EXHIBIT 10.28
SECOND
RESTATED
CREDIT AGREEMENT
AMONG
3TEC ENERGY CORPORATION,
ENEX RESOURCES CORPORATION,
MIDDLE BAY PRODUCTION COMPANY, INC.,
AND MAGELLAN EXPLORATION, LLC,
AS BORROWERS,
AND
BANK ONE, TEXAS, N.A.
AND THE INSTITUTIONS NAMED HEREIN
AS LENDERS,
BANK ONE, TEXAS, N.A.,
AS ADMINISTRATIVE AGENT
AND
BANK OF MONTREAL
AS SYNDICATION AGENT
AND
BANC ONE CAPITAL MARKETS, INC.
AS ARRANGER
May 31, 2000
$250,000,000 REVOLVING CREDIT
TABLE OF CONTENTS
Page No.
1. Definitions........................................................... 2
2. Commitments of the Lender............................................. 13
(a) Terms of Commitment............................................ 13
(b) Procedure for Borrowing........................................ 14
(c) Letters of Credit.............................................. 14
(d) Procedure for Obtaining Letters of Credit...................... 15
(e) Voluntary Reduction of Commitment.............................. 16
(f) Mandatory Commitment Reductions................................ 16
(g) Several Obligations............................................ 16
(h) Type and Number of Advances.................................... 16
(i) Limited Liability of Enex, Production and Magellan............. 16
3. Notes Evidencing Loans................................................ 17
(a) Form of Notes.................................................. 17
(b) Issuance of Additional Notes................................... 17
(c) Interest Rate.................................................. 17
(d) Payment of Interest............................................ 17
(e) Payment of Principal........................................... 17
(f) Payment to Lenders............................................. 18
(g) Sharing of Payments, Etc....................................... 18
(h) Non-Receipt of Funds by the Agent.............................. 18
4. Interest Rates........................................................ 19
(a) Options........................................................ 19
(b) Interest Rate Determination.................................... 20
(c) Conversion Option.............................................. 20
(d) Recoupment..................................................... 20
5. Special Provisions Relating to Loans.................................. 20
(a) Unavailability of Funds or Inadequacy of Pricing............... 20
(b) Change in Laws................................................. 21
(c) Increased Cost or Reduced Return............................... 21
(d) Discretion of Lender as to Manner of Funding................... 23
(e) Breakage Fees.................................................. 23
6. Collateral Security................................................... 24
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7. Borrowing Base...................................................... 24
(a) Initial Borrowing Base....................................... 24
(b) Subsequent Determinations of Borrowing Base.................. 25
8. Fees................................................................ 26
(a) Unused Commitment Fee........................................ 26
(b) The Letter of Credit Fee..................................... 26
9. Prepayments......................................................... 27
(a) Voluntary Prepayments........................................ 27
(b) Mandatory Prepayment For Borrowing Base Deficiency........... 27
(c) Special Mandatory Prepayment................................. 27
10. Representations and Warranties...................................... 28
(a) Creation and Existence....................................... 28
(b) Power and Authority.......................................... 28
(c) Binding Obligations.......................................... 28
(d) No Legal Bar or Resultant Lien............................... 28
(e) No Consent................................................... 28
(f) Financial Condition.......................................... 28
(g) Liabilities.................................................. 29
(h) Litigation................................................... 29
(i) Taxes; Governmental Charges.................................. 29
(j) Titles, Etc.................................................. 29
(k) Defaults..................................................... 29
(l) Casualties; Taking of Properties............................. 30
(m) Use of Proceeds; Margin Stock................................ 30
(n) Location of Business and Offices............................. 30
(o) Compliance with the Law...................................... 30
(p) No Material Misstatements.................................... 31
(q) Not A Utility................................................ 31
(r) ERISA........................................................ 31
(s) Public Utility Holding Company Act........................... 31
(t) Subsidiaries................................................. 31
(u) Environmental Matters........................................ 31
(v) Liens........................................................ 32
11. Conditions of Lending............................................... 32
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12. Affirmative Covenants............................................... 34
(a) Financial Statements and Reports............................. 34
(b) Certificates of Compliance................................... 35
(c) Accountants' Certificate..................................... 36
(d) Taxes and Other Liens........................................ 36
(e) Compliance with Laws......................................... 36
(f) Further Assurances........................................... 36
(g) Performance of Obligations................................... 37
(h) Insurance.................................................... 37
(i) Accounts and Records......................................... 37
(j) Right of Inspection.......................................... 38
(k) Notice of Certain Events..................................... 38
(l) ERISA Information and Compliance............................. 38
(m) Environmental Reports and Notices............................ 38
(n) Compliance and Maintenance................................... 39
(o) Operation of Properties...................................... 39
(p) Compliance with Leases and Other Instruments................. 40
(q) Certain Additional Assurances Regarding
Maintenance and Operations of Properties..................... 40
(r) Sale of Certain Assets/Prepayment of Proceeds................ 40
(s) Title Matters................................................ 41
(t) Curative Matters............................................. 41
(u) Change of Principal Place of Business........................ 41
(v) Cash Collateral Accounts..................................... 41
(w) Take Down of Exchangeable Preferred Stock.................... 42
(x) Additional Collateral........................................ 42
13. Negative Covenants.................................................. 42
(a) Negative Pledge.............................................. 42
(b) Current Ratio................................................ 43
(c) Minimum Interest Coverage Ratio.............................. 43
(d) Consolidations and Mergers................................... 43
(e) Debts, Guaranties and Other Obligations...................... 43
(f) Dividends.................................................... 44
(g) Loans and Advances........................................... 45
(h) Sale or Discount of Receivables.............................. 45
(i) Nature of Business........................................... 45
(j) Transactions with Affiliates................................. 45
(k) Hedging Transactions......................................... 45
(l) Investments.................................................. 45
(m) Amendment to Articles of Incorporation or Bylaws............. 46
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(n) Proceeds of Production........................................... 46
(o) Issuance of Preferred Stock..................................... 46
(p) Amendments to and Redemption of Preferred Stock or Other Equity.. 46
(q) Payment or Pre-Payment of Other Indebtedness..................... 46
(r) Subordinated Indebtedness........................................ 46
14. Events of Default..................................................... 47
15. The Agent and the Lenders............................................. 49
(a) Appointment and Authorization.................................... 49
(b) Note Holders..................................................... 50
(c) Consultation with Counsel........................................ 50
(d) Documents........................................................ 50
(e) Resignation or Removal of Agent.................................. 51
(f) Responsibility of Agent.......................................... 51
(g) Independent Investigation........................................ 53
(h) Indemnification.................................................. 53
(i) Benefit of Section 15............................................ 53
(j) Pro Rata Treatment............................................... 53
(k) Assumption as to Payments........................................ 54
(l) Other Financings................................................. 54
(m) Interests of Lenders............................................. 54
(n) Investments...................................................... 55
16. Exercise of Rights.................................................... 55
17. Notices............................................................... 55
18. Expenses.............................................................. 55
19. Indemnity............................................................. 56
20. Governing Law......................................................... 57
21. Invalid Provisions.................................................... 57
22. Maximum Interest Rate................................................. 57
23. Amendments............................................................ 58
24. Multiple Counterparts................................................. 58
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25. Conflict............................................................ 58
26. Survival............................................................ 58
27. Parties Bound....................................................... 58
28. Assignments and Participations...................................... 58
29. Choice of Forum: Consent to Service of Process and Jurisdiction..... 60
30. Waiver of Jury Trial................................................ 61
31. Other Agreements.................................................... 61
32. Financial Terms..................................................... 61
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Exhibits
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Exhibit "A" - Notice of Borrowing
Exhibit "B" - Note
Exhibit "C" - Certificate of Compliance
Exhibit "D" - Form of Assignment and Acceptance Agreement
Schedules
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Schedule 1 - Liens
Schedule 2 - Financial Condition
Schedule 3 - Liabilities
Schedule 4 - Litigation
Schedule 5 - Subsidiaries
Schedule 6 - Environmental Matters
Schedule 7 - Title Matters
Schedule 8 - Curative Matters
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SECOND RESTATED CREDIT AGREEMENT
THIS SECOND RESTATED CREDIT AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 31st day of May, 2000, by and between 3TEC
ENERGY CORPORATION, a Delaware corporation ("3TEC") (successor in interest to
Middle Bay Oil Company, Inc.), ENEX RESOURCES CORPORATION, a Delaware
corporation ("Enex"), MIDDLE BAY PRODUCTION COMPANY, INC., a Kansas corporation
("Production") and MAGELLAN EXPLORATION, LLC, a Delaware limited liability
company ("Magellan") (3TEC, Enex, Production and Magellan are hereinafter
collectively referred to as "Borrowers", and individually as a "Borrower") and
BANK ONE, TEXAS, N.A., a national banking association ("Bank One"), and each of
the financial institutions which is a party hereto (as evidenced by the
signature pages to this Agreement) or which may from time to time become a party
hereto pursuant to the provisions of Section 28 hereof or any successor or
assignee thereof (hereinafter collectively referred to as "Lenders", and
individually, "Lender") and Bank One, as Administrative Agent (the "Agent") and
Bank of Montreal, as Syndication Agent.
W I T N E S S E T H:
WHEREAS, as of March 27, 1998, Middle Bay Oil Company, Inc. ("Middle Bay")
entered into a Credit Agreement with Compass Bank, as Agent for itself and Bank
of Oklahoma, N.A., pursuant to which the Lenders made available to Middle Bay, a
credit facility of up to $100,000,000 (the "Credit Agreement"); and
WHEREAS, as of November 23, 1999, Middle Bay, Enex, Production, the Agent
and the Lenders entered into a Restated Credit Agreement pursuant to which the
Lenders made available to Middle Bay, a credit facility of up to $250,000,000
(the "Restated Credit Agreement"); and
WHEREAS, as of November 23, 1999 the Lenders have acquired all of the
interest of Compass Bank and Bank of Oklahoma in the Credit Agreement and the
liens securing the same; and
WHEREAS, as of December 7, 1999, Middle Bay merged with and into 3TEC
Energy Corporation; and
WHEREAS, effective February 3, 2000 Magellan was merged with and into 3TM
Acquisition L.L.C., a Delaware limited liability company which was a wholly-
owned subsidiary of 3TEC and became a wholly-owned subsidiary of 3TEC; and
WHEREAS, the Borrowers have requested that the Lenders restate the Restated
Credit Agreement to make certain changes thereto and the Lenders have agreed to
restate the Restated Credit Agreement and make the changes requested by the
Borrowers.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereby agree to restate the Credit Agreement as
follows:
Definitions. When used herein the terms "Agent", "Agreement", "Bank One",
"Borrower", "Borrowers", "Enex", "Lender", "Lenders", "Magellan", "Production"
and "3TEC" shall have the meanings indicated above. When used herein the
following terms shall have the following meanings:
Advance or Advances means a loan or loans hereunder.
-------------------
Affiliate means any Person which, directly or indirectly, controls, is
---------
controlled by or is under common control with the relevant Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean a member of the board of directors, a partner or an
officer of such Person, or any other Person with possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, through the ownership (of record, as trustee, or by
proxy) of voting shares, partnership interests or voting rights, through a
management contract or otherwise. Any Person owning or controlling directly or
indirectly ten percent or more of the voting shares, partnership interests or
voting rights, or other equity interest of another Person shall be deemed to be
an Affiliate of such Person.
Alternate Base Rate shall mean, as of any date, a rate of interest per
-------------------
annum equal to the higher of (i) the Prime Rate for such date, and (ii) the sum
of the Federal Funds Effective Rate for such date plus one-half of one percent
(.50%) per annum.
Assignment and Acceptance means a document substantially in the form of
-------------------------
Exhibit "D" hereto.
Base Rate shall mean, as of any date, the sum of the Alternate Base Rate
---------
plus the Base Rate Margin.
Base Rate Loans shall mean any loan during any period which bears interest
---------------
based upon the Alternate Base Rate or which would bear interest based upon the
Alternate Base Rate if the Maximum Rate ceiling was not in effect at that
particular time.
Base Rate Margin shall be:
----------------
(i) one-half of one percent (.50%) per annum whenever the Borrowing
Base Usage is equal to or greater than 90%; or
(ii) three-eighths of one percent (.375%) per annum whenever the
Borrowing Base Usage is equal to or greater than 75% but less than 90%; or
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(iii) one-quarter of one percent (.25%) per annum whenever the
Borrowing Base Usage is equal to or greater than 50%, but less than 75%; or
(iv) zero percent (0%) per annum whenever the Borrowing Base Usage is
less than 50%.
Borrowing Base shall mean the value assigned by the Lenders from time to
--------------
time to the Oil and Gas Properties pursuant to Section 7 hereof. Until the next
determination of the Borrowing Base pursuant to Section 7(b) hereof and subject
to Section 9(c) hereof, the Borrowing Base shall be $145,000,000.
Borrowing Base Usage shall mean, as of any date, all amounts outstanding on
--------------------
the Loan plus all outstanding Letters of Credit, divided by the Borrowing Base.
Borrowing Date means the date elected by Borrowers pursuant to Section 2(b)
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hereof for an Advance on the Loan.
Business Day shall mean (i) with respect to any borrowing, payment or note
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selection of LIBOR Loans, a day (other than Saturdays or Sundays) on which banks
are legally open for business in Dallas, Texas and New York, New York and on
which dealings in United States dollars are carried on in the London interbank
market, and (ii) for all other purposes a day (other than Saturdays and Sundays)
on which banks are legally open for business in Dallas, Texas.
Cash Collateral Accounts is used herein as defined in Section 12(v).
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Change of Control shall occur if any Person (or syndicate or group of
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Persons which is deemed a Person for the purposes of Sections 13(d) or 14(d)(ii)
of the Securities Act of 1934, as amended) shall acquire, directly or indirectly
an amount of issued and outstanding voting stock of Borrowers (including the
acquisition of newly-issued stock) sufficient to change the control of Borrowers
by causing the election or change of a majority of the directors of Borrowers.
Change of Management means a Change of Management shall occur if ▇▇▇▇▇ ▇.
--------------------
▇▇▇▇▇▇ ever ceases to act as Chairman and Chief Executive Officer of 3TEC and a
replacement for such officer, acceptable to Agent, is not appointed within sixty
(60) days thereafter.
Commitment means (A) For all Lenders, the lesser of (i) $250,000,000 or
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(ii) the Borrowing Base, as reduced or increased from time to time pursuant to
Sections 2 and 7 hereof, and (B) as to any Lender, its obligation to make
Advances hereunder on the Loan and
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purchase participations in Letters of Credit issued hereunder by the Agent in
amounts not exceeding, in the aggregate, an amount equal to such Lender's
Commitment Percentage times the total Commitment as of any date. The Commitment
of each Lender hereunder shall be adjusted from time to time to reflect
assignments made by such Lender pursuant to Section 28 hereof. Each reduction in
the Commitment shall result in a Pro Rata reduction in each Lender's Commitment.
Commitment Percentage means for each Lender the percentage derived by
---------------------
dividing its Commitment at the time of the determination by the Commitments of
all Lenders at the time of determination. The Commitment Percentage of each
Lender hereunder shall be adjusted from time to time to reflect assignments made
by such Lender pursuant to Section 28 hereof.
Consolidated Current Assets means the total of the consolidated current
---------------------------
assets determined in accordance with GAAP, plus, as of any date, the unused
availability on the Commitment.
Consolidated Current Liabilities means the total of consolidated current
--------------------------------
obligations as determined in accordance with GAAP, excluding therefrom, as of
any date, current maturities due on the Loans.
Consolidated EBITDAX shall mean Consolidated Net Income (excluding gains
--------------------
and losses from asset sales, extraordinary and non-recurring gains and losses)
plus the sum of (i) income tax expense (but excluding income tax expense
relating to the sales or other disposition of assets, including capital stock,
the gains and losses from which are excluded in the determination of
Consolidated Net Income), plus (ii) Consolidated Interest Expense, plus (iii)
depreciation, depletion and amortization expense, plus (iv) other non-cash
expenses, plus (v) dry hole costs and geological and geophysical expenses, all
as determined in accordance with GAAP.
Consolidated Interest Expense shall mean the aggregate amount of interest
-----------------------------
expense of Borrowers as determined on a consolidated basis in accordance with
GAAP.
Consolidated Net Income shall mean Borrowers' consolidated net income after
-----------------------
income taxes calculated in accordance with GAAP.
Current Ratio means the ratio of Consolidated Current Assets for the period
-------------
being measured to the Consolidated Current Liabilities for such period.
CW Resources Acquisition means the acquisition by Borrowers of oil and gas
------------------------
properties from C.W. Resources, Inc., ▇▇▇▇▇▇▇▇▇ Royalty, Inc. and ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇
-4-
("CWR et. al".) pursuant to an Agreement of Sale and Purchase between 3TEC,
and CWR et. al dated April 14, 2000.
Default means all the events specified in Section 14 hereof, regardless of
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whether there shall have occurred any passage of time or giving of notice, or
both, that would be necessary in order to constitute such event as an Event of
Default.
Defaulting Lender is used herein as defined in Section 3(f) hereof.
-----------------
Effective Date means the date of this Agreement.
--------------
Eligible Assignee means any of (i) a Lender or any Affiliate of a Lender;
-----------------
(ii) a commercial bank organized under the laws of the United States, or any
state thereof, and having a combined capital and surplus of at least
$100,000,000; (iii) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having a
combined capital and surplus of at least $100,000,000.00, provided that such
bank is acting through a branch or agency located in the United States; (iv) a
Person that is primarily engaged in the business of commercial lending and that
(A) is a subsidiary of a Lender, (B) a subsidiary of a Person of which a Lender
is a subsidiary, or (C) a Person of which a Lender is a subsidiary; (v) any
other entity (other than a natural person) which is an "accredited investor" (as
defined in Regulation D under the Securities Act) which extends credit or buys
loans as one of its businesses, including, but not limited to, insurance
companies, mutual funds, investments funds and lease financing companies; and
(vi) with respect to any Lender that is a fund that invests in loans, any other
fund that invests in loans and is managed by the same investment advisor of such
Lender or by an Affiliate of such investment advisor (and treating all such
funds so managed as a single Eligible Assignee); provided, however, that no
Affiliate of Borrowers shall be an Eligible Assignee.
Engineered Value is used herein as defined in Section 6 hereof.
