Exhibit 10.15
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AMENDED AND RESTATED CREDIT AGREEMENT
AMONG
THE CYMRI CORPORATION,
PETROLEUM ENGINEERS, INC.,
PETROLEUM ENGINEERS INTERNATIONAL, INC.,
AND
TRIUMPH ENERGY, INC.
individually and collectively, as Borrower
AND
STERLING BANK,
as Lender
Effective December 3, 2004
REDUCING REVOLVING LINE OF CREDIT OF UP TO $20,000,000
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TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS AND INTERPRETATION.....................................1
1.1 Terms Defined Above........................................1
1.2 Additional Defined Terms...................................1
1.3 Undefined Financial Accounting Terms......................13
1.4 References................................................13
1.5 Articles and Sections.....................................13
1.6 Number and Gender.........................................13
1.7 Incorporation of Exhibits.................................13
ARTICLE II TERMS OF FACILITY................................................14
2.1 Revolving Line of Credit..................................14
2.2 Use of Loan Proceeds......................................14
2.3 Interest..................................................14
2.4 Repayment of Loans and Interest...........................15
2.5 Outstanding Amounts.......................................15
2.6 Time, Place, and Method of Payments.......................15
2.7 Borrowing Base Determinations.............................15
2.8 Mandatory Prepayments.....................................16
2.9 Voluntary Prepayments of Loans............................17
2.10 Commitment Fee............................................17
2.11 Facility Fee..............................................17
2.12 Reimbursement for Engineering Expenses....................17
2.13 Loans to Satisfy Obligations of Borrower..................18
2.14 Security Interest in Accounts; Right of Offset............18
2.15 General Provisions Relating to Interest...................18
2.16 Letters in Lieu of Transfer Orders........................19
2.17 Power of Attorney.........................................19
2.18 Letters of Credit.........................................20
2.19 Letter of Credit Fee......................................20
2.20 Assignment of Revenues....................................20
ARTICLE III CONDITIONS 21
3.1 Receipt of Loan Documents and Other Items.................21
3.2 Each Loan and Letter of Credit............................23
ARTICLE IV REPRESENTATIONS AND WARRANTIES...................................25
4.1 Due Authorization.........................................25
4.2 Corporate Existence.......................................25
4.3 Valid and Binding Obligations.............................25
4.4 Security Instruments......................................25
4.5 Title to Assets...........................................25
4.6 Score and Accuracy of Financial Statements................25
4.7 No Material Misstatements.................................26
4.8 Liabilities, Litigation, and Restrictions.................26
4.9 Authorizations; Consents..................................26
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4.10 Compliance with Laws......................................26
4.11 ERISA26
4.12 Environmental Laws........................................26
4.13 Compliance with Federal Reserve Regulations...............27
4.14 Investment Company Act Compliance.........................27
4.15 Public Utility Holding Company Act Compliance.............27
4.16 Proper Filing of Tax Returns; Payment of Taxes Due........27
4.17 Refunds...................................................27
4.18 Gas Contracts.............................................27
4.19 Intellectual Property.....................................27
4.20 Casualties or Taking of Property..........................28
4.21 Locations of Borrower.....................................28
4.22 Subsidiaries..............................................28
4.23 Purchasers of Production..................................28
ARTICLE V AFFIRMATIVE COVENANTS.............................................28
5.1 Maintenance and Access to Records.........................28
5.2 Quarterly Financial Statements; Compliance Certificates...28
5.3 Annual Financial Statements...............................29
5.4 Oil and Gas Reserve Reports...............................29
5.5 Title Opinions; Title Defects.............................29
5.6 Notices of Certain Events.................................30
5.7 Letters in Lieu of Transfer Orders; Division Orders.......30
5.8 Additional Information....................................31
5.9 Compliance with Laws......................................31
5.10 Payment of Assessments and Charges........................31
5.11 Maintenance of Corporate Existence and Good Standing......31
5.12 Payment of Note; Performance of Obligations...............31
5.13 Further Assurances........................................31
5.14 Initial Fees and Expenses of Counsel to Lender............32
5.15 Subsequent Fees and Expenses of Lender....................32
5.16 Operation of Oil and Gas Properties.......................32
5.17 Maintenance and Inspection of Properties..................32
5.18 Maintenance of Insurance..................................32
5.19 INDEMNIFICATION...........................................33
5.20 Operating Accounts........................................34
5.21 Hedging Transaction Reports...............................34
5.22 Aged Accounts Reports.....................................34
5.23 Production and Expense Reports............................34
5.24 Operating Budget Forecasts................................35
5.25 Assignments of Proceeds and Accounts Receivable Debtors...35
5.26 Lockbox Agreement.........................................35
5.27 Stock Certificates........................................35
5.28 Certificates of Deposit...................................35
ARTICLE VI NEGATIVE COVENANTS...............................................35
6.1 Indebtedness..............................................35
6.2 Contingent Obligations....................................36
6.3 Liens36
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6.4 Sales of Assets...........................................36
6.5 Leasebacks................................................36
6.6 Sale or Discount of Receivables...........................36
6.7 Loans or Advances.........................................36
6.8 Investments...............................................36
6.9 Dividends and Distributions...............................37
6.10 Issuance of Stock; Changes in Corporate Structure.........37
6.11 Transactions with Affiliates..............................37
6.12 Lines of Business.........................................37
6.13 Plan Obligations..........................................37
6.14 Current Ratio.............................................37
6.15 EBITDA to Interest Ratio..................................37
6.16 Debt to Capitalization Ratio..............................37
ARTICLE VII EVENTS OF DEFAULT...............................................38
7.1 Enumeration of Events of Default..........................38
7.2 Remedies..................................................39
ARTICLE VIII MISCELLANEOUS..................................................40
8.1 Transfers; Participations.................................40
8.2 Survival of Representations, Warranties, and Covenants....40
8.3 Notices and Other Communications..........................40
8.4 Parties in Interest.......................................41
8.5 Rights of Third Parties...................................41
8.6 Renewals; Extensions......................................41
8.7 No Waiver; Rights Cumulative..............................41
8.8 Survival Upon Unenforceability............................42
8.9 Amendments; Waivers.......................................42
8.10 Controlling Agreement.....................................42
8.11 Disposition of Collateral.................................42
8.12 GOVERNING LAW.............................................42
8.13 JURISDICTION AND VENUE....................................42
8.14 WAIVER OF RIGHTS TO JURY TRIAL............................43
8.15 ENTIRE AGREEMENT..........................................43
8.16 CYMRI as Agent............................................43
8.17 Amended and Restated Agreement............................43
8.18 Counterparts..............................................43
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LIST OF EXHIBITS
Exhibit I Form of Note
Exhibit II Form of Borrowing Request
Exhibit III Form of Compliance Certificate
Exhibit IV Disclosures
Exhibit V Borrowing Base Oil and Gas Properties
Exhibit VI Borrowing Base Certificate
Exhibit VII Purchasers of Production
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AMENDED AND RESTATED CREDIT AGREEMENT
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THIS AMENDED AND RESTATED CREDIT AGREEMENT is made and entered into
effective the 3rd day of December, 2004, by and among THE CYMRI CORPORATION, a
Texas corporation ("CYMRI"), PETROLEUM ENGINEERS, INC., a Louisiana corporation
("PEI"), PETROLEUM ENGINEERS INTERNATIONAL, INC., a Louisiana corporation
("PEII"), and TRIUMPH ENERGY, INC., a Louisiana corporation ("TEI") (each
individually and collectively, the "Borrower"), and STERLING BANK, a Texas state
chartered bank (the "Lender").
WITNESSETH:
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In consideration of the mutual covenants and agreements herein contained,
the Borrower and the Lender hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
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1.1 Terms Defined Above. As used in this Credit Agreement, the terms "Borrower"
and "Lender" shall have the meaning assigned to them hereinabove.
1.2 Additional Defined Terms. As used in this Credit Agreement, each of the
following terms shall have the meaning assigned thereto in this Section, unless
the context otherwise requires:
"Accounts Receivable" means all of PEI's and PEII's accounts,
instruments, deposit accounts, receivables, accounts receivable, chattel
paper, documents, general intangibles, and book debts whether they exist
now or arise in the future from PEI's and PEII's sale or lease of goods or
PEI's and PEII's rendition of services, including all amounts due to PEI
and PEII from a factor, all returned, reclaimed, refused, or repossessed
goods, all books and records pertaining to the foregoing, the cash and
non-cash proceeds resulting therefrom and all security and guaranties
therefor.
"Affiliate" shall mean any Person directly or indirectly controlling,
or under common control with, any Borrower and includes any Subsidiary of
any Borrower and any "affiliate" of any Borrower within the meaning of Reg.
ss.240.12b-2 of the Securities Exchange Act of 1934, as amended, with
"control," as used in this definition, meaning possession, directly or
indirectly, of the power to direct or cause the direction of management,
policies or action through ownership of voting securities, contract, voting
trust, or membership in management or in the group appointing or electing
management or otherwise through formal or informal arrangements or business
relationships.
"Agreement" shall mean this Amended and Restated Credit Agreement, as
it may be amended, supplemented, or restated from time to time.
"Assignment of Notes and Liens - Guaranty Bank" means that certain
Assignment of Notes, Liens and Security Interests dated of even date of
this Agreement from Guaranty Bank, FSB to Lender, in form satisfactory to
Lender, in its sole discretion, covering the promissory note, liens and
security interests from CYMRI to Guaranty Bank, FSB pursuant to the
Guaranty Bank Credit Agreement.
"Available Commitment" shall mean, at any time, an amount equal to the
remainder, if any, of (a) the Borrowing Base in effect at such time minus
(b) the sum of the outstanding balance (principal and interest) on the Note
at such time, plus the L/C Exposure at such time.
"Base Rate" shall mean, at any time, the prime rate established in The
Wall Street Journal's "Money Rates" or similar table. If multiple prime
rates are quoted in the table, then the highest prime rate will be the Base
Rate. In the event that the prime rate is no longer published by The Wall
Street Journal in the "Money Rates" or similar table, then Lender may
select an alternative published index based upon comparable information as
a substitute Base Rate. Upon the selection of a substitute Base Rate, the
applicable interest rate shall thereafter vary in relation to the
substitute index. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall
take effect without notice to the Borrower at the time of such change in
the Base Rate.
"Borrowing Base" shall mean, at any time with regard to the Borrowing
Base Assets, the amount determined by the Lender in accordance with Section
2.7 and then in effect.
"Borrowing Base Accounts" means, collectively, the Eligible Accounts
Receivable and the Certificates of Deposit.
"Borrowing Base Assets" means, collectively, the Borrowing Base Oil
and Gas Properties and the Borrowing Base Accounts.
"Borrowing Base Oil and Gas Properties" means those Oil and Gas
Properties of Borrower that will, with execution of the Loan Documents, be
subject to liens created by certain of the Security Instruments to secure
the Obligations, which initial Borrowing Base Oil and Gas Properties are
described in Exhibit V attached hereto and made a part hereof together with
such additional Oil and Gas Properties as are subsequently added to the
Borrowing Base Assets pursuant to Section 2.8.
"Borrowing Request" shall mean each written request, in substantially
the form attached hereto as Exhibit II, by CYMRI to the Lender for a
borrowing or prepayment pursuant to Sections 2.1, 2.8 or 2.9, each of which
shall:
(a) be signed by a Responsible Officer of CYMRI;
(b) specify the amount requested or prepaid and the date of the
borrowing or prepayment (which shall be a Business Day); and
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(c) be delivered to the Lender no later than 11:00 a.m., Central
Standard or Daylight Savings Time, as the case may be, on the Business
Day of the requested borrowing or prepayment.
"Business Day" shall mean a day other than a Saturday, Sunday, legal
holiday for commercial banks under the laws of the State of Texas, or any
other day when banking is suspended in the State of Texas.
"Certificates of Deposit" means those three (3) certificates of
deposit issued by Guaranty Bank, FSB in the name of ▇. ▇. ▇▇▇▇▇▇▇▇, ▇▇., in
the aggregate amount of not less than $962,000 (including interest thereon)
and held by Guaranty Bank, FSB and any and all renewals or replacements
thereof, including, without limitation, replacement certificates of deposit
held by Lender.
"Change of Control" means, with respect to CYMRI, an event or series
of events by which (i) the holders of the capital ownership of CYMRI as of
the Closing Date cease to own and control, directly and indirectly, at
least fifty-one percent (51%) of CYMRI's capital ownership or (ii) CYMRI
ceases to own and control, directly and indirectly, 100% of PEI's, PEII's
or TEI's capital ownership.
"Closing Date" shall mean the effective date of this Agreement when
all conditions precedent hereunder have been satisfied.
"Collateral" shall mean the Borrowing Base Oil and Gas Properties, the
Borrowing Base Accounts and any other Property now or at any time used or
intended as security for the payment or performance of all or any portion
of the Obligations.
