminated Lender" shall have the meaning assigned such term in Section
5.06(a).
24
"Type" shall mean, with respect to any Loan, a Base Rate Loan or a LIBOR
Loan.
"▇▇▇▇▇ Fargo" shall mean ▇▇▇▇▇ Fargo Bank, National Association, a national
banking association.
Section 1.03 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Agent or the Lenders hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent with the
audited financial statements of the Borrower referred to in Section 7.02 (except
for changes concurred with by the Borrower's independent public accountants).
ARTICLE II
COMMITMENTS
Section 2.01 Loans and Letters of Credit.
----------------------------
(a) Revolving Credit Loans. Each Lender severally agrees, on the
terms and conditions of this Agreement, to make loans to the Borrower
during the period from and including (i) the Closing Date or (ii) such
later date that such Lender becomes a party to this Agreement as provided
in Section 12.06(b), to and up to, but excluding, the Revolving Credit
Termination Date in an aggregate principal amount at any one time
outstanding up to, but not exceeding, the amount of such Lender's Revolving
Credit Commitment as then in effect; provided, however, that the aggregate
principal amount of all such Loans by all Lenders hereunder at any one time
outstanding together with the LC Exposure shall not exceed the Aggregate
Revolving Credit Commitments. Subject to the terms of this Agreement,
during the period from the Closing Date to and up to, but excluding, the
Revolving Credit Termination Date, the Borrower may borrow, repay and
reborrow the amount described in this Section 2.01(a).
(b) Letters of Credit. During the period from and including the
Closing Date to, but excluding, the Final Maturity Date, the Issuing Bank,
as issuing bank for the Lenders, agrees to extend credit for the account of
the Borrower or any Active Subsidiary at any time and from time to time by
issuing, renewing, extending or reissuing Letters of Credit; provided,
however, the LC Exposure at any one time outstanding shall not exceed the
lesser of (i) the LC Commitment or (ii) the Aggregate Revolving Credit
Commitments, as then in effect, minus the aggregate principal amount of all
Loans then outstanding. The Lenders shall participate in such Letters of
Credit according to their respective Percentage Shares. Each of the Letters
of Credit shall (i) be issued by the Issuing Bank, (ii) contain such terms
and provisions as are reasonably required by the Issuing Bank, (iii) be for
the account of the Borrower or an Active Subsidiary and (iv) expire not
later than ten (10) days before the Revolving Credit Termination Date.
(c) Limitation on Types of Loans. Subject to the other terms and
provisions of this Agreement, at the option of the Borrower, the Loans may
be Base Rate Loans or LIBOR Loans; provided that, without the prior written
consent of the Majority Lenders, no more than six (6) LIBOR Loans may be
outstanding at any time.
25
Section 2.02 Borrowings, Continuations and Conversions, Letters of Credit.
-------------------------------------------------------------
(a) Borrowings. The Borrower shall give the Agent (which shall
promptly notify the Lenders) advance notice as hereinafter provided of each
borrowing hereunder, which shall specify (i) the aggregate amount of such
borrowing, (ii) the Type and (iii) the date (which shall be a Business Day)
of the Loans to be borrowed, and (iv) (in the case of LIBOR Loans) the
duration of the Interest Period therefor.
(b) Minimum Amounts. All Base Rate Loan borrowings shall be in
amounts of at least $200,000.00 or the remaining balance of the Aggregate
Revolving Credit Commitments, if less, or any whole multiple of $100,000.00
in excess thereof, and all LIBOR Loans shall be in amounts of at least
$2,000,000.00 or any whole multiple of $1,000,000.00 in excess thereof.
(c) Notices. All borrowings, continuations and conversions shall
require advance written notice to the Agent (which shall promptly notify
the Lenders) in the form of Exhibit B (or telephonic notice promptly
confirmed by such a written notice), which in each case shall be
irrevocable, from the Borrower to be received by the Agent not later than
11:00 a.m., Houston, Texas time at least one Business Day prior to the date
of each Base Rate Loan borrowing and three Business Days prior to the date
of each LIBOR Loan borrowing, continuation or conversion. Without in any
way limiting the Borrower's obligation to confirm in writing any telephonic
notice, the Agent may act without liability upon the basis of telephonic
notice believed by the Agent in good faith to be from the Borrower prior to
receipt of written confirmation. In each such case, the Borrower hereby
waives the right to dispute the Agent's record of the terms of such
telephonic notice except in the case of gross negligence or willful
misconduct by the Agent.
(d) Continuation Options. Subject to the provisions made in this
Section 2.02(d), the Borrower may elect to continue all or any part of any
LIBOR Loan beyond the expiration of the then current Interest Period
relating thereto by giving advance notice as provided in Section 2.02(c) to
the Agent (which shall promptly notify the Lenders) of such election,
specifying the amount of such Loan to be continued and the Interest Period
therefor. In the absence of such a timely and proper election, the Borrower
shall be deemed to have elected to convert such LIBOR Loan to a Base Rate
Loan pursuant to Section 2.02(e). All or any part of any LIBOR Loan may be
continued as provided herein, provided that (i) any continuation of any
such Loan shall be (as to each Loan as continued for an applicable Interest
Period) in amounts of at least $2,000,000.00 or any whole multiple of
$1,000,000.00 in excess thereof and (ii) no Default shall have occurred and
be continuing. If a Default shall have occurred and be continuing, each
LIBOR Loan shall be converted to a Base Rate Loan on the last day of the
Interest Period applicable thereto.
(e) Conversion Options. The Borrower may elect to convert all or any
part of any LIBOR Loan on the last day of the then current Interest Period
relating thereto to a Base Rate Loan by giving advance notice to the Agent
26
(which shall promptly notify the Lenders) of such election. Subject to the
provisions made in this Section 2.02(e), the Borrower may elect to convert
all or any part of any Base Rate Loan at any time and from time to time to
a LIBOR Loan by giving advance notice as provided in Section 2.02(c) to the
Agent (which shall promptly notify the Lenders) of such election. All or
any part of any outstanding Loan may be converted as provided herein,
provided that (i) any conversion of any Base Rate Loan into a LIBOR Loan
shall be (as to each such Loan into which there is a conversion for an
applicable Interest Period) in amounts of at least $2,000,000.00 or any
whole multiple of $1,000,000.00 in excess thereof and (ii) no Default shall
have occurred and be continuing. If a Default shall have occurred and be
continuing, no Base Rate Loan may be converted into a LIBOR Loan.
(f) Advances. Not later than 11:00 a.m., Houston, Texas time on the
date specified for each borrowing hereunder, each Lender shall make
available the amount of the Loan to be made by it on such date to the
Agent, to an account which the Agent shall specify, in immediately
available funds, for the account of the Borrower. The amounts so received
by the Agent shall, subject to the terms and conditions of this Agreement,
be made available to the Borrower by depositing the same, in immediately
available funds, in an account of the Borrower, designated by the Borrower
and maintained at the Principal Office.
(g) Letters of Credit. The Borrower shall give the Issuing Bank
(which shall promptly notify the Lenders of such request and their
Percentage Share of such Letter of Credit), a Letter of Credit Application
to be received by the Issuing Bank not later than 11:00 a.m., Houston,
Texas time not less than three (3) Business Days prior thereto of each
request for the issuance, and at least thirty (30) Business Days prior to
the date of the renewal or extension, of a Letter of Credit hereunder which
request shall specify (i) the amount of such Letter of Credit, (ii) the
date (which shall be a Business Day) such Letter of Credit is to be issued,
renewed or extended, (iii) the duration thereof, (iv) the name and address
of the beneficiary thereof, (v) the form and type of the Letter of Credit
and (vi) such other information as the Issuing Bank may reasonably request,
all of which shall be reasonably satisfactory to the Issuing Bank. Subject
to the terms and conditions of this Agreement, on the date specified for
the issuance, renewal or extension of a Letter of Credit, the Issuing Bank
shall issue, renew or extend such Letter of Credit to the beneficiary
thereof.
In conjunction with the issuance of each Letter of Credit, the
Borrower and the Active Subsidiary, if the account party, shall execute a
Letter of Credit Agreement. In the event of any conflict between any
provision of a Letter of Credit Agreement and this Agreement, the Borrower,
the Issuing Bank, the Agent and the Lenders hereby agree that the
provisions of this Agreement shall govern.
The Issuing Bank will send to the Borrower and each Lender,
immediately upon issuance of any Letter of Credit, or an amendment thereto,
a true and complete copy of such Letter of Credit, or such amendment
thereto.
Section 2.03 Changes of Commitments.
-----------------------
(a) The Aggregate Revolving Credit Commitments shall at all times be
equal to the lesser of (i) the Aggregate Maximum Revolving Credit Amounts
after adjustments resulting from reductions pursuant to Section 2.03(b) or
(ii) the Borrowing Base as determined from time to time.
27
(b) The Borrower shall have the right to terminate or to reduce the
amount of the Aggregate Maximum Revolving Credit Amounts at any time, or
from time to time, upon not less than three (3) Business Days' prior notice
to the Agent (which shall promptly notify the Lenders) of each such
termination or reduction, which notice shall specify the effective date
thereof and the amount of any such reduction (which shall not be less than
$5,000,000.00 or any whole multiple of $1,000,000.00 in excess thereof) and
shall be irrevocable and effective only upon receipt by the Agent.
(c) The Aggregate Maximum Revolving Credit Amounts once terminated or
reduced may not be reinstated.
Section 2.04 Fees.
----
(a) Revolving Credit Commitment Fee. The Borrower shall pay to the
Agent for the account of each Lender a Revolving Credit Commitment fee on
the daily average unused amount of the Borrowing Base for the period from
and including the Closing Date up to, but excluding, the earlier of the
date the Aggregate Revolving Credit Commitments are terminated or the Final
Maturity Date at a rate per annum equal to the amount reflected on the
appropriate intersection in the table set forth in the definition of
"Applicable Margin." Accrued Revolving Credit Commitment fees shall be
payable quarterly in arrears on each Quarterly Date and on the earlier of
the date the Aggregate Revolving Credit Commitments are terminated or the
Final Maturity Date.
(b) Intentionally Deleted.
----------------------
(c) Letter of Credit Fees.
----------------------
(i) The Borrower agrees to pay the Agent, for the account of each
Lender, commissions for issuing the Letters of Credit on the daily average
outstanding of the maximum liability of the Issuing Bank existing from time
to time under such Letter of Credit (calculated separately for each Letter
of Credit) at the Applicable Margin for LIBOR Loans determined on the date
of issuance of the applicable Letter of Credit. Each Letter of Credit shall
be deemed to be outstanding up to the full face amount of the Letter of
Credit until the Issuing Bank has received the canceled Letter of Credit or
a written cancellation of the Letter of Credit from the beneficiary of such
Letter of Credit in form and substance acceptable to the Issuing Bank, or
for any reductions in the amount of the Letter of Credit (other than from a
drawing), written notification from the beneficiary of such Letter of
Credit. Such commissions are payable in advance at issuance of the Letter
of Credit for the first year thereof and thereafter, quarterly in arrears
on each Quarterly Date and upon cancellation or expiration of each such
Letter of Credit.
(ii) The Borrower shall pay to the Issuing Bank, for its own
account, a fronting fee equal to the greater of: (x) .125% of the Letter of
Credit, and (y) $500.00.
(iii) Upon each amendment, transfer, or negotiation of any Letter
of Credit, the Borrower shall pay the Issuing Bank, for its own account,
such fees that are in accordance with such Issuing Bank's then-current fee
policy.
28
(d) Other Fees. The Borrower shall pay to the Agent for its account
such other fees as are set forth in the fee letter from the Lender to the
Borrower on the dates specified therein to the extent not paid prior to the
Closing Date.
Section 2.05 Several Obligations. The failure of any Lender to make any
Loan to be made by it or to provide funds for disbursements or reimbursements
under Letters of Credit on the date specified therefor shall not relieve any
other Lender of its obligation to make its Loan or provide funds on such date,
but no Lender shall be responsible for the failure of any other Lender to make a
Loan to be made by such other Lender or to provide funds to be provided by such
other Lender.
Section 2.06 Notes. The Revolving Credit Loans made by each Lender shall
be evidenced by a single promissory note of the Borrower in substantially the
form of Exhibit A, dated (i) the Closing Date or (ii) the effective date of an
Assignment pursuant to Section 12.06(b), payable to the order of such Lender in
a principal amount equal to its Maximum Revolving Credit Amount as originally in
effect and otherwise duly completed and such substitute Notes as required by
Section 12.06(b). The date, amount, Type, interest rate and Interest Period of
each Loan made by each Lender, and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its Note, and, prior
to any transfer may be endorsed by such Lender on the schedule attached to such
Note or any continuation thereof or on any separate record maintained by such
Lender. Failure to make any such notation or to attach a schedule shall not
affect any Lender's or the Borrower's rights or obligations in respect of such
Loans or affect the validity of such transfer by any Lender of its Note.
Section 2.07 Prepayments.
------------
(a) Voluntary Prepayments. The Borrower may prepay the Base Rate
Loans upon not less than one (1) Business Day's prior notice to the Agent
(which shall promptly notify the Lenders), which notice shall specify the
prepayment date (which shall be a Business Day) and the amount of the
prepayment (which shall be at least $500,000.00 and a multiple of
$100,000.00 or the remaining aggregate principal balance outstanding on the
Notes) and shall be irrevocable and effective only upon receipt by the
Agent, provided that interest on the principal prepaid, accrued to the
prepayment date, shall be paid on the prepayment date. The Borrower may
prepay LIBOR Loans on the same conditions as for Base Rate Loans (except
that prior notice to the Agent shall be not less than three (3) Business
Days for LIBOR Loans) and in addition such prepayments of LIBOR Loans shall
be subject to the terms of Section 5.05 and shall be in an amount equal to
all of the LIBOR Loans for the Interest Period prepaid.
(b) Mandatory Prepayments.
----------------------
(i) If, after giving effect to any termination or reduction of
the Aggregate Maximum Revolving Credit Amounts pursuant to Section 2.03(b),
the outstanding aggregate principal amount of the Revolving Credit Loans
plus the LC Exposure exceeds the Aggregate Maximum Revolving Credit
Amounts, the Borrower shall (i) prepay the Revolving Credit Loans on the
date of such termination or reduction in an aggregate principal amount
equal to the excess, together with interest on the principal amount paid
29
accrued to the date of such prepayment and (ii) if any excess remains after
prepaying all of the Revolving Credit Loans because of LC Exposure, pay to
the Agent on behalf of the Lenders an amount equal to the excess to be held
as cash collateral as provided in Section 2.10(b) hereof.
(ii) Upon any redetermination of the amount of the Borrowing Base
in accordance with Section 2.08, if the redetermined Borrowing Base is less
than the aggregate outstanding principal amount of the Revolving Credit
Loans plus the LC Exposure, then the Borrower shall within thirty (30) days
of such Borrowing Base redetermination do one or any combination of the
following: (i) prepay the Loans in an aggregate principal amount equal to
such excess, together with interest on the principal amount paid accrued to
the date of such prepayment, (ii) notify the Agent that Borrower will
prepay, in five (5) equal monthly installments commencing thirty (30) days
after such Borrowing Base redetermination and continuing on the same day
the next four months (unless there is no corresponding day, in which event,
it will be paid on the last day of such month), the Loans in an aggregate
principal amount equal to such excess, together with interest on the
principal amount paid accrued to the date of such prepayment; or (iii)
provide additional collateral acceptable to the Agent to increase the
Borrowing Base to an amount at least equal to the aggregate outstanding
principal amounts of the Loans, and if a Borrowing Base deficiency remains
after prepaying all of the Revolving Credit Loans because of LC Exposure,
the Borrower shall pay to the Agent on behalf of the Lenders an amount
equal to such Borrowing Base deficiency to be held as cash collateral as
provided in Section 2.10(b).
(c) Generally. Prepayments permitted or required under this Section
2.07 shall be without premium or penalty, except as required under Section
5.05 for prepayment of LIBOR Loans. Any prepayments on the Revolving Credit
Loans may be reborrowed subject to the then effective Aggregate Revolving
Credit Commitments.
Section 2.08 Borrowing Base.
---------------
(a) The Borrowing Base shall be determined in accordance with Section
2.08(b) by the Agent with the concurrence of the Majority Lenders and is
subject to redetermination in accordance with Section 2.08(d). Upon any
redetermination of the Borrowing Base, such redetermination shall remain in
effect until the next successive Redetermination Date. So long as any of
the Commitments are in effect or any LC Exposure or Loans are outstanding
hereunder, this facility shall be governed by the then effective Borrowing
Base. During the period from and after the Closing Date until the first
redetermination pursuant to Section 2.08(d) or adjusted pursuant to Section
8.08(c), the amount of the Borrowing Base shall be $20,000,000.00.
(b) Upon receipt of the reports required by Section 8.07 and such
other reports, data and supplemental information as may from time to time
be reasonably requested by the Agent (the "Engineering Reports"), the Agent
will redetermine the Borrowing Base. Such redetermination will be made by
the Agent and the applicable number of required Lenders, as provided below,
in accordance with their normal and customary procedures for evaluating oil
and gas reserves and other related assets as such exist at that particular
time. The Agent, in its sole discretion, may make adjustments to the rates,
volumes and prices and other assumptions set forth therein in accordance
30
with its normal and customary procedures for evaluating oil and gas
reserves and other related assets as such exist at that particular time.
The Agent shall propose to the Lenders a new Borrowing Base within twenty
(20) days following receipt by the Agent and the Lenders of the Engineering
Reports. Lenders holding 100% of the Aggregate Revolving Credit Commitments
must approve increases to the Borrowing Base, while the approval of the
Majority Lenders (which must include the Agent) is required to approve a
decrease in, or maintain, the Borrowing Base. After having received notice
of such proposal by the Agent, all of the Lenders shall have ten (10) days
to agree or disagree with such proposal. If at the end of the ten (10)
days, any Lender shall have not communicated its approval or disapproval,
such silence shall be deemed to be an approval of the Agent's proposal, and
the Agent's proposal shall be the new Borrowing Base. If however, within
the time prescribed by the preceding sentence, (i) all the Lenders have not
approved (or have not been deemed to have approved) the Agent's proposal
with respect to an increase in the Borrowing Base, or (ii) the Majority
Lenders (which must include the Agent) have not approved (or have not been
deemed to have approved) the Agent's proposal with respect to a decrease
in, or maintenance of, the Borrowing Base, the Agent and, as applicable,
either all the Lenders (with respect to an increase in the Borrowing Base)
or the Majority Lenders (which must include the Agent) (with respect to a
decrease in, or maintenance of, the Borrowing Base) shall, within an
additional ten (10) days, agree upon a new Borrowing Base.
If the Agent and, as applicable, either all the Lenders or the
Majority Lenders (which must include the Agent) cannot otherwise agree on a
redetermination of the Borrowing Base within such additional ten (10) day
period then no later than five days after the end of such ten (10) day
period, the Lenders shall submit to the Agent in writing, and/or the Agent
shall poll the Lenders, for their individual recommendations for such
redetermined Borrowing Base in accordance with their respective customary
practices and standards for oil and gas loans, whereupon the Agent shall
designate the Borrowing Base at the largest amount approved by all of the
Lenders (for any increase) or by the Majority Lenders (for maintenance of
the Borrowing Base at its current level or for any decrease). However, the
amount of the Borrowing Base shall never be increased at any time without
the unanimous consent of the Lenders, notwithstanding anything else herein
to the contrary.
(c) The Agent may exclude any Oil and Gas Property or portion of
production therefrom or any income from any other Property from the
Borrowing Base, at any time, because title information is not satisfactory
to the Lender in its sole discretion exercised in good faith.
(d) So long as any of the Commitments are in effect and until payment
in full of all Loans hereunder, on or around the first Business Day of each
December and June, commencing December 1, 2005 (each being a "Scheduled
Redetermination Date"), the Lenders shall redetermine the amount of the
Borrowing Base in accordance with Section 2.08(b). In addition, (i) the
Borrower may initiate a redetermination of the Borrowing Base at any other
time as it so elects by specifying in writing to the Agent (who will
promptly notify the Lenders) the date by which the Borrower will furnish to
the Agent and the Lenders a Reserve Report in accordance with Section
8.07(b) and the date by which such redetermination is requested to occur;
31
provided, however, that the Borrower may initiate only one such unscheduled
redetermination between Scheduled Redetermination Dates and (ii) the Agent
may initiate a redetermination of the Borrowing Base at any other time as
it so elects by specifying in writing to the Borrower the date by which the
Borrower is to furnish a Reserve Report in accordance with Section 8.07(b)
and the date on which such redetermination is to occur; provided, however,
that the Agent may initiate only one such unscheduled redetermination
between Scheduled Redetermination Dates.
(e) The Agent shall promptly notify in writing the Borrower and the
Lenders of the new Borrowing Base. Any redetermination of the Borrowing
Base shall not be in effect until written notice is received by the
Borrower.