----------------
Environmental Laws means the Comprehensive Environmental Response,
------------------
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C.A. (S)9601, et seq., the Resource
-- ---
Conservation and Recovery Act, as amended by the Hazardous Solid Waste Amendment
of 1984, 42 U.S.C.A. (S)6901, et seq., the Clean Water Act, 33 U.S.C.A. (S)1251,
-- ---
et seq., the Clean Air Act, 42 U.S.C.A. (S)1251, et seq., the Toxic Substances
-- --- -- ---
Control Act, 15 U.S.C.A. (S)2601, et seq., The Oil Pollution Act of 1990, 33
▇.▇.▇. (▇)▇▇▇▇, et seq., and all other laws, statutes, codes, acts, ordinances,
-- ---
orders, judgments, decrees, injunctions, rules, regulations, orders, permits and
restrictions of any federal, state, county, municipal and other governments,
departments, commissions, boards, agencies, courts, authorities, officials and
officers, domestic or foreign,
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relating to oil pollution, air pollution, water pollution, noise control and/or
the handling, discharge, disposal or recovery of on-site or off-site asbestos,
radioactive materials, spilled or leaked petroleum products, distillates or
fractions and industrial solid waste or "hazardous substances" as defined by 42
U.S.C. (S) 9601, et seq., as amended, as each of the foregoing may be amended
-- ---
from time to time.
Environmental Liability means any claim, demand, obligation, cause of
-----------------------
action, order, violation, damage, injury, judgment, penalty or fine, cost of
enforcement, cost of remedial action or any other costs or expense whatsoever,
including reasonable attorneys' fees and disbursements, resulting from the
violation or alleged violation of any Environmental Law or the release of any
substance into the environment which is required to be remediated by a
regulatory agency or governmental authority or the imposition of any
Environmental Lien (as hereinafter defined) which could reasonably be expected
to individually or in the aggregate have a Material Adverse Effect.
Environmental Lien means a Lien in favor of any court, governmental agency
------------------
or instrumentality or any other Person (i) for any Environmental Liability or
(ii) for damages arising from or cost incurred by such court or governmental
agency or instrumentality or other person in response to a release or threatened
release of asbestos or "hazardous substance" into the environment, the
imposition of which Lien could reasonably be expected to have a Material Adverse
Effect.
ERISA means the Employee Retirement Income Security Act of 1974, as
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amended.
Exchangeable Preferred Stock means 800,000 shares of 3TEC preferred stock
----------------------------
which may be designated by 3TEC as Exchangeable Preferred Stock and will have a
stated value of $25.00 per share and will be subject to a take down at 3TEC's
request from EnCap Investments L.L.C. and its affiliates pursuant to the Private
Equity Shelf Agreement.
Federal Funds Effective Rate shall mean, for any day, an interest rate per
----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Dallas,
Texas time) on such day on such transactions received by the Agent from three
(3) Federal funds brokers of recognized standing selected by the Agent in its
sole discretion.
Financial Statements means balance sheets, income statements, statements of
--------------------
cash flows and appropriate footnotes and schedules, prepared in accordance with
GAAP.
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GAAP means generally accepted accounting principles, consistently applied.
----
Intercreditor Agreements means (i) the Intercreditor Agreement among 3TEC,
------------------------
the Agent and W/E Energy Company LLC ("W/E LLC") (formerly known as 3TEC Energy
Company L.L.C.), (ii) the Intercreditor Agreement among 3TEC, the Agent and
▇▇▇▇▇▇▇▇▇ Family Partnership, LP, (iii) the Intercreditor Agreement among 3TEC,
the Agent and Shoeinvest II, LP, and (iv) Letter Amendment No. 1 to Middle Bay
Oil Company, Inc. Securities Purchase Agreement (dated October 19, 1999),
between 3TEC and The Prudential Insurance Company of America, each dated
November 23, 1999.
Interest Payment Date shall mean the last day of each calendar quarter in
---------------------
the case of Base Rate Loans and, in the case of LIBOR Loans, the last day of the
applicable Interest Period.
Interest Period shall mean with respect to any LIBOR Loan (i) initially,
---------------
the period commencing on the date such LIBOR Loan is made and ending one (1),
three (3), or six (6) months thereafter as selected by the Borrowers pursuant to
Section 4(a)(ii), and (ii) thereafter, each period commencing on the day
following the last day of the next preceding Interest Period applicable to such
LIBOR Loan and ending one (1), three (3) or six (6) months thereafter, as
selected by the Borrowers pursuant to Section 4(a)(ii); provided, however, that
(i) if any Interest Period would otherwise expire on a day which is not a
Business Day, such Interest Period shall expire on the next succeeding Business
Day unless the result of such extension would be to extend such Interest Period
into the next calendar month, in which case such Interest Period shall end on
the immediately preceding Business Day, (ii) if any Interest Period begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) such Interest Period shall end on the last Business Day of a calendar
month, and (iii) any Interest Period which would otherwise expire after the
Maturity Date shall end on such Maturity Date.
Letters of Credit is used herein as defined in Section 2(c) hereof.
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LIBOR Base Rate shall mean, with respect to any LIBOR Loan for the relevant
---------------
Interest Period, the applicable British Bankers' Association Interest Settlement
Rate for deposits in U.S. dollars appearing on ▇▇▇▇▇▇'▇ Screen FRBD as of 11:00
a.m. (London time) two (2) Business Days prior to the first day of each Interest
Period, and having a maturity equal to such Interest Period; provided that, if
▇▇▇▇▇▇'▇ Screen FRBD is not available to the Agent for any reason, the
applicable LIBOR Rate for the relevant Interest Period shall instead be the
applicable British Bankers' Association Interest Settlement Rate for deposits in
U.S. dollars as reported by any other generally recognized financial information
service as of
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11:00 a.m. (London time) two (2) Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period.
LIBOR Loans means any loans during any period which bear interest at the
-----------
LIBOR Rate, or which would bear interest at such rate if the Maximum Rate
ceiling was not in effect at a particular time.
LIBOR Margin shall be:
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(i) two and one-eighths percent (2.125%) per annum whenever the
Borrowing Base Usage is equal to or greater than 90%;
(ii) two percent (2%) per annum whenever the Borrowing Base Usage is
equal to or greater than 75%, but less than 90%;
(iii) one and three-quarters percent (1.75%) per annum whenever the
Borrowing Base Usage is equal to or greater than 50%, but less than 75%; or
(iv) one and one-half percent (1.50%) per annum whenever the
Borrowing Base Usage is less than 50%.
LIBOR Rate means, with respect to a LIBOR Loan for the relevant Interest
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Period, the sum of (i) the quotient of (A) the LIBOR Base Rate applicable to
such Interest Period, divided by (B) one minus the Reserve Requirement
(expressed as a decimal) applicable to such Interest Period, plus the (ii) LIBOR
Margin. The LIBOR Rate shall be rounded to the next higher multiple of 1/16th of
one percent if the rate is not such a multiple.
Lien means any mortgage, deed of trust, pledge, security interest,
----
assignment, encumbrance or lien (statutory or otherwise) of every kind and
character.
Loan or Loans means an Advance or Advances made under the Commitment.
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Loan Documents means this Agreement, the Notes, the Intercreditor
--------------
Agreements, the Assignment, Acknowledgment, Agreement and Waiver, the Security
Instruments and all other documents executed in connection with the transaction
described in this Agreement.
Majority Lenders means Lenders holding 66-2/3% or more of the Commitments
----------------
or if the Commitments have been terminated, Lenders holding 66-2/3% of the
outstanding Loans.
-8-
Material Adverse Effect shall mean a material adverse effect on (i) the
-----------------------
assets or properties, liabilities, financial condition, business, operations,
affairs or circumstances of the Borrowers, (ii) the ability of the Borrowers to
carry out their respective businesses as of the date of this Agreement or as
proposed at the date of this Agreement to be conducted, (iii) the ability of
Borrowers to perform fully and on a timely basis their obligations under any of
the Loan Documents, or (iv) the validity or enforceability of any of the Loan
Documents or the rights and remedies of the Agent or the Lenders thereunder.
Maturity Date shall mean May 31, 2003.
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Maximum Rate means at any particular time in question, the maximum non-
------------
usurious rate of interest which under applicable law may then be charged on the
Note. If such Maximum Rate changes after the date hereof, the Maximum Rate shall
be automatically increased or decreased, as the case may be, without notice to
Borrowers from time to time as the effective date of each change in such Maximum
Rate.
Minimum Interest Coverage Ratio means the ratio of Consolidated EBITDAX for
-------------------------------
the period being measured to the sum of Consolidated Interest Expense for the
period being measured plus preferred stock dividends paid in cash during the
period being measured.
Notes means the Notes, substantially in the form of Exhibit "B" hereto
-----
issued or to be issued hereunder to each Lender, respectively, to evidence the
indebtedness to such Lender arising by reason of the Advances on the Loan,
together with all modifications, renewals and extensions thereof or any part
thereof.
Oil and Gas Properties means all oil, gas and mineral properties and
----------------------
interests, and related personal property, in which Borrowers grant to the
Lenders either a first and prior lien and security interest pursuant to Section
6 hereof or a negative pledge pursuant to Section 13(a) hereof.
Operating Accounts is used herein as defined in Section 12(v).
------------------
Other Financing is used herein as defined in Section 15(l) hereof.
---------------
Payor is used herein as defined in Section 3(h)hereof.
-----
Permitted Liens shall mean (i) royalties, overriding royalties,
---------------
reversionary interests, production payments and similar burdens; (ii) sales
contracts or other arrangements for the sale of production of oil, gas or
associated liquid or gaseous hydrocarbons which would not (when considered
cumulatively with the matters discussed in clause (i) above) deprive Borrowers
of any material right in respect of any such Borrower's assets or properties
(except
-9-
for rights customarily granted with respect to such contracts and arrangements);
(iii) statutory Liens for taxes or other assessments that are not yet delinquent
(or that, if delinquent, are being contested in good faith by appropriate
proceedings, levy and execution thereon having been stayed and continue to be
stayed and for which such Borrower has set aside on its books adequate reserves
in accordance with GAAP); (iv) easements, rights of way, servitudes, permits,
surface leases and other rights in respect to surface operations, pipelines,
grazing, logging, canals, ditches, reservoirs or the like, conditions, covenants
and other restrictions, and easements of streets, alleys, highways, pipelines,
telephone lines, power lines, railways and other easements and rights of way on,
over or in respect of Borrowers' assets or properties and that do not
individually or in the aggregate, cause a Material Adverse Effect; (v)
materialmen's, mechanic's, repairman's, employee's, warehousemen's, landlord's,
carrier's, pipeline's, contractor's, sub-contractor's, operator's, non-
operator's (arising under operating or joint operating agreements), and other
Liens (including any financing statements filed in respect thereof) incidental
to obligations incurred by Borrowers in connection with the construction,
maintenance, development, transportation, storage or operation of Borrowers'
assets or properties to the extent not delinquent (or which, if delinquent, are
being contested in good faith by appropriate proceedings and for which such
Borrower has set aside on its books adequate reserves in accordance with GAAP);
(vi) all contracts, agreements and instruments, and all defects and
irregularities and other matters affecting Borrowers' assets and properties
which were in existence at the time Borrowers' assets and properties were
originally acquired by Borrowers and all routine operational agreements entered
into in the ordinary course of business, which contracts, agreements,
instruments, defects, irregularities and other matters and routine operational
agreements are not such as to, individually or in the aggregate, interfere
materially with the operation, value or use of Borrowers' assets and properties,
considered in the aggregate; (vii) liens in connection with workmen's
compensation, unemployment insurance or other social security, old age pension
or public liability obligations; (viii) legal or equitable encumbrances deemed
to exist by reason of the existence of any litigation or other legal proceeding
or arising out of a judgment or award with respect to which an appeal is being
prosecuted in good faith and levy and execution thereon have been stayed and
continue to be stayed; (ix) rights reserved to or vested in any municipality,
governmental, statutory or other public authority to control or regulate
Borrowers' assets and properties in any manner, and all applicable laws, rules
and orders from any governmental authority; (x) landlord's liens; (xi) Liens
incurred pursuant to the Security Instruments; and (xii) Liens existing at the
date of this Agreement which are identified in Schedule "1" hereto.
Person means an individual, a corporation, a partnership, an association, a
------
trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
-10-
Plan means any plan subject to Title IV of ERISA and maintained by
----
Borrowers, or any such plan to which any Borrower is required to contribute on
behalf of its employees.
Pre-Approved Contracts as used herein shall mean any contracts or
----------------------
agreements entered into in connection with any Rate Management Transaction
designed (i) to hedge, forward sell or swap crude oil or natural gas or
otherwise sell up to 75% of the Borrowers' anticipated production from proved,
developed producing reserves of crude oil, and/or up to 75% of the Borrowers'
anticipated production from proved, developed producing reserves of natural gas,
during the period from the immediately preceding settlement date (or the
commencement of the term of such hedge transactions if there is no prior
settlement date) to such settlement date, (ii) with a maturity of not exceeding
the Maturity Date, and (iii) with counterparties to the hedging agreement (other
than a Lender or Affiliate of a Lender which are approved counterparties) which
are reasonably approved by Agent.
Prime Rate means the rate per annum equal to the Prime Rate announced by
----------
the Agent from time to time, changing when and as said Prime Rate changes.
Private Equity Shelf Agreement means that certain Private Equity Shelf
------------------------------
Agreement dated May 31, 2000, among 3TEC, EnCap Investments L.L.C. and certain
of its affiliates, pursuant to which the Exchangeable Preferred Stock may be
issued by 3TEC.
Pro Rata or Pro Rata Part means for each Lender, (i) for all purposes where
-------------------------
no Loan is outstanding, such Lender's Commitment Percentage and (ii) otherwise,
the proportion which the portion of the outstanding Loans owed to such Lender
bears to the aggregate outstanding Loans owed to all Lenders at the time in
question.
Rate Management Transaction means any transaction (including an agreement
---------------------------
with respect thereto) now existing or hereafter entered into by any of the
Borrowers 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, forward 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 one 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 from time to time in effect and any successor thereto
and other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
-11-
Reimbursement Obligations means, at any time, the obligations of the
-------------------------
Borrowers in respect of all Letters of Credit then outstanding to reimburse
amounts paid by any Lender in respect of any drawing or drawings under a
Letter of Credit.
Release Price is used herein as defined in Section 12(r) hereof.
-------------
Required Payment is used herein as defined in Section 3(h) hereof.
----------------
Reserve Requirement means, with respect to any Interest Period, the
-------------------
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D or
Eurocurrency liabilities.
Security Instruments is used collectively herein to mean this
--------------------
Agreement, all Deeds of Trust, Mortgages, Security Agreements, Assignments
of Production and Financing Statements and other collateral documents
covering the Oil and Gas Properties and related personal property,
equipment, oil and gas inventory and proceeds of the foregoing, all such
documents to be in form and substance satisfactory to Agent.
Security Purchase Agreements mean (i) a Securities Purchase Agreement
----------------------------
dated August 27, 1999 between Middle Bay and ▇▇▇▇▇▇▇▇▇ Family Partnership,
LP, (ii) a Securities Purchase Agreement dated August 27, 1999 between
Middle Bay and Shoeinvest II, LP, (iii) a Securities Purchase Agreement
dated July 1, 1999 between Middle Bay and W/E LLC and (iv) a Securities
Purchase Agreement dated October 19, 1999 between Middle Bay and The
Prudential Insurance Company of America, as amended by that certain Letter
Amendment No. 1 to Middle Bay Securities Purchase Agreement dated November
23, 1999.
Series B Preferred Stock means 266,667 shares of 3TEC preferred stock
------------------------
which has been designated as Series B and has a stated value of $7.50 per
share, all of which is issued and outstanding.
Series C Preferred Stock means 2,300,000 shares of 3TEC preferred
------------------------
stock which has been designated as Series C and has a stated value of $5.00
per share, 2,167,156 shares of which are issued and outstanding.
Series D Preferred Stock means 725,167 shares of 3TEC preferred stock
------------------------
which has been designated as Series D and has a stated value of $24.00 per
share, 621,930 of which are issued and outstanding as of March 31, 2000.
Subordinated Lenders W/E LLC, ▇▇▇▇▇▇▇▇▇ Family Partnership, LP,
--------------------
Shoeinvest II, LP and The Prudential Insurance Company of America.
-12-
Subordinated Notes means promissory notes issued by 3TEC pursuant to
------------------
the Security Purchase Agreements.
Subsidiary means any corporation or other entity of which securities
----------
or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by Borrowers or
another subsidiary.
Total Outstandings means, as of any date, the sum of (i) the total
------------------
principal balance outstanding on the Notes, plus (ii) the total face amount
of all outstanding Letters of Credit, plus (iii) the total amount of all
unpaid Reimbursement Obligations.
Tranche means a set of LIBOR Loans made by the Lenders at the same
-------
time and for the same Interest Period.
Unscheduled Redeterminations means a redetermination of the Borrowing
----------------------------
Base made at any time other than on the dates set for the regular semi-
annual redetermination of the Borrowing Base which are made (A) at the
request of Borrowers (but only once between Borrowing Base
redeterminations), (B) at the request of Majority Lenders.
Unused Commitment Fee Rate shall be:
--------------------------
(i) one-half of one percent (.50%) per annum whenever the
Borrowing Base Usage is equal to or greater than 90%;
(ii) three-eighths of one percent (.375%) per annum whenever the
Borrowing Base Usage is equal to or greater than 50% but less than
90%; or
(iii) one-fourth of one percent (.25%) per annum whenever the
Borrowing Base Usage is less than 50%.
2. Commitments of the Lender.
(a) Terms of Commitment. On the terms and conditions hereinafter set
-------------------
forth, each Lender agrees severally to make Advances to the Borrowers from
time to time during the period beginning on the Effective Date and ending
on the Maturity Date in such amounts as the Borrowers may request up to an
amount not to exceed, in the aggregate principal amount outstanding at any
time, the Commitment less Total Outstandings. The obligation of the
Borrowers hereunder shall be evidenced by this Agreement and the Notes
issued in connection herewith, said Notes to be as described in Section 3
hereof. Notwithstanding any other provision of this Agreement, no Advance
shall be required to be made hereunder if any
-13-
Event of Default (as hereinafter defined) has occurred and is continuing or
if any event or condition has occurred or failed to occur which with the
passage of time or service of notice, or both, would constitute an Event of
Default. Each Advance under the Commitment shall be an aggregate amount of
at least $1,000,000 or any whole multiples of $100,000 in excess thereof.
Irrespective of the face amount of the Note or Notes, the Lenders shall
never have the obligation to Advance any amount or amounts in excess of the
Commitment or to increase the Commitment.
(b) Procedure for Borrowing. Whenever the Borrowers desire an
-----------------------
Advance hereunder, they shall give Agent telegraphic, telex, facsimile or
telephonic notice ("Notice of Borrowing") of such requested Advance, which
in the case of telephonic notice, shall be promptly confirmed in writing.