"Commitment" shall mean the obligation of the Lender, subject to
applicable provisions of this Agreement, to make Loans to or for the
benefit of the Borrower pursuant to Section 2.1 and to issue Letters of
Credit pursuant to Section 2.18.
"Commitment Fee" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 2.10.
"Commitment Period" shall mean the period from and including the
Closing Date to but not including the Commitment Termination Date.
"Commitment Termination Date" shall mean November 30, 2007.
"Commodity Hedge Agreement" shall mean any crude oil, natural gas, or
other hydrocarbon floor, collar, cap, price protection, or swap agreement,
in form and substance between any Borrower and a Person acceptable to the
Lender in its sole discretion.
"Commonly Controlled Entity' shall mean any Person which is under
common control with any Borrower within the meaning of Section 4001 of
ERISA.
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"Compliance Certificate" shall mean each certificate, substantially in
the form attached hereto as Exhibit III, executed by a Responsible Officer
of CYMRI and furnished to the Lender from time to time in accordance with
Sections 5.2 and 5.3.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "primary obligation") in any manner, whether directly
or indirectly, including, without limitation, any obligation of such
Person, regardless of whether such obligation is contingent, (a) to
purchase any primary obligation or any Property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any primary obligation, or (ii) to maintain working
or equity capital of any other Person in respect of any primary obligation,
or otherwise to maintain the net worth or solvency of any other Person, (c)
to purchase Property, securities or services primarily for the purpose of
assuring the owner of any primary obligation of the ability of the Person
primarily liable for such primary obligation to make payment thereof, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof, with the amount of any
Contingent Obligation being deemed to be equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
"Current Assets" shall mean all assets which would, in accordance with
GAAP, be included as current assets, on a consolidated basis, on the
balance sheet of the Borrower as of the date of calculation.
"Current Liabilities" shall mean all liabilities which would, in
accordance with GAAP, be included as current liabilities, on a consolidated
basis, on the balance sheet of the Borrower as of the date of calculation.
"CYMRI" has the meaning given to such term in the preamble of this
Agreement.
"Default" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"Default Rate" shall mean a per annum interest rate equal to the Base
Rate plus four percent (4%), but in no event exceeding the Highest Lawful
Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"EBITDA" shall mean, for any period, Net Income for such period plus
Interest Expense, federal and state income taxes, depreciation, depletion,
amortization, and other non-cash expenses for such period deducted in the
determination of Net Income for such period.
"Eligible Accounts Receivable" means all Accounts Receivable for which
PEI's and PEII's right to receive payment is absolute and not contingent
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upon the fulfillment of any condition whatsoever and on which Lender has a
first priority perfected security interest, but does not include (a) any
account which is unpaid more than 90 days from its invoice date (except as
permitted in writing by Lender, in its sole discretion, in response to
PEI's and PEII's written request for a specific exception), (b) any account
for which there exists a right of set off, counterclaim, dispute,
objection, complaint, defense or discount, except regular discounts allowed
in the ordinary course of business to promote prompt payment (and for which
no defense or counterclaim has been asserted), (c) any Government Account,
(d) any account which arises from the sale or lease to or performance of
services for, or represents an obligation of, an employee, Affiliate,
partner, parent or Subsidiary of any Borrower, (e) any accounts arising
from sales of goods or services in which the performance of PEI or PEII has
been bonded, (f) any account which arises out of a contract or order which,
by its terms, forbids or makes void or unenforceable any assignment by PEI
or PEII to Lender of the Account Receivable arising with respect thereto
and (g) for any account which constitutes more than 15% of the aggregate
Accounts Receivable which would otherwise constitute Eligible Accounts
Receivable, that portion of such Account Receivable which exceeds 15%
thereof.
"Environmental Complaint" shall mean any written complaint, order,
directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority or any other
Person with respect to (a) air emissions, (b) spills, releases, or
discharges to soils, any improvements located thereon, surface water,
groundwater, or the sewer, septic, waste treatment, storage, or disposal
systems servicing any Property of the Borrower, (c) solid or liquid waste
disposal, (d) the use, generation, storage, transportation, or disposal of
any Hazardous Substance, or (e) other environmental, health, or safety
matters affecting any Property of the Borrower or the business conducted
thereon.
"Environmental Laws" shall mean (a) the following federal laws as they
may be cited, referenced, and amended from time to time: the Clean Air Act,
the Clean Water Act, the Safe Drinking Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Endangered
Species Act, the Resource Conservation and Recovery Act, the Occupational
Safety and Health Act, the Hazardous Materials Transportation Act, the
Superfund Amendments and Reauthorization Act, and the Toxic Substances
Control Act; (b) any and all equivalent environmental statutes of any state
in which Property of the Borrower is situated, as they may be cited,
referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state laws;
and (d) any other equivalent federal, state, or local statute or any
requirement, rule, regulation, code, ordinance, or order adopted pursuant
thereto, including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling, or
release of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder and
interpretations thereof.
"Event of Default" shall mean any of the events specified in Section
7.1.
"Facility Fee" has the meaning given to such term in Section 2.11
hereof.
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"Final Maturity" shall mean November 30, 2007.
"Financial Statements" shall mean statements of the financial
condition of the Borrower on a consolidated basis and on a consolidating
basis as at the point in time and for the period indicated and consisting
of at least a balance sheet and related statements of operations, common
stock and other stockholders' equity; and cash flows for the Borrower and,
when required by applicable provisions of this Agreement to be reviewed by
certified public accountants acceptable to the Lender and footnotes to any
of the foregoing, all of which shall be prepared in accordance with GAAP
for Borrower, consistently applied and in comparative form with respect to
the corresponding period of the preceding fiscal period.
"Floating Rate" shall mean an interest rate per annum equal to the
Base Rate from time to time in effect plus one percent (1%), but in no
event exceeding the Highest Lawful Rate.
"GAAP" shall mean generally accepted accounting principles established
by the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants and in effect in the United States from time
to time.
"Government Accounts" means accounts receivable owed by the U.S.
government or by the government of any state, county, municipality, or
other political subdivision as to which Lender's security interest or
ability to obtain direct payment of the proceeds is governed by any federal
or state statutory requirements other than those of the Uniform Commercial
Code, including, without limitation, the Federal Assignment of Claims Act
of 1940, as amended.
"Governmental Authority" shall mean any nation, country, commonwealth,
territory, government, state, county, parish, municipality, or other
political subdivision and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"Guaranty Bank Credit Agreement" means that certain Credit Agreement
dated April 30, 2002 between Guaranty Bank, FSB, as lender, and CYMRI, as
borrower.
"Hazardous Substances" shall mean flammables, explosives, radioactive
materials, hazardous wastes, asbestos, or any material containing asbestos,
polychlorinated biphenyls (PCBs), toxic substances or related materials,
petroleum, petroleum products, associated oil or natural gas exploration,
production, and development wastes, or any substances defined as "hazardous
substances," "hazardous materials," "hazardous wastes," or "toxic
substances" under the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Superfund Amendments and Reauthorization
Act, as amended, the Hazardous Materials Transportation Act, as amended,
the Resource Conservation and Recovery Act, as amended, the Toxic
Substances Control Act, as amended, or any other law or regulation now or
hereafter enacted or promulgated by any Governmental Authority.
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"Hibernia Bank Credit Facility" means that certain credit facility
evidenced by (i) the Credit Agreement between TEI, as Borrower, and
Hibernia National Bank, as Lender, the promissory note and the Mortgage,
Assignment, Security Agreement and Financing Statement each dated September
26, 2004 executed in connection therewith and (ii) the two promissory
notes, each dated February 20, 2004 and each in the face amount of
$1,500,000, one executed by PEI and the other executed by PEII in favor of
Hibernia National Bank, as Lender, secured by the two Commercial Security
Agreements executed in connection therewith.
"Highest Lawful Rate" shall mean the maximum non-usurious interest
rate, if any (or, if the context so requires, an amount calculated at such
rate), that at anytime or from time to time may be contracted for, taken,
reserved, charged, or received under applicable laws of the State of Texas
or the United States of America, whichever authorizes the greater rate, as
such laws are presently in effect or, to the extent allowed by applicable
law, as such laws may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than such laws now allow.
"Indebtedness" shall mean, as to any Person, without duplication, (a)
all liabilities (excluding reserves for deferred income taxes, deferred
compensation liabilities, and other deferred liabilities and credits) which
in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet, (b) all obligations of
such Person evidenced by bonds, debentures, promissory notes, or similar
evidences of indebtedness, (c) all other indebtedness of such Person for
borrowed money, and (d) all obligations of others, to the extent any such
obligation is secured by a Lien on the assets of such Person (whether or
not such Person has assumed or become liable for the obligation secured by
such Lien).
"Insolvency Proceeding" shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial pan of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor's relief, or other similar law of the United
States, the State of Texas, or any other jurisdiction.
"Intellectual Property" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"Interest Expense" shall mean, for any period, the total interest
expense (including, without limitation, interest expense attributable to
capitalized leases) of the Borrower for such period, determined in
accordance with GAAP.
"Investment" in any Person shall mean any stock, bond, note, or other
evidence of Indebtedness, or any other security (other than current trade
and customer accounts) of, investment or partnership interest in or loan
to, such Person.
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"L/C Exposure" shall mean, at any time, the aggregate maximum amount
available to be drawn under outstanding Letters of Credit at such time.
"Letter of Credit" shall mean any standby letter of credit issued by
the Lender for the account of the Borrower pursuant to Section 2.18.
"Letter of Credit Application" shall mean the standard letter of
credit application employed by the Lender from time to time in connection
with letters of credit.
"Letter of Credit Fee" shall mean each fee payable to the Lender by
the Borrower pursuant to Section 2.19 upon or in connection with the
issuance of a Letter of Credit.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of such Property, whether
such interest is based on common law, statute, or contract, and including,
but not limited to, the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt,
or a lease, consignment, or bailment for security purposes (other than true
leases or true consignments), liens of mechanics, materialmen, and
artisans, maritime liens and reservations, exceptions, encroachments,
easements, rights of way, covenants, conditions, restrictions, leases, and
other title exceptions and encumbrances affecting Property which secure an
obligation owed to, or a claim by, a Person other than the owner of such
Property (for the purpose of this Agreement, the Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease, or other arrangement pursuant
to which title to the Property has been retained by or vested in some other
Person for security purposes), and the filing or recording of any financing
statement or other security instrument in any public office.
"Limitation Period" shall mean any period while any amount remains
owing on the Note and interest on such amount, calculated at the applicable
interest rate, plus any fees or other sums payable under any Loan Document
and deemed to be interest under applicable law, would exceed the amount of
interest which would accrue at the Highest Lawful Rate.
"Loan" shall mean any loan made by the Lender to or for the benefit of
the Borrower pursuant to this Agreement and any payment made by the Lender
under a Letter of Credit.
"Loan Balance" shall mean, at any time, the outstanding principal
balance of the Note at such time, plus the L/C Exposure at such time.
"Loan Documents" shall mean this Agreement, the Note, the Letters of
Credit Applications, the Letters of Credit, the Security Instruments, the
Subordination Agreement and all other documents and instruments now or
hereafter delivered pursuant to the terms of or in connection with this
Agreement, the Note, the Letters of Credit Applications, the Letters of
Credit, or the Security Instruments, and all renewals and extensions of,
amendments and supplements to, and restatements of, any or all of the
foregoing from time to time in effect.
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"Lockbox" means the Lockbox as defined in the Lockbox Agreement.
"Lockbox Agreement" means the agreement in the form satisfactory to
Lender between Lender and Borrower establishing the Lockbox with Lender in
which all revenues under Accounts Receivable and all revenues payable by
Purchasers of Production to TEI will be directed to the Lockbox.
"Material Adverse Effect" shall mean (a) any adverse effect on the
business, operations, properties, financial condition, or prospects of the
Borrower which materially increases the risk that any of the Obligations
will not be repaid as and when due, or (b) any material adverse effect upon
the Collateral.
"Net Income" shall mean, for any period, the net income (or loss) of
the Borrower, on a consolidated basis, for such period, determined in
accordance with GAAP.
"Net Proceeds" means (a) with respect to any sale, lease, transfer or
other disposition of any asset by any Person, the aggregate amount of cash
and non-cash proceeds from such transaction received by, or paid to or for
the account of, such Person, net of customary and reasonable out-of-pocket
costs, fees, and expenses, and (b) with respect to the issuance of equity
securities, debt securities, or similar instruments, or the incurrence of
Indebtedness, the cash and non-cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees, accountants
fees, underwriting discounts and commissions and other customary fees and
expenses actually incurred in connection with such issuance. Non-cash
proceeds include any proceeds received by way of deferred payment of
principal calculated on a combined basis as of such time pursuant to a
note, installment receivable, purchase price adjustment receivable, or
otherwise, but only as and when received.
