EXHIBIT 10.27
THIRD
RESTATED
CREDIT AGREEMENT
AMONG
3TEC ENERGY CORPORATION,
ENEX RESOURCES CORPORATION AND
3TEC/CRI CORPORATION,
AS BORROWERS,
AND
BANK ONE, NA
AND THE INSTITUTIONS NAMED HEREIN
AS LENDERS,
BANK ONE, NA,
AS ADMINISTRATIVE AGENT
AND
BANK OF MONTREAL
AS SYNDICATION AGENT
AND
BANC ONE CAPITAL MARKETS, INC.
AS ARRANGER
MARCH ___, 2001
$250,000,000 REVOLVING CREDIT
TABLE OF CONTENTS
Page No.
1. Definitions................................................. 3
2. Commitments of the Lender................................... 14
(a) Terms of Commitment................................ 14
(b) Procedure for Borrowing............................ 14
(c) Letters of Credit.................................. 15
(d) Procedure for Obtaining Letters of Credit.......... 16
(e) Voluntary Reduction of Commitment.................. 16
(f) Mandatory Commitment Reductions.................... 16
(g) Several Obligations................................ 17
(h) Type and Number of Advances........................ 17
(i) Limited Liability of Enex and Classic.............. 17
3. Notes Evidencing Loans...................................... 17
(a) Form of Notes.......... ........................... 17
(b) Issuance of Additional Notes....................... 17
(c) Interest Rates..................................... 18
(d) Payment of Interest................................ 18
(e) Payment of Principal............................... 18
(f) Payment to Lenders................................. 18
(g) Sharing of Payments, Etc........................... 18
(h) Non-Receipt of Funds by the Agent.................. 19
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
7. Borrowing Base.............................................. 25
(a) Initial Borrowing Base............................. 25
(b) Subsequent Determinations of Borrowing Base........ 25
8. Fees........................................................ 27
(a) Unused Commitment Fee.............................. 27
(b) The Letter of Credit Fee........................... 27
(i)
9. Prepayments..................................................... 27
(a) Voluntary Prepayments.................................. 27
(b) Mandatory Prepayment For Borrowing Base Deficiency..... 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.................................... 29
(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.................................................. 31
11. Conditions of Lending........................................... 32
12. Affirmative Covenants........................................... 33
(a) Financial Statements and Reports....................... 34
(b) Certificates of Compliance............................. 35
(c) Accountants' Certificate............................... 35
(d) Taxes and Other Liens.................................. 35
(e) Compliance with Laws................................... 35
(f) Further Assurances..................................... 36
(g) Performance of Obligations............................. 36
(h) Insurance.............................................. 37
(i) Accounts and Records................................... 37
(j) Right of Inspection.................................... 37
(k) Notice of Certain Events............................... 37
(l) ERISA Information and Compliance....................... 38
(m) Environmental Reports and Notices...................... 38
(n) Compliance and Maintenance............................. 38
(o) Operation of Properties................................ 38
(p) Compliance with Leases and Other Instruments........... 39
(q) Certain Additional Assurances Regarding Maintenance
and Operations of Properties........................... 39
(r) Sale of Certain Assets/Prepayment of Proceeds.......... 39
(s) Title Matters.......................................... 40
(t) Curative Matters....................................... 40
(u) Change of Principal Place of Business.................. 40
(v) Cash Collateral Accounts............................... 40
(w) Additional Collateral.................................. 41
13. Negative Covenants.............................................. 41
(a) Negative Pledge........................................ 41
(b) Current Ratio.......................................... 42
(c) Minimum Interest Coverage Ratio........................ 42
(d) Consolidations and Mergers............................. 42
(e) Debts, Guaranties and Other Obligations................ 42
(f) Dividends.............................................. 43
(g) Loans and Advances..................................... 43
(h) Sale or Discount of Receivables........................ 43
(i) Nature of Business..................................... 43
(j) Transactions with Affiliates........................... 43
(k) Hedging Transactions................................... 43
(l) Investments............................................ 44
(m) Amendment to Articles of Incorporation or Bylaws....... 44
(n) Proceeds of Production................................. 44
(o) Issuance of Preferred Stock........................... 44
(p) Amendments to and Redemption of Preferred Stock or
Other Equity........................................... 44
(q) Payment or Pre-Payment of Other Indebtedness........... 44
(r) Subordinated Indebtedness.............................. 45
14. Events of Default............................................... 45
15. The Agent and the Lenders....................................... 47
(a) Appointment and Authorization.......................... 47
(b) Note Holders........................................... 48
(c) Consultation with Counsel.............................. 48
(d) Documents.............................................. 49
(e) Resignation or Removal of Agent........................ 49
(f) Responsibility of Agent................................ 49
(g) Independent Investigation.............................. 51
(h) Indemnification........................................ 51
(i) Benefit of Section 15.................................. 51
(j) Pro Rata Treatment..................................... 51
(k) Assumption as to Payments.............................. 52
(l) Other Financings....................................... 52
(m) Interests of Lenders................................... 52
(n) Investments............................................ 53
16. Exercise of Rights.............................................. 53
17. Notices......................................................... 53
18. Expenses........................................................ 54
19. Indemnity....................................................... 54
20. Governing Law................................................... 55
21. Invalid Provisions.............................................. 55
22. Maximum Interest Rate........................................... 55
23. Amendments...................................................... 56
24. Multiple Counterparts........................................... 56
25. Conflict........................................................ 56
26. Survival........................................................ 56
27. Parties Bound................................................... 56
28. Assignments and Participations.................................. 56
29. Choice of Forum: Consent to Service of Process and
Jurisdiction.................................................... 58
30. Waiver of Jury Trial............................................ 58
31. Other Agreements................................................ 59
32. Financial Terms................................................. 59
EXHIBITS
--------
Exhibit "A" - Notice of Borrowing
Exhibit "B" - Note
Exhibit "C" - Certificate of Compliance
Exhibit "D" - Form of Assignment and Acceptance Agreement
SCHEDULES
---------
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
THIRD RESTATED CREDIT AGREEMENT
THIS THIRD RESTATED CREDIT AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the ____ day of March, 2001, 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") and 3TEC/CRI CORPORATION, a Texas corporation ("Classic")
(3TEC, Enex and Classic are hereinafter collectively referred to as "Borrowers",
and individually as a "Borrower") and BANK ONE, NA (successor by merger to 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, ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ Production
Company, Inc. ("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, as of May 31, 2000, Enex, Production, Magellan Exploration, LLC
("Magellan"), Lenders and Agent entered into a Second Restated Credit Agreement
(the "Second Restated Credit Agreement") to reflect certain amendments to the
Restated Credit Agreement; and
WHEREAS, as of September 27, 2000, the Second Restated Credit Agreement was
amended by the First Amendment to Second Restated Credit Agreement; and
WHEREAS, as of September 30, 2000, Production merged into 3TEC and Magellan
dissolved and all of its assets and liabilities were distributed to 3TEC; and
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WHEREAS, as of January 30, 2001, all of the issued and outstanding voting
stock of Classic was acquired by 3TEC and it 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:
1. DEFINITIONS. When used herein the terms "Agent", "Agreement", "Bank One",
"Borrower", "Borrowers", "Classic", "Enex", "Lender", "Lenders" 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.