Each Notice of Borrowing shall be in the form of Exhibit "A" attached
hereto and shall be received by Agent not later than 11:00 a.m. Dallas,
Texas time, (i) one Business Day prior to the Borrowing Date in the case of
the Base Rate Loan, or (ii) three Business Days prior to any proposed
Borrowing Date in the case of LIBOR Loans. Each Notice of Borrowing shall
specify (i) the Borrowing Date (which, if at Base Rate Loan, shall be a
Business Day and if a LIBOR Loan, a Business Day), (ii) the principal
amount to be borrowed, (iii) the portion of the Advance constituting Base
Rate Loans and/or LIBOR Loans, (iv) if any portion of the proposed Advance
is to constitute LIBOR Loans, the initial Interest Period selected by
Borrowers pursuant to Section 4 hereof to be applicable thereto, and (v)
the date upon which such Advance is required. Upon receipt of such Notice,
Agent shall advise each Lender thereof; provided, that if the Lenders have
received at least one (1) day's notice of such Advance prior to funding of
a Base Rate Loan, or at least three (3) days' notice of each Advance prior
to funding in the case of a LIBOR Loan, each Lender shall provide Agent at
its office at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, not later than 1:00
p.m., Dallas, Texas time, on the Borrowing Date, in immediately available
funds, its pro rata share of the requested Advance, but the aggregate of
all such fundings by each Lender shall never exceed such Lender's
Commitment. Not later than 2:00 p.m., Dallas, Texas time, on the Borrowing
Date, Agent shall make available to the Borrowers at the same office, in
like funds, the aggregate amount of such requested Advance. Neither Agent
nor any Lender shall incur any liability to the Borrowers in acting upon
any Notice referred to above which Agent or such Lender believes in good
faith to have been given by a duly authorized officer or other person
authorized to borrow on behalf of Borrowers or for otherwise acting in good
faith under this Section 2(b). Upon funding of Advances by Lenders in
accordance with this Agreement, pursuant to any such Notice, the Borrowers
shall have effected Advances hereunder.
(c) Letters of Credit. On the terms and conditions hereinafter set
-----------------
forth, the Agent shall from time to time during the period beginning on the
Effective Date and ending on the Maturity Date upon request of Borrowers
issue standby Letters of Credit for the account of Borrowers (the "Letters
of Credit") in such face amounts as Borrowers may request, but not
-14-
to exceed in the aggregate face amount at any time outstanding the sum of
Five Million Dollars ($5,000,000). The face amount of all Letters of
Credit issued and outstanding hereunder shall be considered as Advances on
the Commitment for Borrowing Base purposes and all payments made by the
Agent on such Letters of Credit shall be considered as Advances under the
Notes. Each Letter of Credit issued for the account of Borrowers hereunder
shall (i) be in favor of such beneficiaries as specifically requested by
Borrowers, (ii) have an expiration date not exceeding the earlier of (a)
one year or (b) the Maturity Date, and (iii) contain such other terms and
provisions as may be required by issuing Lender. Each Lender (other than
Agent) agrees that, upon issuance of any Letter of Credit hereunder, it
shall automatically acquire a participation in the Agent's liability under
such Letter of Credit in an amount equal to such Lender's Commitment
Percentage of such liability, and each Lender (other than Agent) thereby
shall absolutely, unconditionally and irrevocably assume, as primary
obligor and not as surety, and shall be unconditionally obligated to Agent
to pay and discharge when due, its Commitment Percentage of Agent's
liability under such Letter of Credit. The Borrowers hereby
unconditionally agree to pay and reimburse the Agent for the amount of each
demand for payment under any Letter of Credit that is in substantial
compliance with the provisions of any such Letter of Credit at or prior to
the date on which payment is to be made by the Agent to the beneficiary
thereunder, without presentment, demand, protest or other formalities of
any kind. Upon receipt from any beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Agent shall promptly
notify the Borrowers of the demand and the date upon which such payment is
to be made by the Agent to such beneficiary in respect of such demand.
Forthwith upon receipt of such notice from the Agent, Borrowers shall
advise the Agent whether or not they intend to borrow hereunder to finance
their obligations to reimburse the Agent, and if so, submit a Notice of
Borrowing as provided in Section 2(b) hereof. If Borrowers fail to so
advise Agent and thereafter fail to reimburse Agent, the Agent shall notify
each Lender of the demand and the failure of the Borrowers to reimburse the
Agent, and each Lender shall reimburse the Agent for its Commitment
Percentage of each such draw paid by the Agent and unreimbursed by the
Borrowers. All such amounts paid by Agent and/or reimbursed by the Lenders
shall be treated as an Advance or Advances under the Commitment, which
Advances shall be immediately due and payable and shall bear interest at
the Maximum Rate.
(d) Procedure for Obtaining Letters of Credit. The amount and date
-----------------------------------------
of issuance, renewal, extension or reissuance of a Letter of Credit
pursuant to the Lenders' commitments above in Section 2(c) shall be
designated by Borrowers' written request delivered to Agent at least three
(3) Business Days prior to the date of such issuance, renewal, extension or
reissuance. Concurrently with or promptly following the delivery of the
request for a Letter of Credit, Borrowers shall execute and deliver to the
Agent an application and agreement with respect to the Letters of Credit,
said application and agreement to be in the form used by the Agent. The
Agent shall not be obligated to issue, renew, extend or reissue such
Letters of Credit if (A) the amount thereon when added to the face amount
of the outstanding
-15-
Letters of Credit plus any Reimbursement Obligations exceeds Five Million
Dollars ($5,000,000) or (B) the amount thereof when added to the Total
Outstandings would exceed the Commitment. Borrowers agree to pay the Agent
for the benefit of the Lenders commissions for issuing the Letters of
Credit (calculated separately for each Letter of Credit) in an amount equal
to the greater of (i) the LIBOR Margin then in effect times the maximum
face amount of the Letter of Credit or (ii) $500.00. Borrowers further
agree to pay Agent an additional fronting fee equal to one-eighth of one
percent (0.125%) per annum on the maximum face amount of each Letter of
Credit. Such commissions shall be payable prior to the issuance of each
Letter of Credit and thereafter on each anniversary date of such issuance
while such Letter of Credit is outstanding.
(e) Voluntary Reduction of Commitment. Subject to the provisions of
---------------------------------
Section 5(e) hereof, the Borrowers may at any time, or from time to time,
upon not less than three (3) Business Days' prior written notice to Agent,
reduce or terminate the Commitment; provided, however, that (i) each
reduction in the Commitment must be in the amount of $1,000,000 or more, in
increments of $1,000,000 and (ii) each reduction must be accompanied by a
prepayment of the Notes in the amount by which the outstanding principal
balance of the Notes exceeds the Commitment as reduced pursuant to this
Section 2.
(f) Mandatory Commitment Reductions. The Borrowing Base shall be
-------------------------------
reduced by the amount of the Special Mandatory Prepayment required pursuant
to Section 9(c) hereof. In addition, the Borrowing Base shall be reduced
from time to time by the amount of any prepayment required by Section 12(r)
hereof upon the sale of assets. If, as a result of any such reduction in
the Borrowing Base, the Total Outstandings ever exceed the Borrowing Base
then in effect, the Borrowers shall make the mandatory prepayment of
principal required pursuant to Section 9(b) hereof.
(g) Several Obligations. The obligations of the Lenders under the
-------------------
Commitments are several and not joint. The failure of any Lender to make
an Advance required to be made by it shall not relieve any other Lender of
its obligation to make its Advance, and no Lender shall be responsible for
the failure of any other Lender to make the Advance to be made by such
other Lender. No Lender shall be required to lend hereunder any amount in
excess of its legal lending limit.
(h) Type and Number of Advances. Any Advance of the Commitment may
---------------------------
be a Base Rate Loan or a LIBOR Loan, or a combination thereof, as selected
by the Borrowers pursuant to Section 4 hereof. The total number of
Tranches which may be outstanding at any time shall never exceed four (4).
(i) Limited Liability of Enex, Production and Magellan. While the
--------------------------------------------------
obligations of the Borrowers under the Agreement and the Notes shall be
joint and several obligations
-16-
of 3TEC, Enex, Production and Magellan, the liability of Enex, Production
and Magellan thereunder shall be limited to the maximum amount of liability
that can be incurred without rendering the obligations of Enex, Production
and Magellan under the Loan Documents voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer, and not for any
greater amount.
3. Notes Evidencing Loans. The loans described above in Section 2 shall
be evidenced by promissory notes of Borrowers as follows:
(a) Form of Notes. The Loan shall be evidenced by a Note or Notes in
-------------
the aggregate face amount of $250,000,000, and shall be in the form of
Exhibit "B" hereto with appropriate insertions (each a "Note").
Notwithstanding the face amount of the Notes, the actual principal amount
due from the Borrowers to Lenders on account of the Notes, as of any date
of computation, shall be the sum of Advances then and theretofore made on
account thereof, less all principal payments actually received by Lenders
in collected funds with respect thereto. Although the Notes may be dated
as of the Effective Date, interest in respect thereof shall be payable only
for the period during which the loans evidenced thereby are outstanding
and, although the stated amount of the Notes may be higher, the Notes shall
be enforceable, with respect to Borrowers' obligation to pay the principal
amount thereof, only to the extent of the unpaid principal amount of the
Loans. Irrespective of the face amount of the Notes, no Lender shall ever
be obligated to advance on the Commitment any amount in excess of its
Commitment then in effect.
(b) Issuance of Additional Notes. At the Effective Date there shall
----------------------------
be outstanding Notes in the aggregate face amount of $250,000,000 payable
to the order of Lenders. From time to time new Notes may issued to other
Lenders as such Lenders become parties to this Agreement. Upon request
from Agent, the Borrowers shall execute and deliver to Agent any such new
or additional Notes. From time to time as new Notes are issued the Agent
shall require that each Lender exchange its Note(s) for newly issued
Note(s) to better reflect the extent of each Lender's Commitments
hereunder.
(c) Interest Rates. The unpaid principal balance of the Notes shall
--------------
bear interest from time to time as set forth in Section 4 hereof.
(d) Payment of Interest. Interest on the Notes shall be payable on
-------------------
each Interest Payment Date.
(e) Payment of Principal. Principal of the Note or Notes shall be
--------------------
due and payable to the Agent for the ratable benefit of the Lenders on the
Maturity Date unless earlier due in whole or in part as a result of an
acceleration of the amount due or pursuant to the mandatory prepayment
provisions of Sections 2(f), 9(b) and 9(c) hereof.
-17-
(f) Payment to Lenders. Each Lender's Pro Rata Part of payment or
------------------
prepayment of the Loans shall be directed by wire transfer to such Lender
by the Agent at the address provided to the Agent for such Lender for
payments no later than 2:00 p.m., Dallas, Texas, time on the Business Day
such payments or prepayments are deemed hereunder to have been received by
Agent; provided, however, in the event that any Lender shall have failed to
make an Advance as contemplated under Section 2 hereof (a "Defaulting
Lender") and the Agent or another Lender or Lenders shall have made such
Advance, payment received by Agent for the account of such Defaulting
Lender or Lenders shall not be distributed to such Defaulting Lender or
Lenders until such Advance or Advances shall have been repaid in full to
the Lender or Lenders who funded such Advance or Advances. Any payment or
prepayment received by Agent at any time after 12:00 noon, Dallas, Texas,
time on a Business Day shall be deemed to have been received on the next
Business Day. Interest shall cease to accrue on any principal as of the
end of the day preceding the Business Day on which any such payment or
prepayment is deemed hereunder to have been received by Agent. If Agent
fails to transfer any principal amount to any Lender as provided above,
then Agent shall promptly direct such principal amount by wire transfer to
such Lender.
(g) Sharing of Payments, Etc. If any Lender shall obtain any payment
-------------------------
(whether voluntary, involuntary, or otherwise) on account of the Loans,
(including, without limitation, any set-off) which is in excess of its Pro
Rata Part of payments on either of the Loans, as the case may be, obtained
by all Lenders, such Lender shall purchase from the other Lenders such
participation as shall be necessary to cause such purchasing Lender to
share the excess payment pro rata with each of them; provided that, if all
or any portion of such excess payment is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of the recovery. The Borrowers agree that any
Lender so purchasing a participation from another Lender pursuant to this
Section may, to the fullest extent permitted by law, exercise all of its
rights of payment (including the right of offset) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrowers in the amount of such participation.
(h) Non-Receipt of Funds by the Agent. Unless the Agent shall have
---------------------------------
been notified by a Lender or the Borrowers (the "Payor") prior to the date
on which such Lender is to make payment to the Agent of the proceeds of a
Loan to be made by it hereunder or the Borrowers are to make a payment to
the Agent for the account of one or more of the Lenders, as the case may be
(such payment being herein called the "Required Payment"), which notice
shall be effective upon receipt, that the Payor does not intend to make the
Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall
not be required to), make the amount thereof available to the intended
recipient on such date and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient of such payment shall, on demand, pay
to the Agent the amount made available to it together with interest thereon
in respect of the period
-18-
commencing on the date such amount was made available by the Agent until
the date the Agent recovers such amount at the rate applicable to such
portion of the applicable Loan.
4. Interest Rates.
(a) Options.
-------
(i) Base Rate Loans. On all Base Rate Loans the Borrowers agree
---------------
to pay interest on the Notes calculated on the basis of the actual
days elapsed in a year consisting of 365, or if appropriate, 366 days
with respect to the unpaid principal amount of each Base Rate Loan
from the date the proceeds thereof are made available to Borrowers
until maturity (whether by acceleration or otherwise), at a varying
rate per annum equal to the lesser of (i) the Maximum Rate (defined
herein), or (ii) the Base Rate. Subject to the provisions of this
Agreement as to prepayment, the principal of the Notes representing
Base Rate Loans shall be payable as specified in Section 3(e) hereof
and the interest in respect of each Base Rate Loan shall be payable on
each Interest Payment Date. Past due principal and, to the extent
permitted by law, past due interest in respect to each Base Rate Loan,
shall bear interest, payable on demand, at a rate per annum equal to
the Maximum Rate.
(ii) LIBOR Loans. On all LIBOR Loans the Borrowers agree to pay
-----------
interest calculated on the basis of a year consisting of 360 days with
respect to the unpaid principal amount of each LIBOR Loan from the
date the proceeds thereof are made available to Borrowers until
maturity (whether by acceleration or otherwise), at a varying rate per
annum equal to the lesser of (i) the Maximum Rate, or (ii) the LIBOR
Rate. Subject to the provisions of this Agreement with respect to
prepayment, the principal of the Notes shall be payable as specified
in Section 3(e) hereof and the interest with respect to each LIBOR
Loan shall be payable on each Interest Payment Date. Past due
principal and, to the extent permitted by law, past due interest shall
bear interest, payable on demand, at a rate per annum equal to the
Maximum Rate. Upon three (3) Business Days' written notice prior to
the making by the Lenders of any LIBOR Loan (in the case of the
initial Interest Period therefor) or the expiration date of each
succeeding Interest Period (in the case of subsequent Interest Periods
therefor), Borrowers shall have the option, subject to compliance by
Borrowers with all of the provisions of this Agreement, as long as no
Event of Default exists, to specify whether the Interest Period
commencing on any such date shall be a one (1), three (3) or six (6)
month period. If Agent shall not have received timely notice of a
designation of such Interest Period as herein provided, Borrowers
shall be
-19-
deemed to have elected to convert all maturing LIBOR Loans to Base
Rate Loans.
(b) Interest Rate Determination. The Agent shall determine each
---------------------------
interest rate applicable to the Loans hereunder. The Agent shall give
prompt notice to the Borrowers and the Lenders of each rate of interest so
determined and its determination thereof shall be conclusive absent error.
(c) Conversion Option. Borrowers may elect from time to time (i) to
-----------------
convert all or any part of their LIBOR Loans to Base Rate Loans by giving
Agent irrevocable notice of such election in writing prior to 10:00 a.m.
(Dallas, Texas time) on the conversion date and such conversion shall be
made on the requested conversion date, provided that any such conversion of
LIBOR Loan shall only be made on the last day of the Interest Period with
respect thereof, (ii) to convert all or any part of their Base Rate Loans
to LIBOR Loans by giving the Agent irrevocable written notice of such
election three (3) Business Days prior to the proposed conversion and such
conversion shall be made on the requested conversion date or, if such
requested conversion date is not a Business Day, on the next succeeding
Business Day. Any such conversion shall not be deemed to be a prepayment
of any of the loans for purposes of this Agreement on the Notes.
(d) Recoupment. If at any time the applicable rate of interest
----------
selected pursuant to Sections 4(a)(i) or 4(a)(ii) above shall exceed the
Maximum Rate, thereby causing the interest on the Notes to be limited to
the Maximum Rate, then any subsequent reduction in the interest rate so
selected or subsequently selected shall not reduce the rate of interest on
the Notes below the Maximum Rate until the total amount of interest accrued
on the Note equals the amount of interest which would have accrued on the
Notes if the rate or rates selected pursuant to Sections 4(a)(i) or (ii),
as the case may be, had at all times been in effect.
5. Special Provisions Relating to Loans.
(a) Unavailability of Funds or Inadequacy of Pricing. In the event
------------------------------------------------
that, in connection with any proposed LIBOR Loan, the Agent reasonably
determines, which determination shall, absent manifest error, be final,
conclusive and binding upon all parties, due to changes in circumstances
since the date hereof, adequate and fair means do not exist for determining
the LIBOR Rate or such rate will not accurately reflect the costs to the
Lenders of funding LIBOR Loan for such Interest Period, the Agent shall
give notice of such determination to the Borrowers and the Lenders,
whereupon, until the Agent notifies the Borrowers and the Lenders that the
circumstances giving rise to such suspension no longer exist, the
obligations of the Lenders to make, continue or convert Loan into LIBOR
Loan shall be suspended, and all loans to Borrowers shall be Base Rate Loan
during the period of suspension.
-20-
(b) Change in Laws. If at any time any new law or any change in
--------------
existing laws or in the interpretation of any new or existing laws shall
make it unlawful for any Lender to make or continue to maintain or fund
LIBOR Loan hereunder, then such Lender shall promptly notify Borrowers in
writing and such Lender's obligation to make, continue or convert Loan into
LIBOR Loan under this Agreement shall be suspended until it is no longer
unlawful for such Lender to make or maintain LIBOR Loan. Upon receipt of
such notice, Borrowers shall either repay the outstanding LIBOR Loan owed
to the Lenders, without penalty, on the last day of the current Interest
Periods (or, if any Lender may not lawfully continue to maintain and fund
such LIBOR Loan, immediately), or Borrowers may convert such LIBOR Loan at
such appropriate time to Base Rate Loan.