"Note" shall mean the promissory note of the Borrower, in the form
attached hereto as Exhibit I, together with all renewals, extensions for
any period, increases, and rearrangements thereof.
"Obligations" shall mean, without duplication, (a) all Indebtedness
evidenced by the Note, (b) the Reimbursement Obligations, (c) the undrawn,
unexpired amount of all outstanding Letters of Credit, (d) the obligation
of the Borrower for the payment of Commitment Fees, Letter of Credit Fees,
and reimbursement of engineering expenses, and (e) all other obligations
and liabilities of the Borrower to the Lender, now existing or hereafter
incurred, under, arising out of or in connection with any Loan Document,
and to the extent that any of the foregoing includes or refers to the
payment of amounts deemed or constituting interest, only so much thereof as
shall have accrued, been earned and which remains unpaid at each relevant
time of determination.
"Oil and Gas Properties" shall mean fee, leasehold, or other interests
in or under mineral estates or oil, gas, and other liquid or gaseous
hydrocarbon leases with respect to Properties situated in the United States
or offshore from any State of the United States, including, without
limitation, overriding royalty and royalty interests, leasehold estate
9
interests, net profits interests, production payment interests, and mineral
fee interests, together with contracts executed in connection therewith and
all tenements, hereditaments, appurtenances and Properties appertaining,
belonging, affixed, or incidental thereto.
"PEI" has the meaning given to such term in the preamble of this
Agreement.
"PEII" has the meaning given to such term in the preamble of this
Agreement.
"Permitted Liens" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens (including, but not limited to, pledges or deposits) in
connection with workers' compensation, unemployment insurance or other
social security (other than Liens created by Section 4068 of ERISA),
old-age pension, or public liability obligations which are not yet due or
which are being contested in good faith by appropriate proceedings, if such
reserve as may be required by GAAP shall have been made therefor, (c) Liens
in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen,
materialmen, construction, or similar Liens arising by operation of law in
the ordinary course of business in respect of obligations which are not yet
due or which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(d) Liens in favor of operators and non-operators under joint operating
agreements or similar contractual arrangements arising in the ordinary
course of the business of the Borrower to secure amounts owing, which
amounts are not yet due or are being contested in good faith by appropriate
proceedings, if such reserve as may be required by GAAP shall have been
made therefor, (e) Liens under production sales agreements, division
orders, operating agreements, and other agreements customary in the oil and
gas business for processing, producing, and selling hydrocarbons securing
obligations not constituting Indebtedness and provided that such Liens do
not secure obligations to deliver hydrocarbons at some future date without
receiving full payment therefor within 90 days of delivery, (f) easements,
rights of way, restrictions, and other similar encumbrances, and minor
defects in the chain of title which are customarily accepted in the oil and
gas financing industry, none of which interfere with the ordinary conduct
of the business of the Borrower or materially detract from the value or use
of the Property to which they apply, (g) Liens in favor of the Lender and
other Liens expressly permitted under the Security Instruments (h) second
Liens (A) covering TEI's Borrowing Base Oil and Gas Properties located in
Louisiana as described on Exhibit V attached hereto and (B) first Liens on
the capital stock of each TEI, PEI and PEII, all in favor of the
Stockholders but subject in each case to the Subordination Agreement and
(i) any other Liens approved by Lender in its sole discretion securing
Indebtedness subordinated to the Obligations.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
10
"Plan" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or any Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Principal Office" shall mean the principal office of the Lender in
Houston, Texas, presently located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"Purchasers of Production" means the Persons listed on Exhibit VII and
all other Persons who purchase Hydrocarbons attributable or allocable to
Borrower's net revenue interest in the Borrowing Base Oil and Gas
Properties and are approved by Lender in writing.
"Rate Management Transaction" shall mean any transaction (including an
agreement with respect thereto) now existing or hereafter entered into
between Borrower and Lender or a Person acceptable to the Lender, in its
sole discretion, which is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar
transaction, forward transaction, currency swap transaction, cross-currency
rate swap transaction, currency option or any other similar transaction
(including any option with respect to any of these transactions) or any
combination thereof, whether linked to on or more interest rates, foreign
currencies, commodity prices, equity prices or other financial measures.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from
time to time.
"Regulatory Change" shall mean the passage, adoption, institution, or
amendment of any federal, state, local, or foreign Requirement of Law
(including, without limitation, Regulation D), or any interpretation,
directive, or request (whether or not having the force of law) of any
Governmental Authority or monetary authority charged with the enforcement,
interpretation, or administration thereof, occurring after the Closing Date
and applying to a class of banks including the Lender.
"Reimbursement Obligation" shall mean the obligation of the Borrower
to provide to the Lender or reimburse the Lender for any amounts payable,
paid, or incurred by the Lender with respect to Letters of Credit.
"Release of Hazardous Substances" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with a valid permit,
license, certificate, or approval of the relevant Governmental Authority,
of any Hazardous Substance into or upon (a) the air, (b) soils or any
improvements located thereon, (c) surface water or groundwater, or (d) the
sewer or septic system, or the waste treatment, storage, or disposal system
servicing any Property of the Borrower.
11
"Requirement of Law" shall mean, as to any Person, the certificate or
articles of incorporation and by-laws, partnership agreements or other
organizational or governing documents of such Person, and any applicable
law, treaty, ordinance, order, judgment, rule, decree, regulation, or
determination of an arbitrator, court, or other Governmental Authority,
including, without limitation, rules, regulations, orders, and requirements
for permits, licenses, registrations, approvals, or authorizations, in each
case as such now exist or may be hereafter amended and are applicable to or
binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"Reserve Report" shall mean each report delivered to the Lender
pursuant to Section 5.4.
"Responsible Officer" shall mean, as to any Person, its President,
Chief Executive Officer or Chief Financial Officer.
"Security Instruments" shall mean the security instruments executed
and delivered in satisfaction of the condition set forth in Section 3.1(f),
and all other documents and instruments at any time executed as security
for all or any portion of the Obligations, as such instruments may be
amended, restated, or supplemented from time to time.
"Stockholder Notes" means the promissory notes executed by Borrower in
favor of the Stockholders in the aggregate amount of $2,600,000 pursuant to
the Stock Purchase Agreement subject to aggregate amount adjustments but in
no event greater than $250,000.
"Stockholders" means all the stockholders of each PEI, PEII, and TEI,
as the "Sellers" under the Stock Purchase Agreement in form satisfactory to
Lender in its sole discretion.
"Stockholders' Equity" means, at any time, the sum of the following
accounts set forth on the consolidated Financial Statements of Borrower,
prepared in accordance with GAAP: (A) the par or stated value of all
outstanding capital stock (common and preferred); (B) capital surplus
including paid in capital; and (C) retained earnings.
"Stock Purchase Agreement" means that certain Stock Purchase Agreement
dated effective June 1, 2004 between CYMRI and the Stockholders.
"Subordination Agreement" means that certain Subordination Agreement
dated as of even date herewith among Lender, Borrower and the Stockholders
in form satisfactory to Lender in its sole discretion.
"Subsidiary" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation are at the
time owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
12
"Superfund Site" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
"TEI" has the meaning given to such term in the preamble of this
Agreement.
"Transferee" shall mean any Person to which the Lender has sold,
assigned, transferred, or granted a participation in any of the
Obligations, as authorized pursuant to Section 8.1, and any Person
acquiring, by purchase, assignment, transfer, or participation, from any
such purchaser, assignee, transferee, or participant, any part of such
Obligations.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
1.3 Undefined Financial Accounting Terms. Undefined financial accounting
terms used in this Agreement shall be defined according to GAAP at the time in
effect.
1.4 References. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears.
1.5 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 Number and Gender. Whenever the context requires, reference herein made
to the single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular. Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated. Words denoting sex
shall be construed to include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative.
1.7 Incorporation of Exhibits. The Exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for all
purposes.
13
ARTICLE II
TERMS OF FACILITY
-----------------
2.1 Revolving Line of Credit.
(a) Upon the terms and conditions (including, without limitation, the
right of the Lender to decline to make any Loan so long as any Default or
Event of Default exists) and relying on the representations and warranties
contained in this Agreement, the Lender agrees, during the Commitment
Period, to make Loans, in immediately available funds at the Principal
Office, to or for the benefit of the Borrower, from time to time on any
Business Day designated by the Borrower following receipt by the Lender of
a Borrowing Request; provided, however, no Loan shall exceed the then
existing Available Commitment.
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow such funds. Except for
prepayments made pursuant to Section 2.8, each borrowing and prepayment of
principal of Loans shall be in an amount at least equal to $100,000. Each
borrowing or prepayment shall be deemed a separate borrowing or prepayment
for purposes of the foregoing.
(c) The Loans made under this Section 2.1 shall be made and maintained
at the Principal Office and shall be evidenced by the Note.
2.2 Use of Loan Proceeds.
(a) Proceeds of all Loans shall be used solely for (i) the acquisition
of all of the equity interests in PEI, PEII and TEI by CYMRI pursuant to
the terms of the Stock Purchase Agreement, (ii) the acquisition and
development of Oil and Gas Properties, (iii) payment of fees and expenses
hereunder and/or (iv) for general corporate purposes.
(b) Letters of Credit shall be used solely for general corporate
purposes provided, however, no Letter of Credit may be used in lieu or in
support of stay or appeal bonds.
2.3 Interest. Subject to the terms of this Agreement (including, without
limitation, Section 2.15), interest on the Loans shall accrue and be payable at
a rate per annum equal to the Floating Rate. Interest on all Loans shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day) during
the period for which payable. Interest provided for herein shall be calculated
on unpaid sums actually advanced and outstanding pursuant to the terms of this
Agreement and only for the period from the date or dates of such advances until
repayment. Notwithstanding the foregoing, interest on past-due principal and, to
the extent permitted by applicable law, past-due interest, shall accrue at the
Default Rate, computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed (including the first day but excluding the last
day) during the period for which payable, and shall be payable upon demand by
the Lender at any time as to all or any portion of such interest.
14
2.4 Repayment of Loans and Interest. Accrued and unpaid interest on the
outstanding Loans under the Note shall be due and payable monthly commencing on
the last day of December, 2004, and continuing on the last day of each calendar
month thereafter while any amount of the outstanding principal balance remains
outstanding, the payment in each instance to be the amount of interest which has
accrued and remains unpaid in respect of the outstanding principal balance. The
outstanding principal balance on the Note, together with all accrued and unpaid
interest thereon, shall be due and payable on the Commitment Termination Date.
2.5 Outstanding Amounts. The outstanding principal balance of the Note
reflected by the notations by the Lender on its records shall be deemed
rebuttably presumptive evidence of the principal amount owing on the Note. The
liability for payment of principal and interest evidenced by the Note shall be
limited to principal amounts actually advanced and outstanding pursuant to this
Agreement and interest on such amounts calculated in accordance with this
Agreement.
2.6 Time, Place, and Method of Payments. All payments required pursuant to
this Agreement or the Note shall be made in lawful money of the United States of
America and in immediately available funds, shall be deemed received by the
Lender on the next Business Day following receipt if such receipt is after 2:00
p.m., Central Standard or Daylight Savings Time, as the case may be, on any
Business Day, and shall be made at the Principal Office. Except as provided to
the contrary herein, if the due date of any payment hereunder or under the Note
would otherwise fall on a day which is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
2.7 Borrowing Base Determinations.
(a) The Borrowing Base as of the Closing Date is acknowledged by the
Borrower and the Lender to be $7,940,000, which consists of $5,250,000
attributable to the Borrowing Base Oil and Gas Properties and $2,940,000
attributable to the Borrowing Base Accounts. The amount of the Borrowing
Base attributable to the Borrowing Base Oil and Gas Properties (as adjusted
from time to time under the terms of this Agreement) shall be reduced by
$25,000 on the last day of each month beginning December 31, 2004.
(b) The Borrowing Base attributable to the Borrowing Base Oil and Gas
Properties shall be redetermined semi-annually beginning April 1, 2005, on
the basis of information supplied by the Borrower in compliance with the
provisions of this Agreement, including, without limitation, Reserve
Reports, and all other information available to the Lender. In addition,
the Lender shall, in the normal course of business following a request of
the Borrower, redetermine the Borrowing Base attributable to the Borrowing
Base Oil and Gas Properties; provided, however, the Lender shall not be
obligated to respond to more than two such requests during any calendar
year, and in no event shall the Lender be required to redetermine the
Borrowing Base attributable to the Borrowing Base Oil and Gas Properties
more than once in any three-month period, including, without limitation,
each scheduled semi-annual redetermination provided for above.