Section 2.09 Assumption of Risks. The Borrower assumes all risks of
the acts or omissions of any beneficiary of any Letter of Credit or any
transferee thereof with respect to its use of such Letter of Credit. Neither the
Issuing Bank (except in the case of gross negligence or willful misconduct on
the part of the Issuing Bank or any of its employees), its correspondents nor
any Lender shall be responsible for the validity, sufficiency or genuineness of
certificates or other documents or any endorsements thereon, even if such
certificates or other documents should in fact prove to be invalid,
insufficient, fraudulent or forged; for errors, omissions, interruptions or
delays in transmissions or delivery of any messages by mail, telex, or
otherwise, whether or not they be in code; for errors in translation or for
errors in interpretation of technical terms; the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
the failure of any beneficiary or any transferee of any Letter of Credit to
comply fully with conditions required in order to draw upon any Letter of
Credit; or for any other consequences arising from causes beyond the Issuing
Bank's control or the control of the Issuing Bank's correspondents. In addition,
neither the Issuing Bank, the Agent nor any Lender shall be responsible for any
error, neglect, or default of any of the Issuing Bank's correspondents; and none
of the above shall affect, impair or prevent the vesting of any of the Issuing
Bank's, the Agent's or any Lender's rights or powers hereunder or under the
Letter of Credit Agreements, all of which rights shall be cumulative. The
Issuing Bank and its correspondents may accept certificates or other documents
that appear on their face to be in order, without responsibility for further
investigation of any matter contained therein regardless of any notice or
information to the contrary. In furtherance and not in limitation of the
foregoing provisions, the Borrower agrees that any action, inaction or omission
taken or not taken by the Issuing Bank or by any correspondent for the Issuing
Bank in good faith in connection with any Letter of Credit, or any related
drafts, certificates, documents or instruments, shall be binding on the Borrower
and shall not put the Issuing Bank or its correspondents under any resulting
liability to the Borrower.
Section 2.10 Obligation to Reimburse and to Prepay.
--------------------------------------
(a) If a disbursement by the Issuing Bank is made under any Letter of
Credit, the Borrower shall pay to the Agent within two (2) Business Days
after notice of any such disbursement is received by the Borrower, the
amount of each such disbursement made by the Issuing Bank under the Letter
of Credit (if such payment is not sooner effected as may be required under
this Section 2.10 or under other provisions of the Letter of Credit),
together with interest on the amount disbursed from and including the date
32
of disbursement until payment in full of such disbursed amount at a varying
rate per annum equal to (i) the then applicable interest rate for Base Rate
Loans through the second Business Day after notice of such disbursement is
received by the Borrower and (ii) thereafter, the Post-Default Rate for
Base Rate Loans (but in no event to exceed the Highest Lawful Rate) for the
period from and including the third Business Day following the date of such
disbursement to and including the date of repayment in full of such
disbursed amount. The obligations of the Borrower under this Agreement with
respect to each Letter of Credit shall be absolute, unconditional and
irrevocable and shall be paid or performed strictly in accordance with the
terms of this Agreement under all circumstances whatsoever, including,
without limitation, but only to the fullest extent permitted by applicable
law, the following circumstances: (i) any lack of validity or
enforceability of this Agreement, any Letter of Credit or any of the
Security Instruments; (ii) any amendment or waiver of (including any
default), or any consent to departure from this Agreement (except to the
extent permitted by any amendment or waiver), any Letter of Credit or any
of the Security Instruments; (iii) the existence of any claim, set-off,
defense or other rights which the Borrower may have at any time against the
beneficiary of any Letter of Credit or any transferee of any Letter of
Credit (or any Persons for whom any such beneficiary or any such transferee
may be acting), the Issuing Bank, the Agent, any Lender or any other
Person, whether in connection with this Agreement, any Letter of Credit,
the Security Instruments, the transactions contemplated hereby or any
unrelated transaction; (iv) any statement, certificate, draft, notice or
any other document presented under any Letter of Credit proves to have been
forged, fraudulent, insufficient or invalid in any respect or any statement
therein proves to have been untrue or inaccurate in any respect whatsoever;
(v) payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate which appears on its face to comply,
but does not comply, with the terms of such Letter of Credit; and (vi) any
other circumstance or happening whatsoever, whether or not similar to any
of the foregoing.
Notwithstanding anything in this Agreement to the contrary, the
Borrower will not be liable for payment or performance that results from
the gross negligence or willful misconduct of the Issuing Bank, except
where the Borrower or any Subsidiary actually recovers the proceeds for
itself or the Issuing Bank of any payment made by the Issuing Bank in
connection with such gross negligence or willful misconduct.
(b) In the event of the occurrence of any Event of Default, a payment
or prepayment pursuant to Section 2.07(b) or the maturity of the Notes,
whether by acceleration or otherwise, an amount equal to the LC Exposure
(or the excess in the case of Section 2.07(b) shall be deemed to be
forthwith due and owing by the Borrower to the Issuing Bank, the Agent and
the Lenders as of the date of any such occurrence; and the Borrower's
obligation to pay such amount shall be absolute and unconditional, without
regard to whether any beneficiary of any such Letter of Credit has
attempted to draw down all or a portion of such amount under the terms of a
Letter of Credit, and, to the fullest extent permitted by applicable law,
shall not be subject to any defense or be affected by a right of set-off,
counterclaim or recoupment which the Borrower may now or hereafter have
against any such beneficiary, the Issuing Bank, the Agent, the Lenders or
any other Person for any reason whatsoever. Such payments shall be held by
the Issuing Bank on behalf of the Lenders as cash collateral securing the
LC Exposure in an account or accounts at the Principal Office; and the
Borrower hereby grants to and by its deposit with the Agent grants to the
33
Agent a security interest in such cash collateral. Upon request by the
Agent, the Borrower shall immediately execute and deliver to the Agent the
Cash Collateral Account Agreement. In the event of any such payment by the
Borrower of amounts contingently owing under outstanding Letters of Credit
and in the event that thereafter drafts or other demands for payment
complying with the terms of such Letters of Credit are not made prior to
the respective expiration dates thereof, the Agent agrees, if no Event of
Default has occurred and is continuing or if no other amounts are
outstanding under this Agreement, the Notes or the Security Instruments, to
remit to the Borrower amounts for which the contingent obligations
evidenced by the Letters of Credit have ceased.
(c) Each Lender severally and unconditionally agrees that it shall
promptly reimburse the Issuing Bank an amount equal to such Lender's
Percentage Share of any disbursement made by the Issuing Bank under any
Letter of Credit that is not reimbursed according to this Section 2.10.
(d) Notwithstanding anything to the contrary contained herein, if no
Default exists and subject to availability under the Aggregate Revolving
Credit Commitments (after reduction for LC Exposure), to the extent the
Borrower has not reimbursed the Issuing Bank for any drawn upon Letter of
Credit within one (1) Business Days after notice of such disbursement has
been received by the Borrower, the amount of such Letter of Credit
reimbursement obligation shall automatically be funded by the Lenders as a
Revolving Credit Loan hereunder and used by the Lenders to pay such Letter
of Credit reimbursement obligation. If an Event of Default has occurred and
is continuing, or if the funding of such Letter of Credit reimbursement
obligation as a Revolving Credit Loan would cause the aggregate amount of
all Revolving Credit Loans outstanding to exceed the Aggregate Revolving
Credit Commitments (after reduction for LC Exposure), such Letter of Credit
reimbursement obligation shall not be funded as a Revolving Credit Loan,
but instead shall accrue interest as provided in Section 2.10(a).
Section 2.11 Lending Offices. The Loans of each Type made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loans.
-------------------
(a) Revolving Credit Loans. On the Revolving Credit Termination
Date the Borrower shall repay the outstanding principal amount of the
Revolving Credit Notes.
(b) Generally. The Borrower will pay to the Agent, for the
account of each Lender, the principal payments required by this Section
3.01.
Section 3.02 Interest.
---------
(a) Interest Rates. The Borrower will pay to the Agent, for the
account of each Lender, interest on the unpaid principal amount of each
34
Loan made by such Lender for the period commencing on the date such Loan is
made to, but excluding, the date such Loan shall be paid in full, at the
following rates per annum:
(i) if such a Loan is a Base Rate Loan, the Base Rate (as
in effect from time to time) plus the Applicable Margin, but in no event to
exceed the Highest Lawful Rate; and
(ii) if such a Loan is a LIBOR Loan, for each Interest
Period relating thereto, the LIBOR Rate for such Loan plus the Applicable
Margin (as in effect at the date such Loan is requested by the Borrower)
except that if such Loan is converted to a Base Rate Loan or continued
beyond the initial Interest Period, then the Applicable Margin shall be
that Applicable Margin as in effect from time to time during the relevant
Interest Period, but in no event to exceed the Highest Lawful Rate.
(b) Post-Default Rate. Notwithstanding the foregoing, the
Borrower will pay to the Agent, for the account of each Lender interest at
the applicable Post-Default Rate on any principal of any Loan made by such
Lender, and (to the fullest extent permitted by law) on any other amount
payable by the Borrower hereunder, under any Loan Document or under any
Note held by such Lender to or for account of such Lender, for the period
commencing on the date of an Event of Default until the same is paid in
full or all Events of Default are cured or waived.
(c) Due Dates. Accrued interest on Base Rate Loans shall be
payable monthly on the last day of each month commencing on the last day of
July, 2005, and accrued interest on each LIBOR Loan shall be payable on the
last day of the Interest Period therefor and, if such Interest Period is
longer than three months at three-month intervals following the first day
of such Interest Period, except that interest payable at the Post-Default
Rate shall be payable from time to time on demand and interest on any LIBOR
Loan that is converted into a Base Rate Loan (pursuant to Section 5.04)
shall be payable on the date of conversion (but only to the extent so
converted). Any accrued and unpaid interest on the Revolving Credit Loans
on the Revolving Credit Termination Date shall be paid on such date.
(d) Determination of Rates. Promptly after the determination of
any interest rate provided for herein or any change therein, the Agent
shall notify the Lenders to which such interest is payable and the Borrower
thereof. Each determination by the Agent of an interest rate or fee
hereunder shall, except in cases of manifest error, be final, conclusive
and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 Payments. Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Borrower
under this Agreement, the Notes, and the Letter of Credit Agreements shall be
made in Dollars, in immediately available funds, to the Agent at such account as
the Agent shall specify by notice to the Borrower from time to time, not later
35
than 11:00 a.m., Houston, Texas time on the date on which such payments shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day). Such payments shall be
made without (to the fullest extent permitted by applicable law) defense,
set-off or counterclaim and in connection therewith, the Borrower and each
Guarantor hereby waives (to the fullest extent permitted by applicable law) all
defenses, rights of set-off and counterclaims it may have with respect to such
payments. Each payment received by the Agent under this Agreement or any Note
for account of a Lender shall be paid promptly to such Lender in immediately
available funds. Except as otherwise provided in the definition of "Interest
Period", if the due date of any payment under this Agreement or any Note would
otherwise fall on a day which is not a Business Day such date shall be extended
to the next succeeding Business Day and interest shall be payable for any
principal so extended for the period of such extension. At the time of each
payment to the Agent of any principal of or interest on any borrowing, the
Borrower shall notify the Agent of the Loans to which such payment shall apply.
In the absence of such notice the Agent may specify the Loans to which such
payment shall apply, but to the extent possible such payment or prepayment will
be applied first to the Loans comprised of Base Rate Loans.
Section 4.02 Pro Rata Treatment. Except to the extent otherwise provided
herein each Lender agrees that: (i) each borrowing from the Lenders under
Section 2.01 and each continuation and conversion under Section 2.02 shall be
made from the Lenders pro rata in accordance with their Percentage Share, each
payment of commitment fee or other fees under Section 2.04 shall be made for
account of the Agent or the Lenders pro rata in accordance with their Percentage
Share, and each termination or reduction of the amount of the Aggregate Maximum
Revolving Credit Amounts under Section 2.03(b) shall be applied to the
Commitment of each Lender, pro rata according to the amounts of its respective
Revolving Credit Commitment; (ii) each payment of principal of Loans by the
Borrower shall be made for account of the Lenders pro rata in accordance with
the respective unpaid principal amount of the Loans held by the Lenders; and
(iii) each payment of interest on Loans by the Borrower shall be made for
account of the Lenders pro rata in accordance with the amounts of interest due
and payable to the respective Lenders; and (iv) each reimbursement by the
Borrower of disbursements under Letters of Credit shall be made for account of
the Issuing Bank or, if funded by the Lenders, pro rata for the account of the
Lenders, in accordance with the amounts of reimbursement obligations due and
payable to each respective Lender.
Section 4.03 Computations. Interest on LIBOR Loans and fees shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which such
interest is payable, unless such calculation would exceed the Highest Lawful
Rate, in which case interest shall be calculated on the per annum basis of a
year of 365 or 366 days, as the case may be. Interest on Base Rate Loans, and
the commitment fee, Letter of Credit fees and other fees under Section 2.04
shall be computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
Section 4.04 Non-receipt of Funds by the Agent. Unless the Agent shall have
been notified by a Lender or the Borrower prior to the date on which such
notifying party is scheduled to make payment to the Agent (in the case of a
Lender) of the proceeds of a Loan or a payment under a Letter of Credit to be
made by it hereunder or (in the case of the Borrower) a payment to the Agent for
account of one or more of the Lenders hereunder (such payment being herein
36
called the "Required Payment"), which notice shall be effective upon receipt,
that it does not intend to make the Required Payment to the Agent, the Agent may
assume that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date and, if such Lender or the Borrower (as
the case may be) has not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until, but excluding, the date the Agent recovers such amount at a rate per
annum which, for any Lender as recipient, will be equal to the Federal Funds
Rate, and for the Borrower as recipient, will be equal to the Base Rate plus the
Applicable Margin.
Section 4.05 Set-off, Sharing of Payments, Etc.
----------------------------------
(a) The Borrower agrees that, in addition to (and without limitation
of) any right of set-off, bankers' lien or counterclaim a Lender may
otherwise have, each Lender shall have the right and be entitled (after
consultation with the Agent), at its option, to offset balances held by it
or by any of its Affiliates for account of the Borrower or any Subsidiary
at any of its offices, in Dollars or in any other currency, against any
principal of or interest on any of such Lender's Loans, or any other amount
payable to such Lender hereunder, which is not paid when due (regardless of
whether such balances are then due to the Borrower), in which case it shall
promptly notify the Borrower and the Agent thereof, provided that such
Lender's failure to give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or
interest on any Loan made by it to the Borrower under this Agreement (or
reimbursement as to any Letter of Credit) through the exercise of any right
of set-off, banker's lien or counterclaim or similar right or otherwise,
and, as a result of such payment, such Lender shall have received a greater
percentage of the principal or interest (or reimbursement) then due
hereunder by the Borrower to such Lender than the percentage received by
any other Lenders, it shall promptly (i) notify the Agent and each other
Lender thereof and (ii) purchase from such other Lenders participation in
(or, if and to the extent specified by such Lender, direct interests in)
the Loans (or participations in Letters of Credit) made by such other
Lenders (or in interest due thereon, as the case may be) in such amounts,
and make such other adjustments from time to time as shall be equitable, to
the end that all the Lenders shall share the benefit of such excess payment
(net of any expenses which may be incurred by such Lender in obtaining or
preserving such excess payment) pro rata in accordance with the unpaid
principal and/or interest on the Loans held by each of the Lenders (or
reimbursements of Letters of Credit). To such end all the Lenders shall
make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Lender so purchasing a
participation (or direct interest) in the Loans made by other Lenders (or
in interest due thereon, as the case may be) may exercise all rights of
set-off, banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans (or
Letters of Credit) in the amount of such participation. Nothing contained
herein shall require any Lender to exercise any such right or shall affect
the right of any Lender to exercise, and retain the benefits of exercising,
37
any such right with respect to any other indebtedness or obligation of the
Borrower. If under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a set-off to which this
Section 4.05 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent
with the rights of the Lenders entitled under this Section 4.05 to share
the benefits of any recovery on such secured claim.
Section 4.06 Taxes.
------
(a) Payments Free and Clear. Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 4.01, free and clear of
and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender, the Issuing Bank
and the Agent, taxes imposed on its income, and franchise or similar taxes
imposed on it, by (i) any jurisdiction (or political subdivision thereof)
of which the Agent, the Issuing Bank or such Lender, as the case may be, is
a citizen or resident or in which such Lender has an Applicable Lending
Office, (ii) the jurisdiction (or any political subdivision thereof) in
which the Agent, the Issuing Bank or such Lender is organized, or (iii) any
jurisdiction (or political subdivision thereof) in which such Lender, the
Issuing Bank or the Agent is presently doing business which taxes are
imposed solely as a result of doing business in such jurisdiction (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrower
shall be required by law to deduct any Taxes from or in ----- respect of
any sum payable hereunder to the Lenders, the Issuing Bank or the Agent (i)
the sum payable shall be increased by the amount necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section 4.06) such Lender, the Issuing
Bank or the Agent (as the case may be) shall receive an amount equal to the
sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant taxing authority or other Governmental
Authority in accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent permitted by
applicable law, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement,
any Assignment or any Security Instrument (hereinafter referred to as
"Other Taxes").
(c) Indemnification. To the fullest extent permitted by applicable
law, the Borrower will indemnify each Lender and the Issuing Bank and the
Agent for the full amount of Taxes and Other Taxes (including, but not
limited to, any Taxes or Other Taxes imposed by any Governmental Authority
on amounts payable under this Section 4.06) paid by such Lender, the
Issuing Bank or the Agent (on their behalf or on behalf of any Lender), as
the case may be, and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted unless the payment
of such Taxes was not correctly or legally asserted and such Lender's
payment of such Taxes or Other Taxes was the result of its gross negligence
38
or willful misconduct. Any payment pursuant to such indemnification shall
be made within thirty (30) days after the date any Lender, the Issuing Bank
or the Agent, as the case may be, makes written demand therefor. If any
Lender, the Issuing Bank or the Agent receives a refund or credit in
respect of any Taxes or Other Taxes for which such Lender, Issuing Bank or
the Agent has received payment from the Borrower it shall promptly notify
the Borrower of such refund or credit and shall, if no Default has occurred
and is continuing, within thirty (30) days after receipt of a request by
the Borrower (or promptly upon receipt, if the Borrower has requested
application for such refund or credit pursuant hereto), pay an amount equal
to such refund or credit to the Borrower without interest (but with any
interest so refunded or credited), provided that the Borrower, upon the
request of such Lender, the Issuing Bank or the Agent, agrees to return
such refund or credit (plus penalties, interest or other charges) to such
Lender or the Agent in the event such Lender or the Agent is required to
repay such refund or credit.
(d) Lender Representations.
-----------------------
(i) Each Lender represents that it is either (1) a banking
association or corporation organized under the laws of the United States of
America or any state thereof or (2) it is entitled to complete exemption
from United States withholding tax imposed on or with respect to any
payments, including fees, to be made to it pursuant to this Agreement (a)
under an applicable provision of a tax convention to which the United
States of America is a party or (b) because it is acting through a branch,
agency or office in the United States of America and any payment to be
received by it hereunder is effectively connected with a trade or business
in the United States of America. Each Lender that is not a banking
association or corporation organized under the laws of the United States of
America or any state thereof agrees to provide to the Borrower and the
Agent on the Closing Date, or on the date of its delivery of the Assignment
pursuant to which it becomes a Lender, and at such other times as required
by United States law or as the Borrower or the Agent shall reasonably
request, two accurate and complete original signed copies of either (a)
Internal Revenue Service Form W-8ECI (or successor form) certifying that
all payments to be made to it hereunder will be effectively connected to a
United States trade or business (the "Form W-8ECI Certification") or (b)
Internal Revenue Service Form W-8BEN (or successor form) certifying that it
is entitled to the benefit of a provision of a tax convention to which the
United States of America is a party which completely exempts from United
States withholding tax all payments to be made to it hereunder (the "Form
W-8BEN Certification"). In addition, each Lender agrees that if it
previously filed a Form W-8ECI Certification, it will deliver to the
Borrower and the Agent a new Form W-8ECI Certification prior to the first
payment date occurring in each of its subsequent taxable years; and if it
previously filed a Form W-8BEN Certification, it will deliver to the
Borrower and the Agent a new certification prior to the first payment date
falling in the third year following the previous filing of such
certification. Each Lender also agrees to deliver to the Borrower and the
Agent such other or supplemental forms as may at any time be required as a
result of changes in applicable law or regulation in order to confirm or
maintain in effect its entitlement to exemption from United States
withholding tax on any payments hereunder, provided that the circumstances
of such Lender at the relevant time and applicable laws permit it to do so.
If a Lender determines, as a result of any change in either (i) a
Governmental Requirement or (ii) its circumstances, that it is unable to
39
submit any form or certificate that it is obligated to submit pursuant to
this Section 4.06, or that it is required to withdraw or cancel any such
form or certificate previously submitted, it shall promptly notify the
Borrower and the Agent of such fact. If a Lender is organized under the
laws of a jurisdiction outside the United States of America, unless the
Borrower and the Agent have received a Form W-8BEN Certification or Form
W-8ECI Certification satisfactory to them indicating that all payments to
be made to such Lender hereunder are not subject to United States
withholding tax, the Borrower shall withhold taxes from such payments at
the applicable statutory rate. Each Lender agrees to indemnify and hold
harmless the Borrower or Agent, as applicable, from any United States
taxes, penalties, interest and other expenses, costs and losses incurred or
payable by (i) the Agent as a result of such Lender's failure to submit any
form or certificate that it is required to provide pursuant to this Section
4.06 or (ii) the Borrower or the Agent as a result of their reliance on any
such form or certificate which such Lender has provided to them pursuant to
this Section 4.06.