(c) Increased Cost or Reduced Return.
--------------------------------
(i) If, after the date hereof, the adoption of any applicable
law, rule, or regulation, or any change in any applicable law, rule,
or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank, or comparable
agency charged with the interpretation or administration thereof, or
compliance by any Lender with any request or directive (whether or not
having the force of law) of any such governmental authority, central
bank, or comparable agency:
(A) shall subject such Lender to any tax, duty, or other
charge with respect to any LIBOR Loan, its Notes, or its
obligation to make LIBOR Loan, or change the basis of taxation of
any amounts payable to such Lender under this Agreement or its
Notes in respect of any LIBOR Loan (other than franchise taxes
and taxes imposed on the overall net income of such Lender);
(B) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than
reserve requirements, if any, taken into account in the
determination of the LIBOR Rate) relating to any extensions of
credit or other assets of, or any deposits with or other
liabilities or commitments of, such Lender, including the
Commitment of such Lender hereunder; or
(C) shall impose on such Lender or on the London interbank
market any other condition affecting this Agreement or its Notes
or any of such extensions of credit or liabilities or
commitments;
and the result of any of the foregoing is to increase the cost to such
Lender of making, converting into, continuing, or maintaining any
LIBOR Loan or to reduce any sum received or receivable by such Lender
under this Agreement or its Notes
-21-
with respect to any LIBOR Loan, then Borrowers shall pay to such
Lender on demand such amount or amounts as will reasonably compensate
such Lender for such increased cost or reduction. If any Lender
requests compensation by Borrowers under this Section 5(c), Borrowers
may, by notice to such Lender (with a copy to Agent), suspend the
obligation of such Lender to make or continue LIBOR Loan, or to
convert all or part of the Base Rate Loan owing to such Lender to
LIBOR Loan, until the event or condition giving rise to such request
ceases to be in effect (in which case the provisions of Section 5(c)
shall be applicable); provided that such suspension shall not affect
--------
the right of such Lender to receive the compensation so requested.
(ii) If, after the date hereof, any Lender shall have determined
that the adoption of any applicable law, rule, or regulation regarding
capital adequacy or any change therein or in the interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such governmental
authority, central bank, or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of such
Lender's obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change,
request, or directive (taking into consideration its policies with
respect to capital adequacy), then from time to time upon demand
Borrowers shall pay to such Lender such additional amount or amounts
as will reasonably compensate such Lender for such reduction.
(iii) Each Lender shall promptly notify Borrowers and Agent of
any event of which it has knowledge, occurring after the date hereof,
which will entitle such Lender to compensation pursuant to this
Section 5(c) and will designate a separate lending office, if
applicable, if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the judgment of such
Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section 5(c) shall furnish to Borrowers and
Agent a statement setting forth the additional amount or amounts to be
paid to it hereunder which shall be conclusive in the absence of
manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods.
(iv) Any Lender giving notice to the Borrowers through the
Agent, pursuant to Sections 3(k) or 5(c) shall give to the Borrowers a
statement signed by an officer of such Lender setting forth in
reasonable detail the basis for, and the calculation of such
additional cost, reduced payments or capital requirements, as the
-22-
case may be, and the additional amounts required to compensate such
Lender therefor.
(v) Within five (5) Business Days after receipt by the Borrowers
of any notice referred to in Sections 3(k) or 5(c), the Borrowers
shall pay to the Agent for the account of the Lender issuing such
notice such additional amounts as are required to compensate such
Lender for the increased cost, reduce payments or increase capital
requirements identified therein, as the case may be.
(d) Discretion of Lender as to Manner of Funding. Notwithstanding
--------------------------------------------
any provisions of this Agreement to the contrary, each Lender shall be
entitled to fund and maintain its funding of all or any part of its Loan in
any manner it sees fit, it being understood, however, that for the purposes
of this Agreement all determinations hereunder shall be made as if each
Lender had actually funded and maintained each LIBOR Loan through the
purchase of deposits having a maturity corresponding to the last day of the
Interest Period applicable to such LIBOR Loan and bearing an interest rate
to the applicable interest rate for such LIBOR Period.
(e) Breakage Fees. Without duplication under any other provision
-------------
hereof, if any Lender incurs any loss, cost or expense including, without
limitation, any loss of profit and loss, cost, expense or premium
reasonably incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by such Lender to fund or maintain any
LIBOR Loan or the relending or reinvesting of such deposits or amounts paid
or prepaid to the Lenders as a result of any of the following events other
than any such occurrence as a result in the change of circumstances
described in Sections 5(a) and (b):
(i) any payment, prepayment or conversion of a LIBOR Loan on a
date other than the last day of its Interest Period (whether by
acceleration, prepayment or otherwise);
(ii) any failure to make a principal payment of a LIBOR Loan on
the due date thereof; or
(iii) any failure by the Borrowers to borrow, continue, prepay
or convert to a LIBOR Loan on the dates specified in a notice given
pursuant to Section 2(b) or 4(c) hereof;
then the Borrowers shall pay to such Lender such amount as will reimburse
such Lender for such loss, cost or expense. If any Lender makes such a
claim for compensation, it shall furnish to Borrowers and Agent a statement
setting forth the amount of such loss, cost or expense in reasonable detail
(including an explanation of the basis for and the computation
-23-
of such loss, cost or expense) and the amounts shown on such statement
shall be conclusive and binding absent manifest error.
6. Collateral Security. To secure the performance by Borrowers of their
obligations hereunder, and under the Notes and Security Instruments, whether now
or hereafter incurred, matured or unmatured, direct or contingent, joint or
several, or joint and several, including extensions, modifications, renewals and
increases thereof, and substitutions therefore, Borrowers have heretofore
granted and shall herewith grant and assign to Agent for the ratable benefit of
the Lenders a first and prior Lien on certain of their Oil and Gas Properties,
certain related equipment, oil and gas inventory and proceeds of the foregoing.
The Oil and Gas Properties heretofore and herewith mortgaged to the Agent shall
represent not less than 80% of the Engineered Value (as hereinafter defined) of
Borrowers' Oil and Gas Properties as of the Effective Date. Obligations arising
from agreements arising from Rate Management Transactions between Borrowers and
one or more of the Lenders or an Affiliate of any of the Lenders providing for
the hedging, forward sale or swap of crude oil or natural gas or interest rate
protection shall be secured by the Collateral (as hereinafter defined) on a pari
passu basis with the indebtedness and obligations of the Borrowers under the
Loan Documents. All Oil and Gas Properties and other collateral in which
Borrowers herewith grant or hereafter grant to Agent for the ratable benefit of
the Lenders a first and prior Lien (to the satisfaction of the Agent) in
accordance with this Section 6 or the Oil and Gas Properties and other
collateral in which the Agent has acquired an interest for the ratable benefit
of the Lenders from Compass Bank, as such properties and interests are from time
to time constituted, are hereinafter collectively called the "Collateral".
The granting and assigning of such security interests and Liens by
Borrowers shall be pursuant to Security Instruments in form and substance
reasonably satisfactory to the Agent. Concurrently with the delivery of each of
the Security Instruments or within a reasonable time thereafter, Borrowers shall
have furnished to the Agent mortgage and title opinions and other title
information satisfactory to Agent with respect to the title and Lien status of
Borrowers' interests in not less than 90% of the Engineered Value of the Oil and
Gas Properties covered by the Security Instruments as Agent shall have
designated. "Engineered Value" for this purpose shall mean future net revenues
discounted at the discount rate being used by the Agent as of the date of any
such determination utilizing the pricing parameters used in the engineering
report furnished to the Agent for the ratable benefit of the Lenders, pursuant
to Sections 7 and 12 hereof. Borrowers will cause to be executed and delivered
to the Agent, in the future, additional Security Instruments if the Agent
reasonably deems such are necessary to insure perfection or maintenance of
Lenders' security interests and Liens in the Oil and Gas Properties or any part
thereof.
7. Borrowing Base.
(a) Initial Borrowing Base. At the Effective Date, the Borrowing Base
----------------------
shall be $145,000,000.
-24-
(b) Subsequent Determinations of Borrowing Base. Subsequent
-------------------------------------------
determinations of the Borrowing Base shall be made by the Lenders at least
semi-annually on May 1 and November 1 of each year beginning November 1,
2000 or as Unscheduled Redeterminations. The Borrowers shall furnish to
the Lenders as soon as possible but in any event no later than April 1 of
each year, beginning April 1, 2001, with an Engineering Report in form and
substance satisfactory to the Agent prepared by an independent petroleum
engineering firm or firms acceptable to Agent covering the Oil and Gas
Properties utilizing economic and pricing parameters used by Agent as
established from time to time, together with such other information
concerning the value of the Oil and Gas Properties as the Agent shall deem
necessary to determine the value of the Oil and Gas Properties. By October
1 of each year, beginning October 1, 2000, or within thirty (30) days after
either (i) receipt of notice from Agent that the Lenders require an
Unscheduled Redetermination, or (ii) the Borrowers give notice to Agent of
their desire to have an Unscheduled Redetermination performed, the
Borrowers shall furnish to the Lenders an engineering report in form and
substance satisfactory to Agent prepared by Borrowers' in-house engineering
staff valuing the Oil and Gas Properties utilizing economic and pricing
parameters used by the Agent as established from time to time, together
with such other information, reports and data concerning the value of the
Oil and Gas Properties as Agent shall deem reasonably necessary to
determine the value of such Oil and Gas Properties. Agent shall by written
notice to the Borrowers no later than May 1 and November 1 of each year, or
within a reasonable time thereafter (herein called the "Determination
Date"), notify the Borrowers of the designation by the Lenders of the new
Borrowing Base for the period beginning on such Determination Date and
continuing until, but not including, the next Determination Date. If an
Unscheduled Redetermination is made by the Lenders, the Agent shall notify
the Borrowers within a reasonable time after receipt of all requested
information of the new Borrowing Base, and such new Borrowing Base shall
continue until the next Determination Date. If the Borrowers do not
furnish all such information, reports and data by any date specified in
this Section 7(b), unless such failure is of no fault of the Borrowers, the
Lenders may nonetheless designate the Borrowing Base at any amounts which
the Lenders in their reasonable discretion determine and may redesignate
the Borrowing Base from time to time thereafter until the Lenders receive
all such information, reports and data, whereupon the Lenders shall
designate a new Borrowing Base as described above. Each Lender shall
determine the amount of the Borrowing Base based upon the loan collateral
value which such Lender in its reasonable discretion (using such
methodology, assumptions and discounts rates as such Lender customarily
uses in assigning collateral value to oil and gas properties, oil and gas
gathering systems, gas processing and plant operations) assigns to such Oil
and Gas Properties of the Borrowers at the time in question and based upon
such other credit factors consistently applied (including, without
limitation, the assets, liabilities, cash flow, business, properties,
prospects, management and ownership of the Borrowers and their affiliates)
as such Lender customarily considers in evaluating similar oil and gas
credits, but such Lender in its discretion shall not be required to give
any additional positive value to any Oil and Gas
-25-
Property over the current economic and pricing parameters used by such
Lender for such Determination Date which additional value is derived
directly from a hedging, forward sale or swap agreement covering such Oil
and Gas Property as of the date of such determination. All determinations
or Unscheduled Redeterminations of the Borrowing Base require the approval
of Majority Lenders; provided, however, that notwithstanding anything to
the contrary herein, the amount of the Borrowing Base may not be increased,
without the approval of all Lenders. If the Lenders cannot otherwise agree
on the Borrowing Base, the Agent shall notify each of the Lenders of such
fact or facts and each Lender will submit within five (5) days thereafter
its proposed Borrowing Base. The redetermined Borrowing Base shall be then
determined based upon the weighted arithmetic average of the proposed
amounts submitted by each Lender, said proposals to be weighted according
to each Lender's Commitment. If at any time any of the Oil and Gas
Properties are sold, the Borrowing Base then in effect shall automatically
be reduced by a sum equal to the amount of prepayment, if any, required to
be made pursuant to Section 12(r) hereof. The Borrowing Base shall be
additionally reduced from time to time pursuant to the provisions of
Sections 2(e) and 2(f) hereof. It is expressly understood that the Lenders
have no obligation to designate the Borrowing Base at any particular
amounts, except in the exercise of their discretion, whether in relation to
the Commitment or otherwise. Provided, however, that the Lenders shall not
have the obligation to designate a Borrowing Base in an amount in excess of
the Commitment.
8. Fees.
(a) Unused Commitment Fee. The Borrowers shall pay to Agent for the
---------------------
ratable benefit of the Lenders an unused commitment fee (the "Unused
Commitment Fee") equivalent to the Unused Commitment Fee Rate times the
daily average of the unadvanced amount of the Commitment. Such Unused
Commitment Fee shall be calculated on the basis of a year consisting of 360
days. The Unused Commitment Fee shall be payable in arrears on the last
Business Day of each calendar quarter beginning June 30, 2000 with the
final fee payment due on the Maturity Date for any period then ending for
which the Unused Commitment Fee shall not have been theretofore paid. In
the event the Commitment terminates on any date prior to the end of any
such monthly period, the Borrowers shall pay to the Agent for the ratable
benefit of the Lenders, on the date of such termination, the total Unused
Commitment Fee due for the period in which such termination occurs.
(b) The Letter of Credit Fee. Borrowers shall pay to the Agent the
------------------------
Letter of Credit fees required above in Section 2(d).
-26-
9. Prepayments.
(a) Voluntary Prepayments. Subject to the provisions of Section 5(e)
---------------------
hereof, the Borrowers may at any time and from time to time, without
penalty or premium, prepay the Notes, in whole or in part. Each such
prepayment shall be made on at least three (3) Business Days' notice to
Agent in the case of LIBOR Loan Tranches and without notice in the case of
Base Rate Loans and shall be in a minimum amount of (i) $500,000 or any
whole multiple of $100,000 in excess thereof (or the unpaid balance of the
Notes, whichever is less), for Base Rate Loans, plus accrued interest
thereon and (ii) $1,000,000 or any whole multiple of $100,000 in excess
thereof (or the unpaid balance on the Notes, whichever is less) for LIBOR
Loans, plus accrued interest thereon to the date of prepayment.
(b) Mandatory Prepayment For Borrowing Base Deficiency. In the event
--------------------------------------------------
the Total Outstandings ever exceed the Borrowing Base as determined by
Lenders pursuant to Section 7(b) hereof, the Borrowers shall, within thirty
(30) days after written notification from the Agent, either (A) by
instruments reasonably satisfactory in form and substance to the Lender,
provide the Agent with collateral with value and quality in amounts
satisfactory to all of the Lenders in their discretion in order to increase
the Borrowing Base by an amount at least equal to such excess, or (B)
prepay, without premium or penalty, the principal amount of the Notes in an
amount at least equal to such excess plus accrued interest thereon to the
date of prepayment, or (C) prepay, without premium or penalty, the
principal amount of such excess in five (5) equal monthly installments to
be applied to principal plus accrued interest thereon with the first such
monthly payment being due upon the 30th day after receipt of notice of
such deficiency. If the Total Outstandings ever exceed the Commitment as a
result of any required reduction in the Commitment, then in such event,
Borrowers shall, upon written notice, immediately prepay the principal
amount of the Notes in an amount at least equal to such excess plus accrued
interest to the date of prepayment.
(c) Special Mandatory Prepayment. In addition to any mandatory
----------------------------
prepayment required pursuant to Section 9(b) above, on or before December
31, 2000, Borrowers shall make a mandatory prepayment (the "Special
Mandatory Prepayment") in an amount sufficient to reduce the Total
Outstandings to the greater of $125,000,000 or (ii) the amount of Borrowing
Base as redetermined on November 1, 2000. Provided, however, that if the
Borrowing Base as of November 1, 2000 is less than $125,000,000, the
provisions of Section 9(b) above shall apply. Such Special Mandatory
Prepayment may be made by the Borrowers in one or more prepayments but the
full amount must be paid by December 31, 2000. Any proceeds received by
the Borrowers from the sale of any equity securities must be applied upon
receipt by the Borrowers to the Special Mandatory Prepayment.
-27-
10. Representations and Warranties. In order to induce the Lenders to
enter into this Agreement, the Borrowers represent and warrant to the Lenders
(which representations and warranties will survive the delivery of the Notes)
that:
(a) Creation and Existence. Each Borrower is a corporation or
----------------------
limited liability company duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it was formed and is
duly qualified in all jurisdictions wherein failure to qualify may result
in a Material Adverse Effect. Each Borrower has all power and authority to
own its properties and assets and to transact the business in which it is
engaged.
(b) Power and Authority. Each Borrower is duly authorized and
-------------------
empowered to create and issue the Notes; and is duly authorized and
empowered to execute, deliver and perform the Loan Documents, including
this Agreement; and all corporate and limited liability company action on
each Borrower's part requisite for the due creation and issuance of the
Notes and for the due execution, delivery and performance of the Loan
Documents, including this Agreement, has been duly and effectively taken.
(c) Binding Obligations. This Agreement does, and the Notes and
-------------------
other Loan Documents upon their creation, issuance, execution and delivery
will, constitute valid and binding obligations of each Borrower,
enforceable in accordance with its respective terms (except that
enforcement may be subject to any applicable bankruptcy, insolvency, or
similar debtor relief laws now or hereafter in effect and relating to or
affecting the enforcement of creditors' rights generally).
(d) No Legal Bar or Resultant Lien. The Notes and the Loan
------------------------------
Documents, including this Agreement, do not and will not, to the best of
each Borrower's knowledge violate any provisions of any contract,
agreement, law, regulation, order, injunction, judgment, decree or writ to
which any Borrower is subject, or result in the creation or imposition of
any lien or other encumbrance upon any assets or properties of any
Borrower, other than those contemplated by this Agreement.
(e) No Consent. The execution, delivery and performance by each
----------
Borrower of the Notes and the Loan Documents, including this Agreement,
does not require the consent or approval of any other person or entity,
including without limitation any regulatory authority or governmental body
of the United States or any state thereof or any political subdivision of
the United States or any state thereof except for consents required for
federal, state and, in some instances, private leases, right of ways and
other conveyances or encumbrances of oil and gas leases.
(f) Financial Condition. The unaudited consolidated Financial
-------------------
Statements of 3TEC dated December 31, 1999, which have been delivered to
Lenders are complete and
-28-
correct in all material respects, and fully and accurately reflect in all
material respects the financial condition and results of the operations of
the Borrowers on a consolidated basis as of the date or dates and for the
period or periods stated subject to normal year-end adjustments and
provided that such Financial Statements do not contain footnotes. No
change has since occurred in the condition, financial or otherwise, of any
Borrower which is reasonably expected to have a Material Adverse Effect,
except as disclosed to the Lenders in Schedule "2" attached hereto.