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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
(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, the Borrowing Base shall be the amount shown in Section 7(a)
hereof.
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) hereof for an Advance on the Loan.
Business Day shall mean (i) with respect to any borrowing, payment or
note 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).
Change of Control shall occur if any Person (or syndicate or group of
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
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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 (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 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.
5
Current Ratio means the ratio of Consolidated Current Assets for the
period being measured to the Consolidated Current Liabilities for such
period.
Default means all the events specified in Section 14 hereof,
regardless of 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, relating to oil pollution, air pollution, water
6
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
amended.
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.
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
7
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.
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 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:
8
(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 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.
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.
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 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
10
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.
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
11
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.
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.
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
12
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 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.
Subordinated Lenders W/E LLC, ▇▇▇▇▇▇▇▇▇ Family Partnership, LP,
Shoeinvest II, LP and The Prudential Insurance Company of America.
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.
13
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 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
14
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 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
15
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 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 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
16
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 and Classic. While the obligations of the
Borrowers under the Agreement and the Notes shall be joint and several
obligations of 3TEC, Enex and Classic, the liability of Enex and Classic
thereunder shall be limited to the maximum amount of liability that can be
incurred without rendering the obligations of Enex and Classic 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 be 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
17
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) and 9(b) hereof.
(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
18
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 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
19
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 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
20
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.
(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
21
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 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
22
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 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
23
(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 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
24
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 175,000,000.
(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 May 1, 2001 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, 2001, 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
25
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 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.
26
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 March 30, 2001 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).
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
27
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.
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 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 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.
28
(f) Financial Condition. The unaudited consolidated Financial
Statements of 3TEC dated September 30, 2000, which have been delivered to
Lenders are complete and 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. 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;
which violation or failure is reasonably expected to have a Material
Adverse Effect.
30
(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.
(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.
31
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, and (ii) 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;
(vii) 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);
(viii) No Event of Default. No Event of Default shall have
occurred and be continuing nor shall any event have occurred or failed
to
32
occur which, with the passage of time or service of notice, or both,
would constitute an Event of Default;
(ix) 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
(x) 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);
(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
33
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, 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.
34
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 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,
35
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 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
36
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 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, all of whom shall be
specifically informed by Lenders of the confidential character of the
Confidential Information and that by receiving such Confidential
Information they are agreeing to be bound by the terms of this Agreement
relating to the treatment of such Confidential Information. 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.
37
(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 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
38
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 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
39
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) 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
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
40
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.
(w) 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 ordinary course of Borrowers' oil and
gas businesses, (B) sales, leases or
41
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 and Classic 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 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
42
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 dividends on the Series D Preferred Stock;
provided, however, that no dividend may be paid on the Series D Preferred
Stock, 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:
(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 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.
(k) Hedging Transactions. Borrowers will not enter into any Rate
Management Transactions, except the foregoing prohibitions shall not apply
to
43
(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
(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, except 3TEC may amend its Articles of
Incorporation to provide for staggered terms of its directors and to remove
the right of stockholders to act by majority written consent.
(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.
(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 without 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
44
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:
(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
45
(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 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
$4,000,000 (or judgments or orders aggregating in excess of $4,000,000)
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.
46
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 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
47
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. 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 ▇▇▇▇▇ ▇▇▇▇▇▇ LLP 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.
48
(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 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
49
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.
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
50
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 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
51
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
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
52
this Agreement in the same proportion as its ownership interest in the
Loans outstanding at the date of determination thereof.
(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: ▇.▇. ▇▇▇▇▇▇,
President and Chief Financial Officer, Facsimile (▇▇▇) ▇▇▇-▇▇▇▇; (b) AGENT: BANK
ONE, NA, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Facsimile No. (713)
751-3544, 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.
53
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 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 ▇▇▇▇▇ ▇▇▇▇▇▇ LLP 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
54
such Claim (but failure to do so shall not affect the indemnification herein
made 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 HOUSTON, ▇▇▇▇▇▇ 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
55
an expense, fee or premium, rather than as interest; and (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(f) 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 to vote on
decisions requiring consent or approval of all Lenders or Majority Lenders
and the
56
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:
(c) 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);
(d) 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
such
57
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
(e) 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.