Notwithstanding the foregoing, the Lender may at its discretion redetermine
the Borrowing Base attributable to the Borrowing Base Oil and Gas
Properties and the amount by which the Borrowing Base shall be reduced each
calendar month as set forth in Section 2.7(a) at any time and from time to
time.
15
(c) The Borrowing Base attributable to the Borrowing Base Accounts
shall be redetermined monthly beginning January 1, 2005, on the basis of
information supplied by the Borrower in compliance with the provisions of
this Agreement, including, without limitation, the Borrowing Base
Certificate in the form attached hereto as Exhibit VI, and all other
information available to the Lender. Borrower shall deliver the Borrowing
Base Certificate on or before the 15th of each month beginning December,
2004. Notwithstanding the foregoing, the Lender may at its discretion
redetermine the Borrowing Base attributable to the Borrowing Base Accounts
at any time and from time to time.
(d) Upon each determination of the Borrowing Base by the Lender, the
Lender shall notify the Borrower in writing of such determination, and the
Borrowing Base and the amount by which the Borrowing Base shall be reduced
or increased so communicated to the Borrower shall become effective upon
such written notification and shall remain in effect until the next
subsequent determination of the Borrowing Base and the amount by which the
Borrowing Base shall be reduced.
(e) The Borrowing Base shall represent the determination by the
Lender, in accordance with the applicable definitions and provisions herein
contained and its customary lending practices for loans of this nature, of
the value, for loan purposes, of the Borrowing Base Assets, subject, in the
case of any increase in the Borrowing Base, to the credit approval process
of the Lender. Furthermore, the Borrower acknowledges that the
determination of the Borrowing Base contains an equity cushion, which is
acknowledged by the Borrower to be essential for the adequate protection of
the Lender.
2.8 Mandatory Prepayments.
(a) If at any time the Loan Balance exceeds the Borrowing Base then in
effect, the Borrower shall, within 30 days of notice from the Lender of
such occurrence, (i) prepay, or make arrangements acceptable to the Lender
for the prepayment of, the amount of such excess for application on the
Loan Balance, (ii) provide additional collateral, of character and value
satisfactory to the Lender in its sole discretion, to secure the
Obligations by the execution and delivery to the Lender of security
instruments in form and substance satisfactory to the Lender, or (iii)
effect any combination of the alternatives described in clauses (i) and
(ii) of this Section and acceptable to the Lender in its sole discretion.
In the event that a mandatory prepayment is required under this Section and
the Loan Balance is less than the amount required to be prepaid, the
Borrower shall repay the entire Loan Balance and, in accordance with the
provisions of the relevant Letter of Credit Applications executed by the
Borrower or otherwise to the satisfaction of the Lender, deposit with the
Lender, as additional collateral securing the Obligations, an amount of
cash, in immediately available funds, equal to the L/C Exposure minus the
Borrowing Base. The cash deposited with the Lender in satisfaction of the
requirement provided in this Section may be invested, at the sole
discretion of the Lender and then only at the express direction of the
16
Borrower as to investment vehicle and maturity (which shall be no later
than the latest expiry date of any then outstanding Letter of Credit), for
the account of the Borrower in cash or cash equivalent investments offered
by or through the Lender.
(b) In addition to the foregoing, the Borrower shall immediately
prepay the principal of the Note in an amount equal to:
(i) 100% of Net Proceeds from the disposition of any asset,
excluding sales permitted under this Agreement;
(ii) 100% of insurance proceeds in excess of $50,000 per
occurrence in respect of any insurance policy required to be
maintained by the Borrower under the terms of this Agreement unless
Borrower reinvests such proceeds within thirty (30) days of any
insurable loss to replace the lost or damaged assets;
(iii) 50% of the Net Proceeds from the sale or issuance (after
the date of this Agreement) of any capital stock; and
(iv) 100% of any Indebtedness incurred by any Borrower, other
than Indebtedness permitted under Section 6.1 hereof.
2.9 Voluntary Prepayments of Loans. Subject to applicable provisions of
this Agreement, the Borrower shall have the right at any time or from time to
time to prepay Loans without prepayment penalty provided, however, (a) the
Borrower shall pay all accrued and unpaid interest on the amounts prepaid, and
(b) no such prepayment shall serve to postpone the repayment when due of any
Obligation.
2.10 Commitment Fee. In addition to interest on the Note as provided herein
and all other fees payable hereunder and to compensate the Lender for
maintaining funds available, the Borrower shall pay to the Lender, in
immediately available funds, on the first day of January, 2005, and on the first
day of each calendar month thereafter during the Commitment Period, a fee in the
amount of one-half percent (1/2%) per annum, calculated on the basis of a year
of 365 or 366 days, as the case may be, and actual days elapsed (including the
first day but excluding the last day), on the average daily amount of the
Available Commitment during the preceding month.
2.11 Facility Fee. In addition to interest on the Note as provided herein
and all other fees payable hereunder and to compensate the Lender for the costs
of the extension of credit hereunder, the Borrower shall pay to the Lender (i)
on the Closing Date, in immediately available funds, a facility fee (the
"Facility Fee") in the amount of $79,400 and (ii) a Facility Fee equal to one
percent (1%) on any future increase over the initial Borrowing Base on the date
of any such Borrowing Base redetermination.
2.12 Reimbursement for Engineering Expenses. In addition to interest and
other fees payable hereunder and to compensate the Lender for the costs of
evaluating the Borrowing Base Oil and Gas Properties and reviewing the Reserve
Reports, the Borrower shall reimburse the Lender all expenses relating to such
reviews, in immediately available funds, on the date of each redetermination of
the Borrowing Base.
17
2.13 Loans to Satisfy Obligations of Borrower. The Lender may, but shall
not be obligated to, make Loans for the benefit of the Borrower and apply
proceeds thereof to the satisfaction of any condition, warranty, representation,
or covenant of the Borrower contained in this Agreement or any other Loan
Document. Any such Loan shall be evidenced by the Note and shall be made at the
Floating Rate.
2.14 Security Interest in Accounts; Right of Offset. As security for the
payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Lender and grants to the Lender a security interest
in all funds of the Borrower now or hereafter or from time to time on deposit
with the Lender, with such interest of the Lender to be retransferred,
reassigned, and/or released by the Lender, as the case may be, at the expense of
the Borrower upon payment in full and complete performance by the Borrower of
all Obligations. All remedies as secured party or assignee of such funds shall
be exercisable by the Lender upon the occurrence of any Event of Default,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof. Furthermore,
the Borrower hereby grants to the Lender the right, exercisable at such time as
any Obligation shall mature, whether by acceleration of maturity or otherwise,
of offset or banker's lien against all funds of the Borrower now or hereafter or
from time to time on deposit with the Lender, regardless of whether the exercise
of any such remedy would result in any penalty or loss of interest or profit
with respect to any withdrawal of funds deposited in a time deposit account
prior to the maturity thereof.
2.15 General Provisions Relating to Interest.
(a) It is the intention of the parties hereto to comply strictly with
the usury laws of the State of Texas and the United States of America. In
this connection, there shall never be collected, charged, or received on
the sums advanced hereunder interest in excess of that which would accrue
at the Highest Lawful Rate. For purposes of Chapter 303 of the Texas
Finance Code (Vernon's 1999), the Borrower agrees that the Highest Lawful
Rate shall be the "weekly ceiling" as defined in such Section, provided
that the Lender may also rely, to the extent permitted by applicable laws
of the State of Texas or the United States of America, on alternative
maximum rates of interest under other laws of the State of Texas or the
United States of America applicable to the Lender, if greater.
(b) Notwithstanding anything herein or in the Note to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Note shall be the Highest Lawful Rate, and the obligation,
if any, of the Borrower for the payment of fees or other charges deemed to
be interest under applicable law shall be suspended. During any period or
periods of time following a Limitation Period, to the extent permitted by
applicable laws of the State of Texas or the United States of America, the
interest rate to be charged hereunder shall remain at the Highest Lawful
Rate until such time as there has been paid to the Lender (i) the amount of
interest in excess of that accruing at the Highest Lawful Rate that the
Lender would have received during the Limitation Period had the interest
18
rate remained at the otherwise applicable rate, and (ii) all interest and
fees otherwise payable to the Lender but for the effect of such Limitation
Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Note or under this Agreement or any other Loan Document include amounts
which by law are deemed interest and which would exceed the amount
permitted if the Highest Lawful Rate were in effect, the Borrower
stipulates that such payment and collection will have been and will be
deemed to have been, to the extent permitted by applicable laws of the
State of Texas or the United States of America, the result of mathematical
error on the part of the Borrower and the Lender; and the Lender shall
promptly refund the amount of such excess (to the extent only of such
interest payments in excess of that which would have accrued and been
payable on the basis of the Highest Lawful Rate) upon discovery of such
error by the Lender or notice thereof from the Borrower. In the event that
the maturity of any Obligation is accelerated, by reason of an election by
the Lender or otherwise, or in the event of any required or permitted
prepayment, then the consideration constituting interest under applicable
laws may never exceed the Highest Lawful Rate; and excess amounts paid
which by law are deemed interest, if any, shall be credited by the Lender
on the principal amount of the Obligations, or if the principal amount of
the Obligations shall have been paid in full, refunded to the Borrower.
(d) All sums paid, or agreed to be paid, to the Lender for the use,
forbearance and detention of the proceeds of any advance hereunder shall,
to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full term hereof until paid in full so
that the actual rate of interest is uniform but does not exceed the Highest
Lawful Rate throughout the full term hereof.
2.16 Letters in Lieu of Transfer Orders. The Lender agrees that none of the
letters in lieu of transfer or division orders provided by the Borrower pursuant
to Section 3.1(f)(v) or Section 5.7 will be sent to the addressees thereof prior
to the occurrence and continuance of an Event of Default, at which time the
Lender may, at its option and in addition to the exercise of any of its other
rights and remedies, send any or all of such letters.
2.17 Power of Attorney. The Borrower hereby designates the Lender as its
agent and attorney-in-fact, to act in its name, place, and stead for the purpose
of completing and, upon the occurrence and continuance of an Event of Default,
delivering any and all of the letters in lieu of transfer orders delivered by
the Borrower to the Lender pursuant to Section 3.1(f)(v) or Section 5.7,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms all that the Lender shall lawfully do or cause to
be done by virtue of this power of attorney and the rights granted with respect
to such power of attorney. This power of attorney is coupled with the interests
of the Lender in the Collateral, shall commence and be in full force and effect
as of the Closing Date and shall remain in full force and effect and shall be
irrevocable so long as any Obligation remains outstanding or unpaid or any
Commitment exists. The powers conferred on the Lender by this appointment are
solely to protect the interests of the Lender under the Loan Documents and shall
not impose any duty upon the Lender to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.
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2.18 Letters of Credit .
(a) Upon the terms and conditions (including, without limitation, the
right of the Lender to decline to issue any Letter of Credit so long as any
Default or Event of Default exists) and relying on the representations and
warranties contained in this Agreement, the Lender agrees, during the
Commitment Period, to issue Letters of Credit following the receipt not
less than two Business Days prior to the requested date for issuance of the
relevant Letter of Credit, of a Letter of Credit Application executed by
the Borrower; provided, however, (a) no Letter of Credit shall have an
expiration date which is more than 360 days after the issuance thereof or
subsequent to the Commitment Termination Date, and (b) the Lender shall not
be obligated to issue any Letter of Credit if (i) the face amount thereof
would exceed the Available Commitment, or (ii) after giving effect to the
issuance thereof, (A) the L/C Exposure, when added to the Loan Balance then
outstanding, would exceed the Borrowing Base then in effect.
(b) Should the Lender be called upon by the beneficiary of any Letter
of Credit to honor all or any portion of the commitment thereunder, whether
upon the presentation of drafts or otherwise, such payment by the Lender on
account of such Letter of Credit shall be treated, for all purposes, as a
Floating Rate Loan and an advance against the Note.
2.19 Letter of Credit Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder, the Borrower agrees to pay to the
Lender, on the date of issuance of each Letter of Credit, a fee equal to the
greater of $500 or one percent (1%) per annum, calculated on the basis of a year
of 365 or 366 days, as the case may be, and actual days elapsed (including the
first day but excluding the last day), on the face amount of such Letter of
Credit during the period for which such Letter of Credit is issued; provided,
however, in the event such Letter of Credit is canceled prior to its original
expiry date or a payment is made by the Lender with respect to such Letter of
Credit, the Lender shall, within 30 days after such cancellation or the making
of such payment, rebate to the Borrower the unearned portion of such fee. The
Borrower also agrees to pay to the Lender on demand its customary letter of
credit transactional fees, including, without limitation, amendment fees,
payable with respect to each Letter of Credit.