(g) Liabilities. No Borrower has any material liability, direct or
-----------
contingent, except as disclosed to the Lenders in the Financial Statements
and on Schedule "3" attached hereto. No unusual or unduly burdensome
restrictions, restraint, or hazard exists by contract, law or governmental
regulation or otherwise relative to the business, assets or properties of
any Borrower which is reasonably expected to have a Material Adverse
Effect.
(h) Litigation. Except as described in the Financial Statements, or
----------
as otherwise disclosed to the Lenders in Schedule "4" attached hereto,
there is no litigation, legal or administrative proceeding, investigation
or other action of any nature pending or, to the knowledge of the officers
of any of the Borrowers threatened against or affecting any of the
Borrowers which involves the possibility of any judgment or liability not
fully covered by insurance, and which is reasonably expected to have a
Material Adverse Effect.
(i) Taxes; Governmental Charges. Each Borrower has filed all tax
---------------------------
returns and reports required to be filed and has paid all taxes,
assessments, fees and other governmental charges levied upon it or its
assets, properties or income which are due and payable, including interest
and penalties, the failure of which to pay could reasonably be expected to
have a Material Adverse Effect, except such as are being contested in good
faith by appropriate proceedings and for which adequate reserves for the
payment thereof as required by GAAP has been provided and levy and
execution thereon have been stayed and continue to be stayed.
(j) Titles, Etc. Each Borrower has good and defensible title to all
------------
of its assets, including without limitation, the Oil and Gas Properties,
free and clear of all liens or other encumbrances except Permitted Liens.
(k) Defaults. No Borrower is in default and no event or circumstance
--------
has occurred which, but for the passage of time or the giving of notice, or
both, would constitute a default under any loan or credit agreement,
indenture, mortgage, deed of trust, security agreement or other agreement
or instrument to which any Borrower is a party in any respect that would be
reasonably expected to have a Material Adverse Effect. No Event of Default
hereunder has occurred and is continuing.
-29-
(l) Casualties; Taking of Properties. Since the dates of the latest
--------------------------------
Financial Statements of the Borrowers delivered to Lenders, neither the
business nor the assets or properties of any Borrower has been affected (to
the extent it is reasonably likely to cause a Material Adverse Effect), 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
domestic or foreign government or any agency thereof, riot, activities of
armed forces or acts of God or of any public enemy.
(m) Use of Proceeds; Margin Stock. The proceeds of the Commitment
-----------------------------
may be used by the Borrowers for the purposes of (i) refinance existing
indebtedness, (ii) acquisition and development of oil and gas properties,
(iii) Letters of Credit, (iv) working capital and (v) general corporate
purposes including redemption of the Series C Stock made in compliance with
the requirements of Section 13(f) hereof. None of the Borrowers are
engaged principally or as one of their important activities in the business
of extending credit for the purpose of purchasing or carrying any "margin
stock " as defined in Regulation U of the Board of Governors of the Federal
Reserve System (12 C.F.R. Part 221), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or
carry a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of said Regulation U.
No Borrower nor any person or entity acting on behalf of the Borrowers
has taken or will take any action which might cause the loans hereunder or
any of the Loan Documents, including this Agreement, to violate Regulation
U or any other regulation of the Board of Governors of the Federal Reserve
System or to violate the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereafter be in effect.
(n) Location of Business and Offices. The principal place of
--------------------------------
business and chief executive offices of the each Borrower is located at the
address stated in Section 17 hereof.
(o) Compliance with the Law. To the best of each Borrower's
-----------------------
knowledge, no Borrower:
(i) is in violation of any law, judgment, decree, order,
ordinance, or governmental rule or regulation to which Borrower, or
any of its assets or properties are subject; or
(ii) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of its
assets or properties or the conduct of its business;
-30-
which violation or failure is reasonably expected to have a Material
Adverse Effect.
(p) No Material Misstatements. No information, exhibit or report
-------------------------
furnished by any Borrower to the Lenders in connection with the negotiation
of this Agreement or in the preparation of the offering memo contained any
material misstatement of fact or omitted to state a material fact or any
fact necessary to make the statement contained therein not materially
misleading.
(q) Not A Utility. No Borrower is an entity engaged in the State of
-------------
Texas in the (i) generation, transmission, or distribution and sale of
electric power; (ii) transportation, distribution and sale through a local
distribution system of natural or other gas for domestic, commercial,
industrial, or other use; (iii) provision of telephone or telegraph service
to others; (iv) production, transmission, or distribution and sale of steam
or water; (v) operation of a railroad; or (vii) provision of sewer service
to others.
(r) ERISA. Each Borrower is in compliance in all material respects
-----
with the applicable provisions of ERISA, and no "reportable event", as such
term is defined in Section 403 of ERISA, has occurred with respect to any
Plan of any Borrower.
(s) Public Utility Holding Company Act. No Borrower is a "holding
----------------------------------
company", or "subsidiary company" of a "holding company", or an "affiliate"
of a "holding company" or of a"subsidiary company" of a "holding company",
or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(t) Subsidiaries. Each of the Borrower's Subsidiaries are listed on
------------
Schedule "5" hereto.
(u) Environmental Matters. Except as disclosed on Schedule "6", no
---------------------
Borrower (i) has received notice or otherwise learned of any Environmental
Liability which would be reasonably likely to individually or in the
aggregate have a Material Adverse Effect arising in connection with (A) any
non-compliance with or violation of the requirements of any Environmental
Law or (B) the release or threatened release of any toxic or hazardous
waste into the environment, (ii) has received notice of any threatened or
actual liability in connection with the release or notice of any threatened
release of any toxic or hazardous waste into the environment which would be
reasonably likely to individually or in the aggregate have a Material
Adverse Effect or (iii) has received notice or otherwise learned of any
federal or state investigation evaluating whether any remedial action is
needed to respond to a release or threatened release of any toxic or
hazardous waste into the environment for which any Borrower is or may be
liable which may reasonably be expected to result in a Material Adverse
Effect.
-31-
(v) Liens.Except (i) as disclosed on Schedule "1" hereto and (ii)
-----
for Permitted Liens, the assets and properties of the each Borrower are
free and clear of all liens and encumbrances.
11. Conditions of Lending.
(a) The effectiveness of this Agreement, and the obligation to make
the initial Advance or issue any initial Letter of Credit under the
Commitment shall be subject to satisfaction of the following conditions
precedent:
(i) Execution and Delivery. Each Borrower shall have executed
----------------------
and delivered the Agreement, the Notes and other required Loan
Documents, all in form and substance satisfactory to the Agent;
(ii) Legal Opinion. The Agent shall have received from
-------------
Borrowers' legal counsel a favorable legal opinion in form and
substance satisfactory to it (i) as to the matters set forth in
Subsections 10(a), (b), (c), (d), (e) and (h) hereof, (ii) the
enforceability of the Private Shelf Equity Agreement and (iii) as to
such other matters as Agent or its counsel may reasonably request;
provided that the opinion as to 10(e) and 10(h) may be limited to
knowledge;
(iii) Corporate Resolutions. The Agent shall have received
---------------------
appropriate certified corporate resolutions of each Borrower;
(iv) Good Standing. The Agent shall have received evidence of
-------------
existence and good standing for each Borrower;
(v) Incumbency. The Agent shall have received a signed
----------
certificate of each Borrower, certifying the names of the officers of
each Borrower authorized to sign loan documents on behalf of each
Borrower, together with the true signatures of each such officer. The
Agent may conclusively rely on such certificate until the Agent
receives a further certificate of any Borrower canceling or amending
the prior certificate and submitting signatures of the officers named
in such further certificate;
(vi) Articles of Incorporation and Bylaws. The Agent shall have
------------------------------------
received copies of the Articles of Incorporation of each Borrower and
all amendments thereto, certified by the Secretary of State of the
State of its incorporation, and a copy of the bylaws of each Borrower
and all amendments thereto, certified by each Borrower as being true,
correct and complete;
-32-
(vii) Closing of CW Resources Acquisition. The Agent shall have
-----------------------------------
received satisfactory evidence that the CW Resources Acquisition will
close concurrently with the initial funding hereunder;
(viii) Execution of Private Equity Shelf Agreements. The Agent
--------------------------------------------
shall have received satisfactory evidence of the execution and
enforceability of the Private Equity Shelf Agreements, said agreements
to be in form and substance satisfactory to Agent and shall provide,
among other things, that EnCap Investments L.L.C. and/or its
affiliates executing such agreements shall be obligated, upon not less
than ten (10) days prior notice, to acquire the Exchangeable Preferred
Stock for cash;
(ix) Authorizations and Approvals. [Intentionally Deleted].
----------------------------
(x) Representation and Warranties. The representations and
-----------------------------
warranties of Borrowers under this Agreement are true and correct in
all material respects as of such date, as if then made (except to the
extent that such representations and warranties related solely to an
earlier date);
(xi) No Event of Default. No Event of Default shall have
-------------------
occurred and be continuing nor shall any event have occurred or failed
to occur which, with the passage of time or service of notice, or
both, would constitute an Event of Default;
(xii) Other Documents. Agent shall have received such other
---------------
instruments and documents incidental and appropriate to the
transaction provided for herein as Agent or its counsel may reasonably
request, and all such documents shall be in form and substance
reasonably satisfactory to the Agent; and
(xiii) Legal Matters Satisfactory. All legal matters incident to
--------------------------
the consummation of the transactions contemplated hereby shall be
reasonably satisfactory to special counsel for Agent retained at the
expense of the Borrowers.
(b) The obligation of the Lenders to make any Advance or issue any
Letter of Credit under the Commitment (including the initial Advance) shall
be subject to the following additional conditions precedent that, at the
date of making each such Advance and after giving effect thereto:
(i) Representation and Warranties. The representations and
-----------------------------
warranties of Borrowers under this Agreement are true and correct in
all material respects as of such date, as if then made (except to the
extent that such representations and warranties related solely to an
earlier date);
-33-
(ii) No Event of Default. No Event of Default shall have
-------------------
occurred and be continuing nor shall any event have occurred or failed
to occur which, with the passage of time or service of notice, or
both, would constitute an Event of Default;
(iii) Other Documents. Agent shall have received such other
---------------
instruments and documents incidental and appropriate to the
transaction provided for herein as Agent or its counsel may reasonably
request, and all such documents shall be in form and substance
reasonably satisfactory to the Agent; and
(iv) Legal Matters Satisfactory. All legal matters incident to
--------------------------
the consummation of the transactions contemplated hereby shall be
reasonably satisfactory to special counsel for Agent retained at the
expense of Borrowers.
12. Affirmative Covenants. A deviation from the provisions of this
Section 12 shall not constitute an Event of Default under this Agreement if such
deviation is consented to in writing by Majority Lenders prior to the date of
deviation. The Borrowers will at all times comply with the covenants contained
in this Section 12 from the date hereof and for so long as the Commitments are
in existence or any amount is owed to the Agent or the Lenders under this
Agreement or the other Loan Documents.
(a) Financial Statements and Reports. Each Borrower shall promptly
--------------------------------
furnish to the Agent from time to time upon request such information
regarding the business and affairs and financial condition of each
Borrower, as the Agent may reasonably request, and will furnish to the
Agent:
(i) Annual Audited Financial Statements. As soon as available,
-----------------------------------
and in any event within ninety (90) days after the close of each
fiscal year beginning with the fiscal year ended December 31, 2000,
the annual audited consolidated Financial Statements of Borrowers,
prepared in accordance with GAAP accompanied by an unqualified opinion
rendered by an independent accounting firm reasonably acceptable to
the Agent;
(ii) Annual Unaudited Financial Statements. Contemporaneously
-------------------------------------
with the delivery of the annual audited Financial Statements required
above in Section 12(a)(i), the annual unaudited consolidating
Financial Statements of Borrowers prepared in accordance with GAAP;
(iii) Quarterly Financial Statements. As soon as available, and
------------------------------
in any event within forty-five (45) days after the end of each fiscal
quarter of each year beginning with the fiscal quarter ended March
31, 2000, the quarterly unaudited,
-34-
consolidated and consolidating Financial Statements of the Borrowers
prepared in accordance with GAAP;
(iv) Report on Properties. As soon as available and in any event
--------------------
on or before April 1 and October 1 of each calendar year, and at such
other times as any Lender, in accordance with Section 7 hereof, may
request, the engineering reports required to be furnished to the Agent
under such Section 7 on the Oil and Gas Properties;
(v) SEC Reports. As soon as available, and in any event within
-----------
five (5) days of filing, copies of all filings by each Borrower with
the Securities and Exchange Commission;
(vi) Hedging Reports. As soon as available, and in any event
---------------
within thirty (30) days after the end of each fiscal quarter, a report
of all existing Rate Management Transactions , said report to be in
form and substance satisfactory to Agent;
(vii) Additional Information. Promptly upon request of the Agent
----------------------
from time to time any additional financial information or other
information that the Agent may reasonably request.
All such reports, information, balance sheets and Financial Statements
referred to in Subsection 12(a) above shall be in such detail as the Agent
may reasonably request and shall be prepared in a manner consistent with
the Financial Statements.
(b) Certificates of Compliance. Concurrently with the furnishing of
--------------------------
the annual audited Financial Statements pursuant to Subsection 12(a)(i)
hereof and the quarterly unaudited Financial Statements pursuant to
Subsection 12(a)(ii) hereof for the months coinciding with the end of each
calendar quarter, each Borrower will furnish or cause to be furnished to
the Agent a certificate in the form of Exhibit "C" attached hereto, signed
by the President or Chief Financial Officer of each Borrower, (i) stating
that each Borrower has fulfilled in all material respects its obligations
under the Notes and the Loan Documents, including this Agreement, and that
all representations and warranties made herein and therein continue (except
to the extent they relate solely to an earlier date) to be true and correct
in all material respects (or specifying the nature of any change), or if a
Default has occurred, specifying the Default and the nature and status
thereof; (ii) to the extent requested from time to time by the Agent,
specifically affirming compliance of each Borrower in all material respects
with any of its representations (except to the extent they relate solely to
an earlier date) or obligations under said instruments; (iii) setting forth
the computation, in reasonable detail as of the end of each period covered
by such certificate, of compliance with
-35-
Sections 13(b) and (c); and (iv) containing or accompanied by such
financial or other details, information and material as the Agent may
reasonably request to evidence such compliance.
(c) Accountants' Certificate. Concurrently with the furnishing of
------------------------
the annual audited Financial Statement pursuant to Section 12(a)(i) hereof,
Borrowers will furnish a statement from the firm of independent public
accountants which prepared such Financial Statement to the effect that
nothing has come to their attention to cause them to believe that there
existed on the date of such statements any Event of Default and
specifically calculating Borrowers' compliance with Sections 13(b) and (c)
of this Agreement.
(d) Taxes and Other Liens. Each Borrower will pay and discharge
---------------------
promptly all taxes, assessments and governmental charges or levies imposed
upon each Borrower, or upon the income or any assets or property of any
Borrower, as well as all claims of any kind (including claims for labor,
materials, supplies and rent) which, if unpaid, might become a Lien or
other encumbrance upon any or all of the assets or property of any Borrower
and which could reasonably be expected to result in a Material Adverse
Effect; provided, however, that such Borrower shall not be required to pay
any such tax, assessment, charge, levy or claim if the amount,
applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings diligently conducted, levy and execution
thereon have been stayed and continue to be stayed and if such Borrower
shall have set up adequate reserves therefor, if required, under GAAP.
(e) Compliance with Laws. Each Borrower will observe and comply, in
--------------------
all material respects, with all applicable laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
orders and restrictions relating to environmental standards or controls or
to energy regulations of all federal, state, county, municipal and other
governments, departments, commissions, boards, agencies, courts,
authorities, officials and officers, domestic or foreign.
(f) Further Assurances. Borrowers will cure promptly any defects in
------------------
the creation and issuance of the Notes and the execution and delivery of
the Notes and the Loan Documents, including this Agreement. Borrowers at
their sole expense will promptly execute and deliver to Agent upon its
reasonable request all such other and further documents, agreements and
instruments in compliance with or accomplishment of the covenants and
agreements in this Agreement, or to correct any omissions in the Notes or
more fully to state the obligations set out herein.
(g) Performance of Obligations. Borrowers will pay the Notes and
--------------------------
other obligations incurred by them hereunder according to the reading,
tenor and effect thereof and hereof; and Borrowers will do and perform
every act and discharge all of the obligations
-36-
provided to be performed and discharged by the Borrowers under the Loan
Documents, including this Agreement, at the time or times and in the manner
specified.
(h) Insurance. The Borrowers now maintain and will continue to
---------
maintain insurance with financially sound and reputable insurers with
respect to their respective assets against such liabilities, fires,
casualties, risks and contingencies and in such types and amounts as is
customary in the case of persons engaged in the same or similar businesses
and similarly situated. Upon request of the Agent, the Borrowers will
furnish or cause to be furnished to the Agent from time to time a summary
of the respective insurance coverage of Borrowers in form and substance
satisfactory to the Agent, and, if requested, will furnish the Agent copies
of the applicable policies. Upon demand by Agent any insurance policies
covering any such property shall be endorsed (i) to provide that such
policies may not be canceled, reduced or affected in any manner for any
reason without fifteen (15) days prior notice to Agent, (ii) to provide for
insurance against fire, casualty and other hazards normally insured
against, in the amount of the full value (less a reasonable deductible not
to exceed amounts customary in the industry for similarly situated business
and properties) of the property insured, and (iii) to provide for such
other matters as the Agent may reasonably require. The Borrowers shall at
all times maintain adequate insurance with respect to all of their assets,
including but not limited to, the Oil and Gas Properties or any collateral
against their liability for injury to persons or property, which insurance
shall be by financially sound and reputable insurers and shall without
limitation provide the following coverages: comprehensive general
liability (including coverage for damage to underground resources and
equipment, damage caused by blowouts or cratering, damage caused by
explosion, damage to underground minerals or resources caused by saline
substances, broad form property damage coverage, broad form coverage for
contractually assumed liabilities and broad form coverage for acts of
independent contractors), worker's compensation and automobile liability.
The Borrowers shall at all times maintain cost of control of well insurance
with respect to the Oil and Gas Properties which shall insure the Borrowers
against seepage and pollution expense; redrilling expense; and cost of
control of well; fires, blowouts, etc., if deemed economical in the
reasonable discretion of the Borrowers. Additionally, the Borrowers shall
at all times maintain adequate insurance with respect to all of their other
assets and ▇▇▇▇▇ in accordance with prudent business practices.
