Exhibit 10.1
SUBORDINATE CREDIT AGREEMENT
Dated as of August 31, 2006
Among
CRIMSON EXPLORATION INC.,
as Borrower,
▇▇▇▇▇ FARGO ENERGY CAPITAL, INC.,
As Agent and a Lender,
▇▇▇▇▇ FARGO BANK, N.A.,
as Lead Arranger
and
THE LENDERS SIGNATORY HERETO
TABLE OF CONTENTS
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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.................. 16
ARTICLE II Commitments....................................................... 17
Section 2.01 Loans................................................ 17
Section 2.02 Borrowings, Continuations and Conversions............ 17
Section 2.03 Changes of Commitments............................... 18
Section 2.04 Fees................................................. 19
Section 2.05 Several Obligations.................................. 19
Section 2.06 Notes................................................ 19
Section 2.07 Voluntary Prepayments; Prepayment Premium............ 19
Section 2.08 Intentionally Omitted................................ 20
Section 2.09 Intentionally Omitted................................ 20
Section 2.10 Intentionally Omitted................................ 20
Section 2.11 Lending Offices...................................... 20
ARTICLE III Payments of Principal and Interest............................... 20
Section 3.01 Principal............................................ 20
Section 3.02 Interest............................................. 20
ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc................... 21
Section 4.01 Payments............................................. 21
Section 4.02 Pro Rata Treatment................................... 21
Section 4.03 Computations......................................... 22
Section 4.04 Non-receipt of Funds by the Agent.................... 22
Section 4.05 Set-off, Sharing of Payments, Etc.................... 22
Section 4.06 Taxes................................................ 23
Section 4.07 Disposition of Proceeds.............................. 25
ARTICLE V Capital Adequacy and Additional Costs.............................. 25
Section 5.01 Capital Adequacy and Additional Costs................ 25
Section 5.02 Limitation on LIBOR Loans............................ 27
Section 5.03 Illegality........................................... 28
Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02
and 5.03............................................ 28
Section 5.05 Compensation......................................... 28
Section 5.06 Replacement Lenders.................................. 28
ARTICLE VI Conditions Precedent.............................................. 29
Section 6.01 Initial Funding...................................... 29
Section 6.02 Initial and Subsequent Loans......................... 32
Section 6.03 Conditions Precedent for the Benefit of Lenders...... 32
Section 6.04 No Waiver............................................ 32
ARTICLE VII Representations and Warranties................................... 32
Section 7.01 Corporate Existence.................................. 33
Section 7.02 Financial Condition.................................. 33
Section 7.03 Litigation and Judgments............................. 33
Section 7.04 No Breach............................................ 33
Section 7.05 Authority............................................ 33
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Section 7.06 Approvals............................................ 34
Section 7.07 Use of Loans......................................... 34
Section 7.08 ERISA................................................ 34
Section 7.09 Taxes................................................ 35
Section 7.10 Titles, Etc.......................................... 35
Section 7.11 No Material Misstatements............................ 36
Section 7.12 Investment Company Act............................... 36
Section 7.13 Intentionally Omitted................................ 36
Section 7.14 Subsidiaries......................................... 36
Section 7.15 Location of Business and Offices..................... 36
Section 7.16 Defaults............................................. 36
Section 7.17 Environmental Matters................................ 36
Section 7.18 Compliance with the Law.............................. 37
Section 7.19 Insurance............................................ 38
Section 7.20 Hedging Agreements................................... 38
Section 7.21 Restriction on Liens................................. 38
Section 7.22 Material Agreements.................................. 39
Section 7.23 Solvency............................................. 39
Section 7.24 Gas Imbalances....................................... 39
Section 7.25 Madisonville......................................... 39
Section 7.26 Intentionally Omitted................................ 39
Section 7.27 Name Changes......................................... 39
Section 7.28 Taxpayer Identification Number....................... 40
Section 7.29 State of Formation................................... 40
ARTICLE VIII Affirmative Covenants........................................... 40
Section 8.01 Reporting Requirements............................... 40
Section 8.02 Litigation........................................... 42
Section 8.03 Maintenance, Etc..................................... 42
Section 8.04 Environmental Matters................................ 44
Section 8.05 Further Assurances................................... 44
Section 8.06 Performance of Obligations........................... 45
Section 8.07 Reserve Reports...................................... 45
Section 8.08 Title Information and Mortgage Coverage.............. 46
Section 8.09 Collateral........................................... 46
Section 8.10 Cash Collateral Account Agreement.................... 47
Section 8.11 Intentionally Omitted................................ 47
Section 8.12 ERISA Information and Compliance..................... 47
Section 8.13 Joinder and Guaranty Agreements...................... 48
Section 8.14 Hedging.............................................. 48
ARTICLE IX Negative Covenants................................................ 48
Section 9.01 Debt................................................. 48
Section 9.02 Liens................................................ 49
Section 9.03 Investments, Loans and Advances...................... 50
Section 9.04 Dividends, Distributions and Redemptions............. 50
Section 9.05 Sales and Leasebacks................................. 51
Section 9.06 Nature of Business................................... 51
Section 9.07 Limitation on Leases................................. 51
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Section 9.08 Mergers, Acquisitions, Etc........................... 51