2.20 Assignment of Revenues. All account debtors under Accounts Receivable
and all Purchasers of Production will receive written notification from
Borrower, in the form satisfactory to Lender, that all revenues attributable to
Accounts Receivable and to the Borrowing Base Oil and Gas Properties are to be
remitted to the Lockbox. Borrower shall use commercially reasonable efforts to
assist Lender in obtaining, within thirty (30) days after the Closing Date, from
all such account debtors and all Purchasers of Production, executed documents as
may be needed to instruct such account debtors and Purchasers of Production to
remit all such revenues into the Lockbox for transfer to a deposit account held
by Borrower with Lender.
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ARTICLE III
CONDITIONS
----------
The obligations of the Lender to enter into this Agreement and to make
Loans and issue Letters of Credit are subject to the satisfaction of the
following conditions precedent:
3.1 Receipt of Loan Documents and Other Items. The Lender shall have no
obligation under this Agreement unless and until all matters incident to the
consummation of the transactions contemplated herein, including, without
limitation, the review by the Lender or its counsel of the title of the Borrower
to its Oil and Gas Properties, shall be satisfactory to the Lender, and the
Lender shall have received, reviewed, and approved the following documents and
other items, appropriately executed when necessary and, where applicable,
acknowledged by one or more authorized officers of the Borrower, all in form and
substance satisfactory to the Lender and dated, where applicable, of even date
herewith or a date prior thereto and acceptable to the Lender:
(a) multiple counterparts of this Agreement as requested by the
Lender;
(b) the Note;
(c) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of each Borrower accompanied by a certificate issued by the
secretary or an assistant secretary of each Borrower to the effect that
each such copy is correct and complete;
(d) certificates of incumbency and signatures of all officers of each
Borrower who are authorized to execute Loan Documents on behalf of such
entity each such certificate being executed by a Responsible Officer of
each Borrower;
(e) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted
by the board of directors of each Borrower accompanied by certificates of
the secretary or an assistant secretary of each Borrower to the effect that
such copies are true and correct copies of resolutions duly adopted at a
meeting or by unanimous consent of the board of directors of each Borrower
and that such resolutions constitute all the resolutions adopted with
respect to such transactions, have not been amended, modified, or revoked
in any respect, and are in full force and effect as of the date of such
certificate;
(f) multiple counterparts, as requested by the Lender, of the
following Security Instruments creating, evidencing, perfecting, and
otherwise establishing Liens in favor of the Lender in and to the
Collateral or other items described below otherwise securing the
Obligations:
(i) (A) Mortgage, Deed of Trust, Indenture, Security Agreement,
Assignment of Production, and Financing Statement executed by the
CYMRI and (B) Act of Mortgage and Security Agreement executed by the
TEI, collectively, covering all Oil and Gas Properties of the CYMRI
and TEI and all improvements, personal property, and fixtures related
thereto;
21
(ii) Financing Statements from the Borrower, as debtor,
constituent to the instrument described in clause (i) above;
(iii) Security Agreement executed by the Borrower pledging
accounts, contract rights, and all other personal property of
Borrower;
(iv) Financing Statement from the Borrower, as debtor,
constituent to the instrument described in clause (iii) above;
(v) undated letters, in form and substance satisfactory to the
Lender, executed by the Borrower to each Purchaser of Production and
disburser of the proceeds of production from or attributable to the
Borrowing Base Oil and Gas Properties, together with additional
letters with the addressees left blank, authorizing and directing the
addressees to make future payments attributable to production from the
Borrowing Base Oil and Gas Properties directly to the Lender;
(vi) Pledge of Certificates of Deposit executed by ▇.▇. ▇▇▇▇▇▇▇▇,
▇▇. covering the Certificates of Deposit;
(vii) the executed (A) Notice of Security Interest in
Certificates of Deposit and (B) Confirmation of Pledge of Certificates
of Deposit in the forms attached to the Pledge of Certificates of
Deposit as Schedules B and C, respectively;
(viii) the Stock Pledge Agreement from CYMRI covering all of its
equity interests in PEI, PEII, and TEI, together with (A) the stock
certificates evidencing such equity interests and (B) blank stock
powers relating thereto; and
(ix) (A) an executed Assignment of Notes and Liens - Guaranty
Bank and (B) terminations Hibernia Bank Credit Facility and releases
of the liens and security interest granted thereunder in form and
substance satisfactory to Lender in its discretion.
(g) unaudited Financial Statements of the Borrower as of September 30,
2004;
(h) certificates dated as of a recent date from the Secretary of State
or other appropriate Governmental Authority evidencing the existence or
qualification and good standing of each Borrower in its respective
jurisdiction of incorporation and in any other jurisdictions where it does
business;
(i) results of searches of the UCC Records of the Secretary of State
of the State of Texas from a source acceptable to the Lender and reflecting
no Liens against any of the Collateral as to which perfection of a Lien is
accomplished by the filing of a financing statement other than in favor of
the Lender;
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(j) confirmation, acceptable to the Lender, of the title of CYMRI and
TEI to the Borrowing Base Oil and Gas Properties, free and clear of Liens
other than Permitted Liens;
(k) all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and
other agreements relating to the Borrowing Base Oil and Gas Properties
requested by the Lender;
(l) engineering reports covering the Borrowing Base Oil and Gas
Properties;
(m) the opinion of ▇▇▇▇▇▇ & Westheimer, counsel to the Borrower, and
an opinion of counsel to Borrower that is licensed to practice in Louisiana
covering the Security Instruments that are required to be filed in the
State of Louisiana regarding, among other things, the perfection of Liens
and enforceability thereof, in the form and substance acceptable to the
Lender in its discretion;
(n) certificates evidencing the insurance coverage required pursuant
to Section 5.18;
(o) payment of the Facility Fee;
(p) payment of the fees described in Section 5.14;
(q) evidence satisfactory to Lender that the transactions evidenced by
the Stock Purchase Agreement have been consummated and all conditions
therein have been satisfied, unless waived by Lender in writing;
(r) an executed Subordination Agreement; and
(s) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may reasonably
request.
3.2 Each Loan and Letter of Credit. In addition to the conditions precedent
stated elsewhere herein, the Lender shall not be obligated to make any Loan or
issue any Letter of Credit unless:
(a) CYMRI shall have delivered to the Lender a Borrowing Request at
least one Business Day prior to the requested date for the relevant Loan,
or a Letter of Credit Application at least two Business Days prior to the
requested issuance date for the relevant Letter of Credit and each
statement or certification made in such Borrowing Request or Letter of
Credit Application, as the case may be, shall be true and correct in all
material respects on the requested date for such Loan or the issuance of
such Letter of Credit;
(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan or the issuance of the requested
Letter of Credit;
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(c) if requested by the Lender, the Borrower shall have delivered
evidence satisfactory to the Lender substantiating any of the matters
contained in this Agreement which are necessary to enable the Borrower to
qualify for such Loan or the issuance of such Letter of Credit;
(d) the Lender shall have received, reviewed, and approved such
additional documents and items as described in Section 3.1 as may be
requested by the Lender with respect to such Loan or Letter of Credit;
(e) no event shall have occurred which, in the reasonable opinion of
the Lender, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in this
Agreement shall be true and correct (unless they speak to a specific date
or are based on facts which have changed by transactions contemplated or
expressly permitted by this Agreement) and shall be deemed to be repeated
by the Borrower as if made on the requested date for such Loan or the
issuance of such Letter of Credit;
(g) all of the Security Instruments shall be in full force and effect
and provide to the Lender the security intended thereby;
(h) neither the consummation of the transactions contemplated hereby
nor the making of such Loan nor the issuance of such Letter of Credit shall
contravene, violate, or conflict with any Requirement of Law;
(i) the Borrower shall hold full legal title to the Collateral and be
the sole beneficial owner thereof;
(j) the Lender shall have received the reimbursement of all
engineering expenses, and other fees payable to the Lender hereunder and
reimbursement from the Borrower, or special legal counsel for the Lender
shall have received payment from the Borrower, for (i) all reasonable fees
and expenses of counsel to the Lender for which the Borrower is responsible
pursuant to applicable provisions of this Agreement and for which invoices
have been presented as of or prior to the date of the relevant Loan or
Letter of Credit Application, and (ii) estimated fees charged by filing
officers and other public officials incurred or to be incurred in
connection with the filing and recordation of any Security Instruments, for
which invoices have been presented as of or prior to the date of the
requested Loan or Letter of Credit Application; and
(k) all matters incident to the consummation of the transactions
hereby contemplated shall be satisfactory to the Lender.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Lender to enter into this Agreement and to make the Loans
and issue Letters of Credit, the Borrower represents and warrants to the Lender
(which representations and warranties shall survive the delivery of the Note)
that:
4.1 Due Authorization. The execution and delivery by the Borrower of this
Agreement and the borrowings hereunder, the execution and delivery by the
Borrower of the Note, the repayment of the Note and interest and fees provided
for in the Note and this Agreement, the execution and delivery of the Security
Instruments by the Borrower and the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary corporate action by the Borrower, and do
not and will not (a) require the consent of any Governmental Authority, (b)
contravene or conflict with any Requirement of Law, (c) contravene or conflict
with any indenture, instrument, or other agreement to which the Borrower is a
party or by which any Property of the Borrower may be presently bound or
encumbered, or (d) result in or require the creation or imposition of any Lien
in, upon or of any Property of the Borrower under any such indenture,
instrument, or other agreement, other than the Loan Documents.
4.2 Corporate Existence. Each Borrower is a corporation duly organized,
legally existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and is in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
4.3 Valid and Binding Obligations. All Loan Documents to which each
Borrower is a party, when duly executed and delivered by each such Borrower,
will be the legal, valid, and binding obligations of each such Borrower,
enforceable against each Borrower in accordance with their respective terms.
4.4 Security Instruments. The provisions of each Security Instrument
executed by the Borrower are effective to create in favor of the Lender, a
legal, valid, and enforceable Lien in all right, title, and interest of the
Borrower in the Collateral described therein, which Liens, assuming the
accomplishment of recording and filing in accordance with applicable laws prior
to the intervention of rights of other Persons, shall constitute fully perfected
first-priority Liens on all right, title, and interest of the Borrower in the
Collateral described therein.
4.5 Title to Assets. The Borrower has good and indefeasible title to all of
their Properties, free and clear of all Liens except Permitted Liens.
4.6 Score and Accuracy of Financial Statements. The Financial Statements of
the Borrower as of September 30, 2004, present fairly the financial position and
results of operations and cash flows of the Borrower as at the relevant point in
time or for the period indicated, as applicable. No event or circumstance has
occurred since such dates which could reasonably be expected to have a Material
Adverse Effect.
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4.7 No Material Misstatements. No information, exhibit, statement, or
report furnished to the Lender by or at the direction of the Borrower in
connection with this Agreement contains any material misstatement of fact or
omits to state a material fact or any fact necessary to make the statements
contained therein not misleading as of the date made or deemed made.
4.8 Liabilities, Litigation, and Restrictions. Other than as listed under
the heading "Liabilities" on Exhibit IV attached hereto, the Borrower has no
liabilities, direct, or contingent, which may materially and adversely affect
its business or operations or its ownership of the Collateral. Except as set
forth under the heading "Litigation" on Exhibit IV hereto, no litigation or
other action of any nature affecting the Borrower is pending before any
Governmental Authority or, to the best knowledge of the Borrower, threatened
against or affecting the Borrower which might reasonably be expected to result
in any impairment of its ownership of any Collateral or have a Material Adverse
Effect. To the best knowledge of the Borrower, after due inquiry, no unusual or
unduly burdensome restriction, restraint or hazard exists by contract,
Requirement of Law, or otherwise relative to the business or operations of the
Borrower or the ownership and operation of the Collateral other than such as
relate generally to Persons engaged in business activities similar to those
conducted by the Borrower.
4.9 Authorizations; Consents. Except as expressly contemplated by this
Agreement, no authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any Governmental Authority or any other Person is
required to authorize or is otherwise required in connection with the valid
execution and delivery by the Borrower of the Loan Documents or any instrument
contemplated hereby, the repayment by the Borrower of the Note and interest and
fees provided in the Note and this Agreement, or the performance by the Borrower
of the Obligations.
4.10 Compliance with Laws. The Borrower and the Borrower's Property,
including, without limitation, the Borrowing Base Oil and Gas Properties, are in
compliance with all applicable Requirements of Law, including, without
limitation, Environmental Laws, the Natural Gas Policy Act of 1978, as amended,
and ERISA, except to the extent non-compliance with any such Requirements of Law
could not reasonably be expected to have a Material Adverse Effect.
4.11 ERISA. The Borrower does not maintain nor has it maintained any Plan.
The Borrower does not currently contribute to or have any obligation to
contribute to or otherwise have any liability with respect to any Plan.