(ii) For any period with respect to which a Lender has failed to
provide the Borrower with the form required pursuant to this Section 4.06,
if any, (other than if such failure is due to a change in a Governmental
Requirement occurring subsequent to the date on which a form originally was
required to be provided), such Lender shall not be entitled to
indemnification under Section 4.06 with respect to taxes imposed by the
United States which taxes would not have been imposed but for such failure
to provide such forms; provided, however, that if a Lender, which is
otherwise exempt from or subject to a reduced rate of withholding tax,
becomes subject to taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as such Lender shall
reasonably request to assist such Lender to recover such taxes.
(iii) Any Lender claiming any additional amounts payable pursuant
to this Section 4.06 shall use reasonable efforts (consistent with legal
and regulatory restrictions) to file any certificate or document requested
by the Borrower or the Agent or to change the jurisdiction of its
Applicable Lending Office or to contest any tax imposed if the making of
such a filing or change or contesting such tax would avoid the need for or
reduce the amount of any such additional amounts that may thereafter accrue
and would not, in the sole determination of such Lender, be otherwise
disadvantageous to such Lender.
Section 4.07 Disposition of Proceeds. The Mortgage contains an assignment
by the Borrower unto and in favor of the Agent for the benefit of the Lenders of
all production and all proceeds attributable thereto which may be produced from
or allocated to the Mortgaged Property, and the Mortgage further provides in
general for the application of such proceeds to the satisfaction of the
Obligations and other indebtedness, liabilities and obligations described
therein and secured thereby. Notwithstanding the assignment contained in the
Mortgage, until the occurrence of an Event of Default, the Lenders agree that
they will neither notify the purchaser or purchasers of such production nor take
any other action to cause such proceeds to be remitted to the Lenders, but the
Lenders will instead permit such proceeds to be paid to the Borrower.
40
ARTICLE V
CAPITAL ADEQUACY AND ADDITIONAL COSTS
Section 5.01 Capital Adequacy and Additional Costs.
--------------------------------------
(a) The Borrower shall pay directly to each Lender from time to time
on request such amounts as such Lender may determine to be necessary to
compensate such Lender or its parent or holding company for any costs which
it determines are attributable to the maintenance by such Lender or its
parent or holding company, pursuant to any change in, or the introduction,
adoption, reinterpretation or phase-in of, any Governmental Requirement
after the Closing Date, of capital in respect of its Commitment or making,
funding or maintaining any Loans or Letters of Credit (such compensation to
include, without limitation, an amount equal to any reduction of the rate
of return on assets or equity of such Lender or its parent or holding
company to a level below that which such Lender or its parent or holding
company could have achieved but for such Governmental Requirement). Each
Lender will notify the Borrower that it is entitled to compensation
pursuant to this Section 5.01(a) as promptly as practicable after it
determines to request such compensation.
(b) Determinations and allocations by any Lender for purposes of this
Article V shall be conclusive, absent manifest error and provided that such
determinations and allocations are made on a reasonable basis.
(c) LIBOR Regulations, etc. The Borrower shall pay directly to each
Lender from time to time such amounts as such Lender may determine to be
necessary to compensate such Lender for any costs which it determines are
attributable to its making or maintaining of any LIBOR Loans or issuing or
participating in Letters of Credit hereunder or its obligation to make any
LIBOR Loans or issue or participate in any Letters of Credit hereunder, or
any reduction in any amount receivable by such Lender hereunder in respect
of any of such LIBOR Loans, Letters of Credit or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change which: (i)
changes the basis of taxation of any amounts payable to such Lender under
this Agreement or any Note in respect of any of such LIBOR Loans or Letters
of Credit (other than taxes imposed on the overall net income of such
Lender or of its Applicable Lending Office for any of such LIBOR Loans by
the jurisdiction in which such Lender has its principal office or
Applicable Lending Office); or (ii) imposes or modifies any reserve,
special deposit, insurance, minimum capital, capital ratio or similar
requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of such Lender, or the Commitment or
Loans of such Lender or the LIBOR interbank market; or (iii) imposes any
other condition affecting this Agreement or any Note (or any of such
extensions of credit or liabilities) or such Lender's Commitment or Loans.
Each Lender will notify the Agent and the Borrower of any event occurring
after the Closing Date which will entitle such Lender to compensation
pursuant to this Section 5.01(c) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation, and
will designate a different Applicable Lending Office for the Loans of such
Lender affected by such event if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the sole
opinion of such Lender, be disadvantageous to such Lender, provided that
41
such Lender shall have no obligation to so designate an Applicable Lending
Office located in the United States. If any Lender requests compensation
from the Borrower under this Section 5.01(c), the Borrower may, by notice
to such Lender, suspend the obligation of such Lender to make additional
Loans of the Type with respect to which such compensation is requested
until the Regulatory Change giving rise to such request ceases to be in
effect (in which case the provisions of Section 5.04 shall be applicable).
(d) Regulatory Change. Without limiting the effect of the provisions
of Section 5.01(c), in the event that at any time (by reason of any
Regulatory Change or any other circumstances arising after the Closing Date
affecting (a) any Lender, (b) the LIBOR interbank market or (c) such
Lender's position in such market), the LIBOR Rate, as determined in good
faith by such Lender, will not adequately and fairly reflect the cost to
such Lender of funding its LIBOR Loans, then, if such Lender so elects, by
notice to the Borrower and the Agent, the obligation of such Lender to make
additional LIBOR Loans shall be suspended until such Regulatory Change or
other circumstances ceases to be in effect (in which case the provisions of
Section 5.04 shall be applicable).
(e) Capital Adequacy. Without limiting the effect of the foregoing
provisions of this Section 5.01 (but without duplication), the Borrower
shall pay directly to any Lender from time to time on request such amounts
as such Lender may reasonably determine to be necessary to compensate such
Lender or its parent or holding company for any costs which it determines
are attributable to the maintenance by such Lender or its parent or holding
company (or any Applicable Lending Office), pursuant to any Governmental
Requirement following any Regulatory Change, of capital in respect of its
Commitment, its Note, or its Loans or any interest held by it in any Letter
of Credit, such compensation to include, without limitation, an amount
equal to any reduction of the rate of return on assets or equity of such
Lender or its parent or holding company (or any Applicable Lending Office)
to a level below that which such Lender or its parent or holding company
(or any Applicable Lending Office) could have achieved but for such
Governmental Requirement. Such Lender will notify the Borrower that it is
entitled to compensation pursuant to this Section 5.01(e) as promptly as
practicable after it determines to request such compensation.
(f) Compensation Procedure. Any Lender notifying the Borrower of the
incurrence of Additional Costs under this Section 5.01 shall in such notice
to the Borrower and the Agent set forth in reasonable detail the basis and
amount of its request for compensation. Determinations and allocations by
each Lender for purposes of this Section 5.01 of the effect of any
Regulatory Change pursuant to Section 5.01(c) or (d), or of the effect of
capital maintained pursuant to Section 5.01(e), on its costs or rate of
return of maintaining Loans or its obligation to make Loans or issue
Letters of Credit, or on amounts receivable by it in respect of Loans or
Letters of Credit, and of the amounts required to compensate such Lender
under this Section 5.01, shall be conclusive and binding for all purposes
absent manifest error, provided that such determinations and allocations
are made on a reasonable basis. Any request for additional compensation
under this Section 5.01 shall be paid by the Borrower within thirty (30)
days of the receipt by the Borrower of the notice described in this Section
5.01(f).
42
Section 5.02 Limitation on LIBOR Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any LIBOR Rate for any
Interest Period:
(i) the Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates for
the relevant deposits referred to in the definition of "LIBOR Rate" in
Section 1.02 are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for LIBOR
Loans as provided herein; or
(ii) the Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "LIBOR Rate" in Section 1.02 upon the
basis of which the rate of interest for LIBOR Loans for such Interest
Period is to be determined are not sufficient to adequately cover the cost
to the Lenders of making or maintaining LIBOR Loans;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional LIBOR Loans.
Section 5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain LIBOR
Loans hereunder, then such Lender shall promptly notify the Borrower thereof and
such Lender's obligation to make LIBOR Loans shall be suspended until such time
as such Lender may again make and maintain LIBOR Loans (in which case the
provisions of Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03. If
the obligation of any Lender to make LIBOR Loans shall be suspended pursuant to
Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all Affected Loans which would
otherwise be made by such Lender shall be made instead as Base Rate Loans (and,
if an event referred to in Section 5.01 or Section 5.03 has occurred and such
Lender so requests by notice to the Borrower, all Affected Loans of such Lender
then outstanding shall be automatically converted into Base Rate Loans on the
date specified by such Lender in such notice) and, to the extent that Affected
Loans are so made as (or converted into) Base Rate Loans, all payments of
principal which would otherwise be applied to such Lender's Affected Loans shall
be applied instead to its Base Rate Loans.
Section 5.05 Compensation. The Borrower shall pay to each Lender within
thirty (30) days of receipt of written request of such Lender (which request
shall set forth, in reasonable detail, the basis for requesting such amounts and
which shall be conclusive and binding for all purposes absent manifest error and
provided that such determinations are made on a reasonable basis), such amount
or amounts as shall compensate it for any actual loss, cost, expense or
liability which such Lender determines are attributable to:
(i) any payment, prepayment or conversion of a LIBOR Loan
properly made by such Lender or the Borrower for any reason (including,
without limitation, the acceleration of the Loans pursuant to Section
10.01) on a date other than the last day of the Interest Period for such
Loan; or
(ii) any failure by the Borrower for any reason (including but
not limited to, the failure of any of the conditions precedent specified in
43
Article VI to be satisfied) to borrow, continue or convert a LIBOR Loan
from such Lender on the date for such borrowing, continuation or conversion
specified in the relevant notice given pursuant to Section 2.02(c).
Section 5.06 Replacement Lenders.
--------------------
(a) If any Lender has notified the Borrower and the Agent of its
incurring Additional Costs under Section 5.01 or has required the Borrower
to make payments for Taxes under Section 4.06, then the Borrower may,
unless such Lender has notified the Borrower and the Agent that the
circumstances giving rise to such notice no longer apply, terminate, in
whole but not in part, the Commitment of any Lender (other than the Agent)
(the "Terminated Lender") at any time upon five (5) Business Days' prior
written notice to the Terminated Lender and the Agent (such notice referred
to herein as a "Notice of Termination").
(b) In order to effect the termination of the Commitment of the
Terminated Lender, the Borrower shall: (i) obtain an agreement with one or
more Lenders to increase their Commitment or Commitments and/or (ii)
request any one or more other banking institutions to become parties to
this Agreement in place and instead of such Terminated Lender and agree to
accept a Commitment or Commitments; provided, however, that such one or
more other banking institutions are reasonably acceptable to the Agent and
become parties by executing an Assignment (the Lenders or other banking
institutions that agree to accept in whole or in part the Commitment of the
Terminated Lender being referred to herein as the "Replacement Lenders"),
such that the aggregate increased and/or accepted Commitments of the
Replacement Lenders under clauses (i) and (ii) above equal the Commitment
of the Terminated Lender.
(c) The Notice of Termination shall include the name of the
Terminated Lender, the date the termination will occur (the "Lender
Termination Date"), and the Replacement Lender or Replacement Lenders to
which the Terminated Lender will assign its Commitment and, if there will
be more than one Replacement Lender, the portion of the Terminated Lender's
Commitment to be assigned to each Replacement Lender.
(d) On the Lender Termination Date, (i) the Terminated Lender shall
by execution and delivery of an Assignment assign its Commitment to the
Replacement Lender or Replacement Lenders (pro rata, if there is more than
one Replacement Lender, in proportion to the portion of the Terminated
Lender's Commitment to be assigned to each Replacement Lender) indicated in
the Notice of Termination and shall assign to the Replacement Lender or
Replacement Lenders each of its Loans (if any) then outstanding and
participation interests in Letters of Credit (if any) then outstanding pro
rata as aforesaid), (ii) the Terminated Lender shall endorse its Note,
payable without recourse, representation or warranty to the order of the
Replacement Lender or Replacement Lenders (pro rata as aforesaid), (iii)
the Replacement Lender or Replacement Lenders shall purchase the Note held
by the Terminated Lender (pro rata as aforesaid) at a price equal to the
unpaid principal amount thereof plus interest and facility and other fees
accrued and unpaid to the Lender Termination Date, and (iv) the Replacement
Lender or Replacement Lenders will thereupon (pro rata as aforesaid)
succeed to and be substituted in all respects for the Terminated Lender
with like effect as if becoming a Lender pursuant to the terms of Section
44
12.06(b), and the Terminated Lender will have the rights and benefits of an
assignor under Section 12.06(b). To the extent not in conflict, the terms
of Section 12.06(b) shall supplement the provisions of this Section
5.06(d). For each assignment made under this Section 5.06, the Replacement
Lender shall pay to the Agent the processing fee provided for in Section
12.06(b). The Borrower will be responsible for the payment of any actual
breakage costs associated with termination and Replacement Lenders, as set
forth in Section 5.05.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Initial Funding.
----------------
The obligation of the Lenders to make the Initial Funding is subject to the
receipt by the Agent and the Lenders of all fees payable pursuant to Section
2.04 on or before the Closing Date and the receipt by the Agent of the following
documents (in sufficient original counterparts, other than the Notes, for each
Lender) and satisfaction of the other conditions provided in this Section 6.01,
each of which shall be satisfactory to the Agent in form and substance:
(a) A certificate of the Secretary or an Assistant Secretary of the
Borrower setting forth (i) resolutions of its board of directors with
respect to the authorization of the Borrower to execute and deliver the
Loan Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of the Borrower (y) who
are authorized to sign the Loan Documents to which Borrower is a party and
(z) who will, until replaced by another officer or officers duly authorized
for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection with
this Agreement and the transactions contemplated hereby, (iii) specimen
signatures of the authorized officers, and (iv) the articles or certificate
of incorporation and bylaws of the Borrower, certified as being true and
complete. The Agent and the Lenders may conclusively rely on such
certificate until the Agent receives notice in writing from the Borrower to
the contrary.
(b) A certificate of the Secretary or an Assistant Secretary of each
Guarantor setting forth (i) resolutions of its board of directors with
respect to the authorization of such Guarantor to execute and deliver the
Loan Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of such Guarantor (y)
who are authorized to sign the Loan Documents to which Guarantor is a party
and (z) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in connection
with this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of the authorized officers, and (iv) the articles or
certificate of incorporation and bylaws of such Guarantor, certified as
being true and complete. The Agent and the Lenders may conclusively rely on
such certificate until they receive notice in writing from such Guarantor
to the contrary.
(c) A certificate of the Secretary or an Assistant Secretary of any
Subsidiary that is a corporation or a limited liability company (an "LLC")
45
setting forth (i) resolutions of its board of directors with respect to the
authorization of such Subsidiary to execute and deliver the Loan Documents
to which it is a party and to enter into the transactions contemplated in
those documents, (ii) the officers of such Subsidiary (y) who are
authorized to sign the Loan Documents to which such Subsidiary is a party
and (z) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in connection
with this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of the authorized officers, and (iv) the articles or
certificate of incorporation and bylaws (and the Regulations if such
Subsidiary is an LLC) of the Subsidiary, certified as being true and
complete. The Agent and the Lenders may conclusively rely on such
certificate until they receive notice in writing from the Subsidiary to the
contrary.
(d) Certificates of the appropriate state agencies with respect to
the existence, qualification and good standing of the Borrower and
Guarantor(s)/Subsidiaries.
(e) A compliance certificate which shall be substantially in the form
of Exhibit C, duly and properly executed by a Responsible Officer and dated
as of the date of the Initial Funding.
(f) The Notes, duly completed and executed.
(g) The Security Instruments, including those described on Exhibit D,
duly completed and executed in sufficient number of counterparts for
recording, if necessary.
(h) An opinion of Akin Gump ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇ LLP, Texas counsel
(and such other out of state counsel as Agent shall require) to the
Borrower, its Subsidiaries and Guarantors in form and substance
satisfactory to the Agent and its counsel, as to such matters incident to
the transactions herein contemplated as the Agent and its counsel may
request, including, without limitation, the enforceability of the Mortgages
and other Security Instruments and the validity and means of perfection of
the liens created thereby. (i) A certificate of insurance coverage of the
Borrower evidencing that the Borrower its Subsidiaries, and the Guarantors
are carrying insurance in accordance with Section 7.19.
(j) Title information as the Agent may require (including, without
limitation, title opinions) from attorneys satisfactory to the Agent
setting forth the status of title to at least 80% of the value of the Oil
and Gas Properties included in the Initial Reserve Report.
(k) The Security Instruments and related financing statements
covering the Mortgaged Property shall have been properly filed and recorded
in the appropriate offices to establish and perfect the Liens and security
interests created thereby and the Agent shall have been advised in writing
by the attorneys who have furnished the title opinions called for in (j)
above that there has been no change in the status of title from that
reflected in such opinions through the filing and recordation of such
Security Instruments.
(l) Letters in Lieu executed by the Borrower, any of its
46
Subsidiaries, and any Guarantor, as applicable, and a list of the
purchasers of the Hydrocarbons of the Borrower, any of its Subsidiaries,
and any Guarantor, produced from the Borrower's and any of its
Subsidiaries' or Guarantors' Oil and Gas Properties.
(m) The Agent shall have been furnished with appropriate UCC search
certificates reflecting the filing of all financing statements required to
perfect the Liens granted by the Security Instruments and reflecting no
prior Liens, except Excepted Liens or other Liens permitted by Section
9.02.
(n) The organizational chart of Borrower, its Subsidiaries, and the
Guarantors.
(o) All consents in form and substance satisfactory to all Lenders
and of all Persons required by the Lenders.
(p) Agent shall have received from the Borrower, each Guarantor, and
each Subsidiary of Borrower, reviewed, and be satisfied, in Agent's sole
discretion, of the Borrower, each Guarantor and each of Borrower's
Subsidiaries:
(i) existing corporate, limited liability company, and
partnership documents;
(ii) annual financial statements;
(iii) most recent interim financial statements;
(iv) valuation information of assets proposed by the Borrower,
each Guarantor, and each Subsidiary of Borrower to secure the Obligations;
(v) all lien searches covering any and all of the Mortgaged
Property;
(vi) other material documents and agreements (including, without
limitation, all: (1) Material Agreements listed on Schedule 7.22, and (2)
all other material documents and agreements as the Agent shall have
requested); and
(vii) the legal, corporate, partnership, and capital structure of
the Borrower, each Guarantor, and each Subsidiary of Borrower on the
Closing Date and after giving effect to the transactions contemplated
hereby.
(q) Such other documents, in form and substance satisfactory to
Agent, as the Agent or any Lender or special counsel to the Agent may
reasonably request, including, without limitation, (i) documentation of all
environmental and title matters relating to each of the Borrower's, each of
the Guarantor's and each of the Borrower's Subsidiaries' Oil and Gas
Properties including, without limitation, the Mortgaged Properties and (ii)
all Material Agreements.
Section 6.02 Initial and Subsequent Loans and Letters of Credit. The
obligation of the Lenders to make Loans to the Borrower upon the occasion of
each borrowing hereunder and to issue, renew, extend or reissue Letters of
Credit for the account of the Borrower and for the account of any Active
Subsidiary of the Borrower (including the Initial Funding) is subject to the
further conditions precedent that, as of the date of such Loans and after giving
effect thereto:
47
(a) no Default shall exist;
(b) no Material Adverse Effect shall have occurred;
(c) the representations and warranties made by the Borrower in
Article VII and in the Security Instruments shall be true on and as of the
date of the making of such Loans or issuance, renewal, extension or
reissuance of a Letter of Credit with the same force and effect as if made
on and as of such date and following such new borrowing, except to the
extent such representations and warranties are expressly limited to an
earlier date or the Majority Lenders may expressly consent in writing to
the contrary; and
(d) after giving effect to the requested borrowing or borrowings, no
Default will exist under the Credit Agreement or any other Loan Document.
Each request for a borrowing or issuance, renewal, extension or reissuance
of a Letter of Credit by the Borrower hereunder shall constitute a certification
by the Borrower to the effect set forth in Section 6.02(c) (both as of the date
of such notice and, unless the Borrower otherwise notifies the Agent prior to
the date of and immediately following such borrowing or issuance, renewal,
extension or reissuance of a Letter of Credit as of the date thereof).
Section 6.03 Conditions Precedent for the Benefit of Lenders. All
conditions precedent to the obligations of the Lenders to make any Loan are
imposed hereby solely for the benefit of the Lenders, and no other Person may
require satisfaction of any such condition precedent or be entitled to assume
that the Lenders will refuse to make any Loan in the absence of strict
compliance with such conditions precedent.
Section 6.04 No Waiver. No waiver of any condition precedent shall preclude
the Agent or the Lenders from requiring such condition to be met prior to making
any subsequent Loan. Without limiting the generality of the foregoing, the
making of a Loan shall not be construed as a waiver of any Default, regardless
of whether the Administrative Agent or any Lender may have had notice or
knowledge of such Default at the time.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and the Lenders that
(each representation and warranty herein is given as of the Closing Date and
shall be deemed repeated and reaffirmed on the dates of each borrowing and
issuance, renewal, extension or reissuance of a Letter of Credit as provided in
Section 6.02):
Section 7.01 Corporate Existence. Each of the Borrower and each Subsidiary:
(i) is a corporation or limited liability company duly organized, legally
existing and in good standing under the laws of the jurisdiction of its
organization; (ii) has all requisite corporate or limited liability company
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (iii) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have a Material
Adverse Effect.