Section 9.09 Proceeds of Notes.................................... 51
Section 9.10 ERISA Compliance..................................... 51
Section 9.11 Sale or Discount of Receivables...................... 53
Section 9.12 Capital Expenditures................................. 53
Section 9.13 Current Ratio........................................ 53
Section 9.14 Tangible Net Worth................................... 53
Section 9.15 Interest Coverage Ratio.............................. 53
Section 9.16 Sale of Oil and Gas Properties....................... 53
Section 9.17 Intentionally Omitted................................ 53
Section 9.18 Environmental Matters................................ 53
Section 9.19 Transactions with Affiliates......................... 54
Section 9.20 Subsidiaries......................................... 54
Section 9.21 Negative Pledge Agreements........................... 54
Section 9.22 Take-or-Pay or Other Prepayments..................... 54
Section 9.23 Ownership of Subsidiaries............................ 54
Section 9.24 Change in Borrower's, any of its Subsidiaries' or
any Guarantor's Name or State of Formation.......... 54
Section 9.25 Intentionally Omitted................................ 55
Section 9.26 Intentionally Omitted................................ 55
Section 9.27 Intentionally Omitted................................ 55
Section 9.28 Limitation on Hedging................................ 55
Section 9.29 Asset Coverage Test.................................. 55
ARTICLE X Events of Default; Remedies........................................ 55
Section 10.01 Events of Default.................................... 55
Section 10.02 Remedies............................................. 57
ARTICLE XI The Agent......................................................... 58
Section 11.01 Appointment, Powers and Immunities................... 58
Section 11.02 Reliance by Agent.................................... 58
Section 11.03 Defaults............................................. 58
Section 11.04 Rights as a Lender................................... 59
Section 11.05 Indemnification...................................... 59
Section 11.06 Non-Reliance on Agent and other Lenders.............. 59
Section 11.07 Action by Agent...................................... 59
Section 11.08 Resignation or Removal of Agent...................... 60
ARTICLE XII Miscellaneous.................................................... 60
Section 12.01 Waiver............................................... 60
Section 12.02 Notices.............................................. 60
Section 12.03 Payment of Expenses, Indemnities, Etc................ 61
Section 12.04 Amendments, Etc...................................... 62
Section 12.05 Successors and Assigns............................... 63
Section 12.06 Assignments and Participations....................... 63
Section 12.07 Invalidity........................................... 64
Section 12.08 Counterparts......................................... 64
Section 12.09 References; Use of Word "Including".................. 65
Section 12.10 Survival............................................. 65
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Section 12.11 Captions............................................. 65
Section 12.12 NO ORAL AGREEMENTS................................... 65
Section 12.13 Governing Law; Submission to Jurisdiction............ 65
Section 12.14 Interest............................................. 66
Section 12.15 Confidentiality...................................... 67
Section 12.16 Effectiveness........................................ 67
Section 12.17 Patriot Act.......................................... 67
Section 12.18 SUBORDINATION........................................ 68
Section 12.19 EXCULPATION PROVISIONS............................... 68
Section 12.20 Arbitration.......................................... 68
ANNEXES, EXHIBITS AND SCHEDULES
Annex I - List of Percentage Shares and Maximum Credit Amounts
Exhibit A - Form of Subordinate Promissory 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
SUBORDINATE CREDIT AGREEMENT
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THIS SUBORDINATE CREDIT AGREEMENT dated as of August 31, 2006 is among
CRIMSON EXPLORATION INC., a 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 ENERGY CAPITAL, INC., a corporation formed under the
laws of the State of Texas (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):
"AAA" shall have the meaning assigned such term in Section 12.20.
"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 Subsection
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
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.
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"Agreement" shall mean this Credit Agreement, as the same may be amended,
supplemented, modified or restated from time to time.
"Aggregate Credit Commitments" shall mean, at any time, the amount set
forth on Annex I.
"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, with respect to LIBOR Loans, five and
one-quarter percent (5.25%), and with respect to Base Rate Loans, three and
three-quarters percent (3.75%).
"Asset Coverage Ratio" shall have the meaning assigned such term in Section
9.29.
"Asset Coverage Test" shall have the meaning assigned such term in Section
9.29.
"Assignment" shall have the meaning assigned such term in Subsection
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
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 and the Lenders.
"Board of Directors" means the Board of Directors of the Borrower, or any
authorized committee of the Board of Directors.
"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.
"CERCLA" shall have the meaning set forth in the definition of
"Environmental Laws".
"Closing Date" shall mean August 31, 2006.
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"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 up to
the lesser of such Lender's Credit Commitment then in effect, or such Lender's
Percentage Share of the Maximum Loan Amount.
"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
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: (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.
"Credit Commitment" shall mean, for any Lender, at any time, its Percentage
Share of the Aggregate Credit Commitments as set forth on Annex I.
"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
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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
or services including Hydrocarbons in consideration of advance payments, except
as permitted by Section 9.22 and disclosed by Subsection 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.