(i) 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.
(ii) 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 ▇▇▇▇▇▇
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 ▇▇▇▇▇▇,
OR IN THE UNITED STATES COURTS LOCATED IN ▇▇▇▇▇▇ 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 ▇▇▇▇▇▇, 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.
30. WAIVER OF JURY TRIAL. THE BORROWERS HEREBY WAIVE, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO
58
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.
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:
-----------------------------
Name:
---------------------------
Title:
--------------------------
ENEX RESOURCES CORPORATION
a Delaware corporation
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
3TEC/CRI CORPORATION, A TEXAS CORPORATION
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
59
LENDERS:
BANK ONE, NA (Chicago Office)
(successor by merger to Bank One,
Texas, N.A.)
By:
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Director,
Capital Markets
THE BANK OF NOVA SCOTIA
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇, N.A.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
BANK OF MONTREAL
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
▇▇▇▇▇ FARGO BANK TEXAS, NATIONAL
ASSOCIATION
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
CIBC, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
COMERICA BANK
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
61
FLEET NATIONAL BANK
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
ADMINISTRATIVE AGENT:
BANK ONE, NA (Chicago Office),
(successor by merger to Bank One,
Texas, N.A.)
By:
-----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Director,
Capital Markets
SYNDICATION AGENT:
BANK OF MONTREAL
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
62
EXHIBIT "A"
NOTICE OF BORROWING
The undersigned hereby certifies that he is the ___________________ of 3TEC
ENERGY CORPORATION, a Delaware corporation and that as such he is authorized
execute this Notice of Borrowing on behalf of all of the Borrowers (as such term
is defined in the Agreement). With reference to that certain Third Restated
Credit Agreement dated as of March __, 2001 (as same may be amended, modified,
increased, supplemented and/or restated from time to time, the "Agreement")
entered into by and between Borrowers and BANK ONE, NA (successor by merger to
Bank One, Texas, N.A.) ("Bank One"), and the financial institutions party
thereto (the "Lenders"), the undersigned further certifies, represents and
warrants on behalf of the Borrowers that all of the foregoing statements are
true and correct (each capitalized term used herein having the same meaning
given to it in the Agreement unless otherwise specified):
(a) Borrowers request that the Lenders advance Borrowers on the Loan
_____________ the aggregate sum of $________________ by no later than
__________________. Immediately following such Advance, the aggregate
outstanding balance of Advances shall equal $_________________ on the Loan.
(b) This Advance shall be a: Prime Rate Loan ____________, or a LIBOR
Loan ______________, (if LIBOR please state requested Interest Period
____months).
(c) As of the date hereof, and as a result of the making of the
requested Advance, there does not and will not exist any Default or Event
of Default.
(d) Borrowers have performed and complied with all agreements and
conditions contained in the Agreement which are required to be performed or
complied with by Borrowers before or on the date hereof.
(e) The representations and warranties contained in the Agreement are
true and correct in all material respects as of the date hereof and shall
be true and correct upon the making of the Advance, with the same force and
effect as though made on and as of the date hereof and thereof.
(f) No change that would cause a Material Adverse Effect to the
condition, financial or otherwise, of Borrowers has occurred since the most
recent Financial Statement provided to the Lenders.
EXECUTED AND DELIVERED this _____ day of ___________, ______.
3TEC ENERGY CORPORATION
a Delaware corporation
By:______________________________
Name:____________________________
Title:___________________________
2
EXHIBIT "B"
NOTE
$_____________ Dallas,Texas ___________, ____
FOR VALUE RECEIVED, the undersigned 3TEC ENERGY CORPORATION, a Delaware
corporation ("3TEC") (successor in interest to Middle Bay Oil Company, Inc.),
ENEX RESOURCES CORPORATION, a Delaware corporation ("Enex") and 3TEC/CRI
CORPORATION, a Texas corporation ("Classic") (3TEC, Enex and Classic are
hereinafter collectively referred to as "Borrowers", and individually as a
"Borrower") hereby unconditionally,, jointly and severally, promise to pay to
the order of _____________________ (the "Lender") at the offices of BANK ONE, NA
(successor by merger to Bank One, Texas, N.A.) (the "Agent") in Dallas County,
Texas, the principal sum of _____________________ AND __/100 DOLLARS
($______________), in lawful money of the United States of America together with
interest from the date hereof until paid at the rates specified in the Third
Restated Credit Agreement (as hereinafter defined). All payments of principal
and interest due hereunder are payable at the offices of Agent at ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ attention: Energy Department, or at such other
address as Lender shall designate in writing to Borrowers.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Third Restated Credit
Agreement.
Notwithstanding anything to the contrary contained herein, while the
obligations of the Borrowers under this Note and the Third Restated Credit
Agreement are joint and several obligations, the liability of Enex Resources
Corporation and 3TEC/CRI Corporation under the Notes and the Third Restated
Credit Agreement shall be limited to the maximum amount of liability that can be
incurred without rendering the obligations of Enex Resources Corporation and
3TEC/CRI Corporation under the Notes and the Third Restated Credit Agreement
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer, and not for any greater amount.
This Note is executed pursuant to that certain Third Restated Credit
Agreement dated of even date herewith between Borrowers, the Agents and Lenders
(the "Restated Credit Agreement"), and is one of the Notes referred to therein.