48
Section 7.02 Financial Condition. The audited consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as at December 31, 2004, and the
related consolidated statement of income, stockholders' equity and cash flow of
the Borrower and its Consolidated Subsidiaries for the fiscal year ended on said
date, with the opinion thereon of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.P. heretofore furnished
to each of the Lenders and the unaudited consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as at March 31, 2005, and their
related consolidated statements of income, stockholders' equity and cash flow of
the Borrower and its Consolidated Subsidiaries for the three month period ended
on such date heretofore furnished to the Agent, are complete and correct and
fairly present the consolidated financial condition of the Borrower and its
Consolidated Subsidiaries as at said dates and the results of its operations for
the fiscal year and the three month period on said dates, all in accordance with
GAAP, as applied on a consistent basis (subject, in the case of the interim
financial statements, to normal year-end adjustments and the absence of
footnotes). Neither the Borrower nor any Subsidiary has on the Closing Date any
material Debt, contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the Financial
Statements or in Schedule 7.02. Since March 31, 2005, there has been no change
or event having a Material Adverse Effect. Since March 31, 2005, neither the
business nor the Properties of the Borrower or any Subsidiary have been
materially and adversely affected as a result of any fire, explosion,
earthquake, flood, drought, windstorm, accident, strike or other labor
disturbance, embargo, requisition or taking of Property or cancellation of
contracts, permits or concessions by any Governmental Authority, riot,
activities of armed forces or acts of God or of any public enemy.
Section 7.03 Litigation and Judgments. Except as disclosed to the Lenders
in Schedule 7.03 hereto: (i) there is no litigation, legal, administrative or
arbitral proceeding, investigation or other action of any nature pending or, to
the knowledge of the Borrower threatened against or affecting the Borrower, any
of its Subsidiaries, or any Guarantor which involves the possibility of any
judgment or liability against the Borrower, any of its Subsidiaries, or any
Guarantor not fully covered by insurance (except for normal deductibles) or
which could result in a Material Adverse Effect; and (ii) there are no
outstanding judgments against the Borrower, any of its Subsidiaries, or any
Guarantor.
Section 7.04 No Breach. Neither the execution and delivery of the Loan
Documents, nor compliance with the terms and provisions hereof will conflict
with or result in a breach of, or require any consent which has not been
obtained as of the Closing Date under, the respective charter, by-laws, or
limited liability company agreement of the Borrower or any Subsidiary, or any
Governmental Requirement or any Material Agreement, or constitute a default
under any such agreement, or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Borrower or any Subsidiary pursuant to
the terms of any such agreement or instrument other than the Liens created by
the Loan Documents.
Section 7.05 Authority. The Borrower and each Subsidiary have all necessary
corporate power and authority to execute, deliver and perform its obligations
under the Loan Documents to which it is a party; and the execution, delivery and
performance by the Borrower and each Subsidiary of the Loan Documents to which
it is a party, have been duly authorized by all necessary corporate action on
49
its part; and the Loan Documents constitute the legal, valid and binding
obligations of the Borrower and each Subsidiary, enforceable in accordance with
their terms.
Section 7.06 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority or any Person are
necessary for the execution, delivery or performance by the Borrower or any
Subsidiary of the Loan Documents or for the validity or enforceability thereof,
except for the recording and filing of the Security Instruments as required by
this Agreement.
Section 7.07 Use of Loans. The proceeds of the Loans shall be used by the
Borrower to:
(a) fund acquisitions; and
(b) provide for the working capital and general corporate purpose
needs of the Borrower and its Active Subsidiaries.
Neither the Borrower, any Guarantor, nor any of the Borrower's Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying margin stock (within the meaning of Regulation T, U or X of
the Board of Governors of the Federal Reserve System) and no part of the
proceeds of any Loan hereunder will be used to buy or carry any margin stock.
Section 7.08 ERISA.
------
(a) The Borrower, each Subsidiary and each ERISA Affiliate have
complied in all material respects with ERISA and, where applicable, the
Code regarding each Plan.
(b) Each Plan is, and has been, maintained in substantial compliance
with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which could result
in imposition on the Borrower, any Subsidiary or any ERISA Affiliate
(whether directly or indirectly) of (i) either a civil penalty assessed
pursuant to Section 502(c), (i) or (l) of ERISA or a tax imposed pursuant
to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty
liability damages under Section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or any trust
created under any such Plan has been terminated since September 2, 1974. No
liability to the PBGC (other than for the payment of current premiums which
are not past due) by the Borrower, any Subsidiary or any ERISA Affiliate
has been or is expected by the Borrower, any Subsidiary or any ERISA
Affiliate to be incurred with respect to any Plan. No ERISA Event with
respect to any Plan has occurred.
(e) Full payment when due has been made of all amounts which the
Borrower, any Subsidiary or any ERISA Affiliate is required under the terms
of each Plan or applicable law to have paid as contributions to such Plan,
and no accumulated funding deficiency (as defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived, exists with respect to
any Plan.
50
(f) The actuarial present value of the benefit liabilities under each
Plan which is subject to Title IV of ERISA does not, as of the end of the
Borrower's most recently ended fiscal year, exceed the current value of the
assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities. The term
"actuarial present value of the benefit liabilities" shall have the meaning
specified in Section 4041 of ERISA.
(g) None of the Borrower, any Subsidiary or any ERISA Affiliate
sponsors, maintains, or contributes to an employee welfare benefit plan, as
defined in Section 3(1) of ERISA, including, without limitation, any such
plan maintained to provide benefits to former employees of such entities,
that may not be terminated by the Borrower, a Subsidiary or any ERISA
Affiliate in its sole discretion at any time without any material
liability.
(h) None of the Borrower, any Subsidiary or any ERISA Affiliate
sponsors, maintains or contributes to, or has at any time in the preceding
six calendar years, sponsored, maintained or contributed to, any
Multiemployer Plan.
(i) None of the Borrower, any Subsidiary or any ERISA Affiliate is
required to provide security under Section 401(a)(29) of the Code due to a
Plan amendment that results in an increase in current liability for the
Plan.
Section 7.09 Taxes. Except as set out in Schedule 7.09, each of the
Borrower and its Subsidiaries has filed all United States Federal income tax
returns and all other tax returns which are required to be filed by them and
have paid all material taxes due pursuant to such returns or pursuant to any
assessment received by the Borrower or any Subsidiary. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of the Borrower, adequate. No
tax lien has been filed and, to the knowledge of the Borrower, no claim is being
asserted with respect to any such tax, fee or other charge.
Section 7.10 Titles, Etc.
------------
(a) Except as set out in Schedule 7.10, each of the Borrower and its
Subsidiaries has good and defensible title to its material (individually or
in the aggregate) Properties, free and clear of all Liens, except Liens
permitted by Section 9.02. Except as set forth in Schedule 7.10, after
giving full effect to the Excepted Liens, the Borrower owns the net
interests in production attributable to the Hydrocarbon Interests reflected
in the most recently delivered Reserve Report and the ownership of such
Properties shall not in any material respect obligate the Borrower to bear
the costs and expenses relating to the maintenance, development and
operations of each such Property in an amount in excess of the working
interest of each Property set forth in the most recently delivered Reserve
Report without a proportional increase in the associated net revenue
interest.
(b) All leases and agreements necessary for the conduct of the
business of the Borrower and its Subsidiaries are valid and subsisting, in
full force and effect (including as to depths) and there exists no default
or event or circumstance which with the giving of notice or the passage of
51
time or both would give rise to a default by the Borrower and/or its
Subsidiaries, and to the best of the Borrower's knowledge, there exists no
default or event or circumstance which with the giving of notice or the
passage of time or both would give rise to a default by a third party,
under any such lease or leases, which would affect in any material respect
the conduct of the business of the Borrower and its Subsidiaries.
(c) The rights, Properties and other assets presently owned, leased
or licensed by the Borrower and its Subsidiaries including, without
limitation, all easements and rights of way, include all rights, Properties
and other assets necessary to permit the Borrower and its Subsidiaries to
conduct their business in all material respects in the same manner as its
business has been conducted prior to the Closing Date.
(d) All of the assets and Properties of the Borrower and its
Subsidiaries which are reasonably necessary for the operation of its
business are in operable working condition and are maintained in accordance
with prudent business standards.
Section 7.11 No Material Misstatements. No written information, statement,
exhibit, certificate, document or report furnished to the Agent and the Lenders
(or any of them) by the Borrower or any Subsidiary in connection with the
negotiation of this Agreement contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statement
contained therein not materially misleading in the light of the circumstances in
which made and with respect to the Borrower and its Subsidiaries taken as a
whole. To the best of the Borrower's knowledge, there is no fact peculiar to the
Borrower or any Subsidiary which has a Material Adverse Effect or in the future
could have (so far as the Borrower can now foresee) a Material Adverse Effect
and which has not been set forth in this Agreement or the other documents,
certificates and statements furnished to the Agent by or on behalf of the
Borrower or any Subsidiary prior to, or on, the Closing Date in connection with
the transactions contemplated hereby.
Section 7.12 Investment Company Act. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 Public Utility Holding Company Act. Neither the Borrower nor
any Subsidiary is 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," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14, the
Borrower has no Subsidiaries.
Section 7.15 Location of Business and Offices. The Borrower's principal
place of business and chief executive offices are located at the address stated
on the signature page of this Agreement. The principal place of business and
chief executive office of each Subsidiary are located at the addresses stated on
Schedule 7.14.
Section 7.16 Defaults. Neither the Borrower nor any Subsidiary is in
default nor has any event or circumstance occurred which, but for the expiration
52
of any applicable grace period or the giving of notice, or both, would
constitute a default by the Borrower and/or its Subsidiaries, and to the best of
the Borrower's knowledge, no event or circumstance has occurred which, but for
the expiration of any applicable grace period or the giving of notice, or both,
would constitute a default by a third party under any Material Agreement or
instrument to which the Borrower or any Subsidiary is a party or by which the
Borrower or any Subsidiary is bound which default could have a Material Adverse
Effect. No Default hereunder has occurred and is continuing.
Section 7.17 Environmental Matters. Except (i) as provided in Schedule 7.17
or (ii) as would not have a Material Adverse Effect (or with respect to (c), (d)
and (e) below, where the failure to take such actions would not have a Material
Adverse Effect):
(a) Neither any Property of the Borrower or any Subsidiary nor the
operations conducted thereon, or any failure to act, violate any order or
requirement of any court or Governmental Authority or any Environmental
Laws;
(b) Without limitation of clause (a) above, no Property of the
Borrower or any Subsidiary nor the operations currently conducted thereon,
or any failure to act, or, to the best knowledge of the Borrower, by any
prior owner or operator of such Property or operation, are in violation of
or subject to any existing, pending or threatened action, suit,
investigation, inquiry or proceeding by or before any court or Governmental
Authority or to any remedial obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations, if any,
required to be obtained or filed in connection with the operation or use of
any and all Property of the Borrower and each Subsidiary, including without
limitation past or present treatment, storage, disposal or release of a
hazardous substance or solid waste into the environment, have been duly
obtained or filed, and the Borrower and each Subsidiary are in compliance
with the terms and conditions of all such notices, permits, licenses and
similar authorizations;
(d) All hazardous substances, solid waste, and oil and gas
exploration and production wastes, if any, generated at any and all
Property of the Borrower or any Subsidiary have in the past been
transported, treated and disposed of in accordance with Environmental Laws
and so as not to pose an imminent and substantial endangerment to public
health or welfare or the environment, and, to the best knowledge of the
Borrower, all such transport carriers and treatment and disposal facilities
have been and are operating in compliance with Environmental Laws and so as
not to pose an imminent and substantial endangerment to public health or
welfare or the environment, and are not the subject of any existing,
pending or threatened action, investigation or inquiry by any Governmental
Authority in connection with any Environmental Laws;
(e) The Borrower has taken all steps reasonably necessary to
determine and has determined that no hazardous substances, solid waste, or
oil and gas exploration and production wastes, have been disposed of or
otherwise released and there has been no threatened release of any
hazardous substances on or to any Property of the Borrower or any
Subsidiary except in material compliance with Environmental Laws and so as
not to pose an imminent and substantial endangerment to public health or
welfare or the environment;
53
(f) To the extent applicable, all Property of the Borrower and each
Subsidiary currently satisfies all design, operation, and equipment
requirements imposed by the OPA or scheduled as of the Closing Date to be
imposed by OPA during the term of this Agreement, and the Borrower does not
have any reason to believe that such Property, to the extent subject to
OPA, will not be able to maintain compliance with the OPA requirements
during the term of this Agreement; and
(g) Neither the Borrower nor any Subsidiary has any known contingent
liability in connection with any generation, storage, release or threatened
release, transportation, or disposal of any oil, hazardous substance or
solid waste into the environment.
Section 7.18 Compliance with the Law. Neither the Borrower nor any
Subsidiary has violated any Governmental Requirement or failed to obtain any
license, permit, franchise or other governmental authorization necessary for the
ownership of any of its Properties or the conduct of its business, which
violation or failure would have (in the event such violation or failure were
asserted by any Person through appropriate action) a Material Adverse Effect.
Except for such acts or failures to act as would not have a Material Adverse
Effect, the Oil and Gas Properties (and properties unitized therewith) have been
maintained, operated and developed in a good and workmanlike manner and in
conformity with all applicable laws and all rules, regulations and orders of all
duly constituted authorities having jurisdiction and in conformity with the
provisions of all leases, subleases or other contracts comprising a part of the
Hydrocarbon Interests and other contracts and agreements forming a part of the
Oil and Gas Properties; specifically in this connection, (i) after the Closing
Date, no Oil and Gas Property is subject to having allowable production reduced
below the full and regular allowable (including the maximum permissible
tolerance) because of any overproduction (whether or not the same was
permissible at the time) prior to the Closing Date and (ii) none of the ▇▇▇▇▇
comprising a part of the Oil and Gas Properties (or properties unitized
therewith) are deviated from the vertical more than the maximum permitted by
applicable laws, regulations, rules and orders, and such ▇▇▇▇▇ are, in fact,
bottomed under and are producing from, and the well bores are wholly within, the
Oil and Gas Properties (or in the case of ▇▇▇▇▇ located on properties unitized
therewith, such unitized properties).
Section 7.19 Insurance. Schedule 7.19 attached hereto contains an accurate
and complete description of all material policies of fire, liability, workmen's
compensation and other forms of insurance owned or held by the Borrower and each
Subsidiary. All such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the Closing Date have
been paid, and no notice of cancellation or termination has been received with
respect to any such policy. Such policies are sufficient for compliance with all
requirements of law and of all agreements to which the Borrower or any
Subsidiary is a party; are valid, outstanding and enforceable policies; provide
adequate insurance coverage in at least such amounts and against at least such
risks (but including in any event public liability) as are usually insured
against in the same general area by companies engaged in the same or a similar
business for the assets and operations of the Borrower and each Subsidiary; will
remain in full force and effect through the respective dates set forth in
Schedule 7.19 without the payment of additional premiums; and will not in any
way be affected by, or terminate or lapse by reason of, the transactions
54
contemplated by this Agreement. Schedule 7.19 identifies all material risks, if
any, which the Borrower and its Subsidiaries and their respective Board of
Directors or officers have designated as being self insured, including any
potential environmental liabilities of any kind whatsoever, whether for property
damage, personal injury, remediation, or enforcement matters. Neither the
Borrower nor any Subsidiary has been refused any insurance with respect to its
assets or operations, nor has its coverage been limited below usual and
customary policy limits, by an insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last three
years. All such policies name Agent as additional insured, loss payee, and
contain endorsements for no cancellation thereof without thirty (30) days' prior
written notice to the Agent and the Lenders on all such policies.
Section 7.20 Hedging Agreements. Schedule 7.20 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 the Borrower and each Subsidiary, 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 counter
party to each such agreement.
Section 7.21 Restriction on Liens. Neither the Borrower nor any of its
Subsidiaries is a party to any agreement or arrangement (other than this
Agreement and the Security Instruments), or subject to any order, judgment, writ
or decree, which either restricts or purports to restrict its ability to grant
Liens to other Persons on or in respect of their respective assets or
Properties, except such restrictions in favor of the holders of Debt secured by
Liens described in Sections 9.01(d) or 9.01(e), but only insofar as such
restrictions pertain to the Property encumbered thereby.
Section 7.22 Material Agreements. Set forth on Schedule 7.22 hereto is a
complete and correct list of all material agreements, leases (other than
Hydrocarbon Interests), indentures, purchase agreements, obligations in respect
of letters of credit, guarantees, joint venture agreements, and other
instruments in effect or to be in effect as of the Closing Date (other than
Hedging Agreements) providing for, evidencing, securing or otherwise relating to
any Debt of the Borrower, the Guarantors or any of the Borrower's Subsidiaries,
and all obligations of the Borrower, the Guarantors or any of the Borrower's
Subsidiaries to issuers of surety or appeal bonds issued for account of the
Borrower or any such Subsidiary, and such list correctly sets forth the names of
the debtor or lessee and creditor or lessor with respect to the Debt or lease
obligations outstanding or to be outstanding and the Property subject to any
Lien securing such Debt or lease obligation. Also set forth on Schedule 7.22
hereto is a complete and correct list of all material agreements and other
instruments of the Borrower, the Guarantors and Borrower's Subsidiaries relating
to the purchase, transportation by pipeline, gas processing, marketing, sale and
supply of natural gas and other Hydrocarbons, but in any event, any such
agreement or other instrument that will account for more than 10% of the
consolidated sales of the Borrower, the Guarantors and any of the Borrower's
Subsidiaries during the Borrower's current fiscal year and which is not
cancelable on thirty (30) or fewer days notice.
Section 7.23 Solvency. Borrower, its Subsidiaries, and each of the
Guarantors and with respect to its Subsidiaries and the Guarantors, after taking
into account each Subsidiary's and Guarantor's rights of contribution, on an
individual and a consolidated basis, are not insolvent; Borrower's, its
55
Subsidiaries' and each of the Guarantors' assets and with respect to its
Subsidiaries and the Guarantors, after taking into account each Subsidiary's and
Guarantor's rights of contribution on an individual and a consolidated basis,
exceed their liabilities, and neither Borrower, the Guarantors, nor any of the
Borrower's Subsidiaries or Guarantors and with respect to its Subsidiaries and
the Guarantors, after taking into account each Subsidiary's and Guarantor's
rights of contribution will be rendered insolvent by the execution and
performance of this Agreement and the Loan Documents.
Section 7.24 Gas Imbalances. Except as set forth on Schedule 7.24 or on the
most recent certificate delivered pursuant to Section 8.07(c), on a net basis
there are no gas imbalances, take or pay or other prepayments with respect to
the Borrower's Oil and Gas Properties which (taken together with the imbalances,
take or pay, or other prepayments on Schedule 7.24 or such certificate) would
require the Borrower or its Subsidiaries to deliver, in the aggregate, after
netting all over-production and under-production, three percent (3%) or more of
the total volumes of proved, producing reserves of Hydrocarbons (calculated on
an mcf equivalent basis with each barrel of oil being equivalent to six mcf of
natural gas) reflected in the Initial Reserve Report or the most recent Reserve
Report delivered pursuant to Section 8.07, as the case may be, from the Oil and
Gas Properties of Borrower and its Subsidiaries at some future time without then
or thereafter receiving full payment therefor.
Section 7.25 Madisonville and Elgin Holdings. The Initial Reserve Report
does not (nor will any future Reserve Report) include Oil and Gas Properties
owned by the Borrower or any of its Subsidiaries through its or their interests
in Madisonville or Elgin Holdings.
Section 7.26 Intentionally Omitted.
----------------------
Section 7.27 Name Changes. Borrower's official name as recorded on its
currently effective organizational documents which are filed with the Secretary
of State of its State of organization is the same as found on the signature page
of this Agreement. Borrower has not, during the preceding five years, entered
into any contract, agreement, security instrument or other document using a name
other than, or been known by or otherwise used any name other than, the name
used by Borrower herein and as set forth on Schedule 7.27 attached hereto.
Section 7.28 Taxpayer Identification Number. Borrower's Taxpayer
Identification No. is ▇▇-▇▇▇▇▇▇▇ and each Subsidiary's Taxpayer Identification
No. is set forth on Schedule 7.14. Each Guarantor's Taxpayer Identification No.
is as set forth on Schedule 7.28.