(i) Accounts and Records. Each Borrower will keep books, records and
--------------------
accounts in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities,
prepared in a manner consistent with prior years, subject to changes
suggested by such Borrower's auditors.
(j) Right of Inspection. Each Borrower will permit any officer,
-------------------
employee or agent of the Lenders to examine such Borrower's books, records
and accounts, and take copies and extracts therefrom, all at such
reasonable times during normal business hours and
-37-
as often as the Lenders may reasonably request. The Lenders will use best
efforts to keep all Confidential Information (as herein defined)
confidential and will not disclose or reveal the Confidential Information
or any part thereof other than (i) as required by law, and (ii) to the
Lenders', and the Lenders' subsidiaries', Affiliates, officers, employees,
legal counsel and regulatory authorities or advisors to whom it is
necessary to reveal such information for the purpose of effectuating the
agreements and undertakings specified herein or as otherwise required in
connection with the enforcement of the Lenders' and the Agent's rights and
remedies under the Notes, this Agreement and the other Loan Documents. As
used herein, "Confidential Information" means information about the
Borrowers furnished by the Borrowers to the Lenders, but does not include
information (i) which was publicly known, or otherwise known to the
Lenders, at the time of the disclosure, (ii) which subsequently becomes
publicly known through no act or omission by the Lenders, or (iii) which
otherwise becomes known to the Lenders, other than through disclosure by
the Borrowers.
(k) Notice of Certain Events. The Borrowers shall promptly notify the
------------------------
Agent if Borrowers learn of the occurrence of (i) any event which
constitutes an Event of Default together with a detailed statement by
Borrowers of the steps being taken to cure such Event of Default; (ii) any
legal, judicial or regulatory proceedings affecting Borrowers or any of the
assets or properties of Borrowers which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect; (iii) any dispute
between Borrowers and any governmental or regulatory body or any other
Person or entity which, if adversely determined, might reasonably be
expected to cause a Material Adverse Effect; (iv) any other matter which in
Borrowers' reasonable opinion could have a Material Adverse Effect.
(l) ERISA Information and Compliance. The Borrowers will promptly
--------------------------------
furnish to the Agent immediately upon becoming aware of the occurrence of
any "reportable event", as such term is defined in Section 4043 of ERISA,
or of any "prohibited transaction", as such term is defined in Section 4975
of the Internal Revenue Code of 1954, as amended, in connection with any
Plan or any trust created thereunder, a written notice signed by the chief
financial officer of Borrowers specifying the nature thereof, what action
Borrowers are taking or proposes to take with respect thereto, and, when
known, any action taken by the Internal Revenue Service with respect
thereto.
(m) Environmental Reports and Notices. The Borrowers will deliver to
---------------------------------
the Agent (i) promptly upon its becoming available, one copy of each report
sent by any Borrower to any court, governmental agency or instrumentality
pursuant to any Environmental Law, (ii) notice, in writing, promptly upon
any Borrower's receipt of notice or otherwise learning of any claim,
demand, action, event, condition, report or investigation indicating any
potential or actual liability arising in connection with (x) the non-
compliance with or violation of the requirements of any Environmental Law
which reasonably could be expected to have a Material Adverse Effect; (y)
the release or threatened release of any toxic or
-38-
hazardous waste into the environment which reasonably could be expected to
have a Material Adverse Effect or which release any Borrower would have a
duty to report to any court or government agency or instrumentality, or
(iii) the existence of any Environmental Lien on any properties or assets
of any Borrower, and Borrowers shall immediately deliver a copy of any such
notice to Agent.
(n) Compliance and Maintenance. The Borrowers will (i) observe and
--------------------------
comply in all material respects with all Environmental Laws; (ii) except as
provided in Subsections 12(o) and 12(p) below, maintain the Oil and Gas
Properties and other assets and properties in good and workable condition
at all times and make all repairs, replacements, additions, betterments and
improvements to the Oil and Gas Properties and other assets and properties
as are needed and proper so that the business carried on in connection
therewith may be conducted properly and efficiently at all times in the
opinion of the Borrowers exercised in good faith; (iii) take or cause to be
taken whatever actions are necessary or desirable to prevent an event or
condition of default by Borrowers under the provisions of any gas purchase
or sales contract or any other contract, agreement or lease comprising a
part of the Oil and Gas Properties or other collateral security hereunder
which default could reasonably be expected to result in a Material Adverse
Effect; and (iv) furnish Agent upon request evidence satisfactory to Agent
that there are no Liens, claims or encumbrances on the Oil and Gas
Properties, except laborers', vendors', repairmen's, mechanics', worker's,
or materialmen's liens arising by operation of law or incident to the
construction or improvement of property if the obligations secured thereby
are not yet due or are being contested in good faith by appropriate legal
proceedings or Permitted Liens.
(o) Operation of Properties. Except as provided in Subsection 12(p)
-----------------------
and (q) below, the Borrowers will operate, or use reasonable efforts to
cause to be operated, all Oil and Gas Properties in a careful and efficient
manner in accordance with the practice of the industry and in compliance in
all material respects with all applicable laws, rules, and regulations, and
in compliance in all material respects with all applicable proration and
conservation laws of the jurisdiction in which the properties are situated,
and all applicable laws, rules, and regulations, of every other agency and
authority from time to time constituted to regulate the development and
operation of the properties and the production and sale of hydrocarbons and
other minerals therefrom; provided, however, that the Borrowers shall have
the right to contest in good faith by appropriate proceedings, the
applicability or lawfulness of any such law, rule or regulation and pending
such contest may defer compliance therewith, as long as such deferment
shall not subject the properties or any part thereof to foreclosure or
loss.
(p) Compliance with Leases and Other Instruments. The Borrowers will
--------------------------------------------
pay or cause to be paid and discharge all rentals, delay rentals,
royalties, production payment, and indebtedness required to be paid by
Borrowers (or required to keep unimpaired in all material
-39-
respects the rights of Borrowers in Oil and Gas Properties) accruing under,
and perform or cause to be performed in all material respects each and
every act, matter, or thing required of Borrowers by each and all of the
assignments, deeds, leases, subleases, contracts, and agreements in any way
relating to Borrowers or any of the Oil and Gas Properties and do all other
things necessary of Borrowers to keep unimpaired in all material respects
the rights of Borrowers thereunder and to prevent the forfeiture thereof or
default thereunder; provided, however, that nothing in this Agreement shall
be deemed to require Borrowers to perpetuate or renew any oil and gas lease
or other lease by payment of rental or delay rental or by commencement or
continuation of operations nor to prevent Borrowers from abandoning or
releasing any oil and gas lease or other lease or well thereon when, in any
of such events, in the opinion of Borrowers exercised in good faith, it is
not in the best interest of the Borrowers to perpetuate the same.
(q) Certain Additional Assurances Regarding Maintenance and
-------------------------------------------------------
Operations of Properties. With respect to those Oil and Gas Properties
------------------------
which are being operated by operators other than the Borrowers, the
Borrowers shall not be obligated to perform any undertakings contemplated
by the covenants and agreement contained in Subsections 12(o) or 12(p)
hereof which are performable only by such operators and are beyond the
control of the Borrowers; however, the Borrowers agree to promptly take all
reasonable actions available under any operating agreements or otherwise to
bring about the performance of any such material undertakings required to
be performed thereunder.
(r) Sale of Certain Assets/Prepayment of Proceeds. The Borrowers will
---------------------------------------------
immediately pay over to the Agent for the ratable benefit of the Lenders as
a prepayment of principal on the Notes and a reduction of the Commitments,
an amount equal to 100% of the Release Price from the proceeds of the sale
of the Oil and Gas Properties (other than sales permitted by Sections
13(a)(ii)(A) and (B) hereof), which sale has been approved in advance by
the Majority Lenders. The term "Release Price" as used herein shall mean a
price determined by the Majority Lenders in their discretion based upon the
loan collateral value of the Oil and Gas Properties being sold by Borrowers
which such Lenders in their discretion (using such methodology, assumptions
and discounts rates as such Lenders customarily use in assigning collateral
value to oil and gas properties, oil and gas gathering systems, gas
processing and plant operations) assign to such Oil and Gas Properties at
the time in question. Any such prepayment of principal on the Notes
required by this Section 12(r), shall not be in lieu of, but shall be in
addition to any mandatory prepayment of principal required to be paid
pursuant to Sections 9(b) and 9(c) hereof.
(s) Title Matters. Within ninety (90) days after the Effective Date
-------------
with respect to the Oil and Gas Properties listed on Schedule "7" hereto,
Borrowers shall furnish Agent with title opinions and/or title information
reasonably satisfactory to Agent showing good and defensible title of
Borrowers to such Oil and Gas Properties subject only to the Permitted
-40-
Liens. As to any Oil and Gas Properties hereafter mortgaged to Agent,
Borrowers will promptly (but in no event more than thirty (30) days
following such mortgaging), furnish, if requested, Agent with title
opinions and/or title information reasonably satisfactory to Agent showing
good and defensible title of Borrowers to such Oil and Gas Properties
subject only to Permitted Liens.
(t) Curative Matters. Within sixty (60) days after the Effective Date
----------------
with respect to matters listed on Schedule "8" and, thereafter, within
sixty (60) days after receipt by Borrowers from Agent or its counsel of
written notice of title defects the Agent reasonably requires to be cured,
Borrowers shall either (i) provide such curative information, in form and
substance satisfactory to Agent, or (ii) substitute Oil and Gas Properties
of value and quality satisfactory to the Agent for all of Oil and Gas
Properties for which such title curative was requested but upon which
Borrowers elected not to provide such title curative information, and,
within sixty (60) days of such substitution, provide title opinions or
title information satisfactory to the Agent covering the Oil and Gas
Properties so substituted. If the Borrowers fail to satisfy (i) or (ii)
above within the time specified, the loan collateral value assigned by the
Lenders to the Oil and Gas Properties for which such curative information
was requested shall be deducted from the Borrowing Base resulting in a
reduction thereof.
(u) Change of Principal Place of Business. Borrowers shall give Agent
-------------------------------------
at least thirty (30) days prior written notice of their intention to move
their principal place of business from the address set forth in Section 17
hereof.
(v) Cash Collateral Accounts. Each Borrower shall establish and
------------------------
maintain with Agent one or more operating accounts (the "Operating
Accounts"), the maintenance of each of which shall be subject to such rules
and regulations as Agent from time to time specify. Such Operating Accounts
shall be the sole operating accounts of the Borrowers. Such accounts shall
be maintained with the Agent until all amounts due hereunder and under the
Notes have been paid in full. To the extent not already so instructed,
Borrowers shall within sixty (60) days of the Effective Date instruct and
cause all monetary proceeds of production from the Oil and Gas Properties
to be remitted to their respective Operating Accounts. Such proceeds of
production shall not be redirected without the prior written consent of the
Agent until such time as all indebtedness due Lenders by Borrowers has been
paid in full and the Commitments have been terminated. Each Borrower hereby
grants a security interest to Lenders in and to their respective Operating
Accounts (collectively, the "Cash Collateral Accounts") and all checks,
drafts and other items ever received by any Lender for deposit therein. If
any Event of Default shall occur and be continuing, Agent shall have the
immediate right, without prior notice or demand, to take and apply against
the Borrowers' obligations hereunder any and all funds legally and
beneficially owned by the Borrowers then or thereafter on deposit in the
Cash Collateral Accounts for the ratable benefit of the Lenders.
-41-
(w) Take Down of Exchangeable Preferred Stock. Borrowers agree that
-----------------------------------------
(i) upon the occurrence of an Event of Default (other than an Event of
Default occurring as a result of a breach of the affirmative covenants
contained in Section 12 of this Agreement), and (ii) receipt of written
notice from Agent that Majority Banks have determined that a take down is
required and (iii) prior to the time that the Special Mandatory Prepayment
has been made, they will, within ten (10) Business Days, cause the take
down of the Exchangeable Preferred Stock by EnCap Investments L.L.C. and/or
its affiliates as described in the Private Equity Shelf Agreement to occur.
The proceeds received by the Borrowers from the take down of the
Exchangeable Preferred Stock shall be applied upon receipt to payment of
the Special Mandatory Prepayment.
(x) Additional Collateral. The Borrowers agree to regularly monitor
---------------------
engineering data covering all producing oil and gas properties and
interests owned or acquired by Borrowers on or after the date hereof and to
mortgage or cause to be mortgaged such of the same to Agent for the ratable
benefit of the Lenders in substantially the form of the Security
Instruments, as applicable, to the extent that the Lenders shall at all
times during the existence of the Commitment be secured by perfected Liens
and security interests covering not less than eighty percent (80%) of the
Engineered Value of all producing oil and gas properties of Borrowers. In
addition, the Borrowers agree that in connection with the mortgaging of
such additional oil and gas properties, they shall within a reasonable time
thereafter, deliver to the Agent such mortgage and title opinions and other
title information with respect to the title and Lien status of such oil and
gas properties as may be necessary to maintain at all times a level of such
title opinions and title information of not less than ninety percent (90%)
of the Engineered Value of all Oil and Gas Properties mortgaged to the
Agent for the ratable benefit of the Lenders.
13. Negative Covenants. A deviation from the provisions of this Section 13
shall not constitute an Event of Default under this Agreement if such deviation
is consented to in writing by Majority Lenders prior to the date of deviation.
The Borrowers will at all times comply with the covenants contained in this
Section 13 from the date hereof and for so long as the Commitment is in
existence or any amount is owed to the Agent or the Lenders under this Agreement
or the other Loan Documents.
(a) Negative Pledge. Borrowers shall not without the prior written
---------------
consent of the Lenders:
(i) create, incur, assume or permit to exist any Lien, security
interest or other encumbrance on any of their assets or properties
except Permitted Liens; or
(ii) sell, lease, transfer or otherwise dispose of, in any
fiscal year, any of their assets except for (A) sales, leases,
transfers or other dispositions made in the
-42-
ordinary course of Borrowers' oil and gas businesses, (B) sales,
leases or transfers or other dispositions made by Borrowers between
Borrowing Base Determination Dates which do not exceed $10,000,000 of
net proceeds in the aggregate between such Determination Dates, and
(C) other sales, leases, transfer or other dispositions made with the
consent of Majority Lenders which are made pursuant to, and in full
compliance with, Section 12(r) hereof;
(b) Current Ratio. Borrowers shall not allow their ratio Current
-------------
Ratio to be less than 1.0 to 1.0 as of the end of any fiscal quarter.
(c) Minimum Interest Coverage Ratio. The Borrowers will not allow
-------------------------------
their Minimum Interest Coverage Ratio to be less than (i) 2.5 to 1.0 for
the two quarter period ending ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇) 2.5 to 1.0 for the three
quarter period ending June 30, 2000, (iii) 2.5 to 1.0 for the four quarter
period ending September 30, 2000 and each four quarter period thereafter.
(d) Consolidations and Mergers. No Borrower will consolidate or merge
--------------------------
with or into any other Person, except that any Borrower may merge with
another Person if such Borrower is the surviving entity in such merger and
if, after giving effect thereto, no Default or Event of Default shall have
occurred and be continuing except that Enex, Production and/or Magellan may
merge into 3TEC.
(e) Debts, Guaranties and Other Obligations. Without the consent of
---------------------------------------
Majority Lenders, no Borrower will incur, create, assume or in any manner
become or be liable in respect of any indebtedness, nor will any Borrower
guarantee or otherwise in any manner become or be liable in respect of any
indebtedness, liabilities or other obligations of any other person or
entity, whether by agreement to purchase the indebtedness of any other
person or entity or agreement for the furnishing of funds to any other
person or entity through the purchase or lease of goods, supplies or
services (or by way of stock purchase, capital contribution, advance or
loan) for the purpose of paying or discharging the indebtedness of any
other person or entity, or otherwise, except that the foregoing
restrictions shall not apply to:
(i) the Notes and any renewal or increase thereof, or other
indebtedness of the Borrowers heretofore disclosed to Lenders in the
Borrower's Financial Statements or on Schedule "3" hereto; or
(ii) taxes, assessments or other government charges which are not
yet due or are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall
be required by GAAP shall have been
-43-
made therefor and levy and execution thereon have been stayed and
continue to be stayed; or
(iii) indebtedness (other than in connection with a loan or
lending transaction) incurred in the ordinary course of business,
including, but not limited to indebtedness for drilling, completing,
leasing and reworking oil and gas ▇▇▇▇▇; or
(iv) indebtedness evidenced by the Subordinated Notes; or
(v) any renewals or extensions of (but not increases in) any of
the foregoing.
(f) Dividends. No Borrower will declare or pay any cash dividend,
---------
purchase, redeem or otherwise acquire for value any of its stock now or
hereafter outstanding, return any capital to its stockholders, or make any
distribution of its assets to its stockholders as such, except the
foregoing shall not apply to:
(i) dividends on the Series C Preferred Stock and interest on
the Subordinated Note;
(ii) redemption of the Series C Preferred Stock after the
payment in full of the Special Mandatory Prepayment, but only if at
least $10,000,000 availability exists under the Commitment after such
redemption; or
(iii) cash dividends on the Exchangeable Preferred Stock after
the end of the third year after issuance thereof by Borrowers pursuant
to the Private Equity Shelf Agreement; or
(iv) redemption of the Exchangeable Preferred Stock in accordance
with the provisions of the Private Equity Shelf Agreement.
Provided, however, that no dividends may be paid on the Series C Preferred
Stock or the Exchangeable Preferred Stock nor may any interest be paid on
the Subordinated Notes nor may the Series C Preferred Stock or the
Exchangeable Preferred Stock be redeemed if, immediately before or after
giving effect thereto, a Default or Event of Default exists.
(g) Loans and Advances. Borrowers shall not make or permit to remain
------------------
outstanding any loans or advances to or in any person or entity, except
that the foregoing restriction shall not apply to:
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(i) loans or advances to any person, the material details of
which have been set forth in the Financial Statements of the Borrowers
heretofore furnished to Lenders; or
(ii) advances made in the ordinary course of Borrowers' oil and
gas business; or
(iii) loans or advances to Affiliates and non-related third
parties not exceeding $100,000 in the aggregate during the existence
of the Commitment.
(h) Sale or Discount of Receivables. Borrowers will not discount or
-------------------------------
sell with recourse, or sell for less than the greater of the face or market
value thereof, any of their notes receivable or accounts receivable.
(i) Nature of Business. Borrowers will not permit any material
------------------
change to be made in the character of their respective businesses as
carried on at the date hereof.