Reference is made to the Restated Credit Agreement and the Loan Documents (as
that term is defined in the Restated Credit Agreement) for a statement of
prepayment, rights and obligations of Borrowers, for a statement of the terms
and conditions under which the due date of this Note may be accelerated and for
statements regarding other matters affecting this Note (including without
limitation the obligations of the holder hereof to advance funds hereunder,
principal and interest payment due dates, voluntary and mandatory prepayments,
exercise of rights and remedies, payment of attorneys' fees, court costs and
other costs of collection and certain waivers by Borrowers and others now or
hereafter obligated for payment of any sums due hereunder). Upon the occurrence
of an Event of Default, as that term is defined in the Restated Credit Agreement
and Loan
Documents, the holder hereof (i) may declare forthwith to be entirely
and immediately due and payable the principal balance hereof and the interest
accrued hereon, and (ii) shall have all rights and remedies of the Lender under
the Restated Credit Agreement and Loan Documents. This Note may be prepaid in
accordance with the terms and provisions of the Restated Credit Agreement.
Regardless of any provision contained in this Note, the holder hereof shall
never be entitled to receive, collect or apply, as interest on this Note, any
amount in excess of the Maximum Rate (as such term is defined in the Restated
Credit Agreement), and, if the holder hereof ever receives, collects, or applies
as interest, any such amount which would be excessive interest, it shall be
deemed a partial prepayment of principal and treated hereunder as such; and, if
the indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrowers. In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Maximum Rate, Borrowers
and the holder hereof 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, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) spread the total amount of interest throughout the entire
contemplated term of the obligations evidenced by this Note and/or referred to
in the Restated Credit Agreement so that the interest rate is uniform throughout
the entire term of this Note; provided that, if this Note is paid and performed
in full prior to the end of the full contemplated term thereof; and if the
interest received for the actual period of existence thereof exceeds the Maximum
Rate, the holder hereof shall refund to Borrowers the amount of such excess or
credit the amount of such excess against the indebtedness evidenced hereby, and,
in such event, the holder hereof shall not be subject to any penalties provided
by any laws for contracting for, charging, taking, reserving or receiving
interest in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become due on a
day other than a Business Day (as such term is defined in the Restated Credit
Agreement), such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in computing interest in
connection with such payment.
If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrowers agree to pay all costs of
collection, including, but not limited to, court costs and reasonable attorneys'
fees.
Borrowers and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, notice of intention to accelerate the
maturity, protest, notice of protest and nonpayment, as to this Note and as to
each and all installments hereof, and agree that their liability under this Note
shall not be affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes.
2
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas.
THIS WRITTEN NOTE, THE THIRD RESTATED CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENTS 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.
EXECUTED as of the date and year first above written.
BORROWERS:
3TEC ENERGY CORPORATION
a Delaware corporation
By:______________________________
Name:____________________________
Title:___________________________
ENEX RESOURCES CORPORATION
a Delaware corporation
By:______________________________
Name:____________________________
Title:___________________________
3TEC/CRI CORPORATION
a Texas corporation
By:______________________________
Name:____________________________
Title:___________________________
3
EXHIBIT "C"
CERTIFICATE OF COMPLIANCE
The undersigned hereby certifies that he is the ___________________ of
3TEC ENERGY CORPORATION, a Delaware corporation and that as such he is
authorized to execute this Certificate of Compliance on behalf of the 3TEC
Energy Corporation, Enex Resources Corporation and 3TEC/CRI Corporation (the
"Borrowers"). With reference to that certain Third Restated Credit Agreement,
dated as of March ___, 2001, (as same may be amended, modified, increased,
supplemented and/or restated from time to time, the "Agreement") entered into
between the Borrowers and BANK ONE, NA (successor by merger to Bank One, Texas,
N.A.) as "Agent," for itself and the Lenders signatory thereto (the "Lenders"),
the undersigned further certifies, represents and warrants on behalf of the
Borrowers that all of the following statements are true and correct (each
capitalized term used herein having the same meaning given to it in the
Agreement unless otherwise specified):
(a) The Borrowers have fulfilled in all material respects its
obligations under the Notes and Security Instruments, including the
Agreement, and 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 [if the representations and
warranties are not true and correct, the party signing this certificate
shall except from the foregoing statement the matters for which such
representations and warranties are no longer true specifying the nature of
any such change.]
(b) No Event of Default has occurred under the Security Instruments,
including the Agreement [if an Event of Default has occurred, the party
certifying hereto shall specify the facts constituting the Event of Default
and the nature and status thereof].
(c) To the extent requested from time to time by the Agent, the
certifying party shall specifically affirm compliance of the Borrowers in
all material respects with any of their representations and warranties
(except to the extent they relate solely to an earlier date) or obligations
under said instruments.
(d) Financial Computations for the period ending ________________
(provide calculations on a consolidated basis):
(i) Current Ratio; and
(ii) Minimum Interest Coverage Ratio.
EXECUTED, DELIVERED AND CERTIFIED TO this ______ day of __________, 20__.
3TEC ENERGY CORPORATION
a Delaware corporation
By:______________________________
Name:____________________________
Title:___________________________
2
EXHIBIT "D"
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
___________________ (the "Assignor") and ____________________________ (the
"Assignee") is dated as of ____________, 20_____. The parties hereto agree as
follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Third Restated
Credit Agreement (which, as it may be amended, modified, renewed or extended
from time to time is herein called the "Restated Credit Agreement") described in
Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings attributed to
them in the Restated Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Restated
Credit Agreement and the other Loan Documents, such that after giving effect to
such assignment the Assignee shall have purchased pursuant to this Assignment
Agreement the percentage interest specified in Item 3 of Schedule 1 of all
outstanding rights and obligations under the Restated Credit Agreement and the
other Loan Documents relating to the facilities listed in Item 3 of Schedule 1.
The aggregate Commitment (or Loans, if the applicable Commitment has been
terminated) purchased by the Assignee hereunder is set forth in Item 4 of
Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of Schedule
1 or two Business Days (or such shorter period agreed to by the Agent) after
this Assignment Agreement, together with any consents required under the
Restated Credit Agreement, are delivered to the Agent. In no event will the
Effective Date occur if the payments required to be made by the Assignee to the
Assignor on the Effective Date are not made on the proposed Effective Date.