Section 7.29 State of Formation. Borrower is a corporation organized under
the laws of the State of Delaware. The Subsidiaries are corporations, limited
liability corporations, or partnerships organized under the laws of the states
set forth on Schedule 7.14. Each Guarantor's state of organization is as set
forth on Schedule 7.28.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the Commitments
are in effect and until payment in full of all Loans hereunder, all interest
thereon and all other amounts payable by the Borrower hereunder:
56
Section 8.01 Reporting Requirements. The Borrower shall deliver, or shall
cause to be delivered, to the Agent with sufficient copies of each for the
Lenders:
(a) Annual Financial Statements. As soon as available and in any
event within 90 days after the end of each fiscal year of the Borrower, the
audited consolidated statements of income, stockholders' equity, changes in
financial position and cash flows of the Borrower and its Consolidated
Subsidiaries for such fiscal year, and the related consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries as at the end of
such fiscal year, and setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, and accompanied by the
related unqualified opinion of independent public accountants of recognized
national standing acceptable to the Agent, which opinion shall state that
said financial statements fairly present the consolidated financial
condition and results of operations of the Borrower and its Consolidated
Subsidiaries as at the end of, and for, such fiscal year and that such
financial statements have been prepared in accordance with GAAP, except for
such changes in such principles with which the independent public
accountants shall have concurred and such opinion shall not contain a
"going concern" or like qualification or exception, accompanied by the
certificate of a Responsible Officer, which certificate shall state that
said financial statements fairly present the consolidated financial
condition and results of operations of the Borrower and its Consolidated
Subsidiaries in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments), together with
calculations confirming the Borrower's compliance with all financial
covenants, certified by a senior financial officer of Borrower.
(b) Quarterly Financial Statements. As soon as available and in any
event within 45 days after the end of each of the first three fiscal
quarterly periods of each fiscal year of the Borrower, consolidated
statements of income, stockholders' equity, changes in financial position
and cash flows of the Borrower and its Consolidated Subsidiaries for such
period and for the period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated balance sheets as
at the end of such period, and setting forth in each case in comparative
form the corresponding figures for the corresponding period in the
preceding fiscal year, accompanied by the certificate of a Responsible
Officer, which certificate shall state that said financial statements
fairly present the consolidated financial condition and results of
operations of the Borrower and its Consolidated Subsidiaries in accordance
with GAAP, as at the end of, and for, such period (subject to normal
year-end audit adjustments), together with calculations confirming the
Borrower's compliance with all financial covenants, certified by a senior
financial officer of Borrower.
(c) Capital Plan and Operating Budget. As soon as available and in
any event within seventy-five (75) days after the end of each preceding
fiscal year of the Borrower, the Borrower's capital plan and operating
budget for the current fiscal year.
(d) Notice of Default, Etc. Promptly after the Borrower knows that
any Default or any Material Adverse Effect has occurred, a notice of such
Default or Material Adverse Effect, describing the same in reasonable
detail and the action the Borrower proposes to take with respect thereto.
57
(e) Other Accounting Reports. Promptly upon receipt thereof, a copy
of each other report or letter submitted to the Borrower or any Subsidiary
by independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower and its
Subsidiaries, including any reference to environmental matters, and a copy
of any response by the Borrower or any Subsidiary of the Borrower, or the
Board of Directors of the Borrower or any Subsidiary of the Borrower, to
such letter or report.
(f) SEC Filings, Etc. Promptly upon its becoming available, each
financial statement, report, notice or proxy statement sent by the Borrower
to stockholders generally and each regular or periodic report and any
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by the Borrower with or
received by the Borrower in connection therewith from any securities
exchange or the SEC or any successor agency.
(g) Notices Under Other Loan Agreements. Promptly after the
furnishing thereof, copies of any statement, report or notice furnished to
any Person pursuant to the terms of any indenture, loan or credit or other
similar agreement, other than this Agreement and not otherwise required to
be furnished to the Lenders pursuant to any other provision of this Section
8.01.
(h) Production Reports. As soon as available and in any event within
sixty (60) days after the end of each calendar quarter, a quarterly
production report including volumes, revenue, and lease operating expenses
attributable to the Oil and Gas Properties included in the Borrowing Base.
(i) Hedging Agreements. As soon as available and in any event within
ten (10) Business Days after the last day of each calendar quarter, a
report, in form and substance satisfactory to the Agent, setting forth as
of the last Business Day of such calendar quarter 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 the
Borrower and each Subsidiary, the material terms thereof (including the
type, term, effective date, termination date and notional amounts or
volumes), the net ▇▇▇▇ to market value therefor.
(j) Other Matters. From time to time such other information regarding
the business, affairs or financial condition of the Borrower or any
Subsidiary (including, without limitation, any Plan or Multiemployer Plan
and any reports or other information required to be filed under ERISA) as
any Lender or the Agent may reasonably request.
The Borrower will furnish to the Agent, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate
substantially in the form of Exhibit C executed by a Responsible Officer (i)
certifying as to the matters set forth therein and stating that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail), and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Borrower is in
compliance with Sections 9.12, 9.13, 9.14, and 9.15, as of the end of the
respective fiscal quarter or fiscal year.
58
Section 8.02 Litigation. The Borrower shall promptly give to the Agent
notice of: (i) all legal or arbitral proceedings, and of all proceedings before
any Governmental Authority to which the Borrower or any Subsidiary is a party
and to the best of Borrower's knowledge, all legal or arbitral proceedings and
all proceedings before any Governmental Authority affecting the Borrower or any
Subsidiary, except proceedings which, if adversely determined, would not have a
Material Adverse Effect, and (ii) of any litigation or proceeding against or
adversely affecting the Borrower or any Subsidiary in which the amount involved
is not covered in full by insurance (subject to normal and customary deductibles
and for which the insurer has not assumed the defense), or in which injunctive
or similar relief is sought. The Borrower will, and will cause each of its
Subsidiaries to, promptly notify the Agent and each of the Lenders of all
claims, judgments, Liens or other encumbrances affecting any Property of the
Borrower or any Subsidiary if the value of the claims, judgments, Liens, or
other encumbrances affecting such Property shall exceed $500,000.00 in the
aggregate.
Section 8.03 Maintenance, Etc.
-----------------
(a) Generally. The Borrower shall and shall cause each Subsidiary to:
preserve and maintain its corporate existence and all of its material
rights, privileges and franchises; keep books of record and account in
which full, true and correct entries will be made of all dealings or
transactions in relation to its business and activities; comply with all
Governmental Requirements if failure to comply with such requirements will
have a Material Adverse Effect; pay and discharge all taxes, assessments
and governmental charges or levies imposed on it or on its income or
profits or on any of its Property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy the
payment of which is being contested in good faith and by proper proceedings
and against which adequate reserves are being maintained; upon reasonable
notice, permit representatives of the Agent or any Lender, during normal
business hours, to examine, copy and make extracts from its books and
records, to inspect its Properties, and to discuss its business and affairs
with its officers, all to the extent reasonably requested by such Lender or
the Agent (as the case may be); and keep, or cause to be kept, insured by
financially sound and reputable insurers all Property of a character
usually insured by Persons engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such Persons and carry such other insurance
as is usually carried by such Persons including, without limitation,
environmental risk insurance to the extent reasonably available, or provide
adequate reserves for self-insurance for any contingent environmental
liability. The Borrower shall promptly obtain endorsements to such
insurance policies naming "▇▇▇▇▇ Fargo Bank, National Association, as Agent
for the Lenders" as joint loss payee, additional insured, and containing
provisions that such policies will not be canceled without 30 days' prior
written notice having been given by the insurance company to the Agent (and
not that the insurance company will merely endeavor to give the Agent 30
days' prior written notice prior to cancellation). Notwithstanding the
foregoing, but subject to the terms of this Agreement, the Borrower shall
be allowed to dissolve and liquidate any Inactive Subsidiary; provided that
any assets available for distribution following such dissolution and
liquidation are distributed to the Borrower or an Active Subsidiary. No
59
assets can be transferred to any Inactive Subsidiary once it reaches
inactive status without the prior written consent of the Agent, nor can any
Inactive Subsidiary, once it reaches inactive status, make any investments,
loans, or advances.
(b) Proof of Insurance. Contemporaneously with the delivery of the
financial statements required by Section 8.01(a) to be delivered for each
year, the Borrower will furnish or cause to be furnished to the Agent and
the Lenders a certificate of insurance coverage from the insurer in form
and substance satisfactory to the Agent and, if requested, will furnish the
Agent and the Lenders copies of the applicable policies.
(c) Operation of Properties. The Borrower will and will cause each
Subsidiary to operate its Properties or cause such Properties to be
operated in a safe, careful and efficient manner in accordance with the
practices of the industry, in compliance with all applicable contracts and
agreements and in compliance in all material respects with all Governmental
Requirements, including the Environmental Laws.
(d) Oil and Gas Properties. The Borrower will and will cause each
Subsidiary to, at its own expense, do or cause to be done all things
reasonably necessary to preserve and keep in good repair, working order and
efficiency all of its Oil and Gas Properties and other material Properties
including, without limitation, all equipment, machinery and facilities, and
from time to time will make all the reasonably necessary repairs, renewals
and replacements so that at all times the state and condition of its Oil
and Gas Properties and other material Properties will be fully preserved
and maintained, except to the extent a portion of such Properties is no
longer capable of producing Hydrocarbons in economically reasonable
amounts. The Borrower will and will cause each Subsidiary to promptly: (i)
pay and discharge, or make reasonable and customary efforts to cause to be
paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties, (ii) perform or make reasonable
and customary efforts to cause to be performed, in accordance with industry
standards, the obligations required by each and all of the assignments,
deeds, leases, sub-leases, contracts and agreements affecting its interests
in its Oil and Gas Properties and other material Properties, (iii) cause
each Subsidiary to do all other things necessary to keep unimpaired, except
for Liens described in Section 9.02, its rights with respect to its Oil and
Gas Properties and other material Properties and prevent any forfeiture
thereof or a default thereunder, except to the extent a portion of such
Properties is no longer capable of producing Hydrocarbons in economically
reasonable amounts and except for dispositions permitted by Sections 9.16
and 9.17. The Borrower will and will cause each Subsidiary to operate its
Oil and Gas Properties and other material Properties or cause or make
reasonable and customary efforts to cause such Oil and Gas Properties and
other material Properties to be operated in a safe, careful, and efficient
manner in accordance with the practices of the industry and in compliance
with all applicable contracts and agreements and in compliance in all
material respects with all Governmental Requirements, including the
Environmental Laws.
Section 8.04 Environmental Matters.
----------------------
(a) Establishment of Procedures. The Borrower will and will cause
each Subsidiary to assure that any failure of the following does not have a
60
Material Adverse Effect: (i) all Property of the Borrower and its
Subsidiaries and the operations conducted thereon and other activities of
the Borrower and its Subsidiaries are in compliance with and do not violate
the requirements of any Environmental Laws, (ii) no oil, hazardous
substances or solid wastes are disposed of or otherwise released on or to
any Property owned by any such party except in compliance with
Environmental Laws, (iii) no hazardous substance will be released on or to
any such Property in a quantity equal to or exceeding that quantity which
requires reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil
and gas exploration and production wastes or hazardous substance is
released on or to any such Property so as to pose an imminent and
substantial endangerment to public health or welfare or the environment.
Upon request from the Agent, the Borrower will notify the Agent and the
Lenders in writing of such environmental procedures as are in effect for
each Property of Borrower and its Subsidiaries on a quarterly basis.
(b) Notice of Action. The Borrower will promptly notify the Agent and
the Lenders in writing within 30 days of such notice of any threatened
action, investigation or inquiry against or of the Borrower and/or any
Subsidiary by any Governmental Authority of which the Borrower has
knowledge in connection with any Environmental Laws and which, if resolved
adversely to the Borrower and/or any Subsidiary, could have a Material
Adverse Effect, excluding routine testing, but including corrective action.
(c) Cure of Environmental Noncompliance. The Borrower shall cure any
material environmental noncompliance or exceptions to any of the Mortgaged
Properties or, if requested by Agent, substitute acceptable Mortgaged
Properties with no environmental noncompliance of an equivalent value by
the execution of documents in form and substance satisfactory to Agent
(together with evidence satisfactory to Agent of a first priority deed of
trust lien and security interest in such Mortgaged Properties, which may
include opinions of counsel at the request of Agent), within 30 days after
a request by the Agent or the Lenders to cure such defects or exceptions.
(d) Future Acquisitions. The Borrower will and will cause each
Subsidiary to obtain such Phase I environmental audits as would a
reasonable and prudent purchaser of oil and gas properties in the vicinity
of the Oil and Gas Properties being acquired in connection with any future
acquisitions of material Oil and Gas Properties or other material
Properties. Such environmental audits shall be performed by scientifically
trained USA-graduate professional engineers and professional geologists who
are licensed in one or more states of the USA, and shall be performed in
accordance with applicable best professional standards, including the
American Society for Testing Material standards, and, in addition to
CERCLA, shall also address all hazardous substances under all other
Environmental Laws.
Section 8.05 Further Assurances. The Borrower will and will cause each
Subsidiary to cure promptly any defects in the creation and issuance of the
Notes and the execution and delivery of the Security Instruments and this
Agreement. The Borrower at its expense will and will cause each Subsidiary to
promptly execute and deliver to the Agent upon request all such other documents,
agreements and instruments to comply with or accomplish the covenants and
agreements of the Borrower or any Subsidiary, as the case may be, in the
Security Instruments and this Agreement, or to further evidence and more fully
61
describe the collateral intended as security for the Notes, or to correct any
omissions in the Security Instruments, or to state more fully the security
obligations set out herein or in any of the Security Instruments, or to perfect,
protect or preserve any Liens created pursuant to any of the Security
Instruments, or to make any recordings, to file any notices or obtain any
consents, all as may be necessary or appropriate in connection therewith.
Section 8.06 Performance of Obligations. The Borrower will pay the Notes
according to the reading, tenor and effect thereof; and the Borrower will and
will cause each Subsidiary to do and perform every act and discharge all of the
obligations to be performed and discharged by them under the Security
Instruments and this Agreement, at the time or times and in the manner
specified.
Section 8.07 Engineering Reports.
--------------------
(a) Not less than forty-five (45) days prior to each Scheduled
Redetermination Date, commencing with the Scheduled Redetermination Date to
occur on December 1, 2005, the Borrower shall furnish to the Agent and the
Lenders a Reserve Report. The Reserve Report for the June 1 redetermination
shall be prepared by certified independent petroleum engineers or other
independent petroleum consultant(s) acceptable to the Agent and the Reserve
Report for the December 1 redetermination shall be prepared by or under the
supervision of the chief engineer of the Borrower who shall certify such
Reserve Report to be true and accurate and to have been prepared in
accordance with the procedures used in the immediately proceeding June 1
Reserve Report.
(b) In the event of an unscheduled redetermination, the Borrower
shall furnish to the Agent and the Lenders a Reserve Report prepared by or
under the supervision of the chief engineer of the Borrower who shall
certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately
preceding Reserve Report. For any unscheduled redetermination requested by
the Majority Lenders or the Borrower pursuant to Section 2.08(d)), the
Borrower shall provide such Reserve Report with an "as of" date as required
by the Agent as soon as possible, but in any event no later than thirty
(30) days following the receipt of the request by the Agent.
(c) With the delivery of each Reserve Report, the Borrower shall
provide to the Agent and the Lenders, a certificate from a Responsible
Officer certifying that, to the best of his knowledge and in all material
respects: (i) the historical information delivered in connection therewith
to the preparers of such report is true and correct, (ii) the Borrower and
the Active Subsidiaries own good and defensible title to the Oil and Gas
Properties evaluated in such Reserve Report and such Properties are free of
all Liens except for Liens permitted by Section 9.02, and such Properties
comply with all Environmental Laws except for Environmental Matters
permitted by Section 7.17, (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 its Oil and Gas Properties evaluated in
such Reserve Report which would require the Borrower or its Subsidiaries to
deliver Hydrocarbons produced from such Oil and Gas Properties at some
future time without then or thereafter receiving full payment therefor,
(iv) none of its Oil and Gas Properties have been sold since the date of
the last Borrowing Base determination except as set forth on an Exhibit to
62
the certificate, which certificate shall list all of its Oil and Gas
Properties sold and in such detail as reasonably required by the Agent, (v)
attached to the certificate is a list of its Oil and Gas Properties added
to and deleted from the immediately prior Reserve Report and a list showing
any change in working interest or net revenue interest in its Oil and Gas
Properties occurring and the reason for such change, (vi) attached to the
certificate is a list of all Persons disbursing proceeds to the Borrower
from its Oil and Gas Properties and (vii) except as set forth on a schedule
attached to the certificate all of the Oil and Gas Properties evaluated by
such Reserve Report are Mortgaged Property.
Section 8.08 Title Information and Mortgage Coverage.
----------------------------------------
(a) Delivery. On or before the delivery to the Agent and the Lenders
of each Reserve Report required by Section 8.07(a), the Borrower will
deliver title information in form and substance acceptable to the Agent
covering enough of the Oil and Gas Properties evaluated by such Reserve
Report that were not included in the immediately preceding Reserve Report,
so that the Agent shall have received together with title information
previously delivered to the Agent, satisfactory title information on at
least eighty percent (80%) of the value of the Oil and Gas Properties
evaluated by such Reserve Report.
(b) Cure of Title Defects. The Borrower shall cure any title defects
or exceptions which are not Excepted Liens or Liens otherwise permitted by
Section 9.02 raised by such information, or substitute acceptable Mortgaged
Properties with no title defects or exceptions except for Excepted Liens or
Liens otherwise permitted by Section 9.02 covering Mortgaged Properties of
an equivalent value, within 90 days after a request by the Agent or the
Lenders to cure such defects or exceptions.
(c) Failure to Cure Title Defects. If the Borrower is unable to cure
any title defect requested by the Agent or the Lenders to be cured within
the 90-day period or the Borrower does not comply with the requirements to
provide acceptable title information covering eighty percent (80%) of the
value of the Oil and Gas Properties evaluated in the most recent Reserve
Report, such default shall not be a Default or an Event of Default, but
instead the Agent and the Lenders shall have the right to exercise the
following remedy in their sole discretion from time to time, and any
failure to so exercise this remedy at any time shall not be a waiver as to
future exercise of the remedy by the Agent or the Lenders. To the extent
that the Agent or the Lenders are not satisfied with title to any Mortgaged
Property after the time period in Section 8.08(b) has elapsed, such
unacceptable Mortgaged Property shall not count towards the eighty percent
(80%) requirement, and the Agent may send a notice to the Borrower and the
Lenders that the then outstanding Borrowing Base shall be reduced by an
amount as determined by all of the Lenders to cause the Borrower to be in
compliance with the requirement to provide acceptable title information on
eighty percent (80%) of the value of the proved Oil and Gas Properties.
This new Borrowing Base shall become effective immediately after receipt of
such notice.
Section 8.09 Collateral.
-----------
(a) Collateral. The Obligations shall be secured by a perfected first
63
priority Lien (subject only to Excepted Liens or Liens otherwise permitted
by Section 9.02) granted to the Agent for the benefit of the Beneficiaries
in at least eighty percent (80%) in value of the proved Oil and Gas
Properties currently owned and hereafter acquired by the Borrower and/or
any of its Active Subsidiaries plus all other assets, exclusive of
certificated vehicles, of the Borrower and/or any of its Subsidiaries now
owned or hereafter acquired.
(b) Lien in Acquired Oil and Gas Properties. Should the Borrower
acquire any additional Oil and Gas Properties or additional interests in
its existing Oil and Gas Properties, the Borrower will grant to the Agent
as security for the Obligations a first-priority Lien interest (subject
only to Excepted Liens or Liens otherwise permitted by Section 9.02) on the
Borrower's interest in eighty percent (80%) of the value of the proved Oil
and Gas Properties acquired, which Lien will be created and perfected by
and in accordance with the provisions of mortgages, deeds of trust,
security agreements and financing statements, or other Security
Instruments, all in form and substance satisfactory to the Agent in its
sole discretion exercised in good faith and in sufficient executed (and
acknowledged where necessary or appropriate) counterparts for recording
purposes.
(c) Title Information. Concurrently with the granting of the Lien or
other action referred to in Section 8.09(b) above, the Borrower will
provide to the Agent title information in form and substance satisfactory
to the Agent in its sole discretion exercised in good faith with respect to
the Borrower's interests in such Oil and Gas Properties.
(d) Legal Opinions. Also, promptly after the filing of any new
Security Instrument in any state, upon the request of the Agent, the
Borrower will provide to the Agent an opinion addressed to the Agent for
the benefit of the Lenders in form and substance satisfactory to the Agent
and Agent's counsel in their sole discretion, from counsel acceptable to
Agent and Agent's counsel, stating that the Security Instrument creates a
valid Lien and is valid, binding, and enforceable in accordance with its
terms in legally sufficient form for such jurisdiction, and the means by
which to perfect the Lien created by such Security Instruments.
Section 8.10 Cash Collateral Account Agreement. Upon the occurrence of a
Default, the Borrower and all of its Subsidiaries shall cause all proceeds
arising from its Oil and Gas Properties, including without limitation from the
sale of Hydrocarbons, to be directed to a Lockbox (and in connection therewith,
Borrower and all of its Subsidiaries shall execute a Lockbox Agreement and
financing statements in form and substance satisfactory to the Agent) pursuant
to letters acceptable to the Agent stating that such directions may not be
changed without the written consent of the Agent. The Cash Collateral Account
Agreement and the Liens and security interests established in such Cash
Collateral Account Agreement will continue until all the Obligations under this
Agreement are paid in full and this Agreement is terminated.