"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., as amended, the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C.A. ss. 11001 et seq., as
amended, the Endangered Species Act of 1973, 16 U.S.C.A. ss. 1531 et seq., as
amended, the Federal Water Pollution Control Act, as amended, the Clean Water
Act, 33 U.S.C.A. ss. 1251 et seq., as amended, the Low-Level Radioactive Waste
Policy Act, 42 U.S.C.A. ss. 2014 et seq., 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., as amended, the Marine Protection, Research, and Sanctuaries
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Act of 1972 (Ocean Dumping), 33 U.S.C.A. ss. 1401 et seq., as amended, the Act
to Prevent Pollution from Ships, 33 U.S.C.A. ss. 1901 et seq., as amended, the
National Environmental Policy Act of 1969, 42 U.S.C.A. ss. 4321 et seq., as
amended, the Noise Control Act of 1972, 42 U.S.C.A. ss. 4901 et seq., as
amended, the Nonindigenous Aquatic Nuisance Prevention and Control Act of 1990,
16 U.S.C.A. ss. 4701 et seq., as amended, the Occupational Safety and Health Act
of 1970, as amended, the Pollution Prevention Act of 1990, 42 U.S.C.A. ss. 13101
et seq., as amended, the Public Health Service Act {Safe Drinking Water Act}, 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., as amended, the Soil and Water Resources Conservation
Act of 1977, 16 U.S.C.A. ss. 2001 et seq., as amended, the Solid Waste Disposal
Act 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., as amended, the Hazardous Materials Transportation Act, Pub.L. 93-633,
88 Stat. 2156, as amended, the Federal Insecticide, Fungicide, and Rodenticide
Act, 7 U.S.C. ss. 136, et seq., as amended, the United States Public Vessel
Medical Waste Anti-Dumping Act of 1988, 33 U.S.C.A. ss. 2501 et seq., 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
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.
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"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
(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
6
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) Liens permitted by the Senior Security Instruments to the extent subject
to the Subordination Agreement; (ix) preferential rights to purchase and similar
contractual provisions affecting an Oil and Gas Property; (x) 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; (xi) 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; (xii) 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 (xiii) 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
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) the date six
months after the "Final Maturity Date" under the Senior Credit Agreement, 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 Loans or advance other
funds to Borrower hereunder, or (iii) termination of this Agreement, but in no
event shall the Final Maturity Date be later than February 28, 2010.
"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.
7
"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 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, Crimson Exploration
Operating, Inc., a Delaware corporation and LTW Pipeline Co., a Texas
corporation.
"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.
"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 any 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
Subsection 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.
8
"Initial Funding" shall mean the funding of the initial Loans upon
satisfaction of the conditions set forth in Sections 6.01 and 6.02.
"Initial Reserve Report" shall mean the report of ▇▇▇▇▇▇▇▇ Consulting with
respect to the Oil and Gas Properties of the Borrower as of January 1, 2006, 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.
"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) 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 (iii) 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.
"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
Subsection 5.06(c).
"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.
"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
9
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
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, the Security
Instruments and the Subordination Agreement.
"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 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 Subsection 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."
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"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 Loan Amount" shall mean $150,000,000.00.
"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, collectively, the promissory 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. "Note" shall mean, individually, any
one of the Notes.
"Notice of Termination" shall have the meaning assigned such term in
Subsection 5.06(a).
"NYMEX Pricing" shall mean, as of any date of determination with respect to
any month:(i) for crude oil, the closing settlement price for the Light, Sweet
Crude Oil futures contract for such month, and (ii) for natural gas, the closing
settlement price for the ▇▇▇▇▇ Hub Natural Gas futures contract for such month,
in each case as published by New York Mercantile Exchange (NYMEX) on its website
currently located at ▇▇▇.▇▇▇▇▇.▇▇▇, or any successor thereto (as such price may
be corrected or revised from time to time by the NYMEX in accordance with its
rules and regulations).
"Obligations" shall mean all indebtedness, obligations and liabilities of
the Borrower or any Subsidiary to any of the Lenders or the Agent, 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 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, 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.
11
"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
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 have the meaning set forth in the definition of "Environmental
Laws".
"Other Taxes" shall have the meaning assigned such term in Subsection
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 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 Subsection 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
12
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 Subsection 3.02(a)(ii), but in no
event to exceed the Highest Lawful Rate.
"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.
"Proved Oil and Gas Properties" shall mean Oil and Gas Properties that are
Proved Reserves.
"Proved Reserves" shall mean "Proved Reserves" as defined in the
Definitions for Oil and Gas Reserves (in this paragraph, the "Definitions")
promulgated by the Society of Petroleum Engineers (or any generally recognized
successor) as in effect at the time in question. "Proved Developed Producing
Reserves" means Proved Reserves which are categorized as both "Developed" and
"Producing" in the Definitions, "Proved Developed Nonproducing Reserves" means
Proved Reserves which are categorized as both "Developed" and "Nonproducing" in
the Definitions, and "Proved Undeveloped Reserves" means Proved Reserves which
are categorized as "Undeveloped" in the Definitions.
"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,
2006; provided, however, that if any such day is not a Business Day, such
Quarterly Date shall be the next succeeding Business Day.
"RCRA" shall have the meaning set forth in the definition of "Environmental
Laws".
"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.
"Releases" shall have the meaning assigned to such term in Section 9.18.
13
"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
Subsection 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 Asset Coverage Test); (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
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.
"Rules" shall have the meaning assigned such term in Section 12.20.
"SEC" shall mean the Securities and Exchange Commission or any successor
Governmental Authority.
"Security Instruments" shall mean 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
connection with, or as security for the payment or performance of, the Notes, or
this Agreement, as such agreements may be amended, supplemented or restated from
time to time.