4. PAYMENT OBLIGATIONS. In consideration for the sale and assignment of
Loans hereunder, the Assignee shall pay the Assignor, on the Effective Date, the
amount agreed to by the Assignor and the Assignee. On and after the Effective
Date, the Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned hereby. The
Assignee will promptly remit to the Assignor any interest on Loans and fees
received from the Agent which relate to the portion of the Commitment or Loans
assigned to the Assignee hereunder for periods prior to the Effective Date and
not previously paid by the Assignee to the Assignor. In the event that either
party hereto receives any payment to which the other party hereto is entitled
under this Assignment Agreement, then the party receiving such amount shall
promptly remit it to the other party hereto.
5. RECORDATION FEE. The Assignor and Assignee each agree to pay one-half
of the recordation fee required to be paid to the Agent in connection with this
Assignment
Page 1
Agreement unless otherwise specified in Item 6 of Schedule 1.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that (i) it is the legal and
beneficial owner of the interest being assigned by it hereunder, (ii) such
interest is free and clear of any adverse claim created by the Assignor and
(iii) the execution and delivery of this Assignment Agreement by the Assignor is
duly authorized. It is understood and agreed that the assignment and assumption
hereunder are made without recourse to the Assignor and that the Assignor makes
no other representation or warranty of any kind to the Assignee. Neither the
Assignor nor any of its officers, directors, employees, agents or attorneys
shall be responsible for (i) the due execution, legality, validity,
enforceability, genuineness, sufficiency or collectability of any Loan Document,
including without limitation, documents granting the Assignor and the other
Lenders a security interest in assets of the Borrowers or any guarantor, (ii)
any representation, warranty or statement made in or in connection with any of
the Loan Documents, (iii) the financial condition or creditworthiness of the
Borrowers or any guarantor, (iv) the performance of or compliance with any of
the terms or provisions of any of the Loan Documents, (v) inspecting any of the
property, books or records of the Borrowers, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any collateral securing
or purporting to secure the Loans or (vii) any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the Loan
Documents.
7. REPRESENTATIONS AND UNDERTAKINGS OF THE ASSIGNEE. The Assignee (i)
confirms that it has received a copy of the Restated Credit Agreement, together
with copies of the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment Agreement, (ii) agrees that
it will, independently and without reliance upon the Agent, the Assignor or any
other Lender and based on such documents and information at it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, (iii) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto, (iv) confirms
that the execution and delivery of this Assignment Agreement by the Assignee is
duly authorized, (v) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Loan Documents are required to
be performed by it as a Lender, (vi) agrees that its payment instructions and
notice instructions are as set forth in the attachment to Schedule 1, (vii)
confirms that none of the funds, monies, assets or other consideration being
used to make the purchase and assumption hereunder are "plan assets" as defined
under ERISA and that its rights, benefits and interests in and under the Loan
Documents will not be "plan assets" under ERISA, (viii) agrees to indemnify and
hold the Assignor harmless against all losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's non-
performance of the obligations assumed under this Assignment Agreement, and
2
(ix) if applicable, attaches the forms prescribed by the Internal Revenue
Service of the United States certifying that the Assignee is entitled to receive
payments under the Loan Documents without deduction or withholding of any United
States federal income taxes.
8. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas.
9. NOTICES. Notices shall be given under this Assignment Agreement in the
manner set forth in the Restated Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall be
the address set forth in the attachment to Schedule 1.
10. COUNTERPARTS; DELIVERY BY FACSIMILE. This Assignment Agreement may be
executed in counterparts. Transmission by facsimile of an executed counterpart
of this Assignment Agreement shall be deemed to constitute due and sufficient
delivery of such counterpart and such facsimile shall be deemed to be an
original counterpart of this Assignment Agreement.
IN WITNESS WHEREOF, the duly authorized officers of the parties hereto have
executed this Assignment Agreement by executing Schedule 1 hereto as of the date
first above written.
[ASSIGNOR]
By:______________________________
Name:____________________________
Title:___________________________
Address:_________________________
_________________________
_________________________
[ASSIGNEE]
By:______________________________
Name:____________________________
Title:___________________________
Address:_________________________
_________________________
_________________________
3
(If required)
ACKNOWLEDGED AND CONSENTED TO:
BANK ONE, NA (successor by merger to
Bank One, Texas, N.A) (as Agent)
(Chicago Office)
By:___________________________________
Name:_________________________________
Title:________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
4
SCHEDULE 1
LIENS
NONE
SCHEDULE 2
FINANCIAL CONDITION
NONE
SCHEDULE 3
LIABILITIES
1. Senior Subordinate Promissory Note dated August 27, 1999 from 3TEC ENERGY
CORPORATION, successor in interest to Middle Bay Oil Company, Inc., to W/E
Energy Company, L.L.C., formerly known as 3TEC Energy Company L.L.C.,
which was successor in interest to 3TEC Energy Corporation, in the
principal amount of $10,700,000.
2. Senior Subordinate Promissory Note dated August 27, 1999 from 3TEC ENERGY
CORPORATION, successor in interest to Middle Bay Oil Company, Inc. to
Shoeinvest II, LP in the principal amount of $100,000.
3. Senior Subordinate Promissory Note dated August 27, 1999 from 3TEC ENERGY
CORPORATION, successor in interest to Middle Bay Oil Company, Inc., to
▇▇▇▇▇▇▇▇▇ Family Partners, LP in the principal amount of $50,000.