Section 8.11 Mortgage Title Opinions. Within thirty (30) days following the
Initial Funding, the Borrower shall cause to be delivered to the Agent title
opinions satisfactory to the Agent supplementing the opinions delivered pursuant
to Section 6.01(j) above and showing the lien of the Security Instruments
covering the Mortgaged Property to be first and prior and subject to no
exceptions not reflected in such prior title opinions.
64
Section 8.12 ERISA Information and Compliance. The Borrower will promptly
furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly
furnish to the Agent with sufficient copies to the Lenders (i) promptly after
the filing thereof with the United States Secretary of Labor, the Internal
Revenue Service or the PBGC, copies of each annual and other report with respect
to each Plan or any trust created thereunder, (ii) immediately upon becoming
aware of the occurrence of any ERISA Event or of any "prohibited transaction,"
as described in Section 406 of ERISA or in Section 4975 of the Code, in
connection with any Plan or any trust created thereunder, a written notice
signed by a Responsible Officer specifying the nature thereof, what action the
Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes to take
with respect thereto, and, when known, any action taken or proposed by the
Internal Revenue Service, the Department of Labor or the PBGC with respect
thereto, and (iii) immediately upon receipt thereof, copies of any notice of the
PBGC's intention to terminate or to have a trustee appointed to administer any
Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower
will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full
and in a timely manner, without incurring any late payment or underpayment
charge or penalty and without giving rise to any lien, all of the contribution
and funding requirements of Section 412 of the Code (determined without regard
to subsections (d), (e), (f) and (k) thereof) and of Section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay,
or cause to be paid, to the PBGC in a timely manner, without incurring any late
payment or underpayment charge or penalty, all premiums required pursuant to
sections 4006 and 4007 of ERISA.
Section 8.13 Joinder and Guaranty Agreements. The Borrower and each of its
Subsidiaries will cause each of their Subsidiaries, whether newly formed,
hereafter acquired, or otherwise existing, upon the creation or acquisition
thereof, to become a Guarantor hereunder by way of a Joinder Agreement attached
hereto as Exhibit G, a Guaranty Agreement attached hereto as Exhibit H, a
Contribution Agreement by and among the Borrower and all Guarantors, and the
execution of mortgages, deeds of trust, security agreements, pledges, and any
other instruments in form and substance satisfactory to Agent and in Agent's
sole discretion covering all of such Subsidiaries' assets as security for the
Obligations, together with evidence satisfactory to the Agent, in Agent's sole
discretion, that all such collateral will be subject to a perfected first Lien
on such collateral, exclusive of certificated vehicles, in favor of the Agent,
with only such Liens or other encumbrances of any kind on such collateral
permitted by Section 9.02 or otherwise permitted by the Agent.
Section 8.14 Hedging. Agent, in its discretion, may require the Borrower to
hedge a percentage of projected production volumes determined by the Agent in
its sole discretion, on terms acceptable to the Agent, whenever Borrower has
Loans and LC Exposure under this Agreement in excess of seventy-five percent
(75%) of the Borrowing Base.
ARTICLE IX
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the Commitments
are in effect and until payment in full of Loans hereunder, all interest thereon
and all other amounts payable by the Borrower hereunder, without the prior
written consent of the Majority Lenders:
65
Section 9.01 Debt. Neither the Borrower nor any Subsidiary will incur,
create, assume or permit to exist any Debt, except (with respect to the Borrower
and any Active Subsidiary):
(a) the Notes or other Obligations or any guaranty of or suretyship
arrangement for the Notes or other Obligations (provided, however, that
nothing contained herein shall prohibit any Inactive Subsidiary from
executing a guaranty of, or entering a suretyship arrangement for, the
Notes or other Obligations);
(b) Debt of the Borrower or a Subsidiary existing on the Closing Date
which is reflected in the Financial Statements or is disclosed in Schedule
9.01, and any renewals or extensions (but not increases) thereof;
(c) accounts payable (for the deferred purchase price of Property or
services), amounts owed to operators of the Hydrocarbon Interests under
applicable joint operating agreements or other extensions of credit from
suppliers or contractors from time to time incurred in the ordinary course
of business which, if greater than 90 days past the invoice or billing
date, are being contested in good faith by appropriate proceedings if
reserves adequate under GAAP shall have been established therefor;
(d) Purchase money Debt of the Borrower or any Active Subsidiary and
Debt under capital leases (as required to be reported on the financial
statements of the Borrower or any Active Subsidiary pursuant to GAAP) not
to exceed $1,000,000.00 in the aggregate;
(e) Debt associated with bonds or surety obligations required by
Governmental Requirements in connection with the operation of the Oil and
Gas Properties, not to exceed $2,000,000 in the aggregate; and
(f) Debt of the Borrower and its Active Subsidiaries under Hedging
Agreements, but only if (i) it is not a speculative hedge; (ii) the
provider of the Hedging Agreements is a Lender or an unsecured counterparty
acceptable to the Agent;
(g) Debt among the Borrower and its Active Subsidiaries, or among the
Active Subsidiaries, in the form of intercompany advances not evidenced by
notes or other instruments if such Active Subsidiary is a Guarantor under
this Agreement;
(h) Accrued FAS 143 asset retirement obligations;
(i) Revenue suspense accounts with respect to the Borrower's or any
Active Subsidiary's Hydrocarbon Interests;
(j) Debt not otherwise permitted under this Section 9.01, which does
not exceed at one time an aggregate principal amount of $2,000,000.00.
Section 9.02 Liens. Neither the Borrower nor any Subsidiary will create,
incur, assume or permit to exist any Lien on any of its Properties (now owned or
hereafter acquired), except (with respect to the Borrower or any Active
Subsidiary):
(a) Liens securing the payment of any Obligations (provided, however,
66
that nothing contained herein shall prohibit any Inactive Subsidiary from
granting Liens to secure the Obligations);
(b) Excepted Liens (provided, however, that nothing contained herein
shall prohibit any Inactive Subsidiary from creating, incurring, assuming,
or permitting to exist any Excepted Liens on any of its Properties (now
owned or hereafter acquired));
(c) Liens securing purchase money Debt permitted by Section 9.01(d)
only to the extent such Liens encumber the Property for which such purchase
money Debt was incurred, and Liens filed as precautionary financing
statements in connection with leases allowed under Section 9.01(d) but only
on the Property under the Lease, or filed as precautionary financing
statements in connection with operating leases, but only on the Property
under lease;
(d) Liens disclosed on Schedule 9.02; and
(e) Liens on cash or securities of the Borrower securing the Debt
described in Section 9.01(e).
Section 9.03 Investments, Loans and Advances. Neither the Borrower nor any
Subsidiary will make or permit to remain outstanding any loans or advances to or
investments in any Person, except that the foregoing restriction shall not apply
to (with respect to the Borrower or any Active Subsidiary):
(a) investments, loans or advances reflected in the Financial
Statements or which are disclosed to the Lenders in Schedule 9.03;
(b) accounts receivable arising in the ordinary course of business;
(c) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each
case maturing within one year from the date of creation thereof;
(d) commercial paper maturing within one year from the date of
creation thereof rated in the highest grade by Standard & Poor's
Corporation or ▇▇▇▇▇'▇ Investors Service, Inc.;
(e) deposits maturing within one year from the date of creation
thereof with, including certificates of deposit issued by, any Lender or
any office located in the United States of any other bank or trust company
which is organized under the laws of the United States or any state
thereof, has capital, surplus and undivided profits aggregating at least
$500,000,000 (as of the date of such Lender's or bank or trust company's
most recent financial reports) and has a short term deposit rating of no
lower than A2 or P2, as such rating is set forth from time to time, by
Standard & Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, Inc.,
respectively;
(f) deposits in money market funds investing exclusively in
investments described in Section 9.03(c), 9.03(d) or 9.03(e);
67
(g) investments, loans or advances made by the Borrower in or to its
Active Subsidiaries and investments, loans or advances made by any Active
Subsidiary in or to the Borrower or another Active Subsidiary, as long as
such Active Subsidiary is a Guarantor under this Agreement.
(h) advances to employees of the Borrower or any Active Subsidiary
for the payment of expenses in the ordinary course of business, not to
exceed $25,000.00 in the aggregate at any one time outstanding;
(i) other investments, loans or advances not to exceed $1,000,000.00
in the aggregate at any time; and
(j) Hedging Agreements permitted to be incurred pursuant to Section
9.01(f).
Notwithstanding the foregoing, the Borrower nor any Subsidiary will make
loans or advances to or investments into Madisonville or Elgin Holdings.
Section 9.04 Dividends, Distributions and Redemptions. The Borrower will
not declare or pay any dividend, purchase, redeem or otherwise acquire for value
any of its stock now or hereafter outstanding (excluding dividends payable
solely in shares of capital stock and cashless exercise of warrants or stock
options), return any capital to its stockholders or make any distribution of its
assets to its stockholders.
Section 9.05 Sales and Leasebacks. Neither the Borrower nor any Subsidiary
will enter into any arrangement, directly or indirectly, with any Person whereby
the Borrower or any Subsidiary shall sell or transfer any of its Property,
whether now owned or hereafter acquired, and whereby the Borrower or any
Subsidiary shall then or thereafter rent or lease as lessee such Property or any
part thereof or other Property which the Borrower or any Subsidiary intends to
use for substantially the same purpose or purposes as the Property sold or
transferred.
Section 9.06 Nature of Business. Neither the Borrower nor any Subsidiary
will allow any material change to be made in the character of its business as an
oil and gas exploration and production company.
Section 9.07 Limitation on Leases. Neither the Borrower nor any Subsidiary
will create, incur, assume or permit to exist any obligation for the payment of
rent or hire of Property of any kind whatsoever (real or personal, but excluding
capital leases, leases of Hydrocarbon Interests, and other leases of oil and gas
field production equipment entered into in the ordinary course of business),
under leases or lease agreements which would cause the aggregate amount of all
payments made by the Borrower and its Subsidiaries pursuant to all such lease or
lease agreements to exceed $500,000.00 in any period of twelve (12) consecutive
calendar months during the life of such leases.
Section 9.08 Mergers, Acquisitions, Etc. Neither the Borrower nor any
Subsidiary will acquire assets or all or any part of any other Person, or merge
into or with or consolidate with any other Person unless (x) the Borrower or
such Subsidiary shall be the surviving entity in such transaction; (y)
substantially all of the assets of such Person shall consist of domestic
undeveloped Hydrocarbon Interests or domestic developed Oil and Gas Properties;
and (z) no Event of Default under Section 10.01(l) shall result therefrom, or
68
sell, lease or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its Property or assets to any other
Person other than the Borrower or an Active Subsidiary; provided, however,
nothing shall prohibit Borrower or any Active Subsidiary from: (i) acquiring (a)
any domestic undeveloped Hydrocarbon Interests, (b) domestic developed Oil and
Gas Properties or (c) all of the outstanding capital stock of a Person,
substantially all of the Property of which consists of domestic undeveloped
Hydrocarbon Interests or domestic developed Oil and Gas Properties, so long as
Borrower or such Active Subsidiary pledges and/or mortgages to the Lenders all
such developed Oil and Gas Properties or capital stock acquired pursuant thereto
(to the extent necessary to maintain Agent's Lien in at least eighty percent
(80%) by value of the proved Oil and Gas Properties of Borrower and its
Subsidiaries) by execution of documents in form and substance satisfactory to
Agent in its sole discretion, granting perfected, first priority Liens and
security interests in such Oil and Gas Properties subject only to Excepted
Liens, Liens otherwise permitted by Section 9.02 and other Liens acceptable to
the Lenders; or (ii) merging (after having given Agent thirty (30) days prior
written notice) (a) any Active or Inactive Subsidiary into another Active
Subsidiary or (b) any Guarantor into Borrower.
Section 9.09 Proceeds of Notes; Letters of Credit. The Borrower will not
permit the proceeds of the Notes or Letters of Credit to be used for any purpose
other than those permitted by Section 7.07. Neither the Borrower nor any Person
acting on behalf of the Borrower has taken or will take any action which might
cause any of the Loan Documents to violate Regulation T, U or X or any other
regulation of the Board of Governors of the Federal Reserve System or to violate
Section 7 of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect.
Section 9.10 ERISA Compliance. The Borrower will not at any time:
----------------
(a) Engage in, or permit any Subsidiary or ERISA Affiliate to engage
in, any transaction in connection with which the Borrower, any Subsidiary
or any ERISA Affiliate could be subjected to either a civil penalty
assessed pursuant to Section 502(c), (i) or (l) of ERISA or a tax imposed
by Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any Subsidiary or ERISA Affiliate to
terminate, any Plan in a manner, or take any other action with respect to
any Plan, which could result in any liability to the Borrower, any
Subsidiary or any ERISA Affiliate to the PBGC;
(c) Fail to make, or permit any Subsidiary or ERISA Affiliate to fail
to make, full payment when due of all amounts which, under the provisions
of any Plan, agreement relating thereto or applicable law, the Borrower, a
Subsidiary or any ERISA Affiliate is required to pay as contributions
thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA Affiliate to
permit to exist, any accumulated funding deficiency within the meaning of
Section 302 of ERISA or Section 412 of the Code, whether or not waived,
with respect to any Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate to permit, the
actuarial present value of the benefit liabilities under any Plan
maintained by the Borrower, any Subsidiary or any ERISA Affiliate which is
regulated under Title IV of ERISA to exceed the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA)
of such Plan allocable to such benefit liabilities. The term "actuarial
69
present value of the benefit liabilities" shall have the meaning specified
in Section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute to, or permit
any Subsidiary or ERISA Affiliate to contribute to or assume an obligation
to contribute to, any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate to acquire,
an interest in any Person that causes such Person to become an ERISA
Affiliate with respect to the Borrower, any Subsidiary or any ERISA
Affiliate if such Person sponsors, maintains or contributes to, or at any
time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other
Plan that is subject to Title IV of ERISA under which the actuarial present
value of the benefit liabilities under such Plan exceeds the current value
of the assets (computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate to incur, a
liability to or on account of a Plan under sections 515, 4062, 4063, 4064,
4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute to, or permit
any Subsidiary or ERISA Affiliate to contribute to or assume an obligation
to contribute to, any employee welfare benefit plan, as defined in Section
3(1) of ERISA, including, without limitation, any such plan maintained to
provide benefits to former employees of such entities, that may not be
terminated by such entities in their sole discretion at any time without
any material liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate to amend, a
Plan resulting in an increase in current liability such that the Borrower,
any Subsidiary or any ERISA Affiliate is required to provide security to
such Plan under Section 401(a)(29) of the Code.
Section 9.11 Sale or Discount of Receivables. Neither the Borrower nor any
Subsidiary will discount or sell (with or without recourse) any of its notes
receivable or accounts receivable (other than a settlement on an account
receivable in the ordinary course of business).
Section 9.12 Capital Expenditures. The Borrower will not make (or permit
any Subsidiaries to make) any expenditures for fixed or capital assets unless:
(a) in the ordinary course of business and (b) it does not violate the
provisions of Section 9.08.
Section 9.13 Current Ratio. The Borrower will not permit its ratio of (i)
consolidated Current Assets (including, without limitation, Borrowing Base
availability for general corporate purposes) to (ii) consolidated Current
Liabilities (excluding current maturities of the Notes) to be less than 1.00 to
1.00 at any time. The current ratio shall be calculated and tested quarterly as
of the last day of each fiscal quarter of Borrower, beginning with the quarter
ending June 30, 2005. As used in this Section 9.13, "Current Assets" shall have
the meaning of such term as defined by GAAP, except any availability under the
Borrowing Base shall be included in the definition of Current Assets and
"Current Liabilities" shall have the meaning of such term as defined by GAAP,
except that current maturities of the Notes shall be excluded from Current
70
Liabilities. Current asset or liability accounts associated with Hedging
Agreements will be excluded from calculations of the Current Ratio.
Section 9.14 Tangible Net Worth. The Borrower will not permit, at any time,
its Tangible Net Worth to be less than $45,000,000.00, plus fifty percent (50%)
of positive net income, plus one hundred percent (100%) of the net cash proceeds
of equity offerings after the Closing Date. For purposes of calculation of this
covenant, the effects of FAS 133, FAS 143, and FAS 123R will be excluded.
Section 9.15 Interest Coverage Ratio. The Borrower will not permit its
Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower
(calculated quarterly at the end of each fiscal quarter commencing with fiscal
quarter ended June 30, 2005) to be less than 3.00 to 1.00. For the purposes of
this Section 9.15, "Interest Coverage Ratio" shall mean the ratio of (i) EBITDAX
for the four fiscal quarters ending on such date to (ii) cash interest payments
made for such four fiscal quarters of the Borrower and its Consolidated
Subsidiaries. Notwithstanding the foregoing provisions of this Section 9.15,
EBITDAX and cash interest payments as of June 30, 2005, shall be calculated as
EBITDAX and cash interest payments for the quarter ending on such date
multiplied by four (4); EBITDAX and cash interest payments as of September 30,
2005, shall be calculated as EBITDAX and cash interest payments for the
two-quarter period ending on such date multiplied by two (2); and EBITDAX and
cash interest payments as of December 31, 2005, shall be calculated as EBITDAX
and cash interest payments for the three-quarter period ending on such date
multiplied by four (4) and divided by three (3).
Section 9.16 Sale of Mortgaged Properties. The Borrower will not, and will
not permit any Subsidiary to, sell, assign, convey or otherwise transfer any
Mortgaged Property or any interest in any Mortgaged Property, except for
Mortgaged Property for which the Borrower has given the Agent at least thirty
(30) days prior written notice of the proposed transfer and which shall not
exceed $1,000,000.00 in the aggregate in between any two consecutive
Redetermination Dates.
Section 9.17 Sale of Oil and Gas Properties. The Borrower will not, and
will not permit any Subsidiary to, sell, assign, farm-out, convey or otherwise
transfer any Oil and Gas Property or any interest in any Oil and Gas Property
except for (i) the sale of Hydrocarbons in the ordinary course of business; (ii)
farmouts of undeveloped acreage and assignments in connection with such
farmouts; (iii) the sale or transfer of equipment that is no longer necessary
for the business of the Borrower or such Subsidiary or is contemporaneously
replaced by equipment of at least comparable value and use and (iv) sales in the
ordinary course of business of Oil and Gas Properties that are not Mortgaged
Properties, which shall not exceed $200,000.00 in the aggregate in between any
two consecutive Redetermination Dates.
Section 9.18 Environmental Matters. Neither the Borrower nor any Subsidiary
will cause or permit any of its Property to be in violation of, or do anything
or permit anything to be done which will cause from any Property any actual,
alleged or threatened discharge, dispersal, release, escape, emission,
transportation, disposal, seepage, exposure, consumption, or contact
(collectively, "Releases") of, with, to, or from any hazardous substance under
any Environmental Laws, subject any Property to any enforcement action under any
Environmental Laws by any Governmental Authority or lawsuit at any Property
relating to hazardous substances, or subject any such Property to any remedial
71
obligations by any Governmental Authority under any Environmental Laws, assuming
disclosure to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to such Property where such
Releases, violations or remedial obligations would have a Material Adverse
Effect.
Section 9.19 Transactions with Affiliates. Neither the Borrower nor any
Subsidiary will enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of Property or the rendering of any service,
with any Affiliate unless such transactions are otherwise permitted under this
Agreement, are in the ordinary course of its business and are upon fair and
reasonable terms no less favorable to it than it would obtain in a comparable
arm's length transaction with a Person not an Affiliate.
Section 9.20 Subsidiaries. The Borrower shall not, and shall not permit any
Subsidiary to, create any additional Subsidiaries except in compliance with
Sections 8.13 and 9.24. The Borrower shall not and shall not permit any
Subsidiary to sell or to issue any stock or ownership interest of a Subsidiary,
except to the Borrower or any Guarantor and except in compliance with Section
9.03.
Section 9.21 Negative Pledge Agreements. Neither the Borrower nor any
Subsidiary will create, incur, assume or permit to exist any contract, agreement
or understanding (other than this Agreement and the Security Instruments) which
in any way prohibits or restricts the granting, conveying, creation or
imposition of any Lien on any of its Property or restricts any Subsidiary from
paying dividends to the Borrower, or which requires the consent of or notice to
other Persons in connection therewith, except such restrictions in favor of the
holders of Debt secured by Liens described in Sections 9.01(d) or 9.01(e), but
only insofar as such restrictions pertain to the Property encumbered thereby.
Section 9.22 Take-or-Pay or Other Prepayments. The Borrower will not enter
into any take-or-pay agreements with respect to the Oil and Gas Properties of
the Borrower, any of its Subsidiaries, or any Guarantor which would require the
Borrower, any of its Subsidiaries or any Guarantor to deliver Hydrocarbons
produced on Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor.
Section 9.23 Ownership of Subsidiaries. The Borrower shall not fail to
pledge, assign, deliver, and transfer to the Agent for the benefit of the
Lenders, and grant to the Agent for the benefit of the Lenders, a continuing
security interest in one hundred percent (100%) of the stock or other ownership
interests in the Subsidiaries existing as of the date hereof and any
Subsidiaries the Borrower shall create, acquire or otherwise own hereafter.