"Senior Agent" shall mean the "Agent" as defined in the Senior Credit
Agreement.
"Senior Borrowing Base" shall mean the "Borrowing Base" as defined in the
Senior Credit Agreement.
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"Senior Credit Agreement" shall mean that certain Credit Agreement dated as
of July 15, 2005, by and between Borrower, Senior Agent and the Senior Lenders,
as amended, modified, supplemented, restated, replaced or refinanced (not in
contravention of the Subordination Agreement) from time to time.
"Senior Lenders" shall mean the "Lenders" as defined in the Senior Credit
Agreement.
"Senior Loan Documents" shall mean the "Loan Documents" as defined in the
Senior Credit Agreement.
"Senior Notes" shall mean the "Notes" as defined in the Senior Credit
Agreement.
"Senior Security Instruments" shall mean the "Security Instruments" as
defined in the Senior Credit Agreement.
"Subordination Agreement" shall mean that certain Subordination Agreement
of even date herewith, by and among Borrower, Senior Agent, on behalf of the
Senior Lenders, and Agent, on behalf of the Lenders.
"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).
"Strip Price" shall mean, at any time, (a) for the remainder of the current
calendar year, the average NYMEX Pricing for the remaining contracts in the
current calendar year, (b) for each of the succeeding two complete calendar
years, the average NYMEX Pricing for the twelve months in each such calendar
year, and (c) for the succeeding third complete calendar year, and for each
calendar year thereafter, the average NYMEX Pricing for the twelve months in
such third calendar year.
"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
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(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 write-up in the book value of assets resulting from a revaluation thereof or
resulting from any changes in GAAP subsequent to December 31, 2005, 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 Subsection 4.06(a).
"Terminated Lender" shall have the meaning assigned such term in Subsection
5.06(a).
"Total Committed Debt" shall mean all Obligations of Borrower or its
Subsidiaries hereunder and all "Obligations" of Borrower or its Subsidiaries
under the Senior Credit Agreement, including without limitation, the Aggregate
Credit Commitments hereunder and the "Aggregate Revolving Credit Commitments"
under the Senior Credit Agreement, whether or not such commitments are fully
funded.
"Total Proved PW10%" shall mean, with respect to any Proved Reserves
expected to be produced from any Oil and Gas Properties, the net present value,
discounted at ten percent (10%) per annum, of the future net revenues expected
to accrue to the Borrower's and its Subsidiaries' collective interests in such
Proved Oil and Gas Properties during the remaining expected economic lives of
such reserves. Each calculation of such expected future net revenues shall be
made in accordance with the then existing standards of the Society of Petroleum
Engineers, provided that in any event (i) appropriate deductions shall be made
for severance and ad valorem taxes, and for operating, gathering, transportation
and marketing costs required for the production and sale of such reserves, (ii)
appropriate adjustments shall be made for hedging operations, provided that
Hedging Agreements with non-investment grade counterparties shall not be taken
into account to the extent that such Hedging Agreements improve the position of
or otherwise benefit the Borrower or any of its Subsidiaries, (ii) the pricing
assumptions used in determining Total Proved PW10% for any particular reserves
shall be based upon the Strip Price and (iv) the cash-flows derived from the
pricing assumptions set forth in clauses (ii) and (iii) above shall be further
adjusted to account for the historical basis in a manner acceptable to the
Agent; provided that for purposes of this calculation, Proved Developed
Producing Reserves shall constitute not less than 60% of the Total Proved PW10%.
"Type" shall mean, with respect to any Loan, a Base Rate Loan or a LIBOR
Loan.
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).
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ARTICLE II
COMMITMENTS
Section 2.01 Loans.
(a) Loans. Each Lender severally agrees, on the terms and conditions of
this Agreement, to make loans to the Borrower (each a "Loan" and collectively,
"Loans"), 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
Subsection 12.06(b), to and up to, but excluding, the Final Maturity Date, in an
amount not to exceed the lesser of such Lender's Credit Commitment then in
effect or such Lender's Percentage Share of the Maximum Loan Amount; provided,
however, that the aggregate principal amount of all such Loans by all Lenders
hereunder, at any one time outstanding, shall not exceed the lesser of the
Aggregate Credit Commitments or the Maximum Loan Amount. If Borrower pays or
prepays any portion of the Loans under this Agreement, then such portion may not
be reborrowed.
(b) Initial Loan. Until such time as the Borrower has an outstanding
principal balance under the Senior Credit Agreement of $10,000,000.00, Borrower
shall have no obligation to request Loans under this Agreement. Upon and after
the date that the Borrower's outstanding principal balance under the Senior
Credit Agreement is $10,000,000.00, any additional borrowings by the Borrower,
up to an aggregate amount of $10,000,000.00, shall consist of Loans requested
under this Agreement. After the Borrower has an outstanding principal balance
under this Agreement of $10,000,000.00, the Borrower may make such further
borrowings under either the Senior Credit Agreement or this Agreement as the
Borrower desires in its sole discretion.
(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 three (3) LIBOR Loans may be outstanding
at any time.
Section 2.02 Borrowings, Continuations and Conversions.