4.12 Environmental Laws. To the best knowledge and belief of the Borrower,
except as would not have a Material Adverse Effect, or as described on Exhibit
IV under the heading "Environmental Matters:"
(a) no Property of the Borrower is currently on or has ever been on,
or is adjacent to any Property which is on or has ever been on, any federal
or state list of Superfund Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by the Borrower at a site which was, at the time of such
generation, transportation, and/or disposal, or has since become, a
Superfund Site;
26
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by the Borrower
or from, affecting, or related to any Property of the Borrower or adjacent
to any Property of the Borrower has occurred; and
(d) no Environmental Complaint has been received by the Borrower.
4.13 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations T, U, or X.
4.14 Investment Company Act Compliance. No Borrower is, nor is any Borrower
directly or indirectly controlled by or acting on behalf of any Person which is,
an "investment company" or an "affiliated person" of an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.15 Public Utility Holding Company Act Compliance. No Borrower is a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.16 Proper Filing of Tax Returns; Payment of Taxes Due. Each Borrower has
duly and properly filed its United States income tax return and all other tax
returns which are required to be filed and has paid all taxes due except such as
are being contested in good faith and as to which adequate provisions and
disclosures have been made. The respective charges and reserves on the books of
the Borrower with respect to taxes and other governmental charges are adequate.
4.17 Refunds. Except as described on Exhibit IV under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any
Governmental Authority exist which could result in the Borrower being required
to refund any material portion of the proceeds received or to be received from
the sale of hydrocarbons constituting part of the Borrowing Base Oil and Gas
Properties.
4.18 Gas Contracts. Except as described on Exhibit IV under the heading
"Gas Contracts," the Borrower (a) is not obligated in any material respect by
virtue of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Borrowing Base Oil and Gas Properties
at some future date without receiving full payment therefor within 90 days of
delivery, and (b) has not produced gas, in any material amount, subject to, and
neither the Borrower nor any of the Borrowing Base Oil and Gas Properties is
subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements, except as to such matters for which the
Borrower has established monetary reserves adequate in amount to satisfy such
obligations and has segregated such reserves from other accounts.
4.19 Intellectual Property. The Borrower owns or is licensed to use all
Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business is
currently conducted. No claim has been asserted or is pending by any Person with
the respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
27
the Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by the Borrower does not infringe on the rights of any
Person, except for such claims and infringements as do not, in the aggregate,
give rise to any material liability on the part of the Borrower.
4.20 Casualties or Taking of Property. Except as disclosed on Exhibit IV
under the heading "Casualties," since September 30, 2004, neither the business
nor any Property of the Borrower has been materially adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property,
or cancellation of contracts, permits, or concessions by any Governmental
Authority, riot, activities of armed forces, or acts of God.
4.21 Locations of Borrower. The principal place of business and chief
executive office of each Borrower is located at the address of CYMRI set forth
in Section 8.3 or at such other location as the Borrower may have, by proper
written notice hereunder, advised the Lender, provided that such other location
is within a state in which appropriate financing statements from the Borrower in
favor of the Lender have been filed.
4.22 Subsidiaries. The Borrower has no Subsidiaries except those described
on Exhibit IV under the heading "Subsidiaries".
4.23 Purchasers of Production. The Persons who are purchasing the
Borrower's interests in oil and gas produced from the Borrowing Base Oil and Gas
Properties as of the date of this Agreement are identified on Exhibit VII
attached hereto.
ARTICLE V
AFFIRMATIVE COVENANTS
---------------------
So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower shall:
5.1 Maintenance and Access to Records. Keep adequate records, in accordance
with GAAP, of all its transactions so that at any time, and from time to time,
its true and complete financial condition may be readily determined, and
promptly following the reasonable request of the Lender, make such records
available for inspection by the Lender and, at the expense of the Borrower,
allow the Lender to make and take away copies thereof.
5.2 Quarterly Financial Statements; Compliance Certificates. Deliver to the
Lender, (a) on or before the 45th day after the close of each of the first three
quarterly periods of each fiscal year of the Borrower, a copy of the unaudited
Financial Statements of the Borrower, on a consolidated basis and on a
consolidating basis, as at the close of such quarterly period and from the
beginning of such fiscal year to the end of such period, such Financial
Statements to be certified by a Responsible Officer of CYMRI as a fair
presentation of the condition of the Borrower, subject to changes resulting from
28
normal year-end audit adjustments, and (b) on or before the 45th day after the
close of each fiscal quarter, with the exception of the last fiscal quarter, a
Compliance Certificate.
5.3 Annual Financial Statements. Deliver to the Lender, on or before the
90th day after the close of each fiscal year of the Borrower, a copy of the
annual audited Financial Statements of the Borrower, on a consolidated basis and
on a consolidating basis, satisfactory to the Lender and a Compliance
Certificate.
5.4 Oil and Gas Reserve Reports.
(a) Deliver to the Lender no later than March 1 of each year during
the term of this Agreement, engineering reports in form and substance
satisfactory to the Lender, certified by any nationally- or
regionally-recognized independent consulting petroleum engineers acceptable
to the Lender as fairly and accurately setting forth (i) the proven and
producing, shut-in, behind-pipe, and undeveloped oil and gas reserves
(separately classified as such) attributable to the Borrowing Base Oil and
Gas Properties as of January 1 of the year for which such reserve reports
are furnished, (ii) the aggregate present value of the future net income
with respect to such Borrowing Base Oil and Gas Properties, discounted at a
stated per annum discount rate of proven and producing reserves, (iii)
projections of the annual rate of production, gross income, and net income
with respect to such proven and producing reserves, and (iv) information
with respect to the "take-or-pay," "prepayment," and gas-balancing
liabilities of the Borrower.
(b) Deliver to the Lender no later than September 1 of each year
during the term of this Agreement, engineering reports in form and
substance satisfactory to the Lender prepared by or under the supervision
of a Responsible Officer of the Borrower evaluating the Borrowing Base Oil
and Gas Properties as of July 1 of the year for which such reserve reports
are furnished and updating the information provided in the reports pursuant
to Section 5.4(a).
(c) Each of the reports provided pursuant to this Section shall be
submitted to the Lender together with additional data concerning pricing,
quantities of production from the Borrowing Base Oil and Gas Properties,
volumes of production sold, purchasers of production, gross revenues,
expenses, and such other information and engineering and geological data
with respect thereto as the Lender may reasonably request.
5.5 Title Opinions; Title Defects. Within 30 days following the Closing
Date and promptly any time thereafter upon the request of the Lender, furnish to
the Lender title opinions, in form and substance and by counsel satisfactory to
the Lender, or other confirmation of title acceptable to the Lender, covering
Oil and Gas Properties constituting not less than 81% of the value, determined
by the Lender in its sole discretion, of the Borrowing Base Oil and Gas
Properties; provided, however, that within such 30-day period following the
Closing Date the Borrowing Base Oil and Gas Properties owned by TEI shall be
covered by current title opinions delivered to Lender in form and substance
satisfactory to the Lender (and not by other confirmation of title). Promptly,
but in any event within 60 days after notice by the Lender of any defect,
material in the opinion of the Lender in value, in the title of the Borrower to
any of its Oil and Gas Properties, clear such title defects, and, in the event
any such title defects are not cured in a timely manner, pay all related costs
and fees incurred by the Lender to do so.
5.6 Notices of Certain Events. Deliver to the Lender, immediately upon
having knowledge of the occurrence of any of the following events or
circumstances, a written statement with respect thereto, signed by a Responsible
Officer of the Borrower and setting forth the relevant event or circumstance and
29
the steps being taken by the Borrower with respect to such event or
circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of any Borrower, or any litigation, investigation, or proceeding between
any Borrower and any Governmental Authority which, in either case, if not
cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding involving any Borrower as a defendant
or in which any Property of any Borrower is subject to a claim and in which
the amount involved is $50,000 or more and which is not covered by
insurance or in which injunctive or similar relief is sought;
(d) the receipt by the Borrower of any written Environmental
Complaint;
(e) any actual, proposed, or threatened testing or other investigation
by any Governmental Authority or other Person concerning the environmental
condition of, or relating to, any Property of the Borrower or adjacent to
any Property of the Borrower following any allegation of a violation of an
Environmental Complaint;
(f) any Release of Hazardous Substances by the Borrower or from,
affecting, or related to any Property of the Borrower or adjacent to any
Property of the Borrower except in accordance with applicable Requirements
of Law or the terms of a valid permit, license, certificate, or approval of
the relevant Governmental Authority, or the violation of any Environmental
Law, or the revocation, suspension, or forfeiture of or failure to renew,
any permit, license, registration, approval, or authorization which could
reasonably be expected to have a Material Adverse Effect;
(g) the change in identity or address of any Person remitting to the
Borrower proceeds from the sale of hydrocarbon production from or
attributable to any Borrowing Base Oil and Gas Properties;
(h) any change in the senior management of the Borrower; and
(i) any other event or condition which could reasonably be expected to
have a Material Adverse Effect.
5.7 Letters in Lieu of Transfer Orders; Division Orders. Promptly upon
request by the Lender at any time and from time to time, and without limitation
on the rights of the Lender pursuant to Sections 2.16 and 2.17, execute such
letters in lieu of transfer orders, in addition to the letters signed by the
30
Borrower and delivered to the Lender in satisfaction of the condition set forth
in Section 3.1(f)(v) and/or division and/or transfer orders as are necessary or
appropriate to transfer and deliver to the Lender proceeds from or attributable
to the Borrowing Base Oil and Gas Properties.
5.8 Additional Information. Furnish to the Lender, promptly upon the
request of the Lender, such additional financial or other information concerning
the assets, liabilities, operations, and transactions of the Borrower as the
Lender may from time to time request, including, without limitation, updated
lists of additional or new Purchases of Production; and notify the Lender not
less than ten Business Days prior to the occurrence of any condition or event
that may change the proper location for the filing of any financing statement or
other public notice or recording for the purpose of perfecting a Lien in any
Collateral, including, without limitation, any change in its name or the
location of its principal place of business or chief executive office; and upon
the request of the Lender, execute such additional Security Instruments as may
be necessary or appropriate in connection therewith.
5.9 Compliance with Laws. Except to the extent the failure to comply or
cause compliance would not have a Material Adverse Effect, comply with all
applicable Requirements of Law, including, without limitation, (a) the Natural
Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental Laws, and (d)
all permits, licenses, registrations, approvals, and authorizations (i) related
to any natural or environmental resource or media located on, above, within, in
the vicinity of, related to or affected by any Property of the Borrower, (ii)
required for the performance of the operations of the Borrower, or (iii)
applicable to the use, generation, handling, storage, treatment, transport, or
disposal of any Hazardous Substances; and cause all employees, crew members,
agents, contractors, subcontractors, and future lessees (pursuant to appropriate
lease provisions) of the Borrower, while such Persons are acting within the
scope of their relationship with the Borrower, to comply with all such
Requirements of Law as may be necessary or appropriate to enable the Borrower to
so comply.
5.10 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Borrower, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect.
5.11 Maintenance of Corporate Existence and Good Standing. Maintain its
corporate existence or qualification and good standing in its jurisdictions of
incorporation and in all jurisdictions wherein the Property now owned or
hereafter acquired or business now or hereafter conducted necessitates same.
5.12 Payment of Note; Performance of Obligations. Pay the Note according to
its terms and do and perform every act and discharge all of its other
Obligations.
5.13 Further Assurances. Promptly cure any defects in the execution and
delivery of any of the Loan Documents and all agreements contemplated thereby,
and execute, acknowledge, and deliver such other assurances and instruments as
shall, in the opinion of the Lender, be necessary to fulfill the terms of the
Loan Documents.
31
5.14 Initial Fees and Expenses of Counsel to Lender. On the Closing Date,
promptly reimburse the Lender for all reasonable fees and expenses, including
estimated recording fees, of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P., special counsel to the
Lender, in connection with the preparation of this Agreement and all
documentation contemplated hereby, the satisfaction of the conditions precedent
set forth herein, the filing and recordation of Security Instruments, and the
consummation of the transactions contemplated in this Agreement.
5.15 Subsequent Fees and Expenses of Lender. Upon request by the Lender,
promptly reimburse the Lender (to the fullest extent permitted by law) for all
amounts reasonably expended, advanced, or incurred by or on behalf of the Lender
to satisfy any obligation of the Borrower under any of the Loan Documents; to
collect the Obligations; to ratify, amend, restate, or prepare additional Loan
Documents, as the case may be; for the filing and recordation of Security
Instruments; to enforce the rights of the Lender under any of the Loan
Documents; and to protect the Properties or business of the Borrower, including,
without limitation, the Collateral, which amounts shall be deemed compensatory
in nature and liquidated as to amount upon notice to the Borrower by the Lender
and which amounts shall include, but not be limited to (a) all court costs, (b)
reasonable attorneys' fees, (c) reasonable fees and expenses of auditors and
accountants incurred to protect the interests of the Lender, (d) fees and
expenses incurred in connection with the participation by the Lender as a member
of the creditors' committee in a case commenced under any Insolvency Proceeding,
(e) fees and expenses incurred in connection with lifting the automatic stay
prescribed in ss.362 Title 11 of the United States Code, and (f) fees and
expenses incurred in connection with any action pursuant to ss.1129 Title 11 of
the United States Code all reasonably incurred by the Lender in connection with
the collection of any sums due under the Loan Documents, together with interest
at the per annum interest rate equal to the Floating Rate, calculated on a basis
of a calendar year of 365 or 366 days, as the case may be, counting the actual
number of days elapsed, on each such amount from the date of notification that
the same was expended, advanced, or incurred by the Lender until the date it is
repaid to the Lender, with the obligations under this Section surviving the
non-assumption of this Agreement in a case commenced under any Insolvency
Proceeding and being binding upon the Borrower and/or a trustee, receiver,
custodian, or liquidator of the Borrower appointed in any such case.