Section 9.24 Change in Borrower's, any of its Subsidiaries' or any
Guarantor's Name or State of Formation. Without the prior written approval of
Agent, (a) Borrower will not (nor permit any Subsidiary or Guarantor to) change
its name, identity or place of organization and (b) Borrower will not (nor
permit any Subsidiary or Guarantor to) engage in any other business or
transaction under any name other than Borrower's, any Guarantor, or each
Subsidiary's name, respectively, hereunder. Should Agent approve, prior to doing
any of the aforesaid, Borrower shall provide (or cause each Subsidiary or
Guarantor to provide) to Agent all assignments, certificates, financing
statements, financing statement amendments or other documents determined
necessary in Agent's sole judgment to protect and continue Agent's interest in
the collateral pledged by Borrower, any of its Subsidiaries, any Guarantor, or
any other party to secure the Obligations.
72
Section 9.25 Intentionally Omitted.
----------------------
Section 9.26 Intentionally Omitted.
----------------------
Section 9.27 Deposit Account. The Borrower shall not fail to establish
(within ninety (90) days after the date hereof) and maintain, at all times, its
primary depository and disbursement accounts with ▇▇▇▇▇ Fargo Bank, N.A. The
Borrower has determined that it is beneficial to use the proceeds of the
extensions of credit made available hereunder in the manner described by this
Section 9.27.
Section 9.28 Limitation on Hedging. The total notional volume attributable
to any Hedging Agreement with respect to Hydrocarbon Interests shall not exceed
more than eighty percent (80%) of scheduled proved producing net production
quantities as of the most recent Reserve Report in any period. If the Hedging
Agreement is an interest rate hedge, the notional principal amount shall not
exceed more than seventy-five percent (75%) of Loans outstanding to the
Borrower.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the following events shall
constitute an "Event of Default":
(a) the Borrower, any of its Subsidiaries, or any Guarantor shall
default in the payment or prepayment when due of any principal of or
interest on any Loan, or any reimbursement obligation for a disbursement
made under any Letter of Credit within the period allowed by Section
2.10(a), or any fees or other amount payable by it hereunder or under any
Security Instrument; or
(b) the Borrower, any of its Subsidiaries, or any Guarantor shall
default in the payment when due of any principal of or interest on any of
its other Debt aggregating $1,000,000.00 or more, or any event specified in
any note, agreement, indenture or other document evidencing or relating to
any such Debt shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to permit the holder
or holders of such Debt (or a trustee or Agent on behalf of such holder or
holders) to cause, such Debt to become due prior to its stated maturity; or
(c) any representation, warranty or certification made or deemed made
herein or in any Security Instrument by the Borrower, any of its
Subsidiaries, or any Guarantor, or any certificate furnished to any Lender
or the Agent pursuant to the provisions hereof or any Security Instrument,
shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
(d) the Borrower shall default in the performance of any of its
obligations under Article IX, or Section 8.03, or Section 8.14, or any
other Article of this Agreement other than under Article VIII (other than
73
as specifically excepted in this subsection); or the Borrower shall default
in the performance of any of its obligations under Article VIII (other than
Section 8.03 (other than as specifically excepted in this subsection) or
Section 8.14) or the Borrower, any of its Subsidiaries, or any Guarantor
shall default in the performance of their obligations under Section
8.03(c), or Section 8.03(d), or Section 9.18 as to those Oil and Gas
Properties not operated by the Borrower nor any Subsidiary and which have
an aggregate value of $1,000,000.00 or more as determined by the latest
Engineering Reports provided to the Lender pursuant to Section 2.08 of this
Agreement, or the Borrower, any of its Subsidiaries, or any Guarantor shall
default in the performance of their obligations under any Security
Instrument (other than the payment of amounts due which shall be governed
by Section 10.01(a)) and any such default shall continue unremedied for a
period of thirty (30) days after the earlier to occur of (i) notice thereof
to the Borrower by the Agent or any Lender (through the Agent), or (ii) the
Borrower otherwise becoming aware of such default; or
(e) the Borrower shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence
a voluntary case under the Federal Bankruptcy Code (as now or hereafter in
effect), (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, winding-up, liquidation
or composition or readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Federal Bankruptcy Code, or
(vi) take any corporate action for the purpose of effecting any of the
foregoing; or
(g) a proceeding or case shall be commenced, without the application
or consent of the Borrower, in any court of competent jurisdiction, seeking
(i) its liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Borrower of all
or any substantial part of its assets, or (iii) similar relief in respect
of the Borrower under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 days; or (iv) an order
for relief against the Borrower shall be entered in an involuntary case
under the Federal Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in excess of
$100,000.00 in the aggregate shall be rendered by a court against the
Borrower or any Subsidiary and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution
thereof shall not be procured, within thirty (30) days from the date of
entry thereof and the Borrower or such Subsidiary shall not, within said
period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to
be stayed during such appeal; or
74
(i) the Loan Documents after delivery thereof shall for any reason,
except to the extent permitted by the terms thereof, cease to be in full
force and effect and valid, binding and enforceable in accordance with
their terms, or cease to create a valid and perfected Lien of the priority
required thereby on any of the collateral in excess of $10,000.00 in the
aggregate at any one time purported to be covered thereby, except to the
extent permitted by the terms of this Agreement, or the Borrower shall so
state in writing; or
(j) any Letter of Credit becomes the subject matter of any order,
judgment, injunction or any other such determination, or if the Borrower,
any of its Subsidiaries, any Guarantor, or any other Person shall petition
or apply for or obtain any order restricting payment by the Agent under any
Letter of Credit or extending the Lenders' liability under any Letter of
Credit beyond the expiration date stated therein or otherwise agreed to by
the Agent; or
(k) an event having a Material Adverse Effect shall occur; or
(l) the Borrower, or any of its Active Subsidiaries, discontinues its
usual business, or any Person other than Oaktree Capital Management LLC or
its Affiliates shall acquire 50.1% or more than a majority of the
Borrower's outstanding securities having ordinary voting power for the
election of directors; or
(m) fewer than a majority of the members of the Board of Directors
are Continuing Directors; provided however, that this section shall not
constitute an Event of Default if, within the 60 days following such event,
Persons are appointed as members of the Board of Directors such that more
than a majority of the members of the Board of Directors are Continuing
Directors; or
(n) any Guarantor takes, suffers or permits to exist any of the
events or conditions referred to in paragraphs (e), (f) or (g) or if any
provision of any guaranty agreement shall for any reason cease to be valid
and binding on any such Guarantor or if any such Guarantor shall so state
in writing; or
(o) if the Borrower, any Guarantor, or any Subsidiary liquidates any
hedge without the prior written consent of the Agent; or
(p) should the Inactive Subsidiaries have assets in excess of
$3,000,000.00 in the aggregate when combined with the aggregate assets
distributed to the Borrower or Active Subsidiaries from and after the date
hereof of all dissolved, discontinued, liquidated, or otherwise terminated
Subsidiaries.
Section 10.02 Remedies.
---------
(a) In the case of an Event of Default other than one referred to in
clauses (e), (f) or (g) of Section 10.01 or in clauses (m) or (n) to the
extent it relates to clauses (e), (f) or (g), the Agent, upon request of
the Majority Lenders, shall, by notice to the Borrower, cancel the
Commitments (in whole or part) and/or declare the principal amount then
75
outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Borrower hereunder and under the Notes (including
without limitation the payment of cash collateral to secure the LC Exposure
as provided in Section 2.10(b)) to be forthwith due and payable, whereupon
such amounts shall be immediately due and payable without presentment,
demand, protest, notice of intent to accelerate, notice of acceleration or
other formalities of any kind, all of which are hereby expressly waived by
the Borrower.
(b) In the case of the occurrence of an Event of Default referred to
in clauses (e), (f) or (g) of Section 10.01 or in clauses (m) or (n) to the
extent it relates to clauses (e), (f) or (g), the Commitments shall be
automatically canceled and the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts payable by the
Borrower hereunder and under the Notes (including without limitation the
payment of cash collateral to secure the LC Exposure as provided in Section
2.10(b)) shall become automatically immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby
expressly waived by the Borrower.
(c) All proceeds received after maturity of the Notes, whether by
acceleration or otherwise shall be applied first to reimbursement of
expenses and indemnities provided for in this Agreement and the Security
Instruments; second to accrued interest on the Notes; third to fees; fourth
pro rata to principal outstanding on the Notes and any other Obligations;
fifth to serve as cash collateral to be held by the Agent to secure the LC
Exposure; and any excess shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.
ARTICLE XI
THE AGENT
Section 11.01 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its Agent hereunder and
under the Security Instruments with such powers as are specifically delegated to
the Agent by the terms of this Agreement and the Security Instruments, together
with such other powers as are reasonably incidental thereto. The Agent (which
term as used in this sentence and in Section 11.05 and the first sentence of
Section 11.06 shall include reference to its Affiliates and its and its
Affiliates' officers, directors, employees, attorneys, accountants, experts and
Agents): (i) shall have no duties or responsibilities except those expressly set
forth in the Loan Documents, and shall not by reason of the Loan Documents be a
trustee or fiduciary for any Lender; (ii) makes no representation or warranty to
any Lender and shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement, or for the value, validity, effectiveness,
genuineness, execution, effectiveness, legality, enforceability or sufficiency
of this Agreement, any Note or any other document referred to or provided for
herein or for any failure by the Borrower or any other Person (other than the
Agent) to perform any of its obligations hereunder or thereunder or for the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower, its Subsidiaries or any other
obligor or guarantor; (iii) except pursuant to Section 11.07 shall not be
76
required to initiate or conduct any litigation or collection proceedings
hereunder; and (iv) shall not be responsible for any action taken or omitted to
be taken by it hereunder or under any other document or instrument referred to
or provided for herein or in connection herewith including its own ordinary
negligence, except for its own gross negligence or willful misconduct. The Agent
may employ agents, accountants, attorneys and experts and shall not be
responsible for the negligence or misconduct of any such agents, accountants,
attorneys or experts selected by it in good faith or any action taken or omitted
to be taken in good faith by it in accordance with the advice of such agents,
accountants, attorneys or experts. The Agent may deem and treat the payee of any
Note as the holder thereof for all purposes hereof unless and until a written
notice of the assignment or transfer thereof permitted hereunder shall have been
filed with the Agent. The Agent is authorized to release any collateral, or
subordinate any Lien on any collateral, that is permitted to be sold or
otherwise disposed of or released pursuant to the terms of the Loan Documents.
Section 11.02 Reliance by Agent. The Agent shall be entitled to rely upon
any certification, notice or other communication (including any thereof by
telephone, telex, telecopier, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent.
Section 11.03 Defaults. The Agent shall not be deemed to have knowledge of
the occurrence of a Default (other than the non-payment of principal of or
interest on Loans or of fees or failure to reimburse for Letter of Credit
drawings) unless the Agent has received notice from a Lender or the Borrower
specifying such Default and stating that such notice is a "Notice of Default."
In the event that the Agent receives such a notice of the occurrence of a
Default, the Agent shall give prompt notice thereof to the Lenders. In the event
of a payment Default, the Agent shall give each Lender prompt notice of each
such payment Default.
Section 11.04 Rights as a Lender. With respect to its Commitments and the
Loans made by it and its participation in the issuance of Letters of Credit,
▇▇▇▇▇ Fargo (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. ▇▇▇▇▇ Fargo (and any successor
acting as Agent) and its Affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to and generally engage in any kind
of banking, trust or other business with the Borrower (and any of its
Affiliates) as if it were not acting as the Agent, and ▇▇▇▇▇ Fargo and its
Affiliates may accept fees and other consideration from the Borrower for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
Section 11.05 Indemnification. The Lenders agree to indemnify the Agent and
the Issuing Bank ratably in accordance with their Percentage Shares for the
Indemnity Matters as described in Section 12.03 to the extent not indemnified or
reimbursed by the Borrower under Section 12.03, but without limiting the
obligations of the Borrower under said Section 12.03 and for any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent or the Issuing Bank in any
way relating to or arising out of: (i) this Agreement, the Security Instruments
77
or any other documents contemplated by or referred to herein or the transactions
contemplated hereby, but excluding, unless a Default has occurred and is
continuing, normal administrative costs and expenses incident to the performance
of its agency duties hereunder or (ii) the enforcement of any of the terms of
this Agreement, any Security Instrument or of any such other documents; whether
or not any of the foregoing specified in this Section 11.05 arises from the sole
or concurrent negligence of the Agent or the Issuing Bank, provided that no
Lender shall be liable for any of the foregoing to the extent they arise from
the gross negligence or willful misconduct of the Agent.
Section 11.06 Non-Reliance on Agent and other Lenders. Each Lender
acknowledges and agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Borrower and its
decision to enter into this Agreement, and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement.
The Agent shall not be required to keep itself informed as to the performance or
observance by the Borrower of this Agreement, the Notes, the Security
Instruments or any other document referred to or provided for herein or to
inspect the properties or books of the Borrower. Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Agent or any of its
Affiliates. In this regard, each Lender acknowledges that ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇ P.C. is acting in this transaction as special counsel to the Agent only,
except to the extent otherwise expressly stated in any legal opinion or any Loan
Document. Each Lender will consult with its own legal counsel to the extent that
it deems necessary in connection with the Loan Documents and the matters
contemplated therein.
Section 11.07 Action by Agent. Except for action or other matters expressly
required of the Agent hereunder, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder unless it shall (i) receive written
instructions from the Majority Lenders (or all of the Lenders as expressly
required by Section 12.04) specifying the action to be taken, and (ii) be
indemnified to its satisfaction by the Lenders against any and all liability and
expenses which may be incurred by it by reason of taking or continuing to take
any such action. The instructions of the Majority Lenders (or all of the Lenders
as expressly required by Section 12.04) and any action taken or failure to act
pursuant thereto by the Agent shall be binding on all of the Lenders. If a
Default has occurred and is continuing, the Agent shall take such action with
respect to such Default as shall be directed by the Majority Lenders (or all of
the Lenders as required by Section 12.04) in the written instructions (with
indemnities) described in this Section 11.07, provided that, unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interests of the Lenders.
In no event, however, shall the Agent be required to take any action which
exposes the Agent to personal liability or which is contrary to this Agreement
and the Security Instruments or applicable law.
Section 11.08 Resignation or Removal of Agent. Subject to the appointment
and acceptance of a successor Agent as provided below, the Agent may resign at
any time by giving notice thereof to the Lenders and the Borrower, and the Agent
78
may be removed at any time with or without cause by the Majority Lenders. Upon
any such resignation or removal, the Majority Lenders shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed by
the Majority Lenders and shall have accepted such appointment within thirty (30)
days after the retiring Agent's giving of notice of resignation or the Majority
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lenders, appoint a successor Agent. Upon the acceptance of such
appointment hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article XI and Section 12.03
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Waiver. No failure on the part of the Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under any of the Loan Documents shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege under any of the Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.
Section 12.02 Notices. All notices and other communications provided for
herein and in the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telex, telecopy, courier or U.S. Mail or in
writing and telexed, telecopied, mailed or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof or in the Loan Documents or, as to any party, at such other address as
shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement or in the other Loan Documents, all such
communications shall be deemed to have been duly given when transmitted, if
transmitted before 1:00 p.m. local time on a Business Day (otherwise on the next
succeeding Business Day) by telex or telecopier and evidence or confirmation of
receipt is obtained, or personally delivered or, in the case of a mailed notice,
three (3) Business Days after the date deposited in the mails, postage prepaid,
in each case given or addressed as aforesaid.
Section 12.03 Payment of Expenses, Indemnities, Etc.
(a) The Borrower agrees:
(i) whether or not the transactions hereby contemplated are
consummated, to pay all expenses of the Agent in the administration (both
before and after the execution hereof and including advice of counsel as to
the rights and duties of the Agent and the Lenders with respect thereto)
of, and in connection with the negotiation, syndication, investigation,
preparation, execution and delivery of, recording or filing of,
preservation of rights under, enforcement of, and refinancing,
renegotiation or restructuring of, the Loan Documents and any amendment,
79
waiver or consent relating thereto (including, without limitation, travel,
photocopy, mailing, courier, telephone and other similar expenses of the
Agent, the cost of environmental audits, surveys and appraisals at
reasonable intervals, the fees and disbursements of counsel and other
outside consultants for the Agent and, in the case of enforcement, the fees
and disbursements of counsel for the Agent and any of the Lenders); and
promptly reimburse the Agent for all amounts expended, advanced or incurred
by the Agent or the Lenders to satisfy any obligation of the Borrower under
this Agreement or any Security Instrument, including without limitation,
all costs and expenses of foreclosure;
(ii) to indemnify the Agent and each Lender and each of their
Affiliates and each of their officers, directors, employees,
representatives, Agents, attorneys, accountants and experts ("Indemnified
Parties") from, hold each of them harmless against and promptly upon demand
pay or reimburse each of them for, the Indemnity Matters which may be
incurred by or asserted against or involve any of them (whether or not any
of them is designated a party thereto) as a result of, arising out of or in
any way related to (i) any actual or proposed use by the Borrower of the
proceeds of any of the Loans or Letters of Credit, (ii) the execution,
delivery and performance of the Loan Documents, (iii) the operations of the
business of the Borrower and its Subsidiaries, (iv) the failure of the
Borrower or any Subsidiary to comply with the terms of any Security
Instrument or this Agreement, or with any Governmental Requirement, (v) any
inaccuracy of any representation or any breach of any warranty of the
Borrower or any Guarantor set forth in any of the Loan Documents (vi) the
issuance, execution and delivery or transfer of or payment or failure to
pay under any Letter of Credit, or (vii) the payment of a drawing under any
Letter of Credit notwithstanding the non-compliance, non-delivery or other
improper presentation of the manually executed draft(s) and
certification(s), (viii) any assertion that the Lenders were not entitled
to receive the proceeds received pursuant to the Security Instruments or
(ix) any other aspect of the Loan Documents, including, without limitation,
the fees and disbursements of counsel and all other expenses incurred in
connection with investigating, defending or preparing to defend any such
action, suit, proceeding (including any investigations, litigation or
inquiries) or claim and including all Indemnity Matters arising by reason
of the ordinary negligence of any Indemnified Party, but excluding all
Indemnity Matters arising solely by reason of claims between the Lenders or
any Lender and the Agent or a Lender's shareholders against the Agent or
Lender or by reason of the gross negligence or willful misconduct on the
part of the Indemnified Party; and
(iii) to indemnify and hold harmless from time to time the
Indemnified Parties from and against any and all losses, claims, cost
recovery actions, administrative orders or proceedings, damages and
liabilities to which any such Person may or is alleged to become subject:
(i) under any Environmental Law applicable to the Borrower or any
Subsidiary or any of their Properties, including without limitation, the
treatment or disposal of hazardous substances on any of their Properties,
(ii) as a result of the breach or non-compliance, or alleged breach or
non-compliance, by the Borrower or any Subsidiary with any Environmental
Law applicable to the Borrower or any Subsidiary, (iii) due to past
ownership by the Borrower or any Subsidiary of any of their Properties or
80
past activity on any of their Properties which, though lawful and fully
permissible at the time, could result in present liability, (iv) the
presence, use, release, storage, treatment, transportation, or disposal of
hazardous substances on or at any of the Properties owned or operated by
the Borrower or any Subsidiary, or (v) any other environmental, health or
safety condition in connection with the Loan Documents; provided, however,
no indemnity shall be afforded under this Section 12.03(a)(iii) in respect
of any Property for any occurrence arising from the acts or omissions of
the Agent or any Lender or any purchaser at foreclosure or pursuant to a
deed-in-lieu thereof during the period after which such Person, its
successors or assigns shall have obtained possession of such Property
(whether by foreclosure or deed in lieu of foreclosure, as
mortgagee-in-possession or otherwise).
(b) No Indemnified Party may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be unreasonably
withheld; provided, that the indemnitor may not reasonably withhold consent
to any settlement that an Indemnified Party proposes, if the indemnitor
does not have the financial ability to pay all its obligations outstanding
and asserted against the indemnitor at that time, including the maximum
potential claims against the Indemnified Party to be indemnified pursuant
to this Section 12.03.
(c) In the case of any indemnification hereunder, the Agent or
Lender, as appropriate shall give notice to the Borrower of any such claim
or demand being made against the Indemnified Party and the Borrower shall
have the non-exclusive right to join in the defense against any such claim
or demand provided that if the Borrower provides a defense, the Indemnified
Party shall bear its own cost of defense unless there is a conflict between
the Borrower and such Indemnified Party.
(d) The foregoing indemnities shall extend to the Indemnified Parties
notwithstanding the sole or concurrent negligence of every kind or
character whatsoever, whether active or passive, whether an affirmative act
or an omission, including without limitation, all types of negligent
conduct identified in the restatement (second) of torts of one or more of
the Indemnified Parties or by reason of strict liability imposed without
fault on any one or more of the Indemnified Parties; provided, however,
that to the extent that an Indemnified Party is found to have committed an
act of gross negligence or willful misconduct, this contractual obligation
of indemnification shall continue but shall only extend to the portion of
the claim that is deemed to have occurred by reason of events other than
the gross negligence or willful misconduct of the Indemnified Party.
(e) The Borrower's obligations under this Section 12.03 shall survive
any termination of this Agreement and the payment of the Notes and shall
continue thereafter in full force and effect.
(f) The Borrower shall pay any amounts due under this Section 12.03
within thirty (30) days of the receipt by the Borrower of notice of the
amount due.