(j) Transactions with Affiliates. Borrowers will not enter into any
----------------------------
transaction with any Affiliate, except (i) transactions upon terms that are
no less favorable to them than would be obtained in a transaction
negotiated at arm's length with an unrelated third party; and (ii) the
transaction described in the Private Equity Shelf Agreement.
(k) Hedging Transactions. Borrowers will not enter into any Rate
--------------------
Management Transactions, except the foregoing prohibitions shall not apply
to (x) transactions consented to in writing by the Majority Lenders which
are on terms acceptable to the Majority Lenders, or (y) Pre-Approved
Contracts.
(l) Investments. Borrowers shall not make any investments in any
-----------
person or entity, except such restriction shall not apply to:
(i) investments and direct obligations of the United States of
America or any agency thereof; or
(ii) investments in certificates of deposit issued by the Lenders
or certificates of deposit with maturities of less than one year,
issued by other commercial banks in the United States having capital
and surplus in excess of $500,000,000 and which have a senior
unsecured debt rating of A+ by Standard & Poors or A1 by ▇▇▇▇▇'▇; or
-45-
(iii) investments in insured money market funds, LIBOR
investment accounts and other similar accounts at Agent or such
investment with maturities of less than ninety (90) days at other
commercial banks having capital and surplus in excess of $500,000,000
and which have a senior unsecured debt rating of A+ by Standard &
Poors or A1 by ▇▇▇▇▇'▇.
(m) Amendment to Articles of Incorporation or Bylaws. Borrowers will
------------------------------------------------
not permit any material amendment to, or any alteration of, their Articles
of Incorporation or Bylaws.
(n) Proceeds of Production. Borrowers shall not redirect the payment
----------------------
of the proceeds of production from the Oil and Gas Properties to anyone or
any place other than to the Operating Accounts at the Agent.
(o) Issuance of Preferred Stock. Borrowers shall not issue any
----------------------------
additional preferred stock after the Effective Date without the consent of
Majority Lenders, except as permitted for the exchange of securities for
the Exchangeable Preferred Stock or as payment in kind to the holders of
Series D Preferred Stock or Series E Preferred Stock.
(p) Amendments to and Redemption of Preferred Stock or Other Equity.
---------------------------------------------------------------
Borrowers shall not (i) amend any outstanding equity issue after the
Effective Date without the consent of Majority Lenders, or (ii) redeem any
preferred stock (other than the Series C Preferred Stock and the
Exchangeable Preferred Stock which may be redeemed pursuant to Section
13(f)) without the consent of Majority Lenders.
(q) Payment or Pre-Payment of Other Indebtedness. Except as
--------------------------------------------
otherwise provided for in this Agreement, Borrowers shall not make any
unscheduled payments on or redeem any of their indebtedness (other than
indebtedness owed the Lenders hereunder) unless such payment, pre-payment
or redemption is approved by Majority Lenders.
(r) Subordinated Indebtedness. Borrowers shall not fail in any
-------------------------
respect to comply with all of the provisions of the Intercreditor
Agreements or the subordination provisions of the Security Purchase
Agreements and shall not make any payments on the Subordinated Notes in
violation of the provisions thereof. 3TEC shall not amend in any respect
the provisions of the Subordinated Notes or the Security Purchase
Agreements, except as permitted by the provisions of the Intercreditor
Agreements or any of the Security Purchase Agreements.
14. Events of Default. Any one or more of the following events shall be
considered an "Event of Default" as that term is used herein:
-46-
(a) The Borrowers shall fail to pay when due or declared due the
principal of any note or any Reimbursement Obligation when due; or
(b) Borrowers shall fail to pay any accrued interest due and owing on
any Note or any fees or any other amount payable hereunder when due and
such failure shall continue for a period of three (3) business days
following the due date;
(c) Any representation or warranty made by Borrowers under this
Agreement, or in any certificate or statement furnished or made to the
Lenders pursuant hereto, or in connection herewith, or in connection with
any document furnished hereunder, shall prove to be untrue in any material
respect as of the date on which such representation or warranty is made (or
deemed made), or any representation, statement (including financial
statements), certificate, report or other data furnished or to be furnished
or made by Borrowers under any Loan Document, including this Agreement,
proves to have been untrue in any material respect, as of the date as of
which the facts therein set forth were stated or certified; or
(d) Default shall be made in the due observance or performance of any
of the covenants or agreements of the Borrowers contained in the Loan
Documents, including this Agreement (excluding covenants contained in
Section 13 of the Agreement for which there is a twenty (20) day cure
period), and such default shall continue for more than thirty (30) days
after written notice is received by Borrowers; or
(e) Default shall be made in the due observance or performance of the
covenants of the Borrowers contained in Section 13 of this Agreement and
such default shall continue for more than twenty (20) days after written
notice is received by Borrowers; or
(f) Default shall be made in respect of any obligation for borrowed
money, other than the Notes, for which Borrowers are liable (directly, by
assumption, as guarantor or otherwise), or any obligations secured by any
mortgage, pledge or other security interest, lien, charge or encumbrance
with respect thereto, on any asset or property of any Borrower or in
respect of any agreement relating to any such obligations unless such
Borrower is not liable for same (i.e., unless remedies or recourse for
failure to pay such obligations is limited to foreclosure of the collateral
security therefor), and if such default shall continue beyond the
applicable grace period, if any; or
(g) Borrowers shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to any of
them or their debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking an appointment of a trustee,
receiver, liquidator, custodian or other similar official of any of them or
any substantial part of their property, or shall consent to any such relief
or to the appointment of or taking possession by any such official in an
involuntary case or other
-47-
proceeding commenced against them, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay their debts as
they become due, or shall take any corporate action authorizing the
foregoing; or
(h) An involuntary case or other proceeding, shall be commenced
against Borrowers seeking liquidation, reorganization or other relief with
respect to them or their debts under any bankruptcy, insolvency or similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of their property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of sixty (60)
days; or an order for relief shall be entered against Borrowers under the
federal bankruptcy laws as now or hereinafter in effect; or
(i) A final judgment or order for the payment of money in excess of
$2,000,000 (or judgments or orders aggregating in excess of $2,000,000)
shall be rendered against Borrowers and such judgments or orders shall
continue unsatisfied and unstayed for a period of thirty (30) days; or
(j) In the event the Total Outstandings shall at any time exceed the
Borrowing Base established for the Notes, and the Borrowers shall fail to
comply with the provisions of Section 9(b) hereof; or
(k) A Change of Control shall occur; or
(l) A Change of Management shall occur; or
(m) The Special Mandatory Prepayment is not paid in full on or before
December 31, 2000.
Upon occurrence of any Event of Default specified in Subsections 14(g) and
(h) hereof, the entire principal amount due under the Notes and all interest
then accrued thereon, and any other liabilities of the Borrowers hereunder,
shall become immediately due and payable all without notice and without
presentment, demand, protest, notice of protest or dishonor or any other notice
of default of any kind, all of which are hereby expressly waived by the
Borrowers. In any other Event of Default, the Agent, upon request of Majority
Lenders, shall by written notice to the Borrowers declare the principal of, and
all interest then accrued on, the Notes and any other liabilities hereunder to
be forthwith due and payable, whereupon the same shall forthwith become due and
payable without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other notice of any kind, all of which the Borrowers
hereby expressly waive, anything contained herein or in the Note to the contrary
notwithstanding. Nothing contained in this Section 14 shall be
-48-
construed to limit or amend in any way the Events of Default enumerated in the
Note, or any other document executed in connection with the transaction
contemplated herein.
Upon the occurrence and during the continuance of any Event of Default, the
Lenders are hereby authorized at any time and from time to time, without notice
to the Borrowers (any such notice being expressly waived by the Borrowers), to
set-off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by any of the Lenders to or for the credit or the account of the Borrowers
against any and all of the indebtedness of the Borrowers under the Notes and the
Loan Documents, including this Agreement, irrespective of whether or not the
Lenders shall have made any demand under the Loan Documents, including this
Agreement or the Notes and although such indebtedness may be unmatured. Any
amount set-off by any of the Lenders shall be applied against the indebtedness
owed the Lenders by the Borrowers pursuant to this Agreement and the Notes. The
Lenders agree promptly to notify the Borrowers after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the Lender under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Lenders may have.
15. The Agent and the Lenders.
(a) Appointment and Authorization. Each Lender hereby appoints Agent
-----------------------------
as its nominee and agent, in its name and on its behalf: (i) to act as
nominee for and on behalf of such Lender in and under all Loan Documents;
(ii) to arrange the means whereby the funds of Lenders are to be made
available to the Borrowers under the Loan Documents; (iii) to take such
action as may be requested by any Lender under the Loan Documents (when
such Lender is entitled to make such request under the Loan Documents);
(iv) to receive all documents and items to be furnished to Lenders under
the Loan Documents; (v) to be the secured party, mortgagee, beneficiary,
and similar party in respect of, and to receive, as the case may be, any
collateral for the benefit of Lenders; (vi) to promptly distribute to each
Lender all material information, requests, documents and items received
from the Borrowers under the Loan Documents; (vii) to promptly distribute
to each Lender such Lender's Pro Rata Part of each payment or prepayment
(whether voluntary, as proceeds of insurance thereon, or otherwise) in
accordance with the terms of the Loan Documents and (viii) to deliver to
the appropriate Persons requests, demands, approvals and consents received
from Lenders. Each Lender hereby authorizes Agent to take all actions and
to exercise such powers under the Loan Documents as are specifically
delegated to Agent by the terms hereof or thereof, together with all other
powers reasonably incidental thereto. With respect to its commitments
hereunder and the Notes issued to it, Agent and any successor Agent shall
have the same rights under the Loan Documents as any other Lender and may
exercise the same as though it were not the Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include Agent and
any successor Agent in its capacity as a Lender.
-49-
Agent and any successor Agent and its Affiliates may accept deposits from,
lend money to, act as trustee under indentures of and generally engage in
any kind of business with the Borrowers, and any person which may do
business with the Borrowers, all as if Agent and any successor Agent was
not Agent hereunder and without any duty to account therefor to the
Lenders; provided that, if any payments in respect of any property (or the
proceeds thereof) now or hereafter in the possession or control of Agent
which may be or become security for the obligations of the Borrowers
arising under the Loan Documents by reason of the general description of
indebtedness secured or of property contained in any other agreements,
documents or instruments related to any such other business shall be
applied to reduction of the obligations of the Borrowers arising under the
Loan Documents, then each Lender shall be entitled to share in such
application according to its pro rata part thereof. Each Lender, upon
request of any other Lender, shall disclose to all other Lenders all
indebtedness and liabilities, direct and contingent, of the Borrowers to
such Lender as of the time of such request.
(b) Note Holders. From time to time as other Lenders become a party
------------
to this Agreement, Agent shall obtain execution by the Borrowers of
additional Notes in amounts representing the Commitment of each such new
Lender, up to an aggregate face amount of all Notes not exceeding
$250,000,000. The obligation of such Lender shall be governed by the
provisions of this Agreement, including but not limited to, the obligations
specified in Section 2 hereof. From time to time, Agent may require that
the Lenders exchange their Notes for newly issued Notes to better reflect
the Commitments of the Lenders. Agent may treat the payee of any Note as
the holder thereof until written notice of transfer has been filed with it,
signed by such payee and in form satisfactory to Agent.
(c) Consultation with Counsel. Lenders agree that Agent may consult
-------------------------
with legal counsel selected by Agent and shall not be liable for any action
taken or suffered in good faith by it in accordance with the advice of such
counsel. Lenders acknowledge that Gardere & ▇▇▇▇▇, L.L.P. is counsel for
Bank One, both as Agent and as a Lender, and that such firm does not
represent any of the other Lenders in connection with this transaction.
(d) Documents. Agent shall not be under a duty to examine or pass
---------
upon the validity, effectiveness, enforceability, genuineness or value of
any of the Loan Documents or any other instrument or document furnished
pursuant thereto or in connection therewith, and Agent shall be entitled to
assume that the same are valid, effective, enforceable and genuine and what
they purport to be.
(e) Resignation or Removal of Agent. Subject to the appointment and
-------------------------------
acceptance of a successor Agent as provided below, Agent may resign at any
time by giving written notice thereof to Lenders and the Borrowers, and
Agent may be removed at any time with
-50-
or without cause by all Lenders. If no successor Agent has been so
appointed by all Lenders (and approved by the Borrowers) and has accepted
such appointment within 30 days after the retiring Agent's giving of notice
of resignation or removal of the retiring Agent, then the retiring Agent
may, on behalf of Lenders, appoint a successor Agent. Any successor Agent
must be approved by Borrowers, which approval will not be unreasonably
withheld. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights and duties of the retiring Agent, and the
retiring Agent, as the case may be, shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Section 15 shall continue in
effect for its benefit in respect to any actions taken or omitted to be
taken by it while it was acting as Agent. To be eligible to be an Agent
hereunder the party serving, or to serve, in such capacity must own a Pro
Rata Part of the Commitments equal to the level of Commitment required to
be held by any Lender pursuant to Section 28 hereof.
(f) Responsibility of Agent. It is expressly understood and agreed
-----------------------
that the obligations of Agent under the Loan Documents are only those
expressly set forth in the Loan Documents as to each and that Agent, shall
be entitled to assume that no Default or Event of Default has occurred and
is continuing, unless Agent has actual knowledge of such fact or has
received notice from a Lender or the Borrowers that such Lender or the
Borrowers considers that a Default or an Event of Default has occurred and
is continuing and specifying the nature thereof. Neither Agent nor any of
its directors, officers, attorneys or employees shall be liable for any
action taken or omitted to be taken by them under or in connection with the
Loan Documents, except for its or their own gross negligence or willful
misconduct. Agent shall not incur liability under or in respect of any of
the Loan Documents by acting upon any notice, consent, certificate,
warranty or other paper or instrument believed by it to be genuine or
authentic or to be signed by the proper party or parties, or with respect
to anything which it may do or refrain from doing in the reasonable
exercise of its judgment, or which may seem to it to be necessary or
desirable.
Agent shall not be responsible to Lenders for any of the Borrowers'
recitals, statements, representations or warranties contained in any of the
Loan Documents, or in any certificate or other document referred to or
provided for in, or received by any Lender under, the Loan Documents, or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of or any of the Loan Documents or for any failure by the
Borrowers to perform any of its obligations hereunder or thereunder. Agent
may employ agents and attorneys-in-fact and shall not be answerable, except
as to money or securities received by it or its authorized agents, for the
negligence or misconduct of any such agents or attorneys-in-fact selected
by it with reasonable care.
-51-
The relationship between Agent and each Lender is only that of agent
and principal and has no fiduciary aspects. Nothing in the Loan Documents
or elsewhere shall be construed to impose on Agent any duties or
responsibilities other than those for which express provision is therein
made. In performing its duties and functions hereunder, Agent does not
assume and shall not be deemed to have assumed, and hereby expressly
disclaims, any obligation or responsibility toward or any relationship of
agency or trust with or for the Borrowers or any of their beneficiaries or
other creditors. As to any matters not expressly provided for by the Loan
Documents, Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of all Lenders and such instructions shall be binding upon all
Lenders and all holders of the Notes; provided, however, that Agent shall
not be required to take any action which is contrary to the Loan Documents
or applicable law.
Agent shall have the right to exercise or refrain from exercising,
without notice or liability to the Lenders, any and all rights afforded to
Agent by the Loan Documents or which Agent may have as a matter of law;
provided, however, Agent shall not (i) except as provided herein and in
Section 7(b) hereof, without the consent of Majority Lenders designate the
amount of the Borrowing Base or (ii) take any other action with regard to
amending the Loan Documents, waiving any default under the Loan Documents
or taking any other action with respect to the Loan Documents. Provided
further, however, that no amendment, waiver, or other action shall be
effected pursuant to the preceding clause (ii) without the consent of all
Lenders which: (i) would increase the Borrowing Base, (ii) would reduce any
fees hereunder, or the principal of, or the interest on, any Lender's Note
or Notes, (iii) would postpone any date fixed for any payment of any fees
hereunder, or any principal or interest of any Lender's Note or Notes, (iv)
would materially increase any Lender's obligations hereunder or would
materially alter Agent's obligations to any Lender hereunder, (v) would
release Borrowers from their obligation to pay any Lender's Note or Notes,
(vi) release any of the Collateral except as permitted by Sections 12(r)
and 13(a)(ii) hereof, (vii) would change the definition of Majority
Lenders, (viii) would amend, modify or change any provision of this
Agreement requiring the consent of all the Lenders, (ix) would waive any of
the conditions precedent to the Effective Date or the making of any Loan or
issuance of any Letter of Credit or (x) would extend the Maturity Date or
(xi) would amend this sentence or the previous sentence. Agent shall not
have liability to Lenders for failure or delay in exercising any right or
power possessed by Agent pursuant to the Loan Documents or otherwise unless
such failure or delay is caused by the gross negligence of the Agent, in
which case only the Agent responsible for such gross negligence shall have
liability therefor to the Lenders.
(g) Independent Investigation. Each Lender severally represents and
-------------------------
warrants to Agent that it has made its own independent investigation and
assessment of the financial condition and affairs of the Borrowers in
connection with the making and continuation of its
-52-
participation hereunder and has not relied exclusively on any information
provided to such Lender by Agent in connection herewith, and each Lender
represents, warrants and undertakes to Agent that it shall continue to make
its own independent appraisal of the credit worthiness of the Borrowers
while the Notes are outstanding or its commitments hereunder are in force.
Agent shall not be required to keep itself informed as to the performance
or observance by the Borrowers of this Agreement or any other document
referred to or provided for herein or to inspect the properties or books of
the Borrowers. Other than as provided in this Agreement, Agent shall not
have any duty, responsibility or liability to provide any Lender with any
credit or other information concerning the affairs, financial condition or
business of the Borrowers which may come into the possession of Agent.
(h) Indemnification. Lenders agree to indemnify Agent, ratably
---------------
according to their respective Commitments on a Pro Rata basis, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any proper
and reasonable kind or nature whatsoever which may be imposed on, incurred
by or asserted against Agent in any way relating to or arising out of the
Loan Documents or any action taken or omitted by Agent under the Loan
Documents, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from Agent's gross
negligence or willful misconduct. Each Lender shall be entitled to be
reimbursed by the Agent for any amount such Lender paid to Agent under this
Section 15(h) to the extent the Agent has been reimbursed for such payments
by the Borrowers or any other Person. The parties intend for the
provisions of this Section to apply to and protect the Agent from the
consequences of any liability including strict liability imposed or
threatened to be imposed on Agent as well as from the consequences of its
own negligence, whether or not that negligence is the sole, contributing or
concurring cause of any such liability.