5.16 Operation of Oil and Gas Properties. Develop, maintain, and operate
its Oil and Gas Properties in a prudent and workmanlike manner in accordance
with industry standards and every Requirement of Law.
5.17 Maintenance and Inspection of Properties. Maintain all of its tangible
Properties in good repair and condition, ordinary wear and tear excepted; make
all necessary replacements thereof and operate such Properties in a good and
workmanlike manner; and permit any authorized representative of the Lender to
visit and inspect, at the expense of the Borrower, any tangible Property of the
Borrower.
5.18 Maintenance of Insurance. Maintain insurance with respect to its
Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lender, maintained by Borrower, and, upon any renewal of any
such insurance and at other times upon request by the Lender, furnish to the
Lender evidence, satisfactory to the Lender, on the Closing Date of the
maintenance of such insurance. The Lender shall have the right to request that
32
it be named as a loss payee under any such renewals of insurance. The Lender
shall have the right to collect, and the Borrower hereby assigns to the Lender,
any and all monies that may become payable under any policies of insurance
relating to business interruption or by reason of damage, loss, or destruction
of any of the Collateral. In the event of any damage, loss, or destruction for
which insurance proceeds relating to business interruption or Collateral exceed
$100,000.00, the Lender may, at its option, apply all such sums or any part
thereof received by it toward the payment of the Obligations, whether matured or
unmatured, application to be made first to interest and then to principal, and
shall deliver to the Borrower the balance, if any, after such application has
been made. In the event of any such damage, loss, or destruction for which
insurance proceeds are $100,000.00 or less, provided that no Default or Event of
Default has occurred and is continuing, the Lender shall deliver any such
proceeds received by it to the Borrower. In the event the Lender receives
insurance proceeds not attributable to Collateral or business interruption, the
Lender shall deliver any such proceeds to the Borrower.
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE LENDER AND ITS SHAREHOLDERS,
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES AND
EACH TRUSTEE FOR THE BENEFIT OF THE LENDER (COLLECTIVELY THE "LENDER PARTIES")
UNDER ANY LOAN DOCUMENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES,
DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL
PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND
ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND
EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY BORROWING BASE OIL
AND GAS PROPERTIES OF THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF,
(B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY BORROWING BASE OIL AND
GAS PROPERTIES OF THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND
WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE, EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER PERSON AT ANY TIME
OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE HANDLING,
TREATMENT, REMOVAL, STORAGE, DECONTAMINATION, CLEANUP, TRANSPORTATION, OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER
SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE
BORROWER, (D) ANY CONTAMINATION OF ANY BORROWING BASE OIL AND GAS PROPERTIES OR
NATURAL RESOURCES ARISING IN CONNECTION WITH THE GENERATION, USE, HANDLING,
STORAGE, TRANSPORTATION OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER
OR ANY EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH
PERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER,
IRRESPECTIVE OF WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN
ACCORDANCE WITH APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND
ENFORCEMENT OF ANY LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF A LETTER
33
OF CREDIT OF A WRONGFUL DISHONOR BY THE LENDER OF A CLAIM OR DRAFT PRESENTED
THEREUNDER, OR ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT
LIMITATION, ANY OF THE FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE,
WHETHER SOLE OR CONCURRENT, ON THE PART OF THE LENDER PARTIES OR ANY OF ITS
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE LENDER UNDER ANY LOAN DOCUMENT
BUT NOT INCLUDING ANY OF THE FOREGOING ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF THE LENDER PARTIES; WITH THE FOREGOING INDEMNITY SURVIVING
SATISFACTION OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT, UNLESS
ALL SUCH OBLIGATIONS HAVE BEEN SATISFIED WHOLLY IN CASH FROM THE BORROWER AND
NOT BY WAY OF REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY
PROPERTY IN LIEU THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL NOT EXTEND TO ANY
ACT OR OMISSION BY THE LENDER WITH RESPECT TO ANY PROPERTY SUBSEQUENT TO THE
LENDER BECOMING THE OWNER OF SUCH PROPERTY AND WITH RESPECT TO WHICH PROPERTY
SUCH CLAIM, LOSS, DAMAGE, LIABILITY, FINE, PENALTY, CHARGE, PROCEEDING, ORDER,
JUDGMENT, ACTION, OR REQUIREMENT ARISES SUBSEQUENT TO THE ACQUISITION OF TITLE
THERETO BY THE LENDER.
5.20 Operating Accounts. Establish and maintain with Lender all of its
principal operating accounts and related deposit accounts.
5.21 Hedging Transaction Reports. For each Commodity Hedge Agreement to
which Borrower is a party, if any, deliver to Lender contemporaneously with the
quarterly Financial Statements a detailed report setting out Borrower's (i)
position as of the end of such calendar quarter including, but not limited to,
Borrower's settlement payments and receipts during such calendar quarter and
settlement payables and receivables as of the end of such calendar quarter, (ii
) volumes hedged, (iii) prices at which such volumes were hedged, (iii) the
period covered under each Commodity Hedge Agreement and (iv) any other
information which Lender may request.
5.22 Aged Accounts Reports. Deliver to Lender, on or before the thirtieth
(30th) day after the end of each calendar month, a detailed aging accounts
receivable report and a detailed aging accounts payable report effective as of
the end of such calendar month in accordance with the invoice dates of such
accounts payable, all such reports to be prepared in accordance with GAAP.
5.23 Production and Expense Reports. Deliver to Lender, on or before the
forty-fifth (45th) day after the end of each calendar month, a production and
expense report covering quantities of production from the Borrowing Base Oil and
Gas Properties, volumes of production sold, Purchasers of Production, gross
revenues and expenses (including lease operating expenses).
34
5.24 Operating Budget Forecasts. Commencing January 31, 2005, and
continuing on the last day of each subsequent month, deliver to Lender with a
rolling revenue, lease operating expense, capital expenditure and general and
administrative expense forecast, in form satisfactory to Lender (the "Operating
Budget Forecasts"), by month for the succeeding 12-month period covering
Borrower's interest in the Borrowing Base Oil and Gas Properties. The Operating
Budget Forecasts will include a brief discussion by Borrower of all operating
and financial variances from the prior Operating Budget Forecast delivered to
Lender.
5.25 Assignments of Proceeds and Accounts Receivable Debtors. Ensure that
within 30 days of the Closing Date all Purchasers of Production relating to the
Borrowing Base Oil and Gas Properties of TEI and all Accounts Receivable debtors
of PEI and PEII have received, signed and returned a form of Notice of
Assignment of Proceeds or other written notification in writing, in form
satisfactory to Lender, including such Persons' agreements to remit all such
proceeds and revenues into the Lockbox.
5.26 Lockbox Agreement. Execute and deliver to Lender the Lockbox Agreement
within 30 days of the Closing Date.
5.27 Stock Certificates. Obtain and deliver to the Stockholders, within 30
days of the Closing Date, new or replacement Stock Certificates evidencing
CYMRI's stock ownership in PEI, PEII and TEI and covered by the Stock Pledge
Agreement; provided that such delivery of the Stock Certificates shall be
subject to the Subordination Agreement.
5.28 Certificates of Deposit. Immediately upon the maturity of each
Certificate of Deposit, cause ▇.▇. ▇▇▇▇▇▇▇▇, ▇▇. to transfer the funds
thereunder to Lender for the issuance of new certificates of deposit by Lender.
ARTICLE VI
NEGATIVE COVENANTS
------------------
So long as any Obligation remains outstanding or unpaid or any Commitment
exists, no Borrower will:
6.1 Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 90 days beyond invoice date or are being contested in good
faith and as to which such reserve as is required by GAAP has been made, accrued
or deferred taxes and other liabilities not constituting borrowed money, (c)
crude oil, natural gas, or other hydrocarbon Commodity Hedge Agreements in form
and substance and with a Person acceptable to the Lender, provided that (i) each
commitment issued under such agreement must also be approved by the Lender, (ii)
such agreements shall not be entered into with respect to Borrower's Borrowing
Base Oil and Gas Properties constituting more than 75% of the present value of
estimated future net revenues, computed using a discount factor of 9%, of all
proved developed producing Borrowing Base Oil and Gas Properties, and (iii) that
35
the floor prices in such agreements are not less than the prices used by the
Lender in its most recent Borrowing Base determination (except in relation to
that certain Rate Management Transaction dated effective June 1, 2003 between
CYMRI and Macquarie Bank Ltd. documented as transaction number HH0504799), (d)
Rate Management Transactions, in form and substance and with a Person acceptable
to the Lender, (e) Indebtedness secured by Permitted Liens or (f) any other
Indebtedness subordinated to the Obligation on terms approved by Lender in its
discretion.
6.2 Contingent Obligations. Create, incur, assume, or suffer to exist any
Contingent Obligation; provided, however, the foregoing restriction shall not
apply to (a) performance guarantees and performance surety or other bonds
provided in the ordinary course of business, or (b) trade credit incurred or
operating leases entered into in the ordinary course of business.
6.3 Liens. Create, incur, assume, or suffer to exist any Lien on any of its
Oil and Gas Properties or any other Property, whether now owned or hereafter
acquired; provided, however, the foregoing restrictions shall not apply to
Permitted Liens.
6.4 Sales of Assets. Without the prior written consent of the Lender, sell,
transfer, or otherwise dispose of, in one or any series of transactions, any
Collateral or other Property, whether now owned or hereafter acquired, or enter
into any agreement to do so; provided, however, the foregoing restriction shall
not apply to (a) the sale of hydrocarbons or inventory in the ordinary course of
business provided that no contract for the sale of hydrocarbons shall obligate
the Borrower to deliver hydrocarbons produced from any of the Borrowing Base Oil
and Gas Properties at some future date without receiving full payment therefor
within 90 days of delivery, or (b) the sale or other disposition of Property
destroyed, lost, worn out, damaged, or having only salvage value or no longer
used or useful in the business of the Borrower.
6.5 Leasebacks. Enter into any agreement to sell or transfer any Borrowing
Base Oil and Gas Properties and thereafter rent or lease as lessee such Property
or other Property intended for the same use or purpose as the Property sold or
transferred.
6.6 Sale or Discount of Receivables. Except to minimize losses on bona fide
debts previously contracted, discount or sell with recourse, or sell for less
than the greater of the face or market value thereof, any of its notes
receivable or accounts receivable.
6.7 Loans or Advances. Make or agree to make or allow to remain outstanding
any loans or advances to any Person; provided, however, the foregoing
restrictions shall not apply to (a) advances or extensions of credit in the form
of accounts receivable incurred in the ordinary course of business and upon
terms common in the industry for such accounts receivable, or (b) advances to
employees of the Borrower for the payment of expenses in the ordinary course of
business.
6.8 Investments. Acquire Investments in, or purchase or otherwise acquire
all or substantially all of the assets of, any Person; provided, however, the
foregoing restriction shall not apply to the purchase or acquisition of (a) Oil
and Gas Properties, (b) Investments in the form of (i) debt securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof, with maturities of no more than one year,
(ii) commercial paper of a domestic issuer rated at the date of acquisition at
36
least P-2 by ▇▇▇▇▇'▇ Investor Service, Inc. or A-2 by Standard & Poor's
Corporation and with maturities of no more than one year from the date of
acquisition, or (iii) repurchase agreements covering debt securities or
commercial paper of the type permitted in this Section, certificates of deposit,
demand deposits, eurodollar time deposits, overnight bank deposits and bankers'
acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through the Lender or any bank or
trust company organized under the laws of the United States or any state thereof
and having capital surplus and undivided profits aggregating at least
$100,000,000.00, (c) other short-term Investments similar in nature and degree
of risk to those described in clause (b) of this Section, or (d) money-market
funds.
6.9 Dividends and Distributions. Declare, pay, or make, whether in cash or
Property of the Borrower, any dividend or distribution on, or purchase, redeem,
or otherwise acquire for value, any share of any class of its capital stock at
any time.