4. Senior Subordinate Convertible Promissory Note dated October 19, 1999 from
3TEC ENERGY CORPORATION, successor in interest to Middle Bay Oil Company,
Inc. to The Prudential Insurance Company of America in the principal amount
of $2,373,844.
SCHEDULE 4
LITIGATION
1. Civil Action No. 97-40-A-M2; ▇. ▇. ▇▇▇▇▇ Co., Inc. v. Shore Oil Company; In
the United States District Court for the Middle District of Louisiana.
2. Cause No. 17522; Famcor Oil, Inc. v. Middle Bay Oil Company, Inc., et al;
In the 411th Judicial District Court of Polk County, Texas.
3. Cause No. 97-2452-B; C. W. Resources, Inc. and ▇▇▇▇▇▇ & ▇▇▇▇▇, Ltd. v.
Valence Operating Company; In the 124th Judicial District Court of ▇▇▇▇▇
County, Texas.
4. Cause No. 2000-975-A; Madera Production Company v. Atlantic Richfield
Company, ▇▇▇▇▇▇ & ▇▇▇▇▇, Ltd., C W Resources, Inc. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ Royalty Company, Estate of ▇. ▇. ▇▇▇▇▇▇▇▇▇; In the 188th Judicial
District Court in and for ▇▇▇▇▇ County, Texas.
SCHEDULE 5
SUBSIDIARIES
Subsidiaries of 3TEC Energy Corporation
1. Enex Resources Corporation, a Delaware corporation (80% owned by 3TEC
Energy Corporation)
2. 3TEC/CRI Corporation (formerly known as "Classic Resources, Inc."), a Texas
corporation
SCHEDULE 6
ENVIRONMENTAL MATTERS
1. See environmental report regarding 3TEC Energy Corporation, successor in
interest to Middle Bay Oil Company, Inc., which has previously been
delivered to Agent.
2. See report from The ▇▇▇▇▇ Group, Inc., dated October 18, 1999, regarding
the ▇▇▇▇▇ Oil Company properties which has previously been delivered to
Agent.
3. See environmental assessment from White Rock Consulting, Inc., dated May,
2000, regarding certain fo the CWR, et. al. properties which has previously
been delivered to Agent.
4. See environmental report from ▇▇▇▇ Environmental Engineering, Inc., dated
January 20, 2001, regarding certain of the 3TEC/CRI properties which has
previously been delivered to Agent.
SCHEDULE 7
TITLE MATTERS
1. Mortgages required on these properties when the word "NEED" appears
opposite the property name under the column "Date-Mortgaged."
2. Title Opinions required on those properties where the word "NEED" appears
opposite the property name under the column "Title-Acceptable."
===================================================================================================================================
ENGINEERING DATE TITLE INFORMATION
=============================================================
STATE COUNTY FIELD PROPERTY NAME WI NRI MORTGAGED ACCEPTABLE CURATIVE UNACCEPTABLE
====================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
1 LA LAFOURCHE BAY DE CHENE ▇/▇ ▇▇▇ ▇-▇▇▇ ▇▇ (▇▇-▇ ▇▇▇) ▇.▇▇▇▇ 0.3773 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
2 LA LAFOURCHE BAY DE CHENE S/L 356 A-135 UT (5050'SND) 0.4315 0.3236 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
3 LA LAFOURCHE BAY DE CHENE S/L 356 B-137 (LR/MD 9950') 0.5000 0.3773 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
4 LA LAFOURCHE BAY DE CHENE S/L ▇▇▇ ▇-▇▇ ▇▇ (9950') 0.5000 0.3773 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
5 OK CADDO BINGER NORTHEAST EAST BINGER UNIT 0.0255 0.0223 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
6 OK ▇▇▇▇▇ ▇▇▇▇▇▇▇ EAST ▇▇▇▇▇▇ 1A 1.0000 0.7586 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
7 TX ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇.▇▇ 1 0.3548 0.2886 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
8 TX ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇ ▇ GU 10 0.3165 0.2720 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
9 TX ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇ ▇ GU 11 0.3165 0.2720 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
10 TX ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇ ▇ GU 9 0.3165 0.2720 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
11 TX ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ DRAW ▇▇▇▇▇▇, ▇▇▇▇▇ 2 0.9800 0.8575 Nov-99 NEED
-----------------------------------------------------------------------------------------------------------------------------------
12 TX UPSHUR ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 2 0.3450 0.2414 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
13 TX UPSHUR ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇. ▇▇ 2 0.3548 0.2886 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
14 TX ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ GLADEWATER GU 14 2 0.3272 0.2377 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
15 TX ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ GLADEWATER GU 15 10 0.2392 0.1832 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
16 TX ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ GLADEWATER GU 16 12 0.2120 0.1653 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
17 TX ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ SOUTH ▇▇▇▇▇▇▇ GU 4 0.3450 0.2466 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
18 TX ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ SOUTH ▇▇▇▇▇▇▇ GU 5 0.3450 0.2466 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
19 TX UPSHUR ROSEWOOD ▇▇▇▇▇▇, ▇.▇. 2 0.7921 0.6853 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇ S/L 356 A-135 (5100' GAS PNP) 0.4315 0.3236 Jun-00 NEED
===================================================================================================================================
===================================================================================================================================
ENGINEERING DATE TITLE INFORMATION
=============================================================
STATE COUNTY FIELD PROPERTY NAME WI NRI MORTGAGED ACCEPTABLE CURATIVE UNACCEPTABLE
====================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
22 LA LAFOURCHE ▇▇▇ ▇▇ ▇▇▇▇▇ ▇/▇ ▇▇▇ ▇-▇▇▇ ▇▇ (▇▇-▇ GAS 0.5000 0.3773 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
23 LA LAFOURCHE BAY DE CHENE S/L ▇▇▇ ▇-▇▇▇ (▇▇ ▇▇▇▇ GAS 0.5000 0.3867 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
24 LA LAFOURCHE BAY DE CHENE ▇/▇ ▇▇▇ ▇-▇▇▇ (▇ ▇▇▇▇ PNP) 0.5000 0.3773 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