(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 $1,000,000.00 or the remaining balance of the Aggregate Credit
Commitments, if less, or any whole multiple of $1,000,000.00 in excess thereof,
and all LIBOR Loans shall be in amounts of at least $1,000,000.00 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 (1) Business Day prior to the date of each Base Rate Loan borrowing and
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three (3) 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
Subsection 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 Subsection 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
Subsection 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 $1,000,000.00 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 (which shall
promptly notify the Lenders) of such election. Subject to the provisions made in
this Subsection 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 Subsection 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 $1,000,000.00 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.
Section 2.03 Changes of Commitments.
(a) The Borrower shall have the right to terminate or to reduce the amount
of the Aggregate Credit Commitments 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 $2,000,000.00 or any whole multiple of
$1,000,000.00 in excess thereof) and shall be irrevocable and effective only
upon receipt by the Agent.
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(b) The Aggregate Credit Commitments, once terminated or reduced, may not
be reinstated.
Section 2.04 Fees.
(a) Facility Fee. The Borrower shall pay to the Agent, at Closing, for the
account of the Lenders in their respective Percentage Shares, a facility fee in
an amount equal to the sum of one and one-half of one percent (1.50%) multiplied
by the Aggregate Credit Commitments then in effect.
(b) Commitment Fee. The Borrower shall pay to the Agent, quarterly in
arrears on each Quarterly Date and on the earlier of (i) the date the Aggregate
Credit Commitments are terminated or (ii) the Final Maturity Date, for the
account of the Lenders, a commitment fee on the daily unused amount of the
Aggregate Credit Commitments, for the period from and including the Closing Date
up to, but excluding, the earlier of (i) the date the Aggregate Credit
Commitments are terminated or (ii) the Final Maturity Date, at a per annum rate
equal to one-half of one percent (0.50%).
(c) Engineering Fees. The Borrower shall pay to the Agent, for its
account, an engineering fee (i) at Closing, in the amount of $5,000.00, and (ii)
at the time of each Asset Coverage Test, in the amount of $2,500.00.
(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 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 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 Subsection 12.06(b), payable to the order of such Lender in a principal
amount equal to its Percentage Share of the Maximum Loan Amount, and otherwise
duly completed, and such substitute Notes as required by Subsection 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 Voluntary Prepayments; Prepayment Premium. 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 any multiple of
$100,000.00 in excess thereof or the remaining aggregate principal balance
outstanding on the Notes, if less) 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
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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. Prepayments permitted or
required under this Section 2.07 shall be without premium or penalty, except (i)
as required under Section 5.05 for prepayment of LIBOR Loans, and (ii) any
prepayment, refinancings or cancellations within one (1) year from the Closing
Date shall be in full (with no partial prepayment permitted) and accompanied by
a premium of one percent (1.0%) of the initial Aggregate Credit Commitments;
provided however, the payment of such premium shall not be required to the
extent the Loans are refinanced with either ▇▇▇▇▇ Fargo Bank, National
Association or ▇▇▇▇▇ Fargo Energy Capital, Inc. Any amounts prepaid on the Loans
may not be reborrowed.
Section 2.08 Intentionally Omitted.
Section 2.09 Intentionally Omitted.
Section 2.10 Intentionally Omitted.
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 Principal. On or before the Final Maturity Date, Borrower
shall repay to Agent, for the account of each Lender, the outstanding principal
amount of the Loans, together with all accrued but unpaid interest owing
thereunder and all other outstanding expenses owing under this Agreement or any
other Loan Document.
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 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
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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 September,
2006, 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).
(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 or the Notes 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 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 the facility fee, 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
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the Aggregate Credit Commitments under Section 2.03 shall be applied to the
Commitment of each Lender, pro rata according to its respective Percentage
Share; (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.
Section 4.03 Computations. Interest on LIBOR Loans and fees shall be
computed on the basis of a year of three hundred and sixty (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 three hundred and sixty-five (365) or three
hundred and sixty-six (366) days, as the case may be. Interest on Base Rate
Loans, and the commitment fee 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 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 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 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 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 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
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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. 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 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, 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, 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 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 or such Lender is organized, or (iii) any jurisdiction (or
political subdivision thereof) in which such Lender 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 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 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 Agent for the full amount of
Taxes and Other Taxes (including, but not limited to, any Taxes or Other Taxes
23
imposed by any Governmental Authority on amounts payable under this Section
4.06) paid by such Lender 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 or willful
misconduct. Any payment pursuant to such indemnification shall be made within
thirty (30) days after the date any Lender or the Agent, as the case may be,
makes written demand therefor. If any Lender or the Agent receives a refund or
credit in respect of any Taxes or Other Taxes for which such Lender 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 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 (in this Section 4.06, 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 (in this Section 4.06, 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
24
result of any change in either (i) a Governmental Requirement or (ii) its
circumstances, that it is unable to 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.
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
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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 (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 Subsection 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 its obligation to make any LIBOR
Loans, or any reduction in any amount receivable by such Lender hereunder in
respect of any of such LIBOR Loans, 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 (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 Subsection 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 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 Subsection 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
Subsection 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).
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(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 Subsection 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 Subsections 5.01(c) or (d), or of the effect of capital maintained
pursuant to Subsection 5.01(e), on its costs or rate of return of maintaining
Loans or its obligation to make Loans, or on amounts receivable by it in respect
of Loans, 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 Subsection 5.01(f).
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.