6.10 Issuance of Stock; Changes in Corporate Structure. Issue or agree to
issue additional shares of capital stock, in one or any series of transactions;
enter into any transaction of consolidation, merger, or amalgamation; liquidate,
wind up, or dissolve or suffer any liquidation or dissolution or enter or agree
to enter into any arrangement that would result in a Change of Control.
6.11 Transactions with Affiliates. Directly or indirectly, enter into any
transaction (including the sale, lease, or exchange of Property or the rendering
of service) with any of its Affiliates, other than upon fair and reasonable
terms no less favorable than could be obtained in an arm's length transaction
with a Person which was not an Affiliate.
6.12 Lines of Business. Expand, on its own or through any Subsidiary, into
any line of business other than those in which the Borrower is engaged as of the
date hereof.
6.13 Plan Obligations. Assume or otherwise become subject to an obligation
to contribute to or maintain any Plan or acquire any Person which has at any
time had an obligation to contribute to or maintain any Plan.
6.14 Current Ratio. Permit, as of the close of any fiscal quarter, the
ratio of (i) the sum of Current Assets plus the unused portion of this credit
facility to (ii) Current Liabilities to be less than 1.00 to 1.00.
6.15 EBITDA to Interest Ratio. Permit, as of the close of any fiscal
quarter, calculated on a consolidated basis, the ratio of (a) quarterly EBITDA
to (b) Interest Expense to be less than 3.50 to 1.00 beginning the fiscal
quarter ending December 31, 2005 or less than 3.00 to 1.00 for the end of the
first four fiscal quarters subsequent to the Closing Date. This ratio shall be
tested on an annualized basis for the first three quarters following the Closing
Date and, beginning on the end of the fourth fiscal quarter following the
Closing Date, on a rolling four-quarter basis.
6.16 Debt to Capitalization Ratio. Permit, as of the close of any fiscal
quarter, Borrower's ratio of Loan Balance to the sum of (i) Stockholder's
Equity, plus (ii) the Loan Balance, plus (iii) the outstanding Indebtedness
under the Stockholder Notes to be more than 0.60 to 1.00.
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ARTICLE VII
EVENTS OF DEFAULT
-----------------
7.1 Enumeration of Events of Default. Any of the following events shall
constitute an Event of Default:
(a) default shall be made in the payment when due of any installment
of principal or interest under this Agreement or the Note or in the payment
when due of any fee or other sum payable under any Loan Document and such
default shall have continued for five days;
(b) default shall be made by any Borrower in the due observance or
performance of any of their respective obligations under the Loan
Documents, and such default shall continue for 30 days after the earlier of
notice thereof to the Borrower by the Lender or knowledge thereof by any
Borrower;
(c) any representation or warranty made by any Borrower in any of the
Loan Documents proves to have been untrue in any material respect or any
representation, statement (including Financial Statements), certificate, or
data furnished or made to the Lender in connection herewith proves to have
been untrue in any material respect as of the date the facts therein set
forth were stated or certified;
(d) default shall be made by any Borrower (as principal or guarantor
or other surety) in the payment or performance of any bond, debenture,
note, Commodity Hedge Agreement, Rate Management Transaction, or other
Indebtedness or under any credit agreement, loan agreement, indenture,
promissory note, or similar agreement or instrument executed in connection
with any of the foregoing, and such default shall remain unremedied for in
excess of the period of grace, if any, with respect thereto;
(e) any Borrower shall (i) apply for or consent to the appointment of
a receiver, trustee, or liquidator of it or all or a substantial part of
its assets, (ii) file a voluntary petition commencing an Insolvency
Proceeding, (iii) make a general assignment for the benefit of creditors,
(iv) be unable, or admit in writing its inability, to pay its debts
generally as they become due, or (v) file an answer admitting the material
allegations of a petition filed against it in any Insolvency Proceeding;
(f) an order, judgment, or decree shall be entered against any
Borrower by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise, granting
relief in any Insolvency Proceeding or approving a petition seeking
reorganization or an arrangement of its debts or appointing a receiver,
trustee, conservator, custodian, or liquidator of it or all or any
substantial part of its assets, and such order, judgment, or decree shall
not be dismissed or stayed within 60 days;
(g) the levy against any significant portion of the Property of any
Borrower, or any execution, garnishment, attachment, sequestration, or
other writ or similar proceeding which is not permanently dismissed or
discharged within 90 days after the levy;
38
(h) a final and non-appealable order, judgment, or decree shall be
entered against any Borrower for money damages and/or Indebtedness due in
an amount in excess of $500,000, and such order, judgment, or decree shall
not be dismissed or stayed within 60 days;
(i) any Borrower shall have (i) concealed, removed, or diverted, or
permitted to be concealed, removed, or diverted, any material portion of
its Property, with intent to hinder, delay, or defraud its creditors or any
of them, (ii) made or suffered a transfer of any material portion of its
Property which maybe fraudulent under any bankruptcy, fraudulent
conveyance, or similar law, (iii) made any transfer of its Property to or
for the benefit of a creditor at a time when other creditors similarly
situated have not been paid, or (iv) suffered or permitted, while
insolvent, any creditor to obtain a Lien upon any of its Property through
legal proceedings or distraint which is not vacated within 30 days from the
date thereof;
(j) any Security Instrument shall for any reason not, or cease to,
create valid and perfected first-priority Liens subject to Permitted Liens
against the Collateral purportedly covered thereby or any Borrower shall
assert that any Security Instrument does not or discontinues to create
valid Liens thereunder;
(k) the occurrence of a Material Adverse Effect and the same shall
remain unremedied for in excess of 30 days after notice given by the
Lender; or
(l) the occurrence of a Change of Control.
7.2 Remedies.
(a) Upon the occurrence of an Event of Default specified in Sections
7.1(e) or 7.1(f), immediately and without notice, (i) all Obligations shall
automatically become immediately due and payable, without presentment,
demand, protest, notice of protest, default, or dishonor, notice of intent
to accelerate maturity, notice of acceleration of maturity, or other notice
of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the
Commitment shall immediately cease and terminate unless and until
reinstated by the Lender in writing; and (iii) the Lender is hereby
authorized at any time and from time to time, without notice to the
Borrower (any such notice being expressly waived by the Borrower), to
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Lender and any and all other indebtedness
at any time owing by the Lender to or for the credit or account of the
Borrower against any and all of the Obligations although such Obligations
may be unmatured.
(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(e) or 7.1(f), (i) the Lender may, by notice to
the Borrower, declare all Obligations immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor,
39
notice of intent to accelerate maturity, notice of acceleration of
maturity, or other notice of any kind, except as may be provided to the
contrary elsewhere herein, all of which are hereby expressly waived by the
Borrower; (ii) the Commitment shall immediately cease and terminate unless
and until reinstated by the Lender in writing; and (iii) the Lender is
hereby authorized at any time and from time to time, without notice to the
Borrower (any such notice being expressly waived by the Borrower), to
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Lender and any and all other indebtedness
at any time owing by the Lender to or for the credit or account of the
Borrower against any and all of the Obligations although such Obligations
may be unmatured.
(c) Upon the occurrence of any Event of Default, the Lender may, in
addition to the foregoing in this Section, exercise any or all of its
rights and remedies provided by law or pursuant to the Loan Documents.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Transfers; Participations. The Lender may not, without the consent of
the Borrower, at any time, sell, transfer, assign, or grant participations in
the Obligations or any portion thereof; provided, however, (i) that Borrower's
consent will not be unreasonably withheld and (ii) no such consent shall be
required if an Event of Default has occurred and is continuing. The Lender may
forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable. The
Borrower agrees that each Transferee, regardless of the nature of any transfer
to it, may exercise all rights (including, without limitation, rights of
set-off) with respect to the portion of the Obligations held by it as fully as
if such Transferee were the direct holder thereof; subject to any agreements
between such Transferee and the transferor to such Transferee.
8.2 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Note and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.
8.3 Notices and Other Communications. Except as to verbal notices expressly
authorized herein, which verbal notices shall be confirmed in writing, all
notices, requests, and communications hereunder shall be in writing (including
by telecopy). Unless otherwise expressly provided herein, any such notice,
request, demand, or other communication shall be deemed to have been duly given
or made when delivered by hand, or, in the case of delivery by mail, three days
following deposit in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:
40
(a) if to the Lender, to:
Sterling Bank
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: C. ▇▇▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Borrower, to:
The CYMRI Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, by proper written notice hereunder to the others, change the
individuals or addresses to which such notices to it shall thereafter be sent.
8.4 Parties in Interest. Subject to the restrictions on changes in
corporate structure set forth in Section 6.10 and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrower or the Lender shall be binding upon and inure to the benefit of
the Borrower or the Lender, as the case may be, and their respective legal
representatives, successors, and assigns.
8.5 Rights of Third Parties. All provisions herein are imposed solely and
exclusively for the benefit of the Lender and the Borrower. No other Person
shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms, and any or all of such provisions may be freely
waived in whole or in part by the Lender at any time if in its sole discretion
it deems it advisable to do so.
8.6 Renewals; Extensions. All provisions of this Agreement relating to the
Note shall apply with equal force and effect to each promissory note hereafter
executed which in whole or in part represents a renewal or extension of any part
of the Indebtedness of the Borrower under this Agreement, the Note, or any other
Loan Document.
8.7 No Waiver; Rights Cumulative. No course of dealing on the part of the
Lender, its officers or employees, nor any failure or delay by the Lender with
respect to exercising any of its rights under any Loan Document shall operate as
a waiver thereof. The rights of the Lender under the Loan Documents shall be
cumulative and the exercise or partial exercise of any such right shall not
preclude the exercise of any other right. Neither the making of any Loan nor the
issuance of a Letter of Credit shall constitute a waiver of any of the
covenants, warranties, or conditions of the Borrower contained herein. In the
event the Borrower is unable to satisfy any such covenant, warranty, or
condition, neither the making of any Loan nor the issuance of a Letter of Credit
shall have the effect of precluding the Lender from thereafter declaring such
inability to be an Event of Default as hereinabove provided.
41
8.8 Survival Upon Unenforceability. In the event any one or more of the
provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.
8.9 Amendments; Waivers. Neither this Agreement nor any provision hereof
may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
8.10 Controlling Agreement. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.
8.11 Disposition of Collateral. Notwithstanding any term or provision,
express or implied, in any of the Security Instruments, the realization,
liquidation, foreclosure, or any other disposition on or of any or all of the
Collateral shall be in the order and manner and determined in the sole
discretion of the Lender; provided, however, that in no event shall the Lender
violate applicable law or exercise rights and remedies other than those provided
in such Security Instruments or otherwise existing at law or in equity.
8.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTE AND THE OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER,
THAT (I) CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN
REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY
AND (II) EXCEPT, WITH REGARD TO THE SECURITY INSTRUMENTS TO THE EXTENT THAT THE
LAWS OR ANY JURISDICTION IN WHICH THE MORTGAGED PROPERTIES NECESSARILY GOVERN.
8.13 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON, ▇▇▇▇▇▇
COUNTY, TEXAS. EACH BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE, OR FEDERAL COURT LOCATED IN HOUSTON, ▇▇▇▇▇▇ COUNTY, TEXAS, AND HEREBY
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.
42
8.14 WAIVER OF RIGHTS TO JURY TRIAL. EACH BORROWER AND THE LENDER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVE
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR
OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL
INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.
8.15 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT HEREOF, INCLUDING, WITHOUT LIMITATION, THE
PROPOSED TERM SHEET DATED OCTOBER 22, 2004, FROM THE LENDER TO THE BORROWER
FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
8.16 CYMRI as Agent. Each PEI, PEII and TEI hereby appoints CYMRI as their
agent and attorney-in-fact to execute any certificates, requests or other
documents deliverable under this Agreement in the name of each such party,
collectively as Borrower, and Lender shall be authorized to rely on any such
executed certificates, requests or other documents as acts of the parties
constituting "Borrower" without the need of further inquiry or investigation.
8.17 Amended and Restated Agreement. This Agreement amends and restates in
its entirety, but does not extinguish, the Guaranty Bank Credit Agreement and
Hibernia Bank Credit Facility.
8.18 Counterparts. For the convenience of the parties, this Agreement may
be executed in multiple counterparts, each of which for all purposes shall be
deemed to be an original, and all such counterparts shall together constitute
but one and the same Agreement.
[Signatures appear on the following page.]
43
IN WITNESS WHEREOF, this Agreement is deemed executed effective as of the
date first above written.
BORROWER:
THE CYMRI CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
PETROLEUM ENGINEERS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
PETROLEUM ENGINEERS INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
TRIUMPH ENERGY, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
LENDER:
STERLING BANK
By: /s/ C. ▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
C. ▇▇▇▇▇ ▇▇▇▇▇▇
Senior Vice President