================================================================================
Exhibit 10.21
CREDIT AGREEMENT
GREY WOLF EXPLORATION INC.
as Borrower
- and -
MIRANT CANADA ENERGY CAPITAL, LTD.
as Lender
================================================================================
December 20, 2001
TABLE OF CONTENTS
Page
Article 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms........................................................1
1.2 Use of Defined Terms................................................18
1.3 Cross-References....................................................18
1.4 Accounting and Financial Determinations.............................19
1.5 Statutes, Regulations and Rules.....................................19
1.6 Monetary References.................................................19
1.7 Schedules and Exhibits..............................................19
Article 2
COMMITMENT AND LOAN PROCEDURES
2.1 Commitment..........................................................19
2.2 Maximum Commitment Amount and Commitment Amount.....................20
2.3 Loan Procedure......................................................20
2.4 Records 21
Article 3
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1 Repayments and Prepayments..........................................21
3.2 Refinancing.........................................................22
3.3 Interest Provisions.................................................22
3.4 Collateral Account..................................................23
3.5 Closing Fee.........................................................25
3.6 Engineering Fee.....................................................25
Article 4
TAXES AND OTHER PROVISIONS
4.1 Payments, Computations, etc.........................................25
4.2 Setoff ...........................................................25
4.3 Right of First Refusal - Proposed Undertakings......................26
4.4 Right of First Refusal-Proposed Non-Subject Interest Undertaking....27
4.5 Use of Proceeds.....................................................28
Article 5
CONDITIONS TO LOANS
5.1 Initial Loan........................................................29
5.2 Resolutions, etc....................................................29
5.3 Override Royalty Agreement..........................................29
5.4 Security 29
5.5 Release and Discharge...............................................30
i
5.6 After-Acquired Property.............................................30
5.7 Memorandum of Purchase Contracts....................................30
5.8 Opinion of Counsel..................................................30
5.9 Certified Copy of Farmout Amending Agreement........................30
5.10 Development Plan and Schedules......................................30
5.11 Evidence of Insurance...............................................30
5.12 Approvals...........................................................31
5.13 Compliance with Loan Documents......................................31
5.14 No Default..........................................................31
5.15 Engineering.........................................................31
5.16 Environmental.......................................................31
5.17 Officer's Certificate...............................................31
5.18 Release of Liens....................................................31
5.19 Closing Fees, Expenses, etc.........................................32
5.20 ISDA Master Agreement...............................................32
5.21 Documents...........................................................32
5.22 Other Legal Matters.................................................32
5.23 All Loans...........................................................32
Article 6
REPRESENTATIONS AND WARRANTIES
6.1 Representations.....................................................33
6.2 Organization........................................................33
6.3 Due Authorization, Non-Contravention, etc...........................33
6.4 Government Approval, Regulation, etc................................34
6.5 Validity, etc.......................................................34
6.6 Financial Information...............................................34
6.7 No Material Adverse Change..........................................34
6.8 Litigation, Labor Controversies, etc................................34
6.9 Subsidiaries........................................................34
6.10 Borrower's Shares...................................................34
6.11 Subject Interests...................................................34
6.12 Oil and Gas Leases..................................................35
6.13 Preferential Rights.................................................35
6.14 Balancing and Take-or-Pay Contracts.................................35
6.15 Production Requirements.............................................36
6.16 Facilities..........................................................36
6.17 Broker's Fees.......................................................36
6.18 Taxes ...........................................................36
ii
6.19 Compliance with Laws................................................36
6.20 Environmental Warranties............................................36
6.21 Accuracy of Information.............................................37
6.22 No Prohibition on Perfection........................................38
6.23 Solvency 38
6.24 Insurance...........................................................38
6.25 No Default..........................................................38
6.26 Farmout Lands.......................................................38
Article 7
AFFIRMATIVE COVENANTS
7.1 Affirmative Covenants...............................................38
7.2 Punctual Payment....................................................38
7.3 Financial Information, Reports, Notices, etc........................38
7.4 Gathering and Transportation and Other Services.....................42
7.5 Collateral Coverage Deficiency or Collateral Coverage Default.......43
7.6 Use of Proceeds.....................................................43
7.7 Joint Operating Agreement...........................................43
7.8 Compliance with Laws................................................43
7.9 Production-Related Expenses and Taxes...............................44
7.10 Operation of Subject Interests......................................44
7.11 Development Plan....................................................45
7.12 Insurance...........................................................45
7.13 Accounting Principles...............................................46
7.14 Books and Records; Inspections......................................46
7.15 Environmental Covenant..............................................46
7.16 Board of Directors Meetings.........................................47
7.17 Hedging Agreements..................................................47
7.18 Protection of Security..............................................47
7.19 Grant Fixed Charge Security.........................................47
7.20 Further Assurances..................................................48
7.21 Override Records....................................................49
7.22 Title Deficiencies..................................................49
7.23 Further Due Diligence...............................................49
Article 8
NEGATIVE COVENANTS
8.1 Negative Covenants..................................................50
8.2 Business Activities.................................................50
iii
8.3 Indebtedness........................................................50
8.4 Liens ...........................................................50
8.5 Restricted Payments, etc............................................50
8.6 Capital Expenditures................................................51
8.7 Accounts Receivable.................................................51
8.8 Rental Obligations..................................................51
8.9 Take-or-Pay Contracts...............................................51
8.10 Consolidation, Merger, etc..........................................51
8.11 Asset Dispositions, etc.............................................51
8.12 Abandonment of Wellbores or Conduct of Certain Operations...........52
8.13 Grant Liens, Mortgage or Transfer or Resignation as Operator
of any Subject Interest.............................................52
8.14 Modification of Certain Agreements..................................52
8.15 Pension Plans.......................................................52
8.16 Other Agreements....................................................53
8.17 No Subsidiaries.....................................................53
8.18 No Other Hedging Agreements.........................................53
8.19 Transactions with Affiliates........................................53
8.20 Negative Pledges, Restrictive Agreements, etc.......................53
8.21 Limitations on Certain Financing Leases and Sale and
Leaseback Transactions..............................................53
8.22 Dissemination of Information........................................54
8.23 Subject Interests...................................................54
Article 9
EVENTS OF DEFAULT
9.1 Events of Default...................................................54
(a) Non-Payment of Obligations.................................54
(b) Breach of Warranty.........................................54
(c) Non-Performance of Certain Covenants and Obligations.......54
(d) Collateral Coverage Default................................54
(e) Default on Other Indebtedness..............................55
(f) Judgments .........................................55
(g) Control of Borrower........................................55
(h) Bankruptcy, Insolvency.....................................55
(i) Winding-Up .........................................56
(j) Impairment of Security, etc................................56
(k) Cumulative Reimbursable Expenses Amount....................56
(l) Material Adverse Change....................................56
(m) Dissemination of Information...............................56
iv
9.2 Remedies of Lender..................................................56
Article 10
OVERRIDE ROYALTY AGREEMENT
10.1 Override Royalty Agreement..........................................60
Article 11
HYDROCARBON PURCHASE TERMS AND PROVISIONS
11.1 General.............................................................60
11.2 Marketing Subject Hydrocarbons to Third Persons.....................61
Article 12
MISCELLANEOUS PROVISIONS
12.1 Waivers, Amendments, etc............................................61
12.2 Notices.............................................................61
12.3 Payment of Costs and Expenses.......................................62
12.4 Indemnification.....................................................62
12.5 Survival............................................................63
12.6 Inconsistency.......................................................64
12.7 Reimbursable Expenses...............................................64
12.8 Severability........................................................64
12.9 Headings............................................................64
12.10 Limitation on Liability.............................................64
12.11 Intentions of the Parties...........................................64
12.12 Governing Law; Entire Agreement.....................................64
12.13 Successors and Assigns..............................................64
12.14 Effect of Syndication...............................................65
12.15 Participations......................................................65
12.16 Maximum Rate of Return..............................................65
12.17 Waiver of Judgment Interest Act (Alberta)...........................66
12.18 Deemed Reinvestment Not Applicable..................................66
12.19 Confidentiality.....................................................66
12.20 Other Transactions..................................................66
12.21 Forum Selection and Consent to Jurisdiction.........................66
12.22 Waiver of Jury Trial................................................67
12.23 No Oral Agreements..................................................67
12.24 Execution in Counterparts, Effectiveness............................67
v
1
CREDIT AGREEMENT
This Credit Agreement dated as of December 20, 2001,
BETWEEN:
GREY WOLF EXPLORATION INC.,
a corporation incorporated pursuant to the laws of Alberta,
as Borrower
- and -
MIRANT CANADA ENERGY CAPITAL, LTD.,
a corporation incorporated pursuant to the laws of New Brunswick,
as Lender
RECITALS
A. Borrower is engaged directly in the business of acquiring, owning and
operating certain oil and gas leasehold and other interests in Western
Canada.
B. Borrower desires to obtain the Commitment from Lender pursuant to which
Loans, in a maximum aggregate principal amount of $150,000,000 and with
a Commitment Amount as of the Effective Date of $40,000,000, will be
made to Borrower from Lender prior to the Commitment Termination Date.
C. Lender is willing, subject to the terms and conditions herein set forth
to make Loans to Borrower pursuant to the Commitment.
D. The Loan proceeds will be used (i) to repay existing Indebtedness, (ii)
to develop the Subject Interests in accordance with the Development
Plan, and (iii) for general business purposes and working capital
purposes of Borrower consistent with the Development Plan and any other
purposes as agreed by Lender and Borrower.
NOW THEREFORE for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
Article 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. The following terms when used in this Agreement,
including its recitals, schedules and exhibits, shall, except where the
context otherwise requires, have the following meanings (such meanings
to be equally applicable to the singular and plural forms thereof):
"Abraxas Amalgamation" means the amalgamation between Abraxas
Acquisition Corporation and Borrower to be completed on or before
January 1, 2002.
2
"Acceptable Proved Reserves" means Proved Reserves located in the
Subject Interests that (i) have been evaluated by the Approved
Independent Engineer and are included in the most recent Independent
Engineering Report, (ii) are determined by Lender, in its sole and
absolute discretion, to have satisfactory title, including Liens in
favour of Lender and title opinions or other assurances of title
satisfactory to Lender, if required by Lender (iii) are free of any
Liens except for any Permitted Liens, and (iv) are covered by
environmental reports, if required by Lender, which have been delivered
to Lender and Lender has determined, in its reasonable discretion, that
the results of such environmental reports are satisfactory.
"Accountant" has the meaning set forth in Section 7.3(b).
"Additional Development Program Option" has the meaning set forth in
Section 4.3(b).
"Affiliate" has the meaning attributed to it in the Business
Corporations Act (Alberta).
"Agreement" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time
amended, supplemented, amended and restated, or otherwise modified and
in effect on such date.
"Applicable Law" means with respect to any Person or matter, any
federal, state, provincial, municipal, regional, tribal or local
statute, law, code, rule, regulation, treaty, convention, application,
order, decree, consent decree, injunction, directive, determination or
other requirement (domestic, foreign or international and whether or
not having the force of law) relating to such Person or matter and,
where applicable, any interpretation thereof by a Governmental Agency
having jurisdiction with respect thereto or charged with the
administration or interpretation thereof.
"Approvals" means each and every approval, authorization, license,
permit, consent, variance, land use entitlement, franchise, agreement,
filing or registration by or with any Governmental Agency or other
Person necessary for all stages of acquiring, developing, operating,
maintaining and abandoning Property, including the Subject Properties.
"Approved Capital Expenditures" means, for purposes of calculating Net
Cash Flow, capital expenditures specified in relation to a particular
portion of the Subject Interests which are approved by Lender as part
of the "PUD Capex (net)", "PDNP Capex (net)" and "Other Capital
Expenditures (net)" sections, respectively, of the Development Plan and
which only include the capital expenditures specified in relation to
such portion of the Subject Interests in the "PUD Capex (net)", "PDNP
Capex (net)" and "Other Capital Expenditures (net)" sections,
respectively, of the Development Plan; provided, however, that,
Approved Capital Expenditures reimbursed to Borrower shall not exceed
the lesser of (i) Approved Capital Expenditures actually expended by
Borrower for such period and (ii) the amount set forth in the "PUD
Capex (net)", "PDNP Capex (net)" and "Other Capital Expenditures (net)"
sections, respectively, of the Development Plan for such period. Unless
specifically approved by Lender, any capital expenditures which fall
3
outside the above limitations shall be paid by Borrower and such
capital expenditures will not be included in Approved Capital
Expenditures.
"Approved Independent Engineer" means ▇▇▇▇▇▇▇▇ & Associates Consultants
Ltd., or another independent petroleum engineer, selected by Borrower
and acceptable to Lender, in its sole discretion; provided that ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ Jung Associates Ltd., Outrim ▇▇▇▇▇, ▇▇▇▇▇▇ Associates Inc.,
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Co. Petroleum Consultants and
▇▇▇▇▇▇▇ & Associates Limited are all acceptable to Lender.
"Approved G&A Expenses" means, for purposes of calculating Net Cash
Flow, general and administrative expenses specified in relation to a
particular portion of the Subject Interests and closing costs
associated with this Agreement, reporting costs incurred under this
Agreement for engineering and accounting reports and such other fees
incurred by Borrower under this Agreement, which are approved by Lender
as part of the "Approved G&A Expenses" section of the Development Plan;
provided, however, that, unless otherwise specifically approved by
Lender, Approved G&A Expenses reimbursed to Borrower shall not exceed
the amount set forth in the "Approved G&A Expenses" section of the
Development Plan for such period. Unless specifically approved by
Lender, any general and administrative expenses which fall outside the
above limitations shall be paid by Borrower and such general and
administrative expenses will not be included in Approved G&A Expenses.
"Approved Lease Operating Expenses" means, for purposes of calculating
Net Cash Flow, production-related expenses specified in relation to a
particular portion of the Subject Interests which are approved by
Lender as part of the "Operating Expenses" section of the Development
Plan and which only include the production-related expenses specified
in relation to such portion of the Subject Interests in the "Operating
Expenses" section of the Development Plan; provided, however, that,
Approved Lease Operating Expenses reimbursed to Borrower shall not
exceed the lesser of (i) Approved Lease Operating Expenses actually
expended by Borrower for such period and (ii) the amount set forth in
the "Operating Expenses" section of the Development Plan for such
period. Unless specifically approved by Lender, any production-related
expenses which fall outside the above limitations shall be paid by
Borrower and such production-related expenses will not be included in
Approved Lease Operating Expenses.
"Approved Third-Party Transportation, Gathering and Marketing Expenses"
means, for purposes of calculating Net Cash Flow, third-party
transportation, gathering and marketing related expenses specified in
relation to a particular portion of the Subject Interests which are
approved by Lender and which only include the third-party
transportation, gathering and marketing-related expenses specified in
relation to such portion of the Subject Interests; provided, however,
that Approved Third-Party Transportation, Gathering and Marketing
Expenses reimbursed to Borrower shall not exceed Approved Third-Party
Transportation, Gathering and Marketing Expenses actually expended by
Borrower for such period. Unless specifically approved by Lender, any
third-party transportation, gathering and marketing-related expenses
which fall outside the above limitations shall be paid by Borrower and
4
such third-party transportation, gathering and marketing-related
expenses will not be included in Approved Third-Party Transportation,
Gathering and Marketing Expenses.
"Authorized Officer" means, relative to any Obligor, those of its
officers whose signatures and incumbency shall have been certified to
Lender pursuant to Section 5.2.
"Borrower" means Grey Wolf Exploration Inc. and its successors and
permitted assigns.
"Borrower Hedging Agreements" means each of (i) the Initial Hedging
Agreements and (ii) any other Hedging Agreement entered into between
Borrower and Lender or its Affiliates.
"Broker's Fee" means any obligation or liability of any kind,
contingent or otherwise, for any broker's, finders' or similar fees.
"Business Day" means any day which is neither a Saturday or Sunday nor
a legal holiday on which banks are authorized or required to be closed
in Calgary, Alberta.
"Capital Expenditures" means, for any period, the sum of (i) the
aggregate amount of all expenditures of Borrower for fixed or capital
assets made during such period which, in accordance with GAAP, would be
classified as capital expenditures, and (ii) the aggregate amount of
all Capitalized Lease Liabilities incurred during such period.
"Capitalized Lease Liabilities" means the aggregate amount of all
monetary obligations of Borrower and its Subsidiaries under any leasing
or similar arrangement which, in accordance with GAAP, would be
classified as capitalized leases, and, for purposes of this Agreement
and each other Loan Document, the amount of such obligations shall be
the capitalized amount thereof, determined in accordance with GAAP, and
the stated maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment
of a penalty.
"Cash Flow from Override" means, for any period and for each Override
Royalty Agreement in effect at such time, proceeds payable to the owner
of the Override pursuant to such Override Royalty Agreements for the
life of the Subject Interests, which for greater certainty includes (i)
any Subject Interest in respect of which Lender has exercised its
Additional Development Program Option, and (ii) any replacement or
offset well within the Subject Interests that produces Hydrocarbons
that may be deemed to have been recovered by a well funded under this
Agreement, or by a Subject Interest in which a well funded by this
Agreement is located.
"Change of Control" means if any Person, other than Abraxas Petroleum
Corporation or Canadian Abraxas Petroleum Limited or their Affiliates
acquires, directly or indirectly, alone or in concert with other
Persons, over a period of time or at any one time, shares in the
capital stock of Borrower aggregating in excess of 50% of all of the
then issued and outstanding common shares and voting securities of
Borrower, or if any Person, other than Abraxas Petroleum Corporation or
5
Canadian Abraxas Petroleum Limited or its Affiliates otherwise has the
power to direct or cause the direction of the management and policies
of Borrower.
"Collateral Account" has the meaning set forth in Section 3.4.
"Collateral Coverage Default" shall exist at all times when the
Collateral Coverage Ratio is less than 125%.
"Collateral Coverage Deficiency" shall exist at all times when the
Collateral Coverage Ratio is less than 150% but greater than or equal
to 125%.
"Collateral Coverage Ratio" means, at any time, the ratio, expressed as
a percentage, of (i) the sum of (A) Risked NPV10, plus (B) Working
Capital, divided by (ii) Lender's Adjusted Investment.
"Commitment" means Lender's obligation to make Loans pursuant to
Section 2.1.
"Commitment Amount" means, on the Effective Date $40,000,000, as such
amount may be reduced or increased from time to time pursuant to
Section 2.2.
"Commitment Termination Date" means the earliest of (i) the Stated
Maturity Date, (ii) the date on which the Commitment Amount and the
Maximum Commitment Amount are terminated in full or reduced to zero
pursuant to Section 2.2, and (iii) the date on which any Commitment
Termination Event occurs. Upon the occurrence of any event described in
clause (i) or (ii) of this definition, the Commitment shall terminate
automatically without further action.
"Commitment Termination Event" means (i) the occurrence of any Event of
Default described in Section 9.1(h) or 9.1(i), or (ii) the occurrence
and continuance of any other Event of Default and either (a) the
declaration of the Loans to be due and payable pursuant to Section 9.2
has been made, or (b) in the absence of such declaration, the giving of
notice by Lender to Borrower that the Commitment has been terminated
pursuant to Section 9.2.
"Constating Document" means, relative to Borrower or its Subsidiaries,
if any, its certificate of incorporation, formation or organization,
its by-laws, operating agreement or other similar agreement and all
shareholder agreements, voting trusts and similar arrangements
applicable to any of its authorized shares of common stock.
"Contingent Liability" means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent
or otherwise, to provide funds for payment, to supply funds to, or
otherwise to invest in, a debtor, or otherwise to assure a creditor
against loss) the Indebtedness of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees
the payment of dividends or other distributions upon the securities of
any other Person. The amount of any Person's obligation under any
6
Contingent Liability shall (subject to any limitation set forth
therein) be deemed to be the outstanding principal amount (or maximum
principal amount, if larger) of the Indebtedness guaranteed thereby.
"Cumulative Return on Total Funding" means the annualized rate of
return (on a before tax basis) actually earned by Lender from the
repayment of all Indebtedness of Borrower to Lender under and pursuant
to any of the Loan Documents, including for greater certainty,
obligations of the Borrower arising under the Override, including any
return resulting from the unwinding or early termination of a Borrower
Hedging Agreement (the "Payout Amount").
"Debenture" means the Debenture executed and delivered pursuant to
Section 5.4(a) substantially in the form of Exhibit D-1, as amended,
supplemented, restated or otherwise modified from time to time.
"Debenture Pledge Agreement" means the Debenture Pledge Agreement
executed and delivered pursuant to Section 5.4(a), substantially in the
form of Exhibit D-2, as amended, supplemented, restated or otherwise
modified from time to time.
"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would constitute an
Event of Default.
"Default Rate" has the meaning set forth in Section 3.3.
"Development Plan" means either (i) the development plan for the 2 year
period after the Effective Date delivered to Lender pursuant to Section
5.10 and attached hereto as Exhibit I, or (ii) the updated development
plan, as required by and in accordance with Section 7.11, for the 2
year period beginning on the date of delivery in substantially the same
form as Exhibit I delivered to Lender and determined to be acceptable
by Lender.
"Direct Taxes" means (i) ad valorem taxes (or Taxes imposed in lieu
thereof) imposed or assessed upon the Subject Interests or any mortgage
thereof, (ii) corporate income tax, severance, gross production,
occupation, extraction, gathering, and other Taxes and assessments of
any kind, including conservation levies (other than (A) Taxes on or
measured by Lender's net income or receipts and (B) franchise taxes)
imposed or assessed with respect to or measured by or charged against
the Subject Interests, and (iii) all other Taxes required by Applicable
Law to be deducted from the proceeds of the Subject Interests.
"Disbursement Request" has the meaning set forth in Section 3.4(b).
"Disclosure Schedule" means the Disclosure Schedule attached as
Schedule II, as it may be amended, supplemented or otherwise modified
from time to time by Borrower with the written consent of Lender.
"Dollar" and the sign "$" mean lawful money of Canada.
"Effective Date" means December 20, 2001, or such other date as may be
agreed to by the Parties.
7
"Environment" means all components of the earth, including all layers
of the atmosphere, air, land (including all underground spaces and
cavities and all lands submerged under water), soil, water (including
surface and underground water), organic and inorganic matter and living
organisms, and the interacting natural systems that include the
components referred to in this definition.
"Environmental Certificate" means a certificate substantially in the
form of Exhibit J.
"Environmental Laws" means all Applicable Laws relating to public
health and safety and protection of the Environment.
"Event of Default" has the meaning set forth in Section 9.1.
"Existing Burdens" means, for any period, the aggregate amounts payable
in respect of existing royalty, overriding royalty and other cost-free
interests as a result of production of Hydrocarbons from the Subject
Interests which burdens have been taken into account in determining the
working interests and the net revenue interests in the Initial Subject
Interests disclosed to Lender on Item 1.1 of the Disclosure Schedule.
"GAAP" means generally accepted accounting principles which are in
effect from time to time in Canada, in the case of Borrower, and the
United States of America, in the case of Abraxas Petroleum Corporation.
"Governmental Agency" means any federal, state, provincial, municipal,
regional, tribal or local government or governmental department or
other entity charged with the regulation, administration,
interpretation or enforcement of any Applicable Law.
"Hazardous Material" means (i) any "hazardous substance", as defined by
the Environmental Protection and Enhancement Act (Alberta), as amended,
or any similar legislation in jurisdictions where Borrower currently or
in the future owns Property, (ii) any "hazardous waste", as defined by
the Environmental Protection and Enhancement Act (Alberta), or any
similar legislation in jurisdictions where Borrower currently or in the
future owns Property, (iii) any petroleum product, or (iv) any
pollutant or contaminant or hazardous, dangerous or toxic chemical,
material or substance within the meaning of any other applicable
Environmental Law relating to or imposing liability or standards of
conduct concerning any hazardous, toxic or dangerous waste, substance
or material, all as amended or hereafter amended.
"Hedging Agreement" means any swap agreement, hedge agreement, floor
agreement, collar agreement or other similar arrangement or agreement,
including, any such agreement entered into in connection with an ISDA
Master Agreement.
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under Hedging Agreements, and all other
agreements or arrangements designed to protect such Person against
fluctuations in interest rates, commodity prices or currency exchange
rates.
8
"herein", "hereof", "hereto", "hereunder" and similar terms contained
in this Agreement or any other Loan Document refer to this Agreement or
such other Loan Document, as the case may be, as a whole and not to any
particular Section, paragraph or provision of this Agreement or such
other Loan Document.
"Hydrocarbon Proceeds" means the sum of all revenues and proceeds (i)
received by Borrower from the sale of Hydrocarbons attributable to the
Subject Interests and (ii) received (or if paid, less such amount) by
Borrower from the settlement of any Hedging Agreement. Adjustments
under clause (i) above will include adjustments related to third
parties only, to be determined by Lender in its discretion acting
reasonably, for (A) processing, treating and marketing fees, (B) fuel,
shrinkage and unaccounted for losses, (C) fractionation costs, (D)
storage and loading costs, (E) transportation costs including pipeline
tariff, pipeline losses, and truck transport, and (F) any freight
differentials received or allowed.
"Hydrocarbons" means, collectively, oil, condensate and other liquid
hydrocarbons, including natural gas or liquid products extracted from
gas by means other than conventional field separation, and natural gas,
casinghead gas, and other gaseous hydrocarbons, and, if applicable,
helium and sulphur.
"including" means including without limiting the generality of any
description preceding such term.
"Indebtedness" of any Person means, without duplication: (i) all
obligations of such Person for borrowed money and all obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (ii) all obligations, contingent or otherwise, relative to
the face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person, (iii) all
obligations of such Person as lessee under leases which have been or
should be, in accordance with GAAP, recorded as Capitalized Lease
Liabilities; (iv) all other items which, in accordance with GAAP, would
be included as liabilities on the liability side of the balance sheet
of such Person as of the date at which Indebtedness is to be
determined, (v) net liabilities of such Person under all Hedging
Obligations, (vi) whether or not so included as liabilities in
accordance with GAAP, all obligations of such Person to pay the
deferred purchase price of Property or services, and indebtedness
(excluding prepaid interest thereon) secured by a Lien on Property
owned or being purchased by such Person (including indebtedness arising
under conditional sales or other title retention agreements), whether
or not such indebtedness shall have been assumed by such Person or is
limited in recourse, and (vii) all Contingent Liabilities of such
Person in respect of any of the foregoing. For all purposes of this
Agreement, the Indebtedness of any Person shall include the
Indebtedness of any partnership in which such Person is a general
partner and Indebtedness of a joint venture attributable to any such
Person under any joint venture agreement or Applicable Law.
"Indemnified Liabilities" has the meaning set forth in Section 12.4.
"Indemnified Parties" has the meaning set forth in Section 12.4.
9
"Independent Reserve Report" has the meaning set forth in Section
7.3(n).
"Initial Drilling Program" means the well drilling program for the 42
initial ▇▇▇▇▇ on the Subject Interests which is completed in accordance
with the Development Plan.
"Initial Hedging Agreement" has the meaning set forth in Section 7.17.
"Initial Subject Interests" means all the right, title and interest of
Borrower and its Subsidiaries in the initial Subject Properties, and
are more particularly described in Schedule I.
"Interest Rate" means, on any date and with respect to the Loans, a
fixed rate of interest equal to 9.5% per annum (based on a year of 365
days), subject to the adjustments as set forth herein.
"Internal Reserve Report" has the meaning set forth in Section 7.3(o).
"ISDA Master Agreement" means the International Swaps and Derivatives
Association, Inc. Master Agreement executed and delivered pursuant to
Section 5.20, substantially in the form of Exhibit H, as amended,
supplemented, restated or otherwise modified from time to time.
"Joint Operating Agreement" means all operating agreements to which
Borrower is a party and which govern the operation of the Subject
Interests, as each may be amended, supplemented, restated or otherwise
modified from time to time.
"Knowledge" means, with respect to any Person, either (i) the actual
knowledge of information by such Person after reasonable inquiry or
(ii) any information of which a reasonable and prudent Person operating
in the same business capacity should have had knowledge after
reasonable inquiry.
"Lease Use Hydrocarbons" means any Hydrocarbons which are lost in the
production thereof or used by the operator of the Subject Interests or
any other Person for the purpose of reinjecting, producing, processing,
treating, gathering or transporting Hydrocarbons from the Subject
Interests, but only to the extent such Hydrocarbons are so used.
"Lender" means Mirant Canada Energy Capital, Ltd., and its successors
and assigns.
"Lender's Adjusted Investment" means, at any time, the sum of: (i) the
then outstanding principal balance of the Loans under this Agreement,
plus (ii) any accrued and unpaid interest under the Loan Documents,
plus (iii) only to the extent that proceeds have been deposited in the
Collateral Account, any accrued and unpaid Override, plus (iv) any
unpaid Reimbursable Expenses of Lender which are more than 15 days past
due, plus (v) the aggregate amount of royalties that remain unpaid for
30 days beyond the terms contained in the applicable Oil and Gas Leases
and for which no designated cash reserves exists, plus (vi) the amount
by which (A) the sum of capital expenditures and drilling, workover and
10
recompletion accounts payable of Borrower aggregating $100,000 or more
exceeds (B) cash on hand either in the Collateral Account or held by
Borrower that is solely earmarked and dedicated to the prompt payment
of such costs and expenses.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or
otherwise), charge (whether fixed or floating) against, title retention
agreement in respect of or interest in property to secure payment of a
debt or performance of an obligation or other priority or preferential
arrangement of any kind or nature whatsoever.
"Loan" has the meaning set forth in Section 2.1.
"Loan Document" means this Agreement, the Debenture, the Debenture
Pledge Agreement, the Override Royalty Agreements, the Borrower Hedging
Agreements and the ISDA Master Agreement, together with all exhibits,
certificates, schedules and attachments thereto, and all other
agreements, documents, certificates, financing statements and
instruments from time to time executed and delivered pursuant to or in
connection with any of the foregoing.
"Loan Obligations" means all obligations (monetary or otherwise) of
Borrower and each other Person (other than Lender) arising under or in
connection with this Agreement and each other Loan Document that
terminate upon the Indebtedness incurred pursuant to the Loans being
unconditionally and irrevocably paid in full.
"Loan Request" means a loan request and certificate duly executed by an
Authorized Officer of Borrower, substantially in the form of Exhibit
"A".
"Maximum Commitment Amount" means, on any date, $150,000,000, as such
amount may be reduced from time to time pursuant to Section 2.2.
"Net Cash Flow" means, for any period, the sum of: (i) Hydrocarbon
Proceeds received by Borrower for such period and any other gross
revenues of Borrower (excluding cash flow from the sale of any or all
of the Subject Interests or the refinancing of the Loans), minus (ii)
Direct Taxes for such period, minus (iii) Existing Burdens for such
period, only to the extent that they have been included within the
amount of Hydrocarbon Proceeds, minus (iv) Cash Flow from Override for
such period, minus (v) interest on the outstanding Loans accrued at the
Interest Rate during such period, minus (vi) all Obligations under the
Loan Documents related to the enforcement and maintenance of the Loan
Documents, including Reimbursable Expenses, minus (vii) Approved Lease
Operating Expenses actually paid by Borrower for such period, minus
(viii) Approved Third-Party Transportation, Gathering and Marketing
Expenses actually paid by Borrower for such period, minus (ix) Approved
Capital Expenditures actually paid by Borrower for such period, minus
(x) Approved G&A Expenses, minus (xi) goods and services Tax, minus
(xii) distributions permitted under Section 8.5, (xiii) minus, a cash
reserve of less than or equal to $100,000 to be used for general
corporate purposes as the Borrower sees fit from time to time, minus
(xiv) any other amounts approved by Lender in its sole and absolute
discretion.
11
"Net Sales Proceeds" means the gross cash proceeds net of adjustments
from the sale by Borrower of any of the Subject Interests, less the sum
of the following expenses incurred in connection with such sale: normal
and customary closing-related costs and expenses payable to
unaffiliated third parties, such as Taxes (including ordinary and
capital obligations incurred by Borrower attributable to such sale),
escrow charges, title examination fees, reasonable legal fees and
expenses incurred in connection with the sale, reasonable and customary
brokerage commissions to third-parties and recording expenses
(specifically excluding, however, any payments, commissions, fees or
other amounts paid or payable to Borrower or any of its Affiliates or
any other Obligor) payable in connection therewith by Borrower or any
of its Affiliates as the seller thereunder.
"Non-Consent Hydrocarbons" means those Hydrocarbons produced from a
well during the applicable period of recoupment or reimbursement
pursuant to a non-consent provision covering the relevant well or
▇▇▇▇▇, which Hydrocarbons have been relinquished to the consenting
party or participating party under the terms of such non-consent
provision as the result of the election by Borrower not to participate
in the particular operation.
"Obligations" means all Loan Obligations and all other on-going
obligations (monetary or otherwise) of Borrower and each other Person
(other than Lender) arising under or in connection with the Loan
Documents (including the Override Royalty Agreement and pursuant to
Section 12.4 and 12.5).
"Obligor" means Borrower or any other Person (other than Lender)
obligated under any Loan Document.
"Oil and Gas Leases" means all oil, gas, mineral and other leases and
includes any subleases and assignments of operating rights.
"Override" means an overriding royalty interest burdening and carved
out of the Subject Interests granted pursuant to the Override Royalty
Agreements.
"Override Royalty Agreements" means, collectively, Override Royalty
Agreement No. 1 and Override Royalty Agreement No. 2.
"Override Royalty Agreement No. 1" means the Overriding Royalty
Agreement executed and delivered pursuant to Section 5.3(a),
substantially in the form of Exhibit "D", as it may be amended,
supplemented, restated or otherwise modified from time to time.
"Override Royalty Agreement No. 2" means the Override Royalty Agreement
executed and delivered pursuant to Section 5.3(b), substantially in the
form of Exhibit "E", as it may be amended, supplemented, restated or
otherwise modified from time to time.
"Override Hydrocarbons" means the Hydrocarbons conveyed to Lender
pursuant to each Override Royalty Agreement.
"Participant" has the meaning set forth in Section 12.15.
12
"Parties" means the parties to this Agreement, and "Party" means any
one of them.
"Payment Date" means the fifth (5th) Business Day following the end of
each calendar month (commencing February 7, 2002) or, if any such day
is not a Business Day, the next succeeding Business Day.
"Payout Amount" has the meaning set forth in the definition of
"Cumulative Return on Total Funding".
"Permitted Liens" means (i) Liens for Taxes, assessments or other
governmental charges or levies which are not delinquent or which are
being contested diligently in good faith, (ii) Liens in connection with
workers' compensation, unemployment insurance or other social security,
pension plan or public liability obligations which are not delinquent
or which are being contested diligently in good faith, (iii)
operators', vendors', carriers', warehousemen's, repairmen's,
builder's, mechanics', suppliers', workers', 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, including lessee or operator obligations
under Applicable Law related to the ownership, exploration and
production of oil, gas and minerals on private or Crown lands or
waters, each of which is in respect of obligations that have not been
outstanding more than 90 days or which are being contested diligently
in good faith, provided the Persons entitled to the benefits of such
Liens are not exercising remedies in respect thereof other than the
making of demands or the giving or filing of notices required to
perfect such Liens and are not suing for payment of the amounts secured
thereby, (iv) Liens which (A) arise in the ordinary course of business
under the Joint Operating Agreements, other operating agreements, gas
balancing agreements, joint venture agreements, oil and gas partnership
agreements, oil and gas leases, farm-out agreements, division orders,
contracts for the sale, transportation or exchange of oil and natural
gas, unitization and pooling declarations and agreements, area of
mutual interest agreements, overriding royalty agreements, marketing
agreements, processing agreements, net profits agreement, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal
agreements, seismic or other geophysical permits or agreements, and
other agreements which are usual and customary in the oil and gas
business, and (B) are for claims which either are not delinquent or
which are being contested diligently in good faith, provided the
Persons entitled to the benefits of such Liens are not exercising
remedies in respect thereof other than the making of demands or the
giving or filing of notices required to perfect such Liens, (v) Liens
reserved in oil and gas mineral leases, agreements or created by
statute, to secure royalty, net profits interests, bonus payments,
rental payments or other payments out of or with respect to the
production, transportation or processing of Hydrocarbons, which are in
existence on the Effective Date or the date the Subject Interests are
made subject to this Agreement, and which are reflected in Schedule I,
(vi) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar
rights and remedies and burdening only deposit accounts or other funds
maintained with a creditor depository institution, (vii) defects or
13
irregularities in title, and liens, charges or encumbrances, which are
not such as to interfere materially with the development, operation or
value of the Subject Interests and not such as materially to impair
title thereto, (viii) encumbrances (other than to secure the payment of
Indebtedness or the deferred purchase price of Property or services),
easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any property of Borrower for the purpose
of roads, pipelines, transmission lines, transportation lines,
distribution lines for the removal of gas, oil, coal or other minerals
or timber, and other like purposes, or for the joint or common use of
real estate, rights of way, facilities and equipment, and defects,
irregularities, zoning restrictions and deficiencies in title of any
Property which in the aggregate do not materially impair the use of
such Property for the purposes of which such Property is held by
Borrower if any, or materially impair the value of such Property
subject thereto; (ix) Liens on cash or securities pledged to secure
performance of tenders, surety and appeal bonds, government contracts,
performance and return of money bonds, bids, trade contracts, leases,
statutory obligations, regulatory obligations and other obligations of
a like nature incurred in the ordinary course of business, (x) those
Liens consented to in writing by Lender, (xi) Liens securing payment of
the Obligations granted pursuant to any Loan Document, (xii) Liens
permitted by any other Loan Document, and (xiii) any Liens described on
Item 1.1 ("Liens") of the Disclosure Schedule.
"Person" means any natural person, corporation, partnership, company,
firm, association, trust, Governmental Agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Possible Reserves" means those Hydrocarbon reserves that are not
Proved Reserves and are speculative reserves estimated beyond Proved
and Probable Reserves where geological and engineering data suggest the
presence of additional reserves, but where the risk is relatively high.
"Probable Reserves" means those Hydrocarbons reserves which are not
Proved Reserves and which analysis of geological and engineering data
suggests are more likely than not to be recoverable, but where some
element of risk or insufficient data prevent classification as proved.
"Production Sale Contracts" means contracts for the sale of Subject
Hydrocarbons now in effect or hereafter entered into by Borrower with
Lender's written consent.
"Projected Income and Expense Attributable to the Subject Interests"
means, with respect to the Subject Interests for any period, the sum
of: (i) estimated future Net Cash Flow, discounted at 10% per annum,
attributable to total Acceptable Proved Reserves for such period, minus
(ii) estimated Direct Taxes for such period, minus (iii) estimated
Existing Burdens for such period, including the overriding royalties
granted pursuant to the Overriding Royalty Agreements, minus (iv)
estimated Approved Lease Operating Expenses (which must reflect actual
historical results for such period, minus (v) estimated Approved Third
Party Transportation, Gathering and Marketing Expenses for such period,
minus (vi) estimated Approved Capital Expenditures for such period,
including, any anticipated plugging and abandoning costs. In connection
with such calculation, pricing assumptions are net at the wellhead and
14
are based on, (A) for volumes of oil and gas swapped or hedged with
investment grade counter parties, the hedged price, and (B) for all
other volumes, the forward New York Mercantile Exchange contract prices
for oil and gas, less the basis adjustments for geographical and
quality differentials. If a dispute arises concerning the inclusion of
the Approved Lease Operating Expenses relating to workovers or other
remedial capital expenses, Approved Independent Engineer will make a
good faith determination if such are a predictable, prudent and ongoing
expense(s) of Borrower, viewed as a whole (if the Approved Independent
Engineer makes such good faith determination, then those expenses
previously projected as "capital expenditures" will be included in
Approved Lease Operating Expenses). All variables used to determine the
Projected Income and Expense Attributable to Subject Interest shall be
selected by Lender in its reasonable discretion.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Proposed Non-Subject Interest Undertaking" has the meaning set forth
in Section 4.4.
"Proposed Undertaking" has the meaning set forth in Section 4.3.
"Proved Developed Non-Producing Reserves" means (i) those Proved
Reserves expected to be produced from existing completion intervals in
existing ▇▇▇▇▇ for which capacity is planned or available pursuant to
an approved Development Plan, but due to pending pipeline connections
or other mechanical or contractual requirements Hydrocarbon sales have
not yet commenced, and (ii) other non-producing Proved Reserves which
exist behind the casing of existing ▇▇▇▇▇, or at minor depths below the
present bottom of such ▇▇▇▇▇, which are expected to be produced through
these ▇▇▇▇▇ in the predictable future, where the cost of making such
Hydrocarbons available for production should be relatively small
compared to the cost of a new well and for which capacity is planned or
available pursuant to an approved Development Plan.
"Proved Developed Producing Reserves" means those Proved Reserves which
are recoverable from existing completion intervals in existing ▇▇▇▇▇
currently open and producing to market at the time of the estimate.
"Proved Reserves" means those recoverable Hydrocarbons which have been
proved to a high degree of certainty by reason of existing production,
adequate testing, or in certain cases by adequate core data and other
engineering and geologic information on zones which are present in
existing ▇▇▇▇▇ or in known reservoirs which are recoverable under
existing economic and operating conditions. Reserves that can be
produced economically through the application of established improved
recovery techniques are included in the proved classification when (i)
successful testing by a pilot project or the operation of any installed
program in that reservoir or one in the immediate area with similar
rock and fluid properties provides support for the engineering analysis
on which the project or program was based, and (ii) it is reasonably
certain the project will proceed. Reserves to be recovered by improved
recovery techniques that have yet to be established through repeated
economically successful applications are included in the proved
15
category only after successful testing by a pilot project or after the
operation of an installed program in the reservoir provides support for
the engineering analysis on which the project or program was based.
Improved recovery includes all methods for supplementing natural
reservoir forces and energy, or otherwise increasing ultimate recovery
from a reservoir, including (A) pressure maintenance, (B) cycling, and
(C) secondary recovery in its original sense. Improved recovery also
includes the enhanced recovery methods of thermal, chemical flooding,
and the use of miscible and immiscible displacement fluids.
"Proved Undeveloped Reserves" means those Proved Reserves which are
expected to be recovered from (i) new ▇▇▇▇▇ on undrilled acreage, (ii)
the deepening of existing ▇▇▇▇▇ where a relatively major expenditure is
required for completion, or (iii) an existing well where a relatively
large expenditure is required to recomplete an existing completion
interval or install production or transportation facilities for a
primary or improved recovery project. Proved Undeveloped Reserves on
undrilled acreage are limited to those drilling units offsetting
productive units that are reasonably certain of production when
drilled.
"Proven Reserves" means, collectively, Proved Reserves, Proved
Developed Producing Reserves, Proved Developed Non-Producing Reserves,
and Proved Undeveloped Reserves.
"Refinancing Date" has the meaning set forth to it in Section 3.2.
"Refinancing Period" means the period commencing on the Effective Date
and ending at 6:00 p.m. (Calgary, Alberta) on June 20, 2002.
"Refinancing Minimum Return" means an amount equal to (i) an amount
expressed in Dollars which is a Cumulative Return on Total Funding of
17.5%, plus (ii) an amount equal to the present value (discounted at
the rate of 10% per annum) of the Override Royalty Agreement No. 1
attributable to the Subject Properties (other than the Proved Developed
Producing Reserves) which are included in the Development Plan in
effect on the Refinancing Date (the "PV10"). The PV10 will be
calculated as follows:
(a) the reserve volumes will be the un-risked reserve volumes,
operating expenses, taxes and other burdens, as calculated by
Lender based on the Development Plan then in effect, provided
that Lender may adjust reserve volumes of certain ▇▇▇▇▇ that
are subject to the said Development Plan based on performance
of ▇▇▇▇▇ previously completed as part of the Development Plan
between the Effective Date and the Refinancing Date; and
(b) the applicable commodity prices will be the NYMEX forward oil
and gas price forecasts utilized by Lender at the time of the
Refinancing Date adjusted to take into account actual
processing, treating and other adjustments, plus the
applicable forward basis differentials applicable to the
pricing points provided by Lender to Borrower at the time of
the Refinancing Date.
16
"Reimbursable Expenses" means all expenses paid or incurred by Lender
which consist of, or are incidental to (i) any production-related
expense or production-related tax reasonably incurred by Lender in
paying or performing any obligations on behalf of Borrower under any of
the Loan Documents, (ii) any costs, expenses or other amounts
reasonably incurred by Lender in paying or performing any obligations
on behalf of Borrower under any of the Loan Documents, (iii) costs
associated with cancellation of Borrower Hedging Agreements with Lender
or any Affiliate of Lender, including brokers fees, exchange expenses,
document expenses and related charges incurred by Lender as a result of
contracts entered into during the term of this Agreement, (iv) the
Indemnified Liabilities that become owing to any Indemnified Party
under this Agreement which have not previously been paid by Borrower,
and (v) the Tax Amount.
"Release" means to release, spill, leak, pump, pour, emit, empty,
discharge, migrate, inject, escape, ▇▇▇▇▇, dispose, dump, abandon,
deposit, seep, throw, place, exhaust, inoculate, inject, spray or to do
a similar act.
"Residual Hydrocarbons" means for any period of time the volume of all
Hydrocarbons produced from the Subject Interests other than Override
Hydrocarbons during the same period of time.
"Risked NPV10" means, at any time, the calculation by Lender, in its
sole and absolute discretion, using Lender's customary standards for
evaluating reserves, of the present value of future cash flows
(discounted at a nominal rate of ten percent (10%) per annum) from the
Subject Interests, net of Existing Burdens, based upon the most recent
Independent Reserve Report using Lender's customary standards for
commodity prices, reserve risking, well and reserves concentration risk
and limitations and Proved Developed Producing Reserves immaturity
adjustment and which is adjusted from the date of the most recent
Independent Reserve Report to the determination date for such
calculation. In determining Risked NPV10, Proved Developed Producing
Reserves, Proved Developed Non-Producing Reserves, Proved Undeveloped
Reserves and Probable Reserves shall include only those reserves for
which (i) capital improvements (as reflected in the most recent
Independent Reserve Report) have been scheduled and which are
reasonably expected to be available from either Lender or Net Cash
Flow, as approved by Lender, and (ii) equipment and services are
reasonably expected to be available.
"Scheduled Payment" means, for any period, an amount equal to the
greater of (i) the unpaid and accrued interest on the aggregate unpaid
principal amount of the Loans or (ii) Net Cash Flow.
"Stated Maturity Date" means December 20, 2007.
"Subject Hydrocarbons" means all Hydrocarbons in and under, and which
may be produced and saved from, and which shall accrue or be
attributable to the Subject Interests and which are produced after the
Effective Date (other than Lease Use Hydrocarbons and Non-Consent
Hydrocarbons where Borrower is the non-consenting party) and shall be
deemed to include the proceeds of such Hydrocarbons.
17
"Subject Interests" means all right, title and interest of Borrower in
and to the Subject Properties and the Initial Subject Interests. The
term "Subject Interest", when used with reference to any particular
Subject Interest, shall mean and include (i) such Subject Interest as
the same may be enlarged or diminished by the provisions of any
contract or other instrument described in Schedule I, or by the removal
of any charges or encumbrances to which such Subject Interest is
subject, (ii) any and all renewals, replacements and extensions of such
Subject Interest, or other interests in the Hydrocarbons in, under and
that may be produced from lands comprising a portion of the Subject
Interests acquired by Borrower during the term hereof, (iii) all
contracts supplemental to or amendatory of or in substitution for the
contracts described above insofar as the same relate to such Subject
Interest, and (iv) all rights, titles and interests accruing or
attributable to such Subject Interest by virtue of its being included
in any pooling or unit.
"Subject Property" and "Subject Properties" means the (i) initial
Subject Properties more particularly described in Schedule I, and (ii)
any and all Oil and Gas Leases and leasehold working interests, net
profits interests and production payments, including the Oil and Gas
Leases and leasehold working interests, net profits interests, royalty
interests, mineral interests and production payments described in
Schedule I, together with all Hydrocarbons severed while Obligations
continue to exist which are attributable to such leases and interests
together with all of the valid Subject Hydrocarbons unitization and
pooling agreements which are described in such Schedule I or which
relate to any of the properties and interests described in such
Schedule I, and (iii) all Properties in which Borrower acquires or
purports to acquire an interest in any Acquisition, if any, to the
extent such Acquisition is funded by Lender pursuant to the terms of
this Agreement.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which more than 50% of the outstanding capital stock having ordinary
voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time capital stock of any
other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency) is at the time directly
or indirectly owned by such Person, by such Person and one or more
other Subsidiaries of such Person, or by one or more other Subsidiaries
of such Person; (ii) any partnership of which such Person, such Person
and one or more other Subsidiaries of such Person, or one or more other
Subsidiaries of such Person is a general partner, (iii) any limited
liability company in which such Person, such Person and one or more
other Subsidiaries of such Person, or one or more other Subsidiaries of
such Person is a member or manager with ownership interest in excess of
50% of all outstanding ownership interests, or (iv) any other entity in
which such Person, such Person and one or more other Subsidiaries of
such Person, or one or more other Subsidiaries of such Person has an
ownership interest in excess of 50% of all outstanding ownership
interests.
"Tax Amount" means an amount equal to the aggregate of all amounts,
including interest and penalties, if any, relating thereto, paid by
Lender in such month, and which have not been paid by Borrower pursuant
to the provisions of this Agreement, on account of (i) Direct Taxes,
(ii) any excise tax imposed on or assessed with respect to or measured
by or charged against the Subject Hydrocarbons, or (iii) any sales or
18
gross receipts taxes, which are imposed on Lender by any Governmental
Agency in which any of the Subject Interests are located, and which are
payable on account of Lender's Liens in the Subject Hydrocarbons,
provided, however, that the Tax Amount shall not include any taxes
associated with the handling, transportation, refining, purchase or
sale of Subject Hydrocarbons after they have been delivered to the
credit of Lender, nor any taxes which are imposed on Lender pursuant to
the Income Tax Act (Canada).
"Title Certificate" means a certificate substantially in the form of
Exhibit I.
"Transportation Agreements" means any contract or agreement entered
into from time to time by Borrower relating to the transportation of
Hydrocarbons, as any such agreement or contract may be amended,
supplemented, restated or otherwise modified from time to time.
"Working Capital" means, at any time and determined in accordance with
GAAP, the excess of (i) consolidated current assets of Borrower, minus
(ii) consolidated current liabilities of Borrower.
1.2 Use of Defined Terms. Unless otherwise defined or the context otherwise
requires, terms for which meanings are provided in this Agreement shall
have such meanings when used in the Disclosure Schedule and in each
Loan Request, Loan Document, notice and other communication delivered
from time to time in connection with this Agreement or any other Loan
Document.
1.3 Cross-References. Unless otherwise specified, references in this
Agreement and in each other Loan Document to any Recital, Article or
Section are references to such Recital, Article or Section of this
Agreement or such other Loan Document, as the case may be, and, unless
otherwise specified, references in any Recital, Article, Section or
definition to any clause are references to such clause of such Recital,
Article, Section or definition.
1.4 Accounting and Financial Determinations. Unless otherwise specified,
all accounting terms used herein or in any other Loan Document shall be
interpreted, all accounting determinations and computations hereunder
or thereunder shall be made, and all financial statements required to
be delivered hereunder or thereunder shall be prepared in accordance
with GAAP, consistently applied, which were applied in the preparation
of the financial statements referred to in Section 6.6.
1.5 Statutes, Regulations and Rules. Any reference in the Loan Documents to
all or any section or paragraph or any other subdivision of any
Applicable Law will, unless otherwise expressly stated, be a reference
to that Applicable Law or the relevant section or paragraph or other
subdivision thereof, as such Applicable Law may be amended,
substituted, replaced or re-enacted from time to time.
1.6 Monetary References. Whenever an amount of money is referred to in the
Loan Documents, such amount will, unless otherwise expressly stated, be
in Canadian Dollars.
19
1.7 Schedules and Exhibits. The following are the Schedules and Exhibits
which form part of this Agreement:
Schedule I - Description of Subject Interests
Schedule II - Use of Proceeds
Schedule III - Insurance Requirements
Schedule IV - Disclosure Schedule
Schedule V - Pension Plans
Schedule VI - List of Transportation Agreement and Joint
Operating Agreements
Schedule VII - Financing Lease Arrangements
Schedule VIII - Title Deficiencies
Exhibit A - Form of Loan Request
Exhibit B - Form of Opinion of Borrower's Counsel
Exhibit C-1 - Form of Debenture
Exhibit C-2 - Form of Debenture Pledge Agreement
Exhibit D - Form of Override Royalty Agreement No. 1
Exhibit E - Form of Overriding Royalty Agreement No. 2
Exhibit F - Form of ISDA Master Agreement
Exhibit G - Development Plan
Exhibit H - Form of Environmental Certificate
Exhibit I - Form of Title Certificate
Article 2
COMMITMENT AND LOAN PROCEDURES
2.1 Commitment. From time to time on any Business Day occurring prior to
the Commitment Termination Date on the terms and subject to the
conditions of this Agreement upon delivery of a Loan Request by
Borrower to Lender, Lender, in its sole and absolute discretion, may
make loans (the "Loans") to Borrower equal to the aggregate amount of
the Loan requested by Borrower to be made on such day; provided,
however, that if no Default or Event of Default has occurred and is
continuing, Lender agrees to make Loans in the amount requested by
Borrower to be made on such date in the aggregate amount for all Loans
up to the Commitment Amount. The commitment of Lender described in this
Section 2.1 is herein referred to as its "Commitment". Lender shall not
be required to make any Loan if, after giving effect thereto, the
aggregate outstanding principal amount of all Loans would exceed the
Commitment Amount. Borrower may not borrow, repay and reborrow Loans.
2.2 Maximum Commitment Amount and Commitment Amount The Maximum Commitment
Amount is subject to reduction from time to time pursuant to this
Section 2.2. The Commitment Amount is subject to increase or reduction
from time to time pursuant to this Section 2.2.
(a) Optional Increase or Reduction:
-------------------------------
20
(i) Borrower may, from time to time on any Business Day
after December 20, 2002, voluntarily reduce the
Commitment Amount and/or the Maximum Commitment
Amount; provided, however, that all such reductions
shall require at least 3 Business Days' prior notice
to Lender and be permanent, and any partial reduction
of either the Commitment Amount or the Maximum
Commitment Amount shall be in a minimum amount of
$500,000 and in an integral multiple of $100,000.
(ii) Lender, in its sole and absolute discretion, may,
from time to time after giving Borrower 30 days prior
written notice, increase or reduce the Commitment
Amount; provided, however, that there shall be no
reductions in the Commitment Amount if such amount is
a contemplated expenditure pursuant to an approved
Development Plan; provided, further, that the
Commitment Amount may never exceed the Maximum
Commitment Amount and, if as a result of a reduction
in the Maximum Commitment Amount the Commitment
Amount exceeds the Maximum Commitment Amount at any
time, the Commitment Amount shall automatically be
reduced to an amount equal to the Maximum Commitment
Amount; and provided further, that the Commitment
Amount may never be reduced to an amount which is
less than the amount of outstanding Loans.
(b) Mandatory Reduction. Notwithstanding any other provision of
the Loan Documents to the contrary, the Commitment Amount and
the Maximum Commitment Amount each shall, without any further
action, automatically and permanently be reduced to zero ($0)
on the Commitment Termination Date.
2.3 Loan Procedure. By delivering a Loan Request to Lender on or before
11:00 a.m., Calgary, Alberta time, on a Business Day, Borrower may from
time to time irrevocably request, on not less than 3 nor more than 5
Business Days' notice, that a Loan be made in a minimum amount of
$100,000, and in an integral multiple of $100,000 or in the unused
amount of the Commitment or in such other amount as agreed to by
Lender, in its sole discretion. On the terms and subject to the
conditions of this Agreement, each Loan shall be made on the Business
Day specified in such Loan Request. Lender shall make funds in an
amount equal to the requested Loan available to Borrower by wire
transfer or account entry to the Collateral Account or, subject to
Lender's consent, to such other account specified in the Loan Request,
on or before 1:00 p.m., Calgary, Alberta time, on such Business Day.
2.4 Records. The Lender will maintain records, in written or electronic
form, evidencing all Loans and all other Indebtedness owing by Borrower
to Lender hereunder and under the other Loan Documents. Lender will
enter in such records details of all amounts from time to time owing,
paid or prepaid by Borrower to it hereunder. The information entered in
such records will constitute prima facie evidence of such Loans and
Indebtedness of Borrower to Lender hereunder.
21
Article 3
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
3.1 Repayments and Prepayments
(a) Borrower shall unconditionally and irrevocably repay in full the unpaid
principal amount of each Loan and unpaid interest on such Loans on the
Stated Maturity Date. Prior thereto, Borrower:
(i) may, from time to time on any Business Day after December 20,
2002, make a voluntary prepayment, in whole or in part, of the
outstanding principal amount of any Loans; provided, however,
that all such voluntary prepayments shall require at least 3
but no more than 5 Business Days' prior written notice to
Lender, and provided, further, however, that Borrower may make
a voluntary prepayment as required by Sections 7.5 and
9.2(a)(iv) at any time;
(ii) shall, on the date of any sale of all or a portion of the
Subject Interests, make a mandatory prepayment in the amount
of the Net Sales Proceeds from such sale of the Subject
Interests;
(iii) shall, on each Payment Date, unless otherwise consented to by
Lender in writing, make a mandatory repayment in the amount of
Borrower's Net Cash Flow for the month prior to such Payment
Date;
(iv) shall, on each date when any reduction in the Commitment
Amount or the Maximum Commitment Amount shall become
effective, make a mandatory repayment of all Loans equal to
the excess, if any, of the aggregate outstanding principal
amount of all Loans at such time over the Commitment Amount as
so reduced; and
(v) shall, immediately upon any acceleration of the Stated
Maturity Date of any Loans pursuant to Section 9.2, repay all
Loans, unless only a portion of all Loans is so accelerated.
(b) Each prepayment of any Loans made pursuant to Section 3.1(a) shall be
without premium or penalty. All prepayments received by Lender pursuant
hereto shall be applied (i) if received by Lender prior to 12:00 p.m.
(noon), Calgary, Alberta time, on a Business Day, immediately on such
Business Day and (ii) if received by Lender after 12:00 p.m. (noon),
Calgary, Alberta time, on a Business Day, immediately on the first
Business Day thereafter as follows:
(i) to the payment and satisfaction of all costs and expenses
reasonably incurred in connection with the collection of such
payments and proceeds;
(ii) to the payment of any accrued interest and fees on the Loans
pursuant to this Agreement and each other Loan Document; and
22
(iii) to the payment of the outstanding principal under the Loans
outstanding hereunder.
3.2 Refinancing. Notwithstanding Section 3.1, if Borrower pays to Lender
the Payout Amount at any time during the Refinancing Period (the
"Refinancing Date"), then Borrower shall pay to Lender, on or prior to
the end of the Refinancing Period, (which amount while outstanding
shall be secured by the security granted pursuant to Section 5.4) the
Refinancing Minimum Return.
If Borrower pays the Payout Amount to Lender during the Refinancing
Period, such payment shall be made free of any prepayment penalty which
Lender may incur by virtue of the Payout Amount being made.
3.3 Interest Provisions.
-------------------
(a) Interest on the outstanding principal amount of Loans shall
accrue daily at the Interest Rate. After the date any
principal amount of any Loan is due and payable (whether on
the Stated Maturity Date, upon acceleration or otherwise), or
after an Event of Default, or after any other monetary
Obligation of Borrower shall have become due and payable,
Borrower shall pay, but only to the extent permitted by
Applicable Law, interest (after as well as before judgment) on
such amounts at a rate per annum equal to fifteen percent
(15%) ("Default Rate"); provided, that once all such amounts
and accrued interest thereon are unconditionally and
irrevocably paid in full, interest shall accrue at the
Interest Rate.
(b) Interest accrued on each Loan shall be payable, without
duplication, (i) on the Stated Maturity Date therefor, (ii) on
the date of any payment or prepayment, in whole or in part, of
principal outstanding on such Loan; (iii) on each Payment Date
occurring after the Effective Date; and (iv) on that portion
of any Loans the Stated Maturity Date of which is accelerated
pursuant to Section 9.2, immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations
arising under this Agreement or any other Loan Document after
the date such amount is due and payable (whether on the Stated
Maturity Date, upon acceleration or otherwise) shall be
payable upon demand.
(c) For the purposes of the Interest Act (Canada) and all other
Applicable Law which may hereafter regulate the calculation or
computation of interest on borrowed funds, the annual rates of
interest and fees applicable to Loans are the rates as
determined hereunder multiplied by the actual number of days
in a period of one year commencing on the first day of the
period for which such interest is payable and divided by 365.
3.4 Collateral Account.
------------------
(a) Borrower shall cause all Hydrocarbon Proceeds to be delivered
to an account designated in writing by Lender from time to
time (the "Collateral Account") which is to be maintained by
23
Lender and is in all respects satisfactory to Lender. No
funds, other than Hydrocarbon Proceeds and amounts from any
Loans, will be paid to the Collateral Account. If, however,
funds other than Hydrocarbon Proceeds are deposited into the
Collateral Account, Lender will pay such other funds to
Persons that Borrower directs Lender to pay in writing.
Borrower agrees not to open any new Collateral Account or
similar account, or take any action to terminate the existing
Collateral Account, without the prior written consent of
Lender. All Hydrocarbon Proceeds received by Borrower shall be
delivered in kind to Lender for deposit into the Collateral
Account and Borrower shall not commingle any such proceeds,
and shall hold separate and apart from all other property, all
such proceeds in express trust for the benefit of Lender until
delivery thereof is made to the Collateral Account.
(b) No more than 2 times a month, Borrower may request in writing
(a "Disbursement Request"), delivered three (3) Business Days
prior to the date of any requested disbursement and executed
by an Authorized Officer, that Lender reimburse Borrower or
disburse directly to Borrower, as appropriate, out of funds in
the Collateral Account, (i) Direct Taxes for such period, (ii)
Existing Burdens for such period, (iii) Cash Flow from
Override for such period (provided that such amounts will be
paid directly to Lender), (iv) interest on the Loans accrued
at the Interest Rate or, if applicable, the Default Rate
during such period, (provided that such amounts will be paid
directly to Lender) (v) all Obligations under the Loan
Documents related to the enforcement and maintenance of the
Loan Documents, (provided that such amounts will be paid
directly to Lender) (vi) all unpaid Scheduled Payments,
(provided that such amounts will be paid directly to Lender)
(vii) Approved Lease Operating Expenses due for such period,
provided that if any material Default or any Event of Default
has occurred and is continuing, then only Approved Lease
Operating Expenses actually paid by Borrower for such period,
(viii) Approved Third-Party Transportation, Gathering and
Marketing Expenses due for such period, provided that if any
material Default or any Event of Default has occurred and is
continuing, then only Approved Third-Party Transportation,
Gathering and Marketing Expenses actually paid by Borrower for
such period, (ix) Approved Capital Expenditures due for such
period, provided that if any material Default or any Event of
Default has occurred and is continuing, then only Approved
Capital Expenditures actually paid by Borrower for such
period, (x) Approved G&A Expenses due for such period,
provided that if any material Default or any Event of Default
has occurred and is continuing, then only Approved G&A
Expenses actually paid by Borrower for such period, (xi) goods
and services Taxes, (xii) cash reserves at no time exceeding
$100,000 to be used by Borrower for general corporate purposes
and (xiii) any other amounts approved by Lender in its sole
and absolute discretion. Such Disbursement Request shall set
forth in detail the calculation of each such item requested to
be paid and shall otherwise contain any information required
pursuant to this Section 3.4(b). Lender shall be protected in
all instances in paying the foregoing amounts based upon such
Disbursement Request without any need whatsoever to
independently verify such requested amounts. In addition if
24
any material Default or any Event of Default has occurred and
is continuing, and notwithstanding the information provided by
Borrower, Lender shall have the right (it being hereby agreed
that Lender is not obligated to make such payment, is not
responsible to Borrower or any other Person for making or
failing to make any such payment and is not responsible for
seeing to the application of any such payment) to apply any
amount, in its sole discretion, from time to time in the
Collateral Account to the payment of any of the previously
specified payment items in the priority order in which such
specified payment items are listed.
(c) After receipt of a Disbursement Request meeting the
requirements of Section 3.3(b) by Borrower setting forth in
reasonable detail the proposed use of such funds and provided
that no material Default or Event of Default has occurred and
is continuing, Lender shall transfer to an account designated
by Borrower on the requested date for such disbursement (which
date must be at least three (3) Business Days after receipt by
Lender of the Disbursement Request) any or all of the funds in
the Collateral Account. Borrower hereby authorizes Lender in
Lender's sole discretion, to pay amounts either to Borrower or
to the applicable vendors or other payees directly. Upon
submission of a Disbursement Request relating to Approved
Lease Operating Expenses, Approved Third-Party Transportation,
Gathering and Marketing Expenses and Approved Capital
Expenditures, and upon Lender's satisfaction, in its sole
discretion, that such requested disbursement is to be made in
satisfaction of an Approved Lease Operating Expenses, Approved
Third-Party Transportation, Gathering and Marketing Expenses
or Approved Capital Expenditures or Approved G&A Expenses, and
subject to the other provisions hereof and in accordance with
Applicable Laws, and provided that no material Default or
Event of Default has occurred and is continuing, Lender shall
make the disbursement subject to the conditions in this
Agreement and the order of priority set forth in the second
paragraph of this Section providing that the foregoing shall
not be required. Lender shall have no obligation to make any
payment from the Collateral Account in respect of any amount
provided in this Section to the extent there are not
sufficient funds in the Collateral Account to make any such
payment.
3.5 Closing Fee.Borrower agrees to pay to Lender on the Effective Date a
non-refundable closing fee in an amount equal to $75,000.
3.6 Engineering Fee. For so long as the Commitment is outstanding, Borrower
agrees to pay to Lender on January 1 of each calendar year (commencing
January 1, 2002) a non-refundable annual engineering fee in an amount
equal to $20,000.
Article 4
TAXES AND OTHER PROVISIONS
4.1 Payments, Computations, etc. All payments to be made to Lender by
Borrower pursuant to this Agreement or any other Loan Document shall be
made by Borrower to Lender, without setoff, deduction or counterclaim
(except as may be required by Applicable Law), not later than 12:00
p.m., Calgary, Alberta time, on the date due, in same day or
immediately available funds, to such account as Lender shall specify
25
from time to time by notice to Borrower. Funds received after that time
shall be deemed to have been received by Lender on the next succeeding
Business Day. All interest and fees shall be computed on the basis of
the actual number of days (including the first day but excluding the
last day) occurring during the period for which such interest or fee is
payable over a year comprised of 365 days. Whenever any payment to be
made shall otherwise be due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and such
extension of time shall be included in computing interest and fees, if
any, in connection with such payment.
4.2 Setoff. In addition to any rights and remedies of Lender provided by
Applicable Law, if a Default or an Event of Default has occurred and is
continuing or the Obligations have been accelerated, Lender is
authorized at any time and from time to time, without prior notice to
Borrower, any such notice being waived by Borrower to the fullest
extent permitted by Applicable Law, to setoff and apply any and all
deposits (general or special, time or demand, provisional or final) at
any time held by, and other indebtedness at any time owing by, Lender
or any of its Affiliates, including, amounts pursuant to any
preferential right to purchase or market Subject Hydrocarbons and any
Borrower Hedging Agreements against any and all Obligations owing to
Lender and any of its Affiliates, now or hereafter existing,
irrespective of whether or not Lender shall have made demand under this
Agreement or any Loan Document and although such Obligations may be
contingent or unmatured, and, as security for such Obligations,
Borrower hereby grants to Lender and any of its Affiliates a continuing
security interest in, any and all balances, credits, deposits or moneys
of Borrower then or thereafter maintained with Lender. Lender agrees
promptly to notify Borrower after any such setoff and application made
by Lender; provided, however, that the failure to give such notice
shall not affect the validity of such setoff and application. The
rights of Lender and its Affiliates under this Section 4.2 are in
addition to other rights and remedies (including other rights of setoff
under Applicable Law or otherwise) which Lender and its Affiliates may
have.
4.3 Right of First Refusal - Proposed Undertakings. This Section 4.3 shall
be in full force and effect until the termination of the Commitment
under this Agreement and the full and final satisfaction in cash of all
outstanding Obligations.
(a) In the event that Borrower or any of its Subsidiaries intends
to obtain any financing for the purpose of exploring,
developing and producing Hydrocarbons from any Property
located within the Subject Interests (other than the Initial
Drilling Program) which is (i) in conformity with existing
field spacing rules, (ii) in compliance with the requirements
of Section 8.12, and (iii) which is not given more than a
nominal value in the current calculation of the Risked NPV10
(such proposed exploration, development and production
undertaking herein called the "Proposed Undertaking") and
prior to Borrower, or any such Subsidiary, approaching any
other Person with respect to such Proposed Undertaking,
Borrower first shall provide Lender with notice of its or its
Subsidiary's intent to enter into such Proposed Undertaking,
together with information relating to the terms, conditions,
feasibility and economics of such Proposed Undertaking,
26
including an outline of the acreage and proposed leases for
the Proposed Undertaking, geological and engineering studies
and cost estimates, as well as any other information or data
which Lender may reasonably request in order for Lender to
adequately evaluate whether Lender would be willing to make a
Loan to finance such Proposed Undertaking.
(b) Lender shall have the option to make a Loan to finance the
Proposed Undertaking (the "Additional Development Program
Option") which shall be subject to all of the same terms and
conditions (including the Cash Flow from Override) as the then
current Subject Interests. Lender shall then have a period of
no less than 30 days after the delivery of such notice and all
such information and data in order to determine whether Lender
shall make a Loan to finance, in whole or in part, such
Proposed Undertaking and the amount of such Loan. As soon as
Lender reaches its decision, but no later than the end of such
period, Lender shall inform Borrower or its Subsidiary, as
applicable, whether it will participate in such Proposed
Undertaking. Lender shall have no obligation to fund any
Proposed Undertaking and may choose to fund (or not to fund)
any Proposed Undertaking without limiting its Additional
Development Program Option with respect to any future Proposed
Undertakings.
(c) If, and only if, Lender declines to finance such Proposed
Undertaking, Borrower or its Subsidiary, as applicable, shall
be permitted to approach other Persons with respect to such
Proposed Undertaking, provided that the Proposed Undertaking
offered to such other Persons be on economic terms
substantially similar to those offered to Lender.
(d) In the event that another Person is willing to fund such
Proposed Undertaking pursuant to economic terms which are not
more onerous to Borrower or its Subsidiary, as applicable,
than the economic terms offered by Lender for such Proposed
Undertaking, then upon delivery of written evidence to Lender,
in form and substance acceptable to Lender, in its reasonable
discretion, of the funding by such Person of the Proposed
Undertaking, Lender shall release its Liens and reconvey its
Override on that portion, and only that portion, of the
Subject Interests covered by such Proposed Undertaking and
permit Borrower or its Subsidiary, as applicable, to commence
the Proposed Undertaking. In the event that such Proposed
Undertaking is not commenced as set forth in the preceding
sentence within a reasonable period of time (not to exceed 180
days from receiving notice under Section 4.3(a) and such
reasonable additional period as may be required in order to
obtain any required Approval or access to commence the conduct
of such operation), then upon fifteen (15) days prior notice
from Lender to Borrower and failure to convene the operations
by that time, that portion of the Subject Interests covered by
such Proposed Undertaking shall immediately be subjected to
first priority, perfected Liens (subject to Permitted Liens)
in favor of Lender, including amendments to the Debenture as
may be required by Lender covering such portion of the Subject
Interests covered by the Proposed Undertaking and granting to
Lender the Override on such Properties.
27
(e) Borrower acknowledges, and agrees to cause each of its
Subsidiaries to acknowledge, that the granting of this right
of first refusal was a material condition and consideration
for the extension of the Commitment and that Lender would not
have extended the Commitment except for the granting of this
right of first refusal with respect to Proposed Undertakings.
4.4 Right of First Refusal-Proposed Non-Subject Interest Undertaking. This
Section 4.4 shall be in full force and effect until the termination of
the Commitment under this Agreement and the full and final satisfaction
in cash of all outstanding Loan Obligations.
(a) In the event that Borrower or any of its Subsidiaries, if any,
intend to obtain any financing for the purpose of acquiring,
exploring, developing, producing or marketing Hydrocarbons for
any Property not located within the Subject Interests (such
proposed undertaking the "Proposed Non-Subject Interest
Undertaking") and prior to Borrower or such Subsidiary
approaching any other Person with respect to such Proposed
Non-Subject Interest Undertaking of Borrower or such
Subsidiary first shall provide Lender with notice of its
intent to enter into such Proposed Non-Subject Interest
Undertaking, together with information relating to the terms,
conditions, feasibility and economics of such Proposed
Non-Subject Interest Undertaking, including, geological and
engineering studies and cost estimates, as well as any other
information or data which Lender may reasonably request in
order for Lender to adequately evaluate whether Lender would
be willing to make a Loan to finance such Proposed Non-Subject
Interest Undertaking.
(b) Lender shall have an option to make a Loan to finance such
Proposed Non-Subject Interest Undertaking. Lender shall then
have a period of no less than thirty (30) days after the
delivery of such notice and all such information and data in
order to determine whether Lender shall make a Loan to
finance, in whole or in part, such Proposed Non-Subject
Interest Undertaking and the amount of such Loan. Borrower
agrees, and agrees to cause each of its Subsidiaries to agree,
to enter into good faith negotiations with Lender with respect
to mutually agreeable terms and conditions for the financing
of such Proposed Non-Subject Interest Undertaking. As soon as
Lender reaches its decision, but no later than the end of such
period, Lender shall inform Borrower or such Subsidiary
whether it chooses to participate in such Proposed Non-Subject
Interest Undertaking. Lender shall have no obligation to fund
any Proposed Non-Subject Interest Undertaking under this right
of first refusal and may choose to fund (or not to fund) any
Proposed Non-Subject Interest Undertaking without limiting its
right of first refusal with respect to any future Proposed
Non-Subject Interest Undertakings.
(c) If Lender declines to finance such Proposed Non-Subject
Interest Undertaking, Borrower or such Subsidiary shall be
permitted to approach other Persons with respect to such
Proposed Non-Subject Interest Undertaking. Lender agrees to
provide Borrower with no interest letters and releases, in
form satisfactory to Lender and Borrower, in respect of such
Proposal Non-Subject Interest Undertakings if required.
28
(d) Borrower acknowledges, and agrees to cause each of its
Subsidiaries to covenant and acknowledge, that the granting of
this right of first refusal was a material condition and
consideration for the extension of the Commitment and that
Lender would not have extended the Commitment except for the
granting of this right of first refusal.
4.5 Use of Proceeds.
(a) Borrower shall apply the proceeds of the initial Loan (i) up
to $27,000,000 to repay in full existing Indebtedness of
Borrower to Canadian Imperial Bank of Commerce howsoever
arising, (ii) up to $40,000,000 minus the amount actually
drawn to repay Canadian Imperial Bank of Commerce pursuant to
clause (i) above for working capital and general corporate
purposes, including distributions to Abraxas Petroleum
Corporation and (iii) up to $85,000,000 to finance the
drilling of ▇▇▇▇▇ and related activities such as land, seismic
and infrastructure pertaining to existing and newly-acquired
Properties as set forth in the Development Plan.
(b) Borrower shall apply the proceeds of each Loan after the
initial Loan (i) to develop the Subject Interests in
accordance with the Development Plan, (ii) for general
business purposes and working capital purposes of Borrower
consistent with the Development Plan, (iii) to pay costs, fees
and expenses associated with the closing of this Agreement,
(iv) to pay interest accrued in connection with the Loan
Documents, and (v) in accordance with Schedule II.
Article 5
CONDITIONS TO LOANS
5.1 Initial Loan. The obligation of Lender to fund any Loan hereunder shall
be subject to the prior or concurrent satisfaction of each of the
conditions precedent set forth in this Article 5.
5.2 Resolutions, etc. Lender shall have received from Borrower and each of
its Subsidiaries, if any, a certificate, dated the date of the initial
Loan, of its Secretary or Assistant Secretary, as applicable, as to (i)
resolutions of its directors then in full force and effect authorizing
the execution, delivery and performance of this Agreement and each
other Loan Document to be executed by it; (ii) its Constating
Documents, (iii) the incumbency and signatures of those of its officers
authorized to act with respect to this Agreement and each other Loan
Document executed by it, upon which certificate Lender may conclusively
rely until it shall have received a further certificate of one of its
officer canceling or amending such prior certificate, and (iv) that
Borrower and all of its Subsidiaries, if any, are in compliance with
all of the covenants and agreements contained in this Agreement or any
other Loan Document. Lender shall have received from Borrower and each
of its Subsidiaries, if any, certificates of existence and good
standing provided by the appropriate governmental officer in its
jurisdiction of incorporation or formation and, in the case of
certificates of good standing, in each jurisdiction in which its
business is conducted.
29
5.3 Override Royalty Agreement. Lender shall have received counterparts of
(a) the Override Royalty Agreement No. 1 dated as of the date hereof,
duly executed by Borrower, and (b) the Override Royalty Agreement No. 2
dated as of the date hereof, which shall at all times be subject to
Article 10.
5.4 Security. As security for the present and future Indebtedness of
Borrower to Lender (and for the purpose of Hedging Obligations, to any
Affiliate of Lender), Lender shall have received counterparts of the
following documents, each dated as of the date hereof, duly executed by
Borrower:
(a) a demand Debenture in the amount of $200,000,000 from
Borrower, together with a Debenture Pledge Agreement in
respect thereof, providing for a first priority Lien in all of
Borrower's present and after-acquired Property, a notice of
which is to be registered in all appropriate jurisdictions;
(b) when requested by Lender such documents and instruments
providing a fixed and specific Lien in accordance with the
provisions of the this Agreement and the other Loan Documents;
and
(c) evidence of the completion (or satisfactory arrangements for
the completion) of all recordings and filings of the
above-noted security documents in such offices in Canada or
any province thereof as may be necessary or, in the reasonable
opinion of Lender, desirable effectively to create a valid and
perfected Lien (subject to Permitted Liens) against the
Properties purported to be covered thereby.
5.5 Release and Discharge Lender shall have received executed copies of
statements, if any, necessary to release and discharge of all Liens and
other rights of any Person, including Canadian Imperial Bank of
Commerce, in any Property described in the Debenture (other than
Permitted Liens).
5.6 After-Acquired Property. All Property acquired by or on behalf of
Borrower or any of its Subsidiaries, if any, after the date of
execution of the security documents listed in Section 5.4 which forms
part of the Property of Borrower or any of its Subsidiaries, if any,
will be subject to the Liens constituted by the security documents
listed in Section 5.4 without any further conveyance, mortgage, pledge,
charge, assignment or other act on the part of the Parties.
5.7 Memorandum of Purchase Contracts. Lender shall have received any
requested memorandum of agreement relating to the purchase of
Hydrocarbons attributable to the Subject Interests executed by
Borrower, in form and substance satisfactory to Lender in its sole
discretion.
5.8 Opinion of Counsel. Lender shall have received an opinion dated the
date hereof and addressed to Lender and its counsel from counsel to
Borrower, substantially in the form of Exhibit C.
30
5.9 Certified Copy of Farmout Amending Agreement. Lender shall have
received a certified copy of an amending agreement dated on or before
December 20, 2001 between Borrower and Canadian Abraxas Petroleum Ltd.,
amending the Farmout Agreement between the same parties dated July 31,
2001, in form and substance satisfactory to Lender.
5.10 Development Plan and Schedules. Lender shall have received (i) a
Development Plan covering the Subject Interests in substance acceptable
to Lender, (ii) a description of Initial Subject Interests, in form and
substance acceptable to Lender in its sole discretion, and (iii) a "Use
of Proceeds" schedule, in form and substance acceptable to Lender in
its sole discretion.
5.11 Evidence of Insurance. Lender shall have received certificates of
insurance satisfactory to it evidencing the existence of all insurance
required to be maintained by Borrower and its Subsidiaries, if any, as
applicable, by this Agreement and the other Loan Documents, which
insurance, in each case, shall list Lender as "additional insured" and
"sole loss payee with respect to first party claims" and be
satisfactory to Lender in all respects in its sole discretion. The
deductible of each such insurance policy shall be in an amount not to
exceed $25,000 per occurrence.
5.12 Approvals. Borrower shall have obtained all necessary Approvals from
all Governmental Agencies and from any other Persons relating to the
Initial Subject Interests and the related Subject Hydrocarbons or
pertaining to the Loan Documents, in form and substance satisfactory to
Lender in its sole discretion. Lender shall have received copies of all
such Approvals and such Approvals shall be in full force and effect on
the Effective Date, and Lender shall have received a certificate to
that effect signed by an Authorized Officer of Borrower.
5.13 Compliance with Loan Documents. Borrower shall have performed all
agreements and covenants required by this Agreement and by the other
Loan Documents to be performed by Borrower, and all representations and
warranties herein and in the other Loan Documents made by Borrower, or
any other Obligor shall be true and correct as of the Effective Date,
and Lender shall have received a certificate to that effect signed by
an Authorized Officer of Borrower.
5.14 No Default. No Default or Event of Default shall have occurred and be
continuing on the Effective Date either before or after giving effect
to this Agreement and the other Loan Documents, and Lender shall have
received a certificate to that effect from an Authorized Officer of
Borrower.
5.15 Engineering. Lender shall have received an Independent Reserve Report
for the Subject Interests dated as of January 1, 2001, in form and
substance, and with conclusions, satisfactory to Lender, and, since the
date of such report, there has been no material change in respect
thereof. Lender also shall have received all requested information
regarding the past operating results of the Subject Interests, the
current operation of the Subject Interests, Borrower's internal
accounting, engineering and production monitoring system, projections
of future operating results and the basis for such projections and all
31
other reasonably requested information, all in form, substance and, if
applicable, with conclusions, satisfactory to Lender, in its sole
discretion.
5.16 Environmental. Lender shall have received an environmental review,
including environmental reports (each report to be prepared by a
reputable independent consultant acceptable to Lender), relating to all
or any part of the Subject Interests, each in form and substance, and
with conclusions satisfactory to Lender in its sole discretion, and
since the date of such review, there has been no material change in
respect thereof. Lender shall have also received an Environmental
Certificate.
5.17 Officer's Certificate. Lender shall have received a Title Certificate.
5.18 Release of Liens. Lender shall have received evidence, in form and
substance satisfactory to Lender, in its sole discretion, of the
release of any and all Liens (other than Permitted Liens) to the extent
either (i) filed of record or (ii) Borrower has Knowledge of any such
Liens, including, mechanic's liens, materialmen's liens and other
similar liens or encumbrances, which encumber the Subject Interests.
5.19 Closing Fees, Expenses, etc. Lender shall have received all fees, costs
and expenses due and payable pursuant to Section 3.5 or otherwise and
all amounts invoiced pursuant to Section 12.3.
5.20 ISDA Master Agreement. Borrower shall have entered into the ISDA Master
Agreement.
5.21 Documents. Lender shall have received a list of each Transportation
Agreement to be attached to this Agreement as Schedule VI and Borrower
shall provide access to Lender, upon request by Lender, to all other
documents evidencing assignment of all Oil and Gas Leases, all right,
title and interest in and to the Transportation Agreements, and all
other interests represented by Borrower to be part of the Subject
Interests.
5.22 Other Legal Matters. All legal matters in connection with the title to
the Subject Interests and the Subject Hydrocarbons shall be approved by
Lender, and there shall have been furnished to Lender by Borrower at
Borrower's expense, such title opinions, agreements, other opinions of
counsel, and other records and information, including, evidence of any
ratification documents, participation agreements, letter of
understanding from any interest owner, as it may reasonably have
requested for that purpose, in form and substance satisfactory to
Lender, in its sole discretion.
5.23 All Loans. The obligation of Lender to fund any Loan on the occasion of
any Loan (including the initial Loan) shall be subject to the
satisfaction of each of the conditions precedent set forth in this
Section 5.23.
(a) Compliance with Warranties, No Default, etc. Both before and
after giving effect to any Loan the following statements shall
be true and correct: (i) the representations and warranties
set forth in Article 6 (excluding, however, those contained in
Section 6.8) shall be true and correct with the same effect as
if then made (unless stated to relate solely to an earlier
32
date, in which case such representations and warranties shall
be true and correct as of such earlier date), (ii) except as
disclosed by Borrower to Lender pursuant to Section 6.9 (A) no
labor controversy, litigation, arbitration or governmental
investigation or proceeding shall be pending or, to the
Knowledge of Borrower, threatened against Borrower which might
materially adversely affect Borrower's consolidated business,
operations, assets, revenues, properties or prospects or which
purports to affect the legality, validity or enforceability of
this Agreement or any other Loan Document, and (B) no
development shall have occurred in any labor controversy,
litigation, arbitration or governmental investigation or
proceeding disclosed pursuant to Section 6.9 which might
materially adversely affect the consolidated businesses,
operations, assets, revenues, properties or prospects of
Borrower; and (iii) no Default or Event of Default shall have
then occurred and be continuing, and the Borrower shall not
then be in material violation of any Applicable Law.
(b) Loan Request. Lender shall have received a Loan Request for
such Loan in accordance with Section 2.3. Each of the delivery
of a Loan Request and the acceptance by Borrower of the
proceeds of such Loan shall constitute a representation and
warranty by Borrower that on the date of such Loan (both
immediately before and after giving effect to such Loan and
the application of the proceeds thereof) the statements made
in Section 5.23(a) are true and correct. A Loan Request, when
given by Borrower, will be irrevocable and will oblige
Borrower to take the action contemplated herein and therein on
the date specified therein.
(c) Satisfactory Legal Form. All documents executed or submitted
pursuant hereto by or on behalf of Borrower shall be
satisfactory in form and substance to Lender; Lender and its
counsel shall have received all information, Approvals,
opinions, documents or instruments as Lender may reasonably
request.
Article 6
REPRESENTATIONS AND WARRANTIES
6.1 Representations. In order to induce Lender to enter into this Agreement
and to make Loans hereunder, Borrower represents and warrants unto
Lender as set forth in this Article 6.
6.2 Organization. Borrower is a corporation validly organized and existing
under the laws of the Province of Alberta, is duly qualified to do
business and is as an extra-provincial corporation in each jurisdiction
where the nature of its business requires such qualification, including
British Columbia and the Northwest Territories and has full power and
authority and holds all requisite Approvals to enter into and perform
its Obligations under this Agreement, and each other Loan Document to
which each is a party and to own and hold under lease its property and
to conduct its business substantially as currently conducted by it.
33
6.3 Due Authorization, Non-Contravention, etc. Borrower has the full legal
power, right and capacity to enter into and perform this Agreement and
the other Loan Documents and to sell and convey the Override. Borrower
has the full legal power, right and capacity to enter into and perform
the Loan Documents. The execution, delivery and performance by Borrower
of this Agreement and each other Loan Document executed or to be
executed by it are within Borrower's corporate powers, have been duly
authorized by all necessary action, and do not (i) contravene
Borrower's Constating Documents, (ii) contravene or result in any
violation of or default under any Applicable Law or any material
contract to which Borrower is a party or any material restriction,
court decree or order, in each case binding on or affecting Borrower or
any Properties, businesses, assets or revenues of Borrower; or (iii)
result in, or require the creation or imposition of, any Lien on
(except for the Liens created by the Loan Documents) any of Borrower's
Properties, businesses, assets or revenues.
6.4 Government Approval, Regulation, etc. No authorization or Approval or
other action by, and no notice to or filing with, any Governmental
Agency or other Person is required to be obtained by Borrower for the
due execution, delivery or performance by Borrower of this Agreement or
any other Loan Document. Borrower does not conduct any business, or
derive any revenues from any operations, outside the Provinces of
Alberta and British Columbia or the Northwest Territories. Borrower
does not have any business related to, or derive any revenue from, the
production or marketing of Hydrocarbons outside the Provinces of
Alberta and British Columbia or the Northwest Territories.
6.5 Validity, etc. This Agreement and each other Loan Document executed by
Borrower constitute, the legal, valid and binding obligations of
Borrower enforceable in accordance with their respective terms, in each
case subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally.
6.6 Financial Information. The financial statements of Borrower and Abraxas
Petroleum Corporation and any related statements of earnings and cash
flow, copies of which have been furnished to Lender, including the
information furnished to Lender have been prepared in accordance with
GAAP consistently applied, and present fairly the consolidated
financial condition of the Persons covered thereby as at the dates
thereof and the results of their operations for the periods then ended.
6.7 No Material Adverse Change. Since the date of the financial statements
described in Section 6.6, there has been no material adverse change in
the financial condition, operations, business, Properties or prospects
of either Borrower or its Subsidiaries, taken as a whole.
6.8 Litigation, Labor Controversies, etc. There is no pending or, to the
Knowledge of Borrower, threatened litigation, action, proceeding or
labor controversy affecting Borrower or any of its Subsidiaries or any
of their respective Properties, businesses, assets or revenues, or the
Subject Interests, which may materially adversely affect the financial
condition, operations, assets, business, properties or prospects of
Borrower or such Subsidiary or the Subject Interests or which purports
to affect the legality, validity or enforceability of this Agreement or
any other Loan Document, except as disclosed in the Disclosure
34
Schedule.
6.9 Subsidiaries. Borrower has no Subsidiaries.
6.10 Borrower's Shares. All of the issued and outstanding shares of Borrower
are legally and beneficially directly or indirectly owned by Abraxas
Petroleum Corporation.
6.11 Subject Interests. The descriptions attached to Schedule I completely
and correctly describe the Subject Interests. The representations and
warranties of Borrower in the Override Royalty Agreement are true and
correct in all respects as of the dates made or deemed made, and as of
the Effective Date, Borrower's ownership of the Subject Interests
entitles Borrower and such Subsidiary to a share of all Hydrocarbons
produced from or attributable to the Oil and Gas Leases located on or
under any of the lands described in Schedule I, and of the proceeds of
such production, after giving effect to and/or deducting all applicable
royalties, overriding royalties and other burdens or payments out of
production (except the Override), which is not less than the respective
net revenue interests identified on Schedule I and obligates Borrower
to pay a share of all costs of operation and development of such Oil
and Gas Leases which is not greater than the respective working
interests identified on Schedule I. Borrower has good and marketable
title to its Properties (including all Subject Interests) free and
clear of all Liens, except for Permitted Liens. The Override Royalty
Agreement will assign to Lender good and marketable title to the
Override, free and clear of any Lien, except for Permitted Liens. Each
lease and other interest in the Subject Interests and the Override is
valid and in full force and effect, all ad valorem taxes, rentals,
royalties and other amounts in respect thereof which are due, or have
become due, have been paid and no default has occurred in respect of
any such lease or interest which would have a material adverse effect
on the Override. The Subject Interests are not subject to any tax or
common law partnership, other than Permitted Liens. Borrower is the
legal and beneficial owner of the right, title and interest to the
Subject Interests more fully described on Schedule I.
6.12 Oil and Gas Leases. Each Oil and Gas Lease, and other interests
described in Schedule I is valid and subsisting and in full force and
effect, insofar as it covers or relates to the interests in land
referred to or described in Schedule I as covered thereby; all material
agreements, contracts, leases, permits, easements, rights-of-way, and
other surface use rights necessary to own, maintain and operate such
Oil and Gas Leases are in full force and effect and no material breach
or default exists under any of such leases, agreements, contracts,
permits, easements, rights-of-way or other rights. All rentals,
royalties and taxes and other amounts due and payable under or in
respect of the Oil and Gas Leases and other interests, or any of them,
have been duly paid or provided for. No material default or event of
default now exists under any of said leases and other interests and no
material breach or default exists thereunder.
6.13 Preferential Rights. Except for: (i) the preferential purchase rights
contained in Article 11 and the Override, (ii) the preferential
purchase rights contained in the Joint Operating Agreements, and (iii)
any preferential rights described in Schedule IV, there are no sale or
use contracts or agreements, preferential purchase rights, calls,
rights of first refusal or other similar rights or agreements in effect
35
relating to any of the Subject Interests or the properties burdened by
the Override. No other Person has any contractual or other rights owed
to it by Borrower which would restrict Borrower from honoring its
obligations to deliver Hydrocarbons pursuant to the Loan Documents.
6.14 Balancing and Take-or-Pay Contracts. Except under any Joint Operating
Agreement, none of the Subject Interests or any of the Subject
Hydrocarbons is subject to or encumbered by a balancing,
take-or-pay/make-up, deferred production, hydrocarbon banking or other
arrangement under which one or more third parties may take a portion of
the Subject Hydrocarbons without full payment therefor, in cash or
immediately available funds at the market price or value thereof, as a
result of Hydrocarbons having been taken from, or as a result of other
actions or inactions with respect to, the Subject Interests or other
properties.
6.15 Production Requirements. The production of all Hydrocarbons which have
heretofore been produced from the Subject Interests is not in excess of
allowable production quotas allowed or permitted to the Subject
Interests by any applicable Governmental Agency so as to subject, after
the Effective Date, any well located thereon, or Lender's interest in
the production therefrom, to restrictions or penalties on allowables
for overproduction.
6.16 Facilities. All ▇▇▇▇▇, facilities, equipment and other Property of
whatever kind or nature that are on the Subject Properties and are used
in the operation of the Subject Interests are in good repair and
working condition, normal wear and tear excepted, and have been
designed, installed, and maintained in accordance with good industry
standards and all applicable legal requirements; all ▇▇▇▇▇ on the
Subject Interests are equipped for production and connected to a
gathering system of sufficient capacity and pressure to permit, under
ordinary operating conditions, the continuing delivery of Hydrocarbons
in volumes equal to the volumes historically delivered; and all ▇▇▇▇▇,
facilities, equipment, and other Property of whatever kind or nature on
the Subject Interests, together with those ▇▇▇▇▇, facilities, equipment
and other Property contemplated in the Development Plan, are, or will
be subject to funding hereunder, capable of effecting the Development
Plan. The facilities and arrangements by which Borrower disposes, or
plans to dispose, of water produced either are sufficient or will be in
compliance with the requirements of the Development Plan to dispose of
the volumes of water currently, or expected to be, produced from the
Subject Interests, and Borrower has no Knowledge or any reason to
believe that the facilities and arrangements to be installed pursuant
to the Development Plan will not be adequate in the future.
6.17 Broker's Fees. No Broker's Fee is owed by Borrower in respect of the
matters provided for in this Agreement or any of the other Loan
Documents.
6.18 Taxes. The Borrower has filed all federal, provincial and other tax
returns and reports required by Applicable Law to have been filed by it
and has paid all Taxes, assessments, fees and other governmental
charges thereby shown to be owing, except any such Taxes, assessments,
fees or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on its books.
36
6.19 Compliance with Laws. The Borrower (i) is not in violation of any
Applicable Law of, or the terms of any license or permit issued by, any
Governmental Agency, or (ii) has not failed to obtain any license,
permit, franchise or other Approval necessary to ownership of any of
its Properties or the conduct of its business except where such failure
would not reasonably be expected to adversely affect Borrower.
6.20 Environmental Warranties. (i) All of the Subject Interests and
associated facilities operated by Borrower has been, and continue to
be, owned, leased or operated by Borrower in compliance with all
material Environmental Laws; (ii) there have been no past, and there
are no pending or, to the Knowledge of Borrower, threatened claims,
complaints, notices or inquiries to, or requests for information
received by, or known to, Borrower with respect to, any alleged
violation of any Environmental Law with respect to the Subject
Interests or associated facilities operated by Borrower; (iii) there
are no pending or, to the Knowledge of Borrower, threatened claims,
complaints, notices or inquiries to, or requests for information
received by, or known to Borrower for potential liability under any
Environmental Law or under any common law theories relating to
operations or the condition of any of the lands comprising the Subject
Interests (including underlying groundwater); (iv) to the Knowledge of
Borrower, there have been no Releases of Hazardous Materials at, on or
under the Subject Property, (v) Borrower has not been issued a notice
of non-compliance and are in material compliance with all permits,
certificates, approvals, licenses and other authorizations relating to
environmental matters and necessary or desirable for its business and
the operation of each of the Subject Interests; (vi) to the Knowledge
of Borrower, none of the lands comprising the Subject Interests or any
portion thereof are listed or proposed for listing on any federal or
provincial list of sites requiring investigation or clean-up; (vii) to
the Knowledge of Borrower, there are no underground storage tanks,
active or abandoned, including petroleum storage tanks, on or under any
of the lands comprising the Subject Interests; (viii) to the Knowledge
of Borrower, Borrower has not directly transported or directly arranged
for the transportation of any Hazardous Material (except crude oil
and/or natural gas sold in the ordinary course of business or produced
waters which has not created any material liability or obligation of
Borrower) to any location which is listed or proposed for listing on
any federal or provincial list or which is the subject of federal,
provincial or local enforcement actions or other investigations which
may lead to material claims against Borrower or any portion of any of
the Subject Interests for any remedial work, damage to natural
resources or personal injury; (ix) to the Knowledge of Borrower, there
are no polychlorinated biphenyls, radioactive materials (other than
naturally occurring radioactive material (NORM)) or friable asbestos
present at any of the lands comprising the Subject Interests; and (x)
to the Knowledge of Borrower, no condition exists at, on, under or in
respect of any of the lands comprising the Subject Interests or any
portion thereof which, with the passage of time, or the giving of
notice or both, would give rise to material liability under any
Environmental Law.
6.21 Accuracy of Information. All factual information heretofore or
contemporaneously furnished by or on behalf of Borrower or Abraxas
Petroleum Corporation in writing or otherwise to Lender for purposes of
or in connection with this Agreement or any transaction contemplated
hereby, including the Development Plan, the Independent Reserve Report
37
and factual data supporting any reserve reports and financial
statements, and any aging of accounts payable and accounts receivable,
is, and all other such factual information hereafter furnished by or on
behalf of Borrower to Lender will be, true and accurate in every
material respect on the date as of which such information is dated or
certified and as of the date of execution and delivery of this
Agreement by Lender, and such information is not, or shall not be, as
the case may be, incomplete by omitting to state any material fact
necessary to make such information not misleading. Borrower has no
Knowledge of any omission of material fact which renders any such
information incomplete or misleading in any way.
6.22 No Prohibition on Perfection. None of the terms or provisions of any
indenture, mortgage, deed of trust, agreement or other instrument to
which Borrower or any of its Subsidiaries, is a party or by which
Borrower or any of its Subsidiaries, or the Property of Borrower or any
of its Subsidiaries, is bound prohibit the filing or recordation of any
of the Loan Documents or any other action which is necessary or
appropriate in connection with the perfection of the Liens evidenced
and created by any of the Loan Documents.
6.23 Solvency. Borrower is not "insolvent," as such term is used and defined
in the Bankruptcy and Insolvency Act (Canada) or the Companies'
Creditors Arrangement Act (Canada).
6.24 Insurance. Borrower has the benefit of the insurance coverage described
in the certificates of insurance delivered pursuant to Article 5 and
required to be maintained pursuant to Section 7.12.
6.25 No Default. No Default or Event of Default has occurred and is
continuing.
6.26 Farmout Lands. To the best of Borrower's Knowledge, information and
belief, there are no security registrations made against any of the
"Farmout Lands" as described in the Farmout Agreement dated July 31,
2001 between Borrower and Canadian Abraxas Petroleum Limited pursuant
to the March 26, 1999 Abraxas Petroleum Corporation Indenture with
Norwest Bank Minnesota, N.A. (now ▇▇▇▇▇ Fargo) or the December 21, 1999
Abraxas Petroleum Corporation et al Indenture with Firstar Bank, N.A.
(collectively, the "Indentures") or otherwise, and if such
registrations have been made, Borrower will cause such registrations to
be discharged or to obtain no interest Letters from the Trustees
pursuant to the Indentures.
Article 7
AFFIRMATIVE COVENANTS
7.1 Affirmative Covenants. Borrower agrees with Lender that, until the
unconditional and irrevocable payment in full in cash of all accrued
and outstanding monetary Loan Obligations and the termination or
expiration of the Commitment, Borrower will perform, or cause each of
its Subsidiaries to perform, the obligations set forth in this Article
7.
38
7.2 Punctual Payment Borrower will pay or cause to be paid all Indebtedness
and other Obligations payable under the Loan Documents punctually when
due. Borrower will also pay or cause to be paid, promptly when due and
in any event within 30 days of its payment due date, all accounts
payable by Borrower, unless being contested in good faith by Borrower.
7.3 Financial Information, Reports, Notices, etc. Borrower will furnish, or
will cause to be furnished, to Lender copies of the following financial
statements, reports, notices and information:
(a) as soon as available and in any event within 60 days after the
end of each of the first three fiscal quarters of each fiscal
year of Borrower and Abraxas Petroleum Corporation,
unconsolidated balance sheets of Borrower and consolidated
balance sheet of Abraxas Petroleum Corporation as of the end
of such fiscal quarter and unconsolidated statements of
earnings and cash flow of Borrower and consolidated statements
of earnings and cash flow of Abraxas Petroleum Corporation for
such fiscal quarter and for the period commencing at the end
of the previous fiscal year and ending with the end of such
fiscal quarter, and any other financial records or reports of
Borrower or Abraxas Petroleum Corporation requested by Lender,
all prepared in accordance with GAAP, certified by an
Authorized Officer of Borrower and Lender, in its reasonable
discretion, shall have the right to employ, at Borrower's sole
expense, an independent accountant, acceptable to Lender in
its sole discretion, to independently verify the accuracy of
such financial statements;
(b) as soon as available and in any event within 120 days after
the end of each fiscal year of Borrower, a copy of the annual
audit report for such fiscal year for Borrower and Abraxas
Petroleum Corporation, including therein consolidated balance
sheets of Abraxas Petroleum Corporation as of the end of such
calendar year and consolidated statements of earnings and cash
flow of Borrower and its Subsidiaries for such calendar year
and a lease operating statement, including oil, gas and water
production, average prices received, and lease operating
costs, including transportation, gathering and marketing
costs, and all expenses on a well-by-well and asset-by-asset
basis, and any other financial records or reports of Borrower
requested by Lender, all financial statements prepared in
accordance with GAAP, in each case certified by the auditors
of Abraxas Petroleum Corporation (the "Accountant"), together
with a certificate from such Accountant to the effect that, in
making the examination necessary for the signing of such
annual report by such Accountant, they have not become aware
of any Default or Event of Default that has occurred and is
continuing, or, if they have become aware of such Default or
Event of Default, describing such Default or Event of Default
and the steps, if any, being taken to cure it;
(c) as soon as available and in any event within 30 days after the
end of each calendar month, (i) a monthly cash flow report of
Borrower for such month detailing sources and uses of funds,
(ii) a monthly compilation and aging of all accounts
receivables and accounts payable of Borrower for such month,
(iii) a monthly summary of capital expenditures of Borrower
39
since the Effective Date and projections of capital
expenditures to be made in the future on a well-by-well and
asset-by-asset basis, (iv) a summary of net and gross general
and administrative expenses of Borrower for such month, and
(v) a lease operating statement for such month, including oil,
gas and water production, average prices received, and lease
operating costs, including transportation, gathering and
marketing costs, and all expenses on a well-by-well and
asset-by-asset basis, and any other financial records or
reports of Borrower reasonably requested by Lender, all
prepared in accordance with GAAP, certified by an Authorized
Officer of Borrower;
(d) on each Payment Date, a detailed calculation of Net Cash Flow
for the preceding three month period;
(e) as soon as available and in any event within 45 days after the
end of each calendar quarter of each calendar year of
Borrower, a summary of Capital Expenditures from the Effective
Date, detailed projections of all future Capital Expenditures
under the Development Plan, and a comparison of actual Capital
Expenditures by Borrower since the Effective Date to Approved
Capital Expenditures during the same period, and any other
records or reports of Borrower reasonably requested by Lender
in connection with Capital Expenditures, all prepared in
accordance with GAAP, certified by an Authorized Officer of
Borrower;
(f) as soon as possible and in any event within three (3) Business
Days after the occurrence of each Default or Event of Default,
a statement of an Authorized Officer of Borrower setting forth
details of such Default or Event of Default and the action
which Borrower has taken and/or proposes to take with respect
thereto;
(g) promptly upon receipt and in any event not later than three
(3) Business Days following such receipt, any information
concerning any actions, suits or proceedings by or before any
court, arbitrator or any Governmental Agency pending, or to
the Knowledge of Borrower threatened, against Borrower or any
of the Subject Interests, including any foreclosure
proceedings, if the aggregate amount of the claims under such
actions, suits or proceedings is greater than $50,000;
(h) as soon as available, and in any event within 30 days after
such reports become available, copies of all interim reserve
reports prepared by Borrower or any third-party engineer
relating to the Subject Interests;
(i) as soon as available, and in any event within 30 days of any
filing, copies of all federal income tax filings of Borrower,
and any schedules or exhibits attached thereto, certified by
an Authorized Officer of Borrower;
(j) at such times as may be requested by Lender, reports
concerning any change in methods of treatment or operation of
all or any ▇▇▇▇▇ on Subject Interests and production of
Subject Hydrocarbons, any drilling or development, any method
of secondary or tertiary recovery, or any other action with
respect to the Subject Interests, the decision as to which
40
would reasonably be expected to materially increase or reduce
the quantity of Hydrocarbons ultimately recoverable from the
Subject Interests, or the rate of production therefrom, or
which would reasonably be expected to materially shorten or
lengthen the period of time required for amortization of the
Loans;
(k) as from time to time reasonably requested by Lender, copies of
any maps showing property lines and well locations, well logs,
core analysis, flow and pressure tests, crude oil and natural
gas analysis and casing programs and other technical
information related to the Subject Interests and the ▇▇▇▇▇
thereon and the production therefrom in the possession, or
under the direct or indirect control, of Borrower;
(l) together with the delivery of the financial statements
delivered pursuant to Sections 7.3(a) and (b), a certificate
executed by an Authorized Officer of Borrower certifying that
Borrower is in compliance in all material respects with the
terms of this Agreement and the other Loan Documents, or if
not, specifying any exceptions thereto in reasonable detail;
(m) immediately, and in any event by the end of the following
Business Day, appropriate daily drilling reports and other
information as may be reasonably requested by Lender in
connection with the Subject Interests;
(n) no later than March 31 of each calendar year, reports in form
and substance satisfactory to Lender and using pricing,
engineering and other assumptions acceptable to Lender,
prepared by the Approved Independent Engineer, effective as of
January 1 of such calendar year, concerning (i) the quantity
of Subject Hydrocarbons economically recoverable based upon
the assumptions provided by Lender from the Subject Interests,
including the quantity of Proved Reserves, Proved Developed
Producing Reserves, Proved Developed Non-Producing Reserves,
Proved Undeveloped Reserves and Probable Reserves; (ii) the
Projected Income and Expense Attributable to the Subject
Interests; (iii) any change in methods of treatment or
operation of all or any ▇▇▇▇▇ on Subject Interests, any new
drilling or development, any method of secondary or tertiary
recovery, or any other action with respect to the Subject
Interests, the decision as to which would reasonably be
expected to increase or reduce the quantity of Subject
Hydrocarbons ultimately recoverable from the Subject
Interests, or the rate of production therefrom; and (iv) such
other information, technical or otherwise, as Lender may
reasonably request (each such report an "Independent Reserve
Report");
(o) promptly after June 30 of each calendar year (commencing with
the calendar year 2002), and in any event not later than
August 15 of such calendar year, a report in form and
substance satisfactory to Lender and using pricing,
engineering and other assumptions acceptable to Lender,
prepared by Borrower effective as of June 30 of such calendar
year updating the Independent Reserve Report and concerning
(i) the quantity of Subject Hydrocarbons economically
41
recoverable based upon the assumptions provided by Lender from
the Subject Interests, including the quantity of Proved
Reserves, Proved Developed Producing Reserves, Proved
Developed Non-Producing Reserves, Proved Undeveloped Reserves,
Probable Reserves and Possible Reserves; (ii) the Projected
Income and Expense Attributable to the Subject Interests;
(iii) any change in methods of treatment or operation of all
or any ▇▇▇▇▇ on Subject Interests, any new drilling or
development, any method of secondary or tertiary recovery, or
any other action with respect to the Subject Interests, the
decision as to which would reasonably be expected to increase
or reduce the quantity of Subject Hydrocarbons ultimately
recoverable from the Subject Interests, or the rate of
production therefrom; and (iv) such other information,
technical or otherwise, as Lender may reasonably request (each
such report an "Internal Reserve Report");
(p) within a reasonable time of a reasonable request by Lender, an
Independent Reserve Report where there have been substantial
drilling operations, to be determined by Lender in its sole
discretion, in respect of the Property of Borrower in the
intermittent term between the delivery of the Independent
Reserve Reports delivered pursuant to Section 7.3(n); provided
that no such report will be requested more than three times
per calendar year;
(q) upon, but in no event later than ten (10) days after, any
responsible officer of Borrower becomes aware thereof, notice
of (i) any and all enforcement, cleanup, removal or other
governmental or regulatory actions instituted, completed or
threatened or other environmental claims against Borrower or
any of the Subject Interests pursuant to any applicable
Environmental Laws, or (ii) any environmental or similar
condition on any Property adjoining or in the vicinity of the
Property of Borrower that could reasonably be anticipated to
cause such Property or any part thereof to be subject to any
adverse restrictions on the ownership, occupancy,
transferability or use of such Property under any
Environmental Laws;
(r) promptly after (i) the sending or filing thereof, copies of
all reports which Borrower sends to any of its security
holders, (ii) the sending or filing thereof, all material
reports and registration statements which Borrower files with
any securities commission or any national securities exchange,
(iii) the filing thereof, copies of all tariff and rate cases
and other material reports filed with any Governmental
Authority (other than routine operating reports), and (iv)
receipt thereof, copies of all notices received from any
Governmental Authority concerning material noncompliance by
Borrower with any Applicable Laws; and
(s) with reasonable promptness, such other information respecting
the condition or operations, financial or otherwise, of
Borrower as Lender may from time to time reasonably request.
All reports and other information herein described or otherwise
described in this Agreement and all other reports which Borrower or
Abraxas Petroleum Corporation is required to deliver pursuant to the
terms and conditions hereof shall be prepared and delivered at the sole
cost and expense of Borrower.
42
7.4 Gathering and Transportation and Other Services. Subject to the
provisions of this Section 7.4 with respect to Lender acting as
Borrower's agent and Article 11 with respect to Lender's preferential
right to purchase Subject Hydrocarbons, Borrower at its sole cost and
expense (provided Lender shall pay its pro rata cost for transport,
delivery and marketing of the Override Hydrocarbons by a Person which
is not an Affiliate of Borrower) shall cause all Subject Hydrocarbons
to be produced, delivered, gathered, compressed, treated, processed,
fractionated and marketed, as a reasonably prudent operator and without
discrimination as to Override Hydrocarbons and Residual Hydrocarbons.
If Lender reasonably determines that Borrower is not causing any
Subject Hydrocarbons to be gathered, compressed, treated, processed and
fractionated to prepare such Subject Hydrocarbons to be marketed
meeting required pipeline specifications, as a reasonably prudent
operator, or that Borrower is not causing any Subject Hydrocarbons to
be marketed as a reasonably prudent operator, then Lender may, in its
sole discretion, act as agent with respect to such Subject Hydrocarbons
to obtain or provide such services as would a reasonably prudent
operator and in the manner set forth in this Agreement. Borrower will
fully cooperate with Lender in its capacity as agent with respect to
any such services.
7.5 Collateral Coverage Deficiency or Collateral Coverage Default. Borrower
shall at all times maintain a Collateral Coverage Ratio of 150% or
greater, but in any event, Borrower shall notify Lender promptly after
becoming aware that any event, condition or circumstance which has
occurred or exists which could reasonably be expected to become or
constitute a Collateral Coverage Deficiency or a Collateral Coverage
Default. Within 30 days of such notice or any notice of a Collateral
Coverage Deficiency received by Borrower from Lender, Borrower must
either at Lender's sole discretion (i) make a prepayment in conformity
with Section 3.1 in an amount sufficient to eliminate the Collateral
Coverage Deficiency, or (ii) pledge to Lender additional Properties
which are acceptable to Lender, in its sole discretion, in a manner and
in an amount sufficient to eliminate the Collateral Coverage
Deficiency.
7.6 Use of Proceeds. Borrower shall (i) use the proceeds of the Loans as
set forth in Section 4.5 and (ii) not use the proceeds of the Loans to
pay any dividends or other distributions (except as provided under
Section 8.5), to purchase any of its shares, to make any loans or
advance any monies to any employee (excluding normal business and
travel expense advances), consultant or agent of Borrower or to pay any
cost, expense or otherwise, except in connection with Borrower's oil
and gas exploration, development and production business consistent
with the Development Plan, except as provided in Section 4.5(a)(ii).
7.7 Joint Operating Agreement. Except as may be otherwise approved by
Lender, in its sole and absolute discretion, Borrower shall comply
with, and perform any and all obligations and actions set forth in, the
terms and provisions of the Joint Operating Agreements. Borrower shall
provide prompt notice of the execution of all joint operating
agreements relating to the Subject Interests or the Subject
Hydrocarbons and, upon request by Lender, deliver copies of such joint
43
operating agreements relating to the Subject Interests or the Subject
Hydrocarbons to which Borrower is a party duly certified by an
Authorized Officer of Borrower as being true, correct and complete, and
such agreements shall be in form and substance satisfactory to Lender.
7.8 Compliance with Laws. Borrower shall conduct all of its business
within, and comply in all material respects with, all Applicable Laws,
such compliance to include the maintenance and preservation of its
existence and qualification as a corporation in good standing in its
jurisdiction of incorporation and each other jurisdiction where it
carries on business and all Approvals necessary to permit each of them
to carry on their respective businesses.
7.9 Production-Related Expenses and Taxes. Borrower shall pay, promptly
when due, and in any event within 90 days of its payment due date,
except as contested in good faith by appropriate proceedings, all
amounts in any way owed or owing with respect of the Subject Interests,
including all production-related expenses. Borrower shall make all
required income tax filings prior to any applicable filing deadlines.
Borrower shall pay, promptly when due, and in any event within 30 days
of its payment due date, except as contested in good faith by
appropriate proceedings and for which adequate reserve in accordance
with GAAP shall have been set aside in its books, together with
interest and penalties thereon, if any, all Taxes imposed on Borrower
or any of its Properties, (whether by operation of law or pursuant to
this Agreement), including those set forth below: (i) all ad valorem
taxes (or Taxes imposed in lieu thereof) imposed upon or assessed with
respect to or charged against the Subject Interests or the Subject
Hydrocarbons; and (ii) all severance taxes and other Taxes, duties,
imposts, charges, levies and assessments of any kind or nature
whatsoever, imposed upon or assessed with respect to or charged against
the Subject Interests or the Subject Hydrocarbons.
7.10 Operation of Subject Interests. Borrower shall, as an independent
contractor and as a prudent operator and at Borrower's sole cost and
expense: (i) cause the Subject Interests to be developed, maintained
and continuously operated for the production of Hydrocarbons in a good
and workmanlike manner, as would a prudent operator (without regard to
the existence of the Debenture or the Override), all in accordance with
the Development Plan, generally accepted practices, applicable
operating agreements, and Applicable Laws (including all Environmental
Laws), and in a manner intended to be consistent with the production
rate assumptions used in, and the levels defined in, the various
production profile data provided to Lender; (ii) pay, or cause to be
paid, promptly, and no longer than 90 days from the billing date for
such amount, as and when due and payable, (A) all rentals, royalties
and operating, development, production and transportation expenses and
proceeds payable to the other mineral interest owners in respect of the
Subject Interests or the Subject Hydrocarbons, excepting those being
contested in good faith, (B) all production related-expenses and
production-related Taxes incurred in or arising from the operation or
development of the Subject Interests, or the producing, treating,
gathering, or storing, of the Subject Hydrocarbons; excepting those
being contested in good faith or those not yet payable in the ordinary
course of business, and (C) all general and administrative related
expenses and Taxes, excepting those being contested in good faith or
those not yet payable in the ordinary course of business; (iii) cause
44
machinery, equipment and facilities necessary for the production of the
Subject Hydrocarbons to be kept in working order as would a prudent
operator (without regard to the existence of the Debenture) and
necessary repairs, renewals, renovations, replacements, additions and
improvements thereof or thereto to be promptly made; (iv) give or cause
to be given to Lender written notice of every adverse claim or demand
made by any Person (other than Lender or the buyer of Hydrocarbons)
affecting the Subject Interests or the Subject Hydrocarbons which could
have a material adverse effect on the Override or any portion thereof
or on Borrower, and of any suit or other legal proceeding instituted
with respect thereto, and cause necessary steps to be taken with
reasonable diligence to protect and defend the Subject Interests and
the Subject Hydrocarbons against any such adverse claim or demand which
could have a material adverse effect on the Override or any portion
thereof, or Borrower, including the employment of counsel for the
prosecution or defense of litigation; and (v) cause the Subject
Interests to be kept free and clear of Liens or overriding royalty
interests other than Permitted Liens. Borrower shall maintain,
preserve, protect and keep the Subject Interests in good repair,
working order and condition, and make necessary and proper repairs,
renewals and replacements so that (A) its business carried on in
connection therewith may be properly conducted at all times and (B) the
Subject Interests do not decline in value.
7.11 Development Plan. Except as may otherwise be approved by Lender, in its
reasonable discretion, Borrower shall comply with, and perform any and
all obligations and actions set forth in, the terms and provisions of
the Development Plan. Lender and Borrower acknowledge and agree that
operations in the field will not follow exactly the Development Plan.
Adjustments and modifications to the various "Approved Expenditures"
will be necessitated by the drilling and operating conditions
encountered by Borrower and its contract operators. Additionally,
upsets and emergencies can occur which will necessitate immediate
action by Borrower in order to save lives and Property. Accordingly,
Lender agrees to work closely with Borrower in promptly responding to
such changed circumstances and necessary modification to the
Development Plan. As soon as available, and in any event within 30 days
after the end of each calendar quarter, Borrower shall deliver to
Lender for review a proposed updated Development Plan. Within ten (10)
Business Days of its receipt of the updated Development Plan, Lender
will notify Borrower if such proposed Development Plan is acceptable.
Upon the written notification of Borrower by Lender that the updated
Development Plan is acceptable, such updated Development Plan will be
deemed to replace the then current Development Plan for all purposes
under the Loan Documents. Upon written notification to Borrower that
such proposed Development Plan is not acceptable, Borrower shall have a
period of five (5) Business Days to submit a revised updated
Development Plan to Lender for review under the terms of this Section
7.11.
7.12 Insurance. Borrower will maintain with financially sound and reputable
insurance companies such insurance relating to the Subject Interests
and the Subject Hydrocarbons in amount and type with such deductibles
and against such risks, liabilities, casualties and contingencies as is
maintained by prudent individuals in the industry (and which property
insurance shall name Lender as an "additional insured" and as "sole
45
loss payee as to first party claims" as its interest may appear and
shall contain endorsements to such policies providing that the insurer
will notify Lender not less than 30 days prior to the expiration or
termination of such policies), including (i) the insurance policy
attached as Schedule III; and (ii) to the extent such insurance is
carried by others engaged in the oil and gas exploration and production
industry and in similar undertakings in the same general area or areas
in which the Subject Interests are located, insurance on all personal
property and fixtures used in connection with the operation of the
Subject Interests, against loss or damage by fire, lightning, hail,
tornado, explosion, hurricane and other similar risks, and (iii) OEE
insurance during drilling operations. To the extent that Lender
receives proceeds as a loss payee, such proceeds shall either be
applied to the Obligations or to replace the damaged or lost Property,
at Lender's sole discretion. Borrower shall furnish or cause to be
furnished to Lender, upon the request of Lender (but no less than once
each year), from time to time thereafter, a summary of the insurance
coverage of Borrower in form and substance satisfactory to Lender in
its sole discretion and copies of all applicable insurance policies.
Unless otherwise specified, the deductible of each such insurance
policy shall be in an amount not to exceed $25,000 per occurrence.
7.13 Accounting Principles. Unless otherwise specified, all accounting terms
used herein or in any Loan Document shall be interpreted, and Borrower
will, and will cause Abraxas Petroleum Corporation to, prepare all
reports and financial statements and computations required under this
Agreement or the other Loan Documents, all in accordance with GAAP
consistently applied for all periods. Borrower will provide such
information as Lender may request from time to time in accordance with
accurate accounting standards customary and acceptable in the oil and
gas exploration and production industry.
7.14 Books and Records; Inspections.
(a) Borrower will keep books and records which accurately reflect
all of their business affairs and transactions, or relate to
the Subject Interests, and permit Lender or any of its
representatives, at reasonable times and intervals, to visit
all of its offices and the Subject Interests, to discuss its
financial matters with its officers and independent public
accountant (and Borrower hereby authorize such independent
public accountant to discuss the financial matters of Borrower
with Lender or its representatives whether or not any
representative of Borrower is present) and to examine (and, at
the expense of Borrower, photocopy extracts from) any of its
books or other corporate records. Borrower shall pay any fees
and expenses incurred in connection with Lender's exercise of
its rights pursuant to this Section 7.14.
(b) Furthermore, Borrower will permit Lender, or its agents, at
the cost and expense of Borrower but at Lender's risk, to
enter upon the Subject Interests and all parts thereof, for
the purpose of investigating and inspecting the condition and
operation thereof, and shall permit reasonable access to the
field offices and other offices, including the principal place
of business, of Borrower to inspect and examine the Subject
Interests.
46
7.15 Environmental Covenant. Borrower will (i) use and operate all of its
facilities and Properties in material compliance with all Environmental
Laws, keep all necessary Approvals relating to environmental matters in
effect and remain in material compliance therewith, and handle all
Hazardous Materials in material compliance with all applicable
Environmental Laws, (ii) promptly cure and have dismissed with
prejudice to the satisfaction of Lender any actions and proceedings
relating to compliance with Environmental Laws, and diligently pursue
the cure of any material underlying environmental problem which forms
the basis of any such claim, complaint, notice or inquiry, and (iii)
provide such information and certifications which Lender may reasonably
request from time to time to evidence compliance with this Section
7.15. Borrower will provide an Environmental Certificate to Lender at
the same time as the delivery of the annual financial statements of
Borrower referred to in Section 7.3(b).
7.16 Board of Directors Meetings. As soon as available and in any event 30
days prior to any such meeting, Borrower shall deliver to Lender notice
of any meeting of the Board of Directors of Borrower, any committee of
Borrower or any meetings of the shareholders of Borrower. Borrower
hereby grants to Lender the right to attend any such meetings as a
non-voting observer.
7.17 Hedging Agreements. Promptly, and in any event within 10 days of
receipt by Borrower of a written request from Lender, Borrower shall
have entered into one or more swap, hedge, floor, collar or other
similar agreements which are satisfactory to Lender at a price and for
a term which is mutually acceptable to Borrower and Lender pursuant to
the ISDA Master Agreement (each a "Initial Hedging Agreement") and
satisfactory to Lender.
7.18 Protection of Security. Borrower shall do all things reasonably
requested by Lender to protect, preserve and maintain the Subject
Interests, the value thereof and the priority of the Liens granted in
favour of Lender pursuant to the Loan Documents in relation to other
Persons.
7.19 Grant Fixed Charge Security. If Lender considers it necessary for its
adequate protection, Borrower, at the request of Lender, shall
forthwith grant or cause to be granted to Lender, a fixed Lien (subject
only to Permitted Liens which under Applicable Law rank in priority
thereto) in such of Borrower's Property as Lender shall, in its sole
discretion, determine as security for all then present and future
Indebtedness of Borrower to Lender and its Affiliates under the Loan
Documents. In this connection, Borrower shall:
(a) provide Lender with such information as is reasonably required
by the Agent to identify the property to be charged pursuant
to this Section 7.19;
(b) do all such things as are reasonably required to grant in
favour of Lender a fixed Lien (subject only to Permitted Liens
which under Applicable Law rank in priority thereto) in
respect of such property to be so charged pursuant to this
Section 7.19;
47
(c) provide or cause to be provided to Lender with all corporate
resolutions and other action, as reasonably required, for
Borrower to grant to Lender a fixed Lien (subject only to
Permitted Liens which under Applicable Law rank in priority
thereto) in the property identified by Lender to be so
charged;
(d) provide Lender with such security instrument, legal opinions
and other documents which Lender, acting reasonably, deems are
necessary to give full force and effect to the provisions of
this Section 7.19;
(e) assist Lender in the registration or recording of such
agreements and instruments in such public registry offices in
Canada or any province thereof as Lender, acting reasonably,
deems necessary to give full force and effect to the
provisions of this Section 7.19; and
(f) pay all reasonable costs and expenses incurred by Lender in
connection with the preparation, execution and registration of
all agreements, documents and instruments, including any
amendments to any Loan Document, made in connection with this
Section 7.19.
7.20 Further Assurances.
(a) Borrower shall, upon the request of Lender, take such actions
and execute and deliver such documents and instruments as
Lender reasonably shall require to ensure that Lender shall,
at all times, have received currently effective duly executed
Loan Documents encumbering the Subject Interests of Borrower
constituting 100% of the Proven Reserves of Borrower to which
value is given in the determination of the then current Risked
NPV10 (with accompanying letters in lieu of transfer orders)
and satisfactory title evidence in form and substance
reasonably acceptable to Lender as to ownership of such the
Subject Interests.
(b) If Lender shall determine that, as of the date of any
determination of the Collateral Coverage Ratio, Borrower shall
have failed to comply with the Section 7.20(a), Lender may
notify Borrower in writing of such failure and, within 30 days
from and after receipt of such written notice by Borrower,
Borrower shall execute and deliver to Lender supplemental or
additional Loan Documents, in form and substance reasonably
satisfactory to Lender and its counsel, securing payment of
the Obligations and covering additional assets not then
encumbered by any Loan Documents (together with current
valuations, Independent Engineering Reports, and title
evidence applicable to the additional assets collaterally
assigned, each of which shall be in form and substance
reasonably satisfactory to Lender) such that Lender shall have
received currently effective duly executed Loan Documents
encumbering Subject Interests constituting 100% of the Proven
Reserves of Borrower to which value is given in the
determination of the then current Risked NPV10 (with
accompanying letters in lieu of transfer orders) and
satisfactory title evidence in form and substance acceptable
to Lender as to ownership of such Subject Interests.
48
(c) Borrower will execute any and all further documents, financing
statements, agreements and instruments, and take all such
further actions (including the filing and recording of
financing statements, fixture filings, mortgages, debentures,
security agreements, pledge agreements, deeds of trust and
other documents), which may be required under any Applicable
Law, or which Lender may reasonably request, to effectuate the
transactions contemplated by the Loan Documents or to grant,
preserve, protect or perfect the Liens created or intended to
be created by the Loan Documents or the validity or priority
of any such Lien, all at the expense of Borrower. Borrower
agrees to provide to Lender, from time to time upon reasonable
request of Lender, information which is in the possession of
Borrower or otherwise reasonably obtainable by any of them,
reasonably satisfactory to Lender as to the perfection and
priority of the Liens created or intended to be created by the
Loan Documents.
(d) Borrower hereby authorizes Lender to file one or more
financing or continuation statements, and amendments thereto,
relative to all or any part of the Subject Interests or other
collateral granted by Borrower to Lender without the signature
of Borrower where permitted by Applicable Law. A carbon,
photographic or other reproduction of the Loan Documents or
any financing statement covering the Subject Interests or
other collateral granted by Borrower and any other Obligor to
Lender or any part thereof shall be sufficient as a financing
statement where permitted by Applicable Law.
(e) Upon the acquisition of any new Properties by Borrower,
Borrower shall execute to and in favour of Lender, within 30
days of any such acquisition, a "Royalty Lands Addition
Schedule" which is attached to the Override Royalty
Agreements, describing the acquired Properties.
7.21 Override Records. Borrower shall at all times cause the Overrides
described in the Override Royalty Agreements to be recorded in
reasonable detail on the books and records of Borrower in respect of
its Subject Interests and such books and records are to be maintained
in accordance with prudent industry practice. Borrower will make such
books and records available for review by Lender or its representatives
during regular business hours at the offices of Borrower upon
reasonable notice by Lender.
7.22 Title Deficiencies. Borrower agrees that it will use all commercially
reasonable efforts to correct, explain or otherwise resolve to the
satisfaction of the Lender, the title deficiencies that appear on the
memorandum attached hereto as Schedule VIII on or prior to February 1,
2002.
7.23 Further Due Diligence. Borrower agrees that prior to commencing
operations on each well to be drilled pursuant to the Development Plan,
it will provide Lender with reasonable title verification in respect of
the Property on which such well is located, in form and scope
satisfactory to Lender and such title verification shall be performed
by a law firm acceptable to Lender, acting reasonably.
49
Article 8
NEGATIVE COVENANTS
8.1 Negative Covenants. Borrower agrees with Lender that, until the
unconditional and irrevocable payment in full in cash of all accrued
and outstanding monetary Loan Obligations and the termination or
expiration of the Commitment, Borrower will or will cause each of its
Subsidiaries to, perform, or not perform, as applicable, the
obligations set forth in this Article 8.
8.2 Business Activities. Borrower will not engage, or permit any of its
Subsidiaries to engage, in any business activity, except the acquiring,
owning, operating, producing, gathering, treating, processing,
transportation and marketing of Hydrocarbons and such activities as may
be incidental or related thereto, without the prior written consent of
Lender, in its sole and absolute discretion.
8.3 Indebtedness. Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist or otherwise
become or be liable in respect of any Indebtedness, other than, without
duplication, (i) Indebtedness in respect of the Loans and other
Obligations, (ii) unsecured Indebtedness incurred in the ordinary
course of business (including (A) open accounts extended by suppliers
on normal trade terms in connection with purchases of goods and
services and (B) gas balancing, but excluding Indebtedness incurred
through the borrowing of money or Contingent Liabilities) and (iii)
Indebtedness not to exceed $100,000 for immediately required plugging
and abandoning obligations, surety bonds, performance bonds and similar
obligations and bonds; provided, however, that no Indebtedness
otherwise permitted by clause (ii) above shall be permitted if, after
giving effect to the incurrence thereof, any Default or Event of
Default shall have occurred and be continuing.
8.4 Liens. Borrower will not, and will not permit any of its Subsidiaries
to, create, incur, assume or suffer to exist any Lien upon any of its
Property or revenues, whether now owned or hereafter acquired, except
for Permitted Liens.
8.5 Restricted Payments, etc. On and at all times after the Effective Date,
Borrower will not, and will not permit any of its Subsidiaries to,
except as permitted pursuant to Section 4.5(a)(ii), declare, pay or
make any dividend or distribution (in cash, property or obligations) on
any interest or shares or capital stock (now or hereafter outstanding)
of Borrower or on any interest or shares of any class or capital stock
(now or hereafter outstanding) of Borrower or such Subsidiary or apply
any of its funds, property or assets to the purchase, redemption,
sinking fund or other retirement of any class of shares of any class or
capital stock (now or hereafter outstanding) of Borrower or such
Subsidiary, or warrants, options or other rights with respect to any
interest or shares of any class or capital stock (now or hereafter
outstanding) of Borrower or such Subsidiary, without the prior written
consent of Lender, which consent may be withheld by Lender in its sole
and absolute discretion. Borrower will not permit any Subsidiary to
make any distributions other than to Borrower. Borrower will not, and
will not permit its Subsidiaries to, make any deposit for any purpose
that violates the provisions of this Section 8.5.
50
8.6 Capital Expenditures.
(a) Borrower will not, and will not permit any of its Subsidiaries
to, make or commit to make Capital Expenditures in any
calendar year, except Capital Expenditures set forth in the
current "Capital Expenditures" section of the Development
Plan.
(b) Except as may otherwise be approved by Lender, in its sole and
absolute discretion, Borrower shall not, and will not permit
any of its Subsidiaries to, make (i) any expenditures which
are not set forth in the Development Plan or (ii) any payment
for any expenditure in excess of the amount set forth in the
Development Plan for such expenditure; provided, however,
that, notwithstanding the foregoing, Borrower may make
aggregate annual expenditures of up to $400,000 which are not
in conformity with the Development Plan, and such payments
shall be deemed approved amounts for the purposes of Section
3.4(b).
8.7 Accounts Receivable. Borrower shall not, and will not permit any of its
Subsidiaries to, sell or discount any of its accounts receivable
without the prior written consent of Lender.
8.8 Rental Obligations. Without the prior written consent of Lender,
Borrower will not, and will not permit any of its Subsidiaries to,
enter into at any time any arrangement which creates a Capitalized
Lease Liability and which involves the leasing by Borrower from any
lessor of any Property (or any interest therein), except arrangements
which exist as of the Effective Date (or any renewals or replacements
thereof) or are approved under the Development Plan or together with
all other such arrangements which will then be in effect, will not
require the payment of an aggregate amount of rentals by Borrower and
its Subsidiaries (in aggregate) in excess of (excluding escalations
resulting from a rise in the consumer price or similar index) $75,000
for any calendar year or $150,000 during the full remaining term of
such arrangements.
8.9 Take-or-Pay Contracts. Without the prior written consent of Lender, in
its sole and absolute discretion, Borrower will not, and will not
permit any of its Subsidiaries to, enter into or be a party to any
arrangement for the purchase of materials, supplies, other Property
(including Hydrocarbons) or services if such arrangement requires that
payment be made by Borrower or such Subsidiaries regardless of whether
such materials, supplies, other property or services are delivered or
furnished to it.
8.10 Consolidation, Merger, etc. Except for the Abraxas Amalgamation,
Borrower will not, and will not permit any of its Subsidiaries to,
liquidate or dissolve, consolidate with, or merge into or with, any
other Person, or purchase or otherwise acquire all or substantially all
of the assets of any Person (or of any division thereof), without the
prior written consent of Lender.
8.11 Asset Dispositions, etc. Except as permitted by Section 4.3, without
the prior written consent of Lender, in its sole and absolute
discretion after reasonable consultation with Borrower, Borrower will
not, and will not permit any of its Subsidiaries to, sell, transfer,
lease, contribute or otherwise convey, or grant options, warrants or
other rights with respect to, all or any substantial part of its
Property or the Subject Interests to any Person. Borrower will at all
51
times be the legal and beneficial owner of the Subject Interests.
Borrower will not, and will not permit any of its Subsidiaries to,
change its name, identity, principal place of business or the office
where it keeps its books and records concerning the Override, the
Production Sale Contracts and the contract rights and accounts now
existing or hereafter arising in connection therewith without notifying
Lender in writing of any such change at least 30 days prior to the
effective date of such change.
8.12 Abandonment of Wellbores or Conduct of Certain Operations. Without
first obtaining the written consent of Lender, Borrower will not, and
will not permit any of its Subsidiaries to, (i) abandon any wellbore on
the Subject Interests which is capable of producing in paying
quantities heretofore or hereafter completed for production of
Hydrocarbons; or (ii) conduct any work or operation in any wellbore of
a Subject Interest, which work or operation is related to any zone,
horizon, formation or interval not included in the Subject Interests.
For all purposes of this Agreement and the Override Royalty Agreement,
a well shall be deemed to be capable of producing Hydrocarbons "in
paying quantities" unless and until there arises a condition, which
reasonably appears to be permanent, such that the aggregate value of
the Subject Hydrocarbons which are being produced or will be produced
from such well (without considering the effect of the Override) no
longer exceeds or will not exceed the costs and expenses directly
related to the operation and maintenance of such well.
8.13 Grant Liens, Mortgage or Transfer or Resignation as Operator of any
Subject Interest. Except as permitted by Section 4.4, without first
obtaining the written consent of Lender which shall not unreasonably be
withheld, Borrower will not, and will not permit any of its
Subsidiaries to, (i) sell, assign, lease, mortgage, hypothecate,
pledge, or otherwise transfer the interest of Borrower and its
Subsidiaries in any of the Subject Interests, either in whole or in
part, except for Permitted Liens and, to the extent permitted by
Applicable Law, any purported sale, assignment, lease, mortgage or
hypothecation or other transfer in contravention hereof shall be null
and void; or (ii) resign as operator of any of the Subject Interests
operated by Borrower or such Subsidiary unless the successor operator
has been approved in writing by Lender or, following the occurrence of
a Default or an Event of Default, Lender shall have requested in
writing such resignation.
8.14 Modification of Certain Agreements. Borrower will not, and will not
permit any of its Subsidiaries to, permit, or otherwise consent to, any
amendment, supplement or other modification of any of the terms or
provisions contained in, or applicable to, any Transportation
Agreements, any Joint Operating Agreement or any gathering or marketing
agreement with Lender, without the prior written consent of Lender
which shall not unreasonably be withheld.
8.15 Pension Plans. Without the prior written consent of Lender which shall
not unreasonably be withheld, Borrower will not create or permit to
exist any pension or similar plan, other than those attached hereto as
Schedule V, and any renewal of equivalent replacement thereof.
52
8.16 Other Agreements. Borrower will not, and will not permit any of its
Subsidiaries to, enter into any agreement containing any provision
which would be violated or breached by the performance of their
obligations under the Loan Documents or under any instrument or
document delivered or to be delivered by Borrower or any of its
Subsidiaries thereunder or in connection therewith.
8.17 No Subsidiaries. Without the prior written consent of Lender, in its
sole and absolute discretion, Borrower will not, and will not permit
any of its Subsidiaries to, at any time create or acquire any new
Subsidiary or enter into any partnership, joint venture or other
business, other than in the ordinary course of business.
8.18 No Other Hedging Agreements. Except for the ISDA Master Agreement and
any Borrower Hedging Agreement, entered into in connection with such
ISDA Master Agreement, Borrower will not, and will not permit any of
its Subsidiaries to, enter into any other ISDA master agreement or any
Hedging Agreement except pursuant to the ISDA Master Agreement.
8.19 Transactions with Affiliates. Borrower will not, and will not permit
any of its Subsidiaries to, enter into, or cause, suffer or permit to
exist any arrangement or contract with any of its Affiliates, unless
Borrower or such Subsidiary has obtained the prior written consent of
Lender in its sole discretion to such transaction.
8.20 Negative Pledges, Restrictive Agreements, etc. Borrower will not, and
will not permit any of its Subsidiaries to, enter into any agreement
prohibiting:
(a) the creation or assumption of any Lien in favor of Lender upon
its Properties, revenues or assets, whether now owned or
hereafter acquired, or the ability of Borrower to amend or
otherwise modify this Agreement or any other Loan Document; or
(b) the ability of any Subsidiary to make any payments, directly
or indirectly, to Borrower by way of dividends, advances,
repayments of loans or advances, reimbursements of management
and other intercompany charges, expenses and accruals or other
returns on investments, or any other agreement or arrangement
which restricts the ability of any such Subsidiary to make any
payment, directly or indirectly, to Borrower.
8.21 Limitations on Certain Financing Leases and Sale and Leaseback
Transactions. Borrower will not, and will not permit any Subsidiary to,
enter into any synthetic lease or leveraged lease arrangement with any
Person or enter into any arrangement with any Person providing for the
leasing by Borrower or any Subsidiary of any Property, which Property
is or has been sold or transferred by Borrower or any Subsidiary to
such Person in contemplation of taking back a lease thereof, other than
those described in Schedule VII.
8.22 Dissemination of Information. Borrower will not, and will not permit
any Subsidiary to, cause or otherwise permit (i) any information in any
way relating to the transaction contemplated by the Loan Documents to
53
be disseminated, quoted from or referred to at any time, in any manner
or for any purpose, or (ii) any public reference to Lender to be made
by Borrower in any press release or similarly public transmission,
without the prior written consent in each specific instance of Lender,
in its sole and absolute discretion, except to the extent required to
be disclosed by Applicable Law or by any order, rule, regulation or
legal process (whether valid or invalid) of any court or Governmental
Agency.
8.23 Subject Interests. Borrower will not, and will not permit any of its
Subsidiaries to, enter into any new agreements or assign or modify the
terms of any existing agreements, relating to or affecting the Subject
Properties' mineral interests, including additional override burdens or
interests.
Article 9
EVENTS OF DEFAULT
9.1 Events of Default. Each of the following events or occurrences
described in this Section 9.1 shall constitute an "Event of Default".
(a) Non-Payment of Obligations. Borrower shall default in the
payment or prepayment when due of any principal of, or
interest on, any Loan; or Borrower shall default (and such
default shall continue unremedied for a period of five (5)
days) in the payment when due of any other Obligation.
(b) Breach of Warranty. Any representation or warranty of Borrower
or any other Obligor made or deemed to be made hereunder or in
any other Loan Document executed by it or any other writing or
certificate furnished by or on behalf of Borrower or any other
Obligor to Lender for the purposes of or in connection with
this Agreement or any other Loan Document (including any
certificates delivered pursuant to Article 5) is or shall be
incorrect when made in any material respect.
(c) Non-Performance of Certain Covenants and Obligations. A
default in the due performance by Borrower or any other
Obligor of any covenant or express agreement contained in this
Agreement or any other Loan Document, and continuation of such
default beyond the applicable grace period expressly granted
in this Agreement or any such other Loan Document, if any,
with respect thereto.
(d) Collateral Coverage Default. Subject to Section 9.2(a)(iv),
any occurrence of a Collateral Coverage Default.
(e) Default on Other Indebtedness.
(i) A default shall occur in the payment when due (subject
to any applicable grace period), whether by acceleration
or otherwise, of any Indebtedness (including any Hedging
Obligations under a Hedging Agreement in effect between
Borrower and Lender or an Affiliate of Lender) of
Borrower or a default shall occur in the performance or
54
observance of any obligation or condition with respect
to such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or such
default shall continue unremedied for any applicable
period of time sufficient to permit the holder or
holders of such Indebtedness, or any trustee or agent
for such holders, to cause such Indebtedness to become
due and payable prior to its expressed maturity.
(ii) A failure to pay when due (or within 30 days after
written demand) any royalty, overriding royalty or
similar interest burdening the Subject Interests unless
(A) such royalty, overriding royalty or similar interest
is being disputed in good faith by Borrower, and (B)
Borrower establishes a suspense account acceptable to
Lender and any disbursement from such suspense account
other than to a non-affiliated interest owner who
Borrower has determined is the rightful owner of the
suspended funds subject to the prior written approval of
Lender.
(f) Judgments. Any judgment or order for the payment of money in
excess of $50,000 shall be rendered against Borrower and
either (i) enforcement proceedings shall have been commenced
by any creditor upon such judgment or order, or (ii) there
shall be any period of ten (10) consecutive days during which
a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect.
(g) Control of Borrower. Any Change of Control shall occur.
(h) Bankruptcy, Insolvency. If a judgment, decree or order of a
court of competent jurisdiction is entered against Borrower or
any Obligor, (i) adjudging Borrower or any such Obligor
bankrupt or insolvent, or approving a petition seeking its
reorganization or winding-up under the Bankruptcy and
Insolvency Act (Canada), the Companies' Creditors Arrangement
Act (Canada) or any other bankruptcy, insolvency or analogous
Applicable Law, or (ii) appointing a receiver, trustee,
liquidator, or other Person with like powers, over all, or
substantially all, of the Property of Borrower or any such
Obligor or any of the Subject Interests; (iii) ordering the
involuntary winding up or liquidation of the affairs of
Borrower or any such Obligor or (iv) if any receiver or other
Person with like powers is appointed over all, or
substantially all, of the Property of Borrower or any such
Obligor, or any of the Subject Interests; unless, in any such
case, such judgment, petition, order or appointment is stayed
and of no effect against the rights of Lender under the Loan
Documents within 30 days of its entry and Lender is satisfied
that there is no adverse effect in its position as a result of
Lender permitting Borrower time to pursue such stay.
(i) Winding-Up. If, (i) an order or a resolution is passed for the
dissolution, winding-up, reorganization or liquidation of
Borrower or any other Obligor pursuant to Applicable Law,
including the Business Corporations Act (Alberta), or (ii)
Borrower or any such Obligor institutes proceedings to be
adjudicated bankrupt or insolvent, or consents to the
institution of bankruptcy or insolvency proceedings against it
▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇ (▇▇▇▇▇▇), the
Companies' Creditors Arrangement Act (Canada) or any other
bankruptcy, insolvency or analogous Applicable Law, or (iii)
Borrower or any such Obligor consents or acquiesces to the
filing of any petition under any such Applicable Law or to the
appointment of a receiver, or other Person with like powers,
over all, or substantially all, of Borrower's or any such
Obligor's Property or the Subject Interests, or (iv) Borrower
or any such Obligor makes a general assignment for the benefit
of creditors, or becomes unable to pay its debts generally as
they become due, or (v) Borrower or any such Obligor takes or
consents to any action in furtherance of any of the aforesaid
purposes.
(j) Impairment of Security, etc. Any Loan Document, or any Lien
granted thereunder, shall (except in accordance with its
terms), in whole or in part, terminate, cease to be effective
or cease to be the legally valid, binding and enforceable
obligation of Borrower; Borrower or any other Person shall,
directly or indirectly, contest in any manner such
effectiveness, validity, binding nature or enforceability; or
any Lien securing any Obligation shall, in whole or in part,
cease to be a perfected first Lien.
(k) Cumulative Reimbursable Expenses Amount. The aggregate total
of all Reimbursable Expenses paid by Lender and which Lender
has not received a reimbursement from Borrower pursuant to
Section 9.2(a)(iii) shall exceed $50,000.
(l) Material Adverse Change. A material adverse change, as
determined by Lender in its sole and absolute discretion, in
the business, financial condition or results of operations in
Borrower's ability to perform or their respective obligations
under any Loan Documents to which it is a party.
(m) Dissemination of Information. The breach by Borrower of the
requirements of Section 8.22.
9.2 Remedies of Lender.
(a) If an Event of Default:
(i) described in Sections 9.1(a), (b), (c), (e), (f), or (k)
(other than in respect of a payment) shall have occurred,
Lender may provide Borrower with written notice specifying in
reasonable detail the Event of Default which has occurred and
stating that it intends to exercise remedies provided in this
Section 9.2. Borrower shall then have 30 days after receipt of
such notice to cure or cause to be cured such default and to
provide Lender with notice and reasonable documentation that
it has cured or cause to be cured such Event of Default. If
Borrower does not provide such proper notice and evidence,
then Lender may immediately by notice to Borrower reduce the
Commitment Amount to zero and/or declare all or any portion of
the outstanding principal amount under this Agreement and
other Obligations to be due and payable whereupon the full
56
unpaid amount under this Agreement and other Obligations which
shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand or
presentment, and Lender may exercise, in addition to other
remedies available at law or in equity or pursuant to the
other Loan Documents, the remedies set forth in Section
9.2(b);
(ii) in Sections 9.1(h) and 9.1(i) shall have occurred, then the
outstanding principal amount under this Agreement and all
other Obligations shall automatically be and become
immediately due and payable, without notice or demand and
Lender may exercise, in addition to other remedies available
at law or in equity or pursuant to the other Loan Documents,
the remedies set forth in Section 9.2(b); provided, however,
that Lender may not exercise such remedies if Borrower or any
other Obligor, as the case may be, shall have cured each such
Event of Default to the reasonable satisfaction of Lender
prior to the time when Lender elects to exercise such
remedies;
(iii) described in Section 9.1(k) shall have occurred, and if Lender
shall have paid or incurred a Reimbursable Expense in
connection therewith, Lender shall notify Borrower in writing
of such payment(s), and if Borrower does not fully reimburse
Lender within ten (10) days of receipt of such notice, Lender
shall be entitled by notice to Borrower to declare all or any
portion of the outstanding principal amount under this
Agreement and other Obligations to be due and payable
whereupon the full unpaid amount under this Agreement and
other Obligations which shall be so declared due and payable
shall be and become immediately due and payable, without
further notice, demand or presentment, and Borrower may
exercise, in addition to other remedies available at law or in
equity or pursuant to the other Loan Documents, its remedies
under Section 9.2(b).
(iv) If an Event of Default described in Section 9.1(d) shall have
occurred, Lender may provide Borrower with written notice
specifying in reasonable detail the Event of Default which has
occurred and stating that it intends to exercise remedies
provided in this Section 9.2. Borrower shall then have 60 days
after receipt of such notice to (A) cure or cause to be cured
such default by either (x) making a prepayment in conformity
with Section 3.1 in an amount sufficient to eliminate the
Collateral Coverage Default, or (y) pledge to Lender
additional properties which are acceptable to Lender, in its
sole discretion, in an manner and in an amount sufficient to
eliminate the Collateral Coverage Default, and (B) provide
Lender with notice and reasonable documentation that it has
cured or cause to be cured such Event of Default. If Borrower
does not provide such proper notice and evidence, then Lender
may immediately by notice to Borrower declare all or any
portion of the outstanding principal amount under this
Agreement and other Obligations to be due and payable
whereupon the full unpaid amount under this Agreement and
other Obligations which shall be so declared due and payable
57
shall be and become immediately due and payable, without
further notice, demand or presentment, and Lender may
exercise, in addition to other remedies available at law or in
equity or pursuant to the other Loan Documents, the remedies
set forth in Section 9.2(b).
(v) If an Event of Default shall have occurred, then Lender may by
notice to Borrower declare all or any portion of the
outstanding principal amount under this Agreement and other
Obligations to be due and payable whereupon the full unpaid
amount of the Loans and other Obligations which shall be so
declared due and payable shall be and become immediately due
and payable, without further notice, demand or presentment,
and Borrower may exercise, in addition to other remedies
available at law or in equity or pursuant to the other Loan
Documents, its remedies Section 9.2(b).
(b) After the occurrence of an Event of Default, and in addition to
Lender's right to recover damages, all remedies set forth in Section
9.2(a) and all other remedies available to Lender provided by
Applicable Law or in equity or pursuant to the Loan Documents,
including the Debenture and the Debenture Pledge Agreement, Lender may
(but is not obligated or required to) exercise any or all of the
following remedies:
(i) perform or cause to be performed or pay at Borrower's expense
the act or matter the failure of which resulted in the Event
of Default, in which event Lender may expend funds for such
purpose;
(ii) take any and all actions necessary to protect the Property
secured by the Debenture and the other security documents
referred to in Section 5.4, including taking any legal actions
or paying any amounts or settling any claims;
(iii) apply any amounts deposited in the Collateral Account as a
prepayment on the Loans outstanding under this Agreement
pursuant to Section 3.1;
(iv) after written notice to Borrower, exercise all rights of
Borrower with respect to the possession, operation and
development of some or all of the Subject Interests, including
the right to operate some or all of the Subject Interests;
(v) exercise the right to notify the purchasers of the Subject
Hydrocarbons to make direct payment to Lender;
(vi) have the use, in connection with operating the Subject
Interests, of any or all of the Property of Borrower located
thereon or used in connection therewith as then may be useful
or appropriate for the production, treating, storing, and
transporting of Subject Hydrocarbons and Borrower hereby grant
58
Lender a non-exclusive easement and license to use any and all
such Property in the event of such occurrence;
(vii) Lender may on behalf of and for the account of Borrower, sell
or utilize all of the Subject Hydrocarbons and apply the
proceeds thereof attributable to interest of Borrower therein
to the costs and expenses of the operation and development of
the Subject Interests and to reimburse Lender for any amounts
so expended by Lender;
(viii) in the event of the occurrence of an Event of Default, Lender
may request and require Borrower to resign as record title
operator of the Subject Interests and take all actions
necessary to replace Borrower as record title operator,
including replacing Borrower as record title operator with
Lender or any of its Affiliates or any third-party, and
Borrower agrees (A) to cooperate fully in each and every way
in connection with the replacement of the operator of the
Subject Interests, including agreeing to withdraw as record
title operator of the Subject Interests, (B) to vote for and
otherwise support Lender's designated interim record title
operator until a successor record title operator is elected
pursuant to the terms and provisions of any joint operating
agreement, and (C) to vote for and otherwise support Lender's
choice as record title operator pursuant to the terms and
provisions of any joint operating agreement; provided that
Borrower -------- ---- shall remain obligated for all
obligations, costs and expenses arising from serving as record
title operator of the Subject Interests.
(c) Upon demand, after the occurrence of an Event of Default, Borrower
shall reimburse Lender for all reasonable amounts expended (including
the fees and out-of-pocket expenses of counsel (on a solicitor and his
own client basis) in connection therewith, the costs incurred by Lender
in connection with the rescheduling of committed Hydrocarbon
deliveries, the termination of any existing contracts or agreements and
any pipeline service costs) by Lender (such expended amounts to be
included as Reimbursable Expenses) as a result of or in connection with
its exercise of remedies, together with interest on such amounts at the
Default Rate from the date incurred until reimbursed.
(d) Upon demand, after the occurrence of an Event of Default, Borrower
shall submit an updated Development Plan.
(e) The rights provided for in this Agreement and the other Loan Documents
are cumulative and are not exclusive of any other rights, powers,
privileges or remedies provided by Applicable Law or in equity, or
under any other instrument, document or agreement, including the Loan
Documents, now existing or hereafter arising.
59
Article 10
OVERRIDE ROYALTY AGREEMENT
10.1 Override Royalty Agreement.
(a) Upon Lender receiving a 17.5% Cumulative Return on Total
Funding under this Agreement, Lender shall reconvey, or shall
cause to be reconveyed, the Override described in the Override
Royalty Agreement No. 2 to Borrower and Lender shall take all
steps reasonably necessary to effect such registrations, if
any, as are necessary to effect such conveyances.
(b) Upon Lender receiving the Payout Amount pursuant to Section
3.2, Lender shall reconvey, or shall cause to be reconveyed,
the Override described in the Override Royalty Agreement No. 1
to Borrower and Lender shall take all steps reasonably
necessary to effect such registrations, if any, as are
necessary to effect such conveyances.
Article 11
HYDROCARBON PURCHASE TERMS AND PROVISIONS
11.1 General. Lender, or any Affiliate of Lender, shall have the
preferential right, but not the obligation, to purchase any Subject
Hydrocarbons after any gathering, treating and processing utilized to
prepare the Subject Hydrocarbons to be marketed meeting standard
pipeline specifications, in accordance with the terms and conditions of
this Article 11 from the Effective Date until the date on which the
unconditional and irrevocable payment in full in cash of all accrued
and outstanding monetary Loan Obligations is received by Lender and the
termination or expiration of the Commitment. Such preferential right
may be exercised from time to time during the period described in the
preceding sentence upon thirty (30) days' written notice to Borrower.
Lender shall purchase such Subject Hydrocarbons for a purchase price
equal to their fair market value to be determined pursuant to a method
acceptable to both Borrower and Lender. Lender or such Affiliate, as
applicable, may, in its sole discretion, cease purchasing Subject
Hydrocarbons from any or all ▇▇▇▇▇ or delivery points upon thirty (30)
days' written notice to Borrower. In either case, Lender's election
shall be effective on the first day of the first calendar month that
begins after the expiration of the applicable thirty (30) day notice
period. Without the prior written consent of Lender (which consent may
be withheld in its sole and absolute discretion), Borrower will not,
and will cause each of its Subsidiaries not to, enter into, or cause,
suffer or permit to exist any arrangement or contract for the marketing
of Subject Hydrocarbons with any Person other than Lender or an
Affiliate of Lender; provided, however, that in the event Lender or
such Affiliate elects not to purchase Subject Hydrocarbons in
accordance with this Section 11.1, Borrower or any of its Subsidiaries
may sell or contract to sell such Subject Hydrocarbons to any Person
for a period not exceeding one (1) calendar month without the prior
written consent of Lender (which consent may be withheld in Lender's
sole discretion). In such case, Lender shall not be entitled to
exercise the preferential rights until the expiry of such approved
term. Any Subject Hydrocarbons consisting of natural gas, casinghead
gas and other gaseous Hydrocarbons sold by Borrower and purchased by
60
Lender, or an Affiliate of Lender, as the case may be, shall be sold
and purchased under the terms and conditions mutually acceptable to
Lender and Borrower (and in any event, no less than the fair market
value). Any Subject Hydrocarbons consisting of crude oil, condensate
and other liquid Hydrocarbons sold by Borrower and purchased by Lender
shall be sold and purchased under terms and conditions mutually
acceptable to Lender and Borrower. At any time that Lender purchases
any Subject Hydrocarbons, such purchase shall not be construed as
Lender marketing Subject Hydrocarbons or causing such Subject
Hydrocarbons to be marketed, and Borrower shall have no further
interest or responsibility whatsoever with respect to such Subject
Hydrocarbons purchased by Lender.
11.2 Marketing Subject Hydrocarbons to Third Persons. It is contemplated
that Borrower may market, directly or indirectly, Subject Hydrocarbons
to third Persons, as provided in Section 11.1. In such instances,
Lender and Borrower shall execute letters in lieu (the "Letters in
Lieu") before marketing Subject Hydrocarbons to such Persons. The
Letters in Lieu shall be (i) addressed to the Person(s) purchasing the
Subject Hydrocarbons, (ii) executed and delivered by both Borrower and
Lender (or its Affiliate), (iii) shall require payment of the proceeds
from the sale of the Hydrocarbons to the Collateral Account and
otherwise in accordance with Section 3.4(a), and shall otherwise be in
form and substance satisfactory to Lender, in its sole discretion and
(iv) can be revoked or terminated only by a written instrument
addressed to the Person(s) purchasing the Subject Hydrocarbons, and
signed by both Borrower and Lender.
Article 12
MISCELLANEOUS PROVISIONS
12.1 Waivers, Amendments, etc. The provisions of this Agreement and of each
other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and
consented to by Borrower and Lender and in the case of Loan Documents
to which a Subsidiary of Borrower is a party, such Subsidiary. No
failure or delay on the part of Lender in exercising any power or right
under this Agreement or any other Loan Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any such
power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on
Borrower in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by Lender under
this Agreement or any other Loan Document shall, except as may be
otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require
any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
12.2 Notices. All notices and other communications provided to any party
hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such
party at its address or facsimile number set forth below its signature
hereto or at such other address or facsimile number as may be
designated by such party in a notice to the other parties. Any notice,
if mailed and properly addressed with postage prepaid or if properly
addressed and sent by pre-paid courier service, shall be deemed given
61
when received; any notice, if transmitted by facsimile, shall be deemed
given when transmitted.
12.3 Payment of Costs and Expenses. Borrower agrees to pay on demand all
expenses of Lender (including the reasonable fees (on a solicitor and
his own client basis) and out-of-pocket expenses of counsel to Lender
and of local counsel, if any, who may be retained by counsel to Lender)
in connection with (i) the negotiation, preparation, execution and
delivery of this Agreement and of each other Loan Document, including
schedules and exhibits, and any amendments, waivers, consents,
supplements or other modifications to this Agreement or any other Loan
Document as may from time to time hereafter be required, whether or not
the transactions contemplated hereby are consummated; and (ii) the
filing, recording, refiling or re-recording of the Debenture and/or any
personal property security legislation financing statements relating
thereto and all amendments, supplements and modifications to any
thereof and any and all other documents or instruments of further
assurance required to be filed or recorded or refiled or re-recorded by
the terms hereof or of the Debenture or the Debenture Pledge Agreement;
and (iii) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
Borrower further agrees to pay, and to save Lender harmless from all
liability for, any stamp or other Taxes which may be payable in
connection with the execution or delivery of this Agreement, or any
other Loan Documents or the borrowings hereunder. Borrower also agrees
to reimburse Lender upon demand for all reasonable out-of-pocket
expenses (including counsel fees (on a solicitor and his own client
basis) and legal expenses) incurred by Lender in connection with (A)
the negotiation of any restructuring or "work-out", whether or not
consummated, of any Obligations and (B) the enforcement of any
Obligations.
12.4 Indemnification. In consideration of the execution and delivery of this
Agreement by Lender and the extension of the Commitment, Borrower
hereby indemnifies, exonerates and holds Lender and each of its
officers, directors, employees and agents (collectively, the
"Indemnified Parties") free and harmless from and against any and all
actions, causes of action, suits, claims, losses, costs, liabilities
and damages, and expenses incurred in connection therewith
(irrespective of whether any such Indemnified Party is a party to the
action for which indemnification hereunder is sought), including
reasonable legal fees (on a solicitor and his own client basis) and
disbursements (collectively, the "Indemnified Liabilities"), incurred
by the Indemnified Parties or any of them as a result of, or arising
out of, or relating to (i) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of any
Loan; (ii) the entering into and performance of this Agreement and any
other Loan Document by any of the Indemnified Parties (including any
action brought by or on behalf of Borrower or any of its Subsidiaries
as the result of any determination by Lender pursuant to Article 5 not
to fund any Loan) other than costs, expenses and taxes incurred or
accruing to Lender in the ordinary course of performing its
responsibilities and recovering income which have not otherwise been
specified as being the responsibility of Borrower; (iii) any
investigation, litigation or proceeding related to any environmental
cleanup, remediation, audit, compliance assessments, fines or other
matter relating to the protection of the Environment or the Release of
any Hazardous Material in connection with, or related to, the Subject
62
Interests; (iv) the presence on or under, or the Release from, any of
the Subject Interests of any Hazardous Material (including any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or
arising under any Environmental Law), regardless of whether caused by,
or within the control of, Borrower or its Subsidiaries, if any, (v) any
material breach of any representation or warranty by Borrower or any of
its Subsidiaries, if any, contained in this Agreement or any other Loan
Document to which such Person is a party; (vi) the receipt by an
Affiliate of Borrower of any Subject Hydrocarbons or the ownership or
purported ownership of the Subject Interests; (vii) any Event of
Default; (viii) any costs, expenses or liabilities incurred by Lender
arising from Lender providing any services under Section 7.4; (ix) any
costs, expenses or liabilities incurred by Lender arising from, in
respect of or in connection with Borrower's obligations to any owner of
royalty interests on the Subject Interests; (x) any obligation,
liability, contingent or otherwise, costs or expenses for brokers' or
finders' fees relating to Borrower or any of its Subsidiaries in
respect of the matters provided for in any of the Loan Documents, or
(xi) the failure of Borrower to perform any of its material agreements
or obligations set forth in this Agreement or in the other Loan
Documents, and whether through an act or omission of an Indemnified
Party or otherwise, and whether or not arising out of the sole, joint
or concurrent negligence, fault or strict liability of any Indemnified
Party, except for any such Indemnified Liabilities arising for the
account of a particular Indemnified Party by reason of the relevant
Indemnified Party's gross negligence or willful misconduct, provided,
that, it is the intention of the Parties that the indemnified parties
be indemnified in the case of their own ordinary negligence but
excluding gross negligence and willful misconduct, provided further
that the indemnities set forth in subsections (i), (ii), (v), (vi),
(vii), (viii), (ix), (x) and (xi) to the extent not related to any
losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising in connection with any Environmental Law shall only
be in effect from the Effective Date until the date which is one (1)
year following the date on which the unconditional and irrevocable
payment in full in cash of all accrued and outstanding monetary Loan
Obligations is received by Lender and the termination or expiration of
the Commitment. This indemnity shall apply, without limitation, to any
Indemnified Liability imposed upon any Indemnified Party as a result of
any Applicable Law. The Indemnified Parties, and their respective
successors and assigns, shall have the right to defend against any such
claims, employing counsel therefor and, unless furnished with
reasonable indemnity, they or any of them shall have the right to pay
or compromise and adjust all such claims. If and to the extent that the
foregoing undertaking may be unenforceable for any reason, Borrower
hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under Applicable Law.
12.5 Survival. The obligations of Borrower under Sections 12.3 and 12.4
shall in each case survive any termination of this Agreement, the
payment in cash of all accrued and outstanding monetary Loan
Obligations and the termination or expiration of the Commitment. The
representations and warranties made by Borrower in this Agreement and
in each other Loan Document shall survive the execution and delivery of
this Agreement and each such other Loan Document.
63
12.6 Inconsistency. To the extent that there is any inconsistency or
ambiguity between the provisions of this Agreement and any other Loan
Document, the provisions of this Agreement will govern to the extent
necessary to eliminate such inconsistency or ambiguity.
12.7 Reimbursable Expenses. While not required, if Lender performs any of
the covenants of Borrower, pays any amounts in respect thereof or
suffers any loss, cost or expense as a result of the failure of
Borrower to timely perform any covenant or make any such payment, any
such cost or expense incurred by Lender in respect thereof shall
constitute a Reimbursable Expense and will be considered a subsequent
principal advance under this Agreement, subject to the Interest Rate.
12.8 Severability. Any provision of this Agreement or any other Loan
Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Agreement or such Loan Document or
affecting the validity or enforceability of such provision in any other
jurisdiction.
12.9 Headings. The various headings of this Agreement and of each other Loan
Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such other Loan Document
or any provisions hereof or thereof.
12.10 Limitation on Liability. Lender's recourse as to the payment if
principal and interest under the agreement is limited to the assets of
Borrower and any other Obligor to the extent its or their assets are
pledged, changed or mortgaged in favour of Lender unless certain
actions of Borrower or any such other Obligor, including fraud,
material misrepresentation, gross negligence and like actions, hinder
or interfere with Lender's rights in the Property of Borrower and such
other Obligors as set forth in the Loan Documents.
12.11 Intentions of the Parties. Nothing herein contained shall be construed
to constitute either Party (under Applicable Law or for tax purposes)
in partnership with the other Party.
12.12 Governing Law; Entire Agreement. This Agreement and each other Loan
Document shall each be deemed to be a contract made under and governed
by the laws of the Province of Alberta.
12.13 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Parties and their respective successors and
permitted assigns; provided, however, that Borrower may not assign or
transfer its rights or obligations hereunder without the prior written
consent of Lender. Lender shall have the right to syndicate, sell or
assign any portion of its Commitment Amount to any one or more Persons.
In the event of such syndication, sale or assignment, Borrower shall,
subject to the preceding limitations, execute and deliver all such
agreements, documents and instruments as Lender may reasonably request
to effect and recognize such syndication, sale or assignment. Any
64
syndication, sale or assignment as provided above, shall not require
the consent of Borrower.
12.14 Effect of Syndication. To the extent that Lender sells or assigns any
portion of its Commitment Amount pursuant to Section 12.13 and such new
Lender has, or new Lenders have, as the case may be, executed and
delivered to Borrower and Lender an agreement evidencing the same,
Lender will be relieved and forever discharged of any and all of its
covenants and obligations under the Loan Documents in respect of that
portion of its Commitment Amount so sold or assigned from and after the
date of such agreement and Borrower's recourse under the Loan Documents
in respect of such portion so sold or assigned from and after the date
of such agreement will be to such new Lender or new Lenders only, as
the case may be, and their successors and assigns.
12.15 Participations. Lender may at any time sell to one or more financial
institutions or other Persons (each of such financial institutions and
other Persons being herein called a "Participant") participating
interests in any of the Loans, commitments, or other interests of
Lender hereunder, provided, however, that:
(a) no participation contemplated in this Section 12.15 will
relieve Lender from its commitments or its other obligations
hereunder or under any other Document;
(b) Lender will remain solely responsible for the performance of
its Commitment and such other obligations;
(c) no Participant will be entitled to require Lender to take or
refrain from taking any action hereunder or under any other
Loan Document; and
(d) Borrower will not be required to pay any amount hereunder that
is greater than the amount which it would have been required
to pay had no participating interest been sold.
12.16 Maximum Rate of Return. Notwithstanding any provision herein to the
contrary, in no event will the aggregate "interest" (as defined in
section 347 of the Criminal Code (Canada)) payable under this Agreement
and the other Loan Documents exceed the maximum effective annual rate
of interest on the "credit advanced" (as defined in that section 347)
permitted under that section 347 and, if any payment, collection or
demand pursuant to this Agreement in respect of "interest" (as defined
in that section 347) is determined to be contrary to the provisions of
that section 347, such payment, collection or demand will be deemed to
have been made by mutual mistake of Borrower and Lender and the amount
of such payment or collection will be refunded to Borrower. For
purposes of this Agreement and the other Loan Documents, the effective
annual rate of interest will be determined in accordance with generally
accepted actuarial practices and principles over the term of the
Agreement on the basis of annual compounding of the lawfully permitted
rate of interest and, in the event of dispute, a certificate of a
Fellow of the Canadian Institute of Actuaries appointed by Lender will
be prima facie evidence, for the purposes of such determination.
65
12.17 Waiver of Judgment Interest Act (Alberta). To the extent permitted by
Applicable Law, the provisions of the Judgment Interest Act (Alberta)
will not apply to the Loan Documents and are hereby expressly waived by
Borrower.
12.18 Deemed Reinvestment Not Applicable. The principle of deemed
reinvestment of interest will not apply to any interest calculation
under the Loan Documents, and the rates of interest stipulated in this
Agreement and the other Loan Documents are intended to be nominal rates
and not effective rates or yields.
12.19 Confidentiality. Lender agrees that it (i) will maintain the
confidentiality of all non-public information received from Borrower
obtained pursuant to the terms of this Agreement or any other Loan
Document in accordance with safe and sound business practices, and (ii)
will not use such confidential information for any purpose other than
in connection with this Agreement; provided, however, that this
restriction shall not apply to information which (A) has at the
particular time in question entered the public domain, or has been
independently developed without the use or incorporation of any
non-public information provided to Lender by Borrower by Lender other
than through disclosure by Lender in violation of this Section 12.19,
(B) is required to be disclosed by Applicable Law or by any order,
rule, regulation or legal process (whether valid or invalid) of any
court or Governmental Agency, (C) is furnished to any purchaser or
prospective purchaser of participations, assignments or other interests
in any Loan or Commitment that has executed and delivered to Borrower
an agreement containing terms substantially similar to this Section
12.19 and reasonably acceptable to Borrower, to keep such information
confidential, or (D) is disclosed to Lender's examiners, Affiliates,
outside auditors, outside lenders to Lender, counsel and other
professional advisors who have a need for such information in
connection with this Agreement or in connection with their relationship
with Lender and who are advised of the confidential nature of such
information. As used in this Section, the term "Lender" shall refer not
only to the Persons designated as such in Section 1.1, but also to each
director, Affiliate, officer, agent, counsel, employee and
representative of such Person. Notwithstanding any other provisions of
this Agreement, the terms of this Section 12.19 shall survive the
termination of this Agreement for a period of one (1) year.
12.20 Other Transactions. Nothing contained herein shall preclude Lender from
engaging in any transaction, in addition to those contemplated by this
Agreement or any other Loan Document, with Borrower or any of its
Affiliates in which Borrower or such Affiliate is not restricted hereby
from engaging with any other Person.
12.21 Forum Selection and Consent to Jurisdiction. Any litigation based
hereon, or arising out of, under, or in connection with, this Agreement
or any other Loan Document, or any course of conduct, course of
dealing, statements (whether verbal or written) or actions of Lender or
Borrower or any other Obligor shall be brought and maintained
exclusively in the courts of the Province of Alberta; provided,
however, that any suit seeking enforcement against the Subject
Interests or other Property may be brought, at Lender's option, in the
courts of any jurisdiction where such Subject Interests or other
Property may be found. Borrower, hereby expressly and irrevocably
submit to the jurisdiction of the courts of the Province of Alberta for
66
the purpose of any such litigation as set forth above and irrevocably
agrees to be bound by any judgment rendered thereby in connection with
such litigation. Borrower further irrevocably consents, to the service
of process by registered mail, postage prepaid, or by personal service
within or outside of the Province of Alberta. Borrower hereby expressly
and irrevocably waives, to the fullest extent permitted by Applicable
Law, any objection which they may have or hereafter may have to the
laying of venue of any such litigation brought in any such court
referred to above and any claim that any such litigation has been
brought in an inconvenient forum. To the extent that Borrower has or
hereafter may acquire any immunity from jurisdiction of any court of
from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution or otherwise) with
respect to itself or its Property, Borrower hereby irrevocably waives
such immunity in respect of its Obligations under this Agreement and
the other Loan Documents.
12.22 Waiver of Jury Trial. Borrower hereby knowingly, voluntarily and
intentionally waives any rights they may have to a trial by jury in
respect of any litigation based hereon, or arising out of, under, or in
connection with, this Agreement or any other Loan Document, or any
course of conduct, course of dealing, statements (whether verbal or
written) or actions of Lender or Borrower or any other Obligor.
Borrower acknowledges and agrees that they have received full and
sufficient consideration for this provision (and each other provision
of each other Loan Document to which it is a Party) and that this
provision is a material inducement for Lender entering into this
Agreement and each such other Loan Document.
12.23 No Oral Agreements. This Agreement and the other Loan Documents
represent the final agreement between the Parties and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the Parties. There are no unwritten oral agreements
between the Parties.
12.24 Execution in Counterparts, Effectiveness. This Agreement may be
executed by the Parties in several counterparts (including by facsimile
transmission), each of which shall be deemed to be an original and all
of which shall constitute together but one and the same agreement. This
Agreement shall become effective when counterparts hereof executed on
behalf of Borrower and Lender (or notice thereof satisfactory to
Lender) shall have been received by Lender and notice thereof shall
have been given by Lender to Borrower.
67
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of
the day and year first above written.
GREY WOLF EXPLORATION INC.
By:
Name: ▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇▇
Title: Chairman, President and Chief
Executive Officer
Address: ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ III
▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇▇▇
Telephone No.:(▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
MIRANT CANADA ENERGY CAPITAL, LTD.
By:
Name: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Title: Managing Director
Address: ▇▇▇▇▇ ▇▇▇
▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Managing Director
Telephone No.:(▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to Mirant Americas Energy
Capital, L.P. at:
Address: Two ▇▇▇▇▇ Center, Ste. 2890
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇, Managing Director
Telephone No.(▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
SCHEDULE I
Description of Subject Interests
[Borrower to provide]
SCHEDULE II
Use of Proceeds
Repayment of Canadian Imperial Bank of Commerce** $_____________
General Corporate Purposes $_____________
TOTAL: $_____________
[**Indicates amounts funded with initial Loan]
SCHEDULE III
Insurance Requirements
Lender (Mirant Canada Energy Capital, Ltd.) must be listed as "sole loss payee
as to first party claims" and "additional insured" on each of the policies
required below.
Requirements for: GREY WOLF EXPLORATION INC.
SCHEDULE IV
Disclosure Schedule
NIL
SCHEDULE V
Pension Plan
Grey Wolf Exploration Inc. has established a group Registered Retirement Savings
Plan where the employee is invited to participate in the program by contributing
from 1 - 5% of their annual gross salary to a RRSP portfolio of their choice.
Deductions are taken each pay period and contributed to ▇▇▇▇▇▇▇ ▇▇▇▇▇ Canada,
the group plan administrator, on a monthly basis.
The Company will match the employees' contribution on a monthly basis. Company
contributions credited to the employee shall vest immediately.
Upon reaching the yearly maximum contribution limit as set by legislation, both
the employee's and the company's contributions will be deposited to a non-RRSP
account.
SCHEDULE VI
List of Transportation Agreements
[To be provided]
SCHEDULE VII
Financing Lease Arrangements
[To be provided]
SCHEDULE VIII
Title Deficiencies
[To be provided]
EXHIBIT A
[Form of]
Loan Request
Mirant Canada Energy Capital, Ltd.
▇▇▇▇▇ ▇▇▇, ▇▇▇ - ▇▇▇ ▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Attention: Managing Director
GREY WOLF EXPLORATION INC.
Gentlemen and Ladies:
This Loan Request is delivered to you pursuant to Section 2.3 of the
Credit Agreement, dated as of December 20, 2001 (together with all amendments,
if any, from time to time made thereto, the "Credit Agreement"), between Grey
Wolf Exploration Inc., an Alberta corporation (the "Borrower"), and you. Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
Borrower hereby requests that a Loan be made in the aggregate principal
amount of $______________ on ______________, 20_____.
Borrower hereby acknowledges that, pursuant to Article 5 of the Credit
Agreement, each of the delivery of this Loan Request and the acceptance by
Borrower of the proceeds of the Loans requested hereby constitute a
representation and warranty by Borrower that, on the date of such Loans, and
before and after giving effect thereto and to the application of the proceeds
therefrom, all statements set forth in Article 6 of the Credit Agreement are
true and correct in all material respects.
Borrower agrees that if prior to the time of the Loan requested hereby
any matter certified to herein by it will not be true and correct at such time
as if then made, it will immediately so notify you.
Borrower certifies that no Default of Event of Default has occurred and
is continuing.
Except to the extent, if any, that prior to the time of the Loan
requested hereby you shall receive written notice to the contrary from Borrower,
each matter certified to herein shall be deemed once again to be certified as
true and correct at the date of such Loan as if then made.
Please wire transfer the proceeds of the Loan to the Collateral
Account.
Borrower has caused this Loan Request to be executed and delivered, and
the certification and warranties contained herein to be made, by its
____________ this ____ day of _____________, 200__.
GREY WOLF EXPLORATION INC.
By:
--------------------------------------------
Name:
Title:
EXHIBIT B
[Form of]
Opinion of Borrower's Counsel
[see attached]
EXHIBIT C-1
[Form of]
Debenture
[see attached]
EXHIBIT C-2
[Form of]
Debenture Pledge Agreement
[see attached]
EXHIBIT D
[Form of]
Override Royalty Agreement No. 1
[see attached]
EXHIBIT E
[Form of]
Override Royalty Agreement No. 2
[see attached]
EXHIBIT F
[Form of]
ISDA Master Agreement
[see attached]
EXHIBIT G
Development Plan
[see attached]
EXHIBIT H
[Form of]
Environmental Certificate
[see attached]
EXHIBIT I
[Form of]
Title Certificate
[see attached]