25 LA LAFOURCHE BAY DE CHENE ▇/▇ ▇▇▇ ▇-▇▇▇ (▇ ▇▇▇▇ PNP) 0.5000 0.3773 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇ CHENE S/L ▇▇▇ ▇-▇▇ ▇▇ (8900' PNP) 0.5000 0.3867 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇ CHENE S/L ▇▇▇ ▇-▇▇ ▇▇ (9225'/9500 PNP) 0.5000 0.3867 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇ CHENE S/L 356 B-45 ST (9950' USND PNP) 0.5000 0.3867 Jun-00 NEED
-----------------------------------------------------------------------------------------------------------------------------------
29 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 5 0.8028 0.5794 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
30 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 6 0.8395 0.6053 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
31 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 7 0.8395 0.6053 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
32 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 8 0.8799 0.6336 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
33 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 9 0.8799 0.6336 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
34 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, MAYO 2 0.8116 0.6451 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
35 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, ▇▇▇▇ 3 0.8116 0.6451 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
36 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, MAYO 4 0.8116 0.6451 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
37 TX PANOLA BECKVILLE WEST ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 1 0.6598 0.4637 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
38 TX PANOLA BECKVILLE WEST ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 2 0.6223 0.4339 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
39 TX PANOLA BECKVILLE WEST ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 3 0.6236 0.4383 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
40 TX PANOLA BECKVILLE WEST ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 4 0.5766 0.4054 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
41 TX PANOLA BECKVILLE WEST ▇▇▇▇▇▇▇▇, ▇▇▇▇ 2 0.5607 0.4260 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
42 TX PANOLA BECKVILLE WEST ▇▇▇▇▇▇▇▇, ▇▇▇▇ 3 0.5322 0.4041 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
43 TX PANOLA BECKVILLE WEST ▇▇▇▇▇▇▇▇, ▇▇▇▇ 4 0.6805 0.4246 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
44 TX PANOLA CARTHAGE ▇▇▇▇ 5 1.0000 0.7300 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
45 TX PANOLA CARTHAGE ▇▇▇▇ 6 1.0000 0.7300 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
46 TX PANOLA CARTHAGE ▇▇▇▇ 9 1.0000 0.7300 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
47 TX ▇▇▇▇ OAK HILL HENDERSON "E" 1 0.9433 0.7722 NEED NEED
===================================================================================================================================
===================================================================================================================================
ENGINEERING DATE TITLE INFORMATION
=============================================================
STATE COUNTY FIELD PROPERTY NAME WI NRI MORTGAGED ACCEPTABLE CURATIVE UNACCEPTABLE
====================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
49 TX ▇▇▇▇ OAK HILL HENDERSON "E" 3 0.9392 0.7721 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
50 TX ▇▇▇▇ OAK HILL HENDERSON "E" 4 0.9399 0.7731 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
51 TX ▇▇▇▇ OAK HILL HENDERSON "E" 5 0.9396 0.7728 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
52 TX ▇▇▇▇ OAK HILL HENDERSON "E" 6 0.9389 0.7722 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
53 TX ▇▇▇▇ OAK HILL HENDERSON "E" 7 0.9392 0.7725 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
54 TX ▇▇▇▇ OAK HILL HENDERSON "E" 8 0.9389 0.7722 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
55 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇ 10 0.8799 0.6336 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
56 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇ 11 0.8799 0.6336 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
57 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇ 12 0.8799 0.6336 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
58 TX PANOLA BECKVILLE ▇▇▇▇▇▇▇▇, ▇▇▇▇ 5 0.8116 0.6451 NEED NEED
-----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE 8
CURATIVE MATTERS
CWR ACQUISITION GLOBAL REQUIREMENT:
One of the participating sellers (and assignors) to 3TEC Energy Corporation in
the CW Resources ("CWR") acquisition was ▇▇▇▇▇▇▇▇▇ Royalty, Inc., a Texas
corporation ("WRI"). WRI derived its interest from an unrecorded assignment out
of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ ("▇▇▇▇"), the sole partners
of ▇▇▇▇▇▇▇▇▇ Royalty Company, a Texas general partnership ("WRC"). The exhibit
attached to the unrecorded assignment from ▇▇▇▇▇▇▇ and ▇▇▇▇ to WRI does not
contain a legally sufficient description of the oil and gas interest sought to
be conveyed. This issue effects approximately 6% of the entire CWR acquisition
value, and is a recurring title requirement in the Limited Oil and Gas Leasehold
Title Opinions delivered in connection with 3TEC acquisition of the CWR
interest, i.e. Requirement 2 in the Supplemental Limited Oil and Gas Leasehold
Title Opinion dated January 22, 2001 from Cotton, ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇
("CBTD") covering the ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Gas Unit, ▇▇▇▇▇ 4 & 5 (T.O. 16,138).
REQUIREMENT: Secure and file for record an assignment from WRC, and ▇▇▇▇ ▇.
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, sole partners of WRC, conveying the interest of
WRC in the applicable lands and leases, utilizing property descriptions
satisfactory to CBTD.
▇▇▇ ▇▇▇▇▇▇, ST. ▇▇▇▇ ▇▇▇▇▇▇, LA:
Prior opinion covered drillsite lease only. REQUIREMENT: Furnish a division
order title opinion as regards the 14,800' RA SUA ▇▇▇ ▇▇▇▇▇▇ #1, Garden City
Field, St. ▇▇▇▇ ▇▇▇▇▇▇, Louisiana, established in connection with the ▇▇▇ ▇▇▇▇▇▇
well.