(i) Benefit of Section 15. The agreements contained in this Section
---------------------
15 are solely for the benefit of Agent and the Lenders and are not for the
benefit of, or to be relied upon by, the Borrowers, any affiliate of the
Borrowers or any other person.
(j) Pro Rata Treatment. Subject to the provisions of this Agreement,
------------------
each payment (including each prepayment) by the Borrowers and collection by
Lenders (including offsets) on account of the principal of and interest on
the Notes and fees provided for in this Agreement, payable by the Borrowers
shall be made Pro Rata; provided, however, in the event that any Defaulting
Lender shall have failed to make an Advance as contemplated under Section 3
hereof and Agent or another Lender or Lenders shall have made such Advance,
payment received by Agent for the account of such Defaulting Lender or
Lenders shall not be distributed to such Defaulting Lender or Lenders until
such Advance or
-53-
Advances shall have been repaid in full to the Lender or Lenders who funded
such Advance or Advances.
(k) Assumption as to Payments. Except as specifically provided
-------------------------
herein, unless Agent shall have received notice from the Borrowers prior to
the date on which any payment is due to Lenders hereunder that the
Borrowers will not make such payment in full, Agent may, but shall not be
required to, assume that the Borrowers have made such payment in full to
Agent on such date and Agent may, in reliance upon such assumption, cause
to be distributed to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Borrowers shall not
have so made such payment in full to Agent, each Lender shall repay to
Agent forthwith on demand such amount distributed to such Lender together
with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to
Agent, at the interest rate applicable to such portion of the Loan.
(l) Other Financings. Without limiting the rights to which any
----------------
Lender otherwise is or may become entitled, such Lender shall have no
interest, by virtue of this Agreement or the Loan Documents, in (a) any
present or future loans from, letters of credit issued by, or leasing or
other financial transactions by, any other Lender to, on behalf of, or with
the Borrowers (collectively referred to herein as "Other Financings") other
than the obligations hereunder; (b) any present or future guarantees by or
for the account of the Borrowers which are not contemplated by the Loan
Documents; (c) any present or future property taken as security for any
such Other Financings; or (d) any property now or hereafter in the
possession or control of any other Lender which may be or become security
for the obligations of the Borrowers arising under any loan document by
reason of the general description of indebtedness secured or property
contained in any other agreements, documents or instruments relating to any
such Other Financings.
(m) Interests of Lenders. Nothing in this Agreement shall be
--------------------
construed to create a partnership or joint venture between Lenders for any
purpose. Agent, Lenders and the Borrowers recognize that the respective
obligations of Lenders under the Commitments shall be several and not joint
and that neither Agent nor any of Lenders shall be responsible or liable to
perform any of the obligations of the other under this Agreement. Each
Lender is deemed to be the owner of an undivided interest in and to all
rights, titles, benefits and interests belonging and accruing to Agent
under the Security Instruments, including, without limitation, liens and
security interests in any collateral, fees and payments of principal and
interest by the Borrowers under the Commitments on a Pro Rata basis. Each
Lender shall perform all duties and obligations of Lenders under this
Agreement in the same proportion as its ownership interest in the Loans
outstanding at the date of determination thereof.
-54-
(n) Investments. Whenever Agent in good faith determines that it is
-----------
uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any
dispute among the Lenders about how such funds should be distributed, Agent
may choose to defer distribution of the funds which are the subject of such
uncertainty or dispute. If Agent in good faith believes that the
uncertainty or dispute will not be promptly resolved, or if Agent is
otherwise required to invest funds pending distribution to the Lenders,
Agent may invest such funds pending distribution (at the risk of the
Borrowers). All interest on any such investment shall be distributed upon
the distribution of such investment and in the same proportions and to the
same Persons as such investment. All monies received by Agent for
distribution to the Lenders (other than to the Person who is Agent in its
separate capacity as a Lender) shall be held by the Agent pending such
distribution solely as Agent for such Lenders, and Agent shall have no
equitable title to any portion thereof.
16. Exercise of Rights. No failure to exercise, and no delay in
exercising, on the part of the Agent or the Lenders, any right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right. The rights of the Agent and the Lenders hereunder shall be in addition to
all other rights provided by law. No modification or waiver of any provision of
the Loan Documents, including this Agreement, or the Note nor consent to
departure therefrom, shall be effective unless in writing, and no such consent
or waiver shall extend beyond the particular case and purpose involved. No
notice or demand given in any case shall constitute a waiver of the right to
take other action in the same, similar or other circumstances without such
notice or demand.
17. Notices. Any notices or other communications required or permitted to
be given by this Agreement or any other documents and instruments referred to
herein must be given in writing (which may be by facsimile transmission) and
must be personally delivered or mailed by prepaid certified or registered mail
to the party to whom such notice or communication is directed at the address of
such party as follows: (a) BORROWERS: c/o 3TEC ENERGY CORPORATION, Two Shell
Plaza, 777 ▇▇▇▇▇▇, Suite 2400, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Chief Executive Officer, Facsimile (▇▇▇) ▇▇▇-▇▇▇▇; (b) AGENT: BANK ONE, TEXAS,
N.A., ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇,
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, First Vice President. Any such notice or other
communication shall be deemed to have been given (whether actually received or
not) on the day it is personally delivered or delivered by facsimile as
aforesaid or, if mailed, on the third day after it is mailed as aforesaid. Any
party may change its address for purposes of this Agreement by giving notice of
such change to the other party pursuant to this Section 17. Any notice required
to be given to the Lenders shall be given to the Agent and distributed to all
Lenders by the Agent .
18. Expenses. The Borrowers shall pay (i) all reasonable and necessary
out-of-pocket expenses of the Lenders, including reasonable fees and
disbursements of special counsel for the
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Agent, in connection with the preparation of this Agreement, any waiver or
consent hereunder or any amendment hereof or any default or Event of Default or
alleged default or Event of Default hereunder, (ii) all reasonable and necessary
out-of-pocket expenses of the Agent, including reasonable fees and disbursements
of special counsel for the Agent in connection with the preparation of any
participation agreement for a participant or participants requested by the
Borrowers or any amendment thereof and (iii) if a default or an Event of Default
occurs, all reasonable and necessary out-of-pocket expenses incurred by the
Lenders, including fees and disbursements of counsel, in connection with such
default and Event of Default and collection and other enforcement proceedings
resulting therefrom. The Borrowers hereby acknowledge that Gardere & ▇▇▇▇▇,
L.L.P. is special counsel to Bank One, as Agent and as a Lender, under this
Agreement and that it is not counsel to, nor does it represent the Borrowers in
connection with the transactions described in this Agreement. The Borrowers are
relying on separate counsel in the transaction described herein. The Borrowers
shall indemnify the Lenders against any transfer taxes, document taxes,
assessments or charges made by any governmental authority by reason of the
execution, delivery and filing of the Loan Documents. The obligations of this
Section 18 shall survive any termination of this Agreement, the expiration of
the Loans and the payment of all indebtedness of the Borrowers to the Lenders
hereunder and under the Notes.
19. Indemnity. The Borrowers agree to indemnify and hold harmless the
Lenders and their respective officers, employees, agents, attorneys and
representatives (singularly, an "Indemnified Party", and collectively, the
"Indemnified Parties") from and against any loss, cost, liability, damage or
expense (including the reasonable fees and out-of-pocket expenses of counsel to
the Lenders, including all local counsel hired by such counsel) ("Claim")
incurred by the Lenders in investigating or preparing for, defending against, or
providing evidence, producing documents or taking any other action in respect of
any commenced or threatened litigation, administrative proceeding or
investigation under any federal securities law, federal or state environmental
law, or any other statute of any jurisdiction, or any regulation, or at common
law or otherwise, which is alleged to arise out of or is based upon any acts,
practices or omissions or alleged acts, practices or omissions of the Borrowers
or their agents or arises in connection with the duties, obligations or
performance of the Indemnified Parties in negotiating, preparing, executing,
accepting, keeping, completing, countersigning, issuing, selling, delivering,
releasing, assigning, handling, certifying, processing or receiving or taking
any other action with respect to the Loan Documents and all documents, items and
materials contemplated thereby even if any of the foregoing arises out of an
Indemnified Party's ordinary negligence. The indemnity set forth herein shall be
in addition to any other obligations or liabilities of the Borrowers to the
Lenders hereunder or at common law or otherwise, and shall survive any
termination of this Agreement, the expiration of the Loans and the payment of
all indebtedness of the Borrowers to the Lenders hereunder and under the Notes,
provided that the Borrowers shall have no obligation under this Section to the
Lender with respect to any of the foregoing arising out of the gross negligence
or willful misconduct of the Lender. If any Claim is asserted against any
Indemnified Party, the Indemnified Party shall endeavor to notify the Borrowers
of such Claim (but failure to do so shall not affect the indemnification herein
made
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except to the extent of the actual harm caused by such failure). The Indemnified
Party shall have the right to employ, at the Borrowers' expense, counsel of the
Indemnified Parties' choosing and to control the defense of the Claim. The
Borrowers may at their own expense also participate in the defense of any Claim.
Each Indemnified Party may employ separate counsel in connection with any Claim
to the extent such Indemnified Party believes it reasonably prudent to protect
such Indemnified Party. The parties intend for the provisions of this Section to
apply to and protect each Indemnified Party from the consequences of any
liability including strict liability imposed or threatened to be imposed on
Agent as well as from the consequences of its own negligence, whether or not
that negligence is the sole, contributing, or concurring cause of any Claim.
20. Governing Law. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS
INTENDED TO BE PERFORMED, IN DALLAS, DALLAS COUNTY, TEXAS, AND THE SUBSTANTIVE
LAWS OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS
REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED THEREIN.
21. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
22. Maximum Interest Rate. Regardless of any provisions contained in this
Agreement or in any other documents and instruments referred to herein, the
Lenders shall never be deemed to have contracted for or be entitled to receive,
collect or apply as interest on the Notes any amount in excess of the Maximum
Rate, and in the event any Lender ever receives, collects or applies as interest
any such excess, or if an acceleration of the maturities of any Notes or if any
prepayment by the Borrowers results in the Borrowers having paid any interest in
excess of the Maximum Rate, such amount which would be excessive interest shall
be applied to the reduction of the unpaid principal balance of the Notes for
which such excess was received, collected or applied, and, if the principal
balance of such Note is paid in full, any remaining excess shall forthwith be
paid to the Borrowers. All sums paid or agreed to be paid to the Lenders for the
use, forbearance or detention of the indebtedness evidenced by the Notes and/or
this Agreement shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the Maximum Rate. In determining whether or not the
interest paid or payable under any specific contingency exceeds the Maximum Rate
of interest permitted by law, the Borrowers and the Lenders shall, to the
maximum extent permitted under applicable law, (i) characterize any non-
principal payment as an expense, fee or premium, rather than as interest; and
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(ii) exclude voluntary prepayments and the effect thereof; and (iii) compare the
total amount of interest contracted for, charged or received with the total
amount of interest which could be contracted for, charged or received throughout
the entire contemplated term of the Note at the Maximum Rate.
23. Amendments. Subject to the provisions of Section 15(b) hereof, this
Agreement may be amended only by an instrument in writing executed by an
authorized officer of the party against whom such amendment is sought to be
enforced.
24. Multiple Counterparts. This Agreement may be executed in a number of
identical separate counterparts, each of which for all purposes is to be deemed
an original, but all of which shall constitute, collectively, one agreement. No
party to this Agreement shall be bound hereby until a counterpart of this
Agreement has been executed by all parties hereto.
25. Conflict. In the event any term or provision hereof is inconsistent
with or conflicts with any provision of the Loan Documents, the terms or
provisions contained in this Agreement shall be controlling.
26. Survival. All covenants, agreements, undertakings, representations
and warranties made in the Loan Documents, including this Agreement, the Notes
or other documents and instruments referred to herein shall survive all closings
hereunder and shall not be affected by any investigation made by any party.
27. Parties Bound. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs,
legal representatives and estates, provided, however, that the Borrowers may
not, without the prior written consent of all of the Lenders, assign any rights,
powers, duties or obligations hereunder.
28. Assignments and Participations.
(a) Each Lender shall have the right to sell, assign or transfer all
or any part of its Note or Notes, its Commitment and its rights and
obligations hereunder to one or more Affiliates, Lenders, financial
institutions, pension plans, insurance companies, investment funds, or
similar Persons who are Eligible Assignees or to a Federal Reserve Bank;
provided, that in connection with each sale, assignment or transfer (other
--------
than to an Affiliate, a Bank or a Federal Reserve Bank), shall require the
consent of Agent and the Borrowers, which consents will not be unreasonably
withheld; provided, however, that if an Event of Default has occurred and
is continuing, the consent of the Borrowers shall not be required. Any
such assignee, transferee or recipient shall have, to the extent of such
sale, assignment, or transfer, the same rights, benefits and obligations as
it would if it were such Lender and a holder of such Note, Commitment and
rights and obligations, including, without limitation, the right
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to vote on decisions requiring consent or approval of all Lenders or
Majority Lenders and the obligation to fund its Commitment; provided, that
(1) each such sale, assignment, or transfer (other than to an Affiliate, a
Bank or a Federal Reserve Bank) shall be in an aggregate principal amount
not less than $5,000,000, (2) each remaining Lender shall at all times
maintain Commitment then outstanding in an aggregate principal amount at
least equal to $5,000,000; (3) each such sale, assignment or transfer shall
be of a Pro Rata portion of such Lender's Commitment, (4) no Lender may
offer to sell its Note or Notes, Commitment, rights and obligations or
interests therein in violation of any securities laws; and (5) no such
assignments (other than to a Federal Reserve Bank) shall become effective
until the assigning Lender and its assignee delivers to Agent and Borrowers
an Assignment and Acceptance and the Note or Notes subject to such
assignment and other documents evidencing any such assignment. An
assignment fee in the amount of $3,500 for each such assignment (other than
to an Affiliate, a Bank or the Federal Reserve Bank) will be payable to
Agent by assignor or assignee. Within five (5) Business Days after its
receipt of copies of the Assignment and Acceptance and the other documents
relating thereto and the Note or Notes, the Borrowers shall execute and
deliver to Agent (for delivery to the relevant assignee) a new Note or
Notes evidencing such assignee's assigned Commitment and if the assignor
Lender has retained a portion of its Commitment, a replacement Note in the
principal amount of the Commitment retained by the assignor (except as
provided in the last sentence of this paragraph (a) such Note or Notes to
be in exchange for, but not in payment of, the Note or Notes held by such
Lender). On and after the effective date of an assignment hereunder, the
assignee shall for all purposes be a Lender, party to this Agreement and
any other Loan Document executed by the Lenders and shall have all the
rights and obligations of a Lender under the Loan Documents, to the same
extent as if it were an original party thereto, and no further consent or
action by Borrowers, Lenders or the Agent shall be required to release the
transferor Lender with respect to its Commitment assigned to such assignee
and the transferor Lender shall henceforth be so released.
(b) Each Lender shall have the right to grant participations in all
or any part of such Lender's Notes and Commitment hereunder to one or more
pension plans, investment funds, insurance companies, financial
institutions or other Persons, provided, that:
(i) each Lender granting a participation shall retain the
right to vote hereunder, and no participant shall be entitled to vote
hereunder on decisions requiring consent or approval of Lender or
Majority Lenders (except as set forth in (iii) below);
(ii) in the event any Lender grants a participation hereunder,
such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender
shall remain the holder of any
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such Note or Notes for all purposes under the Loan Documents, and
Agent, each Lender and Borrowers shall be entitled to deal with the
Lender granting a participation in the same manner as if no
participation had been granted; and
(iii) no participant shall ever have any right by reason of its
participation to exercise any of the rights of Lenders hereunder,
except that any Lender may agree with any participant that such Lender
will not, without the consent of such participant (which consent may
not be unreasonably withheld) consent to any amendment or waiver
requiring approval of all Lenders.
(c) It is understood and agreed that any Lender may provide to
assignees and participants and prospective assignees and participants
financial information and reports and data concerning Borrowers' properties
and operations which was provided to such Lender pursuant to this
Agreement.
(d) Upon the reasonable request of either Agent or Borrowers, each
Lender will identify those to whom it has assigned or participated any part
of its Notes and Commitment, and provide the amounts so assigned or
participated.
29. Choice of Forum: Consent to Service of Process and Jurisdiction. THE
OBLIGATIONS OF BORROWERS UNDER THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS
COUNTY, TEXAS. ANY SUIT, ACTION OR PROCEEDING AGAINST THE BORROWERS WITH RESPECT
TO THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF,
MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY OF DALLAS, OR IN THE
UNITED STATES COURTS LOCATED IN DALLAS COUNTY, TEXAS AND THE BORROWERS HEREBY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY
SUCH SUIT, ACTION OR PROCEEDING. THE BORROWERS HEREBY IRREVOCABLY CONSENT TO
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURT BY THE
MAILING THEREOF BY LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE BORROWERS, AS APPLICABLE, AT THE ADDRESS FOR NOTICES AS PROVIDED IN SECTION
17. THE BORROWERS HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH THEY MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO ANY LOAN DOCUMENT BROUGHT IN THE COURTS LOCATED IN THE
STATE OF TEXAS, COUNTY OF DALLAS, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
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30. Waiver of Jury Trial. THE BORROWERS HEREBY WAIVE, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
31. Other Agreements. THIS WRITTEN CREDIT AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
32. Financial Terms. All accounting terms used in this Agreement which
are not specifically defined herein shall be construed in accordance with GAAP.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
BORROWERS:
---------
3TEC ENERGY CORPORATION
a Delaware corporation
By:____________________________________________
▇.▇. ▇▇▇▇▇▇, President and
Chief Financial Officer
ENEX RESOURCES CORPORATION
a Delaware corporation
By:____________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
MIDDLE BAY PRODUCTION COMPANY, INC.
a Kansas corporation
By:____________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
MAGELLAN EXPLORATION, LLC
a Delaware limited liability company
By:____________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
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LENDERS:
-------
BANK ONE, TEXAS, N.A.,
a national banking association
By:____________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, First Vice President
THE BANK OF NOVA SCOTIA
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
UNION BANK OF CALIFORNIA, N.A.
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
BANK OF MONTREAL
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
▇▇▇▇▇ FARGO BANK TEXAS, NATIONAL
ASSOCIATION
By:____________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇, Vice President
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CIBC, INC.
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
ADMINISTRATIVE AGENT:
--------------------
BANK ONE, TEXAS, N.A.,
a national banking association
By:____________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, First Vice President
SYNDICATION AGENT:
-----------------
BANK OF MONTREAL
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
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