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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
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 Subsection 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
28
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, (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 Subsection 12.06(b), and the
Terminated Lender will have the rights and benefits of an assignor under
Subsection 12.06(b). To the extent not in conflict, the terms of Subsection
12.06(b) shall supplement the provisions of this Subsection 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 Subsection 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 Responsible 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 Responsible Officers, and
29
(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 (or other
governing body) 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 Responsible 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 Responsible Officers, and (iv) the articles or
certificate of incorporation and bylaws of such Guarantor or its general
partner, as applicable, 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) Certificates of the appropriate state agencies with respect to the
existence, qualification and good standing of the Borrower, Guarantors, and any
Guarantor's general partner, as applicable.
(d) A compliance certificate which shall be substantially in the form of
Exhibit C, duly completed and properly executed by a Responsible Officer and
dated as of the date of the Initial Funding.
(e) The Notes, duly completed and properly executed by a Responsible
Officer and dated as of the date of the Initial Funding.
(f) The Security Instruments, including those described on Exhibit D, duly
completed and properly executed (and notarized, as applicable) by a Responsible
Officer and dated as of the date of the Initial Funding, in sufficient number of
counterparts for recording, if necessary.
(g) 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.
(h) 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.
(i) 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.
(j) Copies of all environmental assessments, reports and other information
with respect to the Oil and Gas Properties with contents and findings reasonably
satisfactory to Agent.
30
(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 (i) 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 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) A duly authorized and properly executed amendment to the Senior Credit
Agreement evidencing a commitment to lend Borrower at least $25,000,000.00 on
terms and conditions satisfactory to Agent.
(r) A duly authorized and properly executed Subordination Agreement.
31
(s) 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. The obligation of the Lenders to
make Loans to the Borrower upon the occasion of each borrowing hereunder
(including the Initial Funding) is subject to the further conditions precedent
that, as of the date of such Loans and after giving effect thereto:
(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 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 by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in Subsection 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 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 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 as
provided in Section 6.02):
32
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.
Section 7.02 Financial Condition. The audited consolidated balance sheet of
the Borrower and its Consolidated Subsidiaries as at December 31, 2005, 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 ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, LLP, heretofore furnished to
each of the Lenders and the unaudited consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as at June 30, 2006, 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 June 30, 2006, there has been no change or
event having a Material Adverse Effect. Since June 30, 2006, 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
33
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
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 permitted under this Agreement; 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.
34
(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 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.
35
(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 Intentionally Omitted.
Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14, neither
Borrower nor its Subsidiaries have any 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
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):
36
(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;
(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.
37
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
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 other governing body) 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" and "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 Subsections 9.01(e) or 9.01(f), but only insofar as such
restrictions pertain to the Property encumbered thereby.
38
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
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 Subsection 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. 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.
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
39
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, limited partnerships 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:
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 ninety (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 forty-five (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
40
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.
(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 or the board of
directors or other governing body of 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/Of Outstandings Under Senior
Credit Agreement. Promptly (i) 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, and (ii) at such time as the outstanding
principal amount under the Senior Credit Agreement equals $10,000,000.00, notice
thereof.
(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 calculations of the Asset Coverage Test.
(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
41
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.
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
42
any contingent environmental liability. The Borrower shall promptly obtain
endorsements to such insurance policies naming "▇▇▇▇▇ Fargo Energy Capital,
Inc., as Agent for the Lenders" as joint loss payee, additional insured, and
containing provisions that such policies will not be canceled without thirty
(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 thirty (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
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 Subsection 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.
43
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 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 thirty (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 subject to the Excepted Liens, which may
include opinions of counsel at the request of Agent), within thirty (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
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,
44
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 Reserve Reports.
(a) Not less than forty-five (45) days prior to each December 1 and June
1, commencing December 1, 2006, the Borrower shall furnish to the Agent and the
Lenders a Reserve Report. The Reserve Report for June 1 shall be prepared by
certified independent petroleum engineers or other independent petroleum
consultant(s) acceptable to the Agent and the Reserve Report for December 1
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 Asset Coverage Test, 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 Asset Coverage Test requested by the Majority Lenders or the
Borrower pursuant to Section 9.29, 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 Reserve Report except as set forth on an Exhibit to 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.
45
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 Subsection 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 ninety (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 ninety
(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 Subsection 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 existing Aggregate Credit Commitments 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. The new
Aggregate Credit Commitments shall become effective immediately after receipt of
such notice.
Section 8.09 Collateral.
(a) Collateral. The Obligations shall be secured by a perfected first
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
46
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 Subsection 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. In the event all
"Obligations" are paid in full and all "Commitments" (as such terms are defined
under the Senior Credit Agreement) are terminated, 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. In such event, the Borrower
shall enter into a 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 Intentionally Omitted.
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.
47
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. At such time as all "Obligations" are paid in full
and all "Commitments" (as such terms are defined under the Senior Credit
Agreement) are terminated, Agent, in its reasonable 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.
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:
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) obligations of Borrower to Senior Agent and Senior Lenders under the
Senior Credit Agreement and Senior Loan Documents, provided such are subject to
the Subordination Agreement;
(c) 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;
(d) 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 ninety (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;
48
(e) 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
$1,500,000.00 in the aggregate;
(f) 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 $3,000,000.00 in the aggregate;
(g) 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;
(h) 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;
(i) Accrued FAS 143 asset retirement obligations;
(j) Revenue suspense accounts with respect to the Borrower's or any Active
Subsidiary's Hydrocarbon Interests; and
(k) Debt not otherwise permitted under this Section 9.01, which does not
exceed at one time an aggregate principal amount of $3,000,000.00.
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, that
nothing contained herein shall prohibit any Inactive Subsidiary from granting
Liens to secure the Obligations);
(b) Liens securing the Debt permitted under Subsection 9.01(b), to the
extent such Liens are subject to the Subordination Agreement;
(c) 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));
(d) Liens securing purchase money Debt permitted by Subsection 9.01(e)
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 Subsection 9.01(e) 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;
(e) Liens disclosed on Schedule 9.02; and
(f) Liens on cash or securities of the Borrower securing the Debt
described in Subsection 9.01(f).
49
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 Subsections 9.03(c), 9.03(d) or 9.03(e);
(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 $1,500,000.00 in
the aggregate at any time; and
(j) Hedging Agreements permitted to be incurred pursuant to Subsection
9.01(g).
Notwithstanding the foregoing, neither the Borrower nor any Subsidiary will make
loans or advances to, or investments into, Madisonville.
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.
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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 Subsection 10.01(k) shall result therefrom, or
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. The Borrower will not permit the proceeds
of the Notes 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:
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(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 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.
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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 to (ii) consolidated Current Liabilities to be less
than 0.85 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, 2006. 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 Senior Borrowing Base and the Aggregate Credit Commitments 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 Senior Notes and the Notes shall be excluded from Current 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 forty-two and
one-half percent (42.50%) of positive net income, plus eighty-five percent (85%)
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 September 30, 2006) to be less than 2.55 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.
Section 9.16 Sale of Oil and Gas Properties. The Borrower will not, and
will not permit any Subsidiary to, sell, assign, convey or otherwise transfer
any Oil and Gas Property (whether or not such Oil and Gas Property is a
Mortgaged Property) or any interest in any Oil and Gas Property, except for (i)
sales in the ordinary course of business of Oil and Gas Properties for which the
Borrower has given the Agent at least thirty (30) days prior written notice of
the proposed sale and which shall not exceed, in the aggregate, an amount equal
to five percent (5%) of the sum of the Senior Borrowing Base plus the Aggregate
Credit Commitments, in between any two consecutive Asset Coverage Tests; (ii)
the sale of Hydrocarbons in the ordinary course of business; (iii) farmouts of
undeveloped acreage and assignments in connection with such farmouts; and (iv)
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.
Section 9.17 Intentionally Omitted.
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
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Environmental Laws by any Governmental Authority or lawsuit at any Property
relating to hazardous substances, or subject any such Property to any remedial
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 Subsections 9.01(e) or 9.01(f),
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.
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Section 9.25 Intentionally Omitted.
Section 9.26 Intentionally Omitted.
Section 9.27 Intentionally Omitted.
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.
Section 9.29 Asset Coverage Test. Borrower shall not allow its Asset
Coverage Ratio to be less than 1.50 to 1.00 at any time. The Asset Coverage
Ratio will be tested (a) semi-annually on June 1 and December 1 of each fiscal
year of Borrower, commencing December 1, 2006, (b) upon any material acquisition
or divestiture of Oil and Gas Properties by Borrower, its Subsidiaries or any
Guarantor in excess of an amount equal to ten percent (10%) of the sum of the
Senior Borrowing Base plus the Aggregate Credit Commitments, and (c) up to once
per fiscal year at the request of Agent (each such test, an "Asset Coverage
Test"). As used herein, "Asset Coverage Ratio" means the ratio of Total Proved
PW10% to Total Committed Debt.
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 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 as
specifically excepted in this subsection); or the Borrower shall default in the
55
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 Subsection 8.03(c), or Subsection
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 Reserve Reports provided to the Lender, 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 Subsection 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 sixty (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 thirty (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
(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,
after thirty (30) days' notice of such cessation,, on any of the collateral in
excess of $100,000.00 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
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(j) an event having a Material Adverse Effect shall occur; or
(k) 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
(l) 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 sixty (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
(m) any Guarantor takes, suffers or permits to exist any of the events or
conditions referred to in Subsections 10.01(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
(n) 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; or
(o) any Default or Event of Default (as defined therein) shall have
occurred pursuant to the Senior Credit Agreement including, but not limited to,
the failure to make any payments of interest, fees or other amounts due
thereunder, or in respect thereof, pursuant to and in accordance with the Senior
Loan Documents.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one referred to in
Subsections 10.01(e), (f), (g), or in Subsections 10.01(m), to the extent
related to Subsection 10.01(e), (f), (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 outstanding of, and the
accrued interest on, the Loans and all other amounts payable by the Borrower
hereunder and under the Notes 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
Subsections 10.01(e), (f), (g) or in Subsections 10.01(m), to the extent related
to Subsections 10.01(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 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.
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(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; 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
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) 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.
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Section 11.04 Rights as a Lender. With respect to its Commitments and the
Loans made by it, ▇▇▇▇▇ 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
ratably in accordance with its Percentage Share 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 in any way relating to or arising
out of: (i) this Agreement, the Security Instruments 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, 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 ▇▇▇▇▇▇ & ▇▇▇▇▇, LLP 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
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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
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.