Section 12.04 Amendments, Etc. Any provision of this Agreement or any
Security Instrument may be amended, modified or waived with the Borrower's and
the Majority Lenders' prior written consent; provided that (i) no amendment,
modification or waiver which extends the final maturity of the Loans, increases
the Aggregate Maximum Revolving Credit Amounts, increases the Borrowing Base,
81
forgives the principal amount of any Obligations outstanding under this
Agreement, releases any guarantor of any Obligations or releases all or
substantially all of the collateral, reduces the interest rate applicable to the
Loans or the fees payable to the Lenders generally, affects Section 2.03(a),
this Section 12.04 or Section 12.06(a) or modifies the definition of "Majority
Lenders" shall be effective without consent of all Lenders; (ii) no amendment,
modification or waiver which increases the Maximum Revolving Credit Amount of
any Lender shall be effective without the consent of such Lender; and (iii) no
amendment, modification or waiver which modifies the rights, duties or
obligations of the Agent shall be effective without the consent of the Agent.
Section 12.05 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
Section 12.06 Assignments and Participations.
-------------------------------
(a) The Borrower may not assign its rights or obligations hereunder
or under the Notes or any Letters of Credit without the prior consent of
all of the Lenders and the Agent.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement pursuant to an
Assignment Agreement substantially in the form of Exhibit E (an
"Assignment"); provided, however, that (i) except in the case of an
assignment to a Lender or a Lender Affiliate, such assignment shall require
the written consent of the Agent and, if no Event of Default has occurred
and is continuing, the Borrower (which consent will not be unreasonably
withheld), (ii) except in the case of an assignment to a Lender or a Lender
Affiliate, any such assignment shall be in the amount of at least
$5,000,000.00 or such lesser amount to which the Borrower and the Agent
have consented and if the assigning Lender has assigned less than all of
its Percentage Share of the Loans, such assigning Lender shall retain a
Percentage Share of the Loans equating to at least $5,000,000.00 or such
lesser amount to which the Borrower and the Agent have consented and (iii)
the assignee or assignor shall pay to the Agent a processing and
recordation fee of $3,000.00 for each assignment. Any such assignment will
become effective upon the execution and delivery to the Agent of the
Assignment, payment of the recordation fee and, if required, the consent of
the Agent and the Borrower. Promptly after receipt of an executed
Assignment, the Agent shall send to the Borrower a copy of such executed
Assignment. Upon receipt of such executed Assignment, the Borrower, will,
at its own expense, execute and deliver new Notes to the assignor and/or
assignee, as appropriate, in accordance with their respective interests as
they appear. Upon the effectiveness of any assignment pursuant to this
Section 12.06(b), the assignee will become a "Lender," if not already a
"Lender," for all purposes of this Agreement and the other Loan Documents.
The assignor shall be relieved of its obligations hereunder to the extent
of such assignment (and if the assigning Lender no longer holds any rights
or obligations under this Agreement, such assigning Lender shall cease to
be a "Lender" hereunder except that its rights under Sections 4.06, 5.01,
5.05 and 12.03 shall not be affected). The Agent will prepare on the last
Business Day of each month during which an assignment has become effective
pursuant to this Section 12.06(b), a new Annex I giving effect to all such
assignments effected during such month, and will promptly provide the same
82
to the Borrower and each of the Lenders. Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply
with this Section 12.06(b) shall be treated for purposes of this Agreement
as a sale by such Lender of a participation in such rights and obligations
in accordance with Section 12.06(c).
(c) Each Lender may, without the consent of the Borrower, the Agent
or the Issuing Bank, transfer, grant or assign participations in all or any
part of such Lender's interests hereunder pursuant to this Section 12.06(c)
to any Person, provided that: (i) such Lender shall remain a "Lender" for
all purposes of this Agreement and the transferee of such participation
shall not constitute a "Lender" hereunder, (ii) such Lender's obligations
under this Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations and (iv) the Borrower, the Agent, the Issuing Bank and the
other Lenders shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells
such a participation shall provide that such Lender shall retain the sole
right to enforce the Loan Documents and to approve any amendment,
modification or waiver of any provision of the Loan Documents; provided
that such agreement or instrument may provide that such Lender will not,
without the consent of the participant, agree to any amendment,
modification or waiver that would (x) forgive any principal owing on any
Obligations or extend the final maturity of the Loans, (y) reduce the
interest rate (other than as a result of waiving the applicability of any
post-default increases in interest rates) or fees applicable to any of the
Commitments or Loans or Letters of Credit in which such participant is
participating, or postpone the payment of any thereof, or (z) release any
guarantor of the Obligations or release all or substantially all of the
collateral (except as provided in the Loan Documents) supporting any of the
Commitments or Loans or Letters of Credit in which such participant is
participating. In the case of any such participation, the participant shall
not have any rights under this Agreement or any of the Security Instruments
(the participant's rights against the granting Lender in respect of such
participation to be those set forth in the agreement with such Lender
creating such participation), and all amounts payable by the Borrower
hereunder shall be determined as if such Lender had not sold such
participation, provided that such participant shall be entitled to receive
additional amounts under Article V on the same basis as if it were a Lender
and be indemnified under Section 12.03 as if it were a Lender. In addition,
each agreement creating any participation must include an agreement by the
participant to be bound by the provisions of Section 12.15.
(d) The Lenders may furnish any information concerning the Borrower
in the possession of the Lenders from time to time to assignees and
participants (including prospective assignees and participants); provided
that, such Persons agree to be bound by the provisions of Section 12.15.
(e) Notwithstanding anything in this Section 12.06 to the contrary,
any Lender may assign and pledge its Note to any Federal Reserve Bank. No
such assignment and/or pledge shall release the assigning and/or pledging
Lender from its obligations hereunder.
(f) Notwithstanding any other provisions of this Section 12.06, no
transfer or assignment of the interests or obligations of any Lender or any
83
grant of participations therein shall be permitted if such transfer,
assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of
any state.
Section 12.07 Invalidity. In the event that any one or more of the
provisions contained in any of the Loan Documents or the Letters of Credit, the
Letter of Credit Agreements shall, for any reason, be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of the Notes, this Agreement or any other
Loan Document.
Section 12.08 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 12.09 References; Use of Word "Including". The words "herein,"
"hereof," "hereunder" and other words of similar import when used in this
Agreement refer to this Agreement as a whole, and not to any particular article,
Section or subsection. Any reference herein to a Section or Article shall be
deemed to refer to the applicable Section or Article of this Agreement unless
otherwise stated herein. Any reference herein to an exhibit, schedule, or other
attachment shall be deemed to refer to the applicable exhibit, schedule, or
other attachment attached hereto unless otherwise stated herein. The word
"including", "includes" and words of similar import means "including, without
limitation".
Section 12.10 Survival. The obligations of the parties under Section 4.06,
Article V, and Sections 11.05, 12.03, and 12.15 shall survive the repayment of
the Loans and the termination of the Commitments. To the extent that any
payments on the Obligations or proceeds of any collateral are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, debtor in possession, receiver or other Person under any
bankruptcy law, common law or equitable cause, then to such extent, the
Obligations so satisfied shall be revived and continue as if such payment or
proceeds had not been received and the Agent's and the Lenders' Liens, security
interests, rights, powers and remedies under this Agreement and each Security
Instrument shall continue in full force and effect. In such event, each Security
Instrument shall be automatically reinstated and the Borrower shall take such
action as may be reasonably requested by the Agent and the Lenders to effect
such reinstatement.
Section 12.11 Captions. Captions and Section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 Governing Law; Submission to Jurisdiction.
------------------------------------------
84
(a) This Agreement and the Notes shall be governed by, and construed
in accordance with, the laws of the State of Texas, except to the extent
that United States federal law permits any Lender to charge interest at the
rate allowed by the laws of the state where such Lender is located. Ch. 346
of the Texas Finance Code (which regulates certain revolving credit loan
accounts and revolving tri-party accounts) shall not apply to this
Agreement or the Notes. All environmentally related activities or omissions
shall be governed by and construed in accordance with the laws of the
United States of America, and where applicable, any U.S. treaty, or the
laws (including common law) of the state or jurisdiction where any Property
is located, including those located in any foreign country, or in
international waters. In case of conflict with respect to, and only with
respect to, environmentally related activities or omissions, the more
stringent requirement shall govern.
(b) Any legal action or proceeding with respect to the Loan Documents
shall be brought in the courts of the State of Texas or of the United
States of America for the Southern District of Texas, and, by execution and
delivery of this Agreement, the Borrower hereby accepts for itself and (to
the extent permitted by law) in respect of its Property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The Borrower
hereby irrevocably waives any objection, including, without limitation, any
objection to the laying of venue or based on the grounds of forum non
conveniens, which it may now or hereafter have to the bringing of any such
action or proceeding in such respective jurisdictions. This submission to
jurisdiction is non-exclusive and does not preclude the Agent or any Lender
from obtaining jurisdiction over the Borrower, any of its Subsidiaries, or
any Guarantor in any court otherwise having jurisdiction.
(c) The Borrower hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to the Borrower at its said address, such service to
become effective thirty (30) days after such mailing. Nothing herein shall
affect the right of the Agent, any Lender or any holder of a Note to serve
process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Borrower or its Properties in
any other jurisdiction.
(d) The Borrower, the Agent and each Lender hereby (i) irrevocably
and unconditionally waive, to the fullest extent permitted by law, trial by
jury in any legal action or proceeding relating to this Agreement or any
Loan Document and for any counterclaim therein; (ii) irrevocably waive, to
the maximum extent not prohibited by law, any right it may have to claim or
recover in any such litigation any special, exemplary, punitive or
consequential damages, or damages other than, or in addition to, actual
damages; (iii) certify that no party hereto nor any representative, agent
or counsel for any party hereto has represented, expressly or otherwise, or
implied that such party would not, in the event of litigation, seek to
enforce the foregoing waivers, and (iv) acknowledge that it has been
induced to enter into this Agreement and the other Loan Documents and the
transactions contemplated hereby and thereby by, among other things, the
mutual waivers and certifications contained in this Section 12.13.
Section 12.14 Interest. It is the intention of the parties hereto that each
Lender shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to any Lender under
85
laws applicable to it (including the laws of the United States of America and
the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to such Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as
security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Obligations (or, to the extent that the principal amount of the Obligations
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Obligations (or, to the
extent that the principal amount of the Obligations shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower). All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the full term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (i) the
amount of interest payable to any Lender on any date shall be computed at the
Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.14. To the extent that Chapter 303 of
the Texas Finance Code is relevant for the purpose of determining the Highest
Lawful Rate, such Lender elects to determine the applicable rate ceiling under
such Chapter by the indicated weekly rate ceiling from time to time in effect.
Section 12.15 Confidentiality. In the event that the Borrower provides to
the Agent or the Lenders written non-public information belonging to the
Borrower, the Agent and the Lenders shall thereafter maintain such information
in confidence in accordance with the standards of care and diligence that each
utilizes in maintaining its own confidential information. This obligation of
confidence shall not apply to such portions of the information which (i) are in
the public domain, (ii) hereafter become part of the public domain without the
Agent or the Lenders breaching their obligation of confidence to the Borrower,
(iii) are previously known by the Agent or the Lenders from some source other
than the Borrower, (iv) are hereafter developed by the Agent or the Lenders
without using the Borrower's information, (v) are hereafter obtained by or
86
available to the Agent or the Lenders from a third party who owes no obligation
of confidence to the Borrower with respect to such information or through any
other means other than through disclosure by the Borrower, (vi) are disclosed
with the Borrower's consent, (vii) must be disclosed either pursuant to any
Governmental Requirement, including compliance under any Environmental Laws, or
to Persons regulating the activities of the Agent or the Lenders, or (viii) as
may be required by law or regulation or order of any Governmental Authority in
any judicial, arbitration or governmental proceeding. Further, the Agent or a
Lender may disclose any such information to any other Lender, any independent
petroleum engineers or consultants, any independent certified public
accountants, any legal counsel employed by such Person in connection with this
Agreement or any Security Instrument, including without limitation, the
enforcement or exercise of all rights and remedies thereunder, or any assignee
or participant (including prospective assignees and participants) in the Loans;
provided, however, that the Agent or the Lenders shall receive a confidentiality
agreement from the Person to whom such information is disclosed such that said
Person shall have the same obligation to maintain the confidentiality of such
information as is imposed upon the Agent or the Lenders hereunder.
Notwithstanding anything to the contrary provided herein, this obligation of
confidence shall cease three (3) years from the date the information was
furnished, unless the Borrower requests in writing at least thirty (30) days
prior to the expiration of such three year period, to maintain the
confidentiality of such information for an additional three year period. The
Borrower waives any and all other rights it may have to confidentiality as
against the Agent and the Lenders arising by contract, agreement, statute or law
except as expressly stated in this Section 12.15.
Section 12.16 Effectiveness. This Agreement shall not be effective until
the date (the "Effective Date") that it is delivered to the Agent in the State
of Texas, accepted by the Lenders in such State, and executed by the Agent in
such State (the "Effective Date").
Section 12.17 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE SECURITY
INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE SECURITY
INSTRUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT
AND THE SECURITY INSTRUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS
RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION
OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
Section 12.18 Arbitration.
------------
(a) Arbitration. The parties hereto agree, upon demand by any party,
to submit to binding arbitration all claims, disputes and controversies
between or among them (and their respective employees, officers, directors,
attorneys, and other agents), whether in tort, contract or otherwise
87
arising out of or relating to in any way (i) the loan and related Loan
Documents which are the subject of this Agreement and its negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination; or (ii) requests for additional credit.
(b) Governing Rules. Any arbitration proceeding will (i) proceed in a
location in Texas selected by the American Arbitration Association ("AAA");
(ii) be governed by the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in
any of the documents between the parties; and (iii) be conducted by the
AAA, or such other administrator as the parties shall mutually agree upon,
in accordance with the AAA's commercial dispute resolution procedures,
unless the claim or counterclaim is at least $1,000,000.00 exclusive of
claimed interest, arbitration fees and costs in which case the arbitration
shall be conducted in accordance with the AAA's optional procedures for
large, complex commercial disputes (the commercial dispute resolution
procedures or the optional procedures for large, complex commercial
disputes to be referred to, as applicable, as the "Rules"). If there is any
inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses
to submit to arbitration following a demand by any other party shall bear
all costs and expenses incurred by such other party in compelling
arbitration of any dispute. Nothing contained herein shall be deemed to be
a waiver by any party that is a bank of the protections afforded to it
under 12 U.S.C. ss.91 or any similar applicable state law.
(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i)
foreclose against real or personal property collateral; (ii) exercise
self-help remedies relating to collateral or proceeds of collateral such as
setoff or repossession; or (iii) obtain provisional or ancillary remedies
such as replevin, injunctive relief, attachment or the appointment of a
receiver, before during or after the pendency of any arbitration
proceeding. This exclusion does not constitute a waiver of the right or
obligation of any party to submit any dispute to arbitration or reference
hereunder, including those arising from the exercise of the actions
detailed in Sections (i), (ii) and (iii) of this paragraph.
(d) Arbitrator Qualifications and Powers. Any arbitration proceeding
in which the amount in controversy is $5,000,000.00 or less will be decided
by a single arbitrator selected according to the Rules, and who shall not
render an award of greater than $5,000,000.00. Any dispute in which the
amount in controversy exceeds $5,000,000.00 shall be decided by majority
vote of a panel of three arbitrators; provided, however, that all three
arbitrators must actively participate in all hearings and deliberations.
The arbitrator will be a neutral attorney licensed in the State of Texas
with a minimum of ten years experience in the substantive law applicable to
the subject matter of the dispute to be arbitrated. The arbitrator will
determine whether or not an issue is arbitratable and will give effect to
the statutes of limitation in determining any claim. In any arbitration
proceeding the arbitrator will decide (by documents only or with a hearing
at the arbitrator's discretion) any pre-hearing motions which are similar
to motions to dismiss for failure to state a claim or motions for summary
adjudication. The arbitrator shall resolve all disputes in accordance with
the substantive law of Texas and may grant any remedy or relief that a
88
court of such state could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award. The
arbitrator shall also have the power to award recovery of all costs and
fees, to impose sanctions and to take such other action as the arbitrator
deems necessary to the same extent a judge could pursuant to the Federal
Rules of Civil Procedure, the Texas Rules of Civil Procedure or other
applicable law. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The institution and maintenance
of an action for judicial relief or pursuit of a provisional or ancillary
remedy shall not constitute a waiver of the right of any party, including
the plaintiff, to submit the controversy or claim to arbitration if any
other party contests such action for judicial relief.
(e) Discovery. In any arbitration proceeding discovery will be
permitted in accordance with the Rules. All discovery shall be expressly
limited to matters directly relevant to the dispute being arbitrated and
must be completed no later than twenty (20) days before the hearing date
and within one hundred and eighty (180) days of the filing of the dispute
with the AAA. Any requests for an extension of the discovery periods, or
any discovery disputes, will be subject to final determination by the
arbitrator upon a showing that the request for discovery is essential for
the party's presentation and that no alternative means for obtaining
information is available.
(f) Class Proceedings and Consolidations. The resolution of any
dispute arising pursuant to the terms of this Agreement shall be determined
by a separate arbitration proceeding and such dispute shall not be
consolidated with other disputes or included in any class proceeding.
(g) Payment of Arbitration Costs and Fees. The arbitrator shall award
all costs and expenses of the arbitration proceeding.
(h) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within one hundred and eighty (180) days of the
filing of the dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results
thereof, except for disclosures of information by a party required in the
ordinary course of its business or by applicable law or regulation or the
rules of any stock exchange on which such party's securities are listed or
admitted for trading. If more than one agreement for arbitration by or
between the parties potentially applies to a dispute, the arbitration
provision most directly related to the Loan Documents or the subject matter
of the dispute shall control. This arbitration provision shall survive
termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.
[SIGNATURES BEGIN ON NEXT PAGE]
89
The parties hereto have caused this Agreement to be duly executed as of the
day and year first above written.
BORROWER: CRIMSON EXPLORATION INC.,
a Delaware corporation
By: /s/ E/ ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
Name: E. ▇▇▇▇▇▇ ▇▇▇▇▇
Title: Senior Vice President and
Chief Financial Officer
Address for Notices:
Crimson Exploration Inc.
▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇, ext. 330
Attention: E. ▇▇▇▇▇▇ ▇▇▇▇▇
LENDER AND AGENT: ▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇▇▇▇▇▇
Vice President
Lending Office for Base Rate and LIBOR Loans:
▇▇▇▇▇ Fargo Bank, National Association
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Address for Notices:
▇▇▇▇▇ Fargo Bank, National Association
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
With copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &Minick P.C.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇
LENDERS:
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Lending Office for Base Rate Loans:
Lending Office for LIBOR Loans:
Address for Notices:
Telecopier No.:
Telephone No.:
Attention:
With copy to:
ANNEX I
LIST OF PERCENTAGE SHARES AND
-----------------------------
MAXIMUM REVOLVING CREDIT AMOUNTS
--------------------------------
--------------------------------------------------------------------------------
Name of Lender Percentage Share Maximum Revolving
Credit Amount
--------------------------------------------------------------------------------
▇▇▇▇▇ Fargo Bank, National Association 100% $100,000,000.00
--------------------------------------------------------------------------------
% $
----------------------- ------ ---------------
--------------------------------------------------------------------------------
% $
----------------------- ------ ---------------
--------------------------------------------------------------------------------
TOTAL 100% $100,000,000.00
--------------------------------------------------------------------------------
EXHIBIT A
FORM OF REVOLVING CREDIT NOTE
$100,000,000.00 July 15, 2005
FOR VALUE RECEIVED, CRIMSON EXPLORATION INC., a Delaware corporation (the
"Borrower") hereby promises to pay to the order of ▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION (the "Lender"), at the Principal Office of ▇▇▇▇▇ FARGO BANK,
NATIONAL ASSOCIATION (the "Agent"), at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000.00)
(or such lesser amount as shall equal the aggregate unpaid principal amount of
the Loans made by the Lender to the Borrower under the Credit Agreement, as
hereinafter defined), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Loan, at such office, in like money and funds, for the period
commencing on the date of such Loan until such Loan shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate, Interest Period and maturity of each
Loan made by the Lender to the Borrower, and each payment made on account of the
principal thereof, shall be recorded by the Lender on its books and, prior to
any transfer of this Revolving Credit Note, endorsed by the Lender on the
schedules attached hereto or any continuation thereof.
This Revolving Credit Note is one of the Notes referred to in the Credit
Agreement dated as of July 15, 2005 among the Borrower, the Lenders which are or
become parties thereto (including the Lender) and the Agent (as the same may be
amended or supplemented from time to time, the "Credit Agreement"), and
evidences Loans made by the Lender thereunder. Capitalized terms used in this
Revolving Credit Note have the respective meanings assigned to them in the
Credit Agreement.
This Revolving Credit Note is issued pursuant to the Credit Agreement and
is entitled to the benefits provided for in the Credit Agreement and the
Security Instruments. The Credit Agreement provides for the acceleration of the
maturity of this Revolving Credit Note upon the occurrence of certain events,
for prepayments of Loans upon the terms and conditions specified therein and
other provisions relevant to this Revolving Credit Note.
THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
CRIMSON EXPLORATION INC.
By:
Name:
Title: