EXHIBIT 10.1
EXECUTION VERSION
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NOTE PURCHASE AGREEMENT
DATED AS OF OCTOBER 29, 2004
AMONG
CARRIZO OIL & GAS, INC.
AS COMPANY,
THE PURCHASERS,
AND
PCRL INVESTMENTS L.P.,
AS THE COLLATERAL AGENT
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$28,000,000 Principal Amount of
10% Senior Subordinated Secured Notes
Due December 15, 2008
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.................................................................................1
ARTICLE II PURCHASE AND SALE OF THE NOTES..............................................................21
2.1. Authorization and Issuance of the Notes.....................................................21
2.2. Delivery of the Notes.......................................................................22
2.3. Closing.....................................................................................22
ARTICLE III PROVISIONS OF THE NOTES.....................................................................22
3.1. The Notes...................................................................................22
3.2. General Provisions as to Payments...........................................................22
3.3. Interest....................................................................................25
3.4. Interest on Overdue Amounts.................................................................28
3.5. Mandatory Redemption........................................................................28
3.6. Optional Redemption.........................................................................30
3.7. Securities Register.........................................................................31
3.8. Lost, Etc. Securities.......................................................................31
3.9. Several Obligations; Remedies Independent...................................................32
3.10. Notes Not Senior Indebtedness...............................................................32
ARTICLE IV CONDITIONS PRECEDENT........................................................................32
4.1. Purchase of Initial Notes...................................................................32
4.2. Certificate of Effectiveness................................................................34
4.3. Purchase of Additional Notes................................................................34
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................................36
5.1. Corporate Authority of the Company..........................................................36
5.2. Financial Reports...........................................................................37
5.3. Title to Mortgaged Properties...............................................................37
5.4. Litigation..................................................................................38
5.5. Approvals...................................................................................38
5.6. Required Insurance..........................................................................38
5.7. Licenses....................................................................................38
5.8. Adverse Agreements..........................................................................38
5.9. Default or Event of Default.................................................................38
5.10. Employee Benefit Plans......................................................................38
5.11. Investment Company Act......................................................................39
5.12. Public Utility Holding Company Act..........................................................39
5.13. Regulations X, T and U......................................................................39
5.14. Location of Offices and Records.............................................................39
5.15. Patriot Act.................................................................................39
5.16. Environmental Matters.......................................................................39
5.17. Solvency of the Company.....................................................................41
5.18. Governmental Requirements...................................................................41
5.19. Corporate Authority of the Guarantor........................................................41
5.20. Subordinated Note Agreement.................................................................42
5.21. Security Agreement..........................................................................42
5.22. Closing Date Borrowing Base and Quarterly Reduction.........................................42
5.23. Survival of Representations and Warranties..................................................42
ARTICLE VI AFFIRMATIVE COVENANTS.......................................................................42
6.1. Financial Statements; Other Reporting Requirements..........................................42
6.2. Notice of Default; Litigation; ERISA Matters................................................44
6.3. Maintenance of Existence, Properties and Liens..............................................44
6.4. Taxes.......................................................................................45
6.5. Compliance with Environmental Laws..........................................................45
6.6. Further Assurances..........................................................................46
6.7. Financial Covenants.........................................................................46
6.8. Operations..................................................................................47
6.9. Change of Location..........................................................................47
6.10. Employee Benefit Plans......................................................................47
6.11. Field Audits; Other Information.............................................................47
6.12. Insurance...................................................................................47
6.13. Subsidiaries................................................................................48
6.14. Disclosure Requirements.....................................................................48
6.15. Collateral..................................................................................48
6.16. Amendment of Disclosure Schedule............................................................50
6.17. Post Closing Requirements...................................................................50
6.18. Investment Base Determination and Borrowing Base............................................50
ARTICLE VII NEGATIVE COVENANTS..........................................................................51
7.1. Limitations on Fundamental Changes..........................................................51
7.2. Disposition of Assets.......................................................................51
7.3. Repurchase of Stock; Dividends..............................................................51
7.4. Liens; Negative Pledge......................................................................52
7.5. Debts.......................................................................................54
7.6. Investments, Loans and Advances.............................................................55
7.7. Other Agreements............................................................................57
7.8. Transactions with Affiliates................................................................58
7.9. Second Priority Liens.......................................................................58
7.10. Commodity Transactions......................................................................58
7.11. Restriction of Amendments to First Lien Credit Documents....................................58
ARTICLE VIII DEFAULTS....................................................................................58
8.1. Events of Default...........................................................................58
8.2. Waivers.....................................................................................60
8.3. Notice to Delta Farms Lessors...............................................................61
ARTICLE IX ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES..............................................61
9.1. Acceleration................................................................................61
9.2. Amendments..................................................................................61
9.3. Preservation of Rights......................................................................62
ARTICLE X COLLATERAL AGENCY...........................................................................62
10.1. Creation of Collateral Agency...............................................................62
10.2. Possession and Use of Collateral............................................................62
10.3. Additional Collateral.......................................................................62
10.4. Releases of Collateral......................................................................63
ARTICLE XI COLLATERAL AGENT............................................................................63
11.1. Appointment; Nature of Relationship.........................................................63
11.2. Powers......................................................................................64
11.3. General Immunity............................................................................64
11.4. No Responsibility for Loans, Recitals, etc..................................................64
11.5. Action on Instructions of Holders...........................................................64
11.6. Employment of the Collateral Agents and Counsel.............................................65
11.7. Reliance on Documents; Counsel..............................................................65
11.8. COLLATERAL AGENT'S REIMBURSEMENT AND INDEMNIFICATION........................................65
11.9. Notice of Default...........................................................................66
11.10. Rights as a Holder..........................................................................66
11.11. Holder Decision.............................................................................66
11.12. Successor Collateral Agent..................................................................66
11.13. Delegation to Affiliates....................................................................67
11.14. Execution of Security Documents.............................................................67
11.15. Collateral Releases.........................................................................67
ARTICLE XII SETOFF; RATABLE PAYMENTS....................................................................68
12.1. Setoff......................................................................................68
12.2. Ratable Payments............................................................................68
ARTICLE XIII REPRESENTATIONS AND WARRANTIES OF PURCHASERS................................................68
13.1. Representations and Warranties of Each Purchaser............................................68
ARTICLE XIV SUBORDINATION OF NOTES......................................................................69
14.1. Subordination of Notes......................................................................69
ARTICLE XV TRANSFER OF SECURITIES......................................................................69
15.1. Restriction on Transfer.....................................................................69
15.2. Restrictive Legends.........................................................................70
15.3. Notice of Transfer..........................................................................71
ARTICLE XVI MISCELLANEOUS...............................................................................72
16.1. Notices.....................................................................................72
16.2. Survival of Agreement.......................................................................73
16.3. Successors and Assigns......................................................................73
16.4. Expenses of the Holders.....................................................................73
16.5. Indemnification.............................................................................74
16.6. Third Party Claims..........................................................................76
16.7. Governing Law...............................................................................78
16.8. Waivers; Amendments.........................................................................79
16.9. Independence of Covenants...................................................................79
16.10. No Fiduciary Relationship...................................................................79
16.11. No Duty.....................................................................................80
16.12. Construction................................................................................80
16.13. Severability................................................................................80
16.14. Counterparts................................................................................80
16.15. Confidentiality.............................................................................80
16.16. Press Release...............................................................................83
16.17. Headings....................................................................................83
16.18. Entire Agreement............................................................................83
ANNEXES
Annex A - Calculation of Investment Base
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Certificate Accompanying Financial Statements
Exhibit C - Form of Certificate of Effectiveness
Exhibit D - Form of Company's Counsel Opinion
Exhibit E - Form of Subordinated Note Agreement Amendment
Exhibit F - Form of Senior Credit Agreement Amendment
Exhibit G - Form of Registration Rights Agreement
SCHEDULES
Schedule 1 - Disclosure Schedule
Schedule 2 - Purchaser Information
Schedule 6.17 - Post Closing Requirements
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT is dated as of October 29, 2004, and entered
into by and among Carrizo Oil & Gas, Inc., a Texas corporation (the "Company"),
the purchasers listed on Schedule 2 hereto, (each a "Purchaser" and
collectively, the "Purchasers") and PCRL Investments L.P., as Collateral Agent
(in such capacity, "Collateral Agent").
RECITALS
WHEREAS, the Company is engaged in the exploration, development,
exploitation and production of natural gas and crude oil (the "Subject
Business");
WHEREAS, the Company desires to issue to the Purchasers and the Purchasers,
severally and not jointly, desire to purchase from the Company up to $28,000,000
in stated principal amount of its 10% Senior Subordinated Secured Notes due
December 15, 2008 in the form of Exhibit A attached hereto (the "Notes"), on the
terms and for the consideration provided herein, in each case on the terms and
for the consideration provided herein;
WHEREAS, the proceeds of the Notes shall be used (i) to fund the Company's
working capital and (ii) for general corporate purposes;
WHEREAS, the Company has agreed to secure all of its obligations evidenced
by the Notes and this Agreement by granting to the Collateral Agent, for the
benefit of the holders of the Notes, a second priority lien and security
interest on substantially all of its assets, including a pledge of all of the
ownership interests of each of its Subsidiaries (other than its Unrestricted
Subsidiaries (as hereinafter defined)); and
WHEREAS, the Notes and the liens and security interests securing the Notes
shall be subordinated, to the extent and in the manner provided in the
Subordination Agreement (as hereinafter defined), to the senior credit facility
provided to the Company pursuant to the terms of the Senior Credit Agreement (as
hereinafter defined).
NOW THEREFORE, the parties to this Agreement hereby agree as follows:
ARTICLE I
DEFINITIONS
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As used in this Agreement:
"Act" is defined in Section 5.15.
"Additional Closing Date" means any one or more dates prior to the second
anniversary of the Closing Date upon which all of the conditions precedent set
forth in Section 4.3 have been satisfied.
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through
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one or more intermediaries or otherwise) controls, is controlled by, or is under
common control with, such Person and, for the avoidance of doubt shall include
the investment manager of any such Person that is a Fund. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power: (a) to vote 20% or more of the securities or
other equity interests (on a fully diluted basis) having ordinary voting power
for the election of directors, the managing general partner or partners or the
managing member or members or (b) to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Agreement" means this note purchase agreement, as it may be amended or
modified and in effect from time to time.
"Annex" refers to an annex attached to this Agreement, unless another
document is specifically referenced.
"Applicable Law" means all provisions of laws, statutes, ordinances, rules,
regulations, permits, certificates or orders of any Governmental Authority
applicable to the Person in question or any of its assets or property, and all
judgments, injunctions, orders and decrees of all courts and arbitrators in
proceedings or actions in which the Person in question is a party or by which
any of its assets or properties are bound.
"Applicable Period" as defined in Section 16.15.
"Approved Counterparty" means (i) any Holder, any Affiliate of any Holder,
any Bank or any Affiliate of any Bank and (ii) any other Person engaged in the
business of writing ▇▇▇▇▇▇ for commodity or interest rate risk that is
acceptable to the Collateral Agent and has, at the time Company or any Guarantor
enters into a Hedging Agreement with such Person, a credit rating of A or better
from S&P or Baa1 or better from ▇▇▇▇▇'▇.
"Approved Fund" means any Fund that is administered or managed by (a) a
Holder, (b) an Affiliate of a Holder or (c) an entity that administers or
manages a Holder.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means, as to any Person, any of its Chairman of the
Board, its Chief Executive Officer, its President, its Directors, its Managers
(in the case of a limited liability company), or its Chief Financial Officer,
acting singly.
"Bank" means any Person from time to time a party to the Senior Credit
Agreement as a lender and "Banks" means all Banks.
"Bloomberg" means Bloomberg Financial Markets.
"Board" means the board of directors of the Company.
"Borrowing Base" means, individually and collectively, the "Facility A
Borrowing Base
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Amount" and the "Facility B Borrowing Base Amount" as such terms are defined
from time to time in the Senior Credit Agreement (or as such similar terms or
the term "Borrowing Base" is defined in any replacement Senior Credit Agreement)
unless all of the Obligations under the Senior Credit Documents have been paid
in full and all commitments under the Senior Credit Agreement have been
terminated and no replacement Senior Credit Agreement is in effect in which
event "Borrowing Base" shall be an amount determined by the Majority Holders as
of May 1 and November 1 of each year based on the most recent Engineering Report
delivered pursuant to Section 6.1(f) and Section 6.1(h), respectively unless
such Engineering Reports have not been requested by the Collateral Agent or the
Majority Holders, in which event the "Borrowing Base" shall be an amount
determined by the Majority Holders based on the Company's most recently filed
Commission Reports.
"Business Day" means any day, other than a Saturday, Sunday or day which
shall be in the State of Texas or the State of New York a legal holiday or day
on which banking institutions are required or authorized to close.
"Capital Lease" means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of a
liability in accordance with GAAP.
"Capital Lease Obligations" means any Debt represented by obligations under
a Capital Lease.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation),
including, without limitation, partnership interests and membership interests,
and any and all warrants, rights or options to purchase or other arrangements or
rights to acquire any of the foregoing.
"CCBM" means CCBM, Inc., a Texas corporation.
"Certificate of Effectiveness" means a Certificate of Effectiveness in the
form of Exhibit C attached hereto to be executed by the Company and the
Collateral Agent upon the satisfaction of each of the conditions precedent
contained in Section 4.1 hereof.
"Change of Control" means the occurrence of any of the following events:
(i) the Company shall have merged into or consolidated with any other Person, or
permitted any other Person to merge into or consolidate with it or sold, leased
or sub-leased (as lessor or sub-lessor) or voluntarily transferred or otherwise
disposed of all or substantially all of its assets or liquidated, wound-up or
dissolved itself (or suffered any liquidation or dissolution in any such case in
a transaction that would violate Section 7.1 or 7.2, (ii) any "person" (as such
term is used in Sections 13(d) and 14 (d) of the Exchange Act) other than
Purchaser or any of its Affiliates or managed accounts is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act;
provided that such person shall be deemed to have "beneficial ownership" of all
shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the total voting power of the outstanding voting
securities of the Company; or (iii) during any period of two
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consecutive years, individuals who at the beginning of such period constituted
the Board (together with any new directors whose election by such members of the
Board or whose nomination for election by the shareholders of the Company, as
the case may be, was approved by a vote of at least a majority of the directors
of the Company then still in office) cease for any reason to constitute a
majority of the Board then in office. Notwithstanding the foregoing, no Change
of Control shall be deemed to have occurred pursuant to this Agreement as a
result of any other Person becoming the beneficial owner of more than 35% of the
total voting power to the extent caused solely by the attribution to that Person
of the beneficial ownership of voting power owned by another Person that is not
an Affiliate of such Person who is then a party to a customary shareholder's
agreement and is a member of a group with such other Person solely because of
such shareholders' agreement, a voting agreement, tag along rights and not as a
result of the acquisition of securities of the Company by such Person.
"Change of Control Notice" is defined in Section 3.5(b).
"Closing Date" means the date upon which all of the conditions precedent
set forth in Section 4.1 have been satisfied, and the Company and the Collateral
Agent have executed and delivered the Certificate of Effectiveness.
"Closing Documents" means the Subordination Agreement, the Subordinated
Note Agreement Amendment, and all other material documents, instruments and
agreements executed or delivered by any Restricted Person in connection with, or
otherwise pertaining to, the Closing Transactions.
"Closing Transactions" means the transactions to occur on the Closing Date,
including, without limitation (a) the amendment of the Senior Credit Agreement
pursuant to the Senior Credit Agreement Amendment, and (b) the amendment of the
Subordinated Note Agreement pursuant to the Subordinated Note Agreement
Amendment.
"Collateral" means all property of any kind which is subject to a Lien in
favor of Holders (or in favor of the Collateral Agent for the benefit of
Holders) or which, under the terms of any Security Document, is purported to be
subject to such a Lien.
"Collateral Agent" has the meaning assigned to such term in the preamble
hereto and shall include any successor appointed pursuant to Section XI of this
Agreement.
"Commission" means the United States Securities and Exchange Commission.
"Commission Reports" means the annual reports, information documents and
other reports as are specified in Section 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company or Capital Stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Company" has the meaning ascribed to such term in the preamble hereto and
shall
4
include its successors and assigns.
"Competitor" means (i) any Person who is actively engaged in the Subject
Business and (ii) any Affiliate of a Person identified in clause (i) above (it
being agreed that an investment firm shall not be deemed to control a Person
described in clause (i) above merely as a result of owning a minority interest
in such Person if it does not otherwise control such Person).
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated Subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated Subsidiaries.
"Debt" shall mean without duplication: (i) indebtedness for borrowed money;
(ii) the face amounts of all outstanding standby and commercial letters of
credit and bankers acceptances, matured or unmatured, issued on behalf of the
Company; (iii) guaranties of the Debt of any other Person, whether direct or
indirect, whether by agreement to purchase the indebtedness of any other Person
or by agreement for the furnishing of funds to any other Person through the
purchase or lease of goods, supplies or services (or by way of stock purchase,
capital contribution, advance or loan) in each case for the purpose of paying or
discharging the Debt of any other Person; and (iv) the present value of all
obligations for the payment of rent or hire of property of any kind (real or
personal) under leases or lease agreements required to be capitalized under
GAAP; provided that (x) in no event shall the Company's obligations under and in
connection with any Series B Preferred Stock issued by the Company prior to the
Closing Date constitute Debt and (y) any Series B Preferred Stock issued by the
Company after the Closing Date shall constitute Debt.
"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"Defensible Title" shall mean, with respect to the assets of the Company
(i) the title of the Company to such assets is free and clear of all Liens of
any kind whatsoever (except to the extent permitted by the Documents), and (ii)
as to those ▇▇▇▇▇ for which a "working interest" and a "net revenue interest"
are set forth on the Disclosure Schedule (except to the extent disposed of or
abandoned in accordance with the Documents), the Company is entitled to receive
the percentage of all hydrocarbons produced, saved and marketed from such ▇▇▇▇▇
in an amount not less than the net revenue interest set forth therein, without
reduction, suspension or termination throughout the duration of the productive
life of such ▇▇▇▇▇, and the Company is obligated to bear the percentage of costs
and expenses related to the maintenance, development and operation of such ▇▇▇▇▇
in an amount not greater than the working interest set forth on the Disclosure
Schedule, without increase throughout the productive life of such ▇▇▇▇▇, except
increases that also result in a proportionate increase in net revenue interest
and as set forth on the Disclosure Schedule.
"Designated Title Exceptions" is defined in Section 5.3.
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"Disclosure Notice" as defined in Section 16.15.
"Disclosure Schedule" means Schedule 1 hereto.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof, in whole or in part, on or prior to
the Maturity Date; provided, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the rights
to require the issuer of such Capital Stock to repurchase or redeem such Capital
Stock upon the occurrence of (x) an "asset sale" or a "change of control" that
also results in a Change of Control shall not constitute Disqualified Stock or
(y) a "default" or an "event of default" shall not constitute Disqualified
Stock; provided further, that in each case with respect to the foregoing clauses
(x) and (y), the obligations of the Company to repurchase or redeem such Capital
Stock is required only if permitted under the terms of this Agreement or with
the consent of the Majority Holders or such obligations are subordinated to the
Indebtedness on terms and conditions reasonably satisfactory to the Majority
Holders.
"Documents" means, collectively, this Agreement, the Subordination
Agreement, the Notes, the Registration Rights Agreement, the Security Documents
and all other agreements, certificates, documents, instruments and writings at
any time delivered in connection herewith or therewith (exclusive of term sheets
and commitment letters).
"Dollar", "Dollars" and the sign "$" mean lawful money of the United States
of America.
"EBITDA" means the Company's consolidated earnings before interest expense,
income taxes, depreciation, amortization, depletion, oil and gas asset
impairment write downs, lease impairment expense, gains and losses from the sale
of capital assets, and other non-cash charges; provided that none of the
following shall be included in the determination of the EBITDA of the Company:
(i) the earnings (or losses) of any Person which is not a Subsidiary of the
Company or is accounted for by the Company by the equity method of accounting,
(ii) any non-cash gains or losses, if any, resulting from the repricing of any
stock options issued by the Company, or (iii) any non-cash gains or losses
resulting from the application of FASB Statement 133 or the application of
ceiling test write-downs made pursuant to Rule 4.10 of Regulation S-X
promulgated by the Commission.
"Eligible Market" means the New York Stock Exchange, the American Stock
Exchange, the NASDAQ National Market and the NASDAQ SmallCap Market (or any of
their respective successors).
"Engineering Report" means each engineering report, if any, delivered
pursuant to Section 6.1(f) or 6.1(h).
"Environmental Laws" shall mean any federal, state, local or tribal
statute, law, rule, regulation, ordinance, code, permit, consent, approval,
license, written policy or rule of common
6
law now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, injunction, consent decree or judgment, or other authorization or
requirement whenever promulgated, issued or modified, including the requirement
to register underground storage tanks, well plugging and abandonment
requirements, and oil and gas waste disposal requirements relating to:
(i) emissions, discharges, spills, migration, movement, releases or
threatened releases of pollutants, contaminants, Hazardous Materials, or
hazardous or toxic materials or wastes into or onto soil, land, ambient
air, surface water, ground water, watercourses, publicly owned treatment
works, drains, sewer systems, wetlands or septic systems;
(ii) the use, treatment, storage, disposal, handling, manufacturing,
transportation, or shipment of Hazardous Materials or hazardous and/or
toxic wastes, material, products or by-products containing Hazardous
Materials (or of equipment or apparatus containing Hazardous Materials); or
(iii) otherwise relating to pollution or the protection of human
health or the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C.
▇▇.▇▇. 9601 et seq., as amended, the Resource Conservation and Recovery
Act, 42 U.S.C. ▇▇.▇▇. 6901 et seq., as amended, the Hazardous Materials
Transportation Act, 49 U.S.C. ▇▇.▇▇. 1801 et seq., as amended, the Clean
Water Act, 33 U.S.C. ▇▇.▇▇. 1251 et seq., as amended, the Toxic Substances
Control Act, 15 U.S.C. ▇▇.▇▇. 2601 et seq., as amended, the Clean Air Act,
42 U.S.C. ▇▇.▇▇. 7401 et seq., as amended, the federal Water Pollution
Control Act, 33 U.S.C. ss. 1251 et seq., as amended, the Safe Drinking
Water Act, 42 U.S.C. ▇▇.▇▇. 300f et seq., as amended, the Atomic Energy
Act, 42 U.S.C. ▇▇.▇▇. 2011 et seq., as amended, the Natural Gas Pipeline
Safety Act of 1968, 49 U.S.C. ss. 1671 et seq., as amended, the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ▇▇.▇▇. 136 et seq., as
amended, and the Occupational Safety and Health Act, 29 U.S.C. ▇▇.▇▇. 651
et seq., as amended, and all comparable statutes of the States of Louisiana
and Texas, and all comparable local Governmental Requirements in such
states, and other environmental, conservation or protection laws in effect
in any jurisdiction where any of the Mortgaged Properties of the Company
are located.
"Environmental Liabilities" means with respect to any Person, any and all
liabilities, responsibilities, losses, sums paid in settlement of claims,
obligations, charges, actions (formal or informal), claims (including, without
limitation, claims for personal injury or for property damage), liens,
administrative proceedings, damages (including, without limitation, loss or
damage resulting from the occurrence of an Event of Default), punitive damages,
consequential damages, treble damages, penalties, fines, monetary sanctions,
interest, court costs, response and remediation costs, stabilization costs,
encapsulation costs, treatment, storage, or disposal costs, groundwater
monitoring or environmental sampling costs, other causes of action and any other
costs and expenses (including, without limitation, reasonable attorneys',
experts', and consultants' fees, costs of investigation and feasibility studies
and disbursements in connection with any investigative, administrative or
judicial proceeding), whether direct or indirect, known or unknown, absolute or
contingent, past, present or future arising under, pursuant to or in
7
connection with any Environmental Law, or any other binding obligation of such
Person requiring abatement of pollution or protection of human health and the
environment.
"Environmental Lien" means a Lien in favor of any Governmental Authority
for (i) any liability under Environmental Laws or (ii) damages arising from, or
costs incurred by such Governmental Authority in response to, a Release or
threatened Release of a Hazardous Materials into the environment.
"Equity Conditions" means, with respect to a specified issuance of Common
Stock, that each of the following conditions is satisfied: (i) the number of
authorized but unissued and otherwise unreserved shares of Common Stock is
sufficient for such issuance and such shares will be issued in compliance with
Section 3.2(i); (ii) on and including the date of any Stock Payment Notice to
and including the Issue Date to which such Stock Payment Notice relates, the
Common Stock shall be listed on an Eligible Market and delisting or suspension
by such market or exchange shall not have been threatened either (A) in writing
by such market or exchange or (B) by falling below for at least the requisite
period the applicable minimum quantative listing maintenance requirements of
such market or exchange; (iii) the shares of Common Stock to be issued in
payment of any Indebtedness on such date of determination are, to the extent
required, approved for listing on an Eligible Market upon issuance; (iv) on any
day during an Interest Measuring Period, a Maturity Date Measuring Period and a
Voluntary Prepayment Measuring Period, as applicable, the Common Stock shall not
have fallen below, for three (3) consecutive Trading Days during any such
period, the minimum bid or trading price for any Eligible Market on which the
Common Stock is then quoted or listed; (v) on and including the date of any
Stock Payment Notice to and including the Issue Date to which such Stock Payment
Notice relates, there shall not have occurred a Significant Default or an Event
of Default other than a Significant Default or an Event of Default that has been
waived or has been cured within the cure period specified in Section 8.1(b);
(vi) on the applicable date of determination either (A) the Registration
Statement or Registration Statements contemplated pursuant to the Registration
Rights Agreement shall be effective and available for the resale of all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement or (B) all shares of Common Stock issuable in payment of the
Indebtedness on the terms permitted under this Agreement shall be eligible for
legend removal in accordance with the provisions of Rule 144(k) upon request by
the holder thereof and applicable state securities laws; (vii) on any date of
determination, if the aggregate number of shares of Common Stock issued to the
Holders during the period of six (6) consecutive calendar months immediately
preceding such date and then held by the Holders on such date together with the
shares of Common Stock to be issued on such date (or with respect to the date of
the Stock Payment Notice, proposed to be issued and calculated based on issuance
of such shares at the Floor Price or if no Floor Price is specified, at the
Volume Weighted Average Price for the applicable Measurement Period as if the
date of the Stock Payment Notice was the Issue Date) exceeds one and one-half
percent (1.50%) of the Common Stock issued and outstanding on such date, the
Company shall have no knowledge of any material fact not previously disclosed to
the public that is reasonably likely to cause the Registration Statements
required pursuant to the Registration Rights Agreement not to be effective and
available for the resale of not less than all of the Registrable Securities in
accordance with the terms of the Registration Rights Agreement; (viii) the
Company is current in its periodic filing obligations under the Exchange Act and
the rules of any Eligible Market on
8
which the Common Stock is then either listed or quoted (determined by including
any safe harbors provided by Form 8-K and grace periods pursuant to Rule
12b-25); and (ix) any applicable shares of Common Stock to be issued in
connection with the event requiring determination may be issued in full without
violating Section 3.2(f) or the rules or regulations of the applicable Eligible
Market.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statutes or statute, together with
all rules and regulations promulgated with respect thereto.
"Event of Default" has the meaning given to such term in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute or law thereto.
"Exhibit" refers to an exhibit attached to this Agreement, unless another
document is specifically referenced.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.
"Floor Price" means, as applicable for any payment of Indebtedness in
Common Stock permitted under this Agreement, the minimum Maturity Date Price,
Interest Payment Price or Voluntary Redemption Price, if any, specified by the
Company in any notice delivered to Collateral Agent and Holders pursuant to
Sections 3.3(b), 3.5 or 3.6, respectfully.
"Floor Price Portion" is defined in Section 3.6.
"Fund" means any Person (other than a natural person) that is (or will be)
engaged in making, purchasing, holding or otherwise investing in commercial
loans, debt instruments and similar extensions of credit in the ordinary course
of its business.
"GAAP" shall mean, at any time, accounting principles generally accepted in
the United States as then in effect.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof, or entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" shall mean any applicable state, federal or
local law, statute, ordinance, code, rule, regulation, order or decree.
"Guarantors" means CCBM and any other Person who has guaranteed some or all
of the Indebtedness and who has been accepted by Collateral Agent as a Guarantor
and any Subsidiary of the Company which now or hereafter executes and delivers a
Guaranty to Collateral Agent pursuant to Section 6.15.
9
"Guaranty" means individually and collectively that certain Commercial
Guaranty of even date with this Agreement by CCBM in favor of the Collateral
Agent for the ratable benefit of the Holders, as amended and/or restated from
time to time and in effect, and any Commercial Guaranty executed after the date
of this Agreement by a Subsidiary in favor of the Collateral Agent for the
ratable benefit of the Holders, as amended and/or restated from time to time and
in effect.
"Hazardous Materials" means (1) hazardous materials, hazardous wastes, and
hazardous substances including, but not limited to, those substances, materials
and wastes listed in the United States Department of Transportation Hazardous
Materials Table, 49 C.F.R. ss. 172.101, as amended, or listed by the federal
Environmental Protection Agency as hazardous substances under or pursuant to 40
C.F.R. Part 302, as amended, or substances, materials, contaminants or wastes
which are or become regulated under any Environmental Law, including without
limitation, those substances, materials, contaminants or wastes as defined in
the following statutes and their implementing regulations: the Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1801 et seq., as amended, the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., as amended,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ss. 9601 et seq., as amended, the Toxic Substances Control Act, 15 U.S.C.
ss. 2601 et seq., as amended, the Clean Air Act, 42 U.S.C. ss. 7401 et seq., as
amended, the federal Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq., as
amended, the Occupational Safety and Health Act, 2 U.S.C. ss. 651 et seq., as
amended, the Safe Drinking Water Act, 42 U.S.C. ss.300f et seq., as amended and
the Natural Gas Pipeline Safety Act of 1968, 49 U.S.C. ss. 1671 et seq., as
amended; (2) all substances, materials, contaminants or wastes listed in all
comparable statutes of the States of Louisiana and Texas and in comparable local
Governmental Requirements in such states; (3) acid gas, sour water streams or
sour water vapor streams containing hydrogen sulfide or other forms of sulphur,
sodium hydrosulfide and ammonia; (4) Hydrocarbons; (5) natural gas, synthetic
gas, and any mixtures thereof; (6) asbestos and/or any material which contains
1% or more, by weight, of any hydrated mineral silicate, including but not
limited to chrysotile, amosite, crocidolite, tremolite, anthophylite and/or
actinolite, whether friable or non-friable; (7) PCB's, or PCB containing
materials or fluids; (8) radon; (9) naturally occurring radioactive material,
radioactive substances or waste; (10) salt water and other oil and gas wastes
and (11) any other hazardous or noxious substance, material, pollutant,
emission, or solid, liquid or gaseous waste.
"Hedging Agreement" means (a) any interest rate or currency swap, rate cap,
rate floor, rate collar, forward agreement, or other exchange or rate protection
agreement or any option with respect to any such transaction and (b) any swap
agreement, cap, floor, collar, exchange transaction, forward agreement, or other
exchange or protection agreement relating to any commodity, including
Hydrocarbons, or any option with respect to any such transaction.
"Highest Lawful Rate" shall mean, on any day, the maximum nonusurious rate
of interest permitted for that day by whichever of applicable federal or Texas
law permits the higher interest rate, stated as a rate per annum. On each day,
if any, that Chapter 303 of the Texas Finance Code, as amended (formerly Tex.
Rev. Civ. Stat. ▇▇▇. Art. 5069-1D.003) establishes the Highest Lawful Rate, such
rate shall be the "indicated (weekly) rate ceiling" (as defined in Chapter 303
of the Texas Finance Code, as amended) for that day.
10
"Holder" or "Holders" means each Purchaser (so long as it holds any Notes)
and any other holder of any of the Notes.
"Hydrocarbons" means oil, gas, casing head gas, condensate, distillate,
liquid hydrocarbons, gaseous hydrocarbons and all products separated, settled
and dehydrated therefrom and all products refined therefrom, including, without
limitation, kerosene, liquefied petroleum gas, refined lubricating oils, diesel
fuel, drip gasoline, natural gasoline, helium, sulphur and all other materials.
"Indebtedness" means, at any time, all obligations, indebtedness, and
liabilities, whether now existing or arising in the future, of the Company
and/or any Guarantor to the Collateral Agent or the Holders or any of them (or
in the case of a Hedging Agreement any Affiliate thereof) pursuant to a Hedging
Agreement or other commodity or price management transaction (including all
renewals, extensions, modifications, and substitution thereof and therefor) and
all cancellations, buy backs, reversals, terminations, or assignments of Hedging
Agreements, and the indebtedness, liabilities and obligations of the Company
evidenced by any Document, including principal, interest, repurchase
obligations, costs, expenses and reasonable attorneys' fees and all other fees
and charges, together with all commitment fees and other indebtedness and costs
and expenses for which the Company and/or any Guarantor is responsible under
this Agreement or under any of the Documents (including the repurchase
obligations of the Company under the Registration Rights Agreement). In
addition, the word "Indebtedness" also includes, any and all other loans,
extensions of credit, obligations, debts and liabilities of the Company, plus
interest thereon, that may now and in the future be owed to or incurred in favor
of the Collateral Agent and/or the Holders, as well as all claims by the
Collateral Agent and/or the Holders against the Company and/or any Guarantor,
whether existing now or later; whether they are voluntary or involuntary, due or
to become due, direct or indirect or by way of assignment, determined or
undetermined, absolute or contingent, liquidated or unliquidated; whether the
Company may be liable individually or jointly with others, of every nature and
kind whatsoever, in principal, interest, costs, expenses and reasonable
attorneys' fees and all other fees and charges; whether the Company and/or any
Guarantor may be obligated as principal obligor, guarantor, surety,
accommodation party or otherwise.
"Indemnified Person" has the meaning ascribed to such term in Section 16.5.
"Indemnifying Person" has the meaning ascribed to such term in Section
16.6.
"Initial Notes" has the meaning ascribed to such term in Section 2.1.
"Interest Expense" means, for any period, total interest expense (including
that portion attributable to Capital Lease Obligations in accordance with GAAP
and capitalized interest) of the Company and its Subsidiaries (other than
Unrestricted Subsidiaries) on a consolidated basis with respect to all
outstanding Obligations of the Company and its Subsidiaries (other than
Unrestricted Subsidiaries) to the extent the promissory notes, leases or other
instruments or agreements evidencing such Obligations require the payment of
such interest in cash during such period.
11
"Interest Payment Notice" is defined in Section 3.3(b).
"Interest Payment Price" means, with respect to any Payment Date, that
price which shall be computed as 90% of the arithmetic average of the Volume
Weighted Average Price of the Common Stock on each of the ten (10) consecutive
Trading Days immediately preceding (but not including) the Trading Day that is
two (2) Trading Days prior to such Payment Date (each, an "Interest Measuring
Period"). All such determinations to be appropriately adjusted for any stock
split, stock dividend, stock combination or other similar transaction during
such Interest Measuring Period.
"Internal Revenue Code" means the United States Internal Revenue Code of
1986, as amended from time to time and any successor statute or statutes,
together with all rules and regulations promulgated with respect thereto.
"Investment" means any investment, made directly or indirectly, in any
Person, whether by purchase, acquisition of equity interests, indebtedness or
other obligations or securities or by extension of credit, loan, advance,
capital contribution or otherwise and whether made in cash, by the transfer of
property, or by any other means.
"Investment Base" means (i) as of the Closing Date, $28,000,000, and (ii)
after the Closing Date, the amount determined in accordance with Section 6.18
less, in each case with respect to the foregoing clauses (i) and (ii), any
Quarterly Reduction as and when applied in accordance with the terms of the
Senior Credit Agreement.
"Issue Date" means with respect to any payment of the Indebtedness by the
issuance of Common Stock pursuant to Section 3.3(b), 3.5 or 3.6, as the case may
be, the date the Company is obligated to issue such Common Stock.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof. Any reference to a Law includes any
amendment or modification to such Law, and all regulations, rulings, and other
Laws promulgated under such Law.
"Leases" shall mean all present and future oil, gas and mineral leases or
interests therein now owned or hereafter acquired by the Company that form part
of the Mortgaged Properties.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Liens" means any interest in property securing an obligation owed to, or a
claim by, Guarantor, a Person other than the owner of such property, whether
such interest is based on common law, statute or contract. The term "Lien" shall
also include reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other
12
title exceptions and encumbrances affecting property. For the purpose of the
Agreement, the Company and each Guarantor shall be deemed to be the owner of any
property which it has acquired or holds subject to a conditional sale agreement
or other arrangements pursuant to which title to the property has been retained
by or vested in some other Person for security purposes; provided, however, that
the term "Lien" shall not include a trust or similar arrangement established for
the purpose of defeasing any Debt pursuant to the terms evidencing or providing
for the issuance of such Debt but only to the extent that such defeasance is
permitted under this Agreement.
"Losses" has the meaning ascribed to such term in Section 16.5.
"Majority Holders" means, at any time, the Holder or Holders of at least a
majority in aggregate outstanding principal amount of the Notes.
"Material Adverse Effect" shall mean, with respect to the Company and/or
the Guarantor, as the case may be, an event which causes a material adverse
effect on the business, assets, operations or condition (financial or otherwise)
of such Person.
"Maturity Date" means December 15, 2008.
"Maturity Date Floor Price Portion" is defined in Section 3.5(a).
"Maturity Date Payment Notice" is defined in Section 3.5(a).
"Maturity Date Price" means, with respect to the payment due on the
Maturity Date, that price which shall be computed as 90% of the arithmetic
average of the Volume Weighted Average Price of the Common Stock on each of the
thirty (30) consecutive Trading Days immediately preceding (but not including)
the Trading Day that is two (2) Trading Days prior to the Maturity Date (the
"Maturity Date Measuring Period"). All such determinations to be appropriately
adjusted for any stock split, stock dividend, stock combination or other similar
transaction during the Maturity Date Measuring Period.
"Maximum Shares" is defined in Section 3.2(f).
"Maximum Percentage" is defined in Section 3.2(f).
"Measurement Period" means any Interest Measuring Period, a Maturity Date
Measuring Period or a Voluntary Prepayment Measuring Period, in each case, as
extended pursuant to Section 16.15.
"Mortgaged Properties" shall mean the property and interests of the Company
and/or any Guarantor that are encumbered by the Mortgages.
"Mortgages" means, collectively, all deeds of trust and mortgages included
in the Security Documents.
13
"Non-Recourse Indebtedness" shall mean Obligations owed by the Guarantor to
Rocky Mountain Gas, Inc., and Obligations of the Company and/or any Guarantor
for which the Company and/or any Guarantor, as the case may be, are not
personally liable for payment of the Obligations.
"Notes" has the meaning ascribed to such term in the recitals hereto.
"Note Register" has the meaning ascribed to such term in Section 3.7(a).
"Obligations" of any Person means Liabilities in any of the following
categories: (a) Liabilities for borrowed money; (b) Liabilities constituting an
obligation to pay the deferred purchase price of property or services; (c)
Liabilities evidenced by a bond, debenture, note or similar instrument; (d)
Liabilities which (i) would under GAAP be shown on such Person's balance sheet
as a liability, and (ii) are payable more than one year from the date of
creation or incurrence thereof (other than reserves for taxes and reserves for
contingent obligations); (e) Liabilities arising under Hedging Agreements (on a
net basis to the extent netting is provided for in the applicable Hedging
Agreements); (f) Liabilities constituting principal under Capital Leases; (g)
Liabilities arising under conditional sales or other title retention agreements;
(h) Liabilities owing under direct or indirect guaranties of Liabilities of any
other Person or otherwise constituting obligations to purchase or acquire or to
otherwise protect or insure a creditor against loss in respect of Liabilities of
any other Person (such as obligations under working capital maintenance
agreements, agreements to keep-well, or agreements to purchase Liabilities,
assets, goods, securities or services), but excluding endorsements in the
ordinary course of business of negotiable instruments in the course of
collection; (i) Liabilities (for example, repurchase agreements, Disqualified
Stock (but not accrued dividends on preferred stock), and sale/leaseback
agreements) consisting of an obligation to purchase or redeem securities or
other property, if such Liabilities arise out of or in connection with the sale
or issuance of the same or similar securities or property; (j) Liabilities with
respect to letters of credit or applications or reimbursement agreements
therefore; (k) Liabilities with respect to banker's acceptances; (l) Liabilities
with respect to payments received in consideration of oil, gas, or other
minerals yet to be acquired or produced at the time of payment (including
obligations under "take-or-pay" contracts to deliver gas in return for payments
already received and the undischarged balance of any production payment created
by such Person or for the creation of which such Person directly or indirectly
received payment); or (m) Liabilities with respect to other obligations to
deliver goods or services in consideration of advance payments therefor;
provided, however, that the "Obligations" of any Person shall not include
Liabilities that were incurred by such Person on ordinary trade terms to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business, unless and until such
Liabilities are outstanding more than 90 days past the original invoice or
billing date therefor.
"Oil and Gas Properties" means all oil, gas and/or mineral leases, oil, gas
or mineral properties, mineral servitudes and/or mineral rights of any kind
(including, without limitation, mineral fee interests, lease interests, farmout
interests, overriding royalty and royalty interests, net profits interests, oil
payment interests, production payment interests and other types of mineral
interests), and all oil and gas transportation, gathering, treating, storage,
processing and
14
handling assets.
"Organizational Documents" means (a) with respect to any corporation, its
certificate or articles of incorporation or organization, as amended, and its
by-laws, as amended, (b) with respect to any limited partnership, its
certificate of limited partnership, as amended, and its partnership agreement,
as amended, (c) with respect to any general partnership, its partnership
agreement, as amended, and (d) with respect to any limited liability company,
its articles of organization, as amended, and its operating agreement, as
amended.
"Payment Date" means the 5th day of March, June, September and December of
each year.
"PCRL" has the meaning assigned to such term in the preamble hereto and
shall include is successors.
"Permitted Liens" shall have the meaning ascribed to such term in Section
7.4. hereof.
"Person" means an individual, corporation, general partnership, limited
partnership, limited liability company, association, joint stock company, trust
or trustee thereof, estate or executor thereof, Tribunal, or any other legally
recognizable entity.
"Pinnacle" means Pinnacle Gas Resources, Inc., a Delaware corporation.
"Principal Market" means the Nasdaq National Market.
"Purchase Money Indebtedness" means Debt incurred to finance the
acquisition, construction or improvement of any fixed or capital assets,
including Debt assumed in connection with the acquisition of any such assets or
secured by a Lien on any such assets prior to the acquisition thereof, and any
extension, renewal or replacement of any such Debt.
"Purchasers" has the meaning ascribed to such term in the preamble hereto
and shall include its successors and assigns.
"Qualified Common Stock" means with respect to any Holder, any shares of
Common Stock issued to such Holder in payment of the Indebtedness pursuant to
the terms of this Agreement for which the effectiveness of a Registration
Statement or Registration Statements with respect to such shares of Common Stock
is not required to be maintained under the Registration Rights Agreement.
"Quarterly Reduction" has the meaning assigned to such term from time to
time in the Senior Credit Agreement unless all of the Obligations under the
Senior Credit Documents have been paid in full and all commitments under the
Senior Credit Agreement have been terminated and no replacement Senior Credit
Agreement is in effect in which event "Quarterly Reductions" shall be an
15
amount determined by the Majority Holders as of May 1 and November 1 of each
year based on the most recent Engineering Report delivered pursuant to Section
6.1(f) and Section 6.1(h), respectively unless such Engineering Reports have not
been requested by the Collateral Agent or the Majority Holders, in which event
the "Quarterly Reductions" shall be an amount determined by the Majority Holders
based on the information described in the Company's most recently filed
Commission Reports.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Registrable Securities" as defined in the Registration Rights Agreement.
"Registration Rights Agreement" means that certain Registration Rights
Agreement between the Company and the Purchasers, dated as of the date hereof,
substantially in the form attached hereto as Exhibit G, as amended, modified,
supplemented or restated from time to time.
"Release" means any release, spill, emission, leak, injection, deposit,
disposal, discharge, dispersal, leaching or migration of any Hazardous Materials
into the environment or into or out of any real property of the Company,
including the movement of Hazardous Materials through or in the air, soil,
surface water, groundwater and/or land which could reasonably be expected to
form the basis of an Environmental Liability against the Company.
"Remedial Action" means any action to (i) clean up, remove, treat or in any
other way address Hazardous Materials in the environment, (ii) prevent the
Release or threat of Release or minimize the further Release of Hazardous
Materials so they do not mitigate or endanger or threaten to endanger public
health or welfare or the environment or (iii) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
"Repurchase Closing Date" is defined in Section 3.5(b).
"Repurchase Notice" is defined in Section 3.5(b).
"Repurchase Notice Date" is defined in Section 3.5(b).
"Restricted Person" means the Guarantor, the Company, and each other
Subsidiary of the Company, excluding Unrestricted Subsidiaries.
"Restricted Securities" means the Notes and the Underlying Shares, to the
extent the Notes or Underlying Shares have not then been sold to the public
pursuant to (a) a registration under the Securities Act or (b) Rule 144(k).
"Rule 144" and "Rule 144(k)" means Rule 144 and Rule 144(k), respectively,
promulgated by the Commission pursuant to the Securities Act, as such Rules may
be amended
16
from time to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.
"Schedule" refers to a specific schedule to this Agreement, unless another
document is specifically referenced.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any successor statute or law thereto.
"Security Agreement" shall mean that certain Stock Pledge and Security
Agreement executed by the Company in favor of the Collateral Agent for the
ratable benefit of the Holders, of even date with the Agreement, pledging 100%
of the outstanding Capital Stock of the Guarantor, as the same may be amended,
supplemented, and/or restated from time to time and in effect.
"Security Documents" means the Guaranty, the Mortgages, the Security
Agreement and all other security agreements, deeds of trust, mortgages, chattel
mortgages, pledges, guaranties, financing statements, continuation statements,
extension agreements and other agreements or instruments now, heretofore, or
hereafter delivered by any Restricted Person to Collateral Agent in connection
with this Agreement or any transaction contemplated hereby to secure or
guarantee the payment of any part of the Indebtedness or the performance of any
Restricted Person's other duties and obligations under the Documents.
"Senior Agent" means Hibernia National Bank, in its capacity as the agent
for the Banks under the Senior Credit Agreement or any permitted successor
thereto in such capacity.
"Senior Credit Agreement" means (i) that certain Second Amended and
Restated Credit Agreement dated as of September 30, 2004 among the Company, the
Guarantors, the Senior Agent and Union Bank of California, N.A., as co-agent,
pursuant to which the Banks therein agree to make revolving loans available to
the Company in an aggregate outstanding amount not to exceed $100,000,000 at any
time, as amended, modified, supplemented or restated as permitted hereunder and
(ii) subject to the limitations set forth in Section 7.5(l), any other credit
agreement, loan agreement, note agreement, promissory note, indenture or other
agreement or instrument evidencing or governing the terms of any indebtedness or
other financial accommodation that has been incurred to extend, replace,
refinance or refund in whole or in part the indebtedness and other obligations
outstanding under clause (i) or any other agreement or instrument referred to in
this clause (ii) provided such agreement or instrument referred to in this
clause (ii) expressly provides that it is intended to be and is a "Senior Credit
Agreement" hereunder. Any reference to the "Senior Credit Agreement" hereunder
shall be deemed a reference to any "Senior Credit Agreement" then extant.
"Senior Credit Agreement Amendment" means an amendment to the Senior Credit
Agreement in the form attached hereto as Exhibit F.
17
"Senior Credit Documents" means, collectively, the Senior Credit Agreement,
and any other agreements, documents, instruments or certificates executed and
delivered from time to time in connection therewith.
"Significant Default" means a Default arising under Section 6.7 (as of the
last day of the Fiscal Quarter immediately preceding the date of the Stock
Payment Notice for which Commission Reports have been filed for the Company),
6.16, 7.1, 7.2, 7.3, 7.4 or 7.6.
"Significant Stock Payment Notice" means any of the Maturity Date Payment
Notice, a Voluntary Redemption Notice or a Change of Control Notice that
contemplates payment of any of the Indebtedness with Common Stock.
"Solvent" shall mean, when used with respect to any Person on a particular
day, that on such date (i) the fair value of the property of such Person is
greater than the total amount of Liabilities, including without limitation,
contingent Liabilities, of such person, (ii) the present fair salable value of
the assets of such person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (iii) such Person is able to realize upon its assets and pay its
debts and other Liabilities, contingent obligations and other commitments as
they mature in the ordinary course of business, (iv) such Person does not intend
to, and does not believe that it will, incur debts and Liabilities beyond such
Person's ability to pay as such debts and Liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such person is engaged. In computing the
amount of contingent Liabilities at any time, it is intended that such
Liabilities will be computed at the amount which, in light of all of the facts
and circumstances existing at such time, represents the amount that can be
reasonably expected to become an actual or matured liability.
"Stated Rate" is defined in Section 3.3(c).
"Stock Payment Notice" means any of the Maturity Date Payment Notice, a
Voluntary Redemption Notice or an Interest Payment Notice.
"Subject Business" has the meaning ascribed to such term in the recitals
hereto.
"Subordinated Note Agreement" means that certain Securities Purchase
Agreement dated as of December 15, 1999, as amended by that certain First
Amendment thereto dated as of June 7, 2004 among the Company and the
Subordinated Noteholder, as amended, modified, supplemented or restated from
time to time.
"Subordinated Note Agreement Amendment" means an amendment of the
Subordinated Note Agreement in the form attached hereto as Exhibit E.
"Subordinated Note Documents" means, collectively, the Subordinated Note
Agreement, and any other agreements, documents, instruments or certificates
executed and delivered from time to time in connection therewith.
18
"Subordinated Noteholder" means Steelhead Investments Ltd., a Cayman
Islands corporation, together with any successor or assignee thereof.
"Subordinated Notes" means that certain Amended and Restated Note dated as
of June 7, 2004, in the principal amount of $27,702,426.55, executed by the
Company and payable to the order of the Subordinated Noteholder pursuant to the
Subordinated Note Agreement, as amended, modified, supplemented, replaced or
restated from time to time.
"Subordination Agreement" means that certain Subordination Agreement dated
as of the date hereof, by and among the Collateral Agent, the Senior Agent and
the Company, as amended, modified, supplemented, replaced or restated from time
to time.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, limited liability company, joint venture, or other
business or corporate entity, enterprise or organization which is directly or
indirectly (through one or more intermediaries) controlled by or owned more than
fifty percent by such Person.
"Tangible Net Worth" means, with respect to any Person, the total assets of
such Person (other than with respect to the Company, its Unrestricted
Subsidiaries), on a consolidated basis, exclusive of (a) those assets classified
as intangible, including, without limitation, goodwill, patents, trademarks,
trade names, copyrights, franchises and deferred charges, (b) treasury stock and
minority interests in any Person, (c) cash set apart and held in sinking or
other analogous funds established for the purpose of redemption or other
retirement of Capital Stock, (d) to the extent not already deducted from total
assets, allowances for depreciation, depletion, obsolescence and/or amortization
of properties, uncollectible accounts, and contingent but probable Liabilities
as to which an amount can be established, (e) deferred taxes and (f) all assets
arising from advances to officers, former officers or sales representatives of
such Person or any of its Subsidiaries (other than with respect to the Company,
its Unrestricted Subsidiaries) made outside the ordinary course of business;
less total Liabilities of such Person and its Subsidiaries (other than with
respect to the Company, its Unrestricted Subsidiaries), on a consolidated basis,
all of the above being determined in accordance with GAAP and, with respect to
the Company, excluding the effect of any cumulative after-tax amounts of ceiling
test write-downs (not to exceed an aggregate of $30 million) incurred subsequent
to December 31, 2001 pursuant to Rule 4.10 of Regulation S-X promulgated by the
Commission.
"Taxes" means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings, and any and all Liabilities with respect to
the foregoing.
"Third Party Claim" has the meaning ascribed to such term in Section 16.6.
"Total Recourse Debt" is defined in Section 6.7(a).
"Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal Eligible Market on which the
Common Stock is then traded; provided that "Trading Day" shall not include any
day on which the Common Stock is scheduled to trade on
19
any Eligible Market for less than 4.5 hours or any day that the Common Stock is
suspended from trading during the final hour of trading on such Eligible Market
(or if such Eligible Market does not designate in advance the closing time of
trading on such Eligible Market, then during the hour ending at 4:00 p.m., New
York City Time).
"Transfer" means any sale, transfer, assignment, or other disposition of
any interest in, with or without consideration, any security, including any
disposition of any security or of any interest therein which would constitute a
sale thereof within the meaning of the Securities Act.
"Tribunal" means any government, any arbitration panel, any court or any
governmental department, commission, board, bureau, agency or instrumentality of
the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted or existing.
"Underlying Securities" means the Common Stock issuable in payment of the
Indebtedness evidenced by the Notes pursuant to Section 3.3(b), 3.5 or 3.6.
"Unrestricted Subsidiary" means (a) any Subsidiary of Company designated as
an Unrestricted Subsidiary of Company by Company's Board of Directors in
compliance with the following sentence, and (b) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of Company may at any time and
from time to time designate any Subsidiary of Company (other than any Guarantor)
as an Unrestricted Subsidiary provided that (i) no Default or Event of Default
has occurred or is continuing at the time of such designation and after giving
effect to such designation, (ii) immediately after such designation, no
Restricted Person has any Liability to pay any Obligations of such Subsidiary,
has in any way guaranteed any Obligations of such Subsidiary, or has any assets
or properties (excluding a pledge of the equity interest in such Subsidiary)
which are subject to any Lien securing any Obligations of such Subsidiary, and
(iii) notice of any such designation is promptly given to the Collateral Agent
in writing.
"Volume Weighted Average Price" with respect to a share of Common Stock on
any day, means on such day, the average of the daily volume weighted average
trading price per share (the total dollar amount traded on each day divided by
the trading volume for such day) of such security on the Principal Market for
the regular trading day session as reported at 4:15 p.m. (New York City time) by
Bloomberg, LP function key HP by using W to calculate the daily weighted average
or, if there is a change in trading hours, a change relating to Bloomberg or the
effect or name of such function key, such other method as is reasonably
determined by the Board and the Majority Holders.
"Voluntary Redemption Date" means the date on which the Company prepays all
or any portion of the outstanding Indebtedness evidenced by the Notes under this
Agreement.
"Voluntary Redemption Notice" is defined in Section 3.6.
"Voluntary Redemption Price" means, with respect to the payment due on any
Voluntary Redemption Date, that price which shall be computed as 90% of the
arithmetic average of the Volume Weighted Average Price of the Common Stock on
each of the thirty (30) consecutive
20
Trading Days immediately preceding (but not including) such Voluntary Redemption
Date (each, a "Voluntary Redemption Date Measuring Period"). All such
determinations to be appropriately adjusted for any stock split, stock dividend,
stock combination or other similar transaction during such Voluntary Prepayment
Measuring Period.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. The use herein of the word "include" or
"including", when following any general statement, term or matter, shall not be
construed to limit such statement, term or matter to the specific items or
matters set forth immediately following such word or to similar items or
matters, whether or not nonlimiting language (such as "without limitation" or
"but not limited to" or words of similar import) is used with reference thereto,
but rather shall be deemed to refer to all other items or matters that fall
within the broadest possible scope of such general statement, term or matter.
As used herein, the terms "proved reserves," "proved developed reserves,"
and "proved developed producing reserves," have the meaning given such terms
from time to time and at the time in question by the Society of Petroleum
Engineers of the American Institute of Mining Engineers.
ARTICLE II
PURCHASE AND SALE OF THE NOTES
------------------------------
2.1. Authorization and Issuance of the Notes.
(a) The Company has authorized the issuance of Notes in the aggregate
principal amount of $18,000,000 on the Closing Date (the "Initial Notes").
(b) On the Closing Date, the Company shall sell to each Purchaser, and
each Purchaser shall severally purchase from the Company, upon satisfaction
of the conditions set forth in Section 4.1 hereof (or waiver in writing of
such conditions by such Purchaser), an Initial Note in the principal amount
equal to the amount set forth opposite such Purchaser's name on Schedule 2
for the purchase price set forth opposite its name.
(c) On or before the issuance thereof, the Company will have
authorized the issue and sale to the Purchasers of up to $10,000,000
aggregate principal amount of additional Notes (the "Additional Notes").
(d) On each Additional Closing Date, the Company shall sell to each
Purchaser, and each Purchaser shall severally purchase from the Company,
upon satisfaction of the conditions set forth in Section 4.3 hereof (or
waiver in writing of such conditions by such Purchaser), in one or more
increments of $4,000,000 or integral multiples of $1,000,000 in excess
thereof, up to $10,000,000 aggregate stated principal amount of Additional
Notes in the respective percentages set forth opposite such
21
Purchaser's name on Schedule 2 for the purchase price set forth opposite
its name. Notwithstanding anything to the contrary herein, the obligation
of each Purchaser to purchase Additional Notes shall terminate on the
second anniversary of the Closing Date and the aggregate stated principal
amount of all Additional Notes issued by the Company shall not exceed
$10,000,000.
2.2. Delivery of the Notes.
On the Closing Date, the Company shall deliver to each Purchaser a duly
executed Initial Note (payable to the order of such Purchaser) purchased by such
Purchaser on the Closing Date. Delivery shall be made against receipt by the
Company of the aggregate purchase price for the Notes being purchased by such
Purchaser by wire transfer of immediately available funds to an account
designated by the Company. On each Additional Closing Date, the Company shall
deliver to each Purchaser a duly executed Additional Note (payable to the order
of such Purchaser) purchased by such Purchaser on such Additional Closing Date.
Delivery shall be made against receipt by the Company of the aggregate purchase
price for the Additional Notes being purchased by such Purchaser by wire
transfer of immediately available funds to an account designated by the Company.
2.3. Closing.
Subject to the satisfaction of the conditions precedent set forth in
Section 4.1 hereof (or the waiver in writing of such conditions by the
Purchasers), the delivery of the Initial Notes shall take place at the offices
of Gardere ▇▇▇▇▇ ▇▇▇▇▇▇ LLP, 3000 Thanksgiving Tower, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ on the Closing Date. Subject to the satisfaction of the
conditions precedent set forth in Section 4.3 hereof (or the waiver in writing
of such conditions by the Purchasers), the delivery of the Additional Notes
shall take place at the offices of Gardere ▇▇▇▇▇ ▇▇▇▇▇▇ LLP, 3000 Thanksgiving
Tower, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ on each Additional Closing Date
or at such other location as may be agreed upon by the Company and the
Purchasers.
ARTICLE III
PROVISIONS OF THE NOTES
-----------------------
3.1. The Notes.
The Initial Notes shall be in the aggregate stated principal amount of
Eighteen Million Dollars ($18,000,000). The Initial Notes shall be dated the
Closing Date. The Additional Notes shall be in the aggregate stated principal
amount of not more than Ten Million Dollars ($10,000,000). The Additional Notes
shall be dated the applicable Additional Closing Date on which such Additional
Notes are issued. The aggregate amount of the Notes shall, subject to the
provisions for mandatory and optional prepayment and acceleration contained
herein, mature and be payable in full on the Maturity Date.
3.2. General Provisions as to Payments.
22
(a) The Company shall make each payment in respect of the principal
of, premium, if any, or accrued interest on the Notes, or any other amount
due to the Holders under this Agreement or any other Document, not later
than noon, New York City time, on the day when due, to the Holders as
provided in the Notes and Schedule 2 attached hereto, or in such other
manner as instructed from time to time in writing by the Holder. Except as
otherwise permitted in Section 3.3(b), 3.5 and 3.6, all payments hereunder
shall be made in United States Dollars by wire transfer of immediately
available funds.
(b) Whenever any payment (including principal of, premium, if any, or
interest on the Notes or other amount) hereunder or under any other
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of such interest, or other amount, if applicable.
(c) The Company hereby authorizes the Holders to make appropriate
notations on the grid attached to the Notes, including the date,
outstanding principal amount and any prepayment thereof and the deferred
interest amounts to be added to the principal amount of the Notes in
accordance with Section 3.3(b), which notations shall be conclusive absent
manifest error; provided, however, that the failure of the Holders to make
such notation or any error on the Notes shall not affect the obligation of
the Company to repay, in accordance with the terms of the Notes and this
Agreement, the principal amount of the Notes together with all interest,
prepayment premiums, if any, and other amounts due hereunder.
(d) Neither the Company nor any of its Subsidiaries shall purchase,
redeem or otherwise acquire any Notes from any holder thereof except upon
payment or redemption thereof in accordance with the specific terms thereof
and of this Agreement unless the Company or such Subsidiary shall have
offered to purchase, redeem or otherwise acquire, as the case may be, Notes
from each holder of the Notes at the time outstanding upon the same terms
and conditions and on a pro rata basis (based upon the principal amount of
the Notes then held by each such holder). Any Notes so purchased, redeemed
or otherwise acquired by the Company or any Subsidiary of the Company shall
be cancelled and not be deemed outstanding for any purpose under this
Agreement.
(e) Except to the extent otherwise provided herein, each payment of
principal of the Notes by the Company shall be made for the account of the
holders thereof pro rata in accordance with the respective unpaid principal
amounts of the Notes held by them and each payment of interest on Notes
shall be made for the account of the holders thereof pro rata in accordance
with the amounts of interest on such Notes then due and payable to the
respective Holders.
(f) The Company shall not effect any payment of the Indebtedness by
the issuance of Common Stock otherwise permitted under this Agreement, and
no Holder
23
shall have the obligation to accept any such payment in Common Stock,
pursuant to Sections 3.3(b), 3.5 or 3.6 or otherwise, to the extent that
after giving effect to such issuance, such Holder (together with such
Holder's Affiliates) would beneficially own in excess of 9.99% (the
"Maximum Percentage") of the number of shares of Common Stock outstanding
immediately after giving effect to such payment. For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned
by any Holder and its Affiliates shall include the number of shares of
Common Stock issuable upon payment of the Indebtedness with respect to
which the determination of such sentence is being made, but shall exclude
the number of shares of Common Stock which would be issuable in payment of
any other Indebtedness permitted under the terms of this Agreement for
which no notice of payment by issuance of Common Stock has been received.
For purposes of this Section 3.2(f), in determining the number of
outstanding shares of Common Stock, each Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's most
recent Form 10-Q or Form 10-K, as the case may be, (y) a more recent public
announcement by the Company or (z) any other notice by the Company or the
Company's transfer agent setting forth the number of shares of Common Stock
outstanding. In any case, the number of outstanding shares of Common Stock
shall be determined after giving effect to the payment of any Indebtedness
by the issuance of Common Stock since the date as of which such number of
outstanding shares of Common Stock was reported (but excluding any shares
of Common Stock issuable pursuant to such Stock Payment Notice to the
extent provided in this Section 3.2(f)). In connection with the delivery of
any Stock Payment Notice, the Company may request in such notice, and, if
so requested, each Holder shall confirm on or before two (2) Trading Days
after the receipt of such Stock Payment Notice, the number of shares of
Common Stock such Holder may receive without causing such Holder, together
with its Affiliates, to have beneficial ownership of a number of shares of
Common Stock which exceeds the Maximum Percentage (the "Maximum Shares")
and the number of outstanding shares of Common Stock used by such Holder to
calculate the Maximum Shares. Each Holder covenants that its calculation of
the Maximum Shares shall be made in good faith and consistent with the
calculation of "beneficial ownership" under Rules 13(d) of the Exchange Act
as if the Common Stock to be issued pursuant to the applicable Stock
Payment Notice had been issued to such Holder at the Floor Price specified
in such Stock Payment Notice unless no Floor Price is specified in such
Stock Payment Notice in which event such Common Stock shall be excluded in
all respects from the calculation and determination of the Maximum Shares.
Without limiting the generality of the foregoing, unless a Holder notifies
the Company of the Maximum Shares that such Holder may receive within two
(2) Trading Days of receipt of any Payment Notice, the Company may assume
that the number of shares of Common Stock to be issued to such Holder on
the payment date to which such Payment Notice relates will not cause such
Holder, together with its Affiliates, to have beneficial ownership of a
number of shares of Common Stock which exceeds the Maximum Percentage and
the Company will have no liability to any Holder in respect of issuances of
Common Stock in excess of the Maximum Percentage. Without limiting the
generality of the foregoing, the Company
24
shall have no obligation to determine the beneficial ownership of any
Holder and its Affiliates or to determine whether any Person is an
Affiliate of another Person.
(g) From and after the delivery of any Stock Payment Notice until the
issuance of the shares of Common Stock to which such Stock Payment Notice
relates, the Company shall reserve and keep available, free from preemptive
rights, out of the aggregate of its authorized but unissued Common Stock or
its authorized and issued Common Stock held in its treasury, the number of
shares of Common Stock necessary to enable it to satisfy any obligation to
issue Common Stock on the Issue Date to which such Stock Payment Notice
relates. All shares of Common Stock issued to each Holder in payment of any
of the Indebtedness as permitted under this Agreement shall, upon the
issuance thereof, be validly authorized and issued, fully paid,
nonassessable, free of preemptive rights and free, from all taxes, Liens
and charges with respect to the issuance thereof.
(h) With respect to any shares of Common Stock issued pursuant to this
Agreement, the Company shall (x) provided that the transfer agent is
participating in the Depository Trust Company Fast Automated Securities
Transfer Program and such action is not prohibited by applicable law or
regulation or any applicable policy of the Depository Trust Company, credit
such aggregate number of shares of Common Stock to which the Holder shall
be entitled to the Holder's or its designee's balance account with the
Depository Trust Company through its Deposit Withdrawal Agent Commission
System on the date such shares are required to be issued pursuant to this
Agreement and the shares of Common Stock so issued shall bear no
restrictive legend, or (y) if the foregoing shall not apply, issue and
deliver to each Holder, a certificate, registered in the name of such
Holder or its designee, for the number of shares of Common Stock to which
such Holder shall be entitled on the date such shares of Common Stock are
required to be issued pursuant to this Agreement.
(i) With respect to any shares of Common Stock issued pursuant to this
Agreement, such shares will be duly authorized and validly issued, will be
fully paid and nonassessable and will not have been issued in violation of,
and will not be subject to, any preemptive or similar rights.
3.3. Interest.
(a) Interest Rate. The Indebtedness evidenced by the Notes shall bear
interest at ten percent (10%) per annum on the outstanding principal
balance thereof, for each day from and including the date that the Note is
issued (which outstanding principal balance shall be determined based on
the stated amount of the Note issued on the Closing Date and not on the
purchase price of the Note on the Closing Date plus any interest added to
such principal balance thereof in accordance with Section 3.3(b)). Interest
on all Indebtedness evidenced by the Notes shall be calculated for actual
days elapsed on the basis of a 360 day year consisting of twelve 30-day
months . If any payment of principal of or interest on Indebtedness
evidenced by a Note shall become due on a day which is not a Business Day,
such payment shall be made on the next
25
succeeding Business Day and, in the case of a principal payment, such
extension of time shall be included in computing interest in connection
with such payment.
(b) Interest Payment Dates and Payment. Interest accrued on the
Indebtedness evidenced by the Notes shall be payable on each Payment Date,
commencing on March 5, 2005 with respect to the Initial Notes and on the
later of March 5, 2005 or the first such Payment Date to occur after the
issuance thereof with respect to any Additional Notes, on any date on which
any Indebtedness evidenced by the Notes is prepaid whether due to
acceleration or otherwise, and on the Maturity Date. Interest payable on
any date on which any Indebtedness evidenced by the Notes is prepaid,
whether due to acceleration or otherwise shall be payable, at the Company's
option, in cash, or by the issuance of additional fully paid and
nonassessable shares of Common Stock or any combination of cash and Common
Stock to the extent permitted by Section 3.6. Interest payable on the
Maturity Date shall be payable, at the Company's option, in cash, or by the
issuance of additional fully paid and nonassessable shares of Common Stock
or any combination of cash and Common Stock to the extent permitted by
Section 3.5(a). Interest payable on any Payment Date shall be payable, at
Company's option, (i) in cash, or (ii) by the issuance of additional fully
paid and nonassessable shares of Common Stock (but not fractions thereof)
or (iii) any combination of the foregoing clauses (i) and (ii). In the
event the Company elects to pay the interest due on any Payment Date by
issuing Common Stock or by a combination of cash and Common Stock, (A)
subject to the following proviso, the Interest Payment Price for such
payment is equal to or greater than the Floor Price, if any, specified by
the Company in the notice required by the following clause (D) with respect
to such Payment Date, as adjusted for stock splits, reverse stock splits
and similar recapitalizations, if any occurring on or after the date of
such notice, (B) the Equity Conditions are met as of the date of the notice
required by the following clause (D) and as of such Payment Date, (C) the
number of shares of Common Stock to be issued to each Holder in payment of
the interest due on such Payment Date to such Holder shall be determined by
dividing the portion of such interest to be paid in Common Stock by the
Interest Payment Price for such Payment Date, and (D) the Company shall
give written notice to the Holders at least fifteen (15) Trading Days prior
to such Payment Date stating the percentage of the aggregate amount of
interest due on such Payment Date the Company proposes to pay in Common
Stock on such Payment Date and, at the Company's option, the Floor Price
for such Common Stock (each, an "Interest Payment Notice"); provided that
in the event the foregoing clause (A) is not satisfied on any Payment Date,
any Holder may elect, by written notice of such election to the Company
delivered on or before one (1) Trading Day prior to such Payment Date, to
accept payment of all or any portion of the interest due such Holder on
such Payment Date that the Company proposed to pay by the issuance of
Common Stock in which event the portion of each payment specified by the
Holder shall be made to such Holder in Common Stock as if the Interest
Payment Price was equal to the Floor Price specified by the Company and the
remainder of such interest due such Holders shall be paid in cash.
Notwithstanding the foregoing, on each Payment Date occurring on or before
June 5, 2007, the Company may defer fifty percent (50%) of the interest
26
due on such Payment Date and such deferred interest shall become a part of
the principal due hereunder as of the Payment Date such interest became
due, shall earn interest as provided hereunder and shall be due and payable
on the Maturity Date unless the maturity of the amounts due hereunder are
accelerated pursuant to the terms of this Agreement.
(c) Limitation of Interest. The Company, the Collateral Agent and the
Holders intend to strictly comply with all applicable laws, including
applicable usury laws. Accordingly, the provisions of this Section 3.3(c)
shall govern and control over every other provision of this Agreement or
any other Document which conflicts or is inconsistent with this Section
3.3(c), even if such provision declares that it controls. As used in this
Section 3.3(c), the term "interest" includes the aggregate of all charges,
fees, benefits or other compensation which constitute interest under
applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the
Indebtedness. In no event shall the Company or any other Person be
obligated to pay, or any Holder have any right or privilege to reserve,
receive or retain, (a) any interest in excess of the maximum amount of
nonusurious interest permitted under the laws of the State of Texas or the
applicable laws (if any) of the United States or of any other applicable
state, or (b) total interest in excess of the amount which such Holder
could lawfully have contracted for, reserved, received, retained or charged
had the interest been calculated for the full term of the Indebtedness at
the Highest Lawful Rate. On each day, if any, that the interest rate (the
"Stated Rate") called for under this Agreement or any other Document
exceeds the Highest Lawful Rate, the rate at which interest shall accrue
shall automatically be fixed by operation of this sentence at the Highest
Lawful Rate for that day, and shall remain fixed at the Highest Lawful Rate
for each day thereafter until the total amount of interest accrued equals
the total amount of interest which would have accrued if there were no such
ceiling rate as is imposed by this sentence. Thereafter, interest shall
accrue at the Stated Rate unless and until the Stated Rate again exceeds
the Highest Lawful Rate when the provisions of the immediately preceding
sentence shall again automatically operate to limit the interest accrual
rate. The daily interest rates to be used in calculating interest at the
Highest Lawful Rate shall be determined by dividing the applicable Highest
Lawful Rate per annum by the number of days in the calendar year for which
such calculation is being made. None of the terms and provisions contained
in this Agreement or in any other Document which directly or indirectly
relate to interest shall ever be construed without reference to this
Section 3.3(c), or be construed to create a contract to pay for the use,
forbearance or detention of money at an interest rate in excess of the
Highest Lawful Rate. If the term of any Indebtedness is shortened by reason
of acceleration of maturity as a result of any Default or by any other
cause, or by reason of any required or permitted prepayment, and if for
that (or any other) reason any Holder at any time, including but not
limited to, the stated maturity, is owed or received (and/or has
27
received) interest in excess of interest calculated at the Highest Lawful
Rate, then and in any such event all of any such excess interest shall be
canceled automatically as of the date of such acceleration, prepayment or
other event which produces the excess, and, if such excess interest has
been paid to such Holder, it shall be credited pro tanto against
then-outstanding principal balance of the Company's obligations to such
Holder, effective as of the date or dates when the event occurs which
causes it to be excess interest, until such excess is exhausted or all of
such principal has been fully paid and satisfied, whichever occurs first,
and any remaining balance of such excess shall be promptly refunded to its
payor. Chapter 346 of the Texas Finance Code (which regulates certain
revolving credit accounts (formerly Tex. Rev. Civ. Stat. ▇▇▇. Art. ▇▇▇▇,
▇▇. 15)) shall not apply to this Agreement or to any Note, nor shall this
Agreement or any Note be governed by or be subject to the provisions of
such Chapter 346 in any manner whatsoever.
3.4. Interest on Overdue Amounts. During the continuance of an Event of
Default, the Majority Holders may, at their option, by notice to the Company
(which notice may be revoked at the option of the Majority Holders
notwithstanding any provision of Section 16.8 requiring unanimous consent of the
Holders to changes in interest rates), declare that the Indebtedness evidenced
by each Note shall bear interest at a rate per annum equal to twelve percent
(12%) per annum, provided that, during the continuance of an Event of Default
under Sections 8.1(f), the interest rates set forth in this Section 3.4 above
shall be applicable to Indebtedness evidenced by the Notes without any election
or action on the part of the Collateral Agent or any Holder.
3.5. Mandatory Redemption.
(a) Maturity Date. Any outstanding Indebtedness evidenced by the Notes
and all other unpaid Indebtedness shall be paid in full, at the Company's
option, (i) in cash, (ii) by the issuance of additional fully paid and
nonassessable shares of Common Stock (but not fractions thereof) or (iii)
any combination of the foregoing clauses (i) and (ii) on the Maturity Date.
In the event the Company elects to pay the Indebtedness due on the Maturity
Date by issuing Common Stock or by a combination of cash and Common Stock,
(A) subject to the following proviso, the Maturity Date Price is equal to
or greater than the Floor Price, if any, specified by the Company in the
notice required by the following clause (D), as adjusted for stock splits,
reverse stock splits and similar recapitalizations, if any occurring on or
after the date of such notice, (B) the Equity Conditions are met as of the
date of the notice required by the following clause (D) and as of the
Maturity Date, (C) the number of shares of Common Stock to be issued to
each Holder in payment of the outstanding principal balance of and accrued
but unpaid interest on the Indebtedness held by such Holder shall be
determined by dividing the portion of such Indebtedness to be paid in
Common Stock by the Maturity Date Price, (D) the Company shall give written
notice to the Collateral Agent and the Holders at least thirty-five (35)
Trading Days prior to the Maturity Date stating the percentage of the
outstanding principal balance of and accrued but unpaid interest on the
Notes the Company will pay in Common Stock on the Maturity Date, and, at
the Company's option, the Floor Price for such Common Stock (the "Maturity
Date Payment Notice") and (E) Common Stock can only be issued in
satisfaction of the outstanding principal
28
balance of and accrued but unpaid interest on the Notes; provided that in
the event the foregoing clause (A) is not satisfied, any Holder may elect,
by written notice of such election to the Company delivered on or before
one (1) Trading Day prior to the Maturity Date, to accept payment of all or
any portion of such Holder's Indebtedness that Company proposed to pay by
the issuance of Common Stock (the "Maturity Date Floor Price Portion") in
which event the portion of such payment specified by such Holder shall be
made to such Holder in Common Stock as if the Maturity Date Price was equal
to the Floor Price specified by the Company and the remainder of such
Indebtedness due such Holder shall be paid in cash on the Maturity Date. If
the Company delivers a Maturity Date Payment Notice with respect to the
payment of the amounts due on the Maturity Date and the Company is
prohibited from paying the amounts specified in the Maturity Date Payment
Notice in Common Stock on the Maturity Date as a result of the failure to
satisfy any of the conditions to such payment in Common Stock set forth in
this Agreement or any other Document (including any Maturity Date Floor
Price Portion), the Company shall pay the amounts it proposed to pay in
Common Stock in the Maturity Date Payment Notice in full in cash on or
before thirty (30) days after the Maturity Date. The Company shall also
comply with any applicable obligation under Section 6.14.
(b) Change of Control. In the event of a Change of Control, each
Holder shall have the option to require the Company to repurchase all the
Notes held by such Holder at a purchase price equal to the then outstanding
principal amount of the Notes, together with all interest accrued on such
Notes through the date of repurchase. The Company shall give the Holders
notice (a "Change of Control Notice") of any transaction that would result
in a Change of Control not less than sixty (60) days prior to the
anticipated date of the consummation of such transaction (but in no event
prior to the public announcement of such Change of Control). Any Holder may
exercise its right to require the Company to repurchase the Notes held by
it by delivering written notice of such exercise (a "Repurchase Notice") to
the Company within twenty (20) days after receipt of the Change of Control
Notice. The repurchase of the Notes shall be consummated on a date selected
by the Company upon at least thirty-five (35) Trading Days' prior written
notice to the Holders which have given the relevant Repurchase Notice(s) if
any portion of such repurchase will be made by the issuance of Common Stock
to the extent permitted hereunder, otherwise at least ten (10) days prior
written notice to such holders, but in no event later than the date of
consummation of such Change of Control or three (3) Business Days after the
Company becomes aware of such Change of Control unless the Company is not a
party to the transaction resulting in a Change of Control, in which case
such date shall be as soon as practicable, following such Change of Control
but in any event not later than ten (10) days following the Change of
Control (the "Repurchase Closing Date"). On the Repurchase Closing Date,
the Company shall purchase from the Holders which have given such
Repurchase Notice(s), and such Holder shall sell to the Company, the Notes
held by such Holder for the purchase price specified in this paragraph
3.5(b) which purchase price may, at the Company's option, be paid in cash
or by the issuance of shares of Common Stock as if such purchase was a
voluntary redemption of the Notes pursuant to Section 3.6. Any
29
payment of the purchase price with shares of Common Stock as a result of a
Change of Control may be made only if the issuance of such shares of Common
Stock complies, in all respects, with the conditions and provisions of the
Documents applicable to a voluntary redemption pursuant to Section 3.6
including Section 6.14.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Notes pursuant to
this Section 3.5(b). To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this Section 3.5(b),
the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under
this Section 3.5(b) by virtue thereof.
3.6. Optional Redemption. The Company may from time to time redeem, at the
Company's option, (i) in cash, (ii) by the issuance of additional fully paid and
nonassessable shares of Common Stock (but not fractions thereof) or (iii) any
combination of the foregoing clauses (i) and (ii) all or any portion of the
Indebtedness outstanding under the Notes. In the event the Company elects to
voluntarily redeem any of the Indebtedness outstanding under the Notes by
issuing Common Stock or by a combination of cash and Common Stock, (A) subject
to the following proviso, the Voluntary Redemption Price for such Voluntary
Redemption Date is equal to or greater than the Floor Price, if any, specified
by the Company in the notice required by the following clause (D) with respect
to such Voluntary Redemption Date, as adjusted for stock splits, reverse stock
splits and similar recapitalizations, if any occurring on or after the date of
such notice, (B) the Equity Conditions are met as of the date of the notice
required by the following clause (D) and as of the Voluntary Redemption Date,
(C) the number of shares of Common Stock to be issued to each Holder in payment
of the outstanding principal balance of and accrued but unpaid interest on the
Indebtedness held by such Holder shall be determined by dividing the portion of
such Indebtedness due on such Voluntary Redemption Date to be paid in Common
Stock by the Voluntary Redemption Price for such Voluntary Redemption Date, (D)
the Company shall give written notice to the Holders at least thirty-five (35)
Trading Days prior to the proposed Voluntary Redemption Date stating the
aggregate amount of principal the Company proposes to prepay on such date (which
shall be in a minimum aggregate principal amount of $500,000 or any integral
multiple of $100,000 in excess thereof), the percentage of the outstanding
principal balance of and accrued but unpaid interest on the Notes the Company
will pay in Common Stock on such Voluntary Redemption Date and, at the Company's
option, the Floor Price for such Common Stock (each a "Voluntary Redemption
Notice") and (E) Common Stock can only be issued in satisfaction of the
outstanding principal balance of and accrued but unpaid interest on the Notes;
provided that in the event the foregoing clause (A) is not satisfied on any
Voluntary Redemption Date, any Holder may elect, by written notice of such
election to the Company delivered on or before one (1) Trading Day prior to such
Voluntary Redemption Date, to accept payment of all or any portion of such
Holder's Indebtedness that the Company proposed to pay by the issuance of Common
Stock in which event the portion of such payment specified by such Holder shall
be made to such Holder in Common Stock as if the Voluntary Redemption Price was
equal to the Floor Price specified by the Company (the "Floor Price Portion")
and the remainder of such Indebtedness due on such Voluntary Redemption Date
shall
30
be paid in cash on the Voluntary Redemption Date. Upon the delivery of the
notice required by the foregoing clause (D) the principal amount of the
Indebtedness evidenced by the Notes specified in such notice shall become due
and payable and shall constitute an Event of Default under Section 8.1(a) if the
Company fails to pay such principal amount on the Voluntary Redemption Date
specified in such notice unless such failure to pay is a result of the failure
to satisfy clause (A) on such Voluntary Redemption Date with respect to any
portion of such payment that is not the Floor Price Portion. If the Company
delivers a Voluntary Redemption Notice with respect to the payment of the
amounts due on any Voluntary Redemption Date and the Company cannot make the
payment of the amounts specified in such Voluntary Redemption Notice to be paid
in Common Stock on the Voluntary Redemption Date as a result of the failure to
satisfy any of the conditions to such payment in Common Stock set forth in this
Agreement or any other Document (including any Floor Price Portion), the Company
shall pay the amounts it proposed to pay in Common Stock on such Voluntary
Redemption Notice in cash on or before ten (10) days after such Voluntary
Redemption Date. The Company shall also comply with any applicable obligation
under Section 6.14.
3.7. Securities Register.
(a) The Company shall cause to be kept at its principal office a
register for the registration and transfer of the Notes (the "Note
Register"). The names and addresses of the holders of the Notes, the
transfer of the Notes, and the names and addresses of the transferees of
the Notes shall be registered in the Note Register.
(b) The Person in whose name any registered Note shall be registered
shall be deemed and treated as the owner and holder thereof for all
purposes of this Agreement and the Company shall not be affected by any
notice to the contrary, until due presentment of such Note for registration
of transfer so provided in this Section 3.7(b). Payment of or on account of
the principal, premium, interest and any other amount paid on any
registered Note shall be made to (or based upon the written order of) such
registered holder.
3.8. Lost, Etc. Securities.
(a) Upon receipt of evidence reasonably satisfactory to the Company
(an affidavit of a financial institution or other institutional investor
being satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any Note, and in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company (if such Holder is a financial institution or other institutional
investor, its own agreement being satisfactory) or, in the case of any such
mutilation, upon surrender for cancellation of such Note, the Company
shall, without charge, issue, register and deliver in lieu of such Note a
new Note of like kind representing the same rights represented by and dated
the date of such lost, stolen, destroyed or mutilated Note. Any such new
Note shall constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated or destroyed Note
shall be at any time enforceable by any Person.
31
3.9. Several Obligations; Remedies Independent. No Purchaser shall have any
obligation to any other Purchaser in respect of the failure by such Purchaser to
purchase any Note required to be purchased by such Purchaser. The amounts
payable by the Company at any time hereunder and under the Notes to each
Purchaser shall be separate and independent debt and, subject to the provisions
of Articles VIII and XIV, each holder shall be entitled to protect and enforce
its rights arising out of this Agreement and the Notes held by it and it shall
not be necessary for any other holder to consent to or be joined as an
additional party in, any proceedings for such purposes.
3.10. Notes Not Senior Indebtedness. The Indebtedness does not constitute
"Senior Indebtedness" as such term is defined in the Subordinated Note
Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.1. Purchase of Initial Notes. The Purchasers shall not be required to
purchase the Initial Notes hereunder unless the Company has satisfied each of
the following conditions:
(a) Closing Deliveries. The Company shall have furnished to the
Purchasers:
(i) Copies of the Organizational Documents of each Restricted
Person, together with all amendments, and a certificate of good
standing, each certified by the appropriate governmental officer in
its jurisdiction of incorporation as well as any other information
required by Section 326 of the USA PATRIOT ACT or necessary for the
Purchasers to verify the identity of each Restricted Person as
required by Section 326 of the USA PATRIOT ACT.
(ii) Copies, certified by the Secretary or other Authorized
Officer of each Restricted Person, of its Organizational Documents
and, if applicable, its Board of Directors' resolutions and of
resolutions or actions of any other body authorizing the execution of
the Documents to which such Restricted Person is a party.
(iii) An incumbency certificate, executed by the Secretary or
other Authorized Officer of each Restricted Person, which shall
identify by name and title and bear the signatures of the Authorized
Officers and any other officers of each Restricted Person authorized
to sign the Documents to which such Restricted Person is a party, upon
which certificate the Purchasers shall be entitled to rely until
informed of any change in writing by such Restricted Person.
(iv) A certificate, signed by the Chief Financial Officer of the
Company, stating that on the date of the Purchase of the Initial Notes
no Default or Event of Default has occurred and is continuing, and
after giving effect to the Closing Transactions, the Company shall be
in compliance, on a pro forma basis,
32
with the financial covenants set forth in Section 6.7 accompanied by
reasonably detailed calculations demonstrating compliance with the
such financial covenants.
(v) A written opinion of the Company's counsel, addressed to the
Purchasers in substantially the form of Exhibit D.
(vi) The Subordination Agreement duly executed and delivered by
the Company, the Collateral Agent and the Senior Agent.
(vii) The Initial Notes.
(viii) The following Security Documents to be executed on the
Closing Date, duly executed and delivered by each Restricted Party or
party thereto:
(a) the Mortgages;
(b) the Security Agreement (and physical delivery to the
Collateral Agent (or the Senior Agent) of the stock certificates
therein described);
(c) the Guaranty; and
(d) any additional Security Documents granted by any Person
in favor of the Collateral Agent for the ratable benefit of the
Purchasers as security for the Indebtedness.
(ix) A copy of each Document and all other material documents,
instruments and agreements executed and/or delivered by any Restricted
Person in connection with the Closing Transactions, together with a
certificate from an Authorized Officer of the Company certifying that
such copies are accurate and complete and represent the complete
understanding and agreement of the parties with respect to the subject
matter thereof.
(x) The Subordinated Note Agreement Amendment duly executed and
delivered by the Company and the holders of the Senior Subordinated
Notes.
(xi) The Senior Credit Agreement Amendment duly executed and
delivered by Company, Guarantor, Senior Agent and Banks.
(xii) The Registration Rights Agreement and each other Document
duly executed and delivered by each Restricted Person a party thereto,
Collateral Agent and the Purchasers, to the extent a party thereto.
(xiii) Such other documents as any Purchaser or its counsel may
have reasonably requested.
33
(b) Closing Transactions. Subject only to the disbursement and
application of the proceeds of the Notes, the Closing Transactions shall
have occurred and been consummated on the terms set forth in the Documents
(or the Collateral Agent shall be satisfied that such transactions will
occur and be consummated simultaneously with the Closing Date).
(c) No Event of Default or Default; Legal Matters. No Event of Default
or Default shall have occurred and be continuing or would result from the
consummation of the Closing Transactions and all legal matters incident to
the purchase of the Initial Notes shall be satisfactory to the Purchasers
and their counsel.
(d) No Litigation. No litigation, arbitration or similar proceeding
shall be pending or, to the knowledge of the Company, threatened that
purports to affect the validity or enforceability of this Agreement, the
other Documents, the Closing Transactions or the transactions contemplated
hereby or thereby or that could cause a Material Adverse Effect in the
Company or in the ability of any Restricted Person to perform its
obligations under any of the Documents to which it is a party.
(e) Closing Fees and Expenses. Subject to any agreed limitations
between the Company and the Purchaser, the Company shall have paid all
fees, expenses and disbursements of counsel for the Collateral Agent and
the Purchasers with respect to the initial closing of the transactions
contemplated by this Agreement.
(f) Representations and Warranties. The representations and warranties
of the Company and each Guarantor under this Agreement and the other
Documents shall be true and correct in all material respects as of such
date, as if then made (except to the extent that such representations and
warranties related solely to an earlier date).
(g) Other Matters. All matters related to this Agreement, the other
Documents, the Restricted Persons, the Closing Documents and the Closing
Transactions shall be reasonably acceptable to each Purchaser, and each
Restricted Person shall have delivered to each Purchaser and each Purchaser
such evidence as they shall request to substantiate any matters related to
this Agreement, the other Documents, the Restricted Persons, the Documents
and the Closing Transactions as any Purchaser shall reasonably request.
4.2. Certificate of Effectiveness. Upon satisfaction or waiver in writing
by the Collateral Agent and each Purchaser of each of the conditions set forth
in Section 4.1, the Company and the Collateral Agent shall execute the
Certificate of Effectiveness. Each Purchaser hereby authorizes the Collateral
Agent to execute the Certificate of Effectiveness on its behalf and acknowledges
and agrees that the execution of the Certificate of Effectiveness by the
Collateral Agent shall be binding on each such Purchaser.
4.3. Purchase of Additional Notes. The Purchasers shall not be required to
purchase any Additional Notes hereunder unless the Company has satisfied each of
the following conditions:
34
(a) Closing Deliveries. The Company shall have furnished to the
Purchasers:
(i) Copies of the Organizational Documents of each Restricted
Person, together with all amendments, and a certificate of good
standing, each certified by the appropriate governmental officer in
its jurisdiction of incorporation as well as any other information
required by Section 326 of the USA PATRIOT ACT or necessary for the
Purchasers to verify the identity of each Restricted Person as
required by Section 326 of the USA PATRIOT ACT.
(ii) Copies, certified by the Secretary or other Authorized
Officer of each Restricted Person, of its Organizational Documents
and, if applicable, its Board of Directors' resolutions and of
resolutions or actions of any other body authorizing the execution of
the Documents to which such Restricted Person is a party.
(iii) An incumbency certificate, executed by the Secretary or
other Authorized Officer of each Restricted Person, which shall
identify by name and title and bear the signatures of the Authorized
Officers and any other officers of each Restricted Person authorized
to sign the Documents to which such Restricted Person is a party, upon
which certificate the Purchasers shall be entitled to rely until
informed of any change in writing by such Restricted Person.
(iv) A certificate, signed by the Chief Financial Officer of the
Company, stating that on the date of the Purchase of the Additional
Notes no Default or Event of Default has occurred and is continuing,
and after giving effect to the Closing Transactions, the Company shall
be in compliance, on a pro forma basis, with the financial covenants
set forth in Section 6.7 accompanied by reasonably detailed
calculations demonstrating compliance with the such financial
covenants.
(v) A written opinion of the Company's counsel, addressed to the
Purchasers in substantially the form of Exhibit D.
(vi) The Additional Notes to be issued at such Additional Closing
Date.
(vii) Such other documents as any Purchaser or its counsel may
have reasonably requested.
(b) Prior Notice. Each Purchaser shall have received not less than
twenty (20) days prior written notice from the Company of the Company's
desire to issue and sell to the Purchasers, subject to the terms and
conditions set forth herein, Additional Notes. Such prior written notice
shall include the proposed Additional Closing Date and the aggregate stated
amount of Additional Notes to be issued on such proposed Additional Closing
Date.
(c) No Event of Default or Default; Legal Matters. No Event of Default
or Default shall have occurred and be continuing or would result from the
consummation
35
of the purchase of the Additional Notes to be issued on such Additional
Closing Date and all legal matters incident to the purchase of such
Additional Notes shall be reasonably satisfactory to the Purchasers and
their counsel.
(d) No Litigation. No litigation, arbitration or similar proceeding
shall be pending or, to the knowledge of the Company, threatened that
purports to affect the validity or enforceability of this Agreement, the
other Documents, or the transactions contemplated hereby or thereby or that
could cause a Material Adverse Effect in the Company or in the ability of
any Restricted Person to perform its obligations under any of the Documents
to which it is a party.
(e) Closing Fees and Expenses. The Company shall have paid all
documented and reasonable fees, out-of-pocket expenses and disbursements of
counsel for the Purchasers with respect to the closing of the purchase of
the Additional Notes.
(f) Representations and Warranties. The representations and warranties
of the Company and each Guarantor under this Agreement and the other
Documents shall be true and correct in all material respects as of such
date, as if then made.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
To confirm each Purchaser's understanding concerning Restricted Persons and
Restricted Persons' businesses, properties and obligations and to induce each
Purchaser to enter into this Agreement and to purchase its Notes hereunder, the
Company represents and warrants to Collateral Agent and each Purchaser that:
5.1. Corporate Authority of the Company. The Company is a corporation duly
created, validly existing, and in good standing under the laws of the state its
incorporation, and is duly qualified and in good standing as foreign corporation
in Louisiana and all other jurisdictions where the failure to qualify would have
an adverse effect upon its ability to perform its obligations under this
Agreement and all Documents to which it is a party. The Company has the
corporate power to enter into this Agreement, execute the Documents, and grant
the liens and security interests in the Collateral in the manner and for the
purpose contemplated by the Security Documents. The Company has the corporate
power to perform its obligations hereunder and under the Documents. The
execution, delivery, and performance by the Company of the Documents have all
been duly authorized by all necessary corporate or company action, and do not
and will not result in any violation by the Company of any provision of any law,
rule, regulation, order, writ, judgment, decree, determination or award
presently in effect having applicability to the Company, or the articles of
incorporation and bylaws of the Company. Except as set forth in the Disclosure
Schedule attached hereto, the making and performance by the Company of the
Documents do not and will not result in a breach of or constitute a default
under any material indenture or loan or credit agreement or any other material
agreement or instrument to which the Company is a party or by which it may be
bound or affected, or result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest
36
or other charge or encumbrance of any nature (other than as contemplated by the
Security Documents) upon or with respect to any of the properties now owned or
hereafter acquired by the Company. Each of the Documents to which the Company is
a party constitutes a legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
5.2. Financial Reports. As of the date hereof, the most recent filings made
with the Commission pursuant to the Exchange Act do not contain any untrue
statements of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the periods covered by such reports.
Except as set forth in the Disclosure Schedule, no Material Adverse Effect has
occurred since the dates of such filings with respect to the Company and its
Subsidiaries, taken as a whole.
5.3. Title to Mortgaged Properties. As of the date hereof, except as set
forth on the Disclosure Schedule attached hereto, the Company has Defensible
Title to each of the Mortgaged Properties that has a book cost in excess of
$200,000 and, in each case free and clear of all Liens (other than Permitted
Liens) (i) Liens for taxes not yet due and payable or, if payable, that are
being contested in good faith in the ordinary course of business, (ii) statutory
Liens (including materialmen's, mechanic's, repairmen's, landlord's and other
similar encumbrances) arising in the ordinary course of business to secure
payments not yet due and payable or, if payable, that are being contested in
good faith in the ordinary course of business, (iii) easements, restrictions,
reservations or other encumbrances, as well as such imperfections or
irregularities of title, if any, as are not material, (iv) obligations or duties
to any municipality or public authority with respect to any franchise, grant,
license or permit and all applicable laws, rules, regulations and orders of any
Governmental Authority, (v) all lessors' royalties, overriding royalties, net
profits interests, production payments, carried interests, reversionary
interests and other burdens on or deductions from the proceeds of production,
(vi) the terms and conditions of joint operating agreements and other oil and
gas contracts, (vii) all rights to consent by, required notices to, and filings
with or other actions by governmental or tribal entities, if any, in connection
with the change of ownership or control of an interest in federal, state, tribal
or other domestic governmental oil and gas leases, if the same are customarily
obtained subsequent to such change of ownership or control, but only insofar as
such consents, notices, filings and other actions relate to the transactions
contemplated by this Agreement, (viii) any preferential purchase rights, (ix)
required third party consents to assignment, (x) conventional rights of
reassignment prior to abandonment and (xi) the terms and provisions of oil and
gas leases, unit agreements, pooling agreements, and other documents creating
interests comprising the Mortgaged Properties; provided, however, the exceptions
described in clauses (iv) through (xi) inclusive above are qualified to include
only those exceptions in each case which do not operate to (A) reduce the net
revenue interest of the Company below that set forth on the Disclosure Schedule,
(B) increase the proportionate share of costs and expenses of leasehold
operations attributable to or to be borne by the working interest of the Company
above that set forth on the Disclosure Schedule without a proportionate increase
in the net revenue interest of the Company or (C) increase the working interest
of the Company above that set forth on the Disclosure Schedule without a
proportionate increase in the net revenue interest of the Company, and,
provided, further, that the foregoing defects, limitations, liens and
encumbrances, whether individually material or not, do not in the aggregate
create a Material Adverse Effect upon the Company (the categories of exceptions
in clauses (iv) through
37
(xi), as so qualified and as any such exceptions may exist from time to time,
being referred to as the "Designated Title Exceptions"). The Mortgages
constitute a legal, valid and perfected Lien on the property interests covered
thereby, subject only to Designated Title Exceptions, Permitted Liens, and
matters disclosed on the Disclosure Schedule. Further, as of the date hereof,
the Mortgaged Properties constitute not less than ninety percent (90%) of the
net present value of the proved reserves of the Oil and Gas Properties owned by
the Company and the Guarantors, taken as a whole, as of the Closing Date which
are included in the Borrowing Base as of the Closing Date.
5.4. Litigation. Other than as set forth in the Disclosure Schedule as of
the date hereof, there are no legal actions, suits or proceedings pending or, to
the best knowledge of the Company, threatened against or affecting the Company,
or any of its properties before any court or administrative agency (federal,
state or local), which could reasonably be expected to constitute a Material
Adverse Effect, and there are no judgments or decrees affecting the Company, or
its property (including, without limitation, the Collateral) which are or could
reasonably be expected to become a Lien against such property (other than a
Designated Title Exception or a Permitted Lien).
5.5. Approvals. No authorization, consent, approval or formal exemption of,
nor any filing or registration with, any governmental body or regulatory
authority (federal, state or local), and no vote, consent or approval of the
shareholders of the Company is or will be required in connection with the
execution and delivery by the Company of the Documents or the performance by the
Company of its obligations hereunder and under the other Documents, except to
the extent obtained.
5.6. Required Insurance. The Company maintains insurance with insurance
companies in such amounts and against such risks as is usually carried by owners
of similar businesses and properties in the same general areas in which Company
operates.
5.7. Licenses. The Company possesses adequate franchises, licenses and
permits to own its properties and to carry on its business as presently
conducted, except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect.
5.8. Adverse Agreements. Except as described in the Disclosure Schedule,
the Company is not a party to any agreement or instrument, nor subject to any
charter or other restriction, materially and adversely affecting the business,
properties, assets, or operations of the Company or its condition (financial or
otherwise), and the Company is not in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument to which it is a party, which default would constitute a
Material Adverse Effect.
5.9. Default or Event of Default. No Default or Event of Default hereunder
has occurred and is continuing or will occur as a result of the giving effect
hereto.
5.10. Employee Benefit Plans. Each employee benefit plan as to which the
Company may have any liability complies in all material respects with all
applicable requirements of law
38
and regulations, and (i) no Reportable Event (as defined in ERISA) has occurred
and is continuing with respect to any such plan, (ii) the Company has not
withdrawn from any such plan or initiated steps to do so, and (iii) no steps
have been taken to terminate any such plan.
5.11. Investment Company Act. The Company is not an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
5.12. Public Utility Holding Company Act. The Company is not a "holding
company," or a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
5.13. Regulations X, T and U. The Company is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations X, T and U of the Board of Governors of the Federal Reserve System),
and none of the proceeds of the issuance of the Notes will be used for the
purpose of purchasing or carrying such margin stock.
5.14. Location of Offices and Records. As of the date hereof, the chief
place of business of the Company, and the office where the Company keeps all of
its records concerning the Collateral, is ▇▇▇▇▇ ▇▇. ▇▇▇▇'▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
5.15. Patriot Act. To the extent applicable, each Restricted Person is in
compliance, in all material respects, with the (i) Trading with the Enemy Act,
as amended, and each of the foreign assets control regulations of the Untied
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any
other enabling legislation or executive order relating thereto, and (ii) Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism (USA Patriot Act of 2001) (the "Act"). No part of the
proceeds of the issuance of the Notes will be used, directly or indirectly, for
any payments to any governmental official or employee, political party, official
of a political party, candidate for political office, or anyone else acting in
an official capacity, in order to obtain, retain or direct business or obtain
any improper advantage, in violation of the United States Foreign Corrupt
Practices Act of 1977, as amended.
5.16. Environmental Matters. Except as previously disclosed to the Agent in
writing or as could not reasonably be expected to result in a Material Adverse
Effect:
(a) To the best of Company's knowledge and belief after due inquiry,
Company is in compliance with all applicable Environmental Laws;
(b) To the best of Company's knowledge and belief after due inquiry,
Company has obtained all consents and permits required under all applicable
Environmental Laws to operate its business as presently conducted or as
proposed to be conducted and all such consents and permits are in full
force and effect and Company is in compliance with all terms and conditions
of such approvals;
39
(c) To the best of Company's knowledge and belief after due inquiry,
neither Company nor any of the present property or operations of Company is
subject to any order from or agreement with any Governmental Authority or
private party respecting (i) failure to comply with any Environmental Law
or any Remedial Action or (ii) any Environmental Liabilities arising from
the Release or threatened Release except those orders and agreements with
which Company has complied;
(d) To the best of Company's knowledge and belief after due inquiry,
none of the operations of Company is subject to any judicial or
administrative proceeding alleging a violation of, or liability under, any
Environmental Law;
(e) None of the operations of Company, to its best knowledge after due
inquiry, is the subject of any investigation by any Governmental Authority
evaluating whether any Remedial Action is needed to respond to a Release or
threatened Release;
(f) Company has not been required to file any notice under any
Environmental Law indicating past or present treatment, storage or disposal
of a hazardous waste as defined by 40 CFR Part 261 or any state or local
equivalent which could reasonably be expected to have a Material Adverse
Effect;
(g) Company has not been required to file any notice under any
applicable Environmental Law reporting a Release which could reasonably be
expected to have a Material Adverse Effect;
(h) There is not now, nor, to the best knowledge of Company, has there
ever been, on or in any property of Company:
(i) any unauthorized generation, treatment, recycling, storage or
disposal of any hazardous waste as defined by 40 CFR Part 261 or any
state or local equivalent,
(ii) any underground storage tanks or surface impoundments
without proper permits,
(iii) any asbestos - containing material, or
(iv) any polychlorinated biphenyls (PCBs) used in hydraulic oils,
electrical transformers or other equipment;
(i) There have been no written commitments or agreements involving
Company from or with any Governmental Authority or any private entity
(including, without limitation, the owner of the Mortgaged Properties or
any portion thereof) relating to the generation, storage, treatment,
presence, Release, or threatened Release which could reasonably be expected
to have a Material Adverse Effect on or into any of the properties of
Company or the environment (including off-site disposal of Hazardous
Materials) or any Remedial Action with respect thereto in non-compliance or
violation of any Environmental Law;
40
(j) Company has not received any written notice or claim to the effect
that it is or may be liable to any Person as a result of the Release or
threatened Release which could reasonably be expected to have a Material
Adverse Effect;
(k) To the best of Company's knowledge and belief after due inquiry,
Company has no known liability in connection with any material Release or
material threatened Release which could reasonably be expected to have a
Material Adverse Effect;
(l) After due inquiry, no Environmental Lien has attached (and
continues to attach) to any properties of Company, provided that no breach
of this Section 5.16(l) shall occur if the same is discharged within thirty
days after the attachment thereof or an appeal or other appropriate
proceeding for review thereof is taken within said thirty day period and/or
a stay of execution pending such appeal is obtained; and
(m) To the Company's best knowledge after due inquiry, there have been
no environmental investigations, studies, audits, tests, reviews or other
analyses conducted by or which are in the possession of Company in relation
to any violation of Environmental Laws which violation could reasonably be
expected to have a Material Adverse Effect in relation to any properties or
facility now or previously owned or leased by Company which have not been
made available to the Holders.
5.17. Solvency of the Company. The Company is and after consummation of the
transactions contemplated by this Agreement (including the purchase and sale of
the Notes), and after giving effect to all obligations incurred by the Company
in connection herewith, will be, Solvent.
5.18. Governmental Requirements. The Collateral is in compliance with all
current Governmental Requirements affecting the said property, except where
failure could not reasonably be expected to have a Material Adverse Effect.
5.19. Corporate Authority of the Guarantor. The Guarantor is a corporation
duly created, validly existing, and in good standing under the laws of the state
of its incorporation, and is duly qualified and in good standing as foreign
corporation in all other jurisdictions where the failure to qualify would have
an adverse effect upon its ability to perform its obligations under this
Agreement and all Documents to which it is a party. The Guarantor has the
corporate power to enter into this Agreement and the Guaranty. The Guarantor has
the power to perform its obligations hereunder and under the Documents to which
it is a party. The making and performance by the Guarantor of the Documents to
which it is a party have all been duly authorized by all necessary corporate or
company action, and do not and will not violate any provision of any law, rule,
regulation, order, writ, judgment, decree, determination or award presently in
effect having applicability to the Guarantor, or the Organizational Documents of
the Guarantor. The making and performance by the Guarantor of the Documents to
which it is a party do not and will not result in a breach of or constitute a
default under any material indenture or loan or credit agreement or any other
material agreement or instrument to which the Guarantor is a party or by which
it may be bound or affected, or result in, or require, the creation or
41
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature (other than as contemplated by the
Security Documents) upon or with respect to any of the properties now owned or
hereafter acquired by the Guarantor, and the Guarantor is not in default under
or in violation of any such order, writ, judgment, decree, determination, award,
indenture, agreement or instrument to the extent any such default or violation
could reasonably be expected to have a Material Adverse Effect. Each of the
Documents to which the Guarantor is a party constitutes a legal, valid and
binding obligation of the Guarantor, enforceable in accordance with its terms.
5.20. Subordinated Note Agreement. The Company represents and warrants that
it is not in default under the Subordinated Note Agreement, and that, after
giving effect to the Subordinated Note Agreement Amendment, no such default will
occur as a result of Company's execution of this Agreement, and its incurrence
of obligations hereunder.
5.21. Security Agreement. As of the date hereof, the Security Agreement
constitutes a second priority security interest in one hundred percent (100%) of
the issued and outstanding Capital Stock of the Guarantor, and there are no
other Liens affecting the said Capital Stock except for a Lien granted by
Company as security for the Obligations evidenced by the Senior Credit
Documents.
5.22. Closing Date Borrowing Base and Quarterly Reduction. As of the
Closing Date, the Borrowing Base is $28,000,000 and the Quarterly Reduction is
$3,000,000.
5.23. Survival of Representations and Warranties. The Company understands
and agrees that the Collateral Agent and the Holders are relying upon the above
representations and warranties in purchasing the Notes from the Company. The
Company further agrees that the foregoing representations and warranties shall
be true and correct in all material respects as of the date(s) made or deemed
made and shall remain in full force and effect until such time as the
Indebtedness shall be paid in full, or until this Agreement shall be terminated,
whichever is the last to occur.
ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
To conform with the terms and conditions under which the Purchasers are
willing to purchase the Notes from the Company, and to induce each Purchaser to
enter into this Agreement and to purchase its Notes hereunder, the Company
warrants, covenants and agrees that until the full and final payment of the
Indebtedness and the termination of this Agreement, unless Majority Holders have
previously agreed otherwise:
6.1. Financial Statements; Other Reporting Requirements. If requested by
the Majority Holders (and only if and only for so long as such statements and
reports are requested by the Majority Holders) the Company will furnish or cause
to be furnished to the Collateral Agent (and or its attorneys or any Holder as
specified by the Majority Holders (but in any event not more than three (3)
Holders)):
42
(a) within one hundred twenty (120) days following the close of fiscal
year of the Company, audited consolidated financial statements of the
Company consisting of a balance sheet as at the end of such fiscal year and
statements of income, and statements of cash flow for such fiscal year,
setting forth in each case in comparative form the corresponding figures
for the preceding fiscal year, certified by independent certified public
accountants of recognized standing acceptable to the Majority Holders (such
acceptance not to be unreasonably withheld),
(b) within forty-five (45) days following the close of each calendar
quarter, interim consolidated financial statements of the Company,
consisting of a balance sheet as of the end of such quarter and statements
of income and cash flow, certified as true and correct by the Company's
chief financial officer as having been prepared in accordance with GAAP
consistently applied,
(c) upon each submission of the financial statements required by (a)
and (b) above, a compliance certificate signed by the chief financial
officer of the Company in the form attached hereto as Exhibit B, certifying
that he has reviewed this Agreement and to the best of his knowledge no
Default or Event of Default has occurred, or if such Default or Event of
Default has occurred, specifying the nature and extent thereof, that all
financial covenants in this Agreement have been met, and providing a
computation of all financial covenants contained herein, and details of any
waivers, amendments, or modifications of any covenant contained in this
Agreement, and said certificate shall include a schedule of all Hedging
Agreements,
(d) within thirty-five (35) days after the end of each month, the
unaudited consolidated balance sheets of the Company and its Subsidiaries
as at the end of such month and the related consolidated statements of
income and stockholders' equity and cash flows for such month and in each
case for the period from the beginning of the then current fiscal year to
the end of such month, setting forth in each case in comparative form the
corresponding figures for the corresponding periods of the previous fiscal
year, all in reasonable detail and certified by the chief financial officer
of the Company that they fairly present in all material respects the
financial condition of the Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal
year-end adjustments,
(e) as soon as available and in any event within thirty (30) days
after filing, a copy of the Company's federal tax returns,
(f) by March 31st of each year, a third party engineering report (at
Company's expense) dated as of the preceding December 31 covering Oil and
Gas Properties included or to be included in the Borrowing Base, in form
and substance reasonably satisfactory to the Collateral Agent, prepared by
independent petroleum engineers chosen by Company and reasonably acceptable
to the Collateral Agent,
43
(g) as soon as available and in any event within forty-five (45) days
after the end of each quarter, the following reports and data: reports of
production (attributable to Oil and Gas Properties included or to be
included in the Borrowing Base under the Senior Credit Agreement),
commodity prices, sales revenues, operating expenses for the Leases
evaluated for determination of the Borrowing Base, and production taxes, in
form and content reasonably acceptable to the Majority Holders,
(h) as soon as available and in any event by September 30th of each
year, an internally prepared engineering report covering Oil and Gas
Properties included or to be included in the Borrowing Base and dated as of
no earlier than the preceding June 30, in form and content reasonably
satisfactory to the Majority Holders,
(i) as soon as delivered, copies of any engineering report covering
the Oil and Gas Properties of any Restricted Person delivered to the Senior
Agent or the Banks pursuant to the Senior Credit Agreement, and upon any
Holder's request and within 10 days of such request, copies of any
financial or other report or notice delivered to the Senior Agent or the
Banks pursuant to the Senior Credit Agreement not otherwise delivered to
the Holders pursuant to this Section 6.1, and
(j) subject to Section 6.13, such other financial information or other
information concerning the Company as the Collateral Agent and/or the
Holders may reasonably request from time to time.
6.2. Notice of Default; Litigation; ERISA Matters. At any time during which
the Collateral Agent requested that the Company deliver such notices, the
Company will give written notice to the Collateral Agent as soon as reasonably
possible and in no event more than five (5) Business Days of (i) the occurrence
of any Default or Event of Default hereunder of which it has knowledge, (ii) the
filing of any actions, suits or proceedings against the Company in any court or
before any governmental authority or tribunal of which it has knowledge, which
could reasonably be expected to cause a Material Adverse Effect with respect to
the Company, (iii) the occurrence of a reportable event under, or the
institution of steps by the Company to withdraw from, or the institution of any
steps to terminate, any employee benefit plan as to which the Company may have
liability, or (iv) the occurrence of any other action, event or condition of any
nature of which it has knowledge which could reasonably be expected to cause, or
lead to, or result in, any Material Adverse Effect to the Company.
6.3. Maintenance of Existence, Properties and Liens. The Company will (i)
continue to engage in the Subject Business and other business activities
reasonably related to thereto; (ii) maintain its existence and good standing in
each jurisdiction in which it is required to be qualified; (iii) keep and
maintain all franchises, licenses and properties necessary in the conduct of its
business in good order and condition, except to the extent the failure to do so
could not reasonably be expected to cause a Material Adverse Effect; (iv) duly
observe and conform to all material requirements of any Governmental Authorities
relative to the conduct of its business or the operation of its properties or
assets, except to the extent the failure to do so could not reasonably be
expected to cause a Material Adverse Effect; and (v) the Company will maintain
in
44
favor of the Collateral Agent for the ratable benefit of the Holders a perfected
Lien and security interest in the Collateral, subject only to Permitted Liens
and Designated Title Exceptions.
6.4. Taxes. The Company shall pay or cause to be paid when due, all taxes,
local and special assessments, and governmental charges of every type and
description, that may from time to time be imposed, assessed and levied against
its properties. The Company further agrees to furnish the Holders with evidence
that such taxes, assessments, and governmental and other charges due by the
Company have been paid in full and in a timely manner, if such data is requested
by the Holders. Notwithstanding the foregoing, the Company may withhold any such
payment or elect to contest any Lien (other than the Lien securing the
Indebtedness) if the Company is in good faith conducting an appropriate
proceeding to contest the obligation to pay and so long as the Collateral
Agent's interest in the Collateral is not jeopardized.
6.5. Compliance with Environmental Laws. The Company shall comply with and
shall use reasonable commercial efforts to cause all of its employees, agents,
invitees or sublessees (while such Persons are acting within the scope of their
relationship with the Company) to (i) comply with all Environmental Laws with
respect to the disposal of Hazardous Materials, (ii) pay immediately when due
the cost of removal of any such Hazardous Materials, and (iii) keep the
Company's properties free of any lien imposed pursuant to any Environmental
Laws, provided that no breach of this Section 6.5 shall occur if (a) the same is
discharged within thirty (30) days after the Company is notified of
non-compliance or an appeal or appropriate proceedings for review thereof is
taken within such period and Company is not obligated to comply pending such
appeal or other appropriate proceedings or (b) failure to do so could not
reasonably be expected to have a Material Adverse Effect.
The Company shall give notice to the Collateral Agent as soon as reasonably
possible and in no event more than five (5) days after it receives any
compliance orders, environmental citations, or other notices from any
Governmental Authority relating to any Environmental Liabilities relating to its
properties or elsewhere which may reasonably be expected to result in a Default
of Event of Default; the Company agrees to take any and all reasonable steps,
and to perform any and all reasonable actions necessary or appropriate to
promptly comply with any such citations, compliance orders or Environmental Laws
requiring the Company to remove, treat or dispose of such Hazardous Materials,
and, upon the Collateral Agent's request, to provide the Collateral Agent with
satisfactory evidence of such compliance in excess of $500,000; provided,
however, that nothing contained herein shall preclude the Company from
contesting any such compliance orders or citations if such contest is made in
good faith, appropriate reserves are established for the payment for the cost of
compliance therewith, and the Collateral Agent's security interest in any such
property affected thereby (or the priority thereof) is not jeopardized.
Regardless of whether any Event of Default hereunder shall have occurred and be
continuing, the Company (i) releases and waives any present or future claims
against the Collateral Agent and each Holder for indemnity or contribution in
the event the Company becomes liable for any Environmental Lien and/or Remedial
Action, and (ii) agrees to defend, indemnify and hold harmless Collateral Agent
and each Holder from any and all liabilities (including strict liability),
actions, demands, penalties, losses, costs or expenses (including, without
limitation, reasonable attorneys fees and remedial costs), suits, administrative
orders, agency demand letters, costs of
45
any settlement or judgment and claims of any and every kind whatsoever which may
now or in the future (whether before or after the termination of this Agreement)
be paid, incurred, or suffered by, or asserted against Collateral Agent or any
Holder by any Person or Governmental Authority for, with respect to, or as a
direct or indirect result of, the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, or release from or onto the property of
the Company or any of its Subsidiaries of any Hazardous Materials, regulated by
any Environmental Laws, contamination resulting therefrom, or arising out of, or
resulting from, the environmental condition of such property or the
applicability of any Environmental Laws relating to hazardous materials
(including, without limitation, CERCLA or any so called federal, state or local
"super fund" or "super lien" laws, statute, ordinance, code, rule, regulation,
order or decree) regardless of whether or not caused by or within the control of
Collateral Agent or any Holder (the costs and/or liabilities described in (i)
and (ii) above being hereinafter referred to as the "Environmental
Liabilities"). THE COVENANTS AND INDEMNITIES CONTAINED IN THIS SECTION 6.5 SHALL
SURVIVE THE TERMINATION OF THIS AGREEMENT, BUT EXCLUDING ALL INDEMNITY MATTERS
ARISING BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF
ANY INDEMNIFIED PARTY; AND, PROVIDED, HOWEVER, NO RELEASE, WAIVER, DEFENSE OR
INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 6.5 IN RESPECT OF ANY PROPERTY
FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE COLLATERAL AGENT
AND/OR THE HOLDERS OR THEIR AGENTS OR REPRESENTATIVES DURING THE PERIOD AFTER
WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS, OR ITS AGENTS OR REPRESENTATIVES,
SHALL HAVE OBTAINED OWNERSHIP, OPERATION OR POSSESSION OF SUCH PROPERTY (WHETHER
BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR
OTHERWISE).
6.6. Further Assurances. The Company will, at any time and from time to
time, execute and deliver such further instruments and take such further action
as may reasonably be requested by the Collateral Agent, in order to cure any
defects in the execution and delivery of, or to comply with or accomplish the
covenants and agreements contained in this Agreement or the Security Documents.
6.7. Financial Covenants. The Company shall comply with the following
covenants and ratios:
(a) Maximum Debt to EBITDA Ratio. The Company shall maintain as of the
last day of each Fiscal Quarter a ratio of Total Recourse Debt as of such
day to EBITDA for the four Fiscal Quarter Period ending on such day of not
more than 3.50 to 1.0. For the purposes of this covenant, EBITDA shall not
include the net revenue attributable to assets pledged to secure
Non-Recourse Indebtedness. The term "Total Recourse Debt" shall mean
Company's consolidated Debt excluding Non-Recourse Indebtedness and Debt of
any Unrestricted Subsidiary.
(b) EBITDA to Interest Expense Ratio. The Company shall maintain as of
the last day of each Fiscal Quarter a ratio of EBITDA for the four Fiscal
Quarter Period ending on such day to Interest Expense for such period of at
least 2.50 to 1.0.
46
(c) Tangible Net Worth. As of April 30, 2005, the Tangible Net Worth
of the Company shall be greater than or equal to the sum of (i) the
Tangible Net Worth of the Company as of September 30, 2004 plus (ii)
$12,500,000.
6.8. Operations. The Company shall conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable Laws,
respecting its properties, charters, businesses and operations, including
compliance with all minimum funding standards and other requirements of ERISA,
and other laws applicable to any employee benefit plans which they may have,
except to the extent the failure to do so could not reasonably be expected to
cause a Material Adverse Effect.
6.9. Change of Location. The Company shall, within ten (10) Business Days
prior to any such change, notify the Collateral Agent in writing of any proposed
change in the location of its chief executive office.
6.10. Employee Benefit Plans. The Company will maintain each employee
benefit plan as to which it may have any liability, in material compliance with
all applicable requirements of law and regulations.
6.11. Field Audits; Other Information. Upon reasonable prior notice (unless
an Event of Default has occurred and is continuing in which event no such notice
shall be required) , the Company shall allow the Collateral Agent's employees
and agents access to its books and records and properties during normal business
hours to perform field audits from time to time. The Company shall pay all
reasonable costs and expenses associated with such field audits. The Company
will provide the Collateral Agent with such other information as the Collateral
Agent may reasonably request from time to time, subject in all cases to any
confidentiality restrictions that may be applicable to the Company and its
Subsidiaries and to any confidentiality restrictions that the Company reasonably
imposes on the Persons receiving such information; provided, however, that
neither the Company nor any of its Subsidiaries shall be required to disclose to
the Collateral Agent or any agents or representatives thereof any information
which is the subject of attorney-client privilege or attorney's work product
privilege properly asserted by the applicable Person to prevent the loss of such
privilege in connection with such information; and provided, further, that the
Company will use commercially reasonable efforts to furnish such information
(excluding information covered by confidentiality restrictions in agreements
relating to seismic, geologic or geophysical data or similar technical and
business matters relating to the exploration for oil and gas), which requirement
shall be satisfied if the Collateral Agent is offered the opportunity to review
such confidential information by executing or otherwise becoming a party to the
confidentiality restrictions on substantially the same terms (including any
standstill provisions) as are applicable to the Company.
6.12. Insurance. The Company shall maintain in effect all insurance
required by this Agreement and the Security Documents, and the Company agrees to
comply with the requirements of Section 5.6 above. The Company agrees to provide
the Collateral Agent with certificates or binders evidencing such insurance
coverage on an annual basis, and, if requested by the Collateral Agent, the
Company further agrees to promptly furnish the Collateral Agent with copies of
all renewal notices and copies of receipts for paid premiums. The Company shall
47
provide the Collateral Agent with certificates or binders evidencing insurance
coverage pursuant to all renewal or replacement policies of insurance no later
than fifteen (15) days before any such existing policy or policies should
expire.
6.13. Subsidiaries. The Company agrees that any Subsidiary (excluding
Unrestricted Subsidiaries, if any) of the Company formed by or on behalf of the
Company after the date of this Agreement shall execute a guaranty of the
Indebtedness (in a form substantially similar to the Guaranty) and all of the
Capital Stock of such Subsidiary shall be owned by Company or a Guarantor and
Company shall comply, and shall cause such Subsidiary to comply with Section
6.15 promptly after the formation of such Subsidiary.
6.14. Disclosure Requirements. Prior to November 4, the Company shall file
a Current Report on Form 8-K with the Commission describing the terms of the
transactions contemplated herein and including as exhibits to such Current
Report on Form 8-K this Agreement and the exhibits to this Agreement in the form
and to the extent required by the Exchange Act. In the event Company elects to
satisfy all or any part of the Indebtedness due on the Maturity Date or any
Voluntary Redemption Date by the issuance of shares of Common Stock pursuant to
Sections 3.5 or 3.6, respectively, Company shall, concurrently with the delivery
of the Stock Payment Notice required under Sections 3.5 or 3.6, as the case may
be, disclose to the public that such payment may be made by the issuance of such
Common Stock by the filing of a Form 8-K with the Commission containing such
information including the maximum number of shares that may be issued on the
Maturity Date or such Voluntary Redemption Date, as the case may be to the
extent substantially the same information (or the Company's intent or plans with
respect thereto) has not been "previously reported" as contemplated by General
Instruction B3 to Form 8-K.
6.15. Collateral.
(a) At all times the Indebtedness shall be secured by Liens in favor
of the Collateral Agent for the benefit of the Holders (subject only to the
first and prior Lien securing the obligations and other liabilities
permitted under Section 7.5(l) and the other Permitted Liens) covering and
encumbering any and all Oil and Gas Properties (and other assets and
properties) of the Restricted Persons securing the obligations and other
liabilities permitted under Section 7.5(l), including the issued and
outstanding Capital Stock of each Subsidiary of the Company securing such
obligations. Notwithstanding the forgoing, in the event the Tangible Net
Worth of any Guarantor (calculated with respect to CCBM without including
the Capital Stock of Pinnacle so long as Pinnacle is not a Subsidiary of
the Company) exceeds 3% or more of the Tangible Net Worth of the Company
and its Subsidiaries, on a consolidated basis, the Company shall cause such
Guarantor to execute and deliver to Collateral Agent, for the benefit of
each Holder, Mortgages in form and substance reasonably acceptable to the
Collateral Agent and substantially similar to the corresponding Senior
Credit Document and duly executed by such Guarantor together with such
other assignments, conveyances, amendments, agreements and other writings
(each duly authorized and executed) as Collateral Agent shall reasonably
deem necessary or appropriate to grant, evidence and perfect the Liens in
the assets and properties of such Guarantor (provided that in no
48
event shall the Capital Stock of Pinnacle be pledged as Collateral so long
as Pinnacle is not a Subsidiary of the Company).
(b) To the extent necessary to comply with the first sentence of
Section 6.15(a), Company or any other Restricted Person, as the case may
be, shall execute and deliver to Collateral Agent, for the ratable benefit
of each Holder, Mortgages in form and substance reasonably acceptable to
Collateral Agent and substantially similar to the corresponding Senior
Credit Document and duly executed by any such Restricted Persons together
with such other assignments, conveyances, amendments, agreements and other
writings (each duly authorized and executed) as Collateral Agent shall deem
necessary or appropriate to grant, evidence and perfect the Liens required
by this Section 6.15.
(c) To the extent necessary to comply with the first sentence of
Section 6.15(a), and, if earlier, within 10 days after the execution and
delivery of any security instrument, agreement, mortgage or deed of trust
covering or encumbering any Oil and Gas Properties to secure any
Indebtedness permitted under Section 7.5(l) not otherwise subject to a Lien
in favor of Collateral Agent to secure the Indebtedness, Company or each
other Restricted Person, as the case may be, shall execute and deliver to
Collateral Agent, for the ratable benefit of each Holder, Mortgages, in
form and substance reasonably acceptable to Collateral Agent and
substantially similar to the corresponding Senior Credit Document, duly
executed by any such Restricted Person together with such other
assignments, conveyances, amendments, agreements and other writings (each
duly authorized and executed) as Collateral Agent shall reasonably deem
necessary or appropriate to grant, evidence and perfect the Liens required
by this Section.
(d) Subject to Section 6.17, on or before 30 days after the Closing
Date and at any time thereafter that Company or any of its Subsidiaries is
required to execute and deliver Mortgages to Collateral Agent pursuant to
Section 6.15(a), the Company shall also deliver to Collateral Agent, within
20 days after delivery of such Mortgages to Collateral Agent, evidence of
title reasonably satisfactory to Collateral Agent to verify such Restricted
Person's title to not less than ninety percent (90%) of the net present
value of the proved reserves of the Oil and Gas Properties subject to such
Mortgages. With respect to such Restricted Person's title to such Property,
such evidence may include check stubs, revenue receipts or other evidence
that the Company or such Restricted Person has been receiving proceeds of
production for a reasonable length of time without interruption or
challenge, as well as joint interest ▇▇▇▇▇▇▇▇ or other evidence of the
costs and expenses of operations paid by the Company or such Restricted
Person.
(e) On the date hereof and at the time hereafter that any Subsidiary
of any Company is created or acquired (other than an Unrestricted
Subsidiary) and to the extent such Restricted Person is required to do so
pursuant to the Senior Credit Documents, the Company and any Subsidiaries
of the Company (as applicable) shall execute and deliver to Collateral
Agent for the ratable benefit of each Holder (or to the
49
Senior Agent (or the Collateral Agent if the Obligations under the Senior
Credit Documents have been paid in full and the obligations of the lenders
under the Senior Credit Agreement has been terminated) in the case of the
certificates described below), a stock pledge agreement in form and
substance reasonably acceptable to Collateral Agent and substantially
similarly to the corresponding Senior Credit Document from such Company
and/or its Subsidiaries (as applicable) covering the Capital Stock in all
such Subsidiaries, together with all certificates (or other evidence
acceptable to Collateral Agent) evidencing the issued and outstanding
Capital Stock of each such Subsidiary of every class owned by the Company
or such Subsidiary (as applicable) which, if certificated, shall be duly
endorsed or accompanied by stock powers executed in blank (as applicable),
as Collateral Agent shall deem necessary or appropriate to grant, evidence
and perfect the Liens required by Section 6.15(a) in the issued and
outstanding Capital Stock of each such Subsidiary.
6.16. Amendment of Disclosure Schedule. In connection with each issuance of
Additional Notes, the Company shall, subject to the approval of the Majority
Holders (which approval shall not be unreasonably withheld), amend and restate
the Disclosure Schedule to the extent necessary to make the representations and
warranties set forth in Section 5 true and correct after giving effect to the
issuance of such Additional Notes and any other transactions to be consummated
in connection therewith.
6.17. Post Closing Requirements. The Company agrees that within ninety (90)
days from the execution of this Agreement, the Company shall (i) satisfy the
requirements set forth in Section 12.17 of the Senior Credit Agreement as in
effect on the date hereof and (ii) to the extent not included pursuant to the
immediately preceding clause (i) satisfy the requirements set forth on Schedule
6.17.
6.18. Investment Base Determination and Borrowing Base. By April 15th and
October 15th of each year commencing April 15, 2005, and at any other time
(including prior to April 15, 2005) the Borrowing Base is subject to
redetermination under the Senior Credit Agreement the Company shall deliver to
the Collateral Agent (or its counsel if requested by written notice from the
Collateral Agent to the Company delivered not less than ten days prior to such
date), a proposed Investment Base calculated based on the Engineering Report
described in Sections 6.1(f) and 6.1(h), respectively, and in accordance with
the methodology and risk percentages set forth on the attached Annex A. The
Collateral Agent (or its counsel, as the case may be) shall notify the Company
in writing within seven (7) days of the receipt of such proposed Investment Base
whether such proposed Investment Base has been approved or rejected, (which
approval or rejection shall be made by the Majority Holders) and if such
proposed Investment Base is approved by the Majority Holders or no written
notice of approval or rejection is received by the Company from the Collateral
Agent (or its counsel, as the case may be) within such seven (7) day period such
proposed Investment Base shall be the Investment Base until the next
redetermination of the Investment Base in accordance with this Section 6.18. In
the event the proposed Investment Base is rejected by the Majority Holders and
the Company and the Majority Holders cannot agree on the amount of the
Investment Base within seven (7) days after the delivery to the Company of
written notice of such rejection by the Collateral Agent (or its counsel, as the
case may be), the redetermined Investment Base shall be the Borrowing Base until
50
the next redetermination of the Investment Base in accordance with this Section
6.18. As soon as practicable and in any event within ten (10) days after the
receipt by the Company of notice of any redetermination of the Borrowing Base or
Quarterly Reduction, the Company shall notify the Collateral Agent of such
redetermined amount of the Borrowing Base and/or Quarterly Reduction.
ARTICLE VII
NEGATIVE COVENANTS
------------------
To conform with the terms and conditions under which each Purchaser is
willing to purchase the Notes from the Company, and to induce each Purchaser to
enter into this Agreement to purchase the Notes, the Company warrants, covenants
and agrees that until the full and final payment of the Indebtedness and the
termination of this Agreement, unless Majority Holders have previously agreed
otherwise:
7.1. Limitations on Fundamental Changes. Without the prior written consent
of the Majority Holders, the Company shall not form, or permit any other
Restricted Person to form, any Subsidiary (excluding Unrestricted Subsidiaries)
that does not comply with Section 6.13, nor shall the Company consummate, or
permit any Guarantor to liquidate or dissolve itself (or suffer any liquidation
or dissolution).
7.2. Disposition of Assets. Neither Company nor any Guarantor shall convey,
sell, lease, assign, transfer or otherwise dispose of, any of its property or
assets to which the Banks have included a value in the Borrowing Base in excess
of $5,000,000 in any fiscal year of the Company; provided that to the extent the
proceeds of such sales are cash, such proceeds are applied to the payment of the
Obligations evidenced by the Senior Credit Documents in accordance with, and to
the extent required by, Section 13.2 of the Senior Credit Agreement as in effect
on the date hereof, without amendment or waiver of any of the terms thereof.
Notwithstanding the foregoing, this Section 7.2 shall not prohibit the
consummation of sales of assets and properties constituting a Change of Control
provided the Company complies with Section 3.5(b) with respect to such Change of
Control.
7.3. Repurchase of Stock; Dividends. The Company shall not, nor shall it
permit any other Restricted Person to, (i) repurchase or redeem for cash any of
its Common Stock (except for repurchases and redemption of Registrable
Securities pursuant to the Registration Rights Agreement) or (ii) pay any
dividends or distributions, without the prior written consent of the Majority
Holders; provided, however, that (a) so long as no Measurement Period is then in
effect, the Company may declare and pay dividends consisting entirely of Capital
Stock of the Company (other than Disqualified Stock), (b) the Company may make
cash payments in lieu of fractional shares in an aggregate amount not exceeding
$100,000, (c) the Company may declare and pay distributions effecting "poison
pill" rights plans provided that any securities or rights so distributed have a
nominal fair market value at the time of declaration and (d) any Subsidiary may
pay dividends to the Company or any other wholly-owned Subsidiary of the
Company.
51
7.4. Liens; Negative Pledge. The Company shall not, nor shall it permit any
other Restricted Person to, create, incur, assume or permit to exist any Liens
on any of its property now owned or hereafter acquired, except for the following
(hereinafter referred to as the "Permitted Liens"):
(a) Liens for taxes, assessments, or other governmental charges not
yet due or which are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserves as shall be
required by GAAP shall have been made therefor;
(b) Liens of landlords, vendors, carriers, warehousemen, mechanics,
laborers, materialmen and other Liens arising by law in the ordinary course
of business for sums either not yet due or being contested in good faith by
appropriate action promptly initiated and diligently conducted, if such
reserve as shall be required by GAAP shall have been made therefor;
(c) Inchoate liens arising under ERISA to secure the contingent
liabilities, if any, permitted by this Agreement;
(d) Liens created by the Security Documents and any other Liens in
favor of the Collateral Agent and/or the Holders to secure the
Indebtedness;
(e) Liens granted prior to the date of this Agreement to secure
Non-Recourse Indebtedness, and/or Liens granted after the date of this
Agreement to secure Non-Recourse Indebtedness;
(f) Liens existing on the date hereof and set forth in the Disclosure
Schedule, provided that such Liens shall secure only those obligations
which they secure on the date hereof;
(g) Pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other
social security laws or regulations;
(h) Deposits to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than capital lease obligations),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(i) Zoning restrictions, easements, licenses, covenants, conditions,
rights-of-way, restrictions on use of real property and other similar
encumbrances incurred in the ordinary course of business and minor
irregularities of title that, in the aggregate, are not substantial in
amount and do not materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
52
(j) Deposits, encumbrances or pledges to secure payments of workmen's
compensation and other payments, public liability, unemployment and other
insurance, old-age pensions or other social security obligations, or the
performance of bids, tenders, leases, contracts (other than contracts for
the payment of money), public or statutory obligations, surety, stay or
appeal bonds, or other similar obligations arising in the ordinary course
of business;
(k) Any Designated Title Exceptions which are incurred in the ordinary
course of business and would not materially adversely affect the operations
of the Company or otherwise in the aggregate have a Material Adverse
Effect;
(l) Any Lien securing Purchase Money Debt, provided that, (i) such
Lien is incurred, and the Debt secured thereby is created, within 180 days
after the acquisition (or completion of construction) of the property or
assets subject thereto, (ii) the Debt secured thereby does not include any
other Debt that is not from the same financing source, (iii) such Lien
encumbers only such acquired (or constructed) property or assets of the
Company or any Subsidiary and (iv) such Lien does not affect any of the
Mortgaged Properties included in the determination of the Borrowing Base;
(m) Any Lien existing on any property or asset (together with any
receivables, intangibles and proceeds related thereto) prior to the
acquisition thereof by the Company or any Subsidiary, provided that (i)
such Lien is not created in contemplation of or in connection with such
acquisition and (ii) such Lien does not apply to any other property or
assets of the Company or any Subsidiary; and provided, further, that (x)
such Liens do not secure any Debt or other obligation not permitted under
this Agreement, and (y) such Liens do not affect any of the Mortgaged
Properties included in the determination of the Borrowing Base;
(n) Liens securing Purchase Money Debt and Capital Lease Obligations
in real property, improvements thereto or equipment hereafter acquired (or,
in the case of improvements, constructed) by the Company or any Subsidiary
(together with any receivables, intangibles and proceeds related thereto),
provided that (i) such security interests secure Debt permitted by Section
7.5(k)(i), (ii) such security interests are incurred, and the Debt secured
thereby is created, within 180 days after such acquisition (or completion
of construction), (iii) such security interests do not apply to any other
property or assets of the Company or any Subsidiary, and (iv) such security
interests do not affect any of the Mortgaged Properties included in the
determination of the Borrowing Base;
(o) Liens arising out of judgments or awards in respect of which the
Company shall in good faith be prosecuting an appeal or proceedings for
review and in respect of which it shall have secured a subsisting stay of
execution pending such appeal or proceedings for review, provided the
Company shall have set aside on its books adequate reserves, in accordance
with GAAP, with respect to such judgment or award;
53
(p) Liens on the property or assets of any Person existing at the time
such Person becomes a Subsidiary of the Company and not incurred as a
result of (or in connection with or in anticipation of) such Person's
becoming a Subsidiary of the Company, provided that such Liens do not
extend to or cover any property or assets of the Company or any of its
Subsidiaries other than the property or assets encumbered at the time such
Person becomes a Subsidiary of the Company, and provided, further, that (i)
such Liens do not secure any Debt or other obligation not permitted under
this Agreement, and (ii) such Liens do not affect any of the Mortgaged
Properties included in the determination of the Borrowing Base;
(q) Liens securing Debt and other Obligations permitted to be incurred
under Sections 7.5(i) and 7.5(l); and
(r) Liens affecting the Company's equity interest in an Unrestricted
Subsidiary.
7.5. Debts. The Company, without the prior written consent of the Majority
Holders, will not, nor will it permit any other Restricted Person to, incur,
create, assume or in any manner become or be liable in respect of any Debt or
issue any Disqualified Stock, except for:
(a) The Indebtedness;
(b) Trade payables or operating leases from time to time incurred in
the ordinary course of business;
(c) Non-Recourse Indebtedness not to exceed $25,000,000.00 at any time
outstanding, provided that for any Non-Recourse Indebtedness incurred by
Company subsequent to the execution of this Agreement, the Company must
obtain the Majority Holder's prior written consent to the relevant
documentation establishing/evidencing the non-recourse nature and amount of
such Non-Recourse Indebtedness, which consent will not be unreasonably
withheld;
(d) Taxes, assessments or other government charges which are not yet
due or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall be required by
generally accepted accounting principles shall have been made therefore;
(e) The indebtedness evidenced by the Subordinated Promissory Notes
and guaranties executed by any Subsidiary of the Company guaranteeing
payment thereof;
(f) Debt (excluding Non-Recourse Indebtedness) existing as of the date
of this Agreement as set forth in the Disclosure Schedule, together with
extensions or refinancings (but not increases) of such Debt;
(g) Indebtedness arising under any performance bond, or letter of
credit obtained for similar purposes, or any reimbursement obligations in
respect thereof, entered into in the ordinary course of business;
54
(h) Debt of the Company to any Guarantor of the Company and Debt of
any Guarantor to the Company or any other Guarantor of the Company;
(i) Debt represented by Hedging Agreements permitted under Section
7.6(l);
(j) Guaranties by the Company of Debt of any Guarantor permitted under
this Section 7.5 and by any Guarantor of Debt of the Company or any other
permitted under this Section 7.5;
(k) Subject to a maximum aggregate principal amount at any time
outstanding not in excess of $1,000,000.00, the following: (i) Purchase
Money Debt and Capital Lease Obligations; (ii) additional unsecured Debt;
and (iii) Debt of any Person that becomes a Subsidiary after the date
hereof; provided, that such Debt exists at the time such Person becomes a
Subsidiary and is not created in contemplation of or in connection with
such Person becoming a Subsidiary; and
(l) All "Indebtedness" under and as defined in the Senior Credit
Agreement, now existing or hereinafter created, under the Senior Credit
Documents; provided, that, (i) the aggregate principal amount of such
"Indebtedness" does not, at any time, exceed the lesser of (1) 110% of the
Investment Base and (2) the Borrowing Base; and (ii) such "Indebtedness"
with respect to Hedging Agreements between the Company and any Guarantor
and any Bank or Affiliate of any Bank is permitted under Section 7.6(l);
provided further that no Default or Event of Default shall occur as a
result of the principal amount of the "Indebtedness" exceeding the amounts
permitted under clause (i) of this Section 7.5(l) so long as the Company
complies with Section 8.3 of the Senior Credit Agreement (as in effect on
the date hereof or as subsequently amended with the consent of the Majority
Holders) with respect to such excess principal amount.
7.6. Investments, Loans and Advances. Except as set forth on the Disclosure
Schedule, the Company will not, nor will it permit any other Restricted Person
to, make or permit to remain outstanding any loans or advances to or make
investments or acquire an equity interest in any Person, except for:
(a) Direct obligations of, or obligations the principal of and
interest on which are unconditionally guarantied by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) Investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from Standard & Poor's Ratings Service or
from ▇▇▇▇▇'▇ Investors Service, Inc.;
(c) Investments in certificates of deposit, banker's acceptances,
repurchase agreements and time deposits maturing within one year from the
date of acquisition
55
thereof issued or guaranteed by or placed with, and money market deposit
accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State
thereof that has a combined capital and surplus and undivided profits of
not less than $250,000.000;
(d) Shares of funds registered under the Investment Company Act of
1940, as amended, that have assets of at least $100,000,000 and invest only
in obligations described in clauses (a) through (c) above to the extent
that such shares are rated by ▇▇▇▇▇'▇ Investors Service, Inc. or Standard &
Poor's Ratings Service in one of the two highest rating categories assigned
by such agency for shares of such nature;
(e) Loans among Restricted Persons and/or capital contributions and/or
investments among Restricted Persons;
(f) Loans or advances to employees in the ordinary course of business
in an aggregate amount to any single employee not in excess of $75,000 (or,
if and to the extent such loans or advances shall be used by such employee
for relocation expenses, $100,000) and in an aggregate amount for all
employees of the Company and its Subsidiaries not in excess of $500,000 at
any one time outstanding;
(g) Trade credits and accounts arising in the ordinary course of
business;
(h) Investments made as a result of the receipt of non-cash
consideration from an asset sale that was made pursuant to and in
compliance with this Agreement;
(i) Investments made in any debtor of the Company as a result of the
receipt of Capital Stock, obligations or securities in settlement of debts
created in the ordinary course of business and owing to the Company or any
of its Subsidiaries;
(j) Investments made pursuant to the requirements of farm-out,
farm-in, joint operating, joint venture or area of mutual interest
agreements, gathering systems, pipelines or other similar or customary
arrangements entered into in the ordinary course of business (including,
without limitation, advances to operators under operating agreements
entered into by Company in the ordinary course of business) (provided that
any such single investment in excess of $1,000,000 shall be approved by the
Board of Directors of the Company);
(k) Investments made in connection with the purchase, lease, or other
acquisition of tangible assets of any Person and investments made in
connection with the purchase, lease or other acquisition of all or
substantially all of the business, of any Person, or Capital Stock of any
Person, or any division, line of business or business unit of any Person
(including, without limitation, (i) by the merger or consolidation of such
Person into the Company or any of its Subsidiaries or by the merger of a
Subsidiary of the Company into such Person and (ii) the purchase of proved
reserves);
(l) Investments by Company consisting of Hedging Agreements entered
into with Approved Counterparties in the ordinary course of business and
not for speculative
56
purposes; provided that such Hedging Agreements (a) would not cause the
aggregate notional amount of Hydrocarbons under all Hedging Agreements then
in effect to exceed eighty-five percent (85%) of the "forecasted production
from proved reserves" (as defined below) of the Company's and Guarantors
for the forthcoming three (3) year period, or (b) together with any other
Hedging Agreements then in effect for the purpose of hedging the Company's
interest rate exposure would not cause the notional amount of all such
Hedging Agreements then in effect for such purpose to exceed one hundred
percent (100%) of the Total Recourse Debt of the Company projected to be
outstanding for any period covered by such Hedging Agreement. As used in
this clause (l) of Section 7.6, "forecasted production from proved
reserves" means the forecasted production of Hydrocarbons as reflected in
the most recent Engineering Report delivered to the Collateral Agent
pursuant to clauses (f) and (h) of Section 6.1, after giving effect to any
pro forma adjustments for the consummation of any acquisitions or
dispositions since the effective date of such Engineering Report;
(m) So long as no Default or Event of Default has occurred and is
continuing or would be caused thereby, Investments by the Company
consisting of equity contributions in CCBM to the extent necessary to
permit CCBM to purchase Capital Stock of Pinnacle pursuant to that certain
Contribution and Subscription Agreement by and among CCBM, Pinnacle, Rocky
Mountain Gas, Inc., a Wyoming corporation, and the CSFB Parties (as defined
therein) as in effect on the date hereof, in an aggregate amount after the
Closing Date not to exceed the sum of $5,000,000 plus the annual increase
in the purchase price per share of such Capital Stock specified in such
agreement and the purchase of such Capital Stock by CCBM with the proceeds
of such equity contribution by the Company; provided the proceeds of the
Notes are not used to make any such Investment;
(n) Investments consisting of the repurchase or redemption of
Registrable Securities pursuant to the Registration Rights Agreement; and
(o) Any other investments in any Person having an aggregate fair
market value (measured on the date each such investment was made and
without giving effect to subsequent changes in value), when taken together
with all other investments made pursuant to this clause (o) since the
Closing Date not to exceed at any time outstanding $1,000,000 (after giving
effect to any reductions in the aggregate amount of such investments as a
result of the disposition thereof, including through liquidation, repayment
or other reduction, including by way of dividend or distribution, for cash,
the aggregate amount of such reductions not to exceed the aggregate amount
of such investments outstanding and previously made pursuant to this clause
(o)).
7.7. Other Agreements. The Company will not, nor will it permit any other
Restricted Person to, enter into any agreement containing any provision which
would be violated or breached by the performance of its obligations hereunder or
under any instrument or document delivered or to be delivered by it hereunder or
in connection herewith; provided that subject to compliance with Section 3.5(b),
the Company may agree to the redemption or repurchase of its securities upon a
change of control or dissolution, winding-up or liquidation of, or the merger or
57
sale of substantially all the assets of, the Company (provided that nothing in
this Section 7.7 shall permit any action otherwise prohibited by Sections 7.1
and 7.2 hereof.).
7.8. Transactions with Affiliates. Except as set forth on the Disclosure
Schedule attached hereto, the Company shall not, nor shall it permit any other
Restricted Person to, sell or transfer any property or assets to, or purchase or
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates unless such transaction is on terms
that are no less favorable to the Company or such Restricted Person, as the case
may be, than those that could be obtained at the time of such transaction on an
arm's-length basis from a Person who is not an Affiliate and if such transaction
involves an amount in excess of $500,000, such transaction has been approved by
a majority of the disinterested members of the Board of Directors of the
Company; provided, however, that this Section 7.8 (i) shall not apply to
transactions between a Guarantor and the Company or any other Guarantor
permitted under this Agreement, or between Pinnacle and the Company or any other
Restricted Person; (ii) shall not prohibit any individual serving as an officer,
director, employee or consultant of the Company or any other Restricted Person
from (A) receiving reasonable compensation, benefits or indemnification in
connection with his or her services in such capacity (except as otherwise
included hereby), provided that any such compensation, benefits or
indemnification are approved by a majority of the disinterested members of the
Board of Directors of the Company or by the Compensation Committee of the
Company, (B) receiving advances for travel or other business expenses made in
the ordinary course of business to the extent permitted under this Agreement or
(C) participating in any benefit or compensation plan; and (iii) shall not
restrict the Company from repaying to any director or its Affiliates when due on
its scheduled maturity dates any Debt for borrowed money permitted to be
incurred in accordance with this Agreement.
7.9. Second Priority Liens. No Restricted Person shall, nor shall any
Restricted Person permit any other Restricted Person to, enter into any
agreement containing any provision which would ▇▇▇▇▇ ▇ ▇▇▇▇ on any of its assets
or properties to any holder of the Senior Indebtedness unless a similar Lien,
subject only to Permitted Liens, is granted to the Collateral Agent for the
benefit of the Holders on terms and conditions reasonably acceptable to the
Collateral Agent.
7.10. Commodity Transactions. Neither Company nor any other Restricted
Person shall enter into any Hedging Agreements other than Hedging Agreements
permitted under Section 7.6(l).
7.11. Restriction of Amendments to First Lien Credit Documents. No
Restricted Person shall amend or otherwise modify, or waive any rights under the
Senior Credit Documents, if, in any case, such amendment, modification or waiver
would be in contravention of the provisions of the Subordination Agreement.
ARTICLE VIII
DEFAULTS
--------
8.1. Events of Default. Each of the following events constitutes an Event
of Default under this Agreement:
58
(a) Default under the Indebtedness. Should the Company default in the
payment of principal under the Indebtedness of the Company to the Holders,
or should the Company default in the payment of interest under the
Indebtedness of the Company to the Holders within three (3) days after any
such interest payment is due.
(b) Default under this Agreement. Should the Company violate or fail
to comply fully with any of the terms and conditions of, or default under,
this Agreement (other than Section 8.1(a)), and such default not be cured
within thirty (30) days of the occurrence thereof (provided, however, that
no cure period shall be available for a default in the obligation to
maintain insurance coverages required hereby or a default under Sections
6.14, 6.16 or 7.5).
(c) Default Under Other Documents. (i) Should any event of default
occur or exist under any of the Documents (other than this Agreement or the
Registration Rights Agreement) or should the Company and/or any Guarantor
violate, or fail to comply fully with, any terms and conditions of any of
the Documents (other than this Agreement or the Registration Rights
Agreement), and such default not be cured within ten (10) days of the
occurrence thereof or (ii) should the Company fail to comply with any of
its obligations under the Registration Rights Agreement to repurchase
Registrable Securities.
(d) Other Defaults in Favor of the Holders. Should the Company and/or
the Guarantor default under any other loan, extension of credit, security
agreement, or other obligation in favor of any of the Holders (other than
the Registration Rights Agreement) and fail to cure same in accordance with
any applicable cure periods.
(e) Default in Favor of Third Parties. Should the Company or any
Guarantor (i) fail to pay Debt having a principal amount in excess of
$250,000 in the aggregate (other than the amounts referred to in Section
8.1(a)), or any interest or premium thereon, when due (or, if permitted by
the terms of the relevant document, within any applicable grace period),
whether such Debt shall become due by scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise; or (ii) fail to
perform any term, covenant or condition on its part to be performed under
any agreement or instrument evidencing, securing or relating to Debt having
a principal amount in excess of $250,000 in the aggregate, when required to
be performed, and such failure shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of
such failure is to accelerate, or to permit the holder or holders of such
Debt to accelerate, the maturity of such Debt.
(f) Insolvency. The following occurrences, in addition to the failure
or suspension of the Company or any Guarantor, shall constitute an Event of
Default hereunder:
(i) Filing by the Company or any Guarantor of a voluntary
petition or any answer seeking reorganization, arrangement,
readjustment of its debts or for any other relief under any applicable
bankruptcy act or law, or under any other
59
insolvency act or law, now or hereafter existing, or any action by the
Company or any Guarantor consenting to, approving of, or acquiescing
in, any such petition or proceeding; the application by the Company or
any Guarantor for, or the appointment by consent or acquiescence of, a
receiver or trustee of the Company or any Guarantor for all or a
substantial part of the property of the Company or any Guarantor; the
making by the Company or any Guarantor, of an assignment for the
benefit of creditors; the inability of the Company or any Guarantor or
the admission by the Company or any Guarantor in writing, of its
inability to pay its debts as they mature (the term "acquiescence"
means the failure to file a petition or motion in opposition to such
petition or proceeding or to vacate or discharge any order, judgment
or decree providing for such appointment within sixty (60) days after
the appointment of a receiver or trustee); or
(ii) Filing of an involuntary petition against the Company or any
Guarantor in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts or for any other relief under any applicable
bankruptcy act or law, or under any other insolvency act or law, now
or hereafter existing and such petition remains undismissed or
unanswered for a period of sixty (60) days from such filing; or the
insolvency appointment of a receiver or trustee of the Company or any
Guarantor for all or a substantial part of the property of the Company
or any Guarantor and such appointment remains unvacated or unopposed
for a period of sixty (60) days from such appointment, execution or
similar process against any substantial part of the property of the
Company or any Guarantor and such warrant remains unbonded or
undismissed for a period of sixty (60) days from notice to the Company
or such Guarantor of its issuance.
(g) Dissolution Proceedings. Should proceedings for the dissolution or
appointment of a liquidator of the Company or any Guarantor be commenced.
(h) False Statements. Should any representation or warranty of the
Company made by the Company to the Collateral Agent and/or the Holders in
this Agreement or any other Document or in any certificate or statement
furnished thereunder prove to be incorrect or misleading in any material
respect when made or reaffirmed the result of which could reasonably be
expected to have a Material Adverse Effect.
8.2. Waivers. Except as otherwise provided for in this Agreement and by
applicable law, the Company and the Guarantor waive to the extent permitted by
applicable law (i) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by the Agent for the
benefit of the Holders on which the Company and the Guarantor may in any way be
liable and hereby ratify and confirm whatever the Collateral Agent and/or the
Holders may do in this regard, (ii) all rights to notice and a hearing prior to
the Collateral Agent's taking possession or control of, or to the Collateral
Agent's replevy, attachment or levy upon, the Collateral or any bond or security
which might be required by any court prior to allowing the Collateral Agent to
60
exercise any of its remedies, and (iii) the benefit of all valuation, appraisal
and exemption laws. The Company and the Guarantor acknowledge that they have
been advised by counsel of their choice with respect to this Agreement, the
other Documents, and the transactions evidenced by this Agreement and other
Documents.
8.3. Notice to Delta Farms Lessors. Company and Guarantor hereby authorize
and direct the Collateral Agent to provide the lessors of the oil, gas and
mineral leases granted by Delta Farms to the Company (the "Delta Farms Lessors")
with a copy of any notice of the occurrence of any Event of Default which
Collateral Agent may choose or be required to send to Company and/or Guarantor
under the Agreement. Company and Guarantor hereby release the Collateral Agent
and the Holders and hold the Collateral Agent and the Holders harmless from any
liability occasioned by the giving of or the failure to give any such notice, it
being understood that the Collateral Agent shall use its best efforts to provide
such notice to the Delta Farms Lessors, but shall have no obligation or
liability to Delta Farms Lessors for its failure to do so. Under no
circumstances shall Delta Farms Lessors be considered as a third party
beneficiary of this Agreement.
ARTICLE IX
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
----------------------------------------------
9.1. Acceleration. If any Event of Default described in Sections 8.1(f)
occurs with respect to any Restricted Person, the Indebtedness shall immediately
become due and payable without any election or action on the part of the
Collateral Agent or any Holder. If any other Event of Default occurs, the
Majority Holders (or the Collateral Agent with the consent of the Majority
Holders) may declare the Indebtedness to be due and payable, or both, whereupon
the Indebtedness shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Company hereby expressly
waives.
If, within thirty (30) days after acceleration of the maturity of the
Indebtedness as a result of any Event of Default (other than any Event of
Default as described in Sections 8.1(f) with respect to any Restricted Person)
and before any judgment or decree for the payment of the Indebtedness due shall
have been obtained or entered, the Majority Holders (in their sole discretion)
shall so direct, then the Collateral Agent shall, by notice to the Company,
rescind and annul such acceleration and/or termination.
9.2. Amendments. Subject to the provisions of this Section 9.2, the
Majority Holders (or the Collateral Agent with the consent in writing of the
Majority Holders) and each Restricted Person may enter into agreements
supplemental hereto for the purpose of adding or modifying any provisions to the
Documents or changing in any manner the rights of the Holders or such Restricted
Person hereunder or waiving any Default hereunder; provided, however, that no
such supplemental agreement shall, without the consent of all of the Holders
affected thereby:
(a) Extend the Maturity Date or forgive all or any portion of the
principal amount thereof, or reduce the rate or extend the time of payment
of interest or fees thereon.
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(b) Reduce the percentage specified in the definition of Majority
Holders.
(c) Amend this Section 9.2.
(d) Release any Guarantor or, except as otherwise provided in Section
11.15, release any of the Collateral.
No amendment of any provision of this Agreement relating to the Collateral Agent
shall be effective without the written consent of the Collateral Agent.
9.3. Preservation of Rights. No delay or omission of the Holders or the
Collateral Agent to exercise any right under the Documents shall impair such
right or be construed to be a waiver of any Default or Event of Default or an
acquiescence therein. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms, conditions or
provisions of the Documents whatsoever shall be valid unless in writing signed
by the Holders required pursuant to Section 9.2, and then only to the extent in
such writing specifically set forth. All remedies contained in the Documents or
afforded by law shall be cumulative and all shall be available to the Collateral
Agent and the Holders until the Indebtedness has been paid in full.
ARTICLE X
COLLATERAL AGENCY
-----------------
10.1. Creation of Collateral Agency. In order to provide for the creation,
perfection and maintenance of all Liens granted under Security Documents and for
the enforcement of the various rights and remedies set forth in the Security
Documents, the Purchasers hereby appoint PCRL Investments L.P. as the Collateral
Agent under this Agreement and the other Security Documents, and the Collateral
Agent hereby accepts its appointment subject to the terms and conditions of this
Agreement and the Security Documents. Company hereby reaffirms and confirms the
grant of the Liens in favor of the Collateral Agent in accordance with the terms
of the Security Documents and for the benefit of the Holders as set forth
therein and herein.
10.2. Possession and Use of Collateral. So long as no Event of Default
exists, Company shall have the right to remain in possession and retain control
of the Collateral (other than any Collateral for which applicable law requires
that Liens on such Collateral be perfected by control or possession) in
accordance with, and to the extent permitted by, the terms of the Subordination
Agreement and the terms of the Security Documents.
10.3. Additional Collateral. At any time, Company and the Collateral Agent
may, without necessity of consent from the Holders, enter into one or more
Security Documents, in form reasonably satisfactory to the Collateral Agent: (a)
to supplement or add to the covenants of Company for the benefit of all Holders
or to surrender any right or power conferred upon the Company; (b) to mortgage
or pledge to the Collateral Agent, or grant a security interest in favor of the
Collateral Agent in, any property or assets as additional security for the
Indebtedness; or (c) to cure any ambiguity, to correct or supplement any
provision herein or in any Security
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Document which may be defective or inconsistent with any other provision herein
or therein, or to make any other provision with respect to matters or questions
arising hereunder which shall not be inconsistent with any provision hereof. The
Collateral Agent and the Holders agree that the forms of Security Documents
being executed and delivered concurrently with (and dated of even date with)
this Agreement are satisfactory to such parties. The Company and the Guarantors
will deliver or cause to be delivered to the Collateral Agent, promptly upon the
execution and delivery thereof, executed counterparts of all Security Documents
and all amendments and supplements thereto. The Collateral Agent shall keep all
Security Documents held by it at the principal office maintained by it in
Dallas, Texas, or, if none is there maintained, at its primary address for
notice under this Agreement, shall provide copies of such Security Documents to
the Holders within a reasonable time after its receipt of a written request
therefor, and permit any Holder or the representative thereof to inspect the
same at such office during normal business hours upon reasonable prior notice.
10.4. Releases of Collateral. The Collateral Agent shall execute and
deliver to the Restricted Persons on behalf of the Holders and other Persons, if
any, secured by the Collateral, any agreements, documents or instruments as
shall be necessary or appropriate to effect any releases of Collateral which
shall be required by the terms hereof or of any other Document, including
releases required pursuant to sales of Collateral that are not prohibited under
Section 7.2, which shall otherwise have been approved by the Majority Holders in
writing, or as otherwise required by the Subordination Agreement.
Notwithstanding anything to the contrary herein, in the event any portion of the
Indebtedness is satisfied by the issuance of Registrable Securities, except for
sales of Collateral that are not prohibited under Section 7.2 or as otherwise
required by the Subordination Agreement, none of the Collateral shall be
released until the repurchase obligations of the Company under the Registration
Rights Agreement have terminated in accordance with its terms.
ARTICLE XI
COLLATERAL AGENT
----------------
11.1. Appointment; Nature of Relationship. PCRL is hereby appointed by each
of the Holders as its contractual representative (herein referred to as the
"Collateral Agent") hereunder and under each other Document, and each of the
Holders irrevocably authorizes the Collateral Agent to act as the contractual
representative of such Holder with the rights and duties expressly set forth
herein and in the other Documents. The Collateral Agent agrees to act as such
contractual representative upon the express conditions contained in this Article
XI. Notwithstanding the use of the defined term "Collateral Agent," it is
expressly understood and agreed that the Collateral Agent shall not have any
fiduciary responsibilities to any Holder by reason of this Agreement or any
other Document and that the Collateral Agent is merely acting as the contractual
representative of the Holders with only those duties as are expressly set forth
in this Agreement and the other Documents. In its capacity as the Holders'
contractual representative, the Collateral Agent (i) does not hereby assume any
fiduciary duties to any of the Holders, (ii) is a "representative" of the
Holders within the meaning of the term "Secured Party" as defined in the New
York Uniform Commercial Code, and (iii) is acting as an independent contractor,
the rights and duties of which are limited to those expressly set forth in this
63
Agreement and the other Documents. Each of the Holders hereby agrees to assert
no claim against the Collateral Agent on any agency theory or any other theory
of liability for breach of fiduciary duty, all of which claims each Holder
hereby waives.
11.2. Powers. The Collateral Agent shall have and may exercise such powers
under the Documents as are specifically delegated to the Collateral Agent by the
terms of each thereof, together with such powers as are reasonably incidental
thereto. The Collateral Agent shall have no implied duties to the Holders, or
any obligation to the Holders to take any action thereunder except any action
specifically provided by the Documents to be taken by the Collateral Agent.
11.3. General Immunity. Neither the Collateral Agent nor any of its
directors, officers, agents or employees shall be liable to any Restricted
Person, the Holders or any Holder for any action taken or omitted to be taken by
it or them hereunder or under any other Document or in connection herewith or
therewith except to the extent such action or inaction is determined in a final
non-appealable judgment by a court of competent jurisdiction to have arisen from
the gross negligence or willful misconduct of such Person.
11.4. No Responsibility for Loans, Recitals, etc. Neither the Collateral
Agent nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into, or verify (a) any
statement, warranty or representation made in connection with any Document or
any borrowing hereunder; (b) the performance or observance of any of the
covenants or agreements of any obligor under any Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Holder; (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered solely to the Collateral Agent; (d)
the existence or possible existence of any Default or Event of Default; (e) the
validity, enforceability, effectiveness, sufficiency or genuineness of any
Document or any other instrument or writing furnished in connection therewith;
(f) the value, sufficiency, creation, perfection or priority of any Lien in any
collateral security; or (g) the financial condition of the Company or any
Guarantor of any of the Indebtedness or of any of the Company's or any such
Guarantor's respective Subsidiaries. The Collateral Agent shall have no duty to
disclose to the Holders information that is not required to be furnished by the
Company to the Collateral Agent at such time, but is voluntarily furnished by
the Company to the Collateral Agent (either in its capacity as the Collateral
Agent or in its individual capacity).
11.5. Action on Instructions of Holders. The Collateral Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Document in accordance with written instructions signed by the
Majority Holders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Holders. The Holders hereby
acknowledge that the Collateral Agent shall be under no duty to take any
discretionary action permitted to be taken by it pursuant to the provisions of
this Agreement or any other Document unless it shall be requested in writing to
do so by the Majority Holders. The Collateral Agent shall be fully justified in
failing or refusing to take any action hereunder and under any other Document
unless it shall first be indemnified to its satisfaction by the Holders pro rata
against any and all liability, cost and expense that it may incur by reason of
taking or continuing to take any such action.
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11.6. Employment of the Collateral Agents and Counsel. The Collateral Agent
may execute any of its duties as the Collateral Agent hereunder and under any
other Document by or through employees, agents, and attorneys-in-fact and shall
not be answerable to the Holders, except as to money or securities received by
it or its authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Collateral Agent
shall be entitled to advice of counsel concerning the contractual arrangement
between the Collateral Agent and the Holders and all matters pertaining to the
Collateral Agent's duties hereunder and under any other Document.
11.7. Reliance on Documents; Counsel. The Collateral Agent shall be
entitled to rely upon any Note, notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it to be genuine and correct
and to have been signed or sent by the proper person or persons, and, in respect
to legal matters, upon the opinion of counsel selected by the Collateral Agent,
which counsel may be employees of the Collateral Agent.
11.8. COLLATERAL AGENT'S REIMBURSEMENT AND INDEMNIFICATION. EACH HOLDER
AGREES TO REIMBURSE AND INDEMNIFY THE COLLATERAL AGENT RATABLY IN PROPORTION TO
THE RATIO THAT ITS RESPECTIVE NOTE BEARS TO THE AGGREGATE NOTES (I) FOR ANY
AMOUNTS NOT REIMBURSED BY THE COMPANY FOR WHICH THE COLLATERAL AGENT IS ENTITLED
TO REIMBURSEMENT BY THE COMPANY UNDER THE DOCUMENTS, (II) FOR ANY OTHER EXPENSES
INCURRED BY THE COLLATERAL AGENT ON BEHALF OF THE HOLDERS, IN CONNECTION WITH
THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION AND ENFORCEMENT OF THE
DOCUMENTS (INCLUDING, WITHOUT LIMITATION, FOR ANY EXPENSES INCURRED BY THE
COLLATERAL AGENT IN CONNECTION WITH ANY DISPUTE BETWEEN THE COLLATERAL AGENT AND
ANY HOLDER OR BETWEEN TWO OR MORE OF THE HOLDERS) AND (III) FOR ANY LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST THE COLLATERAL AGENT IN ANY WAY RELATING TO
OR ARISING OUT OF THE DOCUMENTS OR ANY OTHER DOCUMENT DELIVERED IN CONNECTION
THEREWITH OR THE TRANSACTIONS CONTEMPLATED THEREBY (INCLUDING, WITHOUT
LIMITATION, FOR ANY SUCH AMOUNTS INCURRED BY OR ASSERTED AGAINST THE COLLATERAL
AGENT IN CONNECTION WITH ANY DISPUTE BETWEEN THE COLLATERAL AGENT AND ANY HOLDER
OR BETWEEN TWO OR MORE OF THE HOLDERS), OR THE ENFORCEMENT OF ANY OF THE TERMS
OF THE DOCUMENTS OR OF ANY SUCH OTHER DOCUMENTS, PROVIDED THAT NO HOLDER SHALL
BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT ANY OF THE FOREGOING IS FOUND
IN A FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE COLLATERAL
AGENT. THE OBLIGATIONS OF THE HOLDERS UNDER THIS SECTION 11.8 SHALL SURVIVE
PAYMENT OF THE OBLIGATIONS AND TERMINATION OF THIS AGREEMENT.
65
11.9. Notice of Default. The Collateral Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Collateral Agent has received written notice from a Holder
or the Company referring to this Agreement describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Collateral Agent receives such a notice, the Collateral Agent shall give
prompt notice thereof to the Holders.
11.10. Rights as a Holder. In the event the Collateral Agent is a Holder,
the Collateral Agent shall have the same rights and powers hereunder and under
any other Document with respect to its Indebtedness evidenced by the Notes as
any Holder and may exercise the same as though it were not the Collateral Agent,
and the term "Holder" or "Holders" shall, at any time when the Collateral Agent
is a Holder, unless the context otherwise indicates, include the Collateral
Agent in its individual capacity. The Collateral Agent and its Affiliates may
accept deposits from, lend money to, and generally engage in any kind of trust,
debt, equity or other transaction, in addition to those contemplated by this
Agreement or any other Document, with the Company, the Guarantors or any of
their respective Subsidiaries in which the Company, such Guarantor or such
Subsidiary is not restricted hereby from engaging with any other Person. The
Collateral Agent, in its individual capacity, is not obligated to remain a
Holder.
11.11. Holder Decision. Each Holder acknowledges that it has, independently
and without reliance upon the Collateral Agent or any other Holder and based on
the financial statements prepared by the Company and the Guarantors and such
other documents and information as it has deemed appropriate, made its own
analysis and decision to enter into this Agreement and the other Documents. Each
Holder also acknowledges that it will, independently and without reliance upon
the Collateral Agent or any other Holder and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
decisions in taking or not taking action under this Agreement and the other
Documents.
11.12. Successor Collateral Agent. The Collateral Agent may resign at any
time by giving written notice thereof to the Holders and the Company, such
resignation to be effective upon the appointment of a successor Collateral Agent
or, if no successor Collateral Agent has been appointed, forty-five days after
the retiring Collateral Agent gives notice of its intention to resign. The
Collateral Agent may be removed at any time with or without cause by written
notice received by the Collateral Agent from the Majority Holders, such removal
to be effective on the date specified by the Majority Holders. Upon any such
resignation or removal, the Majority Holders shall have the right to appoint, on
behalf of the Company and the Holders, a successor Collateral Agent subject to
the approval of the Company, such approval not to be unreasonably withheld;
provided that Company shall not have the right to approve any successor
Collateral Agent appointed during the continuance of any Event of Default. If no
successor Collateral Agent shall have been so appointed by the Majority Holders
within thirty days after the resigning Collateral Agent's giving notice of its
intention to resign, then the resigning Collateral Agent may appoint, on behalf
of the Company and the Holders, a successor Collateral Agent. Notwithstanding
the previous sentence, the Collateral Agent may at any time without the consent
of the Company or any Holder, appoint any of its Affiliates which is a
commercial bank as a successor Collateral Agent hereunder. If the Collateral
Agent has resigned or been removed and no successor Collateral Agent has been
appointed, the Holders may perform all the duties of
66
Collateral Agent hereunder and the Company shall make all payments in respect of
the Indebtedness to the applicable Holder and for all other purposes shall deal
directly with the Holders. No successor Collateral Agent shall be deemed to be
appointed hereunder until such successor Collateral Agent has accepted the
appointment. Any such successor Collateral Agent shall be a financial
institution or Fund having capital and retained earnings of at least
$100,000,000. Upon the acceptance of any appointment as the Collateral Agent
hereunder by a successor Collateral Agent, such successor Collateral Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the resigning or removed Collateral Agent. Upon the effectiveness
of the resignation or removal of the Collateral Agent, the resigning or removed
Collateral Agent shall be discharged from its duties and obligations hereunder
and under the Documents. After the effectiveness of the resignation or removal
of a Collateral Agent, the provisions of this Article XI shall continue in
effect for the benefit of such Collateral Agent in respect of any actions taken
or omitted to be taken by it while it was acting as the Collateral Agent
hereunder and under the other Documents.
11.13. Delegation to Affiliates. The Company and the Holders agree that the
Collateral Agent may delegate any of its duties under this Agreement to any of
its Affiliates. Any such Affiliate (and such Affiliate's directors, officers,
agents and employees) which performs duties in connection with this Agreement
shall be entitled to the same benefits of the indemnification, waiver and other
protective provisions to which the Collateral Agent is entitled under Articles X
and XI.
11.14. Execution of Security Documents. The Holders hereby empower and
authorize the Collateral Agent to execute and deliver to the Company on its
behalf the Security Documents (including the Subordination Agreement) and all
related financing statements and any financing statements, agreements, documents
or instruments as shall be necessary or appropriate to effect the purposes of
the Security Documents.
11.15. Collateral Releases. The Holders hereby empower and authorize the
Collateral Agent to execute and deliver to the Restricted Persons on their
behalf any agreements, documents or instruments as shall be necessary or
appropriate to effect any releases of Collateral which shall be permitted by the
terms hereof or of any other Document, including releases required pursuant to
sales of Collateral that are not prohibited under Section 7.2, which shall
otherwise have been approved by the Majority Holders in writing or as otherwise
required by the Subordination Agreement. Notwithstanding anything to the
contrary herein, in the event any portion of the Indebtedness is satisfied by
the issuance of Registrable Securities, except for sales of Collateral that are
not prohibited under Section 7.2, releases approved by the Majority Holders in
writing or as otherwise required by the Subordination Agreement, none of the
Collateral shall be released until the repurchase obligations of the Company
under the Registration Rights Agreement have terminated in accordance with its
terms.
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ARTICLE XII
SETOFF; RATABLE PAYMENTS
------------------------
12.1. Setoff. In addition to, and without limitation of, any rights of the
Holders under applicable law, if any Restricted Person becomes insolvent,
however evidenced, or any Event of Default occurs, any and all deposits
(including all account balances, whether provisional or final and whether or not
collected or available) and any other Obligation at any time held or owing by
any Holder or any Affiliate of any Holder (with the exception of funds deposited
in the Company's accounts in trust for third parties or funds deposited in
pension accounts, IRA's, ▇▇▇▇▇ accounts and All Savor Certificates) to or for
the credit or account of any Restricted Person may be offset and applied toward
the payment of the Indebtedness then due and owing to such Holder.
12.2. Ratable Payments. If any Holder, whether by setoff or otherwise, has
payment made to it upon its Indebtedness evidenced by the Notes in a greater
proportion than that received by any other Holder, such Holder agrees, promptly
upon demand, to purchase a portion of the Notes held by the other Holders so
that after such purchase each Holder will hold its ratable proportion of Notes.
If any Holder, whether in connection with setoff or amounts which might be
subject to setoff or otherwise, receives collateral or other protection for its
Indebtedness or such amounts which may be subject to setoff, such Holder agrees,
promptly upon demand, to take such action necessary such that all Holder s share
in the benefits of such collateral ratably in proportion to their Notes. In case
any such payment is disturbed by legal process, or otherwise, appropriate
further adjustments shall be made.
ARTICLE XIII
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
--------------------------------------------
13.1. Representations and Warranties of Each Purchaser. Each Purchaser
represents and warrants to the Company, severally and not jointly, as of the
date hereof and as of each date it receives Common Stock pursuant to Section
3.3(b), 3.5 or 3.6 as follows:
(a) Purchase for its Own Account. Such Purchaser is purchasing the
Restricted Securities for its own account, without a view to the
distribution thereof in violation of the Securities Act, all without
prejudice, however, to the right of such Purchaser at any time, in
accordance with this Agreement or the Documents, lawfully to sell or
otherwise to dispose of all or any part of the Restricted Securities held
by it.
(b) Accredited Investor. Such Purchaser is an "accredited investor"
within the meaning of Regulation D under the Securities Act.
(c) Authority, Etc. Such Purchaser has the power and authority to
enter into and perform this Agreement and the execution and performance
hereof have been duly authorized by all proper and necessary action; this
Agreement constitutes the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with
68
its terms, except as limited by bankruptcy, insolvency or other similar
laws now or hereafter in effect affecting the enforcement of creditors'
rights and the application of equitable principles.
(d) Securities Act Compliance. Such Purchaser understands that, as of
the Closing Date, the Company has not registered the offer and sale of the
Restricted Securities under the Securities Act, and each Purchaser agrees
that the Restricted Securities may not be sold or transferred or offered
for sale or transfer by it without registration under the Securities Act or
the availability of an exemption therefrom, all as more fully provided in
Article XV hereof. Such Purchaser understands that any transfer agent of
the Company will be issued stop-transfer restrictions with respect to the
Restricted Securities unless such transfer is subsequently registered under
the Securities Act and applicable state and other securities laws or unless
an exemption from such registration is available. Such Purchaser has
experience in analyzing and investing in entities like the Company, such
Purchaser can bear the economic risk of its investment, including the full
loss of its investment, and by reason of its business or financial
experience or the business or financial experience of its professional
advisors has the capacity to evaluate the merits and risks of its
investment and protect its own interest in connection with the purchase of
the Restricted Securities from the Company on the Closing Date. Such
Purchaser does not have any contract, undertaking, agreement or
arrangements with any Person to sell, transfer or grant a participation to
such Person or to any third Person, with respect to any of the Restricted
Securities in violation of the Federal or any state securities laws.
ARTICLE XIV
SUBORDINATION OF NOTES
----------------------
14.1. Subordination of Notes. The Company, for itself and its successors,
and each Holder, by its acceptance of the Notes, agrees that (a) the payment of
the principal of and interest on the Notes and (b) any payment on account of the
acquisition or redemption of the Notes by the Company is subordinated, to the
extent and in the manner provided in the Subordination Agreement and each Holder
shall be bound by the provisions thereof.
ARTICLE XV
TRANSFER OF SECURITIES
----------------------
15.1. Restriction on Transfer.
The Restricted Securities shall not be transferable except a holder of
Restricted Securities may transfer such Restricted Securities upon the
conditions specified in this Article XV, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the transfer
thereof; provided, however, that any transferee, by acceptance of the Restricted
Securities, will be deemed to have agreed to be bound by and entitled to the
benefits of Section 16.15; and provided, further, that, so long as no Event of
Default has occurred and is continuing,
69
neither the rights of any Holder under the Documents nor the Notes nor any part
thereof or participation therein may be transferred or assigned to a Competitor,
and the Notes may not be transferred or assigned in aggregate principal amounts
of less than $3,000,000. By its acceptance of a Note, each transferee of
Restricted Securities hereunder and will be deemed to have agreed to be bound by
the provisions of this Article including the representations set forth in
Section 13.1(a) and (d) of this Agreement.
15.2. Restrictive Legends.
Each certificate for the Restricted Securities, and each certificate for
any such securities issued to subsequent transferees of any such certificate
shall (unless otherwise permitted by the provisions of Section 15.3 hereof) be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES OR BLUE SKY LAWS. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE SECURITIES OR
BLUE SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THE NOTE PURCHASE AGREEMENT
DATED AS OF OCTOBER 29, 2004, AMONG THE ISSUER HEREOF AND CERTAIN
OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE SECURITIES SHALL
BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. UPON
THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, THE ISSUER HEREOF HAS
AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING
THIS LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE
NAME OF THE HOLDER HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THE
CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF. THIS NOTE IS
SUBJECT TO THE PROVISIONS OF THE SUBORDINATION AGREEMENT, DATED AS OF
OCTOBER 29, 2004, AMONG PCRL INVESTMENTS L.P., IN ITS CAPACITY AS
PURCHASER AND AS COLLATERAL AGENT FOR THE HOLDERS PURSUANT TO THE
PURCHASE AGREEMENT, HIBERNIA NATIONAL BANK, IN ITS CAPACITY AS
ADMINISTRATIVE AGENT FOR THE FINANCIAL INSTITUTIONS PARTY TO THE
SENIOR CREDIT AGREEMENT (AS DEFINED IN THE SUBORDINATION AGREEMENT)
AND COMPANY. EACH HOLDER OF THIS PROMISSORY NOTE SHALL BE DEEMED, BY
VIRTUE OF SUCH HOLDER'S ACQUISITION OF THIS PROMISSORY NOTE, TO HAVE
AGREED TO PERFORM AND OBSERVE ALL OF THE TERMS, COVENANTS, AND
CONDITIONS TO BE PERFORMED OR OBSERVED BY THE SUBORDINATED LENDER
UNDER (AND AS DEFINED
70
IN) THE SUBORDINATION AGREEMENT.
15.3. Notice of Transfer.
(a) Except as provided in the Registration Rights Agreement, each
holder shall, prior to any Transfer of any Restricted Securities, give ten
(10) Business Days prior written notice (or, if such ten (10) Business Day
notice period is not reasonably practicable, such notice as is reasonably
practicable), to the Company of such holder's intention to effect such
Transfer and to comply in all other respects with the provisions of this
Section 15.3 in making such proposed Transfer. Each such notice shall
describe the manner and circumstances of the proposed Transfer. Upon
request by the Company, the holder delivering such notice shall deliver a
written opinion, addressed to the Company, of counsel for such holder
(which may be one of its internal counsels), stating that in the opinion of
such counsel (which opinion must be reasonably satisfactory to the Company)
such proposed Transfer does not involve a transaction requiring
registration of the offer and sale of such Restricted Securities under the
Securities Act. Such holder shall thereupon be entitled to Transfer the
Restricted Securities in accordance with the terms of the notice delivered
to the Company, if the Company does not reasonably object to such Transfer
and request such opinion, within five days after delivery of such notice
or, if the Company does request such opinion, upon its receipt thereof.
Notwithstanding anything to the contrary in any Document, the opinion
required hereby must be presented in order that the securities be validly
presented for transfer and that the Company's obligation to transfer begins
to accrue and the Company shall have no obligation to transfer nor shall
any liability nor penalty accrue for failure to transfer unless such
opinion is presented. Each certificate or other instrument evidencing the
securities issued upon the Transfer of any Restricted Securities (and each
certificate or other instrument evidencing any untransferred balance of
such Restricted Securities) shall bear the legend set forth in Section 15.2
above unless (i) such opinion of counsel is to the effect that registration
of any future Transfer is not required by the applicable provisions of the
Securities Act or (ii) the Company shall have waived the requirement of
such legend.
(b) Notwithstanding the foregoing provisions of this Section 15.3, the
restrictions imposed by Section 15.3(a) upon the transferability of any
Restricted Securities (other than the Notes in respect as to which
Restricted Securities may be issued by the Company) shall cease and
terminate when (i) such Restricted Securities are sold or otherwise
disposed of pursuant to an effective registration statement under the
Securities Act or as otherwise contemplated by paragraph (a) above in a
manner that does not require that the Restricted Securities so transferred
to continue to bear the legend set forth in Section 15.2 above or (ii) the
holder of such Restricted Securities has met the requirements for Transfer
of such Restricted Securities under Rule 144 or Rule 144(k). Whenever the
restrictions imposed by this Section shall terminate, upon the written
request of the holder of any Restricted Securities as to which such
restrictions have terminated, as promptly as practicable but in any event
within ten (10) Business Days of receipt of such request, the Company
shall, without charge, issue, register and deliver a new instrument not
bearing the restrictive legend set forth in Section 15.3
71
above and not containing any other reference to the restrictions imposed by
this Section unless such Restricted Securities are Registrable Securities
under the Registration Rights Agreement in which event the Company shall
comply with Section 7 of the Registration Rights Agreement with respect to
such Restricted Securities.
ARTICLE XVI
MISCELLANEOUS
-------------
16.1. Notices.
All notices, demands and requests of any kind to be delivered to any party
hereto in connection with this Agreement shall be (a) delivered personally, (b)
sent by nationally-recognized overnight courier, (c) sent by first class,
registered or certified mail, return receipt requested or (d) sent by facsimile,
in each case to such party at its address as follows:
(i) if to the Company, to:
Carrizo Oil & Gas, Inc.
▇▇▇▇▇ ▇▇. ▇▇▇▇'▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to any Purchaser, to such Purchaser's address set
forth in Schedule 2 hereto.
(iii) if to any Holder, to such Holder's address as
specified by such Holder in accordance with this Section 16.1
Any notice, demand or request so delivered shall constitute valid notice
under this Agreement and shall be deemed to have been received (A) on the day of
actual delivery in the case of personal delivery, (B) on the next Business Day
after the date when sent in the case of delivery by nationally-recognized
overnight courier, (C) on the fifth Business Day after the date
72
of deposit in the U.S. mail in the case of mailing or (D) upon receipt in the
case of a facsimile transmission or the next Business Day is such day is not a
Business Day. Any party hereto or any Holder may from time to time by notice in
writing served upon the other as aforesaid designate a different mailing address
or a different person to which all such notices, demands or requests thereafter
are to be addressed.
16.2. Survival of Agreement.
All agreements, representations and warranties contained herein or made in
writing by or on behalf of the Company in connection with the transactions
contemplated hereby shall survive the execution and delivery of this Agreement
and the other Documents without limit. No termination or cancellation
(regardless of cause or procedure) of this Agreement shall in any way affect or
impair the powers, obligations, duties, rights and liabilities of the parties
hereto in any way with respect to any transaction or event occurring prior to
such termination or cancellation, or any of the representations contained in
this Agreement and the other Documents and all such undertakings, agreements,
covenants, warranties and representations shall survive such termination or
cancellation as provided above. The Company further agrees that to the extent
the Company makes a payment or payments to the Holders under this Agreement or
any other Document, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy, insolvency or similar state or United States federal law, common law
or equitable cause, then to the fullest extent permitted by applicable law, to
the extent of such payment or repayment, the Indebtedness or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been received by the Holders. The Holders shall be
entitled to rely upon, and shall be deemed to have relied upon, all
representations, warranties and covenants to be performed prior to the Closing
Date contained in any Document, notwithstanding any knowledge of the Holders to
the contrary, or any contrary information delivered to the Holders by the
Company or any other Person.
16.3. Successors and Assigns.
Whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and permitted assigns of
such party, and all covenants, promises and agreements by or on behalf of the
Company or the Holders that are contained in the Documents shall bind and inure
to the benefit of their respective successors and permitted assigns except that
the Company shall not assign its rights or obligations hereunder without the
consent of the Majority Holders. Each Holder shall have the right, subject to
the provisions of Article XV hereof, to assign or otherwise transfer its rights
under this Agreement (in connection with the transfer of Restricted Securities)
or any Notes held by it.
16.4. Expenses of the Holders.
Subject to a limitation of $75,000 upon attorney's fees and expenses of the
Purchaser incurred in connection with the following clauses (i) and (ii) agreed
to between the Company and the Purchaser, the Company shall pay (a) all
out-of-pocket expenses reasonably incurred by the Holders (including, without
limitation, the reasonable fees, charges and disbursements of counsel
73
for the Holders and any auditors, accountants, appraisers, consultants, advisors
and agents employed or retained by the Holders) in connection with (i) the
preparation, execution and delivery of this Agreement and the other Documents,
(ii) the purchase of the Initial Notes hereunder (including the Holders' due
diligence investigation in connection therewith), (iii) all filings, if any, by
any Holder required to be made by the Commission in connection with the
transactions contemplated by the Documents and (iv) the preparation of any
modifications, amendments, consents or waivers in connection with the
negotiation, preparation, execution and administration of the Documents and any
consents, amendments, waivers or other modifications thereto and any other
documents or matters requested by Company; (b) all the actual costs and
reasonable expenses of creating and perfecting Liens in favor of Collateral
Agent, for the benefit of Holders pursuant hereto, including filing and
recording fees, expenses and taxes, stamp or documentary taxes, search fees,
title insurance premiums and reasonable fees, expenses and disbursements of
counsel to Collateral Agent and of counsel providing any opinions that the
Collateral Agent or any Holder may request in respect of the Collateral or the
Liens created pursuant to the Security Documents; (c) all the actual costs and
reasonable fees, expenses and disbursements of any auditors, consultants or
appraisers; (d) all the actual costs and reasonable expenses (including the
reasonable fees, expenses and disbursements of any appraisers, consultants,
advisors and agents employed or retained by Collateral Agent and its counsel) in
connection with the custody or preservation of any of the Collateral; and (e)
after the occurrence of a Default or an Event of Default, all costs and
expenses, including reasonable attorneys' fees and costs of settlement, incurred
by the Collateral Agent and the Holders in enforcing any Indebtedness of or in
collecting any payments due from any Restricted Person hereunder or under the
other Documents by reason of such Default or Event of Default (including in
connection with the sale of, collection from, or other realization upon any of
the Collateral or the enforcement of the Guaranty) or in connection with any
refinancing or restructuring of the credit arrangements provided hereunder in
the nature of a "work out" or pursuant to any insolvency or bankruptcy cases or
proceedings.
16.5. Indemnification.
(a) In addition to all rights and remedies available to the Holders at
law or in equity, the Company shall indemnify the Holders and their
affiliates, stockholders, officer, directors, employees, agents,
representatives, counsel, successors and permitted assigns (collectively,
the "Indemnified Persons") and save and hold each of them harmless against
and pay on behalf of or reimburse such party as and when incurred for any
loss (excluding any tax and any diminution in value of the Notes),
liability, demand, claim, action, cause of action, cost, damage,
deficiency, penalty, fine or expense, whether or not arising out of any
claims by or on behalf of the Company or any third party, including
interest, penalties, reasonable attorneys' fees and expenses and all
amounts paid in investigation, defense or settlement of any of the
foregoing (collectively, "Losses") which any such party may suffer, sustain
or become subject to, to the extent arising out of or as a result of:
(i) any misrepresentation or breach of a representation or
warranty on the part of the Company under Article V of this Agreement;
74
(ii) any nonfulfillment or breach of any covenant or agreement on
the part of the Company under this Agreement or any other Document;
(iii) any action, demand, proceeding, investigation or claim by
any third party (including, without limitation, governmental agencies)
against any Indemnified Person that, if successful, would give rise to
or evidence the existence of or relate to a breach of any of the
representations, warranties or covenants of the Company; and
(iv) any action, demand, proceeding, investigation or claim by
any third party (including, without limitation, governmental agencies)
against any Indemnified Person relating to or arising from
Environmental Laws (including without limitation relating to or
arising from any Hazardous Material regarding the Company or its
Subsidiaries and relating to the Company or its Subsidiaries or any
predecessor thereto or any of the operators, properties or assets of
any of them). THE COVENANTS AND INDEMNITIES CONTAINED IN THIS SECTION
16.5(a) SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT, BUT EXCLUDING
ALL INDEMNITY MATTERS ARISING BY REASON OF THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT ON THE PART OF ANY INDEMNIFIED PARTY; AND,
PROVIDED, HOWEVER, NO RELEASE, WAIVER, DEFENSE OR INDEMNITY SHALL BE
AFFORDED UNDER THIS SECTION 16.5(a) IN RESPECT OF ANY PROPERTY FOR ANY
OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE COLLATERAL AGENT
AND/OR THE HOLDERS OR THEIR AGENTS OR REPRESENTATIVES DURING THE
PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS, OR ITS
AGENTS OR REPRESENTATIVES, SHALL HAVE OBTAINED OWNERSHIP, OPERATION OR
POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF
FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE). ANY CLAIMS
UNDER THIS SECTION 16.5(a) SHALL BE SUBJECT TO SECTION 16.5(b).
(b) Notwithstanding the foregoing, and subject to the following part
of this sentence, upon judicial determination, which is final and no longer
appealable, that the act or omission giving rise to the indemnification
hereinabove provided resulted primarily out of or was based primarily upon
the Indemnified Person's gross negligence, fraud or willful misconduct
(unless such action was based upon the Indemnified Person's reliance in
good faith upon any of the representations, warranties, covenants or
promises made by the Company in the Documents) by the Indemnified Person,
the Company shall not be responsible for any Losses sought to be
indemnified in connection therewith, and the Company shall be entitled to
recover from the Indemnified Person all amounts previously paid in full or
partial satisfaction of such indemnity with interest thereon at the rate of
interest borne by the Notes, together with all costs and expenses of the
Company reasonably incurred in effecting such recovery, if any.
75
(c) All indemnification rights hereunder shall survive the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby without limit, regardless of any investigation, inquiry
or examination made for or on behalf of, or any knowledge of the Holders
and/or any of the Indemnified Persons or the acceptance by the Holders of
any certificate or opinion.
(d) The indemnity obligations that the Company have under this Section
16.5 shall be in addition to any liability that the Company may otherwise
have. The Company further agrees that the indemnification commitment set
forth in this Agreement shall apply whether or not the Indemnified Person
is a formal party to any such lawsuits, claims or other proceedings.
(e) Any indemnification of the Holders or any other Indemnified Person
by the Company pursuant to this Section 16.5 shall be effected by wire
transfer of immediately available funds from the Company to an account
designated by the Holders or any other Indemnified Person within fifteen
(15) days after the determination thereof.
16.6. Third Party Claims.
(a) If any claim (a "Third Party Claim") is asserted against an
Indemnified Person and such Indemnified Person intends to seek
indemnification hereunder from the Company (the "Indemnifying Person"),
then such Indemnified Person shall give notice of the Third Party Claim to
the Indemnifying Person as soon as practicable after the Indemnified Person
has reason to believe that the Indemnifying Person will have an
indemnification obligation with respect to such Third Party Claim and shall
provide the Indemnifying Person with all papers served with respect to such
Third Party Claim. Such notice shall describe in reasonable detail, to the
extent known, the nature of the Third Party Claim, an estimate of the
amount of damages attributable to the Third Party Claim and the basis of
the Indemnified Person's request for indemnification under this Agreement.
The failure of the Indemnified Person to so notify the Indemnifying Person
of the Third Party Claim shall not relieve the Indemnifying Person from any
duty to indemnify hereunder unless and to the extent that the Indemnifying
Person demonstrates that the failure of the Indemnified Person to promptly
notify it of such Third Party Claim prejudiced its ability to defend such
Third Party Claim; provided, that the failure of the Indemnified Person to
notify the Indemnifying Person shall not relieve the Indemnifying Person
from any liability which it may have to the Indemnified Person otherwise
than under this Agreement. Thereafter, the Indemnified Person shall deliver
to the Indemnifying Person, within five business days after the Indemnified
Person's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnified Person relating to the Third
Party Claim.
(b) The Indemnifying Person shall have the right to participate in, or
assume control of, and the Indemnifying Person's insurance carrier shall
have the right to participate in, the defense of the Third Party Claim at
its own expense by giving prompt written notice to the Indemnified Person,
using counsel of its choice reasonably acceptable to the Indemnified
Person. If it elects to assume control of the defense of
76
such Third Party Claim, the Indemnifying Person shall defend such Third
Party Claim by promptly and vigorously prosecuting all appropriate
proceedings to a final conclusion or settlement. After notice from the
Indemnifying Person to the Indemnified Person of its election to assume the
defense of such Third Party Claim, the Indemnified Person shall have the
right to participate in the defense of the Third Party Claim using counsel
of its choice, but the Indemnifying Person shall not be liable to the
Indemnified Person hereunder for any legal or other expenses subsequently
incurred by the Indemnified Person in connection with its participation in
the defense thereof unless (i) the employment thereof has been specifically
authorized in writing by the Indemnifying Person, (ii) the Indemnifying
Person fails to assume the defense or diligently prosecute the Third Party
Claim or (iii) there shall exist or develop a conflict that would ethically
prohibit counsel to the Indemnifying Person from representing the
Indemnified Person. If requested by the Indemnifying Person, the
Indemnified Person agrees to cooperate with the Indemnifying Person and its
counsel in contesting any Third Party Claim that the Indemnifying Person
elects to contest, including the making of any related counterclaim against
the Third Party asserting the Third Party Claim or any cross-complaint
against any Person, in each case only if and to the extent that any such
counterclaim or cross-complaint arises from the same actions or facts
giving rise to the Third Party Claim. The Indemnifying Person shall have
the right, acting in good faith and with due regard to the interests of the
Indemnified Person, to control all decisions regarding the handling of the
defense without the consent of the Indemnified Person, but shall not have
the right to admit liability with respect to, or compromise, settle or
discharge any Third Party Claim or consent to the entry of any judgment
with respect to such Third Party Claim without the consent of the
Indemnified Person, which consent shall not be unreasonably withheld,
unless such settlement, compromise or consent includes an unconditional
release of the Indemnified Person from all liability and obligations
arising out of such Third Party Claim and which would not otherwise
adversely affect the Indemnified Person.
(c) If the Indemnifying Person fails to assume the defense of a Third
Party Claim within thirty (30) days after receipt of written notice of the
Third Party Claim, then the Indemnified Person shall have the right to
defend the Third Party Claim by promptly and vigorously prosecuting all
appropriate proceedings to a final conclusion or settlement. The
Indemnifying Person shall have the right to participate in the defense of
the Third Party Claim using counsel of its choice, but the Indemnified
Person shall not be liable to the Indemnifying Person hereunder for any
legal or other expenses incurred by the Indemnifying Person in connection
with its participation in the defense thereof. If requested by the
Indemnified Person, the Indemnifying Person agrees to cooperate with the
Indemnified Person and its counsel in contesting any Third Party Claim that
the Indemnified Person elects to contest, including the making of any
related counterclaim against the Third Party asserting the Third Party
Claim or any cross-complaint against any Person, in each case only if and
to the extent that any such counterclaim or cross-complaint arises from the
same actions or facts giving rise to the Third Party Claim. The Indemnified
Person shall have the right, acting in good faith and with due regard to
the interests of the Indemnifying Person, to control all decisions
77
regarding the handling of the defense without the consent of the
Indemnifying Person, but shall not have the right to compromise or settle
any Third Party Claim or consent to the entry of any judgment with respect
to such Third Party Claim without the consent of the Indemnifying Person,
which consent shall not be unreasonably withheld, unless such settlement,
compromise or consent includes an unconditional release of the Indemnifying
Person from all liability and obligations arising out of such Third Party
Claim.
16.7. Governing Law.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF
NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(b) THE PARTIES TO THIS AGREEMENT AGREE THAT JURISDICTION AND VENUE IN
ANY ACTION BROUGHT BY ANY PARTY HERETO PURSUANT TO THIS AGREEMENT SHALL LIE
IN ANY FEDERAL OR STATE COURT LOCATED IN THE STATE OF NEW YORK. BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THEMSELVES AND
IN RESPECT OF THEIR PROPERTY WITH RESPECT TO SUCH ACTION. THE PARTIES
HERETO IRREVOCABLY AGREE THAT VENUE WOULD BE PROPER IN SUCH COURT, AND
HEREBY WAIVE ANY OBJECTION THAT SUCH COURT IS AN IMPROPER OR INCONVENIENT
FORUM FOR THE RESOLUTION OF SUCH ACTION.
(c) THE COMPANY HEREBY AGREES THAT SERVICE UPON THEM BY REGISTERED OR
CERTIFIED MAIL (RETURN RECEIPT REQUESTED) SHALL CONSTITUTE SUFFICIENT
NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE HOLDERS TO BRING
PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER JURISDICTION.
(d) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED
AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO
APPLY, THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE
OR DEFEND ANY RIGHTS OR REMEDIES UNDER
78
THIS AGREEMENT, THE DOCUMENTS OR ANY DOCUMENTS RELATED HERETO.
16.8. Waivers; Amendments.
(a) No failure or delay of the Holders in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any
other or further exercise thereof or the exercise of any other right or
power. The rights and remedies of the Holders hereunder are cumulative and
not exclusive of any rights or remedies which they would otherwise have. No
waiver of any provision of this Agreement or any other Document or consent
to any departure by the Company therefrom shall in any event be effective
unless the same shall be authorized as provided in paragraph (b) below, and
then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on the
Company in any case shall entitle the Company to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in
writing entered into by the Company and the Majority Holders; provided that
no such amendment, waiver or modification shall (i) reduce the principal
amount of any Note or reduce the rate of interest thereon, without the
written consent of each Holder affected thereby, (ii) postpone the
scheduled date of payment of the principal amount of any Note, or any
interest thereon, or reduce the amount of, waive or excuse any such
payment, without the written consent of each Holder affected thereby, (iii)
change Section 3.3 hereof in a manner that would alter the pro rata sharing
of payments required thereby, without the written consent of each Holder,
(iv) change any of the provisions of this Section 16.8 or the definition of
"Majority Holders" or any other provision hereof specifying the number or
percentage of Holders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder, without
the written consent of each Holder or (v) increase the obligations of any
Holder or otherwise disproportionately adversely affect any of the rights
of any Holder under this Agreement, without the written consent of each
Holder affected thereby.
16.9. Independence of Covenants. All covenants hereunder shall be given in
any jurisdiction independent effect so that if a particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or be otherwise within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
16.10. No Fiduciary Relationship. No provision in this Agreement or in any
of the other Documents and no course of dealing between the parties shall be
deemed to create any fiduciary duty by the Holders to the Company other than any
fiduciary duty any Holder may have as a member of the Board of the Company.
79
16.11. No Duty. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by the Purchasers shall have the
right to act exclusively in the interest of the Purchasers and shall have no
duty of disclosure, duty of loyalty, duty of care, or other duty or obligation
of any type or nature whatsoever to the Company or any of it's shareholders or
any other Person.
16.12. Construction. The Company and the Purchasers acknowledge that each
of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement and the other Documents with
its legal counsel and that this Agreement and the other Documents shall be
construed as if jointly drafted by the Purchasers and the Company.
16.13. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under Applicable
Law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any Applicable Law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, and such invalid, void or otherwise unenforceable
provisions shall be null and void. It is the intent of the parties, however,
that any invalid, void or otherwise unenforceable provisions be automatically
replaced by other provisions which are as similar as possible in terms to such
invalid, void or otherwise unenforceable provisions but are valid and
enforceable to the fullest extent permitted by Applicable Law.
16.14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract.
16.15. Confidentiality.
(a) For the purposes of this Section 16.15, "Confidential Information"
means information delivered to any Holder by or on behalf of the Company or
any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement and the other Documents (including,
without limitation, any information regarding the transactions contemplated
hereby provided prior to the Closing Date) that is identified as
confidential or should reasonably be known to be confidential, provided
that such term does not include information that (i) was publicly known or
otherwise known to such Holder prior to the time of such disclosure, (ii)
subsequently becomes publicly known through no act or omission by any
Holder or any Person acting on its behalf, or (iii) otherwise becomes known
to any Holder other than through disclosure by the Company or any
Subsidiary.
(b) Subject to Section 16.15(e), each Holder will maintain the
confidentiality of such Confidential Information in accordance with
procedures adopted by such Holder in good faith to protect confidential
information of third parties delivered to such Holder, provided that such
Holder may deliver or disclose Confidential Information to the following
Persons as to whom the Holder remains responsible for their maintenance of
confidentiality to the extent required herein (other than the Persons
80
described in clauses (iii), (vi) and (vii)), (i) its directors, officers,
employees, agents, attorneys and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by
the Notes), (ii) its financial advisors and other professional advisors who
are made aware of the confidential nature of such information, (iii) any
other holder of Notes, (iv) any eligible Person to which any Holder sells
or offers to sell Notes or any part thereof or any participation therein
(if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section
16.15), (v) any Person from which such Holder offers to purchase any
security of the Company (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of
this Section 16.15), (vi) any federal or state regulatory authority having
jurisdiction over such Holder, (vii) the National Association of Insurance
Commissioners or any similar organization, or any nationally recognized
rating agency that requires access to information about its investment
portfolio, or (viii) any other Person to which such delivery or disclosure
may be necessary or appropriate (w) to effect compliance with any law,
rule, regulation or order applicable to such Holder, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation to
which such Holder is a party or (z) if an Event of Default has occurred and
is continuing, to the extent such Holder may reasonably determine such
delivery and disclosure to be necessary or appropriate in the enforcement
or for the protection of the rights and remedies under the Notes and this
Agreement.
(c) Each Holder, by its acceptance of Notes, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section
16.15 as though it were a party to this Agreement. On reasonable request by
the Company in connection with the delivery to any Holder of information
required to be delivered to such Holder under this Agreement or requested
by such Holder (other than a Holder that is a party to this Agreement or
its nominee) such Holder will enter into an agreement with the Company
embodying the provisions of this Section 16.15.
(d) Notwithstanding anything to the contrary herein or in any other
Document and unless otherwise requested by written notice of a Holder to
the Company, the Company shall have no obligation to deliver any
Confidential Information to any Holder.
(e) If at any time after the Closing Date:
(i) any Confidential Information not otherwise disclosed to such
Holder prior to the Closing Date that is material and non-public
regarding the Company or any of its Subsidiaries is delivered to a
Holder by or on behalf of the Company or any Subsidiary in connection
with the transactions contemplated by or otherwise pursuant to this
Agreement prior to delivery of the written notice specified in Section
16.15(d);
(ii) at such time (A) such Holder, together with its Affiliates,
is the holder of Registrable Securities representing five
one-hundredths of one percent
81
(0.05%) or more of the outstanding Common Stock of the Company; or (B)
the Issue Date related to any Significant Stock Payment Notice issued
to such Holder has not occurred; and
(iii) such Holder delivers written notice to the Company
indicating that an Applicable Period has begun (a "Disclosure
Notice"),
then as of the end of the Applicable Period set forth in such
Disclosure Notice (or such earlier date as the Company shall have
complied with clause (x) of this Section 16.15(e)(iii)) (unless such
Confidential Information is no longer material, or is no longer
Confidential Information):
(x) the Company shall be obligated to disclose such Confidential
Information in a manner compliant with Regulation FD of the Exchange
Act and in sufficient detail such that such Holder shall not be
restricted from trading the securities of the Company under the U.S.
or any state securities laws due to its knowledge of such Confidential
Information;
(y) the obligations to keep such Confidential Information
confidential and not trade while in possession of such information of
such Holder under Section 16.15(b) shall terminate; and
(z) to the extent the Company shall not have complied with clause
(x) of this Section 16.15(e)(iii) prior to the end of the Applicable
Period, such Holder, without liability, risk or obligation to the
Company or any of its Subsidiaries, may (following consultation with
the Company, to the extent possible) disclose such Confidential
Information in a manner compliant with Regulation FD of the Exchange
Act but only in such detail such that such Holder shall not be
restricted from trading the securities of the Company under the U.S.
or any state securities laws due to its knowledge of such Confidential
Information.
(f) For purposes of this Section 16.15, "Applicable Period"
means, as of the date any Holder receives Confidential Information
prior to delivery of the written notice specified in Section 16.15(d)
with respect to such Confidential Information, the period specified in
the table below opposite the percentage ownership of the outstanding
shares of Common Stock of the Company represented by the aggregate
number of Registrable Securities issued to such Holder and its
Affiliates during the period of thirty (30) consecutive Trading Days
immediately preceding but excluding such date plus the aggregate
number of shares of Registrable Securities to be issued pursuant to
any Significant Stock Payment Notice then in effect:
------------------------------------- ----------------------------------
Percentage Ownership Applicable Period
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
More than 0.05% but less than or Twelve (12) Trading Days
equal to .75%
------------------------------------- ----------------------------------
------------------------------------- ----------------------------------
More than .75% but less than or Five (5) Trading Days
equal to 1.5%
------------------------------------- ----------------------------------
82
------------------------------------- ----------------------------------
More than 1.5% Three (3) Trading Days
------------------------------------- ----------------------------------
The Trading Days included in any Applicable Period during which any Holder is
not permitted to sell Registrable Securities shall be included in the
determination of whether an "Event" has occurred as such term is defined in and
to the extent provided by the Registration Rights Agreement and to the extent
such Trading Days include Trading Days that would otherwise be included in any
Measurement Period, such Trading Days shall be excluded for such Measurement
Period as if such Trading Days were not Trading Days (it being understood that
such Measurement Period shall be extended so that the Measurement Period is the
full applicable period of Trading Days), and the date for any payment relating
to such Measurement Period shall be extended for the number of days equal to the
Trading Days excluded from the Measurement Period.
16.16. Press Release. The Company shall consult with Purchasers prior to
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby, and shall not issue any such press release
or otherwise make any such public statement without the prior consent of the
Purchaser and its investment advisor. The Company shall not publicly disclose
the name of the Purchaser or its investment advisor, or include the name of
Purchaser or its investment advisor in any filing with the Commission, any
regulatory agency, or trading market, without the prior written consent of the
Purchaser and its investment advisor.
16.17. Headings. Article and Section headings and the Table of Contents
used herein are for convenience of reference only and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Agreement.
16.18. Entire Agreement. This Agreement and the agreements and documents
referred to herein contain the entire agreement of the parties and supersede any
and all prior agreements among the parties with respect to the subject matter
hereof (including, without limitation, any term sheets or commitment letters).
Notwithstanding the foregoing, nothing herein shall prohibit the matters set
forth in, and actions of the Company and its Subsidiaries permitted by (i) the
Consent Relating to the Amended and Restated Credit Agreement dated as of June
20, 2003 by and among the Company, CCBM and the Senior Lender as in effect on
the date hereof and (ii) the Consent dated as of June 7, 2004 by and among the
Company, CCBM and the Senior Lender as in effect on the date hereof but subject
to the limitations contained in Section 7.5(c).
[Signature pages follow]
83
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
CARRIZO OIL & GAS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President and
Chief Financial Officer
▇▇▇▇▇ ▇▇. ▇▇▇▇'▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
84
PCRL INVESTMENTS L.P.,
as Collateral Agent and as a Purchaser
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Authorized Signatory
PCRL Investments L.P.
c/o HBK Investments L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
HBK Investments L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Legal Department
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
85
ANNEX A
CALCULATION OF INVESTMENT BASE
JULY 1, 2004 INVESTMENT BASE ESTIMATE
Non-
PDP Conforming BP PUD SI TOTAL
PV10 - Oil at $[ ] Bbl 1 7,271 0 4,228 1,529 0
PV10 - Gas at $[ ] Mcf 25,010 0 14,541 5,258 0
--------------------------------------------------------------------------------
Total PV10 $ 32,281 $0 $ 18,769 $ 6,787 $0 $ 57,837
--------------------------------------------------------------------------------
Total Reserves (exc Camp Hill) 2 32,282 0 18,768 6,786 0 57,836
Current ▇▇▇▇▇▇ 1,508 1,508
NEW ▇▇▇▇▇▇ 1,514 1,514
--------------------------------------------------------------------------------
TOTAL PV10 35,304 $0 $ 18,768 $ 6,786 $0 $ 60,858
--------------------------------------------------------------------------------
Initial Risking % 100% 60% 75% 50% 75%
Risked Reserves 35,304 0 14,076 3,393 0
Maximum Non-producing Cap Non-producing at 1/3 of Total
---------------------------------
Cap 35,304 18,187 53,491
Actual 17,469
Adj Risked Reserves 35,304 0 14,076 3,393 0 52,773
Additiona Risking % 70% 70% 30% 30% 30%
Est. Borrowing Capacity $24,713 $0 $4,223 $1,018 $0 $29,954
Net Risking 70.0% 42.0% 22.5% 15.0% 22.5%
INTERNAL SUMMARY-
7.1.04 (above) 29,954
July Amortization (est) 2,015
8.1.04 Internal Est. 27,939
INVESTMENT BASE-
8.1.04 28,000
1 The prices for Oil and Gas shall be the average price then being used in the
determination of the loan value of Oil and Gas Properties by three commercial
money center banks reasonably acceptable to the Company and the Majority
Holders, that are actively engaged in the business of making loans and extending
credit secured by Oil and Gas Properties.
2 The Oil and Gas Properties located in the Camp Hill Field in East Texas shall
be excluded from the calculation of Total Reserves unless such Oil and Gas
Properties have been included in the determination of the Borrowing Base.
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE BLUE SKY LAWS.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN THE NOTE PURCHASE AGREEMENT, DATED AS OF OCTOBER [__], 2004, BY AND
AMONG THE ISSUER HEREOF, THE HOLDERS AND PCRL INVESTMENTS L.P., AS COLLATERAL
AGENT FOR THE HOLDERS ("PURCHASE AGREEMENT"), AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, THE ISSUER HEREOF
HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS
LEGEND, FOR THE SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE
HOLDER HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
ISSUER HEREOF.
THIS NOTE IS SUBJECT TO THE PROVISIONS OF THE SUBORDINATION AGREEMENT, DATED AS
OF OCTOBER [__], 2004, AMONG PCRL INVESTMENTS L.P., IN ITS CAPACITY AS PURCHASER
AND AS COLLATERAL AGENT FOR THE HOLDERS PURSUANT TO THE PURCHASE AGREEMENT,
HIBERNIA NATIONAL BANK, IN ITS CAPACITY AS ADMINISTRATIVE AGENT FOR THE
FINANCIAL INSTITUTIONS PARTY TO THE SENIOR CREDIT AGREEMENT (AS DEFINED IN THE
SUBORDINATION AGREEMENT) AND COMPANY (THE "SUBORDINATION AGREEMENT"). EACH
HOLDER OF THIS PROMISSORY NOTE SHALL BE DEEMED, BY VIRTUE OF SUCH HOLDER'S
ACQUISITION OF THIS PROMISSORY NOTE, TO HAVE AGREED TO PERFORM AND OBSERVE ALL
OF THE TERMS, COVENANTS, AND CONDITIONS TO BE PERFORMED OR OBSERVED BY THE
SUBORDINATED LENDER UNDER (AND AS DEFINED IN) THE SUBORDINATION AGREEMENT.
10% SENIOR SUBORDINATED SECURED NOTE DUE DECEMBER 15, 2008
No. [__]
U.S. [________________] Dated: October [__]
FOR VALUE RECEIVED, the undersigned, CARRIZO OIL & GAS, INC., a Texas
corporation (the "Company"), HEREBY PROMISES TO PAY to the order of
[____________________________] (the "Holder") or its successors or assigns the
principal
sum of [______________________________________] and [____]/100 United States
Dollars ([__________________]) or such greater or lesser principal amount of
this Note then outstanding, on December 15, 2008 (the "Maturity Date"), with
interest (calculated on the basis of a year of 360 days, consisting of twelve,
30-day months) (a) on the unpaid principal amount hereof at the rate of 10% per
annum from [the date of initial issuance], payable quarterly in arrears each
March 5, June 5, September 5 and December 5 (each a "Payment Date"), commencing
[March 5, 2005 or if issued on or after March 5, 2005, the first Payment Date
after issuance], until the principal hereof shall have become due and payable,
and (b) on the unpaid balance hereof at a rate of 12% per annum upon the
occurrence and during the continuance of an Event of Default as defined in the
Purchase Agreement referred to below.
Except as otherwise provided in Sections 3.3, 3.5 and 3.6 of the Purchase
Agreement referred to below, payments of principal of, interest on and premium,
if any, with respect to this Note are to be made in lawful money of the United
States of America, by wire transfer of immediately available funds, to such
account as the holder of this Note shall have specified by written notice to the
Company from time to time; provided that notwithstanding the foregoing, on each
Payment Date occurring on or before June 5, 2007, the Company may defer fifty
percent (50%) of the interest due on such Payment Date and such deferred
interest shall become a part of the principal due hereunder as of the Payment
Date such interest became due, shall earn interest as provided hereunder and
shall be due and payable on the Maturity Date unless the maturity of the amounts
due hereunder are accelerated pursuant to the terms of this Agreement.
This Note is one of the Notes (herein called the "Notes") issued pursuant
to the Note Purchase Agreement, dated as of October 29, 2004 (as it may be
amended, supplemented or otherwise modified from time to time, being the
"Purchase Agreement"), by and among the Company, the Purchasers and PCRL
Investments L.P., as Collateral Agent. Each holder of' this Note will be deemed,
by its acceptance hereof, (i) to have made the representations set forth in
Article XIII of the Purchase Agreement; (ii) to have agreed to be bound by the
subordination provisions set forth in Article XIV of the Purchase Agreement; and
(iii) to have agreed to be bound by the confidentiality provisions set forth in
Section 16.15 of the Purchase Agreement.
This Note is a registered Note and, as provided in the Purchase Agreement,
upon surrender of this Note for registration of transfer duly executed, by the
registered holder hereof or such holder's attorney duly authorized in writing,
and compliance with other provisions of the Purchase Agreement, a new Note for a
like principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the Company
will not be affected by any notice to the contrary.
This Note is subject to prepayment, in whole or from time to time in part,
at the times and on the terms specified in the Purchase Agreement, but not
otherwise.
If an Event of Default, under and as defined in the Purchase Agreement,
occurs and is continuing, the entire unpaid principal of this Note, together
with accrued interest thereon, may be declared or otherwise become due and
payable in the manner, at the price and with the effect
provided in the Purchase Agreement.
Demand, presentment, protest and notice of non-payment and protest are
hereby waived by the Company.
This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York.
All capitalized terms used but not defined herein have the meanings
ascribed to them in the Purchase Agreement referred to above.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by its
duly authorized officer as of the date first set forth above.
CARRIZO OIL & GAS, INC.
By:
Name:
Its: ________________________________
GUARANTY
For value received, CCBM, INC., a Texas corporation, pursuant to that
certain Commercial Guaranty dated October 29, 2004, hereby unconditionally
guarantees to the Holder of the Note upon which this Guaranty is endorsed (a)
the due and punctual payment, on a limited and subordinated basis as set forth
in Article XIV of the Purchase Agreement pursuant to which such Note and this
Guaranty were issued, of the principal of, premium (if any) and interest on such
Note when and as the same shall become due and payable for any reason according
to the terms of such Note and Article IX of the Purchase Agreement, and (b) that
all other obligations of the Company under the Agreement or the Notes will be
promptly paid in full or performed in accordance with the terms of the Agreement
and the Notes.
CCBM, INC.
By:
---------------------------------
Name:
Title:
EXHIBIT B
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
--------------------
Reference is made to that certain Note Purchase Agreement dated as of
October ___, 2004 (as from time to time amended, the "Agreement"), by and among
Carrizo Oil & Gas, Inc., a Texas corporation ("Company"), PCRL Investments L.P.,
as Collateral Agent, and certain holders party thereto ("Holders"). Terms which
are defined in the Agreement are used herein with the meanings given them in the
Agreement.
This Certificate is furnished pursuant to Section 6.1(c) of the Agreement.
Together herewith Company is furnishing to the Collateral Agent and each Holder
Company's *[audited/unaudited] financial statements (the "Financial Statements")
as at ____________ (the "Reporting Date"). Company hereby represents, warrants,
and acknowledges to Collateral Agent and each Holder that:
(i) the officer of Company signing this instrument is the duly elected,
qualified and acting ____________ of Company and as such is Company's Chief
Financial Officer;
(ii) the Financial Statements are accurate and complete and satisfy the
requirements of the Agreement;
(iii) attached hereto is a schedule of calculations showing compliance as
of the Reporting Date with the requirements of Section [____ or ____] of the
Agreement *[non-compliance as of such date with the requirements of Section
[____ or ____ of the Agreement];
(iv) on the Reporting Date Company was, and on the date hereof Company is,
in full compliance with the disclosure requirements of Section [____] of the
Agreement, and no Default otherwise existed on the Reporting Date or otherwise
exists on the date of this instrument *[except for Default(s) under Section(s)
____________ of the Agreement, which *[is/are] more fully described on a
schedule attached hereto].
*[Unless otherwise disclosed on a schedule attached hereto,] The
representations and warranties of Company set forth in the Agreement and the
other Documents are true and correct on and as of the date hereof (except to the
extent that such representations and warranties were made as of a specific date
or updated, modified or supplemented as of a subsequent date with the consent of
Majority holders and the Collateral Agent), with the same effect as though such
representations and warranties had been made on and as of the date hereof.
The officer of Company signing this instrument hereby certifies that he/she
has reviewed the Documents and the Financial Statements and has otherwise
undertaken such inquiry as is in his opinion necessary to enable him to express
an informed opinion with respect to the above
representations, warranties and acknowledgments of Company and, to the best of
his knowledge, such representations, warranties, and acknowledgments are true,
correct and complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________, 20__.
CARRIZO OIL & GAS, INC.
By:
------------------------------
Name:
Title:
EXHIBIT C
CERTIFICATE OF EFFECTIVENESS
This Certificate of Effectiveness (this "Certificate") is executed as of
the [____] day of October, 2004, by and between Carrizo Oil & Gas, Inc., a Texas
corporation (the "Company") and PCRL Investments L.P., as the Collateral Agent
("Collateral Agent") for the Holders under and as defined in that certain Note
Purchase Agreement (the "Agreement"), dated as of October [__], 2004 by and
among the Company, the Collateral Agent and the Holders named therein. This
Certificate is executed pursuant to Section 4.2 of the Agreement and is the
"Certificate of Effectiveness" therein referenced. Unless otherwise defined
herein, all terms used herein with their initial letter capitalized shall have
the meaning given such terms in the Agreement. The Company and the Collateral
Agent on behalf of itself and the Holders hereby acknowledge and agree as
follows:
1. Company has satisfied each condition precedent to the effectiveness of
the Agreement contained in Section 4.1 of the Agreement.
2. This Agreement is effective as of the date hereof.
PCRL INVESTMENTS L.P.,
as the Collateral Agent for the Holders
By:
---------------------------------
Name:
Title:
CARRIZO OIL & GAS, INC.,
as the Company
By:
----------------------------------
Name:
Title:
EXHIBIT D
FORM OF COMPANY'S COUNSEL OPINION
EXHIBIT E
FORM OF SUBORDINATED NOTE AGREEMENT AMENDMENT
EXHIBIT F
FORM OF SENIOR CREDIT AGREEMENT AMENDMENT
EXHIBIT G
FORM OF REGISTRATION RIGHTS AGREEMENT