▇▇▇▇▇▇▇▇ #▇ ▇▇▇▇ ▇ ▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇:
REQUIREMENT: Furnish a recorded copy of the release of the following mortgage:
Deed of Trust, Mortgage, Assignment, Security Agreement and Financing Statement,
effective 4/27/1995, recorded as Entry # 9504681 in Vermilion Parish from Shore
Oil Company to ▇▇▇▇▇ Fargo Bank, N.A. as regards the 13,400 RB ▇▇ ▇ ▇▇▇▇▇▇▇▇ #5.
VALL K 1-2 & VALL K 1-4, TEXAS COUNTY, OK:
REQUIREMENT: Furnish complete copy of drilling title opinion from ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ dated May 16, 1999 covering Sec. 1, T IN-R12-E Texas County, Oklahoma.
Copy previously furnished is missing last 12 pages.
Page 1
ARCO ▇▇▇▇▇, ▇▇ ▇▇▇ GU1, ▇▇ ▇▇▇▇▇▇▇▇ 1, GLADEWATER GAS ▇▇▇▇ ▇▇-▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇-▇, ▇▇▇▇▇ & ▇▇▇▇▇▇ COUNTIES, TX:
These properties are subject to litigation styled Madera Production Company v.
Atlantic Richfield Company, et al, CV99-5652, C-68th Judicial District Court for
Dallas County, Texas, transferred on venue motion to the 188th Judicial District
Court for ▇▇▇▇▇ County, Texas, docketed as 2000-975-A, in which plaintiff seeks
to divest the CWR sellers of all interest acquired from ARCO in these
properties. REQUIREMENT: Furnish dismissal or judgment in favor of the CWR
defendants, or indemnity satisfactory to Bank and Bank's counsel.
▇. ▇. ▇▇▇▇▇▇ GU #3, ▇▇▇▇▇ COUNTY, TX:
Supplemental Limited Oil and Gas Leasehold Title Opinion dated June 5, 2000 from
Cotton, ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇, as regards ▇. ▇. ▇▇▇▇▇▇ GU #3, credits all
working interest to the Estate of ▇. ▇. ▇▇▇▇▇▇▇▇▇, subject to the Liens and
Encumbrances tabulated therein. REQUIREMENT: Satisfy Requirements 2 and 3 in
the Cotton ▇▇▇▇▇▇▇ opinion and furnish supplemental title opinion.
▇. ▇. ▇▇▇▇▇▇ GU #7, ▇▇▇▇▇ COUNTY, TX:
Supplemental Limited Oil and Gas Leasehold Title Opinion dated June 5, 2000 from
Cotton, ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇, as regards ▇. ▇. ▇▇▇▇▇▇ GU #7 credits, all
working interest to the Estate of ▇. ▇. ▇▇▇▇▇▇▇▇▇, subject to the Liens and
Encumbrances tabulated therein. REQUIREMENT: Satisfy Requirements 2 and 3 in
the Cotton ▇▇▇▇▇▇▇ opinion and furnish supplemental title opinion.
▇. ▇. ▇▇▇▇▇▇ GU 7 & 8, ▇▇▇▇▇ COUNTY, TX:
Record title credited to Exxon Corporation. REQUIREMENT: Deliver assignments
from Exxon to CWR sellers and 3TEC Energy Corporation adequate to satisfy
Requirement 1 in Supplemental Limited Oil and Gas Leasehold Title Opinion dated
July 3, 2000 from Cotton, ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇ regarding the ▇. ▇. ▇▇▇▇▇▇ #7
and #8, and furnish supplemental title opinion.
▇▇▇▇ ▇▇▇▇▇▇ #'S 1, 2, 3 & 4, POLK COUNTY, TX:
These properties are subject to litigation styled Famcor Oil, Inc. ▇. ▇▇▇▇▇▇▇
Petroleum Corp. et al, in the ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ for Polk County, Texas No.
17522, wherein plaintiff claims an interest in the ▇▇▇▇ ▇▇▇▇▇▇ gas unit. Based
upon the settlement negotiations, the interest of 3TEC Energy Corporation will
be reduced by approximately 10%. REQUIREMENT: Furnish approved settlement
agreement and order dismissing the lawsuit.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇, ▇, ▇, ▇, ▇ & ▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, TX:
These properties are subject to litigation styled Valence Operating Company v.
CW Resources, Inc., Cause 624-99 in the 115th Judicial District Court for Upshur
County, Texas, wherein plaintiff alleges CWR improperly deprived plaintiff of a
proportionate share of the Exxon non-consenting interest in these properties.
REQUIREMENT: Furnish dismissal or judgment in favor of CWR, or an indemnity
satisfactory to Bank and Bank's counsel.
Page ▇
▇. ▇. ▇▇▇▇▇ ▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇:
This property is subject to litigation styled ▇. ▇. ▇▇▇▇▇, Individually and on
behalf of others, et al v. Amoco Production Company, et al, Cause 396-99 in the
115th Judicial District Court for Upshur County, Texas, wherein the plaintiff
alleges that the ▇▇▇▇▇ B unit declaration is void and seeks cancellation of the
leases. REQUIREMENT: Furnish dismissal or judgment in favor of defendant, or
indemnity satisfactory to Bank and Bank's counsel.
▇▇▇▇▇ ESTATE #2, UPSHUR COUNTY, TX:
REQUIREMENT: Satisfy Requirement #1 in Supplemental Limited Oil an Gas
Leasehold Title Opinion dated October 24, 2000 from Cotton ▇▇▇▇▇▇▇, ▇▇▇▇▇ &
▇▇▇▇▇▇ as regards outstanding liens on this property.
Page 3