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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,
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, (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
61
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 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
Subsection 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
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the Aggregate Maximum Credit Amounts, 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 Subsection 2.03(a), this Section 12.04 or Subsection 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 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 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
$2,500,000.00 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 $2,500,000.00 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 $3,500.00
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 Subsection 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 Subsection 12.06(b), a new Annex I giving effect to all such assignments
effected during such month, and will promptly provide the same 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 Subsection
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
Subsection 12.06(c).
(c) Each Lender may, without the consent of the Borrower or the Agent,
transfer, grant or assign participations in all or any part of such Lender's
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interests hereunder pursuant to this Subsection 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,
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 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 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
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 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.
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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.
(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
65
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
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
66
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
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 Patriot Act. Each Lender hereby notifies the Borrower that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the "Act"), it is required to obtain,
verify and record information that identifies the Borrower , which information
includes the name and address of the Borrower and other information that will
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allow such Lender to identify the Borrower, insofar as it is needed to comply
with the Act, in accordance with the Act. The Borrower hereby represents and
warrants to Agent and each Lender that neither the Borrower nor any of its
Affiliates is a country, individual or entity named on the "Specifically
Designated National and Blocked Persons" list issued by the Office of Foreign
Asset Control of the Department of the Treasury of the United States of America.
Section 12.18 SUBORDINATION. Payment of the obligations shall, to the
extent set forth in the Subordination Agreement, be subordinate and junior in
right of payment to the prior payment in full of all "Obligations" under the
Senior Credit Agreement, the provisions of which Subordination Agreement are
incorporated herein by reference and made a part hereof.
Section 12.19 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 12.20 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 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
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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 arbitrable 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 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.
69
(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]
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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. ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------------
E. ▇▇▇▇▇▇ ▇▇▇▇▇
Senior Vice President and
Chief Financial Officer
Address for Notices:
Crimson Exploration Inc.
▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇, ext. 330
Attention: E. ▇▇▇▇▇▇ ▇▇▇▇▇
AGENT AND LENDER:
-----------------
▇▇▇▇▇ FARGO ENERGY CAPITAL, INC.,
a Texas corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇,
President
Lending Office for Base Rate and LIBOR Loans:
▇▇▇▇▇ Fargo Energy Capital, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Address for Notices:
▇▇▇▇▇ Fargo Energy Capital, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
ANNEX I
LIST OF LENDERS, PERCENTAGE SHARES, CREDIT COMMITMENTS,
-------------------------------------------------------
AGGREGATE CREDIT COMMITMENTS AND MAXIMUM LOAN AMOUNT
----------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Name of Lender Percentage Credit Aggregate Credit Maximum
Share Commitment Commitments Loan Amount
-----------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ Fargo Energy 100% $15,000,000.00 $15,000,000.00 $150,000,000.00
Capital, Inc.
-----------------------------------------------------------------------------------------------------------------------
TOTAL 100% $15,000,000.00 $15,000,000.00 $150,000,000.00
-----------------------------------------------------------------------------------------------------------------------
EXHIBIT A
FORM OF SUBORDINATE PROMISSORY NOTE
--------------------------------------------------------------------------------
SUBORDINATE PROMISSORY NOTE
▇▇▇▇▇ FARGO ENERGY CAPITAL, INC.
$150,000,000.00 August 31, 2006
FOR VALUE RECEIVED, CRIMSON EXPLORATION INC., a Delaware corporation (the
"Maker") hereby promises to pay to the order of ▇▇▇▇▇ FARGO ENERGY CAPITAL,
INC., a Texas corporation (the "Payee"), at the Principal Office of ▇▇▇▇▇ FARGO
ENERGY CAPITAL, INC. (the "Agent"), at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇, ▇▇▇▇▇, the principal sum of ONE HUNDRED FIFTY MILLION DOLLARS
($150,000,000.00) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Loans made by Payee to Maker 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 Payee to Maker, and each payment made on account of the principal
thereof, shall be recorded by Payee on its books and, prior to any transfer of
this Promissory Note, endorsed by Payee on the schedules attached hereto or any
continuation thereof.
This Promissory Note is one of the "Notes" referred to in the Subordinate
Credit Agreement dated as of even date herewith, among Maker, as borrower,
Agent, as agent for the benefit of the financial institutions from time to time
party thereto (collectively, including Payee, the "Lenders") and the Lenders (as
the same may be amended, modified, supplemented or restated from time to time,
the "Credit Agreement"), and evidences Loans made by Payee thereunder.
Capitalized terms used in this Promissory Note have the respective meanings
assigned to them in the Credit Agreement.
This Promissory Note is issued pursuant to the Credit Agreement and is
entitled to the benefits provided therein and in the Security Instruments. The
Credit Agreement provides for the acceleration of the maturity of this
Promissory Note upon the occurrence of certain events, for prepayments of Loans
upon the terms and conditions specified therein and other provisions relevant to
this Promissory Note; provided however, following any prepayment of amounts
owing under this Promissory Note, Maker may not reborrow such amounts.
Payment of amounts owing under this Promissory Note shall, to the extent
set forth in the Subordination Agreement, be subordinate and junior in right of
payment to the prior payment in full of all Senior Debt (as defined in the
Subordination Agreement).
THIS SUBORDINATE PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
[Signature Page Follows]
MAKER:
------
CRIMSON EXPLORATION INC.,
a Delaware corporation
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------